Detroit-based auto and mortgage lender Ally Financial Inc. said Thursday that it swung to a $310 million net profit in the first quarter this year after a net loss of $206 million in the prior quarter and net income of $146 million in first quarter 2011.
Ally is the nation's largest new car lender and underwrites the inventories of thousands of dealers. It also writes mortgages, and said Thursday first-quarter results were improving in that end of the business.
The troubled mortgage unit, Residential Capital, lost $792 million in the three previous quarters. ResCap failed to make a $20 million interest payment this month, and it has until next month to pay it or it will be in default. Last month, the Federal Reserve said Ally was one of four banks that failed its "stress tests" and may need more capital to weather downturns.
Ally and the U.S. Treasury, which owns 74 percent of Ally as part of a $17.2 billion bailout, are considering bankruptcy for ResCap and have held talks to sell it to Fortress Investment Group LLC -- a move that could include putting the mortgage unit into a bankruptcy restructuring.
Ally and the government are trying to choose between the lesser of two evils in deciding whether to put the mortgage unit in bankruptcy. But a representative said that Ally has a tremendous amount of strategic value and he expects the government will recoup a significant portion of its investment.
Late Wednesday, Chrysler Group LLC said it will end its preferred lending relationship with Ally next April. Chrysler accounted for about 5 percent of Ally's U.S. consumer automotive loans in the first three months of the year and about 3 percent of its earning asset base as of March 31.
Though Chrysler intends to end its preferred relationship, the lender said itexpects to continue to play a significant role with Chrysler dealers in the future, as the dealer is Ally's direct customer for the majority of business that is conducted.
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