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Ally working to repay Treasury stock in "near future"

By Rick Rothacker and Tanya Agrawal

(Reuters) - Ally Financial Inc, the U.S. auto lender that is majority-owned by the U.S. government, is working to repay $5.9 billion in preferred stock owned by the U.S. Treasury "in the near future," Chief Executive Officer Michael Carpenter said on Tuesday.

The preferred stock is part of the $17.2 billion that the government poured into Ally, the former auto lending arm of General Motors Co , during a series of crisis-era bailouts. Part of the investment was restructured into a 74 percent common equity stake.

After Ally reported a $1.44 billion fourth-quarter profit, Carpenter told analysts on a conference call that repaying the preferred stock involves talks with the Federal Reserve. The regulator wants to make sure that Ally and other large banks have enough capital to survive a severe economic downturn as part of annual stress tests that are now under way.

After the Treasury sells its remaining stock in automaker GM, Ally will be the largest remaining recipient of bailout dollars. As of February 15, Ally will have paid $5.9 billion to the government, including dividends.

In his bid to repay the Treasury, Carpenter is streamlining the company to focus on U.S. auto lending and Internet banking.

In May, Ally's Residential Capital mortgage unit filed for bankruptcy in an effort to wipe out liabilities from mortgage-backed securities sold to investors during the housing boom. Ally has also struck agreements to sell international operations, which are expected to bring in $9.2 billion in proceeds.

In a report last month, an internal Treasury watchdog said the agency did not have a concrete plan for getting its money back from Ally. The agency responded that it can either sell its stock or sell more Ally assets after the ResCap bankruptcy and the international sales are completed.

Earlier on Tuesday, Detroit-based Ally said fourth-quarter profit of $1.44 billion was helped by a $1.3 billion tax benefit. In the same period in 2011, it lost $206 million.

Ally said the results include a $46 million loss from ResCap, a $94 million pension expense and a $148 million charge related to an early repayment of debt.

Total revenue at Ally's North American automotive finance unit rose 30 percent to $371 million from a year earlier.

SETTLEMENT IN QUESTION

In a sign of increased tensions in ResCap's bankruptcy case, Carpenter said Ally could withdraw a $750 million settlement offer made to creditors last year.

As part of ResCap's bankruptcy filing in May 2012, Ally agreed to make the payment in exchange for a release of any possible claims against the company. But in a letter sent to Ally's board in November, some creditors said the settlement is much less than Ally's actual liability and that the lender could face damages for stripping assets from ResCap.

Ally is "extremely confident that such claims are completely without merit," Carpenter said. The lender hopes for a resolution in "the near term" but "if we have to go the litigation route, we will," he added.

In a letter sent to ResCap's board on Friday and obtained by Reuters, a group of creditors said there is "no support among the creditor constituencies" for the settlement "because the amount is far too low in comparison to the value of the claims that have been and may be asserted against Ally." The group asked the ResCap board to terminate the agreement.

A person close to the creditors said Ally should be paying "billions" to ResCap's creditors.

As part of the bankruptcy, ResCap reached agreements to sell mortgage operations and other assets to Ocwen Financial Corp , Walter Investment Management Corp and Berkshire Hathaway Inc in an auction last fall. Ocwen's purchase closed last week, and Carpenter said Berkshire would complete its portfolio purchase on Tuesday and Ocwen would finalize its deal this month.

Ally's banking unit is also selling a portfolio of mortgage servicing rights, which Carpenter said has received interest from a number of bidders. Reuters reported last week that Ocwen was in the lead to purchase the portfolio of servicing rights.

(Reporting by Anil D'Silva and Tanya Agrawal in Bangalore and Rick Rothacker in Charlotte, N.C.; editing by Supriya Kurane and Matthew Lewis)

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