Ally Financial Inc (ALLY) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the quarter two 2012 Ally Financial earnings conference call. My name is Ian. I will be your operator for today. At this time, participants will be in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions)

As reminder, this call is being recorded for replay purposes. Now I would like to turn the call over to Mr. Michael Brown, the Executive Director of Investor Relations. Please proceed sir.

Thanks Ian. Thank you, everyone for joining us as we review Ally Financial's second-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 content of our conference call will be governed by this language. This morning, our CEO, Michael Carpenter, Senior Executive Vice President of Finance and Corporate Planning, Jeff Brown and our CFO, Jim Mackey will cover the second-quarter results. After the presentation portion of the call, we will have time set aside for Q&A. To help answer your questions, we also have Bill Muir, who runs our auto business, Bill Solomon, our General Counsel, and Rick Cieri from Kirkland & Ellis. Now, I would turn the call over to Michael Carpenter.

Good morning, everybody and thank you for taking the time to listen to listen to Ally's quarterly update. Briefly on page three, I'd like to talk about the ResCap bankruptcy which was filed on May 15. That process continues to move forward. Obviously, it is a ResCap driven process, but there has been a variety of important initial requests that have affected Ally that have been granted by the Court, specifically, the approval of a small dip financing line that we offered to ResCap with some shared services agreement and the stay on 24 lawsuits in which Ally was a named participant.

ResCap continues to operate in the normal course of business and therefore preserving the value to the estate of the underlying asset. And we are very pleased to have been outbid by Berkshire on the ResCap HFS loan portfolio. We are, as a result, no longer the stalking horse bidder for that portfolio. Importantly, we are receiving a great deal of support from various constituencies for the settlement offer that Ally proposed and for the plan of reorganization that results. On the second major initiative that we are undertaking, as you know we have been exploring strategic alternatives for our international businesses which represent about $31 billion in assets and $7.6 billion in book value. The objective here is to increase our focus on the strategically extraordinary well-positioned auto finance business and importantly, to accelerate repayment to the US Treasury.

Sale process is underway with, in fact, the initial bids received last week. We have a very strong level of interest with nearly 30 different bidders that submitted proposals last Friday. On an operating basis, as J.B. will get into in more detail, the core business fundamentals continue their positive strength. Core pretax income was $533 million, and we have seen strong growth, both in auto loan originations and in revenue growth and also consistent and stable deposit growth at Ally Bank. More on that later. So we are very pleased with the underlying operating performance for the Business.

Our financial profile is very strong. The ResCap bankruptcy did two things at once. It reduced our risk-based assets. And at the same time, it caused a write down of $1.2 billion in our capital. The net effect is to preserve our Tier 1 capital ratio at about the level it was at before the bankruptcy at 14.7% so a very strong capital ratio. Our liquidity posture is very, very strong as we prepare to repay TLGP later in the year. As you all know, the balance sheet is a very high quality low-loss, short duration assets. And we believe the credit quality can only improve with the strategic actions that we have taken.

I'd like to focus on page 4 for a minute. Because as you think about what this Company will look like a year from now, Ally's US auto franchise a year out will dominate the Company's profile. So it's very important to understand what it is today versus what it was a number of years ago. And I would start with the observation that Ally has basically transformed itself from a captive to a successful market-driven competitor. These sound like simple words, but the cultural shift and the operational implications of that transformation have been quite dramatic. So we have become a dealer-centric business, we do care about the OEMs and our relationships with them, but it's the dealers that give us revenue every day. We have very successfully managed that transition as well as managing the transition to a bank holding company with all the relevant risk-based pricing and so forth that didn't exist as a captive.

