Ally's ResCap Deal May Pave the Way for Sale, IPO

NEW YORK (TheStreet) -- Ally Bank may be close to selling its Residential Capital mortgage unit to Fortress Investment Group(FIG) as part of a $3 billion bankruptcy sale.

The New York Post reports that taxpayer-owned Ally Bank will put ResCap into a pre-packaged bankruptcy, paving the way for Fortress's $ 2 billion bid for the troubled mortgage lending unit and another $1 billion for a $130 billion mortgage servicing rights portfolio run by Ally, citing unnamed sources.

The potential sale, which would need a judge's approval, could help Ally Bank repay some of the $17 billion in emergency loans it took from the government during the financial crisis and remove one of the biggest barriers for the former banking and auto-finance arm of General Motors(GM) to eventually go public in an IPO or be sold in pieces to lenders like Wells Fargo(WFC) .

The Post reports that after finding few options to repay $12 billion still owed to the U.S. Treasury, which holds a 74% stake in the bank, Ally chief executive Michael Carpenter is now working to put ResCap into a Chapter 11 bankruptcy with the support of the Treasury. In bankruptcy, Fortress would then buy ResCap's loan servicing and mortgage origination businesses, while also making a bid on Ally's fee-based mortgage servicing portfolio.

In mid-April ResCap missed a $20 million debt payment, fanning speculation that it could file for bankruptcy as $300 million in debt payments come due from May 5 till June, the New York Times reported. The unit also recently caused Fitch Ratings to consider a cut to Ally Bank's senior debt rating, which already stands at BB-, a junk rating. As of March 31, Ally had extended $1.4 billion in financing to ResCap, The Times reports.

In first quarter earnings, Ally Banks net income more than doubled to $310 million, as its mortgage unit that includes ResCap turned a profit of $191 million after a string of lossmaking quarters.