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entitled 'Troubled Asset Relief Program: Government's Exposure to Ally 
Financial Lessens as Treasury's Ownership Share Declines' which was 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

August 2014: 

Troubled Asset Relief Program: 

Government's Exposure to Ally Financial Lessens as Treasury's 
Ownership Share Declines: 

GAO-14-698: 

GAO Highlights: 

Highlights of GAO-14-698, a report to congressional committees. 

Why GAO Did This Study: 

As part of its Automotive Industry Financing Program, funded through 
the Troubled Asset Relief Program (TARP), Treasury provided $17.2 
billion of assistance to Ally Financial (formerly known as GMAC). Ally 
Financial is a large financial holding company, the primary business 
of which is auto financing. 

TARP's authorizing legislation mandates that GAO report every 60 days 
on TARP activities. This report examines (1) the status of Treasury's 
investments in Ally Financial and its efforts to wind down those 
investments and (2) the financial condition of Ally Financial. 

To address these issues, GAO reviewed and analyzed available industry, 
financial, and regulatory data from 2009 through June 2014. GAO also 
reviewed rating agency analyses, Treasury reports and documentation 
detailing Treasury's investments in Ally Financial and its divestments 
from the company, as well as Ally Financial's financial filings and 
reports. GAO also interviewed officials from the Federal Deposit 
Insurance Corporation (FDIC), Federal Reserve, and Treasury, and 
representatives from Ally Financial. 

GAO provided a draft of this report to FDIC, the Federal Reserve, 
Treasury, and Ally Financial. Treasury generally concurred with GAO's 
findings. Ally Financial provided technical comments, which GAO has 
incorporated, as appropriate. FDIC and the Federal Reserve did not 
provide comments. 

What GAO Found: 

The Department of the Treasury (Treasury) reduced its ownership stake 
in Ally Financial Inc. (Ally Financial) from 74 percent in October 
2013, to 16 percent as of June 30, 2014. As shown in the figure below, 
the pace of Treasury's reduction in its ownership share of Ally 
Financial accelerated in 2013 and corresponds with two key events. 
First, in November 2013, the Board of Governors of the Federal Reserve 
System (Federal Reserve) did not object to Ally Financial's 
resubmitted 2013 capital plan, which allowed Ally Financial to 
repurchase preferred shares from Treasury and complete a private 
placement of common shares. Second, in December 2013 the bankruptcy 
proceedings of Ally Financial's mortgage subsidiary, Residential 
Capital LLC (ResCap), were substantially resolved. The confirmed 
Chapter 11 plan broadly released Ally Financial from any and all legal 
claims by ResCap and, subject to certain exceptions, all other third 
parties, in exchange for $2.1 billion in cash from Ally Financial and 
its insurers. As of June 30, 2014, Treasury had received $17.8 billion 
in sales proceeds and interest and dividend payments on its total 
assistance to Ally Financial of $17.2 billion. 

Figure: Treasury's Ownership Share of Ally Financial Inc., 2010-2014: 

[Refer to PDF for image: combined vertical bar and line graph] 

Year: 2010; 
Treasury percentage ownership of Ally common stock: 74%; 
December: Treasury assistance: $17.2 billion. 

Year: 2011; 
Treasury percentage ownership of Ally common stock: 74%. 

Year: 2012; 
Treasury percentage ownership of Ally common stock: 74%. 

Year: 2013; 
Treasury percentage ownership of Ally common stock: 63%; 
November: Ally repurchase of remaining Treasury-held mandatory 
convertible preferred shares; completion of private placement of 
common shares: $5.9 billion. 

Year: 2014; 
January: Private placement of Treasury-held common shares: $3 billion; 
Treasury percentage ownership of Ally common stock: 37%; 
April: Initial public offering of 95 million Treasury-held common 
shares: $2.4 billion; 
Treasury percentage ownership of Ally common stock: 17%; 
May: Additional sale of 7 million Treasury-held common shares: $181 
million; 
Treasury percentage ownership of Ally common stock: 16%. 

Source: GAO summary of information from Treasury and Ally Financial 
Inc. GAO-14-698. 

[End of figure] 

Ally Financial's financial condition has continued to stabilize in 
late 2013 and early 2014 as illustrated by multiple capital, 
profitability, and liquidity measures. For example, Ally Financial's 
capital ratios have remained above regulatory minimum levels since 
2009, which indicates that it is in a better position to absorb 
financial losses. In addition, the company raised significant levels 
of common equity through private and public share offerings. According 
to recent credit rating agency analyses, Ally Financial is competitive 
in automotive financing, particularly in the floor-plan business 
segment, which focuses on dealer financing. However, analysts reported 
that the company faces potential competitive challenges, such as the 
loss of certain exclusive relationships with General Motors Company 
and Chrysler Group LLC. 

What GAO Recommends: 

GAO makes no recommendations in this report. 

View [hyperlink, http://www.gao.gov/products/GAO-14-698]. For more 
information, contact A. Nicole Clowers at (202) 512-8678 or 
clowersa@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Resolution of Major Regulatory and Legal Issues Was Key to Treasury 
Reducing Its Ownership Share in Ally Financial: 

Ally Financial's Business Structure Has Been Evolving and Its 
Financial Condition Has Continued to Stabilize: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of the Treasury: 

Appendix III: Contact and Staff Acknowledgments: 

Tables: 

Table 1: Ally Financial Capital Ratios, 2009-2013: 

Table 2: Net Interest Spread, Return on Assets, and Nonperforming 
Asset Ratio for Ally Financial, 2009-2013: 

Figures: 

Figure 1: Treasury's Ownership Share of Ally Financial, 2010-2014: 

Figure 2: Ally Financial Net Income (Loss) by Operating Unit, 2009-
2013: 

Figure 3: Ally Financial Liquidity Ratio, September 2009-March 2014: 

Figure 4: Ally Financial Operating Cash Flow, September 2009-March 
2014: 

Figure 5: Dollar Amount of Consumer Automobile Loans for Five Large 
Bank Holding Companies, 2011-2014: 

Abbreviations: 

AIFP: Automotive Industry Financing Program: 

CCAR: Comprehensive Capital Analysis and Review: 

CPP: Capital Purchase Program: 

EESA: Emergency Economic Stabilization Act of 2008: 

FDIC: Federal Deposit Insurance Corporation: 

GM: General Motors Company: 

GMAC: General Motors Acceptance Corporation: 

IPO: initial public offering: 

ResCap: Residential Capital LLC: 

ROA: return on assets: 

SEC: Securities and Exchange Commission: 

TARP: Troubled Asset Relief Program: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

August 5, 2014: 

Congressional Committees: 

In 2008 and 2009, the Department of the Treasury (Treasury) provided 
significant support to the automotive industry--including automotive 
finance companies--after deteriorating economic conditions resulted in 
a dramatic decline in automobile sales and significant financial 
losses in the industry. Through the Automotive Industry Financing 
Program (AIFP) under the Troubled Asset Relief Program (TARP), 
Treasury provided $17.2 billion of assistance to GMAC LLC (General 
Motors Acceptance Corporation), a financial services company that 
provided consumer financing for vehicle purchases and dealer financing 
for inventory.[Footnote 1] In 2010, GMAC became Ally Financial Inc. 
(Ally Financial).[Footnote 2] As a result of its actions to provide 
assistance to the company, the federal government had an almost 74 
percent interest in Ally Financial in 2010. 

The Emergency Economic Stabilization Act of 2008 (EESA) provides GAO 
with broad oversight authorities for actions taken under TARP, 
including assistance under AIFP.[Footnote 3] We have analyzed and 
monitored Treasury's activities in implementing TARP in a number of 
reports. More specifically, in our October 2013 report, we analyzed 
Treasury's assistance to Ally Financial and its efforts to wind down 
its investments.[Footnote 4] This report examines (1) the status of 
Treasury's investments in Ally Financial as of June 30, 2014, and its 
efforts to wind down those investments and (2) the financial condition 
of Ally Financial through March 31, 2014. 

To determine the status of Treasury's investments in Ally Financial, 
we reviewed Treasury's monthly reports to Congress detailing the 
levels of the investments made in the company, including the number of 
shares owned by Treasury, and Treasury's daily transactions reports. 
[Footnote 5] To analyze Treasury's efforts to wind down those 
investments, we reviewed Treasury documentation relating to its exit 
from Ally Financial. We reviewed Ally Financial regulatory filings, 
including Securities and Exchange Commission (SEC) filings; and 
publicly available reports from the Board of Governors of the Federal 
Reserve System (Federal Reserve) on its 2014 stress tests of bank 
holding companies and 2014 Comprehensive Capital Analysis and Review 
(CCAR).[Footnote 6] We also interviewed officials from Treasury, 
Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and 
representatives from Ally Financial. To assess the financial condition 
of Ally Financial, we measured the institution's capital ratios, net 
income, net interest spread margin, return on assets, nonperforming 
asset ratio, liquidity ratio, bank deposits, and operating cash flow, 
generally from 2009 through the first quarter (March 31) of 2014. We 
obtained these data from SNL Financial, a provider of financial 
information. We also reviewed reports by several credit rating 
agencies on how they rate Ally Financial's financial strength. We 
assessed the completeness and accuracy of all data used in this report 
and determined they were sufficiently reliable for the purposes of 
this report. For a more detailed discussion of the scope and 
methodology, see appendix I. 

