Citi profits fall on Russian credit exposure, expenses

Citigroup delivered-better-than expected trading results amid volatility sparked by Russia’s invasion of Ukraine — even as the same turmoil crimped the bank’s profits by nearly $2 billion.

Citigroup’s revenue from trading stocks and fixed-income products slipped just 1.8% to $5.83 billion in the first quarter, an even smaller drop than the firm forecast just weeks ago as Russian President Vladimir Putin’s invasion rattled markets. The trading haul also topped the $5.09 billion average of analyst estimates compiled by Bloomberg.

“The geopolitical and macro environment has become more volatile,” Chief Executive Officer Jane Fraser said in a statement announcing the results Thursday. “Our traders navigated the environment quite well.”

Still, Citigroup’s stronger trading performance came as the bank was forced to set aside $1.9 billion in reserves to cover souring loans tied to its Russia exposure. That move — combined with soaring expenses — caused firmwide profits to slump 46% to $4.31 billion.

With more than 3,000 employees in the country, Citigroup had the biggest presence in Russia of any U.S. bank. Fraser last year announced the company would seek to dispose of its retail banking operations in the country, and has since vowed to broaden its withdrawal following the invasion.

The bank had whittled down its Russian exposure to $7.8 billion at the end of March, compared with $9.8 billion at the end of last year. Citigroup could now face between $2.5 billion and $3 billion in losses tied to its holdings, less than the $4.9 billion loss Chief Financial Officer Mark Mason warned could result from a severe-stress scenario last month.

In all, Citigroup has been seeking to exit retail banking operations in 14 countries around the world as part of its efforts to focus on wealth management and its U.S. credit card business. As a result, the firm reorganized its divisions and created a new legacy franchises unit, which houses all the businesses Citigroup has tagged for disposal.

Revenue from the firm’s newly created personal banking and wealth management business dipped 1%, despite a jump in spending on credit cards and an uptick in those customers’ borrowing. Net credit losses in the division dropped 30%.

“We continue to see the health and resilience of the U.S. consumer through our cost of credit and their payment rates,” Fraser said in the statement. “We like where this business is headed.”

Citigroup joined rivals JPMorgan Chase, Morgan Stanley and Goldman Sachs Group in bringing in better than expected trading revenue. Citigroup’s effort to beef up reserves follows a similar step by JPMorgan, which set aside $902 million in reserves tied to Russia-associated exposure, the war in Ukraine as well as the probability of downside risks due to high inflation.

JPMorgan also outlined a $524 million loss driven by “funding spread widening” and valuation adjustments for commodities as well as derivatives linked to Russia, it said during its first-quarter earnings on Wednesday.

Citigroup’s firmwide expenses jumped 15% to $13.17 billion in the first three months of the year, including costs tied to the bank’s retail bank divestitures. The firm has also been investing in its underlying infrastructure to modernize its technology and satisfy a pair of consent orders regulators saddled it with in 2020.

“While we are making necessary investments in our infrastructure, risk and controls and our businesses, we remain committed to improving our returns,” Fraser said.