UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 30, 2013
Citigroup Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation)
1-9924
(Commission
File Number)
399 Park Avenue, New York,
New York
(Address of principal executive offices)
52-1568099
(IRS Employer
Identification No.)
10022
(Zip Code)
(212) 559-1000
(Registrant's telephone number,
including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
… Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
… Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
… Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
… Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
CITIGROUP INC.
Current Report on Form 8-K
Item 8.01
Other Events.
On August 2, 2013, Citigroup Inc. (Citigroup or Citi) filed its Quarterly Report on Form 10-Q for the quarter ended June 30,
2013 (the Second Quarter 2013 Form 10-Q) with the U.S. Securities and Exchange Commission (SEC). In the Second Quarter 2013
Form 10-Q, Citigroup reported Credicard, Citi’s non-Citibank branded cards business and consumer finance business in Brazil, as
discontinued operations for all periods presented, as well as certain other immaterial reclassifications.
As required by ASC 280, Segment Reporting, attached as Exhibit 99.02 to this Form 8-K are the Historical Audited Consolidated
Financial Statements included in Citigroup’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (2012 Form
10-K), conformed to reflect Credicard as discontinued operations for all comparative prior period information, as well as to reflect the
previously disclosed re-allocation among Citi’s businesses of both certain administrative costs and certain funding costs, effective
January 1, 2013, and other immaterial reclassifications.
Other than the previously disclosed re-allocations and immaterial reclassifications, Exhibits 99.01, 99.02 and 101 only reflect
Credicard as discontinued operations in Citigroup’s Consolidated Income Statement and Consolidated Statement of Cash Flows for all
periods presented and Notes 3, 4, 5, 6, 10, 11, 17 and 29 to the Consolidated Financial Statements to Citigroup’s 2012 Form 10-K.
Exhibits 99.01, 99.02 and 101 do not restate or revise Citigroup’s consolidated net income, earnings per share on net income, total
assets or total equity included in its 2012 Form 10-K. The information included in this Form 8-K should be read in conjunction with
Citigroup’s 2012 Form 10-K and Second Quarter 2013 Form 10-Q.
Exhibit 99.02 will serve as the Historical Audited Consolidated Financial Statements of Citigroup for existing and future filings
made pursuant to the Securities Act of 1933, as amended, until Citigroup files its Annual Report on Form 10-K for the fiscal year
ended December 31, 2013.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number
99.01
Five Year Summary of Selected Financial Data.
99.02
Historical Audited Consolidated Financial Statements of Citigroup Inc. reflecting Credicard as discontinued operations,
as well as updated business segment disclosures related to the re-allocation among Citi’s businesses of both certain
administrative costs and certain funding costs. Also included is the Report of Independent Registered Public Accounting
Firm dated March 1, 2013, except as to Notes 3, 4, 5, 6, 10, 11 and 17 which are as of August 30, 2013.
99.03
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
101
Financial statements from the Historical Audited Consolidated Financial Statements on Form 8-K of Citigroup, Inc. for
the fiscal year ended December 31, 2012, filed on August 30, 2013, formatted in XBRL: (i) the Consolidated Statement
of Income, (ii) the Consolidated Statement of Comprehensive Income (iii) the Consolidated Balance Sheet, (iv) the
Consolidated Statement of Changes in Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to
Consolidated Financial Statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CITIGROUP INC.
Dated: August 30, 2013
By:
/s/ JEFFREY R. WALSH
Name: Jeffrey R. Walsh
Title: Controller and Chief Accounting Officer
Exhibit Index
Exhibit Number
99.01
Five Year Summary of Selected Financial Data
99.02
Historical Audited Consolidated Financial Statements of Citigroup Inc. reflecting Credicard as discontinued operations,
as well as updated business segment disclosures related to the re-allocation among Citi’s businesses of both certain
administrative costs and certain funding costs. Also included is the Report of Independent Registered Public Accounting
Firm dated March 1, 2013, except as to Notes 3, 4, 5, 6, 10, 11 and 17 which are as of August 30, 2013.
99.03
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
101
Financial statements from the Historical Audited Consolidated Financial Statements on Form 8-K of Citigroup Inc. for
the fiscal year ended December 31, 2012, filed on August 30, 2013, formatted in XBRL: (i) the Consolidated Statement
of Income, (ii) the Consolidated Statement of Comprehensive Income (iii) the Consolidated Balance Sheet, (iv) the
Consolidated Statement of Changes in Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to
Consolidated Financial Statements.
Exhibit 99.01
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA—PAGE 1
Citigroup Inc. and Consolidated Subsidiaries
2012
$46,686
22,442
$69,128
49,974
11,329
$ 7,825
7
$ 7,818
(58)
$ 7,760
219
$ 7,541
In millions of dollars, except per-share amounts and ratios
Net interest revenue
Non-interest revenue
Revenues, net of interest expense
Operating expenses
Provisions for credit losses and for benefits and claims
Income (loss) from continuing operations before income taxes
Income taxes (benefits)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes (1)
Net income (loss) before attribution of noncontrolling interests
Net income (loss) attributable to noncontrolling interests
Citigroup’s net income (loss)
Less:
Preferred dividends—Basic
Impact of the conversion price reset related to the $12.5 billion
convertible preferred stock private issuance—Basic
Preferred stock Series H discount accretion—Basic
Impact of the public and private preferred stock exchange offers
Dividends and undistributed earnings allocated to employee
restricted and deferred shares that contain nonforfeitable
rights to dividends, applicable to Basic EPS
Income (loss) allocated to unrestricted common shareholders for
Basic EPS
Less: Convertible preferred stock dividends
Add: Interest expense, net of tax, on convertible securities and
adjustment of undistributed earnings allocated to employee
restricted and deferred shares that contain nonforfeitable
rights to dividends, applicable to diluted EPS
Income (loss) allocated to unrestricted common shareholders for
diluted EPS (2)
Earnings per share (3)
Basic (3)
Income (loss) from continuing operations
Net income (loss)
Diluted (2)(3)
Income (loss) from continuing operations
Net income (loss)
Dividends declared per common share (3)(4)
$26
2011
$47,649
29,682
$77,331
50,250
12,359
$14,722
3,575
$11,147
68
$11,215
148
$11,067
2010
$53,539
32,237
$85,776
46,851
25,809
$13,116
2,217
$10,899
(16)
$10,883
281
$10,602
2009
$47,973
31,592
$79,565
47,371
39,970
$(7,776)
(6,716)
$(1,060)
(451)
$(1,511)
95
$(1,606)
2008
$52,784
(1,983)
$50,801
68,705
34,357
$(52,261)
(20,276)
$(31,985)
3,958
$(28,027)
(343)
$(27,684)
$
$
9
$ 2,988
$ 1,695
26
—
—
—
—
—
—
—
—
—
1,285
123
3,242
—
37
—
166
186
90
2
221
$ 7,349
—
$10,855
—
$10,503
—
11
17
2
$ 7,360
$10,872
$10,505
$ (8,706)
$(28,760)
$
2.53
2.51
$
3.71
3.73
$
3.64
3.65
$
(7.60)
(7.99)
$
(63.80)
(56.29)
$
2.46
2.44
0.04
$
3.60
3.63
0.03
$
3.53
3.54
0.00
$
(7.60)
(7.99)
0.10
$
(63.80)
(56.29)
11.20
Statement continues on the next page, including notes to the table.
1
$ (9,246)
(540)
$(29,637)
(877)
—
—
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA—PAGE 2
In millions of dollars, except per-share amounts, ratios and direct staff
2012
2011
Citigroup Inc. and Consolidated Subsidiaries
2010
2009
2008
At December 31:
Total assets
$1,873,878
$1,913,902
$1,856,646
$1,938,470
$1,864,660
Total deposits
865,936
844,968
835,903
774,185
930,560
Long-term debt
323,505
381,183
364,019
359,593
239,463
Trust preferred securities (included in long-term debt)
16,057
18,131
19,345
24,060
10,110
Citigroup common stockholders’ equity
177,494
163,156
152,388
70,966
186,487
Total Citigroup stockholders’ equity
177,806
163,468
152,700
141,630
189,049
Direct staff (in thousands)
266
260
265
323
259
Ratios
Return on average assets
0.6%
0.5%
(0.08)%
(1.28)%
0.4%
Return on average common stockholders’ equity (5)
6.3
6.8
(9.4)
(28.8)
4.1
Return on average total stockholders’ equity (5)
6.3
6.8
(1.1)
(20.9)
4.1
Efficiency ratio
65
55
60
134
72
11.80%
10.75%
9.60%
2.30%
Tier 1 Common (6)
12.67%
Tier 1 Capital
13.55
12.91
11.67
11.92
14.06
Total Capital
16.99
16.59
15.25
15.70
17.26
Leverage (7)
7.19
6.60
6.87
6.08
7.48
Citigroup common stockholders’ equity to assets
9.47%
8.52%
8.21%
3.66%
10.00%
Total Citigroup stockholders’ equity to assets
9.49
8.54
8.22
7.31
10.14
Dividend payout ratio (4)
0.8
NM
NM
NM
1.6
Book value per common share (3)
$
60.70 $
56.15 $
53.50 $
130.21
$
61.57
Ratio of earnings to fixed charges and preferred stock dividends
1.59x
1.51x
NM
NM
1.38x
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Discontinued operations for 2008-2012 includes the announced sale of Citi’s Brazil Credicard business. Discontinued operations in 2012 includes a carve-out of
Citi’s liquid strategies business within Citi Capital Advisors, the sale of which is to occur pursuant to two separate transactions, the first of which closed in
February 2013. Discontinued operations in 2012 and 2011 reflect the sale of the Egg Banking PLC credit card business. Discontinued operations for 2008 to 2009
reflect the sale of Nikko Cordial Securities to Sumitomo Mitsui Banking Corporation, the sale of Citigroup’s German retail banking operations to Crédit Mutuel,
and the sale of CitiCapital’s equipment finance unit to General Electric. Discontinued operations for 2008 to 2010 also include the operations and associated gain
on sale of Citigroup’s Travelers Life & Annuity, substantially all of Citigroup’s international insurance business, and Citigroup’s Argentine pension business sold
to MetLife Inc. Discontinued operations for the second half of 2010 also reflect the sale of The Student Loan Corporation. See Note 3 to the Consolidated
Financial Statements for additional information on Citi’s discontinued operations.
The diluted EPS calculation for 2009 and 2008 utilizes basic shares and income allocated to unrestricted common stockholders (Basic) due to the negative income
allocated to unrestricted common stockholders. Using diluted shares and income allocated to unrestricted common stockholders (Diluted) would result in antidilution. As of December 31, 2012, primarily all stock options were out of the money and did not impact diluted EPS. The year-end share price was $39.56. See
Note 11 to the Consolidated Financial Statements.
All per share amounts and Citigroup shares outstanding for all periods reflect Citigroup’s 1-for-10 reverse stock split, which was effective May 6, 2011.
Dividends declared per common share as a percentage of net income per diluted share.
The return on average common stockholders’ equity is calculated using net income less preferred stock dividends divided by average common stockholders’
equity. The return on average total Citigroup stockholders’ equity is calculated using net income divided by average Citigroup stockholders’ equity.
As currently defined by the U.S. banking regulators, the Tier 1 Common ratio represents Tier 1 Capital less non-common elements, including qualifying perpetual
preferred stock, qualifying noncontrolling interests in subsidiaries and qualifying trust preferred securities divided by risk-weighted assets.
The leverage ratio represents Tier 1 Capital divided by quarterly adjusted average total assets.
Note: The following accounting changes were adopted by Citi during the respective years:
On January 1, 2010, Citigroup adopted SFAS 166/167. Prior periods have not been restated as the standards were adopted prospectively. See Note 1 to the
Consolidated Financial Statements.
• On January 1, 2009, Citigroup adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (now ASC 810-10-45-15, Consolidation:
Noncontrolling Interest in a Subsidiary), and FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities” (now ASC 260-10-45-59A, Earnings Per Share: Participating Securities and the Two-Class Method). All prior periods have been
restated to conform to the current period’s presentation.
•
2
Exhibit 99.02
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM—CONSOLIDATED
FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Citigroup Inc.:
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Citigroup as of December 31, 2012 and
2011, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2012,
in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), Citigroup’s internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 1, 2013 expressed an
unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
We have audited the accompanying consolidated balance sheets
of Citigroup Inc. and subsidiaries (the “Company” or
“Citigroup”) as of December 31, 2012 and 2011, and the related
consolidated statements of income, comprehensive income,
changes in stockholders’ equity and cash flows for each of the
years in the three-year period ended December 31, 2012. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
New York, New York
March 1, 2013, except as to Notes 3, 4, 5, 6, 10, 11 and 17
which are as of August 30, 2013
3
FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Income—
For the Years Ended December 31, 2012, 2011 and 2010
5
Consolidated Statement of Comprehensive Income—
For the Years Ended December 31, 2012, 2011 and 2010
6
Consolidated Balance Sheet—December 31, 2012 and 2011
7
Consolidated Statement of Changes in Stockholders’ Equity—
For the Years Ended December 31, 2012, 2011 and 2010
9
Consolidated Statement of Cash Flows—
For the Years Ended December 31, 2012, 2011 and 2010
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Note 2 – Business Divestitures
Note 3 – Discontinued Operations
Note 4 – Business Segments
Note 5 – Interest Revenue and Expense
Note 6 – Commissions and Fees
Note 7 – Principal Transactions
Note 8 – Incentive Plans
Note 9 – Retirement Benefits
Note 10 – Income Taxes
Note 11 – Earnings per Share
Note 12 – Federal Funds/Securities Borrowed, Loaned and
Subject to Repurchase Agreements
Note 13 – Brokerage Receivables and Brokerage Payables
Note 14 – Trading Account Assets and Liabilities
Note 15 – Investments
Note 16 – Loans
Note 17 – Allowance for Credit Losses
Note 18 – Goodwill and Intangible Assets
Note 19 – Debt
10
Note 20 – Regulatory Capital and Citigroup Inc. Parent Company
Information
Note 21 – Changes in Accumulated Other Comprehensive
Income (Loss)
Note 22 – Securitizations and Variable Interest Entities
Note 23 – Derivatives Activities
Note 24 – Concentrations of Credit Risk
Note 25 – Fair Value Measurement
Note 26 – Fair Value Elections
Note 27 – Pledged Assets, Collateral, Commitments and
Guarantees
Note 28 – Contingencies
Note 29 – Selected Quarterly Financial Data (Unaudited)
11
26
27
29
30
30
31
31
37
49
53
54
55
55
56
67
78
80
83
4
85
88
89
107
116
116
136
141
147
155
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
Citigroup Inc. and Subsidiaries
2012
In millions of dollars, except per share amounts
Revenues
Interest revenue
Interest expense
Net interest revenue
Commissions and fees
Principal transactions
Administration and other fiduciary fees
Realized gains (losses) on sales of investments, net
Other-than-temporary impairment losses on investments
Gross impairment losses (1)
Less: Impairments recognized in AOCI
Net impairment losses recognized in earnings
Insurance premiums
Other revenue (2)
Total non-interest revenues
Total revenues, net of interest expense
Provisions for credit losses and for benefits and claims
Provision for loan losses
Policyholder benefits and claims
Provision (release) for unfunded lending commitments
Total provisions for credit losses and for benefits and claims
Operating expenses
Compensation and benefits
Premises and equipment
Technology/communication
Advertising and marketing
Other operating
Total operating expenses (3)
Income (loss) from continuing operations before income taxes
Provision for income taxes (benefit)
Income from continuing operations
Discontinued operations
Income (loss) from discontinued operations
Gain (loss) on sale
Provision (benefit) for income taxes
Income (loss) from discontinued operations, net of taxes
Net income before attribution of noncontrolling interests
Noncontrolling interests
Citigroup’s net income
Basic earnings per share (4)
Income from continuing operations
Income (loss) from discontinued operations, net of taxes(5)
Net income
Weighted average common shares outstanding
Diluted earnings per share (4)(6)
Income from continuing operations
Income (loss) from discontinued operations, net of taxes(5)
Net income
Adjusted weighted average common shares outstanding (4)
(1)
(2)
(3)
(4)
(5)
(6)
Years Ended December 31,
2011
2010
$67,298
20,612
$46,686
$12,732
4,781
4,012
3,251
$71,858
24,209
$47,649
$12,665
7,234
3,995
1,997
$78,596
25,057
$53,539
$13,491
7,517
4,005
2,411
(5,037)
66
$(4,971)
$ 2,395
242
$22,442
$69,128
(2,413)
159
$ (2,254)
$ 2,561
3,484
$29,682
$77,331
(1,495)
84
$ (1,411)
$ 2,614
3,610
$32,237
$85,776
$10,458
887
(16)
$11,329
$11,336
972
51
$12,359
$24,961
965
(117)
$25,809
$25,119
3,266
5,829
2,164
13,596
$49,974
$ 7,825
7
$ 7,818
$25,614
3,310
5,055
2,268
14,003
$50,250
$14,722
3,575
$11,147
$24,372
3,271
4,946
1,572
12,690
$46,851
$13,116
2,217
$10,899
$
$
$
(75)
155
12
$68
$11,215
148
$11,067
(109)
(1)
(52)
$
(58)
$ 7,760
219
$ 7,541
140
(702)
(546)
$ (16)
$10,883
281
$10,602
$
2.53
(0.02)
$
2.51
2,930.6
$
3.71
0.02
$
3.73
2,909.8
$
$
$
$
2.46
(0.02)
$
2.44
3,015.5
3.60
0.02
$
3.63
2,998.8
3.64
0.01
$
3.65
2,877.6
3.53
0.01
$
3.54
2,967.8
2012 includes the recognition of a $3,340 million impairment charge related to the carrying value of Citi's remaining 35% interest in the Morgan Stanley Smith
Barney joint venture (MSSB), as well as the recognition of a $1,181 million impairment charge related to Citi’s investment in Akbank. See Note 15 to the
Consolidated Financial Statements.
Other revenue for 2012 includes a $1,344 million loss related to the sale of a 14% interest in MSSB, as well as the recognition of a $424 million loss related to the
sale of a 10.1% stake in Akbank.
Citigroup recorded repositioning charges of $1,375 million for 2012, $706 million for 2011 and $507 million for 2010.
All per share amounts and Citigroup shares outstanding for all periods reflect Citigroup’s 1-for-10 reverse stock split, which was effective May 6, 2011.
2010 includes $(48) million of noncontrolling interest from discontinued operations.
Due to rounding, earnings per share on continuing operations and discontinued operations may not sum to earnings per share on net income.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
In millions of dollars
Net income before attribution of noncontrolling interests
Citigroup’s other comprehensive income (loss)
Net change in unrealized gains and losses on investment securities, net of taxes
Net change in cash flow hedges, net of taxes
Net change in foreign currency translation adjustment, net of taxes and hedges
Pension liability adjustment, net of taxes (1)
Citigroup’s total other comprehensive income (loss)
Other comprehensive income (loss) attributable to noncontrolling interests
Net change in unrealized gains and losses on investment securities, net of taxes
Net change in foreign currency translation adjustment, net of taxes
Total other comprehensive income (loss) attributable to noncontrolling interests
Total comprehensive income before attribution of noncontrolling interests
Total comprehensive income attributable to noncontrolling interests
Citigroup’s comprehensive income
(1)
Citigroup Inc. and Subsidiaries
Years Ended December 31,
2011
2010
2012
$11,215
$10,883
$7,760
$ 632
527
721
(988)
$ 892
$ 2,360
(170)
(3,524)
(177)
$(1,511)
$ 1,952
532
820
(644)
$ 2,660
$
$
$1
(27)
$
(26)
$13,517
255
$13,262
32
58
$ 90
$8,742
309
$8,433
(5)
(87)
$ (92)
$ 9,612
56
$ 9,556
Primarily reflects adjustments based on the year-end actuarial valuations of the Company’s pension and postretirement plans and amortization of amounts
previously recognized in Other comprehensive income.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
6
CONSOLIDATED BALANCE SHEET
Citigroup Inc. and Subsidiaries
December 31,
2011
2012
In millions of dollars
Assets
Cash and due from banks (including segregated cash and other deposits)
Deposits with banks
Federal funds sold and securities borrowed or purchased under agreements to resell (including $160,589 and $142,862 as
of December 31, 2012 and December 31, 2011, respectively, at fair value)
Brokerage receivables
Trading account assets (including $105,458 and $119,054 pledged to creditors at December 31, 2012 and December 31,
2011, respectively)
Investments (including $21,423 and $14,940 pledged to creditors at December 31, 2012 and December 31, 2011,
respectively, and $294,463 and $274,040 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Loans, net of unearned income
Consumer (including $1,231 and $1,326 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Corporate (including $4,056 and $3,939 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Loans, net of unearned income
Allowance for loan losses
Total loans, net
Goodwill
Intangible assets (other than MSRs)
Mortgage servicing rights (MSRs)
Other assets (including $13,299 and $13,360 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Assets of discontinued operations held for sale
Total assets
$
36,453 $ 28,701
155,784
102,134
261,311
22,490
275,849
27,777
320,929
291,734
312,326
293,413
423,340
408,671
223,902
246,793
$ 655,464 $ 647,242
(30,115)
(25,455)
$ 630,009 $ 617,127
25,413
25,673
6,600
5,697
2,569
1,942
148,911
145,660
—
36
$1,864,660 $1,873,878
The following table presents certain assets of consolidated variable interest entities (VIEs), which are included in the
Consolidated Balance Sheet above. The assets in the table below include only those assets that can be used to settle obligations of
consolidated VIEs on the following page, and are in excess of those obligations. Additionally, the assets in the table below include
third-party assets of consolidated VIEs only, and exclude intercompany balances that eliminate in consolidation.
December 31,
2011
2012
In millions of dollars
Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
Cash and due from banks
Trading account assets
Investments
Loans, net of unearned income
Consumer (including $1,191 and $1,292 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Corporate (including $157 and $198 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Loans, net of unearned income
Allowance for loan losses
Total loans, net
Other assets
Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
Statement continues on the next page.
7
$
498
481
10,751
93,936
23,684
$117,620
(5,854)
$111,766
674
$124,170
$
591
567
12,509
103,275
23,780
$127,055
(8,000)
$119,055
874
$133,596
CONSOLIDATED BALANCE SHEET
Citigroup Inc. and Subsidiaries
(Continued)
December 31,
2011
2012
In millions of dollars, except shares and per share amounts
Liabilities
Non-interest-bearing deposits in U.S. offices
$ 129,657 $ 119,437
Interest-bearing deposits in U.S. offices (including $889 and $848 as of December 31, 2012 and December 31, 2011,
respectively, at fair value)
223,851
247,716
Non-interest-bearing deposits in offices outside the U.S.
57,357
65,024
Interest-bearing deposits in offices outside the U.S. (including $558 and $478 as of December 31, 2012 and December 31,
2011, respectively, at fair value)
465,291
488,163
Total deposits
$ 930,560 $ 865,936
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $116,689 and $97,712 as
of December 31, 2012 and December 31, 2011, respectively, at fair value)
198,373
211,236
Brokerage payables
56,696
57,013
Trading account liabilities
126,082
115,549
Short-term borrowings (including $818 and $1,354 as of December 31, 2012 and December 31, 2011, respectively, at fair
value)
54,441
52,027
Long-term debt (including $29,764 and $24,172 as of December 31, 2012 and December 31, 2011, respectively, at fair
value)
323,505
239,463
Other liabilities (including $2,910 and $3,742 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
69,272
67,815
Liabilities of discontinued operations held for sale
—
—
Total liabilities
$ 1,673,663 $1,694,305
Stockholders’ equity
Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares: 102,038 as of December 31, 2012 and
12,038 as of December 31, 2011, at aggregate liquidation value
312
$
2,562 $
Common stock ($0.01 par value; authorized shares: 6 billion), issued shares: 3,043,153,204 as of December 31, 2012 and
2,937,755,921 as of December 31, 2011
29
30
Additional paid-in capital
105,804
106,391
Retained earnings
90,520
97,809
Treasury stock, at cost: December 31, 2012—14,269,301 shares and December 31, 2011—13,877,688 shares
(1,071)
(847)
Accumulated other comprehensive income (loss)
(17,788)
(16,896)
Total Citigroup stockholders’ equity
$ 189,049 $ 177,806
Noncontrolling interest
1,767
1,948
Total equity
$ 190,997 $ 179,573
Total liabilities and equity
$1,864,660 $1,873,878
The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheet above.
The liabilities in the table below include third-party liabilities of consolidated VIEs only, and exclude intercompany balances that
eliminate in consolidation. The liabilities also exclude amounts where creditors or beneficial interest holders have recourse to the
general credit of Citigroup.
December 31,
2011
2012
In millions of dollars
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general
credit of Citigroup
Short-term borrowings
Long-term debt (including $1,330 and $1,558 as of December 31, 2012 and December 31, 2011, respectively, at fair value)
Other liabilities
Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the
general credit of Citigroup
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
8
$15,637
26,346
1,224
$21,009
50,451
1,051
$43,207
$72,511
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Citigroup Inc. and Subsidiaries
Years ended December 31,
2012
In millions of dollars, except shares in thousands
Preferred stock at aggregate liquidation value
Balance, beginning of year
Issuance of new preferred stock
Balance, end of period
Common stock and additional paid-in capital
Balance, beginning of year
Employee benefit plans
Issuance of shares and T-DECs for TARP repayment
ADIA Upper DECs equity units purchase contract
Other
Balance, end of period
Retained earnings
Balance, beginning of year
Adjustment to opening balance, net of taxes (1)(2)
Adjusted balance, beginning of period
Citigroup’s net income
Common dividends (3)
Preferred dividends
Other
Balance, end of period
Treasury stock, at cost
Balance, beginning of year
Issuance of shares pursuant to employee benefit plans
Treasury stock acquired (4)
Other
Balance, end of period
Citigroup’s accumulated other comprehensive income (loss)
Balance, beginning of year
Net change in Citigroup’s Accumulated other comprehensive income
(loss)
Balance, end of period
Total Citigroup common stockholders’ equity
Total Citigroup stockholders’ equity
Noncontrolling interest
Balance, beginning of year
Initial origination of a noncontrolling interest
Transactions between Citigroup and the noncontrolling-interest
shareholders
Net income attributable to noncontrolling-interest shareholders
Dividends paid to noncontrolling-interest shareholders
Net change in Accumulated other comprehensive income (loss)
Other
Net change in noncontrolling interests
Balance, end of period
Total equity
(1)
(2)
(3)
(4)
Amounts
2011
312
2,250
$ 2,562
$
$105,833
597
—
—
(9)
$106,421
$101,316
766
—
3,750
1
$105,833
$
$
312
—
312
2010
$
12
—
12
$ 98,428 2,937,756
(736)
9,037
—
96,338
3,750
—
(126)
22
$101,316 3,043,153
2,922,402
3,540
—
11,781
33
2,937,756
2,862,610
46,703
1,270
11,781
38
2,922,402
79,559
—
79,559
11,067
(81)
(26)
1
90,520
$ 77,440
(8,483)
$ 68,957
10,602
10
(9)
(1)
$ 79,559
$ (1,071) $
229
(5)
—
$
(847) $
(1,442)
372
(1)
—
(1,071)
$ (4,543)
3,106
(6)
1
$ (1,442)
$ (17,788) $ (16,277)
$ (18,937)
(1,511)
892
$ (16,896) $ (17,788)
$186,487 $ 177,494
$189,049 $ 177,806
2,660
$ (16,277)
$163,156 3,028,884
$163,468
1,767
88
41
219
(33)
90
(224)
$
181
$ 1,948
$190,997
$
2,321
28
(274)
148
(67)
(92)
(297)
$
(554)
$ 1,767
$179,573
2010
12
—
12
$ 90,520 $
(107)
$ 90,413 $
7,541
(120)
(26)
1
$ 97,809 $
$
Shares
2011
12
90
102
$
312
—
312
2012
$
(13,878)
(253)
(138)
—
(14,269)
(16,566)
2,714
(26)
—
(13,878)
2,923,878
(14,283)
(2,128)
(162)
7
(16,566)
2,905,836
2,273
412
(231)
281
(99)
(26)
(289)
$
48
$ 2,321
$165,789
The adjustment to the opening balance for Retained earnings in 2012 represents the cumulative effect of adopting ASU 2010-26, Financial Services—Insurance
(Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. See Note 1 to the Consolidated Financial Statements.
The adjustment to the opening balance for Retained earnings in 2010 represents the cumulative effect of initially adopting ASC 810, Consolidation (SFAS 167)
and ASU 2010-11 (Scope Exception Related to Embedded Credit Derivatives). See Note 1 to the Consolidated Financial Statements.
Common dividends declared were $0.01 per share in each of the first, second, third and fourth quarters of 2012, and second, third and fourth quarters of 2011.
Common dividends in 2010 represent a reversal of dividends accrued on forfeitures of previously issued but unvested employee stock awards related to employees
who have left Citigroup.
All open market repurchases were transacted under an existing authorized share repurchase plan and relate to customer fails/errors.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
9
CONSOLIDATED STATEMENT OF CASH FLOWS
Citigroup Inc. and Subsidiaries
Years ended December 31,
2011
2010
2012
In millions of dollars
Cash flows from operating activities of continuing operations
Net income before attribution of noncontrolling interests
Net income attributable to noncontrolling interests
Citigroup’s net income
(Loss) income from discontinued operations, net of taxes
(Loss) gain on sale, net of taxes
Income from continuing operations—excluding noncontrolling interests
Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing
operations
Amortization of deferred policy acquisition costs and present value of future profits
(Additions) reductions to deferred policy acquisition costs
Depreciation and amortization
Deferred tax benefit
Provision for credit losses
Realized gains from sales of investments
Net impairment losses recognized in earnings
Change in trading account assets
Change in trading account liabilities
Change in federal funds sold and securities borrowed or purchased under agreements to resell
Change in federal funds purchased and securities loaned or sold under agreements to repurchase
Change in brokerage receivables net of brokerage payables
Change in loans held-for-sale
Change in other assets
Change in other liabilities
Other, net
Total adjustments
Net cash provided by operating activities of continuing operations
Cash flows from investing activities of continuing operations
Change in deposits with banks
Change in loans
Proceeds from sales and securitizations of loans
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Capital expenditures on premises and equipment and capitalized software
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets
Net cash provided by (used in) investing activities of continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Issuance of preferred stock
Issuance of ADIA Upper DECs equity units purchase contract
Treasury stock acquired
Stock tendered for payment of withholding taxes
Issuance of long-term debt
Payments and redemptions of long-term debt
Change in deposits
Change in short-term borrowings
Net cash used in financing activities of continuing operations
Effect of exchange rate changes on cash and cash equivalents
Discontinued operations
Net cash provided by discontinued operations
Change in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Supplemental disclosure of cash flow information for continuing operations
Cash paid during the year for income taxes
Cash paid during the year for interest
Non-cash investing activities
Transfers to OREO and other repossessed assets
Transfers to trading account assets from investments (available-for-sale)
Transfers to trading account assets from investments (held-to-maturity)
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
10
$ 7,760
219
$ 7,541
(57)
(1)
$ 7,599
$11,215
148
$11,067
(27)
95
$10,999
$ 10,883
281
$ 10,602
267
(283)
$ 10,618
203
85
2,507
(4,091)
10,832
(3,251)
4,971
(29,195)
(10,533)
14,538
12,863
945
(1,106)
(524)
(1,457)
9,885
$ 6,672
$ 14,271
250
(54)
2,872
(74)
11,824
(1,997)
2,254
38,238
(2,972)
(29,132)
8,815
8,383
1,021
14,933
(3,814)
3,233
$ 53,780
$ 64,779
302
(98)
2,664
(964)
25,077
(2,411)
1,411
15,601
(8,458)
(24,695)
35,277
(6,676)
2,483
(7,538)
(293)
(6,614)
$ 25,068
$ 35,686
$ 53,650
(28,817)
7,287
(256,907)
143,853
102,020
(3,604)
1,089
$ 18,571
$ 6,653
(31,597)
10,022
(314,250)
182,566
139,959
(3,448)
1,323
$ (8,772)
$
$
(143)
2,250
—
(5)
(194)
27,843
(117,575)
64,624
(2,164)
$(25,364)
$274
$
(107)
—
3,750
(1)
(230)
30,242
(89,091)
23,858
(25,067)
$(56,646)
$ (1,301)
$
(9)
—
3,750
(6)
(806)
33,677
(75,910)
9,065
(47,189)
$(77,428)
$
691
$
—
$ 7,752
28,701
$ 36,453
$ 2,669
$729
27,972
$ 28,701
$
214
$ 2,500
25,472
$ 27,972
$ 3,900
$ 19,739
$ 2,705
$ 21,230
$ 4,307
$ 23,209
$
$ 1,284
—
$12,700
$2,595
$12,001
—
500
—
—
4,977
60,730
9,918
(406,046)
183,688
189,814
(2,363)
2,619
$ 43,337
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Along with the VIEs that are consolidated in accordance
with these guidelines, the Company has variable interests in
other VIEs that are not consolidated because the Company is not
the primary beneficiary. These include multi-seller finance
companies, certain collateralized debt obligations (CDOs),
many structured finance transactions, and various investment
funds.
However, these VIEs and all other unconsolidated VIEs are
monitored by the Company to determine if any events have
occurred that could cause its primary beneficiary status to
change. These events include:
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of
Citigroup and its subsidiaries prepared in accordance with U.S.
Generally Accepted Accounting Principles (GAAP). The
Company consolidates subsidiaries in which it holds, directly or
indirectly, more than 50% of the voting rights or where it
exercises control. Entities where the Company holds 20% to
50% of the voting rights and/or has the ability to exercise
significant influence, other than investments of designated
venture capital subsidiaries or investments accounted for at fair
value under the fair value option, are accounted for under the
equity method, and the pro rata share of their income (loss) is
included in Other revenue. Income from investments in less
than 20%-owned companies is recognized when dividends are
received. As discussed in more detail in Note 22 to the
Consolidated Financial Statements, Citigroup consolidates
entities deemed to be variable interest entities when Citigroup is
determined to be the primary beneficiary. Gains and losses on
the disposition of branches, subsidiaries, affiliates, buildings,
and other investments are included in Other revenue.
Throughout these Notes, “Citigroup,” “Citi” and the
“Company” refer to Citigroup Inc. and its consolidated
subsidiaries.
Certain reclassifications have been made to the prior
periods’ financial statements and notes to conform to the current
period’s presentation.
•
•
•
•
additional purchases or sales of variable interests by
Citigroup or an unrelated third party, which cause
Citigroup’s overall variable interest ownership to change;
changes in contractual arrangements in a manner that
reallocates expected losses and residual returns among the
variable interest holders;
changes in the party that has power to direct the activities of
a VIE that most significantly impact the entity’s economic
performance; and
providing support to an entity that results in an implicit
variable interest.
All other entities not deemed to be VIEs with which the
Company has involvement are evaluated for consolidation under
other subtopics of ASC 810 (formerly Accounting Research
Bulletin (ARB) No. 51, Consolidated Financial Statements,
SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries, and EITF Issue No. 04-5, Determining Whether a
General Partner, or the General Partners as a Group, Controls
a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights).
Citibank, N.A.
Citibank, N.A. is a commercial bank and wholly owned
subsidiary of Citigroup Inc. Citibank’s principal offerings
include: Consumer finance, mortgage lending, and retail
banking products and services; investment banking, commercial
banking, cash management, trade finance and e-commerce
products and services; and private banking products and
services.
Foreign Currency Translation
Assets and liabilities of Citi’s foreign operations are translated
from their respective functional currencies into U.S. dollars
using period-end spot foreign-exchange rates. The effects of
those translation adjustments are reported in Accumulated other
comprehensive income (loss), a component of stockholders’
equity, along with related hedge and tax effects, until realized
upon sale or substantial liquidation of the foreign operation.
Revenues and expenses of Citi’s foreign operations are
translated monthly from their respective functional currencies
into U.S. dollars at amounts that approximate weighted average
exchange rates.
For transactions whose terms are denominated in a currency
other than the functional currency, including transactions
denominated in the local currencies of foreign operations with
the U.S. dollar as their functional currency, the effects of
changes in exchange rates are primarily included in Principal
transactions, along with the related hedge effects. Instruments
used to hedge foreign currency exposures include foreign
currency forward, option and swap contracts and designated
issues of non-U.S. dollar debt. Foreign operations in countries
with highly inflationary economies designate the U.S. dollar as
their functional currency, with the effects of changes in
exchange rates primarily included in Other revenue.
Variable Interest Entities
An entity is referred to as a variable interest entity (VIE) if it
meets the criteria outlined in ASC 810, Consolidation (formerly
SFAS No. 167, Amendments to FASB Interpretation No. 46(R))
(SFAS 167), which are: (i) the entity has equity that is
insufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties; or
(ii) the entity has equity investors that cannot make significant
decisions about the entity’s operations or that do not absorb
their proportionate share of the entity’s expected losses or
expected returns.
The Company consolidates a VIE when it has both the
power to direct the activities that most significantly impact the
VIE’s economic success and a right to receive benefits or absorb
losses of the entity that could be potentially significant to the
VIE (that is, it is the primary beneficiary).
11
Trading Account Assets and Liabilities
Trading account assets include debt and marketable equity
securities, derivatives in a receivable position, residual interests
in securitizations and physical commodities inventory. In
addition, as described in Note 26 to the Consolidated Financial
Statements, certain assets that Citigroup has elected to carry at
fair value under the fair value option, such as loans and
purchased guarantees, are also included in Trading account
assets.
Trading account liabilities include securities sold, not yet
purchased (short positions), and derivatives in a net payable
position, as well as certain liabilities that Citigroup has elected
to carry at fair value (as described in Note 26 to the
Consolidated Financial Statements).
Other than physical commodities inventory, all trading
account assets and liabilities are carried at fair value. Revenues
generated from trading assets and trading liabilities are
generally reported in Principal transactions and include realized
gains and losses as well as unrealized gains and losses resulting
from changes in the fair value of such instruments. Interest
income on trading assets is recorded in Interest revenue reduced
by interest expense on trading liabilities.
Physical commodities inventory is carried at the lower of
cost or market with related losses reported in Principal
transactions. Realized gains and losses on sales of commodities
inventory are included in Principal transactions. Investments in
unallocated precious metals accounts (gold, silver, platinum and
palladium) are accounted for as hybrid instruments containing a
debt host contract and an embedded non-financial derivative
instrument indexed to the price of the relevant precious metal.
The embedded derivative instrument is separated from the debt
host contract and accounted for at fair value. The debt host
contract is accounted for at fair value under the fair value
option, as described in Note 26 to the Consolidated Financial
Statements.
Derivatives used for trading purposes include interest rate,
currency, equity, credit, and commodity swap agreements,
options, caps and floors, warrants, and financial and commodity
futures and forward contracts. Derivative asset and liability
positions are presented net by counterparty on the Consolidated
Balance Sheet when a valid master netting agreement exists and
the other conditions set out in ASC 210-20, Balance Sheet—
Offsetting are met.
The Company uses a number of techniques to determine the
fair value of trading assets and liabilities, which are described in
Note 25 to the Consolidated Financial Statements.
Investment Securities
Investments include fixed income and equity securities. Fixed
income instruments include bonds, notes and redeemable
preferred stocks, as well as certain loan-backed and structured
securities that are subject to prepayment risk. Equity securities
include common and nonredeemable preferred stock.
Investment securities are classified and accounted for as
follows:
•
•
•
•
•
Fixed income securities classified as “held-to-maturity”
represent securities that the Company has both the ability
and the intent to hold until maturity and are carried at
amortized cost. Interest income on such securities is
included in Interest revenue.
Fixed income securities and marketable equity securities
classified as “available-for-sale” are carried at fair value
with changes in fair value reported in Accumulated other
comprehensive income (loss), a component of Stockholders’
equity, net of applicable income taxes and hedges. As
described in more detail in Note 15 to the Consolidated
Financial Statements, declines in fair value that are
determined to be other-than-temporary are recorded in
earnings immediately. Realized gains and losses on sales
are included in income primarily on a specific identification
cost basis. Interest and dividend income on such securities
is included in Interest revenue.
Venture capital investments held by Citigroup’s private
equity subsidiaries that are considered investment
companies are carried at fair value with changes in fair
value reported in Other revenue. These subsidiaries include
entities registered as Small Business Investment Companies
and engage exclusively in venture capital activities.
Certain investments in non-marketable equity securities and
certain investments that would otherwise have been
accounted for using the equity method are carried at fair
value, since the Company has elected to apply fair value
accounting. Changes in fair value of such investments are
recorded in earnings.
Certain non-marketable equity securities are carried at cost
and periodically assessed for other-than-temporary
impairment, as described in Note 15 to the Consolidated
Financial Statements.
For investments in fixed income securities classified as
held-to-maturity or available-for-sale, accrual of interest income
is suspended for investments that are in default or on which it is
likely that future interest payments will not be made as
scheduled.
The Company uses a number of valuation techniques for
investments carried at fair value, which are described in Note 25
to the Consolidated Financial Statements. Realized gains and
losses on sales of investments are included in earnings.
12
Repurchase and Resale Agreements, and Securities Lending
and Borrowing Agreements, Accounted for as Sales
Where certain conditions are met under ASC 860-10, Transfers
and Servicing (formerly FASB Statement No. 166, Accounting
for Transfers of Financial Assets), the Company accounted for
certain repurchase agreements and securities lending agreements
as sales. The key distinction resulting in these agreements being
accounted for as sales was a reduction in initial margin or
restriction in daily maintenance margin. At December 31, 2011,
a nominal amount of these transactions were accounted for as
sales that reduced Trading account assets. See related
discussion of the assessment of the effective control for
repurchase agreements in “Accounting Changes” below.
Securities Borrowed and Securities Loaned
Securities borrowing and lending transactions generally do not
constitute a sale of the underlying securities for accounting
purposes, and are treated as collateralized financing
transactions. Such transactions are recorded at the amount of
proceeds advanced or received plus accrued interest. As
described in Note 26 to the Consolidated Financial Statements,
the Company has elected to apply fair value accounting to a
number of securities borrowing and lending transactions. Fees
paid or received for all securities lending and borrowing
transactions are recorded in Interest expense or Interest revenue
at the contractually specified rate.
The Company monitors the fair value of securities
borrowed or loaned on a daily basis and obtains or posts
additional collateral in order to maintain contractual margin
protection.
As described in Note 25 to the Consolidated Financial
Statements, the Company uses a discounted cash flow technique
to determine the fair value of securities lending and borrowing
transactions.
Loans
Loans are reported at their outstanding principal balances net of
any unearned income and unamortized deferred fees and costs
except that credit card receivable balances also include accrued
interest and fees. Loan origination fees and certain direct
origination costs are generally deferred and recognized as
adjustments to income over the lives of the related loans.
As described in Note 26 to the Consolidated Financial
Statements, Citi has elected fair value accounting for certain
loans. Such loans are carried at fair value with changes in fair
value reported in earnings. Interest income on such loans is
recorded in Interest revenue at the contractually specified rate.
Loans for which the fair value option has not been elected
are classified upon origination or acquisition as either held-forinvestment or held-for-sale. This classification is based on
management’s initial intent and ability with regard to those
loans.
Loans that are held-for-investment are classified as Loans,
net of unearned income on the Consolidated Balance Sheet, and
the related cash flows are included within the cash flows from
the investing activities category in the Consolidated Statement
of Cash Flows on the line Change in loans. However, when the
initial intent for holding a loan has changed from held-forinvestment to held-for-sale, the loan is reclassified to held-forsale, but the related cash flows continue to be reported in cash
flows from investing activities in the Consolidated Statement of
Cash Flows on the line Proceeds from sales and securitizations
of loans.
Repurchase and Resale Agreements
Securities sold under agreements to repurchase (repos) and
securities purchased under agreements to resell (reverse repos)
generally do not constitute a sale for accounting purposes of the
underlying securities and are treated as collateralized financing
transactions. As described in Note 26 to the Consolidated
Financial Statements, the Company has elected to apply fair
value accounting to a majority of such transactions, with
changes in fair value reported in earnings. Any transactions for
which fair value accounting has not been elected are recorded at
the amount of cash advanced or received plus accrued interest.
Irrespective of whether the Company has elected fair value
accounting, interest paid or received on all repo and reverse repo
transactions is recorded in Interest expense or Interest revenue
at the contractually specified rate.
Where the conditions of ASC 210-20-45-11, Balance
Sheet—Offsetting: Repurchase and Reverse Repurchase
Agreements, are met, repos and reverse repos are presented net
on the Consolidated Balance Sheet.
The Company’s policy is to take possession of securities
purchased under reverse repurchase agreements. The Company
monitors the fair value of securities subject to repurchase or
resale on a daily basis and obtains or posts additional collateral
in order to maintain contractual margin protection.
As described in Note 25 to the Consolidated Financial
Statements, the Company uses a discounted cash flow technique
to determine the fair value of repo and reverse repo transactions.
13
Charge-off policies
Citi’s charge-off policies follow the general guidelines below:
Consumer loans
Consumer loans represent loans and leases managed primarily
by the Global Consumer Banking and Local Consumer Lending
businesses.
•
•
Non-accrual and re-aging policies
As a general rule, interest accrual ceases for installment and real
estate (both open- and closed-end) loans when payments are 90
days contractually past due. For credit cards and unsecured
revolving loans, however, Citi generally accrues interest until
payments are 180 days past due. As a result of OCC guidance
issued in the first quarter of 2012, home equity loans in
regulated bank entities are classified as non-accrual if the related
residential first mortgage is 90 days or more past due. As a
result of OCC guidance issued in the third quarter of 2012,
mortgage loans in regulated bank entities discharged through
Chapter 7 bankruptcy, other than FHA-insured loans, are
classified as non-accrual. Commercial market loans are placed
on a cash (non-accrual) basis when it is determined, based on
actual experience and a forward-looking assessment of the
collectability of the loan in full, that the payment of interest or
principal is doubtful or when interest or principal is 90 days past
due.
Loans that have been modified to grant a short-term or
long-term concession to a borrower who is in financial difficulty
may not be accruing interest at the time of the modification. The
policy for returning such modified loans to accrual status varies
by product and/or region. In most cases, a minimum number of
payments (ranging from one to six) are required, while in other
cases the loan is never returned to accrual status. For regulated
bank entities, such modified loans are returned to accrual status
if a credit evaluation at the time of or subsequent to the
modification indicates the borrower’s ability to meet the
restructured terms, and the borrower is current and has
demonstrated a reasonable period of sustained payment
performance (minimum six months of consecutive payments).
For U.S. Consumer loans, generally one of the conditions to
qualify for modification is that a minimum number of payments
(typically ranging from one to three) must be made. Upon
modification, the loan is re-aged to current status. However, reaging practices for certain open-ended Consumer loans, such as
credit cards, are governed by Federal Financial Institutions
Examination Council (FFIEC) guidelines. For open-ended
Consumer loans subject to FFIEC guidelines, one of the
conditions for the loan to be re-aged to current status is that at
least three consecutive minimum monthly payments, or the
equivalent amount, must be received. In addition, under FFIEC
guidelines, the number of times that such a loan can be re-aged
is subject to limitations (generally once in 12 months and twice
in five years). Furthermore, Federal Housing Administration
(FHA) and Department of Veterans Affairs (VA) loans are
modified under those respective agencies’ guidelines and
payments are not always required in order to re-age a modified
loan to current.
•
•
•
•
•
•
•
•
Unsecured installment loans are charged off at 120 days
past due.
Unsecured revolving loans and credit card loans are
charged off at 180 days contractually past due.
Loans secured with non-real estate collateral are written
down to the estimated value of the collateral, less costs to
sell, at 120 days past due.
Real estate-secured loans are written down to the estimated
value of the property, less costs to sell, at 180 days
contractually past due.
Non-bank loans secured by real estate are written down to
the estimated value of the property, less costs to sell, at the
earlier of the receipt of title or 12 months in foreclosure (a
process that must commence when payments are 120 days
contractually past due).
Non-bank unsecured personal loans are charged off when
the loan is 180 days contractually past due if there have
been no payments within the last six months, but in no
event can these loans exceed 360 days contractually past
due.
Unsecured loans in bankruptcy are charged off within 60
days of notification of filing by the bankruptcy court or in
accordance with Citi’s charge-off policy, whichever occurs
earlier.
As a result of OCC guidance issued in the third quarter of
2012, real estate-secured loans that were discharged
through Chapter 7 bankruptcy, other than FHA-insured
loans, are written down to the collateral value of the
property, less costs to sell. Other real estate-secured loans
in bankruptcy are written down to the estimated value of the
property, less costs to sell, at the later of 60 days after
notification or 60 days contractually past due.
Non-bank unsecured personal loans in bankruptcy are
charged off when they are 30 days contractually past due.
Commercial market loans are written down to the extent
that principal is judged to be uncollectable.
Corporate loans
Corporate loans represent loans and leases managed by ICG or
the Special Asset Pool. Corporate loans are identified as
impaired and placed on a cash (non-accrual) basis when it is
determined, based on actual experience and a forward-looking
assessment of the collectability of the loan in full, that the
payment of interest or principal is doubtful or when interest or
principal is 90 days past due, except when the loan is well
collateralized and in the process of collection. Any interest
accrued on impaired Corporate loans and leases is reversed at 90
days and charged against current earnings, and interest is
thereafter included in earnings only to the extent actually
received in cash. When there is doubt regarding the ultimate
collectability of principal, all cash receipts are thereafter applied
to reduce the recorded investment in the loan.
14
and, if appropriate, the realizable value of any collateral. The
asset-specific component of the allowance for smaller balance
impaired loans is calculated on a pool basis considering
historical loss experience.
The allowance for the remainder of the loan portfolio is
determined under ASC 450, Contingencies (formerly SFAS 5)
using a statistical methodology, supplemented by management
judgment. The statistical analysis considers the portfolio’s size,
remaining tenor, and credit quality as measured by internal risk
ratings assigned to individual credit facilities, which reflect
probability of default and loss given default. The statistical
analysis considers historical default rates and historical loss
severity in the event of default, including historical average
levels and historical variability. The result is an estimated range
for inherent losses. The best estimate within the range is then
determined by management’s quantitative and qualitative
assessment of current conditions, including general economic
conditions, specific industry and geographic trends, and internal
factors including portfolio concentrations, trends in internal
credit quality indicators, and current and past underwriting
standards.
For both the asset-specific and the statistically based
components of the Allowance for loan losses, management may
incorporate guarantor support. The financial wherewithal of the
guarantor is evaluated, as applicable, based on net worth, cash
flow statements and personal or company financial statements
which are updated and reviewed at least annually. Citi seeks
performance on guarantee arrangements in the normal course of
business. Seeking performance entails obtaining satisfactory
cooperation from the guarantor or borrower in the specific
situation. This regular cooperation is indicative of pursuit and
successful enforcement of the guarantee; the exposure is
reduced without the expense and burden of pursuing a legal
remedy. A guarantor’s reputation and willingness to work with
Citigroup is evaluated based on the historical experience with
the guarantor and the knowledge of the marketplace. In the rare
event that the guarantor is unwilling or unable to perform or
facilitate borrower cooperation, Citi pursues a legal remedy;
however, enforcing a guarantee via legal action against the
guarantor is not the primary means of resolving a troubled loan
situation and rarely occurs. If Citi does not pursue a legal
remedy, it is because Citi does not believe that the guarantor has
the financial wherewithal to perform regardless of legal action
or because there are legal limitations on simultaneously
pursuing guarantors and foreclosure. A guarantor’s reputation
does not impact Citi’s decision or ability to seek performance
under the guarantee.
In cases where a guarantee is a factor in the assessment of
loan losses, it is included via adjustment to the loan’s internal
risk rating, which in turn is the basis for the adjustment to the
statistically based component of the Allowance for loan losses.
To date, it is only in rare circumstances that an impaired
commercial loan or commercial real estate loan is carried at a
value in excess of the appraised value due to a guarantee.
Impaired Corporate loans and leases are written down to the
extent that principal is deemed to be uncollectable. Impaired
collateral-dependent loans and leases, where repayment is
expected to be provided solely by the sale of the underlying
collateral and there are no other available and reliable sources of
repayment, are written down to the lower of cost or collateral
value. Cash-basis loans are returned to an accrual status when
all contractual principal and interest amounts are reasonably
assured of repayment and there is a sustained period of
repayment performance in accordance with the contractual
terms.
Loans Held-for-Sale
Corporate and Consumer loans that have been identified for sale
are classified as loans held-for-sale and included in Other assets.
The practice of Citi’s U.S. prime mortgage business has been to
sell substantially all of its conforming loans. As such, U.S.
prime mortgage conforming loans are classified as held-for-sale
and the fair value option is elected at origination, with changes
in fair value recorded in Other revenue. With the exception of
these loans for which the fair value option has been elected,
held-for-sale loans are accounted for at the lower of cost or
market value, with any write-downs or subsequent recoveries
charged to Other revenue. The related cash flows are classified
in the Consolidated Statement of Cash Flows in the cash flows
from operating activities category on the line Change in loans
held-for-sale.
Allowance for Loan Losses
Allowance for loan losses represents management’s best
estimate of probable losses inherent in the portfolio, including
probable losses related to large individually evaluated impaired
loans and troubled debt restructurings. Attribution of the
allowance is made for analytical purposes only, and the entire
allowance is available to absorb probable loan losses inherent in
the overall portfolio. Additions to the allowance are made
through the Provision for loan losses. Loan losses are deducted
from the allowance and subsequent recoveries are added. Assets
received in exchange for loan claims in a restructuring are
initially recorded at fair value, with any gain or loss reflected as
a recovery or charge-off to the allowance.
Corporate loans
In the Corporate portfolios, the Allowance for loan losses
includes an asset-specific component and a statistically based
component. The asset-specific component is calculated under
ASC 310-10-35, Receivables—Subsequent Measurement
(formerly SFAS 114) on an individual basis for larger-balance,
non-homogeneous loans, which are considered impaired. An
asset-specific allowance is established when the discounted cash
flows, collateral value (less disposal costs), or observable
market price of the impaired loan is lower than its carrying
value. This allowance considers the borrower’s overall financial
condition, resources, and payment record, the prospects for
support from any financially responsible guarantors (discussed
further below)
15
Where short-term concessions have been granted prior to
January 1, 2011, the allowance for loan losses is materially
consistent with the requirements of ASC 310-10-35.
Valuation allowances for commercial market loans, which
are classifiably managed Consumer loans, are determined in the
same manner as for Corporate loans and are described in more
detail in the following section. Generally, an asset-specific
component is calculated under ASC 310-10-35 on an individual
basis for larger-balance, non-homogeneous loans that are
considered impaired and the allowance for the remainder of the
classifiably managed Consumer loan portfolio is calculated
under ASC 450 using a statistical methodology, supplemented
by management adjustment.
When Citi’s monitoring of the loan indicates that the
guarantor’s wherewithal to pay is uncertain or has deteriorated,
there is either no change in the risk rating, because the
guarantor’s credit support was never initially factored in, or the
risk rating is adjusted to reflect that uncertainty or deterioration.
Accordingly, a guarantor’s ultimate failure to perform or a lack
of legal enforcement of the guarantee does not materially impact
the allowance for loan losses, as there is typically no further
significant adjustment of the loan’s risk rating at that time.
Where Citi is not seeking performance under the guarantee
contract, it provides for loans losses as if the loans were nonperforming and not guaranteed.
Consumer loans
For Consumer loans, each portfolio of non-modified smallerbalance, homogeneous loans is independently evaluated by
product type (e.g., residential mortgage, credit card, etc.) for
impairment in accordance with ASC 450-20. The allowance for
loan losses attributed to these loans is established via a process
that estimates the probable losses inherent in the specific
portfolio. This process includes migration analysis, in which
historical delinquency and credit loss experience is applied to
the current aging of the portfolio, together with analyses that
reflect current and anticipated economic conditions, including
changes in housing prices and unemployment trends. Citi’s
allowance for loan losses under ASC 450-20 only considers
contractual principal amounts due, except for credit card loans
where estimated loss amounts related to accrued interest
receivable are also included.
Management also considers overall portfolio indicators,
including historical credit losses, delinquent, non-performing,
and classified loans, trends in volumes and terms of loans, an
evaluation of overall credit quality, the credit process, including
lending policies and procedures, and economic, geographical,
product and other environmental factors.
Separate valuation allowances are determined for impaired
smaller-balance homogeneous loans whose terms have been
modified in a troubled debt restructuring (TDR). Long-term
modification programs as well as short-term (less than 12
months) modifications originated beginning January 1, 2011
that provide concessions (such as interest rate reductions) to
borrowers in financial difficulty are reported as TDRs. In
addition, loans included in the U.S. Treasury’s Home
Affordable Modification Program (HAMP) trial period at
December 31, 2011 are reported as TDRs. The allowance for
loan losses for TDRs is determined in accordance with ASC
310-10-35 considering all available evidence, including, as
appropriate, the present value of the expected future cash flows
discounted at the loan’s original contractual effective rate, the
secondary market value of the loan and the fair value of
collateral less disposal costs. These expected cash flows
incorporate modification program default rate assumptions. The
original contractual effective rate for credit card loans is the premodification rate, which may include interest rate increases
under the original contractual agreement with the borrower.
Reserve Estimates and Policies
Management provides reserves for an estimate of probable
losses inherent in the funded loan portfolio on the Consolidated
Balance Sheet in the form of an allowance for loan losses. These
reserves are established in accordance with Citigroup’s credit
reserve policies, as approved by the Audit Committee of the
Board of Directors. Citi’s Chief Risk Officer and Chief
Financial Officer review the adequacy of the credit loss reserves
each quarter with representatives from the risk management and
finance staffs for each applicable business area. Applicable
business areas include those having classifiably managed
portfolios, where internal credit-risk ratings are assigned
(primarily Institutional Clients Group and Global Consumer
Banking) or modified Consumer loans, where concessions were
granted due to the borrowers’ financial difficulties.
The above-mentioned representatives for these business
areas present recommended reserve balances for their funded
and unfunded lending portfolios along with supporting
quantitative and qualitative data. The quantitative data include:
Estimated probable losses for non-performing, nonhomogeneous exposures within a business line’s classifiably
managed portfolio and impaired smaller-balance homogeneous
loans whose terms have been modified due to the borrowers’
financial difficulties, and it was determined that a concession
was granted to the borrower. Consideration may be given to the
following, as appropriate, when determining this estimate: (i)
the present value of expected future cash flows discounted at the
loan’s original effective rate; (ii) the borrower’s overall
financial condition, resources and payment record; and (iii) the
prospects for support from financially responsible guarantors or
the realizable value of any collateral. In the determination of the
allowance for loan losses for TDRs, management considers a
combination of historical re-default rates, the current economic
environment and the nature of the modification program when
forecasting expected cash flows. When impairment is measured
based on the present value of expected future cash flows, the
entire change in present value is recorded in the Provision for
loan losses.
16
Citigroup Residential Mortgages—Representations and
Warranties
Statistically calculated losses inherent in the classifiably
managed portfolio for performing and de minimis nonperforming exposures. The calculation is based upon: (i)
Citigroup’s internal system of credit-risk ratings, which are
analogous to the risk ratings of the major rating agencies; and
(ii) historical default and loss data, including rating agency
information regarding default rates from 1983 to 2010 and
internal data dating to the early 1970s on severity of losses in
the event of default. Adjustments may be made to this data.
Such adjustments include: (i) statistically calculated estimates to
cover the historical fluctuation of the default rates over the
credit cycle, the historical variability of loss severity among
defaulted loans, and the degree to which there are large obligor
concentrations in the global portfolio; and (ii) adjustments made
for specific known items, such as current environmental factors
and credit trends.
In addition, representatives from each of the risk
management and finance staffs that cover business areas with
delinquency-managed portfolios containing smaller-balance
homogeneous loans present their recommended reserve balances
based upon leading credit indicators, including loan
delinquencies and changes in portfolio size as well as economic
trends, including current and future housing prices,
unemployment, length of time in foreclosure, costs to sell and
GDP. This methodology is applied separately for each
individual product within each geographic region in which these
portfolios exist.
This evaluation process is subject to numerous estimates
and judgments. The frequency of default, risk ratings, loss
recovery rates, the size and diversity of individual large credits,
and the ability of borrowers with foreign currency obligations to
obtain the foreign currency necessary for orderly debt servicing,
among other things, are all taken into account during this review.
Changes in these estimates could have a direct impact on the
credit costs in any period and could result in a change in the
allowance.
Overview
In connection with Citi’s sales of residential mortgage loans to
the U.S. government-sponsored entities (GSEs) and, in most
cases, other mortgage loan sales and private-label securitizations,
Citi makes representations and warranties that the loans sold
meet certain requirements. The specific representations and
warranties made by Citi in any particular transaction depend on,
among other things, the nature of the transaction and the
requirements of the investor (e.g., whole loan sale to the GSEs
versus loans sold through securitization transactions), as well as
the credit quality of the loan (e.g., prime, Alt-A or subprime).
These sales expose Citi to potential claims for breaches of
its representations and warranties. In the event of a breach of its
representations and warranties, Citi could be required either to
repurchase the mortgage loans with the identified defects
(generally at unpaid principal balance plus accrued interest) or
to indemnify (make-whole) the investors for their losses on
these loans. To the extent Citi made representation and
warranties on loans it purchased from third-party sellers that
remain financially viable, Citi may have the right to seek
recovery of repurchase losses or make-whole payments from the
third party based on representations and warranties made by the
third party to Citi (a back-to-back claim).
Whole Loan Sales
Citi is exposed to representation and warranty repurchase claims
primarily as a result of its whole loan sales to the GSEs and, to a
lesser extent, private investors, through its Consumer business
in CitiMortgage. When selling a loan to these investors, Citi
makes various representations and warranties to, among other
things, the following:
•
•
•
Allowance for Unfunded Lending Commitments
A similar approach to the allowance for loan losses is used for
calculating a reserve for the expected losses related to unfunded
loan commitments and standby letters of credit. This reserve is
classified on the balance sheet in Other liabilities. Changes to
the allowance for unfunded lending commitments are recorded
in the Provision for unfunded lending commitments.
•
•
•
•
Mortgage Servicing Rights
Mortgage servicing rights (MSRs) are recognized as intangible
assets when purchased or when the Company sells or securitizes
loans acquired through purchase or origination and retains the
right to service the loans. Mortgage servicing rights are
accounted for at fair value, with changes in value recorded in
Other revenue in the Company’s Consolidated Statement of
Income.
Additional information on the Company’s MSRs can be
found in Note 22 to the Consolidated Financial Statements.
Citi’s ownership of the loan;
the validity of the lien securing the loan;
the absence of delinquent taxes or liens against the property
securing the loan;
the effectiveness of title insurance on the property securing
the loan;
the process used in selecting the loans for inclusion in a
transaction;
the loan’s compliance with any applicable loan criteria
established by the buyer; and
the loan’s compliance with applicable local, state and
federal laws.
In the case of a repurchase, Citi will bear any subsequent credit
loss on the mortgage loan and the loan is typically considered a
credit-impaired loan and accounted for under SOP 03-3,
“Accounting for Certain Loans and Debt Securities Acquired in
a Transfer” (now incorporated into ASC 310-30,
Receivables—Loans and Debt Securities Acquired with
Deteriorated Credit Quality) (SOP 03-3). These repurchases
have not had a material impact on Citi’s non-performing loan
statistics because credit-impaired purchased SOP 03-3 loans are
not included in non-accrual loans, since they generally continue
to accrue interest until write-off. Citi’s repurchases have
primarily been due to GSE repurchase claims.
17
adverse changes to those assumptions. Citi’s estimate of
reasonably possible loss is based on currently available
information, significant judgment and numerous assumptions
that are subject to change.
In the case of a repurchase of a credit-impaired SOP 03-3
loan, the difference between the loan’s fair value and unpaid
principal balance at the time of the repurchase is recorded as a
utilization of the repurchase reserve. Make-whole payments to
the investor are also treated as utilizations and charged directly
against the reserve. The repurchase reserve is estimated when
Citi sells loans (recorded as an adjustment to the gain on sale,
which is included in Other revenue in the Consolidated
Statement of Income) and is updated quarterly. Any change in
estimate is recorded in Other revenue.
Private-Label Residential Mortgage Securitizations
Citi is also exposed to representation and warranty repurchase
claims as a result of mortgage loans sold through private-label
residential mortgage securitizations. These representations were
generally made or assigned to the issuing trust and related to,
among other things, the following:
•
•
•
•
•
the absence of fraud on the part of the borrower, the seller
or any appraiser, broker or other party involved in the
origination of the loan (which was sometimes wholly or
partially limited to the knowledge of the representation
provider);
whether the property securing the loan was occupied by the
borrower as his or her principal residence;
the loan’s compliance with applicable federal, state and
local laws;
whether the loan was originated in conformity with the
originator’s underwriting guidelines; and
detailed data concerning the loans that were included on the
mortgage loan schedule.
Repurchase Reserve—Private-Label Securitizations
Investors in private-label securitizations may seek recovery for
alleged breaches of representations and warranties, as well as
losses caused by non-performing loans more generally, through
repurchase claims or through litigation premised on a variety of
legal theories. Citi considers litigation relating to private-label
securitizations as part of its contingencies analysis. For
additional information, see Note 28 to the Consolidated
Financial Statements.
Citi cannot reasonably estimate probable losses from future
repurchase claims for private-label securitizations because the
claims to date have been received at an unpredictable rate, the
factual basis for those claims is unclear, and very few such
claims have been resolved. Rather, at the present time, Citi
records reserves related to private-label securitizations
repurchase claims based on estimated losses arising from those
claims received that appear to be based on a review of the
underlying loan files. These reserves are recorded in Principal
transactions in the Consolidated Statement of Income.
Repurchase Reserve
Citi has recorded a mortgage repurchase reserve (referred to as
the repurchase reserve) for its potential repurchase or makewhole liability regarding representation and warranty claims that
is included in Other liabilities in the Consolidated Balance
Sheet. Citi’s repurchase reserve primarily relates to whole loan
sales to the GSEs and is thus calculated primarily based on
Citi’s historical repurchase activity with the GSEs.
Repurchase Reserve—Whole Loan Sales
The repurchase reserve is based on various assumptions which,
as referenced above, are primarily based on Citi’s historical
repurchase activity with the GSEs. As of December 31, 2012,
the most significant assumptions used to calculate the reserve
levels are: (i) the probability of a claim based on correlation
between loan characteristics and repurchase claims; (ii) claims
appeal success rates; and (iii) estimated loss per repurchase or
make-whole payment. In addition, Citi considers
reimbursements estimated to be received from third-party sellers,
which are generally based on Citi’s analysis of its most recent
collection trends and the financial solvency or viability of the
third-party sellers, in estimating its repurchase reserve.
As referenced above, the repurchase reserve estimation
process for potential whole loan representation and warranty
claims relies on various assumptions that involve numerous
estimates and judgments, including with respect to certain future
events, and thus entails inherent uncertainty. Therefore, Citi
estimates and discloses the range of reasonably possible loss for
whole loan sale representation and warranty claims in excess of
amounts accrued. This estimate is derived by modifying the key
assumptions discussed above to reflect management’s judgment
regarding reasonably possible
Goodwill
Goodwill represents the excess of acquisition cost over the fair
value of net tangible and intangible assets acquired. Goodwill is
subject to annual impairment testing and between annual tests if
an event occurs or circumstances change that would morelikely-than-not reduce the fair value of a reporting unit below its
carrying amount. The Company has an option to assess
qualitative factors to determine if it is necessary to perform the
goodwill impairment test. If, after assessing the totality of
events or circumstances, the Company determines that it is not
more-likely-than-not that the fair value of a reporting unit is less
than its carrying amount, no further testing is necessary. If,
however, the Company determines that it is more-likely-thannot that the fair value of a reporting unit is less than its carrying
amount, then the Company is required to perform the first step
of the two-step goodwill impairment test. Furthermore, on any
business dispositions, goodwill is allocated to the business
disposed of based on the ratio of the fair value of the business
disposed of to the fair value of the reporting unit.
