Ally Financial Inc announced today that it will sell its Canadian auto finance operation, Ally Credit Canada Limited and ResMor Trust to the Royal Bank of Canada (RBC), Canada’s largest bank by assets and market capitalization. Ally Credit Canada is one of the largest auto finance companies in Canada with approximately $9.4 billion in assets at the end of Q3 2012. The business offers automotive financing and related services to dealers and their customers.
The transaction is subject to almost certain regulatory approval and is expected to close in the first quarter of 2013. Ally will receive what it said was a premium price over the book value of $3.5 billion, about U.S. $620 million, for the $4.1 billion transaction.
Notably absent as buyers were Ford Credit and General Motors. Ally has other international operations in Europe and Latin America on the block, and GM has submitted a bid for the business. Ally expects to announce the buyer after the U.S. Presidential election next month.
The GM bid carries some potential risks for U.S. taxpayers, which still own a large part – 32% – of the U.S.’s largest automaker. If GM buys the international Ally businesses, it could expand lending overseas, but not without potentially hurting liquidity. The balance sheet of GM Financial would show consolidated assets of more than double the current amount. GM could incur substantial amounts of indebtedness, though some of it would be secured debt. GM Financial’s ratio of assets to equity could more than double as well. It all depends on how much GM acquires, and then its ability to successfully run the new operations while integrating them into the larger company. GM Bids on Ally’s International Auto Lending Business
This was the third move by Ally Financial in October to fix the balance sheet of the former finance arm of General Motors. Previously Ally announced that it would 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. (Ally Financial to Sell Mexican Insurance Business)
Earlier this month Ally said it will make a payment of approximately $134 million, or $1.125 per share, to the U.S. Treasury in November. U.S. taxpayers have invested $17.2 billion in keeping Ally in business as a bank holding company after its improvident home mortgages made it bankrupt under the George Bush market crash. (Ally Financial Declares Dividends on Preferred Stock)
“This transaction represents another significant step toward our plans to pursue strategic alternatives for our international operations and accelerate plans to repay the remaining U.S. Treasury investment,” said Ally Chief Executive Officer Michael A. Carpenter.
GM was forced to sell Ally as it headed toward bankruptcy in 2008. Ally subsequently like GM was bailed out by U.S. taxpayers under the Troubled Asset Relief Program. Ally was bankrupt due to its reckless lending practices in the housing market at its ResCap subsidiary. ResCap has now sought bankruptcy protection itself, and this removes it from the Ally balance sheet of the slowly recovering bank holding company.
