Sheehan & Associates, P.L.C.

Detroit's Ally raises almost $2.4 billion in stock market debut

Six years after Detroit-based Ally Financial Inc. received a $17.2 million bailout through the Troubled Asset Relief Program, it is now a publicly-traded company. Ally debuted on the New York Stock Exchange this month at $25 per share, raising almost $2.4 billion

That significantly helps its efforts to get out from under the control of the U.S. Department of the Treasury, which held three-quarters of the company when it rescued Ally through TARP. The federal government now owns less than 20 percent. Chief Executive Officer Michael Carpenter says he anticipates that by the end of the year, the Treasury Department will no longer have any stake in Ally.

The Treasury Department seems optimistic as well. One official says that "with this offering, taxpayers have now recovered more than they invested in Ally."

This repayment of taxpayer funds also means that Ally will no longer have the additional regulatory restrictions placed on it under TARP. This will allow the company to take the risks needed to increase profits that it hasn't been able to in the past few years. The CEO says that among these is growing the company's commercial banking business. He says his goal is to get return on equity in the "double digits" before the end of the year. It was under two percent last year. He called the current ROE "completely unacceptable."

There may be some bumps in the road, however. Ally's stock price quickly dropped to $23.98 after trading began. However, its CEO says he's not particularly concerned in the minor day-to-day fluctuations. He says that people should "look to us to substantially improve profitability and return on equity of the company" within the next two years.

Ally will face the general vicissitudes of the stock market that have had investors seeing more red arrows than green ones in their stock portfolios this month. Moreover, the Detroit company may also be impacted by the problems hitting General Motors and Toyota due to massive recalls and government inquiries.

Taking a company public can be a complicated endeavor, even when the company is in a strong financial position and does not have the added burden of getting out from under government control. It's essential to have a strong legal team that can help the company through the many legal and regulatory hurdles so that the executive team can focus on business planning, growth and keeping both customers and shareholders happy.

Source: Bloombert, "Ally Financial Drops After IPO Prices at Low End of Range" Elizabeth Dexheimer and Leslie Picker, Apr. 10, 2014

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