Fitch Maintains Rating Watch Negative on Ally Financial; Withdraws Residential Capital's Ratings

NEW YORK--()--Fitch Ratings has maintained the Rating Watch Negative on Ally Financial Inc. (Ally). The ratings were placed on Rating Watch Negative on May 15, 2012, following the bankruptcy filing by Ally's wholly-owned subsidiary Residential Capital LLC (ResCap). In addition, Fitch is withdrawing all its ratings on ResCap, following the entity's bankruptcy filing. (See complete list of ratings affected by this action at the end of this release.)

Fitch recognizes Ally's various positive developments, including the successful auction of material assets at ResCap to third-party buyers above original bids, sale of Ally's international auto-related business in Canada and Mexico at attractive prices above book value, and Ally's continued robust access to various sources of funding. However, the maintenance of the Negative Watch reflects the continued uncertainty as to the ultimate outcome from ResCap's bankruptcy including approval of Ally's settlement plan with ResCap, which releases Ally from existing and potential claims from ResCap and third-party creditors, potential litigation from creditors or third parties who could challenge such a release, the opinion of the independent investigator appointed by ResCap's bankruptcy judge, and repayment of Ally's secured financing to ResCap.

Fitch expects to get more clarity on some of these issues in the coming quarters and will accordingly take action on Ally's ratings, which may include maintaining the Negative Watch, affirmation of existing ratings, or a downgrade.

Despite ResCap's bankruptcy, Ally has continued to economically access diversified sources of funding. The company raised $6.3 billion in new funding in third quarter 2012 (3Q'12), including $4.1 billion in global term securitizations and $600 million in unsecured debt. Deposit growth at Ally Bank continued, with $1.7 billion in retail deposits raised in 3Q'12. Total deposits climbed to $49.8 billion in 3Q'12 from $45.1 billion at year-end 2011, accounting for 33.5% of total funding at the end of 3Q'12.

Ally's recent agreement to sell its Mexican insurance subsidiary for $865 million and Canadian auto operations for $4.1 billion are expected to generate pre-tax gains in excess of $1 billion. Furthermore, the potential sale of remaining international operations (approximately $16 billion in assets) is expected to generate additional proceeds. Fitch believes that the loss of revenue/earnings diversity from the sale of these international operations will be somewhat offset by reduction in risk weighted assets and rationalization of expense base, which will help Ally to repay the U.S. Treasury quicker and focus its resources towards its growing U.S. auto-finance business.

Operating performance in the auto-lending business has been solid despite increased competition mainly due to the dealer-centric business model and offerings. Ally reported core pre-tax income (which excludes original issue discount) of $559 million in 3Q'12, compared to core pre-tax income of $119 million in 3Q'11, and a core pre-tax loss of $753 million in 2Q'12. Fitch expects full-year 2012 results will be impacted by some material one-time losses/gains, including, the $1.2 billion charge related to ResCap's bankruptcy in 2Q'12, and the $90 million-$120 million pension-related charge expected in 4Q'12 offset by $1.1 billion-$1.4 billion of gains related to the release of deferred tax valuation allowance expected in 4Q'12. Still, profitability in the core auto business is expected to be stable, driven by a robust origination pipeline, a more diversified and profitable portfolio mix, solid asset quality, and favorable funding costs due to more originations being funded by low-cost deposits at Ally Bank.

Capital ratios are strong compared to the relatively low-risk nature of the core auto-related assets. Total liquidity at both the parent and bank level is strong and sufficient to cover near-term debt maturities and originations. Fitch believes higher capital levels will be maintained until contingent risks related to ResCap are fully resolved. Liquidity is expected to normalize along with the debt maturity profile after the significant temporary liquidity guaranteed program (TLGP) debt is repaid in 4Q'12.

RATING DRIVERS AND SENSITIVITIES

The resolution of the Rating Watch will be driven by the ultimate outcome of ResCap's bankruptcy and any indirect impact on Ally. Rejection of Ally's settlement plan with ResCap to release Ally from all material claims by third-party creditors or an unfavorable opinion by the independent examiner which negatively impacts the resolution could lead to a downgrade.

Conversely, confirmation of Ally's settlement plan from ResCap's bankruptcy court to release Ally from existing and potential claims from third-party creditors, a favorable opinion from the independent examiner, and repayment of Ally's secured financing from ResCap would lead to ratings stability. Positive rating momentum in the medium term, although limited until ResCap's resolution, would be driven by sustained profitability in Ally's U.S. auto business after the sale of its international businesses, expansion of the banking franchise along with growth in the bank's deposit funding base while maintaining a conservative capital and liquidity posture.

The following ratings remain on Rating Watch Negative:

Ally Financial Inc.

--Long-term Issuer Default Rating (IDR) 'BB-';

--Senior unsecured 'BB-';

--Viability rating 'bb-';

--Perpetual preferred securities, series A 'CCC'.

GMAC Capital Trust I

--Trust preferred securities, series 2 'B-'.

GMAC International Finance B.V.

--Long-term IDR 'BB-';I

--Senior unsecured 'BB-';

GMAC Bank GmbH

--Long-term IDR 'BB-';

--Senior unsecured 'BB-';

Ally Credit Canada Limited

--Long-term IDR 'BB-';

--Senior unsecured 'BB-';

GMAC Financial Services NZ Limited

--Long-term IDR 'BB-';

GMAC Australia LLC

--Long-term IDR 'BB-';

The following ratings are withdrawn by Fitch following the bankruptcy filing of the entity:

ResCap

--Long-term IDR 'D';

--Short-term IDR 'D';

--Senior unsecured 'D';

--Short-term debt 'D'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Rating FI Subsidiaries and Holding Companies' (Dec. 12, 2012);

-- 'Finance and Leasing Companies Criteria' (Dec. 12, 2011).

Applicable Criteria and Related Research:

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

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Contacts

Fitch Ratings
Primary Analyst
Mohak Rao, CFA, +1 212-908-0559
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
Mohak.rao@fitchratings.com
or
Secondary Analyst
Nathan Flanders, +1 212 908-0827
Managing Director
Nathan.flanders@fitchratings.com
or
Committee Chairperson
Joo-Yung Lee, +1 212-908-0560
Managing Director
or
Media Relations
Sandro Scenga, +1 212-908-0278 (New York)
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Mohak Rao, CFA, +1 212-908-0559
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
Mohak.rao@fitchratings.com
or
Secondary Analyst
Nathan Flanders, +1 212 908-0827
Managing Director
Nathan.flanders@fitchratings.com
or
Committee Chairperson
Joo-Yung Lee, +1 212-908-0560
Managing Director
or
Media Relations
Sandro Scenga, +1 212-908-0278 (New York)
sandro.scenga@fitchratings.com