Providian Warning Prompts Sell-Off
Providian Financial Corp.’s stock was pummeled Friday, a day after the credit card issuer warned that its third-quarter earnings will be about 75% below expectations, partly because customers can’t pay their credit card bills.
The news also triggered a sell-off of competitors’ stocks in an industry reeling from a slowing economy and jitters tied to terrorist attacks.
Providian’s shares slumped $6.90, or almost 34%, to close at $13.45 on the New York Stock Exchange.
The San Francisco-based company said Thursday that it expects earnings of about 19 cents to 21 cents a share, far below the 82 cents to 84 cents it had projected early this month.
The company, which specializes in lending to people with shaky credit histories, said its revenue from credit card fees and finance charges was lower than expected, while its charge-offs for unpaid credit card bills were higher than anticipated. Providian charges higher interest rates and service fees to make up for the risk associated with customers who have less-than-stellar credit records.
With the economy faltering amid mounting consumer debt loads, economists warn that lower-income households have the greatest risk of financial setbacks because they have amassed a disproportionate share of the debt. But borrowers of all incomes are feeling the pinch.
Providian said it reserved $186 million for loan losses in the third quarter and took a charge of about $85 million for finance charges and fees it can’t collect.
Some analysts say Providian--which has more than 18 million customers--has some problems that are wholly its own. It has created a crisis of confidence among investors, in part by repeatedly missing its earnings estimates, said Robert P. Napoli, an analyst with ABN Amro Bank.
Providian’s announcement Thursday was its second warning in six weeks.
Among other major issuers, Capital One Financial Corp. shares closed at $44.80, down $2.90. Metris Cos. was off $3.13 to $23.10, and Household International Inc. fell $2.06 to $54.89, each on the NYSE.
