Federal Inspector: Treasury Needs Ally Exit Plan
July 11, 2012
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WASHINGTON, D.C. — Ally Financial currently holds the No. 1
position for vehicle lending, but a federal inspector believes the U.S.
Treasury needs to sell off its ownership stake in the captive finance company.
In testimony this week to the U.S. House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, a part of the Committee on Oversight And Government Reform, Christy Romero told lawmakers, "Treasury should develop a concrete exit plan" to not only divest ownership in Ally, but General Motors as well.
Romero, who is the special inspector general for the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), wrapped up extended committee testimony by acknowledging how it is unclear how much taxpayers will recover from its TARP investments in GM and Ally Financial.
Romero's concerns stem from the fact that Ally has not conducted its initial public offering despite filing its S-1 registration statement with the Securities and Exchange Commission last March.
Those concerns intensified this past May when Ally announced that its mortgage subsidiary, Residential Capital and certain subsidiaries filed for Chapter 11 bankruptcy
"On a Treasury blog posting on May 14, the day of ResCap's bankruptcy filing, Treasury Assistant Secretary Tim Massad said that Ally Financial, Treasury and many independent analysts believed that it was possible to proceed with an initial public offering of Ally, which would have enabled Treasury to begin exiting its common equity investment," Romero told the committee.
"However, Ally was forced to delay the IPO due to intensifying issues related to ResCap's legacy mortgage liabilities — old loans made during the days before the housing bubble burst — and a general weakening in the IPO market," she continued.
"As with all of our investments, our objective today is to exit in a manner that balances speed of recovery with maximizing returns for taxpayers," Romero went on to testify. "We believe that by addressing the legacy mortgage liabilities at ResCap, the action taken today will put taxpayers in a stronger position to maximize the value of their remaining investment in Ally.
Romero indicated that SIGTARP will be monitoring Treasury's progress in the weeks and months ahead, but market conditions have slowed Treasury's progress.
"In addition, due to the enormity of Treasury's stake, it could take a number of years for Treasury to sell at or above break-even," Romero acknowledged in testimony.
"According to the Congressional Oversight Panel, the GM IPO was the largest IPO in U.S. history, and Treasury holds more GM shares than it sold in that IPO. Even if Treasury were able to sell a significant amount of its Ally stock in an IPO, as reported by COP, Treasury expects that it is likely to take one to two years following the IPO to dispose completely of Treasury's ownership stake.
"Both COP and GAO have suggested that Treasury decide whether it should sell its stock below the break-even price. Although that would result in taxpayers getting out of these investments more quickly, it would decrease taxpayer return," she projected.
Romero's complete testimony can be found here.
Ally's Recent Performance and Market Position
Ally's total first-quarter U.S. auto originations settled at $9.7 billion, up from the fourth-quarter amount of $9.2 billion. However, the figure was off from the year-ago total of $11.6 billion.
"Consumer financing origination levels in the first quarter of 2011 were driven by a significant increase in automaker incentive programs during that period," Ally pointed out.
Ally's loan business associated with used vehicles moved higher quarter-over-quarter, as well, ticking up to $2.6 billion from $2.3 billion.
Fueling those quarter-over-quarter loan rises was a jump of 39,000 extra contracts as Ally reported 376,000 total contracts originated during the first quarter. The company indicated 59 percent of those loans coming out of General Motors dealers were subvented, the highest level dating back a year. Ally noted 48 percent of loans originating at Chrysler dealers were subvented, an amount flat from the previous quarter.
The activity left Ally holding 6.39 percent of the vehicle financing market at the end of Q1, according to Experian Automotive. The next closest lender in Experian's data was Wells Fargo with 5.71 percent.
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