After receive bailouts from the government on two separate occasions, Citigroup has announced that it will be increasing its expense for the salaries of the company’s rank-and-file employees, not upper management, by 50 percent. This will be a nice benefit, designed to compensate employees for smaller bonuses and raises last year.
The government’s new “pay czar,” Kenneth Feinberg, has the authority to only oversee the compensation of the top 100 employees of companies on government assistance.
Of all the wackiness involved with Wall Street compensation, this is not a big deal. I don’t see any valid reason to start breaking out the pitch forks and marching on Citigroup headquarters. The rank-and-file employees who stayed with the failing company deserve recognition. The executives who oversaw the bank as it buried itself and made the decision that led to the demise should be thankful these employees stayed with the company (even if the reason for doing so was the lack of a job market).
Unfortunately, it seems the employees will also receive a company stock benefit. There’s a chance that could pay off nicely, but it seems like a risky proposition right now, considering the ambiguity of Citigroup’s future.
How do you feel about Citigroup’s employees, as a group, receiving a 50% pay raise? Some will earn more, some less, but it looks like the bank is investing in their employees here.
While working at Bank of America, I learned a magic phrase that I hadn’t heard before: “verify funds.”
When someone writes you a check (I know, it’s 2009, but even I use them sometimes for plumbers or whatnot), you may feel uncomfortable about whether the check author has enough money to cover it. If you’ve ever deposited a “funny” check, particularly for a large amount, you know how painful it can be to have the money credited and then later taken back out. Fortunately, sometimes you can find out in advance if the check is good.
In general, you call the bank that houses the check author’s account, provide them the check information and they’ll tell you either yes or no. Of course, even if they say yes, that information is only foolproof for about the next 3 seconds, since any number of things could happen before you deposit or cash the check, but it’s better than not knowing.
Ironically, it’s more useful when they tell you, “No, funds aren’t currently available to cover that check,” because now you have options.
- You can keep trying every day until funds are available
- You can contact the check author and work out a different method of payment
- You can decide never to do business with that person again
I did a little research for us all and called the top 6 national banks (some of them several times) and asked whether they would verify funds for a third party (the recipient of the check). Here are the results:
| Name of Bank |
Over the phone? |
In person? |
| Bank of America |
No |
Yes |
| Chase |
Yes |
Yes |
| Wells Fargo |
Yes |
Yes |
| Citibank |
No |
Yes |
| PNC Bank |
Yes (for a $5 fee)
1-900-988-4762 |
No (but every other bank said Yes, so…) |
| U.S. Bank |
Yes |
Yes |
If you’ve had an experience lately that doesn’t match the table, please leave a comment and I can revisit my findings.
Is it ironic that Citi, a bank on the brink of disaster, is now marketing a credit card that “rewards” card holders for good financial behavior? This new credit card marketed toward Generation Y and teenagers, Citi Forward (and Citi Forward for College Students), offers benefits such as 100 points for paying on time and staying within your credit limit each month, 5 points for each $1 spent in “responsible” categories such as books, movies, music, and restaurants, 1 point per $1 for all other purchases, and 5,000 bonus points for signing up for paperless statements.
The most attractive feature is a quarterly reduction of APR by 0.25 percentage points after 3 months of making a purchase and staying within your credit limit and paying on time. This reduction is limited to eight in total and will only be applied if you continue to make purchases using the card.
Why is Citi taking this approach? The company surveyed 1,000 consumers and found:
76% of [survey respondents] said they would rather learn by being rewarded for the right things they do, rather than learning from their mistakes.
I seem to remember a college professor explaining that positive reinforcement is more effective over punishment when your goal is to change someone’s behavior. But don’t get the wrong idea, Citi card holders will certainly be punished if they make a mistake. The default interest rate — immediately charged if the card holder misses a payment — is 29.99%.
The points rewarded must be redeemed through Citi’s ThankYou network, which does not have a one-to-one relationship between points and cents, as the previous credit cards offering cash back rewards had. You would need to accumulate 16,000 points to qualify for a $100 cash reward. If you want a better “exchange rate,” you need to spend or donate your points.
It’s clear that the “responsible” categories for which Citi would like to “reward” its customers are not those that encourage good behavior. If Citi wanted to encourage financial responsibility, they would be promoting the use of libraries rather than purchasing books and buying groceries and cooking implements rather than dining at restaurants. I happen to be a fan of movies and music, but these are two categories where strapped consumers may wish to cut back spending in this recessionary economy. Furthermore, Citi claims that rewarding customers for choosing paperless statements is based on the idea that saving the environment is good, but I think even the targeted teenagers understand that it costs Citi a significant sum to send paper statements in the mail.
The 0.25 percentage point reduction in APR is a good start, but if Citi wanted to encourage true financial competence, they would reward customers for paying bills in full each month.
What do you think about Citibank’s latest credit card?
Thank you to all the taxpayers who are footing the bill for this. As Citibank continues to receive money from the government of the United States, funded by investors in Treasury bills and citizens of the future who will be paying more to the government to support the interest payments on that debt, Citibank continues to reward me. Rather than making new loans to businesses or individuals in needs, Citi simply raises credit card limits.
The concept is somewhat sound; raise credit limits and people will spend more, helping Citi with interest fees and helping the economy through more consumer activity. But if they’re raising the limit for people like me, there is no effect other than using bailout money to prop up their balance sheet.
