By Chris Gillock
I noticed that Santander Consumer USA’s founder and CEO, Thomas Dundon, left the firm last week. Santander is exercising its right to purchase Mr. Dundon’s 10% stake in the enterprise, a transaction that will generate around $900 million for the departing CEO. I initially thought that this was a happy Horatio Alger story – Dundon came from nowhere, started Drive Financial, sold a majority stake to Santander and led the growth of the enterprise to its current behemoth status in subprime auto lending. Dundon is a billionaire, and he did not inherit a penny of his fortune. So I figured he is retiring at the ripe old age of 43 to move on to the next chapter in his awesome life.
Then I read the Written Agreement between Santander Holdings USA, Inc. and the Federal Reserve Bank of Boston which hit the internet on July 7 (you can see the agreement by clicking on this link).
After reading this stern and demanding document, it looks like the Fed wants big changes at Santander’s US operation, which may have included a change in the occupant of the corner office at the auto lending subsidiary. The Santander folks are probably engaged in a frenetic effort to fix whatever the Fed wants them to fix. The bank has 60 days to submit a plan to the Fed covering a broad range of concerns, including risk management, capital planning, liquidity, compliance with laws/regulations and general supervision. Since the bulk of Santander’s U.S. operations consist of Santander Consumer USA, this is an effort by the Fed to put the squeeze on this subprime lender. Santander failed the Fed’s stress test in 2014 and again earlier this year. This broad-based enforcement action will grab the full attention of the senior team in Spain, and the Wall Street Journal reported that Executive Chairman Ana Botin’ had at least three meetings with Fed governor Daniel Tarullo in the fourth quarter of last year.
The Fed’s action regarding Santander USA could have a significant impact on the competitive landscape of the U.S. subprime auto finance sector.