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Wells Fargo, CIT a Good Fit for Ally: KBW

Stocks in this article: WFC JPM GM CIT BRK.A

"We believe that Wells Fargo is one of the few large banks with the interest and balance sheet to take down the entire business," writes KBW.

The bank research firm calculates that a buyout of the whole unit would cost $2.1 billion, roughly a 5% premium to its book value. Such a move would add 7% or 20 cents, to Wells Fargo's 2012 earnings per share, lifting overall earnings to $3.05 a share, and adding an additional 19 cents to 2013 EPS.

"Overall, we believe that the market would view this as a good deal for Wells Fargo if it were completed given the accretion and relative size," writes KBW.

GM may also look to re-buy Ally's auto lending operations to help its dealers provide sales-generating auto loans, according to Reuters. In 2010, GM bought subprime auto and truck lender AmeriCredit for $3.5 billion and renamed the unit GM Financial. Ford Motors (F) currently operates a full-service lending unit called Ford Motor Credit.

Ally Bank's insurance unit has the most well documented sale plans, with reported interested parties that include Warren Buffet-run Berkshire Hathaway (BRK.A), however the business has been a hindrance to the Treasury's IPO plans, as its ResCap mortgage unit faced increasing litigation tied to its foreclosure and loan modification practices in 2011. In February, Ally Bank and four of the nation's largest banks including JPMorgan, Bank of America (BAC), Wells Fargo and Citigroup (C) agreed to a $25 billion settlement on the litigation. That litigation iced a June 2011 IPO plan that was reported to include $6 billion of shares.

Bidders interested in ResCap include Fortress Investment Group (FIG), Cerberus and a co-bid from Centerbridge Partners and Leucadia National (LUK), according to Reuters. In December, Bloomberg reported that Berkshire Hathaway may take an equity stake in the unit, which if facing a restructuring. With $500 million in Ally and ResCap bonds, Berkshire is one of ResCap's largest creditors. Overall, the unit's largest bondholder is Pacific Investment Management. An equity stake in ResCap may come via a pre-packaged bankruptcy where bonds are converted to share holdings.

Previous Ally owners like Cerberus, which had large Ally stakes prior to government bailouts still have significant share positions. Cerberus owns 8.9% of Ally Bank, while General Motors Trust has a 5.9% stake and General Motors has a 4% holding.

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