NationsBank Corp. is negotiating to acquire the consumer finance arm of Chrysler Corp., a move that would expand the bank's consumer loan portfolio by about 16%.
NationsBank officials have already visited the Allentown, Pa., headquarters of Chrysler First Inc. to conduct an extensive review of the unit's books, sources confirmed on Friday. They declined to say whether they, thought a deal would be completed.
Chrysler First has $4.9 billion in receivables, but analysts said they couldn't speculate on how much it would fetch. The No. 3 automaker purchased the unit in 1985 for $405 million from BankAmerica Corp. It had $4.3 billion in receivables at the time.
In Line with Consumer Strategy
The acquisition would be consistent with NationsBank's previously announced strategy of building its share of consumer loans to 50% of its total portfolio, up from the current 39%. The Charlotte, N.C.-based bank currently has about $27 billion in consumer loans outstanding.
A NationsBank spokesman declined to comment Bob Heath, a spokesman for Chrysler First's parent company, Detroit-based Chrysler Financial Corp., said the automaker's consumer finance arm has been on the block since the second quarter, but would not comment on whether NationsBank was negotiating to buy it.
Chrysler First has three lines of business. It finances consumer loans such as home equity, personal lines of credit, retail installment, and private-label credit cards. It also does inventory financing for manufacturers and retailers. And finally, it maintains a portfolio of secured property loans.
Some recent premiums paid for consumer finance portfolios have been modest. Commercial Credit Co. purchased a 1 billion portfolio from Barclays Bank in 1990, and a $370 million portfolio from MNC Financial Inc. the following year, for 7% and 2% over receivables.
Joseph Phillippi, an auto industry analyst at Shearson Lehman Brothers in New York, said he was confident Chrysler would not sell its consumer finance unit for less than the $405 million it paid for it.
Moshe Orenbuch, a bank analyst with Sanford C. Bemstein & Co., said Chrysler First makes "a great fit" for NationsBank. "At the right price, I think they would be interested," he said.
A Need to Reinvest
Mr. Orenbuch pointed out that NationsBank needs to reinvest the proceeds from its enormous bond portfolio as those securities mature. With loan demand still weak, it makes sense to acquire consumer portfolios, he said.
It's no secret that NationsBank is on the prowl for loan portfolios and fee-based businesses. In April, the American Banker reported that NationsBank had approached Barclays Commercial Corp. about buying its U.S. factoring arm, one of the nation's 10 largest. Those talks did not result in a deal.
The disclosure that NationsBank officials were in Allentown reviewing Chrysler First's books was reported first by The Morning Call, the city's daily newspaper.