Citi has a $9.8 billion headache in Russia

Last spring, Citi launched a plan to exit retail banking in 13 markets. And he managed to find buyers in seven. One of the sticking points, however, is Russia.

As sanctions against that country expand – following last week’s invasion of Ukraine – it becomes increasingly likely that a Russian consumer banking unit will remain on Citi’s balance sheet longer. longer than the Wall Street bank might have hoped.

Town warned investors on Monday in a filing that it had $9.8 billion in exposure to Russia at the end of 2021 — by far the highest total of any major U.S. bank. This includes $5.4 billion in loans, securities and funding commitments that the bank broadly classifies as “country exposure.”

Add to that an additional $1 billion in cash that Citi holds in Russia’s central bank — currently immobile — and $1.8 billion in reverse repurchase agreements with various counterparties, and Citi has “total exposure to third” of $8.2 billion. The other $1.6 billion encompasses exposure to Russian entities through Citi’s verticals outside of the bank’s Russian unit.

Still, there are 20 markets Citi has more exposure to than Russia, according to the filing. Russia’s $5.4 billion figure pales in comparison to the $95.9 billion Citi counts in the “country’s exposure” to Britain, for example.

However, by comparison, Goldman Sachs, in its own filing last week, estimated its total exposure to the Russia market at $414 million in December. And neither JPMorgan Chase nor Bank of America, in their latest annual reports, ranked Russia among their 20 most financially exposed markets, the FinancialTimes reported.

“Citi continues to monitor the current geopolitical and economic conditions in Russia and Ukraine and will mitigate its exposures and risks as appropriate,” the bank said in Monday’s filing.

No surprises

Maybe he has some potential surprises on the table (investors hate surprises) ahead of his Wednesday Investor Day. In the same filing, Citi warned that the Securities and Exchange Commission (SEC) was investigating the bank’s “compliance with record-keeping requirements for broker-dealers and investment advisers with respect to business communications sent through channels unapproved email messages”.

JPMorgan Chase agreed in December to pay $200 million in penalties to the SEC and the Commodity Futures Trading Commission (CFTC) for failing to maintain and preserve these communications, and to other banks such as Goldman, HSBC and German Bank have included similar warning language in their own recent annual reports.

As it stands, Citi has opted to make its Investor Day virtual after two of the bank’s top executives – Chief Financial Officer Mark Mason and Paco Ybarra, Head of the Institutional Clients Group – tested positive for COVID. -19, Bloomberg reported Monday.

“As we hoped to hold our Investor Day in person, health and safety must be our top priority,” CEO Jane Fraser said in a statement seen by the press service. “We believe a virtual format is the right move given our circumstances, and we remain excited and committed to presenting our strategy, our progress over the past year and our path forward to our investors this week.”

No new ground

As for Citi’s Russian consumer bank, VTB Bank provided a ray of hope last year. An official at the majority-owned Russian bank said at the time that VTB wanted to bid for the unit, according to The Wall Street Journal. But VTB is among the banks sanctioned by the United States last week.

Citi would not innovate if it were forced to close its consumer bank in Russia. Citi announced in November that it would commit at least $1.2 billion to pull out of retail banking in South Korea after it failed to sell the unit. Its footprint in Russia – encompassing three branches in Moscow, two locations in St. Petersburg and a handful of other outposts – is considerably smaller.

Wells Fargo analyst Mike Mayo said Citi would likely need to add $300 million to its reserves to cover potential losses on nearly $3 billion in loans included in its Russia exposure figure, Reuters reported.

Among Citi’s $5.4 billion “country exposure” are $2.2 billion in business loans and $700 million in consumer loans, as well as $1.5 billion in securities. placement, reported the Wall Street Journal. Citi has halved its exposure to Russia since the country annexed Crimea in 2014, according to the outlet.