PROVIDIAN PAYS TO SETTLE SUIT
Providian Financial Corp. paid $105 million to settle a class-action lawsuit alleging the lender tricked customers into buying products and services they didn't want. The settlement covers millions of consumers who used Providian credit cards dating back to March 1995. A claims process is expected to be announced next spring, says Jonathan Levine, the New York attorney who represented Providian customers. Providian is the nation's fifth largest issuer of Mastercard and Visa credit cards.
The lawsuits alleged Providian duped its customers into buying a mix of products and services, such as credit protection, then gouged them with fees that were difficult to remove. The allegations of misconduct have hounded Providian since May 1999, when San Francisco's district attorney began an investigation into the company's business practices. Providian agreed in June to pay more than $300 million to close those investigations. The company hasn't admitted any wrongdoing in any of its settlements, though the legal inquiries prompted it to revamp its business practices.
Consumers won't receive the entire $105 million from the recent settlement as five law firms involved in the case will draw legal fees. The settlement will result in a one-time charge of $22 million against Providian's fourth-quarter profit. Despite the setback, Providian said it still expects its earnings to live up to Wall Street expectations of 71 cents to 73 cents per share. (12/29)
CONFIDENCE AT LOWEST LEVEL IN TWO YEARS
Signs of a weakening economy and continued belt-tightening by consumers helped U.S. consumer confidence slip to its lowest level in two years in December. National financial analysts and economic observers expected the consumer confidence index to drop. "It seems that consumers are being affected by what they are hearing about the state of the economy and probably stock prices," says Jade Zelnick, senior economist at Greenwich Capital Markets. The Conference Board's gauge of consumer confidence dipped to 128.3 in December from a revised 132.6 in November. It is the lowest level since December 1998, when confidence fell to 126.7, says Lynn Franco, director of the Conference Board's Consumer Research Center. Consumer confidence is closely watched by policy makers and investors because consumer spending fuels two-thirds of the U.S. economy. The index is considered a key indicator of how consumers will behave in the future.
Declining consumer confidence suggests further cooling of consumer spending into 2001, Franco says, and perhaps a more severe slowdown. But many Wall Street watchers hope Federal Reserve Chairman Alan Greenspan will announce an interest rate cut next month, something that could go far in improving confidence, many investors say. (12/28)
CREDITRUST CREDITORS APPROVE MERGER
A committee representing unsecured creditors of bankrupt Creditrust Corp. agreed to a plan that allows the company to merge with NCO Portfolio Management, a unit of NCO Group, Fort Washington, Pa. The agreement requires NCO to pay creditors in full with interest and is subject to approval by a vote of creditors and by U.S. Bankruptcy Court Judge James F. Schneider.
Baltimore-based Creditrust filed Chapter 11 bankruptcy reorganization in June. The company, founded in 1991, slashed its payroll to about 350 from more than 1,000 a year ago. Creditrust first agreed to merge with NCO Portfolio Management in October, but the creditors objected, fearing they would be not be paid in full and could receive part of any payment in notes. The creditors proposed their own plan of reorganization last month calling for Creditrust to be sold to Worldwide Acquisitions LLC of Atlanta for $24.5 million in cash. Worldwide will receive a break-up fee of about $300,000. (12/27)
MCM GETS CREDIT FACILITY; PLANS ACTIVE 2001
MCM Capital Group Inc. officials expect the company to be an active debt purchaser in 2001 after announcing that a newly formed bankruptcy remote subsidiary secured a $75 million credit facility with an institutional lender. The purpose of the deal is to acquire charged-off consumer debt. Carl C. Gregory, president and chief executive of MCM Capital, says the deal is a milestone for MCM and will allow the company to buy high quality asset pools. Last month, Gregory told CollectionsWorld that Midland Credit Managementthe debt-buying arm of MCMwill be a steady and aggressive player in the debt-buying market next year, with purchases planned each month. The company will not offer any resales.
MCM, based in San Diego, completed a deal to buy West Capital Financial Services last May in exchange for 375,000 shares of common stock from MCM Capital Group Inc. During the quarter ended Sept. 30, MCM successfully repaid the debt associated with its 1998-1 securitization. The debt had an original balance of $33 million and an original scheduled maturity date of Jan. 15, 2004. As a result of this repayment, the company will be entitled to keep 100% of future cash collections comprising this securitization. (12/22)
BANKRUPTCY VETO WILL NOT KILL LEGISLATION
Although President Clinton vetoed bankruptcy reform legislation this week, the financial services industry expects another go-around next year. Officals with the American Bankers Association and the Independent Community Bankers of America plan to mount another campaign once the new administration is established. “We’re disappointed that the president elected to veto rather than sign the bill,” said Ron Ence, ICBA's director of legislative affairs. “The [banking] coalition will be active next year. We will mount a very energized campaign to get it passed and we feel President Bush is more likely to sign the bankruptcy reform bill.” Bankruptcy overhaul proponents say that with a Republican administration, the financial community could succeed in getting a stronger bill enacted next year.
By leaving the Bankruptcy Reform Act of 2000 unsigned, Clinton issued a pocket veto - the fourth indirect veto of his administration. By waiting until the lame-duck congressional session adjourned before vetoing it, he kept lawmakers from having a chance to override the veto. Clinton says he supports bankruptcy reform, but believes this measure was unbalanced. He cited, among several points, that the legislation would unfairly treat consumer debtors by including means testing provisions that determine the ability of consumers to repair their debts. (12/21)
CITIGROUP PICKS CEO OF CONSUMER GROUP
Citigroup Inc. named Bob Willumstad chief executive of its sizeable consumer business, the company announced today. Willumstad, 55, will head global consumer lending, including mortgages and credit cards, and will continue the company's North American cards business, CitiFinancial, mortgage banking, and global cards. He succeeds Bob Lipp, 62, who wants to concentrate on his philanthropic interests but will remain on the Citigroup board. Lipp is president of the New York City Ballet.
New York-based Citigroup also created two new chief operating officer positions, appointing Chuck Prince as COO of administration and operations and Jay Fishman COO of finance risk. (12/19)
BANK DEBT CUTS FAR AHEAD OF UPGRADES
U.S. bank debt rating downgrades are soaring ahead of upgrades by a 6-to-1 margin this quarter as problem loans build, says credit rating agency Moody's Investors Service. If the pace continues, the fourth quarter could be the first quarter in 2 1/2 years where downgrades beat upgrades.
The report comes amid new concerns about the quality of bank loan portfolios and the rising number of bad loans. Bank of America last week reported it already has tallied $1 billion in loan losses this quarter as a result of a large number of what proved to be bad loans being extended between 1995 and 1998 when credit was more freely available.
At the time, many companies with eager growth plans but suspicious balance sheets received credit, analysts say. Credit risk aversion soared after the 1998 Russian debt crisis, causing banks to substantially tighten their lending standards.
Moody’s downgraded $48.2 billion of bank debt this quarter, and upgraded just $8.1 billion. About $42 billion of the downgrades affected Winston-Salem, N.C.-based Wachovia Corp., long considered among the most conservative of lenders. Wachovia is having problems in wholesale banking and syndicated loans, and is at considerable exposure to commercial real estate, Moody’s reports. The bank took a $200 million charge in June to cover problem loans. While the problem loans are considered worrisome, the situation doesn’t approach levels reached a decade ago when the savings-and-loan crisis battered the credit quality of many financial institutions. (12/18)
NCO GROUP RELEASES QUARTERLY REPORT
NCO Group, a leading collections agency based in Fort Washington, Pa., reported that revenue jumped $26.8 million, or 21.1%, to $153.9 million for the three months ending Sept. 30, from $127.1 million for the same period in 1999. The bulk of the company's revenue for the period, $109.7 million, came from the Accounts Receivable Management Services unit. A/R Management also saw a $25.4 million, or 30.1% increase, in the third quarter compared with the third quarter 1999. The acquisition of Compass International Services Corp. on August 20, 1999 represented $5.4 million of the increase and $3.2 million of this increase was the result of the acquisition of Co-Source Corporation on May 21, 1999. The rest of the increase in the A/R Management division's revenue was a result of adding new clients, as well as a growth in business from existing clients. (12/18)
NACM SUPPORTS BANKRUPTCY BILL
The bankruptcy reform bill approved by Congress last week has the support of the National Association of Credit Management, which is urging President Clinton to rethink his expected plan to veto the legislation.
Paul Mignini Jr., NACM president, says the legislation includes changes to better handle non-consumer bankruptcy proceedings. Mignini notes provisions in the legislation that he believes help create a faster way to resolve small business Chapter 11 reorganizations, which would help both small business debtors and creditors cut legal fees resulting from prolonged battles.
Clinton and Congressional Democrats oppose the legislation, in part, because of the treatment of consumer debtors, specifically means testing provisions that determine the ability of consumers to repair their debts. Still, a large part of the proposal deals with non-consumer, commercial bankruptcy practices, NACM leaders argue. (12/14)
COLUMBIA ULTIMATE NAMES CEO
Columbia Ultimate Business Systems today announced John Moscicki's appointment as chief executive officer. Moscicki is Columbia Ultimate's president, a position he took in October 1999. Larry Bair, Columbia Ultimate's founder and chairman of the board, says Moscicki proved to be a dynamic leader of the company. “He shares my belief on the need for a gratifying and creative work environment focusing highly on customer service," Bair says. "This is predicated in his method of enhancing the company culture as well as advancing the industry required innovations to bring the newest technologies to our global enterprise." Columbia Ultimate Business Systems, Vancouver, Wash., is a 20-year-old software and systems developer that serves second and third party organizations. The company recently introduced the industry’s first complete Medical Collections System, ManageMed and announced its Internet offering for client relations. Columbia Ultimate also provides mail management through Immedia and telephony automation for call centers. Columbia Ultimate also has offices in Atlanta, Chicago, Salt Lake City, Sterling, Va., and Manchester, England. (12/06)
TRANS UNION OFFERS CREDIT SERVICES IN ASIA
Trans Union LLC and Data Advantage Limited of Sydney, Australia, formed a decision support company, Trans Union Advantage Pty Limited, to offer a package of credit bureau services, credit risk information processing, and risk management solutions to countries in the Asia Pacific region. Trans Union Advantage, under the partnership, has an exclusive license to market its credit bureau software product in the Asia Pacific region.Trans Union officials believe the partnership could benefit more than 30 Asian Pacific countries identified as possible customers for the joint venture. (11/28)
CREDITRUST'S CREDITORS WANT TO SELL FIRM
The creditors of bankrupt distressed-debt buyer Creditrust Corp. want to sell the Baltimore-based company to competitor Worldwide Acquisitions LLC of Atlanta, a proposal that surprised Creditrust executives. Under the plan, Creditrust would be sold for $24.5 million, of which $21 million is expected to come from Cargill Financial Services Corp.
