Ally Financial Inc., the largest U.S. auto lender, tappedCerberus Capital Management LP's Lenard Tessler to help overseeturnaround efforts and salvage the government's $17.2 billioninvestment, four people with knowledge of the matter said.

Tessler, 59, is a former director of Detroit-based Ally andremains an adviser to the bank's board. His assignment follows aU.S. suggestion this month that the bailed-out lender name someoneto help restructure the money-losing Residential Capital mortgageunit and get Ally's public stock offering back on course, accordingto the people, who asked for anonymity because the discussions wereprivate.

“This guy is the latest in a long line of advisers,” said AdamSteer, an analyst at Brookfield Investment Management Inc., whoseparent Brookfield Asset Management Inc. oversees about $150 billionin assets. “It's the same story again and again,” Steer said. “Nomatter who's looking at it, the overwhelming issue is that ResCapis effectively insolvent.”

Chief Executive Officer Michael Carpenter is searching for waysto repay the U.S. after President Barack Obama vowed in 2009 torecover “every last dime” of taxpayer bailout money. Carpenter, whoonce predicted that a pending IPO could value Ally at $30 billion,said this month the sale won't happen until there's progress onmortgages, and people with knowledge of the matter have said aResCap bankruptcy is being considered.

While the U.S. Treasury Department had asked Ally to considerputting a full-time executive in charge of restructuring, Allyenvisions Tessler in a part-time role with no formal title, two ofthe people said.

Tessler is a managing director and co-head of private equity atCerberus, the New York-based investment firm that controls 8.7percent of Ally. He serves on the Cerberus investment committeealong with co-founder and CEO Stephen Feinberg, 51, who sits onAlly's board.

Cerberus had been the majority holder before the U.S. tookcontrol in 2008 to stave off collapse at Ally, then known as GMAC.Tessler was a GMAC director from November 2006 to March 2009. GMACwas the financing arm of General Motors Corp. until 2006, whenCerberus engineered a buyout. Cerberus then lost control of thelender during the financial crisis as losses on subprime home loansmounted.

The U.S. determined that GMAC was crucial to the survival of theauto industry because of its role in financing purchases andprovided multiple bailouts in return for a 74 percent stake. Allysaid this month it ranked No. 1 in financing U.S. consumer autosales for 2011 with more than $40 billion in contracts for new orused cars and trucks, or about 1.5 million vehicles. Afterreturning to profit in 2010, the company posted losses in the finaltwo quarters of 2011.

ResCap's Fate

Carpenter, 64, who took over as CEO in November 2009, filedplans for an IPO last March to help repay the bailout. The sale hassince stalled, and Carpenter told analysts on Feb. 2 that“realistically, until we've made some progress on the mortgageissue, we're not going to go out into the marketplace.”

Once ranked among the largest originators of so-called subprimeand Alt-A mortgages, ResCap reported more than $14.5 billion inlosses from the start of 2007 to the end of 2009. The autobusiness, while profitable, hasn't generated enough gains to offsetlosses in the mortgage business.

Treasury officials discussed whether someone other thanCarpenter was needed to focus on a turnaround, and AssistantTreasury Secretary Tim Massad floated the idea this month of hiringHarry Wilson, a former adviser to Obama's Auto Task Force, threepeople said. Wilson helped revive Detroit-based GM and founded hisown restructuring firm.

Carpenter disagreed with Treasury's suggestion, the people said.The CEO was concerned that Wilson and his ties to the Treasurymight encroach on Carpenter's authority, according to two of thepeople. Carpenter was supported at a February board meeting byCerberus CEO Feinberg, the people said.

Ally instead chose Tessler, who won't be paid, and Massaddeferred to the bank's decision, according to two of the people.The Treasury and Massad typically try to avoid active roles atcompanies in which the U.S. holds a stake, two people said.

“Ally has a very constructive relationship with the U.S.Treasury and has ongoing communication on a number of matters, aswould be expected between management and its largest shareholder,”said Gina Proia, a spokeswoman for the bank. “Ally has notappointed a restructuring executive and the Ally board has notconsidered doing so.”

