Dollar Money Rates May Be Little Changed After Citigroup Rescue

By Kim-Mai Cutler and David Yong

Nov. 24 (Bloomberg) -- The cost of borrowing in dollars for three months in London may be little changed after Citigroup Inc. received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets.

The rate for such loans was 2.15 percent as of 9:07 a.m. in London, according to Sean Maloney, a fixed-income strategist for Nomura International Plc. That's 1 basis point below the comparable London interbank offered rate, or Libor, at the end of last week.

Citigroup will also get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the rescue aims to bolster financial- market stability and help restore economic growth.

``We're expecting to see a cooling in pressures in money markets,'' Maloney said. ``The package puts a safety valve in the market.''

Credit markets, which began seizing up after BNP Paribas SA halted withdrawals on three investment funds in August 2007, froze after the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, spurring governments and central banks around the world to bail out financial institutions and inject cash into money markets. Banks, brokerages and funds are cutting jobs amid almost $1 trillion of writedowns and credit losses since the start of 2007.

`More Selective'

The Citigroup rescue came after the New York-based lender's 60 percent share-price drop last week sparked concern depositors might withdraw their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.

In Asia, Australian funding costs rose, with the rate banks charge each other for three-month loans climbing almost four basis points to 4.47 percent. The rate for three-month dollar loans in Singapore was little changed at 2.15 percent. Financial markets are shut in Japan today for a holiday.

``There's liquidity in the interbank market but people have become more selective in lending,'' said Jimmy Koh, head of treasury research at United Overseas Bank Ltd. in Singapore. ``There's concern about the corporate sector's health going forward.''

The Reserve Bank of Australia pumped A$3.27 billion ($2.06 billion) into the financial system today after estimating the shortfall would be A$3.65 billion.

The Libor for three-month dollar loans rose on Nov. 21 for the first time in four days as concern about credit losses and writedowns overshadowed interest-rate reductions and cash funding by central banks. The 2.16 percent rate is 116 basis points above the Federal Reserve's target rate, and compares with an average of 12 basis points in the year before the credit crisis started.

Libor, the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a daily survey by the British Bankers' Association before noon in London.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.