Investors are showing uneasiness about home-equity lending as well as the credit card business, hurting the shares of such companies as Household International Inc. and Associates First Capital Corp.
Prospect Heights, Ill.-based Household shares dropped 10.9%, to a five-month low, since Bank One Corp. announced last Tuesday that its earnings would fall short of expectations because of problems in its First USA credit card division.
Household is in the credit card business, but a majority of its portfolio is in home-equity loans.
"Rising interest rates can dampen demand for home-equity products and slow refinancings," said Jennifer S. Scutti, an analyst at Prudential Securities Inc.
Irving, Tex.-based Associates also focuses on consumer and commercial lending, including home-equity loans. Associates shares dropped about 5.8% after Bank One's announcement.
Both companies derive a much smaller percentage of their earnings from credit card operations than Bank One. Bank One's stock dropped 23% immediately following the announcement, dragging down the shares of companies that depend heavily on credit cards for their earnings.
MBNA Corp., Wilmington, Del., dropped about 13.5%; Capital One Financial Corp., Falls Church, Va., fell 15.3; and Providian Financial Corp., San Francisco, 8.3%.
"This is clearly a question of investors shooting first and asking questions later," said Denis LaPlante, a bank analyst at Fox-Pitt, Kelton Inc. "These companies are peripheral to Bank One. We are in a really nervous market."
The market's severe reaction against companies that are only peripherally similar to Bank One suggests that investors have become highly leery of the financial sector largely because of a number of big, negative surprises this year. Some examples are Charlotte, N.C.-based First Union Corp., which disappointed Wall Street twice, and Boston's State Street Corp. as well as Providian, Capital One, and Bank One.
"Investors have been disappointed in a variety of ways," said Prudential's Ms. Scutti. "Financial stocks also don't perform well in a rising interest rate environment, which has not helped the situation either."
The biggest piece of Household's portfolio is home-equity lending, Mr. LaPlante said. "Credit cards make up only 10% of the company's earnings."
Household's credit card operations also do not focus on teaser rates -- a credit card marketing strategy used by Bank One, which eventually landed the company in trouble, he said.