A faltering Citigroup Inc. hedge fund is the source of a big insurance-related writedown Wachovia Corp. announced this month, the Charlotte bank confirmed Tuesday.

Wachovia's first-quarter loss grew to $707 million after it took a $314 million hit from losses in its insurance portfolio. The bank had previously provided few details on the origin of the loss.

The bank is one of many financial institutions to park money in so-called bank-owned life insurance, or BOLI. This insurance is taken out on upper-level employees and pays out when they die. The insurance also serves as an investment vehicle in which the earnings aren't taxed. Banks have used the money they make to offset the cost of employee benefits.

In a more complex version of the insurance, the premiums paid for the insurance are placed in an investment vehicle - in this case the Falcon Strategies hedge fund run by New York-based Citigroup. Banks also can take out so-called "stable value agreements" with third parties that are designed to cover potential losses in these accounts.

Wachovia had such agreements but had to take a writedown anyway. The bank has said it could record gains in future quarters from the agreements.

Wachovia spokeswoman Christy Phillips-Brown said the bank's BOLI losses are related to the Falcon fund but declined to comment further. The Wall Street Journal on Tuesday reported the bank invested more than $1 billion in the fund.

Cincinnati-based Fifth Third Bancorp has also suffered from BOLI losses related to Falcon. It's suing two units of Dutch insurer Aegon NV - Transamerica Life Insurance Co. and Clark Consulting Inc. - for allegedly failing to properly manage the investment. A spokeswoman for the two units said the complaint is without merit.

Fifth Third is seeking at least $323 million in damages. It invested $612 million in premiums in the fund, according to its suit. Bank of America Corp. provided stable value agreements to Fifth Third, according to the complaint, but the Charlotte bank is not named as a defendant.

The Falcon fund is one of two Citigroup hedge funds to reportedly lose more than 75percent of their value in a global credit crunch marked by the plunging value of mortgage-related investments. Citigroup has offered to partly cover the losses of some investors, which included retail customers of the bank's Smith Barney brokerage unit.

"As with many other credit-based investment products, Falcon's returns have been hurt by one of the most volatile periods for fixed-income (investments) in recent memory," a Citigroup spokesman said.

The insurance writedown is one of a number of missteps that have plagued Wachovia in recent weeks. It reached a $144million settlement with regulators over its ties to telemarketers and has said it expects a $1billion charge in the second quarter because of the accounting of controversial leasing tax shelters. The bank last week said it would hire an outside firm to review its risk management practices.