Ally Financial Inc (ALLY) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 Ally Financial Inc. earnings conference call. My name is Chantalay, and I will be your coordinator for today's call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference (Operator instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Michael Brown, Executive Director of Investor Relations. Please proceed, sir.

Thanks, operator, and thank you, everyone, for joining us as we review Ally Financial's fourth-quarter 2011 results. You can find the presentation we will reference during the call on the investor relations section of our website, Ally.com.

I would like to direct your attention to the second slide of the presentation regarding forward-looking statements and risk factors. The contents of our conference call will be governed by this language.

This morning Senior Executive Vice President of Finance and Corporate Planning, Jeff Brown, and our CFO, Jim Mackey, will cover the fourth quarter and full-year results. After the presentation portion of the call, we'll set aside some time for Q&A. To help in answering your questions, we also have with us Michael Carpenter, our CEO; and Tom Marano, the head of our Mortgage operations. Now I would like to turn the call over to J.B.

Thanks, Michael. Good morning and thank you for joining our call. I'm going to start with the financial results on slide 3 and then I'll walk through some of our key accomplishments for 2011, the positive trends we see in our core businesses and some of our priorities we are focused on as we head into 2012.

As we indicated in our 8-K filing earlier this week, we did have a net loss for the quarter that was driven by a $270 million regulatory charge related to foreclosure matters. Specifically, Ally had a net loss of $250 million in the fourth quarter and a core pretax loss of $24 million. So excluding this charge, the Company had positive results with core pretax income of $246 million for the quarter, and the majority of our businesses delivered in line with our expectations. Jim is going to go into more of those details in just a minute.

Now looking at the full year, Ally posted core income of $985 million and a net loss of $201 million. Again, if we look at the results excluding the regulatory charge, the Company posted core income of approximately $1.3 billion for the year. While we are disappointed with the net results for the quarter, we believe we are appropriately reserved against fines or penalties that may ultimately be assessed by our regulators and/or the Department of Justice and state Attorney Generals. To be frank, I think most of the banks and mortgage servicers would have expected a deal to be announced by now, but the dialogue remains very fluid, given the large number of constituents involved in the negotiations.

As you know, the recording of this charge was primarily at the ResCap entity level, and Ally chose to forgive debt to ensure ResCap could continue to meet its net worth requirements to third-party lenders and to GSEs. However, no cash settlement has occurred. This was a reserve that was booked as we now had a probable and estimable basis to record an entry.

Further, this action should give no signal with respect to our long-term intentions for ResCap. Generally speaking, all of the comments that Mike Carpenter gave last quarter continue to hold true with the goal of protecting Ally and the Automotive Finance franchise.

Turning to slide 4, I want to spend a few minutes on some of the key achievements through 2011 that highlight the strength of our core businesses. Our premier auto finance franchise demonstrated strong asset growth, including the ability to diversify our network. US consumer originations were up 27% year-over-year, and the Company maintains its position as a leading automotive finance company in the US with over $40 billion in originations last year. Total assets at NAO, our North American Auto Finance division, were up almost $6.5 billion on a linked-quarter basis and at a time when many banks had anemic loan growth. So we are pretty proud of the continued progress we have achieved. While we appreciate having the largest share of the total US market, we are not solely focused on this metric. The real goals are to achieve strong profitability and to continue to build and strengthen our relationships with the thousands of dealers we partner with day in and day out.

And as we've discussed on our past several calls, the market is increasing in competitiveness. Our focus will simply be on participating in segments of the market where we can maximize against our internal profitability and return targets, and this could come at the expense of some originations growth in the future. Our auto team, led by Bill Muir and Tim Rossi, has done a tremendous job continuing to grow the business despite the challenges, so I'm confident we have got the right platform and the right team to grow both the balance sheet and profits.

During 2011 we told you that part of our growth strategy was to diversify the franchise by expanding into different products as well as broaden our network of dealer relationships, and I'm pleased to say we've made good on that goal. Used originations were up 90% year-over-year, leases grew by about 88%. We introduced a new product to the Auto Financing space with Ally's Buyer Choice, and we have added additional manufacturers to our network of preferred relationships.

Now let's turn to Ally Bank. We introduced a number of new products last year which helped drive retail deposit growth of $5.9 billion, which is about a 27% increase from 2010. We also continued to attract more customers, and our customer accounts were up 35% year-over-year. Retention levels remain very solid, especially when considering that many of our CD customers have maturing rates that are far in excess of current market rates. And we stated all along our focus is to both grow and retain customers.

Ally's capital and liquidity profile continues to be strong. We completed over $38 billion of new secured and unsecured funding transactions in 2011. Jim will go further into details on our liquidity position toward the end of his comments, but we are carrying in excess of two years of liquidity at the parent, which obviously provides a solid buffer to deal with any contingent risks while still having plenty of liquidity to deploy towards growth in our Auto business.

Despite the excess liquidity we are carrying, our cost of funds has improved year-over-year by over 60 basis points, which is making us more competitive in the market. There's still work to do in this area, but we are encouraged by the progress. And the fact that we have only marginal unsecured issuance plans this year, despite the maturities we face, will also help to drive overall funding costs lower. Simply put, we've become much more efficient with our funding.

