News of a $20 million first-quarter loss at Advanta Corp. sent credit card company shares reeling Monday.
Advanta shares plummeted $8.50 to $31.875, after the company disclosed that its results would fall short of expectations for the quarter and the year. The 21% decline was the largest of any banking or financial stock, on a day when the S&P bank index and the S&P 500 gained slightly.
Among Advanta's rivals, MBNA Corp. shares fell $2 to $31.375; Capital One Financial was off $1.625 to $37.50; Dean Witter Reynolds sank 50 cents to $38.25; and American Express Co. $2 to $31.375.
Although the magnitude of Advanta's problem appeared to surprise the market, rumors of delinquencies and management problems had burdened the stock for several weeks.
"We were bearish before, but we would never have guessed that it would be this big," said analyst Michael Hughes of Merrill Lynch & Co., who downgraded the stock in January.
Leslie Nelkin of Furman Selz was one analyst who remained confident about Advanta, calling the selloff "wildly overdone."
Though the announcement was worse than he anticipated, Mr. Nelkin still believes that the shares can reach $60, and maintains a strong "buy" recommendation on the stock.
"Credit cards are an enormously leveraged business," he said. "But if (Advanta) can get a grip on profitability it should be able to rebound as quickly as it is deteriorating."
Some observers said Advanta's woes marked a low point for the credit card industry, and suggested that things will get better.
"The problems are not over, but this is the last and most visible big blowup," said Mr. Hughes, of Merrill Lynch."This is the tail end, rather than the beginning of something else."
But others begged to differ.
"The credit card banks have lost their shine," said analyst Lygia Campbell of Deutsche Morgan Grenfell who advised investors to exit the sector, by selling shares of MBNA, Capital One, and Advanta.
While describing Advanta's deteriorating portfolio as the exception to the rule, Ms. Campbell maintained that there is more bad news to come as delinquencies and chargeoff rates have not yet peaked.
In anticipation of the ripples that Advanta might cause for the broader market, analysts hit the wires early Monday morning with encouraging words about Banc One Corp., which has agreed to acquire the Dallas credit card specialist First USA Inc.
Natwest Securities analyst Thomas McCandless and Nancy A. Bush of Brown Brothers, Harriman & Co. raised their ratings of the Columbus, Ohio-based bank, while Prudential's Ruchi Madan, and Robert Albertson of Goldman, Sachs & Co. reiterated "buy" ratings on the stock.
They cited a positive meeting last week in Phoenix, where the bank for the first time presented financial information by business line.
"The meeting was very positive and should have had a positive impact on the stock," Ms. Madan said, noting that she expects it to rebound to $63.
The analysts' comments failed to reassure investors, however. Banc One fell 62.5 cents to $44.125, while shares of First USA fell 62.5 cents to $49.25.
Analyst Anthony Davis of Dean Witter said he's happy with the projected $381 million of gross savings from the First USA acquisition but that questions remain about the mechanics of the First USA integration.