Ally Financial Inc. ($ALLY)

All right. Good morning, everyone, and thanks for joining. My name is Rob Wildhack. I cover the consumer finance group here at Autonomous. We're very excited to have Michael Rhodes, back with us today. Michael is the CEO of Ally and he's been in the seat for a little more than 2 years. It's great to have you back again, Mike.

Thanks. It's great to be here.

We are using pigeon hole for the Q&A this year, so you can submit your questions there, you vote on questions that are already submitted. I can get them over to Michael, and now we can get started. In your shareholder letter, Michael, you rolled out a refined strategy over the last year or so, and this time introduced the term focused forward. And I'm wondering how that strategy positions Ally better. How does focus -- or where are you most intentionally focused to drive durable and sustainable long-term value?

Rob, thanks, and thanks for being here and facilitate this conversation. And yes, I did just past 2 years in the role, and we did launch this term focus forward and you could ask any one of our 10,000 colleagues inside of Ally to summarize our strategy in 2 words and quite confident they'll say focus forward. And this represents a strategy that we've been discussing for a while now that we've been -- really been very disciplined in executing against over the past year plus. And early ins, but we're really encouraged by what we're seeing in this. And for us, focus, it really represents leaning into the businesses where we believe a sustained competitive advantage and a reason to win. Those are places where we have either long-standing relationships -- as a combination of long-standing relationships, unique capabilities, relevant scale and we pick places through we're really going to lean in and focus, and that's our dealer financial services platform, it's the consumer bank and corporate finance. And strategy is about choices. And so the choice we made was, okay, we're not going to be in the card business anymore, and we sold that. And we stopped originating mortgages. We were in originate to sell mode, but we still have some of the balance sheet. We stopped forging them and really just focusing our energies and resources in the places where we feel very good about our ability to compete and win. What I love about this strategy is, if you think about these 3 markets that I said we're in, it's corporate finance, dealer financial services and the consumer bank, they all have some common factors that we get really excited about. They're attractive markets, they're large markets, and they're fragmented, and we have relevant scale. And being in a place where a large attractive markets with relevant scale means those who are really [indiscernible] life blood, it gives you the ability to really start compounding advantages. And we think we're in a situation where we can actually do that to both increase returns and increase growth. Again, I mentioned early innings, but if you look at the results last year, '25 versus '24, EPS was up 60%. First quarter of this year was up 90%. Clearly, not promising 90% both on year-over-year and on an ongoing basis. But a nice earnings trajectory there. Our CET1 was up 60 basis points. Our ROTCE was up 400 basis points to 11%. And part investment thesis is to maintain expenses relatively be disciplined about expenses. We put a 1% guide for this year. We feel good about that guide. I could be quarterly movement here and there, but we feel good about that guide. And so we think we've done the right things and in making these pivots, we also took risk out of the bank. And this is -- the risk we took out was unsecured credit risk interest rate risk as well. And we use some capital from the card sale to restructure our balance sheet, at least on some security side and then clearly not having a long dated even putting long-dated mortgages is very -- and so today, we find ourselves to be a stronger organization, stronger foundation, strength and focus. I think it really tees us up well for what's ahead.

Very good. We'll go from 30,000 feet to 300 feet. The macroeconomic and geopolitical landscape today are dynamic to put it mildly. What do you do as a CEO as a management team to position the business to perform when the external world is marked by such a tremendous amount of uncertainty?

Lot of uncertainty. And to be fair, a lot of data points that you don't usually kind of see together in one place in this environment. And I'll start by saying that we're pleased with how our portfolio is performing. And that's probably made the most important say. At the same time, you look kind of on a forward basis, and you've got these conflicting signals, consumer confidence all-time low, yet consumer spend is actually holding up pretty well in many, many categories. Real wage growth is high, but probably slowing down. Personal savings is declining. Against that backdrop, we look at our portfolio and feel good about what we see. And so why is that? I think a couple of things. One is we hear us use the word discipline a lot. We've been really disciplined in terms of how we're actually running our shop, particularly our credit shops, both on the commercial and the retail side. We've made adjustments to our underwriting approach. We've made enhancements to our servicing. And we think that actually serves us really, really well in this type of environment. And if you listen to the first quarter earnings call, we used the word we're going to be measuring disciplined in this environment. I was mentioning earlier that in many ways, the economic data, it's almost like an ink block test, different people can see different things when they look at the data. And we see a portfolio we feel good house performing. We're not blind to what's going on in the world. And so we're going to be very data informed and measure in terms of how we think of this on a go-forward basis.

