Ally Financial Inc at Morgan Stanley US Financials, Payments & CRE Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : <_ALACRA_META_ABSTRACT>So maybe getting into it here, starting high level. We're approaching your one-year anniversary here at Ally. Can you discuss the first year you've had as CFO and what do you think investors want to see from you and Ally going forward?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : One other area of focus for Ally of late has been the balance sheet. You've emphasized optimizing the balance sheet with a focus on your highest returning businesses. Can you expand on the mix dynamics and how that drives increased profitability over time? And maybe what the biggest areas of opportunity are for you to maybe lean into deemphasize? Where do you see the balance sheet in the next five years?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And the balance sheet strategy obviously has some implications on NIM. You called out a NIM trough in the first quarter. You're confident in NIM expansion happening this quarter. Is that playing out and how meaningful is the expansion you're going to see this quarter? And maybe beyond this quarter, you can speak to the drivers of the variability in that kind of 5 basis points to 15 basis points linked quarter expansion you've talked about over the rest of the year?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And so towards the 15 basis points this quarter, you're also going to exit this year towards the high end of the 3.4% to 3.5%, does that change the timing of getting to the 4%? I know you just said you expect to get there by late '25. I mean, what would have to happen to maybe not get there or what could even bring it more towards the mid-part of ['25]?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And just the hedging strategy, like what's that look like over the next couple of quarters when you think about taking the risk off the table of the Fed cut?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And one important component of what you just talked about is the deposit side. You saw $3 billion of deposit growth in the first quarter, you've taken some proactive actions ahead of Fed easing, potentially Fed easing, both on your OSA and your CD rates. What are the deposit trends you're seeing this quarter? You tend to see seasonal outflow in taxes. And what are your expectations for growth in 2024 and the rest of the year as well as maybe the pricing strategy going forward? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 12:45PM, ALLY.N - Ally Financial Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And if we do look at that other side of the balance sheet in auto, we are starting to hear some rumblings of increased competition. Are you noticing this yet as you're out there in the field in the market? And what are you seeing from your competitors? How can Ally also differentiate itself from the competition and maintain that recent market share you've been able to see as well as the pricing momentum you've been able to see in that more prime S tier.

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And just one point of clarification, the 10.5%-plus, 40% of originations, that continuing through quarter to date or is that more of a first quarter comment? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 12:45PM, ALLY.N - Ally Financial Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay. And one thing you've also talked about and maybe supporting the yield going forward is if the competition comes back, leaning a little bit back in towards the belly of the curve, can you talk about what you think the time line, the path is there and what could drive some of that shift? Does the credit outlook also have an impact there as well?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And related to that question on credit, you have seen retail auto losses tick up in the first quarter, but your delinquency performance on a formation year over year basis as well as the vintage basis continues to improve. What delinquency trends are you observing today? And how will those trends translate into the charge-off progression over the remainder of the year? Do you still see that charge-offs peaking in the first half of the year?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And shallower end of the seasonal decline, is that like a 20 basis points to 30 basis points decline? Is that how to think about it?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : So less than 50 basis points or 50 basis points?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : So then higher end of the 1.4% to 1.5% till the 2% for the auto NCO rates still about ballpark or --?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay, understood. If it were 50 basis points, that still seems like a pretty positive result. So okay --?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay, got it. Understood. And any sort of early reads into how you're thinking about 2025 at this point? You've got that worst performing vintage rolling off? Has the trajectory for that shifted '25 at all? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 11, 2024 / 12:45PM, ALLY.N - Ally Financial Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay. And I just want to remind folks in the room, if you have any questions, feel free to raise your hand and someone will come by with the mic at any time. So just feel free to raise your hand. Maybe just pivoting towards the other revenue side. That's been a really nice tailwind for you guys. You increased the guide there from 5% to 10% up to 9% to 12% for 2024. Can you just discuss really quickly the drivers behind that increase and how we should be thinking about the trajectory of that beyond 2024?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : So up 3% linked quarter but down on the controllable this quarter?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Right. Okay. Anything else you want to maybe get out of the way on the quarter before we lose time at the end?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay, great. And then capital management is another big part of the story here. You did the sale of Ally Lending. You've been doing some loan deconsolidation. You also, I think, suggested some interest in credit risk transfers recently. How do you plan to use CRTs at this point? How meaningful do you think that could be for your capital levels? And then maybe just also touch upon your capital management overall and how you're thinking about the eventual path to turning on the buyback again?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And while we're on the topic, just anything to note on the CCAR process later this month or we're --

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And as we think about the return profile for the business, hitting your 4% NIM, mid-teens ROCE, if I look at you where you sit today, it seems like that's pretty achievable by next year from where I'm standing. How sustainable is this beyond next year? And do you think there's even a potential to overrun, given some of the favorable competitive dynamics you're seeing out there?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Okay. And you also have a new CEO in place, Michael Rhodes. Anything you can share about his first month in the seat, anything -- his views on the go-forward strategy and the financial algorithm you put out there?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Just if we could go back really quick to the credit guide for the year, how has used car prices factored into that? And they've been moderating more recently, has that been according to your expectations and they did rebound a little bit last quarter which you highlighted. Is there anything else that's maybe factoring into why you think the late '22 vintages is performing a little bit worse at this point outside of used car prices?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And there's been some recent reporting on consumers are mandating new car purchases, not sure if that's overblown. But does that maybe support some of the dynamic in your used car price strategy as well?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : And just maybe last minute, anything you want to leave investors here with today to wrap up about the Ally story, anything you think that's misunderstood about the company at this point?

Question: Jeff Adelson - Morgan Stanley & Co LLC - Analyst : Right. Great. Well, I think we'll end it there. Thanks, Russ, coming to our conference this year and looking forward to having you in the future.