Magazine article American Banker

Key Figures in Troubled B/C Auto Loans Share A Common Heritage

Magazine article American Banker

Key Figures in Troubled B/C Auto Loans Share A Common Heritage

Article excerpt

To an unusual degree, managers in the besieged subprime auto finance industry once worked at the same place, and most remain clustered around the same city-Chicago.

Some on Wall Street and in the industry itself now wonder how much this insularity may have contributed to the sector's spectacular fall from grace and ongoing trauma.

Subprime auto lenders flourished in Texas, California, and Florida, of course. But laws permitting high interest rates, legal precedents favorable to business, not to mention a lot of cars on the road, all made Illinois a particularly desirable location, investment bankers say.

At least five subprime lenders call Chicago their kind of town: Mercury Finance Co., First Merchants Acceptance Corp., First Enterprise Financial Group, Eagle Finance Corp., and KeyCorp's AutoFinance unit. In addition, Texas-based Reliance Acceptance Corp. has its roots in Chicago as a spinoff of Cole Taylor Financial Group.

Except KeyCorp and Eagle, all these companies are or were run by people who helped John N. Brincat start Mercury Finance, the bellwether of the business until it tumbled from a cliff last January.

Mitchell C. Kahn, president at First Merchants until he was fired in April, was once Mercury's general counsel.

Michael P. Harrington, chief executive of First Enterprise, was president and co-founder of First Illinois Finance Co., Mercury's predecessor. Thomas G. Parker, the first president of First Enterprise, was a district director for Mercury.

Howard B. Silverman, chief executive of Reliance, was president of Mercury in the 1980s.

And Charley A. Pond, former president of Autobond Acceptance Corp., an Austin, Tex., subprime auto lender, was once chief financial officer at Mercury.

And all these companies-the figurative children of Mercury-have run into serious financial problems since the mother ship disclosed it had vastly overstated earnings for four consecutive years. …

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