Very good. The Dealer Financial Services segment, that's the core for Ally, continued to post strong results. And you guys repeatedly referenced dealer relationships as a core competitive -- and so in a business that's intensely competitive, first, why are dealer relationship so important, especially as somebody might think about like a loan as being a somewhat commoditized product. And then how do you continue to maintain and build relationships with...

A great question. Look, our dealer relationships are clearly part of our secret sauce. I very much believe it's part of the competitive advantage. And these relationships are anchored in years, decades, sometimes generations of trust and consistent commitment and that really matters. In the dealer community, we're known as a partner who's going to be there through good times and bad, and the fact that we actually simplified our business model to this more focused approach has resonated really well in the dealer community because they know we're not going to be kind of in and out. Some of our competitors, they almost as almost like a trading stage, let's go and let's go out and see how things are, where they're consistently and the dealers really value that. So having to be such an important core part of our business is part of the advantage of being there through cycles. And our approach for the dealers is, look, we're not trying to be transactional. We're trying to help them be more successful. And we help our dealers be more successful. That means selling more vehicles and a growing and earning a nice return on their business. And we do that by bringing a really comprehensive suite of solutions like no one else does this like us, it's not just the retail auto loans. We also have commercial lending in terms of floor planning, acquisition financing, real estate financing. We offer insurance products. We offer smart auction, which is which is an online auction platform to kind of buy and sell vehicles. And then other fee-based services where the dealers can earn a nice return in their business to support their customers. And so we try to be there for our dealers in a really, really holistic way. And if you look at what this means, take this year as an example in the first quarter and the same was true as last year. First quarter of this year, vehicle sales were down in new vehicle sales, used vehicle sales. Our application volume was up 16%. Last year, application volume was up in new vehicle sales, where I think they're down a bit flat or a bit up. But we're seeing very strong top of the funnel performance in this marketplace. And we think we're getting that because of the strength of the commitment that we with our dealers. And they know we're in there to help them win and the value exchanges as they help us.

You've started to prove the value of those relationships in some of the numbers, right? Price is holding in the originated yield holding in nicely and the STR mix remains elevated. And that's all despite -- as we see competition rising off of what you might call the nadir a couple of years ago. So would you agree with that characteristics competitively? And then why do you think you've been able to be so successful despite an uptick in competition?

So competition -- the factor is competition in this business, there always is, sometimes it's more intense than others. The factor is competition actually proves one of my investment thesis why we're in this in that's an attractive business. And so that folks go in there because they see they can generate attractive returns. And so there's always been competition. Look, we believe that we will win because we bring the combination of the long-standing trust relationship plus a set of capabilities that are really pretty unique. And sometimes we talk about the business being called high tech and high touch. And the high touch is we have our relationship teams that are on the dealer sales floor, the showroom floors every single day. It could be on the consumer side, it could be insurance, it could be commercial. But we have people working with our dealers on a daily basis, along with trainers and underwriters, and in many cases, our human underwriters are part of our secret sauce. And I'll get to the high tech. I'd touch a bit in a second. But that's kind of touch on the tech side. Look, we have lots of digital tools that we work with to build our relationship with our dealers. We move data very fast between the 2. We're very quick just to settle and to fund our loans with a dealer community alike. Our under -- our automated underwriting decisions happen very, very fast. We have a very good machine do that. When you think about relevant scale, if we want to make a change to our underwriting approach requires some technology, it seems like just everything requires technology these days. It might cost us -- you pick a number, it's going to cost us. But our business is of sufficient size that our return we're going to get off that is going to be as good or better than either a bank lender just because we have a book that's bigger than theirs. We have some competitors who are 10x our size in terms of overall balance sheet size, but that doesn't actually impact the economics of making an investment in the auto business. And so we feel really good about that. And like high-tech and high-touch, they come together in really interesting ways. And so someone is there on the showroom floor, they're interested in a vehicle. -- majority will be auto approved in a very fast and rapid way. Some are not. Some are more complicated deals. That's where our underwriters come into play. And when our underwriters get on the phone and have a conversation with the dealer F&I office. It helps us figure out a way to help the dealer move the inventory and us to underwrite a loan that actually matches the buy box that and to be fair a loan that the customer can afford on a monthly basis. And so that kind of high-tech, high touch plays itself out in many, many ways. And we just think it's the winning formula. And again, I keep on pointing back to our application volumes. In the first quarter was strong. The second quarter is trending strong. We're pleased with what we're seeing. And we see that application volume. It gives the ability to maintain price but also gives the ability to optimize the risk-adjusted return. And as a long answer to the question about competition, yes, your competition is a great asset class. But given that competition, like we're the ones are doing pretty well with us.

