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Slumping stock likely to keep Ally away from 'sizable' M&A

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Slumping stock likely to keep Ally away from 'sizable' M&A

CEO JeffreyBrown downplayed the company's ability to pursue a large M&A transactionwith its stock selling at a relatively steep discount to book value.

"Givenwhere the stock trades today, it would be very hard to think about doing anytype of sizable deal," Brown said in response to an analyst's questionduring a conference call. Ally's shares closed July 25 at $17.63. The companyreported a June 30 adjusted tangible book value per share of $25.85, accordingto a July 26 earningsrelease.

Thecompany recentlyannounced that its board had authorized the repurchase of up to$700 million of its common stock and declared a quarterly cash dividend of 8cents per share. Brown said that executing Ally's immediate strategicpriorities and returning capital to shareholders through those means representthe company's near-term focus.

"Throughtime that could change and we will reprioritize [M&A] at that point intime," he said. "But right now it's more [about] closing andconsistent execution."

Brownsaid that Ally management had received feedback that the introduction of thedividend represented "an important ingredient needed to attract newentrants into the stock." The buyback program is "particularlyimportant tool" to optimize returns and generate long-term shareholdervalue, he added, given that Ally's shares are "trading at such a discount."

Ally,which had been largely absent from M&A in its current form, completed the$275 million acquisition of broker/dealer in June. But it ispursuing other diversification efforts through organic means and, in the caseof its recently introduced credit card offering, an with a subsidiary.

Brownsaid during the call that Ally expects to launch a direct mortgage originationcapability during the fourth quarter. He characterized that function as"modest" in nature, and he reiterated that Ally would not retainmortgage servicing rights on the business it produces.

"It'sa very different model than maybe GMAC of the past," Brown said inreference to the ResidentialCapital LLC business of Ally's predecessor, "but we thinkmortgage is another natural credit product to extend there."

Allypurchased approximately $1 billion in prime jumbo mortgages during the secondquarter, CFO Christopher Halmy reported.