Wrapping up a year they would like to forget, Conseco Inc. executives said Tuesday that the Carmel, Ind., company is well positioned to get its financial feet back on the ground.
Conseco will concentrate in two core businesses, they said: insurance and finance.
In a presentation to investors, Gary C. Wendt, chairman and chief executive officer, said that the company is in "pretty good shape," and that there will not be much difference between the old and new Conseco "except that our main focus will be on our insurance and finance companies.
"Our job is going to be to build value for shareholders by concentrating on these two well-positioned businesses."
Mr. Wendt joined Conseco in June to help bring it back after a dismal two years, which began almost immediately after it bought Green Tree Financial of St. Paul, Minn., in April 1998.
Since April 1998, Conseco's stock price has dropped as much as 90%, and two key executives - Stephen C. Hilbert, Conseco's founder, chairman, and chief executive, and Rollin M. Dick, its chief financial officer - resigned this spring after finding themselves unable to pull the company out of its tailspin.
In the last four quarters the company has lost over $800 million, including almost $500 million in the third quarter of this year.
Mr. Wendt attributed the problems to Green Tree, now Conseco Finance Corp., and in particular its use of gain-on-sale accounting methods. He also noted that in 1997 the pre-merger Conseco reported a pretax income of $1 billion.
Green Tree was a very fast-growing business, Mr. Wendt explained, and yet it was a relatively small finance company. He said that it had to grow fast because it was using gain-on-sale accounting, booking expected payments on loans up front.
"That was what created the problem in Conseco," he said. In securitizing its loans the company retained some default and prepayment risk, but "the assumptions made by management turned out not to be accurate," Mr. Wendt said. "As time went on, delinquencies became different and prepayments became different, and writedowns had to take place."
At the same time, he said, Conseco was continuing borrow to maintain the momentum from gain-on-sale accounting. Between the middle of 1998, when Green Tree was purchased, and the middle of this June, when Mr. Wendt joined the company, Conseco more than doubled its debt, to $8 billion.
Mr. Wendt noted that Conseco paid 120 million shares of its own stock - worth about $6 billion at the time - for Green Tree. It was an "outrageous" price, he said, though today those shares are worth just over $1 billion.
"So if you're a shareholder of Conseco today, you own quite a nice finance company for just about $1 billion," he said.
Thomas M. Hagerty, who in June succeeded Mr. Dick as chief financial officer, said the company is well poised to retire $2 billion in debt that matures over the next year, and that though part of the company's strategy includes selling assets, it will not be forced to shed core businesses.
"We have made tremendous reductions," said Mr. Hagerty. "Even though we've made great progress, we've got lots of options. We can meet all of our obligations and maintain substantial liquidity."
The company said it had identified noncore assets to sell to fund a $2 billion reduction of bank and public debt before yearend 2001. Sales completed or agreed to already tally than $1.5 billion of that sum.
They latest deals were two announced in last week:
- On Tuesday the company said Argosy Gaming Co. would buy its 29% interest in the Argosy riverboat gaming facility at Lawrenceburg, Ind., for $260 million. Conseco's initial equity investment was about $20 million.
- Last week Wells Fargo Financial Leasing Inc., a subsidiary of Wells Fargo Financial Inc., agreed to buy a substantial portion of the assets of Conseco Finance Vendor Services Corp.
Mr. Hagerty said that the company retired $120 million in public debt last Friday and will meet a June deadline to retire another $680 million, and that it will meet a deadline later next year to pay a $1.2 billion to a banking group.After next year, Mr. Hagerty said, Conseco will continue with its plan of shedding businesses it does not want and retiring debt.?
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