In a series of moves designed to restore shareholder confidence, Providian Financial Corp. is taking steps to cut costs, obtain new capital, and rid itself of the worst of its troubled subprime credit card portfolio.
At the same time, however, it has suspended quarterly cash dividends on its common stock and withdrawn earnings guidance for the fourth quarter of 2001 and for 2002, raising concerns that it is still having difficulties.
Investors responded by driving the stock down more than 22.01%, to $2.87 at the close of trading on Thursday.
Konrad Alt, the chief public policy officer and senior vice president, called the announcements evidence of progress and not a cure-all. We are still working on it and anticipate there will be additional announcements in the future. Our investment bankers are here working with management and the board to go over every option.
Providian said its managed net chargeoffs in October jumped to 12.06%, up 173 basis points from the third quarter. Managed delinquencies rose to 8.90% in October, up 24 basis points. The company had projected a chargeoff rate of slightly above 12% for the fourth quarter a mark that was surpassed in October alone and that will probably continue to rise for the rest of the year.
Providian has encountered investor complaints and faces several class actions alleging that it misled investors about the direction of its credit card chargeoff rates.
As recently as early September chief executive Shailesh J. Mehta had predicted that chargeoffs would peak in the third quarter and then begin to fall. Mr. Mehta resigned in October after reporting third-quarter results that were sharply below expectations.
At Providians third-quarter meeting chief financial officer David J. Petrini promised that it would begin reporting its chargeoff rate monthly to improve clarity in its communications with investors.
Mr. Alt said that the executive search committee had spoken to candidates and hoped to have a successor for Mr. Mehta by yearend.
Bradley Ball, an analyst at Prudential Securities Inc., called the announcements modest positives that still held distressing signs.
That operating conditions are stressed is made clear by the decision to terminate dividends both to shareholders and to the parent company, Mr. Ball said. The bank is going to be retaining its earnings to bolster capital, he said, adding that regulators sometimes require troubled companies to take such a step. Providian is taking a proactive approach with respect to that.
The San Francisco credit card issuer also announced that it has received a commitment from its investment bankers Salomon Smith Barney and Goldman, Sachs & Co. to securitize at least $900 million in credit card receivables. That deal would replace funding provided by a private financing that began early amortization essentially calling the loan as a result of Providians sinking credit rating. The new arrangement should be completed by the end of the year.
The company said that it has no other existing securitizations with credit downgrade provisions that could trigger early amortization.
Providian said it is preparing to sell $3 billion of the riskiest loans in its approximately $14.2 billion credit card portfolio, accounts obtained through direct marketing programs that offered credit cards to consumers through television commercials. At its third-quarter investor meeting company officials blamed this portion of the portfolio for much of the problem.
In addition, Providian said it would close its customer service telephone call center in Henderson, Nev., on Dec. 7 to save about $18 million in annual operating expenses, after taking a one-time charge of $12 million in the fourth quarter to reflect costs of the shutdown. The facility has about 700 employees. The company operates nine other call centers.
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