Ally Financial Inc (ALLY) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Ally Financial Earnings Conference Call. My name is Katina 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 the presentation.

(Operator Instructions)

As a reminder, this conference is being record for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Michael Brown, Director of Investor Relations. Please proceed.

Thanks, Katina, and thank you everyone for joining us as we review Ally Financial's first-quarter 2012 results. You can 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 to the second slide of today's presentation, regarding forward-looking statements and risk factors. The contents of our conference call will be governed by this language.

This morning, Senior Executive Vice President of Finance and Corporate Planning, Jeff Brown, and our CFO, Jim Mackey, will cover the first-quarter results. After the presentation portion of the call, we'll have some time set aside for questions.

For help in answering your questions, we also have with us, Michael Carpenter, our CEO, Tom Marano, the Head of our Mortgage Operations, and Bill Muir, who runs our Auto business. Now, I'd like to turn the call over to J.B.

Thanks, Michael.

Good morning and thank you for joining the call today. I'm pleased to report that Ally posted solid results for the first quarter, as we've seen continued momentum in our key lines of businesses. We are also benefiting from some improvement in macroeconomic trends impacting both auto and mortgage markets. And although the term structure of interest rates continues to be a challenge for us, like many other banks, we did see NIM expansion this quarter, which Jim will cover in more detail shortly.

Now, let me begin with a few highlights on slide three. Core pre-tax income for the quarter was $474 million, which is up about $50 million from prior-year, and up significantly from last quarter, which was impacted by the mortgage-foreclosure settlement.

Net income was $310 million in the first quarter, which is the highest level the Company has seen since the second quarter of 2010.

Now, let me touch on a few key points. Our Premiere Auto Finance franchise continues to drive positive results, even amid a very competitive environment. Revenue was up in the Global Automotive Services segment 6% from prior quarter. Earning assets in the North American Auto business are also up 6% from prior quarter and 17% from last year, despite lower penetration of GM and Chrysler sales, as we continue to diversify and expand the franchise in both products and brands.

For example, used originations are up 15% as we continue to diversify in this segment of the market, among others. Our mix of business continues to improve, which is positively affecting overall performance. Simply put, we're doing a better job on capturing more appropriate risk-adjusted returns.

Now, let me turn to Ally Bank. Deposits increased $1.6 billion at the Bank, which is about 6% growth year to date. We continue to see positive momentum in brand awareness and brand commitment as we approach the third year since the Ally brand was first introduced as a bank. And we are very pleased to have crossed a threshold of exceeding 1 million customer accounts, which is an increase of about 30% since last year. We remain very optimistic about the future possibilities for this model and this unique bank brand.

I also want to spend a few minutes discussing the overall financial profile of the Company, because despite the results of CCAR, Ally does have very strong liquidity and capital levels. We remain very active in sourcing new liquidity in the first quarter across a variety of markets. And, in fact, we raised $7 billion in new funding this quarter alone.

The Company currently has enough liquidity to fully fund its businesses for 29 months, even under a complete shutdown of unsecured markets. And this timeline has increased from last quarter. We also renewed $15 billion of syndicated credit facilities to fund the Auto business, and our capital levels remain strong with Tier One contingent common of 11.1%.

Now, clearly, we're disappointed in the outcome of the Fed's stress test, but it does reinforce the need to take steps to address contingent mortgage risk, as this was the primary factor affecting our results.

In turning to slide four, you can see the full breakout of results by each segment. Global Automotive Services continues to post favorable and steady results. As I mentioned earlier, we've seen some revenue growth in the quarter as our mix improves, and also as lease marketing gains have normalized.

Mortgage Operations also posted profitable results this quarter, driven by favorable MSR performance and an increase in consumer originations largely driven by various government-sponsored programs. Jim's going to go through the details on the segments in a few minutes, so let's just move to the next slide.

On slide five, we want to provide several key updates on our leading Auto Finance franchise as the business continues to evolve, even from a year ago. We continue in our mission of being a market-driven competitor and truly having to win the business on a daily basis. And we think the results speak to our progress and evolution as a company. Despite increased competition within the auto-finance industry and lower penetration levels with GM and Chrysler, we continue to expand the franchise. The vast majority of our business is won by simply being the best out there in the segment, and having the belief that this isn't a zero-sum game. The dealers, the OEMs, and Ally can be successful together.

