NEW YORK/WASHINGTON - Citigroup could suffer billions of dollars of losses in its loan book if the world sped up efforts to tackle climate change, according to a confidential analysis prepared by the U.S. bank that was reviewed by Reuters.

The analysis was drafted by Citigroup last summer as it prepared to make a submission to the Federal Reserve on how it plans to manage the impacts of climate change. Five other major U.S. banks were also required to make confidential submissions using the same instructions from the Fed.

Reuters could not establish how much of the information in the document it reviewed made it to Citigroup's official submission, on which the bank declined to comment.

The analysis said that if efforts to combat climate change ramped up enough to put the world on a path to bringing greenhouse gas emissions down to zero on a net basis by 2050, the bank would suffer $10.3 billion in loan losses over 10 years, more than the $7.1 billion in losses expected if those efforts did not speed up.

The exercise assumed all six banks' balance sheets would not change in that time.

While the estimated hit to Citigroup would be small in relation to the $730 billion wholesale loan book assessed, the analysis provides rare insight into how the transition away from fossil fuels could affect a top Wall Street bank in a key area of its business.

The losses would occur because some of Citigroup's borrowers in the oil, gas and real estate sectors would take a financial hit if the world was immediately put on track to curb overall greenhouse gas emissions to zero on a net basis by 2050, the document reviewed by Reuters showed.

That underscores the challenges that Citigroup and other banks that have pledged to cut their own emissions to net zero by 2050 face in managing their loan book exposure, said Greg Hopper, a former Goldman Sachs Group risk officer who is now a senior fellow at the Bank Policy Institute.

"When a company's pace of transition is too fast or too slow with respect to the actual underlying market transition pace, it can suffer losses," Hopper said.

A Citigroup spokesperson declined to comment beyond what the bank said in a report on climate change released last month. That report said its submission to the Fed had produced useful insights into vulnerabilities, but did not contain its analysis of potential losses.

To be sure, Citigroup's analysis is based on a simulation with many assumptions and uncertainties, and the chances of the scenario it examined coming to pass are remote. That is because the 2050 net-zero target, which was agreed to by nearly 200 countries in 2015 in order to limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) above preindustrial times, is unlikely to be achieved without major policy changes, such as a global carbon tax, scientists say.

The Fed had said it would publish anonymized, aggregated findings from the six U.S. banks on their climate exposure by the end of 2023, but it has yet to do so.

A Fed spokesperson said it had not asked for estimates of potential losses and would not publish any dollar figures. The regulator originally said it wanted to assess how prepared banks are to manage climate risks and it would not use the exercise to impose any capital requirements.

Fed Chair Jerome Powell has said that the central bank will not try to pursue policy changes to tackle climate change and should instead stick to its mandate of managing risks to the banking system.

That contrasts with the European Central Bank, which actively promotes the energy transition and said last September that delaying it would raise credit risks for banks.

HURRICANE IMPACT

The Citigroup analysis also found that a severe hurricane in the Northeast U.S. could trigger a $63.5 million loss to a $49 billion loan portfolio in one year if the assets were not covered by any insurance. The effect on Citigroup's business would be "muted," the document stated.

For a hurricane in the Southeast U.S., assuming no insurance coverage, a $15 billion portfolio could take a hit of $142 million over 12 months. That would increase by $571 million if the analysis took into account chronic flooding, the document noted.

Lending in different regions and sectors helps a big bank, such as Citigroup, limit the impact of extreme weather events on its loan book, said Clifford Rossi, a former Citigroup consumer lending risk officer who is now a University of Maryland business professor.

JPMorgan Chase, the biggest U.S. bank, said in its 2023 climate report that geographic spread, short loan durations and insurance cushioned its consumer credit portfolio from climate risks, so "financial losses due to severe weather events have not been material to the firm".

The Fed came up with instructions for the climate risk exercise based on work carried out by the U.N.'s Intergovernmental Panel on Climate Change and the Network for Greening the Financial System, a coalition of central banks and regulators focused on the issue.

Sarah Bloom Raskin, a former Fed board governor who is now a Duke University law professor, said the exercise did not go far enough because it would have no bearing on regulatory demands on the banks.

"This is the equivalent of the banks being assured by the Fed that the results would be ... shredded, buried, and wiped away from any use whatsoever," she said.

(Reporting by Isla Binnie and Tatiana Bautzer in New York and Pete Schroeder in Washington; Editing by Greg Roumeliotis and Jamie Freed)