Is there a risk that competitors will see Ally's success and say, "Oh, I'm going to adopt a more high-touch relationship-driven approach? Or are there reasons structure that they might not?

These relationships have been built over a long, long period of time. And when I meet with dealers we've been doing business with for honestly, decades, if not generations. And forming relationships doesn't happen overnight just because you hire someone and put them out in the field.

Yes. Yes. Very true. You pointed out some capabilities or you've talked a little bit about capabilities. Among them are the smart auction and pass-through programs. So can you remind the listeners what those are and how they are monetized for Ally? And then talk about how those 2 components fit into the broader dealer Proposition?

We love these products. Smart auction is -- but both these products are -- give us the ability to deepen dealer engagement and earn profitable and really non-correlated income stream. So SmartAuction is our digital auction platform whereby dealers are able to buy and sell inventory. And they can do right there the lot, the use their digital tools. Since we started our auction, we move to like 9 million-plus vehicles. And so it's not a small number. On the pass-through program, this allows us to monetize applications rather that we decline you couple the strength at the top of the funnel with the ability to monetize some of those applications. We're running at a pace of roughly $1 billion or so a quarter of turndown applications that we actually pushed through our smart auction -- through our pass-through program. And those become annuity streams that we kind of earn on an ongoing basis. You look at them -- the 2 of them together and their fee income, we like fee income because it's pretty capital efficient. And our fee income line there on the dealer side with these 2 products, it's growing the, call it, the high single digits and accelerating. And so we think we're on to something really, really good here, and we feel great about where we are.

Insurance rounds out the DFS value prop. Why -- or what's Ally's sort of right to win in insurance? Why do dealers go with Ally? And then how do you plan to scale that business moving forward?

You're great again, we love the insurance business, noncorrelated, deeper engagement. In many cases, the F&I product helps the dealers earn more themselves. And certainly, for the vehicle inventory insurance, it's a really valuable service that they need. And for us, it's again kind of noncorrelated business. On the insurance side, one of the big advantages we have is like we have our existing auto relationships and we have insurance. And so like we have a reason to have a conversation with insurance like every single day. And so the edge we have in terms of selling into the dealer network is just far greater than those who are trying to hire their own sales force to go out and actually sell the product themselves directly. And we see that play out. I'd say today, about 1/3 of our dealers use one of the insurance products in one way or the other. And the growth comes from 2 different categories. It's not just for the 2/3 that we don't service in one way that we'd like to. But even the third that we do, in many cases, we have the opportunity even more. And so we see opportunity both when our existing customers on the insurance side plus the untapped opportunity. And that's not even really going outside of the dealers we may not be doing business with, which will be it's a small number. So we think this business has a lot of legs in it. And again, it's noncorrelated. It helps our dealer partners and it deepens relationships, and so when we're in talking to a dealer about their business, we have a really comprehensive set of solutions we can talk about. And really, no one else has this depth of solutions. They can go dealers on -- and we think it's a winning formula.

Very good. The Corporate Finance segment is the second or marquee business in terms of reaching those mid-teens returns. It's high return on its own. What is Ally's competitive advantage here?