Creditrust filed Chapter 11 bankruptcy in June 2000, listing $116 million in assets and $27.6 million in debt. The company agreed in October to merge into NCO Portfolio Management (NCOP), a firm to be created by NCO Group Inc., based in Fort Washington, Pa. NCO Group’s ability to show discipline about which debt portfolios to purchase was expected to pay off in the long run for NCOP, said William A. Warmington, a senior vice president and equity research analyst for Atlanta-based Robinson-Humphrey. Industry observers believe a lack of control and Creditrust’s desire to grow fast led to its bankruptcy, following a pattern established by now-defunct debt buyer Commercial Financial Services (CFS).
Worldwide is partly owned by Frank J. Hanna Jr., who founded and built Nationwide Credit into the nation’s largest third-party debt collector in the early 1990s. Hanna offered $16.5 million in 1999 to buy CFS, before pulling the bid in June 1999 after an extensive due diligence. CFS closed a week later. (11/27)
CITIBANK DROPS OUT OF BRAZIL BANK AUCTION
Citibank, a division of consumer debt seller Citigroup Inc., will not participate in the auction of Brazilian state bank Banespa because expected returns fell below the company's standards. Citigroup is the second U.S. bank in as many days to drop out. Fellow debt seller FleetBoston Financial Corp. also will not bid. Banespa will be auctioned next Monday. The bank serves Sao Paulo, Brazil's richest and most populous state. A 33% stake in the bank's total capital will be offered for a minimum $950 million. Citigroup sold more than $2 billion in distressed debt in 1999, according to Debt Sales Bulletin. (11/16)
FEDERATED TOPS EXPECTATIONS
Federated Departments Stores Inc., which announced last month it will hold a distressed-debt sale through its Fingerhut catalogue unit, overcame sluggish sales to beat third-quarter profit expectations. The Cincinnati-based company, parent of Macy's and Bloomingdale's department stores, reported a profit of 26 cents per diluted share, above the 20 cents estimated by analysts. The company, however, reported profits off 6 cents per share during the same period last year.
The Fingerhut unit plans to auction $2.4 billion in consumer debt to collections agencies to help raise cash. Fingerhut plans to sell 17 million unpaid customer accounts from between 1985 and 1995, according to Debt Sales Bulletin. (11/14)
E-DEBT TO PROVIDE SUPPORT TECHNOLOGY
E-Debt.com, an online marketplace for distressed-debt transactions, is developing a program that will provide pre- and post-sale data management for debt buyers who can use the information as a desktop tool. Buyers will be able to have better access of information when purchasing debt, company officials say. "We've been listening well, and the industry continues to help shape our products and services," say Michael Zoldan, chief executive of E-Debt. "Support for debt buying groups is a response to a real need of the buyers and sellers." E-Debt is based in Akron, Ohio, with offices in Atlanta and New York. On E-Debt.com, portfolios can be viewed, due diligence performed, purchase arrangements made, and documents transmitted. Sellers can sell their portfolios at a set price, by auction, or through private online negotiations. (11/13)
DAEWOO MOTOR BANKRUPTCY DECLARED
Daewoo Motor Co. creditors declared South Korea's third largest automaker bankrupt after the company's labor union rejected a restructuring plan calling for layoffs. Daewoo had defaulted on repaying $78 million in commercial paper debt for two straight days. After talking overnight with management, the union rejected a plan to lay off 18% of the company's 18,000 unionized workers and the banks immediately declared the company bankrupt.
General Motors Corp. and Italy's Fiat SpA have proposed a takeover of the automaker and are still performing due diligence. Daewoo Motor is one of 12 companies in the Daewoo Group saved by creditors who tried to restructure debts by selling assets and various units. (11/09)
JAPAN BANKS WRITE OFF MORE THAN $10 BILLION
Nine Japanese banks wrote off $10.1 billion in loans from April through September as bankruptcies hurt borrowers' ability to pay debts. The write-offs were approximately 60% more than the banks' initial $6.3 billion forecast released in May. The nine banks will report first-half earnings in late November.
The July collapse of department store Sogo Co. and the failure of insurer Chiyoda Mutual Life were expected to strongly affect earnings at the banks. SourceMedia Bank Watch downgraded the country's risk rating from stable to negative. Despite the shaky economic condition of the country, traditional U.S. distressed-debt buyers are hesitant about entering the market because of cultural barriers. (11/08)
ASSOCIATES MAY CUT UP TO 2,100 JOBS
Associates First Capital Corp. could fire as many as 2,100 corporate employees following its merger with Citigroup Inc. next year, the Dallas-based company announced. Associates notified about 500 employees in the financial services firm's Irving, Texas headquarters, Solana data center in Roanoke, Texas, and systems area in South Bend, Ind., that they will lose their jobs Jan. 5, according to a memo.
Another 1,600 employees were notified that their jobs will continue on an unspecified "transitional basis" into 2001. The Associates doesn't plan to cut jobs at its call centers, branch offices, and other operations unitswhere it employs about 34,000 worldwide.
Associates currently employs about 8,000 people at its corporate office, call centers and branch offices around North Texas. The combined companies may expand Associates' credit card operating center after the merger. Many other units and administrative operations likely will be streamlined and consolidated at or near Citigroup's New York headquarters, helping the companies save as much as $600 million during the next two years, according to estimates from the two companies. (11/07)
E-commerce Fraud Fears Escalate
A significant majority of businesses selling online are boosting anti-fraud measures as they head into the 2000 holiday season, according to results of the second annual e-commerce fraud survey by CyberSource Corp. (Nasdaq: CYBS). Results indicate an increased awareness of who bears the most risk for online fraudand respondents report taking more precautions this holiday season.
CyberSource's Fraud 2000 Survey, a survey of businesses selling online commissioned by CyberSource and independently conducted by Mindwave Research, reveals that online fraud continues to increase and that 61% of respondents are taking more precautions than last year to prevent fraud during this 2000 holiday shopping season. Results also indicate that businesses selling online have a better understanding of who bears the financial risk when online fraud occurs.
Survey results also indicate that consumers' fraud concerns negatively impact online shopping demand as evidenced by the statistic that 81% of the respondents believed online sales would increase at least somewhat if shoppers were not concerned about online fraud. The CyberSource Fraud 2000 Survey found that loss of customer goodwill is the number one negative impact on business for merchants selling online, followed by chargebacks, loss of staff time and lost revenues.
The CyberSource Fraud 2000 Survey results and related information about e-commerce security tools can be accessed on the company's Web site, http://www.cybersource.com. (11/06)
TWO EXECUTIVES NAMED TO DEBT REGISTRY
The Debt Registry, an index designed to record the chain of title for charged-off accounts, has named its top two executives. Both will start work next week. Dennis C. Moroney will become president after serving 20 years in the financial services industry, including positions as senior vice president of credit cards at Chevy Chase Bank. Robert P. Shugart was named vice president of marketing. He is a 22-year veteran of the banking software industry.
Security Asset Capital Corp., a San Diego-based debt buyer and reseller, plans a December launch for the registry. Through the index, it is hoped buyers will be able to better determine if they can collect on the accounts registered, even if they are not straight from the originator. Registering portfolios, Debt Registry officials believe, should allow buyers to bid higher for portfolios by reducing uncertainty and enhancing collections. Industry veteran Randy Johnson, head of debt buyer Premium Group, is the point man for Debt Registry. (11/02)
CREDIT UNION GROUP TO AID DEBT SALES
A new consultancy program designed to help credit unions sell distressed debt is set to launch through League Services Inc., an affiliate of the Washington Credit Union League. The program, dubbed Ascend United, will concentrate on pooling loans from many credit unions and sell them together to help meet desired volume levels in the marketplace and ultimately fetch better prices.
Small loan portfolios and the lack of trust were two main barriers that prevented credit unions from accessing the debt-sales market for several years. Last year, a group of Washington state credit unions gathered several million dollars in charged-off credit cards and sold them to an attorney in the state for 8 cents on the dollar. Nancy Bullock handled that sale as a broker through Seattle Telco Debt Management and has since moved on to be one of the architects behind Ascend United.
The group behind Ascend Unitedincluding several credit unions, state and national trade groups, and other business partnersestimates credit unions may benefit by as much as $200 million by taking part in Ascend United. Charge-offs may no longer be viewed as a waste product of the industry, and instead can be seen as a significant off-balance sheet asset. Ascend United believes credit unions should consider selling now because many buyers now use sophisticated technology, with advanced analytic systems, to extract better prices. There also are many smaller niche buyers specializing in specific paper and many are looking into the credit union industry as supplies from banks and finance companies dwindle. (10/26)
FEDERATED'S FINGERHUT PLANS DISTRESSED-DEBT SALE
Federated Department Stores Inc.'s Fingerhut catalogue business expects to auction off $2.4 billion in customer debt to collections agencies to raise cash. Fingerhut plans to sell 17 million unpaid customer accounts from between 1985 and 1995. Fingerhut sells everything from pots and pans to sneakers and jeans, and many of the outstanding bills are for small amounts -- the average account balance is $150. Federated Department Stores, parent of Macy's and
Bloomingdale's, announced earlier this month it would cut jobs and operations at Fingerhut to boost profits.
Federated earlier this month announced plans to slash Fingerhut's payroll by nearly 25% and take as much as $100 million in charges to restructure the struggling unit. Selling Fingerhut's bad debt will help Federated show investors it is trying to clean up the problems. Fingerhut is counting on more aggressive collections firms to squeeze more money from the accounts.
