Citi Posts Q2 Card-Business Gains As Sales Volume Grows And Credit Quality Improves

Banks’ credit card programs are showing vitality once again. Just as Wells Fargo showed second-quarter gains last week, Citigroup’s credit card performance similarly improved during the period, enabling it to release millions in reserves and to contemplate additional merchant card-portfolio acquisitions.

Citi’s branded cards revenues of $2 billion were up 3 percet versus the same period ended June 30 last year, driven by growth in purchase sales. Lower average loans were partially offset by an improvement in spreads, helped by a reduction in promotional-rate balances, the issuer said in its earnings release.

The bank’s retail services revenues grew 7 percent aided by last year’s Best Buy portfolio acquisition. And Citi appears poised to acquire more merchant card portfolios.

Card partnerships

“I think going forward there will probably be the opportunity to take a look at some more portfolios that might become available,” Mike Corbat, Citi’s CEO, said during an earnings call with analysts. “We (will) take a hard look at those, and if they’re accretive to the business, we’d be prepared to act on those.”

The co-branded card business could grow as well. “We’ve been pleasantly surprised in terms of the uptake on the American Airlines portfolio (with) opportunities to continue to grow organically,” Corbat said. “But I would say away from those things, we’re largely focused on what we can do organically around our business model.”

Delinquency and net credit loss (NCL) rates also continued to improve, John Gerspach, Citi chief financial officer, said on the call.

Reserve release

“That’s what really drove the reserve release in the second quarter,” he said, who noted earlier that the bank released $400 million in reserves for the branded cards and retail services unit during the period. “I don’t expect that the reserve releases in those two cards businesses to stay at the level that we’ve had in either the first or the second quarter as we move into the second half of the year.”

In terms of branded cards, purchase sales grew by about 5 percent. “But if you look at the portfolios where we’ve actually been investing, sales growth there year-over-year is upwards of 8%,” Gerspach said. “So again, we feel really good about the momentum and the revenue prospects for branded cards.”

Average card loans for the quarter were $142 billion, up 3 percent from $138 billion a year earlier. Cards sales volume on purchases was $95 billion, up 4 percent from $91 billion. The growth in consumer loans included the impact of the acquisition of Best Buy’s U.S. credit card portfolio in the third quarter 2013, Citi said in its earnings release.

Credit quality improving

In terms of credit quality, net credit losses improved in Citi-branded cards (down 14% to $570 million). At 1.24 percent (down from 1.3 percent) of end-of-period loans, the 90-plus day delinquency rate for Citi-branded cards and Citi retail services was close to historically low levels, while the rate for loans 30 to 89 days past due was 1.35 percent, down slightly from 1.36 percent a year earlier.

In North America, Citi-branded cards revenue totaled 2.03 billion, up 2.5 percent from $1.98 billion a year earlier. Average loans were $66.4 billion, down 2.9 percent from $68.4 billion. The delinquency rate on cards 90 days or more past due was 0.97 percent, down from 0.96 percent, while the rate for card loans 30 days to 89 days past due was 0.8 percent, down from 0.85 percent.

Cards revenue from both Citi-branded cards and Citi Retail Services globally totaled $9.38 billion, down 3.4 percent from $9.71 billion. Broken out, branded-cards revenue alone totaled $5.31 billion, up 2.5 percent from $5.18 billion.

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