DAVID SWANSON / Staff Photographer
Dennis Alter on the Temple University campus in April. Alter, Advanta's chairman and chief executive officer, is forgoinghis $1 million annual salary during the company's bankruptcy.
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Deep in debt, Advanta spends big on salaries
Advanta Corp., the bankrupt Montgomery County credit-card company with virtually no operating business, owes retail investors $138 million.
Yet the 41 employees left at the Spring House firm who are still being paid (chairman and chief executive Dennis Alter is forgoing his $1 million annual salary during bankruptcy) make an average annual salary of $268,000, according to bankruptcy filings.
Why does Advanta, which suspended its credit-card operations in May and owns a Utah bank that has been severely restricted by regulators, need so many people with executive-level paychecks?
Alter might have answered that question in May, when he said he was trying to ensure that Advanta has "a chance to fight again and be a vibrant and worthwhile business endeavor."
In a Bankruptcy Court document this month, Advanta said that it needed to keep paying the employees because it "cannot maximize value without their continued support and the historical knowledge, experience and industry relationships."
Meanwhile, investors such as Newark resident Justin Webb are in line with 3,800 other Advanta noteholders, waiting to see if any of the nearly $100 million Advanta carried into Bankruptcy Court will be left for their claims of $138 million.
Webb said he was particularly upset because he tried to redeem his $10,000 Advanta investment note three weeks before Advanta's Nov. 8 bankruptcy, but agreed not to at the urging of an Advanta customer-service representative.
"She assured me everything was OK," said Webb, a hair stylist. "I would have taken it that day and taken the loss" associated with early redemption. Webb had been receiving $55.79 in monthly income from the five-year note he bought in 2006.
Advanta said it filed for bankruptcy because that was the best way to address the inability to meet obligations in a way "that benefits stakeholders most fairly."
Among Advanta's first motions in bankruptcy was the standard motion for permission to keep paying employees. Advanta said it had 28 salaried and 13 hourly Advanta employees and estimated its monthly gross payroll at $916,000, after eliminating Alter's $84,000 monthly pay.
Advanta had 841 employees at the beginning of this year, with 763 of them working for the company's Utah-based bank subsidiary, which is not part of the bankruptcy. Advanta Bank had 143 employees at the end of September, according to the Federal Deposit Insurance Corp. The FDIC ordered the bank in June to return deposits in an orderly manner and not pursue new business without permission.
The order, however, "does not limit our ability to pursue future business opportunities outside of the bank," the company said in its most recent quarterly report, giving an indication of what the executives in Spring House might be doing.
That filing gave some additional information about how the company has been spending money, beyond salaries. Marketing expenses went down in the third quarter, but the decline was partially offset by "increased costs associated with sponsorship activities relating to cultural and sporting events and activities relating to the retail investment note program," the company said.
Advanta had agreed last December to spend $9 million on two tennis sponsorships over three years. One of them required a $1.13 million payment on July 1. Total marketing expenses for the three months ended Sept. 30 were $1.19 million.
Advanta did not explain the increased marketing costs for the retail note program, which it officially ended Friday, when it withdrew the Securities and Exchange Commission registration for the notes like the one Webb is stuck holding.
On July 5, just after agreeing to a cease-and-desist order with the FDIC, Advanta boosted the annual percentage yield on its notes, going to 11 percent from 8.5 percent for one-year notes, as advertised in The Inquirer and elsewhere.
Just $1.7 million worth of notes were sold before sales abruptly stopped in July.
Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.
