As expected, Money Store Inc. on Wednesday reported a 99% decline in fourth-quarter net income, to $111,000.
The drop, from $29.8 million in the year-earlier period, was attributed to the closing of its unprofitable auto finance division.
Money Store management refused to comment during a morning conference call with Wall Street analysts on persistent rumors that chief executive Marc Turtletaub has put the company up for sale.
However, several analysts who earlier dismissed the notion of a sale as the work of market players attempting to drive up the stock price said this week that there is truth to the reports.
"There is a book circulating, and someone is doing due diligence," said one banker.
Four investment banking firms reportedly bid on the merger assignment, with longtime Money Store banker Prudential Securities winning the bid.
Meanwhile, the company has instituted a hiring freeze, one source said.
But if the company is on the block, there is much uncertainty about potential buyers.
Many observers noted that large banks, with their presumably deep pockets, are the perfect candidates for buyers. First Union Corp., KeyCorp, and BankAmerica Corp. have been mentioned, albeit speculatively.
Household International, the finance company, was rumored last week to be courting the company, but market watchers familiar with Household dismissed the idea.
Analysts said that Mr. Turtletaub and his father, Money Store founder Alan Turtletaub, are likely to demand a high price. They hold a 35% stake in the company.
Valuing Money Store is difficult, analysts say, because the company uses gain-on-sale accounting.
The controversial accounting maneuver allows companies to estimate future income from loans and attribute it to earnings. As of Sept. 30, the company claimed $2.9 billion of assets, but $826 million of that was in the form of interest-only receivables, which are valued according to gain-on- sale assumptions.
Money Store has significant balance-sheet exposure to interest-only receivables, said Moody's Investors Service analyst Steven Nelson.
This exposure is one reason the rating agency last month put Money Store's preferred stock and its long-term debt on review for possible downgrade, he said.
Nonetheless, Money Store continues to originate loans at a rapid clip. The company's serviced loan portfolio increased 34% for the year, to $15.7 billion. Loan originations for the fourth quarter were $2.3 billion, a 50% increase from a year earlier. Originations last year were $7.2 billion, a 38% increase over 1996.
And while loans 30 days or more past due decreased in both home equity and commercial portfolios, loan chargeoffs increased 61 basis points from the fourth quarter of 1996.
