Bloomberg News

Citigroup Funds at Risk Climb in Spain, Four Other EU Nations

April 16, 2012

Citigroup Inc. (C:US), the third-biggest U.S. bank, said its funds at risk rose to $28.6 billion in five European countries including Spain, where the government is seeking to regain investor confidence amid the region’s debt crisis.

The figure represents the gross amount of funded and promised loans in the so-called GIIPS countries of Greece, Ireland, Italy, Portugal and Spain at the end of March, according to a presentation posted today on the bank’s website. The amount is 3.6 percent more than the $27.6 billion the firm had disclosed for the end of 2011. The bank cut its net funded exposure, which accounts for collateral, margin and protection the company has obtained, by 7.7 percent to $6 billion.

Spain’s prime minister, Mariano Rajoy, is pushing through the deepest austerity measures in at least three decades as he struggles to get the government’s finances under control and prevent the nation from seeking a European bailout. Investors are dumping the nation’s bonds amid renewed concern about bad assets at the nation’s banks, driving the cost of insuring Spanish debt against default to a record last week.

“We don’t have any particular worries about our exposure to Spain,” Chief Financial Officer John Gerspach, 58, said today on a call with reporters.

Shares in Citigroup tumbled (C:US) 44 percent last year as Europe’s sovereign-debt crisis mounted. The bank gained 27 percent this year through yesterday as the European Central Bank increased support for the region’s lenders.

Spain’s Share

Citigroup said it had purchased $10.5 billion in credit protection against potential defaults as of March 31 from financial institutions predominantly outside the GIIPS countries. It received $4 billion in collateral and margin. It’s also holding $3.6 billion in additional collateral that it didn’t include in calculating the net figure, the presentation shows.

Spain accounts for 37 percent of the firm’s gross GIIPS exposure, or 48 percent of its net, the presentation shows. Rajoy’s government is overhauling the nation’s banks, which are saddled with 175 billion euros ($228 billion) of troubled real- estate assets after the country’s property boom collapsed four years ago. A recession may hit those lenders’ profitability as they seek to clean their balance sheets, Moody’s Investors Service said Feb. 13.

Citi Holdings, the bank’s unit that manages assets marked for disposal, held an additional $4.5 billion in Spanish and Greek consumer loans at the end of March, according to the presentation.

The bank has written off almost 20 percent of its Greek consumer loans and 5.5 percent of the Spanish loans by the end of the first quarter, according to the presentation. That compares with the 0.6 percent of consumer loans it wrote off in India.

Analyst Recommendation

Citigroup said in a Feb. 24 annual filing that it had lent $7.4 billion, mainly to retail customers and small businesses, around the five troubled countries, with the “vast majority” in Spain and Greece. That exposure was one of the reasons Charles Peabody, an analyst at Portales Partners LLC, cited when he changed his rating on Citigroup shares to “underperform” from “outperform,” according to a March 14 note. He estimated that between $5 billion and $6 billion of the loans are in Spain and that Citigroup made many of them through local branches.

“Given the global slowdown, we are concerned that Citigroup will start experiencing higher charge-off levels in its international consumer franchises,” Peabody wrote. “Our concerns are particularly focused on Europe, where Citigroup has locally-funded operations.”

Those loans may have contributed to the Federal Reserve’s decision to reject Citigroup’s capital plan last month following stress tests, Peabody has said. About 11 percent of the bank’s commercial-and-industrial loan book would sour under the dire economic scenario used by the Fed, the worst failure rate of all banks tested.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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Companies Mentioned

  • C
    (Citigroup Inc)
    • $49.64 USD
    • -0.39
    • -0.79%
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