Additional information on Citi’s goodwill impairment
testing can be found in Note 18 to the Consolidated Financial
Statements.
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Debt
Short-term borrowings and long-term debt are accounted for at
amortized cost, except where the Company has elected to report
the debt instruments, including certain structured notes, at fair
value or the debt is in a fair value hedging relationship.
Intangible Assets
Intangible assets—including core deposit intangibles, present
value of future profits, purchased credit card relationships, other
customer relationships, and other intangible assets, but
excluding MSRs—are amortized over their estimated useful
lives. Intangible assets deemed to have indefinite useful lives,
primarily certain asset management contracts and trade names,
are not amortized and are subject to annual impairment tests. An
impairment exists if the carrying value of the indefinite-lived
intangible asset exceeds its fair value. For other intangible assets
subject to amortization, an impairment is recognized if the
carrying amount is not recoverable and exceeds the fair value of
the intangible asset.
Transfers of Financial Assets
For a transfer of financial assets to be considered a sale: (i) the
assets must have been isolated from the Company, even in
bankruptcy or other receivership; (ii) the purchaser must have
the right to pledge or sell the assets transferred or, if the
purchaser is an entity whose sole purpose is to engage in
securitization and asset-backed financing activities and that
entity is constrained from pledging the assets it receives, each
beneficial interest holder must have the right to sell the
beneficial interests; and (iii) the Company may not have an
option or obligation to reacquire the assets.
If these sale requirements are met, the assets are removed
from the Company’s Consolidated Balance Sheet. If the
conditions for sale are not met, the transfer is considered to be a
secured borrowing, the assets remain on the Consolidated
Balance Sheet, and the sale proceeds are recognized as the
Company’s liability. A legal opinion on a sale is generally
obtained for complex transactions or where the Company has
continuing involvement with assets transferred or with the
securitization entity. For a transfer to be eligible for sale
accounting, those opinions must state that the asset transfer is
considered a sale and that the assets transferred would not be
consolidated with the Company’s other assets in the event of the
Company’s insolvency.
For a transfer of a portion of a financial asset to be
considered a sale, the portion transferred must meet the
definition of a participating interest. A participating interest
must represent a pro rata ownership in an entire financial asset;
all cash flows must be divided proportionally, with the same
priority of payment; no participating interest in the transferred
asset may be subordinated to the interest of another participating
interest holder; and no party may have the right to pledge or
exchange the entire financial asset unless all participating
interest holders agree. Otherwise, the transfer is accounted for as
a secured borrowing.
See Note 22 to the Consolidated Financial Statements for
further discussion.
Other Assets and Other Liabilities
Other assets include, among other items, loans held-for-sale,
deferred tax assets, equity method investments, interest and fees
receivable, premises and equipment, repossessed assets, and
other receivables. Other liabilities include, among other items,
accrued expenses and other payables, deferred tax liabilities,
and reserves for legal claims, taxes, unfunded lending
commitments, repositioning reserves, and other matters.
Other Real Estate Owned and Repossessed Assets
Real estate or other assets received through foreclosure or
repossession are generally reported in Other assets, net of a
valuation allowance for selling costs and subsequent declines in
fair value.
Securitizations
The Company primarily securitizes credit card receivables and
mortgages. Other types of securitized assets include corporate
debt instruments (in cash and synthetic form) and student loans.
There are two key accounting determinations that must be
made relating to securitizations. Citi first makes a determination
as to whether the securitization entity would be consolidated.
Second, it determines whether the transfer of financial assets to
the entity is considered a sale under GAAP. If the securitization
entity is a VIE, the Company consolidates the VIE if it is the
primary beneficiary (as discussed in “Variable Interest Entities”
above). For all other securitization entities determined not to be
VIEs in which Citigroup participates, a consolidation decision is
based on who has voting control of the entity, giving
consideration to removal and liquidation rights in certain
partnership structures. Only securitization entities controlled by
Citigroup are consolidated.
Interests in the securitized and sold assets may be retained
in the form of subordinated or senior interest-only strips,
subordinated tranches, spread accounts and servicing rights. In
credit card securitizations, the Company retains a seller’s
interest in the credit card receivables transferred to the trusts,
which is not in securitized form. In the case of consolidated
securitization entities, including the credit card trusts, these
retained interests are not reported on Citi’s Consolidated
Balance Sheet; rather, the securitized loans remain on the
balance sheet. Substantially all of the Consumer loans sold or
securitized through non-consolidated trusts by Citigroup are U.S.
prime residential mortgage loans. Retained interests in nonconsolidated mortgage securitization trusts are classified as
Trading account assets, except for MSRs, which are included in
Mortgage servicing rights on Citigroup’s Consolidated Balance
Sheet.
Risk Management Activities—Derivatives Used for Hedging
Purposes
The Company manages its exposures to market rate movements
outside its trading activities by modifying the asset and liability
mix, either directly or through the use of derivative financial
products, including interest-rate swaps, futures, forwards, and
purchased options, as well as foreign-exchange contracts. These
end-user derivatives are carried at fair value in Other assets,
Other liabilities, Trading account assets and Trading account
liabilities.
19
For net investment hedges in which derivatives hedge the
foreign currency exposure of a net investment in a foreign
operation, the accounting treatment will similarly depend on the
effectiveness of the hedge. The effective portion of the change
in fair value of the derivative, including any forward premium
or discount, is reflected in Accumulated other comprehensive
income (loss) as part of the foreign currency translation
adjustment.
For those accounting hedge relationships that are
terminated or when hedge designations are removed, the hedge
accounting treatment described in the paragraphs above is no
longer applied. Instead, the end-user derivative is terminated or
transferred to the trading account. For fair value hedges, any
changes in the fair value of the hedged item remain as part of
the basis of the asset or liability and are ultimately reflected as
an element of the yield. For cash flow hedges, any changes in
fair value of the end-user derivative remain in Accumulated
other comprehensive income (loss) and are included in earnings
of future periods when the hedged cash flows impact earnings.
However, if it becomes probable that the hedged forecasted
transaction will not occur, any amounts that remain in
Accumulated other comprehensive income (loss) are
immediately reflected in Other revenue.
End-user derivatives that are economic hedges, rather than
qualifying for hedge accounting, are also carried at fair value,
with changes in value included in Principal transactions or
Other revenue. Citigroup often uses economic hedges when
qualifying for hedge accounting would be too complex or
operationally burdensome; examples are hedges of the credit
risk component of commercial loans and loan commitments.
Citigroup periodically evaluates its hedging strategies in other
areas and may designate either a qualifying hedge or an
economic hedge, after considering the relative cost and benefits.
Economic hedges are also employed when the hedged item itself
is marked to market through current earnings, such as hedges of
commitments to originate one-to-four-family mortgage loans to
be held for sale and MSRs.
To qualify as an accounting hedge under the hedge
accounting rules (versus an economic hedge where hedge
accounting is not sought), a derivative must be highly effective
in offsetting the risk designated as being hedged. The hedge
relationship must be formally documented at inception, detailing
the particular risk management objective and strategy for the
hedge, which includes the item and risk that is being hedged and
the derivative that is being used, as well as how effectiveness
will be assessed and ineffectiveness measured. The
effectiveness of these hedging relationships is evaluated on a
retrospective and prospective basis, typically using quantitative
measures of correlation with hedge ineffectiveness measured
and recorded in current earnings.
If a hedge relationship is found to be ineffective, it no
longer qualifies as an accounting hedge and hedge accounting
would not be applied. Any gains or losses attributable to the
derivatives, as well as subsequent changes in fair value, are
recognized in Other revenue or Principal transactions with no
offset on the hedged item, similar to trading derivatives.
The foregoing criteria are applied on a decentralized basis,
consistent with the level at which market risk is managed, but
are subject to various limits and controls. The underlying asset,
liability or forecasted transaction may be an individual item or a
portfolio of similar items.
For fair value hedges, in which derivatives hedge the fair
value of assets or liabilities, changes in the fair value of
derivatives are reflected in Other revenue or Principal
transactions, together with changes in the fair value of the
hedged item related to the hedged risk. These are expected to,
and generally do, offset each other. Any net amount,
representing hedge ineffectiveness, is reflected in current
earnings. Citigroup’s fair value hedges are primarily hedges of
fixed-rate long-term debt and available-for-sale securities.
For cash flow hedges, in which derivatives hedge the
variability of cash flows related to floating- and fixed-rate assets,
liabilities or forecasted transactions, the accounting treatment
depends on the effectiveness of the hedge. To the extent these
derivatives are effective in offsetting the variability of the
hedged cash flows, the effective portion of the changes in the
derivatives’ fair values will not be included in current earnings,
but is reported in Accumulated other comprehensive income
(loss). These changes in fair value will be included in earnings
of future periods when the hedged cash flows impact earnings.
To the extent these derivatives are not effective, changes in their
fair values are immediately included in Other revenue.
Citigroup’s cash flow hedges primarily include hedges of
floating-rate debt and floating-rate assets including loans, as
well as rollovers of short-term fixed-rate liabilities and floatingrate liabilities and forecasted debt issuances.
Employee Benefits Expense
Employee benefits expense includes current service costs of
pension and other postretirement benefit plans (which are
accrued on a current basis), contributions and unrestricted
awards under other employee plans, the amortization of
restricted stock awards and costs of other employee benefits.
Stock-Based Compensation
The Company recognizes compensation expense related to stock
and option awards over the requisite service period, generally
based on the instruments’ grant date fair value, reduced by
expected forfeitures. Compensation cost related to awards
granted to employees who meet certain age plus years-ofservice requirements (retirement eligible employees) is accrued
in the year prior to the grant date, in the same manner as the
accrual for cash incentive compensation. Certain stock awards
with performance conditions or certain clawback provisions are
subject to variable accounting, pursuant to which the associated
compensation expense fluctuates with changes in Citigroup’s
stock price.
20
Basic earnings per share is computed by dividing income
available to common stockholders after the allocation of
dividends and undistributed earnings to the participating
securities by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised. It is computed
after giving consideration to the weighted average dilutive effect
of the Company’s stock options and warrants, convertible
securities and the shares that could have been issued under the
Company’s Management Committee Long-Term Incentive Plan
and after the allocation of earnings to the participating securities.
Income Taxes
The Company is subject to the income tax laws of the U.S. and
its states and municipalities, and the foreign jurisdictions in
which it operates. These tax laws are complex and subject to
different interpretations by the taxpayer and the relevant
governmental taxing authorities. In establishing a provision for
income tax expense, the Company must make judgments and
interpretations about the application of these inherently complex
tax laws. The Company must also make estimates about when in
the future certain items will affect taxable income in the various
tax jurisdictions, both domestic and foreign.
Disputes over interpretations of the tax laws may be subject
to review and adjudication by the court systems of the various
tax jurisdictions or may be settled with the taxing authority upon
examination or audit. The Company treats interest and penalties
on income taxes as a component of Income tax expense.
Deferred taxes are recorded for the future consequences of
events that have been recognized for financial statements or tax
returns, based upon enacted tax laws and rates. Deferred tax
assets are recognized subject to management’s judgment that
realization is more-likely-than-not. FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48) (now
incorporated into ASC 740, Income Taxes), sets out a consistent
framework to determine the appropriate level of tax reserves to
maintain for uncertain tax positions. This interpretation uses a
two-step approach wherein a tax benefit is recognized if a
position is more-likely-than-not to be sustained. The amount of
the benefit is then measured to be the highest tax benefit that is
greater than 50% likely to be realized. FIN 48 also sets out
disclosure requirements to enhance transparency of an entity’s
tax reserves.
See Note 10 to the Consolidated Financial Statements for a
further description of the Company’s tax provision and related
income tax assets and liabilities.
Use of Estimates
Management must make estimates and assumptions that affect
the Consolidated Financial Statements and the related footnote
disclosures. Such estimates are used in connection with certain
fair value measurements. See Note 25 to the Consolidated
Financial Statements for further discussions on estimates used in
the determination of fair value. The Company also uses
estimates in determining consolidation decisions for specialpurpose entities as discussed in Note 22 to the Consolidated
Financial Statements. Moreover, estimates are significant in
determining the amounts of other-than-temporary impairments,
impairments of goodwill and other intangible assets, provisions
for probable losses that may arise from credit-related exposures
and probable and estimable losses related to litigation and
regulatory proceedings, and tax reserves. While management
makes its best judgment, actual amounts or results could differ
from those estimates. Current market conditions increase the
risk and complexity of the judgments in these estimates.
Cash Flows
Cash equivalents are defined as those amounts included in cash
and due from banks. Cash flows from risk management
activities are classified in the same category as the related assets
and liabilities.
Commissions, Underwriting and Principal Transactions
Commissions revenues are recognized in income generally
when earned. Underwriting revenues are recognized in income
typically at the closing of the transaction. Principal transactions
revenues are recognized in income on a trade-date basis. See
Note 6 to the Consolidated Financial Statements for a
description of the Company’s revenue recognition policies for
commissions and fees.
Related Party Transactions
The Company has related party transactions with certain of its
subsidiaries and affiliates. These transactions, which are
primarily short-term in nature, include cash accounts,
collateralized financing transactions, margin accounts,
derivative trading, charges for operational support and the
borrowing and lending of funds, and are entered into in the
ordinary course of business.
Earnings per Share
Earnings per share (EPS) is computed after deducting preferred
stock dividends. The Company has granted restricted and
deferred share awards with dividend rights that are considered to
be participating securities, which are akin to a second class of
common stock. Accordingly, a portion of Citigroup’s earnings is
allocated to those participating securities in the EPS calculation.
21
loan losses accounts were effective for reporting periods
beginning on or after December 15, 2010 and were included in
the Company’s Forms 10-Q beginning with the first quarter of
2011 (see Notes 16 and 17 to the Consolidated Financial
Statements). The troubled debt restructuring disclosure
requirements that were part of this ASU became effective in the
third quarter of 2011 (see below).
ACCOUNTING CHANGES
OCC Chapter 7 Bankruptcy Guidance
In the third quarter of 2012, the Office of the Comptroller of the
Currency (OCC) issued guidance relating to the accounting for
mortgage loans discharged through bankruptcy proceedings
pursuant to Chapter 7 of the U.S. Bankruptcy Code (Chapter 7
bankruptcy). Under this OCC guidance, the discharged loans are
accounted for as troubled debt restructurings (TDRs). These
TDRs, other than FHA-insured loans, are written down to their
collateral value less cost to sell. FHA-insured loans are reserved
for, based on a discounted cash flow model. As a result of
implementing this guidance, Citigroup recorded an incremental
$635 million of charge-offs in the third quarter of 2012, the vast
majority of which related to loans that were current. These
charge-offs were substantially offset by a related loan loss
reserve release of approximately $600 million, with a net
reduction in pretax income of $35 million. In the fourth quarter
of 2012, Citigroup recorded a benefit to charge-offs of
approximately $40 million related to finalizing the impact of
this OCC guidance. Furthermore, as a result of this OCC
guidance, TDRs increased by $1.7 billion, and non-accrual loans
increased by $1.5 billion in the third quarter of 2012 ($1.3
billion of which was current).
Troubled Debt Restructurings (TDRs)
In April 2011, the FASB issued ASU No. 2011-02, Receivables
(Topic 310): A Creditor’s Determination of whether a
Restructuring Is a Troubled Debt Restructuring, to clarify the
guidance for accounting for troubled debt restructurings. The
ASU clarified the guidance on a creditor’s evaluation of whether
it has granted a concession and whether a debtor is experiencing
financial difficulties, such as:
•
•
•
Presentation of Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. The ASU requires an entity to present
the total of comprehensive income, the components of net
income, and the components of other comprehensive income
(OCI) either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. Citigroup
has selected the two-statement approach. Under this approach,
Citi is required to present components of net income and total
net income in the Statement of Income. The Statement of
Comprehensive Income follows the Statement of Income and
includes the components of OCI and a total for OCI, along with
a total for comprehensive income. The ASU removed the option
of reporting other comprehensive income in the statement of
changes in stockholders’ equity. This ASU became effective for
Citigroup on January 1, 2012 and a Statement of
Comprehensive Income is included in these Consolidated
Financial Statements. See “Future Application of Accounting
Standards” below for further discussion.
•
Any shortfall in contractual loan payments is considered a
concession.
Creditors cannot assume that debt extensions at or above a
borrower’s original contractual rate do not constitute
troubled debt restructurings, because the new contractual
rate could still be below the market rate.
If a borrower doesn’t have access to funds at a market rate
for debt with characteristics similar to the restructured debt,
that may indicate that the creditor has granted a concession.
A borrower that is not currently in default may still be
considered to be experiencing financial difficulty when
payment default is considered “probable in the foreseeable
future.”
Effective in the third quarter of 2011, as a result of the
Company’s adoption of ASU 2011-02, certain loans modified
under short-term programs beginning January 1, 2011 that were
previously measured for impairment under ASC 450 are now
measured for impairment under ASC 310-10-35. At the end of
the first interim period of adoption (September 30, 2011), the
recorded investment in receivables previously measured under
ASC 450 was $1,170 million and the allowance for credit losses
associated with those loans was $467 million. The effect of
adopting the ASU was an approximate $60 million reduction in
pretax income for the quarter ended September 30, 2011.
Repurchase Agreements—Assessment of Effective Control
In April 2011, the FASB issued ASU No. 2011-03, Transfers
and Servicing (Topic 860): Reconsideration of Effective Control
for Repurchase Agreements. The amendments in the ASU
remove from the assessment of effective control: (i) the criterion
requiring the transferor to have the ability to repurchase or
redeem the financial assets on substantially the agreed terms,
even in the event of default by the transferee, and (ii) the
collateral maintenance implementation guidance related to that
criterion. Other criteria applicable to the assessment of effective
control are not changed by the amendments in the ASU.
Credit Quality and Allowance for Credit Losses Disclosures
In July 2010, the FASB issued ASU No. 2010-20, Receivables
(Topic 310): Disclosures about Credit Quality of Financing
Receivables and Allowance for Credit Losses. The ASU
required a greater level of disaggregated information about the
allowance for credit losses and the credit quality of financing
receivables. The period-end balance disclosure requirements for
loans and the allowance for loan losses were effective for
reporting periods ended on or after December 15, 2010 and were
included in the Company’s 2010 Annual Report on Form 10-K,
while disclosures for activity during a reporting period in the
loan and allowance for
22
certain costs incurred during the acquisition of new or renewed
insurance contracts, commonly referred to as deferred
acquisition costs (DAC). The new guidance limited DAC to
those costs directly related to the successful acquisition of
insurance contracts; all other acquisition-related costs must be
expensed as incurred. Under prior guidance, DAC consisted of
those costs that vary with, and primarily relate to, the
acquisition of insurance contracts.
The ASU became effective for Citigroup on January 1,
2012 and was adopted using the retrospective method. As a
result of implementing the ASU, DAC was reduced by
approximately $165 million and a $58 million deferred tax asset
was recorded with an offset to opening retained earnings of
$107 million (net of tax).
The ASU became effective for Citigroup on January 1,
2012. The guidance has been applied prospectively to
transactions or modifications of existing transactions occurring
on or after January 1, 2012. The ASU has not had a material
effect on the Company’s financial statements. A nominal
amount of the Company’s repurchase transactions that would
previously have been accounted for as sales is now accounted
for as financing transactions.
Fair Value Measurement
In May 2011, the FASB issued ASU No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRS. The ASU created a common definition of fair
value for U.S. GAAP and IFRS and aligned the measurement
and disclosure requirements. It required significant additional
disclosures both of a qualitative and quantitative nature,
particularly for those instruments measured at fair value that are
classified in Level 3 of the fair value hierarchy. Additionally,
the ASU provided guidance on when it is appropriate to
measure fair value on a portfolio basis and expanded the
prohibition on valuation adjustments where the size of the
Company’s position is a characteristic of the adjustment from
Level 1 to all levels of the fair value hierarchy.
The ASU became effective for Citigroup on January 1,
2012. As a result of implementing the prohibition on valuation
adjustments where the size of the Company’s position is a
characteristic, the Company released reserves of approximately
$125 million, increasing pretax income in the first quarter of
2012.
Change in Accounting for Embedded Credit Derivatives
In March 2010, the FASB issued ASU No. 2010-11, Scope
Exception Related to Embedded Credit Derivatives. The ASU
clarifies that certain embedded derivatives, such as those
contained in certain securitizations, CDOs and structured notes,
should be considered embedded credit derivatives subject to
potential bifurcation and separate fair value accounting. The
ASU allows any beneficial interest issued by a securitization
vehicle to be accounted for under the fair value option at
transition on July 1, 2010.
As set forth in the table below, the Company elected to
account for certain beneficial interests issued by securitization
vehicles under the fair value option beginning July 1, 2010.
Beneficial interests previously classified as held-to-maturity
(HTM) were reclassified to available-for-sale (AFS) on June 30,
2010 because, as of that reporting date, the Company did not
have the intent to hold the beneficial interests until maturity.
The following table also shows the gross gains and gross losses
that make up the pretax cumulative-effect adjustment to retained
earnings for reclassified beneficial interests, recorded on July 1,
2010:
Deferred Asset Acquisition Costs
In October 2010, the FASB issued ASU No. 2010-26, Financial
Services – Insurance (Topic 944): Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts.
The ASU amended the guidance for insurance entities that
required deferral and subsequent amortization of
In millions of dollars at June 30, 2010
Mortgage-backed securities
Prime
Alt-A
Subprime
Non-U.S. residential
Total mortgage-backed securities
Asset-backed securities
Auction rate securities
Other asset-backed
Total asset-backed securities
Total reclassified debt securities
(1)
July 1, 2010
Pretax cumulative effect adjustment to Retained earnings
Gross unrealized losses
Gross unrealized gains
Amortized cost recognized in AOCI (1)
recognized in AOCI
Fair value
$
390
550
221
2,249
$ 3,410
$ —
—
—
—
$ —
$ 49
54
6
38
$147
$ 439
604
227
2,287
$3,557
$ 4,463
4,189
$ 8,652
$12,062
$401
19
$420
$420
$ 48
164
$212
$359
$4,110
4,334
$8,444
$ 12,001
All reclassified debt securities with gross unrealized losses were assessed for other-than-temporary-impairment as of June 30, 2010, including an assessment of
whether the Company intends to sell the security. For securities that the Company intends to sell, impairment charges of $176 million were recorded in earnings in
the second quarter of 2010.
23
The Company elected to account for these beneficial
interests under the fair value option beginning July 1, 2010 for
various reasons, including:
•
•
•
Non-Consolidation of Certain Investment Funds
The FASB issued ASU No. 2010-10, Consolidation (Topic
810):
Amendments for Certain Investment Funds in the first quarter of
2010. ASU 2010-10 provides a deferral of the requirements of
SFAS 167 where the following criteria are met:
To reduce the operational burden of assessing beneficial
interests for bifurcation under the guidance in the ASU;
Where bifurcation would otherwise be required under the
ASU, to avoid the complicated operational requirements of
bifurcating the embedded derivatives from the host
contracts and accounting for each separately. The Company
reclassified substantially all beneficial interests where
bifurcation would otherwise be required under the ASU;
and
To permit more economic hedging strategies without
generating volatility in reported earnings.
•
•
•
Additional Disclosures Regarding Fair Value Measurements
In January 2010, the FASB issued ASU No. 2010-06, Improving
Disclosures about Fair Value Measurements. The ASU requires
disclosure of the amounts of significant transfers in and out of
Levels 1 and 2 of the fair value hierarchy and the reasons for the
transfers. The disclosures were effective for reporting periods
beginning after December 15, 2009. Additionally, disclosures of
the gross purchases, sales, issuances and settlements activity in
Level 3 of the fair value measurement hierarchy were required
for fiscal years beginning after December 15, 2010. The
Company adopted ASU 2010-06 as of January 1, 2010. The
required disclosures are included in Note 25 to the Consolidated
Financial Statements.
The entity being evaluated for consolidation is an
investment company, as defined in ASC 946-10, Financial
Services—Investment Companies, or an entity for which it
is acceptable based on industry practice to apply
measurement principles that are consistent with an
investment company;
The reporting enterprise does not have an explicit or
implicit obligation to fund losses of the entity that could
potentially be significant to the entity; and
The entity being evaluated for consolidation is not:
−
−
−
a securitization entity;
an asset-backed financing entity; or
an entity that was formerly considered a qualifying
special-purpose entity.
The Company has determined that a majority of the
investment entities managed by Citigroup are provided a
deferral from the requirements of SFAS 167 because they meet
these criteria. These entities continue to be evaluated under the
requirements of FIN 46(R) (ASC 810-10), prior to the
implementation of SFAS 167.
Where the Company has determined that certain investment
vehicles are subject to the consolidation requirements of SFAS
167, the consolidation conclusions reached upon initial
application of SFAS 167 are consistent with the consolidation
conclusions reached under the requirements of ASC 810-10,
prior to the implementation of SFAS 167.
24
Accounting for Financial Instruments—Credit Losses
In December 2012, the FASB issued a proposed Accounting
Standards Update (ASU), Financial Instruments—Credit Losses.
This proposed ASU, or exposure draft, was issued for public
comment in order to allow stakeholders the opportunity to
review the proposal and provide comments to the FASB, and
does not constitute accounting guidance until such a final ASU
is issued.
The exposure draft contains accounting guidance developed
by the FASB with the goal of improving financial reporting
about expected credit losses on loans, securities and other
financial assets held by banks, financial institutions, and other
public and private organizations. The exposure draft proposes a
new accounting model intended to require earlier recognition of
credit losses, while also providing additional transparency about
credit risk.
The FASB’s proposed model would utilize a single
“expected credit loss” measurement objective for the
recognition of credit losses, replacing the multiple existing
impairment models in U.S. GAAP, which generally require that
a loss be “incurred” before it is recognized.
The FASB’s proposed model represents a significant
departure from existing U.S. GAAP, and may result in material
changes to the Company’s accounting for financial instruments.
The impact of the FASB’s final ASU to the Company’s
financial statements will be assessed when it is issued. The
exposure draft does not contain a proposed effective date; this
would be included in the final ASU, when issued.
FUTURE APPLICATION OF ACCOUNTING
STANDARDS
Reclassification out of Accumulated Other Comprehensive
Income
In February 2013, the FASB issued ASU No. 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts
Reclassified out of Accumulated Other Comprehensive Income.
The Accounting Standards Update (ASU) requires new footnote
disclosures of items reclassified from accumulated OCI to net
income. The requirements will be effective for the first quarter
of 2013.
Testing Indefinite-Lived Intangible Assets for Impairment
In July 2012, the FASB issued Accounting Standards Update
No. 2012-02, Intangibles—Goodwill and Other (Topic 350):
Testing Indefinite-Lived Intangible Assets for Impairment. The
ASU is intended to simplify the guidance for testing the decline
in the realizable value (impairment) of indefinite-lived
intangible assets other than goodwill. Some examples of
intangible assets subject to the guidance include indefinite-lived
trademarks, licenses and distribution rights. The ASU allows
companies to perform a qualitative assessment about the
likelihood of impairment of an indefinite-lived intangible asset
to determine whether further impairment testing is necessary,
similar in approach to the goodwill impairment test.
The ASU became effective for annual and interim
impairment tests performed for fiscal years beginning after
September 15, 2012.
Other Potential Amendments to Current Accounting
Standards
The FASB and IASB, either jointly or separately, are currently
working on several major projects, including amendments to
existing accounting standards governing financial instruments,
leases, consolidation and investment companies. As part of the
joint financial instruments project, the FASB has issued a
proposed ASU that would result in significant changes to the
guidance for recognition and measurement of financial
instruments, in addition to the proposed ASU that would change
the accounting for credit losses on financial instruments
discussed above.
The FASB is also working on a joint project that would
require all leases to be capitalized on the balance sheet.
Additionally, the FASB has issued a proposal on principal-agent
considerations that would change the way the Company needs to
evaluate whether to consolidate VIEs and non-VIE partnerships.
Furthermore, the FASB has issued a proposed ASU that would
change the criteria used to determine whether an entity is
subject to the accounting and reporting requirements of an
investment company.
The principal-agent consolidation proposal would require
all VIEs, including those that are investment companies, to be
evaluated for consolidation under the same requirements. All
these projects may have significant impacts for the Company.
Upon completion of the standards, the Company will need to reevaluate its accounting and disclosures. However, due to
ongoing deliberations of the standard-setters, the Company is
currently unable to determine the effect of future amendments or
proposals.
Offsetting
In December 2011, the FASB issued Accounting Standards
Update No. 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities. The standard requires
new disclosures about certain financial instruments and
derivative instruments that are either offset in the balance sheet
(presented on a net basis) or subject to an enforceable master
netting arrangement or similar arrangement. The standard
requires disclosures that provide both gross and net information
in the notes to the financial statements for relevant assets and
liabilities. This ASU does not change the existing offsetting
eligibility criteria or the permitted balance sheet presentation for
those instruments that meet the eligibility criteria.
Citi believes the new disclosure requirements should
enhance comparability between those companies that prepare
their financial statements on the basis of U.S. GAAP and those
that prepare their financial statements in accordance with IFRS.
For many financial institutions, the differences in the offsetting
requirements between U.S. GAAP and IFRS result in a
significant difference in the amounts presented in the balance
sheets prepared in accordance with U.S. GAAP and IFRS. The
disclosure standard will become effective for annual and
quarterly periods beginning January 1, 2013. The disclosures are
required retrospectively for all comparative periods presented.
25
2. BUSINESS DIVESTITURES
The following divestitures occurred in 2011 and 2010 and did
not qualify as Discontinued operations. Divestitures that
qualified as Discontinued operations are discussed in Note 3 to
the Consolidated Financial Statements.
In April 2010, Citi completed the IPO of Primerica, which
was part of Citi Holdings, and sold approximately 34% to public
investors. Also in April 2010, Citi completed the sale of
approximately 22% of Primerica to Warburg Pincus, a private
equity firm. Citi contributed 4% of the Primerica shares to
Primerica for employee and agent stock-based awards
immediately prior to the sales. Citi retained an approximate 40%
interest in Primerica after the sales and recorded the investment
under the equity method. Citi recorded an after-tax gain on sale
of $26 million. Concurrent with the sale of the shares, Citi
entered into co-insurance agreements with Primerica to reinsure
up to 90% of the risk associated with the in-force insurance
policies.
During 2011, Citi sold its remaining shares in Primerica for
an after-tax loss of $11 million.
26
Brazil Credicard is reported as discontinued operations for
the current and all historical periods.
The following is a summary as of June 30, 2013 of the
assets held for sale on the Consolidated Balance Sheet related to
Brazil Credicard:
3. DISCONTINUED OPERATIONS
Sale of Brazil Credicard business
On May 14, 2013, Citi entered into a definitive agreement to sell
Credicard, its non-Citibank branded cards and consumer finance
business in Brazil (Brazil Credicard), which is part of the Global
Consumer Banking segment, for approximately $1.24 billion to
Banco Itau Unibanco. The sale is expected to result in an aftertax gain of approximately $300 million upon closing (expected
to occur by early 2014, subject to Brazilian regulatory
approvals). Citi will retain its Citi-branded and Diners credit
cards, along with certain affluent segments currently associated
with Credicard, which will be re-branded as Citi.
June 30,
2013
In millions of dollars
Assets
Deposits at interest with banks
Loans (net allowance of $358)
Goodwill and intangible assets
Other assets
Total assets
$
84
2,619
265
330
$3,298
Summarized financial information for Discontinued operations for the credit card operations related to Brazil Credicard follows:
2012
$1,045
$110
19
$ 91
In millions of dollars
Total revenues, net of interest expense
Income (loss) from discontinued operations
Income taxes (benefits)
Income (loss) from discontinued operations, net of taxes
In millions of dollars
2010
$825
$ 68
16
$ 52
Summarized financial information for Discontinued
operations for the operations related to CCA follows:
Sale of Certain Citi Capital Advisors Business
During the third quarter of 2012, the Company executed
definitive agreements to transition a carve-out of its liquid
strategies business within Citi Capital Advisors (CCA), which is
part of the Institutional Clients Group segment, to certain
employees responsible for managing those operations. This
transition will occur pursuant to two separate transactions,
creating two separate management companies. Each transaction
will be accounted for as a sale. The first transaction closed on
February 28, 2013 and Citigroup retained a 24.9% passive
equity interest in the management company (which will
continue to be held in Citi’s Institutional Clients Group
segment). The second transaction is expected to be completed in
the first half of 2013.
This sale is reported as discontinued operations for the
second half of 2012 only. Prior periods were not reclassified due
to the immateriality of the impact in those periods.
The following is a summary as of December 31, 2012 of the
assets held for sale on the Consolidated Balance Sheet for the
operations related to the CCA business to be sold:
Assets
Deposits at interest with banks
Goodwill
Intangible assets
Total assets
2011
$1,022
$ (98)
(54)
$ (44)
In millions of dollars
Total revenues, net of interest expense
Income (loss) from discontinued operations
Gain on sale
Benefit for income taxes
Income (loss) from discontinued operations, net of taxes
2012
$ 60
$(123)
—
(44)
$ (79)
Sale of Egg Banking plc Credit Card Business
On March 1, 2011, the Company announced that Egg Banking
plc (Egg), an indirect subsidiary that was part of Citi Holdings,
entered into a definitive agreement to sell its credit card
business to Barclays PLC. The sale closed on April 28, 2011.
This sale is reported as discontinued operations for 2011
and 2012 only. 2010 was not reclassified, due to the
immateriality of the impact in that period. An after-tax gain on
sale of $126 million was recognized upon closing. Egg
operations had total assets and total liabilities of approximately
$2.7 billion and $39 million, respectively, at the time of sale.
2012
$ 4
13
19
$36
.
27
Summarized financial information for Discontinued
operations, including cash flows, for the credit card operations
related to Egg follows:
In millions of dollars
Total revenues, net of interest expense
Income (loss) from discontinued operations
Gain (loss) on sale
(Benefit) provision for income taxes
Income (loss) from discontinued operations, net of
taxes
2012
$ 1
$(96)
(1)
(34)
2011
$340
$ 24
143
58
$(63)
$109
Combined Results for Discontinued Operations
The following is summarized financial information for Brazil
Credicard, the CCA business, the Egg credit card business, The
Student Loan Corporation business and previous discontinued
operations, for which Citi continues to have minimal residual
costs associated with the sales.
2011
2012
Total revenues, net of interest expense
$ 1,106 $1,374
Income (loss) from discontinued operations $(109) $ (75)
Gain (loss) on sale
155
(1)
Provision (benefit) for income taxes
12
(52)
Income (loss) from discontinued
operations, net of taxes
$ (58) $ 68
In millions of dollars
Cash Flows from Discontinued Operations
In millions of dollars
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net cash provided by discontinued operations
2012
$—
—
—
$—
2011
$ (146)
2,827
(12)
$2,669
Total revenues, net of interest expense
Income from discontinued operations
Gain (loss) on sale
Benefit for income taxes
Income (loss) from discontinued
operations, net of taxes
2012
$—
$—
—
—
2011
$—
$—
—
—
2010
$(577)
$ 97
(825)
(339)
$—
$—
$ (389)
In millions of dollars
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net cash provided by discontinued
operations
2012
$—
—
—
2011
$—
—
—
2010
$5,106
1,532
(6,483)
$—
$—
Cash Flows from Discontinued Operations
In millions of dollars
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net cash provided by discontinued
operations
$ (16)
Cash Flows from Discontinued Operations
Sale of The Student Loan Corporation
On September 17, 2010, the Company announced that The
Student Loan Corporation (SLC), an indirect subsidiary that was
80% owned by Citibank and 20% owned by public shareholders,
and which was part of Citi Holdings, entered into definitive
agreements that resulted in the divestiture of Citi’s private
student loan business and approximately $31 billion of its
approximate $40 billion in assets to Discover Financial Services
(Discover) and SLM Corporation (Sallie Mae). The transaction
closed on December 31, 2010. As part of the transaction, Citi
provided Sallie Mae with $1.1 billion of seller-financing.
Additionally, as part of the transactions, Citibank, N.A.
purchased approximately $8.6 billion of assets from SLC prior
to the sale of SLC.
This sale was reported as discontinued operations for the
third and fourth quarters of 2010 only. Prior periods were not
reclassified, due to the immateriality of the impact in those
periods. The total 2010 impact from the sale of SLC resulted in
an after-tax loss of $427 million. SLC operations had total assets
and total liabilities of approximately $31 billion and $29 billion,
respectively, at the time of sale.
Summarized financial information for discontinued
operations, including cash flows, related to the sale of SLC
follows:
In millions of dollars
2010
$415
$140
(702)
(546)
$ 155
28
2011
2010
2012
$— $ (146) $4,974
2,827
1,726
—
(12) (6,486)
—
$—
$2,669
$ 214
Corporate/Other includes net treasury results, unallocated
corporate expenses, offsets to certain line-item reclassifications
(eliminations), the results of discontinued operations and
unallocated taxes.
The Citi Holdings segment is composed of Brokerage and
Asset Management, Local Consumer Lending and Special Asset
Pool.
The accounting policies of these reportable segments are
the same as those disclosed in Note 1 to the Consolidated
Financial Statements.
The prior-period balances reflect reclassifications to
conform the presentation in those periods to the current period’s
presentation. Reclassifications during the second quarter of
2013 related to the reporting of Citi’s announced sale of its
Brazil Credicard business as discontinued operations for all
periods presented. Reclassifications during the first quarter of
2013 related to the re-allocation of certain administrative costs
among Citi’s businesses and the re-allocation of certain funding
costs among Citi’s businesses.
The following table presents certain information regarding
the Company’s continuing operations by segment:
4. BUSINESS SEGMENTS
Citigroup is a diversified bank holding company whose
businesses provide a broad range of financial services to
Consumer and Corporate customers around the world. The
Company’s activities are conducted through the Global
Consumer Banking (GCB), Institutional Clients Group (ICG),
Corporate/Other and Citi Holdings business segments.
The Global Consumer Banking segment includes a global,
full-service Consumer franchise delivering a wide array of
banking, credit card lending and investment services through a
network of local branches, offices and electronic delivery
systems and is composed of four Regional Consumer Banking
(RCB) businesses: North America, EMEA, Latin America and
Asia.
The Company’s ICG segment is composed of Securities
and Banking and Transaction Services and provides corporate,
institutional, public sector and high net-worth clients in
approximately 100 countries with a broad range of banking and
financial products and services.
Revenues,
net of interest expense (1)
In millions of dollars, except
identifiable assets in billions
Global Consumer Banking
Institutional Clients Group
Corporate/Other
Total Citicorp
Citi Holdings
Total
(1)
(2)
2011
2012
$39,120 $38,125
32,131
30,730
762
70
$69,920 $71,018
6,313
(792)
$69,128 $77,331
2010
$38,495
33,336
1,633
$73,464
12,312
$85,776
Provision (benefit)
for income taxes
2012
$3,681
2,162
(1,443)
$4,400
(4,393)
$
7
2011
$3,537
2,872
(724)
$5,685
(2,110)
$3,575
Income (loss) from
continuing operations (2)
2010
2011
2010
2012
$1,506 $ 7,955 $ 7,666 $ 4,875
3,539
8,360
10,263
8,093
(31) (1,702)
(808)
159
$5,014 $14,346 $15,218 $15,297
(2,797) (6,528) (4,071) (4,398)
$2,217 $ 7,818 $11,147 $10,899
Identifiable assets
2012
$ 404
1,062
243
$1,709
156
$1,865
2011
$ 385
983
281
$1,649
225
$1,874
Includes Citicorp (excluding Corporate/Other) total revenues, net of interest expense, in North America of $30.1 billion, $30.4 billion and $33.8 billion; in EMEA
of $11.4 billion, $12.2 billion and $11.7 billion; in Latin America of $13.4 billion, $12.5 billion and $11.9 billion; and in Asia of $15.0 billion, $15.2 billion and
$14.4 billion in 2012, 2011 and 2010, respectively. Regional numbers exclude Citi Holdings and Corporate/Other, which largely operate within the U.S.
Includes pretax provisions (credits) for credit losses and for benefits and claims in the GCB results of $6.2 billion, $6.2 billion and $13.7 billion; in the ICG results
of $276 million, $152 million and $(82) million; and in the Citi Holdings results of $4.9 billion, $6.0 billion and $12.2 billion for 2012, 2011 and 2010,
respectively.
29
5. INTEREST REVENUE AND EXPENSE
6. COMMISSIONS AND FEES
For the years ended December 31, 2012, 2011 and 2010,
respectively, Interest revenue and Interest expense consisted of
the following:
The table below sets forth Citigroup’s Commissions and fees
revenue for the years ended December 31, 2012, 2011 and 2010,
respectively. The primary components of Commissions and fees
revenue for the year ended December 31, 2012 were credit card
and bank card fees, investment banking fees and trading-related
fees.
Credit card and bank card fees are primarily composed of
interchange revenue and certain card fees, including annual fees,
reduced by reward program costs. Interchange revenue and fees
are recognized when earned, except for annual card fees, which
are deferred and amortized on a straight-line basis over a 12month period. Reward costs are recognized when points are
earned by the customers.
Investment banking fees are substantially composed of
underwriting and advisory revenues. Investment banking fees
are recognized when Citigroup’s performance under the terms
of the contractual arrangements is completed, which is typically
at the closing of the transaction. Underwriting revenue is
recorded in Commissions and fees, net of both reimbursable and
non-reimbursable expenses, consistent with the AICPA Audit
and Accounting Guide for Brokers and Dealers in Securities
(codified in ASC 940-605-05-1). Expenses associated with
advisory transactions are recorded in Other operating expenses,
net of client reimbursements. Out-of-pocket expenses are
deferred and recognized at the time the related revenue is
recognized. In general, expenses incurred related to investment
banking transactions that fail to close (are not consummated) are
recorded gross in Other operating expenses.
Trading-related fees primarily include commissions and
fees from the following: executing transactions for clients on
exchanges and over-the-counter markets; sale of mutual funds,
insurance and other annuity products; and assisting clients in
clearing transactions, providing brokerage services and other
such activities. Trading-related fees are recognized when earned
in Commissions and fees. Gains or losses, if any, on these
transactions are included in Principal transactions (see Note 7
to the Consolidated Financial Statements).
The following table presents Commissions and fees revenue
for the years ended December 31:
In millions of dollars
Interest revenue
Loan interest, including fees
Deposits with banks
Federal funds sold and securities
borrowed or purchased under
agreements to resell
Investments, including dividends
Trading account assets (1)
Other interest
Total interest revenue
Interest expense
Deposits (2)
Federal funds purchased and securities
loaned or sold under agreements to
repurchase
Trading account liabilities (1)
Short-term borrowings
Long-term debt
Total interest expense
Net interest revenue
Provision for loan losses
Net interest revenue after provision
for loan losses
(1)
(2)
2012
2011
2010
$47,712
1,261
$49,466
1,742
$54,377
1,245
3,418
7,525
6,802
580
$67,298
3,631
8,320
8,186
513
$71,858
3,156
11,004
8,079
735
$78,596
$ 7,690
$ 8,531
$ 8,332
2,817
190
727
9,188
$20,612
$46,686
10,458
3,197
408
650
11,423
$24,209
$47,649
11,336
2,808
379
917
12,621
$25,057
$53,539
24,961
$36,228
$36,313
$28,578
Interest expense on Trading account liabilities of ICG is reported as a
reduction of interest revenue from Trading account assets.
Includes deposit insurance fees and charges of $1,262 million, $1,332
million and $981 million for the years ended December 31, 2012,
December 31, 2011 and December 31, 2010, respectively.
In millions of dollars
Credit cards and bank cards
Investment banking
Trading-related
Transaction services
Other Consumer (1)
Checking-related
Primerica
Loan servicing
Corporate finance (2)
Other
Total commissions and fees
(1)
(2)
30
2012
$ 3,302
2,991
2,296
1,733
908
615
—
313
516
58
$12,732
2011
$ 3,360
2,451
2,587
1,821
990
624
—
251
519
62
$12,665
2010
$ 3,571
2,977
2,368
1,774
1,192
703
91
353
439
23
$13,491
Primarily consists of fees for investment fund administration and
management, third-party collections, commercial demand deposit accounts
and certain credit card services.
Consists primarily of fees earned from structuring and underwriting loan
syndications.
7. PRINCIPAL TRANSACTIONS
8. INCENTIVE PLANS
Principal transactions revenue consists of realized and
unrealized gains and losses from trading activities. Trading
activities include revenues from fixed income, equities, credit
and commodities products, and foreign exchange transactions.
Not included in the table below is the impact of net interest
revenue related to trading activities, which is an integral part of
trading activities’ profitability. See Note 5 to the Consolidated
Financial Statements for information about net interest revenue
related to trading activity. Principal transactions include CVA
and DVA.
The following table presents principal transactions revenue
for the years ended December 31:
Overview
The Company makes restricted or deferred stock and/or deferred
cash awards, as well as stock payments, as part of its
discretionary annual incentive award programs involving a large
segment of Citigroup’s employees worldwide.
Stock awards and grants of stock options may also be made
at various times during the year as sign-on awards to induce new
hires to join the Company, or to high-potential employees as
long-term retention awards.
Long-term restricted stock awards and salary stock
payments have also been used to fulfill specific regulatory
requirements to deliver annual salary and incentive awards to
certain officers and highly-compensated employees in the form
of equity.
Consistent with long-standing practice, a portion of annual
compensation for non-employee directors is also delivered in
the form of equity awards.
In addition, equity awards are made occasionally as
additional incentives to retain and motivate officers or
employees. Various other incentive award programs are made
on an annual or other regular basis to retain and motivate certain
employees who do not participate in Citigroup’s annual
discretionary incentive awards.
Recipients of Citigroup stock awards generally do not have
any stockholder rights until shares are delivered upon vesting or
exercise, or after the expiration of applicable restricted periods.
Recipients of restricted or deferred stock awards, however, may
be entitled to receive dividends or dividend-equivalent payments
during the vesting period, unless the award is subject to
performance criteria. (Citigroup’s 2009 Stock Incentive Plan
currently does not permit the payment or accrual of dividend
equivalents on stock awards subject to performance criteria.)
Additionally, because unvested shares of restricted stock are
considered issued and outstanding, recipients of such awards are
generally entitled to vote the shares in their award during the
vesting period. Once a stock award vests, the shares are freely
transferable, unless they are subject to a restriction on sale or
transfer for a specified period. Pursuant to a stock ownership
commitment, certain executives have committed to holding
most of their vested shares indefinitely.
All equity awards granted since April 19, 2005, have been
made pursuant to stockholder-approved stock incentive plans
that are administered by the Personnel and Compensation
Committee of the Citigroup Board of Directors (the Committee),
which is composed entirely of independent non-employee
directors.
At December 31, 2012, approximately 86.9 million shares
of Citigroup common stock were authorized and available for
grant under Citigroup’s 2009 Stock Incentive Plan, the only plan
from which equity awards are currently granted.
The 2009 Stock Incentive Plan and predecessor plans
permit the use of treasury stock or newly issued shares in
connection with awards granted under the plans. Until recently,
Citigroup’s practice has been to deliver shares from treasury
stock upon the exercise or vesting of equity awards. However,
newly issued shares were issued to settle certain awards in April
2010, and the vesting of annual deferred stock awards in
January 2011, 2012 and 2013. The newly issued shares in April
2010 and January 2011 were specifically intended to increase
the Company’s equity capital. The practice of issuing new
shares
In millions of dollars
Global Consumer Banking
Institutional Clients Group
Corporate/Other
Subtotal Citicorp
Local Consumer Lending
Brokerage and Asset
Management
Special Asset Pool
Subtotal Citi Holdings
Total Citigroup
Interest rate contracts (1)
Foreign exchange contracts (2)
Equity contracts (3)
Commodity and other contracts (4)
Credit derivatives (5)
Total
(1)
(2)
(3)
(4)
(5)
2012
$ 812
4,130
(192)
$4,750
$ (69)
2011
$ 716
4,873
45
$5,634
$ (102)
2010
$ 533
5,566
(406)
$5,693
$ (217)
5
95
$ 31
$4,781
(11)
1,713
$1,600
$7,234
(37)
2,078
$1,824
$7,517
$2,301
2,403
158
92
(173)
$4,781
$5,136
2,309
3
76
(290)
$7,234
$3,231
1,852
995
126
1,313
$7,517
Includes revenues from government securities and corporate debt,
municipal securities, preferred stock, mortgage securities and other debt
instruments. Also includes spot and forward trading of currencies and
exchange-traded and over-the-counter (OTC) currency options, options on
fixed income securities, interest rate swaps, currency swaps, swap options,
caps and floors, financial futures, OTC options and forward contracts on
fixed income securities.
Includes revenues from foreign exchange spot, forward, option and swap
contracts, as well as FX translation gains and losses.
Includes revenues from common, preferred and convertible preferred stock,
convertible corporate debt, equity-linked notes and exchange-traded and
OTC equity options and warrants.
Primarily includes revenues from crude oil, refined oil products, natural
gas and other commodities trades.
Includes revenues from structured credit products.
31
cases, the entire deferral will be in the form of either a CAP
award or deferred cash.
Subject to certain exceptions (principally, for retirementeligible employees), continuous employment within Citigroup is
required to vest in CAP and deferred cash awards. Postemployment vesting by retirement-eligible employees and
participants who meet other conditions is generally conditioned
upon their refraining from competition with Citigroup during
the remaining vesting period, unless the employment
relationship has been terminated by Citigroup under certain
conditions.
Generally, the CAP and deferred cash awards vest in equal
annual installments over three- or four-year periods. Vested
CAP awards are delivered in shares of common stock. Dividend
equivalent payments are paid to participants during the vesting
period, unless the CAP award is subject to the performancevesting condition described below. Deferred cash awards are
payable in cash and earn a fixed notional rate of interest that is
paid only if and when the underlying principal award amount
vests. Generally, in the EU, vested CAP shares are subject to a
restriction on sale or transfer after vesting, and vested deferred
cash awards are subject to hold-back (generally, for six months
in each case).
Unvested CAP and deferred cash awards made in January
2011 or later are subject to one or more clawback provisions
that apply in certain circumstances, including in the case of
employee risk-limit violations or other misconduct or where the
awards were based on earnings that were misstated. Deferred
cash awards made to certain employees in February 2013 are
subject to a discretionary performance-based vesting condition
under which an amount otherwise scheduled to vest may be
reduced in the event of a “material adverse outcome” for which
a participant has “significant responsibility.”
CAP awards made to certain employees in February 2013
and deferred cash awards made to certain employees in January
2012 are subject to a formulaic performance-based vesting
condition pursuant to which amounts otherwise scheduled to
vest will be reduced based on the amount of any pre-tax loss by
a participant’s business in the calendar year preceding the
scheduled vesting date. For the February 2013 CAP awards, a
minimum reduction of 20% applies for the first dollar of loss.
The annual incentive award structure and terms and
conditions described above apply generally to awards made in
2011 and later, except where indicated otherwise. Annual
incentive awards in January 2009 and 2010 of US$100,000 or
more (or local currency equivalent) were generally subject to
deferral requirements between 25%-40%. In 2010, because an
insufficient number of shares were available for grant under the
2009 Stock Incentive Plan, an alternative award structure was
applied, primarily for deferrals of incentive awards in the U.S.
and U.K. Under this structure, portions of the amounts that
would normally have been deferred in the form of CAP awards
were instead awarded as two types of deferred cash awards—
one subject to a four-year vesting schedule and earning a
LIBOR-based return, and the other subject to a two-year vesting
schedule and denominated in stock units, the value of which
fluctuated based on the price of Citigroup common stock. Other
terms and conditions of these awards were the same as the CAP
awards granted in 2010. In 2009, some deferrals were also in the
form of a deferred cash award subject to a four-year vesting
schedule and earning a LIBOR-based return, in addition to a
CAP award.
to settle the annual vesting of deferred stock awards is expected
to continue in the absence of a share repurchase program by
which treasury shares can be replenished. The use of treasury
stock or newly issued shares to settle stock awards does not
affect the amortization recorded in the Consolidated Income
Statement for equity awards.
The following table shows components of compensation
expense relating to the Company’s stock-based compensation
programs and deferred cash award programs as recorded during
2012, 2011 and 2010:
In millions of dollars
Charges for estimated awards to
retirement-eligible employees
Option expense
Amortization of deferred cash awards
and deferred cash stock units
Salary stock award expense
Immediately vested stock award
expense (1)
Amortization of restricted and deferred
stock awards (2)
Total
(1)
(2)
2012
2011
2010
$ 444
99
$ 338
161
$ 366
197
198
—
208
—
280
173
60
52
174
864
$1,665
871
$1,630
747
$1,937
This represents expense for immediately vested stock awards that
generally were stock payments in lieu of cash compensation. The expense
is generally accrued as cash incentive compensation in the year prior to
grant.
All periods include amortization expense for all unvested awards to nonretirement-eligible employees. Amortization is recognized net of estimated
forfeitures of awards.
Annual Incentive Awards
Most of the shares of common stock issued by Citigroup as part
of its equity compensation programs are to settle the vesting of
restricted and deferred stock awards granted as part of annual
incentive awards. These annual incentive awards generally also
include immediate cash bonus payments and deferred cash
awards, and in the European Union (EU), immediately vested
stock payments.
Annual incentives are generally awarded in the first quarter
of the year based upon previous years’ performance. Awards
valued at less than US$100,000 (or local currency equivalent)
are generally paid entirely in the form of an immediate cash
bonus. Pursuant to Citigroup policy and/ or regulatory
requirements, employees and officers with higher incentive
award values are subject to mandatory deferrals of incentive pay,
and generally receive 25%-60% of their award in a combination
of restricted or deferred stock and deferred cash awards. In some
cases, reduced deferral requirements apply to awards valued at
less than US$100,000 (or local currency equivalent). Annual
incentive awards made to many employees in the EU are subject
to deferral requirements between 40%-60%, regardless of the
total award value, with 50% of the immediate incentive
delivered in the form of a stock payment subject to a restriction
on sale or transfer (generally, for six months).
Deferred annual incentive awards are generally delivered as
two awards—a restricted or deferred stock award under the
Company’s Capital Accumulation Program (CAP) and a
deferred cash award. The applicable mix of CAP and deferred
cash awards may vary based on the employee’s minimum
deferral requirement and the country of employment. In some
32
The fair value of the awards was recognized as compensation
expense ratably over the vesting period.
Prior to 2009, a mandatory deferral requirement of at least
25% applied to incentive awards valued as low as US$20,000.
Deferrals were in the form of CAP awards. In some cases,
participants were entitled to elect to receive stock options in lieu
of some or all of the value that would otherwise have been
awarded as restricted or deferred stock. CAP awards granted
prior to 2011 were not subject to clawback provisions or
performance criteria.
The total expense recognized for stock awards represents
the fair value of Citigroup common stock at the award date.
Generally, the expense is recognized as a charge to income
ratably over the vesting period, except for awards to retirementeligible employees, and stock payments (e.g., salary stock and
other immediately vested awards). Whenever awards are made
or are expected to be made to retirement-eligible employees, the
charge to income is accelerated based on the dates the
applicable conditions to retirement eligibility are or will be met.
If the employee is retirement eligible on the grant date, the
entire expense is recognized in the year prior to the grant. For
employees who become retirement eligible during the vesting
period, expense is recognized from the grant date until the date
eligibility conditions are met.
Expense for immediately vested stock awards that generally
were made in lieu of cash compensation (salary stock and other
stock payments) is also recognized in the year prior to the grant
in accordance with U.S. GAAP. (See “Other EESA-related
Stock Compensation” below for additional information
regarding salary stock.)
Annual incentive awards made in January 2011 and January
2010 to certain executive officers and other highly compensated
employees were administered in accordance with the
Emergency Economic Stabilization Act of 2008, as amended
(EESA), pursuant to structures approved by the Special Master
for TARP Executive Compensation (Special Master). Generally
the affected executives and employees did not participate in
CAP and instead received equity compensation in the form of
fully vested stock payments, long-term restricted stock (LTRS),
and/or restricted and deferred stock awards, all of which were
subject to vesting requirements over periods of up to three years,
and/or sale restrictions. Certain of these awards are subject to
discretionary performance-based vesting conditions. These
awards, and CAP awards to participants in the EU that are
subject to certain clawback provisions, are subject to variable
accounting, pursuant to which the associated charges fluctuate
with changes in Citigroup’s common stock price over the
applicable vesting periods. For these awards, the total amount
that will be recognized as expense cannot be determined in full
until the awards vest. For stock awards subject to discretionary
performance conditions, compensation expense was accrued
based on Citigroup’s common stock price at the end of the
reporting period, and the estimated outcome of meeting the
performance conditions.
In January 2009, certain senior executives received 30% of
their annual incentive awards as performance-vesting equity
awards conditioned primarily on stock-price performance.
Because the price targets were not met, only a fraction of the
awards vested. The fraction of awarded shares that vested was
determined based on a ratio of the price of Citigroup’s common
stock on January 14, 2013, to the award’s price targets of
$106.10 and $178.50. None of the shares awarded or vested
were entitled to any payment or accrual of dividend equivalents.
This fair value was determined using the following assumptions:
Weighted-average per-share fair value
Weighted-average expected life
Valuation assumptions
Expected volatility
Risk-free interest rate
Expected dividend yield
$22.97
3.85 years
36.07%
1.21%
0.88%
From 2003 to 2007, Citigroup granted annual stock awards
under its Citigroup Ownership Program (COP) to a broad base
of employees who were not eligible for CAP. The COP awards
of restricted or deferred stock vest after three years, but
otherwise have terms similar to CAP. Amortization of restricted
and deferred stock awards shown in the table above for 2010
included expense associated with these awards.
Sign-on and Long-Term Awards
As referenced above, from time to time, restricted or deferred
stock awards, and/or stock option grants are made outside of
Citigroup’s annual incentive programs to induce employees to
join Citigroup or as special retention awards to key employees.
Vesting periods vary, but are generally two to four years.
Generally, recipients must remain employed through the vesting
dates to vest in the awards, except in cases of death, disability,
or involuntary termination other than for “gross misconduct.”
Unlike CAP awards, these awards do not usually provide for
post-employment vesting by retirement-eligible participants. If
these stock awards are subject to certain clawback provisions or
performance conditions, they may be subject to variable
accounting.
Deferred cash awards are often granted to induce new hires
to join the Company, and are usually intended to replace
deferred incentives awarded by prior employers that were
forfeited when the employees joined Citigroup. As such, the
vesting schedules and terms and conditions of these awards are
generally structured to match the vesting schedules and terms
and conditions of the forfeited awards. Expense taken in 2012
for these awards was $147 million.
A retention award of deferred stock to then-CEO Vikram
Pandit was made on May 17, 2011, and was scheduled to vest in
three equal installments on December 31, 2013, 2014, and 2015.
The award was cancelled in its entirety when Mr. Pandit
resigned in October 2012. Because of discretionary performance
vesting conditions, the award was subject to variable accounting
until its cancellation in the fourth quarter of 2012.
Other EESA-related Stock Compensation
Pursuant to structures approved by the Special Master in 2009,
and in January and September 2010, certain executives and
highly-compensated employees received stock payments in lieu
of salary that would have otherwise been paid in cash (salary
stock). Shares awarded as salary stock are immediately vested
but become transferrable in monthly installments over periods
of one to three years. There are no provisions for early release of
the transfer restrictions on salary stock in the event of retirement,
involuntary termination of employment, change in control, or
any other reason.
33
for awards made in 2009). This stock option election allowed
participants to trade a certain percentage of their annual
incentive that would otherwise be granted in CAP shares and
elect to have the award delivered instead as a stock option.
On February 14, 2011, Citigroup granted options
exercisable for approximately 2.9 million shares of Citigroup
common stock to certain of its executive officers. The options
have six-year terms and vest in three equal annual installments
beginning on February 14, 2012. The exercise price of the
options is $49.10, which was the closing price of a share of
Citigroup common stock on the grant date. On any exercise of
the options before the fifth anniversary of the grant date, the
shares received on exercise (net of the amount required to pay
taxes and the exercise price) are subject to a one-year transfer
restriction.
On April 20, 2010, Citigroup made an option grant to a
group of employees who were not eligible for the October 29,
2009 broad-based grant described below. The options were
awarded with an exercise price equal to the NYSE closing price
of a share of Citigroup common stock on the trading day
immediately preceding the date of grant ($48.80). The options
vest in three annual installments beginning on October 29, 2010.
The options have a six-year term.
On October 29, 2009, Citigroup made a broad-based option
grant to employees worldwide. The options have a six-year term,
and generally vest in three equal installments over three years,
beginning on the first anniversary of the grant date. The options
were awarded with an exercise price equal to the NYSE closing
price on the trading day immediately preceding the date of grant
($40.80). The CEO and other employees whose 2009
compensation was subject to structures approved by the Special
Master did not participate in this grant.
In January 2009, members of Citigroup’s Management
Executive Committee received 10% of their awards as
performance-priced stock options, with an exercise price that
placed the awards significantly “out of the money” on the date
of grant. Half of each executive’s options have an exercise price
of $178.50 and half have an exercise price of $106.10. The
options were granted on a day on which the NYSE closing price
of a share of Citigroup common stock was $45.30. The options
have a 10-year term and vest ratably over a four-year period.
Generally, all other options granted from 2003 through
2009 have six-year terms and vest ratably over three- or fouryear periods; however, options granted to directors provided for
cliff vesting. All outstanding options granted prior to 2009 are
significantly out of the money.
Prior to 2003, Citigroup options had 10-year terms and
generally vested at a rate of 20% per year over five years (with
the first vesting date occurring 12 to 18 months following the
grant date). All outstanding options that were granted prior to
2003 expired in 2012.
From 1997 to 2002, a broad base of employees participated
in annual option grant programs. The options vested over fiveyear periods, or cliff vested after five years, and had 10-year
terms but no reload features. No grants have been made under
these programs since 2002 and all options that remained
outstanding expired in 2012.
Director Compensation
Non-employee directors receive part of their compensation in
the form of deferred stock awards that vest in two years, and
may elect to receive part of their retainer in the form of a stock
payment, which they may elect to defer.
A summary of the status of Citigroup’s unvested stock
awards that are not subject to variable accounting at December
31, 2012 and changes during the 12 months ended December 31,
2012 are presented below:
Unvested stock awards
Unvested at January 1, 2012
New awards
Cancelled awards
Vested awards (1)
Unvested at December 31, 2012
(1)
Shares
50,213,124
33,452,028
(2,342,822)
(17,345,405)
63,976,925
Weightedaverage grant
date fair
value
$50.90
30.51
39.15
62.12
$37.62
The weighted-average fair value of the vestings during 2012 was
approximately $32.78 per share.
A summary of the status of Citigroup’s unvested stock
awards that are subject to variable accounting at December 31,
2012, and changes during the 12 months ended December 31,
2012, are presented below:
Unvested stock awards
Unvested at January 1, 2012
New awards
Cancelled awards
Vested awards (1)
Unvested at December 31, 2012
(1)
Shares
5,290,798
2,219,213
(377,358)
(1,168,429)
5,964,224
Weightedaverage award
issuance fair
value
$49.30
30.55
43.92
50.16
$42.50
The weighted-average fair value of the vestings during 2012 was
approximately $29.18 per share.
At December 31, 2012, there was $886 million of total
unrecognized compensation cost related to unvested stock
awards, net of the forfeiture provision. That cost is expected to
be recognized over a weighted-average period of 2.1 years.
However, the cost of awards subject to variable accounting will
fluctuate with changes in Citigroup’s common stock price.
Stock Option Programs
While the Company no longer grants options as part of its
annual incentive award programs, Citigroup may grant stock
options to employees or directors on a one-time basis, as sign-on
awards or as retention awards, as referenced above. All stock
options are granted on Citigroup common stock with exercise
prices that are no less than the fair market value at the time of
grant (which is defined under the 2009 Stock Incentive Plan to
be the NYSE closing price on the trading day immediately
preceding the grant date or on the grant date for grants to
executive officers). Vesting periods and other terms and
conditions of sign-on and retention option grants tend to vary by
grant. Beginning in 2009, Citigroup eliminated the stock option
election for all directors and employees (except certain CAP
participants who were permitted to make a stock option election
All unvested options granted to former CEO Vikram Pandit,
including premium-priced stock options granted on May 17,
2011, were cancelled upon his resignation in October 2012.
34
Information with respect to stock option activity under Citigroup stock option programs for the years ended December 31, 2012, 2011
and 2010 is as follows:
2011
2012
WeightedWeightedaverage Intrinsic
average Intrinsic
exercise
value
exercise
value
Options
price
per share
Options
Options
price
per share
$93.70 $—
40,404,481
Outstanding, beginning of period 37,596,029
$69.60
$— 37,486,011
Granted—original
3,425,000
48.86
—
4,450,017
—
—
—
Forfeited or exchanged
176.41
—
(4,368,086)
(858,906)
83.84
— (1,539,227)
Expired
487.24
—
(2,935,863)
(1,716,726)
438.14
— (1,610,450)
Exercised
(165,305)
40.80
6.72
(64,538)
—
—
—
$69.60 $—
37,486,011
Outstanding, end of period
35,020,397
$51.20
$— 37,596,029
23,237,069
15,189,710
Exercisable, end of period
32,973,444
2010
Weightedaverage Intrinsic
exercise
value
price
per share
$127.50
$—
47.80
—
115.10
—
458.70
—
40.80
3.80
$ 93.70
$—
The following table summarizes the information about stock options outstanding under Citigroup stock option programs at December
31, 2012:
Number
outstanding
33,392,541
69,956
516,577
754,375
206,627
80,321
35,020,397
Range of exercise prices
$29.70–$49.99 (1)
$50.00–$99.99
$100.00–$199.99
$200.00–$299.99
$300.00–$399.99
$400.00–$557.00
Total at December 31, 2012
(1)
Options outstanding
Weighted-average
contractual life Weighted-average
remaining
exercise price
3.1 years
$ 42.40
8.1 years
56.76
5.9 years
147.33
1.7 years
243.85
4.9 years
335.97
0.1 years
543.69
3.1 years
$ 51.20
A significant portion of the outstanding options are in the $40 to $45 range of exercise prices.
As of December 31, 2012, there was $8.7 million of total
unrecognized compensation cost related to stock options; this
cost is expected to be recognized over a weighted-average
period of 0.3 years. Valuation and related assumption
information for Citigroup option programs is presented below.
Citigroup uses a lattice-type model to value stock options.
For options granted during
Weighted-average per-share fair
value, at December 31
Weighted-average expected life
Original grants
Valuation assumptions
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected annual forfeitures
Original and reload grants
2012
2011
2010
N/A
$13.90
$16.60
N/A
4.95 yrs.
6.06 yrs.
N/A
N/A
N/A
35.64%
2.33%
0.00%
36.42%
2.88%
0.00%
N/A
9.62%
9.62%
N/A Not applicable
35
Options exercisable
Number
Weighted-average
exercisable
exercise price
31,431,666
$ 42.02
69,132
56.64
431,323
148.33
754,375
243.85
206,627
335.97
80,321
543.69
32,973,444
$ 51.13
Performance Share Units
Certain executive officers were awarded a target number of
performance share units (PSUs) on February 19, 2013 for
performance in 2012. PSUs will be earned only to the extent
that Citigroup attains specified performance goals relating to
Citigroup’s return on assets and relative total shareholder return
against peers over a three-year period covering 2013, 2014 and
2015. The actual number of PSUs ultimately earned could vary
from zero, if performance goals are not met, to as much as
150% of target, if performance goals are meaningfully
exceeded. The value of each PSU is equal to the value of one
share of Citi common stock. The value of the award will
fluctuate with changes in Citigroup’s share price and the
attainment of the specified performance goals, until it is settled
solely in cash after the end of the performance period.