And we recognize we must continue to be customer-focused at all times. Over the past year we've expanded our dealer relationships, broadened our product offerings, improved our mix across the credit spectrum, and diversified our manufacturer relationships. We certainly value the relationships we have with the auto manufactures, and we hold those in high regard. But the vast majority of the business that we do is directly with the dealer.

The data table in the center of this slide specifically demonstrates how we've continued to broaden our dealer relationships over the past year. We're approaching 13,900 dealer relationships in the US and over 5,200 of those dealers are regularly using four or more Ally products. And keep in mind we've been able to grow these relationships amid one of the most competitive periods in the auto-finance sector.

Let me touch on the Chrysler relationship. As we previously disclosed last night in our 8K, Chrysler was required to provide Ally with notification before the end of this month, should they want to make a change to the existing contract governing subvented consumer financing in April of 2013. And that notification has been received yesterday. This was fully expected and enables both companies to continue discussions on how to evolve the terms of the relationship.

The existing agreement was put in place in April of 2009 to support Chrysler's emergence from bankruptcy and the Company's business plans through April 2013. We were pleased to take on that business and broaden our network of automakers and dealers to fulfill our core mission of supporting the US auto industry.

To be clear, the agreement currently provides for preferential treatment for the subvented retail-financing business only, which represents a smaller portion of our overall business for the Chrysler brand. Ally competes in the marketplace for the vast majority of the business with Chrysler dealers, such as wholesale financing, standard-rate consumer financing and leasing; and these are not governed by the contract.

And, for example, the Chrysler subvented business accounted for 3% of our total earning assets and 5% of our total US consumer originations, while the standard-rate business accounted for more than twice that amount, at 11%.

We continue to have constructive discussions about the future relationship. The non-renewal of the existing contract does not preclude the two companies from continuing to work together in the future. We expect to continue to play a significant role with Chrysler dealers in the future, as the dealer is our direct customer for the majority of business that is conducted. So our existing relationship continues until April of next year. Discussions continue with respect to the future relationship governing the subvented business.

Turning to slide six, I'll close out by touching on our key priorities for the rest of this year. First, we continue to be focused on finding a permanent solution for the contingent mortgage risks associated with ResCap that have been casting a shadow on the entire company. While the mortgage business positively contributed to the overall results for the quarter, I want to be clear in reminding everyone that the mortgage business will continue to decrease in importance for the overall Company.

Results in the mortgage business this quarter were largely driven by favorable performance of the MSR; and, as we've said in the past, there is volatility with that asset. We are focused on a long-term solution for the mortgage business, and one that will protect our key franchises and enable them to thrive. And we clearly see the need to resolve mortgage to continue the path of returning funds to the US taxpayer and maximizing shareholder value.

Next, we will continue to grow and expand our leading Auto Finance franchise by being the best in the business for dealers, and by driving prudent balance-sheet growth and profitable new originations. Our goal is not solely market share, but rather it is on driving profitable and prudent business for the long run.

Third, we continue to focus on expanding the Ally Bank franchise. We are well positioned as a leader in the market, and we intend to keep that momentum with additional products and services.

And lastly, profitability is expected to improve for 2012, as the net interest margin is expected to expand, largely as funding costs come down. We're much more efficient in our ALCO processes and funding strategies. And there's clearly plenty of additional room for upside in this area.

Long-term normalization of the cost of capital can drive substantial improvements in our return on equity.

In summary, we had a strong first quarter, and anticipate continued solid performance in our key lines of business. We continue to be focused on finding a solution for the mortgage-related risks, which will be critical to executing any plans to maximize shareholder value and continued repayment of the US taxpayers' investment.

With that, let me turn it over to Jim to walk you through additional details on the quarter.

Great. Thanks, J.B. Let's turn to slide seven and dive into a little more detail regarding first-quarter results. As J.B. mentioned, we posted our strongest quarter since 2010, with net income of $310 million. That's up $516 million from last quarter and $164 million from a year ago.

