Profits jumped a healthy 15% last year at the nation's top 50 finance companies, but analysts predict that competition from banks, coupled with an economic slowdown, could mean less growth in 19953.

"I don't think these kinds of earnings are sustainable," said Richard Schmidt, managing director with Standard & Poor's ratings group. "Banks are getting back actively into the lending business, and that's going to put pressure on margins."

Mr. Schmidt and other analysts said they also expect some deterioration in asset quality as a result of the slowing economy.

"It's nothing dramatic, nothing substantial, but we are expecting a modest uptick in delinquencies and credit losses," he said.

Helene Moehlman, an analyst with Fitch Investors Service, agreed. "We feel comfortable with the industry's underwriting standards, but asset quality is about as good as it can get," she said.

The assets of the 50 largest U.S. finance companies fell slightly last year, to $625.3 billion, according to an annual survey by the American Banker and SNL Securities.

The decline was due mainly to a 27.5% drop in assets at General Electric Capital Services, the nation's biggest finance company, following the sale of Kidder, Peabody & Co. to PaineWebber Inc.

Excluding the drop at General Electric Capital, total assets rose 13%, to $470.4 billion.

At Ford Motor Credit Co., the third-ranking finance company in size after number two General Motors Acceptance Corp., assets rose nearly 20%, to $83.2 billion. Other companies posting sizable asset gains included Associates Corp. of North America, American Express Credit Corp., CIT Group Holdings Inc., and Toyota Motor Credit Corp.

Finance company executives say they are reasonably optimistic about the outlook for the rest of this year, even though the economy is moving ahead at an uneven pace.

"Overall business has been very strong the first six months of this year, asset quality is good, and profitability looks like its's going to be strong," said Albert R. Gamper Jr., president of the CIT Group.

But Mr. Gamper warned that the outlook did vary from sector to sector. Though construction and infrastructure building still look good, he said, business has slowed in the retail sales and automotive sector since the spring.

"It's a bit of a dichotomy, but when you put the pluses and minuses together, you still get a plus," he said. "It's not going to be a boom year, but it's not going to be a bust year either."

As interest rates fall, the odds are that the economy will come to a soft, rather than a hard landing, Mr. Gamper predicted. But even if the recent slowdown continues, it will not affect finance companies anywhere nearly as badly as the last recession.

"Companies are more liquid, they're paying their bills on time, and the economic underpinnings in terms of productivity are stronger," he added.

Finance companies handle a broad range of businesses from consumer and commercial lending to asset-backed lending and credit cards. Though a number have tried to get into banking, it has mostly been banks heading the other way, buying up finance companies.

The main reason banks find finance companies attractive is that even if risks tend to be higher, finance companies price accordingly and have relatively high returns.

In addition, the broad range of businesses at finance companies, combined with their fairly tight lending standards and large geographic spreads, have enabled them to ride out economic downturns with relatively low losses.

Analysts noted that banks, which already own 19 of the 100 companies listed in the survey, have since acquired three more and are looking to expand further.

In two large deals, for example, Minneapolis-based Norwest Corp. and Germany's Deutsche Bank purchased the consumer and commercial finance units of ITT Financial Corp., while Norwest also acquired Foothill Group Inc. in Los Angeles. In a smaller, more recent deal, Bank of Boston Corp. last month acquired Century Acceptance Corp., a Kansas City, Mo.-based consumer finance company.

Analysts noted that other banks, such as NationsBank Corp., have clearly expressed their interest in expanding into consumer and commercial finance.

Still, analysts note that banks are looking to expand their finance operations rather late in the game after many of the smaller players have already been snapped up.

They added that although good consumer companies for sale are getting harder to find, there's no reason why banks can't succeed - provided they commit themselves to it on a long-term basis and run their finance units separately.

"Banks that have succeeded are the ones which recognize that there are cultural differences," said Ms. Moehlman.

That, she added, means working with the customers through hard times rather than just pulling out when profits hit a downturn.

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