This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Deal: Regulatory Hurdles Trip Up Specialty Finance Deals

NEW YORK ( TheStreet) -- Dealmakers are reporting an increase in the size of specialty finance deals but warn regulatory resistance remains a crimp on activity, as several large firms -- including GE Capital and Banco Santander (SAN) -- prepare an initial public offering for their consumer finance arms.

Total deal value of $38.9 billion for the year to date in the specialty finance sector is far above $11.8 billion for the prior period, according to SNL Financial. This is despite a lower number of deals this year: 120 against 128 for the prior period.

Specialty finance comprises lending to a range of sectors such as airlines, shipping, technology, auto finance, credit cards and mortgage servicing rights. These companies typically serve consumers who fall outside the criteria of major banks and as such, charge higher interest rates.

Macquarie Capital senior managing director head of specialty finance Eric Hanson said the thesis that banks would seek higher margins through the acquisition of specialty finance companies had not come to full fruition.

"These businesses have outsized returns that banks would like to buy and while the expectation of deal activity has been justified in some areas, it's not as much as everyone thought," he said. Bank businesses have a typical spread of 150-300 basis points while specialty finance returns range between 400-1500 basis points, depending on asset class.

Hanson pointed to a gap between buyer and seller expectations, with potential buyers still unwilling to pay high prices for many businesses after a rebound in valuations following the credit crisis. Where they had, this had contributed to higher deal values, he said.

"There have been potential deals in healthcare and rail finance with U.S. customers, good credit performance and $15 billion in assets -- but regulators might say to banks, 'you don't have experience doing this,' " Hanson said. He said the size of some assets made them difficult to sell, noting GE Capital had tried to sell its $50 billion credit card portfolio on and off, without success. GE Capital is now preparing to divest the business -- which earned $2.2 billion last year -- through an IPO.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
C $51.00 0.00%
COF $78.65 0.00%
NSM $25.02 0.00%
SAN $7.47 0.00%
AAPL $123.25 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs