Acquisitions by Associates First Capital Corp. were a major factor in the big jump in third-quarter earnings that the company announced this week.

Riding revenues from companies acquired in a $10 billion buying spree over the last six quarters, the Dallas lender earned $386.8 million in the quarter. Though average adjusted return on equity slipped to 18.44%, from 20.94% in the second quarter, return on managed assets, which had slipped to 156 basis points in the first quarter, has rebounded to more than 170 basis points, said chief financial officer Roy Guthrie.

Mr. Guthrie said the quarterly result provided evidence that the deals -- including four big acquisitions of specialty lenders -- are already fueling earnings growth.

He pointed in particular to the benefits of Associates' largest purchase, Avco Financial Services -- a $3.9 billion deal that closed in January, as Associates took advantage of a collapse in the home equity and specialty finance sector, which was due to loan prepayments and a lack of liquidity in the secondary market. The other deals were for Northland Co., SPS Transaction Services Inc., and DIC Finance.

"These deals are hitting their return targets and contributing in the margin to the growth of the company," Mr. Guthrie said. "The underlying economic circumstances that occurred in the fall of '98 really had nothing fundamentally to do with how well these businesses were going to perform in the future."

Associates expanded into six new countries with its deal for Avco, fortified its positions in the United Kingdom, Puerto Rico, and Canada, and doubled its domestic branch count.

"At the end of the day, something is going to have to happen to these businesses, and that represents opportunity," Mr. Guthrie said. "The sooner you get real money and legitimate, viable players behind them, the more logic you'll find and the more rational behavior you will see emerge in the market."

Associates paid 3.3-times book value and 20.3 times its earnings -- a bargain compared with other finance company purchases last year. For example, Household International Inc. bought Beneficial Financial Corp. on June 30, 1998, for five times book value.

Associates "didn't pay a huge premium for Avco, when other companies were going for four or five times book value," said Bruce W. Harting, an analyst at Lehman Brothers. "There is definitely more profit to come," he said. But "in nine months, there's only so much you can do."

Associates was well insulated from the problems that beset other specialty lenders last fall. Smaller companies depend on selling loans on the secondary market; Associates can keep loans on its balance sheet, then issue debt to fund those loans at a spread.

"Over the last three or four years, when competition got more heated, they've been able to stick to their disciplines on underwriting," Mr. Harting said. "When the securitization market fell apart, Associates was left standing tall."

Analysts said a 24% increase in Associates' debt, to $70 billion, proves that business is going as planned.

"We use debt in a prudent way. The liability accounts have grown consistently with where you've seen the assets grow," Mr. Guthrie said. "The challenge is picking and choosing your markets where you can price adequately to the risk and to the interest sensitivity."

Mr. Guthrie said last year's collapse took supply out of the market and created additional acquisition opportunities. He said that though aggressive pricing took away some business in this downturn, it was a short-term phenomenon.

He said Associates is positioned to continue its buildup.

"It's clear that when things get tough -- and it's tough out there right now -- people throw in their cards, and that's opportunity for the Associates," Mr. Guthrie said.

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