Off-Topic: Why Citibank Should Vanish

31 Comments

citilogoAfter a long day, I returned home to find a mound of junk mail clogging my mailbox. Of note was a letter from Citibank informing me that it was jacking up the interest charged on my credit card, adding more fees for foreign transactions and other such issues that might result from an economic meltdown. Not much of this impacted me personally, but something bothered me about this letter dubbed a “notice of change in terms and right to opt out.”At a time when its customers need most help, Citibank is leaving them jilted. Well, since the bank doesn’t really respect its customers, how can one stay loyal to their brand? So I am going to just opt out totally and take my business to a bank that’s a tad less greedy and just a tad smarter. (Suggestions, people? I know the list is very short!)

But what’s really is shocking is the billions of dollars of taxpayer money that are being spent to prop up this enterprise. Why are we trying to save a company that Cody Willard, an outstanding blogger (and a TV show host) correctly identifies as criminal?

“These guys should be in prison for criminal incompetence if not for accounting fraud and lying to investors and lenders and regulators,” he says, pointing to lies, lies and more lies from Citibank CEO Vikram Pandit and his stooges. As Michael Lewis so eloquently writes in his obituary of Wall Street, “These people, whose job it was to allocate capital, apparently didn’t even know how to manage their own.”

How can an institution, which spends tens of billions of dollars on technology infrastructure, not know that all the risk associated with toxic financial products and bad loads were like TNT sticks strapped around its thighs? Technology is supposed to help keep tabs on when risk gets totally out of hand. In this era of Google, where instant information and its analysis are becoming strategic assets, how does a company as large as Citibank fail to read the tea leaves?

There can be two explanations — they are either dumb or lying. Saul Hansell, in a brilliant piece published earlier this fall pointed out that

… most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said… The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough…. Top bankers couldn’t simply ignore the computer models, because after the last round of big financial losses, regulators now require them to monitor their risk positions. Indeed, if the models say a firm’s risk has increased, the firm must either reduce its bets or set aside more capital as a cushion in case things go wrong…. Wall Street executives had lots of incentives to make sure their risk systems didn’t see much risk.

In other words, they were straight up lying. Pandit practically admitted as much last night in an interview with Charlie Rose last night. He blamed the previous management for not knowing what they were doing and taking on too much risk. What really was shocking was that Charlie didn’t wrestle this guy — who essentially got paid $165 million to just show up at work — to the moral mat.

Citibank, at the very core, is big, fat, greedy and incompetent. When I look at this bank, which has held my money for more than 20 years, I see an obese Roman Senator at a drunken orgy, waiting for Darwin to ring his number.

P.S.: Sorry for going off topic, but I can’t help it and I am angry about incompetence being bailed out in name of looking out for the little guy. Amidst this global economic meltdown it is hard for me to get excited about a new video portal or some mythical deal.

31 Comments

J McCarley

Just got my notice on our Sears and Home Depot accounts (both issued by CitiBank) Increased to 24.99% from 12.08%!!!!! This is just wrong on so many levels. We will pay off the balance today and not use the cards again. We have that option, but what of the suddenly unemployed? Or those on fixed income? And this is good who? Am so angry.

Michael

Citibank is an ineptly run institution. Any government support of this inept business should be dealt with at the ballot box. Any elected official who votes for support of Citibank shold be voted out of office. They are just throwing good money after bad–bad money and bad people. Throwing money at Citibank is like sprinkling perfume on a cancer.

phr3akinr1can

I JUST got mine in the mail, too! Since they could not disclose too much about the true reason for this other than “market conditions” they did refer me to a website for answers..This website is http://www.federalreserve.gov and that sent me to the roof. That lead me to believe one of two things could be happening.

Citi could be looking for a quick way to buying back their shares to minimize federal interference in their company operations and passing that cost to the customer. Which is an act of Thievery since we, the taxpayers are virtual shareholders of this company and helping them pay this down in this fashion will circumvent any revenue gains from this controversial decision.

