Ally says may put mortgage unit Residential Capital (ResCap) in bankruptcy

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Ally says may put mortgage unit Residential Capital (ResCap) in bankruptcy

Ally says may put mortgage unit Residential Capital (ResCap) in bankruptcy

REUTERS-

Ally Financial Inc, the U.S. government-owned lender, said its mortgage unit could file for bankruptcy, in the company’s most direct statement so far about its plans for the struggling business.

Ally Chief Executive Michael Carpenter said its Residential Capital LLC unit has been examining options that range from “staying the course” to bankruptcy.

“We think that the single most important thing that we can do to preserve and enhance shareholder value is to distance Ally from the mortgage business,” Carpenter said on a conference call with investors after the company posted quarterly earnings.

Sources have told Reuters that bankruptcy was an option for ResCap, possibly as early as mid-May, but the company had previously only hinted at the possibility. An executive said Ally failed a recent test from regulators for soundness in distressed economic situations, known as the Federal Reserve’s “stress test,” in large part because of liabilities linked to the mortgage business.

Ally, which was originally the lending arm of General Motors, said it learned on Wednesday that Chrysler Group LLC was not renewing a preferred lending agreement that will now expire next year, but executives downplayed the importance of that loss on the call.

[REUTERS]

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