Ally Financial Inc (ALLY) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2013 Ally Financial Inc. earnings conference call. My name is Regina and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions). As a reminder, today's event is being recorded for replay purposes. I will now turn the conference over to your host for today, Mr. Michael Brown. Michael is the Executive Director of Investor Relations for Ally. Please go ahead, Mr. Brown.

Thanks and thank you, everyone, for joining us as we review Ally Financial's first-quarter results. You can find the presentation we will reference during the call on the Investor Relations section of our website, Ally.com.

I would like to direct your attention 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, our CEO, Michael Carpenter; Senior Executive Vice President of Finance and Corporate Planning, Jeff Brown; and our CFO, Jim Mackey, will cover the first-quarter results. We will also have some time set aside for Q&A at the end. To help in answering your questions, we also have with us Bill Muir, who runs our auto business. Now I would like to turn the call over to Michael Carpenter.

Good morning, everybody and thank you for participating. We are very pleased with our results in the first quarter, net income of $1.093 million and core pretax income before repositioning items, especially the MSR sale, $207 million.

If we look at the elements of that business, first of all, the auto business very competitive right now, but the strength of the franchise really shows through in the results in the quarter. Our earning assets were up 13% year-over-year. We did almost $10 billion of originations in the first quarter with very strong leasing volume and our auto net financing revenue was up 23% year-over-year and flat to the fourth quarter of 2012.

The Ally bank franchise is also showing its enormous strength as a leader in the direct banking space. Retail deposit growth of $3.7 billion was the highest quarterly growth since the first quarter of 2009 and really reflects the maturation of this tremendously strong franchise. Retail deposits up 32% year-over-year and 11% quarter-over-quarter. Customer accounts up 29%, 9% quarter-over-quarter and retention of customers and their assets remains at an all-time high.

Ally Financial is top tier in terms of its capital strength within the banking industry and that position strengthened further in the quarter. We completed the sale of the majority of our international operations, over 70% of the sales that we anticipated are complete. The rest are under contract and close to completion. Our Tier 1 common ratio improved 90 basis points to 7.9% and our net interest margin expanded 62 basis points year-over-year. We renewed $11 billion in syndicated credit facilities on favorable terms and we are addressing the CCAR results in which there is a disconnect between our capital strength today, the low risk profile of our business and the CCAR results.

On page 4, the strategic transformation that we announced about a year ago, almost exactly a year ago, is nearing completion. Definitive agreements have now been signed for all of the identified businesses that are being sold and these are listed at the bottom of the page -- Canada, Europe, most of Latin America, our mortgage business, lending business and our MSR assets at the bank, all sales completed, funds received and ABA Seguros we expect to close on an imminent basis in the second quarter.

To date, we have generated $6.7 billion of proceeds relative to a total expectation of about $9 billion and with the completion of the sale of business lending and the MSR, Ally has now effectively exited the mortgage business, which has been so much pleasure for us over the last five years.

The ResCap bankruptcy process is ongoing. There is a mediation process, as you know. The court has targeted an examination, which will be completed on May 13. We hope for a consensual resolution, but are highly confident of our position in litigation should that be necessary.

So with that overview, let me hand over to Jeff to talk about the first-quarter results.

Thanks, Mike and good morning. On slide 5, let's get a little more into the details on results for the quarter. Let me draw your attention to the upper highlighted box, which includes core pretax income, excluding repositioning items of $207 million for the quarter.

The main driver of the decrease from prior quarter, which you can really see in the Other revenue line is simply the absence of continuing mortgage originations. Jim will cover some of the details during his comments on the segments, but think about this mainly as much lower mortgage origination resulting in less gain on sale and fee income generated.

Net financing revenue continues to grow on a year-over-year and quarter-over-quarter basis. Obviously, this is a function of earning asset levels, but we have also seen asset yields stabilize and we continue to chip away at legacy high cost of funds and I will expand more on this point in just a moment.

Provision expense was up from the prior quarter consistent with the normalization of our credit mix in the consumer portfolio. Performance continues to be right in line with expectations and we have got extensive data and analytics to adjust risk appetite if we see trends change.