Yes, sure. So corporate finance, maybe some context. Our corporate commercial kind of lending business a $40 billion business and Corporate Finance is about 1/3 of that. And this is a business we've been in for 25 years through a number of cycles. And we work with really some of the finest asset managers in financial or in the business. And a reason to win. So we have some long-standing relationships. And fundamentally, we are growing with our clients. It's not like we're going chasing every single book that kind of hits the street and then trying to figure out how to do something. We have a number of clients that we've been banking for years and years and years as they grow and they're successful and raise more and more money, we're able to kind of grow with them. And that's the best way you can grow. Our value proposition, so why are these clients sticking with us. They're sticking with us because we're quick to act. We actually execute with certainty and conviction that really, really matters. We're fast, and then they know that we're going to show up in the right types of ways. And again, this is a business where we really like what we're seeing. I'd say the other one of the advantages we have. And they manage ebbs and flows in terms of how this is an advantage. Being a retail deposit funded business is really helpful, those retail deposits are very, very sticky, and they're there through good times and bad. And when times are tough, we're actually at a really significant advantage in terms of our availability of funding. And so we feel very good about that. Look, we're a credit-first shop. And we've had some nice growth in this business without a doubt. I think we're 6% growth sequentially for the fourth quarter to the first quarter last year was strong growth. We're also getting good returns on this business. So it's a business that we know, long-standing relationships. Maybe the last thing I'd actually offer is that we also -- it's an important point. We agent virtually all of our deals. And so what does that mean? It means we own the underwriting, the structuring, the due diligence process and the ongoing account management. So this is a real franchise business. And so we feel great about this business.

As it relates to -- we'll talk about the retail bank, but deposits as they relate to corporate finance, that's a durability.

It's a durability.

Is it cost of funds have been...

Yes, there is cost of funds advantage as well. And so between cost of funds and durability, we like them both.

Yes. Yes. Okay. And the broader sort of private credit space has come under the microscope as of late. First, talk about your exposure there to private credit specifically. And then when there are headlines around a particular segment, -- does that -- do you pull back and wait out the volatility? Or do you sort of skate into pockets of opportunity?

Great question. So first when we talk about private credit. As we think about our corporate finance business, there are 3 primary verticals. There's a specialty finance bit, we call sponsor finance, traditional private equity-type funds. And there's what you'll call lender finance which is where we're lending against diversified pools of loans. And so I hear the word private credit, I think lender finance from our language. And so this is a business, again, we've been doing for quite some time. We're a credit for shop. And so it's a [indiscernible] shop. Again, we'll agent transactions. But we also work really hard on structuring these deals that we have kind of the right rights. And there is a significant amount of risk-based capital in front of us. So the combination of capital in front of us, along with the right structuring and rights provides a lot of insulation in the event that there's kind of a bump in the road. This lender finance business is one that since we've been doing this, we've never taken a loss, and we've never classified a loan as nonaccrual or criticized. And so again, we feel good about this business. We're not chasing volume for the sake of volume. I kind of keep on going back to that, like we're a credit-first shop. And all the headlines you may be seeing about private credit, they don't actually apply to what we're seeing. And so we're seeing something different.

Yes. Okay. So with that as the backdrop, right, I'm curious what the growth constraint is for corporate today. If you told Bill and the team, here's another $250 million, $500 million in capital. Could they find opportunities to put it to work? Or would they say look like the environment is not right.

So it's fun to make a capital allocation question. And like Bill and his team, like they have the capital -- they have opportunity for growth, the organization will support them. And you can actually probably see that since 2019, as I go prepandemic as kind of a reference point. That business has gone from $5 billion to $14 billion, a main 20% plus ROEs during the entire time. And so the team has a lot of credibility and support. And look they're a credit-first shop. They're not chasing deals. But we're going to be there and whether are pockets of opportunity, we're going to make sure that we free up the capital to support them.

Okay. So if I'm here -- it's more of a pull, Hey, Michael, we've got this great opportunity rather than a push go find places?

Yes, we'll go episodically and try to find out new verticals that we think we can be relevant in last year, we started an energy vertical. We've been very pleased with what we've been seeing out of that. And so when we can find a new vein of opportunity, yes, we'll go at that. But I don't think Bill feels capital constrained right now.

Very good us. The last of the core franchises is the Ally Bank, obviously, a brand digital bank. There are a lot of advantages in that model. But -- there is some intangible value to having a branch, right? Customer awareness being the main one talk about how you're building the brand and customer awareness and recognition there without the branch footprint to walk or drive passed every day.

