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Ally Financial Inc., a lender majority-owned by the U.S. government, said its mortgage risk is becoming manageable and it aims to go public next year as it cleans up its balance sheet.

The largest maker of auto loans in the United States said all its major businesses were profitable in the second quarter, and it expects to continue to post income from its continuing operations.

Ally's auto lending business alone could be worth $25-billion, based on the $3.5-billion that General Motors agreed to pay for Americredit last month, chief executive officer Michael Carpenter said on a conference call.

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Ally still has work to do as it changes itself into a bank, Mr. Carpenter said. It is looking to gain an investment-grade credit rating, which could happen in the next year or two, and it is looking to increase its deposit funding.

Ally Financial is also looking to convert some of the preferred shares that it sold to the U.S. Treasury into other forms of capital, Mr. Carpenter said.

"We don't need more capital, we need capital in a different form," Mr. Carpenter said.

The U.S. government injected more than $17-billion into Ally and holds a 56.3 per cent stake as a result. Private equity firm Cerberus Capital Management LP owns 14.9 per cent of Ally, while General Motors Co owns 6.7 per cent.

The Treasury last year agreed to convert Citigroup preferred shares into common equity and trust preferred debt, in a deal that left taxpayers holding a roughly one-third stake in the bank. That stake has since been winnowed down.

Ally Financial posted a second-quarter profit of $565-million on Tuesday, compared with a loss in the same quarter last year of $3.9-billion.

Ally Financial's second-quarter profit came after the company generated net income of $162-million for the first quarter. The period from January to March was the first time the company had generated net income since the fourth quarter of 2008.

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GM's acquisition of Americredit creates some question marks for Ally, which was the main lending unit for General Motors until the automaker sold a controlling stake to private equity investors in 2006, analysts said.

Over the long term, as GM wins an investment-grade credit rating, it may look to build Americredit into what Ally used to be: an in-house finance company, said Kirk Ludtke, an analyst at CRT Capital Group.

"The temptation will be there," Mr. Ludtke said.

On a conference call, Mr. Carpenter of Ally noted that his company's profit margin on an auto loan is about a tenth of GM's margin on selling a car. That implies that GM can afford to lose money on lending if it makes enough money by selling cars, a luxury Ally does not have.

On the conference call, Mr. Carpenter said Ally is considerably larger than Americredit, and GM could not build up its lending business quickly.

Ally's mortgage operations are a key reason for the company's return to profit. Ally lost $1.3-billion from mortgages in the second quarter of 2009, but earned $230-million from the business in the second quarter of this year.

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Ally is looking to sell Residential Capital, its main mortgage business, and the auction has advanced into the second round.

In April, ResCap agreed to sell European mortgage assets and businesses to affiliates of hedge fund and private equity firm Fortress Investment Group. That deal should close soon, Ally said on the conference call.

The rising value of used cars also helped Ally - as leases mature, Ally can sell its cars for a higher price than it previously expected, which helped boost North American auto lending profit 40 per cent to $630-million.

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