Conseco, 1982-2002? While the lender and insurer may well try one last bid for survival, it's almost impossible to see how this debt-laden and cash-starved company can stave off a bankruptcy filing this year. After a truly horrible 2001, the bad news has been quick to come in 2002. On Thursday, GreenPoint Financial ( GPT), a rival mobile-home lender, said it was exiting the business and forecast that bad-loan losses would skyrocket. The bombshell for Conseco ( CNC)? Applying GreenPoint's projections to Conseco's $25 billion of mobile-home loans would result in losses of $3.5 billion. If a loss of this size materializes, it would eat a huge hole in the balance sheet of Conseco Finance, Conseco's lending subsidiary, and leave that entity in breach of its bank loan covenants. Granted, Conseco's own loss estimates are much lower than GreenPoint's, but analysts believe GreenPoint is more conservative and accurate in its accounting and credit forecasts. Also Thursday, Conseco announced that Conseco Finance's chief executive Bruce Crittenden had resigned, to be replaced by Charles Cremens. Then Friday, Salomon Smith Barney analyst Colin Devine, a longtime Conseco bear, downgraded the company's stock to sell, pointing to further deterioration of credit quality and GreenPoint's loss projections. The stock tanked 16% Friday; it was down 66% in 2001. Conseco didn't respond to requests for comment. Detox wrote frequently on Conseco in 2001.
One article , citing employees and internal documents, alleged that the company was using nonstandard lending practices to hide bad-loan losses. If Conseco were to file for bankruptcy protection this year, it would conclude one of the most dramatic boom-bust stories in the history of corporate America. The company, which originally focused chiefly on insurance, was built almost from scratch by the flamboyant entrepreneur Stephen Hilbert. Though Hilbert's rapid acquisition strategy drew the attention of short-sellers in the '80s, earnings soared, and the bears never tasted success. They had to wait until 1998, when Hilbert massively overpaid for the nation's dominant mobile-home lender, Green Tree Financial, later renamed Conseco Finance. Accounting controversies erupted soon after the acquisition. Hilbert, consistently among the best-paid executives in the country when he headed Conseco, left in 2000 after the underlying business faltered and the stock price plunged. The company got a lifesaving investment from Boston-based buyout firm Thomas H. Lee. Then, in June 2000, Gary Wendt, the highly regarded ex-head of GE's finance business, became Conseco's chief executive, sparking a wave of optimism and a massive rally in the stock. But after achieving one big positive -- a debt restructuring -- Wendt has failed to improve on Hilbert. In fact, Wendt's lending policies have increased bad loans, and he has generated his own slew of accounting issues. So why does GreenPoint's announcement practically add up to a death notice for Conseco? Before doing a comparison of the companies, it's worth reiterating that analysts consider GreenPoint's numbers to be more trustworthy and conservative than Conseco's. Says Bill Ryan at New York-based brokerage Ventana Capital: "GreenPoint was actually a better underwriter than Conseco." (Ventana doesn't rate Conseco, and the firm has done no underwriting for Conseco or GreenPoint.) GreenPoint expects to lose 26% of the dollar value of its mobile loans over their lifetime, up from the previous projection of 14%. By contrast, Conseco expects lifetime losses of 12.6%.