Financial STD: Citigroup Continues Bailout Cronyism Binge With Costco Card Win

Don’t ask me how I ran into this topic…clicking links on credit cards sometimes leads you to things you never thought of looking into (or caring about).

Apparently Costco is switching their card carrier to Citibank and Visa. Big whoop, right? The only thing that intrigued me was that it appears that Citi may have buyers remorse unless a lot of card holders decide to carry a balance on their card and thereby pay ridiculous interest and fees:

How Much Citibank and Visa Actually Overpaid to Win the Costco Business Away from Amex

Costco to Pay Almost Zero to Accept Credit Cards

Discover CEO Defends AmEx’s Decision to ‘Walk Away’ From Costco

Citigroup and other Visa-issuing banks may profit from the new arrangement as people use their cards more and carry interest-earning balances.

I was obviously interested enough to click a few links on the issue. Anyway, somehow in my clicking I stumbled on this:

Citigroup’s past losses may have helped it win Costco business

Citigroup Inc had at least one advantage in its successful bid for the exclusive right to issue credit cards for Costco Wholesale Corp, rivals and tax specialists say: it lost so much money during the financial crisis that it has billions of dollars of tax credits.

…”The deferred tax assets would be quite a dramatic advantage,” said Robert Willens, an independent accounting and taxation consultant. Citigroup, he said, may well have won the deal by being able to offer far better terms to Costco than banks that pay more in taxes…

…To competitors, the bank’s tax credits are an irritant. A big chunk of the bank’s deferred tax assets stem from the billions of dollars of losses it generated during the financial crisis. Citigroup was rescued three times by the U.S. government between 2008 and 2009, and one of the rescues threatened to wipe out some of the bank’s deferred tax assets.

Much like an STD, the bailout keeps on giving. Well, that and when Treasury “relaxed the rules governing such assets”.  Political cronyism certainly has its advantages.

If this kind of stuff grates you and you happen to shop at Costco it sounds like you have two options:
a) Refuse to use or cancel the Citi Visa card (per comments, Costco will accept any Visa or cash/check) or
b) Use Citibank’s Costco Card at Costco and never carry a balance* (per the articles: the rewards program is a money loser for them due to the low interchange rates – please comment/use contact form if they can still make money when consumers don’t carry a balance).

If you don’t shop at Costco, the only thing you can do is switch cards to another provider (they all have rewards or cute cards if you’re into that kind of thing).

*Something you should do anyway unless you like paying 20% more for every product you buy. If you are going to use a card, be smart and pay the balance off – set up an auto pay also to avoid late fees (c’mon the whole card thing really is a gimmick to suck you into overpaying for stuff, don’t fall for it).

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3 thoughts on “Financial STD: Citigroup Continues Bailout Cronyism Binge With Costco Card Win

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    • It was news to me too. My understanding is any Visa card will work at their stores.
      From the financial articles on the Citi card I read, however, the consensus appears to be that Citi will lose money IF no balance is carried (ie pay off the card each billing cycle) AND the card is only used for Costco, gas, and restaurant purchases.

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