Ally expects margin expansion from consumer loan growth

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Ally Financial in Detroit expects its net interest margin to rebound as it brings on more auto and consumer loans.

Jennifer LaClair, Ally's chief financial officer, stopped short of disclosing how much she expects the margin to widen during comments made Tuesday at Barclays Global Financial Services Conference, though she said the number should stand out as a “bright spot” when the $184 billion-asset company reports third-quarter earnings.

Ally's margin narrowed by 26 basis points in the second quarter from a year earlier to 2.40%.

Consumer originations are expected to double those of a quarter earlier, to $175 million. Ally’s core business line — auto lending — remains the headliner, LaClair said. Ally is projecting $9 billion in third-quarter auto originations, with an average yield of 7%.

“We feel terrific about the viability of our business,” says Ally CFO Jennifer LaClair.
“We feel terrific about the viability of our business,” says Ally CFO Jennifer LaClair.

Full-year originations will end up between $30 billion to $35 billion, she added.

LaClair also had a positive assessment of credit quality, noting that about 85% of the 1.3 million coronavirus-related deferrals it gave to retail automotive customers were back on track by the end of August.

“We believe the deferral balance had weighed on shares and view progress on expiration and solid performance of deferral accounts as an incremental positive,” John Hecht, an analyst at Jeffries, wrote in a note to clients.

Overall, 30-day delinquencies were roughly 2% of the automotive portfolio on Aug. 31. Delinquencies of 60 days or more totaled 0.4%. Both metrics were significantly lower from a year earlier.

“We feel terrific about the viability of our business,” LaClair said. “We think we’ve answered every question about our model.”

Ally’s reported consumer lending growth comes less than a month after it announced a partnership with Mastercard’s Vyze unit that will allow Ally to offer point-of-sale retail loans at rates of 9.99% to 26.99%.

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Auto lending Credit quality Consumer lending Net interest margin Ally Bank