A report came out by Moody's, the credit rating company, that claims that Santander, the Spanish-based bank that has a sizable auto loan business in the USA, verified only 8% of borrower incomes in its most recent ABS (asset backed swap) $1 billion subprime bundle. This information should result in a downgrade of Santander's rating of Aaa by Moody's, but the inside word is that it might already be too late, as major investment houses like Mass Mutual are said to have already invested.
However, the auto loan market is much smaller than the mortgage market, but when student loans are factored in (1 in 6 haven't made a federal student debt payment for nine months or more), and maybe even some questionable housing loans, this is not going to end well, unless we can get the economy back to a level of 3-3.5% growth, and even then, it's still going to be tough. And the automotive market has a lot of domestic suppliers who will be hurt when sales eventually show year-over-year declines.
Unfortunately, the regulators focused on mortgages after the crash, but not on auto loans. The result is a messy situation that should go bust at some point, possibly in the next 12-18 months. Consumers are also to blame, as it makes no sense to take out a 72-month or 84-month loan.
Santander's stock closed at $11.65 today. The company is still estimated to earn $2.20 per share this year, which puts the PE at 5.3. Based on this measure, it sounds like a cheap stock, but be careful, as it could be half that price in two years or less.
However, the auto loan market is much smaller than the mortgage market, but when student loans are factored in (1 in 6 haven't made a federal student debt payment for nine months or more), and maybe even some questionable housing loans, this is not going to end well, unless we can get the economy back to a level of 3-3.5% growth, and even then, it's still going to be tough. And the automotive market has a lot of domestic suppliers who will be hurt when sales eventually show year-over-year declines.
Unfortunately, the regulators focused on mortgages after the crash, but not on auto loans. The result is a messy situation that should go bust at some point, possibly in the next 12-18 months. Consumers are also to blame, as it makes no sense to take out a 72-month or 84-month loan.
Santander's stock closed at $11.65 today. The company is still estimated to earn $2.20 per share this year, which puts the PE at 5.3. Based on this measure, it sounds like a cheap stock, but be careful, as it could be half that price in two years or less.