NEW YORK/CHARLOTTE, North Carolina (Reuters) - In the fall of 2009, the board of GMAC, one of the largest U.S. auto and home-loan companies, gathered in New York to discuss whether to put its troubled mortgage unit into bankruptcy.
GMAC, now called Ally Financial, was just about to receive the last of $17 billion in taxpayer bailouts. The board, including directors named by the U.S. government, discussed whether to use bankruptcy to get rid of toxic mortgage assets that were pulling down the rest of the company, according to people who attended the meeting.
Alvaro de Molina, GMAC's CEO at the time, disagreed. The move, he said, would lead to years of fights with creditors and tough treatment from regulators that would hurt the company. De Molina prevailed, but the board lost confidence in the CEO and replaced him soon after with Michael Carpenter, an Ally director and former Citigroup Inc executive, these sources said.
Today, Residential Capital (ResCap) - Ally's mortgage servicing and lending unit that turned from a profit engine to a lemon - is again on the verge of being put into bankruptcy, possibly within a week, according to sources with direct knowledge of the situation.
At the same time, Ally may find that General Motors Co and Chrysler, two key sources of customers, are increasingly reluctant to steer business to it. Many GM and Chrysler dealers depend on Ally to finance their inventories, and refer customers looking for car loans to Ally. If Ally gets fewer referrals in the future, and dealers find other sources of inventory financing, the value of the government's 74 percent Ally stake could fall.
Ally still owes the U.S. Treasury Department about $12 billion, and people close to the company and the government acknowledge there is no clarity as to how to pay that back.
The company says it remains committed to protecting its auto lending and direct banking franchises. Putting its mortgage problems behind it, Ally spokeswoman Gina Proia said, "will be key to repaying the U.S. taxpayer its remaining investment."
The Treasury declined to comment.
Insight: Ally's mortgage unit problems come full circle