June 20 (Bloomberg) -- Citigroup Inc. could take a $3 billion to $5 billion “hit” this quarter related to foreign exchange, according to Charles Peabody, an analyst at Portales Partners LLC.
“You will see value destruction in terms of their book value as a result of their foreign-exchange risk,” Peabody said today in an interview with Tom Keene on Bloomberg Television’s “Bloomberg Surveillance.”
Citigroup, ranked third by assets among U.S. lenders, earns more than half its profit in developing nations as Chief Executive Officer Vikram Pandit pushes deeper into regions such as Latin America and Asia. The bank has an “intense focus on capturing emerging-market trade,” Chief Executive Officer Vikram Pandit, 55, told shareholders in a March 9 letter.
Other large U.S. lenders such as Bank of America Corp. and Wells Fargo & Co. don’t face the same risks as New York-based Citigroup because they are focused more on domestic markets, Peabody said. Jon Diat, a spokesman for Citigroup, didn’t have an immediate comment. The stock advanced 1.1 percent to $28.80 at 10:35 a.m. in New York.
Peabody changed his rating on Citigroup shares to sell from buy in March. The bank is a “value trap” with no likely shareholder return in 2012, he wrote in April. He has predicted a global slowdown this year and a recession in 2013. Only four other analysts tracked by Bloomberg have sell ratings on Citigroup, with 21 recommending purchase.
“We know that the extreme volatility that was experienced in several key Citigroup currencies during the month of May 2012 will likely produce a multi-billion hit to Citigroup’s book value,” Peabody wrote to clients this week. “The stronger U.S. dollar, a trend we expect to continue into 2013, should present itself as a formidable headwind to the creation of value at Citigroup.”