Capital levels are robust compared to the risk profile for assets with a tier 1 contingent common ratio of 11.2%. Lastly, Ally begin repaying the US taxpayers investment in 2011 with the remarketing of our trust preferred securities, and to date we have paid U.S. Treasury $5.4 billion on its investment in Ally, and we are committed to repaying the remaining investment over time. This is obviously a critical mission for our associates' base, the U.S. Treasury Department and the U.S. taxpayer.

On slide number 5 I want to reinforce the strong fundamentals in our core businesses that we believe will continue to drive the Company forward. I recognize some of this is redundant to what I just discussed on the previous slide. We have some nice tail winds in the business and we feel good about our position in the market. So while the competition has heated up in the auto finance market, Ally's business has some key advantages that have allowed us to continue to win in the marketplace. Again, as Mike said, throughout this year we are in and of this industry. We have the infrastructure, we know the business and we know how to help dealers and manufacturers be successful. Also, key to our success is that we are committed to the business for the long-term. And with the continued de-emphasis on mortgage lending, we are positioned to continue deploying our capital to support further grow.

Our Auto platform has strong asset generation capabilities, which has allowed us to achieve significant growth in the used and diversified areas. The assets are higher quality and shorter duration, which are obviously very desirable in this low interest rate environment, and we have a leading direct bank franchise in Ally Bank that has a unique consumer value proposition that is attracting more customers. And as discussed, we have maintained a conservative capital and liquidity posture which provides a strong foundation for the Company.

Now turning to slide 6, the core fundamentals are strong and our goal is to make them stronger in 2012 while also addressing the headwinds which I'm sure are on your mind as well. So looking at, we are focused on four primary areas. First and foremost is to address the clouds that still linger over the mortgage business, and as demonstrated by the foreclosure charge are beginning to have an impact on Ally overall. The mortgage servicing business is a leader in the industry and has been a leader in loss preservation initiatives. However, the legacy mortgage business and the continued changes in evolving regulation in the industry continue to offer challenges. We are focused on aggressively managing these challenges and protecting Ally, so it can continue to thrive and repay its debt to the US taxpayer.

Second, as mentioned before, the auto finance market continues to be very competitive. Aggressive market pricing is pressuring returns. Ally has held its position well in the market despite the competition and we continue to focus on further diversifying and expanding our business to offset market share pressure.

Third, while our capital and liquidity positions are strong, we are focused on improving our competitiveness. We need to continue to grow our deposit base so it makes up a larger portion of our overall funding plan and we must continue to find efficiencies in our funding construct and approach to the capital markets.

Finally, we are focused on managing our cost structure. We have been diligent on this point each year and need to continue to focus on this as costs related to the consent order and mortgage business continue to escalate. We stand by our view that converting to a bank holding company has made the Company better, especially from a safety and soundness perspective, but that obviously doesn't come cheap.

So in summary, we are encouraged with our core business fundamentals, but there is more to do to stay competitive in this market, managing the legacy risks and maintaining a strong and profitable business model and enables us to repay the US taxpayer.

Now with that, let me turn it over to Jim, who is going to walk you through additional details on our results.

Great. Thanks, JB. Let's start on slide 7, where I will cover the fourth quarter and full-year 2011 results.

For the full year we had core pretax income of $985 million in 2011 versus $2.4 billion in 2010. Now, this is a $1.4 billion decline year-over-year, but it's explained by two primary items. First, with respect to mortgage servicing, not only did we take the $270 million charge related to foreclosure matters, but we also had a $460 million lower mortgage net servicing revenue year-over-year which you can see in the notable items at the bottom of the page.

Second, we had around $430 million lower of net lease revenue, which we have been discussing with you for several quarters now. So aside from these two items, the core fundamentals of the business have largely performed in line with our expectations.

With respect to quarter-over-quarter results I will focus on core pretax income excluding the foreclosure charge. There we reported $246 million, up from $119 million in the third quarter. We have called out some notable items at the bottom of the slide which drove the improvement. The big difference quarter over quarter was mortgage servicing revenue, which improved and normalized to $166 million versus a $174 million loss in the third quarter. We also had lower mortgage repurchase expense of $44 million. These positives were somewhat offset by continued decline in our auto operating lease revenue due to lower remarketing gains as well as lower yield on the overall lease portfolio. And also during the quarter we took a $39 million restructuring charge primarily related to our fourth-quarter reduction in work force, which will help us manage our expense base going forward.

We continue to remain tightly focused on expenses to combat the headwinds of increased costs due to regulatory and also on the mortgage front and the dormant interest rate environment. In the fourth quarter, compensation and benefits expense normalized from the dip we saw in the third quarter as in the third quarter we adjusted our equity-based compensation accruals. Finally, credit provision was down for the quarter as we adjusted our reserves to reflect the continued loan-loss performance on our loan portfolios.

Going forward, we expect to see modest core income improvement in 2012 from recent levels. We continue to make progress working through legacy issues. Our loan portfolio mix, particularly lease, has normalized. Subject to realizing forward curve projections, our NIM should begin to expand as our funding costs decline while our earnings assets continue to grow. Generally, we think new asset yields have reached their lows. From a net income perspective, we expect to see particular improvement as our OID expense declined significantly in 2012.

