CORRECTED-UPDATE 2-U.S. Treasury to reduce stake in auto lender Ally

Thu Jan 16, 2014 12:53pm EST

(In paragraph 10, corrects amount Treasury would raise if it sold remaining Ally shares at same price to $4.2 billion from $42.2 billion)

WASHINGTON Jan 16 (Reuters) - The U.S. Treasury Department on Thursday announced plans to sell 410,000 shares in auto lender Ally Financial as part of its effort to unwind its financial bailout fund.

The Treasury said it expected taxpayers to recover about $3 billion from the private offering of Ally common stock at $7,375 per share. The sale would reduce the government's stake to 37 percent, it said.

The government pumped $17.2 billion into Ally during the 2007-2009 financial crisis, and the Treasury said taxpayers will have recovered about $15.3 billion once the stock sale was complete.

The offering could also leave the Treasury just a few billion short on the investments it made to prop up lenders, automakers and the housing sector from its crisis-era $700 billion Troubled Asset Relief Program.

Private market investors appear to be optimistic about Ally's prospects. Ally sold $1.3 billion in unlisted shares to private investors in November for an average price of around $6,000 per share, and weeks later GM sold its remaining 8.5 percent stake in Ally for around $6,800 per share.

The appetite for Ally shares from private investors suggests the government might be able to fully exit its stake this year.

Ally Chief Executive Officer Michael Carpenter said the company in the fourth quarter of 2013 had completed a series of strategic actions that included raising common equity, reaching a settlement with the U.S. Consumer Financial Protection Bureau and the Department of Justice and being granted financial holding company status.

"These actions, coupled with the strength of our ongoing business, position Ally to complete its plans to exit TARP and to continue to build upon our thriving franchises," Carpenter said in a statement. "This is a very positive outcome for Ally and for the U.S. taxpayer, and the strong investor interest is a testament to the significant transformation of the company."

In announcing its offering, the Treasury said it would work with Ally to further reduce the government's investment through either a public offering, private sale of its common shares or other alternatives.

If the Treasury sold its remaining 571,971 shares at the same price as the current offering, it would raise a further $4.2 billion and put TARP into the black.

Ally has been hoping to go public since at least 2011, but investors had remained worried about the problems that forced it to seek a taxpayer bailout, which included bad home loans at its Residential Capital subprime mortgage unit.

That unit is now getting ready to emerge from bankruptcy. (Reporting by Timothy Ahmann and Elvina Nawaguna; Editing by Paul Simao)

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