We conducted this performance audit from March 2014 to August 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings based on our audit objectives. 

Background: 

Ally Financial is one of the country's largest financial holding 
companies, with total assets of $148.5 billion as of March 31, 
2014.[Footnote 7] Its primary line of business is automotive 
financing--both consumer financing and leasing and dealer floor-plan 
financing.[Footnote 8] Ally Financial (when it was known as GMAC) 
formerly served as General Motors Company's (GM) captive automotive 
finance company.[Footnote 9] GMAC's subsidiaries offered financial 
services such as auto insurance and residential mortgages. In 2006, 
Cerberus Capital Management purchased 51 percent of the company (GM 
retained 49 percent). As the housing market declined in the late 
2000s, the previously profitable GMAC mortgage business unit began 
producing significant losses. For example, the company's Residential 
Capital LLC (ResCap) subsidiary lost approximately $17 billion from 
2007 through 2009. During the same period, U.S. automobile sales 
dropped from 16.4 million to 10.4 million cars and light trucks, 
negatively affecting the company's core automobile financing business. 
On May 14, 2012, ResCap and certain of its wholly owned direct and 
indirect subsidiaries filed voluntary petitions for relief under 
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the 
Southern District of New York (Bankruptcy Court). The bankruptcy 
created uncertainties about Ally Financial's financial obligations. 

Regulation and Supervision of Ally Financial: 

As a financial holding company, Ally Financial is regulated and 
supervised by the Federal Reserve.[Footnote 10] Under the Dodd-Frank 
Act and implementing regulations, the Federal Reserve conducts an 
annual supervisory stress test of bank holding companies with $50 
billion or more in total consolidated assets to evaluate whether the 
companies have sufficient capital to absorb losses resulting from 
adverse economic conditions. For the stress tests, the Federal Reserve 
projects revenue, expenses, losses, and resulting post-test capital 
levels, and regulatory capital ratios, including the tier 1 capital 
ratio and the tier 1 common ratio, under three economic scenarios 
(baseline, adverse, and severely adverse).[Footnote 11] In addition, 
the Federal Reserve requires the same bank holding companies to 
conduct an annual company-run stress test using the same macroeconomic 
scenarios that the Federal Reserve uses to conduct its supervisory 
stress test. 

The Federal Reserve also conducts an annual exercise, CCAR, to help 
ensure that large bank holding companies have robust, forward-looking 
capital planning processes that take into account their unique risks 
and set aside sufficient capital to operate during periods of economic 
and financial stress.[Footnote 12] The Federal Reserve evaluates 
capital adequacy; internal processes for assessing capital adequacy; 
plans for capital distributions, such as dividend payments or stock 
repurchases; and other actions that affect capital.[Footnote 13] 

The Federal Reserve may object to a capital plan because of 
significant deficiencies in the planning process or because one or 
more capital ratios would fall below required levels under the 
assumption of stress and planned distributions.[Footnote 14] If the 
Federal Reserve objects to a proposed capital plan, the bank holding 
company is permitted to make capital distributions only if the Federal 
Reserve indicates in writing that it does not object.[Footnote 15] The 
company also must resubmit the capital plan after remediating the 
deficiencies.[Footnote 16] 

In March 2013, the Federal Reserve reported the results of its 2013 
supervisory stress test and of the CCAR exercise.[Footnote 17] The 
Federal Reserve found that Ally Financial's tier 1 common capital 
ratio fell below the required 5 percent under the severely adverse 
scenario. Ally Financial was the only one of the 18 bank holding 
companies tested that fell below this required level. The Federal 
Reserve objected to Ally Financial's capital plan during the 2013 
CCAR.[Footnote 18] According to the Federal Reserve, Ally Financial's 
capital ratios did not meet the required minimums under the proposed 
capital plan. Specifically, the Federal Reserve reported that under 
stress conditions, Ally Financial's plan resulted in a tier 1 common 
ratio of 1.52 percent, which is below the required level of 5 percent 
under the capital plan rule. According to the Federal Reserve CCAR 
results paper, these results assumed that Ally Financial remained 
subject to contingent liabilities associated with ResCap. The Federal 
Reserve required Ally Financial to resubmit its capital plan, which 
Ally Financial did in September 2013. 

Ally Financial owns Ally Bank, an Internet-and telephone-based bank. 
Ally Bank is a state-chartered nonmember bank supervised by FDIC and 
the Utah Department of Financial Institutions. Ally Bank had more than 
$55.9 billion in total deposits as of March 31, 2014. 

Treasury Assistance through TARP: 

To help stabilize the automotive industry and avoid further economic 
disruptions, Treasury disbursed $79.7 billion through AIFP from 
December 2008 through June 2009. The assistance was used to support 
two automakers, Chrysler and GM, and their automotive finance 
companies, Chrysler Financial and GMAC.[Footnote 19] In July 2009, 
Treasury outlined guiding principles for the investments, including: 

* exiting its investments as soon as practicable in a timely and 
orderly manner that minimizes financial market and economic impact; 

* protecting taxpayer investment and maximizing overall investment 
returns within competing constraints; 

* improving the strength and viability of GM and Chrysler so that they 
could contribute to economic growth and jobs without government 
involvement; and: 

* managing its ownership stake in a hands-off, commercial manner, 
including voting its shares only on core governance issues, such as 
the selection of a company's board of directors and major corporation 
events or transactions.[Footnote 20] 

In late December 2008, as a part of AIFP, Treasury agreed to purchase 
$5 billion in senior preferred equity from GMAC and received an 
additional $250 million in preferred shares through warrants that 
Treasury exercised immediately.[Footnote 21] 

Treasury subsequently provided GMAC with additional assistance through 
TARP. 

* In May 2009, Treasury purchased $7.5 billion of mandatory 
convertible preferred shares from GMAC. Also, in May 2009, Treasury 
exercised its option to exchange an $884 million loan to GM for a 35.4 
percent common ownership share in GMAC.[Footnote 22] 

* In December 2009, Treasury made additional investments in Ally 
Financial--$2.5 billion of trust preferred securities and 
approximately $1.3 billion of mandatory convertible preferred shares. 
[Footnote 23] Also, in December 2009, Treasury converted $3 billion of 
existing mandatory convertible preferred shares into common stock, 
increasing its common equity ownership from 35 to 56.3 percent. 

* In December 2010, Treasury converted $5.5 billion of existing 
mandatory convertible preferred shares into common stock, increasing 
its common equity ownership to approximately 74 percent of Ally 
Financial.[Footnote 24] 

Ally Financial announced a plan in 2012 to repurchase Treasury's 
mandatory convertible preferred shares, worth $5.9 billion, to reduce 
Treasury's investment in the company. However, this plan stalled after 
the Federal Reserve objected to Ally Financial's initial 2013 capital 
plan submission, partly because of uncertainty about the company's 
obligations associated with the ResCap bankruptcy. 

Resolution of Major Regulatory and Legal Issues Was Key to Treasury 
Reducing Its Ownership Share in Ally Financial: 

Two key regulatory and legal developments allowed Ally Financial and 
Treasury to move ahead with plans to reduce Treasury's investments in 
the company in late 2013. First, in November 2013, the Federal Reserve 
did not object to Ally Financial's resubmitted capital plan. Second, 
in December 2013, the bankruptcy proceedings of Ally Financial's 
mortgage subsidiary, ResCap, were substantially resolved. Following 
the resolution of these issues, Treasury significantly reduced its 
ownership stake in Ally Financial--primarily through sales of common 
stock--from 74 to 16 percent as of June 30, 2014. Also as of June 30, 
2014, Treasury had received $17.8 billion (including interest and 
dividends), which exceeds the total Treasury assistance to the company 
of $17.2 billion.[Footnote 25] 

Resolution of Regulatory and Legal Issues Removed Uncertainty about 
Ally Financial: 

Two key regulatory and legal developments in the second half of 2013 
helped Treasury accelerate the wind-down of its investments in Ally 
Financial. 

