Truist is exiting the near-prime auto lending sector and plans to sell a loan portfolio valued at $5.5 billion, which constitutes almost all of the assets of its subsidiary, Regional Acceptance Corp. The announcement was made by the Charlotte, North Carolina-based bank on Tuesday.
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The sale is projected to yield $5.2 billion in net proceeds along with a $535 million recapture from its loan loss reserves. The closing of the transaction is expected to occur either late in the third quarter or early in the fourth, although details regarding the buyer of the portfolio have not been disclosed.
According to Truist's CFO Mike Maguire, the sale will contribute $945 million to the common equity tier 1 capital. The bank intends to reallocate some of its available-for-sale securities portfolio to balance this change. Maguire noted that while the bank previously attempted to address this portfolio, the current transaction offers a beneficial opportunity for further progress.
The decision to divest Regional Acceptance Corp. reflects Truist's strategy shift away from noncore businesses, a part of an ongoing comprehensive strategic review mentioned during a conference presentation. In the second quarter of the year, Truist halted the origination of marine and recreational vehicle loans, with significant reductions in loans for other less strategic areas, including various auto sectors.
Bill Rogers, the former CEO and current executive chair, emphasized the bank's focus on building client relationships that meet profitability criteria. The sale of RAC is expected to strengthen Truist's balance sheet and enhance its credit risk profile, with modest returns anticipated on tangible common equity and earnings growth expected by 2027.
Maguire indicated that the RAC operation was only breaking even, and though marine and RV lending was profitable, it did not align with the bank's long-term profitability goals. The limited potential for meaningful client relationships within RAC was another factor in the decision.
The review of Truist's products and portfolios aims to refine its focus on areas that leverage its strengths. CEO Mike Lyons has introduced a sense of urgency in evaluating these strategies, with intentions to spur growth rather than scale back operations. Maguire noted that there may be further divestitures in the future as the bank assesses its product offerings. Lyons is also expected to revitalize efforts in expanding branch locations, a shift Truist has not pursued aggressively in recent years.