Subprime specialist Santander is fastest-growing used-car lender

Matt Fitzgerald, Santander Consumer USA: "Santander is very comfortable in the auto sector here. Our history and our expertise were always in the subprime area."
It may be small, but Santander Consumer USA is far and away the nation's fastest-growing used-car lender, thanks to recent acquisitions.

"We're national now, with about 10,000 dealerships we do business with," says Matt Fitzgerald, senior vice president sales and marketing. "Our portfolio size is a lot bigger."

A buying spree helped. Santander completed the purchase of Triad Financial Holdings last October. In March, as part of an earlier sale, Santander completed the takeover of the former auto loan servicing operations of HSBC Finance Corp. and part of HSBC's auto loan business.

Santander says it now has a portfolio of $8.67 billion in subprime auto loans, representing more than 444,000 customers.

Santander's growth spurt is part of a broader realignment of players in the subprime finance market. The recent credit crisis forced some subprime lenders out of business and made it a buyer's market for acquisitions.

The nation's top used-vehicle lender last year was Wells Fargo Dealer Services -- formerly Wachovia Dealer Services -- with 6 percent market share, according to Experian Automotive. Chase Auto Finance was second with 2009 share of about 5 percent. Santander's share is about 1 percent, but the market is so fragmented, that puts Santander among the top 20 used-vehicle lenders, Experian says.

Lofty goals

Dallas-based Santander Consumer USA is a unit of Spanish bank Banco Santander (sahn-tahn-DEHR'). Banco Santander is a big new-vehicle lender in Europe, particularly in Spain and Germany, but its U.S. auto loan business focuses on used cars and subprime.

The parent company says it was the eighth-biggest bank in the world by market capitalization in 2009.

The bank doesn't report separate results for auto loans within its total U.S. business.

But in a presentation for 2009 results, Banco Santander Chairman Emilio Botin said that Santander Consumer USA contributed a total of about $400 million in earnings, with a target for all U.S. business of about $1.2 billion in earnings by 2011.

"Santander is very comfortable in the auto sector here," Fitzgerald says. "Our history and our expertise were always in the subprime area."

The original business that eventually became Santander Consumer USA got its start in the mid-1990s as a subprime specialist. In 2000, the group became Drive Financial Services. Banco Santander bought out the business in 2006, but its most recent acquisitions put it on the map.

A freeze in the sale of asset-backed securities drove some subprime lenders into a ditch, starting in late 2008. That market has only just begun to thaw. Subprime specialist AmeriCredit, for instance, recently announced what would be its fourth asset-backed sale since July 2009.

Asset-backed securities historically have been the chief way subprime auto lenders borrow money to originate new loans. In effect, lenders sell the income stream from a bundle of auto loans. Investors collect the money, and lenders get new money to make new loans. When investors quit buying asset-backed securities, it left some lenders with no way to raise funds.

Deep pockets

That's when having a bank as a parent company comes in handy, says Fitzgerald of Santander, since banks can tap deposits as a funding source. Moreover, Santander had little exposure to mortgages, unlike GMAC Financial Services, which got clobbered by subprime mortgages.

"We were fortunate that we had the liquidity to keep lending," through the credit crunch, Fitzgerald says. He says Santander tightened up some of its standards in 2008 and 2009, but it didn't jettison the business.

Competitors "had to pull back," he says. "We didn't have to pull back. We could be very opportunistic."

Santander Consumer USA
Headquarters: Dallas
U.S. portfolio: More than $8.67 billion in subprime auto loans
Parent company: Banco Santander Centro Hispano SA in Madrid
Subprime lending acquisitions: HSBC Finance Corp.'s auto loan servicing operations and a portion of HSBC's auto loan portfolio, March 2010; Triad Financial Holdings, October 2009
Other U.S. assets: Separately, parent Banco Santander acquired Sovereign Bancorp, a Philadelphia-based interstate bank concentrated in the Northeast, in January 2009.

You can reach Jim Henry at