Assets held by the top 25 finance companies surged 17.6% last year, reflecting mergers, growth in lending, and the companies' inability to sell assets in the secondary market because of a capital crunch later in the year.

Meanwhile, industrywide cost-cutting and consolidation hit the front lines, with the total work force at the companies cut by one- third.

According to an American Banker ranking, total capital funds held by the top 25 finance companies increased 16.2%, and net income 7.22%, while their work force shrank 34%, to 220,821.

A capital crunch in the fall drove some of the smaller finance companies into bankruptcy and prompted some banks to rethink lending to the less-creditworthy companies and individuals who make up most finance company clientele.

The pullback left more business for well-capitalized finance companies, particularly those with wealthy parent companies. General Electric's consumer finance unit, for example, had an 18.75% rise in assets during the year, while at Commercial Credit, a division of Citigroup, assets jumped more than 22%.

Performance among independent finance companies varied widely, with commercial lenders generally exhibiting strong numbers, and consumer lenders weak.

Commercial lenders experienced "an ongoing improvement in asset quality, combined with solid efficiency levels," said Ann Maysek, a Bear Stearns analyst.

Profits at consumer lenders, meanwhile, were flat to down, she said.

For example, Amresco Inc., a Dallas subprime home equity lender, lost $69 million in 1998 after posting a profit the year before. And profits at Homeside International Inc., the Jacksonville, Fla., lender partially owned by National Australia Bank, fell 28% to $56 million.

Consolidation claimed three big players: Green Tree Financial Corp. was bought by Conseco Inc., the insurer based in Carmel, Ind. The purchase put Conseco on the map as the 13th largest finance company. Chrysler Financial Corp. was swallowed in its parent company's merger with Daimler-Benz AG. And Beneficial Corp., one of the oldest consumer finance companies, was bought by rival Household International Inc.

Making a hefty acquisition did not necessarily guarantee strong numbers, though.

Merger-related costs associated with Household's purchase of Beneficial dragged net income down 44% during 1998, to $524 million. But Household did score a 23% increase in operating income for the year, noted Deutsche Bank securities analyst Mark Girolamo, and the company has "started to see improvement and efficiency," he said.

General Electric Capital Services, Ford Motor Credit Co., and General Motors Acceptance Corp. maintained their top-three rankings in 1998.

The top 25 finance companies hold slightly less than $1 trillion of assets, or about one-fifth of the assets of the top 100 banks. Net income increased 7.22% at the top 25 finance companies, and 27% at the top 50 banks.

Nonetheless, "over the long haul, finance companies have been a lot more profitable than banks," said Mr. Girolamo.

Several other finance companies struck deals early this year, foreshadowing another year of merger activity.

The CIT Group said earlier this month it would buy Newcourt Credit. The combined company will be the fourth-largest finance company. Associates First Capital Corp.'s Jan. 6 purchase of Avco Financial Services Inc. gives Associates another $9.3 billion of assets.

"These entities are getting so big, the opportunity for large- scale companies to consolidate is not as apparent as it was a year ago," Mr. Girolamo said, "but there is more to come."

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