Ally Financial is selling
The deal bolsters Synchrony's goal of increasing its lending for home improvements, health and wellness products and other larger-ticket items. Investors reacted positively to the purchase, driving Synchrony's stock price up 3% on Friday.
Ally shareholders had an even more favorable reaction to the sale, which should open more space for investments in the company's core business of lending to auto dealers and car buyers. Ally's share price jumped more than 11%.
Investors' thrill over the sale reflects a message that many of them have sent to Ally over the years — they would prefer the company to stick to the auto sector rather than diversify and offer a range of products.
"Most investors would rather Ally focus on its bread and butter," said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, who covers both Ally and Synchrony.
The sale includes the Ally Lending unit's roughly $2.2 billion in loans as well as its relationships with nearly 2,500 merchants. The deal will boost Ally's capital levels a bit — increasing the company's common equity tier 1 ratio by about 15 basis points — and giving it more flexibility to invest elsewhere.
The deal will help Ally "further prioritize our highest-returning and scaled businesses that directly serve our auto and deposit customers," Ally CEO Jeffrey Brown told analysts on Friday. The companies did not disclose a sales price but said that they expect the deal to close this quarter.
Ally had entered the personal loan business through a 2019 acquisition.
In addition to personal lending, Ally has also started offering mortgages, investment accounts and credit cards in recent years. The latter expansion occurred in 2021, when Ally
Brown indicated that Ally is not backtracking on any of those expansions, saying the Ally Lending sale was a "unique situation" and that the rest of the company is "largely intact."
"I don't want anyone to imply anything beyond that," Brown said. "I think this was just a unique situation. We feel really good about it."
The deal materialized after last March's banking crisis, which Brown said caused bankers to "take a really honest and hard look at all of our businesses, our position, figure out where we have scale, where we didn't have scale." In the months since, several regional banks have
Brown said that he and his counterpart at Synchrony, CEO Brian Doubles, got in touch after the banking crisis and "started talking about a potential path" for the Ally Lending business.
"For them, I think it fits right into their platform," Brown said.
Synchrony offers credit cards and installment loans with a network of retailers, including home improvement contractors and a growing network of health care providers, and the Ally purchase could help it gain market share. The company has
"This deal represents a significant and exciting growth opportunity for Synchrony," Doubles said in a news release. "It's a strong strategic fit that will unlock value and operational efficiency by integrating products and teams in our expanding platforms of home improvement and health and wellness."
Ally Lending's merchant network of nearly 2,500 is not massive — at least compared with a much bigger network of home improvement contractors that was recently up for sale. In October, Goldman Sachs sold the home improvement lender GreenSky, which had a merchant network of more than 10,000 companies, to a group of institutional investors. The GreenSky sale was part of Goldman's
Buying a platform much smaller than GreenSky's means Synchrony can "shape the portfolio how they want it to look" and tack it onto its existing business, said Vincent Caintic, an analyst at Stephens. The ability to add more merchants to the platform is also a major benefit, given that those relationships are "very hard to get" but ultimately drive significant business to lenders, he added.
"Synchrony got a big win with this," Caintic said.
Caintic said the sale of the point-of-sale lending business is also good news for Ally. But it wasn't the only positive development for Ally shareholders on Friday, when the Detroit-based company also released its fourth-quarter earnings report.
Ally's interest expenses had been climbing significantly because interest rates were rising, and its online deposit platform offers high rates to consumers. But the Federal Reserve's recent pause in rate hikes — and its likely shift this year to rate cuts — has eased some of the pressure and led to a positive tone from Ally executives.
"With the tightening cycle potentially behind us, we are confident the company is set up for meaningful earnings expansion over the next several years," Ally Chief Financial Officer Russell Hutchinson said during the company's earnings call.
More of Ally's customers have been struggling to repay their auto loans, part of a broader "normalization" that consumers have experienced as the benefits of pandemic-era stimulus programs fade.
But during the fourth quarter, charge-offs of Ally's auto loans remained within the company's prior guidance — a marked contrast with the
The earnings call was Brown's last as Ally's CEO, a post he's held since 2015. He announced in October he'd leave the company to become president of Hendrick Automotive Group, a large auto dealer and longtime Ally customer.
Ally
Ally's board has been "very hard at work" to find a new permanent CEO and is focused on finding the right candidate, Brown said.
In the meantime, Timmerman has the "full support of the board" and Ally's customers, Brown said.
"He's been around the block," Brown said. "Our employees know him, and he's going to slide right in. So I'm not worried at all about continuity in this interim period."
