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Oaktree Capital Boosts Holdings in Ally Financial

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Oaktree Capital’s holdings in Ally Financial

Oaktree Capital increased its holdings in Ally Financial (ALLY) from 8,256,030 shares in 3Q14 to 9,328,530 shares in 4Q14. This represents a 13% increase. ALLY represented 2.36% of the fund’s 4Q14 portfolio.

Ally Financial is a 0.26% part of the Vanguard Financials ETF (VFH) and a 0.23% part of the iShares U.S. Financial ETF (IYF).

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Ally Financial: An overview

Ally Financial is a prominent automotive financial services firm that’s backed by a major bank. The firm operates as a financial holding company and serves more than 16,000 dealers and 4 million customers.

Ally Financial’s auto finance business is based on the company’s longstanding and strong relationships with a large array of auto dealers throughout the US. A wide range of services and products are offered by the company, including floor-plan insurance, used vehicle loans, new vehicle loans and leases, dealer working capital, real estate loans, and its SmartAuction service to resell vehicles.

Significant improvement in shareholder returns during 2014

Ally Financial reported net income of $1.2 billion in 2014 as opposed to $361 million in 2013. Adjusted earnings per share massively increased from a loss of $0.14 in 2013 to $1.68 during 2014.

Ally Financial trades at a PE (price-to-earnings) ratio of 15.4x. Meanwhile, Santander Consumer USA Holdings (SC) has a PE ratio of 10.7x and Nationstar Mortgage Holdings (NSM) trades at a PE of 10.1x.

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Strong financial metrics

The company’s revenues rose during 2014, while the cost of funds decreased, as outlined in the chart below.

Ally Financial gets out of Troubled Assets Relief Program with a focus on the future

In December 2014, Ally Financial announced that the U.S. Treasury Department was selling its remaining holdings in the company, ending the US government’s last prominent investment in TARP (Troubled Asset Relief Program). The Treasury initially invested $17.2 billion in Ally Financial and received $19.6 billion in return—in excess of $2.4 billion more than its initial investment.

Ally Financial joined TARP in 2008 as part of an effort to stabilize the US auto industry. The firm went on to become a major provider of auto finance. It conducts business in three segments.

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Ally Bank

Retail deposits grew by 11% year-over-year to $48 billion. The banking segment’s customer base expanded by 16% year-over-year to ~909,000 primary customers. A revamped Internet banking platform was launched in January, offering enhanced features and simpler functionality to manage accounts.

Automotive Finance

Consumer auto financing originations added up to $9 billion in the quarter, a 10% increase year-over-year. In all of 2014, originations totaled $41 billion, the highest since 2007. Auto earning assets rose by $3.7 billion year-over-year.

Insurance

The Dealer Products & Services group saw written premiums grow to $248 million in 4Q14. A major vehicle service contract was previewed, namely Ally Premier Protection. A roll-out is expected later in 2015.

In the next part of this series, we’ll review Oaktree Capital’s enhanced position in Itau Unibanco (ITUB).

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