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Four analysts and top management from ten sector firms examine the Finance sector in this special 63-page Specialty Finance/Mortgage Financing issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info443.htm

TWST: Joel, what’s your view on this legislation?

Mr. Houck: I think it’s much ado about nothing. The legislation is designed to prevent the most egregious abuses of the system. For example, if somebody takes out a second home, maxes out their credit card line, and then files for bankruptcy, they can reaffirm their home through the bankruptcy process. But the fact of the matter is that bankruptcies don’t cause charge-offs for the most part. If people don’t have the capacity or the means to pay, they’re not going to pay an unsecured loan, which results in a charge-off.

TWST: Joel, since you also follow AmeriCredit (NYSE:ACF), do you want to add something to that, and is there anything else that you want to highlight?

Mr. Houck: The exercise that we’ve been going through, which is actually proving pretty timely, given the demise of Providian, is a thorough examination of each one of AmeriCredit’s securitizations or trusts. One other company I would like to highlight is American Capital Strategies (Nasdaq:ACAS). It’s a 1 billion market company, a leveraged buyout company. And people might ask, “Why would you want to invest in a leveraged buyout company at this point in the cycle?” Well, as a business development company and regulated investment company, American Capital’s balance sheet leverage is effectively limited to a 1-to-1 debt to equity ratio. Currently, with the capital that it’s raised, the company is in the unique position of having a debt to equity ratio of only about 0.2 times. If you contrast that to most other specialty finance companies that have leveraged ratios of anywhere from 7 to 10 times, American Capital has a war chest, and it has a war chest of cash at a time when multiples are contracting. We also observe that we’re getting near to the cyclical low points in terms of revenues, margins and EBITDA. This is a classic case of a company having a boatload of cash, being able to invest in at the low point of the cycle. In addition to receiving a high coupon rate of interest, 13%-14%, American Capital also receives warrants on these companies and participates in the upside of the companies on the back end of the cycle through the realization of capital gains.

TWST: Joel, how about your closing comments?

Mr. Houck: We remain fairly defensive. The only positive ratings we have in the large cap space are Fannie Mae and Freddie Mac, Capital One. I’m quite satisfied with our investors being in those names right now. We must have hard evidence that the US economy is not going to get worse. I would be more opportunistic in other higher risk names in the space if I see evidence that the economy is improving, consumer confidence is moving up, and unemployment is starting to level off. Then we’ll put the pedal on the accelerator, and we’re not afraid to go back in and buy some of the high growth, higher risk names at higher valuations than there are today. Our overall theme is one of a capital preservation. With high consumer leverage right now, and a very nervous US consumer, given the events of 9/11, this has the potential (I don’t want to be too alarming) to be a very difficult economic environment, a recession worse than that of the early 1990s. And if we have that we want to stay fairly defensive.

This special issue includes:

1) Specialty Finance/Mortgage Financing - In an in-depth (12,000 words) Analyst Roundtable, Bradley G. Ball, Senior Vice President covering the Specialty Finance and Mortgage Finance sectors at Prudential Financial, Inc., Joel J. Houck, Vice President at A.G. Edwards & Sons, Inc., Todd A. Pitsinger, Managing Director and Research Analyst with the Financial Institutions Research Group at Friedman, Billings and E. Reilly Tierney, Senior Vice President of Equity Research at Fox-Pitt, Kelton Inc., examine the outlook for the sector including the effect of growing competition, the potential for consolidation and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at six sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO interviews (average 2,500 words). Top management of one hundred ten sector firms examine the outlook for their firm and the sector.