Citi bracing for hit to credit card sales from Sears reorganization

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The ownership of Citigroup’s agreement to issue credit cards on behalf of Sears has changed hands as a result of the retailer’s bankruptcy.

The hedge fund ESL Investments on Feb. 11 acquired all assets of Sears Holdings, following the iconic retail company’s October bankruptcy filing. As part of that deal, ESL Investments, which is run by Sears’ largest shareholder and former CEO Edward Lampert, inherited the credit card program agreement between Citi and Sears.

The agreement between Citigroup and Sears remains in effect, despite the sale of the assets, a Citigroup spokeswoman said. Citigroup disclosed the sale in its annual report, filed on Friday.

Sears’ plan to close stores could result in “reduced new account acquisitions or lower purchase sales,” Citigroup said in its 10-K. The financial impact “will depend in part on the magnitude and timing of additional Sears store closures and continued customer attrition.”

Sears closed about 80 Sears and Kmart stores in September and announced plans to close another 80 stores in the first quarter of this year. ESL intends to shutter or sublease some of the roughly 425 stores remaining but has not disclosed how many.

However, Citigroup does not expect the sale of Sears to ESL will not have a material impact on its results, according to its annual report.

Citigroup issues two types of cards in its Sears deal — a cobranded card that can be used to make purchases anywhere and a private-label card that can be used only at Sears. About 70% of the sales volume on Citi’s cobranded card with Sears is used to make purchases at retailers other than Sears. In May, Citigroup paid $425 million to extend its Sears card agreement.

The sale of Sears’ assets to Lampert’s group likely saved the retailer from liquidation.

If Sears had liquidated its business, Citigroup would have been hit with $200 million in extra expenses, to cover a write-down of the value of related intangibles and the cost of transferring customers to other card products, Chief Financial Officer Mark Mason said in a Jan. 14 conference call.

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Credit cards Retail industry Consumer lending Citigroup