Santander Consumer USA Holdings Inc. Vs Santander UK Ltd: A Comparative Analysis

Market structure and community support for Santander Consumer USA Holdings Inc.

The main reason of selecting Santander Consumer USA Holdings Inc. as the subsidiary can be seen with it being one of the major subsidiaries in the US. In terms of market structure, Santander Consumer USA Holdings Inc. is known for providing various types of financing options for the purpose of availing used vehicles which can be used at work, school and home for any type of purpose. Moreover, the selected subsidiary is also identified as one of the five largest Santander state in the US. In the context of concentration, there is also seen to be an increasing aspect of community support in relation to the stable, measurable and positive impact on the organisations so that they are able to become an employer of choice where the employees can find their work fulfilling and rewarding at the same time (Santanderconsumerusa.com 2022).

Banks Profitability comparison using ROE and ROA     

Santander Consumer USA Holdings Inc. has been clearly better than Santander UK Ltd in terms of ensuring higher return to the owners of common stock on their respective shareholdings. This is evident with a ROE of 1.15 for Santander Consumer USA Holdings Inc. vs. 0.22 for Santander UK Ltd. (Kadim, Sunardi and Husain 2020).

Table 1: Computation of ROE using net income and total equity

On a similar note, we can find the exact same value of return on equity by using the multiplier formula.

Table 2: Computation of ROE using equity multiplier

Based on the table below it is evident how Santander Consumer USA Holdings Inc. has been a performer in terms of generating higher return on assets. This is evident with a ROA of 0.13 for Santander Consumer USA Holdings Inc. and 0.01 for Santander UK Ltd. (Hosaka 2019).

Table 3: Computation of ROA using net income and total assets

Based on the use of profit margin and asset utilisation formula as well, we are able to identify how the return asset is on the higher side for the chosen subsidiary.

Table 5: Computation of asset utilisation

The equity multiplier has been calculated by dividing total assets with total equity. In this regard, Santander Consumer USA Holdings Inc. equity multiplier is seen to be lower than Santander UK Ltd.

Table 6: Computation of equity multiplier

Bank’s Credit Risk

Based on the loan to asset ratio, Santander Consumer USA Holdings Inc. Is clearly in a better position as it has been able to maintain higher assets in comparison to Santander UK Ltd. (Lukason and Andresson 2019)

Table 7: Computation of Loan-to-asset ratio

On a similar note, the annual provisions pertaining to loan losses is also higher for Santander Consumer USA Holdings Inc. as a result of maintaining higher provisions.

Table 8: Computation of Annual provision expense for loan losses to total loans

Internal determinants of profit

As per the value of lending and credit quality provision, Santander consumer USA Holdings has demonstrated a slightly better performance as a result of being able to maintain better quality provision for loan losses (Ligocká and Stavárek 2019).

Return on equity comparison between Santander Consumer USA Holdings Inc. and Santander UK Ltd.

Table 9: Computation of Lending and credit quality Provision for loan losses to average loans

It is worth noting how the credit risk Ratio of loans to deposits and short-term funding has been slightly better for Santander UK Ltd, thereby illustrating how the bank has slightly lower risk of credit defaults on loans (Alarussi 2021).

Table 10: Computation of Credit risk Ratio of loans to deposits and short-term funding

The differences in funding ratio of demand to total deposits is seen with 28.39, which clearly explains that there is high demand for funding ratio pertaining to Santander Consumer USA Holdings Inc.

Table 11: Computation of differences in funding Ratio of demand to total deposits

Based on the computation of capital differences to product and loan diversification, Santander UK Ltd is in a slightly better position.

Table 12: Computation of Banking cost capital differences to Product and loan diversification

The activity makes to the extent of diversification ratio is higher for Santander UK Ltd, which explains that the bank is willing to diversify its assets more than Santander Consumer USA Holdings Inc.

Table 13: Computation of Activity mix to extent of diversification Ratio

The earnings potential of the bank comprises of relative composition of the bank’s asset and earnings potential of the bank which has been measured as per the retained earnings. In this context, Santander Consumer USA Holdings Inc. is clearly a better contender in comparison to Santander UK Ltd. (Lukason and Andresson 2019).

Table 14: Computation of Banks earning potential/ Relative composition of banks assets Ratio of loans to assets

The higher Altman Z-score for Santander Consumer USA Holdings Inc. clearly explains how Santander Consumer USA Holdings Inc. has an overall lower corporate credit risk. Therefore, Santander Consumer USA Holdings Inc. is seen to have a better credit strength.