Now turning to slide 8, we will talk a little bit about our net interest margin in more detail. For the quarter, NIM was 1.8%, which represents a 30-basis-point drop quarter over quarter and 50-basis-point decline year-over-year, and you can see that in the purple line on the page. The gray bars show that earning assets are continuing to grow at a constant pace. Cost of funds, shown by the black line, continues to improve. However, in recent quarters the cost of funds improvement has not kept pace with the decline in earning asset yields. Earning asset yields are impacted by a variety of items including the absolute low level of rates and competition, but most importantly it's being impacted by the overall mix shift in our portfolio as the higher yielding legacy portfolios are running off. For example, the repositioning of our lease portfolio alone impacted the quarter-over-quarter variance by 13 basis points.

As I just mentioned, we believe NIM is at or near our floor based on current forward curve and asset mix projections and will stay compressed for another quarter or two before it begins to expand. Expanding NIM, coupled with our earning asset growth, will improve our profitability over the long run. We think it's important to take a look at at NIM on a risk-adjusted basis, and you can see that in the green line on this chart. Our balance sheet losses have come down dramatically, which has kept our risk-adjusted NIM fairly consistent over the time period presented.

Onto our North American Auto Finance business on slide 9, you can see NAO continued to post solid results, but the numbers over the last several quarters have been impacted by the dynamics we have been discussing with you, most notably the lease portfolio repositioning. However, the core tenets of the business model have positioned us well going into the future, namely strong earning asset growth and low loss attractive assets. NAO posted pretax income of $478 million, down from $551 million in the third quarter and $589 million a year ago. Net financing revenue was $704 million and was down both quarter over quarter and year over year, largely driven to the lease portfolio dynamics we have been discussing. We had lower remarketing gains as less cars have been coming off lease. But at this point we do think our lease portfolio revenue has largely normalized and we wouldn't expect to see the magnitude of declines in future quarters. There were also no whole loan sales in the fourth quarter, which was the primary variance on the other revenue line item.

We did have a $33 million benefit in provision expense this quarter as we continued to evaluate our reserve levels relative to our low loss experience. Going forward, we expect to see our provision expense at a more normalized level as our earning assets continue to grow and our allowance coverage ratio stabilize at lower levels.

Noninterest expense of $343 million was consistent with last year despite absorbing 24% origination growth for the full year. You can see on the bottom-right chart that strong originations have contributed to the earning asset growth. We had 17% year-over-year and 7% quarter over quarter.

On slide 10, we show you some statistics that helps illustrate the expansion and diversification of our Auto business. On the top left, US consumer originations were strong at $9.2 billion in the fourth quarter and we feel pretty good about this level, particularly in light of the stiff market competition. On the top right, our origination mix shift into used and leased has been a driver of our strong growth, as they now make up 25% and 15%, respectively, of our mix. And this remains consistent with our diversification strategy.

The bottom two charts show our balanced growth in both consumer services and commercial serviced assets. Our consumer grew by 11% year-over-year and commercial grew by 4% year-over-year.

Turning to International Auto on slide 11, you can see the International Auto business has a solid quarter of originations and revenue, but some one-time restructuring and tax expenses that we booked this quarter as well as provision release last quarter, impacts the quarter-over-quarter comparison. Net revenues of $221 million were in line with last quarter and were up slightly from the prior year. European credit performance has remained stable despite the economic uncertainties. However, we did book some additional provision expense in Latin America this quarter.

Noninterest expense has elevated as we took approximately $30 million in charges related to restructuring activities as well as some increased tax reserves in Mexico and Brazil. Originations were flat for the quarter at $2.6 billion, but importantly were up 5% year-over-year.

Regarding insurance on slide 12, you can see it posted $93 million of earnings, which is solid. It is down, however, on a quarter-over-quarter and year-over-year basis. But importantly, the underlying operating performance remains strong in this dealer-centric business. The driver of the year-over-year change is largely due to lower investment income, which fell from the unusually high elevated levels last year. Our underwriting income was slightly improved year-over-year. The driver of the quarter-over-quarter change is primarily equity-based compensation adjustments and higher insurance commissions and accruals. This was partially offset by higher investment income as we started to see more stable capital markets as we moved through the fourth quarter.

The combined ratio is up quarter over quarter but is in line with historical trends and improved over 100 basis points from a year ago. The strong combined ratio reflects the disciplined risk management and high-quality nature of the policies written. The fourth quarter is a seasonally low quarter for written premiums. However, we did see a pickup from last year due to increased industry volumes.

Turning to Mortgage, let's start on slide 13, where I'll talk about our origination and servicing business. This business reported a $237 million loss for the quarter, driven by the $270 million charge for foreclosure-related matters that JB discussed earlier. Absent this charge on an operating basis, the origination and servicing segment returned to profitability and was dramatically improved from the third quarter.

As announced on the third quarter earnings call, we begin to substantially reduce our correspondent lending during the fourth quarter. While this decision will reduce total originations over time, loan production was up quarter over quarter, reflecting lock volumes that were in place prior to the announcement. Our lock volume declined 50% quarter over quarter, so you will see the impacts of the reduced correspondent lending in the coming quarters, which will help us reduce our MSR asset to a more appropriate level. We will continue to evaluate the correspondent business as this landscape evolves.

Gain on sale improved to $111 million, reflecting more attractive margins on loan originations compared to the prior quarter. Margins were improved year-over-year as well, and origination volumes were much lower. Net servicing revenue was $166 million, which returned to more normalized levels. And we did not see a repeat of the volatility that we saw last quarter.

