GMAC Financial Services Reports Preliminary First Quarter 2010 Financial Results
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- Reported first profitable quarter since fourth quarter 2008; Fifth consecutive profitable quarter from the core automotive business - First quarter 2010 net income of $162 million and core pre-tax income of $564 million - Announces intention to rebrand GMAC Inc. to Ally Financial Inc. on May 10, 2010
NEW YORK - May 3, 2010: GMAC Financial Services today reported net income of $162 million for the first quarter of 2010, compared to a net loss of $675 million for the first quarter of 2009. Core pre-tax income, which reflects income from continuing operations before taxes and original issue discount (OID) amortization expense from bond exchanges, totaled $564 million in the first quarter of 2010, compared to a core pre-tax loss of $482 million in the comparable prior year period.
Core pre-tax income during the quarter was driven by: higher net interest margin; gains on asset sales; improved servicing income; and significantly lower loan loss provision expense, while coverage ratios remained strong. The lower loan loss provision expense during the quarter was due to the strategic actions related to the mortgage business taken at year-end 2009, stabilizing auto credit trends, a strong used car market and the continued liquidation of certain legacy portfolios.
"The first quarter marks a key milestone in GMAC's transformation, as the company made significant strides toward achieving our strategic objectives," said GMAC Chief Executive Officer Michael A. Carpenter. "We achieved profitability, our premier auto finance franchise continued to expand, the capital markets reopened to GMAC debt, we have reduced expenses, and we took several additional steps to contain and reduce risk in the mortgage business."
Income/(Loss) From Continuing Operations by Segment
($ in millions)
Increase/
(Decrease) vs.
--------------
1Q 10 4Q 09 1Q 09 4Q 09 1Q 09
----- ----- ----- ----- -----
North American Automotive
Finance $653 $369 $660 $284 $(8)
International Automotive
Finance 10 (146) (36) 156 47
Insurance 183 86 36 97 147
--------- --- --- --- --- ---
Global Automotive Services 846 309 660 537 186
Mortgage Operations 175 (4,020) (995) 4,195 1,170
Corporate and Other (ex.
OID)(1) (456) (443) (148) (13) (308)
------------------------ ---- ---- ---- --- ----
Core pre-tax income
(loss)(2) 564 (4,154) (482) 4,718 1,046
OID amortization
expense(3) 397 315 257 81 139
Income tax expense
(benefit) 39 (603) (126) 642 166
Income (loss) from
discontinued
operations(4) 33 (1,087) (61) 1,120 94
------------------ --- ------ --- ----- ---
Net income (loss) $162 $(4,953) $(675) $5,115 $837
(1) Corporate and Other as presented includes Commercial Finance,
certain equity investments and net impact from treasury asset
liability management activities.
(2) Core pre-tax earnings is defined as income from continuing
operations before taxes and bond exchange OID amortization expense.
(3) Amortization of bond exchange OID. Includes $101 million of
accelerated amortization in the first quarter of 2010 from certain
liability management transactions.
(4) The following businesses are classified as discontinued
operations: the U.S. consumer property and casualty insurance
business (sale completed during first quarter 2010); the U.K.
consumer property and casualty insurance business; retail automotive
finance operations in Argentina, Ecuador and Poland; the full-
service leasing businesses in Australia (sale completed in April
2010), Belgium, France, Italy (sale completed during fourth quarter
2009), Mexico (sale completed during fourth quarter 2009), the
Netherlands (sale completed during fourth quarter 2009), Poland
(sale completed in April 2010) and the U.K.; mortgage operations in
Continental Europe; and the Commercial Services Division (North
America based factoring business) of the Commercial Finance Group in
Corporate and Other (sale completed in April 2010).
Year-to-Date Highlights
-- Completed the sale of the U.S. consumer property and casualty
insurance business, the North American factoring business of the
Commercial Finance Group, the auto finance retail credit portfolio in
Australia, and the full-service auto leasing businesses in Australia
and Poland.
-- Received multi-notch ratings upgrades from four major rating agencies.
-- Actively accessed the global institutional secured and unsecured debt
markets.
-- Issued more than 5 billion in U.S. dollar equivalent global
unsecured debt to date in 2010. This included a 1 billion euro
transaction in April, which was the company's first institutional
unsecured bond offering in Europe since 2007.
-- Issued more than $6 billion of auto asset-backed securities
globally to date in 2010.