* Federal Reserve did not object to Ally Financial's resubmitted 
capital plan: In November 2013 Ally Financial received a 
"nonobjection" from the Federal Reserve to its resubmitted 2013 CCAR 
capital plan, which enabled Ally Financial to move forward on its 
repurchase of $5.9 billion of the remaining Treasury-owned mandatory 
convertible preferred shares. As we previously reported, Treasury and 
Ally Financial agreed in August 2013 that Ally would repurchase the 
mandatory convertible preferred shares, conditioned on receiving a 
nonobjection on the resubmitted capital plan and the closing of a 
private placement securities transaction.[Footnote 26] Ally Financial 
resubmitted its plan in September 2013 and the Federal Reserve 
approved it on November 15, 2013. The Federal Reserve nonobjection 
enabled Ally Financial to complete the private placement of common 
shares valued at $1.3 billion announced in August 2013. The private 
placement, intended in part to help finance the repurchase of the $5.9 
billion remaining Treasury-owned mandatory convertible preferred 
shares, was completed in November 2013, as was the repurchase of the 
Treasury shares. More recently, Ally Financial received a nonobjection 
from the Federal Reserve in March 2014 on its annual capital plan. 
[Footnote 27] 

* Completion of the ResCap bankruptcy: In December 2013, the 
bankruptcy of Ally Financial's ResCap subsidiary was substantially 
resolved.[Footnote 28] The Bankruptcy Court entered an order 
confirming a bankruptcy plan on December 11, 2013, which became 
effective on December 17, 2013. The final bankruptcy agreement 
included a settlement, which the bankruptcy court judge had approved 
in June 2013, releasing Ally Financial from any and all legal claims 
by ResCap and, subject to certain exceptions, all other third parties, 
in exchange for $2.1 billion in cash from Ally Financial and its 
insurers.[Footnote 29] According to Ally Financial, its mortgage 
operations were a significant portion of its operations and were 
conducted primarily through ResCap. With the completion of the ResCap 
settlement, Ally Financial largely exited the mortgage origination and 
servicing business. 

Other regulatory issues were also resolved in 2013, which removed 
additional elements of uncertainty, according to Treasury officials 
and rating agency analyses. In December 2013, Ally Financial received 
approval from the Federal Reserve for its filing to elect financial 
holding company status. As a bank holding company that had not made an 
election to be treated as a financial holding company, Ally Financial 
would have been restricted from carrying out certain nonbanking 
activities, such as insurance underwriting. However, when Ally 
Financial (then known as GMAC) received approval to become a bank 
holding company in 2008, Ally Financial was able to continue to offer 
certain existing insurance services on a temporary basis under the 
authority of section 4(a)(2) of the Bank Holding Company Act of 
1956.[Footnote 30] The authority expired on the fifth anniversary of 
the date that Ally Financial became a bank holding company, or 
December 24, 2013. Gaining financial holding company status enabled 
Ally Financial to continue to offer its insurance and auction lines of 
business, according to Ally Financial. Further, in December 2013 Ally 
Financial settled allegations of violations of the Equal Credit 
Opportunity Act by paying $98 million relating to the execution of 
consent orders issued by the Department of Justice and the Consumer 
Financial Protection Bureau.[Footnote 31] 

Since December 2013, Treasury's Ownership Share in Ally Financial Has 
Declined at an Accelerated Pace: 

After the legal and regulatory developments in late 2013, the pace of 
Treasury's reduction in its ownership share of Ally Financial 
accelerated. From December 2013 through June 2014, Treasury reduced 
its ownership share of Ally Financial by almost 80 percent (see fig. 
1). In November 2013, Ally Financial made cash payments totaling $5.9 
billion to repurchase all remaining mandatory convertible preferred 
shares outstanding and terminate an existing share adjustment 
provision.[Footnote 32] Additionally, Ally Financial issued $1.3 
billion of common equity to third-party investors, reducing Treasury's 
ownership share from 74 to 63 percent. In January 2014, Treasury 
completed a private placement of Ally Financial common stock valued at 
approximately $3 billion, further reducing Treasury's ownership share 
of Ally Financial to 37 percent. According to Treasury, the decision 
to undertake a private placement at that time was based on market 
conditions, as well as information Treasury received about increasing 
investor interest from the underwriter of two previous private 
placements of Ally Financial shares--the $1.3 billion private 
placement Ally Financial completed in November 2013 and an approximate 
$900 million private offering by GM of its remaining Ally Financial 
stock in December 2013. These transactions contributed to building an 
investor base for the stock, according to Treasury and Ally Financial. 

Figure 1: Treasury's Ownership Share of Ally Financial, 2010-2014: 

[Refer to PDF for image: combined vertical bar and line graph] 

Year: 2010; 
Treasury percentage ownership of Ally common stock: 74%; 
December: Treasury assistance: $17.2 billion. 

Year: 2011; 
Treasury percentage ownership of Ally common stock: 74%. 

Year: 2012; 
Treasury percentage ownership of Ally common stock: 74%. 

Year: 2013; 
March: Federal Reserve objected to Ally capital plan during 2013 
CCAR[A];l 
Treasury percentage ownership of Ally common stock: 63%; 
November: Ally repurchase of remaining Treasury-held mandatory 
convertible preferred shares; completion of private placement of 
common shares; 
November: Federal Reserve did not object to Ally's resubmitted 2013 
CCAR capital plan; 
December: ResCap bankruptcy completed. Ally election to financial 
holding company status approved[B]; 
Treasury assistance: $5.9 billion. 

Year: 2014; 
January: Private placement of Treasury-held common shares; 
Treasury assistance: $3 billion; 
March: Federal Reserve did not object to Ally's capital plan during 
the 2014 CCAR; 
Treasury percentage ownership of Ally common stock: 37%; 
April: Initial public offering of 95 million Treasury-held common 
shares; 
Treasury assistance: $2.4 billion; 
Treasury percentage ownership of Ally common stock: 17%; 
May: Additional sale of 7 million Treasury-held common shares; 
Treasury assistance: $181 million; 
Treasury percentage ownership of Ally common stock: 16%. 

Ally: Ally Financial Inc. 
Treasury: Department of the Treasury. 

Source: GAO summary of information from Treasury and Ally Financial 
Inc. GAO-14-698. 

Notes: 

[A] CCAR--Comprehensive Capital Analysis and Review--is an annual 
Federal Reserve assessment of the internal capital planning process 
and capital adequacy of large, complex U.S. bank holding companies. 

[B] Financial holding company status enables Ally Financial to 
continue to engage in insurance underwriting and other nonbanking 
activities. 

[End of figure] 

Treasury said the positive results of the March 2014 Federal Reserve 
stress test and CCAR contributed to the decision to further reduce its 
ownership share. The day after the release of the CCAR results in 
March 2014, Treasury announced that it would sell Ally Financial 
common stock in an initial public offering (IPO) and in April 2014, 
completed the IPO of 95 million Treasury shares at $25 per share. The 
$2.4 billion sale reduced Treasury's ownership share to approximately 
17 percent. Following the IPO, Ally Financial became a publicly held 
company. In May 2014, Treasury received $181 million from the sale of 
additional shares after underwriters exercised the option to purchase 
an additional 7 million shares from Treasury at the IPO price. This 
additional sale reduced Treasury's ownership share to approximately 16 
percent. As of June 30, 2014, Treasury had received $17.8 billion in 
sales proceeds and interest and dividend payments on its total 
assistance to Ally Financial of $17.2 billion.[Footnote 33] 

Based on the stock prices, as of June 30, 2014, Treasury's remaining 
investment in Ally Financial, which consists of common stock, was 
valued at almost $1.8 billion. Treasury stated that it would like to 
divest its ownership stake in Ally Financial in a manner that balances 
the speed of recovery with maximizing returns for taxpayers. Treasury 
officials told us that Treasury does not have a specific date by which 
it intends to fully divest from the company, but that its decision on 
timing will be based on market conditions. These market conditions, in 
part, will reflect Ally Financial's financial performance. 

Ally Financial's Business Structure Has Been Evolving and Its 
Financial Condition Has Continued to Stabilize: 

Since 2013, Ally Financial has continued its evolution into a publicly 
held, monoline finance company in the automotive sector with an 
Internet bank. Ally Financial's financial condition continued to 
stabilize in late 2013 and early 2014 and the company raised 
significant levels of common equity through private and public share 
offerings. According to recent rating agency analyses, Ally Financial 
is competitive in automotive financing, particularly in the floor-plan 
business segment, but faces potential competitive challenges, such as 
its reliance on GM and Chrysler auto financing relationships.[Footnote 
34] 

Ally Financial's Evolving Business Structure: 

Ally Financial's business structure has been simplified and clarified 
over the past year, according to rating agency analyses and federal 
regulatory officials. Specifically, the completion of the ResCap 
bankruptcy marked the company's exit from the mortgage origination and 
servicing business. Ally Financial became a financial holding company 
in December 2013, which, according to the company, enabled it to 
retain its insurance and auction lines of business and maintain its 
full suite of products for dealers. Ally Financial also completed 
sales of its European and Latin American automotive finance operations 
to GM Financial, GM's captive financing company, and its Canadian 
operations to Royal Bank of Canada.[Footnote 35] Ally Financial 
expects to complete GM Financial's acquisition of its remaining 
international operation--its China joint venture, in which the company 
is a 40 percent owner--in 2014, subject to government approvals in 
China. 

Ally Financial's Financial Condition Has Continued to Stabilize: 

Since our last review in 2013, Ally Financial's financial performance 
has continued to stabilize as illustrated by multiple capital, 
profitability, and liquidity measures. Taking into account the 
resolution of ResCap, the sale of international operations, and other 
factors, the three largest credit rating agencies upgraded Ally 
Financial's ratings, although the ratings remain below investment 
grade. 

