DBRS Comments on GMAC’s 1Q10 Results and Rebranding to Ally Financial, Unaffected at BB (low), Trend Stable

DBRS has today commented that the ratings of GMAC Inc. (GMAC or the Company) and certain related subsidiaries, including its Issuer and Long-Term Debt rating of BB (low) are unaffected by the Company’s announcement of 1Q10 results indicating net income of $162 million compared to a loss of $675 million a year ago. Concurrent with the results, GMAC announced that as of May 10, 2010, the Company has been rebranded as Ally Financial Inc (Ally). Accordingly, DBRS has changed the Issuer names on the ratings to reflect the rebranding. The trend on all ratings is Stable.

Ally’s 1Q10 results illustrate the continuing progress of the Company in restoring underlying earnings power. In DBRS’s view this progress evidences that the benefits of the significant actions taken in 2009 by management are being realized and are positively impacting Company performance. Core pre-tax income increased to $564 million compared to a sizeable loss of $482 million a year ago, on higher net interest margins, improving credit trends, gains on asset sales, expense reduction efforts and improved mortgage servicing income. Importantly, all four operating segments of Ally, including Mortgage Operations, were profitable for the quarter.

With a pre-tax income of $846 million, the Global Automotive segment reported its fifth consecutive profitable quarter, further demonstrating the strong recovery in the Company’s core operations. The strong quarterly results were driven by solid origination volume on improving penetration of both GM and Chrysler retail sales, lower provisioning expense due to improving delinquency trends and favorable remarketing gains due to the robust used vehicle market. Despite less than half of retail originations being driven by manufacturer incentive programs, retail sales penetration improved to 33.5% at GM and 42.1% at Chrysler, evidencing the Company’s solid competitive position and its ability to leverage its strong brand.

Ally’s Mortgage Operations segment reported its first profitable quarter since 2006. Pre-tax income, from continuing operations, increased to $175 million. Results were supported by strong servicing income, lower provisioning expense and reduced repurchase reserve expense. Furthermore, the Company’s Residential Capital, LLC (ResCap) unit required no additional capital support during the quarter. DBRS sees the segment’s results as validation of the Company’s actions taken in 4Q09 to reduce the risk of the legacy mortgage portfolios and move ResCap towards self-sustainability, thereby limiting the capital drag on Ally.

Credit metrics continue to stabilize evidencing the improving performance of more recent vintages, improving collection efforts and seasonal trends. Losses, on a managed basis, declined substantially to 2.04% from 3.57% in the prior quarter. Improving underwriting criteria in newer originations, a continuing strong used-vehicle market and elevated charge-offs in 2H09 (owed to a change to charge-off policy) contributed to the decline. Delinquencies declined to 2.87% from 3.48% in the prior quarter. Excluding the stressed legacy sub-prime Nuvell portfolio, delinquencies moderated to 2.22% from 2.62% in the prior quarter.

Liquidity and funding continue to improve and diversify. Importantly, Ally was able to access the unsecured debt markets, successfully issuing $5.0 billion of notes year to date. Ally has also issued $6.0 billion of asset-backed notes year to date. Lastly, net deposits increased $900 million to $32.0 billion on strong CD retention rates. Capital remained solid with Tier 1 capital ratio increasing to 14.9%.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Auto Finance Companies Operating in the United States, which can be found on our website under methodologies.

This is a Corporate (Financial Institutions) rating.