Citigroup’s 3% Branded Card Spend Growth Driven by Higher FICO Consumers

Citigroup’s earnings results showed a bit of bifurcation in consumer spending, as higher credit scoring individuals continue to use their cards and lower FICO consumers are falling behind a bit amid evidence of budget tightening.

The company’s earnings release indicates that spending on Citi’s cards was 3% higher than a year ago. Volumes were up 8% from the previous quarter to $131 billion. At the same time, the average card loans were up 10% year on year to $109 billion. The 90-day delinquency rate was 1.1% in the latest quarter, up 0.28%.

Within the retail banking segment, the end-of-period digital deposits were 2% lower to $28 billion.  Within the retail services (private label and co-brand) portfolio, the credit card spend volume was down 4% year on year, to $24 billion, while net charge-offs on the $51 billion in average loans was a 6.5% rate, up nearly 2% from last year.

During the conference call with analysts, CEO Jane Fraser noted that trade and treasury solutions saw increased activity in cross-border payments and commercial cards, with cross-border transaction values surging 6% year-over-year to $93 billion.

Where Consumers Are Pressured

With some discussion on where consumers are spending, Fraser said that Citi sees “differentiation in the credit segment, with the lower income-customers seeing pressure,” as management also mentioned of a tightening of budgets.

CFO Mark Mason said in the call that “across our card portfolios, approximately 86% of our card loans are to consumers with FICO scores of 660 or higher. And while we continue to see an overall resilient consumer … when we look across our consumer clients, only the highest income quartile has more savings than they did at the beginning of 2019. And it is the over-740 FICO score customers that are driving the spend growth and maintaining high payment rates.”

He further elaborated that “lower FICO band customers are seeing sharper drops in payment rates and borrowing more as they are more acutely impacted by high inflation and interest rates.”  To that end, said Mason, “certain pockets of customers continue to be impacted by persistent inflation and higher interest rates resulting in higher losses … [but] we are seeing signs of stabilization and delinquency performance.” 

Asked on the conference call about the joint enforcement action from the Federal Reserve and Office of the Comptroller of the Currency (OCC),which levied a $136 million fine tied to data management issues and controls, and the company’s ongoing restructuring efforts, Mason said that the transformation is far reaching. 

“Remember, that consent order and transformation work includes risk. It includes controls. It includes compliance,” he said. “It includes data and data related to the regulatory report, and we’ve got evidence and proof points of progress against all of those things…we’ve got a much simpler organization.”

Citi shares slipped 1.8% in trading on Friday.