Sovereign Bancorp has big expansion plans in automobile financing.
With its agreement to buy the automobile finance division from Fleet Financial Group, $10.8 billion-asset Sovereign wants to spread auto financing capabilities from its bases in New Jersey and Pennsylvania along the East Coast, from Virginia to Connecticut.
"We want to be the biggest in the region," said Jay S. Sidhu, chief executive officer of Sovereign. "There are two decisions that every consumer makes: buying a car and getting a mortgage. We want a 100% share of their wallets."
On July 2, Wyomissing, Pa.-based Sovereign said it would acquire the $2 billion auto portfolio of Boston-based Fleet. The business consists of indirect auto loans, dealer floor plan loans, and leases.
The cash transaction, expected to close this quarter, will be made at a discount of slightly more than $19 million, said Mr. Sidhu. Sovereign will add $19 million to its loan-loss reserves.
The deal would substantially bulk up Sovereign's $100 million portfolio. Fleet automobile finance division is the largest auto finance company in the Northeast, with 2,000 dealer relationships and 225,000 customers.
"It certainly leapfrogs them a long way in this business," said Marni Pont, an analyst at Keefe, Bruyette & Woods Inc.
Sovereign has been diversifying its balance sheet in recent years. The bank wants to lessen its dependence on residential mortgage loans, which this year make up 80% of its total portfolio, said Mr. Sidhu.
Ms. Pont said the Fleet acquisition would improve Sovereign's interest spread. Once the portfolio is acquired, Sovereign's loan distribution will be 10% commercial, 25% consumer, and 65% residential mortgage, she said.
Mr. Sidhu said he really wants the Fleet loans: "We were searching for ways to become very large in this business, and the Fleet portfolio was our No. 1 target."
Sovereign will hire 185 Fleet staffers and run the unit from Hartford, Conn., where it has been based.
The deal will add two sales centers-in Hartford and Long Island, N.Y.-to Sovereign's centers in New Jersey and Pennsylvania.
Joseph P. Campanelli will join Sovereign, from Fleet, as executive vice president and director of auto finance.