Re ALLY - just to make it clear, the cost reduction will occur on the expense side, not the revenue side (although the letter is possible as well, specifically if interest rates will be rising). ALLY has ~60B$ in LT debt that is mostly short maturity (to match the short maturity on the asset side). They pay almost 4% on this debt, but they only pay 1.2% on deposits. As they replace LT debt with deposits, the NIM (currently below 2%) will increase. There is no magic fairy needed to make this work, it's simple math.
They will get another boost in earnings, when they improve their credit rating to investment grade (currently they are rated BB and investment grade is two notches up at BBB-). This will make it much easier to obtain cheap funding via commercial paper, LT debt (as needed) or facilitate securitizations. I think this will take at least 18 month to get there.
The ALLY case is very similar to CIT emerging from bankruptcy. I looked at the case and found that they had a very small NIM, when emerging. Little did I understand, that they had multiple levers to reduce interest rates and improve NIM dramatically. ALLY is very similar to CIT way back then. That is what I mean when stating: " Fix the balance sheet first, and the earnings will follow!"
FWIW, I think they will operate at a 2.5% or better NIM at the end of this year (compared to ~2% as of 12/31) and that should flow straight to the bottom line. That should be good for north of 2$ run rate in earnings by the end if this year.
ALLy's disclosure is fairly good and the business is much easier to understand than many other financials like BAC or JPM. I don't see why the lack of public history would be a turnoff for somebody who can understand SEC filings.
FWIW, I bought more shares today at 24.05$. |
