**Corporate Decision #2003-11**

**October 2003**

**STATEMENT ON THE DECISION OF THE COMPTROLLER OF THE CURRENCY ON THE
NOTICE BY COMPUCREDIT CORPORATION OF ITS INTENT TO ACQUIRE A CONTROLLING
INTEREST IN AXSYS NATIONAL BANK,**

**SIOUX FALLS, SOUTH DAKOTA**

**OCC CONTROL NUMBER 2003-MW-11-0001**

**SEPTEMBER 2, 2003**

**[Introduction]{.underline}**

On February 6, 2003, CompuCredit Corporation ("Aquiror") filed with the
Office of the Comptroller of the Currency ("OCC") a Notice of Change in
Control ("Notice") pursuant to the requirements of The Change in Bank
Control Act ("CBCA"),12 U.S.C. § 1817(j), and 12 C.F.R. §  5.50 with
respect to Axsys National Bank ("Bank"). The Acquiror was incorporated
and opened for business in 1997. The Acquiror describes itself as a
credit card company primarily engaged in subprime unsecured,
general-purpose Visa and MasterCard credit cards issuance through direct
mail, television, telemarketing and the Internet.[^1] The Bank engages
in proprietary credit card lending for its parent, Fingerhut Companies,
Inc. ("Fingerhut"). Fingerhut ceased issuing credit cards through Axsys.
In mid-2002, the Acquiror began purchasing credit card receivables
originated by the Bank.

As required by regulation, on February 13, 2003, the Acquiror published
an announcement of its intention to acquire the Bank, which initiated a
20-day public comment period that expired on March 4, 2003. The OCC did
not receive any comments from the public. The OCC deemed the Notice to
be technically complete as of May 7, 2003.

The CBCA provides specific grounds under which an agency may
*disapprove* a proposed acquisition. 12 U.S.C. § 1817(j)(A-F). The CBCA
imposes a statutory timeframe of 60 days for consideration of a notice
with the discretion to extend the review period for an additional 30
days. The timeframe begins when the notice is declared technically
complete. 12 C.F.R. 5.50(f)(3)(ii). The review period may be extended
for two additional periods of not more than 45 days each under certain
circumstances. If the agency does not disapprove the notice on the basis
of one of six factors within the statutory timeframes, the acquisition
may proceed. 12 U.S.C. § 1817(j); 12 C.F.R. 5.50(f)(3). A proposed
acquisition may be disapproved because:

1\. The proposed acquisition of control would result in a monopoly or
would be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize the business of banking in any part of the
United States.

2\. The effect of the proposed acquisition of control in any section of
the country may be substantially to lessen competition or to tend to
create a monopoly or the proposed acquisition of control would in any
other manner be in restraint of trade, and the anticompetitive effects
of the proposed acquisition of control are not clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.

3\. The financial condition of any acquiring person is such as might
jeopardize the financial stability of the bank or prejudice the
interests of the depositors of the bank.

4\. The competence, experience, or integrity of any acquiring person, or
of any of the proposed management personnel, indicates that it would not
be in the interest of the depositors of the bank, or in the interest of
the public, to permit that person to control the bank.

5\. An acquiring person neglects, fails, or refuses to furnish the
appropriate Federal banking agency \[here, the OCC\] all the information
required by the appropriate Federal banking agency \[again, the OCC\];
or.

6\. The OCC determines that the proposed transaction would result in an
adverse effect on the Bank Insurance Fund or the Savings Association
Insurance Fund.

**[Relevant Disapproval Factors]{.underline}**

With regard to the subject Notice, as described below, the OCC made
adverse findings with regard to the third, fourth and sixth factors
detailed above. Our findings with regard to each factor relative to the
Acquiror's Notice are as follows:

1.  [The financial condition of the acquiring person is such as it might
    jeopardize the financial stability of the Bank or prejudice the
    interests of the depositors of the Bank.]{.underline}

The Acquiror has not demonstrated that it has the financial capacity to
provide the critical financial support for the Bank's operating plan to
succeed. The Acquiror's earnings history is uneven, and its year-end
2002 earnings were marginal and would allow for little error in the
implementation of the proposed business plan for the Bank. In addition,
the Acquiror's ability to structure a securitization facility, or to
find another funding vehicle for the Bank's credit card receivables that
results in a reasonable cost of funds, are in question. The Acquiror's
securitization activities will be adversely affected not only by its
poor year-end 2002 financial performance, but also by the general
instability of its earnings, and by market events that could adversely
affect asset-backed securitizations involving subprime credit card
lenders. The absence of a cost effective funding source would negatively
impact the Bank's operation, making it difficult for the Bank to
generate new credit card accounts without sacrificing asset quality and
positive earnings. The instability in the Acquiror's financial condition
is reflected in the following:

-   Earnings for the first six years of operation have been erratic and
    its year-end 2001 and 2002 earnings have been weak. Future earnings
    performance is uncertain.

