Dallas-based auto lender to buy out departing CEO for $928 million

Thomas G. Dundon, who built Santander Consumer USA into a leading subprime auto lender, will leave the Dallas-based company with a buyout worth nearly a billion dollars, the company announced.

The company, which is 60 percent owned by Spain’s Banco Santander, named Jason A. Kulas as the new chief executive officer effective immediately, according to a news release issued late Thursday before the Fourth of July holiday.

Dundon is leaving the company “to pursue new opportunities,” the statement said.

Banco Santander plans to exercise its option to buy 9.7 percent of the consumer unit from Dundon DFS LLC for $928 million, the bank said in a regulatory filing. The purchase will boost the Spanish lender’s stake to around 69 percent of the unit.

Dundon, a graduate of Southern Methodist University, started what would become Santander Consumer 20 years ago after working in finance at some auto dealers. Dundon and his colleagues built a business called Drive Financial Services, which received an investment from Banco Santander in 2006. The company went public in 2014.

According to the prospectus, Dundon received a pay package worth $85 million in 2012 and another $13.6 million in 2014, mostly in stock.

Kulas, 44, has been the auto lender’s president since 2013 and chief financial officer since 2007, the Dallas-based company said. Jason W. Grubb, 49, will take over as president, and board member Stephen A. Ferriss will become chairman, according to the firm.

Chairman Ana Botin is seeking to boost profitability by focusing on commercial banking in the bank’s 10 main markets. The firm is also reorganizing its U.S. operations after failing stress tests run by the Federal Reserve.

The management changes “increase the probability that Santander would be allowed to pass the qualitative part” of stress tests next year, Citigroup analysts Stefan Nedialkov and Francesco Di Giambattista said in note on Friday.

Separately, Santander Consumer was among subprime auto lenders to receive a subpoena from the U.S. Department of Justice seeking documents in a probe into potential fraud and lending discrimination in the underwriting of auto loans. Subprime auto loans, made to consumers with checkered credit histories, typically carry interest rates from 14 to 18 percent.

Jennifer Popp, 35, will serve as Santander’s interim CFO until a replacement is named, the bank said. Dundon will continue to serve on the board as a senior adviser to the company, according to the statement.

Kulas “has a deep understanding of its business, operations and people,” Scott Powell, who heads Santander’s operations in the U.S., said in the statement. “I am confident in his ability to lead this business into the future.”

This story was originally published July 6, 2015 at 9:42 AM with the headline "Dallas-based auto lender to buy out departing CEO for $928 million."