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Should Investors Fret Over Citi's (C) $9.8B Russian Exposure?
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Amid the Russia-Ukraine ongoing conflict, Citigroup, Inc. (C - Free Report) has disclosed its $9.8-billion exposure to Russia in its annual report filed with the Securities and Exchange Commission on Feb 28, 2022.
Citi operates both its Institutional Clients Group (ICG) and Global Consumer Banking (GCB) businesses in Russia. C’s domestic affairs in Russia are operated via the bank’s subsidiary (Citi Russia), which has its functional currency in the Russian ruble. Its total third-party exposure was nearly $8.2 billion as of 2021 end. Besides, Citi has around $1.6 billion of additional exposures to the Russian counterparties not held on the Russian subsidiary.
Citi pegged Russia as the 21st country among its top 25 country exposures with $5.4 billion worth credit and other exposures as of December 2021 end. The figure excludes nearly $1 billion of cash and placements with the Bank of Russia and other financial institutions as well as $1.8 billion of reverse repurchase agreements with various counterparties. The $5.4-billion worth Russian credit represents 0.3% of the bank's total asset exposures in fourth-quarter 2021, according to the regulatory filing. As of September 2021 end, Citi had $5.5 billion credit and other exposures pertaining to Russia.
Following Russia's invasion of Ukraine, the numerous financial and economic sanctions imposed by the United States, the United Kingdom and the European Union on Russia could dent the value of Russian assets held by international banks. Citi’s ability to engage with consumer and institutional undertakings in Russia and Ukraine or involving certain Russian or Ukrainian entities and customers will depend on the specifics of sanctions and laws imposed. Moreover, the consequent negative impacts of the ongoing geopolitical tensions could further deteriorate the regional and global financial market conditions, affecting the economy at large. This could deal an additional blow to Citi’s financials.
The company is currently also pursuing the exit of its GCB business in Russia as it pares back its international consumer operations. We believe that the sell-off is likely to be complicated, courtesy of the current sanctions on Russia. A prospective buyer is unlikely to widen his Russian exposure and now that the Russian banks are under pressure, the divestment could face a prolonged raincheck.
“Citi continues to monitor the current Russia-Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate,” the bank’s spokesperson said in the regulatory filing.
Our Take
Citi could see indirect impacts should the Russia-Ukraine conflict be prolonged. Nonetheless, given its exposure to Russia underpins only 0.3% of the total asset exposures in 2021 as well as its robust fundamentals, the impact of the exposure is likely to have only a miniscule effect on its financials.
C’s long-term strategy to increase fee-based business mix and shrink its non-core assets bodes well for the long term. Citi is steadily investing in growth opportunities across wealth and commercial banking, treasury and trade solutions, and securities service businesses to grow fee revenues across the ICG segment. Such efforts will bolster its position in the booming digital industry and diversify its revenue stream.
Hence, investors should not be worried about the geopolitical tensions weighing on Citi’s prospects in the long haul.
Shares of the currently Zacks Rank #3 (Hold) stock have lost 17.7% in the past six months against the industry’s growth of 1.3%.
Over the past year, shares of First Business have jumped 39.5%, while the stocks of UBS and PCB have rallied 10.1% and 49.7%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 7.4% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.
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Should Investors Fret Over Citi's (C) $9.8B Russian Exposure?
Amid the Russia-Ukraine ongoing conflict, Citigroup, Inc. (C - Free Report) has disclosed its $9.8-billion exposure to Russia in its annual report filed with the Securities and Exchange Commission on Feb 28, 2022.
Citi operates both its Institutional Clients Group (ICG) and Global Consumer Banking (GCB) businesses in Russia. C’s domestic affairs in Russia are operated via the bank’s subsidiary (Citi Russia), which has its functional currency in the Russian ruble. Its total third-party exposure was nearly $8.2 billion as of 2021 end. Besides, Citi has around $1.6 billion of additional exposures to the Russian counterparties not held on the Russian subsidiary.
Citi pegged Russia as the 21st country among its top 25 country exposures with $5.4 billion worth credit and other exposures as of December 2021 end. The figure excludes nearly $1 billion of cash and placements with the Bank of Russia and other financial institutions as well as $1.8 billion of reverse repurchase agreements with various counterparties. The $5.4-billion worth Russian credit represents 0.3% of the bank's total asset exposures in fourth-quarter 2021, according to the regulatory filing. As of September 2021 end, Citi had $5.5 billion credit and other exposures pertaining to Russia.
Following Russia's invasion of Ukraine, the numerous financial and economic sanctions imposed by the United States, the United Kingdom and the European Union on Russia could dent the value of Russian assets held by international banks. Citi’s ability to engage with consumer and institutional undertakings in Russia and Ukraine or involving certain Russian or Ukrainian entities and customers will depend on the specifics of sanctions and laws imposed. Moreover, the consequent negative impacts of the ongoing geopolitical tensions could further deteriorate the regional and global financial market conditions, affecting the economy at large. This could deal an additional blow to Citi’s financials.
The company is currently also pursuing the exit of its GCB business in Russia as it pares back its international consumer operations. We believe that the sell-off is likely to be complicated, courtesy of the current sanctions on Russia. A prospective buyer is unlikely to widen his Russian exposure and now that the Russian banks are under pressure, the divestment could face a prolonged raincheck.
“Citi continues to monitor the current Russia-Ukraine geopolitical situation and economic conditions and will mitigate its exposures and risks as appropriate,” the bank’s spokesperson said in the regulatory filing.
Our Take
Citi could see indirect impacts should the Russia-Ukraine conflict be prolonged. Nonetheless, given its exposure to Russia underpins only 0.3% of the total asset exposures in 2021 as well as its robust fundamentals, the impact of the exposure is likely to have only a miniscule effect on its financials.
C’s long-term strategy to increase fee-based business mix and shrink its non-core assets bodes well for the long term. Citi is steadily investing in growth opportunities across wealth and commercial banking, treasury and trade solutions, and securities service businesses to grow fee revenues across the ICG segment. Such efforts will bolster its position in the booming digital industry and diversify its revenue stream.
Hence, investors should not be worried about the geopolitical tensions weighing on Citi’s prospects in the long haul.
Shares of the currently Zacks Rank #3 (Hold) stock have lost 17.7% in the past six months against the industry’s growth of 1.3%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , (UBS - Free Report) Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both FBIZ and UBS sport a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of First Business have jumped 39.5%, while the stocks of UBS and PCB have rallied 10.1% and 49.7%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 7.4% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.