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Ally to Repay TARP Dues by 2014

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Ally Financial Inc. is likely to repay the TARP dues by 2014 driven by the robust performance of its auto-finance business. In 2012, Ally Financial financed the majority of new and used vehicle sales in the U.S. for the second successive year.

The company is looking forward to repay the outstanding $14.6 billion dues it received from the Treasury’s Troubled Asset Relief Program (TARP) by 2014. This was stated by Ally Financial’s CEO at National Automobile Dealers Association’s convention in Orlando, FL.

During the height of the financial crisis in 2008 and 2009, Ally Financial received nearly $17.2 billion as bailout money in several transactions, as part of its participation in the government’s $700 billion TARP. The U.S. Treasury now owns a 73.8% stake in the company. The Treasury obtained this stake when the company, formerly known as GMAC Inc., was on the verge of collapsing.

To repay TARP, Ally Financial is now focusing on its lucrative auto finance business. Consequently, the company is divesting assets outside the U.S. to concentrate on auto finance and online retail banking.

Ally Financial’s auto finance division has extended its used, leasing and subprime financing offerings ahead of expirations of agreements later this year. These agreements guarantee business from General Motors Company (GM - Free Report) and Chrysler Group LLC. GM financial – a wing of General Motors – has agreed to buy Ally’s international auto-finance operations in Europe, Latin America and China for $4.2 billion.

Further, Royal Bank of Canada (RY - Free Report) has received regulatory approval to buy Ally Financial’s Canadian operations. The deal is worth $3.7 billion including certain closing adjustments. ACE Limited is all set to buy its Mexican Insurance business for $865 million.

We believe the focus on lucrative auto business will help Ally financial to repay the TARP within the stipulated period. The removal of this overhang will go a long way in boosting its financial performance. Recently, insurance giant American International Group, Inc. (AIG - Free Report) completed the whole repayment of the $182.3 billion of TARP taken in Sep 2008.

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