Ally Financial Inc.’s troubled mortgage subsidiary filed for bankruptcy early Monday.
Now the U.S government is hoping that the company will repay its government bailout faster.
The idea is that the filing will separate the money-losing ResCap subsidiary from Ally’s auto loan and banking businesses, allowing the latter businesses to grow and speed up repayment of Ally’s bailout from 2008 and 2009.
But Ally Financial tells FOX Business it may not be able, yet, to make an important move to repay taxpayers. The markets may not see an initial public offering from Ally Financial until next year, a company source says. However this is not a bad news – this could help it fetch a higher IPO price — and thus reap more money to pay back taxpayers.
The company estimated that it would lose about $1.3 billion during the second quarter as a result of the Chapter 11 bankruptcy of its Residential Capital unit and other mortgage subsidiaries.
Ally warned last month in a regulatory filing that a ResCap bankruptcy could cost it $400 million to $1.25 billion. The charge includes Ally’s $400 million equity investment in ResCap, which is being written down to zero; the $750 million cash payment to ResCap and a $130 million reserve for mortgage repurchase requests at Ally Bank.
Ally has about 14,800 U.S. employees, including 1,250 in the Detroit area, but most of its mortgage employees are based in Pennsylvania.
ResCap has shrunk from 10,900 employees in 2007 to 4,031 today. It has also slashed its use of independent contractors. ResCap was worth $7.6 billion in 2006; today it is worth essentially nothing.