U.S. banks at one time scurried to Russia in hopes of profiting from its development. In the wake of Russia’s attack on Ukraine, they’re leaving.
In the late 1990s and early 2000s, U.S. banks rushed into Russia, seeing opportunity in a large, underdeveloped economy. Now these banks are starting to flee, with Goldman Sachs (GS) – Get Goldman Sachs Group, Inc. Report and JPMorgan Chase (JPM) – Get JPMorgan Chase & Co. Report already announcing their departures. Others may soon follow.
Russian entities owe U.S. banks $14.7 billion, according to the Bank for International Settlements. There’s a good chance they won’t get at least some of that money back. Russian President Vladimir Putin has threatened to seize the assets of Western companies that exit the country.
Citigroup’s Exposure Is the Biggest
Citigroup (C) – Get Citigroup Inc. Report has the biggest presence of U.S. banks in Russia, with a total exposure of almost $10 billion as of Dec. 31. Citi’s chief financial officer, Mark Mason, said the bank’s stress tests indicate that in a “severe” situation, it could lose half that money.
Before Russia’s Feb. 24 attack on Ukraine, Citi had planned to sell its consumer banking division in Russia. But that won’t be easy to do now, given the strong Western sanctions against Russia and Putin’s angry response. Whether any Russian banks could now pay for the business is also unclear.
Goldman disclosed in its earnings filing that it had a credit exposure of $650 million to Russia at the end of last year, mostly to non-government entities. Any losses the firm suffers in Russia would be “immaterial,” a knowledgeable source told Reuters
As for JPMorgan Chase, “Current activities are limited, including helping global clients address and close out preexisting obligations; managing their Russia-related risk; acting as a custodian to our clients; and taking care of our employees,” the bank said in a statement.
It doesn’t disclose the dollar amount of its exposure to Russia, as the country isn’t one of its 20 biggest foreign markets.
Extended Departures
It will likely be a while be a while before U.S. banks sever all their ties with Russia. Those activities mentioned by JPMorgan take some time — months, if not years — to carry out, experts told Reuters.
To be sure, U.S. banks already cut back their activity in Russia after it annexed Ukraine’s Crimea in 2014. The focus since then has been catering to multinational companies inside Russia, according to The Wall Street Journal.
Last year, JPMorgan Chase placed second among all banks for investment banking revenue in Russia, with $32.8 million, according to Refinitiv data cited by Reuters.
Morgan Stanley (MS) – Get Morgan Stanley Report was fourth, with $27.3 million, Citigroup was fifth, with $22.8 million, and Goldman Sachs was seventh with $19.5 million.
In the end, severing ties with Russia isn’t that big a deal, experts say. “The exposure is minimal,” said RBC Capital Markets bank analyst Gerard Cassidy, according to Yahoo.
