Should You Buy Ally Financial While It's Below $40?

Core Insights - Ally Financial has started 2025 strong, with shares up 8% year-to-date, but still 15% below its 52-week high and over 30% below its all-time peak in 2021 [1] Business Overview - Ally's core business is auto lending, having spun off from General Motors and now operates as an independent online bank with $143 billion in retail deposits [2] - It is the largest indirect auto lender in the U.S., originating$39.2 billion in auto loans in 2024 at an average yield of 10.4%, and also has a significant insurance business with nearly $1.5 billion in auto insurance premiums written last year [3] Strategic Focus - Recently, Ally has exited non-core business lines, selling its credit card business and ceasing new mortgage loan applications, aiming for over$60 million in annual savings from efficiency improvements [4] - The company will concentrate on dealer financial services, corporate finance, and its all-digital consumer bank, with a goal to increase its net interest margin to around 4% in the medium term [5] Risk Factors - Ally's net charge-off rate has increased for two consecutive quarters, with the percentage of its auto loan portfolio at least 30 days delinquent rising from 4.66% to 5.46% [6] - However, recent loans have higher credit quality, with the average FICO score of borrowers in 2024 being 24 points higher than in 2022, and lower average payment-to-income ratios [7] Market Tailwinds - Falling interest rates could positively impact Ally, as the average yield from earning assets is 7.22% while deposit costs are just over 4%, suggesting potential margin expansion [9] - The new administration's inclination towards loosening bank regulations and potentially lowering the corporate tax rate to 15% could provide additional profit boosts for Ally, which had an effective tax rate of about 20% in 2024 [10]