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Non-Tech : Cityscape Financial (CTYS) -- Ignore unavailable to you. Want to Upgrade?

To: John Liu who wrote (1675)	11/17/1997 8:50:00 PM
From: Bruce A. Thompson	Respond to of 2544

John, CTYS, UC, Delta financial, all the companies you named, the entire industry crashed in october. Almost all of them are reporting record earnings each quarter. Almost all of them are operating near capacity and hiring new people every day. Could the class actions be having this big an effect on the industry? Bruce

To: John Liu who wrote (1675)	11/18/1997 1:35:00 AM
From: Rational	Read Replies (1) \| Respond to of 2544

John: The earnings are estimated present values of the excess mortgage servicing receivables, not real dollars earned in the year reported. Suppose the life of a loan is 4 years and excess mortgage interest earnings is $1 per share. Then these companies will report as earnings: earnings = 1/(1+r) + 1/(1+r)^2 + 1/(1+r)^3 + 1/(1+r)^4, where r is an assumed cost of capital. If r=0, they will report $4 as earnings. For CTYS r = .12 (I think). Then the reported earnings will be ~$3. Thus, on average the reported earnings is about 3 times the actual earnings. Thus, there is no slump. What happened to CTYS is that the earnings this quarter were already accounted in the previous quarter's estimates and loans became bad and so they had to take losses. Sankar