One of the most progressive credit cards ever launched bit the dust this
week.
San Francisco-based NextCard, the first Internet-centric VISA card, started
unraveling in October when banking regulators questioned the way the issuer
classified certain losses. Last Thursday the government finally dealt NextCard
a death blow when it shut-down its Arizona bank, NextBank. As a result, Nasdaq
halted trading in NextCard's stock Friday morning before the market opened,
and
NextCard has since stopped accepting new applications. NextCard's stock
initially opened at $33.50 per share in May 1999 and climbed above $40 per
share, but sank to as low as 12 cents per share last week. Launched in
December
1997, NextCard had 1.2 million accounts and held approximately $2 billion in
card loans at year-end 2001. After regulators got on its case last year,
NextCard tried to find an acquisition partner and assemble a ‘Capital
Restoration Plan’. Both efforts failed and the OCC seized the bank last week.
While it may be a little complicated for the average Joe to understand, here's
the scoop anyway. . . . The OCC determined that the bank was classifying some
delinquent accounts sold into a securitization trust as fraud losses, although
the delinquencies were actually attributable to credit quality problems. The
assets were being repurchased by the bank at par, a practice that constituted
sale of assets with recourse. This finding, together with significant
accounting adjustments and the need for additional loan loss reserves,
resulted
in the bank becoming significantly undercapitalized. The FDIC has made
arrangements for current NextCard cardholders to keep using their cards.
One of the most progressive credit cards ever launched bit the dust this
week.
San Francisco-based NextCard, the first Internet-centric VISA card, started
unraveling in October when banking regulators questioned the way the issuer
classified certain losses. Last Thursday the government finally dealt NextCard
a death blow when it shut-down its Arizona bank, NextBank. As a result, Nasdaq
halted trading in NextCard's stock Friday morning before the market opened,
and
NextCard has since stopped accepting new applications. NextCard's stock
initially opened at $33.50 per share in May 1999 and climbed above $40 per
share, but sank to as low as 12 cents per share last week. Launched in
December
1997, NextCard had 1.2 million accounts and held approximately $2 billion in
card loans at year-end 2001. After regulators got on its case last year,
NextCard tried to find an acquisition partner and assemble a ‘Capital
Restoration Plan’. Both efforts failed and the OCC seized the bank last week.
While it may be a little complicated for the average Joe to understand, here's
the scoop anyway. . . . The OCC determined that the bank was classifying some
delinquent accounts sold into a securitization trust as fraud losses, although
the delinquencies were actually attributable to credit quality problems. The
assets were being repurchased by the bank at par, a practice that constituted
sale of assets with recourse. This finding, together with significant
accounting adjustments and the need for additional loan loss reserves,
resulted
in the bank becoming significantly undercapitalized. The FDIC has made
arrangements for current NextCard cardholders to keep using their cards.