While noninterest expense did come down from prior quarter, we see this as a major opportunity for future net income expansion. As Mike highlighted, Ally has gone through a pretty extensive transformation over the past several years and the core overhaul is now nearing completion. While costs may not get to a sustainable level over the next couple of quarters, you should expect, A, steady progress every quarter and B, a much better run rate entering 2014. We know we have work to do in this area, but as the sales of these businesses are completed, costs will come out.

Now moving to repositioning items, you will see the charge was flat from prior quarter. Nobody should have the impression we think this is the normalized or recurring amount. Slide 23 of the deck has details about both first quarter and fourth quarter 2012. With respect to this quarter, the $212 million is primarily driven by the loss taken on the sale of the remaining MSR. As we have said, the sale of the MSR reduces future earnings volatility and even after considering the loss on sale, we expect our Basel III capital ratios to actually improve by about 35 basis points. So this is clearly the right thing to do for the Company.

Moving down to discontinued operations, you can see we had a big pop this quarter, which was driven by the closing of the Canadian sale. This represents about a $900 million benefit and was the major driver of the $1.1 billion of net income we recorded this quarter. Again, as Mike mentioned, we have continued to close additional countries and will close more over the coming days and weeks. You will see the corresponding marks on those sales at the time of closing.

So overall, we feel results were respectable this quarter. Long term, we see realizable opportunities to target a double-digit ROE, but our dominant auto finance franchise must be better supported by an overall lower cost of funds and lower noninterest expense levels. Those aren't overnight changes, but we are making progress.

So turning to slide number 6, getting cost of funds down and expanding NIM has been a key focus of our treasury teammates the past couple of years. Cost of funds is down almost 55 basis points from a year ago and earning asset yields are running flat. Obviously, that is a pretty nice combination to get NIM expansion and you can see we made nice progress both on a year-over-year and quarter-over-quarter basis, up 62 basis points and 16 basis points respectively. Given the rate environment, we are pretty pleased to see NIM rising.

And really the secret sauce here for us has been to be more disciplined in our debt issuance, focused on continued quality deposit growth of our Ally bank customers, disposal of non-core assets and overall just being more efficient in how we allow the balance sheet to grow. Again, we have a lot of room to go in this space, but I can assure you this is an area we remain focused on. And with that, Jim is going to go through the details.

Thanks, JB. Let's start on slide 7. Here you can see our loss and delinquency performance for the quarter. The top two graphs on the page show our consolidated credit performance and our reserve coverage. Keep in mind that our international businesses are included in the numbers prior to the fourth quarter of 2012 when we moved those portfolios to held for sale. So it makes prior-period comparisons a little challenging.

In general, what you see here is our net loss numbers are up year-over-year, but down quarter-over-quarter. I would like to focus you on the US retail credit performance as it is now driving the majority of our consolidated results. So you can see this summarized on the bottom two charts.

Our net loss rates declined to 69 basis points from 76 last quarter, but increased from 45 basis points a year ago. The quarter-over-quarter improvement is largely driven by typical seasonal factors whereby performance improves in the first half of each year. The year-over-year results are driven by a variety of factors -- first, our continued efforts to shift to a more balanced portfolio mix, the seasoning of some larger vintages that are now entering their peak loss periods, the denominator effect of our portfolio growth is moderating and some impact from used car prices coming down, off modestly from unusually high levels. Again, this is all fully in line with our expectations and keep in mind that we will expect loss rates to increase modestly from here as we discussed last quarter.

Looking at delinquencies in the bottom left, you can see we are down to 153 basis points this quarter from 200 last quarter as first quarter is typically the annual low from a delinquency perspective as consumers get their tax refunds and catch up on late payments.

So let's move to slide 8 where we break out the $207 million of core pretax income across the different segments. The primary driver of the results is our auto finance business, which is our largest segment. Results improved significantly year-over-year driven primarily by loan growth, but was down a bit from last quarter due to high provision expense.

Our insurance business was down year-over-year due to some weather losses that hit us earlier in the year than normal. However were up from the fourth quarter mainly due to better investment portfolio performance. As JB mentioned, revenue from mortgage production was down this quarter, which drove the prior-period variances in this segment.