As you know, just to anticipate where we are going, the agreement that we have, the contracts we have with Chrysler and GM expire in April and December of next year, respectively. I'd like to point out those contracts really only apply to the subvented loans which today represent 18% of our business versus about 80% five years ago, so another measure of the degree of transformation that has occurred in this franchise. Ally competes on a whole variety of products, not just subvented but standard rate loans and wholesale financing, insurance and so on, head-to-head in the market place with all other competitors and we do so very successfully. We, today, are much more diversified across brands, dealer relationships, product offerings and the credit spectrum. And you will see some of those numbers in a few moments as J.B. gets into the details. That is not to say that the relationships with the OEMs are not important. They are very important. And we will continue to do a good job for the OEMs, but they no longer define us or constrain our potential.

We feel that we are very well positioned for whatever happens when these agreements with Chrysler and GM expire next year. Those are going to be bumps in the road or modest changes or whatever. We describe ourselves as being in and of the industry. And I think that is terribly important. We compete against a lot of banks. Most of those banks are very narrowly focused on -- let's say a part of the credit spectrum. Or they are very focused on particular products. Many of them don't do leasing. Almost none do any kind of insurance products where for us the full range of product capability being offered to the dealers is a critical part of our strategy and combine that with premier service and dealer business solutions. That is where our competitive advantage resides.

We continue to product innovate, with the ABC product this year, the two-year lease this year. And then last but by no means least, Ally dealer rewards in which we reward dealers for the proportion of their business that they do with Ally and the breadth of their business they do with Ally leads to substantial economic benefits for the dealers as they do business with Ally. This is an extraordinary franchise that we are building the Company around. And it is very well positioned on a go-forward basis. With those few words of introduction to the strategic themes, let me handoff to JB who will talk about the underlying operating performance in the second quarter.

Thanks, Mike and good morning, everyone. I'm going to expand on Mike's opening comments and start by covering a few highlights from the quarter in our core businesses. While we had a GAAP net loss for the quarter due to the previously announced ResCap charge, operationally our businesses continue to execute very well. And we ended the quarter with core pretax income, excluding ResCap items, of $533 million which is up from $359 million last quarter. Our auto business continues to deliver strong results. We saw the second highest quarter of US origination since 2007, which is a real testament to the power of our dealer-centric model.

As we said before, we are successfully diversifying and growing our asset base, despite intense competition and lower penetration levels. We are much more focused on serving our dealers well on asset quality and on profitability than we are on marketshare statistics. Revenue in our auto business was up 4% from last quarter as we continued to increase earning asset levels and improve the profitability of our origination mix. Our Ally Bank franchise continues to see steady and consistent retail deposit growth. In this quarter, we crossed over the $30 billion mark in our retail book which is pretty incredible for a brand that was launched just a few years ago. Jim will cover the details later in the deck, but the growth and retention strategies, coupled with new products and technologies, has really led to a fantastic stability of our customer base and again very consistent growth.

We rolled out our mobile banking application for Smartphones, and the early customer reviews have been very positive. And importantly, we now have over $87 billion of assets funded at Ally Bank which represents about 60% of our total US assets. This has obviously been a key objective for us, and we should see further improvement through time. Our leading US auto franchise, supported by our leading direct bank franchise, is a very powerful combination that will drive the Company's success going forward.

Mike touched on our strong credit profile earlier. But let me give you an update on activity in the second quarter. We were fairly active in the capital markets this quarter with nearly $10 billion of new issuance across markets and asset classes. As we mentioned last quarter, we have effectively pre-funded over two years of unsecured bond maturities. In this quarter, we bolstered our total parent company liquidity to $26 billion including $11.4 billion of cash and cash equivalents.

Once we repay TLGP in the fourth quarter, you're looking at a company with a much more balanced debt maturity profile going forward. We will continue to maintain a conservative capital and liquidity posture, and improving our credit ratings will continue to be a priority for the Company. Our cost of funds declined almost 40 basis points from the first quarter. Obviously, one of our key objectives going forward is to continue to lower our funding costs. But I would not want to guide anyone that declines of this magnitude should be the expectation each quarter. Having said that, we still project a lower cost of funds by year end. While we recognize we have a lot of work to do, we made some nice strides in the second quarter and start to see more of the puzzle coming together.

