Arizona Republic from Phoenix, Arizona • Page 136

New Bank Plans Rock the Boat in Loan Business By DON G. CAMPBELL Business and Financial Editor A ROSE is a rose is a rose. Granted. But who can say when a loan is a loan is a loan? A year ago this wasn't the case, of course. You simply ran out of money and then went to the bank, the small loan company, the credit union or what-have-you, and borrowed enough to tide you over.

A loan, purely and simply. But this was before the age of the guaranteed overdraft flowered in Arizona banking circles and raised the interesting question of when a simple overdraft stops becoming a mere overdraft and becomes, instead, a loan. Arizona's consumer finance firms the erroneously labeled "small loan" frank to admit that both the Valley National Bank's" Worry-Free" account and the First National Bank's "Credit Reserve Plan" are beginning to cut into their market in an uncomfortable way, and that the situation is almost certain to get worse before it gets better. So far, according to Warren M. Silver, president here of Model Finance Co.

and chairman of the executive committee of the Arizona Consumer Loan and Finance Associa- Campbell tion, the impact has been felt, chiefly, in the lower volume of time-sales contracts handled by the finance companies. But, he feels, inroads undoubtedly arc going to he felt- perhaps the industry's straight lending business, too. Smaller retail establishments without their own charge- account plan traditionally sell their sales contracts on high-ticket small loan companies. Recently, Silver said, the prolific growth of credit card and bank overdraft devices is taking a healthy share of this business away from the consumer finance firms. Both of the overdraft plans in operation here permit bank customers with approved credit to write to an The State's Business established limit without regard for whether they have a balance to cover the check or not.

The overdraft automatically becomes a loan, or something, as soon as it hits the bank. In the past, bankers have been inclined to take the position that they were not competing with the small loan companies because the two institutions were aiming at different economic groups the loan companies concentrating, principally, on riskier credit applicants than the ordinary bank would handle. And, naturally, the interest rates reflect this higher risk factor: bank installment loans are limited to a rate of 1 per cent a month on the unpaid balance while, under Arizona law, small loan companies can charge 3 per cent a month of the unpaid balance up to $300, 2 per cent a month on the unpaid balance of the next $300, and 1 per cent a month on the unpaid balance of the remaining $400 ($1,000 is the maximum). Until the overdraft plans came along, according to Walter W. Kerswill, executive secretary of the consumer loan group, there was little profit for the banks in small loans.

It costs approximately $20 simply to set up a small loan on the books, he said, and the average consumer finance customer is Arizona borrows ony about $420 to begin with. This high start-up cost, the greater risk, and the lower permissible bank rate on small loans discouraged banks from competing actively with the consumer finance firms. What has changed all this, and has fuzzed the lines between the economic groups that the two institutions are courting, are improved credit reporting techniques and the computerization of accounts the guts of any bank's credit card, or overdraft, plan. Once it became feasible to handle the complexities of an overdraft system, then it also became feasible to go after the small loan business on an active basis. The high start-up cost of approving an applicant's credit became a one-time cost instead of one that had to be initiated every time he needed another loan.

Last year, Silver said, the 250 small companies in Arizona made approximately $73 million in loans. This is the fat target that the banks are, in large part, zeroing in on. And, with refreshing candor, most bankers make no pretense of denying it. "We know that we're hurting them," one said this past week, "and we'll probably hurt them even more before the thing settles down. On the other hand, though, I doubt if we'll ever get more than about 15 per cent, or so, of their business." This is a point of questionable comfort to the small loan industry, since this would imply an almost $ll-million-a-year bite out of their lending activity.

Paradoxically, however, neither local bankers nor consumer finance people foresee the so-far quiet tussle for the small loan business breaking into anything approaching open warfare. Relationships between Arizona's bankers and consumer finance representatives are cordial to an unusual degree. "Arizona's bankers," Silver said, "have always been members of our Lenders' Exchange, where credit information is freely traded back and forth, and this may be unique. It's a form of cooperation by the banks that is virtually unkown anyplace else." Despite what seems like a breakdown in the unspoken agreement over which economic group each institution will concentrate on, Silver still feels that the risk element will continue to split the market pretty evenly between them. "This overdraft business," he said, "is a pretty sophisticated form of credit, and I suspect that the banks are being very discriminating in extending it.

Some of them got hurt pretty badly a few years ago with revolving credit plans." The banks, too, hope that they're being as discriminating as Silver credits them with being. Sure Market Western Electric Cable Plant Seeks Cotton, Can Steel STILL nine months from completion, the Western Electric cable plant at 51st Avenue and Van Buren is seeking Arizona Suppliers. Axel Nystrom, assistant manager-engineering, told newsmen the company is looking for someone to produce copper rod and to process cotton that will be used at the plant. The cable plant will be the world's largest. It will use the copper rods in pound lots to produce the copper cable for sale to telephone companies of the American Telephone and Telegraph Bell System.

