UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission file number 1-9924
Citigroup
Inc.
(Exact name of registrant as
specified in its charter)
Delaware | 52-1568099 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
399 Park Avenue, New York, NY | 10022 |
(Address of principal executive offices) | (Zip code) |
Registrant's telephone number, including area code: (212) 559-1000
Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.01
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes X No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes X No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes o No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). X Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
X Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes X No
The aggregate market value of Citigroup Inc. common stock held by non-affiliates of Citigroup Inc. on June 30, 2011 was approximately $121.3 billion.
Number of shares of common stock outstanding on January 31, 2012: 2,928,662,136
Documents Incorporated by Reference: Portions of the Registrant's Proxy Statement for the annual meeting of stockholders scheduled to be held on April 17, 2012, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
10-K CROSS-REFERENCE INDEX
This Annual Report on Form 10-K incorporates the requirements of the accounting profession and the Securities and Exchange Commission.
FORM 10-K | ||||
Item Number | Page | |||
Part I | ||||
1. | Business | 4–36, 40, 116–121, | ||
124–125, 156, 287–289 | ||||
1A. | Risk Factors | 55–65 | ||
1B. | Unresolved Staff Comments | Not Applicable | ||
2. | Properties | 289 | ||
3. | Legal Proceedings | 267–275 | ||
4. | Mine Safety Disclosures | Not Applicable | ||
Part II | ||||
5. | Market for Registrant's | |||
Common Equity, | ||||
Related Stockholder Matters, and Issuer Purchases of | ||||
Equity Securities | 43, 163, 285, | |||
290–291, 293 | ||||
6. | Selected Financial Data | 10–11 | ||
7. | Management's Discussion | |||
and Analysis of Financial | ||||
Condition and Results of Operations | 6–54, 66–115 | |||
7A. | Quantitative and Qualitative | |||
Disclosures About Market Risk | 66–115, 157–158, | |||
181–212, 215–259 | ||||
8. | Financial Statements and | |||
Supplementary Data | 131–286 | |||
9. | Changes in and Disagreements | |||
with Accountants on | ||||
Accounting and Financial | ||||
Disclosure | Not Applicable | |||
9A. | Controls and Procedures | 122–123 | ||
9B. | Other Information | Not Applicable |
Part III | ||||
10. | Directors, Executive Officers and | |||
Corporate Governance | 292–293, 295* | |||
11. | Executive Compensation | ** | ||
12. | Security Ownership of Certain | |||
Beneficial Owners and Management | ||||
and Related Stockholder Matters | *** | |||
13. | Certain Relationships and Related | |||
Transactions, and Director | ||||
Independence | **** | |||
14. | Principal Accounting Fees and | |||
Services | ***** | |||
Part IV | ||||
15. | Exhibits and Financial Statement | |||
Schedules |
* | For additional information regarding Citigroup's Directors, see "Corporate Governance," "Proposal 1: Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement for Citigroup's Annual Meeting of Stockholders scheduled to be held on April 17, 2012, to be filed with the SEC (the Proxy Statement), incorporated herein by reference. | |
** | See "Executive Compensation-The Personnel and Compensation Committee Report," "-Compensation Discussion and Analysis" and "-2011 Summary Compensation Table" and in the Proxy Statement, incorporated herein by reference. | |
*** | See "About the Annual Meeting," "Stock Ownership" and "Proposal 3: Approval of Amendment to the Citigroup 2009 Stock Incentive Plan" in the Proxy Statement, incorporated herein by reference. | |
**** | See "Corporate Governance-Director Independence," "-Certain Transactions and Relationships, Compensation Committee Interlocks and Insider Participation," "-Indebtedness," "Proposal 1: Election of Directors" and "Executive Compensation" in the Proxy Statement, incorporated herein by reference. | |
***** | See "Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm" in the Proxy Statement, incorporated herein by reference. |
2
CITIGROUP'S 2011 ANNUAL REPORT ON FORM 10-K
OVERVIEW | 4 | |
CITIGROUP SEGMENTS AND REGIONS | 5 | |
MANAGEMENT'S DISCUSSION AND ANALYSIS | ||
OF FINANCIAL CONDITION AND RESULTS | ||
OF OPERATIONS | 6 | |
Executive Summary | 6 | |
RESULTS OF OPERATIONS | 10 | |
Five-Year Summary of Selected | ||
Financial Data | 10 | |
SEGMENT AND BUSINESS-INCOME (LOSS) | ||
AND REVENUES | 12 | |
CITICORP | 14 | |
Global Consumer Banking | 15 | |
North America Regional Consumer Banking | 16 | |
EMEA Regional Consumer Banking | 18 | |
Latin America Regional Consumer Banking | 20 | |
Asia Regional Consumer Banking | 22 | |
Institutional Clients Group | 24 | |
Securities and Banking | 26 | |
Transaction Services | 28 | |
CITI HOLDINGS | 30 | |
Brokerage and Asset Management | 31 | |
Local Consumer Lending | 32 | |
Special Asset Pool | 35 | |
CORPORATE/OTHER | 36 | |
BALANCE SHEET REVIEW | 37 | |
Segment Balance Sheet at December 31, 2011 | 40 | |
CAPITAL RESOURCES AND LIQUIDITY | 41 | |
Capital Resources | 41 | |
Funding and Liquidity | 47 | |
Off-Balance-Sheet Arrangements | 53 | |
CONTRACTUAL OBLIGATIONS | 54 | |
RISK FACTORS | 55 | |
MANAGING GLOBAL RISK | 66 | |
Risk Management-Overview | 66 | |
Risk Aggregation and Stress Testing | 67 | |
Risk Capital | 67 | |
Credit Risk | 67 | |
Loans Outstanding | 68 | |
Details of Credit Loss Experience | 69 | |
Non-Accrual Loans and Assets, and | ||
Renegotiated Loans | 71 | |
North America Consumer Mortgage Lending | 75 | |
North America Cards | 82 | |
Consumer Loan Details | 84 | |
Consumer Loan Modification Programs | 86 |
Consumer Mortgage-Representations and | ||
Warranties | 88 | |
Securities and Banking-Sponsored Legacy Private-Label | ||
Residential Mortgage Securitizations- | ||
Representations and Warranties | 91 | |
Corporate Loan Details | 92 | |
Exposure to Commercial Real Estate | 94 | |
Market Risk | 95 | |
Operational Risk | 106 | |
Country and Cross-Border Risk | 107 | |
FAIR VALUE ADJUSTMENTS FOR | ||
DERIVATIVES AND STRUCTURED DEBT | 113 | |
CREDIT DERIVATIVES | 114 | |
SIGNIFICANT ACCOUNTING POLICIES AND | ||
SIGNIFICANT ESTIMATES | 116 | |
DISCLOSURE CONTROLS AND PROCEDURES | 122 | |
MANAGEMENT'S ANNUAL REPORT ON | ||
INTERNAL CONTROL OVER FINANCIAL | ||
REPORTING | 123 | |
FORWARD-LOOKING STATEMENTS | 124 | |
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM-INTERNAL | ||
CONTROL OVER FINANCIAL REPORTING | 126 | |
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM- | ||
CONSOLIDATED FINANCIAL STATEMENTS | 127 | |
FINANCIAL STATEMENTS AND NOTES TABLE | ||
OF CONTENTS | 129 | |
CONSOLIDATED FINANCIAL STATEMENTS | 131 | |
NOTES TO CONSOLIDATED FINANCIAL | ||
STATEMENTS | 137 | |
FINANCIAL DATA SUPPLEMENT (Unaudited) | 286 | |
Ratios | 286 | |
Average Deposit Liabilities in Offices Outside the U.S. | 286 | |
Maturity Profile of Time Deposits ($100,000 or more) | ||
in U.S. Offices | 286 | |
SUPERVISION AND REGULATION | 287 | |
Customers | 288 | |
Competition | 288 | |
Properties | 289 | |
Legal Proceedings | 289 | |
Unregistered Sales of Equity; | ||
Purchases of Equity Securities; Dividends | 290 | |
Performance Graph | 291 | |
CORPORATE INFORMATION | 292 | |
Citigroup Executive Officers | 292 | |
CITIGROUP BOARD OF DIRECTORS | 295 |
3
OVERVIEW
Citigroup's history dates back
to the founding of Citibank in 1812. Citigroup's original corporate predecessor
was incorporated in 1988 under the laws of the State of Delaware. Following a
series of transactions over a number of years, Citigroup Inc. was formed in 1998
upon the merger of Citicorp and Travelers Group
Inc.
Citigroup is a global diversified financial services holding company
whose businesses provide consumers, corporations, governments and institutions
with a broad range of financial products and services. Citi has approximately
200 million customer accounts and does business in more than 160 countries and
jurisdictions.
Citigroup currently operates, for management reporting purposes, via two
primary business segments: Citicorp, consisting of Citi's Global Consumer Banking businesses and Institutional Clients Group ; and Citi Holdings, consisting of Brokerage and Asset Management, Local Consumer
Lending and Special Asset Pool . For a further description of the business
segments and the products and services they provide, see "Citigroup Segments"
below, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 4 to the Consolidated Financial Statements.
Throughout this report, "Citigroup," "Citi" and
"the Company" refer to Citigroup Inc. and its consolidated
subsidiaries.
Additional information about Citigroup is available on Citi's Web site at www.citigroup.com . Citigroup's recent annual reports on Form 10-K,
quarterly reports on Form 10-Q, proxy statements, as well as other filings with
the SEC, are available free of charge through the Citi's Web site by clicking on
the "Investors" page and selecting "All SEC Filings." The SEC's Web site also
contains current reports, information statements, and other information
regarding Citi at www.sec.gov .
Within this Form 10-K, please refer to the tables of contents on pages 3
and 129 for page references to Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Consolidated Financial
Statements, respectively.
At December 31, 2011, Citi had approximately 266,000 full-time employees
compared to approximately 260,000 full-time employees at December 31,
2010.
Please see "Risk Factors" below for a discussion of
certain
risks and uncertainties that could materially impact
Citigroup's financial
condition and results of operations.
Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation.
4
As described above, Citigroup is managed pursuant to the following segments:
* Effective in the first quarter of 2012, Citi will transfer the substantial majority of the retail partner cards business (approximately $45 billion of assets, including approximately $41 billion of loans) from Citi Holdings – Local Consumer Lending to Citicorp- North America RCB .
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.
(1) North America includes the U.S., Canada and Puerto Rico, Latin America includes Mexico, and Asia includes Japan.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
Market and Economic
Environment
During 2011,
Citigroup remained focused on executing its strategy of growth through
increasing the returns on and investments in its core businesses of
Citicorp- Global Consumer
Banking and Institutional Clients Group -while continuing to reduce the assets and
businesses within Citi Holdings in an economically rational manner. While Citi
continued to make progress in these areas during the year, its 2011 operating
results were impacted by the ongoing challenging operating environment,
particularly in the second half of the year, as macroeconomic concerns,
including in the U.S. and the Eurozone, weighed heavily on investor and
corporate confidence. Market activity was down globally, with a particular
impact on capital markets-related activities in the fourth quarter of 2011. This
affected Citigroup's results of operations in many businesses, including not
only Securities and
Banking , but also the Securities
and Fund Services business in Transaction Services and
investment sales in Global
Consumer Banking . Citi believes
that the European sovereign debt crisis and its potential impact on the global
markets and growth will likely continue to create macro uncertainty and remain
an issue until the market, investors and Citi's clients and customers believe
that a comprehensive resolution to the crisis is structured, and achievable.
Such uncertainty could have a continued negative impact on investor activity,
and thus on Citi's activity levels and results of operations, in
2012.
Compounding this continuing macroeconomic uncertainty is the ongoing
uncertainty facing Citigroup and its businesses as a result of the numerous
regulatory initiatives underway, both in the U.S. and internationally. As of
December 31, 2011, regulatory changes in significant areas, such as Citi's
future capital requirements and prudential standards, the proposed
implementation of the "Volcker Rule" and the proposed regulation of the
derivatives markets, were incomplete and significant rulemaking and
interpretation remained. See "Risk Factors-Regulatory Risks" below. The
continued uncertainty, including the potential costs, associated with the actual
implementation of these changes will continue to require significant attention
by Citi's management. In addition, it is also not clear what the cumulative
impact of regulatory reform will be.
Citigroup
Citigroup reported net income of $11.1 billion and diluted EPS of $3.63
per share in 2011, compared to $10.6 billion and $3.54 per share, respectively,
in 2010. In 2011, results included a net positive impact of $1.8 billion from
credit valuation adjustments (CVA) on derivatives (excluding monolines), net of
hedges, and debt valuation adjustments (DVA) on Citigroup's fair value option
debt, compared to a net negative impact of $(469) million in 2010. In addition,
Citi has adjusted its 2011 results of operations that were previously announced
on January 17, 2012 for an additional $209 million (after tax) charge. This
charge relates to the agreement in principle with the United States and state attorneys general announced on February 9, 2012 regarding
the settlement of a number of investigations into residential loan servicing and
origination litigation, as well as the resolution of related mortgage litigation
(see Notes 29, 30 and 32 to the Consolidated Financial Statements). Excluding
CVA/DVA, Citi's net income declined $952 million, or 9%, to $9.9 billion in
2011, reflecting lower revenues and higher operating expenses as compared to
2010, partially offset by a significant decline in credit
costs.
Citi's revenues of $78.4 billion were down $8.2 billion, or 10%, compared
to 2010. Excluding CVA/DVA, revenues of $76.5 billion were down $10.5 billion,
or 12%, as lower revenues in Citi Holdings and Securities and Banking more than offset growth in Global Consumer Banking and Transaction Services . Net
interest revenues decreased by $5.7 billion, or 11%, to $48.4 billion in 2011 as
compared to 2010, primarily due to continued declining loan balances and lower
interest-earning assets in Citi Holdings. Non-interest revenues, excluding
CVA/DVA, declined by $4.8 billion, or 15%, to $28.1 billion in 2011 as compared
to 2010, driven by lower revenues in Citi Holdings and Securities and Banking .
Because of Citi's extensive global operations,
foreign exchange translation also impacts Citi's results of operations as Citi
translates revenues, expenses, loan balances and other metrics from foreign
currencies to U.S. dollars in preparing its financial statements. During 2011,
the U.S. dollar generally depreciated versus local currencies in which Citi
operates. As a result, the impact of foreign exchange translation (as used
throughout this Form 10-K, FX translation) accounted for an approximately 1%
growth in Citi's revenues and 2% growth in expenses, while contributing less
than 1% to Citi's pretax net income for the year.
6
Expenses
Citigroup expenses were $50.9 billion in 2011, up
$3.6 billion, or 8%, compared to 2010. Over two-thirds of this increase resulted
from higher legal and related costs (approximately $1.5 billion) and higher
repositioning charges (approximately $200 million, including severance) as
compared to 2010, as well as the impact of FX translation (approximately $800
million). Excluding these items, expenses were up $1.0 billion, or 2%, compared
to the prior year.
Investment spending was $3.9 billion higher in
2011, of which roughly half was funded with efficiency savings, primarily in
operations and technology, labor reengineering and business support functions
(e.g., call centers and collections) of $1.9 billion. The $3.9 billion increase
in investment spending in 2011 included higher investments in Global Consumer Banking ($1.6 billion, including incremental cards
marketing campaigns and new branch openings), Securities and Banking (approximately $800 million, including new hires
and technology investments) and Transaction Services (approximately $600 million, including new mandates and platform enhancements),
as well as additional firm-wide initiatives and investments to comply with
regulatory requirements. All other expense increases, including higher
volume-related costs in Citicorp, were more than offset by a decline in Citi
Holdings expenses. While Citi will continue some level of incremental investment
spending in its businesses going forward, Citi currently believes these
increases in investments will be self-funded through ongoing reengineering and
efficiency savings. Accordingly, Citi believes that the increased level of
investment spending incurred during the latter part of 2010 and 2011 was
largely completed by year end 2011.
Citicorp expenses were $39.6 billion in 2011, up $3.5 billion, or 10%,
compared to 2010. Over one-third of this increase resulted from higher legal and
related costs and higher repositioning charges (including severance) as compared
to 2010, as well as the impact of FX translation. The remainder of the increase
was primarily driven by investment spending (as described above), partially
offset by ongoing productivity savings and other expense reductions.
Citi Holdings expenses were $8.8 billion in 2011,
down $824 million, or 9%, principally due to the continued decline in assets,
partially offset by higher legal and related costs.
Credit
Costs
Credit trends for
Citigroup continued to improve in 2011, particularly for Citi's North America Citi-branded and retail partner cards businesses,
as well as its North
America mortgage portfolios in
Citi Holdings, although the pace of improvement in these businesses slowed.
Citi's total provisions for credit losses and for benefits and claims of $12.8
billion declined $13.2 billion, or 51%, from 2010. Net credit losses of $20.0
billion in 2011 were down $10.8 billion, or 35%, reflecting improvement in both
Consumer and Corporate credit trends. Consumer net credit losses declined $10.0
billion, or 35%, to $18.4 billion, driven by continued improvement in credit in North America Citi-branded cards and retail partner cards and North America real estate lending in Citi Holdings. Corporate
net credit losses decreased $810 million, or 33%, to $1.6 billion, as credit
quality continued to improve in the Corporate
portfolio.
The net release of allowance for loan losses and unfunded lending
commitments was $8.2 billion in 2011, compared to a net release of $5.8 billion
in 2010. Of the $8.2 billion net reserve release in 2011, $5.9 billion related
to Consumer and was mainly driven by North America Citi-branded
cards and retail partner cards. The $2.3 billion net Corporate reserve release
reflected continued improvement in Corporate credit trends, partially offset by
loan growth.
More than half of the net credit reserve release in 2011, or $4.8
billion, was attributable to Citi Holdings. The $3.5 billion net credit release
in Citicorp increased from $2.2 billion in the prior year, as a higher net
release in Citi-branded cards in North America was
partially offset by lower net releases in international Regional Consumer Banking and the Corporate portfolio, each driven by loan
growth.
7
Capital and Loan Loss
Reserve Positions
Citigroup's capital and loan loss reserve positions remained strong at
year end 2011. Citigroup's Tier 1 Capital ratio was 13.6% and the Tier 1 Common
ratio was 11.8%.
Citigroup's total allowance for loan
losses was $30.1 billion at year end 2011, or 4.7% of total loans, down from
$40.7 billion, or 6.3% of total loans, at the end of the prior year. The decline
in the total allowance for loan losses reflected asset sales, lower non-accrual
loans, and overall continued improvement in the credit quality of Citi's loan
portfolios. The Consumer allowance for loan losses was $27.2 billion, or 6.45%,
of total Consumer loans at year end 2011, compared to $35.4 billion, or 7.80%,
of total Consumer loans at year end 2010. See details of "Credit Loss
Experience-Allowance for Loan Losses" below for additional information on Citi's
loan loss coverage ratios as of December 31,
2011.
Citigroup's non-accrual loans of $11.2 billion at year end 2011 declined
42% from the prior year, and the allowance for loan losses represented 268% of
non-accrual loans.
Citicorp
Citicorp
net income of $14.4 billion in 2011 decreased by $269 million, or 2%, from the
prior year. Excluding CVA/DVA, Citicorp's net income declined $1.6
billion, or 10.6%, to $13.4 billion in 2011, reflecting lower revenues and
higher operating expenses, partially offset by the significantly lower credit
costs. Asia and Latin America contributed
roughly half of Citicorp's net income for the year.
Citicorp revenues were $64.6 billion, down $989
million, or 2%, from 2010. Excluding CVA/DVA, revenues of $62.8 billion were
down $3.1 billion, or 5%, as compared to 2010. Net interest revenues decreased
by $450 million, or 1%, to $38.1 billion, as lower revenues in North America Regional Consumer
Banking and Securities and Banking more than offset growth in Latin America and Asia Regional Consumer Banking and Transaction
Services . Non-interest revenues,
excluding CVA/DVA, declined by $2.7 billion, or 10%, to $24.7 billion in 2011 as
compared to 2010, driven by lower revenues in Securities and Banking .
Global Consumer Banking revenues of $32.6 billion were up $211 million
year-over-year, as continued growth in Asia and Latin America Regional Consumer
Banking was partially offset by
lower revenues in North America
Regional Consumer Banking . The
2011 results in Global Consumer
Banking included continued
momentum in Citi's international regions, as well as early signs of growth in
its North America business:
Securities and
Banking revenues of $21.4
billion decreased 7% year-over-year. Excluding CVA/DVA (for details on Securities and
Banking CVA/DVA amounts, see
" Institutional Clients
Group-Securities and Banking "
below), revenues were $19.7 billion, down 16% from the prior year, due primarily
to the continued challenging macroeconomic environment, which resulted in lower
revenues across fixed income and equity markets as well as investment
banking.
Fixed income markets revenues, which
constituted over 50% of Securities and
Banking revenues in 2011, of $10.9
billion, excluding CVA/DVA, decreased 24% in 2011 as compared to 2010, driven
primarily by a decline in credit-related and securitized products and, to a
lesser extent, a decline in rates and currencies. Equity markets revenues of
$2.4 billion, excluding CVA/DVA, were down 35% year-over-year, mainly driven by
weak trading performance in equity derivatives as well as losses in equity
proprietary trading resulting from the wind down of this business, which was
complete as of December 31, 2011. Investment banking revenues of $3.3 billion
were down 14% in 2011 as compared to 2010, driven by lower market activity
levels across all products. Lending revenues of $1.8 billion were up $840
million, from $962 million in 2010, primarily due to net hedging gains of $73
million in 2011, as compared to net hedging losses of $711 million in 2010,
driven by spread tightening in Citi's lending portfolio.
Transaction Services revenues were $10.6 billion in 2011, up 5% from
the prior year, driven by growth in Treasury and Trade Solutions as well as
Securities and Fund Services. Revenues grew in 2011 in all international regions
as strong growth in business volumes was partially offset by continued spread
compression. Average deposits and other customer liabilities grew 9% in 2011,
while assets under custody remained relatively flat year over year.
Citicorp end of period loans increased 14% in 2011
to $465.4 billion, with 7% growth in Consumer loans and 24% growth in Corporate
loans.
8
Citi
Holdings
Citi Holdings'
net loss of $(2.6) billion in 2011 improved by $1.6 billion as compared to the
net loss in 2010. The improvement in 2011 reflected a significant decline in
credit costs and lower operating expenses, given the continued decline in
assets, partially offset by lower revenues.
While Citi Holdings' impact on Citi has been declining, it will likely
continue to present a headwind for Citi's overall performance due to, among
other factors, the lower percentage of interest-earning assets remaining in Citi
Holdings, the slower pace of asset reductions and the transfer of the
substantial majority of retail partner cards out of Citi Holdings into
Citicorp- North America Regional
Consumer Banking in the first
quarter of 2012. During the first quarter of 2012, Citi will republish its
historical segment reporting for Citicorp and Citi Holdings to reflect this
transfer in prior periods. The adjusted net loss in Citi Holdings for these
historical periods will be higher than previously reported, as the retail
partner cards business in Local
Consumer Lending was the primary
source of profitability in Citi Holdings.
Citi
Holdings' revenues declined 33% to $12.9 billion from the prior year. Net
interest revenues decreased by $4.5 billion, or 30%, to $10.3 billion, primarily
due to the decline in assets, including lower interest-earning assets in the Special Asset Pool . Non-interest revenues declined by $1.9 billion,
or 42%, to $2.6 billion in 2011, driven by lower gains on asset sales and other
revenue marks as compared to 2010, as well as divestitures.
Citi Holdings' assets declined $90 billion, or 25%, to $269 billion at
the end of 2011, although Citi believes the pace of asset wind-down in Citi
Holdings will decrease going forward. The decline during 2011 reflected nearly
$49 billion in asset sales and business dispositions, $35 billion in net run-off
and amortization and approximately $6 billion in net cost of credit and net
asset marks. As of December 31, 2011, Local Consumer Lending continued to represent the largest segment within Citi Holdings, with $201
billion of assets. Over half of Local Consumer Lending assets, or approximately $109 billion, were related to North America real estate lending. As of December 31, 2011,
there were approximately $10 billion of loan loss reserves allocated to North America real estate lending in Citi Holdings,
representing roughly 31 months of coincident net credit loss coverage.
At the end of 2011, Citi Holdings assets comprised
approximately 14% of total Citigroup GAAP assets and 25% of its risk-weighted
assets. The first quarter of 2012 transfer of the substantial majority of the
retail partner cards business (approximately $45 billion of assets, including
approximately $41 billion of loans) will result in Citi Holdings comprising
approximately 12% of total Citigroup GAAP assets and 21% of risk-weighted
assets.
9
RESULTS OF OPERATIONS
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA-PAGE 1 | Citigroup Inc. and Consolidated Subsidiaries | ||||||||||||||
In millions of dollars, except per-share amounts, ratios and direct staff | 2011 | (1) | 2010 | (2)(3) | 2009 | (3) | 2008 | (3) | 2007 | (3) | |||||
Net interest revenue | $ | 48,447 | $ | 54,186 | $ | 48,496 | $ | 53,366 | $ | 45,300 | |||||
Non-interest revenue | 29,906 | 32,415 | 31,789 | (1,767 | ) | 32,000 | |||||||||
Revenues, net of interest expense | $ | 78,353 | $ | 86,601 | $ | 80,285 | $ | 51,599 | $ | 77,300 | |||||
Operating expenses | 50,933 | 47,375 | 47,822 | 69,240 | 58,737 | ||||||||||
Provisions for credit losses and for benefits and claims | 12,796 | 26,042 | 40,262 | 34,714 | 17,917 | ||||||||||
Income (loss) from continuing operations before income taxes | $ | 14,624 | $ | 13,184 | $ | (7,799 | ) | $ | (52,355 | ) | $ | 646 | |||
Income taxes (benefits) | 3,521 | 2,233 | (6,733 | ) | (20,326 | ) | (2,546 | ) | |||||||
Income (loss) from continuing operations | $ | 11,103 | $ | 10,951 | $ | (1,066 | ) | $ | (32,029 | ) | $ | 3,192 | |||
Income (loss) from discontinued operations, net of taxes (4) | 112 | (68 | ) | (445 | ) | 4,002 | 708 | ||||||||
Net income (loss) before attribution of noncontrolling interests | $ | 11,215 | $ | 10,883 | $ | (1,511 | ) | $ | (28,027 | ) | $ | 3,900 | |||
Net income (loss) attributable to noncontrolling interests | 148 | 281 | 95 | (343 | ) | 283 | |||||||||
Citigroup's net income (loss) | $ | 11,067 | $ | 10,602 | $ | (1,606 | ) | $ | (27,684 | ) | $ | 3,617 | |||
Less: | |||||||||||||||
Preferred dividends-Basic | $ | 26 | $ | 9 | $ | 2,988 | $ | 1,695 | $ | 36 | |||||
Impact of the conversion price reset related to the $12.5 billion | |||||||||||||||
convertible preferred stock private issuance-Basic | - | - | 1,285 | - | - | ||||||||||
Preferred stock Series H discount accretion-Basic | - | - | 123 | 37 | - | ||||||||||
Impact of the public and private preferred stock exchange offer | - | - | 3,242 | - | - | ||||||||||
Dividends and undistributed earnings allocated to employee restricted | |||||||||||||||
and deferred shares that contain nonforfeitable rights to dividends, | |||||||||||||||
applicable to Basic EPS | 186 | 90 | 2 | 221 | 261 | ||||||||||
Income (loss) allocated to unrestricted common shareholders for Basic EPS | $ | 10,855 | $ | 10,503 | $ | (9,246 | ) | $ | (29,637 | ) | $ | 3,320 | |||
Less: Convertible preferred stock dividends (5) | - | - | (540 | ) | (877 | ) | - | ||||||||
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 | 17 | 2 | - | - | - | ||||||||||
Income (loss) allocated to unrestricted common shareholders for diluted EPS (5) | $ | 10,872 | $ | 10,505 | $ | (8,706 | ) | $ | (28,760 | ) | $ | 3,320 | |||
Earnings per share (6) | |||||||||||||||
Basic | |||||||||||||||
Income (loss) from continuing operations | 3.69 | 3.66 | (7.61 | ) | (63.89 | ) | 5.32 | ||||||||
Net income (loss) | 3.73 | 3.65 | (7.99 | ) | (56.29 | ) | 6.77 | ||||||||
Diluted (5) | |||||||||||||||
Income (loss) from continuing operations | $ | 3.59 | $ | 3.55 | $ | (7.61 | ) | $ | (63.89 | ) | $ | 5.30 | |||
Net income (loss) | 3.63 | 3.54 | (7.99 | ) | (56.29 | ) | 6.74 | ||||||||
Dividends declared per common share | 0.03 | 0.00 | 0.10 | 11.20 | 21.60 |
Statement continues on the next page, including notes to the table.
10
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA-PAGE 2 | Citigroup Inc. and Consolidated Subsidiaries | |||||||||||||||
In millions of dollars, except per-share amounts, ratios and direct staff | 2011 | (1) | 2010 | (2) | 2009 | (3) | 2008 | (3) | 2007 | (3) | ||||||
At December 31 | ||||||||||||||||
Total assets | $ | 1,873,878 | $ | 1,913,902 | $ | 1,856,646 | $ | 1,938,470 | $ | 2,187,480 | ||||||
Total deposits | 865,936 | 844,968 | 835,903 | 774,185 | 826,230 | |||||||||||
Long - term debt | 323,505 | 381,183 | 364,019 | 359,593 | 427,112 | |||||||||||
Mandatorily redeemable securities of subsidiary trusts (included in long-term debt) | 16,057 | 18,131 | 19,345 | 24,060 | 23,756 | |||||||||||
Common stockholders' equity | 177,494 | 163,156 | 152,388 | 70,966 | 113,447 | |||||||||||
Total Citigroup stockholders' equity | 177,806 | 163,468 | 152,700 | 141,630 | 113,447 | |||||||||||
Direct staff (in thousands) | 266 | 260 | 265 | 323 | 375 | |||||||||||
Ratios | ||||||||||||||||
Return on average common stockholders' equity (7) | 6.3 | % | 6.8 | % | (9.4 | )% | (28.8 | )% | 2.9 | % | ||||||
Return on average total stockholders' equity (7) | 6.3 | 6.8 | (1.1 | ) | (20.9 | ) | 3.0 | |||||||||
Tier 1 Common (8) | 11.80 | % | 10.75 | % | 9.60 | % | 2.30 | % | 5.02 | % | ||||||
Tier 1 Capital | 13.55 | 12.91 | 11.67 | 11.92 | 7.12 | |||||||||||
Total Capital | 16.99 | 16.59 | 15.25 | 15.70 | 10.70 | |||||||||||
Leverage (9) | 7.19 | 6.60 | 6.87 | 6.08 | 4.03 | |||||||||||
Common stockholders' equity to assets | 9.47 | % | 8.52 | % | 8.21 | % | 3.66 | % | 5.19 | % | ||||||
Total Citigroup stockholders' equity to assets | 9.49 | 8.54 | 8.22 | 7.31 | 5.19 | |||||||||||
Dividend payout ratio (10) | 0.8 | NM | NM | NM | 320.5 | |||||||||||
Book value per common share (6) | $ | 60.70 | $ | 56.15 | $ | 53.50 | $ | 130.21 | $ | 227.12 | ||||||
Ratio of earnings to fixed charges and preferred stock dividends | 1.59 | x | 1.51 | x | NM | NM | 1.01 | x |
(1) | As noted in the "Executive Summary" above, Citi has adjusted its 2011 results of operations that were previously announced on January 17, 2012 for an additional $209 million (after tax) charge. This charge relates to the agreement in principle with the United States and state attorneys general announced on February 9, 2012 regarding the settlement of a number of investigations into residential loan servicing and origination litigation, as well as the resolution of related mortgage litigation. The impact of these adjustments was a $275 million (pretax) increase in Other operating expenses , a $209 million (after-tax) reduction in Net income and a $0.06 (after-tax) reduction in Diluted earnings per share , for the full year of 2011. See Notes 29, 30 and 32 to the Consolidated Financial Statements. | |
(2) | 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. | |
(3) | 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. | |
(4) | Discontinued operations for 2007 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 2007 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 and, for 2011, primarily reflect the sale of the Egg Banking PLC credit card business. See Note 3 to the Consolidated Financial Statements. | |
(5) | 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 anti-dilution. | |
(6) | 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. | |
(7) | 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. | |
(8) | As defined by the banking regulators, the Tier 1 Common ratio represents Tier 1 Capital less qualifying perpetual preferred stock, qualifying noncontrolling interests in subsidiaries and qualifying mandatorily redeemable securities of subsidiary trusts divided by risk-weighted assets. | |
(9) | The Leverage ratio represents Tier 1 Capital divided by adjusted average total assets. | |
(10) | Dividends declared per common share as a percentage of net income per diluted share. | |
NM | Not meaningful |
11
SEGMENT AND BUSINESS - INCOME (LOSS) AND REVENUES
The following tables show the
income (loss) and revenues for Citigroup on a segment and business
view:
CITIGROUP INCOME (LOSS)
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Income (loss) from continuing operations | ||||||||||||||
CITICORP | ||||||||||||||
Global Consumer Banking | ||||||||||||||
North America | $ | 2,589 | $ | 650 | $ | 789 | NM | (18 | )% | |||||
EMEA | 79 | 91 | (220 | ) | (13 | )% | NM | |||||||
Latin America | 1,601 | 1,789 | 429 | (11 | ) | NM | ||||||||
Asia | 1,927 | 2,131 | 1,391 | (10 | ) | 53 | ||||||||
Total | $ | 6,196 | $ | 4,661 | $ | 2,389 | 33 | % | 95 | % | ||||
Securities and Banking | ||||||||||||||
North America | $ | 1,011 | $ | 2,465 | $ | 2,369 | (59 | )% | 4 | % | ||||
EMEA | 2,008 | 1,805 | 3,414 | 11 | (47 | ) | ||||||||
Latin America | 978 | 1,091 | 1,558 | (10 | ) | (30 | ) | |||||||
Asia | 898 | 1,138 | 1,854 | (21 | ) | (39 | ) | |||||||
Total | $ | 4,895 | $ | 6,499 | $ | 9,195 | (25 | )% | (29 | )% | ||||
Transaction Services | ||||||||||||||
North America | $ | 447 | $ | 529 | $ | 609 | (16 | )% | (13 | )% | ||||
EMEA | 1,142 | 1,225 | 1,299 | (7 | ) | (6 | ) | |||||||
Latin America | 645 | 664 | 616 | (3 | ) | 8 | ||||||||
Asia | 1,173 | 1,255 | 1,254 | (7 | ) | - | ||||||||
Total | $ | 3,407 | $ | 3,673 | $ | 3,778 | (7 | )% | (3 | )% | ||||
Institutional Clients Group | $ | 8,302 | $ | 10,172 | $ | 12,973 | (18 | )% | (22 | )% | ||||
Total Citicorp | $ | 14,498 | $ | 14,833 | $ | 15,362 | (2 | )% | (3 | )% | ||||
CITI HOLDINGS | ||||||||||||||
Brokerage and Asset Management | $ | (286 | ) | $ | (226 | ) | $ | 6,850 | (27 | )% | NM | |||
Local Consumer Lending | (2,834 | ) | (4,988 | ) | (10,484 | ) | 43 | 52 | % | |||||
Special Asset Pool | 596 | 1,158 | (5,425 | ) | (49 | ) | NM | |||||||
Total Citi Holdings | $ | (2,524 | ) | $ | (4,056 | ) | $ | (9,059 | ) | 38 | % | 55 | % | |
Corporate/Other | $ | (871 | ) | $ | 174 | $ | (7,369 | ) | NM | NM | ||||
Income (loss) from continuing operations | $ | 11,103 | $ | 10,951 | $ | (1,066 | ) | 1 | % | NM | ||||
Discontinued operations | $ | 112 | $ | (68 | ) | $ | (445 | ) | ||||||
Net income attributable to noncontrolling interests | 148 | 281 | 95 | (47 | )% | NM | ||||||||
Citigroup's net income (loss) | $ | 11,067 | $ | 10,602 | $ | (1,606 | ) | 4 | % | NM |
NM Not meaningful
12
CITIGROUP REVENUES
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
CITICORP | ||||||||||||||
Global Consumer Banking | ||||||||||||||
North America | $ | 13,614 | $ | 14,790 | $ | 8,575 | (8 | )% | 72 | % | ||||
EMEA | 1,479 | 1,503 | 1,550 | (2 | ) | (3 | ) | |||||||
Latin America | 9,483 | 8,685 | 7,883 | 9 | 10 | |||||||||
Asia | 8,009 | 7,396 | 6,746 | 8 | 10 | |||||||||
Total | $ | 32,585 | $ | 32,374 | $ | 24,754 | 1 | % | 31 | % | ||||
Securities and Banking | ||||||||||||||
North America | $ | 7,558 | $ | 9,393 | $ | 8,836 | (20 | )% | 6 | % | ||||
EMEA | 7,221 | 6,849 | 10,056 | 5 | (32 | ) | ||||||||
Latin America | 2,364 | 2,547 | 3,435 | (7 | ) | (26 | ) | |||||||
Asia | 4,274 | 4,326 | 4,813 | (1 | ) | (10 | ) | |||||||
Total | $ | 21,417 | $ | 23,115 | $ | 27,140 | (7 | )% | (15 | )% | ||||
Transaction Services | ||||||||||||||
North America | $ | 2,442 | $ | 2,485 | $ | 2,525 | (2 | )% | (2 | )% | ||||
EMEA | 3,486 | 3,356 | 3,389 | 4 | (1 | ) | ||||||||
Latin America | 1,705 | 1,516 | 1,391 | 12 | 9 | |||||||||
Asia | 2,936 | 2,714 | 2,513 | 8 | 8 | |||||||||
Total | $ | 10,569 | $ | 10,071 | $ | 9,818 | 5 | % | 3 | % | ||||
Institutional Clients Group | $ | 31,986 | $ | 33,186 | $ | 36,958 | (4 | )% | (10 | )% | ||||
Total Citicorp | $ | 64,571 | $ | 65,560 | $ | 61,712 | (2 | )% | 6 | % | ||||
CITI HOLDINGS | ||||||||||||||
Brokerage and Asset Management | $ | 282 | $ | 609 | $ | 14,623 | (54 | )% | (96 | )% | ||||
Local Consumer Lending | 12,067 | 15,826 | 17,765 | (24 | ) | (11 | ) | |||||||
Special Asset Pool | 547 | 2,852 | (3,260 | ) | (81 | ) | NM | |||||||
Total Citi Holdings | $ | 12,896 | $ | 19,287 | $ | 29,128 | (33 | )% | (34 | )% | ||||
Corporate/Other | $ | 886 | $ | 1,754 | $ | (10,555 | ) | (49 | )% | NM | ||||
Total net revenues | $ | 78,353 | $ | 86,601 | $ | 80,285 | (10 | )% | 8 | % |
NM Not meaningful
13
CITICORP
Citicorp is Citigroup's global bank for consumers and businesses
and represents Citi's core franchises. Citicorp is focused on providing best-in-class products and services to customers
and leveraging Citigroup's unparalleled global network. Citicorp is physically present in approximately 100 countries, many
for over 100 years, and offers services in over 160 countries and jurisdictions. Citi believes this global network provides a
strong foundation for servicing the broad financial services needs of large multinational clients and for meeting the needs of
retail, private banking, commercial, public sector and institutional clients around the world. Citigroup's global footprint
provides coverage of the world's emerging economies, which Citi continues to believe represent a strong area of growth. At
December 31, 2011, Citicorp had approximately $1.3 trillion of assets and $797 billion of deposits, representing approximately
70% of Citi's total assets and approximately 92% of its deposits.
At
December 31, 2011, Citicorp consisted of the following businesses: Global Consumer Banking (which included retail banking
and Citi-branded cards in four regions- North America, EMEA, Latin America and Asia ) and Institutional Clients
Group (which included Securities and Banking and Transaction Services ).
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 38,135 | $ | 38,585 | $ | 34,197 | (1 | )% | 13 | % | ||||
Non-interest revenue | 26,436 | 26,975 | 27,515 | (2 | ) | (2 | ) | |||||||
Total revenues, net of interest expense | $ | 64,571 | $ | 65,560 | $ | 61,712 | (2 | )% | 6 | % | ||||
Provisions for credit losses and for benefits and claims | ||||||||||||||
Net credit losses | $ | 8,307 | $ | 11,789 | $ | 6,155 | (30 | )% | 92 | % | ||||
Credit reserve build (release) | (3,544 | ) | (2,167 | ) | 2,715 | (64 | ) | NM | ||||||
Provision for loan losses | $ | 4,763 | $ | 9,622 | $ | 8,870 | (50 | )% | 8 | % | ||||
Provision for benefits and claims | 152 | 151 | 164 | 1 | (8 | ) | ||||||||
Provision for unfunded lending commitments | 92 | (32 | ) | 138 | NM | NM | ||||||||
Total provisions for credit losses and for benefits and claims | $ | 5,007 | $ | 9,741 | $ | 9,172 | (49 | )% | 6 | % | ||||
Total operating expenses | $ | 39,620 | $ | 36,144 | $ | 32,698 | 10 | % | 11 | % | ||||
Income from continuing operations before taxes | $ | 19,944 | $ | 19,675 | $ | 19,842 | 1 | % | (1 | )% | ||||
Provisions for income taxes | 5,446 | 4,842 | 4,480 | 12 | 8 | % | ||||||||
Income from continuing operations | $ | 14,498 | $ | 14,833 | $ | 15,362 | (2 | )% | (3 | )% | ||||
Net income attributable to noncontrolling interests | 56 | 122 | 68 | (54 | ) | 79 | ||||||||
Citicorp's net income | $ | 14,442 | $ | 14,711 | $ | 15,294 | (2 | )% | (4 | )% | ||||
Balance sheet data (in billions of dollars) | ||||||||||||||
Total EOP assets | $ | 1,319 | $ | 1,284 | $ | 1,138 | 3 | % | 13 | % | ||||
Average assets | $ | 1,358 | $ | 1,257 | $ | 1,088 | 8 | % | 16 | % | ||||
Total EOP deposits | 797 | 760 | 734 | 5 | 4 |
NM Not meaningful
14
GLOBAL CONSUMER
BANKING
Global Consumer
Banking (GCB) consists of
Citigroup's four geographical Regional Consumer Banking (RCB) businesses that provide traditional banking services to retail
customers. As of December 31, 2011, GCB also contained Citigroup's branded cards
and local commercial banking businesses and, effective in the first quarter of
2012, will also include its retail partner cards business. GCB is a globally
diversified business with nearly 4,200 branches in 39 countries around the
world. At December 31, 2011, GCB had $340 billion of assets and $313 billion of
deposits.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 23,090 | $ | 23,184 | $ | 16,353 | - | 42 | % | |||||
Non-interest revenue | 9,495 | 9,190 | 8,401 | 3 | % | 9 | ||||||||
Total revenues, net of interest expense | $ | 32,585 | $ | 32,374 | $ | 24,754 | 1 | % | 31 | % | ||||
Total operating expenses | $ | 18,933 | $ | 16,547 | $ | 15,125 | 14 | % | 9 | % | ||||
Net credit losses | $ | 7,688 | $ | 11,216 | $ | 5,395 | (31 | )% | NM | |||||
Credit reserve build (release) | (2,988 | ) | (1,541 | ) | 1,823 | (94 | ) | NM | ||||||
Provisions for unfunded lending commitments | 3 | (3 | ) | - | NM | - | ||||||||
Provision for benefits and claims | 152 | 151 | 164 | 1 | (8 | )% | ||||||||
Provisions for credit losses and for benefits and claims | $ | 4,855 | $ | 9,823 | $ | 7,382 | (51 | )% | 33 | % | ||||
Income (loss) from continuing operations before taxes | $ | 8,797 | $ | 6,004 | $ | 2,247 | 47 | % | NM | |||||
Income taxes (benefits) | 2,601 | 1,343 | (142 | ) | 94 | NM | ||||||||
Income (loss) from continuing operations | $ | 6,196 | $ | 4,661 | $ | 2,389 | 33 | % | 95 | % | ||||
Net income (loss) attributable to noncontrolling interests | - | (9 | ) | - | 100 | - | ||||||||
Net income (loss) | $ | 6,196 | $ | 4,670 | $ | 2,389 | 33 | % | 95 | % | ||||
Average assets (in billions of dollars) | $ | 335 | $ | 309 | $ | 242 | 8 | % | 28 | % | ||||
Return on assets | 1.85 | % | 1.51 | % | 0.99 | % | ||||||||
Total EOP assets | $ | 340 | $ | 328 | $ | 255 | 4 | 29 | ||||||
Average deposits (in billions of dollars) | 311 | 295 | 275 | 5 | 7 | |||||||||
Net credit losses as a percentage of average loans | 3.25 | % | 5.11 | % | 3.62 | % | ||||||||
Revenue by business | ||||||||||||||
Retail banking | $ | 16,229 | $ | 15,767 | $ | 14,782 | 3 | % | 7 | % | ||||
Citi-branded cards | 16,356 | 16,607 | 9,972 | (2 | ) | 67 | ||||||||
Total | $ | 32,585 | $ | 32,374 | $ | 24,754 | 1 | % | 31 | % | ||||
Income (loss) from continuing operations by business | ||||||||||||||
Retail banking | $ | 2,529 | $ | 3,082 | $ | 2,387 | (18 | )% | 29 | % | ||||
Citi-branded cards | 3,667 | 1,579 | 2 | NM | NM | |||||||||
Total | $ | 6,196 | $ | 4,661 | $ | 2,389 | 33 | % | 95 | % |
NM Not meaningful
15
NORTH AMERICA REGIONAL CONSUMER
BANKING
North America
Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded card services to retail
customers and small to mid-size businesses in the U.S. Effective in the first
quarter of 2012, NA RCB will also include the substantial majority
of Citi's retail partner cards business, which will add approximately $45
billion of assets, including $41 billion of loans, to NA RCB . NA RCB's 1,016 retail bank branches and 12.7 million
customer accounts, as of December 31, 2011, are largely concentrated in the
greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago,
Miami, Washington, D.C., Boston, Philadelphia and certain larger cities in
Texas. At December 31, 2011, NA
RCB had $38.9 billion of retail
banking loans and $148.8 billion of deposits. In addition, NA RCB had 22.0 million Citi-branded credit card accounts, with $75.9 billion in
outstanding card loan balances.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 10,367 | $ | 11,216 | $ | 5,206 | (8 | )% | NM | |||||
Non-interest revenue | 3,247 | 3,574 | 3,369 | (9 | ) | 6 | % | |||||||
Total revenues, net of interest expense | $ | 13,614 | $ | 14,790 | $ | 8,575 | (8 | )% | 72 | % | ||||
Total operating expenses | $ | 7,329 | $ | 6,163 | $ | 5,890 | 19 | % | 5 | % | ||||
Net credit losses | $ | 4,949 | $ | 8,019 | $ | 1,152 | (38 | )% | NM | |||||
Credit reserve build (release) | (2,740 | ) | (312 | ) | 527 | NM | NM | |||||||
Provisions for benefits and claims | 22 | 24 | 50 | (8 | ) | (52 | )% | |||||||
Provisions for loan losses and for benefits and claims | $ | 2,231 | $ | 7,731 | $ | 1,729 | (71 | )% | NM | |||||
Income from continuing operations before taxes | $ | 4,054 | $ | 896 | 956 | NM | (6 | )% | ||||||
Income taxes | 1,465 | 246 | 167 | NM | 47 | |||||||||
Income from continuing operations | $ | 2,589 | $ | 650 | $ | 789 | NM | (18 | )% | |||||
Net income attributable to noncontrolling interests | - | - | - | - | - | |||||||||
Net income | $ | 2,589 | $ | 650 | $ | 789 | NM | (18 | )% | |||||
Average assets (in billions of dollars) | $ | 123 | $ | 119 | $ | 73 | 3 | % | 63 | % | ||||
Average deposits (in billions of dollars) | 145 | 145 | 141 | - | 3 | |||||||||
Net credit losses as a percentage of average loans | 4.60 | % | 7.48 | % | 2.43 | % | ||||||||
Revenue by business | ||||||||||||||
Retail banking | $ | 5,111 | $ | 5,325 | $ | 5,236 | (4 | )% | 2 | % | ||||
Citi-branded cards | 8,503 | 9,465 | 3,339 | (10 | ) | NM | ||||||||
Total | $ | 13,614 | $ | 14,790 | $ | 8,575 | (8 | )% | 72 | % | ||||
Income (loss) from continuing operations by business | ||||||||||||||
Retail banking | $ | 488 | $ | 762 | $ | 751 | (36 | )% | 1 | % | ||||
Citi-branded cards | 2,101 | (112 | ) | 38 | NM | NM | ||||||||
Total | $ | 2,589 | $ | 650 | $ | 789 | NM | (18 | )% | |||||
Total GAAP revenues | $ | 13,614 | $ | 14,790 | $ | 8,575 | (8 | )% | 72 | % | ||||
Net impact of credit card securitizations activity (1) | - | - | 6,672 | |||||||||||
Total managed revenues | $ | 13,614 | $ | 14,790 | $ | 15,247 | (3 | )% | ||||||
Total GAAP net credit losses | $ | 4,949 | $ | 8,019 | $ | 1,152 | (38 | )% | NM | |||||
Impact of credit card securitizations activity (1) | - | - | 6,931 | |||||||||||
Total managed net credit losses | $ | 4,949 | $ | 8,019 | $ | 8,083 | (1 | )% |
(1) | See Note 1 to the Consolidated Financial Statements for a discussion of the impact of SFAS 166/167. | |
NM | Not meaningful |
2011 vs. 2010
Net income increased $1.9 billion as compared to the prior year, driven by higher
loan loss reserve releases and an improvement in net credit losses, partly
offset by lower revenues and higher expenses. Citi does not expect the same
level of loan loss reserve releases in NA RCB in 2012 as it
believes credit costs in the business have generally
stabilized.
Revenues decreased 8% mainly due to lower net interest margin and loan balances in the Citi-branded cards business as well as lower mortgage-related revenues, primarily relating to lower refinancing activity and lower margins as compared to the prior year.
16
Net interest revenue decreased 8%, driven primarily by lower cards net interest margin which
was negatively impacted by the look-back provision of The Credit Card
Accountability Responsibility and Disclosure Act (CARD Act). As previously
disclosed, the look-back provision of the CARD Act generally requires a review
to be done once every six months for card accounts where the annual percentage
rate (APR) has been increased since January 1, 2009 to assess whether changes in
credit risk, market conditions or other factors merit a future decline in the
APR. In addition, net interest margin for cards was negatively impacted by
higher promotional balances and lower total average loans. As a result, cards
net interest revenue as a percentage of average loans decreased to 9.48% from
10.28% in the prior year. Citi expects margin growth to remain under pressure
into 2012 given the continued investment spending in the business during 2012,
which largely began in the second half of 2011.
Non-interest revenue decreased 9%, primarily due to
lower gains from the sale of mortgage loans as Citi held more loans on-balance
sheet. In addition, the decline in non-interest revenue reflected lower banking
fee income.
Expenses increased 19%, primarily driven
by the higher investment spending in the business during the second half of
2011, particularly in cards marketing and technology, and increases in
litigation accruals related to the interchange litigation (see Note 29 to the
Consolidated Financial Statements).
Provisions decreased
$5.5 billion, or 71%, primarily due to a loan loss reserve release of $2.7
billion in 2011, compared to a loan loss reserve release of $0.3 billion in
2010, and lower net credit losses in the Citi-branded cards portfolio. Cards net
credit losses were down $3.0 billion, or 39%, from 2010, and the net credit loss
ratio decreased 366 basis points to 6.36% for 2011. The decline in credit costs
was driven by improving credit conditions as well as continued stricter
underwriting criteria, which lowered the cards risk profile. As referenced
above, Citi believes the improvements in, and Citi's resulting benefit from,
declining credit costs in NA RCB will likely slow into 2012.
2010 vs. 2009
Net income declined by $139 million, or 18%, as compared to
the prior year, driven by higher credit costs due to Citi's adoption of SFAS
166/167, partially offset by higher revenues.
Revenues increased
72% from the prior year, primarily due to the consolidation of securitized
credit card receivables pursuant to the adoption of SFAS 166/167 effective
January 1, 2010. On a comparable basis, revenues declined 3% from the prior
year, mainly due to lower volumes in Citi-branded cards as well as the net
impact of the CARD Act on cards revenues. This decrease was partially offset by
better mortgage-related revenues driven by higher refinancing
activity.
Net interest
revenue was down 6% on a
comparable basis driven primarily by lower volumes in cards, with average
managed loans down 7% from the prior year, and in retail banking, where average
loans declined 11%. The decline in cards was driven by the stricter underwriting
criteria referenced above as well as the impact of CARD Act. The increase in
deposit volumes, up 3% from the prior year, was offset by lower spreads due to
the then-current interest rate environment.
Non-interest revenue increased 6% on a comparable basis from the prior year mainly driven by
better servicing hedge results and higher gains on sale from the sale of
mortgage loans.
Expenses increased 5% from the prior year, driven by the
impact of higher litigation accruals, primarily in the first quarter of 2010,
and higher marketing costs.
Provisions increased $6.0 billion,
primarily due to the consolidation of securitized credit card receivables
pursuant to the adoption of SFAS 166/167. On a comparable basis, provisions
decreased $0.9 billion, or 11%, primarily due to a net loan loss reserve release
of $0.3 billion in 2010 compared to a $0.5 billion loan loss reserve build in
the prior year coupled with lower net credit losses in the cards portfolio. Also
on a comparable basis, the cards net credit loss ratio increased 61 basis points
to 10.02%, driven by lower average loans.
17
EMEA REGIONAL CONSUMER
BANKING
EMEA Regional
Consumer Banking (EMEA RCB) provides traditional banking and Citi-branded card services to retail
customers and small to mid-size businesses, primarily in Central and Eastern
Europe, the Middle East and Africa (remaining retail banking and cards
activities in Western Europe are included in Citi Holdings). The countries in
which EMEA RCB has the largest presence are Poland, Turkey,
Russia and the United Arab Emirates. At December 31, 2011, EMEA RCB had 292 retail bank branches with 3.7 million customer accounts, $4.2
billion in retail banking loans and $9.5 billion in deposits. In addition, the
business had 2.6 million Citi-branded card accounts with $2.7 billion in
outstanding card loan balances.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 893 | $ | 923 | $ | 974 | (3 | )% | (5 | )% | ||||
Non-interest revenue | 586 | 580 | 576 | 1 | 1 | |||||||||
Total revenues, net of interest expense | $ | 1,479 | $ | 1,503 | $ | 1,550 | (2 | )% | (3 | )% | ||||
Total operating expenses | $ | 1,287 | $ | 1,179 | $ | 1,120 | 9 | % | 5 | % | ||||
Net credit losses | $ | 172 | $ | 316 | $ | 472 | (46 | )% | (33 | )% | ||||
Provision for unfunded lending commitments | 3 | (4 | ) | - | NM | - | ||||||||
Credit reserve build (release) | (118 | ) | (118 | ) | 310 | - | NM | |||||||
Provisions for loan losses | $ | 57 | $ | 194 | $ | 782 | (71 | )% | (75 | )% | ||||
Income (loss) from continuing operations before taxes | $ | 135 | $ | 130 | $ | (352 | ) | 4 | % | NM | ||||
Income taxes (benefits) | 56 | 39 | (132 | ) | 44 | NM | ||||||||
Income (loss) from continuing operations | $ | 79 | $ | 91 | $ | (220 | ) | (13 | )% | NM | ||||
Net income (loss) attributable to noncontrolling interests | - | (1 | ) | - | 100 | - | ||||||||
Net income (loss) | $ | 79 | $ | 92 | $ | (220 | ) | (14 | )% | NM | ||||
Average assets (in billions of dollars) | $ | 10 | $ | 10 | $ | 11 | - | (9 | )% | |||||
Return on assets | 0.79 | % | 0.92 | % | (2.01 | )% | ||||||||
Average deposits (in billions of dollars) | $ | 10 | $ | 9 | $ | 9 | 11 | - | ||||||
Net credit losses as a percentage of average loans | 2.38 | % | 4.45 | % | 5.64 | % | ||||||||
Revenue by business | ||||||||||||||
Retail banking | $ | 811 | $ | 822 | $ | 884 | (1 | )% | (7 | )% | ||||
Citi-branded cards | 668 | 681 | 666 | (2 | ) | 2 | ||||||||
Total | $ | 1,479 | $ | 1,503 | $ | 1,550 | (2 | )% | (3 | )% | ||||
Income (loss) from continuing operations by business | ||||||||||||||
Retail banking | $ | (56 | ) | $ | (54 | ) | $ | (188 | ) | (4 | )% | 71 | % | |
Citi-branded cards | 135 | 145 | (32 | ) | (7 | ) | NM | |||||||
Total | $ | 79 | $ | 91 | $ | (220 | ) | (13 | )% | NM |
NM Not meaningful
2011 vs. 2010
Net income declined 14% as compared to the prior year as an improvement in net
credit losses was partially offset by lower revenues and higher expenses from
increased investment spending. During 2011, the U.S. dollar generally
depreciated versus local currencies. As a result, the impact of FX translation
accounted for an approximately 1% growth in revenues and expenses,
respectively.
Revenues declined 2%
driven by the continued liquidation of higher yielding non-strategic customer
portfolios and a lower contribution from Akbank, Citi's equity investment in
Turkey. The revenue decline was partly offset by the impact of FX translation
and improved underlying trends in the core lending portfolio, discussed
below.
Net interest revenue declined 3% due to the continued
decline in the higher yielding non-strategic retail banking portfolio and spread
compression in the Citi-branded cards portfolio. Interest rate caps on credit
cards, particularly in Turkey and Poland, contributed to the lower spreads in
the cards portfolio.
Non-interest revenue increased 1%, reflecting higher investment sales and cards fees, partly offset
by the lower contribution from Akbank. Underlying drivers continued to show
growth as investment sales grew 28% from the prior year and cards purchase sales
grew 14%.
Expenses increased 9%, due to the impact of FX
translation, investment spending and higher transactional expenses, partly
offset by continued savings initiatives. Expenses could remain at elevated
levels in 2012 given continued investment spending.
Provisions were 71% lower than the prior year driven by a reduction in net credit
losses. Net credit losses decreased 46%, reflecting the continued credit quality
improvement during the year, stricter underwriting criteria and the move to
lower risk products. Loan loss reserve releases were flat. Assuming the
underlying core portfolio continues to grow and season in 2012, Citi expects
credit costs to rise.
18
2010 vs. 2009
Net income improved by $313 million, driven by the reduction in credit costs,
partly offset by lower revenues and higher expenses. During 2010, the U.S.
dollar generally appreciated versus local currencies. As a result, the impact of
FX translation accounted for an approximately 1% decline in revenues and
expenses, respectively.
Revenues declined 3% driven by FX translation and the continued liquidation of
non-strategic customer portfolios. Net interest revenue was
5% lower due to the continued decline in the higher yielding non-strategic
retail banking portfolio. In 2010, Citi focused its lending strategy around
higher credit quality customers who tend to revolve less, meaning they have
lower average balances than customers previously had. While this led to lower credit
costs, it also negatively impacted Net interest revenue as customers
paid off their loans more quickly. Non-interest revenue increased 1%, reflecting higher investment sales and a higher
contribution from Citi's equity investment in Akbank.
Expenses increased 5%, due to account acquisition-focused investment spending and
volumes. As the average customer credit quality improved, Citi focused on volume
growth to compensate for the lower revenue. The expansion of the sales force in
2010 drove some of the expense increase as compared to 2009.
Provisions decreased 75% from the prior year driven by reduction in net credit
losses and higher loan loss reserve releases. Net credit losses decreased 33%,
reflecting continued credit quality improvement and the move to lower risk
products.
19
LATIN AMERICA REGIONAL CONSUMER
BANKING
Latin America
Regional Consumer Banking (LATAM RCB) provides traditional banking and branded card services to retail
customers and small to mid-size businesses, with the largest presence in Mexico
and Brazil. LATAM
RCB includes branch networks
throughout Latin
America as well as Banco Nacional
de Mexico, or Banamex, Mexico's second-largest bank, with over 1,700 branches.
At December 31, 2011, LATAM
RCB overall had 2,221 retail
branches, with 29.2 million customer accounts, $24.0 billion in retail banking
loans and $44.8 billion in deposits. In addition, the business had 12.9 million
Citi-branded card accounts with $13.7 billion in outstanding loan
balances.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 6,465 | $ | 5,968 | $ | 5,365 | 8 | % | 11 | % | ||||
Non-interest revenue | 3,018 | 2,717 | 2,518 | 11 | 8 | |||||||||
Total revenues, net of interest expense | $ | 9,483 | $ | 8,685 | $ | 7,883 | 9 | % | 10 | % | ||||
Total operating expenses | $ | 5,734 | $ | 5,159 | $ | 4,550 | 11 | % | 13 | % | ||||
Net credit losses | $ | 1,684 | $ | 1,868 | $ | 2,432 | (10 | )% | (23 | )% | ||||
Credit reserve build (release) | (67 | ) | (823 | ) | 463 | 92 | NM | |||||||
Provision for benefits and claims | 130 | 127 | 114 | 2 | 11 | |||||||||
Provisions for loan losses and for benefits and claims | $ | 1,747 | $ | 1,172 | $ | 3,009 | 49 | % | (61 | )% | ||||
Income (loss) from continuing operations before taxes | $ | 2,002 | $ | 2,354 | $ | 324 | (15 | )% | NM | |||||
Income taxes (benefits) | 401 | 565 | (105 | ) | (29 | ) | NM | |||||||
Income (loss) from continuing operations | $ | 1,601 | $ | 1,789 | $ | 429 | (11 | )% | NM | |||||
Net (loss) attributable to noncontrolling interests | - | (8 | ) | - | 100 | - | ||||||||
Net income (loss) | $ | 1,601 | $ | 1,797 | $ | 429 | (11 | )% | NM | |||||
Average assets (in billions of dollars) | $ | 80 | $ | 73 | $ | 66 | 10 | % | 11 | % | ||||
Return on assets | 2.00 | % | 2.45 | % | 0.65 | % | ||||||||
Average deposits (in billions of dollars) | $ | 46 | $ | 41 | $ | 36 | 12 | % | 14 | % | ||||
Net credit losses as a percentage of average loans | 4.64 | % | 6.05 | % | 8.52 | % | ||||||||
Revenue by business | ||||||||||||||
Retail banking | $ | 5,482 | $ | 5,034 | $ | 4,401 | 9 | % | 14 | % | ||||
Citi-branded cards | 4,001 | 3,651 | 3,482 | 10 | 5 | |||||||||
Total | $ | 9,483 | $ | 8,685 | $ | 7,883 | 9 | % | 10 | % | ||||
Income (loss) from continuing operations by business | ||||||||||||||
Retail banking | $ | 923 | $ | 938 | $ | 657 | (2 | )% | 43 | % | ||||
Citi-branded cards | 678 | 851 | (228 | ) | (20 | ) | NM | |||||||
Total | $ | 1,601 | $ | 1,789 | $ | 429 | (11 | )% | NM |
NM Not meaningful
2011 vs. 2010
Net income declined 11% as lower loan loss reserve releases more than offset
increased operating margin. During 2011, the U.S. dollar generally depreciated
versus local currencies. As a result, FX translation contributed approximately
2% to the growth in each of revenues and
expenses.
Revenues increased 9%
primarily due to higher volumes as well as the impact of FX translation. Net interest revenue increased 8% driven by the
continued growth in lending and deposit volumes, partially offset by continued
spread compression. The declining rate environment negatively impacted Net interest
revenue as interest revenue
declined at a faster pace than interest expense. Spread compression was also
driven by the continued move towards customers with a lower risk profile and
stricter underwriting criteria, especially in the branded cards portfolio. Non-interest
revenue increased 11%,
predominantly driven by an increase in banking fee income from credit card
purchase sales, which grew 22%.
Expenses increased 11% due
to higher volumes and investment spending, including increased marketing and
customer acquisition costs as well as new branches. These increased expenses
were partially offset by continued savings initiatives. The increase in the
level of investment spending in the business was largely completed at the end of
2011.
Provisions increased 49% reflecting lower loan loss reserve
releases in 2011 as compared to 2010. Towards the end of 2011, there was a build
in the loan loss reserves, primarily driven by increased volumes, particularly
in the personal loan portfolio in Mexico. Net credit losses declined 10%, driven
primarily by improvements in the Mexico cards portfolio. The cards net credit
loss ratio declined from 11.7% in 2010 to 8.8% in 2011, driven in part by the
continued move towards customers with a lower risk profile and stricter
underwriting criteria. Citi currently expects the Citi-branded cards net credit
loss ratio to stabilize in 2012 as new loans continue to season. Credit costs
will likely increase in line with portfolio growth.
20
2010 vs. 2009
Net income increased $1.4 billion driven by lower credit costs as Citi released
reserves in 2010 as compared to reserve builds in 2009. During 2010, the U.S.
dollar generally appreciated versus local currencies. As a result, FX
translation contributed approximately 5% to the decline in both revenues and
expenses.
Revenues increased 10%. Net interest
revenue increased 11% as higher
loan volumes, particularly in the retail bank, offset the effect of spread
compression. Spread compression was driven by the lower interest rates and move
towards the above referenced lower risk customer base. Non-interest revenue increased 8% due to higher banking fee income from
increased purchase sale activity and FX translation.
Expenses increased 13% due to FX translation as well as higher volumes and
transaction-related expenses as economic conditions improved. The increase in
expenses was also due to increased investment spending, including new cards
acquisitions and new branches.
Provisions decreased 61% primarily reflecting loan loss reserve releases of $823
million compared to a build of $463 million in the prior year as well as a $564
million improvement in net credit losses. The increase in loan loss reserve
releases and decrease in net credit losses primarily resulted from improved
credit conditions and portfolio quality in the Citi-branded cards portfolio,
primarily in Mexico, as well as the move to customers with a lower risk profile
and stricter underwriting criteria referenced above.
21
ASIA REGIONAL CONSUMER
BANKING
Asia Regional
Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail
customers and small- to mid-size businesses, with the largest Citi presence in
South Korea, Japan, Taiwan, Singapore, Australia, Hong Kong, India and
Indonesia. Citi's Japan Consumer Finance business, which Citi has been exiting
since 2008, is included in Citi Holdings (see "Citi Holdings- Local Consumer Lending " below). At December 31, 2011, Asia RCB had 671 retail branches, 16.3 million customer accounts, $66.2 billion in
retail banking loans and $109.7 billion in deposits. In addition, the business
had 15.9 million Citi-branded card accounts with $21.0 billion in outstanding
loan balances.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 5,365 | $ | 5,077 | $ | 4,808 | 6 | % | 6 | % | ||||
Non-interest revenue | 2,644 | 2,319 | 1,938 | 14 | 20 | |||||||||
Total revenues, net of interest expense | $ | 8,009 | $ | 7,396 | $ | 6,746 | 8 | % | 10 | % | ||||
Total operating expenses | $ | 4,583 | $ | 4,046 | $ | 3,565 | 13 | % | 13 | % | ||||
Net credit losses | $ | 883 | $ | 1,013 | $ | 1,339 | (13 | )% | (24 | )% | ||||
Credit reserve build (release) | (63 | ) | (287 | ) | 523 | 78 | NM | |||||||
Provisions for loan losses and for benefits and claims | $ | 820 | $ | 726 | $ | 1,862 | 13 | % | (61 | )% | ||||
Income from continuing operations before taxes | $ | 2,606 | $ | 2,624 | $ | 1,319 | (1 | )% | 99 | % | ||||
Income taxes (benefits) | 679 | 493 | (72 | ) | 38 | NM | ||||||||
Income from continuing operations | $ | 1,927 | $ | 2,131 | $ | 1,391 | (10 | )% | 53 | % | ||||
Net income attributable to noncontrolling interests | - | - | - | - | - | |||||||||
Net income | $ | 1,927 | $ | 2,131 | $ | 1,391 | (10 | )% | 53 | % | ||||
Average assets (in billions of dollars) | $ | 122 | $ | 108 | $ | 93 | 13 | % | 16 | % | ||||
Return on assets | 1.58 | % | 1.97 | % | 1.50 | % | ||||||||
Average deposits (in billions of dollars) | $ | 110 | $ | 100 | $ | 89 | 10 | % | 12 | % | ||||
Net credit losses as a percentage of average loans | 1.03 | % | 1.37 | % | 2.07 | % | ||||||||
Revenue by business | ||||||||||||||
Retail banking | $ | 4,825 | $ | 4,586 | $ | 4,261 | 5 | % | 8 | % | ||||
Citi-branded cards | 3,184 | 2,810 | 2,485 | 13 | 13 | |||||||||
Total | $ | 8,009 | $ | 7,396 | $ | 6,746 | 8 | % | 10 | % | ||||
Income from continuing operations by business | ||||||||||||||
Retail banking | $ | 1,174 | $ | 1,436 | $ | 1,167 | (18 | )% | 23 | % | ||||
Citi-branded cards | 753 | 695 | 224 | 8 | NM | |||||||||
Total | $ | 1,927 | $ | 2,131 | $ | 1,391 | (10 | )% | 53 | % | ||||
NM Not meaningful |
2011 vs. 2010
Net income decreased 10%, driven by higher operating expenses, lower loan loss
reserve releases and a higher effective tax rate, partially offset by growth in
revenue. The higher effective tax rate was due to lower tax benefits (APB 23)
and a tax charge of $66 million due to a write-down in the value of deferred tax
assets due to a change in the tax law, each in Japan. During 2011, the U.S.
dollar generally depreciated versus local currencies. As a result, the impact of
FX translation accounted for an approximately 5% growth in revenues and
expenses.
Revenues increased 8%, primarily driven by higher business volumes and the impact
of FX translation, partially offset by continued spread compression and $65
million of net charges relating to the repurchase of certain Lehman
structured notes (see Note 29 to the Consolidated Financial Statements). Net interest revenue increased 6%, as investment initiatives and sustained economic growth in the region continued to drive higher lending and deposit volumes. Spread compression continued to partly offset the benefit of higher balances and continued to be driven by stricter underwriting criteria resulting in a lowering of the risk profile for personal and other loans. Spread compression will likely continue to have a negative impact on net interest revenue in the near-term. Non-interest revenue increased 14%, primarily due to a 17% increase in Citi-branded cards purchase sales and higher revenues from foreign exchange products, partially offset by a 12% decrease in investment sales, particularly in the second half of 2011, and the net charges for the repurchase of certain Lehman structured notes.
22
Expenses increased 13% due to continued investment
spending, growth in business volumes, repositioning charges and higher legal and
related expenses, as well as the impact of FX translation, partially offset by
ongoing productivity savings. The increase in the level of incremental investment
spending in the business was largely completed at the end of
2011.
Provisions increased 13%
as lower loan loss reserve releases were partially offset by lower net credit
losses. The increase in credit provisions reflected the increasing volumes in
the region, partially offset by continued credit quality improvement. India
remained a significant driver of the improvement in credit quality, as it
continued to de-risk elements of its legacy portfolio. Citi believes that
provisions could continue to increase as the portfolio continues to grow and
season.
2010 vs. 2009
Net income increased 53%, driven by growth in revenue and a decrease in provisions,
partially offset by higher operating expenses and a higher effective tax rate.
During 2010, the U.S. dollar generally depreciated versus local currencies. As a
result, the impact of FX translation accounted for approximately 6% growth in
revenues, and 7% growth in expenses.
Revenues increased 10%, driven by higher business volumes and the impact of FX
translation, partially offset by spread compression. Net interest revenue increased 6%, as investment initiatives and
sustained economic growth in the region drove higher lending and deposit
volumes, which were partly offset by the spread compression. Non-interest revenue increased 20%, primarily due to higher investment
sales and a 19% increase in Citi-branded cards purchase sales.
Expenses increased 13%, due to growth in business volumes, investment spending
and the impact of FX translation.
Provisions decreased 61%, mainly due to the net impact of a loan loss reserve
release of $287 million in 2010, compared to a $523 million loan loss reserve
build in 2009 and a 24% decline in net credit losses. The decrease in provisions
reflected continued credit quality improvement across the region, particularly
in India, partially offset by the increasing volumes in the
region.
23
INSTITUTIONAL CLIENTS GROUP
Institutional
Clients Group (ICG) includes Securities and Banking and Transaction
Services . ICG provides corporate, institutional, public sector and high-net-worth clients around the world with a full
range of products and services, including cash management, foreign exchange, trade finance and services, securities services,
sales and trading, institutional brokerage, underwriting, lending and advisory services. ICG 's international presence
is supported by trading floors in approximately 75 countries and jurisdictions and a proprietary network within Transaction
Services in over 95 countries and jurisdictions. At December 31, 2011, ICG had $979 billion of assets and $484 billion
of deposits.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Commissions and fees | $ | 4,447 | $ | 4,266 | $ | 4,197 | 4 | % | 2 | % | ||||
Administration and other fiduciary fees | 2,775 | 2,751 | 2,855 | 1 | (4 | ) | ||||||||
Investment banking | 3,029 | 3,520 | 4,687 | (14 | ) | (25 | ) | |||||||
Principal transactions | 4,873 | 5,567 | 5,626 | (12 | ) | (1 | ) | |||||||
Other | 1,817 | 1,681 | 1,749 | 8 | (4 | ) | ||||||||
Total non-interest revenue | $ | 16,941 | $ | 17,785 | $ | 19,114 | (5 | )% | (7 | )% | ||||
Net interest revenue (including dividends) | 15,045 | 15,401 | 17,844 | (2 | ) | (14 | ) | |||||||
Total revenues, net of interest expense | $ | 31,986 | $ | 33,186 | $ | 36,958 | (4 | )% | (10 | )% | ||||
Total operating expenses | 20,687 | 19,597 | 17,573 | 6 | 12 | |||||||||
Net credit losses | 619 | 573 | 760 | 8 | (25 | ) | ||||||||
Provision (release) for unfunded lending commitments | 89 | (29 | ) | 138 | NM | NM | ||||||||
Credit reserve build (release) | (556 | ) | (626 | ) | 892 | 11 | NM | |||||||
Provisions for loan losses and benefits and claims | $ | 152 | $ | (82 | ) | $ | 1,790 | NM | NM | |||||
Income from continuing operations before taxes | $ | 11,147 | $ | 13,671 | $ | 17,595 | (18 | )% | (22 | )% | ||||
Income taxes | 2,845 | 3,499 | 4,622 | (19 | ) | (24 | ) | |||||||
Income from continuing operations | $ | 8,302 | $ | 10,172 | $ | 12,973 | (18 | )% | (22 | )% | ||||
Net income attributable to noncontrolling interests | 56 | 131 | 68 | (57 | ) | 93 | ||||||||
Net income | $ | 8,246 | $ | 10,041 | $ | 12,905 | (18 | )% | (22 | )% | ||||
Average assets ( in billions of dollars ) | $ | 1,024 | $ | 948 | $ | 846 | 8 | % | 12 | % | ||||
Return on assets | 0.81 | % | 1.06 | % | 1.53 | % | ||||||||
Revenues by region | ||||||||||||||
North America | $ | 10,000 | $ | 11,878 | $ | 11,361 | (16 | )% | 5 | % | ||||
EMEA | 10,707 | 10,205 | 13,445 | 5 | (24 | ) | ||||||||
Latin America | 4,069 | 4,063 | 4,826 | - | (16 | ) | ||||||||
Asia | 7,210 | 7,040 | 7,326 | 2 | (4 | ) | ||||||||
Total revenues | $ | 31,986 | $ | 33,186 | $ | 36,958 | (4 | )% | (10 | )% | ||||
Income from continuing operations by region | ||||||||||||||
North America | $ | 1,458 | $ | 2,994 | $ | 2,978 | (51 | )% | 1 | % | ||||
EMEA | 3,150 | 3,030 | 4,713 | 4 | (36 | ) | ||||||||
Latin America | 1,623 | 1,755 | 2,174 | (8 | ) | (19 | ) | |||||||
Asia | 2,071 | 2,393 | 3,108 | (13 | ) | (23 | ) | |||||||
Total income from continuing operations | $ | 8,302 | $ | 10,172 | $ | 12,973 | (18 | )% | (22 | )% | ||||
Average loans by region ( in billions of dollars ) | ||||||||||||||
North America | $ | 69 | $ | 67 | $ | 52 | 3 | % | 29 | % | ||||
EMEA | 47 | 38 | 45 | 24 | (16 | ) | ||||||||
Latin America | 29 | 23 | 22 | 26 | 5 | |||||||||
Asia | 52 | 36 | 28 | 44 | 29 | |||||||||
Total average loans | $ | 197 | $ | 164 | $ | 147 | 20 | % | 12 | % | ||||
NM Not meaningful |
24
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25
SECURITIES AND
BANKING
Securities and
Banking (S&B) offers a wide
array of investment and commercial banking services and products for
corporations, governments, institutional and retail investors, and
high-net-worth individuals. S&B transacts with
clients in both cash instruments and derivatives, including fixed income,
foreign currency, equity, and commodity products. S&B includes investment banking and advisory services, lending, debt and
equity sales and trading, institutional brokerage, derivative services and
private banking.
S&B revenue is generated primarily from fees and spreads associated with
these activities. S&B earns fee income
for assisting clients in clearing transactions, providing brokerage and
investment banking services and other such activities. Revenue generated from
these activities is recorded in Commissions and fees . In
addition, as a market maker, S&B facilitates
transactions, including holding product inventory to meet client demand, and
earns the differential between the price at which it buys and sells the
products. These price differentials and the unrealized gains and losses on the
inventory are recorded in Principal transactions . S&B interest income earned on inventory and loans
held is recorded as a component of Net interest revenue .
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 9,116 | $ | 9,723 | $ | 12,170 | (6 | )% | (20 | )% | ||||
Non-interest revenue | 12,301 | 13,392 | 14,970 | (8 | ) | (11 | ) | |||||||
Revenues, net of interest expense | $ | 21,417 | $ | 23,115 | $ | 27,140 | (7 | )% | (15 | )% | ||||
Total operating expenses | 15,028 | 14,693 | 13,090 | 2 | 12 | |||||||||
Net credit losses | 602 | 567 | 758 | 6 | (25 | ) | ||||||||
Provision (release) for unfunded lending commitments | 86 | (29 | ) | 138 | NM | NM | ||||||||
Credit reserve build (release) | (572 | ) | (562 | ) | 887 | (2 | ) | NM | ||||||
Provisions for loan losses and benefits and claims | $ | 116 | $ | (24 | ) | $ | 1,783 | NM | NM | |||||
Income before taxes and noncontrolling interests | $ | 6,273 | $ | 8,446 | $ | 12,267 | (26 | )% | (31 | )% | ||||
Income taxes | 1,378 | 1,947 | 3,072 | (29 | ) | (37 | ) | |||||||
Income from continuing operations | 4,895 | 6,499 | 9,195 | (25 | ) | (29 | ) | |||||||
Net income attributable to noncontrolling interests | 37 | 110 | 55 | (66 | ) | 100 | ||||||||
Net income | $ | 4,858 | $ | 6,389 | $ | 9,140 | (24 | )% | (30 | )% | ||||
Average assets (in billions of dollars) | $ | 894 | $ | 841 | $ | 759 | 6 | % | 11 | % | ||||
Return on assets | 0.54 | % | 0.76 | % | 1.21 | % | ||||||||
Revenues by region | ||||||||||||||
North America | $ | 7,558 | $ | 9,393 | $ | 8,836 | (20 | )% | 6 | % | ||||
EMEA | 7,221 | 6,849 | 10,056 | 5 | (32 | ) | ||||||||
Latin America | 2,364 | 2,547 | 3,435 | (7 | ) | (26 | ) | |||||||
Asia | 4,274 | 4,326 | 4,813 | (1 | ) | (10 | ) | |||||||
Total revenues | $ | 21,417 | $ | 23,115 | $ | 27,140 | (7 | )% | (15 | )% | ||||
Income from continuing operations by region | ||||||||||||||
North America | $ | 1,011 | $ | 2,465 | $ | 2,369 | (59 | )% | 4 | % | ||||
EMEA | 2,008 | 1,805 | 3,414 | 11 | (47 | ) | ||||||||
Latin America | 978 | 1,091 | 1,558 | (10 | ) | (30 | ) | |||||||
Asia | 898 | 1,138 | 1,854 | (21 | ) | (39 | ) | |||||||
Total income from continuing operations | $ | 4,895 | $ | 6,499 | $ | 9,195 | (25 | )% | (29 | )% | ||||
Securities and Banking revenue details | ||||||||||||||
Total investment banking | $ | 3,310 | $ | 3,828 | $ | 4,767 | (14 | )% | (20 | )% | ||||
Lending | 1,802 | 962 | (2,447 | ) | 87 | NM | ||||||||
Equity markets | 2,756 | 3,501 | 3,183 | (21 | ) | 10 | ||||||||
Fixed income markets | 12,263 | 14,077 | 21,294 | (13 | ) | (34 | ) | |||||||
Private bank | 2,146 | 2,004 | 2,068 | 7 | (3 | ) | ||||||||
Other Securities and Banking | (860 | ) | (1,257 | ) | (1,725 | ) | 32 | 27 | ||||||
Total Securities and Banking revenues | $ | 21,417 | $ | 23,115 | $ | 27,140 | (7 | )% | (15 | )% | ||||
NM Not meaningful |
26
2011 vs. 2010
S&B's results of operations for 2011 were significantly impacted by the
macroeconomic concerns during the year, including the overall pace of U.S.
economic recovery, the U.S. debt ceiling debate and subsequent downgrade of U.S.
sovereign credit, the ongoing sovereign debt crisis in Europe and general
continued concerns about the health of the global economy and financial markets.
These concerns led to heightened volatility as well as overall declines in
liquidity and market activity during the second half of the year as clients
reduced their activity and
risk.
Net income of $4.9 billion
decreased 24%. Excluding CVA/DVA (see table below), net income decreased 43% as
declines in fixed income and equity markets revenues and investment banking
revenues, along with higher expenses, more than offset increases in lending and
private bank revenues.
Revenues of $21.4 billion decreased 7% from the prior year. CVA/DVA increased by
$2.1 billion from the prior year, driven by the widening of Citi's credit
spreads in 2011. Excluding CVA/DVA, S&B revenues decreased
16%, reflecting lower results in fixed income markets, equity markets and
investment banking, partially offset by increased revenues in lending and the
private bank.
Fixed income markets revenues, which constituted over 50% of S&B revenues in 2011, decreased 24% excluding
CVA/DVA. This was driven by lower results in securitized and credit products,
reflecting the challenging market environment and reduced customer risk appetite
and, to a lesser extent, rates and currencies.
Equity markets revenues decreased 35% excluding CVA/DVA, driven by declining revenues in equity proprietary trading (which Citi also refers to as equity principal
strategies) as positions in the business were wound down, a decline in equity derivatives revenues and, to a lesser extent, a decline in cash equities. The wind down of Citi's equity proprietary trading was completed at
the end of 2011.
Investment banking revenues declined 14%, as the macroeconomic concerns
and market uncertainty drove lower volumes in debt and equity issuance.
Lending revenues increased 87%, mainly due to the absence of losses on
credit default swap hedges in the prior year (see the table below). Excluding
the impact of these hedging gains and losses, lending revenues increased 3%,
primarily due to growth in the Corporate loan portfolio. Private bank revenues
increased 6% excluding CVA/DVA, primarily due to higher loan and deposit
balances and improved customer pricing, partially offset by declines in
investment and capital markets-related products given the negative market
sentiment.
Expenses increased 2%, primarily due to investment spending, which largely
occurred in the first half of the year, relating to new hires and technology
investments. The increase in expenses was also driven by higher repositioning
charges and the negative impact of FX translation (which contributed
approximately 2% to the expense growth), partially offset by productivity saves
and reduced incentive compensation due to business results. The increase in the
level of investment spending in S&B was largely completed at the end of
2011.
Provisions increased by $140 million, primarily due to
builds in the allowance for unfunded lending commitments as a result of
portfolio growth and higher net credit losses.
2010 vs. 2009
Net income of $6.4 billion decreased 30%. Excluding CVA/DVA, net income decreased
36%, as an increase in lending was more than offset by declines in fixed income
and equity trading activities, investment banking fees and higher
expenses.
Revenues of $23.1 billion decreased 15% from the prior year, as performance in
the first half of 2009 was particularly strong due to higher fixed income
markets activity and client activity levels in investment banking. In addition,
2010 CVA/DVA increased $1.6 billion from the prior year, mainly due to a larger
narrowing of Citi's spreads in 2009 compared 2010. Excluding CVA/DVA, revenues
decreased 19%, reflecting lower results in fixed income markets, equity markets
and investment banking, partially offset by increased revenues in
lending.
Fixed income markets revenues decreased 32% excluding CVA/DVA, primarily
reflecting lower results in rates and currencies, credit products and
securitized products due to the overall weaker market environment during
2010.
