Campeau Falls on Default Warning

Shares in troubled Campeau Corp. dropped sharply Wednesday, the first trading day after Citibank’s warning that the Canadian company’s big U.S. retail chains might face default within two weeks.

Campeau stock, halted since Friday, shed 56 cents to $3.11 (65 cents to $3.60 Canadian) at the opening on the Toronto Stock Exchange and closed down 60 cents to $3.07 (70 cents to $3.55) on strong volume of 413,350 shares.

Campeau’s Federated Department Stores and Allied Stores retail units said late Friday that Citibank had warned them that it could force early repayment of their loans unless they could prove solvency by year’s end.

Citibank, owed $1.45 billion by Federated and $890 million by Allied, told the companies last Thursday that their failure to confirm their solvency was a breach of loan agreements, something Campeau describes as a technicality.

Both units have said that they could not determine whether they were still solvent and might file for bankruptcy in late January.

Analysts said Citibank had played a deft hand by declaring a technical breach in the loan agreements without tying itself to a course of action if the deadline is not met.