Ally Financial Inc (ALLY) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Third Quarter 2010 Ally Financial Incorporated Earnings Conference Call. My name is Shaquanna and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Michael Brown, Executive Director of Investor Relations. Please proceed, sir.

Thanks, Shaquanna and thank you, everyone for joining us as we review Ally Financial's Third Quarter 2010 results. You'll find the presentation we'll reference during the call on the investor relations section of our website, ally.com. I'd like to direct your attention quickly to the second slide of the presentation regarding forward-looking statements and risk factors. The content of our conference call will be governed by this language. This morning, Michael Carpenter, our CEO, and Jim Mackey, our interim CFO, will cover the third quarter results. After the presentation portion of the call, we'll have some time set aside for questions from investors, analysts, and the financial press. To help in answering your questions, we have also with us on the call today Jeff Brown, Corporate Treasurer and Tom Marano, the head of our mortgage operations. Now, I'd like to turn the call over to Michael Carpenter.

Good morning, everybody, and thanks for joining us. We're very pleased with the quarter that we're about to report on and we're pleased with the momentum of the business. And so I'd like to just begin by giving you a few of the highlights of the quarter. We earned pretax core income of $636 million and net income of $269 million in the quarter. You've heard me regularly speak about the major objectives that the Company set for itself at the beginning of the year, and I'd like to just recap how we're doing against each of those. For those of you who are observant, we trimmed the list from six to five. Number six was become a fully-fledged bank holding company and we think we're there, so we won't report on that anymore.

But our principal objective, obviously, is to be the preeminent auto finance provider. Our franchise momentum is very, very strong. Our originations on the consumer side up 48% year-over-year; $8.3 billion in the quarter, very strong. And our market share positions with GM and Chrysler dealers remain very stable and very strong. We are today the number one US new car lender and we expect to continue that. And we're adding to our business most recently being named the preferred lender for Fiat in the US, more details to follow. We said at the beginning of the year that a very high priority was to de-risk the mortgage business. The third quarter has been a milestone quarter in that regard. We completed the sale of our European operations which shed $11 billion of assets and significant contingent liabilities.

We sold our resort finance portfolio, which originally was $1 billion of UPB and we sold that at a gain. And during the course of the year, we've been steadily selling our held for sale legacy mortgage assets and have sold $1.9 billion to date with gains. So, we've made huge progress in the quarter, and I'll talk about that some more in a minute. We also said, as a major objective, we really need to be effective in accessing the capital markets, getting ahead of our liquidity issues in 2012 and we've done about $30 billion of new secured and unsecured funding transactions year-to-date and found the markets to be very receptive to our story. If you have to pay the penalty of being a bank, which is hugely expensive, then you might as well have the advantages of being a bank. And the biggest advantage of being a bank is deposits and I'm pleased to say that we grew our deposits $2.6 billion in the quarter. It's now 29% of our total funding and we look forward to gaining ground on that front. At Ally Bank, one of our key operating entities, retail deposits, grew 29% year-over-year. And most importantly, and reflective of the satisfaction of our customer base, retention on CDs running at 88%, which is an extraordinary number. We believe today that Ally Bank is one of the leading franchises in the growing internet banking market. We also said we were going to reduce our controllable expenses during the year by somewhere around $600 million. And our quarterly expenses for the third quarter were $146 million less than a year ago. So we feel pretty good about achieving progress towards the various objectives that we've set.

Jim will go into more detail in the financials, but just to give you a highlight of the financials on page four, is our third consecutive profitable quarter. $636 million in core pretax income, which lies exactly between our results in Q1 and Q2, and $269 million net income after OID and taxes, all segments, all entities profitable. As you can see on this chart, $568 million from North American Auto Finance business, $74 from International, $114 from Insurance, which added up to $756 million pretax income from our core auto franchise, which is our major focus. Our mortgage operations, $154 million, actually understates how well it did from an operating point of view because we added $344 million to rep and warrant reserves for the quarter. We'll talk more about that later. And the $274 million of corporate and other is basically the difference between our transfer pricing and our actual cost of funds. That number should shrink over time, as it did in the third quarter. So, that takes us to the $636 million of core pretax income, which we think is a pretty decent number.

Page five, a little data on our auto franchise, on the top left, as I said, originations are $8.3 billion up 48% year-over-year and up from $8 billion in the second quarter and $6 billion in the first quarter. So we clearly have strong marketplace momentum. I think importantly, as the chart on the right shows, our business mix is shifting in a very fundamental and very positive way. If you go back in history to the time of the buyout, 2006, 2007, over 70% of the consumer originations were subvented business, which means where the manufacturer was giving a subsidy to the finance company. What's happened over time, is the auto makers with greater discipline are using subvented financing less and less and more importantly, it's becoming a smaller and smaller portion of our business mix. GM's subvented business is 20% of our originations in the third quarter. What that means is, that we're competing absolutely fair and square heads up in the marketplace for the vast majority of our business today. That's a very strong story.

