Ally Bank 2014 Annual Report Download - page 81

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
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for the year ended December 31, 2014, which was lower than for the year ended December 31, 2013, where cash used to repay debt exceeded
cash from long-term debt issuances by $4.6 billion.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodic internal stress tests, is subject to an annual
supervisory stress test conducted by the FRB, and must submit an annual capital plan to the FRB. In October 2014, the FRB issued
instructions and scenarios for the 2015 capital planning and stress test processes.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must
also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios and above a Tier 1 common equity-to-
total risk-weighted assets ratio of 5%, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally
may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution
if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution. Ally expects
that, on March 11, 2015, the FRB will either object or provide a notice of non-objection to Ally’s 2015 capital plan, which was submitted to
the FRB on January 5, 2015 with planned capital actions.
On January 5, 2015, Ally submitted the results of its semi-annual stress test to the FRB and must publicly disclose summary results of
the stress test under the most severe scenario in March 2015 in accordance with regulatory requirements. In addition, Ally Bank submitted the
results of its annual company-run stress test to the FDIC on January 5, 2015. Ally Bank must also conduct a stress test under the severely
adverse economic scenario, and summary results of this test must be publicly disclosed.
On October 17, 2014, the FRB issued a final rule that modifies the capital plan rule and stress testing requirements. Among other things,
beginning in 2016, bank holding companies must submit their capital plans and stress testing results to the FRB on or before April 5 of each
year.
Regulatory Capital
Refer to Note 21 to the Consolidated Financial Statements.
Credit Ratings
The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the
creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital
markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt
and the two highest rating categories for short-term debt (particularly money market investors).
Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings
and outlook by the respective nationally recognized rating agencies.
Rating agency Short-term Senior debt Outlook Date of last action
Fitch B BB+ Stable April 1, 2014 (a)
Moody’s Not Prime B1 Positive July 14, 2014 (b)
S&P B BB+ Stable December 12, 2014 (c)
DBRS R-4 BB Positive September 17, 2014 (d)
(a) Fitch upgraded our senior debt rating to BB+ from BB and affirmed our short term rating of B on April 1, 2014.
(b) Moody's affirmed our corporate family rating of Ba3, senior debt rating of B1, and short-term rating of Not Prime and changed the outlook to Positive on
July 14, 2014. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody's related to their providing of our
corporate family, senior debt, and short-term ratings. Notwithstanding this, Moody's has determined to continue to provide these ratings on a discretionary
basis. However, Moody's has no obligation to continue to provide these ratings, and could cease doing so at any time.
(c) Standard & Poor's upgraded our senior debt rating to BB+ from BB and affirmed our short term rating of B on December 12, 2014.
(d) DBRS confirmed our senior debt rating of BB, confirmed our short term rating of R-4, and changed the trend on Ally's senior debt to Positive on
September 17, 2014.
Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the
A.M. Best Company. The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations to
policyholders. Lower ratings generally result in fewer opportunities to write business as insureds, particularly large commercial insureds, and
insurance companies purchasing reinsurance have guidelines requiring high FSR ratings. On April 17, 2014, A.M. Best affirmed the FSR of B
++ (good) and upgraded the ICR to bbb+.