elevated after a rival's lucrative sale. But the chairman and chief executive of Finova Group says he wants to build, not sell. Finova, a $6 billion-asset finance company based in Phoenix, saw its stock price rise 5%, to $37, in the two weeks following the sale of its biggest rival, Foothill Group Inc., to Norwest Corp. for $441 million. Analysts portray the Foothill buyout as a defensive move by a bank that recognizes the competitive threat posed by commercial finance specialists. Indeed, nonbanks now command a 30% share of the commercial loan market, up from 20% 10 years ago. Moreover, analysts say the Norwest-Foothill deal set the stage for additional bank acquisitions of finance companies. And Finova, as one of the largest publicly traded commercial finance specialists, is high on the list of targets. Mr. Eichenfield, however, isn't counting on a buyout for Finova - at least not just yet. He says his immediate goal is to beef up the company, which offers its customers a menu of 15 different types of financial services, from asset- backed loans, to factoring, to real estate finance. "We have built a product line that is second to none. What we would now like to do is deepen our market penetration, to where the products all have critical mass," Mr. Eichenfield said. The executive, 58, joined Finova predecessor GFC Financial Corp. in 1987. A 30-year veteran at Heller International Corp., Chicago, he has impressed observers with his savvy, as both a lender and acquirer. "He is in a building mode, and he's excellent at that," said Michael A. Corasaniti, an analyst at Alex. Brown & Sons. After resolving some asset quality problems inherited in the 1992 spinoff of the Finova business by the Dial Corp., Mr. Eichenfield has been on a roll, Mr. Corasaniti said. In just a few years, Finova doubled its assets to more than $6 billion. Along the way, Mr. Eichenfield acquired an asset-based lending unit from U.S. Bancorp, a factoring unit from Fleet Financial Group, a leasing and finance company from Bell Atlantic, and a unit that lends to consumer finance companies from Transamerica Corp. Perhaps more impressive than its recent growth spurt is a record of stability that would be the envy of bankers. Since 1989, Finova's writeoffs as a percentage of managed assets have stayed well below 1%. Its net interest margin has hovered in a tight range just above 5% since 1983, when Finova became one of the pioneers in the use of swaps to control interest risk. (The margin rose to 5.7% in the first quarter from 5.3% in the fourth quarter.) Analysts expect earnings to grow from $2.95 a share in 1994 to $3.55 in 1995 and $4 in 1996. The company's market capitalization has risen to more than $1 billion. Finova officials attribute some of their success to the use of derivatives to control interest rate risk. Finova entered its first swap with Citicorp when swaps were a relatively new product. "It was a very difficult concept to sell internally, but after a lot of work we got people to buy (into) it," said Robert J. Fitzsimmons, senior vice president and treasurer. "It's been a very powerful tool," Mr. Fitzsimmons said. He said Finova's lower debt ratings limited the durations of liabilities it could issue. Through the use of swaps, however, the company was able to achieve its duration matching objectives "through the back door." Mr. Fitzsimmons said an "unbelievable array" of swap variations have been introduced. But Finova has never strayed far from its original formula, designed to match the duration of the company's assets and liabilities and virtually eliminate interest rate risk. Finova enters swaps with the same group of banks that provide backup lines for Finova's commercial paper. By using swaps "we've saved $42 million of interest expense from 1991 through 1994," Mr. Fitzsimmons said. The company's credit quality reflects some of the advantages commercial finance specialists enjoy over commercial banks, Mr. Eichenfield said. For one thing, a finance company does not make risky unsecured loans. For another, the finance companies' reliance on the capital markets rather than depositors lessens the likelihood of lending mistakes. "We don't borrow money till after we've lent it," Mr. Eichenfield explained. "Banks are in the position to borrow before they lend it, and that puts them under some psychological pressure to make loans." Analysts said Finova's growth - and the growth of finance companies in general - reflects poor service by commercial banks. Mr. Corasaniti at Alex. Brown noted a corporate trend toward "just-in- time inventory," which requires them to secure just-in-time financing. "If you need a bank line of credit expanded, it takes two weeks to a month. With Finova and Foothill, it'll take a day," Mr. Corasaniti said. The Finova executives also say their company benefits by targeting an underserved segment of the corporate borrowing market - companies with annual revenues of $500,000 to $35 million. But this success does not mean Mr. Eichenfield can relax. Although Finova may not have a for-sale sign out, pressure to sell is bound to rise, said Mr. Corasaniti. He said the Foothill deal shows the fragility of Finova's independence. Indeed, BankAmerica Corp. and NationsBank Corp. are mentioned as potential suitors, as is First Interstate Bancorp. "I knew at some point that banks would wake up to the fact that they are getting killed in their own backyard" by the commercial finance specialists, Mr. Corasaniti said. "At this juncture, banks would prefer to buy talent rather than grow their own. At Finova, the talent is unparalleled."

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