I have never spent anywhere close to my credit limit in any one month. Yet, they targeted me as a candidate for an increase. I won’t decline the increase; a higher limit results in a lower utilization ratio, which will most likely lead to a higher credit score.
Here is their personal announcement to me:
YOUR ACCOUNT: CREDIT LINE INCREASE
Congratulations on Your Recent Credit Line Increase.
Dear (Flexo),
Because you are one of our loyal customers, we wanted to give your Citi® Card even more value. So reward yourself with the spending power and flexibility that comes with a higher line of credit.
You’ve earned it. Now enjoy it.
Use your new line of credit to transfer balances: You may qualify for a great rate on a balance transfer. To see what offers may be available to you, visit balancetransfer.citicards.com.
Wow, I feel so special. I earned it!
Clearly, Citi is hoping I will transfer a balance from another card, taking advantage of a 3.99% APR and 3% balance transfer fee. Even if I had a balance to transfer, I would pass. This credit limit increase would have been better spent by Citigroup elsewhere.
Reminder: While I am on vacation this week, Consumerism Commentary is featuring articles by other writers. Please read Criminal Charges: Volume XVII, the first of this week’s guest articles.
Rescue Deal for CitiGroup. Citi is too big to fail, so the government is preparing an injection of $20 billion in addition to the $25 billion the company has already received. GM, Ford, and Chrysler are quoted as whining, “It’s not fair!”
Wall Street versus Pennsylvania Avenue. According to the Presidential Cycle, the stock market loses ground during the first half of a new president’s term while increases significantly during the second half. Statistics prove this to be true, but here’s why you shouldn’t abandon stocks for two years.
Gift Cards: A Bad Idea Gets Even Worse. This is bad news for office Secret Santa exchanges. Now we’ll have to think about what trinket someone else may like.
180th Carnival of Personal Finance. Living Almost Large is hosting this edition of the Carnival of Personal Finance with pictures of foreign paper currency. In addition to the Editor’s Picks, check out Visualizing $10,000 Extra in Your Life, The Not-so-Easy Part of Personal Finance, and Financial Education in Schools.
This would-be acquisition is turning into a mess. First Citi agreed to buy Wachovia’s deposits with the help of the FDIC. Wachovia accepted this deal under duress, apparently. The FDIC warned Wachovia that if they did not agree to the deal, the government would seize Wachovia’s deposits. That left Wachovia little choice but to accept.
Not much later, Wells Fargo stepped in with a better offer for Wachovia. This offer called for an acquisition of the entire operations of Wachovia, not just deposits, without the help of the government, for $15.1 billion in stock.
On Saturday, the FDIC succeeded in having the New York State Supreme Court block the deal between Wells Fargo and Wachovia, but on Sunday night, the ruling was overturned on appeal. Citi will appeal this decision.
It seems that the Wells Fargo deal is better for Wachovia, Wachovia’s shareholders, and the public. Wells Fargo will keep Wachovia intact and the FDIC will not be required to use taxpayer money to cover any losses. I don’t see any reason that anyone would favor the Citi deal.
Although Wachovia was recently saved by Citi and the FDIC, Wells Fargo stepped into the picture with a better offer. In this deal, Wells Fargo would take on all of Wachovia, including deposits, brokerage, and investment management, for $15 billion. Earlier this week, Citi offered $2.2 for Wachovia’s banking operations only.
If the Wells Fargo deal goes through, and Citi will do everything in its power to attempt to stop that from happening, shareholders of Wachovia would receive about one-fifth a share in Wells Fargo for every share in Wachovia.
While Citi’s offer relied on the FDIC for financial assistance, Wells Fargo can go through with the transaction without help from the government. The FDIC, however, is in favor of the Citi’s deal.
The banking landscape continues to change.
October 3 update: Wells Fargo has stepped in and placed a better offer for Wachovia.
Wachovia is my main brick-and-mortar bank. The bank has held my primary, though small, savings and checking accounts for about fifteen years. During this time, it hasn’t always been known as Wachovia to me due to a series of mergers and acquisitions. My accounts, which haven’t moved, were held at First Union National Bank, CoreStates National Bank, and New Jersey National Bank.
Soon, my bank will be Citibank. Citibank recently announced its plans to bail out Wachovia’s banking operations.
Until now, I’ve managed to hold completely free accounts at Wachovia. While I’ve been charged fees for various reasons, perhaps mistakes on my part like allowing my savings account balance to dip below a minimum level, Wachovia has always refunded the charges. In fact, I’ve been quite happy with the bank’s customer service all around from the beginning.
If CitiBank does not offer a free option to correspond with my current Wachovia accounts once the acquisition and transition is complete, I will not hesitate to move my funds out of the bank. I have had some interesting experiences with CitiBank’s banking services — mostly on the business end — and I’m not anticipating the switch.
The new Wall Street Journal blog, The Wallet, has a couple of posts regarding the takeover that would be helpful to Wachovia customers like me, here and here. These are the major points:
- Deposits insured by FDIC won’t be lost.
- If you sell your Wachovia stock, which was at $3.50 per share as of last night, you can write off your losses against your stock gains for tax purposes.
- Wachovia mortgages and student loans will become Citi’s assets along with bank accounts after December 31.
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