Profit Sharing Plan
In October 2010, the Committee approved awards under the
2010 Key Employee Profit Sharing Plan (KEPSP), which may
entitle participants to profit-sharing payments based on an initial
performance measurement period of January 1, 2010 through
December 31, 2012. Generally, if a participant remains
employed and all other conditions to vesting and payment are
satisfied, the participant will be entitled to an initial payment in
2013, as well as a holdback payment in 2014 that may be
reduced based on performance during the subsequent holdback
period (generally, January 1, 2013 through December 31, 2013).
If the vesting and performance conditions are satisfied, a
participant’s initial payment will equal two-thirds of the product
of the cumulative pretax income of Citicorp (as defined in the
KEPSP) for the initial performance period and the participant’s
applicable percentage. The initial payment will be paid after
January 20, 2013 but no later than March 15, 2013.
The participant’s holdback payment, if any, will equal the
product of (i) the lesser of cumulative pretax income of Citicorp
for the initial performance period and cumulative pretax income
of Citicorp for the initial performance period and the holdback
period combined (generally, January 1, 2010 through December
31, 2013), and (ii) the participant’s applicable percentage, less
the initial payment; provided that the holdback payment may not
be less than zero. The holdback payment, if any, will be paid
after January 20, 2014 but no later than March 15, 2014. The
holdback payment, if any, will be credited with notional interest
during the holdback period. It is intended that the initial
payment and holdback payment will be paid in cash; however,
awards may be paid in Citigroup common stock if required by
regulatory authority. Regulators have required that U.K.
participants receive at least 50% of their initial payment and at
least 50% of their holdback payment, if any, in shares of
Citigroup common stock that will be subject to a six-month
sales restriction. Clawbacks apply to the award.
Independent risk function employees were not eligible to
participate in the KEPSP, as the independent risk function
participates in the determination of whether payouts will be
made under the KEPSP. Instead, key employees in the
independent risk function were eligible to receive deferred cash
retention awards, which vest two-thirds on January 20, 2013 and
one-third on January 20, 2014. The deferred cash awards
incentivize key risk employees to contribute to the Company’s
long-term profitability by ensuring that the Company’s risk
profile is properly aligned with its long-term strategies,
objectives and risk appetite, thereby, aligning the employees’
interests with those of Company shareholders.
On February 14, 2011, the Committee approved grants of
awards under the 2011 KEPSP to certain executive officers, and
on May 17, 2011 to the then-CEO Vikram Pandit. These awards
have a performance period of January 1, 2011 to December 31,
2012 and other terms of the awards are similar to the 2010
KEPSP. The KEPSP award granted to Mr. Pandit was cancelled
upon his resignation in October 2012.
Expense recognized in 2012 in respect of the KEPSP was
$246 million.
Variable Incentive Compensation
Citigroup has various incentive plans globally that are used to
motivate and reward performance primarily in the areas of sales,
operational excellence and customer satisfaction. These
programs are reviewed on a periodic basis to ensure that they
are structured appropriately, aligned to shareholder interests and
adequately risk balanced. For the years ended December 31,
2012 and 2011, Citigroup expensed $670 million and $1.0
billion, respectively, for these plans globally.
36
under the prior final pay plan formula continue to accrue
benefits. The Company also offers postretirement health care
and life insurance benefits to certain eligible U.S. retired
employees, as well as to certain eligible employees outside the
United States.
The following table summarizes the components of net
(benefit) expense recognized in the Consolidated Statement of
Income for the Company’s U.S. qualified and nonqualified
pension plans, postretirement plans and plans outside the United
States. The Company uses a December 31 measurement date for
its U.S. and non-U.S. plans.
9. RETIREMENT BENEFITS
Pension and Postretirement Plans
The Company has several non-contributory defined benefit
pension plans covering certain U.S. employees and has various
defined benefit pension and termination indemnity plans
covering employees outside the United States. The U.S.
qualified defined benefit plan was frozen effective January 1,
2008 for most employees. Accordingly, no additional
compensation-based contributions were credited to the cash
balance portion of the plan for existing plan participants after
2007. However, certain employees covered
Net (Benefit) Expense
In millions of dollars
Qualified Plans
Benefits earned during the year
Interest cost on benefit obligation
Expected return on plan assets
Amortization of unrecognized
Net transition obligation
Prior service cost (benefit)
Net actuarial loss
Curtailment (gain) loss
Settlement (gain) loss
Special termination benefits
Net qualified (benefit) expense
Nonqualified plans expense
Total net (benefit) expense
Pension plans
U.S. plans
Non-U.S. plans
2011
2010
2011
2010
2012
2012
$ 12
565
(897)
$ 13
612
(890)
$ 14
644
(874)
$ 199
367
(399)
$203
382
(422)
$167
342
(378)
$—
44
(4)
$—
53
(6)
$ 1
59
(8)
$29
116
(108)
$28
118
(117)
$23
105
(100)
—
(1)
96
—
—
—
$(225)
$ 42
$(183)
—
(1)
64
—
—
—
$(202)
$ 42
$(160)
—
(1)
47
—
—
—
$(170)
$ 41
$(129)
—
4
77
10
35
1
$294
$ —
$294
(1)
4
72
4
10
27
$279
$ —
$279
(1)
4
57
1
7
5
$204
$ —
$204
—
(1)
4
—
—
—
$43
$—
$43
—
(3)
3
—
—
—
$47
$—
$47
—
(3)
11
—
—
—
$60
$—
$60
—
—
25
—
—
—
$62
$—
$62
—
—
24
—
—
—
$53
$—
$53
—
—
20
—
—
—
$48
$—
$48
the U.S. pension plans, there were no minimum required cash
contributions for 2012 or 2011. The following table summarizes
the actual Company contributions for the years ended December
31, 2012 and 2011, as well as estimated expected Company
contributions for 2013. Expected contributions are subject to
change since contribution decisions are affected by various
factors, such as market performance and regulatory
requirements.
Contributions
The Company’s funding practice for U.S. and non-U.S. pension
plans is generally to fund to minimum funding requirements in
accordance with applicable local laws and regulations. The
Company may increase its contributions above the minimum
required contribution, if appropriate. In addition, management
has the ability to change its funding practices. For
Pension plans (1)
Non-U.S. plans
U.S. plans
2013
2011
2013
2011
2012
2012
(2)
In millions of dollars
Cash contributions paid by the
Company
Benefits paid directly by the
Company
Total Company contributions
(1)
(2)
Postretirement benefit plans
U.S. plans
Non-U.S. plans
2011
2010
2011
2010
2012
2012
Postretirement plans (1)
U.S. plans
Non-U.S. plans
2013
2011
2013
2011
2012
2012
$—
$—
$—
$177
$270
$342
$—
$—
$—
$82
$88
$70
54
$54
54
$54
51
$51
47
$224
82
$352
47
$389
57
$57
54
$54
53
$53
5
$87
4
$92
5
$75
Payments reported for 2013 are expected amounts.
The U.S. pension plans include benefits paid directly by the Company for the nonqualified pension plan.
37
The estimated net actuarial loss and prior service cost that
will be amortized from Accumulated other comprehensive
income (loss) into net expense in 2013 are approximately $226
million and $3 million, respectively, for defined benefit pension
plans. For postretirement plans, the estimated 2013 net actuarial
loss and prior service cost amortizations are approximately $45
million and $(1) million, respectively.
The following table summarizes the funded status and
amounts recognized in the Consolidated Balance Sheet for the
Company’s U.S. qualified and nonqualified pension plans,
postretirement plans and plans outside the United States.
Net Amount Recognized
Pension plans
U.S. plans (1)
Non-U.S. plans
2011
2011
2012
2012
In millions of dollars
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Benefits earned during the year
Interest cost on benefit obligation
Plan amendments
Actuarial (gain) loss
Benefits paid, net of participating contributions
Expected Medicare Part D subsidy
Settlements
Curtailment (gain) loss
Special/contractual termination benefits
Foreign exchange impact and other
Projected benefit obligation at year end
Change in plan assets
Plan assets at fair value at beginning of year
Actual return on plan assets
Company contributions
Plan participants contributions
Settlements
Benefits paid
Foreign exchange impact and other
Plan assets at fair value at year end
Funded status of the plan at year end (2)
Net amount recognized
Benefit asset
Benefit liability
Net amount recognized on the balance sheet
Amounts recognized in Accumulated other
comprehensive income (loss)
Net transition obligation
Prior service cost (benefit)
Net actuarial loss
Net amount recognized in equity—pretax
Accumulated benefit obligation at year end
(1)
(2)
Postretirement plans
U.S. plans
Non-U.S. plans
2011
2011
2012
2012
$12,377
12
565
(13)
965
(638)
—
—
—
—
—
$13,268
$11,730
13
612
—
655
(633)
—
—
—
—
—
$12,377
$6,262
199
367
17
923
(306)
—
(254)
(8)
1
198
$7,399
$ 6,189
203
382
2
59
(282)
—
(44)
3
27
(277)
$ 6,262
$1,127
—
44
—
(24)
(85)
10
—
—
—
—
$1,072
$1,179
—
53
—
(44)
(79)
10
—
—
—
8
$ 1,127
$11,991
1,303
—
—
—
(638)
—
$12,656
$ (612)
$11,561
1,063
—
—
—
(633)
—
$11,991
$ (386)
$6,421
786
352
6
(254)
(312)
155
$7,154
$ (245)
$ 6,145
526
389
6
(44)
(288)
(313)
$ 6,421
$ 159
$
74
7
54
58
—
(143)
—
$
50
$(1,022)
$
$
$ 763
(1,008)
$ (245)
$
$
—
(1,022)
$(1,022)
$
$
$
$
—
(612)
(612)
—
13
(4,904)
$ (4,891)
$13,246
$
—
(386)
(386)
$
—
1
(4,440)
$ (4,439)
$12,337
(2)
(33)
(1,936)
$(1,971)
$ 6,369
874
(715)
$ 159
1
(23)
(1,454)
$(1,476)
$ 5,463
$
—
1
(123)
$ (122)
$1,072
$1,368
29
116
—
457
(54)
—
—
—
—
86
$2,002
$1,395
28
118
—
29
(54)
—
—
—
—
(148)
$1,368
$
95
5
53
65
—
(144)
—
$
74
$(1,053)
$1,096
277
92
—
—
(54)
86
$ 1,497
$ (505)
$1,176
40
75
—
—
(54)
(141)
$1,096
(272)
$
—
(1,053)
$(1,053)
$
—
(505)
$ (505)
$
$
$
$
—
3
(152)
$ (149)
$1,127
(1)
5
(802)
$ (798)
$2,002
—
(272)
$(272)
(1)
5
(509)
(505)
$1,368
The U.S. plans exclude nonqualified pension plans, for which the aggregate projected benefit obligation was $769 million and $713 million and the aggregate
accumulated benefit obligation was $738 million and $694 million at December 31, 2012 and 2011, respectively. These plans are unfunded. As such, the funded
status of these plans is $(769) million and $(713) million at December 31, 2012 and 2011, respectively. Accumulated other comprehensive income (loss) reflects
pretax charges of $298 million and $231 million at December 31, 2012 and 2011, respectively, that primarily relate to net actuarial loss.
The U.S. qualified pension plan is fully funded under specified ERISA funding rules as of January 1, 2013 and no minimum required funding is expected for 2012
or 2013.
38
The following table shows the change in Accumulated other
comprehensive income (loss) for the years ended December 31,
2012 and 2011:
In millions of dollars
Balance, January 1, net of tax (1)
Actuarial assumptions changes and plan
experience (2)
Net asset gain due to actual returns
exceeding expected returns
Net amortizations
Foreign exchange impact and other
Change in deferred taxes, net
Change, net of tax
Balance, December 31, net of tax (1)
(1)
(2)
2012
$(4,282)
2011
$(4,105)
(2,400)
(820)
963
214
(155)
390
$ (988)
$(5,270)
197
183
28
235
$ (177)
$(4,282)
See Note 21 to the Consolidated Financial Statements for further
discussion of net Accumulated other comprehensive income (loss) balance.
Includes $62 million and $70 million in net actuarial losses related to U.S.
nonqualified pension plans for 2012 and 2011, respectively.
At December 31, 2012 and 2011, for both qualified and
nonqualified plans and for both funded and unfunded plans, the
aggregate projected benefit obligation (PBO), the aggregate
accumulated benefit obligation (ABO), and the aggregate fair
value of plan assets are presented for pension plans with a
projected benefit obligation in excess of plan assets and for
pension plans with an accumulated benefit obligation in excess
of plan assets as follows:
In millions of dollars
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
(1)
PBO exceeds fair value of plan assets
Non-U.S. plans
U.S. plans (1)
2011
2011
2012
2012
$13,089
$2,386
$14,037
$4,792
13,031
1,992
13,984
3,876
11,991
1,671
12,656
3,784
ABO exceeds fair value plan assets
U.S. plans (1)
Non-U.S. plans
2011
2011
2012
2012
$13,089
$1,970
$14,037
$2,608
13,031
1,691
13,984
2,263
11,991
1,139
12,656
1,677
In 2012, the PBO and ABO of the U.S. plans include $13,268 million and $13,246 million, respectively, relating to the qualified plan and $769 million and $738
million, respectively, relating to the nonqualified plans. In 2011, the PBO and ABO of the U.S. plans include $12,377 million and $12,337 million, respectively,
relating to the qualified plan and $712 million and $694 million, respectively, relating to the nonqualified plans.
At December 31, 2012, combined accumulated benefit
obligations for the U.S. and non-U.S. pension plans, excluding
U.S. nonqualified plans, were less than plan assets by $0.2
billion. At December 31, 2011, combined accumulated benefit
obligations for the U.S. and non-U.S. pension plans, excluding
U.S. nonqualified plans, exceeded plan assets by $0.6 billion.
39
A discussion of certain key assumptions follows.
Plan Assumptions
The Company utilizes a number of assumptions to determine
plan obligations and expense. Changes in one or a combination
of these assumptions will have an impact on the Company’s
pension and postretirement PBO, funded status and benefit
expense. Changes in the plans’ funded status resulting from
changes in the PBO and fair value of plan assets will have a
corresponding impact on Accumulated other comprehensive
income (loss).
Certain assumptions used in determining pension and
postretirement benefit obligations and net benefit expenses for
the Company’s plans are shown in the following table:
At year end
Discount rate
U.S. plans (1)
Pension
Postretirement
Non-U.S. pension plans
Range
Weighted average
Future compensation increase rate
U.S. plans (2)
Non-U.S. pension plans
Range
Weighted average
Expected return on assets
U.S. plans
Non-U.S. pension plans
Range
Weighted average
During the year
Discount rate
U.S. plans (1)
Pension
Postretirement
Non-U.S. pension plans
Range
Weighted average
Future compensation increase rate
U.S. plans (2)
Non-U.S. pension plans
Range
Weighted average
Expected return on assets
U.S. plans
Non-U.S. pension plans
Range
Weighted average
(1)
(2)
2012
3.90%
3.60
1.50 to 28.00
5.24
N/A
2011
4.70%
4.30
1.75 to 13.25
5.94
1.60 to 13.30
4.04
7.00
7.50
0.90 to 11.50
5.76
1.00 to 12.50
6.25
2012
2011
1.75 to 13.25
5.94
N/A
Expected Rate of Return
The Company determines its assumptions for the expected rate
of return on plan assets for its U.S. pension and postretirement
plans using a “building block” approach, which focuses on
ranges of anticipated rates of return for each asset class. A
weighted range of nominal rates is then determined based on
target allocations to each asset class. Market performance over a
number of earlier years is evaluated covering a wide range of
economic conditions to determine whether there are sound
reasons for projecting any past trends.
The Company considers the expected rate of return to be a
long-term assessment of return expectations and does not
anticipate changing this assumption annually unless there are
significant changes in investment strategy or economic
conditions. This contrasts with the selection of the discount rate
and certain other assumptions, which are reconsidered annually
in accordance with generally accepted accounting principles.
The expected rate of return for the U.S. pension and
postretirement plans was 7.00% at December 31, 2012, 7.50% at
December 31, 2011, and 7.50% at December 31, 2010. Actual
returns in 2012, 2011 and 2010 were greater than the expected
returns. The expected return on assets reflects the expected
annual appreciation of the plan assets and reduces the annual
pension expense of the Company. It is deducted from the sum of
service cost, interest cost and other components of pension
expense to arrive at the net pension (benefit) expense. Net
pension (benefit) expense for the U.S. pension plans for 2012,
2011, and 2010 reflects deductions of $897 million, $890
million, and $874 million of expected returns, respectively.
N/A
1.20 to 26.00
3.93
4.70%
4.30
Discount Rate
The discount rates for the U.S. pension and postretirement plans
were selected by reference to a Citigroup-specific analysis using
each plan’s specific cash flows and compared with high-quality
corporate bond indices for reasonableness. Citigroup’s policy is
to round to the nearest five hundredths of a percent.
Accordingly, at December 31, 2012, the discount rate was
set at 3.90% for the pension plans and 3.60% for the
postretirement plans. At December 31, 2011, the discount rate
was set at 4.70% for the pension plans and 4.30% for the
postretirement plans.
The discount rates for the non-U.S. pension and
postretirement plans are selected by reference to high-quality
corporate bond rates in countries that have developed corporate
bond markets. However, where developed corporate bond
markets do not exist, the discount rates are selected by reference
to local government bond rates with a premium added to reflect
the additional risk for corporate bonds in certain countries.
5.45%
5.10
1.75 to 14.00
6.23
N/A
1.60 to 13.30
4.04
1.00 to 11.00
4.66
7.50
7.50
1.00 to 12.50
6.25
1.00 to 12.50
6.89
Weighted-average rates for the U.S. plans equal the stated rates.
Since the U.S. qualified pension plan was frozen, a compensation increase
rate applies only to certain small groups of grandfathered employees
accruing benefits under a final pay plan formula. Only the future
compensation increases for these grandfathered employees will affect
future pension expense and obligations. Compensation increase rates for
these small groups of participants range from 3.00% to 4.00%.
40
The following tables summarize the effect on pension
expense of a one-percentage-point change in the expected rates
of return:
The following table shows the expected rate of return
during the year versus actual rate of return on plan assets for
2012, 2011 and 2010 for the U.S. pension and postretirement
plans:
One-percentage-point increase
2011
2010
2012
$(118)
$(119)
$(120)
(62)
(54)
(64)
In millions of dollars
Expected rate of return
Actual rate of return (2)
(1)
(2)
(1)
2012
7.50%
11.79%
2011
7.50%
11.13%
2010
7.75%
14.11%
U.S. plans
Non-U.S. plans
Effective December 31, 2012, the expected rate of return decreased from
7.50% to 7.00%.
Actual rates of return are presented gross of fees.
U.S. plans
Non-U.S. plans
For the non-U.S. plans, pension expense for 2012 was
reduced by the expected return of $399 million, compared with
the actual return of $786 million. Pension expense for 2011 and
2010 was reduced by expected returns of $422 million and $378
million, respectively. Actual returns were higher in 2012, 2011,
and 2010 than the expected returns in those years.
Health-Care Cost-Trend Rate
Assumed health-care cost-trend rates were as follows:
2012
Health-care cost increase rate for U.S. plans
Following year
Ultimate rate to which cost increase is assumed
to decline
Year in which the ultimate rate is reached
Sensitivities of Certain Key Assumptions
The following tables summarize the effect on pension expense
of a one-percentage-point change in the discount rate:
In millions of dollars
U.S. plans
Non-U.S. plans
In millions of dollars
U.S. plans
Non-U.S. plans
One-percentage-point decrease
2011
2010
2012
$118
$119
$120
62
54
64
In millions of dollars
One-percentage-point increase
2011
2010
2012
$19
$19
$18
(57)
(49)
(48)
2011
8.50%
9.00%
5.00
2020
5.00
2020
A one-percentage-point change in assumed health-care
cost-trend rates would have the following effects:
One-percentage-point decrease
2011
2010
2012
$(34)
$(34)
$(36)
70
56
64
In millions of dollars
Effect on benefits earned
and interest cost for
U.S. plans
Effect on accumulated
postretirement benefit
obligation for U.S.
plans
Since the U.S. qualified pension plan was frozen, the
majority of the prospective service cost has been eliminated and
the gain/loss amortization period was changed to the life
expectancy for inactive participants. As a result, pension
expense for the U.S. qualified pension plan is driven more by
interest costs than service costs, and an increase in the discount
rate would increase pension expense, while a decrease in the
discount rate would decrease pension expense.
41
One-percentagepoint increase
2011
2012
Onepercentagepoint decrease
2011
2012
$2
$2
$(1)
$(2)
44
43
(39)
(38)
Plan Assets
Citigroup’s pension and postretirement plans’ asset allocations for the U.S. plans at December 31, 2012 and 2011, and the target
allocations for 2013 by asset category based on asset fair values, are as follows:
Asset category (1)
Equity securities (2)
Debt securities
Real estate
Private equity
Other investments
Total
(1)
(2)
Target asset
allocation
2013
0 - 30%
25 - 73
0-7
0 - 15
12 - 29
U.S. pension assets
at December 31,
2011
2012
16%
17%
44
45
5
5
13
11
22
22
100%
100%
U.S. postretirement assets
at December 31,
2011
2012
16%
17%
44
45
5
5
13
11
22
22
100%
100%
Asset allocations for the U.S. plans are set by investment strategy, not by investment product. For example, private equities with an underlying investment in real
estate are classified in the real estate asset category, not private equity.
Equity securities in the U.S. pension plans include no Citigroup common stock at the end of 2012 and 2011.
Third-party investment managers and advisors provide their
services to Citigroup’s U.S. pension plans. Assets are
rebalanced as the Pension Plan Investment Committee deems
appropriate. Citigroup’s investment strategy, with respect to its
pension assets, is to maintain a globally diversified investment
portfolio across several asset classes that, when combined with
Citigroup’s contributions to the plans, will maintain the plans’
ability to meet all required benefit obligations.
Citigroup’s pension and postretirement plans’ weightedaverage asset allocations for the non-U.S. plans and the actual
ranges at the end of 2012 and 2011, and the weighted-average
target allocations for 2013 by asset category based on asset fair
values are as follows:
Asset category
Equity securities
Debt securities
Real estate
Other investments
Total
Weighted-average
target asset allocation
2013
16%
75
1
8
100%
Asset category
Equity securities
Debt securities
Other investments
Total
Weighted-average
target asset allocation
2013
27%
55
18
100%
42
Non-U.S. pension plans
Actual range
at December 31,
2011
2012
0 to 65%
0 to 63%
0 to 99
0 to 100
0 to 42
0 to 41
0 to 100
0 to 100
Non-U.S. postretirement plans
Actual range
at December 31,
2011
2012
0 to 44%
0 to 28%
45 to 100
46 to 100
0 to 11
0 to 26
Weighted-average
at December 31,
2011
2012
19%
16%
71
72
1
1
9
11
100%
100%
Weighted-average
at December 31,
2011
2012
44%
28%
45
46
11
26
100%
100%
Fair Value Disclosure
For information on fair value measurements, including
descriptions of Level 1, 2 and 3 of the fair value hierarchy and
the valuation methodology utilized by the Company, see
“Significant Accounting Policies and Significant Estimates” and
Note 25 to the Consolidated Financial Statements.
Certain investments may transfer between the fair value
hierarchy classifications during the year due to changes in
valuation methodology and pricing sources. There were no
significant transfers of investments between Level 1 and Level 2
during the years ended December 31, 2012 and 2011.
Plan assets by detailed asset categories and the fair value
hierarchy are as follows:
U.S. pension and postretirement benefit plans (1)
Fair value measurement at December 31, 2012
Level 1
Level 2
Level 3
Total
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Mutual funds
Commingled funds
Debt securities
U.S. Treasuries
U.S. agency
U.S. corporate bonds
Non-U.S. government debt
Non-U.S. corporate bonds
State and municipal debt
Hedge funds
Asset-backed securities
Mortgage-backed securities
Annuity contracts
Private equity
Derivatives
Other investments
Total investments at fair value
Cash and short-term investments
Other investment receivables
Total assets
Other investment liabilities
Total net assets
(1)
$ 677
412
177
—
1,431
—
1
—
4
—
—
—
—
—
—
593
—
$3,295
$ 130
—
$3,425
$ (607)
$2,818
$
—
5
—
1,132
—
112
1,396
387
346
142
1,132
55
52
—
—
37
—
$4,796
$ 906
6
$5,708
$ (60)
$5,648
$
—
—
—
—
—
—
—
—
—
—
1,524
—
—
130
2,419
—
142
$4,215
$ —
24
$4,239
$ —
$4,239
$
677
417
177
1,132
1,431
112
1,397
387
350
142
2,656
55
52
130
2,419
630
142
$12,306
$ 1,036
30
$13,372
$ (667)
$12,705
The investments of the U.S. pension and postretirement benefit plans are commingled in one trust. At December 31, 2012, the allocable interests of the U.S.
pension and postretirement benefit plans were 99.6% and 0.4%, respectively.
43
U.S. pension and postretirement benefit plans (1)
Fair value measurement at December 31, 2011
Level 1
Level 2
Level 3
Total
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Mutual funds
Commingled funds
Debt securities
U.S. Treasuries
U.S. agency
U.S. corporate bonds
Non-U.S. government debt
Non-U.S. corporate bonds
State and municipal debt
Hedge funds
Asset-backed securities
Mortgage-backed securities
Annuity contracts
Private equity
Derivatives
Other investments
Total investments at fair value
Cash and short-term investments
Other investment receivables
Total assets
Other investment liabilities
Total net assets
(1)
$
572
229
137
440
1,760
—
2
—
4
—
—
—
—
—
—
691
92
$3,927
$ 412
—
$4,339
$ (683)
$3,656
$
5
—
—
594
—
120
1,073
352
271
122
1,087
19
32
—
—
36
20
$3,731
$ 402
393
$4,526
$ (33)
$4,493
$
51
19
—
—
—
—
5
—
—
—
870
—
—
155
2,474
—
121
$3,695
$ —
221
$3,916
$ —
$3,916
$
628
248
137
1,034
1,760
120
1,080
352
275
122
1,957
19
32
155
2,474
727
233
$11,353
$ 814
614
$12,781
$ (716)
$12,065
The investments of the U.S. pension and postretirement benefit plans are commingled in one trust. At December 31, 2011, the allocable interests of the U.S.
pension and postretirement benefit plans were 99.2% and 0.8%, respectively.
44
Non-U.S. pension and postretirement benefit plans
Fair value measurement at December 31, 2012
Level 1
Level 2
Level 3
Total
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Mutual funds
Commingled funds
Debt securities
U.S. Treasuries
U.S. corporate bonds
Non-U.S. government debt
Non-U.S. corporate bonds
State and municipal debt
Hedge funds
Mortgage-backed securities
Annuity contracts
Derivatives
Other investments
Total investments at fair value
Cash and short-term investments
Total assets
$
12
88
31
26
—
10
1,806
162
—
—
—
—
—
3
$2,138
$ 56
$2,194
$
12
77
4,583
—
$—
48
—
—
$
24
213
4,614
26
1
478
144
804
—
—
1
5
40
9
$6,154
$
4
$6,158
—
—
4
4
—
16
—
6
—
219
$297
$ 3
$300
1
488
1,954
970
—
16
1
11
40
231
$8,589
$ 63
$8,652
Non-U.S. pension and postretirement benefit plans
Fair value measurement at December 31, 2011
Level 1
Level 2
Level 3
Total
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Mutual funds
Commingled funds
Debt securities
U.S. Treasuries
U.S. corporate bonds
Non-U.S. government debt
Non-U.S. corporate bonds
State and municipal debt
Hedge funds
Mortgage-backed securities
Annuity contracts
Derivatives
Other investments
Total investments at fair value
Cash and short-term investments
Total assets
$
12
48
11
26
1
1
1,484
5
—
—
1
—
—
3
$1,592
$ 168
$1,760
45
$
—
180
4,439
—
$—
5
32
—
$
12
233
4,482
26
—
379
129
318
—
3
—
3
3
6
$5,460
$ —
$5,460
—
—
5
3
—
12
—
—
—
240
$297
$ —
$297
1
380
1,618
326
—
15
1
3
3
249
$7,349
$ 168
$7,517
Level 3 Roll Forward
The reconciliations of the beginning and ending balances during the period for Level 3 assets are as follows:
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Debt securities
U.S. corporate bonds
Non-U.S. government debt
Non-U.S. corporate bonds
Hedge funds
Annuity contracts
Private equity
Other investments
Total investments
Other investment receivables
Total assets
Beginning Level 3
fair value at
Dec. 31, 2011
$51
19
5
—
—
870
155
2,474
121
$3,695
221
$3,916
In millions of dollars
Asset categories
Equity securities
U.S. equity
Non-U.S. equity
Debt securities
U.S. corporate bonds
Non-U.S. corporate bonds
Hedge funds
Annuity contracts
Private equity
Other investments
Total investments
Other investment receivables
Total assets
Beginning Level 3
fair value at
Dec. 31, 2010
$
5
1
1,014
187
2,920
4
$4,131
—
$4,131
Beginning Level 3
fair value at
Dec. 31, 2011
$
$ —
—
$ —
8
$ —
—
$(51)
(27)
$
—
(1)
—
(28)
—
267
—
$238
—
$238
1
—
—
149
6
98
14
$276
—
$276
—
1
—
199
(31)
(484)
12
$(303)
—
$(303)
(6)
—
—
334
—
64
(5)
$309
(197)
$112
—
—
—
1,524
130
2,419
142
$4,215
24
$4,239
—
—
U.S. pension and postretirement benefit plans
Realized
Unrealized Purchases, Transfers in Ending Level 3
gains
gains
sales, and and/or out of fair value at
(losses)
(losses)
issuances
Level 3
Dec. 31, 2011
—
—
In millions of dollars
Asset categories
Equity securities
Non-U.S. equity
Mutual funds
Debt securities
Non-U.S. government bonds
Non-U.S. corporate bonds
Hedge funds
Annuity contracts
Other investments
Total investments
Cash and short-term investments
Total assets
U.S. pension and postretirement benefit plans
Realized
Unrealized
Purchases, Transfers in Ending Level 3
gains
gains
sales, and and/or out of fair value at
(losses)
(losses)
issuances
Level 3
Dec. 31, 2012
$ —
—
$—
(1)
$
—
—
$51
20
(2)
—
42
—
89
—
$129
—
$129
(1)
—
(45)
3
94
(6)
$44
—
$44
(1)
(1)
(131)
(35)
(497)
—
$(665)
221
$(444)
4
—
(10)
—
(132)
123
$56
—
$56
$
51
19
5
—
870
155
2,474
121
$3,695
221
$3,916
Non-U.S. pension and postretirement benefit plans
Realized
Unrealized Purchases, Transfers in Ending Level 3
gains
gains
sales, and and/or out of
fair value at
(losses)
(losses)
issuances
Level 3
Dec. 31, 2012
5
32
$—
—
5
3
12
—
240
$297
—
$297
—
(3)
—
—
7
$4
—
$4
46
$—
—
$43
(10)
$—
(22)
$ 48
—
—
—
—
—
14
$14
—
$14
—
2
—
1
(23)
$13
—
$13
(1)
2
4
5
(19)
$(31)
3
$(28)
4
4
16
6
219
$297
3
$300
In millions of dollars
Asset categories
Equity securities
Non-U.S. equity
Mutual funds
Debt securities
Non-U.S. government bonds
Non-U.S. corporate bonds
Hedge funds
Other investments
Total assets
Beginning Level 3
fair value at
Dec. 31, 2010
Non-U.S. pension and postretirement benefit plans
Realized
Unrealized Purchases, Transfers in Ending Level 3
gains
gains
sales, and and/or out of fair value at
(losses)
(losses)
issuances
Level 3
Dec. 31, 2011
$ 3
—
$—
—
$2
—
$—
—
$—
32
$
5
32
—
107
14
189
$313
—
—
(2)
4
$ 2
—
—
—
—
$2
—
2
—
(10)
$(8)
5
(105)
—
56
$(12)
5
4
12
239
$297
Oversight and Risk Management Practices
The framework for the Company’s pensions oversight process
includes monitoring of retirement plans by plan fiduciaries
and/or management at the global, regional or country level, as
appropriate. Independent risk management contributes to the
risk oversight and monitoring for the Company’s U.S. qualified
pension plan and largest non-U.S. pension plans. Although the
specific components of the oversight process are tailored to the
requirements of each region, country and plan, the following
elements are common to the Company’s monitoring and risk
management process:
Investment Strategy
The Company’s global pension and postretirement funds’
investment strategies are to invest in a prudent manner for the
exclusive purpose of providing benefits to participants. The
investment strategies are targeted to produce a total return that,
when combined with the Company’s contributions to the funds,
will maintain the funds’ ability to meet all required benefit
obligations. Risk is controlled through diversification of asset
types and investments in domestic and international equities,
fixed-income securities and cash and short-term investments.
The target asset allocation in most locations outside the U.S. is
to have the majority of the assets in equity and debt securities.
These allocations may vary by geographic region and country
depending on the nature of applicable obligations and various
other regional considerations. The wide variation in the actual
range of plan asset allocations for the funded non-U.S. plans is a
result of differing local statutory requirements and economic
conditions. For example, in certain countries local law requires
that all pension plan assets must be invested in fixed-income
investments, government funds, or local-country securities.
•
•
•
•
•
Periodic asset/liability management studies and strategic
asset allocation reviews
Periodic monitoring of funding levels and funding ratios
Periodic monitoring of compliance with asset allocation
guidelines
Periodic monitoring of asset class and/or investment
manager performance against benchmarks
Periodic risk capital analysis and stress testing
Significant Concentrations of Risk in Plan Assets
The assets of the Company’s pension plans are diversified to
limit the impact of any individual investment. The U.S.
qualified pension plan is diversified across multiple asset classes,
with publicly traded fixed income, hedge funds, publicly traded
equity, and private equity representing the most significant asset
allocations. Investments in these four asset classes are further
diversified across funds, managers, strategies, vintages, sectors
and geographies, depending on the specific characteristics of
each asset class. The pension assets for the Company’s largest
non-U.S. plans are primarily invested in publicly traded fixed
income and publicly traded equity securities.
Estimated Future Benefit Payments
The Company expects to pay the following estimated benefit payments in future years:
Pension plans
U.S. plans Non-U.S. plans
$774
$366
796
356
798
373
811
391
825
408
4,370
2,399
In millions of dollars
2013
2014
2015
2016
2017
2018–2022
47
Postretirement benefit plans
U.S. plans Non-U.S. plans
$88
$58
86
63
86
66
83
71
81
75
370
483
million the Company received in reimbursements in 2012,
approximately $5 million was used to reduce the health benefit
costs for certain eligible retirees. In accordance with federal
regulations, the remaining reimbursements will be used to
reduce retirees’ health benefit costs by December 31, 2014.
Prescription Drugs
In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (Act of 2003) was
enacted. The Act of 2003 established a prescription drug benefit
under Medicare known as “Medicare Part D,” and a federal
subsidy to sponsors of U.S. retiree health-care benefit plans that
provide a benefit that is at least actuarially equivalent to
Medicare Part D. The benefits provided to certain participants
are at least actuarially equivalent to Medicare Part D and,
accordingly, the Company is entitled to a subsidy.
The expected subsidy reduced the accumulated
postretirement benefit obligation (APBO) by approximately $93
million and $96 million as of December 31, 2012 and 2011,
respectively, and the postretirement expense by approximately
$9 million and $10 million for 2012 and 2011, respectively.
The following table shows the estimated future benefit
payments without the effect of the subsidy and the amounts of
the expected subsidy in future years:
Postemployment Plans
The Company sponsors U.S. postemployment plans that provide
income continuation and health and welfare benefits to certain
eligible U.S. employees on long-term disability.
As of December 31, 2012 and 2011, the plans’ funded
status recognized in the Company’s Consolidated Balance Sheet
was $(501) million and $(469) million, respectively. The
amounts recognized in Accumulated other comprehensive
income (loss) as of December 31, 2012 and 2011 were $(185)
million and $(188) million, respectively.
The following table summarizes the components of net
expense recognized in the Consolidated Statement of Income for
the Company’s U.S. postemployment plans.
Expected U.S.
postretirement benefit payments
Before Medicare
Medicare After Medicare
In millions of dollars Part D subsidy Part D subsidy Part D subsidy
2013
$98
$10
$88
2014
96
10
86
2015
94
8
86
2016
91
8
83
2017
89
8
81
2018–2022
399
29
370
In millions of dollars
Service related expense
Service cost
Interest cost
Prior service cost
Net actuarial loss
Total service related expense
Non-service related expense
Total net expense
The Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010
(collectively, the Act of 2010) were signed into law in the U.S.
in March 2010. One provision that impacted Citigroup was the
elimination of the tax deductibility for benefits paid that are
related to the Medicare Part D subsidy, starting in 2013.
Citigroup was required to recognize the full accounting impact
in 2010, the period in which the Act of 2010 was signed. As a
result, there was a $45 million reduction in deferred tax assets
with a corresponding charge to earnings from continuing
operations.
Certain provisions of the Act of 2010 improved the
Medicare Part D option known as the Employer Group Waiver
Plan (EGWP), with respect to the Medicare Part D subsidy. The
EGWP provides prescription drug benefits that are more cost
effective for Medicare-eligible participants and large employers.
Effective April 1, 2013, the Company will sponsor and
implement an EGWP for eligible retirees. The expected
Company subsidy received under EGWP is expected to be at
least actuarially equivalent to the subsidy the Company would
have previously received under the Medicare Part D benefit.
The other provisions of the Act of 2010 are not expected to
have a significant impact on Citigroup’s pension and
postretirement plans.
2012
Net Expense
2011
$22
13
7
13
$55
$24
$79
$16
12
7
9
$44
$23
$67
2010
$13
10
7
6
$36
$33
$69
The following table summarizes certain assumptions used
in determining the postemployment benefit obligations and net
benefit expenses for the Company’s U.S. postemployment plans.
Discount rate
Health-care cost increase rate
Following year
Ultimate rate to which cost increase is assumed to
decline
Year in which the ultimate rate is reached
2012
3.10%
2011
3.95%
8.50%
9.00%
5.00
2020
5.00
2020
Defined Contribution Plans
The Company sponsors defined contribution plans in the U.S.
and in certain non-U.S. locations, all of which are administered
in accordance with local laws. The most significant defined
contribution plan is the Citigroup 401(k) Plan sponsored by the
Company in the U.S.
Under the Citigroup 401(k) Plan, eligible U.S. employees
received matching contributions of up to 6% of their eligible
compensation for 2012 and 2011, subject to statutory limits.
Additionally, for eligible employees whose eligible
compensation is $100,000 or less, a fixed contribution of up to
2% of eligible compensation is provided. All Company
contributions are invested according to participants’ individual
elections. The pretax expense associated with this plan
amounted to approximately $389 million, $383 million and
$301 million in 2012, 2011 and 2010, respectively.
Early Retiree Reinsurance Program
The Company participates in the Early Retiree Reinsurance
Program (ERRP), which provides federal government
reimbursement to eligible employers to cover a portion of the
health benefit costs associated with early retirees. Of the $8
48
The reconciliation of the federal statutory income tax rate to the
Company’s effective income tax rate applicable to income from
continuing operations (before noncontrolling interests and the
cumulative effect of accounting changes) for the years ended
December 31 was as follows:
10. INCOME TAXES
2012
2011
2010
(71)
3,869
300
$ 4,098
$ (144)
3,552
241
$3,649
$ (249)
3,223
207
$ 3,181
$(4,943)
900
(48)
$(4,091)
$ (793)
628
91
$ (74)
$ (933)
279
(310)
$ (964)
$3,575
$ 2,217
In millions of dollars
Current
Federal
Foreign
State
Total current income taxes
Deferred
Federal
Foreign
State
Total deferred income taxes
Provision (benefit) for income tax on
continuing operations before
noncontrolling interests (1)
Provision (benefit) for income taxes on
discontinued operations
Provision (benefit) for income taxes on
cumulative effect of accounting
changes
Income tax expense (benefit) reported in
stockholders’ equity related to:
Foreign currency translation
Securities available-for-sale
Employee stock plans
Cash flow hedges
Pension liability adjustments
Income taxes before noncontrolling
interests
(1)
$
$
7
(52)
12
(546)
(58)
—
(4,978)
Federal statutory rate
State income taxes, net of federal benefit
Foreign income tax rate differential
Audit settlements (1)
Effect of tax law changes (2)
Basis difference in affiliates
Tax advantaged investments
Other, net
Effective income tax rate
(1)
(2)
(709)
369
265
311
(390)
$ (257)
(609)
1,495
297
(92)
(235)
$4,443
(739)
1,167
600
325
(434)
2012
35.0%
3.0
(5.0)
(11.7)
(0.1)
(9.1)
(12.2)
0.2
0.1%
2011
35.0%
1.5
(8.4)
—
2.0
—
(6.0)
0.2
24.3%
2010
35.0%
(0.1)
(10.0)
(0.5)
(0.1)
—
(6.7)
(0.7)
16.9%
For 2012 and 2010, relates to the conclusion of the audit of various issues
in the Company’s 2006–2008 and 2003–2005 U.S. federal tax audits,
respectively. 2012 also includes an amount related to the conclusion of a
New York City tax audit for 2006–2008.
For 2011, includes the results of the Japan tax rate change which resulted
in a $300 million DTA charge.
Deferred income taxes at December 31 related to the following:
Deferred tax assets
Credit loss deduction
Deferred compensation and employee benefits
Restructuring and settlement reserves
Unremitted foreign earnings
Investment and loan basis differences
Cash flow hedges
Tax credit and net operating loss carryforwards
Other deferred tax assets
Gross deferred tax assets
Valuation allowance
Deferred tax assets after valuation
allowance
Deferred tax liabilities
Deferred policy acquisition costs and value of
insurance in force
Fixed assets and leases
Intangibles
Debt valuation adjustment on Citi liabilities
Other deferred tax liabilities
Gross deferred tax liabilities
Net deferred tax asset
$(2,388)
Includes the effect of securities transactions and OTTI losses resulting in a
provision (benefit) of $1,138 million and $(1,740) million in 2012, $699
million and $(789) million in 2011 and $844 million and $(494) million in
2010, respectively.
49
2011
2012
In millions of dollars
$10,947
4,890
1,645
5,114
3,878
1,361
$12,481
4,936
1,331
7,362
2,358
1,673
28,087
2,651
$58,573
—
22,764
2,127
$55,032
—
$58,573
$55,032
$
$
(495)
(623)
(1,517)
(73)
(543)
$ (3,251)
$55,322
(591)
(1,361)
(710)
(533)
(307)
$ (3,502)
$51,530
Total amount of unrecognized tax benefits at December 31,
2012, 2011 and 2010 that, if recognized, would affect the
effective tax rate are $1.3 billion, $2.2 billion and $2.1 billion,
respectively. The remainder of the uncertain tax positions have
offsetting amounts in other jurisdictions or are temporary
differences, except for $0.9 billion, which would be booked
directly to Retained earnings.
The following is a roll-forward of the Company’s unrecognized
tax benefits.
In millions of dollars
Total unrecognized tax benefits at
January 1
Net amount of increases for current
year’s tax positions
Gross amount of increases for prior
years’ tax positions
Gross amount of decreases for prior
years’ tax positions
Amounts of decreases relating to
settlements
Reductions due to lapse of statutes of
limitation
Foreign exchange, acquisitions and
dispositions
Total unrecognized tax benefits at
December 31
2012
2011
2010
$3,923
$4,035
$3,079
136
193
1,039
345
251
371
(1,246)
(507)
(421)
(44)
(11)
(14)
(3)
(38)
(11)
(2)
—
(8)
$3,109
$3,923
$4,035
Interest and penalties (not included in “unrecognized tax benefits” above) are a component of the Provision for income taxes.
In millions of dollars
Total interest and penalties in the Consolidated Balance Sheet at January 1
Total interest and penalties in the Consolidated Statement of Income
Total interest and penalties in the Consolidated Balance Sheet at December 31 (1)
(1)
2012
Net of
Pretax
tax
$404
$261
114
71
492
315
2011
Pretax
$348
61
404
Net of tax
$223
41
261
2010
Pretax
$370
(16)
348
Net of tax
$239
(12)
223
2012 includes $10 million for foreign penalties and $4 million for state penalties.
The Company is currently under audit by the Internal
Revenue Service and other major taxing jurisdictions around the
world. It is thus reasonably possible that significant changes in the
gross balance of unrecognized tax benefits may occur within the
next 12 months, but the Company does not expect such audits to
result in amounts that would cause a significant change to its
effective tax rate, other than the following items.
The Company may resolve certain issues with IRS Appeals
for the 2003–2005 and 2006–2008 cycles within the next 12
months. The gross uncertain tax positions at December 31, 2012
for the items that may be resolved are as much as $655 million
plus gross interest of $92 million. Because of the number and
nature of the issues remaining to be resolved, the potential tax
benefit to continuing operations could be anywhere in a range
between $0 and $383 million. In addition, the audit for the
companies in the Germany tax group for the years 2005–2008
may conclude in 2013. The gross uncertain tax positions at
December 31, 2012 for this audit is as much as $112 million plus
gross interest of $29 million. The potential tax benefit, most of
which would go to discontinued operations, is anywhere in the
range from $0 to $137 million.
The following are the major tax jurisdictions in which the
Company and its affiliates operate and the earliest tax year subject
to examination:
Jurisdiction
United States
Mexico
New York State and City
United Kingdom
Japan
Brazil
Singapore
Hong Kong
Ireland
Tax year
2009
2008
2005
2010
2009
2008
2007
2007
2008
Foreign pretax earnings approximated $14.7 billion in 2012,
$13.1 billion in 2011 and $12.3 billion in 2010 (of which $0.0
billion profit, $0.1 billion profit and $0.2 billion profit,
respectively, are in discontinued operations). As a U.S.
corporation, Citigroup and its U.S. subsidiaries are currently
subject to U.S. taxation on all foreign pretax earnings earned by a
foreign branch. Pretax earnings of a foreign subsidiary or affiliate
are subject to U.S. taxation when effectively repatriated. The
Company provides income taxes on the undistributed earnings of
non-U.S. subsidiaries except to the extent that such earnings are
indefinitely reinvested outside the United States. At December 31,
2012, $42.6 billion of accumulated undistributed earnings of nonU.S. subsidiaries were indefinitely invested. At the existing U.S.
federal income tax rate, additional taxes (net of U.S. foreign tax
credits) of $11.5 billion would have to be provided if such
earnings were remitted currently. The current year’s effect on the
income tax expense from continuing operations is included in the
“Foreign income tax rate differential” line in the reconciliation of
the federal statutory rate to the Company’s effective income tax
rate in the table above.
50
The following table summarizes the amounts of tax carryforwards and their expiration dates as of December 31, 2012:
Income taxes are not provided for the Company’s “savings
bank base year bad debt reserves” that arose before 1988, because
under current U.S. tax rules, such taxes will become payable only
to the extent such amounts are distributed in excess of limits
prescribed by federal law. At December 31, 2012, the amount of
the base year reserves totaled approximately $358 million
(subject to a tax of $125 million).
The Company has no valuation allowance on its deferred
tax assets (DTAs) at December 31, 2012 and December 31,
2011.
In billions of dollars
Year of expiration
Amount
U.S. consolidated tax return foreign tax credit carryforwards
2016
$0.4
2017
6.6
2018
5.3
2019
1.3
2020
2.3
2021
1.9
2022
4.2
Total U.S. consolidated tax return foreign tax credit carryforwards
$22.0
U.S. consolidated tax return general business credit carryforwards
2027
$0.3
2028
0.4
2029
0.4
2030
0.5
2031
0.5
2032
0.5
Total U.S. consolidated tax return general business credit
carry-forwards
$2.6
U.S. subsidiary separate federal net operating loss (NOL)
carry-forwards
2027
$0.2
2028
0.1
2030
0.3
2031
1.8
Total U.S. subsidiary separate federal NOL carry-forwards
(1)
$2.4
New York State NOL carry-forwards
2027
$0.1
2028
7.2
2029
1.9
2030
0.4
$9.6
Total New York State NOL carry-forwards (1)
New York City NOL carry-forwards
2027
$0.1
2028
3.7
2029
1.6
2030
0.2
(1)
Total New York City NOL carry-forwards
$5.6
APB 23 subsidiary NOL carry-forwards
Various
$0.2
Total APB 23 subsidiary NOL carry-forwards
$0.2
In billions of dollars
Jurisdiction/component
U.S. federal (1)
Consolidated tax return net
operating losses (NOLs)
Consolidated tax return foreign
tax credits (FTCs)
Consolidated tax return general
business credits (GBCs)
Future tax deductions and credits
Other (2)
Total U.S. federal
State and local
New York NOLs
Other state NOLs
Future tax deductions
Total state and local
Foreign
APB 23 subsidiary NOLs
Non-APB 23 subsidiary NOLs
Future tax deductions
Total foreign
Total
(1)
(2)
DTA balance
December 31,
2012
DTA balance
December 31,
2011
$—
$—
22.0
15.8
2.6
22.0
0.9
$47.5
2.1
23.0
1.4
$42.3
$ 1.3
0.6
2.6
$ 4.5
$ 1.3
0.7
2.2
$ 4.2
$ 0.2
1.2
1.9
$ 3.3
$55.3
$ 0.5
1.8
2.7
$ 5.0
$51.5
Included in the net U.S. federal DTAs of $47.5 billion are deferred tax
liabilities of $2 billion that will reverse in the relevant carry-forward
period and may be used to support the DTAs.
Includes $0.8 billion and $1.2 billion for 2012 and 2011, respectively, of
subsidiary tax carry-forwards related to companies that are expected to
be utilized separate from Citigroup’s consolidated tax carry-forwards.
(1)
51
Pretax.
Second, Citi has sufficient tax planning strategies available
to it under ASC 740 that would be implemented, if necessary, to
prevent a carry-forward from expiring. These strategies include
repatriating low taxed foreign source earnings for which an
assertion that the earnings have been indefinitely reinvested has
not been made, accelerating U.S. taxable income into, or
deferring U.S. tax deductions out of, the latter years of the
carry-forward period (e.g., selling appreciated intangible assets,
electing straight-line depreciation), accelerating deductible
temporary differences outside the U.S., and selling certain assets
that produce tax-exempt income, while purchasing assets that
produce fully taxable income. In addition, the sale or
restructuring of certain businesses can produce significant U.S.
taxable income within the relevant carry-forward periods.
Based upon the foregoing discussion, Citi believes the U.S.
federal and New York state and city NOL carry-forward period
of 20 years provides enough time to fully utilize the DTAs
pertaining to the existing NOL carry-forwards and any NOL that
would be created by the reversal of the future net deductions
that have not yet been taken on a tax return.
The U.S. FTC carry-forward period is 10 years and
represents the most time sensitive component of Citi’s DTAs.
Utilization of FTCs in any year is restricted to 35% of foreign
source taxable income in that year. However, overall domestic
losses that Citi has incurred of approximately $63 billion as of
December 31, 2012 are allowed to be reclassified as foreign
source income to the extent of 50% of domestic source income
produced in subsequent years. Resulting foreign source income
would cover the FTCs being carried forward. Citi believes the
foreign source taxable income limitation will not be an
impediment to the FTC carry-forward usage as long as Citi can
generate sufficient domestic taxable income within the 10-year
carry-forward period.
Citi believes that it will generate sufficient U.S. taxable
income within the 10-year carry-forward period referenced
above to be able to fully utilize the FTC carry-forward, in
addition to any FTCs produced in such period.
While Citi’s net total DTAs increased year-over-year, the
time remaining for utilization has shortened, given the passage
of time, particularly with respect to the foreign tax credit (FTC)
component of the DTAs. Realization of the DTAs will continue
to be driven by Citi’s ability to generate U.S. taxable earnings in
the carry-forward periods, including through actions that
optimize Citi’s U.S. taxable earnings.
Although realization is not assured, Citi believes that the
realization of the recognized net DTAs of $55.3 billion at
December 31, 2012 is more-likely-than-not based upon
expectations as to future taxable income in the jurisdictions in
which the DTAs arise and available tax planning strategies (as
defined in ASC 740, Income Taxes) that would be implemented,
if necessary, to prevent a carry-forward from expiring. In
general, Citi would need to generate approximately $112 billion
of U.S. taxable income during the respective carry-forward
periods, substantially all of which must be generated during the
FTC carry-forward periods, to fully realize its U.S. federal, state
and local DTAs. Citi’s net DTAs will decline primarily as
additional domestic GAAP taxable income is generated.
Citi has concluded that there are two components of
positive evidence that support the full realization of its DTAs.
First, Citi forecasts sufficient U.S. taxable income in the carryforward periods, exclusive of ASC 740 tax planning strategies,
although Citi’s estimated future taxable income has decreased
due to the ongoing challenging economic environment, which
will continue to be subject to overall market and global
economic conditions. Citi’s forecasted taxable income
incorporates geographic business forecasts and taxable income
adjustments to those forecasts (e.g., U.S. tax exempt income,
loan loss reserves deductible for U.S. tax reporting in
subsequent years), as well as actions intended to optimize its
U.S. taxable earnings.
52
11. EARNINGS PER SHARE
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share (EPS) computations for
the years ended December 31:
In millions, except per-share amounts
Income from continuing operations before attribution of noncontrolling interests
Less: Noncontrolling interests from continuing operations
Net income from continuing operations (for EPS purposes)
Income (loss) from discontinued operations, net of taxes
Less: Noncontrolling interests from discontinuing operations
Citigroup’s net income
Less: Preferred dividends
Net income available to common shareholders
Less: Dividends and undistributed earnings allocated to employee restricted and deferred shares with
nonforfeitable rights to dividends, applicable to basic EPS
Net income allocated to common shareholders for basic EPS
Add: Interest expense, net of tax, on convertible securities and adjustment of undistributed earnings
allocated to employee restricted and deferred shares with nonforfeitable rights to dividends,
applicable to diluted EPS
Net income allocated to common shareholders for diluted EPS
Weighted-average common shares outstanding applicable to basic EPS
Effect of dilutive securities
T-DECs
Other employee plans
Convertible securities
Options
Adjusted weighted-average common shares outstanding applicable to diluted EPS
Basic earnings per share (2)
Income from continuing operations
Discontinued operations
Net income
Diluted earnings per share (2)
Income from continuing operations
Discontinued operations
Net income
(1)
(2)
2012
$7,818
219
$7,599
(58)
—
$7,541
26
$7,515
2011 (1)
$11,147
148
$10,999
68
—
$11,067
26
$11,041
2010 (1)
$10,899
329
$10,570
(16)
(48)
$10,602
9
$10,593
166
$7,349
186
$10,855
90
$10,503
11
$7,360
2,930.6
17
$10,872
2,909.8
2
$10,505
2,877.6
84.2
0.6
0.1
—
3,015.5
87.6
0.5
0.1
0.8
2,998.8
87.8
1.9
0.1
0.4
2,967.8
$ 2.53
(0.02)
$ 2.51
$
$ 2.46
(0.02)
$ 2.44
$
$
$
3.71
0.02
3.73
$
3.60
0.02
3.63
$
$
$
3.64
0.01
3.65
3.53
0.01
3.54
All per-share amounts and Citigroup shares outstanding for all periods reflect Citigroup’s 1-for-10 reverse stock split which was effective May 6, 2011.
Due to rounding, earnings per share on continuing operations and discontinued operations may not sum to earnings per share on net income.
exercise price of $318.30 was greater than the average market
price of the Company’s common stock.
Pursuant to the terms of Citi’s previously outstanding
Tangible Dividend Enhanced Common Stock Securities (TDECs), on December 17, 2012, the Company delivered
96,337,772 shares of Citigroup common stock for the final
settlement of the prepaid stock purchase contract. The impact of
these additional shares to the weighted-average common shares
outstanding applicable to basic EPS for the year ended 2012 was
negligible due to the timing of when they were issued. The full
impact of the T-DECs settlement will be reflected in the basic
earnings per share calculation for the first quarter of 2013. The
impact of the T-DECs was fully reflected in the diluted shares
and the diluted EPS for 2012, 2011 and 2010.
During the fourth quarter of 2012, Citi issued
approximately $2.25 billion of non-cumulative perpetual
preferred stock. If declared by the Board of Directors, Citi will
distribute preferred dividends of approximately $97 million
relating to its preferred stock issuance during 2013.
During 2012, 2011 and 2010 weighted-average options to
purchase 35.8 million, 24.1 million and 38.6 million shares of
common stock, respectively, were outstanding but not included
in the computation of earnings per share because the weightedaverage exercise prices of $54.18, $123.47 and $102.89,
respectively, were greater than the average market price of the
Company’s common stock.
Warrants issued to the U.S. Treasury as part of the Troubled
Asset Relief Program (TARP) and the loss-sharing agreement
(all of which were subsequently sold to the public in January
2011), with an exercise price of $178.50 and $106.10 for
approximately 21.0 million and 25.5 million shares of common
stock, respectively, were not included in the computation of
earnings per share in 2012, 2011 and 2010, because they were
anti-dilutive.
The final tranche of equity units held by the Abu Dhabi
Investment Authority (ADIA) converted into 5.9 million shares
of Citigroup common stock during the third quarter of 2011.
Equity units of approximately 11.8 million shares of Citigroup
common stock held by ADIA were not included in the
computation of earnings per share in 2010 because the
53
The majority of the resale and repurchase agreements are
recorded at fair value. The remaining portion is carried at the
amount of cash initially advanced or received, plus accrued
interest, as specified in the respective agreements.
A majority of securities borrowing and lending agreements
are recorded at the amount of cash advanced or received and are
collateralized principally by government and governmentagency securities and corporate debt and equity securities. The
remaining portion is recorded at fair value as the Company
elected the fair value option for certain securities borrowed and
loaned portfolios. With respect to securities loaned, the
Company receives cash collateral in an amount generally in
excess of the market value of the securities loaned. The
Company monitors the market value of securities borrowed and
securities loaned on a daily basis and obtains or posts additional
collateral in order to maintain contractual margin protection.
12. FEDERAL FUNDS/SECURITIES BORROWED,
LOANED, AND SUBJECT TO REPURCHASE
AGREEMENTS
Federal funds sold and securities borrowed or purchased under
agreements to resell, at their respective carrying values,
consisted of the following at December 31:
In millions of dollars
Federal funds sold
Securities purchased under agreements to resell (1)
Deposits paid for securities borrowed
Total
(1)
2012
$
97
138,549
122,665
$261,311
2011
$
37
153,492
122,320
$275,849
Securities purchased under agreements to resell are reported net by
counterparty, when applicable requirements for net presentation are met.
The amounts in the table above were reduced for allowable netting by
$49.4 billion and $53.0 billion at December 31, 2012 and 2011,
respectively.
Federal funds purchased and securities loaned or sold under
agreements to repurchase, at their respective carrying values,
consisted of the following at December 31:
2011
2012
In millions of dollars
Federal funds purchased
688
$ 1,005 $
Securities sold under agreements to repurchase (1) 182,330 164,849
Deposits received for securities loaned
32,836
27,901
Total
$211,236 $198,373
(1)
Securities sold under agreements to repurchase are reported net by
counterparty, when applicable requirements for net presentation are met.
The amounts in the table above were reduced for allowable netting by
$49.4 billion and $53.0 billion at December 31, 2012 and 2011,
respectively.
The resale and repurchase agreements represent
collateralized financing transactions. The Company executes
these transactions through its broker-dealer subsidiaries to
facilitate customer matched-book activity and to fund a portion
of the Company’s trading inventory efficiently. Transactions
executed by the Company’s bank subsidiaries primarily
facilitate customer financing activity.
It is the Company’s policy to take possession of the
underlying collateral, monitor its market value relative to the
amounts due under the agreements and, when necessary, require
prompt transfer of additional collateral in order to maintain
contractual margin protection. Collateral typically consists of
government and government-agency securities, corporate and
municipal bonds, and mortgage-backed and other asset-backed
securities. In the event of counterparty default, the financing
agreement provides the Company with the right to liquidate the
collateral held.
54
14. TRADING ACCOUNT ASSETS AND LIABILITIES
13. BROKERAGE RECEIVABLES AND BROKERAGE
PAYABLES
Trading account assets and Trading account liabilities, at fair
value, consisted of the following at December 31:
The Company has receivables and payables for financial
instruments purchased from and sold to brokers, dealers and
customers, which arise in the ordinary course of business. The
Company is exposed to risk of loss from the inability of brokers,
dealers or customers to pay for purchases or to deliver the
financial instruments sold, in which case the Company would
have to sell or purchase the financial instruments at prevailing
market prices. Credit risk is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the
transaction and replaces the broker, dealer or customer in
question.
The Company seeks to protect itself from the risks
associated with customer activities by requiring customers to
maintain margin collateral in compliance with regulatory and
internal guidelines. Margin levels are monitored daily, and
customers deposit additional collateral as required. Where
customers cannot meet collateral requirements, the Company
will liquidate sufficient underlying financial instruments to
bring the customer into compliance with the required margin
level.
Exposure to credit risk is impacted by market volatility,
which may impair the ability of clients to satisfy their
obligations to the Company. Credit limits are established and
closely monitored for customers and for brokers and dealers
engaged in forwards, futures and other transactions deemed to
be credit sensitive.
Brokerage receivables and brokerage payables consisted of
the following at December 31:
In millions of dollars
Receivables from customers
Receivables from brokers, dealers, and clearing
organizations
Total brokerage receivables (1)
Payables to customers
Payables to brokers, dealers, and clearing
organizations
Total brokerage payables (1)
(1)
2012
$12,191
2011
$19,991
10,299
$22,490
$38,279
7,786
$27,777
$40,111
18,734
$57,013
16,585
$56,696
In millions of dollars
Trading account assets
Mortgage-backed securities (1)
U.S. government-sponsored agency
guaranteed
Prime
Alt-A
Subprime
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency
securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency
securities
State and municipal securities
Foreign government securities
Corporate
Derivatives (2)
Equity securities
Asset-backed securities (1)
Other debt securities
Total trading account assets
Trading account liabilities
Securities sold, not yet purchased
Derivatives (2)
Total trading account liabilities
(1)
(2)
Brokerage receivables and payables are accounted for in accordance with
ASC 940-320.
55
2012
2011
$31,160
1,248
801
812
607
2,441
$37,069
$27,535
877
609
989
396
2,333
$32,739
$17,472
2,884
$18,227
1,172
$20,356
$3,806
89,239
35,224
54,620
56,998
5,352
18,265
$320,929
$19,399
$5,364
79,551
37,026
62,327
33,230
7,071
15,027
$291,734
$ 63,798
51,751
$115,549
$ 69,809
56,273
$126,082
The Company invests in mortgage-backed and asset-backed securities.
These securitizations are generally considered VIEs. The Company’s
maximum exposure to loss from these VIEs is equal to the carrying
amount of the securities, which is reflected in the table above. For
mortgage-backed and asset-backed securitizations in which the Company
has other involvement, see Note 22 to the Consolidated Financial
Statements.
Presented net, pursuant to enforceable master netting agreements. See Note
23 to the Consolidated Financial Statements for a discussion regarding the
accounting and reporting for derivatives.
15. INVESTMENTS
Overview
Securities available-for-sale
Debt securities held-to-maturity (1)
Non-marketable equity securities carried at fair value (2)
Non-marketable equity securities carried at cost (3)
Total investments
(1)
(2)
(3)
2011
$265,204
11,483
8,836
7,890
$293,413
2012
$288,695
10,130
5,768
7,733
$312,326
In millions of dollars
Recorded at amortized cost less impairment for securities that have credit-related impairment.
Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings. During the third quarter of 2012, the Company
sold EMI Music resulting in a total $1.5 billion decrease in non-marketable equity securities carried at fair value. During the second quarter of 2012, the Company
sold EMI Music Publishing resulting in a total of $1.3 billion decrease in non-marketable equity securities carried at fair value.
Non-marketable equity securities carried at cost primarily consist of shares issued by the Federal Reserve Bank, Federal Home Loan Banks, foreign central banks
and various clearing houses of which Citigroup is a member.
Securities Available-for-Sale
The amortized cost and fair value of securities available-for-sale (AFS) at December 31, 2012 and 2011 were as follows:
In millions of dollars
Debt securities AFS
Mortgage-backed securities (1)
U.S. government-sponsored
agency guaranteed
Prime
Alt-A
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency
securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal
agency securities
State and municipal (2)
Foreign government
Corporate
Asset-backed securities (1)
Other debt securities
Total debt securities AFS
Marketable equity securities AFS
Total securities AFS
(1)
(2)
Amortized
cost
2012
Gross
Gross
unrealized unrealized
gains
losses
Fair
value
Amortized
cost
2011
Gross
Gross
unrealized unrealized
gains
losses
$ 46,001
85
1
7,442
436
$ 53,965
$1,507
1
—
148
16
$1,672
$ 163
—
—
—
3
$ 166
$47,345
86
1
7,590
449
$ 55,471
$ 44,394
118
1
4,671
465
$ 49,649
$1,438
1
—
9
16
$1,464
$
$ 64,456
25,844
$1,172
404
$
34
1
$ 65,594
26,247
$ 48,790
34,310
$1,439
601
$
$ 90,300
$ 20,020
93,259
9,302
14,188
256
$281,290
$ 4,643
$285,933
$1,576
$132
918
398
85
2
$4,783
$ 444
$5,227
$ 35
$1,820
130
26
143
—
$2,320
$ 145
$2,465
$ 91,841
$ 18,332
94,047
9,674
14,130
258
$283,753
$ 4,942
$288,695
$ 83,100
$ 16,819
84,360
10,005
11,053
670
$255,656
$ 6,722
$262,378
$2,040
$134
558
305
31
13
$4,545
$1,658
$6,203
Fair
value
51
6
—
22
9
88
$45,781
113
1
4,658
472
$51,025
—
2
$50,229
34,909
$2
$2,554
404
53
81
—
$3,182
$ 195
$3,377
$85,138
$14,399
84,514
10,257
11,003
683
$257,019
$ 8,185
$265,204
$
The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure
to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed
securitizations in which the Company has other involvement, see Note 22 to the Consolidated Financial Statements.
The unrealized losses on state and municipal debt securities are primarily attributable to the result of yields on taxable fixed income instruments decreasing
relatively faster than the general tax-exempt municipal yields and the effects of fair value hedge accounting.
At December 31, 2012, the amortized cost of approximately
3,500 investments in equity and fixed-income securities
exceeded their fair value by $2.465 billion. Of the $2.465 billion,
the gross unrealized loss on equity securities was $145 million.
Of the remainder, $238 million represents fixed-income
investments that have been in a gross-unrealized-loss position
for less than a year and, of these, 98% are rated investment
grade; $2.082 billion represents fixed-income investments that
have been in a gross-unrealized-loss position for a year or more
and, of these, 92% are rated investment grade.
The AFS mortgage-backed securities portfolio fair value
balance of $55.471 billion consists of $47.345 billion of
government-sponsored agency securities, and $8.126 billion of
privately sponsored securities, of which the majority are backed
by mortgages that are not Alt-A or subprime.
56
As discussed in more detail below, the Company conducts
and documents periodic reviews of all securities with unrealized
losses to evaluate whether the impairment is other than
temporary. Any credit-related impairment related to debt
securities that the Company does not plan to sell and is not
likely to be required to sell is recognized in the Consolidated
Statement of Income, with the non-credit-related impairment
recognized in accumulated other comprehensive income (AOCI).
For other impaired debt securities, the entire impairment is
recognized in the Consolidated Statement of Income.
