Citi squeezed in debt market as JPMorgan, Wells lure deposits

Instead, having lost a takeover battle with Wells Fargo & Co., New York-based Citigroup slipped to No. 4 in deposits and has to hustle for them alongside banking newcomers Goldman Sachs Group Inc. and Morgan Stanley. With debt markets in flux and terms of the government’s bailout plan changing by the week, Citigroup needs more deposits to temper a surge in the cost of financing its US$2.05 trillion balance sheet.

“Clearly they missed out,” said Stephen P. Wood, a senior portfolio strategist in New York for Russell Investments, which has US$180 billion in assets under management, including at least 5.8 million Citigroup shares. “Short-term credit is dried up. Those institutions with long-term asset bases and lower costs of capital are in a more profitable situation.”

Total deposits at Citigroup fell 2.9 percent in the third quarter to US$780.3 billion, while New York-based JPMorgan Chase & Co., Wells Fargo of San Francisco and Bank of America Corp. in Charlotte, North Carolina, reported gains. JPMorgan’s deposits rose 34 percent to US$969 billion, fueled by last month’s takeover of Seattle-based thrift Washington Mutual Inc.

Bank of America said deposits increased 11 percent to US$874 billion, including accounts gained with the July purchase of Countrywide Financial Corp. and inflows from retail customers three times greater than the industry average.

Wells Fargo’s deposits climbed 4.3 percent during the quarter to US$353.6 billion. With the US$447.8 billion of deposits that Charlotte-based Wachovia reported as of June, Wells Fargo will leapfrog over Citigroup to US$801.4 billion.

Citigroup spokeswoman Christina Pretto said that even with the third-quarter decline, overall deposits remain “strong.” What’s more, “we have seen strong deposit inflows from our main deposit-gathering business, corporate clients, including US$55 billion at the end of September alone,” she said.

After about US$660 billion of writedowns and loan losses at banks worldwide, investors already wary of buying long-term bonds from financial institutions are increasingly unwilling to buy their commercial paper, or debt that matures in less than nine months.

The quoted rate on three-month notes for Citigroup, the world’s third-biggest issuer of commercial paper, was 4.32 percent rate on Oct. 17, up from 2.75 percent a month earlier, according to data compiled by Bloomberg. The rate is well above the Federal Reserve’s 1.5 percent target rate for overnight bank loans — so high that Citigroup and other companies have had to shift to shorter maturities for commercial paper, including overnight, where rates are lower. Before August 2007, when surging subprime-mortgage defaults began to roil credit markets, Citigroup could issue three-month commercial paper near the target rate.

Citigroup had about US$29 billion of commercial paper outstanding as of Sept. 30, spokeswoman Pretto said. That’s behind only General Electric Co. of Fairfield, Connecticut, with US$88 billion, and JPMorgan, with US$55 billion, according to their earnings statements.

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