Cutting the revolving rate to an industry-low 16.8% — going under the statutory ceiling first (1998)

Thinning the spread while the spread was still fat

The heart of this decision is that the company thinned its own earnings at the moment they were richest. The grey zone gave credit companies a thick spread, and in the near term there was little reason to cut. President Kojima Kenzo saw those good results as “bloated with unearned income,” and used the rate cut as the means of rebuilding the company into one that could withstand rising funding costs and regulatory change. He laid the imminent threat — bank cards being allowed to offer instalments — over the opportunity of funding costs at their floor, and moved while there was still room to move.

That said, this single move is not what saved the company. The reserves left by not putting bubble-era money into property were what made the switch into commercial paper possible, and that switch absorbed the revenue the cut gave away. Only when the strength of the balance sheet and the interest-rate strategy were joined could Jaccs pass through the refund crisis a decade later with a light wound. Protect the profit earned at high rates, or give that profit up and prepare for the change ahead — Jaccs chose the latter, buying room to survive in exchange for a near-term fall in revenue. For a company that sells credit, the rate at which it lends is also a choice about whether it will still exist in ten years.