![]() “It’s knowing when to be assertive in the market and when not to be,” Berman said. He argued that CardWorks was able to remain profitable during the last economic downturn because of its discipline. Berman, who owns 70% of the privately held company’s stock, plans to join Ally’s board of directors and become a member of Ally's executive management team after the deal closes. “Risk-adjusted returns have been consistent over time, including during the economic downturn,” Brown said.Īlso participating in the conference call was Don Berman, the chairman and CEO of CardWorks. He wrote in a research note Wednesday that shares in Ally are cheap while reiterating his recommendation that investors buy the stock.Īlly executives expressed confidence in the ability of the acquired company’s team to weather credit cycles. “I would say that the investment community in general has been very nervous about the fact that the good times have lasted for so long,” he said.īut Sakhrani noted that investors have typically given better valuations to companies that have higher risk profiles. Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, is among the observers who were surprised by Ally’s decision to enter the subprime card business at this point in the credit cycle. Ally expects the acquisition to close in the third quarter of this year. ![]() The subprime credit card business typically takes a bigger hit during recessions than the prime card market does. Investors may also have been spooked by the timing of the deal, since many observers believe the current boom in U.S. A disconnect between what Ally shareholders thought they were purchasing and what the new acquisition revealed about Ally’s plans could help explain the sharp sell-off on Wednesday. Of course, subprime card lending is a riskier, more volatile business than making secured auto loans to consumers with solid credit histories. So we think about this in a very, very different light than the relationship we used to have.” “This is really now being able to control and drive the product and drive the risk appetite ourselves. “Control over credit matters a lot,” he said. That card provided cash rewards of 1% to 2% under a deal with TD that limited both Ally’s risk and its ability to record profits.Īlly CEO Jeffrey Brown said Wednesday that the subprime credit card acquisition represents an entirely different approach. ![]() Last July, the company pulled the plug on a three-year-old card partnership with TD Bank. “And I think the needs across the customer base are quite similar.”Īlly has tried to expand into credit card lending before, though without much success. “I think there is a lot of overlap,” argued Ally Chief Financial Officer Jennifer LaClair. ![]() Over time, Ally will likely offer a credit card for consumers with higher credit scores than those who would typically apply for a card from Merrick Bank, they said. Meanwhile, only about 10% of Ally’s auto loan customers have credit scores of 620 or below, according to regulatory filings.Īlly executives said that the acquisition will enable the auto lender, which also offers deposit products through a digital bank, to provide an expanded product set to its existing customers. At Merrick Bank, the average customer credit score is around 630. One source of doubt is the differing credit profiles of the two companies’ customer bases.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |