By Dan Wilchins

NEW YORK (Reuters) - Ally Financial Inc, a lender
majority-owned by the U.S. government, said its mortgage risk
is becoming manageable and it aims to go public next year as it
cleans up its balance sheet.

The largest maker of auto loans in the United States said
all its major businesses were profitable in the second quarter,
and it expects to continue to post income from its continuing
operations.

Ally's auto lending business alone could be worth $25
billion, based on the $3.5 billion that General Motors agreed
to pay for Americredit last month, Chief Executive Michael
Carpenter said on a conference call.

Ally still has work to do as it changes itself into a bank,
Carpenter said. It is looking to gain an investment-grade
credit rating, which could happen in the next year or two, and
it is looking to increase its deposit funding.

Ally Financial is also looking to convert some of the
preferred shares that it sold to the U.S. Treasury into other
forms of capital, Carpenter said.

"We don't need more capital, we need capital in a different
form," Carpenter said.

The U.S. government injected more than $17 billion into
Ally and holds a 56.3 percent stake as a result. Private equity
firm Cerberus Capital Management LP owns 14.9 percent of Ally,
while General Motors Co owns 6.7 percent.

The Treasury last year agreed to convert Citigroup
preferred shares into common equity and trust preferred debt,
in a deal that left taxpayers holding a roughly one-third stake
in the bank. That stake has since been winnowed down.

Ally Financial posted a second-quarter profit of $565
million on Tuesday, compared with a loss in the same quarter
last year of $3.9 billion.

Ally Financial's second-quarter profit came after the
company generated net income of $162 million for the first
quarter. The period from January to March was the first time
the company had generated net income since the fourth quarter
of 2008.

AMERICREDIT QUESTION MARK

GM's acquisition of Americredit creates some question marks
for Ally, which was the main lending unit for General Motors
until the automaker sold a controlling stake to private equity
investors in 2006, analysts said.

Over the long term, as GM wins an investment-grade credit
rating, it may look to build Americredit into what Ally used to
be: an in-house finance company, said Kirk Ludtke, an analyst
at CRT Capital Group.

"The temptation will be there," Ludtke said.

On a conference call, Ally CEO Carpenter noted that his
company's profit margin on an auto loan is about a tenth GM's
margin on selling a car. That implies that GM can afford to
lose money on lending if it makes enough money by selling cars,
a luxury Ally does not have.

On the conference call, Carpenter said that Ally is
considerably larger than Americredit, and GM could not build up
its lending business quickly.

Ally's mortgage operations are a key reason for the
company's return to profit. Ally lost $1.3 billion from
mortgages in the second quarter of 2009, but earned $230
million from the business in the second quarter of this year.

Ally is looking to sell Residential Capital, its main
mortgage business, and the auction has advanced into the second
round.

In April, ResCap agreed to sell European mortgage assets
and businesses to affiliates of hedge fund and private equity
firm Fortress Investment Group. That deal should close soon,
Ally said on the conference call.

The rising value of used cars also helped Ally -- as leases
mature, Ally can sell its cars for a higher price than it
previously expected, which helped boost North American auto
lending profit 40 percent to $630 million.
(Reporting by Dan Wilchins; Additional reporting by Dena
Aubin; Editing by Gerald E. McCormick, Tim Dobbyn, Gary Hill)