Bank of America Corp (NYSE:BAC) is racking up more losses from loans to the automobile sector. In May last year, the company recruited mortgage executives Matt Vernon and John Schleck to head the auto lending unit. Their mandate was to sell auto loans apart from other products like home equity loans and checking accounts.
Uncollectible Auto Loans
Executives at Bank of America say they remain confident though and see further room for growth in the auto loan business as there are still many borrowers with strong credit scores. The company has added dozens of loan officers and sales personnel in the recent past despite warning signals from regulators. It remains to be seen as to how this would help the bank as auto sales are at a peak and the consumer credit may be starting to weaken.
The Federal Deposit Insurance Corporation said that at the end of the fourth quarter, the banking industry as a whole classified about $1.1 billion of auto loans as uncollectible. That represents a 15% YOY growth and 39% increase since the December quarter of 2011. The fear was that most of the bad debts would be eventually converted into losses for the banking industry.
According to Portales Partners analyst Charles Peabody, it appears that Bank of America failed to join the party early enough and entered the auto loans sector too late. He defended the move by indicating that BofA CEO Brian Moynihan and his team were busy resolving mortgage related issues. As a result, the company failed to look into the auto loan business.
Peabody said that Bank of America should have beefed up its auto loan segment at least two years ago. However, at that point of time, the CEO was busy stabilizing the company. The first two months of this year have still shown robust auto sales, however, despite the reported uncollectible loans.