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Citi Shuns Treasuries Amid ‘Dangerous Flirtation’ by U.S.

New York-based Citigroup Inc. is the third-largest U.S. bank by assets. Photographer: Scott Eells/Bloomberg

Citigroup Inc. is bracing for a possible U.S. default by avoiding some short-term Treasury investments amid what Chief Executive Officer Michael Corbat called “a dangerous flirtation with the debt ceiling.”

Corbat made the remark during a conference call today to discuss third-quarter results at New York-based Citigroup as lawmakers struggled to meet a deadline for avoiding a U.S. default. While the bank remains hopeful about a political solution, Citigroup doesn’t own Treasury securities that mature in October and holds few with terms ending before Nov. 16, Chief Financial Officer John Gerspach said.

A U.S. default would put the financial world in “uncharted waters,” and the bank is managing risks to ensure it has liquidity, Gerspach said.

The two bankers join JPMorgan Chase & Co. CEO Jamie Dimon and Anshu Jain, the co-CEO at Deutsche Bank AG, in warning against a default. The government’s borrowing authority will lapse Oct. 17 without a deal, U.S. officials have said. JPMorgan is the biggest U.S. bank by assets, and Citigroup is No. 3. Deutsche Bank, based in Frankfurt, is the largest in Germany.

Senate leaders are crafting an agreement that would bring a halt to the standoff before the deadline and end a partial shutdown of the government.

Jain told a financial industry conference on Oct. 12 the prospect of even a small default would be “utterly catastrophic” and Dimon said the effects would ripple through the global economy.

“You don’t want to know,” Dimon said at the conference. “Please, let’s not shoot ourselves in the foot.”

The fallout would be “absolutely disastrous, considering the role of the U.S. dollar,” Baudouin Prot, chairman of Paris-based BNP Paribas SA, said during a panel discussion with Jain and Dimon.

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