Accounting for Egg | FT Alphaville

Accounting for Egg

Compare and contrast Tuesday’s statements from Barclays and Citigroup on the sale of the Egg UK credit card portfolio.

First, Barclays:

Barclays Bank PLC (“Barclays”) has agreed to acquire Egg’s UK credit card assets. Under the terms of the transaction, Barclays will purchase Egg’s UK credit card accounts, consisting of approximately 1.15 million credit card accounts with approximately £2.3 billion of gross receivables (!).

And now Citi:

London/New York – Citi today announced that it has entered into a definitive agreement to sell its entire Egg credit card portfolio to Barclays Bank PLC. The £1.8bn* of gross assets in the Egg portfolio represents 1.15 million customer accounts.

So Barclays says it is buying card accounts with approximately £2.3bn of gross receivables and Citi says it is selling card accounts with £1.8bn of gross receivables. What explains this £500m difference?

The answer, of course, is accounting policies.

Citi uses US GAAP and has been forced to write down accounts that are past due to get its £1.8bn figure.

Barclays doesn’t. It uses IFRS and under this accounting treatment it doesn’t have to take a write-down. Hence its £2.3bn figure.

We will leave you to decide which is the more prudent approach and whether Barclays is correct to claim it is buying card credit accounts at a significant discount to gross receivables:

Chris Lucas, Group Finance Director of Barclays PLC, said: “The acquisition of Egg’s UK credit card accounts has been priced at a significant discount to gross receivables. Based on current projections, we expect the transaction to exceed the financial return targets set out at our recent results announcement.”

Or whether Citi is right to book an after tax gain on this deal.

Other terms of the sale were not disclosed. The transaction is expected to result in an after-tax gain* to Citi, on a US GAAP basis, which is not expected to be material to Citi’s net income. The transaction is expected to close in Q2 subject to customary conditions.

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