Tuesday, May 04, 2010

Ally Financial? Phoenix is more like it

Recovery. Buffett is right, the recovery has started, but we are still a long way from where we were. Nevertheless, as Buffett has said many times, betting against the American economy is a good way to go broke.

Buffett is great story-teller. He likes to talk about the rise of the auto industry and how many car companies have come and gone while the fleet of cars on US roads has steadily grown. However, he says, with respect to investing, auto companies have returned very little. On the other hand, he said that during the 20th century, the horse population declined from 17 million to 5 million. In other words, the money-making play was to short horses.

GMAC to rename itself Ally Financial

The move comes as the financial services company posts its first quarterly profit in more than a year.

Posted: Tuesday, May. 04, 2010

NEW YORK GMAC Financial Services on Monday posted its first quarterly profit in more than a year and announced plans to rename itself Ally Financial Inc., as the consumer lender aims to put a failed foray into the mortgage business behind it.

The Detroit-based company reported first-quarter earnings of $162 million compared with a year-ago loss of $675 million as its mortgage unit swung to a pretax profit and its core automotive business posted its fifth straight profitable quarter. Revenue rose 7 percent to $1.86 billion.

CEO Michael Carpenter called the quarter a "key milestone" for the company.

"Our premier auto finance franchise continued to expand, the capital markets reopened to GMAC debt, we have reduced expenses and we took several additional steps to contain and reduce risk in the mortgage business," Carpenter said in a statement.

GMAC has a corporate center in Charlotte based in a new uptown office building topped by a purple Ally sign.

In December, GMAC said it had about 470 people in Charlotte, but that was before the announcement of 115 layoffs. Former GMAC chief executive Al de Molina built up the bank's Charlotte presence before being replaced by Carpenter last year.

The switch to the Ally Financial name, which takes effect May 10, reflects the recent strength of Ally Bank, its consumer banking unit. Ally Bank has been a major focus of GMAC's marketing efforts and has benefited from rising deposits thanks in part to the relatively high interest rates it offers. Retail deposits at Ally Bank rose 4 percent to $17.7 billion between the fourth and first quarters, GMAC said.

The name change also marks a final break from the company's heritage as a subsidiary of General Motors Co. Although GM sold GMAC in 2006, the lender retained its original name, which formerly stood for General Motors Acceptance Corporation. While GM remains a key customer of GMAC, the lender has been expanding its business to other vehicle manufacturers and is now the primary lender for Chrysler Group LLC, Suzuki and recreational vehicle maker Thor Industries Inc.

In addition, the license to the GMAC name from GM expires in 2016.

"We need to move on from that name," Carpenter said. "We are moving on to use the Ally brand, which has gained significant momentum."

GMAC, which is 56 percent owned by the federal government, has been hit hard by the dual collapse of the housing and automotive markets. Its mortgage unit, Residential Capital LLC, or ResCap, was heavily involved in the subprime housing boom and later became saddled with bad loans when that market imploded.

It also was stung by last year's weakening auto sales and subsequent bankruptcy reorganization of GM. The company lost $10.3 billion in 2009.

GMAC has been trying to shed its mortgage business, which Carpenter has called "millstone around the company's neck." Last month, the company took a step closer to that goal after GMAC struck a deal to sell its European mortgage operations to New York hedge fund Fortress Investment Group LLC.

During the first quarter, GMAC's mortgage operations posted a pretax profit of $175 million versus a loss of $995 million last year. The improvement reflects restructuring efforts during the fourth quarter last year, the company said, which included the decision to sell certain mortgage assets that resulted in huge losses during that quarter.

Performance in its automotive segment remained a bright spot.

Global automotive operations reported a pretax profit of $846 million, including $653 million from North America, due to improvements in its insurance and international automotive finance businesses. Automotive profit totaled $660 million last year.

GMAC has received $16.3 billion in loans from the federal government, which views the lender as crucial to the success of bailed-out automakers General Motors Co. and Chrysler Group LLC. But a government watchdog this year criticized the GMAC bailout, calling it "baffling" and saying the government stands to lose billions of dollars.

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