The table below shows the fair value of AFS securities that have been in an unrealized loss position for less than 12 months or for
12 months or longer as of December 31, 2012 and 2011:
Less than 12 months
In millions of dollars
Fair
value
Gross
unrealized
losses
12 months or longer
Fair
value
Total
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
December 31, 2012
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Prime
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Marketable equity securities AFS
Total securities AFS
December 31, 2011
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Prime
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Other debt securities
Marketable equity securities AFS
Total securities AFS
$ 8,759
15
5
29
$ 8,808
$138
—
—
—
$138
$
464
5
7
24
500
$
$10,558
496
$11,054
$10
22,806
1,420
1,942
15
$46,055
$ 34
1
$ 35
$ —
54
8
4
1
$240
$
$
$ 5,398
27
3,418
35
$ 8,878
$ 32
1
22
1
$ 56
$553
2,970
$ 3,523
$
59
33,109
2,104
4,625
164
47
$52,509
$ —
2
$ 2
$ 2
211
24
68
—
5
$368
57
25
—
—
3
28
$ 9,223
20
12
53
$ 9,308
$ 163
—
—
3
$ 166
—
—
$
—
$11,095
3,910
225
2,888
764
$19,382
—
—
$ —
$1,820
76
18
139
144
$2,225
$10,558
496
$11,054
$11,105
26,716
1,645
4,830
779
$65,437
$
34
1
$ 35
$1,820
130
26
143
145
$2,465
$
$
$ 5,449
67
3,475
66
$ 9,057
$
$
$
$
$
$
$
51
40
57
31
179
—
—
$
—
$11,591
11,205
203
466
—
1,457
$25,101
$
$
$
19
5
—
8
32
—
—
$ —
$2,552
193
29
13
—
190
$3,009
553
2,970
$ 3,523
$11,650
44,314
2,307
5,091
164
1,504
$77,610
51
6
22
9
88
—
2
$
2
$2,554
404
53
81
—
195
$3,377
The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of December 31,
2012 and 2011:
2011
2012
Amortized
cost
In millions of dollars
Mortgage-backed securities (1)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (2)
Total
U.S. Treasury and federal agency securities
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (2)
Total
State and municipal
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (2)
Total
Foreign government
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (2)
Total
All other (3)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (2)
Total
Total debt securities AFS
(1)
(2)
(3)
Fair value
Amortized
cost
Fair value
$
10
365
1,992
51,598
$53,965
$
10
374
2,124
52,963
$ 55,471
$
—
422
2,757
46,470
$ 49,649
—
423
2,834
47,768
$ 51,025
$ 9,492
75,967
2,171
2,670
$90,300
$
9,499
77,267
2,408
2,667
$ 91,841
$ 14,615
62,241
5,862
382
$ 83,100
$ 14,637
63,823
6,239
439
$ 85,138
$
208
3,221
155
16,436
$ 20,020
$
208
3,223
165
14,736
$ 18,332
$
142
455
182
16,040
$ 16,819
$
142
457
188
13,612
$ 14,399
$ 34,873
49,548
7,239
1,599
$ 93,259
$ 34,869
49,933
7,380
1,865
$ 94,047
$ 34,924
41,612
6,993
831
$ 84,360
$ 34,864
41,675
6,998
977
$ 84,514
$
$
$
$
1,001
11,285
4,330
7,130
$ 23,746
$281,290
1,009
11,351
4,505
7,197
$ 24,062
$283,753
4,055
9,843
3,009
4,821
$ 21,728
$255,656
$
4,072
9,928
3,160
4,783
$ 21,943
$257,019
Includes mortgage-backed securities of U.S. government-sponsored entities.
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.
Includes corporate, asset-backed and other debt securities.
The following table presents interest and dividends on
investments:
2012
Taxable interest
$6,509
Interest exempt from U.S. federal income
tax
683
Dividends
333
Total interest and dividends
$7,525
In millions of dollars
2011
$7,257
2010
$9,922
746
317
$8,320
760
322
$11,004
During 2012, 2011 and 2010, the Company sold various
debt securities that were classified as held-to-maturity. These
sales were in response to a significant deterioration in the
creditworthiness of the issuers or securities. In addition, during
2012 certain securities were reclassified to AFS investments in
response to significant credit deterioration. The Company
intended to sell the securities at the time of reclassification to
AFS investments and recorded other-than-temporary
impairment reflected in the following table. The securities sold
during 2012, 2011 and 2010 had carrying values of $2,110
million, $1,612 million and $413 million respectively, and the
Company recorded realized losses of $187 million, $299 million
and $49 million, respectively. The securities reclassified to AFS
investments during 2012 totaled $244 million and the Company
recorded other-than-temporary impairment of $59 million.
The following table presents realized gains and losses on all
investments. The gross realized investment losses exclude losses
from other-than-temporary impairment:
In millions of dollars
Gross realized investment gains
Gross realized investment losses
Net realized gains
2011
2012
$ 3,663 $2,498
(501)
(412)
$ 3,251 $1,997
2010
$2,873
(462)
$2,411
58
Debt Securities Held-to-Maturity
The carrying value and fair value of debt securities held-to-maturity (HTM) at December 31, 2012 and 2011 were as follows:
In millions of dollars
December 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities (3)
Prime
Alt-A
Subprime
Non-U.S. residential
Commercial
Total mortgage-backed securities
State and municipal
Foreign government (4)
Corporate
Asset-backed securities (3)
Total debt securities held-to-maturity
December 31, 2011
Debt securities held-to-maturity
Mortgage-backed securities (3)
Prime
Alt-A
Subprime
Non-U.S. residential
Commercial
Total mortgage-backed securities
State and municipal
Foreign government
Corporate
Asset-backed securities (3)
Total debt securities held-to-maturity
(1)
(2)
(3)
(4)
Amortized
cost (1)
Net unrealized
loss
recognized in
AOCI
Carrying
value (2)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
$
258
2,969
201
2,488
123
$6,039
$1,278
2,987
829
529
$11,662
$49
837
43
401
—
$1,330
$73
—
103
26
$1,532
$209
2,132
158
2,087
123
$4,709
$1,205
2,987
726
503
$10,130
$ 30
653
13
50
1
$ 747
$89
—
73
8
$ 917
$
4
250
21
81
2
$ 358
$ 37
—
—
8
$ 403
235
2,535
150
2,056
122
$ 5,098
$ 1,257
2,987
799
503
$10,644
$360
4,732
383
3,487
513
$9,475
$1,422
—
1,862
1,000
$13,759
$73
1,404
47
520
1
$2,045
$ 95
—
113
23
$2,276
$287
3,328
336
2,967
512
$7,430
$1,327
—
1,749
977
$11,483
$21
20
1
59
4
$105
$ 68
—
—
9
$182
$
$
20
319
71
290
52
$ 752
$ 72
—
254
87
$1,165
$
288
3,029
266
2,736
464
$ 6,783
$ 1,323
—
1,495
899
$10,500
For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer plus any accretion
income and less any impairments recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the
original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.
HTM securities are carried on the Consolidated Balance Sheet at amortized cost, plus or minus any unamortized unrealized gains and losses recognized in AOCI
prior to reclassifying the securities from AFS to HTM. The changes in the values of these securities are not reported in the financial statements, except for otherthan-temporary impairments. For HTM securities, only the credit loss component of the impairment is recognized in earnings, while the remainder of the
impairment is recognized in AOCI.
The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure
to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed
securitizations in which the Company has other involvement, see Note 22 to the Consolidated Financial Statements.
In 2012, the Company (via its Banamex entity) purchased Mexican government bonds with a par value of $2.6 billion and classified them as held-to-maturity.
The Company has the positive intent and ability to hold
these securities to maturity absent any unforeseen further
significant changes in circumstances, including deterioration in
credit or with regard to regulatory capital requirements.
The net unrealized losses classified in AOCI relate to debt
securities reclassified from AFS investments to HTM
investments in a prior year. Additionally, for HTM securities
that have suffered credit impairment, declines in fair value for
reasons other than credit losses are recorded in
AOCI, while credit-related impairment is recognized in earnings.
The AOCI balance for HTM securities is amortized over the
remaining life of the related securities as an adjustment of yield
in a manner consistent with the accretion of discount on the
same debt securities. This will have no impact on the
Company’s net income because the amortization of the
unrealized holding loss reported in equity will offset the effect
on interest income of the accretion of the discount on these
securities.
59
Citigroup reclassified and sold the securities as part of its
overall efforts to mitigate its risk-weighted assets (RWA) in
order to comply with significant new regulatory capital
requirements which, although not yet implemented or formally
adopted, are nonetheless currently being used to assess the
forecasted capital adequacy of the Company and other large U.S.
banking organizations. These regulatory capital changes, which
were largely unforeseen when the Company initially reclassified
the debt securities from Trading account assets and Investments
available-for-sale to Investments held-to-maturity in the fourth
quarter of 2008, include: (i) the U.S. Basel II credit and
operational risk capital standards; (ii) the Basel Committee’s
agreed-upon, and the U.S.-proposed, revisions to the market risk
capital rules, which significantly increased the risk weightings
for certain trading book positions; (iii) the Basel Committee’s
substantial issuance of Basel III, which raised the quantity and
quality of required regulatory capital and materially increased
RWA for securitization exposures; and (iv) certain regulatory
capital-related provisions in The Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010.
During the first quarter of 2011, the Company determined
that it no longer had the intent to hold $12.7 billion of HTM
securities to maturity. As a result, the Company reclassified
$10.0 billion carrying value of mortgage-backed, other assetbacked, state and municipal, and corporate debt securities from
Investments held-to-maturity to Trading account assets and sold
the remaining $2.7 billion of such securities. As a result of these
actions, a net pretax loss of $709 million ($427 million aftertax) was recognized in the Consolidated Statement of Income,
composed of gross unrealized gains of $311 million included in
Other revenue, gross unrealized losses of $1,387 million
included in Other-than-temporary-impairment losses on
investments, and net realized gains of $367 million included in
Realized gains (losses) on sales of investments. Prior to the
reclassification, unrealized losses totaling $1,656 million pretax
($1,012 million after-tax) had been reflected in AOCI and have
now been reflected in the Consolidated Statement of Income, as
detailed above. During 2011, the Company sold substantially all
of the $12.7 billion of HTM securities.
The table below shows the fair value of debt securities in HTM that have been in an unrecognized loss position for less than 12
months or for 12 months or longer as of December 31, 2012 and 2011:
In millions of dollars
Less than 12 months
Gross
Fair
unrecognized
value
losses
12 months or longer
Gross
Fair
unrecognized
value
losses
Total
Fair
value
Gross
unrecognized
losses
December 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Total debt securities held-to-maturity
December 31, 2011
Debt securities held-to-maturity
Mortgage-backed securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Total debt securities held-to-maturity
$
88
—
294
—
—
$ 382
$
7
—
—
—
—
$ 7
$1,522
383
—
—
406
$2,311
$ 351
37
—
—
8
$ 396
$ 1,610
383
294
—
406
$ 2,693
$ 358
37
—
—
8
$ 403
$ 735
—
—
—
480
$1,215
$ 63
—
—
—
71
$134
$4,827
682
—
1,427
306
$7,242
$ 689
72
—
254
16
$1,031
$ 5,562
682
—
1,427
786
$ 8,457
$ 752
72
—
254
87
$ 1,165
Excluded from the gross unrecognized losses presented in
the above table are the $1.5 billion and $2.3 billion of gross
unrealized losses recorded in AOCI as of December 31, 2012
and December 31, 2011, respectively, mainly related to the
HTM securities that were reclassified from AFS investments.
Virtually all of these unrecognized losses relate to securities that
have been in a loss position for 12 months or longer at
December 31, 2012 and December 31, 2011.
60
The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of December 31,
2012 and 2011:
December 31, 2012
Carrying value Fair value
In millions of dollars
Mortgage-backed securities
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (1)
Total
State and municipal
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (1)
Total
Foreign government
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (1)
Total
All other (2)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years (1)
Total
Total debt securities held-to-maturity
(1)
(2)
December 31, 2011
Carrying value
Fair value
$
—
69
54
4,586
$ 4,709
$
—
67
54
4,977
$ 5,098
$
—
275
238
6,917
$ 7,430
—
239
224
6,320
$ 6,783
$
14
36
58
1,097
$ 1,205
$
15
37
62
1,143
$ 1,257
$
4
43
31
1,249
$ 1,327
$
4
46
30
1,243
$ 1,323
$
$
$
$
—
2,987
—
—
$ 2,987
—
2,987
—
—
$ 2,987
$
$
$
$
—
728
—
501
$ 1,229
$ 10,130
—
802
—
500
$ 1,302
$ 10,644
—
—
—
—
—
21
470
1,404
831
$ 2,726
$ 11,483
$
$
—
—
—
—
—
$
21
438
1,182
753
$ 2,394
$ 10,500
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.
Includes corporate and asset-backed securities.
61
Evaluating Investments for Other-Than-Temporary
Impairment
Debt
Under the guidance for debt securities, OTTI is recognized in
earnings for debt securities that the Company has an intent to
sell or that the Company believes it is more-likely-than-not that
it will be required to sell prior to recovery of the amortized cost
basis. For those securities that the Company does not intend to
sell or expect to be required to sell, credit-related impairment is
recognized in earnings, with the non-credit-related impairment
recorded in AOCI.
For debt securities that are not deemed to be credit impaired,
management assesses whether it intends to sell or whether it is
more-likely-than-not that it would be required to sell the
investment before the expected recovery of the amortized cost
basis. In most cases, management has asserted that it has no
intent to sell and that it believes it is not likely to be required to
sell the investment before recovery of its amortized cost basis.
Where such an assertion cannot be made, the security’s decline
in fair value is deemed to be other than temporary and is
recorded in earnings.
For debt securities, a critical component of the evaluation
for OTTI is the identification of credit impaired securities,
where management does not expect to receive cash flows
sufficient to recover the entire amortized cost basis of the
security. For securities purchased and classified as AFS with the
expectation of receiving full principal and interest cash flows as
of the date of purchase, this analysis considers the likelihood of
receiving all contractual principal and interest. For securities
reclassified out of the trading category in the fourth quarter of
2008, the analysis considers the likelihood of receiving the
expected principal and interest cash flows anticipated as of the
date of reclassification in the fourth quarter of 2008. The extent
of the Company’s analysis regarding credit quality and the stress
on assumptions used in the analysis have been refined for
securities where the current fair value or other characteristics of
the security warrant.
Overview
The Company conducts and documents periodic reviews of all
securities with unrealized losses to evaluate whether the
impairment is other than temporary.
An unrealized loss exists when the current fair value of an
individual security is less than its amortized cost basis.
Unrealized losses that are determined to be temporary in nature
are recorded, net of tax, in AOCI for AFS securities. Losses
related to HTM securities are not recorded, as these investments
are carried at amortized cost. For securities transferred to HTM
from Trading account assets, amortized cost is defined as the
fair value of the securities at the date of transfer, plus any
accretion income and less any impairment recognized in
earnings subsequent to transfer. For securities transferred to
HTM from AFS, amortized cost is defined as the original
purchase cost, plus or minus any accretion or amortization of a
purchase discount or premium, less any impairment recognized
in earnings.
Regardless of the classification of the securities as AFS or
HTM, the Company has assessed each position with an
unrealized loss for other-than-temporary impairment (OTTI).
Factors considered in determining whether a loss is temporary
include:
•
•
•
•
•
the length of time and the extent to which fair value has
been below cost;
the severity of the impairment;
the cause of the impairment and the financial condition and
near-term prospects of the issuer;
activity in the market of the issuer that may indicate adverse
credit conditions; and
the Company’s ability and intent to hold the investment for
a period of time sufficient to allow for any anticipated
recovery.
Equity
For equity securities, management considers the various factors
described above, including its intent and ability to hold the
equity security for a period of time sufficient for recovery to
cost or whether it is more-likely-than-not that the Company will
be required to sell the security prior to recovery of its cost basis.
Where management lacks that intent or ability, the security’s
decline in fair value is deemed to be other-than-temporary and is
recorded in earnings. AFS equity securities deemed other-thantemporarily impaired are written down to fair value, with the
full difference between fair value and cost recognized in
earnings.
Management assesses equity method investments with fair
value less than carrying value for OTTI. Fair value is measured
as price multiplied by quantity if the investee has publicly listed
securities. If the investee is not publicly listed, other methods
are used (see Note 25 to the Consolidated Financial Statements).
For impaired equity method investments that Citi plans to
sell prior to recovery of value or would likely be required to sell,
with no expectation that the fair value will recover prior to the
expected sale date, the full impairment is recognized in earnings
as OTTI regardless of severity and duration. The measurement
of the OTTI does not include partial projected recoveries
subsequent to the balance sheet date.
The Company’s review for impairment generally entails:
•
•
•
•
identification and evaluation of investments that have
indications of possible impairment;
analysis of individual investments that have fair values less
than amortized cost, including consideration of the length
of time the investment has been in an unrealized loss
position and the expected recovery period;
discussion of evidential matter, including an evaluation of
factors or triggers that could cause individual investments
to qualify as having other-than-temporary impairment and
those that would not support other-than-temporary
impairment; and
documentation of the results of these analyses, as required
under business policies.
62
Stanley and Citi pursuant to an agreement dated September 11,
2012. The related approximate $4.5 billion in deposits were
transferred to Morgan Stanley at no premium, as agreed
between the parties.
In addition, Morgan Stanley has agreed, subject to
obtaining regulatory approval, to purchase Citi’s remaining 35%
interest in MSSB no later than June 1, 2015 at a purchase price
of $4.725 billion, which is based on the same implied 100%
valuation of MSSB of $13.5 billion.
Prior to the September 2012 sale, Citi’s carrying value of its
49% interest in MSSB was approximately $11.3 billion. As a
result of the agreement entered into with Morgan Stanley on
September 11, 2012, Citi recorded a charge to net income in the
third quarter of 2012 of approximately $2.9 billion after-tax
($4.7 billion pretax), consisting of (i) a charge recorded in Other
revenue of approximately $800 million after-tax ($1.3 billion
pretax), representing a loss on sale of the 14% Interest, and (ii)
an other-than-temporary impairment of the carrying value of its
remaining 35% interest in MSSB of approximately $2.1 billion
after-tax ($3.4 billion pretax).
As of December 31, 2012, Citi continues to account for its
remaining 35% interest in MSSB under the equity method, with
the carrying value capped at the agreed selling price of $4.725
billion.
For impaired equity method investments that management
does not plan to sell prior to recovery of value and is not likely
to be required to sell, the evaluation of whether an impairment is
other-than-temporary is based on (i) whether and when an
equity method investment will recover in value and (ii) whether
the investor has the intent and ability to hold that investment for
a period of time sufficient to recover the value. The
determination of whether the impairment is considered otherthan-temporary is based on all of the following indicators,
regardless of the time and extent of impairment:
•
•
•
Cause of the impairment and the financial condition and
near-term prospects of the issuer, including any specific
events that may influence the operations of the issuer;
Intent and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery in market
value; and
Length of time and extent to which fair value has been less
than the carrying value.
The sections below describe current circumstances related
to certain of the Company’s significant equity method
investments, specific impairments and the Company’s process
for identifying credit-related impairments in its security types
with the most significant unrealized losses as of December 31,
2012.
Mortgage-backed securities
For U.S. mortgage-backed securities (and in particular for Alt-A
and other mortgage-backed securities that have significant
unrealized losses as a percentage of amortized cost), credit
impairment is assessed using a cash flow model that estimates
the cash flows on the underlying mortgages, using the securityspecific collateral and transaction structure. The model
estimates cash flows from the underlying mortgage loans and
distributes those cash flows to various tranches of securities,
considering the transaction structure and any subordination and
credit enhancements that exist in that structure. The cash flow
model incorporates actual cash flows on the mortgage-backed
securities through the current period and then projects the
remaining cash flows using a number of assumptions, including
default rates, prepayment rates and recovery rates (on foreclosed
properties).
Management develops specific assumptions using as much
market data as possible and includes internal estimates as well
as estimates published by rating agencies and other third-party
sources. Default rates are projected by considering current
underlying mortgage loan performance, generally assuming the
default of (i) 10% of current loans, (ii) 25% of 30–59 day
delinquent loans, (iii) 70% of 60–90 day delinquent loans and
(4) 100% of 91+ day delinquent loans. These estimates are
extrapolated along a default timing curve to estimate the total
lifetime pool default rate. Other assumptions contemplate the
actual collateral attributes, including geographic concentrations,
rating agency loss projections, rating actions and current market
prices.
Akbank
In March 2012, Citi decided to reduce its ownership interest in
Akbank T.A.S., an equity investment in Turkey (Akbank), to
below 10%. As of March 31, 2012, Citi held a 20% equity
interest in Akbank, which it purchased in January 2007,
accounted for as an equity method investment. As a result of its
decision to sell its share holdings in Akbank, in the first quarter
of 2012 Citi recorded an impairment charge related to its total
investment in Akbank amounting to approximately $1.2 billion
pretax ($763 million after-tax). This impairment charge was
primarily driven by the recognition of all net investment foreign
currency hedging and translation losses previously reflected in
AOCI as well as a reduction in the carrying value of the
investment to reflect the market price of Akbank’s shares. The
impairment charge was recorded in other-than-temporary
impairment losses on investments in the Consolidated Statement
of Income. During the second quarter of 2012, Citi sold a 10.1%
stake in Akbank, resulting in a loss on sale of $424 million
($274 million after-tax), recorded in Other revenue. As of
December 31, 2012, the remaining 9.9% stake in Akbank is
recorded within marketable equity securities available-for-sale.
MSSB
On September 17, 2012, Citi sold to Morgan Stanley a 14%
interest (the “14% Interest”) in MSSB, to which Morgan Stanley
exercised its purchase option on June 1, 2012. Morgan Stanley
paid to Citi $1.89 billion in cash as the purchase price of the
14% Interest. The purchase price was based on an implied 100%
valuation of MSSB of $13.5 billion, as agreed between Morgan
63
The key assumptions for mortgage-backed securities as of
December 31, 2012 are in the table below:
Prepayment rate (1)
Loss severity (2)
(1)
(2)
State and municipal securities
Citigroup’s AFS state and municipal bonds consist mainly of
bonds that are financed through Tender Option Bond programs
or were previously financed in this program. The process for
identifying credit impairments for these bonds is largely based
on third-party credit ratings. Individual bond positions that are
financed through Tender Option Bonds are required to meet
minimum ratings requirements, which vary based on the sector
of the bond issuer.
Citigroup monitors the bond issuer and insurer ratings on a
daily basis. The average portfolio rating, ignoring any insurance,
is Aa3/AA-. In the event of a rating downgrade, the subject
bond is specifically reviewed for potential shortfall in
contractual principal and interest. The remainder of Citigroup’s
AFS and HTM state and municipal bonds are specifically
reviewed for credit impairment based on instrument-specific
estimates of cash flows, probability of default and loss given
default.
For impaired AFS state and municipal bonds that Citi plans
to sell, or would likely be required to sell with no expectation
that the fair value will recover prior to the expected sale date,
the full impairment is recognized in earnings.
December 31, 2012
1%–8% CRR
45%–90%
Conditional repayment rate (CRR) represents the annualized expected rate
of voluntary prepayment of principal for mortgage-backed securities over a
certain period of time.
Loss severity rates are estimated considering collateral characteristics and
generally range from 45%–60% for prime bonds, 50%–90% for Alt-A
bonds and 65%–90% for subprime bonds.
In addition, cash flow projections are developed using more
stressful parameters. Management assesses the results of those
stress tests (including the severity of any cash shortfall indicated
and the likelihood of the stress scenarios actually occurring
based on the underlying pool’s characteristics and performance)
to assess whether management expects to recover the amortized
cost basis of the security. If cash flow projections indicate that
the Company does not expect to recover its amortized cost basis,
the Company recognizes the estimated credit loss in earnings.
Recognition and Measurement of OTTI
The following table presents the total OTTI recognized in earnings for the year ended December 31, 2012:
OTTI on Investments and Other Assets
AFS (1)
In millions of dollars
Impairment losses related to securities that the Company does not intend to sell nor
will likely be required to sell:
Total OTTI losses recognized during the year ended December 31, 2012
Less: portion of impairment loss recognized in AOCI (before taxes)
Net impairment losses recognized in earnings for securities that the Company does
not intend to sell nor will likely be required to sell
Impairment losses recognized in earnings for securities that the Company intends
to sell or more-likely-than-not will be required to sell before recovery (2)
Total impairment losses recognized in earnings
(1)
(2)
Year Ended December 31, 2012
HTM
Other Assets
Total
$ 17
1
$365
65
$
—
—
$ 382
66
$ 16
$300
$
—
$ 316
139
$155
—
$300
4,516
$4,516
4,655
$ 4,971
Includes OTTI on non-marketable equity securities.
As described under “MSSB” above, the third quarter of 2012 includes the recognition of a $3,340 million impairment charge related to the carrying value of Citi’s
remaining 35% interest in MSSB. Additionally, as described under “Akbank” above, in the first quarter of 2012, the Company recorded an impairment charge
relating to its total investment in Akbank amounting to $1.2 billion pretax ($763 million after-tax).
64
The following is a 12-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt
securities held as of December 31, 2012 that the Company does not intend to sell nor will likely be required to sell:
In millions of dollars
AFS debt securities
Mortgage-backed securities
Prime
Alt-A
Commercial real estate
Total mortgage-backed securities
State and municipal securities
U.S. Treasury securities
Foreign government securities
Corporate
Asset-backed securities
Other debt securities
Total OTTI credit losses recognized for AFS debt
securities
HTM debt securities
Mortgage-backed securities
Prime
Alt-A
Subprime
Non-U.S. residential
Commercial real estate
Total mortgage-backed securities
State and municipal securities
Foreign Government
Corporate
Asset-backed securities
Other debt securities
Total OTTI credit losses recognized for HTM debt
securities
Cumulative OTTI credit losses recognized in earnings
Credit
Credit
impairments
impairments
recognized in
recognized in
earnings on Reductions due to
earnings on
securities that credit-impaired
securities not
have
securities sold,
Dec. 31, 2011
previously
been previously transferred or
Dec. 31, 2012
balance
impaired
impaired
matured
balance
$
292
2
2
$ 296
3
67
168
151
10
52
$—
—
—
$—
4
—
6
1
—
1
$
747
$12
$
$ 84
2,218
252
96
10
$2,660
9
—
391
113
9
$3,182
65
$—
—
—
$—
—
—
—
4
—
—
$ (1)
—
—
$ (1)
—
—
(5)
(40)
—
—
$
4
$ (46)
$
$6
45
—
—
—
$51
1
—
3
—
2
$ 15
216
2
—
—
$233
1
—
9
—
—
$ (1)
(66)
(2)
(16)
—
$(85)
—
—
(6)
—
—
$ 104
2,413
252
80
10
$2,859
11
—
397
113
11
$57
$243
$(91)
$3,391
$
291
2
2
295
7
67
169
116
10
53
717
Company and investments in funds that are managed by third
parties. Investments in funds are generally classified as nonmarketable equity securities carried at fair value.
The fair values of these investments are estimated using the
NAV per share of the Company’s ownership interest in the
funds, where it is not probable that the Company will sell an
investment at a price other than the NAV.
Investments in Alternative Investment Funds That Calculate
Net Asset Value per Share
The Company holds investments in certain alternative
investment funds that calculate net asset value (NAV) per share,
including hedge funds, private equity funds, funds of funds and
real estate funds. The Company’s investments include coinvestments in funds that are managed by the
In millions of dollars at December 31, 2012
Hedge funds
Private equity funds (1)(2)(3)
Real estate funds (3)(4)
Total
(1)
(2)
(3)
(4)
(5)
Fair
value
$ 1,316
837
228
$ 2,381 (5)
Unfunded
commitments
$ —
342
57
$ 399
Redemption frequency
(if currently eligible)
monthly, quarterly, Redemption notice
annually
period
Generally quarterly
10–95 days
—
—
—
—
—
—
Includes investments in private equity funds carried at cost with a carrying value of $6 million.
Private equity funds include funds that invest in infrastructure, leveraged buyout transactions, emerging markets and venture capital.
With respect to the Company’s investments in private equity funds and real estate funds, distributions from each fund will be received as the underlying assets
held by these funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over a period of several years as market conditions
allow. Private equity and real estate funds do not allow redemption of investments by their investors. Investors are permitted to sell or transfer their investments,
subject to the approval of the general partner or investment manager of these funds, which generally may not be unreasonably withheld.
Includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia.
Included in the total fair value of investments above is $0.4 billion of fund assets that are valued using NAVs provided by third-party asset managers. Amounts
exclude investments in funds that are consolidated by Citi.
66
16. LOANS
Delinquency Status
Delinquency status is carefully monitored and considered a key
indicator of credit quality of Consumer loans. Substantially all
of the U.S. residential first mortgage loans use the MBA method
of reporting delinquencies, which considers a loan delinquent if
a monthly payment has not been received by the end of the day
immediately preceding the loan’s next due date. All other loans
use the OTS method of reporting delinquencies, which considers
a loan delinquent if a monthly payment has not been received by
the close of business on the loan’s next due date.
As a general policy, residential first mortgages, home
equity loans and installment loans are classified as non-accrual
when loan payments are 90 days contractually past due. Credit
cards and unsecured revolving loans generally accrue interest
until payments are 180 days past due. As a result of OCC
guidance issued in the first quarter of 2012, home equity loans
in regulated bank entities are classified as non-accrual if the
related residential first mortgage is 90 days or more past due. As
a result of OCC guidance issued in the third quarter of 2012,
mortgage loans in regulated bank entities discharged through
Chapter 7 bankruptcy, other than FHA-insured loans, are
classified as non-accrual. Commercial market loans are placed
on a cash (non-accrual) basis when it is determined, based on
actual experience and a forward-looking assessment of the
collectability of the loan in full, that the payment of interest or
principal is doubtful or when interest or principal is 90 days past
due.
The policy for re-aging modified U.S. Consumer loans to
current status varies by product. Generally, one of the conditions
to qualify for these modifications is that a minimum number of
payments (typically ranging from one to three) be made. Upon
modification, the loan is re-aged to current status. However, reaging practices for certain open-ended Consumer loans, such as
credit cards, are governed by Federal Financial Institutions
Examination Council (FFIEC) guidelines. For open-ended
Consumer loans subject to FFIEC guidelines, one of the
conditions for the loan to be re-aged to current status is that at
least three consecutive minimum monthly payments, or the
equivalent amount, must be received. In addition, under FFIEC
guidelines, the number of times that such a loan can be re-aged
is subject to limitations (generally once in 12 months and twice
in five years). Furthermore, Federal Housing Administration
(FHA) and Department of Veterans Affairs (VA) loans are
modified under those respective agencies’ guidelines, and
payments are not always required in order to re-age a modified
loan to current.
Citigroup loans are reported in two categories—Consumer and
Corporate. These categories are classified primarily according to
the segment and subsegment that manages the loans.
Consumer Loans
Consumer loans represent loans and leases managed primarily
by the Global Consumer Banking and Local Consumer Lending
businesses. The following table provides information by loan
type:
2012
2011
$125,946
14,070
111,403
5,344
—
$256,763
$139,177
15,616
117,908
4,766
1
$277,468
Total Consumer loans
Net unearned income
$54,709
36,182
40,653
20,001
781
$152,326
$409,089
(418)
$52,052
34,613
38,926
19,975
711
$146,277
$423,745
(405)
Consumer loans, net of unearned income
$408,671
$423,340
In millions of dollars
Consumer loans
In U.S. offices
Mortgage and real estate (1)
Installment, revolving credit, and other
Cards
Commercial and industrial
Lease financing
In offices outside the U.S.
Mortgage and real estate (1)
Installment, revolving credit, and other
Cards
Commercial and industrial
Lease financing
(1)
Loans secured primarily by real estate.
Included in the loan table above are lending products whose
terms may give rise to additional credit issues. Credit cards with
below-market introductory interest rates and interest-only loans
are examples of such products. These products are closely
managed using credit techniques that are intended to mitigate
their additional inherent risk.
During the years ended December 31, 2012 and 2011, the
Company sold and/or reclassified (to held-for-sale) $4.3 billion
and $21.0 billion, respectively, of Consumer loans. The
Company did not have significant purchases of Consumer loans
during the years ended December 31, 2012 or December 31,
2011.
Citigroup has established a risk management process to
monitor, evaluate and manage the principal risks associated with
its Consumer loan portfolio. Credit quality indicators that are
actively monitored include delinquency status, consumer credit
scores (FICO), and loan to value (LTV) ratios, each as discussed
in more detail below.
67
The following tables provide details on Citigroup’s Consumer loan delinquency and non-accrual loans as of December 31, 2012 and
December 31, 2011:
Consumer Loan Delinquency and Non-Accrual Details at December 31, 2012
In millions of dollars
In North America offices
Residential first mortgages
Home equity loans (6)
Credit cards
Installment and other
Commercial market loans
Total
In offices outside North America
Residential first mortgages
Home equity loans (6)
Credit cards
Installment and other
Commercial market loans
Total
Total GCB and LCL
Special Asset Pool (SAP)
Total Citigroup
(1)
(2)
(3)
(4)
(5)
(6)
Past due
Government
guaranteed (4)
Total
current (1)(2)
30–89 days
past due (3)
≥ 90 days
past due (3)
$ 75,791
35,740
108,892
13,319
7,874
$241,616
$3,074
642
1,582
288
32
$5,618
$3,339
843
1,527
325
19
$6,053
$6,000
—
—
—
—
$6,000
$ 88,204
37,225
112,001
13,932
7,925
$259,287
$4,922
1,797
—
179
210
$7,108
$4,695
—
1,527
8
11
$6,241
$ 45,496
4
38,920
29,350
31,263
$145,033
$386,649
545
$387,194
$ 547
—
970
496
106
$2,119
$7,737
18
$7,755
$ 485
2
805
167
181
$1,640
$7,693
29
$7,722
$
$ 46,528
6
40,695
30,013
31,550
$148,792
$408,079
592
$408,671
$ 807
2
516
254
428
$2,007
$9,115
81
$9,196
$
—
—
—
—
—
$ —
$6,000
—
$6,000
Total
loans (2)
Total
90 days past due
non-accrual (5) and accruing
—
—
508
—
—
$ 508
$6,749
—
$6,749
Loans less than 30 days past due are presented as current.
Includes $1.2 billion of residential first mortgages recorded at fair value.
Excludes loans guaranteed by U.S. government entities.
Consists of residential first mortgages that are guaranteed by U.S. government entities that are 30-89 days past due of $1.3 billion and ≥ 90 days past due of $4.7
billion.
During 2012, there was an increase in Consumer non-accrual loans in North America of approximately $1.5 billion, as a result of OCC guidance issued in the third
quarter of 2012 regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. Of the $1.5 billion non-accrual loans, $1.3 billion were
current. Additionally, during 2012, there was an increase in non-accrual Consumer loans in North America during the first quarter of 2012, which was attributable
to a $0.8 billion reclassification from accrual to non-accrual status of home equity loans where the related residential first mortgage was 90 days or more past due.
The vast majority of these loans were current at the time of reclassification. The reclassification reflected regulatory guidance issued on January 31, 2012. The
reclassification had no impact on Citi’s delinquency statistics or its loan loss reserves.
Fixed rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.
Consumer Loan Delinquency and Non-Accrual Details at December 31, 2011
In millions of dollars
In North America offices
Residential first mortgages
Home equity loans (5)
Credit cards
Installment and other
Commercial market loans
Total
In offices outside North America
Residential first mortgages
Home equity loans (5)
Credit cards
Installment and other
Commercial market loans
Total
Total GCB and LCL
Special Asset Pool (SAP)
Total Citigroup
(1)
(2)
(3)
(4)
(5)
Total
current (1)(2)
30–89 days
past due (3)
≥ 90 days
past due (3)
Past due
Government
guaranteed (4)
Total
loans (2)
Total
90 days past due
non-accrual and accruing
$ 81,081
41,585
114,022
15,215
6,643
$258,546
$3,550
868
2,344
340
15
$7,117
$4,121
1,022
2,058
222
207
$7,630
$6,686
—
—
—
—
$6,686
$95,438
43,475
118,424
15,777
6,865
$279,979
$4,176
982
—
438
220
$5,816
$5,054
—
2,058
10
14
$7,136
$ 43,310
6
38,289
26,300
30,491
$138,396
$396,942
1,193
$398,135
$ 566
—
930
528
79
$2,103
$9,220
29
$9,249
$ 482
2
785
197
127
$1,593
$9,223
47
$9,270
$
$44,358
8
40,004
27,025
30,697
$142,092
$422,071
1,269
$423,340
$ 744
2
496
258
401
$1,901
$7,717
115
$7,832
$
—
—
—
—
—
$ —
$6,686
—
$6,686
—
—
490
—
—
$ 490
$7,626
—
$7,626
Loans less than 30 days past due are presented as current.
Includes $1.3 billion of residential first mortgages recorded at fair value.
Excludes loans guaranteed by U.S. government entities.
Consists of residential first mortgages that are guaranteed by U.S. government entities that are 30-89 days past due of $1.6 billion and ≥ 90 days past due of $5.1
billion.
Fixed rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.
68
Consumer Credit Scores (FICO)
In the U.S., independent credit agencies rate an individual’s risk
for assuming debt based on the individual’s credit history and
assign every consumer a “FICO” credit score. These scores are
continually updated by the agencies based upon an individual’s
credit actions (e.g., taking out a loan or missed or late payments).
The following table provides details on the FICO scores
attributable to Citi’s U.S. Consumer loan portfolio as of
December 31, 2012 and 2011 (commercial market loans are not
included in the table since they are business-based and FICO
scores are not a primary driver in their credit evaluation). FICO
scores are updated monthly for substantially all of the portfolio
or, otherwise, on a quarterly basis.
LTV distribution in
U.S. portfolio (1)(2)
FICO score
distribution in U.S.
portfolio (1)(2)
In millions of dollars
Residential first
mortgages
Home equity loans
Credit cards
Installment and other
Total
(1)
(2)
December 31, 2012
Less than
620
$16,754
5,439
7,833
4,414
$34,440
In millions of dollars
Residential first
mortgages
Home equity loans
Credit cards
Installment and other
Total
(2)
≥ 620 but less
than 660
$ 8,013
3,208
10,304
2,417
$23,942
Equal to or
greater
than 660
In millions of dollars
Residential first
mortgages
Home equity loans
Total
$ 50,833
26,820
90,248
5,365
$173,266
(1)
(2)
Excludes loans guaranteed by U.S. government entities, loans subject to
LTSCs with U.S. government-sponsored entities and loans recorded at fair
value.
Excludes balances where FICO was not available. Such amounts are not
material.
FICO score
distribution in U.S.
portfolio (1)(2)
(1)
Loan to Value Ratios (LTV)
LTV ratios (loan balance divided by appraised value) are
calculated at origination and updated by applying market price
data.
The following tables provide details on the LTV ratios
attributable to Citi’s U.S. Consumer mortgage portfolios as of
December 31, 2012 and 2011. LTV ratios are updated monthly
using the most recent Core Logic HPI data available for
substantially all of the portfolio applied at the Metropolitan
Statistical Area level, if available and the state level if not. The
remainder of the portfolio is updated in a similar manner using
the Office of Federal Housing Enterprise Oversight indices.
In millions of dollars
Residential first
mortgages
Home equity loans
Total
Less than
620
≥ 620 but less
than 660
Equal to or
greater
than 660
(1)
$20,370
6,783
9,621
3,789
$40,563
$ 8,815
3,703
10,905
2,858
$26,281
$ 52,839
30,884
93,234
6,704
$183,661
(2)
Excludes loans guaranteed by U.S. government entities, loans subject to
LTSCs with U.S. government-sponsored entities and loans recorded at fair
value.
Excludes balances where FICO was not available. Such amounts are not
material.
69
$41,555
12,611
$54,166
$19,070
9,529
$28,599
Greater
than
100%
$14,995
13,153
$28,148
Excludes loans guaranteed by U.S. government entities, loans subject to
LTSCs with U.S. government-sponsored entities and loans recorded at fair
value.
Excludes balances where LTV was not available. Such amounts are not
material.
LTV distribution in
U.S. portfolio (1)(2)
December 31, 2011
December 31, 2012
> 80% but less
Less than or than or equal to
equal to 80%
100%
December 31, 2011
> 80% but less
Less than or
than or equal to
equal to 80%
100%
$36,422
12,724
$49,146
$21,146
10,232
$31,378
Greater
than
100%
$24,425
18,226
$42,651
Excludes loans guaranteed by U.S. government entities, loans subject to
LTSCs with U.S. government-sponsored entities and loans recorded at fair
value.
Excludes balances where LTV was not available. Such amounts are not
material.
As a result of OCC guidance issued in the third quarter of
2012, mortgage loans to borrowers that have gone through
Chapter 7 bankruptcy are classified as TDRs. These TDRs,
other than FHA-insured loans, are written down to collateral
value less cost to sell. FHA-insured loans are reserved based on
a discounted cash flow model (see Note 1 to the Consolidated
Financial Statements). Approximately $635 million of
incremental charge-offs was recorded in the third quarter as a
result of this new guidance, the vast majority of which related to
current loans, and was substantially offset by a related reserve
release of approximately $600 million. The recorded investment
in receivables reclassified to TDRs in the third quarter of 2012
as a result of this OCC guidance approximated $1,714 million,
composed of $1,327 million of residential first mortgages and
$387 million of home equity loans.
Impaired Consumer Loans
Impaired loans are those loans about which Citigroup believes it
is probable that it will not collect all amounts due according to
the original contractual terms of the loan. Impaired Consumer
loans include non-accrual commercial market loans, as well as
smaller-balance homogeneous loans whose terms have been
modified due to the borrower’s financial difficulties and where
Citigroup has granted a concession to the borrower. These
modifications may include interest rate reductions and/or
principal forgiveness. Impaired Consumer loans exclude
smaller-balance homogeneous loans that have not been modified
and are carried on a non-accrual basis. In addition, impaired
Consumer loans exclude substantially all loans modified
pursuant to Citi’s short-term modification programs (i.e., for
periods of 12 months or less) that were modified prior to
January 1, 2011.
The following tables present information about total impaired Consumer loans at and for the years ending December 31, 2012 and
2011, respectively:
Impaired Consumer Loans
In millions of dollars
Mortgage and real estate
Residential first mortgages
Home equity loans
Credit cards
Installment and other
Individual installment and other
Commercial market loans
Total (7)
(1)
(3)
(4)
(6)
(7)
Mortgage and real estate
Residential first mortgages
Home equity loans
Credit cards
Installment and other
Individual installment and other
Commercial market loans
Total (7)
(2)
(3)
(4)
(5)
(6)
At and for the year ended December 31, 2012
Average
Unpaid
Related specific
Interest income
principal balance
allowance (3) carrying value (4) recognized (5)(6)
$ 20,870
2,135
4,584
$22,062
2,727
4,639
$ 3,585
636
1,800
$19,956
1,911
5,272
$ 875
68
308
1,612
439
$ 29,640
1,618
737
$31,783
860
60
$6,941
1,958
495
$29,592
248
21
$1,520
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount and direct write-downs and includes accrued interest
only on credit card loans. (2) $2,344 million of residential first mortgages, $378 million of home equity loans and $183 million of commercial market loans do not
have a specific allowance.
Included in the Allowance for loan losses.
Average carrying value represents the average recorded investment ending balance for the last four quarters and does not include the related specific allowance.
(5) Includes amounts recognized on both an accrual and cash basis.
Cash interest receipts on smaller-balance homogeneous loans are generally recorded as revenue. The interest recognition policy for commercial market loans is
identical to that for Corporate loans, as described below.
Prior to 2008, the Company’s financial accounting systems did not separately track impaired smaller-balance, homogeneous Consumer loans whose terms were
modified due to the borrowers’ financial difficulties and where it was determined that a concession was granted to the borrower. Smaller-balance consumer loans
modified since January 1, 2008 amounted to $29.2 billion at December 31, 2012. However, information derived from Citi’s risk management systems indicates
that the amounts of outstanding modified loans, including those modified prior to 2008, approximated $30.1 billion at December 31, 2012.
In millions of dollars
(1)
Recorded
investment (1)(2)
Recorded
investment (1)(2)
At and for the year ended December 31, 2011
Average
Unpaid
Related specific
Interest income
principal balance
allowance (3) carrying value (4) recognized (5)(6)
$19,616
1,771
6,695
$20,803
1,823
6,743
$ 3,987
669
3,122
$18,642
1,680
6,542
$ 888
72
387
2,264
517
$30,863
2,267
782
$32,418
1,032
75
$8,885
2,644
572
$30,080
343
21
$1,711
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount and direct write-downs and includes accrued interest
only on credit card loans.
$858 million of residential first mortgages, $16 million of home equity loans and $182 million of commercial market loans do not have a specific allowance.
Included in the Allowance for loan losses.
Average carrying value represents the average recorded investment ending balance for last four quarters and does not include related specific allowance.
Includes amounts recognized on both an accrual and cash basis.
Cash interest receipts on smaller-balance homogeneous loans are generally recorded as revenue. The interest recognition policy for commercial market loans is
identical to that for Corporate loans, as described below.
70
(7)
Prior to 2008, the Company’s financial accounting systems did not separately track impaired smaller-balance, homogeneous Consumer loans whose terms were
modified due to the borrowers’ financial difficulties and where it was determined that a concession was granted to the borrower. Smaller-balance consumer loans
modified since January 1, 2008 amounted to $30.3 billion at December 31, 2011. However, information derived from Citi’s risk management systems indicates
that the amounts of outstanding modified loans, including those modified prior to 2008, approximated $31.5 billion at December 31, 2011.
Consumer Troubled Debt Restructurings
The following tables present Consumer TDRs occurring during the years ended December 31, 2012 and 2011:
In millions of dollars except
number of loans modified
North America
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets (5)
Total
International
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets (5)
Total
In millions of dollars except
number of loans modified
North America
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets (5)
Total
International
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets (5)
Total
(1)
(2)
(3)
(4)
(5)
At and for the year ended December 31, 2012
PostChapter 7
Contingent
modification
bankruptcy
principal
Number of
recorded
Deferred
loans modified investment (1)(2) charge-offs (2) principal (3) forgiveness (4)
Principal
forgiveness
Average
interest rate
reduction
59,869
33,586
204,999
64,858
170
363,482
$ 8,107
862
1,053
469
18
$10,509
$154
450
—
—
—
$604
$10
5
—
—
—
$15
$ 7
—
—
—
—
$ 7
$553
78
—
—
—
$631
1%
2
16
6
—
9,447
58
206,755
45,191
377
261,828
$324
4
632
280
171
$ 1,411
$ —
—
—
—
—
$ —
$—
—
—
—
—
$—
$—
—
—
—
1
$ 1
$ 2
—
1
1
2
$ 6
1%
—
29
22
—
Number of
loans modified
At and for the year ended December 31, 2011
PostContingent
modification
principal
Principal
recorded
Deferred
forgiveness (4)
forgiveness
investment (1)
principal (3)
Average
interest rate
reduction
33,025
18,099
611,715
101,107
579
764,525
$ 5,137
923
3,554
756
55
$10,425
$66
17
—
—
—
$83
$50
1
—
—
—
$51
$—
—
—
—
1
$1
2%
4
19
4
—
8,206
61
225,238
133,062
55
366,622
$
$—
—
—
—
—
$—
$—
—
—
—
—
$—
$5
—
2
8
1
$16
1%
—
24
12
—
311
4
628
545
167
$ 1,655
Post-modification balances include past due amounts that are capitalized at modification date.
Post-modification balances in North America include $2,740 million of residential first mortgages and $497 million of home equity loans to borrowers that have
gone through Chapter 7 bankruptcy. These amounts include $1,414 million of residential first mortgages and $409 million of home equity loans that are newly
classified as TDRs as a result of this OCC guidance. Chapter 7 bankruptcy column amounts are the incremental charge-offs that were recorded in the year ended
December 31, 2012 as a result of this new OCC guidance.
Represents portion of loan principal that is non-interest bearing but still due from borrower. Effective in the first quarter of 2012, such deferred principal is
charged-off at the time of modification to the extent that the related loan balance exceeds the underlying collateral value. A significant amount of the reported
balances have been charged-off.
Represents portion of loan principal that is non-interest bearing and, depending upon borrower performance, eligible for forgiveness.
Commercial markets loans are generally borrower-specific modifications and incorporate changes in the amount and/or timing of principal and/or interest.
71
The following table presents Consumer TDRs that defaulted
during the years ended December 31, 2012 and 2011,
respectively, and for which the payment default occurred within
one year of the modification:
In millions of dollars
North America
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets
Total
International
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial markets
Total
(1)
Year ended
December 31,
2012 (1)
Year ended
December 31,
2011 (1)
$1,145
128
434
121
—
$1,828
$1,713
113
1,307
113
3
$3,249
$
$ 123
2
329
238
14
$ 706
64
1
209
117
5
$ 396
Corporate Loans
Corporate loans represent loans and leases managed by the
Institutional Clients Group or the Special Asset Pool in Citi
Holdings. The following table presents information by
Corporate loan type as of December 31, 2012 and 2011:
In millions of dollars
Corporate
In U.S. offices
Commercial and industrial
Financial institutions
Mortgage and real estate (1)
Installment, revolving credit and
other
Lease financing
In offices outside the U.S.
Commercial and industrial
Installment, revolving credit and
other
Mortgage and real estate (1)
Financial institutions
Lease financing
Governments and official institutions
Default is defined as 60 days past due, except for classifiably managed
commercial markets loans, where default is defined as 90+ days past due.
Total Corporate loans
Net unearned income (loss)
Corporate loans, net of unearned
income
(1)
December 31, December 31,
2011
2012
$ 26,985
18,159
24,705
$ 20,830
15,113
21,516
32,446
1,410
$103,705
33,182
1,270
$ 91,911
$ 82,939
$ 79,764
14,958
6,485
37,739
605
1,159
$143,885
$247,590
(797)
14,114
6,885
29,794
568
1,576
$132,701
$224,612
(710)
$246,793
$223,902
Loans secured primarily by real estate.
For the years ended December 31, 2012 and 2011, the
Company sold and/or reclassified (to held-for-sale) $4.4 billion
and $6.4 billion, respectively, of held-for-investment Corporate
loans. The Company did not have significant purchases of
Corporate loans classified as held-for-investment for the year
ended December 31, 2012 or December 31, 2011.
72
and interest is thereafter included in earnings only to the extent
actually received in cash. When there is doubt regarding the
ultimate collectability of principal, all cash receipts are
thereafter applied to reduce the recorded investment in the loan.
While Corporate loans are generally managed based on their
internally assigned risk rating (see further discussion below), the
following tables present delinquency information by Corporate
loan type as of December 31, 2012 and 2011:
Corporate loans are identified as impaired and placed on a
cash (non-accrual) basis when it is determined, based on actual
experience and a forward-looking assessment of the
collectability of the loan in full, that the payment of interest or
principal is doubtful or when interest or principal is 90 days past
due, except when the loan is well collateralized and in the
process of collection. Any interest accrued on impaired
Corporate loans and leases is reversed at 90 days and charged
against current earnings,
Corporate Loan Delinquency and Non-Accrual Details at December 31, 2012
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Loans at fair value
Total
(1)
(2)
(3)
30–89 days
≥ 90 days
Total
past due
past due and Total past due
Total
and accruing (1) accruing (1) and accruing non-accrual (2) current (3)
$ 38
$ 10
$ 48
$1,078
$107,650
5
—
5
454
53,858
224
109
333
680
30,057
7
—
7
52
1,956
70
6
76
69
46,414
$344
$125
$469
$2,333
$239,935
Total
loans
$108,776
54,317
31,070
2,015
46,559
4,056
$246,793
Corporate loans that are ≥ 90 days past due are generally classified as non-accrual. Corporate loans are considered past due when principal or interest is
contractually due but unpaid.
Citi generally does not manage Corporate loans on a delinquency basis. Non-accrual loans generally include those loans that are ≥ 90 days past due or those loans
for which Citi believes, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or
principal is doubtful.
Corporate loans are past due when principal or interest is contractually due but unpaid. Loans less than 30 days past due are presented as current.
Corporate Loan Delinquency and Non-Accrual Details at December 31, 2011
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Loans at fair value
Total
(1)
(2)
(3)
30–89 days
≥ 90 days
Total
past due
past due and Total past due
Total
and accruing (1) accruing (1) and accruing non-accrual (2) current (3)
$ 93
$ 30
$ 123
$1,134
$ 98,157
—
2
2
763
42,642
224
125
349
1,039
26,908
3
11
14
13
1,811
225
15
240
287
46,481
$545
$183
$728
$3,236
$215,999
Total
loans
$ 99,414
43,407
28,296
1,838
47,008
3,939
$223,902
Corporate loans that are ≥ 90 days past due are generally classified as non-accrual. Corporate loans are considered past due when principal or interest is
contractually due but unpaid.
Citi generally does not manage Corporate loans on a delinquency basis. Non-accrual loans generally include those loans that are ≥ 90 days past due or those loans
for which Citi believes, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or
principal is doubtful.
Corporate loans are past due when principal or interest is contractually due but unpaid. Loans less than 30 days past due are presented as current.
73
Citigroup has a risk management process to monitor,
evaluate and manage the principal risks associated with its
Corporate loan portfolio. As part of its risk management process,
Citi assigns numeric risk ratings to its Corporate loan facilities
based on quantitative and qualitative assessments of the obligor
and facility. These risk ratings are reviewed at least annually or
more often if material events related to the obligor or facility
warrant. Factors considered in assigning the risk ratings include:
financial condition of the obligor, qualitative assessment of
management and strategy, amount and sources of repayment,
amount and type of collateral and guarantee arrangements,
amount and type of any contingencies associated with the
obligor, and the obligor’s industry and geography.
The obligor risk ratings are defined by ranges of default
probabilities. The facility risk ratings are defined by ranges of
loss norms, which are the product of the probability of default
and the loss given default. The investment grade rating
categories are similar to the category BBB-/Baa3 and above as
defined by S&P and Moody’s. Loans classified according to the
bank regulatory definitions as special mention, substandard and
doubtful will have risk ratings within the non-investment grade
categories.
Corporate Loans Credit Quality Indicators at December 31,
2012 and December 31, 2011
In millions of dollars
Investment grade (2)
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Total investment grade
Non-investment grade (2)
Accrual
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Non-accrual
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Total non-investment grade
Private Banking loans managed on
a delinquency basis (2)
Loans at fair value
Corporate loans, net of unearned
income
(1)
(2)
Recorded investment in loans (1)
December 31, December 31,
2011
2012
$ 73,822
43,895
12,587
1,404
42,575
$174,283
$ 67,282
35,159
10,729
1,161
42,428
$156,759
$ 33,876
9,968
2,858
559
3,915
$ 30,998
7,485
3,812
664
4,293
1,078
454
680
52
69
$ 53,509
1,134
763
1,039
13
287
$ 50,488
$ 14,945
4,056
$ 12,716
3,939
$246,793
$223,902
Recorded investment in a loan includes net deferred loan fees and costs,
unamortized premium or discount, less any direct write-downs.
Held-for-investment loans accounted for on an amortized cost basis.
Corporate loans and leases identified as impaired and
placed on non-accrual status are written down to the extent that
principal is judged to be uncollectible. Impaired collateraldependent loans and leases, where repayment is expected to be
provided solely by the sale of the underlying collateral and there
are no other available and reliable sources of repayment, are
written down to the lower of cost or collateral value, less cost to
sell. Cash-basis loans are returned to an accrual status when all
contractual principal and interest amounts are reasonably
assured of repayment and there is a sustained period of
repayment performance, generally six months, in accordance
with the contractual terms of the loan.
74
The following tables present non-accrual loan information by Corporate loan type at and for the years ended December 31, 2012,
2011 and 2010, respectively:
Non-Accrual Corporate Loans
In millions of dollars
Non-accrual Corporate loans
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual Corporate loans
In millions of dollars
Non-accrual Corporate loans
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual Corporate loans
Recorded
investment (1)
At and for the period ended December 31, 2012
Unpaid
Related specific
Average
principal balance
allowance
carrying value (2)
$1,078
454
680
52
69
$2,333
Recorded
investment (1)
$1,368
504
810
61
245
$2,988
Unpaid
principal balance
$1,134
763
1,039
13
287
$3,236
$155
14
74
16
25
$284
Interest income
recognized
$1,076
518
811
19
154
$2,578
$65
—
23
2
8
$98
December 31, 2011
Related specific
Average
allowance
carrying value (3)
Interest income
recognized
$1,455
1,127
1,245
21
640
$4,488
$186
28
151
—
55
$420
$1,446
1,056
1,487
25
420
$4,434
$76
—
14
2
17
$109
At and for the period ended
In millions of dollars
Average carrying value (3)
Interest income recognized
Dec. 31,
2010
$10,643
65
In millions of dollars
December 31, 2012
Recorded
Related specific
investment (1)
allowance
Non-accrual Corporate loans with valuation allowances
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual Corporate loans with specific allowance
Non-accrual Corporate loans without specific allowance
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual Corporate loans without specific allowance
(1)
(2)
(3)
N/A
$ 608
41
345
47
59
$1,100
$470
413
335
5
10
$1,233
December 31, 2011
Recorded
Related specific
investment (1)
allowance
$155
14
74
16
25
$284
$ 501
78
540
—
120
$1,239
$186
28
151
—
55
$420
N/A
$ 633
685
499
13
167
$1,997
N/A
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount, less any direct write-downs.
Average carrying value represents the average recorded investment balance and does not include related specific allowance.
Average carrying value does not include related specific allowance.
Not Applicable
75
Corporate Troubled Debt Restructurings
The following tables provide details on Corporate TDR activity and default information as of and for the years ended December 31,
2012 and 2011.
The following table presents Corporate TDRs occurring during the year ended December 31, 2012.
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Other
Total
(1)
(2)
(3)
Carrying
Value
$ 99
—
113
—
$ 212
TDRs
TDRs
involving changes
involving changes
in the amount
in the amount
and/or timing of
and/or timing of
principal payments (1) interest payments (2)
$ 84
$ 4
—
—
60
—
—
—
$144
$ 4
TDRs
involving changes
in the amount
and/or timing of
Balance of
both principal and principal forgiven
interest payments
or deferred
$ 11
$—
—
—
53
—
—
—
$ 64
$—
Net
P&L
impact (3)
$ 1
—
—
—
$ 1
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.
Balances reflect charge-offs and reserves recorded during the years ended December 31, 2012 on loans subject to a TDR during the year then ended.
The following table presents Corporate TDRs occurring during the year ended December 31, 2011.
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Other
Total
(1)
(2)
(3)
Carrying
Value
$ 126
—
250
74
$ 450
TDRs
TDRs
involving changes
involving changes
in the amount
in the amount
and/or timing of
and/or timing of
principal payments (1) interest payments (2)
$—
$ 16
—
—
3
20
—
67
$ 3
$103
TDRs
involving changes
in the amount
and/or timing of
Balance of
both principal and principal forgiven
interest payments
or deferred
$110
$—
—
—
227
4
7
—
$344
$ 4
Net
P&L
impact (3)
$16
—
37
—
$ 53
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.
Balances reflect charge-offs and reserves recorded during the year ended December 31, 2011 on loans subject to a TDR during the period then ended.
The following table presents total Corporate loans modified in a TDR at December 31, 2012 and 2011, as well as those TDRs that
defaulted during 2012 and 2011, and for which the payment default occurred within one year of the modification:
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Other
Total
(1)
TDR Balances at
December 31, 2012
$275
17
131
450
$873
TDRs
in payment default
during the year Ended
December 31, 2012
$ 94
—
—
—
$ 94
Payment default constitutes failure to pay principal or interest when due per the contractual terms of the loan.
76
TDR Balances at
December 31, 2011
$ 429
564
258
85
$ 1,336
TDRs
in payment default
during the year Ended
December 31, 2011
$7
—
—
—
$7
distressed loan require a build of an allowance so the loan
retains its level yield. However, increases in the expected cash
flows are first recognized as a reduction of any previously
established allowance and then recognized as income
prospectively over the remaining life of the loan by increasing
the loan’s level yield. Where the expected cash flows cannot be
reliably estimated, the purchased distressed loan is accounted
for under the cost recovery method. The carrying amount of the
Company’s purchased distressed loan portfolio at December 31,
2012 was $440 million, net of an allowance of $98 million.
Purchased Distressed Loans
Included in the Corporate and Consumer loan outstanding tables
above are purchased distressed loans, which are loans that have
evidenced significant credit deterioration subsequent to
origination but prior to acquisition by Citigroup. In accordance
with SOP 03-3 (codified as ASC 310-30), the difference
between the total expected cash flows for these loans and the
initial recorded investment is recognized in income over the life
of the loans using a level yield. Accordingly, these loans have
been excluded from the impaired loan table information
presented above. In addition, per SOP 03-3, subsequent
decreases in the expected cash flows for a purchased
The changes in the accretable yield, related allowance and carrying amount net of accretable yield for 2012 are as follows:
Accretable
yield
$ 2
15
(6)
—
9
5
(3)
$ 22
In millions of dollars
Balance at December 31, 2011
Purchases (1)
Disposals/payments received
Accretion
Builds (reductions) to the allowance
Increase to expected cash flows
FX/other
Balance at December 31, 2012 (2)
(1)
(2)
Carrying
amount of loan
receivable
$ 511
269
(171)
—
—
1
(72)
$ 538
Allowance
$ 68
—
(6)
—
41
—
(5)
$ 98
The balance reported in the column “Carrying amount of loan receivable” consists of $269 million of purchased loans accounted for under the level-yield method
and $0 million under the cost-recovery method. These balances represent the fair value of these loans at their acquisition date. The related total expected cash
flows for the level-yield loans were $285 million at their acquisition dates.
The balance reported in the column “Carrying amount of loan receivable” consists of $524 million of loans accounted for under the level-yield method and $14
million accounted for under the cost-recovery method.
77
17. ALLOWANCE FOR CREDIT LOSSES
In millions of dollars
Allowance for loan losses at beginning of year
Gross credit losses (1)(2)
Gross recoveries
Net credit losses (NCLs)
NCLs
Net reserve builds (releases) (1)
Net specific reserve builds (releases) (2)
Total provision for credit losses
Other, net (3)
Allowance for loan losses at end of year
Allowance for credit losses on unfunded lending commitments at beginning of year (4)
Provision for unfunded lending commitments
Other, net
Allowance for credit losses on unfunded lending commitments at end of year (4)
Total allowance for loans, leases, and unfunded lending commitments
(1)
(2)
(3)
(4)
2012
$ 30,115
(17,005)
2,774
$(14,231)
$ 14,231
(1,908)
(1,865)
$ 10,458
(887)
$ 25,455
$ 1,136
(16)
(1)
$ 1,119
$ 26,574
2011
$ 40,655
(22,699)
3,012
$(19,687)
$ 19,687
(8,525)
174
$ 11,336
(2,189)
$ 30,115
$ 1,066
51
19
$ 1,136
$ 31,251
2010
$ 36,033
(34,149)
3,526
$(30,623)
$ 30,623
(6,517)
855
$ 24,961
10,284
$ 40,655
$ 1,157
(117)
26
$ 1,066
$ 41,721
2012 includes approximately $635 million of incremental charge-offs related to OCC guidance issued in the third quarter of 2012, which required mortgage loans
to borrowers that have gone through Chapter 7 of the U.S. Bankruptcy Code to be written down to collateral value. There was a corresponding approximate $600
million release in the third quarter of 2012 allowance for loan losses related to these charge-offs. 2012 also includes a benefit to charge-offs of approximately $40
million related to finalizing the impact of this OCC guidance in the fourth quarter of 2012.
2012 includes approximately $370 million of incremental charge-offs related to previously deferred principal balances on modified loans in the first quarter of
2012. These charge-offs were related to anticipated forgiveness of principal in connection with the national mortgage settlement. There was a corresponding
approximate $350 million reserve release in the first quarter of 2012 related to these charge-offs.
2012 includes reductions of approximately $875 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios. 2011 includes reductions of
approximately $1.6 billion related to the sale or transfer to held-for-sale of various U.S. loan portfolios, approximately $240 million related to the sale of the Egg
Banking PLC credit card business, approximately $72 million related to the transfer of the Citi Belgium business to held-for-sale and approximately $290 million
related to FX translation. 2010 primarily includes an addition of $13.4 billion related to the impact of consolidating entities in connection with Citi’s adoption of
SFAS 166/167 (see Note 1 to the Consolidated Financial Statements), reductions of approximately $2.7 billion related to the sale or transfer to held-for-sale of
various U.S. loan portfolios and approximately $290 million related to the transfer of a U.K. first mortgage portfolio to held-for-sale.
Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet.
Allowance for Credit Losses and Investment in Loans at December 31, 2012
In millions of dollars
Allowance for loan losses at beginning of year
Charge-offs
Recoveries
Replenishment of net charge-offs
Net reserve builds (releases)
Net specific reserve builds (releases)
Other
Ending balance
Allowance for loan losses
Determined in accordance with ASC 450-20
Determined in accordance with ASC 310-10-35
Determined in accordance with ASC 310-30
Total allowance for loan losses
Loans, net of unearned income
Loans collectively evaluated for impairment in accordance with ASC 450-20
Loans individually evaluated for impairment in accordance with ASC 310-10-35
Loans acquired with deteriorated credit quality in accordance with ASC 310-30
Loans held at fair value
Total loans, net of unearned income
78
Corporate
$ 2,879
(640)
417
223
2
(138)
33
$ 2,776
$
Consumer
$ 27,236
(16,365)
2,357
14,008
(1,910)
(1,727)
(920)
$ 22,679
Total
$ 30,115
(17,005)
2,774
14,231
(1,908)
(1,865)
(887)
$ 25,455
2,429
284
63
2,776
$ 15,703
6,941
35
$ 22,679
$ 18,132
7,225
98
$ 25,455
$239,849
2,776
112
4,056
$246,793
$377,374
29,640
426
1,231
$408,671
$617,223
32,416
538
5,287
$655,464
$
Allowance for Credit Losses and Investment in Loans at December 31, 2011
In millions of dollars
Allowance for loan losses at beginning of year
Charge-offs
Recoveries
Replenishment of net charge-offs
Net reserve releases
Net specific reserve builds (releases)
Other
Ending balance
Allowance for loan losses
Determined in accordance with ASC 450-20
Determined in accordance with ASC 310-10-35
Determined in accordance with ASC 310-30
Total allowance for loan losses
Loans, net of unearned income
Loans collectively evaluated for impairment in accordance with ASC 450-20
Loans individually evaluated for impairment in accordance with ASC 310-10-35
Loans acquired with deteriorated credit quality in accordance with ASC 310-30
Loans held at fair value
Total loans, net of unearned income
79
Corporate
$ 5,249
(2,000)
386
1,614
(1,083)
(1,270)
(17)
$ 2,879
$
Consumer
$ 35,406
(20,699)
2,626
18,073
(7,442)
1,444
(2,172)
$ 27,236
Total
$ 40,655
(22,699)
3,012
19,687
(8,525)
174
(2,189)
$ 30,115
2,408
420
51
2,879
$ 18,334
8,885
17
$ 27,236
$ 20,742
9,305
68
$ 30,115
$215,778
3,994
191
3,939
$223,902
$390,831
30,863
320
1,326
$423,340
$606,609
34,857
511
5,265
$647,242
$
18. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in Goodwill during 2012 and 2011 were as follows:
In millions of dollars
Balance at December 31, 2010
Foreign exchange translation
Smaller acquisitions/divestitures, purchase accounting adjustments and other
Discontinued operations
Balance at December 31, 2011
Foreign exchange translation
Smaller acquisitions/divestitures, purchase accounting adjustments and other
Discontinued operations
Balance at December 31, 2012
$26,152
(636)
44
(147)
$25,413
294
(21)
(13)
$25,673
The changes in Goodwill by segment during 2012 and 2011 were as follows:
In millions of dollars
Balance at December 31, 2010
Goodwill acquired during 2011
Goodwill disposed of during 2011
Other (1)
Balance at December 31, 2011
Goodwill acquired during 2012
Goodwill disposed of during 2012
Other (1)
Intersegment transfers in/(out) (2)
Balance at December 31, 2012
(1)
(2)
Global
Consumer
Banking
$10,701
$
—
—
(465)
$10,236
$
—
—
20
4,283
$14,539
Institutional
Clients
Group
$10,826
$
19
(6)
(102)
$ 10,737
$
—
—
244
—
$ 10,981
Citi Holdings
$ 4,625
$
—
(153)
(32)
$ 4,440
$
—
(8)
4
(4,283)
$ 153
Corporate/
Other
$—
$—
—
—
$—
$—
—
—
—
$—
Total
$26,152
$
19
(159)
(599)
$ 25,413
$
—
(8)
268
—
$ 25,673
Other changes in Goodwill primarily reflect foreign exchange effects on non-dollar-denominated goodwill, discontinued operations in 2012, and purchase
accounting adjustments.
