Re: GNT - WSJ article of 12/10 repost
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Dow Jones Newswires -- December 10, 1997
Finance Cos. Fall On Concerns Over Accounting Technique
By Gaston F. Ceron
NEW YORK (Dow Jones)--Shares of specialty finance companies fell Wednesday, and an analyst attributed the drop to concerns over the use of an accounting technique that some charge inflates earnings projections.
Among finance houses, Green Tree Financial Corp. (GNT) closed down 2 1/8, or 7.3%, to 27. IMC Mortgage Co. (IMCC) fell 1 1/4, or 8.8%, to 13. Delta Financial Corp. (DFC) ended down 3/4, or 4.6%, to 15 9/16. First Alliance Corp. (FACO) dropped 7/8, or 4.3%, to finish at 19 1/2.
Robert Napoli, an analyst at ABN AMRO Chicago Corp., said the stocks retreated due to investors questioning the use of gain-on-sale accounting, a method that allows lenders to immediately record expected future profit from loans they sell. He said Green Tree, IMC Mortgage, Delta Financial and First Alliance all use gain-on-sale.
As reported, critics have said the technique gives management too much leeway when making assumptions about future interest rates, prepayments and defaults. Gain-on-sale accounting is said to artificially inflate a company's earnings prospects.
Worries have mounted since Firstplus Financial Group Inc. (FPFG) said it may eliminate its use of gain-on-sale, casting doubt on the companies that continue to utilize it.
Napoli said many lenders may stop using gain-on-sale, or at least use it with assumptions that are conservative enough to appease Wall Street.
Green Tree, IMC Mortgage and Delta Financial officials did not immediately return phone calls seeking comment.
Mark Mason, First Alliance's chief financial officer, said he feels comfortable with the assumptions his company makes when using gain-on-sale. First Alliance has been conservative when making its assumptions and has good cushion against performance not being what the company expected, he said.
-Gaston F. Ceron; 201-938-5174
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