Ally Financial (GJM) CEO Michael Carpenter told investors Thursday the company is working to settle its troubled mortgage unit ResCap by the end of 2012.

Rumors surfaced at the end of last year that the bank might put ResCap into bankruptcy. The entity, which operates separately but receives capital support from Ally, lost $782 million in 2011. It currently holds roughly $619 million in cash and cash equivalents.

"I don't think any of us want to be in the situation where we're having this discussion a year from now," Carpenter said. "There would be greater clarity hopefully sooner rather than later but almost certainly this year."

According to the Ally fourth-quarter financial filing, ResCap has a tangible net worth of $104 million. But the risks associated with the firm are massive. The net worth has dropped every quarter in 2011 from $884 million disclosed at the beginning of the year.

Investors asked Carpenter what would be the risks if Ally cut off ties to ResCap, but he remained vague.

"There are a lot of elements to that conversation," Carpenter said. "Litigation could certainly be a piece of it. If you want to buy it from me for $1 there wouldn't be any threat, but it depends."

He did suggest the company would delay an initial public offering — which would help the Treasury Department unwind its 73% interest in the bailed-out bank — until its mortgage problems are behind it.

"There are three black clouds formed in the last year," Carpenter said. "The focus on representation and warrants, the FHFA suit and the DOJ-AG situation around robo-signing."

Ally took a $270 million accounting hit in the fourth quarter in preparation for penalties from the Department of Justice and the state attorneys general settlement. States have until Monday to sign onto the deal, which reportedly totals $25 billion from the top-five mortgage servicers. Carpenter would not comment on any further charges the company could take.

The Federal Housing Finance Agency sued Ally and 16 other financial institutions last fall over mortgage-backed securities sold to Fannie Mae and Freddie Mac. The FHFA alleged the firms misrepresented details to the mortgage giants. But Carpenter said the bank already settled claims with Fannie and Freddie.

"We think our defense is very, very, very strong," Carpenter said. "We think the FHFA suit will take some time, but we feel very strongly about our strategy there."

Ally holds $825 million in reserves for buying back soured mortgages through representation and warranty claims. It settled $44 million in claims during the fourth quarter, down from $180 million in the same quarter the year before, a sign the bank is making slow but steady progress there.

"This is very, very slowly developing matter and we feel again our position is extremely strong," Carpenter said.

jprior@housingwire.com