As the asset-backed securities market continues to recover, as captives look to drive new car sales, and as several large-cap banks reduce pricing, investment bank Credit Suisse believes direct and indirect auto loan growth will slow for some regional banks.
In a recent installment of Barron’s Investor’s Soapbox, executives from Credit Suisse pointed out some of their predictions for the next 12 months and beyond:
- Credit risk will remain low for auto loans since current loan pricing is dilutive to bank net interest margins. Credit Suisse points out that M&T Bank and Valley National have already started to shrink their auto loan portfolios. Huntington is giving up marketshare in Ohio, but is maintaining consistent auto loan production through geographic expansion.
- Expected growth will come from the following banks: Capital One Financial, Wells Fargo, U.S. Bancorp, PNC Financial Services Group, Fifth Third Bancorp, TCF Financial, SunTrust Banks and Regions Financial, but TD Bank and Cap One will be the largest marketshare gainers.
- Regional bank auto loan portfolios will grow less than 8%.
- In the U.S. for 2012 and 2013, new-car sales will grow 10% to 15%, and the ABS market and captives will provide an increased role in financing car sales.
- Auto loan net charge-offs will remain very low for at least the next 12 months.
- Asset-liability management risk will also remain low given Credit Suisse’s interest rate forecast: The first fed rate hike will be in 2015.
The capital markets will recover although pinpointing a time frame is difficult. I believe of greater concern is the pending legislation in both the House and the Senate. If approved, the bills will change the landscape of subprime financing as we know it. Here are some of the bills in question:
HR 1640/S 582 – Interest Rate Reduction Act-Amends TILA to prohibit the APR applicable to any consumer credit transaction from exceeding 15% on unpaid balances, inclusive of all finance charges.
HR 2309– The FTC must “consider” adopting rules that would:
• restrict post-sale changes in financing terms;
• give consumers the right to rescind a sales contract within a specified period after receiving the final information regarding the terms of the sale or financing; and
• limit the ability of dealers to receive compensation for arranging financing or assigning a credit contract based on the interest rate, the APR, or the amount financed.
S 255 – Empowering States’ Right To Protect Consumers Act of 2009
– Amends TILA to limit the APR applicable to any consumer credit transaction (other than a residential mortgage transaction), including any associated fees, to the maximum rate permitted by the laws of the state in which the consumer resides.
– Would empower the states to set the maximum annual percentage rates applicable to consumer credit transactions.
S 257 – Consumer Credit Fairness Act
– Amends federal bankruptcy law to require the bankruptcy court to disallow any claim arising from a “high cost consumer credit transaction.”
– For secured creditors, the disallowance of the claim will extinguish their lien on the collateral securing the transaction, leaving such creditors with no claim against the bankruptcy estate or
the collateral.
High cost consumer credit transaction: • An extension of credit resulting in a consumer debt with an applicable APR, including related costs and fees, that exceeds, at any time while the credit is outstanding, the lesser of: – the sum of 15% and the yield on U.S. Treasury
securities having a 30-year period of maturity; or – 36%