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Investments / Lending

ResCap bankruptcy costing Ally Financial

Money Trap
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By the end of the year, Ally Financial expects to be over and done with most of its mortgage business. But, according to its second-quarter results, it's going to be a long third and fourth quarter.

"During the second quarter 2013, mortgages reported a pre-tax loss of $43 million, compared to pre-tax income of $102 million during the second quarter of 2012," the company said in its second-quarter results today.

While its retail bank, insurance and automotive channels all made money in the quarter, losses tied to the Residential Capital bankruptcy more than offset the gains. Ally reported a loss of $927 million versus a loss of $898 million a year earlier.

Excluding $16 million in repositioning costs associated with the completion of the sale of Ally Bank's MSR portfolio, the mortgage segment reported a pre-tax loss of $27 million for the quarter.

Further, as part of the final stages of ResCap Chapter 11, Ally agreed to contribute $1.95 billion in cash to the ResCap estate, as well as the first $150 million of the insurance recoveries expected in connection with additional mortgage-related losses. It hope to be finished with cost such as these by the end of the year, the filing states.

To be fair, there are some bright spots. Ally is already in line with some of the coming Basel III regulations. The bank's Tier 1 capital ratio is 15.4%, relatively high even in comparison to European banks.

Ally originated $688 million in total mortgage production in the second quarter of prime, conforming loans. This compares to $6.1 billion in the first quarter of 2013 and $5.9 billion in the second quarter of 2012.

"As of June 30, the business has no further loans in its mortgage origination pipeline, and as a result of the sale of the MSR portfolio, the bank's MSR assets are less than $1 million," the results state.

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