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Ally has another reason to avoid auto loan ABS

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Ally Financial executives say a near 17% growth in year-over-year deposits is going to extend the lender’s use of the lower-cost liabilities to finance auto and mortgage loan originations.

It’s a move that will further lessen its funding dependence on unsecured debt and securitizations, a trend developing since restrictions on using deposits to fund loans was first lifted in 2015.

In its third-quarter earnings report Wednesday, Ally chief executive Jeffrey Brown extolled the $3.8 billion surge in deposits over the third quarter as “exceptional performance, again” for the Detroit, Mich.-based institution.

Total deposits for the $164-billion asset holding company are now at $90 billion, up $14 billion from the third quarter of 2016 and about $4 billion from the second quarter. More than 60% of Ally’s funding sources are now deposit-based.

“Deposit growth remains a significant long-term opportunity for Ally,” Brown said in a conference call with analysts. “Driving higher deposits into our funding profile is a major contributor of future earnings growth.”

The bank plans to amortize more than $12 billion in unsecured debt maturing through 2020, while the impact of loosened restrictions on deposits had already been evident through the declining levels of securitization of its riskier subprime loans.

So far this year, only $526 million of non-prime loans have been pooled into a single issuance through Ally’s Capital Auto Receivables Asset Trust – a shelf that pushed out $2.5 billion in asset-backed securities in 2016 and more than $4 billion in 2015.

Ally’s remaining restrictions involved capital and liquidity caps, remnants of its post-crisis bailout by the U.S. Treasury. In August, regulators lifted a requirement that the bank had to maintain a 15% Tier 1 capital ratio.

Now the bank can originate all its retail auto loans at the bank level, as well as more “efficiently grow” its mortgage portfolio and investment securities.

All of the retail auto loan business is now being originated at the bank level with deposit funding, now that the bank no longer has to maintain the capital ratio that had restricted its ability to leverage up.

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