July 10 (Bloomberg) -- Advanta Corp., the credit-card company that stopped lending as defaults soared, plans to cut its workforce by about half after shutting off accounts for small-business customers.

Advanta will have fewer than 200 employees after the reduction, which will affect all departments and result in expenses of $8.5 million to $9.5 million, the Spring House, Pennsylvania-based company said today in a regulatory filing.

The lender cut off almost 1 million customer credit-card accounts in May after defaults surged to 20 percent at the end of the first quarter. Advanta posted three straight quarterly losses, and federal regulators told management to present a plan to stop taking deposits.

Advanta’s future will depend on “how bad losses get” as it winds down the credit-card unit, said FBR Capital Markets analyst Scott Valentin. “The question becomes, ‘What is the business model here?’” Valentin said. “Management hasn’t said what their long-term plans are. I think they’re just trying to manage the company today.”

The cuts bring the staff in line with the lender’s activities and aren’t a precursor to bankruptcy, said spokeswoman Amy Holderer in a e-mail. She declined to discuss future strategy.

“Our current focus is to service and collect the balances from our customer,” she said. “We also have the various administrative-type functions that you would need as an SEC-bank regulated company.”

Asset Quality

Advanta’s Class A shares were little changed at 35.99 cents as of 4 p.m. New York time in over-the-counter trading, leaving the stock down 93 percent in the past year.

“Our major concern is the quality of Advanta’s assets and its ability to fund maturing debt,” said ratings firm Egan- Jones Group Ltd. in a note to clients, which rated the probability of default at 80 percent. “With the turmoil in the market, a combination is unlikely.”

To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net.

Last Updated: July 10, 2009 17:49 EDT