Ally Financial wants to be your friend in the financing business. Formerly GMAC, the firm opted for the friendlier-sounding name in 2010 after it converted to a bank holding company. In addition to owning Ally Bank, the company provides auto financing for some 21,000 auto dealerships (mostly General Motors (GM) and Chrysler) and their customers around the world. Its Residential Capital (ResCap) subsidiary issues residential mortgages in the US and Canada. Ally Financial also provides financing services for large- and mid-market companies around the world through Ally Commercial Finance (formerly GMAC Commercial Finance). The US government owns about 74% of Ally Financial, but is selling off its stake in stages.
The US Treasury earned its stake in Ally after providing $17 billion in aid to the company as it recovered from the global financial crisis; subprime mortgages held by ResCap hit Ally particularly hard. Part of the government's plan to exit its holding in Ally was to come through an initial public offering (IPO) of the company. However, the IPO, which was originally expected to take place in 2011, has been put on hold, primarily due to ResCap's troubled mortgage loans. In mid-2012 ResCap filed for Chapter 11 bankruptcy as part of a plan to sell itself off. With its mortgage issues out of the way, Ally will be able to concentrate on its auto financing operations and proceed with its IPO plans.
To begin unwinding its holdings in Ally, the Treasury received $2.7 billion in a sale of all of its trust-preferred securities in 2011. As with the planned IPO, proceeds from the transaction did not go to Ally but instead were used to begin paying down the government bailout.
The economic recession also rocked Ally's longtime partner and former majority owner GM. Although GM owns a small stake (about 10%) in Ally, the lender was not included in GM's 2009 Chapter 11 bankruptcy reorganization. The federal funds were intended to fuel lending for both GM and Chrysler vehicles as part of the government-backed restructuring of the automakers. The government also gave Ally Financial access to its debt guarantee program, despite its having low ratings, in a controversial move that gave the lender an advantage over other auto finance firms.
Ally Financial is in the midst of its own reorganization, with a renewed focus on its core automotive lending business. The company has been positioning itself to benefit from the recovery in the auto industry and economy. As a whole, Ally sold off 15 noncore operations in 2010 alone, including its North American factoring operations to Wells Fargo and its GMAC Insurance to property/casualty insurer AmTrust Financial Services. In 2012 it agreed to sell another insurance unit, UK-based Car Care Plan, to AmTrust for some $70 million.
To cash out of its Canadian arm, Ally Financial in late 2012 agreed to sell its auto finance and deposit business in Canada to Royal Bank of Canada (RBC) in a deal valued at $1.4 billion. Expected to close during the first quarter of 2013, the sale will boost RBC's financial services capacity in Canada.
Ally Financial also has been streamlining its mortgage business. It laid off some 5,000 ResCap employees, or 60% of the unit's workforce, in 2009. It sold the company's real estate brokerage business to Brookfield Asset Management and, in 2010, ResCap sold its European operations to Fortress Investment Group.
In addition to slashing its mortgage operations, the group has streamlined its auto finance business. It consolidated its business offices to five regional centers and cut back its workforce by 15%. Although Ally Financial temporarily offered subprime auto loans during the credit crisis to spur the nation's economic recovery, it later limited lending to US consumers with credit scores of 700 or higher.
The company has diversified its automotive service customer base by establishing agreements with other auto manufacturers (besides GM and Chrysler). In 2010 Ally Financial began offering financing to Swedish Automobile's Saab dealers. Ally also was chosen to offer financing for Thor Industries' recreation vehicles.
Internationally, Ally Financial offers car loans in 15 countries. The company streamlined its global business in 2009 and 2010 to focus on five key international markets: Germany, the UK, Brazil, Mexico, and China.
In 2009, it revamped its GMAC Bank online banking unit and renamed it Ally Bank. The fresh start and new name helped the company raise cash through retail deposit growth. Now Ally Bank is a leading online retail bank franchise, which reported 17% loan growth in 2010. As online banking continued gaining traction with consumers, the company reported 27% loan growth the following year.
All of the changes helped. The company's net income rebounded in 2010 to about $1 billion, up from a net loss of $10 billion the prior year. However, Ally reported a net loss on continuing operations of $112 million in 2011, as lowered interest rates impacted its net servicing income and loan sales brought lower gains. The sale of insurance operations and lower earnings on its US servicing income (as a result of slower vehicle sales) also led to a decrease in revenues that year.
Further impacting the company's bottom line, Ally Financial in 2012 was one of five banks to sign on to a $25 billion out-of-court settlement with 49 state attorneys general over the banks' deceptive foreclosure practices. Ally's share of the settlement payment came to $110 million; it will also pay $200 million (a figure which could possibly rise) towards borrower relief programs.
Ally Financial was founded as a GM subsidiary in 1919. It was owned by GM until 2006. That year the automaker sought new ways to raise money and sold 51% of Ally to a Cerberus Capital Management-led investment group for some $7 billion. – less