Hard-pressed to grow revenues, bankers are gaining more of an appetite for a business they have traditionally shunned: subprime auto lending.

A wave of subprime auto finance companies, which lend about $50 billion a year to consumers with less than stellar credit records, has gone public this year - with outstanding results. Investors, recognizing the profit potential of the risky, high-margin auto loan business, have bid up the price of average shares of auto finance company stock by more than 70%.

Suddenly, such banks as BankAmerica Corp., Norwest Corp., and NationsBank Corp. are said to be eager to join the fray, and analysts are beginning to put the newly public companies on their merger target lists.

"Internal growth is shrinking, so banks have become like institutional investors, trying to figure out what to do with their capital," said Joseph Jolson, a bank analyst at Montgomery Securities. One obvious strategy, he said, is to go after the "less than perfect consumer borrowers."

Keycorp has already jumped into the market this year, agreeing to buy AutoFinance Group for $325 million. Analysts likened the move to the Barnett Banks' purchase last year of Equicredit Corp., a subprime home equity lender, for $332 million.

Adam Hitt, a principal with Alex. Brown & Sons, which has underwritten a number of the recent auto finance initial public offerings, predicted banks would eventually buy the companies. But as an interim step during the next five months or so, he predicted the banks would be entering affiliations that would allow them to receive a fee to refer potential borrowers to the partner.

Some banks are already negotiating these affiliations, he said.

According to a report by Mr. Jolson, banks are interested in subprime auto lenders that lend to customers with medium- to low-grade credit histories.

Companies in this category, he said, include First Merchants, Muncie, Ind., Consumer Portfolio Services and Westcorp., both of Irvine, Calif., Regionals Acceptance Corp., Greenville, N.C. and Americredit Corp., Fort Worth, Tex.

"What has happened in banking in the last few years is the industry has matured, consolidation is driving the mind-set of most bankers, and capital levels are increasing," he said.

An investment banker familiar with BankAmerica says the San Francisco bank is extremely interested in moving into consumer finance. Norwest Corp. already has a consumer finance company that includes a subprime operation, so a separate, subprime auto finance lender would be a natural extension, analysts said. NationsBank is also believed to be interested in the subprime business.

There are hurdles, of course.

Keycorp paid 32 times 1995 earnings for AutoFinance, sparking criticism from the bank's shareholders who viewed the price as excessive.

Subprime auto finance companies also spring from an entrepreneurial culture, one that might not mesh with a bank. As Mr. Hitt put it: "Banks do not have the culture necessary to underwrite bad credits. To underwrite subprime loans, a company needs a large servicing infrastructure, which runs counter to banks' culture, and you need an aggressive collection department, which runs counter to banks' culture."

What's more, subprime auto finance is an extremely competitive field. No individual company controls more than 1% of the market, and small, mom-and- pop operators are emerging everywhere.

Consequently, Mr. Hitt warned, it is essential for banks to distinguish between fly-by-night operations and those with established track records.

Most of these companies are bound to make mistakes as they use capital from their IPOs to expand into new regions and extend more credit.

"Valuations in this industry leave little margin for error," said John Heffern, an analyst with Natwest Markets. Banks must be "alert to the litigious nature of consumer lending that exposes the subprime lender to financial settlements or changes in business strategy."

The last point may be the most important of all, as a host of large jury awards against auto finance companies convicted of deceiving their customers could scare banks away.

Nonetheless, the allure of the subprime market is hard to ignore. A typical regional bank's stock trades at 10 times earnings, while a subprime lender's stock is likely to trade at more than twice that multiple. And, whereas a bank is doing fairly well if it returns 1% on assets, subprime lenders routinely return 9%.

Advocates of buying the auto finance units argue that banks could earn even more on the business because their cost of funds is lower than a subprime lender.

As the market grows from almost nowhere - the number of public companies has grown from only a handful to more than twenty in the last two years, Mr. Jolson said - Wall Street is taking notice.

Montgomery Securities, Alex. Brown & Sons, Donaldson Lufkin & Jenrette, and William Blair are among the investment firms that have added coverage of these companies.

The question now is whether banks will look closely before they leap.

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