You know about our competitive positions in new sales, whether it be floor plan financing or whether it be retail, we'll talk about that a little later. Those positions remain stable. And as we look to the future, one of the great opportunities for us is in the used vehicle market. Used vehicle market is about double the size of the new vehicle market in terms of financing, and as you can see on the chart on the lower right, we're an insignificant factor in that marketplace today. So that's one of our major focuses going forward. Just a little bit on page six about this auto franchise. I don't think we've done as much as we need to do to explain to investors, particularly as we focus on the IPO, how strong this franchise really is. At its core, our focus is on helping dealers sell cars and make money.

They're our customers. The OEMs are a very, very important relationship, but the dealers, of which we serve around 15,000 around the world, are our customers. They're the people that generate that business. The combination of that focus on those dealers and unparalleled product line breadth which encompasses floor plan financing, floor plan insurance, auctions, working capital loans, store upgrades for the dealers, and then a whole array of consumer products, both leasing and loans, service contracts and so forth, gives us an extraordinary breadth of product capability. We have extraordinary scale in our business. Our market share, for example, in retail is about three times the market share of the next five competitors. So we have extraordinary scale, and we are an embedded, committed competitor in this industry and have been for 90 years. And we, on top of that, have the advantages of being a bank. That's a pretty formidable package of strategic positioning for us in the business and we'll explain that more as we go forward. Page seven, we're very proud of the retail banking franchise that's been created in a very short period of time. Part of the success has been to position ourselves with the wind at our backs, which is to say, as you know, the world is moving to the internet in everything we do, and that's certainly true in banking. 25% of bank customers prefer internet banking to the alternatives, and that percentage is growing every year.

In addition, we have put forward a very strong, possibly even unique, consumer value proposition that provides a superior customer experience whether it's 24/7 access to humans, no fine print hidden fees and penalties, or whether it's the compelling value of the products that we offer in the marketplace. And we've seen that in recognition from Money magazine and Kiplinger's and so on and so forth. And that has really resulted in the growth that we've seen on the deposit side, up $2 billion at Ally Bank from the second quarter to the third quarter, and the retention rates of our customers, and CDs running around 88%. So I think we're beginning to demonstrate, with no rate advantage in the marketplace to speak of, that the consumer value proposition is really a differentiated one and this is becoming a very strong and powerful franchise. And I know there's a few people listening that actually think the ads are pretty good, too.

Let me talk to the mortgage business on page eight. When I took over on November 17, it's almost a year, one of the things I said I would do is I would review the mortgage strategy and de-risk the business. Those of you with year-long memories will recall that at that time, it was the mortgage business that was holding the Company back. It was perceived as a black hole. Since then, the first thing we did was in the fourth quarter of '09, recognize reality and mark our mortgage business to fair value. During the course of the year, we've sold much of our held for sale mortgage portfolio that we had marked down to 45% of UPB, mostly at a gain. And I should point out that if you look at the historical massive losses of the Company, that is where those losses came from. We just completed, a few weeks ago in the third quarter, the sale of our European business. That took $11 billion of assets off our balance sheet and more importantly, a substantial amount of contingent risk. We have sold our resort finance business in the third quarter.

That was $1 billion of UPB at one-time and again, a problematic asset. We've moved aggressively on residual rep and warranty risk. We settled with Freddie Mac and four or five others. During the course of the year, we have put up additional reserves in the third quarter. We've taken our reserves from $850 million to $1.125 billion. And if you were to do a comparison with other banks, you'll find that our reserves compare very favorably relative to our put backs compared with other banks. Today we believe we have effectively de-risked the mortgage business. So in a certain way, we're declaring victory on the objective of de-risking the mortgage business and redefining its strategy today. In future, the focus will be on origination and servicing in the agency business.

That is going to be our focus, where we think the risk reward equation is appropriate and manageable and we feel with the changes that Tom Marano has made during the course of the year that we are better managing those risks, we have a better management team in place, and we have a strong market position. We are the largest independent servicer. We're number five overall, relative to the Wells Fargo and the BofA's of the world. And we think that as the mortgage market changes structurally, in the months and years to come, there are going to be some interesting opportunities going forward. And so the historical risk that we ran of large portfolio balances, that is off the table at this point. But the servicing business, we believe we can do well in going forward, generate some earnings and have a decent risk reward profile. Let me turn from -- let me actually elaborate on that just a little bit on this page. I just want to draw your attention to this chart on the bottom right of the page, which deals with so what is the balance sheet today of mortgage. And I think this may give you a little bit of color into why I make the statement that we have, we believe, de-risked the business. As you look at ResCap, we have $15.6 billion of assets which are either cash, or they're on balance sheet securitizations where we essentially have a similar number on both sides of the balance sheet, the economic value or economic risks involved of all that have is probably less than $100 million.

