Tag Archive | "banks"

CUDL: Credit Unions Capitalizing on Bank Retreat

ONTARIO, Calif. — Credit unions and captives continued to take advantage of the pullback by banks in the second quarter. The message coming out of CU Direct (CUDL)’s Sept. 28 webcast is that credit unions need to act fast before banks reconfigure their strategy.

Banks continued to hold the largest share at 32.3% in the second quarter, although the segment’s hold on the market fell 2.5 percentage points. Captives picked up some of that, increasing their share by 1.6 percentage points to 28.6%. Credit unions were the biggest benefactors of the pullback by banks, increasing their hold on the auto finance market by 1.6 percentage points from a year ago to 20.3%.

CUDL executive Michael Cochrum said the subprime pullback was only partially to blame for the bank retreat, noting that competition also played a role in the segment’s pullback. “They feel like competition is too strong, and it’s difficult to maximize your profitability in a market that’s highly competitive,” Cochrum said, adding that the real competition lies in the used-vehicle space.

On a quarter-over-quarter basis, captives continued to pick up share in the second quarter, while credit unions led the way in terms of auto lending growth. Despite the pickup in originations, credit unions saw their share fall two percentage points from the previous quarter to 24%. Banks, however, saw their hold on the market fall 5% from the first quarter, while captives took back some share from the previous quarter.

In the new-vehicle space, captives continued to dominate with a share of 53.2%, up from 52.2% in the year-ago quarter. Banks saw their share of new financing fall from 31.7% in the year-ago period to 28.8%, while credit unions increased their share slightly from 11.4% to 12.7%.

In the used space, banks held the largest share at 35.2%, which was down from 37.3% in the year-ago period. Closing the gap were credit unions, which increased their share 1.6 percentage points from a year ago to to 26.7%. Captives captured 8.1% of that market, down from 7.4% in the year-ago quarter.

Cochrum said the used-vehicle market represents a key opportunity for credit unions to grow their share. The key for that lending segment is strategizing with dealers to create more reasonable loan terms, especially since leasing seems to have plateaued after five years of growth at about 30.8%.

Cochrum attributed the flattening of leasing to residual values, with the glut of off-lease vehicles causing collateral values to fall. He said captives are likely to respond by shifting from leasing to buying programs, which he believes could present credit unions with an opportunity to offer leases on late-model used vehicles to buyers looking for affordability.

In the second quarter, used-vehicle leasing accounted for 3.61% of the lease market, down from 3.71% in the year-ago quarter.

Focusing on the high-risk tiers represents another option for credit unions to grow share. The segment, however, has mostly focused on high-quality buyers — the reason for the segment’s higher average credit score than all other lending segments.

To move downstream on the credit spectrum, however, will require a better understanding of the risk associated with lower credit scores, Cochrum said. Credit unions have also been known to underprice loans involving borrowers with credit scores below 700, the executive noting that the segment will need to rethink pricing strategies in order to maximize returns in the high-risk tiers.

“Even above a 700 credit score, credit unions are priced 50 to 80 basis points under their competitors,” he said.

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Four Trade Groups Ask Lawmakers to Instate Five-Person Board to Lead CFPB

WASHINGTON, D.C. —  Four associations representing 12,000 banks and credit unions submitted a letter to Senate leaders urging them to consider replacing the Consumer Financial Protection Bureau (CFPB)’s single-director structure with a five-person bipartisan commission next year.

The associations listed in the letter, which was sent on Wednesday to Senator Majority Leader Mitch McConnell (R-Ky.) and Minority Leader-elect Chuck Schumer (D-NY),  include the Consumer Bankers Association (CBA), the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), and the National Association of Federal Credit Unions (NAFCU).

“The CFPB is an independent regulatory agency that provides the sole director unprecedented authority over financial institutions, with minimal oversight,” read the letter, which was sent to Senate leaders on Wednesday. “As the sole decisionmaker, the director can promulgate regulations and levy enforcement actions that have sweeping and long-lasting effects on credit availability for consumers. The current single-director structure leads to regulatory uncertainty for consumers, industry, and the economy.”

The associations cited the recent federal appellate court decision in PHH Corp. v. CFPB D.C. Circuit Court Case as further evidence of the need to replace the bureau’s structure. In that case, the appellate court ruled the in favor of the mortgage company, deeming the the bureau’s single-director structure unconstitutional. The court also gave the president the power to remove the CFPB’s director at will, as well as direct the regulator’s activities.

“This result makes it even more apparent what a whipsaw effect the single-director model presents, inhibiting the ability for financial institutions to plan for the future, which in turn limits economic growth and hurts consumers,” the associations stated in their letter.

A five-person bipartisan board or commission would be more in line with other financial regulators and would provide a balanced and deliberative approach to supervision, regulation, and enforcement over financial institutions, the associations stated. A five-person commission would also be better suited to handle the bureau’s authority over rules and regulations within the financial industry, the letter added.

“As we approach the beginning of a new administration, it is crucial we finally put in place a governing structure at the CFPB to ensure it does not become a political weapon, something we are certain Senate leaders McConnell and Schumer can appreciate,” said CBA President and CEO Richard Hunt. “In addition, the governing structure of the agency makes the potential for abuse of power and political influence not only possible, but inevitable.”

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SunTrust’s Dealer Financial Services Expands to Three Markets

Atlanta — SunTrust Banks Inc. is expanding its wholesale automobile dealer financial services to Dallas, Chicago and Boston, offering a full line of wholesale and indirect banking products to dealers in these metropolitan areas.

SunTrust Robinson Humphrey recently extended its corporate banking presence to these same markets as part of a national expansion strategy. SunTrust has served auto dealer clients in the Southeast for more than 50 years.

