Ally Bank 2011 Annual Report Download - page 20

Table of Contents
Ally Financial Inc. • Form 10−K
with the United Auto Workers and other labor unions and other factors impacting GM or Chrysler or their respective employees, could have a material
adverse effect on our profitability and financial condition. In addition, growth in our International Automotive Finance operations are highly dependent on
GM, and therefore any significant change to GM's international business or our relationship with GM may hinder our ability to expand internationally.
There is no assurance that the global automotive market or GM's and Chrysler's respective share of that market will not suffer downturns in the
future, and any negative impact could in turn have a material adverse effect on our business, results of operations, and financial position.
Our business requires substantial capital and liquidity, and disruption in our funding sources and access to the capital markets would have a material
adverse effect on our liquidity, capital positions, and financial condition.
Our liquidity and the long−term viability of Ally depend on many factors, including our ability to successfully raise capital and secure appropriate
bank financing. We are currently required to maintain a Tier 1 leverage ratio of 15% at Ally Bank, which will require that Ally maintain substantial equity
funds in Ally Bank and inject substantial additional equity funds into Ally Bank as Ally Bank's assets increase over time.
We have significant maturities of unsecured debt each year. While we have reduced our reliance on unsecured funding, it continues to remain a
critical component of our capital structure and financing plans. At December 31, 2011, approximately $12.0 billion in principal amount of total outstanding
consolidated unsecured debt is scheduled to mature in 2012, which includes $7.4 billion in principal amount of debt issued under the FDIC's Temporary
Liquidity Guaranty Program, and approximately $2.3 billion and $5.8 billion in principal amount of consolidated unsecured debt is scheduled to mature in
2013 and 2014, respectively. We also obtain short−term funding from the sale of floating rate demand notes, all of which the holders may elect to have
redeemed at any time without restriction. At December 31, 2011, a total of $2.8 billion in principal amount of Demand Notes were outstanding. We also
rely on secured funding. At December 31, 2011, approximately $14.4 billion of outstanding consolidated secured debt is scheduled to mature in 2012,
approximately $15.1 billion is scheduled to mature in 2013, and approximately $11.1 billion is scheduled to mature in 2014. Furthermore, at December 31,
2011, approximately $15.0 billion in certificates of deposit at Ally Bank are scheduled to mature in 2012, which is not included in the 2012 unsecured
maturities provided above. Additional financing will be required to fund a material portion of the debt maturities over these periods. The capital markets
continue to be volatile, and Ally's access to the debt markets may be significantly reduced during periods of market stress. In addition, we will continue to
have significant original issue discount amortization expenses (OID expense) in the near future, which will adversely affect our net income and resulting
capital position. OID expense was $925 million for the year ended 2011, and the remaining scheduled amortization of OID is $350 million, $263 million,
and $190 million in 2012, 2013, and 2014, respectively.
As a result of the volatility in the markets and our current unsecured debt ratings, we have increased our reliance on various secured debt markets.
Although market conditions have improved, there can be no assurances that this will continue. In addition, we continue to rely on our ability to borrow from
other financial institutions, and many of our primary bank facilities are up for renewal on a yearly basis. Any weakness in market conditions and a
tightening of credit availability could have a negative effect on our ability to refinance these facilities and increase the costs of bank funding. Ally and Ally
Bank also continue to access the securitization markets. While markets have continued to stabilize following the 2008 liquidity crisis, there can be no
assurances these sources of liquidity will remain available to us.
Our indebtedness and other obligations are significant and could materially and adversely affect our business.
We have a significant amount of indebtedness. At December 31, 2011, we had approximately $101.6 billion in principal amount of indebtedness
outstanding (including $53.0 billion in secured indebtedness). Interest expense on our indebtedness constituted approximately 57% of our total financing
revenue and other interest income for the year ended December 31, 2011. In addition, during the twelve months ending December 31, 2011, we declared
and paid preferred stock dividends of $794 million in the aggregate.
We have the ability to create additional unsecured indebtedness. If our debt service obligations increase, whether due to the increased cost of existing
indebtedness or the incurrence of additional indebtedness, we may be required to dedicate a significant portion of our cash flow from operations to the
payment of principal of, and interest on, our indebtedness, which would reduce the funds available for other purposes. Our indebtedness also could limit our
ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions.
The worldwide financial services industry is highly competitive. If we are unable to compete successfully or if there is increased competition in the
automotive financing, mortgage, and/or insurance markets or generally in the markets for securitizations or asset sales, our business could be negatively
affected.
The markets for automotive and mortgage financing, banking, and insurance are highly competitive. The market for automotive financing has grown
more competitive as more consumers are financing their vehicle purchases and as more competitors continue to enter this market as a result of how well
automotive finance assets generally performed relative to other asset classes during the 2008 economic downturn. More recently, competition for
automotive financing has further intensified as a growing number of banks have become increasingly interested in automotive−finance assets, which has
resulted in pressure on our net interest margins. For example, on April 1, 2011, TD Bank Group announced the closing of its acquisition of Chrysler
Financial, which could enhance Chrysler Financial's ability to expand its product offerings and may result in increased competition. Our mortgage business
and Ally Bank face significant competition from commercial banks, savings institutions, mortgage companies, and other financial institutions. Our
insurance business faces significant
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