Major U.S. banks led the market sell-off Tuesday amid escalated geopolitical tensions, leaving investors wondering how exposed they are to Russia, a country targeted by Western nations' sanctions for its invasion of Ukraine. Big Wall Street banks have very minimal direct domestic and cross-border exposure to Russia, meaning that overall they generate little revenue from the country, according to Bank of America's analysis of banks' regulatory 10-K filings with the U.S. Securities and Exchange Commission. However, they might still feel the impact of a Russia financial calamity due to their indirect exposure through emerging market debt funds and currency markets. The issue came into spotlight after President Joe Biden's administration announced sanctions against Russia's central bank, the National Wealth Fund of the Russian Federation and Russia's Ministry of Finance, moves that effectively prohibit Americans from doing any business with the entities. The action will also freeze assets of the Russian central bank in the United States. Mostly immaterial direct impact Banks provide disclosures of cross-border, country-by-country exposure of loans, securities and outstanding obligations by country as a percentage of assets. Bank of America , JPMorgan Chase and Morgan Stanley do not explicitly say that they have direct exposure to Russia in their filings. Meanwhile, Russia and Ukraine do not even make it to the banks' "non-U.S. country" exposure disclosure in the 10-K, suggesting immaterial exposure, if any, Bank of America said. Goldman Sachs is estimated to have $940 million total exposure to Russia and Ukraine, or less than 10 basis points of its total assets, according to Bank of America. Its Russian exposure contains $650 million in credit. "We highlight exposures from U.S. mega-cap banks ($100 billion+ market capitalization) that have global operations, as non-U.S. exposure for the vast majority of regional banks is minimal (or likely none)," Bank of America strategists said in a note. Citi most at risk Citigroup was the lone firm among the largest U.S. banks to break out its exposure to Russia. The bank had $9.8 billion exposure to Russia as of the end of the fourth quarter, including $5.4 billion in so-called country exposure , or just 0.3% of the bank's total assets. Wells Fargo banking analyst Mike Mayo estimated that there could be a one-time subjective overlay for credit reserves of 10% of Citi's funded Russian exposure of $3 billion. "We single out Citi among U.S. banks given our view that they have the highest and most meaningful direct asset exposure to Russia," Mayo said in a note. Indirect exposure While banks' direct exposure is minimal and easy to gauge, their indirect exposure is more complicated to measure. First of all, global uncertainty is likely to continue to weigh on sentiment should the conflict be prolonged, especially for U.S. banks with larger global revenue exposure. Citi had about 50% of its 2021 revenue generated from overseas, while JPMorgan had around 22%, according to Jefferies. What's more, a protracted invasion could also lead to a slowdown in global economic growth, which would mean lower interest rates and dimmer profit outlooks for U.S. banks. In addition, currency-valuation mismatch is a risk to watch, according to Wells Fargo's Mayo. "Could there be an asymmetric devaluation forcing Citi to write down assets while keeping liabilities unchanged — similar to what we saw with Argentina two decades ago?" Mayo said. Many emerging markets fixed-income funds also are getting hit hard due to their ownership of Russian debt. Morgan Stanley estimated that about $10 billion assets are benchmarked to emerging markets indexes like the J.P. Morgan USD Emerging Markets High Yield Bond Index, which have a footprint in Russian debt.
