The bad news from Citigroup was released just two days before the earnings release for the fourth quarter of 2023.
In view of the quarterly report that will be released by the giant tomorrow, Friday 12 January, the Wall Street giant led by CEO Jane Fraser announced yesterday evening that the charges that will weigh on its budget due to the exposure to the Argentine peso and Russia, and others linked to the costs of the restructuring that the bank is carrying out, they were decidedly higher than what had been anticipated by the Chief Financial Officer Mark Mason, just a few weeks ago.
Meanwhile, in the last few hours the news has arrived regarding the agreement reached between the IMF (the International Monetary Fund) and Buenos Aires.
The agreement provides for the disbursement by the Washington institution of loans worth 4.7 billion dollars, despite Argentina having failed to repay in recent months a $43 billion loan.
Citigroup pays exposure to Argentina after Milei’s move on the peso
The figures are impressive.
Citigroup has announced its fourth quarter 2023 financial results which it will release tomorrow will weigh costs of as much as $880 million, resulting from losses related to its exposure to the Argentine peso, and other restructuring charges worth $780 million.
Everything is engraved in the comunicato “Message from Mark Mason on Citi Financial Disclosure”, signed by the group’s CFO himself, which was released yesterday evening.
Citi now predicts, to be precise, “a decline in revenue of approximately $880 million in Argentina, due to the devaluation of the Argentine peso, decided by the government in mid-December to try to stabilize the country’s ailing economy.
The reference is allset of shock measures which were announced by Argentina shortly after the inauguration of government of Javier Milei.
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Shock Argentina: the ‘weight’ on Citigroup
The conditions Argentina finds itself in are nothing short of disastrous:
Buenos Aires is grappling with galloping inflation, which has soared up to +150% over the last year. Other problems are the low level of its liquidity reserves and high public debt, compared to 40% of the population living below the poverty line.
In justifying the measures decided to stop the serious crisis gripping the country last month the Minister of Economy Luis Caputo warned that the Argentine peso could slide to 800 against the US dollar, as part of a Milei government plan to devalue it.
Citigroup’s financial director could therefore do nothing else anticipate the Argentina effectbut also that relating to Russia, on the fourth quarter accounts of the American giant, underlining that the most significant change was the addition of “$1.3 billion to our reserves, to protect our bank from the increased risk associated with our exposures in Argentina and due to the continued political and economic instability in Russia”, which is still engaged in the war against Ukraine.
In addition to that estimated $880 million drop in revenue related to its operations in Argentina, Citigroup also communicated the presence of a $780 million charge.”linked to liquidation costs and other costs that result from the restructuring of our organization.”
The bank recalled that, given the restructuring costs it is incurring, it is still carrying out a process that will provide “clear benefits, which will allow us to reduce our expense base, as well as simplify our banking and strengthen our focus on customers.”
Also announced by Citigroup a burden of $1.7 billion linked to the operating expenses that the bank incurred in relation to the special assessment carried out by the Federal Deposit Insurance Corporation (FDIC) also on other US banks, following the crashes that hit the banking sector, in particular regional banks, in March 2023 Crack which featured, among others, the end of the games for Silicon Valley Bank (SVB)a Californian bank blown up, which brought the nightmare back to Wall Street Lehman Brothers.
The charges announced by Citigroup are decidedly higher than those announced by CFO Mark Mason during the conference organized by Goldman Sachs on December 6th.
On that occasion, Mason had in fact spoken about charges calculated in “a couple of hundred million dollars.”
Countdown to US bank profits
As well as JPMorgan, Bank of America e Wells Fargothe giant led by CEO Jane Fraser will announce its earnings tomorrow.
Pay attention to the preview that was drawn up by analysts on the accounts of four titans of Wall Street.
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Chief Financial Officer Mark Mason concluded the statement by reiterating that the charges announced today “they don’t change our strategy”: a “right strategy, with each of us doing our part, with which we will transform our society, allowing it to express its full potential”.
The fact is that the stock did not take the announcement well, losing more than 1% already in after-hours trading on Wall Street the day before. After yesterday’s surprise announcement, Citigroup shares are losing more than 2.5% today.