Author Topic: ALLY - Ally Financial  (Read 35217 times)

chesko182

  • Jr. Member
  • **
  • Posts: 93
Re: ALLY - Ally Financial
« Reply #80 on: March 17, 2018, 11:10:39 AM »
I believe around 14% of their retail auto loan book is subprime (less than 640 FICO), average FICO score around 690. They have explicitly stated that they are finding attractive risk adjusted returns in lower credit tiers where a lot of banks have stepped out, but they are not focusing on the deep subprime area (below 550) which is the scary stuff Santander and the like usually does. The 10-K has the breakdown of the originations by FICO score for the last 3 years, which is very representative of their overall portfolio given this is a pretty low duration asset class, and before that they were actually focusing on higher tier loans.

Attaching a good presentation they did last year on their auto lending underwriting and risk management.

Where did you read they were some of the worst offenders? Very curious to see that. Maybe you're confusing them with legacy GMAC, which had ResCap under it (mortgage lender) and obviously blew up in the FC. Auto loans actually did ok during this time. Ally has been around for 100 years and their core business has done ok.
twitter: @chesko182

ALLY, JPM, UHAL, BRK, GM, AER, LBRDA, SEMUF, TWX, PRXIQ


JRM

  • Full Member
  • ***
  • Posts: 151
Re: ALLY - Ally Financial
« Reply #81 on: March 17, 2018, 11:23:47 AM »
I thought I remember reading a Bloomberg article or something similar to this article: https://www.thestreet.com/story/14127840/1/ally-santander-face-reckoning-after-auto-lending-boom-s-amp-p-says.html

I remember S&P saying last year Ally and Santander were among the worst offender.  They were basically taking the loans that others didn't want.

Spekulatius

  • Hero Member
  • *****
  • Posts: 1879
Re: ALLY - Ally Financial
« Reply #82 on: March 18, 2018, 05:16:38 AM »
I owned this a while ago, but then sold out. I really like what they do on the funding side (online only bank, business model sort of like Geico in insurance), but the way they put the money to work shivers my timbers.
For car loans, the credit unions absolutely have ruined the market. I could get 1.75% 5 year car loans a while ago and that is 2.5% now. I have no idea how Ally gets 6% overall on their portfolio. I personally think they even near prime (<660 score) is pretty scary and that is where ALLY seems to meddle. The credit union loans are easy to get at the car dealership, even if you are not mameber yet, if you just ask. I donít know about commercial floor plan loans to dealers where ALLY is pretty strong.

I wish they would diversify more away from car loans, as I think this business is more risky than the current numbers suggest.
To be a realist, one has to believe in miracles.

JRM

  • Full Member
  • ***
  • Posts: 151
Re: ALLY - Ally Financial
« Reply #83 on: March 18, 2018, 05:29:16 AM »
I try not to read too much into the FICO numbers these days.  I don't think they tell the whole story of credit risk.  They don't tell you the source of income and the sensitivity of that income to the economic cycle.  Its been over 7 years since the last downturn; with record low unemployment I'm sure everyone has pristine credit today.

chesko182

  • Jr. Member
  • **
  • Posts: 93
Re: ALLY - Ally Financial
« Reply #84 on: March 18, 2018, 04:33:13 PM »
Well, if history is any guide take a look at their S-1 they filed before the IPO which has information on the performance of their auto loans at the height of the financial crisis (2008-2010). Their mortgage exposure obviously blew up, but the auto loan book performed ok in my opinion, with loss-rates not exceeding 2%. I believe their auto loan loss provision % in 2008 was 1.7% of their total automotive assets, with a higher credit quality loan book back then (the auto book lost some money that year, but profitable in 2009 and 10). Right now they are provisioning between 1.4-1.6% given they have been increasing their subprime exposure, but this doesn't seem concerning to me as they are finding the right balance of risk and returns in that part of the market. I think that even if you stress their book with some draconian scenarios of falling used car values and delinquencies/charge-offs they will probably loose some money, but should be able to absorb that with their current cap ratios and on the long run be fine.
twitter: @chesko182

