Amid mixed yearend reports by commercial banks, some of the largest finance companies are posting record-breaking growth.
Household International, GE Capital Corp., Metris, and Associates First Capital Corp., four of the top nonbank lenders in the country, all reported strong earnings this week.
These companies' focus on the healthy consumer loan market, a lack of risky trading activities, and the recent demise of several of the smaller consumer finance shops all work in their favor, analysts said. And they are making successful forays into overseas markets.
Household on Wednesday reported a 71% increase in net income for the fourth quarter, to $349.9 million. The Prospect Heights, Ill., company closed its merger with Beneficial Corp. in June, resulting in cost savings and increased originations, analysts said.
Household also benefited from strong performances from its U.S. and U.K. consumer finance businesses, its private-label credit card units, and its auto finance business, said chief executive William F. Aldinger.
Household, which sold nearly $2 billion of credit card receivables in the second half, said it is going to "focus on fewer, stronger MasterCard and Visa programs." Household pointed to a new alliance with Renaissance Holdings, a nonprime credit issuer.
"Historically, Household branch customers and credit card customers were very separate," said BT Alex. Brown analyst Mark Alpert. "They missed an opportunity to offer cards to nonprime customers."
In addition, Household is expected to announce initiatives with existing credit card partners General Motors and the AFL-CIO next week, said Fox- Pitt Kelton analyst Dennis LaPlante.
Analysts praised Household for building up its core portfolio this year. "Before, this had been a cost savings story," said Mr. LaPlante, referring to Household's long-standing strategy of making acquisitions and cutting costs to boost earnings.
General Electric Co.'s finance unit, GE Capital Services, is producing an increasingly significant portion of the company's profits. Its earnings were up 17%, to $3.796 billion. General Electric as a whole earned $9.296 billion for the year, up 13%.
During the year, the unit purchased a U.K. reinsurance company, a Japanese consumer loan corporation, and a German equipment lender. GE also recast GE Capital's top management in early December, ousting chief executive Gary Wendt.
Metris Cos., a subprime credit card specialist, said Wednesday that its net income increased 51% for the year, to $57.3 million.
Credit card loans under management by the St. Louis Park, Minn., company, which was spun off by catalogue retailer Fingerhut Inc. increased $1.1 billion during the fourth quarter, to $5.3 billion.
Associates First Capital Corp. on Tuesday reported 19% increases in fourth-quarter and annual net earnings, to $332 billion and $1.22 billion, respectively.
Associates First, based in Dallas, has its "strongest balance sheet, largest receivables base, and greatest number of customers ever," said chief executive Keith Hughes. The company's strong overseas operations - including a Japanese consumer finance company - and an overall shift to unsecured lending contributed to the growth, said chief financial officer Roy Guthrie.
Despite Associates' earnings growth, its stock fell $1.125 the day of the announcement, in part because of an uptick in losses, analysts said.
The percentage of Associates' loans that were 60 days or more delinquent rose 42 basis points in 1998, to 2.57%. Mr. Guthrie attributes to rise to a centralization of the company's manufactured housing servicing.