Equity markets revenues decreased 31% excluding CVA/DVA, driven by lower
trading revenues linked to the derivatives business and equity proprietary
trading.
Investment banking revenues declined 20%, reflecting lower levels of
market activity in debt and equity underwriting.
Lending revenues increased by $3.4 billion, mainly driven by a reduction
in losses on credit default swap hedges.
Expenses increased 12%, or $1.6 billion, year over year. Excluding the 2010 U.K.
bonus tax impact and litigation reserve releases in the first half of 2010 and
2009, expenses increased 8%, or $1.1 billion, mainly as a result of higher
compensation, transaction costs and the negative impact of FX translation (which
contributed approximately 1% to the expense growth).
Provisions decreased by $1.8 billion, to negative $24 million, mainly due to credit
reserve releases and lower net credit losses as the result of an improvement in
the credit environment during 2010.
In millions of dollars | 2011 | 2010 | 2009 | |||||||
S&B CVA/DVA | ||||||||||
Fixed Income Markets | $ | 1,368 | $ | (187 | ) | $ | 276 | |||
Equity Markets | 355 | (207 | ) | (2,190 | ) | |||||
Private Bank | 9 | (5 | ) | (43 | ) | |||||
Total S&B CVA/DVA | $ | 1,732 | $ | (399 | ) | $ | (1,957 | ) | ||
Total S&B Lending Hedge gain (loss) | $ | 73 | $ | (711 | ) | $ | (3,421 | ) |
27
TRANSACTION
SERVICES
Transaction
Services is composed of Treasury
and Trade Solutions and Securities and Fund Services. Treasury and Trade
Solutions provides comprehensive cash management and trade finance and services
for corporations, financial institutions and public sector entities worldwide.
Securities and Fund Services provides securities services to investors, such as
global asset managers, custody and clearing services to intermediaries such as
broker-dealers, and depository and agency/trust services to multinational
corporations and governments globally. Revenue is generated from net interest
revenue on deposits in these businesses, as well as from trade loans and fees
for transaction processing and fees on assets under custody and administration
in Securities and Fund Services.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 5,929 | $ | 5,678 | $ | 5,674 | 4 | % | - | |||||
Non-interest revenue | 4,640 | 4,393 | 4,144 | 6 | 6 | % | ||||||||
Total revenues, net of interest expense | $ | 10,569 | $ | 10,071 | $ | 9,818 | 5 | % | 3 | % | ||||
Total operating expenses | 5,659 | 4,904 | 4,483 | 15 | 9 | |||||||||
Provisions (releases) for credit losses and for benefits and claims | 36 | (58 | ) | 7 | NM | NM | ||||||||
Income before taxes and noncontrolling interests | $ | 4,874 | $ | 5,225 | $ | 5,328 | (7 | )% | (2 | )% | ||||
Income taxes | 1,467 | 1,552 | 1,550 | (5 | ) | - | ||||||||
Income from continuing operations | 3,407 | 3,673 | 3,778 | (7 | ) | (3 | ) | |||||||
Net income attributable to noncontrolling interests | 19 | 21 | 13 | (10 | ) | 62 | ||||||||
Net income | $ | 3,388 | $ | 3,652 | $ | 3,765 | (7 | )% | (3 | )% | ||||
Average assets (in billions of dollars) | 130 | $ | 107 | $ | 87 | 21 | % | 23 | % | |||||
Return on assets | 2.61 | % | 3.41 | % | 4.34 | % | ||||||||
Revenues by region | ||||||||||||||
North America | $ | 2,442 | $ | 2,485 | $ | 2,525 | (2 | )% | (2 | )% | ||||
EMEA | 3,486 | 3,356 | 3,389 | 4 | (1 | ) | ||||||||
Latin America | 1,705 | 1,516 | 1,391 | 12 | 9 | |||||||||
Asia | 2,936 | 2,714 | 2,513 | 8 | 8 | |||||||||
Total revenues | $ | 10,569 | $ | 10,071 | $ | 9,818 | 5 | % | 3 | % | ||||
Income from continuing operations by region | ||||||||||||||
North America | $ | 447 | $ | 529 | $ | 609 | (16 | )% | (13 | )% | ||||
EMEA | 1,142 | 1,225 | 1,299 | (7 | ) | (6 | ) | |||||||
Latin America | 645 | 664 | 616 | (3 | ) | 8 | ||||||||
Asia | 1,173 | 1,255 | 1,254 | (7 | ) | - | ||||||||
Total income from continuing operations | $ | 3,407 | $ | 3,673 | $ | 3,778 | (7 | )% | (3 | )% | ||||
Key indicators (in billions of dollars) | ||||||||||||||
Average deposits and other customer liability balances | $ | 363 | $ | 333 | $ | 304 | 9 | % | 10 | % | ||||
EOP assets under custody (1) (In trillions of dollars) | 12.5 | 12.6 | 12.1 | (1 | ) | 4 |
(1) | Includes assets under custody, assets under trust and assets under administration. | |
NM | Not meaningful |
2011 vs. 2010
Net income decreased 7%, as higher expenses, driven by investment spending,
outpaced revenue growth. Year-over-year, the U.S. dollar generally depreciated
versus local currencies. As a result, the impact of FX translation accounted for
an approximately 1% growth in revenues and expenses,
respectively.
Revenues grew 5%, driven primarily by international
growth, as improvement in fees and increased deposit balances more than offset
the continued spread compression, which will likely continue to be a challenge
in 2012. Treasury and Trade Solutions revenues increased 5%,
driven
primarily by growth in the trade and commercial cards businesses and increased deposits, partially offset by the impact of the continued low rate environment. Overall, Securities and Fund Services revenues increased 4% year-over-year, primarily due to growth in transaction and settlement volumes, driven in part by the increase in activity resulting from market volatility, and new client mandates. During the fourth quarter of 2011, however, Securities and Fund Services experienced a 10% decline in revenues as compared to the prior year period, driven by a significant decrease in settlement volumes reflecting the overall decline in capital markets activity during the latter part of 2011, spread compression and the impact of FX translation.
28
Expenses increased 15%
reflecting investment spending and higher business volumes, partially offset by
productivity savings. The increase in the level of investment spending in the
business was largely completed at the end of 2011.
Provisions increased by $94 million, to $36 million, reflecting reserve builds in
2011 versus a net reserve release in the prior year.
Average
assets grew 21%, driven by a 59% increase in trade assets as a result
of focused investment in the business. Average deposits and other customer liability balances grew 9% and included a favorable shift to
operating balances as the business continued to emphasize stable, lower cost
deposits as a way to mitigate spread compression.
2010 vs. 2009
Net income decreased 3%, as expenses driven by investment spending outpaced revenue
growth. Year-over-year, the U.S. dollar generally depreciated versus local
currencies. As a result, the impact of FX translation accounted for
approximately 2% growth in revenues.
Revenues grew 3%, despite the low interest rate environment. Treasury and Trade
Solutions revenues grew 2% as a result of increased customer liability balances
and growth in trade and fees, partially offset by the spread compression.
Securities and Fund Services revenues grew by 3% as higher volumes and balances
reflected the impact of sales and increased market activity.
Expenses increased 9% reflecting investment spending and higher business
volumes.
Provisions decreased $65 million, to a negative $58 million, as compared to the
prior year, reflecting credit reserve releases.
Average deposits and other customer liability
balances grew 10%, driven
primarily by growth in emerging markets.
29
CITI HOLDINGS
Citi Holdings contains
businesses and portfolios of assets that Citigroup has determined are not
central to its core Citicorp businesses. Citi Holdings consists of the
following: Brokerage and Asset
Management, Local Consumer Lending and Special Asset
Pool .
Consistent with its strategy, Citi intends to continue to exit these
businesses and portfolios as quickly as practicable in an economically rational
manner. To date, the decrease in Citi Holdings assets has been primarily driven
by asset sales and business dispositions, as well as portfolio run-off and
pay-downs. Asset levels have also been impacted, and will continue to be
impacted, by charge-offs and revenue marks as and when appropriate.
As of December 31, 2011, Citi Holdings' GAAP
assets were approximately $269 billion, a decrease of approximately $90 billion,
or 25%, from year end 2010, and $558 billion, or 67%, from the peak in the first
quarter of 2008. The decline in assets during 2011 reflected approximately $49
billion in asset sales and business dispositions, $35 billion in net run-off and
amortization, and $6 billion in net cost of credit and net asset marks. Citi
Holdings represented approximately 14% of Citi's GAAP assets as of December 31,
2011, while Citi Holdings' risk-weighted assets of approximately $245 billion at
December 31, 2011 represented approximately 25% of Citi's risk-weighted assets
as of such date. As previously disclosed, Citi's ability to continue to decrease
the assets in Citi Holdings through the methods discussed above, including sales
and dispositions, will not likely occur at the same pace or level as in the
past. See also the "Executive Summary" above and "Risk Factors-Business Risks"
below.
% Change | % Change | |||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | |||||||||
Net interest revenue | $ | 10,287 | $ | 14,773 | $ | 16,139 | (30 | )% | (8 | )% | ||||
Non-interest revenue | 2,609 | 4,514 | 12,989 | (42 | ) | (65 | ) | |||||||
Total revenues, net of interest expense | $ | 12,896 | $ | 19,287 | $ | 29,128 | (33 | )% | (34 | )% | ||||
Provisions for credit losses and for benefits and claims | ||||||||||||||
Net credit losses | $ | 11,731 | $ | 19,070 | $ | 24,585 | (38 | )% | (22 | )% | ||||
Credit reserve build (release) | (4,720 | ) | (3,500 | ) | 5,305 | (35 | ) | NM | ||||||
Provision for loan losses | $ | 7,011 | $ | 15,570 | $ | 29,890 | (55 | )% | (48 | )% | ||||
Provision for benefits and claims | 820 | 813 | 1,094 | 1 | (26 | ) | ||||||||
Provision (release) for unfunded lending commitments | (41 | ) | (82 | ) | 106 | 50 | NM | |||||||
Total provisions for credit losses and for benefits and claims | $ | 7,790 | $ | 16,301 | $ | 31,090 | (52 | )% | (48 | )% | ||||
Total operating expenses | $ | 8,791 | $ | 9,615 | $ | 14,085 | (9 | )% | (32 | )% | ||||
Loss from continuing operations before taxes | $ | (3,685 | ) | $ | (6,629 | ) | $ | (16,047 | ) | 44 | % | 59 | % | |
Benefits for income taxes | (1,161 | ) | (2,573 | ) | (6,988 | ) | 55 | 63 | ||||||
(Loss) from continuing operations | $ | (2,524 | ) | $ | (4,056 | ) | $ | (9,059 | ) | 38 | % | 55 | % | |
Net income (loss) attributable to noncontrolling interests | 119 | 207 | 29 | (43 | ) | NM | ||||||||
Citi Holdings net loss | $ | (2,643 | ) | $ | (4,263 | ) | $ | (9,088 | ) | 38 | % | 53 | % | |
Balance sheet data (in billions of dollars) | ||||||||||||||
Total EOP assets | $ | 269 | $ | 359 | $ | 487 | (25 | )% | (26 | )% | ||||
Total EOP deposits | $ | 64 | $ | 79 | $ | 89 | (19 | )% | (11 | )% | ||||
NM Not meaningful |
30
BROKERAGE AND ASSET
MANAGEMENT
Brokerage and
Asset Management (BAM) consists
of Citi's global retail brokerage and asset management businesses. At December
31, 2011, BAM had approximately $27 billion of assets, or approximately 10% of
Citi Holdings' assets, primarily consisting of Citi's investment in, and assets
related to, the Morgan Stanley Smith Barney joint venture (MSSB JV). As more
fully described in Forms 8-K filed with the SEC on January 14, 2009 and June 3,
2009, Morgan Stanley has options to purchase Citi's remaining stake in the MSSB
JV over three years beginning in 2012.
% Change | % Change | ||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | ||||||||
Net interest revenue | $ | (180 | ) | $ | (277 | ) | $ | 390 | 35 | % | NM | ||
Non-interest revenue | 462 | 886 | 14,233 | (48 | ) | (94 | )% | ||||||
Total revenues, net of interest expense | $ | 282 | $ | 609 | $ | 14,623 | (54 | )% | (96 | )% | |||
Total operating expenses | $ | 729 | $ | 987 | $ | 3,276 | (26 | )% | (70 | )% | |||
Net credit losses | $ | 4 | $ | 17 | $ | 1 | (76 | )% | NM | ||||
Credit reserve build (release) | (3 | ) | (18 | ) | 36 | 83 | NM | ||||||
Provision for unfunded lending commitments | (1 | ) | (6 | ) | (5 | ) | 83 | (20 | )% | ||||
Provision (release) for benefits and claims | 48 | 38 | 40 | 26 | (5 | ) | |||||||
Provisions for credit losses and for benefits and claims | $ | 48 | $ | 31 | $ | 72 | 55 | % | (57 | )% | |||
Income (loss) from continuing operations before taxes | $ | (495 | ) | $ | (409 | ) | $ | 11,275 | (21 | )% | NM | ||
Income taxes (benefits) | (209 | ) | (183 | ) | 4,425 | (14 | ) | NM | |||||
Income (loss) from continuing operations | $ | (286 | ) | $ | (226 | ) | $ | 6,850 | (27 | )% | NM | ||
Net income attributable to noncontrolling interests | 9 | 11 | 12 | (18 | ) | (8 | )% | ||||||
Net income (loss) | $ | (295 | ) | $ | (237 | ) | $ | 6,838 | (24 | )% | NM | ||
EOP assets (in billions of dollars) | $ | 27 | $ | 27 | $ | 30 | - | (10 | )% | ||||
EOP deposits (in billions of dollars) | 55 | 58 | 60 | (5 | )% | (3 | ) | ||||||
NM Not meaningful |
2011 vs. 2010
Net loss increased 24% as lower revenues were only partly offset by lower
expenses.
Revenues decreased by 54%,
driven by the 2010 sale of the Habitat and Colfondos businesses (including a $78
million pretax gain on sale related to the transactions in the first quarter of
2010) and lower revenues from the MSSB JV.
Expenses decreased 26%,
also driven by divestitures, as well as lower legal and related
expenses.
Provisions increased 55% due to the absence of the
prior-year reserve releases.
2010 vs. 2009
Net loss was $0.2 billion in 2010, compared to Net income of $6.9 billion in 2009. The decrease was driven by the absence of the
gain on sale related to the MSSB JV transaction in 2009.
Revenues decreased 96% versus the prior year driven by the absence of the $11.1
billion pretax gain on sale ($6.7 billion after tax) related to the MSSB JV
transaction in the second quarter of 2009 and a $320 million pretax gain on the
sale of the managed futures business to the MSSB JV in the third quarter of
2009. Excluding these gains, revenues decreased primarily due to the absence of
Smith Barney from May 2009 onwards as well as the absence of Nikko Asset
Management, partially offset by higher revenues from the MSSB JV and an
improvement in marks in the retail alternative investments business.
Expenses decreased 70% from the prior year, mainly driven by the absence of Smith
Barney from May 2009 onwards, lower MSSB JV separation-related costs as compared
to the prior year and the absence of Nikko and Colfondos, partially offset by
higher legal settlements and reserves associated with Smith Barney.
Provisions decreased 57%, mainly due to the absence of credit reserve builds in
2009.
Assets decreased 10% versus the prior year, mostly driven
by the sales of the private equity business and the run-off of tailored loan
portfolios.
31
LOCAL CONSUMER
LENDING
As of December 31,
2011, Local Consumer Lending
(LCL) included a portion of
Citigroup's North America mortgage business, retail partner
cards, CitiFinancial North America (consisting of the OneMain and CitiFinancial
Servicing businesses), remaining student loans, and other local Consumer finance
businesses globally (including Western European cards and retail banking and
Japan Consumer Finance). At December 31, 2011, LCL had approximately $201 billion of assets (approximately $186 billion in North America ) or approximately 75% of Citi Holdings assets.
The North America assets consisted of residential mortgages
(residential first mortgages and home equity loans), retail partner card loans,
personal loans, commercial real estate, and other consumer loans and assets. As
referenced under "Citi Holdings" above, the substantial majority of the retail
partner cards business will be transferred to Citicorp-NA RCB, effective in the
first quarter of 2012.
As of December 31, 2011, approximately $108
billion of assets in LCL consisted of North America mortgages in Citi's CitiMortgage and CitiFinancial
operations.
% Change | % Change | ||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | ||||||||
Net interest revenue | $ | 10,872 | $ | 13,831 | $ | 12,995 | (21 | )% | 6 | % | |||
Non-interest revenue | 1,195 | 1,995 | 4,770 | (40 | ) | (58 | ) | ||||||
Total revenues, net of interest expense | $ | 12,067 | $ | 15,826 | $ | 17,765 | (24 | )% | (11 | )% | |||
Total operating expenses | $ | 7,769 | $ | 8,057 | $ | 9,898 | (4 | )% | (19 | )% | |||
Net credit losses | $ | 10,659 | $ | 17,040 | $ | 19,185 | (37 | )% | (11 | )% | |||
Credit reserve build (release) | (2,862 | ) | (1,771 | ) | 5,799 | (62 | ) | NM | |||||
Provision for benefits and claims | 772 | 775 | 1,054 | - | (26 | ) | |||||||
Provision for unfunded lending commitments | - | - | - | - | - | ||||||||
Provisions for credit losses and for benefits and claims | $ | 8,569 | $ | 16,044 | $ | 26,038 | (47 | )% | (38 | )% | |||
(Loss) from continuing operations before taxes | $ | (4,271 | ) | $ | (8,275 | ) | $ | (18,171 | ) | 48 | % | 54 | % |
Benefits for income taxes | (1,437 | ) | (3,287 | ) | (7,687 | ) | 56 | 57 | |||||
(Loss) from continuing operations | $ | (2,834 | ) | $ | (4,988 | ) | $ | (10,484 | ) | 43 | % | 52 | % |
Net income attributable to noncontrolling interests | 2 | 8 | 33 | (75 | ) | (76 | ) | ||||||
Net (loss) | $ | (2,836 | ) | $ | (4,996 | ) | $ | (10,517 | ) | 43 | % | 52 | % |
Average assets (in billions of dollars) | $ | 228 | $ | 324 | $ | 351 | (30 | )% | (8 | )% | |||
Net credit losses as a percentage of average loans | 5.34 | % | 6.20 | % | 6.38 | % | |||||||
Total GAAP revenues | $ | 12,067 | $ | 15,826 | $ | 17,765 | (24 | )% | (11 | )% | |||
Net impact of credit card securitizations activity (1) | - | - | 4,135 | ||||||||||
Total managed revenues | $ | 12,067 | $ | 15,826 | $ | 21,900 | (24 | )% | (28 | )% | |||
Total GAAP net credit losses | $ | 10,659 | $ | 17,040 | $ | 19,185 | (37 | )% | (11 | )% | |||
Impact of credit card securitizations activity (1) | - | - | 4,590 | ||||||||||
Total managed net credit losses | $ | 10,659 | $ | 17,040 | $ | 23,775 | (37 | )% | (28 | )% |
(1) | See Note 1 to the Consolidated Financial Statements for a discussion of the impact of SFAS 166/167. | |
NM | Not meaningful |
2011 vs. 2010
Net loss decreased 43%, driven primarily by the improving credit environment,
including lower net credit losses and higher loan loss reserve releases, in both
retail partner cards and mortgages. The improvement in credit was partly offset
by lower revenues due to decreasing asset balances and sales.
Revenues decreased 24%, driven primarily by the lower asset balances due to asset
sales, divestitures and run-offs, which also drove the 21% decline in Net interest
revenue . Non-interest revenue decreased 40% due to the impact of
divestitures.
Expenses decreased
4%, driven by the lower volumes and divestitures, partly offset by higher legal
and regulatory expenses, including without limitation those relating to the United States and state attorneys general mortgage servicing discussions and
agreement in principle announced on February 9, 2012, reserves related to
potential PPI refunds (see "Payment Protection Insurance" below) and, to a
lesser extent, implementation costs associated with the OCC/Federal Reserve
Board consent orders entered into in April 2011.
Provisions decreased
47%, driven by lower credit losses and higher loan loss reserve releases. Net
credit losses decreased 37%, primarily due to the credit improvements in retail
partner cards ($3.0 billion) and North America mortgages
($1.6 billion), although the pace of the decline in net credit losses in both
portfolios slowed. Loan loss reserve releases increased 62%, driven by higher
releases in retail partner cards and CitiFinancial North America due to better
credit quality and lower loan balances.
Assets declined 20% from
the prior year, primarily driven by portfolio run-off and the impact of asset
sales and divestitures, including continued sales of student loans, auto loans
and delinquent mortgages (see "North America Consumer Mortgage Lending"
below).
32
2010 vs. 2009
Net loss decreased 52%, driven primarily by the improving credit environment.
Decreases in revenues driven by lower gains on asset sales were mostly offset by
decreased expenses due to lower volumes and divestitures.
Revenues decreased 11% from the prior year, driven primarily by portfolio run off,
divestitures and asset sales. Net
interest revenue increased 6% due
to the adoption of SFAS 166/167, partially offset by the impact of lower
balances due to portfolio run-off and asset sales. Non-interest revenue declined 58%, primarily due to the absence of the
$1.1 billion gain on the sale of Redecard in the first quarter of 2009 and a
higher mortgage repurchase reserve charge.
Expenses decreased 19%,
primarily due to the impact of divestitures, lower volumes, re-engineering
actions and the absence of costs associated with the U.S. government
loss-sharing agreement, which was exited in the fourth quarter of 2009.
Provisions decreased 38%, reflecting a net $1.8 billion loan loss reserve release in
2010 compared to a $5.8 billion build in 2009. Lower net credit losses across
most businesses were partially offset by the impact of the adoption of SFAS
166/167. On a comparable basis, net credit losses were lower year-over-year by
28%, driven by improvement in U.S. mortgages, international portfolios and
retail partner cards.
Assets declined 21% from
the prior year, primarily driven by portfolio run-off, higher loan loss reserve
balances, and the impact of asset sales and divestitures, partially offset by an
increase of $41 billion resulting from the adoption of SFAS 166/167. Key
divestitures in 2010 included The Student Loan Corporation, Primerica, auto
loans, the Canadian Mastercard business and U.S. retail sales finance
portfolios.
Japan Consumer
Finance
Citi continues to
actively monitor a number of matters involving its Japan Consumer Finance
business, including customer defaults, refund claims and litigation, as well as
financial and legislative, regulatory, judicial and other political
developments, relating to the charging of gray zone interest. Gray zone interest
represents interest at rates that are legal but for which claims may not be
enforceable. In 2008, Citi decided to exit its Japan Consumer Finance business
and has been liquidating its portfolio and otherwise winding down the business
since such time. However, this business has incurred, and will continue to face,
net credit losses and refunds, due in part to legislative, regulatory and
judicial actions taken in recent years. These actions may also reduce credit
availability and increase potential claims and losses relating to gray zone
interest.
In September 2010, one of
Japan's largest consumer finance companies (Takefuji) declared bankruptcy,
reflecting the financial distress that Japan's top consumer finance lenders are
facing as they continue to deal with liabilities for gray zone interest refund
claims. The publicity relating to Takefuji's bankruptcy resulted in a
significant increase in the number of refund claims during the latter part of
2010 and first half of 2011, although Citi observed a steady decline in such
claims during the remainder of 2011. During 2011, LCL recorded a net increase in its reserves related to customer refunds in
the Japan Consumer Finance business of approximately $120 million (pretax), in
addition to an increase of approximately $325 million (pretax) in 2010.
As evidenced by the events described above, the
trend in the type, number and amount of refund claims remains volatile, and the
potential full amount of losses and their impact on Citi is subject to
significant uncertainties and continues to be difficult to predict. In addition,
regulators in Japan have stated that they are considering legislation to
establish a framework for collective legal action proceedings. If such
legislation is passed and implemented, it could potentially introduce a more
accessible procedure for current and former customers to pursue refund claims
and other types of collective actions. Citi continues to monitor and evaluate
these developments and the potential impact to both currently and previously
outstanding loans in this business and its reserves related
thereto.
33
Payment Protection
Insurance
The alleged
mis-selling of payment protection insurance products (PPI) by financial
institutions in the UK, including Citi, has been, and continues to be, the
subject of intense review and focus by the UK regulators, particularly the
Financial Services Authority (FSA). PPI is designed to cover a customer's loan
repayments in the event of certain events, such as long-term illness or
unemployment. The FSA has found certain problems, across the industry, with how
these products were sold, including customers not realizing that the cost of PPI
premiums was being added to their loan or PPI being unsuitable for the customer.
Prior to 2008, certain of Citi's UK consumer finance businesses, primarily
CitiFinancial Europe plc and Egg Banking plc, engaged in the sale of PPI. While
Citi has sold a significant portion of these businesses, and the remaining
businesses are in the process of wind down, Citi generally retains the potential
liability relating to the sale of PPI by these businesses.
As a result of this regulatory focus and resulting
publicity, during 2010 and 2011, Citi observed an increase in customer
complaints relating to the sale of PPI. In addition, in 2011, the FSA required
all firms engaged in the sale of PPI in the UK, including Citi, to review their
historical sales processes for PPI, generally from January 2005 forward. In
addition, the FSA is requiring these firms to proactively contact any customers
who may have been mis-sold PPI after January 2005 and invite them to have their
individual sale reviewed. Redress, whether as a result of customer complaints or
Citi's proactive contact with customers, generally involves the repayment of
premiums and the refund of all applicable contractual interest together with
compensatory interest of 8%.
As a result of these developments during 2011, Citi increased its
reserves related to potential PPI refunds by approximately $330 million ($230
million in LCL and $100 million in Corporate/Other for discontinued operations). Citi continues
discussions with the FSA regarding its proposed remediation process, and the
trend in the number of claims, the potential amount of refunds and the impact on
Citi remains volatile and is subject to significant uncertainty and lack of
predictability. This is particularly true with respect to the potential customer
response to any direct customer contact exercise. Citi continues to monitor and
evaluate the PPI remediation process and developments and its related
reserves.
34
SPECIAL ASSET
POOL
Special Asset Pool
(SAP) had approximately $41
billion of assets as of December 31, 2011, which constituted approximately 15%
of Citi Holdings assets as of such date. SAP consists of a
portfolio of securities, loans and other assets that Citigroup intends to
continue to reduce over time through asset sales and portfolio run-off. SAP assets have declined by approximately $287
billion, or 88%, from peak levels in 2007, reflecting cumulative write-downs,
asset sales and portfolio run-off.
% Change | % Change | ||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | ||||||||
Net interest revenue | $ | (405 | ) | $ | 1,219 | $ | 2,754 | NM | (56 | )% | |||
Non-interest revenue | 952 | 1,633 | (6,014 | ) | (42 | )% | NM | ||||||
Revenues, net of interest expense | $ | 547 | $ | 2,852 | $ | (3,260 | ) | (81 | )% | NM | |||
Total operating expenses | $ | 293 | $ | 571 | $ | 911 | (49 | )% | (37 | )% | |||
Net credit losses | $ | 1,068 | $ | 2,013 | $ | 5,399 | (47 | )% | (63 | )% | |||
Provision (releases) for unfunded lending commitments | (40 | ) | (76 | ) | 111 | 47 | NM | ||||||
Credit reserve builds (releases) | (1,855 | ) | (1,711 | ) | (530 | ) | (8 | ) | NM | ||||
Provisions for credit losses and for benefits and claims | $ | (827 | ) | $ | 226 | $ | 4,980 | NM | (95 | )% | |||
Income (loss) from continuing operations before taxes | $ | 1,081 | $ | 2,055 | $ | (9,151 | ) | (47 | )% | NM | |||
Income taxes (benefits) | 485 | 897 | (3,726 | ) | (46 | ) | NM | ||||||
Net income (loss) from continuing operations | $ | 596 | $ | 1,158 | $ | (5,425 | ) | (49 | )% | NM | |||
Net income (loss) attributable to noncontrolling interests | 108 | 188 | (16 | ) | (43 | ) | NM | ||||||
Net income (loss) | $ | 488 | $ | 970 | $ | (5,409 | ) | (50 | )% | NM | |||
EOP assets (in billions of dollars) | $ | 41 | $ | 80 | $ | 136 | (49 | )% | (41 | )% | |||
NM Not meaningful |
2011 vs. 2010
Net income decreased 50%, driven by the decrease in revenues due to lower asset
balances, partially offset by lower expenses and improved
credit.
Revenues decreased 81%,
driven by the overall decline in Net interest revenue during the year, as interest-earning assets declined and thus represent a
smaller portion of SAP . Net interest revenue was a negative $405 million in 2011 and Citi
expects to incur continued negative carrying costs in SAP going forward as the non-interest-earning assets of SAP , which require funding, now represent the larger portion of the total
asset pool. Non-interest revenue decreased by 42% due to lower
gains on asset sales and the absence of positive marks from the prior year, such
as on subprime exposures.
Expenses decreased 49%, driven by lower volume and asset levels, as well as lower
legal and related costs.
Provisions decreased $1.1
billion as credit conditions continued to improve during the year. The decline
of $1.1 billion was driven by a $945 million decrease in net credit losses and
an increase in loan loss reserve releases to $1.9 billion in 2011 from a release
of $1.7 billion in 2010.
Assets declined 49%,
primarily driven by sales and amortization and prepayments. Asset sales of $29
billion for 2011 generated pretax gains of approximately $0.5
billion.
2010 vs. 2009
Net income increased $6.4 billion from a net loss of $5.4 billion in 2009. The
increase was driven by higher gains on asset sales and improved revenue marks,
as well as improved credit.
Revenues increased $6.1
billion, primarily due to the improvement of revenue marks in 2010. Aggregate
marks were negative $2.6 billion in 2009 as compared to positive marks of $3.4
billion in 2010. 2010 revenues included positive marks of $2.0 billion related
to subprime-related direct exposure, a positive $0.5 billion CVA/DVA related to
monoline insurers, and $0.4 billion on private equity positions. These positive
marks were partially offset by negative revenues of $0.5 billion on Alt-A
mortgages and $0.4 billion on commercial real estate.
Expenses decreased 37%, mainly driven by the absence of the U.S. government
loss-sharing agreement exited in the fourth quarter of 2009, lower compensation,
and lower transaction expenses.
Provisions decreased 95%
as credit conditions improved. The decline in credit costs was driven by a
decrease in net credit losses of $3.4 billion and a higher release of loan loss
reserves and unfunded lending commitments of $1.4 billion.
Assets declined 41%, primarily driven by sales and amortization and
prepayments. Asset sales of $39 billion for 2010 generated pretax gains of
approximately $1.3 billion.
35
CORPORATE/OTHER
Corporate/Other includes global staff functions (including finance, risk, human resources, legal and compliance) and other corporate expense, global operations and technology, unallocated Corporate Treasury and Corporate items and discontinued operations. At December 31, 2011, this segment had approximately $286 billion of assets, or 15% of Citigroup's total assets, consisting primarily of Citi's liquidity portfolio.
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Net interest revenue | $ | 25 | $ | 828 | $ | (1,840 | ) | ||
Non-interest revenue | 861 | 926 | (8,715 | ) | |||||
Revenues, net of interest expense | $ | 886 | $ | 1,754 | $ | (10,555 | ) | ||
Total operating expenses | $ | 2,522 | $ | 1,616 | $ | 1,039 | |||
Provisions (releases) for loan losses and for benefits and claims | (1 | ) | - | - | |||||
Income (loss) from continuing operations before taxes | $ | (1,635 | ) | $ | 138 | $ | (11,594 | ) | |
Provision (benefits) for income taxes | (764 | ) | (36 | ) | (4,225 | ) | |||
Income (loss) from continuing operations | $ | (871 | ) | $ | 174 | $ | (7,369 | ) | |
Income (loss) from discontinued operations, net of taxes | 112 | (68 | ) | (445 | ) | ||||
Net income (loss) before attribution of noncontrolling interests | $ | (759 | ) | $ | 106 | $ | (7,814 | ) | |
Net (loss) attributable to noncontrolling interests | (27 | ) | (48 | ) | (2 | ) | |||
Net income (loss) | $ | (732 | ) | $ | 154 | $ | (7,812 | ) |
2011 vs. 2010
Net loss of $732 million reflected a decline of $886 million compared to Net income of $154 million in 2010. The decline was primarily
due to the decrease in revenues coupled with the increase in expenses, as well
as the absence of the net gain on the sale of Nikko Cordial Securities and the
related benefit for income taxes recorded in discontinued operations in 2010.
This was partially offset by the absence of the net loss on the sale of The
Student Loan Corporation in 2010 and a net gain on the sale of the Egg Banking
plc credit card business in 2011, each recorded in discontinued operations in
the respective year.
Revenues decreased $868 million, primarily driven by lower investment yields in
Treasury and lower gains on sales of AFS securities, partially offset by gains
on hedging activities and the gain on the sale of a portion of Citi's holdings
in the Housing Development Finance Corp. (HDFC) in the second quarter of 2011
(approximately $200 million pretax).
Expenses increased $906
million, due to higher legal and related costs and continued investment
spending, primarily in technology.
2010 vs. 2009
Net loss decreased $8.0 billion, primarily due to the increase in revenues and the
absence of prior-year losses related to Nikko Cordial, partially offset by the
increase in expenses and the net loss on the sale of The Student Loan
Corporation.
Revenues increased $12.3 billion, primarily due to the
absence of the loss on debt extinguishment related to the repayment of TARP and
the exit from the loss-sharing agreement with the U.S. government, each in the
fourth quarter of 2009. Revenues also increased due to gains on sales of AFS
securities, benefits from lower short-term interest rates and other improved
Treasury results in 2010. These increases were partially offset by the absence
of the pretax gain related to Citi's public and private exchange offers in
2009.
Expenses increased $577 million, primarily due to various
legal and related expenses as well as other non-compensation
expenses.
36
BALANCE SHEET REVIEW
The following sets forth a general discussion of the changes in certain of the more significant line items of Citi's Consolidated Balance Sheet during 2011. For additional information on Citigroup's deposits, short-term and long-term debt and secured financing transactions, see "Capital Resources and Liquidity-Funding and Liquidity" below.
December 31, | Increase | % | |||||||||
In billions of dollars | 2011 | 2010 | (decrease) | Change | |||||||
Assets | |||||||||||
Cash and deposits with banks | $ | 184 | $ | 190 | $ | (6 | ) | (3 | )% | ||
Federal funds sold and securities borrowed or purchased under agreements to resell | 276 | 247 | 29 | 12 | |||||||
Trading account assets | 292 | 317 | (25 | ) | (8 | ) | |||||
Investments | 293 | 318 | (25 | ) | (8 | ) | |||||
Loans, net of unearned income and allowance for loan losses | 617 | 608 | 9 | 1 | |||||||
Other assets | 212 | 234 | (22 | ) | (9 | ) | |||||
Total assets | $ | 1,874 | $ | 1,914 | $ | (40 | ) | (2 | )% | ||
Liabilities | |||||||||||
Deposits | $ | 866 | $ | 845 | $ | 21 | 2 | % | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 198 | 190 | 8 | 4 | |||||||
Trading account liabilities | 126 | 129 | (3 | ) | (2 | ) | |||||
Short-term borrowings and long-term debt | 378 | 460 | (82 | ) | (18 | ) | |||||
Other liabilities | 126 | 124 | 2 | 2 | |||||||
Total liabilities | $ | 1,694 | $ | 1,748 | $ | (54 | ) | (3 | )% | ||
Total equity | $ | 180 | $ | 166 | $ | 14 | 8 | % | |||
Total liabilities and equity | $ | 1,874 | $ | 1,914 | $ | (40 | ) | (2 | )% |
ASSETS
Cash and Deposits with
Banks
Cash and deposits
with banks is comprised of both Cash and due from
banks and Deposits with banks. Cash and due from
banks includes (i) cash on
hand at Citi's domestic and overseas offices, and (ii) non-interest-bearing
balances due from banks, including non-interest-bearing demand deposit accounts
with correspondent banks, central banks (such as the Federal Reserve Bank), and
other banks or depository institutions for normal operating purposes. Deposits with
banks includes interest-bearing
balances, demand deposits and time deposits held in or due from banks (including
correspondent banks, central banks and other banks or depository institutions)
maintained for, among other things, normal operating and regulatory reserve
requirement purposes.
During 2011, Cash and deposits with banks decreased $6 billion, or 3%, driven by a $7
billion, or 4%, decrease in Deposits with banks offset
by a $1 billion, or 3%, increase in Cash and due from banks .
These changes resulted from Citi's normal operations during the year.
Federal Funds Sold and Securities
Borrowed or Purchased Under Agreements to Resell (Reverse
Repos)
Federal funds sold
consist of unsecured advances of excess balances in reserve accounts held at the
Federal Reserve Banks to third parties. During 2010 and 2011, Citi's federal
funds sold were not significant. Reverse repos and securities borrowing
transactions increased by $29 billion, or 12%, during 2011, compared to 2010.
The majority of this increase was due to additional secured lending
to clients.
For further information
regarding these Consolidated Balance Sheet categories, see Notes 1 and 12 to the
Consolidated Financial Statements.
Trading Account
Assets
Trading account
assets includes debt and
marketable equity securities, derivatives in a net receivable position, residual
interests in securitizations and physical commodities inventory. In addition,
certain assets that Citigroup has elected to carry at fair value, such as
certain loans and purchase guarantees, are also included in Trading account assets .
During 2011, Trading
account assets decreased $25
billion, or 8%, primarily due to decreases in corporate bonds ($14 billion, or
28%), foreign government securities ($9 billion, or 10%), equity securities ($4
billion, or 11%) and U.S. Treasury and federal agency securities ($4 billion, or
18%), partially offset by a $12 billion, or 24%, increase in derivative assets.
A significant portion of the decline in Citi's Trading account assets occurred in the second half of 2011 as the
economic uncertainty that largely began in the third quarter of 2011 continued
into the fourth quarter. Citi reduced its rates trading
in the G10, particularly in Europe, given the market environment in the region,
and credit trading and securitized markets also declined due to reduced client
volume and less market liquidity.
Average Trading account
assets were $270 billion in 2011,
compared to $280 billion in 2010.
For further information on Citi's Trading account assets ,
see Notes 1 and 14 to the Consolidated Financial Statements.
37
Investments
Investments consists of debt and equity securities that are available-for-sale, debt
securities that are held-to-maturity, non-marketable equity securities that are
carried at fair value, and non-marketable equity securities carried at cost.
Debt securities include bonds, notes and redeemable preferred stock, as well as
certain mortgage-backed and asset-backed securities and other structured notes.
Marketable and non-marketable equity securities carried at fair value include
common and nonredeemable preferred stock. Non-marketable equity securities
carried at cost primarily include equity shares issued by the Federal Reserve
Bank and the Federal Home Loan Banks that Citigroup is required to
hold.
During 2011, Investments decreased by
$25 billion, or 8%, primarily due to a $9 billion, or 3%, decrease in
available-for-sale securities (predominantly U.S. Treasury and federal agency
securities), and a $18 billion decrease in held-to-maturity securities
(predominately mortgage-backed and Corporate securities) that included the
$12.7 billion of assets in the Special Asset Pool that
were reclassified and transferred to Trading account assets in the first quarter of
2011. The majority of the remaining decrease was largely due to a combined
reduction in U.S. Treasury and federal agency securities and foreign government
securities, which was partially offset by an increase in U.S. government agency
mortgage-backed securities, as Citi began to modestly reallocate its portfolio
into higher-yielding assets.
For further information regarding Investments , see Notes 1
and 15 to the Consolidated Financial Statements.
Loans
Loans represent the largest asset category of Citi's balance sheet. Citi's
total loans (as discussed throughout this section, net of unearned income) were
$647 billion at December 31, 2011, compared to $649 billion at December 31,
2010. Excluding the impact of FX translation, loans increased 1% year over year.
At year end 2011, Consumer and Corporate loans represented 65% and 35%,
respectively, of Citi's total loans.
In Citicorp, loans have increased for six consecutive quarters as of
December 31, 2011, and were up 23% to $465 billion at year end 2011, as compared
to $379 billion at the second quarter of 2010. Citicorp Corporate loans
increased 24% year over year, and Citicorp Consumer loans were up 7% year over
year. Corporate loan growth was driven by Transaction Services (37% growth), particularly from increased
trade finance lending in Asia , Latin America and Europe,
as well as growth in the Securities and Banking
Corporate loan book (20%
growth), with increased borrowing generally across all client segments and
geographies. Consumer loan growth was driven by Regional Consumer Banking , as loans increased 7% year over year, led by Asia and Latin America . The growth
in Regional Consumer Banking loans reflected the economic
growth in these regions, as well as the result of Citi's investment spending in
these areas, which drove growth in both cards and retail loans. North America Consumer loans increased 6%, driven by retail
loans as the cards market continued to adapt to the CARD Act and other
regulatory changes. In contrast, Citi Holdings loans declined 25% year over
year, due to the continued run-off and asset sales in the portfolio.
During 2011, average loans of $644 billion yielded
an average rate of 7.8%, compared to $686 billion and 8.0%, respectively, in the
prior year.
For further information on
Citi's loan portfolios, see generally "Managing Global Risk-Credit Risk" below
and Notes 1 and 16 to the Consolidated Financial Statements.
Other Assets
Other assets consists of Brokerage receivables, Goodwill,
Intangibles and Mortgage servicing rights in addition to Other assets (including, among other items, loans
held-for-sale, deferred tax assets, equity-method investments, interest and fees
receivable, premises and equipment, certain end-user derivatives in a net
receivable position, repossessed assets and other receivables).
During 2011, Other assets decreased $22 billion, or 9%, primarily due to a
$3 billion decrease in Brokerage
receivables , a $2 billion
decrease in Mortgage servicing
rights , a $1 billion decrease in Intangible assets , a $1 billion decrease in Goodwill and a $15 billion decrease in Other assets .
For further information on Brokerage receivables , see Note 13 to the Consolidated Financial
Statements. For further information regarding Goodwill and Intangible
assets , see Note 18 to the
Consolidated Financial Statements.
38
LIABILITIES
Deposits
Deposits represent customer funds that are payable on demand or upon maturity.
For a discussion of Citi's deposits, see "Capital Resources and
Liquidity-Funding and Liquidity" below.
Federal Funds Purchased and Securities
Loaned or Sold Under Agreements To Repurchase (Repos)
Federal funds purchased consist of unsecured
advances of excess balances in reserve accounts held at the Federal Reserve
Banks from third parties. During 2010 and 2011, Citi's federal funds purchased
were not significant.
For further information on Citi's secured
financing transactions, including repos and securities lending transactions, see
"Capital Resources and Liquidity-Funding and Liquidity" below. See also Notes 1
and 12 to the Consolidated Financial Statements for additional information on
these balance sheet categories.
Trading Account
Liabilities
Trading account
liabilities includes 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.
During 2011, Trading account liabilities decreased by $3 billion, or 2%, primarily due to
a $3 billion, or 6%, decrease in derivative liabilities. In 2011, average Trading account
liabilities were $86 billion,
compared to $80 billion in 2010.
For further information on Citi's Trading account liabilities , see Notes 1 and 14 to the Consolidated Financial
Statements.
Debt
Debt is composed of both short-term and long-term borrowings. Long-term
borrowings include senior notes, subordinated notes, trust preferred securities
and securitizations. Short-term borrowings include commercial paper and
borrowings from unaffiliated banks and other market participants. For further
information on Citi's long-term and short-term debt borrowings during 2011, see
"Capital Resources and Liquidity-Funding and Liquidity" below and Notes 1 and 19
to the Consolidated Financial Statements.
Other
Liabilities
Other
liabilities consists of Brokerage payables and Other liabilities (including, among other items, accrued expenses and other payables, deferred tax
liabilities, certain end-user derivatives in a net payable position, and
reserves for legal claims, taxes, restructuring, unfunded lending commitments,
and other matters).
During 2011, Other
liabilities increased $2 billion,
or 2%, primarily due to a $5 billion increase in Brokerage payables , offset by a $4 billion decrease in Other liabilities .
For further information regarding Brokerage payables , see
Note 13 to the Consolidated Financial Statements.
39
SEGMENT BALANCE SHEET AT DECEMBER 31, 2011 (1)
Corporate/Other, | ||||||||||||||||||
Discontinued | ||||||||||||||||||
Operations | ||||||||||||||||||
Global | Institutional | and | ||||||||||||||||
Consumer | Clients | Subtotal | Citi | Consolidating | Total Citigroup | |||||||||||||
In millions of dollars | Banking | Group | Citicorp | Holdings | Eliminations | Consolidated | ||||||||||||
Assets | ||||||||||||||||||
Cash and due from banks | $ | 9,020 | $ | 17,439 | $ | 26,459 | $ | 1,105 | $ | 1,137 | $ | 28,701 | ||||||
Deposits with banks | 7,659 | 52,249 | 59,908 | 1,342 | 94,534 | 155,784 | ||||||||||||
Federal funds sold and securities borrowed or purchased | ||||||||||||||||||
under agreements to resell | 3,269 | 269,295 | 272,564 | 3,285 | - | 275,849 | ||||||||||||
Brokerage receivables | - | 16,162 | 16,162 | 11,181 | 434 | 27,777 | ||||||||||||
Trading account assets | 13,224 | 265,577 | 278,801 | 12,933 | - | 291,734 | ||||||||||||
Investments | 27,740 | 95,601 | 123,341 | 30,202 | 139,870 | 293,413 | ||||||||||||
Loans, net of unearned income | ||||||||||||||||||
Consumer | 246,545 | - | 246,545 | 177,186 | - | 423,731 | ||||||||||||
Corporate | - | 218,779 | 218,779 | 4,732 | - | 223,511 | ||||||||||||
Loans, net of unearned income | $ | 246,545 | $ | 218,779 | $ | 465,324 | $ | 181,918 | $ | - | $ | 647,242 | ||||||
Allowance for loan losses | (10,040 | ) | (2,615 | ) | (12,655 | ) | (17,460 | ) | - | (30,115 | ) | |||||||
Total loans, net | $ | 236,505 | $ | 216,164 | $ | 452,669 | $ | 164,458 | $ | - | $ | 617,127 | ||||||
Goodwill | 10,236 | 10,737 | 20,973 | 4,440 | - | 25,413 | ||||||||||||
Intangible assets (other than MSRs) | 1,915 | 897 | 2,812 | 3,788 | - | 6,600 | ||||||||||||
Mortgage servicing rights (MSRs) | 1,389 | 88 | 1,477 | 1,092 | - | 2,569 | ||||||||||||
Other assets | 29,393 | 34,282 | 63,675 | 35,392 | 49,844 | 148,911 | ||||||||||||
Total assets | $ | 340,350 | $ | 978,491 | $ | 1,318,841 | $ | 269,218 | $ | 285,819 | $ | 1,873,878 | ||||||
Liabilities and equity | ||||||||||||||||||
Total deposits | $ | 312,847 | $ | 483,557 | $ | 796,404 | $ | 64,391 | $ | 5,141 | $ | 865,936 | ||||||
Federal funds purchased and securities loaned or sold | ||||||||||||||||||
under agreements to repurchase | 6,238 | 192,134 | 198,372 | 1 | - | 198,373 | ||||||||||||
Brokerage payables | - | 55,885 | 55,885 | 7 | 804 | 56,696 | ||||||||||||
Trading account liabilities | 50 | 124,684 | 124,734 | 1,348 | - | 126,082 | ||||||||||||
Short-term borrowings | 213 | 42,121 | 42,334 | 402 | 11,705 | 54,441 | ||||||||||||
Long-term debt | 3,077 | 63,779 | 66,856 | 9,884 | 246,765 | 323,505 | ||||||||||||
Other liabilities | 15,577 | 25,034 | 40,611 | 11,911 | 16,750 | 69,272 | ||||||||||||
Net inter-segment funding (lending) | 2,348 | (8,703 | ) | (6,355 | ) | 181,274 | (174,919 | ) | - | |||||||||
Total Citigroup stockholders' equity | - | - | - | - | 177,806 | 177,806 | ||||||||||||
Noncontrolling interest | - | - | - | - | 1,767 | 1,767 | ||||||||||||
Total equity | $ | - | $ | - | $ | - | $ | - | $ | 179,573 | $ | 179,573 | ||||||
Total liabilities and equity | $ | 340,350 | $ | 978,491 | $ | 1,318,841 | $ | 269,218 | $ | 285,819 | $ | 1,873,878 |
(1) | The supplemental information presented in the table above reflects Citigroup's consolidated GAAP balance sheet by reporting segment as of December 31, 2011. The respective segment information depicts the assets and liabilities managed by each segment as of such date. While this presentation is not defined by GAAP, Citi believes that these non-GAAP financial measures enhance investors' understanding of the balance sheet components managed by the underlying business segments, as well as the beneficial inter-relationship of the asset and liability dynamics of the balance sheet components among Citi's business segments. |
40
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES
Overview
Citi generates capital through earnings from its
operating businesses. Citi may augment its capital through issuances of common
stock, perpetual preferred stock and equity issued through awards under employee
benefit plans, among other issuances. Citi has also augmented its regulatory
capital through the issuance of subordinated debt underlying trust preferred
securities, although the treatment of such instruments as regulatory capital
will be phased out under Basel III and The Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (see "Regulatory Capital Standards"
and "Risk Factors-Regulatory Risks" below). Further, the impact of future events
on Citi's business results, such as corporate and asset dispositions, as well as
changes in regulatory and accounting standards, may also affect Citi's capital
levels.
Capital is used primarily to support assets in Citi's businesses and to
absorb market, credit or operational losses. Capital may be used for other
purposes, such as to pay dividends or repurchase common stock. However, Citi's
ability to pay regular quarterly cash dividends of more than $0.01 per share, or
to redeem or repurchase equity securities or trust preferred securities, is
currently restricted (which restriction may be waived) due to Citi's agreements
with certain U.S. government entities, generally for so long as the U.S.
government continues to hold any Citi trust preferred securities acquired in
connection with the exchange offers consummated in 2009. (See "Risk
Factors-Business Risks" below.)
Citigroup's capital management framework is designed to ensure that
Citigroup and its principal subsidiaries maintain sufficient capital consistent
with Citi's risk profile and all applicable regulatory standards and guidelines,
as well as external rating agency considerations. Senior management is
responsible for the capital and liquidity management process mainly through
Citigroup's Finance and Asset and Liability Committee (FinALCO), with oversight
from the Risk Management and Finance Committee of Citigroup's Board of
Directors. Among other things, FinALCO's responsibilities include: determining
the financial structure of Citigroup and its principal subsidiaries; ensuring
that Citigroup and its regulated entities are adequately capitalized in
consultation with its regulators; determining appropriate asset levels and
return hurdles for Citigroup and individual businesses; reviewing the funding
and capital markets plan for Citigroup; and setting and monitoring corporate and
bank liquidity levels and the impact of currency translation on non-U.S.
capital. Asset and liability committees are also established globally and for
each region, country and/or major line of business.
Capital Ratios
Citigroup is subject to the risk-based capital
guidelines issued by the Federal Reserve Board. Historically, capital adequacy
has been measured, in part, based on two risk-based capital ratios, the Tier 1
Capital and Total Capital (Tier 1 Capital + Tier 2 Capital) ratios. Tier 1
Capital consists of the sum of "core capital elements," such as qualifying
common stockholders' equity, as
adjusted, qualifying noncontrolling interests,
and qualifying trust preferred securities, principally reduced by goodwill, other disallowed intangible assets, and
disallowed deferred tax assets. Total Capital also includes "supplementary" Tier 2 Capital elements, such as
qualifying subordinated debt and a limited portion of the allowance for credit losses. Both measures of capital adequacy are
stated as a percentage of risk-weighted assets.
In
2009, the U.S. banking regulators developed a new measure of capital termed "Tier 1 Common," which is defined
as Tier 1 Capital less non-common elements, including qualifying perpetual preferred stock, qualifying
noncontrolling interests, and qualifying trust preferred securities. For more detail on all of these capital metrics, see
"Components of Capital Under Regulatory Guidelines" below.
Citigroup's
risk-weighted assets are principally derived from application of the risk-based capital guidelines related to
the measurement of credit risk. Pursuant to these guidelines, on-balance-sheet assets and the credit equivalent amount
of certain off-balance-sheet exposures (such as financial guarantees, unfunded lending commitments, letters of credit
and derivatives) are assigned to one of several prescribed risk-weight categories based upon the perceived credit
risk associated with the obligor or, if relevant, the guarantor, the nature of the collateral, or external credit
ratings. Risk-weighted assets also incorporate a measure for market risk on covered trading account positions and all
foreign exchange and commodity positions whether or not carried in the trading account. Excluded from risk-weighted assets
are any assets, such as goodwill and deferred tax assets, to the extent required to be deducted from regulatory capital.
See "Components of Capital Under Regulatory Guidelines" below.
Citigroup
is also subject to a Leverage ratio requirement, a non-risk-based measure of capital adequacy, which is defined as Tier 1
Capital as a percentage of quarterly adjusted average total assets.
To
be "well capitalized" under current federal bank regulatory agency definitions, a bank holding company must
have a Tier 1 Capital ratio of at least 6%, a Total Capital ratio of at least 10%, and not be subject to a Federal
Reserve Board directive to maintain higher capital levels. In addition, the Federal Reserve Board expects bank holding companies
to maintain a minimum Leverage ratio of 3% or 4%, depending on factors specified in its regulations. The
following table sets forth Citigroup's regulatory capital ratios as of December 31, 2011 and December 31,
2010:
Citigroup Regulatory Capital Ratios
At year end | 2011 | 2010 | ||
Tier 1 Common | 11.80 | % | 10.75 | % |
Tier 1 Capital | 13.55 | 12.91 | ||
Total Capital (Tier 1 Capital + Tier 2 Capital) | 16.99 | 16.59 | ||
Leverage | 7.19 | 6.60 |
As indicated in the table above, Citigroup was "well capitalized" under the current federal bank regulatory agency definitions as of December 31, 2011 and December 31, 2010.
41
Components of Capital Under Regulatory Guidelines
In millions of dollars at year end | 2011 | 2010 | ||||
Tier 1 Common Capital | ||||||
Citigroup common stockholders' equity | $ | 177,494 | $ | 163,156 | ||
Less: Net unrealized losses on securities available-for-sale, net of tax (1) | (35 | ) | (2,395 | ) | ||
Less: Accumulated net losses on cash flow hedges, net of tax | (2,820 | ) | (2,650 | ) | ||
Less: Pension liability adjustment, net of tax (2) | (4,282 | ) | (4,105 | ) | ||
Less: Cumulative effect included in fair value of financial liabilities attributable to the change in | ||||||
own creditworthiness, net of tax (3) | 1,265 | 164 | ||||
Less: Disallowed deferred tax assets (4) | 37,980 | 34,946 | ||||
Less: Intangible assets: | ||||||
Goodwill | 25,413 | 26,152 | ||||
Other disallowed intangible assets | 4,550 | 5,211 | ||||
Other | (569 | ) | (698 | ) | ||
Total Tier 1 Common Capital | $ | 114,854 | $ | 105,135 | ||
Tier 1 Capital | ||||||
Qualifying perpetual preferred stock | $ | 312 | $ | 312 | ||
Qualifying mandatorily redeemable securities of subsidiary trusts | 15,929 | 18,003 | ||||
Qualifying noncontrolling interests | 779 | 868 | ||||
Other | - | 1,875 | ||||
Total Tier 1 Capital | $ | 131,874 | $ | 126,193 | ||
Tier 2 Capital | ||||||
Allowance for credit losses (5) | $ | 12,423 | $ | 12,627 | ||
Qualifying subordinated debt (6) | 20,429 | 22,423 | ||||
Net unrealized pretax gains on available-for-sale equity securities (1) | 658 | 976 | ||||
Total Tier 2 Capital | $ | 33,510 | $ | 36,026 | ||
Total Capital (Tier 1 Capital + Tier 2 Capital) | $ | 165,384 | $ | 162,219 | ||
Risk-weighted assets (RWA) (7) | $ | 973,369 | $ | 977,629 |
(1) | Tier 1 Capital excludes net unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on available-for-sale equity securities with readily determinable fair values, in accordance with risk-based capital guidelines. In arriving at Tier 1 Capital, banking organizations are required to deduct net unrealized losses on available-for-sale equity securities with readily determinable fair values, net of tax. Banking organizations are permitted to include in Tier 2 Capital up to 45% of net unrealized pretax gains on available-for-sale equity securities with readily determinable fair values. | |
(2) | The Federal Reserve Board granted interim capital relief for the impact of ASC 715-20, Compensation-Retirement Benefits-Defined Benefits Plans (formerly SFAS 158). | |
(3) | The impact of changes in Citigroup's own creditworthiness in valuing financial liabilities for which the fair value option has been elected is excluded from Tier 1 Capital, in accordance with risk-based capital guidelines. | |
(4) | Of Citi's approximately $52 billion of net deferred tax assets at December 31, 2011, approximately $11 billion of such assets were includable without limitation in regulatory capital pursuant to risk-based capital guidelines, while approximately $38 billion of such assets exceeded the limitation imposed by these guidelines and, as "disallowed deferred tax assets," were deducted in arriving at Tier 1 Capital. Citigroup's approximately $3 billion of other net deferred tax assets primarily represented effects of the pension liability adjustment, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines. | |
(5) | Includable up to 1.25% of risk-weighted assets. Any excess allowance for credit losses is deducted in arriving at risk-weighted assets. | |
(6) | Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital. | |
(7) | Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $67.0 billion for interest rate, commodity and equity derivative contracts, foreign exchange contracts, and credit derivatives as of December 31, 2011, compared with $62.1 billion as of December 31, 2010. Market risk equivalent assets included in risk-weighted assets amounted to $46.8 billion at December 31, 2011 and $51.4 billion at December 31, 2010. Risk-weighted assets also include the effect of certain other off-balance-sheet exposures, such as unused lending commitments and letters of credit, and reflect deductions such as certain intangible assets and any excess allowance for credit losses. |
42
Common Stockholders'
Equity
Citigroup's common
stockholders' equity increased during 2011 by $14.3 billion to $177.5 billion,
and represented 9% of total assets as of December 31, 2011. The table below
summarizes the change in Citigroup's common stockholders' equity during
2011:
In billions of dollars | |||
Common stockholders' equity, December 31, 2010 | $ | 163.2 | |
Citigroup's net income | 11.1 | ||
Employee benefit plans and other activities (1) | 0.9 | ||
Conversion of ADIA Upper DECs equity units purchase | |||
contracts to common stock | 3.8 | ||
Net change in accumulated other comprehensive income (loss), net of tax | (1.5 | ) | |
Common stockholders' equity, December 31, 2011 | $ | 177.5 |
(1) | As of December 31, 2011, $6.7 billion of common stock repurchases remained under Citi's authorized repurchase programs. No material repurchases were made in 2011. |
Tangible Common Equity and Tangible
Book Value
Per Share
Tangible common equity (TCE), as defined by Citigroup, represents common
equity less goodwill, intangible assets (other than mortgage servicing rights
(MSRs)), and related net deferred tax assets. Other companies may calculate TCE
in a manner different from that of Citigroup. Citi's TCE was $145.4 billion at
December 31, 2011 and $129.4 billion at December 31,
2010.
The
TCE ratio (TCE divided by risk-weighted assets) was 14.9% at December 31, 2011
and 13.2% at December 31, 2010.
TCE and tangible book value per share, as
well as related ratios, are capital adequacy metrics used and relied upon by
investors and industry analysts; however, they are non-GAAP financial measures
for SEC purposes. A reconciliation of Citigroup's total stockholders' equity to
TCE, and book value per share to tangible book value per share, as of December
31, 2011 and December 31, 2010, follows:
In millions of dollars or shares at
year end, except ratios and per-share data | 2011 | 2010 | ||||
Total Citigroup stockholders' equity | $ | 177,806 | $ | 163,468 | ||
Less: | ||||||
Preferred stock | 312 | 312 | ||||
Common equity | $ | 177,494 | $ | 163,156 | ||
Less: | ||||||
Goodwill | 25,413 | 26,152 | ||||
Intangible assets (other than MSRs) | 6,600 | 7,504 | ||||
Related net deferred tax assets | 44 | 56 | ||||
Tangible common equity (TCE) | $ | 145,437 | $ | 129,444 | ||
Tangible assets | ||||||
GAAP assets | $ | 1,873,878 | $ | 1,913,902 | ||
Less: | ||||||
Goodwill | 25,413 | 26,152 | ||||
Intangible assets (other than MSRs) | 6,600 | 7,504 | ||||
Related deferred tax assets | 322 | 359 | ||||
Tangible assets (TA) | $ | 1,841,543 | $ | 1,879,887 | ||
Risk-weighted assets (RWA) | $ | 973,369 | $ | 977,629 | ||
TCE/TA ratio | 7.90 | % | 6.89 | % | ||
TCE/RWA ratio | 14.94 | % | 13.24 | % | ||
Common shares outstanding (CSO) | 2,923.9 | 2,905.8 | ||||
Book value per share | ||||||
(common equity/CSO) | $ | 60.70 | $ | 56.15 | ||
Tangible book value per share (TCE/CSO) | $ | 49.74 | $ | 44.55 |
43
Capital Resources of Citigroup's U.S.
Depository
Institutions
Citigroup's U.S. subsidiary depository institutions are also subject to
risk-based capital guidelines issued by their respective primary federal bank
regulatory agencies, which are similar to the guidelines of the Federal Reserve
Board.
The following table sets forth the capital tiers and capital ratios of
Citibank, N.A., Citi's primary U.S. subsidiary depository institution, as of
December 31, 2011 and December 31, 2010:
Citibank, N.A. Capital Tiers and
Capital Ratios Under
Regulatory Guidelines (1)
In billions of dollars at year end, except ratios | 2011 | 2010 | ||||
Tier 1 Common Capital | $ | 121.3 | $ | 123.6 | ||
Tier 1 Capital | 121.9 | 124.2 | ||||
Total Capital (Tier 1 Capital + Tier 2 Capital) | 134.3 | 138.4 | ||||
Tier 1 Common ratio | 14.63 | % | 15.33 | % | ||
Tier 1 Capital ratio | 14.70 | 15.42 | ||||
Total Capital ratio | 16.20 | 17.18 | ||||
Leverage ratio | 9.66 | 9.32 |
(1) | Effective July 1, 2011, Citibank (South Dakota) N.A. merged into Citibank, N.A. The amount of Tier 1 Common Capital, Tier 1 Capital and Total Capital, and the resultant capital ratios, at December 31, 2010 have been restated to reflect this merger. The 2011 Capital Ratios above also reflect the impact of dividends paid by Citibank, N.A. to Citigroup during 2011. |
Impact of Changes on Capital
Ratios
The following table
presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s capital
ratios to changes of $100 million in Tier 1 Common Capital, Tier 1 Capital or
Total Capital (numerator), or changes of $1 billion in risk-weighted assets or
adjusted average total assets (denominator), based on financial information as
of December 31, 2011. This information is provided for the purpose of analyzing
the impact that a change in Citigroup's or Citibank, N.A.'s financial position
or results of operations could have on these ratios. These sensitivities only
consider a single change to either a component of capital, risk-weighted assets
or adjusted average total assets. Accordingly, an event that affects more than
one factor may have a larger basis point impact than is reflected in this
table.
Tier 1 Common ratio | Tier 1 Capital ratio | Total Capital ratio | Leverage ratio | |||||||||||||
Impact of $1 | ||||||||||||||||
Impact of $1 | Impact of $1 | Impact of $1 | billion change | |||||||||||||
Impact of $100 | billion change in | Impact of $100 | billion change in | Impact of $100 | billion change in | Impact of $100 | in adjusted | |||||||||
million change in | risk-weighted | million change | risk-weighted | million change | risk-weighted | million change | average total | |||||||||
Tier 1 Common Capital | assets | in Tier 1 Capital | assets | in Total Capital | assets | in Tier 1 Capital | assets | |||||||||
Citigroup | 1.0 bps | 1.2 bps | 1.0 bps | 1.4 bps | 1.0 bps | 1.8 bps | 0.6 bps | 0.4 bps | ||||||||
Citibank, N.A. | 1.2 bps | 1.8 bps | 1.2 bps | 1.8 bps | 1.2 bps | 2.0 bps | 0.8 bps | 0.8 bps |
Broker-Dealer
Subsidiaries
At December 31,
2011, Citigroup Global Markets Inc., a broker-dealer registered with the SEC
that is an indirect wholly owned subsidiary of Citigroup, had net capital,
computed in accordance with the SEC's net capital rule, of $7.8 billion, which
exceeded the minimum requirement by $7.0
billion.
In addition, certain of Citi's other broker-dealer subsidiaries are
subject to regulation in the countries in which they do business, including
requirements to maintain specified levels of net capital or its equivalent.
Citigroup's broker-dealer subsidiaries were in compliance with their capital
requirements at December 31, 2011.
44
Regulatory Capital Standards
The prospective regulatory
capital standards for financial institutions, both in the U.S. and
internationally, continue to be subject to ongoing debate, extensive rulemaking
activity and substantial uncertainty. See "Risk Factors-Regulatory Risks"
below.
Basel II and II.5. In
November 2005, the Basel Committee on Banking Supervision (Basel Committee)
published a new set of risk-based capital standards (Basel II) that permits
banking organizations to leverage internal risk models used to measure credit
and operational risks to derive risk-weighted assets. In November 2007, the U.S.
banking agencies adopted these standards for large, internationally active U.S.
banking organizations, including Citi. As adopted, the standards require Citi to
comply with the most advanced Basel II approaches for calculating risk-weighted
assets for credit and operational risks. The U.S. Basel II implementation
timetable originally consisted of a parallel calculation period under the
current regulatory capital regime (Basel I), followed by a three-year
transitional "floor" period, during which Basel II risk-based capital
requirements could not fall below certain floors based on application of the
Basel I rules. Citi began parallel Basel I and Basel II reporting to the U.S.
banking agencies on April 1, 2010.
In June 2011, the U.S. banking agencies adopted final regulations to
implement the "capital floor" provision of the so-called "Collins Amendment" of
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank Act). These regulations eliminated the three-year transitional floor
period in favor of a permanent floor based on the generally applicable
risk-based capital rules (currently Basel I). Pursuant to these regulations, a
banking organization that has formally implemented Basel II must calculate its
risk-based capital requirements under both Basel I and Basel II, compare the two
results, and then use the lower of the resulting capital ratios for purposes of
determining compliance with its minimum Tier 1 Capital and Total Capital
requirements. As of December 31, 2011 neither Citi nor any other U.S. banking
organization had received approval from the U.S. banking agencies to formally
implement Basel II. Accordingly, the timing of Citi's Basel II implementation
remains subject to uncertainty.
Apart from the Basel II rules regarding credit and operational risks, in
June 2010, the Basel Committee agreed on certain revisions to the market risk
capital framework (Basel II.5) that would also result in additional capital
requirements. In January 2011, the U.S. banking agencies issued a proposal to
amend the market risk capital rules to implement certain revisions approved by
the Basel Committee. However, the U.S. banking agencies' proposal excluded the
methodologies adopted by the Basel Committee for calculating capital
requirements on certain debt and securitization positions covered by the market
risk capital rules, as such methodologies include reliance on external credit
ratings, which is prohibited by the Dodd-Frank Act (see below).
Basel III and Global
Systemically Important Banks (G-SIBs)
Basel III. As an outgrowth of the financial crisis, in December 2010, the Basel
Committee issued final rules to strengthen existing capital requirements (Basel
III). The U.S. banking agencies are required to finalize, by December 2012, the
rules to be applied by U.S. banking organizations commencing on January 1, 2013.
While expected to be substantially the same as those of the Basel Committee as
described below, as of December 31, 2011, the U.S. banking agencies had yet to
issue the proposed U.S. version of the Basel III rules.
Under Basel III, when fully phased in on January
1, 2019, Citi would be required to maintain minimum risk-based capital ratios
(exclusive of a G-SIB capital surcharge) as follows:
Tier 1 Common | Tier 1 Capital | Total Capital | ||||
Stated minimum ratio | 4.5 | % | 6.0 | % | 8.0 | % |
Plus: Capital conservation | ||||||
buffer requirement | 2.5 | 2.5 | 2.5 | |||
Effective minimum ratio | ||||||
(without G-SIB surcharge) | 7.0 | % | 8.5 | % | 10.5 | % |
While banking organizations would be
permitted to draw on the 2.5% capital conservation buffer to absorb losses
during periods of financial or economic stress, restrictions on earnings
distributions (e.g., dividends, equity repurchases, and discretionary
compensation) would result, with the degree of such restrictions greater based
upon the extent to which the buffer is utilized. Moreover, subject to national
discretion by the respective bank supervisory or regulatory authorities (i.e.,
for Citi, the U.S. banking agencies), a countercyclical capital buffer ranging
from 0% to 2.5%, consisting of only Tier 1 Common Capital, could also be imposed
on banking organizations when it is deemed that excess aggregate credit growth
is resulting in a build-up of systemic risk in a given country. This
countercyclical capital buffer, when in effect, would serve as an additional
buffer supplementing the capital conservation buffer.
Under Basel III, Tier 1 Common Capital will be
required to be measured after applying generally all regulatory adjustments
(including applicable deductions). The impact of these regulatory adjustments on
Tier 1 Common Capital would be phased in incrementally at 20% annually beginning
on January 1, 2014, with full implementation by January 1, 2018. During the
transition period, the portion of the regulatory adjustments (including
applicable deductions) not applied against Tier 1 Common Capital would continue
to be subject to existing national treatments.
Further, under Basel III, certain capital
instruments will no longer qualify as non-common components of Tier 1 Capital
(e.g., trust preferred securities and cumulative perpetual preferred stock) or
Tier 2 Capital. These instruments will be subject to a 10% per year phase-out
over 10 years beginning on January 1, 2013, except for certain limited
grandfathering. This phase-out period will be substantially shorter in the U.S.
as a result of the Collins Amendment of the Dodd-Frank Act, which will generally
require a phase-out of these securities over a three-year period also beginning
on January 1, 2013. In addition, the Basel Committee has subsequently issued
supplementary minimum requirements to those contained in Basel
III,
45
which must be met or exceeded
in order to ensure that qualifying non-common Tier 1 or Tier 2 Capital
instruments fully absorb losses at the point of a banking organization's
non-viability before taxpayers are exposed to loss. These requirements must be
reflected within the terms of the capital instruments unless, subject to certain
conditions, they are implemented through the governing jurisdiction's legal
framework.
Although Citi, like other U.S. banking organizations, is currently
subject to a supplementary, non-risk-based measure of leverage for capital
adequacy purposes (see "Capital Ratios" above), Basel III establishes a more
constrained Leverage ratio requirement. Initially, during a four-year parallel
run test period beginning on January 1, 2013, Citi, like other U.S. banking
organizations, will be required to maintain a minimum 3% Tier 1 Capital Leverage
ratio. Disclosure of such ratio, and its components, will start on January 1,
2015. Depending upon the results of the parallel run test period, there could be
subsequent adjustments to the definition and calibration of the Leverage ratio,
which is to be finalized in 2017 and become a formal requirement by January 1,
2018.
Global Systemically
Important Banks (G-SIBs). In
November 2011, the Basel Committee finalized rules which set forth measures for
G-SIBs, including the methodology for assessing global systemic importance, the
related additional loss absorbency capital requirements (surcharges), and the
phase-in period regarding such requirements.
Under the final rules, the methodology for
assessing G-SIBs is to be based primarily on quantitative measurement indicators
comprising five equally weighted broad categories: size, cross-jurisdictional
activity, interconnectedness, substitutability/financial institution
infrastructure, and complexity. G-SIBs will be subject to a progressive minimum
additional Tier 1 Common Capital surcharge (over and above the Basel III minimum
capital ratio requirements) ranging initially across four buckets from 1% to
2.5% of risk-weighted assets, depending upon the systemic importance of each
individual banking organization. Further, a potential minimum additional 1% Tier
1 Common Capital requirement could also be imposed in the future on the largest
G-SIBs that are deemed to have increased their global systemic importance
(resulting in a total minimum additional Tier 1 Common Capital surcharge of
3.5%). Citi expects to be a G-SIB under the Basel Committee's rules, although
the extent of its initial additional capital surcharge remains
uncertain.
The minimum additional Tier 1
Common Capital surcharge for G-SIBs will be phased-in, as an extension of and in
parallel with the Basel III capital conservation buffer and any countercyclical
capital buffer, commencing on January 1, 2016 and becoming fully effective on
January 1, 2019.
Accordingly, based on Citi's current understanding, under Basel III, on a
fully phased-in basis, the effective minimum Tier 1 Common ratio requirement for
those banking organizations initially deemed to be the most global systemically
important, which will likely include Citi, will be at least 9.5% (consisting of
the aggregate of the 4.5% stated minimum Tier 1 Common ratio requirement, the
2.5% capital conservation buffer, and the maximum 2.5% G-SIB capital surcharge).
However, as referenced above, these capital surcharge measures have not yet been
proposed by the U.S. banking agencies, although they have indicated they intend
to adopt implementing rules in 2014.
Dodd-Frank Act
In addition to the
Collins Amendment, the Dodd-Frank Act contains other significant regulatory
capital-related provisions that have not yet been fully implemented by the U.S.
banking agencies.
Alternative Creditworthiness Standards. In December 2011, the U.S banking agencies
proposed to further amend and supplement the market risk capital rules beyond
the January 2011 proposed modifications discussed above. The December 2011
proposals are intended to implement the provisions of the Dodd-Frank Act
requiring that all federal agencies remove references to, and reliance on,
credit ratings in their regulations, and replace these references with
appropriate alternative standards for evaluating creditworthiness. Under the
December 2011 proposal, the U.S. banking agencies set forth alternative
methodologies to external credit ratings which are to be used to assess capital
requirements on certain debt as well as securitization positions subject to the
market risk capital rules. The U.S. banking agencies have also indicated they
intend to propose similar revisions to the Basel I and Basel II rules to
eliminate the use of external credit ratings to determine the risk weights
applicable to securitization and certain corporate exposures under these
regulations.
Enhanced Prudential
Regulatory Capital Requirements. As mandated by the Dodd-Frank Act, in January 2012, the Federal Reserve Board
issued a proposal designed to strengthen regulation and supervision of those
financial institutions deemed to be systemically important and posing risk to
market-wide financial stability, which would include Citi. The proposal
incorporates a wide range of enhanced prudential standards, including those
related to risk-based capital requirements and leverage limits.
The Federal Reserve Board has already implemented
the first phase of the proposal's enhanced capital requirements through the
adoption of its capital plan rule in December 2011. As a result, Citi, like
other covered bank holding companies, is required to develop annual capital
plans, conduct stress tests, and maintain adequate capital, including a Tier 1
Common ratio in excess of 5% (under both expected and stressed conditions) in
order to engage in capital distributions such as dividends or share repurchases
(see "Risk Factors-Business Risks" below). The second phase of the enhanced
capital requirements, as set forth in the January 2012 proposal, would involve a
subsequent Federal Reserve Board proposal regarding the establishment of a
quantitative risk-based capital surcharge for covered financial institutions or
a subset thereof, to be consistent with the provisions of the Basel Committee's
final G-SIB surcharge rules.
46
FUNDING AND LIQUIDITY
Overview
Citi's funding and liquidity objectives generally
are to maintain liquidity to fund its existing asset base as well as grow its
core businesses in Citicorp, while at the same time maintain sufficient excess
liquidity, structured appropriately, so that it can operate under a wide variety
of market conditions, including market disruptions for both short- and long-term
periods. Citigroup's primary liquidity objectives are established by entity, and
in aggregate, across three major categories:
(i) | the non-bank, which is largely composed of the parent holding company (Citigroup) and Citi's broker-dealer subsidiaries (collectively referred to in this section as "non-bank"); | ||
(ii) | Citi's significant bank entities, such as Citibank, N.A.; and | ||
(iii) | other entities. |
At an aggregate level, Citigroup's goal is to ensure that there is sufficient funding in amount and tenor to ensure that aggregate liquidity resources are available for these entities. The liquidity framework requires that entities be
self-sufficient or net
providers of liquidity, including in conditions established under their
designated stress tests, and have excess cash capital.
Citi's primary
sources of funding include (i) deposits via Citi's bank subsidiaries, which
continue to be Citi's most stable and lowest cost source of long-term funding,
(ii) long-term debt (including long-term collateralized financings) issued at
the non-bank level and certain bank subsidiaries, and (iii) stockholders'
equity. These sources are supplemented by short-term borrowings, primarily in
the form of secured financing transactions (securities loaned or sold under
agreements to repurchase, or repos), and commercial paper at the non-bank
level.
As referenced above, Citigroup
works to ensure that the structural tenor of these funding sources is
sufficiently long in relation to the tenor of its asset base. The key goal of
Citi's asset-liability management is to ensure that there is excess tenor in the
liability structure so as to provide excess liquidity to fund the assets. The
excess liquidity resulting from a longer-term tenor profile can effectively
offset potential decreases in liquidity that may occur under stress. This excess
funding is held in the form of aggregate liquidity resources, as described
below.
Aggregate Liquidity
Resources
Non-bank | (1) | Significant bank entities | Other entities | (2) | Total | |||||||||||||||||||||
Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | |||||||||||||||||||
In billions of dollars | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Cash at major central banks | $ | 29.1 | $ | 22.7 | $ | 70.7 | $ | 77.4 | $ | 27.6 | $ | 32.5 | $ | 127.4 | $ | 132.6 | ||||||||||
Unencumbered liquid securities | 69.3 | 71.8 | 129.5 | 145.3 | 79.3 | 77.1 | 278.1 | 294.2 | ||||||||||||||||||
Total | $ | 98.4 | $ | 94.5 | $ | 200.2 | $ | 222.7 | $ | 106.9 | $ | 109.6 | $ | 405.5 | $ | 426.8 |
(1) | Non-bank includes the parent holding company (Citigroup), Citigroup Funding Inc. (CFI) and one of Citi's broker-dealer entities, Citigroup Global Markets Holdings Inc. (CGMHI). | |
(2) | Other entities include Banamex and other bank entities. |
As
set forth in the table above, Citigroup's aggregate liquidity resources totaled
$405.5 billion at December 31, 2011, compared with $426.8 billion at December
31, 2010. These amounts are as of period-end and may increase or decrease
intra-period in the ordinary course of business. During the quarter ended
December 31, 2011, the intra-quarter amounts did not fluctuate materially from
the quarter-end amounts noted above.
At December 31, 2011, Citigroup's non-bank aggregate liquidity resources
totaled $98.4 billion, compared with $94.5 billion at December 31, 2010. This
amount included unencumbered liquid securities and cash held in Citi's U.S. and
non-U.S. broker-dealer entities.
Citigroup's significant bank entities had approximately $200.2 billion of
aggregate liquidity resources as of December 31, 2011. This amount included
$70.7 billion of cash on deposit with major central banks (including the U.S.
Federal Reserve Bank, European Central Bank, Bank of England, Swiss National
Bank, Bank of Japan, the Monetary Authority of Singapore and the Hong Kong
Monetary Authority), compared with $77.4 billion at
December 31, 2010. The
significant bank entities' liquidity resources also included unencumbered highly
liquid government and government-backed securities. These securities are
available-for-sale or secured funding through private markets or by pledging to
the major central banks. The liquidity value of these liquid securities was
$129.5 billion at December 31, 2011, compared with $145.3 billion at December
31, 2010. As shown in the table above, overall, liquidity at Citi's significant
bank entities was down at December 31, 2011, as compared to December 31, 2010,
as Citi deployed some of its excess bank liquidity into loan growth within
Citicorp (see "Balance Sheet Review" above) and paid down long-term bank
debt.
Citi estimates that its other
entities and subsidiaries held approximately $106.9 billion in aggregate
liquidity resources as of December 31, 2011. This included $27.6 billion of cash
on deposit with major central banks and $79.3 billion of unencumbered liquid
securities. Including these amounts, Citi's aggregate liquidity resources as of
December 31, 2011 were approximately $405.5 billion.
47
Further, Citi's summary of aggregate liquidity resources above does not
include additional potential liquidity in the form of Citigroup's borrowing
capacity at the U.S. Federal Reserve Bank discount window and from the various
Federal Home Loan Banks (FHLB), which is maintained by pledged collateral to all
such banks. Citi also maintains additional liquidity available in the form of
diversified high grade non-government securities.
In general, Citigroup can freely fund legal
entities within its bank vehicles. In addition, Citigroup's bank subsidiaries,
including Citibank, N.A., can lend to the Citigroup parent and broker-dealer
entities in accordance with Section 23A of the Federal Reserve Act. As of
December 31, 2011, the amount available for lending to these non-bank entities
under Section 23A was approximately $20.4 billion, provided the funds are
collateralized appropriately.
Deposits
Citi continued to focus on maintaining a
geographically diverse retail and corporate deposits base that stood at $866
billion at December 31, 2011, as compared with $845 billion at December 31,
2010. The $21 billion increase in deposits year-over-year was largely due to
higher deposit volumes in Global
Consumer Banking and Transaction
Services . These increases were
partially offset by a decrease in deposits in Citi Holdings year-over-year,
while deposits in Securities and
Banking were relatively flat.
Compared to the prior quarter, deposits increased in Global Consumer Banking, Securities and
Banking and Transaction Services . Citi grew deposits year-over-year in all regions
as customers continued a "flight to quality" given the market environment,
including increases in Europe and North America in the
fourth quarter of 2011. As of December 31, 2011, approximately 60% of Citi's
deposits were located outside of the United States.
Deposits can be interest-bearing or
non-interest-bearing. Citi had $866 billion of deposits at December 31, 2011; of
those, $177 billion were non-interest-bearing, compared to $133 billion at
December 31, 2010. The remainder, or $689 billion, was interest-bearing,
compared to $712 billion at December 31, 2010.
While Citi's deposits have grown year over year,
Citi's overall cost of funds on deposits decreased, reflecting the low rate
environment as well as Citi's ability to lower price points that widens its
margins given the high levels of customer liquidity while still remaining
competitive. Citi's average rate on total deposits was 0.96% at December 31,
2011, compared with 0.99% at December 31, 2010. Excluding the impact of the
higher FDIC assessment effective beginning in the second quarter of 2011 and
deposit insurance, the average rate on Citi's total deposits was 0.80% at
December 31, 2011, compared with 0.86% at December 31, 2010. As interest rates
rise, however, Citi expects to see pressure on these rates.
In addition, the composition of Citi's deposits shifted significantly year-over-year. Specifically, time deposits, where rates are fixed for the term of the deposit and have generally lower margins, became a smaller proportion of the deposit base, whereas operating accounts became a larger proportion of deposits. As defined by Citigroup, operating accounts consist of accounts such as checking and savings accounts for individuals, as well as cash management accounts for corporations, and, in Citi's experience, provide wider margins and exhibit retentive behavior. During 2011, operating account deposits grew across most of Citi's deposit-taking businesses, including retail, the private bank and Transaction Services . Operating accounts represented 75% of Citicorp's deposit base as of December 31, 2011, compared to 70% as of December 31, 2010 and 63% at December 31, 2009.
Long-Term Debt
Long-term debt (generally defined as original
maturities of one year or more) is an important funding source, primarily for
the non-bank entities, because of its multi-year maturity structure. The
weighted average maturities of structural long-term debt (as defined in note 1
to the long-term debt issuances and maturities table below), issued by
Citigroup, CFI, CGMHI and Citibank, N.A., excluding trust preferred securities,
was approximately 7.1 years at December 31, 2011, compared to approximately 6.2
years as of December 31, 2010. At December 31, 2011 and December 31, 2010,
overall long-term debt outstanding for Citigroup was as follows:
In billions of dollars | Dec. 31, 2011 | Dec. 31, 2010 | ||||
Non-bank | $ | 247.0 | $ | 268.0 | ||
Bank (1) | 76.5 | 113.2 | ||||
Total (2)(3) | $ | 323.5 | $ | 381.2 |
(1) | Collateralized advances from the FHLB were approximately $11.0 billion and $18.2 billion, respectively, at December 31, 2011 and December 31, 2010. These advances are reflected in the table above. | |
(2) | Includes long-term debt related to consolidated variable interest entities (VIEs) of approximately $50.5 billion and $69.7 billion, respectively, at December 31, 2011 and December 31, 2010. The majority of these VIEs relate to the Citibank Credit Card Master Trust and the Citibank OMNI Master Trust. | |
(3) | Of this amount, approximately $38.0 billion maturing in 2012 is guaranteed by the FDIC under the Temporary Liquidity Guarantee Program (TLGP). |
As set forth in the table above, Citi's overall long-term debt has decreased by approximately $58 billion year-over-year. In the non-bank, the year-over-year decrease was primarily due to TLGP run-off. In the bank entities, the decrease also included TLGP run-off, FHLB reductions, and the maturing of credit card securitization debt, particularly as Citi has grown its overall deposit base. Citi currently expects a continued decline in its overall long-term debt over 2012, particularly within its bank entities. Given its liquidity resources as of December 31, 2011, Citi may consider opportunities to repurchase its long-term debt, pursuant to open market purchases, tender offers or other means.
