Small-business card issuer Advanta Corp. today announced it plans to shut down all of its credit cards to new charges next month in a dramatic maneuver to protect its liquidity and capital in the face of steep losses during the economic downturn. As a result of its card portfolio's negative performance this month, its securitized master trust will go into early amortization on June 10, preventing the funding of any new receivables, Advanta says. The move is a reversal of a plan Advanta CEO Dennis Alter outlined earlier this month when he said the company was taking other steps to avoid early amortization of its master trust. Advanta reported a loss of $75.9 million for the first quarter ended March 31 and sharply higher charge-offs on outstanding receivables (CardLine, 5/4). Advanta noted that shutting down its credit card accounts will not accelerate payments required from cardholders on existing balances. The company added that it will continue to service and collect the master trust's credit card receivables and its own receivables. Advanta's decision to allow its securitization-funding vehicle to unwind and to stop supporting charges by accountholders underscores the unraveling that has beset the small-business credit card industry, analysts say. The move also could intensify credit deterioration in Spring House, Pa.-based company's portfolio and expose investors in its credit card-backed bonds to further risk of principal losses, sending ripples across the broader market for such securities. However, analysts say Advanta's position is far weaker than the large issuers that dominate the credit card industry. "When you have credit losses rising to" levels seen at Advanta, "which were not expected by the company and many others, it calls into question" the whole small-business credit card business model that essentially "amounts to … significantly higher credit lines than you would have in consumer cards," says Sameer Gokhale, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "So you have very high credit losses in economic downturns, and it doesn't matter whether these are prime or super-prime FICO customers. The bottom line is when you're offering credit lines that are double, triple, four times the size of what you offer to consumer cardholders, when there's an economic downturn, the loss severity can be much higher on these business cards."

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