Tài liệu Thị trường tài chính và các định chế tài chính_ Chapter 22 pptx

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Chapter 22
Consumer Finance
Operations
Financial Markets and Institutions, 7e, Jeff Madura
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
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Chapter Outline

Types of finance companies

Sources of finance company funds

Uses of finance company funds

Regulation of finance companies

Risks faced by finance companies

Captive finance subsidiaries

Valuation of a finance company

Interaction with other financial institutions

Participation in financial markets

Multinational finance companies
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Types of Finance Companies


Consumer finance companies focus on providing direct
loans to consumers

Their main source of funds is long-term loans

Their main use of funds is providing relatively small loans

Sales finance companies concentrate on purchasing
credit contracts from retailers and dealers

Their main source of funds is commercial paper

Their main use of funds is providing relatively large loans

Commercial finance companies have been created to
provide loans to firms that cannot obtain financing from
commercial banks

It is difficult to classify most finance companies as a
particular type today
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Sources of Finance Company
Funds

Loans from banks

Finance companies commonly borrow from commercial banks
and can consistently renew the loans over time


Some finance companies use bank loans mainly to
accommodate seasonal swings in their business

Commercial paper

Only the most well-known finance companies have been able to
issue commercial paper

As secured commercial paper has become more popular, most
finance companies have access to this market

Most finance companies issue commercial paper using
commercial paper dealers

The best-known finance companies can issue commercial paper
through direct placement
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Sources of Finance Company
Funds (cont’d)

Deposits

Some states allow finance companies to offer customer deposits
similar to those of depository institutions

Bonds

The decision to issue bonds versus some alternative short-term
financing depends on the company’s balance sheet and
expectations about future interest rates


When assets are less rate sensitive than liabilities and interest
rates are expected to increase, bonds provide financing that is
insulated from rising market rates

Capital

Finance companies can build capital by retaining earnings or by
issuing stock

Finance companies maintain a low level of capital
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Uses of Finance Company Funds

Consumer loans

One of the most popular consumer loans is the automobile loans
offered by a finance company that is owned by a car
manufacturer

e.g., General Motors Acceptance Corporation

Finance companies offer personal loans for home improvement,
mobile homes, and a variety of other personal expenses

Consumer loans are often secured by a co-signer or by real
property

Maturities on personal loans are typically less than five years


Some finance companies offer credit card loans through a
particular retailer

The main competition in the consumer loan market is from
commercial banks and credit unions
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Uses of Finance Company Funds
(cont’d)

Business loans and leasing

Commercial loans:

Are obtained by companies to finance the cash cycle

Are short term but may be renewed

Are often backed by inventory or accounts receivable

Are sometimes used to finance LBOs

Finance companies commonly act as factors for
accounts receivable

They purchase a firm’s receivables at a discount and are
responsible for processing and collecting the balances

Factoring reduces a business’s processing costs and
provides short-term financing
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Uses of Finance Company Funds
(cont’d)

Business loans and leasing (cont’d)

Leasing

Finance companies can purchase machinery or equipment
and then lease it to businesses

Real estate loans

Finance companies offer real estate loans in the form
of mortgages on commercial real estate and second
mortgages on residential real estate