-- Established a $7 billion secured credit facility at Ally Bank.
-- Selected as the global preferred source of wholesale and retail
financing for qualified Saab dealers and customers, and as the
preferred source of retail financing for Thor Industries, the world's
largest manufacturer of recreation vehicles.
-- Expanded retail auto financing reach, as GMAC was added to
DealerTrack, a credit application network used by approximately 17,000
dealers across virtually all manufacturers in the U.S. and Canada.
-- Retail penetration rates for both GM and Chrysler continued to
improve.
-- Executed key steps toward the company's objective of reducing exposure
from the legacy mortgage operation.
-- Residential Capital, LLC (ResCap) reached an agreement to sell its
European mortgage assets and businesses.
-- Sold whole loan pools totaling $373 million of unpaid principal
balance in the U.S. and the U.K.
-- Reached a settlement with one of our top three counterparties for
representation and warranty claims.
-- Issued $508 million of servicer advance receivable-backed term
notes at ResCap.
-- Announced the intention to transition the name of the corporation from
GMAC Inc. to Ally Financial Inc. on May 10, 2010 in a strategic
decision to implement a brand for the long-term where the trademark is
company-owned.
Liquidity and Capital
GMAC's consolidated cash and cash equivalents were $14.7 billion as of
March 31, 2010, compared to $14.8 billion at Dec. 31, 2009. Included in
the consolidated cash and cash equivalents balance are: $725 million at
ResCap; $4.4 billion at Ally Bank, which excludes certain intercompany
deposits; and $626 million at the insurance businesses.
GMAC's total equity at March 31, 2010, was $20.5 billion, compared to $20.8 billion at Dec. 31, 2009. The marginal decrease in total equity was due to preferred dividend payments and accruals, partially offset by first quarter net income. GMAC's preliminary first quarter 2010 tier 1 capital ratio was 14.9 percent, compared to 14.1 percent in the prior quarter. GMAC's tier 1 capital ratio improved due to a reduction in risk-weighted assets resulting from asset sales during the quarter.
Ally Bank
Ally Bank reported pre-tax income of $231 million in the first quarter
of 2010, compared to a pre-tax loss of $90 million in the corresponding
prior year period. Improved performance was driven by increased net
revenue due to higher auto originations and investment income, lower loan
loss provision expense related to mortgage, and improved cost of funds.
Total assets at Ally Bank were $55.2 billion at March 31, 2010, compared to
$55.3 billion at year-end 2009.
Ally Bank has taken steps to diversify its liquidity sources. In April, Ally Bank announced that it had entered into a $7 billion secured revolving credit facility with a syndicate of lenders. The new credit facility will provide incremental liquidity to support dealer floorplan financing and consumer auto financing and leases. This facility is the first of its kind at Ally Bank and further strengthens and diversifies its liquidity sources. In addition, the company has completed three Ally Bank sponsored automotive asset-backed securitizations totaling more than $2 billion to date in 2010. The bank also expanded its U.S. online product portfolio with the introduction of an interest checking account, as Ally Bank continues to focus on growing deposits.
Deposits
Ally Bank and ResMor Trust continue to contribute to GMAC's funding
flexibility through deposit growth. Ally Bank and ResMor Trust deposits,
excluding certain intercompany deposits, increased in the first quarter to
$32.0 billion, from $31.1 billion at Dec. 31, 2009. Retail deposits at
Ally Bank were $17.7 billion at March 31, 2010, compared to $16.9 billion
at year-end 2009. Retail deposits also continue to grow as a
proportionately larger contributor to the company's overall deposit base.
As of March 31, 2010, retail deposits at Ally Bank accounted for
approximately 60 percent of total deposits, compared to 37 percent at
year-end 2008. Brokered deposits at Ally Bank totaled $9.8 billion at
quarter-end, compared to $10.1 billion at year-end 2009.
Global Automotive Services
Global Automotive Services consists of GMAC's auto-centric businesses
around the world, including: North American Automotive Finance,
International Automotive Finance and Insurance. Global Automotive
Services reported first quarter 2010 pre-tax income from continuing
operations of $846 million, compared to $660 million in the comparable
prior year period. This represents the fifth consecutive profitable
quarter from the core automotive business.