That's great. Well, first of all, a great question. And yes, there are benefits to having a branch network in terms of the branding element of it. And so for us, we don't have a branch network. And so what's our value proposition. Our value proposition is we offer a brand you know and trust, and that really matters value and a great customer experience. And the value equation is since we don't have a branch network, we actually take the cost of a branch network, if you will, and put it into higher savings yields, lower fees and into our marketing investment. And we think this is something that really, really plays off well. If I look at our consumer bank and our consumer bank is really -- our deposit platform is really spectacular. I'd argue it's one of the best in banking. We're $140 billion in deposits, 92% plus FDIC insured. And we've been really, really pleased by what we've seen out of this. Our growth rates for new customers. Last quarter, we at was 6%. That's net customer growth on a year-over-year basis. For a large bank, that's a very strong number. Our retention rates are 95% plus. I stack that against any one of these fintechs that talks about what they're doing and 95% is a good number. Our NPS scores are very strong. and our awareness is 55% plus. And so like you pull it all together as a formula that just works really, really well. And think about our customer, we should just launch a new marketing campaign called Life Today and really, really is, it's a story about how Ally meets our customers where life and money intersect. And when life and money intersect, you're generally not in a bank branch or generally next to your phone. And then that's where Ally is. And so we think it works really, really well. And our value proposition is really attracting a younger kind of millennial or younger but still income over $75,000 plus type customer. And so we feel really good about what's coming out of this digital bank -- and so yes, we don't have the bricks-and-mortar network. But the trade-off is it's a brand you know and trust, it's value and it's a great customer experience, and you pull them all together, and we really like what we're seeing. We think it's a winning model.

And you talked about the retail deposit base as an advantage for corporate finance from a funding perfective. But how does that apply to dealer financial services as well.

Like having the retail deposit is a wonderful thing. It as cost of money. It's also a NIM expansion at the enterprise level because how we fund it we get some advantages there. But the durability of the funding throughout the cycle is just incredibly valuable. And if you as you think back, if you go back, I talked about year. If you go back 17 years, we have 17 years of growth of customer growth in this business. And so it just serves us really, really well. And we think it's a huge competitive advantage to have a branded backed deposit platform. It's one thing that makes [indiscernible].

Very good. You've talked about the mid-teens return target. And you've made progress towards that. What underpins your conviction that, that is the right level of a through-the-cycle return? And then where do you get the confidence to not only get there, but then maintain that level of returns through the cycle.

So in terms of -- we've been talking mid-teens for a while. And anyone who's heard our calls or participating in these on there are 3 major levers that we work with. It's NIM in the high 3s, auto losses below 2 and then maintain discipline on the expense line. And I'd say we've hit 2 of the 3 of those so far. It's auto losses and hopefully, you've seen the discipline in the expenses. And NIM, there are a lot of factors white NIM is actually drifting upwards. And so we feel good about our trajectory, how we're going to get there. So if you do the math on the NIM and the losses and the putting efficiency ratio think makes sense for us against that a little fee income, it just becomes math. And the math says that you get to some of that looks like mid-teens returns. In terms of the durability of it, we made our strategic pivots. We did a few things in that, which is: a, focusing our investment in the places we're going to get the most bang for a dollar. But second is we derisk the business some. And the derisking was unsecured credit is out virtually everything we have on the balance sheet today is secured in one way or another. And that helps through cycles. And the second is we have taken steps to reduce interest rate risk, and we continue to take steps to kind of reduce interest rate risk over time. And so that, again, helps the variability of the cycle. Look Rob, I get banking is a cyclical business. But we have really done some of the really strong things that position us well and we talk about how dynamic the environment is. Given the strategic pivots we've made, given the operational pivots we made, we feel well positioned.

So your message on -- or to any investors who are maybe more concerned about sustainability of mid-teens would be, look, where we are secured, more secured lending. So we're derisked and we're less rate-sensitive and more in the past.

Yes. And then it's just math at the end of the day, if you believe the dynamics on where NIM is going and if you believe where loss are going and you have confidence in management to maintain expenses, you kind of get there.

Okay. Let's talk about where the NIM is going. You mentioned target for the high 3s, that's an important ingredient there. We're at about 3.5% today, 3.5% in first quarter. And Ally is naturally liability sensitive, even though maybe less so than in the past. But how does that all add up? And what's the bridge from 3.5% today high 3 sometime in the future.

