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Bank Notes: Payday Lending in NC, Western Union, White River, NetSpend

Adam Rust's picture

Posted February 15, 2013

Some short notes on how payday lending is coming back to North Carolina, the odd case of the low price for shares in Western Union, White River Capital completes it sale, and highlights from NetSpend's investor call:

payday in NC could be back: In a reversal of a trend across the country where

legislatures pass bills to restrict or eliminate payday lending, it looks like North Carolina is ready to re-introduce these payday loans in their state. In North Carolina, the GOP has achieved veto-proof status in the House and the Governor's office. In other news, the GA is ready to turn back money for Medicaid expansion from the federal government, reduce the amount of the maximum weekly unemployment benefit, and eliminate the state Earned Income Tax Credit.

Western Union still generating cash, still unable to generate demand for their shares: Western Union's ongoing expansions in Latin America and Canada, its relatively new WU Pay platform, and its going moat don't seem to make much difference to how people view its profitability. Western Union is still generating cash ($29 million in the last quarter) and it would be generating so much more were it not for the fact that they are paying down mountains of debt and buying back lots of shares. Their P/E is less than 9 and they have $1.3 billion in cash on their balance sheet. That's a lot of cash. The market cap of their rival Moneygram, by comparison, is only $900 million. Their shares yield a dividend of 3.5 percent. As one analyst noted, they can continue to buy back shares and deliver another 4 percent return independent of any operating income. Odd.

White River Capital completing sale: Today, White River Capital filed to de-register its shares from public exchanges. That announcement effectively completes their acquisition by San Francisco private equity firm Parthenon Capital. White River Capital provides sub-prime auto financing. Much of their business occurs in areas with military installations, including Norfolk. To get a more specific idea of this business, remember that they set aside about 6 percent of their receivables revenue for loan losses. That isn't like payday, where loan loss expectations are over 25 percent. It isn't like some Buy-Here Pay-Here financiers, where loan losses run to about 22 percent.  These guys have been bringing buckets of money to their shareholders. During the last two years, dividends have run at approximately 24 percent. With their connections to the military, White River has a practice of tying a high percent of payment plans to the allotment system. Now that White River is private, it is probably the end to their time in BankTalk. So long, guys. Go easy on our service members.

"So our strategy of understanding this consumer -- and this is probably the biggest challenge we have in terms of our investment audience. No offense, John, and I don't know you that well personally, so I might be wrong here. But you probably don't have a real great understanding of how our customer lives their life, nor do most of the folks at Wall Street that I talk to about our business.
- - NetSpend CEO Dan Henry"

NetSpend now making more buckets of money; Dan Henry makes fun of Wall Street: In the last year, NetSpend increased its count of cards facilitated with a direct deposit 25 percent. Now they have 1.08 million accounts set up to take these payments. The direct deposit number is important to earnings - those customers are the most profitable - but it also underscores how many people are now making prepaid their number one means of banking. Many of those direct deposit sign-ups are likely the result of two trends: NetSpend has more corporate payroll accounts and more people are probably setting up prepaid accounts in advance of Treasury's plan to eliminate paper checks.

One humorous moment came when Dan Henry tried to explain the logic of the features they have built on to their platform to Sidoti & Company analyst John Rowan. I've pulled that out above.

No, those Wall Street guys probably don't know a lot of folks who like to text over a $5 payment to top-off their prepaid cell phone.