Net financing revenue was $777 million. That's up $34 million from last quarter; however, down $63 million from a year ago. And as you can see in the notable items at the bottom of the slide, net operating lease revenue was the main drive of both the quarter-over-quarter and year-over-year variance.

Total other revenue was nearly $1.2 billion, which was up $210 million from last quarter and $149 million from a year ago. This is primarily the result of improved mortgage-servicing revenue, which we call out at the bottom of the page; as well as higher consumer-lending channel originations. As you know, with our shrinking mortgage footprint -- we would expect this to moderate over time.

Provision expense increased this quarter to $140 million. And we view this more as a normalized level, given our continued asset growth. I'll remind you that the fourth-quarter provision was down due to some adjustments to our reserve levels that we took that quarter.

Managing controllable expenses remain a focus for the Company. Our quarter-over-quarter improvement is primarily the result of a $40 million restructuring charge that we took in the fourth quarter. The year-over-year increase primarily was due to increased expenses in our Mortgage Origination and Servicing business as a result of servicing and other consent-order related costs.

Other non-interest expense improved in the quarter due to $226 million charge that we took in the fourth quarter related to the foreclosure settlement.

Core pre-tax income finished at $474 million, which is up $20 million from last quarter and $425 million from a year ago. This year, our core pre-tax income will begin to converge much closer to our GAAP net income, as our OID amortization expense moderates significantly. You can see OID amortization step down from the first quarter of 2011, driving $218 million of favorability. We have roughly $228 million of OID expense to work through over the rest of the year.

Income-tax expense was relatively flat quarter over quarter, but unfavorable to a year ago by $134 million. This was due to a $101 million reserve release that we took in our Canadian business in the first quarter of 2011.

On slide eight, we provide some detail regarding our net-interest margin. Similar to most financial institutions, we've been battling spread compression in this flat-rate environment and believe our NIM reached an inflection point in the fourth quarter. For the quarter, NIM finished at 1.9%, which is up from 1.8% in the fourth quarter; however, down from 2.3% last year.

Our quarter-over-quarter improvement is the result of higher asset yields, while the year-over-year comparison reflects the impact of our lower and more normalized remarketing gains in our lease portfolio.

Moving forward, we believe our NIM will expand particularly towards the end of the year, as our cost of funds and balance-sheet efficiency continues to improve and our yields on our earning assets grow.

On slide nine, we show the results of our North American Auto Finance business, where our dealer-centric model continues to demonstrate success in a challenging and competitive environment. Net financing revenue of $775 million was up in the quarter, driven by strong asset growth and higher lease revenue, but down from a year ago, primarily due to fewer lease terminations, and therefore lower remarketing gains.

The first-quarter provision for loan losses returned to more normalized levels at $78 million, which was attributable to asset growth. And if you remember, the fourth quarter was impacted by the reserve release.

Despite heavy competition from both banks and captives, we continue to grow earning assets. In fact, we grew NAO earning assets to over $100 billion for the first time since 2008. As J.B. mentioned, this represents 6% growth quarter over quarter and 17% growth year over year.

Our consumer-asset growth outpaced our runoff portfolio and our commercial assets climbed as a result of higher dealer inventory.

Ally continues to benefit as retail auto sales improve. Along with asset growth, the profitability of new originations is something we watch closely. Our originations are trending toward higher risk-adjusted margins as we grow Used and Leased, and originate a more balanced credit mix across Super-Prime, Prime and Non-Prime.

We continue to have a strong focus on asset quality as we leverage our decades of experience in servicing and underwriting.

On slide 10 we show you a few metrics related to US consumer originations. We had $9.7 billion in the first quarter, which represents growth of over $500 million from last quarter. And we have to keep in mind that year-over-year comparison is tough, as in the first quarter of 2011, GM marketing programs drove an unusually high origination volume. And that's something we've discussed several quarters now.

Our origination growth continues to be driven by used, leased, and diversified new. What is particularly notable is that used and diversified new now make up one-third of our origination mix compared to just 17% a couple years ago. These originations are based exclusively on expanding relationships with dealers and winning in the marketplace. And we have demonstrated that we have significant access into a broad spectrum of the auto-finance market.

And, once again, our serviced-asset growth was balanced both across Consumer, which grew $2.1 billion, and Commercial, which grew $1.9 billion.

