Citigroup Inc. said its net investment in Argentina declined $20 million in the second quarter before talks broke down this week to prevent a default on the nation’s debt.
The net investment was $670 million at the end of June, the New York-based firm said in a securities filing today. Should U.S. banking regulators downgrade Argentina following a review of cross-border risks, Citigroup could lose about $80 million, the lender said.
A group of banks have met with hedge funds and other creditors holding Argentine debt to propose buying securities they own from an earlier default in 2001, according to a bank official who asked not to be identified because the information is private. The banks are trying to broker a deal that would allow the country to resume debt payments.
“If it is determined that Argentina is in default on its obligations and/or restructured bondholders elect to accelerate their debt,” it could hurt Citigroup’s revenue and funding costs, or limit its ability to hedge its investment in the South American nation, the bank said. “In addition, the situation could expose Citi to litigation as it acts as a custodian in Argentina for certain of the restructured bonds.”
Third-party assets in Argentina increased to $3.6 billion during the period, according to the filing. Citigroup held about $955 million in hedges against its investment at the end of June, up from $830 million in March, the bank said.
Citigroup’s cumulative losses from currency conversions were mostly unchanged at $1.43 billion. The bank, which uses the Argentine peso as the currency for accounting purposes, may have to switch to the U.S. dollar if Argentine inflation over three years climbs above 100 percent, according to the statement. Such a change would impact earnings as the peso loses value.
Citigroup also reduced its risks tied to other global markets, cutting its exposure in the second quarter to Russia, where it has the most branches of any U.S. bank. Total exposure fell 5.3 percent to $8.9 billion at June 30, according to the statement.
The European Union and U.S. have imposed sanctions on Russia, putting more pressure on the nation’s financial system to force President Vladimir Putin to end support for separatists in eastern Ukraine.