Santander Consumer USA's auto-lending portfolio absorbed higher losses last quarter, but the Dallas company said its credit performance should improve as tax cuts boost take-home pay for many car buyers.

The net chargeoff ratio on the subprime lender’s retail installment contracts climbed to 10.3% in the fourth quarter, up from 9.9% in the same period a year earlier.

But the pace of credit deterioration slowed in 2017, and Santander Consumer CEO Scott Powell said that the new tax law should enable some additional borrowers to stay current on their loans.

“I think it will help certainly on the credit side. I wouldn’t expect a dramatic impact,” Powell said Wednesday during the company’s earning call.

Scott Powell, CEO of Santander Holdings
Credit quality boost?
The new tax law "will help certainly on the credit side" by boosting borrowers' take-home pay, but "I wouldn't expect a dramatic impact," Santander Consumer CEO Scott Powell says.

The new law will also help Santander Consumer by reducing its corporate tax rate from 36% to 21%, according to Powell. During the fourth quarter, the firm recorded a one-time windfall related to the revaluation of its deferred tax assets and deferred tax liabilities, which was a key factor in its quarterly net income of $580 million.

After adjusting for the tax benefit, as well as other one-time items, Santander Consumer’s net income was $98 million during the fourth quarter. The company’s shares were down 4% in midday trading.

“Overall, this was a modestly softer quarter,” analysts at Barclays wrote in a research note. “Investors will probably look past the results today at some level and focus on management’s commentary around the 2018 outlook.”

Also on Wednesday, Santander Consumer announced that a partnership with AutoFi, a startup that has developed a mobile app car buyers can use to arrange financing.

Under the deal, the auto lender, which is 68.1% owned by Banco Santander of Spain, will offer loans through AutoFi. Banco Santander’s financial technology venture capital fund will also make an investment in San Francisco-based AutoFi.

JPMorgan Chase announced on Jan. 11 that it would also participate in AutoFi’s online platform.

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.