Capital Position: 

Ally Financial's capital position has remained the same or improved 
since 2009--the year it became subject to regulatory and reporting 
requirements following its conversion to a bank holding company in 
December 2008. Capital can be measured in several ways, but we focused 
on tier 1 capital because it is currently the strongest form of 
capital (see table 1). We examined Ally Financial's tier 1 capital 
ratio and tier 1 leverage ratio and compared them to minimums required 
under the Federal Reserve's capital adequacy guidelines for bank 
holding companies. We also examined Ally Financial's tier 1 common 
ratio. The Federal Reserve has long held the view that bank holding 
companies generally should operate with capital positions well above 
the minimum regulatory capital ratios, with the amount of capital held 
commensurate with a bank holding company's risk profile.[Footnote 36] 

* Tier 1 capital and tier 1 common capital ratios: Higher tier 1 
capital and common capital ratios may indicate that a bank holding 
company is in a better position to absorb financial losses. A tier 1 
capital ratio measures tier 1 capital as a percentage of risk-weighted 
assets. As shown in table 1, Ally Financial's tier 1 capital ratio 
increased from 2009 to 2010 but has declined slightly since 2011. 
Federal Reserve Capital Adequacy Guidelines require bank holding 
companies to have a tier 1 risk-based capital ratio of at least 4 
percent.[Footnote 37] Ally Financial's tier 1 capital ratio exceeded 
the required minimum each year from 2009 through 2013. In 2013, Ally 
Financial reported that the tier 1 capital ratio declined, in part, 
because of the repurchase of Treasury's mandatory convertible 
preferred shares, which qualified as tier 1 capital. A tier 1 common 
capital ratio measures common capital--that is, the common equity 
component of tier 1 capital as a share of risk-weighted assets. Ally 
Financial's tier 1 common ratio has increased from 4.85 percent at the 
end of 2009 to 8.84 percent at the end of 2013.[Footnote 38] 

* Tier 1 leverage ratio: A tier 1 leverage ratio shows the 
relationship between a banking organization's core capital and total 
assets. The tier 1 leverage ratio is calculated by dividing the tier 1 
capital by the firm's average total consolidated assets. Generally, a 
larger tier 1 leverage ratio indicates that a company is less risky 
because it has more equity to absorb losses in the value of its 
assets. As shown in table 1, Ally Financial's leverage ratio has been 
reduced by 20 percent since 2009 but remains well above the regulatory 
minimum guideline of 3 or 4 percent, depending on the bank holding 
company's composite rating.[Footnote 39] 

Table 1: Ally Financial Capital Ratios, 2009-2013: 

Tier 1 capital ratio: 
2009: 14.15%; 
2010: 15.00%; 
2011: 13.71%; 
2012: 13.13%; 
2013: 11.79%. 

Tier 1 common capital ratio[A]: 
2009: 4.85%; 
2010: 8.57%; 
2011: 7.57%; 
2012: 6.98%; 
2013: 8.84%. 

Tier 1 leverage ratio: 
2009: 12.70%; 
2010: 13.05%; 
2011: 11.50%; 
2012: 11.16%; 
2013: 10.23%. 

Source: SNL. GAO-14-698. 

[A] Federal Reserve Capital Adequacy Guidelines do not require a 
minimum tier 1 common capital ratio. However, companies subject to the 
Federal Reserve's capital plan rule must develop a capital plan that 
demonstrates the company's ability to meet a tier 1 common ratio above 
5 percent under stressed conditions. See 12 CFR 225.8(d)(2) (i)(B). 

[End of table] 

Profitability: 

Ally Financial's profitability continued to improve in early 2014, 
after declining in the fourth quarter of 2013 because of certain one-
time expenses, as described later. We examined several measures of 
profitability, including net income (loss), net interest spread, 
return on assets, and nonperforming asset ratio. 

* Net income (loss): Ally Financial suffered a net loss in 2009 of $10 
billion, but has reported net income for 4 of the last 5 years. As 
shown in figure 2, the 2009 loss was driven by substantial losses in 
its mortgage business operating unit. Ally Financial reported net 
income of $361 million in 2013, down from net income of $1.2 billion 
in 2012. The company attributed the decline to circumstances including 
a tax valuation adjustment of $1 billion in 2012; the 2013 payment of 
$1.4 billion as part of the ResCap settlement agreement; and the $98 
million payment in connection with the Department of Justice and 
Consumer Financial Protection Bureau consent orders. 

Figure 2: Ally Financial Net Income (Loss) by Operating Unit, 2009-
2013: 

[Refer to PDF for image: combined stacked vertical bar and line graph] 

Fiscal year: 2009; 
Automotive Finance: $1.522 billion; 
Insurance: $0.321 billion; 
Mortgage/ResCap: -$6.262 billion; 
Net income: -10.343 billion. 

Fiscal year: 2010; 
Automotive Finance: $1.757 billion; 
Insurance: $0.557 billion; 
Mortgage/ResCap: $0.772 billion; 
Net income: $1.029 billion. 

Fiscal year: 2011; 
Automotive Finance: $1.333 billion; 
Insurance: $0.316 billion; 
Mortgage/ResCap: $0.092 billion; 
Net income: -$0.157 billion. 

Fiscal year: 2012; 
Automotive Finance: $1.389 billion; 
Insurance: $0.16 billion; 
Mortgage/ResCap: $0.595 billion; 
Net income: $1.196 billion. 

Fiscal year: 2013; 
Automotive Finance: $1.271 billion; 
Insurance: $0.254 billion; 
Mortgage/ResCap: -$0.258 billion; 
Net income: $0.361 billion. 

Source: SNL. GAO-14-698.	 

Notes: Data are the most recent reported values in Ally Financial 
reports on Form 10-K. Ally Financial reported a net loss in 2011 due 
to the accrual of foreclosure-related expenses. Total reported net 
income does not always equal the sum of the three operating units 
because of the exclusion of "other" income. 

[End of figure] 

* Net interest spread: The net interest spread is the difference 
between the average rate on total interest-earning assets and the 
average rate on total interest-bearing liabilities, excluding 
discontinued operations for the period. In general, the larger the 
spread, the more a company is earning. Ally Financial's net interest 
spread increased from a reported 0.31 percent at the end of 2009 to 
1.75 percent at the end of 2013, meaning that Ally Financial is 
earning more interest on its assets than it is paying interest on its 
liabilities (see table 2).[Footnote 40] 

* Return on assets (ROA): ROA is calculated by dividing a company's 
net income by its total assets. It is an indication of how profitable 
a company is relative to its total assets and gives an idea of 
management's efficiency in using its assets to generate earnings. A 
higher ROA suggests that a company is using its assets efficiently. 
Ally Financial reported improved ROA from 2009 to 2013, with a 
reported negative 5.81 percent ROA for 2009 and a positive 0.23 
percent in 2013. 

* Nonperforming asset ratio: This ratio measures asset quality by 
dividing the value of nonperforming assets by the value of total 
assets. The lower the ratio, the fewer poorly performing assets a 
company holds. Ally Financial's nonperforming asset ratio fell from 
4.36 percent in 2009 to 1.19 percent in 2013 (see table 2). 

Table 2: Net Interest Spread, Return on Assets, and Nonperforming 
Asset Ratio for Ally Financial, 2009-2013: 

Net interest spread; 
2009: 0.31; 
2010: 0.81; 
2011: 0.69; 
2012: 1.18; 
2013: 1.75. 

Return on assets; 
2009: (5.81); 
2010: 0.58; 
2011: (0.09); 
2012: 0.65; 
2013: 0.23. 

Nonperforming asset ratio; 
2009: 4.36; 
2010: 3.46; 
2011: 2.69; 
2012: 1.06; 
2013: 1.19. 

Source: GAO analysis of Ally Financial and SNL data. GAO-14-698. 

[End of table] 

Liquidity, Bank Deposits, and Cash Flow: 

Ally Financial's liquidity position generally has stabilized since 
2009. To examine Ally Financial's liquidity position, we examined the 
company's total liquidity ratio, bank deposits, and operating cash 
flow. 

* Total liquidity ratio: Liquidity ratios measure a bank's total 
liquid assets against its total liabilities. Generally, the ratios 
indicate a bank's ability to sell assets quickly to cover short-term 
debts--with a higher ratio providing a larger margin of safety. 
[Footnote 41] Overall, Ally Financial's liquidity ratio remained 
fairly stable from the third quarter of 2009 through the fourth 
quarter of 2013 (see fig. 3). Declines in liquidity levels in 2012 and 
2013 were associated with repayments of government assistance. For 
example, according to Ally Financial, the decline in liquidity in 2013 
was due to the repurchase of the Treasury mandatory convertible 
preferred shares and the redemption of certain high-coupon, callable 
debt. For the quarter ending March 31, 2014, Ally Financial reported a 
total liquidity ratio of 16.01 percent. 

