Layoffs at Ally Financial Signal the End of Broker-Dealer Activity

by 11 Apr 2012

( -- Many American taxpayers may not be aware of this, but they own a piece of a financial services company with a checkered history that is still downsizing even after it was bailed out by the federal government.

Ally Financial, formerly known as GMAC mortgage, recently announced that it will discontinue trading of mortgage-backed securities (MBS), basically the same activity that landed the lender in trouble in the first place. The announcement was made by a spokesperson at Ally from their Detroit headquarters. Ally’s decision to terminate its broker-dealer MBS operations emanates from the fact that it is no longer economically sound, meaning that it is losing money on MBS underwriting and trading activities.

Excerpts of a phone call between Ally’s spokesperson and financial news outlets indicate that while all pending MBS trades will be honored by the company, it is expected to shut down the trading desk over the next few weeks.

The broker-dealer MBS department at Ally employed 33 professionals, including traders and analysts. The company mentioned that only a few of those mortgage-trading professionals will be offered internal positions.

The amount of federal funds made available to Ally over the last few years is significant: more than $17 million, which translates into 74 percent of the company owned by U.S. taxpayers. The 2011 annual report from Ally showed that most of its assets were in MBS instruments, $678 million. Since July of 2011, Ally allocated $175 million to its broker-dealer arm, investing all of it into MBS trading.

Ally has been looking into different ways to increase its revenue. It once danced with the idea of floating an Initial Public Offering (IPO) valued at $30 billion. With this new development, it is unlikely that Ally would attract such amount from IPO hunters.


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