Mercury Finance Co. remains alive, but very frail. The ailing subprime auto lender this week belatedly disclosed a first-quarter loss of $33.2 million, or 19 cents per share.

Much of the deficit was attributable to the $29.5 million loss the company booked from selling its life insurance unit, Mercury said in documents filed with the Securities and Exchange Commission Monday.

Since the sale, which closed in June, Mercury has created another insurance unit and said it regards itself as still in the insurance business, in addition to buying loans from dealers who lend to customers with damaged credit.

Mercury also set aside as loan loss reserves $30.5 million of its reported $46 million of first-quarter net interest income.

Last January, Lake Forest, Ill.-based Mercury tumbled into financial turmoil after reporting that "accounting irregularities" by the company's controller caused earnings to be overstated for four consecutive years. The SEC, FBI, and U.S. Attorney's office are investigating the matter.

The company has retained Salomon Brothers to explore financing options and a possible sale. A $50 million loan from BankAmerica Corp. to continue operations was recently extended until Jan. 31, 1998, and Mercury said it has been paying off the accrued interest on its debts.

Striking an upbeat note, Mercury chief executive William A. Brandt said in a statement that the release of first quarter results is "yet another indicator of returning Mercury to a regular schedule."

But the company has much more to divulge. It has yet to release second- quarter earnings, and its auditor, Arthur Andersen, is still preparing its 1996 annual report.

Although the company is still operating-it reported originating $160 million in loans in the first quarter-it still faces serious problems.

"It appears to me their originations dropped by half in January and February," said Reilly Tierney, analyst at Fox-Pitt Kelton.

Meanwhile, Mercury has defaulted on nearly $1 billion in debt and its shareholder equity has plunged to $123 million, leaving it with a 10-to-1 ratio.

Eventually, Mr. Tierney said, the company will have to reduce this enormous leverage. "But I don't know where they're going to raise $1 billion now," he said.

John Brincat, Mercury's chief executive when the accounting scandal blew up, still serves on the board of directors, Mr. Tierney said. "I don't think the company has done enough to separate themselves from the previous regime," he said.

Fifty-nine lawsuits have been filed against the company in Illinois, Delaware, and Ohio. BankBoston Corp., which had agreed to sell its subprime auto unit to Mercury until the financial crisis hit, has notified Mercury it will seek "appropriate compensation" for the broken deal.

The subprime lender said it began in the first quarter a plan to close 38 of its 289 branches. Most employees from the closing branches were transferred to others, the company said.

Analysts said the first-quarter earnings report shows there is still life at Mercury, but not much.

"Assuming the numbers are true, there seems a business going on there, it's just in decline," one analyst said. "It's a little like an oil company that can't find any oil."

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