An investment banking report on Citigroup indicates the financial conglomerate's exposure to subprime losses could be as much as $3 billion -- though hedging activity would offset a good portion of that amount. At risk are unsold subprime loans originated by the company's warehouse customers.

The figures were drawn from a BernsteinResearch letter issued today from Sanford C Bernstein & Co. LLC.

Analysts Howard K. Mason and Michael G. Howard, the report's authors, noted that Citi's subprime consumer portfolio appears sound.

"We do not believe there are meaningful risks in Citi's subprime mortgage portfolio in the consumer business since the firm has been cautious around underwriting and product structure," the report said -- adding that 90 percent of its subprime loans are fixed rate.

But the New York-based financial conglomerate is likely to experience "meaningful losses" on its $13 billion in subprime warehouse loans at the investment bank -- which weren't underwritten by Citi, the two wrote.

"Given prices on subprime loans have declined 20 percent quarter-to-date (and assuming prices stabilize at current levels), the Q3 loss could be $2-3 billion before taking into account hedge-activity," the report said. "Taking into account hedging activity, we believe a reasonable worst-case net loss is $1 billion and likely much less, say $500 million."

Citi's subprime first mortgage portfolio is $22 billion, while its prime second mortgage portfolio is $60 billion, the analysts wrote. The held-for-sale subprime loans from its investment banking business, comprised of trading inventory and loans warehoused for originator-clients, totals $13 billion.