Citigroup (Citibank) Might Implode; Citi is in big trouble.

If you watch economic and market websites there has been some interesting news lately out of Citigroup.

Check this out:

Citi (C) is abruptly shutting down credit cards linked to gas station partners.

The bank is offering few details:

The bank said in a statement it "decided to close a limited number of oil partner co-branded MasterCard accounts." That includes not only Shell, but Citgo, ExxonMobil and Phillips 66-Conoco cards.

The close date was Wednesday, and letters were sent out Monday to customers informing them of the change, a Citi spokesman said. The bank would not say how many cards were shut down or how much available credit they represented.

Here's what The Market Ticker has to say...

Citibank's average yield year-to-date (consumer and plastic) was about 12%. But they're suffering 10% defaults, making their true margin about 2%. That's still a positive number.... if it's accurate.

This spread, of course, has a lot to do with previously-issued fixed-rate 12.99% cards (they and everyone else had a lot) that were handed out like candy to everyone and their brother, frequently with $10,000, $20,000 or even $50,000 credit lines.

Huge numbers of small business owners - especially sole proprietors - use these cards as a means of financing operations. They relied on that 10 or 12% interest rate, and most of them have huge balances outstanding.

I have since confirmed that this letter is not just going to people who have had credit "challenges". Indeed, this appears to be a blanket change on the part of Citibank. I now have multiple copies from people who assert that they have 750+ FICOs and have never missed a payment on this or any other obligation - the "paragon" of so-called "responsible" credit use. All of the letters are identical.

The problem should be obvious - for someone with one of the 12.99% cards that is now 30%, this is a radical change that more than doubles monthly interest expense. Of those who have sent me copies of this letter and disclosed their previous rate, none were over 20%, meaning that these changes represent 50% or greater interest rate increases. If you're anywhere near the edge of being unable to pay, this will shove you off the bridge and into the deep, shark-infested water of bankruptcy.

Perhaps what we're really seeing is a business reacting to hidden deterioration of asset bases that are not known by investors and the public due to the legitimation of bogus accounting that happened this last March, but which is known by company executives!

This sort of "terms change", which is an effective declaration of default even against those who haven't defaulted (see above; the same 30% rate is being applied to defaulted and non-defaulted accounts!), will drive two consumer behaviors that could ultimately destroy Citibank's credit card business and perhaps the bank as a whole:

1. Those who can transfer balances out somewhere else and/or pay them off will immediately do so. Nobody is going to pay a 30% interest rate and an imposition of default rates on non-defaulted balances willingly and on purpose unless they have no other choice.

2. A significant number of people, on receipt of this notice and understanding what it means (a declaration that non-defaulted accounts are being charged the same penalty rate as a defaulted account!) will immediately go out and charge up the entire unused balance on their card and then intentionally default.

In short, this looks to me like a "Hail Mary" pass. So long as this remains a Citibank-only story my interpretation is that Citibank is in a lot worse financial shape than is being let on - perhaps poor enough that they're at risk of imploding anyway, "too big to fail" or not.

An economic blog's comments

Citigroup needs money, and needs money badly. Moreover, there is no reason to believe this is all credit card related. In fact, there is every reason to believe Citigroup (and other banks) are in trouble on multiple fronts.

Possible Credit Dislocation: Be Warned

It's bound to happen that one of these "To big to failers." Only a matter of time in my book. Now all we need is a rumor floating around that something big will happen (Leeman copy) and their stock will plummet so fast you can hear it scream.

Take note that MSM will not notice the start of this. They will clue in when the major signs are flashing neon bright in their faces, saying "CITIGROUP IS DEAD AND DYING!"
Probably around November 4th or 5th is when youll see this news hitting the MSM.

I see some banks, MAJOR banks, imploding in the near future.

This whole credit card fiasco has been an obvious and naked attempt to perpetrate further fraud. This makes me wonder what that second stimulus is for....Hmm, I wonder where the American People are right now?

Wow, again thank you Tentickles for your very imformative post . Your financial insite is a blessing for those like me that don't understand that mess.

star for yousa

Good I hope they go bankrupt. They should have gone under years ago. The pain that will be thrust upon the American people by companies like Citi going under NEEDS to happen. It should have happened last year but the stupid government bailed them out.

i hope they crash, though my debt has already been purchased by creditors, so i guess it doesnt matter does it ....

reply to post by Zosynspiracy


Amen to that. And now, because the government didn't just let them fail last year, they're carrying a $300 Billion taxpayer guarantee on their bad loans. That's going to blow another hole in the treasury and probably sink the whole ship.

There is so much toxic crap floating around that is still very much being shuffled to the bottom of the too hard basket.

