Thursday, Nov. 15, 2001 | 10:58 a.m.
The Las Vegas Valley's layoff woes spread to Henderson Wednesday, when credit card giant Providian Financial Corp. -- a company struggling to regain its financial footing -- announced it would close its call center in Green Valley.
About 700 people, generally making about $13 an hour, will be put out of work when the center closes Dec. 7. Those employees who remain on the job through their layoff date will receive full pay through Jan. 13.
The announcement came the same day Providian announced it was suspending dividends indefinitely and withdrawing future earnings guidance. The company also said it is considering selling off $3 billion in credit card debt held by its customers.
Providian stock fell this morning on the news, trading at $2.85, down 83 cents or 23 percent from Wednesday's close.
The Henderson call center, opened just 18 months ago, handles incoming service calls for customers who hold credit card accounts with the San Francisco financing company. It is one of 10 call centers operated nationwide by Providian, the nation's fifth-largest credit card issuer.
"We looked at every site we had, and when all the factors were weighed in, a very tough decision was made that Henderson would be the site to be closed down," said Alan Elias, spokesman for Providian. "It was easiest to integrate what's going on in Henderson to other sites as opposed to the other way around."
Consultants are being brought in to provide employees with job-hunting tips, including interview and resume skills, Elias said. The company also plans to hold a job fair before the center closes.
Providian said it expects the closure will save $18 million a year in operating expenses. It will take a one-time charge of $12 million in the fourth quarter in connection with the closure.
Providian achieved tremendous earnings growth in the late 1990s with its focus on high-risk credit customers. While these accounts were riskier, they were also more lucrative, as they generated higher service fees and interest rates.
But Providian's focus on high-risk customers quickly turned sour when the national economy headed south. Credit losses rose in 2001 as Providian's high-risk credit portfolio showed "deteriorating performance," and these losses worsened when the economy slowed further after the terrorist attacks of Sept. 11.
"Continued weakness in the U.S. economy (is) projected to result in higher contractual and bankruptcy losses for the year, as well as generally softer loan demand," Providian said in its earnings report Oct. 18.
These factors caused Providian's net income to plunge more than 71 percent in the quarter ending Sept. 30 to $57.2 million. The poor performance led Shailesh Mehta to resign as chairman of Providian on Oct. 18. Mehta will step aside as chief executive as soon as a replacement can be found.
Investors responded to the disappointing performance by selling off Providian stock. On Oct. 19, Providian shares fell 58 percent to $5.15. Less than 6 months ago, Providian traded as high as $60.91 -- on Wednesday, it closed at $3.68.
Providian announced at that time it was focusing on a five-pronged strategy to put the company on a sounder financial footing. One part of that strategy was the review of all operations "to identify opportunities to increase efficiency and reduce costs."
Another was to suspend lending to high-risk lenders and focus efforts instead on more stable "middle market" customers. This also reduced Providian's need for call center employees, Elias said, as high-risk accounts typically generate more calls.
Providian also scaled back marketing to the low-risk "platinum" customer market, saying competition for these customers made such accounts less profitable.
Providian's closure is a blow to the state, which had provided Providian with incentives to encourage its growth here. Last November, the Nevada Commission on Economic Development awarded Providian a $116,000 grant to help it train 300 employees in computer software, electronic commerce and Internet transactions.
"There's no guarantees in business," said Bob Shriver, executive director of the commission.
Had Providian received tax breaks from the commission, it would have been forced to pay back those taxes with interest, as the employees did not keep their jobs for the required two-year period. But this isn't required with training grants, Shriver said.
"The belief is the employee, rather than the company, is the actual beneficiary of the training program," Shriver said. "Fortunately for the employees, they received some good training relative to skills they can use in the Las Vegas and Henderson area."
Layoffs have swept through the Las Vegas area since Sept. 11, primarily from a significant slowdown in tourism and travel since that time. The layoffs have been primarily centered in the gaming industry; in the weeks following Sept. 11, layoffs on the Strip alone exceeded 13,000.
As business recovers, Strip casinos have been recalling some workers on a part-time basis. MGM MIRAGE has recalled about 2,100 of the 6,000 employees it laid off; Mandalay Resort Group 1,600 of 4,500; and Park Place Entertainment Corp. one-third of 2,050. In all three cases the recalled employees have been working part-time weeks.
From Sept. 11 to Oct. 31, the Nevada Department of Employment, Training and Rehabilitation received 37,629 claims for unemployment benefits; 16,629 were attributed to the aftereffects of Sept. 11. As of Oct. 27 34,641 Nevadans were receiving unemployment benefits, up from 20,031 the week of Sept. 11.
The post-Sept. 11 layoffs have yet to show up in unemployment figures released by the state, however. The state reported that 40,400 were unemployed in the Las Vegas metro area in September, translating into a 4.9 percent unemployment rate. This was actually down 0.2 percentage points from August 2001, but did not reflect post-Sept. 11 layoffs. The October unemployment report is expected next week.
The federal government reported a 5.4 percent national unemployment rate in October, up from 4.9 percent in September. An estimated 415,000 workers lost their jobs across the country in October, the most job cuts in a single month since 1980.
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