![]() The group's CET1 ratio was 9.3% as of the end of 2022. Capital adequacy ratios are low for such a risky business model, and the CET1 ratio is below the Fed's requirement if adjusted for AOCI The recent bank failures have already demonstrated that such a longer-duration securities book is a major risk. We have already written a lot on this issue in our previous articles on large banks. The table below shows that 80% of the bank's available-for-sale securities have maturities of more than 10 years. Securities accounted for more than 16% of Ally's total assets as of the end of 2022, and more than 94% of this book are available-for-sale securities. Such a combination will highly likely lead to a spike in Ally's charge-offs and even could make it a loss-making entity quickly. If a major recession comes, there will be not only a larger slump in used car prices but a big increase in unemployment as well. Notably, in its wholesale car financing, Ally is also exposed to used vehicles. This is quite a sharp fall for this still relatively benign economic environment. ![]() However, even Ally, which should be more optimistic on its key business line than independent agencies, expects that used car prices will fall by 15% from the 1Q23 level by the end of the year. What is important here is that net charge-offs are rising despite the fact that used car prices are at very high levels and even increased by 8% YTD in 1Q23, according to the Ally Used Vehicle Value Index. The table below shows that used cars accounted for 65% of all new loan originations in 2022, up from 55% in 2020.īoth auto net charge-offs and auto delinquency ratios have already started rising, although their levels are still not that high. If we look deeper at the bank's financial statements, we will see that Ally has been shifting its focus from new cars to used cars lately. There were also wholesale commercial automotive loans of $9B, which make Ally's total exposure to the car market as high as 72%. ![]() If we look at Ally Financial's ( NYSE: ALLY) loan mix, it clearly tells us that the bank focuses heavily on car lending, as auto loans accounted for more than 60% of its total credit portfolio as of the end of 2022. ![]() The substance of that analysis is not looking too good for the future of the larger banks in the United States. I want to take this opportunity to remind you that we have reviewed many larger banks in our public articles. As part of our ongoing series of articles on bank stability, and at the request of many of our clients at, we wanted to address Ally Bank in this missive. ![]()
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