Figure 3: Ally Financial Liquidity Ratio, September 2009-March 2014: 

[Refer to PDF for image: line graph] 

2009: 
Q3: 14.9; 
Q4: 16.34 

2010: 
Q1: 15.51; 
Q2: 16.47; 
Q3: 14.31; 
Q4: 15.84. 

2011: 
Q1: 16.71; 
Q2: 18.1; 
Q3: 17.73; 
Q4: 16.78. 

2012: 
Q1: 16.44; 
Q2: 17.42; 
Q3: 18.22; 
Q4: 13.72. 

2013: 
Q1: 15.85; 
Q2: 18.69; 
Q3: 18.25; 
Q4: 14.42. 

2014: 
Q1: 16.01. 

Source: SNL. GAO-14-698. 

[End of figure] 

* Bank deposits: Bank deposits are the funds that consumers and 
businesses place with a bank, and growth in deposits is an important 
factor in the bank's liquidity position. From December 2008 to March 
2014, deposits at Ally Bank, Ally Financial's Internet bank, grew 
almost 190 percent, from $19.3 billion to $55.9 billion, of which 
approximately $45.2 billion were retail (consumer) deposits. Deposits 
accounted for 43 percent of Ally Financial's total funding as of the 
first quarter of 2014, providing the company with a low-cost source of 
funding that is less sensitive to interest rate changes and market 
volatility than other sources of funding. 

* Operating cash flow: From the first quarter of 2010 through the 
third quarter of 2013, Ally Financial generated positive cash flow 
from operating activities (see fig. 4). Since the third quarter of 
2013, cash flows have varied, with Ally reporting negative cash flow 
in the fourth quarter of 2013 and positive cash flow at the end of the 
first quarter of 2014. According to Ally Financial, 2013 declines in 
operating cash flow (compared with the prior year) were driven by the 
settlement of: 

* derivative transactions, but were partially offset by sales and 
repayments of mortgage and automotive loans.[Footnote 42] 

Figure 4: Ally Financial Operating Cash Flow, September 2009-March 
2014: 

[Refer to PDF for image: line graph] 
2009: 
Q3: -$0.329 billion; 
Q4: -$7.084 billion. 

2010: 
Q1: $7.373 billion; 
Q2: $4.21 billion; 
Q3: -$0.043 billion; 
Q4: $0.067 billion. 

2011: 
Q1: $3.042 billion; 
Q2: $1.321 billion; 
Q3: $1.418 billion; 
Q4: -$0.288 billion. 

2012: 
Q1: $2.142 billion; 
Q2: $2.798 billion; 
Q3: -$0.0952 billion; 
Q4: $0.204 billion. 

2013: 
Q1: $2.254 billion; 
Q2: $1.159 billion; 
Q3: $0.952 billion; 
Q4: -$1.864 billion. 

2014: 
Q1: $0.932 billion. 

Source: SNL. GAO-14-698. 

[End of figure] 

Ally Financial's changing financial condition is reflected in its 
credit rating. Although Ally's credit rating remains below investment 
grade, its long-term credit rating with the three largest credit 
rating agencies has been upgraded multiple times since 2009. Most 
recently, Ally's long-term ratings with Moody's, Standard and Poor's, 
and Fitch Ratings were upgraded to Ba3, BB, and BB+, respectively. 

Ally Financial Continues to Face Competitive Challenges: 

According to rating agency analyses, Ally Financial is a strong 
competitor in automotive financing, although the company faces 
competitive challenges. Analysts have said that Ally Financial is 
competitive in automotive financing, particularly in the floor-plan 
business segment. In addition, as mentioned previously in this report, 
Ally Bank has continued to increase its level of retail deposits. 

Analysts have pointed to potential competitive challenges for Ally 
Financial, such as its reliance on GM and Chrysler automotive 
financing relationships. As we previously reported, GM and Chrysler 
have established captive financing units.[Footnote 43] Ally's 
exclusive lending relationships with GM and Chrysler have ended as the 
two automakers have begun to rely on their captive financing units. 
For example, the agreement between GM and Ally Financial on dealer and 
consumer lending was revised in early 2014. Among other changes, Ally 
Financial no longer enjoys exclusivity with regard to GM lending 
arrangements.[Footnote 44] The captive financing units of GM and 
Chrysler have begun to increase their financing activities. However, 
according to Ally Financial representatives, the company is the only 
automotive finance company that offers a suite of products to dealers 
(financing, insurance, and auction services) and as a result, the 
company expects to continue to be competitive in this segment. 
Moreover, Ally Financial representatives told us that the company has 
been focusing more on increasing profitability than on market share--
consistent with its goals as a publicly held company, which include 
maximizing return to shareholders. Company representatives also have 
said in public statements that Ally Financial has been focusing on 
reducing its noninterest expenses and lowering its cost of funds. 

Ally Financial also faces competition from other large bank holding 
companies in consumer automobile financing. We compared the amount of 
Ally Financial consumer automobile financing with that of four large 
bank holding companies (Bank of America Corporation, Capital One 
Financial Corporation, JPMorgan Chase & Company, and Wells Fargo & 
Company) that reported consumer automobile loans.[Footnote 45] These 
data do not include all types of automobile financing, such as 
automobile leasing and dealer financing, but only retail consumer 
automobile loans for the time period.[Footnote 46] Most recently, in 
the first quarter of 2014 Wells Fargo's retail lending exceeded that 
of Ally Financial (see fig 5). The dollar amount of consumer 
automobile loans that Wells Fargo, JPMorgan Chase, and Capital One 
made increased from March 2011 through March 2014, while the dollar 
amount of Ally Financial financing has declined since the fourth 
quarter of 2012. According to Federal Reserve officials, this decline 
likely reflects the sale of the international automotive finance 
operations. 

Figure 5: Dollar Amount of Consumer Automobile Loans for Five Large 
Bank Holding Companies, 2011-2014: 

[Refer to PDF for image: multiple line graph] 

2011: 

Q1; 
Ally Financial: $50.5 billion; 
Wells Fargo: $43.7 billion; 
JPMorgan Chase & Co.: $40 billion; 
Capital One Financial Corp: $18.4 billion; 
Bank of America Corp: $30.9 billion. 

Q2; 
Ally Financial: $52.4 billion; 
Wells Fargo: $43.9 billion; 
JPMorgan Chase & Co.: $39.6 billion; 
Capital One Financial Corp: $19.2 billion; 
Bank of America Corp: $31.7 billion. 

Q3; 
Ally Financial: $54.1 billion; 
Wells Fargo: $43.7 billion; 
JPMorgan Chase & Co.: $39.8 billion; 
Capital One Financial Corp: $20.4 billion; 
Bank of America Corp: $33.4 billion. 

Q4; 
Ally Financial: $57.8 billion; 
Wells Fargo: $43.5 billion; 
JPMorgan Chase & Co.: $39.3 billion; 
Capital One Financial Corp: $21.8 billion; 
Bank of America Corp: $33.0 billion. 

2012: 

Q1; 
Ally Financial: $61.2 billion; 
Wells Fargo: $44.2 billion; 
JPMorgan Chase & Co.: $39.5 billion; 
Capital One Financial Corp: $23.6 billion; 
Bank of America Corp: $30.5 billion. 

Q2; 
Ally Financial: $62.1 billion; 
Wells Fargo: $45.2 billion; 
JPMorgan Chase & Co.: $39.4 billion; 
Capital One Financial Corp: $25.3 billion; 
Bank of America Corp: $27.1 billion. 

Q3; 
Ally Financial: $63.9 billion; 
Wells Fargo: $46.0 billion; 
JPMorgan Chase & Co.: $40 billion; 
Capital One Financial Corp: $26.4 billion; 
Bank of America Corp: $26.5 billion. 

Q4; 
Ally Financial: $64.8 billion; 
Wells Fargo: $46.0 billion; 
JPMorgan Chase & Co.: $39.8 billion; 
Capital One Financial Corp: $27.1 billion; 
Bank of America Corp: $26.6 billion. 

2013: 

Q1; 
Ally Financial: $60.4 billion; 
Wells Fargo: $47.3 billion; 
JPMorgan Chase & Co.: $40.3 billion; 
Capital One Financial Corp: $27.9 billion; 
Bank of America Corp: $26.8 billion. 

Q2; 
Ally Financial: $54.7 billion; 
Wells Fargo: $48.6 billion; 
JPMorgan Chase & Co.: $40.9 billion; 
Capital One Financial Corp: $29.4 billion; 
Bank of America Corp: $27.4 billion. 

Q3; 
Ally Financial: $55.3 billion; 
Wells Fargo: $49.7 billion; 
JPMorgan Chase & Co.: $41.2 billion; 
Capital One Financial Corp: $30.8 billion; 
Bank of America Corp: $30.8 billion. 

Q4; 
Ally Financial: $51.7 billion; 
Wells Fargo: $50.8 billion; 
JPMorgan Chase & Co.: $41.5 billion; 
Capital One Financial Corp: $31.9 billion; 
Bank of America Corp: $29.9 billion. 

2014: 

Q1; 
Ally Financial: $51.9 billion; 
Wells Fargo: $52.6 billion; 
JPMorgan Chase & Co.: $41.9 billion; 
Capital One Financial Corp: $33.1 billion; 
Bank of America Corp: $29.5 billion. 

