U.S. banks' exposure to Russia has plummeted after its invasion of Ukraine as foreign companies work to cut ties, observe sanctions and carry out exits from the country.
Claims on Russia by U.S. banks dropped 44.5% sequentially to $8.88 billion in the first quarter, according to the most recent data from the U.S. regulators. An S&P Global Market Intelligence review of individual disclosures by big banks also shows progress on withdrawals from the country.
Significant risks for U.S. banks remain, including the complex task of complying with sanctions and accusations of war crimes from Ukraine over financing companies that trade Russian oil. But Citigroup Inc., with the largest reported direct exposure to Russia, said that its potential losses from the country in a severe scenario have declined to about $2 billion from the range of $2.5 billion to $3 billion it reported in April.
Individual disclosures
Citi said it released credit reserves in its institutional clients group in the second quarter because of reduced risk from Russia, following a $1.9 billion reserve build in the first quarter related to its direct and indirect exposure to the country.
The bank reported that its Russia exposure, including loans, securities and deposits with the central bank, actually increased by about $500 million from March 31 to $8.4 billion at June 30. But it attributed the increase to appreciation in the Russian ruble and said it cut its exposure in local currency terms by $3.1 billion over the same time.
The bank said it has given some clients incentives to pay down loans, leaving it with a higher proportion of multinational corporations with headquarters outside of Russia, and that its exposures in the country often include guarantees from parent companies. "We are systematically crunching down the size of our franchise" in Russia, CEO Jane Fraser said on Citi's earnings call in July.
JPMorgan Chase & Co. said it added to its credit allowance in the first quarter for Russia-specific downgrades, but that its total exposure to the country fell by $50 million from March 31 to $600 million at June 30.
Bank of America Corp. said its Russia exposure fell $209 million from March 31 to $550 million at June 30, and that it had downgraded and established reserves for all its loans to Russian counterparties.
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Leaving takes time
The pullout from Russia this year came after financial linkages with the country had already dropped sharply after its 2014 annexation of Crimea.
Russia ranked just 44th among U.S. banks' largest country exposures at March 31. The vast majority of U.S. banks' 45 largest country exposures increased year over year, following a pattern where U.S. banks' overall foreign exposure has generally been increasing for years.
Still, Citi warned that it could take a long time for it to complete its withdrawal from the country, including hurdles to potential asset sales.
"I think we've all seen how difficult it is to disconnect the Russian economy from the West in a couple of key sectors, in particular food and in particular energy," Fraser said. "We're helping those that can exit [to] exit, but we're also still playing the role that we have to and have been asked to in maintaining some of those flows."
