Sept 10 (Askume) – Consumer lender Ally Financial ‘s (ALLY.N) credit challenges worsened this quarter as borrowers grappled with rising inflation, its finance chief said on Tuesday.
If the losses continue, the company’s share price could fall as much as 19.3%, which would be its worst day since March 2020.
Higher interest rates are causing consumers to borrow less , and increased economic uncertainty is increasing the likelihood of loan defaults.
Chief Financial Officer Russell Hutchinson told investors at a financial conference in New York that delinquencies and net charges (i.e., uncollected debts) in Ally’s retail auto business were 20% higher than expected in July and 20% in August, respectively, an increase of 10 basis points.
“Our borrowers are struggling with high inflation and cost of living, as well as recent weak employment conditions.”
Hutchinson cautioned that Ally could underperform somewhat given the number of troubled borrowers, particularly those more than 61 days delinquent, and said he expected reserves to increase.
Sanjay Sakhrani, managing director at brokerage KBW, said: “Frankly, this guidance is disappointing and raises the question of whether it is unique to ALLY or the canary in the coal mine.
Although Eli’s colleagues have also talked about the situation, the trend is not that serious, he said.
To address credit issues, Ally launched its lending business in the marketplace earlier this yearThe sale to Synchrony Financial (SYF.N) included $2.2 billion worth of loan receivables.
Ally also expects its net interest margin, a key measure of loan profitability, to decline in the third quarter rather than increase sequentially.
