05/18/2012

Santander Set for Prime Auto-Lending Push

Banco Santander is moving ahead with plans to start writing and securitizing prime-quality auto loans and leases in the U.S.

The lending side of the initiative is likely to launch by Oct. 1. A debut securitization could come by yearend 2013.

That deal and any additional offerings of prime auto-loan and lease bonds would take place through a new issuing vehicle, coming separately from a steady flow of subprime-loan securities the bank already sells via its Santander Drive Auto Receivables Trust. “Santander is looking to grow in a very big and specific way, which means broadening its products to include prime loans,” one source said.

The emergence of the timeframe for the effort follows several months of signs that Santander might be interested in setting up a prime-loan program in the States. In March, for example, industry players identified the Madrid bank as one of a few shops vying to become Chrysler’s preferred lender.

The chatter now is that the timing of Santander’s push reflects a belief that the bank would be better positioned to compete for the contract if it has a prime-loan business in the works when Chrysler names a winner for the contract — something that is expected to happen by Sept. 1. Ally Financial currently serves as the automaker’s main lender under an assignment that expires in April 2013. It’s angling for a renewal, with J.P. Morgan, TD Bank and Wells Fargo also seen as strong contenders.

Santander’s prime-loan ambitions go beyond Chrysler though, as the bank intends to tap into an origination network encompassing some 13,000 dealers that already send subprime accounts its way. Indeed, Santander has been aiming to expand its overall consumer-lending business in the U.S. following an October agreement to sell a combined 35% stake in the operation to Centerbridge Partners, Dundon Investments, Kohlberg Kravis & Roberts and Warburg Pincus for $1.2 billion.

Initially, market participants didn’t think that deal would position Santander as a prime-lending candidate. For instance, Bank of America researchers wrote in an October report that the institution would keep away from the sector and focus instead on becoming a more active subprime lender.

By February, however, the talk had shifted to a broader expansion — although prime lending still wasn’t a certainty at that point. Other assets Santander is targeting include dealer-floorplan loans and subprime auto leases, both of which it expects to start writing this year with securitization as an eventual funding strategy. In any case, the bank’s interest in prime-quality borrowers now appears to be confirmed. “All the volume is in prime loans, and Santander knows this,” another source said. “They are looking to grow, and since they have a successful subprime platform, it will not be hard for them to convince investors or the rating agencies they would be just as successful if not more so with deals backed by prime loans.”

Securitizations of auto loans and leases from all issuers are expected to total some $85 billion this year, with prime-quality loan deals expected to account for $65 billion to $70 billion of the supply.

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