THE NEAREST source now for the copper rods is St. Louis. The rods are produced there from copper that probably comes from Arizona's mines. The cotton fibers are used to make the insulation wrapped around the copper wires that go into the cables. Uncle Sam's Guns Aimed At Recession New York Times Service NEW YORK Washington continues to show concern- without conceding the economy's halting progress this year.

There appears a determination within both the administra tipn and the Federal Reserve System to waste no time in this incipient recession to unsheath a full arsenal of weapons to combat it. The steps taken to avert, or at least minimize, the economy's slowdown are prob ably without parallel in U.S history. The government's latest sho in its program to tilt busines; upward again was fired on Thursday when the FRS decide unanimously to reduce the dis count rate to 4 per cent froir 4.5 per cent. ALTHOUGH this action wa expected, it produced an imme diate but brief reaction in th financial markets. Welcomed almost everywhere the lowering of the discount rat led to a moderate run up i stock prices and the usual cor ollary reaction in the bon market, where prices rose an interest rates declined.

Stoc prices, however, quickly re versed course and returned 1 the lower pattern that prevaile early in the week. When it announced its decision to cut the discount rate, the Federal Reserve said its action There's no source in Arizona now to process Arizona cotton into the fibers needed. They'll come initially from eastern mills, perhaps North Carolina. And there's a place, too, for another supplier. The company uses large quantities of tin-can steel to sheath its cables as protection against gophers.

A CAN FACTORY could be an addition to the Valley economy, suggested Nystrom, holder of 17 patents used by Western Electric in its cable operations. Nystrom said the square foot or 21-acre plant will be not onl ythe nation's largest, but its most efficient cable plant. He said full production at the rate of 54 billion conductor feet a year would be attained in the fall of 1968 and emphasized Western Electric "has a dire need for the production." IT WILL consume more copper than is produced at Globe-Miami and will provide work for more than 1,100 persons, of which about 1,000 will be recruited and trained locally if necessary. Already, he said, the company has 95 persons in a training program to operate machines in the plant. "We're most happy with the results," he said.

The expected payroll at full operation will be more than $6 million a year. NYSTROM'S VISIT with newsmen, during a luncheon, was part of a widening Western Electric effort to introduce itself to the Valley. Newsmen were invited to tour the plant, a feat 30 members of the Student Construction Society at Arizona State University did a few days earlier. The plant will be the 15th major manufacturing facility of Western Electric. It is the second Western Electric unit in Phoenix.

The other is the Western Electric Distribution and Installation Center at 3750 W. Indian School, established in 1957. The distribution and installation center did $18 million worth of business last year in Business Real Estate Finance THE ARIZONA REPUBLIC Sunday, April 9, 1967 (Section F) Page 1 Realtor Resolution Cites Tax Danger C3 A WARNING that rising taxes in this state could drive away retirees was sounded yesterday at the 22nd annual convention of the Arizona Association of Realtors at the Executive House, Scottsdale. A resolution said the money invested by retirees seeking a pleasant climate in which to spend their later years has become a substantial and highly competitive economic factor. IT POINTED out that real property taxes often represent the deciding factor in the determination of a location in which to retire and invest maximum tax rate was posed.

op- and added that other states, particularly Florida, have recognized the value of the "retirement dollar" and have taken steps to acquire it. Real property taxes in Arizona, the resolution continues, "have increased from year to year to the extent that such taxes are now a substantial burden to real property owners, and especially the homeowner." A CONSTITUTIONAL amendment establishing The resolution concludes that the realtors' group strongly opposes any further increase in real property taxes including a real estate transaction tax and urges all government officials to carefully consider their obligation to homeowners in the state when exercising their powers of taxation. IT ALSO urges officials to exert a special effort to bring about a decrease in real property taxes by effecting econo- ROBERT CROUCH Heads Arizona Realtors mies in government and by creating other and more equitable sources of revenue. During the closing sessions of the two-day convention yesterday, Robert Crouch of Scottsdale was elected president of the association. Mario A.

Yrun of Tucson was named first vice president and John D. Noble of Phoenix second vice president. Goodyear Builds Chutes Retrieval Gear Designed for Spacecraft visiting students from Arizona State University, Dan Mardian points to circular opening that will contain insulation-making machine at Western Electric plant west of Phoenix. Mardian Constructon Co. is building plant.

Left of Mardian is Mike Tarver, president of the ASU Student Construction Society; and right, Edward F. Shaifer head of the ASU Department of Construction Engineering. and installation services for the Mountain States Telephone Co. in Arizona, New Mexico (Continued on Page 4-F, Col. l)i and El Paso County, Tex.

was "in line with recent declines in market rates and in equipment, supplies, repairs Regional Airlines to Meet "FROM an investment viewpoint," a financial analyst observes, "we used to consider feeder airlines and uranium stocks as the same breed of cat. "But today the so called feeders, now known as local service or original airlines, have grown into young tigers at least and have won the respect of analysts, brokers and other members of the securities industry, as well as growing numbers of investors." Five of the regionals have moved onto the American Stock Exchange, including Phoenix' Bonanza Air Lines, and several others are expected to list fairly soon. MOST OF those carriers whose stock is quoted over- the-counter also are enjoying active markets for their securities, principally in the geographical areas they serve. The reasons for investor interests are: more than three years the entire transport industry has been financially exciting. Back at Starting Point Warehouse Boy on Board DR.

