Magazine article American Banker

After Two-Year Detour, Banks Zoom Back into Securitizing Car Loans

Magazine article American Banker

After Two-Year Detour, Banks Zoom Back into Securitizing Car Loans

Article excerpt

Investor demand for securities backed by auto loans has led a growing number of commercial banks to securitize their portfolios.

But the banks' return to the arena after a near-total absence of nearly two years could well be their last hurrah in this securitization market, where the competition from nonbank lenders has drained much of the profit from the business.

Charles Hindmarsh of State Street Boston Capital Corp., said he expects the auto finance market to go the same route as the credit card business, where an estimated 80% of securitizations are offered by narrowly-focused "monoline" nonbanks.

The reason is that nonbank lenders critically need the backing of the secondary market to finance their growing loan business.

"The only place they are going to find financing is through securitization," said Mr. Hindmarsh, managing director of State Street's asset-backed securities unit.

In fact, commercial banks' accounted for a mere 9% of the auto loan securitization market in 1994, according to figures from Moody's Investors Service. By comparison, just the finance arms of the nation's Big Three auto manufacturers - Ford, Chrysler and General Motors - had a commanding 82%.

Nonetheless, current market conditions are proving too tempting for banks to pass up. Banc One Corp. and Keycorp, for instance, have tapped the market this year.

Banc One's Auto Loan Trust sold more than $880 million in auto- backed securities in April, while Keycorp netted $299 milion in its June 26 sale.

The Keycorp sale shows how favorable market conditions have become. …

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