Ally Financial today announced that it has reached an agreement to sell its Mexican insurance business, ABA Seguros, to the ACE Group, one of the world’s largest multi-line property and casualty insurers. ABA Seguros is the fourth largest insurer in the Mexican auto insurance market, and the transaction has a purchase price of $865 million in cash.
The latest move to fix the balance sheet of the former finance arm of General Motors comes a week after the announcement that Ally will make a payment of approximately $134 million, or $1.125 per share, to the U.S. Treasury next month. U.S. taxpayers have invested $17.2 billion in keeping Ally in business as a bank holding company after improvident home mortgages made it bankrupt under the Bush market crash.
Treasury currently holds about 74% of Ally common equity, and $5.9 billion in mandatory convertible preferred securities, which have a dividend rate of 9%. Ally at the end of Q2 2012 had about $179 billion in assets, so it increasingly looks like taxpayers have a good chance at getting their money paid back.
“Earlier this year, we began a process to pursue strategic alternatives for our international operations, and we have been encouraged by the breadth and depth of interest in these operations,” said Ally Chief Executive Officer Michael A. Carpenter. (See GM Bids on Ally’s International Auto Lending Business)
Ally reported a net loss of -$898 million for the second quarter of 2012 because of the charges incurred by the bankruptcy of its home mortgage subsidiary ResCap. Ally was an eager participant in the housing bubble and the packaging of bundled mortgage bonds fraudulently supported by the ratings agencies – Moody’s, Fitch and Standard & Poor’s – as investment grade paper when they were junk.
“Taking these actions with respect to the international operations will enable Ally to further invest in and grow its leading U.S.-based automotive services and direct banking franchises and be best positioned to return additional capital to the U.S. taxpayer,” said Carpenter.
ResCap, chiefly the cause of Ally’s bankruptcy is now off Ally’s balance sheet, but a public stock offering – the way for Treasury to exit from this banking – doesn’t appear likely at this time given Ally’s history and current results.
Nonetheless, including the dividend on the Series F-2 Preferred Stock that Treasury holds, Ally will have paid a total of approximately $5.8 billion back to the U.S. taxpayers since February 2009. This amount includes preferred stock dividends, interest payments and proceeds received by the U.S. Treasury from its sale of Ally trust preferred securities. Treasury has actually made money on its Troubled Asset Relief Program or TARP started under President Bush, which successfully prevented the complete collapse of the global economy when the marketplace failed.