Despite the volatility in 2011, our MSR hedge performed pretty well on a full-year basis and we had over $400 million of net servicing revenue for the full year. Non interest expense was also up about $100 million due to various consent order costs and restructuring charges. Also during the quarter, we announced the sale of our Canadian mortgage operations and we moved it to discontinued operations during the quarter.

On slide 14 we talk a little bit about our capabilities as a mortgage servicer, and we've talked about this in previous quarters. GMAC Mortgage continues to demonstrate a superior servicing record relative to their peers and we have listed many of these items on this slide. GMAC Mortgage is committed to keeping people in their homes and providing relief to homeowners whenever possible. The mortgage company has provided relief to over 765,000 customers since 2008, which represents 28% of the loans serviced during that time. GMAC Mortgage implemented a number of procedural changes during this time to improve our servicing operations and is on track to receive three stars from Fannie Mae and its STAR program.

The mortgage company was among the first in the industry to establish a single point of contact team to work currently with borrowers to improve the customer experience. GMAC Mortgage was the first major lender to release the enhancements from the HARP 2.0 program. The U.S. Treasury HAMP program scorecard ranked GMAC Mortgage as an industry leader each quarter this year. And note that the servicer time to resolve third-party escalations was the shortest among the large mortgage servicers in the HAMP program. And, we are seeing lower re-default rates than the rest of the industry, as displayed in the table at the bottom of the page.

On to slide 15, where I will discuss the mortgage legacy portfolio. This portfolio continues to wind down, and we saw improved performance from last quarter driven largely by lower rep and warrant expense, which we will discuss a little bit more on the next slide. We had $39 million of gain on sale and LOCOM adjustments this quarter, and that was driven primarily by the sale of $133 million of held-for-sale loans, which we recorded a gain of $24 million during the quarter. These positives were offset somewhat by a $33 million write-down on some of our assets in our Mexico subsidiary, which is reflected in both the other revenue and in provision line items.

Regarding the legacy balance sheet, we continue to de-risk it and it's performing up to expectations. And we have reduced the balance sheet to $10.9 billion, which is a $2.2 billion decline from a year ago. The held-for-sale portfolio is $1.5 billion and continues to be marked at about 45%. And our held for investment portfolio at Ally Bank is down to $6.9 billion from over $8 billion a year ago and has a remaining $500 million of reserves.

Regarding repurchase reserves on slide 16, we had another stable quarter for repurchase expense and new claims. You can see on the top right, our mortgage repurchase expense was $44 million, which is down about $30 million quarter over quarter and almost $140 million year over year. Ending reserve balance is $825 million and is consistent with the prior four quarters.

On the bottom left, you can see new claims trends continued to trend down as a result of the settlements we reached with the GSEs and certain whole loan counterparties in 2010. New claims were $122 million during the quarter, the lowest level in several years. On the bottom right, we show outstanding claims by counterparty, and these claims remained around $1.1 billion for the last few quarters, and this is primarily made up of items from the mono lines.

So leaving mortgage and turning to Ally Bank on slide 17, let's talk a little bit about our deposit franchise. We continue to benefit from the shift in consumer preference away from the branch banking networks and towards the direct channels, like Internet, mail and phone. Our brand awareness is up to 38%, which is a 52% improvement year-over-year. This is particularly impressive given the short period of time that our brand has been in existence. And Ally Bank has consistently been recognized by the financial press as having a leading online platform. We continue to respond to the needs of our customers, and in 2011 launched several innovative new products, including our first IRA products, a 48-month Raise Your Rate CD, Popmoney, eCheck Remote Deposit and Ally Perks debit rewards program.

Regarding deposit growth on slide 18, 2011 was another strong year for Ally Bank. Retail deposits grew $1.4 billion this quarter and 27% year-over-year, and this exceeded our expectations for the year. On the bottom left, we continue to grow customer relationships and the number of retail accounts, which were up 35% during 2011. Not only did we add new customers, but we also added depth by increasing the number of accounts per customer. On the bottom right, you can see our deposit book continues to be very sticky and our CD retention rates increased to an all-time high this quarter.

Now let's switch gears and turn to liquidity on slide 19. As JB mentioned, we have maintained a conservative liquidity posture and this has helped us effectively pre-fund our wall of maturities that are coming due in 2012. In the second half of 2012 we have $7.4 billion of TLGP securities maturing, but with $27 billion of parent company liquidity and $10 billion at Ally Bank, we feel very good about the liquidity that we have stockpiled to further support our auto finance growth.

At the end of 2011 our time to required funding stood at 25 months. This assumes no change in our meaningful auto growth projections and no additional unsecured issuance. We saw great momentum in the auto ABS market as it continues to improve throughout 2011. We printed five deals with average all-in yields of 1.2%. This market has been very resilient throughout the downturn and yields are at historically low levels due to the attractiveness of the auto asset class.

On slide 20 you can see some additional funding highlights. We finished 2011 with over $38 billion in new funding including $6.5 billion in the fourth quarter, which was made possible by our strategy to diversify funding across markets and asset classes. We raised over $2 billion of securitizations during the fourth quarter and over $18 billion for the full year. We also signed a multi-year $3.5 billion credit facility during the quarter that will be utilized to fund our US Auto leases throughout 2012 and 2013. In addition to the robust new funding transactions we executed during the year, we also renewed $25 billion of existing revolving credit facilities.

