August 2, 2019

What Other Lenders Can Learn from Ally Bank's Recent Pivot

EXCERPT: Ally Financial is selling one portfolio and adding another product to strengthen its loan portfolio, and other banks should follow suit.

Ally Financial has agreed to acquire Health Credit Services and take its point-of-sale lending to the retail sphere.

For banks and lenders, having a strong loan portfolio is essential for obvious reasons, and that often takes a few sale and acquisition transactions to get it right. And one bank is taking steps to do just that.

Ally Financial is trading in its credit card business for point-of-sale loans. While both are forms of unsecured lending, Ally is experimenting with shifting its loan portfolio around to pad its profits while remaining competitive and hedging against risk.

Ally partnered with TD bank in June 2016 on credit card products in an effort to have more products to sell to auto loan borrowers and online depositors. The risk for Ally was somewhat small, considering TD was the one that would take any credit losses. That said, the low risk also meant a lower return, as Ally had fewer chances to profit from the cash rewards credit card.

Ally eventually determined that the venture wasn't as profitable as it had hoped and didn't present the types of opportunities needed.

The bank recently announced its decision to acquire Charlotte, N.C.-based Health Credit Services in a $190 million transaction. As the name suggests, Health Credit Services offers unsecured consumer financing for medical procedures. Ally's interest in the deal is to take the company's point-of-sale lending into the retail sphere.

No balance sheet will be transferred to Ally once the transaction is done, and instead, Ally will originate its own point-of-sale loans and as part of its balance sheet. Right now, two banks and a credit union are originating Health Credit Services’ loans.


Diversifying loan portfolios by selling off underperforming assets in exchange for stronger ones can help banks remain competitive.

Ally's ongoing interest in the unsecured lending space continues with its eyes on acquiring point-of-sale loans and adding them to its portfolio. Such lending continues to rapidly expand, given the growth of technology that allows consumers to get approved for loans quickly and easily, all from the convenience of their mobile devices.

As such, the opportunity to add robust and profitable loan assets to the books will help both diversity and strengthen Ally's loan portfolios.

Other banks and lenders should learn from Ally's recent endeavors to maintain a strong loan portfolio, as this will help financial institutions be better able to withstand any potential economic downturns.

For most banks and financial institutions, loans are the biggest source of credit risk. Without appropriate measures to manage loan portfolios, not only do lenders risk profit losses, but they're also more vulnerable to losing entire revenue streams.

With a seasoned loan sale advisor, buying and selling loan assets in sound transactions can help firms maintain stability. At Garnet, we have an expansive network of competent buyers ready to take on loan assets you seek to sell while helping you source the appropriate assets to take their place. Garnet has similar point of sale programs available for banks and credit unions, and we're ready to help creditors with their buy/sell goals.

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