Treasury to Cut Stake In Ally
WASHINGTON - The Treasury Department began its exit from auto and mortgage lender Ally Financial Inc. Tuesday by moving to sell up to $2.7 billion in securities it holds in the Detroit company.
The government expects to sell at least $1 billion of the securities to Wall Street investors today, with the sale set to close Monday, according to sources familiar with the plans.
Treasury won't sell the securities for less than their face value, the sources said. Strong demand on Wall Street may allow for the sale of the full $2.7 billion.
Ally outlined the sales plan in a filing Tuesday with the Securities and Exchange Commission, reported The Detroit News.
The government will sell trust preferred securities received from Ally, according to the filing. The securities are like bonds and entitle holders to receive about 8 percent interest.
The government holds a 74 percent stake in Ally as part of its $17.2 billion bailout.
The potential sale comes as Ally wants to go public by year's end, but a tense relationship with former parent company General Motors Co. could complicate its pitch to investors.
A majority stake in GMAC, the precursor to Ally, was sold by GM to Cerberus Capital Management LP in 2006.
GM last year acquired its own subprime lending arm, AmeriCredit, and is considering broadening its portfolio to include loans to consumers with stronger credit.
Ally CEO Michael Carpenter held meetings with GM and Chrysler dealers last month at the National Automobile Dealers Association. In a break from prior practice, GM and Chrysler officials weren't present. Ally provides wholesale financing to more than 75 percent of both GM and Chrysler dealers.
Last summer, GM approached Ally about acquiring its wholesale business, but was rejected. Instead, the automaker bought AmeriCredit and renamed it GM Financial. Lending by AmeriCredit more than doubled in the last three months of 2010, and GM has boosted its share of sales to subprime customers.
Ally has paid the Treasury $2.2 billion in dividends. The sale will mark the government's first sale as it seeks to recoup its bailout.
The sale does not include any of Treasury's $5.9 billion of mandatory convertible preferred stock in Ally, nor does it include any of Treasury's holdings of 74 percent of Ally's common stock, according to Ally's filing with the SEC.
Citigroup, Deutsche Bank, J.P. Morgan and Morgan Stanley are acting as joint lead managers for the offering.
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