Bloomberg reports that Citigroup could lose as much as $7bn on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead.
Peabody, who leads research at Portales Partners LLC, is among only four analysts out of 34 tracked by Bloomberg who recommend investors sell Citigroup shares. He estimates the bank may lose $5bn to $7bn in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $3.5bn deficit in 2011.
'Those currency risks are worth taking if the high-growth prospects are there', said Peabody, 57. 'But if global growth falters, then those risks get magnified and growth doesn’t offset the currency risks'.
'Citi appropriately hedges its regulatory capital ratios to mitigate the impact of foreign-exchange rates', said Mark Costiglio, a spokesman for the New York-based firm, which he said expects to end 2013 with a Tier 1 common ratio of at least 10% under international standards. 'It is worth noting that Mr. Peabody made similar predictions around this time last year which later proved to be far off the mark as Citi grew its book value and increased capital ratios in the second quarter of 2012 despite significant currency volatility in the quarter'.
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