Economic data released on Thursday made headlines for indicating record U.S. GDP growth, but an eye-popping 40.7% spike in personal consumption suggested better-than-expected strength from consumers, the top driver of U.S. economic activity.
In a recent interview, Citi (C) CEO Michael Corbat said consumers both in the U.S. and abroad have shown “phenomenal resiliency” amid the pandemic, crediting in part programs undertaken by the bank that have eased pressure on borrowers. But he acknowledged that a decline in credit card spending has hurt consumer banking industry-wide, including at Citi.
“Through the programs that we've offered in terms of forbearance and other things, I think we've seen a consumer — not just here in the U.S., but around the world — that has in many cases or in many ways shown phenomenal resiliency,” he says.
He cited a decline this year in credit charge offs, a status that a bank assigns to an account when it has given up hope of recouping a loan.
“We see credit charge-offs actually at levels below where we were a year ago, which many people would believe to be extraordinary,” says Corbat, who spoke to Yahoo Finance Editor-in-Chief Andy Serwer on Oct. 15, before the recent economic data was released.
In early March, Citi launched an assistance program for U.S. retail banking customers that included fee waivers; and the following month, the bank expanded the program to allow credit card payment deferrals, among other additional fee waivers.
Many observers have credited stimulus funds for enabling consistent growth in U.S. consumption over the summer and early fall as the U.S. continued to face heightened unemployment while the initial economic boost from reopening waned. But a slowdown of growth in retail spending in August suggested that Americans may have exhausted those funds, which expired in July.
The company’s third quarter earnings, which included a 34% drop in profit, showed weakness in consumer banking. The soft performance on the consumer side mirrors struggles in recent months faced by competitors like JPMorgan Chase (JPM), which in the second quarter added $6 billion to its credit reserves for individuals struggling to pay back loans such as credit card debt.
Corbat acknowledged that the firm’s consumer banking business has struggled amid the pandemic due to a decline in credit card spending, which he attributed to a drop in the travel and leisure category.
“Clearly, from an industry, not just a Citi, but an industry perspective, obviously, the revenues in that business remain under pressure due to the impact of the pandemic,” he says.
“From a Citi perspective, that's manifested itself or shown itself predominantly in the declining credit card spending,” he adds. “A big part of our clients' spend, historically, has been on the travel and leisure space. And so we haven't been able to obviously escape that.”
Corbat spoke to Yahoo Finance Editor-in-Chief Andy Serwer in an episode of “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment. The conversation initially aired on Monday as part of Yahoo Finance’s annual “All Markets Summit.”
Corbat, who will step down from his position in February, lauded actions taken by the U.S. Treasury and Federal Reserve to mitigate economic damage wrought by the pandemic, saying the economy has performed “better than” expected.
He will be replaced by Jane Fraser, who currently leads all of Citi’s consumer businesses and will become the first female CEO at a major Wall Street bank.
“She and I have worked always very, very closely together,” Corbat says. “In many ways, we've been preparing her for quite a while for this.”