Ally Financial Inc., the auto lender rescued by the U.S. government during the 2008 financial crisis, raised $2.38 billion in its initial public offering after pricing the shares at the bottom of the proposed range.
The U.S. Treasury Department, Ally’s majority shareholder, sold 95 million shares for $25 apiece, according to data compiled by Bloomberg. The stock will start trading on Thursday, listed on the New York Stock Exchange under the symbol ALLY.
The IPO marks the end of a three-year process for Detroit-based Ally, which originally filed to go public in March 2011 as it sought to pay back the remainder of the U.S. bailout that swelled to $17.2 billion. Ally CEO Michael Carpenter has refocused the company on its auto-lending roots after the money-losing mortgage business went bankrupt.
U.S. Treasury will pare its stake in Ally to about 17% through the IPO from about 37%, according to the prospectus. Treasury owned as much as 74% of the company after the bailout.
The offering and repayment to taxpayers will lift some of the added regulatory restrictions that came with the government’s aid and allow Ally to take on more risk that could boost profitability.
While the auto lender is going public following the best year for U.S. initial public offerings since the financial crisis, recent stock-market volatility may affect the shares. The Standard & Poor’s Financial Sector Index slipped 2.6 percent through yesterday after reaching a five-year high on April 2. Ally, the former subsidiary of General Motors, also faces challenges as carmakers including GM and Toyota Motor Corp. face setbacks related to product recalls.
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The U.S. Treasury Department has had Ally Financial Inc. in a regulatory headlock since its 2008 bailout. As the government sells shares in an initial public offering, Ally will soon breathe again — and take on more risk.
Automotive News reported that the Treasury’s exit will let Ally make more auto loans to borrowers with lower credit scores from its commercial bank unit, according to a prospectus issued last month. The Detroit lender run by CEO Michael Carpenter is set to price its shares today (April 9) and could raise as much as $2.7 billion.
“Once the IPO is completed and the U.S. government has been repaid, the company will have more wherewithal to grow Ally Bank and enhance its profitability,” said Mark Palmer, an analyst at BTIG LLC in New York.
Ally, whose biggest shareholders also include Third Point LLC, the hedge fund run by Daniel Loeb, counted 16,000 U.S. car dealerships as customers at year-end, the filing showed. Ally securitizes dealer loans for sale to institutional investors.
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Automotive News reported that in a mirror image of sorts, a new Ally Financial is emerging this year, too. The new Ally is smaller and its auto finance and insurance operation is now limited to the United States. It also has a strong online consumer banking business.
In many ways, the two financial institutions have traded places. GM Financial, a one-time niche player in auto finance, has evolved into a globe-circling behemoth. Ally Financial, which as GMAC was once so large that the U.S. government felt compelled to rescue it rather than let it fail, today is a much smaller operation.
The new Ally Financial, formerly known as GMAC Financial Services, has shrunk. Besides selling off its International Operations, Ally also shed its giant mortgage subsidiary, Residential Capital, a once-thriving business that almost pulled GMAC down with it into bankruptcy.
In 2006, GM sold majority control of GMAC but retained a minority share. Falling auto sales, the credit crisis and the collapse of subprime mortgages leading up to the recession forced GMAC into needing a U.S. government bailout in late 2008.
Ally allowed its ResCap unit to file for bankruptcy protection in 2012, but the ResCap bankruptcy plan wasn’t approved in U.S. Bankruptcy Court until December 2013. The court’s ruling finally left Ally free of its legacy obligations to ResCap, the company said.
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Ally Financial Inc., the former GMAC auto lender rescued by the U.S. government during the 2008 financial crisis, is helping the Treasury Department divest its stake by seeking as much as $2.7 billion in an initial public offering.
Automotive News reported that Treasury plans to pare its stake to 17% by selling 95 million shares for $25 to $28 apiece, according to a regulatory filing on Thursday (March 27) with the U.S. Securities and Exchange Commission. The government currently owns 37% of the company, which used to be a subsidiary of General Motors. Ally plans to trade on the New York Stock Exchange under the ticker symbol ALLY.
“Over our 90-year history, we have successfully differentiated ourselves from our competition by providing premium services for automotive dealers,” Ally said in the filing. “We have multigenerational relationships with many of our dealers and have been a trusted partner through various economic cycles.”
