Magazine article American Banker

Citi's Woes Taking Toll on Deposit Capabilities

Magazine article American Banker

Citi's Woes Taking Toll on Deposit Capabilities

Article excerpt

Byline: Kevin Dobbs

Top officials at Citigroup Inc. have repeatedly touted the company's far-flung international banking operations, and Citi does derive two-thirds of its deposits from overseas.

But new data shows consumers yanked deposits in Latin America, Europe, the Middle East, Africa, and Asia in the fourth quarter, with the numbers down compared with both the third quarter and the year-earlier period.

Citi's problems clearly are affecting its ability to raise and hold deposits.

"It's hard to imagine any depositor, particularly big-money depositors, being anything but very cautious about Citi," Jeff Davis, the director of research at Howe Barnes Hoefer & Arnett Inc., said in an interview Tuesday. "The issues with this institution, they are so well known now, it should not surprise that deposits are flowing elsewhere."

Gary Crittenden, Citi's chief financial officer, blamed foreign exchange rates for much of the international deposit decline. But on a conference call with analysts Friday, Mr. Crittenden also said "some customers continue to rebalance their portfolio for insurance purposes, particularly in" the United Kingdom, whose government last year guaranteed higher levels of deposits at British banks.

Citi may also be suffering from the same image problems overseas as it is domestically. Analysts and investors said that as a global recession hammers parts of Europe, Asia, and Latin America, customers are more likely to want to stash their money in safe havens. After posting five straight quarterly losses and turning to the U.S. government for $45 billion in taxpayer infusions, the company's reputation as a secure bank is diminished, analysts and investors said.

"Economic conditions no doubt are a factor, but even more important right now, I think, is that people have simply lost confidence in Citi," David Allaire, portfolio manager at Mystic Asset Management Inc., said in an interview Tuesday. "People are panicky right now."

Eric Hovde, the president, chief executive, and portfolio manager of Hovde Capital Advisors LLC, a hedge fund targeting the financial services industry, said: "The reason is very simple. Citi is a significantly troubled institution and foreign depositors are worried about losing their money."

Citi's fourth-quarter deposits of $774 billion were down 6% from a year earlier and 1% from the third quarter.

Interest-bearing foreign deposits fell 14% from a year earlier and 2% from the previous quarter, to $447 billion. Average consumer deposits in Citi's Europe-Middle East-Africa region dropped 28% from a year earlier; they fell 13% in Latin America and 9% in Asia.

Citi's North American average deposits inched up 3% from a year earlier in the fourth quarter. Mr. Hovde said it makes sense that Citi's domestic deposits were stable given that depositors in the United States are confident in protection from Federal Deposit Insurance Corp.

However, JPMorgan Chase & Co. and Bank of America Corp. made much bigger gains, helped by acquisitions. B of A's fourth-quarter deposits rose 10% from a year earlier, to $883 billion, thanks in part to its purchase last year of Countrywide Financial Corp. …

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