Despite losing $84 million on automotive leases last quarter, US Bancorp remains committed to the auto financing business, its top executive said yesterday.
Richard K. Davis, the chairman, president and CEO of US Bancorp, emphasized during a presentation on the company’s performance and plans that auto finance remains in the bank’s strategy.
“We have been in the auto finance business since 1953 and we are going to stay active,” Davis said.
The reaffirmation deserves notice because US Bancorp is one of the most diligent managers of risk in the banking business. It does not take a loss of $84 million lightly. The loss was the leading reason why the bank’s noninterest income fell 0.4% last quarter after four quarters of solid expansion.
Davis said the auto finance business is being adversely affected by consumers holding their cars longer. He said the business would “make money in the future.”
US Bancorp had $14.3 billion of auto loans and leases outstanding at the end of last quarter. The bank’s auto loan chargeoffs climbed to 1.11% last quarter from 0.72% in 2Q08.
I wonder what their pre-owned leasing losses were because they totally pulled out of that arena.
I believe that their philosophy is correct. We are experiencing an extreme downturn in the economy. However, one of these days, hopefully sometime next year there will be an extreme upturn and their strategy will prove to be a wise move.
Robert, I agree, although I have doubts about the timing. The next couple of weeks should determine the near-term prognosis for the U.S. automotive industry. As the auto industry goes, so goes auto finance. There are many scenarios that could push back a recovery for the auto industry past 2009, and that means US Bancorp and the like will need to steel themselves for a longer downturn.
Fifth Third bank has exited leasing altogether as of last Friday. USB has the space all to themselves these days with the exception of a few regional credit unions and banks.
In these times of uncertainty it makes sense to be cautious. A lot of people are running scared. The unknown breeds paralysis. Dealers don’t know if their supplier will be in business. They’ve never been through a bankruptcy and don’t know exactly how they would be affected, but they know it wouldn’t be good.
Wouldn’t a lender be worried about their lease portfolio? What might happen to residual values if GM goes into bankruptcy. And what future is there for Chrysler? Is there anyone out there looking to buy a domestic franchise?
All I can say is I hope everyone stays calm until we start getting resolution to some of these major questions.