Santander’s U.S. units not out of woods yet

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In 2017 Scott Powell became CEO of the embattled subprime auto lender Santander Consumer USA in addition to being the head of Santander Bank, a job he had taken in 2015.

The sister companies, which had each faced regulatory compliance and other issues, have certainly turned the corner in the past two years, but Powell’s work is hardly done.

He has to resolve one last enforcement action, a two-year-old Federal Reserve order that requires stricter corporate oversight of Dallas-based Santander Consumer. He also is negotiating to preserve the auto lending unit’s status as a preferred lender of Fiat Chrysler. On top of all that, a new problem has cropped up: Santander Bank, based in Boston, recently suspended new credit card issuance over problems with the way it calculated interest on some of its cards.

Meanwhile, all the U.S. businesses of the Spanish company Banco Santander — which also include its private banking and broker-dealer operations — are undergoing an internal efficiency project called One Santander.

Powell says there are plenty of reasons to be optimistic amid all these challenges.

While Banco Santander’s U.S. businesses contribute just 7% of its overall profits, the U.S. is its best performing country, Executive Chairman Ana Botin said early this year. Loan growth, particularly consumer loan growth, boosted first-quarter profits across Santander’s U.S. operations by 35% to $207 million.

And Santander Consumer’s relationship with Fiat Chrysler appears to be safe — at least for now. The automaker said last year that it would form its own captive finance company, but then-CEO Sergio Marchionne died soon after the announcement. Recently, Fiat CEO Michael Manley said it intended to “stay with the arrangements that we have” in the U.S.

Santander Consumer said that loans made under its Fiat relationship rose 23% in the first quarter to $2.44 billion, the company said. Those loans made up roughly 35% of the $7 billion in total originations Santander Consumer reported in the quarter.

Powell talked with American Banker recently about credit trends, negotiating its long-term relationship with Fiat, and boosting employee morale. This interview has been edited for length and clarity.

How have talks gone recently with Fiat Chrysler executives? What have you done to keep that relationship and keep them happy?

SCOTT POWELL: We’re in a dialogue with the management. We’re totally committed to the relationship, and it’s an important part of our business. Those conversations are positive, forward-looking and they’re all around optimizing the relationship.

We’ve got four more years on the contract that we have with them, so we’re going to earn the right to have an even longer relationship. We want to make them successful so they can rely on us as a partner.

We’d like to finance at least more of their cars. We’re trying to figure out how to do that with them. I think that’s the most basic way to say it.

The second thing is just optimizing pricing for risk and how we do that for Chrysler. There’s no magic thing we’re doing here. It’s just, operationally and with our sales team, just trying to improve those things.

We can always be happier, but it’s just a lot of hard work. It’s being more dealer friendly, being able to provide better funding and over the last year we’ve made significant progress funding contracts faster for them and processing contracts for them. The dealer is at the center of the service we provide.

How are you feeling about the credit environment right now, especially given that Santander Consumer lends heavily to subprime borrowers? Are you seeing any credit trends that give you cause for concern?

So far we don’t see anything to suggest we’re at the beginning of a change in the environment. We don’t see it in our data. A lot’s been written about the increases in credit card delinquencies, and for sure you see that, but we don’t have a big credit card portfolio. We don’t see it in our data and even credit card delinquencies are not back to where it was. When the credit cycle starts, credit card delinquencies are a good place to see that coming. If you look at that same data, it has gone up before and come back down.

What drives all of these things at the end of the day is the strength of the job market and the disposable income that consumers have in this country. So long as people have jobs — and the job market still looks pretty hot to me — that in general is going to be fine. When that gets disrupted, then you’ll see a significant impact on delinquency rates for consumer groups.

How is everything looking on the regulatory front?

We continue to be focused on resolving the remaining regulatory issues we have, but we are very much looking forward now instead of looking backwards. We’ve got this one left, we’re working hard on it. I’m confident that with time it will disappear. I can’t tell you if it’s this year or next year, but I’m confident that it’ll go away because we’ve been working hard on it.

It’s important that we live up to our own standards for how we run these companies, and complying with all regulations is an important sign of that.

Credit cards are an example of [that]. We made a decision a month or so ago to stop selling credit cards in our branches because we identified a very small issue with the calculation of interest in our systems. They were not completely accurate relative to the disclosures, so we made a decision we would stop selling credit cards until we fixed that very technical programming issue. When we turn credit cards back on, we’ll be 100% confident that we meet the letter of the law and the spirit of the regulation.

What are you hoping to accomplish with the One Santander project?

As a foreign-owned bank, we had to put in this intermediate holding company here in the United States. We did that and really started with five distinct businesses, all that had grown up separately and been built out separately.

If you have these five businesses that are all Santander U.S., you say, do I really need to have five separate and distinct benefits departments? Do I need to have five separate model development groups? In some cases, you do. Things which are customer-facing and optimized for the customer, you want that to be distinct and close to the business and not change.

[One Santander] is back-office, functional integration where we can get synergies. Expense synergies, absolutely, but also where we can create more effective areas, or utilities, if you will. It’s really taking that benefit on the expense side and being able to reinvest it for the customer. Another example is ledgers: Does it make sense to have five different general ledgers? It doesn’t. Over time we’re figuring out how to bring those things together and get those efficiencies.

You said that voluntary attrition is down, from 26% in 2016 to 17% this year. Have you made any particular changes that you believe helped boost employee morale?

It’s no one thing. You can ask yourself, why do I like working at the company I work for? There’s a lot of things that factor into that. Do I feel good about the future of the company? Do I feel like I can be successful here? And is my employer treating me fairly, or do I think my employer is doing the right things?

One of the things we’ve launched is employee networking groups. It’s not unique to us, other banks have these, but we launched a women’s networking group a few years ago to create a forum where women could get together to talk about issues that concern them in the workplace and give us feedback on how we can make this a better place for women to work. We launched a black employees networking group, [and] we launched a Hispanic networking group. We launched one called Embrace, [for] LGBT [employees], and then we’ve got a couple more to come, too, on disabilities, caregivers and veterans.

It’s just getting the right people and doing the hard work to change the place across all these different categories of things. People tend to focus on regulatory and financial performance, but that’s really the byproduct of doing all those other things the right way.

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Compliance Enforcement actions Consumer banking Auto lending Subprime lending Growth strategies Santander Santander Consumer USA Federal Reserve