Ally Financial reveals $136 million loss in investment

Ally Financial Shares Down Most In About Seven Months

The Ally Financial Inc. logo on a smartphone arranged in Saint Thomas, Virgin Islands, United States, on Friday, Jan. 22, 2021. Ally Financial Inc. fell 5.3%, more than any full-day loss since June 26 as its sector declined. Photographer: Gabby Jones/Bloomberg

Gabby Jones/Bloomberg

Ally Financial reported a $136 million impairment on its investment into, a figure reflecting the mortgage market’s struggles, Ally executives said Wednesday.

The financial services firm formed a partnership with the lender in 2019, in which Better would handle the processing, underwriting and closing for Ally’s mortgage operations. The Detroit-based company’s original investment in Better totaled $25.5 million, according to Ally’s third quarter earnings presentation.

“The investment has a remaining carry value of $19 million and generated gains in excess of the original investment,” said Brad Brown, interim chief financial officer, during the call. “So despite the impairment this quarter, the investment has been accretive to capital.”

Ally’s initial equity investment into Better Holdco, the lender’s parent company, came in 2018, and the amount was increased in 2019 and 2020, according to the company’s 10-K annual report filed Aug. 1. In 2021, Ally sold a portion of the investment for $45 million, realizing a gain of $38 million. 

As of June 30 of this year, the carrying value of the Better investment was $156 million, representing an upward adjustment of $136 million, according to the filing. The disclosure, posted before Better’s amendments to its merger agreement and financing in late August, said the investment could be impacted by any merger negotiations or termination. 

A spokesperson for Ally referred Thursday to CEO Jeffrey Brown’s comments during the third quarter earnings conference call, in which he reiterated the investment’s remaining carrying value of $19 million, saying it has been “de-risked.”

A source familiar with Better confirmed Thursday Ally’s $25.5 million investment and said the company sold $63.5 million of Better stock for its $38 million profit. The companies still retain their partnership, according to a spokesperson for Better.

Better is in the midst of a tumultuous effort to go public via a merger with a special purpose acquisition company. The process has been marred by massive financial losses and several large layoff rounds. In August, Better and SPAC Aurora Acquisition Corp. extended the deadline for their proposed merger from December to March 8, 2023 as the firms discussed alternative financing arrangements in which the lender could remain private. 

Better’s sponsors Novator Capital and SoftBank in August also amended their financial commitments to the lender in scenarios in which the merger closes or fails. The New York-based business has been hit hard by the mortgage market’s decline, losing $327.7 million in the first quarter, greater than its $303.8 million loss in all of 2021.

Though it once had a staff of over 10,000 employees, Better has since cut its workforce by 72%. The company hasn’t posted its financial performance for the second or third quarters, which it typically had done in SEC filings through Aurora. 

The lender is also under fire in a lawsuit from its former second-in-command Sarah Pierce, who accuses Better and CEO Vishal Garg of misleading investors about the company’s financial performance. The complaint prompted an SEC investigation, which Better said it was complying with. 

Counsel for Pierce Monday, with the consent of defendants, asked the court for an extension to respond by Nov. 1 to motions to dismiss the case from Better, Garg and named defendant Nicholas Calamari filed in September. Attorneys in the same letter also suggested they would amend the complaint to add a cause of action for post-employment retaliation. 

An attorney for Pierce didn’t immediately respond to a request for comment Thursday afternoon.

A company spokesperson Thursday said in a statement Better doesn’t comment on ongoing litigation and cannot speculate on Pierce’s legal strategy.

“We believe that Ms. Pierce’s claims have no merit, and the ‘whistleblower’ claim she filed with OSHA was correctly dismissed by that agency,” the statement read. “There has been no contact between Mr. Garg and Ms. Pierce, and we are not aware of her having any contact with a Better employee in any official capacity, or somesuch.”

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