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Citigroup Employees to Receive 50% Pay Raise

by Flexo on June 24, 2009

in Career and Work

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.

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Received My Bailout From the Government

by Flexo on March 6, 2009

in Credit

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.

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How Citigroup Used $45 Billion from the Government

by Flexo on February 3, 2009

in Consumer

Citigroup released a report today explaining how it “spent” the $45 billion provided to the company by the government as part of the Troubled Asset Relief Program (TARP). On a high level, the report accounts for $46.5 billion spent or allocated to a variety of programs across five categories: residential mortgages, personal and business loans, student loans, credit cards, and corporate loans.

First, $10 billion was used to purchase mortgage bundles from Fannie Mae. The bundles mature this month, which means Citi will receive the $10 billion back and be able to use the funds elsewhere. The report says that this decision was to “help provide liquidity to the secondary market.”

$10 billion is being used to invest directly in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Half of this amount is invested in 15-year fixed rate mortgages while the other half is invested in split between 3-year and 5-year adjustable rate mortgages.

$7.5 billion is being used to buy other mortgages on the secondary market; that is, Citi is buying mortgages offered by other lenders from those other lenders.

$8.2 billion is being used to offer non-conforming mortgages directly to consumers. Non-conforming loans are those with high values, starting at an average of about $500,000, usually necessary in areas with high property values. Interest rates on these loans are higher and so are the risks associated with offering these mortgages.

$1 billion is earmarked for loans to businesses facing short-term financial problems. These loans would be secured by commercial property of illiquid assets.

$1.5 billion is being offered to consumers who would like to consolidate personal debts or who need money to meet other financial obligations.

$1 billion will offered to students as loans through the Federal Family Education Loan Program (FFELP) to help middle income and low income families afford tuition.

$5.8 billion is earmarked for credit cards in order to expand offers for balance transfers, increase credit lines, and acquire new customers. In the statement, Citigroup says, “Credit cards play a critical role in helping people and businesses purchase basic goods and services. Based on available national economic figures, Citi estimates that 20 percent of total personal spending flows through credit card transactions, often for everyday essentials.”

$1.5 billion is being invested in securities backed by commercial loans.

The above amounts are earmarks. Citi did not describe in detail amounts that have already been invested or used vs. amounts that are waiting to be spent at the right time, for example, when there is sufficient liquidity or supply.

Citigroup also offered a description of permitted uses and prohibited uses for money provided by the government. Here is what is permitted:

Citi’s guidelines call for TARP capital to be deployed in a prudent and disciplined manner consistent with Citi’s strategic objectives and the Treasury’s goal of strengthening the financial system in the United States and expanding the flow of credit. TARP capital is equity, in the form of preferred stock. It will be used exclusively to support investments and not for expenses, which are covered as part of our cash flow.

And here is what is not permitted for the TARP funds:

TARP capital may not be used for any of the following purposes: Compensation or bonuses, dividend payments, lobbying or government relations activities, marketing, or advertising or corporate sponsorship activities. TARP capital will not be used for any purposes other than those expressly approved by Citi’s Special Committee.

Accountability and transparency is necessary so consumers can understand how the funds approved by government representatives to bail out financial instituions are being used. I’m happy to read that Citi’s TARP funds are not going to bonuses and executive compensation, but is this the most effective use of the money? I would like to see more funds set aside for direct relief for consumers.

Here is the full 43-page report from Citigroup, called What Citi is Doing to Expand the Flow of Credit, Support Homeowners and Help the U.S. Economy: TARP Progress Report for Fourth Quarter 2008 [pdf], February 3, 2009.

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45% Less Credit in Americans’ Wallets

by Smithee on December 2, 2008

in Credit

Meredith Whitney, an analyst with Oppenheimer & Co. is predicting that credit card issuers may cut as much as $2 trillion worth of available credit in the near future, representing about 45% of today’s levels.

The Motley Fool has decided to call this The Death of Credit Cards, but we’ll be co-existing with them for as long as people want to borrow from their future selves. (That, or you’re clever like my man Flexo, who only uses them for the rewards. I’m not that clever, but I’m working on it.)

Here’s the crux of the story:

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

We’ve already seen Citigroup raising rates for nearly all customers across the board (even though the national average credit card interest rate continues to decline).

Citigroup said it would be raising rates 2 to 3 percent, but from the comments we received on the story a couple of weeks ago, the average seemed to be about 7 to 10 percent. And this seemed to be happening even to people with good FICO scores and payment histories.

Now Citigroup, as well as Bank of America and JPMorgan Chase, are considering closing accounts, as well as lowering credit limits. Given Citigroup’s recent history, what are the chances that these actions will only be taken on customers with poor histories? If you’ve delicately balanced your available credit in order to keep a high FICO score, this could have serious repercussions.

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Citigroup Credit Card Rates Going Up: A Mystery

by Smithee on November 18, 2008

in Credit

Every Tuesday, Smithee presents an article about his own experiences with and observations about credit cards.

Do you have a credit account with Citigroup? I probably do. I think I started one with Rooms To Go when we started paying for our very comfortable bed. They said it would be interest free for however-many months. I figured out how much we’d have to pay per month to make sure we’d never see any interest accrue, but nothing’s set in stone.

For example, despite a pledge made to Congress in 2007, Citigroup is raising its credit card interest rates for many if not all of its customers by 2 or 3 percent. Citigroup has pointed to the “difficult market environment” as the cause for this euphemistically-phrased “repricing.”

Here’s the weird part: in the last four weeks, the average credit card rate has decreased, which doesn’t point to a system-wide difficult environment. Also, since nobody really knows what’s going with the $700B bailout/rescue plan, there’s a fairly good chance that some large part of our taxpayer money might go to rescuing credit card companies.

I’m not much of a conspiracy theorist, but with all of this news appearing in the same seven-day period, it seems to me like the people making decisions aren’t talking to each other very well. That, or Citigroup is taking advantage of otherwise innocent Americans. Oh, there are those contracts we agree to, of course. But in this instance, Citigroup made a pledge to Congress. That should be worth something, don’t you think?

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