By Investing.com — Ally Financial (NYSE:ALLY) has been added to Citi’s Focus List as a top pick, the bank said in a note Monday.
“We believe ALLY is well-positioned to benefit from improving credit and an expanding net interest margin (NIM),” said Citi, despite concerns raised during a recent mid-quarter update.
The investment bank’s analysis forecasts a significant increase in ALLY’s NIM in a lower interest rate environment.
They assume the Federal Reserve will reduce the Fed Funds rate by around 230 basis points (bps) to 3% by the end of 2025.
Citi explains that this reduction would result in 85bps of headwinds from the repricing of floating-rate assets, net of swaps, but would be offset by tailwinds of 20bps from the repricing of fixed-rate assets and 135bps from deposit repricing, assuming a 70% beta.
Citi notes that their published estimates embed a more conservative 65% beta with a lag, meaning that it won’t be fully realized until the first quarter of 2027.
Even with this conservative approach, they see upside to consensus.
Citi also highlighted a decline of $26 billion in deposits for the week ending September 18, driven largely by a $114 billion increase in the Treasury General Account (TGA), which pushed reserves down by $143 billion.
However, deposits saw a partial offset due to foreign-based bank dynamics, as loans grew by $12 billion and borrowings declined by $61 billion.
Citi remains confident in ALLY’s ability to navigate the current macroeconomic environment and capitalize on future rate reductions. As a result, they have included ALLY as a top pick on their Focus List, underscoring its potential for growth.