“SunTrust has a long history of serving auto dealers and we understand the business,” said Beau Cummins, commercial and business banking executive. “We will bring personalized service, proven expertise and the full financial capabilities of SunTrust Bank and SunTrust Robinson Humphrey to the industry in these dynamic regions.”

Wes McKnight and Greg Buell will lead the Dallas-based wholesale dealer finance team. McKnight joins SunTrust following 15 years in the auto industry, a career that included stints with all auto manufacturer brands. Buell brings more than 20 years of extensive risk management and servicing experience within the auto financial services industry, including credit operations, dealer credit, collections, and sales and call center management.

Scott Worthing is leading the Chicago wholesale auto dealer team, bringing more than 20 years of dealer financial services management experience, including a proficiency in developing, launching and marketing new products and services, combined with OEM executive relationship experience.

In Boston, Michael Walsh brings 27 years of auto sales and finance experience, including the development of dealership group relationships within the New England and Mid-Atlantic markets.

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To Boost Small Business Credit, Think Small (Banks)

In the years preceding the financial crisis, big banks controlled a growing share of the small business loan market, rising from just over 31 percent in 2005 to nearly 39 percent in 2009, according to Small Business Administration data. Over the last two years, that trend reversed, dropping to just under 38 percent in 2011.

While it’s too early to tell whether this is just a blip or a shift back to the way things used to be, the decline in market share is actually good news for small business owners. That’s because their access to bank credit improves when the market isn’t dominated by behemoths, as this Journal of Banking and Finance article points out.

Bank credit, as you probably know, is crucial to small businesses seeking to grow. Roughly one-third of entrepreneurs borrow from banks when they need expansion capital, according to the most recent Census data. That’s more than any other source of external capital. Yes, small business owners have increased their reliance on credit cards, but the average bank loan is much larger than the average credit-card loan.

With the value of small business bank loans declining 19 percent in inflation-adjusted terms between 2008 and 2011, small banks need to recoup market share if lending to small companies is to rebound. It’s easier for small businesses to borrow from small banks compared with big banks, for a few big reasons.

To start, small lenders are less likely than their bigger counterparts to focus solely on credit scores and financial statements during the evaluation process, and more likely to rely on small business owners’ character and relationships, according to this 2004 Journal of Financial and Quantitative Analysis study. The tendency to rely on soft factors helps small business owners whose creditworthiness is often better than it looks on paper. Relying on measures less affected by macroeconomic trends helps over the long haul, too: A recent Federal Reserve Bank of Boston study shows smaller institutions’ lending to small businesses stayed stable while that of big banks dropped during the Great Recession.

Small financial institutions can afford to pay more attention to small businesses than large institutions do, despite all the lip service sparked by politicians. In 2010, the latest year data are available, lenders with less than $100 million in assets lent 87 percent of their total loan value to small businesses, as compared with only 26 percent for banks with more than $50 billion in assets. Given their size, giant banks must make large loans to big companies or they cannot operate efficiently. And should the big banks’ bets in Greece or Italy misfire, small borrowers who are performing fine could find themselves affected, as this Federal Reserve Bank of St. Louis article explains.

Yes, big banks have several advantages in lending money to small businesses. Their scope allows them to more easily offer cash management services, letters of credit for exporting, and other ancillary products. And their scale allows them to invest in the fixed costs necessary to make asset-based loans or loans against accounts receivable. Despite these advantages, the main reason for small business owners to choose small banks in their communities is obvious. They’re more likely to lend them the money they need, just like George Bailey’s building and loan did in the Jimmy Stewart classic It’s a Wonderful Life.

This article was written by Scott Shane and published in Bloomberg Businessweek magazine.

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Nicolas Financial Increases Credit Line to Fuel Expansion

CLEARWATER – Nicholas Financial Inc. announced that it has increased the size of its bank credit line from $140 million to $150 million and has extended the maturity date to Nov. 30, 2013. All other terms and conditions of the credit line remain in effect, according to the specialty consumer finance company.

“We are extremely pleased that our consortium of bank lenders has agreed to increase our credit line and extend the maturity date,” said Peter L. Vosotas, chairman and CEO. “The credit line increase will allow us to continue our expansion strategy during the next few years.”

Nicholas Financial Inc. currently operates out of 57 branch locations in both the Southeast and the Midwest states, according to F&I and Showroom magazine.

“The company is very proud to continue its lending relationship with Bank of America, which began in March of 1993 and also includes Wells Fargo Preferred Capital, Capital One Bank, First Horizon Bank, and Bank of Montreal as participating banks,” Vosotas said.

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Fed Review: Credit Quality Continues to Improve

A new review by the Federal Deposit Insurance Corporation indicated that the credit quality of large loan commitments owned by U.S. banking organizations, foreign banking organizations (FBOs), and nonbanks improved in 2011 for the second consecutive year.

The 2011 Shared National Credits (SNC) Review revealed that the total analyzed loans declined more than 28 percent to $321 billion in 2011, although the percentage of criticized assets remained high compared to pre-financial crisis levels. Loans rated as doubtful or loss — the two weakest categories—fell 50 percent to $24 billion in 2011, reported F&I and Showroom magazine.

The review cited operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets as reasons for the improvement. Industries leading the improvement in credit quality were finance and insurance, real estate, construction, media and telecommunications.

Despite the improvements, the SNC noted that poorly underwritten loans originated in 2006 and 2007 continued to negatively affect the SNC portfolio, as nearly 60 percent of criticized assets were originated in these years. Refinancing risk remained elevated as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014, according to the SNC. Of this maturing amount, $204 billion was criticized.

Despite nonbank entities owning the smallest share of loan commitments, they owned the largest share of classified credits at 58 percent.

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