Citigroup Inc has about $280 million in loans tied to commodities in two Chinese ports which are at the center of a probe into possible fraud, a senior executive said on Friday, becoming the first U.S. bank to disclose its potential exposure.
The total is a large portion of the bank's roughly $400 million worth of so-called repo commodity financing deals in China. Short for repurchasing agreements, repo deals give customers access to short-term credit in exchange for goods.
"At this stage we believe the activities are isolated and just specific to those very specific locations," Chief Financial Officer John Gerspach said in a conference call with analysts.
The loans are to clients that are non-Chinese subsidiaries of large multi-national corporations and the contracts are guaranteed by the parent companies, he said.
Citi is the latest bank to disclose the size of its financing business in Qingdao, China's seventh largest port, and nearby Penglai where authorities have been investigating suspected metals financing fraud since May.
The probe centers on a private metals trading firm, Decheng Mining, and its related companies, which are alleged to have used fake warehouse receipts at the ports to obtain multiple loans secured against a single cargo of metal.
The company has not commented on the probe.
As the fall-out of the scandal that has engulfed the base metals market continues, other foreign banks including Standard Bank Group and trading and investment firms, such as Citic Resources Holdings Ltd, face hundreds of millions of dollars of losses.
This week, Standard Chartered launched legal action to recoup its losses.
(Reporting by Josephine Mason; Editing by Richard Chang)