Who will win this year's race to become America's highest-paid chief executive? With little more than two months remaining in 1996, the favorite by about 50 Rolls-Royce lengths looks to be Larry Coss, 57, a self-effacing former used-car dealer, whose total compensation as CEO of Green Tree Financial Co. in St. Paul, Minnesota, is streaking toward the $100 million mark. Coss, whose company specializes in financing mobile homes, motorcycles and other big-ticket consumer items, walked away with $65.6 million in salary and bonus last year, leaving better-known titans like Sanford Weill of the Travelers Group and Jack Welch of General Electric in the dust.
Measured by performance, Coss, whose pay consists overwhelmingly of Green Tree stock, may deserve a little extra in his packet: he has managed to boost the company's value at a torrid 83% compound rate over the past five years, making it one of the hottest issues on the New York Stock Exchange and winning encomiums from the likes of Fidelity mutual-fund guru Peter Lynch. Just last week Green Tree reported record earnings of $227.3 million through the third quarter and a stunning 50% increase in its loan volume, to $7.57 billion over the same period last year.
Green Tree represents the rapier edge of a red-hot specialty: the business of making loans to people with damaged credit at interest rates that start at high and extend to very high and nosebleed. Depending on where you sit--whether you are the lender or the borrower--this is either an industry filling an underserved market, or legal usury. Often known as sub-prime finance, the sector is taking off in part because of sophisticated software that allows even onetime deadbeats to get loans approved in minutes over the phone or as they sit in the offices of mortgage brokers or car dealers. An even bigger factor in the explosion: people with lousy credit represent a massive and largely untapped market for new loans. Most of them are working folks who don't qualify for conventional bank financing, perhaps because of a past lapse or a layoff. On average, they are far more likely to default, but they are willing, even eager, to pay up for credit.
In the odd twists of finance, these lesser customers now represent the greater opportunity. Regular bank customers who pay lower rates are no longer borrowing as much as they did. There's a reason: the better-risk customers are tapped out, having run up record levels of debt over the past couple of years in a spending boom. This anomaly, according to Joe Jolson, a leading analyst at Montgomery Securities, is "one of the best-kept secrets on Wall Street."
Was. Competition for down-market customers and the profits they generate is intensifying among big mortgage providers like GE Capital, Norwest Financial, KeyCorp, NationsBank and Chase Manhattan, not to mention heavily advertised smaller outfits like the Money Store (Dial 1-800-LOAN-YES). The total for sub-prime mortgages--a figure that is growing at twice the rate of conventional mortgages--is expected to exceed $120 billion this year. Another blistering market: sub-prime cash for new and used cars. Ford Motor Co.'s Associates Corp.; Mercury Finance, based in Lake Forest, Illinois; Credit Acceptance Corp. of Southfield, Michigan; and other lenders this year will provide at least $70 billion to put people with dented credit behind the wheel.