Magazine article American Banker

Chase in Subprime Auto Loan Alliance

Magazine article American Banker

Chase in Subprime Auto Loan Alliance

Article excerpt

By TANIA PADGETT Taking a step into the subprime automobile lending market, Chase Manhattan Corp. on Thursday announced a strategic alliance with Americredit Corp., a consumer finance company in Fort Worth. The deal calls for Americredit-one of the few subprime lenders to survive the 1997 meltdown in that sector-to provide its financing programs to auto dealers who do business with Chase. Chase, which originated more than $12.5 billion of auto receivables in 1998, is the largest bank originator of auto loans and leases in the United States. It has more than $23 billion of outstandings in its portfolio. Americredit bills itself as the largest independent subprime auto finance company. It managed a $3.1 billion auto loan portfolio at Dec. 31. Analysts said the alliance would help Chase solidify its relationship with its vast network of auto dealers by offering them access to customers they currently do not reach. Americredit, meanwhile, is expected to get a substantial increase in transaction volume. Lending to less creditworthy customers is seen as a potentially lucrative business because of the higher rates such customers pay. But it is also risky. Many subprime lenders failed in 1997 because of heavy chargeoffs and fraud. In spite of the risk, banks have moved into the industry as competition among auto lenders has intensified. Some, such as KeyCorp of Cleveland, have bought subprime lenders outright. "The pressure from auto dealers is pushing banks to stretch a little bit," said bank analyst Lawrence Cohn of Ryan, Beck & Co. …

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