HomeMost PopularInvestingPositive Financial Growth: Ally Financial (ALLY) Completes Sale of POS Financing Business

Positive Financial Growth: Ally Financial (ALLY) Completes Sale of POS Financing Business

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Strategic Move for Ally Financial

Ally Financial Inc. has successfully finalized the sale of its point-of-sale (POS) financing business – Ally Lending – which boasted $2.2 billion in loan receivables as of Dec 31, 2023, to Synchrony SYF. This calculated decision highlights ALLY’s dedication to enhancing its capital allocation strategies and channeling resources towards high-growth sectors.

Impact of the Transaction

Upon the announcement of the deal in January, ALLY anticipated an upsurge of nearly 15 basis points (bps) in its Common Equity Tier 1 (CET1) ratio post-closure. Additionally, this transaction is expected to contribute positively to both tangible book value and earnings per share (EPS) for ALLY throughout this year.

Strategic Reallocation of Resources

The transaction entails the transfer of Ally Financial’s ties with around 2,500 merchant locations and support to over 450,000 active borrowers in the home improvement services and healthcare sectors to SYF. The company foresees this deal to enhance its 2024 EPS, excluding the initial reserve build impact for credit losses.

Business Evolution for Ally Financial

Jeff Brown, ALLY’s CEO, emphasized that this significant transaction is part of a wider effort by the company to concentrate resources on expanding its scale businesses and fortifying relationships with dealer customers and consumers. In Mr. Brown’s words from January, β€œThis transaction allows us to continue to be disciplined in allocating capital to optimize risk-adjusted returns as we manage through a dynamic operating environment.”

Strategic Refinement

Ally Financial has been proactive in enhancing profitability amidst a challenging operating environment. In 2023, the company reduced headcount, resulting in annualized savings of $80 million. Additionally, the deconsolidation of seasoned retail auto loans worth $1.7 billion delivered a 9 bps boost to ALLY’s CET1.

Positivity for Future Growth

The divestiture of Ally Financial’s POS financing business aligns seamlessly with its strategic business transformation initiative, enabling a sharper focus on core growth areas. Alongside the uptick in consumer loan demand and revenue diversification efforts, this move is expected to continue supporting ALLY’s profitability.

Shares of this Zacks Rank #3 (Hold) company have impressively surged by 24.8% in the last three months, outpacing the industry’s growth of 19.3%.

Image Source: Zacks Investment Research

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