BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D. C. 20551

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

December 23, 2010

Mr. Jeffrey J. Brown

Treasurer

Ally Financial, Inc.

16" Floor

440 South Church Street
Charlotte, North Carolina 28202

Dear Mr. Brown:

This is in response to the request by Ally Financial, Inc. (“Ally Financial”),
Detroit, Michigan, on behalf of Ally Bank, Midvale, Utah, requesting relief from
conditions requiring Ally Bank to treat General Motors Corporation (“GM”) as an
affiliate for purposes of sections 23A and 23B of the Federal Reserve Act.’ These
conditions were imposed by the Board when it approved the application by GMAC LLC
(“GMAC”) to become a bank holding company on the conversion of GMAC Bank from
an industrial loan company to a state-chartered bank.”

Sections 23A and 23B establish certain quantitative limits and other prudential
requirements for loans, asset purchases, and certain other transactions between a member
bank and its affiliates. Under section 23A, a company is an affiliate of the bank if it is
under common control with the bank.> In general, a company has control over another
company if the company directly or indirectly, or acting through one or more other
persons, owns, controls, or has the power to vote 25 percent of a class of voting
securities. Section 23A also authorizes the Board to determine that any company is an
affiliate of a bank if it determines that the bank may be affected by the relationship to the
detriment of a member bank.*

In 2008, GM owned a controlling interest in GMAC, which owned the former
GMAC Bank. In December 2008, GMAC was approved by the Board to become a bank
holding company. Because GM engaged in activities that were impermissible for a bank
holding company, it was required to reduce its ownership of GMAC. GM reduced its

' 12 U.S.C. §371c and c-1.

? GMACLLLC, 95 Federal Reserve Bulletin B29 (2009) (“Order”). GMAC Bank was
renamed Ally Bank, and GMAC was renamed Ally Financial.

3 12 U.S.C. § 371¢(b)(1).
* 12US.C. § 371c(b\(L(E).


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ownership interest to 9.9 percent of GMAC’s shares and was required to transfer the
remainder of its shares to a trust (“GM Trust”). The trustee of GM Trust had full and
sole authority to vote the GMAC shares held by the trust and was required to be a person
acceptable to the Board and the Department of the Treasury (“Treasury”), to be
independent of GM, and to dispose of the interest in GMAC within three years of the
formation of the trust under the trust's terms.*

At the time of the Order, GM and GMAC were considered affiliates for purposes
of sections 23A and 23B because GM, directly and indirectly, owned more than
25 percent of the shares of GMAC. In its Order, the Board stated that “[u]ntil the trustee
fully divests the shares, the limitations of sections 23A and 23B of the Federal Reserve
Act will apply to GM and GMAC Bank as if they were affiliates.”® The Board also
granted the bank certain exemptions from the restrictions of section 23A in order that it
could continue to provide floorplan financing to GM dealers and financing to consumers
to purchase GM automobiles,’ subject to a number of conditions.

In May 2009, the Board granted another limited section 23A exemption’ in
connection with the injection of capital into GM and GMAC by the U.S. government. In
approving the May 2009 request, the Board reaffirmed that “[uJntil GM completes its
divestiture of GMAC, GM and Ally Bank are affiliates for purposes of section 23A.”

Ally Bank is requesting that, in light of a restructuring of the ownership interests
of GMAC, (1) GM no longer be deemed an affiliate of Ally Bank and (2) Ally Bank be
relieved of the conditions imposed because of its affiliate status with GM. Currently, GM
owns 6.7 percent and GM Trust owns 9.9 percent of the voting shares of Ally Financial.
Third parties, including Treasury, own the remaining Ally Financial shares. After the
proposed restructuring and conversion of the preferred shares, GM’s ownership in Ally
Financial would be reduced to 4.0 percent, and GM Trust’s ownership of Ally Financial
would be reduced to 5.9 percent. Accordingly, GM’s direct and beneficial ownership in
Ally Financial would be 9.9 percent, which is below the 25 percent threshold set forth in
section 23A and the overall threshhold referenced in the Board’s Order.

As noted above, the Board stated in the section 23A exemption that GM would
remain an affiliate of Ally Bank until GM completed its divestiture of the former GMAC,
now Ally Financial, and the Board’s Order required GM Trust to divest all its shares to
terminate the affiliate relationship. When the ownership issues surrounding Ally
Financial and GM were originally considered by the Board, it was assumed that GM
Trust would divest all its shares of Ally Financial first because GM Trust was required by

> Id. at B31.

§ Id. The Board did not similarly require GM to divest its 9.9 percent interest as a
condition.

7 See Board letter to Richard K. Kim, Esq., dated December 24, 2008.
8 See Board letter to Richard K. Kim, Esq., dated May 21, 2009.


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the terms of the trust documents to divest all its shares within three years. With that
divestiture, and given the limitation on GM acquiring additional shares of Ally Financial,
GM would control less than the amount of shares needed to be considered an affiliate for
purposes of section 23A. Under the current proposal GM and GM Trust would both
continue to own shares after the conversion of the preferred shares currently held by
Treasury. However, GM and GM Trust would together own less than 10 percent of Ally
Financial’s shares, and GM individually would own less than 5 percent of the shares.

Based on all the facts of record, including those discussed above, the Director of
the Division of Banking Supervision and Regulation, acting pursuant to authority
delegated by the Board under section 265.7(a)(2) of the Board’s Rules Regarding
Delegation of Authority (12 CFR 265.7(a)(2)), and after consulting with the General
Counsel, has approved your request for modification of the condition in the Board’s
Order regarding the affiliation of GM and Ally Financial to provide that GM and Ally
Bank would not be affiliates for purposes of sections 23A and 23B upon execution of the
proposed transaction as long as GM and GM Trust own in the aggregate less than
10 percent of the voting shares of Ally Financial. This relief is granted on condition that
Ally Bank enter into a strategic plan acceptable to the Federal Deposit Insurance
Corporation (“FDIC”). The FDIC has indicated that it has no objection to this
modification.

This action is based on the representations and commitments set forth in your
correspondence and in conversations with Board staff. Any change in the facts presented
could result in a different conclusion and should be reported to Board staff immediately.
These commitments are deemed to be conditions imposed in writing by the Board in
connection with granting this request and, as such, may be enforced in proceedings under
applicable law. This determination should not be construed as granting relief from any
other conditions or commitments to which GM, Ally Financial, or Ally Bank may be
subject.

Very truly yours,

Raed eY. Jatt —

Robert deV. Frierson
Deputy Secretary of the Board

cc: James Nelson
Federal Reserve Bank of Chicago

Mark Flanigan
Chris Spoth
Federal Deposit Insurance Corporation

Richard K. Kim, Esq.
Wachtell, Lipton, Rosen & Katz