(Reuters) - Shares of auto-lender Ally Financial Inc (ALLY.N) fell as much as 3.8 percent in their market debut on Thursday, taking the shine off the biggest U.S. IPO so far this year as investor appetite for big stock offerings shows signs of waning.
Ally also has issues of its own as it faces intensifying competition, analysts said. The U.S. Treasury, which bailed out the company during the 2008 financial crisis, also retains millions of shares that will eventually flood into the market.
Ally’s offering raised $2.38 billion for the Treasury, giving the government a profit of $500 million so far on its $17.2 billion investment in the company.
The Treasury now has a stake of 17.1 percent in Ally, down from 36.8 percent before the IPO. This will fall to 14.1 percent if underwriters exercise an option to sell additional shares on behalf of the government.
Citigroup, Goldman Sachs, Morgan Stanley and Barclays were the lead underwriters.
The offering of 95 million shares was priced at $25 each, the low end of the expected price range of $25-$28. At the offer price, Ally was valued at about $12 billion.
"Treasury will continue to evaluate exit strategies for its remaining Ally investment ... as soon as practicable, and in a way that maximizes taxpayer value," the department said in a statement on Wednesday. (link.reuters.com/mup48v)
Timing will be key. Analysts have said that investors are becoming more selective after a flood of stock offerings this year. In this week alone, more than a dozen companies have either gone public or will make their market debuts by Friday, marking the busiest week for IPOs since 2007.
Jack Ablin, chief investment officer at BMO Private Bank, said the government’s involvement in Ally remained a burden on the company. “It is the last firm under the TARP program and that has weighed on the stock,” he said.
Ally, founded in 1919 as General Motors Acceptance Corp, was a unit of General Motors Co (GM.N) until private equity firm Cerberus Capital Management bought a majority stake in 2006.
Ally is no longer GM’s preferred lender, but still has a strong relationship with the automaker - a potential risk as GM deals with recalls and investigations related to an ignition switch defect linked to several deadly crashes.
“It is certainly possible that its association with GM, which is currently under some stress, has hurt them,” Ablin said.
GM customers and franchised dealers accounted for almost 70 percent of Ally’s U.S. new vehicle consumer automotive financing volume last year.
New loans for cars extended by Ally fell 8 percent in the fourth-quarter to $8.2 billion after it lost to Santander Consumer its role as Chrysler’s FIA.MI preferred lender.
Ally’s lackluster debut follows that of hotel operator La Quinta Holdings Inc (LQ.N), which traded most of Wednesday around its listing price.
In contrast, offerings from small biotech companies and cloud-based technology firms - which analysts say are easier to price - have fared well this year.
Burned by bad mortgage loans made by subsidiary Residential Capital (ResCap) during the housing bubble, Ally was thrown a lifeline under the Troubled Asset Relief Program (TARP).
Since the bailout, the company has been focusing on repaying the government by putting ResCap into bankruptcy, reducing expensive debt and selling assets.
It has also been building up its direct banking operation, Ally Bank, as it looks for cheaper funding.
Some analysts have expressed concern that Ally will make riskier loans to make up for its slowing business as the government loosens its grip on the company.
The bank provided about 41 percent of funding to Ally in 2013, up from 14 percent in 2008.
Ally initially filed for an IPO in March 2011, but delayed its plans several times due to market conditions and due to its exposure to fines over ResCap’s mortgage lending.
Activist investor Daniel Loeb’s hedge fund Third Point LLC and Cerberus Capital Management did not sell any shares in the IPO. Third Point has a 9.5 percent stake in Ally, while Cerberus has 8.6 percent.
Ally’s shares were changing hands at $24.17 at midday, down 3.3 percent. More than 20 million shares had traded, making it the heaviest traded stock on the New York Stock Exchange.
Editing by Savio D'Souza and Ted Kerr