US banks will keep a toe in Russia despite wind-downs

Several of Wall Street's biggest banks are planning on keeping a limited presence and holding on to banking licenses in Russia for the foreseeable future, even as they wind down their broader operations in the country, sources at those banks said.

Citigroup Inc, JPMorgan Chase & Co and Goldman Sachs Group Inc - the three Wall Street banks with the biggest Russian exposures - have said in the past few days that they plan to pull back their businesses in Russia following the country's invasion of Ukraine.

The banks will continue to have staff and operations on the ground as they work to extricate themselves and some of their clients from contractual obligations, the sources say.

Even when that work is done, however, they are likely to hang on to their banking licenses in the hope that the businesses can be rebuilt at a later date, sources at two of the banks said.

"They are not going to cut and run when there are potential opportunities when this gets resolved," said Eric Schiffer, CEO at California-based private equity firm Patriarch Organization and a specialist in risk management strategy.

A total withdrawal, including handing back licenses, would make it hard for a bank to return, experts say. Obtaining a banking license in Russia is a laborious and lengthy process, experts say, and global banks have often opted to buy a stake in a Russian bank that holds a license.

Citigroup said on Monday it would expand its withdrawal from Russia and not take on new clients as it further cuts its exposure to the country, raising the prospect it could take billions of dollars in losses.

The bank had already planned to exit its Russian consumer business prior to the invasion. It has now decided to expand that exit to include other businesses and to reduce its remaining operations and exposures.

Russia calls its actions in Ukraine a "special operation."

BANKS TO RETAIN LICENSES

Citigroup has the most to lose out of US banks withdrawing. It has exposure of nearly $10 billion in Russia, more than any other US bank, and has warned it could lose nearly half of that in the worst-case scenario.

The bank said that its withdrawal would take time to process. It also reiterated a commitment to "providing assistance to multi-national corporations, many of whom are undergoing the complex task of unwinding their operations."

Citigroup is likely to keep operations on the ground and retain its banking license in Russia for the foreseeable future, according to a source familiar with the matter.

Citigroup declined to comment.

Goldman Sachs said last week it is "winding down its business in Russia in compliance with regulatory and licensing requirements." 

But the bank has no current plans to hand back its Russian banking license and, even if it did, would expect that process to take 12 to 18 months, a source familiar with the matter said.

JPMorgan said last week it has been actively unwinding its business in Russia and is not pursuing new business in the country.

However, it also has no current plans to hand back its banking license in Russia, sources at the bank said.

Deutsche Bank which faced criticism from some investors and politicians for its ongoing ties to Russia said on Friday it would wind down its business in the country, reversing an earlier pledge to stay. 

However, it is also planning to keep its banking license in Russia for the foreseeable future, sources familiar with the matter say.

One factor preventing JPMorgan and Citigroup from immediate withdrawals is that they are both securities custodians in Russia, said sources at the banks. That means they have obligations to hold securities there for clients. There is no obvious way out of those obligations, the sources said, given restrictions on securities transactions imposed by the Bank of Russia.

JPMorgan and Citigroup also have transaction and treasury services businesses in Russia. They provide cash management, trade services and finance to multinational companies doing business in Russia. Those services will continue to be provided to companies as they suspend or unwind their businesses, sources at both the banks said.

Banks face a lengthy withdrawal that could take years, Reuters reported last week. However, the slow exit also has its advantages, some experts say, as that method presents an opportunity for banks to change tack and rebuild if the geopolitical situation changes dramatically.

That would not be possible if they had chosen to walk away from Russia entirely, a move that could be seen as hurting Russian citizens.

"There may be a long-term strategy that you don't tarnish the name of the company too much in Russia to the point where Russia will boycott you," said Antonia Tzinova, an attorney in global law firm Holland & Knight's Washington, DC, office.