(Adds information from conference call, background on stock
repurchases, TARP).
By Andrew R. Johnson and Ben Fox Rubin
Ally Financial Inc.'s third-quarter profit dropped 76% as the
government-owned auto lender recorded a charge related to mortgage
settlements with government regulators and continued to exit
none-core businesses.
The Detroit company said Tuesday its profit fell to $91 million,
down from $384 million a year earlier. Core pretax income, which
reflects continuing operations and the exclusion of certain items,
was $269 million, down from $373 million a year earlier.
Last month, Ally said it would take a $170 million charge in the
third quarter stemming from settlements with Federal Deposit
Insurance Corp. and Federal Housing Finance Agency, the regulator
for government-backed mortgage-finance firms Freddie Mac (FMCC) and
Fannie Mae (FNMA), over mortgage-backed securities sold during the
financial crisis.
The settlements are the latest effort by Ally to put behind it
costly mortgage litigation that has stalled efforts to repay the
government bailout it received during the financial crisis.
Ally is 74% owned by the U.S. government after receiving $17.2
billion in funds through the Treasury Department's Troubled Asset
Relief Program.
Last May Residential Capital LLC subsidiary filed for Chapter 11
bankruptcy in a move intended to distance Ally from mortgage
litigation and looming bond payments. In July, a U.S. Bankruptcy
Judge approved a $2.1 billion settlement Ally reached with ResCap
and the subsidiary's creditors that will help shield Ally from
ResCap's legal liabilities. Those liabilities were one factor that
caused Ally to fare poorly on the Federal Reserve's stress tests of
big banks in March.
In August, Ally announced a plan to raise about $1 billion in
equity through the private placement of common stock with a group
of about a dozen investors. As part of the plan, the company said
it was seeking the Fed's approval to buy back about $5.9 billion in
preferred shares owned by U.S. Treasury.
Chief Executive Michael Carpenter said during a conference call
with analysts Tuesday that it should receive an answer from the Fed
in the next few weeks.
Repurchasing the stock would lower the government's stake in
Ally to about 65%, the company has said. It would also bring the
amount of money Ally has repaid taxpayers to more than $12 billion
from about $6.3 billion.
Ally's core auto-lending business posted income from continuing
operations of $339 million, versus $337 million a year ago and $382
million in the prior quarter.
But Ally, formerly the in-house financing arm for GM, faces
headwinds in the auto-lending business. The company has faced
increased competition from other banks, such as Wells Fargo &
Co. (WFC) and U.S. Bancorp (USB), that have made a bigger push into
the business in recent years.
It's also under pressure to sustain loan originations as
agreements with its two biggest partners--GM and Chrysler Group
LLC--phase out. Ally has had contracts with both auto makers under
which it has had the exclusive right to finance a certain portion
of their auto sales.
Ally's agreement with Chrysler ended in April, while its
agreement with GM expires at the end of this year.
Total auto-loan originations were $9.6 billion in the quarter,
unchanged from a year earlier but down from $9.8 billion in the
second quarter.
To diversify, the company has made efforts to increase financing
for leases and used-car purchases. Lease originations were $2.8
billion in the quarter, up from $2.6 billion a year earlier and
flat with the previous quarter. Used originations increased to $2.6
billion from $2.3 billion a year earlier and $2.5 billion in the
previous quarter.
Ally's mortgage operations, which represent a significantly
smaller part of its business following ResCap's bankruptcy and the
company's sale of other mortgage assets, posted an operating loss
of $5 million versus a profit of $331 million a year earlier and a
loss of $27 million in previous quarter.
Write to Andrew R. Johnson at andrewr.johnson@wsj.com and Ben
Fox Rubin at ben.rubin@wsj.com
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