Providian, which will remain based in San Francisco, will become a business unit of Washington Mutual, which plans to retain the company's management team and infrastructure.

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In its biggest deal in seven years, Washington Mutual said today it is buying credit-card giant Providian Financial for $6.45 billion.

The acquisition of the nation’s 10th-largest credit-card issuer will instantly make Seattle-based WaMu a major player in a business that will balance its heavy dependence on single-family mortgages and home-equity loans.

“This is clearly a very nice complement to our other loan portfolios,” said WaMu chief executive Kerry Killinger.

Top 10 credit card companies

Company, 2004 managed credit-card receivables (in billions of dollars)

Citigroup: 165.8
JPMorgan Chase: 134.7
MBNA: 101.9
American Express: 78.3
Capital One Financial: 69.9
Bank of America: 58.1
Discover Bank: 47.1
HSBC Finance: 25.6
American Express Credit: 22.5
Providian Financial: 18.5

Source: SNL Financial

Consumer credit cards can be a lucrative source of income for financial-services companies, and Killinger noted that the business doesn’t have the same interest-rate sensitivity as home loans. There’s also “a wonderful opportunity” to sell Providian’s credit cards to WaMu accountholders and WaMu accounts and loans to Providian cardholders, he said.

However, credit cards can also pose a higher risk of default, particularly among the lower-income customers Providian historically targeted. The company’s profits soared during the late ’90s boom, but shriveled after the recession hit — falling 94 percent in 2001, from $651.8 million to $38.8 million.

In addition, the company paid millions to settle charges from regulators in California and Connecticut that its business practices were deceptive.

In 2001, Providian’s former CEO resigned under pressure and was replaced by Joseph Saunders, a FleetBoston veteran who cut some 1,500 jobs, sold off the company’s British and Argentinian card operations, and sold $2.5 billion in credit-card assets. Saunders also refocused the company on middle-income customers — more like WaMu’s customer base.

While the deal makes strategic sense for WaMu, analysts said, its ultimate success will depend heavily on the credit quality of Providian’s loan portfolio and in WaMu’s skill at integrating the company into its operations.

The stock-and-cash deal will pay Providian shareholders the equivalent of 0.45 WaMu shares for each Providian share. Based on WaMu’s closing price Friday, that would be $18.71 per Providian share, 4.2 percent over that day’s closing price.

Both companies’ shares fell on news of the deal. In late afternoon trading, WaMu shares were down $1.05, or 2.5 percent, while Providian shares fell 36 cents, or 2 percent.

The deal is expected to close late this year.