Primarily includes the transfer of the substantial majority of the Citi retail services business from Citi Holdings—Local Consumer Lending to Citicorp—North
America Regional Consumer Banking during the first quarter of 2012. See Note 4 to the Consolidated Financial Statements for a further discussion of this segment
transfer.
goodwill has been allocated to disposals and tested for
impairment under the reporting unit structure reflecting these
transfers. An interim goodwill impairment test was performed
on the impacted reporting units as of January 1, 2012, resulting
in no impairment.
The Company performed its annual goodwill impairment
test as of July 1, 2012 resulting in no impairment for any of the
reporting units.
As per ASC 350, Intangibles—Goodwill and Other
management elected to perform a qualitative assessment for the
Transaction Services reporting unit. Through consideration of
various factors including excess of fair value over the carrying
value in prior year, projected growth via positive cash flows,
and no adverse changes anticipated in the business and
macroeconomic environment, management determined that it is
not more-likely-than-not that the fair value of this reporting unit
is less than its carrying amount and therefore the two-step
impairment test was not required.
No goodwill was deemed impaired in 2010, 2011 and 2012.
Goodwill impairment testing is performed at the level
below the business segments (referred to as a reporting unit).
The reporting unit structure in 2012 was the same as the
reporting unit structure in 2011, although certain underlying
businesses were transferred between certain reporting units in
the first quarter of 2012, as discussed further below.
As of January 1, 2012, a substantial majority of the Citi
retail services business previously included within the Local
Consumer Lending—Cards reporting unit was transferred to
North America—Regional Consumer Banking. In addition,
certain small businesses included within the Local Consumer
Lending—Cards reporting unit were transferred to Local
Consumer Lending—Other. Additionally, an insurance business
in El Salvador within Brokerage and Asset Management was
transferred to Latin America Regional Consumer Banking.
Goodwill affected by the reorganization was reassigned from
Local Consumer Lending—Cards and Brokerage and Asset
Management to those reporting units that received businesses
using a relative fair value approach. Subsequent to January 1,
2012,
80
For the Local Consumer Lending—Cards valuation under
the income approach, the assumptions used as the basis for the
model include cash flows for the forecasted period, assumptions
embedded in arriving at an estimation of the terminal year value
and discount rate. The cash flows are estimated based on
management’s most recent projections available as of the testing
date, giving consideration to target equity capital requirements
based on selected guideline companies for the reporting unit. In
arriving at a terminal value for Local Consumer Lending—
Cards, using 2015 as the terminal year, the assumptions used
included a long-term growth rate. The discount rate used in the
analysis is based on the reporting units’ estimated cost of equity
capital computed under the capital asset pricing model.
If the future were to differ adversely from management’s
best estimate of key economic assumptions and associated cash
flows were to decrease by a small margin, the Company could
potentially experience future impairment charges with respect to
the $111 million goodwill remaining in its Local Consumer
Lending—Cards reporting unit. Any such charge, by itself,
would not negatively affect the Company’s regulatory capital
ratios, tangible common equity or liquidity position.
The following table shows reporting units with goodwill
balances as of December 31, 2012 and the excess of fair value
as a percentage over allocated book value as of the annual
impairment test.
In millions of dollars
Reporting unit (1)
North America Regional Consumer
Banking
EMEA Regional Consumer Banking
Asia Regional Consumer Banking
Latin America Regional Consumer
Banking
Securities and Banking
Transaction Services
Brokerage and Asset Management
Local Consumer Lending—Cards
(1)
(2)
Fair value as a % of
allocated book value Goodwill
225%
150%
281%
$6,803
$ 366
$5,489
186%
137%
1,336% (2)
121%
110%
$1,881
$9,378
$1,603
$ 42
$ 111
Local Consumer Lending—Other is excluded from the table as there is no
goodwill allocated to it.
Transaction Services: 2011 fair value has been carried forward for this
reporting unit for purposes of the 2012 annual impairment test as discussed
above.
Citigroup engaged an independent valuation specialist in
2011 and 2012 to assist in Citi’s valuation for most of the
reporting units employing both the market approach and the
discounted cash flow (DCF) method. Citi believes that the DCF
method, using management projections for the selected
reporting units and an appropriate risk-adjusted discount rate, is
the most reflective of a market participant’s view of fair values
given current market conditions. For the reporting units where
both methods were utilized in 2011 and 2012, the resulting fair
values were relatively consistent and appropriate weighting was
given to outputs from both methods.
While no impairment was noted in step one of the Local
Consumer Lending—Cards reporting unit impairment test as of
July 1, 2012, goodwill present in the reporting unit may be
particularly sensitive to further deterioration in economic
conditions.
Under the market approach for valuing this reporting unit,
the key assumption is the price multiple. The selection of the
multiple considers operating performance and financial
condition such as return on equity and net income growth of
Local Consumer Lending—Cards as compared to those of
selected guideline companies. Among other factors, the level
and expected growth in return on tangible equity relative to
those of the guideline companies is considered. Since the
guideline company prices used are on a minority interest basis,
the selection of the multiple considers the guideline acquisition
prices which reflect control rights and privileges in arriving at a
multiple that reflects an appropriate control premium.
81
INTANGIBLE ASSETS
The components of intangible assets were as follows:
December 31, 2011
December 31, 2012
In millions of dollars
Purchased credit card relationships
Core deposit intangibles
Other customer relationships
Present value of future profits
Indefinite-lived intangible assets
Other (1)
Intangible assets (excluding MSRs)
Mortgage servicing rights (MSRs)
Total intangible assets
Gross
carrying
amount
$ 7,632
1,315
767
239
487
4,764
$ 15,204
1,942
$ 17,146
Accumulated
amortization
$ 5,726
1,019
380
135
—
2,247
$ 9,507
—
$ 9,507
Net
carrying
amount
$ 1,906
296
387
104
487
2,517
$ 5,697
1,942
$ 7,639
Gross
carrying
amount
$ 7,616
1,337
830
235
492
4,866
$ 15,376
2,569
$ 17,945
Accumulated
amortization
$ 5,309
965
356
123
—
2,023
$ 8,776
—
$ 8,776
Net
carrying
amount
$ 2,307
372
474
112
492
2,843
$ 6,600
2,569
$ 9,169
(1) Includes contract-related intangible assets.
Intangible assets amortization expense was $856 million,
$898 million and $976 million for 2012, 2011 and 2010,
respectively. Intangible assets amortization expense is estimated
to be $812 million in 2013, $723 million in 2014, $689 million
in 2015, $766 million in 2016, and $550 million in 2017.
The changes in intangible assets during 2012 were as follows:
In millions of dollars
Purchased credit card relationships
Core deposit intangibles
Other customer relationships
Present value of future profits
Indefinite-lived intangible assets
Other
Intangible assets (excluding MSRs)
Mortgage servicing rights (MSRs) (2)
Total intangible assets
(1)
(2)
Net carrying
amount at
December 31,
2011
$ 2,307
372
474
112
492
2,843
$ 6,600
2,569
$ 9,169
Acquisitions/
divestitures Amortization Impairments
$—
$(402)
$—
—
(84)
—
—
(45)
—
—
(9)
—
(8)
—
—
2
(316)
(6)
$ (6)
$ (856)
$ (6)
Includes foreign exchange translation and purchase accounting adjustments.
See Note 22 to the Consolidated Financial Statements for the roll-forward of MSRs.
82
Net carrying
amount at
FX
Discontinued December 31,
and
operations
2012
other (1)
$ 1
$ —
$1,906
8
—
296
(42)
—
387
1
—
104
3
—
487
13
(19)
2,517
$(16)
$ (19)
$ 5,697
1,942
$ 7,639
Long-Term Debt
19. DEBT
Balances at
December 31,
Short-Term Borrowings
Short-term borrowings consist of commercial paper and other
borrowings with weighted average interest rates at December 31
as follows:
In millions of dollars
Commercial paper
Bank
Other non-bank
Other borrowings (1)
Total
(1)
2012
Weighted
Balance average
$11,092
378
$11,470
40,557
$52,027
In millions of dollars
Citigroup
Senior notes
Subordinated notes (1)
Junior subordinated
notes relating to
trust preferred
securities
Bank (2)
Senior notes
Subordinated notes (1)
Non-bank
Senior notes
Subordinated notes (1)
Total (3)
Senior notes
Subordinated notes (1)
Junior subordinated
notes relating to
trust preferred
securities
Total
2011
Weighted
Balance
average
0.59% $ 14,872
6,414
0.84
$ 21,286
33,155
1.06%
$ 54,441
0.32%
0.49
1.09%
At December 31, 2012 and December 31, 2011, collateralized short-term
advances from the Federal Home Loan Banks were $4 billion and $5
billion, respectively.
Borrowings under bank lines of credit may be at interest
rates based on LIBOR, CD rates, the prime rate, or bids
submitted by the banks. Citigroup pays commitment fees for its
lines of credit.
Some of Citigroup’s non-bank subsidiaries have credit
facilities with Citigroup’s subsidiary depository institutions,
including Citibank, N.A. Borrowings under these facilities are
secured in accordance with Section 23A of the Federal Reserve
Act.
Citigroup Global Markets Holdings Inc. (CGMHI) has
borrowing agreements consisting of facilities that CGMHI has
been advised are available, but where no contractual lending
obligation exists. These arrangements are reviewed on an
ongoing basis to ensure flexibility in meeting CGMHI’s shortterm requirements.
Weighted
average
coupon Maturities
2012
2011
$136,468
29,177
4.29%
4.40
2013–2098 $138,862
2013–2036
27,581
7.14
2031–2067
10,110
16,057
1.91
3.29
2013–2039
2013–2039
50,527
707
77,036
859
3.64
2.26
2013–2097
2013–2017
11,651
25
$239,463
$201,040
28,313
63,712
196
$323,505
$277,216
30,232
10,110
$239,463
16,057
$323,505
Note: Citigroup Funding Inc. (CFI) was previously a first-tier subsidiary of
Citigroup Inc., issuing commercial paper, medium-term notes and structured
equity-linked and credit-linked notes. The debt of CFI was guaranteed by
Citigroup Inc. On December 31, 2012, CFI was merged into Citigroup Inc.
(1) Includes notes that are subordinated within certain countries, regions or
subsidiaries.
(2) Represents Citibank, N.A., as well as subsidiaries of Citibank and
Banamex. At December 31, 2012 and 2011, collateralized long-term
advances from the Federal Home Loan Banks were $16.3 billion and $11.0
billion, respectively.
(3) Includes senior notes with carrying values of $186 million issued to Safety
First Trust Series 2007-4, 2008-1, 2008-2, 2008-3, 2008-4, 2008-5, 20086, 2009-1, 2009-2, and 2009-3 at December 31, 2012 and $215 million
issued to Safety First Trust Series 2007-3, 2007-4, 2008-1, 2008-2, 2008-3,
2008-4, 2008-5, 2008-6, 2009-1, 2009-2, and 2009-3 at December 31,
2011. Citigroup owns all of the voting securities of the Safety First Trusts.
The Safety First Trusts have no assets, operations, revenues or cash flows
other than those related to the issuance, administration and repayment of
the Safety First Trust securities and the Safety First Trusts’ common
securities.
CGMHI has committed long-term financing facilities with
unaffiliated banks. At December 31, 2012, CGMHI had drawn
down $300 million available under these facilities. Generally, a
bank can terminate these facilities by giving CGMHI one-year
prior notice.
The Company issues both fixed and variable rate debt in a
range of currencies. It uses derivative contracts, primarily
interest rate swaps, to effectively convert a portion of its fixed
rate debt to variable rate debt and variable rate debt to fixed rate
debt. The maturity structure of the derivatives generally
corresponds to the maturity structure of the debt being hedged.
In addition, the Company uses other derivative contracts to
manage the foreign exchange impact of certain debt issuances.
At December 31, 2012, the Company’s overall weighted
average interest rate for long-term debt was 3.88% on a
contractual basis and 2.71% including the effects of derivative
contracts.
83
Aggregate annual maturities of long-term debt obligations (based on final maturity dates) including trust preferred securities are as
follows:
2013
$16,601
1,586
24,464
$ 42,651
In millions of dollars
Bank
Non-bank
Parent company
Total
2014
$ 9,862
2,921
24,243
$ 37,026
2015
$ 8,588
781
19,677
$ 29,046
2016
$ 6,320
800
12,737
$ 19,857
2017
Thereafter
$ 2,943
$ 6,920
52
5,536
21,156
74,276
$ 24,151
$ 86,732
Total
$ 51,234
11,676
176,553
$239,463
As previously disclosed, during the third quarter of 2012,
Citi redeemed three series of its trust preferred securities
resulting in a pretax gain of $198 million. The redemptions
under Citigroup Capital XII and XXI closed on July 18, 2012,
while Citigroup Capital XIX closed on August 15, 2012. During
the fourth quarter of 2012, Citigroup completed the early
redemption of Citigroup Capital XX in the amount of $0.4
billion. The gain recorded upon the redemption was $7 million.
The redemption under Citigroup Capital XX closed on
December 17, 2012.
Long-term debt outstanding includes trust preferred
securities with a balance sheet carrying value of $10,110 million
and $16,057 million at December 31, 2012 and December 31,
2011, respectively. In issuing these trust preferred securities,
Citi formed statutory business trusts under the laws of the State
of Delaware. The trusts exist for the exclusive purposes of (i)
issuing trust preferred securities representing undivided
beneficial interests in the assets of the trust; (ii) investing the
gross proceeds of the trust preferred securities in junior
subordinated deferrable interest debentures (subordinated
debentures) of its parent; and (iii) engaging in only those
activities necessary or incidental thereto. Generally, upon
receipt of certain regulatory approvals, Citigroup has the right to
redeem these securities.
The following table summarizes the financial structure of each of the Company’s subsidiary trusts at December 31, 2012:
Junior subordinated debentures owned by trust
Trust securities
with distributions
guaranteed by
Citigroup
Issuance
date
Securities
issued
Liquidation
value (1)
Coupon
rate
Common
shares
issued
to parent
Amount
Maturity
Redeemable
by issuer
beginning
In millions of dollars, except share amounts
Citigroup Capital III
Citigroup Capital VII
Citigroup Capital VIII
Citigroup Capital IX
Citigroup Capital X
Citigroup Capital XI
Citigroup Capital XIII
Citigroup Capital XIV
Citigroup Capital XV
Citigroup Capital XVI
Citigroup Capital XVII
Citigroup Capital XVIII
Citigroup Capital XXXIII (2)
Dec. 1996
July 2001
Sept. 2001
Feb. 2003
Sept. 2003
Sept. 2004
Sept. 2010
June 2006
Sept. 2006
Nov. 2006
Mar. 2007
June 2007
July 2009
194,053
35,885,898
43,651,597
33,874,813
14,757,823
18,387,128
89,840,000
12,227,281
25,210,733
38,148,947
28,047,927
99,901
3,025,000
Adam Capital Trust III
Dec. 2002
17,500
18
Adam Statutory Trust III
Dec. 2002
25,000
25
Adam Statutory Trust IV
Sept. 2003
40,000
40
Adam Statutory Trust V
Total obligated
Mar. 2004
35,000
35
$12,000
(1)
(2)
$
194
897
1,091
847
369
460
2,246
306
630
954
701
162
3,025
7.625%
6,003
7.125% 1,109,874
6.950% 1,350,050
6.000% 1,047,675
6.100%
456,428
6.000%
568,675
7.875%
1,000
6.875%
40,000
6.500%
40,000
6.450%
20,000
6.350%
20,000
6.829%
50
8.000%
100
3 mo. LIB
+335 bp.
542
3 mo. LIB
+325 bp.
774
3 mo. LIB
+295 bp.
1,238
3 mo. LIB
+279 bp.
1,083
$
200
925
1,125
873
380
474
2,246
307
631
954
702
162
3,025
Dec. 1, 2036
July 31, 2031
Sept. 15, 2031
Feb. 14, 2033
Sept. 30, 2033
Sept. 27, 2034
Oct. 30, 2040
June 30, 2066
Sept. 15, 2066
Dec. 31, 2066
Mar. 15, 2067
June 28, 2067
July 30, 2039
Not redeemable
July 31, 2006
Sept. 17, 2006
Feb. 13, 2008
Sept. 30, 2008
Sept. 27, 2009
Oct. 30, 2015
June 30, 2011
Sept. 15, 2011
Dec. 31, 2011
Mar. 15, 2012
June 28, 2017
July 30, 2014
18
Jan. 7, 2033
Jan. 7, 2008
26
Dec. 26, 2032
Dec. 26, 2007
41
Sept. 17, 2033
Sept. 17, 2008
36
$12,125
Mar. 17, 2034
Mar. 17, 2009
Represents the notional value received by investors from the trusts at the time of issuance.
On February 4, 2013, approximately $800 million of the $3,025 million issued under Citigroup Capital XXXIII was exchanged into subordinated debt, leaving
approximately $2,225 million of trust preferred securities outstanding as of such date.
In each case, the coupon rate on the debentures is the same
as that on the trust securities. Distributions on the trust securities
and interest on the debentures are payable quarterly, except for
Citigroup Capital III and Citigroup Capital XVIII on which
distributions are payable semiannually.
84
Banking Subsidiaries—Constraints on Dividends
There are various legal limitations on the ability of Citigroup’s
subsidiary depository institutions to extend credit, pay dividends
or otherwise supply funds to Citigroup and its non-bank
subsidiaries. The approval of the Office of the Comptroller of
the Currency is required if total dividends declared in any
calendar year exceed amounts specified by the applicable
agency’s regulations. State-chartered depository institutions are
subject to dividend limitations imposed by applicable state law.
In determining the dividends, each depository institution
must also consider its effect on applicable risk-based capital and
leverage ratio requirements, as well as policy statements of the
federal regulatory agencies that indicate that banking
organizations should generally pay dividends out of current
operating earnings. Citigroup received $19.1 billion in dividends
from Citibank, N.A. in 2012.
20. REGULATORY CAPITAL AND CITIGROUP INC.
PARENT COMPANY INFORMATION
Citigroup is subject to risk-based capital and leverage guidelines
issued by the Federal Reserve System (FRB). Citi’s U.S. insured
depository institution subsidiaries, including Citibank, N.A., are
subject to similar guidelines issued by their respective primary
federal bank regulatory agencies. These guidelines are used to
evaluate capital adequacy and include the required minimums
shown in the following table. The regulatory agencies are
required by law to take specific prompt actions with respect to
institutions that do not meet minimum capital standards.
The following table sets forth Citigroup’s and Citibank,
N.A.’s regulatory capital ratios as of December 31, 2012:
In millions of
dollars
Tier 1 Common
Tier 1 Capital
Total Capital (1)
Tier 1 Common
ratio
Tier 1 Capital
ratio
Total Capital
ratio
Leverage ratio
WellRequired capitalized
minimum minimum
N/A
4.0%
8.0
3.0
Citigroup
$123,095
136,532
167,686
Citibank,
N.A.
$116,633
117,367
135,513
12.67%
14.12%
6.0%
14.06
14.21
10.0
5.0 (2)
17.26
7.48
16.41
8.97
N/A
Non-Banking Subsidiaries
Citigroup also receives dividends from its non-bank
subsidiaries. These non-bank subsidiaries are generally not
subject to regulatory restrictions on dividends.
The ability of CGMHI to declare dividends can be
restricted by capital considerations of its broker-dealer
subsidiaries.
In millions of dollars
Subsidiary
Citigroup Global
Markets Inc.
(1) Total Capital includes Tier 1 Capital and Tier 2 Capital.
(2) Applicable only to depository institutions.
N/A Not Applicable
As indicated in the table above, Citigroup and Citibank,
N.A. were well capitalized under the current federal bank
regulatory definitions as of December 31, 2012.
Citigroup Global
Markets Limited
85
Jurisdiction
U.S. Securities
and Exchange
Commission
Uniform Net
Capital Rule
(Rule 15c3-1)
United
Kingdom’s
Financial
Services
Authority
Net
capital or
equivalent
Excess over
minimum
requirement
$ 6,250
$ 5,659
$ 6,212
$ 3,594
Citigroup Inc. Parent Company Only(1) Income Statement and Statement of Comprehensive Income
2012
In millions of dollars
Revenues
Interest revenue
Interest expense
Net interest revenue
Dividends from subsidiaries
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Income before taxes and equity in undistributed income of subsidiaries
Benefit for income taxes
Equity in undistributed income of subsidiaries
Parent company’s net income
Comprehensive income
Parent company’s net income
Other comprehensive income (loss)
Parent company’s comprehensive income
Years Ended December 31,
2011
2010
$ 3,384
6,573
$ (3,189)
20,780
613
$ 18,204
$ 1,497
$ 16,707
(2,062)
(11,228)
$ 7,541
$ 3,684
7,618
$ (3,934)
13,046
939
$ 10,051
$ 1,503
$ 8,548
(1,821)
698
$ 11,067
$ 3,237
7,728
$ (4,491)
14,448
30
$ 9,987
$ 878
$ 9,109
(2,480)
(987)
$10,602
$ 7,541
892
$ 8,433
$ 11,067
(1,511)
$ 9,556
$10,602
2,660
$13,262
Citigroup Inc. Parent Company Only(1) Balance Sheet
Years Ended December 31,
2011
2012
In millions of dollars
Assets
Cash and due from banks
Trading account assets
Investments
Advances to subsidiaries
Investments in subsidiaries
Other assets
Total assets
Liabilities
Federal funds purchased and securities loaned or sold under agreements to repurchase
Trading account liabilities
Short-term borrowings
Long-term debt
Advances from subsidiaries other than banks
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
86
$
153
150
1,676
107,074
184,615
102,335
$ 396,003
$
$
$
185
170
725
176,553
12,759
16,562
$ 206,954
189,049
$ 396,003
3
99
37,477
108,644
194,979
65,711
$ 406,913
185
96
13
181,702
17,046
30,065
$ 229,107
177,806
$ 406,913
Citigroup Inc. Parent Company Only(1) Cash Flows Statement
In millions of dollars
Net cash provided by operating activities of continuing operations
Cash flows from investing activities of continuing operations
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Changes in investments and advances—intercompany
Other investing activities
Net cash provided by investing activities of continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Issuance of preferred stock
Proceeds/(repayments) from issuance of long-term debt—third-party, net
Net change in short-term borrowings and other advances—intercompany
Other financing activities
Net cash used in financing activities of continuing operations
Net increase (decrease) in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information for continuing operations
Cash paid (received) during the year for
Income taxes
Interest
(1)
Years Ended December 31,
2011
2010
2012
$ 1,710
$ 8,756
$ 1,598
$ (5,701)
37,056
4,286
(397)
994
$ 36,238
$ (47,190)
9,524
22,386
32,419
(10)
$ 17,129
$ (31,346)
6,029
16,834
13,363
(20)
$ 4,860
$
$
$
(143)
2,250
(33,434)
(6,160)
(199)
$ (37,686)
$
150
3
$
153
(113)
—
(16,481)
(5,772)
3,519
$ (18,847)
$
(8)
11
$
3
(9)
—
(8,339)
(8,211)
2,949
$ (13,610)
$
6
5
$
11
$
$
$
78
7,883
(458)
9,271
(507)
9,317
“Citigroup Inc. parent company only” refers to the parent holding company Citigroup Inc., excluding consolidated subsidiaries. Citigroup Funding Inc. (CFI) was
previously a first-tier subsidiary of Citigroup Inc., issuing commercial paper, medium-term notes and structured equity-linked and credit-linked notes. The debt of
CFI was guaranteed by Citigroup Inc. On December 31, 2012, CFI was merged into Citigroup Inc., the parent holding company.
87
21. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of Accumulated other comprehensive income (loss) for the three-year period ended December 31, 2012
are as follows:
In millions of dollars
Balance at December 31, 2009
Change, net of taxes (1)(2)(3)(4)
Balance at December 31, 2010
Change, net of taxes (1)(2)(3)(4)
Balance at December 31, 2011
Change, net of taxes (1)(2)(3)(4)(5)(6)
Balance at December 31, 2012
(1)
(2)
(3)
(4)
(5)
(6)
Net
unrealized
gains (losses)
on investment
securities
$ (4,347)
1,952
$ (2,395)
2,360
$ (35)
632
$ 597
Foreign
currency
translation
adjustment,
net of
hedges
$ (7,947)
820
$ (7,127)
(3,524)
$(10,651)
721
$ (9,930)
Cash flow
hedges
$ (3,182)
532
$ (2,650)
(170)
$ (2,820)
527
$ (2,293)
Accumulated
Pension
other
liability
comprehensive
adjustments
income (loss)
$ (3,461)
$(18,937)
(644)
2,660
$ (4,105)
$(16,277)
(177)
(1,511)
$ (4,282)
$(17,788)
(988)
892
$ (5,270)
$(16,896)
The after-tax realized gains (losses) on sales and impairments of securities during the years ended December 31, 2012, 2011 and 2010 were $(1,017) million,
$(122) million and $657 million, respectively. For details of the realized gains (losses) on sales and impairments on Citigroup’s investment securities included in
income, see Note 15 to the Consolidated Financial Statements.
Primarily reflects the movements in (by order of impact) the Mexican peso, Japanese yen, Euro, and Brazilian real against the U.S. dollar, and changes in related
tax effects and hedges in 2012. Primarily reflects the movements in the Mexican peso, Turkish lira, Brazilian real, Indian rupee and Polish zloty against the U.S.
dollar, and changes in related tax effects and hedges in 2011. Primarily reflects the movements in the Australian dollar, Brazilian real, Canadian dollar, Japanese
yen, Mexican peso, and Chinese yuan (renminbi) against the U.S. dollar, and changes in related tax effects and hedges in 2010.
For cash flow hedges, primarily driven by Citigroup’s pay fixed/receive floating interest rate swap programs that are hedging the floating rates on liabilities.
For the pension liability adjustment, primarily reflects adjustments based on the final year-end actuarial valuations of the Company’s pension and postretirement
plans and amortization of amounts previously recognized in other comprehensive income.
For net unrealized gains (losses) on investment securities, includes the after-tax impact of realized gains from the sales of minority investments: $672 million from
the Company’s entire interest in Housing Development Finance Corporation Ltd. (HDFC); and $421 million from the Company’s entire interest in Shanghai
Pudong Development Bank (SPDB).
The after-tax impact due to impairment charges and the loss related to Akbank, included within the foreign currency translation adjustment, during the six months
ended June 30, 2012 was $667 million. See Note 15 to the Consolidated Financial Statements.
The pretax and after-tax changes in each component of Accumulated other comprehensive income (loss) for the three-year period
ended December 31, 2012 are as follows:
Pretax
$(27,834)
3,119
81
857
(1,078)
$ 2,979
$(24,855)
3,855
(4,133)
(262)
(412)
$ (952)
$(25,807)
1,001
12
838
(1,378)
$
473
$(25,334)
In millions of dollars
Balance, December 31, 2009
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Cash flow hedges
Pension liability adjustment
Change
Balance, December 31, 2010
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Cash flow hedges
Pension liability adjustment
Change
Balance, December 31, 2011
Change in net unrealized gains (losses) on investment securities
Foreign currency translation adjustment
Cash flow hedges
Pension liability adjustment
Change
Balance, December 31, 2012
88
Tax effect
$ 8,897
(1,167)
739
(325)
434
$ (319)
$ 8,578
(1,495)
609
92
235
$ (559)
$ 8,019
(369)
709
(311)
390
$ 419
$ 8,438
After-tax
$ (18,937)
1,952
820
532
(644)
$ 2,660
$ (16,277)
2,360
(3,524)
(170)
(177)
$ (1,511)
$ (17,788)
632
721
527
(988)
$
892
$ (16,896)
22. SECURITIZATIONS AND VARIABLE INTEREST
ENTITIES
Variable Interest Entities
VIEs are entities that have either a total equity investment that is
insufficient to permit the entity to finance its activities without
additional subordinated financial support, or whose equity
investors lack the characteristics of a controlling financial
interest (i.e., ability to make significant decisions through voting
rights, and right to receive the expected residual returns of the
entity or obligation to absorb the expected losses of the entity).
Investors that finance the VIE through debt or equity interests or
other counterparties that provide other forms of support, such as
guarantees, subordinated fee arrangements, or certain types of
derivative contracts, are variable interest holders in the entity.
The variable interest holder, if any, that has a controlling
financial interest in a VIE is deemed to be the primary
beneficiary and must consolidate the VIE. Citigroup would be
deemed to have a controlling financial interest and be the
primary beneficiary if it has both of the following
characteristics:
Uses of SPEs
A special purpose entity (SPE) is an entity designed to fulfill a
specific limited need of the company that organized it. The
principal uses of SPEs are to obtain liquidity and favorable
capital treatment by securitizing certain of Citigroup’s financial
assets, to assist clients in securitizing their financial assets and
to create investment products for clients. SPEs may be
organized in various legal forms including trusts, partnerships or
corporations. In a securitization, the company transferring assets
to an SPE converts all (or a portion) of those assets into cash
before they would have been realized in the normal course of
business through the SPE’s issuance of debt and equity
instruments, certificates, commercial paper and other notes of
indebtedness, which are recorded on the balance sheet of the
SPE, which may or may not be consolidated onto the balance
sheet of the company that organized the SPE.
Investors usually only have recourse to the assets in the
SPE and often benefit from other credit enhancements, such as a
collateral account or over-collateralization in the form of excess
assets in the SPE, a line of credit, or from a liquidity facility,
such as a liquidity put option or asset purchase agreement.
Because of these enhancements, the SPE issuances can typically
obtain a more favorable credit rating from rating agencies than
the transferor could obtain for its own debt issuances, resulting
in less expensive financing costs than unsecured debt. The SPE
may also enter into derivative contracts in order to convert the
yield or currency of the underlying assets to match the needs of
the SPE investors or to limit or change the credit risk of the
SPE. Citigroup may be the provider of certain credit
enhancements as well as the counterparty to any related
derivative contracts.
Most of Citigroup’s SPEs are variable interest entities
(VIEs), as described below.
•
power to direct activities of a VIE that most significantly
impact the entity’s economic performance; and
•
obligation to absorb losses of the entity that could
potentially be significant to the VIE or right to receive
benefits from the entity that could potentially be significant
to the VIE.
The Company must evaluate its involvement in each VIE
and understand the purpose and design of the entity, the role the
Company had in the entity’s design and its involvement in the
VIE’s ongoing activities. The Company then must evaluate
which activities most significantly impact the economic
performance of the VIE and who has the power to direct such
activities.
For those VIEs where the Company determines that it has
the power to direct the activities that most significantly impact
the VIE’s economic performance, the Company then must
evaluate its economic interests, if any, and determine whether it
could absorb losses or receive benefits that could potentially be
significant to the VIE. When evaluating whether the Company
has an obligation to absorb losses that could potentially be
significant, it considers the maximum exposure to such loss
without consideration of probability. Such obligations could be
in various forms, including, but not limited to, debt and equity
investments, guarantees, liquidity agreements, and certain
derivative contracts.
In various other transactions, the Company may: (i) act as a
derivative counterparty (for example, interest rate swap, crosscurrency swap, or purchaser of credit protection under a credit
default swap or total return swap where the Company pays the
total return on certain assets to the SPE); (ii) act as underwriter
or placement agent; (iii) provide administrative, trustee or other
services; or (iv) make a market in debt securities or other
instruments issued by VIEs. The Company generally considers
such involvement, by itself, not to be variable interests and thus
not an indicator of power or potentially significant benefits or
losses.
89
Citigroup’s involvement with consolidated and unconsolidated VIEs with which the Company holds significant variable interests
or has continuing involvement through servicing a majority of the assets in a VIE as of December 31, 2012 and 2011 is presented
below:
As of December 31, 2012
Maximum exposure to loss in significant
unconsolidated VIEs (1)
(2)
Funded exposures
Unfunded exposures (3)
In millions of dollars
Citicorp
Credit card securitizations
Mortgage securitizations (5)
U.S. agency-sponsored
Non-agency-sponsored
Citi-administered assetbacked commercial
paper conduits (ABCP)
Third-party commercial
paper conduits
Collateralized debt
obligations (CDOs)
Collateralized loan
obligations (CLOs)
Asset-based financing
Municipal securities tender
option bond trusts
(TOBs)
Municipal investments
Client intermediation
Investment funds
Trust preferred securities
Other
Total
Citi Holdings
Credit card securitizations
Mortgage securitizations
U.S. agency-sponsored
Non-agency-sponsored
Student loan securitizations
Collateralized debt
obligations (CDOs)
Collateralized loan
obligations (CLOs)
Asset-based financing
Municipal investments
Client intermediation
Investment funds
Other
Total
Total Citigroup
(1)
(2)
(3)
(4)
(5)
Total
involvement Consolidated Significant
with SPE
VIE / SPE unconsolidated
Debt
Equity
Funding
assets
assets
VIE assets (4) investments investments commitments
$ 79,109
$ 79,109
$
—
$
—
$ —
$
—
Guarantees
and
derivatives
$ —
Total
$
—
232,741
9,308
—
1,686
232,741
7,622
3,042
382
—
—
—
—
45
—
3,087
382
30,002
22,387
7,615
—
—
7,615
—
7,615
—
—
—
—
—
—
—
—
5,539
—
5,539
24
—
—
—
24
15,120
41,399
—
1,125
15,120
40,274
642
14,798
19
84
—
2,081
—
159
661
17,122
15,163
19,693
2,486
4,286
12,221
2,023
$469,090
7,573
255
151
2,196
—
115
$114,597
7,590
19,438
2,335
2,090
12,221
1,908
$ 354,493
352
2,003
319
—
—
113
$ 21,675
—
3,049
—
14
126
382
$ 3,674
4,628
1,669
—
—
—
22
$ 16,015
—
—
—
—
—
76
$ 280
4,980
6,721
319
14
126
593
$ 41,644
$
$
$
$
$
$
—
$ —
$
838
397
441
—
—
—
106,888
16,693
1,681
—
1,628
1,681
106,888
15,065
—
700
43
—
—
—
—
—
—
—
163
2
—
863
45
—
4,752
—
4,752
139
—
—
124
263
4,676
4,166
7,766
13
1,083
6,005
$154,561
$623,651
—
3
—
13
—
5,851
$ 9,573
$124,170
4,676
4,163
7,766
—
1,083
154
$ 144,988
$ 499,481
435
984
90
—
—
—
$ 2,391
$ 24,066
—
6
235
—
47
3
$ 291
$ 3,965
13
243
992
—
—
—
$ 1,248
$ 17,263
108
—
—
—
—
—
$ 397
$ 677
556
1,233
1,317
—
47
3
$ 4,327
$ 45,971
The definition of maximum exposure to loss is included in the text that follows this table.
Included in Citigroup’s December 31, 2012 Consolidated Balance Sheet.
Not included in Citigroup’s December 31, 2012 Consolidated Balance Sheet.
A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant, regardless of the likelihood of loss or the
notional amount of exposure.
Citicorp mortgage securitizations also include agency and non-agency (private-label) re-securitization activities. These SPEs are not consolidated. See “ReSecuritizations” below for further discussion.
90
As of December 31, 2011
Maximum exposure to loss in significant
unconsolidated VIEs (1)
(2)
Funded exposures
Unfunded exposures (3)
In millions of dollars
Total
involvement
with SPE
assets
$ 87,083
Consolidated
VIE / SPE
assets
$ 87,083
Significant
unconsolidated
VIE assets (4)
$
—
Debt
investments
$
—
Equity
investments
$ —
Funding
commitments
$
—
Guarantees
and
derivatives
$ —
Total
$
—
232,179
9,743
—
1,622
232,179
8,121
3,769
348
—
—
—
—
26
—
3,795
348
34,987
21,971
13,016
—
—
13,016
—
13,016
7,507
3,334
8,127
19,034
—
—
—
1,303
7,507
3,334
8,127
17,731
—
20
64
7,892
—
—
—
2
298
—
—
2,891
—
—
—
121
298
20
64
10,906
16,849
20,331
2,110
4,621
17,882
6,210
$469,997
8,224
299
24
2,027
—
97
$122,650
8,625
20,032
2,086
2,594
17,882
6,113
$347,347
708
2,345
468
—
—
354
$ 15,968
—
3,535
—
70
128
172
$ 3,907
5,413
1,586
—
—
—
279
$ 23,483
—
—
—
—
—
79
$226
6,121
7,466
468
70
128
884
$ 43,584
$
$
$
$
$
$
—
$ —
$
—
—
—
—
6
250
1,049
—
—
15
$ 1,320
$ 24,803
120
2
—
120
90
—
—
—
—
—
$332
$558
1,279
63
—
237
1,221
5,257
1,520
—
43
54
$ 9,674
$ 53,258
780
152,265
20,821
1,822
6,581
7,479
10,490
7,820
111
1,114
6,762
$216,045
$686,042
581
—
1,764
1,822
—
—
73
—
111
14
6,581
$ 10,946
$133,596
199
152,265
19,057
—
6,581
7,479
10,417
7,820
—
1,100
181
$205,099
$552,446
—
1,159
61
—
117
1,125
5,004
206
—
—
3
$ 7,675
$ 23,643
—
—
—
—
—
—
3
265
—
43
36
$ 347
$ 4,254
(1)
(2)
(3)
(4)
—
The definition of maximum exposure to loss is included in the text that follows this table.
Included in Citigroup’s December 31, 2011 Consolidated Balance Sheet.
Not included in Citigroup’s December 31, 2011 Consolidated Balance Sheet.
A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant, regardless of the likelihood of loss or the
notional amount of exposure.
(5) Citicorp mortgage securitizations also include agency and non-agency (private-label) re-securitization activities. These SPEs are not consolidated. See “ReSecuritizations” below for further discussion.
Reclassified to conform to the current year’s presentation.
91
The previous tables do not include:
•
•
•
•
•
•
•
The asset balances for consolidated VIEs represent the
carrying amounts of the assets consolidated by the Company.
The carrying amount may represent the amortized cost or the
current fair value of the assets depending on the legal form of
the asset (e.g., security or loan) and the Company’s standard
accounting policies for the asset type and line of business.
The asset balances for unconsolidated VIEs where the
Company has significant involvement represent the most current
information available to the Company. In most cases, the asset
balances represent an amortized cost basis without regard to
impairments in fair value, unless fair value information is
readily available to the Company. For VIEs that obtain asset
exposures synthetically through derivative instruments (for
example, synthetic CDOs), the tables generally include the full
original notional amount of the derivative as an asset balance.
The maximum funded exposure represents the balance
sheet carrying amount of the Company’s investment in the VIE.
It reflects the initial amount of cash invested in the VIE adjusted
for any accrued interest and cash principal payments received.
The carrying amount may also be adjusted for increases or
declines in fair value or any impairment in value recognized in
earnings. The maximum exposure of unfunded positions
represents the remaining undrawn committed amount, including
liquidity and credit facilities provided by the Company, or the
notional amount of a derivative instrument considered to be a
variable interest. In certain transactions, the Company has
entered into derivative instruments or other arrangements that
are not considered variable interests in the VIE (e.g., interest
rate swaps, cross-currency swaps, or where the Company is the
purchaser of credit protection under a credit default swap or
total return swap where the Company pays the total return on
certain assets to the SPE). Receivables under such arrangements
are not included in the maximum exposure amounts.
certain venture capital investments made by some of the
Company’s private equity subsidiaries, as the Company
accounts for these investments in accordance with the
Investment Company Audit Guide;
certain limited partnerships that are investment funds that
qualify for the deferral from the requirements of ASC 810
where the Company is the general partner and the limited
partners have the right to replace the general partner or
liquidate the funds;
certain investment funds for which the Company provides
investment management services and personal estate trusts
for which the Company provides administrative, trustee
and/or investment management services;
VIEs structured by third parties where the Company holds
securities in inventory, as these investments are made on
arm’s-length terms;
certain positions in mortgage-backed and asset-backed
securities held by the Company, which are classified as
Trading account assets or Investments, where the Company
has no other involvement with the related securitization
entity deemed to be significant (for more information on
these positions, see Notes 14 and 15 to the Consolidated
Financial Statements);
certain representations and warranties exposures in legacy
Securities and Banking—sponsored mortgage-backed and
asset-backed securitizations, where the Company has no
variable interest or continuing involvement as servicer. The
outstanding balance of mortgage loans securitized during
2005 to 2008 where the Company has no variable interest
or continuing involvement as servicer was approximately
$19 billion at December 31, 2012; and
certain representations and warranties exposures in
Citigroup residential mortgage securitizations, where the
original mortgage loan balances are no longer outstanding.
92
Funding Commitments for Significant Unconsolidated VIEs—Liquidity Facilities and Loan Commitments
The following table presents the notional amount of liquidity facilities and loan commitments that are classified as funding
commitments in the VIE tables above as of December 31, 2012:
Liquidity facilities
In millions of dollars
Citicorp
Citi-administered asset-backed commercial paper conduits (ABCP)
Asset-based financing
Municipal securities tender option bond trusts (TOBs)
Municipal investments
Other
Total Citicorp
Citi Holdings
Asset-based financing
Collateralized loan obligations (CLOs)
Municipal investments
Total Citi Holdings
Total Citigroup funding commitments
Cash
Trading account assets
Investments
Total loans, net
Other
Total assets
Short-term borrowings
Long-term debt
Other liabilities
Total liabilities
$ 7,615
6
4,628
—
—
$ 12,249
—
2,075
—
1,669
22
$ 3,766
$
$ 243
—
992
$ 1,235
$ 5,001
—
13
—
$
13
$ 12,262
$
Thus, the Company’s maximum legal exposure to loss
related to consolidated VIEs is significantly less than the
carrying value of the consolidated VIE assets due to outstanding
third-party financing. Intercompany assets and liabilities are
excluded from the table. All assets are restricted from being sold
or pledged as collateral. The cash flows from these assets are the
only source used to pay down the associated liabilities, which
are non-recourse to the Company’s general assets.
The following table presents the carrying amounts and
classifications of consolidated assets that are collateral for
consolidated VIE and SPE obligations as of December 31, 2012
and December 31, 2011:
Citicorp and Citi Holdings Consolidated VIEs
The Company engages in on-balance-sheet securitizations
which are securitizations that do not qualify for sales treatment;
thus, the assets remain on the Company’s balance sheet. The
consolidated VIEs included in the tables below represent
hundreds of separate entities with which the Company is
involved. In general, the third-party investors in the obligations
of consolidated VIEs have legal recourse only to the assets of
the VIEs and do not have such recourse to the Company, except
where the Company has provided a guarantee to the investors or
is the counterparty to certain derivative transactions involving
the VIE. In addition, the assets are generally restricted only to
pay such liabilities.
In billions of dollars
Loan commitments
December 31, 2012
Citicorp
Citi Holdings Citigroup
$ 0.3
$ 0.2
$ 0.5
0.5
—
0.5
10.7
—
10.7
102.6
9.1
111.7
0.5
0.2
0.7
$114.6
$ 9.5
$124.1
$ 17.9
$—
$ 17.9
23.8
2.6
26.4
1.1
0.1
1.2
$ 42.8
$ 2.7
$ 45.5
93
December 31, 2011
Citicorp
Citi Holdings
Citigroup
$ 0.2
$ 0.4
$ 0.6
0.4
0.1
0.5
12.5
—
12.5
109.0
10.1
119.1
0.5
0.3
0.8
$122.6
$10.9
$133.5
$ 22.5
$ 0.8
$ 23.3
44.8
5.6
50.4
0.9
0.2
1.1
$ 68.2
$ 6.6
$ 74.8
Citicorp and Citi Holdings Significant Variable Interests in Unconsolidated VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classification of significant variable interests in unconsolidated VIEs as of
December 31, 2012 and December 31, 2011:
In billions of dollars
Trading account assets
Investments
Total loans, net
Other
Total assets
Long-term debt
Total liabilities
December 31, 2012
Citicorp
Citi Holdings
Citigroup
$ 4.0
$ 0.5
$ 4.5
5.4
0.7
6.1
14.6
0.9
15.5
1.4
0.5
1.9
$25.4
$ 2.6
$28.0
$ —
—
$—
—
$ —
—
Citicorp
$ 5.5
3.8
9.0
1.6
$19.9
$ —
—
December 31, 2011
Citi Holdings
$ 1.0
4.4
1.6
1.0
$ 8.0
$—
—
Citigroup
$ 6.5
8.2
10.6
2.6
$27.9
$ —
—
that most significantly impact the economic performance of the
trusts and also holds a seller’s interest and certain securities
issued by the trusts, and provides liquidity facilities to the trusts,
which could result in potentially significant losses or benefits
from the trusts. Accordingly, the transferred credit card
receivables remain on the Consolidated Balance Sheet with no
gain or loss recognized. The debt issued by the trusts to third
parties is included in the Consolidated Balance Sheet.
The Company relies on securitizations to fund a significant
portion of its credit card businesses in North America. The
following table reflects amounts related to the Company’s
securitized credit card receivables as of December 31, 2012 and
December 31, 2011:
Credit Card Securitizations
The Company securitizes credit card receivables through trusts
that are established to purchase the receivables. Citigroup
transfers receivables into the trusts on a non-recourse basis.
Credit card securitizations are revolving securitizations; that is,
as customers pay their credit card balances, the cash proceeds
are used to purchase new receivables and replenish the
receivables in the trust.
Substantially all of the Company’s credit card securitization
activity is through two trusts—Citibank Credit Card Master
Trust (Master Trust) and the Citibank Omni Master Trust (Omni
Trust). Since the adoption of SFAS 167 (ASC 810) on January
1, 2010, these trusts are treated as consolidated entities because,
as servicer, Citigroup has the power to direct the activities
Citicorp
December 31,
December 31,
2011
2012
$89.8
$80.7
In billions of dollars
Principal amount of credit card receivables in trusts
Ownership interests in principal amount of trust credit card receivables
Sold to investors via trust-issued securities
Retained by Citigroup as trust-issued securities
Retained by Citigroup via non-certificated interests
Total ownership interests in principal amount of trust credit card
receivables
94
Citi Holdings
December 31,
December 31,
2011
2012
$ 0.6
$ 0.4
$22.9
13.2
44.6
$42.7
14.7
32.4
$ 0.1
0.1
0.2
$ 0.3
0.1
0.2
$80.7
$89.8
$ 0.4
$ 0.6
Master Trust Liabilities (at par value)
Credit Card Securitizations—Citicorp
The following table summarizes selected cash flow information
related to Citicorp’s credit card securitizations for the years
ended December 31, 2012, 2011 and 2010:
In billions of dollars
Proceeds from new securitizations
Pay down of maturing notes
2012
$ 2.4
(21.7)
2011
$ 3.9
(20.5)
In billions of dollars
December 31, December 31,
2011
2012
Term notes issued to multi-seller
commercial paper conduits
Term notes issued to third parties
Term notes retained by Citigroup
affiliates
Total Master Trust liabilities
2010
$ 5.5
(40.3)
Credit Card Securitizations—Citi Holdings
The proceeds from Citi Holdings’ credit card securitizations
were $0.4 billion for the year ended December 31, 2012.
$ —
18.6
$ —
30.4
4.8
$ 23.4
7.7
$38.1
The Omni Trust issues fixed- and floating-rate term notes,
some of which are purchased by multi-seller commercial paper
conduits. The weighted average maturity of the third-party term
notes issued by the Omni Trust was 1.7 years as of December 31,
2012 and 1.5 years as of December 31, 2011.
Managed Loans
After securitization of credit card receivables, the Company
continues to maintain credit card customer account relationships
and provides servicing for receivables transferred to the trusts.
As a result, the Company considers the securitized credit card
receivables to be part of the business it manages. As Citigroup
consolidates the credit card trusts, all managed securitized card
receivables are on-balance sheet.
Omni Trust Liabilities (at par value)
In billions of dollars
Term notes issued to multi-seller
commercial paper conduits
Term notes issued to third parties
Term notes retained by Citigroup
affiliates
Total Omni Trust liabilities
Funding, Liquidity Facilities and Subordinated Interests
As noted above, Citigroup securitizes credit card receivables
through two securitization trusts—Master Trust, which is part of
Citicorp, and Omni Trust, which is also substantially part of
Citicorp. The liabilities of the trusts are included in the
Consolidated Balance Sheet, excluding those retained by
Citigroup.
Master Trust issues fixed- and floating-rate term notes.
Some of the term notes are issued to multi-seller commercial
paper conduits. The weighted average maturity of the term notes
issued by the Master Trust was 3.8 years as of December 31,
2012 and 3.1 years as of December 31, 2011.
95
December 31, December 31,
2011
2012
$ —
4.4
$ 3.4
9.2
7.1
$11.5
7.1
$19.7
sponsored mortgages) securitization. The Company is not the
primary beneficiary of its U.S. agency-sponsored mortgage
securitizations because Citigroup does not have the power to
direct the activities of the SPE that most significantly impact the
entity’s economic performance. Therefore, Citi does not
consolidate these U.S. agency-sponsored mortgage
securitizations.
The Company does not consolidate certain non-agencysponsored mortgage securitizations because Citi is either not the
servicer with the power to direct the significant activities of the
entity or Citi is the servicer but the servicing relationship is
deemed to be a fiduciary relationship and, therefore, Citi is not
deemed to be the primary beneficiary of the entity.
In certain instances, the Company has (i) the power to
direct the activities and (ii) the obligation to either absorb losses
or right to receive benefits that could be potentially significant
to its non-agency-sponsored mortgage securitizations and,
therefore, is the primary beneficiary and consolidates the SPE.
Mortgage Securitizations
The Company provides a wide range of mortgage loan products
to a diverse customer base. Once originated, the Company often
securitizes these loans through the use of SPEs. These SPEs are
funded through the issuance of trust certificates backed solely
by the transferred assets. These certificates have the same
average life as the transferred assets. In addition to providing a
source of liquidity and less expensive funding, securitizing these
assets also reduces the Company’s credit exposure to the
borrowers. These mortgage loan securitizations are primarily
non-recourse, thereby effectively transferring the risk of future
credit losses to the purchasers of the securities issued by the
trust. However, the Company’s Consumer business generally
retains the servicing rights and in certain instances retains
investment securities, interest-only strips and residual interests
in future cash flows from the trusts and also provides servicing
for a limited number of Securities and Banking securitizations.
Securities and Banking and Special Asset Pool do not retain
servicing for their mortgage securitizations.
The Company securitizes mortgage loans generally through
either a government-sponsored agency, such as Ginnie Mae,
Fannie Mae or Freddie Mac (U.S. agency-sponsored mortgages),
or private-label (non-agency
Mortgage Securitizations—Citicorp
The following tables summarize selected cash flow information related to Citicorp mortgage securitizations for the years ended
December 31, 2012, 2011 and 2010:
2012
In billions of dollars
Proceeds from new securitizations
Contractual servicing fees received
Cash flows received on retained interests and other net cash flows
U.S. agencysponsored
mortgages
$54.2
0.5
0.1
Gains (losses) recognized on the securitization of U.S.
agency-sponsored mortgages during 2012 were $10 million. For
the year ended December 31, 2012, gains (losses) recognized on
the securitization of non-agency sponsored mortgages were $20
million.
Non-agencysponsored
mortgages
$ 2.3
—
—
2011
Agency- and
non-agencysponsored
mortgages
$57.3
0.5
0.1
2010
Agency- and
non-agencysponsored
mortgages
$65.1
0.5
0.1
Agency and non-agency mortgage securitization gains
(losses) for the years ended December 31, 2011 and 2010 were
$(9) million and $(5) million, respectively.
96
Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables
for the years ended December 31, 2012 and 2011 were as follows:
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses (2)
Weighted average anticipated net credit losses
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses (2)
Weighted average anticipated net credit losses
(1)
U.S. agencysponsored mortgages
0.2% to 14.4%
11.4%
6.7% to 36.4%
10.2%
NM
NM
December 31, 2012
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
1.2% to 24.0%
1.1% to 29.2%
8.1%
13.8%
1.9% to 22.8%
1.6% to 29.4%
9.3%
10.1%
37.5% to 80.2%
33.4% to 90.0%
60.3%
54.1%
U.S. agencysponsored mortgages
0.6% to 28.3%
12.0%
2.2% to 30.6%
7.9%
NM
NM
December 31, 2011
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
2.4% to 10.0%
8.4% to 17.6%
4.5%
11.0%
1.0% to 2.2%
5.2% to 22.1%
1.9%
17.3%
35.0% to 72.0%
11.4% to 58.6%
45.3%
25.0%
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
(2) Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above.
Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests
in mortgage securitizations.
NM Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
97
The range in the key assumptions is due to the different
characteristics of the interests retained by the Company. The
interests retained range from highly rated and/or senior in the
capital structure to unrated and/or residual interests.
The effect of adverse changes of 10% and 20% in each of
the key assumptions used to determine the fair value of retained
interests and the
sensitivity of the fair value to such adverse changes, each as of
December 31, 2012 and 2011, is set forth in the tables below.
The negative effect of each change is calculated independently,
holding all other assumptions constant. Because the key
assumptions may not in fact be independent, the net effect of
simultaneous adverse changes in the key assumptions may be
less than the sum of the individual effects shown below.
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses (2)
Weighted average anticipated net credit losses
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses (2)
Weighted average anticipated net credit losses
U.S. agencysponsored mortgages
0.6% to 17.2%
6.1%
9.0% to 57.8%
27.7%
NM
NM
December 31, 2012
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
1.2% to 24.0%
1.1% to 29.2%
9.0%
13.8%
1.9% to 22.8%
0.5% to 29.4%
12.3%
10.0%
0.1% to 80.2%
33.4% to 90.0%
47.0%
54.1%
U.S. agencysponsored mortgages
1.3% to 16.4%
8.1%
18.9% to 30.6%
28.7%
NM
NM
December 31, 2011
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
2.2% to 24.4%
1.3% to 28.1%
9.6%
13.5%
1.7% to 51.8%
0.6% to 29.1%
26.2%
10.5%
0.0% to 77.9%
29.3% to 90.0%
37.6%
57.2%
(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
(2) Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above.
Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests
in mortgage securitizations.
NM Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
In millions of dollars at December 31, 2012
Carrying value of retained interests
Discount rates
Adverse change of 10%
Adverse change of 20%
Constant prepayment rate
Adverse change of 10%
Adverse change of 20%
Anticipated net credit losses
Adverse change of 10%
Adverse change of 20%
(1)
U.S. agency-sponsored
mortgages
$ 1,987
Non-agency-sponsored mortgages (1)
Senior interests
Subordinated interests
$88
$ 466
$ (46)
(90)
$ (2)
(4)
$ (31)
(59)
(110)
(211)
(1)
(3)
(11)
(22)
(11)
(21)
(1)
(3)
(13)
(24)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
98
Mortgage Securitizations—Citi Holdings
The following tables summarize selected cash flow information related to Citi Holdings mortgage securitizations for the years ended
December 31, 2012, 2011 and 2010:
2011
2010
Agency- and
Agency- and
non-agencynon-agencyU.S. agencysponsored mortgages sponsored mortgages sponsored mortgages
$ 1.1
$ 0.6
$ 0.4
0.6
0.8
0.4
0.1
0.1
—
2012
In billions of dollars
Proceeds from new securitizations
Contractual servicing fees received
Cash flows received on retained interests and other net cash flows
Gains recognized on the securitization of U.S. agencysponsored mortgages were $45 million and $78 million for the
years ended December 31, 2012 and 2011, respectively. The
Company did not securitize non-agency-sponsored mortgages
during the years ended December 31, 2012 and 2011.
Similar to Citicorp mortgage securitizations discussed
above, the range in the key assumptions is due to the different
characteristics of the interests retained by the Company. The
interests retained range from highly rated and/or senior in the
capital structure to unrated and/or residual interests.
The effect of adverse changes of 10% and 20% in each of
the key assumptions used to determine the fair value of retained
interests, and the sensitivity of the fair value to such adverse
changes, each as of December 31, 2012 and 2011, is set forth in
the tables below. The negative effect of each change is
calculated independently, holding all other assumptions constant.
Because the key assumptions may not in fact be independent,
the net effect of simultaneous adverse changes in the key
assumptions may be less than the sum of the individual effects
shown below.
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses
Weighted average anticipated net credit losses
Weighted average life
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses
Weighted average anticipated net credit losses
Weighted average life
(1)
U.S. agencysponsored mortgages
9.7%
9.7%
28.6%
28.6%
NM
NM
4.1 years
December 31, 2012
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
4.1% to 10.0%
3.4% to 12.4%
4.2%
8.0%
21.7%
12.7% to 18.7%
21.7%
15.7%
0.5%
50.0% to 50.1%
0.5%
50.1%
4.4 years
6.0 to 7.4 years
U.S. agencysponsored mortgages
6.9%
6.9%
30.0%
30.0%
NM
NM
3.7 years
December 31, 2011
Non-agency-sponsored mortgages (1)
Senior
Subordinated
interests
interests
2.9% to 18.0%
6.7% to 18.2%
9.8%
9.2%
38.8%
2.0% to 9.6%
38.8%
8.1%
0.4%
57.2% to 90.0%
0.4%
63.2%
3.3 to 4.7 years
0.0 to 8.1 years
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
NM Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
99
U.S. agency-sponsored
mortgages
$ 618
In millions of dollars at December 31, 2012
Carrying value of retained interests
Discount rates
Adverse change of 10%
Adverse change of 20%
Constant prepayment rate
Adverse change of 10%
Adverse change of 20%
Anticipated net credit losses
Adverse change of 10%
Adverse change of 20%
(1)
$ (22)
(42)
$—
(1)
$ (1)
(2)
(57)
(109)
(3)
(7)
—
(1)
(32)
(64)
(9)
(19)
(2)
(4)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
The Company receives fees during the course of servicing
previously securitized mortgages. The amounts of these fees for
the years ended December 31, 2012, 2011 and 2010 were as
follows:
Mortgage Servicing Rights
In connection with the securitization of mortgage loans, the
Company’s U.S. Consumer mortgage business generally retains
the servicing rights, which entitle the Company to a future
stream of cash flows based on the outstanding principal balances
of the loans and the contractual servicing fee. Failure to service
the loans in accordance with contractual requirements may lead
to a termination of the servicing rights and the loss of future
servicing fees.
The fair value of capitalized mortgage servicing rights
(MSRs) was $1.9 billion and $2.6 billion at December 31, 2012
and 2011, respectively. The MSRs correspond to principal loan
balances of $325 billion and $401 billion as of December 31,
2012 and 2011, respectively. The following table summarizes
the changes in capitalized MSRs for the years ended December
31, 2012 and 2011:
In millions of dollars
Balance, beginning of year
Originations
Changes in fair value of MSRs due to
changes in inputs and assumptions
Other changes (1)
Sale of MSRs
Balance, end of year
(1)
Non-agency-sponsored mortgages (1)
Senior interests
Subordinated interests
$ 39
$16
2012
$ 2,569
423
(198)
(852)
—
$ 1,942
In millions of dollars
Servicing fees
Late fees
Ancillary fees
Total MSR fees
2012
$ 990
65
122
$ 1,177
2011
$ 1,170
76
130
$ 1,376
2010
$ 1,356
87
214
$ 1,657
These fees are classified in the Consolidated Statement of
Income as Other revenue.
Re-securitizations
The Company engages in re-securitization transactions in which
debt securities are transferred to a VIE in exchange for new
beneficial interests. During the year ended December 31, 2012,
Citi transferred non-agency (private-label) securities with an
original par value of approximately $1.5 billion to resecuritization entities. These securities are backed by either
residential or commercial mortgages and are often structured on
behalf of clients. As of December 31, 2012, the fair value of
Citi-retained interests in private-label re-securitization
transactions structured by Citi totaled approximately $380
million ($128 million of which relates to re-securitization
transactions executed in 2012) and are recorded in Trading
account assets. Of this amount, approximately $11 million and
$369 million related to senior and subordinated beneficial
interests, respectively. The original par value of private-label resecuritization transactions in which Citi holds a retained interest
as of December 31, 2012 was approximately $7.1 billion.
2011
$ 4,554
611
(1,210)
(1,174)
(212)
$ 2,569
Represents changes due to customer payments and passage of time.
The fair value of the MSRs is primarily affected by changes
in prepayments of mortgages that result from shifts in mortgage
interest rates. In managing this risk, the Company economically
hedges a significant portion of the value of its MSRs through the
use of interest rate derivative contracts, forward purchase and
sale commitments of mortgage-backed securities and purchased
securities classified as Trading account assets.
100
by the conduit on each asset is generally tied to the rate on the
commercial paper issued by the conduit, thus passing interest
rate risk to the client. Each asset purchased by the conduit is
structured with transaction-specific credit enhancement features
provided by the third-party client seller, including over
collateralization, cash and excess spread collateral accounts,
direct recourse or third-party guarantees. These credit
enhancements are sized with the objective of approximating a
credit rating of A or above, based on the Company’s internal
risk ratings.
Substantially all of the funding of the conduits is in the
form of short-term commercial paper, with a weighted average
life generally ranging from 25 to 45 days. At the respective
period ends December 31, 2012 and December 31, 2011, the
weighted average lives of the commercial paper issued by
consolidated and unconsolidated conduits were approximately
38 and 37 days, respectively.
The primary credit enhancement provided to the conduit
investors is in the form of transaction-specific credit
enhancement described above. In addition, each consolidated
conduit has obtained a letter of credit from the Company, which
needs to be sized to at least 8–10% of the conduit’s assets with a
floor of $200 million. The letters of credit provided by the
Company to the consolidated conduits total approximately $2.1
billion. The net result across all multi-seller conduits
administered by the Company is that, in the event defaulted
assets exceed the transaction-specific credit enhancements
described above, any losses in each conduit are allocated first to
the Company and then the commercial paper investors.
The Company also provides the conduits with two forms of
liquidity agreements that are used to provide funding to the
conduits in the event of a market disruption, among other events.
Each asset of the conduits is supported by a transaction-specific
liquidity facility in the form of an asset purchase agreement
(APA). Under the APA, the Company has generally agreed to
purchase non-defaulted eligible receivables from the conduit at
par. The APA is not generally designed to provide credit support
to the conduit, as it generally does not permit the purchase of
defaulted or impaired assets. Any funding under the APA will
likely subject the underlying borrower to the conduits to
increased interest costs. In addition, the Company provides the
conduits with program-wide liquidity in the form of short-term
lending commitments. Under these commitments, the Company
has agreed to lend to the conduits in the event of a short-term
disruption in the commercial paper market, subject to specified
conditions. The Company receives fees for providing both types
of liquidity agreements and considers these fees to be on fair
market terms.
The Company also re-securitizes U.S. government-agency
guaranteed mortgage-backed (agency) securities. During the 12
months ended December 31, 2012, Citi transferred agency
securities with a fair value of approximately $30.3 billion to resecuritization entities. As of December 31, 2012, the fair value
of Citi-retained interests in agency re-securitization transactions
structured by Citi totaled approximately $1.7 billion ($1.1
billion of which related to re-securitization transactions
executed in 2012) and is recorded in Trading account assets.
The original fair value of agency re-securitization transactions
in which Citi holds a retained interest as of December 31, 2012
was approximately $71.2 billion.
As of December 31, 2012, the Company did not consolidate
any private-label or agency re-securitization entities.
Citi-Administered Asset-Backed Commercial Paper Conduits
The Company is active in the asset-backed commercial paper
conduit business as administrator of several multi-seller
commercial paper conduits and also as a service provider to
single-seller and other commercial paper conduits sponsored by
third parties.
Citi’s multi-seller commercial paper conduits are designed
to provide the Company’s clients access to low-cost funding in
the commercial paper markets. The conduits purchase assets
from or provide financing facilities to clients and are funded by
issuing commercial paper to third-party investors. The conduits
generally do not purchase assets originated by the Company.
The funding of the conduits is facilitated by the liquidity support
and credit enhancements provided by the Company.
As administrator to Citi’s conduits, the Company is
generally responsible for selecting and structuring assets
purchased or financed by the conduits, making decisions
regarding the funding of the conduits, including determining the
tenor and other features of the commercial paper issued,
monitoring the quality and performance of the conduits’ assets,
and facilitating the operations and cash flows of the conduits. In
return, the Company earns structuring fees from customers for
individual transactions and earns an administration fee from the
conduit, which is equal to the income from the client program
and liquidity fees of the conduit after payment of conduit
expenses. This administration fee is fairly stable, since most
risks and rewards of the underlying assets are passed back to the
clients and, once the asset pricing is negotiated, most ongoing
income, costs and fees are relatively stable as a percentage of
the conduit’s size.
The conduits administered by the Company do not
generally invest in liquid securities that are formally rated by
third parties. The assets are privately negotiated and structured
transactions that are designed to be held by the conduit, rather
than actively traded and sold. The yield earned
101
Finally, the Company is one of several named dealers in the
commercial paper issued by the conduits and earns a marketbased fee for providing such services. Along with third-party
dealers, the Company makes a market in the commercial paper
and may from time to time fund commercial paper pending sale
to a third party. On specific dates with less liquidity in the
market, the Company may hold in inventory commercial paper
issued by conduits administered by the Company, as well as
conduits administered by third parties. The amount of
commercial paper issued by its administered conduits held in
inventory fluctuates based on market conditions and activity. As
of December 31, 2012, the Company owned $11.7 billion and
$131 million of the commercial paper issued by its consolidated
and unconsolidated administered conduits, respectively.
With the exception of the government-guaranteed loan
conduit described below, the asset-backed commercial paper
conduits are consolidated by the Company. The Company
determined that through its role as administrator it had the
power to direct the activities that most significantly impacted
the entities’ economic performance. These powers included its
ability to structure and approve the assets purchased by the
conduits, its ongoing surveillance and credit mitigation activities,
and its liability management. In addition, as a result of all the
Company’s involvement described above, it was concluded that
the Company had an economic interest that could potentially be
significant. However, the assets and liabilities of the conduits
are separate and apart from those of Citigroup. No assets of any
conduit are available to satisfy the creditors of Citigroup or any
of its other subsidiaries.
The Company administers one conduit that originates loans
to third-party borrowers and those obligations are fully
guaranteed primarily by AAA-rated government agencies that
support export and development financing programs. The
economic performance of this government-guaranteed loan
conduit is most significantly impacted by the performance of its
underlying assets. The guarantors must approve each loan held
by the entity and the guarantors have the ability (through
establishment of the servicing terms to direct default mitigation
and to purchase defaulted loans) to manage the conduit’s loans
that become delinquent to improve the economic performance
of the conduit. Because the Company does not have the power
to direct the activities of this government-guaranteed loan
conduit that most significantly impact the economic
performance of the entity, it was concluded that the Company
should not consolidate the entity. The total notional exposure
under the program-wide liquidity agreement for the Company’s
unconsolidated administered conduit as of December 31, 2012 is
$0.6 billion. The program-wide liquidity agreement, along with
each asset APA, is considered in the Company’s maximum
exposure to loss to the unconsolidated administered conduit.
As of December 31, 2012, this unconsolidated governmentguaranteed loan conduit held assets and funding commitments
of approximately $7.6 billion.
