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GMAC Posts Profit, Will Change Name to Ally Financial
GMAC Inc., the auto and home lender that lost more than $10 billion last year, posted a quarterly profit as U.S. car sales recovered and said it plans to adopt Ally Financial Inc. as its new name.
First-quarter income was $162 million, compared with a loss of $675 million a year earlier, GMAC said in a statement today. The results represented the Detroit-based company’s first quarterly operating profit since the second quarter of 2007. GMAC doesn’t have publicly traded shares.
Surging U.S. auto sales may give GMAC breathing room as it decides what to do with its loss-plagued home mortgage subsidiary. The auto unit posted its fifth straight profit, including $396 million from continuing operations in North America, and mortgages swung to a $166 million profit.
“The capital markets reopened to GMAC debt, we have reduced expenses and we took several additional steps to contain and reduce risk in the mortgage business,” Chief Executive Officer Michael Carpenter said in the statement.
Carpenter, 63, is trying to make GMAC profitable by renewing its focus on auto financing after losses on mortgages led to three U.S. bailouts totaling $17.3 billion. The government holds a 56 percent stake. In the last six weeks, GMAC sold its European mortgage operations to funds affiliated with Fortress Investment Group LLC and quit the U.S. factoring business by selling the unit to Wells Fargo & Co.
GMAC’s new name is derived from the company’s consumer banking unit, which gets deposits from consumers online. The change is effective May 10, the company said. GMAC’s Ally Bank turned a profit and said deposits rose 4.7 percent to $17.7 billion. The company is relying on low-cost deposits from consumers to help fund new loans. Global automotive operations reported a pre-tax profit from continuing operations of $846 million, including $653 million in the North American unit, the company said.
GMAC reported pre-tax income of $175 million at the overall mortgage operations. ResCap, the legal entity, earned profit of $110 million and increased its tangible net worth to $426 million from $275 million in the fourth quarter.
The lender said it reached a settlement with one of its top three counterparties for representation and warranty claims. Such claims typically include disputes from mortgage buyers who want the lender to take the loans back after they’ve defaulted because the mortgages weren’t properly vetted.
GMAC is exploring the sale of its Residential Capital mortgage unit. The firm hired Goldman Sachs Group Inc. and Citigroup Inc. to help market the business and arrange an initial public offering for the entire company. An IPO may occur in the next two years, Carpenter has said.
The offering may come sooner as GMAC’s core business benefits from a rebound in auto sales and lending, cost cuts and lower funding costs, CRT Capital Group LLC analyst Kirk Ludtke wrote in an April 22 report. Ludkte assigns a “buy” rating to GMAC and ResCap senior unsecured notes.
“The pressure on GMAC to go public is likely to intensify if the administration comes to the conclusion, as we have, that the U.S. taxpayer may be in a position to break even on the GMAC bailout,” Ludtke wrote in the report. “We believe that a GMAC IPO is possible before” the November elections, he wrote.
GMAC received $3.8 billion from the Obama administration in a third government bailout in December. The company benefited from $12.5 billion in two previous government bailouts and an additional almost $1 billion that was funneled through GM, which used it to invest in GMAC.
GMAC is the primary lender to General Motors Co. and expanded its client list to include Saab Automobile AB, Chrysler Group LLC and Thor Industries Inc., the biggest maker of recreational vehicles.
To contact the reporter on this story: Dakin Campbell in San Francisco at email@example.com