SAN FRANCISCO — Beleaguered credit card issuer Providian Financial Corp. hired industry veteran Joseph Saunders as its new CEO Monday, ending a six-week search for a new leader to repair the company’s ailing loan portfolio and battered reputation.
Saunders, 56, replaces Providian’s longtime CEO, Shailesh Mehta, who decided to step down last month after revealing his formula for giving credit cards to high-risk borrowers had hurled the company into a rising tide of problem loans.
Saunders joins San Francisco-based Providian after running the credit card business of FleetBoston Financial Corp. since 1997. With $15 billion in loans, Fleet’s credit card business is less than half the size of Providian’s $32 billion portfolio.
Before working at Fleet, Saunders worked for 12 years as a high-ranking executive at Household International Inc., another major credit card lender. His resume also includes a stint as chairman of Mastercard International.
“This is a good catch for Providian,” said industry analyst Matthew Park of Thomas Weisel Partners.
Investors seemed to agree. After weeks of mostly steady decline, Providian’s shares gained 51 cents, or 15.5 percent, Monday to close at $3.80 on the New York Stock Exchange. The company’s stock remains down by 93 percent for the year.
Despite Saunders’ credentials, industry analysts remain skeptical about Providian’s prospects. Unless the company can get a better handle on its loan losses, Providian might have to sell its business at a sharp discount or, in a worst case scenario, be taken over by federal regulators, analysts warn.
With $15.9 billion in federally insured deposits, Providian remained in good standing with regulators as of Sept. 30.
Saunders “is very well qualified, but that’s not the issue here. The horse may already be out of the barn for this company,” said industry analyst Charlotte Chamberlain of Jefferies & Co.
Despite its troubles, “Providian has a great core franchise to turn around,” Saunders said during an interview Monday. “I am really energized by the opportunity to create a whole new Providian.”
Saunders said he plans to build upon a turnaround plan that Providian management outlined last month. The company plans to curtail its business high-risk borrowers and focus more on middle-income households — a market that Saunders targeted during his time at Fleet and Household.
Providian also may fire more workers beyond the 700 employees who will lose their jobs next month when the company will close a Henderson, Nev. office. “I think there are opportunities for Providian to become more efficient,” Saunders said.
The company employed just over 13,000 employees as of Sept. 30.
Although Providian didn’t disclose details of its new CEO’s compensation package, Saunders said it’s heavily weighted with stock options that will pay off only if he can engineer a turnaround that wins Wall Street’s approval. Saunders predicted it would take “a good part” of next year before Providian’s progress becomes evident.
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