As it continues to move ahead with its initial public offering plans this week, NetSpend Holdings Inc. said Monday it is planning to shift "at least" 15% of its prepaid debit card business away from MetaBank due to the bank's regulatory problems.
NetSpend said in a Securities and Exchange Commission filing Monday that it doesn't expect its plans will result in significant capital requirements or expenses, but it would consume technology and management attention during the transition period.
MetaBank issues about 71% of NetSpend's prepaid debit card volume, and NetSpend owns about 5% of MetaBank's stock.
If NetSpend were forced to move all of MetaBank's current volume and card accounts to new issuing banks, the company estimates it would incur total one-time costs of $2.5 million to $3.5 million, about a third of which would be a non-cash write off of existing card inventory.
In connection with its plans to move 15% of its card volume away from MetaBank, NetSpend has signed letters of intent with The Bancorp Bank and H&R Block Bank to become additional issuing banks for its cards.
On Friday, NetSpend executives told potential IPO investors on a conference call that it would take between 90 and 180 days to move all its cards from MetaBank, and there was a risk of business interruption during the process. In its filing Monday, the company said its would strive to limit the disruptions and the resulting effect on its financial performance if it reaches the point where it has to switch all its card business away from MetaBank.
MetaBank, a unit of Meta Financial Group Inc., was forced last week to discontinue originations in its iAdvance line-of-credit program under a directive issued by the Office of Thrift Supervision. The OTS found that MetaBank had engaged in deceptive acts or practices in connection with the iAdvance program, which is an add-on service that offers a line of credit to debit-card holders.
At the time, MetaBank said that it will continue to issue cards for NetSpend, and NetSpend said the end of the iAdvance product won't have a material impact on its financial condition. During the conference call with IPO investors Friday, NetSpend said it had met with MetaBank executives and left their discussions confident the bank would be able to continue to service its debit cards.
In Monday's filing, NetSpend's assessment of the relationship sounded more cautious.
"While we look forward to our continued relationship with MetaBank, we also believe it is prudent to have additional, active relationships in place as part of a diversification strategy," NetSpend said in the filing.
Meta Financial's stock has been hit badly by its regulatory problems. Last week, it dropped 33% Wednesday, the day of its announcement, and continued declining the remainder of the week. In recent trading, the stock was at $16.55, down 12.66%.
NetSpend is planning to price 18.5 million shares of its initial public offering Monday night at a price between $10 and $12. The stock is expected to begin trading Tuesday on the Nasdaq under the symbol NTSP.
The offering was originally planned for last week, but was delayed after MetaBank issued a release detailing its regulatory issues.
