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Look at the mess they've left behind.

Conseco

(CNC) - Get Centene Corporation Report

chairman and chief executive Stephen Hilbert and finance chief Rollin Dick have had their positions at the firm terminated, bowing to a severe lack of investor confidence accompanying the stock's 85% plunge from its 52-week high.

First-quarter

financials, which were released Friday, raise further questions about the post-Hilbert future of the Carmel, Ind.-based insurer and lender. The numbers show that the company's insurance operations are struggling. Debt has climbed to new heights. And the press release says nothing about the status of $576 million of loans made to Hilbert and Dick, along with other directors, to purchase Conseco stock. Considering the stock's steep decline, these loans are perceived to be at risk. Conseco shares resumed their free-fall on Friday, sliding 1 1/2, or 21%, to 5 1/2 at midday.

The ugliness of first-quarter numbers could undermine Conseco's attempts to

sell its lending arm, Conseco Finance, formerly known as

Green Tree

.

Conseco didn't return two calls seeking comments. The company held a conference call just after 11 a.m. EDT, but neither Hilbert nor Dick was present, and the company didn't entertain questions from analysts.

Palace Coup?

Conseco's board elected David Harkins its interim CEO and chairman. Harkins is president of Boston-based buyout firm

Thomas H. Lee Partners

, which only five months ago

bought $500 million worth of Conseco preferred shares as part of an effort to turn the company around. A person familiar with the matter said that Thomas Lee representatives got Hilbert and Dick to agree to their departures in the early hours of Friday morning in what appears to have been a palace coup. Lee didn't comment.

Rise and Fall
A onetime highflier plunges back to earth

Source: BigCharts

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Conseco's operating earnings in the first quarter slid to $107 million, or 30 cents a share, from $177.9 million, or 54 cents a share a year earlier. (The first-quarter 1999 numbers exclude revenue from gain-on-sale accounting, which was discontinued by the company last year.) On this basis, earnings per share plunged 44%. But if a latest-quarter extraordinary investment gain worth 13 cents a share is stripped out, Conseco made only 17 cents a share, or 69% less. Analysts surveyed by

First Call/Thomson Financial

had expected the company to make 56 cents per share.

According to Harkins, the main reason for the departure of Hilbert and Dick was that, with these two executives at the helm, Conseco "couldn't convince the financial community that it had financial liquidity." On the call, a Conseco executive said "we have $1 billion of liquidity at the holding company," and added: "We have adequate liquidity to see us through the

Conseco Finance sales process." Cash-flow fears have

dogged the company over the past several months.

'Deteriorating Fast'

Conseco's problems with Conseco Finance are well

established. But the insurance business is coughing up blood. Operating insurance earnings, excluding the big investment gain, plummeted 50% from a year ago, to $183 million in the first quarter.

"The insurance operations are deteriorating fast," says one New York-based hedge fund manager who requested anonymity. "It's not just the old Green Tree." His fund has sold Conseco shares short, a trade that will benefit from any decline in the stock.

In addition, loss ratios in the insurance business jumped in the first quarter. For example, in health insurance products, the first-quarter loss ratio increased 14% from the year-earlier period, to 80%. The rise could mean that Conseco was being too optimistic about losses in the past, and the Lee-led interim management is starting to clean house now that Hilbert and Dick are gone.

Gimme Shelter

Kathy Shanley, analyst at

Gimme Credit

, wonders why the loss ratio went up: "You may recall loss ratio was 79% in the fourth quarter, but they said this was due to one-time reserve additions to certain home health care lines they'd acquired." (Gimme Credit doesn't do underwriting.) She adds: "We're likely to see more special charges and disclosures coming out of the woodwork, now that Hilbert is out of the picture."

Also of note, the company's overall debt has jumped 16% since the beginning of the year, to $8.31 billion. Both Conseco Finance and Conseco's holding company debt rose by that percentage. The holding company debt stood at $2.87 billion at the end of the quarter, vs. $2.48 billion at the end of last year. That means the company borrowed an additional $389 million in the first quarter. It issued $800 million of bonds in February, but said at that time the proceeds would be used to pay off existing debt.

The poor results and the exit of Hilbert and Dick will intensify speculation that all of Conseco, instead of just the finance operations, will be sold. But Shanley says it may be a difficult sale. "I suppose people will say they are in play now, but if

Reliance

(REL)

is any indicator, problems don't go away overnight just because a controversial chief executive steps down," she says. Reliance's chief executive, Saul Steinberg,

stepped down in February after the firm revealed unexpected losses.

On the call, a Conseco executive said that the firm had boosted its reserve against $576 million of stock-purchase loans by $23.4 million, to $42.3 million. The reserve, first disclosed in Conseco's 1999 annual report, was thought to have been too small for the riskiness of the loans. Hilbert's stock-purchase loans totaled $173.6 million, while Dick borrowed $74 million.