Ann: Investor briefing transcript, page-9

Great reply MadTrader.

I agree with you re: the politicians. I dont know if you follow the CCP commentary about the US situation over the past couple of years but that was exactly the dynamic that occurred in that market. Banks stopped selling due to regulatory concerns and as a result the prices went unsustainably high. Not because of increase competition or the "magical new entrant" but because the existing competitors needed some supply to keep their fixed cost bases employed until regulation settled and supply came back on the market. PNC and CCP are both in great positions now because if this were to happen in Australia they would both have enough on their books to at least break-even. They both also have good value propositions through to the banks with their ethical approach / lack of complaints which I agree is a source of competitive advantage etc.

I definitely understand that PNC is higher credit quality - thats evident from both the prices they are paying but also their amortisation rate. What I struggle with is how risky each market segment is and I come to the same conclusion as you I think.

With regards to the banks and sustainability. I understand the reasons for selling the debt but I view this as a spectrum of credit quality rather than "do we sell or do we not" absolute decision. Do they sell severely delinquent debts (very hard work to recover) clearly yes so at one end of the spectrum. Do they sell a client that misses one payment - clearly no and at the other end of the spectrum. PNC operate closer to the "clearly no" category than do CCP but I dont have any evidence about how these decisions are made. The strategy of selling their own consumer finance to the customers once they finalise their obligations also introduces a degree of "channel conflict" (for want of a better word) that the banks wont be happy with in time. Do they get into the business of debt collection or will future sale contracts contain obligations for the debt buyer to return the customer back to the bank once completed??

Dont get me wrong - i'm not negative on PNC. Our job as investors is similar to theirs - we need to understand the risks and price for this risk. The positive side of this is that PNC trades on much cheaper multiples than CCP so the rewards are there for shareholders should they get it right and all indications are that they are tracking along very nicely. I might take up the suggestion and call the CFO.

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