OR

This will increase the government gains until the shares are bought back, BUT the profits or gains probably won’t make it’s way back into our pockets, quite the contrary we have been indirectly charged twice for the transaction.

Stock Trader

The general incompetence is from the board and not the general employees. Fired the board … but 52,000 hard working people are about to get axed.

Sam Farag

I disagree that Citibank does not respect its customers. Citibank is taking vigilant action to insure that it survives this meltdown and it can return any money borrowed from Taxpayers. To do that, they have to be PROFITABLE. To be profitable, they have to pick their battles and make sure they have GOOD Credit Worthy Clients that are willing to pay for mutual benefit and survival.

regards

Sam

A.B. Dada

Om,

Do a search for “fractional reserve banking” and “full reserve banking” and you’ll see it isn’t just Citibank that acts in a morally bankrupt fashion but ALL commercial and consumer banks.

When the dollar isn’t fixed to a real standard, the banks have no idea where to put money as a safe investment and still beat the Federal Reserve-generated cost of living hikes each year. Even worse, the same organization, the Federal Reserve, allows these commercials banks to actually PRINT THEIR OWN MONEY in-house through fractional reserve lending.

It’s all criminal, right down to the dollar bill. When society realizes that fiat currency never wins, and always kills the lower and middle classes, they’ll riot enough to push the REAL criminals out: the Federal Reserve, and the Democrats and Republicans who love them.

GadgetGav

I got the same letter today and I’ll be calling them to opt out. Interestingly, if you read the small print, by opting out you are choosing to keep you current terms until the end of your membership year or the expiration date on your card whichever is *later*. That doesn’t seem too bad. I think my card just renewed, so I could keep my current interest rate (about 6% LOWER than the new terms) for another couple of years. Of course, that will mean closing my eyes, holding my nose and continuing to deal with Citi, but is there really any good option in the current financial world…

Eideard

Several points:

1. HSBC + a local bank you already know you can trust.

2. Many credit unions are state-chartered and do not fly under the wing of federal insurance [or federal oversight] programs like FDIC. Buyer beware.

3. Housing bubble? Of course. My last decade before retirement was spent inside the home-building industry. Even today’s prices are inflated a minimum of 40% above reality. Still a long way to fall.

4. Keep rolling out your opinions, Om. We read them and evaluate them on the basis of the person we already know you to be – and our own opinions and analysis, of course. Agreement or disagreement is optional.

Steffan Heuer

Om,

Thanks for the off-topic diatribe, with which I could not agree more.

They have also started punishing long-time customers in another devious way: They charge you $10 a day (!!!) for already existing overdraft protection, even if it only means covering a $5 outstanding balance. That also means they force customers to keep excessive cash in their checking acct instead of moving it into an interest bearing account.

Keral Patel

Money for them if you use your credit card for foreign transactions. Money for them if they are sinking. Well that is double benefit for the bank itself. Not for the people.

Brian

@Om,

You read my comment correctly, I do agree with you. But, I just feel like this isn’t the right forum for venting. To me, when you want to write something like this, it should come in a place where people are otherwise surrounded with information about the subject (I think that’s part of the reason why blogs have flourished in recent years).

You (and your sites) have been an extremely respectable source of news for a long time. You will continue to be so. I appreciate your desire to use GigaOM as your personal soapbox (it has your name after all). I just feel like it hurts the national debate when someone with a sizable readership goes on a tangent about a topic when they are not an expert (think Bill O’Reilly).

Thanks for addressing my comment. Keep up the great tech reporting and analysis. I honestly think you add a tremendous amount of value to the national debate on that topic. (I won’t address any comments about Citi here again).

Best,
Brian

rob friedman

Vanish with some cement shoes! Know what I mean?
If only…
Instead of bailout’s how about jail time? What happened to our confidence is we’ve been taken for a ride. These were some of the wealthiest banks, and corporations in the world. They’re continuing to act the same, resistant to real change and accountability.

mc

@scott–You’re kidding about etrade right? You obviously haven’t googled “etrade toxic mortgage” lately, have you?