On slide 11, we talk about our International Auto Finance business, which posted another solid quarter. Total revenues improved quarter over quarter and year over year, driven to a large extent by strong earning asset growth in Brazil. Loan-loss provision was higher, impacted by a cautious outlook for Europe and Latin America. We are steadily managing down our SAAB-related exposure, and we believe that we have remained conservatively reserved as appropriate.

Non-interest expense of $138 million was lower for both quarter over quarter and year over year as a result of some one-time items we took in the fourth quarter; particularly, some restructuring-related reserves. We also reduced controllable expenses this quarter.

In total, pre-tax income of $45 million was more than double from last quarter and was up $14 million from a year ago. Originations were down this quarter due to typical seasonality in China as a result of the Chinese New Year, offset partially by a strong incentive program in the UK. But you can see, year over year, our originations were up 21%.

We did enter into some new relationships during the quarter. We became the preferred wholesale financing provider for MG Motor UK, and the preferred financing provider for SsangYong Motor UK.

And we have also received a variety of awards and some good press in the UK and China for our businesses there.

Finishing up our GAS businesses with our -- let's talk about insurance on slide 12. We reported pre-tax income of $124 million, which is up $31 million quarter over quarter, and largely flat to last year.

As you can see, our insurance premium and service revenue continues to slowly decline. This is a result of significantly lower sales activity from several years ago. And, as you know, it takes time before you recognize the income from new originations. And so we would expect this trend to normalize over time.

For the quarter, lower acquisition and underwriting expenses offset the increase in weather-related losses, and overall market performance aided investment returns in our portfolio.

Written premiums improved quarter over quarter, and we're pretty much even to a year ago. We continue to have success executing our value proposition with the dealer network. We recently revamped our go-to-market strategy, which is improving how we interact with dealer-customers. And we've been able to increase our penetration levels within DP&S. And we should continue to see the benefits of these enhancements as time goes on.

In addition, we continue to see strong performance in our Mexican market from our ABA Seguros subsidiary.

Now, let's turn to slide 13 and talk for a few minutes about mortgage operations. Our origination-and-servicing business posted a good quarter, with $217 million of pre-tax income. However, production was down almost 50% due to the decision to dramatically reduce our correspondent lending channel. However, as you see on the chart at the bottom right, retail and consumer originations grew as a result of continued low mortgage rates and government-sponsored refinance programs.

In general, consumer loans have higher margins than correspondent, and therefore produce a better gain. Also, the consumer channel will generate fees which drove other revenue up. Net servicing revenue improved this quarter largely driven by slower realized prepayments and efficient hedging results on our MSR. However, this improvement is partially offset by lower servicing fees. As you can see, our servicing book is declining over time.

And although servicing costs have risen in response to increased regulatory requirements, we expect that they will stabilize as processes become more efficient and streamlined. Also, during the quarter, our mortgage business was able to clear one of the large mortgage clouds by settling foreclosure-related matters with the federal government and the state attorney generals. And this certainly validated the charge that we booked in the fourth quarter for this issue.

On slide 14, let's talk a little bit about our Legacy Mortgage business. The results remain muted again this quarter. Pre-tax losses trailed off at $26 million, primarily driven by lower repurchase reserve expense. Assets continued to run off, and the balance sheet finished the quarter at $10.5 billion.

The de-risked balance sheet carries a $1.6 billion of Held for Sale loans, marked at $0.45 on the $1. And our Held for Investment portfolio is at $6.7 billion, with almost $500 million of credit reserves.

We also expect to complete the sale of ResMor Mortgage operations during the second quarter, and we will continue to wind down the Legacy segment.

Regarding repurchase reserves, on slide 15, we've got a little more detail on claim activity. Our reserves ended the quarter at $811 million, down slightly from the prior quarter. This was driven by a lower reserve expense of $19 million, which has been trending down for the last several quarters.

New claims of $253 million are up both quarter over quarter and year over year. As we've said many times in the past, new claims activity can be lumpy. The increase this quarter was largely a result of non-GSE claim activity, primarily from the 2004 through 2006 vintages.

We did also see an uptick in some GSE-related claims on our non-settled portfolio; however, it's important to remember that these are largely newer vintages, so we'd expect a higher rescission rate and low losses. And as previously discussed, the large majority of our remaining reserves are for non-GSE claims.