Yes. So first of all, our NIM target is not the output of an economic environment output of the underlying economics of the business. And that's an important point to make because a lot of volume folks will think about, well, if freight do this or rates do that. Yes, it can change our trajectory or path but it won't change the destination. In terms of the economics of the business, you talk left-hand side the balance sheet on the right-hand side of the balance sheet. And you have factors going on in both that are supportive of a higher NIM. And so on the left-hand side of the balance sheet assets, we have basically a continued rundown of low-yielding mortgages and securities that are being replaced with higher yield and corporate finance loans and auto loans. And so that's accretive to NIM on an ongoing basis. And on the liability side of the balance sheet, it's really a story of deposit transformation. And again, you probably heard me say this a few times here is this deposit franchise we have is just wonderful. And by the way, I didn't build this. I mean this was here when I arrived, and I just have the ability to kind of help shape the next chapter for this. But this transformation takes -- there are many factors in it. One of which, again, I compare to 2019 pre-pandemic to today. Our mix of depository funding has gone from 75% to roughly 90%, so we have some mixed advantages in terms of the deposit funding versus other higher-cost funding sources. At the same time, our deposit funding costs relative to Fed funds has gone down. And so our spread has basically improved. You take the mix and the spread improvements together are all in cost of funds is down about 100 basis points. And so that's a lot of strength, what's gosh, to this point. What gets us there going forward is we still have these dynamics that we've in a mid--- we targeted 60s [indiscernible] onwards, roughly, call it, $30 billion for the CDs that are earning at 3.9% or so when they wind off, they're going to high rate savings or CDs priced at lower rates and you have that dynamic going on. So on both sides of the balance sheet, we have tailwinds actually pushing NIM up. And again, look, I recognize the Fed can move up or down or do different things, but the destination is clear. And these factors end up being the ones that went out.

So rate hike wouldn't throw a spanner in the works...

Rate hike would slow us down...

Slow, but not...

Yes, that's [indiscernible], not prevent.

Okay. And then on charge-offs, 1.8% to 2% retail auto this year and the medium-term target is from 1.6% to 1.8%. Similar question, what's the bridge there?

Yes. And the bridge there is that there are 3 primary factors that are impacting. One is disciplined underwriting approach, and you see that in our -- like our STR mix relative to what we might have done historically. Second is servicing improvements. And third is just a vintage rollover. I know we've talked a lot about the different vintages, but those 3 factors come into play. And so we see them all playing out. And I mean if I just look at the data now, in order to have losses come down, you need less delinquency, better flow to loss and better recoveries. And all 3 are playing out delinquencies. 4 quarters in a row, they've been down. Floater losses are kind of at or near all-time lows. And used vehicle prices are holding up her severity has been in a positive place. And the NCO has been down for 5 consecutive quarters. And so again, I don't want to say this is just math because there are a lot of macro factors that can come into play and Again, I'm not going to prognosticate in terms of what's going to happen in the macro environment. But as we're positioned today, we feel good about how we're positioned.

Yes. And you mentioned the STR mix. I mean I've got to imagine that increases your conviction.

Yes. Yes.

Listeners might be disappointed it took me this long to get to capital allocation or return. But your story has been one of and not or as it relates to capital deployment I mean, just walk us through -- give us some more details on what you mean by that and how you're thinking about capital allocation today.

That's taking a while because of capital. So 3 uses of capital. First of all, and the most important one is accretive growth to our core franchises. Second is building capital on our balance sheet, just to have more capital protection. And third is back to our shareholders in the form of dividends and share repurchases. Again, I'll point to the most recent quarter or the first quarter, and you kind of look at this on the growth side. Our Corporate Finance business grew 6% sequentially quarter-over-quarter and actually more than that on a year-over-year basis. Our auto franchise originations were up more than 10% on a year-over-year basis. And so we're supporting the growth in the way that we feel it's right. At same time, we actually built CET1 by 60 basis points on a year-over-year basis. And then last year, we announced a $2 billion share repurchase and did $150 million worth of stock repurchase -- share repurchases in the first quarter. And so you see those priorities playing out in real time and that is our priority. And we think we can do all 3. And clearly, there have been some new proposals that have come out from the Fed about capital and the RSA and the RBA and we're doing our math to figure out what all that means for us. At the end of the day, we think these proposals are really constructive. We think they actually align the underlying risk of the business much more to the capital requirements. And so we think they're going to be good for us. We think it will good for the American economy. And -- but then again, if someone looking for like a clear definitive answer, what does the new proposal is going to mean for us, we can't say because there still proposals. And people are commenting and we'll have to see what comes out at the end.