Now turning to slide 6, as you can see the breakout of our results by each segment. Global automotive services continues to post strong results with $746 million of pretax income which is up both quarter over quarter and year over year. We saw improvement, particularly in North America where we had better top line results with higher net interest income coupled with the additional benefit of lower provision expense this quarter. You will see here that we have now condensed our mortgage operations into one reporting segment in response to the ResCap deconsolidation. The remaining mortgage business had a good quarter due to higher gain on sale revenue and continued HARP refinancing activities. These numbers exclude the ResCap related charge we previously announced as well as ResCap's financial results for the first half of the quarter prior to deconsolidation. Jim will go through the details on each of the segments in a few minutes. So let's move to the next slide.

On slide 7, I will cover the financial results at a consolidated level. Again, please note that our core pretax components are being presented excluding ResCap results which we have grouped here as a separate line item for you. Looking at net financing revenue. It was up $107 million, quarter over quarter, largely due to higher retail auto and lease balances. Year over year, it was down $80 million, driven by the outsized lease gains we had come through last year that we had noted would be a headwind we would face this year. Other revenue of $753 million was down $27 million from first quarter, driven by lower investment gains in our insurance investment portfolio.

Year over year, other revenue was down $60 million, primarily due to a meaningful gain on forward-flow agreements that was taken in the second quarter of 2011. Provision expense of $28 million was favorable, $112 million quarter over quarter, due to better than expected credit performance at NAO, lower reserve build in IO, higher recoveries and an overall favorable credit-risk profile. So you had a few factors come together which made provision unusually low this quarter. We remain focused on controllable expenses. And they were down $47 million quarter over quarter and $25 million year over year.

Other non-interest expense was up $64 million from the first quarter due to seasonal weather-related losses but down $54 million year over year. And the year over year decline was due to tax items, foreign exchange and lower GM exclusivity fee. Excluding the impact of ResCap related items, core pretax income was again $533 million. If you look at the ResCap line item, you can see here a charge of $1.3 billion which was largely in line with what we announced back in May. As reminder, that charge is largely for the write off of our equity investment in ResCap as well as the $750 million we have agreed to pay as part of our settlement agreement in exchange for a release from all potential claims.

It also includes ResCap's financial results for the time the entity was still on our books at the beginning of the quarter. Looking at OID, our amortization expense declined to $96 million this quarter, and we expect a total of $132 million of OID expense for the remainder of the year. Income taxes were lower by $49 million for the quarter, due in part to some international tax allowance adjustments we had this quarter. You can see, in total, we had a GAAP net loss of $898 million. But obviously, that was driven by the large ResCap charge we took to put our mortgage issues behind us. Overall, we feel very good about the underlying operating results, and we are well on track with where we expected to be year-to-date.

Now turning to net interest margin on slide 8. We finished second quarter at 2.2% which is up just over 20 basis points from last quarter due to increased funding at the bank and our continued focus on improving the legacy liability structure. And our new auto originations we are booking have more favorable risk-adjusted spreads which is also helping our top line growth. I should mention that we could see some NIM impact as a result of the strategic actions we are looking at for our international businesses. Many of the international entities have higher margins versus the US but also a somewhat higher loss rate as well. Importantly though, the underlying fundamentals of the US business which are lower cost of funds, more profitable origination mix, a growing US asset base, continue to move in the right direction. With that, let me have Jim take you through more of the details on our businesses.

Great. Thanks, J.B. Looking at slide 9, our North American auto finance business posted another strong quarter. And you will see that pretax income was $631 million, up $189 million quarter over quarter and $72 million from a year ago. Net financing revenue was $62 million for the quarter at $137 million, driven by strong earning asset growth. The year over year decline was $41 million, and that was driven by the lower re-marketing gains due to fewer lease terminations this year. And that has been a trend that we've been talking about for a while now.

