The Wall Street Journal-20080204-Citigroup Cutting Credit to Some U-K- Customers

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Citigroup Cutting Credit to Some U.K. Customers

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LONDON -- In a sign that more consumers are losing access to loans, Citigroup Inc. has told some 161,000 credit-card customers in the United Kingdom that they can use their cards until the first week of March and then will no longer be able to tap the bank for credit.

A Citigroup spokesman said the New York bank was making the move after reviewing the customer accounts of the Egg financial unit, which Citigroup acquired in May for $1.13 billion from Prudential PLC. The credit cancellation accounts for about 7% of the Egg customer base of 2.2 million people.

At the time of the Egg acquisition, Citigroup pitched the deal as a way to gain a larger share of the U.K. retail banking economy. The purchase, at the time, was to have given Citigroup access to 2.9 million card customers when the bank had only 800,000 card accounts in the U.K. British banks such as Barclays PLC, Royal Bank of Scotland Group PLC and HSBC Holdings PLC dominate retail banking in the U.K.

But the acquisition hasn't turned into a major success for Citigroup. According to a person familiar with the transaction, the Egg purchase saddled the bank with high-risk borrowers.

The purchase also took place just several months before the subprime-loan crisis in the U.S. left Citigroup and other major banks dealing with tens of billions of dollars in losses and needing capital from cash-rich Middle Eastern and Asian funds.

To preserve cash in the financial turndown, Citigroup and other banks are increasing customer fees and considering asset sales. The Citigroup spokesman said that the U.K decision wasn't related to other customer and loan reviews.

The spokesman declined to discuss details of the accounts.