Ally Financial Inc. (ALLY), the auto-lender majority owned by U.S. taxpayers, may raise less than $1 billion in stock to help it pass the Federal Reserve’s annual stress test, a person with knowledge of the plans said.
Ally, which didn’t pass the test earlier this year, is considering raising the money in a private transaction, said the person, who requested anonymity because the figure hasn’t been disclosed. The Detroit-based firm must submit a new plan to the central bank before it can return a $17.2 billion U.S. bailout.
The lender is considering ways to repay preferred shares held by the Treasury Department, including using cash on hand or issuing stock, the company said yesterday in a regulatory filing. No decision has been made and any approach may be subject to regulatory approval, according to the filing.
Ally, the former financing arm of General Motors Co. (GM), sold about $5.9 billion of convertible preferred shares paying 9 percent to the government as part of a rescue that left the U.S. with a 74 percent stake. Ally can redeem the preferred securities with consent from the Treasury or if the Fed compels a conversion, according to a May 1 filing.
A redemption would double Ally’s repayment to the Troubled Asset Relief Program to 70 percent of what the company owed, Jeffrey Brown, vice president of finance and corporate planning, said on a May 1 conference call with investors. The company also has filed to sell shares in an initial public offering.
The auto lender had a capital plan rejected in March after regulators found “deficiencies” in its planning process and capital ratios that failed to meet standards. The Fed doesn’t count the preferred securities as capital.