InformationWeek
Defining The Business Value Of Technology
August 30, 1999
Bank Swaps Stakes In Web Lenders
Bank of America buys into E-Loan
Why did Bank of America sell its stake in CarFinance.com, a leading lender of auto loans on the Web? Analysts say it was a tuition payment--and the bank in essence agrees. "Investing in an E-commerce company is going to allow us to better understand how the business works," says a Bank of America spokesman. To ensure the E-commerce lessons are mastered at the top, Bank of America president Kenneth Lewis will join E-Loan's board.
The move also helps the bank diminish potential conflicts of trying to sell loans through traditional channels and under its own name on the Internet. "If it's in-house, Bank of America has to worry about `Will I alienate this channel or that channel?'" E-Loan CEO Chris Larsen says. "This way it is very clean."
Making auto loans over the Internet is proving tougher than selling mortgages. Nearly 3% of all borrowers will apply for mortgages over the Internet next year, compared with 0.4% for car loans, Forrester Research estimates. Online auto loans are a "so-so business," says Forrester analyst James Punishill, because car dealers can snatch the business away when people pick up their new vehicle.
E-Loan exchanged 2.9 million shares of stock for all of CarFinance. com and will operate it as a subsidiary while working closely with Bank of America on a range of consumer lending products.
E-Loan shares, which traded at about $23 a share before the deal, hovered in the $35 range late last week, making the entire deal worth about $100 million.
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ank of America Corp. essentially has hired online mortgage lender E-Loan Inc. to tutor it in the ways of the Internet economy. In its largest Internet investment to date, the nation's biggest bank last week swapped its 80% ownership in auto lender CarFinance.com for a 5% stake in E-Loan.
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