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CitiGroup and the Credit Card

Christopher Brauchli

A power has risen up in the government greater than the people themselves, consisting of many and various and powerful interests, combined into one mass, and held together by the cohesive power of the vast surplus in the banks. - John Calhoun, 1836 speech

It has to be put in perspective. If the employees are called upon to sacrifice, the customers should sacrifice as well. And to get a feeling of what Citigroup employees have sacrificed, one has only to see how the economy has affected them.

Vikram Pandit, the CEO of Citigroup, and Winfried Bischoff, its chairman, agreed to forego year-end bonuses. That was especially gracious of Mr. Pandit. When he joined Citibank a year ago he declined to accept a cash bonus, accepting instead stock and options worth approximately $30 million, a modest sum for a new CEO, and a sum worth considerably less today, the stock price having declined by 77 percent during 2008. Citigroup has fallen on such hard times that to its great embarrassment it was forced to accept $45 billion in federal bailout funds to preserve itself. (Notwithstanding the bailout it nonetheless has had to divest itself of some of its assets.) If the executives had received bonuses they would have come in part from the taxpayer since Citigroup was not in a position to pay bonuses having had more than $10 billion in losses in 2008. (Mr. Pandit's refusal to accept a bonus was a welcome contrast to John Stumpf, CEO of Wells Fargo, who refused to decline a bonus. Wells Fargo received $25 billion in bailout money. Mr. Stumpf probably felt that since he received so much less in bailout funds than Citigroup, there was no reason to decline his bonus even though the taxpayers were paying him for having led the bank so well that it might have gone out of business but for the taxpayers' infusion of cash.)

Messrs. Pandit and Bischoff are not the only Citigroup employees foregoing bonuses. According to the New York Times, bonuses for its leadership team will be down by 40 percent in 2008 and Robert Rubin (whom many credit for Citigroup's recent performance), declined his bonus. (Any pain he felt was ameliorated by the $126 million he reportedly received during the period he was with the bank. He resigned this month.)

What the forgoing demonstrates is that there is enough pain to go around and that is why Citigroup has given customers the opportunity to share in the pain of an employee who said he was a third vice president and changing the rules on bonuses so late in the game was putting its employees in "financial extremis." It might, said he, put some employees in the position of being unable to make their mortgage payments. So as to reassure employees that they were not the only ones suffering, the bank has changed its rules on credit cards and interest rates.

As credit card holders who carry unpaid balances know, most credit card companies reserve the right to raise interest rates at most any time for most any reason. When Congress was considering imposition of new rules on credit card companies in 2007 because of perceived abuses in their practices, Citigroup told Congress and any of its credit card holders who happened to be paying attention, that it would forgo the right to raise interest rates for no reason at all. Instead, it promised that credit card holders who did not misbehave, as defined by the bank, would not have their interest rates increased during the life of the card. Realizing that promises are made to be broken, Citigroup has now changed its mind. In November it sent out notices to customers advising them that it was breaking its promise. That was not how it phrased it. What it said was, if the customer had not enjoyed a rate increase in two years, it could expect to enjoy one in January.

At first blush that seems like a promise broken. It is not. What it is is a response to what the bank calls a "difficult market environment." The promised policy was adversely affecting the bank's profits.

John Carey, the chief administrative officer for the credit card division of Citigroup, was quoted in the New York Times as saying: "We are carrying out this repricing in order to continue lending in this environment". "This environment" is the one in which hundreds of thousands of homeowners are losing their homes to foreclosures or being forced into bankruptcy. It would not occur to a non-banker that this is the time to increase interest rates on credit cards for those who rely on them in order to continue living in the style to which they have grown accustomed. It's not all bad, however. Although they may be strapped financially, those affected by the new policy can pretend that they, too, are third vice presidents of what's left of Citigroup. That may be a bit of consolation.


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Christopher Brauchli

Christopher Brauchli

Christopher Brauchli is a columnist and lawyer known nationally for his work. He is a graduate of Harvard University and the University of Colorado School of Law where he served on the Board of Editors of the Rocky Mountain Law Review. He can be emailed at For political commentary see his web page at

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