The earnings of specialty finance companies would be slashed if bank- style accounting methods were used, according to three securities analysts.

Steven Eisman and Vincent Daniel of CIBC Oppenheimer and Fox-Pitt Kelton's Reilly Tierney released details this week of their research on eliminating the gain-on-sale accounting used by most specialty companies.

These lenders, which predominantly make subprime mortgage loans, typically securitize most of their portfolios. Generally accepted accounting principles allow them to book expected profits from these securitizations up-front.

Analysts have been scrambling to revalue the companies since several took massive writedowns because their loan portfolios did not perform according to assumptions.

But the new picture isn't pretty. Valuing Baton Rouge, La.-based United Cos. like a bank or traditional finance company would reduce Oppenheimer's 1998 earnings per share estimate to 22 cents, from $1.23, and Fox-Pitt Kelton's estimate to $1.18, from $1.50.

Most lenders would have done even worse, showing losses in 1997, according to the Oppenheimer research, and would show only slight improvement in 1998.

Executives at companies in the sector dismissed the research, saying it makes too many assumptions to be accurate.

The Oppenheimer research chided several companies for paying little attention to cost containment, among them Aames Financial Corp. and Money Store Inc. but gave points to Aames for restructuring and Money Store for selling out.

Aames has not only taken an aggressive approach to cutting costs, the report said, but also moved up several notches on the credit scale.

Several companies, including Green Tree Financial Corp., would see their cost of funds rise, the Oppenheimer report noted. The report said that the best way for the St. Paul-based manufactured-housing lender to ensure shareholder value may be a partnership with a company that has access to low-cost capital.

United Cos. would have lost 2 cents a share in 1997, according to the Oppenheimer research, largely because delinquencies in the companies' loan pools have reached levels of 20% in some cases.

Insufficient operating expense control, high loan origination costs, and rising delinquencies and credit losses would hurt earnings per share and profitability at all companies in the sector that Fox-Pitt Kelton covers, Mr. Tierney's report said.

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