On his first day on the job as Providian Financial Corp.'s president and chief executive officer, Joseph W. Saunders, a card industry veteran, did not mince words when asked about the prospects for the deeply troubled credit card monoline.
"I am here because I believe Providian has a future as an independent company," Mr. Saunders said Monday in an interview with American Banker. "I think that there is an incredible opportunity to get the business back on track."
Mr. Saunders, 56, who spent the last four years as the chairman and CEO of FleetBoston Financial Corp.'s credit card division, flew to San Francisco on Sunday night to take the helm of Providian, which has been bleeding heavily from losses on bad loans and from reduced fee income. The problems prompted the resignation last month of its chairman, president, and CEO, Shailesh J. Mehta, who had been the company's heart and soul.
At the same time, regulators clamped down on Providian, which hired Salomon Smith Barney and Goldman Sachs & Co. to explore the option of selling the company. It also hired the executive recruitment firm Russell Reynolds Associates to seek a successor for Mr. Mehta.
Mr. Saunders' appointment - which was approved by Providian's board, but which, like all executive changes the company makes nowadays, must be approved by regulators - was made Friday but announced Monday, less than six weeks after Mr. Mehta said he would step down. Mr. Saunders has also been elected to Providian's board of directors, though J. David Grissom, who succeeded Mr. Mehta as the chairman of the board, will remain in that job.
"I spent quite a bit of time doing due diligence," Mr. Saunders said. "There are significant issues, but they are not unresolvable. I think there is a plan that Providian's board has been working on with investment banks. The plan is solid. We have begun to execute it."
Selling more than $3 billion of highly distressed credit card receivables "is the beginning of it," he said. "I don't want to go in too much more detail."
Credit card industry executives called Mr. Saunders a logical choice for the Providian job, given his strong track record.
At Fleet Credit Card LLC, he helped the former Fleet Financial Services absorb its acquisition of the consumer credit card portfolio of Advanta Corp., which the company bought in 1998. He then oversaw several major portfolio expansions, including the integration of the card businesses when Fleet Financial Group bought BankBoston Corp. FleetBoston also bought large chunks of receivables from Household International Inc. and Crestar Financial Corp., which SunTrust Banks Inc. bought in 1998.
FleetBoston and Providian also happen to be two of the three U.S. banking companies that issue smart Visa cards.
Before FleetBoston, Mr. Saunders had worked at Household International since 1985 and rose to the post of president and CEO of its credit services division. He made his name there by overseeing the launch of the General Motors MasterCard, one of the most successful cobranded products ever to hit the industry.
When he moved from Household to Fleet, he recruited several of his top deputies, including Warren Wilcox and Patrick J. Coll, who on Monday was named to the position vacated by Mr. Saunders. Mr. Coll, who had been executive vice president of Fleet Credit Card Services before the promotion, had been managing director of the GM Card.
Mr. Saunders' departure is one of a string of executive changes at FleetBoston. Robert J. Higgins, the president of consumer banking and investment services and Mr. Saunders' boss, announced his retirement last month. Some of Mr. Higgins' duties were taken over by Brad Warner, executive vice president of Fleet's Consumer Business Group. Mr. Warner began meeting with senior executives to plan strategy last week, according to a company source.
One analyst suggested that Mr. Saunders' arrival at Providian would give the company a perfect opportunity to air any further unpleasant revelations. "We expect more bad news before it gets good," wrote Bradley Ball, an analyst at Prudential Securities, in a research note.
Mr. Ball suggested that, despite his experience, Mr. Saunders will have his work cut out for him. "Saunders did a good job with FleetBoston's card business following the acquisition of Advanta's card business in 1998, yet this was helped by a reasonable deal price (5% premium), a benevolent economy, and significant streamlining."
Advanta's card receivables were one third of Providian's current size and carried an average loss rate of 6.8%, he wrote.
The San Francisco-based Providian became the focus of an increasingly anxious investor community since August, when analysts discovered an unpublicized change in its chargeoff reporting practices that had the effect of covering up a 30-basis-point drop in its second-quarter chargeoff rate. At its third-quarter financial conference call, the company announced that its profits were down 70% from the same period a year earlier.
Mr. Saunders "has a track record at turning around card companies," said David Hendler, an analyst with CreditSights Inc., an investment securities research firm in New York. "Fleet bought Advanta, and he stabilized it."
But the provisional nature of Mr. Saunders' appointment shows how deeply involved regulators are in Providian's day-to-day operations, Mr. Hendler said. "No other bank ever has their regulators sign off on an appointment like that. Even though their capital ratios are above the adequate level, the regulators are quietly telling the company to do certain things to right-size the ship. Even if you are well capitalized, they can re-categorize you for whatever reason they see fit."
Michael Auriemma, the president of Auriemma Consulting Group of Westbury, N.Y., said he was surprised Providian was able to find such a well-experienced new leader so quickly.
Mr. Saunders' experience with subprime card issuing at Household would be useful to him in his new job, "but it is going to take someone that understands the whole range of credit risk to get underneath the covers and understand it," Mr. Auriemma said. "It could take six months or a year. But that doesn't mean you won't see improvements before that."*
Jerry D. Craft, the president and CEO of InfiCorp Holdings Inc., an Atlanta subsidiary of First National of Nebraska Inc., said snagging a high-profile chief may allow Providian to survive as an independent company. "This gives Providian more options. It is good news for Providian."
Providian's stock closed Monday at $3.80 a share, up 15.5% from Friday's close.
