March 5 (Bloomberg) -- Citigroup Inc. altered a research note after Banco Santander SA's finance chief said it was ``completely wrong'' to say Spain's largest bank was probably one of the most reliant on funding from the European Central Bank.

After the subprime-mortgage slump caused credit markets to seize up, ``the two single largest users of ECB funding appear to be Santander and Fortis,'' Citigroup analysts led by Simon Samuels wrote in a note to clients yesterday. The new version says the banks appear to be the largest holders of asset-backed securities, and ``we understand from Santander that it has not drawn down anything on this funding facility.''

``We haven't been using the ECB lending facility,'' Chief Financial Officer Jose Antonio Alvarez said in an interview late yesterday, adding that any dealings with the ECB were ``marginal'' and for technical reasons. ``We don't use it because it's more expensive and we have access to cheaper funds in the market.''

Before credit markets tumbled in August, commercial banks bundled mortgages and sold them to investors to raise money. With that route closed, some began using those securities as collateral to borrow from the ECB in monthly auctions.

Dutch and Spanish banks may have accessed 90 percent of the funds released by the ECB, the London-based Citigroup analysts said in the note entitled ``Who is Borrowing from the ECB?'' The report identified which banks have created asset-backed securities and struck so-called repurchase agreements with the ECB. Some may not have accessed that source of finance, it said.

`Clarified Report'

``Having spoken to Santander, whilst they acknowledge that they have indeed created this facility, they were also very keen to make it clear that they have not drawn down any cash against it,'' Samuels said in an e-mail today. ``Our clarified report simply made that final point clearer on the front page.''

Citigroup's European banks team ranks No. 2 behind Merrill Lynch & Co. in Institutional Investor magazine's annual investor survey. Samuels joined from Dresdner Kleinwort Benson in 1998.

The criteria Citigroup used to identify the banks included analyzing the size of ``funding gaps,'' the difference between loans and deposits that must be raised in money markets. Those with ``high and increasing'' gaps are likely to be using ECB funds most often, it said.

Santander's funding gap narrowed by 8.85 billion euros ($13.5 billion) in the second half while that of Fortis widened by 3.26 billion euros, according to Citigroup. Liliane Tackaert, a spokeswoman for Fortis in Brussels, declined to comment.

Cheap ECB Funds

``Banks have no incentive to return to the public ABS since ECB funds are so much cheaper,'' according to Citigroup. ``The ECB is now the largest single investor in European asset-backed securities.''

Santander, based in the Spanish city of the same name, rose 1.6 percent to 11.68 euros in Madrid trading. Citigroup analyst Ronit Ghose has a ``buy'' rating on the stock.

``We're one of the best names right now in the industry in terms of solvency, capital and earnings generation,'' CFO Alvarez said. ``We're not affected by subprime and we're not affected by all of these leveraged loans. There's nothing wrong with using the ECB but it's not the case for us.''

The ability of lenders to turn to central-bank funding from time to time enables them to have smaller cash reserves and keeps down the cost of funding, said Giorgio Questa, a finance professor at Cass Business School in London who used to oversee international investment banking at Italy's IMI SpA.

``Central banks were set up exactly to avoid short-term illiquidity in the markets and therefore I wouldn't find it at all shameful to borrow from them,'' Questa said. ``Maybe it was a little imprudent to make those assertions.''

Citigroup itself was the subject of altered research yesterday. The biggest U.S. bank had its first-quarter earnings estimate cut to a loss of $1 a share at Goldman Sachs Group Inc. because of a math error. The revision from a 15 cent profit was due to a ``miscalculation in our model,'' according to Goldman.

To contact the reporter on this story: Adrian Cox at acox2@bloomberg.net.

Last Updated: March 5, 2008 11:42 EST