Emails are pouring in over Citigroup's "Hail Mary Pass": How To Know Citigroup Is In Serious Trouble.



Here is one from "HG" who writes



Hey Mish,



We have a 7 figure net worth, no mortgage debt (we do own our own home), pay credit debt in full each month, and have credit scores of 726 and 702 respectively. We are 56 and 53 years old.



Just got the Citi 29.99 credit card rate increase notice. It's not limited to those who carry a balance like the folks who carry 25k in debt.



Needless to say, I'm cutting it up on principle, but not closing it so that my credit limits don't go down.



Enjoy your posts and look forward to reading them going forward.



HG

Matters of Principle

Citibank Sends Out 2 Million Letters

Hi Mish,



I got a Citibank letter last week raising my interest rate to 29.99% from 7.99%. I have a 780 credit score and pay my account off every month. My limit was $18,200. I never made a late payment to Citibank (or anyone else).



When I called them to either maintain my current terms or opt-out, the rep told me she had been getting nothing but complaint calls all day. She said Citibank had sent out 2 million such letters. I was given one choice: accept the new terms or have my account canceled upon its expiration of 12/31/09. I told them to cancel the account.



The “hail Mary” you describe is even larger than you imagined.



MJ

First Premier Banks Offers Card With 79.9 Percent Rate

Gordon Hageman couldn’t believe the credit card offer he got in the mail.



"My first thought, it was a mistake," Hageman said.



The wine distributor called the number on the offer, gave them the offer code and verified his information. Sure enough, it was right: the pre-approved credit card came with a 79.9 percent APR.



Yes, 79.9 percent.



The offer is for a Premier card from First Premier Bank, which is based in South Dakota. On its Web site, First Premier says it is the country's 10th largest issuer of Visa and MasterCard credit cards. The site also says it "focuses on individuals who have less than perfect credit but are actually still creditworthy."



According to information on the South Dakota Legislative Web site, there is "no maximum or usury restriction." In other words, the individual bank can set its own interest rate limits.



Several calls made to First Premier for a comment were not returned.

Banks Scream To Be Regulated

Email From A Collections Specialist

Hello Mish



I wanted to clarify Karl Denninger's comments regarding Citigroup's 10% defaults on their credit cards.



I work in the financial industry, and have a heavy collections background. 'Defaults' is a loosely used term. For example, when my company says it has x% defaults, it is in reference to the number of loans. Karl seems to be assuming 10% is measured against fees, or what other people call revenue. This is not an accurate way of measuring true losses.



Here is a practical example to illustrate my point. At my company, if we give out 3 $100 loans and charge $10 per loan, we generate $30 in fees or revenue; However, we still have to get the $300 back we lent.



If one of those loans defaults, that is a 33% default rate, but the practical impact to revenue is a loss of $270.



So, while the default rate is 33%; the loss is $270. [ Correction on one account it would be $70 - Mish ] Karl is assuming the 10% of defaults is measured against revenue. It could just as easily be calculated against the principal. You have to check their annual report and go through their math, because default is not universally calculated the same way.



Thus, that 10% default could be exponentially much larger than Karl is characterizing. In fact, I would be willing to bet it is, because I have a friend who worked in the credit card industry for 15 years, and he was telling me his company uses the term default the same way we do.



MM

Credit Card Panic

How The Grinch Stole Christmas

It's A Good Thing

To the extent that these jacked-up rates cause people to stop buying, it's a good thing.



To the extent that canceled cards cause people to stop buying, it's a good thing.

To the extent that these actions cause people tell greedy banks where to go, it's a good thing.

To the extent that these actions cause people just give up, stop paying ridiculous rates, and declare bankruptcy, it's a good thing.