I will also mention the Corporate and Other line item. That is where the majority of the cost of funds improvement is captured driving the significant year-over-year improvement. We are pretty flat from last quarter as Other revenue was down due to some derivative-related noise and noninterest expense was up slightly due to higher FDIC fees and typical first-quarter payroll tax volatility. I should also mention that ResCap was reclassified to discontinued operations this quarter. So that will change historical results if you are trying to compare to previous periods.

So now let's dive a little deeper into auto finance on slide 9. You can see here that the auto finance business continues to perform very well in spite of continued strong competition that we see in the market. Our efforts to diversify our business have paid off and we continue to be very well-positioned with our dealer customers.

For the first quarter, auto finance had total pretax income of $343 million, which is up 42% year-over-year. As this business has normalized to a large extent, we think it is more relevant to look at the year-over-year comparisons given the seasonal factors that impact our business. You will likely hear us talk more about year-over-year going forward.

We had strong net financing revenue of $773 million, which is roughly flat to last quarter, but up substantially from last year. The improvement year-over-year is due to continued growth in both our consumer and commercial portfolios. The quarter-over-quarter comparison was negatively impacted by two fewer accrual days in this quarter versus last.

Other revenue was up driven mainly from a one-time fee from one of our vendors we recognized during the quarter. And provision expense was up due to the more balanced credit mix that we have talked about earlier and the seasoning of our more recent larger vintages. The quarter-over-quarter comparison is also impacted by some reserve releases we had in the fourth quarter that did not repeat. In looking at noninterest expense, you can see it is pretty flat from other quarters despite the earning asset-based growth, which showed steady improvement in operating leverage.

We also added a pie chart at the bottom right this quarter. You can see the mix of our earning assets across commercial and the various consumer channels. Obviously, we have come a long way in diversifying this business and you can see that subvented loans now make up only 15% of our asset base.

So turning to slide 10, let's look at some key business metrics. On the top left, you can see US consumer originations were $9.7 billion, which is flat to a year ago, but up 9% quarter-over-quarter. As we talked about before, this is a good level of originations for us. It is getting us a good mix of business and we are holding the line on asset quality while at the same time, we are able to grow the portfolio as you see in the bottom left as originations are exceeding portfolio amortization.

On the top right, you can see our origination mix. We continue to diversify our originations away from subvented retail loans. We were only 16% this quarter, which is down from 23% a year ago and down from 58% in 2009. We are replacing this volume with a good mix of diversified new, used and leased products.

I will make a brief comment on lease as it was particularly strong this quarter. We certainly like the lease assets. Our infrastructure and risk management gives us a competitive advantage in managing this product. Leases have good margin and are less of a commodity product and it is a real value add for the manufacturers and dealers who look to us as a go-to provider for these programs.

On the bottom right, we show you our commercial outstandings, which increased around $2 billion from a year ago to $32 billion. This is as a result of higher dealer inventory levels and then somewhat offset competitive pressures.

Let's turn to insurance on slide 11. You can see here that insurance reported a pretax income of $61 million, up from $27 million last quarter and that is due to better investment portfolio income, but was down from $100 million a year ago driven mainly due to the higher weather-related losses that we saw unusually early this year. We typically don't see the spring hailstorm show up this early; normally those would hit in the second quarter. Investment income increased $24 million to $58 million this quarter primarily due to generally strong overall market performance, which is more in line with what we saw a year ago.

Our dealer products and services, or DP&S, continues to see strong written premiums with $233 million this quarter. In the US, we are down slightly versus the prior year as $15 million of the $17 million delta that you can see here is due to the wind-down of our Canadian personal lines business. So overall, this business continues to perform well and is obviously an important component to the overall dealer relationship.

So turning to slide 12,, let me make a few brief comments on mortgage operations. We reported a pretax loss of $6 million, which is primarily the result of the process of exiting the mortgage origination and servicing business. On the origination side, gain on sale and processing fees were down as we scaled back production during the wind-down of the business.

And on the servicing side, revenue was down due to some transactional costs related to winding down our derivatives book that was used to hedge our MSR. We have now closed the sale of the MSR and are working rapidly through the final locks that are in our pipeline, which should wrap up this quarter. What is left is the $10 billion held for investment portfolio at Ally Bank, which is a very different credit exposure from what we had previously. Just as a reminder, in 2006, this portfolio was over $135 billion in size.