48
The table below details the long-term debt issuances and maturities of Citigroup during the past three years:
2011 | 2010 | 2009 | ||||||||||||||||
In billions of dollars | Maturities | Issuances | Maturities | Issuances | Maturities | Issuances | ||||||||||||
Long-term debt (1)(2) | $ | 50.6 | $ | 15.1 | $ | 43.0 | $ | 18.9 | $ | 64.0 | $ | 110.4 | ||||||
Local country level, FHLB and other | 22.4 | 15.2 | (3) | 18.7 | 10.2 | 59.0 | 8.9 | |||||||||||
Secured debt and securitizations | 16.1 | 0.7 | 14.2 | 4.7 | 0.9 | 17.0 | ||||||||||||
Total | $ | 89.1 | $ | 31.0 | $ | 75.9 | $ | 33.8 | $ | 123.9 | $ | 136.3 |
(1) | Long-term debt issuances for all periods in the table above reflect Citi's structural long-term debt issuances. Structural long-term debt is a non-GAAP measure. Citi defines structural long-term debt as its long-term debt (original maturities of one year or more), excluding certain structured notes, such as equity-linked and credit-linked notes, with early redemption features effective within one year. Citigroup believes that the structural long-term debt measure provides useful information to its investors as it excludes long-term debt that could in fact be redeemed by the holders thereof within one year. Long-term debt maturities for all periods reflect the total amount of senior and subordinated long-term debt and trust preferred securities. | |
(2) | During 2011 and 2010, Citi issued a total of $7.5 billion of senior debt pursuant to the remarketing of the trust preferred securities held by ADIA. | |
(3) | Includes $0.5 billion of long-term FHLB issuance in the first quarter of 2011 and $5.5 billion in the second quarter of 2011. |
The table below shows Citi's aggregate expected annual long-term debt maturities as of December 31, 2011:
Expected Long-Term Debt Maturities as of December 31, 2011 | |||||||||||||||||||||
In billions of dollars | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||
Senior/subordinated debt | $ | 60.6 | $ | 28.7 | $ | 25.9 | $ | 16.7 | $ | 12.2 | $ | 82.8 | $ | 226.9 | |||||||
Trust preferred securities | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 16.1 | 16.1 | ||||||||||||||
Securitized debt and securitizations | 17.5 | 7.3 | 7.6 | 5.3 | 2.8 | 9.6 | 50.1 | ||||||||||||||
Local country and FHLB borrowings | 5.8 | 10.3 | 4.5 | 1.6 | 4.9 | 3.3 | 30.4 | ||||||||||||||
Total long-term debt | $ | 83.9 | $ | 46.3 | $ | 38.0 | $ | 23.6 | $ | 19.9 | $ | 111.8 | $ | 323.5 |
As set forth in the table above, Citi currently estimates its long-term debt maturing during 2012 to be $60.6 billion (which excludes maturities relating to local country, securitizations and FHLB), of which $38.0 billion is TLGP that Citi does not expect to refinance. Given the current status of its liquidity resources and continued asset reductions in Citi Holdings, Citi currently expects to refinance approximately $15 billion to $20 billion of long-term debt during 2012. However, Citi continually reviews its funding and liquidity needs and may adjust its expected issuances due to market conditions, including the continued uncertainty resulting from certain European market concerns, among other factors.
Secured Financing Transactions and
Short-Term Borrowings
As
referenced above, Citi supplements its primary sources of funding with
short-term borrowings (generally defined as original maturities of less than one
year). Short-term borrowings generally include (i) secured financing (securities
loaned or sold under agreements to repurchase, or repos) and (ii) short-term
borrowings consisting of commercial paper and borrowings from the FHLB and other
market participants. The following table contains the year-end, average and
maximum month-end amounts for the following respective short-term borrowings
categories at the end of each of the three prior fiscal
years.
Federal funds purchased | ||||||||||||||||||||||||||||
and securities sold under | ||||||||||||||||||||||||||||
agreements to | Short-term borrowings | (1) | ||||||||||||||||||||||||||
repurchase | (2) | Commercial paper | (3) | Other short-term borrowings | (4) | |||||||||||||||||||||||
In billions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
Amounts outstanding at year end | $ | 198.4 | $ | 189.6 | $ | 154.3 | $ | 21.3 | $ | 24.7 | $ | 10.2 | $ | 33.1 | $ | 54.1 | $ | 58.7 | ||||||||||
Average outstanding during the year (5) | 219.9 | 212.3 | 205.6 | 25.3 | 35.0 | 24.7 | 45.5 | 68.8 | 76.5 | |||||||||||||||||||
Maximum month-end outstanding | 226.1 | 246.5 | 252.2 | 25.3 | 40.1 | 36.9 | 58.2 | 106.0 | 99.8 | |||||||||||||||||||
Weighted-average interest rate | ||||||||||||||||||||||||||||
During the year (5)(6)(7) | 1.45 | % | 1.32 | % | 1.67 | % | 0.28 | % | 0.38 | % | 0.99 | % | 1.28 | % | 1.14 | % | 1.54 | % | ||||||||||
At year end (8) | 1.10 | 0.99 | 0.85 | 0.38 | 0.35 | 0.34 | 1.09 | 0.40 | 0.66 |
(1) | Original maturities of less than one year. | |
(2) | Rates reflect prevailing local interest rates including inflationary effects and monetary correction in certain countries. | |
(3) | Includes commercial paper related to VIEs consolidated effective January 1, 2010 with the adoption of SFAS 166/167. | |
(4) | Other short-term borrowings include broker borrowings and borrowings from banks and other market participants. | |
(5) | Excludes discontinued operations. While the annual average balance is primarily calculated from daily balances, in some cases, the average annual balance is calculated using a 13-point average composed of each of the month-end balances during the year plus the prior year-end ending balance. | |
(6) | Interest rates include the effects of risk management activities. See Notes 20 and 24 to the Consolidated Financial Statements. | |
(7) | Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 (ASC 210-20-45). However, interest expense excludes the impact of FIN 41 (ASC 210-20-45). | |
(8) | Based on contractual rates at respective year-end; non-interest-bearing accounts are excluded from the weighted average interest rate calculated at year-end. |
49
Secured Financing
Transactions
Secured financing
is primarily conducted through Citi's broker-dealer subsidiaries to facilitate
customer matched-book activity and to efficiently fund a portion of the trading
inventory. As of December 31, 2011, secured financing was $198 billion and
averaged approximately $220 billion during the year. Secured financing at
December 31, 2011 increased year over year by approximately $9 billion from $190
billion at December 31, 2010.
Commercial
Paper
At December 31, 2011 and
December 31, 2010, commercial paper outstanding for Citigroup's non-bank
entities and significant bank entities, respectively, was as follows:
In millions of dollars | Dec. 31, 2011 | Dec. 31, 2010 | ||||
Non-bank | $ | 6,414 | $ | 9,670 | ||
Bank | 14,872 | 14,987 | ||||
Total | $ | 21,286 | $ | 24,657 |
Other Short-Term
Borrowings
At December 31,
2011, Citi's other short-term borrowings were $33 billion, compared with $54
billion at December 31, 2010. The average balances for the quarters were
generally consistent with the quarter-end balances for each period.
See Note
19 to the Consolidated Financial Statements for further information on
Citigroup's outstanding long-term debt and short-term borrowings.
Liquidity risk is the risk of a financial institution's inability to meet its obligations in a timely manner. Management of liquidity risk at Citi is the responsibility of the Citigroup Treasurer with oversight from senior management through Citi's Finance and Asset and Liability Committee (FinALCO). For additional information on FinALCO and Citi's liquidity management, see "Capital Resources – Overview" above.
Citigroup operates under a centralized treasury model where the overall balance sheet is managed by Citigroup Treasury through Global Franchise Treasurers and Regional Treasurers. Day-to-day liquidity and funding are managed by treasurers at the country and business level and are monitored by Citigroup Treasury and independent risk management.
Liquidity Measures and Stress
Testing
Citi uses multiple
measures in monitoring its liquidity, including liquidity ratios, stress testing
and liquidity limits, each as described below.
Liquidity
Measures
In broad terms, the
structural liquidity ratio, defined as the sum of deposits, long-term debt and
stockholders' equity as a percentage of total assets, measures whether Citi's
asset base is funded by sufficiently long-dated liabilities. Citi's structural
liquidity ratio was 73% at December 31, 2011 and 73% at December 31,
2010.
Internally, Citi also
utilizes cash capital to measure and monitor its ability to fund the
structurally illiquid portion of the balance sheet, on a specific
product-by-product basis. While cash capital is a methodology generally used by
financial institutions to provide a maturity structure matching assets and
liabilities, there is a lack of standardization in this area and specific
product-by-product assumptions vary by firm. Cash capital measures the amount of
long-term funding-core deposits, long-term debt and equity-available to fund
illiquid assets. Illiquid assets generally include loans (net of securitization
adjustments), securities haircuts and other assets (i.e., goodwill, intangibles
and fixed assets). As of December 31, 2011, based on Citi's internal measures,
both the non-bank and the aggregate bank subsidiaries had excess cash
capital.
As part of Basel III, the
Basel Committee proposed two new liquidity measurements (for an additional
discussion of Basel III, see "Capital Resources-Regulatory Capital Standards"
above). Specifically, as proposed, the Liquidity Coverage Ratio (LCR) is
designed to ensure banking organizations maintain an adequate level of
unencumbered cash and high quality unencumbered assets that can be converted
into cash to meet liquidity needs. The LCR must be at least 100%, and is
proposed to be effective beginning January 1, 2015. While the U.S. regulators
have not yet provided final rules or guidance with respect to the LCR, based on
its current understanding of the LCR requirements, Citi believes it is in
compliance with the LCR as of December 31, 2011.
In addition to the LCR, the Basel Committee
proposed a Net Stable Funding Ratio (NSFR) designed to promote the medium- and
long-term funding of assets and activities over a one-year time horizon. It is
Citi's understanding, however, that this proposed metric is under review by the
Basel Committee and may be further revised.
Moreover, in January 2012, the Federal Reserve
Board proposed rules to implement the enhanced prudential standards for
systemically important financial institutions, as required by the Dodd-Frank
Act. The proposed rules include new requirements for liquidity management and
corporate governance related thereto. Citi continues to review these proposed
rules and any potential impact they may have on its liquidity management
practices.
50
Stress
Testing
Liquidity stress
testing is performed for each of Citi's major entities, operating subsidiaries
and/or countries. Stress testing and scenario analyses are intended to quantify
the potential impact of a liquidity event on the balance sheet and liquidity
position, and to identify viable funding alternatives that can be utilized.
These scenarios include assumptions about significant changes in key funding
sources, market triggers (such as credit ratings), potential uses of funding and
political and economic conditions in certain countries. These conditions include
standard and stressed market conditions as well as firm-specific
events.
A
wide range of liquidity stress tests are important for monitoring purposes. Some
span liquidity events over a full year, some may cover an intense stress period
of one month, and still other time frames may be appropriate. These potential
liquidity events are useful to ascertain potential mismatches between liquidity
sources and uses over a variety of horizons
Given the range of potential stresses, Citi maintains a series of contingency funding plans on a consolidated basis as well as for individual entities. These plans specify a wide range of readily available actions that are available in a variety of adverse market conditions, or idiosyncratic disruptions.
Credit Ratings
Citigroup's ability to access the capital markets
and other sources of funds, as well as the cost of these funds and its ability
to maintain certain deposits, is partially dependent on its credit ratings. See
also "Risk Factors-Market and Economic Risks" below. The table below indicates
the ratings for Citigroup, Citibank, N.A. and Citigroup Global Markets Inc. (a
broker-dealer subsidiary of Citi) as of December 31, 2011.
Citigroup's Debt Ratings as of December 31, 2011
Citigroup Inc./Citigroup | Citigroup Global | |||||||||
Funding Inc. | (1) | Citibank, N.A. | Markets Inc. | |||||||
Senior | Commercial | Long- | Short- | Senior | ||||||
debt | paper | term | term | debt | ||||||
Fitch Ratings (Fitch) | A | F1 | A | F1 | NR | |||||
Moody's Investors Service (Moody's) | A3 | P-2 | A1 | P-1 | NR | |||||
Standard & Poor's (S&P) | A- | A-2 | A | A-1 | A |
(1) | As a result of the Citigroup guarantee, the ratings of, and changes in ratings for, CFI are the same as those of Citigroup. | |
NR | Not rated. |
Recent Rating
Changes
On September 21, 2011,
Moody's concluded its review of government support assumptions for Citi and
certain peers and upgraded Citi's unsupported "Baseline Credit Assessment"
rating and affirmed Citi's long-term debt ratings at both the Citibank and
Citigroup levels. At the same time, however, Moody's changed the short-term
rating of Citigroup (the parent holding company) to ‘P-2' from ‘P-1'. On
November 29, 2011, following its global review of the banking industry under
S&P's revised bank criteria, S&P downgraded the issuer credit rating for
Citigroup Inc. to ‘A-/A-2' from ‘A/A-1', and Citibank, N.A. to ‘A/A-1' from
‘A+/A-1'. These ratings continue to receive two notches of uplift, reflecting
S&P's view that the U.S. government is supportive to Citi. On December 15,
2011, Fitch announced revised ratings resulting from its review of government
support assumptions for 17 U.S. banks. The resolution of this review resulted in
a revision to the issuer credit ratings of Citigroup and Citibank, N.A. from
‘A+' to ‘A' and the short-term issuer rating from ‘F1+' to
‘F1'.
The above mentioned rating changes did not have a material impact on Citi's funding profile. Furthermore, forecasts of potential funding loss under various stress scenarios, including the above mentioned rating downgrades, did not occur.
Potential Impact of Ratings
Downgrades
Ratings downgrades
by Fitch, Moody's or S&P could have material impacts on funding and
liquidity in the form of cash obligations, reduced funding capacity and
collateral triggers.
Most recently, on February 15, 2012, Moody's announced a review of 17
banks and securities firms with global capital markets operations, including
Citi, for possible downgrade during the first half of 2012. Moody's stated this
review was to assess adverse market trends, which it believes are weakening the
credit profiles of many rated banks globally. It is not certain what the results
of this review will be, or if Citigroup or Citibank, N.A. will be
impacted.
51
Citi currently believes that a more severe ratings downgrade scenario, such as a two-notch downgrade of the senior debt/long-term rating of Citigroup, could result in an additional $0.9 billion in funding requirements in the form of cash obligations and collateral as of December 31, 2011. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.
As set forth under "Aggregate Liquidity Resources" above, the aggregate liquidity resources of Citigroup's non-bank entities stood at approximately $98.4 billion as of December 31, 2011, in part as a contingency for such an event, and a broad range of mitigating actions are currently included in Citigroup's detailed contingency funding plans. These mitigating factors include, but are not limited to, accessing surplus funding capacity from existing clients, tailoring levels of secured lending, adjusting the size of select trading books, and collateralized borrowings from significant bank subsidiaries.
Further, as of December 31, 2011, a
one-notch downgrade of the senior debt/long-term ratings of Citibank, N.A. could result in an approximate $2.4 billion
funding requirement in the form of collateral and cash obligations. Because of the current credit ratings of Citibank, N.A.,
a one-notch downgrade of its senior debt/long-term rating is unlikely to have any impact on its commercial
paper/short-term rating. However, a two-notch downgrade by Moody's could have an adverse impact on Citibank,
N.A.'s commercial paper/short-term rating. A two-notch downgrade by Moody's could result in additional funding
requirements in the form of cash obligations and collateral estimated at $0.8 billion as of December 31, 2011. As of
December 31, 2011, Citibank, N.A. had liquidity commitments of $27.9 billion to asset-backed commercial paper conduits, which
could also be impacted by a two-notch downgrade by Moody's, including $14.9 billion of commitments to consolidated conduits,
and $13.0 billion of commitments to unconsolidated conduits as referenced in Note 22 to the Consolidated Financial
Statements. Additionally, Citibank, N.A. had $11.2 billion of funding programs related to the municipals markets that could
be impacted by such a downgrade, of which $10.8 billion is principally reflected as commitments within Note 28 to the
Consolidated Financial Statements.
Citi's
significant bank entities and other entities, including Citibank, N.A., had aggregate liquidity resources of
approximately $307.1 billion at December 31, 2011, in part as a contingency for such an event and also have detailed
contingency funding plans that encompass a broad range of mitigating actions. These mitigating actions include, but are not
limited to, selling or financing highly liquid government securities, tailoring levels of secured lending, repricing or
reducing certain commitments to commercial paper conduits, exercising reimbursement agreements for the municipal programs
mentioned above, adjusting the size of select trading books, reducing loan originations and renewals, raising additional
deposits, or borrowing from the FHLB or other central banks. Citi believes these mitigating actions could substantially
reduce the funding and liquidity risk of such a downgrade.
52
OFF-BALANCE-SHEET
ARRANGEMENTS
Citigroup enters
into various types of off-balance-sheet arrangements in the ordinary course of
business. Citi's involvement in these arrangements can take many different
forms, including without limitation:
The table below presents a discussion of Citi's various off-balance-sheet arrangements may be found in this Form 10-K. In addition, see "Significant Accounting Policies and Significant Estimates – Securitizations" below, as well as Notes 1, 22 and 28 to the Consolidated Financial Statements.
Types of Off-Balance-Sheet Arrangements
Disclosures in
this Form 10-K
Variable interests and other obligations, | See Note 22 to the Consolidated | |
including contingent obligations, | Financial Statements. | |
arising from variable interests in | ||
nonconsolidated VIEs | ||
Leases, letters of credit, and lending | See Note 28 to the Consolidated | |
and other commitments | Financial Statements. | |
Guarantees | See Note 28 to the Consolidated | |
Financial Statements. |
53
CONTRACTUAL OBLIGATIONS
The following table includes
information on Citigroup's contractual obligations, as specified and aggregated
pursuant to SEC requirements.
Purchase obligations consist of those obligations to purchase goods or
services that are enforceable and legally binding on Citi. For presentation
purposes, purchase obligations are included in the table below through the
termination date of the respective agreements, even if the contract is
renewable. Many of the purchase agreements for goods or services include clauses
that would allow Citigroup to cancel the agreement with specified notice;
however, that impact is not included in the table below (unless Citigroup has
already notified the counterparty of its intention to terminate the
agreement).
Other liabilities reflected on Citigroup's Consolidated Balance Sheet include obligations for
goods and services that have already been received, uncertain tax positions and
other liabilities that have been incurred and will ultimately be paid in cash.
Excluded from the following table are obligations that are generally short-term in nature, including deposits and securities sold under agreements to repurchase, or repos (see "Capital Resources and Liquidity - Funding and Liquidity" above for a discussion of these obligations). The table also excludes certain insurance and investment contracts subject to mortality and morbidity risks or without defined maturities, such that the timing of payments and withdrawals is uncertain. The liabilities related to these insurance and investment contracts are included as Other liabilities on the Consolidated Balance Sheet.
Contractual obligations by year | |||||||||||||||||||||
In millions of dollars at December 31, 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||
Long-term debt obligations (1) | $ | 83,907 | $ | 46,338 | $ | 37,950 | $ | 23,625 | $ | 19,897 | $ | 111,788 | $ | 323,505 | |||||||
Operating and capital lease obligations | 1,199 | 1,096 | 1,008 | 906 | 793 | 2,292 | 7,294 | ||||||||||||||
Purchase obligations | 694 | 437 | 389 | 353 | 274 | 409 | 2,556 | ||||||||||||||
Other liabilities (2) | 40,707 | 366 | 310 | 291 | 294 | 5,666 | 47,634 | ||||||||||||||
Total | $ | 126,507 | $ | 48,237 | $ | 39,657 | $ | 25,175 | $ | 21,258 | $ | 120,155 | $ | 380,989 |
(1) | For additional information about long-term debt obligations, see "Capital Resources and Liquidity-Funding and Liquidity" above and Note 19 to the Consolidated Financial Statements. | |
(2) | Includes accounts payable and accrued expenses recorded in Other liabilities on Citi's Consolidated Balance Sheet. Also includes discretionary contributions for 2012 for Citi's non-U.S. pension plans and the non-U.S. postretirement plans, as well as employee benefit obligations accounted for under SFAS 87 (ASC 715), SFAS 106 (ASC 715) and SFAS 112 (ASC 712). |
54
RISK FACTORS
REGULATORY RISKS
Citi faces significant
regulatory changes around the world which could negatively impact its
businesses, especially given the unfavorable environment facing financial
institutions and the lack of international coordination.
As discussed in more
detail throughout this section, Citi continues to be subject to a significant
number of new regulatory requirements and changes from numerous sources, both in
the U.S. and internationally, which could negatively impact its businesses,
revenues and earnings. These reforms and proposals are occurring largely
simultaneously and generally not on a coordinated basis. In addition, as a
result of the financial crisis in the U.S., as well as the continuing adverse
economic climate globally, Citi, as well as other financial institutions, is
subject to an increased level of distrust, scrutiny and skepticism from numerous
constituencies, including the public, state, federal and foreign regulators, the
media and within the political arena. This environment, in which the U.S. and
international regulatory initiatives are being debated and implemented,
engenders not only a bias towards more regulation, but towards the most
prescriptive regulation for financial institutions. As a result of this ongoing
negative environment, there could be additional regulatory requirements beyond
those already proposed, adopted or even currently contemplated by U.S. or
international regulators. It is not clear what the cumulative impact of all of
this regulatory reform will be.
The ongoing
implementation of the Dodd-Frank Act, as well as international regulatory
reforms, continues to create much uncertainty for Citi, including with respect
to the management of its businesses, the amount and timing of the resulting
increased costs and its ability to compete.
Despite enactment in July 2010, the complete scope
and ultimate form of a number of provisions of The Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (Dodd-Frank Act), such as the heightened
prudential standards applicable to large financial companies, the so-called
"Volcker Rule" and the regulation of derivatives markets, are still in
developmental stages and significant rulemaking and interpretation remains.
Moreover, agencies and offices created by the Dodd-Frank Act, such as the Bureau
of Consumer Financial Protection, are in their early stages and the extent and
timing of regulatory efforts by these bodies remains to be
seen.
This uncertainty
is further compounded by the numerous regulatory efforts underway outside the
U.S. Certain of these efforts overlap with the substantive provisions of the
Dodd-Frank Act, while others, such as proposals for financial transaction and/or
bank taxes in particular countries or regions, do not. In addition, even where
these U.S. and international regulatory efforts overlap, these efforts generally
have not been undertaken on a coordinated basis. Areas where divergence between
U.S. regulators and their international counterparts exists or has begun to
develop (whether with respect to scope, interpretation, timing, approach or
otherwise) includes trading, clearing and reporting requirements for derivatives
transactions, higher U.S. capital and margin requirements relating to uncleared
derivatives transactions, and capital and liquidity requirements that may result
in mandatory "ring-fencing" of capital or liquidity in certain jurisdictions,
among others.
Regulatory uncertainty makes future
planning with respect to the management of Citi's businesses more difficult. For
example, the cumulative effect of the new derivative rules and sequencing of
implementation requirements will have a significant impact on how Citi chooses
to structure its derivatives business and its selection of legal entities in
which to conduct this business. Until these rules are final and interpretive
questions are answered, management's business planning and proposed pricing for
this business necessarily include assumptions based on proposed rules. Incorrect
assumptions could impede Citi's ability to effectively implement and comply with
the final requirements in a timely manner. Management's planning is further
complicated by the continual need to review and evaluate the impact to the
business of an ongoing flow of rule proposals and interpretations from numerous
regulatory bodies, all within compressed
timeframes.
In addition, the operational and technological costs associated with
implementation of, as well as the ongoing compliance costs associated with, all
of these regulations will likely be substantial. Given the continued
uncertainty, the ultimate amount and timing of such costs going forward are
difficult to predict. In 2011, Citi invested approximately $1 billion in order
to meet various regulatory requirements, and this amount did not include many of
the costs likely to be incurred pursuant to the implementation of the Dodd-Frank
Act or other regulatory initiatives. For example, the proposed Volcker Rule
contemplates a comprehensive internal controls system as well as extensive data
collection and reporting duties with respect to "proprietary trading," and rules
for registered swap dealers impose extensive recordkeeping requirements and
business conduct rules for dealing with customers. All of these costs negatively
impact Citi's earnings. Given Citi's global footprint, its implementation and
compliance risks and costs are more complex and could be more substantial than
its competitors. Ongoing compliance with inconsistent, conflicting or
duplicative regulations across U.S. and international jurisdictions, or failure
to implement or comply with these new regulations on a timely basis, could
further increase costs or harm Citi's reputation generally.
Citi could also be subject to more stringent
regulation because of its global footprint. In accordance with the Dodd-Frank
Act, in December 2011 the Federal Reserve Board proposed a set of heightened
prudential standards that will be applicable to large financial companies such
as Citi. The proposal dictates requirements for aggregate counterparty exposure
limits and enhanced risk management processes and oversight, among other things.
Compliance with these standards could result in restrictions on Citi's
activities. Moreover, other financial institutions, including so-called "shadow
banking" financial intermediaries, providing many of the same or similar
services or products that Citi makes available to its customers, may not be
regulated on the same basis or to the same extent as Citi and consequently may
also have certain competitive advantages.
Finally, uncertainty persists as to the extent to which Citi will be
subject to more stringent regulations than its foreign competitors with respect
to several of the regulatory initiatives, particularly in its non-U.S.
operations, including certain aspects of the proposed restrictions under the
Volcker Rule and derivatives clearing and margin requirements. Differences in
substance
55
or severity of regulations across jurisdictions could significantly reduce Citi's ability to compete with foreign competitors, in a variety of businesses and geographic areas, and thus further negatively impact Citi's earnings.
Citi's prospective
regulatory capital requirements remain uncertain and will likely be higher than
many of its competitors. There is a risk that Citi will be unable to meet these
new standards in the timeframe expected by the market or regulators.
As discussed in more
detail under "Capital Resources and Liquidity – Capital Resources – Regulatory
Capital Standards" above, Citi's prospective regulatory capital requirements
continue to be subject to extensive rulemaking and interpretation. Ongoing areas
of rulemaking include, among others, (i) the final Basel III rules applicable to
U.S. financial institutions, including Citi, (ii) capital surcharges for global
systemically important banks (G-SIBs), including the extent of the surcharge to
be initially imposed on Citi, and (iii) implementation of the Dodd-Frank Act,
including imposition of enhanced prudential capital requirements on financial
institutions that are deemed to pose a systemic risk to market-wide financial
stability as well as provisions requiring the elimination of credit ratings from
capital regulations and the Collins
Amendment.
It is clear that final U.S. rules implementing Basel III, the G-SIB
surcharge and the capital-related provisions of the Dodd-Frank Act will
significantly increase Citi's regulatory capital requirements, including the
amount of capital required to be in the form of common equity. However, the
various regulatory capital levels Citi must maintain, the types of capital that
will meet these requirements and the specific capital requirements associated
with Citi's assets remain uncertain. For example, Citi may be required to
replace certain of its existing regulatory capital in a compressed timeframe or
in unfavorable markets in order to comply with final rules implementing Basel
III and the Collins Amendment, which eliminated trust preferred securities from
the definition of Tier 1 Capital. In addition, the alternative approaches
proposed to replace the use of credit ratings in accordance with the Dodd-Frank
Act and final rules implementing Basel II.5 could require Citi to hold more
capital against certain of its assets than it must currently.
The lack of final regulatory capital requirements
impedes long-term capital planning by Citi's management. Citi is not able to
accurately forecast its capital requirements for particular exposures which
complicates its ability to assess the future viability of, and appropriate
pricing for, certain of its products. In addition, while management may desire
to take certain actions to optimize Citi's regulatory capital profile, such as
the reduction of certain investments in unconsolidated financial entities,
without clarity as to the final standards, there is risk in management either
taking actions based on assumed or proposed rules or waiting to take action
until final rules that are implemented in compressed timeframes.
Citi's projected ability to comply with the new
capital requirements as they are implemented, or earlier, is also based on
certain assumptions specific to Citi's businesses, including its future earnings
in Citicorp, the continued wind-down of Citi Holdings and the monetization of
Citi's deferred tax assets. If management's assumptions with respect to certain
aspects of Citi's
businesses prove to be
incorrect, it could negatively impact Citi's ability to comply with the future
regulatory capital requirements in a timely manner or in a manner consistent
with market or regulator expectations.
Citi's regulatory capital requirements will also likely be higher than
many of its competitors. Citi's strategic focus on emerging markets, for
example, will likely result in higher risk-weighted assets and thus potentially
higher capital requirements than its less global or less
emerging-markets-focused competitors. In addition, within the U.S., Citi will
likely face higher regulatory capital requirements than most of its U.S.-based
competitors that are not subject to the G-SIB surcharge (or the same level of
surcharge) or the heightened prudential capital requirements to be imposed on
systemically important financial institutions. Internationally, there have
already been instances of Basel III not being consistently adopted or applied
across countries or regions. Any lack of a level playing field with respect to
capital requirements for Citi as compared to peers or less regulated financial
intermediaries, both in the U.S. and internationally, could put Citi at a
competitive disadvantage.
As proposed, changes in
regulation of derivatives required under the Dodd-Frank Act will require
significant and costly restructuring of Citi's derivatives businesses in order
to meet the new market structures and could affect the competitive position of
these businesses.
Once
fully implemented, the provisions of the Dodd-Frank Act relating to the
regulation of derivatives will result in comprehensive reform of the derivatives
markets. Reforms will include requiring a wide range of over-the-counter
derivatives to be cleared through recognized clearing facilities and traded on
exchanges or exchange-like facilities, the collection and segregation of
collateral for most uncleared derivatives, extensive public transaction
reporting and business conduct requirements, and significantly broadened
restrictions on the size of positions that may be maintained in specified
commodity derivatives. While some of the regulations have been finalized, the
rulemaking process is still not complete, and the timing for the effectiveness
of many of these requirements is not yet clear.
The proposed rules implementing the derivatives
provisions of the Dodd-Frank Act will necessitate costly and resource-intensive
changes to certain areas of Citi's derivatives business structures and
practices. Those changes will include restructuring the legal entities through
which those businesses are conducted and the successful and timely installation
of extensive technological and operational systems and compliance
infrastructure, among others. Effective legal entity restructuring will also be
dependent on clients and regulators, and so may be subject to delays or
disruptions not fully under Citi's control. Moreover, new derivatives-related
systems and infrastructure will likely become the basis on which institutions
such as Citi compete for clients and, to the extent that Citi's connectivity or
services for clients in these businesses is deficient, Citi could be at a
competitive disadvantage. More generally, the contemplated reforms will make
trading in many derivatives products more costly and may significantly reduce
the liquidity of certain derivatives markets and diminish customer demand for
covered derivatives. These changes could negatively impact Citi's earnings from
these businesses.
56
Reforms similar to the derivatives provisions and proposed regulations
under the Dodd-Frank Act are also contemplated in the European Union and certain
other jurisdictions. These reforms appear likely to take effect after the
provisions of the Dodd-Frank Act and, as a result, it is uncertain whether they
will be similar to those in the U.S. or will impose different or additional
requirements on Citi's derivative activities. Complications due to the
sequencing of the effectiveness of derivatives reform, both among different
components of the Dodd-Frank Act and between the U.S. and other jurisdictions,
could give rise to further disruptions and competitive dislocations.
The proposed regulations implementing the
derivatives provisions of the Dodd-Frank Act, if adopted without modification,
would also adversely affect the competitiveness of Citi's non-U.S. operations.
For example, the proposed regulations would require some of Citi's non-U.S.
operations to collect more margin from its non-U.S. derivatives customers than
Citi's foreign bank competitors may be required to collect. The Dodd-Frank Act
also contains a so-called "push-out" provision that will prevent FDIC-insured
depository institutions from dealing in certain equity, commodity and
credit-related derivatives. Citi conducts a substantial portion of its
derivatives-dealing activities through its insured depository institution and,
to the extent that certain of Citi's competitors already conduct such activities
outside of FDIC-insured depository institutions, Citi would be
disproportionately impacted by any restructuring of its business for push-out
purposes. Moreover, the extent to which Citi's non-U.S. operations will be
impacted by the push-out provision and other derivative provisions remains
unclear, and it is possible that Citi could lose market share or profitability
in its derivatives business or client relationships in jurisdictions where
foreign bank competitors can operate without the same constraints.
The proposed
restrictions imposed on proprietary trading and funds-related activities under
the "Volcker Rule" provisions of the Dodd-Frank Act could adversely impact
Citi's market-making activities and may cause Citi to dispose of certain of its
investments at less than fair value.
The "Volcker Rule" provisions of the Dodd-Frank
Act are intended to restrict the proprietary trading activities of institutions
such as Citi, as well as such institutions' sponsorship and investment in hedge
funds and private equity funds. In October 2011, the Federal Reserve Board, OCC,
FDIC and SEC proposed regulations that would implement these restrictions and
the CFTC followed with its proposed regulations in January 2012.
The proposed regulations contain narrow exceptions
for market-making, underwriting, risk-mitigating hedging, certain transactions
on behalf of customers and activities in certain asset classes, and require that
certain of these activities be designed not to encourage or reward "proprietary
risk taking." Because the regulations are not yet final, the degree to which
Citi's activities in these areas will be permitted to continue in their current
form remains uncertain. Moreover, if adopted as proposed, the rules would
require an extensive compliance regime around these "permitted" activities, and
Citi could incur significant ongoing compliance and monitoring costs, including
with respect to the frequent reporting of extensive metrics and risk
analytics, to the regulatory
agencies. In addition, the proposed rules and any restrictions imposed by final
regulations in this area will also likely affect Citi's trading activities
globally, and thus will impact it disproportionately in comparison to foreign
financial institutions that will not be subject to the Volcker Rule with respect
to their activities outside of the U.S.
In addition, under the funds-related provisions of the Volcker Rule, bank
regulators have the flexibility to provide firms with extensions allowing them
to hold their otherwise restricted investments in private equity and hedge funds
for some time beyond the statutory divestment period. If the regulators elect
not to grant such extensions, Citi could be forced to divest certain of its
investments in illiquid funds in the secondary market on an untimely basis.
Based on the illiquid nature of the investments and the prospect that other
industry participants subject to similar requirements would likely be divesting
similar assets at the same time, such sales could be at substantial discounts to
their fair value.
The establishment of the
new Consumer Financial Protection Bureau, as well as other provisions of the
Dodd-Frank Act and ensuing regulations, could affect Citi's practices and
operations with respect to a number of its U.S. Consumer businesses and increase
its costs.
The Dodd-Frank
Act established the Consumer Financial Protection Bureau (CFPB). Among other
things, the CFPB was given rulemaking authority over most providers of consumer
financial services in the U.S., examination and enforcement authority over the
consumer operations of large banks, as well as interpretive authority with
respect to numerous existing consumer financial services regulations. The CFPB
began exercising these oversight authorities over the largest banks, including
Citibank, N.A., during 2011.
Because this is an entirely new agency, the impact on Citi, including its
retail banking, mortgages and cards businesses, is largely uncertain. However,
any new regulatory requirements, or modified interpretations of existing
regulations, will affect Citi's U.S. Consumer business practices and operations,
potentially resulting in increased compliance costs. Furthermore, the CFPB
represents an additional source of potential enforcement or litigation against
Citi and, as an entirely new agency with a focus on consumer protection, the
CFPB may have new or different enforcement or litigation strategies than those
typically utilized by other regulatory agencies. Such actions could further
increase Citi's costs.
In addition, the provisions of the Dodd-Frank Act relating to the
doctrine of "federal preemption" may allow a broader application of state
consumer financial laws to federally chartered institutions such as Citibank,
N.A. Moreover, the Dodd-Frank Act eliminated federal preemption protection for
operating subsidiaries of federally chartered institutions. The Dodd-Frank Act
also codified existing case law which allowed state authorities to bring certain
types of enforcement actions against national banks under applicable state law
and granted states the ability to bring enforcement actions and to secure
remedies against national banks for violation of CFPB regulations as well. This
potential exposure to state lawsuits and enforcement actions, which could be
extensive, could also subject Citi to increased litigation and regulatory
enforcement actions, further increasing costs.
57
The Dodd-Frank Act also provides authority to the SEC to determine fiduciary duty standards applicable to brokers for retail customers. Any new such standards or related SEC rulemakings could also affect Citi's business practices with retail investment customers and have indirect additional effects on standards applicable to its business practices with certain institutional customers. Such standards could also likely entail additional compliance costs and result in potential incremental liability.
Regulatory requirements
in the U.S. and other jurisdictions aimed at facilitating the future orderly
resolution of large financial institutions could result in Citi having to change
its business structures, activities and practices in ways that negatively impact
its operations.
The
Dodd-Frank Act requires Citi to prepare a plan for the rapid and orderly
resolution of Citigroup, the bank holding company, under the Bankruptcy Code in
the event of future material financial distress or failure. Citi is also
required to prepare a resolution plan for its insured depository institution
subsidiary, Citibank, N.A., and to demonstrate how it is adequately protected
from the risks presented by non-bank affiliates. These plans must include
information on resolution strategy, major counterparties and
"interdependencies," among other things, and will require substantial effort,
time and cost. These resolution plans will be subject to review by the Federal
Reserve Board and the FDIC.
Based on regulator review of these plans, Citi may have to restructure or
reorganize businesses, legal entities, or operational systems and intracompany
transactions in ways that negatively impact its operations, or be subject to
restrictions on growth. For example, Citi could be required to create new
subsidiaries instead of branches in foreign jurisdictions, or create
subsidiaries to conduct particular businesses or operations (so-called
"subsidiarization"), which would, among other things, increase Citi's legal,
regulatory and managerial costs, negatively impact Citi's global capital and
liquidity management and potentially impede its global strategy. Citi could also
eventually be subjected to more stringent capital, leverage or liquidity
requirements, or be required to divest certain assets or operations, if both
regulators determine that Citi's resolution plans do not meet statutory
requirements and Citi does not remedy the deficiencies within required time
periods.
In addition, other
jurisdictions, such as the United Kingdom, have requested or are expected to
request resolution plans from financial institutions, including Citi, and the
requirements and timing relating to these plans are different from the U.S.
requirements and each other. Responding to these additional requests will
require additional effort, time and cost, and regulatory review and requirements
in these jurisdictions could be in addition to, or conflict with, changes
requested by Citi's regulators in the U.S.
Citi could be harmed
competitively if it is unable to hire or retain highly qualified employees as a
result of regulatory requirements regarding compensation practices or
otherwise.
Citi's
performance and competitive standing is heavily dependent on the talents and
efforts of the highly skilled individuals that it is able to attract and retain.
Competition for highly qualified individuals within the financial services
industry has been, and will likely continue to be, intense. Compensation is a
key element of attracting and retaining highly qualified employees. Banking and
other regulators in the U.S., European Union and elsewhere are in the process of
developing principles, regulations and other guidance governing what are deemed
to be sound compensation practices and policies. However, the steps that will be
required to implement any new requirements, and the consequences of
implementation, remain uncertain. In addition, compensation may continue to be a
legislative focus both in Europe and in the U.S. as there has been significant
legislation in Europe and the U.S. in recent years regarding compensation for
certain employees of financial institutions, including provisions of the
Dodd-Frank Act.
Changes required to be made to Citi's compensation policies and practices
may hinder Citi's ability to compete in or manage its businesses effectively, to
expand into or maintain its presence in certain businesses and regions, or to
remain competitive in offering new financial products and services. This is
particularly the case in emerging markets, where Citi is often competing for
qualified employees with financial institutions that are not subject to the same
regulatory regimes as Citi and that are also seeking to expand in these markets.
Moreover, new disclosure requirements or other legislation or regulation may
result from the worldwide regulatory processes described above. If this were to
occur, Citi could be required to make additional disclosures relating to the
compensation of its employees or to restrict or modify its compensation
policies, any of which could hurt its ability to hire, retain and motivate its
key employees and thus harm it competitively, particularly in respect of
companies not subject to these requirements.
Provisions of the
Dodd-Frank Act and other regulations relating to securitizations will impose
additional costs on securitization transactions, increase Citi's potential
liability in respect of securitizations and may prohibit Citi from performing
certain roles in securitizations, each of which could make it impractical to
execute certain types of transactions and may have an overall negative effect on
the recovery of the securitization markets.
Citi plays a variety of roles in asset
securitization transactions, including acting as underwriter of asset-backed
securities, depositor of the underlying assets into securitization vehicles,
trustee to securitization vehicles and counterparty to securitization vehicles
under derivative contracts. The Dodd-Frank Act contains a number of provisions
that affect securitizations. Among other provisions, these include a requirement
that securitizers retain un-hedged exposure to at least 5% of the economic risk
of certain assets they securitize, a prohibition on securitization participants
engaging in transactions that would involve a conflict with investors in the
securitization,
58
and extensive additional
requirements for review and disclosure of the characteristics of the assets
underlying the securitizations. The SEC has also proposed additional extensive
regulation of both publicly and privately offered securitization transactions
(so-called "Reg AB II").
The cumulative effect of these extensive
regulatory changes, many of which have not been finalized, as well as other
potential future regulatory changes, such as GSE reform, on securitization
markets, the nature and profitability of securitization transactions, and Citi's
participation therein, cannot currently be assessed. It is likely, however, that
these various measures will increase the costs of executing securitization
transactions, and could effectively limit Citi's overall volume of, and the role
Citi may play in, securitizations, expose Citi to additional potential liability
for securitization transactions and make it impractical for Citi to execute
certain types of securitization transactions it previously executed. In
addition, certain sectors of the securitization markets, particularly
residential mortgage-backed securitizations, have been inactive or experienced
dramatically diminished transaction volumes since the financial crisis. The
impact of various regulatory reform measures could negatively delay or restrict
any future recovery of these sectors of the securitization markets, and thus the
opportunities for Citi to participate in securitization transactions in such
sectors.
The Financial Accounting
Standards Board (FASB) is currently reviewing or proposing changes to several
key financial accounting and reporting standards utilized by Citi which, if
adopted as proposed, could have a material impact on how Citi records and
reports its financial condition and results of
operations.
The FASB is
currently reviewing or proposing changes to several of the financial accounting
and reporting standards that govern key aspects of Citi's financial statements.
While the outcome of these reviews and proposed changes is uncertain and
difficult to predict, certain of these changes could have a material impact on
how Citi records and reports its financial condition and results of operations,
and could hinder understanding or cause confusion across comparative financial
statement periods. For example, the FASB's financial instruments project could,
among other things, significantly change how Citi determines the impairment on
those assets and accounts for hedges. In addition, the FASB's leasing project
could eliminate most operating leases and instead capitalize them, which would
result in a gross-up of Citi's balance sheet and a change in the timing of
income and expense recognition patterns for leases.
Moreover, the FASB continues its convergence
project with the International
Accounting Standards Board (IASB) pursuant to which U.S. GAAP and International
Financial Reporting Standards (IFRS) are to be converged. The FASB and IASB
continue to have significant disagreements on the convergence of certain key
standards affecting financial reporting, including accounting for financial
instruments and hedging. In addition, the SEC has not yet determined whether,
when or how U.S. companies will be required to adopt IFRS. There can be no
assurance that the transition to IFRS, if and when required to be adopted by
Citi, will not have a material impact on how Citi reports its financial results,
or that Citi will be able to meet any required transition
timeline.
MARKET AND ECONOMIC RISKS
The ongoing Eurozone
debt crisis could have significant adverse effects on Citi's business, results
of operations, financial condition and liquidity, particularly if it leads to
any sovereign debt defaults, significant bank failures or defaults and/or the
exit of one or more countries from the European Monetary
Union.
The ongoing
Eurozone debt crisis has caused, and is likely to continue to cause, disruption
in global financial markets, particularly if it leads to any future sovereign
debt defaults and/or significant bank failures or defaults in the Eurozone. In
spite of a number of stabilization measures taken since spring 2010, yields on
government bonds of certain Eurozone countries, including Greece, Ireland,
Italy, Portugal and Spain, have remained volatile. In addition, some European
banks and insurers have experienced a widening of credit spreads (and the
resulting decreased availability and increased costs of funding) as a result of
uncertainty regarding the exposure of such European financial institutions to
these countries. This widening of credit spreads and increased cost of funding
has also affected Citi due to concerns about its Eurozone
exposure.
The market disruptions in the
Eurozone could intensify or spread further, particularly if ongoing
stabilization efforts prove insufficient. Concerns have been raised as to the
financial, political and legal ineffectiveness of measures taken to date.
Continued economic turmoil in the Eurozone could have a significant negative
impact on Citi, both directly through its own exposures and indirectly due to a
decline in general global economic conditions, which could particularly impact
Citi given its global footprint and strategy. See "Managing Global Risk-Country
and Cross-Border Risk" below. There can be no assurance that the various steps
Citi has taken to protect its businesses, results of operations and financial
condition against the results of the Eurozone crisis will be sufficient.
The
effects of the Eurozone debt crisis could be even more significant if they lead
to a partial or complete break-up of the European Monetary Union (EMU). The
partial or full break-up of the EMU would be unprecedented and its impact highly
uncertain. The exit of one or more countries from the EMU or the dissolution of
the EMU could lead to redenomination of obligations of obligors in exiting
countries. Any such exit and redenomination would cause significant uncertainty
with respect to outstanding obligations of counterparties and debtors in any
exiting country, whether sovereign or otherwise, and lead to complex, lengthy
litigation. The resulting uncertainty and market stress could also cause, among
other things, severe disruption to equity markets, significant increases in bond
yields generally, potential failure or default of financial institutions,
including those of systemic importance, a significant decrease in global
liquidity, a freeze-up of global credit markets and worldwide recession. Any
combination of such events would negatively impact Citi's businesses, earnings
and financial condition, particularly given Citi's global strategy. In addition,
exit and redenomination could be accompanied by imposition of capital, exchange
and similar controls, which could further negatively impact Citi's cross-border
risk, other aspects of its businesses and its earnings.
59
The continued
uncertainty relating to the sustainability and pace of economic recovery and
market volatility has adversely affected, and may continue to adversely affect,
certain of Citi's businesses, particularly S&B and the U.S. mortgage
businesses within Citi Holdings – Local Consumer
Lending.
The financial
services industry and the capital markets have been and will likely continue to
be adversely affected by the slow pace of economic recovery and continued
disruptions in the global financial markets. This continued uncertainty and
disruption have adversely affected, and may continue to adversely affect,
certain of Citi's businesses, particularly its S&B business and its Local
Consumer Lending business within Citi Holdings .
In particular, the corporate and sovereign bond
markets, equity and derivatives markets, debt and equity underwriting and other
elements of the financial markets have been and could continue to be subject to
wide swings and volatility relating to issues emanating from Eurozone and U.S.
economic issues. As a result of this uncertainty and volatility, clients have
remained and may continue to remain on the sidelines or cut back on trading and
other business activities and, accordingly, the results of operations of Citi's S&B businesses have been and could continue to be
volatile and negatively impacted.
Moreover, the continued economic uncertainty in the U.S., accompanied by
continued high levels of unemployment and depressed values of residential real
estate, will continue to negatively impact Citi's U.S. Consumer mortgage
businesses, particularly its residential real estate and home equity loans in Citi Holdings –
LCL . Given the continued decline
in Citi's ability to sell delinquent residential first mortgages, the decreased
inventory of such loans for modification and re-defaults of previously modified
mortgages, Citi began to experience increased delinquencies in this portfolio
during the latter part of 2011. As a result, Citi could also experience
increasing net credit losses in this portfolio going forward. Moreover, given
the lack of markets in which to sell delinquent home equity loans, as well as
the relatively fewer home equity loan modifications and modification programs,
Citi's ability to offset increased delinquencies and net credit losses in its
home equity loan portfolio in Citi Holdings has been, and will continue to be,
more limited as compared to residential first mortgages. See "Managing Global
Risk-Credit Risk-North America Consumer Mortgage Lending" and "-Consumer Loan
Modification Programs" below.
Concerns about the level
of U.S. government debt and downgrade, or concerns about a potential downgrade,
of the U.S. government credit rating could have a material adverse effect on
Citi's businesses, results of operations, capital, funding and
liquidity.
In August 2011,
Standard & Poor's lowered its long-term sovereign credit rating on the U.S.
government from AAA to AA+ and in the second half of 2011, Moody's Investors
Services and Fitch both placed the U.S. rating on negative outlook. According to
the credit rating agencies, these actions resulted from the high level of U.S.
government debt and the continued inability of Congress to reach an agreement to
ensure payment of
U.S. government debt and reduce the U.S. debt level. If the credit rating of the U.S. government is further downgraded, the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could also be correspondingly affected. A future downgrade of U.S. debt obligations or U.S. government-related obligations by one or more credit rating agencies, or heightened concern that such a downgrade might occur, could negatively affect Citi's ability to obtain funding collateralized by such obligations as well as the pricing of such funding. Such a downgrade could also negatively impact the pricing or availability of Citi's funding as a U.S. financial institution. In addition, such a downgrade could affect financial markets and economic conditions generally and the market value of the U.S. debt obligations held by Citi. As a result, such a downgrade could lead to a downgrade of Citi debt obligations and could have a material adverse effect on Citi's business, results of operations, capital, funding and liquidity.
Citi's extensive global
network, particularly its operations in the world's emerging markets, subject it
to emerging market and sovereign volatility and further increases its compliance
and regulatory risks and costs.
Citi believes its extensive and diverse global network-which includes a
physical presence in approximately 100 countries and services offered in over
160 countries and jurisdictions-provides it with a unique competitive advantage
in servicing the broad financial services needs of large multinational clients
and customers around the world, including in many emerging markets.
International revenues have recently been the largest and fastest-growing
component of Citicorp, driven by emerging markets.
However, this global footprint also subjects Citi
to a number of risks associated with international and emerging markets,
including exchange controls, limitations on foreign investment, socio-political
instability, nationalization, closure of branches or subsidiaries, confiscation
of assets and sovereign volatility, among others. For example, there have been
recent instances of political turmoil and violent revolutionary uprisings in
some of the countries in which Citi operates, including in the Middle East, to
which Citi has responded by transferring assets and relocating staff members to
more stable jurisdictions. While these previous incidents have not been material
to Citi, such disruptions could place Citi's staff and operations in danger and
may result in financial losses, some significant, including nationalization of
Citi's assets.
Further, Citi's extensive global operations increase its compliance and
regulatory risks and costs. For example, Citi's operations in emerging markets
subject it to higher compliance risks under U.S. regulations primarily focused
on various aspects of global corporate activities, such as anti-money-laundering
regulations and the Foreign Corrupt Practices Act, which can be more acute in
less developed markets and thus require substantial investment in order to
comply. Any failure by Citi to remain in compliance with applicable U.S.
regulations, as well as the regulations in the countries and markets in which it
operates as a result of its global footprint, could result in fines, penalties,
injunctions or other similar restrictions, any of which could negatively impact
Citi's earnings and its general reputation.
60
In addition, complying with
inconsistent, conflicting or duplicative regulations requires extensive time and
effort and further increases Citi's compliance, regulatory and other
costs.
It
is uncertain how the ongoing Eurozone debt crisis will affect emerging markets.
A recession in the Eurozone could cause a ripple effect in emerging markets,
particularly if banks in developed economies decrease or cease lending to
emerging markets, as is currently occurring in some cases. This impact could be
disproportionate in the case of Citi in light of the emphasis on emerging
markets in its global strategy. Decreased, low or negative growth in emerging
market economies could make execution of Citi's global strategy more challenging
and could adversely affect Citi's revenues, profits and operations.
The maintenance of
adequate liquidity depends on numerous factors outside of Citi's control,
including without limitation market disruptions and increases in Citi's credit
spreads.
Adequate
liquidity and sources of funding are essential to Citi's businesses. Citi's
liquidity and sources of funding can be significantly and negatively impacted by
factors it cannot control, such as general disruptions in the financial markets
or negative perceptions about the financial services industry in general, or
negative investor perceptions of Citi's liquidity, financial position or credit
worthiness in particular. Market perception of sovereign default risks, such as
issues in the Eurozone as well as other complexities regarding the current
European debt crisis, can also lead to ineffective money markets and capital
markets, which could further impact Citi's availability of funding.
In addition, Citi's cost and ability to obtain
deposits, secured funding and long-term unsecured funding from the capital
markets are directly related to its credit spreads. Changes in credit spreads
constantly occur and are market-driven, including both external market factors
as well as factors specific to Citi, and can be highly volatile. Citi's credit
spreads may also be influenced by movements in the costs to purchasers of credit
default swaps referenced to Citi's long-term debt, which are also impacted by
these external and Citi-specific factors. Moreover, Citi's ability to obtain
funding may be impaired if other market participants are seeking to access the
markets at the same time, or if market appetite is reduced, as is likely to
occur in a liquidity or other market crisis. In addition, clearing
organizations, regulators, clients and financial institutions with which Citi
interacts may exercise the right to require additional collateral based on these
market perceptions or market conditions, which could further impair Citi's
access to funding.
The credit rating
agencies continuously review the ratings of Citi and its subsidiaries, and
reductions in Citi's and its subsidiaries' credit ratings could have a
significant and immediate impact on Citi's funding and liquidity through cash
obligations, reduced funding capacity and additional margin requirements.
The rating agencies
continuously evaluate Citi and its subsidiaries, and their ratings of Citi's and
its more significant subsidiaries' long-term/senior debt and short-term
/commercial paper, as applicable, are based on a number of factors, including
financial strength, as well as factors not entirely within the control of Citi
and its subsidiaries, such as the agencies' proprietary rating agency
methodologies and conditions affecting the financial services industry
generally.
Citi and its subsidiaries may
not be able to maintain their current respective ratings. Ratings downgrades by
Fitch, Moody's or S&P could have a significant and immediate impact on
Citi's funding and liquidity through cash obligations, reduced funding capacity
and additional margin requirements for derivatives or other transactions.
Ratings downgrades could also have a negative impact on other funding sources,
such as secured financing and other margined transactions, for which there are
no explicit triggers. Some entities may also have ratings limitations as to
their permissible counterparties, of which Citi may or may not be aware. A
reduction in Citi's or its subsidiaries' credit ratings could also widen Citi's
credit spreads or otherwise increase its borrowing costs and limit its access to
the capital markets. For additional information on the potential impact of a
reduction in Citi's or its subsidiaries' credit ratings, see "Capital Resources
and Liquidity-Funding and Liquidity-Credit Ratings" above.
61
BUSINESS RISKS
Citi is subject to
extensive litigation, investigations and inquiries pertaining to a myriad of
U.S. mortgage-related activities that could take significant time to resolve and
may subject Citi to extensive liability, including in the form of penalties and
other equitable remedies, that could negatively impact Citi's future results of
operations.
Virtually
every aspect of mortgage-related activity in the U.S. is being challenged across
the financial services industry in private and public litigation and by
regulators, governmental agencies and state attorneys general, among others.
Examples of the activities being challenged include the accuracy of offering
documents for residential mortgage-backed securities, potential breaches of
representations and warranties in the placement of mortgage loans into
securitization trusts, mortgage servicing practices, the legitimacy of the
securitization of mortgage loans and the Mortgage Electronic Registration
System's role in tracking mortgages, holding title and participating in the
mortgage foreclosure process, fair lending, compliance with the Servicemembers
Civil Relief Act, and False Claim Act violations alleged in "qui tam" cases,
among others.
Sorting out which of the many claims being asserted has legal merit as
well as which financial institutions may be subject to liability with respect to
their actual practices is a complex process that is highly uncertain and will
take time to resolve. All of these inquiries, actions and investigations have
resulted in, and will likely continue to result in, significant time, expense
and diversion of management's attention, and could result in significant
liability as well as negative reputational and other costs to
Citi.
Citi is currently party to
numerous actions relating to claims of misrepresentations or omissions in
offering documents of residential mortgage-backed securities sponsored or
serviced by Citi affiliates. This litigation has been brought by a number of
institutional investors, including the Federal Housing Finance Agency. The cases
are all in early stages, making it difficult to predict how they will develop,
and Citi believes that such litigation will continue for several years. In
addition, because the statute of limitations will soon expire for these types of
disclosure-based claims, Citi could experience an increase in filed claims in
the near term.
Citi is exposed to
representation and warranty (i.e., mortgage repurchase) liability through its
U.S. Consumer mortgage businesses and, to a lesser extent, through legacy
private-label residential mortgage securitizations sponsored by its S&B business. With respect to its Consumer businesses,
during 2011, Citi increased its repurchase reserve from approximately $969
million to $1.2 billion at December 31, 2011. To date, the majority of
repurchase demands have come from the GSEs. The level of repurchase demands by
GSEs has been trending upwards and Citi currently expects it to remain elevated
for some time. To a lesser extent, Citi has received repurchase demands from
private investors, although these claims have been volatile and could increase
in the future.
With
regard to legacy S&B private-label mortgage
securitizations, while S&B has to date received actual
claims for breaches of representations and warranties relating to only a small
percentage of the mortgages included in its securitization transactions, the
pace of claims remains volatile and has recently increased, Citi has also
experienced an increase in the level of inquiries, assertions and requests for
loan files, among other matters, relating to such securitization transactions
from trustees of securitization trusts and others. These inquiries could lead to
actual claims for breaches of representations and warranties, or to litigation
relating to such breaches or other matters. For additional information on these
matters, see "Managing Global Risk-Credit Risk-Consumer Mortgage-Representations
and Warranties" and "- Securities and Banking -Sponsored Private-Label Residential Mortgage
Securitizations-Representations and Warranties" below.
For further discussion of the matters above, see
Note 29 to the Consolidated Financial Statements.
Citi will not be able to wind down
Citi Holdings at the same pace as it has in the past three years. As a result,
the remaining assets in Citi Holdings will likely continue to have a negative
impact on Citi's results of operations and its ability to utilize the capital
supporting the remaining assets in Citi Holdings for more productive
purposes.
Citi will not be
able to dispose of or wind down the businesses or assets that are part of Citi
Holdings at the same level or pace as in the past three years. As of December
31, 2011, assuming the transfer to Citicorp of the substantial majority of
retail partner cards, effective in the first quarter of 2012, LCL constituted approximately 70% of Citi Holdings. As of such date, over
half of the remaining assets in LCL consisted of legacy
U.S. mortgages which will likely be subject to run-off over an extended period
of time. Besides mortgages, the remaining assets in LCL include the OneMain Financial business, as well as student, commercial
real estate and credit card loans in North America , and
consumer lending businesses in Europe and Asia .
BAM primarily consists of the MSSB JV. Morgan Stanley has call rights on
Citi's ownership interest in the venture over a three-year period beginning in
2012, which it is not required to exercise. Of the remaining assets in SAP , interest-earning assets have become a smaller
portion of the assets, causing negative net interest revenues in the business as
the remaining non-interest earning assets, which require funding, represent a
larger portion of the total asset pool. In addition, as of December 31, 2011,
approximately 25% of the remaining assets in SAP were held-to-maturity securities.
As a result, the remaining assets within
Citi Holdings will likely continue to have a negative impact on Citi's overall
results of operations for the foreseeable future, particularly after the
transfer of retail partner cards to Citicorp. In addition, as of December 31,
2011 and as adjusted to reflect the transfer of retail partner cards, roughly
21% of Citi's risk-weighted assets were in Citi Holdings, and were supported by
approximately $24 billion of Citi's regulatory capital. Accordingly, Citi's
ability to release the capital supporting these businesses and thus use such
capital for more productive purposes will depend on the ultimate pace and level
of Citi Holdings divestitures, portfolio run-offs and asset
sales.
62
Citi's ability to
increase its common stock dividend or initiate a share repurchase program is
subject to regulatory and government approval.
Since the second quarter of 2011, Citi has paid a
quarterly common stock dividend of $0.01 per share. In addition to Board of
Directors' approval, any decision by Citi to increase its common stock dividend,
including the amount thereof, or initiate a share repurchase program is subject
to regulatory approval, including the results of the Comprehensive Capital
Analysis and Review (CCAR) process required by the Federal Reserve Board.
Restrictions on Citi's ability to increase the amounts of its common stock
dividend or engage in share repurchase programs could negatively impact market
perceptions of Citi, including the price of its common stock.
In addition, pursuant to its agreements with
certain U.S. government entities, dated June 9, 2009, executed in connection
with Citi's exchange offers consummated in July and September 2009, Citi remains
subject to dividend and share
repurchase restrictions for as long as the U.S. government continues to hold any
Citi trust preferred securities acquired in connection with the exchange offers.
While these restrictions may be waived, they generally prohibit Citi from paying
regular cash dividends in excess of $0.01 per share of common stock per quarter
or from redeeming or repurchasing any Citi equity securities, which includes its
common stock, or trust preferred securities. As of December 31, 2011,
approximately $3.025 billion of trust preferred securities issued to the FDIC
remained outstanding (of which approximately $800 million is being held for the
benefit of the U.S. Treasury).
Citi may be unable to
maintain or reduce its level of expenses as it expects, and investments in its
businesses may not be productive.
Citi continues to pursue a disciplined expense-management strategy,
including re-engineering, restructuring operations and improving the efficiency
of functions, such as call centers and collections, to achieve a targeted
percentage expense savings annually. However, there is no guarantee that Citi
will be able to maintain or reduce its level of expenses in the future,
particularly as expenses incurred in Citi's foreign entities are subject to
foreign exchange volatility, and regulatory compliance and legal and related
costs are difficult to predict or control, particularly given the current
regulatory and litigation environment. Moreover, Citi has incurred, and will
likely continue to incur, costs of investing in its businesses. These
investments may not be as productive as Citi expects or at all. Furthermore, as
the wind down of Citi Holdings slows, Citi's ability to continue to reduce its
expenses as a result of this wind down will also decline.
The value of Citi's
deferred tax assets (DTAs) could be reduced if corporate tax rates in the U.S.
or certain state or foreign jurisdictions are decreased or as a result of other
potential significant changes in the U.S. corporate tax
system.
There have been
discussions in Congress and by the Obama Administration regarding potentially
decreasing the U.S. corporate tax rate. Similar discussions have taken place in
certain state and foreign jurisdictions. While Citi may benefit in some respects
from any decreases in these corporate tax rates, any reduction in the U.S.,
state or foreign corporate tax rates would result in a decrease to the value of
Citi's DTAs, which could be significant. There have also been recent discussions
of more sweeping changes to the U.S. tax system, including changes to the tax
treatment of foreign business income. It is uncertain whether or when any such
tax reform proposals will be enacted into law, and whether or how they will
affect Citi's ability to make effective use of its DTAs.
The expiration of a
provision of the U.S. tax law that allows Citi to defer U.S. taxes on certain
active financing income could significantly increase Citi's tax
expense.
Citi's tax
provision has historically been reduced because active financing income earned
and indefinitely reinvested outside the U.S. is taxed at the lower local tax
rate rather than at the higher U.S. tax rate. Such reduction has been dependent
upon a provision of the U.S. tax law that defers the imposition of U.S.
taxes on certain active financing income until that income is repatriated to the
U.S. as a dividend. This "active financing exception" expired on December 31,
2011 with respect to taxable years beginning after such date. While the
exception has been scheduled to expire on numerous prior occasions, Congress has
extended it each time, including retroactively to the start of the tax year.
Congress could still take action to retroactively extend the active financing
exception to the beginning of 2012. However, there can be no assurance that it
will do so. If the exception is not extended, the U.S. tax imposed on Citi's
active financing income earned outside the U.S. would increase, which could
further result in Citi's tax expense increasing significantly, particularly
beginning in 2013.
63
Citi's
operational systems and networks have been, and will continue to be, vulnerable
to an increasing risk of continually evolving cybersecurity or other
technological risks which could result in the disclosure of confidential client
or customer information, damage to Citi's reputation, additional costs to Citi,
regulatory penalties and financial losses.
A significant portion of Citi's operations relies
heavily on the secure processing, storage and transmission of confidential and
other information as well as the monitoring of a large number of complex
transactions on a minute-by-minute basis. For example, through its global
consumer banking, credit card and Transaction Services businesses, Citi obtains and stores an extensive amount of personal and
client-specific information for its retail, corporate and governmental customers
and clients and must accurately record and reflect their extensive account
transactions. These activities have been, and will continue to be, subject to an
increasing risk of cyber attacks, the nature of which is continually
evolving.
Citi's computer systems, software and networks have been and will
continue to be vulnerable to unauthorized access, loss or destruction of data
(including confidential client information), account takeovers, unavailability
of service, computer viruses or other malicious code, cyber attacks and other
events. These threats may derive from human error, fraud or malice on the part
of employees or third parties, or may result from accidental technological
failure. If one or more of these events occurs, it could result in the
disclosure of confidential client information, damage to Citi's reputation with
its clients and the market, additional costs to Citi (such as repairing systems
or adding new personnel or protection technologies), regulatory penalties and
financial losses, to both Citi and its clients and customers. Such events could
also cause interruptions or malfunctions in the operations of Citi (such as the
lack of availability of Citi's online banking system), as well as the operations
of its clients, customers or other third parties. Given the high volume of
transactions at Citi, certain errors or actions may be repeated or compounded
before they are discovered and rectified, which would further increase these
costs and consequences.
Citi has recently been subject to intentional cyber incidents from
external sources, including (i) data breaches, which resulted in unauthorized
access to customer account data and interruptions of services to customers; (ii)
malicious software attacks on client systems, which in turn allowed unauthorized
entrance to Citi's systems under the guise of a client and the extraction of
client data; and (iii) denial of service attacks, which attempted to interrupt
service to clients and customers. While Citi was able to detect these prior
incidents before they became significant, they still resulted in losses as well
as increases in expenditures to monitor against the threat of similar future
cyber incidents. There can be no assurance that such incidents, or other cyber
incidents, will not occur again, and they could occur more frequently and on a
more significant scale.
In addition, third parties with which Citi does
business may also be sources of cybersecurity or other technological risks. Citi
outsources certain functions, such as processing of customer credit card
transactions, which results in the storage and processing of customer
information by third parties. While Citi engages in certain actions to reduce
the exposure resulting from outsourcing, such as limiting third-party access to
the least privileged level necessary to perform job functions and restricting
third-party processing to systems stored within Citi's data centers,
unauthorized access, loss or destruction of data or other cyber incidents could
occur, resulting in similar costs and consequences to Citi as those discussed
above. Furthermore, because financial institutions are becoming increasingly
interconnected with central agents, exchanges and clearing houses, including
through the derivatives provisions of the Dodd-Frank Act, Citi has increased
exposure to operational failure or cyber attacks through third parties.
While Citi maintains insurance coverage that may,
subject to policy terms and conditions including significant self-insured
deductibles, cover certain aspects of cyber risks, such insurance coverage may
be insufficient to cover all losses.
Citi's financial
statements are based in part on assumptions and estimates, which, if wrong,
could cause unexpected losses in the future, sometimes
significant.
Pursuant to
U.S. GAAP, Citi is required to use certain assumptions and estimates in
preparing its financial statements, including in determining credit loss
reserves, reserves related to litigation and regulatory exposures, mortgage
representation and warranty claims and the fair value of certain assets and
liabilities, among other items. If the assumptions or estimates underlying
Citi's financial statements are incorrect, Citi may experience significant
losses. For additional information on the key areas for which assumptions and
estimates are used in preparing Citi's financial statements, see "Significant
Accounting Policies and Significant Estimates" below, and for further
information relating to litigation and regulatory exposures, see Note 29 to the
Consolidated Financial Statements.
Citi is subject to a
significant number of legal and regulatory proceedings that are often highly
complex, slow to develop and are thus difficult to predict or
estimate.
At any given
time, Citi is defending a significant number of legal and regulatory
proceedings. The volume of claims and the amount of damages and penalties
claimed in litigation, arbitration and regulatory proceedings against financial
institutions remain high, and could further increase in the future. See, for
example, "-Citi is subject to extensive litigation, investigations and
inquiries pertaining to a myriad of mortgage-related activities that could take
significant time to resolve and may subject Citi to extensive liability,
including in the form of penalties and other equitable remedies, that could
negatively impact Citi's future results of
operations."
Proceedings brought against Citi may result in judgments, settlements,
fines, penalties, disgorgement, injunctions, business improvement orders or
other results adverse to it, which could materially and negatively affect Citi's
businesses, financial condition or results of operations, require
material
64
changes in Citi's operations, or cause Citi reputational harm.
Moreover, the many large claims asserted against Citi are highly complex and
slow to develop, and they may involve novel or untested legal theories. The
outcome of such proceedings may thus be difficult to predict or estimate until
late in the proceedings, which may last several years. In addition, certain
settlements are subject to court approval and may not be approved. Although Citi
establishes accruals for its litigation and regulatory matters according to
accounting requirements, the amount of loss ultimately incurred in relation to
those matters may be substantially higher or lower than the amounts
accrued.
In addition, while Citi takes
numerous steps to prevent and detect employee misconduct, such as fraud,
employee misconduct is not always possible to deter or prevent, and the
extensive precautions Citi takes to prevent and detect this activity may not be
effective in all cases, which could subject it to additional liability.
Moreover, the "whistle-blower" provisions of the Dodd-Frank Act provide
substantial financial incentives for persons to report alleged violations of law
to the SEC and the CFTC. The final rules implementing these provisions for the
SEC and CFTC became effective in August and October 2011, respectively. As such,
there continues to be much uncertainty as to whether these new reporting
provisions will incentivize and lead to an increase in the number of claims that
Citi will have to investigate or against which Citi will have to defend itself,
thus potentially further increasing Citi's legal liabilities.
For additional information relating to Citi's
potential exposure relating to legal and regulatory matters, see Note 29 to the
Consolidated Financial Statements.
Failure to
maintain the value of the Citi brand could harm Citi's global competitive
advantage, results of operations and strategy.
As Citi enters into its 200 th year of
operations in 2012, one of its most valuable assets is the Citi brand. Citi's
ability to continue to leverage its extensive global footprint, and thus
maintain one of its key competitive advantages, depends on the continued
strength and recognition of the Citi brand, including in emerging markets as
other financial institutions grow their operations in these markets and
competition intensifies. As referenced above, as a result of the economic crisis
in the U.S. as well as the continuing adverse economic climate globally, Citi,
like other financial institutions, is subject to an increased level of distrust,
scrutiny and skepticism from numerous constituencies, including the general
public. The Citi brand could be further harmed if its public image or reputation
were to be tarnished by negative publicity, whether or not true, about Citi or
the financial services industry in general, or by a negative perception
of Citi's short-term or long-term financial prospects. Maintaining, promoting
and positioning the Citi brand will depend largely on Citi's ability to provide
consistent, high-quality financial services and products to its clients and
customers around the world. Failure to maintain its brand could hurt Citi's
competitive advantage, results of operations and strategy.
Citi may incur
significant losses if its risk management processes and strategies are
ineffective, and concentration of risk increases the potential for such
losses.
Citi monitors and
controls its risk exposure across businesses, regions and critical products
through a risk and control framework encompassing a variety of separate but
complementary financial, credit, operational, compliance and legal reporting
systems, internal controls, management review processes and other mechanisms.
While Citi employs a broad and diversified set of risk monitoring and risk
mitigation techniques, those techniques and the judgments that accompany their
application may not be effective and may not anticipate every economic and
financial outcome in all market environments or the specifics and timing of such
outcomes. Market conditions over the last several years have involved
unprecedented dislocations and highlight the limitations inherent in using
historical data to manage risk.
Concentration of risk increases the potential for
significant losses. Because of concentration of risk, Citi may suffer losses
even when economic and market conditions are generally favorable for Citi's
competitors. These concentrations can limit, and have limited, the effectiveness
of Citi's hedging strategies and have caused Citi to incur significant losses,
and they may do so again in the future. In addition, Citi extends large
commitments as part of its credit origination activities. If Citi is unable to
reduce its credit risk by selling, syndicating or securitizing these positions,
including during periods of market dislocation, Citi's results of operations
could be negatively affected due to a decrease in the fair value of the
positions, as well as the loss of revenues associated with selling such
securities or loans.
Although Citi's activities expose it to the credit risk of many different
entities and counterparties, Citi routinely executes a high volume of
transactions with counterparties in the financial services sector, including
banks, other financial institutions, insurance companies, investment banks and
government and central banks. This has resulted in significant credit
concentration with respect to this sector. To the extent regulatory or market
developments lead to an increased centralization of trading activity through
particular clearing houses, central agents or exchanges, this could increase
Citi's concentration of risk in this sector.
65
MANAGING GLOBAL RISK
Citigroup believes that effective risk management is of primary importance to its overall operations. Accordingly, Citigroup has a comprehensive risk management process to monitor, evaluate and manage the principal risks it assumes in conducting its activities. These include credit, market and operational risks, which are each discussed in more detail throughout this section.
Citigroup's risk management framework is designed to balance corporate oversight with well-defined independent risk management functions. Enhancements continued to be made to the risk management framework throughout 2011 based on guiding principles established by Citi's Chief Risk Officer:
Significant focus has been placed on fostering a risk culture based on a policy of "Taking Intelligent Risk with Shared Responsibility, Without Forsaking Individual Accountability":
"Taking intelligent risk" means that Citi must carefully measure and aggregate risks, must appreciate potential downside risks, and must understand risk/return relationships. "Shared responsibility" means that risk and business management must actively partner to own risk controls and influence business outcomes. "Individual accountability" means that all individuals are ultimately responsible for identifying, understanding and managing risks.The Chief Risk Officer, working closely with the Citi Chief Executive Officer and established management committees, and with oversight from the Risk Management and Finance Committee of the Board of Directors as well as the full Board of Directors, is responsible for:
establishing core standards for the management, measurement and reporting of risk; identifying, assessing, communicating and monitoring risks on a company-wide basis; engaging with senior management on a frequent basis on material matters with respect to risk-taking activities in the businesses and related risk management processes; and ensuring that the risk function has adequate independence, authority, expertise, staffing, technology and resources. The risk management organization is
structured so as to facilitate the management of risk across three dimensions:
businesses, regions and critical products. Each of Citi's major business groups
has a Business Chief Risk Officer who is the focal point for risk decisions,
such as setting risk limits or approving transactions in the business. The
majority of the staff in Citi's independent risk management organization report
to these Business Chief Risk Officers. There are also Chief Risk Officers for
Citibank, N.A. and Citi Holdings.
Regional Chief Risk Officers, appointed in each of Asia , EMEA and Latin America , are
accountable for all the risks in their geographic areas and are the primary risk
contacts for the regional business heads and local regulators. In addition, the
positions of Product Chief Risk Officers are created for those risk areas of
critical importance to Citigroup, currently real estate and structural market
risk as well as fundamental credit. The Product Chief Risk Officers are
accountable for the risks within their specialty and focus on problem areas
across businesses and regions. The Product Chief Risk Officers serve as a
resource to the Chief Risk Officer, as well as to the Business and Regional
Chief Risk Officers, to better enable the Business and Regional Chief Risk
Officers to focus on the day-to-day management of risks and responsiveness to
business flow.
In addition to
facilitating the management of risk across these three dimensions, the
independent risk management organization also includes the business management
team to ensure that the risk organization has the appropriate infrastructure,
processes and management reporting. This team includes:
Each of the Business, Regional and Product Chief Risk Officers, as well as the heads of the groups in the business management team, report to Citi's Chief Risk Officer, who reports directly to the Chief Executive Officer.
66
Risk Aggregation and Stress
Testing
While Citi's major
risk areas are described individually on the following pages, these risks are
also reviewed and managed in conjunction with one another and across the various
businesses.
The Chief Risk Officer, as noted above, monitors and controls major risk
exposures and concentrations across the organization. This means aggregating
risks, within and across businesses, as well as subjecting those risks to
alternative stress scenarios in order to assess the potential economic impact
they may have on Citigroup.
Comprehensive stress tests are in place across Citi for trading,
available-for-sale and accrual portfolios. These firm-wide stress reports
measure the potential impact to Citi and its component businesses of very large
changes in various types of key risk factors (e.g., interest rates, credit
spreads, etc.), as well as the potential impact of a number of historical and
hypothetical forward-looking systemic stress scenarios.
Supplementing the stress testing described above,
Citi independent risk management, working with input from the businesses and
finance, provides periodic updates to senior management on significant potential
areas of concern across Citigroup that can arise from risk concentrations,
financial market participants, and other systemic issues. These areas of focus
are intended to be forward-looking assessments of the potential economic impacts
to Citi that may arise from these exposures. Risk management also provides
reports to the Risk Management and Finance Committee of the Board of Directors,
as well as the full Board of Directors, on these matters.
The stress-testing and focus-position exercises
are a supplement to the standard limit-setting and risk-capital exercises
described below, as these processes incorporate events in the marketplace and
within Citi that impact the firm's outlook on the form, magnitude, correlation
and timing of identified risks that may arise. In addition to enhancing
awareness and understanding of potential exposures, the results of these
processes then serve as the starting point for developing risk management and
mitigation strategies.
Risk
Capital
Risk capital is
defined as the amount of capital required to absorb potential unexpected
economic losses resulting from extremely severe events over a one-year time
period.
The drivers of economic losses are risks which, for Citi, as referenced above, are broadly categorized as credit risk, market risk and operational risk.
Credit risk losses primarily result from a borrower's or counterparty's inability to meet its financial or contractual obligations. Market risk losses arise from fluctuations in the market value of trading and non-trading positions, including the changes in value resulting from fluctuations in rates. Operational risk losses result from inadequate or failed internal processes, systems or human factors or from external events.These risks, discussed in more detail below, are measured and aggregated within businesses and across Citigroup to facilitate the understanding of Citi's exposure to extreme downside events as described under "Risk Aggregation and Stress Testing" above. The risk capital framework is reviewed and enhanced on a regular basis in light of market developments and evolving practices.
CREDIT RISK
Credit risk is the potential for financial loss
resulting from the failure of a borrower or counterparty to honor its financial
or contractual obligations. Credit risk arises in many of Citigroup's business
activities, including:
For Citi's loan accounting policies, see Note 1 to the Consolidated Financial Statements. See Notes 16 and 17 for additional information on Citigroup's Consumer and Corporate loan, credit and allowance data.
67
Loans Outstanding
In millions of dollars at year end | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||
Consumer loans | ||||||||||||||||
In U.S. offices | ||||||||||||||||
Mortgage and real estate (1) | $ | 139,177 | $ | 151,469 | $ | 183,842 | $ | 219,482 | $ | 240,644 | ||||||
Installment, revolving credit, and other | 15,616 | 28,291 | 58,099 | 64,319 | 69,379 | |||||||||||
Cards (2)(3) | 117,908 | 122,384 | 28,951 | 44,418 | 46,559 | |||||||||||
Commercial and industrial | 4,766 | 5,021 | 5,640 | 7,041 | 7,716 | |||||||||||
Lease financing | 1 | 2 | 11 | 31 | 3,151 | |||||||||||
$ | 277,468 | $ | 307,167 | $ | 276,543 | $ | 335,291 | $ | 367,449 | |||||||
In offices outside the U.S. | ||||||||||||||||
Mortgage and real estate (1) | $ | 52,052 | $ | 52,175 | $ | 47,297 | $ | 44,382 | $ | 49,326 | ||||||
Installment, revolving credit, and other | 34,613 | 38,024 | 42,805 | 41,272 | 70,205 | |||||||||||
Cards | 38,926 | 40,948 | 41,493 | 42,586 | 46,176 | |||||||||||
Commercial and industrial | 20,366 | 16,684 | 14,780 | 16,814 | 18,422 | |||||||||||
Lease financing | 711 | 665 | 331 | 304 | 1,124 | |||||||||||
$ | 146,668 | $ | 148,496 | $ | 146,706 | $ | 145,358 | $ | 185,253 | |||||||
Total Consumer loans | $ | 424,136 | $ | 455,663 | $ | 423,249 | $ | 480,649 | $ | 552,702 | ||||||
Unearned income | (405 | ) | 69 | 808 | 738 | 787 | ||||||||||
Consumer loans, net of unearned income | $ | 423,731 | $ | 455,732 | $ | 424,057 | $ | 481,387 | $ | 553,489 | ||||||
Corporate loans | ||||||||||||||||
In U.S. offices | ||||||||||||||||
Commercial and industrial | $ | 21,667 | $ | 14,334 | $ | 15,614 | $ | 26,447 | $ | 20,696 | ||||||
Loans to financial institutions (2) | 33,265 | 29,813 | 6,947 | 10,200 | 8,778 | |||||||||||
Mortgage and real estate (1) | 20,698 | 19,693 | 22,560 | 28,043 | 18,403 | |||||||||||
Installment, revolving credit, and other | 15,011 | 12,640 | 17,737 | 22,050 | 26,539 | |||||||||||
Lease financing | 1,270 | 1,413 | 1,297 | 1,476 | 1,630 | |||||||||||
$ | 91,911 | $ | 77,893 | $ | 64,155 | $ | 88,216 | $ | 76,046 | |||||||
In offices outside the U.S. | ||||||||||||||||
Commercial and industrial | $ | 79,373 | $ | 71,618 | $ | 66,747 | $ | 79,421 | $ | 94,188 | ||||||
Installment, revolving credit, and other | 14,114 | 11,829 | 9,683 | 17,441 | 21,037 | |||||||||||
Mortgage and real estate (1) | 6,885 | 5,899 | 9,779 | 11,375 | 9,981 | |||||||||||
Loans to financial institutions | 29,794 | 22,620 | 15,113 | 18,413 | 20,467 | |||||||||||
Lease financing | 568 | 531 | 1,295 | 1,850 | 2,292 | |||||||||||
Governments and official institutions | 1,576 | 3,644 | 2,949 | 773 | 1,029 | |||||||||||
$ | 132,310 | $ | 116,141 | $ | 105,566 | $ | 129,273 | $ | 148,994 | |||||||
Total Corporate loans | $ | 224,221 | $ | 194,034 | $ | 169,721 | $ | 217,489 | $ | 225,040 | ||||||
Unearned income | (710 | ) | (972 | ) | (2,274 | ) | (4,660 | ) | (536 | ) | ||||||
Corporate loans, net of unearned income | $ | 223,511 | $ | 193,062 | $ | 167,447 | $ | 212,829 | $ | 224,504 | ||||||
Total loans-net of unearned income | $ | 647,242 | $ | 648,794 | $ | 591,504 | $ | 694,216 | $ | 777,993 | ||||||
Allowance for loan losses-on drawn exposures | (30,115 | ) | (40,655 | ) | (36,033 | ) | (29,616 | ) | (16,117 | ) | ||||||
Total loans-net of unearned income and allowance for credit losses | $ | 617,127 | $ | 608,139 | $ | 555,471 | $ | 664,600 | $ | 761,876 | ||||||
Allowance for loan losses as a percentage of total loans-net of | ||||||||||||||||
unearned income (3) | 4.69 | % | 6.31 | % | 6.09 | % | 4.27 | % | 2.07 | % | ||||||
Allowance for Consumer loan losses as a percentage of total Consumer | ||||||||||||||||
loans-net of unearned income (3) | 6.45 | % | 7.80 | % | 6.70 | % | 4.61 | % | 2.26 | % | ||||||
Allowance for Corporate loan losses as a percentage of total Corporate | ||||||||||||||||
loans-net of unearned income (3) | 1.31 | % | 2.76 | % | 4.56 | % | 3.48 | % | 1.61 | % |
(1) | Loans secured primarily by real estate. |
(2) | 2011 and 2010 include the impact of consolidating entities in connection with Citi's adoption of SFAS 167. See Note 1 to the Consolidated Financial Statements. |
(3) | Excludes loans in 2011 and 2010 that are carried at fair value. |
68
Details of Credit Loss Experience
In millions of dollars at year end | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||
Allowance for loan losses at beginning of year | $ | 40,655 | $ | 36,033 | $ | 29,616 | $ | 16,117 | $ | 8,940 | ||||||
Provision for loan losses | ||||||||||||||||
Consumer | $ | 12,512 | $ | 25,119 | $ | 32,407 | $ | 27,942 | $ | 15,660 | ||||||
Corporate | (739 | ) | 75 | 6,353 | 5,732 | 1,172 | ||||||||||
$ | 11,773 | $ | 25,194 | $ | 38,760 | $ | 33,674 | $ | 16,832 | |||||||
Gross credit losses | ||||||||||||||||
Consumer | ||||||||||||||||
In U.S. offices | $ | 15,767 | $ | 24,183 | $ | 17,637 | $ | 11,624 | $ | 5,765 | ||||||
In offices outside the U.S. | 5,397 | 6,890 | 8,819 | 7,172 | 5,165 | |||||||||||
Corporate | ||||||||||||||||
Mortgage and real estate | ||||||||||||||||
In U.S. offices | 182 | 953 | 592 | 56 | 1 | |||||||||||
In offices outside the U.S. | 171 | 286 | 151 | 37 | 3 | |||||||||||
Governments and official institutions outside the U.S. | - | - | - | 3 | - | |||||||||||
Loans to financial institutions | ||||||||||||||||
In U.S. offices | 215 | 275 | 274 | - | - | |||||||||||
In offices outside the U.S. | 391 | 111 | 448 | 463 | 69 | |||||||||||
Commercial and industrial | ||||||||||||||||
In U.S. offices | 392 | 1,222 | 3,299 | 627 | 635 | |||||||||||
In offices outside the U.S. | 649 | 571 | 1,564 | 778 | 226 | |||||||||||
$ | 23,164 | $ | 34,491 | $ | 32,784 | $ | 20,760 | $ | 11,864 | |||||||
Credit recoveries | ||||||||||||||||
Consumer | ||||||||||||||||
In U.S. offices | $ | 1,467 | $ | 1,323 | $ | 576 | $ | 585 | $ | 695 | ||||||
In offices outside the U.S. | 1,273 | 1,315 | 1,089 | 1,050 | 966 | |||||||||||
Corporate | ||||||||||||||||
Mortgage and real estate | ||||||||||||||||
In U.S. offices | 27 | 130 | 3 | - | 3 | |||||||||||
In offices outside the U.S. | 2 | 26 | 1 | 1 | - | |||||||||||
Governments and official institutions outside the U.S. | - | - | - | - | 4 | |||||||||||
Loans to financial institutions | ||||||||||||||||
In U.S. offices | - | - | - | - | - | |||||||||||
In offices outside the U.S. | 89 | 132 | 11 | 2 | 1 | |||||||||||
Commercial and industrial | ||||||||||||||||
In U.S. offices | 175 | 591 | 276 | 6 | 49 | |||||||||||
In offices outside the U.S. | 93 | 115 | 87 | 105 | 220 | |||||||||||
$ | 3,126 | $ | 3,632 | $ | 2,043 | $ | 1,749 | $ | 1,938 | |||||||
Net credit losses | ||||||||||||||||
In U.S. offices | $ | 14,887 | $ | 24,589 | $ | 20,947 | $ | 11,716 | $ | 5,654 | ||||||
In offices outside the U.S. | 5,151 | 6,270 | 9,794 | 7,295 | 4,272 | |||||||||||
Total | $ | 20,038 | $ | 30,859 | $ | 30,741 | $ | 19,011 | $ | 9,926 | ||||||
Other-net (1) | $ | (2,275 | ) | $ | 10,287 | $ | (1,602 | ) | $ | (1,164 | ) | $ | 271 | |||
Allowance for loan losses at end of year (2) | $ | 30,115 | $ | 40,655 | $ | 36,033 | $ | 29,616 | $ | 16,117 | ||||||
Allowance for unfunded lending commitments (3) | $ | 1,136 | $ | 1,066 | $ | 1,157 | $ | 887 | $ | 1,250 | ||||||
Total allowance for loans, leases and unfunded lending commitments | $ | 31,251 | $ | 41,721 | $ | 37,190 | $ | 30,503 | $ | 17,367 | ||||||
Net Consumer credit losses | $ | 18,424 | $ | 28,435 | $ | 24,791 | $ | 17,161 | $ | 9,269 | ||||||
As a percentage of average Consumer loans | 4.20 | % | 5.74 | % | 5.43 | % | 3.34 | % | 1.87 | % | ||||||
Net Corporate credit losses (recoveries) | $ | 1,614 | $ | 2,424 | $ | 5,950 | $ | 1,850 | $ | 657 | ||||||
As a percentage of average Corporate loans | 0.79 | % | 1.27 | % | 3.13 | % | 0.84 | % | 0.30 | % | ||||||
Allowance for loan losses at end of period (4) | ||||||||||||||||
Citicorp | $ | 12,656 | $ | 17,075 | $ | 10,731 | $ | 8,202 | $ | 5,262 | ||||||
Citi Holdings | 17,459 | 23,580 | 25,302 | 21,414 | 10,855 | |||||||||||
Total Citigroup | $ | 30,115 | $ | 40,655 | $ | 36,033 | $ | 29,616 | $ | 16,117 | ||||||
Allowance by type | ||||||||||||||||
Consumer | $ | 27,236 | $ | 35,406 | $ | 28,347 | $ | 22,204 | $ | 12,493 | ||||||
Corporate | 2,879 | 5,249 | 7,686 | 7,412 | 3,624 | |||||||||||
Total Citigroup | $ | 30,115 | $ | 40,655 | $ | 36,033 | $ | 29,616 | $ | 16,117 |
See footnotes on the next page.
