Is Ally Bank in Trouble?

The bank itself may be not, but its parent, GMAC Financial Services, is certainly in a situation no bank wants to be in.

News came out this morning that GMAC, the recipient of billions of dollars of taxpayer money since last December, is going back to the government to ask for more money. That would be the third round of bailout for what used to be the bankrupted General Motor finance unit (GMAC Financial was approved to be a bank holding company in December 2008 for it to receive government rescue fund). This is quite unique for GMAC because no other banks, not even Citigroup and Bank of America which have received much more money from the government than GMAC did, have asked for more than two bailouts. At GMAC, however, the trouble doesn’t seem to end, even after $12.5 billion infusion from the government. You may think that a bank receiving so much taxpayer money should have a better chance of surviving when there are signs that the condition of the economy and the financial market is improving. Unfortunately, that’s not the case for GMAC, which is still struggling to deal with massive losses from subprime mortgages. Now it’s going to ask as much as $5.6 billion more.

While GMAC is still in trouble, its subsidiary, Ally Bank seems to be doing quite well, at least from the rates it offers (Online Savings Account 1.70% APY, 1-year CD 2.00% APY). Actually, the bank has been giving exceptionally high rates since it switched its name from GMAC Bank to Ally Bank six months ago. Today’s news makes wonder how Ally Bank can afford to offer such high rates (Bankrate.com average 1-year CD rate is 1.70% APY). And Ally Bank ads are everywhere. Is it actually because of the billions bailout money it received? Of course, paying a higher rate can attract more savers (I was one of those :( ), but it also add additional cost to the bank that is in such a bad situation, even if it is a pure online bank.

Now that you know GMAC, or Ally Bank, is not healthy, will it change your perception of the bank?

I still remember what Washington Mutual did the week before it collapsed. After giving it so much money, I don’t think the government will allow GMAC to go under, but  the situation does concern me.

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5 Responses to “Is Ally Bank in Trouble?”

  1. Andrew |  Oct 28, 2009 at 11:08 pm

    Just wanted to mention that a higher rate is actually a sign of trouble. I never have been drawn to Ally Bank because of it’s background, but also because it is a traditional move for failing banks to raise their rates on CDs and savings accounts to try to drive in money to bolster their equity (or liabilities on a bank balance sheet) to counteract other losses.

  2. Anthony |  Oct 29, 2009 at 8:36 am

    I agree with Andrew. If Ally was a solid bank with great brand equity, they could offer lower rates and everyone would still move their deposits to it. I’m all about capturing the highest rate possible, but the likelihood of Ally ending up in FDIC receivership, and the hassle that entails, keeps me away.

  3. Credit Card Chaser |  Oct 29, 2009 at 7:38 pm

    I will admit that knowing that GMAC owns Ally did just change my perception of them. It will be interesting to see how long their rates stay abnormally high.

  4. Sun |  Oct 30, 2009 at 7:30 am

    Since the government has already given GMAC so much money, I think think the government will let it fail at this stage, like what happened to Washington Mutual. And GMAC is not like GM where there’s the issue of restructuring to reduce cost and making good cars, it has a terrible balance sheet because of losses from bad loans. While I think GMAC or Ally will stay, knowing the the fact that it is in such a bad situation does change how I think about the bank, though it has good rates, supported by taxpayer money.