Third-Party Commercial Paper Conduits
The Company also provides liquidity facilities to single- and
multi-seller conduits sponsored by third parties. These conduits
are independently owned and managed and invest in a variety of
asset classes, depending on the nature of the conduit. The
facilities provided by the Company typically represent a small
portion of the total liquidity facilities obtained by each conduit,
and are collateralized by the assets of each conduit. The
Company is not the party that has the power to direct the
activities of these conduits that most significantly impact their
economic performance and thus does not consolidate them. As
of December 31, 2012, the Company had no involvement in
third-party commercial paper conduits.
Collateralized Debt and Loan Obligations
A securitized collateralized debt obligation (CDO) is an SPE
that purchases a pool of assets consisting of asset-backed
securities and synthetic exposures through derivatives on assetbacked securities and issues multiple tranches of equity and
notes to investors.
A cash CDO, or arbitrage CDO, is a CDO designed to take
advantage of the difference between the yield on a portfolio of
selected assets, typically residential mortgage-backed securities,
and the cost of funding the CDO through the sale of notes to
investors. “Cash flow” CDOs are entities in which the CDO
passes on cash flows from a pool of assets, while “market
value” CDOs pay to investors the market value of the pool of
assets owned by the CDO at maturity. In these transactions, all
of the equity and notes issued by the CDO are funded, as the
cash is needed to purchase the debt securities.
A synthetic CDO is similar to a cash CDO, except that the
CDO obtains exposure to all or a portion of the referenced assets
synthetically through derivative instruments, such as credit
default swaps. Because the CDO does not need to raise cash
sufficient to purchase the entire referenced portfolio, a
substantial portion of the senior tranches of risk is typically
passed on to CDO investors in the form of unfunded liabilities
or derivative instruments. The CDO writes credit protection on
select referenced debt securities to the Company or third parties
and the risk is then passed on to the CDO investors in the form
of funded notes or purchased credit protection through
derivative instruments. Any cash raised from investors is
invested in a portfolio of collateral securities or investment
contracts. The collateral is then used to support the obligations
of the CDO on the credit default swaps written to counterparties.
102
The Company has retained significant portions of the
“super-senior” positions issued by certain CDOs. These
positions are referred to as “super-senior” because they
represent the most senior positions in the CDO and, at the time
of structuring, were senior to tranches rated AAA by
independent rating agencies.
The Company does not generally have the power to direct
the activities of the entity that most significantly impact the
economic performance of the CDOs/CLOs as this power is
generally held by a third-party asset manager of the CDO/CLO.
As such, those CDOs/CLOs are not consolidated. The Company
may consolidate the CDO/CLO when: (i) the Company is the
asset manager and no other single investor has the unilateral
ability to remove the Company or unilaterally cause the
liquidation of the CDO/CLO, or the Company is not the asset
manager but has a unilateral right to remove the third-party asset
manager or unilaterally liquidate the CDO/CLO and receive the
underlying assets, and (ii) the Company has economic exposure
to the entity that could be potentially significant to the entity.
The Company continues to monitor its involvement in
unconsolidated CDOs/CLOs to assess future consolidation risk.
For example, if the Company were to acquire additional
interests in these entities and obtain the right, due to an event of
default trigger being met, to unilaterally liquidate or direct the
activities of a CDO/CLO, the Company may be required to
consolidate the asset entity. For cash CDOs/CLOs, the net result
of such consolidation would be to gross up the Company’s
balance sheet by the current fair value of the securities held by
third parties and assets held by the CDO/CLO, which amounts
are not considered material. For synthetic CDOs/CLOs, the net
result of such consolidation may reduce the Company’s balance
sheet, because intercompany derivative receivables and payables
would be eliminated in consolidation, and other assets held by
the CDO/CLO and the securities held by third parties would be
recognized at their current fair values.
A securitized collateralized loan obligation (CLO) is
substantially similar to the CDO transactions described above,
except that the assets owned by the SPE (either cash instruments
or synthetic exposures through derivative instruments) are
corporate loans and to a lesser extent corporate bonds, rather
than asset-backed debt securities.
A third-party asset manager is typically retained by the
CDO/CLO to select the pool of assets and manage those assets
over the term of the SPE. The Company is the manager for a
limited number of CLO transactions.
The Company earns fees for warehousing assets prior to the
creation of a “cash flow” or “market value” CDO/CLO,
structuring CDOs/CLOs and placing debt securities with
investors. In addition, the Company has retained interests in
many of the CDOs/CLOs it has structured and makes a market
in the issued notes.
The Company’s continuing involvement in synthetic
CDOs/CLOs generally includes purchasing credit protection
through credit default swaps with the CDO/CLO, owning a
portion of the capital structure of the CDO/CLO in the form of
both unfunded derivative positions (primarily super-senior
exposures discussed below) and funded notes, entering into
interest-rate swap and total-return swap transactions with the
CDO/CLO, lending to the CDO/CLO, and making a market in
the funded notes.
Where a CDO/CLO entity issues preferred shares (or
subordinated notes that are the equivalent form), the preferred
shares generally represent an insufficient amount of equity (less
than 10%) and create the presumption that preferred shares are
insufficient to finance the entity’s activities without
subordinated financial support. In addition, although the
preferred shareholders generally have full exposure to expected
losses on the collateral and uncapped potential to receive
expected residual returns, they generally do not have the ability
to make decisions about the entity that have a significant effect
on the entity’s financial results because of their limited role in
making day-to-day decisions and their limited ability to remove
the asset manager. Because one or both of the above conditions
will generally be met, the Company has concluded that, even
where a CDO/CLO entity issued preferred shares, the entity
should be classified as a VIE.
In general, the asset manager, through its ability to purchase
and sell assets or—where the reinvestment period of a
CDO/CLO has expired—the ability to sell assets, will have the
power to direct the activities of the entity that most significantly
impact the economic performance of the CDO/CLO. However,
where a CDO/CLO has experienced an event of default or an
optional redemption period has gone into effect, the activities of
the asset manager may be curtailed and/or certain additional
rights will generally be provided to the investors in a CDO/CLO
entity, including the right to direct the liquidation of the
CDO/CLO entity.
Key Assumptions and Retained Interests—Citi Holdings
The key assumptions, used for the securitization of CDOs and
CLOs during the year ended December 31, 2012, in measuring
the fair value of retained interests were as follows:
Discount rate
CDOs
46.9% to 51.6%
CLOs
1.9% to 2.1%
The effect of an adverse change of 10% and 20% in the
discount rates used to determine the fair value of retained
interests at December 31, 2012 is set forth in the table below:
In millions of dollars
Carrying value of retained interests
Discount rates
Adverse change of 10%
Adverse change of 20%
103
CDOs
$16
$ (2)
(3)
CLOs
$428
$ (2)
(4)
Asset-Based Financing—Citi Holdings
The primary types of Citi Holdings’ asset-based financings, total
assets of the unconsolidated VIEs with significant involvement
and the Company’s maximum exposure to loss at December 31,
2012, are shown below. For the Company to realize that
maximum loss, the VIE (borrower) would have to default with
no recovery from the assets held by the VIE.
Asset-Based Financing
The Company provides loans and other forms of financing to
VIEs that hold assets. Those loans are subject to the same credit
approvals as all other loans originated or purchased by the
Company. Financings in the form of debt securities or
derivatives are, in most circumstances, reported in Trading
account assets and accounted for at fair value through earnings.
The Company generally does not have the power to direct the
activities that most significantly impact these VIEs’ economic
performance and thus it does not consolidate them.
In billions of dollars
Asset-Based Financing—Citicorp
The primary types of Citicorp’s asset-based financings, total
assets of the unconsolidated VIEs with significant involvement
and the Company’s maximum exposure to loss at December 31,
2012, are shown below. For the Company to realize that
maximum loss, the VIE (borrower) would have to default with
no recovery from the assets held by the VIE.
In billions of dollars
Type
Commercial and other real
estate
Corporate loans
Hedge funds and equities
Airplanes, ships and other
assets
Total
Type
Commercial and other real
estate
Corporate loans
Airplanes, ships and other
assets
Total
Maximum
exposure to
unconsolidated
VIEs
Total
unconsolidated
VIE assets
In billions of dollars
Cash flows received on
retained interests and
other net cash flows
2012
$ 0.3
Carrying value of retained interests
Value of underlying portfolio
Adverse change of 10%
Adverse change of 20%
$ 0.9
0.4
$ 0.3
0.3
2.9
$ 4.2
0.6
$ 1.2
2011
2012
2010
$16.1
2.0
0.6
$ 3.1
1.6
0.4
Cash flows received on
retained interests and
other net cash flows
21.5
$40.2
12.0
$17.1
The effect of an adverse change of 10% and 20% in the
discount rates used to determine the fair value of retained
interests at December 31, 2012 is set forth in the table below:
2011
In millions of dollars
Carrying value of retained interests
Value of underlying portfolio
Adverse change of 10%
Adverse change of 20%
2010
$—
$1.7
$ 1.4
$ 2.8
Asset-based
Financing
$ 339
$ —
—
$—
Municipal Securities Tender Option Bond (TOB) Trusts
TOB trusts hold fixed- and floating-rate, taxable and tax-exempt
securities issued by state and local governments and
municipalities. The trusts are typically single-issuer trusts whose
assets are purchased from the Company or from other investors
in the municipal securities market. The TOB trusts fund the
purchase of their assets by issuing long-term, putable floating
rate certificates (Floaters) and residual certificates (Residuals).
The trusts are referred to as TOB trusts because the Floater
holders have the ability to tender their interests periodically
back to the issuing trust, as described further below. The
Floaters and Residuals evidence beneficial ownership interests
in, and are collateralized by, the underlying assets of the trust.
The Floaters are held by third-party investors, typically taxexempt money market funds. The Residuals are typically held
by the original owner of the municipal securities being financed.
The effect of an adverse change of 10% and 20% in the
discount rates used to determine the fair value of retained
interests at December 31, 2012 is set forth in the table below:
In millions of dollars
Maximum
exposure to
unconsolidated
VIEs
The following table summarizes selected cash flow
information related to asset-based financings for the years ended
December 31, 2012, 2011 and 2010:
The following table summarizes selected cash flow
information related to asset-based financings for the years ended
December 31, 2012, 2011 and 2010:
In billions of dollars
Total
unconsolidated
VIE assets
Asset-based
Financing
$ 1,726
$ (22)
(44)
104
reimburses the Company for any payment made under the
liquidity arrangement. Through this reimbursement agreement,
the Residual holder remains economically exposed to
fluctuations in value of the underlying municipal bonds. These
reimbursement agreements are generally subject to daily
margining based on changes in value of the underlying
municipal bond. In cases where a third party provides liquidity
to a non-customer TOB trust, a similar reimbursement
arrangement is made whereby the Company (or a consolidated
subsidiary of the Company) as Residual holder absorbs any
losses incurred by the liquidity provider.
As of December 31, 2012, liquidity agreements provided
with respect to customer TOB trusts totaled $4.9 billion, of
which $3.6 billion was offset by reimbursement agreements.
The remaining exposure related to TOB transactions, where the
Residual owned by the customer was at least 25% of the bond
value at the inception of the transaction and no reimbursement
agreement was executed. The Company also provides other
liquidity agreements or letters of credit to customer-sponsored
municipal investment funds, which are not variable interest
entities, and municipality-related issuers that totaled $6.4 billion
as of December 31, 2012. These liquidity agreements and letters
of credit are offset by reimbursement agreements with various
term-out provisions.
The Company considers the customer and non-customer
TOB trusts to be VIEs. Customer TOB trusts are not
consolidated by the Company. The Company has concluded that
the power to direct the activities that most significantly impact
the economic performance of the customer TOB trusts is
primarily held by the customer Residual holder, who may
unilaterally cause the sale of the trust’s bonds.
Non-customer TOB trusts generally are consolidated.
Similar to customer TOB trusts, the Company has concluded
that the power over the non-customer TOB trusts is primarily
held by the Residual holder, which may unilaterally cause the
sale of the trust’s bonds. Because the Company holds the
Residual interest, and thus has the power to direct the activities
that most significantly impact the trust’s economic performance,
it consolidates the non-customer TOB trusts.
The Floaters and the Residuals have a tenor that is equal to
or shorter than the tenor of the underlying municipal bonds. The
Residuals entitle their holders to the residual cash flows from
the issuing trust, the interest income generated by the underlying
municipal securities net of interest paid on the Floaters, and trust
expenses. The Residuals are rated based on the long-term rating
of the underlying municipal bond. The Floaters bear variable
interest rates that are reset periodically to a new market rate
based on a spread to a high grade, short-term, tax-exempt index.
The Floaters have a long-term rating based on the long-term
rating of the underlying municipal bond and a short-term rating
based on that of the liquidity provider to the trust.
There are two kinds of TOB trusts: customer TOB trusts
and non-customer TOB trusts. Customer TOB trusts are trusts
through which customers finance their investments in municipal
securities. The Residuals are held by customers and the Floaters
by third-party investors, typically tax-exempt money market
funds. Non-customer TOB trusts are trusts through which the
Company finances its own investments in municipal securities.
In such trusts, the Company holds the Residuals and third-party
investors, typically tax-exempt money market funds, hold the
Floaters.
The Company serves as remarketing agent to the trusts,
placing the Floaters with third-party investors at inception,
facilitating the periodic reset of the variable rate of interest on
the Floaters and remarketing any tendered Floaters. If Floaters
are tendered and the Company (in its role as remarketing agent)
is unable to find a new investor within a specified period of
time, it can declare a failed remarketing, in which case the trust
is unwound. The Company may, but is not obligated to, buy the
Floaters into its own inventory. The level of the Company’s
inventory of Floaters fluctuates over time. As of December 31,
2012, the Company held $203 million of Floaters related to both
customer and non-customer TOB trusts.
For certain non-customer trusts, the Company also provides
credit enhancement. Approximately $184 million of the
municipal bonds owned by TOB trusts have a credit guarantee
provided by the Company.
The Company provides liquidity to many of the outstanding
trusts. If a trust is unwound early due to an event other than a
credit event on the underlying municipal bond, the underlying
municipal bonds are sold in the market. If there is a shortfall in
the trust’s cash flows between the redemption price of the
tendered Floaters and the proceeds from the sale of the
underlying municipal bonds, the trust draws on a liquidity
agreement in an amount equal to the shortfall. For customer
TOBs where the Residual is less than 25% of the trust’s capital
structure, the Company has a reimbursement agreement with the
Residual holder under which the Residual holder
Municipal Investments
Municipal investment transactions include debt and equity
interests in partnerships that finance the construction and
rehabilitation of low-income housing, facilitate lending in new
or underserved markets, or finance the construction or operation
of renewable municipal energy facilities. The Company
generally invests in these partnerships as a limited partner and
earns a return primarily through the receipt of tax credits and
grants earned from the investments made by the partnership.
The Company may also provide construction loans or
permanent loans to the development or continuation of real
estate properties held by partnerships. These entities are
generally considered VIEs. The power to direct the activities of
these entities is typically held by the general partner.
Accordingly, these entities are not consolidated by the
Company.
105
Trust Preferred Securities
The Company has raised financing through the issuance of trust
preferred securities. In these transactions, the Company forms a
statutory business trust and owns all of the voting equity shares
of the trust. The trust issues preferred equity securities to thirdparty investors and invests the gross proceeds in junior
subordinated deferrable interest debentures issued by the
Company. The trusts have no assets, operations, revenues or
cash flows other than those related to the issuance,
administration and repayment of the preferred equity securities
held by third-party investors. Obligations of the trusts are fully
and unconditionally guaranteed by the Company.
Because the sole asset of each of the trusts is a receivable
from the Company and the proceeds to the Company from the
receivable exceed the Company’s investment in the VIE’s
equity shares, the Company is not permitted to consolidate the
trusts, even though it owns all of the voting equity shares of the
trust, has fully guaranteed the trusts’ obligations, and has the
right to redeem the preferred securities in certain circumstances.
The Company recognizes the subordinated debentures on its
Consolidated Balance Sheet as long-term liabilities. For
additional information, see Note 19 to the Consolidated
Financial Statements.
Client Intermediation
Client intermediation transactions represent a range of
transactions designed to provide investors with specified returns
based on the returns of an underlying security, referenced asset
or index. These transactions include credit-linked notes and
equity-linked notes. In these transactions, the VIE typically
obtains exposure to the underlying security, referenced asset or
index through a derivative instrument, such as a total-return
swap or a credit-default swap. In turn the VIE issues notes to
investors that pay a return based on the specified underlying
security, referenced asset or index. The VIE invests the proceeds
in a financial asset or a guaranteed insurance contract that serves
as collateral for the derivative contract over the term of the
transaction. The Company’s involvement in these transactions
includes being the counterparty to the VIE’s derivative
instruments and investing in a portion of the notes issued by the
VIE. In certain transactions, the investor’s maximum risk of loss
is limited and the Company absorbs risk of loss above a
specified level. The Company does not have the power to direct
the activities of the VIEs that most significantly impact their
economic performance and thus it does not consolidate them.
The Company’s maximum risk of loss in these transactions
is defined as the amount invested in notes issued by the VIE and
the notional amount of any risk of loss absorbed by the
Company through a separate instrument issued by the VIE. The
derivative instrument held by the Company may generate a
receivable from the VIE (for example, where the Company
purchases credit protection from the VIE in connection with the
VIE’s issuance of a credit-linked note), which is collateralized
by the assets owned by the VIE. These derivative instruments
are not considered variable interests and any associated
receivables are not included in the calculation of maximum
exposure to the VIE.
Investment Funds
The Company is the investment manager for certain investment
funds that invest in various asset classes including private
equity, hedge funds, real estate, fixed income and infrastructure.
The Company earns a management fee, which is a percentage of
capital under management, and may earn performance fees. In
addition, for some of these funds the Company has an
ownership interest in the investment funds. The Company has
also established a number of investment funds as opportunities
for qualified employees to invest in private equity investments.
The Company acts as investment manager to these funds and
may provide employees with financing on both recourse and
non-recourse bases for a portion of the employees’ investment
commitments.
The Company has determined that a majority of the
investment entities managed by Citigroup are provided a
deferral from the requirements of SFAS 167, Amendments to
FASB Interpretation No. 46(R), because they meet the criteria in
Accounting Standards Update No. 2010-10, Consolidation
(Topic 810), Amendments for Certain Investment Funds (ASU
2010-10). These entities continue to be evaluated under the
requirements of ASC 810-10, prior to the implementation of
SFAS 167 (FIN 46(R), Consolidation of Variable Interest
Entities), which required that a VIE be consolidated by the party
with a variable interest that will absorb a majority of the entity’s
expected losses or residual returns, or both.
106
Derivatives may expose Citigroup to market, credit or
liquidity risks in excess of the amounts recorded on the
Consolidated Balance Sheet. Market risk on a derivative product
is the exposure created by potential fluctuations in interest rates,
foreign-exchange rates and other factors and is a function of the
type of product, the volume of transactions, the tenor and terms
of the agreement and the underlying volatility. Credit risk is the
exposure to loss in the event of nonperformance by the other
party to the transaction where the value of any collateral held is
not adequate to cover such losses. The recognition in earnings of
unrealized gains on these transactions is subject to
management’s assessment as to collectability. Liquidity risk is
the potential exposure that arises when the size of the derivative
position may not be able to be rapidly adjusted at a reasonable
cost in periods of high volatility and financial stress.
Information pertaining to the volume of derivative activity
is provided in the tables below. The notional amounts, for both
long and short derivative positions, of Citigroup’s derivative
instruments as of December 31, 2012 and December 31, 2011
are presented in the table below.
23. DERIVATIVES ACTIVITIES
In the ordinary course of business, Citigroup enters into various
types of derivative transactions. These derivative transactions
include:
•
•
•
Futures and forward contracts, which are commitments to
buy or sell at a future date a financial instrument,
commodity or currency at a contracted price and may be
settled in cash or through delivery.
Swap contracts, which are commitments to settle in cash at
a future date or dates that may range from a few days to a
number of years, based on differentials between specified
financial indices, as applied to a notional principal amount.
Option contracts, which give the purchaser, for a premium,
the right, but not the obligation, to buy or sell within a
specified time a financial instrument, commodity or
currency at a contracted price that may also be settled in
cash, based on differentials between specified indices or
prices.
Citigroup enters into these derivative contracts relating to
interest rate, foreign currency, commodity and other
market/credit risks for the following reasons:
•
•
•
Trading Purposes—Customer Needs: Citigroup offers its
customers derivatives in connection with their riskmanagement actions to transfer, modify or reduce their
interest rate, foreign exchange and other market/credit risks
or for their own trading purposes. As part of this process,
Citigroup considers the customers’ suitability for the risk
involved and the business purpose for the transaction.
Citigroup also manages its derivative risk positions through
offsetting trade activities, controls focused on price
verification, and daily reporting of positions to senior
managers.
Trading Purposes—Citigroup trades derivatives as an
active market maker. Trading limits and price verification
controls are key aspects of this activity.
Hedging—Citigroup uses derivatives in connection with its
risk-management activities to hedge certain risks or
reposition the risk profile of the Company. For example,
Citigroup issues fixed-rate long-term debt and then enters
into a receive-fixed, pay-variable-rate interest rate swap
with the same tenor and notional amount to convert the
interest payments to a net variable-rate basis. This strategy
is the most common form of an interest rate hedge, as it
minimizes interest cost in certain yield curve environments.
Derivatives are also used to manage risks inherent in
specific groups of on-balance-sheet assets and liabilities,
including AFS securities and borrowings, as well as other
interest-sensitive assets and liabilities. In addition, foreignexchange contracts are used to hedge non-U.S.-dollardenominated debt, foreign-currency-denominated AFS
securities and net investment exposures.
107
Derivative Notionals
Hedging instruments under
ASC 815 (SFAS 133) (1)(2)
In millions of dollars
Interest rate contracts
Swaps
Futures and forwards
Written options
Purchased options
Total interest rate contract notionals
Foreign exchange contracts
Swaps
Futures and forwards
Written options
Purchased options
Total foreign exchange contract notionals
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
Total equity contract notionals
Commodity and other contracts
Swaps
Futures and forwards
Written options
Purchased options
Total commodity and other contract notionals
Credit derivatives (4)
Protection sold
Protection purchased
Total credit derivatives
Total derivative notionals
(1)
(2)
(3)
(4)
Other derivative instruments
Trading derivatives
Management hedges (3)
December 31, December 31, December 31, December 31, December 31, December 31,
2011
2011
2011
2012
2012
2012
$ 114,296
—
—
—
$ 114,296
$163,079
—
—
—
$163,079
$ 30,050,856 $ 28,069,960
3,549,642
4,823,370
3,871,700
3,752,905
3,888,415
3,542,048
$ 42,169,179 $ 39,379,717
$ 99,434
45,856
22,992
7,890
$176,172
$ 119,344
43,965
16,786
7,338
$ 187,433
$ 22,207
70,484
96
456
$ 93,243
$ 27,575
55,211
4,292
39,163
$126,241
$ 1,393,368 $ 1,182,363
3,191,687
3,484,193
591,818
781,698
583,891
778,438
$ 6,437,697 $ 5,549,759
$ 16,900
33,768
989
2,106
$ 53,763
$ 22,458
31,095
190
53
$ 53,796
$
—
—
—
—
—
$
—
—
—
—
—
$
86,978
96,039 $
12,882
16,171
552,333
320,243
509,322
281,236
713,689 $ 1,161,515
$
—
—
—
—
—
$
—
—
—
—
—
$
—
—
—
—
—
$
27,323 $
75,897
86,418
89,284
278,922 $
23,403
73,090
90,650
99,234
286,377
$
—
—
—
—
—
$
—
354
$
354
$ 207,893
$
$ 1,346,494 $ 1,394,528
1,486,723
1,412,194
$ 2,758,688 $ 2,881,251
$ 52,358,175 $ 49,258,619
$
—
21,741
$ 21,741
$251,676
$
$
$
$
$
$
—
4,253
$ 4,253
$293,573
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
21,914
$ 21,914
$ 263,143
The notional amounts presented in this table do not include hedge accounting relationships under ASC 815 (SFAS 133) where Citigroup is hedging the foreign
currency risk of a net investment in a foreign operation by issuing a foreign-currency-denominated debt instrument. The notional amount of such debt is $4,888
million and $7,060 million at December 31, 2012 and December 31, 2011, respectively.
Derivatives in hedge accounting relationships accounted for under ASC 815 (SFAS 133) are recorded in either Other assets/Other liabilities or Trading account
assets/Trading account liabilities on the Consolidated Balance Sheet.
Management hedges represent derivative instruments used in certain economic hedging relationships that are identified for management purposes, but for which
hedge accounting is not applied. These derivatives are recorded in either Other assets/Other liabilities or Trading account assets/Trading account liabilities on the
Consolidated Balance Sheet.
Credit derivatives are arrangements designed to allow one party (protection buyer) to transfer the credit risk of a “reference asset” to another party (protection
seller). These arrangements allow a protection seller to assume the credit risk associated with the reference asset without directly purchasing that asset. The
Company has entered into credit derivative positions for purposes such as risk management, yield enhancement, reduction of credit concentrations and
diversification of overall risk.
108
Derivative Mark-to-Market (MTM) Receivables/Payables
Derivatives classified in trading Derivatives classified in other
account assets/liabilities (1)(2)
assets/liabilities (2)
Assets
Liabilities
Assets
Liabilities
In millions of dollars at December 31, 2012
Derivative instruments designated as ASC 815 (SFAS 133) hedges
Interest rate contracts
Foreign exchange contracts
Credit derivatives
Total derivative instruments designated as ASC 815 (SFAS 133) hedges
Other derivative instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity and other contracts
Credit derivatives (3)
Total other derivative instruments
Total derivatives
Cash collateral paid/received (4)(5)
Less: Netting agreements and market value adjustments (6)
Less: Net cash collateral received/paid (7)
Net receivables/payables
(1)
(2)
(3)
(4)
(5)
(6)
(7)
$ 895,726
76,291
18,293
10,907
54,275
$1,055,492
$1,063,628
5,597
(975,695)
(38,910)
$ 54,620
$
$
2,263
1,350
—
3,613
$ 890,405
80,771
31,867
12,142
52,300
$1,067,485
$1,071,098
7,923
(971,715)
(55,555)
$ 51,751
$ 4,574
978
—
$ 5,552
$ 1,178
525
16
$ 1,719
$
$
449
200
—
—
102
$ 751
$ 6,303
214
—
(4,660)
$ 1,857
29
112
—
—
392
$ 533
$ 2,252
658
—
—
$ 2,910
Derivatives classified in trading Derivatives classified in other
assets/liabilities (2)
account assets/liabilities (1)(2)
Assets
Liabilities
Assets
Liabilities
Derivative instruments designated as ASC 815 (SFAS 133) hedges
Interest rate contracts
Foreign exchange contracts
Total derivative instruments designated as ASC 815 (SFAS 133) hedges
Other derivative instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity and other contracts
Credit derivatives (3)
Total other derivative instruments
Total derivatives
Cash collateral paid/received (4)(5)
Less: Netting agreements and market value adjustments (6)
Less: Net cash collateral received/paid (7)
Net receivables/payables
(3)
$
7,795
341
—
8,136
The trading derivatives fair values are presented in Note 14 to the Consolidated Financial Statements.
Derivative mark-to-market receivables/payables related to management hedges are recorded in either Other assets/Other liabilities or Trading account
assets/Trading account liabilities.
The credit derivatives trading assets are composed of $34,565 million related to protection purchased and $19,710 million related to protection sold as of
December 31, 2012. The credit derivatives trading liabilities are composed of $20,470 million related to protection purchased and $31,830 million related to
protection sold as of December 31, 2012.
For the trading assets/liabilities, this is the net amount of the $61,152 million and $46,833 million of gross cash collateral paid and received, respectively. Of the
gross cash collateral paid, $55,555 million was used to offset derivative liabilities and, of the gross cash collateral received, $38,910 million was used to offset
derivative assets.
For the other assets/liabilities, this is the net amount of the $214 million and $5,318 million of the gross cash collateral paid and received, respectively. Of the
gross cash collateral received, $4,660 million was used to offset derivative assets.
Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.
Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements.
In millions of dollars at December 31, 2011
(1)
(2)
$
$
$
8,274
3,706
11,980
$ 749,213
90,611
20,235
13,763
90,424
$ 964,246
$ 976,226
6,634
(875,592)
(44,941)
$ 62,327
$
$
3,306
1,451
4,757
$ 736,785
95,912
33,139
14,631
84,726
$ 965,193
$ 969,950
7,870
(870,366)
(51,181)
$ 56,273
$ 3,968
1,201
$ 5,169
$ 1,518
863
$ 2,381
$
$
212
325
—
—
430
$ 967
$ 6,136
307
—
(3,462)
$ 2,981
96
959
—
—
126
$ 1,181
$ 3,562
180
—
—
$ 3,742
The trading derivatives fair values are presented in Note 14 to the Consolidated Financial Statements.
Derivative mark-to-market receivables/payables related to management hedges are recorded in either Other assets/Other liabilities or Trading account
assets/Trading account liabilities.
The credit derivatives trading assets are composed of $79,089 million related to protection purchased and $11,335 million related to protection sold as of
December 31, 2011. The credit derivatives trading liabilities are composed of $12,235 million related to protection purchased and $72,491 million related to
protection sold as of December 31, 2011.
109
(4)
(5)
(6)
(7)
For the trading assets/liabilities, this is the net amount of the $57,815 million and $52,811 million of gross cash collateral paid and received, respectively. Of the
gross cash collateral paid, $51,181 million was used to offset derivative liabilities and, of the gross cash collateral received, $44,941 million was used to offset
derivative assets.
For the other assets/liabilities, this is the net amount of the $307 million and $3,642 million of the gross cash collateral paid and received, respectively. Of the
gross cash collateral received, $3,462 million was used to offset derivative assets.
Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.
Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements.
All derivatives are reported on the Consolidated Balance
Sheet at fair value. In addition, where applicable, all such
contracts covered by master netting agreements are reported net.
Gross positive fair values are netted with gross negative fair
values by counterparty pursuant to a valid master netting
agreement. In addition, payables and receivables in respect of
cash collateral received from or paid to a given counterparty are
included in this netting. However, non-cash collateral is not
included.
The amounts recognized in Principal transactions in the
Consolidated Statement of Income for the years ended
December 31, 2012, 2011 and 2010 related to derivatives not
designated in a qualifying hedging relationship as well as the
underlying non-derivative instruments are included in the table
below. Citigroup presents this disclosure by business
classification, showing derivative gains and losses related to its
trading activities together with gains and losses related to nonderivative instruments within the same trading portfolios, as this
represents the way these portfolios are risk managed.
In millions of dollars
Interest rate contracts
Foreign exchange
Equity contracts
Commodity and other
Credit derivatives
Total Citigroup (1)
(1)
Accounting for Derivative Hedging
Citigroup accounts for its hedging activities in accordance with
ASC 815, Derivatives and Hedging (formerly SFAS 133). As a
general rule, hedge accounting is permitted where the Company
is exposed to a particular risk, such as interest-rate or foreignexchange risk, that causes changes in the fair value of an asset
or liability or variability in the expected future cash flows of an
existing asset, liability or a forecasted transaction that may
affect earnings.
Derivative contracts hedging the risks associated with the
changes in fair value are referred to as fair value hedges, while
contracts hedging the risks affecting the expected future cash
flows are called cash flow hedges. Hedges that utilize
derivatives or debt instruments to manage the foreign exchange
risk associated with equity investments in non-U.S.-dollarfunctional-currency foreign subsidiaries (net investment in a
foreign operation) are called net investment hedges.
If certain hedging criteria specified in ASC 815 are met,
including testing for hedge effectiveness, special hedge
accounting may be applied. The hedge effectiveness assessment
methodologies for similar hedges are performed in a similar
manner and are used consistently throughout the hedging
relationships. For fair value hedges, the changes in value of the
hedging derivative, as well as the changes in value of the related
hedged item due to the risk being hedged, are reflected in
current earnings. For cash flow hedges and net investment
hedges, the changes in value of the hedging derivative are
reflected in Accumulated other comprehensive income (loss) in
Citigroup’s stockholders’ equity, to the extent the hedge is
effective. Hedge ineffectiveness, in either case, is reflected in
current earnings.
Year ended December 31,
2011
2010
2012
$2,301 $ 5,136 $ 3,231
2,309
1,852
2,403
3
995
158
76
126
92
(290) 1,313
(173)
$4,781 $ 7,234 $ 7,517
Also see Note 7 to the Consolidated Financial Statements.
The amounts recognized in Other revenue in the
Consolidated Statement of Income for the years ended
December 31, 2012, 2011 and 2010 are shown below. The table
below does not include the offsetting gains/losses on the hedged
items, which amounts are also recorded in Other revenue.
Gains (losses) included in Other revenue
Year ended December 31,
2011
2010
2012
In millions of dollars
Interest rate contracts
$1,192
$ (205)
$ (427)
Foreign exchange contracts
224
(2,052)
182
Credit derivatives
115
(502)
(1,022)
(1)
$1,531
$(2,759)
$ (1,267)
Total Citigroup
(1)
Non-designated derivatives are derivative instruments not designated in
qualifying hedging relationships.
110
For asset/liability management hedging, the fixed-rate longterm debt would be recorded at amortized cost under current
U.S. GAAP. However, by electing to use ASC 815 (SFAS 133)
fair value hedge accounting, the carrying value of the debt is
adjusted for changes in the benchmark interest rate, with any
such changes in value recorded in current earnings. The related
interest-rate swap is also recorded on the balance sheet at fair
value, with any changes in fair value reflected in earnings. Thus,
any ineffectiveness resulting from the hedging relationship is
recorded in current earnings. Alternatively, a management
hedge, which does not meet the ASC 815 hedging criteria,
would involve recording only the derivative at fair value on the
balance sheet, with its associated changes in fair value recorded
in earnings. The debt would continue to be carried at amortized
cost and, therefore, current earnings would be impacted only by
the interest rate shifts and other factors that cause the change in
the swap’s value and may change the underlying yield of the
debt. This type of hedge is undertaken when hedging
requirements cannot be achieved or management decides not to
apply ASC 815 hedge accounting. Another alternative for the
Company is to elect to carry the debt at fair value under the fair
value option. Once the irrevocable election is made upon
issuance of the debt, the full change in fair value of the debt
would be reported in earnings. The related interest rate swap,
with changes in fair value, would also be reflected in earnings,
and provides a natural offset to the debt’s fair value change. To
the extent the two offsets are not exactly equal, the difference is
reflected in current earnings.
Key aspects of achieving ASC 815 hedge accounting are
documentation of hedging strategy and hedge effectiveness at
the hedge inception and substantiating hedge effectiveness on an
ongoing basis. A derivative must be highly effective in
accomplishing the hedge objective of offsetting either changes
in the fair value or cash flows of the hedged item for the risk
being hedged. Any ineffectiveness in the hedge relationship is
recognized in current earnings. The assessment of effectiveness
excludes changes in the value of the hedged item that are
unrelated to the risks being hedged. Similarly, the assessment of
effectiveness may exclude changes in the fair value of a
derivative related to time value that, if excluded, are recognized
in current earnings.
Fair Value Hedges
Hedging of benchmark interest rate risk
Citigroup hedges exposure to changes in the fair value of
outstanding fixed-rate issued debt and certificates of deposit.
Depending on the risk management objectives, these types of
hedges are designated as either fair value hedges of only the
benchmark interest rate risk or fair value hedges of both the
benchmark interest rate and foreign exchange risk. The fixed
cash flows from those financing transactions are converted to
benchmark variable-rate cash flows by entering into,
respectively, receive-fixed, pay-variable interest rate swaps or
receive-fixed in non-functional currency, pay variable in
functional currency swaps. These fair value hedge relationships
use either regression or dollar-offset ratio analysis to determine
whether the hedging relationships are highly effective at
inception and on an ongoing basis.
Citigroup also hedges exposure to changes in the fair value
of fixed-rate assets, including available-for-sale debt securities
and loans. When certain interest rates do not qualify as a
benchmark interest rate, Citigroup designates the risk being
hedged as the risk of changes in overall fair value of the hedged
AFS securities. The hedging instruments used are receivevariable, pay-fixed interest rate swaps. These fair value hedging
relationships use either regression or dollar-offset ratio analysis
to determine whether the hedging relationships are highly
effective at inception and on an ongoing basis.
Hedging of foreign exchange risk
Citigroup hedges the change in fair value attributable to foreignexchange rate movements in available-for-sale securities that are
denominated in currencies other than the functional currency of
the entity holding the securities, which may be within or outside
the U.S. The hedging instrument employed is a forward foreignexchange contract. In this type of hedge, the change in fair value
of the hedged available-for-sale security attributable to the
portion of foreign exchange risk hedged is reported in earnings
and not Accumulated other comprehensive income—a process
that serves to offset substantially the change in fair value of the
forward contract that is also reflected in earnings. Citigroup
considers the premium associated with forward contracts
(differential between spot and contractual forward rates) as the
cost of hedging; this is excluded from the assessment of hedge
effectiveness and reflected directly in earnings. The dollar-offset
method is used to assess hedge effectiveness. Since that
assessment is based on changes in fair value attributable to
changes in spot rates on both the available-for-sale securities
and the forward contracts for the portion of the relationship
hedged, the amount of hedge ineffectiveness is not significant.
111
The following table summarizes the gains (losses) on the Company’s fair value hedges for the years ended December 31, 2012, 2011
and 2010:
Gains (losses) on fair value hedges (1)
Year ended December 31,
2011
2010
2012
In millions of dollars
Gain (loss) on derivatives in designated and qualifying fair value hedges
Interest rate contracts
Foreign exchange contracts
Total gain (loss) on derivatives in designated and qualifying fair value hedges
Gain (loss) on the hedged item in designated and qualifying fair value hedges
Interest rate hedges
Foreign exchange hedges
Total gain (loss) on the hedged item in designated and qualifying fair value hedges
Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges
Interest rate hedges
Foreign exchange hedges
Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges
Net gain (loss) excluded from assessment of the effectiveness of fair value hedges
Interest rate contracts
Foreign exchange contracts
Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges
(1)
$ 122
377
$ 499
$ 4,423
(117)
$ 4,306
$
$ (371)
(331)
$ (702)
$ (4,296)
26
$ (4,270)
$ (945)
(579)
$ (1,524)
$ (249)
16
$ (233)
$
$
$
$
$
$
—
30
30
$
118
1
119
9
(92)
(83)
948
729
$ 1,677
$
$
$
(23)
10
(13)
26
140
166
Amounts are included in Other revenue on the Consolidated Statement of Income. The accrued interest income on fair value hedges is recorded in Net interest
revenue and is excluded from this table.
Cash Flow Hedges
Hedging of foreign exchange risk
Citigroup locks in the functional currency equivalent cash flows
of long-term debt and short-term borrowings that are
denominated in a currency other than the functional currency of
the issuing entity. Depending on the risk management
objectives, these types of hedges are designated as either cash
flow hedges of only foreign exchange risk or cash flow hedges
of both foreign exchange and interest rate risk, and the hedging
instruments used are foreign exchange cross-currency swaps and
forward contracts. These cash flow hedge relationships use
dollar-offset ratio analysis to determine whether the hedging
relationships are highly effective at inception and on an ongoing
basis.
Hedging of benchmark interest rate risk
Citigroup hedges variable cash flows resulting from floatingrate liabilities and rollover (re-issuance) of liabilities. Variable
cash flows from those liabilities are converted to fixed-rate cash
flows by entering into receive-variable, pay-fixed interest rate
swaps and receive-variable, pay-fixed forward-starting interest
rate swaps. Citi also hedges variable cash flows from recognized
and forecasted floating-rate assets and origination of short-term
assets. Variable cash flows from those assets are converted to
fixed-rate cash flows by entering into receive-fixed, payvariable interest rate swaps. These cash-flow hedging
relationships use either regression analysis or dollar-offset ratio
analysis to assess whether the hedging relationships are highly
effective at inception and on an ongoing basis. When certain
interest rates do not qualify as a benchmark interest rate,
Citigroup designates the risk being hedged as the risk of overall
changes in the hedged cash flows. Since efforts are made to
match the terms of the derivatives to those of the hedged
forecasted cash flows as closely as possible, the amount of
hedge ineffectiveness is not significant.
Hedging of overall changes in cash flows
Citigroup hedges the overall exposure to variability in cash
flows related to the future acquisition of mortgage-backed
securities using “to be announced” forward contracts. Since the
hedged transaction is the gross settlement of the forward, the
assessment of hedge effectiveness is based on assuring that the
terms of the hedging instrument and the hedged forecasted
transaction are the same.
Hedging total return
Citigroup generally manages the risk associated with leveraged
loans it has originated or in which it participates by transferring
a majority of its exposure to the market through SPEs prior to or
shortly after funding. Retained exposures to leveraged loans
receivable are generally hedged using total return swaps.
The amount of hedge ineffectiveness on the cash flow
hedges recognized in earnings for the years ended December 31,
2012, 2011 and 2010 is not significant.
112
The pretax change in Accumulated other comprehensive income (loss) from cash flow hedges is presented below:
Year ended December 31,
2011
2010
2012
In millions of dollars
Effective portion of cash flow hedges included in AOCI
Interest rate contracts
Foreign exchange contracts
Total effective portion of cash flow hedges included in AOCI
Effective portion of cash flow hedges reclassified from AOCI to earnings
Interest rate contracts
Foreign exchange contracts
Total effective portion of cash flow hedges reclassified from AOCI to earnings (1)
(1)
$ (322)
143
$ (179)
$(1,827)
81
$(1,746)
$ (469)
(570)
$(1,039)
$ (837)
(180)
$ (1,017)
$(1,227)
(257)
$(1,484)
$(1,396)
(500)
$(1,896)
Included primarily in Other revenue and Net interest revenue on the Consolidated Income Statement.
and the U.S. dollar, which is the functional currency of
Citigroup. To the extent the notional amount of the hedging
instrument exactly matches the hedged net investment and the
underlying exchange rate of the derivative hedging instrument
relates to the exchange rate between the functional currency of
the net investment and Citigroup’s functional currency (or, in
the case of a non-derivative debt instrument, such instrument is
denominated in the functional currency of the net investment),
no ineffectiveness is recorded in earnings.
The pretax gain (loss) recorded in the Foreign currency
translation adjustment account within Accumulated other
comprehensive income (loss), related to the effective portion of
the net investment hedges, is $(3,829) million, $904 million, and
$(3,620) million, for the years ended December 31, 2012, 2011,
and 2010, respectively.
For cash flow hedges, any changes in the fair value of the
end-user derivative remaining in Accumulated other
comprehensive income (loss) on the Consolidated Balance Sheet
will be included in earnings of future periods to offset the
variability of the hedged cash flows when such cash flows affect
earnings. The net loss associated with cash flow hedges
expected to be reclassified from Accumulated other
comprehensive income (loss) within 12 months of December 31,
2012 is approximately $1.0 billion. The maximum length of
time over which forecasted cash flows are hedged is 10 years.
The after-tax impact of cash flow hedges on AOCI is shown
in Note 21 to the Consolidated Financial Statements.
Net Investment Hedges
Consistent with ASC 830-20, Foreign Currency Matters—
Foreign Currency Transactions (formerly SFAS 52, Foreign
Currency Translation), ASC 815 allows hedging of the foreign
currency risk of a net investment in a foreign operation.
Citigroup uses foreign currency forwards, options and foreigncurrency-denominated debt instruments to manage the foreign
exchange risk associated with Citigroup’s equity investments in
several non-U.S.-dollar-functional-currency foreign
subsidiaries. Citigroup records the change in the carrying
amount of these investments in the Foreign currency translation
adjustment account within Accumulated other comprehensive
income (loss). Simultaneously, the effective portion of the hedge
of this exposure is also recorded in the Foreign currency
translation adjustment account and the ineffective portion, if
any, is immediately recorded in earnings.
For derivatives designated as net investment hedges,
Citigroup follows the forward-rate method from FASB
Derivative Implementation Group Issue H8 (now ASC 815-3535-16 through 35-26), “Foreign Currency Hedges: Measuring
the Amount of Ineffectiveness in a Net Investment Hedge.”
According to that method, all changes in fair value, including
changes related to the forward-rate component of the foreign
currency forward contracts and the time value of foreign
currency options, are recorded in the Foreign currency
translation adjustment account within Accumulated other
comprehensive income (loss).
For foreign-currency-denominated debt instruments that are
designated as hedges of net investments, the translation gain or
loss that is recorded in the Foreign currency translation
adjustment account is based on the spot exchange rate between
the functional currency of the respective subsidiary
Credit Derivatives
A credit derivative is a bilateral contract between a buyer and a
seller under which the seller agrees to provide protection to the
buyer against the credit risk of a particular entity (“reference
entity” or “reference credit”). Credit derivatives generally
require that the seller of credit protection make payments to the
buyer upon the occurrence of predefined credit events
(commonly referred to as “settlement triggers”). These
settlement triggers are defined by the form of the derivative and
the reference credit and are generally limited to the market
standard of failure to pay on indebtedness and bankruptcy of the
reference credit and, in a more limited range of transactions,
debt restructuring. Credit derivative transactions referring to
emerging market reference credits will also typically include
additional settlement triggers to cover the acceleration of
indebtedness and the risk of repudiation or a payment
moratorium. In certain transactions, protection may be provided
on a portfolio of reference credits or asset-backed securities.
The seller of such protection may not be required to make
payment until a specified amount of losses has occurred with
respect to the portfolio and/or may only be required to pay for
losses up to a specified amount.
The Company makes markets and trades a range of credit
derivatives. Through these contracts, the Company either
purchases or writes protection on either a single name or a
portfolio of reference credits. The Company also uses credit
derivatives to help mitigate credit risk in its Corporate and
Consumer loan portfolios and other cash positions, and to
facilitate client transactions.
113
The following tables summarize the key characteristics of
the Company’s credit derivative portfolio as protection seller as
of December 31, 2012 and December 31, 2011:
The range of credit derivatives sold includes credit default
swaps, total return swaps, credit options and credit-linked notes.
A credit default swap is a contract in which, for a fee, a
protection seller agrees to reimburse a protection buyer for any
losses that occur due to a credit event on a reference entity. If
there is no credit default event or settlement trigger, as defined
by the specific derivative contract, then the protection seller
makes no payments to the protection buyer and receives only
the contractually specified fee. However, if a credit event occurs
as defined in the specific derivative contract sold, the protection
seller will be required to make a payment to the protection
buyer.
A total return swap transfers the total economic
performance of a reference asset, which includes all associated
cash flows, as well as capital appreciation or depreciation. The
protection buyer receives a floating rate of interest and any
depreciation on the reference asset from the protection seller
and, in return, the protection seller receives the cash flows
associated with the reference asset plus any appreciation. Thus,
according to the total return swap agreement, the protection
seller will be obligated to make a payment any time the floating
interest rate payment and any depreciation of the reference asset
exceed the cash flows associated with the underlying asset. A
total return swap may terminate upon a default of the reference
asset subject to the provisions of the related total return swap
agreement between the protection seller and the protection
buyer.
A credit option is a credit derivative that allows investors to
trade or hedge changes in the credit quality of the reference
asset. For example, in a credit spread option, the option writer
assumes the obligation to purchase or sell the reference asset at
a specified “strike” spread level. The option purchaser buys the
right to sell the reference asset to, or purchase it from, the option
writer at the strike spread level. The payments on credit spread
options depend either on a particular credit spread or the price of
the underlying credit-sensitive asset. The options usually
terminate if the underlying assets default.
A credit-linked note is a form of credit derivative structured
as a debt security with an embedded credit default swap. The
purchaser of the note writes credit protection to the issuer, and
receives a return that will be negatively affected by credit events
on the underlying reference credit. If the reference entity
defaults, the purchaser of the credit-linked note may assume the
long position in the debt security and any future cash flows from
it, but will lose the amount paid to the issuer of the credit-linked
note. Thus the maximum amount of the exposure is the carrying
amount of the credit-linked note. As of December 31, 2012 and
December 31, 2011, the amount of credit-linked notes held by
the Company in trading inventory was immaterial.
In millions of dollars as of
December 31, 2012
By industry/counterparty
Bank
Broker-dealer
Non-financial
Insurance and other financial
institutions
Total by industry/counterparty
By instrument
Credit default swaps and options
Total return swaps and other
Total by instrument
By rating
Investment grade
Non-investment grade
Not rated
Total by rating
By maturity
Within 1 year
From 1 to 5 years
After 5 years
Total by maturity
(1)
(2)
Maximum potential
Fair
amount of
value
future payments payable (1)(2)
$ 863,411
304,968
3,241
$ 18,824
9,193
87
174,874
$ 1,346,494
3,726
$ 31,830
$ 1,345,162
1,332
$ 1,346,494
$ 31,624
206
$ 31,830
$ 637,343
200,529
508,622
$ 1,346,494
$ 6,290
15,591
9,949
$ 31,830
$ 287,670
965,059
93,765
$ 1,346,494
$ 2,388
21,542
7,900
$ 31,830
In addition, fair value amounts payable under credit derivatives purchased
were $20,878 million.
In addition, fair value amounts receivable under credit derivatives sold
were $19,710 million.
In millions of dollars as of
December 31, 2011
By industry/counterparty
Bank
Broker-dealer
Non-financial
Insurance and other financial
institutions
Total by industry/counterparty
By instrument
Credit default swaps and options
Total return swaps and other
Total by instrument
By rating
Investment grade
Non-investment grade
Not rated
Total by rating
By maturity
Within 1 year
From 1 to 5 years
After 5 years
Total by maturity
Maximum potential
Fair
amount of
value
future payments payable (1)(2)
$ 929,608
321,293
1,048
$ 45,920
19,026
98
142,579
$ 1,394,528
7,447
$ 72,491
$ 1,393,082
1,446
$ 1,394,528
$ 72,358
133
$ 72,491
$ 611,447
226,939
556,142
$ 1,394,528
$ 16,913
28,034
27,544
$ 72,491
$ 266,723
947,211
180,594
$ 1,394,528
$ 3,705
46,596
22,190
$ 72,491
(1) In addition, fair value amounts payable under credit derivatives purchased
were $12,361 million.
(2) In addition, fair value amounts receivable under credit derivatives sold
were $11,335 million.
114
Citigroup evaluates the payment/performance risk of the
credit derivatives for which it stands as a protection seller based
on the credit rating assigned to the underlying referenced credit.
Where external ratings by nationally recognized statistical rating
organizations (such as Moody’s and S&P) are used, investment
grade ratings are considered to be Baa/BBB or above, while
anything below is considered non-investment grade. The
Citigroup internal ratings are in line with the related external
credit rating system. On certain underlying reference credits,
mainly related to over-the-counter credit derivatives, ratings are
not available, and these are included in the not-rated category.
Credit derivatives written on an underlying non-investment
grade reference credit represent greater payment risk to the
Company. The non-investment grade category in the table above
primarily includes credit derivatives where the underlying
referenced entity has been downgraded subsequent to the
inception of the derivative.
The maximum potential amount of future payments under
credit derivative contracts presented in the table above is based
on the notional value of the derivatives. The Company believes
that the maximum potential amount of future payments for
credit protection sold is not representative of the actual loss
exposure based on historical experience. This amount has not
been reduced by the Company’s rights to the underlying assets
and the related cash flows. In accordance with most credit
derivative contracts, should a credit event (or settlement trigger)
occur, the Company is usually liable for the difference between
the protection sold and the recourse it holds in the value of the
underlying assets. Thus, if the reference entity defaults, Citi will
generally have a right to collect on the underlying reference
credit and any related cash flows, while being liable for the full
notional amount of credit protection sold to the buyer.
Furthermore, this maximum potential amount of future
payments for credit protection sold has not been reduced for any
cash collateral paid to a given counterparty as such payments
would be calculated after netting all derivative exposures,
including any credit derivatives with that counterparty in
accordance with a related master netting agreement. Due to such
netting processes, determining the amount of collateral that
corresponds to credit derivative exposures alone is not possible.
The Company actively monitors open credit risk exposures and
manages this exposure by using a variety of strategies, including
purchased credit derivatives, cash collateral or direct holdings of
the referenced assets. This risk mitigation activity is not
captured in the table above.
Credit-Risk-Related Contingent Features in Derivatives
Certain derivative instruments contain provisions that require
the Company to either post additional collateral or immediately
settle any outstanding liability balances upon the occurrence of a
specified credit-risk-related event. These events, which are
defined by the existing derivative contracts, are primarily
downgrades in the credit ratings of the Company and its
affiliates. The fair value (excluding CVA) of all derivative
instruments with credit-risk-related contingent features that are
in a net liability position at December 31, 2012 and December
31, 2011 is $36 billion and $33 billion, respectively. The
Company has posted $32 billion and $28 billion as collateral for
this exposure in the normal course of business as of December
31, 2012 and December 31, 2011, respectively.
Each downgrade would trigger additional collateral or cash
settlement requirements for the Company and its affiliates. In
the event that each legal entity was downgraded a single notch
by the three rating agencies as of December 31, 2012, the
Company would be required to post an additional $4.0 billion,
as either collateral or settlement of the derivative transactions.
Additionally, the Company would be required to segregate with
third-party custodians collateral previously received from
existing derivative counterparties in the amount of $1.1 billion
upon the single notch downgrade, resulting in aggregate cash
obligations and collateral requirements of approximately $5.1
billion.
115
24. CONCENTRATIONS OF CREDIT RISK
25. FAIR VALUE MEASUREMENT
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to Citigroup’s total credit exposure. Although
Citigroup’s portfolio of financial instruments is broadly
diversified along industry, product, and geographic lines,
material transactions are completed with other financial
institutions, particularly in the securities trading, derivatives and
foreign exchange businesses.
In connection with the Company’s efforts to maintain a
diversified portfolio, the Company limits its exposure to any one
geographic region, country or individual creditor and monitors
this exposure on a continuous basis. At December 31, 2012,
Citigroup’s most significant concentration of credit risk was
with the U.S. government and its agencies. The Company’s
exposure, which primarily results from trading assets and
investments issued by the U.S. government and its agencies,
amounted to $190.7 billion and $177.9 billion at December 31,
2012 and 2011, respectively. The Japanese and Mexican
governments and their agencies, which are rated investment
grade by both Moody’s and S&P, were the next largest
exposures. The Company’s exposure to Japan amounted to
$38.7 billion and $33.2 billion at December 31, 2012 and 2011,
respectively, and was composed of investment securities, loans
and trading assets. The Company’s exposure to Mexico
amounted to $33.6 billion and $29.5 billion at December 31,
2012 and 2011, respectively, and was composed of investment
securities, loans and trading assets.
The Company’s exposure to states and municipalities
amounted to $35.8 billion and $39.5 billion at December 31,
2012 and 2011, respectively, and was composed of trading
assets, investment securities, derivatives and lending activities.
ASC 820-10 (formerly SFAS 157) Fair Value Measurement,
defines fair value, establishes a consistent framework for
measuring fair value and requires disclosures about fair value
measurements. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. Among other things, the standard requires
the Company to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value.
Under ASC 820-10, the probability of default of a
counterparty is factored into the valuation of derivative
positions and includes the impact of Citigroup’s own credit risk
on derivatives and other liabilities measured at fair value.
Fair Value Hierarchy
ASC 820-10 specifies a hierarchy of inputs based on whether
the inputs are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while
unobservable inputs reflect the Company’s market assumptions.
These two types of inputs have created the following fair value
hierarchy:
•
•
•
Level 1: Quoted prices for identical instruments in active
markets.
Level 2: Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations
in which all significant inputs and significant value drivers
are observable in active markets.
Level 3: Valuations derived from valuation techniques in
which one or more significant inputs or significant value
drivers are unobservable.
This hierarchy requires the use of observable market data
when available. The Company considers relevant and
observable market prices in its valuations where possible. The
frequency of transactions, the size of the bid-ask spread and the
amount of adjustment necessary when comparing similar
transactions are all factors in determining the liquidity of
markets and the relevance of observed prices in those markets.
The Company’s policy with respect to transfers between
levels of the fair value hierarchy is to recognize transfers into
and out of each level as of the end of the reporting period.
Determination of Fair Value
For assets and liabilities carried at fair value, the Company
measures such value using the procedures set out below,
irrespective of whether these assets and liabilities are carried at
fair value as a result of an election or whether they are required
to be carried at fair value.
When available, the Company generally uses quoted market
prices to determine fair value and classifies such items as Level
1. In some cases where a market price is available, the Company
will make use of acceptable practical expedients (such as matrix
pricing) to calculate fair value, in which case the items are
classified as Level 2.
116
Bilateral or “own” credit-risk adjustments are applied to
reflect the Company’s own credit risk when valuing derivatives
and liabilities measured at fair value. Counterparty and own
credit adjustments consider the expected future cash flows
between Citi and its counterparties under the terms of the
instrument and the effect of credit risk on the valuation of those
cash flows, rather than a point-in-time assessment of the current
recognized net asset or liability. Furthermore, the credit-risk
adjustments take into account the effect of credit-risk mitigants,
such as pledged collateral and any legal right of offset (to the
extent such offset exists) with a counterparty through
arrangements such as netting agreements.
Generally, the unit of account for a financial instrument is
the individual financial instrument. The Company applies
market valuation adjustments that are consistent with the unit of
account, which does not include adjustment due to the size of
the Company’s position, except as follows. ASC 820-10 permits
an exception, through an accounting policy election, to measure
the fair value of a portfolio of financial assets and financial
liabilities on the basis of the net open risk position when certain
criteria are met. Citi has elected to measure certain portfolios of
financial instruments, such as derivatives, that meet those
criteria on the basis of the net open risk position. The Company
applies market valuation adjustments, including adjustments to
account for the size of the net open risk position, consistent with
market participant assumptions and in accordance with the unit
of account.
If quoted market prices are not available, fair value is based
upon internally developed valuation techniques that use, where
possible, current market-based parameters, such as interest rates,
currency rates, option volatilities, etc. Items valued using such
internally generated valuation techniques are classified
according to the lowest level input or value driver that is
significant to the valuation. Thus, an item may be classified as
Level 3 even though there may be some significant inputs that
are readily observable.
The Company may also apply a price-based methodology,
which utilizes, where available, quoted prices or other market
information obtained from recent trading activity in positions
with the same or similar characteristics to the position being
valued. The market activity and the amount of the bid-ask
spread are among the factors considered in determining the
liquidity of markets and the relevance of observed prices from
those markets. If relevant and observable prices are available,
those valuations may be classified as Level 2. When less
liquidity exists for a security or loan, a quoted price is stale, a
significant adjustment to the price of a similar security is
necessary to reflect differences in the terms of the actual
security or loan being valued, or prices from independent
sources are insufficient to corroborate the valuation, the “price”
inputs are considered unobservable and the fair value
measurements are classified as Level 3.
Fair value estimates from internal valuation techniques are
verified, where possible, to prices obtained from independent
vendors or brokers. Vendors and brokers’ valuations may be
based on a variety of inputs ranging from observed prices to
proprietary valuation models.
The following section describes the valuation
methodologies used by the Company to measure various
financial instruments at fair value, including an indication of the
level in the fair value hierarchy in which each instrument is
generally classified. Where appropriate, the description includes
details of the valuation models, the key inputs to those models
and any significant assumptions.
Valuation Process for Level 3 Fair Value Measurements
Price verification procedures and related internal control
procedures are governed by the Citigroup Pricing and Price
Verification Policy and Standards, which is jointly owned by
Finance and Risk Management. Finance has implemented the
ICG Securities and Banking Pricing and Price Verification
Standards and Procedures to facilitate compliance with this
policy.
For fair value measurements of substantially all assets and
liabilities held by the Company, individual business units are
responsible for valuing the trading account assets and liabilities,
and Product Control within Finance performs independent price
verification procedures to evaluate those fair value
measurements. Product Control is independent of the individual
business units and reports into the Global Head of Product
Control. It has the final authority over the independent valuation
of financial assets and liabilities. Fair value measurements of
assets and liabilities are determined using various techniques,
including, but not limited to, discounted cash flows and internal
models, such as option and correlation models.
Based on the observability of inputs used, Product Control
classifies the inventory as Level 1, Level 2 or Level 3 of the fair
value hierarchy. When a position involves one or more
significant inputs that are not directly observable, additional
price verification procedures are applied. These procedures may
include reviewing relevant historical data, analyzing profit and
loss, valuing each component of a structured trade individually,
and benchmarking, among others.
Market valuation adjustments
Liquidity adjustments are applied to items in Level 2 and Level
3 of the fair value hierarchy to ensure that the fair value reflects
the liquidity or illiquidity of the market. The liquidity reserve
may utilize the bid-offer spread for an instrument as one of the
factors.
Counterparty credit-risk adjustments are applied to
derivatives, such as over-the-counter uncollateralized
derivatives, where the base valuation uses market parameters
based on the relevant base interest rate curves. Not all
counterparties have the same credit risk as that implied by the
relevant base curve, so it is necessary to consider the market
view of the credit risk of a counterparty in order to estimate the
fair value of such an item.
117
quoted prices or other market information obtained from recent
trading activity of assets with similar characteristics to the bond
or loan being valued. The yields used in discounted cash flow
models are derived from the same price information. Trading
securities and loans priced using such methods are generally
classified as Level 2. However, when less liquidity exists for a
security or loan, a quoted price is stale, a significant adjustment
to the price of a similar security or loan is necessary to reflect
differences in the terms of the actual security or loan being
valued, or prices from independent sources are insufficient to
corroborate valuation, a loan or security is generally classified
as Level 3. The price input used in a price-based methodology
may be zero for a security, such as a subprime CDO, that is not
receiving any principal or interest and is currently written down
to zero.
Where the Company’s principal market for a portfolio of
loans is the securitization market, the Company uses the
securitization price to determine the fair value of the portfolio.
The securitization price is determined from the assumed
proceeds of a hypothetical securitization in the current market,
adjusted for transformation costs (i.e., direct costs other than
transaction costs) and securitization uncertainties such as market
conditions and liquidity. As a result of the severe reduction in
the level of activity in certain securitization markets since the
second half of 2007, observable securitization prices for certain
directly comparable portfolios of loans have not been readily
available. Therefore, such portfolios of loans are generally
classified as Level 3 of the fair value hierarchy. However, for
other loan securitization markets, such as commercial real estate
loans, pricing verification of the hypothetical securitizations has
been possible, since these markets have remained active.
Accordingly, this loan portfolio is classified as Level 2 of the
fair value hierarchy.
Reports of inventory that is classified within Level 3 of the
fair value hierarchy are distributed to senior management in
Finance, Risk and the individual business. This inventory is also
discussed in Risk Committees and in monthly meetings with
senior trading management. As deemed necessary, reports may
go to the Audit Committee of the Board of Directors or to the
full Board of Directors. Whenever a valuation adjustment is
needed to bring the price of an asset or liability to its exit price,
Product Control reports it to management along with other price
verification results.
In addition, the pricing models used in measuring fair value
are governed by an independent control framework. Although
the models are developed and tested by the individual business
units, they are independently validated by the Model Validation
Group within Risk Management and reviewed by Finance with
respect to their impact on the price verification procedures. The
purpose of this independent control framework is to assess
model risk arising from models’ theoretical soundness,
calibration techniques where needed, and the appropriateness of
the model for a specific product in a defined market. Valuation
adjustments, if any, go through a similar independent review
process as the valuation models. To ensure their continued
applicability, models are independently reviewed annually. In
addition, Risk Management approves and maintains a list of
products permitted to be valued under each approved model for
a given business.
Securities purchased under agreements to resell and securities
sold under agreements to repurchase
No quoted prices exist for such instruments, so fair value is
determined using a discounted cash-flow technique. Cash flows
are estimated based on the terms of the contract, taking into
account any embedded derivative or other features. Expected
cash flows are discounted using interest rates appropriate to the
maturity of the instrument as well as the nature of the
underlying collateral. Generally, when such instruments are held
at fair value, they are classified within Level 2 of the fair value
hierarchy, as the inputs used in the valuation are readily
observable. However, certain long-dated positions are classified
within Level 3 of the fair value hierarchy.
Trading account assets and liabilities—derivatives
Exchange-traded derivatives are generally measured at fair
value using quoted market (i.e., exchange) prices and are
classified as Level 1 of the fair value hierarchy.
The majority of derivatives entered into by the Company
are executed over the counter and are valued using internal
valuation techniques, as no quoted market prices exist for such
instruments. The valuation techniques and inputs depend on the
type of derivative and the nature of the underlying instrument.
The principal techniques used to value these instruments are
discounted cash flows and internal models, including BlackScholes and Monte Carlo simulation. The fair values of
derivative contracts reflect cash the Company has paid or
received (for example, option premiums paid and received).
The key inputs depend upon the type of derivative and the
nature of the underlying instrument and include interest rate
yield curves, foreign-exchange rates, volatilities and correlation.
The Company uses overnight indexed swap (OIS) curves as fair
value measurement inputs for the valuation of certain
collateralized interest-rate related derivatives. The instrument is
classified as either Level 2 or Level 3 depending upon the
observability of the significant inputs to the model.
Trading account assets and liabilities—trading securities and
trading loans
When available, the Company uses quoted market prices to
determine the fair value of trading securities; such items are
classified as Level 1 of the fair value hierarchy. Examples
include some government securities and exchange-traded equity
securities.
For bonds and secondary market loans traded over the
counter, the Company generally determines fair value utilizing
valuation techniques, including discounted cash flows, pricebased and internal models, such as Black-Scholes and Monte
Carlo simulation. Fair value estimates from these internal
valuation techniques are verified, where possible, to prices
obtained from independent vendors. Vendors compile prices
from various sources and may apply matrix pricing for similar
bonds or loans where no price is observable. A price-based
methodology utilizes, where available,
118
Alt-A mortgage securities
The Company classifies its Alt-A mortgage securities as heldto-maturity, available-for-sale and trading investments. The
securities classified as trading and available-for-sale are
recorded at fair value with changes in fair value reported in
current earnings and AOCI, respectively. For these purposes,
Citi defines Alt-A mortgage securities as non-agency residential
mortgage-backed securities (RMBS) where (i) the underlying
collateral has weighted average FICO scores between 680 and
720 or (ii) for instances where FICO scores are greater than 720,
RMBS have 30% or less of the underlying collateral composed
of full documentation loans.
Similar to the valuation methodologies used for other
trading securities and trading loans, the Company generally
determines the fair values of Alt-A mortgage securities utilizing
internal valuation techniques. Fair value estimates from internal
valuation techniques are verified, where possible, to prices
obtained from independent vendors. Consensus data providers
compile prices from various sources. Where available, the
Company may also make use of quoted prices for recent trading
activity in securities with the same or similar characteristics to
the security being valued.
The valuation techniques used for Alt-A mortgage
securities, as with other mortgage exposures, are price-based
and discounted cash flows. The primary market-derived input is
yield. Cash flows are based on current collateral performance
with prepayment rates and loss projections reflective of current
economic conditions of housing price change, unemployment
rates, interest rates, borrower attributes and other market
indicators.
Alt-A mortgage securities that are valued using these
methods are generally classified as Level 2. However, Alt-A
mortgage securities backed by Alt-A mortgages of lower quality
or subordinated tranches in the capital structure are mostly
classified as Level 3 due to the reduced liquidity that exists for
such positions, which reduces the reliability of prices available
from independent sources.
Subprime-related direct exposures in CDOs
The valuation of high-grade and mezzanine asset-backed
security (ABS) CDO positions utilizes prices based on the
underlying assets of each high-grade and mezzanine ABS CDO.
The high-grade and mezzanine positions are largely hedged
through the ABX and bond short positions. This results in closer
symmetry in the way these long and short positions are valued
by the Company. Citigroup uses trader marks to value this
portion of the portfolio and will do so as long as it remains
largely hedged.
For most of the lending and structuring direct subprime
exposures, fair value is determined utilizing observable
transactions where available, other market data for similar assets
in markets that are not active and other internal valuation
techniques.
