Ally Financial Inc. (ALLY) shares took a nosedive on Tuesday after the company’s Chief Financial Officer (CFO), Russell Hutchinson, sounded the alarm about mounting credit challenges among borrowers. Speaking at a financial conference, Hutchinson revealed that the company’s credit troubles have deepened this quarter, driven by a combination of soaring inflation, rising living costs, and a weakening employment picture.
The impact of these pressures was felt most acutely in Ally’s retail auto segment, where delinquencies spiked by roughly 20 basis points in July and August, surpassing initial projections. Hutchinson highlighted the struggles faced by Ally’s borrowers: “Our borrower is struggling with high inflation and cost of living, and now more recently, a weakening employment picture.”
Adding to the concern, net charge-offs, representing debts deemed unlikely to be recovered, also increased by approximately ten basis points in the same period, exceeding expectations.
The news sent ripples through the broader banking sector, with bank stocks trading lower following comments from Fed Vice Chair for Supervision Barr on Basel and GSIB surcharge re-proposals. The recent underwhelming jobs report, which missed expectations, further dampened sentiment about anticipated Federal Reserve rate cuts later this month.
Based in Detroit, Ally is known for its auto lending but also offers credit cards, checking and savings accounts, and home loans. While acknowledging the challenging environment, Hutchinson assured investors that Ally will prioritize capital and expense management going forward. However, the company is not yet revising its guidance.
ALLY stock has taken a significant hit in recent weeks, losing over 19% in the past month. Investors seeking exposure to the stock can consider funds like First Trust Financials AlphaDEX (FXO) and Vanguard S&P Mid-Cap 400 Value ETF (IVOV).
Ally’s stock closed down by 18.7% to $32.26 on Tuesday. The company’s performance is being closely watched by investors, as it provides a snapshot of the health of the auto lending sector and the broader economy.