69
(1) | 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) and 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. 2009 primarily includes reductions to the loan loss reserve of approximately $543 million related to securitizations, approximately $402 million related to the sale or transfer to held-for-sale of U.S. real estate lending loans, and $562 million related to the transfer of the U.K. cards portfolio to held-for-sale. 2008 primarily includes reductions to the loan loss reserve of approximately $800 million related to FX translation, $102 million related to securitizations, $244 million for the sale of the German retail banking operation, and $156 million for the sale of CitiCapital, partially offset by additions of $106 million related to the Cuscatlán and Bank of Overseas Chinese acquisitions. 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfer of loans to held-for-sale and of $83 million related to the transfer of the U.K. CitiFinancial portfolio to held-for-sale, offset by additions of $610 million related to the acquisitions of Egg, Nikko Cordial, Grupo Cuscatlán and Grupo Financiero Uno. |
(2) | Included in the allowance for loan losses are reserves for loans that have been modified subject to troubled debt restructurings (TDRs) of $8,772 million, $7,609 million, $4,819 million, and $2,180 million, as of December 31, 2011, December 31, 2010, December 31, 2009, and December 31, 2008, respectively. |
(3) | Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet. |
(4) | Allowance for loan losses represents management's best estimate of probable losses inherent in the portfolio, as well as probable losses related to large individually evaluated impaired loans and TDRs. See "Significant Accounting Policies and Significant Estimates." Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the overall portfolio. |
Allowance for Loan Losses
(continued)
The following
table details information on Citi's allowance for loan losses, loans and
coverage ratios as of December 31, 2011:
December 31, 2011 | |||||||||
In billions of dollars | Allowance for loan losses | Loans, net of unearned income | Allowance as a percentage of loans | (1) | |||||
North America Cards (2) | $ | 10.1 | $ | 118.7 | 8.5 | % | |||
North America Residential Mortgages | 10.0 | 138.9 | 7.3 | ||||||
North America Other | 1.6 | 23.5 | 6.8 | ||||||
International Cards | 2.8 | 40.1 | 7.0 | ||||||
International Other (3) | 2.7 | 102.5 | 2.6 | ||||||
Total Consumer | $ | 27.2 | $ | 423.7 | 6.5 | % | |||
Total Corporate | $ | 2.9 | $ | 223.5 | 1.3 | % | |||
Total Citigroup | $ | 30.1 | $ | 647.2 | 4.7 | % |
(1) | Allowance as a percentage of loans excludes loans that are carried at fair value. |
(2) | Includes both Citi-branded and retail partner cards. |
(3) | Includes mortgages and other retail loans. |
70
Non-Accrual Loans and Assets and
Renegotiated Loans
The
following pages include information on Citi's "Non-Accrual Loans and Assets" and
"Renegotiated Loans." There is a certain amount of overlap among these
categories. The following general summary provides a basic description of each
category:
Non-Accrual Loans and Assets:
Corporate and Consumer (commercial market) non-accrual status is based on the determination that payment of interest or principal is doubtful. Consumer non-accrual status is based on aging, i.e., the borrower has fallen behind in payments. North America Citi-branded and retail partner cards are not included because, under industry standards, they accrue interest until charge-off.Renegotiated Loans:
Both Corporate and Consumer loans whose terms have been modified in a TDR. Includes both accrual and non-accrual TDRs.The table below summarizes Citigroup's non-accrual loans as of the periods indicated. Non-accrual loans are loans in which the borrower has fallen behind in interest payments or, for Corporate and Consumer (commercial market) loans, where Citi has determined that the payment of interest or principal is doubtful and which are therefore considered impaired. In situations where Citi reasonably expects that only a portion of the principal and/or interest owed will ultimately be collected, all payments received are reflected as a reduction of principal and not as interest income. There is no industry-wide definition of non-accrual assets, however, and as such, analysis across the industry is not always comparable.
Corporate non-accrual loans may still be current on interest payments but are considered non-accrual as Citi has determined that the future payment of interest and/or principal is doubtful. Consistent with industry conventions, Citi generally accrues interest on credit card loans until such loans are charged-off, which typically occurs at 180 days contractual delinquency. As such, the non-accrual loan disclosures in this section do not include North America credit card loans.
Non-Accrual Loans
In millions of dollars | 2011 | 2010 | 2009 | 2008 | 2007 | |||||
Citicorp | $ | 4,018 | $ | 4,909 | $ | 5,353 | $ | 3,282 | $ | 2,027 |
Citi Holdings | 7,208 | 14,498 | 26,387 | 19,015 | 6,941 | |||||
Total non-accrual loans (NAL) | $ | 11,226 | $ | 19,407 | $ | 31,740 | $ | 22,297 | $ | 8,968 |
Corporate non-accrual loans (1) | ||||||||||
North America | $ | 1,246 | $ | 2,112 | $ | 5,621 | $ | 2,660 | $ | 291 |
EMEA | 1,293 | 5,337 | 6,308 | 6,330 | 1,152 | |||||
Latin America | 362 | 701 | 569 | 229 | 119 | |||||
Asia | 335 | 470 | 981 | 513 | 103 | |||||
Total corporate non-accrual loans | $ | 3,236 | $ | 8,620 | $ | 13,479 | $ | 9,732 | $ | 1,665 |
Citicorp | $ | 2,217 | $ | 3,091 | $ | 3,238 | $ | 1,453 | $ | 247 |
Citi Holdings | 1,019 | 5,529 | 10,241 | 8,279 | 1,418 | |||||
Total corporate non-accrual loans | $ | 3,236 | $ | 8,620 | $ | 13,479 | $ | 9,732 | $ | 1,665 |
Consumer non-accrual loans (1) | ||||||||||
North America | $ | 6,046 | $ | 8,540 | $ | 15,111 | $ | 9,617 | $ | 4,841 |
EMEA | 387 | 652 | 1,159 | 948 | 696 | |||||
Latin America | 1,107 | 1,019 | 1,340 | 1,290 | 1,133 | |||||
Asia | 450 | 576 | 651 | 710 | 633 | |||||
Total consumer non-accrual loans | $ | 7,990 | $ | 10,787 | $ | 18,261 | $ | 12,565 | $ | 7,303 |
Citicorp | $ | 1,801 | $ | 1,818 | $ | 2,115 | $ | 1,829 | $ | 1,780 |
Citi Holdings | 6,189 | 8,969 | 16,146 | 10,736 | 5,523 | |||||
Total consumer non-accrual loans | $ | 7,990 | $ | 10,787 | $ | 18,261 | $ | 12,565 | $ | 7,303 |
(1) | Excludes purchased distressed loans as they are generally accreting interest. The carrying value of these loans was $511 million at December 31, 2011, $469 million at December 31, 2010, $920 million at December 31, 2009, $1.510 billion at December 31, 2008, and $2.373 billion at December 31, 2007. |
Statement continues on the next page
71
Non-Accrual Loans and Assets
(continued)
The table below
summarizes Citigroup's other real estate owned (OREO) assets as of the periods
indicated. This represents the carrying value of all real estate property
acquired by foreclosure or other legal proceedings when Citi has taken
possession of the collateral.
In millions of dollars | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
OREO | |||||||||||||||
Citicorp | $ | 71 | $ | 826 | $ | 874 | $ | 371 | $ | 541 | |||||
Citi Holdings | 480 | 863 | 615 | 1,022 | 679 | ||||||||||
Corporate/Other | 15 | 14 | 11 | 40 | 8 | ||||||||||
Total OREO | $ | 566 | $ | 1,703 | $ | 1,500 | $ | 1,433 | $ | 1,228 | |||||
North America | $ | 441 | $ | 1,440 | $ | 1,294 | $ | 1,349 | $ | 1,168 | |||||
EMEA | 73 | 161 | 121 | 66 | 40 | ||||||||||
Latin America | 51 | 47 | 45 | 16 | 17 | ||||||||||
Asia | 1 | 55 | 40 | 2 | 3 | ||||||||||
Total OREO | $ | 566 | $ | 1,703 | $ | 1,500 | $ | 1,433 | $ | 1,228 | |||||
Other repossessed assets | $ | 1 | $ | 28 | $ | 73 | $ | 78 | $ | 99 | |||||
Non-accrual assets-Total Citigroup | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
Corporate non-accrual loans | $ | 3,236 | $ | 8,620 | $ | 13,479 | $ | 9,732 | $ | 1,665 | |||||
Consumer non-accrual loans | 7,990 | 10,787 | 18,261 | 12,565 | 7,303 | ||||||||||
Non-accrual loans (NAL) | $ | 11,226 | $ | 19,407 | $ | 31,740 | $ | 22,297 | $ | 8,968 | |||||
OREO | 566 | 1,703 | $ | 1,500 | $ | 1,433 | $ | 1,228 | |||||||
Other repossessed assets | 1 | 28 | 73 | 78 | 99 | ||||||||||
Non-accrual assets (NAA) | $ | 11,793 | $ | 21,138 | $ | 33,313 | $ | 23,808 | $ | 10,295 | |||||
NAL as a percentage of total loans | 1.73 | % | 2.99 | % | 5.37 | % | 3.21 | % | 1.15 | % | |||||
NAA as a percentage of total assets | 0.63 | 1.10 | 1.79 | 1.23 | 0.47 | ||||||||||
Allowance for loan losses as a percentage of NAL (1)(2) | 268 | 209 | 114 | 133 | 180 |
(1) | The $6.403 billion of non-accrual loans transferred from the held-for-sale portfolio to the held-for-investment portfolio during the fourth quarter of 2008 were marked to market at the transfer date and, therefore, no allowance was necessary at the time of the transfer. $2.426 billion of the par value of the loans reclassified was written off prior to transfer. | |
(2) | The allowance for loan losses includes the allowance for credit card and purchased distressed loans, while the non-accrual loans exclude credit card balances (with the exception of certain international portfolios) and purchased distressed loans as these continue to accrue interest until write-off. |
Non-accrual assets-Total Citicorp | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
Non-accrual loans (NAL) | $ | 4,018 | $ | 4,909 | $ | 5,353 | $ | 3,282 | $ | 2,027 | |||||
OREO | 71 | 826 | 874 | 371 | 541 | ||||||||||
Other repossessed assets | N/A | N/A | N/A | N/A | N/A | ||||||||||
Non-accrual assets (NAA) | $ | 4,089 | $ | 5,735 | $ | 6,227 | $ | 3,653 | $ | 2,568 | |||||
NAA as a percentage of total assets | 0.31 | % | 0.45 | % | 0.55 | % | 0.34 | % | 0.21 | % | |||||
Allowance for loan losses as a percentage of NAL (1) | 315 | 348 | 200 | 250 | 242 | ||||||||||
Non-accrual assets-Total Citi Holdings | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||
Non-accrual loans (NAL) | $ | 7,208 | $ | 14,498 | $ | 26,387 | $ | 19,015 | $ | 6,941 | |||||
OREO | 480 | 863 | 615 | 1,022 | 679 | ||||||||||
Other repossessed assets | N/A | N/A | N/A | N/A | N/A | ||||||||||
Non-accrual assets (NAA) | $ | 7,688 | $ | 15,361 | $ | 27,002 | $ | 20,037 | $ | 7,620 | |||||
NAA as a percentage of total assets | 2.86 | % | 4.28 | % | 5.54 | % | 3.08 | % | 0.86 | % | |||||
Allowance for loan losses as a percentage of NAL (1) | 242 | 163 | 96 | 113 | 161 |
(1) | The allowance for loan losses includes the allowance for Citi's credit card portfolios and purchased distressed loans, while the non-accrual loans exclude credit card balances (with the exception of certain international portfolios) and purchased distressed loans as these continue to accrue interest until write-off. | |
N/A | Not available at the Citicorp or Citi Holdings level. |
72
Renegotiated Loans
The following table presents Citi's loans modified
in TDRs.
Dec. 31, | Dec. 31, | |||
In millions of dollars | 2011 | 2010 | ||
Corporate renegotiated loans (1) | ||||
In U.S. offices | ||||
Commercial and industrial (2) | $ | 206 | $ | 240 |
Mortgage and real estate (3) | 241 | 61 | ||
Loans to financial institutions | 552 | 671 | ||
Other | 79 | 28 | ||
$ | 1,078 | $ | 1,000 | |
In offices outside the U.S. | ||||
Commercial and industrial (2) | $ | 223 | $ | 207 |
Mortgage and real estate (3) | 17 | 90 | ||
Loans to financial institutions | 12 | 11 | ||
Other | 6 | 7 | ||
$ | 258 | $ | 315 | |
Total Corporate renegotiated loans | $ | 1,336 | $ | 1,315 |
Consumer renegotiated loans (4)(5)(6)(7) | ||||
In U.S. offices | ||||
Mortgage and real estate | $ | 21,429 | $ | 17,717 |
Cards | 5,766 | 4,747 | ||
Installment and other | 1,357 | 1,986 | ||
$ | 28,552 | $ | 24,450 | |
In offices outside the U.S. | ||||
Mortgage and real estate | $ | 936 | $ | 927 |
Cards | 929 | 1,159 | ||
Installment and other | 1,342 | 1,875 | ||
$ | 3,207 | $ | 3,961 | |
Total Consumer renegotiated loans | $ | 31,759 | $ | 28,411 |
(1) | Includes $455 million and $553 million of non-accrual loans included in the non-accrual assets table above, at December 31, 2011 and December 31, 2010, respectively. The remaining loans are accruing interest. | |
(2) | In addition to modifications reflected as TDRs at December 31, 2011, Citi also modified $39 million and $421 million of commercial loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in U.S. offices and offices outside the U.S., respectively. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes). | |
(3) | In addition to modifications reflected as TDRs at December 31, 2011, Citi also modified $185 million and $33 million of commercial real estate loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in U.S. offices and in offices outside the U.S., respectively. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes). | |
(4) | Includes $2,371 million and $2,751 million of non-accrual loans included in the non-accrual assets table above at December 31, 2011 and December 31, 2010, respectively. The remaining loans are accruing interest. | |
(5) | Includes $19 million and $22 million of commercial real estate loans at December 31, 2011 and December 31, 2010, respectively. | |
(6) | Includes $257 million and $177 million of commercial loans at December 31, 2011 and December 31, 2010, respectively. | |
(7) | Smaller-balance homogeneous loans were derived from Citi's risk management systems. |
In certain circumstances, Citigroup modifies certain of its Corporate loans involving a non-troubled borrower. These modifications are subject to Citi's normal underwriting standards for new loans and are made in the normal course of business to match customers' needs with available Citi products or programs (these modifications are not included in the table above). In other cases, loan modifications involve a troubled borrower to whom Citi may grant a concession (modification). Modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction or waiver of accrued interest or fees. See "Consumer Loan Modification Programs" below.
Forgone Interest Revenue on Loans (1)
In non- | ||||||
In U.S. | U.S. | 2011 | ||||
In millions of dollars | offices | offices | total | |||
Interest revenue that would have been accrued | ||||||
at original contractual rates (2) | $ | 3,597 | $ | 1,276 | $ | 4,873 |
Amount recognized as interest revenue (2) | 1,539 | 415 | 1,954 | |||
Forgone interest revenue | $ | 2,058 | $ | 861 | $ | 2,919 |
(1) | Relates to Corporate non-accruals, renegotiated loans and Consumer loans on which accrual of interest has been suspended. | |
(2) | Interest revenue in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain countries. |
73
Loan Maturities and Fixed/Variable Pricing Corporate Loans
Due | Over 1 year | |||||||
within | but within | Over 5 | ||||||
In millions of dollars at year end 2011 | 1 year | 5 years | years | Total | ||||
Corporate loan portfolio | ||||||||
maturities | ||||||||
In U.S. offices | ||||||||
Commercial and | ||||||||
industrial loans | $ | 10,053 | $ | 7,600 | $ | 4,014 | $ | 21,667 |
Financial institutions | 15,434 | 11,668 | 6,163 | 33,265 | ||||
Mortgage and real estate | 9,603 | 7,260 | 3,835 | 20,698 | ||||
Lease financing | 589 | 446 | 235 | 1,270 | ||||
Installment, revolving | ||||||||
credit, other | 6,965 | 5,265 | 2,781 | 15,011 | ||||
In offices outside the U.S. | 91,060 | 31,725 | 9,525 | 132,310 | ||||
Total corporate loans | $ | 133,704 | $ | 63,964 | $ | 26,553 | $ | 224,221 |
Fixed/variable pricing of | ||||||||
corporate loans with | ||||||||
maturities due after one | ||||||||
year (1) | ||||||||
Loans at fixed interest rates | $ | 7,005 | $ | 5,741 | ||||
Loans at floating or adjustable | ||||||||
interest rates | 56,959 | 20,812 | ||||||
Total | $ | 63,964 | $ | 26,553 |
(1) | Based on contractual terms. Repricing characteristics may effectively be modified from time to time using derivative contracts. See Note 23 to the Consolidated Financial Statements. |
U.S. Consumer Mortgage and Real Estate Loans
Due | Over 1 year | |||||||
within | but within | Over 5 | ||||||
In millions of dollars at year end 2011 | 1 year | 5 years | years | Total | ||||
U.S. Consumer mortgage | ||||||||
loan portfolio type | ||||||||
First mortgages | $ | 219 | $ | 1,143 | $ | 95,757 | $ | 97,119 |
Second mortgages | 858 | 14,457 | 26,743 | 42,058 | ||||
Total | $ | 1,077 | $ | 15,600 | $ | 122,500 | $ | 139,177 |
Fixed/variable pricing of | ||||||||
U.S. Consumer | ||||||||
mortgage loans with | ||||||||
maturities due after one year | ||||||||
Loans at fixed interest rates | $ | 888 | $ | 83,159 | ||||
Loans at floating or adjustable | ||||||||
interest rates | 14,712 | 39,341 | ||||||
Total | $ | 15,600 | $ | 122,500 |
74
North America Consumer Mortgage Lending
Overview
Citi's North America Consumer mortgage portfolio consists of both
residential first mortgages and home equity loans. As of December 31, 2011,
Citi's North
America Consumer residential
first mortgage portfolio totaled $95.4 billion, while the home equity loan
portfolio was $43.5 billion. Of the first mortgages, $67.5 billion are recorded
in LCL within Citi Holdings, with the remaining $27.9
billion recorded in Citicorp. With respect to the home equity loan portfolio,
$40.0 billion are recorded in LCL , and $3.5 billion are
reported in Citicorp.
Citi's residential first mortgage portfolio
included $9.2 billion of loans with FHA insurance or VA guarantees as of
December 31, 2011. This portfolio consists of loans originated to
low-to-moderate-income borrowers with lower FICO (Fair Isaac Corporation) scores
and generally has higher loan-to-value ratios (LTVs). Losses on FHA loans are
borne by the sponsoring agency, provided that the insurance terms have not been
rescinded as a result of an origination defect. With respect to VA loans, the VA
establishes a loan-level loss cap, beyond which Citi is liable for loss. While
FHA and VA loans have high delinquency rates, given the insurance and
guarantees, respectively, Citi has experienced negligible credit losses on these
loans to date.
Also as of December 31, 2011,
the residential first mortgage portfolio included $1.6 billion of loans with
LTVs above 80%, which have insurance through mortgage insurance companies, and
$1.2 billion of loans subject to long-term standby commitments (LTSC) with U.S.
government-sponsored entities (GSEs), for which Citi has limited exposure to
credit losses. Citi's home equity loan portfolio also included $0.4 billion of
loans subject to LTSCs with GSEs, for which Citi also has limited exposure to
credit losses. These guarantees and commitments may be rescinded in the event of
origination defects.
Citi's allowance for loan loss
calculations takes into consideration the impact of the guarantees and
commitments referenced above.
Citi does not offer option adjustable rate mortgages/negative amortizing
mortgage products to its customers. As a result, option adjustable rate
mortgages/negative amortizing mortgages represent an insignificant portion of
total balances, since they were acquired only incidentally as part of prior
portfolio and business purchases.
As of December 31, 2011, Citi's North America residential
first mortgage portfolio contained approximately $15 billion of adjustable rate
mortgages that are required to make a payment only of accrued interest for the
payment period, or an interest-only payment. Borrowers that are currently
required to make an interest-only payment cannot select a lower payment that
would negatively amortize the loan. Residential first mortgages with this
payment feature are primarily to high-credit-quality borrowers that have on
average significantly higher origination and refreshed FICO scores than other
loans in the residential first mortgage portfolio.
North America Consumer
Mortgage Quarterly Credit Trends-Delinquencies and Net Credit Losses-Residential
First Mortgages
The following
charts detail the quarterly trends in delinquencies and net credit losses for
Citi's residential first mortgage portfolio in North America . As referenced in the "Overview" section above,
the majority of Citi's residential first mortgage exposure arises from its
portfolio within Citi Holdings – LCL .
Residential First Mortgages -
Citigroup In billions of dollars |
75
Residential First Mortgages -
Citi Holdings |
Residential First Mortgage
Delinquencies - Citi Holdings |
– Totals may not sum due to rounding.
– For each of the tables above, days past due exclude U.S. mortgage loans that are guaranteed by U.S. government agencies, because the potential loss predominantly resides with the U.S. agencies and loans recorded at fair value.
76
As
previously disclosed, management actions, including asset sales and modification
programs, have been the primary drivers of the improved asset performance within
Citi's residential first mortgage portfolio in Citi Holdings during the periods
presented above. With respect to asset sales, in total, Citi has sold
approximately $7.6 billion of delinquent first mortgages since the beginning of
2010, including $2.7 billion in 2011. As evidenced by the numbers above, the
pace of Citi's sales of residential first mortgages has slowed, primarily due to
the lack of remaining eligible inventory and demand.
Regarding modifications of residential first
mortgages, since the third quarter of 2009, Citi has permanently modified
approximately $6.1 billion of residential first mortgage loans under its HAMP
and CSM programs, two of Citi's more significant residential first mortgage
modification programs. (For additional information on Citi's significant
residential first mortgage loan modification programs, see "Consumer Loan
Modification Programs" below.) However, the pace of modification activity has
also slowed due to the
decrease in the inventory of
residential first mortgage loans available for modification, primarily as a
result of the significant levels of modifications in prior periods.
As a result of these two converging trends and as
set forth in the tables above, Citi's residential first mortgage delinquency
trends are beginning to show the impact of re-defaults of previously modified
mortgages, including an increase in the 90+ days past due delinquencies during
the fourth quarter of 2011, although the re-default rates for the HAMP and CSM
programs continued to track favorably versus expectations as of December 31, 2011. While net credit losses in
this portfolio decreased during the periods set forth above, if delinquencies
continue to increase, Citi could begin experiencing increasing net credit losses
in this portfolio going forward. Citi has taken these trends and uncertainties,
including the potential for re-defaults, into consideration in determining its loan loss
reserves. See " North America
Consumer Mortgages – Loan Loss Reserve Coverage" below.
Residential First Mortgages
– State Delinquency Trends
The
following tables set forth, for total Citigroup, the six states and/or regions
with the highest concentration of Citi's residential first mortgages as of
December 31, 2011 and December 31, 2010.
In billions of dollars | December 31, 2011 | December 31, 2010 | ||||||||||||||||
% | % | |||||||||||||||||
ENR | 90+DPD | LTV > | Refreshed | ENR | 90+DPD | LTV > | Refreshed | |||||||||||
State (1) | ENR | (2) Distribution | % | 100% | FICO | ENR | (2) Distribution | % | 100% | FICO | ||||||||
CA | $ | 22.6 | 28 | % | 2.7 | % | 38 | % | 727 | $ | 23.0 | 27 | % | 4.1 | % | 40 | % | 718 |
NY/NJ/CT | 11.2 | 14 | 4.9 | 10 | 712 | 9.7 | 12 | 6.6 | 13 | 693 | ||||||||
IN/OH/MI | 4.6 | 6 | 6.3 | 44 | 650 | 5.0 | 6 | 8.3 | 46 | 636 | ||||||||
FL | 4.3 | 5 | 10.2 | 57 | 668 | 4.7 | 6 | 12.2 | 59 | 656 | ||||||||
IL | 3.5 | 4 | 7.2 | 45 | 686 | 3.5 | 4 | 8.3 | 44 | 669 | ||||||||
AZ/NV | 2.3 | 3 | 5.7 | 73 | 698 | 2.6 | 3 | 8.2 | 73 | 688 | ||||||||
Other | 33.2 | 41 | 5.8 | 21 | 663 | 35.2 | 42 | 7.0 | 21 | 650 | ||||||||
Total | $ | 81.7 | 100 | % | 5.1 | % | 30 | % | 689 | $ | 83.7 | 100 | % | 6.6 | % | 32 | % | 675 |
(1) | Certain of the states are included as part of a region based on Citi's view of similar home prices (HPI) within the region. | |
(2) | Ending net receivables. Excludes loans in Canada and Puerto Rico, loans guaranteed by U.S. government agencies, loans recorded at fair value and loans subject to LTSCs. |
As evidenced by the tables above, Citi's residential first mortgages portfolio is primarily concentrated in California and the New York/New Jersey/Connecticut region (with New York as the largest of the three states). Year over year, the 90+ days past due delinquency rate improved across each of the states and regions shown in the tables. As referenced under "Citi Holdings-Residential First Mortgages" above, however, the vast majority of the improvement in these delinquency rates was driven by Citi's continued asset sales of delinquent mortgages. As asset sales have slowed, Citi has observed deterioration in 90+ days past due delinquencies for each of the states and/or regions above, including during the fourth quarter of 2011. Combined with the increase in the average number of days to foreclosure (see discussion under "Foreclosures" below) in all of these states and regions, Citi could experience continued deterioration in the 90+ days past due delinquency rate in these areas.
Foreclosures
As of
December 31, 2011, approximately 2.5% of Citi's residential first mortgage
portfolio was actively in the foreclosure process, which Citi refers to as its
"foreclosure inventory." This was down from 3.1% at December 31, 2010. The
decline in foreclosure inventory year over year was largely due to two separate
trends. First, during 2011, there were fewer residential first mortgages moving
into Citi's foreclosure inventory primarily as a result of Citi's continued
asset sales of delinquent first mortgages (as discussed above), as well as
increased state requirements for foreclosure filings. For example, certain
states have increased the number of pre-foreclosure filings and notices
required, including various requirements for affidavit filings and demand
letters (including the contents of such letters), as well as required additional
time to review a borrower's loss mitigation activities prior to permitting a
foreclosure filing. In addition, while Citi may generally begin
77
the foreclosure process when
loans are 90+ days past due, not all such loans become part of Citi's
foreclosure inventory as Citi may not refer such loans to foreclosure as it
continues to work with the borrower pursuant to its loss mitigation programs, or
for other reasons. This also decreased the number of residential first mortgages
moving into Citi's foreclosure inventory.
Second, while loans exited foreclosure
inventory during 2011, this was not necessarily due to completion of foreclosure
and sale. Loans may exit foreclosure inventory if Citi renews efforts to work
with the borrower pursuant to its loss mitigation programs, if the borrower
enters bankruptcy proceedings, if Citi decides not to pursue the foreclosure, or
for other reasons. In each of the circumstances described in the discussion
above, however, the loans continue to age through Citi's delinquency buckets and
remain part of its non-accrual assets.
In addition to the decline in the actual number of completed
foreclosures, the overall foreclosure process has lengthened. This is
particularly pronounced in judicial states (i.e., those states that require
foreclosures to be processed via court approval)-including New York, New Jersey,
Florida and Illinois-but has also occurred in non-judicial states where Citi has
a higher concentration of residential first mortgages (see "Residential First
Mortgages-State Delinquency Trends" above). The lengthening of the foreclosure
process is due to numerous factors, including without limitation the increased
state requirements referenced above, Citi's continued work with borrowers
through its various modification programs and the overall depressed state of
home sales in certain of Citi's high concentration markets. As one example of
the lengthening of the foreclosure process, Citi's aged foreclosure inventory
(active foreclosures in process for two years or more), as a proportion of
Citi's total foreclosure inventory, more than doubled year over year. While the
proportion of aged foreclosure inventory continued to represent a small portion
of the total (approximately 10%, as of December 31, 2011), Citi believes this
trend reflects the increased time involved in the foreclosure process, and
believes this trend could continue due, in part, to the issues discussed
above.
When combined with the
continued pressure on home prices, particularly in certain regions where Citi
has a higher concentration of residential first mortgages, this lengthening of
the foreclosure process also subjects Citi to increased "severity" risk, or the
magnitude of the loss on the amount ultimately realized for the property subject
to foreclosure, as well as increased ongoing costs related to the foreclosure
process, such as property maintenance.
North America Consumer
Mortgage Quarterly Credit Trends-Delinquencies and Net Credit Losses-Home Equity
Loans
Citi's home equity loan
portfolio consists of both fixed rate home equity loans and loans extended under
home equity lines of credit. Fixed rate home equity loans are fully amortizing.
Home equity lines of credit allow for amounts to be drawn for a period of time
and then, at the end of the draw period, the then-outstanding amount is
converted to an amortizing loan. After conversion, the loan typically has a
20-year amortization repayment period.
Historically, Citi's home equity lines of
credit typically had a 10-year draw period. Beginning in June 2010, Citi's new
originations of home equity lines of credit typically have a five-year draw
period as Citi changed these terms to mitigate risk due to the economic
environment and declining home prices. As of December 31, 2011, Citi's home
equity loan portfolio included approximately $25 billion of home equity lines of
credit that are still within their revolving period and have not commenced
amortization (the interest-only payment feature during the revolving period is
standard for this product across the industry). The vast majority of Citi's home
equity loans extended under lines of credit as of December 31, 2011 will
contractually begin to amortize after 2014.
As of December 31, 2011, the percentage of U.S. home equity loans in a
junior lien position where Citi also owned or serviced the first lien was
approximately 31%. However, for all home equity loans (regardless of whether
Citi owns or services the first lien), Citi manages its home equity loan account
strategy through obtaining and reviewing refreshed credit bureau scores (which
reflect the borrower's performance on all of its debts, including a first lien,
if any), refreshed LTV ratios and other borrower credit-related information.
Historically, the default and delinquency statistics for junior liens where Citi
also owns or services the first lien have been better than for those where Citi
does not own or service the first lien, which Citi believes is generally
attributable to origination channels and better credit characteristics of the
portfolio, including FICO and LTV, for those junior liens where Citi also owns
or services the first lien.
78
The following charts detail the quarterly trends in delinquencies and net credit losses for Citi's home equity loan portfolio in North America . Similar to Citi's residential first mortgage portfolio, the majority of Citi's home equity loan exposure arises from its portfolio within Citi Holdings – LCL .
Home Equity Loans -
Citigroup |
Home Equity Loans - Citi
Holdings |
Home Equity Loan Delinquencies -
Citi Holdings |
Notes:
– Totals may not sum due to rounding.
79
As evidenced by the tables above, the pace of improvement in home equity loan delinquencies has slowed or remained flat. Given the lack of market in which to sell delinquent home equity loans, as well as the relatively smaller number of home equity loan modifications and modification programs, Citi's ability to offset increased delinquencies and net credit losses in its home equity loan portfolio in Citi Holdings has been more limited as compared to residential first mortgages, as discussed above. Accordingly, Citi could begin to experience increased delinquencies and thus increased net credit losses
Home Equity Loans– State Delinquency
Trends
The following tables set
forth, for total Citigroup, the six states and/or regions with the highest
concentration of Citi's home equity loans as of December 31, 2011 and December
31, 2010.
In billions of dollars | December 31, 2011 | December 31, 2010 | |||||||||||||||||||||
% | % | ||||||||||||||||||||||
ENR | 90+DPD | LTV > | Refreshed | ENR | 90+DPD | LTV > | Refreshed | ||||||||||||||||
State (1) | ENR | (2) | Distribution | % | 100% | FICO | ENR | (2) | Distribution | % | 100% | FICO | |||||||||||
CA | $ | 11.2 | 27 | % | 2.3 | % | 50 | % | 721 | $ | 12.7 | 27 | % | 2.8 | % | 48 | % | 724 | |||||
NY/NJ/CT | 9.2 | 22 | 2.1 | 19 | 715 | 10.1 | 21 | 2.1 | 20 | 719 | |||||||||||||
FL | 2.8 | 7 | 3.3 | 69 | 698 | 3.2 | 7 | 3.9 | 68 | 698 | |||||||||||||
IL | 1.6 | 4 | 2.3 | 62 | 705 | 1.9 | 4 | 2.4 | 57 | 706 | |||||||||||||
IN/OH/MI | 1.5 | 4 | 2.6 | 66 | 678 | 1.8 | 4 | 3.3 | 64 | 671 | |||||||||||||
AZ/NV | 1.0 | 3 | 4.1 | 83 | 706 | 1.3 | 3 | 5.5 | 82 | 703 | |||||||||||||
Other | 13.7 | 33 | 2.3 | 46 | 695 | 16.3 | 34 | 2.4 | 44 | 693 | |||||||||||||
Total | $ | 41.0 | 100 | % | 2.4 | % | 45 | % | 707 | $ | 47.3 | 100 | % | 2.6 | % | 44 | % | 707 |
(1) | Certain of the states are included as part of a region based on Citi's view of similar home prices (HPI) within the region. | |
(2) | Ending net receivables. Excludes loans in Canada and Puerto Rico and loans subject to LTSCs. |
Similar to residential first mortgages (see "Residential First Mortgages-State Delinquency Trends" above), at December 31, 2011, Citi's home equity loan portfolio was primarily concentrated in California and the New York/New Jersey/Connecticut region. Year over year, 90+ days past due delinquencies improved or remained stable across each of the states and regions shown in the tables. See also "Consumer Mortgage FICO and LTV" below.
North America Consumer
Mortgages – Loan Loss Reserve Coverage
At December 31, 2011, approximately $9.8 billion
of Citi's total loan loss reserves of $30.1 billion was allocated to North America real estate lending in Citi Holdings,
representing approximately 31 months of coincident net credit loss coverage as
of such date. With respect to Citi's aggregate North America Consumer mortgage portfolio, including Citi
Holdings as well as the residential first mortgages and home equity loans in
Citicorp, Citi's loan loss reserves of $10.0 billion at December 31, 2011
represented 30 months of coincident net credit loss coverage.
Consumer Mortgage FICO and
LTV
As a consequence of the
financial crisis, economic environment and the decrease in housing prices, LTV
and FICO scores for Citi's residential first mortgage and home equity loan
portfolios have generally deteriorated since origination, particularly in the
case of originations between 2006 and 2007, although, as set forth in the tables
below, the negative migration has generally stabilized. Generally, on a
refreshed basis, approximately 30% of residential first mortgages had a LTV
ratio above 100%, compared to approximately 0% at origination. Similarly,
approximately 36% of residential first mortgages had FICO scores less than 660
on a refreshed basis, compared to 27% at origination. With respect to home
equity loans, approximately 45% of home equity loans had refreshed LTVs above
100%, compared to approximately 0% at origination. Approximately 24% of home
equity loans had FICO scores less than 660 on a refreshed basis, compared to 9%
at origination.
80
FICO and LTV Trend Information- North
America
Consumer Mortgages
Residential First Mortgages
In billions of
dollars
Residential Mortgage-90+ DPD % | 4Q10 | 1Q11 | 2Q11 | 3Q11 | 4Q11 |
FICO ≥ 660, LTV ≤ 100% | 0.3% | 0.4% | 0.3% | 0.3% | 0.4% |
FICO ≥ 660, LTV > 100% | 1.3% | 1.1% | 1.1% | 1.2% | 1.2% |
FICO < 660, LTV ≤ 100% | 12.8% | 11.0% | 9.8% | 10.0% | 10.7% |
FICO < 660, LTV > 100% | 20.4% | 16.6% | 15.3% | 14.9% | 16.5% |
Home Equity
Loans
In billions of
dollars
Home Equity-90+ DPD % | 4Q10 | 1Q11 | 2Q11 | 3Q11 | 4Q11 |
FICO ≥ 660, LTV ≤ 100% | 0.1% | 0.1% | 0.1% | 0.1% | 0.3% |
FICO ≥ 660, LTV > 100% | 0.3% | 0.3% | 0.1% | 0.1% | 0.2% |
FICO < 660, LTV ≤ 100% | 7.7% | 7.7% | 7.0% | 7.4% | 7.6% |
FICO < 660, LTV > 100% | 12.1% | 11.7% | 10.1% | 10.3% | 10.3% |
Notes: | |
– | Data appearing in the tables above have been sourced from Citi's risk systems and, as such, may not reconcile with disclosures elsewhere generally due to differences in methodology or variations in the manner in which information is captured. Citi has noted such variations in instances where it believes they could be material to reconcile to the information presented elsewhere. |
– | Tables exclude loans in Canada and Puerto Rico, loans guaranteed by U.S. government agencies (residential first mortgages table only), loans recorded at fair value (residential first mortgages table only) and loans subject to LTSCs. |
– | Balances exclude deferred fees/costs. |
– | Tables exclude balances for which FICO or LTV data is unavailable. For residential first mortgages, balances for which such data is unavailable includes $0.4 billion for 4Q10, $0.6 billion for 1Q11, and $0.4 billion in each of 2Q11, 3Q11 and 4Q11. For home equity loans, balances for which such data is unavailable includes $0.3 billion in 4Q10, $0.1 billion in 1Q11, $0.3 billion in 2Q11, $0.2 billion in 3Q11, and $0.2 billion in 4Q11. |
As
evidenced by the table above, the overall proportion of 90+ days past due
residential first mortgages with refreshed FICO scores of less than 660
decreased year over year. Citi believes that the deterioration in these 90+ days
past due delinquency ratios from third to fourth quarter 2011 reflects the
decline in Citi's asset sales of delinquent first mortgages, the lengthening of
the foreclosure process and the continued economic uncertainty, as discussed in
the sections above.
Although home equity loans are typically in junior lien positions and
residential first mortgages are typically in a first lien position, residential
first mortgages historically have experienced higher delinquency rates as
compared to home equity loans. Citi believes this difference is primarily due to
the fact that residential first mortgages are written down to collateral value
less cost to sell at 180 days past due and remain in the delinquency population
until full disposition through sale, repayment or foreclosure, whereas home
equity loans are generally fully charged off at 180 days past due and thus
removed from the delinquency calculation. In addition, due to the longer
timelines to foreclose on a residential first mortgage (see "Foreclosures"
above), these loans tend to remain in the delinquency statistics for a longer
period and, consequently, the 90 days or more delinquencies of these mortgages
remain higher.
Despite this historically
higher level of delinquencies for residential first mortgages, however, home
equity loan delinquencies have generally decreased at a slower rate than
residential first mortgage delinquencies. Citi believes this difference is due
primarily to the lack of a market to sell delinquent home equity loans and the
relatively smaller number of home equity loan modifications which, to date, have
been the primary drivers of Citi's first mortgage delinquency improvement (see
"North America Consumer Mortgage Quarterly Credit Trends-Delinquencies and Net
Credit Losses-Residential First Mortgages" above).
81
Mortgage Servicing Rights
To
minimize credit and liquidity risk, Citi sells most of the mortgage loans it originates, but retains the servicing rights.
These sale transactions create an intangible asset referred to as mortgage servicing rights (MSRs), which are recorded at
fair value on Citi's Consolidated Balance Sheet. The fair value of MSRs is primarily affected by changes in
prepayments of mortgages that result from shifts in mortgage interest rates. Specifically, the fair value of MSRs declines
with increased prepayments, and lower interest rates are generally one factor that tends to lead to increased prepayments.
In managing this risk, Citi economically hedges a significant portion of the value of its MSRs through the use of interest
rate derivative contracts, forward purchase commitments of mortgage-backed securities and purchased securities classified as Trading account assets .
Citi's
MSRs totaled $2.569 billion, $2.852 billion and $4.554 billion at December 31, 2011, September 30, 2011 and December 31,
2010, respectively. The decrease in the value of Citi's MSRs from year end 2010 to year end 2011 primarily represented
the impact from lower interest rates in addition to amortization.
For
additional information on Citi's MSRs, see Note 22 to the Consolidated Financial Statements.
North America Cards
As of December 31, 2011, Citi's North America cards portfolio consists of its Citi-branded portfolio in Citicorp -Global Consumer Banking and its retail partner cards portfolio in Citi Holdings -Local Consumer Lending . The substantial majority of the retail partner cards portfolio will be transferred to Citicorp- NA RCB , effective in the first quarter of 2012 (see "Executive Summary" and "Citi Holdings" above). As of December 31, 2011, the Citi-branded portfolio totaled $76 billion, while the retail partner cards portfolio was $43 billion.
See "Consumer Loan Modification Programs" below for a discussion of Citi's significant cards modification programs.
North America Cards
Quarterly Credit Trends-Delinquencies and Net Credit Losses
The following charts detail the quarterly trends
in delinquencies and net credit losses for Citigroup's North America Citi-branded and retail partner cards portfolios.
As evidenced by the charts, delinquencies and net credit losses continued to
improve during 2011. Citi currently expects some continued improvement in these
metrics, although at a slower pace as the portfolios
stabilize.
Citi-Branded Cards – Citigroup |
82
Retail Partner Cards – Citigroup |
North America Cards–Loan
Loss Reserve Coverage
At
December 31, 2011, approximately $10.1 billion of Citi's total loan loss
reserves of $30.1 billion was allocated to Citi's North America cards portfolios, representing over 17 months of
coincident net credit loss coverage as of such date.
83
CONSUMER LOAN DETAILS
Consumer Loan Delinquency Amounts and Ratios
Total | ||||||||||||||||||||||
loans | (7) | 90+ days past due | (1) | 30–89 days past due | (1) | |||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||
In millions of dollars, except EOP loan amounts in billions | 2011 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||
Citicorp (2)(3)(4) | ||||||||||||||||||||||
Total | $ | 246.6 | $ | 2,410 | $ | 3,101 | $ | 4,103 | $ | 2,880 | $ | 3,553 | $ | 4,338 | ||||||||
Ratio | 0.98 | % | 1.35 | % | 1.83 | % | 1.17 | % | 1.55 | % | 1.93 | % | ||||||||||
Retail banking | ||||||||||||||||||||||
Total | $ | 133.3 | $ | 736 | $ | 760 | $ | 805 | $ | 1,039 | $ | 1,146 | $ | 1,107 | ||||||||
Ratio | 0.56 | % | 0.66 | % | 0.75 | % | 0.79 | % | 0.99 | % | 1.03 | % | ||||||||||
North America | 38.9 | 235 | 228 | 106 | 213 | 212 | 81 | |||||||||||||||
Ratio | 0.63 | % | 0.76 | % | 0.33 | % | 0.57 | % | 0.71 | % | 0.25 | % | ||||||||||
EMEA | 4.2 | 58 | 84 | 129 | 93 | 136 | 223 | |||||||||||||||
Ratio | 1.38 | % | 2.00 | % | 2.48 | % | 2.21 | % | 3.24 | % | 4.29 | % | ||||||||||
Latin America | 24.0 | 221 | 223 | 311 | 289 | 265 | 344 | |||||||||||||||
Ratio | 0.92 | % | 1.09 | % | 1.71 | % | 1.20 | % | 1.30 | % | 1.89 | % | ||||||||||
Asia | 66.2 | 222 | 225 | 259 | 444 | 533 | 459 | |||||||||||||||
Ratio | 0.34 | % | 0.37 | % | 0.50 | % | 0.67 | % | 0.88 | % | 0.89 | % | ||||||||||
Citi-branded cards | ||||||||||||||||||||||
Total | $ | 113.3 | $ | 1,674 | $ | 2,341 | $ | 3,298 | $ | 1,841 | $ | 2,407 | $ | 3,231 | ||||||||
Ratio | 1.48 | % | 2.05 | % | 2.81 | % | 1.62 | % | 2.11 | % | 2.75 | % | ||||||||||
North America | 75.9 | 1,004 | 1,597 | 2,371 | 1,062 | 1,539 | 2,182 | |||||||||||||||
Ratio | 1.32 | % | 2.06 | % | 2.82 | % | 1.40 | % | 1.99 | % | 2.59 | % | ||||||||||
EMEA | 2.7 | 44 | 58 | 85 | 59 | 72 | 140 | |||||||||||||||
Ratio | 1.63 | % | 2.07 | % | 2.83 | % | 2.19 | % | 2.57 | % | 4.67 | % | ||||||||||
Latin America | 13.7 | 412 | 446 | 565 | 399 | 456 | 556 | |||||||||||||||
Ratio | 3.01 | % | 3.33 | % | 4.56 | % | 2.91 | % | 3.40 | % | 4.48 | % | ||||||||||
Asia | 21.0 | 214 | 240 | 277 | 321 | 340 | 353 | |||||||||||||||
Ratio | 1.02 | % | 1.18 | % | 1.55 | % | 1.53 | % | 1.67 | % | 1.97 | % | ||||||||||
Citi Holdings- Local Consumer Lending (2)(3)(5)(6) | ||||||||||||||||||||||
Total | $ | 176.0 | $ | 6,971 | $ | 10,216 | $ | 18,457 | $ | 6,340 | $ | 9,396 | $ | 14,105 | ||||||||
Ratio | 4.18 | % | 4.76 | % | 6.11 | % | 3.80 | % | 4.38 | % | 4.67 | % | ||||||||||
International | 10.8 | 422 | 657 | 1,362 | 498 | 848 | 1,482 | |||||||||||||||
Ratio | 3.91 | % | 3.00 | % | 4.22 | % | 4.61 | % | 3.87 | % | 4.59 | % | ||||||||||
North America retail partner cards | 42.8 | 1,054 | 1,601 | 2,681 | 1,282 | 1,685 | 2,674 | |||||||||||||||
Ratio | 2.46 | % | 3.45 | % | 4.42 | % | 3.00 | % | 3.63 | % | 4.41 | % | ||||||||||
North America (excluding cards) | 122.4 | 5,495 | 7,958 | 14,414 | 4,560 | 6,863 | 9,949 | |||||||||||||||
Ratio | 4.85 | % | 5.43 | % | 6.89 | % | 4.03 | % | 4.68 | % | 4.76 | % | ||||||||||
Total Citigroup (excluding Special Asset Pool ) | $ | 422.6 | $ | 9,381 | $ | 13,317 | $ | 22,560 | $ | 9,220 | $ | 12,949 | $ | 18,443 | ||||||||
Ratio | 2.28 | % | 3.00 | % | 4.29 | % | 2.24 | % | 2.92 | % | 3.50 | % |
(1) | The ratios of 90+ days past due and 30–89 days past due are calculated based on end-of-period (EOP) loans. | |
(2) | The 90+ days past due balances for Citi-branded cards and retail partner cards are generally still accruing interest. Citigroup's policy is generally to accrue interest on credit card loans until 180 days past due, unless notification of bankruptcy filing has been received earlier. | |
(3) | Periods prior to January 1, 2010 are presented on a managed basis. Citigroup adopted SFAS 166/167 effective January 1, 2010. As a result, beginning in the first quarter of 2010, there is no longer a difference between reported and managed delinquencies. Prior years' managed delinquencies are included herein for comparative purposes to the 2010 delinquencies. Managed basis reporting historically impacted the North America Regional Consumer Banking -Citi-branded cards and the LCL -retail partner cards businesses. The historical disclosures reflect the impact from credit card securitizations only. See discussion of adoption of SFAS 166/167 in Note 1 to the Consolidated Financial Statements. | |
(4) | The 90+ days and 30–89 days past due and related ratios for North America Regional Consumer Banking exclude U.S. mortgage loans that are guaranteed by U.S. government agencies since the potential loss predominantly resides within the U.S. agencies. The amounts excluded for loans 90+ days past due and (EOP loans) are $611 million ($1.3 billion) and $235 million ($0.8 billion) at December 31, 2011 and December 31, 2010, respectively. The amounts excluded for loans 30–89 days past due (end-of-period loans have the same adjustment as above) are $121 million and $30 million, as of December 31, 2011 and December 31, 2010, respectively. | |
(5) | The 90+ days and 30–89 days past due and related ratios for North America LCL (excluding cards) exclude U.S. mortgage loans that are guaranteed by U.S. government agencies since the potential loss predominantly resides within the U.S. agencies. The amounts excluded for loans 90+ days past due and (EOP loans) for each period are $4.4 billion ($7.9 billion), $5.2 billion ($8.4 billion), and $5.4 billion ($9.0 billion) at December 31, 2011, December 31, 2010, and December 31, 2009, respectively. The amounts excluded for loans 30–89 days past due (end-of-period loans have the same adjustment as above) for each period are $1.5 billion, $1.6 billion, and $1.0 billion, as of December 31, 2011, December 31, 2010, and December 31, 2009, respectively. | |
(6) | The December 31, 2011 and December 31, 2010 loans 90+ days past due and 30–89 days past due and related ratios for North America (excluding cards) exclude $1.3 billion and $1.7 billion, respectively, of loans that are carried at fair value. | |
(7) | Total loans include interest and fees on credit cards. |
84
Consumer Loan Net Credit Losses and Ratios
Average | |||||||||||||
loans | (1) | Net credit losses | (2) | ||||||||||
In millions of dollars, except average loan amounts in billions | 2011 | 2011 | 2010 | 2009 | |||||||||
Citicorp | |||||||||||||
Total | $ | 236.5 | $ | 7,688 | $ | 11,216 | $ | 5,395 | |||||
Add: impact of credit card securitizations (3) | - | - | 6,931 | ||||||||||
Managed NCL | 7,688 | 11,216 | 12,326 | ||||||||||
Ratio | 3.25 | % | 5.11 | % | 5.63 | % | |||||||
Retail banking | |||||||||||||
Total | $ | 126.3 | $ | 1,174 | $ | 1,267 | $ | 1,555 | |||||
Ratio | 0.93 | % | 1.16 | % | 1.48 | % | |||||||
North America | 34.5 | 300 | 339 | 311 | |||||||||
Ratio | 0.87 | % | 1.11 | % | 0.90 | % | |||||||
EMEA | 4.4 | 87 | 167 | 287 | |||||||||
Ratio | 1.99 | % | 3.88 | % | 5.17 | % | |||||||
Latin America | 22.6 | 475 | 439 | 512 | |||||||||
Ratio | 2.10 | % | 2.35 | % | 3.08 | % | |||||||
Asia | 64.8 | 312 | 322 | 445 | |||||||||
Ratio | 0.48 | % | 0.58 | % | 0.92 | % | |||||||
Citi-branded cards | |||||||||||||
Total | $ | 110.2 | $ | 6,514 | $ | 9,949 | $ | 3,840 | |||||
Add: impact of credit card securitizations (3) | - | - | 6,931 | ||||||||||
Managed NCL | 6,514 | 9,949 | 10,771 | ||||||||||
Ratio | 5.92 | % | 9.04 | % | 9.46 | % | |||||||
North America | 73.1 | 4,649 | 7,680 | 841 | |||||||||
Add: impact of credit card securitizations (3) | - | - | 6,931 | ||||||||||
Managed NCL | 4,649 | 7,680 | 7,772 | ||||||||||
Ratio | 6.36 | % | 10.02 | % | 9.41 | % | |||||||
EMEA | 2.9 | 85 | 149 | 185 | |||||||||
Ratio | 2.98 | % | 5.32 | % | 6.55 | % | |||||||
Latin America | 13.7 | 1,209 | 1,429 | 1,920 | |||||||||
Ratio | 8.82 | % | 11.67 | % | 16.10 | % | |||||||
Asia | 20.5 | 571 | 691 | 894 | |||||||||
Ratio | 2.78 | % | 3.77 | % | 5.42 | % | |||||||
Citi Holdings- Local Consumer Lending | |||||||||||||
Total | $ | 199.7 | $ | 10,659 | $ | 17,040 | $ | 19,185 | |||||
Add: impact of credit card securitizations (3) | - | - | 4,590 | ||||||||||
Managed NCL | 10,659 | 17,040 | 23,775 | ||||||||||
Ratio | 5.34 | % | 6.20 | % | 7.03 | % | |||||||
International | 16.8 | 1,057 | 1,927 | 3,521 | |||||||||
Ratio | 6.30 | % | 7.36 | % | 9.18 | % | |||||||
North America retail partner cards | 42.1 | 3,609 | 6,564 | 3,485 | |||||||||
Add: impact of credit card securitizations (3) | - | - | 4,590 | ||||||||||
Managed NCL | 3,609 | 6,564 | 8,075 | ||||||||||
Ratio | 8.58 | % | 12.82 | % | 12.77 | % | |||||||
North America (excluding cards) | 140.8 | 5,993 | 8,549 | 12,179 | |||||||||
Ratio | 4.25 | % | 4.33 | % | 5.15 | % | |||||||
Total Citigroup (excluding Special Asset Pool ) | $ | 436.2 | $ | 18,347 | $ | 28,256 | $ | 24,580 | |||||
Add: impact of credit card securitizations (3) | - | - | 11,521 | ||||||||||
Managed NCL | 18,347 | 28,256 | 36,101 | ||||||||||
Ratio | 4.21 | % | 5.72 | % | 6.48 | % |
(1) | Average loans include interest and fees on credit cards. | |
(2) | The ratios of net credit losses are calculated based on average loans, net of unearned income. | |
(3) | See Note 1 to the Consolidated Financial Statements for a discussion of the impact of SFAS 166/167. |
85
Consumer Loan Modification
Programs
Citi has instituted a
variety of loan modification programs to assist its borrowers with financial
difficulties. Under these programs, the largest of which are predominately
long-term modification programs targeted at residential first mortgage
borrowers, the original loan terms are modified. Substantially all of these
programs incorporate some form of interest rate reduction; other concessions may
include reductions or waivers of accrued interest or fees, loan tenor extensions
and/or the deferral or forgiveness of
principal.
Loans modified under long-term modification programs (as well as
short-term modifications originated since January 1, 2011) that provide
concessions to borrowers in financial difficulty are reported as troubled debt
restructurings (TDRs). Accordingly, loans modified under the programs described
below, including modifications under short-term programs since January 1, 2011,
are TDRs. These TDRs are concentrated in the U.S. See Note 16 to the
Consolidated Financial Statements for a discussion of TDRs and Note 1 to the
Consolidated Financial Statements for a discussion of the allowance for loan
losses for these loans.
A summary of Citi's more significant U.S. modification programs
follows:
HAMP. The HAMP is a long-term modification program designed to reduce monthly residential first mortgage payments to a 31% housing debt ratio (monthly mortgage payment, including property taxes, insurance and homeowner dues, divided by monthly gross income) by lowering the interest rate, extending the term of the loan and deferring or forgiving (either on an absolute or contingent basis) principal of certain eligible borrowers who have defaulted on their mortgages or who are at risk of imminent default due to economic hardship. The interest rate reduction for residential first mortgages under HAMP is in effect for five years and the rate then increases up to 1% per year until the interest rate cap (the lower of the original rate or the Freddie Mac Weekly Primary Mortgage Market Survey rate for a 30-year fixed rate conforming loan as of the date of the modification) is reached. In order to be entitled to a HAMP loan modification, borrowers must provide the required documentation and complete a trial period (generally three months) by making the agreed payments.
Historically, Citi accounted for modifications under HAMP as TDRs when the borrower successfully completed the trial period and the loan was permanently modified. Effective in the fourth quarter of 2011, trial modifications are reported as TDRs at the beginning of the trial period. Accordingly, all loans in HAMP trials as of the end of 2011 are reported as TDRs.
Citi Supplemental. The Citi Supplemental (CSM) program is a long-term modification program designed to assist residential first mortgage borrowers ineligible for HAMP or who become ineligible through the HAMP trial period process. If the borrower already has less than a 31% housing debt
FHA/VA. Loans guaranteed by the FHA or VA are modified through the modification process required by those respective agencies and are long-term modification programs. Borrowers must be delinquent, and concessions include interest rate reductions, principal forgiveness, extending maturity dates, and forgiving accrued interest and late fees. The interest rate reduction is in effect for the remaining loan term. Losses on FHA loans are borne by the sponsoring agency, provided that the insurance terms have not been rescinded as a result of an origination defect. The VA establishes a loan-level loss cap, beyond which Citi is liable for loss. Historically, Citi's losses on FHA and VA loans have been negligible.
Responsible Lending. Citi's Responsible Lending program is a long-term modification program designed to assist current residential first mortgage borrowers unable to refinance their loan due to negative equity in their home and/or other borrower characteristics. These loans are not eligible for modification under HAMP or CSM. This program is designed to provide payment relief based on a floor interest rate by product type. All adjustable rate and interest only loans are converted to fixed rate, amortizing loans for the remaining mortgage term.
CFNA Permanent Mortgage Adjustment of Terms. This long-term modification program is targeted to CitiFinancial's (part of Citi Holdings – LCL ) consumer finance residential mortgage borrowers with a permanent hardship. Payment reduction is provided through the re-amortization of the remaining loan balance, typically at a lower interest rate. Modified loan tenors may not exceed a period of 480 months. Generally, the rescheduled payment cannot be less than 50% of the original payment amount unless the adjustment of terms is a result of participation in the CitiFinancial Home Affordability Modification Program (CHAMP) (terminated August 2010), or as a result of settlement, court order, judgment or bankruptcy. Borrowers must make a qualifying payment at the reduced payment amount in order to qualify for the modification. In addition, borrowers must provide income and employment verification, and monthly obligations are validated through an updated credit report.
86
CFNA Temporary Mortgage Adjustment of Terms. This short-term modification program is similar to the long-term program discussed above, but is targeted to CitiFinancial's consumer finance borrowers with a temporary hardship. Under this program, which can include both an interest rate reduction and a term extension, the interest rate is reduced for either a five- or an eleven-month period. At the end of the temporary modification period, the interest rate reverts to the pre-modification rate. Similar to the long-term program, borrowers must make a payment at the reduced payment amount prior to the adjustment of terms being processed to qualify, and they must meet the verification and validation requirements discussed above. If the customer is still undergoing hardship at the conclusion of the temporary payment reduction, an extension of the temporary terms can be considered in either of the time period increments above, to a maximum of 24 months. In cases where the account is over 60 days past due at the expiration of the temporary modification period, the terms of the modification are made permanent and the payment is kept at the reduced amount for the remaining life of the loan.
Credit Cards
Credit card long-term modification programs. Citi's long-term modification
programs for its Citi-branded and retail partner cards borrowers are designed to
liquidate a borrower's balance within 60 months. These programs are available to
borrowers who indicate a long-term hardship. Payment requirements are decreased
by reducing interest rates charged to either 9.9% or 0%, depending on the
borrower's situation, and are designed to fully amortize the balance. Under
these programs, fees are discontinued and charging privileges are permanently
rescinded.
Universal Payment
Program (UPP). The UPP is a
short-term cards modification program offered to Citi-branded and retail partner
cards borrowers and provides short-term interest rate reductions to assist
borrowers experiencing temporary hardships. Under this program, a participant's
APR is reduced by at least 500 basis points for a period of up to 12 months. The
minimum payment is established based upon the borrower's specific circumstances
and is designed to amortize at least 1% of the principal balance each month. The
participant's APR returns to its original rate at the end of the program or
earlier upon failure to make the required payments.
Modification
Programs-Summary
The following
table sets forth, as of December 31, 2011, information relating to Citi's
significant U.S. loan modification programs.
Average | Average | ||||||||||||||
Program | interest rate | Average % | tenor of | Deferred | Principal | ||||||||||
In millions of dollars | balance | reduction | payment relief | modified loans | principal | forgiveness | |||||||||
U.S. Consumer mortgage lending | |||||||||||||||
HAMP | $ | 4,282 | 4 | % | 41 | % | 30 years | $ | 558 | $ | 7 | ||||
CSM | 2,061 | 3 | 21 | 26 years | 94 | 1 | |||||||||
FHA/VA | 4,117 | 2 | 18 | 28 years | - | - | |||||||||
CFNA Adjustment of Terms (AOT) | 3,796 | 3 | 23 | 29 years | - | - | |||||||||
Responsible Lending | 1,694 | 2 | 18 | 28 years | - | - | |||||||||
CFNA Temporary Mortgage AOT | 1,570 | 2 | N/A | N/A | - | - | |||||||||
North America cards | |||||||||||||||
Long-term modification programs | 5,035 | 15 | - | 5 years | - | - | |||||||||
UPP | 515 | 20 | N/A | N/A | - | - |
87
Consumer Mortgage-Representations and
Warranties
The majority of
Citi's exposure to representation and warranty claims relates to its U.S.
Consumer mortgage business within CitiMortgage.
CitiMortgage Servicing
Portfolio
As of December 31,
2011, Citi services loans previously sold to the U.S. government sponsored
entities (GSEs) and private investors as follows:
In millions | December 31, 2011 | (1) | ||||
Unpaid | ||||||
Vintage sold (2) : | Number of loans | principal balance | ||||
2005 and prior | 1.4 | $ | 141,122 | |||
2006 | 0.3 | 43,040 | ||||
2007 | 0.2 | 40,080 | ||||
2008 | 0.3 | 39,279 | ||||
2009 | 0.2 | 45,811 | ||||
2010 | 0.2 | 40,474 | ||||
2011 | 0.2 | 46,501 | ||||
Total | 2.8 | $ | 396,307 |
(1) | Excludes the fourth quarter 2010 sale of servicing rights on 0.1 million loans with remaining unpaid principal balances of approximately $24,843 million as of December 31, 2011. Citi continues to be exposed to representation and warranty claims on these loans. | |
(2) | Includes 0.7 million loans with remaining unpaid principal balance of approximately $80,690 million as of December 31, 2011 that are serviced by CitiMortgage pursuant to prior acquisitions of mortgage servicing rights. These loans are covered by indemnification agreements from third parties in favor of CitiMortgage; however, substantially all of these agreements will expire prior to March 1, 2012. The expiration of these indemnification agreements is considered in determining the repurchase reserve. |
As previously disclosed, during the period 2005 through 2008, Citi sold approximately $25 billion of loans through private-label residential mortgage securitizations. As of December 31, 2011, approximately $11 billion of the $25 billion remained outstanding as a result of repayments of approximately $13 billion and cumulative losses (incurred by the issuing trusts) of approximately $1 billion. The remaining $11 billion outstanding is included in the $396 billion of serviced loans above. As of December 31, 2011, the amount that remained outstanding had a 90 days or more delinquency rate in the aggregate of approximately 12.9%. For information on litigation related to these and other Citi securitization activities, see " Securities and Banking -Sponsored Private-Label Residential Mortgage Securitizations-Representations and Warranties" below and Note 29 to the Consolidated Financial Statements.
Representations and
Warranties
When selling a
loan, Citi makes various representations and warranties relating to, among other
things, the following:
The specific representations and warranties made by Citi depend on the nature of the transaction and the requirements of the buyer. Market conditions and credit-rating agency requirements may also affect representations and warranties and the other provisions to which Citi may agree in loan sales.
Repurchases or "Make-Whole"
Payments
In the event of a
breach of these representations and warranties, Citi may be required to either
repurchase the mortgage loans with the identified defects (generally at unpaid
principal balance plus accrued interest) or indemnify ("make-whole") the
investors for their losses. Citi's representations and warranties are generally
not subject to stated limits in amount or time of coverage.
Similar to 2010, during 2011, issues related to
(i) misrepresentation of facts by either the borrower or a third party (e.g.,
income, employment, debts, FICO, etc.), (ii) appraisal issues (e.g., an error or
misrepresentation of value), and (iii) program requirements (e.g., a loan that
does not meet investor guidelines, such as contractual interest rate) have been
the primary drivers of Citi's repurchases and make-whole payments. However, the
type of defect that results in a repurchase or make-whole payment has continued
and will continue to vary over time. More importantly, there has not been a
meaningful difference in Citi's incurred or estimated loss for any particular
type of defect.
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 ). 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.
88
The unpaid principal balance of loans repurchased due to representation and warranty claims for the years ended December 31, 2011 and 2010, respectively, was as follows:
December 31, 2011 | December 31, 2010 | |||||
Unpaid principal | Unpaid principal | |||||
In millions of dollars | balance | balance | ||||
GSEs | $ | 505 | $ | 280 | ||
Private investors | 8 | 26 | ||||
Total | $ | 513 | $ | 306 |
As evidenced in the tables above, Citi's repurchases have primarily been from the GSEs. In addition to the amounts set forth in the tables above, Citi recorded make-whole payments of $530 million and $310 million for the years ended December 31, 2011 and 2010, respectively.
Repurchase
Reserve
Citi has recorded a
reserve for its exposure to losses from the obligation to repurchase or
make-whole payments in respect of previously sold loans (referred to as the
repurchase reserve) that is included in Other liabilities in the
Consolidated Balance Sheet. In estimating the repurchase reserve, Citi considers
reimbursements estimated to be received from third-party correspondent lenders
and indemnification agreements relating to previous acquisitions of mortgage
servicing rights. The estimated reimbursements are based on Citi's analysis of
its most recent collection trends and the financial solvency of the
correspondents.
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 .
The repurchase reserve is calculated by individual
sales vintage (i.e., the year the loans were sold). During 2011, the majority of
Citi's repurchases continued to be from the 2006 through 2008 sales vintages,
which also represented the vintages with the largest loss severity. An
insignificant percentage of repurchases have been from vintages prior to 2006,
and Citi continues to believe that this percentage will continue to decrease, as
those vintages are later in the credit cycle. Although still early in the credit
cycle, Citi continued to experience lower repurchases and loss per repurchase or
make-whole from post-2008 sales vintages.
The repurchase reserve is based on various assumptions. These assumptions contain a level of uncertainty and risk that, if different from actual results, could have a material impact on the reserve amounts (see "Sensitivity of Repurchase Reserve" below). The most significant assumptions used to calculate the reserve levels are as follows:
Loan documentation requests: Assumptions regarding future expected loan documentation requests exist as a means to predict future repurchase claim trends. These assumptions are based on recent historical trends in loan documentation requests, recent trends in historical delinquencies, forecasted delinquencies and general industry knowledge about the current repurchase environment. During 2011, the actual number of loan documentation requests declined as compared to 2010. However, because such requests remain elevated from historical levels, and because of the continued increased focus on mortgage-related matters, the assumption for estimated future loan documentation requests increased during 2011. Citi currently believes the level of actual loan documentation requests will remain elevated from historical levels and will continue to be volatile.Repurchase claims as a percentage of loan documentation requests: Given that loan documentation requests are a potential indicator of future repurchase claims, an assumption is made regarding the conversion rate from loan documentation requests to repurchase claims, which assumption is based on historical performance. During 2011, the conversion rate, or the number of repurchase claims as a percentage of loan documentation requests, increased as compared to 2010, and thus the assumption regarding future repurchase claims also increased. Citi currently believes the claims as a percentage of loan documentation requests will remain at elevated levels.
Claims appeal success rate: This assumption represents Citi's expected success at rescinding a claim by satisfying the demand for more information, disputing the claim validity, or similar matters. This assumption is based on recent historical successful appeals rates, which can fluctuate based on changes in the validity or composition of claims. During 2011, Citi's appeal success rate remained stable as compared to 2010, meaning approximately half of the repurchase claims were successfully appealed and resulted in no loss to Citi.
Estimated loss per repurchase or make-whole: The assumption of the estimated loss per repurchase or make-whole payment is based on actual and estimated losses of recent historical repurchases/make-whole payments calculated for each sales vintage year in order to capture volatile housing price highs and lows. The estimated loss per repurchase or make-whole payment assumption is also impacted by estimates of loan size at the time of repurchase or make-whole payment. During 2011, the severity of losses increased slightly as compared to 2010, but was more than offset by the reduction in loan size, resulting in a decline in the actual loss per repurchase or make-whole payment. Citi would expect to continue to see reductions in loan size, including for the 2006 to 2008 sales vintages, as the loans continue to amortize through the loan cycle.
89
In sum, the increase in estimated future loan documentation requests and repurchase claims as a percentage of loan documentation requests were the primary drivers of the $948 million increase in estimate for the repurchase reserve during 2011. These factors were also the primary drivers of the $305 million increase in estimate during the fourth quarter of 2011.
The table below sets forth the activity in the repurchase reserve for the years ended December 31, 2011 and 2010:
In millions of dollars | Dec. 31, 2011 | Dec. 31, 2010 | |||||
Balance, beginning of period | $ | 969 | $ | 482 | |||
Additions for new sales | 20 | 16 | |||||
Change in estimate | 948 | 917 | |||||
Utilizations | (749 | ) | (446 | ) | |||
Balance, end of period | $ | 1,188 | $ | 969 |
The activity in the repurchase reserve for the three months ended December 31, 2011 was as follows:
In millions of dollars | Dec. 31, 2011 | ||
Balance, beginning of period | $ | 1,076 | |
Additions for new sales | 7 | ||
Change in estimate | 305 | ||
Utilizations | (200 | ) | |
Balance, end of period | $ | 1,188 |
Sensitivity of Repurchase
Reserve
As discussed above,
the repurchase reserve estimation process is subject to numerous estimates and
judgments. The assumptions used to calculate the repurchase reserve contain a
level of uncertainty and risk that, if different from actual results, could have
a material impact on the reserve amounts. For example, Citi estimates that if
there were a simultaneous 10% adverse change in each of the significant
assumptions noted above, the repurchase reserve would increase by approximately
$620 million as of December 31, 2011. This potential change is hypothetical and
intended to indicate the sensitivity of the repurchase reserve to changes in the
key assumptions. Actual changes in the key assumptions may not occur at the same
time or to the same degree (i.e., an adverse change in one assumption may be
offset by an improvement in another). Citi does not believe it has sufficient
information to estimate a range of reasonably possible loss (as defined under
ASC 450) relating to its Consumer representations and warranties.
Representation and Warranty
Claims-By Claimant
For the
GSEs, Citi's response (i.e., agree or disagree to repurchase or make-whole) to
any repurchase claim is required within 90 days of receipt of the claim. If Citi
does not respond within 90 days, the claim is subject to discussions between
Citi and the particular GSE. For private investors, the time period for
responding to any repurchase claim is governed by the individual sale agreement;
however, if the specified timeframe is exceeded, the investor may choose to
initiate legal action. As of December 31, 2011, no such legal action has been
initiated by private investors.
The representation and warranty claims by claimant, as well as the number
of unresolved claims by claimant, for the years ended December 31, 2011 and
2010, respectively, were as follows:
Claims during | Unresolved claims as of: | |||||||||||||||||||
2011 | 2010 | December 31, 2011 | December 31, 2010 | |||||||||||||||||
Original | Original | Original | Original | |||||||||||||||||
Number | principal | Number | principal | Number | principal | Number | principal | |||||||||||||
In millions of dollars | of claims | balance | of claims | balance | of claims | balance | of claims | balance | ||||||||||||
GSEs | 13,584 | $ | 2,930 | 11,520 | $ | 2,433 | 5,344 | $ | 1,148 | 5,257 | $ | 1,123 | ||||||||
Private investors | 1,649 | 331 | 1,221 | 313 | 651 | 122 | 581 | 128 | ||||||||||||
Mortgage insurers (1) | 729 | 164 | 274 | 60 | 62 | 15 | 78 | 17 | ||||||||||||
Total (2) | 15,962 | $ | 3,425 | 13,015 | $ | 2,806 | 6,057 | $ | 1,285 | 5,916 | $ | 1,268 |
(1) | Represents the insurer's rejection of a claim for loss reimbursement that has yet to be resolved. To the extent that mortgage insurance will not cover the claim on a loan, Citi may have to make the GSE or private investor whole. As of December 31, 2011, approximately $31 billion of the total servicing portfolio of $396 billion has insurance through mortgage insurance companies. Failure to collect from mortgage insurers is considered in determining the repurchase reserve. Citi does not believe inability to collect reimbursement from mortgage insurers would have a material impact on its repurchase reserve. | |
(2) | Includes 1,738 and 2,914 claims, and $291 million and $612 million of original principal balance for claims during the years ended December 31, 2011 and 2010, respectively, and 633 and 1,333, and $123 million and $267 million of original principal balance for unresolved claims as of December 31, 2011 and 2010, respectively, that are serviced by CitiMortgage pursuant to prior acquisitions of mortgage servicing rights. These loans are covered by indemnification agreements from third parties in favor of CitiMortgage; however, substantially all of these agreements will expire prior to March 1, 2012. The expiration of these indemnification agreements is considered in determining the repurchase reserve. |
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Securities and Banking- Sponsored Legacy Private-Label Residential Mortgage Securitizations-Representations and Warranties
Overview
Citi is also exposed to representation and
warranty claims through residential mortgage securitizations that had been sponsored by Citi's S&B business.
However, S&B -sponsored legacy securitizations have represented a much smaller portion of Citi's business than
Citi's Consumer residential mortgage business discussed above.
As
previously disclosed, during the period 2005 through 2008, S&B had sponsored approximately $66.5 billion in
legacy private-label mortgage-backed securitization transactions that were backed by loan collateral composed of
approximately $15.5 billion prime, $12.4 billion Alt-A and $38.6 billion subprime residential mortgage loans. As of December
31, 2011, approximately $23.4 billion of this amount remains outstanding as a result of repayments of approximately $34.5
billion and cumulative losses (incurred by the issuing trusts) of approximately $8.7 billion (of which approximately $6.6
billion related to subprime loans). Of the amount remaining outstanding, approximately $6.1 billion is backed by prime
residential mortgage collateral at origination, approximately $4.9 billion by Alt-A and approximately $12.3 billion by
subprime. As of December 31, 2011, the $23.4 billion remaining outstanding had a 90 days or more delinquency rate of
approximately 27.2%.
The
mortgages included in these securitizations were purchased from parties outside of Citi; fewer than 2% of the mortgages
underlying the transactions outstanding as of December 31, 2011 were originated by Citi. In addition, fewer than 10% of the
mortgages are serviced by Citi. (The mortgages serviced by Citi are included in the $396 billion of residential mortgage loans referenced under "Consumer Mortgage-Representations and Warranties" above.)
Representation and Warranties
In connection with these securitization transactions, representations and warranties (representations) relating to the mortgages
included in each trust issuing the securities were made either by Citi, by third-party sellers (Selling Entities, which were also
often the originators of the loans), or both. These representations were generally made or assigned to the issuing trust and related
to, among other things, the following:
The specific representations
relating to the mortgages in each securitization varied, however, depending on
various factors such as the Selling Entity, rating agency requirements and
whether the mortgages were considered prime, Alt-A or subprime in credit
quality.
In the event of a breach of its representations, Citi may be required
either to repurchase the mortgage with the identified defects (generally at
unpaid principal balance plus accrued interest) or indemnify the investors for
their losses through make-whole payments. For securitizations in which Citi made
representations, Citi generally also received from the Selling Entities similar
representations, with the exception of certain limited representations required
by, among others, the rating agencies. In cases where Citi made representations
and also received the same representations from the Selling Entity for a
particular loan, if Citi receives a claim based on breach of those
representations in respect of the loan, it may have a contractual right to
pursue a similar (back-to-back) claim against the Selling Entity (see discussion
below). If only the Selling Entity made representations with respect to a
particular loan, then only the Selling Entity should be responsible for a claim
based on breach of the representations.
For the majority of the securitizations where Citi made representations
and received similar representations from Selling Entities, Citi currently
believes that with respect to the securitizations backed by prime and Alt-A
collateral, if it received a repurchase claim for those loans, it would have
back-to-back claims against the Selling Entities that the Selling Entities would
likely be in a position to honor. However, for the significant majority of the
subprime collateral where Citi has back-to-back claims against Selling Entities,
Citi believes that those Selling Entities would be unlikely to honor
back-to-back claims because they are in bankruptcy, liquidation, or financial
distress. In those situations, in the event that claims for breaches of
representations were made against Citi, the Selling Entities' financial
condition might preclude Citi from obtaining back-to-back recoveries from
them.
To date, Citi has received actual claims for breaches of representations
relating to only a small percentage of the mortgages included in these
securitization transactions, although the pace of claims remains volatile and
has recently increased. Citi has also experienced an increase in the level of
inquiries, assertions and requests for loan files, among other matters, relating
to the above securitization transactions from trustees of securitization trusts
and others. Trustee activities have been prompted in part by lawsuits and other
actions by investors. Given the continued increased focus on mortgage-related
matters, as well as the increasing level of litigation and regulatory activity
relating to mortgage loans and mortgage-backed securities, the level of
inquiries and assertions regarding these securitizations may further increase.
These inquiries and assertions could lead to actual claims for breaches of
representations, or to litigation relating to such breaches or other matters.
For information on litigation, claims and regulatory proceedings regarding these
and other S&B mortgage-related activities, see Note 29 to the Consolidated
Financial Statements.
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CORPORATE LOAN
DETAILS
For corporate clients
and investment banking activities across Citigroup, the credit process is
grounded in a series of fundamental policies, in addition to those described
under "Managing Global Risk-Risk Management-Overview," above. These
include:
Corporate Credit
Portfolio
The following table
represents the Corporate credit portfolio (excluding private banking), before
consideration of collateral, by maturity at December 31, 2011. The Corporate
portfolio is broken out by direct outstandings, which include drawn loans,
overdrafts, interbank placements, bankers' acceptances and leases, and unfunded
commitments, which include unused commitments to lend, letters of credit and
financial guarantees.
At December 31, 2011 | At December 31, 2010 | |||||||||||||||||||||||
Greater | Greater | |||||||||||||||||||||||
Due | than 1 year | Greater | Due | than 1 year | Greater | |||||||||||||||||||
within | but within | than | Total | within | but within | than | Total | |||||||||||||||||
In billions of dollars | 1 year | 5 years | 5 years | exposure | 1 year | 5 years | 5 years | exposure | ||||||||||||||||
Direct outstandings | $ | 177 | $ | 62 | $ | 13 | $ | 252 | $ | 191 | $ | 43 | $ | 8 | $ | 242 | ||||||||
Unfunded lending commitments | 144 | 151 | 21 | 316 | 174 | 94 | 19 | 287 | ||||||||||||||||
Total | $ | 321 | $ | 213 | $ | 34 | $ | 568 | $ | 365 | $ | 137 | $ | 27 | $ | 529 |
Portfolio Mix
Citi's Corporate credit portfolio is diverse
across geography and counterparty. The following table shows the percentage of
direct outstandings and unfunded commitments by region:
December 31, | December 31, | |||
2011 | 2010 | |||
North America | 47 | % | 47 | % |
EMEA | 27 | 28 | ||
Latin America | 8 | 7 | ||
Asia | 18 | 18 | ||
Total | 100 | % | 100 | % |
The maintenance of accurate and consistent risk ratings across the
Corporate credit portfolio facilitates the comparison of credit exposure across
all lines of business, geographic regions and products.
Obligor risk ratings reflect an estimated
probability of default for an obligor and are derived primarily through the use
of validated statistical models, scorecard models and external agency ratings
(under defined circumstances), in combination with consideration of factors
specific to the obligor or market, such as management experience, competitive
position, and regulatory environment. Facility risk ratings are assigned that
reflect
the probability of default of
the obligor and factors that affect the loss-given default of the facility, such
as support or collateral. Internal obligor ratings that generally correspond to
BBB and above are considered investment grade, while those below are considered
non-investment grade.
Citigroup also has incorporated climate risk assessment criteria for
certain obligors, as necessary. Factors evaluated include consideration of
climate risk to an obligor's business and physical assets.
The following table presents the Corporate credit
portfolio by facility risk rating at December 31, 2011 and December 31, 2010, as
a percentage of the total portfolio:
Direct outstandings and | |||||
unfunded commitments | |||||
December 31, | December 31, | ||||
2011 | 2010 | ||||
AAA/AA/A | 55 | % | 56 | % | |
BBB | 29 | 26 | |||
BB/B | 13 | 13 | |||
CCC or below | 2 | 5 | |||
Unrated | 1 | - | |||
Total | 100 | % | 100 | % |
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Citi's Corporate credit portfolio is also diversified by industry, with a concentration in the financial sector, broadly defined, including banks, other financial institutions, insurance companies, investment banks and government and central banks. The following table shows the allocation of direct outstandings and unfunded commitments to industries as a percentage of the total Corporate portfolio:
Direct outstandings and | |||||
unfunded commitments | |||||
December 31, | December 31, | ||||
2011 | 2010 | ||||
Public sector | 19 | % | 19 | % | |
Petroleum, energy, chemical and metal | 17 | 15 | |||
Transportation and industrial | 16 | 16 | |||
Banks/broker-dealers | 13 | 14 | |||
Consumer retail and health | 13 | 12 | |||
Technology, media and telecom | 8 | 8 | |||
Insurance and special purpose vehicles | 5 | 5 | |||
Hedge funds | 4 | 3 | |||
Real estate | 3 | 4 | |||
Other industries (1) | 2 | 4 | |||
Total | 100 | % | 100 | % |
(1) | Includes all other industries, none of which exceeds 2% of total outstandings. |
Credit Risk
Mitigation
As part of its
overall risk management activities, Citigroup uses credit derivatives and other
risk mitigants to hedge portions of the credit risk in its Corporate credit
portfolio, in addition to outright asset sales. The purpose of these
transactions is to transfer credit risk to third parties. The results of the
mark to market and any realized gains or losses on credit derivatives are
reflected in the Principal
transactions line on the
Consolidated Statement of Income.