As you can see on the bottom right, our outstanding claims finished at $1.2 billion and remain primarily composed of monoline requests.

So let's turn our attention to our direct banking franchise on slide 16. Ally Bank continues to be in a great position to take advantage of the shift in consumer preference away from branch banking and towards the direct channels. We show in the chart on the upper right -- and we've given this to you in previous quarters -- we think this is a good illustration of the consumer shift that's taken place, and why we remain optimistic about the growth prospects of our direct banking platform.

On the bottom left, we show you how we've been able to build our brand recognition in a very short period of time. Our brand awareness has gone from about 10% in early 2010 to 45% in the first quarter of this year. It's not just enough to become another familiar brand with consumers, but you have to attract their business and maintain their commitment. And you can see on the bottom right that our customers have a very strong opinion and commitment regarding the Ally brand.

According to external research, our brand commitment is very strong relative to most of our peers, and many of the brands that have been around for a lot longer. And, of course, this isn't surprising, given our consumer-friendly approach that our brand stands for.

On slide 17, we show our deposit growth. Retail deposits at Ally Bank are $29.3 billion. And that's a growth of 6% quarter over quarter and 25% year over year. And our overall deposits are over $47 billion. Deposit growth is a function of the steady expansion of our loyal customer base. And we're not only growing the number of customers, but we're also deepening the relationships that we have with each customer.

Also, first-quarter CD-retention rates remain above 90%. Our cost of funds will benefit as we continue to fund more of our assets at the bank with cost-efficient deposits.

Our liquidity measures further improved this quarter with time to required funding moving out to 29 months. We have proactively managed $11 billion in maturities coming due this year by effectively pre-funding them. Those maturities include the $7.4 billion of TLGP due at the end of this year. And we would expect to continue to maintain robust liquidity. But once we work through the maturities this year, overall levels of excess liquidity will likely moderate as you would expect.

In the first quarter, we completed $7 billion of funding transactions, including $5 billion of ABS transactions and $1 billion of unsecured bond issuance. In addition to the new funding, we also renewed $15 billion in credit facilities at both the parent and the Bank. These facilities help fund Retail, Lease, Dealer Floor Plan, and Auto Assets at both US and Canada.

Moving on to slide 19, let's talk about our capital levels. As J.B. mentioned, they remained robust, especially versus the risk profile that's on our balance sheet. And our Tier One ratio is among the highest in the industry.

Capital levels improved with net income this quarter. However, our ratios declined as we are growing risk-weighted assets into our capital base. Tier One capital was 13.5% and Tier One common was 7.5%. We remain positioned to achieve Basel III requirements ahead of schedule and our estimated Basel III Tier One common ratio was 10.5%.

Regarding the CCAR results published by the Federal Reserve, we continue to have ongoing constructive discussions with our regulators surrounding these matters, and we will submit a revised capital plan in the near future.

Let's turn quickly to asset quality on slide 20. The strong trends we saw in 2011 continued in the first quarter. I said this last quarter, and it's worth saying again -- we don't expect to see levels quite this low forever, as our portfolio mix now includes a more balanced credit spectrum. Net charge-offs finished at 37 basis points, which is down 6 basis points quarter over quarter and 36 basis points year over year. Importantly, we remain adequately reserved with over 3.6 times' coverage for net charge-offs.

Global Auto delinquencies dropped this quarter to 104 basis points, largely driven by typical seasonal factors and the tax-refund effect that we see at the beginning of the year. Auto credit losses of $73 million are in line with prior periods, but down as a percentage of managed assets.

So let me conclude on slide 21 with just a few key points. Ally continues to demonstrate leadership in the auto-finance market with competitive advantages against both captives and banks. Despite stiff competition, we are winning in the marketplace and continue to generate attractive originations and tap into a more diverse spectrum of the auto-finance market. We continue to expand and improve the franchise which has resulted in consistent auto balance sheet growth.

Our high-quality balance sheet continues to exhibit low losses, characteristic of our auto-focused asset base. Ally Bank continues its momentum with steady deposit growth, customer additions, product innovations and brand development. And, finally, we further improved our liquidity position this quarter and have effectively prefunded unsecured debt maturities for over two years.

