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Tuesday, May 12, 2009

Advanta blows up; are credit cards doomed?

Advanta Corp., the Spring House credit card company, is cancelling users' credit cards and paying some of its bond investors at a steep discount as it tries to conserve cash. Release here.

Bad news for bondholders:  "Advanta Bank Corp. will use up to $1.4 billion to make a cash tender offer for Advanta Business Card Master Trust Class A senior notes at a price between 65% and 75% of their face value in a modified Dutch Auction.... Advanta Corp. will make a cash tender offer for any or all of the $100 million of 8.99% Capital Securities issued by Advanta Capital Trust I at 20% of their face value"

NEW: Is Advanta just the first card issuer to blow up? Says veteran card executive Jim Shanahan, ceo at prepaid-card provider Maverick Network Solutions in Wilmington: 

  "In this environment, there was no exit for Advanta. (Ceo) Dennis Alter would have sold it if he could. He had to shut it down.
  "Advanta's a nationally visible brand. It's going to be seen as a leading indicator. The first one to fall.
  "The industry is looking at charge-offs (bad loans) above 20 percent." That's what Treasury assumed when it stress-tested the banks. "Last time charge-offs peaked at 10 percent. It was like, 'Big, deal, we'll bounce back.' But if 20 percent is true, this is uncharted.
  "Even (JPMorgan Chase & Co. ceo) Jamie Dimon was quoted saying credit cards are 'a conundrum.' If even Jamie Dimon can't see how to solve it, I'm glad we're in the prepaid business."
Posted by Joseph N. DiStefano @ 7:09 AM  Permalink | 8 comments
Comments   
  • 0 like this / 0 don't   •   Posted 9:53 AM, 05/12/2009
    This is indeed a leading indicator. Just as people though (wrongly) that New Century was an isolated event, General Growth Properties and Advanta could prove to be two more harbingers that were brushed aside.
    — NickFromGermantown
  • 0 like this / 0 don't   •   Posted 10:00 AM, 05/12/2009
    Robert Reich warned us this was coming on Marketplace. Somehow, I can't quite believe that jacking up everyone's interest rates will really improve cash flows, but that's the strategy I hear they are all trying.
    — BradyDale
  • 0 like this / 0 don't   •   Posted 3:19 PM, 05/12/2009
    Fear not, socialism will save us all. Now if you will excuse me, I must go to mid day prayers to worship Allah and Lord Obama Master Of The Universe
    — hawk
  • 0 like this / 0 don't   •   Posted 3:32 PM, 05/12/2009
    hawk I didn't get that memo when did we have to start praying to Allah?
    — cusoraider
  • Comment removed.
  • 0 like this / 0 don't   •   Posted 4:46 PM, 05/12/2009
    How are we going to be able to pay to furnish our 5,000 sq foot McMansions if we can't use credit cards? paying cash for stuff is going to be back in vogue big-time, and the days of driving around in a car that cost over 1/2 of your yearly salary is going bye-bye - if you want to blame anyone, don't focus on the Dems or Republicans - focus on all of the TV shows that have 16 year old kids rolling around in brand new convertibles, having $50,000 birthday parties, and making excess seem cool...
    — gregious
  • 0 like this / 0 don't   •   Posted 5:00 PM, 05/12/2009
    The "green shoots" that CNBC is seeing are actually marijuana plants and I believe they are inhaling ....deeply
    — Tageman
  • 0 like this / 0 don't   •   Posted 5:49 PM, 05/12/2009
    @ gregious: AGREED! Memo to Washington: Let the Credit/Banking industries die. Yes, this will lead to a depression, but this is inevitable! Let it happen. Let us learn how to be modest, tough, and self reliant again, in time for when oil runs out, the global population is around 10B, and there isn't enough food and water for everyone worldwide and one 9/11 a decade is like a happy dream. Oh, and America? Quit letting politicians on the campaign trail bribe you into voting for them. Tax cuts we can't afford, spending we can't afford, imperialism we can't afford. It's on YOU to make it happen. Now if only a party took a libertarian platform and used some pragmatic twists like regulation on big business and increased tax revenue to pay off the debt.
    — spd017


8 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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