CIT, Wells Fargo Could Be Logical Buyers Of Ally Assets - KBW
22 February 2012 - 5:15AM
Dow Jones News
CIT Group Inc. (CIT) and Wells Fargo & Co. (WFC) could be
interested in parts of Ally Financial Inc.'s business if the
government-owned auto lender decides to sell assets, according to
analysts.
CIT could be a potential buyer of Ally's banking unit, while
Wells Fargo would likely be interested in the company's North
American auto-lending business, analysts at Keefe, Bruyette &
Woods wrote in a research note Monday.
Ally, which provides financing to General Motors Co. (GM) and
Chrysler Group LLC (C) dealers and their customers, has put an
initial public offering on hold as it grapples with repercussions
from its foray into subprime mortgages. The Detroit-based lender
has been exploring options for its Residential Capital mortgage
subsidiary, including putting the unit into bankruptcy, selling it
or both.
But as mortgage woes continue to dog the company, sales of its
other businesses could be an option. The company is considering
selling its auto-lending business or online bank, Reuters reported
last week, citing people familiar with the matter.
Gina Proia, a spokeswoman for Ally, declined to comment on the
KBW note Tuesday.
"The allegations are complete speculation and we are not going
to engage in speculation," Proia said in a statement regarding the
Reuters story Friday. "We continue to be squarely focused on
putting the legacy mortgage issues behind us and growing our
leading auto finance and direct banking franchises."
KBW noted that CIT is among the companies "becoming more
bank-like." The lender has been trying to make more loans out of
its bank subsidiary to lower its funding costs, and last year it
launched an online bank that offers certificates of deposit.
CIT has raised more than $700 million of Internet deposits,
President Nelson Chai said at an investor conference earlier this
month.
A spokesman for CIT declined to comment on the KBW note
Tuesday.
KBW estimated a purchase price for Ally Bank could be about $1
billion, representing a 2% deposit premium.
The company had total deposits of $45.1 billion at the end of
the fourth quarter, with retail deposits at Ally Bank accounting
for $27.7 billion of that, Ally said this month.
Wells Fargo would be interested in acquiring Ally's North
American auto-lending business, "especially given the market share
that Ally has," KBW wrote.
"A purchase of the auto finance business would give Wells a much
larger industry presence in a line of business where [Wells]
already competes," the analysts wrote.
A spokeswoman for the San Francisco-based bank declined to
comment Tuesday.
Such an acquisition could cost $68.3 billion, based on a
possible 5% premium to a current net asset value of $65.1 billion
on "select" assets and liabilities, the analysts estimated.
Capital One Financial Corp. (COF), Discover Financial Services
(DFS), J.P. Morgan Chase & Co. (JPM), Huntington Bancshares
Inc. (HBAN) and U.S. Bancorp (USB) could also be interested in
parts of the business, they wrote.
Representatives of those companies either declined to comment
Tuesday.
Plans Ally outlined last year for an IPO, which would help pay
back the government bailout it received, have stalled as it
grapples with mortgage issues and decides what to do with ResCap.
Ally transformed into a bank holding company in 2008, allowing it
to receive $17.2 billion through the Treasury Department's Troubled
Asset Relief Program. Ally has paid back $5.4 billion of that
investment.
The government currently owns a 73.8% stake in the company.
"Realistically, until we've made some progress on the mortgage
issue, we're not going to go out into the marketplace and accept
the kind of discounts that we would have to get in order to go
public in this environment," Ally CEO Michael Carpenter said during
an earnings conference call this month.
As to the fate of ResCap, Carpenter reiterated previous
comments, saying the parent company continues to support the unit
but investors "should not assume that there is a blank check from
the parent."
"My objective is to protect the value of Ally and to support the
auto franchise, which is why the government bailed us out,"
Carpenter said during the call.
-By Andrew R. Johnson, Dow Jones Newswires; 212-416-3214;
andrew.r.johnson@dowjones.com
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