Why Ally Financial rose nearly 12% on Thursday
Allied financial (NYSE: ALLY) beat the stock market on Thursday after the stock market and Cardholder Management Services mutually agreed to end what was essentially to be an expensive buyout of the second by the first. Ally wrote in a press release that the termination followed parties “in carefully considering the significant impacts of COVID-19 on global markets and the economy.”
Ally’s potential acquisition is the parent company of Merrick Bank, a somewhat under-the-radar lender that focuses on servicing at-risk clients (typically those with a credit score below 660). Originally announced in February, the deal made sense to Ally as it would expand the company’s customer base.
Ally, once known as GMAC, was once the financial arm of the powerful automaker General Motors. Not surprisingly, Ally Financial today still has a loan portfolio crammed with auto loans. For some time now, it has aimed to bring more diversity to this loan portfolio.
In addition to diversity, owning Cardholder Management / Merrick would also buy attractive potential growth. According to Ally, Merrick’s growth has outpaced that of the credit card industry by a factor of 2.5.
Now is not the right time to look for assets in the banking world. Lenders add significantly to their loan loss provision. Reasonably enough, they expect defaults to increase dramatically in the coronavirus-ravaged economy. Ally shareholders are probably relieved enough that their company isn’t embarking on this venture, at least not now.
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