The IPO is the culmination of a more than three-year process for Ally, which originally filed to go public in March 2011. The company, which provides car loans, bank accounts and other savings products, shelved the plan in June of that year until equity markets improved. CEO Michael Carpenter later said the bank had to resolve problems with its mortgage unit before restarting the process.
The company’s money-losing mortgage business entered bankruptcy in May 2012 and got court approval to end the process in December.
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The U.S. Treasury Department plans to sell $3 billion of Ally Financial Inc. common stock, reducing taxpayers’ stake in the firm to 37%.
Bloomberg reported that the U.S. will sell 410,000 shares for $7,375 apiece in a private offering and leave the government with about 572,000 shares of the auto lender, the Treasury said today (Jan. 17) in a statement. The government, which didn’t disclose a buyer, will work with the company to explore ways to further reduce the investment that may include a public offering or an additional private sale of common shares, according to the statement.
“The strong investor interest is a testament to the significant transformation of the company,” Ally CEO Michael A. Carpenter said in a separate statement.
Ally, known as GMAC when it was the captive-finance arm of the automaker that’s now called General Motors Co., won Federal Reserve approval to become a bank holding company in December 2008. The change enabled it to tap a U.S. rescue that swelled to $17.2 billion. Taxpayers still held a 64% stake in Ally as of Nov. 20, according to the company.
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With Ally Financial having to refund money to victims of alleged bias in auto loans, are the dealerships that originated those loans now exposed to liability?
Maybe, according to some consumer advocates.
Automotive News reported that under the “disparate impact” theory pursued by the Consumer Financial Protection Bureau (CPFB), the central issue is dealer discretion in setting the dealer reserve — the share of the customer’s interest rate that dealerships earn for negotiating the finance contract. By that theory, it’s the dealership that’s discriminating, whether accidentally or on purpose; the lender is liable only for the pricing policies that allow it to happen.
Under the settlement announced by the CFPB this week, Ally Financial agreed to pay $80 million in consumer restitution and another $18 million in civil penalties for alleged discrimination against minority buyers. Lender policies resulted in a disparate impact against legally protected classes of borrowers, the CFPB said.
Some consumers who get a refund may want to sue the dealership that allegedly discriminated against them, said attorney Dan Blinn of the Consumer Law Group in Rocky Hill, Conn. He has represented consumers in past lawsuits against dealerships.
“It actually is the dealership conduct that results in the disparate impact. But it is the lender policy that leads to that discrimination,” Blinn said in a phone interview. “Some consumers may want to sue a dealership, if they understand that it was the dealership’s policies that led to the discrimination.”
John Van Alst, an attorney for the Boston-based National Consumer Law Center, agreed that some consumers may react that way, but he said mandatory binding arbitration clauses in most finance contracts would make it difficult for an individual to sue.
State authorities and the U.S. Department of Justice theoretically could file enforcement actions against dealerships for alleged discrimination, he said.
Blinn said even if dealers are theoretically at fault, lenders have enough power in their hands to reduce the risk of bias.
“The finance companies do have responsibilities here,” Blinn said. “The only way to address it and make sure all consumers are treated fairly without regard to their race or ethnicity is to make sure the finance companies have procedures in place to prevent it from happening.”
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General Motors Co. completed the sale of its 8.5% stake in Ally Financial Inc. for about $900 million as the automaker moves to sever ties from its former financing arm.
The sale will result in a gain of about $500 million in the fourth quarter, GM said today in a statement. The buyers weren’t named.
Ally, formerly known as GMAC, is seeking to regain its independence after taking a U.S. bailout during the financial crisis that was designed to keep the auto industry afloat. Taxpayers still held a 64% stake in Ally as of Nov. 20, according to the company. GM said the carrying amount of the stake was $397 million and the fair value was $866 million at the end of September.
“This transaction releases capital from a non-core asset and further enhances our financial flexibility,” GM CFO Dan Ammann said in the statement. “Ally continues to play an important role in financing our dealers and customers in the United States.”
GM’s stake was held indirectly in an independent trust, according to the automaker’s quarterly securities filing.
Ally Financial came in first place on the 2013 Big Wheels Report list of top auto finance companies. The annual report, issued by Auto Finance News, ranks auto finance companies by the amount of finance contracts and leases outstanding each year.
