Fifth Third Bancorp and Provident Bancorp are planning big automobile loan securitizations in coming weeks.
The two Cincinnati-based banks are joining some larger institutions in the asset-backed securities market in order to meet loan demand while deposit growth slows.
In the past, a few money-center and regional banks joined the Big Three automakers and independent specialty lenders in securitizing automobile loans.
But as banks became comfortable securitizing mortgage and credit card loans, more have become willing to try tapping this market to fund other kinds of loans as well. Reductions in the costs of securitization in recent years also have reduced banks' inhibitions about using this funding method.
"As fast as the company is growing, at some point you have to start managing your capital structure," said John S. Fleshood, a vice president at Fifth Third. "We want to be able to continue to compete in consumer installment lending, and we use securitization to help us manage the size and mix of our balance sheet."
The bank recently amended its registration statement filed with the Securities and Exchange Commission to boost the amount of its planned securitizations to $1 billion. According to Asset Sales Report, an American Banker newsletter, Fifth Third is expected to issue as much as $400 million of securities this month. J.P. Morgan Co. is leading the offering.
Provident, on the other hand, has not disclosed the size of the offering it is considering. Chemical Securities is leading the offering.
The planned offerings follow the lead of Ohio competitors Banc One Corp. of Columbus and KeyCorp of Cleveland. Both have used the asset-backed market to fund a variety of consumer lending operations.
Steve Bluhm, senior vice president in Banc One's funding management operations, said strong loan demand prompts the bank to securitize.
"The issue is more a function of loan growth," said Mr. Bluhm, who was busy pricing the company's own $535 million auto-loan securitization. "Loan growth is exceeding deposit growth."
Indeed, like Thursday's offering, Banc One's $1.2 billion of auto-loan securitizations in the first quarter of 1995 came from its Texas subsidiary. Heavy demand for loans there let the company quickly replenish its auto-loan portfolio to $1.1 billion of outstandings at yearend.
Mr. Bluhm pointed out that the decline in the cost of using this market has helped make securitizations more attractive. He said interest and underwriting costs have fallen 10 to 15 basis points in recent years, saving about $1 million a year in interest costs on a $1 billion offering.
"The Wall Street firms are becoming more aggressive," said Mr. Bluhm. "Plus, the absolute spread over Treasuries has declined by about 10 basis points."