I was going to ask you about a clear...

Yes. Yes. I'll skip that. Let's wait until the final rules come out and then we'll have a clear sign of that.

Your shareholder letter also talked in depth about investments that you're making in AI and the cloud. I mean, I guess my first question, are those related are they separate investments? And then talk about -- a bit more about how each of those are paying off operationally.

Yes. So like clearly, a huge investment thesis everywhere is going to be AI. The fuel for the furnace for AI is unambiguously data. And one of the big -- I did mention the shareholder letter, cloud and AI and data together because one ff the things that we've done, and again, this predates my showing up at Ally is we had made the decision to move to a single cloud-based instance of our data environments, every interactions transaction and account of Ally in a modern cloud-based environment where you can use modern tooling against. As a result of sunset all the legacy data platforms. And this is a huge advantage because sometimes on the biggest challenge in using AI is getting your data sorted and structured correctly. And we've made some of these really hard foundational investments. And I'd say a hard foundational because these are investments that don't by themselves P&L out all that great because you have to do this before you do something else that drives the value. But we've actually made a lot of those investments and feel very good about our environment. And so now when it comes to AI, we have the opportunity to pursue real kind of value and use cases. And we have in production a number of operational use cases for AI that actually make our operations more effective and modern than the things that we're doing, and we like what we're seeing there. I think [indiscernible] is going to be a big thing. And we were actually seeing in cases where you can take 6 months of work and really do it in 2 or 3 weeks, now with some of the new coding tools. And one of the things that give us the ability to do is, I don't know if the savings or not because it allows you to work on more of your backlog that you might have worked on before, which is actually more business value added in terms of what you get there. And then we've also enabled all of our colleagues with kind of AI productivity tools and everyone likes the Protiviti tools that they kind of -- and so we are really encouraged by what we're seeing with AI. That being the case, maybe a couple of comments I would make is, one is I think we're probably spending more on AI investment today that we're getting in kind of bottom line benefit. But I think that's okay because we have a lot of conviction in terms of where this is going. And I also will link back a bit to kind of strategic pivots that we took and what that kind of means with respect to AI. And if you think back through the past like 30 years now technology has developed and advanced. The Internet really democratized information. It seemed like everything you want to know when the world was available on the Internet. And AI is really democratizing knowledge and expertise in one way or the other. We still need judgment and judgment is hugely, hugely important, and particularly when the cycle time between having an insight and getting it done gets really compressed. And this is where being in fewer businesses, but business, as you know, really well, really matter because the value of that judgment is going to be amplified in an AI first world. And so people have these hobby businesses are going to put AI against them, like I shudder to think what actually happens with all of that. We're putting AI against businesses where we've got years and decades of experience and a lot of confidence that we can apply the right type of judgment in order to drive the right types of outcomes. And so I'm really encouraged about what's going on with AI.

As you think about the investment you're making now to when it eventually bears fruit, is that do you see that as more of a top line thing. We'll be able to originate more or better pricing or an expense thing, i.e., low efficiency ratio the end of the day.

Yes. Honestly, a little bit of both. And the efficiency use cases are sort of the easiest to start and look at. But on the top line side, I mean, obviously, today, you already see top of the top-of-the-funnel activities online are already being disrupted by AI. And people are using the AI large language models. And this is again where being a digital bank digital charters are easier to get today than they had been historically. But to get to the top of the consideration set for the large language models, what needs to be true, that's where your brand actually really, really helps. And so we actually see that in the large language models that we actually show up very, very well. And so we actually think there's a revenue opportunity there. In terms of how we deal with our rallies and our dealer clients, speedily matters. And to the extent you can figure out how to show up in a better and faster way for our clients, we think there's a revenue opportunity here as well. I'd even offer on the risk side. that there's going to be opportunities, probably more on the predictive modeling, not the large language model stuff, a more predictive modeling that you're going to see opportunities there. But this is clearly -- I mean, this is probably like the iPhone, but bigger it's like the Internet, but bigger. I mean the acceleration adoption curves for AI, there's something to behold, and we are highly, highly focused on this, and we're spending a lot of time and energy on it.

