Ally Financial ($22.93 0.14%) set aside $270 million for expected penalties in “foreclosure-related matters,” which will likely result in a fourth-quarter loss for the company.
The Detroit-based bank is among the country’s largest lenders involved in talks with state attorneys general, regarding a potential settlement of up to $25 billion for alleged foreclosure malfeasance. The $270 million charge is an estimate, not a final number, for Ally, according to a regulatory filing. A proposed settlement was sent to the states last week for comment.
Ally joins several other banks that detailed potential charges for mortgage-related litigation. PNC Financial Services ($59.89 0.03%) and US Bancorp ($28.72 0.16%) reported one-time charges, while SunTrust Bank ($21.27 0.228%) executives said they would provide an estimate as settlement talks progress.
Michael Carpenter, Ally CEO, said in November he would not sign any settlement at numbers discussed then due to what he described as Ally’s meager exposure.
“The downside is long-term aggravation and legal fees,” Carpenter said then. “But if you think we have significant exposure from a financial implication, the answer is no.”
The majority of the $270 million charge comes out of Ally’s mortgage unit, Residential Capital. Ally funneled $196.5 million into the subsidiary recently to push the unit back above its required $250 million tangible net worth.
Rumors swirled late last year that ResCap could fall into bankruptcy, but Ally elected in early January not to file for Chapter 11 bankruptcy protection, according to Bloomberg. The company can still work with business rescue and insolvency services to prevent bankruptcy.
The bank plans to report fourth-quarter and 2011 results Thursday. Ally swung to a loss of $210 million for the third quarter as it cut the value of its mortgage-servicing rights by $471 million.
Ally is also the subject of a lawsuit from Massachusetts Attorney General Martha Coakley, who said the bank used unlawful and deceptive foreclosure practices. Coakley filed the suit, which also includes Bank of America ($7.47 0.105%), Wells Fargo ($29.86 -0.03%), Citigroup ($32.13 0.54%) and JPMorgan Chase ($37.60 0%), in early December.
After the suit was filed, Ally halted its mortgage-origination business in the state.
The author of this article is: Andrew Scoggin
See the original post at: http://www.housingwire.com/node/32398
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