North American Automotive Finance, which includes results for the U.S. and Canada, reported pre-tax income from continuing operations of $653 million in the first quarter of 2010, compared to $660 million in the comparable prior year period. Results were driven by strong originations supported by improved penetration, remarketing gains due to favorable used vehicle prices, and a lower loan loss provision expense resulting from improved performance in both the core automotive portfolio and the Nuvell subprime legacy portfolio.
International Automotive Finance reported pre-tax income from continuing operations of $10 million in the first quarter of 2010, compared to a $36 million pre-tax loss from continuing operations in the same period last year. Results in the quarter were favorably affected by lower funding costs in line with a lower asset base and a lower loan loss provision due to improving credit performance. This improvement was partially offset by lower financing revenue due to the wind-down of operations in several countries and a loss related to the reclassification of the Australian loan portfolio to held-for-sale.
GMAC's insurance business reported pre-tax income from continuing operations of $183 million in the first quarter of 2010, compared to $36 million in the prior year period. Results were primarily driven by strong investment income and improved underwriting income driven by lower expenses. GMAC remains focused on streamlining its insurance segment to focus primarily on dealer-centric products, such as extended service contracts and dealer inventory insurance.
Automotive originations and penetration
Total consumer financing originations during the first quarter of 2010
were $8.2 billion. This included $6.2 billion of new originations, $1.2
billion of used originations and approximately $800 million of new leases.
First quarter 2009 consumer financing originations totaled $3.7 billion,
which included $3.2 billion of new originations, approximately $400 million
of used originations and approximately $150 million of new leases.
North American consumer financing originations in the first quarter of 2010 were $6.7 billion, which included $6.0 billion in the U.S. First quarter 2009 consumer financing originations in North America were $2.4 billion, which included approximately $2.3 billion from the U.S.
International consumer originations, which include the joint venture in China, were $1.5 billion during the first quarter of 2010, compared to $1.3 billion in the first quarter of 2009. Approximately 85 percent of GMAC's first quarter international consumer originations came from its five primary international markets: Germany, U.K., Brazil, Mexico and China.
GMAC also remains focused on its core strength of providing automotive financing to GM and Chrysler dealers and customers. At March 31, 2010, GMAC's U.S. wholesale penetration for GM dealer stock was 87.7 percent, compared to 90.9 percent at year-end 2009 and 80.1 percent at March 31, 2009. U.S. retail penetration for GM was 33.5 percent during the first quarter of 2010, compared to 30.3 percent in the prior quarter and 18.6 percent in the first quarter of 2009.
GMAC's U.S. wholesale penetration for Chrysler dealer stock was 76.4 percent at March 31, 2010, compared to 77.3 percent at Dec. 31, 2009. GMAC's U.S. retail penetration for Chrysler during the first quarter of 2010 improved significantly to 42.1 percent, compared to 25.5 percent in the fourth quarter of 2009. This was the result of increased originations due to the on-boarding of the Chrysler automotive finance business.
Strategic Direction
GMAC has taken a number of strategic actions designed to put the company
on a path toward improved performance and a more defined strategic
direction centered around six key priorities:
-- Become the premier global auto finance provider for dealers and
consumers.
-- Improve our cost structure and efficiency.
-- Improve our access to the capital markets, our debt ratings and cost
of funds.
-- Fully transition to a bank holding company model.
-- Improve our liquidity position by building deposits at Ally Bank.
-- Continue to de-risk our mortgage business and define a viable
long-term strategy for our mortgage origination and servicing
business.
The company made substantial progress on its priorities in the first quarter of 2010 and remains focused on achieving additional results and working toward the timely repayment of the U.S. Treasury investments.
In evaluating the strategic direction of the company, GMAC's board of directors and management team determined that the company should implement a brand that could be leveraged for the longer-term. The company currently has an agreement to license the "GMAC" trademark from General Motors, and the license expires in 2016. As a result, effective May 10, 2010, GMAC Inc. (or GMAC Financial Services) will transition the name of the corporation to Ally Financial Inc. (Ally). This transition will enable the company to leverage a brand that currently exists in the portfolio to support its efforts toward becoming more customer-focused.
The Ally brand was first introduced at Ally Bank in May 2009 and will now be adopted at the parent company. The transition to the Ally brand will be limited to the corporate entity and there will be no change to the branding of the company's operating units at this time. Options to potentially use the Ally brand more broadly within the company are currently being evaluated; however, decisions have not been finalized.