Investments
The investments category includes available-for-sale debt and
marketable equity securities, whose fair value is generally
determined by utilizing similar procedures described for trading
securities above or, in some cases, using consensus pricing as
the primary source.
Also included in investments are nonpublic investments in
private equity and real estate entities held by the S&B business.
Determining the fair value of nonpublic securities involves a
significant degree of management resources and judgment, as no
quoted prices exist and such securities are generally very thinly
traded. In addition, there may be transfer restrictions on private
equity securities. The Company uses an established process for
determining the fair value of such securities, utilizing commonly
accepted valuation techniques, including comparables analysis.
In determining the fair value of nonpublic securities, the
Company also considers events such as a proposed sale of the
investee company, initial public offerings, equity issuances or
other observable transactions. As discussed in Note 15 to the
Consolidated Financial Statements, the Company uses net asset
value (NAV) to value certain of these investments.
Private equity securities are generally classified as Level 3
of the fair value hierarchy.
Short-term borrowings and long-term debt
Where fair value accounting has been elected, the fair value of
non-structured liabilities is determined by utilizing internal
models using the appropriate discount rate for the applicable
maturity. Such instruments are generally classified as Level 2 of
the fair value hierarchy, as all inputs are readily observable.
The Company determines the fair value of structured
liabilities (where performance is linked to structured interest
rates, inflation or currency risks) and hybrid financial
instruments (where performance is linked to risks other than
interest rates, inflation or currency risks) using the appropriate
derivative valuation methodology (described above) given the
nature of the embedded risk profile. Such instruments are
classified as Level 2 or Level 3 depending on the observability
of significant inputs to the model.
119
to other financial instruments (hedging instruments) that have
been classified as Level 3, but also instruments classified as
Level 1 or Level 2 of the fair value hierarchy. The effects of
these hedges are presented gross in the following table.
Items Measured at Fair Value on a Recurring Basis
The following tables present for each of the fair value hierarchy
levels the Company’s assets and liabilities that are measured at
fair value on a recurring basis at December 31, 2012 and 2011.
The Company’s hedging of positions that have been classified in
the Level 3 category is not limited
Fair Value Levels
In millions of dollars at December 31, 2012
Assets
Federal funds sold and securities borrowed or
purchased under agreements to resell
Trading securities
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total trading mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Total trading securities
Trading account derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading account derivatives
Gross cash collateral paid
Netting agreements and market value
adjustments
Total trading account derivatives
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total investment mortgage-backed securities
U.S. Treasury and federal agency securities
Level 1 (1)
$
—
Level 2 (1)
Level 3
Gross
inventory
Netting (2)
$
$ 198,278
$ 5,043
$ 203,321
—
—
—
$
—
$15,416
—
57,831
—
54,640
—
—
$127,887
29,835
1,663
1,322
$ 32,820
$
4,940
3,611
31,097
33,194
2,094
899
15,944
$ 124,599
1,325
1,805
1,119
$ 4,249
$
—
195
311
2,030
264
4,453
2,321
$ 13,823
31,160
3,468
2,441
$ 37,069
$ 20,356
3,806
89,239
35,224
56,998
5,352
18,265
$ 266,309
$
2
18
2,359
410
—
$ 2,789
$ 901,809
75,712
14,193
9,802
50,109
$1,051,625
$ 1,710
902
1,741
695
4,166
$ 9,214
$ 903,521
76,632
18,293
10,907
54,275
$1,063,628
61,152
$ 2,789
$1,051,625
$ 9,214
$1,124,780
$(1,070,160)
$(1,070,160)
$
$
$ 1,458
205
—
$ 1,663
$
12
$
$
46
—
—
$
46
$13,204
$
$
45,841
7,472
449
53,762
78,625
See footnotes on the next page.
120
$
$
47,345
7,677
449
55,471
91,841
$
$
$
$
$
(42,732)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Net
balance
$160,589
31,160
3,468
2,441
$ 37,069
$ 20,356
3,806
89,239
35,224
56,998
5,352
18,265
$266,309
$ 54,620
$ 47,345
7,677
449
$ 55,471
$ 91,841
In millions of dollars at December 31, 2012
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity securities
Total investments
Loans (3)
Mortgage servicing rights
Nontrading derivatives and other financial
assets measured on a recurring basis, gross
Gross cash collateral paid
Netting agreements and market value
adjustments
Nontrading derivatives and other financial
assets measured on a recurring basis
Total assets
Total as a percentage of gross assets (4)
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned
or sold under agreements to repurchase
Trading account liabilities
Securities sold, not yet purchased
Trading account derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading account derivatives
Gross cash collateral received
Netting agreements and market value
adjustments
Total trading account derivatives
Short-term borrowings
Long-term debt
Nontrading derivatives and other financial
liabilities measured on a recurring basis,
gross
Gross cash collateral received
Netting agreements and market value
adjustments
Nontrading derivatives and other financial
liabilities measured on a recurring basis
Total liabilities
Total as a percentage of gross liabilities (4)
(1)
(2)
(3)
(4)
Level 1 (1)
$
—
36,048
—
4,037
—
—
—
$ 53,335
$
—
—
$
—
Level 2 (1)
$ 17,483
57,616
9,289
132
11,910
—
404
$ 229,221
$
356
—
$
15,293
Level 3
$ 849
383
385
773
2,220
258
5,364
$11,907
$ 4,931
1,942
$ 2,452
Gross
inventory
$ 18,332
94,047
9,674
4,942
14,130
258
5,768
$ 294,463
$
5,287
1,942
$
Netting (2)
$
—
—
—
—
—
—
—
$
—
$
—
—
Net
balance
$ 18,332
94,047
9,674
4,942
14,130
258
5,768
$294,463
$ 5,287
1,942
17,745
214
$
(4,660)
$
—
$184,011
9.9%
$ 15,293
$1,619,372
87.4%
$ 2,452
$49,312
2.7%
$ 17,959
$
(4,660)
$1,914,061
$ (1,117,552)
100.0%
$ 13,299
$796,509
$
$
$
$
$
—
661
786
1,447
—
158,580
841
159,421
55,145
8,288
365
63,798
1
10
2,664
317
—
2,992
891,138
81,209
26,014
10,359
47,792
$1,056,512
1,529
902
3,189
1,466
4,508
$11,594
892,668
82,121
31,867
12,142
52,300
$1,071,098
46,833
$
2,992
—
—
$1,056,512
706
23,038
$11,594
112
6,726
$1,117,931
818
29,764
$
—
$
$
$
$
$
2,228
24
$
(42,732)
$
2,228
$1,250,013
94.1%
$
24
$20,448
1.5%
1,447
116,689
63,798
$ (1,066,180)
$ (1,066,180)
—
—
$ 51,751
818
29,764
2,252
5,318
$
$
—
$ 58,137
4.4%
—
(4,660)
$
7,570
$
(4,660)
$1,380,749
$ (1,113,572)
100.0%
$ 2,910
$267,177
For the year ended December 31, 2012, the Company transferred assets of $1.7 billion from Level 1 to Level 2, primarily related to foreign government bonds,
which were not traded with enough frequency to constitute an active market. During the year ended December 31, 2012, the Company transferred assets of $1.2
billion from Level 2 to Level 1 primarily related to foreign government bonds, which were traded with sufficient frequency to constitute an active market. During
the year ended December 31, 2012, the Company transferred liabilities of $70 million, from Level 1 to Level 2, and liabilities of $150 million from Level 2 to
Level 1.
Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to
repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement, cash collateral and the market value adjustment.
There is no allowance for loan losses recorded for loans reported at fair value.
Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives.
121
Fair Value Levels
In millions of dollars at December 31, 2011
Assets
Federal funds sold and securities borrowed or
purchased under agreements to resell
Trading securities
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total trading mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Total trading securities
Trading account derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading account derivatives
Gross cash collateral paid
Netting agreements and market value
adjustments
Total trading account derivatives
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total investment mortgage-backed securities
U.S. Treasury and federal agency securities
Level 1
$
Level 2
Level 3
Gross
inventory
Netting (1)
Net
balance
—
$188,034
$ 4,701
$ 192,735
$ (49,873)
$142,862
—
—
—
$
—
$ 15,612
—
52,429
—
29,707
—
—
$ 97,748
$ 26,674
1,362
1,715
$ 29,751
$ 3,784
5,112
26,601
33,786
3,279
1,270
12,284
$115,867
$
861
1,509
618
$ 2,988
$
3
252
521
3,240
244
5,801
2,743
$ 15,792
$
27,535
2,871
2,333
$ 32,739
$ 19,399
5,364
79,551
37,026
33,230
7,071
15,027
$ 229,407
$
$ 27,535
2,871
2,333
$ 32,739
$ 19,399
5,364
79,551
37,026
33,230
7,071
15,027
$229,407
$
67
—
2,240
958
—
$ 3,265
$755,473
93,536
16,376
11,940
81,123
$958,448
$ 1,947
781
1,619
865
9,301
$ 14,513
$ 757,487
94,317
20,235
13,763
90,424
$ 976,226
57,815
$ 3,265
$958,448
$ 14,513
$1,034,041
$(971,714)
$(971,714)
$
$ 45,043
4,764
472
$ 50,279
$ 73,421
$
$
$
$
59
—
—
$
59
$ 11,642
See footnotes on the next page.
122
$
$
679
8
—
687
75
$
$
45,781
4,772
472
51,025
85,138
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 62,327
$ 45,781
4,772
472
$ 51,025
$ 85,138
In millions of dollars at December 31, 2011
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity securities
Total investments
Loans (2)
Mortgage servicing rights
Nontrading derivatives and other financial assets
measured on a recurring basis, gross
Gross cash collateral paid
Netting agreements and market value adjustments
Nontrading derivatives and other financial assets
measured on a recurring basis
Total assets
Total as a percentage of gross assets (3)
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or
sold under agreements to repurchase
Trading account liabilities
Securities sold, not yet purchased
Trading account derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading account derivatives
Gross cash collateral received
Netting agreements and market value adjustments
Total trading account derivatives
Short-term borrowings
Long-term debt
Nontrading derivatives and other financial
liabilities measured on a recurring basis, gross
Gross cash collateral received
Netting agreements and market value adjustments
Nontrading derivatives and other financial
liabilities measured on a recurring basis
Total liabilities
Total as a percentage of gross liabilities (3)
(1)
(2)
(3)
Level 1
$
—
33,544
—
6,634
—
—
—
$ 51,879
$
—
—
Level 2
$ 13,732
50,523
9,268
98
6,962
563
518
$ 205,364
$
583
—
$
$
—
14,270
Level 3
$ 667
447
989
1,453
4,041
120
8,318
$ 16,797
$ 4,682
2,569
$ 2,245
Gross
inventory
$ 14,399
84,514
10,257
8,185
11,003
683
8,836
$ 274,040
$
5,265
2,569
$
Netting (1)
$
—
—
—
—
—
—
—
$
—
$
—
—
Net
balance
$ 14,399
84,514
10,257
8,185
11,003
683
8,836
$274,040
$ 5,265
2,569
16,515
307
$
(3,462)
$
—
$152,892
9.0%
$ 14,270
$1,482,566
87.4%
$ 2,245
$61,299
3.6%
$ 16,822 $
(3,462)
$1,754,879 $(1,025,049)
100.0%
$ 13,360
$729,830
$
$
$
$
$
—
895
431
1,326
—
146,524
1,061
147,585
58,456
10,941
412
69,809
$
37
—
2,822
873
—
$ 3,732
$ 738,833
96,020
26,961
11,959
77,153
$ 950,926
$ 1,221
1,343
3,356
1,799
7,573
$15,292
$ 740,091
97,363
33,139
14,631
84,726
$ 969,950
52,811
$ 3,732
—
—
$ 950,926
855
17,268
$15,292
499
6,904
$1,022,761
1,354
24,172
$
$
$
$
$
—
3,559
3
$
(49,873)
$
3,559
$1,130,968
92.9%
$
3
$24,602
2.0%
1,326
97,712
69,809
$ (966,488)
$ (966,488)
—
—
$ 56,273
1,354
24,172
3,562
3,642
$
$
—
$ 62,188
5.1%
—
(3,462)
$
7,204
$
(3,462)
$1,274,211 $(1,019,823)
100.0%
$ 3,742
$254,388
Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to
repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement, cash collateral and the market value adjustment.
There is no allowance for loan losses recorded for loans reported at fair value.
Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives.
123
The Company often hedges positions with offsetting
positions that are classified in a different level. For example, the
gains and losses for assets and liabilities in the Level 3 category
presented in the tables below do not reflect the effect of
offsetting losses and gains on hedging instruments that have
been classified by the Company in the Level 1 and Level 2
categories. In addition, the Company hedges items classified in
the Level 3 category with instruments also classified in Level 3
of the fair value hierarchy. The effects of these hedges are
presented gross in the following tables.
Changes in Level 3 Fair Value Category
The following tables present the changes in the Level 3 fair
value category for the years ended December 31, 2012 and 2011.
The Company classifies financial instruments as Level 3 of the
fair value hierarchy when there is reliance on at least one
significant unobservable input to the valuation model. In
addition to these unobservable inputs, the valuation models for
Level 3 financial instruments typically also rely on a number of
inputs that are readily observable either directly or indirectly.
The gains and losses presented below include changes in the fair
value related to both observable and unobservable inputs.
Level 3 Fair Value Rollforward
In millions of dollars
Net realized/unrealized
gains (losses) included in Transfers Transfers
Dec. 31, Principal
Into
out of
2011 transactions Other (1)(2) Level 3 Level 3 Purchases Issuances
Assets
Federal funds sold
and securities
borrowed or
purchased under
agreements to
$ 4,701
resell
Trading securities
Trading
mortgagebacked
securities
U.S.
governmentsponsored
agency
guaranteed
861
Residential
1,509
Commercial
618
Total trading
mortgage-backed
$ 2,988
securities
U.S. Treasury
and federal
agency
$
3
securities
State and
$ 252
municipal
Foreign
521
government
3,240
Corporate
244
Equity securities
Asset-backed
5,801
securities
Other debt
2,743
securities
Total trading
$ 15,792
securities
Trading derivatives,
net (4)
Interest rate
contracts
$ 726
Foreign exchange
contracts
(562)
Equity contracts
(1,737)
Commodity
contracts
(934)
$ 306
38
204
(32)
$—
$ 540 $ (444)
—
—
—
1,294
848
327
$
—
(735)
(499)
(305)
657
1,652
1,056
$— $
79
—
—
Sales
—
Unrealized
gains
Dec. 31,
(losses)
Settlements 2012 still held (3)
$
(735)
(1,897)
(545)
(60) $ 5,043
(134)
(12)
—
$ 317
1,325
1,805
1,119
(16)
(27)
28
$ 210
$—
$ 2,469 $(1,539)
$ 3,365
$ 79 $ (3,177)
$ (146) $ 4,249
$
(15)
$
—
$—
$
— $
—
$
13
$— $
(16)
$
—
$
—
$
—
$
24
$—
$
19 $
(18)
$
61
$— $
(143)
$
—
$
195
$
(2)
25
(90)
(25)
—
—
—
89
464
121
(875)
(558)
(47)
960
2,622
231
—
—
—
(409)
(1,942)
(192)
—
(1,706)
(68)
311
2,030
264
5
(28)
(5)
503
—
222
(114)
6,873
—
(7,823)
(1,009)
4,453
(173)
—
1,126
(2,089)
2,954
—
(2,092)
(313)
2,321
376
(8)
$ 639
$—
$ 4,510 $(5,240)
$17,079
$ 79 $ (15,794)
$ (3,242) $13,823
$ 158
$ (101)
$—
$ 682 $ (438)
$
$— $
(194)
$ (805) $
181
$ (298)
—
(1,448)
(190)
(506)
311
440
326
—
—
(1)
(34)
25
443
196
428
—
—
(213)
(657)
115
(217)
145
—
(66)
5
100
—
(89)
68
124
(771)
114
Credit derivatives
1,728
Total trading
derivatives, net (4) $ (779)
Investments
Mortgage-backed
securities
U.S.
governmentsponsored
agency
guaranteed $ 679
Residential
8
Commercial
—
Total investment
mortgagebacked
$ 687
securities
U.S. Treasury
and federal
agency
$
75
securities
State and
667
municipal
Foreign
447
government
989
Corporate
1,453
Equity securities
Asset-backed
4,041
securities
Other debt
120
securities
Non-marketable
equity
8,318
securities
Total investments $ 16,797
(2,355)
—
32
(188)
117
$(1,545)
$—
$ 613
$ (153)
$ 1,152
$
—
—
—
$ 7
6
—
$ 894
205
—
$(3,742)
(6)
(11)
$
—
$ 13
$1,099
$
—
$—
$
—
$
(342)
(692)
$ — $ (1,164)
$ (504) $ (2,380)
$(1,572)
$ 3,622
46
11
$— $
—
—
—
(54)
—
$
(2) $ 1,458
—
205
—
—
$
43
—
—
$(3,759)
$ 3,679
$— $
(54)
$
(2) $ 1,663
$
43
75
$ (150)
$
$— $
—
$
—
$
—
12
129
(153)
412
—
(218)
—
849
(20)
—
—
—
20
(6)
119
193
68
—
(297)
(698)
—
519
224
—
—
—
—
(387)
(144)
(308)
(112)
(48)
(491)
383
385
773
1
8
(34)
—
(98)
—
(730)
930
—
(77)
(1,846)
2,220
1
—
(53)
—
—
310
—
(118)
(1)
258
—
—
—
453
$460
—
$1,564
(1,300)
5,364
$ (3,800) $11,907
313
$ 312
—
$(5,787)
125
12
1,266
$ 7,352
—
(11)
—
(3,373)
$ — $ (4,679)
335
$
12
Net realized/unrealized
gains (losses) included in Transfers Transfers
Dec. 31, Principal
into
out of
transactions Other (1)(2) Level 3
Level 3 Purchases Issuances
In millions of dollars 2011
$ 4,682
Loans
$ —
$ (34)
$ 1,051 $ (185)
$301
$ 930
Mortgage
servicing
2,569
rights
—
(426)
—
—
2
421
Other financial
assets
measured on a
2,245
recurring basis
—
366
21
(35)
4
1,700
Liabilities
Interest-bearing
$ 431
deposits
$ —
$(141)
$ 213 $ (36)
$—
$ 268
Federal funds
purchased and
securities
loaned or sold
under
agreements to
1,061
repurchase
(64)
—
—
(14)
—
—
Trading account
liabilities
Securities sold,
not yet
purchased
412
(1)
—
294
(47)
—
—
Short-term
499
borrowings
(108)
—
47
(20)
—
268
6,904
Long-term debt
98
119
2,548
(2,694)
—
2,480
Other financial
liabilities
measured on a
3
2
(2)
(4)
6
recurring basis
—
(31)
(1)
(2)
(3)
(4)
Unrealized
gains
Dec. 31, (losses)
Sales Settlements 2012 still held (3)
$ (251)
$ (1,563) $ 4,931
$ 156
$
(5)
(619)
1,942
(427)
(50)
(1,799)
2,452
101
—
$ (231) $ 786
$ (414)
(179)
(91)
841
43
216
(511)
365
(42)
—
—
(790)
(2,295)
112
6,726
(57)
(688)
—
(12)
24
(13)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss), unless other-thantemporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of
Income.
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income.
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value
for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31,
2012 and 2011.
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.
126
In millions of dollars
Assets
Federal funds sold and
securities borrowed or
purchased under
agreements to resell
Trading securities
Trading mortgagebacked securities
U.S. governmentsponsored agency
guaranteed
Residential
Commercial
Total trading mortgagebacked securities
U.S. Treasury and
federal agencies
securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Total trading securities
Trading derivatives, net (4)
Interest rate contracts
Foreign exchange
contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives,
net (4)
Investments
Mortgage-backed
securities
U.S. governmentsponsored agency
guaranteed
Residential
Commercial
Total investment
mortgage-backed
securities
U.S. Treasury and
federal agencies
securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity
securities
Total investments
Net realized/unrealized Transfers
gains (losses) included in into and/or
Dec. 31,
Principal
out of
2010
transactions Other (1)(2) Level 3 Purchases Issuances
$ 4,911
$
$
$ —
$ (300)
$
—
$—
$
$ (62)
148
33
$ —
—
—
$ 169
(138)
345
$
677
4,150
418
$ 73
—
—
$
(686)
(4,901)
(570)
$ (141) $ 861
(78) 1,509
(26)
618
$ (100)
118
(57)
$ 3,577
$ 119
$ —
$ 376
$ 5,245
$ 73
$ (6,157)
$ (245) $ 2,988
$
$
$
72
208
566
5,004
776
7,620
1,833
$ 19,656
$
$
9
67
(33)
(60)
(202)
128
(179)
$ (151)
$ —
$ —
—
—
—
—
—
$ —
$ (45)
$ 102
(243)
1,452
(145)
606
(17)
$2,086
$
8
$ 1,128
1,556
3,272
191
5,198
2,810
$19,408
$—
$—
—
—
—
—
—
$ 73
$
(41)
$ (1,243)
(797)
(3,864)
(376)
(6,069)
(1,700)
$ (20,247)
$
$
— $
3
(10) $ 252
(528)
521
(2,564) 3,240
—
244
(1,682) 5,801
(4) 2,743
$ (5,033) $15,792
$
$
$ (730)
$ (242)
$ —
$1,549
$
111
$—
$
$
$
(336)
(1,639)
(1,023)
2,296
(134)
471
426
520
—
—
—
—
(62)
(28)
(83)
183
11
362
2
8
—
—
—
—
$ (1,432)
$1,041
$ —
$1,559
$
494
$—
$
22
167
527
$
—
—
—
$ (22)
(2)
(4)
$ 416
(109)
(513)
$
270
7
42
$
716
$
—
$ (28)
$ (206)
$
$
17
504
358
525
2,055
5,424
727
$
—
—
—
—
—
—
—
$ —
(10)
13
(106)
(38)
43
26
$
$
—
—
862
$ 762
(886)
$ (768)
831
2,328
418
6,960
$ 17,286
$
90
Sales
60
(59)
(21)
199
(31)
55
121
127
—
Unrealized
gains
Dec. 31, (losses)
Settlements 2011 still held (3)
(21)
$
— $ 4,701
59 $
726
$
89
(39)
—
(35)
(22)
(680)
(143)
(779)
68
$ (1,630)
52
(3)
(242)
(104)
(1)
(38)
(562)
(661) (1,737)
(152)
(934)
(1,278) 1,728
$
(371)
$ (2,070) $ (779)
$
380
$—
—
—
$
(7)
(54)
(52)
$
— $
(1)
—
679
8
—
$
(38)
—
—
319
$—
$
(113)
$
(1) $
687
$
(38)
—
324
352
732
—
106
35
$—
—
—
—
—
—
—
$
(2)
(92)
(67)
(56)
(84)
(460)
(289)
$
— $
75
—
667
(188)
447
(305)
989
(449) 1,453
(1,127) 4,041
(500)
120
$
—
(20)
6
6
—
5
(2)
4,881
$ 6,749
—
$—
(1,838)
$ (3,001)
(1,661) 8,318
$ (4,231) $16,797
(100)
(1,139)
(48)
1,615
$
580
537
Dec. 31,
2010
$3,213
Loans
4,554
Mortgage servicing rights
Other financial assets
measured on a
$2,509
recurring basis
Liabilities
$ 277
Interest-bearing deposits
Federal funds purchased
and securities loaned or
sold under agreements
1,261
to repurchase
Trading account liabilities
Securities sold, not yet
purchased
187
802
Short-term borrowings
8,494
Long-term debt
Other financial liabilities
measured on a
19
recurring basis
In millions of dollars
(1)
(2)
(3)
(4)
Net realized/unrealized Transfers
gains (losses) included in into and/or
Principal
out of
transactions Other (1)(2) Level 3 Purchases Issuances
$—
$ (309)
$ 425
$ 250
$2,002
—
(1,465)
—
—
408
$—
$
109
$ (90)
$ 57
$ 553
$ (172)
$ (721) $ 2,245
$
112
$—
$
86
$ (72)
$ —
$ 325
$ —
$
$
(76)
(22)
—
45
—
—
48
190
160
—
—
266
438
(220)
(509)
—
—
—
—
551
1,485
—
(19)
1
13
7
•
•
•
•
(117)
413
—
—
(1)
(13) $
431
(150)
1,061
(64)
(578)
(444)
(2,140)
412
499
6,904
42
39
(225)
(55)
3
(3)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss) unless other-thantemporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of
Income.
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income. See Note 15 to the Consolidated Financial Statements
for a discussion of other-than-temporary impairment.
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value
for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31,
2012 and 2011.
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.
Level 2 were the result of Citi’s conforming and refining
the application of the fair value level classification
methodologies to certain structured debt instruments
containing embedded derivatives, as well as certain
underlying market inputs becoming less or more
observable.
In addition, 2012 included sales of non-marketable equity
securities classified as Investments of $2.8 billion relating to the
sale of EMI Music and EMI Music Publishing.
The following were the significant Level 3 transfers for the
period December 31, 2010 to December 31, 2011:
Level 3 Fair Value Rollforward
The following were the significant Level 3 transfers for the
period December 31, 2011 to December 31, 2012:
•
Unrealized
gains
Dec. 31, (losses)
Sales
Settlements 2011 still held (3)
$ (85)
$ (814) $ 4,682 $ (265)
(212)
(716)
2,569
(1,465)
Transfers of U.S. government-sponsored agency guaranteed
mortgage-backed securities in Trading account assets of
$1.3 billion from Level 2 to Level 3 primarily due to a
decrease in observability of prices.
Transfers of other debt trading securities from Level 2 to
Level 3 of $1.1 billion, the majority of which consisted of
trading loans for which there were a reduced number of
market quotations.
Transfers of other debt trading securities from Level 3 to
Level 2 of $2.1 billion included $1.0 billion transferred to
Level 2 primarily as a result of an increased volume of
market quotations, and a majority of the remaining amount
relates to positions that were reclassified as Level 3
positions within Loans to conform with the balance sheet
presentation. The reclassification has also been reflected as
transfers into Level 3 within loans in the roll-forward table
above.
Transfers of $3.7 billion of U.S. government-sponsored
agency guaranteed mortgage-backed securities in
Investments from Level 3 to Level 2 consisting mainly of
securities that were newly issued during the year. At
issuance, these securities had limited trading activity and
were previously classified as Level 3. As trading activity in
these securities increased and pricing became observable,
these positions were transferred to Level 2.
Transfers of Long-term debt in the amounts of $2.5 billion
from Level 2 to Level 3 and $2.7 billion from Level 3 to
•
•
Transfers of corporate debt trading securities of $1.5 billion
from Level 2 to Level 3 due primarily to less price
transparency for the securities.
Transfers of Loans from Level 2 to Level 3 of $0.4 billion,
due to a lack of observable prices for certain loans.
In addition to the Level 3 transfers, the Level 3 roll-forward
table above for the period December 31, 2010 to December 31,
2011 included:
•
128
The reclassification of $4.3 billion of securities from
Investments held-to-maturity to Trading account assets.
These reclassifications have been included in purchases in
the Level 3 roll-forward table above. The Level 3 assets
reclassified, and subsequently sold, included $2.8 billion of
trading mortgage-backed securities (of which $1.5 billion
were Alt-A, $1.0 billion were prime, $0.2 billion were
subprime and $0.1 billion were commercial), $0.9 billion of
•
state and municipal debt securities, $0.3 billion of corporate
debt securities and $0.2 billion of asset-backed securities.
Purchases of non-marketable equity securities classified as
Investments included approximately $2.8 billion relating to
Citi’s acquisition of the share capital of Maltby
Acquisitions Limited, the holding company that controls
EMI Group Ltd. (which were sold in 2012).
Valuation Techniques and Inputs for Level 3 Fair Value
Measurements
The Company’s Level 3 inventory consists of both cash
securities and derivatives of varying complexities. The valuation
methodologies applied to measure the fair value of these
positions include discounted cash flow analyses, internal models
and comparative analysis. A position is classified within Level 3
of the fair value hierarchy when at least one input is
unobservable and is considered significant to its valuation. The
specific reason an input is deemed unobservable varies. For
example, at least one significant input to the pricing model is
not observable in the market, at least one significant input has
been adjusted to make it more representative of the position
being valued, or the price quote available does not reflect
sufficient trading activities.
The following table presents the valuation techniques
covering the majority of Level 3 inventory and the most
significant unobservable inputs used in Level 3 fair value
measurements as of December 31, 2012. Differences between
this table and amounts presented in the Level 3 Fair Value
Rollforward table represent individually immaterial items that
have been measured using a variety of valuation techniques
other than those listed.
129
Valuation Techniques and Inputs for Level 3 Fair Value Measurements
Fair Value (1)
(in millions)
Assets
Federal funds sold and securities
borrowed or purchased under
agreements to resell
Trading and investment securities
Mortgage-backed securities
$ 4,786 Cash flow
$ 4,416
1,231
787
$ 792
147
Asset-backed securities
$ 4,253
1,775
561
Non-marketable equity
$ 2,768
1,803
709
Foreign exchange contracts (gross)
Interest rate
Price
Yield
Prepayment period
Price-based
Price
Cash flow
Yield
Yield analysis
Credit spread
Cash flow
Yield
Price-based
Prepayment period
Price
Price-based
Price
Internal model
Yield
Cash flow
Credit correlation
Weighted average life
(WAL)
Price-based
Fund NAV
Comparables analysis EBITDA multiples
Price-to-book ratio
Cash flow
Discount to price
$ 3,202 Internal model
$ 1,542 Internal model
Equity contracts (gross) (5)
$ 4,669 Internal model
Commodity contracts (gross)
$ 2,160 Internal model
Credit derivatives (gross)
$ 4,777 Internal model
3,886 Price-based
Nontrading derivatives and other financial
assets and liabilities measured on a
recurring basis (gross) (4)
Loans
$ 2,000 External model
461 Internal model
Mortgage servicing rights
$ 2,447
1,423
888
$ 1,858
Low (2)(3)
Input
$ 4,402 Price-based
1,148 Yield analysis
State and municipal, foreign
government, corporate and other
debt securities
Equity securities
Derivatives – Gross (4)
Interest rate contracts (gross)
Methodology
Price-based
Yield analysis
Internal model
Cash flow
130
Interest rate (IR)-IR
correlation
Credit spread
IR volatility
Interest rate
Foreign exchange (FX)
volatility
IR-FX correlation
Credit spread
Equity volatility
Equity forward
Equity-equity correlation
Forward price
Commodity correlation
Commodity volatility
Price
Recovery rate
Credit correlation
Credit spread
Upfront points
Price
Redemption rate
Price
Credit spread
Yield
Prepayment period
High (2)(3)
1.09%
$
1.50%
0.00
0.00%
2.16 years
$
0.00
0.00%
35 bps
9.00%
3 years
$
0.00
$
0.00
0.00%
15.00%
135.00
25.84%
7.84 years
$
159.63
30.00%
300 bps
10.00%
3 years
$
750.00
$
136.63
27.00%
90.00%
0.34 years
1.00
4.70
0.77
0.00%
16.07 years
$456,773,838
14.39
1.50
75.00%
$
$
$
$
$
(98.00)%
0 bps
0.09%
0%
90.00%
550.27 bps
100.00%
15.00%
3.20%
40.00%
0 bps
1.00%
74.94%
1.00%
37.45%
(77.00)%
5.00%
0.00
$
6.50%
5.00%
0 bps
3.62
100.00
$
30.79%
67.35%
60.00%
376 bps
185.20%
132.70%
99.90%
181.50%
95.00%
148.00%
121.16
78.00%
99.00%
2,236 bps
100.00
100.00
99.50%
0.00
$
55 bps
103.32
600.19 bps
0.00%
2.16 years
53.19%
7.84 years
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold
under agreements to repurchase
Trading account liabilities
Securities sold, not yet purchased
Short-term borrowings and long-term debt
(1)
(3)
(4)
(5)
$ 785
Internal model
Equity volatility
Forward price
Commodity correlation
Commodity volatility
11.13%
67.80%
(76.00)%
5.00%
$ 841
Internal model
Interest rate
$ 265
75
$ 5,067
1,112
649
Internal model
Price-based
Internal model
Price-based
Yield analysis
Price
$
Price
Equity volatility
Equity forward
Equity-equity correlation
Equity-FX correlation
$
0.33%
0.00
0.00
12.40%
75.40%
1.00%
(80.50)%
86.10%
182.00%
95.00%
148.00%
4.91%
$166.47
$121.16
185.20%
132.70%
99.90%
50.40%
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities. (2) Some inputs are
shown as zero due to rounding.
When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to one large
position only.
Both trading and nontrading account derivatives—assets and liabilities—are presented on a gross absolute value basis.
Includes hybrid products.
highly correlated instruments produce larger losses in the event
of default and a part of these losses would become attributable
to the senior tranche. That same change in default correlation
would have a different impact on junior tranches of the same
structure.
Sensitivity to Unobservable Inputs and Interrelationships
between Unobservable Inputs
The impact of key unobservable inputs on the Level 3 fair value
measurements may not be independent of one another. In
addition, the amount and direction of the impact on a fair value
measurement for a given change in an unobservable input
depends on the nature of the instrument as well as whether the
Company holds the instrument as an asset or a liability. For
certain instruments, the pricing hedging and risk management
are sensitive to the correlation between various inputs rather
than on the analysis and aggregation of the individual inputs.
The following section describes the sensitivities and
interrelationships of the most significant unobservable inputs
used by the Company in Level 3 fair value measurements.
Volatility
Volatility represents the speed and severity of market price
changes and is a key factor in pricing options. Typically,
instruments can become more expensive if volatility increases.
For example, as an index becomes more volatile, the cost to Citi
of maintaining a given level of exposure increases because more
frequent rebalancing of the portfolio is required. Volatility
generally depends on the tenor of the underlying instrument and
the strike price or level defined in the contract. Volatilities for
certain combinations of tenor and strike are not observable. The
general relationship between changes in the value of a portfolio
to changes in volatility also depends on changes in interest rates
and the level of the underlying index. Generally, long option
positions (assets) benefit from increases in volatility, whereas
short option positions (liabilities) will suffer losses. Some
instruments are more sensitive to changes in volatility than
others. For example, an at-the-money option would experience a
larger percentage change in its fair value than a deep-in-themoney option. In addition, the fair value of an option with more
than one underlying security (for example, an option on a basket
of bonds) depends on the volatility of the individual underlying
securities as well as their correlations.
Correlation
Correlation is a measure of the co-movement between two or
more variables. A variety of correlation-related assumptions are
required for a wide range of instruments, including equity and
credit baskets, foreign-exchange options, CDOs backed by loans
or bonds, mortgages, subprime mortgages and many other
instruments. For almost all of these instruments, correlations are
not observable in the market and must be estimated using
historical information. Estimating correlation can be especially
difficult where it may vary over time. Extracting correlation
information from market data requires significant assumptions
regarding the informational efficiency of the market (for
example, swaption markets). Changes in correlation levels can
have a major impact, favorable or unfavorable, on the value of
an instrument, depending on its nature. A change in the default
correlation of the fair value of the underlying bonds comprising
a CDO structure would affect the fair value of the senior
tranche. For example, an increase in the default correlation of
the underlying bonds would reduce the fair value of the senior
tranche, because
Yield
Adjusted yield is generally used to discount the projected future
principal and interest cash flows on instruments, such as assetbacked securities. Adjusted yield is impacted by changes in the
interest rate environment and relevant credit spreads.
131
Sometimes, the yield of an instrument is not observable in
the market and must be estimated from historical data or from
yields of similar securities. This estimated yield may need to be
adjusted to capture the characteristics of the security being
valued. In other situations, the estimated yield may not represent
sufficient market liquidity and must be adjusted as well.
Whenever the amount of the adjustment is significant to the
value of the security, the fair value measurement is classified as
Level 3.
Qualitative Discussion of the Ranges of Significant
Unobservable Inputs
The following section describes the ranges of the most
significant unobservable inputs used by the Company in Level 3
fair value measurements. The level of aggregation and the
diversity of instruments held by the Company lead to a wide
range of unobservable inputs that may not be evenly distributed
across the Level 3 inventory.
Correlation
There are many different types of correlation inputs, including
credit correlation, cross-asset correlation (such as equity-interest
rate correlation), and same-asset correlation (such as interest
rate-interest rate correlation). Correlation inputs are generally
used to value hybrid and exotic instruments. Generally, sameasset correlation inputs have a narrower range than cross-asset
correlation inputs. However, due to the complex and unique
nature of these instruments, the ranges for correlation inputs can
vary widely across portfolios.
Prepayment
Voluntary unscheduled payments (prepayments) change the
future cash flows for the investor and thereby change the fair
value of the security. The effect of prepayments is more
pronounced for residential mortgage-backed securities. An
increase in prepayment—in speed or magnitude—generally
creates losses for the holder of these securities. Prepayment is
generally negatively correlated with delinquency and interest
rate. A combination of low prepayment and high delinquencies
amplify each input’s negative impact on mortgage securities’
valuation. As prepayment speeds change, the weighted average
life of the security changes, which impacts the valuation either
positively or negatively, depending upon the nature of the
security and the direction of the change in the weighted average
life.
Volatility
Similar to correlation, asset-specific volatility inputs vary
widely by asset type. For example, ranges for foreign exchange
volatility are generally lower and narrower than equity
volatility. Equity volatilities are wider due to the nature of the
equities market and the terms of certain exotic instruments. For
most instruments, the interest rate volatility input is on the lower
end of the range; however, for certain structured or exotic
instruments (such as market-linked deposits or exotic interest
rate derivatives), the range is much wider.
Recovery
Recovery is the proportion of the total outstanding balance of a
bond or loan that is expected to be collected in a liquidation
scenario. For many credit securities (such as asset-backed
securities), there is no directly observable market input for
recovery, but indications of recovery levels are available from
pricing services. The assumed recovery of a security may differ
from its actual recovery that will be observable in the future.
The recovery rate impacts the valuation of credit securities.
Generally, an increase in the recovery rate assumption increases
the fair value of the security. An increase in loss severity, the
inverse of the recovery rate, reduces the amount of principal
available for distribution and, as a result, decreases the fair
value of the security.
Yield
Ranges for the yield inputs vary significantly depending upon
the type of security. For example, securities that typically have
lower yields, such as municipal bonds, will fall on the lower end
of the range, while more illiquid securities or securities with
lower credit quality, such as certain residual tranche assetbacked securities, will have much higher yield inputs.
Credit Spread
Credit spread is relevant primarily for fixed income and credit
instruments; however, the ranges for the credit spread input can
vary across instruments. For example, certain fixed income
instruments, such as certificates of deposit, typically have lower
credit spreads, whereas certain derivative instruments with highrisk counterparties are typically subject to higher credit spreads
when they are uncollateralized or have a longer tenor. Other
instruments, such as credit default swaps, also have credit
spreads that vary with the attributes of the underlying obligor.
Stronger companies have tighter credit spreads, and weaker
companies have wider credit spreads.
Credit Spread
Credit spread is a component of the security representing its
credit quality. Credit spread reflects the market perception of
changes in prepayment, delinquency and recovery rates,
therefore capturing the impact of other variables on the fair
value. Changes in credit spread affect the fair value of securities
differently depending on the characteristics and maturity profile
of the security. For example, credit spread is a more significant
driver of the fair value measurement of a high yield bond as
compared to an investment grade bond. Generally, the credit
spread for an investment grade bond is also more observable
and less volatile than its high yield counterpart.
132
The following table presents the carrying amounts of all
assets that were still held as of December 31, 2012 and 2011,
and for which a nonrecurring fair value measurement was
recorded during the year then ended:
Price
The price input is a significant unobservable input for certain
fixed income instruments. For these instruments, the price input
is expressed as a percentage of the notional amount, with a price
of $100 meaning that the instrument is valued at par. For most
of these instruments, the price varies between zero to $100, or
slightly above $100. Relatively illiquid assets that have
experienced significant losses since issuance, such as certain
asset-backed securities, are at the lower end of the range,
whereas most investment grade corporate bonds will fall in the
middle to the higher end of the range. For certain structured debt
instruments with embedded derivatives, the price input may be
above $100 to reflect the embedded features of the instrument
(for example, a step-up coupon or a conversion option). For the
following classes of fixed income instruments, the weighted
average price input below provides insight regarding the central
tendencies of the ranges of this input reported for each
instrument class as of December 31, 2012:
Mortgage-backed securities
State and municipal, foreign government, corporate, and other
debt securities
Asset-backed securities
Loans
Short-term borrowings and long-term debt
In millions of dollars
December 31, 2012
Loans held-for-sale
Other real estate owned
Loans (1)
Other assets (2)
Total assets at fair value on a
nonrecurring basis
(1)
(2)
$86.02
December 31, 2011
Loans held-for-sale
Other real estate owned
Loans (1)
Total assets at fair value on a
nonrecurring basis
The price input is also a significant unobservable input for
certain equity securities; however, the range of price inputs
varies depending on the nature of the position, the number of
shares outstanding and other factors. Because of these factors,
the weighted average price input for equity securities does not
provide insight regarding the central tendencies of the ranges for
equity securities, as equity prices are generally independent of
one another and are not subject to a common measurement scale
(for example, the zero to $100 range applicable to debt
instruments).
(1)
Level 3
$ 2,647
201
5,732
4,725
$ 1,159
22
5,160
4,725
$ 1,488
179
572
—
$ 13,305
$11,066
$2,239
Represents impaired loans held for investment whose carrying amount is
based on the fair value of the underlying collateral, including primarily
real-estate secured loans.
Represents Citi’s remaining 35% investment in the Morgan Stanley Smith
Barney joint venture whose carrying amount is the agreed purchase price.
See Note 15 to the Consolidated Financial Statements.
In millions of dollars
90.95
79.71
91.25
93.38
Fair value Level 2
Fair value Level 2
Level 3
$2,644
271
3,911
$1,668
88
3,185
$ 976
183
726
$6,826
$4,941
$1,885
Represents impaired loans held for investment whose carrying amount is
based on the fair value of the underlying collateral, including primarily
real-estate secured loans.
The fair value of loans-held-for-sale is determined where
possible using quoted secondary-market prices. If no such
quoted price exists, the fair value of a loan is determined using
quoted prices for a similar asset or assets, adjusted for the
specific attributes of that loan. Fair value for the other real estate
owned is based on appraisals. For loans whose carrying amount
is based on the fair value of the underlying collateral, the fair
values depend on the type of collateral. Fair value of the
collateral is typically estimated based on quoted market prices if
available, appraisals or other internal valuation techniques.
Where the fair value of the related collateral is based on an
unadjusted appraised value, the loan is generally classified as
Level 2. Where significant adjustments are made to the
appraised value, the loan is classified as Level 3. Additionally,
for corporate loans, appraisals of the collateral are often based
on sales of similar assets; however, because the prices of similar
assets require significant adjustments to reflect the unique
features of the underlying collateral, these fair value
measurements are generally classified as Level 3.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a
nonrecurring basis and therefore are not included in the tables
above. These include assets measured at cost that have been
written down to fair value during the periods as a result of an
impairment. In addition, these assets include loans held-for-sale
and other real estate owned that are measured at the lower of
cost or market (LOCOM).
133
Valuation Techniques and Inputs for Level 3 Nonrecurring Fair Value Measurements
The following table presents the valuation techniques covering the majority of Level 3 nonrecurring fair value measurements and the
most significant unobservable inputs used in those measurements as of December 31, 2012:
Fair Value (1)
(in millions)
Loans held-for-sale
Other real estate owned
Loans (3)
(1)
(2)
(3)
$747
485
174
165
351
111
Methodology
Price-based
External model
Recovery analysis
Price-based
Price-based
Internal model
In millions of dollars
Loans held-for-sale
Other real estate owned
Loans (1)
Other assets (2)
Total nonrecurring fair value gains (losses)
(2)
Low
63.42
$
40 bps
11.00%
39,774
25.00%
$6,272,242
6.00%
$
High
100.00
40 bps
50.00%
$15,457,452
34.00%
$86,200,000
16.49%
Estimated Fair Value of Financial Instruments Not Carried
at Fair Value
The table below presents the carrying value and fair value of
Citigroup’s financial instruments which are not carried at fair
value. The table below therefore excludes items measured at fair
value on a recurring basis presented in the tables above.
The disclosure also excludes leases, affiliate investments,
pension and benefit obligations and insurance policy claim
reserves. In addition, contract-holder fund amounts exclude
certain insurance contracts. Also, as required, the disclosure
excludes the effect of taxes, any premium or discount that could
result from offering for sale at one time the entire holdings of a
particular instrument, excess fair value associated with deposits
with no fixed maturity, and other expenses that would be
incurred in a market transaction. In addition, the table excludes
the values of non-financial assets and liabilities, as well as a
wide range of franchise, relationship and intangible values,
which are integral to a full assessment of Citigroup’s financial
position and the value of its net assets.
The fair value represents management’s best estimates
based on a range of methodologies and assumptions. The
carrying value of short-term financial instruments not accounted
for at fair value, as well as receivables and payables arising in
the ordinary course of business, approximates fair value because
of the relatively short period of time between their origination
and expected realization. Quoted market prices are used when
available for investments and for liabilities, such as long-term
debt not carried at fair value. For loans not accounted for at fair
value, cash flows are discounted at quoted secondary market
rates or estimated market rates if available. Otherwise, sales of
comparable loan portfolios or current market origination rates
for loans with similar terms and risk characteristics are used.
Expected credit losses are either embedded in the estimated
future cash flows or incorporated as an adjustment to the
discount rate used. The value of collateral is also considered.
For liabilities such as long-term debt not accounted for at fair
value and without quoted market prices, market borrowing rates
of interest are used to discount contractual cash flows.
December 31, 2012
$ (19)
(29)
(1,489)
(3,340)
$ (4,877)
Represents loans held for investment whose carrying amount is based on
the fair value of the underlying collateral, including primarily real-estate
loans.
Includes the recognition of a $3,340 million impairment charge related to
the carrying value of Citi's remaining 35% interest in the Morgan Stanley
Smith Barney joint venture. See Note 15 to the Consolidated Financial
Statements.
In millions of dollars
Loans held-for-sale
Other real estate owned
Loans (1)
Total nonrecurring fair value gains (losses)
(1)
Discount to price
Price (2)
Discount to price
Price (2)
Discount rate
$
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.
Prices are based on appraised values.
Represents loans held for investment whose carrying amounts are based on the fair value of the underlying collateral.
Nonrecurring Fair Value Changes
The following table presents total nonrecurring fair value
measurements for the period, included in earnings, attributable
to the change in fair value relating to assets that are still held at
December 31, 2012 and 2011:
(1)
Input
Price
Credit spread
December 31, 2011
$ (201)
(71)
(973)
$(1,245)
Represents loans held for investment whose carrying amount is based on
the fair value of the underlying collateral, including primarily real-estate
loans.
134
December 31, 2012
Carrying value Estimated fair value
In billions of dollars
Assets
Investments
Federal funds sold and securities borrowed or purchased under
agreements to resell
Loans (1)(2)
Other financial assets (2)(3)
Liabilities
Deposits
Federal funds purchased and securities loaned or sold under
agreements to repurchase
Long-term debt (4)
Other financial liabilities (5)
In billions of dollars
Assets
Investments
Federal funds sold and securities borrowed or
purchased under agreements to resell
Loans (1)(2)
Other financial assets (2)(3)
Liabilities
Deposits
Federal funds purchased and securities loaned
or sold
under agreements to repurchase
Long-term debt (4)
Other financial liabilities (5)
(1)
(2)
(3)
(4)
(5)
Estimated fair value
Level 1
Level 2
Level 3
$ 17.9
$ 18.4
$ 3.0
$ 14.3
$
1.1
100.7
621.9
192.8
100.7
612.2
192.8
—
—
11.4
94.8
4.2
128.3
5.9
608.0
53.1
$ 929.1
$ 927.4
$ —
$748.7
$178.7
94.5
209.7
139.0
94.5
215.3
139.0
—
—
—
94.4
177.0
31.1
0.1
38.3
107.9
December 31, 2011
Carrying Estimated
value
fair value
$ 19.4
$ 18.4
133.0
609.3
245.7
133.0
598.7
245.7
$864.6
$864.5
100.7
299.3
141.1
100.7
289.7
141.1
The carrying value of loans is net of the Allowance for loan losses of $25.5 billion for December 31, 2012 and $30.1 billion for December 31, 2011. In addition,
the carrying values exclude $2.8 billion and $2.5 billion of lease finance receivables at December 31, 2012 and December 31, 2011, respectively.
Includes items measured at fair value on a nonrecurring basis.
Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverable and other financial instruments included in Other assets on
the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.
The carrying value includes long-term debt balances carried at fair value under fair value hedge accounting.
Includes brokerage payables, separate and variable accounts, short-term borrowings (carried at cost) and other financial instruments included in Other liabilities
on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.
The estimated fair values of the Company’s corporate
unfunded lending commitments at December 31, 2012 and
December 31, 2011 were liabilities of $4.9 billion and $4.7
billion, respectively, which are substantially fair valued at Level
3. The Company does not estimate the fair values of consumer
unfunded lending commitments, which are generally cancelable
by providing notice to the borrower.
Fair values vary from period to period based on changes in
a wide range of factors, including interest rates, credit quality
and market perceptions of value, and as existing assets and
liabilities run off and new transactions are entered into. The
estimated fair values of loans reflect changes in credit status
since the loans were made, changes in interest rates in the case
of fixed-rate loans, and premium values at origination of certain
loans. The carrying values (reduced by the Allowance for loan
losses) exceeded the estimated fair values of Citigroup’s loans,
in aggregate, by $9.7 billion and by $10.6 billion at December
31, 2012 and December 31, 2011, respectively. At December
31, 2012, the carrying values, net of allowances, exceeded the
estimated fair values by $7.4 billion and $2.3 billion for
Consumer loans and Corporate loans, respectively.
135
26. FAIR VALUE ELECTIONS
The Company may elect to report most financial instruments
and certain other items at fair value on an instrument-byinstrument basis with changes in fair value reported in earnings.
The election is made upon the acquisition of an eligible
financial asset, financial liability or firm commitment or when
certain specified reconsideration events occur. The fair value
election may not be revoked once an election is made. The
changes in fair value are recorded in current earnings.
Additional discussion regarding the applicable areas in which
fair value elections were made is presented in Note 25 to the
Consolidated Financial Statements.
All servicing rights are recognized initially at fair value.
The Company has elected fair value accounting for its mortgage
servicing rights. See Note 22 to the Consolidated Financial
Statements for further discussions regarding the accounting and
reporting of MSRs.
The following table presents, as of December 31, 2012 and
2011, the fair value of those positions selected for fair value
accounting, as well as the changes in fair value gains and losses
for the years ended December 31, 2012 and 2011:
Fair value at
December 31,
2011
2012
In millions of dollars
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell
Selected portfolios of securities purchased under agreements to resell and
securities borrowed (1)
Trading account assets
Investments
Loans
Certain Corporate loans (2)
Certain Consumer loans (2)
Total loans
Other assets
MSRs
Certain mortgage loans held for sale
Certain equity method investments
Total other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under agreements to
repurchase
Selected portfolios of securities sold under agreements to repurchase and
securities loaned (1)
Trading account liabilities
Short-term borrowings
Long-term debt
Total liabilities
(1)
(2)
Changes in fair value gains
(losses) for the years
ended December 31,
2011
2012
$160,589
17,206
443
$142,862
14,179
526
$ (409)
838
(50)
$ (138)
(1,775)
233
4,056
1,231
5,287
3,939
1,326
5,265
77
(104)
$ (27)
82
(281)
$ (199)
1,942
6,879
22
$ 8,843
$192,368
2,569
6,213
47
$ 8,829
$171,661
$ (427)
350
3
$ (74)
$ 278
$(1,465)
172
(17)
$(1,310)
$(3,189)
$
$
1,326
$ (218)
$
97,712
1,763
1,354
24,172
$126,327
66
(143)
(2)
(2,225)
$(2,522)
(108)
872
(15)
1,611
$ 2,467
$
$
1,447
116,689
1,461
818
29,764
$150,179
$
$
Reflects netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to
repurchase.
Includes mortgage loans held by mortgage loan securitization VIEs consolidated upon the adoption of SFAS 167 on January 1, 2010.
136
107
Own Debt Valuation Adjustments for Structured Debt
Own debt valuation adjustments are recognized on Citi’s debt
liabilities for which the fair value option has been elected using
Citi’s credit spreads observed in the bond market. The fair value
of debt liabilities for which the fair value option is elected (other
than non-recourse and similar liabilities) is impacted by the
narrowing or widening of the Company’s credit spreads. The
estimated change in the fair value of these debt liabilities due to
such changes in the Company’s own credit risk (or instrumentspecific credit risk) was a loss of $2,009 million and a gain of
$1,774 million for the years ended December 31, 2012 and 2011,
respectively. Changes in fair value resulting from changes in
instrument-specific credit risk were estimated by incorporating
the Company’s current credit spreads observable in the bond
market into the relevant valuation technique used to value each
liability as described above.
Selected letters of credit and revolving loans hedged by credit
default swaps or participation notes
The Company has elected the fair value option for certain letters
of credit that are hedged with derivative instruments or
participation notes. Citigroup elected the fair value option for
these transactions because the risk is managed on a fair value
basis and mitigates accounting mismatches.
There was no notional amount of these unfunded letters of
credit at December 31, 2012 and $0.6 billion at December 31,
2011. The amount funded was insignificant with no amounts 90
days or more past due or on non-accrual status at December 31,
2012 and 2011.
These items have been classified in Trading account assets
or Trading account liabilities on the Consolidated Balance
Sheet. Changes in fair value of these items are classified in
Principal transactions in the Company’s Consolidated
Statement of Income.
The Fair Value Option for Financial Assets and Financial
Liabilities
Certain loans and other credit products
Citigroup has elected the fair value option for certain originated
and purchased loans, including certain unfunded loan products,
such as guarantees and letters of credit, executed by Citigroup’s
lending and trading businesses. None of these credit products
are highly leveraged financing commitments. Significant groups
of transactions include loans and unfunded loan products that
are expected to be either sold or securitized in the near term, or
transactions where the economic risks are hedged with
derivative instruments such as purchased credit default swaps or
total return swaps where the Company pays the total return on
the underlying loans to a third party. Citigroup has elected the
fair value option to mitigate accounting mismatches in cases
where hedge accounting is complex and to achieve operational
simplifications. Fair value was not elected for most lending
transactions across the Company, including where management
objectives would not be met.
Selected portfolios of securities purchased under agreements
to resell, securities borrowed, securities sold under agreements
to repurchase, securities loaned and certain non-collateralized
short-term borrowings
The Company elected the fair value option for certain portfolios
of fixed-income securities purchased under agreements to resell
and fixed-income securities sold under agreements to repurchase,
securities borrowed, securities loaned (and certain noncollateralized short-term borrowings) on broker-dealer entities
in the United States, United Kingdom and Japan. In each case,
the election was made because the related interest-rate risk is
managed on a portfolio basis, primarily with derivative
instruments that are accounted for at fair value through earnings.
Changes in fair value for transactions in these portfolios are
recorded in Principal transactions. The related interest revenue
and interest expense are measured based on the contractual rates
specified in the transactions and are reported as interest revenue
and expense in the Consolidated Statement of Income.
Certain investments in unallocated precious metals
Citigroup invests in unallocated precious metals accounts (gold,
silver, platinum and palladium) as part of its commodity trading
business or to economically hedge certain exposures from
issuing structured liabilities. Under ASC 815, the investment is
bifurcated into a debt host contract and a commodity forward
derivative instrument. Citigroup elects the fair value option for
the debt host contract, and reports the debt host contract within
Trading account assets on the Company’s Consolidated Balance
Sheet. The total carrying amount of debt host contracts across
unallocated precious metals accounts at December 31, 2012 was
approximately $5.5 billion. The amounts are expected to
fluctuate based on trading activity in the future periods.
137
The following table provides information about certain credit products carried at fair value at December 31, 2012 and 2011:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of (less than) fair value
Balance of non-accrual loans or loans more than 90 days past due
Aggregate unpaid principal balance in excess of fair value for non-accrual
loans or loans more than 90 days past due
In addition to the amounts reported above, $1,891 million
and $648 million of unfunded loan commitments related to
certain credit products selected for fair value accounting were
outstanding as of December 31, 2012 and 2011, respectively.
Changes in fair value of funded and unfunded credit
products are classified in Principal transactions in the
Company’s Consolidated Statement of Income. Related interest
revenue is measured based on the contractual interest rates and
reported as Interest revenue on Trading account assets or loan
interest depending on the balance sheet classifications of the
credit products. The changes in fair value for the years ended
December 31, 2012 and 2011 due to instrument-specific credit
risk totaled to a gain of $39 million and $53 million,
respectively.
December 31, 2012
Trading assets
Loans
$11,658
$3,893
31
(132)
104
—
85
—
December 31, 2011
Trading assets
Loans
$14,150
$3,735
540
(54)
134
—
43
—
Certain mortgage loans (HFS)
Citigroup has elected the fair value option for certain purchased
and originated prime fixed-rate and conforming adjustable-rate
first mortgage loans HFS. These loans are intended for sale or
securitization and are hedged with derivative instruments. The
Company has elected the fair value option to mitigate
accounting mismatches in cases where hedge accounting is
complex and to achieve operational simplifications.
Certain investments in private equity and real estate ventures
and certain equity method investments
Citigroup invests in private equity and real estate ventures for
the purpose of earning investment returns and for capital
appreciation. The Company has elected the fair value option for
certain of these ventures, because such investments are
considered similar to many private equity or hedge fund
activities in Citi’s investment companies, which are reported at
fair value. The fair value option brings consistency in the
accounting and evaluation of these investments. All investments
(debt and equity) in such private equity and real estate entities
are accounted for at fair value. These investments are classified
as Investments on Citigroup’s Consolidated Balance Sheet.
Citigroup also holds various non-strategic investments in
leveraged buyout funds and other hedge funds for which the
Company elected fair value accounting to reduce operational
and accounting complexity. Since the funds account for all of
their underlying assets at fair value, the impact of applying the
equity method to Citigroup’s investment in these funds was
equivalent to fair value accounting. These investments are
classified as Other assets on Citigroup’s Consolidated Balance
Sheet.
Changes in the fair values of these investments are
classified in Other revenue in the Company’s Consolidated
Statement of Income.
138
The following table provides information about certain mortgage loans HFS carried at fair value at December 31, 2012 and 2011:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate fair value in excess of unpaid principal balance
Balance of non-accrual loans or loans more than 90 days past due
Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90
days past due
December 31, 2012 December 31, 2011
$ 6,213
$ 6,879
274
390
—
—
—
—
With respect to the consolidated mortgage VIEs for which
the fair value option was elected, the mortgage loans are
classified as Loans on Citigroup’s Consolidated Balance Sheet.
The changes in fair value of the loans are reported as Other
revenue in the Company’s Consolidated Statement of Income.
Related interest revenue is measured based on the contractual
interest rates and reported as Interest revenue in the Company’s
Consolidated Statement of Income. Information about these
mortgage loans is included in the table below. The change in
fair value of these loans due to instrument-specific credit risk
was a loss of $107 million and $275 million for the years ended
December 31, 2012 and 2011, respectively.
The debt issued by these consolidated VIEs is classified as
long-term debt on Citigroup’s Consolidated Balance Sheet. The
changes in fair value for the majority of these liabilities are
reported in Other revenue in the Company’s Consolidated
Statement of Income. Related interest expense is measured
based on the contractual interest rates and reported as such in
the Consolidated Statement of Income. The aggregate unpaid
principal balance of long-term debt of these consolidated VIEs
exceeded the aggregate fair value by $869 million and $984
million as of December 31, 2012 and 2011, respectively.
The changes in fair values of these mortgage loans are
reported in Other revenue in the Company’s Consolidated
Statement of Income. There was no change in fair value during
the year ended December 31, 2012 due to instrument-specific
credit risk. The change in fair value during the year ended
December 31, 2011 due to instrument-specific credit risk
resulted in a loss of $0.1 million. Related interest income
continues to be measured based on the contractual interest rates
and reported as such in the Consolidated Statement of Income.
Certain consolidated VIEs
The Company has elected the fair value option for all qualified
assets and liabilities of certain VIEs that were consolidated upon
the adoption of SFAS 167 on January 1, 2010, including certain
private label mortgage securitizations, mutual fund deferred
sales commissions and collateralized loan obligation VIEs. The
Company elected the fair value option for these VIEs, as the
Company believes this method better reflects the economic risks,
since substantially all of the Company’s retained interests in
these entities are carried at fair value.
With respect to the consolidated mortgage VIEs, the
Company determined the fair value for the mortgage loans and
long-term debt utilizing internal valuation techniques. The fair
value of the long-term debt measured using internal valuation
techniques is verified, where possible, to prices obtained from
independent vendors. Vendors compile prices from various
sources and may apply matrix pricing for similar securities
when no price is observable. Security pricing associated with
long-term debt that is valued using observable inputs is
classified as Level 2, and debt that is valued using one or more
significant unobservable inputs is classified as Level 3. The fair
value of mortgage loans of each VIE is derived from the
security pricing. When substantially all of the long-term debt of
a VIE is valued using Level 2 inputs, the corresponding
mortgage loans are classified as Level 2. Otherwise, the
mortgage loans of a VIE are classified as Level 3.
139
The following table provides information about Corporate and Consumer loans of consolidated VIEs carried at fair value at December
31, 2012 and 2011:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of fair value
Balance of non-accrual loans or loans more than 90 days past due
Aggregate unpaid principal balance in excess of fair value for nonaccrual loans or loans more than 90 days past due
December 31, 2012
Corporate loans Consumer loans
$157
$ 1,191
347
293
34
123
36
December 31, 2011
Corporate loans
Consumer loans
$ 198
$1,292
394
436
23
86
111
42
120
Certain non-structured liabilities
The Company has elected the fair value option for certain nonstructured liabilities with fixed and floating interest rates (nonstructured liabilities). The Company has elected the fair value
option where the interest-rate risk of such liabilities is
economically hedged with derivative contracts or the proceeds
are used to purchase financial assets that will also be accounted
for at fair value through earnings. The election has been made to
mitigate accounting mismatches and to achieve operational
simplifications. These positions are reported in Short-term
borrowings and Long-term debt on the Company’s Consolidated
Balance Sheet. The change in fair value for these non-structured
liabilities is reported in Principal transactions in the Company’s
Consolidated Statement of Income.
Related interest expense on non-structured liabilities is
measured based on the contractual interest rates and reported as
such in the Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair value option for certain
structured liabilities whose performance is linked to structured
interest rates, inflation, currency, equity, referenced credit or
commodity risks (structured liabilities). The Company elected
the fair value option, because these exposures are considered to
be trading-related positions and, therefore, are managed on a fair
value basis. These positions will continue to be classified as
debt, deposits or derivatives (Trading account liabilities) on the
Company’s Consolidated Balance Sheet according to their legal
form.
The change in fair value for these structured liabilities is
reported in Principal transactions in the Company’s
Consolidated Statement of Income. Changes in fair value for
these structured liabilities include an economic component for
accrued interest, which is included in the change in fair value
reported in Principal transactions.
The following table provides information about long-term debt carried at fair value, excluding the debt issued by the consolidated
VIEs, at December 31, 2012 and 2011:
December 31, 2012
$28,434
(226)
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of (less than) fair value
December 31, 2011
$22,614
1,680
The following table provides information about short-term borrowings carried at fair value at December 31, 2012 and 2011:
December 31, 2012
$ 818
(232)
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of (less than) fair value
140
December 31, 2011
$ 1,354
49
In addition, at December 31, 2012 and 2011, the Company
had pledged $418 billion and $345 billion, respectively, of
collateral that may not be sold or repledged by the secured
parties.
27. PLEDGED ASSETS, COLLATERAL,
COMMITMENTS AND GUARANTEES
Pledged Assets
In connection with the Company’s financing and trading
activities, the Company has pledged assets to collateralize its
obligations under repurchase agreements, secured financing
agreements, secured liabilities of consolidated VIEs and other
borrowings. At December 31, 2012 and 2011, the approximate
carrying values of the significant components of pledged assets
recognized on the Company’s Consolidated Balance Sheet
include:
Lease Commitments
Rental expense (principally for offices and computer equipment)
was $1.5 billion, $1.6 billion and $1.6 billion for the years
ended December 31, 2012, 2011 and 2010, respectively.
Future minimum annual rentals under noncancelable leases,
net of sublease income, are as follows:
In millions of dollars
In millions of dollars
Investment securities
Loans
Trading account assets
Total
2012
$ 187,295
234,797
123,178
$ 545,270
2011
$ 129,093
235,031
114,539
$ 478,663
2013
2014
2015
2016
2017
Thereafter
Total
In addition, included in cash and due from banks at
December 31, 2012 and 2011 are $13.4 billion and $13.6 billion,
respectively, of cash segregated under federal and other
brokerage regulations or deposited with clearing organizations.
At December 31, 2012 and 2011, the Company had $286
million and $1.4 billion, respectively, of outstanding letters of
credit from third-party banks to satisfy various collateral and
margin requirements.
Guarantees
The Company provides a variety of guarantees and
indemnifications to Citigroup customers to enhance their credit
standing and enable them to complete a wide variety of business
transactions. For certain contracts meeting the definition of a
guarantee, the guarantor must recognize, at inception, a liability
for the fair value of the obligation undertaken in issuing the
guarantee.
In addition, the guarantor must disclose the maximum
potential amount of future payments that the guarantor could be
required to make under the guarantee, if there were a total
default by the guaranteed parties. The determination of the
maximum potential future payments is based on the notional
amount of the guarantees without consideration of possible
recoveries under recourse provisions or from collateral held or
pledged. As such, the Company believes such amounts bear no
relationship to the anticipated losses, if any, on these guarantees.
The following tables present information about the Company’s
guarantees at December 31, 2012 and December 31, 2011:
Collateral
At December 31, 2012 and 2011, the approximate fair value of
collateral received by the Company that may be resold or
repledged by the Company, excluding the impact of allowable
netting, was $305.9 billion and $350.0 billion, respectively. This
collateral was received in connection with resale agreements,
securities borrowings and loans, derivative transactions and
margined broker loans.
At December 31, 2012 and 2011, a substantial portion of
the collateral received by the Company had been sold or
repledged in connection with repurchase agreements, securities
sold, not yet purchased, securities borrowings and loans, pledges
to clearing organizations, segregation requirements under
securities laws and regulations, derivative transactions and bank
loans.
In billions of dollars at December 31, 2012 except carrying value in millions
Financial standby letters of credit
Performance guarantees
Derivative instruments considered to be guarantees
Loans sold with recourse
Securities lending indemnifications (1)
Credit card merchant processing (1)
Custody indemnifications and other
Total
(1)
$1,220
1,125
1,001
881
754
2,293
$7,274
Maximum potential amount of future payments
Expire within Expire after
Total amount
1 year
1 year
outstanding
$ 22.3
$ 79.8
$102.1
7.3
4.7
12.0
11.2
45.5
56.7
—
0.5
0.5
80.4
—
80.4
70.3
—
70.3
—
30.2
30.2
$191.5
$160.7
$352.2
Carrying value
(in millions of dollars)
$ 432.8
41.6
2,648.7
87.0
—
—
—
$ 3,210.1
The carrying values of securities lending indemnifications and credit card merchant processing are not material, as the Company has determined that the amount
and probability of potential liabilities arising from these guarantees are not significant.
