The problems created by deteriorating consumer credit quality are far from over, said Richard M. Kovacevich, chairman and chief executive officer of Norwest Corp.

"The credit card industry has quite a ways to go in terms of problems. I think the (losses at) consumer finance companies will probably peak six to nine months from now, and at banks, it really hasn't even started," Mr. Kovacevich said in a meeting last week with American Banker reporters and editors in New York. "Banks' personal portfolios are still doing pretty well, so they presumably have to go through a problem peak."

Mr. Kovacevich said the Minneapolis banking company's consumer finance business, Norwest Financial Inc., has been cutting back on its lending.

"Our lenders are also our collectors," he said. "When there's a challenging economic environment, our lenders spend most of their time collecting, and by definition they can't spend much of their time lending."

Nearly one-fourth of Norwest's 1996 earnings of $1.2 billion came from its consumer finance business; the remainder came from banking (37%), specialized lending (14%), investments and insurance (12%), and mortgage operations (12%).

Consumer finance accounted for more than 25% of first-quarter income, contributing $62 million to the bottom line, a 3% increase from the previous year. With that sort of exposure, Mr. Kovacevich said, the $80.2 billion-asset Norwest is not immune to credit problems. Norwest is nearing a peak for losses, he said, but the industry will continue to experience difficulties for a couple of years.

"I think we're going to continue to move in a negative way over a long period of time until something breaks," he said, "and I'm not sure what's going to cause that break. It may be an economic slowdown, or a recession, where blood flows everywhere."

In that case, "you have two choices," he continued. "Either live with it, or design your company with diversity so that some" business lines "are up when some are down.

"Money never disappears," he added,"it just moves."

Mr. Kovacevich, who has been a top executive at Norwest since 1986, when he left Citicorp, predicted a consumer finance shakeout. He said more companies would decide to sell their portfolios or subsidiaries as losses continue. That's good for his business, he said, because Norwest is probably better prepared than other companies to deal with losses.

"They have a longer history with consumer finance than some of the others," said James Weber, an analyst at A.G. Edwards Inc., St. Louis. "They've been through several economic cycles."

"A lot of banks have jumped into the consumer finance business in the last couple of years," said analyst Michael Ancell of Edward D. Jones & Co., also in St. Louis. "Those are the ones we're going to see exiting the business over the next couple of years."

While Norwest is a national player in consumer finance, with offices in 48 states, Mr. Kovacevich said he doesn't foresee his company ever having a banking presence in all 50 states. "I don't perceive being a national bank," he said. "I think there are only about 25 states I really want to be in as a bank."

Norwest has banks in 16 states now, and, while not identifying the other nine states he'd like to be in, he said they would form a ring around the midwestern and western states where Norwest already has a presence.

Norwest has no interest in the Northeast, he said. As for California, Mr. Kovacevich said, he is "neutral" on the state. And he said that Norwest never likes to enter a new area by buying a thrift.

When asked whether Minneapolis rival First Bank System Inc.'s announced acquisition of Portland, Ore.-based U.S. Bancorp had any bearing on his strategy, Mr. Kovacevich, who was trained as an engineer and has an MBA from Stanford University, said the rivalry between the two Midwest powerhouses is overblown.

"I think the press or the marketplace or whatever gets overly excited about First Bank in Minneapolis," he said. "Our competition is far beyond First Bank. In most of our markets we don't even face them. In most of our businesses, we don't face them. We just happen to be located in the same city."

Norwest continues to be revenue-driven, rather than cost-conscious, and cross-selling products is a big part of that strategy, especially with its large-scale mortgage business.

"There is no question that cross-selling works," he said. "Every customer that has a mortgage with us that also is in the bank averages six products per household.

Now "we have to figure out how to get 100% of our mortgage customers to be with the bank," he said, "and how to get 100% of our bank customers to use Norwest Mortgage."

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