Key Takeaways
- Shares of Ally Financial plunged Tuesday as its chief financial officer said the company’s auto loan portfolio is struggling.
- Delinquencies and net charge-offs were higher than expected in July and August, CFO Russ Hutchinson said during an investor conference Tuesday.
- Hutchinson said the bank expects net charge-offs to continue rising in the coming months .
Ally Financial (ALLY) stock sank sharply after the bank’s chief financial officer said at an investor conference that consumers are struggling with inflation and that Ally Bank’s credit challenges have “intensified” during the current quarter.
Ally CFO Russ Hutchinson said Tuesday that Ally’s typical borrower is “struggling with a high inflation and cost of living, and now, more recently, a weakening employment picture,” according to a transcript of Tuesday’s Barclays event provided by AlphaSense.
Ally shares were down about 18% in late Tuesday trading, touching their lowest levels since January.
Auto Loans Struggling as Delinquencies Rise
A particularly difficult area of Ally’s loan base is in the auto market. Hutchinson said Ally experienced a rise in delinquencies of about 20 basis points above what Ally expected for the last two months Net charge-offs — the debts a financial institution writes off on the assumption they will never be repaid — were about 10 basis points higher than Ally expected across July and August.
Hutchinson said Ally is expecting its rate of net charge-offs to rise in the coming months because of the size of the pool of borrowers Ally believes is struggling, especially those with loans over two months past due.
Ally reduced its exposure to the loan world with the sale of its Ally Lending arm earlier this year to Synchrony Financial (SYF).