Top US S&L to buy Providian

SAN FRANCISCO -- Washington Mutual Inc., the nation's largest savings and loan, said it is expanding into the credit card business by buying Providian Financial Corp., a once-troubled lender that bounced back to become a prime takeover target.

Seattle-based Washington Mutual initially valued the stock-and-cash deal at $6.45 billion, or $18.71 per share -- a modest 4 percent above Providian's closing price last week.

Investors were unimpressed. Providian's shares fell 33 cents, or 1.8 percent, to close yesterday at $17.63. Washington Mutual's shares declined $1.03, or 2.5 percent.

Hoping to thwart potential rival bids, Washington Mutual imposed a $245 million break-up fee as part of its agreement with Providian.

Washington Mutual, with total assets of $308 billion, plans to use San Francisco-based Providian as its springboard into the $800 billion credit card industry after the deal closes late this year.

It had been preparing to launch its own credit card early next year before concluding it made more sense to buy the expertise and existing customers of a major lender like Providian, the nation's ninth-largest credit card issuer, with 9.4 million accountholders and $18 billion in loans.

With most of its profits tied to home lending, Washington Mutual is counting on credit cards to diversify its revenue as it strives to become more like a bank than a traditional S&L..

''We view this as a favorable and transformational opportunity," Kerry Killinger, the thrift's chairman, said yesterday.

Excluding charges incurred in the takeover, Washington Mutual expects Providian to boost its 2006 earnings by 4 cents per share.