Invasion of Ukraine shatters US banks’ hopes for Russia

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Wall Street banks are pulling out of a country they once hoped to help integrate into the western financial system.

Two weeks after invading the Kremlin in Ukraine, US banks are following a string of multinationals that have announced plans to suspend operations in Russia.

JPMorgan Chase & Co. and Goldman Sachs Group Inc.

cut existing relations with Russia and avoid new ones. Citi Group Inc., which has the largest Russian presence among its competitors, is considering its future in the country and has already announced plans to sell its branch network there.

It’s a rare and quick retreat for a group of companies that tend to see it through thick and thin. Banks, especially American ones, are reluctant to leave countries when the political winds change, preferring to stay there to support their clients who operate there. That momentum has kept banks in places like China and Saudi Arabia, where opportunity has outweighed human rights concerns.

It’s different this time. The West is waging a financial war of unprecedented power against Russia that will require the cooperation of the corporations that run the infrastructure of global finance. These firms have been quick to cut Russia’s ties to the system, in some cases further than sanctions require.

Your exit probably won’t be quick; It took years for US banks to exit Venezuela after the US imposed sanctions on President Nicolás Maduro’s regime. In Russia, they unravel a messy web of transactions, and they can’t just abandon customers who need banking services until they can get out. Banks are also racing around the digital traps preventing money from reaching sanctioned Russian companies.

And they have employees to consider. Citigroup has 3,000 employees in Russia, many in consumer bank branches in 10 cities across the country.

US banks, like many Western companies, have a troubled history with Russia.

After Russia defaulted on its debt in 1998, Western banks were welcomed into the country to help it repair its financial reputation. Citigroup, Goldman and JPMorgan, along with European and Asian competitors, began courting business in Moscow. They set up a shop to serve foreign companies entering Russia and help Russian companies sell inventory abroad. Their seal of approval allowed Russia to sell new sovereign debt.

Customers waited to use ATMs at a Citibank branch in Moscow in late February.


Photo:

Andrey Rudakov/Bloomberg News

Citigroup opened a retail bank for wealthier Russians in 2002.

Russia’s annexation of Crimea in 2014 was met with sanctions that forced banks to call back. In recent years, US banks have focused their efforts on serving multinational companies in Russia. The banks help them with currency hedging, selling bonds and managing global revenue streams.

Goldman has approximately $1 billion in total exposure to Russia. JPMorgan doesn’t disclose the number because Russia isn’t among the top 20 foreign markets.

Citigroup had more than $10 billion in loans and investments in Russia when it invaded Crimea eight years ago. It’s about half that now.

The withdrawal is particularly significant for Citigroup, whose brand is built on serving the world’s global businesses and citizens, wherever they go.

Citigroup operates Russia’s 18th largest bank by assets, according to regulatory filings, and serves about 1,200 corporate clients. According to disclosures, it had about $2.2 billion in outstanding loans to local companies, about 80% of which went to non-Russian companies in the past.

Since the invasion, Citi has worked with these companies to pay suppliers and employees, receive funding and manage global sanctions, according to people familiar with the matter.

Citigroup’s retail bank serves approximately 5,000 customers and had approximately $700 million in outstanding loans at the end of 2021. The bank announced last year that it would exit the Russian consumer market and was in talks to sell the retail operation to Russia’s VTB. US and European authorities have since sanctioned VTB, likely scrapping any potential deal.

Since Russia invaded Ukraine in late February, the US and allied countries have imposed severe sanctions on Russia. WSJ’s Shelby Holliday delves into how these sanctions affect everyone from President Vladimir Putin to ordinary Russian citizens. Photo: Pavel Golovkin/Associated Press

Write to David Benoit at [email protected]

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