Ally Q1 net income declines in first report since IPO

UPDATED: 5/1/14 2:38 pm ET - adds conference call

NEW YORK (Bloomberg) -- Ally Financial Inc., the lender rescued by the U.S. government during the 2008 financial crisis, said profit fell 79 percent in its first report as a publicly traded company.

Net income for the three months ended March 31 slid to $227 million, or 33 cents a share, from $1.1 billion, or $2.16, a year earlier, Ally said today in a statement. Excluding some items, core pretax profit rose 64 percent to $339 million as net interest margins improved and expenses fell, Ally said. 

Pretax profit in automotive finance, Ally’s largest business unit, fell 1.2 percent to $339 million as the lender set aside more funds to cover potential future loan losses.

CEO Michael Carpenter has refocused Ally, the former GMAC finance unit of General Motors, on its auto-lending roots and repaying the last of the U.S. bailout that once totaled more than $17 billion. To improve profitability, Carpenter said last month he plans to reduce expenses by $400 million and expand commercial banking.

Carpenter said in the statement his plan will “improve net interest margin, reduce controllable expenses and normalize regulatory requirements over time.” Regulators have agreed to let the Ally Bank unit begin paying “substantial” dividends to the parent company, he said today during a conference call with investors.

Cost controls

Ally said its adjusted efficiency ratio improved to 55 percent from 73 percent in the fourth quarter and 67 percent a year earlier. The ratio is used to gauge management’s prowess at controlling costs by measuring how much is spent to generate a dollar of revenue -- in this case, 55 cents.

A figure in the mid-50s or lower is typically regarded as good performance, and the company said today its ultimate goal is in the mid-40s.

“Investors have fairly high expectations with regard to non-interest expense reductions in the near term,” Mark Palmer, an analyst at BTIG LLC in New York, said in a April 29 note.

The U.S. Treasury Department raised $2.38 billion by selling shares of Ally in an initial public offering last month, trimming its stake in the company to about 17 percent from 37 percent.

Diversifying business

Carpenter told analysts on a conference call that the company is making progress diversifying away from Chrysler and GM. New loans made through non-Chrysler and non-GM dealers were up 40 percent compared to a year earlier and now comprise around one-fifth of total loans.

Reducing the government's equity stake to zero, which Carpenter had previously predicted would happen by the end of 2014, would contribute toward the company reaching its profitability target, namely a double-digit core return on tangible common equity.

That objective will get a boost in the second quarter when the bank, after receiving regulatory approval, will start paying dividends to its parent company. Executives said the dividend will be between $1 billion and $1.5 billion in the quarter.

The company's market debut failed to click with investors as its shares fell as much as 5 percent on the opening day. The company's shares have since traded largely below the listing price of $25.

Reuters contributed to this report.

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