By Peter Rudegeair
NEW YORK, Jan 29 (Reuters) - Ally Financial Inc Chief Executive Michael Carpenter said on Thursday that the growth of subprime auto lending over the past few years did not pose a systemic risk to the broader financial system.
"There's a thesis out there that subprime auto is the next subprime mortgage crisis," Carpenter told Reuters in an interview. "We think that is complete garbage," he added.
Auto loans made to borrowers with credit scores under 660, considered by many in the industry to be the dividing line between prime and subprime, have been growing briskly. There were over $24 billion of such loans outstanding in the third quarter of 2014, 19 percent more than in the third quarter of 2012, according to Experian Automotive.
Ally is one of several auto lenders that have received subpoenas in recent months from the U.S. Department of Justice requesting information around subprime auto finance and securitization practices.
"There's a lot of fishing going on because of the analogies or theoretical analogies with subprime mortgage crisis and it's a lot of digging around to see what people can find," Carpenter said of the investigations.
One focus of the Justice Department's inquiry is whether there was appropriate disclosure made to investors about the quality of securities that are backed by auto loans. Fraudulent disclosures to investors in mortgage bonds were the main issue in the Department's investigation of Bank of America Corp and Citigroup Inc that resulted in nearly $24 billion in settlements in 2014.
Carpenter said a crucial difference between subprime mortgage bonds and subprime auto bonds is that the latter are still performing well and have not cost investors any money.
"We've shared our analysis with our regulators and I don't think anybody seriously believes" that the two asset classes are analogous. (Reporting by Peter Rudegeair; Editing by Meredith Mazzilli)