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The Wall Street Transcript Publishes Specialty Finance Industry Issue

September 7, 1999 at 6:39 PM EDT

NEW YORK, Sept. 7 /PRNewswire/ -- Four leading analysts examine the Specialty Finance sector in the latest issue of The Wall Street Transcript (212-952-7433). In a vital review of this sector for investors and industry professionals, this 22-page report features:

1) In an in-depth roundtable forum on the Specialty Finance sector (10,000+ words), four leading analysts: Steven Eisman of CIBC Oppenheimer, Jeffrey Evanson of U.S. Bancorp Piper Jaffray, Steven Wharton of Loomis, Sayles & Company and Jennifer Scutti of Prudential Securities examine the convergence of technology and specialty finance, Internet's impact and evolving business models, return on managed assets, cost-of-funds issues and bankruptcies.

The expert panel explores the competitive horizon, M&A activity, growth segments, investor sentiment, management performance and investor concerns. They analyze specific sector firms, and each analyst offers their recommendations with some stocks receiving a consensus of positive opinion, with the outlook for others hotly disputed.

Many industry participants are forecasting that 30% of all credit card account originations will be generated online within the next three to five years, Wharton states, "Clearly, within the credit card business there is a structural shift going on in how consumers want to borrow money. I believe it is a push-pull phenomenon. Companies want to originate accounts online due to the lower origination cost, while at the same time it is more convenient for consumers to open an account over the Internet."

Firms are taking varying amounts of time to put online strategies into operation, Wharton states, "In the credit card business, it is clear that Providian (NYSE: PVN) and NextCard (Nasdaq: NXCD) are most likely to benefit from the move to online credit card account generation. The one company that has seemed to move a little bit slowly thus far is Capital One (NYSE: COF). While it is a company I like, it has been less clear in articulating a strategy of Internet use going forward."

He continues, "In the home equity lending arena you have not seen many companies come out with an aggressive online strategy. Bank One (NYSE: ONE) seems to be moving the quickest, by placing the home equity business under the control of First USA President Richard Vague. First USA plans on using online and direct mail channels to replicate the success it has had in credit cards in the home equity lending business. Conversely, Associates (NYSE: AFS) and Household International (NYSE: HI) are still in their infancy in terms of a home equity lending Internet strategy. Finally, in the first mortgage lending business, most of the top originators are moving very slowly. Currently, Countrywide Credit (NYSE: CCR) is the only one of the top five mortgage originators that offer online mortgage origination."

Scutti asserts, "A company that I think will be successful over the Internet longer term is American Express (NYSE: AXP). They've recently launched their Internet platform, called "My American Express Program", and are trying to leverage their brand name recognition and certainly their favorable funding costs. What we are seeing over the Internet is very intense and different competition from what we have seen in the past. As a result, these companies, especially the smaller companies, have had to be very competitive in their pricing. Given that these smaller companies don't have the same kinds of access to capital that the larger companies have, their margins will get squeezed. So ultimately, while the Internet certainly is driving this structural change, I think we will see a convergence, with the large cap players winning out over the smaller companies in many cases."

A continuing very favorable credit environment will be another contributor to earnings growth, Evanson forecasts, "We're predicting that consumer bankruptcies will be down 8-12% in 1999 and flat down to 4% in 2000. That has a very direct impact on earnings for the credit card issuers. So we think those two trends alone will continue to sustain earnings growth for the card issuers, despite a bit of a slowdown in U.S. consumer credit growth."

Many specialty finance firms are looking internationally for future growth, Wharton says, "For Providian, Capital One Financial and MBNA (NYSE: KRB), the U.K. has been talked about repeatedly as offering the opportunity to help these companies sustain receivables growth. While I certainly think this is likely over the next couple of years, I would add that the U.K. credit card market is only between $40 and $45 billion versus a U.S. revolving debt market size of approximately $465 billion. MBNA has an 11% share of the U.K. market, which already approximates its share of the U.S. credit card market. I believe the American companies can continue to steal share from the High Street banks; Barclays (London: BARC.L), NatWest (NYSE: NW) and HSBC (NYSE: HBC), but this will not occur indefinitely."

The panel goes on to offer recommendations about which sector stocks are most likely to reward investors.

Eisman offers, "I like one name that may surprise people, but it happens actually to be my absolute favorite stock and that's ADVANTA (Nasdaq: ADVNA), which is a sub-prime home equity company that has used gain-on sale accounting. It has a new management that has really gotten off gain-on sale. It's cutting costs. It's increasing its margins. The stock, which we recommended late last year, has doubled, and I think it doubles again."

2) A review of management performance at 20 Specialty Finance firms asked market insiders about the ability of management teams to create shareholder value. In a sector where many management teams are criticized for failing to adjust to the changing landscape, some CEOs receive top marks for their efforts:

Clifton H. Morris, Jr., Chairman and CEO of Americredit Corporation (NYSE: ACF), impresses a financial advisor, "They are very focused on their core competencies. Very forward looking, in terms of their capital planning. Good expense control, good strategic position in the company. Good execution. They are just stellar."

Richard J. Almeida, Chairman and CEO of Heller Financial (NYSE: HF), merits praise from an industry analyst, "Heller Financial has done a great job of positioning themselves in the last year to really jump start the growth rate at the firm. They've made a couple of key acquisitions, which should help the company grow for years to come. Heller continues to be one of the specialty finance companies with the most promise."

But according to a buysider, another specialty finance management is in dire straits, "Quite frankly, their backs are up against the wall. In terms of the business, it's worth a lot more on a private take out scenerio than it is as a wholly owned company. But it makes an excellent addition to some of these companies, but as a stand-alone basis, long term, it probably doesn't survive."

This survey is a unique resource for checking the "Street's" view of senior management.

Other firms covered in this Specialty Finance report include:

Allied Capital, American Capital Strategies, DVI, E-Loan, Finova Group, IndyMac Mortgage Holdings, Linc Capital, Metris Companies, Mortgage.com, New Century Financial Corp., Newcourt Credit, Novastar Financial, Rock Financial, Unicapital Corp. and Westcorp.

To obtain a copy of this insightful 22-page report, see http://www.twst.com/info.htm or call 212-952-7433. This special section is also included in the Financial Services Sector of TWST Online at http://www.twst.com/subscribe/financ_servi.html Also included are the recent REIT Industry Issue at http://www.twst.com/06-21-99.htm and the Regional Banking Industry Issue at http://www.twst.com/06-14-99.htm

The Wall Street Transcript is a premier weekly investment publication interviewing market professionals for serious investors for over 35 years. Available at http://www.twst.com TWST Online provides free Interview excerpts. For highlights and recent recommendations by analysts and money managers visit http://www.twst.com/newspage.html

The Wall Street Transcript does not endorse the views of any interviewee nor does it make stock recommendations.

SOURCE The Wall Street Transcript