Investors may have been concerned with the company's historical ties
to General Motors Co, <GM.N> which is facing a disastrous recall
linked to ignition switch problems, said Jack Ablin, chief
investment officer at BMO Private Bank. Ally is the former in-house
finance arm for GM.
Ally's shares fell amid broader market weakness. The Standard &
Poor's 500 index declined 2.1 percent on Thursday.
The $2.38 billion IPO is the latest step in Ally's efforts to exit
government ownership after receiving a $17.2 billion taxpayer-funded
bailout during the financial crisis. The U.S. Treasury sold a chunk
of its shares in the IPO, reducing its stake to 17.1 percent, from
36.8 percent. The Treasury's ownership could fall to 14.1 percent if
underwriters exercise an option to sell additional shares on behalf
of the government.
Ally filed paperwork to go public three years ago, but its difficult
subprime loans and a choppy market for initial public offerings kept
the company's investors from selling shares to the public until now.
The U.S. government once owned as much as 73.8 percent of the
company. Ally's chief executive, Michael Carpenter, said in an
interview that he expects the Treasury to fully sell off its stake
by the end of the year.
Losing the government as an investor will boost Ally's profitability
because it will do away with limits on the company's business
activities, Carpenter said.
For example, Ally faced restrictions on pricing deposits and was
forced to operate its banking subsidiary with a 15 percent leverage
ratio, far above the 6 percent U.S. regulators proposed on Tuesday
for the subsidiaries of the country's largest banks.
"We have a very clear understanding with regulators that when
there's no longer government ownership, those constraints will go
away," and the company can achieve much higher levels of
profitability, Carpenter said.
The Treasury Department said it will exit its remaining stake as
soon as is practicable, and in a way that maximizes proceeds.
The Treasury had decided that selling all of its remaining stake on
Thursday it would have overwhelmed the market, Carpenter said.
"That would have been a staggeringly large IPO and a potential train
wreck in the marketplace," Carpenter said.
The offering of 95 million shares was priced at $25 each, the low
end of the expected price range of $25-$28. The offer valued Ally
was valued at about $12 billion.
Ally's shares closed at $23.98, on volume of more than 63.5 million
shares, making it the third-most heavily traded stock on the New
York Stock Exchange.
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Activist investor Daniel Loeb's hedge fund Third Point LLC and
Cerberus Capital Management did not sell any shares in the IPO.
Third Point has a 9.5 percent stake in Ally, while Cerberus has 8.6
CRACKING A TOUGH NUT
Carpenter downplayed any business impact from the current struggles
"I don't think the recall will make much of a difference one way or
another. We have not seen any evidence of any problems in that
regard," he said.
Another difficulty for Ally: competition has been heating up in auto
loans in recent years. Car loans made by Ally fell 8 percent in the
Ally's turnaround had been years in the making.
The "toughest nut to crack" was the problems at the company's
mortgage subsidiary, Residential Capital, the source of the soured
home loans that forced the lender to seek a government rescue in the
first place, Carpenter said.
Ally eventually placed its ResCap unit into bankruptcy in May 2012,
and a federal judge approved its exit plan in December 2013.
As it sorted out its mortgage troubles, Ally decided to focus on its
main business of lending to car buyers and auto dealers. It sold
nearly all its overseas operations and cut its cost of funds by
attracting more deposits to its bank unit.
Citigroup, Goldman Sachs, Morgan Stanley and Barclays were the lead
underwriters for the IPO.
Analysts have said that investors are becoming more selective after
a flood of stock offerings this year. This week, with more than a
dozen IPOs scheduled, is the busiest since 2007.
Ally's shares traded on Thursday at a price-to-book ratio of 0.89,
compared to 2.3 for Santander Consumer USA Holding Inc <SC.N>, a
consumer finance company that went public in January, and 1.0 for
specialty lender CIT Group <CIT.N>.
(Reporting by Peter Rudegeair and Tanya Agrawal;
editing by Savio
D'Souza, Ted Kerr and Leslie Adler)
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