At December 31, 2011 and December 31, 2010, $41.5 billion and $49.0 billion, respectively, of credit risk exposures were economically hedged. Citigroup's expected loss model used in the calculation of its loan loss reserve does not include the favorable impact of credit derivatives and other mitigants that are marked to market. In addition, the reported amounts of direct outstandings and unfunded commitments above do not reflect the impact of these hedging transactions. At December 31, 2011 and December 31, 2010, the credit protection was economically hedging underlying credit exposure with the following risk rating distribution, respectively:
Rating of Hedged Exposure
December 31, | December 31, | ||||
2011 | 2010 | ||||
AAA/AA/A | 41 | % | 53 | % | |
BBB | 45 | 32 | |||
BB/B | 13 | 11 | |||
CCC or below | 1 | 4 | |||
Total | 100 | % | 100 | % |
At December 31, 2011 and December 31, 2010, the credit protection was economically hedging underlying credit exposures with the following industry distribution:
Industry of Hedged Exposure
December 31, | December 31, | ||||
2011 | 2010 | ||||
Petroleum, energy, chemical and metal | 22 | % | 24 | % | |
Transportation and industrial | 22 | 19 | |||
Consumer retail and health | 15 | 19 | |||
Public sector | 12 | 13 | |||
Technology, media and telecom | 12 | 10 | |||
Banks/broker-dealers | 10 | 7 | |||
Insurance and special purpose vehicles | 5 | 4 | |||
Other industries (1) | 2 | 4 | |||
Total | 100 | % | 100 | % |
(1) | Includes all other industries, none of which is greater than 2% of the total hedged amount. |
93
EXPOSURE TO COMMERCIAL REAL
ESTATE
ICG and the SAP , through their
business activities and as capital markets participants, incur exposures that
are directly or indirectly tied to the commercial real estate (CRE) market, and
each of LCL and GCB hold loans that are
collateralized by CRE. These exposures are represented primarily by the
following three categories:
(1) Assets held at fair value included approximately $5.5 billion at December 31, 2011, of which approximately
$4.0 billion are securities, loans and other items linked to CRE that are
carried at fair value as Trading
account assets , approximately
$1.1 billion are securities backed by CRE carried at fair value as
available-for-sale (AFS) investments, and approximately $0.4 billion are other
exposures classified as Other assets. Changes in fair value for these trading
account assets are reported in current earnings, while for AFS investments
change in fair value are reported in Accumulated other comprehensive income with credit-related other-than-temporary
impairments reported in current earnings.
The majority of these exposures are classified as Level 3 in the fair
value hierarchy. Over the last several years, weakened activity in the trading
markets for some of these instruments resulted in reduced liquidity, thereby
decreasing the observable inputs for such valuations, and could continue to have
an adverse impact on how these instruments are valued in the future. See Note 25
to the Consolidated Financial Statements.
(2) Assets held at
amortized cost include
approximately $1.2 billion of securities classified as held-to-maturity (HTM)
and approximately $26.2 billion of loans and commitments each as of December 31,
2011. HTM securities are accounted for at amortized cost, subject to an
other-than-temporary impairment evaluation. Loans and commitments are recorded
at amortized cost. The impact of changes in credit is reflected in the
calculation of the allowance for loan losses and in net credit losses.
(3) Equity and other investments include approximately $3.6 billion of equity and other investments (such
as limited partner fund investments) at December 31, 2011 that are accounted for
under the equity method, which recognizes gains or losses based on the
investor's share of the net income (loss) of the investee.
The following table provides a summary of Citigroup's global CRE funded and unfunded exposures at December 31, 2011 and 2010:
December 31, | December 31, | |||||
In billions of dollars | 2011 | 2010 | ||||
Institutional Clients Group | ||||||
CRE exposures carried at fair value | ||||||
(including AFS securities) | $ | 4.6 | $ | 4.4 | ||
Loans and unfunded commitments | 19.9 | 17.5 | ||||
HTM securities | 1.2 | 1.5 | ||||
Equity method investments | 3.4 | 3.5 | ||||
Total ICG | $ | 29.1 | $ | 26.9 | ||
Special Asset Pool | ||||||
CRE exposures carried at fair value | ||||||
(including AFS securities) | $ | 0.4 | $ | 0.8 | ||
Loans and unfunded commitments | 2.4 | 5.1 | ||||
HTM securities | - | 0.1 | ||||
Equity method investments | 0.2 | 0.2 | ||||
Total SAP | $ | 3.0 | $ | 6.2 | ||
Global Consumer Banking | ||||||
Loans and unfunded commitments | $ | 2.9 | $ | 2.7 | ||
Local Consumer Lending | ||||||
Loans and unfunded commitments | $ | 1.0 | $ | 4.0 | ||
Brokerage and Asset Management | ||||||
CRE exposures carried at fair value | $ | 0.5 | $ | 0.5 | ||
Total Citigroup | $ | 36.5 | $ | 40.3 |
The above table represents the vast majority of Citi's direct exposure to CRE. There may be other transactions that have indirect exposures to CRE that are not reflected in this table.
94
MARKET RISK
Market risk losses arise from fluctuations in the
market value of trading and non-trading positions, including the changes in
value resulting from fluctuations in rates. Market risk encompasses liquidity
risk and price risk, both of which arise in the normal course of business of a
global financial intermediary. For a discussion of funding and liquidity risk,
see "Capital Resources and Liquidity-Funding and Liquidity" above. Price risk is
the earnings risk from changes in interest rates, foreign exchange rates, equity
and commodity prices, and in their implied volatilities. Price risk arises in
non-trading portfolios, as well as in trading
portfolios.
Market risks are measured in accordance with established standards to
ensure consistency across businesses and the ability to aggregate risk. Each
business is required to establish, with approval from Citi's market risk
management, a market risk limit framework for identified risk factors that
clearly defines approved risk profiles and is within the parameters of Citi's
overall risk tolerance. These limits are monitored by independent market risk,
country and business Asset and Liability Committees and the Global Finance and
Asset and Liability Committee. In all cases, the businesses are ultimately
responsible for the market risks taken and for remaining within their defined
limits.
Net interest revenue and interest rate risk
One of Citi's primary business functions is providing financial products that meet the needs of its customers. Loans and deposits are tailored to the customers' requirements with regard to tenor, index (if applicable) and rate type. Net interest revenue (NIR), for interest rate exposure (IRE) purposes, is the difference between the yield earned on the non-trading portfolio assets (including customer loans) and the rate paid on the liabilities (including customer deposits or company borrowings). NIR is affected by changes in the level of interest rates. For example:
NIR in any particular period is the result of customer transactions and the related contractual rates originated in prior periods as well as new transactions in the current period; those prior-period transactions will be impacted by changes in rates on floating-rate assets and liabilities in the current period.
Due to the long-term nature of portfolios, NIR will vary from quarter to quarter even assuming no change in the shape or level of the yield curve as assets and liabilities reprice. These repricings are a function of implied forward interest rates, which represent the overall market's estimate of future interest rates and incorporate possible changes in the Federal Funds rate as well as the shape of the yield curve.
Interest Rate Risk
Measurement
Citi's principal
measure of risk to NIR is interest rate exposure (IRE). IRE measures the change
in expected NIR in each currency resulting solely from unanticipated changes in
forward interest rates. Factors such as changes in volumes, credit spreads,
margins and the impact of prior-period pricing decisions are not captured by
IRE. IRE also assumes that businesses make no additional changes in pricing or
balances in response to the unanticipated rate changes.
For example, if the current 90-day LIBOR rate is
3% and the one-year-forward rate (i.e., the estimated 90-day LIBOR rate in one
year) is 5%, the +100 bps IRE scenario measures the impact on the company's NIR
of a 100 bps instantaneous change in the 90-day LIBOR to 6% in one
year.
The impact of changing prepayment rates on loan portfolios is
incorporated into the results. For example, in the declining interest rate
scenarios, it is assumed that mortgage portfolios prepay faster and income is
reduced. In addition, in a rising interest rate scenario, portions of the
deposit portfolio are assumed to experience rate increases that may be less than
the change in market interest rates.
Mitigation and Hedging of
Risk
In order to manage
changes in interest rates effectively, Citi may modify pricing on new customer
loans and deposits, enter into transactions with other institutions or enter
into off-balance-sheet derivative transactions that have the opposite risk
exposures. Citi regularly assesses the viability of these and other strategies
to reduce its interest rate risks and implements such strategies when it
believes those actions are prudent.
Citigroup employs additional measurements, including: stress testing the
impact of non-linear interest rate movements on the value of the balance sheet;
the analysis of portfolio duration and volatility, particularly as they relate
to mortgage loans and mortgage-backed securities; and the potential impact of
the change in the spread between different market indices.
95
Non-Trading
Portfolios-IRE
The exposures
in the following table represent the approximate annualized risk to NIR assuming
an unanticipated parallel instantaneous 100 bps change, as well as a more
gradual 100 bps (25 bps per quarter) parallel change in interest rates compared
with the market forward interest rates in selected currencies.
December 31, 2011 | December 31, 2010 | ||||||||||||
In millions of dollars | Increase | Decrease | Increase | Decrease | |||||||||
U.S. dollar (1) | |||||||||||||
Instantaneous change | $ | 97 | NM | $ | (105 | ) | NM | ||||||
Gradual change | 110 | NM | 25 | NM | |||||||||
Mexican peso | |||||||||||||
Instantaneous change | $ | 87 | $ | (87 | ) | $ | 181 | $ | (181 | ) | |||
Gradual change | 54 | (54 | ) | 107 | (107 | ) | |||||||
Euro | |||||||||||||
Instantaneous change | $ | 69 | NM | $ | (10 | ) | NM | ||||||
Gradual change | 35 | NM | (8 | ) | NM | ||||||||
Japanese yen | |||||||||||||
Instantaneous change | $ | 105 | NM | $ | 93 | NM | |||||||
Gradual change | 61 | NM | 52 | NM | |||||||||
Pound sterling | |||||||||||||
Instantaneous change | $ | 35 | NM | $ | 33 | NM | |||||||
Gradual change | 24 | NM | 21 | NM |
(1) | Certain trading-oriented businesses within Citi have accrual-accounted positions that are excluded from the table. The U.S. dollar IRE associated with these businesses was $61 million for a 100 basis point instantaneous increase in interest rates as of December 31, 2011. | |
NM | Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the yield curve. |
The changes in the U.S. dollar IRE year over year reflected revised
modeling of mortgages and the impact of lower rates, asset sales, swapping
activities and repositioning of the liquidity portfolio.
The following table shows the risk
to NIR from six different changes in the implied-forward rates. Each scenario
assumes that the rate change will occur on a gradual basis every three months
over the course of one year.
Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | ||||||||||||
Overnight rate change (bps) | - | 100 | 200 | (200 | ) | (100 | ) | - | |||||||||
10-year rate change (bps) | (100 | ) | - | 100 | (100 | ) | - | 100 | |||||||||
Impact to net interest revenue (in millions of dollars) | $ | (380 | ) | $ | 163 | $ | 247 | NM | NM | $ | (37 | ) |
96
Price Risk-Trading
Portfolios
Price risk in
Citi's trading portfolios is monitored using a series of measures, including but
not limited to:
Each trading portfolio across Citi's business segments (Citicorp, Citi Holdings and Corporate/Other) has its own market risk limit framework encompassing these measures and other controls, including permitted product lists and a new product approval process for complex products.
All trading positions are
marked to market, with the result reflected in earnings. In 2011, negative
trading-related revenue (net losses) was recorded for 54 of 260 trading days. Of
the 54 days on which negative revenue (net losses) was recorded, 1 day was
greater than $180 million.
The following
histogram of total daily trading revenue (loss) captures trading volatility and
shows the number of days in which Citi's VAR trading-related revenues fell
within particular ranges. A substantial portion of the volatility relating to
Citi's total daily trading revenue VAR is driven by changes in CVA on Citi's
derivative assets, net of CVA hedges.
(1) | Total trading revenue consists of: (i) customer revenue, which includes spreads from customer flow and positions taken to facilitate customer orders; (ii) hedging activity, including hedging of the Corporate loan portfolio, MSRs, etc.; (iii) proprietary trading activities in cash and derivative transactions; (iv) net interest revenue; and (v) CVA adjustments incurred due to changes in the credit quality of counterparties as well as any associated hedges to that CVA. | |
(2) | Principally related to trading revenue in ICG on the day of the U.S. government rating downgrade by S&P (August 2011). | |
(3) | Principally related to trading revenue in ICG and CVA hedges on the day of the tsunami in Japan (March 2011). |
97
Value at
Risk
Value at risk (VAR)
estimates, at a 99% confidence level, the potential decline in the value of a
position or a portfolio under normal market conditions. VAR statistics can be
materially different across firms due to differences in portfolio composition,
differences in VAR methodologies, and differences in model parameters. Citi
believes VAR statistics can be used more effectively as indicators of trends in
risk taking within a firm, rather than as a basis for inferring differences in
risk taking across firms.
Citi uses Monte Carlo simulation, which it
believes is conservatively calibrated to incorporate the greater of short-term
(most recent month) and long-term (three years) market volatility. The Monte
Carlo simulation involves approximately 300,000 market factors, making use of
180,000 time series, with market factors updated daily and model parameters
updated weekly.
The conservative features of the VAR calibration contribute
approximately 20% add-on to what would be a VAR estimated under the assumption
of stable and perfectly normally distributed markets. Under normal and stable
market conditions, Citi would thus expect the number of days where trading
losses exceed its VAR to be less than two or three exceptions per year. Periods
of unstable market conditions could increase the number of these exceptions.
During the last four quarters, there was one back-testing exception where
trading losses exceeded the VAR estimate at the Citigroup level (back-testing is
the process in which the daily VAR of a portfolio is compared to the actual
daily change in the market value of transactions). This occurred on August 8,
2011, after the U.S. government rating was downgraded by S&P.
The table below summarizes VAR for Citi-wide
trading portfolios at and during 2011 and 2010, including quarterly averages.
Historically, Citi included only the hedges associated with the CVA of its
derivative transactions in its VAR calculations and disclosures (these hedges
were, and continue to be, included within the relevant risk type (e.g., interest
rate, foreign exchange, equity, etc.)). However, Citi now includes both the
hedges associated with the CVA of its derivatives and the CVA on the derivative
counterparty exposure (included in the line "Incremental Impact of Derivative
CVA"). The inclusion of the CVA on derivative counterparty exposure reduces
Citi's total trading VAR; Citi believes this calculation and presentation
reflect a more complete and accurate view of its mark-to-market risk profile as
it incorporates both the CVA underlying derivative transactions and related
hedges.
For comparison purposes, Citi has included in the table below (i) total
VAR, the specific risk-only component of VAR and the isolated general market
factor VAR, each as reported previously (i.e., including only hedges associated
with the CVA of its derivatives counterparty exposures), (ii) the incremental
impact of adding in the derivative counterparty CVA, and (iii) the total trading
and CVA VAR.
As set forth in the table below, Citi's total trading and CVA VAR was $183 million at December 31, 2011 and $186 million at December 31, 2010. Daily total trading and CVA VAR averaged $189 million in 2011 and ranged from $135 million to $255 million (prior period information is not available for comparability purposes). The change in total trading and CVA VAR year over year was driven by a reduction in Citi's trading exposures across S&B , particularly in the latter part of the year, offset by an increase in market volatility and an increase in CVA exposures and associated hedges.
Dec. 31, | 2011 | Dec. 31, | 2010 | ||||||||||
In millions of dollars | 2011 | Average | 2010 | Average | |||||||||
Interest rate | $ | 250 | $ | 246 | $ | 235 | $ | 234 | |||||
Foreign exchange | 51 | 61 | 52 | 61 | |||||||||
Equity | 36 | 46 | 56 | 59 | |||||||||
Commodity | 16 | 22 | 19 | 23 | |||||||||
Covariance adjustment (1) | (118 | ) | (162 | ) | (171 | ) | (172 | ) | |||||
Total Trading VAR- | |||||||||||||
all market risk factors, | |||||||||||||
including general | |||||||||||||
and specific risk | |||||||||||||
(excluding derivative CVA) | $ | 235 | $ | 213 | $ | 191 | $ | 205 | |||||
Specific risk-only | |||||||||||||
Component (2) | $ | 14 | $ | 22 | $ | 8 | $ | 18 | |||||
Total-general | |||||||||||||
market factors only | $ | 221 | $ | 191 | $ | 183 | $ | 187 | |||||
Incremental Impact of | |||||||||||||
Derivative CVA | $ | (52 | ) | $ | (24 | ) | $ | (5 | ) | N/A | |||
Total Trading and | |||||||||||||
CVA VAR | $ | 183 | $ | 189 | $ | 186 | N/A |
(1) | Covariance adjustment (also known as diversification benefit) equals the difference between the total VAR and the sum of the VARs tied to each individual risk type. The benefit reflects the fact that the risks within each and across risk types are not perfectly correlated and, consequently, the total VAR on a given day will be lower than the sum of the VARs relating to each individual risk type. The determination of the primary drivers of changes to the covariance adjustment is made by an examination of the impact of both model parameter and position changes. | |
(2) | The specific risk-only component represents the level of equity and fixed income issuer-specific risk embedded in VAR. | |
N/A | Not available |
98
The table below provides the range of market factor VARs, inclusive of specific risk, that was experienced during 2011 and 2010.
2011 | 2010 | |||||||||||
In millions of dollars | Low | High | Low | High | ||||||||
Interest rate | $ | 187 | $ | 322 | $ | 171 | $ | 315 | ||||
Foreign exchange | 34 | 105 | 31 | 98 | ||||||||
Equity | 26 | 86 | 31 | 111 | ||||||||
Commodity | 14 | 36 | 15 | 39 |
The following table provides the VAR for S&B during 2011 excluding the CVA relating to derivative counterparties CVA and hedges of CVA.
In millions of dollars | Dec. 31, 2011 | ||
Total-all market risk | |||
factors, including | |||
general and specific risk | $ | 144 | |
Average-during year | $ | 153 | |
High-during year | 205 | ||
Low-during year | 104 |
Stress
Testing
Stress testing is
performed on trading portfolios on a regular basis to estimate the impact of
extreme market movements. It is performed on both individual trading portfolios
and on aggregations of portfolios and businesses. Independent market risk management, in conjunction
with the businesses, develops both systemic and specific stress scenarios,
reviews the output of periodic stress-testing exercises, and uses the
information to make judgments as to the ongoing appropriateness of exposure
levels and limits.
Factor
Sensitivities
Factor
sensitivities are expressed as the change in the value of a position for a
defined change in a market risk factor, such as a change in the value of a
Treasury bill for a one-basis-point change in interest rates. Citi's independent
market risk management ensures that factor sensitivities are calculated,
monitored, and in most cases, limited, for all relevant risks taken in a trading
portfolio.
99
INTEREST REVENUE/EXPENSE AND YIELDS |
Average Rates–Interest Revenue, Interest Expense and Net Interest Margin |
Change | Change | ||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 vs. 2010 | 2010 vs. 2009 | ||||||||
Interest revenue | $ | 73,201 | $ | 79,801 | $ | 77,069 | (8 | )% | 4 | % | |||
Interest expense | 24,229 | 25,096 | 27,881 | (3 | ) | (10 | ) | ||||||
Net interest revenue (1)(2)(3) | $ | 48,972 | $ | 54,705 | $ | 49,188 | (10 | )% | 11 | % | |||
Interest revenue-average rate | 4.27 | % | 4.55 | % | 4.78 | % | (28 | ) bps | (23 | ) bps | |||
Interest expense-average rate | 1.63 | 1.61 | 1.93 | 2 | bps | (32 | ) bps | ||||||
Net interest margin | 2.86 | 3.12 | 3.05 | (26 | ) bps | 7 | bps | ||||||
Interest-rate benchmarks | |||||||||||||
Federal Funds rate-end of period | 0.00–0.25 | % | 0.00–0.25 | % | 0.00–0.25 | % | - | - | |||||
Federal Funds rate-average rate | 0.00–0.25 | 0.00–0.25 | 0.00–0.25 | - | - | ||||||||
Two-year U.S. Treasury note-average rate | 0.45 | % | 0.70 | % | 0.96 | % | (25 | ) bps | (26 | ) bps | |||
10-year U.S. Treasury note-average rate | 2.78 | 3.21 | 3.26 | (43 | ) bps | (5 | ) bps | ||||||
10-year vs. two-year spread | 233 | bps | 251 | bps | 230 | bps |
(1) | Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $525 million, $519 million, and $692 million for 2011, 2010, and 2009, respectively. |
(2) | Excludes expenses associated with certain hybrid financial instruments. These obligations are classified as Long-term debt and accounted for at fair value with changes recorded in Principal transactions . |
(3) | The increase in the net interest revenue from the fourth quarter of 2009 to the first quarter of 2010 was primarily driven by the adoption of SFAS 166/167 on January 1, 2010. See Note 1 to the Consolidated Financial Statements for further information. |
As described under "Market Risk" above, a significant portion of Citi's business activities are based upon gathering deposits and borrowing money and then lending or investing those funds, or participating in market-making activities in tradable securities. Citi's net interest margin (NIM) is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.
During 2011, Citi's NIM declined as compared to the prior year, decreasing by approximately 26 basis points, primarily driven by the continued run-off and sales of higher-yielding assets in Citi Holdings and lower investment yields driven by the continued low interest rate environment, partially offset by the growth of lower-yielding loans in Citicorp and lower borrowing costs (e.g., substituting maturing long-term debt with deposits as a funding source). Absent any significant changes or events (e.g., a significant portfolio sale in Citi Holdings), Citi expects NIM will likely continue to reflect the pressure of a low interest rate environment, but should generally stabilize around end-of-year-2011 levels.
100
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101
AVERAGE BALANCES AND INTEREST RATES-ASSETS (1)(2)(3)(4)
Taxable Equivalent Basis
Average volume | Interest revenue | % Average rate | |||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||
Assets | |||||||||||||||||||||
Deposits with banks (5) | $ | 169,688 | $ | 166,120 | $ | 186,841 | $ | 1,750 | $ | 1,252 | $ | 1,478 | 1.03 | % | 0.75 | % | 0.79 | % | |||
Federal funds sold and securities borrowed or | |||||||||||||||||||||
purchased under agreements to resell (6) | |||||||||||||||||||||
In U.S. offices | $ | 158,154 | $ | 162,799 | $ | 138,579 | $ | 1,487 | $ | 1,774 | $ | 1,975 | 0.94 | % | 1.09 | % | 1.43 | % | |||
In offices outside the U.S. (5) | 116,681 | 86,926 | 63,909 | 2,144 | 1,382 | 1,109 | 1.84 | 1.59 | 1.74 | ||||||||||||
Total | $ | 274,835 | $ | 249,725 | $ | 202,488 | $ | 3,631 | $ | 3,156 | $ | 3,084 | 1.32 | % | 1.26 | % | 1.52 | % | |||
Trading account assets (7) (8) | |||||||||||||||||||||
In U.S. offices | $ | 122,234 | $ | 128,443 | $ | 140,233 | $ | 4,270 | $ | 4,352 | $ | 6,975 | 3.49 | % | 3.39 | % | 4.97 | % | |||
In offices outside the U.S. (5) | 147,417 | 151,717 | 126,309 | 4,033 | 3,819 | 3,879 | 2.74 | 2.52 | 3.07 | ||||||||||||
Total | $ | 269,651 | $ | 280,160 | $ | 266,542 | $ | 8,303 | $ | 8,171 | $ | 10,854 | 3.08 | % | 2.92 | % | 4.07 | % | |||
Investments | |||||||||||||||||||||
In U.S. offices | |||||||||||||||||||||
Taxable | $ | 170,196 | $ | 169,218 | $ | 124,404 | $ | 3,313 | $ | 4,806 | $ | 6,208 | 1.95 | % | 2.84 | % | 4.99 | % | |||
Exempt from U.S. income tax | 13,592 | 14,876 | 16,489 | 922 | 918 | 1,110 | 6.78 | 6.17 | 6.73 | ||||||||||||
In offices outside the U.S. (5) | 122,298 | 136,713 | 118,988 | 4,478 | 5,678 | 6,047 | 3.66 | 4.15 | 5.08 | ||||||||||||
Total | $ | 306,086 | $ | 320,807 | $ | 259,881 | $ | 8,713 | $ | 11,402 | $ | 13,365 | 2.85 | % | 3.55 | % | 5.14 | % | |||
Loans (net of unearned income) (9) | |||||||||||||||||||||
In U.S. offices | $ | 369,656 | $ | 430,685 | $ | 378,937 | $ | 29,111 | $ | 34,773 | $ | 24,748 | 7.88 | % | 8.07 | % | 6.53 | % | |||
In offices outside the U.S. (5) | 274,035 | 255,168 | 267,683 | 21,180 | 20,312 | 22,766 | 7.73 | 7.96 | 8.50 | ||||||||||||
Total | $ | 643,691 | $ | 685,853 | $ | 646,620 | $ | 50,291 | $ | 55,085 | $ | 47,514 | 7.81 | % | 8.03 | % | 7.35 | % | |||
Other interest-earning assets | $ | 49,467 | $ | 50,936 | $ | 49,707 | $ | 513 | $ | 735 | $ | 774 | 1.04 | % | 1.44 | % | 1.56 | % | |||
Total interest-earning assets | $ | 1,713,418 | $ | 1,753,601 | $ | 1,612,079 | $ | 73,201 | $ | 79,801 | $ | 77,069 | 4.27 | % | 4.55 | % | 4.78 | % | |||
Non-interest-earning assets (7) | 238,550 | 225,271 | 264,165 | ||||||||||||||||||
Total assets from discontinued operations | 668 | 18,989 | 15,137 | ||||||||||||||||||
Total assets | $ | 1,952,636 | $ | 1,997,861 | $ | 1,891,381 |
(1) | Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $525 million, $519 million, and $692 million for 2011, 2010, and 2009, respectively. |
(2) | Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. |
(3) | Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable. |
(4) | Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations . See Note 3 to the Consolidated Financial Statements. |
(5) | Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries. |
(6) | Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest revenue excludes the impact of FIN 41 (ASC 210-20-45). |
(7) | The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities . |
(8) | Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue . Interest revenue and interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities , respectively. |
(9) | Includes cash-basis loans. |
102
AVERAGE BALANCES AND INTEREST
RATES-LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE (1)(2)(3)(4)
Taxable Equivalent Basis
Average volume | Interest expense | % Average rate | |||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||
Liabilities | |||||||||||||||||||||
Deposits | |||||||||||||||||||||
In U.S. offices | |||||||||||||||||||||
Savings deposits (5) | $ | 193,762 | $ | 189,311 | $ | 174,260 | $ | 1,922 | $ | 1,872 | $ | 2,765 | 0.99 | % | 0.99 | % | 1.59 | % | |||
Other time deposits | 29,034 | 46,238 | 59,673 | 249 | 412 | 1,104 | 0.86 | 0.89 | 1.85 | ||||||||||||
In offices outside the U.S. (6) | 485,101 | 483,796 | 443,601 | 6,385 | 6,087 | 6,277 | 1.32 | 1.26 | 1.42 | ||||||||||||
Total | $ | 707,897 | $ | 719,345 | $ | 677,534 | $ | 8,556 | $ | 8,371 | $ | 10,146 | 1.21 | % | 1.16 | % | 1.50 | % | |||
Federal funds purchased and securities loaned | |||||||||||||||||||||
or sold under agreements to repurchase (7) | |||||||||||||||||||||
In U.S. offices | $ | 120,039 | $ | 123,425 | $ | 133,375 | $ | 776 | $ | 797 | $ | 988 | 0.65 | % | 0.65 | % | 0.74 | % | |||
In offices outside the U.S. (6) | 99,848 | 88,892 | 72,258 | 2,421 | 2,011 | 2,445 | 2.42 | 2.26 | 3.38 | ||||||||||||
Total | $ | 219,887 | $ | 212,317 | $ | 205,633 | $ | 3,197 | $ | 2,808 | $ | 3,433 | 1.45 | % | 1.32 | % | 1.67 | % | |||
Trading account liabilities (8)(9) | |||||||||||||||||||||
In U.S. offices | $ | 37,279 | $ | 36,115 | $ | 22,854 | $ | 266 | $ | 283 | $ | 222 | 0.71 | % | 0.78 | % | 0.97 | % | |||
In offices outside the U.S. (6) | 49,162 | 43,501 | 37,244 | 142 | 96 | 67 | 0.29 | 0.22 | 0.18 | ||||||||||||
Total | $ | 86,441 | $ | 79,616 | $ | 60,098 | $ | 408 | $ | 379 | $ | 289 | 0.47 | % | 0.48 | % | 0.48 | % | |||
Short-term borrowings | |||||||||||||||||||||
In U.S. offices | $ | 87,472 | $ | 119,262 | $ | 123,168 | $ | 139 | $ | 674 | $ | 1,050 | 0.16 | % | 0.57 | % | 0.85 | % | |||
In offices outside the U.S. (6) | 39,052 | 35,533 | 33,379 | 511 | 243 | 375 | 1.31 | 0.68 | 1.12 | ||||||||||||
Total | $ | 126,524 | $ | 154,795 | $ | 156,547 | $ | 650 | $ | 917 | $ | 1,425 | 0.51 | % | 0.59 | % | 0.91 | % | |||
Long-term debt (10) | |||||||||||||||||||||
In U.S. offices | $ | 325,709 | $ | 370,819 | $ | 316,223 | $ | 10,697 | $ | 11,757 | $ | 11,507 | 3.28 | % | 3.17 | % | 3.64 | % | |||
In offices outside the U.S. (6) | 17,970 | 22,176 | 29,132 | 721 | 864 | 1,081 | 4.01 | 3.90 | 3.71 | ||||||||||||
Total | $ | 343,679 | $ | 392,995 | $ | 345,355 | $ | 11,418 | $ | 12,621 | $ | 12,588 | 3.32 | % | 3.21 | % | 3.64 | % | |||
Total interest-bearing liabilities | $ | 1,484,428 | $ | 1,559,068 | $ | 1,445,167 | $ | 24,229 | $ | 25,096 | $ | 27,881 | 1.63 | % | 1.61 | % | 1.93 | % | |||
Demand deposits in U.S. offices | $ | 16,410 | $ | 16,117 | $ | 27,032 | |||||||||||||||
Other non-interest-bearing liabilities (8) | 275,408 | 245,481 | 263,296 | ||||||||||||||||||
Total liabilities from discontinued operations | 10 | 18,410 | 9,502 | ||||||||||||||||||
Total liabilities | $ | 1,776,256 | $ | 1,839,076 | $ | 1,744,997 | |||||||||||||||
Citigroup stockholders' equity (11) | $ | 174,351 | $ | 156,478 | $ | 144,510 | |||||||||||||||
Noncontrolling interest | 2,029 | 2,307 | 1,874 | ||||||||||||||||||
Total equity (11) | $ | 176,380 | $ | 158,785 | $ | 146,384 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 1,952,636 | $ | 1,997,861 | $ | 1,891,381 | |||||||||||||||
Net interest revenue as a percentage of average | |||||||||||||||||||||
interest-earning assets (12) | |||||||||||||||||||||
In U.S. offices | $ | 971,792 | $ | 1,044,486 | $ | 962,084 | $ | 25,723 | $ | 30,928 | $ | 24,230 | 2.65 | % | 2.96 | % | 2.52 | % | |||
In offices outside the U.S. (6) | 741,626 | 709,115 | 649,995 | 23,249 | 23,777 | 24,958 | 3.13 | 3.35 | 3.84 | ||||||||||||
Total | $ | 1,713,418 | $ | 1,753,601 | $ | 1,612,079 | $ | 48,972 | $ | 54,705 | $ | 49,188 | 2.86 | % | 3.12 | % | 3.05 | % |
(1) | Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $525 million, $519 million, and $692 million for 2011, 2010, and 2009, respectively. |
(2) | Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. |
(3) | Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable. |
(4) | Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 3 to the Consolidated Financial Statements. |
(5) | Savings deposits consist of Insured Money Market accounts, NOW accounts, and other savings deposits. The interest expense includes FDIC deposit insurance fees and charges. |
(6) | Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries. |
(7) | Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest expense excludes the impact of FIN 41 (ASC 210-20-45). |
(8) | The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities. |
(9) | Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue . Interest revenue and interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities , respectively. |
(10) | Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as Long-term debt , as these obligations are accounted for at fair value with changes recorded in Principal transactions . |
(11) | Includes stockholders' equity from discontinued operations. |
(12) | Includes allocations for capital and funding costs based on the location of the asset. |
103
ANALYSIS OF CHANGES IN INTEREST REVENUE (1)(2)(3)
2011 vs. 2010 | 2010 vs. 2009 | ||||||||||||||||||
Increase (decrease) | Increase (decrease) | ||||||||||||||||||
due to change in: | due to change in: | ||||||||||||||||||
Average | Average | Net | Average | Average | Net | ||||||||||||||
In millions of dollars | volume | rate | change | volume | rate | change | |||||||||||||
Deposits with banks (4) | $ | 27 | $ | 471 | $ | 498 | $ | (158 | ) | $ | (68 | ) | $ | (226 | ) | ||||
Federal funds sold and securities borrowed or | |||||||||||||||||||
purchased under agreements to resell | |||||||||||||||||||
In U.S. offices | $ | (49 | ) | $ | (238 | ) | $ | (287 | ) | $ | 311 | $ | (512 | ) | $ | (201 | ) | ||
In offices outside the U.S. (4) | 524 | 238 | 762 | 372 | (99 | ) | 273 | ||||||||||||
Total | $ | 475 | $ | - | $ | 475 | $ | 683 | $ | (611 | ) | $ | 72 | ||||||
Trading account assets (5) | |||||||||||||||||||
In U.S. offices | $ | (214 | ) | $ | 132 | $ | (82 | ) | $ | (547 | ) | $ | (2,076 | ) | $ | (2,623 | ) | ||
In offices outside the U.S. (4) | (111 | ) | 325 | 214 | 706 | (766 | ) | (60 | ) | ||||||||||
Total | $ | (325 | ) | $ | 457 | $ | 132 | $ | 159 | $ | (2,842 | ) | $ | (2,683 | ) | ||||
Investments (1) | |||||||||||||||||||
In U.S. offices | $ | (9 | ) | $ | (1,480 | ) | $ | (1,489 | ) | $ | 1,854 | $ | (3,448 | ) | $ | (1,594 | ) | ||
In offices outside the U.S. (4) | (565 | ) | (635 | ) | (1,200 | ) | 827 | (1,196 | ) | (369 | ) | ||||||||
Total | $ | (574 | ) | $ | (2,115 | ) | $ | (2,689 | ) | $ | 2,681 | $ | (4,644 | ) | $ | (1,963 | ) | ||
Loans (net of unearned income) (6) | |||||||||||||||||||
In U.S. offices | $ | (4,824 | ) | $ | (838 | ) | $ | (5,662 | ) | $ | 3,672 | $ | 6,353 | $ | 10,025 | ||||
In offices outside the U.S. (4) | 1,471 | (603 | ) | 868 | (1,036 | ) | (1,418 | ) | (2,454 | ) | |||||||||
Total | $ | (3,353 | ) | $ | (1,441 | ) | $ | (4,794 | ) | $ | 2,636 | $ | 4,935 | $ | 7,571 | ||||
Other interest-earning assets | $ | (21 | ) | $ | (201 | ) | $ | (222 | ) | $ | 19 | $ | (58 | ) | $ | (39 | ) | ||
Total interest revenue | $ | (3,771 | ) | $ | (2,829 | ) | $ | (6,600 | ) | $ | 6,020 | $ | (3,288 | ) | $ | 2,732 |
(1) | The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% and is included in this presentation. |
(2) | Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change. |
(3) | Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 3 to the Consolidated Financial Statements. |
(4) | Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries. |
(5) | Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities , respectively. |
(6) | Includes cash-basis loans. |
104
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE (1)(2)(3)
2011 vs. 2010 | 2010 vs. 2009 | ||||||||||||||||||
Increase (decrease) | Increase (decrease) | ||||||||||||||||||
due to change in: | due to change in: | ||||||||||||||||||
Average | Average | Net | Average | Average | Net | ||||||||||||||
In millions of dollars | volume | rate | change | volume | rate | change | |||||||||||||
Deposits | |||||||||||||||||||
In U.S. offices | $ | (124 | ) | $ | 11 | $ | (113 | ) | $ | 27 | $ | (1,612 | ) | $ | (1,585 | ) | |||
In offices outside the U.S. (4) | 16 | 282 | 298 | 540 | (730 | ) | (190 | ) | |||||||||||
Total | $ | (108 | ) | $ | 293 | $ | 185 | $ | 567 | $ | (2,342 | ) | $ | (1,775 | ) | ||||
Federal funds purchased and securities loaned | |||||||||||||||||||
or sold under agreements to repurchase | |||||||||||||||||||
In U.S. offices | $ | (22 | ) | $ | 1 | $ | (21 | ) | $ | (70 | ) | $ | (121 | ) | $ | (191 | ) | ||
In offices outside the U.S. (4) | 259 | 151 | 410 | 486 | (920 | ) | (434 | ) | |||||||||||
Total | $ | 237 | $ | 152 | $ | 389 | $ | 416 | $ | (1,041 | ) | $ | (625 | ) | |||||
Trading account liabilities (5) | |||||||||||||||||||
In U.S. offices | $ | 9 | $ | (26 | ) | $ | (17 | ) | $ | 110 | $ | (49 | ) | $ | 61 | ||||
In offices outside the U.S. (4) | 14 | 32 | 46 | 12 | 17 | 29 | |||||||||||||
Total | $ | 23 | $ | 6 | $ | 29 | $ | 122 | $ | (32 | ) | $ | 90 | ||||||
Short-term borrowings | |||||||||||||||||||
In U.S. offices | $ | (145 | ) | $ | (390 | ) | $ | (535 | ) | $ | (32 | ) | $ | (344 | ) | $ | (376 | ) | |
In offices outside the U.S. (4) | 26 | 242 | 268 | 23 | (155 | ) | (132 | ) | |||||||||||
Total | $ | (119 | ) | $ | (148 | ) | $ | (267 | ) | $ | (9 | ) | $ | (499 | ) | $ | (508 | ) | |
Long-term debt | |||||||||||||||||||
In U.S. offices | $ | (1,470 | ) | $ | 410 | $ | (1,060 | ) | $ | 1,840 | $ | (1,590 | ) | $ | 250 | ||||
In offices outside the U.S. (4) | (168 | ) | 25 | (143 | ) | (269 | ) | 52 | (217 | ) | |||||||||
Total | $ | (1,638 | ) | $ | 435 | $ | (1,203 | ) | $ | 1,571 | $ | (1,538 | ) | $ | 33 | ||||
Total interest expense | $ | (1,605 | ) | $ | 738 | $ | (867 | ) | $ | 2,667 | $ | (5,452 | ) | $ | (2,785 | ) | |||
Net interest revenue | $ | (2,166 | ) | $ | (3,567 | ) | $ | (5,733 | ) | $ | 3,353 | $ | 2,164 | $ | 5,517 |
(1) | The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% and is included in this presentation. |
(2) | Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change. |
(3) | Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 3 to the Consolidated Financial Statements. |
(4) | Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries. |
(5) | Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue . Interest revenue and interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities , respectively. |
105
OPERATIONAL
RISK
Operational risk is the risk of loss
resulting from inadequate or failed internal processes, systems or human
factors, or from external events. It includes the reputation and franchise risk
associated with business practices or market conduct in which Citi is involved.
Operational risk is inherent in Citigroup's global business activities and, as
with other risk types, is managed through an overall framework designed to
balance strong corporate oversight with well-defined independent risk
management. This framework includes:
The goal is to keep operational risk at appropriate levels relative to the characteristics of Citigroup's businesses, the markets in which it operates, its capital and liquidity, and the competitive, economic and regulatory environment. Notwithstanding these controls, Citigroup incurs operational losses.
Framework
To monitor, mitigate and control operational risk, Citigroup
maintains a system of comprehensive policies and has established a consistent
framework for assessing and communicating operational risk and the overall
effectiveness of the internal control environment across Citigroup. An
Operational Risk Council provides oversight for operational risk across
Citigroup. The Council's membership includes senior members of the Chief Risk
Officer's organization covering multiple dimensions of risk management, with
representatives of the Business and Regional Chief Risk Officers' organizations
and the business management group (see "Managing Global Risk-Risk
Management-Overview" above). The Council's focus is on identification and
mitigation of operational risk and related incidents. The Council works with the
business segments and the control functions with the objective of ensuring a
transparent, consistent and comprehensive framework for managing operational
risk globally.
Each major business segment must implement an operational risk
process consistent with the requirements of this framework. The process for
operational risk management includes the following steps:
The operational risk standards facilitate the effective communication and mitigation of operational risk both within and across businesses. As new products and business activities are developed, processes are designed, modified or sourced through alternative means and operational risks are considered. Enterprise risk management, a newly formed organization within Citi's independent risk management, proactively assists the businesses, operations and technology and the other independent control groups in enhancing the effectiveness of controls and managing operational risks across products, business lines and regions.
Information about the businesses' operational risk, historical losses and the control environment is reported by each major business segment and functional area, and is summarized and reported to senior management as well as the Risk Management and Finance Committee of Citi's Board of Directors and the full Board of Directors.
Measurement and Basel
II
To support advanced capital modeling
and management, the businesses are required to capture relevant operational risk
capital information. A risk capital model for operational risk has been
developed and implemented across the major business segments as a step toward
readiness for Basel II capital calculations. The risk capital calculation is
designed to qualify as an "Advanced Measurement Approach" under Basel II. It
uses a combination of internal and external loss data to support statistical
modeling of capital requirement estimates, which are then adjusted to reflect
qualitative data regarding the operational risk and control
environment.
Information Security and
Continuity of Business
Information
security and the protection of confidential and sensitive customer data are a
priority for Citigroup. Citi has implemented an Information Security Program in
accordance with the Gramm-Leach-Bliley Act and regulatory guidance. The
Information Security Program is reviewed and enhanced periodically to address
emerging threats to customers' information.
The
Corporate Office of Business Continuity, with the support of senior management,
continues to coordinate global preparedness and mitigate business continuity
risks by reviewing and testing recovery procedures.
106
COUNTRY AND CROSS-BORDER RISK
Country Risk
Country risk is the risk that an event in a country
(precipitated by developments within or external to a country) will impair the
value of Citi's franchise or will adversely affect the ability of obligors
within that country to honor their obligations to Citi. Country risk events may
include sovereign defaults, banking defaults or crises, currency crises and/or
political events. See also "Risk Factors-Market and Economic Risks"
above.
The
information below is based on Citi's internal risk management measures. The
country designation in Citi's risk management systems is based on the country to
which the client relationship, taken as a whole, is most directly exposed to
economic, financial, sociopolitical or legal risks. This includes exposure to
subsidiaries within the client relationship that are domiciled outside of the
country.
Citi assesses the risk of loss associated with certain of the country
exposures on a regular basis. These analyses take into consideration alternative
scenarios that may unfold, as well as specific characteristics of Citi's
portfolio, such as transaction structure and collateral. Citi currently believes
that the risk of loss associated with the exposures set forth below is likely
materially lower than the exposure amounts disclosed below and is sized
appropriately relative to its franchise in these countries. For additional
information relating to Citi's risk management practices, see "Managing Global
Risk" above.
The sovereign entities of all the countries disclosed below,
as well as the financial institutions and corporations domiciled in these
countries, are important clients in the global Citi franchise. Citi fully
expects to maintain its presence in these markets to service all of its global
customers. As such, Citi's exposure in these countries may vary over time, based
upon its franchise, client needs and transaction structures.
GIIPS and
France
Several European countries,
including Greece, Ireland, Italy, Portugal, Spain and France, have been the
subject of credit deterioration due to weaknesses in their economic and fiscal
situations. Given investor interest in this area, the table below sets forth
Citi's exposures to these countries as of December 31, 2011.
In billions of U.S. dollars | GIIPS | (1) | Greece | Ireland | Italy | Portugal | Spain | France | ||||||||||||||
Funded loans, before reserves | $ | 9.4 | $ | 1.1 | $ | 0.3 | $ | 1.9 | $ | 0.4 | $ | 5.7 | $ | 4.7 | ||||||||
Derivative counterparty mark-to-market, inclusive of CVA (2) | 10.8 | 0.6 | 0.6 | 7.3 | 0.3 | 2.0 | 7.0 | |||||||||||||||
Gross funded credit exposure | $ | 20.2 | $ | 1.7 | $ | 0.9 | $ | 9.2 | $ | 0.7 | $ | 7.7 | $ | 11.7 | ||||||||
Less: margin and collateral (3) | (4.2 | ) | (0.2 | ) | (0.4 | ) | (1.2 | ) | (0.1 | ) | (2.3 | ) | (5.3 | ) | ||||||||
Less: purchased credit protection (4) | (9.6 | ) | (0.1 | ) | (0.1 | ) | (6.7 | ) | (0.2 | ) | (2.5 | ) | (5.1 | ) | ||||||||
Net current funded credit exposure | $ | 6.4 | $ | 1.4 | $ | 0.4 | $ | 1.3 | $ | 0.4 | $ | 2.9 | $ | 1.3 | ||||||||
Net trading exposure | $ | 1.1 | $ | 0.1 | $ | 0.2 | $ | 0.2 | $ | - | $ | 0.6 | $ | 0.3 | ||||||||
AFS exposure | 0.2 | - | - | 0.2 | - | - | 0.3 | |||||||||||||||
Net trading and AFS exposure | $ | 1.3 | $ | 0.1 | $ | 0.2 | $ | 0.4 | $ | - | $ | 0.6 | $ | 0.6 | ||||||||
Net current funded exposure | $ | 7.7 | $ | 1.5 | $ | 0.6 | $ | 1.7 | $ | 0.4 | $ | 3.5 | $ | 1.9 | ||||||||
Additional collateral received, not reducing amounts above | $ | (4.3 | ) | $ | (1.2 | ) | $ | (0.2 | ) | $ | (0.4 | ) | $ | - | $ | (2.5 | ) | $ | (4.6 | ) | ||
Net current funded credit exposure detail: | ||||||||||||||||||||||
Sovereigns | $ | 0.7 | $ | 0.1 | $ | - | $ | 0.4 | $ | 0.2 | $ | - | $ | - | ||||||||
Financial institutions | 1.6 | - | - | 0.1 | - | 1.5 | 1.9 | |||||||||||||||
Corporations | 4.1 | 1.3 | 0.4 | 0.8 | 0.2 | 1.4 | (0.6 | ) | ||||||||||||||
Net current funded credit exposure | $ | 6.4 | $ | 1.4 | $ | 0.4 | $ | 1.3 | $ | 0.4 | $ | 2.9 | $ | 1.3 | ||||||||
Unfunded commitments: | ||||||||||||||||||||||
Sovereigns | $ | 0.3 | $ | - | $ | - | $ | - | $ | - | $ | 0.3 | $ | 0.8 | ||||||||
Financial institutions | 0.3 | - | - | 0.1 | - | 0.2 | 3.4 | |||||||||||||||
Corporations | 6.7 | 0.4 | $ | 0.5 | 3.1 | 0.3 | 2.4 | 11.9 | ||||||||||||||
Total unfunded commitments | $ | 7.3 | $ | 0.4 | $ | 0.5 | $ | 3.2 | $ | 0.3 | $ | 2.9 | $ | 16.1 |
Note: Information based on Citi's internal risk management measures. | |
(1) | Greece, Ireland, Italy, Portugal and Spain. |
(2) | Includes the net credit exposure arising from secured financing transactions, such as repurchase agreements and reverse repurchase agreements. See "Secured Financing Transactions" below. |
(3) | Margin posted under legally enforceable margin agreements and collateral pledged under bankruptcy-remote structures. Does not include collateral received on secured financing transactions. |
(4) | Credit protection purchased from financial institutions predominately outside of GIIPS and France. See "Credit Default Swaps" below. |
107
GIIPS
Gross funded credit exposure to the sovereign entities of
Greece, Ireland, Italy, Portugal and Spain (GIIPS), as well as financial
institutions and multinational and local corporations designated in these
countries under Citi's risk management systems, was $20.2 billion at December
31, 2011. The $20.2 billion of gross credit exposure was made up of $9.4 billion
in funded loans, before reserves, and $10.8 billion in derivative counterparty
mark-to-market exposure, inclusive of credit valuation adjustments. The
derivative counterparty mark-to-market exposure includes the net credit exposure
arising from secured financing transactions, such as repurchase and reverse
repurchase agreements. See "Secured Financing Transactions"
below.
As of December
31, 2011, Citi's net current funded exposure to the GIIPS sovereigns, financial
institutions and corporations was $7.7 billion. Included in the $7.7 billion net
current funded exposure was $1.3 billion of net trading and available-for-sale
securities exposure, and $6.4 billion of net current funded credit exposure.
Each component is described below in more detail.
Net Trading and AFS Exposure - $1.3
billion
Included in the net current funded
exposure at December 31, 2011 was a net position of $1.3 billion in securities
and derivatives with the GIIPS sovereigns, financial institutions and
corporations as the issuer or reference entity, which are held in Citi's trading
and AFS portfolios. These portfolios are marked to market daily and, as
previously disclosed, Citi's trading exposure levels vary as it maintains
inventory consistent with customer needs.
Net Current Funded Credit Exposure - $6.4 billion
As
of December 31, 2011, the net current funded credit exposure to the GIIPS sovereigns, financial institutions and
corporations was $6.4 billion. Exposures were $0.7 billion to sovereigns, $1.6 billion to financial institutions and $4.1
billion to corporations.
Consistent
with Citi's internal risk management measures and as set forth in the table above, net current funded credit exposure
has been reduced by $4.3 billion of margin posted under legally enforceable margin agreements and collateral pledged under
bankruptcy-remote structures. At December 31, 2011, the majority of this margin and collateral was in the form of cash,
with the remainder in predominantly non-GIIPS, non-French securities, which are included at fair value.
Net
current funded credit exposure also reflects a reduction for $9.6 billion in purchased credit protection,
predominantly from financial institutions outside the GIIPS and France. Such protection generally pays out only upon the
occurrence of certain credit events with respect to the country or borrower covered by the protection, as determined by a
committee composed of dealers and other market participants. In addition to counterparty credit risks (see "Credit
Default Swaps" below), the credit protection may not fully cover all situations that may adversely affect the value
of Citi's exposure and, accordingly, Citi could still experience losses despite the existence of the credit protection.
Unfunded Commitments-$7.3
billion
As of December 31, 2011, Citi also
had $7.3 billion of unfunded commitments to the GIIPS sovereigns, financial
institutions and corporations, with $6.7 billion of this amount to corporations.
These unfunded lines generally have standard conditions that must be met before
they can be drawn.
Other Activities
Like other banks, Citi also provides settlement and clearing
facilities for a variety of clients in these countries and actively monitors and
manages these intra-day exposures. In addition, at December 31, 2011, Citi had
approximately $7.4 billion of locally funded exposure in the GIIPS, generally to
retail customers and small businesses as part of its local lending activities.
The vast majority of this exposure is in Citi Holdings (Spain and
Greece).
Gross funded credit exposure to the French sovereign, financial institutions and corporations was $11.7 billion at December 31, 2011. The $11.7 billion of gross credit exposure was made up of $4.7 billion in funded loans, before reserves, and $7.0 billion in derivative counterparty mark-to-market exposure, inclusive of credit valuation adjustments. The derivative counterparty mark-to-market exposure includes the net credit exposure arising from secured financing transactions, such as repurchase and reverse repurchase agreements. See "Secured Financing Transactions" below.
As of December 31, 2011, Citi's net current funded exposure to the French sovereign, financial institutions and corporations was $1.9 billion. Included in the $1.9 billion net current funded exposure was $0.6 billion of net trading and available-for-sale securities exposure, and $1.3 billion of net current funded credit exposure. Each component is described below in more detail.
Net Trading and AFS Exposure - $0.6
billion
Included in the net current funded
exposure at December 31, 2011 was a net position of $0.6 billion in securities
and derivatives with the French sovereign, financial institutions and
corporations as the issuer or reference entity, which are held in Citi's trading
and AFS portfolios. These portfolios are marked to market daily and, as
previously disclosed, Citi's trading exposure levels vary as it maintains
inventory consistent with customer needs.
As of December 31, 2011, the net current funded credit exposure to the French sovereign, financial institutions and corporations was $1.3 billion. Exposures were $1.9 billion to financial institutions and $(0.6) billion to corporations.
Consistent with Citi's internal risk management measures and as set forth in the table above, net current funded credit exposure has been reduced by $5.3 billion of margin posted under legally enforceable margin agreements and collateral pledged under bankruptcy-remote structures. As of December 31, 2011, the majority of this margin and collateral was in the form of cash, with the remainder in non-GIIPS, non-French securities, which are included at fair value.
108
Net current funded credit exposure also reflects a reduction for $5.1 billion in purchased credit protection, predominantly from financial institutions outside GIIPS and France. Such protection generally pays out only upon the occurrence of certain credit events with respect to the country or borrower covered by the protection, as determined by a committee composed of dealers and other market participants. In addition to counterparty credit risks (see "Credit Default Swaps" below), the credit protection may not fully cover all situations that may adversely affect the value of Citi's exposure and, accordingly, Citi could still experience losses despite the existence of the credit protection.
Unfunded Commitments-$16.1
billion
As of December 31, 2011, Citi also
had $16.1 billion of unfunded commitments to the French sovereign, financial
institutions and corporations, with $11.9 billion of this amount to
corporations. These unfunded lines generally have standard conditions that must
be met before they can be drawn.
Other Activities
Similar to other banks, Citi also provides settlement and
clearing facilities for a variety of clients in France and actively monitors and
manages these intra-day exposures. Citi also has locally funded exposure in
France; however, as of December 31, 2011, the amount of this exposure was not
material.
Credit Default Swaps
Citi
buys and sells credit protection, through credit default swaps, on underlying GIIPS or French entities as part of
its market-making activities for clients in its trading portfolios. Citi also purchases credit protection, through
credit default swaps, to hedge its own credit exposure to these underlying entities that arises from loans to these
entities or derivative transactions with these entities.
Citi
buys and sells credit default swaps as part of its market-making activity, and purchases credit default swaps for
credit protection, with financial institutions that Citi believes are of high quality. The counterparty credit exposure that can
arise from the purchase or sale of credit default swaps is usually covered by legally enforceable netting and margining
agreements with a given counterparty, so that the credit exposure to that counterparty is measured and managed in aggregate
across all products covered by a given netting or margining agreement.
The
notional amount of credit protection purchased or sold on GIIPS or French underlying single reference entities as
of December 31, 2011 is set forth in the table below. The net notional contract amounts, less mark-to-market adjustments,
are included in "net current funded exposure" in the table under "GIIPS and France" above, and appear
in either "net trading exposure" when part of a trading strategy or in "purchased credit protection"
when purchased as a hedge against a credit exposure (see note 1 to the table below).
Credit default swaps purchased or sold on underlying single reference entities in these countries | (1) | ||||||||||||||||||||||
In billions of U.S. dollars | GIIPS | Greece | Ireland | Italy | Portugal | Spain | France | ||||||||||||||||
Notional CDS contracts on underlying reference entities (1) | |||||||||||||||||||||||
Net purchased (2) | $ | (16.9 | ) | $ | (1.0 | ) | $ | (1.0 | ) | $ | (9.2 | ) | $ | (1.9 | ) | $ | (7.6 | ) | $ | (10.4 | ) | ||
Net sold (2) | 7.8 | 1.0 | 0.7 | 2.7 | 2.0 | 5.3 | 6.4 | ||||||||||||||||
Sovereign underlying reference entity | |||||||||||||||||||||||
Net purchased (2) | (11.7 | ) | (0.8 | ) | (0.6 | ) | (7.4 | ) | (1.2 | ) | (4.5 | ) | (4.6 | ) | |||||||||
Net sold (2) | 5.7 | 0.8 | 0.6 | 1.9 | 1.2 | 4.0 | 4.5 | ||||||||||||||||
Financial institution underlying reference entity | |||||||||||||||||||||||
Net purchased (2) | (2.9 | ) | - | (0.4 | ) | (1.3 | ) | (0.4 | ) | (1.3 | ) | (1.8 | ) | ||||||||||
Net sold (2) | 2.4 | - | 0.1 | 1.4 | 0.4 | 1.0 | 1.6 | ||||||||||||||||
Corporate underlying reference entity | |||||||||||||||||||||||
Net purchased (2) | (5.2 | ) | (0.4 | ) | (0.2 | ) | (2.4 | ) | (0.7 | ) | (2.8 | ) | (6.7 | ) | |||||||||
Net sold (2) | 2.6 | 0.3 | 0.2 | 1.4 | 0.8 | 1.2 | 3.0 |
(1) | The net notional contract amounts, less mark-to-market adjustments, are included in Citi's "net current funded exposure" in the table under "GIIPS and France" on page 107. These amounts are reflected in two places in such table: $9.6 billion and $5.1 billion for GIIPS and France, respectively, are included in "purchased credit protection" hedging "gross funded credit exposure." The remaining activity is reflected in "net trading exposure" since these positions are part of a trading strategy. |
(2) | The summation of notional amounts for each GIIPS country does not equal the notional amount presented in the GIIPS total column in the table above as additional netting is achieved at the agreement level with a specific counterparty across various GIIPS countries. |
109
When Citi
purchases credit default swaps as a hedge against a credit exposure, Citi
generally seeks to purchase products with a maturity date similar to the
exposure against which the protection is purchased. While certain exposures may
have longer maturities that extend beyond the credit default swap tenors readily
available in the market, Citi generally will purchase credit protection with a
maximum tenor that is readily available in the market.
The above
table contains all net credit default swaps (CDSs) purchased or sold on GIIPS or
French underlying entities, whether part of a trading strategy or as purchased
credit protection. With respect to the $16.9 billion net purchased CDS contracts
on underlying GIIPS reference entities, approximately 89% has been purchased
from non-GIIPS counterparties. With respect to the $10.4 billion net purchased
CDS contracts on underlying French reference entities, approximately 72% has
been purchased from non-French counterparties. The net credit exposure to any
counterparties arising from these transactions, including any GIIPS or French
counterparties, is managed and mitigated through legally enforceable netting and
margining agreements. When Citi purchases credit default swaps as a hedge
against a credit exposure, it generally seeks to purchase products from
counterparties that would not be correlated with the underlying credit exposure
it is hedging.
Secured Financing
Transactions
As part of its banking activities with
its clients, Citi enters into secured financing transactions, such as repurchase
agreements and reverse repurchase agreements. These transactions typically
involve the lending of cash, against which securities are taken as collateral.
The amount of cash loaned against the securities collateral is a function of the
liquidity and quality of the collateral as well as the credit quality of the
counterparty. The collateral is typically marked to market daily, and Citi has
the ability to call for additional collateral (usually in the form of cash), if
the value of the securities falls below a pre-defined threshold.
As of
December 31, 2011, Citi had loaned $19.2 billion in cash through secured
financing transactions with GIIPS or French counterparties, usually through
reverse repurchase agreements, as shown in the table below. Against those loans,
it held approximately $21.2 billion fair value of securities collateral as well
as $1.1 billion in variation margin, most of which was in cash.
Consistent
with Citi's risk management systems, secured financing transactions are included
in the counterparty derivative mark-to-market exposure at their net credit
exposure value, which is typically small or zero given the over-collateralized
structure of these transactions.
In billions of dollars | Cash financing out | Securities collateral in | (1) | ||
Lending to GIIPS and French counterparties through secured financing transactions | $19.2 | $21.2 |
(1) | Citi has also received approximately $1.1 billion in variation margin, predominately cash, associated with secured financing transactions with these counterparties. |
Collateral taken in against secured financing transactions is generally high quality, marketable securities, consisting of government debt, corporate debt, or asset-backed securities.
The table below sets forth the fair value of the securities collateral taken in by Citi against secured financing transactions as of December 31, 2011.
Government | Municipal or corporate | Asset-backed | ||||||||||
In billions of dollars | Total | bonds | bonds | bonds | ||||||||
Securities pledged by GIIPS or
French counterparties in secured financing transaction lending (1) | $ | 21.2 | $ | 10.3 | $0.7 | $ | 10.2 | |||||
Investment grade | $ | 20.3 | $ | 10.2 | $0.4 | $ | 9.8 | |||||
Non-investment grade | 0.2 | 0.2 | 0.1 | - | ||||||||
Not rated | 0.7 | - | 0.2 | 0.4 |
(1) | Total includes approximately $2.8 billion in correlated risk collateral, predominately French sovereign debt pledged by French counterparties. |
Secured financing transactions can be short term or can extend beyond one year. In most cases, Citi has the right to call for additional margin daily, and can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin.
The table below sets forth the remaining transaction tenor for these transactions as of December 31, 2011.
Remaining transaction tenor | |||||||||||||
In billions of dollars | Total | <1 year | 1-3 years | 3-4 years | (1) | ||||||||
Cash extended to GIIPS or French counterparties in secured financing transactions lending (1) | $ | 19.2 | $ | 11.6 | $ | 6.1 | $ | 1.5 |
(1) | The longest remaining tenor trades mature January 2015. |
110
Cross-Border Risk
Cross-border risk is the risk that actions taken
by a non-U.S. government may prevent the conversion of local currency into
non-local currency and/or the transfer of funds outside the country, among other
risks, thereby impacting the ability of Citigroup and its customers to transact
business across borders. Examples of cross-border risk include actions taken by
foreign governments such as exchange controls and restrictions on the remittance
of funds. These actions might restrict the transfer of funds or the ability of
Citigroup to obtain payment from customers on their contractual obligations.
Management of cross-border risk at Citi is performed through a formal review
process that includes annual setting of cross-border limits and ongoing
monitoring of cross-border exposures as well as monitoring of economic
conditions globally through Citi's Global Country Risk Management. See also
"Risk Factors-Market and Economic Risks"
above.
Under Federal Financial Institutions Examination Council (FFIEC)
regulatory guidelines, total reported cross-border outstandings include
cross-border claims on third parties, as well as investments in and funding of
local franchises. Cross-border claims on third parties (trade and short-,
medium- and long-term claims) include cross-border loans, securities, deposits
with
banks, investments in
affiliates, and other monetary assets, as well as net revaluation gains on
foreign exchange and derivative products.
FFIEC cross-border risk measures exposure to the immediate obligors or
counterparties domiciled in the given country or, if applicable, by the location
of collateral or guarantors of the legally binding guarantees. Cross-border
outstandings are reported based on the country of the obligor or guarantor.
Outstandings backed by cash collateral are assigned to the country in which the
collateral is held. For securities received as collateral, cross-border
outstandings are reported in the domicile of the issuer of the securities.
Cross-border resale agreements are presented based on the domicile of the
counterparty.
Investments in and funding of
local franchises represent the excess of local country assets over local country
liabilities. Local country assets are claims on local residents recorded by
branches and majority-owned subsidiaries of Citigroup domiciled in the country,
adjusted for externally guaranteed claims and certain collateral. Local country
liabilities are obligations of non-U.S. branches and majority-owned subsidiaries
of Citigroup for which no cross-border guarantee has been issued by another
Citigroup office.
The table below sets forth the countries where Citigroup's total cross-border outstandings, as defined by FFIEC guidelines, exceeded 0.75% of total Citigroup assets as of December 31, 2011 and December 31, 2010:
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Cross-border claims on third parties | ||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||
in and | Total | |||||||||||||||||||||||
Trading and | funding of | Total | cross- | |||||||||||||||||||||
short-term | local | cross-border | border | |||||||||||||||||||||
In billions of U.S. dollars | Banks | Public | Private | Total | claims | (1) | franchises | outstandings | (2) | Commitments | (3) | outstandings | (2) | Commitments | (3) | |||||||||
United Kingdom | $20.2 | $ | 1.0 | $21.9 | $ | 43.1 | $38.8 | $ | - | $43.1 | $101.8 | $34.7 | $105.5 | |||||||||||
Germany | 15.8 | 18.6 | 4.2 | 38.6 | 37.6 | 0.6 | 39.2 | 64.7 | 33.6 | 59.5 | ||||||||||||||
France | 15.6 | 3.2 | 19.6 | 38.4 | 35.9 | - | 38.4 | 69.3 | 37.5 | 57.3 | ||||||||||||||
India | 4.1 | 0.9 | 6.7 | 11.7 | 11.0 | 18.8 | 30.5 | 5.3 | 28.6 | 4.6 | ||||||||||||||
Cayman Islands | 0.2 | - | 22.7 | 22.9 | 22.5 | - | 22.9 | 1.4 | 20.6 | 0.3 | ||||||||||||||
Brazil | 2.3 | 2.3 | 7.5 | 12.1 | 8.9 | 8.4 | 20.5 | 22.8 | 16.0 | 22.1 | ||||||||||||||
Netherlands | 6.2 | 1.3 | 10.2 | 17.7 | 14.1 | 0.5 | 18.2 | 24.4 | 14.2 | 25.6 | ||||||||||||||
Mexico | - | 3.0 | 4.7 | 7.7 | 4.7 | 10.2 | 17.9 | 12.3 | 16.2 | 12.0 | ||||||||||||||
Korea | 1.9 | 0.9 | 3.2 | 6.0 | 4.7 | 9.9 | 15.9 | 24.5 | 15.8 | 22.6 | ||||||||||||||
Spain | 4.4 | 1.0 | 4.4 | 9.8 | 7.4 | 4.2 | 14.0 | 27.7 | 11.5 | 20.3 | ||||||||||||||
Italy | 1.5 | 7.7 | 1.7 | 10.9 | 10.4 | 0.5 | 11.4 | 37.0 | 13.0 | 25.9 |
(1) | Included in total cross-border claims on third parties. | |
(2) | Cross-border outstandings, as described above and as required by FFIEC guidelines, generally do not recognize the benefit of margin received or hedge positions and recognize offsetting exposures only for certain products and relationships. As a result, market volatility in interest rates, foreign exchange rates and credit spreads, such as experienced in the third quarter of 2011, will cause the level of reported cross-border outstandings to increase, all else being equal. | |
(3) | Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. The FFIEC definition of commitments includes commitments to local residents to be funded with local currency liabilities originated within the country. |
111
Differences Between Country and
Cross-Border Risk
As described
in more detail in the sections above, there are significant differences between
the reporting of country risk and cross-border risk. A general summary of the
more significant differences is as follows:
Generally, country risk includes the benefit of margin received as well as offsetting exposures and hedge positions. As such, country risk, which is reported based on Citi's internal risk management standards, measures net exposure to a credit or market risk event. Cross-border risk, as defined by the FFIEC, focuses on the potential exposure if foreign governments take actions, such as enacting exchange controls, that prevent the conversion of local currency to non-local currency or restrict the remittance of funds outside the country. Unlike country risk, FFIEC cross-border risk measures exposure to the immediate obligors or counterparties domiciled in the given country or, if applicable, by the location of collateral or guarantors of the legally binding guarantees, generally without the benefit of margin received or hedge positions, and recognizes offsetting exposures only for certain products.
The differences between the presentation of country risk and cross-border risk can be substantial, including the identification of the country of risk, as described above. In addition, some of the more significant differences by product are described below:
For country risk, net derivative receivables are generally reported based on fair value, netting receivables and payables under the same legally binding netting agreement, and recognizing the benefit of margin received and any hedge positions in place. For cross-border risk, these items are also reported based on fair value and allow for netting of receivables and payables if a legally binding netting agreement is in place, but only with the same specific counterparty, and do not recognize the benefit of margin received or hedges in place. For country risk, secured financing transactions, such as repurchase agreements and reverse repurchase agreements, as well as securities loaned and borrowed, are reported based on the net credit exposure arising from the transaction, which is typically small or zero given the over-collateralized structure of these transactions. For cross-border risk, reverse repurchase agreements and securities borrowed are reported based on notional amounts and do not include the value of any collateral received (repurchase agreements and securities loaned are not included in cross-border risk reporting). For country risk, loans are reported net of hedges and collateral pledged under bankruptcy-remote structures. For cross-border risk, loans are reported without taking hedges into account. For country risk, securities in AFS and trading portfolios are reported on a net basis, netting long positions against short positions. For cross-border risk, securities in AFS and trading portfolios are not netted. For country risk, credit default swaps (CDSs) are reported based on the net notional amount of CDSs purchased and sold, assuming zero recovery from the underlying entity, and adjusted for any mark-to-market receivable or payable position. For cross-border risk, CDSs are included based on the gross notional amount sold, and do not include any offsetting purchased CDSs on the same underlying entity. Venezuelan
Operations
In 2003, the
Venezuelan government enacted currency restrictions that have restricted
Citigroup's ability to obtain U.S. dollars in Venezuela at the official foreign
currency rate. In May 2010, the government enacted new laws that have closed the
parallel foreign exchange market and established a new foreign exchange market.
Citigroup does not have access to U.S. dollars in this new market. Citigroup
uses the official rate to re-measure the foreign currency transactions in the
financial statements of its Venezuelan operations, which have U.S. dollar
functional currencies, into U.S. dollars. At December 31, 2011 and 2010,
Citigroup had net monetary assets in its Venezuelan operations denominated in
bolivars of approximately $241 million and $200 million,
respectively.
112
FAIR VALUE ADJUSTMENTS FOR DERIVATIVES AND STRUCTURED DEBT
The following discussions relate to the derivative obligor information and the fair valuation for derivatives and structured debt. See Note 23 to the Consolidated Financial Statements for additional information on Citi's derivative activities.
Fair Valuation Adjustments for
Derivatives
The fair value
adjustments applied by Citigroup to its derivative carrying values consist of
the following items:
Citigroup CVA methodology comprises two steps. First, the exposure
profile for each counterparty is determined using the terms of all individual
derivative positions and a Monte Carlo simulation or other quantitative analysis
to generate a series of expected cash flows at future points in time. The
calculation of this exposure profile considers the effect of credit risk
mitigants, including pledged cash or other collateral and any legal right of
offset that exists with a counterparty through arrangements such as netting
agreements. Individual derivative contracts that are subject to an enforceable
master netting agreement with a counterparty are aggregated for this purpose,
since it is those aggregate net cash flows that are subject to nonperformance
risk. This process identifies specific, point-in-time future cash flows that are
subject to nonperformance risk, rather than using the current recognized net
asset or liability as a basis to measure the CVA.
Second, market-based views of default
probabilities derived from observed credit spreads in the CDS market are applied
to the expected future cash flows determined in step one. Citi's own-credit CVA
is determined using Citi-specific CDS spreads for the relevant tenor. Generally,
counterparty CVA is determined using CDS spread indices for each credit rating
and tenor. For certain identified facilities where individual analysis is
practicable (for example, exposures to monoline counterparties),
counterparty-specific CDS spreads are used.
The CVA adjustment is designed to incorporate a market view of the credit
risk inherent in the derivative portfolio. However, most derivative instruments
are negotiated bilateral contracts and are not commonly transferred to third
parties. Derivative instruments are normally settled contractually or, if
terminated early, are terminated at a value negotiated bilaterally between the
counterparties. Therefore, the CVA (both counterparty and own-credit) may
not be realized upon a
settlement or termination in the normal course of business. In addition, all or
a portion of the CVA may be reversed or otherwise adjusted in future periods in
the event of changes in the credit risk of Citi or its counterparties, or
changes in the credit mitigants (collateral and netting agreements) associated
with the derivative instruments.
The table below summarizes the CVA applied to the fair value of
derivative instruments as of December 31, 2011 and 2010.
Credit valuation adjustment | |||||||
contra-liability (contra-asset) | |||||||
December 31, | December 31, | ||||||
In millions of dollars | 2011 | 2010 | |||||
Non-monoline counterparties | $ | (5,392 | ) | $ | (3,015 | ) | |
Citigroup (own) | 2,176 | 1,285 | |||||
Net non-monoline CVA | $ | (3,216 | ) | $ | (1,730 | ) | |
Monoline counterparties (1) | - | (1,548 | ) | ||||
Total CVA-derivative instruments | $ | (3,216 | ) | $ | (3,278 | ) |
(1) | The reduction in CVA on derivative instruments with monoline counterparties includes $1.4 billion of utilizations in 2011. |
Own DVA for Structured
Debt
Own debt valuation
adjustments (DVA) are recognized on Citi's debt liabilities for which the fair
value option (FVO) has been elected using Citi's credit spreads observed in the
bond market. Accordingly, the fair value of debt liabilities for which the fair
value option has been elected (other than non-recourse and similar liabilities)
is impacted by the narrowing or widening of Citi's credit spreads. Changes in
fair value resulting from changes in Citi's instrument-specific credit risk are
estimated by incorporating Citi's current credit spreads observable in the bond
market into the relevant valuation technique used to value each
liability.
The table below summarizes
pretax gains (losses) related to changes in CVA on derivative instruments, net
of hedges, and DVA on own FVO debt:
Credit/debt valuation | |||||||
adjustment gain | |||||||
(loss) | |||||||
In millions of dollars | 2011 | 2010 | |||||
CVA on derivatives, excluding
monolines, net of hedges | $ | 33 | $ | 120 | |||
CVA related to monoline
counterparties, net of hedges | 179 | 523 | |||||
Total CVA-derivative instruments | $ | 212 | $ | 643 | |||
DVA related to own FVO debt | $ | 1,774 | $ | (589 | ) | ||
Total CVA and DVA | $ | 1,986 | $ | 54 |
The CVA and DVA amounts shown above do not include the effect of counterparty credit risk embedded in non-derivative instruments. Losses on non-derivative instruments, such as bonds and loans, related to counterparty credit risk are not included in the table above.
113
CREDIT DERIVATIVES
Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined events (settlement triggers). These settlement triggers, which are defined by the form of the derivative and the referenced credit, are generally limited to the market standard of failure to pay indebtedness and bankruptcy (or comparable events) 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 on a portfolio of referenced credits or asset-backed securities, the seller of 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
fair values shown below are prior to the application of any netting agreements, cash
collateral, and market or credit valuation
adjustments.
Citi actively participates in trading a variety of credit derivatives
products as both an active two-way market-maker for clients and to manage credit
risk. The majority of this activity was transacted with other financial
intermediaries, including both banks and broker-dealers. Citi generally has a
mismatch between the total notional amounts of protection purchased and sold and
it may hold the reference assets directly, rather than entering into offsetting
credit derivative contracts as and when desired. The open risk exposures from
credit derivative contracts are largely matched after certain cash positions in
reference assets are considered and after notional amounts are adjusted, either
to a duration-based equivalent basis or to reflect the level of subordination in
tranched structures.
Citi actively monitors its counterparty credit risk in credit derivative
contracts. Approximately 96% and 89% of the gross receivables are from
counterparties with which Citi maintains collateral agreements as of December
31, 2011 and December 31, 2010, respectively. A majority of Citi's top 15
counterparties (by receivable balance owed to Citi) are banks, financial
institutions or other dealers. Contracts with these counterparties do not
include ratings-based termination events. However, counterparty ratings
downgrades may have an incremental effect by lowering the threshold at which
Citi may call for additional collateral.
114
The following tables summarize the key characteristics of Citi's credit derivatives portfolio by counterparty and derivative form as of December 31, 2011 and December 31, 2010:
December 31, 2011 | Fair values | Notionals | ||||||||||
In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | ||||||||
By industry/counterparty | ||||||||||||
Bank | $ | 57,175 | $ | 53,638 | $ | 981,085 | $ | 929,608 | ||||
Broker-dealer | 21,963 | 21,952 | 343,909 | 321,293 | ||||||||
Monoline | 10 | - | 238 | - | ||||||||
Non-financial | 95 | 130 | 1,797 | 1,048 | ||||||||
Insurance and other financial institutions | 11,611 | 9,132 | 185,861 | 142,579 | ||||||||
Total by industry/counterparty | $ | 90,854 | $ | 84,852 | $ | 1,512,890 | $ | 1,394,528 | ||||
By instrument | ||||||||||||
Credit default swaps and options | $ | 89,998 | $ | 83,419 | $ | 1,491,053 | $ | 1,393,082 | ||||
Total return swaps and other | 856 | 1,433 | 21,837 | 1,446 | ||||||||
Total by instrument | $ | 90,854 | $ | 84,852 | $ | 1,512,890 | $ | 1,394,528 | ||||
By rating | ||||||||||||
Investment grade | $ | 26,457 | $ | 23,846 | $ | 681,406 | $ | 611,447 | ||||
Non-investment grade (1) | 64,397 | 61,006 | 831,484 | 783,081 | ||||||||
Total by rating | $ | 90,854 | $ | 84,852 | $ | 1,512,890 | $ | 1,394,528 | ||||
By maturity | ||||||||||||
Within 1 year | $ | 5,707 | $ | 5,244 | $ | 281,373 | $ | 266,723 | ||||
From 1 to 5 years | 56,740 | 54,553 | 1,031,575 | 947,211 | ||||||||
After 5 years | 28,407 | 25,055 | 199,942 | 180,594 | ||||||||
Total by maturity | $ | 90,854 | $ | 84,852 | $ | 1,512,890 | $ | 1,394,528 | ||||
December 31, 2010 | Fair values | Notionals | ||||||||||
In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | ||||||||
By industry/counterparty | ||||||||||||
Bank | $ | 37,586 | $ | 35,727 | $ | 820,211 | $ | 784,080 | ||||
Broker-dealer | 15,428 | 16,239 | 319,625 | 312,131 | ||||||||
Monoline | 1,914 | 2 | 4,409 | - | ||||||||
Non-financial | 93 | 70 | 1,277 | 1,463 | ||||||||
Insurance and other financial institutions | 10,108 | 7,760 | 177,171 | 125,442 | ||||||||
Total by industry/counterparty | $ | 65,129 | $ | 59,798 | $ | 1,322,693 | $ | 1,223,116 | ||||
By instrument | ||||||||||||
Credit default swaps and options | $ | 64,840 | $ | 58,225 | $ | 1,301,514 | $ | 1,221,211 | ||||
Total return swaps and other | 289 | 1,573 | 21,179 | 1,905 | ||||||||
Total by instrument | $ | 65,129 | $ | 59,798 | $ | 1,322,693 | $ | 1,223,116 | ||||
By rating | ||||||||||||
Investment grade | $ | 18,427 | $ | 15,368 | $ | 547,171 | $ | 487,270 | ||||
Non-investment grade (1) | 46,702 | 44,430 | 775,522 | 735,846 | ||||||||
Total by rating | $ | 65,129 | $ | 59,798 | $ | 1,322,693 | $ | 1,223,116 | ||||
By maturity | ||||||||||||
Within 1 year | $ | 1,716 | $ | 1,817 | $ | 164,735 | $ | 162,075 | ||||
From 1 to 5 years | 33,853 | 34,298 | 935,632 | 853,808 | ||||||||
After 5 years | 29,560 | 23,683 | 222,326 | 207,233 | ||||||||
Total by maturity | $ | 65,129 | $ | 59,798 | $ | 1,322,693 | $ | 1,223,116 |
(1) | Also includes not-rated credit derivative instruments. |
115
SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Note 1 to the Consolidated Financial Statements contains a summary of Citigroup's significant accounting policies, including a discussion of recently issued accounting pronouncements. These policies, as well as estimates made by management, are integral to the presentation of Citi's results of operations and financial condition. While all of these policies require a certain level of management judgment and estimates, this section highlights and discusses the significant accounting policies that require management to make highly difficult, complex or subjective judgments and estimates at times regarding matters that are inherently uncertain and susceptible to change. Management has discussed each of these significant accounting policies, the related estimates, and its judgments with the Audit Committee of the Board of Directors. Additional information about these policies can be found in Note 1 to the Consolidated Financial Statements.
Valuations of Financial
Instruments
Citigroup holds
fixed income and equity securities, derivatives, retained interests in
securitizations, investments in private equity, and other financial instruments.
In addition, Citi purchases securities under agreements to resell (reverse
repos) and sells securities under agreements to repurchase (repos). Citigroup
holds its investments, trading assets and liabilities, and resale and repurchase
agreements on the Consolidated Balance Sheet to meet customer needs, to manage
liquidity needs and interest rate risks, and for proprietary trading and private
equity investing.
Substantially all of the assets and liabilities
described in the preceding paragraph are reflected at fair value on Citi's
Consolidated Balance Sheet. In addition, certain loans, short-term borrowings,
long-term debt and deposits as well as certain securities borrowed and loaned
positions that are collateralized with cash are carried at fair value.
Approximately 38.8% and 37.3% of total assets, and 15.7% and 16.6% of total
liabilities, were accounted for at fair value as of December 31, 2011 and 2010,
respectively.
When available, Citi generally
uses quoted market prices to determine fair value and classifies such items
within Level 1 of the fair value hierarchy established under ASC
820-10, Fair Value Measurements
and Disclosures (see Note 25 to
the Consolidated Financial Statements). If quoted market prices are not
available, fair value is based upon internally developed valuation models that
use, where possible, current market-based or independently sourced market
parameters, such as interest rates, currency rates and option volatilities.
Where a model is internally developed and used to price a significant product,
it is subject to validation and testing by independent personnel. Such models
are often based on a discounted cash flow analysis. In addition, 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 in Level 3 even though there may be some
significant inputs that are readily observable.
The credit crisis caused some markets to become illiquid, thus reducing the availability of certain observable data used by Citi's valuation techniques. This illiquidity, in at least certain markets, continued through 2011. When or if liquidity returns to these markets, the valuations will revert to using the related observable inputs in verifying internally calculated values. For additional information on Citigroup's fair value analysis, see "Managing Global Risk."
Recognition of Changes in
Fair Value
Changes in the
valuation of the trading assets and liabilities, as well as all other assets
(excluding available-for-sale securities and derivatives in qualifying cash flow
hedging relationships) and liabilities carried at fair value, are recorded in
the Consolidated Statement of Income. Changes in the valuation of
available-for-sale securities, other than write-offs and credit impairments, and
the effective portion of changes in the valuation of derivatives in qualifying
cash flow hedging relationships generally are recorded in Accumulated other comprehensive income (loss) (AOCI), which is a component of Stockholders'
equity on the Consolidated
Balance Sheet. A full description of Citi's policies and procedures relating to
recognition of changes in fair value can be found in Notes 1, 25, 26 and 27 to
the Consolidated Financial Statements.
Evaluation of
Other-than-Temporary Impairment
Citi conducts and documents periodic reviews of all securities with
unrealized losses to evaluate whether the impairment is other-than-temporary.
Under the guidance for debt securities, other-than-temporary impairment (OTTI)
is recognized in earnings in the Consolidated Statement of Income for debt
securities that Citi has an intent to sell or that Citi 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 Citi 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.
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 available-for-sale securities, while such losses related
to held-to-maturity securities are not recorded, as these investments are
carried at their amortized cost (less any other-than-temporary impairment). For
securities transferred to held-to-maturity from Trading account assets , amortized cost is defined as the fair value
amount 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 held-to-maturity from available-for-sale, 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.
116
Regardless of the classification of
the securities as available-for-sale or held-to-maturity, Citi assesses each position with an unrealized loss
for OTTI.
Management assesses equity method
investments with fair value less than carrying value for OTTI, as discussed in Note 15 to the Consolidated Financial
Statements. For investments that management does not plan to sell prior to recovery of value, or Citi is not likely to be
required to sell, various factors are considered in assessing OTTI. For investments that Citi plans to sell prior to
recovery of value, or would likely be required to sell and there is no expectation that the fair value will recover prior to
the expected sale date, the full impairment would be recognized in the Consolidated Statement of Income.
At December 31, 2011, Citi
had several equity method investments that had temporary impairment, including its investments in Akbank and the
Morgan Stanley Smith Barney joint venture. As of December 31, 2011, management does not plan to sell those investments prior to
recovery of value and it is not more likely than not that Citi will be required to sell those investments. For additional information on these equity method investments, see Note 15 to the Consolidated Financial Statements (Evaluating Investments for Other-Than-Temporary Impairments) below.
CVA/DVA
Methodology
ASC 820-10
requires that Citi's own credit risk be considered in determining the market
value of any Citi liability carried at fair value. These liabilities include
derivative instruments as well as debt and other liabilities for which the fair
value option has been elected. The credit valuation adjustment (CVA) is
recognized on the balance sheet as a reduction or increase in the associated
derivative asset or liability to arrive at the fair value (carrying value) of
the derivative asset or liability. The debt valuation adjustment (DVA) is
recognized on the balance sheet as a reduction or increase in the associated
fair value option debt liability to arrive at the fair value of the liability.
For additional information, see "Fair Value Adjustments for Derivatives and
Structured Debt" above.
Allowance for Credit Losses
Allowance for Funded
Lending Commitments
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 covering these respective 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, non-homogeneous 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, where 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. 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 . Statistically calculated losses inherent in the classifiably managed portfolio for performing and de minimis non-performing 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 credit rating agencies; and (ii) historical default and loss data, including rating agency information regarding default rates from 1983 to 2011, and internal data dating to the early 1970s on severity of losses in the event of default. Additional adjustments. These 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 specifically known items, such as current environmental factors and credit trends.In addition, representatives from both the risk management and finance staffs that cover business areas with delinquency-managed portfolios containing smaller 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 housing prices, unemployment and GDP. This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist.
