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Citigroup Sets Aside $1.9 bn for Russia as US Banks Report Mixed Results

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by John Biers

Citigroup said Thursday it set aside $1.9 billion in reserves due to Russia’s invasion of Ukraine as large US banks reported mixed results amid a backdrop of geopolitical upheaval and fast-changing monetary policy. Online News

About $1 billion in the Citi reserves are for direct exposure to Russia, while the $900 million relate to broader economic risks following the invasion, Citi Chief Financial Officer Mark Mason said on a conference call with reporters.

Since the end of 2021, Citi has reduced its overall exposure to Russia from $9.8 billion to $7.8 billion, Mason said.

Citi was one of several banks to report lower quarterly earnings compared with the year-ago period, when results were boosted by the release of reserves taken at the outset of the Covid-19 pandemic.

Both Goldman Sachs and Wells Fargo also reported lower profits. Bankers have said US consumers remain on solid footing, but have cited inflation and the Russian invasion of Ukraine as worrisome factors that will likely slow the economy and could ultimately result in a recession.

“There’s somewhat of a wait and see how some of this plays out,” Mason said of the overall environment.

“Clients are worried about inflation,” Mason said. “They’re looking at the impacts from rising rates,” he added, noting that supply chain woes exacerbated by the Russian invasion.

Citi reported a 46 percent decline in first-quarter profits to $4.3 billion, while revenues dipped two percent to $19.2 billion.

Citigroup’s earnings were also dragged lower by increased expenses, while its banking operations had a mixed performance.

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Chief Executive Jane Fraser cited a difficult geopolitical and macro environment as a factor in weaker investment banking results, while pointing to trade loans and cross-border transactions as areas of strength.

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Citi also scored higher net interest income, benefiting from the Federal Reserve’s shift in monetary policy.

At Goldman Sachs, profits came in $3.8 billion, down 43 percent from the year-ago period on a 27 percent drop in revenues to $12.9 billion.

Goldman sustained a big drop in revenues from asset management and equity and debt underwriting, offset by a strong activity in some trading divisions amid market volatility.

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Wells Fargo, meanwhile, reported profits of $3.7 billion, down 20.8 percent from the 2021 period. Revenues fell 5.1 percent to $17.6 billion.

Wells Fargo reported broad-based loan growth, but suffered a big drop in mortgage banking income, reflecting a rising interest rate environment.

Thursday’s deluge of earnings reports comes a day after JPMorgan Chase also reported lower profits. Bankers have said the US economy remains on solid footing, while warning of increased recession risk due to the Ukraine invasion, rising inflation and uncertainty connected to the shift in Fed interest rate policy.

Wells Fargo Chief Executive Charlie Scharf echoed that tone.

“Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth,” Scharf said. “In addition, the war in Ukraine adds additional risk to the downside.”

Shares of Citi rose 2.2 percent to $51.23 in morning trading, while Goldman Sachs gained 0.5 percent to $323.48. Wells Fargo slumped 5.5 percent to $45.86


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Notes from APS Radio News

During the past few years, a number of the world’s central banks have engaged in massive programs of monetary expansion, even as jobs and businesses were lost by way of virus-related restrictions and quarantines.

For example, beginning in March of 2020, the US Federal Reserve engaged in a substantially greater program of monetary expansion by purchasing hundreds of billions of dollars of Treasury and corporate bonds.

Since the early part of March 2020 to date, the Federal Reserve has added over $4 trillion to its holdings.

In particular, whereas on or about February 24, 2020, the holdings of the Federal Reserve stood at $4.2 trillion, on or about January 17, 2022, the holdings of the Federal Reserve stood at about $8.9 trillion.

As well, the Federal Reserve has kept interest rates low.

Recently, Jerome Powell, the head of the Federal Reserve, said that he wasn’t concerned about inflation and that, for the none, the Federal Reserve would keep interest rates at low levels.

Another examples is that of the Bank of Japan.

According to Fred Economic Data, as of October 2021, the Bank of Japan’s holdings were about $6.4 trillion or about 725 trillion Yen.

In the early part of March 2020, the Bank of Japan’s holdings were $5.3 holdings. During the period mentioned, the Bank of Japan added over one trillion dollars to its holdings.

A number of corporations have been borrowing money inexpensively and have been purchasing their own shares of stocks, increasing share prices of stocks.

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Still, there are concerns among investors.

A number of them have expressed concerns about central banks’ eventually increasing interest rates, as, during the past year, inflation levels have been increasing.

The combination of low interest rates, expansive monetary policies, fiscal stimulus programs, which themselves have infused trillions into the US economy, and shortages of goods and services caused by virus-related restrictions and lockdowns has increased levels of inflation.

Investors also worry, for example, about announcements recently made by Toyota and VW; those companies have announced that because of shortages of particular types of material, they will be reducing levels of production.

Some weeks ago, the results of a survey of UK manufacturers were released.

That survey indicated that many businesses in the UK are concerned about shortages of supplies and will be making necessary adjustments.

In general, jobs and businesses have been lost by way of mandates, restrictions and quarantines, which, in their turn, were imposed by way of the virus narrative.

In the US, overall, the mortality rate of the virus is about .069%, according to Statista, an award-winning service.

The recovery rate is over 99% for most age groups.

What has followed in the wake of lockdowns and mandates has been the infusion of trillions of dollars into the US economy, the increasing succeess of online businesses like Amazon and other large online retailers, various bank and tech-related stocks, the shuttering of small to medium-sized businesses and the loss of millions of jobs.

Another result has been the increasing levels of inflation, especially those of food and fuel.

In official terms, for purposes of reporting, the US Labor Department uses what is called “core inflation”.

Core inflation excludes items like food and fuel, as those are deemed too volatile.

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