How Much Will Citi's Credit Card Losses Rise with Unemployment?

According to Francesco Guerrera, Citi is pushing back against the idea that rising unemployment is going to mean large credit losses on its credit cards:

People close to the situation said both Citi and BofA were contesting some of the conclusions made in the stress tests. Citi executives, led by finance chief Ned Kelly, are believed to have told regulators the estimates for losses on credit cards – based on rising unemployment – are too high.

Which is not the impression you get from listening to David Simon of Citigroup’s credit card unit, who popped up at the Milken Global Conference on Wednesday to say this:

As people have read in the newspapers, credit losses are at somewhat of an all-time high, and they go tracking directly with unemployment. So as unemployment goes, so go credit card payments. And since this is all based on statistical models, you don’t have the opportunity to look a person in the eye and say “let me help you”.

(Video here, it’s at about the 35-minute mark.)

I think this might count as a “gaffe”, under Mike Kinsley’s famous definition of a gaffe being when someone accidentally tells the truth. Or maybe Simon hasn’t been talking to his brand-new CFO recently. Or maybe Citigroup really thinks it can persuade Treasury that its statistical models are particularly reliable. Which is an argument I’d love to be a fly on the wall to see.

Disclosure: No positions

Comments

[Ishortyou]

well it all stems in housing prices, when people use them like ATM's. I wonder though why the homebuilders are still pumping 300k/mo houses when we have such an overwhelming glut, dont they realize that this hurt their business as well? am I missing anything?

2009 Apr 30 09:31 AM

[Lilguy]

Oh yeah, credit card debt at Citi, BAC, AmEx, etc., will go bad as unemployment continues to grow. OTOH, I don't think it will have the same effect as mortgage defaults have had, simply because people are unable to leverage their credit cards as much as they leveraged their homes. Still, it's gonna hurt many banks' asset base, reserves, and ultimately lending ability. Another arrow in the chest of an early economic recovery.

2009 Apr 30 11:22 AM

[Speedspirit]

Banks lent to those who couldnt afford big houses and then people filled those big houses with stuff on thier credit cards many credit cards. And if the rumors come to fruition then its gonna hurt. Banks cant handle more losses and it will all go the way of Chryslar there is no other alternative. This they knew and this is what smart people have been saying since day 1, but noooo we just gave them Billions of dollars, Trillions. Well correction they stole Trillions.

2009 Apr 30 10:25 PM