Ally shares may face bumpy road as private investors sell

Mon May 19, 2014 1:11am EDT
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By Peter Rudegeair and Mike Stone

(Reuters) - More than half of Ally Financial Inc's shares could hit the market beginning next week and lasting through August, holding back its share price.

Ally went public in April, though hedge funds and other investors bought about 40 percent of the company privately in November and in January. Those investors agreed to refrain from selling their shares to public investors for six months, which period ends next week for the first set of investors, and in July for the second set.

The U.S. Treasury, which owns around 16 percent of the auto lender, can also start selling a small amount of shares after June 8, and larger blocks starting August 7.

The Treasury and some of the private investors are sitting on big profits, which give them room to sell even if the company's shares extend their recent six-day slide. A Treasury official said May 9 that the government's strategy is to get as much value from its Ally shares as soon as possible.

These possible sales are hurting the company's share price, said Mark Palmer, an analyst at brokerage BTIG who rates the company's shares a "buy."

Palmer called Ally "an attractive fundamental story that is being held back" by investors' expectations of future share sales. Gina Proia, a spokeswoman for Ally, the former General Motors Acceptance Corp, declined to comment.

GM set up what's now Ally in 1919 to help finance car sales. In 2006, private equity investors led by Cerberus paid $7.4 billion for a 51 percent stake in Ally, with GM retaining the rest. During the financial crisis, when the government bailed out Ally multiple times, GM's and Cerberus's stakes were reduced as taxpayers injected more capital and took ownership stakes. At this stage, Ally has no formal connection with GM.

The U.S. government, meanwhile, does. It pumped $17.2 billion into Ally during the crisis, acquiring a 74 percent stake in the process. The government has so far realized a profit of about $700 million after having sold most of its stake and receiving billions in interest and dividend payments, but still has 16 percent of the company, worth about $1.82 billion based on Friday's closing price of $24.21.   Continued...

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