Ally Financial Inc., the U.S. government-owned auto lender,
swung to a $250 million net loss in the fourth quarter after taking
a charge for regulatory penalties stemming from foreclosure
matters.
The Detroit-based lender, which provides financing for General
Motors Co. (GM) and Chrysler Group LLC dealers and customers,
continued to make money from its auto-lending operations, but the
results were weighed down again by its mortgage unit, which is
saddled with lawsuits over foreclosures and soured mortgage
investments.
The loss compares with a year-ago profit of $79 million. It had
a core pretax loss, which reflects results from continuing
operations before taxes and other expenses, of $24 million, down
from a profit of $526 million. Excluding a $270 million
foreclosure-related charge, core pretax income would have been $246
million.
"One of our key priorities remains aggressively addressing the
risks related to the mortgage business and taking steps to protect
the key franchises at Ally," said Michael Carpenter, chief
executive of Ally, in a statement issued with the results. "This
will be critical to advance plans to repay the U.S. taxpayer."
Ally is one of at least five major mortgage servicers in
discussions with state and federal regulators over a potential
settlement of "robo-signing" and other alleged foreclosure
offenses. Regulators are close to finalizing a deal worth as much
as $25 billion that could also include Bank of America Corp. (BAC),
Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM) and Wells
Fargo & Co. (WFC).
"The dialogue remains very fluid given the large number of
constituents involved in the negotiations," Jeff Brown, senior vice
president of finance and corporate planning for Ally, said of the
settlement discussions during a conference call Thursday.
On Tuesday, Ally said it would record the $270 million charge in
the fourth quarter for penalties from regulators and other
government agencies related to foreclosure issues.
The charge was mainly related to its mortgage subsidiary,
Residential Capital, which has been the subject of bankruptcy
speculation for several months. The charge caused a temporary
decline in ResCap's tangible net worth below $250 million,
breaching debt covenants of some of its lenders, Ally said.
Fitch Ratings on Thursday downgraded Ally's long-term issuer
default rating and senior unsecured debt rating to BB- from BB,
placing the company on a negative outlook. Fitch cited
"deteriorating operating trends" in ResCap and the expectation that
Ally will continue supporting the unit, which could "negatively
impact Ally's capital and liquidity levels and be detrimental to
creditors."
Ally has been trying to scale back its mortgage operations as it
focuses on building up its auto business and online retail bank. In
November, the company said it would significantly curtail its
correspondent lending operations, which comprise the bulk of its
mortgage originations.
Plans outlined last year for an initial public offering, which
would help pay back the government bailout it received during the
financial crisis, have stalled as it grapples with mortgage issues
and decides what to do with ResCap. Ally transformed into a bank
holding company in 2008, allowing it to receive $17.2 billion
through the Treasury Department's Troubled Asset Relief
Program.
The company's plans remain on hold, Carpenter said during the
call.
"Realistically, until we've made some progress on the mortgage
issue, we're not going to go out into the marketplace and accept
the kind of discounts that we would have to get in order to go
public in this environment," Carpenter said.
As to the fate of ResCap, Carpenter reiterated previous
comments, saying the parent company continues to support the unit
but investors "should not assume that there is a blank check from
the parent."
The company didn't give a timeline for when it hopes to resolve
the matter.
"My objective is to protect the value of Ally and to support the
auto franchise, which is why the government bailed us out,"
Carpenter said during the call.
Ally, formerly owned by GM, saw better results in its
auto-lending operations. Income from global automotive operations
was $592 million, down from $762 million a year earlier. In North
America, its auto-lending operations earned $478 million, down from
$589 million a year ago. The decline was partly due to decreased
lease remarketing gains, the company said.
Ally's loans to U.S. consumers for vehicles were $9.2 billion,
down from $9.3 billion a year ago. The most recent quarter included
$5.5 billion of loans for new vehicles, $2.3 billion in loans for
used vehicles and $1.3 billion in leases. Used volume grew 71% from
a year ago.
The company financed 73.9% of GM's U.S. dealer inventory and
31.8% of their U.S. customers in the fourth quarter. It financed
63.3% of Chrysler's U.S. dealer inventory and 27.2% of their U.S.
customers.
Ally Bank, the company's online bank that offers checking
accounts, savings accounts and other products, saw deposits grow in
the quarter. Retail deposits were $27.7 billion at Dec. 31, up from
$26.3 billion at the end of the third quarter.
--By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
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