The Securities and Exchange Commission (SEC) recently posed a series of probing questions to Citigroup seeking to understand the impact of Russia’s invasion of Ukraine on the bank’s exposure in Russia.
In response to a May 2 letter from the SEC’s Division of Corporation Finance, Citi said on May 9 it had reduced its total exposure in Russia from nearly $10 billion in December 2021 to $7.9 billion in March 2022 as it “began actively reducing its operations in Russia and Russia-related exposures.” The exchange was published in a regulatory filing Friday.
Citi said it had begun reducing its exposure in Russia in January, a month before the country launched its invasion of Ukraine. The reduction was accomplished by decreasing the number of loans approved and its credit exposure, winding down positions with financial institutions and clearinghouse counterparties, and as a result of the bank’s risk mitigation efforts. Some divestitures accomplished by Citi in 2022 also had begun before Russia invaded Ukraine, the bank said.
The SEC in its initial letter indicated it wanted Citi to expand on its disclosures of risks to its Russian portfolio, including:
- The material impact of sanctions and export controls;
- Possible impediments to the sale of Citi assets in Russia, due to sanctions affecting purchasers or the possibility the Russian government may nationalize those assets;
- Risks posed by Citigroup acting as the paying agent on Russian corporate- and government-issued bonds;
- Material reputational risks posed to Citigroup “in connection with action or inaction arising from or relating to the conflict”; and
- The extent and nature of the bank’s board of directors’ oversight of material risks caused by Russia’s invasion of Ukraine, including relating to “cybersecurity, sanctions, the employee base in affected regions, and your reputation in connection with operations or halted operations in affected regions.”
Russia’s invasion of Ukraine and the subsequent sanctions imposed by the United States, United Kingdom, European Union, and other countries have spurred Citi to undertake “significantly more sanctions screening and other requirements,” which has “resulted in increased operational complexity for Citi related to its Russia-related exposures, including delaying payments to counterparties as a result of the need for additional controls.” Some of its corporate clients were sanctioned by various government entities, Citi said in its disclosure.
Among the efforts Citi said it has taken to assess and mitigate risks related to its Russian portfolio is to create a “new Russia special review process with management’s reputations risk committee with oversight for significant Russia-related reputation risks” and complete “a number of reputation risk reviews of matters with a Russian nexus,” according to the disclosure.
The timing of the SEC’s request to Citi aligned with the agency’s Division of Corporation Finance on May 3 publishing a sample letter laying out the disclosure obligations public companies have regarding their direct or indirect exposure to Russia, Belarus, or Ukraine.