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UPDATE 2-Auto lender Ally posts profit on strong demand

Rick Rothacker and Jochelle Mendonca
Friday, 2 Nov 2012 | 4:37 PM ET

* Third quarter net income of $384 mln vs year-ago loss

* Mortgage income boosts results, but sale planned

* More international sales expected this month

Nov 2 (Reuters) - Ally Financial Inc, the auto lender 74 percent-owned by the U.S. government, posted a third-quarter profit compared with a year-ago loss, helped by its car-loan and mortgage businesses.

The Detroit-based company, once the auto lending arm of General Motors Co, said it earned $384 million in the quarter, compared with a loss of $210 million a year earlier.

The results from a year ago included a $426 million loss from Ally's Residential Capital mortgage unit, which filed for bankruptcy in May to protect the parent from its liabilities.

The company's remaining mortgage operations, excluding ResCap, for the recent quarter reported pretax income of $354 million, compared with just $13 million a year ago, as borrowers rushed to refinance at lower interest rates.

But the lender likely will not be able to count on that income in the future. It said last week it is looking to sell most of its remaining mortgage operations.

Ally CEO Michael Carpenter is selling assets and focusing on U.S. auto lending and Internet banking as the company seeks to pay back $17 billion in government bailouts. In May, it announced plans to sell off international businesses to speed up repayment.

In a conference call with analysts, Carpenter said Ally will produce more stable earnings after shedding mortgage assets that fluctuate in value each quarter. But the company faces increased competition from banks in its auto business and a low interest rate environment that makes it difficult to make money off car loans.

Total revenue in Ally's North American automotive finance unit, which includes Canadian operations that are being sold, increased 6 percent to $931 million from a year ago. But net pretax net income fell 7 percent to $510 million, as the lender set aside more money for bad loans.

The lender made $9.6 billion in U.S. consumer loans in the quarter, down 4 percent from a year ago.

Last month, Ally agreed to sell its Canadian auto finance and deposit business to Royal Bank of Canada for $4.1 billion and its Mexican insurance unit to ACE Ltd for $865 million.

Those two sales are expected to bring in about $5 billion in proceeds, producing pretax estimated gains of $1.2 billion, Ally said. It is still looking to sell European and Latin American businesses with a combined book value of about $3.3 billion.

``We have a high degree of interest from multiple parties, and we would anticipate making an announcement in November,'' Carpenter said on the conference call.

Of the $17 billion it owes the government, Ally has paid back $5.8 billion, including dividend payments. Carpenter said the lender would like to pay as much of its sale proceeds as possible to the Treasury. But it will need approval from the Federal Reserve, which wants the bank to maintain sufficient capital levels.

Ally shares were up 2 cents at $24.64 on Friday afternoon.