Source: GAO analysis of Federal Reserve data. GAO-14-698. 

[End of figure] 

Another potential area of competition is retail banking. Ally Bank, as 
an Internet bank, may have less of an ability to retain customers than 
traditional banks, according to analysts. However, as discussed 
previously, Ally Bank's retail deposits have continued to rise over 
the past year. The company expects deposits to continue to increase by 
about $5 billion per year for the next few years. Ally Financial 
representatives also told us that Ally Bank has high brand awareness 
and a high retention rate for products such as certificates of 
deposit. Ally Bank also has been able to reduce the interest rates it 
pays on deposits, while retaining customers. For example, Ally Bank is 
no longer among the top seven rate payers, according to Ally Financial 
representatives. 

Agency Comments: 

We provided a draft of this report to FDIC, the Federal Reserve, and 
Treasury for their review and comment. In addition, we provided a copy 
of the draft report to Ally Financial to help ensure the accuracy of 
our report. Treasury provided written comments that are reprinted in 
appendix II. Ally Financial provided technical comments, which we have 
incorporated, as appropriate. FDIC and the Federal Reserve did not 
provide comments. 

In its written comments, Treasury generally concurred with our 
findings. Treasury noted that approximately $17.8 billion has been 
recovered to date from Ally Financial through repayments, a private 
placement, and an initial public offering. Treasury also noted that it 
will unwind its remaining ownership stake in a way that balances the 
speed of recovery with maximizing returns to taxpayers. 

We are sending copies of this report to FDIC, the Federal Reserve, and 
Treasury, and the appropriate congressional committees. This report 
will also be available at no charge on our website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix III. 

Signed by: 

A. Nicole Clowers: 
Director: 
Financial Markets and Community Investment: 

List of Committees: 

The Honorable Barbara Mikulski: 
Chairwoman: 
The Honorable Richard C. Shelby: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Patty Murray: 
Chairman: 
The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Ron Wyden: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Nita Lowey: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Jeb Hensarling: 
Chairman: 
The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report is based on our continuing analysis and monitoring of the 
Department of the Treasury's (Treasury) activities in implementing the 
Emergency Economic Stabilization Act of 2008 (EESA), which provided us 
with broad oversight authorities for actions taken under the Troubled 
Asset Relief Program (TARP).[Footnote 47] This report examines (1) the 
status of Treasury's investments in Ally Financial Inc. (Ally 
Financial) as of June 30, 2014, and its efforts to wind down those 
investments; and (2) the financial condition of Ally Financial through 
March 31, 2014. 

To examine the status of Treasury's investments, we reviewed TARP 
reports, which included monthly reports to Congress and daily TARP 
updates regarding the Automotive Industry Financing Program (AIFP) 
program data. Using the AIFP program data, we analyzed Treasury's 
equity ownership and recovery of funds in Ally Financial for the time 
period from January 2009 through June 2014. We have previously 
assessed the reliability of the AIFP program data from Treasury. For 
example, we tested the Office of Financial Stability's internal 
controls over financial reporting as they related to our annual audit 
of the office's financial statements and found the information to be 
sufficiently reliable based on the results of our audit of the TARP 
financial statements for fiscal years 2009--2013. AIFP was included in 
these financial audits.[Footnote 48] In addition, for this review, we 
reviewed the data for completeness and obvious errors such as 
outliers. Based on this review, we determined that the data were 
sufficiently reliable for our purposes. 

To analyze Treasury's efforts to wind down its investments in Ally 
Financial, we reviewed Treasury documentation relating to its exit 
from Ally Financial. We reviewed Ally Financial regulatory filings, 
including Securities and Exchange Commission (SEC) filings; and 
publicly available reports from the Board of Governors of the Federal 
Reserve System (Federal Reserve) on the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act) stress test and capital 
plan analysis, Dodd-Frank Act Stress Test 2014: Supervisory Stress 
Test Methodology and Results; and Comprehensive Capital Analysis and 
Review 2014: Assessment Framework and Results.[Footnote 49] In 
addition, we interviewed officials from Treasury, the Federal Reserve, 
the Federal Deposit Insurance Corporation (FDIC), and representatives 
from Ally Financial. 

To assess the financial condition of Ally Financial, we measured the 
institution's capital ratios, net income, net interest spread margin, 
return on assets, nonperforming asset ratio, liquidity ratio, bank 
deposits, and operating cash flow, generally from 2009 through the 
first quarter (March 31) of 2014. We obtained these data from SNL 
Financial, a provider of financial information. We have determined 
that SNL Financial data are sufficiently reliable for past reports, 
and we reviewed past GAO data reliability assessments to ensure that 
we, in all material respects, used the data in a similar manner and 
for similar purposes. We also reviewed reports by several credit 
rating agencies on how they rate Ally Financial's financial strength. 
Although we have reported on actions needed to improve the oversight 
of rating agencies, we included these ratings because the ratings are 
widely used by Ally Financial, Treasury, and market participants. To 
obtain information on the financial ratios and indicators used in the 
analyses of Ally Financial's financial condition, we reviewed relevant 
documentation and interviewed officials from FDIC, the Federal 
Reserve, Treasury, and representatives from Ally Financial. For the 
comparison of retail (consumer) automotive lending for five large bank 
holding companies, including Ally Financial, we used Federal Reserve 
regulatory filings (Form FR-Y9C). For each data source we reviewed the 
data for completeness and obvious errors and determined that these 
data were sufficiently reliable for our purposes. 

We conducted this performance audit from March 2014 to August 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of the Treasury: 

Department of The Treasury: 
Assistant Secretary: 
Washington, D.C. 20220: 

July 18, 2014: 

Nikki Clowers: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548: 

Dear Ms. Clowers: 

The Department of the Treasury (Treasury) welcomes the opportunity to 
provide comments to your draft report on Treasury's investment in Ally 
Financial (Ally), entitled Government's Exposure to Ally Financial 
Lessens as Treasury's Ownership Share Declines (Draft Report). 

GAO's Draft Report provides constructive insight on Treasury's efforts 
to exit Ally in a manner that balances speed of recovery with 
maximizing returns for taxpayers. As part of the Automotive Industry 
Financing Program under the Troubled Asset Relief Program (TARP),
Treasury invested a total of $17.2 billion in Ally (formerly GMAC). 
Founded as GM's captive finance subsidiary in 1919, Ally has been the 
primary source of financing for GM's dealers and consumers for over 90 
years. Treasury determined that without government assistance, Ally
would have been forced to suspend financing lines to creditworthy 
dealerships, leaving them unable to purchase automobile inventory for 
their lots. 

Since 2011, Ally has executed a substantial restructuring plan, and 
transformed itself into a viable and profitable auto lending business 
that continues to support the auto industry recovery. To date, 
Treasury has recovered approximately $17.8 billion from Ally, 
approximately $600 million more than was originally invested in the 
company, through repayments, a private placement, and an initial 
public offering. As the Draft Report points out, Treasury will divest 
its remaining ownership stake in Ally in a manner that balances the 
speed of recovery with maximizing returns for taxpayers. 

Treasury values GAO's review and analysis of its investment in Ally, 
and we look forward to continuing to work with you and your team on 
these important matters. 

Sincerely, 

Signed by: 

Timothy J. Bowler: 
Acting Assistant Secretary for Financial Stability: 

[End of section] 

Appendix III: Contact and Staff Acknowledgments: 

GAO Contact: 

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Karen Tremba (Assistant 
Director), Catherine Gelb (Analyst-in-Charge), Bethany Benitez, 
William Chatlos, Risto Laboski, Terence Lam, Barbara Roesmann, and 
Jena Sinkfield made significant contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 110-343, § 101, 122 Stat. 3765, 3767 (codified at 12 
U.S.C. § 5211). The total amount disbursed includes $16.3 billion 
committed by Treasury directly to GMAC/Ally Financial as well as an 
$884 million Treasury loan to General Motors Corporation (GM) that 
Treasury exchanged for a 35.4 percent common ownership share in GMAC. 
This report focuses on Ally Financial and does not examine the 
assistance provided to other automobile manufacturers or auto 
financing companies through AIFP, including GM and Chrysler Group LLC. 

[2] In 2009, GMAC expanded its depository banking operation under the 
name of Ally Bank. For activities and events that predate the name 
change, we refer to the company as GMAC. 

[3] Pub. L. No. 110-343, § 116, 122 Stat. 3765, 3783 (codified at 12 
U.S.C. § 5226). 

[4] GAO, Troubled Asset Relief Program: Status of Treasury's 
Investments in General Motors and Ally Financial, [hyperlink, 
http://www.gao.gov/products/GAO-14-6] (Washington, D.C.: Oct. 29, 
2013). 

[5] Under EESA, every 30 days, Treasury must submit to Congress 
reports on TARP-related actions taken and funds obligated and spent 
during the reporting period as well as detailed financial statements 
that include agreements made, assets purchased, and transactions 
realized, and the valuation or pricing method used for each 
transaction. § 105(a), 122 Stat. at 3771-72 (codified at 12 U.S.C. § 
5215). 

