Tightening their grip on the troubled credit card issuer Providian Financial Corp., federal bank regulators last week handed the company a list of requirements to meet over the next few weeks, including one that will eliminate it from subprime lending.
Providian said Wednesday that under its agreement with regulators it must submit by Friday a plan for managing capital and growth for the next three years. The company, which made its name in subprime, agreed to stop such lending.
And, in a step not sought by regulators, the San Francisco company stated that it is seeking to sell its card businesses in Argentina and the United Kingdom, which together comprise $188 million in deposits and $585 million in receivables. Pending the sale, it has agreed with the U.K. Financial Services Authority that its U.K. branch will not accept new deposit customers or solicit new loan applications.
"These steps are consistent with our five-point plan for rebuilding investor confidence and shareholder value," said Joseph W. Saunders, who joined Providian on Monday as president and chief executive officer. "We have already begun work on these initiatives, and have made significant progress."
Three agencies issued the agreements: the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Utah Department of Financial Institutions. One of Providian's banks, Providian Bank, is headquartered in Salt Lake City. Its other bank, Providian National Bank, is headquartered in Tilton, N.H.
Analysts said the requirements - which include provisions that Providian review its loan-loss reserves and limit its growth in total assets to no more than 2.5% per quarter - are not unusual for troubled banks. The end result, they said, will be a much smaller Providian but a potentially more stable and profitable one.
One analyst suggested that regulators may have jumped in with a tough-looking set of restrictions in order to quell criticisms that they acted too slowly to save Superior Bank of Hinsdale, Ill., which the FDIC took over in July.
"They were caught off-guard with Superior; now they are making up for it," said David Hendler, an analyst with research firm CreditSights Inc. of New York. "They have gone into Providian hard."
The agreement with the FDIC was dated Nov. 21, and it gave Providian three business days to create a committee to monitor its progress in implementing the reforms. The committee was to include three independent members of the board of Providian Bank. A Providian spokesman said the members were David Petrini, a Providian vice chairman, and two Providian National Bank board members, Darrell A. Hotchkiss and Janice B. Kitchen.
Though Providian had already promised to cut marketing to the riskiest portion of the so-called standard, or subprime market, the FDIC has ordered it to stop lending to that segment altogether.
In a passage of the agreement that shed some light on Providian's renowned penchant for slicing and dicing the subprime market into highly individualized segments, the FDIC listed what it said were some of Providian's names for different categories of its standard customers. The newly banned segments include groups Providian has called "medium," "low/very low," "other Aria+PayPal," "Aria discontinued," "new secured," "high risk/starter," "no credit," and "direct TV."
"It takes away a significant piece of the business, but this is where they were going to have to tighten up anyway," said Bert Ely, a principal of the consulting firm Ely & Co., of the restrictions on Providian's marketing and growth. In the first nine months of 2001, Providian spent $483 million on marketing, a figure likely to drop as it cuts the "standard" segment out of its plans.
Konrad Alt, the chief public policy officer of Providian Financial, said in a telephone interview that nothing in the FDIC or OCC agreements required a sale of the international businesses. He also did not rule out further sales of other pieces of Providian's business.
"We are reviewing all our strategic options," he said. "Nothing is off the table."
Mr. Hendler predicted that Providian might want to sell its Web financial portal GetSmart.com, which it acquired in 1998 for $33 million. "GetSmart is the Harry Potter of financial portals" and is likely to have appreciated in the years since Providian bought it, Mr. Hendler said.
The FDIC is probably not finished, he said, and more restrictions are likely, especially on Providian's individual-depositor certificates of deposit. The company offered higher rates than the national average, and "regulators care about mom and pop's deposits," Mr. Hendler said.
