As the U.K.'s decision to leave the European Union sends a tsunami across financial markets on Friday, bank stocks are among the most beaten and bruised. JPMorgan Chase (NYSE:JPM) has lost more than 5 at midday%. Bank of America (NYSE:BAC) is down nearly 8%. Of all the large U.S. commercial banks, though, Citigroup (NYSE:C) has been hit the hardest, down over 8% as of this writing.
But the market is getting Citigroup wrong. The bank is certainly exposed to the problems roiling the markets, but certainly not more so than JPMorgan or Bank of America. For those looking for opportunity amid the carnage, Citigroup could be a great place to start.
Citigroup has Brexit troubles, too -- but not this much
It isn't fully clear why Citigroup is falling more than the other U.S. megabanks. It's certainly an international bank: It has offices on six continents and competes for business in over 160 different countries. However, the bank's global footprint is much more concentrated in Asia, Latin America, and North America than it is in Europe.
British exposure is reported on Citigroup's income statement through its EMEA group, a subsection of the bank's Institutional Clients Group. That EMEA group, which includes all of Europe, the Middle East, and Africa, contributed just 15% to Citigroup's enterprise-wide net revenue. More granular data is not currently reported on the bank's quarterly filings.
The actual exposure to EMEA is slightly larger than that, though, because the bank's EMEA consumer banking business is reported with its much larger Asian business. In other words, the consumer banking exposure is so small on a relative basis that Citigroup and the SEC have no problem just lumping it together with Asia.
For contrast, Citigroup's North American net revenues from both the Institutional Clients Group and Global Consumer Bank were over 45% of total net revenue in the first quarter. Citigroup does do business in the U.K. and Europe, but its businesses in North America, Asia, and Latin America are far more significant.
Other banks have more exposure but haven't fallen as far as Citigroup
In Bank of America's first-quarter filings with the SEC, the bank reported over $208 billion in credit and trading exposure to its 20 largest non-U.S. markets. The largest exposure was to the U.K. at $51.5 billion. That's 3.1 times more than its next-largest international market: Canada, at $16.7 billion.
Using the same credit and trading risk exposure metric, JPMorgan Chase reports $50.4 billion in exposure to the U.K. The bank also has large exposures to the two most important tangential European countries on the front line of this economic crisis, with $28.7 billion in exposure to Germany and $28.1 billion to France.
Citigroup does not disclose these numbers in the same manner as JPMorgan or Bank of America, instead presenting the same metric as it relates to the bank's much more significant exposures in the Asian and Latin American emerging markets. Citigroup, for example, has more exposure in Mexico than JPMorgan and Bank of America have in the U.K.
Bank of America is not a true international bank, at least not in the same sense as JPMorgan or Citigroup. However, its exposure to Britain specifically and the eurozone more generally is, based on these filings, at least as great as Citi's, if not more so. JPMorgan has considerably more exposure to the region; the bank-focused investment bank Keefe, Bruyette & Woods circulated a report prior to the Brexit vote that pegged JPMorgan as the U.S. bank with the most exposure if the country elected to exit.
Will the Brexit result create headwinds for Citigroup? Absolutely. No global bank will come out of this unscathed. However, the market has overreacted to Citigroup's risks, pushing it down further than banks with equal or greater exposure, which could be creating an opportunity to buy.