Drained by mounting losses at its Wilmington, Del.-based First USA credit-card unit, Bank One Corp. is preparing job cuts and other cost-saving measures.
The nation's fourth-largest bank said yesterday that First USA losses and other setbacks would shave an estimated $725 million from as-yet unreported profits for 1999, and reduce 2000 earnings to below 1999 levels.
Standard & Poor's and other agencies responded by cutting the company's credit ratings, which is expected to increase the cost and reduce the profitability of lending money to First USA's 50 million card-carrying customers.
Analysts at Lehman Bros. and other brokerages cut their recommendations on the company's stock, and the price slipped 25 cents to $30, its lowest level since 1996.
Charges announced in a two-hour presentation by the company's acting chief executive officer, Vernon Istock, included $260 million for "business restructuring," including job and office cuts; $382 million to cover credit losses and write-offs for credit-card marketing campaigns; and $80 million in expenses incurred by Bank One's auto-leasing program.
Istock and other bank officials declined to say which areas of the bank would be hardest hit by cuts, noting that affected workers had not yet been told.
First USA, which expanded rapidly through the 1990s, employs more than 2,000 at its Wilmington headquarters and offices in the city's northern suburbs. Last year, the bank put on hold plans to build another office south of the city.
Bank One also expects First USA to reduce its profit for 2000. The bank told investors that it expected to net just $1 this year for every $100 it has lent to credit-card borrowers, down from nearly $2.50 per $100 in the first half of last year.
Citing "significant strategic missteps," Standard & Poor's responded by cutting Bank One's credit ratings. That move likely will boost Bank One's borrowing costs and further increase pressure to stanch credit card losses or sell the business.
Bank One stock has lost half its value since the company announced last summer that First USA, until recently the nation's biggest credit-card issuer, was losing customers, in part because of what the company conceded were high and sometimes inaccurate fees, an accelerated payment schedule and other bank policies dating to 1997.
While First USA says it has fixed its problems -- partly by hiring nearly 300 customer-service workers -- Bank One faces a raft of consumer and investor lawsuits resulting from the failure of ambitious merger and expansion plans to deliver expected results.
First USA also has failed to realize projected gains from an aggressive Internet marketing program, including costly marketing deals with Microsoft Corp., Yahoo! Inc., America Online Inc. and other Internet companies, as well as its own Wingspanbank.com unit, an online bank.
Partly as a result, Bank One will spend $185 million to write off losses from "purchased account relationships, affinity programs" and other investments.
In addition, the bank said it would write off $176 million to comply with tighter federal guidelines for the reporting of defaulted loans, and $21 million for previously unreported fraud losses.
Last summer's disclosure that the card business was shaky was followed by the resignation of First USA Chairman Richard Vague and several top aides, and the subsequent departure of Chief Executive Officer John B. McCoy, who had followed his father and grandfather in holding the top job at Chicago-based Bank One, currently the Midwest's largest bank. Bank One is searching for a successor.
McCoy, who engineered his company's purchase of First USA in 1996, had fought suggestions that he sell the card unit.
The bank's largest rivals, Citigroup and MBNA Corp., have acquired smaller competitors in recent years. The business of issuing Visa and MasterCard credit cards has in recent years come under the domination of a handful of specialized issuers, with just five lenders -- including Citi, First USA and MBNA -- accounting for half the nation's $500 billion-plus in bank card debt.