Other revenue was up, quarter over quarter, due to a gain on a $2 billion off balance sheet securitization that we completed where we sold the entire capital structure of an ABS deal including the residual. This type of transaction has a similar impact as a whole loan sale from an accounting perspective. We did have the benefit of unusually low provision expense this quarter. It was down $62 million from last quarter and $39 million from a year ago. This was driven by that better than expected credit performance that required us to take our reserves down a bit. We will continue to maintain robust levels, particularly relative to our net charge off rates. But we would expect that provision would likely normalize off these lower levels as our asset base continues to grow. Earning assets in NAO continue to grow to over $104 billion, driven by strong originations.

We are happy to announce a new preferred relationship with Mitsubishi Motors and our role as a wholesale funding provider for the RV manufacturer, Forest River. These are two more examples of the value proposition that Ally brings to manufacturer financing and marketing efforts.

And as we mentioned, we are pursuing strategic alternatives for our Canadian operations. And just as you think about the NAO segment long-term and as you model, we thought it would be helpful to note here that Canada makes up about 10% of our NAO pretax income year-to-date.

Let's turn to slide 10. And you can see on the chart on the upper left, this demonstrates our origination growth as a more diversified finance company. Originations of $10.5 billion were up $1 billion from last year and $800 million from last quarter. We have overlayed our consumer penetration rates with GM and Chrysler which have been pretty flat the last few quarters but certainly down from where they were two years ago. The key point here is that we have been successfully growing and diversifying our originations, and our volumes are not correlated with penetration rates alone.

On the top right, you'll notice that origination mix continues to evolve. Used, leased and diversified new now represent almost 50% of our originations while subvented retail is about 25%. In particular diversified new originations grew 15% from last quarter and 64% from a year ago. On the bottom of the page, we show our consumer and commercial outstandings. You can see on the left that our consumer serviced book has consistently grown and is now over $80 billion at NAO. Our average consumer assets grew $1.4 billion year over year, despite GM and Chrysler penetration rates that are moderating. We have benefited from our diversification efforts as well as the fact that dealer inventories have returned to more normalized levels.

Turning to slide 11, let's talk a minute about our international operations which had a solid quarter with pretax income up from the first quarter. Total net revenue was $230 million and that was in line with last quarter and the prior year. The real story here, quarter over quarter, was our lower provision expense which benefited as credit performance improved. And we reversed the remaining reserve that we had against our SAAB exposure. It's important to note that the reserve related to SAAB has been fully released, and we did not experience any losses due to the SAAB bankruptcy process. This is a true testament to our teams that worked through this issue with the OEM and the dealer network.

Total assets have declined about $600 million for the quarter, due to the impact of foreign exchange rates, principally a weaker Euro and a Brazilian Real. If you were to normalize for FX, our assets would've grown about $300 million. Originations were flat. However, excluding FX, they were up about $100 million quarter over quarter and $200 million from a year ago. And as we said before, there is a process underway to pursue sales of these businesses to make up this segment.

Rounding out the GAS segment, let's turn to insurance on slide 12. The fundamentals of this segment remain strong with our written premiums at our primary US DP&S business at their highest levels since third quarter of '08. The drivers of the decline in the pretax from this quarter are higher insurance losses and lower investment portfolio gains. Like we saw in the second quarter of last year, higher seasonal weather-related losses impacted our total underwriting income. You can see the combined ratio was 103%, which is up significantly from last quarter but generally flat to a year ago.

The second quarter is where we see typically see many of our losses come through due to severe weather this time of year. And I'll remind you that we have reinsurance agreements in place which we expect to cover most of our insurance related losses for the rest of the year. As part of the overall initiative with our international businesses, we are pursuing strategic alternatives for ABA Seguros. This is our Mexican insurance subsidiary that provides personal and auto and some commercial insurance. And it makes up about 25% of our year-to-date pretax income in this segment.

Turning to slide 13. We will spend a minute talking about more mortgage operations. And as J.B. mentioned, we collapsed our legacy and origination servicing segments into one segment and you will see that going forward. ResCap was deconsolidated on May 14 as we mentioned. And from a GAAP perspective, Ally reported the P&L up to this date. And you will see those full results in our financial supplement on the website. However, on this slide, we are presenting a pro forma view of the financials that exclude ResCap entirely from the results and all periods shown. And we have done this to try to give a better picture of this segment and how to think about it going forward.

