Ally Financial is entering a phase where its funding cost headwind may finally reverse. During the 2022-2023 rate-hiking cycle, Ally aggressively repriced deposits upward to retain customers on its digital-only platform, locking in a cohort of high-cost CDs. As those maturities roll through 2025-2026, the bank should gain sequential NIM expansion without needing rate cuts to do the heavy lifting.
The headline numbers are modest: FY revenue of $7.9B represents a 3.3% YoY decline, and diluted EPS sits at $2.37 against a still-thin 10.8% net margin. The revenue contraction reflects the squeeze from elevated deposit costs running through the income statement, which is precisely the dynamic the deposit roll-off thesis aims to resolve.
The bull case centers on NIM recovery — if even 20-30 bps of liability repricing flows through over the next two to three quarters, EPS leverage could be material given the fixed-cost base of a digital bank with no branch network. Auto origination volumes are the other variable: Ally has been tightening credit standards since late 2023, which crimped loan growth but should improve loss rates heading into 2025.
The bear case is real: auto credit normalization is still incomplete, and if used-car prices continue to soften, net charge-offs could offset whatever NIM benefit the deposit roll-off delivers. Ally also has meaningful exposure to subprime and near-prime auto borrowers, a segment that tends to deteriorate in a slowing consumer environment. The revenue decline year-over-year is a reminder that the tailwind thesis has been anticipated before and hasn't yet shown up in reported numbers.
Key things to watch: the next quarterly NIM disclosure, deposit retention rates as high-cost CDs mature (will customers leave for Treasuries or stay at lower rates?), and auto net charge-off trends. The interplay between those three variables will determine whether the deposit roll-off thesis translates into earnings or simply reprices into a smaller balance sheet.