Will credit unions become conduits for the e-shopping malls of the next millennium? If Adam Walker, founder and chairman of Burbank-based American Member Advantage Inc., has anything to do with it, they will.
Walker has created an e-commerce Web site where people buy big-ticket items like cars, computers or travel services. What sets the site apart from other, similar e-commerce sites is that American Member can only be accessed through links to credit union Web sites. Members of those credit unions can buy products on the American Member site that are financed through credit union loans.
Already, Walker’s American Member site is linked to the sites of about 375 credit unions nationwide, with some 7 million combined members.
“Some retailers charge as much as 20 or 25 percent in annual finance charges,” said Walker. “We can save the credit union consumer hundreds of dollars in finance charges on a big-ticket item.”
Most credit union consumer loans carry annual interest rates of about 9 percent, according to various published charts.
Walker, 27, has lined up corporate financing from some of the advance guard of the Internet business including Sky Dayton, chairman of Pasadena-based EarthLink Network Inc. to get American Member off the ground. Walker was formerly director of marketing for EarthLink.
Despite its quick progress out of the gate, American Member is still in its infancy, with plenty of growth potential, said Walker. “There are about 11,500 credit unions across the country, with about 80 million members,” he said. “We have gone after the larger credit unions first, but we really have just scratched the surface.”
On the merchandise side, Walker either has the manufacturer send the product directly to the end user, or ships it out of his warehouse. In the case of automobiles, Walker has established tie-ins with car dealers across the nation. New product lines will be added on as demand allows, he said.
American Member is projecting about $10 million in sales this year, roughly double its level last year. Walker envisions going public, perhaps by the second quarter of 2000.
Leib Orlanski, securities lawyer with Freshman Marantz Orlanski Cooper & Klein in Beverly Hills, acted as legal eagle on a recent private placement of American Member debt and equity.
Gems in the rough?
Harry Eisenberg, editor-in-chief at Lafayette, Calif.-based Walker’s Manual LLC, has just come out with his latest and fourth-annual edition of “Walker’s Manual of Unlisted Stocks.”
Generally, the patience of Job is required to invest in unlisted stocks, as the time frame to pay dirt stretches out over years, and sometimes across decades. You can’t count on liquidity, and dividends are usually nil.
An unlisted stock is one that is not traded on the exchanges, such as the NYSE or Nasdaq, and generally does not file financial statements with the Securities and Exchange Commission.
Eisenberg has long contended that the very unwieldiness of unlisted stocks is what makes them attractive investors shy away from illiquidity, thus leaving value on the table. When (and if) that value is realized, the investor can make a good score, he believes.
Indeed, at a time when stocks in the S & P; 500 easily trade at 25 to 30 times earnings, many unlisted stocks trade at half that, or less.
Some of the old-line names of Los Angeles commerce are actually unlisted stocks, including Pasadena-based J.G. Boswell Co. (now primarily agribusiness), the Los Angeles Athletic Club, and Carson-based Watson Land Co., now mostly an industrial park owner-operator on land granted to it by the Spanish crown in the 18th century.
An interesting new entry in the unlisted stock manual is downtown Los Angeles-based E*Capital Corp., parent company of brokerage Wedbush Morgan Securities.
E*Capital, at about $32 a share, trades at roughly six times earnings. By way of comparison, Hambrecht & Quist, the publicly traded San Francisco-based regional brokerage, trades at about 18 times earnings, while a major blue-chip such as Merrill Lynch trades at 25 times earnings.
“E*Capital is cheap,” said Jack Norberg, principal with Tustin-based Standard Investment Chartered Inc. and a 15-year veteran of the unlisted securities circuit. “They are well-run, and have a good growing business as a clearinghouse.”
In addition to being a brokerage, Wedbush Morgan basically acts as back office for many independent West Coast brokerages, executing trades and maintaining records for them.
But Wedbush Morgan’s parent E*Capital, like many unlisted stock companies, is not eager to have new investors it does not want more than 500 people in the stock, which would compel filing with the SEC, said Eisenberg.
Norberg and a small coterie of other brokers in Southern California can usually locate and buy unlisted stocks on behalf of clients even in E*Capital.
But Norberg warns that transaction costs might run as high as 1 percent or up to 2 percent of the purchase price (higher than most commissions for buying or selling a large block of listed stock), and if one wants to sell unlisted stocks quickly, a sizable discount probably will have to be offered.
“This is not fast-buck investing,” said Norberg.
Moreover, Norberg said the mere publication of the Walker’s Manual has raised prices of many unlisted stocks, eliminating some bargains. “Walker’s Manual shined a light on many of the cheaper stocks. It’s getting harder and harder to find one really underpriced,” he said.
Online employee stock options
One of the less talked-about corners of the securities world is that inhabited by transfer agents companies such as Chase Mellon Shareholder Services Inc. They are the keepers of the flame the transfer agent dutifully records who owns stock in publicly held companies, updating with every trade.
Recently, Chase Mellon began offering online execution of employee stock ownership plans to publicly traded companies.
“More and more publicly held companies have employee stock ownership plans, and option plans. With new high-tech or Internet companies, virtually every employee, from the lowest-ranking to the chairman, has stock options,” said Jeff Seadschlag, vice president with Chase Mellon in downtown Los Angeles.
With Chase Mellon’s online system, employees can sign on and view stock positions, exercise options, or execute on other company stock ownership plans, such as buying discounted stock, said Seadschlag.
By the way, the Internet IPO wave has Seadschlag busy. He handles more 300 public companies in the Western U.S. for Chase Mellon. “But I am waiting on 22 IPOs, which have been filed and which have signed contracts with us, to become funded, so they can become active customers of ours.”
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
