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. JPMorgan Chase's deposits rose 36% from a year earlier, to $1.01 trillion, largely as a result of its acquisition of Washington Mutual Inc.'s bank assets.
Others, like Wells Fargo & Co., have also become bigger depository institutions through acquisitions. Wells outbid Citi for Wachovia Corp. in a deal that closed at the end of 2008, roughly doubling its domestic deposits. Analysts expect the San Francisco company to post a profit next week when it reports its fourth-quarter results.
That deposits are rising at Wells and other companies while Citi is struggling "really does expose a fundamental mistake that Citi made, which was its failure over the past decade to go out and systematically build up its U.S. deposit base" in order to compete domestically with the largest banks, Mr. Davis said. "Now this thing, Citi, is only going to get smaller."
Still, Vikram Pandit, Citi's chief executive, continues to cast Citi's global operations as its principal long-term strength.
In a conference call last week after the company reported earnings, Mr. Pandit announced a plan to divide Citi into two main divisions. One division, for its banking operations, would be called Citicorp. The other, for everything else, would be called Citi Holdings, and much of this noncore business would be sold off over the next few years. The company started this process by spinning off its Smith Barney brokerage unit into a business run jointly with Morgan Stanley. The Wall Street Journal reported Tuesday that Citi also plans to sell its Japanese retail brokerage operation, Nikko Cordial Securities.
The banking operation, Mr. Pandit said, could be profitable this year, and Citi's "deposit-taking capabilities throughout the world" will be the division's key strength.
"With strong funding and relatively low risk, over time, Citicorp should be a significantly higher-return, lower-risk, higher-growth business, particularly because of its footprint in the emerging markets," Mr. Pandit said.
Analysts were skeptical, saying the spinoff of the profitable Smith Barney underscored Citi's need to take drastic steps to bolster capital.
In the meantime, analysts say companies like Bank of America and JPMorgan Chase, despite being mauled by the credit crisis, are benefiting as consumers seek a safe haven for their money. "We have had healthy growth in checking accounts and deposits. Customers continue to seek us out as a company of strength," Kenneth D. Lewis, B of A's chief executive, said on a call last week.
Michael Cavanagh, JPMorgan Chase's CFO, said average deposits in its retail segment, at $340 billion, were "up a bit year over year ex-Wamu. And then in the case of Wamu, deposits … have stabilized. That's reflective of the fact that we have been adjusting pricing and have not seen a runoff in deposits there, which we think is a very good sign" that depositors are confident in the JPMorgan Chase name.