117
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 Citi's credit costs in any quarter and could result in a change in the allowance. Changes to the allowance are recorded in the Provision for loan losses.
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 Consolidated Balance Sheet in Other liabilities . Changes to the allowance for unfunded lending
commitments are recorded in the Provision for unfunded lending commitments.
For a further description of the loan loss reserve
and related accounts, see Notes 1 and 17 to the Consolidated Financial
Statements.
Securitizations
Citigroup securitizes a number of different asset
classes as a means of strengthening its balance sheet and accessing competitive
financing rates in the market. Under these securitization programs, assets are
transferred into a trust and used as collateral by the trust to obtain
financing. The cash flows from assets in the trust service the corresponding
trust liabilities and equity interests. If the structure of the trust meets
certain accounting guidelines, trust assets are treated as sold and are no
longer reflected as assets of Citi. If these guidelines are not met, the assets
continue to be recorded as Citi's assets, with the financing activity recorded
as liabilities on Citi's Consolidated Balance Sheet.
Citigroup also assists its clients in securitizing
their financial assets and packages and securitizes financial assets purchased
in the financial markets. Citi may also provide administrative, asset
management, underwriting, liquidity facilities and/or other services to the
resulting securitization entities and may continue to service some of these
financial assets.
Elimination of Qualifying
Special Purpose Entities (QSPEs) and Changes in the Consolidation Model for
VIEs
In June 2009, the FASB
issued SFAS No. 166, Accounting
for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (SFAS 166, now incorporated into
ASC Topic 860) and SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167, now incorporated into ASC Topic 810).
Citigroup adopted both standards on January 1, 2010 and elected to apply SFAS
166 and SFAS 167 prospectively. Accordingly, prior periods have not been
restated.
SFAS 166 eliminated the concept of QSPEs
from U.S. GAAP and amends the guidance on accounting for transfers of financial
assets. SFAS 167 details three key changes to the consolidation model. First,
former QSPEs are now included in the scope of SFAS 167. Second, the FASB has
changed the method of analyzing which party to a variable interest entity (VIE)
should consolidate the VIE (known as the primary beneficiary) to a qualitative
determination of which party to the VIE has "power," combined with potentially
significant benefits or losses, instead of the previous quantitative risks and
rewards model. The party that has "power" has the ability to direct the
activities of the VIE that most significantly impact the VIE's economic
performance. Third, the new standard requires that the primary beneficiary
analysis be re-evaluated whenever circumstances change. The previous rules
required reconsideration of the primary beneficiary only when specified
reconsideration events occurred.
As a result of implementing these new accounting standards, Citigroup
consolidated certain of the VIEs and former QSPEs with which it had involvement
on January 1, 2010. Further, certain asset transfers, including transfers of
portions of assets, that would have been considered sales under SFAS 140 are
considered secured borrowings under the new standards. Citigroup consolidated
all required VIEs and former QSPEs, as of January 1, 2010, at carrying values or
unpaid principal amounts, except for certain private-label residential mortgage
and mutual fund deferred sales commissions VIEs, for which the fair value option
was elected.
The incremental impact of
these changes on GAAP assets and resulting risk-weighted assets for those VIEs
and former QSPEs that were consolidated or deconsolidated for accounting
purposes as of January 1, 2010 was an increase in GAAP assets of $137.3 billion
and $24.0 billion in risk-weighted assets. In addition, the cumulative effect of
adopting these new accounting standards as of January 1, 2010 resulted in an
aggregate after-tax charge to Retained earnings of $8.4
billion, reflecting the net effect of an overall pretax charge to Retained earnings (primarily relating to the establishment of loan
loss reserves and the reversal of residual interests held) of $13.4 billion and
the recognition of related deferred tax assets amounting to $5.0
billion.
Non-Consolidation of
Certain Investment Funds
The
FASB issued Accounting Standards Update No. 2010-10, Consolidation (Topic 810), Amendments for Certain
Investment Funds (ASU 2010-10) in
the first quarter of 2010. ASU 2010-10 provides a deferral of the requirements
of SFAS 167 for certain investment funds. Citigroup has determined that a
majority of the investment vehicles managed by it are provided a deferral from
the requirements of SFAS 167 as they meet these criteria. These vehicles
continue to be evaluated under the requirements of FIN 46(R) (ASC 810-10), prior
to the implementation of SFAS 167.
118
Where
Citi 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.
For additional information, see Notes 1 and 22 to the Consolidated Financial
Statements.
Goodwill
Citigroup has recorded Goodwill of $25.4 billion (1.4% of assets) and $26.2 billion (1.4% of assets) on
its Consolidated Balance Sheet at December 31, 2011 and December 31, 2010,
respectively. No goodwill impairment was recorded during 2009, 2010 and
2011.
Goodwill is allocated to
Citi's reporting units at the date the goodwill is initially recorded. Once
goodwill has been allocated to the reporting units, it generally no longer
retains its identification with a particular acquisition, but instead becomes
identified with the reporting unit as a whole. As a result, the full fair value
of each reporting unit is available to support the value of goodwill allocated
to the unit. As of December 31, 2011, Citigroup operated in three core business
segments, as discussed above. Goodwill impairment testing is performed at the
reporting unit level, one level below the business segment.
The reporting unit structure in 2011 was
consistent with the reporting units identified in the second quarter of 2009 as
a result of the change in Citi's organizational structure. During 2011, goodwill
was allocated to disposals and tested for impairment under these reporting
units. The nine reporting units were 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 and Local Consumer
Lending-Other.
Under ASC 350, Intangibles-Goodwill and Other, the goodwill impairment analysis is done in two steps. The first step
requires a comparison of the fair value of the individual reporting unit to its
carrying value, including goodwill. If the fair value of the reporting unit is
in excess of the carrying value, the related goodwill is considered not to be
impaired and no further analysis is necessary. If the carrying value of the
reporting unit exceeds the fair value, there is an indication of potential
impairment and a second step of testing is performed to measure the amount of
impairment, if any, for that reporting unit.
When required, the second step of testing involves calculating the
implied fair value of goodwill for each of the affected reporting units. The
implied fair value of goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination, which is the excess of the fair
value of the reporting unit determined in step one over the fair value of the
net assets and identifiable intangibles as if the reporting unit were being
acquired. If the amount of the goodwill allocated to the reporting unit
exceeds the implied fair value
of the goodwill in the pro forma purchase price allocation, an impairment charge
is recorded for the excess. A recognized impairment charge cannot
exceed the amount of goodwill allocated to a reporting unit and cannot subsequently be
reversed even if the fair value of the reporting unit recovers.
Goodwill impairment testing involves management
judgment, requiring an assessment of whether the carrying value of the reporting
unit can be supported by the fair value of the individual reporting unit using
widely accepted valuation techniques, such as the market approach (earnings
multiples and/or transaction multiples) and/or the income approach (discounted
cash flow (DCF) method). In applying these methodologies, Citi utilizes a number
of factors, including actual operating results, future business plans, economic
projections, and market data. Management may engage an independent valuation
specialist to assist in Citi's valuation process.
Citigroup engaged the services of an independent
valuation specialist in 2010 and 2011 to assist in Citi's valuation for most of
the reporting units employing both the market approach and DCF method. Citi
believes that the DCF method, using management projections for the selected
reporting units and an appropriate risk-adjusted discount rate, is 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 2010 and
2011, the resulting fair values were relatively consistent and appropriate
weighting was given to outputs from both methods.
The DCF method used at the time of each impairment
test used discount rates that Citi believes adequately reflected the risk and
uncertainty in the financial markets generally and specifically in the
internally generated cash flow projections. The DCF method employs a capital
asset pricing model in estimating the discount rate. Citi continues to value the
remaining reporting units where it believes the risk of impairment to be low,
using primarily the market approach.
Citi prepares a formal three-year strategic plan for its businesses on an
annual basis. These projections incorporate certain external economic
projections developed at the point in time the strategic plan is developed. For
the purpose of performing any impairment test, the three-year forecast is
updated by Citi to reflect current economic conditions as of the testing date.
Citi used updated long-range financial forecasts as a basis for its annual
goodwill impairment test performed as of July 1, 2011.
The results of the July 1, 2011 test validated
that the fair values exceeded the carrying values for the reporting units that
had goodwill at the testing date. Citi is also required to test goodwill for
impairment whenever events or circumstances make it more likely than not that
impairment may have occurred, such as a significant adverse change in the
business climate, a decision to sell or dispose of all or a significant portion
of a reporting unit, or a significant decline in Citi's stock price. No interim
goodwill impairment tests were performed during 2011.
119
Since none of the
Company's reporting units are publicly traded, individual reporting unit fair
value determinations cannot be directly correlated to Citigroup's stock price.
The sum of the fair values of the reporting units at July 1, 2011 exceeded the
overall market capitalization of Citi as of July 1, 2011. However, Citi believes
that it was not meaningful to reconcile the sum of the fair values of its
reporting units to its market capitalization during the 2011 annual impairment
test due to the fact that Citi's market capitalization reflects the execution
risk in a transaction involving Citigroup due to its size. The individual
reporting units' fair values are not subject to the same level of execution risk
or a business model that is perceived to be complex.
See also
Note 18 to the Consolidated Financial Statements.
Income Taxes
Citi is subject to the income tax laws of the U.S., its states
and local municipalities and the foreign jurisdictions in which Citi operates.
These tax laws are complex and are subject to differing interpretations by the
taxpayer and the relevant governmental taxing authorities. 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 audit.
In establishing a provision for income tax
expense, Citi must make judgments and interpretations about the application of
these inherently complex tax laws. Citi must also make estimates about when in
the future certain items will affect taxable income in the various tax
jurisdictions, both domestic and foreign. Deferred taxes are recorded for the
future consequences of events that have been recognized in the financial
statements or tax returns, based upon enacted tax laws and rates. Deferred tax
assets (DTAs) are recognized subject to management's judgment that realization
is more likely than not.
At December 31, 2011, Citi had recorded
net DTAs of approximately $51.5 billion, a decrease of $0.6 billion from $52.1
billion at December 31, 2010.
Although realization is not assured, Citi
believes that the realization of the recognized net DTA of $51.5 billion at
December 31, 2011 is more likely than not based upon expectations as to future
taxable income in the jurisdictions in which the DTAs arise and based on
available tax planning strategies (as defined in ASC 740, Income Taxes) that would be
implemented, if necessary, to prevent a carryforward from expiring.
In
general, Citi would need to generate approximately $111 billion of taxable
income during the respective carryforward periods (discussed below) 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.
As of December 31, 2011, Citi was no longer in a three-year cumulative
loss position for purposes of evaluating its DTAs. While this removes a
significant piece of negative evidence in evaluating the need for a valuation
allowance, Citi will continue to weigh the evidence supporting its DTAs. Citi
has concluded that there are two pieces of positive evidence that support the
full realizability of its DTAs. First, Citi forecasts sufficient taxable income
in the carryforward period, exclusive of tax planning strategies. Second, Citi
has sufficient tax planning strategies, including potential sales of assets, in
which it could realize the excess of appreciated value over the tax basis of its
assets. The amount of the DTAs considered realizable, however, is necessarily
subject to Citi's estimates of future taxable income in the jurisdictions in
which it operates during the respective carry-forward periods, which is in turn
subject to overall market and global economic conditions.
The
following table summarizes Citi's net DTAs balance at December 31, 2011 and
2010:
Jurisdiction/Component
DTA balance | DTA balance | ||||
In billions of dollars | December 31, 2011 | December 31, 2010 | |||
U.S. federal (1) | |||||
Consolidated tax return net operating | |||||
loss (NOL) | $ | - | $ | 3.8 | |
Consolidated tax return foreign tax | |||||
credit (FTC) | 15.8 | 13.9 | |||
Consolidated tax return general | |||||
business credit (GBC) | 2.1 | 1.7 | |||
Future tax deductions and credits | 23.0 | 21.8 | |||
Other (2) | 1.4 | 0.4 | |||
Total U.S. federal | $ | 42.3 | $ | 41.6 | |
State and local | |||||
New York NOLs | $ | 1.3 | $ | 1.7 | |
Other state NOLs | 0.7 | 0.8 | |||
Future tax deductions | 2.2 | 2.1 | |||
Total state and local | $ | 4.2 | $ | 4.6 | |
Foreign | |||||
APB 23 subsidiary NOLs | $ | 0.5 | $ | 0.5 | |
Non-APB 23 subsidiary NOLs | 1.8 | 1.5 | |||
Future tax deductions | 2.7 | 3.9 | |||
Total foreign | $ | 5.0 | $ | 5.9 | |
Total | $ | 51.5 | $ | 52.1 |
(1) | Included in the net U.S. federal DTAs of $42.3 billion at December 31, 2011 are deferred tax liabilities of $3 billion that will reverse in the relevant carryforward period and may be used to support the DTAs, and $0.2 billion in compensation deductions that reduced additional paid-in capital in January 2012 and for which no adjustment to such DTAs is permitted at December 31, 2011 because the related stock compensation was not yet deductible to Citi. | |
(2) | Includes $1.2 billion and $0.1 billion for 2011 and 2010, respectively, of tax carryforwards related to companies that file U.S. federal tax returns separate from Citigroup's consolidated U.S. federal tax return. |
120
The U.S. federal
consolidated tax return NOL carry-forward component of the DTAs of $3.8 billion
at December 31, 2010 was utilized in 2011. For the reasons discussed herein,
Citi believes the U.S. federal and New York state and city NOL carryforward
period of 20 years provides enough time to fully utilize the DTAs pertaining to
the existing NOL carryforwards 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.
Because
the U.S. federal consolidated tax return NOL carryforward has been utilized, Citi can begin to utilize its
foreign tax credit (FTC) and general business credit (GBC) carryforwards. The
U.S. FTC carryforward period is 10 years. Utilization of foreign tax credits 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 $56
billion as of December 31, 2011 are allowed to be reclassified as foreign source
income to the extent of 50% of domestic source income produced in subsequent
years, and such resulting foreign source income would in fact be sufficient to
cover the foreign tax credits being carried forward. As such, Citi believes the foreign source taxable income limitation will not be an
impediment to the foreign tax credit carryforward usage as long as Citi can
generate sufficient domestic taxable income within the 10-year carryforward
period.
Regarding the estimate of future taxable income, Citi has projected its
pretax earnings, predominantly based upon the "core" businesses that Citi
intends to conduct going forward. These "core" businesses have produced steady
and strong earnings in the past. Citi believes that it will generate sufficient
pretax earnings within the 10-year carryforward period referenced above to be
able to fully utilize the foreign tax credit carryforward, in addition to any
foreign tax credits produced in such period.
As
mentioned above, Citi has examined tax planning strategies available to it in
accordance with ASC 740 that would be employed, if necessary, to prevent a
carryforward from expiring and to accelerate the usage of its carryforwards.
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 carryforward period (e.g., selling
appreciated intangible assets and electing straight-line depreciation),
accelerating deductible temporary differences outside the U.S., holding onto
available-for-sale debt securities with losses until they mature 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
carryforward periods.
As previously disclosed, Citi's ability to utilize its DTAs to offset
future taxable income may be significantly limited if Citi experiences an
"ownership change," as defined in Section 382 of the Internal Revenue Code of
1986, as amended (Code). Generally, an ownership change will occur if there is a
cumulative change in Citi's ownership by "5-percent shareholders" (as defined in
the Code) that exceeds 50 percentage points over a rolling three-year period.
Any limitation on Citi's ability to utilize its DTAs arising from an ownership
change under Section 382 will depend on the value of Citi's stock at the time of
the ownership change.
See Note 10 to the Consolidated Financial
Statements for a further description of Citi's tax provision and related income
tax assets and liabilities.
Approximately $11 billion of the net DTAs
was included in Tier 1 Common and Tier 1 Capital as of December 31,
2011.
Litigation
Accruals
See the discussion in Note 29 to
the Consolidated Financial Statements for information regarding Citi's policies
on establishing accruals for legal and regulatory claims.
Accounting Changes and Future
Application of Accounting Standards
See
Note 1 to the Consolidated Financial Statements for a discussion of "Accounting
Changes" and the "Future Application of Accounting Standards."
121
DISCLOSURE CONTROLS AND PROCEDURES
Citi's disclosure controls and procedures
are designed to ensure that information required to be disclosed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, including
without limitation that information required to be disclosed by Citi in its SEC
filings is accumulated and communicated to management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) as appropriate to
allow for timely decisions regarding required
disclosure.
Citi's
Disclosure Committee assists the CEO and CFO in their responsibilities to
design, establish, maintain and evaluate the effectiveness of Citi's disclosure
controls and procedures. The Disclosure Committee is responsible for, among
other things, the oversight, maintenance and implementation of the disclosure
controls and procedures, subject to the supervision and oversight of the CEO and
CFO.
Citi's management, with the participation of its CEO and CFO, has
evaluated the effectiveness of Citigroup's disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2011
and, based on that evaluation, the CEO and CFO have concluded that at that date
Citigroup's disclosure controls and procedures were effective.
122
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Citi's management is responsible for establishing and maintaining adequate internal control over financial reporting. Citi's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Citi's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of Citi's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that Citi's receipts and expenditures are made only in accordance with authorizations of Citi's management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Citi's assets that could have a material effect on its financial statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. In addition, given Citi's large size,
complex operations and global footprint, lapses or deficiencies in internal
controls may occur from time to time.
Citi management assessed the effectiveness
of Citigroup's internal control over financial reporting as of December 31, 2011
based on the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based
on this assessment, management believes that, as of December 31, 2011, Citi's
internal control over financial reporting was effective. In addition, there were
no changes in Citi's internal control over financial reporting during the fiscal
quarter ended December 31, 2011 that materially affected, or are reasonably
likely to materially affect, Citi's internal control over financial
reporting.
The effectiveness of Citi's internal control over financial
reporting as of December 31, 2011 has been audited by KPMG LLP, Citi's
independent registered public accounting firm, as stated in their report below,
which expressed an unqualified opinion on the effectiveness of Citi's internal
control over financial reporting as of December 31, 2011.
123
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K including but not limited to statements included within the Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
"forward-looking statements" within the meaning of the rules and regulations of
the SEC. In addition, Citigroup also may make forward-looking statements in its
other documents filed or furnished with the SEC, and its management may make
forward-looking statements orally to analysts, investors, representatives of the
media and others.
Generally, forward-looking statements are not based on historical facts
but instead represent only Citigroup's and its management's beliefs regarding
future events. Such statements may be identified by words such as believe, expect, anticipate, intend, estimate,
may increase, may fluctuate , and similar
expressions, or future or conditional verbs such as will, should, would and could .
Such statements are based on management's current expectations and are
subject to uncertainty and changes in circumstances. Actual results and capital
and other financial condition may differ materially from those included in these
statements due to a variety of factors, including without limitation the
precautionary statements included in this Form 10-K, the factors listed and
described under "Risk Factors" above and the factors described below:
the potential negative impact to Citi of regulatory requirements in the U.S. and other jurisdictions aimed at facilitating the orderly resolution of large financial institutions; Citi's ability to hire and retain highly qualified employees as a result of regulatory requirements regarding compensation practices or otherwise; the impact of existing and potential future regulations on Citi's ability and costs to participate in securitization transactions, as well as the nature and profitability of securitization transactions generally; potential future changes to key accounting standards utilized by Citi and their impact on how Citi records and reports its financial condition and results of operations, including whether Citi would be able to meet any required transition timelines; the potential negative impact the ongoing Eurozone debt crisis could have on Citi's businesses, results of operations, financial condition and liquidity, particularly if sovereign debt defaults, significant bank failures or defaults and/or the exit of one or more countries from the European Monetary Union occur; the continued uncertainty relating to the sustainability and pace of economic recovery and their continued effect on certain of Citi's businesses, particularly S&B and the U.S. mortgage businesses within Citi Holdings – Local Consumer Lending ; the potential impact of any further downgrade of the U.S. government credit rating, or concerns regarding a potential downgrade, on Citi's businesses, results of operations, capital and funding and liquidity; risks arising from Citi's extensive operations outside the U.S., particularly in emerging markets, including, without limitation, exchange controls, limitations on foreign investments, sociopolitical instability, nationalization, closure of branches or subsidiaries, confiscation of assets, and sovereign volatility, as well as increased compliance and regulatory risks and costs; the impact of external factors, such as market disruptions or negative market perceptions of Citi or the financial services industry generally, on Citi's liquidity and/or costs of funding; the potential negative impact on Citi's funding and liquidity of a reduction in Citi's or its subsidiaries' credit ratings; the potential outcome of the extensive litigation, investigations and inquiries pertaining to Citi's U.S. mortgage-related activities and the impact of any such outcomes on Citi's businesses, business practices, reputation, financial condition or results of operations; the negative impact of the remaining assets in Citi Holdings on Citi's results of operations and Citi's ability to more productively utilize the capital supporting these assets; the potential negative impact to Citi's common stock price and market perception if Citi is unable to increase its common stock dividend or initiate a share repurchase program;
124
Citi's ability to achieve its targeted expense reduction levels as well as ensuring the highest level of productivity of Citi's previous or future investment spending; the potential negative impact on the value of Citi's deferred tax assets (DTAs) if U.S., state or foreign tax rates are reduced, or if other changes are made to the U.S. tax system, such as changes to the tax treatment of foreign business income; the expiration of the active financing income exception on Citi's tax expense; the potential impact to Citi from evolving cybersecurity and other technological risks and attacks, which could result in additional costs, reputational damage, regulatory penalties and financial losses; the accuracy of Citi's assumptions and estimates used to prepare its financial statements and the potential for Citi to experience significant losses if these assumptions or estimates are incorrect;
Any forward-looking statements made by or on behalf of Citigroup speak only as to the date they are made, and Citi does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.
125
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders
Citigroup Inc.:
We have audited Citigroup Inc. and
subsidiaries' (the "Company" or "Citigroup") internal control over financial
reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying management's annual report on internal
control over financial reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We conducted
our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and
procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Citigroup maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2011, based on criteria
established in Internal Control-Integrated
Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Citigroup as
of December 31, 2011 and 2010, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 2011, and our report dated February 24,
2012 expressed an unqualified opinion on those consolidated financial
statements.
New York, New York
February 24, 2012
126
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Citigroup Inc.:
We have audited the accompanying
consolidated balance sheets of Citigroup Inc. and subsidiaries (the "Company" or
"Citigroup") as of December 31, 2011 and 2010, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 2011. 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.
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, 2011 and 2010, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
As
discussed in Note 1 to the Consolidated Financial Statements, in 2010 the
Company changed its method of accounting for qualifying special purpose
entities, variable interest entities and embedded credit derivatives.
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, 2011, 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
February 24, 2012 expressed an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
New York, New York
February 24, 2012
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128
FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS | ||
Consolidated Statement of Income- | ||
For the Years Ended December 31, 2011, 2010 and 2009 | 131 | |
Consolidated Balance Sheet- | ||
December 31, 2011, and 2010 | 132 | |
Consolidated Statement of Changes in Stockholders' Equity- | ||
For the Years Ended December 31, 2011, 2010 and 2009 | 134 | |
Consolidated Statement of Cash Flows- | ||
For the Years Ended December 31, 2011, 2010 and 2009 | 136 | |
NOTES TO CONSOLIDATED FINANCIAL | ||
STATEMENTS | ||
Note 1 – Summary of Significant Accounting Policies | 137 | |
Note 2 – Business Divestitures | 153 | |
Note 3 – Discontinued Operations | 154 | |
Note 4 – Business Segments | 156 | |
Note 5 – Interest Revenue and Expense | 157 | |
Note 6 – Commissions and Fees | 157 | |
Note 7 – Principal Transactions | 158 | |
Note 8 – Incentive Plans | 158 | |
Note 9 – Retirement Benefits | 165 | |
Note 10 – Income Taxes | 177 | |
Note 11 – Earnings per Share | 181 | |
Note 12 – Federal Funds/Securities Borrowed, Loaned, and | ||
Subject to Repurchase Agreements | 182 | |
Note 13 – Brokerage Receivables and Brokerage Payables | 183 | |
Note 14 – Trading Account Assets and Liabilities | 183 | |
Note 15 – Investments | 184 | |
Note 16 – Loans | 194 | |
Note 17 – Allowance for Credit Losses | 205 | |
Note 18 – Goodwill and Intangible Assets | 207 | |
Note 19 – Debt | 210 |
Note 20 – Regulatory Capital | 213 | |
Note 21 – Changes in Accumulated Other
Comprehensive Income (Loss) | 214 | |
Note 22 – Securitizations and Variable Interest Entities | 215 | |
Note 23 – Derivatives Activities | 232 | |
Note 24 – Concentrations of Credit Risk | 241 | |
Note 25 – Fair Value Measurement | 241 | |
Note 26 – Fair Value Elections | 255 | |
Note 27 – Fair Value of Financial Instruments | 260 | |
Note 28 – Pledged
Securities, Collateral, Commitments and Guarantees | 261 | |
Note 29 – Contingencies | 267 | |
Note 30 – Subsequent Events | 276 | |
Note 31 – Condensed Consolidating Financial
Statement Schedules | 276 | |
Note 32 – Selected Quarterly Financial Data (Unaudited) | 285 |
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130
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME | Citigroup Inc. and Subsidiaries | ||||||||
Year ended December 31, | |||||||||
In millions of dollars, except per-share amounts | 2011 | 2010 | 2009 | ||||||
Revenues | |||||||||
Interest revenue | $ | 72,681 | $ | 79,282 | $ | 76,398 | |||
Interest expense | 24,234 | 25,096 | 27,902 | ||||||
Net interest revenue | $ | 48,447 | $ | 54,186 | $ | 48,496 | |||
Commissions and fees | $ | 12,850 | $ | 13,658 | $ | 15,485 | |||
Principal transactions | 7,234 | 7,517 | 6,068 | ||||||
Administration and other fiduciary fees | 3,995 | 4,005 | 5,195 | ||||||
Realized gains (losses) on sales of investments, net | 1,997 | 2,411 | 1,996 | ||||||
Other-than-temporary impairment losses on investments | |||||||||
Gross impairment losses | (2,413 | ) | (1,495 | ) | (7,262 | ) | |||
Less: Impairments recognized in AOCI | 159 | 84 | 4,356 | ||||||
Net impairment losses recognized in earnings | (2,254 | ) | (1,411 | ) | $ | (2,906 | ) | ||
Insurance premiums | 2,647 | $ | 2,684 | $ | 3,020 | ||||
Other revenue | 3,437 | 3,551 | 2,931 | ||||||
Total non-interest revenues | $ | 29,906 | $ | 32,415 | $ | 31,789 | |||
Total revenues, net of interest expense | $ | 78,353 | $ | 86,601 | $ | 80,285 | |||
Provisions for credit losses and for benefits and claims | |||||||||
Provision for loan losses | $ | 11,773 | $ | 25,194 | $ | 38,760 | |||
Policyholder benefits and claims | 972 | 965 | 1,258 | ||||||
Provision (release) for unfunded lending commitments | 51 | (117 | ) | 244 | |||||
Total provisions for credit losses and for benefits and claims | $ | 12,796 | $ | 26,042 | $ | 40,262 | |||
Operating expenses | |||||||||
Compensation and benefits | $ | 25,688 | $ | 24,430 | $ | 24,987 | |||
Premises and equipment | 3,326 | 3,331 | 3,697 | ||||||
Technology/communication | 5,133 | 4,924 | 5,215 | ||||||
Advertising and marketing | 2,346 | 1,645 | 1,415 | ||||||
Restructuring | - | - | (113 | ) | |||||
Other operating | 14,440 | 13,045 | 12,621 | ||||||
Total operating expenses | $ | 50,933 | $ | 47,375 | $ | 47,822 | |||
Income (loss) from continuing operations before income taxes | $ | 14,624 | $ | 13,184 | $ | (7,799 | ) | ||
Provision (benefit) for income taxes | 3,521 | 2,233 | (6,733 | ) | |||||
Income (loss) from continuing operations | $ | 11,103 | $ | 10,951 | $ | (1,066 | ) | ||
Discontinued operations | |||||||||
Income (loss) from discontinued operations | $ | 23 | $ | 72 | $ | (653 | ) | ||
Gain (loss) on sale | 155 | (702 | ) | 102 | |||||
Provision (benefit) for income taxes | 66 | (562 | ) | (106 | ) | ||||
Income (loss) from discontinued operations, net of taxes | $ | 112 | $ | (68 | ) | $ | (445 | ) | |
Net income (loss) before attribution of noncontrolling interests | $ | 11,215 | $ | 10,883 | $ | (1,511 | ) | ||
Net income attributable to noncontrolling interests | 148 | 281 | 95 | ||||||
Citigroup's net income (loss) | $ | 11,067 | $ | 10,602 | $ | (1,606 | ) | ||
Basic earnings per share (1)(2) | |||||||||
Income (loss) from continuing operations | $ | 3.69 | $ | 3.66 | $ | (7.61 | ) | ||
Income (loss) from discontinued operations, net of taxes | 0.04 | (0.01 | ) | (0.38 | ) | ||||
Net income (loss) | $ | 3.73 | $ | 3.65 | $ | (7.99 | ) | ||
Weighted average common shares outstanding | 2,909.8 | 2,877.6 | 1,156.8 | ||||||
Diluted earnings per share (1)(2) | |||||||||
Income (loss) from continuing operations | $ | 3.59 | $ | 3.55 | $ | (7.61 | ) | ||
Income (loss) from discontinued operations, net of taxes | 0.04 | (0.01 | ) | (0.38 | ) | ||||
Net income (loss) | $ | 3.63 | $ | 3.54 | $ | (7.99 | ) | ||
Adjusted weighted average common shares outstanding | 2,998.8 | 2,967.8 | 1,209.9 |
(1) | Earnings per share amounts and adjusted weighted average common shares outstanding for all periods reflect Citigroup's 1-for-10 reverse stock split, which was effective May 6, 2011. | |
(2) | Due to the net loss available to common shareholders in 2009, loss available to common stockholders for basic EPS was used to calculate diluted EPS. Including the effect of dilutive securities would result in anti-dilution. |
See Notes to the Consolidated Financial Statements.
131
CONSOLIDATED BALANCE SHEET | Citigroup Inc. and Subsidiaries | |||||
December 31, | ||||||
In millions of dollars, except shares | 2011 | 2010 | ||||
Assets | ||||||
Cash and due from banks (including segregated cash and other deposits) | $ | 28,701 | $ | 27,972 | ||
Deposits with banks | 155,784 | 162,437 | ||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $142,862 and $87,512 | ||||||
as of December 31, 2011 and 2010, respectively, at fair value) | 275,849 | 246,717 | ||||
Brokerage receivables | 27,777 | 31,213 | ||||
Trading account assets (including $109,719 and $117,554 pledged to creditors at December 31, 2011 and 2010, respectively) | 291,734 | 317,272 | ||||
Investments (including $14,940 and $12,546 pledged to creditors at December 31, 2011 and 2010, respectively, and $274,040 and | ||||||
$281,174 at December 31, 2011 and 2010, respectively, at fair value) | 293,413 | 318,164 | ||||
Loans, net of unearned income | ||||||
Consumer (including $1,326 and $1,745 as of December 31, 2011 and 2010, respectively, at fair value) | 423,731 | 455,732 | ||||
Corporate (including $3,939 and $2,627 at December 31, 2011 and 2010, respectively, at fair value) | 223,511 | 193,062 | ||||
Loans, net of unearned income | $ | 647,242 | $ | 648,794 | ||
Allowance for loan losses | (30,115 | ) | (40,655 | ) | ||
Total loans, net | $ | 617,127 | $ | 608,139 | ||
Goodwill | 25,413 | 26,152 | ||||
Intangible assets (other than MSRs) | 6,600 | 7,504 | ||||
Mortgage servicing rights (MSRs) | 2,569 | 4,554 | ||||
Other assets (including $11,241 and $19,530 as of December 31, 2011 and 2010, respectively, at fair value) | 148,911 | 163,778 | ||||
Total assets | $ | 1,873,878 | $ | 1,913,902 |
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, | |||||||
In millions of dollars | 2011 | 2010 | |||||
Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs | |||||||
Cash and due from banks | $ | 536 | $ | 799 | |||
Trading account assets | 567 | 6,509 | |||||
Investments | 10,582 | 7,946 | |||||
Loans, net of unearned income | |||||||
Consumer (including $1,292 and $1,718 as of December 31, 2011 and December 31, 2010, respectively, fair value) | 103,275 | 117,768 | |||||
Corporate (including $198 and $425 as of December 31, 2011 and December 31, 2010, respectively, fair value) | 23,780 | 23,537 | |||||
Loans, net of unearned income | $ | 127,055 | $ | 141,305 | |||
Allowance for loan losses | (8,000 | ) | (11,346 | ) | |||
Total loans, net | $ | 119,055 | $ | 129,959 | |||
Other assets | 859 | 680 | |||||
Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs | $ | 131,599 | $ | 145,893 |
Statement continues on the next page.
132
CONSOLIDATED BALANCE SHEET | Citigroup Inc. and Subsidiaries | |||||
(Continued) | December 31, | |||||
In millions of dollars, except shares | 2011 | 2010 | ||||
Liabilities | ||||||
Non-interest-bearing deposits in U.S. offices | $ | 119,437 | $ | 78,268 | ||
Interest-bearing deposits in U.S. offices (including $848 and $662 at December 31, 2011 and 2010, respectively, at fair value) | 223,851 | 225,731 | ||||
Non-interest-bearing deposits in offices outside the U.S. | 57,357 | 55,066 | ||||
Interest-bearing deposits in offices outside the U.S. (including $478 and $603 at December 31, 2011 and 2010, respectively, at fair value) | 465,291 | 485,903 | ||||
Total deposits | $ | 865,936 | $ | 844,968 | ||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $112,770 | ||||||
and $121,193 as of December 31, 2011 and 2010, respectively, at fair value) | 198,373 | 189,558 | ||||
Brokerage payables | 56,696 | 51,749 | ||||
Trading account liabilities | 126,082 | 129,054 | ||||
Short-term borrowings (including $1,354 and $2,429 at December 31, 2011 and 2010, respectively, at fair value) | 54,441 | 78,790 | ||||
Long-term debt (including $24,172 and $25,997 at December 31, 2011 and 2010, respectively, at fair value) | 323,505 | 381,183 | ||||
Other liabilities (including $3,742 and $9,710 as of December 31, 2011 and 2010, respectively, at fair value) | 69,272 | 72,811 | ||||
Total liabilities | $ | 1,694,305 | $ | 1,748,113 | ||
Stockholders' equity | ||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares: 12,038 at December 31, 2011 and December 31, 2010, at | ||||||
aggregate liquidation value | $ | 312 | $ | 312 | ||
Common stock ($0.01 par value; authorized shares: 6 billion), issued shares: 2,937,755,921 at December 31, 2011 | ||||||
and 2,922,401,623 at December 31, 2010 | 29 | 29 | ||||
Additional paid-in capital | 105,804 | 101,287 | ||||
Retained earnings | 90,520 | 79,559 | ||||
Treasury stock, at cost: 2011-13,877,688 shares and 2010-16,565,572 shares | (1,071 | ) | (1,442 | ) | ||
Accumulated other comprehensive income (loss) | (17,788 | ) | (16,277 | ) | ||
Total Citigroup stockholders' equity | $ | 177,806 | $ | 163,468 | ||
Noncontrolling interest | 1,767 | 2,321 | ||||
Total equity | $ | 179,573 | $ | 165,789 | ||
Total liabilities and equity | $ | 1,873,878 | $ | 1,913,902 |
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, | ||||
In millions of dollars | 2011 | 2010 | ||
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the | ||||
general credit of Citigroup | ||||
Short-term borrowings | $ | 21,009 | $ | 22,046 |
Long-term debt (including $1,558 and $3,942 as of December 31, 2011 and December 31, 2010, respectively, fair value) | 50,451 | 69,710 | ||
Other liabilities | 587 | 813 | ||
Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not | ||||
have recourse to the general credit of Citigroup | $ | 72,047 | $ | 92,569 |
See Notes to the Consolidated Financial Statements.
133
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | Citigroup Inc. and Subsidiaries | ||||||||||||||
Year ended December 31, | |||||||||||||||
Amounts | Shares | ||||||||||||||
In millions of dollars, except shares in thousands | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||
Preferred stock at aggregate liquidation value | |||||||||||||||
Balance, beginning of year | $ | 312 | $ | 312 | $ | 70,664 | 12 | 12 | 829 | ||||||
Redemption or retirement of preferred stock | - | - | (74,005 | ) | - | - | (824 | ) | |||||||
Issuance of new preferred stock | - | - | 3,530 | - | - | 7 | |||||||||
Preferred stock Series H discount accretion | - | - | 123 | - | - | - | |||||||||
Balance, end of year | $ | 312 | $ | 312 | $ | 312 | 12 | 12 | 12 | ||||||
Common stock and additional paid-in capital | |||||||||||||||
Balance, beginning of year | $ | 101,316 | $ | 98,428 | $ | 19,222 | 2,922,402 | 2,862,610 | 567,174 | ||||||
Employee benefit plans | 766 | (736 | ) | (4,395 | ) | 3,540 | 46,703 | - | |||||||
Conversion of preferred stock to common stock | - | - | 61,963 | - | - | 1,737,259 | |||||||||
Reset of convertible preferred stock conversion price | - | - | 1,285 | - | - | - | |||||||||
Issuance of shares and T-DECs for TARP repayment | - | - | 20,298 | - | 1,270 | 558,177 | |||||||||
Issuance of TARP-related warrants | - | - | 88 | - | - | - | |||||||||
ADIA Upper Decs Equity Units Purchase Contract | 3,750 | 3,750 | - | 11,781 | 11,781 | - | |||||||||
Other | 1 | (126 | ) | (33 | ) | 33 | 38 | - | |||||||
Balance, end of year | $ | 105,833 | $ | 101,316 | $ | 98,428 | 2,937,756 | 2,922,402 | 2,862,610 | ||||||
Retained earnings | |||||||||||||||
Balance, beginning of year | $ | 79,559 | $ | 77,440 | $ | 86,521 | |||||||||
Adjustment to opening balance, net of taxes (1) (2) | - | (8,483 | ) | 413 | |||||||||||
Adjusted balance, beginning of period | $ | 79,559 | $ | 68,957 | $ | 86,934 | |||||||||
Citigroup's net income (loss) | 11,067 | 10,602 | (1,606 | ) | |||||||||||
Common dividends (3) | (81 | ) | 10 | (36 | ) | ||||||||||
Preferred dividends | (26 | ) | (9 | ) | (3,202 | ) | |||||||||
Preferred stock Series H discount accretion | - | - | (123 | ) | |||||||||||
Reset of convertible preferred stock conversion price | - | - | (1,285 | ) | |||||||||||
Conversion of preferred stock to common stock | - | - | (3,242 | ) | |||||||||||
Other | 1 | (1 | ) | - | |||||||||||
Balance, end of year | $ | 90,520 | $ | 79,559 | $ | 77,440 | |||||||||
Treasury stock, at cost | |||||||||||||||
Balance, beginning of year | $ | (1,442 | ) | $ | (4,543 | ) | $ | (9,582 | ) | (16,566 | ) | (14,283 | ) | (22,168 | ) |
Issuance of shares pursuant to employee benefit plans | 372 | 3,106 | 5,020 | 2,714 | (2,128 | ) | 7,925 | ||||||||
Treasury stock acquired (4) | (1 | ) | (6 | ) | (3 | ) | (26 | ) | (162 | ) | (97 | ) | |||
Other | - | 1 | 22 | - | 7 | 57 | |||||||||
Balance, end of year | $ | (1,071 | ) | $ | (1,442 | ) | $ | (4,543 | ) | (13,878 | ) | (16,566 | ) | (14,283 | ) |
Statement continues on the next page.
134
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | Citigroup Inc. and Subsidiaries | |||||||||||
(Continued) | ||||||||||||
Year ended December 31, | ||||||||||||
Amounts | Shares | |||||||||||
In millions of dollars, except shares in thousands | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||
Accumulated other comprehensive income (loss) | ||||||||||||
Balance, beginning of year | $ | (16,277 | ) | $ | (18,937 | ) | $ | (25,195 | ) | |||
Adjustment to opening balance, net of taxes (2) | - | - | (413 | ) | ||||||||
Adjusted balance, beginning of year | $ | (16,277 | ) | $ | (18,937 | ) | $ | (25,608 | ) | |||
Net change in unrealized gains and losses on investment securities, net of taxes | 2,360 | 1,952 | 5,713 | |||||||||
Net change in cash flow hedges, net of taxes | (170 | ) | 532 | 2,007 | ||||||||
Net change in foreign currency translation adjustment, net of taxes and hedges | (3,524 | ) | 820 | (203 | ) | |||||||
Pension liability adjustment, net of taxes (5) | (177 | ) | (644 | ) | (846 | ) | ||||||
Net change in Accumulated other comprehensive income (loss) | ||||||||||||
before attribution of noncontrolling interest | $ | (1,511 | ) | $ | 2,660 | $ | 6,671 | |||||
Balance, end of year | $ | (17,788 | ) | $ | (16,277 | ) | $ | (18,937 | ) | |||
Total Citigroup common stockholders' equity and | ||||||||||||
common shares outstanding | $ | 177,494 | $ | 163,156 | $ | 152,388 | 2,923,878 | 2,905,836 | 2,848,327 | |||
Total Citigroup stockholders' equity | $ | 177,806 | $ | 163,468 | $ | 152,700 | ||||||
Noncontrolling interest | ||||||||||||
Balance, beginning of year | $ | 2,321 | $ | 2,273 | $ | 2,392 | ||||||
Initial origination of a noncontrolling interest | 28 | 412 | 285 | |||||||||
Transactions between noncontrolling-interest | ||||||||||||
shareholders and the related consolidated subsidiary | - | - | (134 | ) | ||||||||
Transactions between Citigroup and the noncontrolling-interest shareholders | (274 | ) | (231 | ) | (354 | ) | ||||||
Net income attributable to noncontrolling-interest shareholders | 148 | 281 | 95 | |||||||||
Dividends paid to noncontrolling-interest shareholders | (67 | ) | (99 | ) | (17 | ) | ||||||
Accumulated other comprehensive income-net change in unrealized gains and | ||||||||||||
losses on investment securities, net of tax | (5 | ) | 1 | 5 | ||||||||
Accumulated other comprehensive income (loss)-net change | ||||||||||||
in FX translation adjustment, net of tax | (87 | ) | (27 | ) | 39 | |||||||
All other | (297 | ) | (289 | ) | (38 | ) | ||||||
Net change in noncontrolling interests | $ | (554 | ) | $ | 48 | $ | (119 | ) | ||||
Balance, end of year | $ | 1,767 | $ | 2,321 | $ | 2,273 | ||||||
Total equity | $ | 179,573 | $ | 165,789 | $ | 154,973 | ||||||
Comprehensive income (loss) | ||||||||||||
Net income (loss) before attribution of noncontrolling interests | $ | 11,215 | $ | 10,883 | $ | (1,511 | ) | |||||
Net change in Accumulated other comprehensive income (loss) | (1,603 | ) | 2,634 | 6,715 | ||||||||
Total comprehensive income (loss) | $ | 9,612 | $ | 13,517 | $ | 5,204 | ||||||
Comprehensive income (loss) attributable to the | ||||||||||||
noncontrolling interests | $ | 56 | $ | 255 | $ | 139 | ||||||
Comprehensive income (loss) attributable to Citigroup | $ | 9,556 | $ | 13,262 | $ | 5,065 |
(1) | 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. | |
(2) | The adjustment to the opening balances for Retained earnings and Accumulated other comprehensive income (loss) in 2009 represents the cumulative effect of initially adopting ASC 320-10-35-34 (FSP FAS 115-2 and FAS 124-2). See Note 1 to the Consolidated Financial Statements. | |
(3) | 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. Common dividends declared were as follows: $0.01 per share in the second, third and fourth quarters of 2011; $0.01 per share in the first quarter of 2009. | |
(4) | All open market repurchases were transacted under an existing authorized share repurchase plan and relate to customer fails/errors. | |
(5) | Reflects adjustments to the funded status of pension and postretirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation. See Note 9 to the Consolidated Financial Statements. |
See Notes to the Consolidated Financial Statements.
135
CONSOLIDATED STATEMENT OF CASH FLOWS | Citigroup Inc. and Subsidiaries | ||||||||
Year ended December 31, | |||||||||
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Cash flows from operating activities of continuing operations | |||||||||
Net income (loss) before attribution of noncontrolling interests | $ | 11,215 | $ | 10,883 | $ | (1,511 | ) | ||
Net income attributable to noncontrolling interests | 148 | 281 | 95 | ||||||
Citigroup's net income (loss) | $ | 11,067 | $ | 10,602 | $ | (1,606 | ) | ||
Income (loss) from discontinued operations, net of taxes | 17 | 215 | (402 | ) | |||||
Gain (loss) on sale, net of taxes | 95 | (283 | ) | (43 | ) | ||||
Income (loss) from continuing operations-excluding noncontrolling interests | $ | 10,955 | $ | 10,670 | $ | (1,161 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of | |||||||||
continuing operations | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | $ | 250 | $ | 302 | $ | 434 | |||
(Additions)/reductions to deferred policy acquisition costs | (54 | ) | (98 | ) | (461 | ) | |||
Depreciation and amortization | 2,872 | 2,664 | 2,853 | ||||||
Deferred tax benefit | (74 | ) | (964 | ) | (7,709 | ) | |||
Provision for credit losses | 11,824 | 25,077 | 39,004 | ||||||
Change in trading account assets | 25,538 | 15,601 | 25,864 | ||||||
Change in trading account liabilities | (2,972 | ) | (8,458 | ) | (25,382 | ) | |||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | (29,132 | ) | (24,695 | ) | (43,726 | ) | |||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | 8,815 | 35,277 | (47,669 | ) | |||||
Change in brokerage receivables net of brokerage payables | 8,383 | (6,676 | ) | 1,847 | |||||
Realized gains from sales of investments | (1,997 | ) | (2,411 | ) | (1,996 | ) | |||
Change in loans held-for-sale | 1,021 | 2,483 | (1,711 | ) | |||||
Other, net | 9,312 | (13,086 | ) | 5,203 | |||||
Total adjustments | $ | 33,786 | $ | 25,016 | $ | (53,449 | ) | ||
Net cash provided by (used in) operating activities of continuing operations | $ | 44,741 | $ | 35,686 | $ | (54,610 | ) | ||
Cash flows from investing activities of continuing operations | |||||||||
Change in deposits with banks | $ | 6,653 | $ | 4,977 | $ | 2,519 | |||
Change in loans | (11,559 | ) | 60,730 | (148,651 | ) | ||||
Proceeds from sales and securitizations of loans | 10,022 | 9,918 | 241,367 | ||||||
Purchases of investments | (314,250 | ) | (406,046 | ) | (281,115 | ) | |||
Proceeds from sales of investments | 182,566 | 183,688 | 85,395 | ||||||
Proceeds from maturities of investments | 139,959 | 189,814 | 133,614 | ||||||
Capital expenditures on premises and equipment and capitalized software | (3,448 | ) | (2,363 | ) | (2,264 | ) | |||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,323 | 2,619 | 6,303 | ||||||
Net cash provided by (used in) investing activities of continuing operations | $ | 11,266 | $ | 43,337 | $ | 37,168 | |||
Cash flows from financing activities of continuing operations | |||||||||
Dividends paid | $ | (107 | ) | $ | (9 | ) | $ | (3,237 | ) |
Issuance of common stock | - | - | 17,514 | ||||||
Issuances of T-DECs-APIC | - | - | 2,784 | ||||||
Issuance of ADIA Upper Decs equity units purchase contract | 3,750 | 3,750 | - | ||||||
Treasury stock acquired | (1 | ) | (6 | ) | (3 | ) | |||
Stock tendered for payment of withholding taxes | (230 | ) | (806 | ) | (120 | ) | |||
Issuance of long-term debt | 30,242 | 33,677 | 110,088 | ||||||
Payments and redemptions of long-term debt | (89,091 | ) | (75,910 | ) | (123,743 | ) | |||
Change in deposits | 23,858 | 9,065 | 61,718 | ||||||
Change in short-term borrowings | (25,067 | ) | (47,189 | ) | (51,995 | ) | |||
Net cash (used in) provided by financing activities of continuing operations | $ | (56,646 | ) | $ | (77,428 | ) | $ | 13,006 | |
Effect of exchange rate changes on cash and cash equivalents | $ | (1,301 | ) | $ | 691 | $ | 632 | ||
Discontinued operations | |||||||||
Net cash provided by (used in) discontinued operations | $ | 2,669 | $ | 214 | $ | 23 | |||
Change in cash and due from banks | $ | 729 | $ | 2,500 | $ | (3,781 | ) | ||
Cash and due from banks at beginning of period | 27,972 | 25,472 | 29,253 | ||||||
Cash and due from banks at end of period | $ | 28,701 | $ | 27,972 | $ | 25,472 | |||
Supplemental disclosure of cash flow information for continuing operations | |||||||||
Cash paid/(received) during the year for income taxes | $ | 2,705 | $ | 4,307 | $ | (289 | ) | ||
Cash paid during the year for interest | $ | 21,230 | $ | 23,209 | $ | 28,389 | |||
Non-cash investing activities | |||||||||
Transfers to OREO and other repossessed assets | $ | 1,284 | $ | 2,595 | $ | 2,880 | |||
Transfers to trading account assets from investments (available-for-sale) | - | 12,001 | - | ||||||
Transfers to trading account assets from investments (held-to-maturity) | $ | 12,700 | $ | - | $ | - |
See Notes to the Consolidated Financial Statements.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements include the accounts of Citigroup and its subsidiaries. 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 below, 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.
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.
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: (1)
the entity has equity that is insufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties;
or (2) 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.
Prior to
January 1, 2010, the Company consolidated a VIE if it had a majority of the
expected losses or a majority of the expected residual returns or both. As of
January 1, 2010, when the Company adopted SFAS 167's amendments to the VIE
consolidation guidance, 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).
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 as well as all other
unconsolidated VIEs are continually monitored by the Company to determine if any
events have occurred that could cause its primary beneficiary status to change.
These events include:
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").
Foreign Currency
Translation
Assets and liabilities of
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 a separate component of
stockholders' equity, along with related hedge and tax effects, until realized
upon sale or liquidation of the foreign operation. Revenues and expenses of
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 .
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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:
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 income.
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 .
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.
Securities Borrowed and Securities
Loaned
Securities borrowing and lending
transactions generally do not constitute a sale of the underlying securities for
accounting purposes, and so are treated as collateralized financing transactions
when the transaction involves the exchange of cash. Such transactions are
recorded at the amount of cash 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. Irrespective of whether the Company has elected fair value
accounting, fees paid or received for all securities lending and borrowing
transactions are recorded in Interest expense or Interest
revenue at the contractually specified
rate.
With respect to securities borrowed or loaned, the Company monitors the
market 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.
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 so
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are treated as collateralized financing
transactions. As set out 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 market 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. See related discussion of the assessment of the effective
control for repurchase agreements in "Future Application of Accounting
Standards" below.
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 accounts for certain
repurchase agreements and securities lending agreements as sales. The key
distinction resulting in these agreements being accounted for as sales is a
reduction in initial margin or restriction in daily maintenance margin. At
December 31, 2011 and December 31, 2010, a nominal amount of these transactions
were accounted for as sales that reduced Trading account assets .
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-for-investment 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 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-for-investment to held-for-sale, the loan is reclassified to held-for-sale, 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 .
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. 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 U.S.
Consumer loans, 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, re-aging
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 twelve 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.
Charge-off policies
Citi's charge-off policies follow the general guidelines
below:
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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.
Impaired
Corporate loans and leases are written down to the extent that principal is
judged 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
included in Other assets . The practice of the 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 the time of origination. 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, as well as 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) 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
calculated 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
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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 to achieve Citi's strategy 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. Enforcing a guarantee via legal
action against the guarantor is not the primary means of resolving a troubled
loan situation and rarely occurs. 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. 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 our 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 or commercial real estate (CRE) loan
is carried at a value in excess of the appraised value due to a
guarantee.
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 non-performing and not guaranteed.
Consumer loans
For Consumer loans, each portfolio of non-modified
smaller-balance, 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 from
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 pre-modification rate, which may include interest rate
increases under the original contractual agreement with the borrower.
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.
Reserve Estimates and
Policies
Management provides reserves for
an estimate of probable losses inherent in the funded loan portfolio on the
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
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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 covering these
respective business areas present recommended reserve balances for their funded
and unfunded lending portfolios along with supporting quantitative and
qualitative data. The quantitative data include:
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 housing prices, unemployment 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. Changes to the Allowance for loan losses are recorded in the Provision for loan losses.
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 (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.
Consumer Mortgage-Representations
and Warranties
The majority of Citi's
exposure to representation and warranty claims relates to its U.S. Consumer
mortgage business within CitiMortgage.
When selling a loan, Citi makes various
representations and warranties relating to, among other things, the
following:
The specific representations and warranties made by Citi depend on the nature of the transaction and the requirements of the buyer. Market conditions and credit rating agency requirements may also affect representations and warranties and the other provisions to which Citi may agree in loan sales.
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In the event of a breach of these
representations and warranties, Citi may be required to either repurchase the
mortgage loans with the identified defects (generally at unpaid principal
balance plus accrued interest) or indemnify ("make-whole") the investors for
their losses. Citi's representations and warranties are generally not subject to
stated limits in amount or time of coverage.
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 from the U.S.
government sponsored entities (GSEs).
Citi has recorded a reserve for its
exposure to losses from the obligation to repurchase previously sold loans
(referred to as the repurchase reserve) that is included in Other liabilities in the
Consolidated Balance Sheet. In estimating the repurchase reserve, Citi considers
reimbursements estimated to be received from third-party correspondent lenders
and indemnification agreements relating to previous acquisitions of mortgage
servicing rights. The estimated reimbursements are based on Citi's analysis of
its most recent collection trends and the financial solvency of the
correspondents.
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 .
The
repurchase reserve is calculated by individual sales vintage (i.e., the year the
loans were sold) and is based on various assumptions. These assumptions contain
a level of uncertainty and risk that, if different from actual results, could
have a material impact on the reserve amount. The most significant assumptions
used to calculate the reserve levels are as follows:
Securities and Banking -Sponsored Legacy Private
Label
Residential Mortgage Securitizations-Representations
and Warranties
Legacy
mortgage securitizations sponsored by Citi's S&B business have represented a much smaller portion of
Citi's mortgage business.
The
mortgages included in S&B -sponsored legacy securitizations were purchased from parties outside of S&B .
Representations and warranties relating to the mortgage loans included in each trust issuing the securities were made either
by Citi, by third-party sellers (which were also often the originators of the loans), or both. These representations and
warranties were generally made or assigned to the issuing trust and related to, among other things, the following:
To date, Citi has received actual claims for breaches of representations and warranties relating to only a small percentage of the mortgages included in these securitization transactions, although the pace of claims remains volatile and has recently increased.
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 tests, whereby
Goodwill is allocated to the Company's reporting units and an impairment is
deemed to exist if the carrying value of a reporting unit exceeds its estimated
fair value. 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.
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
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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.
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 net of 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.
The Company consolidates VIEs when it has
both: (1) power to direct activities of the VIE that most significantly impact
the entity's economic performance and (2) an obligation to absorb losses or
right to receive benefits from the entity that could potentially be significant
to the VIE.
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 non-consolidated 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.
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.
Transfers of Financial
Assets
For a transfer of financial assets
to be considered a sale: the assets must have been isolated from the Company,
even in bankruptcy or other receivership; 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 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.
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 .
To qualify as an accounting hedge under the hedge accounting rules (versus a management 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
144
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, as well as
rollovers of short-term fixed-rate liabilities and floating-rate liabilities and
forecasted debt issuances.
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.
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.
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 .
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-of-service 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 charges fluctuate with changes in
Citigroup's stock price.
Income Taxes
The Company is subject to the income tax laws of the U.S., its
states and municipalities and those of the foreign jurisdictions in which the
Company 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/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 .
145
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 provision and related income tax 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.
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.
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, T-DECs, 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.
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.
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 special-purpose entities as discussed in Note 22.
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.
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.
146
ACCOUNTING CHANGES
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
ending 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 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).
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:
Effective in the third quarter of 2011, as a result of adopting ASU 2011-02, certain loans modified under short-term programs since 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 approximately $60 million.
Change in Accounting for Embedded
Credit Derivatives
In March
2010, the FASB issued ASU 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.
The
Company has elected to account for certain beneficial interests issued by
securitization vehicles under the fair value option that are included in the
table below. 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:
July 1, 2010 | ||||||||||||||
Pretax cumulative effect adjustment to Retained earnings | ||||||||||||||
Gross unrealized losses | Gross unrealized gains | |||||||||||||
In millions of dollars at June 30, 2010 | Amortized cost | recognized in AOCI | (1) | recognized in AOCI | Fair value | |||||||||
Mortgage-backed securities | ||||||||||||||
Prime | $ | 390 | $ | - | $ | 49 | $ | 439 | ||||||
Alt-A | 550 | - | 54 | 604 | ||||||||||
Subprime | 221 | - | 6 | 227 | ||||||||||
Non-U.S. residential | 2,249 | - | 38 | 2,287 | ||||||||||
Total mortgage-backed securities | $ | 3,410 | $ | - | $ | 147 | $ | 3,557 | ||||||
Asset-backed securities | ||||||||||||||
Auction rate securities | $ | 4,463 | $ | 401 | $ | 48 | $ | 4,110 | ||||||
Other asset-backed | 4,189 | 19 | 164 | 4,334 | ||||||||||
Total asset-backed securities | $ | 8,652 | $ | 420 | $ | 212 | $ | 8,444 | ||||||
Total reclassified debt securities | $ | 12,062 | $ | 420 | $ | 359 | $ | 12,001 |
(1) | 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. |
147
Beginning July 1, 2010, the Company elected to account for these beneficial interests under the fair value option for various reasons, including:
(1) | To reduce the operational burden of assessing beneficial interests for bifurcation under the guidance in the ASU; | |
(2) | 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 | |
(3) | 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 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 are 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 are
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.
Elimination of Qualifying Special
Purpose Entities
(QSPEs) and Changes in the Consolidation Model for
VIEs
In June 2009, the FASB issued SFAS
No. 166, Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140 (SFAS 166, now incorporated into ASC Topic 860) and SFAS No. 167, Amendments to FASB Interpretation No.
46(R) (SFAS 167, now incorporated into ASC
Topic 810). Citigroup adopted both standards on January 1, 2010. Citigroup has
elected to apply SFAS 166 and SFAS 167 prospectively. Accordingly, prior periods
have not been restated.
SFAS 166 eliminates the concept of QSPEs from U.S. GAAP and amends the
guidance on accounting for transfers of financial assets. SFAS 167 details three
key changes to the consolidation model. First, former QSPEs are now included in
the scope of SFAS 167. Second, the FASB has changed the method of analyzing
which party to a VIE should consolidate the VIE (known as the primary
beneficiary) to a qualitative determination of which party to the VIE has
"power," combined with potentially significant benefits or losses, instead of
the previous quantitative risks and rewards model. The party that has "power"
has the ability to direct the activities of the VIE that most significantly
impact the VIE's economic performance. Third, the new standard requires that the
primary beneficiary analysis be re-evaluated whenever circumstances change. The
previous rules required reconsideration of the primary beneficiary only when
specified reconsideration events occurred.
As a result of implementing these new
accounting standards, Citigroup consolidated certain of the VIEs and former
QSPEs with which it had involvement on January 1, 2010. Further, certain asset
transfers, including transfers of portions of assets, that would have been
considered sales under SFAS 140 are considered secured borrowings under the new
standards.
In accordance with SFAS 167, Citigroup employed three
approaches for newly consolidating certain VIEs and former QSPEs as of January
1, 2010. The first approach requires initially measuring the assets,
liabilities, and noncontrolling interests of the VIEs and former QSPEs at their
carrying values (the amounts at which the assets, liabilities, and
noncontrolling interests would have been carried in the Consolidated Financial
Statements, if Citigroup had always consolidated these VIEs and former QSPEs).
The second approach measures assets at their unpaid principal amount, and is
applied when determining carrying values is not practicable. The third approach
is to elect the fair value option, in which all of the financial assets and
liabilities of certain designated VIEs and former QSPEs are recorded at fair
value upon adoption of SFAS 167 and continue to be marked to market thereafter,
with changes in fair value reported in earnings.
Citigroup
consolidated all required VIEs and former QSPEs, as of January 1, 2010, at
carrying values or unpaid principal amounts, except for certain private label
residential mortgage and mutual fund deferred sales commissions VIEs, for which
the fair value option was elected. The following tables present the impact of
adopting these new accounting standards applying these
approaches.
148
The incremental impact of these changes on GAAP assets and resulting risk-weighted assets for those VIEs and former QSPEs that were consolidated or deconsolidated for accounting purposes as of January 1, 2010 was as follows:
Incremental | |||||||
Risk- | |||||||
GAAP | weighted | ||||||
In billions of dollars | assets | assets | (1) | ||||
Impact of consolidation | |||||||
Credit cards | $ | 86.3 | $ | 0.8 | |||
Commercial paper conduits | 28.3 | 13.0 | |||||
Student loans | 13.6 | 3.7 | |||||
Private label Consumer mortgages | 4.4 | 1.3 | |||||
Municipal tender option bonds | 0.6 | 0.1 | |||||
Collateralized loan obligations | 0.5 | 0.5 | |||||
Mutual fund deferred sales commissions | 0.5 | 0.5 | |||||
Subtotal | $ | 134.2 | $ | 19.9 | |||
Impact of deconsolidation | |||||||
Collateralized debt obligations (2) | $ | 1.9 | $ | 3.6 | |||
Equity-linked notes (3) | 1.2 | 0.5 | |||||
Total | $ | 137.3 | $ | 24.0 |
(1) | The net increase in risk-weighted assets (RWA) was $10 billion, principally reflecting the deduction from gross RWA of $13 billion of loan loss reserves (LLR) recognized from the adoption of SFAS 166/167, which exceeded the 1.25% limitation on LLRs includable in Tier 2 Capital. | |
(2) | The implementation of SFAS 167 resulted in the deconsolidation of certain synthetic and cash collateralized debt obligation (CDO) VIEs that were previously consolidated under the requirements of ASC 810 (FIN 46(R)). Due to the deconsolidation of these synthetic CDOs, Citigroup's Consolidated Balance Sheet now reflects the recognition of current receivables and payables related to purchased and written credit default swaps entered into with these VIEs, which had previously been eliminated in consolidation. The deconsolidation of certain cash CDOs has a minimal impact on GAAP assets, but causes a sizable increase in risk-weighted assets. The impact on risk-weighted assets results from replacing, in Citigroup's trading account, largely investment grade securities owned by these VIEs when consolidated, with Citigroup's holdings of non-investment grade or unrated securities issued by these VIEs when deconsolidated. | |
(3) | Certain equity-linked note client intermediation transactions that had previously been consolidated under the requirements of ASC 810 (FIN 46 (R)) because Citigroup had repurchased and held a majority of the notes issued by the VIE were deconsolidated with the implementation of SFAS 167, because Citigroup does not have the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. Upon deconsolidation, Citigroup's Consolidated Balance Sheet reflects both the equity-linked notes issued by the VIEs and held by Citigroup as trading assets, as well as related trading liabilities in the form of prepaid equity derivatives. These trading assets and trading liabilities were formerly eliminated in consolidation. |
The following table reflects the incremental impact of adopting SFAS 166/167 on Citigroup's GAAP assets, liabilities, and stockholders' equity.
In billions of dollars | January 1, 2010 | |||
Assets | ||||
Trading account assets | $ | (9.9 | ) | |
Investments | (0.6 | ) | ||
Loans | 159.4 | |||
Allowance for loan losses | (13.4 | ) | ||
Other assets | 1.8 | |||
Total assets | $ | 137.3 | ||
Liabilities | ||||
Short-term borrowings | $ | 58.3 | ||
Long-term debt | 86.1 | |||
Other liabilities | 1.3 | |||
Total liabilities | $ | 145.7 | ||
Stockholders' equity | ||||
Retained earnings | $ | (8.4 | ) | |
Total stockholders' equity | $ | (8.4 | ) | |
Total liabilities and stockholders' equity | $ | 137.3 |
The preceding
tables reflect: (i) the portion of the assets of former QSPEs to which
Citigroup, acting as principal, had transferred assets and received sales
treatment prior to January 1, 2010 (totaling approximately $712.0 billion), and
(ii) the assets of significant VIEs as of January 1, 2010 with which Citigroup
was involved (totaling approximately $219.2 billion) that were previously
unconsolidated and are required to be consolidated under the new accounting
standards. Due to the variety of transaction structures and the level of
Citigroup's involvement in individual former QSPEs and VIEs, only a portion of
the former QSPEs and VIEs with which the Company was involved were required to
be consolidated.
In addition, the cumulative effect of adopting these new
accounting standards as of January 1, 2010 resulted in an aggregate after-tax
charge to Retained earnings of $8.4 billion, reflecting the net effect of an overall
pretax charge to Retained
earnings (primarily relating to the
establishment of loan loss reserves and the reversal of residual interests held)
of $13.4 billion and the recognition of related deferred tax assets amounting to
$5.0 billion.
149
Non-Consolidation of Certain
Investment Funds
The FASB issued
Accounting Standards Update No. 2010-10, Consolidation (Topic 810), Amendments for Certain Investment
Funds (ASU 2010-10) in the first quarter of
2010. ASU 2010-10 provides a deferral of the requirements of SFAS 167 where the
following criteria are met:
– 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 vehicles managed by Citigroup are
provided a deferral from the requirements of SFAS 167 because they meet these
criteria. These vehicles 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.
Investments in Certain Entities
that Calculate Net
Asset Value per Share
As of December 31, 2009, the Company adopted Accounting Standards Update
(ASU) No. 2009-12, Investments in Certain
Entities that Calculate Net Asset Value per Share (or its
Equivalent) , which provides guidance on
measuring the fair value of certain alternative investments. The ASU permits
entities to use net asset value as a practical expedient to measure the fair
value of their investments in certain investment funds. The ASU also requires
additional disclosures regarding the nature and risks of such investments and
provides guidance on the classification of such investments as Level 2 or Level
3 of the fair value hierarchy. This ASU did not have a material impact on the
Company's accounting for its investments in alternative investment
funds.
Multiple Foreign Exchange
Rates
In May 2010, the FASB issued ASU
2010-19, Foreign Currency Issues: Multiple
Foreign Currency Exchange Rates . The ASU
requires certain disclosure in situations when an entity's reported balances in
U.S. dollar monetary assets held by its foreign entities differ from the actual
U.S. dollar-denominated balances due to different foreign exchange rates used in
remeasurement and translation. The ASU also clarifies the reporting for the
difference between the reported balances and the U.S. dollar-denominated
balances upon the initial adoption of highly inflationary accounting. The ASU
does not have a material impact on the Company's accounting.
Effect of a Loan Modification When
the Loan Is Part of a
Pool Accounted for as a Single Asset (ASU No.
2010-18)
In April 2010, the FASB issued
ASU No. 2010-18, Effect of a Loan Modification When the Loan is Part of a
Pool Accounted for as a Single Asset . As a
result of the amendments in this ASU, modifications of loans that are accounted
for within a pool do not result in the removal of those loans from the pool,
even if the modification of those loans would otherwise be considered a troubled
debt restructuring. An entity will continue to be required to consider whether
the pool of assets in which the loan is included is impaired if expected cash
flows for the pool change. The ASU was effective for reporting periods ending on
or after July 15, 2010. The ASU had no material effect on the Company's
financial statements.
Measuring Liabilities at Fair
Value
As of September 30, 2009, the
Company adopted ASU No. 2009-05, Measuring
Liabilities at Fair Value . This ASU provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the following techniques:
This ASU also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This ASU did not have a material impact on the Company's fair value measurements.
150
Other-Than-Temporary Impairments
on
Investment Securities
In April 2009,
the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP FAS 115-2) (now ASC
320-10-35-34, Investments-Debt and Equity
Securities: Recognition of an Other-Than-Temporary Impairment ), which amends the recognition guidance for
other-than-temporary impairments (OTTI) of debt securities and expands the
financial statement disclosures for OTTI on debt and equity securities.
Citigroup adopted the FSP in the first quarter of
2009.
As a result of
the FSP, the Company's Consolidated Statement of Income reflects the full
impairment (that is, the difference between the security's amortized cost basis
and fair value) on debt securities that the Company intends to sell or would
more-likely-than-not be required to sell before the expected recovery of the
amortized cost basis. For available-for-sale (AFS) and held-to-maturity (HTM)
debt securities that management has no intent to sell and believes that it
more-likely-than-not will not be required to sell prior to recovery, only the
credit loss component of the impairment is recognized in earnings, while the
rest of the fair value loss is recognized in Accumulated other comprehensive income (AOCI). The credit loss component recognized in earnings is identified as the
amount of principal cash flows not expected to be received over the remaining
term of the security as projected using the Company's cash flow projections and
its base assumptions. As a result of the adoption of the FSP, Citigroup's income
in the first quarter of 2009 was higher by $631 million on a pretax basis ($391
million on an after-tax basis) and AOCI was decreased by a corresponding
amount.
The cumulative effect of the change included an increase in the opening
balance of Retained earnings at January 1, 2009 of $665 million on a pretax basis ($413
million after-tax). See Note 15 to the Consolidated Financial Statements for
disclosures related to the Company's investment securities and OTTI.
Noncontrolling Interests in
Subsidiaries
In December 2007, the FASB
issued Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements (now ASC 810-10-45-15, Consolidation-Noncontrolling Interests in a Subsidiary ), which establishes standards for the accounting and
reporting of noncontrolling interests in subsidiaries (previously called
minority interests) in consolidated financial statements and for the loss of
control of subsidiaries. The Standard requires that the equity interest of
noncontrolling shareholders, partners, or other equity holders in subsidiaries
be presented as a separate item in Total
equity , rather than as a liability. After the
initial adoption, when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary must be measured at
fair value at the date of deconsolidation.
The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of the remaining investment, rather than the previous
carrying amount of that retained investment.
Citigroup
adopted the Standard on January 1, 2009. As a result, $2.392 billion of
noncontrolling interests were reclassified from Other liabilities to Total equity .
DVA Accounting
Misstatement
In January 2010, the Company
determined that an error existed in the process used to value certain
liabilities for which the Company elected the fair value option (FVO). The error
related to a calculation intended to measure the impact on the liability's fair
value attributable to Citigroup's credit spreads. Because of the error in the
process, both an initial Citi contractual credit spread and an initial
own-credit valuation adjustment were being included at the time of issuance of
new Citi FVO debt. The own-credit valuation adjustment was properly included;
therefore, the initial Citi contractual credit spread should have been excluded.
(See Note 26 to the Consolidated Financial Statements for a description of
own-credit valuation adjustments.) The cumulative effect of this error from
January 1, 2007 (the date that SFAS 157 (ASC 820), requiring the valuation of
own-credit for FVO liabilities, was adopted) through December 31, 2008 was to
overstate income and retained earnings by $204 million ($330 million on a pretax
basis). The impact of this adjustment was determined not to be material to the
Company's results of operations and financial position for any previously
reported period. Consequently, in the accompanying financial statements, the
cumulative effect through December 31, 2008 was recorded in
2009.
151
FUTURE APPLICATION OF ACCOUNTING STANDARDS
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: (1) 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 (2) 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.
The ASU became effective for Citigroup on January 1,
2012. The guidance is to be applied prospectively to transactions or
modifications of existing transactions that occur on or after the effective
date. The ASU did not have a material effect on the Company's financial
statements. A nominal amount of the Company's repurchase transactions are
currently accounted for as sales, because of a reduction in initial margin or
restriction in daily maintenance margin. Such transactions will be accounted for
as financing transactions if executed on or after January 1, 2012.
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
amendment creates a common definition of fair value for U.S. GAAP and IFRS and
aligns the measurement and disclosure requirements. It requires significant
additional disclosures both of a qualitative and quantitative nature,
particularly on those instruments measured at fair value that are classified in
Level 3 of the fair value hierarchy. Additionally, the amendment provides
guidance on when it is appropriate to measure fair value on a portfolio basis
and expands the prohibition on valuation adjustments from Level 1 to all levels
of the fair value hierarchy where the size of the Company's position is a
characteristic of the adjustment. The amendment 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 will release reserves of approximately $125 million, increasing pretax
income in the first quarter of 2012.
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 amends the
guidance for insurance entities that requires deferral and subsequent
amortization of certain costs incurred during the acquisition of new or renewed
insurance contracts, commonly referred to as deferred acquisition costs (DAC).
The new guidance limits DAC to those costs directly related to the successful
acquisition of insurance contracts; all other acquisition-related costs must be
expensed as incurred. Under current guidance, DAC consists of those costs that
vary with, and primarily relate to, the acquisition of insurance contracts. The
amendment became effective for Citigroup on January 1, 2012. The Company
continues to evaluate the impact of adopting this statement.
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. 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.
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, lease accounting, consolidation and investment companies. As part
of the joint financial instruments project, the FASB is proposing sweeping
changes to the classification and measurement of financial instruments, hedging
and impairment guidance. 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 Accounting Standards
Update 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.
In addition to the major projects, the
FASB has also proposed changes regarding the Company's release of any cumulative
translation adjustment into earnings when it ceases to have a controlling
financial interest in certain groups of assets that constitute a business within
a consolidated foreign subsidiary. All these projects may have significant
impacts for the Company. Upon completion of the standards, the Company will need
to re-evaluate 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.
152
2. BUSINESS DIVESTITURES
The following divestitures occurred in 2009, 2010 and 2011 and do not qualify as Discontinued operations . Divestitures that qualified as Discontinued operations are discussed in Note 3 to the Consolidated Financial Statements.
Sale of
Primerica
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.
Sale of Phibro
LLC
On December 31,
2009, the Company sold 100% of its interest in Phibro LLC, which was part of
Citicorp- Securities and Banking ,
to Occidental Petroleum Corporation for a purchase price equal to approximately
the net asset value of the business. The decision to sell Phibro was the outcome
of an evaluation of a variety of alternatives and was consistent with Citi's
core strategy of a client-centered business model. The sale of Phibro did not
affect Citi's client-facing commodities business lines, which continue to
operate and serve the needs of Citi's clients throughout the world.
Sale of Citi's Nikko Asset
Management Business and Trust and Banking Corporation
On October 1, 2009, the Company completed the sale of its
entire stake in Nikko Asset Management (Nikko AM) to the Sumitomo Trust and
Banking Co., Ltd. (Sumitomo Trust) and completed the sale of Nikko Citi Trust
and Banking Corporation (Nikko Citi Trust) to Nomura Trust & Banking Co.
Ltd. Nikko AM and Nikko Citi Trust were part of Citi Holdings.
The
Nikko AM transaction was valued at 120 billion yen (U.S. $1.3 billion at an
exchange rate of 89.60 yen to U.S. $1.00 as of September 30, 2009). The Company
received all-cash consideration of 75.6 billion yen (U.S. $844 million), after
certain deal-related expenses and adjustments, for its 64% beneficial ownership
interest in Nikko AM. Sumitomo Trust also acquired the beneficial ownership
interests in Nikko AM held by various minority investors in Nikko AM, bringing
Sumitomo Trust's total ownership stake in Nikko AM to 98.55% at
closing.
For the sale of Nikko Citi Trust, the Company received
all-cash consideration of 19 billion yen (U.S. $212 million at an exchange rate
of 89.60 yen to U.S. $1.00 as of September 30, 2009) as part of the
transaction.
Retail Partner Cards
Sales
During 2009,
Citigroup sold its Financial Institutions (FI) and Diners Club North America
credit card businesses. Total credit card receivables disposed of in these
transactions was approximately $2.2 billion. During 2010, Citigroup sold its
Canadian MasterCard business and U.S. retail sales finance portfolios. Total
credit card receivables disposed of in these transactions was approximately $3.6
billion. Each of these businesses was in Citi Holdings.
Joint Venture with Morgan
Stanley
On June 1, 2009,
Citi and Morgan Stanley established a joint venture (JV) that combined the
Global Wealth Management platform of Morgan Stanley with Citigroup's Smith
Barney, Quilter and Australia private client networks. Citi sold 100% of these
businesses to Morgan Stanley in exchange for a 49% stake in the JV and an
upfront cash payment of $2.75 billion. Citigroup recorded a pretax gain of
approximately $11.1 billion ($6.7 billion after-tax) on this sale. Both Morgan
Stanley and Citi will access the JV for retail distribution, and each firm's
institutional businesses will continue to execute order flow from the
JV.
Citigroup's 49% ownership in the JV is recorded as an equity method
investment. In determining the value of its 49% interest in the JV, Citigroup
utilized the assistance of an independent third-party valuation firm upon
acquisition and utilized both the income and the market
approaches.
153
3. DISCONTINUED OPERATIONS
Sale of Egg Banking PLC Credit
Card Business
On March 1, 2011, the
Company announced that Egg Banking plc (Egg), an indirect subsidiary which was
part of the Citi Holdings segment, 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 the full year of 2011 only. Prior
periods were not reclassified due to the immateriality of the impact in those
periods. 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.
Summarized financial information for Discontinued operations , including
cash flows, for the credit card operations related to Egg follows:
In millions of dollars | 2011 | ||
Total revenues, net of interest expense (1) | $ | 340 | |
Income from discontinued operations | $ | 24 | |
Gain on sale | 143 | ||
Provision for income taxes | 58 | ||
Income from discontinued operations, net of taxes | $ | 109 | |
In millions of dollars | 2011 | ||
Cash flows from operating activities | $ | (146 | ) |
Cash flows from investing activities | 2,827 | ||
Cash flows from financing activities | (12 | ) | |
Net cash provided by discontinued operations | $ | 2,669 |
(1) | Total revenues include gain or loss on sale, if applicable. |
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 the Citi Holdings segment, 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 | 2011 | 2010 | (1) | ||
Total revenues, net of interest expense (2) | $ - | $ | (577 | ) | |
Income (loss) from discontinued operations | $ - | $ | 97 | ||
Loss on sale | - | (825 | ) | ||
Benefit for income taxes | - | (339 | ) | ||
Loss from discontinued operations, net of taxes | $ - | $ | (389 | ) | |
In millions of dollars | 2011 | 2010 | (1) | ||
Cash flows from operating activities | $ - | $ | 5,106 | ||
Cash flows from investing activities | - | 1,532 | |||
Cash flows from financing activities | - | (6,483 | ) | ||
Net cash provided by discontinued operations | $ - | $ | 155 |
(1) | Amounts reflect activity from July 1, 2010 through December 31, 2010 only. | |
(2) | Total revenues include gain or loss on sale, if applicable. |
154
Sale of Nikko
Cordial
On October 1, 2009 the Company
announced the successful completion of the sale of Nikko Cordial Securities to
Sumitomo Mitsui Banking Corporation. The transaction had a total cash value to
Citi of 776 billion yen (U.S. $8.7 billion at an exchange rate of 89.60 yen to
U.S. $1.00 as of September 30, 2009). The cash value was composed of the
purchase price for the transferred business of 545 billion yen, the purchase
price for certain Japanese-listed equity securities held by Nikko Cordial
Securities of 30 billion yen, and 201 billion yen of excess cash derived through
the repayment of outstanding indebtedness to Citi. After considering the impact
of foreign exchange hedges of the proceeds of the transaction, the sale resulted
in an immaterial gain in 2009. A total of about 7,800 employees were included in
the transaction.
The Nikko Cordial operations had total assets and total liabilities of
approximately $24 billion and $16 billion, respectively, at the time of sale,
which were reflected in Citi Holdings prior to the sale.
Results for all of the Nikko Cordial businesses sold are reported as Discontinued operations for all periods presented.
Summarized financial information for Discontinued operations , including
cash flows, related to the sale of Nikko Cordial is as follows:
In millions of dollars | 2011 | 2010 | 2009 | |||||
Total revenues, net of interest expense (1) | $ - | $ | 92 | $ | 646 | |||
Loss from discontinued operations | $ - | $ | (7 | ) | $ | (623 | ) | |
Gain on sale | - | 94 | 97 | |||||
Benefit for income taxes | - | (122 | ) | (78 | ) | |||
Income (loss) from discontinued | ||||||||
operations, net of taxes | $ - | $ | 209 | $ | (448 | ) | ||
In millions of dollars | 2011 | 2010 | 2009 | |||||
Cash flows from operating activities | $ - | $ | (134 | ) | $ | (1,830 | ) | |
Cash flows from investing activities | - | 185 | 1,824 | |||||
Cash flows from financing activities | - | - | - | |||||
Net cash provided by (used in) | ||||||||
discontinued operations | $ - | $ | 51 | $ | (6 | ) |
(1) | Total revenues include gain or loss on sale, if applicable. |
Combined Results for Discontinued
Operations
The following is summarized
financial information for the Egg credit card, SLC, Nikko Cordial Securities,
German retail banking and CitiCapital businesses. The SLC business, which was
sold on December 31, 2010, is reported as discontinued operations for the third
and fourth quarters of 2010 only and the sale of the Egg credit card business is
reported as discontinued operations for the full year 2011 only due to the
immateriality of the impact of that presentation in other periods. The Nikko
Cordial Securities business, which was sold on October 1, 2009, the German
retail banking business, which was sold on December 5, 2008, and the CitiCapital
business, which was sold on July 31, 2008, continue to have minimal residual
costs associated with the sales. Additionally, during 2009, contingent
consideration payments of $29 million pretax ($19 million after tax) were
received related to the sale of Citigroup's asset management business, which was
sold in December 2005.
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Total revenues, net of interest | |||||||||
expense (1) | $ | 352 | $ | (410 | ) | $ | 779 | ||
Income (loss) from discontinued | |||||||||
operations | $ | 23 | $ | 72 | $ | (653 | ) | ||
Gain (loss) on sale | 155 | (702 | ) | 102 | |||||
Provision (benefit) for income taxes | 66 | (562 | ) | (106 | ) | ||||
Income (loss) from discontinued | |||||||||
operations, net of taxes | $ | 112 | $ | (68 | ) | $ | (445 | ) | |
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Cash flows from operating activities | $ | (146 | ) | $ | 4,974 | $ | (1,825 | ) | |
Cash flows from investing activities | 2,827 | 1,726 | 1,854 | ||||||
Cash flows from financing activities | (12 | ) | (6,486 | ) | (6 | ) | |||
Net cash provided by discontinued | |||||||||
operations | $ | 2,669 | $ | 214 | $ | 23 |
(1) | Total revenues include gain or loss on sale, if applicable. |
155
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), Citi
Holdings and Corporate/Other 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 corporations,
governments, institutions and investors in approximately 100 countries with a
broad range of banking and financial products and services.
The Citi Holdings segment is
composed of Brokerage and Asset Management,
Local Consumer Lending and Special Asset Pool .
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
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. These reclassifications
related to Citi's re-allocation of certain expenses between businesses and
segments and the transfer of certain commercial market loans from GCB to ICG .
