Sept. 24 (Bloomberg) -- Citigroup Inc. may sell or shut some of its 1,001 branches in the U.S. and Canada as the bank shrinks following last year’s $45 billion federal bailout, a person familiar with the matter said.

Citigroup, ranked third among U.S. lenders by assets, would narrow its North American retail focus to areas where it has higher branch concentrations, said the person, who declined to be identified because the plans are still under discussion. The bank’s network is clustered in New York, California, Miami, Chicago and Washington, D.C., with a smaller presence in Texas, Boston and Philadelphia.

Chief Executive Officer Vikram Pandit and his U.S. consumer chief, Teresa “Terri” Dial, have been studying ways to collect more deposits, which have become prized by banks as a source of funding after the global credit crunch drove up the cost of selling debt. The New York-based company’s network is one-sixth the size of those at Wells Fargo & Co. and Bank of America Corp.

“We’re on a very significant journey to make it simpler, more rewarding, and highly transparent to bank with us,” Citigroup spokesman Michael Hanretta said in an e-mailed statement. “We have a great deal to do.”

In January, when Pandit announced he planned to sell or shut “non-core” businesses including brokerage and consumer finance, he included retail banking among the ones he wants to keep. The others are investment banking, trading, corporate banking and transaction processing.

The deliberations about Citigroup’s branches were reported earlier by the Wall Street Journal.

TARP Conversion

Citigroup executives have acknowledged that buying a large bank-branch network may be out of the question until the company can return to profitability and pay back the U.S. bailout money. The government recently converted $25 billion of the bailout funds into a 34 percent stake in Citigroup.

Wells Fargo and Bank of America have more than 6,000 domestic branches each, and at least three times Citigroup’s U.S. retail deposits. Bank of America is the biggest U.S. lender measured by assets and deposits.

Pandit tried to bolster his bank’s deposits last year by buying the failing bank Wachovia Corp., only to have the bid trumped by San Francisco-based Wells Fargo. As of June 30, Citigroup had $135.7 billion of retail-banking deposits in the U.S. and Canada.

In February, Citigroup started a series of meetings to conceive a so-called Bank of the Future offering rejuvenated Internet and cell-phone portals alongside branches, people familiar with the matter said earlier this month. Citigroup hired 37-year-old Michelle Peluso, who helped modernize airline reservations as CEO of Travelocity.com, to lead the sessions.

Wells Fargo

Peluso reports to Dial, 59, a former Wells Fargo executive hired by Pandit in March 2008 to run the U.S. consumer division. The unit had $1.76 billion of revenue in the second quarter, down 17 percent from a year earlier.

Citigroup said in a press release yesterday it will extend weekday and Saturday hours at branches in Manhattan, and the bank promised to make customers a priority. The company said it also started an online discussion board for customers to post comments and questions.

“The key focus for me and my management team going forward is to make sure that we grow North America through much, much better execution than what we’ve seen over the last many years,” Pandit told analysts during a Sept. 16 presentation. “Citi after all invented the ATM and was once a leader in consumer banking technology,” he said. “It is our aim to make sure we regain that edge.”

In 1997, under then-CEO John Reed, the bank unveiled a short-lived plan to do away with branches wherever possible by pushing more customers to personal computers, telephones and automated teller machines, a technology that Reed helped proliferate.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: September 24, 2009 12:38 EDT