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Synovus (SNV) Follows Industry Trend, Offloads Auto Loans

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In a strategic move that underscores the evolving landscape of the banking industry, Synovus Financial (SNV - Free Report) recently sold a $373 million prime auto loan portfolio to private equity firm KKR & Co. Inc. (KKR - Free Report) . This sale is part of a broader trend in which numerous lenders, including regional banks, are shedding non-core assets to mitigate risk, recalibrate their business focus and accumulate capital.

SNV has been proactively optimizing its balance sheet to facilitate sustainable long-term growth. The recent divestiture of the auto loan portfolio aligns with this strategy, as the bank aims to reduce risk exposure and enhance its liquidity. This sale seems to encompass most, if not all, of Synovus' consumer auto loans, which was around $389 million as of Jun 30, 2023.

KKR's acquisition of Synovus' auto loan portfolio signifies the private equity firm's focus on growing its asset-based finance (ABF) business. KKR's strategy of focusing on privately originated and negotiated credit investments, supported by diversified asset pools, reflects the growing importance of ABF business. With approximately $42 billion in ABF assets under management and a dedicated team of professionals, KKR is poised to capitalize on the expanding opportunities in this segment.

This trend isn't unique to Synovus and KKR. Several other banks have adopted similar approaches to restructure their portfolios and adjust their lending strategies in response to market trends. Last month, Fifth Third Bancorp (FITB - Free Report) announced plans to scale back its indirect auto loans, opting to reduce its involvement in dealer-based auto lending.

On the other hand, Citizens Financial Group (CFG - Free Report) has taken a more drastic step, choosing to exit the indirect auto lending segment altogether, effective Jul 1, 2023. The decision was taken as part of the strategy to optimize CFG’s balance sheet and concentrate on relationship-based lending.

Beyond Synovus, KKR's purchase strategy also mirrors recent activities in the industry. Several private equity firms, including Ares Management Corp. and Blackstone, are actively seeking assets and loans originated by regional banks like FITB, SNV and CFG. This indicates a broader trend of private equity firms recognizing opportunities in acquiring diversified pools of assets and loans from banks seeking to optimize their portfolios.

In the past three months, shares of SNV have rallied 27.6%, outperforming the industry’s growth of 26.9%.
 

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Currently, Synovus carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.

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