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Thread: News regarding ALLY Bank

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    Default News regarding ALLY Bank

    again, for what it's worth ... from


    (snip)" Since the US Treasury has stated in several trial balloons that it sees a break-up of Ally and sale of the old GMAC auto business back to GM as an optimal outcome, one can only marvel at the optimism of those who continue to think of an IPO for Ally as a viable exit strategy.

    Indeed Ally Financial looks to some observers like the pin-up girl for moral hazard in America. With the former mortgage backed securities team from Bear Stearns driving the bus in terms of enterprise risk management, Ally even makes our good friends from Wells Fargo seem positively reticent when it comes to creating new risk.

    And if we take a look at those capital commitments by Ally on new loans in 2012, the risk management picture looks remarkably consistent with the high quality production we used to see coming out of Bear, Stearns years ago. Indeed, the quality of Bear RMBS production was such that it may just end up to be material to investors in JPMorgan Chase after all. Consider one view of Ally from a veteran banker:

    “I encountered a car dealer from Dover, Delaware who I banked many years ago. He advised me that his quality auto paper was going thru Wells Fargo, but over the past month he has seen an explosion of paper going to Ally Bank. His term was: ‘they are really diving deep and we can place brain dead paper with them instantly’”.

    According to the banker, Ally Bank offers 72 month paper at 150% of invoice (to cover deficiencies in the trade) at 3% to credit scores as low as 520. The auto dealer reportedly thinks Ally is “insane” for underwriting such poor quality auto paper, but he is pleased his volume has increased by 20% as a result of the new Ally program.
    No doubt the Obama Administration is pleased too.

    The Ally business model is to provide the “captive” financing for GM dealers, the credits that the bankers at Wells Fargo and US Bank won’t take. So no surprise that Ally is banking the lower quality borrowers, but this does beg the question as to why GM does not simply repurchase the auto finance business. If banks like WFC and USB don’t want the loans Ally underwrites, then why is the FDIC good with this business model?

    Could this type of loan underwriting be evidence of moral hazard? Maybe even unsafe and unsound banking practices? Maybe. Or maybe not. The tough thing for most analysts looking at Ally is that the public disclosure looks OK. In fact, the Ally Bank unit was rated “A+” by IRA at the end of 2011. So what’s not to like? Plenty IMHO.

    The trouble with the public disclosure is that Ally does not even begin to tell the story about what is going on with the RMBS litigation. The Ally ResCap unit is involved in more than two dozen separate RMBS litigations, not to mention several lawsuits with MBIA and other private label RMBS litigations. ResCap has its own bond holders, adding complexity to the corporate governance and legal picture.

    Ally takes the position that “[t]he range of any potential losses related to these matters is not currently determinable,” but I think that reasonable people can use simple arithmetic to figure out that Ally is facing billions of dollars in unliquidated claims that cannot be paid. Indeed, I think that the Ally exposure is several times larger than the $1 billion total in Ally’s latest 10-K. And this is why getting the auto finance business away from Ally ASAP makes a great deal of sense for Treasury and GM.

    Every other global automaker captures the full spread of the leverage on sales, but GM currently gives away dealer inventory and captive sales to Ally. A couple years back, Mike Ward of Soleil Securities told Elizabeth Warren’s Oversight panel the same thing I’ve been saying, namely that to have a separate Ally auto finance business makes no sense if the objective is a profitable GM. And leaving the auto business under the same corporate owner as ResCap seems like a very bad idea for GM, so there is clearly a motive for the Treasury to propose a transaction.

    Here’s a question for Ally, Secretary Tim Geithner and the other folks at the US Treasury who are supposedly responsible for this company: Who are you kidding when it comes to Ally? An IPO? In Ally we have a government controlled bank that failed its Fed stress test, uses anti-competitive marketing and credit strategies to run subprime auto paper through an FDIC-insured bank, and seemingly operates under the philosophy of “who cares it’s not our nickel.” (snip)


    I truly don't even know where to start when trying to discuss the take-aways from this !!! Suffice it to say that the 'full faith and credit' of the US taxpayer is being utilized by GM, via affiliated auto finance arm Ally Bank, to offer 6 year loans at 3% interest rates to subprime GM auto buyers ( which no other auto company / auto lender is willing to touch with a 10 foot pole ) - who are highly unlikely to pay back their auto loans in a timely manner, if at all !!!

    As to Ally bank depositors, indeed they are FDIC insured. But the FDIC is effectively broke. And nobody, including themselves, knows how much money Ally Bank may be 'on the hook' for once the attempted recovery lawsuits stemming from the last round of subprime loan originations finally wind up being decided.
    Last edited by Melonie; 04-09-2012 at 02:20 PM.

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    Default Re: News regarding ALLY Bank

    It seems business strategy has degenerated into doing any damned fool thing at all and when about to go under, your bought and paid for politician buddies bail you out with taxpayer money.

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