Paul

I’m pleased to see commentators are at last finally calling a spade a spade and labelling CitiBank as the criminals they are.
I’d actually go as far as blaming the entire global financial melt down on them. You don’t have to look very far back in history to see they were the leading player in EVERY single record breaking financial scandal from Enron the Worldcomm. Another glaringly OBVIOUS sign of how bent these scum bags are is the BILLIONS in fines they pay EVERY SINGLE YEAR to the SEC. What sort of financial system or government regulator allows a company that gets caught breaking the law so often that it’s continuously paying BILLIONS in fines to still have a license to operate? There was actually a column in Forbes keeping score on all these staggering fines, but it mysteriously stopped a few years ago and there is no outcry about it in the general media at all, like having the nations largest bank constantly getting caught breaking the law is an acceptable business practice. Why do they think Citi is the biggest in a business were screwing people over is the name of the game?
Why isn’t someone at Citi doing time for Enron or Worldcomm seeing as they aided and abetted both scams? If someone from Citi doesn’t do time for this melt down (look through events of where the deck of cards started to fall and I GUARANTEE you Citi was a major player) then this sort of ridiculous sh*t will happen over and over again, as it has been!

Kontra

In the Charlie Rose interview Citi CEO Vikram Pandit said this at least twice with a semi-bemused expression on his face as if to say, I can’t believe you don’t grok this:

Banks get deposits and they invest it elsewhere. Housing prices have been going up for a long time. Thus we invested a lot of money in housing assuming housing prices won’t go down substantially, because, you know, they usually don’t. When they did go down, we were screwed. AND we call this risk management. BTW, now you have to save us. Have a nice day.

Pretty audacious on the eve of Thanksgiving.

Om Malik

@Brian I am pretty sure if I read your comments correctly, you are agreeing with me pretty much, though don’t agree with my frustration with this institution. That I don’t understand. Anyway to your point about this being a post to start a flame war: you couldn’t be more wrong. I am merely expressing my frustration with a bank that has failed to do its job.

@Dan Power, thanks for sharing my frustration as well.

chetan

Om,

I revd the same letter yesterday and called to suspend my card. This is an atrocious situation and I totally agree with your sentiment.
Hope these guys go down without a bailout.

Dan Power

I think Brian’s being a little harsh. Om’s a great resource but he’s a human being too. We’re all a little frustrated with the magical moving bailout, with one institution after another either going bust or being hooked up to federal life support.

And Citi’s jacking up interest rates on credit cards would feel like “piling on” to most people.

So cut Om some slack; even the best blogger is allowed to have personal (as well as professional) opinions and while Brian is right that this is classic Citi behavior, their timing (like some other institutions) is awful.

Brian

Om,

I definitely respect your hatred for Citi, its management and everything else wrong with the financial system today.

I just want to say that this is not a productive post. There are a lot of people at fault here, and the American people who piled on the leverage because someone else told them it was a good idea didn’t help anything. Everyone discounted/ignored anyone who said anything negative for the last few years. (If everyone else jumped off a bridge, would you?)

I do agree that Citi management has failed in the recent past as has the rest of Wall St and our regulatory bodies. I also agree that Citi is treating its customers poorly, but frankly, you’ve had a Citi account for 20 years, this is typical Citi response. They have not been the bank that cuts fees, they are the bank that cuts client savings rates. It’s how they’ve made money. Just because they keep doing it during a time when you feel like they shouldn’t doesn’t make it any less acceptable now than it did when you banked with them for 20 years. You even mention that this doesn’t even affect you, so how many people do you think it does affect?

Also, re: Citi infrastructure. They has been constantly trying to cut costs over the past few years and get to positive operating leverage (without any luck under Chuck) and the first place they cut was always tech.

I love the work you do here. But, frankly, this feels like a post that was intended to start a flame war. It’s poorly informed and seems to have no research behind it. I expect more from you. Apologizing does not make this post acceptable.

