Providian to cut 800 positions
Sell-off rumors on Wall St. over S.F.
credit card giant
Christian Berthelsen, Chronicle Staff Writer
Friday, January 4, 2002
Providian Financial Corp., the financially troubled San
Francisco credit card giant, is getting a lot smaller.
The company said yesterday that it will lay off 800
employees in its latest round of job cuts, in addition to
the 550 employees cut in November. Meanwhile,
rumors circulated on Wall Street that it is putting its
$9 billion premium credit card business up for sale,
along with $3 billion worth of business in its subprime
card portfolio.
The company warned that more layoffs are possible
in the first and second quarters of this year. With the
latest round of cutbacks, Providian is expected to
save $60 million. The company said it would take a
charge of $15 million in the first quarter to cover the
cost of the layoffs. That is on top of a $12 million
charge against earnings it took in the fourth quarter
for the November round of layoffs.
Industry observers have speculated that federal
regulators may be forcing the sale of the premium
business to counterbalance an anticipated loss on the
sale of the subprime accounts. Konrad Alt, a
spokesman for the company, declined to comment on
the rumor of the premium credit card sale but denied
that the company is being forced to sell the unit by
regulators.
If both sales are consummated, it would leave the
company about two-thirds of its current size. In
effect, Providian's $32.2 billion in credit card
receivables at the end of the third quarter would be
reduced to about $20 billion if both portfolios were
pared.
"I just said to a client today that I thought they'd have
to sell their good loans to balance out the hit they're
going to take on the $3 billion of (alleged) toxic waste
they're in the market with," said Caren Mayer, an
analyst with Banc of America Securities, in an e-mail
exchange on Wednesday. "If they take a 30 to 50
percent discount on the subprime piece, then to
maintain capital, I'd think they'd have to book a gain
elsewhere."
With the layoffs announced yesterday, Providian will
have reduced its staff by about 1,350 employees
from a peak of about 13,000. The company said the
positions eliminated came from the discontinuation of
certain offerings, such as the marketing of its
subprime and super-platinum cards, as well as
operating efficiencies.
In the latest round, 340 will come from a
telemarketing facility in Sacramento; 200 from a
facility in Louisville, Ky.; about 100 from offices in
Pleasanton and Oakland; and 110 from its Mission
Street headquarters. The two rounds of firings will
have reduced the company workforce by about 11
percent.
Investors reacted with indifference to the layoffs, as
Providian stock fell 11 cents, or 3 percent, to $3.44 in
light trading on the New York Stock Exchange
yesterday. The company's stock fell 80 percent
during 2001, erasing $14.17 billion in market
capitalization, as performance problems and
questions about management credibility mushroomed.
Providian is expected to suffer a significant loss from
the sale of its subprime portfolio. It is stocked with
risky cardholders with shaky or limited credit
histories who are hardest hit in economic downturns
like this one and would probably not fetch its full face
value in a sale.
The company's losses from tapped-out borrowers
continued to rise through the latter half of last year to
12.8 percent of its managed loan portfolio at the end
of November, a rise of 74 basis points, though the
rate of increase is slowing.
To offset that loss, analysts have been expecting that
the company would also sell some of its more
attractive assets, such as the more stable upper-
income platinum card portfolio. A profit of just 5
percent on the sale of the $9 billion-plus platinum
business would evenly balance out a loss of as much
as 20 percent on the standard card line.
The speculation by analysts, bankers and competitors
is that regulators may have required such a
double-barreled sale to maintain capital levels within
the bank. The company had more than $1 billion in
cash on its balance sheet at the end of the third
quarter.
The sales are said to be taking place in separate
transactions, and announcements from the company
are expected in the next few weeks. The identities of
the buyers of either portfolio are not known, but the
speculation has been on Citibank, Chase Manhattan
and possibly American Express.
Analysts expect the company's fourth-quarter results
to be barely profitable, with about $8.5 million in
earnings, according to Thomson Financial/First Call. |
