Fed Doesn't Object to Ally's Capital Plan

The Federal Reserve said Friday it hasn't objected to a revised capital plan from Ally Financial Inc., paving the way for the auto lender to move forward with efforts to pay back a large chunk of its government bailout.

The Fed in March rejected a plan Ally submitted under the regulator's stress tests of big banks, deeming its capital levels would be too low to survive a hypothetical economic downturn. The move was a blow to the Detroit-based lender, which has worked to dig its way out of legal issues largely tied to its subprime-mortgage subsidiary Residential Capital so it can repay the $17.2 billion bailout it received during the financial crisis.

To boost its capital levels and move ahead on those plans, Ally said in August it would raise about $1 billion by selling common stock through a private placement involving about a dozen investors. Assuming it gained the green light from the Fed, Ally said it would buy back $5.9 billion of preferred shares owned by the U.S. Treasury Department.

That latter move would reduce the government's ownership stake of Ally to about 65% from 74%.

Last year, Ally's subprime-mortgage subsidiary Residential Capital LLC filed for Chapter 11 bankruptcy in a move intended to sever the parent company from a raft of 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.

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

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