Steps taken by Metris Co. to improve liquidity sent its stock up Wednesday morning, but that did not move the analysts who were doubtful about the card lender.
The Minnetonka, Minn., company said late Tuesday that it had sold $590 million of loans from its bank and card subsidiaries and had replaced a $610 million asset-backed securitization with a private conduit. The securitization was due to mature in January, but its accumulation period was to begin Nov. 1, and the Office of the Comptroller of the Currency had told Metris to replace it.
Metris said the loan sale will cost it $75 million to $85 million in pretax charges in the third quarter.
David Wesselink, Metris’ chairman and chief executive, said in a press release Wednesday that the measures meet requirements set by the OCC.
In March, Metris agreed to reduce loans on its books by yearend to $550 million, 27% less than a year earlier. It also agreed to sell all loans by the end of next year and all new credit card loans the day they are made.
On Aug. 14 Metris disclosed that the OCC had also told it to either get rid of its Direct Merchants Credit Card Bank’s deposits or eliminate their risk.
Analysts said Metris’ management has made progress in complying with regulators and appears to be building confidence that it can gather the funds necessary to avert an outright shutdown by the OCC.
“This certainly takes a gun away from their head,” said E. Reilly Tierney, an analyst with Swiss Reinsurance Group’s Fox-Pitt, Kelton Inc. Like many other analysts, however, he said Metris still faces serious challenges.
UBS analyst Eric W. Wasserstrom said Metris is still “not near a turnaround, ” because of the ongoing credit and liquity challenges.
Fitch Inc. affirmed its ratings of CCC for Metris and B for Direct Merchants. Citing the transactions, it revised its outlook for both to “stable” from “negative.”
After jumping 27.6% last week on rumors about the sales, Metris shares rose 3.6% higher Wednesday. Nevertheless, they are still trading below the company’s book value. Analysts said that may not change until Metris resolves its credit quality problems, fulfills all regulatory requirements, and outlines how it wants to grow in the future.
Though half of the 14 analysts covering Metris rate it “sell” or equivalent, Richard B. Shane Jr. of Jefferies & Co. Inc. and Moshe A. Orenbuch at Credit Suisse First Boston give it their top rating.
Mr. Orenbuch wrote in a note issued Wednesday that he “will reassess the earnings power of the company after the third quarter,” but he raised his 12-month price target for its stock by $1, to $7. Metris’ book value is likely to come close to $10 by yearend, he wrote.
The company has made progress on credit quality, a spokesman said Wednesday. Loans in its master trust has improved every month since December, partly because the economy is gaining strength.