It's a very good segue to an audience question. OpenAI I recently launched a personal finance product. How might this impact Ally's competitive position in retail deposits? And is Ally interested in building out those same AI-enabled features.

Look, in terms of our future road map, I don't know if I want to kind of spend a whole lot of time now going into kind of what our future road map might look like. At the end of the day, we think we're entering a world where decisions on how you actually use your money, you're going to be both marketing towards people and marketing towards machines. And you have to make sure your marketing engine actually reflects that. And so yes, you can imagine we're going to be looking at every opportunity we can within the AI infrastructure to figure out how we show up in the right place and the right way to be there for our customers. And in terms of our road maps, I'll probably leave that for later.

Fair enough. Yes. Let's see another audience question. You've talked about how Ally carefully picks credits in corporate finance, but why do borrowers pick Ally over a competitor bank?

Again, with our Corporate Finance business, it's -- we've been the business for 25 years. We have a number of clients, and we're growing with our clients. And so -- the fact that we've been there and we've been there through with our clients through all sorts of cycles and have been good partners with them has been really, really impactful. And so it's really -- it's being fast to make a decision, and it's executing with clarity and with certainty and being there through the cycle means that we've earned the right to grow with our partners. And again, that's the best type of growth you can have because you're growing with the people you know and trust. And we believe that our clients know and trust us, and that's why they keep on coming to us. And so like the vast majority of our business is, I'll call it repeat business. with people we've actually banked before. And that's the secret sauce.

Yes. One more from the audience. To what extent, if any, does Ally retain loan economics on a originations?

No, we do have an economic strip that comes out of the -- it's a servicing fee, there's upfront consideration and that servicing fee is what turns into a common ongoing annuity, which again, we really like that business. I mean the ROE doesn't make sense in a pure fee-based business, but it's certainly helpful for ROE.

And then the last one from the audience, is there any part of the current Basel proposal that you'd hope to see modified?

Look, there are probably some tweaks around the edge, but I'd say nothing really substantive. We feel very good about where Basel III Endgame has ended up. We think that the risk-based approach is right. Like there is this narrow definitional items here and there that we might have an opinion on. But it's a very thoughtful proposal.

We'll leave it with one last big picture question for you, Michael. If we're here 5 years from today, we're looking back at this conversation and your focused forward strategy has played out. What does Ally look like as a company and then translate that, of course, to what the outcome would look like for shareholders?

Absolutely. Look, 5 years from now, we're on a journey. And it's always say, this is a journey that we take with our 10,000-plus colleagues. New in the job, everyone asked you to kind of day 1, what do you want your legacy to be? And I framed up front or legacy is 1 that we're taking collectively. It's not just about me. But this is a journey with our 10,000 colleagues. And the journey is going to take place for a stronger, more focused, more disciplined organization that has demonstrated the ability to generate attractive returns and growth at the same time in a highly differentiated way. And one of the things I always say is strategy is about choices and strategy is not about sameness. And we've actually taken -- made some choices to not be like other banks, and we're actually really proud of that. When we talk about our strategic pivots, sometimes they frame it in where we compete and how we're going to win. And so 5 years from now, where we're going to compete, I think we're going to largely be in the businesses that we're in today, along with the adjacencies and adjacencies for dealer financial services insurance and some of the past due programs and things like that. For the consumer bank, it's what we do there. We also have invest platform for customers who want to take advantage of invest capabilities. But the business that we're in today, I think, are going to be the business we're going to be in 5 years from now. But these are very large addressable markets, and we bring the capabilities, the investments and the focus on what we're doing well, we think that's going to translate into a really compelling story. And for shareholders, you've got the opportunity to participate in this, and you get to get on the ground floor because we're still trading at or near book value. And I would expect that in a few years, I don't want to be a prognosticator of what our multiples are going to be, but show discipline in driving sustained attractive returns and growth with a strategy that's highly differentiated. We say Ally is not like other banks, and we say that with pride. We think folks will look back 5 years from now and say that was a good journey.

Look forward to seeing that play out, Michael. This has been great.

Awesome. Thank you.