Joseph Campanelli, 42, is managing director of Sovereign Bank's auto finance division, based in Boston, and an executive vice president of the bank.
Sovereign is a growing regional bank with headquarters in Wyomissing, Pa., near Reading. It did not have a significant presence in auto lending until September 1997, when it acquired the auto finance division of Fleet Financial Group Inc. in Boston. Even now, Sovereign's auto portfolio of about $2 billion is not much more than one-tenth the size of the biggest interstate banks.
Fleet had built its auto portfolio on two earlier acquisitions, Boston-based Shawmut National Bank and NatWest Bank in New York. They had auto loans of about $1 billion each, concentrated in New England, upstate New York, and Long Island, N.Y. Sovereign bought only the auto business from Fleet; Fleet bought Shawmut and NatWest outright.
Campanelli, who was acquired by Sovereign along with the Fleet business, says it took about a year for Sovereign to get all its auto holdings on a common system, with common records and business practices.
Having done that, Sovereign now wants to push aggressively into indirect auto lending, especially in its home state of Pennsylvania. Indirect, the most common form of auto loan, means the loan is made via a dealer, as opposed to a customer getting the loan directly from a branch bank.
Campanelli spoke with Staff Reporter Jim Henry in New York. Also participating were Eric Hien, senior product development officer, based in Wyomissing; and Thomas Nadeau, senior vice president of the auto finance group in Boston. Edited excepts follow.
It's been a year or so since the Fleet acquisition. What's been happening since then?
It's kind of like changing a tire on a moving vehicle. ... Since the Fleet acquisition, it's been a year of transition, converting to one operating system. We had more than 200,000 indirect loans. Each one had a coupon book that had to be changed. We had 2,000 dealers who all had to be converted over. We had $500 million in floorplan commitments at that time. It was only after mid-year (1998), really the fourth quarter, that the strategy has been to pursue growth.
Are you aiming at a particular geographical area?
Yes. Fleet was strong on Long Island, Shawmut in upstate New York and New England. Sovereign was strong in Pennsylvania but didn't do autos. In 1999, we want to expand throughout Pennsyl-vania. Our goal is to expand at least 25 percent per year. In Pennsylvania, it should be well in excess of 25 percent.
How big are you now?
Today we have just over $2 billion in outstanding loans. That's about $1.3 billion indirect; about $800 million floorplan now, probably $900 million by year end. There's also about $250 million in specialty loans, which is mostly lending to independent lessors; about $100 million in capital loans to dealers, mostly for real estate; and about $50 million in commercial-type loans.
Does your portfolio include leasing?
No, we don't offer leasing now. We have to take into account how you compete with a captive, how critical it is to our customers for us to have it and how you manage the marketing costs and the residual risk.
How are you making the business profitable? BankBoston Corp. said last year about the time you did the Fleet deal that it was exiting the business because it just wasn't profitable. What are you doing differently? Do you have lower per-unit costs because you're a bigger bank?
Yes. Everybody has an internal accounting system, and it differs whether you are a captive or a bank. And we have a growing portfolio. All that said, we think a cost base of about 80 basis points (0.8 percent) is appropriate. By that, I mean that if you have a $1 billion indirect portfolio, you should budget about
$8 million to cover the costs of funding, originations, servicing and collecting. The risk is, if you cut too far below that, you compromise the quality of service. If you go too high above that, you make yourself vulnerable to rate swings.
What are the biggest problems?
The biggest issue we have is selling the bank's commitment to the business. Unfortunately, banks are notorious for going in and out of autos. One of the factors we have to deal with is the growing sophistication of the dealer base. They're aware that F&I opportunities are a bigger piece of their earnings. And yeah, they'll take advantage of 'rate sales' - say, when some credit union goes crazy and wants to do something in a particular market. You can't blame them. But in the long run, dealers want a lender they have a relationship with.