Regarding capital on slide 21, our capital levels remain at the top end of the industry and very robust versus the risk profile of our assets. Our directive from our regulators to maintain 15% total risk-based capital at the parent expired at the end of 2011, and we have recently submitted our capital plan to our regulators as part of the CCAR 2 program.

Our ratios declined somewhat during the quarter as we are growing our risk-weighted assets into our capital base, and this is all as planned. Our tier 1 capital ratio remains high at 13.7% and our tier 1 common finished the quarter at 7.5%. We remain positioned to achieve Basel III requirements ahead of schedule and our estimated Basel III tier 1 common ratio is 10.7% on a fully converted basis.

A few comments regarding asset quality, and I'm looking at slide 22. We showed strong trends in our asset quality throughout 2011. You can see on the chart on the top left that net charge-offs remained low at 43 basis points, which is a 56% decline year-over-year. It's going to be tough for losses to get much lower than this, and we have been staying at this level for a couple of quarters now. On the top right our allowance is still over three times our net charge-off rate, which we think is favorable compared to the rest of the industry. And on the bottom we show some auto-specific statistics. Our auto delinquencies remain low with $937 million of contracts 30 days-plus delinquent, which is about 1.5% of all retail contracts outstanding. And our credit losses remain low at about 50 basis points, and the slight uptick was driven primarily by typical seasonal trends we see in the fourth quarter.

So to finish up here on slide 23, a few comments regarding 2012's strategic priorities. We outline here six of them. Several of these themes are consistent with the work that we've done in 2011 and we will continue the momentum in these areas over the coming year. We are currently the leading global auto finance franchise. We are focused on maintaining a leadership position in this business as we continue to grow, diversify and introduce products and services that help dealers and manufacturers be successful. We will continue to grow our leading direct bank, Ally Bank. Our customers' value position has really resonated in the marketplace and we will continue to leverage our unique approach in this area.

With respect to mortgage, we are diligently managing risks in this area and will take steps to reduce risk whenever it makes sense. We have significantly improved our competitiveness in the market over the past year, but there is more to do in lowering our cost of funds and we expect to see further progress, as JB highlighted.

Another area that speaks to our competitiveness is driving continuous productivity improvement. We need to drive efficiency in whatever we do and while delivering compelling products and excellent service so that we can win in the marketplace.

Lastly, we remain committed to repaying the US taxpayer over time. And we began that process in 2011 and will remain focused on this going forward.

With that, I will turn it back to Michael to start Q&A.

Thanks, Jim. Operator, we are ready to take calls from investors. Please remind our callers how to queue up to ask a question.

(Operator instructions) Kirk Ludtke, CRT Capital Group.

In the press release, you mentioned that you are aggressively addressing the risks related to the mortgage business. And I was wondering if maybe you could expand on that. There's probably a lot of things you could be doing. You could be looking to sell assets, reach settlements with the claimants, could be looking for additional capital in the event that the settlements require that. You could be preparing ResCap for bankruptcy. I'm just wondering if you could comment on -- I know these are sensitive times, so I'm wondering if you could comment on any of those more specifically.

Well, this is Mike. There are a couple of things that perhaps are worth saying. First of all, we actually think, from a balance sheet point of view, that our mortgage business is in pretty decent shape. The issues from a risk point of view really have to do with the contingent exposures, and they have to do with the three black clouds that really have formed in the last year. The focus on rep and warrant, and, in particular, PLS; the FHFA suit and the DOJ-AG situation that grew out of robo-signing.

If I just talk about each of those briefly, with regard to the DOJ-AG situation, we are certainly very hopeful that there will be some kind of resolution in the near-term. We were forced to take an accounting action this quarter in anticipation of any kind of resolution with regulators and others, which frankly we would rather not have done because we don't have a deal. But we are hopeful that that will be settled in a reasonable time frame.

We think, with regard to the FHFA suit, which is a securities suit, we think our defenses are very, very, very strong. And as you know, we settled a long time ago with Fannie on rep and warrant, including for PLS. And the only thing we haven't settled with Freddie is PLS rep and warrant.

So we think the FHFA suit is -- it will take some time, but we feel very strongly about our position there. And obviously, our strategy there is a legal one.

With regard to the PLS rep and warrant claims themselves, this is a very, very slowly developing matter. And we, again, feel that our position is extremely strong. We have not really entered into any kind of settlement discussions, and we expect that this will evolve over many, many years.

So I think those are the comments I would make on the three black clouds, Tom. I don't know whether you would like to add to that?

I think the only other thing I would add is that on the PLS claims, we have had a number of successes in the court system. And while you can't predict that those will continue, I think they are a testament to the arguments we get from our lawyers that these were well-informed investors who had the opportunity to do due diligence, who knew what they were buying and had adequate disclosure. So I think it warrants an aggressive legal posture. Where appropriate, we might consider settling. But we need to get a good deal.

Thank you, that's very helpful. I'm just curious -- can you say -- do you feel comfortable saying anything about whether or not you are attempting to sell assets at ResCap, raise capital or where you might stand with respect to your preparation for filing with ResCap?

