ResCap continues to weigh on Ally
Ally Financial (GMA) reported a significant net income increase for the fourth quarter as well as 2012, despite the company’s decision in May to put its Residential Capital mortgage subsidiary into bankruptcy.
Total impairment of Ally’s $442 million equity interest in ResCap and a $750 million charge incurred as part of ResCap’s bankruptcy filing put Ally’s core pre-tax income total at $1.1 billion in 2012. That pre-tax income compares to $865 million in 2011.
This excluded certain costs to reposition the company as well as ResCap’s financial results prior to the deconsolidation at the time of its bankruptcy filing, according to Ally’s fourth quarter and 2012 results.
"This past year represented another significant step forward in Ally's evolution and further defining its future path. A number of strategic actions were taken that will reshape and strengthen the company going forward," said Chief Executive Officer Michael Carpenter of Ally.
He added, "Agreements were reached to sell the international operations at a substantial premium, and steps were taken to further address the legacy mortgage risks."
This sale, combined with the estimated $2.5 billion asset sale to Ocwen Loan Servicing (OCN) as well as the $1.4 billion asset sale to Berkshire Hathaway (BRK.A) is expected to generate significant value for ResCap’s creditors, including Ally, the report stated.
Ally also noted in its report that the company will continue to fully cooperate with the bankruptcy court-ordered examination, which is currently set to be finished in April.
As a result, Ally is focused on receiving repayment of its remaining secured debt and other claims in the ResCap cases, according to the firm's earnings report.
Additionally, Ally is exploring alternatives for the agency mortgage servicing rights portfolio and its mortgage business lending operations.
Previously, the company announced the sale of an additional $1.3 billion in MSRs owned by Ally Bank as part of the wind down.
Going forward, Ally will continue to originate "a modest level of high-quality residential jumbo mortgages for its own portfolio through strategic third party relationships."
During 4Q12, Ally’s mortgage operations reported pre-tax income of $100 million, which was essentially flat compared to $101 million from the previously year.
Solid performance during the quarter was driven by gain on sale revenue as a result of Home Affordable Refinance Program production, the company noted.
Total mortgage loan production for 4Q12 was $9.8 billion, consisting mainly of prime conforming loans, up from $8.2 billion from last quarter, but down from $16.4 billion a year earlier.
Ally reduced its presence in the correspondent lending sector and a result, year-over-year loan production decreased.
However, refinancing activity remained steady, accounting for roughly 86% of overall loan production during 4Q12.
"The momentum created in 2012 positions Ally to make additional strides in 2013. Our focus remains on delivering strong results from our leading franchises, completing our strategic transformation, gaining additional efficiencies in the business and repaying the U.S. Treasury investment," Carpenter concluded.