Providian and the coming Recession

Discussion in 'Credit Talk' started by FeliceRodo, Jul 28, 2001.

  1. FeliceRodo

    FeliceRodo Well-Known Member

    Most experts now agree that the US economy is headed into a recession and recovery most likely won't be until we are well into the year 2002.

    I brought this up to inspire comments from the board over what I believe will be continued belt tightening by subprime lenders such as Providian. We are already seeing that with retention not allowed to give CL increases.

    In addition, FCNB now charges 27 percent APR on their "Fresh Start" bankruptcy cards. The old rate, just months ago, was 20.5 percent.

    I'm paying off my balances every month and steer clear of all of this economic crapstorm. Maybe doing that will help me squeeze out an CL increase or two.
  2. FeliceRodo

    FeliceRodo Well-Known Member

    San Fran Chronicle, July 20

    "Credit card giant Providian Financial said yesterday that its second- quarter profit rose 24 percent from the comparable period a year ago, but investors punished its stock on fears that loan losses could rise.

    San Francisco's Providian, which specializes in lending to people with scant or troubled credit records, said it earned $232.4 million (79 cents per diluted share) in the three months ended in June. That was up from $187.6 million (64 cents) before nonrecurring adjustments in the second quarter of 2000.

    The company's revenue, including that from loans sold to investors, rose 29 percent from the year-ago period to $1.76 billion. Providian, the fifth- largest bank credit card issuer, had similar gains in total accounts and outstanding loans.

    The robust growth did not impress Wall Street, which focused instead on rising loan losses. Providian's shares fell $8.54 to $50.50, a drop of more than 14 percent.

    The stock's fall deepened after company officials declined to provide detailed assurances on loan quality during a conference call with investors. "The company has been wavering more than other credit card issuers on the outlook for loan losses," said Mark Alpert, an analyst with brokerage firm Deutsche Banc Alex. Brown.

    Many of Providian's customers are considered high risks for defaulting on loans, especially when the economy is weak and unemployment is rising. The company grew rapidly during the boom period of the late 1990s and hasn't been tested in a serious downturn.

    Providian's second-quarter credit losses were $754.2 million, up from $646. 3 million in the three months ended in March. Losses in the most recent quarter equaled 10.29 percent of the company's loan portfolio.

    Despite credit fears, the company's profitability was strong in the second quarter. Its 40.08 percent return on equity, a measure of profit as a percentage of shareholder capital, was among the highest in financial services,

    though down substantially from previous periods.

    A year ago, Providian paid a fine of $300 million to settle local, state and federal charges that it deceived customers on loan terms. During the most- recent quarter, the company received an award for client service from Rochester Institute of Technology and USA Today, a sign the company has made progress."
  3. creditwork

    creditwork Well-Known Member

    Providian offered my wife a 0% APR till 2/02. After that the rate goes to 12.9% APR. My wife has built her credit to over $100,000 in lines and her income is lower than $50,000, her credit utilization is less than 10%. The financial stocks are getting punished because their earnings have been great compared to the rest of the reporting companies. They go down on the earnings news and then bounce back. They will continue to outperform the market as long as rates remain the same or go lower. Rates appear to be headed lower.
  4. breeze

    breeze Well-Known Member

    I gotta agree. Providian has made money from the get-go. Even with the class action ruling against them, they are still making high profits. Their credit card losses may go up a little - they have - but I don't doubt that they will still make money.

    Providian has been around longer than you realize, as a bank, and then as a holding company, under the name Capital Holding, Inc. They have seen bad times before - when it was over, they split 2 for 1. They had bought up a bunch of small insurance companies, stripped them, and then sold them to a big foreign insurance company wanting to expand it's holdings in the US. They don't just do subprime credit cards, and everything they do , they make money.

    Your perspective is limited to your own experience ;)

    Buy stock in them. It is kinda flat right now, but it has made money over all. They split their stock every 4 or 5 years.

  5. FeliceRodo

    FeliceRodo Well-Known Member

    My perspective is not limited but expanding. Thanks to Clark Howard and other consumer watchdogs, and by listening to consumer horror stories, I am convinced Providian willed be fined more than other companies due to their ineptness of customer service and questionable sales tactics.
  6. breeze

    breeze Well-Known Member



    GEORGE Well-Known Member

  8. creditwork

    creditwork Well-Known Member

    I was shocked with the offer. I had an $11,000 line with them a while back, but they refused to lower my rate, even after exercising the account. So, I told them to shove it.
  9. breeze

    breeze Well-Known Member

  10. texastrini

    texastrini Well-Known Member

    some good conversation...

    If they are after a new-market due to sub-prime saturation then where does that leave re-builders now jumping on the bandwagon?

    What credit risks will they no longer approve and what credit rating (fico, beacon...) will be go/no-go limit?
  11. GEORGE

    GEORGE Well-Known Member

    30 SECOND DENIAL FOR ME...but the 0.00% with a "go-to" 9.99% is PRIME in my book...but it's not "ALL OR NOTHING" AS FAR AS I CAN TELL...


    ...OR THE 0.00% FOR TWO MONTHS THEN THE "GO-TO" 19.99%
  12. GEORGE

    GEORGE Well-Known Member

    ANYBODY KNOW...if they are F.I.C.O. "driven" ?

    Meaning...650+ F.I.C.O. approved?
  13. GEORGE

    GEORGE Well-Known Member

    Instant balance transfer with application?
  14. creditwork

    creditwork Well-Known Member

  15. dinob12

    dinob12 Well-Known Member

    Fico was just about 588 when I applied and recieved my Gold card..When I applied for Getsmart it was a 563..I believe I was approved because my cc history did not have any negatives in the past 3 years..All of my negatives were from about 5 years ago when I turned 18..
  16. GEORGE

    GEORGE Well-Known Member


    TOO MANY OPEN BANK CARDS with balances...
    (why would you have a bank card with-out a balance)????

    MINE F.I.C.O. 698
    WIFE'S F.I.C.O. 721
  17. breeze

    breeze Well-Known Member

    I don't think they are just going to issue prime cards. If you go to the Providian website, and click on the cards, you see some very subprime terms - they just are giving a grace period now - but the 23.99%, low limit card is still there. And if you click on the clear card, they do not give any terms, even on the application page.

    My Mom has a short credit history on Equifax (they very kindly deleted two of her old accounts for her), but Experian and TU have the old accounts showing - they go back to the 1980's. Providian sent her solicitations that obviously came from an Equifax promo - the typical "up to $1,000, UNSECURED blah blah blah" - (Mom now has a First Union that I got reactivated for her, with a $10,000 limit at 9.9%, and a B of A Platinum 9.9%. $5,000 - just issued). And Providian is soliciting her for their subprime cards. She got their offer a couple of weeks ago.

    Oh and it was the clear card - with subprime terms, but a grace period.

  18. texastrini

    texastrini Well-Known Member

    Looks like they are in a Win-Win position, as credit quality/lending tightens more will be denied and if the recession hits hard--people debt's will rise with their inability to pay or increased lates.

    What does that mean--a bigger pool of mid to high risks. Hence an influx of once prime customers to middle-prime.

    New market= middle prime

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