Citi's Achilles Heel: Foreign Depositors

Dick Parsons, lead outside director of Citigroup, is sounding just a tiny bit defensive these days:

We are confident that the direction our management team has set is the right direction -- and the winning direction -- for these extraordinary times. Citi is well positioned for growth because of its unique global universal bank model, and because it has the right talent, the right management, and the right approach.

If you ask me, Citi's "unique global universal bank model" is in fact its greatest weakness. As of June 30, Citigroup had a whopping $820 billion in total deposits -- but its estimated insured deposits were only $126 billion, and fully $554 billion -- yes, well over half a trillion dollars -- was held abroad.

The FDIC, of course, doesn't insure foreign deposits. The governments of the countries in question might provide some level of deposit insurance, but most of this money comes from corporate clients and upper-middle-class Citigold customers who are looking to put their money in a big safe global bank rather than some local shop which could close down tomorrow.

Citi, of course, is big and global, but it's not looking nearly as safe these days as it used to be. And so it stands to reason that a large number of Citi's foreign depositors might be moving their money elsewhere. If that happens, it's hard to see how Citi can survive without a massive cash infusion of hundreds of billions of dollars. All banks are vulnerable to bank runs, but Citi is one of the few which is vulnerable to even a large minority of its foreign customers deciding to take their money out.