When Providian Financial Corp. hired Joseph W. Saunders as chief executive in November, 2001, many investors didn’t think the San Francisco credit-card company would last another year. Once the fifth-largest U.S. card issuer, Providian had begun to unravel that fall. Its strategy of handing out plastic to risky customers backfired when the recession led to big loan losses and the resignation of its chairman and CEO. “The capital structure of the business was abysmal,” Saunders says. “We didn’t have the financial underpinnings to survive.”
Working with regulators and a new management team, Saunders devised a three-year plan to transform Providian into a smaller but sounder organization. Avoiding subprime customers, the company now targets people with at least average credit, and has cut its credit loss rate to 10% of its outstanding loans from a peak of 18% in 2002. That’s still high: The average for the industry is just 6%, according to Moody’s Investors Service. “We’re three-quarters of the way across the English Channel, and we know that if we stop swimming, we’ll drown,” Saunders says.
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