Citigroup Inc doubles down on credit cards

Despite signs that the US economy is slowing, New York-based Citigroup Inc is betting big on credit cards. Citigroup, the third-largest US card issuer, according to payments industry publication The Nilson Report, has been among the most aggressive promoters of zero-interest balance transfers. For a small fee, customers can move debt from a rival card onto Citi’s plastic and pay no interest for 21 months. That is currently the longest 0 per cent deal in the industry, according to consumer finance company Bankrate LLC. Rivals offer 15 interest-free months with no fee.

The card business now accounts for nearly one-third of Citigroup’s overall revenue and is one of the biggest potential drivers of future earnings growth.

But some analysts and investors worry this portfolio could become a liability if the economy goes south. The bank continues to advertise zero-interest deals on popular personal finance websites and through mailers, even as competitors have scaled back.

“Just recognising where we are in the credit cycle, it’s interesting to see Citigroup doubling down and pushing forward,” said Moody’s analyst Warren Kornfeld.

Credit card customers who use balance transfers are considered higher risk because they often use the easy financing to accumulate more debt, according to bank analysts and credit underwriters.

Wall Street’s worst fears lie with borrowers such as Jacqueline Alvarado, a Pennsylvania truck driver who now owes $12,000. Over the past five years, Alvarado says she has moved balances around on 19 cards, including one from Citigroup, to avoid finance charges. If the promotional offers dry up, she said, so do her hopes of paying off that debt. Zero interest is “the only way I can stay afloat,” said Alvarado, 40. Citigroup executives defended their card strategy and tough underwriting standards they say will protect the bank from major losses in the event of a downturn.

Citigroup’s card business has reported delinquency rates far below the industry average in recent years, according to federal data and filings. In addition, 83 per cent of consumers in its American credit card business, excluding its retail partnership cards, have credit scores of 680, which is considered a good score, according to credit rating firm Experian.

Citigroup counts on customers sticking around after the promotional period expires. With annual percentage rates of up to 27 per cent on its cards, the profits on borrowers who carry balances can be juicy.