Can Powell stabilize Santander’s U.S. auto unit?
During Santander Holdings USA’s yearslong quest to get back in the good graces of its regulators, the company’s subprime auto lending unit has earned a reputation as a problem child.
Santander Consumer, the auto unit, has been dogged by questions about its accounting after regulators questioned a change in its loan-loss calculations. It has also been the target of numerous federal and state probes into its auto lending and securitization practices.
Whether Scott Powell, who was appointed as CEO on Monday, can put the embattled division on more solid footing remains to be seen.
Powell — now CEO of both Santander Consumer and Santander Holdings USA — told analysts Monday that his long-term plans involve enhancing compliance and building a culture that focuses on customer service.
But he insisted that he has no plans to make strategic changes. While Santander Consumer has scaled back in subprime auto lending over the past year after making an aggressive push in late 2015, Powell said the company remains fully committed to lending to customers with severely blemished credit.
“There is this constant drumbeat about the nonprime market, and that’s more of a public perception issue than an operating issue,” Powell said in an interview Monday morning, following a conference call with analysts. “But from an operating perspective, I think we feel really good about where we’re at today.”
The appointment of Powell as CEO caps off a rocky few years for Santander Consumer, which have been a whirlwind of leadership changes and regulatory headaches.
In his new role, Powell replaces Jason Kulas, who served as CEO for two years, after taking over in a surprise leadership shake-up. Since then, Santander Consumer has also replaced its chairman twice, and also named a new chief financial officer, among other executive changes.
Powell’s familiarity with the company will likely be a boon, Chris Donat, an analyst with Sandler O’Neill, said in a note to clients Monday. In addition to serving as CEO of Santander Holdings USA since 2015, Powell has served on the board of Santander Consumer for the past year.
“While we don’t like to see significant management turnover, we believe [Santander Consumer] can weather this change,” Donat said.
Santander USA Holdings has recently moved to keep closer tabs on its subprime auto lender, with special attention given to its accounting and other compliance procedures. It has done so partly under the direction of federal regulators.
The Boston-based parent company was hit with an enforcement action in March, ordering it to enhance its oversight of the auto lender’s operations and compliance.
During the interview Monday, Powell said his appointment as CEO has little to do with the parent company’s efforts to step up supervision of its $39.5 billion-asset auto division. Rather, he described the change as “an evolution” in his role, given that he already devoted significant time to the company.
Santander Consumer “is the biggest business we have in the United States,” Powell said. “A fair amount of my time is spent on working with the team here in Dallas.”
In the months ahead, Powell said a key priority of his will be to expand Santander’s existing relationship with Chrysler Capital.
Under a 2013 agreement, Santander Consumer provides auto financing through Chrysler dealers, focusing largely on borrowers with prime credit scores. The company also recently struck an agreement with its parent company that allows Santander Holdings USA to purchase prime auto loans originated through the Chrysler partnership.
During the second quarter, Chrysler Capital originations for borrowers with FICO scores above 640 increased 11% from the prior year to $948 million. Total originations, meanwhile, expanded just 1%, to $5.4 billion.
Asked whether Santander Holdings USA has any plans to buy a greater stake in Santander Consumer, Powell demurred. Santander Holdings — a unit of the Spanish banking giant Banco Santander — currently owns a 59% stake. (Santander Bank in Boston is also a unit of Santander Holdings but separate from Santander Consumer.)
Santander Holdings has proposed buying a 10% stake in Santander Consumer that is owned by the latter's former CEO Thomas Dundon.
Dundon was a co-founder of Deal Financial Services, which was acquired by Santander in 2006. Santander Consumer completed its initial public offering in January 2014.
The Dundon deal is currently awaiting regulatory approval, according to a recent Bloomberg report.
“The best I can say is that we don’t have any plans to do that today,” Powell said.