The Federal Reserve said Friday it hasn't objected to a revised
capital plan from Ally Financial Inc., paving the way for the auto
lender to move forward with efforts to pay back a large chunk of
its government bailout.
The Fed in March rejected a plan Ally submitted under the
regulator's stress tests of big banks, deeming its capital levels
would be too low to survive a hypothetical economic downturn. The
move was a blow to the Detroit-based lender, which has worked to
dig its way out of legal issues largely tied to its
subprime-mortgage subsidiary Residential Capital so it can repay
the $17.2 billion bailout it received during the financial
crisis.
To boost its capital levels and move ahead on those plans, Ally
said in August it would raise about $1 billion by selling common
stock through a private placement involving about a dozen
investors. Assuming it gained the green light from the Fed, Ally
said it would buy back $5.9 billion of preferred shares owned by
the U.S. Treasury Department.
That latter move would reduce the government's ownership stake
of Ally to about 65% from 74%.
Last year, Ally's subprime-mortgage subsidiary Residential
Capital LLC filed for Chapter 11 bankruptcy in a move intended to
sever the parent company from a raft of litigation over soured
mortgage securities and foreclosure practices. In July, a U.S.
Bankruptcy Judge approved a $2.1 billion settlement Ally reached
with ResCap and the subsidiary's creditors that will help shield
Ally from ResCap's legal liabilities.
Write to Andrew R. Johnson at andrewr.johnson@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires