Sunday, February 10, 2008

EGGed on

If you are one of the people who has had their card stopped by Egg, you are almost certainly confused - none of the people I know who have had this unilaterally imposed on them owes any money on their card, has missed a payment, or is even vaguely " a risk"
What they ARE however, is people who pay off their cards in full every month.
Barclaycard are at the same thing. £5000 reduced to £500.
So why cancel their cards or reduce their limits?
Well, Egg is owned by CitiBank, which is having a little local difficulty in the States with its loans - correction, with the vehicles into which it stuffed its client's money to get stuff off it's own balance sheet.
By taking out the 160 odd thousand customers in the UK, they have probably reduced their credit card exposure by - at a guess - the best part of £1billion. On CitiBank's balance sheet, this will look good ( We have reduced our unsecured loans to individuals by $2billion) - but what it has also done is increase its risk.
Banks face a dilemma all the time - earn more ( increase risk) or reduce risk ( earn less). Egg will be left with the people who do not pay off their cards each month. Those who do are the people who it does not pay Egg to keep. If you don't pay it off, hey 25 % interest charges ( or more) is worth a little risk, don't you think? The Banks can afford to write off over 15% and still come out ahead - and they already hold general loan-loss provisions which make it all the more profitable.
Doncha just lurv how honest the Banks are?

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