PEAPACK, N.J. -- Finn Caspersen can hardly hide his contempt for bankers.

So it's a pity that as chairman and chief executive of Beneficial Corp. he must rely on them so heavily. Banks supply his $13 billion-asset consumer finance company with short-term lines of credit, and in the late 1970s, when interest rates began to ratchet up, Mr. Caspersen felt an uncomfortable squeeze in his profit margins.

To deal with it, Mr. Casperson, like many others, tried unsuccessfully to diversify. The result was the purchase of a Texas thrift - since sold off- and 177 acres of commercial and residential real estate in Tampa.

White Elephant

The property, which included a four-star hotel, is still on Beneficial's books and has been losing between $17 million and $20.5 million annually for the past three years.

But Mr. Caspersen has seen steady gains in receivables at the same time which have boosted net income so substantially that absorbing the real estate spilloff has not been a problem. The experience, though, has made him wary of far-flung business investments and bankers.

To protect itself, Beneficial now gets most of its money from the debt and commercial paper markets and lends it out at 400 to 475 basis points over prime. The company still has about $3.5 billion in bank borrowings and lines of credit.

But the only risk for Mr. Caspersen lies in a repeat performance of the early 1980s, with an interest rate jump to 12% or 15% or 18%.

Wall Street Perception

Mr. Caspersen swears up and down that Beneficial is not an interest-rate-sensitive company. And he is displeased with Wall Street analysts who continue to view Beneficial stock in that light.

But his company is involved with banks in all kinds of other ways aside from funding (it even owns a $300 million-asset commercial bank used primarily for cash management and its income tax refund program). And since every lending institution can be broadsided by rate changes, investors often view him as guilty by association.

Second-Mortgage Portfolio

Earlier this year, for example, Beneficial began running fullpage advertisements in banking trade magazines seeking institutions that would be willing to send it customers who had been rejected for loans. The bank referral program, as it is known inhouse, turns the local branch offices of participating banks into de facto Beneficial distributorships.

The plus for banks comes from keeping the customer as a depositor and from the amount pulled in as an origination fee for filling out the paperwork. Beneficial takes the actual loan on its books and gets the high interest it throws off.

The company won't say how much it has earned so far from the venture, but it already boasts a $15 million portfolio of such loans, all second mortgages ranging from $30,000 to $40,000.

"People have contacted us, from every size player in the financial services industry," says Beneficial spokesman Robert Wade. "A lot of people are highly interested in getting involved in this program."

Deals More Expensive

Cash and customers are two major ways Beneficial relies on banks. But there is also the more subtle impact of what's happening in the acquisition market.

Beneficial likes to buy small finance companies, insurance, mortgage, and credit card receivables, to name a few. But the rapid consolidation in the banking industry makes this more expensive all the time.

"Right now the acquisition market is somewhat lacking, mostly because the banks have not been able to generate internal growth, and so they've opted to go out and be very aggressive bidders in the receivable acquisition business," says Mr. Caspersen. "They've driven up the price."

Then there is the fact that Beneficial must compete with banks in most of its major lines of business, from private-label credit cards (which contributed $18.2 million to Beneficial's pretax profits last year), insurance products (a $44.3 million contributor to pretax profits in 1993), to its income tax rebate program (which earned $56.5 million pretax), and especially, in the making of home equity loans.

Appearances Count

Second mortgages are a $6.7 billion business for Beneficial, equaling more than half of the company's receivables and twothirds of its latest year's profits from its branch offices.

It's bad enough that Beneficial must deal with growing interest in the home equity market, but if a competitor in the secondmortgage business does something that makes the entire industry look bad, watch out. Finn Caspersen will not spare the rod.

When Fleet Financial Group got into trouble in 1991 over the purchase of home equity loans from small brokers who might have been violating state usury laws, Mr. Caspersen viewed the whole affair as ugly behavior that was bad for business.

"With all due respect, Fleet blew it, he says, leaning forward over his mahogany desk during a recent interview in his antique-filled suburban New Jersey office. "They allowed lending practices which were unethical. They took advantage of individuals that they shouldn't have. They lent money on terms that people could not hope to repay.

