Ally Doubles Profit as Results From Mortgage Unit Improve

Ally Financial Inc., the auto and home lender bailed out by U.S. taxpayers, said first-quarter profit more than doubled as mortgage results improved.

Net income climbed to $310 million from $146 million a year earlier, Detroit-based Ally said in a statement today. Core pretax income was $474 million, Ally said.

Chief Executive Officer Michael Carpenter is searching for ways to repay U.S. bailouts exceeding $17 billion that left the Treasury Department with a 74 percent stake in the company. Carpenter, who once predicted that a pending initial public offering could value Ally at $30 billion, later said the sale won’t happen without progress on resolving the mortgage unit.

Net income in the company’s mortgage operations almost quadrupled to $191 million from $43 million in the same period last year as market conditions improved and the value of mortgage servicing rights rose. While Ally’s auto finance business “posted strong and steady results for the quarter,” according to Carpenter, profit fell 10 percent to $611 million from $680 million a year earlier.

Ally is considering bankruptcy for Residential Capital, its money-losing mortgage business, according to people with knowledge of the matter. The overall mortgage operations segment lost $792 million in the three previous quarters combined, driven by an $886 million deficit at ResCap. Ally discussed potential fallout from such a decision in a prospectus for its IPO, and said today its “objective with respect to the business is unchanged.”

Alternate Plans

Treasury officials have told Ally executives and directors in recent weeks that an IPO is unlikely, and that they instead are pushing for Ally to split into at least two pieces, people familiar with the matter have said. One part would be Ally’s auto-finance unit, which is among the largest in the U.S., and the other would be its online bank, which had almost $28 billion in retail deposits at year-end.

Ally had been shoring up funding for ResCap, once one of the largest originators of so-called subprime and Alt-A mortgages until record defaults led to billions of dollars in losses. The unit failed to make a $20 million interest payment earlier this month, feeding speculation about bankruptcy.

The company has sought to limit other mortgage-related business. Ally said earlier this month it will cease underwriting and trading mortgage-backed securities at its broker-dealer and dismiss most of its 33 traders and analysts.

Ally ranked No. 1 in financing U.S. consumer auto sales for 2011 with more than $40 billion in contracts for new or used cars and trucks, or about 1.5 million vehicles.


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