United States government-owned Ally Financial Inc. is considering raising less than $1 billion in stock in a private deal in order to pass the annual stress test of the US Federal Reserve, a person privy with the plans told Bloomberg. Ally failed the test earlier this year. Ally, which is the former finance arm of General Motors, needs to submit a new plan to the central bank before it can repay $17.2 billion in U.S. bailout money.
The lender said Tuesday in a regulatory filing that it is considering options to repay preferred shares held by the Treasury Department, like using cash on hand or issuing stock. The lender, however, has yet to make a decision, which may be subject to regulatory approval, according to the filing. Ally sold around $5.9 billion in convertible preferred shares paying 9 percent to the government as part of a bailout that saw the US taking a 74-percent stake in the lender.
According to a May 1 filing, Ally can redeem the preferred securities with consent from the Treasury or if the Fed compels a conversion.
Jeffrey Brown, vice president of finance and corporate planning, remarked that a redemption of the preferred securities would double Ally's repayment to the Troubled Asset Relief Program, to around 70 percent of what the lender owed.
Ally has also filed to sell stocks in an initial public offering. The company’s capital plan was rejected in March 2013 following discovery by regulators of "deficiencies" in its planning process. The lender’s capital ratios also failed to meet standards. [source: automotive news - sub. required]