Big banks such as Citigroup have repaid crisis-era aid to the U.S. government and the Treasury's stake in AIG has fallen to a sixth, leaving Ally Financial, once called GMAC, in the dust. Ally is still three-quarters owned by Uncle Sam and has repaid just over a third of its $17-billion (U.S.) of support. Now the former finance arm of General Motors is on a course meant to accelerate repayment and prepare for a sale or listing.
One leg involves selling non-U.S. businesses. This month Ally offloaded its car finance business in Canada and its Mexican insurance arm for combined proceeds of nearly $5-billion. The sale of the Canadian operations to Royal Bank of Canada last week garnered proceeds of $4.1-billion, or 1.2 times its book value. Net of dividends to Ally and cash at the business, RBC will pay about 12 times projected earnings. Not a steal, but not outrageously expensive, either. What is left of Ally's international businesses – car finance operations in Europe and Latin America – it "expects to identify plans for" in November.
Full-speed progress on asset sales is one thing, but plans involving Ally's bankrupt mortgage unit, Residential Capital, are on trickier ground. The threat of legal action against Ally by either ResCap bondholders or the holders of loans ResCap made before the crisis, scuttled a previous attempt to list Ally. The bankruptcy process is moving ahead – ResCap last week sold $4.5-billion of assets. That is a good sign, but those and other plans aimed at winding ResCap down could be challenged by the various creditors and groups all vying for money for their claims. A U.S. judge has also appointed an examiner to weigh asset transfers between Ally and ResCap before it filed for protection. A legal morass could draw out the bankruptcy process and, in turn, Ally's efforts to turn the corner on government support, unless the different parities are willing to negotiate.