On returning to my flat yesterday I was greeted with a personal letter from Citibank offering me an "exclusively pre-approved" personal loan.
The offer came as a surprise because I don’t bank with Citibank, I don’t know anyone at Citibank and I wasn’t aware they had my name and address on their database. Carrying the corporate slogan, "Citi never sleeps", the letter was signed by the head of personal loans, Stephen Uttley, a man I’ve never met.
But Mr Uttley professed to know all about my domestic status, writing: "Now you’ve settled into your new home, you might be thinking it’s time to make some changes, whether that’s upgrading your bathroom, investing in a new kitchen or buying the latest plasma TV."
Well, actually, I haven’t just settled into my new home. I’m a university student living in miniature rented accommodation in Sydney, working shifts to pay my way through tertiary education.
Back to Mr Uttley: "Whatever you’re planning, a Citibank Personal Loan helps you save with a great interest rate of 13.99 per cent (comparison rate 14.39 per cent p.a.) and low fees." That sounds like a bloodsucking predatory rate to an impecunious arts student, but Mr Uttley’s sales pitch positively bubbled with enthusiasm.
"This rate is amongst the lowest in the market but is also fixed so it won’t change for the life of the loan — reassuring to know when the RBA interest rates have risen six times in the past two years."
Hang on a minute! Anyone following the news knows that the Reserve Bank has entered a rate cutting phase for the foreseeable future, and is likely to cut rates as early as next month. By locking the misinformed into fixed-rate loans, Citibank would be taking advantage of customers left paying interest above the value of their loan. This particular rodent isn’t tempted by the mousetrap.
The Citibank letter bothers me for several reasons. First, as a uni student, I am counted in a demographic that is extremely financially unstable and therefore high-risk. I don’t have a full-time job or own property. I’m asset free — and in between pay days and tips, I’m pretty much cash free as well.
I’m not just sub-prime, I’m sub-sub-prime. But Citibank doesn’t mind, I’m "pre-approved"! No wonder the bottom has fallen out of the market.
Secondly, the "low" interest rate on offer isn’t "low" at all. It’s higher than it will be next month. And anyway, anyone taking out a loan in double digit figures in this economic climate needs their head examined.
Thirdly, just how did Citibank get my new address in the first place? The answer to this question took the form of a note from Australia Post which accompanied the Citibank offer: "As a valued customer of Australia Post’s mail redirection service, we are delighted to present you with the enclosed offer. We trust you will find it useful settling into your new home."
At a more pragmatic level, I don’t want anything to do with Citibank and its parent company Citigroup. The joint is a basket case.
Last November, as the first tremors of the sub-prime crisis were felt in the markets, the bank wrote off between US$8 billion (A$8.7 billion) and US$11 billion to reflect the tumbling value of its large holdings of sub-prime related securities.
In April of this year, the Citigroup write-downs tallied up to US$14 billion. The news gets worse. In the first quarter of 2008, Citigroup lost what it earned in the same period the year before: US$5 billion (A$5.34 billion), or $1.01 per share. It’s not just profits that have disappeared. Citigroup has lost so much money since the credit crisis began to hurt the US banking industry that over 13,000 jobs have been lost since the final quarter of 2007.
The job cutting doesn’t look like stopping anytime soon. Attempting to assuage the doubts of investors via a conference call, Citi’s chief executive Vikram Pandit reassured them, "We’re very, very focused on efficiency."
No, they are not. If they were focused on efficiency, the bank would never have fallen into such diabolical trouble. Like the rest of Wall Street, it was focused on greed. As the global financial system is collapsing over the practice of lending to those that could not repay their debts, Citibank appears to be doggedlly persevering.
Citibank’s letter to me this week is shining proof that even in the most dangerous circumstances, unless there is proper regulation, the banks will continue flogging loans to the most inappropriate customers. Like me.
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