By Ben Fox Rubin
Ally Financial Inc.'s third-quarter profit dropped 76% as the government-owned auto lender posted weaker results in its mortgage operations due in part to charges tied to a settlement with federal regulators.
Last month, Ally said it would take a $170 million charge in the third quarter stemming from a lawsuit settlement with Federal Deposit Insurance Corp. and Federal Housing Finance Agency, the regulator for government-backed mortgage-finance firms Freddie Mac (FMCC) and Fannie Mae (FNMA), over mortgage-backed securities sold during the financial crisis.
The settlement is the latest in a string of agreements for the FHFA, which sued Ally and 17 other banks in 2011 alleging they sold shoddy mortgage securities to Freddie Mac and Fannie Mae leading up to the financial crisis. Losses on those securities contributed to the near collapse of the mortgage firms, which were ultimately taken over by the government in 2008.
Ally's mortgage operations posted an operating loss of $5 million versus a profit of $331 million a year earlier and a loss of $27 million in previous quarter. Ally said the weaker results were due to the company exiting all non-strategic mortgage-related activities last quarter, as well as the settlement charge.
Ally's core auto-lending business, which mainly finances General Motors Co. (GM) and Chrysler Group LLC dealers and customers, posted income from continuing operations of $339 million, versus $337 million a year ago and $382 million in the prior quarter.
Meanwhile, the insurance unit reported an operating profit of $83 million, compared with $13 million a year ago and $45 million in the prior quarter.
For the latest quarter, Ally reported a profit of $91 million versus a profit of $384 million a year earlier. Core pre-tax income, which reflects continuing operations before taxes and some expenses, was down at $269 million compared with $373 million a year ago.
Ally is majority owned by the U.S. government after receiving $17.2 billion in funds through the Treasury Department's Troubled Asset Relief Program during the financial crisis.
The firm still faces several hurdles in its quest to get out from government ownership, including convincing regulators that it has a large enough capital cushion to be able to repay the Treasury Department.
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(END) Dow Jones Newswires
November 05, 2013 09:03 ET (14:03 GMT)Copyright (c) 2013 Dow Jones & Company, Inc.
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