Charles Peabody of Portales Partners believes that Citigroup (C) could lose as much as $7 billion in capital due to movement in exchange rates, according to Bloomberg. Peabody claims that the dollar will continue to rise versus the yen, euro, and other currencies, which could pummel Citigroup’s earnings and its stock price. He therefore has a “sell” rating on the stock.
Citigroup has expanded its international business aggressively since 2008. As a result, Peabody believes this makes Citigroup much more vulnerable to weakness in foreign currencies than most of its rivals.
A persistent global economic slowdown, relative strength in the U.S. economy, aggressive currency depreciation policies (especially in Japan), and rumors that the Federal Reserve will begin tapering its bond-buying program are the driving forces behind this currency price movement.
However, a Citigroup spokesperson told Bloomberg that the company is strategically hedged against currency movement and is not concerned about its capital ratios. The spokesperson dismissed Peabody, claiming he had been wrong about the company’s currency exposure in 2011 and is wrong once again.
Citigroup shares lagged the baking sector on Tuesday, dropping 3.81 percent to $49.95. However, shares are up almost 80 percent for the year, meaning investors aren’t too concerned about the company’s alleged foreign currency exposure.