* Stock is part of $17.2 bln in crisis-era bailouts
* Ally posts $1.4 bln qtrly profit vs $206 mln year-ago loss
* CEO says $750 million bankruptcy payment could be
* ResCap mortgage unit filed for bankruptcy in May 2012
By Rick Rothacker and Tanya Agrawal
Feb 5 Ally Financial Inc, the U.S. auto lender
that is majority-owned by the U.S. government, is working to
repay $5.9 billion in preferred stock owned by the U.S. Treasury
"in the near future," Chief Executive Officer Michael Carpenter
said on Tuesday.
The preferred stock is part of the $17.2 billion that the
government poured into Ally, the former auto lending arm of
General Motors Co, during a series of crisis-era
bailouts. Part of the investment was restructured into a 74
percent common equity stake.
After Ally reported a $1.44 billion fourth-quarter profit,
Carpenter told analysts on a conference call that repaying the
preferred stock involves talks with the Federal Reserve. The
regulator wants to make sure that Ally and other large banks
have enough capital to survive a severe economic downturn as
part of annual stress tests that are now under way.
After the Treasury sells its remaining stock in automaker
GM, Ally will be the largest remaining recipient of bailout
dollars. As of Feb. 15, Ally will have paid $5.9 billion to the
government, including dividends.
In his bid to repay the Treasury, Carpenter is streamlining
the company to focus on U.S. auto lending and Internet banking.
In May, Ally's Residential Capital mortgage unit filed for
bankruptcy in an effort to wipe out liabilities from
mortgage-backed securities sold to investors during the housing
boom. Ally has also struck agreements to sell international
operations, which are expected to bring in $9.2 billion in
In a report last month, an internal Treasury watchdog said
the agency did not have a concrete plan for getting its money
back from Ally. The agency responded that it can either sell its
stock or sell more Ally assets after the ResCap bankruptcy and
the international sales are completed. [ID: nL1N0AZ4C8]
Earlier on Tuesday, Detroit-based Ally said fourth-quarter
profit of $1.44 billion was helped by a $1.3 billion tax
benefit. In the same period in 2011, it lost $206 million.
Ally said the results include a $46 million loss from
ResCap, a $94 million pension expense and a $148 million charge
related to an early repayment of debt.
Total revenue at Ally's North American automotive finance
unit rose 30 percent to $371 million from a year earlier.
SETTLEMENT IN QUESTION
In a sign of increased tensions in ResCap's bankruptcy case,
Carpenter said Ally could withdraw a $750 million settlement
offer made to creditors last year.
As part of ResCap's bankruptcy filing in May 2012, Ally
agreed to make the payment in exchange for a release of any
possible claims against the company. But in a letter sent to
Ally's board in November, some creditors said the settlement is
much less than Ally's actual liability and that the lender could
face damages for stripping assets from ResCap.
Ally is "extremely confident that such claims are completely
without merit," Carpenter said. The lender hopes for a
resolution in "the near term" but "if we have to go the
litigation route, we will," he added.
In a letter sent to ResCap's board on Friday and obtained by
Reuters, a group of creditors said there is "no support among
the creditor constituencies" for the settlement "because the
amount is far too low in comparison to the value of the claims
that have been and may be asserted against Ally." The group
asked the ResCap board to terminate the agreement.
A person close to the creditors said Ally should be paying
"billions" to ResCap's creditors.
As part of the bankruptcy, ResCap reached agreements to sell
mortgage operations and other assets to Ocwen Financial Corp
, Walter Investment Management Corp and Berkshire
Hathaway Inc in an auction last fall. Ocwen's purchase
closed last week, and Carpenter said Berkshire would complete
its portfolio purchase on Tuesday and Ocwen would finalize its
deal this month.
Ally's banking unit is also selling a portfolio of mortgage
servicing rights, which Carpenter said has received interest
from a number of bidders. Reuters reported last week that Ocwen
was in the lead to purchase the portfolio of servicing rights.