Citigroup Inc. said Thursday it had $2 billion in direct gross exposure to LyondellBasell Industries, the Netherlands-based chemical giant that filed for bankruptcy protection of its U.S. operations earlier this week.
The exposure, as of Dec. 31, is primarily in Citi's institutional clients group.
The banking giant said its fourth-quarter pre-tax impact related to LyondellBasell is estimated at $1.4 billion, recorded primarily as a loan loss reserve build. The final impact on Citi's results could differ from that amount because of closing and other adjustments.
In addition, Citi is participating in LyondellBasell's debtor-in-possession financing.
LyondellBasell U.S. unit was so desperate for cash that it had to get an emergency $100 million loan from Citi on Wednesday. Lyondell Chemical Co. will use the money until it can access proceeds from an $8 billion loan package.
LyondellBasell's only U.S. refinery, the 14th-largest in the nation, is expected to be the biggest refinery to go through bankruptcy proceedings.
The company has come under pressure during the past year as home and auto sales have fallen sharply, resulting in slumping demand for its products. Earlier in the year, it also felt the pinch of high oil and natural gas prices.
While most U.S. refiners faced challenges in the second half of 2008, LyondellBasell was uniquely burdened because it is primarily a chemical company and not a refiner. The chemicals business was hard hit by softening demand for its core products and rising raw materials costs. Refiners were helped slightly by the declining price of the crude oil they bought; chemical companies saw no such relief.
While the refinery isn't at the root of LyondellBasell's woes, its ability to operate normally may be impaired by the bankruptcy proceedings if suppliers become unwilling to finance its continuing operations. However, the company has secured debtor-in-possession financing and says it plans to operate all of its facilities at planned rates.
Citi's shares were at $7.19, up 0.4%, in after-hours trading.