Weakened mortgage operations squeeze Ally Financial profits

Solid capital, liquidity portfolios keep company afloat

Ally Financial (ALLY) posted weaker earning results in its mortgage operations due to charges tied to federal regulator settlements and the cease in new originations.

During the third quarter of 2013, Ally’s mortgage operations reported a pre-tax loss of $5 million, down compared to a pre-tax income of $331 million last year.

The steep decline from the previous year was largely due to the decision to exit all non-strategic mortgage-related activities and end new originations last year. In February, Ally sold its mortgage operation to Walter Investment Management Corp. (WAC).

The remaining mortgage held-for-investment portfolio also declined to less than $9 billion as of Sept. 30, 2013.

As of June, the business had no further mortgage originations, and as a result of the sale of the mortgage servicing rights portfolio last quarter, the bank’s MSR assets sit at zero.

Year-over-year results were impacted by lower income from mortgage operations given that the company exited all non-strategic mortgage-related activities last year. This was a direct result of the recent settlements with the Federal Housing Finance Agency and the Federal Deposit Insurance Corporation for all pending litigation and related claims.

Ally posted $5 million loss in its mortgage operations in the third quarter, up from a $27 million loss in the second quarter, but significantly down from $331 million last year.

Nonetheless, Ally maintained a strong capital and liquidity profile with robust interest from lenders and investors.

The company announced $1 billion private placements of common stock and plans to repurchase preferred securities from the Department of Treasury.

Ally also issued more than $2.1 billion in unsecured debt in the third quarter to replaced higher-cost unsecured debt. Additionally, capital ratios remained strong with a preliminary Tier 1 capital ratio of 15.4% at the end of the quarter.

“Looking ahead, we are focused on continuing to improve profitability, exiting the U.S. Treasury's ownership and advancing our leading dealer financial services and direct banking franchises," explained chief executive officer Michael Carpenter. 

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