ALLY, JPM, UHAL, BRK, GM, AER, LBRDA, SEMUF, TWX, PRXIQ

chesko182

  • Jr. Member
  • **
  • Posts: 93
Re: ALLY - Ally Financial
« Reply #85 on: April 04, 2018, 06:04:16 PM »
Wanted to share the article I recently published in SeekingAlpha which shows my thinking behind the investment in Ally and trying to think really long term (which I find not a lot people do in this business, but many do in this forum). I know it's a rosy scenario, but I think it is within the probability of outcomes and certainly something you are not paying for at these dirt cheap multiples. Point is even if it doesn't play out to those assumptions, you are likely to achieve a satisfactory outcome with this investment, assuming management doesn't do anything stupid (borrowing from WEB, which is central to any long-term investment in a bank).

Would love any feedback or comments.

https://seekingalpha.com/article/4160335-ally-financial-look-like-10-years
twitter: @chesko182

ALLY, JPM, UHAL, BRK, GM, AER, LBRDA, SEMUF, TWX, PRXIQ

Spekulatius

  • Hero Member
  • *****
  • Posts: 1879
Re: ALLY - Ally Financial
« Reply #86 on: April 04, 2018, 07:58:20 PM »
Somehow these numbers donít add up. If ALLY has a 12% ROE, they can really grow faster than 12%, without increasing their leverage, much less purchasing  4% of their shares every year.
To be a realist, one has to believe in miracles.

vinod1

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1258
    • My Blog
Re: ALLY - Ally Financial
« Reply #87 on: April 05, 2018, 04:34:47 AM »
Wanted to share the article I recently published in SeekingAlpha which shows my thinking behind the investment in Ally and trying to think really long term (which I find not a lot people do in this business, but many do in this forum). I know it's a rosy scenario, but I think it is within the probability of outcomes and certainly something you are not paying for at these dirt cheap multiples. Point is even if it doesn't play out to those assumptions, you are likely to achieve a satisfactory outcome with this investment, assuming management doesn't do anything stupid (borrowing from WEB, which is central to any long-term investment in a bank).

Would love any feedback or comments.

https://seekingalpha.com/article/4160335-ally-financial-look-like-10-years

Qualitatively you need to address why you think Ally would end up dominating the auto loan market with captive finance units of the automakers and big banks losing market share. You are implicitly assuming this would be the case.

Quantitatively as Spekulatius pointed out the numbers are not consistent. You need to build out the three financial statements over the 10 years and to then ensure they are consistent. This would help point out the gaps.

Vinod
 
The fundamental algorithm of life: repeat what works. ĖCharlie Munger

Broeb22

  • Full Member
  • ***
  • Posts: 101
Re: ALLY - Ally Financial
« Reply #88 on: April 05, 2018, 07:20:24 AM »
Somehow these numbers donít add up. If ALLY has a 12% ROE, they can really grow faster than 12%, without increasing their leverage, much less purchasing  4% of their shares every year.

+1

They are currently replacing unsecured debt with retail deposits. They won't be able to grow the business anywhere close to 15-20% per year unless they can find profitable loans to underwrite, and if they do, they will have to stop buying back stock. They can't buy back stock and grow loans as fast as you're claiming.

As an owner of ALLY, they have some company-specific levers to pull to reduce cost of funds that is underappreciated, as well as some operating leverage in their business since their cost to attract to deposits (i.e. technology costs) is more scalable than a bricks and mortar-based bank.

However, the world in general is going this direction (see Goldman bank, Synchrony, others with online-only banks), so their advantage over time will probably diminish.

abitofvalue

  • Full Member
  • ***
  • Posts: 197
Re: ALLY - Ally Financial
« Reply #89 on: April 07, 2018, 08:34:01 AM »
does the company itself expect to grow its loan book that quickly? My understanding is that growth from here is going to come from other products (securities, mortgages, eventually cards). New auto loans are going to basically replace run-off + maybe little growth.  Overall near-term this is a financial engineering story - replace unsecured debt with cheap deposits.

LT the real question is can Ally transition from being just an auto lender to being viewed as a bank. Few companies have been able to change their perception so i think it may be a long slog... if successful they get re-rated to more bank like multiples.