Conseco Issues Memo No. 10
INDIANAPOLIS--(BUSINESS WIRE)--March 16, 2001--Conseco (NYSE:CNC - news)--The attached ``NEW Conseco Memo No.10'' 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. 10
To: Conseco Shareholders
From: Gary C. Wendt, Chairman and CEO
Date: March 16, 2001
As promised, I will continue to write these periodic messages to keep you informed on the goings on within the company. Sometimes I will use this format to
respond to specific comments about our company, and other times I will address more general topics to help deepen your understanding of the NEW
Conseco.
Today I'm going to do a little bit of both by focusing on Conseco Finance, in particular our manufactured housing portion of the finance business.
As part of the new management practices I have established here at Conseco, we conduct a thorough review of each business unit each quarter. Yesterday
was Conseco Finance's quarterly review, and you will be interested in several developments.
You may recall that in December, we gave guidance of pre-tax 2001 earnings for Conseco Finance (CF) to be from $350 million to $390 million, over two
times that realized from operations in 2000. We remain comfortable with that guidance, and current projections are tending toward the top of that range.
Second, during our 4Q00 earnings call, we said that we had revised the estimate of cash from operations to be sent to the parent company during 2001 -- up
from $250 million to $300 million. We're now increasing our projection of the positive cash to ``the parent'' again, this time from $300 million to $350 million.
Note: See www.conseco.com to view Chart 1.
Third, we can report positive news about an operating issue that developed after the proposed sale of CF was announced in April of 2000: delinquency in the
manufactured housing portfolio.
After full review, it's clear that Conseco Finance management and employees ``took their eye off the ball'' after it was announced that their company was going
to be sold. The uncertainty of how, when, and to whom, kept employees worrying about their futures rather than collecting the accounts. Consequently, 60+
day delinquencies rose to 2.20% and leveled off there during December and January. The encouraging news shown in the chart below is that February 60+
delinquencies dropped to 2.07%.
Chart 2
Performance Update
MHD - Delinquency(1)
Increase/(Decrease)
Actual Forecast
--------------------------- -------
2/01 3/01
12/00 01/01 02/01 03/01 vs. 12/00 vs. 12/00
------- ------- ------- ------- --------- ---------
30 Days
Delinquent
$000's 447,298 399,170 338,699 278,730 (108,599) (168,568)
$ % 1.73% 1.55% 1.32% 1.09% (0.41%) (0.64%)
60+ Days
Delinquent
$000's 568,941 567,739 530,388 498,170 (38,553) (70,771)
$ % 2.20% 2.20% 2.07% 1.95% (0.13%) (0.25%)
(1) Year-end 2001 target for 60+ day delinquency level is 1.65%.
Given current trends, ending first quarter 60+ day delinquency is down by $70 million (12.5%) from year end, and as a clear sign that strict attention to early
delinquency is now being paid, we expect 30+ day delinquency to be down over $168 million, or 38% by the end of the first quarter compared to year end
2000!
One lingering problem resulting from the loss of focus at Conseco Finance last year is that we are still experiencing higher repossessions.
Chart 3
Manufactured Housing Repossessions
1Q00 4Q00 1Q01 (F) 2Q01 (F) 4Q01 (F)
---- ---- -------- -------- --------
Repos incurred
during period 5,506 9,656 8,548 5,756 5,710
Repo Sales 5,900 6,154 6,564 7,100 7,150
Recovery rate 47.9% 45.8% 46.0% 46.0% 46.0%
Once again, though, focus on the problem is already allowing us to see progress and to forecast further improvement going forward. Several steps, including
operating our own sales lots, providing dealer incentives, and not operating in a ``fire sale'' mode, are making it possible to keep resale prices close to last
year's levels despite the fact that other competitors have exited the business and are clearly ``dumping'' product on the market.
The reason CF will avoid the deep discounts that others apparently are experiencing is the reason why the Business is so valuable to us: Conseco Finance has
been doing this for 25 years and has built relationships with dealers and manufacturers that are deeper and broader than any of its competitors. And, they
intend to stay in business going forward. This obviously gives them a priority position when it comes to selling repossessed inventory. And that's why CF
expects to meet its earnings target for 2001, despite the recession in the manufactured housing industry itself.
