Truist Financial Sells $5.5B Auto Loan Portfolio, Reaffirms Outlook

Truist Financial NYSE: TFC reaffirmed its outlook for the current quarter and full year while announcing plans to sell $5.5 billion of near-prime auto loans and exit its Regional Acceptance Corporation, or RAC, business, Chief Financial Officer Mike Maguire said at an investor conference.

Maguire said the company’s existing outlook does not include the effects of the RAC transaction. The sale is under contract and represents substantially all of the unit’s assets, according to the presentation discussed at the event.

Truist characterized RAC as a national, loan-focused business with limited opportunity to build broader client relationships. Maguire said the decision follows prior actions to de-emphasize national prime auto lending and stop new originations in marine and recreational vehicle loans.

“We are under contract to sell the $5.5 billion in near-prime auto loans and essentially exit that business entirely,” Maguire said.

While RAC loans carried yields of roughly 12%, Maguire said those economics were offset by marginal funding costs of about 4% and loss rates in the 7% to 8% range. The business was approximately break-even during the first half of the year, he said.

Truist expects the transaction to be modestly accretive to earnings per share, return on tangible common equity, and tangible book value per share. The company also expects its ratios of charge-offs and non-performing loans to decline by more than 10 basis points, or about 20%, as a result of the sale.

Maguire said the divestiture is not principally a credit-driven move. Rather, it reflects a strategic framework centered on whether a business fits Truist’s core relationship-banking model and whether it can provide sufficient economic contribution over time.

Maguire said newly appointed CEO Mike Lyons has brought an outside perspective and greater urgency to the company’s review of businesses, products and capital allocation. Lyons had been in the CEO role for 15 days at the time of the conference, according to Maguire.

The company intends to focus on businesses that support its deposit franchise and wholesale operations, Maguire said. He identified core commercial and middle-market banking, industry-focused lending, selected commercial real estate opportunities, payments, treasury products, wealth management and potentially a larger credit-card offering as areas of opportunity. Truist also may place greater emphasis on home equity lines of credit and retail mortgages, which Maguire said can help the bank serve its deposit and checking accoun...