金融机构管理 台湾大学

CHAPTER 6Financial Services: Finance Companies

McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.

金融机构管理 台湾大学

Overview This chapter discusses finance companies– – – – – Activities of finance companies Competitive environment Size, structure, and composition Regulation Global issues

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金融机构管理 台湾大学

Historical Perspective Finance companies originated during the Great Depression– Installment credit – General Electric Capital Corporation – Competition from banks increased during 1950s

Expansion of product lines– GMACCM is one of the largest commercial mortgage lenders in U.S.6-3

金融机构管理 台湾大学

GMAC Controversial approval by the Fed of GMAC as a bank holding company– Allowed access to $6 billion in government bailout money – Fed required GM to reduce its holdings in GMAC to 10 percent, from 49 percent

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金融机构管理 台湾大学

Finance Companies Activities similar to banks, but no depository function May specialize in installment loans (e.g. automobile loans) or may be diversified, providing consumer loans and financing to corporations, especially through factoring. Commercial paper is key source of funds6-5

金融机构管理 台湾大学

Finance Companies (continued) Captive Finance Companies: e.g., GMAC Highly concentrated– Largest 20 firms: 65 percent of assets

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金融机构管理 台湾大学

Major Types of Finance Companies Sales finance institutions:– Ford Motor Credit and Sears Roebuck Acceptance Corp.

Personal credit institutions:– HSBC Finance and AIG American General

Business credit institutions:– CIT Group and U.S. Bank Equipment Finance – Equipment leasing and factoring6-7

金融机构管理 台湾大学

Web Resources For information on finance companies, visit: GE http:// GMAC http:// Ford Credit http:// HSBC http:// American General http:// Citigroup http://

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金融机构管理 台湾大学

Largest Finance CompaniesCompany Name Total Assets ($ Millions) 496,634

General Electric Capital Services Citigroup Bank of America SLM Corp. J. P. Morgan Chase

196,811 171,376 165,771 157,0536-9

金融机构管理 台湾大学

Balance Sheet and Trends Business and consumer loans are the major assets– 56.0% of total assets, 2009 – Reduced from 95.1% in 1977

Increases in real estate loans and other assets Growth in leasing and business lending Finance companies face credit risk, interest rate risk, and liquidity risk6-10

金融机构管理 台湾大学

Consumer Loans Consumer loans– Primarily motor vehicle loans and leases – Historically charged higher rates than commercial banks – Low auto finance company rates are anomalous following 9/11 attacks Attempts to boost new vehicle sales via 0.0% loans lasted into 2005 By 2002, rates were 3.3% lower than banks on new vehicles6-11

金融机构管理 台湾大学

Consumer Loans (continued) Generally riskier customers than banks– Subprime lender finance companies – Jayhawk Acceptance Corp. From auto loans to tummy tucks and nose jobs

“Loan shark” firms with rates as high as 30% or more

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金融机构管理 台湾大学

Pay

day Loans Payday loans– 390 percent APR (Implication for EAR?) – Regulated by states – As of 2009, payday loans effectively banned in 13 states – Controlled in other states via usury limits Evaded by forming relationships with nationally chartered banks, based in states that do not have usury limits (e.g., South Dakota, Delaware)6-13

金融机构管理 台湾大学

Mortgages Mortgages have become a major component of finance company assets May be direct mortgages, or as securitized mortgage assets

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金融机构管理 台湾大学

Home Equity Loans– Growth in home equity loans following passage of Tax Reform Act of 1986 Tax deductibility issue Conversion of credit card debt Defaults in subprime and relatively strong credit mortgages in 20072008 Root cause of the financial crisis in 200820096-15

金融机构管理 台湾大学

Web Resources For information on home equity loans, visit: Consumer Bankers Association http://

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