MBNA Selectively Disclosed Fourth-Quarter Data, Analysts Say
thestreet.com
Mike - What does this say to you. If they have cleverly securitized all the bad loans and kept the good ones then maybe they are doing something really smart. OTOH what the hell are they hiding?
Thoughts please.
MBNA (KRB:NYSE - news), the world's largest independent credit card issuer with nearly $90 billion in loans, allegedly shared key financial data with selected brokerage analysts Wednesday without providing the numbers to other analysts or the public.
The company's alleged failure to widely disseminate the data, which is said to give valuable insights into fourth-quarter earnings, could run afoul of a new Securities and Exchange Commission rule designed to clamp down on selective disclosure of material information by public companies.
MBNA's finance chief, Scot Kaufman, denies that his company practiced selective disclosure Wednesday. The SEC didn't immediately comment. MBNA stock rose 50 cents to $37 Thursday, putting it near its 52-week high.
Differing Data
The data in question come from a special type of quarterly income statement, calculated by the company, that analysts say gives a much fuller grasp of MBNA's results. This so-called managed-basis income statement doesn't appear in MBNA's press releases but does appear in releases from other large credit companies, including American Express (AXP:NYSE - news), Capital One (COF:NYSE - news) and Providian (PVN:NYSE - news). Up until the third quarter, MBNA distributed a managed-basis income statement solely to investment professionals.
Climbing
MBNA's fortunes improving
These managed-basis income data show slowing growth in an important revenue line at MBNA, according to Todd Pitsinger, a consumer finance analyst with Arlington, Va.-based Friedman Billings & Ramsey. Pitsinger says he made a number of requests Wednesday to see the data, but got the figures only Thursday, over the phone. "This is a big issue," the analyst says. "I told [MBNA] pretty aggressively [on Wednesday] that this was the wrong thing to do." (Pitsinger rates MBNA an accumulate and FBR hasn't done underwriting for the company.)
Joel Houck, an analyst with St. Louis-based A.G. Edwards, says he made a request Wednesday for the data, but he hadn't received anything at noon Thursday, when he spoke with TheStreet.com. (Houck gives MBNA a reduce rating and A.G. Edwards hasn't done underwriting for the company.)
Extra Info
When reporting quarterly earnings, U.S. credit card companies usually issue two types of income statements. One type, which MBNA did publish in its release Wednesday, conforms with regular U.S. accounting regulations. But this version gives a skewed snapshot of credit card firms' financials, since it excludes the effect of securitized loans. Securitized loans are those that have been bundled up and sold as bonds.
The information MBNA didn't provide in its release is known as the managed income statement. This statement assumes that all loans have been kept on the firm's balance sheet and that no securitization has taken place. It is this information that analysts depend on to get a full picture of a credit card company's finances.
"We did not distribute a managed income statement," says MBNA's Kaufman. Nor did the company give out parts of a fourth-quarter managed income statement, orally or otherwise, he adds. The CFO didn't say why MBNA doesn't include a managed income statement in its earning releases.
Because MBNA securtizes some 80% of its loans, the managed income statement looks a lot different from the regular form. The Wilmington, Del.-based company included a managed statement in its SEC filing for third-quarter 2000 results. This quarterly filing, called a 10-Q, came out on Nov. 14, 2000, over a month after its third-quarter earnings release was published on Oct. 11.
The two accounting treatments can provide drastically different results for the same period. The MBNA 10-Q shows third-quarter net interest income totaled $1.48 billion on a managed basis, vs. $434 million in the standard income statement. Fee income was $774 million in the third quarter, using the managed method, against $1.33 billion.
"It's virtually impossible to work your earnings model [for MBNA] without the managed data," says A.G. Edwards' Houck.
Says Kaufman: "I don't think it'd be material information even if we did distribute" data from a managed fourth-quarter income statement.
The Upshot
FBR's Pitsinger says the managed-basis data show that the fourth quarter may not have been as strong as it first appeared. In particular, he says, managed-basis fee income of $810 million was 19% above the $683 million posted in the year-ago period. He and others expected other income to grow faster than that. A year ago, it was growing at 40%.
Pitsinger says: "There's no way to get a managed fee income without significant additional guidance from the company."
MBNA's earnings release does include some managed-basis figures, but they are for loan totals, credit quality indicators and margin information. Kaufman says that it's possible to work out a managed income statement from these managed numbers in the release.
Up until the fourth-quarter earnings release, MBNA used to give the managed-basis income statement to investment professionals who requested it, according to Kaufman. But in part because of the introduction of the SEC's new fair disclosure rules in October 2000, that practice had to stop, Kaufman says. |