The following table presents certain information regarding the
Company's continuing operations by segment:
Identifiable | |||||||||||||||||||||||||||||
Revenues, | Provision (benefit) | Income (loss) from | assets | ||||||||||||||||||||||||||
net of interest expense | (1) | for income taxes | continuing operations | (1)(2) | at year end | ||||||||||||||||||||||||
In millions of dollars, except | |||||||||||||||||||||||||||||
identifiable assets in billions | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | ||||||||||||||||||
Global Consumer Banking | $ | 32,585 | $ | 32,374 | $ | 24,754 | $ | 2,601 | $ | 1,343 | $ | (142 | ) | $ | 6,196 | $ | 4,661 | $ | 2,389 | $ | 340 | $ | 328 | ||||||
Institutional Clients Group | 31,986 | 33,186 | 36,958 | 2,845 | 3,499 | 4,622 | 8,302 | 10,172 | 12,973 | 979 | 956 | ||||||||||||||||||
Subtotal Citicorp | $ | 64,571 | $ | 65,560 | $ | 61,712 | $ | 5,446 | $ | 4,842 | $ | 4,480 | $ | 14,498 | $ | 14,833 | $ | 15,362 | $ | 1,319 | $ | 1,284 | |||||||
Citi Holdings | 12,896 | 19,287 | 29,128 | (1,161 | ) | (2,573 | ) | (6,988 | ) | (2,524 | ) | (4,056 | ) | (9,059 | ) | 269 | 359 | ||||||||||||
Corporate/Other | 886 | 1,754 | (10,555 | ) | (764 | ) | (36 | ) | (4,225 | ) | (871 | ) | 174 | (7,369 | ) | 286 | 271 | ||||||||||||
Total | $ | 78,353 | $ | 86,601 | $ | 80,285 | $ | 3,521 | $ | 2,233 | $ | (6,733 | ) | $ | 11,103 | $ | 10,951 | $ | (1,066 | ) | $ | 1,874 | $ | 1,914 |
(1) | Includes Citicorp total revenues, net of interest expense, in North America of $23.6 billion, $26.7 billion and $19.9 billion; in EMEA of $12.2 billion, $11.7 billion and $15.0 billion; in Latin America of $13.6 billion, $12.8 billion and $12.7 billion; and in Asia of $15.2 billion, $14.4 billion and $14.1 billion in 2011, 2010 and 2009, respectively. Regional numbers exclude Citi Holdings and Corporate/Other , which largely operate within the U.S. | |
(2) | Includes pretax provisions (credits) for credit losses and for benefits and claims in the GCB results of $4.9 billion, $9.8 billion and $7.4 billion; in the ICG results of $152 million, $(82) million and $1.8 billion; and in the Citi Holdings results of $7.8 billion, $16.3 billion and $31.1 billion for 2011, 2010 and 2009, respectively. |
156
5. INTEREST REVENUE AND EXPENSE
For the years ended December 31, 2011, 2010 and 2009, respectively, interest revenue and expense consisted of the following:
In millions of dollars | 2011 | 2010 | 2009 | |||
Interest revenue | ||||||
Loan interest, including fees | $ | 50,281 | $ | 55,056 | $ | 47,457 |
Deposits with banks | 1,750 | 1,252 | 1,478 | |||
Federal funds sold and securities | ||||||
borrowed or purchased under | ||||||
agreements to resell | 3,631 | 3,156 | 3,084 | |||
Investments, including dividends | 8,320 | 11,004 | 12,882 | |||
Trading account assets (1) | 8,186 | 8,079 | 10,723 | |||
Other interest | 513 | 735 | 774 | |||
Total interest revenue | $ | 72,681 | $ | 79,282 | $ | 76,398 |
Interest expense | ||||||
Deposits (2) | $ | 8,556 | $ | 8,371 | $ | 10,146 |
Federal funds purchased and | ||||||
securities loaned or sold under | ||||||
agreements to repurchase | 3,197 | 2,808 | 3,433 | |||
Trading account liabilities (1) | 408 | 379 | 289 | |||
Short-term borrowings | 650 | 917 | 1,425 | |||
Long-term debt | 11,423 | 12,621 | 12,609 | |||
Total interest expense | $ | 24,234 | $ | 25,096 | $ | 27,902 |
Net interest revenue | $ | 48,447 | $ | 54,186 | $ | 48,496 |
Provision for loan losses | 11,773 | 25,194 | 38,760 | |||
Net interest revenue after | ||||||
provision for loan losses | $ | 36,674 | $ | 28,992 | $ | 9,736 |
(1) | Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue from Trading account assets . | |
(2) | Includes deposit insurance fees and charges of $1.3 billion, $981 million and $1.5 billion for the 12 months ended December 31, 2011, 2010 and 2009, respectively. The 12-month period ended December 31, 2009 includes the one-time FDIC special assessment. |
The table below sets forth
Citigroup's Commissions and fees revenue for the twelve months ended December 31, 2011, 2010 and
2009, respectively. The primary components of Commissions and fees revenue for the
twelve months ended December 31, 2011 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 12-month 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 .
The
following table presents commissions and fees revenue for the years ended
December 31:
In millions of dollars | 2011 | 2010 | 2009 | ||||
Credit cards and bank cards | $ | 3,603 | $ | 3,774 | $ | 4,110 | |
Investment banking | 2,451 | 2,977 | 3,462 | ||||
Smith Barney | - | - | 837 | ||||
Trading-related | 2,587 | 2,368 | 2,316 | ||||
Transaction services | 1,520 | 1,454 | 1,306 | ||||
Other Consumer (1) | 931 | 1,156 | 1,272 | ||||
Checking-related | 926 | 1,023 | 1,043 | ||||
Primerica | - | 91 | 314 | ||||
Loan servicing | 251 | 353 | 226 | ||||
Corporate finance (2) | 519 | 439 | 678 | ||||
Other | 62 | 23 | (79 | ) | |||
Total commissions and fees | $ | 12,850 | $ | 13,658 | $ | 15,485 |
(1) | Primarily consists of fees for investment fund administration and management, third-party collections, commercial demand deposit accounts and certain credit card services. | |
(2) | Consists primarily of fees earned from structuring and underwriting loan syndications. |
157
7. PRINCIPAL TRANSACTIONS
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, as well as 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. The following table presents principal transactions revenue for the years ended December 31:
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Global Consumer Banking | $ | 716 | $ | 533 | $ | 1,569 | |||
Institutional Clients Group | 4,873 | 5,567 | 5,626 | ||||||
Subtotal Citicorp | $ | 5,589 | $ | 6,100 | $ | 7,195 | |||
Local Consumer Lending | (102 | ) | (217 | ) | 896 | ||||
Brokerage and Asset Management | (11 | ) | (37 | ) | 30 | ||||
Special Asset Pool | 1,713 | 2,078 | (2,606 | ) | |||||
Subtotal Citi Holdings | $ | 1,600 | $ | 1,824 | $ | (1,680 | ) | ||
Corporate/Other | 45 | (407 | ) | 553 | |||||
Total Citigroup | $ | 7,234 | $ | 7,517 | $ | 6,068 | |||
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Interest rate contracts (1) | $ | 5,136 | $ | 3,231 | $ | 6,211 | |||
Foreign exchange contracts (2) | 2,309 | 1,852 | 2,762 | ||||||
Equity contracts (3) | 3 | 995 | (334 | ) | |||||
Commodity and other contracts (4) | 76 | 126 | 924 | ||||||
Credit derivatives (5) | (290 | ) | 1,313 | (3,495 | ) | ||||
Total Citigroup | $ | 7,234 | $ | 7,517 | $ | 6,068 |
(1) | 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. | |
(2) | Includes revenues from foreign exchange spot, forward, option and swap contracts, as well as translation gains and losses. | |
(3) | Includes revenues from common, preferred and convertible preferred stock, convertible corporate debt, equity-linked notes, and exchange-traded and OTC equity options and warrants. | |
(4) | Primarily includes revenues from crude oil, refined oil products, natural gas, and other commodities trades. | |
(5) | Includes revenues from structured credit products. |
8. INCENTIVE PLANS
The
Company administers award programs involving grants of stock options, restricted
or deferred stock awards, and stock payments. The award programs are used to
attract, retain and motivate officers, employees and non-employee directors, to
provide incentives for their contributions to the long-term performance and
growth of the Company, and to align their interests with those of stockholders.
These programs 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. All grants of equity awards since April 19,
2005 have been made pursuant to stockholder-approved stock incentive
plans.
At December 31, 2011, approximately 77.5 million
shares 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 was to
deliver shares from treasury stock upon the exercise or vesting of equity
awards. However, newly issued shares were issued as stock payments in April 2010
(to settle "common stock equivalent" awards granted in January 2010), in January
2011 (as current stock payments in lieu of cash bonuses) and in January 2012 (to
settle the vesting of deferred stock awards granted in prior years). The new
issuances in April 2010 and January 2011 were specifically intended to increase
the Company's equity capital. Restricted stock awards that vested in January
2012 were settled with shares that were previously issued out of treasury. There is no
income statement impact from treasury stock issuances and issuances of new
shares.
The following table shows components of compensation expense
relating to the Company's stock-based compensation programs as recorded during
2011, 2010 and 2009:
In millions of dollars | 2011 | 2010 | 2009 | |||
Charges for estimated awards to | ||||||
retirement-eligible employees | $ | 338 | $ | 366 | $ | 207 |
Option expense | 161 | 197 | 55 | |||
Amortization of deferred cash awards and | ||||||
deferred cash stock units | 208 | 280 | 113 | |||
Amortization of MC LTIP awards (1) | - | - | 19 | |||
Salary stock award expense | - | 173 | 162 | |||
Immediately vested stock award expense (2) | 52 | 174 | 1,723 | |||
Amortization of restricted and deferred | ||||||
stock awards (3) | 871 | 747 | 1,543 | |||
Total | $ | 1,630 | $ | 1,937 | $ | 3,822 |
(1) | Management Committee Long-Term Incentive Plan (MC LTIP) awards were granted in 2007. The awards expired in December 2009 without the issuance of shares. | |
(2) | This represents expense for immediately vested stock awards that generally were stock payments in lieu of cash compensation. The expense is generally accrued for as cash incentive compensation in the year prior to grant. The 2009 amount is for the "common stock equivalent" awards, which are described in more detail below. | |
(3) | All periods include amortization expense for all unvested awards to non-retirement-eligible employees. Amortization is recognized net of estimated forfeitures of awards. |
158
Stock Award
Programs
Citigroup issues (and/or has
issued) shares of its common stock in the form of restricted stock awards,
deferred stock awards, and stock payments pursuant to the 2009 Stock Incentive
Plan (and predecessor plans) to its officers, employees and non-employee
directors.
For
all stock award programs, during the applicable vesting period, the shares
awarded are not issued to participants (in the case of a deferred stock award)
or cannot be sold or transferred by the participants (in the case of a
restricted stock award), until after the vesting conditions have been satisfied.
Recipients of deferred stock awards do not have any stockholder rights until
shares are delivered to them, but they generally are entitled to receive
dividend-equivalent payments during the vesting period. Recipients of restricted
stock awards are entitled to a limited voting right and to receive dividend or
dividend-equivalent payments during the vesting period. (Dividend equivalents
are paid through payroll and recorded as an offset to retained earnings on those
shares expected to vest.) Once a stock award vests, the shares may become freely
transferable, but in the case of certain executives, may be subject to transfer
restrictions by their terms or a stock ownership commitment.
The
total expense to be recognized for the stock awards described below represents
the fair value of Citigroup common stock at the date of grant. The expense is
recognized as a charge to income ratably over the vesting period, except for
those awards granted to retirement-eligible employees, and salary stock and other
immediately vested awards. For awards of deferred stock expected to be made to
retirement-eligible employees, the charge to income is accelerated based on the
dates the retirement rules are or will be met. If the retirement rules will have
been met on or prior to the expected award date, the entire estimated expense is
recognized in the year prior to grant in the same manner as cash incentive
compensation is accrued, rather than amortized over the applicable vesting
period of the award. Salary stock and other immediately vested awards generally
were granted in lieu of cash compensation and are also recognized in the year
prior to the grant in the same manner as cash compensation is accrued. Certain
stock awards with performance conditions or certain clawback provisions may be
subject to variable accounting, pursuant to which the associated charges
fluctuate with changes in Citigroup's stock price over the applicable vesting
periods. The total amount that will be recognized as expense cannot be
determined in full until the awards vest.
Annual Award Programs. Citigroup's primary stock award program is the Capital Accumulation Program (CAP). Generally, CAP awards of restricted or deferred stock constitute a percentage of annual incentive compensation and vest ratably over three- or four-year periods, beginning on or about the first anniversary of the award date.
Continuous employment within
Citigroup is generally required to vest in CAP and other stock award programs.
Typical exceptions include vesting for participants whose employment is
terminated involuntarily during the vesting period for a reason other than
"gross misconduct," who meet specified age and service requirements before
leaving employment (retirement-eligible participants), or who die or become
disabled during the vesting period. Post-employment vesting by
retirement-eligible participants is generally conditioned upon their refraining
from competition with Citigroup during the remaining vesting
period.
In a change from prior years, incentive awards in January 2012
to individual employees who have influence over the Company's material risks
(covered employees) were delivered as a mix of immediate cash bonuses, deferred
stock awards under CAP and deferred cash awards. (Previously, annual incentives
were traditionally awarded as a combination of cash bonus and CAP.) For covered
employees, the minimum percentage of incentive pay required to be deferred was
raised from 25% to 40%, with a maximum deferral of 60% for the most highly paid
employees. For incentive awards made to covered employees in January 2012 (in
respect of 2011 performance), only 50% of the deferred portion was delivered as
a CAP award; the other 50% was delivered in the form of a deferred cash award.
The 2012 deferred cash award is subject to a performance-based vesting condition
that results in cancellation of unvested amounts on a formulaic basis if a
participant's business has losses in any year of the vesting period. The 2012
deferred cash award also earns notional interest at an annual rate of 3.55%,
compounded annually.
CAP
awards made in January 2012 and January 2011 to "identified staff" in the
European Union (EU) have several features that differ from the generally
applicable CAP provisions described above. "Identified staff" are those
Citigroup employees whose compensation is subject to various banking regulations
on sound incentive compensation policies in the EU. CAP awards to these
employees are scheduled to vest over three years of service, but vested shares
are subject to a six-month sale restriction, and awards are subject to
cancellation, in the sole discretion of the Committee, if (a) there is
reasonable evidence a participant engaged in misconduct or committed material
error in connection with his or her employment, or (b) the Company or the
employee's business unit suffers a material downturn in its financial
performance or a material failure of risk management (the EU clawback). For
these CAP awards, the EU clawback is in addition to the clawback provision
described below. CAP awards containing the EU clawback provision are subject to
variable accounting.
159
A portion of
the immediately vested cash incentive compensation awarded in January 2011 to
selected highly compensated employees (and in January 2012 to such employees in
the EU) was delivered in immediately-vested stock payments. In the EU, the
shares awarded were subject to a six-month sale restriction.
Annual incentive awards made in January 2011, January 2010, and December
2009 to certain executive officers and highly compensated employees were made in
the form of long-term restricted stock (LTRS), with terms prescribed by the
Emergency Economic Stabilization Act of 2008, as amended. (See EESA-related Stock Compensation below for additional information.)
The annual incentive awards made in
January 2011 to executive officers have a performance-based vesting condition.
If Citigroup has pretax net losses during any of the years of the deferral
period, the Committee may exercise its discretion to eliminate or reduce the
number of shares that vest for that year. This performance-based vesting
condition applies to CAP and LTRS awards made in January 2011 to executive
officers. These awards are subject to variable accounting. Compensation expense
was accrued based on Citigroup's stock price at year end and the estimated
outcome of meeting the performance conditions.
All
CAP awards made in January 2011 and 2012 and all LTRS awards made in January
2011 provide for a clawback that applies to specified cases, including in the
case of employee misconduct or where the awards were based on earnings that were
misstated. Some of these awards are subject to variable accounting.
Generally, in order to reduce the use of shares under Citigroup's
stockholder-approved stock incentive plan, the percentages of total annual
incentives awarded pursuant to CAP in January 2010 and January 2009 were reduced
and were instead awarded as deferred cash awards primarily in the U.S. and the
U.K. The deferred cash awards are subject to two-year and four-year vesting
schedules, but the other terms and conditions are the same as CAP awards made in
those years. The deferred cash awards earn a return during the vesting period
based on LIBOR; in 2010 only, a portion of the deferred cash award was
denominated as a stock unit, the value of which will fluctuate based on the
price of Citi common stock. In both cases, only cash will be delivered at
vesting.
In January 2009, members of the Management Executive Committee
(except the CEO and CFO) received 30% of their incentive awards for 2008 as
performance vesting-equity awards. These awards vest 50% if the price of
Citigroup common stock meets a price target of $106.10, and 50% for a price
target of $178.50, in each case on or prior to January 14, 2013. The price
target will be met only if the NYSE closing price equals or exceeds the
applicable price target for at least 20 NYSE trading days within any period of
30 consecutive NYSE trading days ending on or before January 14, 2013. Any
shares that have not vested by such date will vest according to a fraction, the
numerator of which is the share price on the delivery date and the denominator
of which is the price target of the unvested shares. No
dividend
equivalents are paid on unvested awards. The fair value of the awards is recognized as compensation expense ratably over the vesting period. This fair value was determined using the following assumptions:
Weighted-average per-share fair value | $22.97 | |
Weighted-average expected life | 3.85 years | |
Valuation assumptions | ||
Expected volatility | 36.07 | % |
Risk-free interest rate | 1.21 | % |
Expected dividend yield | 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 and 2009 includes expense associated with these awards.
EESA-related Stock Compensation. Incentive compensation in respect of 2009
performance for the senior executive officers and the next 95 most highly
compensated employees (2009 Top 100) was 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). Pursuant to such structures, the affected employees did not
participate in CAP and instead received equity compensation in the form of fully
vested stock payments, LTRS and other restricted and deferred stock awards
subject to vesting requirements and sale restrictions. The other restricted and
deferred stock awards to the 2009 Top 100 vest ratably over three years pursuant
to terms similar to CAP awards, but vested shares are subject to sale
restrictions until the later of the first anniversary of the regularly scheduled
vesting date or January 20, 2013. Pursuant to EESA-prescribed structures,
incentive compensation in respect of 2010 performance was delivered to the
senior executive officers and next 20 most highly compensated employees for 2010
(2010 Top 25), in the form of LTRS awards. The LTRS awards to the 2009 Top 100
and 2010 Top 25 vest in full after three years of service and there are no
provisions for early vesting in the event of retirement, involuntary termination
of employment or change in control, but early vesting will occur upon death or
disability.
In 2009 and January 2010, the 2009 Top 100 received salary
stock payments that become transferrable in monthly installments over periods of
either one year or three years beginning in January 2010. In September 2010,
salary stock payments were made to the 2010 Top 25 (other than the CEO) in a
manner consistent with the salary stock payments made in 2009 pursuant to
rulings issued by the Special Master. The salary stock paid for 2010, net of tax
withholdings, is transferable over a 12-month period beginning in January 2011.
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.
160
In connection with its agreement to repay $20 billion of its TARP obligations to the U.S. Treasury Department in December 2009, Citigroup announced that $1.7 billion of incentive compensation that would have otherwise been awarded in cash to employees in respect of 2009 performance would instead be awarded as "common stock equivalent" awards denominated in U.S. dollars or in local currency that were settled by stock payments in April 2010. The awards were generally accrued as compensation expense in the year 2009 and were recorded as a liability from the January 2010 grant date until the settlement date in April 2010. The recorded liability was reclassified to equity when newly issued shares were delivered to participating employees on the settlement date.
Sign-on and Long-Term Awards. From
time to time, restricted or deferred stock awards and/or stock option grants are made outside of the annual
incentive program to induce talented 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, these awards do not usually provide for post-employment vesting by retirement-eligible
participants.
On
May 17, 2011, the Committee approved a deferred stock retention award to CEO Vikram Pandit. The award vests in three
equal installments on December 31, 2013, December 31, 2014 and December 31, 2015 if the Committee determines that he has
satisfied discretionary performance criteria dealing with regulatory compliance, Citi culture and talent management and Mr.
Pandit remains employed through the vesting date. Any vested shares from the December 31, 2013, and December 31, 2014
vestings will be sale-restricted until December 31, 2015. This award is subject to variable accounting.
On
July 17, 2007, the Committee approved the Management Committee Long-Term Incentive Plan (MC LTIP) (pursuant to the terms
of the shareholder-approved 1999 Stock Incentive Plan) under which participants received an equity award that could be
earned based on Citigroup's performance against various metrics relative to peer companies and publicly stated return
on equity (ROE) targets measured at the end of each calendar year beginning with 2007. The final expense for each of the
three consecutive calendar years was adjusted based on the results of the ROE tests. No awards were earned for 2009, 2008 or
2007 and no shares were issued because performance targets were not met. No new awards were made under the MC LTIP since
the initial award in July 2007.
Directors. 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, 2011 and changes during the 12 months ended December 31, 2011 are presented below:
Weighted-average | |||
grant date | |||
Unvested stock awards | Shares | fair value | |
Unvested at January 1, 2011 | 32,508,167 | $72.84 | |
New awards | 33,189,925 | 49.59 | |
Cancelled awards | (1,894,723 | ) | 54.39 |
Vested awards (1) | (13,590,245 | ) | 99.73 |
Unvested at December 31, 2011 | 50,213,124 | $50.90 |
(1) | The weighted-average fair value of the vestings during 2011 was approximately $46.10 per share. |
A summary of the status of Citigroup's unvested stock awards that are subject to variable accounting at December 31, 2011 and changes during the 12 months ended December 31, 2011 are presented below:
Weighted-average | |||
award issuance | |||
Unvested stock awards | Shares | fair value | |
Unvested at January 1, 2011 | - | $ - | |
New awards | 5,337,863 | 49.31 | |
Cancelled awards | (47,065 | ) | 50.20 |
Vested awards | - | - | |
Unvested at December 31, 2011 | 5,290,798 | $49.30 |
At December 31, 2011, there was $985 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 2.3 years. However, the cost of awards subject to variable accounting will fluctuate with changes in Citigroup's stock price.
Stock Option
Programs
While the Company no longer grants
options as part of its annual incentive award programs, Citi may grant stock
options to employees or directors on a one-time basis, as sign-on awards or as
retention awards. 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).
161
On May 17,
2011, the Committee approved a retention award to the CEO that included an
option grant with exercise prices at or above the market price of Citi common
stock on the grant date. The price of Citi common stock on the grant date was
$41.54 and the committee awarded options with exercise prices of $41.54, $52.50
and $60.00. These options vest in three equal installments on the first three
anniversaries of the grant date, and vested options remain exercisable for their
entire 10-year term. Unvested options will be forfeited if the CEO terminates
employment with the Company for any reason before the applicable vesting date,
except in the event of his death or disability. The options have risk-adjustment
features such as a one-year holding period for incremental shares if the options
are exercised before the fifth anniversary of the grant date, and unvested and
vested but unexercised option shares may be cancelled or forfeited pursuant to a
clawback provision.
On
February 14, 2011, Citigroup granted options exercisable for approximately 2.9
million shares of Citi 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 Citi 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 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 one-time 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 the 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 Citi's closing price was $45.30. The options have a 10-year term
and vest ratably over a four-year period.
Prior
to 2009, stock options were granted to CAP participants who elected to receive
stock options in lieu of restricted or deferred stock awards, and to
non-employee directors who elected to receive their compensation in the form of
a stock option grant. Beginning in 2009, Citi eliminated the stock option
election for all directors and employees (except certain CAP participants who
were permitted to make a stock option election for awards made in
2009).
Generally, options granted from 2003
through 2009 have six-year terms and vest ratably over three- or four-year
periods; however options granted to directors provided for cliff vesting.
Vesting schedules for sign-on or retention grants may vary. The sale of shares
acquired through the exercise of employee stock options granted from 2003
through January 2009 is restricted for a two-year period (and may be subject to
the stock ownership commitment of senior executives thereafter).
On
January 22, 2008, the CEO was awarded stock options to purchase three hundred
thousand shares of common stock. The options vest 25% per year beginning on the
first anniversary of the grant date and expire on the tenth anniversary of the
grant date. One-third of the options have an exercise price equal to the NYSE
closing price of Citigroup stock on the grant date ($244.00), one-third have an
exercise price equal to a 25% premium over the grant-date closing price
($305.00), and one-third have an exercise price equal to a 50% premium over the
grant date closing price ($366.00). These options do not have a reload
feature.
Prior to 2003, Citigroup options, including options granted
since the date of the merger of Citicorp and Travelers Group, Inc., 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) and had 10-year terms.
Certain options, mostly granted prior to January 1, 2003 and with 10-year terms,
permit an employee exercising an option under certain conditions to be granted
new options (reload options) in an amount equal to the number of common shares
used to satisfy the exercise price and the withholding taxes due upon exercise.
The reload options are granted for the remaining term of the related original
option and vest after six months. Reload options may in turn be exercised using
the reload method, given certain conditions. An option may not be exercised
using the reload method unless the market price on the date of exercise is at
least 20% greater than the option to purchase.
From
1997 to 2002, a broad base of employees participated in annual option grant
programs. The options vested over five-year 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 remain outstanding will
expire in 2012.
162
Information with respect to stock option activity under Citigroup stock option programs for the years ended December 31, 2011, 2010 and 2009 is as follows:
2011 | 2010 | 2009 | ||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||
average | Intrinsic | average | Intrinsic | average | Intrinsic | |||||||||||||||||
exercise | value | exercise | value | exercise | value | |||||||||||||||||
Options | price | per share | Options | price | per share | Options | price | per share | ||||||||||||||
Outstanding, beginning of period | 37,486,011 | $ | 93.70 | $ | - | 40,404,481 | $ | 127.50 | $ | - | 14,386,066 | $ | 418.40 | $ - | ||||||||
Granted-original | 3,425,000 | 48.86 | - | 4,450,017 | 47.80 | - | 32,124,473 | 42.70 | - | |||||||||||||
Forfeited or exchanged | (1,539,227 | ) | 176.41 | - | (4,368,086 | ) | 115.10 | - | (3,928,531 | ) | 369.80 | - | ||||||||||
Expired | (1,610,450 | ) | 487.24 | - | (2,935,863 | ) | 458.70 | - | (2,177,527 | ) | 362.10 | - | ||||||||||
Exercised | (165,305 | ) | 40.80 | 6.72 | (64,538 | ) | 40.80 | 3.80 | - | - | - | |||||||||||
Outstanding, end of period | 37,596,029 | $ | 69.60 | $ | - | 37,486,011 | $ | 93.70 | $ | - | 40,404,481 | $ | 127.50 | $ - | ||||||||
Exercisable, end of period | 23,237,069 | 15,189,710 | 7,893,909 |
The following table summarizes the information about stock options outstanding under Citigroup stock option programs at December 31, 2011:
Options outstanding | Options exercisable | ||||||||||
Weighted-average | |||||||||||
Number | contractual life | Weighted-average | Number | Weighted-average | |||||||
Range of exercise prices | outstanding | remaining | exercise price | exercisable | exercise price | ||||||
$29.70–$49.99 | 33,982,017 | 4.1 years | $ | 42.38 | 20,302,484 | $ | 41.79 | ||||
$50.00–$99.99 | 203,614 | 9.3 years | 56.44 | 1,807 | 67.10 | ||||||
$100.00–$199.99 | 532,152 | 6.9 years | 147.20 | 298,788 | 150.89 | ||||||
$200.00–$299.99 | 852,842 | 2.6 years | 244.51 | 658,586 | 244.50 | ||||||
$300.00–$399.99 | 366,912 | 3.6 years | 346.94 | 316,912 | 348.74 | ||||||
$400.00–$499.99 | 1,216,690 | 0.1 years | 428.22 | 1,216,690 | 428.22 | ||||||
$500.00–$564.10 | 441,802 | 0.3 years | 520.90 | 441,802 | 520.90 | ||||||
37,596,029 | 4.0 years | $ | 69.60 | 23,237,069 | $ | 82.47 |
As of December 31, 2011, there was $122.5 million of total unrecognized compensation cost related to stock options; this cost is expected to be recognized over a weighted-average period of 0.8 years.
163
Fair Value
Assumptions
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 | 2011 | 2010 | 2009 | |||||||
Weighted-average per-share fair | ||||||||||
value, at December 31 | $ | 13.90 | $ | 16.60 | $ | 13.80 | ||||
Weighted-average expected life | ||||||||||
Original grants | 4.95 yrs. | 6.06 yrs. | 5.87 yrs. | |||||||
Valuation assumptions | ||||||||||
Expected volatility | 35.64 | % | 36.42 | % | 35.89 | % | ||||
Risk-free interest rate | 2.33 | % | 2.88 | % | 2.79 | % | ||||
Expected dividend yield | 0.00 | % | 0.00 | % | 0.02 | % | ||||
Expected annual forfeitures | ||||||||||
Original and reload grants | 9.62 | % | 9.62 | % | 7.60 | % |
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 (a) 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 (b) 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 Citi 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 Citi 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.
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 CEO. 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.
Expense taken in 2011 in respect of the KEPSP was
$285 million.
Other Incentive
Compensation
Citigroup may at
times issue Cash in Lieu of Equity awards, which are deferred cash awards given
to new hires in replacement of prior employer's awards or other forfeited
compensation. The vesting schedules and terms and conditions of these deferred
cash awards are generally structured to match the terms of awards or other
compensation from a prior employer that was forfeited to accept employment with
the Company. Expense taken in 2011 for these awards was $172 million.
Additionally, certain subsidiaries or business
units of the Company operate and may from time to time introduce other incentive
plans for certain employees that have an incentive-based award component. These
awards are not considered material to Citigroup's
operations.
164
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 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.
Citigroup's funding policy 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. For the U.S. pension plans, at December 31, 2011 and 2010, there were no minimum required cash contributions. During 2010, a discretionary cash contribution of $995 million was made to the plan. For the U.S. non-qualified pension plans, the Company contributed $51 million in benefits paid directly during 2011, $51 million during 2010 and $55 million during 2009. No contributions are expected for the U.S. qualified pension plan for 2012 and $53 million of direct payments are expected for the U.S. non-qualified plans for 2012.
For the non-U.S. pension plans, the Company reported $389 million in employer contributions during 2011, which includes $47 million in benefits paid directly by the Company. For the non-U.S. pension plans, discretionary cash contributions for 2012 are anticipated to be approximately $211 million. In addition, the Company expects to contribute $43 million of benefits to be paid directly by the Company for its non-U.S. pension plans. For the U.S. postretirement benefit plans, there are no expected or required contributions for 2012 other than $55 million of benefit payments expected to be paid directly by the Company.
For the non-U.S. postretirement benefit plans, the Company reported $75 million in employer contributions during 2011, which includes $5 million in benefits paid directly by the Company during the year. For the non-U.S. postretirement benefit plans, expected cash contributions for 2012 are $83 million including $4 million of benefits to be paid directly by the Company.
These estimates are subject to change, since contribution decisions are affected by various factors, such as market performance and regulatory requirements. In addition, management has the ability to change funding policy.
Net (Benefit) Expense
Pension plans | Postretirement benefit plans | ||||||||||||||||||||||||||||||||||||
U.S. plans | Non-U.S. plans | U.S. plans | Non-U.S. plans | ||||||||||||||||||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||||||||
Qualified Plans | |||||||||||||||||||||||||||||||||||||
Benefits earned during the year | $ | 13 | $ | 14 | $ | 18 | $ | 203 | $ | 167 | $ | 148 | $ | - | $ | 1 | $ | 1 | $ | 28 | $ | 23 | $ | 26 | |||||||||||||
Interest cost on benefit obligation | 612 | 644 | 649 | 382 | 342 | 301 | 53 | 59 | 61 | 118 | 105 | 89 | |||||||||||||||||||||||||
Expected return on plan assets | (890 | ) | (874 | ) | (912 | ) | (422 | ) | (378 | ) | (336 | ) | (6 | ) | (8 | ) | (10 | ) | (117 | ) | (100 | ) | (77 | ) | |||||||||||||
Amortization of unrecognized | |||||||||||||||||||||||||||||||||||||
Net transition obligation | - | - | - | (1 | ) | (1 | ) | (1 | ) | - | - | - | - | - | - | ||||||||||||||||||||||
Prior service cost (benefit) | (1 | ) | (1 | ) | (1 | ) | 4 | 4 | 4 | (3 | ) | (3 | ) | (1 | ) | - | - | - | |||||||||||||||||||
Net actuarial loss | 64 | 47 | 10 | 72 | 57 | 60 | 3 | 11 | 2 | 24 | 20 | 18 | |||||||||||||||||||||||||
Curtailment (gain) loss (1) | - | - | 47 | 4 | 1 | (8 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||
Settlement (gain) loss | - | - | - | 10 | 7 | 15 | - | - | - | - | - | - | |||||||||||||||||||||||||
Special termination benefits | - | - | - | 27 | 5 | 15 | - | - | - | - | - | - | |||||||||||||||||||||||||
Net qualified (benefit) expense | $ | (202 | ) | $ | (170 | ) | $ | (189 | ) | $ | 279 | $ | 204 | $ | 198 | $ | 47 | $ | 60 | $ | 53 | $ | 53 | $ | 48 | $ | 56 | ||||||||||
Nonqualified plans expense | $ | 42 | $ | 41 | $ | 41 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
Total net (benefit) expense | $ | (160 | ) | $ | (129 | ) | $ | (148 | ) | $ | 279 | $ | 204 | $ | 198 | $ | 47 | $ | 60 | $ | 53 | $ | 53 | $ | 48 | $ | 56 |
(1) | The 2009 curtailment gain in the non-U.S. pension plans includes an $18 million gain reflecting the sale of Citigroup's Nikko operations. See Note 2 to the Consolidated Financial Statements for further discussion of the sale of Nikko operations. |
165
The estimated net actuarial loss, prior service cost and net transition obligation that will be amortized from Accumulated other comprehensive income (loss) into net expense in 2012 are approximately $181 million, $2 million and $(1) million, respectively, for defined benefit pension plans. For postretirement plans, the estimated 2012 net actuarial loss and prior service cost amortizations are approximately $32 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 | Postretirement benefit plans | ||||||||||||||||||||||||
U.S. plans | (1) | Non-U.S. plans | U.S. plans | Non-U.S. plans | |||||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
Change in projected benefit obligation | |||||||||||||||||||||||||
Projected benefit obligation at beginning of year | $ | 11,730 | $ | 11,178 | $ | 6,189 | $ | 5,400 | $ | 1,179 | $ | 1,086 | $ | 1,395 | $ | 1,141 | |||||||||
Benefits earned during the year | 13 | 14 | 203 | 167 | - | 1 | 28 | 23 | |||||||||||||||||
Interest cost on benefit obligation | 612 | 644 | 382 | 342 | 53 | 59 | 118 | 105 | |||||||||||||||||
Plan amendments | - | - | 2 | 8 | - | - | - | - | |||||||||||||||||
Actuarial (gain) loss | 655 | 537 | 59 | 459 | (44 | ) | 108 | 29 | 120 | ||||||||||||||||
Benefits paid | (633 | ) | (643 | ) | (288 | ) | (264 | ) | (79 | ) | (87 | ) | (54 | ) | (47 | ) | |||||||||
Expected Medicare Part D subsidy | - | - | - | - | 10 | 12 | - | - | |||||||||||||||||
Settlements | - | - | (44 | ) | (49 | ) | - | - | - | - | |||||||||||||||
Curtailments | - | - | 3 | (5 | ) | - | - | - | - | ||||||||||||||||
Special/contractual termination benefits | - | - | 27 | 5 | - | - | - | - | |||||||||||||||||
Foreign exchange impact and other | - | - | (271 | ) | 126 | 8 | - | (148 | ) | 53 | |||||||||||||||
Projected benefit obligation at year end | $ | 12,377 | $ | 11,730 | $ | 6,262 | $ | 6,189 | $ | 1,127 | $ | 1,179 | $ | 1,368 | $ | 1,395 | |||||||||
Change in plan assets | |||||||||||||||||||||||||
Plan assets at fair value at beginning of year | $ | 11,561 | $ | 9,934 | $ | 6,145 | $ | 5,592 | $ | 95 | $ | 114 | $ | 1,176 | $ | 967 | |||||||||
Actual return on plan assets | 1,063 | 1,271 | 526 | 432 | 5 | 10 | 40 | 126 | |||||||||||||||||
Company contributions (2) | - | 999 | 389 | 305 | 53 | 58 | 75 | 75 | |||||||||||||||||
Plan participants contributions | - | - | 6 | 6 | - | - | - | - | |||||||||||||||||
Settlements | - | - | (44 | ) | (49 | ) | - | - | - | - | |||||||||||||||
Benefits paid | (633 | ) | (643 | ) | (288 | ) | (264 | ) | (79 | ) | (87 | ) | (54 | ) | (47 | ) | |||||||||
Foreign exchange impact and other | - | - | (313 | ) | 123 | - | - | (141 | ) | 55 | |||||||||||||||
Plan assets at fair value at year end | $ | 11,991 | $ | 11,561 | $ | 6,421 | $ | 6,145 | $ | 74 | $ | 95 | $ | 1,096 | $ | 1,176 | |||||||||
Funded status of the plan at year end (3) | $ | (386 | ) | $ | (169 | ) | $ | 159 | $ | (44 | ) | $ | (1,053 | ) | $ | (1,084 | ) | $ | (272 | ) | $ | (219 | ) | ||
Net amount recognized | |||||||||||||||||||||||||
Benefit asset | $ | - | $ | - | $ | 874 | $ | 528 | $ | - | $ | - | $ | - | $ | 52 | |||||||||
Benefit liability | (386 | ) | (169 | ) | (715 | ) | (572 | ) | (1,053 | ) | (1,084 | ) | (272 | ) | (271 | ) | |||||||||
Net amount recognized on the balance sheet | $ | (386 | ) | $ | (169 | ) | $ | 159 | $ | (44 | ) | $ | (1,053 | ) | $ | (1,084 | ) | $ | (272 | ) | $ | (219 | ) | ||
Amounts recognized in Accumulated | |||||||||||||||||||||||||
other comprehensive income (loss) | |||||||||||||||||||||||||
Net transition obligation | $ | - | $ | - | $ | (1 | ) | $ | (2 | ) | $ | - | $ | - | $ | 1 | $ | 1 | |||||||
Prior service cost (benefit) | (1 | ) | (1 | ) | 23 | 26 | (3 | ) | (6 | ) | (5 | ) | (6 | ) | |||||||||||
Net actuarial loss | 4,440 | 4,021 | 1,454 | 1,652 | 152 | 194 | 509 | 486 | |||||||||||||||||
Net amount recognized in equity-pretax | $ | 4,439 | $ | 4,020 | $ | 1,476 | $ | 1,676 | $ | 149 | $ | 188 | $ | 505 | $ | 481 | |||||||||
Accumulated benefit obligation at year end | $ | 12,337 | $ | 11,689 | $ | 5,463 | $ | 5,576 | $ | 1,127 | $ | 1,179 | $ | 1,368 | $ | 1,395 |
(1) | The U.S. plans exclude nonqualified pension plans, for which the aggregate projected benefit obligation was $713 million and $658 million and the aggregate accumulated benefit obligation was $694 million and $648 million at December 31, 2011 and 2010, respectively. These plans are unfunded. As such, the funded status of these plans is $(713) million and $(658) million at December 31, 2011 and 2010, respectively. Accumulated other comprehensive income (loss) reflects pretax charges of $231 million and $167 million at December 31, 2011 and 2010, respectively, that primarily relate to net actuarial loss. | |
(2) | There were no Company contributions to the U.S. pension plan during 2011 and $999 million during 2010, which includes a discretionary cash contribution of $995 million in 2010 and advisory fees paid to Citi Alternative Investments. Company contributions to the non-U.S. pension plans include $47 million and $40 million of benefits paid directly by the Company during 2011 and 2010, respectively. | |
(3) | The U.S. qualified pension plan is fully funded under specified ERISA funding rules as of January 1, 2011 and no minimum required funding is expected for 2011 and 2012. |
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The following table shows the change in Accumulated other comprehensive income (loss) for the years ended December 31, 2011 and 2010:
In millions of dollars | 2011 | 2010 | |||||
Balance, January 1, net of tax (1) | $ | (4,105 | ) | $ | (3,461 | ) | |
Actuarial assumptions changes and plan experience (2) | (820 | ) | (1,257 | ) | |||
Net asset gain due to actual returns | |||||||
exceeding expected returns | 197 | 479 | |||||
Net amortizations | 183 | 137 | |||||
Foreign exchange impact and other | 28 | (437 | ) | ||||
Change in deferred taxes, net | 235 | 434 | |||||
Change, net of tax | $ | (177 | ) | $ | (644 | ) | |
Balance, December 31, net of tax (1) | $ | (4,282 | ) | $ | (4,105 | ) |
(1) | See Note 21 to the Consolidated Financial Statements for further discussion of net Accumulated other comprehensive income (loss) balance. | |
(2) | Includes $70 million and $33 million in net actuarial losses related to U.S. nonqualified pension plans for 2011 and 2010, respectively. |
At the end of 2011 and 2010, 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:
PBO exceeds fair value of plan | ABO exceeds fair value of plan | |||||||||||||||||||||||
assets | assets | |||||||||||||||||||||||
U.S. plans | (1) | Non-U.S. plans | U.S. plans | (1) | Non-U.S. plans | |||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Projected benefit obligation | $ | 13,089 | $ | 12,388 | $ | 2,386 | $ | 2,305 | $ | 13,089 | $ | 12,388 | $ | 1,970 | $ | 1,549 | ||||||||
Accumulated benefit obligation | 13,031 | 12,337 | 1,992 | 1,949 | 13,031 | 12,337 | 1,691 | 1,340 | ||||||||||||||||
Fair value of plan assets | 11,991 | 11,561 | 1,671 | 1,732 | 11,991 | 11,561 | 1,139 | 1,046 |
(1) | 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. In 2010, the PBO and ABO of the U.S. plans include $11,730 million and $11,689 million, respectively, relating to the qualified plan and $658 million and $648 million, respectively, relating to the nonqualified plans. |
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. At December 31, 2010, combined accumulated benefit obligations for the U.S. and non-U.S. pension plans, excluding U.S. nonqualified plans, exceeded plan assets by $0.4 billion.
167
Plan Assumptions
Citigroup 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) . A discussion of certain assumptions
follows.
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, 2011, the discount
rate was set at 4.70% for the pension plans and 4.30% for the postretirement
plans. At December 31, 2010, the discount rate was set at 5.45% for the pension
plans and 5.10% for the postretirement plans, referencing a Citigroup-specific
cash flow analysis.
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.
The discount rate and future rate of compensation assumptions used in determining pension and postretirement benefit obligations and net benefit expense for the Company's plans are shown in the following table:
At year end | 2011 | 2010 | |||
Discount rate | |||||
U.S. plans (1) | |||||
Pension | 4.70 | % | 5.45 | % | |
Postretirement | 4.30 | 5.10 | |||
Non-U.S. pension plans | |||||
Range | 1.75 to 13.25 | 1.75 to 14.00 | |||
Weighted average | 5.94 | 6.23 | |||
Future compensation increase rate | |||||
U.S. plans (2) | 3.00 | 3.00 | |||
Non-U.S. pension plans | |||||
Range | 1.60 to 13.30 | 1.0 to 11.0 | |||
Weighted average | 4.04 | 4.66 | |||
During the year | 2011 | 2010 | |||
Discount rate | |||||
U.S. plans (1) | |||||
Pension | 5.45 | % | 5.90 | % | |
Postretirement | 5.10 | 5.55 | |||
Non-U.S. pension plans | |||||
Range | 1.75 to 14.00 | 2.00 to 13.25 | |||
Weighted average | 6.23 | 6.50 | |||
Future compensation increase rate | |||||
U.S. plans (2) | 3.00 | 3.00 | |||
Non-U.S. pension plans | |||||
Range | 1.00 to 11.00 | 1.00 to 12.00 | |||
Weighted average | 4.66 | 4.60 |
(1) | Weighted-average rates for the U.S. plans equal the stated rates. | |
(2) | Effective January 1, 2008, the U.S. qualified pension plan was frozen except for certain 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. Future compensation increase rates for small groups of employees were 4%. |
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A one-percentage-point change in the discount rates would have the following effects on pension expense:
One-percentage-point increase | One-percentage-point decrease | ||||||||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||
Effect on pension expense for U.S. plans (1) | $ | 19 | $ | 19 | $ | 14 | $ | (34 | ) | $ | (34 | ) | $ | (27 | ) | ||||
Effect on pension expense for non-U.S. plans | (57 | ) | (49 | ) | (40 | ) | 70 | 56 | 62 |
(1) | Due to the freeze of the U.S. qualified pension plan commencing January 1, 2008, 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. |
Assumed health-care cost-trend rates were as follows:
2011 | 2010 | ||||
Health-care cost increase rate for U.S. plans | |||||
Following year | 9.00 | % | 9.50 | % | |
Ultimate rate to which cost increase is assumed to decline | 5.00 | 5.00 | |||
Year in which the ultimate rate is reached | 2020 | 2020 |
A one-percentage-point change in assumed health-care cost-trend rates would have the following effects:
One- | |||||||||||||
One-percentage- | percentage- | ||||||||||||
point increase | point decrease | ||||||||||||
In millions of dollars | 2011 | 2010 | 2011 | 2010 | |||||||||
Effect on benefits earned and | |||||||||||||
interest cost for U.S. plans | $ | 2 | $ | 3 | $ | (2 | ) | $ | (2 | ) | |||
Effect on accumulated | |||||||||||||
postretirement benefit | |||||||||||||
obligation for U.S. plans | 43 | 49 | (38 | ) | (44 | ) |
Expected Rate of
Return
Citigroup 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.
Citigroup 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,
future compensation increase 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 7.50% at December 31, 2011, 7.50% at
December 31, 2010, and 7.75% at December 31, 2009, reflecting a change in
investment allocations during 2010. Actual returns in 2011 and 2010 were greater
than the expected returns, while actual returns in 2009 were less than the
expected returns. This expected amount reflects the expected annual appreciation
of the plan assets and reduces the annual pension expense of Citigroup. It is
deducted from the sum of service cost, interest 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 2011, 2010, and 2009 reflects deductions
of $890 million, $874 million, and $912 million of expected returns,
respectively.
The following
table shows the expected versus actual rate of return on plan assets
for 2011, 2010 and 2009 for the U.S. pension and postretirement plans:
2011 | 2010 | 2009 | |||||
Expected rate of return | 7.50 | % | 7.50 | % | 7.75 | % | |
Actual rate of return (1) | 11.13 | % | 14.11 | % | (2.77 | )% |
(1) | Actual rates of return are presented gross of fees. |
For
the non-U.S. plans, pension expense for 2011 was reduced by the expected return
of $422 million, compared with the actual return of $526 million. Pension
expense for 2010 and 2009 was reduced by expected returns of $378 million and
$336 million, respectively. Actual returns were higher in 2011, 2010, and 2009
than the expected returns in those years.
The expected long-term rates of return on assets used in determining the
Company's pension expense are shown below:
2011 | 2010 | ||||
Rate of return on assets | |||||
U.S. plans (1) | 7.50 | % | 7.75 | % | |
Non-U.S. pension plans | |||||
Range | 1.00 to 12.50 | 1.75 to 13.00 | |||
Weighted average | 6.89 | 6.96 |
(1) | Weighted-average rates for the U.S. plans equal the stated rates. |
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A one-percentage-point change in the expected rates of return would have the following effects on pension expense:
One-percentage-point increase | One-percentage-point decrease | |||||||||||||||||
In millions of dollars | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||
Effect on pension expense for U.S. plans | $ | (118 | ) | $ | (119 | ) | $ | (109 | ) | $118 | $119 | $109 | ||||||
Effect on pension expense for non-U.S. plans | (62 | ) | (54 | ) | (44 | ) | 62 | 54 | 44 |
Plan Assets
Citigroup's pension and postretirement plans'
asset allocations for the U.S. plans at the end of 2011 and 2010, and the target
allocations for 2012 by asset category based on asset fair values, are as
follows:
Target asset | U.S. pension assets | U.S. postretirement assets | |||||||||
allocation | at December 31, | at December 31, | |||||||||
Asset category (1) | 2012 | 2011 | 2010 | 2011 | 2010 | ||||||
Equity securities (2) | 0-34 | % | 16 | % | 15 | % | 16 | % | 15 | % | |
Debt securities | 30-67 | 44 | 40 | 44 | 39 | ||||||
Real estate | 0-7 | 5 | 5 | 5 | 5 | ||||||
Private equity | 0-15 | 13 | 16 | 13 | 16 | ||||||
Other investments | 8-29 | 22 | 24 | 22 | 25 | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
(1) | Target 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. | |
(2) | Equity securities in the U.S. pension plans include no Citigroup common stock at the end of 2011 and 2010. |
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' weighted-average asset allocations for the non-U.S. plans and the actual ranges at the end of 2011 and 2010, and the weighted-average target allocations for 2012 by asset category based on asset fair values are as follows:
Non-U.S. pension plans | |||||||||||
Weighted-average | Actual range | Weighted-average | |||||||||
target asset allocation | at December 31, | at December 31, | |||||||||
Asset category | 2012 | 2011 | 2010 | 2011 | 2010 | ||||||
Equity securities | 20 | % | 0 to 65 | % | 0 to 67 | % | 19 | % | 22 | % | |
Debt securities | 73 | 0 to 99 | 0 to 100 | 71 | 68 | ||||||
Real estate | 1 | 0 to 42 | 0 to 43 | 1 | 1 | ||||||
Other investments | 6 | 0 to 100 | 0 to 100 | 9 | 9 | ||||||
Total | 100 | % | 100 | % | 100 | % | |||||
Non-U.S. postretirement plans | |||||||||||
Weighted-average | Actual range | Weighted-average | |||||||||
target asset allocation | at December 31, | at December 31, | |||||||||
Asset category | 2012 | 2011 | 2010 | 2011 | 2010 | ||||||
Equity securities | 44 | % | 0 to 44 | % | 0 to 43 | % | 44 | % | 43 | % | |
Debt securities | 45 | 45 to 100 | 47 to 100 | 45 | 47 | ||||||
Other investments | 11 | 0 to 11 | 0 to 10 | 11 | 10 | ||||||
Total | 100 | % | 100 | % | 100 | % |
170
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, 2011 and 2010.
Plan assets by detailed asset categories and the fair value hierarchy are as follows:
In millions of dollars | U.S. pension and postretirement benefit plans | (1) | |||||||||||
Fair value measurement at December 31, 2011 | |||||||||||||
Asset categories | Level 1 | Level 2 | Level 3 | Total | |||||||||
Equity securities | |||||||||||||
U.S. equity | $ | 572 | $ | 5 | $ | 51 | $ | 628 | |||||
Non-U.S. equity | 229 | - | 19 | 248 | |||||||||
Mutual funds | 137 | - | - | 137 | |||||||||
Commingled funds | 440 | 594 | - | 1,034 | |||||||||
Debt securities | |||||||||||||
U.S. Treasuries | 1,760 | - | - | 1,760 | |||||||||
U.S. agency | - | 120 | - | 120 | |||||||||
U.S. corporate bonds | 2 | 1,073 | 5 | 1,080 | |||||||||
Non-U.S. government debt | - | 352 | - | 352 | |||||||||
Non-U.S. corporate bonds | 4 | 271 | - | 275 | |||||||||
State and municipal debt | - | 122 | - | 122 | |||||||||
Hedge funds | - | 1,087 | 870 | 1,957 | |||||||||
Asset-backed securities | - | 19 | - | 19 | |||||||||
Mortgage-backed securities | - | 32 | - | 32 | |||||||||
Annuity contracts | - | - | 155 | 155 | |||||||||
Private equity | - | - | 2,474 | 2,474 | |||||||||
Derivatives | 691 | 36 | - | 727 | |||||||||
Other investments | 92 | 20 | 121 | 233 | |||||||||
Total investments at fair value | $ | 3,927 | $ | 3,731 | $ | 3,695 | $ | 11,353 | |||||
Cash and short-term investments | $ | 412 | $ | 402 | $ | - | $ | 814 | |||||
Other investment receivables | - | 393 | 221 | 614 | |||||||||
Total assets | $ | 4,339 | $ | 4,526 | $ | 3,916 | $ | 12,781 | |||||
Other investment liabilities | $ | (683 | ) | $ | (33 | ) | $ | - | $ | (716 | ) | ||
Total net assets | $ | 3,656 | $ | 4,493 | $ | 3,916 | $ | 12,065 |
(1) | 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. |
171
In millions of dollars | U.S. pension and postretirement benefit plans | (1) | ||||||||||||||
Fair value measurement at December 31, 2010 | ||||||||||||||||
Asset categories (2) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity securities | ||||||||||||||||
U.S. equity | $ | 530 | $ | 9 | $ | - | $ | 539 | ||||||||
Non-U.S. equity | 432 | 4 | - | 436 | ||||||||||||
Mutual funds | 920 | - | - | 920 | ||||||||||||
Commingled funds | 773 | - | - | 773 | ||||||||||||
Debt securities | ||||||||||||||||
U.S. Treasuries | 1,039 | - | - | 1,039 | ||||||||||||
U.S. agency | - | 90 | - | 90 | ||||||||||||
U.S. corporate bonds | - | 1,050 | 5 | 1,055 | ||||||||||||
Non-U.S. government debt | - | 243 | - | 243 | ||||||||||||
Non-U.S. corporate bonds | - | 219 | 1 | 220 | ||||||||||||
State and municipal debt | - | 62 | - | 62 | ||||||||||||
Hedge funds | - | 1,521 | 1,014 | 2,535 | ||||||||||||
Asset-backed securities | - | 28 | - | 28 | ||||||||||||
Mortgage-backed securities | - | 25 | - | 25 | ||||||||||||
Annuity contracts | - | - | 187 | 187 | ||||||||||||
Private equity | - | - | 2,920 | 2,920 | ||||||||||||
Derivatives | 9 | 634 | - | 643 | ||||||||||||
Other investments | 9 | - | 4 | 13 | ||||||||||||
Total investments at fair value | $ | 3,712 | $ | 3,885 | $ | 4,131 | $ | 11,728 | ||||||||
Cash and short-term investments | $ | 152 | $ | 361 | $ | - | $ | 513 | ||||||||
Other investment receivables | - | 21 | - | 21 | ||||||||||||
Total assets | $ | 3,864 | $ | 4,267 | $ | 4,131 | $ | 12,262 | ||||||||
Other investment liabilities | $ | (16 | ) | $ | (590 | ) | $ | - | $ | (606 | ) | |||||
Total net assets | $ | 3,848 | $ | 3,677 | $ | 4,131 | $ | 11,656 |
(1) | The investments of the U.S. pension and postretirement benefit plans are commingled in one trust. At December 31, 2010, the allocable interests of the U.S. pension and postretirement benefit plans were 99.2% and 0.8%, respectively. | |
(2) | Balances at December 31, 2010 have been reclassified to conform to the current year's presentation. |
172
In millions of dollars | Non-U.S. pension and postretirement benefit plans | |||||||||||
Fair value measurement at December 31, 2011 | ||||||||||||
Asset categories | Level 1 | Level 2 | Level 3 | Total | ||||||||
Equity securities | ||||||||||||
U.S. equity | $ | 12 | $ | - | $ | - | $ | 12 | ||||
Non-U.S. equity | 48 | 180 | 5 | 233 | ||||||||
Mutual funds | 11 | 4,439 | 32 | 4,482 | ||||||||
Commingled funds | 26 | - | - | 26 | ||||||||
Debt securities | ||||||||||||
U.S. Treasuries | 1 | - | - | 1 | ||||||||
U.S. corporate bonds | 1 | 379 | - | 380 | ||||||||
Non-U.S. government debt | 1,484 | 129 | 5 | 1,618 | ||||||||
Non-U.S. corporate bonds | 5 | 318 | 3 | 326 | ||||||||
State and municipal debt | - | - | - | - | ||||||||
Hedge funds | - | 3 | 12 | 15 | ||||||||
Mortgage-backed securities | 1 | - | - | 1 | ||||||||
Annuity contracts | - | 3 | - | 3 | ||||||||
Derivatives | - | 3 | - | 3 | ||||||||
Other investments | 3 | 6 | 240 | 249 | ||||||||
Total investments at fair value | $ | 1,592 | $ | 5,460 | $ | 297 | $ | 7,349 | ||||
Cash and short-term investments | $ | 168 | $ | - | $ | - | $ | 168 | ||||
Total assets | $ | 1,760 | $ | 5,460 | $ | 297 | $ | 7,517 |
In millions of dollars | Non-U.S. pension and postretirement benefit plans | |||||||||||
Fair value measurement at December 31, 2010 | ||||||||||||
Asset categories (1) | Level 1 | Level 2 | Level 3 | Total | ||||||||
Equity securities | ||||||||||||
U.S. equity | $ | 12 | $ | 20 | $ | - | $ | 32 | ||||
Non-U.S. equity | 117 | 423 | 3 | 543 | ||||||||
Mutual funds | 183 | 4,773 | - | 4,956 | ||||||||
Commingled funds | - | - | - | - | ||||||||
Debt securities | ||||||||||||
U.S. Treasuries | 2 | 26 | - | 28 | ||||||||
U.S. corporate bonds | - | 354 | - | 354 | ||||||||
Non-U.S. government debt | 167 | 404 | - | 571 | ||||||||
Non-U.S. corporate bonds | 4 | 354 | 107 | 465 | ||||||||
State and municipal debt | - | 15 | - | 15 | ||||||||
Hedge funds | 4 | - | 14 | 18 | ||||||||
Mortgage-backed securities | - | 2 | - | 2 | ||||||||
Annuity contracts | - | - | - | - | ||||||||
Derivatives | - | - | - | - | ||||||||
Other investments | 9 | 29 | 189 | 227 | ||||||||
Total investments at fair value | $ | 498 | $ | 6,400 | $ | 313 | $ | 7,211 | ||||
Cash and short-term investments | $ | 92 | $ | 18 | $ | - | $ | 110 | ||||
Total assets | $ | 590 | $ | 6,418 | $ | 313 | $ | 7,321 |
(1) | Balances at December 31, 2010 have been reclassified to conform to the current year's presentation. |
173
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 | U.S. pension and postretirement benefit plans | |||||||||||||||||
Beginning Level 3 | Realized | Unrealized | Purchases, | Transfers in | Ending Level 3 | |||||||||||||
fair value at | gains | gains | sales, and | and/or out of | fair value at | |||||||||||||
Asset categories | Dec. 31, 2010 | (losses) | (losses) | issuances | Level 3 | Dec. 31, 2011 | ||||||||||||
Equity securities | ||||||||||||||||||
U.S. equity | $ | - | $ | - | $ | - | $ | - | $ | 51 | $ | 51 | ||||||
Non-U.S. equity | - | - | (1 | ) | - | 20 | 19 | |||||||||||
Debt securities | ||||||||||||||||||
U.S. corporate bonds | 5 | (2 | ) | (1 | ) | (1 | ) | 4 | 5 | |||||||||
Non-U.S. corporate bonds | 1 | - | - | (1 | ) | - | - | |||||||||||
Hedge funds | 1,014 | 42 | (45 | ) | (131 | ) | (10 | ) | 870 | |||||||||
Annuity contracts | 187 | - | 3 | (35 | ) | - | 155 | |||||||||||
Private equity | 2,920 | 89 | 94 | (497 | ) | (132 | ) | 2,474 | ||||||||||
Other investments | 4 | - | (6 | ) | - | 123 | 121 | |||||||||||
Total investments | $ | 4,131 | $ | 129 | $ | 44 | $ | (665 | ) | $ | 56 | $ | 3,695 | |||||
Other investment receivables | - | - | - | 221 | - | 221 | ||||||||||||
Total assets | $ | 4,131 | $ | 129 | $ | 44 | $ | (444 | ) | $ | 56 | $ | 3,916 |
In millions of dollars | U.S. pension and postretirement benefit plans | |||||||||||||||||
Beginning Level 3 | Realized | Unrealized | Purchases, | Transfers in | Ending Level 3 | |||||||||||||
fair value at | gains | gains | sales, and | and/or out of | fair value at | |||||||||||||
Asset categories | Dec. 31, 2009 | (losses) | (losses) | issuances | Level 3 | Dec. 31, 2010 | ||||||||||||
Equity securities | ||||||||||||||||||
U.S. equity | $ | 1 | $ | (1 | ) | $ | - | $ | - | $ | - | $ | - | |||||
Non-U.S. equity | 1 | (1 | ) | - | - | - | - | |||||||||||
Debt securities | ||||||||||||||||||
U.S. corporate bonds | 1 | - | - | 3 | 1 | 5 | ||||||||||||
Non-U.S. corporate bonds | - | - | - | 1 | - | 1 | ||||||||||||
Hedge funds | 1,235 | (15 | ) | 85 | (220 | ) | (71 | ) | 1,014 | |||||||||
Annuity contracts | 215 | (44 | ) | 55 | (39 | ) | - | 187 | ||||||||||
Private equity | 2,539 | 148 | 292 | (59 | ) | - | 2,920 | |||||||||||
Other investments | 148 | (66 | ) | (66 | ) | (16 | ) | 4 | 4 | |||||||||
Total assets | $ | 4,140 | $ | 21 | $ | 366 | $ | (330 | ) | $ | (66 | ) | $ | 4,131 |
In millions of dollars | Non-U.S. pension and postretirement benefit plans | |||||||||||||||||
Beginning Level 3 | Realized | Unrealized | Purchases, | Transfers in | Ending Level 3 | |||||||||||||
fair value at | gains | gains | sales, and | and/or out of | fair value at | |||||||||||||
Asset categories (1) | Dec. 31, 2010 | (losses) | (losses) | issuances | Level 3 | Dec. 31, 2011 | ||||||||||||
Equity securities | ||||||||||||||||||
Non-U.S. equity | $ | 3 | $ | - | $ | 2 | $ | - | $ | - | $ | 5 | ||||||
Mutual funds | - | - | - | - | 32 | 32 | ||||||||||||
Debt securities | ||||||||||||||||||
Non-U.S. government bonds | - | - | - | - | 5 | 5 | ||||||||||||
Non U.S. corporate bonds | 107 | - | - | 2 | (105 | ) | 4 | |||||||||||
Hedge funds | 14 | (2 | ) | - | - | - | 12 | |||||||||||
Other investments | 189 | 4 | (10 | ) | 56 | 239 | ||||||||||||
Total assets | $ | 313 | $ | 2 | $ | 2 | $ | (8 | ) | $ | (12 | ) | $ | 297 |
(1) | Balances at December 31, 2010 have been reclassified to conform to the current year's presentation. |
174
In millions of dollars | Non-U.S. pension and postretirement benefit plans | |||||||||||||||||
Beginning Level 3 | Realized | Unrealized | Purchases, | Transfers in | Ending Level 3 | |||||||||||||
fair value at | gains | gains | sales, and | and/or out of | fair value at | |||||||||||||
Asset categories (1) | Dec. 31, 2009 | (losses) | (losses) | issuances | Level 3 | Dec. 31, 2010 | ||||||||||||
Equity securities | ||||||||||||||||||
Non-U.S. equity | $ | 2 | $ | - | $ | 1 | $ | - | $ | - | $ | 3 | ||||||
Debt securities | ||||||||||||||||||
Non-U.S. corporate bonds | 91 | - | - | 16 | - | 107 | ||||||||||||
Hedge funds | 14 | - | - | - | - | 14 | ||||||||||||
Other investments | 205 | (5 | ) | 3 | - | (14 | ) | 189 | ||||||||||
Total assets | $ | 312 | $ | (5 | ) | $ | 4 | $ | 16 | $ | (14 | ) | $ | 313 |
(1) | Balances have been reclassified to conform to the current year's presentation. |
Investment
Strategy
Citigroup'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
Citigroup'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.
Significant Concentrations of Risk
in Plan Assets
The assets of Citigroup's
pension plans are diversified to limit the impact of any individual investment.
The U.S. pension plan is diversified across multiple asset classes, with
publicly traded fixed income, hedge funds and private equity representing the
most significant asset allocations. Investments in these three 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 Citigroup's largest non-U.S. plans are primarily invested in
publicly traded fixed income and publicly traded equity securities.
Oversight and Risk Management
Practices
The framework for Citigroup'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 Citigroup's U.S. pension plans 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 Citigroup's monitoring and risk management process:
175
Estimated Future Benefit
Payments
The Company expects to pay the
following estimated benefit payments in future years:
U.S. plans | Non-U.S. plans | ||||||||||||
Pension | Postretirement | Pension | Postretirement | ||||||||||
In millions of dollars | benefits | benefits | benefits | benefits | |||||||||
2012 | $ | 748 | $ | 102 | $ | 331 | $ | 50 | |||||
2013 | 762 | 93 | 324 | 50 | |||||||||
2014 | 773 | 90 | 344 | 53 | |||||||||
2015 | 785 | 91 | 358 | 56 | |||||||||
2016 | 800 | 89 | 380 | 60 | |||||||||
2017–2021 | 4,271 | 407 | 2,235 | 377 |
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
The expected subsidy reduced the accumulated postretirement benefit obligation (APBO) by approximately $96 million and $139 million as of December 31, 2011 and 2010, respectively, and the postretirement expense by approximately $10 million and $9 million for 2011 and 2010, 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:
Expected U.S. | |||||||||
postretirement benefit payments | |||||||||
Before Medicare | Medicare | After Medicare | |||||||
In millions of dollars | Part D subsidy | Part D subsidy | Part D subsidy | ||||||
2012 | $ | 112 | $ | 10 | $ | 102 | |||
2013 | 103 | 10 | 93 | ||||||
2014 | 101 | 11 | 90 | ||||||
2015 | 99 | 8 | 91 | ||||||
2016 | 97 | 8 | 89 | ||||||
2017–2021 | 440 | 33 | 407 |
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. The other provisions of the Act of 2010 are not expected to have a significant impact on Citigroup's pension and postretirement plans.
Defined Contribution
Plans
Citigroup administers
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 plan
of these plans is the Citigroup 401(k) plan in the U.S.
Under the Citigroup 401(k) plan, eligible U.S. employees received
matching contributions of up to 6% of their compensation for 2011 and up to 4%
for 2010, subject to statutory limits. The matching contribution is invested
according to participants' individual elections. Additionally, for eligible
employees whose compensation is $100,000 or less, a fixed contribution of up to
2% of compensation is provided. The matching
and fixed contributions are invested according to participants' individual elections. The pretax expense associated with this plan amounted to approximately $383 million, $301 million and $442 million in 2011, 2010 and 2009, respectively. The change in expense, year-over-year, reflects the fluctuations of the matching contribution rate.
Postemployment Plans
Citigroup
sponsors U.S. postemployment plans that provide income continuation and health and welfare benefits to certain eligible
U.S. employees on long term disability. For the years ended December 31, 2011 and 2010, the plans' funded status
recognized in the Company's Consolidated Balance Sheet was $(469) million and $(436) million, respectively. The net
expense recognized in the Consolidated Statement of Income during 2011, 2010, and 2009 were $67 million, $69 million, and
$57 million, respectively. The estimated net actuarial loss and prior service cost that will be amortized from Accumulated
other comprehensive income (loss) into net expense in 2012 are approximately
$169 million and $19 million, respectively.
176
10. INCOME TAXES
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Current | ||||||||||
Federal | $ | (144 | ) | $ | (249 | ) | $ | (1,711 | ) | |
Foreign | 3,498 | 3,239 | 3,101 | |||||||
State | 241 | 207 | (414 | ) | ||||||
Total current income taxes | $ | 3,595 | $ | 3,197 | $ | 976 | ||||
Deferred | ||||||||||
Federal | $ | (793 | ) | $ | (933 | ) | $ | (6,892 | ) | |
Foreign | 628 | 279 | (182 | ) | ||||||
State | 91 | (310 | ) | (635 | ) | |||||
Total deferred income taxes | $ | (74 | ) | $ | (964 | ) | $ | (7,709 | ) | |
Provision (benefit) for income tax on | ||||||||||
continuing operations before | ||||||||||
noncontrolling interests (1) | $ | 3,521 | $ | 2,233 | $ | (6,733 | ) | |||
Provision (benefit) for income taxes on | ||||||||||
discontinued operations | 66 | (562 | ) | (106 | ) | |||||
Provision (benefit) for income taxes on | ||||||||||
cumulative effect of accounting changes | - | (4,978 | ) | - | ||||||
Income tax expense (benefit) reported in | ||||||||||
stockholders' equity related to: | ||||||||||
Foreign currency translation | (609 | ) | (739 | ) | (415 | ) | ||||
Securities available-for-sale | 1,495 | 1,167 | 2,765 | |||||||
Employee stock plans | 297 | 600 | 1,351 | |||||||
Cash flow hedges | (92 | ) | 325 | 1,165 | ||||||
Pension liability adjustments | (235 | ) | (434 | ) | (513 | ) | ||||
Tax on exchange offer booked to | ||||||||||
retained earnings | - | - | 3,523 | |||||||
Income taxes before noncontrolling interests | $ | 4,443 | $ | (2,388 | ) | $ | 1,037 |
(1) | Includes the effect of securities transactions and OTTI losses resulting in a provision (benefit) of $699 million and $(789) million in 2011, $844 million and $(494) million in 2010 and $698 million and $(1,017) million in 2009, respectively. |
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:
2011 | 2010 | 2009 | ||||
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % |
State income taxes, net of federal benefit | 1.5 | (0.1 | ) | 8.4 | ||
Foreign income tax rate differential | (8.6 | ) | (10.0 | ) | 26.0 | |
Audit settlements (1) | - | (0.5 | ) | 4.4 | ||
Effect of tax law changes (2) | 2.0 | (0.1 | ) | - | ||
Tax advantaged investments | (6.0 | ) | (6.7 | ) | 11.8 | |
Other, net | 0.2 | (0.7 | ) | 0.7 | ||
Effective income tax rate | 24.1 | % | 16.9 | % | 86.3 | % |
(1) | For 2010 and 2009, relates to the conclusion of the audit of various issues in the Company's 2003–2005 U.S. federal tax audit. For 2009, also includes a tax benefit relating to the release of tax reserves on interchange fees. | |
(2) | Includes the results of the Japan tax rate change in 2011, which resulted in a $300 million DTA charge. |
Deferred income taxes at December 31 related to the following:
In millions of dollars | 2011 | 2010 | ||||
Deferred tax assets | ||||||
Credit loss deduction | $ | 12,481 | $ | 16,085 | ||
Deferred compensation and employee benefits | 4,936 | 4,998 | ||||
Restructuring and settlement reserves | 1,331 | 785 | ||||
Unremitted foreign earnings | 7,362 | 5,673 | ||||
Investment and loan basis differences | 2,358 | 1,906 | ||||
Cash flow hedges | 1,673 | 1,581 | ||||
Tax credit and net operating loss carryforwards | 22,764 | 23,204 | ||||
Other deferred tax assets | 2,127 | 1,563 | ||||
Gross deferred tax assets | $ | 55,032 | $ | 55,795 | ||
Valuation allowance | - | - | ||||
Deferred tax assets after valuation allowance | $ | 55,032 | $ | 55,795 | ||
Deferred tax liabilities | ||||||
Deferred policy acquisition costs | ||||||
and value of insurance in force | $ | (591 | ) | $ | (737 | ) |
Fixed assets and leases | (1,361 | ) | (1,325 | ) | ||
Intangibles | (710 | ) | (1,188 | ) | ||
Debt valuation adjustment on Citi liabilities | (533 | ) | (124 | ) | ||
Other deferred tax liabilities | (307 | ) | (326 | ) | ||
Gross deferred tax liabilities | $ | (3,502 | ) | $ | (3,700 | ) |
Net deferred tax asset | $ | 51,530 | $ | 52,095 |
177
The following is a roll-forward of the Company's unrecognized tax benefits.
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Total unrecognized tax benefits at January 1 | $ | 4,035 | $ | 3,079 | $ | 3,468 | ||||
Net amount of increases for
current year's tax positions | 193 | 1,039 | 195 | |||||||
Gross amount of
increases for prior years' tax positions | 251 | 371 | 392 | |||||||
Gross amount of decreases for
prior years' tax positions | (507 | ) | (421 | ) | (870 | ) | ||||
Amounts of decreases relating to settlements | (11 | ) | (14 | ) | (104 | ) | ||||
Reductions due to lapse of statutes of limitation | (38 | ) | (11 | ) | (12 | ) | ||||
Foreign exchange, acquisitions and dispositions | - | (8 | ) | 10 | ||||||
Total unrecognized tax benefits at December 31 | $ | 3,923 | $ | 4,035 | $ | 3,079 |
Total amount of unrecognized tax benefits at December 31, 2011, 2010 and 2009 that, if recognized, would affect the effective tax rate are $2.2 billion, $2.1 billion and $2.2 billion, respectively. The remainder of the uncertain tax positions have offsetting amounts in other jurisdictions or are temporary differences, except for $0.9 billion at December 31, 2011, which would be booked directly to Retained earnings.
Interest and penalties (not included in "unrecognized tax benefits" above) are a component of the Provision for income taxes .
2011 | 2010 | 2009 | |||||||||||||||||
In millions of dollars | Pretax | Net of tax | Pretax | Net of tax | Pretax | Net of tax | |||||||||||||
Total interest and penalties in the Consolidated Balance Sheet at January 1 | $ | 348 | $ | 223 | $ | 370 | $ | 239 | $ | 663 | $ | 420 | |||||||
Total interest and penalties in the Consolidated Statement of Income | 61 | 41 | (16 | ) | (12 | ) | (250 | ) | (154 | ) | |||||||||
Total interest and penalties in the Consolidated Balance Sheet at December 31 (1) | 404 | 261 | 348 | 223 | 370 | 239 |
(1) | Includes $14 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 expects to conclude the IRS audit of its U.S. federal consolidated
income tax returns for the years 2006-2008 and may resolve certain issues with
IRS Appeals for the years 2003-2005 within the next 12 months. The gross
uncertain tax positions at December 31, 2011 for the items that may be resolved
for 2003-2008 are as much as $1,510 million plus gross interest of $70 million.
Because of the number of issues remaining to be resolved, the potential tax
benefit to continuing operations could be anywhere in a range between $0 and
$1,200 million. In addition, the Company expects to conclude a New York City audit for 2006-2008 in the first quarter of 2012 that will result in a reduction of approximately $82 million in gross uncertain tax positions and a reduction in gross interest of approximately $13 million and which could result in a tax benefit to continuing operations of approximately $56 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 | Tax year |
United States | 2006 |
Mexico | 2008 |
New York State and City | 2005 |
United Kingdom | 2010 |
Japan | 2009 |
Brazil | 2007 |
Singapore | 2005 |
Hong Kong | 2006 |
Ireland | 2007 |
Foreign pretax earnings
approximated $13.1 billion in 2011, $12.3 billion in 2010 and $6.1 billion in
2009 (of which $0.2 billion profit, $0.1 billion profit and $0.6 billion loss,
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, 2011, $35.9 billion of
accumulated undistributed earnings of non-U.S. subsidiaries were indefinitely
invested. At the existing U.S. federal income tax rate, additional taxes (net of
U.S. foreign tax credits) of $9.5 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.
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, 2011, the amount of
the base year reserves totaled approximately $358 million (subject to a tax of $125 million).
178
The Company has no valuation allowance on its deferred tax assets (DTAs) at December 31, 2011 and December 31, 2010.
In billions of dollars | ||||||
DTA balance | DTA balance | |||||
Jurisdiction/component | December 31, 2011 | December 31, 2010 | ||||
U.S. federal (1) | ||||||
Consolidated tax return net | ||||||
operating losses (NOLs) | $ | - | $ | 3.8 | ||
Consolidated tax return | ||||||
foreign tax credits (FTCs) | 15.8 | 13.9 | ||||
Consolidated tax return | ||||||
general business credits (GBCs) | 2.1 | 1.7 | ||||
Future tax deductions and credits | 23.0 | 21.8 | ||||
Other (2) | 1.4 | 0.4 | ||||
Total U.S. federal | $ | 42.3 | $ | 41.6 | ||
State and local | ||||||
New York NOLs | $ | 1.3 | $ | 1.7 | ||
Other state NOLs | 0.7 | 0.8 | ||||
Future tax deductions | 2.2 | 2.1 | ||||
Total state and local | $ | 4.2 | $ | 4.6 | ||
Foreign | ||||||
APB 23 subsidiary NOLs | $ | 0.5 | $ | 0.5 | ||
Non-APB 23 subsidiary NOLs | 1.8 | 1.5 | ||||
Future tax deductions | 2.7 | 3.9 | ||||
Total foreign | $ | 5.0 | $ | 5.9 | ||
Total | $ | 51.5 | $ | 52.1 |
(1) | Included in the net U.S. federal DTAs of $42.3 billion are deferred tax liabilities of $3 billion that will reverse in the relevant carryforward period and may be used to support the DTAs, and $0.2 billion in compensation deductions that reduced additional paid-in capital in January 2012 and for which no adjustment was permitted to such DTAs at December 31, 2011 because the related stock compensation was not yet deductible to Citi. | |
(2) | Includes $1.2 billion and $0.1 billion for 2011 and 2010, respectively, of tax carryforwards related to companies that file U.S. federal tax returns separate from Citigroup's consolidated U.S. federal tax return. |
The following table summarizes the amounts of tax carryforwards and their expiration dates as of December 31, 2011:
In billions of dollars | ||
Year of expiration | Amount | |
U.S. consolidated tax return foreign tax credit carryforwards | ||
2016 | $ | 0.4 |
2017 | 4.9 | |
2018 | 5.3 | |
2019 | 1.3 | |
2020 | 2.2 | |
2021 | 1.7 | |
Total U.S. consolidated tax
return foreign tax credit | $ | 15.8 |
U.S. consolidated tax return general business
credit carryforwards | ||
2027 | $ | 0.3 |
2028 | 0.4 | |
2029 | 0.4 | |
2030 | 0.5 | |
2031 | 0.5 | |
Total U.S. consolidated tax
return general business credit carryforwards | $ | 2.1 |
U.S. separate tax returns federal net
operating loss | ||
2028 | $ | 0.2 |
2031 | 2.9 | |
Total U.S. separate tax returns federal NOL carryforwards (1) | $ | 3.1 |
New York State NOL carryforwards | ||
2027 | $ | 0.1 |
2028 | 7.4 | |
2029 | 2.0 | |
2030 | 0.3 | |
Total New York State NOL carryforwards (1) | $ | 9.8 |
New York City NOL carryforwards | ||
2027 | $ | 0.1 |
2028 | 3.1 | |
2029 | 1.5 | |
2030 | 0.2 | |
Total New York City NOL carryforwards (1) | $ | 4.9 |
APB 23 subsidiary NOL carryforwards | ||
2012 | $ | 0.4 |
Various | 0.1 | |
Total APB 23 subsidiary NOL carryforwards | $ | 0.5 |
(1) | Pretax. |
179
Although
realization is not assured, the Company believes that the realization of the
recognized net DTA of $51.5 billion at December 31, 2011 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 (formerly SFAS 109), that would be implemented, if necessary, to prevent
a carryforward from expiring.
In general, Citi would need to generate
approximately $111 billion of taxable income during the respective carryforward
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.
As of December 31, 2011, Citi was no longer in a three-year
cumulative loss position for purposes of evaluating its DTAs. While this removes
a significant piece of negative evidence in evaluating the need for a valuation
allowance, Citi will continue to weigh the evidence supporting its DTAs. Citi
has concluded that there are two pieces of positive evidence which support the
full realizability of its DTAs. First, Citi forecasts sufficient taxable income
in the carryforward period, exclusive of tax planning strategies. Second, Citi
has sufficient tax planning strategies, including potential sales of assets, in
which it could realize the excess of appreciated value over the tax basis of its
assets. The amount of the DTAs considered realizable, however, is necessarily
subject to Citi's estimates of future taxable income in the jurisdictions in
which it operates during the respective carryforward periods, which is in turn
subject to overall market and global economic conditions.
The U.S. federal
consolidated tax return NOL carryforward component of the DTAs of $3.8 billion at
December 31, 2010 was utilized in 2011. Based upon the foregoing discussion, as
well as tax planning opportunities and other factors discussed below, Citi
believes the U.S. federal and New York state and city NOL carryforward period of
20 years provides enough time to fully utilize the DTAs pertaining to the existing NOL carryforwards 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.
Because the U.S. federal consolidated tax return NOL carryforward
has been utilized, Citi can begin to utilize its foreign tax credit (FTC) and
general business credit (GBC) carryforwards. The U.S. FTC carryforward period is
10 years. Utilization of foreign tax credits in any year is restricted to 35% of
foreign source taxable income in that year. However, overall domestic losses
that the Company has incurred of approximately $56 billion as of December 31,
2011 are allowed to be reclassified as foreign source income to the extent of
50% of domestic source income produced in subsequent years and such resulting
foreign source income would in fact be sufficient to cover the foreign tax credits
being carried forward. As such, Citi believes the
foreign source taxable income limitation will not be an impediment to the
foreign tax credit carryforward usage as long as Citi can generate sufficient
domestic taxable income within the 10-year carryforward period.
Regarding the estimate of future taxable income, Citi has projected its
pretax earnings, predominantly based upon the "core" businesses that Citi
intends to conduct going forward. These "core" businesses have produced steady
and strong earnings in the past. Citi believes that it will generate sufficient
pretax earnings within the 10-year carryforward period referenced above to be
able to fully utilize the foreign tax credit carryforward, in addition to any
foreign tax credits produced in such period.
As
mentioned above, Citi has also examined tax planning strategies available to it
in accordance with ASC 740 that would be employed, if necessary, to prevent a
carryforward from expiring and to accelerate the usage of its carryforwards.
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 carryforward period (e.g., selling appreciated
intangible assets and electing straight-line depreciation), accelerating
deductible temporary differences outside the U.S., holding onto
available-for-sale debt securities with losses until they mature 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
carryforward periods.
As previously disclosed, Citi's ability to
utilize its DTAs to offset future taxable income may be significantly limited if
Citi experiences an "ownership change," as defined in Section 382 of the
Internal Revenue Code of 1986, as amended (the Code). Generally, an ownership
change will occur if there is a cumulative change in Citi's ownership by "5%
shareholders" (as defined in the Code) that exceeds 50 percentage points over a
rolling three-year period. Any limitation on Citi's ability to utilize its DTAs
arising from an ownership change under Section 382 will depend on the value of
Citi's stock at the time of the ownership change.
180
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 | 2011 | (1) | 2010 | (1) | 2009 | (1) | ||||
Income (loss) from continuing operations before attribution of noncontrolling interests | $ | 11,103 | $ | 10,951 | $ | (1,066 | ) | |||
Less: Noncontrolling interests from continuing operations | 148 | 329 | 95 | |||||||
Net income (loss) from continuing operations (for EPS purposes) | $ | 10,955 | $ | 10,622 | $ | (1,161 | ) | |||
Income (loss) from discontinued operations, net of taxes | 112 | (68 | ) | (445 | ) | |||||
Less: Noncontrolling interests from discontinuing operations | - | (48 | ) | - | ||||||
Citigroup's net income (loss) | $ | 11,067 | $ | 10,602 | $ | (1,606 | ) | |||
Less: Impact of the public and private preferred stock exchange offers | - | - | 3,242 | |||||||
Less: Preferred dividends | 26 | 9 | 2,988 | |||||||
Less: Impact of the conversion price reset related to the $12.5 billion | ||||||||||
convertible preferred stock private issuance | - | - | 1,285 | |||||||
Less: Preferred stock Series H discount accretion | - | - | 123 | |||||||
Net income (loss) available to common shareholders | $ | 11,041 | $ | 10,593 | $ | (9,244 | ) | |||
Less: Dividends and undistributed earnings allocated to employee restricted and | ||||||||||
deferred shares that contain nonforfeitable rights to dividends, applicable to basic EPS | 186 | 90 | 2 | |||||||
Net income (loss) allocated to common shareholders for basic EPS (2) | $ | 10,855 | $ | 10,503 | $ | (9,246 | ) | |||
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 | 17 | 2 | 540 | |||||||
Net income (loss) allocated to common shareholders for diluted EPS (2) | $ | 10,872 | $ | 10,505 | $ | (8,706 | ) | |||
Weighted-average common shares outstanding applicable to basic EPS | 2,909.8 | 2,877.6 | 1,156.8 | |||||||
Effect of dilutive securities | ||||||||||
Convertible securities | 0.1 | 0.1 | 31.2 | |||||||
Other employee plans | 0.5 | 1.9 | - | |||||||
Options | 0.8 | 0.4 | - | |||||||
TDECs | 87.6 | 87.8 | 21.9 | |||||||
Adjusted weighted-average common shares outstanding applicable to diluted EPS (3) | 2,998.8 | 2,967.8 | 1,209.9 | |||||||
Basic earnings per share | ||||||||||
Income (loss) from continuing operations | $ | 3.69 | $ | 3.66 | $ | (7.61 | ) | |||
Discontinued operations | 0.04 | (0.01 | ) | (0.38 | ) | |||||
Net income (loss) | $ | 3.73 | $ | 3.65 | $ | (7.99 | ) | |||
Diluted earnings per share (2)(3) | ||||||||||
Income (loss) from continuing operations | $ | 3.59 | $ | 3.55 | $ | (7.61 | ) | |||
Discontinued operations | 0.04 | (0.01 | ) | (0.38 | ) | |||||
Net income (loss) | $ | 3.63 | $ | 3.54 | $ | (7.99 | ) |
(1) | 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. | |
(2) | Due to the net loss available to common shareholders in 2009, loss available to common stockholders for basic EPS was used to calculate diluted EPS. Including the effect of dilutive securities would result in anti-dilution. | |
(3) | Due to the net loss available to common shareholders in 2009, basic shares were used to calculate diluted EPS. Adding dilutive securities to the denominator would result in anti-dilution. |
During 2011,
2010 and 2009, weighted-average options to purchase 24.1 million, 38.6 million
and 16.6 million shares of common stock, respectively, were outstanding but not
included in the computation of earnings per share because the weighted-average
exercise prices of $123.47, $102.89 and $315.65, respectively, were greater than
the average market price of the Company's common stock.
Warrants
issued to the U.S. Treasury as part of TARP and the loss-sharing agreement (all
of which were subsequently sold to the public in January 2011), with exercise
prices 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 2010 and 2009, because they were anti-dilutive.
