CITIGROUP recorded a US$1.3 billion reserve build tied to its exposure in Argentina and Russia, it said on Wednesday (Jan 10) in a filing.

The bank also said it took an approximate US$880 million hit in the fourth quarter as a result of recent devaluations to the Argentine peso. Additionally, Citigroup said it would take about US$780 million in restructuring charges in the period tied to its global overhaul.

The reserve increase came from cross-border and cross-currency exposures in Argentina of US$720 million and US$580 million from Russia owing to “prolonged political and economic instability” in that country.

Citigroup had expected to incur losses in Argentina, where high inflation, a volatile currency and capital controls have restricted its ability to do business easily. Recently-elected President Javier Milei devalued the peso by more than 50 per cent in his first full week in office as he attempts to restore investor confidence in the country, which has repeatedly defaulted on its debt. But investors anticipate the currency will come under increasing pressure.

Citigroup’s net investment in Argentina saw an approximate US$180 million hit during the third quarter, when its central bank devalued the official exchange rate by 27 per cent, the bank said in November. And in early December, chief financial officer Mark Mason said the situation could cost it a couple of hundred million dollars in revenue.

“If I think about the Argentina elections, for example, that’s probably going to put pressure on the revenues for a couple hundred million dollars,” he said. “When I think about the currency impact, it’s obviously the cost of us doing business there.”

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Citigroup sold its retail-banking businesses in Argentina late in 2016, amid an effort to simplify its footprint to simplify the bank and cut costs. The bank’s Argentina operations began in 1914 with its first non-US branch. In 2018, Citigroup switched its accounting in Argentina to the US dollar after deeming the economy there to be “highly inflationary”.

The update comes two days before the Wall Street bank reports its earnings for the last quarter of 2023. Chief executive officer Jane Fraser is trying to streamline and raise profitability at Citigroup, partly by reducing headcount and exiting retail businesses around the world.

The bank also said it expects to incur a US$1.7 billion cost to replenish the Federal Deposit Insurance Corporation’s deposit insurance fund, larger than the US$1.65 billion Mason outlined late last year. BLOOMBERG