Many friends, few allies
GM’s ormer financing arm would be better off waiting for an opening to launch a much-delayed stock offering rather than selling itself. Sure, the business now known as Ally Financial would fit well with several banks – or even its previous owner. And the U.S. Treasury, which pumped $17 billion into Ally and owns about three-quarters of it, wants its money back. But the troubled mortgage division, ResCap, may give some pause. And Ally is too big to swallow easily.
The company’s $112 billion of global auto loans are enticing. For example, TD Bank’s low loan-to-deposit ratio prompted it to buy Chrysler Financial in 2010. TD’s major Canadian rivals are similarly challenged as are U.S.-based Regions Financial, PNC, BB&T and Wells Fargo.
But large-scale finance deals are scarce. Capital One’s $9 billion acquisition of ING Direct is the biggest unassisted deal since before the crisis. And the Federal Reserve signaled last week it would put any deal over $2 billion in assets under the microscope. The extra time required to seal the deal – and the prospect it could be nixed – may be deterrent enough.
Ally would be almost three times the size of the ING deal. It’s probably worth $25 billion, assuming it were to sell for 1.3 times its $19.3 billion book value – midway between TD’s near-book value purchase of Chrysler Financial and the 1.6 multiple GM paid in 2010 for AmeriCredit.
Buying just Ally’s assets might circumvent the Fed. But paying a slight premium for net assets of the North American outfit would require $68 billion, according to KBW. A bank could dip into its cash and securities to raise the money, but with liquidity rules still unclear, the prospect is less likely. If one did, Ally’s remnants would essentially be in wind-down mode, with much of the sale proceeds used to pay creditors.
GM may fancy bringing Ally back into the fold. But the price tag would either use up most of its cash or simply involve Treasury swapping ownership of Ally into a greater stake in GM. That suits no one’s purpose. Unless Wall Street’s financiers can find a way round these problems, Ally and U.S. taxpayers are probably better off waiting for an IPO.