Citigroup Inc.’s private-label retail card unit is on the rebound, and despite the widespread contention that at one point Citi was looking for a buyer for its $40 billion-plus private-label cards operation, the company now says the unit was never officially up for sale.
Celebrating a return to profitability in recent quarters after steep losses during the recession, Citi on Nov. 17 announced the renewal of a long-term contract to manage the private-label card operation of gasoline retailer Sunoco Inc., a relationship that began in 2004. Citi also recently renewed its long-running private-label contract with Sears (
In January, Citi plans to restore its Retail Partner Cards unit, which manages private-label card programs for about 20 retailers, including Exxon Mobil Corp., Sears Holdings Corp., Macy’s Inc. and The Home Depot Inc., within the general corporation. The firm says it is seeking new retail partners for store-branded card programs.
The moves are a sharp contrast with the depths of the recession in 2009, when Citi removed its private-label cards unit and placed it within newly formed Citi Holdings, a separate company comprised of various troubled and “non-core” assets.
Citi reportedly sought a buyer for the unit, according to the Wall Street Journal. However, it never publicly declared the unit for sale.
Citi is now eager to dispel the notion that it officially considered getting rid of its private-label cards unit.
Sources at Citi say it was never on the auction block.
Citi took time to upgrade the operation, investing in new underwriting systems and risk-analysis tools and “preparing for a recovery” that appears to be under way now, Craig Vallorano, who recently was promoted to the new position of executive vice president, business development and strategy, for Citi’s Retail Partner Cards unit, tells PaymentsSource.
Vallorano attributes the recent turnaround of Citi’s private-label cards unit to overall improvements in the economy that some sectors have yet to see.
Store-branded card programs “showed more economic stress earlier” than general-purpose credit cards, “and they are returning to profitability faster,” Vallorano says.
Although the recession is still putting pressure on revenues, Citi is optimistic about its private-label cards program because of improved credit quality within the portfolio now that troubled accounts have washed out, Vallorano says.
“Historically, there is a misperception that retail cards attract more subprime customers, but we have very strong customer quality, similar to what you would find in healthy general-purpose credit card portfolios,” Vallorano says.
Citi also is seeking new retailers “with strong brands that attract high quality and loyal customers over time,” Vallorano says. “We are looking for growth wherever we find a strategic fit.”
During its time out of the main corporation, Citi continued to service its array of retail card programs that account for about 90 million accounts and $44 billion in total assets, Vallorano says. Citi in 2010 also sold $1.6 billion in retail credit card assets to GE Capital for the financing of smaller home-furnishings and electronics operations, to “streamline” operations, he says (
The revamped company produced income of $476 million during the third quarter ended Sept. 30, up 24.9% from $381 million. Revenues fell 9.5%, to $1.9 billion from $2.1 billion. Purchase volume was $18.8 billion, down 6.5% from $20.1 billion (
The reversal in losses has had the most-dramatic effect on the bottom line. The charge-off rate during the third quarter declined 473 basis points, to 7.51% from 12.24% a year earlier; Fitch Ratings Inc. says average retail credit card charge-off rate peaked at 12.81% in September 2009.
Citi faces mixed opportunities and challenges in driving growth in private-label cards, analysts suggest.
Profits may come more easily with private-label cards, which tend to have higher interest rates, than through general-purpose credit cards, where profits have declined in recent years, Brian Riley, senior research director at TowerGroup, tells PaymentsSource. “They can price private-label cards higher and maybe see more consumers revolve balances than in general purpose credit cards,” Riley says.
But private-label cards typically are “a riskier channel,” he says.
One advantage Citi has with its private-label operation is the diversity of store-branded cards it manages, Madeline Aufseeser, a senior analyst with Aite Group, tells PaymentsSource.
“Citi can offset some of its risk by spreading it out over multiple types of businesses, demographic and cardholder income factors,” Aufseeser says. “There is higher risk, but there can be higher returns if they manage things right.”
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