On slide 13, you can see that our deposit franchise momentum continues to be very strong. Total deposits ended the quarter at over $48 billion. We now have over 1.3 million retail deposit accounts totaling almost $39 billion. This quarter, we saw the highest deposit growth since the first quarter of 2009 with $3.7 billion of additional retail deposits, which we show in the bottom right chart.

We continue to see particularly strong growth in savings balances from both new and existing customers. CD retention rates continue to be very strong and we continue to attract more and more customers that are shifting to the direct bank model for their savings and banking needs.

I should also mention that deposit growth that we have seen over the last two quarters has been unusually strong. We would expect to see it moderate pretty significantly going into the second quarter. We tend to see some outflows in the second quarter driven by tax payments and you can see that seasonal dynamic in the chart.

So before I turn it back over to JB to make some finishing comments, I want to take you through liquidity on slide 14. You can see in the top right chart that our parent company liquidity increased from just shy of $16 billion to almost $20 billion this quarter primarily due to the proceeds received from the Canadian business sale. Our liquidity metrics are very strong and at this point, we continue to be focused more on optimizing liquidity versus sourcing liquidity given the flexibility that we have.

Our strong deposit growth the last couple of quarters has allowed us to reduce the size of credit facilities, which we recently renewed and helps us to lower our overall cost of funds. The ABS market continues to be very supportive. We issued another $2.6 billion in securitizations this quarter and that includes a $1 billion dealer floorplan securitization where we were able to bring the AAA spreads down to 45 basis points and that compares to 175 basis points just three years ago.

So we will continue to maintain strong liquidity, look to reduce cost of funds as we rationalize excess liquidity and refinance debt maturities primarily with lower-cost secured debt and deposits. With that, a will turn it back to JB.

Thanks, Jim. I just want to give some perspective on capital levels and the stress test results. I think despite the stress test results, we have some of the strongest capital levels in banking today, especially when you consider the risk profile of the balance sheet. The new Ally has a balance sheet primarily comprised of US consumer and commercial auto loans, which are very predictable and very low loss assets.

We were surprised and disappointed by the sudden change in the CCAR loss models and subsequent results, especially in considering the derisking that has occurred inside the Company over the past several years and particularly how far we have come over the past 12 months.

Now if you looked at all the stress ratios, you will see that Ally was near the best performers in every ratio other than Tier 1 common. We were the best performer on Tier 1 leverage and about third or fourth on total capital in Tier 1 capital. We failed quantitatively due to the miss on Tier 1 common.

In summary, there are essentially three reasons why we failed the stress test. Number one, the Fed noted the pending nature of the ResCap bankruptcy; number two, the Fed used loss assumptions on the dealer floorplan in retail auto book that we do not believe are representative of how these assets behave in a severe stress. For example, the loss rate assumed on the floorplan book by the Fed was more than 7 times what we experienced during the great recession and 3.3 times what the Fed assumed last year in CCAR 2012. And number three, the composition of capital. Assuming the MCP was counted, you would have a Tier 1 common ratio of 7.6%, which would have been above industry averages in the stressed banks.

We obviously said a lot on March 7 publicly, but more importantly, we have engaged in constructive dialogues with our regulators providing feedback that will lead to our future resubmissions. I think the world knows we want to address the MCP. That is the next natural evolution in capital normalization at the Company. We don't like the 9% dividend and we especially don't like capital, the regulator doesn't count. And as you have heard us say, selling the international businesses was primarily designed to allow for this. So we have got further work in this space and recognize we need to close out some of our key focus items before we can move this forward.

Assuming we can be successful in taking care of the MCP, TARP repayment will go from 35% today to 70% tomorrow. We would hope everyone in DC could rally behind this point and still recognize management and the Board would never jeopardize the safety and soundness of Ally's future. So more to come and again, we understand we have work to do.

From a qualitative perspective, we take the Fed's feedback very seriously and we are engaged in remediating their concerns and feel confident we can have the appropriate models and framework in place prior to resubmission and well ahead of CCAR 2014.

Now turning to slide number 16, I think I would just wrap up real quickly saying, look, we are pleased with core business trends. Obviously, we have got some priorities to address in the coming weeks, but, with that, I think we will turn it back to Michael and open it up for Q&A.

Operator, we are ready to take calls from investors. If you could just remind folks how to queue up to ask a question?