Federated acknowledges it has made some mistakes.
In the past year, it allowed Fingerhut to extend easier credit terms in a bid to boost salesa plan that backfired when a substantial number of customers failed to pay their bills. Federated warned in July that Fingerhut's bad debt had ballooned, with customer delinquencies running at 21%. It also told Wall Street investors it may have to write off as much as $400 million in bad debt. That amount isn't included in the current $2.4 billion of debt being auctioned. (October 24)
RETAILER FILES BANKRUPTCY; PLANS ASSET SALES
Paul Harris Stores Inc. filed for protection from its creditors under Chapter 11 this week, hoping to reorganize after a year of financial woes. The company also announced it agreed to sell most of the assets of its subsidiary J. Peterman Co. for at least $4.3 million. Distressed loans from both companies also may come to market as a result of the financial troubles, Debt Sales Bulletin reports. Paul Harris, based in Indianapolis, last month extended its line of credit at LaSalle Bank from $37 million to $45 million to ease a cash-flow crunch caused when vendors, nervous about rising inventory levels, started demanding cash in advance for merchandise. The company last week announced cost-cutting steps designed to save $3.4 million annually. The steps included eliminating 46 of 199 jobs at corporate headquarters. The company is considering whether to close any of its 316 Paul Harris and Paul Harris Direct stores in 28 states, said Richard R. Hettlinger, senior vice president. The reorganization plan ultimately must be accepted by a majority of creditors. Paul Harris executives trace the company's problems to early 2000, which Paul Harris began with too much inventory that also was too old, forcing price cuts that in turn led to a slowdown in the sale of new merchandise. Paul Harris bought Lexington, Ky.-based J. Peterman, whose catalog was lampooned on the "Seinfeld" television program, for $10 million at a bankruptcy auction in March 1999. (October 18)
CITIGROUP REPORTS GROWTH IN PROFITS
Citigroup Inc. saw third-quarter profits rise 27% as a result of fees from advising on mergers and growth in the company's consumer banking arm. The New York-based company earned $3.09 billion during the three-month period, compared with $2.44 billion during the same period last year, according to the company's quarterly report. Citigroup announced last month it plans to buy Associates First Capital Corp. for $31.1 billion in stock, a move designed to boost Citigroup's consumer lending operation.(October 18)
CAPITAL ONE SEES GROWTH IN THIRD QUARTER
Capital One Financial Corp., a distressed-debt buyer, reported $122 million in earnings during the third quarter, a 29% increase from the same period a year ago. The Falls Church, Va.-based company's net chargeoff ratio was 3.80%, the seventh straight quarter the number remained under 4%. The company's chargeoff ratio was 3.97% during the second quarter.
Nigel W. Morris, president and chief operating officer of Capital One, says the increase in "superprime" customers is behind the low chargeoff rate. "The chargeoff rates will rise modestly, but we will continue to see good numbers based on the superprime customers," he said, during a conference call. Capital One added $50 million in its loan loss reserve for the third quarter, increasing the allowance to $457 million. Capital One purchases distressed loan portfolios from other originators. (October 16)
GM, FIAT TALKS WITH DAEWOO NO SURE BET
An agreement by General Motors Corp. and Italy's Fiat to restart acquisition talks with Daewoo Motor's creditors doesn't mean the troubled South Korean automaker is going to be rescued. Many obstacles remain to a successful sale of the company's assets. South Korea's government long ago set a year-end deadline to finish the country's largest corporate cleanup and ultimately may have to sell Daewoo Motor's assets piecemeal to meet that date. It also is doubtful that GM would offer as much as the estimated $7 billion that Ford Motor Co. made in its initial bid earlier this year, analysts said. Ford dropped out of its exclusive sale negotiations last month, just two weeks before it was expected to make an offer.
Daewoo Motor is one of 12 companies in the Daewoo Group saved by creditors in August 1999. The company's creditors are trying to restructure debts by selling assets and various units. It is believed that GM is not interested in the entire operation. GM and Fiat will conduct due diligence right away, with formal negotiations to follow quickly. Daewoo's main creditor, the state-run Korea Development Bank, said the process will start this week and end in two to four weeks. (October 12)
UNITED TECHNOLOGIES INTRODUCES ELECTONIC BILLING AND PAYMENTS
Electronic billing and payments technology made a significant inroad in business-to-business credit and collections this week as United Technologies Corp. (NYSE:UTX) introduced electronic bill presentment and payment (EBPP) to its customer base, utilizing a platform provided by Bottomline Technologies (Nasdaq:EPAY), a provider of web-enabled billing, payment and electronic banking solutions.
UTC and Bottomline announced a business relationship earlier this year in which UTC purchased the NetTransact business-to-business EBPP solution to streamline the billing and payments process for UTC divisions and customers. Currently, four of UTC's largest divisions, Pratt & Whitney, Carrier, Hamilton Sundstrand and Sikorsky, are using NetTransact to convert their paper invoices to an electronic format and give their customers access to the system at no charge. Hamilton Sundstrand, for example, estimates that NetTransact can reduce administrative costs incurred by processing paper bills and checks by more than 10% while knocking a similar portion off days sales outstanding (DSO). (October 11)
NCO TO BUY CREDITRUST VIA NEW FIRM
NCO Group Inc. plans to buy Baltimore-based Creditrust Corp. through a new
company, NCO Portfolio Management Inc., Debt Sales Bulletin reported Friday.
The new firm will buy distressed portfolios and likely trade under the symbol
NCOP. The deal should close in early 2001.
Joseph K. Rensin, Creditrust's chairman and chief executive, will serve
on the board of directors but will yield the chairman's title under the new
company to NCO's Chairman and Chief Executive Michael J. Barrist. "I will not
be involved in any way in the management of the new business," said Rensin,
reached Friday morning at his Baltimore office.
Creditrust opened in September 1991 and became a heavyweight debt buyer
before poor stock performance and credit problems forced it to file Chapter
11 earlier this year. NCO, based in Fort Washington, Pa., will own 55% to
60% of the new entity upon closing, for a capital investment of $25 million.
Creditrust shareholders will get about $17 million to $20 million in NCO
Portfolio Management stock -- pending adjustments that may occur through the
resolution of Creditrust's bankruptcy. "If you're going to turn your baby
over to anybody, quite frankly, there aren't any better set of hands than
Michael J. Barrist's," Rensin told DSB. "I'm glad we were able to bring this
deal to a conclusion."
Rensin believes NCO has one of the nation's best collections platforms,
making the deal great news for Creditrust shareholders. "We have some value
to add as well. This separate company will allow NCO an opportunity to move
their risk-based debt buying business off their balance sheets," Rensin says.
said. It is unclear how the new operation will fit with NCO's current
NCO Group spent several months searching for ways to build its debt-buying business while keeping capital costs from topping the $25 million promised to investors, says Barrist, who will be chairman, chief executive, and interim president of the new company. "Creditrust brings an established portfolio, as well as a skilled workforce, to this transaction and it allows us to create the perfect vehicle to move forward," says Barrist, who said new investors will be able to choose between a business services company and a firm that buys delinquent accounts. The new company likely will be located in Baltimore. (October 10)
XEROX STUMBLES, CONSIDERS ASSET SALES
Xerox Corp. officials report that the company is considering sizeable asset sales as a result of expected third-quarter losses announced by the world's largest copier maker earlier this week. The company’s investment in inkjet printers are among the assets under scrutiny. Observers believe the company also could bring some sort of distressed commercial loans to market to help offset expected balance sheet woes, Debt Sales Bulletin reports. Consecutive earnings warnings and a declining office copier business have pummeled Xerox stock, which traded at about $45 a year ago. Earlier this week, the company's stock hit a 52-week low of $12. (October 5)
AAMES COULD BE DELISTED
Aames Financial Corp., a Los Angeles-based subprime home equity lender, soon may be delisted from the New York Stock Exchange after the company’s stock failed to keep a minimum $1 per share price for a recent 30-day period. The company has been in a tailspin for about 18 months. Aames announced a net loss of $122.4 million for fiscal year 2000 ending June 30, compared with a net loss of $248 million a year ago. A. Jay Meyerson, Aames’ chief executive, says the main contributor to the fiscal 2000 net loss is previously reported $77.5 million and $5 million write-downs to the carrying values of the company’s residual interests and mortgage servicing rights, respectively. “[The write-downs were] made in light of higher-than-expected credit loss experience in the company’s securitized pools, particularly credit losses on loans acquired in the company’s discontinued bulk correspondent loan program,” he says. “The write-down to the carrying value of the company’s mortgage servicing rights reflects management’s estimate of the effects of increased costs of early intervention efforts on delinquent loans in the company’s securitized pools.”(October 5)
FLEETBOSTON HOPES TO REACH SUMMIT
FleetBoston Financial Corp. is discussing whether to acquire Princeton, New Jersey-based Summit Bancorp, a move that presumably would be made to expand FleetBoston's reach in New Jersey and Pennsylvania. FleetBoston, if a deal is reached, will gain more than 500 branches in the two states and Connecticut. It is believed FleetBoston would pay $40 a share for Summit, making the deal worth $7 billion.
Summit also may be in discussions with other potential buyers. Summit has outstanding shares valued at $5.4 billion. Summit recently purchased Philadelphia-based investment bank Howard, Lawson & Co. for an undisclosed price.(September 29)
CONSUMER CONFIDENCE SHOWS STRENGTH
Consumer confidence rose higher than expected in September, a possible sign that consumers may be ready to help retailers have a nice holiday season. The New York-based Conference Board reported the Consumer Confidence Index stands at 141.9, a slight increase from the revised 140.8 in August and a shade more than the 141.5 Wall Street analysts expected. Consumer spending fuels two-thirds of the U.S. economy, so readings on consumer attitudes are closely monitored by economists and policy makers. The Conference Board index, based on a monthly survey of some 5,000 U.S. households, compares results to its base year, 1985, when it stood at 100. "Despite higher gasoline prices this summer and the prospect of higher heating oil costs this winter, consumers remain in an upbeat mood," said Lynn Franco, director of the Conference Board's Consumer Research Center. "Nothing in this latest survey suggests the economy will run out of steam soon."
