Conseco Collapse Deals New Blow to CEO Cult

Wendt's feted status stemmed from his 15-year tenure as leader of GE Capital, during which he built the unit into the financial services giant that it is today. He left GE in 1998 amid reports of tension with then-CEO Jack Welch. The previous year, he was in the headlines a lot because of his high-profile divorce case. Wendt vacated the CEO post at Conseco in October, two months after the company missed some bond payments, and he now holds the post of chairman.

Great Expectations

So what should Wendt have done? Seeing as a burdensome debt level was the main problem for Conseco, surely Wendt would've got leverage down a lot. But he didn't. While he did manage to get Conseco's bank creditors to cut some slack, the debt and debt-like securities held at the Conseco parent barely dropped. (Conseco also has debt and other liabilities in its lending and insurance subsidiaries, but because these are tied to assets, it is assumed that holders of this credit are likely to get their money back.)

In June 2000, just as Wendt joined, Conseco had debt of $3.63 billion and debt-like securities of $2.4 billion, for a total of $6.03 billion. In June 2002, it had debt of $4.01 billion and debt-like holdings of $1.92 billion, for a total of $5.93 billion. If you add in investment borrowings to this calculation, the 2002 total is actually slightly higher. And if "other liabilities" are included, the 2002 amount is way in excess of the two-years-earlier figure. Whichever way you slice it, Wendt did not oversee a big drop in liabilities.

Wouldn't Wendt have restructured Conseco by sharply cutting back in troubled businesses? One would think. But its bad-debt-ridden mobile-home loan business hardly shrunk. At the end of June 2002, it had average loans of $24.8 billion, only 3% below the June 2000 total. In fact, under Wendt, Conseco actually increased lending to people of rock-bottom creditworthiness by writing loans on repossessed mobile homes.

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