Ally Financial jumps into brokerage business
Ally Financial (ALLY) has found a new friend in the brokerage business.
The Detroit-based bank Tuesday agreed to buy brokerage TradeKing in a play to broaden its financial offerings beyond loans and savings accounts to include trading and investing. The deal is worth $275 million, says S&P Global Capital Markets, making it the biggest purchase for the company since at least 1980.
Ally Financial was founded in 1919 as the General Motors Acceptance Corp., or GMAC, and was created to provide loans to car buyers. But since becoming a stand-alone publicly traded company in 2014, Ally has been working to broaden its appeal with customers. Buying a brokerage is the latest step in adding new financial services.
"We hear from our customers and they want more products and services from Ally," says Diane Morais, CEO and president of Ally Bank, the consumer banking unit of Ally Financial. Morais says the bank has 1.1 million deposit customers and 4.5 million auto loan customers who will need access to additional financial products. Currently, 40% of Ally's new customers are Millennials who may be approaching the age where investing will become more important, Morais says.
There could be a bit of an adjustment in combining Ally, which is known for its user-friendly apps and and savings accounts, with TradeKing, which has become a destination for serious investors who focused mainly on rapid-fire stock and options trading. Combining with Ally helps TradeKing as it faces stiff competition in the arms race to cater to this demanding niche, which requires investments in building advanced trading tools.
Aligning with Ally gives TradeKing access to greater resources in keeping its edge with technology innovation demanded by investors, says TradeKing CEO and founder Donato Montanaro. "It's been fun but challenging doing battle with companies with bigger resources," he says. "To find a fit that's a cultural fit ... it's a blessing for us." TradeKing could benefit, too, as many of its rivals ranging from TD Ameritrade (AMTD) to Charles Schwab (SCHW) have added banking services that investors demand, too, in addition to trading tools. "Savings and investment go hand in hand," Montanaro says.
Ally will try to invest in areas to provide tools for the active investor, but will also look at offering broad investment tools to its more mainstream savings customers. "We're buying this company, we like all the parts, as we grow the customer base to have options for all those customers, depending on where they're at in the wealth management space," Morais says.
Adding more offerings is something Ally has wanted and do and does accomplish with this deal, says Mark Palmer, stock analyst at BTIG. "Ally Financial has sought to diversify beyond auto lending for some time, and the TradeKing purchase fits into that strategy," he says. "Importantly from the perspective of shareholders, the acquisition will not impede the company's plan to return capital in the form of share buybacks and dividends."
The combined entity is launching into a crowded space, however. Capital One Financial (COF), which has roots in credit cards and banking, bought brokerage Sharebuider in 2012 as part of its ING Bank acquisition. Schwab and TD Ameritrade both offer banking services, not to mention no-commission investment products aimed at long-term investors. Meanwhile, start-ups like Betterment and Schwab have launched low-cost "robo adviser" products that allow investors to use online tools to select low-fee investments and doing no research themselves.
What ties Ally and TradeKing together is that both sets of customers are used to self-service tools to get their financial matters taken care of, says Michael Baresich, chief information officer at Ally Financial. "We (both) deal with digital-savvy clients," he says. "What unifies all of them is they want a great technology experience."
Follow Matt Krantz on Twitter @mattkrantz