GM buying Ally assets in Europe and Latin America

Associated Press Modified: November 21, 2012 at 5:00 pm •  Published: November 21, 2012
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In exchange for bailing out Ally, the U.S. government got 74 percent of the lender's common stock, plus $5.9 billion worth of preferred stock.

Ally last month sold its Canadian operations to the Royal Bank of Canada for $4.1 billion and a Mexican insurance business for $865 million. With the GM deal, Ally will have about $9 billion in additional cash. It could use the money to buy back the preferred stock, but Ally spokeswoman Gina Proia said no decision has been made on how to repay the government.

Privately held Ally has been looking at an initial public stock offering to get more money back the government, but that's been put on hold until stock market conditions improve.

The acquisition by GM is another step toward reassembling its global financial arm, which had been a profit center before the 2008 mortgage meltdown. GM sold a 51 percent stake in GMAC in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the government.

Ally Financial Inc. will now focus on its U.S. auto lending and bank holding company businesses. In May its mortgage lending and servicing subsidiary Residential Capital LLC or ResCap, filed for bankruptcy protection, severing Ally's ties to the troubled unit. Toxic mortgages made by ResCap caused most of Ally's financial problems. ResCap has since accepted a $3 billion buyout offer from a unit of Ocwen Financial Corp.

GM also owns nearly a 10 percent stake in Ally.

In the third quarter Ally made a $384 million net profit, reversing a loss from a year ago mainly because it didn't have losses from ResCap.

Ally said its global automotive services business continues to be strong, with the loans it financed increasing and improving during the third quarter, despite increased competition among lenders for automotive loans.

Meanwhile, retail deposits at its Ally Bank division increased by 22 percent, and customer accounts grew by 24 percent, the company said.

In October Ally repaid $2.9 billion of the debt it issued under a government program that backed hundreds of billions of dollars in U.S. bank debt during the financial crisis. The program is separate from the bailout. Ally said last month that it plans to repay in December the remaining $4.5 billion guaranteed under the Federal Deposit Insurance Corp. program.

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AP Business Writer David Koenig in Dallas contributed to this report.