Let's walk through some of the changes. We will start with the chart on the upper right. We show here a snapshot of mortgage operations before and after the ResCap deconsolidation. Total mortgage assets declined over 40% and now make up less than 10% of Ally's total assets. It is worth noting that, of the remaining $17 billion in assets, about $3.9 billion of that are related to derivatives associated with managing our MSR. And we show these on a gross basis on our balance sheet where we have offsetting liabilities on the other side. Our MSR asset is now just over $1 billion, and that is compared to $2.5 billion when we had ResCap.

The biggest difference in the before and after comparison relates to rep and warrant. Total reserves have gone from $811 million on $1.2 billion of claims down to $124 million in reserves on just $82 million of claims. Now these remaining outstanding claims are for more recent Ally Bank production with Fannie and Freddie, primarily from 2008 and after. And this is compared to where it was primarily '04 and '07 vintages when we had ResCap.

In addition to the deconsolidation, another important driver of the results was the operational changes that we made in inter-company agreements that we have with ResCap. Prior to May 1, we had inter-company swaps in place which transferred the economics of loans sold by Ally Bank to ResCap as well as the valuation risk associated with the MSR and the rep and warranty exposure. In exchange, Ally Bank received LIBOR plus a spread from ResCap on the MSR asset balance.

So if you look at the results here, the operational changes that were made on May 1 make the comparisons a little bit challenging. But next quarter, you will start to see the numbers normalize for our restructured mortgage operations. For example, you can see the gain on sale of $80 million was up pretty significantly this quarter, despite lower production. But much of that increase was due to the termination of the inter-company swap. So now Ally is receiving more of the risk and reward related to those originations.

In summary, our mortgage segment assets will continue to become a smaller portion of our balance sheet over time. We announced earlier this quarter that we will be exiting the mortgage warehouse lending business. And this will wind down in an orderly fashion over the coming quarters. I will also remind you that it's possible that we could sell the Ally Bank MSR in the future if the opportunity arises.

Let's turn to slide 14 and talk about the Ally Bank franchise where we continue to maintain a leading position in this expanding market. The consumer shift away from branch banking and towards direct banking channels is well publicized. The chart of the top right shows that over 70% of consumers prefer direct banking channels compared to 10% in 2006. And Ally remains well-positioned to gain from the shift. We recently launched a mobile banking app for Smartphones, and had over 50,000 downloads in just the first two months. The Ally brand is resonating with consumers. In this quarter, we've reached an important milestone with over $30 billion in retail deposits.

Ally Bank ranks in the top 5 of the 30 leading financial institutions in a recent American Banker and Reputation Institute consumer study. And on the bottom right, you can see our brand commitment is one of the strongest in the industry. The success of the Ally brand is leading to steady deposit growth. You can see that on slide 15. We grew deposits, $800 million for the quarter, driven by retail deposit growth of $1.1 billion at Ally Bank. It's important to note that we have seen net retail deposit growth every single week since early 2010. Many of these deposits are coming from outflows of more traditional brick-and-mortar banks. We have also continued to expand our account base with very loyal customers as shown on the chart on the lower left. As you will see, we have consistently maintained CD retention rates around 90%.

Turning to funding and liquidity on slide 16. With $26 billion in parent company liquidity and $16 billion of unsecured bond maturities over the next 24 months, our time to required funding is well over two years at this point. On the bottom right, we displayed a long-term debt maturity profile. After the $7.4 billion TLGP repayment in the fourth quarter, you can see our maturities become much more balanced. And as a result, you would expect excess liquidity will moderate. However, we will always have a view of maintaining a conservative liquidity posture and will continue to be opportunistic in the unsecured and ABS markets.

