It is not the only company to hunt down deposits and seek expansion in financial services, ten years after the severe crisis of such adventures
by Marco Valsania
(REUTERS)
It is not the only company to hunt down deposits and seek expansion in financial services, ten years after the severe crisis of such adventures
3 ‘of reading
General Motors will become a bank. The historic American carmaker, or rather its financial services division, has a ready request from federal and state authorities for authorization to operate as a real credit institution, with the ability to rake up deposits from savers who allow it to strengthen and broaden the scope of its auto loan business.
The question to Fdic and Utah
General Motors Financial Company could file the application as early as next month, according to the Wall Street Journal. The new GM bank would be supervised by the Federal Deposit Insurance Corporation, for federal authorities, and the state Utah Department of Financial Institutions. GM would formally create an “industrial loan company”, a solution that allows it to control both commercial company assets and banking activities. The parent company of such an industrial loan company is exempt from Federal Reserve regulation and supervision.
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A new “financial” trend
Moreover, it is not the only American company to choose a similar path to expand its activities towards banking services with the aim of chasing new growth. Recent applications to start banks have been approved for Square, an online payment service, and Nelnet, which specializes in education loans. Other requests are under consideration. But the GM case is particularly high-profile. In recent years, giants such as Walmart had given up due to resistance and skepticism about excessive aggression and risk.
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Back to the past?
For GM this is, in reality, at least in part a return to the past. A similar solution had been used by the Detroit group to manage its Gmac finance company before the 2008 crisis. It was an experience that ended badly: the collapse of more fragile subprime loans and mortgages overwhelmed it, leading to a public bailout from 17 billion and a restructuring that saw it change its name to Ally Financial and then be sold entirely in 2013. The current GM Financial started in 2010 from the acquisition of AmeriCredit, specialized in auto loans, and subsequently of the international activities of Ally.
Expanding the auto loan business
The idea, to avoid parallels with the past, is now to focus the operations of the new bank on strengthening the granting of loans to dealers and consumers for vehicle purchases. Thanks to the collection of deposits, GM would secure a more efficient source of capital. So far, GM Financial has instead raised resources through the issue of debt. The push for the new initiative comes from the expansion now achieved by the division in the post-crisis years and wants to put it to good use. In the last year it reported revenue of 14.5 billion, equal to 10.6% of the group’s total. It was only 0.2% in 2010 and 4.2% five years ago. However, the same auto loans, like other forms of credit, risk deteriorating in quality with the pandemic and the consequent economic difficulties.