Keefe, Bruyette & Woods On Citigroup's Emerging Market Exposure

Keefe, Bruyette & Woods issued an update on Citigroup Inc C Wednesday and maintained a Market Perform rating and $54 price target.

Analysts Brian Kleinhanzl and Matthew Dinneen commented that “Citi’s shares have been weak relative to peers lately—down 9.2 percent from December 8th through yesterday versus 5.6 percent for peers, on average—and we believe geopolitical and currency risks in Russia have been a leading reason for C’s underperformance.”

Kleinhanzl believed “that the four countries that are most at risk of further weakening include: Venezuela, Russia, Argentina, and Brazil. The increased risk in these four regions (EM Group of Four) is largely oil related but it also pertains to capital flight risks, slowing economies, and deficits.”

“Although Russia is in focus these days, Citi actually has larger exposure to Brazil which has $27.4 billion of disclosed assets that represent 1.4 percent of the company’s total assets. Russia would be the second largest hot spot since Citi has $1.6 billion of net investment in Russia and total third-party assets of $7.4 billion in the company’s Russia subsidiary,” according to the analyst note.

Kleinhanzl estimated that a "70 percent write-down on Citi’s sovereign holding of Russia, Brazil, Argentina, and Venezuela securities would be $0.95 per share or 1.7 percent of TBV. Based on 20 percent security writedowns and 10 percent higher NCOs on C’s remaining exposure to Group of Four countries would be $2.33 billion, or $0.77 per share which is 1.3 percent of TBV ($57.53 at 3Q14)."

Citigroup Inc closed at $52.45 Wednesday, up 2.50 percent.