The lower quality loans, the sub prime loans, have much more equity stored against them. The higher quality near prime and prime lending they are expanding into has less. A lot of the growth of late has been in the higher quality AFS segment. Still, you have a good general point. Leverage can wipe you out.
SVR still has much more equity than peers and can actually lever even more. The compamy also recently refinanced and pushed out some of its debt maturities.
The fact the insiders, namely the CEO and chairman, also have material stakes in the business, is also comforting.
I agree about the regulatory issues, this is going to cost many millions, but in the context of even one year's pre tax earnings I don't think catastrophic.
Ann: Strategic Update, page-11
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