CNC will win the battle with shorts.
Press Release
Conseco Issues Memo No. 8
INDIANAPOLIS--(BUSINESS WIRE)--Feb. 14, 2001--Conseco (NYSE:CNC - news)
The attached ``NEW Conseco Memo No. 8'' from Conseco CEO Gary C. Wendt was posted on Conseco's web site for shareholders and/or electronically
distributed to them today.
NEW Conseco Memo No. 8
To: Conseco Shareholders
From: Gary Wendt, Chairman & CEO
Date: February 14, 2001
Re: Securities Lawsuit
This morning's Wall Street Journal describes one of the last remaining legacy issues facing the NEW Conseco -- the long-pending federal securities lawsuit.
This lawsuit is old news. It had been filed in the Spring of 2000. I knew about it before I joined Conseco. The amended complaint described in this morning's
paper was filed over a month ago on January 12th. It was reported in The Indianapolis Star on January 13th and undoubtedly reviewed by the AP bureau here
in Indianapolis.
It is not a surprising lawsuit. You will be hard pressed to find any company whose stock price drops significantly that doesn't become a target of the plaintiffs'
bar.
As you know, much of the last seven months has been devoted to cleaning up issues left for us from the old Conseco. I have frequently referred to them as
``boulders in the road.'' One by one, you have read about them in the news media, usually cast in dire terms with ``expert'' commentary that doubted our
prospects of success. One by one we moved the ``boulders'' successfully. And we will move this one too.
We do not intend to fight this case in the news media. However, let me make a few points that were not addressed in this morning's WSJ article.
First, the fraud allegations made in this complaint are so wild as to be, literally, fantastic.
Second, the data do not support the allegations.
As one example of the wild charges, take the one cited in the WSJ article. As taken directly from the complaint, the charge is that, ``... the collections
department of the Consumer Division engaged in a regularly orchestrated scheme to fraudulently manipulate the delinquency reports of its underlying loans ...''
Specifically, the complaint says that former CEO Steve Hilbert ``would watch over the shoulder of (the collections manager) as he re-aged accounts on the
computer screen'' and that Conseco Finance President Bruce Crittenden would ``walk around the desks of collections officers that were re-aging accounts.''
Yesterday, the collections manager referred to above told the Wall Street Journal that (1) he has never met Mr. Hilbert, and (2) the first time he ever spoke
with Bruce Crittenden was when Bruce called him at the Journal's request two days ago to inform him that his name was likely to appear in this story.
Second, with respect to the data, the Journal article contained a chart showing rising delinquencies and credit losses. The following data, which illuminates the
situation, was supplied to the Wall Street Journal, and we are happy to provide it to you as well.
Conseco Finance Corp.
Credit Quality Trend Summary
60+ Days Delinquent
Sep-98 Sep-99 Sep-00
Manufactured housing 1.31% 1.50% 2.12%
Consumer Division:
Mortgage services 0.86% 0.94% 0.85%
Merchant credit cards 3.54% 2.38% 2.87%
Manufactured Housing Competitor Comparisons
CFC Associates Greenpoint Bombardier
60+ Delinquency
9/30/98 1.31% 1.34% N/A 2.20%
9/30/99 1.50% 1.77% 0.84% 2.47%
9/30/00 2.12% 1.97% 1.32% 9.76%
Net Credit Losses
9/30/98 1.16% 1.39% N/A 0.11%
9/30/99 1.16% 2.80% 1.66% 0.82%
9/30/00 1.47% 3.23% 1.66% 2.46%
Footnotes:
Associates Notes
(1) 9/30/98 and 9/30/99 data is sourced from Associates' 4Q99 Earnings
Release Financial Supplement.
(2) 9/30/00 data is sourced from Associates 9/30/00 10Q Filing's MD&A
section on Financial Condition.
(3) Associates Net Credit Losses are calculated on trailing 12 month
basis.
Greenpoint Notes
(1) All Data is sourced from Prospectus filings for Greenpoint.
(2) All Data includes Manufactured Housing business purchased from B
of A, but excludes approx. $500mm in loans retained by B of A.
(3) All Data is presented in number of contracts.
Bombardier Notes
(1) All Data is sourced from Prospectus filings for Bombardier.
(2) All Data is presented in dollars.
As you can see from these charts, the credit trend in the consumer division, where the fraudulent re-aging supposedly occurred, was flat or down compared to
prior years -- the precise opposite of what should have happened if the allegations were true. Second, the cause of the increase in delinquency is a deteriorating
trend in the manufactured housing division that mirrors the industry trend shown above. In fact, our performance is better than the industry as a whole. (And, by
the way, this trend is fully factored into our earnings expectations for 2001.)
Finally, let me correct one important misstatement from this morning's article -- the assertion that, if I were to ``clean house,'' that it could be costly. This is
simply false. In the arrangement with our bank group, no payments of principal on the director and employee stock loans are due until December 31, 2003.
The reason Bruce Crittenden and the other executives I have retained are with me is because they are doing their jobs and doing them well.
Like all the other boulders we have moved in the last seven months, we will move this one too. And as always, your support of the NEW Conseco is
appreciated. |
