“Citigroup Inc. (C) could lose as much as $7 billion 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 $5 billion to $7 billion 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 $3.5 billion deficit in 2011.
Former Chief Executive Officer Vikram Pandit expanded Citigroup’s overseas businesses to help it recover from 2008’s U.S. credit crisis. Peabody, who predicted the mortgage market’s plunge as early as January 2005, said the firm’s reliance on revenue from abroad is now driving his concern that a global economic slowdown will hurt the bank more than U.S. rivals.
“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.”
Citigroup’s stock will climb about 7 percent to $55.67 within the next year, according to the average of 26 analyst estimates compiled by Bloomberg. While Peabody doesn’t disclose his price targets, he said the shares could fall 50 percent. The lender has been the best performer in the 24-company KBW Bank Index (BKX), jumping 87 percent in the 12 months through yesterday.
The other five largest U.S. banks will collectively gain 0.1 percent, led by JPMorgan Chase & Co.’s 4.7 percent advance, according to the analysts.