Despite the rising energy costs, the feeling among 18.4% of Americans is that the economy will continue to improve during the next six months. That's up slightly from 17.2% in August.(September 29)
AMSOUTH TO FALL SHORT OF EXPECTATIONS
Amsouth Bancorp, a Birmingham, Ala.-based bank, expects to miss earnings estimates this year and plans a major restructuring as a result. The company blames a financial restructuring aimed at softening the effects of rising interest rates and a program to address credit quality issues for contributing to the expected shortfall. The bank will take a pre-tax charge of $280 million in the third quarter, and expects third-quarter operating earnings at 33 cents to 34 cents per share. For the fourth quarter, Amsouth expects operating earnings of 35 cents to 36 cents per share. Analysts expected the company to earn 44 cents per share in the third quarter and 47 cents per share in the fourth quarter, according to data compiled by market research firm First Call/SourceMedia. Amsouth officials were not available for comment today.
The company closed a $6.3 billion merger with First American Corp. a year ago and analysts have suggested the deal left Amsouth with greater exposure to rising interest rates because, in part, the company added investment securities to the balance sheet to make the merger happen. Amsouth sells an estimated $20 million to $50 million of charged-off credit card debt annually, reports Debt Sales Bulletin. (September 25)
CHASE WILL PAY TO SETTLE CARD SUITS
Chase Manhattan Corp. will pay at least $22.2 million to settle lawsuits alleging customers were forced to pay extra interest and late fees even when payments arrived on time. The dollar amount could rise if consumers start filing claims under the agreement. The bank will reimburse customers for some charges and offer a grace period before charging late fees.
The lawsuit and settlement are part of a pattern that has plagued many players in the credit card industry. Last month, Citibank agreed to pay $45 million to resolve claims nearly identical to those against Chase. Providian Financial Corp. agreed in June to pay more than $300 million to settle claims it deceived customers about rates and fees. (September 22)
FIRST UNION TO SELL MORE BRANCHES
First Union Corp. officials are preparing to sell 80 East Coast branches to unknown companies. The Charlotte, N.C.-based bank promised to unload the branches in a restructuring announced in June. First Union is the nation's sixth largest bank-holding company. The company reported a $2.2 billion loss in the second quarter and warned analysts in July that losses would be severe after it took a $2.8 billion charge and closed its home equity unit, Money Store.
First Union in July agreed to sell 41 Tennessee bank branches to Firstar Corp. That deal, which includes about $1.7 billion in deposits and $474 million in loans, is expected to close in the fourth quarter. (September 21)
DAEWOO MOTOR BREAK-UP POSSIBLE
Ford Motor Co.'s decision last week to drop its planned $6.88 billion purchase of South Korea's Daewoo Motor raises the chance the troubled company will be sold in parts. Ford, which had won the exclusive right to bid on Daewoo, abruptly withdrew last Friday -- a decision made during Ford's due diligence. Ford's move sparked speculation about renewed bids from Hyundai Motor and DaimlerChrysler and General Motors with Italy's Fiat SpA, all of which submitted non-binding proposals in June. Creditors continue to look for a buyer in what suddenly is a buyer's market. Korea Development Bank is the largest creditor. Hyundai's partner DaimlerChrysler is reported to have lost interest in buying Daewoo and it is possible Hyundai will take on another foreign partner to continue its pursuit. Daewoo is being auctioned off by creditors as part of the breakup of Daewoo Group. The eventual winner of the Daewoo Motor sweepstakes could gain an advantage over rivals in Asia, a prospect that has attracted the heavyweight bidders. (September 20)
U.K. AGENCY MAY OFFER OVERSEAS DEBT MARKET
A United Kingdom collections agency earning $600,000 annually and now on the real estate market could help a U.S. debt buyer prepare for the fledgling overseas market, says Phillip McGarvey, company president and owner. The agency, based 25 miles from London, does contingency collections work for more than 22,000 clients, including blue chip firms and a lot of medical companies. He believes the sale of his U.K. agency is an easy opportunity for companies considering buying U.K. debt, he told Debt Sales Bulletin. "We're an agency established for 20 years with an existing client base," he said. "And while companies in the U.K. don't tend to sell much debt, I think they will do so more in the future." Barclay's Bank, one of England's largest banks, recently saw a change in top management, and McGarvey believes the change could make them a prime candidate to choose to sell debt.
McGarvey also owns Fort Pierce, Fla. agency Nationwide Collections Inc. He has decided to permanently live in the United States and concentrate on operating Nationwide Collections, prompting the decision to sell the U.K. agency. (September 19)
BANCWEST BUYS FIRST SECURITY BRANCHES
BancWest Corp. will buy 30 First Security Bank branches in New Mexico and Nevada, resulting in a $4 million charge in the first quarter 2001. BancWest is the parent company of Bank of the West and First Hawaiian Bank. The branches are being sold in connection with its pending merger with Wells Fargo & Co. BancWest, long rumored to be a leading candidate for the branches, also will acquire about $1.2 billion in deposits and $300 million in commercial, consumer, and agricultural loans. The sale is expected to close in the first quarter of 2001. Colonial Bank and Glacier Bancorp also bought a handful of branches in New Mexico, Nevada, Idaho, and Utah. (September 15)
MCM CAPITAL PAYS OFF DEBT
MCM Capital Group, the parent company of debt buyer Midland Credit Management, repaid a $33 million securitization of credit card receivables, company officials told Debt Sales Bulletin. The San Diego-based firm, delisted in August by Nasdaq, will be able to keep 100% of future collections on the receivables as a result of the debt payoff, says Carl Gregory, the company's chief executive. MCM previously could keep just 20%, and the company collected $2.25 million from these accounts in August. Gregory says the repayment will not help MCM regain listing on Nasdaq (MCM stock is currently traded on the OTC exchange bulletin board) but he is still pleased. "It is an extremely positive development because of the big swing in cash flow," he said.
Midland Credit currently has no plans to make any debt purchases, Gregory said. Parent company MCM purchased debt buyer West Capital Financial Services in exchange for 375,000 shares of MCM common stock. (September 14)
TRANSAMERICA SELLS CONSUMER LOAN PORTFOLIO
Transamerica Finance Corp. sold a $530 million portfolio of consumer loans for approximately book value to a U.S.-based affiliate of Goldman Sachs Group, the company announced. TFC is part of the international AEGON N.V. insurance group, based in The Hague, Netherlands. Most of the proceeds
from the sale will be used by Transamerica to redeem outstanding debt.
TFC officials were not prepared to comment on whether there are any distressed debt implications as a result of the sale. A Chicago-based affiliate of TFC, Transamerica Commercial Recovery Services, is a buyer of distressed commercial loans, says company executive Sara Williams. The company purchased approximately $250 million of accounts each year, Debt Sales Bulletin reports. (September 13)
FIRSTAR READY TO GROW IN TENNESSEE
Milwaukee-based Firstar Corp. got the go-ahead from the Office of the Comptroller of the Currency to buy 41 branches in Tennessee from First Union Corp. of Charlotte, N.C. The branches have an estimated $1.7 billion in deposits and $474 million in loans. If completed, the deal will make Firstar the fourth-largest bank in the Nashville market and the seventh-largest bank in the state with 61 full-service branches. The bank first arrived in Tennessee in 1998. First Union is leaving Tennessee to focus on other business including capital markets and investment management. (September 12)
QWEST TO CUT JOBS, SELL ASSETS
Qwest Communications International, the fourth largest U.S. long-distance phone company, will cut 11,000 jobs and sell about $1 billion in non-core assets by the end of 2001 -- aiming to lower costs and become more efficient after its $43.5 billion merger with regional phone carrier US West. Qwest, based in Denver, also raised revenue projections for this year and next because of its business performance and smooth merger integration. The US West merger closed June 30.
The announcement means about 15% of the Qwest workforce will be let go, including 4,500 jobs by the end of 2000 and another 6,500 by the end of 2001. And while the sale of assets doesn't necessarily mean distressed debt will come to market, observers speculate the telecommunications company may be interested in pursuing the option, Debt Sales Bulletin reports. (September 7)
Finantra Capital To Acquire Debt Buyer
Finantra Capital Inc. signed a letter of intent to acquire Boca Raton, Fla.-based debt buyer Premium Asset Recovery Corp., Premium Asset's President Chris Conway told Debt Sales Bulletin on today. Finantra will buy the company through its consumer finance subsidiary Travelers Investment Corp. and plans to use Premium Asset as its back-end collections operation. Premium Asset opened about three years ago and now buys an equal mix of medical and credit card portfolios. The company also collects bad debts on a contingency fee basis for third parties.
Conway believes Finantra's financial resources will help the company buy more medical debt, a key growth strategy. "Credit cards have proven lucrative for us, but the market is getting saturated," he says. "Now we're going to step up medical debt opportunities. I've purchased several medical portfolios in the past and the return on investment has been a lot
higher. We're going to hone in on that. It's really growing."
Conway plans to stay with the company whether or not the acquisition is completed. The letter of intent is non-binding and subject to final due diligence. He recently hired Adam Holzhauer as senior vice president of sales, primarily to chase medical portfolio acquisitions. Finantra (Nasdaq: FANT) expects the acquisition to close by September 30. Premium has nearly $2 million in assets and is projecting a pre-tax profit over the next 12 months of nearly a half million dollars. (September 5)
Trans Unions Sues Regulators Over Privacy
The Federal Trade Commission, the Office of the Comptroller of the Currency, and other financial regulators are facing legal challenges in court over the agencies’ interpretations of privacy and use of consumer credit information.
On Wednesday, Chicago-based Trans Union filed a lawsuit against the FTC and other agencies claiming, among other things, that the regulators went beyond Congress' intent when it passed the Gramm-Leach-Bliley Financial Modernization Act of 1999. Particularly at issue, is the FTC's view that information at the top of a credit report is financial information that can't be sold to a third-party without the consumer's prior agreement. Trans Union also challenges the interpretation on the use of that information, says Oscar Marquis, Trans Union's vice president and general counsel. "Under the regulations it restricts a lot of use of information that Congress did not impose," he says. As a result of the regulators' rules to the privacy act, Trans Union has been forced to discontinue several of its products. Monthly Statements, a monthly newsletter of consumer borrowing and payment behavior published by Trans Union’s TrenData, was closed this month in fear that it would violate various privacy laws. Another product called Trace that retailers use to get address information from Trans Union will be discontinued in November, when the privacy rules take effect, Marquis says, because the product would violate the rules.
