Detroit-based Ally Financial Inc., the auto lender majority-owned by taxpayers, has received U.S. Treasury Department approval to put its Residential Capital unit into bankruptcy as the government seeks to recover bailout funds.
Treasury will support directors at Ally and ResCap if they decide that filing for court protection from creditors is the best course for the mortgage unit, said an Obama administration official who asked for anonymity because the arrangements haven’t been made public. The approval is conditioned on a review of terms, the person said Monday.
“Treasury wants its money back,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “This sign-off is an indication that Ally has a good enough plan to prove they can eventually pay back the government. The only feasible opportunity for them to get their money back is to split up or sell Ally.”
CEO Michael Carpenter is working to repay bailouts exceeding $17 billion that left the U.S. with a 74 percent stake in Ally. Officials concluded that addressing ResCap’s mortgage losses will put taxpayers in a better position, the person said Monday. President Barack Obama vowed in 2009 to recover “every last dime” of bailout money.
Carpenter, who once predicted that a pending initial public offering could value Ally at $30 billion, later said the sale won’t happen until progress is made to resolve the mortgage unit.
Ally, formerly known as GMAC Financial Services, confirmed last month that ResCap is considering bankruptcy and said Ally’s loss tied to the action could be $400 million to $1.25 billion.