NEW YORK — The U.S. Treasury Department, which put $17.2 billion into a bailout of Ally Financial Inc., has indicated it would prefer a breakup and sale of the lender — including selling the company's captive finance auto business back to General Motors Co., its original owner.
People familiar with the matter told Bloomberg that Treasury wants to make such moves because it no longer believes an initial public offering of Ally stock would succeed.
GM previously owned Ally when it was known as GMAC Financial Services. GM spokesman Jim Cain declined to comment on the report.
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 Board stress tests, said the people, who asked not to be identified because the talks are private.
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 banking business, which had almost $28 billion in retail deposits at year end. Ally shareholder Elliott Management Corp. also recommends a sale, according to a letter sent to the board by Elliott and obtained by Bloomberg News.
Ally CEO Michael Carpenter and its board have resisted 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 74 percent of Ally.
“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 e-mailed statement. “This is what will guide our decisions going forward.”
Ally was found to have some of the lowest capital ratios among 19 lenders in Fed banking stress tests released March 13.
Ally is likely to put its 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 auto-lender agreement with Chrysler Group LLC, which is seeking out banks like Wells Fargo & Co. and Santander Holdings USA Inc. to potentially replace Ally, people with knowledge of the matter said last month.
The U.S. determined that Ally 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 74 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 last month.
Ally has financed about 6.7 million GM or Chrysler vehicles for dealers since 2009 and 2.4 million for consumers, Proia said. Ally has so far paid $5.4 billion to the Treasury.
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