We will continue to execute our diversified funding strategies and had successful new funding transactions of $10 billion across various platforms, as J.B. mentioned earlier. We had $2.5 billion in ABS transactions, the $2 billion off balance sheet securitization mentioned earlier as well as $1.5 billion in unsecured bonds. We've also increased the capacity of certain credit facilities at the parent level by almost $4 billion through new and upsized facilities.

On slide 17, a few brief comments on capital. Our levels remain very robust, especially when compared to the risk profile of our assets. The ResCap actions did very little to change our capital ratios as the $1.3 billion ResCap charge was essentially offset by a decline in risk-weighted assets. Our Tier 1 capital ratio finished at 13.7%, which is among the highest in the industry. We remain well positioned to achieve the Basel III requirements ahead of schedule. As you know we resubmitted our CCAR capital plan to the Fed a few months ago.

Turning to asset quality on slide 18, we continue to see strength in our portfolio. As I have said on several calls, we really don't believe these levels are sustainable at this low level. You can see on the bottom right that we continue to experience low losses in our auto book, largely due to higher level of super prime vintages that we originated in 2009 and 2010, coupled with a strong used car market as well as recoveries in certain of our segments.

Then if you look at the chart on the top left, you can see a drop in the second quarter and our overall balance sheet loss number, which was driven by some significant recoveries in our commercial finance group as well as the fact that legacy mortgage assets have continued to decline and losses have been relatively low. Our reserve coverage remains robust with an allowance balance that is 4 times that of net charge offs. We expect as charge-off levels to increase from these abnormally low levels, the amount of coverage that we have will certainly moderate over time. On the bottom left, you can see the quarter over quarter typical seasonal increase in delinquencies as the first quarter has the benefit of consumers getting their tax refund checks. However, at 123 basis points, our delinquencies are still down 25 basis points from the second quarter of last year.

In conclusion, despite the ResCap related items this quarter, our core business fundamentals remain strong. Our Ally Auto Finance franchise has strategic advantages that are allowing it to thrive in this highly competitive environment. We reported our second highest quarter for originations since 2007. Our diversified new originations increased 15% from last quarter and 64% from a year ago. And that has led to strong earning asset growth of over 15% year over year. Our asset base is comprised of low-loss, short duration loans. And we continue to believe that we have one of the cleanest balance sheets in the banking industry.

Our leading direct banking franchise continues to grow with an expanding customer base. Retail deposits continue to grow week after week. And as we mentioned earlier this quarter we had $1.1 billion of growth at Ally Bank, and we continue to see positive brand momentum. We maintain a conservative capital and liquidity posture and we are well positioned for upcoming debt maturities. Finally, the strategic actions announced in May are designed to further strengthen Ally's credit profile. Michael, with that, let's open it for questions.

Ian, we're ready to take questions from callers.

(Operator Instructions)

Kirk Ludtke, CRT Capital Group.

I thought I would touch on ResCap, if that is all right. I remember you had this case on a relatively fast track, and I was wondering if you could give an update on what you see the timeline being for confirming a plan? [multiple speakers]

Certainly. Let me jump in. We continue to be on a fast track.

The examiner has said he was going to take six months to complete his investigation. But concurrently with the investigation being conducted by the examiner, I believe it is ResCap's intent to move forward with the plan. They stated in court last week and they intend to file that plan by August 5. While the examiner conducts its investigation, we are hopeful to continue to move full speed ahead on the plan process.

Do you have a target date or a even a quarter when you think you might be able to get the plan completed?

The plan will be filed sometime in August. The examiner said he's going to take six months, so I think we are looking toward very early of next year.

Okay. I might have missed it, but have you identified how your $750 million contribution will be allocated between the ResCap entities?

That is a decision for ResCap to make. We really have no role in that.

Okay, I appreciate it. And then with respect to the strategic alternatives for the international assets, it sounds like there's quite a bit of interest. Can you expand on the timing and the use of proceeds?

Let me answer that one. I would think by the time we get to the middle or end of September, we will be through the second and possibly final round. And certainly as we get into the beginning of the fourth quarter, we will have a pretty good idea -- if not definitive idea -- as to the likely sales price of the various assets.