While on the subject of delinquency, I'd like to comment on the amended complaint in the securities lawsuit and the publicity that followed, alleging improper
reporting of delinquencies by CF in prior years. Our counsel have conducted dozens of interviews and have found no evidence that there is any truth to the
plaintiffs' allegations about fraudulent delinquency numbers. In fact, counsel have been able to establish that several key factual allegations contained in the
complaint are demonstrably false: people who are supposedly quoted in the complaint swear under oath that the allegations are not true. So, needless to say,
we'll be defending ourselves vigorously against these allegations.
Most of the information above relates to the manufactured housing part of Conseco Finance. CF's other major businesses are making home improvement and
home equity mortgage loans, and owning a 2.6 million customer private label credit card portfolio directed at the home improvement industry. We're pleased to
report that the delinquency increase seen in manufactured housing in 2000 was not experienced in either mortgage services or retail credit. While some of this
has to do with better market conditions, a good part of the reason is management's centralization of collection processes several years ago, which put us in a
better position to keep delinquencies at responsible levels.
Another sign of the strength of this part of CF is a recently completed sale of a $565 million portfolio of high loan-to-value receivables to a New York
investment bank. Since we don't plan to grow managed receivables by a significant amount in either manufactured housing or mortgage services, our strong
market positions in both segments should permit the development of multiple whole loan sales in the future.
As you reflect on your investment in Conseco (especially in this time of turmoil in the equity markets), these three points about Conseco Finance are worth
remembering:
1. The higher delinquencies and slightly strained resale
prices for repossessed inventory are already factored into
our income projections for 2001.
2. As reported in December, earnings from Conseco Finance
will continue to grow quickly even though we do not plan
on meaningfully increasing the total number of managed
receivables. This results from the change in accounting
from "Gain On Sale" to "On Balance Sheet" and the low
level from which increases in "On Book" income are
measured given the new accounting method.
3. Conseco Finance has more than 30% market share in a
portion of the housing industry that represents 14% of new
housing starts. That's a big position in a big market! And
the home improvement mortgage business is now in its 12th
year with experience on delinquencies and losses
consistently low throughout this entire period.
As always, thanks for listening, and feel free to send us your questions or comments.
Note on forward-looking statements: All statements, trend analyses and other information contained in this release and elsewhere (such as in filings by Conseco
with the Securities and Exchange Commission, press releases, presentations by Conseco or its management or oral statements) relative to markets for
Conseco's products and trends in Conseco's operations or financial results, as well as other statements including words such as ``anticipate,'' ``believe,''
``plan,'' ``estimate,'' ``expect,'' ``intend,'' ``should,'' ``could,'' ``goal,'' ``target,'' ``on track,'' ``comfortable with,'' ``optimistic'' and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: (1) general economic conditions and other factors, including prevailing interest rate levels, stock and credit
market performance and health care inflation, which may affect (among other things) Conseco's ability to sell its products, its ability to make loans and access
capital resources and the costs associated therewith, the market value of Conseco's investments, the lapse rate and profitability of policies, and the level of
defaults and prepayments of loans made by Conseco; (2) Conseco's ability to achieve anticipated synergies and levels of operational efficiencies; (3) customer
response to new products, distribution channels and marketing initiatives; (4) mortality, morbidity, usage of health care services and other factors which may
affect the profitability of Conseco's insurance products; (5) performance of our investments; (6) changes in the Federal income tax laws and regulations which
may affect the relative tax advantages of some of Conseco's products; (7) increasing competition in the sale of insurance and annuities and in the finance
business; (8) regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting
of insurance products, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (9) the
outcome of Conseco's efforts to sell assets and reduce, refinance or modify indebtedness and the availability and cost of capital in connection with this process;
(10) actions by rating agencies and the effects of past or future actions by these agencies on Conseco's business; and (11) the risk factors or uncertainties listed
from time to time in Conseco's filings with the Securities and Exchange Commission.
World Wide Web conseco.com
Investor Hotline 800.4.CONSECO
Fax-on-Demand 800.344.6452
Contact:
Conseco
Mark Lubbers, 317/817-4418 (News Media)
Tammy Hill, 317/817-2893 (Investors)
Email this story - Most-emailed articles - Most-viewed articles
More Quotes and News:
Conseco Inc (NYSE:CNC - news)
Related News Categories: banking, construction, earnings, household/consumer, insurance, real estate
Help
Copyright © 2001 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
Copyright © 2001 Business Wire. All rights reserved. All the news releases provided by Business Wire are copyrighted. Any forms of copying other than an individual user's personal reference without express
written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a
computer network or in a printed form.
Questions or Comments? |