With that, Katina, I think we'll take questions.

(Operator Instructions). Doug Karson, BofA Merrill Lynch.

I had a quick question about the Chrysler -- termination of the contract. You gave us a number -- 3% of earning assets. Is that 3% in North American earning assets or 3% of total earning assets?

I believe it's total.

Total.

Okay. So if we try to run the math on that, you could possibly lose some of that business or win it competitively like you've been winning other business. But how much could that be worth? Is it $50 million, $100 million, $20 million? It's kind of hard to get a gauge of what could be an earnings impact on you.

Simply put, it is, by far the lowest-margin business that we do. The average margin is, frankly, a multiple of the margin that we got on this subvented business. So that loss of subvented share is much less important to us than loss of overall share, if you will.

And it frees up balance-sheet space to then go use that capital to generate other assets.

I think what we'd tell you, Doug -- fully planned for -- this was not a surprise to us. Our financial plans for this year assumed a decrease in this level. We're not bothered by it.

Okay.

The GM contract is a -- I guess a similar contract expires in December of '13. Do you have any kind of color of what you think will happen there?

The difference between the two contracts is that in the case of Chrysler, they have to give us 12 months of advanced warning. In the case of GM, they do not have to give us advanced warning. As you also know, on both contracts, the percent of the subvented business that they're obligated to give us diminishes over time; and so that sort of phases out naturally.

I think the point I would make is both with regard to GM and Chrysler that, from the point of view of overall relationship and effectiveness and the day-to-day working relationship and the nature of the business that we do together -- it's very strong in both cases.

And so I think what you're dealing with regard to Chrysler is you've got the following going on -- which is both GM and Chrysler are looking to diversify their sources of financing in the same way that we're looking to diversify our customer base as well. And the notion that we would -- I don't know too many businesses where you have market shares of 40%, 50%, 60%, 70%, 80%. And we don't expect to maintain those kinds of market shares long term.

But our business is dealer-focused. And because it's dealer-focused, we have no reason to believe we will lose share with dealers. And so you'll see shifts going on over time, in terms of mix and so on and so forth. But in terms of fundamental impact on the underlying health of the business, we feel very positive about that.

The relationships both with GM and Chrysler, on an operational level, are very strong. Chrysler needed to take this action for contractual reasons; otherwise, they were obligated to go another year. And they are looking at different alternatives. But, in the meantime, we're working very constructively with them. I have every reason to believe we'll continue to do that for many, many years.

With ResCap, I know you really can't comment on much. And I'm sure you see where bonds and the CDS are trading for ResCap, so you have a pretty good idea what the market thinks will happen. In the event that ResCap gets bankrupted or separated from Ally, or if not, what's the plan for the Ally business? The government still has a lot of money due to it. And is it a stand-alone kind of strategy? Is it potentially selling the company to a big bank? How do you kind of feel about the future away from ResCap for the Ally business?

We've been very consistent. We think that the single most important thing that we can do to preserve and enhance shareholder value is to distance Ally from the mortgage business. We think we have a mortgage business that is very well run. We have terrific people. I think they've been ahead of the curve. But it is the contingent liability from the capital structure of ResCap that are dragging the whole Company down. And we have to separate ourselves from those issues.

The question, obviously, is what's the best way to do that? Once we have done that, then you have a world-leading auto franchise. You have a leading direct-banking franchise. And I would argue, if you compare this Company to the category killers that you think of in other businesses, the only thing that stands between us and that is our cost of funds isn't where it needs to be.

And we're making tremendous progress. J.B. described the progress we made. And we expect to continue to make progress during the course of the rest of the year. Even with where we are, our cost of funds is lower than Ford's. And Ford's growing a great finance company. They run a terrific finance company.

So we think that is an intermediate-term challenge for us that we can partly overcome by doing what we're doing operationally. It's one of the reasons why we looked very hard at ING Direct last year, with a transactional approach to improve our deposit-to-asset ratio.

So I think the phrase that I would use is I would say that dealing with the mortgage business, dealing with ResCap, creates optionality for the Company; and optionality around a very, very strong set of franchises.

