November 14, 2008
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News: Citigroup Jumping Rates 3% for 10 Million.
As reported today by the New York Times, Citigroup is against the ropes. Although one of the largest, if not the largest, credit card lending companies in the country (perhaps the world), they are not alone in their troubles. There are a dozen or more other credit card lenders with the same kinds of problems. Let's hope this isn't the first of so many dominos yet to fall. After showing a $20 billion loss over the last 12 months, Citigroup has to make some serious changes. They have decided they must slash employment and raise credit card rates. Perhaps they have little choice but readers need to be aware of what to expect.
With 54 million active credit card accounts and a decision to raise rates for as many as 20 percent of them, this could equate to 10,000 card holders with higher rates. The rate hike is expected to average 3 percent. It's not known yet what the cap will be. Those of us in question will find out, though. They will be notifying us soon. When notification comes, cardholders may be given the choice to ‘opt-out' and not experience the hike. In that case, the account may be closed from any further charges credit card, but the holder can still keep the old rate until the card is paid off.
This action doesn't make Citigroup the bad guy, they're just trying to survive in a ‘belly-up' economy. Credit card defaults (unrecoverable debts) have jumped 46 percent just in the last quarter. Another major hit Citigroup has taken is in ‘securitizations'. This is where a lender will package up customer loans and sell them to secondary market buyers. This had the extreme impact of Citigroup going from a $169 million gain for last year's third quarter to a crushing $1.4 billion loss for this year's third quarter. Citigroup is in hopes that having loans with higher rates will make their ‘securitizations' more attractive to buyers.