Ally Financial's Ratings Upgraded By Moody's, Outlook Stable

Ally Financial’s (NYSE:ALLY) ratings have been upgraded by Moody’s Investors Service. The outlook for the company remains stable.

Ally Financial’s issuer rating witnessed a progress from Ba3 to Ba2. Further, its senior unsecured medium term note program and senior unsecured regular bond/debenture rating have been raised from Ba3 to Ba2.

Reasons Behind Rating Upgrade

Ally Financial witnessed continued improvement in its funding profile backed by the stabilized performance in the auto portfolio and sustained growth in deposits. Over the last three years, the company recorded 20% annual growth in deposits.

Per Moody’s, Ally Financial has been able to raise deposits and hold a considerable portion of existing depositors through the recent interest-rate hikes.

The company’s ratio of market funds as a percentage of tangible banking assets fell significantly during the same period. Ally Financial’s funding profile now comprises 11% secured debt and 8% unsecured debt.

Moreover, Ally Financial has been able to grow its used auto loan portfolio to more than 50% of retail auto originations for 2018.

What Can Further Boost Ally’s Ratings?

A further upgrade in ratings is possible if Ally Financial continues to grow its deposit base and reasonably underwrites growing auto channels. A prudent diversification of the overall portfolio may also result in a ratings upgrade.

What Can Bring Down Ratings?

A rating downgrade could occur if there is a significant decline in the deposit base. A decline in franchised dealer relationship may also lead to a rating downgrade. Further, if growth in riskier credit quality assets hurts asset performance and weakens financial metrics, there might be a rating downgrade.

In the past three months, Ally Financial’s shares have gained 4%, as against the industry’s decline of 6.6%.

Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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