ALLY to Exit Mortgage Business, Cut Jobs & Focus on Auto Franchise

Core Viewpoint - Ally Financial is exiting the mortgage origination business and seeking strategic alternatives for its credit card business due to persistently high mortgage rates and a challenging operating environment [1][3][8]. Business Restructuring - The company plans to fully exit both the mortgage and credit card businesses by the end of the current quarter [1]. - As part of this restructuring, Ally Financial will lay off less than 5% of its employees, although specific locations or operations affected have not been disclosed [2]. Mortgage Origination Insights - Ally Bank, a subsidiary of Ally Financial, has shifted its focus from originating mortgages to primarily originating for sale on the secondary mortgage market [3]. - The company's mortgage origination volume has decreased significantly, with over 70% of direct-to-consumer originations coming from existing depositors, indicating a lack of active business expansion efforts [6]. Credit Card Business Evaluation - After reviewing growth areas, Ally Financial concluded that the credit card business is not a priority for further investment [7]. - As of September 30, 2024, the company reported $2.13 billion in average credit card loans and 1.25 million active cardholders [7]. Focus on Core Business - Following the reorganization, Ally Financial will concentrate on its auto franchise, which is its largest and original business [8]. Financial Performance and Projections - The company is facing challenges related to asset quality and higher interest rates, which have impacted consumer behavior and led to increased volatility in credit costs and margins [9]. - Ally Financial anticipates an increase in loan losses for 2024, with retail auto net charge-off rates projected between 2.25% and 2.30%, up from a previous target of 2.1% [10]. - The consolidated net charge-offs are expected to be in the range of 1.50-1.55%, an increase from earlier guidance of 1.45-1.5% [10]. Net Interest Margin Adjustments - Due to near-term headwinds, Ally Financial has lowered its net interest margin (NIM) target for 2024 to approximately 3.20%, down from an earlier estimate of 3.30% [11]. - The NIM for 2023 was reported at 3.32% [11]. Market Performance Context - Investors have become bearish on Ally Financial stock, with shares gaining only 4.1% last year, significantly underperforming the Zacks Consumer Loan industry's rally of 34.3% [13]. - In contrast, peers such as Capital One and SLM Corp. experienced substantial stock price increases in 2024, with gains of 36% and 44.2%, respectively [13].