May 16, 2009
Wanting to leave its own problems behind, auto and mortgage-financing firm GMAC LLC has dropped its own name and re-launched itself as Ally Bank. The company has been suffering from billions of dollars in losses since the mortgage crisis hit. Currently, it has an $11.5 billion in capital shortfall.
The bank’s chief marketing officer, Sanjay Gupta, has revealed that the company wanted to new name that will eliminate the baggage that most banks have to deal with after they received billions in bailout money. Last December, GMAC received $6 billion in bailout money including $5 billion from the Trouble Asset Relief Program.
Plugging the Capital Shortfall
“Ally” was selected as the new name because of its implications that the bank is a friend and a trusted partner for consumer’s banking needs. Gupta said that, it contains the “attributes we are trying to convey”. GMAC LLC expects that this move will help them gain more customers. The new image is expected to attract retail depositors which are a crucial funding source with today’s credit squeeze.
The improved bank deposits will help fill the gaping $11.5 billion capital hole as was revealed in the stress test results. Nineteen banks took the so-called stress test and ten banks, including GMAC, were told to raise their capital. Despite all strategies on the contrary though, many experts still believe that the company will need another bailout in order to survive.
Attracting Retail Deposits
Long before GMAC LLC decided to rename itself as Ally Bank, it was already offering above-industry average industry yields for consumers. A lot of lenders have tried this strategy since the financial crisis hit in 2007. Ally Bank will offer a 2.8 percent rate on a one-year certificate of deposit even if the industry average is around 2.29 percent.
This strategy appeared to work. The bank’s deposit showed a significant increase during the first quarter. It experienced 16.5 percent improvement to $22.5 billion which is broken down as $11 billion in retail deposits, $9.5 billion in brokered deposits, and $2 billion in other types of deposits. In addition, Ally Bank expects more federal funding because of its status as the preferred lender for vehicles made by the now-bankrupt Chrysler LLC.
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