And so, to a significant degree, it's a creation of accounting, rather than real risk. We've got $2.7 billion left of mortgage loans in held for sale marked at an average 45% of UPB. And as the market evolves, we will be selling those assets down as we have other HFS assets during the year. The MSR 2.2 and the MSR at 1.1 is associated with our origination and servicing business and is marked-to-market and hedged. And the $9.7 billion in Ally Bank is basically warehouse lines and lines to counterparties where we are assembling mortgages for securitization. So they're very short lines, 60 days, kind of an inventory, where we're taking very little risk. These are all Fannie and Freddie mortgages. And then, the HFI portfolio, which is on Ally Bank, is really the only non-mark-to-market portfolio we have, and we're going to manage through that over time. It has an average 730 FICO.

You may recall, we took the weaker parts of that portfolio and moved them out in the early part of the year. So just to give you a little bit more flavor as to why we think we can say that we have de-risked the mortgage business at this point. Let me turn to page nine and talk about the topic du jour, which is foreclosure. This is a chart that we've actually been using with Attorneys General that explains the foreclosure process in the judicial states. And frankly, we could talk about this chart for half an hour, but I want to make a few very, very simple points. The first point is we had a robo-signer affidavit problem. No question about it. We're embarrassed about it. And we fixed it going forward.

We are confident that we did not foreclose on anybody inappropriately. And it's up to us to prove that and I'll talk about that in a moment, but it's up to us to prove that. Now, when you look at this chart, what this tells you is a couple of things. The first thing it tells you is that when we get to the point of a foreclosure sale, a repossession and sale of the property, that the average borrower has not paid for 15 months. The question of their delinquency is not in doubt at that point. We have a very, very aggressive loss mitigation process in which we are very aggressive about rescheduling loans. And we say on this chart we've rescheduled 220,000 HAMP and non-HAMP loans. If you go look at the HAMP statistics, which I would encourage you to do, you will see that our performance in remediating loans in the HAMP program is extremely good relative to our size.

So the other comment I want to make is that we are in a constant outreach mode to anybody that is in the foreclosure process up until just a few days before we repossess the property. We estimate that there is an outreach of at least five occasions a month, which is either an outbound phone call or a letter or something that encourages the borrower to get into a dialogue about rescheduling their loan and solving this problem. So we -- we'll be the first to say we screwed up on robo-signer affidavits. But we are not going to say we've screwed up in foreclosing on people that shouldn't be screwed up on -- shouldn't be foreclosed on, because we haven't. Let me turn to the next page, a little bit more detail. We've made a lot of changes as a result of the discovery of these issues. We have dramatically increased the amount of training. We have changed our policies and procedures manual.

We have modified the affidavit process. We've substantially increased the staff. And where in fact there was any doubt about the affidavit, the quality and appropriateness of the affidavit in a file of a home in a foreclosure process, we have gone back and remediated those files. And we'll talk about that in a minute. We are reviewing all files in all 50 states that go to foreclosure sale through an independent internal group that's taking a second, third look at, "should this go to foreclosure sale." Have we done everything we can in terms of loan modification? Have the appropriate procedures been followed? Before we sign off in going into the foreclosure sale mode. We have three law firms and an accounting firm looking at what went wrong, overseeing the changes we've made, both procedurally and in terms of looking at individual files, and suggesting further improvements. So that's what we've been doing.

Now, where are we in the review? As I said, we made mistakes in the affidavit process. So far, we have reviewed and re-executed 9,523 files. Which is to say we've taken files that are in process, we have -- we have reworked, replaced the affidavits, done it properly, even if we thought it may have been done properly in the first place, we re-executed and refiled with the court. We have another 15,500 to go in our process. We think we'll be done by the end of the year. And we have, so far, found no examples of inappropriate foreclosures. So that's enough on foreclosure. I'm going to hand over to Jim Mackey who's going to take you into a bit more detail on the third quarter results.

Great. Thanks, Mike. Let's turn to slide 11 where we provide a snapshot of the third quarter results. As Mike mentioned, it's another solid quarter. We had core income of $636 million, which is down from $738 million in the prior quarter. Driving that was a few things, we had slightly lower net interest income and this will be a theme throughout the discussion. We have higher yielding, higher risk legacy assets that are winding down and that's impacting margins. And last quarter, we had some hedge gains that did not repeat. We also, as Mike mentioned, had $344 million of rep and warranty expense this quarter. That resulted in a build of our reserve by $275 million up to $1.1 billion.

You'll see that on this page in the other noninterest expense line item, and we'll spend some time talking about it here in a minute. Partially offsetting all of this, we did have lower provision expense. It was $9 million this quarter. We continue to maintain conservative credit loss coverage and we're certainly not releasing reserves on specific portfolios, but provision expense was favorably impacted by several things. First, we have the runoff that I just mentioned of our legacy higher-risk assets and we also had a gain on the sale of our resort portfolio. That was $69 million, and that flowed through the provision for loan loss line item. As Mike mentioned, we continue to hold line on expenses and are achieving our cost saving goals.

