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Four analysts and top management from ten sector firms examine the 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: Todd, what do you see going on in the competitive environment and what’s likely to go on as the economy does turn down?

Mr. Pitsinger: As we mentioned earlier, the US economy has not technically been in a recession. At the same time, the Fed has obviously been aggressively and consistently lowering interest rates. On the margin, competition in the consumer finance universe has been increasing and remaining very intense. Mail volumes continue to be very robust year over year in the credit card space. Broadly speaking, competition has been very intense and it’s been increasing over the last several quarters. My sense is, as we move into an economic recessionary period with the pressure from various bank regulators and some of the rating agencies, you’ll see a retrenchment from peripheral issuers that don’t intend to make consumer finance or sub-prime lending a long-term component of their business models.

TWST: Todd, as we look at this environment, are we likely to see massive consolidation?

Mr. Pitsinger: Yes. I think it’s very fair to say that you’ll continue to see consolidation, and that will be precipitated largely by the stress on the operating models. The management at Heller, for instance, look like heroes because they envisioned a weaker credit environment. They certainly were staring in the light of higher credit losses, which had already started to filter through their operating model.

TWST: Todd, we’ve been spending an awful lot of time on credit card companies. Are there any other specialty finance companies that you like that you want to talk about?

Mr. Pitsinger: I would highlight AmeriCredit (NYSE:ACF), which is a market leader in the origination of non-prime automobile contracts in the United States. Basically ACF is in a sweet spot right now from a production perspective. As we just discussed, one of the fears from the marketplace’s perspective pertains to the ability to grow receivables in the current marketplace. We know from AmeriCredit’s perspective that there has been a massive exodus of competitors in their marketplace, so volume is simply not going to be an issue over the next six to 12 months. And in fact, given that 75% of their production comes from used car sales, which are largely countercyclical, I envision there will be no production issues whatsoever. Clearly in the current environment there is stress in their portfolio. As Brad mentioned, there is not only stress for the sub-prime consumer, which is AmeriCredit’s consumer, but there in all likelihood will be stress throughout the credit spectrum, and I think that’s something that investors will recognize in time. In the case of AmeriCredit, we’ve taken some onerous credit loss expectations for the next six to 12 months, and yet the company still can produce positive year-over-year earnings growth. One of the special aspects about consumer finance is how dynamic their models are. This is largely unrecognized or misunderstood by the Street. Right now many of the commercial banks are hemorrhaging money and having problems throughout their organization structures or throughout their various business lines. We have not seen that stress in consumer finance. It’s certainly coming, but all things being equal, these companies will perform in a way that is superior to most subsegments of financial services. AmeriCredit is one of those companies. They provide a valuable service in a marketplace that has been around since 1960. It’s not going away anytime soon. They are a superior provider from a technological perspective, and they are positioned uniquely well in the current marketplace. They’re actually going to drive market share gains and benefit competitively from the current economy. As a result, we think AmeriCredit is misunderstood and undervalued.

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.