finance companies are much too high, according to Gary J. Gordon of PaineWebber Inc. The average five-year growth rate forecast by analysts for these companies is 15% per year, he said. And that number may be three times higher than personal income growth in the same period. In addition, he expects the erosion of profit margins in the consumer lending business from intense competition in the sector. "So how do they all grow 15%?" asked Mr. Gordon. Most of his own projections are considerably more modest. For instance, Mr. Gordon himself expects 15% yearly growth at MBNA Corp., but the consensus estimate among the investment community's sell- side analysts is 21%, according to Institutional Brokers Estimate Service. He currently rates MBNA, a speciality credit card issuer, "unattractive" on a price basis. The PaineWebber analyst also continues to fret that the consumer credit cycle is receding from its peak. And the downside part of the cycle may require at least a year to run. The third-quarter results in the consumer lending sector were good, Mr. Gordon said. Operating expense ratios continued to improve, interest margins generally widened, and loan growth was strong. At the same time, loan quality is clearly deteriorating, financial leverage remains high at some companies, and competition will likely remain fierce. "Third-quarter results showed the first clear evidence that the downside of the consumer credit cycle is beginning," he said. "We underscore beginning." "Consumer credit quality goes up for a few years, then down for a few years," Mr. Gordon said. "We expect credit quality to worsen into probably early 1997. We expect loan growth to slow sharply in the second half of 1996 and stay slow into 1998. To believe differently, the analyst said, is to believe that the nation's economy will remain strong for several additional years, "which just delays the inevitable downturn and probably makes it worse." Of course, Mr. Gordon said, it could also be believed that human nature has changed, and that borrowers and lenders have found the depth of character to moderate the carefree attitude that customarily marks the upswing of consumer credit. Unfortunately, he said, it seems clear that "we as a species are weak. We don't act rationally; one hour with Geraldo or Oprah will convince you of that." And that irrationality extends to consumer financial matters. In the most recent uptick of the consumer cycle, "finance and credit card lenders have been more than happy to finance the fun," the analyst noted. But installment debt "has been growing far faster than personal income for the past two years," he said. "Payments on that debt have started to rise with a vengeance. Can we keep this up? Obviously not." Mr. Gordon is cautious about the credit card and finance stocks, despite recent steep price declines from their highs. Investors only began worrying a month ago about the peak of the cycle, he said. "But a belief in human frailty suggests that we overdo it on the downside too," the analyst said. So investment opportunities will begin reappearing well before the cycle has bottomed. Right now, Mr. Gordon is recommending the Money Store and World Acceptance Corp., based on their long-term growth prospects. He projects 18% growth at World Acceptance, versus a 26% consensus view. But Mr. Gordon's 20% growth forecast for the Money Store is actually higher than the 17% average view among analysts.

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