http://www.siliconvalley.com/mld/siliconvalley/business/special_packages/downturn/2845073.htm Posted on Tue, Mar. 12, 2002 NextCard fires 546 workers, applies for stock delisting SAN FRANCISCO (AP) - With its Internet bank already in the hands of federal regulators, NextCard Inc. continued to dismantle its failed online credit card business by firing 546 employees and applying to delist its worthless stock. San Francisco-based NextCard jettisoned 90 percent of its work force Friday, but didn't disclose the purge until Tuesday when the company outlined a new agreement with federal banking regulators. Of those fired, 465 NextCard employees have been offered jobs working for a third-party contractor overseeing the company's liquidation. NextCard said 65 workers remain on a payroll that stood at 925 a year ago. NextCard declined to comment about its demise. Under the contract announced Tuesday, the Federal Deposit Insurance Corp. will provide NextCard with a $1 million loan at zero percent interest for six months and NextCard will supply government regulators with the technological support to tend to the company's $700 million loan portfolio until a buyer is found. The agreement assures the FDIC won't have to abruptly close the credit card business and try to collect outstanding loan balances from 1 million NextCard accountholders, said FDIC spokesman David Barr. The FDIC effectively doomed NextCard last month when it closed the company's online bank and paid off $524.6 million in insured deposits. The government hopes to recoup some of that money by selling NextCard's badly damaged credit portfolio. Several prospective buyers are reviewing the quality of NextCard's loans and will submit their final bids next month, Barr said. The FDIC hopes to complete the sale by May 31. The sales price will determine how much NextCard's failure will cost the taxpayer-backed FDIC. NextCard stockholders already have absorbed huge losses. The company's shares have plunged from a late 1999 high of $53.12 to nothing today. About $2.7 billion of shareholder wealth evaporated in the meltdown. A lawsuit seeking to represent NextCard shareholders alleges a management team led by CEO John Hashman misled investors about the company's performance between March 30, 2000 -- when the company's stock closed at $1575 -- and Oct. 30, 2001, the day before NextCard revealed the severity of its loan problems. The financial disrepair prompted NextCard' to apply to pull its listing on the Nasdaq Stock Market. The delisting is scheduled to occur March 18, the company said Tuesday. Like most Internet companies, NextCard never turned a profit. The company has reported losses totaling $261 million since its inception. NextCard's collapse illustrates the perils of approving credit card applications over the Web. Analysts have long feared that NextCard's promise to quickly issue credit cards on the Web would limit the company's ability to screen fraudulent applications. In its last quarterly filing with the Securities and Exchange Commission, management acknowledged many of its problem loans were ``related to fraudulent account origination specific to the Internet channel.'' NextCard also got into trouble by giving credit cards to high-risk borrowers shunned by other lenders. A similar strategy has imperiled one of the nation's largest credit card issuers, San Francisco-based Providian Financial. Hashman and NextCard's founder, Jeremy Lent, were formerly part of Providian's management team.
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