Providian stock drops 23% over probe

Conn. investigation is latest legal problem for credit-card company

Financing

November 09, 1999|By BLOOMBERG NEWS

SAN FRANCISCO -- Providian Financial Corp. said yesterday that the Connecticut attorney general is investigating the way it does business, adding to the credit-card company's legal problems and sending its stock down 23 percent.

Providian shares plummeted $26.25, to $89.25 in New York Stock Exchange trading of 7.8 million shares, about six times the three-month daily average. The stock drop shaved about $3.75 billion from Providian's market value, and the 22.7 percent drop was the biggest percentage decline on the S&P 500 index.

The San Francisco financial company is the biggest U.S. issuer of cards to consumers with tarnished credit. It said Connecticut Attorney General Richard Blumenthal had requested documents including its billing procedures.

The company already faces a San Francisco district attorney's investigation and consumer lawsuits alleging that it erroneously charged thousands of customers late fees and misled them into buying products such as credit insurance.

"The severity of the decline today reflects that it's the second time this problem has reared its head, and once it gets to the states people make that leap that pretty soon they're in court all over the place," said Ted Bridges, who manages $1.5 billion for Bridges Investment Counsel in Omaha, Neb., including Providian shares.

The Connecticut investigation of Providian involves similar issues to the previous legal scrutiny the company has faced.

"There's nothing that we haven't seen before," said Laurie Cole, a Providian spokeswoman.

Providian has been talking with the San Francisco district attorney's office about settling consumer complaints the district attorney's office started investigating in May.

"Blumenthal has been very successful in litigations," said E. Reilly Tierney, an analyst at Fox-Pitt Kelton Inc. "It raises the specter of other jurisdictions getting on the bandwagon."

The U.S. Office of the Comptroller of the Currency, which regulates national banks, is also reviewing Providian's consumer practices. Seven federal lawsuits against the company were recently consolidated in a Philadelphia federal court.

Providian, the eighth-biggest U.S. credit-card issuer, in July said its own investigation found a computer programming error had resulted in "erroneous" late fees being charged to customers over several months. It said it fixed the problem and would make refunds to affected customers, resulting in a one-time charge of $20 million to cover the costs earlier in the year.

Providian, which has 11.3 million accounts, has stopped marketing a credit card that required consumers to buy credit insurance.

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