Trans Union's lawsuit is the latest legal challenge by the credit information industry on privacy legislation. Earlier, Experian Information Solutions and the Individual References Services Group filed separate lawsuits against the FTC. In the later suit, Trans Union is also listed as a plaintiff. The credit bureau filed its own lawsuit because it had "additional issues" with the rules, Marquis says. The suit was filed in federal court in the District of Columbia. (August 29)
CHARGEOFF RATES DECLINE AGAIN
Credit card chargeoff rates at major banks declined modestly in July,
marking the third straight month rates have decreased, according to Standard
& Poor's Credit Card Quality Index. The chargeoff rate declined to 5.20%, a
decrease of 10 basis points from June when the rate was 5.30%. Observers
predicted lower chargeoff rates because losses traditionally decline in the
summer months. However, during the last three months, chargeoff levels
represent the lowest back-to-back months of losses since 1996. The index
tracks about $300 billion in securitized credit card receivables. (August 28)
PCM SETTLES FTC CHARGES
Performance Capital Management, an Irvine, California-based debt buyer and reseller, has agreed to a proposed settlement to Federal Trade Commission charges that the company violated the Fair Credit Reporting Act (FCRA), the FTC announced. PCM as part of the agreement would be fined $2 million, although the FTC will waive that penalty based on the poor financial condition of the bankrupt company. PCM officials were not available for comment.
The FTC in its complaint alleged PCM violated many FCRA requirements, including reporting inaccurate account delinquency dates to credit bureaus and failing to investigate or report disputed accounts. Specifically, the FTC alleged that PCM reported accounts with delinquency dates that were more recent than the actual date of delinquency, resulting in negative information remaining on consumers' credit reports well beyond the seven-year period mandated by the FCRA. The proposed settlement requires PCM to provide correct delinquency dates when
reporting collection accounts to credit bureaus and mandates the proper investigation of disputes. The proposed settlement will be presented to the U.S. Bankruptcy Court for the Central District of California, which is overseeing PCM's bankruptcy. If approved, the agreement will
be filed in the U.S. District Court for the Central District of California. PCM bought more than $1 billion in charged-off loans in 1998, the last year it reported figures, according to Debt Sales Bulletin archives. (August 29)
NORTH CAROLINA BANK BUYS ANOTHER
BB&T; Corp., a Winston-Salem, N.C.-based company, plans to cross state
borders to purchase BankFirst Corp. of Knoxville, Tenn., in a stock swap
valued at $149.7 million. The deal is the fifth announced by BB&T; this
summer -- following the most recent $226 million deal for FCNB of Maryland.
Three other purchases already have closed, including the $1.1 billion
purchase of One Valley Bancorp in Charleston, W.Va.; the $112 million
purchase of First Banking Co. of Georgia; and the $113 million purchase of
Hardwick Holding Co. of Georgia. (August 28)
AMEX TO BUY SHOPRITE PORTFOLIO
American Express Co. and New Jersey-based Valley National Bank announced that Valley National's co-branded ShopRite credit card portfolio will be sold to American Express in a deal expected to close in early 2001. ShopRite card customers may continue to use their ShopRite MasterCards during the interim period and soon should receive information about the transition. Valley National Bancorp operates 117 offices located in 76 communities serving 10 counties throughout northern New Jersey.
American Express sold between $1 billion and $1.4 billion of distressed accounts in 1999. The company's charged-off debt, mostly archived accounts, usually comes to market through several sales yearly offered to a select group of buyers, including major debt buyers and collections agencies, Debt Sales Bulletin reports. The company began selling debt in 1997 and it is believed the company sold two charged-off portfolios in 1998, before bringing several sales to market
in 1999 and 2000.
CONNECTICUT BANK PURCHASES FLEETBOSTON BRANCHES
Webster Financial Corp., a Waterbury, Conn.-based bank holding company, purchased four bank branches from FleetBoston Financial that were divested as the result of the Fleet-BankBoston merger last year, Debt Sales Bulletin reports. The branches have $138 million in deposits and are located in the Connecticut cities: Brookfield, Guilford, Meriden, and Thomaston.
As part of the $16 billion merger agreement reached last year, Fleet Financial Group and Bank Boston Corp. agreed to sell more than 300 New England area branches in an attempt to ease antitrust concerns. Connecticut's attorney general dropped threats of an antitrust suit last fall after Fleet agreed to increase the state's share of branches.
JAPAN'S DEBT HITS RECORD HIGH
Japan's total abandoned debt more than tripled to a record high $39.25
billion last month as corporate bankruptcies jumped 21.4% in July compared
with a year earlier to 1,617 cases, Teikoku Databank Ltd. officials say. The
high debt tally includes the July 12 failure of major department store
operator Sogo Co. The Osaka-based group, listed on the first section of the
Tokyo Stock Exchange, filed for protection under the new
corporate-rehabilitation law soon after Japan's ruling Liberal Democratic
Party scrapped a bailout amid rising public criticism. With the
rescue plan called off, Sogo's 73 creditors were forced to write off more
than $9.24 billion in combined loans to Sogo. Sogo's failure turned attention
to the country's banks and their bad loans, leaving investors and analysts
wondering how many more troubled firms are largely being supported by
lenders. Goldman Sachs in Tokyo estimates 19 major banks still must write off
$144 billion in distressed debts that have yet to surface, mostly from
debtors that invested in the real estate market and were hit hard by plunging
property values during the past decade. Loans to such firms are believed to
be about 30% of the major banks' total loan portfolios.
BANK OF MONTREAL SELLS BRANCHES
Bank of Montreal, Canada's fourth-largest bank, will sell 13 branches in
British Columbia to Credit Union Central for undisclosed terms, Debt Sales Bulletin reports. Bank of Montreal, based in Toronto, has been cutting its 1,100-plus branch network as
it tries to reduce costs by leaving rural markets where growth is slow. Bank
of Montreal already has sold 51 branches in other parts of Canada.
Baltimore-based credit card company and debt seller Partners First was
purchased last year by a Bank of Montreal subsidiary.
INTEREST RATES WILL BE STEADY, ANALYSTS
The U.S. Federal Reserve appears unlikely to raise interest rates when it
meets next week after reports that the Consumer Price Index rose 0.2% last
month, a modest increase after a 0.6% hike in June. Although inflation is on
the rise, analysts say the change is not enough for the Fed to raise rates
for the seventh time since June 1999. Higher costs for food, housing,
airfares, and medical care offset declines in the cost of gasoline, clothes,
For the distressed-debt market, an interest rate increase, even a slight
one, could prompt debt buyers to bid lower for packages since the cost of
money would rise, Debt Sales Bulletin reports. In turn, lower sale prices may cause creditors to rethink how fast and how much they sell, setting up a self-reinforcing cycle of
SUMMIT BUYS COMMERCIAL LOAN SITES
Summit Bancorp's commercial finance operation purchased the loan portfolio
assets and four loan offices from National Canada Business Corp., a National
Bank of Canada subsidiary. Terms of the deal were not disclosed. Summit
Bancorp's consumer side sold $11 million of charged-off and sub-performing
home equity and home mortgage loans in 1999. It's currently unknown whether
the commercial operation purchase will lead to significant debt sales.
eDEBT PARTNERS TO SCORE DECEASED ACCOUNTS
eDebt.com, a debt portfolio trading website, formed a partnership with Dolan Media's Probate Finder LLC, to offer numerical ratings on portfolios of deceased accounts. The feature, known as ProScore, will help determine the collectibility of loans and a market value to debt buyers, E-Debt officials say. The new deceased account classification, with ProScore ranges, is available at the company's website, www.e-debt.com.
For each portfolio, Probate Finder estimates the number of active probate filings; the face value of debt with active probate filings; the number of probate filings that could be filed later; and the face value of debt for which there could be probate filings in the future. Probate filings are usually an indication that an estate exists, which increases the likelihood of collecting on a debt. All prospective buyers get free access to the service. For a fee, buyers may access a database containing specific information on accounts, estates, and probate filings. E-Debt Exchange, Inc., based in Akron, Ohio, provides for a real-time exchange of information and the live trading of debt portfolios. Sellers have the option of selling their portfolios at a set price, by auction or through private online negotiations.
REVENUES SOAR, PROFITS FALL FOR 'NET BANK
NextCard Inc., a San Francisco-based Internet card issuer, saw an 843% hike in operating revenue to $33 million in the second quarter, but reported a net loss of $24.5 million in the same period. The bank offers credit cards to customers online. The company's total managed loans stood at $829.7 million at the end of June, more than four times higher than a year earlier. The company projects
its business will break even late next year -- a full year ahead of initial expectations when the credit card bank went public last year. Last month, NextCard closed the sale of a $3.9 million charged-off credit card portfolio for a price comparable to the going rate
for non-Internet fresh chargeoffs, Debt Sales Bulletin reports.
DEUTSCHE MAY CONSIDER U.S. PURCHASES
Deutsche Bank AG, buoyed by strong earnings and shares near all-time highs, is expected to accelerate U.S. acquisition plans. Officials with Deutsche, Germany's largest bank, recently revealed a large six-month profit gain at its half-year news conference. Deutsche has stepped out confidently after the embarrassment of April's failed merger talks with Dresdner Bank. Dresdner backed out of the Deutsche deal when Deutsche said the combined bank would dump Dresdner's profitable investment arm in favor of its own. In June 1999, Deutsche closed the $9 billion acquisition of Bankers Trust Corp., a New York-based bank that sold an estimated $17 million in commercial debt a year earlier. Deutsche quickly consolidated its takeover of Bankers Trust and may now wish to leap forward with a deal linking it to a big league player such as commercial and investment bank J.P. Morgan, analysts say.
