Stocks: Advanta Up After Plunge Triggered by Shift on Chargeoffs

Advanta Corp. shares scored strong gains Monday as investors warmed to a change in the card specialist's chargeoff policy.

Advanta Corp. A shares were up 43.7 cents to $46.562, on a listless day for bank issues. It was the second straight strong trading day for Advanta stock, which had plummeted nearly 10% - to $44.93 Thursday - after its Oct. 17 earnings announcement.

Advanta shares went into a free fall after the company announced it would report bankruptcies as chargeoffs in 90 days instead of 30 days, said Wheat First Butcher Singer analyst Merrill Ross.

"The stock traded down pretty hard on that news," even though earnings and return on equity were up, she said. "The street said that it was terrible," because Advanta has "always been conservative" when reporting bankruptcies, Ms. Ross said. "It looked like they were becoming lax in how they were reporting their chargeoffs."

But Advanta's new reporting schedule falls in line with those of other credit card companies, such as First USA, Capital One, and MBNA, Ms. Ross pointed out.

The sudden revival in Advanta's stock price shows the market has realized the longer reporting "makes sense," she said.

Once you report a bankruptcy as a chargeoff "you no longer have a pertinent lien on the account," she said. "It never made sense to charge them off that early."

She also noted that the company has often had the lowest level of chargeoffs among its peers.

Analyst Moshe Orenbuch of Sanford C. Bernstein & Co. said another factor lifting the stock is the company's plan to reprice $3.5 billion in receivables early next year.

During Monday trading, Advanta's class B stock, which also suffered after the earnings announcement, climbed 50 cents to $45.75.

The Standard & Poor's bank index fell 0.37%, while the Dow Jones industrial average declined 0.57%. The S&P 500 also declined to 0.52%.

Thomas Carpenter, an economist at ASB Capital Management, said bank stocks as well as the rest of the market were weak on Monday because investors "are gearing up the for the biggest statistical week of the year."

Economic indicators being reported this week include third-quarter gross domestic product, employment numbers, the Beige Book - a report issued by the 12 Federal Reserve banks on economic conditions, new home sales, and the National Purchasing Managers survey on manufacturing.

Separately, J.J.B. Hilliard, W.L. Lyons Inc. initiated coverage on Riggs National Bank Corp. with a "buy" rating, citing the company's gradual recovery since 1989.

"Few banks have plumbed the financial depths and survived," said analyst Alan Morel, noting that the company suffered substantial losses during the decline in real estate values in late 1989.

Mr. Morel has an 1996 and 1997 earnings estimate of $1.60 and $1.80, respectively. His four-month target price for the company is $42.

Riggs shares fell 6.2 cents to $17.187.

"If Riggs can avoid being acquired, we will see its full earnings recovery in the next four years," Mr. Morel said.

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