HOUSEHOLD TO DISCONTINUE A MAJOR PORTION
OF ITS COMMERCIAL FINANCE ACTIVITY; SETS YEAR-END CHARGE
PROSPECT HEIGHTS, Ill., Jan. 30 -- Household International (NYSE: HI) announced today it is withdrawing from the higher-risk portion of its commercial finance business by discontinuing selected product lines. In doing so, the company established an additional aftertax reserve of $93 million in the fourth quarter of 1991.
The reserve is to cover potential future credit losses in the lending activities to be terminated. These include commercial real estate, highly leveraged transactions and other higher risk commercial loans. These activities represent $1.8 billion, or 58 percent, of the company's current commercial lending portfolio, and essentially all of 1991's commercial credit losses and nonperforming assets.
Household said that because of the commercial reserve addition, the company will report an aftertax loss of approximately $34 million for the fourth quarter of 1991.
The company said it will report final results for 1991 on Feb. 10, but estimates that, after the fourth quarter loss, net income for the full year will be approximately $150 million, or about $3.10 per fully diluted share.
Commercial product lines to be continued include corporate preferred stocks, corporate senior debt financings, and traditional secured equipment loans and leases. Household said that at year-end 1991, these categories represented $1 billion in receivables and included virtually no nonaccrual, renegotiated or past due loans. The company expects this portfolio to continue to be profitable.
Donald C. Clark, chairman and chief executive officer of Household International, said "Management changes have been made within the commercial finance group and we are refocusing it on those activities which, through 15 years of operation, have had essentially no credit losses. Withdrawal from the higher-risk lending areas will improve overall credit quality of our commercial portfolio and reduce earnings volatility going forward."
Household said that with the commercial reserve addition, reserves available to the discontinued product lines were $229 million. Of the total $1.8 billion in discontinued receivables, approximately $258 million are nonaccrual items and $203 million are renegotiated loans. Real estate owned is approximately $237 million. Household said its real estate owned portfolio had already been written down by about 34 percent from the original loan amounts. After the reserve increase, reserves available to the discontinued product lines represent approximately 12 percent of total discontinued receivables and about 90 percent of nonaccrual items.
Edwin P. Hoffman, president and chief operating officer, said "Because of the impact of the continuing recession on commercial borrowers, over the near term we expect to continue experiencing somewhat higher nonperforming assets in the discontinued product categories. We will use our reserves against potential losses in these categories, and expect to incur modest operating losses in these categories as we liquidate them over the next several years."
In regard to its consumer business, which accounts for 93 percent of receivables in continuing product lines, Household said consumer credit quality trends generally have tracked economic developments. Overall consumer delinquency increased in the fourth quarter to about 5.5 percent of managed receivables versus 5.2 percent at Sept. 30, with all of the increase occurring in December. Weak economic conditions, seasonal factors and the expected effect of the purchase of a large credit card portfolio negatively affected delinquency levels in December. Household said it expects to see reduced delinquency in the second or third quarter of 1992 as economic conditions improve and as receivables underwritten with higher standards in 1990 and 1991 become a larger proportion of the total.
The company said it had responded to economic conditions in recent periods by continuing to increase reserves for losses in its consumer lending businesses. Reserves available for consumer businesses increased about $102 million, or 28 percent, in the fourth quarter and about $162 million, or 55 percent, for the full year. As a percent of managed receivables, consumer reserves reached 1.86 percent at year-end 1991, compared with 1.32 percent at year-end 1990. This 55 percent increase in reserves compares to an increase in the dollar amount of delinquencies of 24 percent during the same period. The company said that, excluding first mortgage reserves and related receivables, consumer reserves reached 2.37 percent at year-end 1991, compared to 1.78 percent at year-end 1990. Household said the higher level of reserve was established in anticipation of continuing poor economic conditions in 1992, and would be reduced as improvements are seen.
Household International, Inc. is a major provider of finance and banking services and consumer insurance products.
/CONTACT: Michael H. Morgan, vice president-corporate communication, 708-564-6053, or at home, 708-231-6999, or Robert J. Hartney, 708-564-7060, or at home, 708-480-9859, both of Household International/
(HI) CO: Household International ST: Illinois IN: FIN SU: SM -- NY108 -- 5419 01/30/92 16:13 EST