Plans by Regions Financial Corp. and Capital One Financial Corp. to pare back exposure to the auto sector signal increased pessimism about the health of the consumer as well as the profitability of the sector, analysts said.
"It's another sign of the times," said Christopher Marinac, an analyst at FIG Partners LLC. He said the Federal Reserve Board's decision last week to cut the federal funds rate by 50 basis points will force Regions and Capital One to lower interest rates on such loans.
Kevin Fitzsimmons at Sandler O'Neill & Partners LP said "banks are being more careful and judicious" about how they use capital to build their balance sheets.
Capital One, of McLean, Va., confirmed Friday that at the end of the month it plans to stop making inventory loans to dealerships in its New York and New Jersey markets. The $151 billion-asset Capital One will continue to lend to dealers in Texas and Louisiana; it sent notices in August to less than 20 dealers in the Northeast notifying them of the move, Steven Thorpe, a spokesman, said Friday. "We regularly review our long-term strategic focus," he said.
The $144 billion-asset Regions said Thursday that at the end of the year it will stop making auto loans through dealerships. A spokesman said it will focus more on originations made in its branches. Regions, of Birmingham, Ala., notified its 2,600 dealership clients on Thursday. Indirect auto loans made up 4.2% of its $98.3 billion loan portfolio at June 30, according to the company's quarterly filing. Capital One's dealership finance business makes up a "very small piece" of its overall loans, Mr. Thorpe said.
Regions said it will cut about 50 jobs, but give employees opportunities to find jobs elsewhere at the company. Capital One is cutting four jobs, Mr. Thorpe said.