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NEW YORK (
Ally Bank may be close to selling its
Residential Capital mortgage unit to
Fortress Investment Group(FIG - Get Report) as part of a $3 billion bankruptcy sale.
New York Post reports that taxpayer-owned Ally Bank will put ResCap into a pre-packaged bankruptcy, paving the way for Fortress's $ 2 billion bid for the troubled mortgage lending unit and another $1 billion for a $130 billion mortgage servicing rights portfolio run by Ally, citing unnamed sources.
The potential sale, which would need a judge's approval, could help Ally Bank repay some of the $17 billion in emergency loans it took from the government during the financial crisis and remove one of the biggest barriers for the former banking and auto-finance arm of
General Motors(GM - Get Report) to eventually go public in an IPO or be sold in pieces to lenders like
Wells Fargo(WFC - Get Report).
The Post reports that after finding few options to repay $12 billion still owed to the U.S. Treasury, which holds a 74% stake in the bank, Ally chief executive Michael Carpenter is now working to put ResCap into a Chapter 11 bankruptcy with the support of the Treasury. In bankruptcy, Fortress would then buy ResCap's loan servicing and mortgage origination businesses, while also making a bid on Ally's fee-based mortgage servicing portfolio.
In mid-April ResCap missed a $20 million debt payment, fanning speculation that it could file for bankruptcy as $300 million in debt payments come due from May 5 till June, the
New York Times reported. The unit also recently caused Fitch Ratings to consider a cut to Ally Bank's senior debt rating, which already stands at BB-, a junk rating. As of March 31, Ally had extended $1.4 billion in financing to ResCap,
The Times reports.
In first quarter earnings, Ally Banks net income more than doubled to $310 million, as its mortgage unit that includes ResCap turned a profit of $191 million after a string of lossmaking quarters.
At this time last year, media reports involving Ally Bank centered around the prospect of a $6 billion initial public offering that would have been smaller in size than General Motors 2010 offering, but roughly the same as
Facebook's looming IPO slated for May 17. However, liabilities related to loan losses and litigation from the housing bust at
ResCap made an initial public offering unlikely, according to Feb. 2011 reports from
Reuters and comments from CEO Carpenter.
Recent legal settlements may help accelerate Ally's repayment of taxpayer funds through asset sales such as ResCap. In February, Ally 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. In that settlement, Ally Bank paid out the $110 million in cash on behalf of ResCap.
With a $6 billion IPO of Ally Bank less likely, analyst estimates of the value of ResCap provide valuable insight for investors, should the Treasury decide to go ahead with a share or asset sales.
In a February research note, bank research firm KBW wrote that Ally's deposit-taking banking unit could garner strong interest from some of the nation's largest lenders like
Wells Fargo (WFC - Get Report),
Capital One(COF) and
US Bancorp (USB) if Ally were sold in pieces. Other assets include an auto finance unit and an in-dealership insurance business.
"We believe that Wells Fargo is one of the few large banks with the interest and balance sheet to take down the entire business," wrote KBW in the Feb 21 note that calculated a buyout of Ally's banking unit would cost $2.1 billion and would add 7% or 20 cents a share to Wells Fargo's 2012 earnings per share.
Other businesses, like Ally's auto lending unit and its non-ResCap insurance business could draw bids by General Motors and Berkshire Hathaway, noted KBW. In 2011, Ally financed $40 billion in contracts for roughly 1.5 million new and used cars and trucks, tops in the U.S.