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Citigroup Leads Banks Lower on Ukraine Concerns

NEW YORK (TheStreet) -- Citigroup (C - Get Report) was the loser among large-cap U.S. bank stocks on Monday, with shares sliding 2.1% to close at $47.61

The broad indices followed European stocks down, as investors worried over the escalating crisis in the Ukraine and sought to park assets in safe havens. The market yield on 10-year U.S. Treasury bonds was down 5 basis points to $2.60, while gold and oil prices rose.  The KBW Bank index (I:BKX) was down 1.1% to 69.28, with all 24 index components showing declines.

Russian troops have surrounded Ukrainian military bases in Crimea and have demanded the surrender of the Ukrainian forces in Crimea by dawn on Tuesday. Russian stocks were pounded, and the ruble fell to record lows against the dollar and the euro.

What does Russia's aggression in Ukraine mean to investors?

Must Read: KeyCorp Leads Banks Higher

For starters, any type of large-scale military activity, especially in Europe, brings the type of uncertainty that can only be bad for the broad market. Many investors have very short memories, but a quick look at a map of Europe shows just how large and important Ukraine is.

The possibility of Russia moving beyond its stated intention of "protecting" Russian speaking Ukrainian citizens in Crimea, is a frightening prospect to bordering countries, including Poland, Slovakia, Hungary and Romania, that also threw off the yoke of communism a little over two decades ago, before and after the collapse of the Soviet Union.

The United States over the weekend was quick to condemn Russian President Valdimir Putin's decision to invade Crimea, with Secretary of State John Kerry said on Sunday during an interview on ABC's This Week calling the action "a 19th century act in the 21st century that really puts at question Russia's capacity to be within the G-8." Kerry said "it's a distinct possibility" that the U.S. won't show up to the planned G-8 summit in Sochi, Russia, in June.

Kerry alluded to the possibility of sanctions against Russia, or against specific Russian government officials. "Russia may be able to invade Crimea, but in the end Russia will isolate itself. There'll be costs to the economy of Russia, costs to Russian business, costs to Russian individuals. And ultimately, I think, Russia will isolate itself on a global stage that it just spent $60 billion through the Olympics to try to present a different face on," Kerry said.

The European Union on Monday will hold an emergency summit on Thursday to discuss the Ukraine situation, and French Foreign Minister Laurent Fabius threatened punitive measures against Russia, including a boycott of the G-8 summit, if Russia didn't show a willingness to withdraw occupying troops, according to an Associated Press report.

Banks' Exposure

For bank stock investors, there is some concern over exposure in Russia, although RBC Capital Markets analyst Gerard Cassidy called the exposure "rather small" in a client note on Monday.

Citigroup in its annual 10-K filing with the Securities and Exchange Commission on Monday said its aggregate exposure in Russia was $10.3 billion as of Dec. 31. This exposure includes $6.5 billion in wholesale loans, $1.7 billion in retail loans, $1.4 billion in securities and $0.7 billion in trading account assets.

That's the highest level of exposure among the "big six" U.S. banks, which isn't surprising, considering Citi is unique among big U.S. banks, in that most of its revenue and earnings come from outside the country.

During 2013, 71% of core unit Citicorp's 2013 net income was derived from outside the United States.

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