Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has failed in its bid to buy the assets of Residential Capital out of bankruptcy. ResCap is the mortgage arm of Ally Financial, a bank holding company the majority of which is owned by the United States government.
Residential Capital will now proceed to follow its original plans to sell those assets. A document filed with a court on Thursday suggested the company would proceed with two separate auctions of its bankrupt assets. Floor prices in the auctions will be set by former bids for the assets.
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ResCap’s parent, Ally Financial, offered $1.6 billion for a portfolio of mortgages, and Fortress Investment Group LLC (NYSE:FIG) offered $2.4 billion for the company’s mortgage servicing and origination business.
Both firms will receive a fee for acting as “stalking horses” in the auctions if their bid is topped by another agent. Berkshire was trying to replace those firms as the “stalking horse” in those auctions. Warren Buffett’s firm had tried to offer better terms in order to get that position.
That bid has now clearly failed, and the original method of going to auction will be continued by ResCap. Berkshire’s wish to get involved in the auction has always been ambiguous. ResCap revealed in court filings that the firm showed little interest in becoming a stalking horse.
Ally Financial is trying to get rid of its ResCap division, because it is one of its riskier and less stable divisions. Ally was once the financing arm of General Motors Company (NYSE:GM), but collapsed under the strain of the 2008 financial crisis.
The company is trying to go public as a separate entity at the moment and Residential Capital is one of the obstacles in reaching that goal. The division was responsible for Ally Capital’s failure of the Federal stress tests last year.
If Ally is able to bring itself to a successful IPO it will mark a significant milestone in the United States’ recovery from the financial crisis. Currently, over 74% of the company is owned by the Treasury department and taxpayers in the United States would like to see a return from the investment made on their behalf.
In order to get there a smooth sale of the assets belonging to Residential Capital is necessary. The sale will remove a great deal of the pressure on the company. Berkshire Capital will not be a part of the proceeding but that won’t cas ttoo negative a shadow on the auctions.