Daniel Berninger

The bailout adds the unsustainable leverage burden accumulated by banks to the unsustainable leverage burden accumulated by the US tax paying public. This may delay the inevitable, but it is hard to imagine how it fixes anything. Consolidation over the years means the mistakes of a single bank threaten the entire financial system. Reducing the threat requires unwinding the consolidation, yet further bank combinations get offered as a solution for the present crisis.

Erik Teutsch

Well put, thank you for airing the frustrations of the “main street” crowd.

Credit Unions and local banks are the way to go, and the folks at CUs always seem happy to see you!

Happy Thanksgiving everyone!

Tony

First off, I have no respect for anyone that didn’t see this coming. Which is most people; about the only economist I respect is Chris Thornberg, who saw the obvious – we were in a housing bubble.

In California, it was obvious we were in a bubble back in 2004, since housing prices were already out of whack with both income and rents. And as the percentage of IO and Option ARM loans increased (and downpayments went to 0%), it was obvious that house prices wouldn’t be rising forever – and when it stopped, there would be financial problems.

So, no, I don’t have much sympathy for Citibank et al. But neither do I have much sympathy for real estate speculators (which means everyone who bought a house they couldn’t afford = everyone who bought a house using an IO loan or neg am loan of any type = most people who bought in CA in 2004-2007). After all, they really screwed things up for those of us who were responsible.

Ben Clemens

While it certainly seems true that Citibank participated in taking on large amounts of risky stuff (by multiple people’s admissions), I don’t think you can blame one institution. Everyone — Merril Lynch, Countrywide, Lehman, Bear Sterns, and on and on, was doing the same thing as far as I can see. And they kept doing it because they did not understand the financial instruments they were using. I think George Soros has the best perspective on this:

“Financial engineering involved the creation of increasingly sophisticated instruments, or derivatives, for leveraging credit and “managing” risk in order to increase potential profit. An alphabet soup of synthetic financial instruments was concocted: CDOs, CDO squareds, CDSs, ABXs, CMBXs, etc. This engineering reached such heights of complexity that the regulators could no longer calculate the risks and came to rely on the risk management models of the financial institutions themselves. The rating companies followed a similar path in rating synthetic financial instruments, deriving considerable additional revenues from their proliferation. The esoteric financial instruments and techniques for risk management were based on the false premise that, in the behavior of the market, deviations from the mean occur in a random fashion. But the increased use of financial engineering set in motion a process of boom and bust. So eventually there was hell to pay. At first the occasional financial crises served as successful tests. But the subprime crisis came to play a different role: it served as the culmination or reversal point of the super-bubble.” from article in nyrb, http://www.nybooks.com/articles/22113

Sounds right to me. We can’t blame any one company, we have to blame our concept of deregulated markets governing themselves. We’re paying for that belief now.

Scott

I’ve been pretty happy with E*Trade Bank. No ATM fees. Great interest rates on savings (well relatively speaking). No junk mail of the paper or e variety if you don’t want it and not much if you do. Tend not to incur any of those crazy other kinds of fees so can’t say I even recall if they’re competitive that way or not.

Only downside is having to mail them deposits when you get a paper check for something.

Bilal Hameed

No matter how much you and I wish for this, the bank couldn’t be allowed to fail since it held $37.1 trillion in derivative bets, as against Lehman Brothers $7.1 trillion. Since some of the bets of one bank are held by another one, the default of one would trigger every bank in USA to default.

Yes there are even bigger zombies in the market Bank of America holding $39.7 trillion in derivative bets, and JP Morgan with $91.3 trillion of these Financial Weapons of Mass Destruction. So expect these two to get in news really soon.

These banks need trillions of dollars to remain over water, and the US government is ensuring that the entire US state machinery defaults by taking their cancer into its own coffers.

Mark

I can only pray that the government charges them a service charge/ late fee and charges them 29% interest! Why di I have a feeling this won’t happen. I do feel for all the employees but something has to stop this madness…Let’em go under!

patrick

my thoughts we all owe citibank somehow on credit cards repay them

Jesse Kopelman

Credit Unions tend to be superior to traditional banks in every way. If you can figure out a way to be eligible for one, that may be the best way to go.

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