While the three leading credit rating agencies have criticized Metris Cos. Inc.'s credit quality in recent weeks, equity analysts are split on how important that criticism is.
On the heels of the rating changes, the Minnetonka, Minn., company shuffled its senior management last week by naming a newcomer, John Witham, as its chief financial officer and pushing aside Benson Woo, who is now a senior vice president.
"John has been an excellent addition to our finance and treasury operation and is very deserving of this promotion," Metris' chairman and chief executive, Ronald N. Zebeck, said in a press statement. "In just a short time at Metris, John has demonstrated strong leadership and we're pleased to announce his new role."
A spokesman said that both Mr. Zebeck and Mr. Witham were unavailable for comment Tuesday.
Three New York agencies have either downgraded or placed on watch Metris' credit card trusts, causing some concern among analysts.
"The rating action is the result of the steep deterioration in the trusts' credit performance and concerns about future utility of the credit card accounts if future purchases could not be funded by the B1 rated parent," Moody's Investors Service Inc. said in a statement. On Oct. 18 the agency put 23 classes of securities issued out of the Metris Master Trust, as well as the company's secured note trusts, on review for a possible downgrade.
A few days later Fitch Inc. downgraded $4.2 billion of Metris Master Trust Class A, B, and C notes, affecting about half of the credit card backed securities issued from the trust. The agency cited concerns "of insolvency, bankruptcy, or receivership."
Standard & Poor's Corp. put the trust on its ratings watch on Oct. 31.
Shortly after the Moody's actions, Robert P. Napoli, an analyst at U.S. Bancorp Piper Jaffray, upgraded the stock to "market perform" from "underperform," citing a combination of factors.
"Metris is trading at around 20% of book value, and we didn't think an underperform rating was warranted anymore at that point," said Mr. Napoli, who nevertheless warned that risks remain. "We see some progress being made, but investors have to be aware that they have not made it to the other end of the tunnel."
There are signs that credit quality is stabilizing, including the fact that the third-quarter lagged chargeoff rate declined 1.1 percentage points from the second quarter, to 16.9%, Mr. Napoli said.
In a report published last week, Reilly Tierney, an analyst with Swiss Reinsurance Co.'s Fox-Pitt, Kelton Inc. of New York, wrote that Metris Master Trust is a good gauge of the company's health, because it contains 93% of the card issuer's receivables. A $47 million portfolio sale of revoked accounts in the last quarter helped bring down the overall chargeoff rate, but the remaining portfolio's rate is still going up, he wrote.
"In the end, while the valuation is admittedly low, initiatives are under way to improve portfolio performance, and the most recent earnings release delivered several positive surprises, credit remains a large overhang," said Mr. Reilly, reiterating his "underperform" rating.
Separately, Metris announced the launch of a cobranded credit card with Lillian Vernon Corp. The Lillian Vernon MasterCard will be offered with a six-month 0% introductory interest rate and a rewards program.
