Saturday, February 02, 2008

Egg sacks 7% of its customers

Credit card provider Egg, now part of Citigroup, has stopped the credit cards of 161,000 of its customers, about 7% of its entire base. Apparently this is because they are 'high risk' and it the straightened economic climes represented an exposure that the financial institution was no longer willing to accept. However, many of their understandably miffed ex-customers do not seem very high risk. In fact they seem to be the sort of people who manage their money well, and who pay down their credit card debt entirely every month. This gives us a clue as to what is really going on. No doubt some of those dispensed with are generating too-high credit risks, but some are probably the opposite, generating no actual credit at all, and hence generating no profit for Egg. Instead of coming clean that people who pay in full every month actually cost it money because of the expense in servicing their accounts, Egg is instead trying to pretend that it is acting solely as the soul of prudence. That this means putting all of the blame on its customers and worrying people all over the country. Egg's new management must know that brand damage can stick, and Egg cards might be a tough sell after this. The only conclusion is that a mix of poor cost control and poor risk management has put Egg into a very bad place indeed.

Let us hope that this is the only card issuer that finds itself in this sort of bind. Otherwise it would be an indicator of a much wider economic malaise.

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