A major management shake-up at Santander Consumer USA Holdings Inc. SC has been announced. The Dallas, TX-based company’s Chairman and CEO, Thomas G. Dundon, is stepping down with immediate effect. He is being replaced by President and Chief Financial Officer, Jason A. Kulas, as the new CEO.
Notably, Dundon would continue as Santander Consumer’s Board of Director as well as serve as a senior adviser to the company. Dundon said, “I am proud to have been part of the company's success and fortunate to have worked with so many outstanding, driven colleagues over the years.”
What Led to the Shake-Up?
While announcing management changes, Santander Consumer stated that Dundon plans to “pursue new opportunities”. He had been at the helm of the company for over 20 years (including 9 years as CEO).
However, there are other reasons for Dundon’s departure. Santander Consumer is 59% owned by Spain’s Banco Santander, S.A. SAN. With Ana Botin becoming the CEO of Banco Santander in Sep 2014, there has been a broad overhaul of senior leadership and strategy. We believe that changes at Santander Consumer come as part of this overhaul.
Further, Dundon, who had started the Texas business – Drive Financial Services – at a small scale, soon became a major subprime auto lender in 1990s with Banco Santander acquiring the firm later. Drive Financial Services was renamed as Santander Consumer.
Of late, the company has been facing heightened regulatory scrutiny over its lending practices. In Feb 2015, Santander Consumer reached a settlement worth $9.4 million with the U.S. Department of Justice (“DOJ”) regarding allegations of illegally seizing nearly 1,100 vehicles from the military service members. In 2014, the company disclosed that it had received subpoenas from the DOJ and the Securities and Exchange Commission (“SEC”) related to its subprime loan underwriting and securitization processes.
The company’s regulatory problems, however, go beyond lending practices. In 2014, Santander Consumer had paid unauthorized U.S. dividend, even though such payments were barred by the Federal Reserve; as its holding company, Santander Holdings USA, failed to clear the annual stress test. Notably, this year too, Santander Holdings was unable to clear the stress test.
Hence, in an attempted to improve its relations with the U.S. regulators and further enhance its market share in the U.S. sub-prime auto lending sector, the changes in Santander Consumer’s top management were put into effect.
Going Forward
Dundon, who owns nearly 10% stake in Santander Consumer, will be selling it to Banco Santander for roughly $1 billion. This would raise the stake of Banco Santander to 69%, thereby further increasing its hold over the company.
In first-quarter 2015, Santander Consumer’s profit surged tremendously to $289 million from $81.5 million in the prior-year quarter. Further, the stock has returned more than 30% year to date.
Under the new CEO, Santander Consumer will likely be able to move beyond its problems with the regulators. Further, with the boom in the U.S. auto industry, we believe the company will be able to boost its market share in sub-prime auto lending sector.
Currently, Santander Consumer sports a Zacks Rank #1 (Strong Buy). Other finance stocks worth considering include Cash America International, Inc. CSH and SVB Financial Group SIVB. Both these stocks sport the same Zacks Rank as Santander Consumer.
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