Ally Net Income Declines in First Quarterly Report Since IPO

May 01, 2014 1:25 pm ET

(Updates with year-earlier gain from unit’s sale in the second paragraph.)

May 1 (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, the Detroit-based company said today in a statement. Comparisons were skewed by last year’s gain of about $900 million from the sale of Canadian operations. Excluding certain items, Ally said core pretax profit rose 64 percent to $339 million as net interest margins improved and expenses fell.

Chief Executive Officer Michael Carpenter has refocused Ally, the former finance subsidiary of General Motors Co., on its auto-lending roots and repaying the last of the U.S. bailout that once totaled more than $17 billion. 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.

Shares of Ally, which began trading publicly on April 10 at $25, declined 10 cents to $24.05 at 12:49 p.m. in New York.

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 with a buy rating on the stock, said in a April 29 note.

Pretax profit in automotive finance, Ally’s largest business unit, fell 1.2 percent to $339 million. The mortgage business swung to a $17 million profit from an adjusted $6 million loss in the same period last year and insurance results from continuing operations rose 21 percent to $74 million, according to Ally.

The return on average tangible common equity was 4.9 percent, the bank said in a supplement. Carpenter has said he’s seeking to increase the return -- a key gauge of profitability - - to “double digits” by the fourth quarter of next year.

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.