Credit card companies' stocks bounced off recent lows on Friday, helped by encouraging signs from battered card issuer Providian Financial and by an improving economic outlook.
Providian, which focuses on lending to people with tarnished credit histories, on Thursday posted a quarterly loss of $395.3 million, after almost $1 billion in charge and additional reserves, but analysts said they were encouraged to see management taking correct steps. The San Francisco-based card issuer also said that regulators approved its capital plan.
Though the U.S. economy is in recession, the numbers of unemployed Americans appear to be dropping. This bodes well for card issuers like Providian that have been hit by rising consumer loan defaults in the weak economy, analysts said.
"The shorts are leaving the stocks," Matthew Park, an analyst at Thomas Weisel Partners, said. "A lot of people who made macro bets against the consumer are now taking those bets off the table."
Providian stock, slammed last year because of rising loan losses, jumped 26 percent, or 91 cents a share, to $4.37 on the New York Stock Exchange at midday.
"The company still has a long way to go but things seem on track," Jennifer Scutti, an analyst at CIBC World Markets said. "Management has its arms around the issues, and what they need to do, and its capital plan was accepted by regulators. Any fears this company was going to burn out, and the risk that held for other subprime lenders, were dispelled."
Providian's rise helped shares of Metris Cos Inc. , another lender to people with poor credit records. The stock gained 11 percent, or $1.44 a share, to $14.84.
Other credit card and consumer lenders shares rose too, on optimism that Americans' finances aren't in such bad shape after all. Household International Inc. stock rose 5.7 percent, or $2.74 a share, to $50.75, MBNA Corp. rose 4 percent, or $1.15 a share, to $32.90 and Capital One Financial Corp.gained 3 percent, or $1.49 a share, to $47.65.
"The financials were hit very, very hard over the last few weeks," Scutti said. "There is a little bit of bottom-fishing."
Plus, the number of U.S. workers seeking unemployment aid fell last week, the government said on Thursday in a report suggesting the worst of the labor market's slump might be over amid signs of economic recovery.
Reuters contributed to this report.
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