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UPDATE 1-New Ally CEO eyes expansion in subprime auto loans, retail banking
February 5, 2015 / 4:53 PM / 3 years ago

UPDATE 1-New Ally CEO eyes expansion in subprime auto loans, retail banking

(Adds details on Ally’s stock price, retail banking focus)

By Peter Rudegeair

NEW YORK, Feb 5 (Reuters) - Ally Financial Inc’s new chief executive said on Thursday that the auto lender plans to boost its revenue through steps including making more loans to riskier borrowers and offering more retail banking products.

Jeffrey Brown, in his first public remarks as Ally’s top boss, said that over the past few years the company has fallen short of subprime auto lending targets set by the board and that it was an area he was looking at to grow.

Brown, speaking on a conference call with analysts, said that over time he expects subprime borrowers to account for somewhere between 12 to 15 percent of the loans Ally makes, from its current level of around 9 percent.

Much of the growth will come from Ally’s increased focus on used car lending, which is particularly important after the company lost an exclusive lease agreement in January with General Motors Co. Used car borrowers tend to be less creditworthy than new car borrowers, but the market is two times larger, Brown said.

The company, the largest U.S. auto lender, is ramping up its risk-taking even as some government officials grow increasingly concerned about the area. Ally is one of several auto lenders that have received subpoenas in recent months from the U.S. Department of Justice over subprime lending practices, an area that prosecutors are examining for fraud and other abuses using lessons they learned from crisis-era cases.

Unlike other lenders, Ally had been prohibited from using deposits at its bank to fund subprime auto loans because it was still under partial government ownership. But after fully repaying taxpayers in December, Ally can now make the loans through its bank, cutting its funding costs by around 45 percent, Brown said.

Brown said Ally may expand the number of retail banking products it offers beyond its online deposit-taking platform, though he did not give any specifics. Unlike many of its competitors of similar size, Ally does not offer credit cards, home equity loans or mortgages.

“We haven’t scratched the surface in retail banking,” Brown said.

Ally’s shares were up 2.5 percent in morning trading. Since it went public last April, Ally’s shares have fallen around 17 percent compared to a roughly 1 percent fall in the KBW index of bank stocks.

Brown said he was disappointed in the recent share performance, adding that “some people are underestimating the power of this franchise.” (Reporting by Peter Rudegeair; Editing by Meredith Mazzilli)

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