Despite bankers' reassurances to the contrary, consumer credit quality is deteriorating at midwestern banks.

Of the 10 largest in the region, all but one showed an increase in net loan chargeoffs in the first quarter, and half of those were up between 100% and 300% from the 1995 first quarter.

Most of the increases were due to consumer loans. As consumers take on debt faster than their incomes rise, chargeoff trends have raised concerns among bankers, analysts, and economists. Many have pointed to consumer credit as the next big land mine for banks, succeeding the Third World debt and real estate problems of the 1980s.

The difficulties of the traditionally strong midwestern banks are indicative of a trend across the country, analysts said.

"There's a degree of weakness out there that transcends geographic boundaries," said William McGinnis of Robert W. Baird & Co.

Bank executives say they are particularly sensitive to credit issues because in today's acquisition environment, loan losses could cause vulnerability to a takeover.

"The quickest way to stub your toe is on credit," said Eugene Miller, chairman of Comerica Inc. "We're starting to see some problems developing in the industry.

"Those who have strong credit cultures are going to get through them. Others who don't have strong credit cultures won't."

In the fourth quarter, Comerica sold $333 million, or 30%, of its credit card loans to Associates National Bank of Wilmington, Del. "Those were not low-margin assets," said Mr. Miller. "They were potentially bad loans."

Likewise, Norwest Corp. recently said it plans to sell $1 billion of credit card loans, or about half its total portfolio. Three-fourths of the loans came from one ill-fated mass mailing that begun in 1993.

In both cases, the banks said they were trying to avoid future losses.

Ben Crabtree, an analyst with Dain Bosworth in Minneapolis, said both Norwest and Minneapolis-based rival First Bank System have turned cautious about mass credit mailings after they've "had their heads handed to them."

In general, Mr. Crabtree said he would prefer that Norwest and First Bank stick to the geographic markets they know - where they have banks. While finance companies are becoming more adept at pricing credit cards, analysts believe most regional banks should either get out of the business or scale back.

"Bankers have not been good at pricing for incremental risk," said Mr. Crabtree. "When we hear banks want to get into consumer finance, we get nervous because they're not very good at it."

In addition to credit card solicitations, some Midwest banks have gotten on the "loan by check" bandwagon. National City Corp. and Norwest, for instance, send preapproved loan checks to potential customers of their finance companies.

Cleveland-based National City has been mailing the unsolicited loans through its affiliate, The Loan Zone, for the past 16 months.

Steven Ginter, Loan Zone president, said his company has had to tweak the offers a bit each time they've been sent out. "The first couple of times out of the box we had a higher frequency of responses, and we were not pleased with the number of delinquencies," said Mr. Ginter.

National City then tightened credit standards for approval of its direct mailings, which offer unsecuritized loans of $1,500 to $3,500 with interest rates as high as 21%. Now Mr. Ginter said he believes the delinquencies, which average 5% to 6% of loans, are under control. That rate is half what it was at midyear 1995.

The last mailing was in November 1995, and Mr. Ginter said despite the continued chargeoffs his company will continue the practice as long as his competitors do. In addition to the additional revenue, Loan Zone benefits by getting its name out to potential customers and building a data base for future sales.

"Some competitors spend hundreds of thousands of dollars on advertising," Mr. Ginter said. "We may be suffering a little delinquency and some chargeoffs, but we're getting a bang for our buck."

A Norwest spokeswoman said there has been no increase in losses due to direct-mail checks. However, Norwest Financial, the consumer finance unit, reported a 12% decline in the first quarter from the fourth quarter 1995. The quarterly decline was attributed to a higher provision for credit losses. Norwest Financial also reported $56 million in net chargeoffs in the first quarter, a 15% increase over the fourth quarter, and 83% over the first quarter 1995.

Most analysts said they were not alarmed by first-quarter results because they had expected even higher chargeoffs and believed banks are adequately increasing their provisions for loan losses.

"While the trend was negative, it was less severe than it could have been," said Mr. McGinnis.

He said he wasn't worried by banks that show no chargeoffs. "Banking isn't about avoiding risk. It's about managing risk," he said.

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