Thursday, March 29, 2012

Report: U.S. Treasury suggests Ally Financial breakup

NEW YORK — The U.S. Treasury Department, which put $17.2 billion into a bailout of Ally Financial Inc., has indicated it would prefer a breakup and sale of the lender — including selling the company's captive finance auto business back to General Motors Co., its original owner.

People familiar with the matter told Bloomberg that Treasury wants to make such moves because it no longer believes an initial public offering of Ally stock would succeed.

GM previously owned Ally when it was known as GMAC Financial Services. GM spokesman Jim Cain declined to comment on the report.

Treasury officials are telling Ally executives, directors and financial advisers that an IPO is unlikely soon because of the company’s high cost of capital relative to other banks, the potential bankruptcy of a mortgage unit, and its recent performance in Federal Reserve Board stress tests, said the people, who asked not to be identified because the talks are private.

Treasury instead is pushing for Ally to split into at least two pieces, the people said. One part would be Ally’s auto finance unit, one of the largest in the U.S., and the other would be its online banking business, which had almost $28 billion in retail deposits at year end. Ally shareholder Elliott Management Corp. also recommends a sale, according to a letter sent to the board by Elliott and obtained by Bloomberg News.

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