Ally estimates ResCap bankruptcy could cost up to $1.2 billion
A bankruptcy filing on the ResCap mortgage unit could cost parent company Ally Financial between $400 million and $1.25 billion, according to a financial disclosure by the bank Friday.
"If a ResCap bankruptcy were to occur, we could incur significant charges, substantial litigation could result, and repayment of our credit exposure to ResCap could be at risk," according to the filing.
On April 17, Ally disclosed the troubled mortgage unit missed an interest payment on its debt and would be considered in default if it wasn't made within 30 days. More than $473 million on the debt is outstanding.
The unit actually forged a $191 million profit in the first quarter. But according to the filing Friday, Ally estimates the losses from litigation matters and repurchase obligations could reach as high as $4 billion over time.
Barclays Capital (BCS) analysts predicted the unit could be placed into bankruptcy within one to two months, and outlined why selling the servicing rights would be critical for investors in ResCap issued mortgage-backed securities.
The unit has stopped lending to real estate developers and homebuilders in the U.S., according to the Ally filing Friday.