Last spring, Citi launched a plan to pull itself out of retail banking in 13 markets. And it managed to find buyers in seven. One of the loose ends, however, is Russia.
As sanctions against that country expand — stemming from the invasion of Ukraine last week — it’s becoming increasingly likely that a Russia consumer-banking unit will remain on Citi’s balance sheet longer than the Wall Street bank perhaps had hoped.
Citi warned investors 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 large U.S. bank. That includes $5.4 billion in loans, securities and funding commitments the bank classifies altogether as “country exposure.”
Add to that another $1 billion in cash Citi has at Russia’s central bank — currently immobile — and $1.8 billion of reverse repurchase agreements with various counterparties, and Citi has a "total third-party exposure" of $8.2 billion. The other $1.6 billion encompasses exposure to Russian entities by Citi verticals outside the bank’s Russia unit.
Still, there are 20 markets to which Citi is more exposed than Russia, according to the filing. The $5.4 billion Russia figure pales next to the $95.9 billion Citi counts in “country exposure” to Britain, for example.
Yet by comparison, Goldman Sachs, in its own filing last week, estimated its total market exposure to Russia at $414 million as of December. And neither JPMorgan Chase nor Bank of America, in their most recent annual reports, listed Russia among their 20 markets with the most financial exposure, the Financial Times reported.
“Citi continues to monitor the current Russia-Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate,” the bank said in Monday's filing.
Perhaps it’s getting any potential surprises out on the table (investors hate surprises) ahead of its investor day Wednesday. In the same filing, Citi warned that the Securities and Exchange Commission (SEC) is investigating the bank’s “compliance with record-keeping obligations for broker-dealers and investment advisers in connection with business-related communications sent over unapproved electronic messaging channels.”
JPMorgan Chase in December agreed to pay $200 million in penalties to the SEC and the Commodity Futures Trading Commission (CFTC) over failures to maintain and preserve such communications, and other banks such as Goldman, HSBC and Deutsche Bank have included similar warning language in their own recent annual reports.
As it stands, Citi opted to make its investor day virtual after two of the bank’s senior managers — CFO Mark Mason and Paco Ybarra, head of the institutional clients group — tested positive for COVID-19, Bloomberg reported Monday.
“While we hoped to host our Investor Day in person, health and safety must be our top priority,” CEO Jane Fraser said in a statement seen by the wire service. “We believe a virtual format is the right decision given our circumstances, and we remain excited about and committed to presenting our strategy, progress over the last year and our path forward to our investors this week.”
No new ground
As for Citi’s Russia consumer bank, VTB Bank provided a glimmer of hope last year. An official for the Russian government majority-owned bank said at the time that VTB was interested in bidding on the unit, according to The Wall Street Journal. But VTB is among the banks the U.S. sanctioned last week.
Citi wouldn’t be breaking new ground if it were forced to close its Russia consumer bank. Citi reported in November it would incur at least $1.2 billion to get itself out of retail banking in South Korea after failing to sell the unit. Its Russia footprint — encompassing three Moscow branches, two St. Petersburg locations and a handful of other outposts — is considerably smaller.
Wells Fargo analyst Mike Mayo said Citi would likely have to add $300 million to its reserves to cover potential losses on nearly $3 billion of loans included in its Russia exposure figure, Reuters reported.
Among Citi’s $5.4 billion “country exposure” is $2.2 billion in corporate loans and $700 million in consumer loans, along with $1.5 billion in investment securities, The Wall Street Journal reported. Citi has cut its Russia exposure in half since the country’s 2014 annexation of Crimea, according to the outlet.