Santander Consumer Profit Falls on Personal Lending Woes

Santander Consumer Holdings USA in Dallas on Wednesday reported lower quarterly profits due to ongoing issues associated with its discontinued personal loan business.

The $39 billion-asset subprime auto lender earned $213 million during the third quarter, a decline of 10% from a year earlier. However, diluted earnings per share were 59 cents, or 7 cents higher than an estimate of analysts polled by Bloomberg.

Credit problems with the personal loans – a business Santander exited last year – were a drag on results. The $1.3 billion portfolio is currently classified as held for sale, meaning that, under accounting rules, credit issues are recorded as investment gains or losses.

Fee-based revenue plunged to $27 million, compared with $154 million a year earlier, due to credit losses from the personal loan portfolio. Servicing fees and other commissions held mostly steady.

Net finance and interest income declined 3% to $1.2 billion. The provision for credit losses fell 15% to $610 million. Originations plunged 32% to $5.2 billion as the company continues to pull back on lending to borrowers with blemished credit histories.

Noninterest expenses rose 9% to $285 million because of higher compensation costs.

The company also announced that it is "finalizing a strategic agreement" with Banco Santander – its Spanish parent company – to originate prime loans. No additional details about the agreement were provided.

The results follow a rough period for Santander. The company has restated earnings three times over the past year because of problems with the way it calculated provisions for credit losses and other reasons.