Ally Financial might repay its bailout, according to GM’s IPO

Article by Christian Andrei, on September 16, 2010

If General Motors Co. is correct about the value of its stake in Ally Financial Inc., then it’s likely that the auto lender will soon be able to completely repay the bailout money it received. It may even lead to a profit for taxpayers.

Ally Financial, whose former parent is GM, received over $17 billion in US aid. A prospectus for GM’s initial public offering indicated that GM estimated the value of its 6.7% holding at $1.14 billion.

This indicates that if all of Ally's common shares have a $17 billion price, then the 56.3% US stake would cost $9.6 billion. This means that taxpayers will get a profit if the government sells its $14.1 billion of preferred securities in Ally, which is previously known as GMAC Inc. Kirk Ludtke, senior vice president for CRT Capital Group LLC in Stamford, Conn., considers the valuation of the equity to be “realistic.”

He believes that the company is “getting close” to fully repaying the bailout. The pressure on President Obama will certainly be lowered if US assistance is ended. Obama has been urged to remove support from the private sector, and permit Ally to get rid of the stigma of being bailed out. Last March, the Congressional Oversight Panel, a watchdog for the Troubled Asset Relief Program, forecast a $6.3 billion to $10 billion shortfall from Ally.

The panel said that the government may “squander” bailout funds. Ally CEO Michael Carpenter said that the earliest that the IPO could happen is next year.

Some sources say that GM’s offering may take place in November. Ally was the in-house finance arm of GM under the GMAC name. In 2006, the unit was sold to a private-equity group led by Cerberus Capital Management LP.

The company nearly fell apart when subprime loans made by the Residential Capital mortgage unit suffered setbacks. Ally, which remains to be the primary lender to GM dealers as well as Chrysler Group LLC, benefited from three US bailouts amounting to $17.2 billion. [via autonews - sub. required]

Topics: ally financial, gm, ipo

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