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Citigroup (C) to Pull the Plug on All Russia Operations

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With the Russia economy being restricted from the global financial system due to its Ukraine invasion, Citigroup Inc. (C - Free Report) has joined its rivals in retracting its business from the country.

While the company announced plans in April 2021 to sell its Global Consumer Banking (“GCB”) business in Russia and other 12 markets, it has now broadened the scope of the planned exit and will fold up other lines of business. This implies that Citigroup would also give up its institutional and wealth management business in Russia.

In line with efforts to reduce its remaining operations and exposure in the country, the company will not solicit any new business or clients. It is also offering assistance to multi-national corporations in the complicated task of unwinding their operations.

In its annual report, the bank disclosed a $9.8-billion exposure to Russia as of 2021 end. Of this, its total third-party exposure was $8.2 billion. Besides, C had $1.6 billion of additional exposures to the Russia counterparties not held on the Russia subsidiary.

The company pegged Russia as the 21st country among its top 25 country exposures, with $5.4 billion worth of 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.

While C continues to manage existing regulatory commitments and obligations, “due to the nature of banking and financial services operations,” the company’s exit from Russia will be a time-taking process.

Bloomberg recently reported that Citigroup’sendeavors to sell its GCB business in Russia have been stalled as the country's military actions in Ukraine impede the sale procedures. Per the article, C is conveying its commitment to international firms to provide them with financial services as they adjust their presence in Russia. Also, management has given a heads up that under a severe stress scenario, C could lose $4.9 billion or about half of its total exposure.

In light of Citigroup’sdecision to entirely wind up its Russia exposure, the bank would likely record significant losses.

Nonetheless, C’s long-term strategy to increase fee-based business mix and shrink its non-core assets bodes well for the long term. The bank is steadily investing in growth opportunities across wealth and commercial banking, treasury and trade solutions, and securities service businesses to grow its fee revenues across the ICG segment in other countries. Such efforts will bolster its position in the booming digital industry and diversify its revenue stream.

Shares of this Zacks Rank #3 (Hold) company have lost 22.5% in the past six months, underperforming the industry’s fall of 6.8%.

 

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Other Companies Making Similar Moves

Last week it was reported that global banking titans, Goldman Sachs Group (GS - Free Report) and JPMorgan (JPM - Free Report) , decided to wind up their businesses in Russia after a raft of sanctions was imposed on the country in response to the latter’s military assault on Ukraine.

Per Goldman and JPMorgan, their exits comply with the government instructions.

“Goldman Sachs is winding down its business in Russia in compliance with regulatory and licensing requirements. We are focused on supporting our clients across the globe in managing or closing out pre-existing obligations in the market and ensuring the wellbeing of our people,” the bank said in an emailed statement, per a Reuters article.

Echoing similar sentiments, JPMorgan said in a statement, “In compliance with directives by governments around the world, we have been actively unwinding Russian business and have not been pursuing any new business in Russia.”

Deutsche Bank AG (DB - Free Report) also announced the winding down of its business in Russia. DB has already been significantly reducing its loan exposure to Russia since 2014. The company’s net loan exposure to Russia, as of Dec 31, 2021, was €0.6 billion ($655 million).

Deutsche Bank affirmed that it would not start any new business in Russia. It is also helping its non-Russia multinational clients reduce their operations in the country.