Ally to sell new stock to meet Fed requirements

Ally Financial
Source: Ally Financial

Ally Financial is in discussions with private investors to raise capital that would help the once-troubled lender clear the Federal Reserve's capital bar, according to people familiar with the matter.

The company is marketing a $1 billion stock sale to some 30 investors and the deal is likely to take place in the next week, these people said. Alternative asset managers, including large Ally shareholder Cerberus Capital Management, are expected to snap up the shares.

The proceeds will help boost Ally's capital levels, which were found to fall far below the Federal Reserve's requirements in its March stress tests.

During the Fed's stress tests early this year, questions were raised about a handful of banks' risk-modeling processes—but Ally was the only company not to clear a capital hurdle. It posted a 1.5 percent capital level, where 5 percent was the minimum, indicating that Ally would not have enough liquidity to absorb its own losses in another financial crisis.

The biggest overhang to Ally's capital position was removed in May, people familiar with the situation said, when it agreed to pay $2.1 billion to settle claims stemming from the bankruptcy of its subprime mortgage unit, Residential Capital.

In previous rounds of the stress test, the Fed had placed a large estimate on Ally's losses associated with the ResCap litigation, people familiar with the matter said. Resolving the issue through the settlement removed a large overhang for future stress tests.

(Read more: Rising interest rates focus for bank stress tests)

The stock sale is expected to add another boost to capital, roughly 100 basis points, to help it clear the hurdle, these people said.

A July regulatory filing said Ally would be exploring "a number of alternatives ... including a possibly primary issuance of common stock" in order to resubmit its capital plan to the Fed in September and pay back the Treasury Department for its bailout. An Ally spokeswoman declined to comment further.

Ally is the former the financing arm of General Motors. The Treasury still owns roughly a 74 percent stake in Ally after a $17 billion bailout during the financial crisis. Ally sold its international operations last year, and much of the $9 billion in proceeds was paid to the Treasury.

The Treasury still holds $5.9 billion in mandatory convertible preferred stock, and Ally could use some of the proceeds from the new stock sale to start repurchasing this from the government.

Ally must pass the Fed's capital review before returning money to shareholders, including the Treasury, and paying the government back in full. If the company passes the September revision, it could go public as soon as late 2013 or early 2014, said people familiar with the matter.

Ally CEO Michael Carpenter said at an industry conference this year he expects to pay Treasury back in full by the end of 2014.

—By CNBC's Kayla Tausche. Follow her on Twitter @kaylatausche.