MARKET VOLATILITY WILL REMAIN FACT OF LIFE FOR U.S. CONSUMER LENDERS IN 2008

New TowerGroup Research Examines Top 10 Business Drivers for Consumer Lenders, and Maps Opportunities amid Today’s Negative Headlines

With the full ramifications of the subprime mortgage meltdown still yet to be felt, market volatility will remain a fact of life among U.S. consumer lenders in 2008. New research from TowerGroup identifying the top business drivers and trends for consumer lending finds that lenders must remain on heightened alert. However, TowerGroup also notes that while this time of crisis has lowered financial performance expectations for many lenders, it also offers opportunities for those that can adapt and plan ahead.

“The volatility of consumer lending markets has forced consumer banking divisions of financial services institutions into a defensive mode,” said Bobbie Britting, senior analyst in TowerGroup's Consumer Lending practice. “As a result, both revenue and profitability are forecasted to decline across most lines of the consumer lending business. During this time of crisis, it is imperative for the consumer lending industry to refocus and begin taking steps toward a broad reformation of credit.”

TowerGroup believes that now more than ever, lenders must focus organizational, operational, financial, and technology operations on addressing the gaps that contributed to the current crisis – as well as to prevent new ones. Paying attention to key business drivers and reforming outdated strategies will be critical to providing the types of products consumers want and can understand – as well as to setting appropriate customer expectations about all aspects of a lending transaction.

Highlights of the research include:
• TowerGroup expects many topline metrics (including lending volume, revenue, profits, home sales, home prices, automobile sales, and college costs) to worsen in 2008.

• In 2008, lenders will be faced with increasing regulatory burdens and must have the right IT systems in order to adjust rapidly. Technology, particularly in core lending systems, will play a major role in enabling consumer lenders to remain viable.

• A broad reformation of credit, which encompasses product, service, and channel innovation; improved risk assessment and loss mitigation; and increased focus on the customer, must be taken in 2008.

• TowerGroup believes that the most fundamental business actions to be taken by consumer lenders in 2008 are: integration of systems to better understand the customer and obtain a holistic view of the customer or household’s relationship with the financial institution; better use of data to develop the next successful product offering; and automation to engage in these activities consistently, compliantly and cost effectively.

• Innovation, integration, transformation, automation, and optimization are no longer buzz words, but represent key initiatives supporting credit reformation.

• A potential wildcard business driver will be any new crises in other types of highly-leveraged credit instruments. This scenario would exacerbate consumer credit market volatility globally and again reshuffle lenders’ strategic responses.
“A credit reformation is needed across all areas of consumer lending, including mortgage lending, loan securitization, and loan servicing,” said David Hamermesh, senior analyst in TowerGroup's Consumer Lending practice and co-author of the report. “In order to have real impact, we believe that these reforms must encompass product, service, and channel innovation, with a greater focus on risk and loss mitigation, and an increased emphasis on the customer. Those lenders that focus attention in these areas have the opportunity to emerge stronger and more competitive.”

Members of the media may contact Jorge Lavina at +1.212.455.8041 or jlavina@cooperkatz.com to review the new research report – titled '2008 Top 10 Business Drivers, Strategic Responses, and IT Initiatives in Consumer Lending' – or to arrange an interview with a TowerGroup analyst. Those interested in purchasing a copy of the TowerGroup report or subscribing to a TowerGroup research service may call +1.781.292.5200 or email service-info@towergroup.com.

About TowerGroup: TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world's leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit http://www.towergroup.com for more information.