“Every day our people work hard to set the industry standard for products and services that deliver real value to dealers,” said Tim Russi, president of Ally Auto Finance. “We’re proud to be recognized on this list.
“We wouldn’t be at the top of this list without our dealer customers,” Russi said. “Dealers are at the center of what we do. We only win when the dealers win.”
To learn more information about the report, please visit www.autofinancenews.net.
About Ally Financial Inc.
Ally Financial Inc. is a leading automotive financial services company powered by a top direct banking franchise. Ally’s automotive services business offers a full suite of financing products and services, including new and used vehicle inventory and consumer financing, leasing, inventory insurance, commercial loans and vehicle remarketing services. Ally Bank, the company’s direct banking subsidiary and member FDIC, offers an array of deposit products, including certificates of deposit, savings accounts, money market accounts, IRA deposit products and interest checking. Ally’s Commercial Finance unit provides financing to middle-market companies across a broad range of industries.
With approximately $166.2 billion in assets as of March 31, 2013, Ally operates as a bank holding company.
The government is hoping that Monday’s (May 14) bankruptcy filing by Ally Financial’s troubled mortgage business will help the company repay its government bailout faster.
The Associated Press reported that Residential Capital, or ResCap, filed for Chapter 11 bankruptcy protection in New York, unable to make payments on debt taken out to finance soured home mortgages.
The filing will separate the money-losing ResCap subsidiary from Ally’s auto loan and banking businesses – which includes its RV interests (see previous RVBUSINESS.com posting) – allowing those other businesses to grow and speed repayment of Ally’s bailout loans from 2008 and 2009, Ally said.
Ally also said Monday that it is exploring the possible sale of its international operations, a move that also should help strengthen its finances and make payments to the government. International businesses include auto loan, insurance and banking operations in Canada, Mexico, Europe, England and South America.
Ally, which is 74% owned by the U.S. government, was the financial arm of General Motors until the banking industry meltdown in 2008. It needed a $17.2 billion bailout to survive the downturn.
Ally has repaid about $5.5 billion, and it still owes the government just under $12 billion. The government is hoping to get the rest of the money back through a public stock offering by Ally, or perhaps sale of its remaining businesses.
When the bankruptcy and potential sale of international operations are finished, Ally expects to repay two-thirds of its bailout, or about $11 billion. The additional payments could come by year’s end, the company said.
“We believe that this action puts taxpayers in a stronger position to continue recovering their investment in Ally Financial,” Assistant Treasury Secretary Timothy Massad said.
ResCap is a separate company, and the government does not hold any debt or equity in it, the government said. The ResCap board decided to seek bankruptcy protection on Sunday.
Ally’s statement said ResCap has reached agreements with key creditors for a speedy bankruptcy. But Ally has to put up $150 million for bankruptcy financing and pay $750 million to ResCap to make the deal work.
Ally also will make the first bid on up to $1.6 billion worth of troubled mortgages that will be auctioned. The agreements made before the filing have milestones for ResCap to come out of bankruptcy protection by the end of the year, Ally said.
ResCap also has agreements with big investors in mortgage-backed securities to support the bankruptcy reorganization, Ally said.
Ally Financial recently announced its participation in the RV Dealers International Convention/Expo Oct. 3-7 as a Copper Sponsor of the annual event.
Sponsored by RVDA, RVDA of Canada and the RV Learning Center, the expo will be held at the Rio All-Suite Hotel & Casino in Las Vegas.
In addition to its financial sponsorship, Ally representatives will be on hand to discuss dealer wholesale financing, retail financing and remarketing services. The bank holding company formerly known as GMAC, Detroit, Mich.-based Ally Financial was named the largest auto finance company in the U.S. earlier this year by the Auto Finance Big Wheels annual ranking of car lenders and lessors. Ally entered the RV financing market in June 2010 and began wholesale financing for RV dealers last November.
“We are committed to supporting RV dealers in their sales efforts and look forward to building lasting business relationships,” said Mark Manzo, Ally Financial vice president of Alliance Sales. “We are putting our expertise to work nationwide for the RV industry.”
Prior to the convention, dealers interested in Ally financing and services may contact the company at (800) 814-8842.