(Operator Instructions). Kirk Ludtke, CRT Capital Group.

Good morning, everyone. I just had a couple questions. On slide 19, the international sale update, you are reporting some big gains on these sales, which is great. Can you talk about the tax impact in each of these categories, if you can, if any?

And we can certainly provide you some more details, but prior to the sales, we looked at ways to shelter as much of the gains from a full tax impact and I think we were able to employ some good tax strategies. So there will be a tax impact, but not at a normal mid-30%s.

It will be something less than that?

It will be much less than that, yes.

Okay. That is great. You mentioned the seasonality of the US retail business. Other auto loan players have mentioned that a delay in tax refunds negatively impacted the quarter. Did you experience that?

As far as credit performance or --?

Yes, yes.

No, I think what we saw were pretty normal seasonal patterns and nothing that stood out from our perspective.

Okay. Maybe your portfolio is a little higher quality.

We like to think so.

You are obviously ramping up the leasing portion of the portfolio. And I am just curious if you can provide -- do you have a target percentage of originations? And also on the new leases you write, can you give us a sense for your expectation for used vehicle pricing that you are baking into those leases?

Yes, the first thing I would say is I would characterize the leasing as more of a normalization versus ramping it up. I mean there was a period historically where the lease volumes were lower than they had been on historical averages. So think of it more as a normalization, kind of in the mid-20%s to 30% is kind of where it has been historically and that is probably where it is going to be for the near future.

As far as residual pricing, we have a team of people that work diligently on setting our residual values that we use in pricing the product. We don't expect used car prices to remain at the high levels that they are now. So we are certainly factoring that in to how we manage the risk in this product.

Okay, thank you. That's helpful. And deposit growth has really ramped up and why do you think that is? Are you -- has anything changed with respect to the rates you are offering or --?

Kirk, this is Barbara Yastine. Number one, we were somewhat favorably positioned on pricing in our liquid products in the first quarter. So that actually is a plus, but it does -- a piece of this also goes to what Mike talked about in the actual maturation of business. I mean we now have 700,000 customers and they are helping us bring in more customers every day. Jim mentioned that we would expect to see probably a significant moderation of that growth in the second quarter. Part of that just simply is because we had so much growth in the first. If we look historically at what happened, you do get a little withdrawal following that and then we also have April tax season. But, over time, we think that we have built the franchise in such a way that we do have more volume headed in our direction than we would have had historically in the past.

Great, that's helpful. And then just one last question. I guess the examiner's report is due May 13. As far as you know, is it on schedule?

We're told that is a firm deadline.

Awesome. I appreciate it. Thank you.

Eric Selle, JPMorgan.

Hey, good morning. Looking at slide 9, if you look at floorplan at 28% and subvention at 15%, post -- pro forma for the asset sales and the fade of the exclusivity, where do you think those numbers are going to go? Have these numbers troughed and if not, what other areas are expected to experience growth to take up that part of the pie on slide 9 of your earning assets?

So Bill, why don't you answer that question?

Sure. Well, I think the change we expect to continue to see is that, over time, the subvented business is going to continue to become a smaller portion of the pie on the consumer side. I would expect that the relationship between floorplan and the consumer assets would remain relatively stable. So you are going to continue to see the transformation that has occurred as we move away from the retail subvented business and see more standard business, used and lease.

That's great color. So the floorplan should be stickier, the relationship not driven by the OEM is what we were expecting. Backing up to slide 7, we have seen this -- and back to Kirk's question -- we have seen this on a lot of companies as their portfolios normalize. You are three years into looser underwriting standards and it is assumed that your delinquency would rise. We are still seeing 43 basis points year-over-year rise and if you look at the first quarter of last year to the fourth quarter of last year, delinquencies almost doubling over that period. I guess it is hard to tell, but is that 1.5% delinquency going to go to 3% by the end of the fourth quarter or have we gotten more stabilized in that three-year asset portfolio?

Well, I think what I would say is we would expect delinquencies and charge-offs to increase somewhat on a seasonal basis as we go through the year. Our portfolio mix continues to normalize. Remember, we were coming off of a period a couple years ago where we had -- the quality of the portfolio was just unsustainably high. So if you look at our historical metrics, you are going to see us start to trend that way. I think because of our underwriting changes and whatnot, we will top out at levels below that. But it is going to be at something above where we are today, which is what our models would project and so far, we are tracking exactly the way we have been underwriting the product to perform.

