Eagle Finance Corp. could lose one half of its book value, analysts said, after it accounts for higher 1995 loss provisions than it previously reported.

The revision to the 1995 earnings statement - the second in less than a month - was ordered last week by independent auditors of the subprime auto financier.

Eagle's burgeoning credit quality problems highlight the pitfalls faced by subprime auto lenders, including commercial banks, as they attempt to reap the high returns of this market by quickly expanding.

Analysts considered the $2.2 million loan-loss provision that was initially reported to be unrealistic.

Some, including Michael Durante, an analyst with McDonald & Co. Securities in Cleveland, said the company should add as much as $17 million to the fourth-quarter provision to cover existing credit losses. He said he was concerned that such a writeoff could jeopardize an unqualified opinion from the company's auditors.

On March 20, the company disputed Mr. Durante's view, saying the reserves were considered "severe" by management. But a week later, the company added to the fourth-quarter provision, leading to a earnings revision for the quarter to a 11 cents a share loss, from a 8 cents a share loss.

Last week, management disclosed that its auditor, KPMG Peat Marwick, would require the company to make a "substantial addition" to its loan-loss provision. The company added that the higher provisions would "result in a material reduction in previously reported earnings."

The questions surrounding 1995 earnings have taken a toll on the company's stock price. After opening the year at $13.50 a share, the stock has lost nearly 50% of its value. Shares closed at TKTK Monday.

The company did not respond to phone calls for comment to this story.

Steve Schroll, an analyst with Piper Jaffray in Minneapolis, said Eagle's problems could provide lessons for commercial banks seeking to profit from the high-margin subprime market.

"You don't want to forget that the number-one thing in any financial company is discipline to your underwriting criteria," he said. Eagle's "problems came from their underwriting criteria and from not having the systems in place to catch problems before they got out of control."

Mr. Durante said the company's problems developed because it tried to centralize its underwriting and collections functions, unlike more successful companies like Mercury Finance that take a decentralized approach. At yearend, the company said it had relationships with 450 auto dealers in 12 states.

"The secret to strong credit quality is having a local feel to the market," Mr. Durante said.

He estimates the company will have to add $15 million to $17 million to its 1995 loan-loss provisions. At this level, the company's book value could be reduced by as much as $2.50 a share after tax.

Mr. Schroll added accounting standards for this kind of business have "too much flexibility" to allow strong comparisons between companies.

"When they have that much flexibility, it becomes difficult for us on the analytical side to figure out what their earnings really are," he said.

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