When financial giants Bank of America Corp. and NationsBank Corp. merged last year, it was not a win-win proposition for everyone. Especially not for Leonard Morgan, a top manager of Bank of America's commercial wholesale lending business. Morgan, at loggerheads with his new partners at NationsBank, went looking for new opportunities.
At the same time, California Federal Bank was looking at branching out its automotive financing business. Cal Fed, as the bank is called, was a smaller player by interstate banking standards, with $60 billion in assets. The bank's Auto One Acceptance Corp. subsidiary had a $1.5 billion portfolio, lending to subprime consumers in 47 states, but Cal Fed had no holdings on the dealer corporate services side.
Cal Fed and Morgan have proved to be a match. Morgan has launched the bank's entry into floorplan, capital and real estate loans; payroll and 401(k) plans; and cash management programs for car dealers in California and Nevada. Morgan, Cal Fed's senior vice president and regional director of commercial banking, spoke with Staff Reporter Mark Rechtin. Here are edited excerpts.
What is Cal Fed looking to offer dealers that captives cannot?
If a dealer is doing his flooring with GMAC (General Motors Acceptance Corp.), he still has to have a bank account somewhere. He needs a banking relationship, and captives cannot offer that. Obviously, we can't sell them cash management unless we have a deposit relationship. But auto dealers never really have had a true relationship bank in terms of meeting their needs on both the commercial/wholesale side as well as the retail side. We want to take care of dealer owners and management. We want to offer the complete financing package.
Why start this business just in California and Nevada, if Auto One is basically nationwide?
The expansion is being done under the Cal Fed banner. These services will be offered through Cal Fed Bank, not Auto One. At this point we want to focus on our footprint, and that's California and Nevada. There is a certain benefit having people close to where the dealers are. We don't want to lend money to someone in Indiana if my client managers are not interacting with those dealers. We want to be geographically close to them, to have that relationship banking. But going to Arizona, that's a 90-minute flight to Phoenix, so that's something else we might look into. Besides, California is the largest auto market in America, so there's lots of opportunity here. We're looking out a couple years to expand our footprint.
Isn't this like starting at square one compared with Bank of America?
The wholesale side is new to Cal Fed. All we had was the Auto One retail side. We wanted to offer the entire array of products. Auto One will stay focused on what it's good at, and we'll do what we're good at. Sure, we'll do some joint calling where our people will call on a dealer principal and general manager and talk conceptually about the business, whereas the Auto One people will concentrate on talking to the F&I department.
Why get into this branch of business now?
Part of the issue is that there are some major players in turmoil with mergers, mainly Bank of America. But it's really not so much about someone getting in or out. We're looking at the commercial/wholesale side of the business having a great track record in terms of not having loan losses if you are properly managing the relationship and status of dealers. Sure, the sector has its ups and downs, but dealers want to be with a bank that will stay with them through ups and downs and not exit when times are bad.
We want to talk about how our products and services can or cannot help reduce a dealer's costs or increase his revenues, rather than, 'Here's your money. I'll finance your cars. Call me when there's a problem.' We are not just a hard-core lender. Every car dealer is a classic middle-market customer, and yet they are being handled by the consumer part of many banks instead of their commercial side. We also represent the dealer, while many captives really represent the factory.
The dealer cares whether he loses money, but the factory only cares whether they sell cars or don't sell cars. If you sell a whole bunch of cars, but lose a half million dollars doing it, the factory will send you on a trip to Italy. But that's a half-million-dollar trip to Italy you're taking.