Citi's problem with late card payments lingers

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Repayments in certain segments of Citigroup’s credit card business have continued to lag in the current quarter, but writeoffs will be limited, a top company official said Monday.

Starting in the second quarter, Citi began to have trouble collecting on card accounts moving from middle-stage to late-stage delinquency status, Chief Financial Officer John Gerspach said at the Barclays Global Financial Services Conference. Citi is still working out those issues, but they will generate only “very, very small increases in net chargeoff rates,” he said.

The collections issues are primarily tied to Citi’s retail services card business, which includes cards marketed through retailers like Home Depot and Best Buy. Citi has previously noted that its lower collection rates are partly due to changes in customer behavior amid the shift to online and mobile banking, but it has not elaborated on the connection between the two trends.

On the plus side of the card business, Citi’s acquisition last year of the Costco credit card portfolio — which is part of its cobranded card business — should begin contributing to profit growth this quarter, Gerspach said. That will meet the company’s projected timetable.

“What we said was, Costco is going to have an immediate impact on our credit card sales, on the receivables,” Gerspach said. “But it’s going to be at least 12 months before you begin to see Costco be accretive to earnings, just given the way purchase accounting works.”

“Our expectation is that what you're going to see is the card business now contributing to that positive earnings,” Gerspach said.

Also for the third quarter, overall company expenses should decline on a yearly basis, but Citi’s efficiency ratio will probably “come in a little bit higher” than the current ratio of 58%, Gerspach said. (The lower efficiency ratios go, the better that is for banks.)

Additionally, Citi will record a $500 million gain in the third quarter from the sale of its fixed-income analytics business, he said. The sale of the unit to London Stock Exchange Group closed this quarter.

Trading revenue may decline on a yearly basis because of lower market volatility levels, “especially when you compare it to the third quarter of last year when we had … Brexit and … the U.S. elections,” he said. However, trading performance in September will have a bigger influence on the overall quarter's performance.

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