Magazine article American Banker

Providian's Stock on the Mend with Plan for Card Reforms

Magazine article American Banker

Providian's Stock on the Mend with Plan for Card Reforms

Article excerpt

Providian Financial Corp.'s shares pulled out of a tailspin last week after the company announced an enhanced customer satisfaction program.

The shares nosedived two weeks ago on reports that the San Francisco district attorney was investigating allegations of consumer fraud.

Among the card issuer's pledges: reversing late fees for customers who feel wrongly charged, establishing a special toll-free telephone number for unhappy cardholders, and stretching its grace period to three days before assessing late fees.

Providian, which tends to lend to people with weak credit, uses higher interest rates and late-payment and over-limit fees to compensate for risk.

The San Francisco company's shares had peaked April 28 at $131.625, on the strength of a 100% gain in first-quarter earnings, to 78 cents a share. Shares dipped as low as $83.375 on news of the investigation and a class action over advertising that attracted cardholders with the prospect of an improved credit record.

Concern about Providian's practices not only took the steam out of its stock, but also dragged down prices of some other credit card company equities. Analysts reacted by reiterating positive ratings or upgrading card stocks.

"It is really hard to justify this type of a selloff," said David Hochstim, an analyst for Bear, Stearns & Co. in New York.

Shares in another specialist in subprime credit, Metris Cos. of Minneapolis, had fallen as low as $56. …

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