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Exclusive: Ally targets March IPO to raise up to $4.5 billion, government exit

An Ally Financial sign is seen on a building in Charlotte, North Carolina May 1, 2012. REUTERS/Chris Keane
An Ally Financial sign is seen on a building in Charlotte, North Carolina May 1, 2012. REUTERS/Chris Keane

By Paritosh Bansal and Olivia Oran

(Reuters) - Ally Financial Inc is hoping for an initial public offering of as much as $4.5 billion next month, sources familiar with the matter said, in a deal that would allow the U.S. government to make a profit on its crisis-era bailout of the auto lender.

Only the U.S. Treasury Department, which owns 37 percent of the former General Motors Co unit, is expected to sell stock in the IPO.

Both the government and Ally are hoping it would be able to sell the stake in one go, which would translate to a roughly $4.5 billion IPO at the valuations being considered, the sources said.

At the very least, Ally is expecting the U.S. government will be able to sell $2 billion worth of stock in the IPO, which is roughly the money that the company still owes Treasury.

The sources said that while March is the preferred month for the sale, the size and timing of the offering have not been finalized and will depend on market conditions.

A successful IPO would see the last of the major banks repaying taxpayers for its crisis-era rescue and mark an important milestone in Ally's multi-year turnaround effort.

It would also add to the gains the government has recorded so far from the Troubled Asset Relief Program, which was its main vehicle to rescue the nation's banks. Last month, Treasury said it had recovered about $436 billion compared to the $422.2 billion disbursed under TARP.

A Treasury spokesman declined to comment.

The government injected $17.2 billion into Ally after the bank's Residential Capital mortgage unit suffered deep losses from home loans that went bad.

Since then, Ally has been trying to fix its problems and repay the government, taking steps including putting ResCap into bankruptcy, reducing expensive debt and selling assets. By mid-January, it had paid more than $15.3 billion, including dividend and interest payments, to Treasury.

Ally, formerly known as GMAC, faces challenges and increased competition in its main auto lending business, especially as it is no longer the preferred lender for GM and Chrysler.

Earlier this month, it posted a lower fourth-quarter profit, hurt by a charge to settle allegations by regulators that it discriminated in auto lending against minorities. Its auto lending business also slowed in the quarter, with new loans falling 8 percent to $8.2 billion as its agreement to be Chrysler's preferred lender expired.

Still, the bank has seen demand for its shares ramp up in recent months, with investors paying increasingly higher prices in private transactions as they were encouraged by Ally's progress in resolving the ResCap problems.

In January, Treasury sold about 27 percent of the company in a private offering of 410,000 shares at $7,375 per share, raising $3 billion. Treasury said at the time that it would further wind down the investment through either a public offering, private sale or other alternatives.

The private placement price, which values the government's remaining stake at $4.2 billion, is seen as the floor for valuing Ally shares in the IPO, one of the sources said.

The IPO price is expected to be at a premium over the last sale price. A large stock split is also expected before the offering, which would reduce the face value of the shares that are sold to the public, the source added.

Activist investor Daniel Loeb, whose hedge fund Third Point bought around 9.5 percent of Ally's shares in the past few months, last month called the company "a highly successful, nearly completed restructuring that remains undervalued, with an explosive earnings story."

Ally is working with banks including Citigroup Inc, Goldman Sachs Group Inc, Morgan Stanley and Barclays Plc, on the IPO.

Ally initially filed for an IPO in March 2011, but the company delayed its plans several times due to market conditions and as it faced potential fines over its mortgage practices.

(Edited by Martin Howell)

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