Ally Financial Mortgage Unit's Bankruptcy and Its Impact to Ally Bank

Ally Financial made news yesterday when it announced that its mortgage unit, Residential Capital (ResCap), has filed for bankruptcy protection. Ally also reported that it was pursuing "strategic alternatives for its international operations." What does this mean for Ally Bank? Here's what Ally Bank's Straight Talk blog explained:

ResCap is a separate mortgage subsidiary of our parent company, Ally Financial. We want to reassure our customers that this action does not have any impact on Ally Bank customer accounts or the terms and conditions of Ally accounts. Ally Bank operations will continue to be conducted, uninterrupted, and unaffected by the result of ResCap’s actions.

Ally has additional information for Ally Bank customers in this FAQ page. In addition to the ResCap bankruptcy, Ally appears to be planning to sell some international operations. That's how news media has interpreted the line about "strategic alternatives for its international operations." According to Ally's press release, its international operations include "auto finance, insurance, and banking and deposit operations in Canada, Mexico, Europe, the U.K. and South America."

The good news for U.S. Ally Bank customers is that there are no published plans to sell Ally Bank. That had been my primary concern. We have seen several cases in the past when internet divisions go down hill after acquisitions. Some examples include Bank of America's acquisition of Countrywide Bank, Chase's acquisition of WaMu and M&T Bank's acquisition of Wilmington Trust.

It's also good news in that these initiatives should help Ally repay the $12 billion in U.S. government bailout money. According to Ally's press release:

Upon successful completion of the announced strategic initiatives, Ally expects to return at least another third of the total investment, thereby enabling the U.S. Treasury to recover at least two-thirds of its investment in Ally by year-end.

Once Ally repays all of the bailout money, Ally Bank should finally be free of any FDIC restrictions. Ally has never acknowledged these restrictions, but the WSJ reported in 2009 that "The FDIC asked GMAC officials to keep the rates on deposits low enough so the bank wasn't one of the nation's top five rate payers, as measured by Bankrate.com, an interest-rate information service, people familiar with the matter say." This came after the American Bankers Association complained to the FDIC about Ally Bank (formerly GMAC Bank) being allowed to "pay rates well above the market" after Ally was provided bailout money.

In short, there's no reason for Ally Bank depositors to be worried. The recent news point to a future that should help Ally Bank. In addition, when you look at Ally Bank by itself without looking at its parent, Ally Financial, it's very healthy. At DepositAccounts.com we have an overall health score for Ally Bank of 5 stars (out of 5) with a Texas ratio of 2.34% (excellent) based on December 2011 data. We're not alone. Bankrate also has a 5-star rating. Bauer Financial gives Ally Bank 3½ stars (good).

Of course, it's always a good idea to remain below the FDIC coverage limits. This can be above $250,000 if you properly structure your accounts. Ally Bank makes it easy to do this. I have details in my post Maximizing Your FDIC Coverage with Beneficiaries.