NextCard trading halted; bank shut down
Trading in the Internet-only credit card company is halted a day after government regulators shut down the bank that it operated.
The Office of the Comptroller of the Currency said in a statement that it closed down the bank after discovering it "was operating in an unsafe and unsound manner." NextBank's business practices would lead it to "deplete all or substantially all of the bank's capital."
The OCC said it appointed the Federal Deposit Insurance Corporation as the receiver of NextBank's assets after NextBank said that a liquidation of its assets would not raise enough money to pay off existing liabilities. NextBank had about $700 million of assets and $550 million of deposits at the end of 2001.
The move leaves NextCard without the banking backbone traditionally needed to issue credit cards under the Visa name.
"While we are currently in discussions with regulators as they further assess NextBank's situation, Visa's focus remains on cardholders and providing them superior service, convenience and reliability," Visa spokesman Kelly Presta said in a statement. "Currently nothing has changed for NextCard Visa cardholders--they may continue to use their cards at more than 22 million locations worldwide, and their cardholder agreements remain in effect."
NextCard would not return phone calls for comment. However, the company did issue a statement about NextBank: "In light of this announcement, the company will re-evaluate its business and operations strategies."
The company, once heralded as an Internet pioneer for attempting to issue credit cards solely over the Internet, continues to falter. The company was unable to find a buyer for its business after a three-month search.
NextCard had pumped $300 million into NextBank after regulators said the bank had insufficient funds. But in its last inspection, the OCC said funds NextBank received had been "dissipated through credit losses and high operating expenses."
The bank used inadequate risk-management policies and procedures and its assets fell to levels lower than described in the original business plan, according to the OCC.
The company's shares closed at 14 cents Thursday.
Reuters contributed to this report.