Buyers and Bankruptcy

Tim Price, a Cerberus spokesman, and Treasury's Matt Andersondeclined to comment. The agency said in an October report thatofficials would focus on exiting auto-industry investments,including Ally, “in the months ahead.” At the time of the report,Treasury had received a total of $5.1 billion from dividendpayments and the sale of Ally securities.

“It's all good that they are doing this,” Christopher Whalen, asenior managing director at Tangent Capital Partners LLC, said ofTessler's appointment. “We need finality on ResCap.”

ResCap talked with private-equity firms including Cerberus aboutbuying the unit in a pre-packaged bankruptcy, people with knowledgeof the matter said this month. Tessler may have to negotiate with aResCap bondholder group that includes John Paulson's Paulson &Co., David Tepper's Appaloosa Management LP and Boston-based LoomisSayles & Co. The group has expressed opposition to any planplacing ResCap in bankruptcy.

Tessler also may help ensure that Ally doesn't lose businessfrom Chrysler Group LLC, which has a preferred-lender arrangementwith Ally that expires next year. The Chrysler tie generates $50billion annually in originations and Ally would be less valuablewithout it, one person said.

Chrysler is in talks with lenders, Ally included, about forminga captive finance arm as a joint venture, similar to one Fiat SpAhas in Europe with Credit Agricole SA, two people familiar with thematter said this month.

Tessler's role and Feinberg's place on Ally's board may presenta conflict of interest if Cerberus bids for ResCap. A group ofinvestors led by the buyout firm holds 8.7 percent of Ally afterthe government bailouts diluted the 51 percent stake acquired fromGM for $7.4 billion in 2006. Tessler's role also may bump upagainst Federal Reserve limits on the private-equity firm'scontrol.

“Neither Cerberus nor any affiliated entity will have anyadvisory relationships with GMAC or any investor regarding the voteor sale of shares or the management or policies of GMAC,” accordingto the central bank's Dec. 24, 2008, order that made GMAC a bankholding company.

Confidential Data

In addition to Cerberus, ResCap and its financial advisers havecontacted Fortress Investment Group LLC, Centerbridge CapitalPartners LLC and Leucadia National Corp. to gauge their interest inpurchasing the Minneapolis-based unit, people familiar with thematter said this month.

ResCap contacted advisers for the bondholders group this weekand asked them to sign confidentiality agreements in return formaterial, non-public information about ResCap's plans, according toanother person briefed on the discussions. The bondholders havehired Houlihan Lokey as their financial adviser, the personsaid.

Earlier this month, ResCap's lawyers at Morrison & FoersterLLP asked the bondholder group to consider providingdebtor-in-possession financing during the bankruptcy, andnondisclosure agreements were exchanged, the person said.

Dennis Moore, a spokesman for Houlihan, said he couldn'tcomment. A call for comment to Morrison & Foerster's EileenKing wasn't returned.

The Treasury and Ally are becoming concerned about the status ofthe public offering and delay in bolstering the company's liquidityand capital position, said one person. While multiple parties haveapproached the agency about acquiring pieces of Ally andeffectively breaking it up, Treasury has turned away the inquiriesso far, the person said.

“The government is behaving as a logical investor,” Carpentersaid during the Feb. 2 conference call with analysts. “They wouldlike to get liquidity, and we would like to have them haveliquidity, but they are also interested in getting value.”

Wells Fargo & Co. may be a buyer for Ally's North Americanauto-finance business, and the online banking unit could be soldfor about $1 billion, according to a Feb. 20 report from KBW Inc.analysts including Fred Cannon.

“Ally Financial is still keeping all options on the table,” theanalysts wrote, citing the government's desire to recover bailoutfunds disbursed by the Troubled Asset Relief Program. “We do knowthe Treasury is looking to wind down its TARP program in the nearfuture, which could mean recouping investment in Ally.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.