Citi Faces $1.5 Billion of Charges in Russia Retreat, Mayo Says
Citigroup Inc. will broaden its withdrawal beyond previously announced plans to dispose of consumer operations in Russia.
(Bloomberg) -- Citigroup Inc. is facing an estimated $1.5 billion hit to earnings from its business in Russia as the banking giant broadens a withdrawal from the country, according to analysts at Wells Fargo & Co.
New York-based Citigroup will probably have to write down a portion of its $1 billion net investment in its Russian subsidiary and set aside additional funds for losses on loans to Russian consumers and corporations, Wells Fargo analysts led by Mike Mayo said in a note to clients Monday. Citigroup, the U.S. bank with the largest presence in Russia, said Monday it will broaden its withdrawal beyond previously announced plans to dispose of consumer operations there.
“We have now decided to expand the scope of that exit process to include other lines of business and continue to reduce our remaining operations and exposure,” Edward Skyler, executive vice president of global public affairs, said in a statement Monday. “Due to the nature of banking and financial services operations, this decision will take time to execute.”
The bank said last week that it was assessing operations in the country after President Vladimir Putin’s invasion of Ukraine caused Russia’s economy to become disconnected from the global financial system. Skyler said Monday that Citigroup will stop soliciting any new business or clients in the country, while providing assistance to multinational corporations unwinding their operations there.
Citigroup has roughly 3,000 employees in Russia. It said last month it had about $9.8 billion of loans, assets and other exposure tied to Russia, local companies and their counterparties, as well as to the Bank of Russia, as of the end of 2021.
Under a severe-stress scenario, the company could lose roughly $4.9 billion, or about half of its total exposure, Chief Financial Officer Mark Mason has warned. “But it could also be a lot less than that, just depending on how the situation evolves, and we’ll continue to monitor it,” he said at the firm’s investor day earlier this month. He added that Citigroup has been actively seeking to reduce that exposure in recent weeks.
Worst Case
The ongoing deterioration of the Russian economy has probably forced Citigroup to reassess the lifetime losses on loans made to Russian consumers and corporations under an accounting methodology known as current expected credit losses, or CECL, according to the Wells Fargo analysts. That, along with a writedown on the company’s investment in its local subsidiary, adds up to the $1.5 billion estimate for charges.
“This is less than Citi’s worst-case estimate of $4 billion to $5 billion,” Mayo said in the note. “Citi has likely tried to limit and mitigate its exposure as tensions mounted.”
Citigroup announced last year it would exit retail-banking operations in more than a dozen countries, including Russia, as part of its efforts to simplify its business. A sale of that unit has stalled in recent weeks, making the prospects of a wind-down more likely. The company said Monday it would continue to manage existing regulatory commitments and obligations to depositors in Russia.
Citigroup joins Wall Street giants Goldman Sachs Group Inc. and JPMorgan Chase & Co. and other major corporations in the U.S. and globally in pulling business from Russia. Deutsche Bank AG reversed course late last week and announced a pullback, after JPMorgan said it’s currently engaging in limited activities in the country and Goldman Sachs announced plans to close its operations there.
Citigroup has long been the bank large multinational companies turn to for help managing and banking subsidiaries in more than 100 countries. In Russia, the bank has roughly 600 clients of its global subsidiaries group.
McDonald’s Corp. and Coca-Cola Co. are among companies that have said they’ll halt business operations in the nation as the death toll rises in Ukraine and millions of refugees flee.
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