Right. I imagine there is plenty in between yourself and the advance rates or the stress test assumptions. Also, we heard today ING US is planning to file an IPO. I don't know if you have looked at it, but post clearing up ResCap, do you think a sale of Ally or an IPO is more likely?

Look, we are very focused on what is the exit strategy for the US Treasury. That is very important to us and we are going to do what we have to do to do that. If I had to put money on it right now, I would say the IPO is the best alternative.

That is great color. And then a lot of asset sales. I think you said you used the $4 billion of the asset sales to date to pay down secured debt. What is left and what is the use of proceeds? You did mention you wanted to get rid of the MCPs. But do you have enough liquidity to take those out? Is that what we should assume over the summer months as the other ones close?

Yes, I mean obviously the MCP dynamic is one we have got to work through the Fed on and our regulators on. And we have to address their feedback coming out of CCAR. But, yes, we are sitting on plenty of liquidity today and I think depending on what transpires with the MCP, as we have said, we said a lot on our last earnings call. We still have about $10 billion of callable debt that we would expect to address, but you want to sort of play this out in a sequence and obviously our highest priority is taking care of the MCP. So that becomes step one and we think we are adequately positioned to do that today.

All right, thank you. And then finally, I guess this is the $10 billion question and maybe my second part of it will be something you could answer, but everybody is trying to find an upward bound potentially for your rep and warranty liability. We did the math and you guys have paid a ton down towards this and obviously home prices are going up improving that, do you have any sense of the upward bound of that liability should the debtors at ResCap win?

And I guess the other way of asking that is you guys paid I think $2.4 billion in cash payments to settle that through the first half of 2010. What cash payments have you made since then and just what would be the worst-case scenario? It may or may not be something you can answer and something I can work with Michael offline, but just kind of your comment on that of those potential liabilities.

We are all very confused about where your $2.4 billion comes from. That doesn't sound right. But, anyway, the situation I would describe is this. The rep and warrant issues have to do solely with the performance of ResCap as a servicer. ResCap was a SEC filer in its own right, has its own independent Board of Directors. It has an operating agreement with the parent. Every transaction between the parent and the subsidiary was subject to fairness opinions, etc., etc. And so we do not believe that Ally Financial has any responsibility for claims against ResCap for rep and warrant issues, any.

We believe that the only basis on which the creditors could assert such a claim would be piercing of the corporate veil. We think the chances of that being caught over time is zero. And so we would argue that the exposure of AFI to large numbers for rep and warrant claims that are clearly those of ResCap is extremely low.

That is a different question than the negotiations are ongoing via mediation between Ally Financial and the ResCap creditors to settle and move on. I will politely call it a hostage payment. We put on the table $750 million hostage payment and we continue in a mediation process. We believe that if we are prepared to go in the direction of litigation and in the event that we go in that direction, we believe we will be fully and completely vindicated over time. There will be some more disclosure in the Q, which is forthcoming.

That is great color. I will work with Michael on the cash out after the call. But I appreciate that color and your time.

Eric, if I wasn't definitive enough, I am happy to repeat myself.

Michael, we love your candor and I don't mean to pin you down on these calls. We love your candor. It is very definitive and clear.

Thanks.

George Brickfield, Seaport Group.

Good morning. I just have a couple questions. First, on the Chrysler relationship, should we assume that there will be very limited subvented financing origination going forward with them?

Why don't we ask Bill Muir to answer that?

So May 1 is the end of our agreement with Chrysler and the beginning of their new relationship with their virtual captive. So our understanding is that all of the APR, the advertised APR programs are going to run through Chrysler Capital so that there will be no kind of traditional subvented business going to anyone else in the future. So we would say the pure subvented business from Chrysler should go to zero pretty quick.

Having said that, what I think Chrysler will do instead is they are going to provide significant cash alternatives, which is going to allow us to kind of compete for the business in the standard market and be very effective in continuing to help our Chrysler dealer customers to finance vehicles. In addition to that, there is also going to be an opportunity for us to continue to support the leasing of Chrysler vehicles with cash that is going to be provided into the marketplace for lease cash in essence.

