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December 15, 2017  

Wells Slashes Funding for Subprime Autos

Wells Fargo is further reducing its exposure to subprime-auto loans, where it has long played a lead role in extending warehouse lines to lenders and running the books on their asset-backed bond offerings.

Wells already has begun dismantling warehouse facilities used by some clients, particularly smaller lenders that focus on “deep” subprime borrowers. A spokesperson for the bank declined to comment.

The pullback is the result of a companywide review of operations Wells initiated after being sanctioned by regulators and scolded by federal lawmakers for opening savings and credit-card accounts for clients without their knowledge. In September 2016, the bank paid $135 million of fines to the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency to settle the matter. This October, chief executive Tim Sloan issued an apology during a Senate hearing.

Wells served as a bookrunner on 30 of the 50 securitizations of subprime auto loans that priced in 2016, when total deal volume reached $25.8 billion, according to Asset-Backed Alert’s ABS Database. Many of those issuers depended on warehouse lines supplied by Wells to fund loan originations.

Its clients included larger, more-established lenders including Exeter Finance, as well as smaller operations such as Honor Finance and Sierra Auto Finance. One client that drew on a $100 million credit line from Wells, Pelican Auto Finance, stopped lending on Dec. 15 and plans to lay off most of its 70-person staff. Pelican had intended to issue asset-backed securities starting in 2018, but now will sell its $80 million loan portfolio.

“[Wells] has concerns [about subprime lenders], and it’s starting with smaller players that may not have yet demonstrated true profitability and stability in credit performance,” a source said.

The latest moves follow a decision by Wells this year to reduce its own lending activities in the subprime-auto sector, cutting its loan-origination volume by 30%.