In letter to its shareholders released last week, Conseco Inc. bashed Salomon Smith Barney analyst Colin Divine for projections on the company's manufactured housing business derived from loss and severity statistics of Greenpoint Financial Corp., an unrelated entity which exited the sector the week prior.

The letter has already drawn harsh criticism from analysts who say the company should spend less time pointing fingers and more time explaining earnings shortcomings to investors.

The core of the Jan. 3 SSB report takes the loan losses projected by Greenpoint upon its exit from the MH business and projects them onto Conseco's portfolio, and predicts Conseco will follow suit. The troubled lender thinks this is the wrong way to look at this situation, according to a scathing-mad R. Mark Lubbers, executive vice president, who points to the basis of SSB's analysis: taking Greenpoint's performance statistics and applying them to another company's loan portfolio.

"Tied to its exit from MH loan financing, GPT essentially doubled loan-loss assumptions, and we anticipate, based on its own loan pool performance, that CNC may face similar action," Divine writes in his report.

Lubbers states that this approach is erroneous, going on to point out numerous objections with the report titled Salomon Smith Barney Revised Projection of Lifetime MH Losses.

Cited from Lubbers' letter:

This so-called analysis is used to assert that it "would imply" future charges or loan losses of between $2.2 and $3.5 billion for Conseco.

What is wrong with this "analysis"? It is 100% based on the Greenpoint data and assumptions. Two data points drive the cumulative loan loss projection announced by Greenpoint: (1) default rates and (2) severity rates. For the SSB analysis to hold water, Conseco's experience would have to mirror the Greenpoint experience and projections.

Does it? NO

Will it? NO.

Is there any basis for an analyst's claiming that it does or it will? No, none whatsoever. In fact, there is basis for an opposite conclusion.

In one of its several demonstrably misleading statements the report says: "Greenpoint is considered to have been a much more disciplined and prudent lender than Conseco Finance."

Based on what? I should think that people reading Salomon Smith Barney research would prefer data. Not to pick on Greenpoint, a well-run and successful company, but the loan performance data clearly shows that Conseco Finance is the better performing MH lender. In data compiled by Lehman Brothers and available on its website, you can see that for securitization pools since 1999, Conseco has lower average monthly losses and lower cumulative losses.

Kathy Shanley, CFA, analyst for Gimme Credit, an independent research service on high-grade corporate bonds to institutional investors, basically agrees with Salomon's Divine, noting that she too was concerned about Conseco following the GPT exit. Tempering her words with: "We're not sure we'd go so far as to directly extrapolate from GPT to CNC Finance." She added, however, that "since GPT has maintained good asset quality in its specialty mortgage business, we view it as a more credible underwriter than CNC."

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