Sharp divisions are developing on Wall Street over the recent upticks in consumer loan delinquencies.

Short-sellers are betting on further damage to consumer finance companies, while some stock analysts are touting buying opportunities in the stocks.

A case in point is Olympic Financial Ltd., a Minneapolis-based auto lender that won a "buy" affirmation from Donaldson Lufkin & Jenrette last week - after the short interest in its shares had soared 65% in a month.

The skepticism about consumer lenders helped push up short interest in bank-related shares traded on the National Association of Securities Dealers' system by 9.5% in the month ended Dec. 15. The rise in bank short interest came amid a general decline in short interest in stocks traded on the over-the-counter system. (See tables on pages 22 and 24.)

Short interest is the outstanding volume of shares sold short - that is, borrowed and promptly sold. Short-sellers are betting that the stock price will fall, so their short positions can be covered profitably with cheaper shares.

Earlier, the New York Stock Exchange and American Stock Exchange reported a slight decline in bank-related short interest. The basket of bank stocks traded on the Nasdaq includes numerous small, retail-oriented banks and thrifts that could be seen as vulnerable to rising delinquencies.

Short interest in Olympic Financial - which provides auto finance mostly to "prime," or creditworthy, consumers - rose by nearly 1.8 million shares, to more than 4.6 million shares. It was the largest short position in the bank-related group.

RCSB Financial, a Rochester, N.Y., thrift holding company, had the largest short position relative to its daily trading volume. Its short position of 2.3 million shares represents 21.1 days of average trading.

RCSB had the fourth-largest short position in total among the Nasdaq bank-related issues, behind Olympic and Boatmen's Bancshares, the St. Louis based regional bank, with 2.7 million shares sold short.

The second-biggest increase was in the Money Store, the well-known home equity lender. The Money Store's short position increased by 848,852 shares to 1.5 million shares - the 10th-largest total.

Olympic Financial's shares were trading at $16 last week, off from more than $30 in September. Short-sellers apparently believe Olympic could fall even further because of what analyst Andrew Jeffrey of Rodman & Renshaw calls its "loss deferral strategy."

"I think the assumptions they have used are unrealistic, given the type of paper they are buying," said Mr. Jeffrey, who specializes in companies that make auto loans to less creditworthy consumers.

Olympic's chairman and chief executive Jeffrey Mack insists the company's loss assumptions are based on historical performance: Loan losses are currently running at an annualized rate of 65 to 75 basis points, or 130 basis points to 140 basis points over the average two-year life of a loan, he said.

He said the company is setting aside nearly 172 basis points to cover any variance that economic swings cause for the portfolio.

"On top of that, we have set up what we call general reserves, which are other allocated reserves in the millions of dollars, to add further protection," he said.

But that is not enough, Mr. Jeffrey said. He said General Motors Acceptance Corp., also a prime lender, has experienced cumulative losses of 200 basis points during previous economic downturns.

Another disconcerting factor for Mr. Jeffrey is the manner in which Olympic disposes of its repossessed automobiles. Instead of auctioning the autos as its competitors do, Olympic puts the cars on a used-car lot and sells them on consignment, he said.

By doing so, he said the company is increasing its future losses because it is making greater concessions in order to get the asset sold.

But some observers said the pessimists are misguided.

Thomas Brown, a banking analyst at Donaldson, Lufkin & Jenrette, said that short-sellers tend to be paranoid and that they are "wrong in assuming this is a giant conspiracy."

The rating agencies, third-party guarantors, and Olympic's accountants have all signed off on the company's assumptions regarding such things as prepayment speeds and loan-loss reserves, Mr. Brown said.

"In my experience it's typical of the way short-sellers have tried to jump on financial stocks," he said. "It makes a good story until you examine it."

Mr. Brown said even if losses exceed the level of reserves the company has set aside, it is unlikely that shareholders will see a significant reduction in current earnings to cover any losses.

If he's right, a lot of short-sellers will be licking their wounds next year.

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