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Citigroup Could Lose up to $80 Million From Argentina Default -- Update


By Saabira Chaudhuri

Citigroup Inc. said Friday it could lose up to $80 million as part of regulators' response to Argentina's default this week.

Argentina defaulted on its debt after a 30-day grace period on a $539 million interest payment expired late Wednesday. Government officials and hedge-fund creditors spent several days in negotiations with a court-appointed mediator, but talks ended without a deal Wednesday evening.

In a regular quarterly filing Friday morning, Citigroup warned that a default by Argentina could negatively impact the bank's revenue and funding costs, and further limit Citigroup's ability to hedge against its investment in the country, where it has about $2 billion in deposits.

A Citigroup spokesman said Friday that if Argentina is downgraded by U.S. banking regulators at a group called the Interagency Country Exposure Review Committee, the bank could lose up to $80 million.

The ICERC, which was established by U.S. regulators in 1979, looks at certain risks associated with banks' foreign exposures. According to information published in 2008 by regulators, the group is composed of nine voting members with three representatives from the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp.

It is unclear how the committee would handle a downgrade, the criteria it would use or when a change could happen. Citigroup declined to elaborate further.

Citigroup had Argentine assets of $2.7 billion as of June 30, up $100 million from the first quarter level. It had investments of $670 million, down from $690 million in the prior quarter. Its deposits in the country of about $2 billion made the bank Argentina's 12th largest depositor.

Citigroup doesn't break out its revenue in Argentina. The bank reported net revenue of $3.47 billion for all of Latin America in the second quarter, out of total revenue of $19.34 billion.

It added that the situation in Argentina "could expose Citi to litigation as it acts as a custodian in Argentina for certain of the restructured bonds that are currently covered by the court orders."

The bank's presence in Argentina on the retail side includes credit card loans, business and personal loans, savings and deposit accounts. It also serves institutional clients. Citigroup'sArgentina operations span 25 cities, according to the bank's website.

The Wall Street Journal on Thursday reported that Citigroup, along with other banks, was part of discussions on Wednesday to buy the defaulted bonds of Argentina's holdout creditors. However, those talks fell apart, according to people familiar with the matter, and there isn't currently any indication that Citigroup has resumed any such discussions.

Also in its filing, the bank said it has cut its exposure to Russia to $8.9 billion from $9.4 billion in the first quarter. Citigroup--which operates in Russia through a subsidiary of Citibank N.A.--had a net investment in Russia of about $1.8 billion at June 30, up $100 million from the level in the first quarter. The subsidiary's so-called third- party assets--which consist of corporate and consumer loans, local government debt securities, and cash on deposit with the Central Bank of Russia--were about $7.7 billion as of the second quarter, up from $7.2 billion as of March 31. Citigroup added in the filing that about $2.8 billion of the exposure is held in non-Russian Citigroup subsidiaries.

Separately, the bank also said its net investment in Ukraine was about $100 million, as of the end of the second quarter, down from $130 million as of the first quarter, and that total third-party assets of its Ukraine subsidiary were down at $500 million from a prior level of $600 million.

"Citi continues to closely monitor the political, economic and military situation in Ukraine, and will continue to take actions to attempt to mitigate its exposures to potential risk events," said the bank in its filing. It added that so far, the continuing instability in Russia and Ukraine hasn't had a material impact on its global consumer banking unit in Europe, the Middle East and Africa.

In its filing, the New York bank also said the U.S. Securities and Exchange Commission as of Wednesday had told Citigroup that it ended an investigation into the bank's sales of mortgage-backed securities and didn't intend to recommend any enforcement action.

Citigroup had previously reached a settlement over allegations related to its sales of such securities with the U.S. Department of Justice and other agencies.

The bank also said that an Oklahoma pension fund in April filed a complaint aimed at inspecting Citigroup's books for "investigating possible mismanagement and breaches of fiduciary duty" tied to a variety of things including the bank's discovery of fraud at its Mexico unit earlier this year.

Ken Parks contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com


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