$1.4 quadrillion worth of unresolved derivatives, with a real value of probably near zero are floating somewhere in cyberspace - they belong to someone - and many of them are CDO's - so they can hit multiple targets with one explosion.

I would expect to see new institutions formed - and all the death and mayhem being shuffled into them while they can still claim they have nominal value - lies, lies and outrageous lies.

Something is going to blow up.

I'm one of the people who had their credit card account closed. It wasn't just a gas card, though it did have the Shell emblem on it along with Citi and Visa.

My balance was about 1/2 of my max and I had the account for almost 10 years, my oldest credit account so the closing of it will result in a drastic drop of my credit score.

I was in good standing with them, paid my bills on time for the past 10 years and was a "good customer"

My account was closed for no reason, and on 3 different calls I chatted with 3 different Account Managers and was told 3 different things. All sounded as if they were reading off a cue card.

I hope this company crashes and burns for this.

I will never do business with them again.

A few entries ago Mr. Denninger called for a boycott of these banks specifically because of this kind of chicanery. If people don't say something, DO something-this game will never end.

The Market Ticker Calls for Bank boycott

reply to post by XTexan


Not only were they probably reading off a cue card they probably told your in a very forced accent their name was "Tom" but clearly they were in some other country. I mean that's what's hilarious. I know most of the customer service reps for many of these companies are located in foreign countries. Why they hell do they have them lie and give us an American name over the phone? LOL.

This is also interesting...

Banking websites everywhere closed for maintenance at the same time tonight...

Link

On the heals of Obama signing something that declares Swine Flu Emergency (Friday.)

Link

All very SpookY!!!

OMG!!!

reply to post by Zosynspiracy


actually no, all the people I talked to were females and they all spoke very good English so I believe they were based here in the US, or at least somewhere in the west...

But yes, it was all cue cards.

I filed a complaint with the US Treasury, I doubt anything will be done though...

Originally posted by DrMattMaddix
This is also interesting...

Banking websites everywhere closed for maintenance at the same time tonight...

Link

On the heals of Obama signing something that declares Swine Flu Emergency (Friday.)

Link

All very SpookY!!!

OMG!!!

Lots of closings....yikes Check it out folks

XTexan....Im sorry that you got hosed. Hope it gets better for you and others in your situtation.

reply to post by XTexan


I've been reading the same story on many websites. Not just Citi is doing this.

Yeah....and there are credit card companies sending out credit card offers with 79.9 percent interest rates! It's unbelievable what is going on. They take billions in taxpayer money and then send out that kind of garbage?

www.abovetopsecret.com...

[edit on 25-10-2009 by David9176]

Dude

You read too many financial websites and watch too much financial TV and quoting and referencing anything from the market ticker is character suicide.

good luck

This is what I don't get and perhaps someone can explain it.

Say you have a certain percentage of cardholders that are not delinquent, use the card regularly, carry a balance, but pay it off. At 12.99%, you are still earning money from them.

If you jack the interest rate up to 30%, those who are the most willing and able to pay interest will stop using your card. Those who remain are likely not good credit risks and your chance of earning any money is significantly reduced, even at the higher rates.

So why do it? Why do you drive off your best customers?

I wonder if the issue is that many people were encouraged to use their homes as ATMs -- in other words, run up your unsecured revolving debt and then turn it into a secured debt by using a HELOC to pay it off. Now, credit card companies are realizing that they are sitting on a massive amount of potentially worthless IOUs and they are panicking.

reply to post by venividivici



So, too much research is a bad thing?

I'm not quite sure what you're saying, but KD at the Market Ticker is a hell of a researcher and often gets things right on the money. This guy is an advocate for the prosecution of fraud, rampant fraud, the permeates our system today. Are you saying that uncovering fraud and finding as many sources as possible to back up a theory is wrong? Should we just take the governments word for it then?

Originally posted by projectvxn
reply to post by venividivici

 

So, too much research is a bad thing?

I'm not quite sure what you're saying, but KD at the Market Ticker is a hell of a researcher and often gets things right on the money. This guy is an advocate for the prosecution of fraud, rampant fraud, the permeates our system today. Are you saying that uncovering fraud and finding as many sources as possible to back up a theory is wrong? Should we just take the governments word for it then?

yea
too much of anything is a bad thing
step back and take a breath and look at the world around you
reading doom and gloom into everything is bad for you system
chill

Denninger is a wacko in my book.

I do my own research and certainly don't take the word of slanted ATS members.

THIS IS THE VOICE OF REASON

chill

enjoy life

Originally posted by projectvxn
Hmm, I wonder where the American People are right now?

Where are they? Have you seen the Tea Parties, Town Halls, and march on DC? THEY ARE PISSED!