Word: nonbanks
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...Asia is experiencing severe growing pains. Banks have loaned too much money, using inflated property values as collateral. In Thailand many banks have loaned more money than they have on deposit, and some 20% of the nation's lending has been done by especially aggressive, largely unregulated nonbank financial companies. Most of these "fin-cos" are headed for extinction. It's a recipe for a flood of bad loans and higher interest rates. The economy there is headed for a slowdown, possibly a recession, in short order...
...side: unlike companies with no revenue and barely more than a product design, MoneyGram has a real business. Last year it earned $18 million on revenue of $137 million. Earnings are down a bit this year, but money transfers are on the rise. It has 16% of the worldwide nonbank consumer-money-transfer market. But Western Union, the granddaddy of the wire business, claims 81% of the market. "Our big concern is Western Union's dominance," says Travis Farr, analyst at IPO research firm Renaissance Capital. But market dominance is only the start of what should concern would-be MoneyGram...
...government's concern fully justified? Who really needs banks these days? Hardly anyone, it turns out. While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm. "It is possible for banks to die and still have a vibrant economy," says Edward Furash, a Washington...
Those profits may have come at a price. Not only did bankers lose many loyal customers by withholding credit, they also inadvertently opened the door to a herd of nonbank competitors, who stampeded into the lending market. "The banking industry didn't see this threat," says Furash. "They are being fat, dumb and happy. They didn't realize that banking is essential to a modern economy, but banks...
That's the way the credit crunch has brought rapid growth to many nonbank lenders. "There is plenty of demand for financing from small companies," says Access Capital president Miles Stuchin. "It's just that the banks are turning them down." Stuchin set up a finance company in 1986 that Inc. magazine last year placed in the top 20% of the 500 fastest-growing companies...