With respect to selling assets, we have been selling assets for the past couple of years. We do that very strategically. I believe we had gains of almost $60 million this year on assets we sold, and will continue to sell them selectively. It's a balancing act between selling the asset or taking advantage of the machine we have to leverage the value of those assets through modifications or refinancings. And if you look at the material that has come out of the government lately about opportunities for refinancings and modifications, I think we have an attractive portfolio to take advantage of that. On the other topics, they are very highly speculative areas and we're not going to comment on that.

I guess the one other thing I would add, because I know this is something of interest to everybody, is we actually did a lot this year in terms of cleaning up the risk on the international side of the business, both in Canada and in Mexico.

There were some rumors that you were in the market with your servicing assets, and I'm just wondering is that something --

Wall Street is full of rumors.

And then you've got a couple of bond maturities at ResCap coming up in the second quarter. I'm curious; do you just plan on making those -- paying those maturities, or does something have to happen in order for you to make those payments?

At this point in time, I expect business as usual.

Okay, I appreciate it, thank you very much.

Eric Selle, JPMorgan.

So looking at the $270 million accrual, is that a proxy for the cash cost to the state attorney general for closure settlement?

We can't really, at this point in time, give details on the break out of that or exactly which components of the total foreclosure settlement that that number would fit. We just can't disclose it at this point in time.

Or any other regulatory elements.

Okay. And then if we are looking at that, if that's -- I'm not putting words in your mouth, but assuming that is the cash portion, with the modification portion of it, which looks like it's going to be a bigger size of the settlement, is that going to involve any cash, or is that mainly just non-cash write-down of assets?

Anytime you start with an assumption, you have a chance of being wrong.

Believe me, I do it every day.

We don't want to go down this track.

Okay, so this week, we got news you guys forgave $200 million of debt at ResCap. You took the charge for foreclosure. It feels like you are increasing the support of ResCap. Are you guys taking off the table bankruptcy of ResCap?

I'm just going to say exactly what I said on the call last time. I said that, while Ally has supported ResCap and continues to support ResCap, investors should not assume there's a blank check from the parent. I would say there is no change -- the action that we took this quarter to support ResCap does not represent any change on what we said last quarter.

And with the pace of the monoline settlement many, many years away to what you guys said on the call, and then last call, Michael, you said that -- I asked you what would change your support of ResCap, and you said a B of A type settlement. So if all that's left from a major cash standpoint is these long-term monolines, can we believe that your support of ResCap is a similar tenure of that monoline settlement? Is that what you're referring to as a B of A type settlement?

I wouldn't pile assumptions onto assumptions, and I think I would just stand by what I said before, which is that we have been incredibly supportive over the years. Our objective, my objective is to protect the value of Ally and to support the auto franchise, which is why the government bailed us out. And that's my objective, and that is our approach to the way we think about ResCap. And as I said before, we have supported ResCap; we just did, in this quarter. You should not assume there's a blank check from the parent.

Great, I appreciate it.

Doug Karson, Bank of America Merrill Lynch.

I just have one or two kind of, I guess, follow-up questions with ResCap. I'm not sure if we will be able to clear much up there. You've got an intercompany credit facility with Ally that expires, I think, on April 13. That's not that long from now. Is there any ideas of what will happen with that, or is that kind of in the whole kind of strategic review?

Doug, I don't think we'll comment right now on what our intentions are. That is obviously part of our broader options that ResCap is examining.

Maybe you guys would like to take us out.

That's above my pay grade. I guess one or two more questions as I'm kind of thinking on the strategy here. You said you are, I guess, out there looking for waivers based on this covenant, I guess, remedy. Who are you getting the waivers from? Who are the counterparties that you need to get waivers from? Where you stand on that? It looks like you expect to get them.

We have received them.

We have got them. There are several external lenders. Obviously Ally is a lender, and then you need approval from GSE. So we've got them.

I guess, bigger picture, this IPO that we had thought about over a year now, the mortgage world has changed a lot. I know it has delayed that process. But is there any pressure that you are receiving from the government to get this IPO cooking, to pay them back?

Look, I think the government is behaving as a logical investor. Obviously, they would like to get liquidity and we would like to have them have liquidity. But they are also interested in getting value. And so I think that's the context. I suspect, if you wanted to make a bid for their ownership at par, they would probably be willing to do that. And we would probably rather have you guys as a shareholder, but that's a whole other conversation.

Look, realistically, realistically, until we have made -- I think our belief is, realistically, until we have made some progress on the mortgage issue, we are not going to go out into the marketplace and accept the kind of discounts that we would have to get in order to go public in this environment.

Did you explain which debt instruments you actually, I guess, remedied the loss with? Was there certain bonds that you forgave? Was it the intercompany loan that you forgave? That's pretty detailed.

Let us follow up with you outside of the call. I want to make sure we are comfortable disclosing specifically.

I have one last ResCap question and then I have some other auto-related real quick questions. I guess it's very hard to know what's going to happen here for investors, and that's why we are all asking you questions, because there's so much uncertainly. Is this something you guys are hoping to wrap up by year end, 2013, midyear? Do you have some sort of internal kind of view of when people are going to know where Ally stands with ResCap, or is this too many moving parts to be able to --

First of all, I'm totally sympathetic to the investors on the call who are trying to figure this out, and all your questions are 100% the right questions. And we -- we simply are not in a position from many perspectives to be able to give you the kind of clear, concise, straightforward answer that we would like to give you. All right? So let me admit that as a starting point.

