NEW YORK – Ally Financial Inc. (GMA.XX), the government-owned auto lender, could incur up to $1.25 billion in losses if its struggling mortgage subsidiary, Residential Capital, files for bankruptcy, the company said in a regulatory filing Friday.
Ally said it would face “significant charges” and “substantial litigation” as a result of a ResCap filing, the costs of which could range from $400 million to $1.25 billion based on an estimate of “reasonably possible losses.” The disclosure was included in Ally’s quarterly report filed with the Securities and Exchange Commission.
A bankruptcy filing for ResCap is widely expected in the coming weeks, when the unit faces more than $300 million of bond-related payments. It recently missed a $20 million bond-interest payment, which has a grace period until May 17.
ResCap, once one of the largest subprime-mortgage lenders in the country, has been a drag on Ally, which halted plans for an initial public offering last year as mortgage woes mounted.
Michael Carpenter, chief executive officer of Ally, said during an earnings conference call that the company is considering various options for the subsidiary, including a bankruptcy filing. Its quarterly report reiterated that, stating ResCap is “actively considering” a filing.
The U.S. owns about 74% of Ally, which received more than $17 billion in aid during the financial crisis.
Copyright © 2012 Dow Jones Newswires