BUENOS AIRES - Citicorp, which likes to pride itself on its expertise in emerging markets, has run into some trouble in its Latin American loan portfolio.
Citicorp lost more than $40 million in loans to failed Argentine banks, sources report, including more than $30 million to Banco Extrader of Buenos Aires. As a result, three senior credit officers of Citicorp Argentina were forced to leave the bank, the sources said.
Argentine bankers and analysts said Citicorp may also have lost up to $7 million more in loans to Finmark, a brokerage firm based in Buenos Aires which went bankrupt late last year.
In addition, analysts noted Citicorp's problem loans are on the rise in Colombia, Mexico, and Brazil - three countries where banks have had to increase provisions in response to economic instability.
Although figures are not available for Brazil, data from Colombia show that over the nine months through March 31, Citicorp's past-due loans increased by more than a third, to $20 million, or 6.5% of the bank's loans in that country.
In Mexico, loan-loss provisions jumped to $25.5 million in the secondquarter from only about $1 million in September 1994.
Citicorp executives in Argentina, Brazil, and Mexico would not comment on the situation.
In New York, spokesman John Morris confirmed that the bank suffered losses in Argentina earlier this year. He noted that Argentine banks "went through a tough period" because of a sizable flight of deposits and a rise in interest rates.
He declined to specify the extent of Citicorp's losses, but said the reported $30 million loss to Banco Extrader "is probably not the right figure."
"You frequently have losses and gains in emerging markets," Mr. Morris observed. "It's part of the process of doing business in that kind of an environment."
"The rumors, as described, are almost entirely inaccurate," said Richard Howe, another Citicorp spokesman, in a prepared statement.
He acknowledged that regional economic difficulties, including the Mexican peso crisis and its aftereffects, caused losses that "would have been reflected in our earnings, were immaterial, and were insignificant compared with the outstanding performance of Citibank Argentina over recent years and this year to date."
Mr. Howe declined to elaborate further on the extent of the Latin American losses "as a matter of policy regarding matters that may or may not involve clients past or present."
According to Argentine central bank data, Citicorp's problem commercial loans were 3.71% of total loans in March 1995, up from 2.43% nine months earlier. Citibank has slightly more than $2 billion in total loans in Argentina.
The same data show that problem loans as a percentage of total loans at other leading Argentine banks, such as Bank of Boston Corp., Banco Rio, and Banco de Galicia either decreased or remained stable over the same period.
Citicorp's quarterly call reports show that over the first half of this year, Citicorp charged off $9 million in past-due loans to foreign banks, and reported an additional $10 million in such loans.
Analysts and bankers said it was possible that some of the bad loans came from Citicorp's involvement with Finmark and Banco Macro in setting up a brokerage firm, Citicorp Sociedad de Bolsa, in 1992. Citicorp sold its 51% stake to Banco Macro a year later for an amount it did not disclose, but analysts said the bank may still be making loans to the company.
Argentine bankers who said they had first-hand knowledge of the losses declined to be identified. However, at least one analyst, Christopher Ecclestone of Interacciones Global Inc. in Buenos Aires alluded to the setback in a recent report.
"Extrader and Finmark supposedly produced losses of $42 million for one of the most prominent foreign banks in Argentina," he wrote."The three top credit officers were fired."
Citicorp has a long history in Argentina, where it first opened a branch in 1914. Its chairman, John S. Reed, grew up in Buenos Aires.
The multinational bank was heavily involved in lending to Argentina and other Latin American countries in the late 1970s and early 1980s and as recently as 1990 had hundreds of millions of dollars in problem Argentine loans.
Since Argentina restructured its debt, Citicorp's assets in the country have grown rapidly, to more than $5 billion from $1.7 billion in 1990. In terms of deposits, Citicorp ranked at midyear as the third-largest private bank, with $2 billion.
Bankers and analysts acknowledged that Citicorp emerged relatively unscathed from a panic earlier this year that saw nearly 20% of Argentine bank deposits flee the system.
In fact, as a U.S. company known to be strongly capitalized, Citicorp stood to profit from the crisis, attracting some of the deposits taken out of domestic banks.
Problems arose when inadequate internal controls opened the way for local Citicorp officers to extend loans without appropriate credit evaluations.
"I asked them how they could lose so much money to Extrader," said one Argentine banker who declined to be identified. "The answer I got back was that their internal controls didn't work and that lending limits were exceeded without approval."
This is not the first time that Citicorp's operations have raised questions in Argentina. Three years ago, the bank sold off hundreds of millions of dollars of equity holdings in the country to a company started by a group of Citicorp executives headed by Ricardo Hanley, at prices well below what the bank could have subsequently obtained.
As a result, Citicorp today supplies 39.86% of the capital of the company, Citicorp Equity Investments SA, but owns only 19.9% of the voting shares. The agreement also granted more than $100 million in fees to the company's local management over the next five years.
Analysts noted that Citicorp has put into place a comprehensive credit monitoring system known as "Windows on Risk" that theoretically should prevent losses in Latin America on the scale incurred in the 1980s.
But the analysts also said the problems in Argentina show that Citicorp's far-flung network and decentralized management still leave the company susceptible to local risks.
"Windows on Risk limits their overall exposure but decentralization has its pros and cons," said Raphael Soifer, a banking analyst in New York with Brown Brothers Harriman. "One of the cons is that it leaves them open to bad credit on the local level."
Citicorp, Mr. Soifer also noted, has the largest exposure to emerging markets among U.S. banks. That, he said, "means higher reward, but it also implies higher risks."
Given the scale of Citicorp's operations and its record profits, any losses the bank may have incurred in Argentina are probably not significant, analysts added.
The real damage, they said, may be to Citicorp's prestige.
"They present themselves as being uniquely competent in banking in the developing world," said Lawrence Cohn of PaineWebber Inc. "I don't know of other major Argentine banks that have had losses on lending to other banks in Argentina, so there are a couple of reasons why this should be embarrassing to Citi."
William Plasencia contributed to this article. ***
NationsBank Corp. said it has opened a branch in Hong Kong to serve a growing number of clients operating in the region, particularly in China.
The branch is headed by senior vice president and general manager Randolph S. Menton, has a staff of 15, and will concentrate on customized trade finance.
The Hong Kong presence will enable Charlotte, N.C.-based NationsBank to handle more transactions locally and thereby complete them faster, Mr. Menton said.
Other NationsBank international offices are in Singapore, London, Frankfurt, and Mexico City.
