MBNA's greed has come back to haunt them
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Posted by john
(216.78.168.212) on February 19, 2003 at 23:21:35:
Reuters MBNA Falls as Loan Reserves Are Raised Thursday January 23, 5:04 pm ET By Philip Klein NEW YORK (Reuters) - MBNA Corp. (NYSE:KRB - News), the largest independent issuer of credit cards in the United States, on Thursday said quarterly earnings missed Wall Street expectations as it had to boost reserves by $130 million, mainly to cover soured consumer loans. ADVERTISEMENT The news came as a shock to investors, who pushed MBNA shares down as much as 17 percent in early trading before it pared losses to close down about 6 percent, placing it among the most actively traded stocks.
The company, which prides itself on having lower loan default levels than its rivals, has met or exceeded Wall Street earnings expectations since at least 1993. "Given their track record, this is obviously a surprise," said Matthew Park, an analyst at Thomas Weisel Partners. "Consistency has been their middle name." Park said MBNA may be forced to slow the pace of its loan growth, especially in its consumer division, which makes loans for such routine expenses as college tuition and home repairs. The company said its losses on credit card loans were not as great as on consumer loans. Because MBNA attracts customers with a higher credit profile than its peers, it trades at a premium over rivals that have been plagued by defaults from consumers missing bills or declaring bankruptcy in the weak economy. "You could draw the conclusion that the economy has been so bad for so long that you're starting to see the middle-market customer fray a little around the edges," Fox-Pitt, Kelton analyst Reilly Tierney said. "But it would be too soon to call a big downside surprise in credit for the next year." CREDIT LOSSES RISING, MARKET OVERREACTING? MBNA, based in Wilmington, Delaware, reported fourth-quarter earnings of $540.2 million, or 41 cents per share, compared with $524.8 million, or 40 cents per share, a year earlier. Analysts on average were expecting 46 cents, a share, with their estimates ranging from 43 cents to 48 cents, according to research firm Thomson First Call. It is the first time MBNA has fallen short of Wall Street expectations since at least the first quarter of 1993, according to First Call. The research firm does not have data available before 1993. MBNA said net credit losses rose to 5.04 percent of its average managed loans in the fourth quarter, from 4.84 percent in the third quarter and 4.86 percent in the 2001 fourth quarter. Jennifer Scutti, an analyst at CIBC World Markets, said that while the rise in net credit losses was greater than expected, MBNA still has significantly lower loss rates than its peers. "I think the market is overreacting to this right now," Scutti said, speaking earlier in the day. "The losses are still 100 basis points lower than anyone else in the space." MBNA caters to clients with better credit profiles than some of its competitors, such as Capital One Financial Corp. (NYSE:COF - News) and Providian Financial Corp. (NYSE:PVN - News). Both Capital One and Providian have increased their reserves in the weak economy and sought out more credit-worthy borrowers. MBNA said its provision for credit losses was $417.6 million at the end of the fourth quarter, compared with $288.2 million at the end of the third quarter and $285.2 million at the end of the 2001 fourth quarter. Assets swelled to $107.3 billion from $97.5 billion a year earlier. Park said the consumer division represented about 12 percent of the company's loans in the third quarter. MBNA does not provide such a breakdown in its earnings release, and a company representative was not immediately available for comment. MBNA also said it increased its quarterly dividend to 8 cents per share from 7 cents. Shares closed down $1.05, or 5.7 percent, at $17.25 in late afternoon trading on the New York Stock Exchange, after falling as low as $15.15 earlier. It was the second most active stock on the Big Board.
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