-   Year-end 2002 60+ day credit card delinquencies and charge-offs have
    increased significantly. Further deterioration in asset quality will
    adversely affect its earnings and its cost of funding.

-   Ability to generate adequate growth in new card accounts is in
    question. Significant declines in origination of new credit card
    accounts was experienced in 2001 and 2002. Failure to maintain
    adequate growth in new card accounts will negatively impact the
    volume of credit card receivables, which is critical to preventing a
    liquidity crisis through the early amortization of its
    securitization facilities, as well as for generating adequate
    earnings.

-   Limited liquidity sources are available to meet anticipated and
    potential funding needs associated with its subprime credit card
    operation and securitization activities.

-   Highly volatile and illiquid residual assets from its securitization
    of subprime credit card receivables support the majority of the
    Acquiror's capital. These residual assets have experienced
    significant losses, and may be subjected to future losses as a
    result of the potential adverse performance of the securitized
    receivables.

2\. [The competence and/or experience of the acquiring person indicate
that it would not be in the interests of the depositors of the Bank, or
in the interest of the public, to permit the person to control the
Bank.]{.underline}

The Acquiror has not demonstrated an ability to operate its existing
credit card business consistently and profitably, as shown above, and
has not been able to stabilize earnings at adequate levels. It has faced
challenges with maintaining growth in new credit card accounts,
competing effectively with its competitors, and dealing effectively with
the downturn in the economy. In addition, it has not demonstrated an
adequate methodology to properly value its residual assets, on an
ongoing basis, calling into question its ability to evaluate and
maintain sufficient capital to support the risk inherent in its existing
operations. The Acquiror's proposed business plan for the Bank to become
an issuer of general purpose credit cards represents not only a
significant change to the Bank's previous business, but also a shift to
an intensely competitive segment of the credit card market, in which the
Bank and the Acquiror have no discernable experience.

3\. [The proposed acquisition could result in an adverse effect on the
Bank Insurance Fund.]{.underline}

The complexities associated with subprime credit card lending and
securitizations of credit card receivables could cause significant
expense to the Bank Insurance Fund (BIF) if the Bank were turned over to
the Federal Deposit Insurance Corporation ("FDIC") in receivership. The
failure of other credit card banks with subprime credit portfolios has
shown that an extensive effort is required to identify willing investors
to acquire the subprime credit card portfolio of the failed institution.
In a receivership, it is likely that the FDIC would have to hire
expensive outside expertise to help manage the securitization
facilities.

The potential reliance on brokered deposits could lead to significant
exposure for the BIF. All credit card banks are exposed to a greater
level of liquidity risk due to their lack of diversified funding
sources. Without strong financial support from a parent company, credit
card banks generally rely upon two sources of funding for credit card
receivables: (1) the securitization market, and (2) brokered deposits.
The prohibitive cost of using bank lines of credit and the inability to
generate a sufficient volume of receivables to effectively initiate a
securitization transaction creates a high risk that the Bank would be
forced to resort to using brokered deposits to fund the outstanding
receivables. If the Bank decided to solicit brokered deposits as a means
of funding the receivables, this would expose the BIF to significant
potential losses because these brokered deposits would be insured at the
maximum amount of \$100 thousand.

## Conclusion

Accordingly, pursuant to 12 U.S.C. § 1817(j) and based upon the OCC's
adverse determinations regarding the three factors detailed above, the
OCC disapproved the Acquiror's Notice of its intent to acquire control
of the Bank.

/s/ Julie L. Williams

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel

9-2-03

Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

[^1]: Acquiror\'s December 31, 2002, SEC Form 10-K Report, Page 18,
    Heading: Risk Factors.