CitiGroup : $22B at Risk in 5 European Countries

Citigroup Inc. (C), the third-biggest U.S. bank, estimated it has at least $22 billion in loans, trading assets and other “exposures” to Greece, Italy, Portugal, Spain and Ireland.

The net figure includes $13 billion in so-called funded exposure as of June 30, mostly in the form of credit to financial institutions and companies, according to an earnings presentation today on the New York-based firm’s website. Sovereign entities account for “a little more than” $1 billion of that amount, it said.

The remaining $9 billion is unfunded exposure, mainly to international companies based in the five countries, where Citigroup provides settlement and clearing services, according to the presentation. Estimates were based on the firm’s internal risk measures, it said.

“Our exposure to the businesses and the sovereigns in those countries certainly is appropriate given our size, our stature and our business model,” Chief Financial Officer John Gerspach, 57, told reporters today on a conference call.

Citigroup, led by Chief Executive Officer Vikram Pandit, tumbled 5.3 percent in New York Stock Exchange trading on July 11 as concern mounted that Europe’s debt crisis may engulf Italy, which has the region’s second-highest borrowings.

The bank previously disclosed $12.3 billion in loans to Italian customers at the end of 2010, including banks and public entities, and a further $18.4 billion in legally binding “commitments.” This figure doesn’t include so-called hedges, when an investor makes a bet to protect against potential loss on an existing position. The company hadn’t made detailed disclosures on the five countries since then.
Gross Exposure

Pandit and Gerspach declined to tell analysts in a separate conference call what the bank’s gross exposure to the five countries was, not including hedges. In response to questions from Michael Mayo, an analyst at Credit Agricole SA in New York, Gerspach said the figure was irrelevant while Pandit defended the bank’s hedges and risk-management approach.

“If Europe turns into a real problem, the net exposure guidance or disclosure you gave isn’t going to give investors any comfort whatsoever,” Michael Holton, an analyst with Boston Co. Asset Management LLC, said on the call. “I would encourage you to give the gross exposure at some point if you’re not going to do it today.”

In addition to the $22 billion, Citigroup said it has money at risk to retail customers and small businesses through locally funded lending. Most of that is through Citi Holdings, a division that contains businesses tagged for sale, and is focused on Greece and Spain, it said.
Maintaining Relationships

“We fully expect to maintain our long-standing relationships” in the five countries, Citigroup wrote in the presentation.

JPMorgan Chase & Co. (JPM) reported yesterday that its outstanding loans and contracts to the five countries total about $15 billion. Chief Executive Officer Jamie Dimon, 55, said the amount “bounces around by several billion” after taxes and taking into account hedges against that risk. In the worst-case scenario, the bank may lose about $3 billion, he said.

“We’ve not dramatically reduced those exposures,” Dimon said. “We’re still doing a lot of business in Europe.”

Bank of America Corp., the largest U.S. bank by assets, said in a May regulatory filing that it has $16.9 billion at risk in the five countries as of March 31.

Citigroup today reported second-quarter net income of $3.34 billion, a 24 percent increase from a year earlier that beat analysts’ estimates, as it earned more from investment-banking fees and reduced losses tied to troubled assets.

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