Ally(ALLY) ZACKS·2024-11-25 14:11Ally Financial's Credit Card Business - Ally Financial is considering selling its credit card business, as reported by Bloomberg, with the company working with a financial advisor to find potential buyers [1][2] - As of Sept 30, 2024, the company had $2 13 billion in average credit card loans and 1 25 million active cardholders [2] - The company has a long history in the credit card business, previously partnering with The Toronto-Dominion Bank (TD) for the Ally CashBack credit card until 2019, when it stopped onboarding new customers to reduce losses [3] - In 2020, Ally Financial attempted to acquire Cardholder Management Services, Inc (CardWorks) for $2 65 billion, but the deal was mutually terminated due to the impact of COVID-19 [4] - In December 2021, Ally Financial acquired Fair Square Financial, a digital-first credit card company, for $750 million, which had 693,000 cardholders and $816 million in loan balances at the time [5] - The company is now considering exiting the credit card business due to stiff competition from larger providers like Capital One, which is set to become even bigger with its acquisition of Discover Financial [5] Ally Financial's Core Operations and Strategy - Ally Financial is focusing on its core businesses, including auto finance and digital banking, as part of its strategy to invest in growing scale businesses and strengthen relationships with dealer customers and consumers [6] - In March 2024, the company sold its point-of-sale financing business, Ally Lending, which included $2 2 billion of loan receivables as of Dec 31, 2023 [6] - The company has been taking steps to improve profitability, including reducing headcount, which led to $80 million in annualized expense savings [7] - Ally Financial has diversified into other businesses such as mortgage, wealth management, and online brokerage, and in 2023 launched Ally ai, a proprietary AI platform for enterprise-scale integration of AI capabilities [8] Financial Performance and Challenges - Ally Financial is facing challenges related to asset quality and higher interest rates, with the company noting a "dynamic operating environment" including high interest rates, volatility, and inflationary pressure [9] - The company expects loan losses to increase in 2024, with retail auto NCO rates projected to be between 2 25% and 2 30%, up from the prior target of 2 1%, and consolidated NCOs likely to be in the 1 50-1 55% range, up from earlier guidance of 1 45-1 5% [9] - Ally Financial has lowered its NIM target for 2024 to almost 3 20%, down from earlier guidance of approximately 3 30%, with NIM at 3 32% in 2023 [10][11] Medium-Term Outlook - With expected interest rate cuts in 2024 and 2025, Ally Financial is well-positioned to benefit from the liability-sensitive nature of its balance sheet and rising consumer loan demand, with management expecting NIM to reach 4% over the medium term [12] - Divesting the credit card business could further improve NIM over time, as credit cards have floating rate interest, and lower rates might negatively impact NIM [13] - Over the past three months, Ally Financial's shares have lost 11 7%, underperforming the industry's rally of 22 5%, due to concerns related to asset quality and NIM [13]