Ally Financial Inc., which sopped up $17.2 billion in U.S. automotive bailout funds, needs to be cut up, says the U.S. Treasury. Automotive News reports the Treasury has recommended that auto finance company Ally be broken up and sold, preferably back to original owner General Motors. Bloomberg notes that this has much to do with speculation that an Ally Financial initial public offering would not be successful.
Ally and GMAC – There and back again
When General Motors used to own Ally Financial, the auto finance arm was known as GMAC. A return to GM ownership would bring things full circle, which would not be the best news for Ally executives who had hoped for a fruitful IPO.
Ally’s high cost of capital relative to other lending institutions – as well as a looming bankruptcy for Ally’s mortgage unit – make a profitable IPO nearly impossible, argues the Treasury. Federal Reserve stress test results, while private, are allegedly indicative of just how much trouble Ally Financial continues to have.
Split Ally into at least two pieces, says Treasury
Reports indicate that if the recommendation of the U.S. Treasury is followed, Ally Financial will be split into at least two pieces. The first would be Ally’s auto finance arm, which remains one of the largest in the U.S. The other would be Ally’s online banking operation, which logged nearly $28 billion in retail deposits in 2011. Elliott Management Corp., one of Ally’s major shareholders, concurs with the recommendation of the Treasury, notes Bloomberg News.
Ally looks to fulfill its mission
Ally spokeswoman Gina Proia told Automotive News via an email statement that the finance company is committed to fulfilling its ongoing mission of repaying its shareholders.
“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,” said Proia. “This is what will guide our decisions going forward.”
Currently, 74 percent of Ally Financial is owned by U.S. taxpayers, via the automotive bailouts of 2008 and 2009.
Ally nearly went public last year
Various reports indicate that Ally Financial nearly went public in 2011. At the time, the financier was considering a joint buyout from GM and Toronto-based Dominion Bank, Canada’s second-largest lender. Talks quickly fizzled, however.
Since 2009, Ally Financial has provided dealer auto financing for about 6.7 million General Motors or Chrysler vehicles. Consumer auto financing account for an additional 2.4 million vehicles, said Proia. Since the bailouts, Ally has reportedly paid $5.4 billion back to the U.S. Treasury.