J. ALLEN GINN JR. To Grocery and Back Again FOR Dr. J. Allen Ginn life has come a full cycle.

In the middle 1930s, he worked, while going through high school, in the A. J. Bayless Markets, warehouse and later as a clerk in one of the supermarkets. Then he went to the University of Southern California medical school, served with the Navy Medical Corps in WWII, established a gen- eral medical practice here in 1946 and serves as president of Doctors Hospital. Now, he's back with A.

J. Bayless as a member of the board of directors. Perhaps that's not so strange, after all. Dr. Ginn's father, who moved here from Texas in 1921, operated a food brokerage business in the Valley for more than 20 years.

first one to be hosted by Bonanza and its chairman, Edmund Converse, since the company moved to Phoenix, comes at a time when, both airline managements and security analysts agree, an anticipated Civil Aeronautics Board action could be the biggest thing that's ever happened to the regionals in their fight for better routes and an eventual end to federal subsidy. WHAT THE CAB has proposed is broad nonstop authority in more than 100 medium- haul but high-density markets along the route segments regionals have gotten rid of most of their tired old (Continued on Page 4-F, Col. 5) DCS's and are now replacing their prop-jets with the much more glamorous and speedy pure jets. MORE and more people become air travelers, the number of passengers and the amounts of revenue accruing to the regionals keep rising. Another reason, which now looms on the horizon, forms an encouraging backdrop for the 21 airlines presidents who gather at Mountain Shadows Thursday and Friday for meetings of the Association of Local Service Airlines.

This meeting, which is the Iii This Section Boys and Girls Business Briefs N.Y. Stocks American Stocks Investing Companies Over-Counter Sylvia Porter Real Estate Page 7 6 2 3 GOODYEAR is using a double play to build parachutes for spacecraft. Goodyear Aerospace Corp. designed the sombrero-shaped 'chutes at its Akron, Ohio, headquarters. Goodyear Aerospace at Litchfield Park, West of Phoenix, built the 'chutes and developed methods of packing them.

Then Litchfield made modifications required as the program moved ahead in its fabric assembly plant. THE PARACHUTES are ultra-lightweight and are designed to increase re-entering spacecraft payloads possible to recover in midair. Goodyear said the 40-pound 'chutes are 50 per cent lighter than conventional retrieval systems of comparable capability and will handle a wide range of payloads, "including those well in excess of 1,000 pounds." Despite its light weight, Goodyear said, the device has been deployed at dynamic pressures of 100 pounds per square foot in air recovery of a 900-pound payload. NORMALLY, Goodyear said, such performance is attainable with parachutes weighing at least 80 pounds. The parachute is shaped like a sombrero with a 15- foot-high dome above a 53- foot-wide brim that Goodyear calls a canopy.

The unusual shape, Goodyear said, provides recovery aircraft with a distinct target and holds payload descent to 25 feet per second. The design, it was announced, is one of the advanced concepts that have emerged from an accelerated program aimed al develop- new concepts are in the feasibility stage, Goodyear said. Among them is a system in which a trailing target parachute of conventional design is deployed 20 feet above an annular canopy that is 42 feet in diameter. Shaped like a wedding ring, the thin nylon canopy circle is vented with an opening that is 25 feet in diameter. Also under study are new techniques in high density packing that will permit lightweight 'chutes to be stowed in irregular shapes and in reduced space aboard spacecraft.

GOODYEAR at Akron and Litchfield Park has a long history in development of aerodynamic decelerators, including a major role in preparation of the first Air Force handbook on parachute design. Goodyear's Ballute, combination balloon-parachute, several years ago introduced an entirely new concept in decelerators. The high-performance drag balloon is top-shaped and self- inflating. It was designed for deployment at high supersonic speeds to slow and stabilize re-entering spacecraft. A BALLUTE accommodated the Gemini mission astronauts.

The Air Force upper atmosphere rocket sampling system uses a Goodyear retardation and recovery system. A Ballute is used to slow the reentering nose cone to about 420 miles an hour, and a nylon parachute then is deployed for aerial pickup. 3 ment of retrieval systems of lighter weight, greater reliability and increased payload capacity. IMPROVEMENTS on other AEROSPACE 'CHUTES Goodyear Aerospace Corp. at Litchfield Park builds these novel parachutes designed for midair recovery of re-entering spacecraft and other airborne vehicles.

Left is sombrero-like first model and right ring-like improvement. sored by'vn'e Pnoeriix WIC. a service for their National.