FIRST SECURITY GIVES NOD TO MERGER
First Security Corp., the Salt Lake City bank that spent nearly a year in merger talks with Zions Bancorp, agreed to a merger with Wells Fargo & Co. The $3 billion deal is expected to be completed this fall if regulators approve the acquisition. San Francisco-based Wells Fargo's buyout of First Security was announced in April, just 10 days after First Security's deal with Zions collapsed.
The combined Wells Fargo and First Security will be the largest in Utah, Nevada, Idaho and New Mexico, with about $241 billion in assets and operations in 23 states. It creates the largest commercial bank in one of the nation's fastest growing areas. First Security planned to sell between $50 million and $100 million in chargeoffs this year and most recently offered a $55.7 million charged-off credit card portfolio, according to Debt Sales Bulletin.
BANK OF AMERICA TO CUT THOUSANDS
Bank of America Corp. expects it will slice as many as 10,000 jobs nationwide in the next year to improve earnings and efficiency. The Charlotte-based bank has about 150,000 employees. The cuts largely will include middle- and upper-level management and jobs made obsolete by in-house efficiency improvements, company officials say. The bank plans to focus on improving daily business, rather than continuing to pursue rapid nationwide expansion. It's not known exactly how many employees will lose their jobs.
Bank of America is the nation's second-largest bank in terms of assets behind Citigroup. Bank of America employed 150,854 people as of June 30, more than 11,000 fewer than a year earlier. The bank sells distressed debt, recently bringing a $250 million portfolio of charged-off loans to market, reports Debt Sales Bulletin.
FIRST UNION HIT WITH JUDGMENT
A Philadelphia jury hit First Union Corp. with a $350 million judgment after agreeing a CoreStates Bank branch now owned by First Union misappropriated $1.7 million from a customer's account. The bank contends it acted lawfully and plans to appeal the decision. The customer, Pioneer Commercial Funding Corp., New York, had to close because of the mistake, but
now plans to reopen. First Union Corp. in June reported it will take a $2.8 billion charge to close its home equity The Money Store operation. The Philadelphia jury award includes $1.7 million in direct damages, $13.4 million in compensatory damages, and $337.5 million in punitive
damages. Large punitive awards from juries are often reduced by judges. First Union officials expect the verdict to be overturned.
AMEX REPORTS INCREASE IN PROFITS
American Express Co., which sold between $1 billion and $1.4 billion of distressed accounts in 1999, according to Debt Sales Bulletin, reported second-quarter profits rose 15%. The record number got a boost, in part, from increased consumer spending on American Express credit cards. American Express' charged-off debt, mostly archived accounts, typically comes to market through several sales offered to a select group of buyers -- including both major debt buyers and
collections agencies. The company began selling its debt in 1997, and it is believed the company sold two charged-off portfolios in 1998, before bringing several sales to market in 1999. The New York-based company, best known for its signature green charge cards and travelers checks, earned a record $740 million, or 54 cents a share, compared with $646 million, or 47
cents a share, in the year-ago quarter.
Charged-off debt from American Express is highly regarded in the distressed-debt industry because the company's customers at one point were financially stable in order to receive the prestigious credit card and are likely to recover from whatever circumstance caused them to fall delinquent. American Express does not allow its buyers to resell debt for fear of tainting the American Express reputation should a deal turn sour, even though the company believes it ultimately loses money by banning the resale practice.
CONTIFINANCIAL WINS COURT SETTLEMENT
ContiFinancial Corp. won court approval to settle a dispute between its bank
group and a committee of noteholders about the interest payments the subprime
lender made shortly before filing for Chapter 11 bankruptcy protection, Debt Sales Bulletin reports. It is too early to tell what the settlement will mean to Contifinancial's already-delayed reorganization efforts, a company spokesman says.
The New York-based subprime mortgage lender in May filed Chapter 11 after failing to pay back $400 million in unsecured bank loans. The company, which specializes in giving mortgage and home equity loans to people with poor credit, was delisted by the New York Stock Exchange in January after its stock dropped below $1 for 30 consecutive trading days.
PNC CONSIDERS MORTGAGE UNIT SALE
PNC Financial Services Group Inc. hired investment firm Salomon Smith
Barney to explore the sale of its mortgage unit -- an $85 billion
servicing operation. The decision comes after an evaluation of the capital
needed to compete in the business led company officials to determine
PNC Mortgage is trying to compete with companies that maintain $300
billion or more of servicing. PNC operates 740 branches in six states. If
the Pittsburgh-based bank leaves the mortgage business it is expected it
will concentrate on private banking, asset management, and global funds
services, company officials say. PNC this week reported an 8% increase in
earnings during the second quarter to $315 million.
Mark Miller, president of debt buyer, reseller, and consultant MJM
Financial Services, does not believe a sale of the mortgage unit will lead
to any distressed-debt sales, he told Debt Sales Bulletin. "I see this as
a strategic change in the company's direction," Miller says. Rising
interest rates and a lack of the market share are the most likely factors
in leading PNC to consider selling, he adds.
CREDITRUST FACES CLASS ACTION
A complaint in a lawsuit filed late Friday in the U.S. District Court,
Maryland, alleges Creditrust Corp. allowed false statements into the
company's press releases issued between July 29, 1998, and March 31, 2000,
thereby artificially inflating the company's stock price -- violations of
the Securities Exchange Act of 1934, Debt Sales Bulletin reported Monday.
Specifically, the complaint alleges certain Creditrust officers and
directors deliberately boosted the estimated amounts that could be
collected on the company's bad-debt portfolios, which consequently
inflated revenue and pre-tax earnings by at least $4.9 million for fiscal
year 1999 alone, says Philadelphia-based law firm Berger & Montague, which
filed the complaint.
The complaint also alleges Creditrust Chief Executive Joseph Rensin
sold more than 500,000 shares of his personal holdings in the company
during the same July 1998 to March 2000 timeframe for a profit in excess
of $18 million. Rensin was not available for comment Monday. Berger &
Montague filed the complaint on behalf of everyone who bought Creditrust's
stock between July 29, 1998, and March 31, 2000. In a statement, the law firm advised those
who believe they qualify to "move the court to serve as lead plaintiff,"
no later than Sept. 12.
GE-OWNED AGENCY FINED FOR COLLECTION TACTICS
North American Capital Corp., a collections agency owned by GE Capital, will
pay a $250,000 fine to settle charges it harassed debtors with obscene and
abusive telephone calls, improperly called their employers and co-workers,
and threatened them with arrest, jail time, and the seizure of property, the
Federal Trade Commission reports.
The FTC charged the Buffalo, New York-based agency with several
violations of the 1978 Fair Debt Collection Practices Act, which bans
abusive, deceptive, and unfair collection practices. GE Capital is the
financial services arm of General Electric Co. GE Capital Card Services
typically sells between $200 million and $300 million in charged-off debt
yearly, according to industry estimates.
North American Capital did not admit any wrongdoing, but cooperated with
the FTC investigation and plans to correct any problems. The company agreed
to begin providing written notice to debtors that they have the legal right
to stop it from contacting them.
ASSOCIATES BUYS JEWELER'S CARD BUSINESS
Associates First Capital Corp. purchased fine jewelry retailer Zale Corp.'s approximately $620 million credit card receivables portfolio and about 840,000 active accounts in Zale's private-label credit card operation. Zale expects the sale to Associates to close by the end of July, pending regulatory approvals. Associates in recent years has sold between $150 million to $200 million in distressed debt, Debt Sales Bulletin reports. Zale has tried selling its debt in the past but the retailer never got the price they wanted in the open market, Debt Sales Bulletin reports. Both firms are based in Dallas. The deal includes a 10-year agreement for Zale's ongoing credit card business. Associates Commerce Solutions, a subsidiary of Associates, will manage the acquired credit card portfolio.
WELLS FARGO TO PURCHASE IOWA BANK
Brenton Banks Inc., Iowa's second largest bank, agreed to be acquired by banking giant Wells Fargo & Co. in a deal valued at approximately $264.5 million, Debt Sales Bulletin reported. Debt industry executives do not believe Brenton Banks has ever sold distressed debt, raising the possibility that Wells Fargo will clear out distressed loans inherited from Brenton Banks, although it likely would take six months to one year for Wells Fargo to come to any conclusions.
Terms of the deal specify San Francisco-based Wells Fargo will buy Brenton Banks for $12.56 a share. Shares of Brenton Banks were off 14/16 to 12 7/16 on Nasdaq after an earlier halt in trading pending an announcement. Brenton Banks has about $2 billion in assets, compared with about $222 billion held by Wells Fargo.
JAPAN BAILS OUT RETAILER
Japan's Deposit Insurance Corp. agreed to rescue debt-ridden department
store operator Sogo Co. Ltd. by buying $1.86 billion in loans extended to the
company by Shinsei Bank, and waiving about half that sum in Sogo's debt. The
bailout is Japan's biggest-ever rescue of a non-financial firm and a move
analysts believe might open the floodgates for similar cases. Standard &
Poor's criticized the Japanese government's decision, calling it a
"potentially hazardous twist on Japan's road to financial reform." The
rating's agency believes the decision to forgive Sogo's debt will sharply
decrease pressure on the company to overhaul its operations.
Shinsei Bank is the reincarnation of failed Long-Term Credit Bank of
Japan, which was sold earlier this year to U.S. investment group Ripplewood
Holdings, according to Debt Sales Bulletin. Long-Term Credit Bank of Japan was one of three
long-range lenders that helped finance Japan's post-war industrial rebirth.
WELLS FARGO BUYS CONSECO'S CARD PORTFOLIO
Wells Fargo and Co. bought Conseco Inc.'s estimated $400 million Visa and
MasterCard portfolio, a sale troubled life insurer Conseco hopes
will help it concentrate on its core business operations. Wells Fargo
followed the news by revealing its Wells Fargo Financial Bank unit will
not repackage the credit card receivables into securities. Wells Fargo
Financial is the credit card subsidiary of Norwest Financial, which is in
turn a subsidiary of Wells Fargo and Co.
Conseco, based in Carmel, Ind., hopes the sale of the credit card portfolio provides additional liquidity to its finance subsidiary. Conseco in the past two months has sold
loans and non-core assets from its Conseco Finance unit to improve its
liquidity. The No.8 U.S. life insurer has sold about $1.3 billion in loans,
originated by Conseco Finance, to investment bank Lehman Bros Holdings Inc.