[6] Stress testing helps bank supervisors measure whether a bank 
holding company has enough capital to support its operations 
throughout periods of stress. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) requires the Federal Reserve 
to perform an annual stress test of bank holding companies with $50 
billion or more in total consolidated assets. Pub. L. No. 111-203, § 
165(i)(1)(A), 124 Stat. 1376, 1430 (2010)(codified at 12 U.S.C. § 
5365(i)(1)(A)). CCARs are the Federal Reserve's annual assessments of 
the internal capital planning process and capital adequacy of large, 
complex U.S. bank holding companies. 12 C.F.R. § 225.8. 

[7] Ally Financial is a bank holding company that elected to become a 
financial holding company in December 2013. A financial holding 
company is a bank holding company that is allowed to engage in a broad 
range of financial activities, including securities underwriting and 
dealing, insurance underwriting, and merchant banking activities. Ally 
Financial was the twentieth-largest bank holding company in the United 
States as of March 31, 2014. 

[8] Floor-plan, or wholesale, financing is a form of retail goods 
inventory financing in which each loan advance is made against a 
specific piece of collateral. As each piece of collateral is sold by 
the dealer, the loan advance against that piece of collateral is 
repaid or other acceptable collateral is substituted. Items commonly 
subject to floor-plan debt include automobiles, large home appliances, 
furniture, television and stereo equipment, boats, and mobile homes. 

[9] A captive automotive lender's primary business is to finance the 
purchase of a specific manufacturer's automobiles. Prior to bankruptcy 
reorganization, GM's legal name was General Motors Corporation. 
General Motors Company is a new legal entity created through the 
bankruptcy process to purchase the operating assets of the 
prereorganization company. 

[10] 12 U.S.C. § 1844(b)-(c). 

[11] Tier 1 capital is currently considered the most stable and 
readily available capital that a banking institution can have to 
support its operations by absorbing unexpected financial losses. It 
consists of core capital elements, such as common stockholders' equity 
and noncumulative perpetual preferred stock. As defined in the Federal 
Reserve's Risk-Based Capital Adequacy Guidelines, tier 1 capital is 
composed of common and non-common equity elements, some of which are 
subject to limits on their inclusion in tier 1 capital. See 12 CFR § 
225, Appendix A, § II.A.1. These elements include common stockholders' 
equity, qualifying perpetual preferred stock, certain minority 
interests, and trust preferred securities. Certain intangible assets, 
including goodwill and deferred tax assets, are deducted from tier 1 
capital or are included subject to limits. See 12 CFR § 225, Appendix 
A, § II.B. Tier 1 common capital is tier 1 capital less the non-common 
elements of tier 1 capital, including perpetual preferred stock and 
related surplus, minority interest in subsidiaries, trust preferred 
securities, and mandatory convertible preferred securities. 12 CFR § 
225.8(c)(10). Common equity is considered the most loss-absorbing form 
of capital. In July 2013, the federal banking regulators issued 
revised requirements for minimum capital, regulatory capital, and 
additional capital "buffers" to enhance the resiliency of banking 
organizations during periods of financial stress. These new standards 
will be implemented over multiple years. Regulatory Capital Rules: 
Regulatory Capital, Implementation of Basel III, Capital Adequacy, 
Transition Provisions, Prompt Corrective Action, Standardized Approach 
for Risk-Weighted Assets, Market Discipline and Disclosure 
Requirements, Advanced Approaches Risk-Based Capital Rule, and Market 
Risk Capital Rule, 78 Fed. Reg. 62019 (Oct. 11, 2013) (Federal Reserve 
and Office of the Comptroller of the Currency); 78 Fed. Reg. 55340 
(Sept. 10, 2013) (FDIC). 

[12] In November 2011, the Federal Reserve issued a regulation 
requiring large bank holding companies to submit an annual capital 
plan. Capital Plans, 76 Fed. Reg. 74631 (Dec. 1, 2011) (codified at 12 
C.F.R. § 225.8). 

[13] 12 C.F.R. § 225.8(d). 

[14] 12 C.F.R. § 225.8(e)(2)(ii). A capital distribution is defined as 
a redemption or repurchase of any debt or equity capital instrument, a 
payment of common or preferred stock dividends, a payment that may be 
temporarily or permanently suspended by the issuer on any instrument 
that is eligible for inclusion in the numerator of any minimum 
regulatory capital ratio, and any similar transaction that the Federal 
Reserve determines to be in substance a distribution of capital. 12 
C.F.R. § 225.8(c)(2) . 

[15] 12 C.F.R. § 225.8(e)(2)(iv) 

[16] 12 C.F.R. § 225.8(d)(4). 

[17] In 2013, 18 bank holding companies were subject to stress tests 
and to CCAR. These were Ally Financial Inc., American Express Company, 
Bank of America Corporation, The Bank of New York Mellon Corporation, 
BB&T Corporation, Capital One Financial Corporation, Citigroup Inc., 
Fifth Third Bancorp, The Goldman Sachs Group, Inc., JPMorgan Chase & 
Co., KeyCorp, Morgan Stanley, The PNC Financial Services Group, Inc., 
Regions Financial Corporation, State Street Corporation, Sun Trust 
Banks, Inc., U.S. Bancorp, and Wells Fargo & Co. The same 18 bank 
holding companies subject to the stress tests were subject to CCAR. In 
2013, the Federal Reserve expanded to 30 the number of bank holding 
companies subject to stress tests and CCAR. 

[18] Of the 18 bank holding companies reviewed in 2013, the Federal 
Reserve also objected to one other company's capital plans. 

[19] Before the bankruptcy reorganization, Chrysler's legal name was 
Chrysler LLC. Chrysler Group LLC is a new legal entity created through 
the bankruptcy process to purchase the operating assets of the 
prereorganization company. 

[20] Treasury established two other programs under AIFP--the Auto 
Supplier Support Program and the Auto Warranty Commitment Program. The 
Auto Supplier Support Program was designed to ensure that automakers 
received the parts and components they needed to manufacture vehicles 
and that suppliers had access to liquidity on their receivables. Under 
this program, GM and Chrysler received loans, all of which have been 
repaid. The Auto Warranty Commitment Program was designed to mitigate 
consumer uncertainty about purchasing vehicles from the restructuring 
automakers by providing funding to guarantee the warranties on new 
vehicles from those automakers. Funds were provided to GM and Chrysler 
under this program, but both companies were able to continue to honor 
consumer warranties and the funds have been repaid in full. 

[21] GMAC applied to participate in the TARP Capital Purchase Program 
(CPP), but, as a commercial company, was not initially eligible for 
assistance. To become eligible, GMAC sought to convert its charter 
from an industrial loan company to a commercial bank in 2008 and 
applied to the Federal Reserve for bank holding company status. GMAC 
also submitted an application to participate in CPP, conditional upon 
becoming a bank holding company. The Federal Reserve approved GMAC's 
bank holding company application in December 2008. However, GMAC did 
not participate in CPP. 

[22] Mandatory convertible preferred stock is a type of preferred 
share that must be converted to common stock on or before a certain 
contractual date. 

[23] A trust preferred security is a security that has both equity and 
debt characteristics, and is created by establishing a trust and 
issuing debt to it. The Dodd-Frank Act restricted the use of such 
securities in meeting certain capital requirements. Pub. L. No. 111-
203, § 171, 124 Stat. 1376, 1435 (2010). 

[24] In March 2011, Treasury received approximately $2.7 billion in 
proceeds from the sale of Ally Financial trust preferred securities. 

[25] Treasury assistance to Ally Financial of $17.2 billion included 
$16.3 billion committed directly to GMAC/Ally Financial as well as the 
$884 million GM loan to Ally Financial that Treasury funded. The $17.8 
billion that Treasury received from Ally Financial represents gross 
proceeds before deduction of commissions for sale of Ally Financial 
stock. 

[26] [hyperlink, http://www.gao.gov/products/GAO-14-6]. During 2013, 
Ally Financial completed the sale of its international automobile 
finance businesses, with the exception of its joint venture in China, 
which the company expects to complete in 2014 depending on the pace of 
government approvals in China. 

[27] In 2014, the Federal Reserve conducted stress tests and reviewed 
capital plans under its CCAR for 30 bank holding companies. These 
companies were Ally Financial Inc.; American Express Company; Bank of 
America Corporation; The Bank of New York Mellon Corporation; BB&T 
Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; 
Capital One Financial Corporation; Citigroup, Inc.; Comerica 
Incorporated; Discover Financial Services; Fifth Third Bancorp; The 
Goldman Sachs Group, Inc.; HSBC North America Holdings Inc.; 
Huntington Bancorporation Incorporated; JPMorgan Chase & Co.; Keycorp; 
M&T Bank Corporation; Morgan Stanley; Northern Trust Corporation; The 
PNC Financial Services Group, Inc.; RBS Citizens Financial Group, 
Inc.; Regions Financial Corporation; Santander Holdings USA, Inc.; 
State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; 
UnionBanCal Corp.; Wells Fargo & Co.; and Zions Bancorporation. In 
2013, the Financial Stability Oversight Council designated three non-
bank financial companies for consolidated supervision by the Federal 
Reserve and enhanced prudential standards: American International 
Group, Inc., General Electric Capital Corporation, Inc., and 
Prudential Financial, Inc. 

