August 2, 2011 / 5:03 PM / 6 years ago

UPDATE 4-Ally Financial profit falls as mortgages sting

* Net income $113 mln vs $565 mln a year earlier

* Mortgage operations loss $127 mln vs profit $230 mln (Adds analyst comment, details on subprime auto lending)

By Joe Rauch

CHARLOTTE, N.C., Aug 2 (Reuters) - Ally Financial Inc, an auto and mortgage lender majority-owned by the U.S. government, said second-quarter profit fell 80 percent as its home loan operations lost money.

The Detroit-based bank said it made fewer home loans during the quarter and bought back more bad mortgages from investors.

The company also dialed down its expected earnings from collecting customers’ mortgage payments. The results underscore how many U.S. lenders are still suffering in the aftermath of the U.S. housing crisis.

The weaker results and a shaky stock market could delay Ally’s proposed initial public offering until later this year, analysts said.

“It’s the confluence of a couple of events,” said Jason Ware, an equity analyst with Albion Financial Group. “A choppy market isn’t a prime time for an IPO for a company that’s trying to reorient its business.”

Ally, formerly known as GMAC Financial Services, reported it sixth straight quarterly profit after the credit crisis, with second-quarter net income of $113 million, down from $565 million a year earlier.

But in its mortgage operations, it posted a loss of $127 million, compared with a profit of $230 million in the same 2010 quarter.

During second quarter, Ally’s used car loans spiked 74 percent from a year ago, to $2.3 billion.

Lease financing increased to $2.1 billion from $800 million.

The increase in used car lending fits with Ally’s strategy to make more used car loans -- which often come with higher interest rates than new car loans.

On May 3, Ally executives told analysts the company wanted to raise its percentage of used car loans to 50 percent from 20 percent, including making more loans to subprime borrowers.

Ally President William Muir said at the time that subprime auto lending is “a very attractive business today.” [ID:nN30251782]

Ally is the preferred lender for General Motors and Chrysler dealers, but those agreements are set to expire in 2013. GM has bought its own lender, AmeriCredit, which some investors fear could cut into Ally’s business.

IPO

The U.S. Treasury holds a 73.8 percent stake in Ally after rescuing the company multiple times during the financial crisis.

Ally filed in March for an IPO. At the time, sources said the deal could raise $5 billion, including convertible securities.

Ally officials said last year they hoped an IPO would come in 2011. On Tuesday, Ally Chief Executive Michael Carpenter said the company is “working through the process” with regulators.

The lender would join several other U.S. companies that have gone public after being owned primarily by the U.S. Treasury, including Ally’s former parent company, General Motors Co GM.N, and American International Group Inc AIG.N. (Reporting by Joe Rauch, editing by Gerald E. McCormick and John Wallace)

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