As you can imagine with almost 30 different bidders, I don't mean bids, 30 different entities bidding in the first round. It's going to take a while to sort it all out.

Then obviously our intention is to find a way to get as much of those proceeds as the Federal Reserve will allow back to US treasury in the most efficient fashion. We are obviously in the middle of that process as we speak. And I think we have said that we expect the sale will return at least another one-third of what we owe and have no reason to believe we won't certainly meet if not exceed that target. I think that is where we are, Kirk.

That's very helpful, I appreciate it. Do you believe that you can complete the sale of international prior to the release from ResCap's creditors?

It depends on the timing -- It is certainly a more defined time horizon. Then I would imagine we will be done by the end of the year for sure.

I think the answer is yes. Sale of international is not being held up by ResCap.

That's helpful. I know there seemed to be some confusion last call as to what consents you might need to distribute proceeds to the treasury. Is there anything you can say?

We basically need the Federal Reserve to opine on that. As you know, we just went through a second stress test where we submitted in July -- a second stress test. That stress test included the ResCap bankruptcy and its implications, but it did not include the sale of international assets.

We are preparing literally again as we speak a third stress test which will take into account the sale of the international operations. And that will be the basic information that the Federal Reserve needs to decide what is an appropriate capital level for the Company going forward and therefore, how much capital can be released to repay the US Treasury.

That's helpful. Do you need the consent of any of the creditors or preferred shareholders at Ally?

Hey Kirk. It's JB. Look, there's obviously various documents that govern our capital structure. And all I will say is we will comply with those agreements, but we're not going to get into specifics on this call.

Thank you very much.

Doug Karson, Bank of America Merrill Lynch.

Thank you. To follow-up on the Kirk's question a bit. I think from last call, there were some questions around the mechanism of how you pay the treasury back.

You know what, Doug. We're not going to get into that.

Okay, I thought I would ask. I will move onto a different topic. The TLGP mandatory that is coming, I guess the 7.4 maturity. Is that just come right out of the cash or has that been prefunded with what you have there with Q2 funding? $10 billion?

Yes. Doug it's J.B. It's part of the $26 billion of parent company liquidity and a decent sized chunk of that today is sitting in cash and cash equivalents. But yes we would expect the liquidity position to normalize after -- I think it is October and December repayment of those bonds.

Great, okay. And international business. I think you said on the call earlier which was dated and I want to make sure I get right -- that Canada makes up about 10% of the North America income?

That's correct.

Okay. And the $31 billion of assets, is about half of that Canadian or am I guessing there?

You talking about just NAO or across all of what we call international?

It is less than half of the international assets that I mentioned early on --.

Canada is $11 billion in assets roughly.

Okay. So $11 billion of the 31 billion?

And then ABA Seguros I believe -- I want to say is about just under $1 billion

Right. One big picture question and I'll turn the queue over to somebody else. Once you get the international operations sold, you've got a very strong core business. Are there any thoughts about what the next two, three years would hold for that core auto business? Do we want to go back to the IPO strategy or are we going to stay at private, government --

Our objective in life is pretty straightforward. It is to continue building the auto business, continue to build the bank, and it is to get the US government completely out of their share ownership position. And I would make my arguments very simple which is when we embarked on making the decision to withhold support from ResCap going forward which led to the bankruptcy. And then we made the decision to pursue the sale of the international assets, we knew that we would be creating optionality in that process.

So I would say an IPO is certainly a possibility at that point. Having private owners is a possibility at that point. A merger or an acquisition is a possibility at that point. So there are a lot of different things that could happen. We have a lot to do right now so we have to do that first.

Thank you, that is it for me.

There's no further questions at this moment and time so I would now like to turn the call back over to Michael for some closing remarks.

Great. Thanks. If anybody has any additional questions, please feel free to reach out to investor relations here. Thanks for joining us this morning. Thanks, Ian.

Thank you, ladies and gentlemen. That concludes your conference call. Thank you very much for joining us today.