Having said that, I don't think any of us -- me, Tom, the Board of Directors or the U.S. Treasury -- want to be in the situation where we are having this discussion a year from now. So I think there will be greater clarity, hopefully sooner rather than later. But certainly this year.

So enough on the ResCap, so one or two auto-related questions. How do you feel the competitive market is now with the GM Auto business? It looks like you have held your own very well and doing fine. Have the competitive landscapes changed at all for you over the last few months, or do you still feel that that is a very strong business?

Actually, it's kind of fascinating if you look at what has happened. First of all, if you look at GM Financial, GM Financial has obviously gained share at GM in what I will call the subprime segment. We have -- the net result is the combination of us and GM Financial have essentially consolidated the segment in GM. And the other competitors have either left or been pushed out, depending on how you look at it. So each segment is a little different. That's the story in the subprime end of the marketplace. And we are in some ways complementary because they tend to be -- in the subprime market, they tend to be at the very bottom and we tend to be more in the top and the middle.

So I think from GM's point of view, the two companies are -- from their point of view -- you would have to ask them, but I think from their point of view the combination is working very well from a manufacturer point of view. And from our point of view, it's working very well, too, because we continue to grow our business.

So that -- the area that is the crazy, irrational competition is the super-prime end of the marketplace. So there's some dumb bank that's sitting there with a bunch of zero-cost deposits, and they can't pay a dividend because the Fed or the OCC won't let them. So they say, okay, I need to put some money out the door for a year or two that's reasonably safe. So I go out and offer 1.5% auto loans. We can't compete with irrational competition, and we choose not to.

But our proposition is a little different than that. Our proposition to the dealers who are our customers is a holistic one of doing business with us across the entire credit spectrum and the whole mix of products, including insurance, including auto auction, including everything. And net-net, when we look at the economic value we provide them, including Ally dealer awards, we believe that economically they actually are making more money in doing business with us than hitting the hottest deal on the road at this moment in time.

So you've got to look at each strength as a little bit different story. But if it's certainly true that every bank on the face of the earth is basically saying, okay, we hate mortgages, we don't like credit cards very much. We like the consumer. What can we do? Answer -- auto. That's good news and bad news. From our point of view, why we are holding up so well against that kind of competition? It all has to do with this concept of being in and of the industry. We have an infrastructure that is unparalleled. We have a market focus or a dealer focus that is unparalleled. We are always there, every day, in every market cycle. And when the world looked like it was crashing in August, we didn't pull back in August. The reason we've got $25 billion of liquidity is so we can fund for 24 months, whatever happens.

So we have a totally different business proposition to the dealers than any of the other banks, who by and large are focused on particular segments, get in and get out, don't have the infrastructure, aren't focused on how to make -- help a dealer make more money. They're focused on giving the dealer the hottest deal du jour, and the dealers are smart enough to know that doesn't make them more money.

So I can give you a long treatise on the whole thing. And Bill Muir is not on the phone; so I'm sort of filling in for Bill. But I think the more you understand about the business proposition and its uniqueness -- not having said that, I'll tell you this. If we had the cost of funds of JPMorgan, we had zero cost of funds and we had enough of them, there wouldn't be another competitor in the auto finance business. So that's where we have to get to. Sorry long speech.

No, it was very helpful. And this is my last final question on the liquidity. The $7.4 billion of TLGP loans that come due in the second half with $25 billion of liquidity you have -- are those loans going to be repaid? Can you give us a little roadmap of how you repay those? ABS, on your conduits, with unsecured? That's a pretty big chunk of debt coming due.

I think we would just pay them with cash. Part of the reason we built up the big liquidity posture is to effectively prefund, so you should expect us to be carrying less liquidity after the end of this year -- still robust, still two years worth of liquidity. I think that's kind of the internal target we are managing towards. But the absolute level will be much lower.

Great, okay, thanks, guys. I appreciate the time on the call.

Samuel Crawford, Stone Harbor.

A couple of questions as well. Mr. Carpenter, you were very explicit in the last call talking about the strength of legal defenses and what those rested on, the separation of legal entities and so forth. I'm just trying to understand as a matter of legal principle, why doesn't economic support of ResCap vitiate those legal defenses? Why does it leave those legal defenses strong and untouched?

Well, I'm not a lawyer although, actually, I do have an honorary doctorate of law. So like other lawyers, that entitles me to practice until I get it right. But I am not a lawyer.

Let me say something -- just make a few very, very simple points. The first point is that ResCap is a separate entity. It has historically filed its own with the -- it has been an SEC registrant in its own right with its own 10-Ks, tons of disclosure, its own securities. The contracts in the marketplace are contracts with ResCap, not with Ally. ResCap has been operated as a separate company. In fact, the war stories around here are, if you go back two or three years, if you were from the parent, in order to get to go to Minneapolis and visit, you had to get permission from the pope and a special passport.

And we -- every transaction with the parent has been an arm's-length negotiation, competitive process in many cases, fairness opinions. We are just a honey pot for lawyers and investment bankers. There is a rigorous operating agreement between the two companies. And that's about as far as a layman is prepared to go. But we feel very strongly about the separability from a legal perspective, and we have examined it very carefully.

