Household International Inc. last week gained an A senior debt rating from Thomson BankWatch -- a decision based partly on the growing competitive power of the company's bank unit.

BankWatch, an affiliate of American Banker, recently began coverage of finance companies.

Consumer finance companies like Household are increasingly drawing attention from the bank analysts at rating agencies because these companies compete with banks in several business areas.

Part of Competitive Landscape

At Moody's Investors Service, for example, finance companies are considered as part of the competitive environment for some banks, analysts at that agency said.

But Household, the nation's largest finance company, stands out as a rival to banks because of its ownership of Household Bank, Salinas, Calif.

Household Bank issues credit cards on behalf of General Motors Corp. The card, unveiled last year, offers a rebate on purchases that can be applied toward buying a new GM car or truck. Citicorp this year launched a similar program for Ford Motor Co.

"Besides gaining servicing fees on the credit card portfolio, Household benefits from having access to GM's prospect list," said Edward T. Thompson, analyst at BankWatch.

In addition, Household benefited from credit card borrowers transferring outstanding balances to the GM card from other cards. Thus, Household, which ranked as the ninth largest credit card bank last year, was able to build receivables at little cost. The rival AT&T card did not build credit balances as quickly.

Besides the credit card area, Household International competes with banks in personal lending, home equity lines, and mortgage banking.

Significant Differences

While banks and finance companies compete, there are still significant differences between the two types of institutions, Mr. Thompson said.

For example, chargeoffs are typically higher at finance companies because many of their customers would not qualify for bank loans. However, this is off-set by a higher yield on assets, the analyst said.

In addition, finance companies are not federally regulated and can lend on a nationwide basis.

"They have the benefit of a broad economic backdrop," Mr. Thompson said. "Regional banks are subject to their markets."

Since there are no capital requirements, "management has time to work through its problems," he said.

On the negative side, finance companies have to raise funds principally on the commercial paper and capital markets and don't have access to cheap deposits.

"Finance companies are reliant on buyers of commercial paper and other debt, who may not want to rebuy the debt," Mr. Thompson said.

Household is an exception here, too, in that, through its bank unit, it has purchased $7 billion in deposits in the last five years. Deposits make up about a third of its funding.

In addition to the A senior debt rating, BankWatch assigned a BBB-plus rating to, Household International's preferred stock. The subsidiary Household Finance Corp,'s senior debt was rated A-plus, senior subordinated debt A, and preferred stock A-minus.

The rating agencies took the following other actions last week:

Baltimore Bancorp: Standard & Poor's may upgrade CC-rated subordinated debt, saying the company raised $25 million in equity. The agency said a rating increase would not push the bank's subordinated debt beyond the B category.

The new capital came principally from a dividend-reinvestment plan. The new equity enabled Baltimore Bancorp to achieve the 6% Tier 1 capital ratio required by regulators, Standard & Poor's said. The subsidiary Baltimore Bank & Trust Co.'s uninsured certificates of deposit may be raised from CCC/C.

Credit Lyonnais: Standard & Poor's said it may downgrade the French bank. It said the bank's operating performance is more sensitive than other European banks to economic cycles because of its expansion in real estate, film, and other high-yield lending areas.

The bank's eventual privatization means the loss of state support for the bank. Long-term debt is rated AA-minus. Short-term debt of Credit Lyonnais North America and Credit Lyonnais Canada -- both guaranteed by the parent -- ate rated A1.

Dai-Ichi Kangyo Bank: Standard & Poor's may downgrade AA-minus senior and A1-plus short-term ratings. The agency said the actions reflect an increase in nonperforming loans.

"Although nonperforming loans at all Japanese banks were expected to rise during fiscal 1992, the magnitude of the increase at Dai-Ichi Kangyo was much greater than expected," Standard & Poor's said.

Keycorp: Standard & Poor's revised its outlook on the company to "positive" from "stable," citing the Albany, N.Y., company's geographical diversification and consumer orientation.

Senior debt was affirmed at A-minus, subordinated debt at BBB-plus, preferred stock at BBB, and commercial paper at A2. It said ratings may be upgraded if recent acquisitions cause Keycorp's financial performance to strengthen.

Mercantile Bancorp.: Standard & Poor's revised its outlook for this St. Louis-based company to "positive" from "stable," citing improving financial and asset-quality trends.

Senior debt was affirmed at BBB, subordinated debt at BBB-minus, and commercial paper at A2. Standard & Poor's said consistency in financial performance and successful integration of recent acquisitions could result in debt upgrades.

PNC Bank Corp.: Moody's confirmed the Pittsburgh company's credit ratings. Subordinated debt is rated A3, while its shelf registration of preferred stock is rated a preliminary A2/ A3.

Moody's, which had placed PNC's ratings under review for possible upgrade in February, said that although PNC has made progress over the last two years in augmenting its core business and in improving asset quality, problem loans remain somewhat high.

It added that the acquisition of Sears, Roebuck & Co.'s mortgage banking group will increase leverage. Future rating changes will depend on the successful integration of the mortgage banking business and on the successful realization of PNC's regional banking strategy.

Summit Bancorp.: Standard & Poor's revised its outlook for the Chatham, N.J., banking company to positive from stable and affirmed its senior debt at BBB-minus. Also affirmed was the subsidiary Summit Bank's BBB/A2 CDs. Improvements in asset quality, capital, and profitability were cited.

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