Magazine article American Banker

Subprime Meltdown Left Finance Giants Stronger, DLJ Says

Magazine article American Banker

Subprime Meltdown Left Finance Giants Stronger, DLJ Says

Article excerpt


A prominent bank bond analyst has picked up coverage of the major consumer finance companies, saying the meltdown among subprime specialists has created investment opportunities in the sector.

Allerton G. Smith, of Donaldson, Lufkin & Jenrette, has added coverage of 10 high-grade finance firms this year, including Associates Corporation of North America, Household Finance Corp., AT&T Capital Corp., Transamerica Corp. and American General Finance.

Mr. Smith said these companies have generally improved their business operations. He is particularly bullish about Associates and Household, noting that they have built up their clout through acquisitions.

And he said the meltdown in the securitization market has spurred many high-grade companies to focus on issuing debt.

A strong economy and deep capital markets have encouraged several large bank bond issues that have drawn more investors than investment bankers anticipated. Investors are likely to be attracted to the finance companies' debt as well, Mr. Smith believes. Indeed, investors snapped up a $1.3 billion issue by Household Jan. 29.

"The retreat of subprime companies has improved the margins of many high-grade finance companies and lowered competitive forces. There is also a more disciplined focus for these companies, which have created economies of scale and cost savings because of well-executed and strategic acquisitions."

Mr. Smith acknowledged that Associates' recent $3. …

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