Ally Financial Inc., the government-owned auto lender formerly
known as GMAC, swung to a fourth-quarter profit on tax-related
benefits, moves distancing itself from the mortgage business and
improving performance in its core auto-financing unit.
The company swung to an overall profit of $1.45 billion from a
loss of $206 million a year earlier. Core pretax income, which
reflects continuing operations before taxes and certain expenses,
was $19 million compared to a loss of $172 million a year
earlier.
The Detroit-based company has been working to shed non-core
assets and sever ties with its mortgage subsidiary, Residential
Capital, so it can focus on its U.S. auto-lending franchise and
online banking unit.
Ally announced deals last year to sell businesses in Mexico,
Canada, Europe, Latin America and China--transactions that
ultimately could raise $9.2 billion in proceeds--in an effort to
get out from under government ownership. In May, ResCap filed for
Chapter 11 bankruptcy, a move that could eliminate for Ally
billions of dollars of liabilities related to soured mortgage
securities.
"This past year represented another significant step forward in
Ally's evolution and further defining its future path," Michael
Carpenter, chief executive officer of Ally, said in a statement. "A
number of strategic actions were taken that will reshape and
strengthen the company."
The company's fourth-quarter profit was affected by several
charges, including $94 million in pension-related expenses, $148
million prepayment of Federal Home Loan Bank debt and $46 million
in legal fees and other costs tied to ResCap's bankruptcy and
international business sales. It also recorded a $1.3 billion
release of a tax valuation allowance.
Ally said profit in its auto-finance business increased to $371
million from $285 million. It posted $8.9 billion in U.S. auto-loan
originations, down from $9.2 billion, though its leasing volume
increased to $2.1 billion from $1.3 billion.
Ally has been trying to improve its share of leasing volume as
well as loans for used-car purchases to diversify beyond General
Motors Co. (GM) and Chrysler Group LLC, its two largest customers.
Ally's relationship with both auto manufacturers has been in flux
as contracts to provide key financing services face changes in the
coming months.
Chrysler notified Ally last year that it planned to let lapse a
financing agreement the companies have after it expires April 1,
2013. The agreement covers so-called "subvented loans," or consumer
loans that are offered at special rates to customers and subsidized
by Chrysler.
Chrysler is close to striking a deal with Spanish lender Banco
Santander SA (SAN, SAN.MC) to create an in-house financing arm for
the automaker, the Wall Street Journal reported last month. Ally
also has a special arrangement with GM that is set to expire at
year end, though the lender has stressed that it already competes
for business with both manufacturers against other banks that also
provide auto financing through the manufacturers' dealers.
Long term, Ally hopes to devote its attention to auto lending
and online banking.
The company has made headway in slimming down in hopes of paying
back the Treasury Department, which owns a 74% stake in Ally after
injecting $17.2 billion in federal funds in the company during the
financial crisis.
Ally has said it plans to use proceeds from sales of its
international businesses to pay back the government. Last week it
said it closed on one deal--the sale of its Canadian auto lending
and deposit businesses to Royal Bank of Canada (RY)--that generated
$4.1 billion for Ally.
It expects sales of a Mexican insurance business to Swiss
insurer Ace Ltd. (ACE) and European, Latin America and China
operations to GM to close this year.
The Treasury Department has been weighing its options to exit
its investment in Ally, including public or private sales of the
company's stock or additional asset sales, according to a letter
sent last week by Treasury official Timothy Massad in response to a
watchdog report critical of the agency's handling of its bailout of
Ally.
The report, issued by the Special Inspector General for the
bailout program known as the Troubled Asset Relief Program, said
the Treasury Department needed to do more to exit its investment in
the company.
Ally had planned to do an initial public offering in 2011 as a
way of repaying its bailout, but that plan was scrapped as mortgage
woes tied to ResCap mounted.
In November, Mr. Carpenter said on a conference call that an IPO
was still a possibility and that the company was fielding inquiries
from investment banks.
Ally is locked in battle with several ResCap creditors who argue
the auto lender bears more responsibility for mortgage liabilities
being addressed by pending settlements filed as part of ResCap's
bankruptcy. A bankruptcy examiner is expected to release a report
in April on his investigation into dealings between Ally and ResCap
before and following ResCap's bankruptcy filing, including whether
Ally stripped the subsidiary of valuable assets to the detriment of
ResCap creditors.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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