Institutional Risk Analytics downgraded its outlook on Ally Financial (GJM) to negative following reports that suggest the lender is floating the idea of putting its Residential Capital mortgage lending subsidiary into Chapter 11 bankruptcy. “The idea of the affiliate of a bank holding company defaulting without causing the parent company to also slide into a bankruptcy is absurd,” said Christopher Whalen, senior vice president of IRA. He also noted a ResCap bankruptcy filing “may force the issue” with respect to Bank of America (BAC) and Wells Fargo (WFC). Whalen downgraded his outlook on Ally Financial after an article in The Wall Street Journal quoted unidentified sources claiming Ally is considering a possible bankruptcy reorganization of ResCap. Ally Financial told HousingWire: “The press reports you mention are highly speculative and we do not comment on speculation.” “While threatening bankruptcy may be an interesting negotiating strategy, especially when you are sitting across the table from clueless attorneys general and buy side folks (and their lawyers, who work by the hour), the idea of an actual filing is not practical,” Whalen wrote. Whalen said the headline risk from the reorganization of a subsidiary would “likely pull down the entire Ally financial organization.” “As soon as the bankruptcy is announced, Ally will lose access to the financial markets and will almost immediately be forced to file itself to avoid attack by creditors,” he said. “Depending on whether the bank unit of Ally is considered solvent at the time of the filing, the FDIC will then make a determination as to whether or not to resolve the bank.” Manal Mehta with Branch Hill Capital wrote, “Rescap is the fifth largest servicer of mortgages in the country.  To avoid liability from the 50 state AG investigations, Ally would have to put the servicer into bankruptcy.  That would impact millions of homeowners all over the country and attract scrutiny from regulators.  Not putting the servicing assets into bankruptcy would still leave Ally open to liabilities it seeks to resolve via a Rescap bankruptcy thus rendering the exercise pointless.” Write to Kerri Panchuk.