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Citi renews Zale U.S. credit card deal

By Maria Aspan and Phil Wahba

NEW YORK (Reuters) - Citigroup Inc <C.N> has renewed and modified its U.S. private-label credit card partnership with Zale Corp <ZLC.N>, safeguarding a relationship behind nearly half of the jeweler's U.S. sales.

The move also spruces up a portfolio that the bank is hoping to sell.

The bank said on Friday it would continue issuing store credit cards to the jeweler's customers for an initial five-year term, with automatic renewals for successive two-year terms, effective October 1.

Citigroup had previously warned Zale that it would not renew the agreement when it expired in March 2011 because of a shortfall in sales levels though both parties had been negotiating for months to try to hash out a new deal.

The bank ended its credit card deal with Zale's Canadian stores in June.

Zale said that under the new agreement, it would only have to have charges totaling $315 million annually on its U.S. private-label cards, down from $600 million in net credit card sales, to meet Citigroup's requirements.

Roughly 40 percent of Zale's U.S. sales are made through its private-label credit cards.

The deal could help Citigroup in its efforts to sell off unwanted assets, analysts said. The bank has been struggling to sell almost $50 billion in store-card loans, including the portfolios for Zale, Home Depot Inc <HD.N>, Macy's Inc <M.N>, Sears Holdings Corp <SHLD.O> and other retailers.

Its long-term renewal of the Zale contract makes Citigroup's store-card portfolio more attractive to potential buyers, said Steven Jacowitz, a consultant for Auriemma Consulting Group who has managed credit card programs for Saks Inc <SKS.N> and Macy's upscale Bloomingdale's chain.

"The more locked-up the deals are within the asset pool (for sale) ... the more value the assets have. It's like money in the bank," he said.

Citigroup spokesman Samuel Wang said by email on Friday that the Zale's renewal and "other potential contract extensions could make this business even more attractive going forward."

Zale Chief Financial Officer Matt Appel said the deal ensures that there would be no disruption from having to switch credit card issuers ahead of the critical holiday season.

Citigroup agreed to forego a payment of about $396,000 that was due from Zale this week as part of the new agreement, the retailer said. Between June and August Zale paid Citigroup about $5.5 million in penalties for low sales volume on its private-label cards, according to a regulatory filing in August.

Zale has been contending with sharp sales declines for several years and has been losing market share to Kay Jewelers parent Signet Jewelers Ltd <SIG.N>.

Zale shares closed the day up 10 percent, while Citigroup's rose 2.9 percent.

Separately on Thursday, Zale said Theo Killion was named chief executive officer. He had been interim CEO.

(Reporting by Maria Aspan and Phil Wahba; Editing by Gerald E. McCormick, Lisa Von Ahn, Richard Chang and Carol Bishopric)