141
In billions of dollars at December 31, 2011 except carrying value in millions
Financial standby letters of credit
Performance guarantees
Derivative instruments considered to be guarantees
Loans sold with recourse
Securities lending indemnifications (1)
Credit card merchant processing (1)
Custody indemnifications and other
Total
(1)
Maximum potential amount of future payments
Expire within Expire after
Total amount
1 year
1 year
outstanding
$ 25.2
$ 79.5
$104.7
7.8
4.5
12.3
9.8
40.0
49.8
—
0.4
0.4
90.9
—
90.9
70.2
—
70.2
—
40.0
40.0
$203.9
$164.4
$368.3
Carrying value
(in millions of dollars)
$ 417.5
43.9
2,686.1
89.6
—
—
30.7
$3,267.8
The carrying values of securities lending indemnifications and credit card merchant processing are not material, as the Company has determined that the amount
and probability of potential liabilities arising from these guarantees are not significant.
contracts that are cash settled and for which the Company is
unable to assert that it is probable the counterparty held the
underlying instrument at the inception of the contract also are
excluded from the tables above.
In instances where the Company’s maximum potential
future payment is unlimited, the notional amount of the contract
is disclosed.
Financial standby letters of credit
Citigroup issues standby letters of credit which substitute its
own credit for that of the borrower. If a letter of credit is drawn
down, the borrower is obligated to repay Citigroup. Standby
letters of credit protect a third party from defaults on contractual
obligations. Financial standby letters of credit include
guarantees of payment of insurance premiums and reinsurance
risks that support industrial revenue bond underwriting and
settlement of payment obligations to clearing houses, and also
support options and purchases of securities or are in lieu of
escrow deposit accounts. Financial standbys also backstop loans,
credit facilities, promissory notes and trade acceptances.
Loans sold with recourse
Loans sold with recourse represent the Company’s obligations
to reimburse the buyers for loan losses under certain
circumstances. Recourse refers to the clause in a sales
agreement under which a lender will fully reimburse the
buyer/investor for any losses resulting from the purchased loans.
This may be accomplished by the seller taking back any loans
that become delinquent.
In addition to the amounts shown in the tables above, Citi
has recorded a mortgage repurchase reserve for its potential
repurchases or make-whole liability regarding representation
and warranty claims. The repurchase reserve was $1,565 million
and $1,188 million at December 31, 2012 and December 31,
2011, respectively, and these amounts are included in Other
liabilities on the Consolidated Balance Sheet.
Performance guarantees
Performance guarantees and letters of credit are issued to
guarantee a customer’s tender bid on a construction or systemsinstallation project or to guarantee completion of such projects
in accordance with contract terms. They are also issued to
support a customer’s obligation to supply specified products,
commodities, or maintenance or warranty services to a third
party.
Derivative instruments considered to be guarantees
Derivatives are financial instruments whose cash flows are
based on a notional amount and an underlying instrument,
where there is little or no initial investment, and whose terms
require or permit net settlement. Derivatives may be used for a
variety of reasons, including risk management, or to enhance
returns. Financial institutions often act as intermediaries for
their clients, helping clients reduce their risks. However,
derivatives may also be used to take a risk position.
The derivative instruments considered to be guarantees,
which are presented in the tables above, include only those
instruments that require Citi to make payments to the
counterparty based on changes in an underlying instrument that
is related to an asset, a liability, or an equity security held by the
guaranteed party. More specifically, derivative instruments
considered to be guarantees include certain over-the-counter
written put options where the counterparty is not a bank, hedge
fund or broker-dealer (such counterparties are considered to be
dealers in these markets and may, therefore, not hold the
underlying instruments). However, credit derivatives sold by the
Company are excluded from the tables above as they are
disclosed separately in Note 23 to the Consolidated Financial
Statements. In addition, non-credit derivative
Repurchase Reserve—Whole Loan Sales
The repurchase reserve estimation process for potential
residential mortgage whole loan representation and warranty
claims is based on various assumptions which are primarily
based on Citi’s historical repurchase activity with the GSEs. The
assumptions used to calculate this repurchase reserve include
numerous estimates and judgments and thus contain a level of
uncertainty and risk that, if different from actual results, could
have a material impact on the reserve amounts.
As of December 31, 2012, Citi estimates that the range of
reasonably possible loss for whole loan sale representation and
warranty claims in excess of amounts accrued could be up to
$0.6 billion. This estimate was derived by modifying the key
assumptions discussed above to reflect management’s judgment
regarding reasonably possible adverse changes to those
assumptions. Citi’s estimate of reasonably possible loss is based
on currently available information, significant judgment and
numerous assumptions that are subject to change.
142
Repurchase Reserve—Private-Label Securitizations
Investors in private-label securitizations may seek recovery for
alleged breaches of representations and warranties, as well as
losses caused by non-performing loans more generally, through
repurchase claims or through litigation premised on a variety of
legal theories. Citi considers litigation relating to private-label
securitizations as part of its contingencies analysis. For
additional information, see Note 28 to the Consolidated
Financial Statements.
Of the repurchase claims received, Citi believes some are
based on a review of the underlying loan files, while others are
not based on such a review. In either case, upon receipt of a
claim, Citi typically requests that it be provided with the
underlying detail supporting the claim. To date, Citi has
received little or no response to these requests for information.
Citi cannot reasonably estimate probable losses from future
repurchase claims for private-label securitizations because the
claims to date have been received at an unpredictable rate, the
factual basis for those claims is unclear, and very few such
claims have been resolved. Rather, at the present time, Citi
records reserves related to private-label securitizations
repurchase claims based on estimated losses arising from those
actual claims received that appear to be based on a review of the
underlying loan files. The estimation reflected in this reserve is
based on currently available information and relies on various
assumptions that involve numerous estimates and judgments
that are inherently uncertain and subject to change. If actual
experiences differ from Citi’s assumptions, future provisions
may differ substantially from Citi’s current reserves.
Credit card merchant processing
Credit card merchant processing guarantees represent the
Company’s indirect obligations in connection with the
processing of private label and bank card transactions on behalf
of merchants.
Citigroup’s primary credit card business is the issuance of
credit cards to individuals. In addition, the Company: (i)
provides transaction processing services to various merchants
with respect to its private-label cards and (ii) has potential
liability for bank card transaction processing services. The
nature of the liability in either case arises as a result of a billing
dispute between a merchant and a cardholder that is ultimately
resolved in the cardholder’s favor. The merchant is liable to
refund the amount to the cardholder. In general, if the credit
card processing company is unable to collect this amount from
the merchant, the credit card processing company bears the loss
for the amount of the credit or refund paid to the cardholder.
With regard to (i) above, the Company continues to have
the primary contingent liability with respect to its portfolio of
private-label merchants. The risk of loss is mitigated as the cash
flows between the Company and the merchant are settled on a
net basis and the Company has the right to offset any payments
with cash flows otherwise due to the merchant. To further
mitigate this risk the Company may delay settlement, require a
merchant to make an escrow deposit, include event triggers to
provide the Company with more financial and operational
control in the event of the financial deterioration of the
merchant, or require various credit enhancements (including
letters of credit and bank guarantees). In the unlikely event that
a private-label merchant is unable to deliver products, services
or a refund to its private-label cardholders, the Company is
contingently liable to credit or refund cardholders.
With regard to (ii) above, the Company has a potential
liability for bank card transactions where Citi provides the
transaction processing services as well as those where a third
party provides the services and Citi acts as a secondary
guarantor, should that processor fail to perform.
The Company’s maximum potential contingent liability
related to both bank card and private-label merchant processing
services is estimated to be the total volume of credit card
transactions that meet the requirements to be valid charge-back
transactions at any given time. At December 31, 2012 and
December 31, 2011, this maximum potential exposure was
estimated to be $70 billion.
However, the Company believes that the maximum
exposure is not representative of the actual potential loss
exposure based on the Company’s historical experience. This
contingent liability is unlikely to arise, as most products and
services are delivered when purchased and amounts are
refunded when items are returned to merchants. The Company
assesses the probability and amount of its contingent liability
related to merchant processing based on the financial strength of
the primary guarantor, the extent and nature of unresolved
charge-backs and its historical loss experience. At December 31,
2012 and December 31, 2011, the losses incurred and the
carrying amounts of the Company’s contingent obligations
related to merchant processing activities were immaterial.
Securities lending indemnifications
Owners of securities frequently lend those securities for a fee to
other parties who may sell them short or deliver them to another
party to satisfy some other obligation. Banks may administer
such securities lending programs for their clients. Securities
lending indemnifications are issued by the bank to guarantee
that a securities lending customer will be made whole in the
event that the security borrower does not return the security
subject to the lending agreement and collateral held is
insufficient to cover the market value of the security.
143
Value-Transfer Networks
The Company is a member of, or shareholder in, hundreds of
value-transfer networks (VTNs) (payment, clearing and
settlement systems as well as exchanges) around the world. As a
condition of membership, many of these VTNs require that
members stand ready to pay a pro rata share of the losses
incurred by the organization due to another member’s default on
its obligations. The Company’s potential obligations may be
limited to its membership interests in the VTNs, contributions to
the VTN’s funds, or, in limited cases, the obligation may be
unlimited. The maximum exposure cannot be estimated as this
would require an assessment of future claims that have not yet
occurred. We believe the risk of loss is remote given historical
experience with the VTNs. Accordingly, the Company’s
participation in VTNs is not reported in the Company’s
guarantees tables above, and there are no amounts reflected on
the Consolidated Balance Sheet as of December 31, 2012 or
December 31, 2011 for potential obligations that could arise
from the Company’s involvement with VTN associations.
Custody indemnifications
Custody indemnifications are issued to guarantee that custody
clients will be made whole in the event that a third-party
subcustodian or depository institution fails to safeguard clients’
assets.
Other guarantees and indemnifications
Credit Card Protection Programs
The Company, through its credit card business, provides various
cardholder protection programs on several of its card products,
including programs that provide insurance coverage for rental
cars, coverage for certain losses associated with purchased
products, price protection for certain purchases and protection
for lost luggage. These guarantees are not included in the table,
since the total outstanding amount of the guarantees and the
Company’s maximum exposure to loss cannot be quantified.
The protection is limited to certain types of purchases and
certain types of losses, and it is not possible to quantify the
purchases that would qualify for these benefits at any given time.
The Company assesses the probability and amount of its
potential liability related to these programs based on the extent
and nature of its historical loss experience. At December 31,
2012 and December 31, 2011, the actual and estimated losses
incurred and the carrying value of the Company’s obligations
related to these programs were immaterial.
Long-Term Care Insurance Indemnification
In the sale of an insurance subsidiary, the Company provided an
indemnification to an insurance company for policyholder
claims and other liabilities relating to a book of long-term care
(LTC) business (for the entire term of the LTC policies) that is
fully reinsured by another insurance company. The reinsurer has
funded two trusts with securities whose fair value
(approximately $4.9 billion at December 31, 2012 and $4.4
billion at December 31, 2011) is designed to cover the insurance
company’s statutory liabilities for the LTC policies. The assets
in these trusts are evaluated and adjusted periodically to ensure
that the fair value of the assets continues to cover the estimated
statutory liabilities related to the LTC policies, as those statutory
liabilities change over time. If the reinsurer fails to perform
under the reinsurance agreement for any reason, including
insolvency, and the assets in the two trusts are insufficient or
unavailable to the ceding insurance company, then Citigroup
must indemnify the ceding insurance company for any losses
actually incurred in connection with the LTC policies. Since
both events would have to occur before Citi would become
responsible for any payment to the ceding insurance company
pursuant to its indemnification obligation, and the likelihood of
such events occurring is currently not probable, there is no
liability reflected in the Consolidated Balance Sheet as of
December 31, 2012 related to this indemnification. Citi
continues to closely monitor its potential exposure under this
indemnification obligation.
Other Representation and Warranty Indemnifications
In the normal course of business, the Company provides
standard representations and warranties to counterparties in
contracts in connection with numerous transactions and also
provides indemnifications, including indemnifications that
protect the counterparties to the contracts in the event that
additional taxes are owed due either to a change in the tax law
or an adverse interpretation of the tax law. Counterparties to
these transactions provide the Company with comparable
indemnifications. While such representations, warranties and
indemnifications are essential components of many contractual
relationships, they do not represent the underlying business
purpose for the transactions. The indemnification clauses are
often standard contractual terms related to the Company’s own
performance under the terms of a contract and are entered into
in the normal course of business based on an assessment that the
risk of loss is remote. Often these clauses are intended to ensure
that terms of a contract are met at inception. No compensation is
received for these standard representations and warranties, and it
is not possible to determine their fair value because they rarely,
if ever, result in a payment. In many cases, there are no stated or
notional amounts included in the indemnification clauses, and
the contingencies potentially triggering the obligation to
indemnify have not occurred and are not expected to occur.
These indemnifications are not included in the tables above.
Carrying Value—Guarantees and Indemnifications
At December 31, 2012 and December 31, 2011, the total
carrying amounts of the liabilities related to the guarantees and
indemnifications included in the tables above amounted to
approximately $3.2 billion and $3.3 billion, respectively. The
carrying value of derivative instruments is included in either
Trading account liabilities or Other liabilities, depending upon
whether the derivative was entered into for trading or nontrading purposes. The carrying value of financial and
performance guarantees is included in Other liabilities. For
loans sold with recourse, the carrying value of the liability is
included in Other liabilities. In addition, at December 31, 2012
and December 31, 2011, Other liabilities on the Consolidated
Balance Sheet included an allowance for credit losses of $1,119
million and $1,136 million, respectively, relating to letters of
credit and unfunded lending commitments.
144
Performance risk
Citi evaluates the performance risk of its guarantees based on
the assigned referenced counterparty internal or external ratings.
Where external ratings are used, investment-grade ratings are
considered to be Baa/BBB and above, while anything below is
considered non-investment grade. The Citi internal ratings are in
line with the related external rating system. On certain
underlying referenced credits or entities, ratings are not
available. Such referenced credits are included in the “not rated”
category. The maximum potential amount of the future
payments related to guarantees and credit derivatives sold is
determined to be the notional amount of these contracts, which
is the par amount of the assets guaranteed.
Presented in the tables below are the maximum potential
amounts of future payments that are classified based upon
internal and external credit ratings as of December 31, 2012 and
December 31, 2011. As previously mentioned, the
determination of the maximum potential future payments is
based on the notional amount of the guarantees without
consideration of possible recoveries under recourse provisions
or from collateral held or pledged. As such, the Company
believes such amounts bear no relationship to the anticipated
losses, if any, on these guarantees.
Collateral
Cash collateral available to the Company to reimburse losses
realized under these guarantees and indemnifications amounted
to $39 billion and $35 billion at December 31, 2012 and
December 31, 2011, respectively. Securities and other
marketable assets held as collateral amounted to $51 billion and
$65 billion at December 31, 2012 and December 31, 2011,
respectively. The majority of collateral is held to reimburse
losses realized under securities lending indemnifications.
Additionally, letters of credit in favor of the Company held as
collateral amounted to $3.4 billion and $3.2 billion at December
31, 2012 and December 31, 2011, respectively. Other property
may also be available to the Company to cover losses under
certain guarantees and indemnifications; however, the value of
such property has not been determined.
In billions of dollars as of December 31, 2012
Financial standby letters of credit
Performance guarantees
Derivative instruments deemed to be guarantees
Loans sold with recourse
Securities lending indemnifications
Credit card merchant processing
Custody indemnifications and other
Total
In billions of dollars as of December 31, 2011
Financial standby letters of credit
Performance guarantees
Derivative instruments deemed to be guarantees
Loans sold with recourse
Securities lending indemnifications
Credit card merchant processing
Custody indemnifications and other
Total
Maximum potential amount of future payments
Investment
Non-investment
Not
grade
grade
rated
Total
$ 80.9
$11.0
$ 10.2
$102.1
7.3
3.0
1.7
12.0
—
—
56.7
56.7
—
—
0.5
0.5
—
—
80.4
80.4
—
—
70.3
70.3
30.1
0.1
—
30.2
$118.3
$14.1
$219.8
$352.2
Maximum potential amount of future payments
Investment
Non-investment
Not
grade
grade
rated
Total
$ 79.3
$17.2
$ 8.2
$ 104.7
6.9
3.2
2.2
12.3
—
—
49.8
49.8
—
—
0.4
0.4
—
—
90.9
90.9
—
—
70.2
70.2
40.0
—
—
40.0
$126.2
$20.4
$221.7
$ 368.3
145
Credit Commitments and Lines of Credit
The table below summarizes Citigroup’s credit commitments as of December 31, 2012 and December 31, 2011:
In millions of dollars
Commercial and similar letters of credit
One- to four-family residential mortgages
Revolving open-end loans secured by one- to four-family residential properties
Commercial real estate, construction and land development
Credit card lines
Commercial and other consumer loan commitments
Other commitments and contingencies
Total
The majority of unused commitments are contingent upon
customers’ maintaining specific credit standards. Commercial
commitments generally have floating interest rates and fixed
expiration dates and may require payment of fees. Such fees (net
of certain direct costs) are deferred and, upon exercise of the
commitment, amortized over the life of the loan or, if exercise is
deemed remote, amortized over the commitment period.
U.S.
$ 1,427
2,397
14,897
2,067
485,569
138,219
1,175
$ 645,751
Outside
December 31, December 31,
2011
U.S.
2012
$ 8,910
$ 5,884
$ 7,311
3,504
1,496
3,893
19,326
3,279
18,176
1,968
1,429
3,496
653,985
135,131
620,700
224,109
90,273
228,492
3,201
1,084
2,259
$ 915,003
$ 238,576
$884,327
Credit card lines
Credit card lines are unconditionally cancellable by the issuer.
Commercial and other consumer loan commitments
Commercial and other consumer loan commitments include
overdraft and liquidity facilities, as well as commercial
commitments to make or purchase loans, to purchase third-party
receivables, to provide note issuance or revolving underwriting
facilities and to invest in the form of equity. Amounts include
$53 billion and $65 billion with an original maturity of less than
one year at December 31, 2012 and December 31, 2011,
respectively.
In addition, included in this line item are highly leveraged
financing commitments, which are agreements that provide
funding to a borrower with higher levels of debt (measured by
the ratio of debt capital to equity capital of the borrower) than is
generally considered normal for other companies. This type of
financing is commonly employed in corporate acquisitions,
management buy-outs and similar transactions.
Commercial and similar letters of credit
A commercial letter of credit is an instrument by which
Citigroup substitutes its credit for that of a customer to enable
the customer to finance the purchase of goods or to incur other
commitments. Citigroup issues a letter on behalf of its client to a
supplier and agrees to pay the supplier upon presentation of
documentary evidence that the supplier has performed in
accordance with the terms of the letter of credit. When a letter of
credit is drawn, the customer is then required to reimburse
Citigroup.
One- to four-family residential mortgages
A one- to four-family residential mortgage commitment is a
written confirmation from Citigroup to a seller of a property that
the bank will advance the specified sums enabling the buyer to
complete the purchase.
Other commitments and contingencies
Other commitments and contingencies include all other
transactions related to commitments and contingencies not
reported on the lines above.
Revolving open-end loans secured by one- to four-family
residential properties
Revolving open-end loans secured by one- to four-family
residential properties are essentially home equity lines of credit.
A home equity line of credit is a loan secured by a primary
residence or second home to the extent of the excess of fair
market value over the debt outstanding for the first mortgage.
Commercial real estate, construction and land development
Commercial real estate, construction and land development
include unused portions of commitments to extend credit for the
purpose of financing commercial and multifamily residential
properties as well as land development projects.
Both secured-by-real-estate and unsecured commitments
are included in this line, as well as undistributed loan proceeds,
where there is an obligation to advance for construction progress
payments. However, this line only includes those extensions of
credit that, once funded, will be classified as Total loans, net on
the Consolidated Balance Sheet.
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Accounting and Disclosure Framework
ASC 450 (formerly SFAS 5) governs the disclosure and
recognition of loss contingencies, including potential losses
from litigation and regulatory matters. ASC 450 defines a “loss
contingency” as “an existing condition, situation, or set of
circumstances involving uncertainty as to possible loss to an
entity that will ultimately be resolved when one or more future
events occur or fail to occur.” It imposes different requirements
for the recognition and disclosure of loss contingencies based on
the likelihood of occurrence of the contingent future event or
events. It distinguishes among degrees of likelihood using the
following three terms: “probable,” meaning that “the future
event or events are likely to occur”; “remote,” meaning that “the
chance of the future event or events occurring is slight”; and
“reasonably possible,” meaning that “the chance of the future
event or events occurring is more than remote but less than
likely.” These three terms are used below as defined in ASC
450.
Accruals. ASC 450 requires accrual for a loss contingency
when it is “probable that one or more future events will occur
confirming the fact of loss” and “the amount of the loss can be
reasonably estimated.” In accordance with ASC 450, Citigroup
establishes accruals for all litigation and regulatory matters,
including matters disclosed herein, when Citigroup believes it is
probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. When the reasonable estimate of
the loss is within a range of amounts, the minimum amount of
the range is accrued, unless some higher amount within the
range is a better estimate than any other amount within the
range. Once established, accruals are adjusted from time to time,
as appropriate, in light of additional information. The amount of
loss ultimately incurred in relation to those matters may be
substantially higher or lower than the amounts accrued for those
matters.
Disclosure. ASC 450 requires disclosure of a loss
contingency if “there is at least a reasonable possibility that a
loss or an additional loss may have been incurred” and there is
no accrual for the loss because the conditions described above
are not met or an exposure to loss exists in excess of the amount
accrued. In accordance with ASC 450, if Citigroup has not
accrued for a matter because Citigroup believes that a loss is
reasonably possible but not probable, or that a loss is probable
but not reasonably estimable, and the matter thus does not meet
the criteria for accrual, and the reasonably possible loss is
material, it discloses the loss contingency. In addition, Citigroup
discloses matters for which it has accrued if it believes a
reasonably possible exposure to material loss exists in excess of
the amount accrued. In accordance with ASC 450, Citigroup’s
disclosure includes an estimate of the reasonably possible loss
or range of loss for those matters as to which an estimate can be
made. ASC 450 does not require disclosure of an estimate of the
reasonably possible loss or range of loss where an estimate
cannot be made. Neither accrual nor disclosure is required for
losses that are deemed remote.
28. CONTINGENCIES
Overview
In addition to the matters described below, in the ordinary
course of business, Citigroup, its affiliates and subsidiaries, and
current and former officers, directors and employees (for
purposes of this section, sometimes collectively referred to as
Citigroup and Related Parties) routinely are named as
defendants in, or as parties to, various legal actions and
proceedings. Certain of these actions and proceedings assert
claims or seek relief in connection with alleged violations of
consumer protection, securities, banking, antifraud, antitrust,
anti-money laundering, employment and other statutory and
common laws. Certain of these actual or threatened legal actions
and proceedings include claims for substantial or indeterminate
compensatory or punitive damages, or for injunctive relief, and
in some instances seek recovery on a class-wide basis.
In the ordinary course of business, Citigroup and Related
Parties also are subject to governmental and regulatory
examinations, information-gathering requests, investigations
and proceedings (both formal and informal), certain of which
may result in adverse judgments, settlements, fines, penalties,
restitution, disgorgement, injunctions or other relief. In addition,
certain affiliates and subsidiaries of Citigroup are banks,
registered broker-dealers, futures commission merchants,
investment advisers or other regulated entities and, in those
capacities, are subject to regulation by various U.S., state and
foreign securities, banking, commodity futures, consumer
protection and other regulators. In connection with formal and
informal inquiries by these regulators, Citigroup and such
affiliates and subsidiaries receive numerous requests, subpoenas
and orders seeking documents, testimony and other information
in connection with various aspects of their regulated activities.
From time to time Citigroup and Related Parties also receive
grand jury subpoenas and other requests for information or
assistance, formal or informal, from federal or state law
enforcement agencies, including among others various United
States Attorneys’ Offices, the Asset Forfeiture and Money
Laundering Section and other divisions of the Department of
Justice, the Financial Crimes Enforcement Network of the
United States Department of the Treasury, and the Federal
Bureau of Investigation, relating to Citigroup and its customers.
Because of the global scope of Citigroup’s operations, and
its presence in countries around the world, Citigroup and
Related Parties are subject to litigation and governmental and
regulatory examinations, information-gathering requests,
investigations and proceedings (both formal and informal) in
multiple jurisdictions with legal and regulatory regimes that
may differ substantially, and present substantially different
risks, from those Citigroup and Related Parties are subject to in
the United States. In some instances Citigroup and Related
Parties may be involved in proceedings involving the same
subject matter in multiple jurisdictions, which may result in
overlapping, cumulative or inconsistent outcomes.
Citigroup seeks to resolve all litigation and regulatory
matters in the manner management believes is in the best
interests of Citigroup and its shareholders, and contests liability,
allegations of wrongdoing and, where applicable, the amount of
damages or scope of any penalties or other relief sought as
appropriate in each pending matter.
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Matters as to Which an Estimate Cannot Be Made. For
other matters disclosed below, Citigroup is not currently able to
estimate the reasonably possible loss or range of loss. Many of
these matters remain in very preliminary stages (even in some
cases where a substantial period of time has passed since the
commencement of the matter), with few or no substantive legal
decisions by the court or tribunal defining the scope of the
claims, the class (if any), or the potentially available damages,
and fact discovery is still in progress or has not yet begun. In
many of these matters, Citigroup has not yet answered the
complaint or statement of claim or asserted its defenses, nor has
it engaged in any negotiations with the adverse party (whether a
regulator or a private party). For all these reasons, Citigroup
cannot at this time estimate the reasonably possible loss or range
of loss, if any, for these matters.
Opinion of Management as to Eventual Outcome. Subject
to the foregoing, it is the opinion of Citigroup’s management,
based on current knowledge and after taking into account its
current legal accruals, that the eventual outcome of all matters
described in this Note would not be likely to have a material
adverse effect on the consolidated financial condition of
Citigroup. Nonetheless, given the substantial or indeterminate
amounts sought in certain of these matters, and the inherent
unpredictability of such matters, an adverse outcome in certain
of these matters could, from time to time, have a material
adverse effect on Citigroup’s consolidated results of operations
or cash flows in particular quarterly or annual periods.
Inherent Uncertainty of the Matters Disclosed. Certain of
the matters disclosed below involve claims for substantial or
indeterminate damages. The claims asserted in these matters
typically are broad, often spanning a multi-year period and
sometimes a wide range of business activities, and the plaintiffs’
or claimants’ alleged damages frequently are not quantified or
factually supported in the complaint or statement of claim. As a
result, Citigroup is often unable to estimate the loss in such
matters, even if it believes that a loss is probable or reasonably
possible, until developments in the case have yielded additional
information sufficient to support a quantitative assessment of
the range of reasonably possible loss. Such developments may
include, among other things, discovery from adverse parties or
third parties, rulings by the court on key issues, analysis by
retained experts, and engagement in settlement negotiations.
Depending on a range of factors, such as the complexity of the
facts, the novelty of the legal theories, the pace of discovery, the
court’s scheduling order, the timing of court decisions, and the
adverse party’s willingness to negotiate in good faith toward a
resolution, it may be months or years after the filing of a case
before an estimate of the range of reasonably possible loss can
be made.
Matters as to Which an Estimate Can Be Made. For some
of the matters disclosed below, Citigroup is currently able to
estimate a reasonably possible loss or range of loss in excess of
amounts accrued (if any). For some of the matters included
within this estimation, an accrual has been made because a loss
is believed to be both probable and reasonably estimable, but an
exposure to loss exists in excess of the amount accrued; in these
cases, the estimate reflects the reasonably possible range of loss
in excess of the accrued amount. For other matters included
within this estimation, no accrual has been made because a loss,
although estimable, is believed to be reasonably possible, but
not probable; in these cases the estimate reflects the reasonably
possible loss or range of loss. As of December 31, 2012,
Citigroup estimates that the reasonably possible unaccrued loss
in future periods for these matters ranges up to approximately
$5 billion in the aggregate.
These estimates are based on currently available
information. As available information changes, the matters for
which Citigroup is able to estimate will change, and the
estimates themselves will change. In addition, while many
estimates presented in financial statements and other financial
disclosure involve significant judgment and may be subject to
significant uncertainty, estimates of the range of reasonably
possible loss arising from litigation and regulatory proceedings
are subject to particular uncertainties. For example, at the time
of making an estimate, Citigroup may have only preliminary,
incomplete, or inaccurate information about the facts underlying
the claim; its assumptions about the future rulings of the court or
other tribunal on significant issues, or the behavior and
incentives of adverse parties or regulators, may prove to be
wrong; and the outcomes it is attempting to predict are often not
amenable to the use of statistical or other quantitative analytical
tools. In addition, from time to time an outcome may occur that
Citigroup had not accounted for in its estimate because it had
deemed such an outcome to be remote. For all these reasons, the
amount of loss in excess of accruals ultimately incurred for the
matters as to which an estimate has been made could be
substantially higher or lower than the range of loss included in
the estimate.
Credit Crisis–Related Litigation and Other Matters
Citigroup and Related Parties have been named as defendants in
numerous legal actions and other proceedings asserting claims
for damages and related relief for losses arising from the global
financial credit crisis that began in 2007. Such matters include,
among other types of proceedings, claims asserted by: (i)
individual investors and purported classes of investors in
Citigroup’s common and preferred stock and debt, alleging
violations of the federal securities laws, foreign laws, state
securities and fraud law, and the Employee Retirement Income
Security Act (ERISA); and (ii) individual investors and
purported classes of investors in securities and other
investments underwritten, issued or marketed by Citigroup,
including securities issued by other public companies,
collateralized debt obligations (CDOs), mortgage-backed
securities (MBS), auction rate securities (ARS), investment
funds, and other structured or leveraged instruments, which
have suffered losses as a result of the credit crisis. These matters
have been filed in state and federal courts across the U.S. and in
foreign tribunals, as well as in arbitrations before the Financial
Industry Regulatory Authority (FINRA) and other arbitration
associations.
148
Citigroup and Related Parties also have been named as
defendants in a variety of other putative class actions and
individual actions arising out of similar facts to those alleged in
the actions described above. These actions assert a wide range
of claims, including claims under the federal securities laws,
Section 90 of the Financial Services and Markets Act of 2000
(Eng.), ERISA, and state law. Additional information
concerning these actions is publicly available in court filings
under the docket numbers 09 Civ. 7359 (S.D.N.Y.) (Stein, J.),
09 Civ. 8755 (S.D.N.Y.) (Stein, J.), 11 Civ. 7672 (S.D.N.Y.)
(Koeltl, J.), 12 Civ. 6653 (S.D.N.Y.) (Stein, J.), 12 Civ. 9050
(S.D.N.Y.) (Stein, J.), and Case No. 110105028 (Pa. Commw.
Ct.) (Sheppard, J.).
Beginning in November 2007, certain Citigroup affiliates
also have been named as defendants arising out of their
activities as underwriters of securities in actions brought by
investors in securities of public companies adversely affected by
the credit crisis. Many of these matters have been dismissed or
settled. As a general matter, issuers indemnify underwriters in
connection with such claims, but in certain of these matters
Citigroup affiliates are not being indemnified or may in the
future cease to be indemnified because of the financial condition
of the issuer.
In addition to these litigations and arbitrations, Citigroup
continues to cooperate fully in response to subpoenas and
requests for information from the Securities and Exchange
Commission (SEC), FINRA, state attorneys general, the
Department of Justice and subdivisions thereof, bank regulators,
and other government agencies and authorities, in connection
with various formal and informal (and, in many instances,
industry-wide) inquiries concerning Citigroup’s mortgagerelated conduct and business activities, as well as other business
activities affected by the credit crisis. These business activities
include, but are not limited to, Citigroup’s sponsorship,
packaging, issuance, marketing, servicing and underwriting of
CDOs and MBS, and its origination, sale or other transfer,
servicing, and foreclosure of residential mortgages.
Mortgage-Related Litigation and Other Matters
Securities Actions: Beginning in November 2007, Citigroup and
Related Parties were named as defendants in a variety of class
action and individual securities lawsuits filed by investors in
Citigroup’s equity and debt securities in state and federal courts
relating to the Company’s disclosures regarding its exposure to
subprime-related assets.
Citigroup and Related Parties have been named as
defendants in the consolidated putative class action IN RE
CITIGROUP INC. SECURITIES LITIGATION, pending in the
United States District Court for the Southern District of New
York. The consolidated amended complaint asserts claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
on behalf of a putative class of purchasers of Citigroup common
stock from January 1, 2004 through January 15, 2009. On
November 9, 2010, the court issued an opinion and order
dismissing all claims except those arising out of Citigroup’s
exposure to CDOs for the time period February 1, 2007 through
April 18, 2008. On August 30, 2012, the court entered an order
preliminarily approving the parties’ proposed settlement,
pursuant to which Citigroup will pay $590 million in exchange
for a release of all claims asserted on behalf of the settlement
class. A fairness hearing is scheduled for April 8, 2013.
Additional information concerning this action is publicly
available in court filings under the consolidated lead docket
number 07 Civ. 9901 (S.D.N.Y.) (Stein, J.).
Citigroup and Related Parties also have been named as
defendants in the consolidated putative class action IN RE
CITIGROUP INC. BOND LITIGATION, also pending in the
United States District Court for the Southern District of New
York. The plaintiffs assert claims under Sections 11, 12 and 15
of the Securities Act of 1933 on behalf of a putative class of
purchasers of $71 billion of debt securities and preferred stock
issued by Citigroup between May 2006 and August 2008. On
July 12, 2010, the court issued an opinion and order dismissing
plaintiffs’ claims under Section 12 of the Securities Act of 1933,
but denying defendants’ motion to dismiss certain claims under
Section 11. Fact discovery began in November 2010, and
plaintiffs’ motion to certify a class is pending. Additional
information concerning this action is publicly available in court
filings under the consolidated lead docket number 08 Civ. 9522
(S.D.N.Y.) (Stein, J.).
Regulatory Actions: On October 19, 2011, in connection
with its industry-wide investigation concerning CDO-related
business activities, the SEC filed a complaint in the United
States District Court for the Southern District of New York
regarding Citigroup’s structuring and sale of the Class V
Funding III CDO transaction (Class V). On the same day, the
SEC and Citigroup announced a settlement of the SEC’s claims,
subject to judicial approval, and the SEC filed a proposed final
judgment pursuant to which Citigroup’s U.S. broker-dealer
Citigroup Global Markets Inc. (CGMI) agreed to disgorge $160
million and to pay $30 million in prejudgment interest and a $95
million penalty. On November 28, 2011, the court issued an
order refusing to approve the proposed settlement and ordering
trial to begin on July 16, 2012. The parties appealed from this
order to the United States Court of Appeals for the Second
Circuit, which, on March 15, 2012, granted a stay of the district
court proceedings pending resolution of the appeals. The parties
have fully briefed their appeals, and the Second Circuit held oral
argument on February 8, 2013. Additional information
concerning this matter is publicly available in court filings under
the docket numbers 11 Civ. 7387 (S.D.N.Y.) (Rakoff, J.) and
11-5227 (2d Cir.).
Mortgage-Backed Securities and CDO Investor Actions and
Repurchase Claims: Beginning in July 2010, Citigroup and
Related Parties have been named as defendants in complaints
filed by purchasers of MBS and CDOs sold or underwritten by
Citigroup. The MBS-related complaints generally assert that the
defendants made material misrepresentations and omissions
about the credit quality of the mortgage loans underlying the
securities, such as the underwriting standards to which the loans
conformed, the loan-to-value ratio of the loans, and the extent to
which the mortgaged properties were owner-occupied, and
typically assert claims under Section 11 of the Securities Act of
1933, state blue sky laws, and/or common-law
misrepresentation-based causes of action. The CDO-related
complaints further allege that the defendants adversely selected
or permitted the adverse selection of CDO collateral without full
disclosure to investors. The plaintiffs
149
with the underlying detail supporting the claim; however, to
date, Citi has received little or no response to these requests for
information. As a result, the vast majority of the repurchase
claims received on Citi’s private-label securitizations remain
unresolved. Citi expects unresolved repurchase claims for
private-label securitizations to continue to increase because new
claims and requests for loan files continue to be received, while
there has been little progress to date in resolving these
repurchase claims.
in these actions generally seek rescission of their investments,
recovery of their investment losses, or other damages. Other
purchasers of MBS and CDOs sold or underwritten by Citigroup
have threatened to file additional suits, for some of which
Citigroup has agreed to toll (extend) the statute of limitations.
The filed actions generally are in the early stages of
proceedings, and certain of the actions or threatened actions
have been resolved through settlement or otherwise. The
aggregate original purchase amount of the purchases at issue in
the filed suits is approximately $10.8 billion, and the aggregate
original purchase amount of the purchases covered by tolling
agreements with investors threatening litigation is
approximately $6.4 billion. The largest MBS investor claim
against Citigroup and Related Parties, as measured by the face
value of purchases at issue, has been asserted by the Federal
Housing Finance Agency, as conservator for Fannie Mae and
Freddie Mac. This suit was filed on September 2, 2011, and has
been coordinated in the United States District Court for the
Southern District of New York with 15 other related suits
brought by the same plaintiff against various other financial
institutions. Motions to dismiss in the coordinated suits have
been denied in large part, and discovery is proceeding. An
interlocutory appeal currently is pending in the United States
Court of Appeals for the Second Circuit on issues common to all
of the coordinated suits. Additional information concerning
certain of these actions is publicly available in court filings
under the docket numbers 11 Civ. 6196 (S.D.N.Y.) (Cote, J.), 12
Civ. 4000 (S.D.N.Y.) (Swain, J.), 12 Civ. 00790 (M.D. Al.)
(Watkins, C.J.), 12 Civ. 4354 (C.D. Cal.) (Pfaezler, J.),
650212/12 (N.Y. Sup. Ct.) (Oing, J.), 652607/2012 (N.Y. Sup.
Ct.) (Schweitzer, J.), and CGC-10-501610 (Cal. Super. Ct.)
(Kramer, J.).
In addition to these actions, various parties to MBS
securitizations and other interested parties have asserted that
certain Citigroup affiliates breached representations and
warranties made in connection with mortgage loans sold into
securitization trusts (private-label securitizations). In connection
with such assertions, Citi has received significant levels of
inquiries and demands for loan files, as well as requests to toll
(extend) the applicable statutes of limitation for, among others,
representation and warranty claims relating to its private-label
securitizations. These inquiries, demands and requests have
come from trustees of securitization trusts and others.
Among these requests, in December 2011, Citigroup
received a letter from the law firm Gibbs & Bruns LLP, which
purports to represent a group of investment advisers and holders
of MBS issued or underwritten by Citigroup affiliates. Through
that letter and subsequent discussions, Gibbs & Bruns LLP has
asserted that its clients collectively hold certificates in 87 MBS
trusts purportedly issued and/or underwritten by Citigroup
affiliates, and that Citigroup affiliates have repurchase
obligations for certain mortgages in these trusts.
Citi has also received repurchase claims for breaches of
representations and warranties related to private-label
securitizations. These claims have been received at an
unpredictable rate, although the number of claims increased
substantially during 2012 and is expected to remain elevated,
particularly given the level of inquiries, demands and requests
noted above. Upon receipt of a claim, Citi typically requests that
it be provided
Independent Foreclosure Review: On January 7, 2013, Citi,
along with other major mortgage servicers operating under
consent orders dated April 13, 2011 with the Federal Reserve
Board and the Office of the Comptroller of the Currency (OCC),
entered into a settlement agreement with those regulators to
modify the requirements of the independent foreclosure review
mandated by the consent orders. Under the settlement, Citi
agreed to pay approximately $305 million into a qualified
settlement fund and to offer $487 million of mortgage assistance
to borrowers in accordance with agreed criteria. Upon
completion of Citi’s payment and mortgage assistance
obligations under the agreement, the Federal Reserve Board and
the OCC have agreed to deem the requirements of the
independent foreclosure review under the consent orders to be
satisfied.
Abu Dhabi Investment Authority
In 2010, Abu Dhabi Investment Authority (ADIA) commenced
an arbitration against Citigroup and Related Parties alleging
statutory and common law claims in connection with its $7.5
billion investment in Citigroup in December 2007. ADIA sought
rescission of the investment agreement or, in the alternative,
more than $4 billion in damages. Following a hearing in May
2011 and post-hearing proceedings, on October 14, 2011, the
arbitration panel issued a final award and statement of reasons
finding in favor of Citigroup on all claims asserted by ADIA.
On January 11, 2012, ADIA filed a petition to vacate the award
in New York state court. On January 13, 2012, Citigroup
removed the petition to the United States District Court for the
Southern District of New York. On April 3, 2012, Citigroup
filed an opposition to ADIA’s petition and a cross-petition to
confirm the award. Both ADIA’s petition and Citigroup’s crosspetition are pending. Additional information concerning this
matter is publicly available in court filings under the docket
number 12 Civ. 283 (S.D.N.Y.) (Daniels, J.).
Alternative Investment Fund–Related Litigation and Other
Matters
The SEC is investigating the management and marketing of the
ASTA/ MAT and Falcon funds, alternative investment funds
managed and marketed by certain Citigroup affiliates that
suffered substantial losses during the credit crisis. In addition to
the SEC inquiry, on June 11, 2012, the New York Attorney
General served a subpoena on a Citigroup affiliate seeking
documents and information concerning certain of these funds,
and on August 1, 2012, the Massachusetts Attorney General
served a Civil Investigative Demand on a Citigroup affiliate
seeking similar documents and information. Citigroup is
cooperating fully with these inquiries.
In October 2012, Citigroup Alternative Investments LLC
(CAI) was named as a defendant in a putative class action
lawsuit filed on behalf of investors in CSO Ltd., CSO US Ltd.,
and Corporate Special Opportunities Ltd., whose investments
were managed indirectly by a CAI affiliate. The plaintiff
150
asserts a variety of state common law claims, alleging that he
and other investors were misled into investing in the funds and
were further misled into not redeeming their investments. The
complaint seeks to recover more than $400 million on behalf of
a putative class of investors. Additional information concerning
this action is publicly available in court filings under the docket
number 12-cv-7717 (S.D.N.Y.) (Castel, J.).
In addition, numerous investors in the ASTA/MAT funds
have filed lawsuits or arbitrations against Citigroup and Related
Parties seeking damages and related relief. Although most of
these investor disputes have been resolved, some remain
pending.
Lehman Structured Notes Matters
Like many other financial institutions, certain Citigroup
affiliates and subsidiaries distributed structured notes (Notes)
issued and guaranteed by Lehman entities to retail customers
outside the United States, principally in Europe and Asia. After
the relevant Lehman entities filed for bankruptcy protection in
September 2008, certain regulators commenced investigations
and some purchasers of the Notes filed civil actions or otherwise
complained about the sales process. Citigroup has resolved the
vast majority of these regulatory proceedings and customer
complaints.
In Belgium, criminal charges were brought against a
Citigroup subsidiary (CBB) and three former employees. On
December 1, 2010, the court acquitted all defendants of fraud
and anti-money laundering charges but convicted all defendants
under the Prospectus Act, and convicted CBB under Fair Trade
Practices legislation. Both CBB and the Public Prosecutor
appealed the judgment. On May 21, 2012, the Belgian appellate
court dismissed all criminal charges against CBB. The Public
Prosecutor has appealed this decision to the Belgian Supreme
Court.
Auction Rate Securities–Related Litigation and Other Matters
Beginning in March 2008, Citigroup and Related Parties have
been named as defendants in numerous actions and proceedings
brought by Citigroup shareholders and purchasers or issuers of
ARS, asserting claims under the federal securities laws, Section
1 of the Sherman Act and state law arising from the collapse of
the ARS market in early 2008, which plaintiffs contend
Citigroup and other ARS underwriters foresaw or should have
foreseen but failed adequately to disclose. Most of these matters
have been dismissed or settled. Additional information
concerning certain of the pending actions is publicly available in
court filings under the docket numbers 08 Civ. 3095 (S.D.N.Y.)
(Swain, J.), 10-722, 10-867, and 11-1270 (2d Cir.).
Lehman Brothers Bankruptcy Proceedings
Beginning in September 2010, Citigroup and Related Parties
have been named as defendants in various adversary
proceedings in the Chapter 11 bankruptcy proceedings of
Lehman Brothers Holdings Inc. (LBHI) and the liquidation
proceedings of Lehman Brothers Inc. (LBI).
On March 18, 2011, Citigroup and Related Parties were
named as defendants in an adversary proceeding asserting
claims under federal bankruptcy and state law to recover a $1
billion deposit LBI placed with Citibank, N.A., to avoid a setoff
taken by Citibank, N.A. against the deposit, and to recover
additional assets of LBI held by Citibank, N.A. and its affiliates.
On December 13, 2012, the court entered an order approving a
settlement between the parties resolving all of LBI’s claims.
Under the settlement, Citibank, N.A. retained $1.05 billion of
assets to set off against its claims and received an allowed
unsecured claim in the amount of $245 million. Additional
information concerning this adversary proceeding is publicly
available in court filings under the docket numbers 11-01681
(Bankr. S.D.N.Y.) (Peck, J.) and 08-01420 (Bankr. S.D.N.Y.)
(Peck, J.).
On February 8, 2012, Citigroup and Related Parties were
named as defendants in an adversary proceeding asserting
objections to proofs of claim filed by Citibank, N.A. and its
affiliates totaling approximately $2.6 billion, and claims under
federal bankruptcy and state law to recover $2 billion deposited
by LBHI with Citibank, N.A. against which Citibank, N.A.
asserts a right of setoff. Plaintiffs also seek avoidance of a $500
million transfer and an amendment to a guarantee in favor of
Citibank, N.A., and other relief. Additional information
concerning this adversary proceeding is publicly available in
court filings under the docket numbers 12-01044 (Bankr.
S.D.N.Y.) (Peck, J.) and 08-13555 (Bankr. S.D.N.Y.) (Peck, J.).
KIKOs
Prior to the devaluation of the Korean won in 2008, several
local banks in Korea, including a Citigroup subsidiary (CKI),
entered into foreign exchange derivative transactions with small
and medium-size export businesses (SMEs) to enable the SMEs
to hedge their currency risk. The derivatives had “knock-in,
knock-out” features. Following the devaluation of the won,
many of these SMEs incurred significant losses on the
derivative transactions and filed civil lawsuits against the banks,
including CKI. The claims generally allege that the products
were not suitable and that the risk disclosure was inadequate.
As of December 31, 2012, there were 88 civil lawsuits filed
by SMEs against CKI. To date, 82 decisions have been rendered
at the district court level, and CKI has prevailed in 64 of those
decisions. In the other 18 decisions, plaintiffs were awarded
only a portion of the damages sought. The damage awards total
in the aggregate approximately $28.5 million. CKI is appealing
the 18 adverse decisions. A significant number of plaintiffs that
had decisions rendered against them are also filing appeals,
including plaintiffs that were awarded less than all of the
damages they sought.
Of the 82 cases decided at the district court level, 60 have
been appealed to the high court, including the 18 in which an
adverse decision was rendered against CKI in the district court.
Of the 17 appeals decided at high court level, CKI prevailed in
11 cases, and in the other six plaintiffs were awarded partial
damages, which increased the aggregate damages awarded
against CKI by a further $10.9 million. CKI is appealing five of
the adverse decisions to the Korean Supreme Court.
151
Interbank Offered Rates–Related Litigation and Other
Matters
Regulatory Actions: Government agencies in the U.S., including
the Department of Justice, the Commodity Futures Trading
Commission, the SEC, and a consortium of state attorneys
general, as well as agencies in other jurisdictions, including the
European Commission, the U.K. Financial Services Authority,
the Japanese Financial Services Agency (JFSA), the Canadian
Competition Bureau, the Swiss Competition Commission and
the Monetary Authority of Singapore, are conducting
investigations or making inquiries regarding submissions made
by panel banks to bodies that publish various interbank offered
rates and other benchmark rates. As members of a number of
such panels, Citigroup subsidiaries have received requests for
information and documents. Citigroup is cooperating with the
investigations and inquiries and is responding to the requests.
On December 16, 2011, the JFSA took administrative
action against Citigroup Global Markets Japan Inc. (CGMJ) for,
among other things, certain communications made by two
CGMJ traders about the Euroyen Tokyo interbank offered rate
(TIBOR) and the Japanese yen London interbank offered rate
(LIBOR). The JFSA issued a business improvement order and
suspended CGMJ’s trading in derivatives related to yen LIBOR
and Euroyen and yen TIBOR from January 10 to January 23,
2012. On the same day, the JFSA also took administrative
action against Citibank Japan Ltd. (CJL) for conduct arising out
of CJL’s retail business and also noted that the communications
made by the CGMJ traders to employees of CJL about Euroyen
TIBOR had not been properly reported to CJL’s management
team.
Terra Firma Litigation
In December 2009, the general partners of two related private
equity funds filed a complaint in New York state court,
subsequently removed to the United States District Court for the
Southern District of New York, asserting multi-billion-dollar
fraud and other common law claims against certain Citigroup
affiliates arising out of the May 2007 auction of the music
company EMI, in which Citigroup acted as advisor to EMI and
as a lender to plaintiffs’ acquisition vehicle. Following a jury
trial, a verdict was returned in favor of Citigroup on November
4, 2010. Plaintiffs have appealed the judgment with respect to
certain of their claims to the United States Court of Appeals for
the Second Circuit. Argument was held on October 4, 2012, and
the matter is pending. Additional information concerning this
action is publicly available in court filings under the docket
numbers 09 Civ. 10459 (S.D.N.Y.) (Rakoff, J.) and 11-0126 (2d
Cir.).
Terra Securities–Related Litigation
Certain Citigroup affiliates have been named as defendants in an
action brought by seven Norwegian municipalities, asserting
claims for fraud and negligent misrepresentation arising out of
the municipalities’ purchase of fund-linked notes acquired from
the now-defunct securities firm, Terra Securities, which in turn
acquired those notes from Citigroup. Plaintiffs seek
approximately $120 million in compensatory damages, plus
punitive damages. Defendants’ motion for summary judgment is
pending. Additional information related to this action is publicly
available in court filings under the docket number 09 Civ. 7058
(S.D.N.Y.) (Marrero, J.).
Antitrust and Other Litigation: Citigroup and Citibank, N.A.,
along with other U.S. Dollar (USD) LIBOR panel banks, are
defendants in a multi-district litigation (MDL) proceeding
before Judge Buchwald in the United States District Court for
the Southern District of New York captioned IN RE LIBORBASED FINANCIAL INSTRUMENTS ANTITRUST
LITIGATION, appearing under docket number 1:11-md-2262
(S.D.N.Y.). Judge Buchwald has appointed interim lead class
counsel for, and consolidated amended complaints have been
filed on behalf of, three separate putative classes of plaintiffs: (i)
over-the-counter (OTC) purchasers of derivative instruments
tied to USD LIBOR; (ii) purchasers of exchange-traded
derivative instruments tied to USD LIBOR; and (iii) indirect
OTC purchasers of U.S. debt securities. Each of these putative
classes alleges that the panel bank defendants conspired to
suppress USD LIBOR in violation of the Sherman Act and/or
the Commodity Exchange Act, thereby causing plaintiffs to
suffer losses on the instruments they purchased. Also
consolidated into the MDL proceeding are individual civil
actions commenced by various Charles Schwab entities alleging
that the panel bank defendants conspired to suppress the USD
LIBOR rates in violation of the Sherman Act, the Racketeer
Influenced and Corrupt Organizations Act (RICO), and
California state law, causing the Schwab entities to suffer losses
on USD LIBOR-linked financial instruments they owned.
Plaintiffs in these actions seek compensatory damages and
restitution for losses caused by the alleged violations, as well as
treble damages under the Sherman Act. The Schwab and OTC
plaintiffs also seek injunctive relief.
Tribune Company Bankruptcy
Certain Citigroup affiliates have been named as defendants in
adversary proceedings related to the Chapter 11 cases of
Tribune Company (Tribune) filed in the United States
Bankruptcy Court for the District of Delaware, asserting claims
arising out of the approximately $11 billion leveraged buyout of
Tribune in 2007. On July 23, 2012, the Bankruptcy Court
confirmed the Fourth Amended Joint Plan of Reorganization,
which provides for releases of claims against Citigroup, other
than those against CGMI relating to its role as advisor to
Tribune. Certain Citigroup affiliates also have been named as
defendants in actions brought by Tribune creditors alleging state
law constructive fraudulent conveyance claims. These matters
are pending in the United States District Court for the Southern
District of New York as part of a multi-district litigation.
Additional information concerning these actions is publicly
available in court filings under the docket numbers 08-13141
(Bankr. D. Del.) (Carey, J.), 11 MD 02296 (S.D.N.Y.) (Pauley,
J.), and 12 MC 2296 (S.D.N.Y.) (Pauley, J.).
152
Separately, on April 30, 2012, an action was filed in the
United States District Court for the Southern District of New
York on behalf of a putative class of persons and entities who
transacted in exchange-traded Euroyen futures and option
contracts between June 2006 and September 2010. This action is
captioned LAYDON V. MIZUHO BANK LTD. ET AL. The
plaintiff filed an amended complaint on November 30, 2012,
naming as defendants banks that are or were members of the
panels making submissions used in the calculation of Japanese
yen LIBOR and TIBOR, and certain affiliates of some of those
banks, including Citibank, N.A., Citigroup, CJL and CGMJ. The
complaint alleges that the plaintiffs were injured as a result of
purported manipulation of those reference interest rates, and
asserts claims arising under the Commodity Exchange Act and
the Sherman Act and for unjust enrichment. Plaintiffs seek
compensatory damages, treble damages under the Sherman Act,
and injunctive relief. Additional information concerning this
action is publicly available in court filings under the docket
number 12-cv-3419 (S.D.N.Y.) (Daniels, J.).
Citigroup and Citibank, N.A., along with other defendants,
have moved to dismiss all of the above actions that were
consolidated into the MDL proceeding as of June 29, 2012.
Briefing on the motion to dismiss was completed on September
27, 2012. Judge Buchwald has stayed all subsequently filed
actions that fall within the scope of the MDL until the motion to
dismiss has been resolved. Citigroup and/or Citibank, N.A. are
named in the 17 such stayed actions that have been consolidated
with or marked as related to the MDL proceeding.
Eleven of these actions have been brought on behalf of
various putative plaintiff classes, including (i) banks, savings
and loans institutions and credit unions that allegedly suffered
losses on loans they made at interest rates tied to USD LIBOR,
(ii) holders of adjustable-rate mortgages tied to USD LIBOR,
and (iii) individual and municipal purchasers of various
financial instruments tied to USD LIBOR. The remaining six
actions have been brought by individual plaintiffs, including an
entity that allegedly purchased municipal bonds and various
California counties, municipalities, and related public entities
that invested in various derivatives tied to USD LIBOR.
Plaintiffs in each of the 17 stayed actions allege that the panel
bank defendants manipulated USD LIBOR in violation of the
Sherman Act, RICO, and/or state antitrust and racketeering
laws, and several plaintiffs also assert common law claims,
including fraud, unjust enrichment, negligent misrepresentation,
interference with economic advantage, and/or breach of the
implied covenant of good faith and fair dealing. Plaintiffs seek
compensatory damages and, where authorized by statute, treble
damages and injunctive relief.
Additional information concerning the stayed actions is
publicly available in court filings under docket numbers 1:12cv-4205 (S.D.N.Y.) (Buchwald, J.), 1:12-cv-5723 (S.D.N.Y.)
(Buchwald, J.), 1:12-cv-5822 (S.D.N.Y.) (Buchwald, J.), 1:12cv-6056 (S.D.N.Y.) (Buchwald, J.), 1:12-cv-7461 (S.D.N.Y.)
(Buchwald, J.), 2:12-cv-10903 (C.D. Calif.) (Snyder, J.), 3:12cv-6571 (N.D. Calif.) (Conti, J.), 3:13-cv-106 (N.D. Calif.)
(Beeler, J.), 4:13-cv-108 (N.D. Calif.) (Ryu, J.), 3:13-cv-109
(N.D. Calif.) (Laporte, J.), 5:13-cv-62 (C.D. Calif.) (Phillips, J.),
3:13-cv-48 (S.D. Calif.) (Huff, J.), 1:13-cv-346 (S.D.N.Y.)
(Buchwald, J.), 1:13-cv-407 (S.D.N.Y.) (Buchwald, J.), 5:13-cv122 (C.D. Calif.) (Bernal, J.), 1:13-cv-981 (S.D.N.Y.)
(Buchwald, J.), and 1:13-cv-1016 (S.D.N.Y.) (Buchwald, J.).
In addition, on November 27, 2012, an action captioned
MARAGOS V. BANK OF AMERICA CORP. ET AL. was
filed on behalf of the County of Nassau against various USD
LIBOR panel banks, including Citibank, N.A., and the other
defendants with whom the plaintiff had entered into interest rate
swap transactions. The action was commenced in state court and
subsequently removed to the United States District Court for the
Eastern District of New York. The plaintiff asserts claims for
fraud and deceptive trade practices under New York law against
the panel bank defendants based on allegations that the panel
banks colluded to artificially suppress USD LIBOR, thereby
lowering the payments the plaintiff received in connection with
various interest rate swap transactions. The plaintiff seeks
compensatory damages and treble damages. The defendants
have sought consolidation of this action with the MDL
proceeding. Additional information concerning this action is
publicly available in court filings under docket number 2:12-cv6294 (E.D.N.Y.) (Spatt, J.).
Interchange Fees Litigation
Beginning in 2005, several putative class actions were filed
against Citigroup and Related Parties, together with Visa,
MasterCard and other banks and their affiliates, in various
federal district courts and consolidated with other related cases
in a multi-district litigation proceeding before Judge Gleeson in
the United States District Court for the Eastern District of New
York. This proceeding is captioned IN RE PAYMENT CARD
INTERCHANGE FEE AND MERCHANT DISCOUNT
ANTITRUST LITIGATION.
The plaintiffs, merchants that accept Visa- and MasterCardbranded payment cards as well as membership associations that
claim to represent certain groups of merchants, allege, among
other things, that defendants have engaged in conspiracies to set
the price of interchange and merchant discount fees on credit
and debit card transactions and to restrain trade through various
Visa and MasterCard rules governing merchant conduct, all in
violation of Section 1 of the Sherman Act and certain California
statutes. Plaintiffs seek, on behalf of classes of U.S. merchants,
treble damages, including all interchange fees paid to all Visa
and MasterCard members with respect to Visa and MasterCard
transactions in the U.S. since at least January 1, 2004, as well as
injunctive relief. Supplemental complaints have also been filed
against defendants in the putative class actions alleging that
Visa’s and MasterCard’s respective initial public offerings were
anticompetitive and violated Section 7 of the Clayton Act, and
that MasterCard’s initial public offering constituted a fraudulent
conveyance.
On July 13, 2012, all parties to the putative class actions,
including Citigroup and Related Parties, entered into a
Memorandum of Understanding (MOU) setting forth the
material terms of a class settlement. The class settlement
contemplated by the MOU provides for, among other things, a
total payment by all defendants to the class of $6.05 billion; a
rebate to merchants participating in the damages class
settlement of 10 basis points on interchange collected for a
period of eight months by the Visa and MasterCard networks;
changes to certain network rules that would permit merchants to
surcharge some payment card transactions subject to certain
limitations and conditions, including disclosure to consumers at
the point of sale; and broad releases in favor of the defendants.
Subsequently, all defendants and certain of the plaintiffs who
had entered into the MOU executed a settlement agreement
consistent with the terms of the MOU.
153
Prosecutors in Parma and Milan, Italy, have commenced
criminal proceedings against certain current and former
Citigroup employees (along with numerous other investment
banks and certain of their current and former employees, as well
as former Parmalat officers and accountants). In the event of an
adverse judgment against the individuals in question, the
authorities could seek administrative remedies against
Citigroup. On April 18, 2011, the Milan criminal court acquitted
the sole Citigroup defendant of market-rigging charges. The
Milan prosecutors have appealed part of that judgment and seek
administrative remedies against Citigroup, which may include
disgorgement of 70 million Euro and a fine of 900,000 Euro.
Additionally, the Parmalat administrator filed a purported civil
complaint against Citigroup in the context of the Parma criminal
proceedings, which seeks 14 billion Euro in damages. In
January 2011, certain Parmalat institutional investors filed a
civil complaint seeking damages of approximately 130 million
Euro against Citigroup and other financial institutions.
On November 27, 2012, the court entered an order granting
preliminary approval of the proposed class settlements and
provisionally certified two classes for settlement purposes only.
The court scheduled a final approval hearing for September 12,
2013. Several large merchants and associations have stated
publicly that they intend to object to or opt out of the settlement,
and have appealed from the court’s preliminary approval of the
proposed class settlements.
Visa and MasterCard have also entered into a settlement
agreement with merchants that filed individual, non-class
actions. While Citigroup and Related Parties are not parties to
the individual merchant non-class settlement agreement, they
are contributing to that settlement, and the agreement provides
for a release of claims against Citigroup and Related Parties.
Additional information concerning these consolidated
actions is publicly available in court filings under the docket
number MDL 05-1720 (E.D.N.Y.) (Gleeson, J.).
Regulatory Review of Consumer “Add-On” Products
Certain of Citi’s consumer businesses, including its Citi-branded
and retail services cards businesses, offer or have in the past
offered or participated in the marketing, distribution, or
servicing of products, such as payment protection and identity
monitoring, that are ancillary to the provision of credit to the
consumer (add-on products). These add-on products have been
the subject of enforcement actions against other institutions by
regulators, including the Consumer Financial Protection Bureau
(CFPB), the OCC, and the FDIC, that have resulted in orders to
pay restitution to customers and penalties in substantial
amounts. Certain state attorneys general also have filed
industry-wide suits under state consumer protection statutes,
alleging deceptive marketing practices in connection with the
sale of payment protection products and demanding restitution
and statutory damages for instate customers. In light of the
current regulatory focus on add-on products and the actions
regulators have taken in relation to other credit card issuers, one
or more regulators may order that Citi pay restitution to
customers and/or impose penalties or other relief arising from
Citi’s marketing, distribution, or servicing of add-on products.
Allied Irish Bank Litigation
In 2003, Allied Irish Bank (AIB) filed a complaint in the United
States District Court for the Southern District of New York
seeking to hold Citibank, N.A. and Bank of America, N.A.,
former prime brokers for AIB’s subsidiary Allfirst Bank
(Allfirst), liable for losses incurred by Allfirst as a result of
fraudulent and fictitious foreign currency trades entered into by
one of Allfirst’s traders. AIB seeks compensatory damages of
approximately $500 million, plus punitive damages, from
Citibank, N.A. and Bank of America, N.A. collectively. In 2006,
the court granted in part and denied in part defendants’ motion
to dismiss. In 2009, AIB filed an amended complaint. In 2012,
the parties completed discovery and the court granted Citibank,
N.A.’s motion to strike AIB’s demand for a jury trial. Citibank,
N.A. also filed a motion for summary judgment, which is
pending. AIB has announced a settlement with Bank of
America, N.A. for an undisclosed amount, leaving Citibank,
N.A. as the sole remaining defendant. Additional information
concerning this matter is publicly available in court filings under
docket number 03 Civ. 3748 (S.D.N.Y.) (Batts, J.).
Settlement Payments
Payments required in settlement agreements described above
have been made or are covered by existing litigation accruals.
*
*
*
Additional matters asserting claims similar to those described
above may be filed in the future.
Parmalat Litigation and Related Matters
On July 29, 2004, Dr. Enrico Bondi, the Extraordinary
Commissioner appointed under Italian law to oversee the
administration of various Parmalat companies, filed a complaint
in New Jersey state court against Citigroup and Related Parties
alleging, among other things, that the defendants “facilitated” a
number of frauds by Parmalat insiders. On October 20, 2008,
following trial, a jury rendered a verdict in Citigroup’s favor on
Parmalat’s claims and in favor of Citibank, N.A. on three
counterclaims. Parmalat has exhausted all appeals, and the
judgment is now final. Additional information concerning this
matter is publicly available in court filings under docket number
A-2654-08T2 (N.J. Sup. Ct.).
154
29. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In millions of dollars, except per share amounts
Revenues, net of interest expense
Operating expenses
Provisions for credit losses and for benefits and
claims
Income from continuing operations before
income taxes
Income taxes (benefits)
Income from continuing operations
Income (loss) from discontinued operations, net
of taxes
Net income before attribution of
noncontrolling interests
Noncontrolling interests
Citigroup’s net income
Earnings per share (1)(2)
Basic
Income from continuing operations
Net income
Diluted
Income from continuing operations
Net income
Common stock price per share (2)
High
Low
Close
Dividends per share of common stock
Fourth
$17,917
13,709
2012
Third
Second
$ 13,703
$18,387
12,092
11,994
3,113
$ 1,095
(214)
$ 1,309
Fourth
$16,918
13,053
2,696
2,900
2,748
3,238
3,275
3,098
$ 3,697
718
$ 2,979
$ 4,042
997
$ 3,045
$ 1,117
105
$ 1,012
$ 5,029
1,286
$ 3,743
$ 4,339
986
$ 3,353
$ 4,237
1,198
$ 3,039
8
7
12
—
50
32
$ 3,743
(28)
$ 3,771
$ 3,403
62
$ 3,341
$ 3,071
72
$ 2,999
$
$
$
2,620
$ (1,009)
(1,494)
$ 485
(85)
$
2011
Third
Second
$ 20,551
$ 20,372
12,284
12,758
First
$ 19,121
12,179
$ 1,224
28
$ 1,196
$
493
25
468
$ 2,986
40
$ 2,946
$ 3,057
126
$ 2,931
$ 0.42
0.39
$ 0.15
0.15
$ 0.98
0.98
$
0.41
0.38
0.15
0.15
$ 40.17
32.75
39.56
0.01
$ 34.79
25.24
32.72
0.01
(14)
$
$
998
42
956
1.27
1.27
0.98
0.98
$ 0.32
0.32
0.95
0.95
0.95
0.95
0.32
0.31
1.23
1.23
1.08
1.09
0.98
0.99
$ 36.87
24.82
27.41
0.01
$ 38.08
28.17
36.55
0.01
$ 34.17
23.11
26.31
0.01
$ 42.88
23.96
25.62
0.01
$ 45.90
36.81
41.64
0.01
$ 51.30
43.90
44.20
—
This Note to the Consolidated Financial Statements is unaudited due to the Company’s individual quarterly results not being subject to an audit.
(1)
(2)
Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year.
All per-share amounts for all periods reflect Citigroup’s 1-for-10 reverse stock split, which was effective May 6, 2011.
[End of Consolidated Financial Statements and Notes to Consolidated Financial Statements]
155
1.11
1.12
First
$ 19,490
12,155
1.01
1.02
Exhibit 99.03
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Citigroup Inc.:
We consent to the incorporation by reference in the Registration Statements on:
Form S-3
Nos. 33-55542, 33-56940, 33-68760, 33-51101, 33-62903, 33-63663, 333-04809, 333-12439, 333-27155, 33337992, 333-42575, 333-44549, 333-48474, 333-49442, 333-51201, 333-68949, 333-90079, 333-57364, 333-75554,
333-102206, 333-103940, 333-105316, 333-106510, 333-106598, 333-108047, 333-117615, 333-122925, 333125845, 333-126744, 333-132177, 333-132370, 333-132373, 333-135163, 333-135867, 333-142849, 333-146471,
333-152454, 333-154914, 333-157386, 333-157459, 333-172554, 333-172555, 333-172562, and 333-186425.
Form S-8
Nos. 333-58460, 333-58458, 333-02811, 333-56589, 333-63016, 333-101134, 333-107166, 333-124635, 333163852, 333-166242, 333-166215, 333-173683 and 333-181647.
of Citigroup Inc. of our report dated March 1, 2013, except as to Notes 3, 4, 5, 6, 10, 11 and 17 which are as of August 30, 2013, with
respect to the consolidated balance sheets of Citigroup Inc. and subsidiaries (“Citigroup”) as of December 31, 2012 and 2011, the
related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the
years in the three-year period ended December 31, 2012, which report appears in Exhibit 99.02 of Citigroup’s Current Report on Form
8-K filed on August 30, 2013.
New York, New York
August 30, 2013
156