Table 15: Computation of Altman Z-score

Policies implemented by the government of the country where the Santander Consumer USA Holdings Inc. operates

The direct impact of Covid-19 can be observed in terms of the macroeconomic factors such as GDP, unemployment rate and interest rate. In this aspect, then clearly see how the GDP has been depicted with a decreasing trend during the end of 2020 (Tai et al.  2021). In addition to this, we can also identify that the unemployment rate has also increased as soon as Covid-19 hit the US in 2020. It is further worth noting that the interest rate has suffered steep decline due to the Covid-19 pandemic in the country (Iyer, Aziz and Ojcius 2020).

Figure 1: US GDP

(Source: Data.worldbank.org. 2022a)

Figure 2: Unemployment Rate in the US

(Source: Data.worldbank.org. 2022b)

Figure 3: Interest Rate in the US

(Source: Data.worldbank.org. 2022c)

The government support to improve the Covid-19 crisis in the country can be understood in terms of Feds proceeding with setting the target of federal funds rate to a total of 1.5% points as on March 3 and March 15, 2020. This further resulted in loading the funds rate to a tune of 0% to 0.25% (Macias Gil et al. 2020). It is further worth noting how the government in the US has resumed its enormous purchases of debt securities, which were identified as a major instrument at the time of the Great Recession. The Federal government’s response to the severe dysfunction of the Treasury and MBS markets following the outbreak of COVID-19 was seen to be initially aiming at restoring smooth market functioning, which serve as an important benchmark for ensuring broader economy (Loomba et al. 2021).

Return on assets (ROA) comparison between Santander Consumer USA Holdings Inc. and Santander UK Ltd.

In order to implement the aforementioned schemes, the chosen subsidiary continually agreed with the federal, local and state laws which can have a substantial impact on the major aspects of the business. Along with this, Santander Consumer USA Holdings Inc. ensured in preventing certain changes which can improve the credit performance in relation to loans. The FRB also established the “Term Asset Backed Securities Loan Facility (“TALF”)” similar to MBS to help individuals and businesses get credit through the purchase of certain ABS bonds (S22.q4cdn.com. 2022).

The direct impact of the condition of government schemes effects of profitability in terms of positive or negative impact on the net interest income. In addition to this, the significant risks pertaining to Santander subsidiary as a result of the federal government initiatives are also seen with the liquidity performance such as loan to deposit ratio (Chen et al. 2020).

Automating the various types of services which refers to traditional style finance is termed as digital banking. In this form of banking, the customers of a bank are free to use any form of electronic or online platform to access banking products and services. In this regard, Digital banking works towards digitising all banking operations and replacing the bank’s physical services with an internet based service, thereby removing the requirement for customers to visit a branch on a regular basis (Kaur et al. 2021).

The main difference between digital banks and incumbent banks is that digital banks rely on offering various types of banking services via digital platforms like Internet, tablets and phones. Some of the main benefits of digital banks to customers can be related with lowering of printing demands of currency, 24×7 availability of access to banking functions, providing the facility of paperless banking and in various situations extending the banking services to remote areas as well (Hendriyani and Raharja 2018). Along with this, it is worth mentioning that digital banking strengthens the security and privacy of the customers and restricts any formal submission of that money in the economy. It is also worth noting how digital bank minimises overall risk of digital funds transfer and use of counterfeit currency (Mbama et al. 2018).

Some the important form of risks associated with digital banking services to the customers can be related with improper transaction processing, data integrity, privacy, and confidentiality breaches, unauthorised access to the bank’s systems, and other transactional hazards. In addition to this, it is significantly difficult to evaluate a loan application from a consumer in another country, and the current pandemic situation exacerbates these credit risks. The licensing process of digital banks are approved by the Federal reserve. However, all the Fintechs are regulated at both federal and state level on an equal basis. Some of the aspects of current regulations which haven’t been covered includes “Wiretap Act”, “the Fair Credit Reporting Act (FCRA)” and “Gramm-Leach-Bliley Act (GLBA)” (Pearson.ch. 2022).

