US Exits Ally Financial Investment, Auto Bailout

DETROIT (Detroit Free Press/TNS) -

The U.S. Treasury sold its remaining shares of Ally Financial Thursday night and Friday morning, cutting the last financial cord from the auto-industry bailout following the 2008 financial crisis.

Treasury, which provided $17.2 billion in emergency assistance to Ally, once owned 74 percent of the Detroit-based financial giant, which now is focused on auto financing to dealers and consumers, and to commercial and online banking. Between Thursday and Friday morning, the government sold its last 54.9 million Ally shares.

Treasury Secretary Jack Lew said the government recovered $19.6 billion on its aid to Ally. That makes it the first portion of the Obama administration’s auto-industry bailout to return a profit.

General Motors received $49.5 billion from Treasury’s Troubled Asset Relief Program. When the government sold its last GM shares about a year ago, the recovery totaled slightly more than $39 billion. Of the $11.98 billion provided to Chrysler (now FCA US), Treasury recovered $10.67 billion, Bowler said.

For the entire TARP effort, the government disbursed about $426.4 billion and recovered $441.7 billion, according to Tim Bowler, deputy assistant secretary for financial stability.

There are about 35 community banks that received funds from TARP but haven’t yet fully repaid their emergency funding, Bowler said.

Treasury was able to sell the shares on one of the stock market’s best days this year. Bowler said the final shares were sold at $23.25.

Ally sold assets and put its subprime-mortgage arm, Residential Capital, through bankruptcy before completing an initial public offering in April. CEO Michael Carpenter said earlier this year that the company could shed its final portion of government-owned shares by the end of 2014.

The government’s exit will free Ally from restrictions on executive pay and give it more flexibility to make loans and finance leases.

Before 2008, Ally was GMAC, the finance arm of General Motors. In December 2008, it became certified as a bank holding company, a step that made it eligible for the government bailout.

The worst of its problems were tied to mortgages made to borrowers with shoddy credit. Investment banks and other institutions then bundled those loans into derivatives that collapsed in value after the financial crisis.

Ally began reporting losses in 2007. By 2009, it had lost $10.3 billion.

Rescuing Ally was a crucial part of the Obama administration’s emergency plan to save General Motors and Chrysler, because without Ally, GM and Chrysler may not have been able to maintain an adequate flow of loans to their dealers and consumers.

Ally also disclosed Thursday that the U.S. Department of Justice has subpoenaed some of its records related to subprime auto loans. Subprime loans generally are loans to borrowers with troubled credit histories. The Justice Department and SEC have made similar requests of other lenders. GM Financial acknowledged in August receiving a subpoena over subprime auto loans.

GM Financial had said that the Justice Department was considering a civil lawsuit for potential violations of the Financial Institutions Reform, Recovery and Enforcement Act, a federal law that was passed following the savings-and-loan crisis in the 1980s.

On Friday, Ally shares closed up 51 cents, or 2.2 percent, at $23.26.