By Julie Steinberg
Ally Financial Inc., the former finance arm of General Motors
Co., said its profit rose 70% in the fourth quarter, the firm's
first earnings release since it exited the U.S. government's
financial rescue plan last month.
The company's earnings matched analysts' expectations, but
shares fell about 1% in recent trading as the Detroit company
released more details about the impact of a recent plan by GM to
stop using Ally as a provider of subsidized leases in the U.S.
GM said earlier this month it would rely on its GM Financial
lending arm as the exclusive provider of such leases. Leasing deals
make up a substantial portion of U.S. auto financing, and auto
makers often subsidize the leases by giving lenders--including
nonaffiliated banks like Ally--financial support.
Ally's originations for leases of GM cars including GMC, Buick
and Cadillac totaled $5.2 billion in 2014, or 13% of its total
originations.
Ally executives, on a fourth-quarter earnings call on Thursday,
said GM's decision would have "minimal financial impact" this year
and reiterated Ally's commitment to meeting financial targets it
had set out, including achieving by the end of 2015 a 9% to 11%
return on tangible common equity. The profitability measurement is
used by investors to compare various banks' strength.
In its most recent quarter, Ally's core auto-lending business,
which has been supported by a recent strong demand for cars and
trucks in the recovering U.S. economy, posted pretax income of $396
million, an increase of 45% from a year ago. Consumer auto loan
originations rose 10% to $9 billion.
Chief Executive Michael Carpenter said on the call that while he
expects a proportion of originations in the lease category to
shrink, he expects to free up capital on the balance sheet as a
result that will be deployed elsewhere.
The company said despite the loss of business stemming from the
recent GM decision, it will still target the high-$30 billion range
of auto originations on a yearly basis. Ally has in the past had a
tight relationship with Fiat Chrysler Automobiles in addition to
GM. It will also continue to expand relationships with other
dealers beyond those selling GM and Chrysler vehicles, as well as
other auto makers, executives said.
Those conversations have begun, Mr. Carpenter said in an
interview. "It's not real hard to believe that we can replace that
[lost] business with other business," he said.
The company expects the profitability of its used-car financing
business to be comparable to that generated by the GM leases, Chief
Financial Officer Christopher Halmy said on the call.
Separately, Ally executives said the firm will contemplate
assets outside of the automobile industry now that it no longer
accepts money from the government. The firm plans to expand in
jumbo mortgages, for example. "Now that we're no longer a TARP
institution, we have a lot more freedom to...play a little
offense," Mr. Halmy said.
During the fourth quarter, Ally purchased $750 million worth of
jumbo mortgages as part of an investment strategy, Mr. Halmy said,
adding that high-quality jumbo mortgages are a profitable business
with a good return on equity.
Since its third bailout in late 2009, Ally shed the troubled
subprime-mortgage business that was the main source of its
financial problems. The U.S. Treasury sold its remaining stake in
Ally last month, completing a process that saw the firm deliver
mostly profitable quarters since 2009.
Mr. Carpenter said in the interview that as a result of exiting
TARP, Ally was able in 2014 to move its corporate finance business
in its bank instead of the holding company, which "lowers the cost
of funds and allows us to consider growing it."
Overall, Ally posted earnings of $177 million, up from $104
million a year earlier. On a per-share basis, earnings were 23
cents, compared with a loss of 78 cents a year earlier. Excluding
certain items, earnings were 40 cents a share, the same as what
analysts had expected, according to Thomson Reuters.
Ally's bank business had $48 billion in retail deposits as of
Dec. 31, compared with the $46.7 billion in deposits it had at the
end of the previous quarter.
John Stoll and Michael Calia contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com
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