[28] See Order Confirming Second Amended Joint Chapter 11 Plan 
Proposed by Residential Capital, LLC, et al., and the Official 
Committee of Unsecured Creditors, In re Residential Capital, LLC, No. 
1: 12-12020 (Bankr. S.D.N.Y. Dec. 11, 2013); Notice of Entry of 
Confirmation Order Confirming the Second Amended Joint Chapter 11 Plan 
Proposed by Residential Capital, LLC, et al., and the Official 
Committee of Unsecured Creditors and Occurrence of Effective Date, In 
re Residential Capital, LLC, No. 1: 12-12020 (Bankr. S.D.N.Y. Dec. 17, 
2013). 

[29] See Order Confirming Second Amended Joint Chapter 11 Plan 
Proposed by Residential Capital, LLC, et al., and the Official 
Committee of Unsecured Creditors at 55, 62, In re Residential Capital, 
LLC, No. 1: 12-12020 (Bankr. S.D.N.Y. Dec. 11, 2013). 

[30] Pub. L. No. 84-511, § 4(a)(2), 70 Stat. 133, 135 (codified at 12 
U.S.C. § 1843(a)(2)). 

[31] Consent Order, United States v. Ally Financial Inc. and Ally 
Bank, No. 2: 13-cv-15180, (E.D. Mich. Dec. 23, 2013); Consent Order, 
In the Matter of Ally Financial Inc.; and Ally Bank, File No. 2013-
CFPB-0010 (Dec. 20, 2013). The settlement required Ally Financial to 
provide $80 million in compensation to victims of discrimination and 
$18 million to the Consumer Financial Protection Bureau's Civil 
Penalty Fund. 

[32] The share adjustment provision provided Treasury with the right 
to purchase additional shares of Ally Financial common stock. 

[33] In addition to repayments on the initial investment, Treasury has 
received dividends and other income from Ally Financial worth 
approximately $4.6 billion. For example, Treasury received a 9.0 
percent fixed dividend annually from Ally Financial for the mandatory 
convertible preferred shares held until November 2013. 

[34] As discussed previously, floor-plan, or wholesale, lending is a 
form of retail goods inventory financing in which each loan advance is 
made against a specific piece of collateral. 

[35] As we reported in [hyperlink, 
http://www.gao.gov/products/GAO-14-6], in 2009, GM acquired 
AmeriCredit Corporation (AmeriCredit), a subprime automobile finance 
company, to serve its subprime customers. AmeriCredit was renamed GM 
Financial and made a wholly owned subsidiary of GM. Its target lending 
market is consumers who have difficulty securing automobile financing 
from banks and credit unions. 

[36] Capital Plans, 76 Fed. Reg. 74631, 74632 (Dec. 1, 2011); see also 
Capital Adequacy Guidelines for Bank Holding Companies, 12 CFR § 225, 
Appendix A, § I. 

[37] 12 C.F.R. 225, Appendix A, § IV.A. Federal Reserve Capital 
Adequacy Guidelines require bank holding companies to have a minimum 
tier 1 risk-based capital ratio of 6 percent to be considered well 
capitalized. 12 C.F.R. § 225.2(r)(1)(ii). 

[38] This ratio is not a minimum ratio outside of the Federal 
Reserve's CCAR. Ally Financial will become subject to a new regulatory 
capital framework beginning January 1, 2015. Once fully phased in, the 
new rules will require that Ally Financial maintain a minimum common 
equity tier 1 risk-based capital ratio of 4.5 percent, a minimum tier 
1 risk-based capital ratio of 6 percent, and a minimum total risk-
based capital ratio of 8 percent. The new capital rules also revise 
the eligibility criteria for regulatory capital instruments. 
Regulatory Capital Rules: Regulatory Capital, Implementation of Basel 
III, Capital Adequacy, Transition Provisions, Prompt Corrective 
Action, Standardized Approach for Risk-weighted Assets, Market 
Discipline and Disclosure Requirements, Advanced Approaches Risk-Based 
Capital Rule, and Market Risk Capital Rule; Final Rule, 78 Fed. Reg. 
62018 (Oct. 11, 2013). 

[39] 12 C.F.R. 225, Appendix D, § II. 

[40] Ally Financial Inc. Annual Report (Form 10-K) (Dec. 31, 2013). 
Ally Financial restated its net interest spread figures for prior 
years in its 2013 Form 10-K. 

[41] In February 2014, the Federal Reserve issued a final rule to 
implement certain enhanced prudential standards under the Dodd-Frank 
Act for large bank holding companies. Enhanced Prudential Standards 
for Bank Holding Companies and Foreign Banking Organizations; Final 
Rule. 79 Fed. Reg. 17240 (Mar. 27, 2014) (codified at 12 C.F.R. pt. 
252). In its annual report (Form 10-K), Ally Financial reported that 
the final rule will, among other things, require the company to 
maintain a buffer of unencumbered highly liquid assets to meet 
projected net cash outflows for 30 days over the range of liquidity 
stress scenarios used in internal stress tests and to comply with a 
number of risk management and governance requirements, including 
liquidity risk management standards. The final rule has a general 
compliance date of January 1, 2015. 12 C.F.R. § 252.31(c). 

[42] According to Ally Financial, the decrease was primarily due to 
higher cash outflows to settle derivatives during the year ended 
December 31, 2013. During 2013, Ally Financial completed the sale of 
its mortgage servicing rights assets and effectively exited the 
mortgage origination and servicing business. Further, the wind-down 
and ultimate termination of mortgage-related derivative activity was a 
driver of the operating cash outflows for the year ended December 31, 
2013. These wind-down activities occurred throughout 2013 and were not 
isolated to the fourth quarter. 

[43] As we previously reported, according to GM officials, the purpose 
of GM Financial is to drive incremental GM automobile sales by 
providing funding for GM dealers and consumers. In 2013, GM Financial 
increased its overall assets by purchasing Ally Financial's 
international assets, including the dealer financing arrangements in 
these countries. In February 2013, Chrysler announced that it had 
entered into an agreement with Santander Consumer USA Inc., a 
subsidiary of Banco Santander, S.A., that specializes in subprime 
automotive financing, to provide a full spectrum of automotive 
financing services to Chrysler Group customers and dealers under the 
name of Chrysler Capital. Under the 10-year, private-label agreement, 
Santander Consumer USA was to establish a separate lending operation 
dedicated to providing financial services under the Chrysler Capital 
name, including financing for retail loans and leases, new and used 
vehicle inventory, dealership construction, real estate, working 
capital, and revolving lines of credit. The agreement grants Santander 
Consumer USA the right to a minimum percentage of Chrysler's 
subvention--subsidy or financial support--volume and the right to use 
the Chrysler Capital name for automobile loan and lease offerings. 
Santander Consumer USA also will provide loans to Chrysler dealers to 
finance inventory, working capital, and capital improvements. On May 
1, 2013, Chrysler Capital started its lending operations. 

[44] Ally Financial reported that it entered into a new automotive 
financing agreement with GM (effective Mar. 1, 2014) that provides a 
general framework for dealer and consumer financing related to GM 
vehicles, as well as Ally Financial's ongoing participation in GM 
subvention programs. The agreement does not provide Ally with any 
exclusivity or similar privileges related to the financing of GM 
vehicles, whether through subvention programs or otherwise. As a 
result, the agreement does not provide the economic benefits or impose 
the obligations that were included in the previous agreement with GM. 

[45] These four bank holding companies are also financial holding 
companies. 

[46] The Federal Reserve defines consumer automobile loans for bank 
holding company reporting purposes. They are all consumer loans 
extended for the purpose of purchasing new and used passenger cars and 
other vehicles such as minivans, vans, sport-utility vehicles, pickup 
trucks, and similar light trucks for personal use. These loans include 
both direct and indirect consumer automobile loans as well as retail 
installment sales papers purchased by the bank from automobile 
dealers. See Instructions for Preparation of Consolidated Financial 
Statements for Holding Companies, Reporting Form FR Y-9C, Schedule HC-
Consolidated Balance Sheet. 

[47] Pub. L. No. 110-343, § 116, 122 Stat. 3765, 3783 (codified at 12 
U.S.C. § 5226). 

[48] EESA, which was signed into law on October 3, 2008, established 
the Office of Financial Stability within Treasury and provided it with 
broad, flexible authorities to buy or guarantee troubled mortgage-
related assets or any other financial instruments necessary to 
stabilize the financial markets. § 101(a), 122 Stat. at 3767 (codified 
at 12 U.S.C. § 5211(a)). 

[49] Pub. L. No. 111-203, 124 Stat. 1376 (2010). 

[End of section] 

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