Ally Posts Second-Quarter Loss on ResCap Bankruptcy Case

Ally Posts Second-Quarter Loss on Costs of ResCap Bankruptcy
Ally Financial Inc. 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. Photographer: Melissa Golden/Bloomberg

Ally Financial Inc., the U.S.- controlled lender whose mortgage subsidiary went bankrupt, posted a second-quarter loss on costs tied to the court filing.

The loss of $898 million compares with profit of $113 million a year earlier, Ally said today in a statement. The core pretax loss was $753 million, Ally said. The Detroit-based company doesn’t have publicly traded shares.

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. He’s selling foreign operations to focus on auto lending in the U.S., where the firm ranked No. 1 last year, and Ally Bank, the online unit known for its ads that satirize the ethics of rival bankers.

“Our objective in life is pretty straightforward,” Carpenter said today during a conference call with analysts. “It’s to continue building the auto business, to continue to build the bank, and it’s to get the U.S. government completely out of their shareowner position.”

ResCap remains in business while it reorganizes under Chapter 11 court protection, and has said it expects to leave bankruptcy by the end of this year. The subsidiary was removed from Ally’s financial statements, the company said today. Without the costs and other losses tied to the unit, Ally said it would have earned $533 million in core pretax profit, aided by growth in automotive services and direct banking.

Auto Finance

Pretax income in North American auto finance was $631 million, 43 percent more than the first quarter and 13 percent better than a year earlier. Retail deposits at Ally Bank expanded by $1.1 billion to $30.4 billion during the quarter as customer accounts increased about 4 percent from the first three months of this year and 27 percent from 2011’s second quarter.

Ally, known as GMAC when it was part of General Motors Corp., led financing of 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, according to the lender.

The firm’s remaining mortgage operations, excluding ResCap, posted $110 million in pretax income, double the previous quarter and compared with a $25 million loss a year earlier.

When asked by an analyst today about what Ally will look like in two to three years, Carpenter said private owners, an initial public offering, and a merger or takeover were all possibilities.

Subprime Legacy

Defaults by borrowers on subprime mortgages issued before the housing market’s collapse pushed the Residential Capital unit to seek court protection from its creditors in May. The slide into bankruptcy derailed Carpenter’s plan for an IPO of Ally to help repay taxpayers.

Ally said the quarter included a $1.2 billion charge tied to ResCap’s bankruptcy. The parent company has contributed $750 million to cover soured loans at the bankrupt mortgage unit to insulate itself from legal claims and “avoid the noise,” Carpenter has said.

In addition to the cost of defaults, U.S. lenders have been plagued by demands for refunds from investors who bought the loans and then found defects such as false data about borrowers and the properties, plus costs tied to faulty foreclosures. Such claims have cost the five biggest U.S. home lenders more than $72 billion in payments and legal fees since the start of 2007, and analysts have speculated that ResCap’s creditors will pursue Ally for payment.


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