Scrappy Lender Proves Survivor: Best in Class

CHEVY CHASE, Md., (TheStreet) -- CapitalSource(CSE Quote) has every excuse to be out of business by now. Instead, it is snapping up lending business left behind by weakened competitors like CIT Group(CIT Quote) and General Electric(GE Quote).

Like CIT and GE, CapitalSource was a lender that relied on the capital markets to fund its business -- a strategy that proved unsustainable during the financial crisis.

And like CIT, it has not had the benefit of government backing for its debt via the Temporary Liquidity Guarantee Program (TLGP), a program that propped up larger lenders like GE, Bank of America(BAC Quote) or Wells Fargo(WFC Quote).

In fact, CapitalSource has received no government support of any kind.

Also, like so many troubled lenders, it extended a lot of credit to the commercial real estate sector between 2005 and 2007.

What CapitalSource had was enough vision to buy Fremont General's retail banking operations last year, giving it access to deposit-based funding before the credit crisis entered its scariest phase with Lehman's collapse in September 2008.

CEO John Delaney says he got worried because packaging loans and selling them into the market, which had initially been a struggle, eventually became disturbingly simple for his company.

"Towards the end, it got so incredibly easy. It was basically one phone call," Delaney says. "We started to become very concerned with those markets, and we started to focus of diversifying the funding."

The move to buy Fremont looks absolutely brilliant today, but Delaney gives himself only partial credit.