On a net income basis, we reported $269 million versus $565 million in the prior quarter. Driving that was what we just discussed, plus discontinued operations had some strong gains in the second quarter, which did not repeat this quarter. That was related to our European mortgage business where we wrote it up last quarter, as well as some gains as we sold our Australia auto subsidiary. Total assets declined $3.6 billion this quarter, down to $173 million. What was driving that was our year -- the sale of our European business, European mortgage business, continued sales of our legacy assets and mortgage, as well as the resort finance portfolio. Also, net decline in our lease portfolio and all of this was offset by strong auto loan originations. Capital ratios remain strong. You can see here they were roughly flat quarter-over-quarter. However, they were 100 basis points improved versus a year ago.

On slide 12, we're following up on some discussion that we had last quarter. And here we present some items that are affecting earnings and we do it and we present it in a tabular format. I think it will be easier to follow. You can see there's certain items, like the legacy asset sales, the resort finance sale, these are items where we took hits in the past and are recouping those losses as gains in current periods. Other items are things that are being impacted by favorable market conditions today. For example, the lease portfolio is benefiting from strong used car prices. And this is at a time when our lease portfolio is declining and we have large volumes of cars coming off lease and we're taking those to auction. On the mortgage side, our origination volumes are quite large. We had $20 billion of originations this quarter and we're also experiencing very strong margins. So once rates begin to rise, we would expect volumes to moderate some and this will impact us going forward.

All in all, while many of these items you could moderate over the next few quarters, over the long-term we do expect to remain profitable and to grow. Our cost of funds continues to improve and our earnings asset base is building as we get a more balanced portfolio mix from a risk-reward perspective. Turning to slide 13, just continue to give you some more details on our balance sheet repositioning. This is a theme that we'll hit on several times. A key driver of this repositioning is our auto portfolio. You can see this on the chart on the upper right. If you compare current periods to back to 2006, 2007, you can see that superprime and prime are a much larger percentage of our originations today. And then nearprime and nonprime are a much smaller percentage. And this trend is also evident in the leasing portfolio.

You can see that leases today are much smaller percentage than they were back in 2006. Now, all of this is great from a credit perspective and it certainly helps and results in a clean balance sheet. But it does pressure NIM and arguably, you can see in 2009 that the pendulum swung a little bit too far and we are adjusting accordingly in 2010. We'll maintain a balanced origination mix going forward and it certainly will include leases and nonprime and nearprime. There is a place for that and it's in order for us to be a full spectrum lender, we will need to do all of it. But we will do it at levels than are lower than historically experienced. And the positive impact of this will take some time to flow through our income statement, as we're also being impacted by the forward flow agreements that have expired and we're now migrating to a balance sheet approach. On slide 14, we've spent some time, a lot of time on the mortgage side of our balance sheet to decompose what's in it. We've done that for several quarters now, and we thought it would be helpful to decompose our entire balance sheet in aggregate, because I think there are some misconceptions about what's in it.

We'll start with our liquid assets. 14% of our balance sheet is cash and our liquidity portfolio. And this liquidity portfolio is made up of very high quality liquid assets, US Treasuries, agency securities, and it does illustrate our conservative liquidity posture. I'll move down to other assets at the bottom first -- or next, and you can see that there's many items in here that are not risky or are already mark-to-market. We have a lot of restricted cash related to our securitizations. Our derivatives are presented on a grossed-up basis, contrary to the way a lot of banks do it, it's presented on a net basis. We've got the MSRs that Mike talked about, those are mark-to-market and are hedged. And then we've got some capitalized premiums related to our insurance business. So there's not a lot of mystery down in this area.

So the lions share of our balance sheet, 69% of it, is loan and lease assets. 75% of that are related to our auto business. You can see most of it is retail auto, which has, currently, 120 basis point annualized credit losses. And if you back out Nuvell, I think it's in the mid-80 basis point range. Commercial auto has very low losses at 28 basis points. Our lease portfolio has been shrinking and is now more manageable. And Mike walked you through the mortgage balance sheet which comprises most of the rest. So all in all, a very clean balance sheet. We think it compares favorably to just about any other institution you'd like to compare us to. Especially when you consider the level of Tier 1 capital that we hold against these assets.

Following up on the good credit quality of these assets, we provide a combined view of our asset quality on page 15. You can see we're making good progress in cleaning up the balance sheet, and this shows in the metrics that we present here. Delinquencies continue to improve. We're at 1.2% versus 1.5% last quarter and down from 2.1% a year ago. Notably, nonperforming loans have declined significantly year-over-year and are continuing their decline quarter-over-quarter. As previously discussed, the provision expense is down and just can't hurt to say it enough, it is not a strategy of reducing our loss coverage on specific portfolios, but purely the mix change in our balance sheet, as well as the resort recovery that flowed through this line item. Loan balances were up quarter-over-quarter, and those are all the -- it's because of our newer high quality loan originations that are offsetting the decline in our legacy portfolios.

