What's The Next Move For Troubled NextCard? Find A Buyer, Say Execs Fed Regulators Clamp Down Company must set aside greater reserves to cover losses due to credit fraud.(INTERNET & TECHNOLOGY)

Byline: JED GRAHAM

Online credit card issuer NextCard Inc. won a reputation with analysts as one of the biggest and best advertisers on the Internet.

But the San Francisco-based firm, which signed on more than a million customers in two years, might have been a little too successful attracting credit card applicants.

Federal regulators, in a way, have slapped the company with a speeding ticket for growing beyond its means in an economic downturn. Forced by regulators to take a more conservative financial approach, NextCard said Wednesday it's increased reserves for losses from fraud and loan defaults to a degree that it's now considered to be "significantly undercapitalized."

As such, regulators have placed severe limitations on NextCard's business, which its executives say has led them to seek a well-financed buyer.

NextCard said Wednesday it's hired Goldman Sachs Group Inc. for that purpose.

That the company had to set aside more reserves for losses associated with fraud might have been most surprising, observers say.