Ally Financial Repays $5.9 Billion to U.S. Treasury--Update

--Ally repurchased $5.9 billion of preferred shares from Treasury

--Company has repaid $12.3 billion of its $17.2 billion bailout

--Treasury says it will work with Ally on an IPO, private stock sale or asset sales

 
   By Andrew R. Johnson 
 

Ally Financial Inc. has repaid more than two thirds of its $17.2 billion crisis-era bailout following a move on Wednesday to repurchase $5.9 billion of shares from the U.S. Treasury Department.

The move puts the government a step closer to exiting its stake in the Detroit-based company, which struggled under the weight of subprime mortgage losses during the financial crisis that almost led to the firm's collapse.

"Taxpayers are now in a stronger position to maximize the value of their remaining investment in Ally," Timothy Bowler, deputy assistant secretary of the Treasury, wrote in a Treasury blog post on Wednesday. He added that the Treasury "will work with Ally on a public offering or private sale of its common shares or sales of assets to complete its exit."

Ally Chief Executive Michael Carpenter has previously said an IPO or private transaction could be options as the U.S. government looks to exit its remaining stake in the company.

Ally on Friday said it expected to repurchase $5.9 billion of preferred shares owned by the Treasury after the Federal Reserve said it didn't object to revised capital plan from the company. Including the buyback disclosed on Wednesday, Ally has repaid $12.3 billion of its $17.2 billion bailout, Mr. Bowler wrote.

"Looking ahead, we will be focused on taking steps to further improve profitability, maintain strong core auto finance and direct banking franchises and fully exit the Troubled Asset Relief Program," Ally's Mr. Carpenter said on Wednesday.

The Fed in March rejected a plan Ally had submitted under the regulator's stress tests of big banks, deeming its capital levels would be too low to survive an economic downturn.

The move was a blow to the company, which has worked to dig its way out of legal issues largely tied to its subprime-mortgage subsidiary Residential Capital LLC, which filed for Chapter 11 protection from creditors last year. ResCap's Chapter 11 filing was intended to sever Ally from mounting litigation over soured mortgage securities and foreclosure practices.

In July, a U.S. Bankruptcy Judge approved a $2.1 billion settlement Ally reached with ResCap and the subsidiary's creditors that will help shield Ally from ResCap's legal liabilities. A confirmation hearing on ResCap's plan to exit Chapter 11 is taking place in court this week.

To boost capital levels, Ally said in August it would sell shares through a private placement of common stock to about a dozen investors and seek permission to repurchase the preferred shares from Treasury. Ally said on Wednesday that it had completed the private sale of 216,667 shares for about $1.3 billion. The move reduced Treasury's ownership of Ally to about 64% from 74%.

The Treasury's Mr. Bowler is in line to manage the government's crisis relief programs, succeeding Timothy Massad as Assistant Secretary for Financial Stability, a Treasury spokesman said on Wednesday. The position includes unwinding the government's investments in banks under the Troubled Asset Relief Program.

Mr. Massad is President Barack Obama's pick to head the Commodity Futures Trading Commission, though he must be approved by the Senate for the position.

-Ryan Tracy contributed to this article.

Write to Andrew R. Johnson at [e-mail]

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