Turning to our largest business on slide 16, we provide a snapshot of our North American auto finance business. It had pretax income of $568 million, which is down slightly quarter-over-quarter. And again, that's largely due to the runoff of some higher margin, higher risk legacy assets. We did have fewer loan sales in auto this quarter as we have used up the forward flow arrangements and we will be balance sheeting assets going forward, and we did have reduced provision, as we've already discussed. Originations were up quarter-over-quarter and they're certainly up significantly year-over-year. GM and Chrysler retail and wholesale penetration rates were stable quarter-over-quarter and up significantly from a year ago. And, as Mike mentioned, our nonsubvented new and used origination volumes continue to increase. And that's a function of being more market-driven company, as well as our Ally dealer rewards program. On the International side on slide 17, you can see pretax income was $74 million, down a little bit quarter-over-quarter.

Our revenues were up slightly quarter-over-quarter, so it was more on the expense side. We had some benefits in Latin America last quarter that did not repeat and we took some additional litigation reserves in Brazil that increased expenses this quarter. Originations were strong internationally, especially in our key growth areas of Brazil and China. Margins remain strong and we're continuing to make progress streamlining operations. We sold our Argentina auto business. We signed an agreement this quarter to sell our Ecuador auto business and that makes eight businesses or portfolios that we've sold year-to-date. The next slide on slide 18 shows our credit trends, consumer credit trends in our auto finance business.

You can see that delinquencies continue to decline. Typically you'd see some seasonal pressures at this point in the year. But offsetting that are the operational and servicing improvements that we put in place earlier; the stabilizing economic conditions and the higher quality nature of our newer vintages. The lower chart are credit losses. You can see those are up slightly quarter-over-quarter. We were positively impacted last quarter related to very strong recoveries and they did not repeat this quarter. We did see loss frequency pickup. Again, that is typical seasonal behavior.

But our loss severity is continuing to drop as used car prices remain very strong. And then, quickly, on the allowance coverage side specific to auto, I'll call your attention to the top part of the chart, which is our consumer-related and North American auto. I'll highlight that our coverage ratio is 2.5%, down a little bit quarter-over-quarter. That's largely due to the mix changes that we've been talking about. And at 2.5% coverage, that's more than two times the annualized charge-off rate that I just discussed. On slide 20 related to insurance, again, we've been -- this has been a very steady performer for us. We have pretax income of $114 million, up slightly quarter-over-quarter.

Our investment income remained very strong at $89 million, and our written premiums were up slightly due to increased floor plan asset levels, as well as higher auto origination volumes. Now, turning to mortgage operations, we'll spend a minute or two here. As Mike mentioned, despite our decision to build our rep and warranty reserves by $275 million and taking a charge of $344 million this quarter, the mortgage segment earned $154 million of pretax income versus $230 million last quarter. And we had a loss a year ago. And just as a reminder, ResCap is a component of mortgage ops and it had a net income of $38 million. Notably, revenue was up this quarter. Servicing fee income remained strong and we had very strong gains on sale related to our core origination and servicing business. Production volume was almost $21 billion and as I mentioned earlier, we have very favorable margins due to market technicals currently. Here as well, we had provision expense decline that's largely due to a shift mix in our HFI portfolio. And as the legacy assets decline in that portfolio, we're replacing it with high quality new jumbo production, which require less reserves. The noninterest expense line item is where you'll see the rep and warranty show up.

I will mention that we sold $275 million UPB of legacy loans in addition to the European operations and that resulted in the lower primary service assets number, as well as the drop in the balance sheet. However, you are offsetting this balance sheet drop with the increased pipeline assets related to our origination and servicing business. Another topic, which everyone's interested in, is the mortgage rep and warranty reserves. You can see this, some new charts on this page, page 22. We factor a lot of things into our analysis of this risk. We look at outlook for delinquencies, repurchase rates, loss severities, et cetera. In addition to modeling and analyzing those results, we look at overall directional trends, recent activity, various discussions with our counterparties or investors. And all of that goes into where we think reserves need to be at any point in time. You can see on this page, we've got some new charts on the upper right.

We provide a trend of our reserve balances as well as our expense and charge-offs. You can note the drop between fourth quarter '09 and first quarter 2010, that's where we had the Freddie Mac settlement. On the chart on the bottom left, we provide outstanding claims by counterparty. You'll notice the outstanding balance is $888 million. This trend has been relatively steady over the last five quarters. It is interesting to note that our reserve is in excess of these outstanding claims and a fair amount of these claims have been rescinded by us. On the bottom right, shows the new claim activity similar to what we've been discussing in the past. You can see that most of the claims activities related to '06, '07, and to a smaller degree '08 vintages. And on average, the new claims activity is trending down from a year ago.

