Sounds familiar…
Some of you will remember me whining (I do that sometimes) about having to compete with mega-banks now flush with cash courtesy of the US Government. Well it seems the boys at the American Bankers Association have the same heart burn and have been lobbying congress for support of “the little guys”.
ABA Concern Over GMAC/Ally Bank Rates Attracts Attention
ABA’s May 27 letter to FDIC expressing concern about GMAC Bank/Ally Bank’s use of above-market interest rates to fund rapid asset and deposit growth while under significant financial stress — including $13.5 billion federal support of its capital position — is attracting attention. Several news outlets have covered both ABA’s letter and Ally Bank’s response, in which CEO Al de Molina boasted that “Ally Bank has capital well in excess of FDIC requirements and is better capitalized than many of your members.”
But ABA noted that much of GMAC/Ally’s capital comes from government support, which the bank is leveraging in a questionable manner to fuel its growth.
ABA also pointed out yesterday that when the FDIC recently authorized GMAC to issue up to $7.4 billion in guaranteed debt under FDIC’s Temporary Liquidity Guarantee Program, GMAC promised to develop a funding plan “with a focus on diversifying funding and deposit sources and reducing the bank’s overall cost of deposit funding” as part of the agreement.
Yet as of June 2, GMAC/Ally — which lost $122 million in 2008 and $133.5 million in this year’s first quarter — was offering annual percentage yields of 2.8 percent on one-year CDs that were more than double the national average of 1.2 percent, and six-month CDs with a 2.1 percent APY, far above the national average of 0.94 percent.
ABA continues to press for a solution, concerned that the bank, in which the government holds a controlling interest, is engaging in risky financial strategies that could harm both it and other industry members.
Normally I wouldn’t say this to bankers, but…You go boys!
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