Garnet Capital Advisors Blog

EXCERPT: A large bank has announced that it will exit a sector of the banking industry, and other banks are doing the same. It's important for banks and credit unions to stay on top of their operations and loan portfolios and make the necessary changes to remain competitive and profitable.

Santander Banks has recently made the decision to exit the equipment finance sector to focus on other endeavors.

The banking industry is abuzz with the recent news that Santander Bank will be exiting the equipment finance sector in the US in an effort to grow capital savings and commercial and industrial lending.

Santander's equipment finance business will be reportedly sold off to Sterling National Bank in an asset purchase agreement.

Santander Will Exit the Equipment Finance Space

Formerly Sovereign Bank, Boston-based Santander Bank's equipment finance division has experienced solid and sustainable results consistently, but the Madrid-based parent bank Santander Group is now focusing more on its core C&I assets and on big-time clients.

Santander's decision to exit one sector of the lending industry is not the first. Other banks are also following suit by exiting various areas to place more emphasis on other lucrative opportunities.

JPMorgan Chase to Close Its Farm Lending Business

JPMorgan Chase, for example, has announced that it will be exiting from agricultural loans. The country's largest bank sought alternative lending opportunities following the mortgage crisis in 2008, and set its sights on lending to rural Midwest farmers with healthy incomes and assets. And with the spike in price for farmland and grains, farmers needed a little financial support, and JPMorgan was willing to give it to them.

JPMorgan Chase's exit from the farm lending business comes as farmers across the nation are experiencing restricted cash flow, leading to defaults and bankruptcies.

From 2008 to 2015, the banking giant grew its farm-loan portfolio to $1.1 billion, marking a 76 percent increase from when it first entered agricultural lending.

But that picture is quickly changing, as JPMorgan - as well as other big banks across the country - are exiting the farm lending business following a long period of plummeting agricultural income. Many farmers are being forced to retire earlier than anticipated, or even declare bankruptcy, as their cash flow has been slashed. As such, banks holding these bad loans are looking for a way out.

From the peak of farm lending in 2015 to the end of Q1 2019, agricultural loan portfolios among the top 30 banks in the US dropped from a high of $22.2 billion to $18.3 billion, or a 17.5 percent drop.

TIAA is Also Stepping Away from Business

TIAA Bank is also making an exit in certain sectors; namely, retail mortgage lending. Not long ago, the Jacksonville, FL-based bank was in the midst of dotting the i's and crossing the t's on a $2.5 billion acquisition of EverBank in a deal that would help expand TIAA's retail footprint.

But just a few months later, TIAA Bank decided to get out of retail mortgage lending and focus its attention on digital mortgages instead to take advantage of a broader scope of clients across the nation. The bank is now concentrating more on direct home mortgage originations through its existing digital platforms that would provide clients with a more convenient lending experience.

That said, not all of the bank's retail mortgage branches are being shut down, as US Bank is said to acquire some of TIAA's retail operations.

Exiting certain sectors of the banking and lending industries is a smart move for banks who are looking to revamp their loan portfolios by weaning out weak loans and making room for more robust and lucrative ones. But divesting riskier loans and monetizing assets can be tricky business without some professional assistance.

Garnet Capital has recently helped banks and credit unions sell off risky assets and acquire stronger ones, and we can do the same for you.

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