UPDATE: Card lenders all down this morning on Advanta's news. Advanta ADVNB down 15%; Capital One COF off 6%; American Express AXP, Discover DFN, and the big Visa/MasterCard banks all off 2-3%. DJIA flat.
EARLIER: Americans have been letting their credit card bills go bad at more than double the rate of home-loan defaults. But up til now that hasn't resulted in credit card companies blowing up, partly because, unlike home lending, cards are dominated by a handful of major players -- Bank of America, JPMorgan Chase, Citi, AmEx, Capital One. Do last night's moves by Advanta Corp. to cancel over 1 million cards and repay institutional debt at dimes on the dollar signal an industry meltdown? Watch Capital One (COF) for a quick read of the market's reaction.
Re Advanta, whose stock was already battered below $1 by past losses, "we expect shares to trade down," writes Friedman Billings Ramsey & Co. analyst Scott Valentin, in a report subtitled "More questions than answers." Harold Brubaker's Inquirer story here, notes that retail investors in Advanta's small-denomination notes aren't affected by last night's actions. Previous PhillyDeals item here.
"The lack of details in the press release, as well as lack of a conference call to discuss this major event, will increase investor confusion," Valentin added. Early amortization of loan-backed debt "has been viewed as a catastrophic event" by lenders, and the move looks "contrary to management comments" on the first-quarter Advanta conference call less than two weeks ago: "We're not sure what could have changed" since then.
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