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Ally Fails Fed Stress Test, Will It Ever Get Off the Dole?

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Ally Financial is still in trouble. One of the last, big companies that is still a ward of the government, was one of two banks to fail the Federal Reserve's lastest annual stress test.

Its failure reflected in the fact the company did not meet the minimum of one of the four metrics the central bank used to measure the health of the country's 18 largest banks in a severely stressed economic scenario. Ally's inability to pass the test could pose another roadblock to the U.S. Treasury's plan to eventually sell its 73.8 percent stake in the bank. Ally was saved by the government in 2009 with a $17.2 billion dollar bailout.

(Read More: Fed Okays Plans at 14 Big Banks)

Not that Ally wants to stay under the government's thumb. In fact, the stress test results suggest it wants to get out from under it. Under the initial capital plan the bank submitted to the Fed, it's Tier 1 common ratio, one way of measuring a firm's ability to absorb losses using its core equity, was 1.78 percent. The level was well below the 5 percent minimum set by the Fed, so Ally was allowed to resubmit its plan. Ally's mulligan proved to be even less impressive, as its Tier 1 common ratio fell to 1.52 percent.

Ally's miss the second time around provides a clue as to what its original intentions might have been. Common sense would suggest a bank's Tier 1 common would increase under a revised plan because it wants to meet the 5 percent minimum. Ally's probably declined because the bank requested a buyback of dividend paying shares. The government owns $5.9 billion of Ally's preferred stock.

A senior Fed official said you could assume any repurchase of the preferred shares would have reduced the firm's non common equity, but not its common equity. That might explain why its Tier 1 common ratio was higher in the first submission.

Ally declined comment on its capital plan request.

The Fed official also said regulators had concerns about Ally's overall planning process for conducting the stress tests, another factor in its failure.

(Read More: Bank's Stress Tests Explained)

Ally has been defiant in its opinion of the Fed's assessment of its stress testing. In a statement it said, "Ally Financial continues to disagree with the Federal Reserve's assumptions and modeled results."

The bank goes on to state that the loss rates assumed by regulators for its commercial and industrial loans, loans to auto dealers, were more than seven times the losses the bank experienced in the depths of the last recession.

(Read More: Fed Rejects Ally, BB&T Capital Plans in Stress Tests)

An Ally spokesperson said that the firm will be resubmitting a capital plan, as allowed, once certain milestones of its strategic plans are met.

As for the government's plans to exit from its Ally Holdings, they depend in large part on Ally's success in getting ResCap through bankruptcy—ResCap being the subprime mortgage unit of GMAC Finance, Ally's name in its prior life.

Until this is settled, it is unlikely the Treasury would sell its shares in Ally.

—By CNBC's Mary Thompson; Follow her on Twitter: @MThompsonCNBC

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