Consumers Shift Spending to Pay for Basic Staples, Citi CFO Says

(Bloomberg) -- Credit losses are rising as US consumers shift spending to basic needs and away from purchases that aren’t vital, according to Citigroup Inc. Chief Financial Officer Mark Mason.

“The nature of spend is evolving,” Mason said at a conference hosted by Barclays Plc Monday. “It’s going from discretionary to a more staple-type spend.”

Net credit losses have climbed in Citi’s large cards business, and payment rates have started to “come down a bit,” he said, adding that it’s within ranges previously discussed by the firm. Meanwhile, more affluent customers are driving much of the spending growth.

Investors are closely watching consumer spending as a factor in predicting how the Federal Reserve will choose to cut interest rates. A softening labor market and a decline in the rate of inflation have fueled expectations that the central bank will lower borrowing costs later this month to stimulate spending.

Mason said that, on a full-year basis, net credit losses look to be about 3.5% to 4% in the company’s branded cards business and 5.75% to 6.25% in retail services.

The bank continues to see good growth in debt capital markets and mergers and acquisitions, while equity capital markets have been “under some pressure,” the CFO said. Investment-banking fees for the third quarter will probably be up about 20% compared to the previous year, he said, indicating a level below the 25% average estimate among analysts in a Bloomberg survey. 

Shares of the New York-based bank fell 0.4% to $58.88 at 11:47 a.m. in New York, the only major bank showing a decline on the day.

Citigroup’s fixed-income trading business is seeing performance consistent with consensus estimates, Mason said, meaning revenues are probably down about 4% compared to last year’s relatively strong third quarter. Cost of credit is expected to be about $2.7 billion, he added.

The CFO reiterated the bank’s full-year guidance, adding that it’s in a good position to address regulators’ concerns after it was hit with a fine of almost $136 million in July for failing to fix its data controls and risk management. 

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