"The practices were such that they could not be approved by anybody. There was some real question about management's philosophy. We never have, and we'd never make such loans."

Mr. Caspersen is a conservative man. Raised in Glen Ridge, N.J.. not terribly far from the grassy, rolling campus where Beneficial's red brick headquarters now stands, he is disdainful of bankers more interested in Euromarket deals than in lending to the $35,000-a-year working man with kids, who is his company's typical customer.

A Harvard law school graduate with a penchant for suspenders and french collars, Mr. Caspersen enjoys pointing out that banks are being bypassed in many investment transactions.

According to a Beneficial study, fully 70% of deposit flows originating from consumers go into money markets, mutual funds, or insurance companies that in turn buy commercial paper or debt from finance companies, he says.

In the meantime, Beneficial is benefiting from bank consolidation and the branch closures that often result. The company plans to increase its network of 1,066 offices by 20 this year, spending about $50,000 to set up each one.

This is a far cry from the seven figures that banks typically spend to build a branch. One advantage for Beneficial: It doesn't own its offices, it always leases space.

Mr. Caspersen is convinced that the quality of Beneficial's branch personnel is what gives his company an edge over competitors. "We're dedicated to the loan office network," he says. "We believe that having the office on the corner gives us a tremendous leg-up on the competition if they only have one office per county or one office per state."

The numbers certainly suphis view. Based on income from continuing operations, Beneficial's return on total equity at Dec. 31 was a fat 14.76% while return on assets was an equally respectable 1.54%.

And there's more of that to come, he says. A $80 million investment in new software and hardware, dubbed the BenComm system, should squeeze even greater efficiencies out of the branch network.

Mr. Caspersen says the company will see a 25% to 35% increase in accounts per employee by the time the system is fully up and running next year. After three years, 'the technology should yield even greater returns.

Impressive though these figures may seem, they have not generated somersaults on Wall Street. The company has a few fans, most notably Richard Goleniewski of Goldman, Sachs & Co.

He says that Beneficial and industry rival Household Finance "are asset-growing machines in one of the last frontiers of highmargin lending. It's a great business," he raves.

But most of the other analysts who follow Beneficial are much less enthusiastic. Dean Eberling of Prudential Securities Research points out that the company's BenComm system hasn't come a moment too soon, since Beneficial is already behind Household in efficiency. "They need to spend the next five years focusing on costs," he says.

Gary Gordon of PaineWebber Inc. agrees. "I've got a 'neutral' on the stock now. It should be more difficult for Beneficial to show continued loan growth because it's likely commercial banks are going to beef up home equity lending to B [subpar] credits to boost their own loan volume. That means slower loan growth and some squeeze in Beneficial's margin," he says.

Mr. Caspersen is not unduly affected by this pessimism. "I don't think Wall Street thoroughly understands the type of earnings growth that we're capable of sustaining over the longer period - relatively riskless growth," he says.

"Ours is an actuarial growth. There are no surprises there. It doesn't depend on somebody trading commodities or making a big deal. And there's no derivative risk."

The chances that Mr. Caspersen will make some dramatic move to boost the company's stock price are relatively slim, given Beneficial's history with such adventures.

An exotic strategy does beckon, however, in the possibility of expansion into Mexico. Mr. Caspersen was an active supporter of the North American Free Trade Agreement, organizing luncheon briefings on Nafta for other industry executives.

Now that it's reality, he is ready to consider a joint venture with a Mexican retail store, bank or insurance company in Mexico's industrial capital, Monterrey.

"There is a middle class in Mexico already, but it's very small," he says. "The infrastructure for credit is not well developed. It's just a question of how to do it and what your timing should be. They're beginning to use credit cards and I think there's some real opportunities."

His conservative side suddenly gets the better of him. "It's probably very risky," he says finally, "Of course, it's exciting looking into a new market but the bread and butter is always the United States. That's where the major market is, and that's where the major growth is going to be."

Mexico, for all its charms, will just have to wait. Mr. Caspersen still has to unload the results of the company's last misguided detour, into Florida real estate.

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