Ally Financial might raise around $1 billion in stock to be able to pass the Federal Reserve’s annual stress test, according to anonymous sources.
The auto-lender majority owned by U.S. taxpayers, did not manage to pass the test several months ago. Now Ally plans to raise $1 billion in a private transaction, according to an anonymous source, but first the company has to submit a new plan to the central bank and then return a $17.2 billion U.S. bailout.
The company aims at repaying the Treasury Department’s preferred shares, by cash or issuing stock. Ally has already sold almost $5.9 billion of convertible preferred shares repaying 9% to the government, part of the bailout which left the US with a 74% stake in the company. The auto-lender ca redeem the preferred shares only with the Treasury’s consent or if the Fed compels a conversion.
Jeffrey Brown, vice president of finance and corporate planning, said that such redemption would double the company’s repayment to the Troubled Asset Relief Program to 70% of what Ally owed.
In May, Ally agreed to pay $1.95 billion to the ResCap bankruptcy estate, and insurance proceeds worth $150 million. According to the accord, Ally is guaranteed full repayment of the $1.13 billion it claims ResCap owes it.