Ally Financial Inc, the U.S. auto lender 74 percent owned by the U.S. Treasury, is near a deal to sell its Canadian operations to Royal Bank of Canada (RY.TO) for more than $4 billion, according to a source familiar with the deal.
A deal could be announced as early as Monday, but talks are fluid, the source said. RBC has been competing with another Canadian bank, Toronto Dominion Bank (TD.TO), in the auction, the source said.
CNBC first reported the deal talks on Monday morning.
Ally, the former auto lending arm of General Motors Co (GM.N), announced plans in May to sell its international operations in an effort to speed up repayment of government bailouts it received during the financial crisis.
The lender last week agreed to sell its Mexican insurance business to insurance and reinsurance company ACE Ltd (ACE.N) for $865 million in cash.
Ally, RBC and Toronto Dominion declined to comment.
Ally's international operations in Europe, Canada, Latin America and Mexico have drawn interest from more than 30 bidders, including banks and GM, the source said. Bidders are interested both in regions as well as just buying individual country businesses, the source said. That process is "in the top of the ninth inning," and could be completed shortly, the source said.
The international businesses totaled $31 billion in assets and $7.6 in book value, according to a company presentation in August. The Canadian operations equaled about 45 percent of international assets, the company said in May.
GM said in a securities filing in August that it was bidding for Ally's international businesses, but didn't say which units. The automaker expanded its lending capabilities in 2010 when it bought AmeriCredit Corp.
Ally, once known as GMAC, received $17 billion in bailouts from the U.S. government during the financial crisis. Including dividend payments, it has paid back $5.8 billion.
Canadian banks have been eager to diversify their loan portfolios as signs of weakness in the Canadian housing market threaten growth of their residential mortgage businesses, which are their largest revenue stream.
TD is already one of North America's largest auto lenders, following its $6.3 billion purchase of Chrysler Financial in 2011.
Both banks - RBC and TD earned C$2.2 billion ($2.21 billion)and C$1.7 billion, respectively in the third quarter - should also have little trouble handling the expected $4 billion price tag of the Ally business.
RESCAP AUCTION THIS WEEK
Ally is trying to turn around its business by focusing on U.S. auto lending and banking. Its Residential Capital mortgage unit RESC.UL filed for bankruptcy in May in a move aimed at protecting the parent company from lingering liabilities tied to home loans it sold to investors during the housing boom.
A consortium of Ocwen Financial Corp (OCN.N) and Walter Investment Management Corp (WAC.A) is vying with Nationstar Mortgage Holdings Inc (NSM.N) to buy ResCap's mortgage servicing and lending business in an auction this week, sources told Reuters last week.
(Reporting by Rick Rothacker in Charlotte, North Carolina, Cameron French in Toronto and; Jessica Toonkel in New York; Editing by Dan Grebler, M.D. Golan and Tim Dobbyn)