NextBank NA, the Internet-only banking unit of online credit card issuer NextCard Inc., was shut down by banking regulators after they found the bank was “operating in an unsafe and unsound manner” and had substantially dissipated its assets.
The Office of the Controller of the Currency, which regulates the national banking system, said NextBank, Phoenix, is “unlikely to be able to pay its obligations or meet the demands of its depositors” and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC said it could not find a buyer for NextBank's $554 million of deposits and shut it down.
“The OCC found that the bank's risk management policies and procedures were inadequate, and the bank's assets were of lower credit quality than initially projected in the bank's business plan,” the OCC said in a statement. It also noted that NextBank failed to identify the extent of its credit-quality problems or to implement “effective corrective measures.”
No one at NextBank or NextCard was available to comment.
The OCC said it insisted in October 2000 that NextBank implement policies to correct these deficiencies.
“The bank failed to achieve profitability, and the $300 million in capital that had been provided by the bank's parent company, NextCard Inc., was dissipated through credit losses and high operating expenses,” the OCC said.
In late 2001, NextCard tried to find a buyer for the bank and its holding company, but found no takers. In January it notified the OCC that it could not prepare a Capital Restoration Plan and said that liquidating the bank's assets would not raise enough money to pay its obligations.
“In light of these findings, the OCC determined that it was necessary to close the bank and appoint the FDIC as receiver to protect the interests of the bank's insured depositors,” the OCC said.