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WELLS FARGO ASIA LTD. v. CITIBANK

July 2, 1985

WELLS FARGO ASIA LIMITED, Plaintiff, against CITIBANK, N.A., Defendant


The opinion of the court was delivered by: KNAPP

MEMORANDUM & ORDER

WHITMAN KNAPP, D. J.

 Plaintiff, Wells Fargo Asia Limited, moves for summary judgment for non-payment of certain overdue non-negotiable time deposits placed with the Philippine branch of defendant Citibank.

 Plaintiff at all times relevant to this law suit was a bank chartered to do business by the government of Singapore and a wholly-owned subsidiary of Wells Fargo Bank, National Association, a federally chartered bank based in San Francisco, California. Citibank is a national bank chartered under the National Bank Act, 12 U.S.C. ยง 21 et seq., with its corporate headquarters in New York. Citibank has a branch office ("Citibank/Manila") in Manila, the Philippines.

 On June 10, 1983 plaintiff placed two six-month non-negotiable U.S. $1,000,000 deposits with Citibank/Manila. The deposits were to earn interest at the rate of 10% and mature on December 9 and 10, 1983. In October 1983, however, the Philippine government forbade repayment of the principal of certain foreign currency obligations without the prior approval of the Central Bank of the Philippines (the "Central Bank"). Citibank did not receive such approval, and did not repay the deposits on maturity.

 Citibank asserts that issues of fact exist pertaining to the parties' understanding of the deposit contract, and whether or not plaintiff assumed the risk that repayment might be affected by Philippine law. Plaintiff has denied having had any understanding that it was assuming this risk and asserts in support of its motion that the deposits bore an unconditional repayment date, that repayment is overdue, and that, as a matter of law, the main office of Citibank is liable for the obligations of its Manila branch.

 BACKGROUND

 Eurodollar Transactions

 At the nub of this case is the treatment to be accorded to a particular kind of time deposit denominated in U.S. dollars which is maintained in a banking institution outside of the United States (the "receiving bank"), commonly called a "Eurodollar" deposit. The case before us presents a deposit of "Asia dollars," or a dollar-denominated deposit made in an Asian country. These transactions in general bear a higher rate of interest than similar transactions within the United States. Thus, at the time plaintiff made the deposits here at issue, domestic banks were granting an interest rate of approximately 8.85%, while Eurodollar (or "Asia dollar") deposits bore an interest rate of about 10%.

 The reason for this difference in interest rates is disputed. The parties agree that one of the reasons is that banks operating abroad are free from the reserve requirements imposed by the Federal Reserve Board and Federal Deposit Insurance Corporation upon banks operating within the United States. In addition, they are in accord that in the event a third person (e.g., a bank robber) or an act of nature (e.g., flood or fire) disabled the branch bank from timely repaying deposits made with it, the main office would assume liability. The parties' view of the Eurodollar market diverges after these two areas of accord, and their differences go to the heart of the propriety of a disposition by summary judgment.

 Citibank posits that aside from the category of disabling events mentioned above for which the main office would assume liability, which it terms "credit risk," there also exists a "sovereign risk" for which its main office denies liability. Such sovereign risk results from the acts of the foreign government (e.g., confiscation) in whose jurisdiction the deposits are held which prevent repayment by the foreign-based branch. It suggests that the main office would not bear liability for such acts because the depositer assumes the risk that the foreign government might so act and, in effect, bargains for a higher interest rate in exchange for the risk.

 The positions of the respective parties are set forth, on the one hand, in plaintiff's denial of two of Citibank's requests for admissions and, on the other hand, in an affidavit submitted by Citibank. The two Citibank requests for admissions (denied by plaintiff) are:

 
[Request 2] WF Asia [plaintiff] understood that Citibank's obligation to repay the WF Asia deposits was subject to Philippine law.
 
[Request 62] In deciding to place the deposits in Manila, WF Asia considered the risk of placing funds in the Philippines and the interest rate Citibank Manila offered to pay on the deposits.

 The affidavit submitted by Citibank is that of Ian H. Giddy, a professor of international finance at the New York University Graduate School of Business. Professor Giddy states at P32 of his affidavit:

 
During the course of seminars and conventions with hundreds of international bankers during the past ten years, I have never had occasion to hear a banker deny that Eurodollar deposits are subject to the sovereign risk of the country in which the deposits are placed. Accordingly it is inconceivable to me that the staff at [Wells Fargo] Asia responsible for placing the ...

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