U.S. Treasury Department prefers a breakup and sale of the lender Ally Financial

Article by Christian Andrei, on March 27, 2012

The U.S. Treasury said that it prefers a breakup and sale of the lender Ally Financial Inc. The U.S. Treasury has given $17.2 billion to the company. This strategy includes selling back its captive finance auto business to General Motors, its original owner. Sources said that the Treasury is hopeful about the Ally model and doesn’t anymore think that an initial public offering of Ally stock would do well.

General Motors had owned Ally when it was known as GMAC. GM has yet to comment on this report. Treasury officials have told Ally executives, directors and financial advisers that an IPO isn’t likely to take place soon due to the company’s high cost of capital compared to other banks.

They also pointed out other factors like the possible bankruptcy of a mortgage unit, and its latest performance in Federal Reserve stress tests.

The sources said that instead, the Treasury instead is encouraging Ally to divide. It’s also hoping to divide Ally into two factors. On one side, there’s Ally’s auto-finance unit, one of the biggest in the U.S., and the other would be its online banking business, which had almost $28 billion in retail deposits at year-end.

Ally shareholder Elliott Management Corp. also recommends a sale, according to a letter sent to the board by Elliott. Ally CEO Michael Carpenter and its board don’t like the idea of a split, saying that the department is expected to create a sturdier structure. The Treasury presently owns 74% of Ally.

Topics: ally financial

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