Santander privatizes subprime auto lender business for $ 2.5 billion

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The US subsidiary of Spanish banking giant Banco Santander privatizes Santander Consumer USA Holdings Inc., the Dallas-based subprime auto lender.

To do so, he pays $ 2.5 billion for the 20% of shares he doesn’t already own, valuing the division at $ 12.5 billion. It is part of the Spanish bank’s strategy to focus on growth companies as its European revenues are stifled by low interest rates.

The privatized Dallas-based company focuses on auto loans for new and used cars with around 3.1 million customers. It was the 21st largest public company in Dallas-Fort Worth last year, with revenues exceeding $ 8 billion.

The company’s workforce grew to 5,576 at the end of 2020, from 5,175 employees a year earlier, according to its regulatory documents.

The deal, unanimously approved by the two companies, is expected to be finalized in the fourth quarter.

Santander Consumer spokeswoman Laurie Kight declined to comment beyond the company’s announcement.

The auto finance arm may be able to boost revenue with its auto loan business, according to a report by former Bloomberg Intelligence analyst David Ritter. For the last quarter, it declared its most profitable three-month period with a net profit of $ 1.1 billion. Auto loan origination increased 24% from the same period last year to $ 10.5 billion.

“Overall, consumer demand remains strong,” CEO Mahesh Aditya said during the results call. “However, we remain cautious in our underwriting to ensure the resilience of all new origins, especially given the unique environment resulting from much-talked-about supply shortages and increased competition.”

Cars have been difficult to find over the past year due to a global shortage of chips. The average price of a new vehicle in the United States hit a record high of over $ 41,000 in July, according to a report from JD Power and LMC Automotive. This is 17% more than the same period last year. Motor vehicle sales are expected to increase 11% for the year, according to the report.

Auto debt hit $ 1.42 trillion in the second quarter, doubling over the past decade, according to the latest report from the Federal Reserve Bank of New York. This is an increase of $ 33 billion from the previous quarter.

Santander Consumer makes digital sales a priority for its future growth. In July, he announced a new project with digital retailer AutoFi Inc. to make the fundraising process more “self-serve”. Tools include the ability to find cars on a dealership’s lot that fit a specific budget.

“The pandemic has highlighted the need to automate these tools for consumers who have proven to be resilient and prefer to research options online without speaking to one of our representatives,” Aditya said.

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