finance companies adds a new twist to Cole Taylor Financial Group's exploration of merger or sale possibilities. Questions about the value of Cole Taylor's highly profitable subprime auto finance unit come at an awkward time for the company. After earlier disagreements between directors about the future of the Wheeling, Ill.- based company, Cole Taylor's board agreed in late October to retain investment banks to explore its alternatives. Its three main possibilities are: spin off its Cole Taylor Finance Co., a fast-growing subprime auto finance company; sell the entire company, or remain as is. The $1.9 billion-asset company also owns Cole Taylor Bank. But because third-quarter reports from many companies that finance substandard auto credits indicated deteriorating credit quality, now may not be the best time to maximize value by selling a subprime auto lender, said John E. Snow, an analyst with Rodman & Renshaw, Chicago. "There has been such a change in what the market is willing to value these subprime auto credits," he said. Over all, subprime automobile finance company stocks have dropped 20% to 30% in recent months, said Robert C. Damron, an analyst with McDonald & Co. Securities Inc., Cleveland, who follows the industry. Companies reported higher delinquencies and chargeoffs because nonprime borrowers have become more leveraged and thus more delinquent, he said. In addition, many subprime auto financing companies have revved up loan origination without similarly boosting their collection departments, he said. Cole Taylor Finance, which operates in 14 states as Reliance Acceptance Corp., saw earnings jump 79% for third-quarter 1995 over a year earlier. But credit quality dropped as volume rose. Net finance receivables increased 160%, but net chargeoffs as a percent of net finance receivables were 2.49% for the quarter, up from 0.74% a year earlier. A Cole Taylor spokeswoman said the company would not comment on the subprime automobile financing industry or any impact on a possible Cole Taylor sale. Mr. Snow said Cole Taylor Finance's credit quality still is not bad and the company still could sell for a good price. "It's still a wonderful money machine," he said. Although Mr. Damron said he couldn't speculate about Cole Taylor's fate, he commented: "If these companies can continue to grow at a strong pace and be fully reserved for their delinquency levels, I think investors will again be buying these stocks."
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