Why Shares of Ally Financial Are Plunging This Week

Core Viewpoint - Ally Financial's shares have dropped 16.5% this week due to management's concerning update on the company's credit profile at an industry conference [2][3]. Group 1: Company Performance - Management indicated that losses in the retail auto portfolio are higher than expected, attributed to rising living costs and unemployment [3]. - Delinquencies in July and August increased by 20 basis points compared to expectations, with loan losses anticipated to rise in the coming months [3][4]. - The retail auto loan loss rate forecast for 2024 was initially set at 1.9%, revised to 2.1% during the Q2 2024 earnings call, and is expected to increase further [3]. Group 2: Financial Implications - Higher delinquencies will necessitate increased provisions for credit losses, impacting earnings negatively [4]. - Most issues stem from loans originated in 2022, and there is uncertainty regarding the performance of 2023 vintages despite tighter credit standards [4]. Group 3: Future Outlook - Management remains committed to achieving a 15% return on tangible common equity (ROTCE) and anticipates margin growth when deposits reprice in a lower interest rate environment [5]. - The stock is currently trading at approximately 93% of tangible book value, suggesting potential value for investors willing to accept short-term volatility [5][6]. - Caution is advised until there is more clarity on the company's credit outlook before making significant investments in Ally Financial [6].