Ally Financial posts loss on bankruptcy-related charge

By Rick Rothacker

(Reuters) - Ally Financial Inc (GKM.N: Quote, Profile, Research, Stock Buzz), the auto lender 74 percent-owned by the U.S. government, posted a second-quarter loss after taking a $1.2 billion charge related to its now-bankrupt mortgage subsidiary.

The results reflect just how hard a job Chief Executive Michael Carpenter has as he tries to help the government get as much of its $17 billion investment back as possible. He is trying to return Ally to profitability by focusing on its main businesses such as U.S. auto lending and Internet banking, and shedding other operations.

But even the bank's main units are under pressure. Its North American auto lending business boosted profit 13 percent to $631 million, but those gains came from cost cutting and revenue fell.

Meanwhile, Ally's discarded mortgage business continues to be a problem, although the bank hopes it has cauterized the wound. Ally put its Residential Capital unit into bankruptcy on May 14. It wrote down its $442 million equity investment in ResCap to zero and paid $750 million for a proposed settlement with ResCap that releases Ally from possible legal claims

Ally said that, overall, it lost $898 million in the second quarter after the previously disclosed $1.2 billion charge. ResCap's filing is meant to protect the parent company from mortgage liabilities that have weighed it down since the U.S. housing bust.

Excluding the charge and ResCap's losses prior to May 14, Ally said it would have posted a profit of $533 million in the second quarter, down from $576 million a year ago.

As part of efforts to focus on its main businesses, the Detroit-based lender said in May that it plans to sell its international operations. Last week, it received offers from nearly 30 bidders, Carpenter said in a conference call with analysts. Ally expects to complete the sales, which include Canadian and European auto operations, and a Mexican insurance subsidiary, by the year-end, he said.

There were bright spots in the release. U.S. consumer auto loans rose 11 percent from a year ago to $10.5 billion, the second highest quarter in five years.

Ally, previously known as GMAC, was once the auto lending arm of what is now General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz), but has worked to become less dependent on its former parent. The lender makes loans for other manufacturers and works directly with dealers.

Ally has preferred lending arrangements with GM and Chrysler Group LLC (FIA.MI: Quote, Profile, Research, Stock Buzz) that expire next year in which the carmakers subsidize zero-interest rate loans. Those loans comprised 25 percent of U.S. consumer originations in the second quarter, down from 36 percent in the third quarter of 2010.

"They no longer define us," Carpenter said of the manufacturers. "We feel we are very well positioned with whatever happens when these agreements with Chrysler and GM expire."

Since receiving $17 billion in government bailouts, Ally has paid the Treasury $5.7 billion, including preferred stock dividends, interest payments and proceeds from the sale of Ally's preferred securities. The Federal Reserve will need to weigh in on how much more the bank can pay back after the sale of its international operations, Carpenter said.

The ResCap bankruptcy has been playing out in a New York courtroom. A judge in June approved Nationstar Mortgage Holdings Inc (NSM.N: Quote, Profile, Research, Stock Buzz) as the opening bidder for ResCap's mortgage origination and servicing business, beating an offer from Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz).

Berkshire will be the opening bidder for a ResCap loan portfolio. Bids for both the loans and the servicing platform are due on October 19 and an auction is set for October 23. A bankruptcy court hearing at which the judge would rule on the sales is set for November 5.

(Reporting By Rick Rothacker in Charlotte, North Carolina; editing by Gerald E. McCormick, John Wallace and Andre Grenon)