Where other bankers have said maybe, A. Jay Meyerson said yes.
His aggressive acquisitions as head of KeyCorp's finance unit over the past two and a half years have earned him a reputation as an unabashed pursuer of a business that others approach with caution-subprime lending.
Most recently Mr. Meyerson's unit, KeyCorp National Consumer Finance, agreed to purchase Champion Mortgage Co. - a Parsippany, N.J., home equity lender best known for its "When your bank says no, Champion says yes" television commercials-for a sum that left analysts scratching their heads.
Champion, which had $500 million in originations in 1996 and 14 offices in the Northeast, sold for $200 million, plus a three-year profit-sharing agreement with the founding family.
When the sale was announced, several observers expressed surprise that KeyCorp would pay such a premium for a company without a brick-and-mortar retail presence.
But Mr. Meyerson, a former Society Corp. and Wells Fargo & Co. executive, defends the price tag. He said the small-town lender has great growth potential, and he noted a growing market for Champion's debt- consolidation home equity loans.
"Champion has the potential to be as successful as the Money Store," he said, referring to the consumer finance behemoth that dominates television advertising-generated home equity sales.
KeyCorp National is mapping out an expansion plan now for Champion and "moving as fast as it can," Mr. Meyerson said.
Plans to sell Champion's loans nationally are nearing fruition, he added, though he could not specify when the rollout will take place. "I won't have a gray beard by the time we're nationwide," he said.
Champion will run the well-known ads featuring founder Joseph Goryeb on both sides of the Mississippi.
KeyCorp National Consumer Finance is not focused exclusively on home equity, of course. The $14.7 billion portfolio division has educational loan, credit card, and subprime auto finance units.
The latter was another controversial purchase for Mr. Meyerson. In September 1995, KeyCorp National Consumer Finance bought subprime auto lender Auto Finance Group for $300 million. Since the purchase, Auto Finance's originations have grown 44%, Mr. Meyerson said.
Although losses for the Auto Finance unit have been worse than analysts expected and Champion faces some stiff competition in its nationwide rollout, Mr. Meyerson says there is a place for banks in the subprime market.
"From a consumer lending standpoint, there is still a large and growing market in the nonprime/subprime sector," Mr. Meyerson said. "It's diverse, it's large, it's fragmented, and it can be very profitable," he said.
But the high-risk/high-reward area isn't for every bank, he acknowledged. Banks with asset quality targets are often deterred from subprime financing by their own internal controls, he said. "The task is to balance loss and return characteristics."
Finance companies that are owned by banks will come out on top if the economy goes sour, he added, because they will have access to capital that stand-alone finance companies won't.
Making dramatic strides toward subprime has "created some expenses and additional uncertainties" for KeyCorp, said Michael Mayo, analyst with CS First Boston, New York.
Did Mr. Meyerson pay too much for Champion and Auto Finance? "The jury is still out," Mr. Mayo said.
The current positive economic climate has only helped Auto Finance, he added. "Had the losing bidders known what we know now, the acquisition price could have been higher," he said.
