|Bid||0.00 x 0|
|Ask||0.00 x 0|
|Day's range||15.00 - 15.00|
|52-week range||15.00 - 15.00|
|Beta (5Y monthly)||1.64|
|PE ratio (TTM)||3.46|
|Forward dividend & yield||N/A (N/A)|
|1y target est||N/A|
Could Ally Financial Inc. (NYSE:ALLY) be an attractive dividend share to own for the long haul? Investors are often...
(Bloomberg Opinion) -- What’s more important: a roof over your head or a car in your driveway? With unemployment rising as the coronavirus shuts down parts of the U.S. economy, the decision made by borrowers as their payments come due will determine how securities backed by auto loans and leases perform.Families will start to struggle as Covid-19 deepens its grip and job losses rise. Of the $14 trillion of consumer debt, mortgages account for $9 trillion and cars $1.3 trillion; however, more Americans have auto loans. When social distancing becomes the norm, cars seem more likely to fall down the priority list behind payments for homes, Netflix bills, phones and credit cards. With lockdowns spreading, many people aren’t going anywhere right now. That means the default risk is rising. Rating agencies are reassessing portfolios of loans and leases linked to asset-backed securities, or ABS, using loss levels from the 2008 financial crisis to calculate risk.When these car-related debts start going bad, the impact on the bonds they back is severe. The spread of auto ABS over Treasuries widened sharply in recent weeks, more so than on card-backed debt. The current dislocations in credit markets show that while auto-loan defaults may not be the center of a financial crisis like mortgage-backed securities, they could well set off wider panic as consumer confidence crumbles, household balance sheets deteriorate and big issuers – car companies – struggle.This market has grown rapidly since the last financial crisis. Already this year, almost $30 billion of auto asset-backed bonds have been issued in the U.S., following $118 billion in 2019. As of the third quarter last year, $250 billion was outstanding. At year-end, annualized loss rates on subprime auto ABS were around 9%, close to financial-crisis levels, while average interest rates have been even higher at 19%, according to Goldman Sachs Group Inc.Two factors will determine how these bonds perform: unemployment and the value of used cars, because cash flows come directly from borrowers. In the aftermath of a natural disaster, used-car prices rise because property has been damaged or destroyed. In this crisis, they’re likely to fall due to strain on consumer wallets. That reduces the worth of the collateral and lowers the residual value of leases that back some of these securities. Cars are, after all, a depreciating asset.What does this mean for the securitized bonds? Lenders and originators package pools of loans and leases in a special-purpose vehicle that then issues debt to investors. The interest and principal payments are structured into classes. Broadly, the more senior tiers have first claim on all cash flows and assets, while the junior take the first hit on losses but have higher yields. The lowest tranche, also known as the equity or first-loss pieces, is typically held by the issuer: auto companies’ financing arms and other lenders. When loans default and the asset pool can’t make up for the payments due to investors, the holders of the lower tranches absorb the loss.It will be yet another blow for the finance companies of already-struggling carmakers that issue ABS to finance leases and sales. They’ll take the first hit through the equity. Funding costs will surge and in turn squeeze sales, reminiscent of 2008.(3)As sales showed signs of reaching a plateau last year, auto giants, dealers and finance companies were pushing excessive financing with looser underwriting standards and conditions, such as longer terms and incentives. The weighted average credit score for non-prime loan pool borrowers was 590 last year, lower than 597 in 2008.Household balance sheets were strong overall going into this crisis, but varied greatly across income levels. The bottom 20% of American households are far more leveraged — more than 25% — than the higher income brackets on a debt-to-assets basis. Around a third of auto ABS are typically made up of subprime loans, where the ability to pay drops off sharply and suddenly.That doesn’t bode well. Companies like Ally Financial Inc. have already offered relief packages for consumers and dealers. Payments can be deferred for six months without late fees. New customers will be allowed to defer for three months. The Federal Reserve has brought back a financial crisis-era lending facility that’s meant to support the asset-backed securities market, where auto loans and leases are among the eligible collateral.The troubles will go further: There are other auto sector-related ABS, like those backed by rental cars and dealer-floor financing plans that are even more directly dependent on automakers’ health.Sure, structures have changed since 2008 to help lower the risk for investors on these bonds. But the underlying issues remain the same: consumers’ buying and borrowing behavior.Investors are busy thinking about mortgage-backed securities, given their large size and potentially deeper and more immediate impact on the financial system. But it’s important to consider recent consumer trends: Delinquencies as a portion of outstanding loans have been on the way down for mortgages. They’re rising for autos, especially among subprime borrowers, as are past-due loans. America has always been a nation of drivers and the appeal of cars has a way of pushing consumers to stretch their budgets in a way houses don’t. But the stay-in-place strategies to fight this pandemic may change that calculus in a way investors aren’t prepared for: Driving behavior could change.(1) Unable to secure affordable financing, the financing arms severely curtailed lending and leasing activity. This caused vehicle sales volumes to plummet and hastened the Chapter 11 bankruptcy filings of Chrysler on April 30, 2009, and General Motors Inc. on June 1, 2009, according to S&P Global Ratings.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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Ally Financial cleared a 34.33 cup-base buy point. Relative strength line at new high. The auto lender is in a market sweet spot – some financials and auto lenders are breaking out or leading.STOCK MARKET TODAY is sponsored by Interactive Brokers. To open an account, go to ibkr.com/whyib