Treasury Said To Want Ally Sale With Future IPO Seen As Unlikely
The U.S. Treasury Department, which put $17.2 billion into a bailout of Ally Financial Inc., would prefer a breakup and sale of the lender because an initial public offering may not succeed, according to people familiar with the matter. Treasury officials are telling Ally executives, directors, and financial advisers that an IPO is unlikely soon because of the company’s high cost of capital relative to other banks, the potential bankruptcy of a mortgage unit, and its recent performance in Federal Reserve stress tests, said the people, who asked not to be identified because the talks are private.
The Treasury instead is pushing for Ally to split into at least two pieces, the people said. One part would be Ally’s auto-finance unit, one of the largest in the U.S., and the other would be its online bank, which had almost $28 billion in retail deposits at year-end. Investor Elliott Management Corp. also recommends a sale, according to a letter sent to the board by Elliott.
"Treasury has a lot of influence here," said Adam Steer, an analyst at Brookfield Investment Management Inc., whose parent Brookfield Asset Management Inc. oversees about $150 billion in assets. "If you are going to repay the government as soon as possible and you can’t IPO it, how else would you pay them? A sale certainly makes sense."
Ally Chief Executive Officer Michael Carpenter and its board have resisted the Treasury’s call for a split, the people said, adding that the department is reluctant to press Carpenter too hard for a sale out of concern about appearing as a heavy-handed owner. The Treasury owns seventy four percent of Ally, the Detroit-based former finance arm of General Motors Corp.
"We’re supportive of management and continue to work closely with them," the Treasury said in an e-mailed statement. Matt Anderson, a department spokesman, declined to comment on Treasury’s view of the IPO or the success of any potential sale.
"Every action the company has taken and contemplated has been with the objective to fulfill our mission to support the auto recovery and fully repay the taxpayer’s investment," Gina Proia, an Ally spokeswoman, said in an emailed statement. "This is what will guide our decisions going forward." While no official Ally sales process has begun, the Treasury Department’s views have been shared with Ally senior executives, directors, and a number of the financial and legal advisers brought on to help pursue an IPO, the people said. The Fed’s stress tests released March 13 found Ally had some of the smallest capital cushions against losses among nineteen of the largest U.S. lenders.
Ally probably will put the Residential Capital mortgage unit into bankruptcy in the next few weeks and sell some assets in a court-supervised sale, people familiar with the matter said last month. The firm also may lose its preferred lender status with automaker Chrysler Group LLC, which is seeking banks like Wells Fargo & Co. and Santander Holdings USA Inc. to potentially replace Ally, people with knowledge of the matter said in February.
The Treasury has suggested Ally consider selling its captive-finance business to GM, said two of these people, with the rest sold to a traditional bank. GM and other companies aren’t interested in buying any of Ally until it resolves ResCap’s status, said another person familiar with the matter.
The U.S. determined that Ally, formerly known as GMAC, was crucial to the survival of the auto industry during the financial crisis in 2008 and 2009 and provided multiple bailouts in return for a seventy four percent stake. Last year, when Ally was close to a public offering, it considered a joint bid from GM and Toronto-Dominion Bank, Canada’s second-largest lender, until those discussions fizzled, a person familiar with the matter said in February.
Ally has financed about 6.7 million GM or Chrysler vehicles for dealers since 2009 and another 2.4 million for consumers, Proia said. Ally has so far paid $5.4 billion to the Treasury.