It looks like, from one of the slides, there's $24 billion of debt coming due in the next 24 months. You prefunded some of that. Do you expect to do more unsecured issuance over the next year or two to compensate for some of those maturities coming due -- use it from your conduits or ABS? How do you think you'll fund some of the rest of that?

One, to be clear, I think, coming due over the next 24 months is only $17 billion versus $24 billion of liquidity on hand. So, again, effectively, we have prefunded.

We're not going to directly comment on unsecured issuance plans. We were active in the market in one deal in the first quarter. We think there is demand for the Ally name out there. And unsecured is just one component of an overall funding strategy that we try to optimize between the Bank and the parent. Doug, we feel very comfortable with the amount of liquidity on hand and the amount of liquidity that's available to us.

Kirk Ludtke, CRT Capital Group.

With respect to the business you had in the North American auto business -- you had a tough comp this quarter -- year-over-year comp this quarter. Do you expect the year-over-year pre-tax earning comparisons to turn positive this year?

Well, it'll be close. The issue that you have -- and we have been talking about this several quarters -- when we exited the Lease business during the crisis, it created this trough in that. And so you've had a lot more leases maturing than you've been putting on. And we've also repositioned that business.

So we've benefitted from the tailwind of significant lease gains over the last year. And so the comparisons will remain tough for a few more quarters. It's starting to converge. And I think going into next year, you start to have better comparisons.

When and where do you see the GM and Chrysler floor-plan penetration rates bottoming out?

That's hard to say. Again, we're focusing more on the assets that we put on, the mix of the business that we put on -- making sure it's profitable, et cetera. We don't sit and manage our business on a day-to-day basis based on targeting certain penetration rates with GM and Chrysler. We're focused more on the profitability and the mix. So I can't speculate where it'll go.

I think we will always remain a very strong market-share position with both.

I think we're still in the transition a little bit, which I think is important to understand. When I showed up on the scene a little over two years ago, if you had said -- what is our mission, if you will -- one of the first things I would have said is it is to help GM and Chrysler sell cars.

And if you look over the last two or three years, we have financed retail 40% of the cars those companies sold. So the much-heralded auto recovery would not have happened without Ally. Let's be very clear. And so Ally played, as it should, given the bailout, a central role as part of the government's policy of rebuilding the auto industry. And without Ally, that wouldn't have happened. In fact the money they would have brought into GM and Chrysler would have been poured down the drain.

What's happened over the last couple of years is a lot of banks and others have woken up to -- this is a pretty good business. And so everybody all of a sudden has gotten religion and they're all in the business. They're all piling in. And they've got free deposits. And the best way to get into a business is either take more risk or you take less margin. That's what they're doing.

What they fight, on the other side of the equation, is they fight on, lack of credibility, because in the crisis they headed for the hills as quickly as they now want to get back in. The second thing they fight is they all offer very incomplete product lines. And the third thing they fight is -- their knowledge of the dealer and their service levels are very weak.

And so what's different about us today is we're a little bit less market-share focused than we were, so we don't have to worry about saving the auto industry anymore. We have to worry more about our own bottom line. And so we're not interested in competing for the lowest-margin business. I think that if people are out there, other banks and so forth are out there with crazy deals for a floor plan or anything else, we're going to say be our guest, but don't call us when things get tough.

You can see, even though penetration levels in Chrysler and GM went down in floor plan, our assets are still up and meaningful. The strategy Mike just outlined is working.

With respect to ResCap, this is an unusual situation in the sense that Ally could file ResCap as a wholly owned subsidiary really at any time. Michael, if you can expand on what you would need to have in place before you file ResCap, if you decide to do that; and to protect the value of the assets. I think that'd be helpful.

A couple quarters ago you talked about where you stood with some of the major constituencies there -- the PLS and the monolines, et cetera. And I'm wondering if you could give us an update on those negotiations. And then, lastly, there's been a lot of questions in the marketplace regarding intercompany loans at ResCap. And I'm curious if you could help us understand if there are any material monies owed to Residential Capital LLC by its subsidiaries.

You certainly asked all the good questions, most of which I can't answer.

But I actually want to start, Kirk, with correcting your phraseology. You said Ally could file a subsidiary. I've argued consistently that ResCap does function as a separate company. It would be the ResCap Board of Directors that would make that decision, not Ally.

