Fireside Bank Exits Auto Finance Business
March 24, 2009
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CHICAGO — Unitrin, which is Fireside Bank's parent company, announced today that the subsidiary is suspending new lending activity and exiting the auto finance business.
Basically, Unitrin said this decision follows a review into the strategic alternatives for Fireside. The move will allow Unitrin to "substantially recoup its investment in Fireside of approximately $240 million over time."
Fireside reported net losses of $22.3 million and $38.8 million for the years ended Dec. 31, 2008 and 2007, respectively, due primarily to substantial increases in its provision for loan losses attributable to deteriorating conditions in the economy.
Don Southwell, Unitrin's chief executive officer, said, "The decision to exit the automobile finance business was an extremely difficult one. Fireside Bank has been an important contributor to our profits over the years and Fireside's management has done a terrific job of adapting to unprecedented economic and market conditions.
"However, the turmoil in the economy, coupled with the changes in the used-car marketplace and increased capital requirements, has led to this decision," he continued. "In an era of scarce capital resources for all financial institutions, Unitrin's management and board of directors believe that it is in the best interests of Unitrin's shareholders to redeploy its investment in Fireside in order to reduce the overall risk profile of Unitrin and to provide Unitrin with enhanced liquidity and access to additional capital resources."
Southwell went on to note that while the company has been in contact with several interested buyers, management believes that exiting the auto finance business in an orderly manner over time "provides the best value to Unitrin's shareholders while at the same time protecting the interests of depositors and other stakeholders in Fireside."
"Our preliminary estimate is that the plan should allow Unitrin to largely recoup its investment in Fireside over the next several years," he added.
Unitrin indicated that Fireside is solvent, with tangible equity capital of more than 15 percent as of Dec. 15.
Management of Unitrin stressed that its decision was based on a desire to redeploy investment in Fireside.
The goal of the exit plan is an orderly wind-down of Fireside's operations over the next several years. The subsidiary will continue to collect outstanding loan balances and make interest payments and redemptions on outstanding certificates of deposit in the ordinary course of business.
During the wind-down, management is estimating that Fireside will incur early lease termination costs ranging from $3 million to $6 million after tax and employee termination costs ranging from $6 million to $10 million after tax. The amounts and timing of these costs, however, are subject to various contingencies and uncertainties, which cannot predicted with accuracy at the present time, management pointed out.
Fireside, based in Pleasanton, Calif., engages exclusively in the financing of vehicles, through the purchase of retail installment contracts from dealers. The borrowers under contracts purchased by Fireside typically have marginal credit histories.
Fireside funds its lending activities exclusively through FDIC-insured certificates of deposit and does not sell or securitize any portion of its loan portfolio.
Among the brands in Unitrin's Property and Casualty Insurance businesses are Kemper and Unitrin Specialty, which sell personal and commercial insurance through networks of independent agents, and Unitrin Direct, which sells automobile and homeowners insurance directly to consumers or through employer-sponsored voluntary benefit programs.
Unitrin's Life and Health Insurance businesses bring a high level of personalized service to their customers, officials said.
Unitrin uses the registered trademark "Kemper" under license, for personal lines insurance only, from Lumbermens Mutual Casualty Co., which is not affiliated with Unitrin.
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