Citigroup ( C), fresh off a defeat in its fight to acquire Wachovia ( WB), is in no rush to deploy the $25 billion capital injected this week by the U.S. Treasury in a new acquisition.

Citi CFO Gary Crittenden said on a conference call to discuss the firm's third-quarter earnings that the bank felt good about its capital position before the government's equity investment. But as consumer credit conditions continue to materially decline, Citi plans to proceed cautiously.

"This represents in many ways something we had not counted on, something we hadn't planned for, and it does represent then the possibility of our taking advantage of opportunities that otherwise might have been foreclosed to us," Crittenden said.

"If it makes sense for us, if it grows our business ... furthers our strategic agenda in some way that's fundamental then we'll use it in that way," Crittenden continued. "But we're not going to treat this as a windfall and in some way back off of the other measures to get the company fit because we have this as an additional capital capacity."

Citigroup reported early Thursday a quarterly loss of $2.8 billion, or 60 cents a share, narrower than a loss of 70 cents a share that analysts were expecting. Citi had forewarned that third-quarter results would be disappointing during a conference call to discuss its planned acquisition of Wachovia's banking operations, which was upended by a better offer from Wells Fargo ( WFC).

The New York bank said the loss from continuing operations in the quarter was $3.4 billion, or 71 cents a share, primarily because of fixed income writedowns and higher consumer credit costs. A year earlier, Citi reported net income of $2.2 billion, or 44 cents a share.

The quarter included $4.4 billion in net pretax writedowns in its securities and banking operations, $4.9 billion in net credit losses, and a $3.9 billion net charge to increase loan loss reserves, the bank said in a statement Wednesday.

Declining revenue and credit conditions in the firm's North American credit card business stood out as particularly troubling. Managed net credit card losses rose 262 basis points to 7.13%, it said.

Citi attributed lower revenue from its credit card business -- which fell by 40% when compared to the year-ago period -- to lower securitization results from its North American cards business due to the frozen credit markets. In addition, the firm had a $729 million pre-tax gain in the year-earlier quarter for the sale of shares of Brazilian credit card processor, Redecard.

Citi said credit costs in its domestic cards business nearly doubled as a result of "a significant increase in the rate at which customers became delinquent, as well as the continued acceleration in the rate at which delinquent customers advanced to writeoff," it said.

The federal government on Tuesday said it would pump $250 billion of badly needed equity into the troubled banking sector through the purchase of preferred equity stakes. The funds would be allocated as part of the $700 billion troubled asset relief program, or TARP, in a bid to improve investor confidence in the banking system by jump-starting the credit markets.

The nation's largest financial institutions including Bank of America ( BAC), Goldman Sachs ( GS), Citi, and Wells Fargo, among others -- regardless of whether they need the capital -- have already agreed to participate in the voluntary program.

At the end of the third quarter, Citi had a Tier-1 capital ratio of 8.2%. The Federal Reserve considers banks with a Tier-1 ratio of 6% to be well capitalized.

Citi, as it struggles with its own massive writedowns from complex securities backed by soured mortgages and increasing consumer credit deterioration, had outlined an internal growth strategy at an investor day earlier this year to focus on five main businesses -- asset management, credit cards, wealth management, retail banking and global private client.

With the acquisition of Wachovia no longer going through, " o ur focus is behind those businesses and that remains exactly as it was before," Crittenden said. "We're cutting our expenses, we're showing good traction on that. We're moving assets out of categories that don't fit with that profile. We've been selling businesses that didn't match there. We've carefully managed down our headcount. So we have worked very hard to execute against that strategy."

Citi has remained on the sidelines in terms of acquisitions, despite it's the need to improve its fledgling retail business and bulk up in a cheap funding sources -- retail deposits.

Citi had tried to boost deposits on Sept. 29, when it offered $2 billion, or $1 a share, for Wachovia's banking operations, in a deal aided and brokered by the Federal Deposit Insurance Corp. The FDIC agreed to take on most of the risk in Wachovia's troubled loan portfolio due to Option adjustable-rate mortgages inherited from its 2006 Golden West acquisition.

Just four days later, Wells Fargo offered Wachovia $15 billion, or $7 a share, to acquire the whole company. Citi slapped a lawsuit on the two banks saying they violated a so-called exclusivity agreement it had signed with Wachovia.

Citi was also looking at possibly acquiring Washington Mutual. JPMorgan Chase ( JPM) ended up acquiring the Seattle thrift after regulators seized its operations late last month.

BofA this summer acquired Countrywide Financial, once the nation's largest mortgage lender, and is on track to acquire brokerage powerhouse Merrill Lynch ( MER).

"In total, now we have looked in detail at the possibility of acquiring three institutions -- two of which you're aware of and one that we haven't talked about publicly in any way," Crittenden said referring to Washington Mutual and Wachovia. "There was only a certain set of circumstances which made sense for us to do those acquisitions . We'll think about the use of this capital in the same way."

Crittenden's comments echoed that of JPMorgan Chase CEO Jamie Dimon on Wednesday. Dimon, when asked by an analyst, didn't rule out using the $25 billion his bank is set to receive from the Treasury for acquisition purposes either.

"I would be willing to use it for anything that made sense for JPMorgan shareholders," Dimon answered when asked by an analyst whether the capital could be deployed to make new acquisitions.

Isabel Schauerte, an analyst with Celent, said "there is no doubt" Citi will eventually look to make another deal.

"However, if anything, third-quarter results suggest that the bank should focus on repairing its troubled balance sheet while waiting for another buying opportunity that has the scale Citi is hungry for," she says.

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