And I want to reemphasize the separateness of ResCap; the fact that the rep and warrant claims that exist are contractual obligations of ResCap, not of the parent; that there is a Board of Directors that has four independents out of a Board of seven; that every transaction between the parent and the subsidiary has taken place on an arm's-length basis with professionals and fairness opinions.

It would be the ResCap Board's decision, not Ally's. Now you are well aware that Ally and ResCap have separately and together been examining strategic alternatives that range all the way from staying the course and fighting the good fight on contingent liabilities, to bankruptcy at the other end of the spectrum.

The ResCap Board chose to exercise a grace period on its April 17th interest payment, and informed Ally accordingly.

We anticipate providing in the queue, in the next week or so, more detail on the alternatives and the possible financial implications that exist. Let me try directly to answer one of your questions in that regard, which is Ally has substantial loans into ResCap. What's the total amount to?

One-one on one and a $750 million revolver on another.

Right. Now, our view of that loan is that loan is absolutely at the top of the pile from a security-interest point of view. And so we do not see a financial risk there -- doesn't mean there aren't other financial implications, obviously. But that one which you focused on directly -- I would make that comment there. That's pretty much all I can say right now.

Kirk, maybe the only thing I'd add is if you did note when Ally rolled the facilities for 30 days, we did not renew the $500 million unsecured line that was outstanding. And that's along the lines of continuing to reduce risk there.

So, as Mike highlighted, it's just the two secured facilities that are outstanding. We feel very good about the collateral and very good about our position.

I would draw your attention to one thing, by the way, which is -- we didn't make a big noise about it for, I think, obvious reasons. If you take the settlement with the DOJ AGs that was a face amount of $310 million that will cost us around $200 million in bookkeeping terms. I'm talking us paying ResCap in this case. But Ally topped up ResCap's capital, which is why I'm using the "us" phrase.

That settlement was about 20% of what our market-share-driven settlement could have calculated. And the reason for that is that Tom and his team run a really good servicing operation. And when Tom took over back in '08, he focused on essentially getting as many of these loans refinanced as he possibly could.

So we have basically modified 28% of the loan portfolio, which compares to 5%, 6%, 7%, or most of the other major players. We don't benefit from force-placed insurance. We don't pursue efficiency judgments. So in an industry which is obviously challenged from the point of view of its operating standards, we do have a superior record. And that, I think, is reflective of -- in the magnitude of the penalty.

And, by the way, carries over into our thought process as we deal with -- as ResCap deals with rep and warrant claims and so forth.

Brian Monteleone, Barclays.

With regard to the CCAR resubmission that you guys referenced in the press release, can you just give us a little more color around that? Can you resubmit the same plan that failed the first test, or do you need to try to get to the 5% minimum?

We are actively working with the Fed on our resubmission, which will occur sometime over the next 90 days or so; and, obviously, important for us to understand the drivers that the Fed assumed why we did not meet the Tier One common 5% threshold.

Certainly, as we alluded to in my opening remarks, obviously contingent risk with respect to the ResCap business played a pretty meaningful role. So obviously our resubmission may consider some strategic options that we have to separate ResCap from Ally. And that may be submitted as the basis when we go forward.

The Fed has the option of solving this problem with one phone call, which is -- all they have to do is call Treasury and say -- we want you to convert your MCP. Problem solved. They did not do that, which is noteworthy. And they did not restrict our dividend or any other payments, which may be put into context -- their perspective on our true capital position.

Under what circumstances might you expect the MCP to convert, maybe, earlier than an IPO?

Not a subject of current discussion.

It sounds like, then, you don't necessarily need to raise capital. You can potentially demonstrate lower rep and warranty claims which would raise your retainer -- is that way?

We won't get into specifics, but I don't think raising capital is at the top of our list to solve that problem with the Fed.

How long do you guys think a bankruptcy court would take claims against Ally in that process?

That's really speculative. And speculating on a bankruptcy and speculating on a process -- we don't want to go there.

Katina, that's all the time we have this morning.

Please feel free to reach out to Investor Relations if you have additional questions. Thanks for joining us this morning.

Thank you, Katina.

You're welcome, sir. And ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.