Cabot Square Capital, a U.K. financial services firm, on Wednesday (July 25) sold its entire stake in 321 Crédito, a Portuguese consumer finance lender, to Banco CTT, the bank run by Portugal’s privatized national postal service.
According to a report in Financial Times, the deal was worth more than €140m. With a specialty in car loans, 321 Crédit has been a Cabot Square Capital company since 2014. Since Cabot Square has owned the Portuguese company, its assets have increased to about €350m, which is a threefold gain.
The deal includes a share capital purchase price of €100m, an increase in regulatory capital estimated at €10m and the acquisition of shareholder loans with an outstanding principal of €30.6m, noted the report. Cabot Square said the sale marks the second successful exit for the investment firm in the past several weeks. It recently sold LDF, a U.K. small business lender, to White Oak Global Advisors, noted Financial Times.
The move on the part of Cabot Square Capital comes at a time when big banks have been pulling back from the $1.2 trillion U.S. car loan market due to fears that consumers have taken on more debt than they can handle. In May of 2017, Financial Times reported that data released by the Federal Deposit Insurance Corporation (FDIC) showed the first sequential drop in outstanding car loans at commercial banks in at least six years. The total slipped $1.6 billion to $440 billion from the fourth quarter of 2016 to the first quarter of 2017, suggesting that banks are put off by rising delinquencies and the threat of litigation.
There is also worry over looser underwriting, which has seen lenders stretch out terms for borrowers while pushing up loan-to-value ratios and debt-to-income ratios — an echo of the subprime mortgage crisis. One of the banks backing away is Citizens Financial Group, with its Chief Executive Bruce van Saun saying at the time that he would rather steer resources into areas such as student loans. “We ran up auto for a while when there was not much else going on. Now we have growth in other areas, which offer better risk-adjusted returns,” he said.