Santander Consumer Plunges as CEO Shifts Plan on Personal Loans

  • Shares fall 15%, the biggest intraday slide since January 2014
  • Lender to sell debt originated by LendingClub, Bluestem

Santander Consumer USA Holdings fell the most in 21 months after saying it plans to sell a portfolio of personal loans originated by other companies and refocus on its main auto-lending business.

Shares plunged 15 percent to $19.15 at 1:55 p.m. in New York, the most intraday since January 2014. Dallas-based Santander, which is controlled by Spain’s largest bank, announced the strategic shift Thursday along with third-quarter results.

The earnings “report had the feeling of a delayed ‘kitchen sink’ quarter,” Mark Palmer, an analyst with BTIG LLC, said in a research note. He noted the strategic shift, along with a change in accounting that gave a one-time boost to earnings.

Chief Executive Officer Jason Kulas, who took over in July, has been revisiting decisions made by his predecessor, including programs to buy loans originated online by LendingClub Corp. and retailer Bluestem Group Inc. Santander, already one of the largest subprime auto lenders in the U.S., had been buying personal loans through those channels to boost results. Its portfolio of personal loans had about $2.2 billion in unpaid principal at the end of September.

‘Strategic Evaluation’

“During the quarter, we undertook a strategic evaluation of all of our lines of business, and have determined to focus our attention on our core auto business,” Kulas said in a statement Thursday. “Although the personal lending portfolio is performing well, we no longer intend to hold these assets for investment.”

The agreement with LendingClub in March 2013 allowed Santander to purchase as much as a quarter of the debt that originated on the online platform for three years. Those loans have primarily consisted of lower prime and non-prime credit. The agreement with Bluestem gave Santander the option to purchase debt through 2020.

Bluestem’s relationship with Santander is on-going, Chief Financial Officer Mark Wagener said in a statement Thursday. He added that the retailer is helping Santander sell its existing loans and is looking for other sources of funding.

Attractive Yields

Santander’s net income rose 17 percent to $223.9 million in the third quarter, Santander said. The company’s results benefited from a one-time $134 million reduction in its provision for credit losses after it changed a model to remove seasonal adjustments.

Hedge funds, family offices and other institutional investors have entered into similar agreements with consumer-lending startups in recent years. They’ve been enticed by attractive yields and, in some instances, the ability to package the debt into securities to sell to other investors.

Jefferies Group LLC, for instance, struck a deal with online consumer lender CircleBack Lending in 2014, agreeing to package into securities as much as $500 million in debt.

Loan purchase agreements are almost all different, CEO Matt Burton of loan data services firm Orchard Platform said Thursday at a conference in New York. For example, some investors’ plans to exit their holdings by bundling the debt into securities have been dogged by inconsistencies in the representations and warranties of the agreements. That has recently presented an obstacle to a greater volume of rated bond deals, he said.

LendingClub’s shares fell 3.4 percent after Santander’s announcement.

“A large investor who stopped buying from us this morning was a great early partner for us, but they accounted for just a single digit of originations year to date,” LendingClub CEO Renaud Laplanche said in an e-mailed statement Thursday. “We’ve already replaced them with other investors who are paying a market rate servicing fee, which helps our revenue mix.”

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