By Saabira Chaudhuri
Citigroup Inc. said Friday it could lose up to $80 million as
part of regulators' response to Argentina's default this week.
Argentina defaulted on its debt after a 30-day grace period on a
$539 million interest payment expired late Wednesday. Government
officials and hedge-fund creditors spent several days in
negotiations with a court-appointed mediator, but talks ended
without a deal Wednesday evening.
In a regular quarterly filing Friday morning, Citigroup warned
that a default by Argentina could negatively impact the bank's
revenue and funding costs, and further limit Citigroup's ability to
hedge against its investment in the country, where it has about $2
billion in deposits.
A Citigroup spokesman said Friday that if Argentina is
downgraded by U.S. banking regulators at a group called the
Interagency Country Exposure Review Committee, the bank could lose
up to $80 million.
The ICERC, which was established by U.S. regulators in 1979,
looks at certain risks associated with banks' foreign exposures.
According to information published in 2008 by regulators, the group
is composed of nine voting members with three representatives from
the Office of the Comptroller of the Currency, the Federal Reserve
and the Federal Deposit Insurance Corp.
It is unclear how the committee would handle a downgrade, the
criteria it would use or when a change could happen. Citigroup
declined to elaborate further.
Citigroup had Argentine assets of $2.7 billion as of June 30, up
$100 million from the first quarter level. It had investments of
$670 million, down from $690 million in the prior quarter. Its
deposits in the country of about $2 billion made the bank
Argentina's 12th largest depositor.
Citigroup doesn't break out its revenue in Argentina. The bank
reported net revenue of $3.47 billion for all of Latin America in
the second quarter, out of total revenue of $19.34 billion.
It added that the situation in Argentina "could expose Citi to
litigation as it acts as a custodian in Argentina for certain of
the restructured bonds that are currently covered by the court
orders."
The bank's presence in Argentina on the retail side includes
credit card loans, business and personal loans, savings and deposit
accounts. It also serves institutional clients. Citigroup's
Argentina operations span 25 cities, according to the bank's
website.
The Wall Street Journal on Thursday reported that Citigroup,
along with other banks, was part of discussions on Wednesday to buy
the defaulted bonds of Argentina's holdout creditors. However,
those talks fell apart, according to people familiar with the
matter, and there isn't currently any indication that Citigroup has
resumed any such discussions.
Also in its filing, the bank said it has cut its exposure to
Russia to $8.9 billion from $9.4 billion in the first quarter.
Citigroup--which operates in Russia through a subsidiary of
Citibank N.A.--had a net investment in Russia of about $1.8 billion
at June 30, up $100 million from the level in the first quarter.
The subsidiary's so-called third-party assets--which consist of
corporate and consumer loans, local government debt securities, and
cash on deposit with the Central Bank of Russia--were about $7.7
billion as of the second quarter, up from $7.2 billion as of March
31. Citigroup added in the filing that about $2.8 billion of the
exposure is held in non-Russian Citigroup subsidiaries.
Separately, the bank also said its net investment in Ukraine was
about $100 million, as of the end of the second quarter, down from
$130 million as of the first quarter, and that total third-party
assets of its Ukraine subsidiary were down at $500 million from a
prior level of $600 million.
"Citi continues to closely monitor the political, economic and
military situation in Ukraine, and will continue to take actions to
attempt to mitigate its exposures to potential risk events," said
the bank in its filing. It added that so far, the continuing
instability in Russia and Ukraine hasn't had a material impact on
its global consumer banking unit in Europe, the Middle East and
Africa.
In its filing, the New York bank also said the U.S. Securities
and Exchange Commission as of Wednesday had told Citigroup that it
ended an investigation into the bank's sales of mortgage-backed
securities and didn't intend to recommend any enforcement
action.
Citigroup had previously reached a settlement over allegations
related to its sales of such securities with the U.S. Department of
Justice and other agencies.
The bank also said that an Oklahoma pension fund in April filed
a complaint aimed at inspecting Citigroup's books for
"investigating possible mismanagement and breaches of fiduciary
duty" tied to a variety of things including the bank's discovery of
fraud at its Mexico unit earlier this year.
Ken Parks contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com