Bank One Corp.'s First USA division said it will increase prices and trim its marketing budget to shore up its ailing credit card business.

The much-awaited unveiling of a strategy to turn First USA around was announced Tuesday at an analysts meeting in New York. It did little to cheer the investment community.

"It sounds like they are at least cutting back from the most reckless of their marketing campaigns, but that's only a first step," said Mark C. Alpert, an analyst at Deutsche Banc Alex. Brown. "Other than to admit they did not use the discipline they should have, there wasn't a tremendous amount of detail in their strategy."

First USA, the No. 2 issuer in the country, ran into trouble last year after it shortened the grace period for payments, imposed late and other ancillary fees, and raised cardholder interest rates unexpectedly. A mass of customer attrition at the Wilmington, Del.-based subsidiary caused Bank One to warn investors twice last year that it would not meet analyst expectations.

Trouble at the card unit resulted in the resignation of Richard Vague, chairman and chief executive officer at First USA. More dramatically, it also resulted in the departure of Bank One's founder, former chairman and CEO John B. McCoy in December.

"We had greater expectations from First USA. We didn't expect that bump," said Verne Istock, president and acting chief executive officer at Bank One in Chicago. "We upset a number of customers, but we're earning our way back."

Mr. Istock said he expects customer attrition to decrease by about a fifth this year. It reached a high of 17% at one point in 1999, up from 9% for all of 1998.

To reduce attrition, First USA said it is shifting its emphasis toward acquiring fewer but more-profitable accounts, and that it will raise the teaser and "go-to" rates on all products to discourage rate surfers from becoming customers.

The company said it plans to stop targeting the mass market and will invest in the top 40% of the "eligible universe."

First USA also has trimmed its massive $1 billion marketing budget, which was spent in part on a flurry of pricey Internet deals, some of which did not meet expectations. It said it opened one million accounts on-line last year and expects to only open half that many this year.

Mr. Istock would not give the size of the new marketing budget, but said it would be used more for affinity group marketing and customer retention.

Bill Boardman, vice chairman and head of First USA, said this year would be spent implementing the new pricing and marketing strategy and improving customer service, and that he expects to return to industry profitability levels by 2001.

However, many analysts said it is unlikely First USA will regain its stature in the card industry.

"They'll never make it back to the No. 1 spot," said Kenneth A. Posner, an analyst at Morgan Stanley Dean Witter. "Psychologically, this must be devastating to their organization. They're going from being the industry leader to being a broken business model."

Mr. Posner said First USA's downfall is a boon to the rest of the industry.

"We think this will help the industry's margins," he said. First USA is "raising prices and tightening its underwriting standards and this is just going to give a little bit more room for the other credit card companies to compete more rationally."

Bank One executives were adamant that First USA is not for sale and that its problems will be fixed. But it was clear that they could no longer count on the credit card business to fuel growth for the entire bank.

"The old mandate of First USA was to cover up other issues at the company potentially, which ran it into a hole," Lori Appelbaum, an analyst at Goldman Sachs, said Tuesday. "Today they just came clean." Related Stories:
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