Nowhere is the changing of the guard in subprime lending more apparent than at the granddaddy of them all-Money Store Inc.
The company laid the foundations for lending to homeowners with credit problems 30 years ago. Its television advertising, started five years later, made it a household name. Its initial public offering in 1991 opened the gates for scores of subprime lenders.
But a new era for nonbank lenders began eight years ago, when Money Store's founder, Alan Turtletaub, handed over the reins to his son, Marc.
Since then, the Money Store's key executives have slowly migrated from the old headquarters in the industrial town of Union, N.J., to a sprawling campus in sunny Sacramento, California's capital.
And the company has accelerated its transformation from a conservative home equity lender to a new-age finance company-a breed that operates more like a bank, offering loans for autos and home improvements as well as running beefed-up small-business and student loan divisions.
The key to succeeding as a new-era finance company, as Marc Turtletaub explains it, is branching out. "It's critical as the company matures to diversify," Mr. Turtletaub said. "We don't want to become a one-trick pony."
Given the company's recent activities, there's no chance of that. In the past two years, Money Store has opened a subprime auto finance division; committed to lending to customers with severely damaged credit; stepped up small-business lending; started a home improvement lending division; hired hundreds of new employees; opened 62 new branches; and formed alliances with hotel franchise giant HFS Inc. and mortgage market mainstay Freddie Mac.
The company's 1996 loan originations totaled $5.7 billion-more than double 1994's volume. Its share price, meanwhile, has soared fivefold, to $28.875 as of midday Friday.
Marc Turtletaub's peers credit the company's successes in the '90s to his entrepreneurial attitude and willingness to look "outside of the box."
"Marc brought to the table a new level of sophistication," when he took the reins, said Jeffrey Moore, head of Mego Mortgage Corp. and a subprime industry veteran. "Alan (Turtletaub) was one of the original B and C guys and a good old boy. Marc has really tried to diversify the company to reflect the new era of financial services companies."
The auto finance lending division is almost two years old now, and pulled in $146 million in originations last quarter. "We've got the opportunity to become the country's No. 1 B lender" in auto finance, Mr. Turtletaub said.
On the home loan side, expanding into the C credit sector should be almost effortless for the company, said Gary Gordon, an analyst with PaineWebber Inc. Money Store already turns down 95% of the 200,000 customers who call each week. Making loans to those with worse credit is only a matter of saying yes more often, it believes.
To help finance this transformation, Money Store made two different stock offerings last year, raising more than $220 million.
Competitors also laud Money Store, and Marc Turtletaub, for making the business of lending to the unbanked look good to Wall Street.
"No one would deny that Marc has done a great job," said Hugh Miller, president of Delta Funding Corp., Woodbury, N.Y., himself a second- generation subprime lender. "The Money Store is the premier lender in the industry-and when they come out with good earnings, everyone else benefits," he said.
For example, Mr. Miller said, Money Store's strong fourth-quarter and full year 1996 earnings results helped pull all subprime lenders out of a stock price slump caused by the blowup of two subprime auto finance companies.
There is no doubt that the Money Store is facing some stiff competition, especially on the home lending front. Companies that cater to homeowners with blemished credit are going public at breakneck speed, and growing by leaps and bounds.
Young upstarts like First Finance in Bloomfield Hills, Mich., have made it their corporate mission to whip Money Store in some markets. Companies like RAC Financial are also encroaching on Money Store's territory, offering debt consolidation loans and using television ads featuring a sports star-Dan Marino.
But analysts that follow Money Store say the company is just too big to be toppled.
And despite the expansion into new territories, Marc Turtletaub insists the company is still maintaining an old-school attitude. Whereas "some of the newly minted companies are doing aggressive things," he said, Money Store is building earnings slowly. "It sounds pretty stodgy, huh?," he said. "But it works."
Mr. Turtletaub is expecting a few bumps along the way for his new businesses. "We're going to make some mistakes, and if not, we're not being aggressive enough," he said.
The Money Store's size will offset any problems it may have learning new business lines, observers say.
"It's a good time for them to experiment because their core business (of home equity lending) is so strong," said Mr. Gordon. "Their loan loss reserves are enormous."
In one of its experiments, the Money Store is taking a cue from credit card titans while updating its marketing strategies.
The television ads featuring former sports stars, once the backbone of the company's advertising efforts, are being augmented with a direct marketing campaign targeted at consumers with high debt, a strategy other home equity lenders have already embraced.
"We were late to the dance," Mr. Turtletaub says of the company's direct marketing efforts. But, to catch up, he has been hiring credit card company veterans who know how to mine a data base. "We're constantly reinventing ourselves," Mr. Turtletaub said.
