Ally Financial: Bright Outlook Ahead, But Is Overvalued

Company Overview - Ally Financial is a fully digital bank with a market capitalization of approximately $12.7 billion and is among the top 25 US banks based on assets [1] - Major shareholders include Warren Buffet's Berkshire Hathaway, which owns 9.5$152 billion in total deposits, with $103 billion from checking, savings, and money market accounts, and$49 billion from certificates of deposit [4] Customer Acquisition and Services - Ally's deposit costs are higher at 4.21% compared to Bank of America's 2.78%, but this has helped attract new customers who are cross-sold additional products [5] - The bank has a customer satisfaction rate and offers various benefits such as no maintenance fees, no minimum balance, and cashback on debit card purchases [6] Financial Metrics - Ally's net interest margin has decreased from 4.04% in Q2 '22 to 3.27% in Q2 '24, while the net charge-off rate has increased to 1.26% [8] - Despite these challenges, there was a slight quarter-over-quarter improvement in net interest margin, rising from 3.13% in Q1 [8] Market Outlook - The imminent cuts in interest rates are expected to benefit Ally, as many retail customers may delay loans due to high interest rates, potentially boosting Ally's loan initiation once rates normalize [7][8] - However, the current valuation of Ally is considered unattractive, with a return on equity of 6.28% against a cost of equity of 8.3%, leading to a price-to-book ratio of 1.10x, suggesting overvaluation [9][10]