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Tuesday, May 12, 2009
Advanta's radical moves leave 'more questions': analyst

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.

Posted by Joseph N. DiStefano @ 8:01 AM  Permalink | Post a comment
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About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column, which is printed in the business pages of The Philadelphia Inquirer every Sunday, Tuesday, Wednesday, Thursday and Friday. Joe has worked at the Inquirer, mostly, since 1988. He has also written for Bloomberg and Gannett, authored the book Comcasted, majored in economics at Penn, and fathered six children. Reach Joe at 215-854-5194 and JoeD@phillynews.com

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