Cawley has irritating habit of disproving MBNA critics

October 24, 2001|By Jay Hancock

BY MANY accounts, MBNA Corp. President Charles Cawley is a proud, prickly chap, unsuited to respond to the brickbats of running a big company with the bland tact favored by his Fortune 500 peers.

Cawley called Jesse Jackson a "damned fool" after Jackson implied managers of the big credit-card concern were "rats" who ran a discriminatory enterprise. Queried once by a journalist about a critical press report, Cawley called it "a bull---- question" about "a bull---- article."

Last year two stock analysts who rated the company a "hold" instead of a "buy" were banned from an MBNA conference. A long-running feud with Standard & Poor's over debt ratings was conducted not just via private phone calls but in MBNA press releases.

But Cawley has an advantage over most people who respond poorly to criticism. He has an irritating habit of being right, especially when it comes to his company's results.

Cawley, whose company is based in Delaware and has 1,560 workers in Hunt Valley, has made naysayers look dumb for years.

"My concern is their ability to maintain the growth of their credit-card receivables at a 15 percent rate," Montgomery Securities analyst Susan L. Roth said of MBNA in 1993. The next year MBNA's receivables - the debt on its credit cards - increased 52 percent while profit rose 30 percent.

In early 1996 Furman Selz bond analyst Katie Rossow noted "a deterioration in the kind of customers MBNA is marketing to." That year profits rose 36 percent.

Late last year, CIBC World Markets analyst Steven Eisman worried that "MBNA's growth rate has gotten harder to maintain." So far in 2001 MBNA's profit has grown 35 percent.

Since its split from the old Maryland National Bank in 1991, MBNA's stock has kept up with Microsoft's if you counted dividends - and MBNA doesn't have a monopoly. An investment of $100 in MBNA in 1991 when it began trading as a separate stock would be worth $2,632 today, including dividends.

What makes MBNA's success all the more impressive are the landmines and potholes that pock its chosen playing field. Unsecured consumer debt used to be at the bottom of the banking food chain, but Cawley turned it into a blue-chip business.

He uncovered the secret more than a decade ago.

Working with then-Maryland National head Al Lerner, Cawley found that credit-card customers would be more loyal and profitable if their plastic carried the logo of some organization they belonged to and if the organization got a portion of the revenue.

Even better, the alumni clubs, museums, sports teams and philanthropic groups would help sell the products that bore their names.

This is the "affinity card" business, which Cawley owns just as surely as Lerner owns the Cleveland Browns. After selling Maryland National to what later became Bank of America, Lerner stayed on as MBNA's chairman and CEO, but analysts say Cawley makes the place hum.

Thousands of groups in multiple countries offer MBNA cards, with some of the latest recruits being the University of Mississippi, Major League Soccer, the Sierra Club of Canada and the Institute of Chartered Accountants in England and Wales.

MBNA owes its consistency to a disciplined, demanding culture that is not unlike that of a group Cawley used to belong to: the U.S. Marines.

"He's a son of a gun" said Richard N. Speer, an Atlanta financial services consultant who has known Cawley since the mid-1980s. "He's a very demanding guy. But if you talk to people who work for him, I don't know that he's ever lost anybody of consequence."

Relentless marketing at MBNA has combined with ruthless credit analysis and sterling service to produce what seemed impossible a few years ago: exponential growth in revenue without much erosion in credit quality.

So far this year MBNA has added 8.4 million customers, which is impressive all by itself. But get this: The new clients typically have $70,000 in household income, own a home, have been employed for 11 years and have a 17-year record of paying bills promptly.

MBNA says its cardholders include almost half of all U.S. engineers, nurses and lawyers, two-thirds of dentists and physicians, a third of accountants and nearly 40 percent of educators.

That's good. But it's probably not good enough to spare the company another round of skepticism as the economy goes limp and the consumer-debt Chicken Littles chirp up.

MBNA's stock was slammed after the Sept. 11 terrorist attacks, falling almost to $25 from close to $40 earlier in the year. Short interest in the stock - driven by investors betting it will go down - has risen sharply.

Credit-card stocks got a second shock Friday when San Francisco-based Providian Financial Corp. warned of enormous losses, said its chief executive resigned and saw its shares fall 58 percent.

MBNA, however, is not Providian, which specializes in high-risk borrowers. MBNA is the opposite of Providian.

MBNA has well-off, loyal customers who shop a lot. MBNA is seizing on breathtakingly low financing, courtesy of the Federal Reserve. A court decision this month allowing banks to issue American Express cards could yield a major expansion opportunity. And the company has heard the doubters before.

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