Ally Financial, the former finance unit of General Motors (GM), filed for an initial public offering (IPO) on Thursday. This will allow the bailed-out auto and mortgage lender to repay its dues to the Treasury.
During the height of the financial crisis in 2008 and 2009, Ally Financial received more than $17 billion by way of bailout money in several transactions as part of its participation in the government’s $700 billion Troubled Asset Relief Program (TARP).
The U.S. Treasury now owns a 73.8% stake in the company. The Treasury obtained this stake after the company, formerly known as GMAC Inc., almost collapsed. With the IPO, the Treasury will be able redeem its holding in Ally Financial.
The move will also take the Treasury a step forward toward achieving the ultimate success of TARP, which has been severely criticized.
Following a total repayment of $7.4 billion from three banks on Wednesday, TARP for banks has been profitable. Atlanta, Georgia-based SunTrust Banks, Inc. (STI) paid back $4.9 billion, Cleveland, Ohio-based KeyCorp (KEY) repaid $2.5 billion and Warsaw, New York-based Financial Institutions Inc. (FISI) returned $25 million.
Out of the total $700 billion of bailout money, about $245 billion was handed out to banks in 2008. Now with the latest repayments, taxpayers have recovered $251 billion from bailed-out banks, picking up about $6 billion in profits. This recovery includes dividends and interest income from banks.
However, more than $20 billion is still due from about 600 institutions. Once these institutions reimburse, profit from the bank bailout will grow even more.
Coming back to Ally Financial, though it said in a filing with the Securities and Exchange Commission that it is seeking to raise up to $100 million, the actual amount could come to about $5 billion to $7 billion, including common stock and convertible securities. The estimates of the total value of IPO generally changes as the IPO date nears. Obviously, the final proceed will depend on investor appetite.
The company did not disclose the price range, size and date of the offering. Citigroup Inc (C), JPMorgan Chase & Co (JPM), Goldman Sachs Group Inc (GS) and Morgan Stanley (MS) are the lead underwriters.
The IPO follows Ally Financial’s return to profit, with $1.1 billion recorded last year versus a loss of $10.3 billion in 2009. The IPO of the auto financer can be viewed as one of the indications of recovery in the auto industry.
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