As Mike mentioned, we have settled with Freddie Mac and five other counterparties. We will continue to consider settlements in the future, but only when it makes economic sense. And finally, it goes without saying, but as we've been doing historically, we will continue to monitor these trends closely and we will react accordingly. On slide 23, just wanted to point out a couple things. First, I mentioned the coverage ratio on our mortgage -- our consumer mortgage held for investment portfolio. It is down slightly to 5.6%. That is being driven primarily by the high quality jumbo loans that we're using to replace the legacy portfolio runoffs.

On the legacy portfolio, it has around 5.7% coverage and that's remained flat for several quarters now. If you look in the appendix on page 39, we have a detailed breakdown, as we've shown you previously, of this portfolio and the various trends. On the liquidity side, again, we are maintaining a very conservative posture on liquidity. We are utilizing Ally Bank to benefit from cost efficient and stable deposits. 65% of all of our originations are going into Ally Bank and it is becoming a ever larger portion of our consolidated entity. And you can see that transformation illustrated on the chart below. We've talked about how we want to be consistent and demonstrate diversified access to the capital markets.

You can see the chart on the upper right which illustrates the $30 billion that Mike mentioned earlier of year-to-date funding. We did have $5 billion completed this quarter, $1.75 billion in unsecured and the remaining $3 billion in ABS-related funding. We do have about $25 billion of liquidity at our parent company and we're taking a conservative stance in light of our upcoming debt maturities over the next few years. On deposits, Mike walked you through some of the statistics. I'll just point you to the chart on the upper right, which shows the trend of CD retention rates at the 88% that we mentioned. You can see our book is extending, the average tenor of new originations is growing. That's a function of customers looking for yield.

That being said, our average rate on the portfolio is declining due to the rate environment. Moving on to capital ratios, the main thing to point out here is that we maintain very strong capital ratios. We're at 15.4% of Tier 1 capital and 16.8% of total risk-based capital. And the Tier 1 is up slightly quarter-over-quarter. In conclusion, we made good progress executing on the strategies, as Mike discussed earlier. And we're also making -- have made very good progress on the two separate transformations that are occurring within our Company simultaneously. First we're moving from a captive finance company to a market-driven competitor where a very small percentage of our origination volumes are coming from subvented business. And we're moving from a finance company, or have moved from a finance company, that's primarily wholesale funded to a bank holding company with a growing deposit base. And with that, I'll open it up to questions.

Shaquanna, we're ready to take calls from investors. If you could inform our callers how to queue up to ask a question.

Yes, sir. (Operator Instructions) Your first question comes from the line of Doug Karson representing Bank of America Merrill Lynch. Please proceed.

Thanks, guys. Quick question regarding the IPO. Do you feel that the turmoil in the mortgage market is going to delay this process at all? Or do you think that you've got things lined up still kind of on schedule?

Let me answer that. I think there are -- there are two aspects of the -- to the mortgage events which are relevant. I think the first one is the substantive issue of reviewing the affidavits, fixing the affidavits, making sure that we didn't foreclose on anybody inappropriately and changing the basic processes. I think that will all be done well before the end of the year. Let's say the end of the year. That will be done by the end of the year.

The other piece of it is the inquiry of regulators, the inquiry of the 50 state AGs and also anticipating congressional inquiries in November. My expectation is that those things will take longer than it will or asked to clean up the substantive issues. So, from an investor point of view, I think by the time we get to the end of the year you'll have a very clear idea as to how comfortable are you about the Company's economic exposure to these issues. And we obviously have a view on that, but you'll have your own idea by the end of the year on that point. And, therefore, I don't see any particular reason why it would slow the IPO process up.

I think the market is more concerned with the non-GSE rep and warranty risk, which on slide 22 seems to still be pretty minor. Where do you think the disconnect is? The market's viewing the potential liabilities in the billions, but the way you guys see it, it's a lot lower. Have you been out to determine where the market could be overexaggerating the risk?

Well, this is Tom Marano. As you said, we've had extensive dialogue and significant experience in working with the GSE on the claims for repurchases. On the nonagency side, we've also had some visibility into the thoughts and behavior of the monoline insurers who've wrapped private label transactions. Outside of monoline claims, we haven't really experienced much in the way of private label claims. We're very aware of the speculation that's going on in the marketplace for private label transaction risks and all I would say is the situation is extremely complex and extremely unique to each individual transaction and firm. As has been our history on this topic, we continue to closely monitor the trends and behavior and we'll promptly and proactively bolster any reserves if necessary. As with anything, we will always be very diligent in defending the interests of our shareholders to the extent that activity picks up.

As of right now, we would say we feel pretty confident about the reserves levels. Our reserve levels stack up well relative to other major players in the industry. And we'll see what happens.

One final question for me. Thank you for that answer. Have there been any more discussions with the Treasury about converting their preferreds into common? I know that, that was speculated a bit following your Q2 call.