All right, pursuing that, but hopefully not in a stupid way -- there's a lot of people who have asked a lot of very good questions on this already. But you said this, in many cases, is not -- it's an economic decision, perhaps, not about a return of investment on money put into ResCap, but on value protected at Ally. And I'm wondering if you can speak a little bit to what value to is being protected at Ally, and what the nature of it is.

I think value at Ally is the underlying value of an extraordinary auto franchise, a very strong and very rapidly growing direct bank. To be very simpleminded -- by the way, I think, and I would say this, I think our people running our mortgage business are doing a very good job. I think these issues are industry issues, legacy issues, regulatory issues that are holding them back.

The way I would describe it is, let's assume for the moment that -- Samuel, that you would buy ResCap from us for $1. Think about what the rest of the Company would look like. Then I would say, the rest of the Company would be on a par with any category killer financial company you wanted to find -- American Express, you name it. You pick one of the -- Visa -- you pick one of those guys, and you know what their market-to-books are, what their valuations are. That is what this Company is, if we were not in the mortgage business. So that's the value. I'm not a securities analyst; that's my simple math.

No; I'm sorry. I think I asked my question perhaps in too ambiguous a way. What I was trying to get after, actually, is where is the threat? Is it the threat of litigation and associated costs? Is there something else? The underlying value of the Ally franchise, I think, is pretty well demonstrated. But where's the threat from not supporting ResCap? Is it just litigation, or is it something else?

It's a good question. There's a lot of elements to that conversation. Litigation certainly could be a piece of it under certain scenarios. It depends what scenario you pick. If you want to buy it from me for $1, I don't have any threat. So it sort of depends.

If you will permit me, a couple more questions, just briefly -- force-placed insurance and reinsurance, now that the Consumer Board is getting its hands into both of these issues, I'm wondering if you can speak at all to the record of actuarial loss over the sort of 2006 period. Was real risk transferred every year in the mortgage insurance-related areas that ResCap may have had involvement in?

The force-placed insurance issue from the point of view of the regulators is whether or not the mortgage company largely owned a force-placed insurance or had reciprocal arrangements. In particular, I think what the CFPB is looking at is whether fees were appropriately disclosed or, frankly, kickbacks occurred between various entities. We do not own a force-placed insurance company.

ResCap never had any force-placed insurance on its mortgages?

We had force-placed insurance, but it was through third parties. It was competitively bid and it was among the cheapest in the industry.

That should get you through ResCap.

We had no kickbacks.

Yes.

That's actually not an issue they have probed us on.

Okay. If I could go to your HAMP re-default rates, two quick questions there, and one is, to understand -- what part of your HAMP mods, if you can speak to this, that you all have chosen to disclose it perhaps somewhere, what part of the HAMP mods are actually broker and correspondent loans?

I don't have that number with me, but what I would tell you is our approach to all modifications is, we want to maintain the borrower in their home if that is the appropriate, affordable long-term solution. So from our perspective, as we service the loans, 95% of which are not our loans -- in other words, they are for investors -- we strive to find the best solution the first time. So we are not engaged in these activities of modifying someone just to recapture our advances and giving the borrower false hope. We want to do once and done and get a permanent solution. And that's why, whether it's three months out or 12 months out, our modifications stick and hold up better than our peers'. We also require full documentation of the financials of the borrower so that we can weed out individuals who might be engaged in bogus activity trying to take advantage of these limited government programs.

Right, okay.

Samuel, if you have any other questions, you can feel free to follow up with investor relations. We're running out of time here and we do want to get to one last call. Operator, do we have one more call online?

Yes. Miguel Crivelli, Barclays Capital.

My first question -- I wanted to ask you if you could reconcile the charge you took this quarter for foreclosure, foreclosure-related matters, with the settlement that is being discussed in the press of $20 billion to $25 billion for all the banks involved. Just wanted to see how those two numbers relate to each other.

No, we can't, because the settlement is -- settlement discussions are ongoing; we can't.

Okay, let me ask it from another perspective. If the settlement ended up being $20 billion, do you expect to take additional charges related to this matter, or --

I've said all we are going to say.

And I refer you back to the comments that JB said in the beginning, where we feel like we are appropriately reserved based on what we know.

Sounds good, thank you. So the second question I wanted to ask -- if I heard correctly, you expressed that you really didn't want to be talking about mortgage-related issues in a year from now. But my question is, to a certain extent, there are areas of this process that are outside of your control. Right? You are not the one that's prompting [PLS] put-back activity, and that is not really happen for you.

So I was wondering if -- many times, you have expressed that you could take a more drastic action regarding ResCap if a liability grew to a large extent. But I'm wondering, now you are also introducing some time constraint into taking a more drastic action at ResCap.

Again, I appreciate the question and I appreciate the attempt to read between the lines of what I have said. But I said two things. Right? One is that the parent does not have a blank check. And secondly, we would hope that we're not spending a lot of time talking about mortgage, the three black clouds, a year from now. And that is basically all I want to say. I'm not going to elaborate any further. I apologize for that, Miguel, but that's life.

Okay, no problem, thanks, those were my questions.

Operator, thanks. That's all the time we have this morning. If you have additional questions, please feel free to contact investor relations. Thanks for joining us this morning and for your interest in Ally.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.