Citizens Financial Plans More Auto Bond Sales After Exiting Car Lending

Citizens Financial Group Inc. plans to sell more bonds backed by prime auto loans following its first such deal last week as it pulls back from lending to auto buyers, according to people familiar with the matter.

(Bloomberg) — Citizens Financial Group Inc. plans to sell more bonds backed by prime auto loans following its first such deal last week as it pulls back from lending to auto buyers, according to people familiar with the matter. 

The firm on June 23 priced a $1.5 billion asset-backed security. Citizens increased the size of the deal from $750 million due to strong demand from investors, according to deal sources. 

Citizens Financial, which owns Citizens Bank, plans to issue around three to five more bonds backed by its $11.5 billion loan book, one of the people said. By securitizing a given pool of assets, companies can borrow money at comparatively low rates as investors gain rights to those assets. 

The bank earlier this month said it will halt new auto lending in partnership with dealers starting July 1, part of a broader pullback among financial institutions. Citizens started dialing back its auto lending business in the third quarter of 2022.

Its future deals will likely be largely similar to the one issued last week, which were backed by loans that Citizens Bank — a subsidiary of Citizens Financial Group — originated through its partnerships with dealers, according to one of the people. 

Citizens didn’t respond to a request for comment. 

Other banks have also reduced or stopped lending money for auto loans. U.S. Bank, a subsidiary of U.S. Bancorp, in recent months worked with Florida-based Bayview Asset Management to securitize more than $8 billion worth of prime auto loans. It previously said it would downsize its auto loan book, including through sales following the acquisition of MUFG Union Bank last year. 

Capital One Financial Corp. in late March decided it would exit a lending business for dealerships. The move came after Fifth Third Bancorp late last year said it was slowing its auto loan origination. 

Banks don’t usually view auto loans as a lucrative way of lending, said Herman Chan, a bank analyst at Bloomberg Intelligence. They have limited options to sell other products and services to auto loan customers, as those customers often choose a loan provider due to the competitiveness of the offer, not the broader portfolio of a bank, Chan said. 

“In this environment where both deposit costs and cost of funding is increasing, it makes sense that bank will prioritize the most profitable types of lending,” said Chan. 

U.S. Bank declined to comment. Capital One said its planned exit from floorplan lending — a form of financing for retailers for large ticket items displayed on showroom floors — would have no effect on its consumer lending business. Fifth Third Bancorp and Bayview didn’t respond to requests for comment. 

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