RealTime IT News

NextCard Crumbles

Internet credit card operation NextCard Inc. , now trading for 14 cents a share, became a skeleton company today, shedding 90 percent of its employees and asking Nasdaq to delist its stock effective March 18.

San Francisco-based NextCard, saw its stock crash last October when banking regulators told the company that its online banking subsidiary, NextBank, would have to categorize certain fraud losses as credit losses and would have to apply them to its loan loss reserves.

The Phoenix-based banking arm of NextCard was shut down by the feds last month. Today NextCard said it is cutting 546 jobs, leaving a skeleton staff of 65 people.

The company said it has reached an amended agreement with the FDIC in its capacity as receiver for NextBank under which it is transferring its portfolio servicing operations to the FDIC. NextCard agreed to continue providing, for a minimum of three months, certain administrative services and a nonexclusive license for the company's intellectual property.

The FDIC also is loaning the company $1 million to keep the company's shell in operation.

Last October NextCard hired Goldman, Sachs to pursue a sale of the company, but no acquisition partner could be found.

NextBank was a non-traditional lender whose business consisted of issuing credit cards and taking minimum $100,000 certificates of deposit. NextCard acquired the operation with the August 1999 acquisition of Textron Financial Corp.

At the time the bank was seized, the feds said that: "NextBank pursued a strategy of marketing credit cards solely through the Internet. However, the OCC (Office of the Comptroller of the Currency) found that the bank's risk management policies and procedures were inadequate and the bank's assets were of lower credit quality than initially projected in the bank's business plan. The bank failed to identify the extent of its credit quality problem or to implement effective corrective measures."

The OCC also found that NextBank's unsafe and unsound practices were "likely to deplete all or substantially all of the bank's capital."