How much will Citi’s credit card losses rise with unemployment?

April 30, 2009

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.


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