So yes, I mean the advertised subvented programs are going to go away, but our ability to continue to participate in both the retail and lease segment with our Chrysler dealers is going to continue for us.

Okay.

And just for context, the Chrysler subvented business, if I recall, the number is like 3% of our volume.

Yes, that's right. And so most of the Chrysler business we do today is not the subvented stuff.

Okay. And then just to jump around a little bit, on the MCP, do you think it will be possible based on your conversations with the Fed to do something with that before next year's CCAR?

We are not allowed to discuss conversations with the Fed in that regard.

Okay. Have you guys launched --

George, we obviously have a resubmission process that we are going through at this time.

Okay.

We have to resubmit before next year.

Got you. All right. And at the bank, some of this deposit growth, is this coming from -- are there any new products that you are launching there or have launched there or intend to launch there in the next couple of quarters?

No, the growth hasn't come from any particular new product, so we continue to see growth in our IRA products that were launched about a little over a year ago and we are constantly looking at new products to fill in the product set, but I wouldn't expect anything dramatic in the near future.

George, on the bank side of the equation, on the deposit side, when you start out growing a business, and this business started at ground zero in 2009, right, you invest, you invest, you invest and at a certain point in time, you get to critical mass and that is evidenced by things like 45% recognition in the marketplace, up from zero about three or four years ago. And I think this business has gotten to a critical mass and it helps that some of the key competitors have fallen by the wayside in the process. That helps. It helps that direct banking is the wave of the future. It helps that we have got an incredible recognition for the quality of our website, our customer service and we really believe we have a differentiated offering to the consumer as well.

I hate to -- I know we are all looking for what, what particular lever drove this quarter. My answer is it is not a particular lever; it is the sum of -- it is a strategy that has been consistently implemented over a three or four-year period that is showing its resilience and coming to flower.

That is very helpful. Thank you. I guess my concern is, when I talk to investors, a lot of them are concerned, as am I a little bit, that when rates do go back up, will people gravitate back towards the traditional brick-and-mortar branches away from the online branches.

You mean because of their vastly superior service, which we all as consumers are familiar with?

No, I think the concern is that because they are paying 1 basis point and if they go back to anything, people may -- the transition over to online will diminish.

George, it's Barbara Yastine again. You don't see that historically happening. As Mike said, you see the direct bank and let's call it the direct bank only segment of domestic deposits continuing to grow over the last 10 years right through interest rate increases. And we also spend a lot of time looking at consumer behavior and there is nothing there that would indicate that they are going to be thrilled to run back to JPMorgan for a 20 basis point return.

Okay, thank you. And then just a final question on ResCap, if I may. There has been press reports out there that you have put a new offer on the table, call it a hostage payment, if you would. Has there been a new higher offer to them and is it still outstanding or has it been withdrawn or where does it stand?

All conversations with the Department of Mediation are confidential and again, I would encourage you to read the Q when it comes out probably later today.

Okay, thank you. Those are all my questions.

David Lapierre, Loomis Sayles.

Hi, congrats on the quarter. Just a quick question on the mortgage side. Accounting wise, what should we expect to see going forward? I am guessing you wouldn't have the gains that you have historically had on originations and things like that. Should we just expect maybe a modest breakeven there from the held portfolio?

Yes. What you will see is you will see net interest income from the $10 billion held for investment portfolio and then you will see any credit-related costs and obviously servicing costs associated with that portfolio. So to the extent that credit costs maintain at current levels, then you would expect to be roughly about breakeven.

And, David, I would add with a lot less volatility than historically because the MSR was such a huge source of volatility for us.

Great. Okay. And I guess maybe you would be opportunistically in the market just looking to add to the portfolio from time to time or maybe just less frequent additions to the portfolio?

We are always opportunistic. But for now, for the foreseeable future, just think of it as in the same ZIP code where it is now.

Okay. Great, thank you.

All right, great. Thanks, everyone, for joining us today. That is all the time we have this morning. If anybody has any follow-up questions, feel free to reach out to Investor Relations. Thanks, operator.

You are very welcome. Ladies and gentlemen, this does conclude our presentation today. Thank you so much for your participation. You may now all disconnect. Have a great day.