In the context of rapid development of digital banks affecting the financial stability, we are able to identify how with the advent of FinTech and BigTech corporations into the banking sector has led to the emergence of new source of risk. This has been observed to such an extent that these firms’ entry decreases incumbents’ viability, the latter may take excessive risks in order to offset the downward impact on their profits (Kaur et al. 2021).  The regulatory burden imposed on new entrants and the guarantees provided by the public sector will be critical in determining their competitiveness against existing competitors. For instance, in case the e-money facilitators gain access to central bank reserves, they will be immune to market and liquidity risk and will effectively become de facto narrow banks, posing a fierce threat to banks for funds (Mbama and Ezepue 2018; Anggraeni, Hapsari and Muslim 2021).

Asset utilisation and total revenue comparison between Santander Consumer USA Holdings Inc. and Santander UK Ltd.

References

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Anggraeni, R., Hapsari, R. and Muslim, N.A., 2021. Examining Factors Influencing Consumers Intention and Usage of Digital Banking: Evidence from Indonesian Digital Banking Customers. APMBA (Asia Pacific Management and Business Application), 9(3), pp.193-210.

Chen, S., Igan, D.O., Pierri, N., Presbitero, A.F., Soledad, M. and Peria, M., 2020. Tracking the economic impact of COVID-19 and mitigation policies in Europe and the United States. IMF Working Papers, 2020(125).

Data.worldbank.org. 2022a. GDP (current US$) – United States | Data (2022). Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US (Accessed: 2 March 2022).

Data.worldbank.org. 2022b. Interest Rate – United States | Data (2022). Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US (Accessed: 2 March 2022).

Data.worldbank.org. 2022c. Unemployment Rate – United States | Data (2022). Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US (Accessed: 2 March 2022).

Hendriyani, C. and Raharja, S.U.J., 2018. Analysis building customer engagement through e-CRM in the era of digital banking in Indonesia. International Journal of Economic Policy in Emerging Economies, 11(5), pp.479-486.

Hosaka, T., 2019. Bankruptcy prediction using imaged financial ratios and convolutional neural networks. Expert systems with applications, 117, pp.287-299.

Pearson.ch. 2022. Introduction to Banking 2nd edition – Barbara Casu – 9780273718130 – Economics – Money and Banking (98) (2022). Available at: https://www.pearson.ch/HigherEducation/Pearson/EAN/9780273718130/Introduction-to-Banking-2nd-edn (Accessed: 2 March 2022).

Iyer, P., Aziz, K. and Ojcius, D.M., 2020. Impact of COVID?19 on dental education in the United States. Journal of dental education, 84(6), pp.718-722.

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Kaur, S.J., Ali, L., Hassan, M.K. and Al-Emran, M., 2021. Adoption of digital banking channels in an emerging economy: exploring the role of in-branch efforts. Journal of Financial Services Marketing, 26(2), pp.107-121.

Ligocká, M. and Stavárek, D., 2019. The relationship between financial ratios and the stock prices of selected European food companies listed on stock exchanges. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 67(1), pp.299-307.

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Lukason, O. and Andresson, A., 2019. Tax arrears versus financial ratios in bankruptcy prediction. Journal of Risk and Financial Management, 12(4), p.187.

Macias Gil, R., Marcelin, J.R., Zuniga-Blanco, B., Marquez, C., Mathew, T. and Piggott, D.A., 2020. COVID-19 pandemic: disparate health impact on the Hispanic/Latinx population in the United States. The Journal of infectious diseases, 222(10), pp.1592-1595.

Mbama, C.I. and Ezepue, P.O., 2018. Digital banking, customer experience and bank financial performance: UK customers’ perceptions. International Journal of Bank Marketing.

Mbama, C.I., Ezepue, P., Alboul, L. and Beer, M., 2018. Digital banking, customer experience and financial performance: UK bank managers’ perceptions. Journal of Research in Interactive Marketing.

S22.q4cdn.com. 2022. Annual Report and Proxy. Available at: https://s22.q4cdn.com/451161776/files/doc_financials/annual/2020/2020-Annual-Report.pdf (Accessed: 2 March 2022).

Santanderconsumerusa.com. 2022. Our Company – Santander Consumer USA. Available at: https://santanderconsumerusa.com/our-company (Accessed: 2 March 2022).

Tai, D.B.G., Shah, A., Doubeni, C.A., Sia, I.G. and Wieland, M.L., 2021. The disproportionate impact of COVID-19 on racial and ethnic minorities in the United States. Clinical Infectious Diseases, 72(4), pp.703-706.

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