Providian stock plunges on shakeup

Friday, Oct. 19, 2001 | 9:47 a.m.

SUN STAFF AND WIRE REPORTS

SAN FRANCISCO -- Nursing a battered loan portfolio and a bruised reputation, reeling credit card giant Providian Financial Corp. announced Thursday the resignation of its chairman and outlined plans to curtail business with the risky consumers that fueled the company's rapid growth in recent years.

Investors punished Providian stock on the news this morning, sending it down 48 percent or $6.01 to $6.39.

Pressured by investors incensed by $7.6 billion in stock market losses since Labor Day, Providian CEO Shailesh Mehta stepped down as chairman Thursday and was replaced by longtime board member J. David Grissom. Mehta, who orchestrated Providian's tremendous growth of the 1990s, will relinquish the CEO job as soon as the San Francisco-based company finds a successor.

Providian, the nation's fifth-largest issuer of Mastercards and Visa credit cards and operator of a call center in Henderson, also said it will retrench from its specialty business of lending to consumers with troubled credit records by drastically reducing loans to the segment.

As part of its recovery efforts, the company will raise the interest rates charged high-risk, or "subprime," customers, who already have outstanding balances of about $9.4 billion.

The shakeup comes less than a week after Providian jolted Wall Street by warning that its third-quarter profit would fall 75 percent below its own early September forecast.

The company met those lowered expectations Thursday by reporting a profit of $57.2 million, or 20 cents per share, down from net income of $200.7 million, or 68 cents per share, at the same time last year.

The final quarter will bring more bad news for Providian. Management said Thursday that the company's fourth-quarter earnings will range from 10 cents to 15 cents per share, down from the consensus estimate of 60 cents per share among analysts polled by Thomson Financial/First Call.

The company is in so much trouble that it might end up being sold.

"All options are on the table right now," said Providian Chief Financial Officer David Petrini when asked by an analyst whether the company will consider selling to a rival.