Some of the loans were securitized in a $941 million deal priced on June 21.
PROVIDIAN WILL PAY TO SETTLE COMPLAINTS
Providian Financial Corp., one of the nation's top ten credit card issuers,
agreed to pay a minimum $300 million to customers hurt by business practices deemed unfair and deceptive, the Office of the Comptroller of the Currency reported. Providian, based in San Francisco, first ran into trouble in early 1999 as consumer complaints mounted that the
company failed to properly disclose credit terms and charged late fees even
when credit card payments arrived on time. As part of a deal with the OCC and the San Francisco District Attorney's office, Providian will commit to changes in its business practices, including curbs on telemarketing and better disclosure of credit card fees and terms. Providian did not admit or deny wrongdoing in the settlement, which was expected. Providian specializes in issuing credit cards to people other lenders dismiss.
CONTIFINANCIAL TO SELL MORTGAGE UNIT
Contifinancial Corp., a troubled lender that put itself up for sale twice
last year, won court approval to sell the servicing business of its mortgage
unit ContiMortgage Corp., Debt Sales Bulletin reported. Fairbanks Capital Corp. won the right to buy the assets, U.S. Bankruptcy Court Judge Arthur Gonzales ruled. Contifinancial has
watched stock prices plummet to a 52-week low of $0.016 last Friday. The
company's 52-week high came nearly a year ago, July 8, 1999, when shares sold
at $4.75. The company was delisted by the New York Stock Exchange in January after
failing to meet the stock exchange's listing criteria as the stock price
dropped below $1 during an average of 30 trading days.
FIRST UNION CORP. CLOSES MONEY STORE
First Union Corp. will close its home equity lending The Money Store operation and take a $2.8 billion charge in the second quarter. First Union had cut more than 1,000 jobs from the home equity unit in the past year, furloughs attributed to overlapping services that resulted from inadvertently having sales people visit the same customers on different days, and concerns that
Money Store had underestimated prepayment rates on its loans, a major problem among subprime finance specialists, Debt Sales Bulletin reported. The announcement of the closing comes just days before the two-year anniversary of First Union's purchase of the chain. First Union bought the Money Store chain, which had 172 branches in all 50 states, for $2.1 billion on June 30, 1998. It was the nation's leading home equity lender, specializing in customers whose credit
histories caused them problems borrowing from banks.
The Charlotte, N.C., bank holding company also warned investors that due partly to problems at Money Store, earnings in the second quarter will miss expectations, even before charges plunge the company into the red.
CREDITRUST FILES BANKRUPTCY
Creditrust Corp. filed for Chapter 11 bankruptcy protection after a year of sinking stock performance and credit problems, Debt Sales Bulletin reported June 22. Industry sources believe the Baltimore debt buyer’s woes began last August after the company made a successful bid for a $546 million portfolio left behind by failed market leader Commercial Financial Services. Creditrust outbid Residential Funding Corp. -- an arm of General Motors Acceptance Corp. -- and paid 4.89 cents on the dollar for the accounts CFS originally bought from 10 of the largest U.S. credit grantors in the fourth quarter 1998. CFS had paid 11 cents, leading Creditrust officials to believe the 4.89 cents, or more than $26 million, it was spending was quite a bargain.
Creditrust Chairman Joseph Rensin recently told Debt Sales Bulletin that the company was recovering and rampant rumors of its pending death were exaggerated. The company ended talks in March to secure a $55 million loan when it could not reach terms with an unnamed lender. The company today announced it received a $5 million line of credit with existing lender Sunrock Capital. Creditrust shares have plunged since last July when they hit a 52-week high of 34 1/8, closing in Wednesday trading on the Nasdaq at 1 5/16, above a yearly low of 7/16. Creditrust put itself up for sale late last year around the same time it revealed the former head of its legal recovery unit stole tens of thousands of dollars from the company by endorsing checks payable to Creditrust and depositing them into a commercial bank account controlled by him and his wife. Creditrust eventually recovered the funds.
AMERICAN REALTY MAY DEFAULT ON LARGE LOAN
American Realty Trust Co. may default on a $35 million loan secured by the
company's equity investments in three affiliates: Income Opportunity Realty
Investors Inc., Transcontinental Realty Investors Inc., and National Realty, company officials say. The news comes less than a week after two of American
Realty's former advisers were implicated in a massive securities fraud case.
Dallas-based American Realty, in a statement, said it plans to negotiate the
terms of repayment of the $35 million loan because it currently is "not in a
position" to pay it.
The New York Stock Exchange halted trading in American Realty's stock
since the stock dropped 57% to 6 11/16 last Thursday. Investors last week
sold the stock when it became clear two of American Realty's investment
advisers were involved in a securities fraud orchestrated by New York
mobsters. The officers stepped down on Thursday from day-today
responsibilities at American Realty's investment adviser Basic Capital
Management. Prosecutors charged a record 120 people in the fraud case.
FIRMS TEAM TO CREATE SITE FOR DEBT OF COMPANIES
An Internet-based trading-and-information site focusing on distressed debt is being launched with backing from Chase Manhattan Corp., Dun & Bradstreet Corp., and Wasserstein Perella & Co. The company, DistressDebt Corp., and its website, DistressedDebt.com, will be tailored to companies in the market for the debt of companies in default or at risk of default. The aim of the company is to set up a marketplace for the Web-based sale of portfolios of distressed companies' trade receivables, or payments owed to other companies. News on the site launch date was not available today. Several related debt-trading websites have recently debuted or announced planned launches, including CollectionsX and Debtforsale.com in the past month. Other sites include: E-Debt.com; AssetExchange.com; and thedebttrader.com. Many other firms operate their own auction or portfolio listing websites.
ASTA FUNDING FORMS COMMERCIAL FACTORING ARM
Asta Funding Inc., a debt buyer and reseller, has created a wholly-owned
subsidiary to diversify the company's financial services. Asta Commercial LLC
will serve the commercial factoring market, Gary Stern, Asta Funding's
president and chief executive, told Debt Sales Bulletin. "Entry into commercial factoring offers Asta an excellent opportunity to extend our existing financial management and debt
collections expertise into the commercial arena," he said.
Factoring companies serve as middlemen in commercial purchases. If a
retailer cannot afford to pay a manufacturer for an order in a specific time,
the factoring company becomes involved. It buys the goods from the
manufacturer. The company then resells the goods to the retailer for the
principal plus interest. Like its parent company, Asta Commercial will be
headquartered in Englewood Cliffs, N.J. Stern named Gregg Rubin as
senior vice president to head the new subsidiary. Rubin, a former executive
at Finova Capital Corp., has 17 years experience in factoring and asset-based
MEXICO MUST SELL $60 BILLION
Mexico's Institute for the Protection of Bank Savings (IPAB) is handling the
sale of $60 billion in bad loans and assets acquired from banks when millions
of Mexicans defaulted after the 1994 peso crash, Debt Sales Bulletin reported. The government agency, similar to the Federal Deposit Insurance Corp., must liquidate the debt within two years, says Alfredo Berber, vice president of asset marketing for Mexican bank
Bancomer S.A. Berber believes Mexico is teeming with opportunities for U.S.
debt buyers beyond the large players who have stepped into the country thus
far -- including GMAC, GE Capital, and Goldman Sachs. "The number of buyers
is expected to increase as IPAB breaks the portfolios into more pools,"
Berber says. "And the immature market offers some great opportunities."
Berber urges U.S. buyers to consider Mexico's market and perhaps form an
alliance with a company in the country to help get started. First Financial
Network, an Oklahoma City-based broker, has worked with Bancomer and is
considered a pioneer in working trades in Mexico.
FORMER CFS EXECUTIVE WINS COURT CASE
A Tulsa, Okla. federal jury found that former Commercial Financial Services
executive Gertrude Brady was entitled to the $500,000 she drew after being
forced to leave the bankrupt company more than a year ago, Debt Sales Bulletin reported. The seven-person jury determined CFS "constructively terminated" Gertrude A. Brady in January
1999, making her eligible for payment under a management retention agreement.
Fred Caruso, former CFS president, testified during the trial, that he fired
Brady, the company's managing director of investor relations, for
CFS, once the nation's leading buyer of fresh credit card chargeoffs, claimed Brady had violated an order from Caruso and arranged the release of computer equipment to CFS co-founder Jay Jones shortly after the bankruptcy filing. Jones had been named in an anonymous
letter alleging fraud that ultimately brought down the company. CFS lawyers
argued in court that Brady's firing was for cause and made her ineligible to
receive the payment. Brady, who will keep the money, will seek attorney's
fees from CFS, according to her attorney. After leaving CFS, Brady worked for several
months as senior vice president of Lake Worth, Fla. debt buyer MidCoast
Credit Corp. CFS at one time employed more than 3,900 people in Tulsa and
Oklahoma City, before filing for bankruptcy Dec. 11, 1998. The company closed
in June 1999.
MCM CAPITAL STOCK WILL KEEP TRADING, PRESIDENT SAYS
MCM Capital Group Inc., parent of debt buyer Midland Credit Management, will
trade on another exchange if the company cannot meet NASDAQ's listing
requirements, Carl C. Gregory, MCM's president and chief executive, told Debt Sales Bulletin. Gregory declined to disclose which exchange he is considering listing MCM's stock should NASDAQ de-list the firm. NASDAQ officials earlier this week warned Gregory that the total value of MCM's public float is below $5 million, a benchmark necessary for ongoing listing on the NASDAQ. Exchange officials set an Aug. 22 deadline for MCM to achieve the minimum float
requirement. Gregory also can request a hearing on the issue. Following NASDAQ's announcement, Gregory responded: "Although we are certainly disappointed to receive this notice, the company's new management team is focused on returning the company to profitability and restoring investor confidence." MCM's stock closed Wednesday at $1 per share. The minimum requirement for
continued listing on the NASDAQ is a $1 per share. MCM reported in late May that it may default on a securitization and warehouse facility during the second quarter. The possible default stems from $31.9 million in portfolio purchases made last year, debt packages that did not conform to
terms of the various contracts. As a result, MCM logged a provision for portfolio losses of $2.1 million and cannot buy any more distressed debt until it has acquired more funding and maintained a level of liquidity. The company bought San Diego-based West Capital Financial Services last month for 375,000 shares of common stock, and said it might need to seek protection under reorganization or insolvency laws.
