Citigroup’s profit nearly halved in the first quarter as the US bank warned of up to $3bn in potential losses linked to its Russian operations.
Citi said on Thursday it had set aside $1.9bn to cover loan losses, including $1bn for its Russian exposure and $900mn to cushion the blow from deteriorating economic conditions driven by inflation and soaring energy prices.
But shares rose 2 per cent to $51.10 during morning trading as the impact from the war was less than feared and sudden swings in currency and commodities fueled by the conflict helped prop up trading revenue.
“Obviously, the Russia-Ukraine war drove significant volatility in FX markets,” chief financial officer Mark Mason said on a call with reporters, referring to foreign exchange markets. “We were able to take advantage of that and we were well-positioned to do so in commodities.”
Total revenue fell 2 per cent to $19.2bn, but exceeded Wall Street forecasts by $1bn, as volatility in commodities prices buoyed Citi’s capital markets division and partially offset the sharp decline in investment banking fees across Wall Street.
Fees from trading commodities more than doubled, Mason said, and overall trading fees fell by just 1.8 per cent compared with the 14 per cent plunge analysts were expecting.
The bank’s profits in the first three months of the year fell 46 per cent to $4.3bn, or $2.02 per share, reflecting higher credit costs due to rising default and falling revenues. However, the result still beat analyst estimates of $3bn, according to FactSet data.
The fallout from the war is another challenge for chief executive Jane Fraser, who laid out her plan to improve profitability at the straggling US lender days after the Russian invasion began.
Citi has accelerated efforts to reduce its exposure to Russia, which stood at $9.8bn as of the end of last year and fell to $7.8bn in the most recent quarter. The bank put its consumer operations in Russia up for sale a year ago and decided last month to exit its commercial banking business in the country.
The lender did not provide an update on the sale process for its consumer bank, which has been stuck in legal limbo. Tough sanctions imposed by western governments after the February 24 invasion have made it unlikely that Citi can exit the business without further losses.
The bank now expects total potential losses from its exposure to Russia could amount to $2.5bn to $3bn, down from previous estimates of about $4bn “as a result of proactive de-risking.”
“This is a fluid situation, and the ability to exit those businesses is really going to hinge on how the environment plays out,” Mason said.
French lender Societe Generale said it would take a €3.1bn hit after agreeing to sell its Russian retail bank to an investment company founded by billionaire Vladimir Potanin earlier this week.
Russian operations of other large US banks were mostly limited to investment banking and have so far been less costly to unwind. JPMorgan Chase, the largest US bank, which reported results on Wednesday, earmarked about $300mn for potential losses on loans associated with Russian entities in its corporate banking and asset management divisions.