Santander Consumer misses second deadline for 2015 report

MADRID – Banco Santander SA’s car-financing company in the U.S. missed a second deadline for publishing its annual report as it recalculates provisions for loan losses in response to regulatory concerns.

Santander Consumer USA Holdings Inc. hasn’t yet completed the 2015 report and is “working diligently” to turn in the form “as soon as practicable,” it said in a regulatory filing Tuesday. It doesn’t foresee “any interruption or change to normal business activities.”

The U.S. Securities and Exchange Commission’s corporate finance division has requested details of previous disclosures about the credit loss exposure, including impairments on troubled debt. The company is changing its method for estimating the provisions on some loans and will correct previous details in its accounts, it said in the filing.

The delay is the latest run-in with U.S. regulators in recent years. Santander’s U.S. retail bank failed the Federal Reserve’s exams for financial resiliency in 2014 and 2015 because of flaws in risk management and governance. The Fed in July ordered the bank to submit plans describing how it will correct the deficiencies.

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“It’s not a good sign,” Renta 4 analyst Nuria Alvarez said by phone. “The U.S. consumer unit is a source of problems for the group, and it’s the weakest part within their consumer finance business which, generally, is doing very well and it’s a core business for the bank.”

Car sales surged in the U.S. last year, with outstanding loans reaching $1.1 trillion as of December, according to Federal Reserve Bank of New York data. That’s up more than 30 percent from its pre-crisis peak. Auto loans to borrowers with the poorest credit have increased more than 150 percent from the market bottom six years ago, compared with a 98 percent rise in overall auto lending in that period.

Bank of America Corp. analyst Kenneth Bruce cut Santander Consumer last month, saying an erosion in sub-prime auto credit may weigh on earnings. Higher losses should be expected if used- car prices come under pressure, given the unit’s sub-prime concentration, he said. Most subprime borrowers purchase used cars.

Santander Consumer shares tumbled 8.9 percent to $9.75 on Tuesday, the most since January. The stock has dropped 38 percent this year, the third-worst performance among 235 companies in the Russell 1000 Financial Services Index. JMP Securities LLC cut Santander Consumer to market perform from market outperform.

Since its initial public offering in January 2014, Santander Consumer shares have dropped 60 percent. The Spanish bank holds about 59 percent of the shares and is looking to increase its stake to 69 percent as it has plans to buy out another large holder.

Chairman Ana Botin has said she remains committed to doing business in the U.S., where the Spanish bank has created an umbrella company under the direction of new CEO Scott Powell, formerly the head of consumer banking at JPMorgan Chase & Co. In addition to its Dallas-based car lender and retail bank, Santander runs a private bank out of Miami and has a unit in Puerto Rico.

“We are working to improve our operations in the USA,” Botin said in the letter posted on the bank’s website as part of the group’s annual report. “We have put in place a new team in recent months, composed of top talent at both the executive and board levels.”

The bank was originally supposed to file the 2015 report to the U.S. Securities and Exchange Commission by Feb. 29. Instead it requested a 15-day extension, saying the report wasn’t ready because the SEC had requested details of previous disclosures about credit loss exposure, including impairments on troubled debt.

In a separate filing that day, Santander’s U.S. holding company said a fourth-quarter selloff in the consumer unit forced it to book a $1.8 billion goodwill impairment charge on its stake in the unit. The charge will not affect Santander’s capital ratios or parent’s earnings because of accounting differences between the U.S. and Europe, a spokesman for the bank said last month.

The U.S. business accounts for 8 percent of the group’s net income. Profit fell 21 percent in 2015 from a year earlier after the consumer unit’s profit plunged 72 percent in the fourth quarter.

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