The answer I would give you on that is that clearly, as we head towards the IPO, it's in everybody's interest to have a liability structure which is more normal for a bank. So, for example, right now, our common equity ratio is about half that of a normal bank, even though our overall total capital ratio is way high. And so before the IPO, there needs to be some adjustment for the capital structure. And I don't mean, let me be very clear, I don't mean a capital infusion, I mean a change in the capital structure. And that is something that we have a constructive, ongoing dialogue with our major shareholder on and our regulators.

Finally you have a preferred outstanding that is actually owned by bondholders rather than the government. Is there any thoughts of taking that out?

No.

All right. I'll pass over to somebody else. Thank you.

Your next question comes from the line of Kirk Ludtke representing CRT Capital. Please proceed.

Good morning, everyone.

Good morning.

I was hoping to, and I think a lot of people are, hoping to put the $1.1 billion mortgage repurchase reserve in context. And I'm curious if, one, if you know how much mortgage debt that was sold by ResCap is still outstanding and subject to put back? And I suspect that you probably serviced the great majority of it, so you probably do know. And then if you do know, could you give us any kind of -- even a broad range of how big that is? And then maybe the -- some of the assumptions that you've used to come up with the reserve?

Sure. This is Tom Marano again. There's about $86 billion, $87 billion of private label securitizations outstanding still for us. And as we do the analysis for our exposure, we have a series of models and those models look at past experience as well as investor activity, delinquencies. We're constantly adjusting them based upon the performance of the pool.

And there's a couple of suggestions which is, obviously we could describe to you, but we're not going to, the details of our methodology and how we catch our reserves and all the rest of it. But take a look at some -- if you look at the research done recently by Deutsche, Goldman, Morgan Stanley and others, I think that will -- they're all pretty thoughtful, all right? And you can take a look at those. And the other thing I would encourage you to do is -- and I would have shown you this chart but our lawyers won't let me, take a look at our rep and warranty reserves relative to the rate of put backs. And draw a judgment about the adequacy of our reserving relatively speaking. And I think those two pieces of homework which we're not at liberty to share with you, would be kind of helpful perspective on the question.

That's very helpful. I appreciate it. Thank you. I'll do that. Of the $86 billion to $87 billion of private label securitizations, do you -- I suspect that they're all subject to -- they all have put back provisions in them?

The securitizations all have various forms of rep and warranty in the documentation. But as I'm sure you know, each transaction is unique and different and the circumstances are also unique and different surrounding each loan.

Yes. I'm sure it's extremely complicated. Is there any way we could get it broken down by vintage, by year of origination?

We don't really disclose that at this point in time, but the information you can probably try to pull it off of Bloomberg.

Okay. You've mentioned that you've reached settlements with six parties. Are you sharing who the other five are?

No. They're all subject to confidentiality agreements.

They're all major names.

Okay. Were they -- were the five that you've settled with, the two that you mentioned -- you mentioned three on the first quarter call, they were all similar in nature. Have you now settled with those two that you talked about on the first quarter call?

I'll be honest with you, I don't have those names in front of me so I can't comment on that.

Okay.

I don't remember, but, you know, Freddie Mac is the largest one and that has been disclosed.

Okay. They were the largest, okay. And then on the table on the lower left on slide 22, I guess the investors in MBS would be picked up in the monoline claims?

Sorry. Can you say that one more time?

Yes. Could you clarify that?

If you invested in an MBS securitization and you were bringing your own action against an originator, would that be picked up in the line entitled monolines or is that in other?

It would be in the other group.

Okay. And then lastly, you mentioned that the strategic review of ResCap has been completed. And is there -- are there next steps? We hear a lot in the press about firms being interested in buying ResCap assets, but never -- we haven't heard about any transactions or lately. Are you still in process of or are you in process of --

Let me answer it this way. We took a very broad approach to rethinking the strategy and the de-risking the mortgage business, not just ResCap, but the mortgage business as a whole. And I would take a little bit of issue if you haven't heard much recently, because just in the last month we closed the sale of the European business, which was a very substantial part. We also closed the sale of the resort finance business, which is a very substantial part as well. I would -- my observation would be there is still some more work to do in terms of continued de-risking. There are still some assets. But the configuration of the business that you see today and the ongoing focus of the business on the agency origination and servicing business is really where the focus is going to be over time. And the assets not devoted to that business will diminish over a period of time. Some more quickly than others.

And I also tell you, we conduct sales every month of portfolios of assets. If you have a good bid, please feel free to send me a Bloomberg. I'm on the Bloomberg screen. I'm happy to consider constructive bidding.

I didn't mean -- you guys have done a great job of de-risking that. So, I appreciate it. Thank you very much.

You're welcome. Thank you.

Your next question comes from the line of Eric Selle representing JPMorgan. Please proceed.

Hello, good morning. Don't mean to beat a dead horse, but another way of asking it is, you guys produced around $311 billion of loans from '06 to '08. Of that, what percent have you guys settled with thus far?

