Citigroup’s (C) exposure to beleaguered Argentina appears to be manageable so long as the financial turmoil doesn’t spread to other Latin American nations, according to a report by Keefe, Bruyette & Woods.

Argentina has become the focal point of the meltdown in emerging-market currencies, with the peso spiraling double-digits and inflation surging north of 25%. Blame has centered on mismanagement by political and economic leaders in Buenos Aires as well as the fallout of the Federal Reserve’s tapering decision.

All of this is reminiscent of the early 2000's when Argentina abandoned its currency peg to the U.S. dollar and redenominated foreign currency assets into pesos, inflicting pain on private companies. Citi suffered a $1.11 billion after-tax charge in 2002 tied to Argentina as well as $595 million in charges caused by foreign-exchange translation losses.

While Citi is a different animal in this post-Lehman world, the bank remains one of the most geographically diversified U.S. lenders and has a large presence in Latin America.

“In isolation, losses in Argentina may be manageable but contagion could present a real risk to Citi,” KBW analyst Frederick Cannon wrote in a note to clients late last week.

According to KBW’s analysis, Citi reported $4.2 billion in assets and $749 million in equity in its Argentine subsidiary as of the third quarter of 2013.

While Citi’s total deposits of $2.6 billion are only No. 12 in Argentina, it is the lone U.S. bank in the top 15 list and the only major Western bank other than HSBC (HBC), which had $4.7 billion of deposits.

Citi has hedged its exposure through $200 million of notional foreign currency forwards, $370 million of economic hedges and other non-Argentine currency futures.

The impact of Citi’s exposure to Argentina “would seem manageable to us in isolation,” Cannon wrote.

He said Citi could write off its entire net investment in its Argentine subsidiary and take a hit of just 17 cents per share.

However, credit and operational losses like the 2002 experience could translate to a bigger hit of 45 cents per share, which is less than 1% of the Citi’s tangible book value. KBW said these losses could be mitigated by additional hedges the bank has not disclosed.

The bigger risk, KBW said, is if the situation in Argentina spreads to other Latin American and emerging-market countries. Already, there has been a great deal of pressure on countries like Turkey, Venezuela, the Ukraine and South Africa.

“It should be noted that C has larger concentrations of assets in Brazil and Mexico. Should we see economic or fiscal deterioration in those regions then we would be more worried about” Citi’s Latin American and emerging-market exposure, said Cannon.

Shares of New York-based Citi advanced 1.83% to $49.70 Tuesday morning, trimming their 2014 loss to 4.6%.

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