Citi warns of extra costs from its retail banking exit in South Korea

Citigroup warned it will incur “significant” charges in coming years as it winds down retail-banking operations in South Korea.

The New York-based company said earlier this year it would exit retail banking in South Korea and 12 other markets. While it signed a deal in August to sell its operations in Australia, Citigroup’s board on Friday approved the wind-down plan for Korea, the bank said in a regulatory filing on Monday.

“In connection with the wind-down plan, Citi expects to incur significant wind-down and related charges through the end of 2023, consisting of cash expenditures related to voluntary termination benefits and related charges,” the company said in the filing.

Even though Citigroup opted to wind down retail operations in South Korea, the bank said it still expects the exits from the 13 consumer franchises to be accretive to capital and allow the bank to release roughly $7 billion of tangible common equity over time. About $2bn of that amount is related to Citigroup’s plans in South Korea, the bank said in a statement on Monday.

While Citigroup is pursuing an exit of retail-banking operations in South Korea and these dozen other markets, the lender will maintain its institutional franchise in the regions and continue serving the firm’s wholesale and corporate clients.

“We continue to make progress on our strategy refresh, allowing us to increase the capital we return to our shareholders over time,” chief financial officer Mark Mason said in the statement. In Asia and its operations across Europe, the Middle East and Africa, Citigroup “will focus our resources on higher-returning institutional businesses and double down in wealth, where we have distinct competitive advantages and meaningful potential for growth”.

For the 11 remaining markets, Citigroup is still weighing sales. The bank said on Monday that it is continuing conversations with potential buyers and has seen “strong interest from a broad range of bidders".

Citibank Korea began negotiating termination benefits and related charges with employee unions, but “is unable at this time to provide an estimate of the total amount or range of amounts” likely to be incurred as part of the wind-down plan, Citigroup said in the filing.

The fact that Citigroup does not yet have an estimate for charges tied to the Korea wind down is “not ideal,” Susan Roth Katzke, an analyst at Credit Suisse Group, said in a note to clients.

For Citigroup, the “key will be the potential for other market exits to generate neutralising gains”, she said.

Citigroup shares fell 0.3 per cent to $71.15 at 9.40am in New York. They have gained 15 per cent this year, underperforming the 38 per cent increase in the S&P 500 Financials Index.