--Revenue fell 3.7%, to $1.7 billion
--Second-quarter "a seminal moment," CEO Michael Carpenter
said
--30 bidders submitted proposals for international auto
business
(Adds comments from CEO Michael Carpenter and finance chief
Jeffrey Brown starting in fifth paragraph.)
By Matthias Rieker and Saabira Chaudhuri
Ally Financial Inc. swung to an $898 million second-quarter loss
as the government-controlled auto lender recorded a massive charge
from the May bankruptcy of its money-losing mortgage subsidiary,
Residential Capital.
Profits rose in all three of the Detroit company's divisions,
but a $1.3 billion charge for ResCap overshadowed the improvement
in Ally's businesses. The healthy part of its mortgage operations
benefited greatly from the U.S. government's refinance and
modification program. Ally's overall revenue declined 3.7% from a
year earlier, to $1.7 billion, and were mixed throughout its
business lines.
Still, Ally Chief Executive Officer Michael Carpenter said in a
press release the second quarter "marked a seminal moment" for the
company. Dumping ResCap through bankruptcy and selling its
international auto lending business will improve capital, allow the
company to pay back government aid it received through the Troubled
Asset Relief Program, and further "clarify our mission" as a U.S.
auto lender.
Initial bids for the international auto business show "a very
strong level of interest with nearly 30 different bidders," Mr.
Carpenter said during a conference call with investors.
Ally signed a new contract with Mitsubishi Motors North America
Inc., but its agreements to make auto loans for Chrysler Group LLC
and General Motors Co. (GM) expire in April and December next year,
respectively.
"Those contracts only apply to loans which today represent 18%
of our business, versus about 80% five years ago," Mr. Carpenter
said. The expirations are going to be merely "bumps in the road"
for Ally, he said.
Ally, which failed the Federal Reserve's stress test this
spring, said it resubmitted its capital plan last month.
Earlier this month, Ally said it would pay $201 million in
dividends on preferred stock, including $134 million to the U.S.
Treasury Department.
The payment to the Treasury Department brings the total amount
that Ally has repaid the U.S. government to $5.7 billion. Ally,
formerly the in-house finance arm for General Motors Co. (GM), took
more than $17 billion in bailout funds during the financial crisis
as losses from its foray into subprime mortgages mounted. It is now
74% owned by the U.S. government.
In May, Standard & Poor's Rating Service raised its outlook
on Ally to positive from stable following the Chapter 11 bankruptcy
filing of Residential Capital. The mortgage subsidiary filed for
bankruptcy as it faced upcoming loan maturities and millions of
dollars of bond-related payments.
The company's core auto-lending business posted a profit of $746
million, up from $700 million a year earlier and $611 million in
the first quarter.
Ally's mortgage operations, excluding ResCap, posted a profit of
$110 million, versus a loss of $25 million last year and a profit
of $55 million in the first quarter. Jeffrey Brown, Ally's head of
finance and corporate planning, said the company's mortgage
business will continue to shrink, and Ally might sell its
mortgage-servicing rights, a business that collects payments and
administers foreclosures.
The auto-lender second-quarter loss compares to a $113 million
profit a year earlier. Ally's core pretax loss, which reflects
continuing operations before taxes and some expenses, was $753
million compared with $465 million a year ago.
Write to Matthias Rieker at matthias.rieker@dowjones.com
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