Ally Financial Inc. (ALLY:US), the auto-lender majority owned by U.S. taxpayers, may raise less than $1 billion in stock to help it pass the Federal Reserve’s annual stress test, a person with knowledge of the plans said.
Ally, which didn’t pass the test earlier this year, is considering raising the money in a private transaction, said the person, who requested anonymity because the figure hasn’t been disclosed. The Detroit-based firm must submit a new plan to the central bank before it can return a $17.2 billion U.S. bailout.
The lender is considering ways to repay preferred shares held by the Treasury Department, including using cash on hand or issuing stock, the company said yesterday in a regulatory filing. No decision has been made and any approach may be subject to regulatory approval, according to the filing.
Ally, the former financing arm of General Motors Co. (GM:US), sold about $5.9 billion of convertible preferred shares paying 9 percent to the government as part of a rescue that left the U.S. with a 74 percent stake (ALLY:US). Ally can redeem the preferred securities with consent from the Treasury or if the Fed compels a conversion, according to a May 1 filing.
A redemption would double Ally’s repayment to the Troubled Asset Relief Program to 70 percent of what the company owed, Jeffrey Brown, vice president of finance and corporate planning, said on a May 1 conference call with investors. The company also has filed to sell shares in an initial public offering.
The auto lender had a capital plan rejected in March after regulators found “deficiencies” in its planning process and capital ratios that failed to meet standards. The Fed doesn’t count the preferred securities as capital.
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