STUDENT LOAN DEFAULTS SINK, DEPARTMENT OF EDUCATION REPORTS
The nation's student loan default rate plunged to its lowest level in 13
years, mainly because of the strong U.S. economy, according to the latest
figures available from the U.S. Department of Education. The default rate for
1996-97 was 8.8%, Lisa Cain, DOE spokeswoman, told the Debt Sales Bulletin. "This is the lowest
student loan default rate since the federal government began keeping records
in 1986-87," says Patricia Trubia, director of the DOE's default management
division. Some 17.6% of students defaulted on their loans in 1986-87, and the
default rate in 1993-94 climbed to 22%.
The DOE, either directly or through
private lenders, annually awards $50 billion in low-interest student loans to
help individuals pay for their post-secondary education. Students must use
the money to attend a college, university, trade school, or technical school.
DOE officials attributed the recent default rate drop to the wide-open job
market, which has made it easier for former students to find work and repay
loans. "When former students can't find jobs, they refuse to repay their
loans," says a DOE official. The DOE has also accelerated efforts to cut the
default rate, including removing 1,180 schools from the student loan program
because those schools reported student loan default rates of 25% or more for
three consecutive years, Trubia said. The department operates an online
counseling service to advise students how to repay loans and an online
calculator that helps students determine monthly loan payments.
SEARS EXECUTIVE WARNS BUYERS TO CHOOSE DEALS CAREFULLY
Anthony Marino, vice president of risk operations for Sears, Roebuck & Co.,
cautioned companies eager to buy debt to be careful. “Many buyers are their
own worst enemy. Don’t do the deal just to do the deal. Make sure it’s the
right deal,” said Marino, during his keynote address Monday at Faulkner &
Gray’s Bad Debt Market Conference in San Diego.
Marino told the audience of distressed debt sellers, buyers, and brokers
that he has talked with many overly eager buyers who likely are headed for
trouble if they take the same no-holds-barred approach when making debt
He also said buyers should know that sellers do not care about the
buyers and whether they make their numbers. Marino heads debt-selling
operations for Sears -- one of the largest debt sellers in the U.S.
INSIDERS: MIDLAND'S MERGER STEP IN RIGHT DIRECTION
Midland Credit Management's recent acquisition of rival debt buyer West Capital Financial Services should lead to a strong resurgence in the debt market by the beleaguered company, industry insiders said. Midland, which had trouble raising money in recent months for debt purchases, should rebound strongly after a few initial speed bumps, including the anticipation by parent company MCM Capital Group Inc. that it will default on a securitization. "This is a merger of equals," said Robert Hanna of First Select. "With West Capital merging with Midland, it puts them right on course with what they do -- buying non-performing debt." Hanna expects Midland to continue buying distressed debt now that the deal has been complete. "The management teams have learned a lot the last couple of years," he said. "I welcome their type of competition."
West Capital's Carl C. Gregory is expected to be named president and chief executive of MCM. Last week, Gregory said the company will continue purchasing distressed-debt portfolios (DSB, May 25). MCM will hire West Capital's employees and move headquarters to San Diego, West Capital's home base. MCM will have 700 employees at three locations in San Diego, Phoenix, and Hutchinson, Kan. The transaction, which closed last week, surprised some in the industry. Midland bought West Capital in exchange for 375,000 shares of common stock from MCM. Midland also acquired certain distressed consumer assets from West Capital for 25,000 shares of MCM’s common stock. Tom Hicks of National Loan Exchange Corp. also believes that Midland is on the rebound from earlier troubles. "This will make them a stronger player in the debt buying arena," he said.
MIDLAND COMPLETES WEST CAP DEAL
Midland Credit Management completed a deal to buy San Diego-based West Capital Financial Services in exchange for 375,000 shares of common stock from MCM Capital Group Inc. (Nasdaq: MCMC), Midland's parent company. Midland also acquires certain distressed consumer assets from West Capital for 25,000 shares of MCM's common stock.
As part of the deal, West Capital's Carl C. Gregory III is expected to be named president and chief executive of MCM. Gregory joined West Capital as an independent director in 1996 and became chairman and chief executive in 1997. Gregory will replace Robert E. Koe, who resigned effective May 21 as chief executive. MCM plans to hire West Capital's employees and move its
headquarters to San Diego from Hutchinson, Kan. MCM then will have about 700
employees at three locations - including San Diego, Hutchinson, Kan., and
Phoenix. Industry insiders believe Midland has had trouble raising money for debt
purchases in recent months and therefore slowed its activity. In the first
quarter, MCM learned that a number of its receivables acquired in the
previous year, carrying a value of approximately $31.9 million, did not
"appear to conform to the terms of the contracts under which they were
purchased." As a result, MCM cut its estimate of gross collections on these
portfolios and logged a provision for portfolio losses of $2.1 million. In a
statement, company officials said they are "in the process of determining all
possible remedies that may be available to it from those entities from whom
the apparent non-conforming receivables were purchased."
DOT.COM DEBT-SALES TREND CONTINUES
Debtforsale.com, a website where industry executives can list debt portfolios available to buy and sell, recently launched, co-founder Anthony Brown told Debt Sales Bulletin. The site focuses on credit cards, estates, foreclosures, judgments, and various liens, and there is no charge to list debt packages. If debt is purchased through the site, a nominal fee is charged. “Our goal is to bring buyers and sellers together in a web-based forum to transact in a timely fashion,” Brown says. The company will let accredited companies post portfolios for sale by auction, straight sale, or negotiated price. There will be a screening process to make sure buyers are credible and have the ability to purchase.
Debtforsale.com expects to make money by taking a percentage commission on each successful portfolio trade, and by developing partnerships with collections agencies, law firms, and banks. The website is one of several similar websites to launch in recent months, including Asset Exchange.com, and E-Debt.com. Other sites list portfolios in a bulletin board format, including: debtmarketplace.com, and noteandpapertrader.com.
MEDICAL OPPORTUNITIES ABOUND, DEBT BROKER SAYS
Medical debt sales eventually could rival credit card chargeoff sales in terms of volume, says leading broker Louis DiPalma, who currently is handling his first medical debt trade for New York-based Cohane Rafferty Securities Inc. DiPalma expects the medical debt field will grow rapidly as buyers and sellers learn about the intricacies of the field, he told Debt Sales Bulletin. “This is going to be an active field,” he said. “Just like the banks are selling, so are the hospitals. Hospitals are not efficient collectors. I think medical debt will be part of the mainstream.” But there are stumbling blocks for executives accustomed to buying and selling more common consumer and commercial portfolios. Patient confidentiality issues create hurdles for collectors, and the uncertainty of who owes the debt also is troublesome. Insurance companies often are liable for patients’ debts, leading to disputes about who should pay. Cohane has a June 6 bid deadline for a $17 million delinquent medical receivables sale it is handling on behalf of an anonymous seller
SOVEREIGN TO SELL MORE BRANCHES
Sovereign Bancorp plans to sell six Northwest Pennsylvania branches with $90 million of deposits, according to Debt Sales Bulletin. A sale price was not disclosed. The branches are located beyond the central areas where Sovereign wants to operate. The bank recently announced it is selling 14 branches along the north central border of Pennsylvania for similar reasons. Community banks Northwest Savings Bank and First Citizens National Bank, both located in Pennsylvania, plan to buy those 14 branches, also for an undisclosed sale price. Sovereign recently completed the first of three phases of acquiring $12 billion in deposits and 285 branches from FleetBoston Financial Corp. Sovereign, late last year, agreed to buy 268 branches being divested as a result of the merger of Fleet Financial Corp. and Bank Boston Corp.
BANK OF AMERICA SUES FORMER CFS LEADERS
Bank of America and Enterprise Funding Corp. allege in a lawsuit filed Wednesday that Commercial Financial Services engaged in a scheme to induce them and others to buy $189 million in securities, Debt Sales Bulletin reported. The plaintiff’s charges, filed in Tulsa (Okla.) County District Court, are made against William Bartmann, former CFS chairman; Gertrude Brady, former CFS investor relations manager; Jay Jones, former CFS executive vice president; and Chase Securities, which was CFS’s main investment banker. The lawsuit alleges violations of Oklahoma Securities Act, statutory and common law fraud, conspiracy and negligent misrepresentation. The complaint asks for unspecified actual and punitive damages. CFS, once the nation’s top buyer of charged-off credit cards which sold bonds based on its ability to collect, ran into financial problems in late 1998 and ultimately closed in June 1999.
BANCO SANTANDER WINS AUCTION FOR MEXICO’S SERFIN
Spanish bank Banco Santander Central Hispano won an auction for Mexico’s No. 3 bank Serfin, bidding $1.5 billion to beat out London-based global banking giant HSBC Holdings, according to the Institute for the Protection of Bank Savings (IPAB), Mexico’s deposit guarantee agency. Serfin was taken over by the Mexican government last July under a mountain of debt, Debt Sales Bulletin reported. The bank, with 560 branches, 2.5 million clients, and assets of $18 billion, nearly collapsed after a December 1994 peso crash sent interest rates through the roof and millions defaulted on their debts.
Santander and IPAB will sign the contract within 20 days, and Santander then will pay 25% of the purchase price for 100% of Serfin’s shares, IPAB said. The remaining 75% is to be paid within the following 30 days, IPAB said. “This operation demonstrates Santander’s confidence in Mexico, in its economy and its future, as well our group’s commitment to clients in the Mexican market,” the Spanish bank’s directors said in a statement issued in Madrid.
The government pumped $12 billion into Serfin since 1995 to keep it afloat and consequently made it more attractive to buyers (DSB, Feb. 24, 2000). Its auction is part of a strategy to cut the bill of a banking sector bailout estimated at $100 billion, or 20% of Mexico’s gross domestic product. Few U.S. distressed-debt players have ventured into the country, with the exception of broker First Financial Network.