After shopping its ailing auto leasing subsidiary to 30 potential buyers, Susquehanna Bancshares Inc. of Lititz, Pa., has decided to hold on to it for at least one more year.
The decision, announced Wednesday along with Susquehanna’s results for 2005, appeared to dismay many of the analysts who cover the company. The subsidiary, Hann Financial Services Corp., lost $11.5 million in 2005 and is projected to lose $3.5 million this year.
Susquehanna chairman and chief executive William J. Reuter says his company is better off taking another year of losses than selling Hann Financial at a fire-sale price.
“We went through a very disciplined process, and the conclusion we arrived at was that this was an inappropriate time to sell, at a low point in the market,” Mr. Reuter said Friday.
Despite Hann’s problems, the $7.5 billion-asset Susquehanna said its 2005 net earnings rose 13.3%, to $79.6 million. But that appeared to get lost in the reaction to the Hann news.
Collyn Gilbert, who covers Susquehanna for BankAtlantic Bancorp’s Ryan Beck & Co., said that keeping the subsidiary was a mistake.
“You need to have scale” to have long-term success in auto leasing, Ms. Gilbert said in an interview Thursday. “It is probably not a business that a community bank should be in.”
Andrew W. Stapp, who covers Susquehanna for Cohen Brothers & Co. in Philadelphia, said Hann “would be a cloud over” its share price “because it is hurting earnings.”
“It has been a thorn in their side for quite a while now,” Mr. Stapp said Thursday.
The stock has traded at around $24 for much of the past year. It was at $24.24 Monday afternoon.
James C. Record, an analyst with Moors & Cabot Inc., said Friday that Susquehanna, which acquired Hann in November 1999, never should have ventured into auto leasing.
“They’re trapped,” he said. “They’re in a business that is losing money, and they can’t get out of it.”
Hann, which specializes in leasing Japanese imports, generated $16 million of profits and from 2000 to 2003. Its business began suffering in late 2003 when Toyota and other Japanese automakers started offering incentives that persuaded many who would have otherwise leased cars to buy them. Hann lost $3.2 million in 2004.
Fritz Elmendorf, a spokesman at the Consumer Bankers Association, said Friday that most banks left auto leasing in the late 1990s and early 2000s because they could not afford to match the increasingly generous lease terms offered by manufacturers’ finance companies. Few banks, especially the size of Susquehanna, have stayed in it.
“It is a tough business for banks, because the captive finance companies have been so aggressive,” Mr. Elmendorf said.
Mr. Reuter said that rising interest rates will make leasing attractive again this year and that Hann should return to profitability in 2007. He added that Susquehanna would continue to look at its alternatives for Hann, including a sale at a better price. All the offers Susquehanna received for Hann last year were “economically unattractive,” he said.
Mr. Reuter seemed irked that analysts were paying so much attention to Hann.
Susquehanna as a whole “made $116 million pretax last year,” he said. “This is a very fine company and it continues to be. Way too much is made of” Hann’s difficulties.