I don't know that we've disclosed that number. Again, we've looked at our risks and we've reserved accordingly. And we have -- it has to be probable and reasonably estimatable and that's the standard we use to book our reserves.

One of the things to know, it doesn't make your analysis any easier, but one of the things to know is that each one of these organizations has a dramatically different profile. For example, we have one of the mortgage insurers that, for every 100 loans they throw back at us, we throw 95 back at them. And then for other organizations, for 100 they throw at us, we might only throw 70 back or half back at them. So each of the investors has a very different profile. And what we do is, as we build our reserve, we look at the history that we have with each of the investors and then we look at the remaining portfolio in the years under question and we project out what the lifetime loss is going to be. Basically counterparty by counterparty.

Not to mention the contract is different with each investor as well.

Right.

So you need to be factoring in those contracts also.

Right. And then in addition to that, we put a management overlay on the whole thing as well. So it's a very detailed process and you cannot go from this macro, okay, they did $100 billion of loans. Therefore, by some simple math you get to the total claims. It doesn't work that way.

Another thing that I've been asked a lot is, is the capital spent? We know the expense side of the equation, but in looking at the quarter, you guys expensed $344 million and you grew the reserve by $275 million. Does that mean you paid $69 million into settlements this quarter?

Yes.

And then further along that, you guys have purchased, I think it was about $1.7 billion -- let me do the math here, $1.8 billion in '08 and '09. Would that be considered -- you repurchased mortgage, would that be considered capital that has quelled that reserve?

I'm not sure I follow the question.

You guys bought back back 857 in '08 and 988 of mortgages in '09. Would that reduce the amount of exposure out there in the cash paid?

Are you talking about building the expense that we took in those periods?

I know the expense. I'm trying to get the capital, the cash paid that would reduce it.

Yes, so I think if I understand your question right, some of that expense would have gone to deal with repurchased loans and some of it would have been to build reserve.

Correct.

So what you're trying to get at is the breakdown of that?

Yes.

Is that basically it?

I think he's trying to match it to cash out.

Cash out.

The amount of -- do you think your $69 million that you just talked about a moment ago, that $69 million was a cash payment or a repurchase of a loan at $69 million more than it was worth in the marketplace, it was one of those.

Okay.

Therefore, it was a cash charge, if you will.

And Eric, we can follow up more on that as well.

Sure.

Okay. And then, just two more real quick questions. How claims trended thus far this quarter? They looked to be fairly stable over the last five quarters. Has there been any increase this quarter or not?

No. The trends have been very stable to slightly down, so it's fine.

And then one final one if I can squeeze it in. The resort assets and the European mortgage assets, are those being sold with the buyers retaining the rep and warranty liability? Or you indemnifying the buyers of this liability?

On those, those transactions were sold with customary reps. They have substantial risk in those assets.

The buyer does.

Yes. In the case of European assets, we sold the stock of the entities and there was substantial contingent liabilities that went with the transaction.

All right. Great. I appreciate it.

All right. Operator, I think we have time for one more.

Yes, sir, and you have a question from the line of Sarah Thompson representing Barclays Capital. Please proceed.

Thanks for all the answers. It's been really helpful. I just had a couple clarifying questions. One of the previous callers, they asked about the institutional preferred and whether you intended to take it out? Was your answer of no because you had no comment or because you did not intend to take it out.

No, because we had no intention at this time of taking it out.

Okay. And then on the increase in the reserves, do I understand from your comments that the increase in the reserves this quarter was then related to GSEs and monolines and none of the other?

No, don't draw that conclusion. It was a result of an assessment of the totality. And as you look at what BofA has done or Citi has done or Wells Fargo has done, pretty much everybody in the business put up additional reserves in the quarter. But in our case, we have put up reserves not just against the GSEs, but we're putting up reserves against the total exposure as we see it at this point.

Okay. And then on the ResCap question, people have tried to ask it lots of ways, but from what you have gotten to date, it sounds like if some great bids came in on assets then you would continue to look to sell them. But in terms of selling ResCap as an entire entity, it's not something that you're looking at right now?

Yes. The way I would describe it is this. There are individual mortgage assets that are for sale at a price at any time. And then we have businesses, all right, and in particular we are the number five originator and servicing company, we're the leading independent. We have looked at various alternatives to that business. When we said we'd look at our strategy alternatives, we looked at everything, everything you could think of. And with regard to the business of origination servicing, there's no intention of selling that business.

Great, thank you.

But there are other assets that are very much for sale. There are other mortgage assets and so forth that are right priced.

Yes. Perfect. I appreciate the answers, thank you very much.

You're welcome.

At this time I would like to turn the call over to Mr. Brown for closing remarks.

Thanks, everyone, for joining us this morning. If you have additional questions or follow-up, please feel free to reach out to investor relations. Thanks for joining us this morning and for your interest in Ally. Thank you, Shaquanna.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.