Ally Beats Expectations Despite Decline in Auto Originations

By Lisa Beilfuss 

Ally Financial Inc. logged stronger-than-expected earnings and revenue growth in its latest quarter despite a drop in auto originations, thanks to higher yields on originations and the bank's efforts to diversify its business.

The Detroit-based lender, formerly General Motors Co.'s financing arm and known as GMAC, is one of the country's biggest auto lenders. Ally has been trying to regain its financial strength since the 2008 crisis, when it had to be bailed out by the U.S. government.

Ally lost a big chunk of its auto lending business last year when GM largely pushed it out of its lucrative subsidized-leasing business. Since then, the lender has grabbed back much of that lost business amid strong U.S. auto sales. In the latest quarter, though, auto originations slid 13% to $9.4 billion.

The decline reflects the loss of GM business and Ally's lower degree of origination in thin margin segments, said Eric Wasserstrom, analyst at Guggenheim Securities. Excluding the GM lease and subvented business, Mr. Wasserstrom said originations edged up 1%. Profit from the segment climbed 14% to $426 million, thanks to stronger pricing on auto loans.

Meanwhile, Ally has been working to expand its reach beyond retail lending. Earlier this year the company bought online brokerage firm TradeKing Group Inc. in a bid to expand into new business lines including wealth management, mortgages and credit cards, and it said earlier this year that it would beef up its online-only bank.

During the quarter, retail deposits edged 3.9% higher to $61.2 billion as it added 16% more customers. Ally reported improvement in its mortgage finance business, which swung to a profit, and an uptick in earnings in its corporate finance segment.

In all, Ally reported a profit of $360 million, or 71 cents a share. Excluding a gain stemming from the extinguishment of debt, among other items, per-share profit rose to 54 cents from 46 cents. In its year-ago quarter, Ally reported a profit of $182 million, or a loss of $2.22 on a per-share basis.

Net financing revenue increased 7.4% to $984 million. Total revenue came in at $1.36 billion, up from $1.13 billion in the year-ago period.

Analysts projected 51 cents in adjusted earnings per share and $1.33 billion in revenue, according to Thomson Reuters.

Shares in the bank, down 5.4% this year, were inactive premarket.

Write to Lisa Beilfuss at [e-mail]

(END) Dow Jones Newswires

July 26, 2016 11:42 ET (15:42 GMT)

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