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.”
NextCard Crumbles
