Ally’s Six-Year Bailout to End as U.S. Will Sell StakeElizabeth Dexheimer and Dakin Campbell
The U.S. government disposed of its remaining $1.28 billion stake in auto lender Ally Financial Inc., resolving the last big bailout from an emergency government program to halt the 2008 financial crisis.
The Treasury Department sold 54.9 million shares of the Detroit-based company’s common stock at $23.25 each, Ally said in a statement today. The U.S. had owned as much as 74 percent of Ally after a $17.2 billion rescue, part of emergency efforts to prop up the nation’s auto and banking industries.
In a six-year transition, Ally sold assets and put its subprime mortgage arm through bankruptcy before an initial public offering in April. Chief Executive Officer Michael Carpenter, 67, refocused the firm on auto lending and reducing expenses. He set a target of improving return on equity, a key gauge of profitability, to “double digits” by the fourth quarter of next year.
“This marks another major milestone in Ally’s journey,” Carpenter said in the statement. “We are appreciative of the investment the U.S. Treasury made in Ally and their understanding of how important available financing was to the U.S. auto recovery.”
The stock sale will also lift some regulatory restrictions, giving the bank flexibility to increase deposit funding and originate more loans and leases, which will lower funding costs and boost profitability, according to Mark Palmer, an analyst at BTIG LLC.
Ally’s exit from the government rescue program “concludes a multiyear effort to reposition the company after the financial crisis, putting it on much more stable footing,” Palmer said.
Ally gained 5.1 percent to $23.90 at 9:30 a.m. in New York. The shares slid 12 percent this year through yesterday, compared with the 15 percent advance of the Russell 1000 Financial Services Index.
The firm, known as GMAC when it was the finance arm of General Motors Corp., won Federal Reserve approval to become a bank holding company in December 2008. The change enabled it to tap the U.S. rescue.
Burdened by mortgages made to borrowers with shoddy credit, Ally began reporting losses in 2007 that reached $10.3 billion in 2009. The U.S. engineered the bailout to ensure money kept flowing to the auto industry and jobs were preserved.
“This program was a crucial part of the Obama administration’s effort to stop the financial crisis and protect the economy from slipping into a second Great Depression,” Treasury Secretary Jacob J. Lew said on a conference call today. “The program worked.”
The Treasury received $19.6 billion in return for its support of the firm, or about $2.4 billion more than it put in.
The department raised $2.38 billion by selling Ally shares in the IPO this year, and later reduced its remaining holding to about 11.4 percent as of Oct. 17.