To an unusual degree, managers in the besieged subprime auto finance industry once worked at the same place, and most remain clustered around the same city-Chicago.
Some on Wall Street and in the industry itself now wonder how much this insularity may have contributed to the sector's spectacular fall from grace and ongoing trauma.
Subprime auto lenders flourished in Texas, California, and Florida, of course. But laws permitting high interest rates, legal precedents favorable to business, not to mention a lot of cars on the road, all made Illinois a particularly desirable location, investment bankers say.
At least five subprime lenders call Chicago their kind of town: Mercury Finance Co., First Merchants Acceptance Corp., First Enterprise Financial Group, Eagle Finance Corp., and KeyCorp's AutoFinance unit. In addition, Texas-based Reliance Acceptance Corp. has its roots in Chicago as a spinoff of Cole Taylor Financial Group.
Except KeyCorp and Eagle, all these companies are or were run by people who helped John N. Brincat start Mercury Finance, the bellwether of the business until it tumbled from a cliff last January.
Mitchell C. Kahn, president at First Merchants until he was fired in April, was once Mercury's general counsel.
Michael P. Harrington, chief executive of First Enterprise, was president and co-founder of First Illinois Finance Co., Mercury's predecessor. Thomas G. Parker, the first president of First Enterprise, was a district director for Mercury.
Howard B. Silverman, chief executive of Reliance, was president of Mercury in the 1980s.
And Charley A. Pond, former president of Autobond Acceptance Corp., an Austin, Tex., subprime auto lender, was once chief financial officer at Mercury.
And all these companies-the figurative children of Mercury-have run into serious financial problems since the mother ship disclosed it had vastly overstated earnings for four consecutive years.
Indeed, First Merchants fired Mr. Kahn for allegedly doctoring the books, much as apparently happened at Mercury.
To be sure, close-knittedness is understandable in a young industry. Adrian Katz, vice chairman of Autobond Acceptance Corp., Austin, Texas, noted that Mercury was alone in the field during the 1980s and the obvious source for talent as competitors arose.
"Like computers, everybody was once at IBM," he said.
But analyst Reilly Tierney of Fox-Pitt Kelton Inc. noted that the businessmen's roots together go deeper even than Mercury. Most began at General Finance Corp., now part of American General Corp.
"It's kind of eerie," said Mr. Tierney. "You have to wonder if it was something they learned that was part of the culture at General Finance."
Once on their own as entrepreneurs, these men fiercely competed with one another, sometimes repeating one another's mistakes.
First Enterprise, for example, was dragged down because so many of its loans-25%, according to its initial public offering prospectus-were concentrated in Alabama. It entered that market after Mercury decided to get out.
In the end, Mr. Tierney said, these companies got hurt for different reasons. At Mercury and First Merchants, it was "accounting irregularities." At First Enterprise, it was regional concentration of bad loans. At Reliance, it was antique record-keeping and its inability to recover enough money on its growing number of repossessed cars.
But these executives were united by their vision to go public after Wall Street fell in love with their business and the 40% return-on- equity rates that later proved illusory.
"It was like waking up at third base and thinking you were there because you hit a triple," Mr. Tierney said. u