ITT TO TRANSFORM CONSUMER LOAN BUSINESS
NEW YORK, Jan. 20 /PRNewswire/ -- ITT Corporation (NYSE: ITT) announced today a strategic transformation of the consumer financial subsidiary of ITT Financial Corporation (ITTFC) to considerably reduce its business in the domestic unsecured consumer loan area and to aggressively pursue growth opportunities in other portions of its financial business. The domestic unsecured consumer loan portfolio represents $2.4 billion of ITTFC's total portfolio of $10.3 billion as of Dec. 31, 1992. Overall assets at ITTFC grew from $11.7 billion at the end of 1990 to $13.2 billion at the end of 1992. In announcing the decision, ITT Corporation said its financial subsidiary will establish reserves of $928 million in the fourth quarter of 1992, including a $693 million provision to cover future unsecured consumer loan losses from the run-off of its existing portfolio; $103 million for restructuring, including consolidation of loan offices; and a $132 million provision for anticipated losses in the company's commercial real estate properties. In order to support growth in ITT Financial's performing businesses and preserve its capital ratios, ITT Corporation plans to make a capital contribution to ITT Financial of $612 million, including Alcatel Alsthom shares valued at $426 million. In connection with these actions, ITT would record an after-tax fourth-quarter charge against 1992 earnings of $612 million, or $4.66 per fully diluted share. The residential, capital finance, commercial finance, consumer home equity, and overseas small loan businesses have all performed well. This strategic transformation will allow ITT Financial to emphasize these profitable lines of business with added focus. The domestic unsecured consumer small loans, and to a much lesser extent the commercial real estate segments of ITTFC, have experienced problems created by the general economic recession and by the enormous rise in personal bankruptcies fueled in part by laws that promote bankruptcy protection. "This decision to invest in ITT Financial Corporation is designed to strengthen the company in businesses with proven success records," Rand V. Araskog, chairman, president and chief executive of ITT, said. "We feel ITT Financial Corporation offers premium growth opportunities and sizable returns for ITT shareholders." "While we have improved our credit standards and procedures during the past two years, a strategic market review recently completed by Frank Schultz, chairman of ITT Financial Corporation, headquartered in St. Louis, concluded that we should accelerate the restructuring and transformation of our domestic unsecured lending operation. We reached the conclusion that a shrinking domestic unsecured consumer small loan market would not offer us the financial returns our shareholders expect," Araskog continued. "Therefore, we have decided to transform this business to protect and grow our remaining healthy financial service businesses," the ITT chairman continued. The implementation of this initiative, to begin immediately, includes growing an already successful home equity secured line, a lower overhead business, and the closing of approximately 200 consumer loan offices in 1993. ITT Consumer Financial currently operates 600 branch offices in 34 states. As a result of these actions, ITT Consumer Financial expects to reduce its work force of 5,400 by approximately 1,400 during 1993, utilizing, wherever possible, managed attrition resulting from the de-emphasis of the domestic unsecured consumer small loan business. Domestic unsecured consumer small loan lending will continue to qualified customers, but the volume of new loans in this segment will be considerably below past years' levels. The company's Island Finance offices in Puerto Rico, Panama, the U.S. Virgin Islands and the Netherland Antilles are unaffected by these actions. As part of the new focus, in 1993, ITT Consumer Financial Corporation will strengthen its presence in the home equity loan market through branch and direct-response originations, and portfolio acquisitions, as well as by the introduction of new products. The company's emphasis will continue to be on improving portfolio quality, collection effectiveness and profit performance. Frank Schultz announced today the appointment of John Broderick, as chairman and chief executive of the ITT Consumer Financial Corporation, headquartered in Minneapolis. Broderick has extensive experience in the financial service industry. ITT Financial Corporation's other businesses include ITT Commercial Finance, headed by Melvin Brown and headquartered in St. Louis; ITT Capital Finance headed by Steven Leskovsky and also headquartered in St. Louis; and ITT Residential Capital, headed by Graham Williams and headquartered in San Francisco. Williams joined the company from Bank of America in October of 1992. ITT Island Finance, a subsidiary of ITT Consumer Finance, is headed by Edward Moshy and is headquartered in San Juan, Puerto Rico. In a related announcement ITT said that, as anticipated, in closing its 1992 accounts it would take an additional charge of $53 million pre-tax for restructuring at Components operations of ITT Defense and Electronics, and a $45 million pre-tax charge to write off troubled financial assets at ITT Sheraton Corporation. This will result in additional charges of $.50 per fully diluted share. The company will also adopt as of Jan. 1, 1992, the just issued statement of Financial Accounting Standard 112 -- Employers Accounting for Post Employment Benefits, and, in this connection, will reduce the 1992 first-quarter and full-year earnings by $45 million, or $.34 per fully diluted share. "These actions conclude a number of major internal actions ITT has taken during 1992," Araskog said. "As we enter the new year, all of ITT's businesses are poised to grow profits and achieve return on equity objectives we have set," Araskog concluded. -0- 1/20/93 /CONTACT: Jim Gallagher of ITT Corporation, 212-258-1261/ (ITT)
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