Equity awards granted under the Management Committee Long-Term Incentive
Plan (MC LTIP) were not included in the 2009 computation of earnings per share
because the performance targets under the terms of the awards were not met and,
as a result, the awards expired in the first quarter of 2010.
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 and 23.5
million shares of Citigroup common stock held by ADIA were not included in the
computation of earnings per share in 2010 and 2009, respectively, because the
exercise price of $318.30 was greater than the average market price of the
Company's common stock.
181
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 | 2011 | 2010 | ||||
Federal funds sold | $ | 37 | $ | 227 | ||
Securities purchased under agreements to resell (1) | 153,492 | 129,918 | ||||
Deposits paid for securities borrowed | 122,320 | 116,572 | ||||
Total | $ | 275,849 | $ | 246,717 |
(1) | 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 $53.0 billion and $54.7 billion at December 31, 2011 and 2010, 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:
In millions of dollars | 2011 | 2010 | ||||
Federal funds purchased | $ | 688 | $ | 478 | ||
Securities sold under agreements to repurchase (1) | 164,849 | 160,598 | ||||
Deposits received for securities loaned | 32,836 | 28,482 | ||||
Total | $ | 198,373 | $ | 189,558 |
(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 $53.0 billion and $54.7 billion at December 31, 2011 and 2010, 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 efficiently fund a portion of
the Company's trading inventory. 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.
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 government-agency 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.
182
13. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES
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 | 2011 | 2010 | ||||
Receivables from customers | $ | 19,991 | $ | 21,952 | ||
Receivables from brokers, dealers, and clearing organizations | 7,786 | 9,261 | ||||
Total brokerage receivables (1) | $ | 27,777 | $ | 31,213 | ||
Payables to customers | $ | 40,111 | $ | 36,142 | ||
Payables to brokers, dealers, and clearing organizations | 16,585 | 15,607 | ||||
Total brokerage payables (1) | $ | 56,696 | $ | 51,749 |
(1) | Brokerage receivables/payables are reported net by counterparty when applicable requirements for net presentation are met. |
14. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and Trading account liabilities , at fair value, consisted of the following at December 31:
In millions of dollars | 2011 | 2010 | ||||
Trading account assets | ||||||
Mortgage-backed securities (1) | ||||||
U.S. government-sponsored agency guaranteed | $ | 27,535 | $ | 27,127 | ||
Prime | 877 | 1,514 | ||||
Alt-A | 609 | 1,502 | ||||
Subprime | 989 | 2,036 | ||||
Non-U.S. residential | 396 | 1,052 | ||||
Commercial | 2,333 | 1,758 | ||||
Total mortgage-backed securities | $ | 32,739 | $ | 34,989 | ||
U.S. Treasury and federal agency securities | ||||||
U.S. Treasury | $ | 18,227 | $ | 20,168 | ||
Agency obligations | 1,172 | 3,418 | ||||
Total U.S. Treasury and federal agency securities | $ | 19,399 | $ | 23,586 | ||
State and municipal securities | $ | 5,364 | $ | 7,493 | ||
Foreign government securities | 79,551 | 88,311 | ||||
Corporate | 37,026 | 51,267 | ||||
Derivatives (2) | 62,327 | 50,213 | ||||
Equity securities | 33,230 | 37,436 | ||||
Asset-backed securities (1) | 7,071 | 8,761 | ||||
Other debt securities | 15,027 | 15,216 | ||||
Total trading account assets | $ | 291,734 | $ | 317,272 | ||
Trading account liabilities | ||||||
Securities sold, not yet purchased | $ | 69,809 | $ | 69,324 | ||
Derivatives (2) | 56,273 | 59,730 | ||||
Total trading account liabilities | $ | 126,082 | $ | 129,054 |
(1) | 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. | |
(2) | Presented net, pursuant to master netting agreements. See Note 23 to the Consolidated Financial Statements for a discussion regarding the accounting and reporting for derivatives. |
183
15. INVESTMENTS
Overview
In millions of dollars | 2011 | 2010 | ||
Securities available-for-sale | $ | 265,204 | $ | 274,079 |
Debt securities held-to-maturity (1) | 11,483 | 29,107 | ||
Non-marketable equity securities carried at fair value (2) | 8,836 | 7,095 | ||
Non-marketable equity securities carried at cost (3) | 7,890 | 7,883 | ||
Total investments | $ | 293,413 | $ | 318,164 |
(1) | Recorded at amortized cost less impairment for securities that have credit-related impairment. | |
(2) | Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings. | |
(3) | 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, 2011 and
December 31, 2010 were as follows:
2011 | 2010 | |||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||
Amortized | unrealized | unrealized | Amortized | unrealized | unrealized | |||||||||||
In millions of dollars | cost | gains | losses | Fair value | cost | gains | losses | Fair value | ||||||||
Debt securities AFS | ||||||||||||||||
Mortgage-backed securities (1) | ||||||||||||||||
U.S. government-sponsored agency guaranteed | $ | 44,394 | $ | 1,438 | $ | 51 | $ | 45,781 | $ | 23,433 | $ | 425 | $ | 235 | $ | 23,623 |
Prime | 118 | 1 | 6 | 113 | 1,985 | 18 | 177 | 1,826 | ||||||||
Alt-A | 1 | - | - | 1 | 46 | 2 | - | 48 | ||||||||
Subprime | - | - | - | - | 119 | 1 | 1 | 119 | ||||||||
Non-U.S. residential | 4,671 | 9 | 22 | 4,658 | 315 | 1 | - | 316 | ||||||||
Commercial | 465 | 16 | 9 | 472 | 592 | 21 | 39 | 574 | ||||||||
Total mortgage-backed securities | $ | 49,649 | $ | 1,464 | $ | 88 | $ | 51,025 | $ | 26,490 | $ | 468 | $ | 452 | $ | 26,506 |
U.S. Treasury and federal agency securities | ||||||||||||||||
U.S. Treasury | $ | 48,790 | $ | 1,439 | $ | - | $ | 50,229 | $ | 58,069 | $ | 435 | $ | 56 | $ | 58,448 |
Agency obligations | 34,310 | 601 | 2 | 34,909 | 43,294 | 375 | 55 | 43,614 | ||||||||
Total U.S. Treasury and federal agency securities | $ | 83,100 | $ | 2,040 | $ | 2 | $ | 85,138 | $ | 101,363 | $ | 810 | $ | 111 | $ | 102,062 |
State and municipal | $ | 16,819 | $ | 134 | $ | 2,554 | $ | 14,399 | $ | 15,660 | $ | 75 | $ | 2,500 | $ | 13,235 |
Foreign government | 84,360 | 558 | 404 | 84,514 | 99,110 | 984 | 415 | 99,679 | ||||||||
Corporate | 10,005 | 305 | 53 | 10,257 | 15,417 | 319 | 59 | 15,677 | ||||||||
Asset-backed securities (1) | 11,053 | 31 | 81 | 11,003 | 9,085 | 31 | 68 | 9,048 | ||||||||
Other debt securities | 670 | 13 | - | 683 | 1,948 | 24 | 60 | 1,912 | ||||||||
Total debt securities AFS | $ | 255,656 | $ | 4,545 | $ | 3,182 | $ | 257,019 | $ | 269,073 | $ | 2,711 | $ | 3,665 | $ | 268,119 |
Marketable equity securities AFS | $ | 6,722 | $ | 1,658 | $ | 195 | $ | 8,185 | $ | 3,791 | $ | 2,380 | $ | 211 | $ | 5,960 |
Total securities AFS | $ | 262,378 | $ | 6,203 | $ | 3,377 | $ | 265,204 | $ | 272,864 | $ | 5,091 | $ | 3,876 | $ | 274,079 |
(1) | 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. |
At December
31, 2011, the amortized cost of approximately 4,000 investments in equity and
fixed-income securities exceeded their fair value by $3.377 billion. Of the
$3.377 billion, the gross unrealized loss on equity securities was $195 million.
Of the remainder, $362 million represents fixed-income investments that have
been in a gross-unrealized-loss position for less than a year and, of these, 99%
are rated investment grade; $2.820 billion represents fixed-income investments
that have been in a gross-unrealized-loss position for a year or more and, of
these, 95% are rated investment grade.
The
AFS mortgage-backed securities portfolio fair value balance of $51.025 billion
consists of $45.781 billion of government-sponsored agency securities, and
$5.244 billion of privately sponsored securities, of which the majority is
backed by mortgages that are not Alt-A or subprime.
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 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 AOCI. For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income.
184
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, 2011 and December 31, 2010:
Less than 12 months | 12 months or longer | Total | ||||||||||||
Gross | Gross | Gross | ||||||||||||
Fair | unrealized | Fair | unrealized | Fair | unrealized | |||||||||
In millions of dollars | value | losses | value | losses | value | losses | ||||||||
December 31, 2011 | ||||||||||||||
Securities AFS | ||||||||||||||
Mortgage-backed securities | ||||||||||||||
U.S. government-sponsored agency guaranteed | $ | 5,398 | $ | 32 | $ | 51 | $ | 19 | $ | 5,449 | $ | 51 | ||
Prime | 27 | 1 | 40 | 5 | 67 | 6 | ||||||||
Alt-A | - | - | - | - | - | - | ||||||||
Subprime | - | - | - | - | - | - | ||||||||
Non-U.S. residential | 3,418 | 22 | 57 | - | 3,475 | 22 | ||||||||
Commercial | 35 | 1 | 31 | 8 | 66 | 9 | ||||||||
Total mortgage-backed securities | $ | 8,878 | $ | 56 | $ | 179 | $ | 32 | $ | 9,057 | $ | 88 | ||
U.S. Treasury and federal agency securities | ||||||||||||||
U.S. Treasury | $ | 553 | $ | - | $ | - | $ | - | $ | 553 | $ | - | ||
Agency obligations | 2,970 | 2 | - | - | 2,970 | 2 | ||||||||
Total U.S. Treasury and federal agency securities | $ | 3,523 | $ | 2 | $ | - | $ | - | $ | 3,523 | $ | 2 | ||
State and municipal | $ | 59 | $ | 2 | $ | 11,591 | $ | 2,552 | $ | 11,650 | $ | 2,554 | ||
Foreign government | 33,109 | 211 | 11,205 | 193 | 44,314 | 404 | ||||||||
Corporate | 2,104 | 24 | 203 | 29 | 2,307 | 53 | ||||||||
Asset-backed securities | 4,625 | 68 | 466 | 13 | 5,091 | 81 | ||||||||
Other debt securities | 164 | - | - | - | 164 | - | ||||||||
Marketable equity securities AFS | 47 | 5 | 1,457 | 190 | 1,504 | 195 | ||||||||
Total securities AFS | $ | 52,509 | $ | 368 | $ | 25,101 | $ | 3,009 | $ | 77,610 | $ | 3,377 | ||
December 31, 2010 | ||||||||||||||
Securities AFS | ||||||||||||||
Mortgage-backed securities | ||||||||||||||
U.S. government-sponsored agency guaranteed | $ | 8,321 | $ | 214 | $ | 38 | $ | 21 | $ | 8,359 | $ | 235 | ||
Prime | 89 | 3 | 1,506 | 174 | 1,595 | 177 | ||||||||
Alt-A | 10 | - | - | - | 10 | - | ||||||||
Subprime | 118 | 1 | - | - | 118 | 1 | ||||||||
Non-U.S. residential | - | - | 135 | - | 135 | - | ||||||||
Commercial | 81 | 9 | 53 | 30 | 134 | 39 | ||||||||
Total mortgage-backed securities | $ | 8,619 | $ | 227 | $ | 1,732 | $ | 225 | $ | 10,351 | $ | 452 | ||
U.S. Treasury and federal agency securities | ||||||||||||||
U.S. Treasury | $ | 9,229 | $ | 21 | $ | 725 | $ | 35 | $ | 9,954 | $ | 56 | ||
Agency obligations | 9,680 | 55 | - | - | 9,680 | 55 | ||||||||
Total U.S. Treasury and federal agency securities | $ | 18,909 | $ | 76 | $ | 725 | $ | 35 | $ | 19,634 | $ | 111 | ||
State and municipal | $ | 626 | $ | 60 | $ | 11,322 | $ | 2,440 | $ | 11,948 | $ | 2,500 | ||
Foreign government | 32,731 | 271 | 6,609 | 144 | 39,340 | 415 | ||||||||
Corporate | 1,357 | 32 | 631 | 27 | 1,988 | 59 | ||||||||
Asset-backed securities | 2,533 | 64 | 14 | 4 | 2,547 | 68 | ||||||||
Other debt securities | - | - | 559 | 60 | 559 | 60 | ||||||||
Marketable equity securities AFS | 68 | 3 | 2,039 | 208 | 2,107 | 211 | ||||||||
Total securities AFS | $ | 64,843 | $ | 733 | $ | 23,631 | $ | 3,143 | $ | 88,474 | $ | 3,876 |
185
The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of December 31, 2011 and December 31, 2010:
December 31, 2011 | December 31, 2010 | |||||||||||
Amortized | Amortized | |||||||||||
In millions of dollars | cost | Fair value | cost | Fair value | ||||||||
Mortgage-backed securities (1) | ||||||||||||
Due within 1 year | $ | - | $ | - | $ | - | $ | - | ||||
After 1 but within 5 years | 422 | 423 | 403 | 375 | ||||||||
After 5 but within 10 years | 2,757 | 2,834 | 402 | 419 | ||||||||
After 10 years (2) | 46,470 | 47,768 | 25,685 | 25,712 | ||||||||
Total | $ | 49,649 | $ | 51,025 | $ | 26,490 | $ | 26,506 | ||||
U.S. Treasury and federal agency securities | ||||||||||||
Due within 1 year | $ | 14,615 | $ | 14,637 | $ | 36,411 | $ | 36,443 | ||||
After 1 but within 5 years | 62,241 | 63,823 | 52,558 | 53,118 | ||||||||
After 5 but within 10 years | 5,862 | 6,239 | 10,604 | 10,647 | ||||||||
After 10 years (2) | 382 | 439 | 1,790 | 1,854 | ||||||||
Total | $ | 83,100 | $ | 85,138 | $ | 101,363 | $ | 102,062 | ||||
State and municipal | ||||||||||||
Due within 1 year | $ | 142 | $ | 142 | $ | 9 | $ | 9 | ||||
After 1 but within 5 years | 455 | 457 | 145 | 149 | ||||||||
After 5 but within 10 years | 182 | 188 | 230 | 235 | ||||||||
After 10 years (2) | 16,040 | 13,612 | 15,276 | 12,842 | ||||||||
Total | $ | 16,819 | $ | 14,399 | $ | 15,660 | $ | 13,235 | ||||
Foreign government | ||||||||||||
Due within 1 year | $ | 34,924 | $ | 34,864 | $ | 41,856 | $ | 41,387 | ||||
After 1 but within 5 years | 41,612 | 41,675 | 49,983 | 50,739 | ||||||||
After 5 but within 10 years | 6,993 | 6,998 | 6,143 | 6,264 | ||||||||
After 10 years (2) | 831 | 977 | 1,128 | 1,289 | ||||||||
Total | $ | 84,360 | $ | 84,514 | $ | 99,110 | $ | 99,679 | ||||
All other (3) | ||||||||||||
Due within 1 year | $ | 4,055 | $ | 4,072 | $ | 2,162 | $ | 2,164 | ||||
After 1 but within 5 years | 9,843 | 9,928 | 17,838 | 17,947 | ||||||||
After 5 but within 10 years | 3,009 | 3,160 | 2,610 | 2,714 | ||||||||
After 10 years (2) | 4,821 | 4,783 | 3,840 | 3,812 | ||||||||
Total | $ | 21,728 | $ | 21,943 | $ | 26,450 | $ | 26,637 | ||||
Total debt securities AFS | $ | 255,656 | $ | 257,019 | $ | 269,073 | $ | 268,119 |
(1) | Includes mortgage-backed securities of U.S. government-sponsored agencies. | |
(2) | 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. | |
(3) | Includes corporate, asset-backed and other debt securities. |
The following table presents interest and dividends on investments:
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Taxable interest | $ | 7,441 | $ | 10,160 | $ | 11,970 | |||
Interest exempt from U.S. federal income tax | 562 | 523 | 627 | ||||||
Dividends | 317 | 321 | 285 | ||||||
Total interest and dividends | $ | 8,320 | $ | 11,004 | $ | 12,882 |
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 | 2011 | 2010 | 2009 | |||||||
Gross realized investment gains | $ | 2,498 | $ | 2,873 | $ | 2,090 | ||||
Gross realized investment losses | (501 | ) | (462 | ) | (94 | ) | ||||
Net realized gains (losses) | $ | 1,997 | $ | 2,411 | $ | 1,996 |
During 2010 and 2011, the Company sold several corporate debt securities and various mortgage-backed and asset-backed 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. The corporate debt securities sold during 2010 had a carrying value of $413 million and the Company recorded a realized loss of $49 million. The mortgage-backed and asset-backed securities sold during 2011 had a carrying value of $1,612 million and the Company recorded a realized loss of $299 million.
186
Debt Securities
Held-to-Maturity
The carrying value and
fair value of debt securities held-to-maturity (HTM) at December 31, 2011 and
December 31, 2010 were as follows:
Net unrealized | ||||||||||||||||||
loss | Gross | Gross | ||||||||||||||||
Amortized | recognized in | Carrying | unrealized | unrealized | Fair | |||||||||||||
In millions of dollars | cost | (1) | AOCI | value | (2) | gains | losses | value | ||||||||||
December 31, 2011 | ||||||||||||||||||
Debt securities held-to-maturity | ||||||||||||||||||
Mortgage-backed securities (3) | ||||||||||||||||||
Prime | $ | 360 | $ | 73 | $ | 287 | $ | 21 | $ | 20 | $ | 288 | ||||||
Alt-A | 4,732 | 1,404 | 3,328 | 20 | 319 | 3,029 | ||||||||||||
Subprime | 383 | 47 | 336 | 1 | 71 | 266 | ||||||||||||
Non-U.S. residential | 3,487 | 520 | 2,967 | 59 | 290 | 2,736 | ||||||||||||
Commercial | 513 | 1 | 512 | 4 | 52 | 464 | ||||||||||||
Total mortgage-backed securities | $ | 9,475 | $ | 2,045 | $ | 7,430 | $ | 105 | $ | 752 | $ | 6,783 | ||||||
State and municipal | $ | 1,422 | $ | 95 | $ | 1,327 | $ | 68 | $ | 72 | $ | 1,323 | ||||||
Corporate | 1,862 | 113 | 1,749 | - | 254 | 1,495 | ||||||||||||
Asset-backed securities (3) | 1,000 | 23 | 977 | 9 | 87 | 899 | ||||||||||||
Total debt securities held-to-maturity | $ | 13,759 | $ | 2,276 | $ | 11,483 | $ | 182 | $ | 1,165 | $ | 10,500 | ||||||
December 31, 2010 | ||||||||||||||||||
Debt securities held-to-maturity | ||||||||||||||||||
Mortgage-backed securities (3) | ||||||||||||||||||
Prime | $ | 4,748 | $ | 794 | $ | 3,954 | $ | 379 | $ | 11 | $ | 4,322 | ||||||
Alt-A | 11,816 | 3,008 | 8,808 | 536 | 166 | 9,178 | ||||||||||||
Subprime | 708 | 75 | 633 | 9 | 72 | 570 | ||||||||||||
Non-U.S. residential | 5,010 | 793 | 4,217 | 259 | 72 | 4,404 | ||||||||||||
Commercial | 908 | 21 | 887 | 18 | 96 | 809 | ||||||||||||
Total mortgage-backed securities | $ | 23,190 | $ | 4,691 | $ | 18,499 | $ | 1,201 | $ | 417 | $ | 19,283 | ||||||
State and municipal | $ | 2,523 | $ | 127 | $ | 2,396 | $ | 11 | $ | 104 | $ | 2,303 | ||||||
Corporate | 6,569 | 145 | 6,424 | 447 | 267 | 6,604 | ||||||||||||
Asset-backed securities (3) | 1,855 | 67 | 1,788 | 57 | 54 | 1,791 | ||||||||||||
Total debt securities held-to-maturity | $ | 34,137 | $ | 5,030 | $ | 29,107 | $ | 1,716 | $ | 842 | $ | 29,981 |
(1) | For securities transferred to HTM from Trading account assets in 2008, 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 in 2008, 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. | |
(2) | HTM securities are carried on the Consolidated Balance Sheet at amortized cost less any unrealized gains and losses recognized in AOCI. The changes in the values of these securities are not reported in the financial statements, except for other-than-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. | |
(3) | 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
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. The
AOCI balance was $2.3 billion as of December 31, 2011, compared
to $5.0 billion as of December 31, 2010.
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.
For any credit-related impairment on
HTM securities, the credit loss component is recognized in
earnings.
187
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 asset-backed, state and municipal, and corporate debt securities from Investments held-to-maturity to Trading account assets . The Company also sold an additional $2.7 billion of such HTM securities, recognizing a corresponding receivable from the unsettled sales as of March 31, 2011. As a result of these actions, a net pretax loss of $709 million ($427 million after tax) was recognized in the Consolidated Statement of Income for the three months ended March 31, 2011, 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 totalling $1,656 million pretax ($1,012 million after tax) had been reflected in AOCI (see table below) and have now been reflected in the Consolidated Statement of Income, as detailed above.
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 (see note 1 to the table below), 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.
Through December 31, 2011, the Company has sold substantially all of the $12.7 billion of HTM securities that were reclassified to Trading account assets in the first quarter of 2011. The carrying value and fair value of debt securities at the date of reclassification or sale were as follows:
Net unrealized | ||||||||||||||||||
loss | ||||||||||||||||||
Amortized | recognized in | Carrying | Gross | Gross | Fair | |||||||||||||
In millions of dollars | cost | (2) | AOCI | value | (3) | gains | losses | value | ||||||||||
Held-to-maturity debt securities transferred | ||||||||||||||||||
to Trading account assets or sold (1) | ||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||
Prime | $ | 3,410 | $ | 528 | $ | 2,882 | $ | 131 | $ | 131 | $ | 2,882 | ||||||
Alt-A | 5,357 | 896 | 4,461 | 605 | 188 | 4,878 | ||||||||||||
Subprime | 240 | 7 | 233 | 5 | 36 | 202 | ||||||||||||
Non-U.S. residential | 317 | 75 | 242 | 76 | 2 | 316 | ||||||||||||
Commercial | 117 | 18 | 99 | 22 | - | 121 | ||||||||||||
Total mortgage-backed securities | $ | 9,441 | $ | 1,524 | $ | 7,917 | $ | 839 | $ | 357 | $ | 8,399 | ||||||
State and municipal | $ | 900 | $ | 8 | $ | 892 | $ | 68 | $ | 7 | $ | 953 | ||||||
Corporate | 3,569 | 115 | 3,454 | 396 | 41 | 3,809 | ||||||||||||
Asset-backed securities | 456 | 9 | 447 | 50 | 2 | 495 | ||||||||||||
Total held-to-maturity debt securities transferred | ||||||||||||||||||
to Trading account assets or sold (1) | $ | 14,366 | $ | 1,656 | $ | 12,710 | $ | 1,353 | $ | 407 | $ | 13,656 |
(1) | During the fourth quarter of 2008, $6.647 billion and $6.063 billion carrying value of these debt securities were transferred from Trading account assets and Investments available-for-sale to Investments held-to-maturity, respectively. The transfer of these debt securities from Trading account assets was in response to the significant deterioration in market conditions, which was especially acute during the fourth quarter of 2008. | |
(2) | For securities transferred to held-to-maturity from Trading account assets in 2008, amortized cost is defined as the fair value amount 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 held-to-maturity from available-for-sale in 2008, 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. | |
(3) | Held-to-maturity securities are carried on the Consolidated Balance Sheet at amortized cost and the changes in the value of these securities other than impairment charges are not reported in the financial statements. |
188
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, 2011 and December 31, 2010:
Less than 12 months | 12 months or longer | Total | ||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||
Fair | unrecognized | Fair | unrecognized | Fair | unrecognized | |||||||||||||
In millions of dollars | value | losses | value | losses | value | losses | ||||||||||||
December 31, 2011 | ||||||||||||||||||
Debt securities held-to-maturity | ||||||||||||||||||
Mortgage-backed securities | $ | 735 | $ | 63 | $ | 4,827 | $ | 689 | $ | 5,562 | $ | 752 | ||||||
State and municipal | - | - | 682 | 72 | 682 | 72 | ||||||||||||
Corporate | - | - | 1,427 | 254 | 1,427 | 254 | ||||||||||||
Asset-backed securities | 480 | 71 | 306 | 16 | 786 | 87 | ||||||||||||
Total debt securities held-to-maturity | $ | 1,215 | $ | 134 | $ | 7,242 | $ | 1,031 | $ | 8,457 | $ | 1,165 | ||||||
December 31, 2010 | ||||||||||||||||||
Debt securities held-to-maturity | ||||||||||||||||||
Mortgage-backed securities | $ | 339 | $ | 30 | $ | 14,410 | $ | 387 | $ | 14,749 | $ | 417 | ||||||
State and municipal | 24 | - | 1,273 | 104 | 1,297 | 104 | ||||||||||||
Corporate | 1,584 | 143 | 1,579 | 124 | 3,163 | 267 | ||||||||||||
Asset-backed securities | 159 | 11 | 494 | 43 | 653 | 54 | ||||||||||||
Total debt securities held-to-maturity | $ | 2,106 | $ | 184 | $ | 17,756 | $ | 658 | $ | 19,862 | $ | 842 |
Excluded from the gross unrecognized losses presented in the above table are the $2.3 billion and $5.0 billion of gross unrealized losses recorded in AOCI as of December 31, 2011 and December 31, 2010, 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 both December 31, 2011 and December 31, 2010.
The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of December 31, 2011 and December 31, 2010:
December 31, 2011 | December 31, 2010 | |||||||||||
In millions of dollars | Carrying value | Fair value | Carrying value | Fair value | ||||||||
Mortgage-backed securities | ||||||||||||
Due within 1 year | $ | - | $ | - | $ | 21 | $ | 23 | ||||
After 1 but within 5 years | 275 | 239 | 321 | 309 | ||||||||
After 5 but within 10 years | 238 | 224 | 493 | 434 | ||||||||
After 10 years (1) | 6,917 | 6,320 | 17,664 | 18,517 | ||||||||
Total | $ | 7,430 | $ | 6,783 | $ | 18,499 | $ | 19,283 | ||||
State and municipal | ||||||||||||
Due within 1 year | $ | 4 | $ | 4 | $ | 12 | $ | 12 | ||||
After 1 but within 5 years | 43 | 46 | 55 | 55 | ||||||||
After 5 but within 10 years | 31 | 30 | 86 | 85 | ||||||||
After 10 years (1) | 1,249 | 1,243 | 2,243 | 2,151 | ||||||||
Total | $ | 1,327 | $ | 1,323 | $ | 2,396 | $ | 2,303 | ||||
All other (2) | ||||||||||||
Due within 1 year | $ | 21 | $ | 21 | $ | 351 | $ | 357 | ||||
After 1 but within 5 years | 470 | 438 | 1,344 | 1,621 | ||||||||
After 5 but within 10 years | 1,404 | 1,182 | 4,885 | 4,765 | ||||||||
After 10 years (1) | 831 | 753 | 1,632 | 1,652 | ||||||||
Total | $ | 2,726 | $ | 2,394 | $ | 8,212 | $ | 8,395 | ||||
Total debt securities held-to-maturity | $ | 11,483 | $ | 10,500 | $ | 29,107 | $ | 29,981 |
(1) | 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. | |
(2) | Includes corporate and asset-backed securities. |
189
Evaluating Investments for
Other-Than-Temporary Impairments
The
Company conducts and documents periodic reviews of all securities with
unrealized losses to evaluate whether the impairment is other than
temporary.
Under
the guidance for debt securities, other-than-temporary impairment (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.
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, while
such losses related to HTM securities are not recorded, as these investments are
carried at their 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 OTTI. Factors
considered in determining whether a loss is temporary include:
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.
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-than-temporarily 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 and there is no expectation that the
fair value will recover prior to the expected sale date, the full impairment is
recognized in the Consolidated Statement of Income as OTTI regardless of
severity and duration. The measurement of the OTTI does not include partial
projected recoveries subsequent to the balance sheet date.
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
other-than-temporary is based on all of the following indicators, regardless of
the time and extent of impairment:
Excluding the impact of foreign currency translation and related hedges, the fair value of Citi's equity method investment in Akbank had exceeded its carrying value. During the fourth quarter of 2011, however, the fair value of Citi's equity method investment in Akbank declined, resulting in a temporary impairment. During 2012 to date, Akbank's share price has recovered significantly, and as of February 23, 2012, the temporary impairment was approximately $0.2 billion. As of
190
Regarding Citi's equity method investment in MSSB, Citi has evaluated this investment for OTTI based on the qualitative and quantitative measures discussed herein (see also Note 25 to the Consolidated Financial Statements). As of December 31, 2011, Citi's carrying value of this equity method investment was approximately $10 billion. Based on the midpoint of the current range of estimated values, analysis indicates that a temporary impairment may exist; however, based on this analysis, the potential temporary impairment was not material.
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. The paragraphs below describe the Company's process for identifying credit-related impairments in security types with the most significant unrealized losses as of December 31, 2011.
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 security-specific 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
The key assumptions for mortgage-backed securities as of December 31, 2011 are in the table below:
December 31, 2011 | |
Prepayment rate (1) | 1%–8% CRR |
Loss severity (2) | 45%–95% |
(1) | Conditional Repayment Rate (CRR) represents the annualized expected rate of voluntary prepayment of principal for mortgage-backed securities over a certain period of time. | |
(2) | Loss severity rates are estimated considering collateral characteristics and generally range from 45%–60% for prime bonds, 50%–95% for Alt-A bonds and 65%–90% for subprime bonds. |
The valuation as of December 31,
2011 assumes that U.S. housing prices will decrease 4% in 2012, decrease 1% in
2013, remain flat in 2014 and increase 3% per year from 2015 onwards, while
unemployment is 8.9% for 2012.
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.
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 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 downgrade of the bond below Aa3/AA-, 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 and there is no expectation that the fair value will recover
prior to the expected sale date, the full impairment is recognized in
earnings.
191
The following table presents the total OTTI recognized in earnings for the year ended December 31, 2011:
OTTI on Investments | Year ended December 31, 2011 | ||||||||
In millions of dollars | AFS | HTM | Total | ||||||
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, 2011 | $ | 81 | $ | 662 | $ | 743 | |||
Less: portion of OTTI loss recognized in AOCI (before taxes) | 49 | 110 | 159 | ||||||
Net impairment losses recognized in earnings for securities that the Company does not intend | |||||||||
to sell nor will likely be required to sell | $ | 32 | $ | 552 | $ | 584 | |||
OTTI losses recognized in earnings for securities that the Company intends to sell | |||||||||
or more-likely-than-not will be required to sell before recovery | 283 | 1,387 | 1,670 | ||||||
Total impairment losses recognized in earnings | $ | 315 | $ | 1,939 | $ | 2,254 |
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, 2011 that the Company does not intend to sell nor will likely be required to sell:
Cumulative OTTI credit losses recognized in earnings | |||||||||||||||
Credit impairments | |||||||||||||||
Credit impairments | recognized in | Reductions due to | |||||||||||||
recognized in | earnings on | credit-impaired | |||||||||||||
earnings on | securities that have | securities sold, | |||||||||||||
December 31, 2010 | securities not | been previously | transferred or | December 31, 2011 | |||||||||||
In millions of dollars | balance | previously impaired | impaired | matured | balance | ||||||||||
AFS debt securities | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
Prime | $ | 292 | $ | - | $ | - | $ | - | $ | 292 | |||||
Alt-A | 2 | - | - | - | 2 | ||||||||||
Commercial real estate | 2 | - | - | - | 2 | ||||||||||
Total mortgage-backed securities | $ | 296 | $ | - | $ | - | $ | - | $ | 296 | |||||
State and municipal securities | 3 | - | - | - | 3 | ||||||||||
U.S. Treasury securities | 48 | 19 | - | - | 67 | ||||||||||
Foreign government securities | 159 | 5 | 4 | - | 168 | ||||||||||
Corporate | 154 | 1 | 3 | (7 | ) | 151 | |||||||||
Asset-backed securities | 10 | - | - | - | 10 | ||||||||||
Other debt securities | 52 | - | - | - | 52 | ||||||||||
Total OTTI credit losses recognized for | |||||||||||||||
AFS debt securities | $ | 722 | $ | 25 | $ | 7 | $ | (7 | ) | $ | 747 | ||||
HTM debt securities | |||||||||||||||
Mortgage-backed securities | |||||||||||||||
Prime | $ | 308 | $ | - | $ | 2 | $ | (226 | ) | $ | 84 | ||||
Alt-A | 3,149 | 100 | 378 | (1,409 | ) | 2,218 | |||||||||
Subprime | 232 | 2 | 24 | (6 | ) | 252 | |||||||||
Non-U.S. residential | 96 | - | - | - | 96 | ||||||||||
Commercial real estate | 10 | - | - | - | 10 | ||||||||||
Total mortgage-backed securities | $ | 3,795 | $ | 102 | $ | 404 | $ | (1,641 | ) | $ | 2,660 | ||||
State and municipal securities | 7 | 2 | - | - | 9 | ||||||||||
Corporate | 351 | 40 | - | - | 391 | ||||||||||
Asset-backed securities | 113 | - | - | - | 113 | ||||||||||
Other debt securities | 5 | 3 | 1 | - | 9 | ||||||||||
Total OTTI credit losses recognized for | |||||||||||||||
HTM debt securities | $ | 4,271 | $ | 147 | $ | 405 | $ | (1,641 | ) | $ | 3,182 |
192
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 co-investments in funds that are managed by the
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 NAV.
Redemption frequency | ||||||||||
Fair | (if currently eligible) | |||||||||
In millions of dollars at December 31, 2011 | value | Unfunded commitments | monthly, quarterly, annually | Redemption notice period | ||||||
Hedge funds | $ | 898 | $ | - | 10–95 days | |||||
Private equity funds (1)(2)(3) | 958 | 441 | - | - | ||||||
Real estate funds (3)(4) | 319 | 198 | - | - | ||||||
Total | $ | 2,175 | (5) | $ | 639 | - | - |
(1) | Includes investments in private equity funds carried at cost with a carrying value of $10 million. | |
(2) | Private equity funds include funds that invest in infrastructure, leveraged buyout transactions, emerging markets and venture capital. | |
(3) | This category includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia. | |
(4) | With respect to the Company's investments that it holds 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. While certain investments within the portfolio may be sold, no specific assets have been identified for sale. Because it is not probable that any individual investment will be sold, the fair value of each individual investment has been estimated using the NAV of the Company's ownership interest in the partners' capital. 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. | |
(5) | Included in the total fair value of investments above is $0.6 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. |
Under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Company will be required to limit its investments in and arrangements with "private equity funds" and "hedge funds" as defined under the statute and impending regulations. Citi does not believe the implementation of the fund provisions of the Dodd-Frank Act will have a material negative impact on its overall results of operations.
193
16. LOANS
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:
In millions of dollars | Dec. 31, 2011 | Dec. 31, 2010 | ||||
Consumer loans | ||||||
In U.S. offices | ||||||
Mortgage and real estate (1) | $ | 139,177 | $ | 151,469 | ||
Installment, revolving credit, and other | 15,616 | 28,291 | ||||
Cards | 117,908 | 122,384 | ||||
Commercial and industrial | 4,766 | 5,021 | ||||
Lease financing | 1 | 2 | ||||
$ | 277,468 | $ | 307,167 | |||
In offices outside the U.S. | ||||||
Mortgage and real estate (1) | $ | 52,052 | $ | 52,175 | ||
Installment, revolving credit, and other | 34,613 | 38,024 | ||||
Cards | 38,926 | 40,948 | ||||
Commercial and industrial | 20,366 | 16,684 | ||||
Lease financing | 711 | 665 | ||||
$ | 146,668 | $ | 148,496 | |||
Total Consumer loans | $ | 424,136 | $ | 455,663 | ||
Net unearned income (loss) | (405 | ) | 69 | |||
Consumer loans, net of unearned income | $ | 423,731 | $ | 455,732 |
(1) | Loans secured primarily by real estate. |
During the
year ended December 31, 2011, the Company sold and/or reclassified (to
held-for-sale) $21 billion of Consumer loans. The Company did not have
significant purchases of Consumer loans during the 12 months ended December 31,
2011.
Citigroup has a comprehensive risk management process to
monitor, evaluate and manage the principal risks associated with its Consumer
loan portfolio. 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. However, these products are closely managed using appropriate credit
techniques that mitigate their additional inherent risk.
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.
Delinquency
Status
Delinquency status is carefully
monitored and considered a key indicator of credit quality. 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 rule, 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. 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, re-aging 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.
194
The following tables provide details on Citigroup's Consumer loan delinquency and non-accrual loans as of December 31, 2011 and December 31, 2010:
Consumer Loan Delinquency and Non-Accrual Details at December 31, 2011
Past due | |||||||||||||||||||||
Total | 30–89 days | ≥ 90 days | Government | Total | Total | 90 days past due | |||||||||||||||
In millions of dollars | current | (1)(2) | past due | (3) | past due | (3) | guaranteed | (4) | loans | (2) | non-accrual | and accruing | |||||||||
In North America offices | |||||||||||||||||||||
Residential first mortgages | $ | 80,929 | $ | 3,550 | $ | 4,273 | $ | 6,686 | $ | 95,438 | $ | 4,328 | $ | 5,054 | |||||||
Home equity loans (5) | 41,579 | 868 | 1,028 | - | 43,475 | 988 | - | ||||||||||||||
Credit cards | 114,022 | 2,344 | 2,058 | - | 118,424 | - | 2,058 | ||||||||||||||
Installment and other | 15,215 | 340 | 222 | - | 15,777 | 438 | 10 | ||||||||||||||
Commercial market loans | 6,643 | 15 | 207 | - | 6,865 | 220 | 14 | ||||||||||||||
Total | $ | 258,388 | $ | 7,117 | $ | 7,788 | $ | 6,686 | $ | 279,979 | $ | 5,974 | $ | 7,136 | |||||||
In offices outside North America | |||||||||||||||||||||
Residential first mortgages | $ | 43,310 | $ | 566 | $ | 482 | $ | - | $ | 44,358 | $ | 744 | $ | - | |||||||
Home equity loans (5) | 6 | - | 2 | - | 8 | 2 | - | ||||||||||||||
Credit cards | 38,289 | 930 | 785 | - | 40,004 | 496 | 490 | ||||||||||||||
Installment and other | 26,300 | 528 | 197 | - | 27,025 | 258 | - | ||||||||||||||
Commercial market loans | 30,882 | 79 | 127 | - | 31,088 | 401 | - | ||||||||||||||
Total | $ | 138,787 | $ | 2,103 | $ | 1,593 | $ | - | $ | 142,483 | $ | 1,901 | $ | 490 | |||||||
Total GCB and LCL | $ | 397,175 | $ | 9,220 | $ | 9,381 | $ | 6,686 | $ | 422,462 | $ | 7,875 | $ | 7,626 | |||||||
Special Asset Pool (SAP) | 1,193 | 29 | 47 | - | 1,269 | 115 | - | ||||||||||||||
Total Citigroup | $ | 398,368 | $ | 9,249 | $ | 9,428 | $ | 6,686 | $ | 423,731 | $ | 7,990 | $ | 7,626 |
(1) | Loans less than 30 days past due are presented as current. | |
(2) | Includes $1.3 billion of residential first mortgages recorded at fair value. | |
(3) | Excludes loans guaranteed by U.S. government agencies. | |
(4) | Consists of residential first mortgages that are guaranteed by U.S. government agencies that are 30-89 days past due of $1.6 billion and ³ 90 days past due of $5.1 billion. | |
(5) | 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, 2010
Past due | |||||||||||||||||||||
Total | 30–89 days | ≥ 90 days | Government | Total | Total | 90 days past due | |||||||||||||||
In millions of dollars | current | (1)(2) | past due | (3) | past due | (3) | guaranteed | (4) | loans | (2)(6) | non-accrual | and accruing | |||||||||
In North America offices | |||||||||||||||||||||
Residential first mortgages | $ | 84,284 | $ | 4,304 | $ | 5,698 | $ | 7,003 | $ | 101,289 | $ | 5,873 | $ | 5,405 | |||||||
Home equity loans (5) | 45,655 | 1,197 | 1,317 | - | 48,169 | 1,293 | - | ||||||||||||||
Credit cards | 117,571 | 3,224 | 3,198 | - | 123,993 | - | 3,198 | ||||||||||||||
Installment and other | 25,723 | 1,531 | 1,129 | - | 28,383 | 739 | 353 | ||||||||||||||
Commercial market loans | 9,358 | 43 | 42 | - | 9,443 | 539 | - | ||||||||||||||
Total | $ | 282,591 | $ | 10,299 | $ | 11,384 | $ | 7,003 | $ | 311,277 | $ | 8,444 | $ | 8,956 | |||||||
In offices outside North America | |||||||||||||||||||||
Residential first mortgages | $ | 41,451 | $ | 618 | $ | 526 | $ | - | $ | 42,595 | $ | 729 | $ | - | |||||||
Home equity loans (5) | 8 | - | 1 | - | 9 | 1 | - | ||||||||||||||
Credit cards | 40,805 | 1,117 | 974 | - | 42,896 | 565 | 409 | ||||||||||||||
Installment and other | 28,047 | 814 | 289 | - | 29,150 | 508 | 41 | ||||||||||||||
Commercial market loans | 28,899 | 101 | 143 | - | 29,143 | 409 | 1 | ||||||||||||||
Total | $ | 139,210 | $ | 2,650 | $ | 1,933 | $ | - | $ | 143,793 | $ | 2,212 | $ | 451 | |||||||
Total GCB and LCL | $ | 421,801 | $ | 12,949 | $ | 13,317 | $ | 7,003 | $ | 455,070 | $ | 10,656 | $ | 9,407 |
(1) | Loans less than 30 days past due are presented as current. | |
(2) | Includes $1.7 billion of residential first mortgages recorded at fair value. | |
(3) | Excludes loans guaranteed by U.S. government agencies. | |
(4) | Consists of residential first mortgages that are guaranteed by U.S. government agencies that are 30-89 days past due of $1.6 billion and ³ 90 days past due of $5.4 billion. | |
(5) | Fixed rate home equity loans and loans extended under home equity lines of credit which are typically in junior lien positions. | |
(6) | The above information for December 31, 2010 was not available for SAP. |
195
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 credit score. These
scores are often called "FICO scores" because most credit bureau scores used in
the U.S. are produced from software developed by Fair Isaac Corporation. Scores
range from a high of 900 (which indicates high credit quality) to 300. 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, 2011 and December 31,
2010 (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.
During the first quarter of 2011, the cards businesses (Citi-branded and
retail partner cards) in the U.S. began using a more updated FICO model version
to score customer accounts for substantially all of their loans. The change was
made to incorporate a more recent version of FICO in order to improve the
predictive strength of the score and to enhance Citi's ability to manage risk.
In the first quarter, this change resulted in an increase in the percentage of
balances with FICO scores equal to or greater than 660 and conversely lowered
the percentage of balances with FICO scores lower than 620.
FICO score distribution in U.S. portfolio (1)(2) | December 31, 2011 | ||||||||
Equal to or | |||||||||
Less than | ≥ 620 but less | greater | |||||||
In millions of dollars | 620 | than 660 | than 660 | ||||||
Residential first mortgages | $ | 20,370 | $ | 8,815 | $ | 52,839 | |||
Home equity loans | 6,385 | 3,596 | 31,389 | ||||||
Credit cards | 9,621 | 10,905 | 93,234 | ||||||
Installment and other | 3,789 | 2,858 | 6,704 | ||||||
Total | $ | 40,165 | $ | 26,174 | $ | 184,166 |
(1) | Excludes loans guaranteed by U.S. government agencies, loans subject to LTSCs with U.S. government-sponsored agencies and loans recorded at fair value. | |
(2) | Excludes balances where FICO was not available. Such amounts are not material. |
FICO score distribution in | |||||||||
U.S. portfolio (1)(2) | December 31, 2010 | ||||||||
Equal to or | |||||||||
Less than | ≥ 620 but less | greater | |||||||
In millions of dollars | 620 | than 660 | than 660 | ||||||
Residential first mortgages | $ | 24,659 | $ | 9,103 | $ | 50,587 | |||
Home equity loans | 8,171 | 3,639 | 35,640 | ||||||
Credit cards | 18,341 | 12,592 | 88,332 | ||||||
Installment and other | 11,320 | 3,760 | 10,743 | ||||||
Total | $ | 62,491 | $ | 29,094 | $ | 185,302 |
(1) | Excludes loans guaranteed by U.S. government agencies, loans subject to LTSCs with U.S. government-sponsored agencies and loans recorded at fair value. | |
(2) | Excludes balances where FICO was not available. Such amounts are not material. |
Loan to Value Ratios
(LTV)
Loan to value (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, 2011 and December
31, 2010. 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; otherwise, at the state
level. The remainder of the portfolio is updated in a similar manner using the
Office of Federal Housing Enterprise Oversight indices.
LTV distribution in U.S. portfolio (1)(2) | December 31, 2011 | |||||||
> 80% but less | Greater | |||||||
Less than or | than or equal to | than | ||||||
In millions of dollars | equal to 80% | 100% | 100% | |||||
Residential first mortgages | $ | 36,422 | $ | 21,146 | $ | 24,425 | ||
Home equity loans | 12,724 | 10,232 | 18,226 | |||||
Total | $ | 49,146 | $ | 31,378 | $ | 42,651 |
(1) | Excludes loans guaranteed by U.S. government agencies, loans subject to LTSCs with U.S. government-sponsored agencies and loans recorded at fair value. | |
(2) | Excludes balances where LTV was not available. Such amounts are not material. |
LTV distribution in U.S. portfolio (1)(2) | December 31, 2010 | |||||||
> 80% but less | Greater | |||||||
Less than or | than or equal to | than | ||||||
In millions of dollars | equal to 80% | 100% | 100% | |||||
Residential first mortgages | $ | 32,360 | $ | 25,304 | $ | 26,596 | ||
Home equity loans | 14,387 | 12,347 | 20,469 | |||||
Total | $ | 46,747 | $ | 37,651 | $ | 47,065 |
(1) | Excludes loans guaranteed by U.S. government agencies, loans subject to LTSCs with U.S. government-sponsored agencies and loans recorded at fair value. | |
(2) | Excludes balances where LTV was not available. Such amounts are not material. |
196
Impaired Consumer
Loans
Impaired loans are those
for 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 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. At December 31, 2011, loans included in
these short-term programs amounted to approximately $3 billion.
Effective in the third quarter of 2011, as a result of adopting ASU 2011-02, certain loans modified under short-term programs since 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. See Note 1 to the Consolidated Financial Statements for a discussion of this change.
The following tables present information about total impaired Consumer loans at and for the periods ending December 31, 2011 and December 31, 2010, respectively:
Impaired Consumer Loans
At and for the period ended December 31, 2011 | |||||||||||||||
Recorded | Unpaid | Related specific | Average | Interest income | |||||||||||
In millions of dollars | investment | (1)(2) | principal balance | allowance | (3) | carrying value | (4) | recognized | (5)(6) | ||||||
Mortgage and real estate | |||||||||||||||
Residential first mortgages | $ | 19,616 | $ | 20,803 | $ | 3,404 | $ | 18,642 | $ | 888 | |||||
Home equity loans | 1,771 | 1,823 | 1,252 | 1,680 | 72 | ||||||||||
Credit cards | 6,695 | 6,743 | 3,122 | 6,542 | 387 | ||||||||||
Installment and other | |||||||||||||||
Individual installment and other | 2,264 | 2,267 | 1,032 | 2,644 | 343 | ||||||||||
Commercial market loans | 517 | 782 | 75 | 572 | 21 | ||||||||||
Total (7) | $ | 30,863 | $ | 32,418 | $ | 8,885 | $ | 30,080 | $ | 1,711 |
(1) | 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) | $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. | |
(3) | Included in the Allowance for loan losses . | |
(4) | Average carrying value represents the average recorded investment ending balance for last four quarters and does not include related specific allowance. | |
(5) | Includes amounts recognized on both an accrual and cash basis. | |
(6) | 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. | |
(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 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. |
197
At and for the period ended December 31, 2010 | |||||||||||||||
Recorded | Unpaid | Related specific | Average | Interest income | |||||||||||
In millions of dollars | investment | (1)(2) | principal balance | allowance | (3) | carrying value | (4) | recognized | (5)(6) | ||||||
Mortgage and real estate | |||||||||||||||
Residential first mortgages | $ | 16,225 | $ | 17,287 | $ | 2,783 | $ | 13,606 | $ | 862 | |||||
Home equity loans | 1,205 | 1,256 | 393 | 1,010 | 40 | ||||||||||
Credit cards | 5,906 | 5,906 | 3,237 | 5,314 | 131 | ||||||||||
Installment and other | |||||||||||||||
Individual installment and other | 3,286 | 3,348 | 1,177 | 3,627 | 393 | ||||||||||
Commercial market loans | 696 | 934 | 145 | 909 | 26 | ||||||||||
Total (7) | $ | 27,318 | $ | 28,731 | $ | 7,735 | $ | 24,466 | $ | 1,452 |
(1) | 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) | $1,050 million of residential first mortgages, $6 million of home equity loans and $323 million of commercial market loans do not have a specific allowance. | |
(3) | Included in the Allowance for loan losses . | |
(4) | Average carrying value represents the average recorded investment ending balances for the prior four quarters and does not include related specific allowance. | |
(5) | Includes amounts recognized on both an accrual and cash basis. | |
(6) | 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. | |
(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 it was determined that a concession was granted to the borrower. Smaller-balance consumer loans modified since January 1, 2008 amounted to $26.6 billion at December 31, 2010. However, information derived from Citi's risk management systems indicates that the amounts of outstanding modified loans, including those modified prior to 2008, approximated $28.2 billion at December 31, 2010. |
Consumer Troubled Debt
Restructurings
The following
table provides details on TDR activity and default information as of and for the
year ended December 31, 2011:
Contingent | Average | |||||||||||||||||||
In millions of dollars except | Number of | Pre-modification | Post-modification | Deferred | principal | Principal | interest rate | |||||||||||||
number of loans modified | loans modified | recorded investment | recorded investment | (1) | principal | (2) | forgiveness | (3) | forgiveness | reduction | ||||||||||
North America | ||||||||||||||||||||
Residential first mortgages | 31,608 | $ | 4,999 | $ | 5,284 | $ | 110 | $ | 50 | $ | - | 2 | % | |||||||
Home equity loans | 16,077 | 840 | 872 | 22 | 1 | - | 4 | |||||||||||||
Credit cards | 611,715 | 3,560 | 3,554 | - | - | - | 19 | |||||||||||||
Installment and other revolving | 86,462 | 645 | 641 | - | - | - | 4 | |||||||||||||
Commercial markets (4) | 579 | 55 | - | - | - | 1 | - | |||||||||||||
Total | 746,441 | $ | 10,099 | $ | 10,351 | $ | 132 | $ | 51 | $ | 1 | |||||||||
International | ||||||||||||||||||||
Residential first mortgages | 4,888 | $ | 241 | $ | 235 | $ | - | $ | - | $ | 6 | 1 | % | |||||||
Home equity loans | 61 | 4 | 4 | - | - | - | - | |||||||||||||
Credit cards | 225,149 | 609 | 600 | - | - | 2 | 24 | |||||||||||||
Installment and other revolving | 97,827 | 487 | 468 | - | - | 9 | 13 | |||||||||||||
Commercial markets (4) | 55 | 167 | - | - | - | 1 | - | |||||||||||||
Total | 327,980 | $ | 1,508 | $ | 1,307 | $ | - | $ | - | $ | 18 |
(1) | Post-modification balances include past due amounts that are capitalized at modification date. | |
(2) | Represents portion of loan principal that is non-interest bearing but still due from borrower. | |
(3) | Represents portion of loan principal that is non-interest bearing and, depending upon borrower performance, eligible for forgiveness. | |
(4) | Commercial markets loans are generally borrower-specific modifications and incorporate changes in the amount and/or timing of principal and/or interest. |
198
The following table presents loans that defaulted during 2011 and for which the payment default occurred within one year of the modification.
Year ended | ||||
In millions of dollars | December 31, 2011 | (1) | ||
North America | ||||
Residential first mortgages | $ | 1,932 | ||
Home equity loans | 105 | |||
Credit cards | 1,307 | |||
Installment and other revolving | 103 | |||
Commercial markets (1) | 3 | |||
Total | $ | 3,450 | ||
International | ||||
Residential first mortgages | $ | 103 | ||
Home equity loans | 2 | |||
Credit cards | 359 | |||
Installment and other revolving | 250 | |||
Commercial markets (1) | 14 | |||
Total | $ | 728 |
(1) | Default is defined as 60 days past due, except for classifiably managed commercial markets loans, where default is defined as 90 days past due. |
Corporate Loans
Corporate loans represent loans and leases managed
by ICG or the SAP . The following table
presents information by Corporate loan type as of December 31, 2011 and December
31, 2010:
Dec. 31, | Dec. 31, | |||||
In millions of dollars | 2011 | 2010 | ||||
Corporate | ||||||
In U.S. offices | ||||||
Commercial and industrial | $ | 21,667 | $ | 14,334 | ||
Loans to financial institutions | 33,265 | 29,813 | ||||
Mortgage and real estate (1) | 20,698 | 19,693 | ||||
Installment, revolving credit and other | 15,011 | 12,640 | ||||
Lease financing | 1,270 | 1,413 | ||||
$ | 91,911 | $ | 77,893 | |||
In offices outside the U.S. | ||||||
Commercial and industrial | $ | 79,373 | $ | 71,618 | ||
Installment, revolving credit and other | 14,114 | 11,829 | ||||
Mortgage and real estate (1) | 6,885 | 5,899 | ||||
Loans to financial institutions | 29,794 | 22,620 | ||||
Lease financing | 568 | 531 | ||||
Governments and official institutions | 1,576 | 3,644 | ||||
$ | 132,310 | $ | 116,141 | |||
Total Corporate loans | $ | 224,221 | $ | 194,034 | ||
Net unearned income (loss) | (710 | ) | (972 | ) | ||
Corporate loans, net of unearned income | $ | 223,511 | $ | 193,062 |
(1) | Loans secured primarily by real estate. |
For
the year ended December 31, 2011, the Company sold and/or reclassified (to
held-for-sale) $6.4 billion of held-for-investment Corporate loans. The Company
did not have significant purchases of loans classified as held-for-investment
for the year ended December 31, 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, 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, 2011 and
December 31, 2010:
199
Corporate Loan Delinquency and Non-Accrual Details at December 31, 2011
30–89 days | ≥ 90 days | |||||||||||||||||
past due | past due and | Total past due | Total | Total | Total | |||||||||||||
In millions of dollars | and accruing | (1) | accruing | (1) | and accruing | non-accrual | (2) | current | (3) | loans | ||||||||
Commercial and industrial | $ | 93 | $ | 30 | $ | 123 | $ | 1,144 | $ | 98,577 | $ | 99,844 | ||||||
Financial institutions | 0 | 2 | 2 | 779 | 60,762 | 61,543 | ||||||||||||
Mortgage and real estate | 224 | 125 | 349 | 1,029 | 26,107 | 27,485 | ||||||||||||
Leases | 3 | 11 | 14 | 13 | 1,811 | 1,838 | ||||||||||||
Other | 225 | 15 | 240 | 271 | 28,351 | 28,862 | ||||||||||||
Loans at fair value | 3,939 | |||||||||||||||||
Total | $ | 545 | $ | 183 | $ | 728 | $ | 3,236 | $ | 215,608 | $ | 223,511 |
(1) | Corporate loans that are greater than 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. | |
(2) | 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. | |
(3) | 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, 2010
30–89 days | ≥ 90 days | |||||||||||||||||
past due | past due and | Total past due | Total | Total | Total | |||||||||||||
In millions of dollars | and accruing | (1) | accruing | (1) | and accruing | non-accrual | (2) | current | (3) | loans | ||||||||
Commercial and industrial | $ | 94 | $ | 39 | $ | 133 | $ | 5,135 | $ | 78,752 | $ | 84,020 | ||||||
Financial institutions | 2 | - | 2 | 1,258 | 50,648 | 51,908 | ||||||||||||
Mortgage and real estate | 376 | 20 | 396 | 1,782 | 22,892 | 25,070 | ||||||||||||
Leases | 9 | - | 9 | 45 | 1,890 | 1,944 | ||||||||||||
Other | 100 | 52 | 152 | 400 | 26,941 | 27,493 | ||||||||||||
Loans at fair value | 2,627 | |||||||||||||||||
Total | $ | 581 | $ | 111 | $ | 692 | $ | 8,620 | $ | 181,123 | $ | 193,062 |
(1) | Corporate loans that are greater than 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. | |
(2) | 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. | |
(3) | 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. |
Citigroup has established 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.
200
Corporate Loans Credit Quality
Indicators at
December 31, 2011 and December 31, 2010
Recorded investment in loans | (1) | |||||
December 31, | December 31, | |||||
In millions of dollars | 2011 | 2010 | ||||
Investment grade (2) | ||||||
Commercial and industrial | $ | 67,528 | $ | 52,932 | ||
Financial institutions | 53,482 | 47,310 | ||||
Mortgage and real estate | 10,068 | 8,119 | ||||
Leases | 1,161 | 1,204 | ||||
Other | 24,129 | 21,844 | ||||
Total investment grade | $ | 156,368 | $ | 131,409 | ||
Non-investment grade (2) | ||||||
Accrual | ||||||
Commercial and industrial | $ | 31,172 | $ | 25,992 | ||
Financial institutions | 7,282 | 3,412 | ||||
Mortgage and real estate | 3,672 | 3,329 | ||||
Leases | 664 | 695 | ||||
Other | 4,462 | 4,316 | ||||
Non-accrual | ||||||
Commercial and industrial | 1,144 | 5,135 | ||||
Financial institutions | 779 | 1,258 | ||||
Mortgage and real estate | 1,029 | 1,782 | ||||
Leases | 13 | 45 | ||||
Other | 271 | 400 | ||||
Total non-investment grade | $ | 50,488 | $ | 46,364 | ||
Private Banking loans managed on a | ||||||
delinquency basis (2) | $ | 12,716 | $ | 12,662 | ||
Loans at fair value | 3,939 | 2,627 | ||||
Corporate loans, net of unearned income | $ | 223,511 | $ | 193,062 |
(1) | Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount, less any direct write-downs. | |
(2) | 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 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, 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.
201
The following tables present non-accrual loan information by Corporate loan type at and for the years ended December 31, 2011, 2010 and 2009, respectively:
Non-Accrual Corporate Loans
At and for the period ended December 31, 2011 | |||||||||||||||
Recorded | Unpaid | Related specific | Average | Interest income | |||||||||||
In millions of dollars | investment | (1) | principal balance | allowance | carrying value | (2) | recognized | ||||||||
Non-accrual Corporate loans | |||||||||||||||
Commercial and industrial | $ | 1,144 | $ | 1,538 | $ | 186 | $ | 1,448 | $ | 76 | |||||
Loans to financial institutions | 779 | 1,213 | 20 | 1,060 | - | ||||||||||
Mortgage and real estate | 1,029 | 1,240 | 151 | 1,485 | 14 | ||||||||||
Lease financing | 13 | 21 | - | 25 | 2 | ||||||||||
Other | 271 | 476 | 63 | 416 | 17 | ||||||||||
Total non-accrual Corporate loans | $ | 3,236 | $ | 4,488 | $ | 420 | $ | 4,434 | $ | 109 |
At and for the period ended December 31, 2010 | |||||||||||||||
Recorded | Unpaid | Related specific | Average | Interest income | |||||||||||
In millions of dollars | investment | (1) | principal balance | allowance | carrying value | (3) | recognized | ||||||||
Non-accrual Corporate loans | |||||||||||||||
Commercial and industrial | $5,135 | $ | 8,031 | $ | 843 | $ | 6,027 | $ | 28 | ||||||
Loans to financial institutions | 1,258 | 1,835 | 259 | 883 | 1 | ||||||||||
Mortgage and real estate | 1,782 | 2,328 | 369 | 2,474 | 7 | ||||||||||
Lease financing | 45 | 71 | - | 55 | 4 | ||||||||||
Other | 400 | 948 | 218 | 1,205 | 25 | ||||||||||
Total non-accrual Corporate loans | $8,620 | $ | 13,213 | $ | 1,689 | $ | 10,644 | $ | 65 | ||||||
At and for the period ended | |||||||||||||||
Dec. 31, | |||||||||||||||
In millions of dollars | 2009 | ||||||||||||||
Average carrying value (3) | $ | 12,990 | |||||||||||||
Interest income recognized | 21 |
December 31, 2011 | December 31, 2010 | ||||||||||
Recorded | Related specific | Recorded | Related specific | ||||||||
In millions of dollars | investment | (1) | allowance | investment | (1) | allowance | |||||
Non-accrual Corporate loans with valuation allowances | |||||||||||
Commercial and industrial | $ | 501 | $ | 186 | $ | 4,257 | $ | 843 | |||
Loans to financial institutions | 68 | 20 | 818 | 259 | |||||||
Mortgage and real estate | 540 | 151 | 1,008 | 369 | |||||||
Other | 130 | 63 | 241 | 218 | |||||||
Total non-accrual Corporate loans with specific allowance | $ | 1,239 | $ | 420 | $ | 6,324 | $ | 1,689 | |||
Non-accrual Corporate loans without specific allowance | |||||||||||
Commercial and industrial | $ | 643 | $ | 878 | |||||||
Loans to financial institutions | 711 | 440 | |||||||||
Mortgage and real estate | 489 | 774 | |||||||||
Lease financing | 13 | 45 | |||||||||
Other | 141 | 159 | |||||||||
Total non-accrual Corporate loans without specific allowance | $ | 1,997 | N/A | $ | 2,296 | N/A |
(1) | Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount, less any direct write-downs. | |
(2) | Average carrying value represents the average recorded investment balance and does not include related specific allowance. | |
(3) | Average carrying value does not include related specific allowance. | |
N/A | Not Applicable |
202
Corporate Troubled Debt
Restructurings
The following
tables provide details on TDR activity and default information as of and for the
12-month period ended December 31, 2011.
The following table presents TDRs occurring during the 12-month period ended December 31, 2011.
TDRs | ||||||||||||||||||
TDRs | TDRs | involving changes | ||||||||||||||||
involving changes | involving changes | in the amount | ||||||||||||||||
in the amount | in the amount | and/or timing of | Balance of | Net | ||||||||||||||
Carrying | and/or timing of | and/or timing of | both principal and | principal forgiven | P&L | |||||||||||||
In millions of dollars | Value | principal payments | (1) | interest payments | (2) | interest payments | or deferred | impact | (3) | |||||||||
Commercial and industrial | $ | 126 | $ | - | $ | 16 | $ | 110 | $ | - | $ | 16 | ||||||
Loans to financial institutions | - | - | - | - | - | - | ||||||||||||
Mortgage and real estate | 250 | 3 | 20 | 227 | 4 | 37 | ||||||||||||
Other | 74 | - | 67 | 7 | - | - | ||||||||||||
Total | $ | 450 | $ | 3 | $ | 103 | $ | 344 | $ | 4 | $ | 53 |
(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. | |
(2) | TDRs involving changes in the amount or timing of interest payments may involve a reduction in interest rate or a below-market interest rate. | |
(3) | Balances reflect charge-offs and reserves recorded during the 12 months 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 troubled debt restructuring at December 31, 2011 as well as those TDRs that defaulted during 2011 and for which the payment default occurred within one year of the modification.
TDR Loans | ||||||
in payment default | (1) | |||||
TDR Balances at | Twelve Months Ended | |||||
In millions of dollars | December 31, 2011 | December 31, 2011 | ||||
Commercial and industrial | $ | 429 | $ | 7 | ||
Loans to financial institutions | 564 | - | ||||
Mortgage and real estate | 258 | - | ||||
Other | 85 | - | ||||
Total Corporate Loans modified in TDRs | $ | 1,336 | $ | 7 |
(1) | Payment default constitutes failure to pay principal or interest when due per the contractual terms of the loan. |
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 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.
203
The carrying amount of the Company's purchased distressed loan portfolio at December 31, 2011 was $443 million, net of an allowance of $68 million as of December 31, 2011.
The changes in the accretable yield, related allowance and carrying amount net of accretable yield for 2011 are as follows:
Carrying | |||||||||
Accretable | amount of loan | ||||||||
In millions of dollars | yield | receivable | Allowance | ||||||
Balance at December 31, 2010 | $ | 116 | $ | 469 | $ | 77 | |||
Purchases (1) | - | 328 | - | ||||||
Disposals/payments received | (122 | ) | (235 | ) | (24 | ) | |||
Accretion | (6 | ) | 6 | - | |||||
Builds (reductions) to the allowance | 12 | - | 16 | ||||||
Increase to expected cash flows | 31 | 3 | - | ||||||
FX/other | (29 | ) | (60 | ) | (1 | ) | |||
Balance at December 31, 2011 (2) | $ | 2 | $ | 511 | $ | 68 |
(1) | The balance reported in the column "Carrying amount of loan receivable" consists of $328 million of purchased loans accounted for under the level-yield method and $0 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 $328 million at their acquisition dates. | |
(2) | The balance reported in the column "Carrying amount of loan receivable" consists of $435 million of loans accounted for under the level-yield method and $76 million accounted for under the cost-recovery method. |
204
17. ALLOWANCE FOR CREDIT LOSSES
In millions of dollars | 2011 | 2010 | 2009 | ||||||
Allowance for loan losses at beginning of year | $ | 40,655 | $ | 36,033 | $ | 29,616 | |||
Gross credit losses | (23,164 | ) | (34,491 | ) | (32,784 | ) | |||
Gross recoveries | 3,126 | 3,632 | 2,043 | ||||||
Net credit losses (NCLs) | $ | (20,038 | ) | $ | (30,859 | ) | $ | (30,741 | ) |
NCLs | $ | 20,038 | $ | 30,859 | $ | 30,741 | |||
Net reserve builds (releases) | (8,434 | ) | (6,523 | ) | 5,741 | ||||
Net specific reserve builds | 169 | 858 | 2,278 | ||||||
Total provision for credit losses | $ | 11,773 | $ | 25,194 | $ | 38,760 | |||
Other, net (1) | (2,275 | ) | 10,287 | (1,602 | ) | ||||
Allowance for loan losses at end of year | $ | 30,115 | $ | 40,655 | $ | 36,033 | |||
Allowance for credit losses on unfunded lending commitments at beginning of year (2) | $ | 1,066 | $ | 1,157 | $ | 887 | |||
Provision for unfunded lending commitments | 51 | (117 | ) | 244 | |||||
Allowance for credit losses on unfunded lending commitments at end of year (2) | $ | 1,136 | $ | 1,066 | $ | 1,157 | |||
Total allowance for loans, leases, and unfunded lending commitments | $ | 31,251 | $ | 41,721 | $ | 37,190 |
(1) | 2011 primarily 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 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) and 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. 2009 primarily includes reductions to the loan loss reserve of approximately $543 million related to securitizations, approximately $402 million related to the sale or transfers to held-for-sale of U.S. real estate lending loans, and $562 million related to the transfer of the U.K. cards portfolio to held-for-sale. | |
(2) | 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, 2011
In millions of dollars | Corporate | Consumer | Total | ||||||
Allowance for loan losses at beginning of year | $ | 5,249 | $ | 35,406 | $ | 40,655 | |||
Charge-offs | (2,000 | ) | (21,164 | ) | (23,164 | ) | |||
Recoveries | 386 | 2,740 | 3,126 | ||||||
Replenishment. of net charge-offs | 1,614 | 18,424 | 20,038 | ||||||
Net reserve releases | (1,083 | ) | (7,351 | ) | (8,434 | ) | |||
Net specific reserve builds (releases) | (1,270 | ) | 1,439 | 169 | |||||
Other | (17 | ) | (2,258 | ) | (2,275 | ) | |||
Ending balance | $ | 2,879 | $ | 27,236 | $ | 30,115 | |||
Allowance for loan losses | |||||||||
Determined in accordance with ASC 450-20 | $ | 2,408 | $ | 18,334 | $ | 20,742 | |||
Determined in accordance with ASC 310-10-35 | 420 | 8,885 | 9,305 | ||||||
Determined in accordance with ASC 310-30 | 51 | 17 | 68 | ||||||
Total allowance for loan losses | $ | 2,879 | $ | 27,236 | $ | 30,115 | |||
Loans, net of unearned income | |||||||||
Loans collectively evaluated for impairment in accordance with ASC 450-20 | $ | 215,387 | $ | 391,222 | $ | 606,609 | |||
Loans individually evaluated for impairment in accordance with ASC 310-10-35 | 3,994 | 30,863 | 34,857 | ||||||
Loans acquired with deteriorated credit quality in accordance with ASC 310-30 | 191 | 320 | 511 | ||||||
Loans held at fair value | 3,939 | 1,326 | 5,265 | ||||||
Total loans, net of unearned income | $ | 223,511 | $ | 423,731 | $ | 647,242 |
205
Allowance for Credit Losses and Investment in Loans at December 31, 2010
In millions of dollars | Corporate | Consumer | Total | ||||||
Allowance for loan losses at beginning of year | $ | 7,686 | $ | 28,347 | $ | 36,033 | |||
Charge-offs | (3,418 | ) | (31,073 | ) | (34,491 | ) | |||
Recoveries | 994 | 2,638 | 3,632 | ||||||
Replenishment of net charge-offs | 2,424 | 28,435 | 30,859 | ||||||
Net reserve releases | (1,627 | ) | (4,896 | ) | (6,523 | ) | |||
Net specific reserve builds (releases) | (722 | ) | 1,580 | 858 | |||||
Other | (88 | ) | 10,375 | 10,287 | |||||
Ending balance | $ | 5,249 | $ | 35,406 | $ | 40,655 | |||
Allowance for loan losses | |||||||||
Determined in accordance with ASC 450-20 | $ | 3,510 | $ | 27,644 | $ | 31,154 | |||
Determined in accordance with ASC 310-10-35 | 1,689 | 7,735 | 9,424 | ||||||
Determined in accordance with ASC 310-30 | 50 | 27 | 77 | ||||||
Total allowance for loan losses | $ | 5,249 | $ | 35,406 | $ | 40,655 | |||
Loans, net of unearned income | |||||||||
Loans collectively evaluated for impairment in accordance with ASC 450-20 | $ | 181,052 | $ | 426,444 | $ | 607,496 | |||
Loans individually evaluated for impairment in accordance with ASC 310-10-35 | 9,139 | 27,318 | 36,457 | ||||||
Loans acquired with deteriorated credit quality in accordance with ASC 310-30 | 244 | 225 | 469 | ||||||
Loans held at fair value | 2,627 | 1,745 | 4,372 | ||||||
Total loans, net of unearned income | $ | 193,062 | $ | 455,732 | $ | 648,794 |
206
18. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in Goodwill during 2011 and 2010 were as follows:
In millions of dollars | |||
Balance at December 31, 2009 | $ | 25,392 | |
Foreign exchange translation | 685 | ||
Smaller acquisitions/divestitures, purchase accounting adjustments and other | 75 | ||
Balance at December 31, 2010 | $ | 26,152 | |
Foreign exchange translation | (636 | ) | |
Smaller acquisitions/divestitures, purchase accounting adjustments and other | 44 | ||
Discontinued operations | (147 | ) | |
Balance at December 31, 2011 | $ | 25,413 |
The changes in Goodwill by segment during 2011 and 2010 were as follows:
Global | Institutional | ||||||||||||||
Consumer | Clients | Corporate/ | |||||||||||||
In millions of dollars | Banking | Group | Citi Holdings | Other | Total | ||||||||||
Balance at December 31, 2009 | $ | 9,921 | $ | 10,689 | $ | 4,782 | $ | - | $ | 25,392 | |||||
Goodwill acquired during 2010 | $ | - | $ | - | $ | - | $ | - | $ | - | |||||
Goodwill disposed of during 2010 | - | - | (102 | ) | - | (102 | ) | ||||||||
Other (1) | 780 | 137 | (55 | ) | - | 862 | |||||||||
Balance at December 31, 2010 | $ | 10,701 | $ | 10,826 | $ | 4,625 | $ | - | $ | 26,152 | |||||
Goodwill acquired during 2011 | $ | - | $ | 19 | $ | - | $ | - | $ | 19 | |||||
Goodwill disposed of during 2011 | - | (6 | ) | (153 | ) | - | (159 | ) | |||||||
Other (1) | (465 | ) | (102 | ) | (32 | ) | - | (599 | ) | ||||||
Balance at December 31, 2011 | $ | 10,236 | $ | 10,737 | $ | 4,440 | $ | - | $ | 25,413 |
(1) | Other changes in Goodwill primarily reflect foreign exchange effects on non-dollar-denominated goodwill, as well as purchase accounting adjustments. |
Goodwill impairment testing is performed at a level below the business segments (referred to as a reporting unit). The reporting unit structure in 2011 is consistent with those reporting units identified in the second quarter of 2009 as a result of the change in organizational structure. During 2011, goodwill was allocated to disposals and tested for impairment for each of the reporting units. The Company performed goodwill impairment testing for all reporting units as of July 1, 2011. No goodwill was written off due to impairment in 2009, 2010 and 2011.
207
The following table shows reporting units with goodwill balances as of December 31, 2011 and the excess of fair value as a percentage over allocated book value as of the annual impairment test.
In millions of dollars | ||||
Fair value as a % of | ||||
Reporting unit (1) | allocated book value | Goodwill | ||
North America Regional Consumer Banking | 279 | % | $ | 2,542 |
EMEA Regional Consumer Banking | 205 | 349 | ||
Asia Regional Consumer Banking | 285 | 5,623 | ||
Latin America Regional Consumer Banking | 277 | 1,722 | ||
Securities and Banking | 136 | 9,173 | ||
Transaction Services | 1,761 | 1,564 | ||
Brokerage and Asset Management | 162 | 71 | ||
Local Consumer Lending-Cards | 175 | 4,369 |
(1) | Local Consumer Lending-Other is excluded from the table as there is no goodwill allocated to it. |
Citigroup engaged the services of an independent valuation specialist to
assist in the valuation of the reporting units at July 1, 2011, using a
combination of the market approach and/or income approach consistent with the
valuation model used in the past.
Under the market approach for valuing each reporting unit, the key
assumption is the selected price multiples. The selection of the multiples
considers the operating performance and financial condition of the reporting
unit operations as compared with those of a group of selected publicly traded
guideline companies and a group of selected acquired companies. Among other
factors, the level and expected growth in return on tangible equity relative to
those of the guideline companies and guideline transactions is considered. Since
the guideline company prices used are on a minority interest basis, the
selection of the multiple considers the recent acquisition prices, which reflect
control rights and privileges, in arriving at a multiple that reflects an
appropriate control premium.
For the valuation under the income approach, the assumptions used as the
basis for the model include cash flows for the forecasted period, the
assumptions embedded in arriving at an estimation of the terminal value and the
discount rate. The cash flows for the forecasted period are estimated based on
management's most recent projections available as of the testing date, giving
consideration to targeted equity capital requirements based on selected public
guideline companies for the reporting unit. In arriving at the terminal value
for each reporting unit, using 2014 as the terminal year, the assumptions used
include a long-term growth rate and a price-to-tangible book multiple based on
selected public guideline companies for the reporting unit. The discount rate is
based on the reporting unit's estimated cost of equity capital computed under
the capital asset pricing model.
Embedded in the key assumptions
underlying the valuation model, described above, is the inherent uncertainty
regarding the possibility that economic conditions that affect credit risk and
behavior may vary or other events will occur that will impact the business
model. Deterioration in the assumptions used in the valuations, in particular
the discount-rate and growth-rate assumptions used in the net income
projections, could affect Citigroup's impairment evaluation and, hence, the
Company's net income. While there is inherent uncertainty embedded in the
assumptions used in developing management's forecasts, the assumptions used
reflect management's best estimates as of the testing date.
If the future were to differ adversely from
management's best estimate of key economic assumptions and associated cash flows
were to significantly decrease, Citi could potentially experience future
impairment charges with respect to goodwill. Any such charges, by themselves,
would not negatively affect Citi's Tier 1 and Total Capital regulatory ratios,
Tier 1 Common ratio, its Tangible Common Equity or Citi's liquidity
position.
208
INTANGIBLE ASSETS
The components of intangible assets were as
follows:
December 31, 2011 | December 31, 2010 | |||||||||||
Gross | Net | Gross | Net | |||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | |||||||
In millions of dollars | amount | amortization | amount | amount | amortization | amount | ||||||
Purchased credit card relationships | $ | 7,616 | $ | 5,309 | $ | 2,307 | $ | 7,796 | $ | 5,048 | $ | 2,748 |
Core deposit intangibles | 1,337 | 965 | 372 | 1,442 | 959 | 483 | ||||||
Other customer relationships | 830 | 356 | 474 | 796 | 289 | 507 | ||||||
Present value of future profits | 235 | 123 | 112 | 241 | 114 | 127 | ||||||
Indefinite-lived intangible assets | 492 | - | 492 | 550 | - | 550 | ||||||
Other (1) | 4,866 | 2,023 | 2,843 | 4,723 | 1,634 | 3,089 | ||||||
Intangible assets (excluding MSRs) | $ | 15,376 | $ | 8,776 | $ | 6,600 | $ | 15,548 | $ | 8,044 | $ | 7,504 |
Mortgage servicing rights (MSRs) | 2,569 | - | 2,569 | 4,554 | - | 4,554 | ||||||
Total intangible assets | $ | 17,945 | $ | 8,776 | $ | 9,169 | $ | 20,102 | $ | 8,044 | $ | 12,058 |
(1) | Includes contract-related intangible assets. |
Intangible assets amortization expense was $898 million, $976 million and $1,179 million for 2011, 2010 and 2009, respectively. Intangible assets amortization expense is estimated to be $826 million in 2012, $822 million in 2013, $734 million in 2014, $700 million in 2015, and $807 million in 2016.
The changes in intangible assets during 2011 were as follows:
Net carrying | Net carrying | ||||||||||||||||
amount at | FX | amount at | |||||||||||||||
December 31, | Acquisitions/ | and | Discontinued | December 31, | |||||||||||||
In millions of dollars | 2010 | divestitures | Amortization | Impairments | other | (1) | operations | 2011 | |||||||||
Purchased credit card relationships | $ | 2,748 | $ | 5 | $(435 | ) | $ | - | $ | (11 | ) | $ | - | $ | 2,307 | ||
Core deposit intangibles | 483 | 4 | (97 | ) | - | (18 | ) | - | 372 | ||||||||
Other customer relationships | 507 | 3 | (51 | ) | - | 15 | - | 474 | |||||||||
Present value of future profits | 127 | - | (13 | ) | - | (2 | ) | - | 112 | ||||||||
Indefinite-lived intangible assets | 550 | - | - | - | (58 | ) | - | 492 | |||||||||
Other | 3,089 | 93 | (302 | ) | (17 | ) | (2 | ) | (18 | ) | 2,843 | ||||||
Intangible assets (excluding MSRs) | $ | 7,504 | $ | 105 | $(898 | ) | $ | (17 | ) | $ | (76 | ) | $ | (18 | ) | $ | 6,600 |
Mortgage servicing rights (MSRs) (2) | 4,554 | 2,569 | |||||||||||||||
Total intangible assets | $ | 12,058 | $ | 9,169 |
(1) | Includes foreign exchange translation and purchase accounting adjustments. | |
(2) | See Note 22 to the Consolidated Financial Statements for the roll-forward of MSRs. |
209
19. DEBT
Short-Term
Borrowings
Short-term
borrowings consist of commercial paper and other borrowings with weighted
average interest rates at December 31 as follows:
2011 | 2010 | |||||||
Weighted | Weighted | |||||||
In millions of dollars | Balance | average | Balance | average | ||||
Commercial paper | ||||||||
Bank | $ | 14,872 | 0.32 | % | $ | 14,987 | 0.39 | % |
Other non-bank | 6,414 | 0.49 | 9,670 | 0.29 | ||||
$ | 21,286 | $ | 24,657 | |||||
Other borrowings (1) | 33,155 | 1.09 | % | 54,133 | 0.40 | % | ||
Total | $ | 54,441 | $ | 78,790 |
(1) | At December 31, 2011 and December 31, 2010, collateralized advances from the Federal Home Loan Bank were $5 billion and $10 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 must be secured in accordance with Section 23A
of the Federal Reserve Act.
Citigroup Global Markets Holdings Inc. (CGMHI) has substantial 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 short-term
requirements.
Long-Term Debt
Balances at | |||||||
December 31, | |||||||
Weighted | |||||||
average | |||||||
In millions of dollars | coupon | Maturities | 2011 | 2010 | |||
Citigroup parent company | |||||||
Senior notes | 4.44 | % | 2012–2098 | $ | 136,468 | $ | 146,280 |
Subordinated notes (1) | 4.84 | 2012–2036 | 29,177 | 27,533 | |||
Junior subordinated notes | |||||||
relating to trust preferred | |||||||
securities | 7.10 | 2031–2067 | 16,057 | 18,131 | |||
Bank (2) | |||||||
Senior notes | 2.22 | 2012–2046 | 75,685 | 112,269 | |||
Subordinated notes (1) | 3.52 | 2012–2039 | 859 | 965 | |||
Non-bank | |||||||
Senior notes | 2.68 | 2012–2097 | 65,063 | 75,092 | |||
Subordinated notes (1) | 1.40 | 2012–2037 | 196 | 913 | |||
Total (3)(4) | $ | 323,505 | $ | 381,183 | |||
Senior notes | $ | 277,216 | $ | 333,641 | |||
Subordinated notes (1) | 30,232 | 29,411 | |||||
Junior subordinated notes | |||||||
relating to trust preferred | |||||||
securities | 16,057 | 18,131 | |||||
Total | $ | 323,505 | $ | 381,183 |
(1) | Includes notes that are subordinated within certain countries, regions or subsidiaries. | |
(2) | At December 31, 2011 and December 31, 2010, collateralized advances from the Federal Home Loan Banks were $11.0 billion and $18.2 billion, respectively. | |
(3) | Of this amount, approximately $38.0 billion maturing in 2012 is guaranteed by the FDIC under the Temporary Liquidity Guarantee Program (TLGP). | |
(4) | Includes senior notes with carrying values of $176 million issued to Safety First Trust Series 2007-3, 2007-4, 2008-1, 2008-2, 2008-3, 2008-4, 2008-5, 2009-2, and 2009-3 at December 31, 2011 and $364 million issued by Safety First Trust Series 2007-2, 2007-3, 2007-4, 2008-1, 2008-2, 2008-3, 2008-4, 2008-5, 2008-6, 2009-1, 2009-2, and 2009-3 (collectively, the "Safety First Trusts") at December 31, 2010. Citigroup Funding Inc. (CFI) 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. The Safety First Trusts' obligations under the Safety First Trust securities are fully and unconditionally guaranteed by CFI, and CFI's guarantee obligations are fully and unconditionally guaranteed by Citigroup. |
210
CGMHI
has committed long-term financing facilities with unaffiliated banks. At
December 31, 2011, CGMHI had drawn down the full $700 million available under
these facilities, of which $150 million is guaranteed by Citigroup. 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, 2011, the Company's overall weighted average interest rate for long-term debt was 3.62% on a contractual basis and 3.29% including the effects of derivative contracts.
Aggregate annual maturities of long-term debt obligations (based on final maturity dates) including trust preferred securities are as follows:
In millions of dollars | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | |||||||
Bank | $ | 32,066 | $ | 13,045 | $ | 9,158 | $ | 6,565 | $ | 6,422 | $ | 9,288 | $ | 76,544 |
Non-bank | 23,212 | 10,160 | 7,332 | 4,515 | 3,748 | 16,292 | 65,259 | |||||||
Parent company | 28,629 | 23,133 | 21,460 | 12,545 | 9,727 | 86,208 | 181,702 | |||||||
Total | $ | 83,907 | $ | 46,338 | $ | 37,950 | $ | 23,625 | $ | 19,897 | $ | 111,788 | $ | 323,505 |
Long-term debt includes junior subordinated debt with a balance sheet carrying value of $16,057 million and $18,131 million at December 31, 2011 and December 31, 2010, respectively. The Company formed statutory business trusts under the laws of the State of Delaware. The trusts exist for the exclusive purposes of (i) issuing trust securities representing undivided beneficial interests in the assets of the trust; (ii) investing the gross proceeds of the trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and (iii) engaging in only those activities necessary or incidental thereto. Upon approval from the Federal Reserve Board, Citigroup has the right to redeem these securities.
211
The following table summarizes the financial structure of each of the Company's subsidiary trusts at December 31, 2011:
Junior subordinated debentures owned by trust | |||||||||||||
Trust securities | Common | ||||||||||||
with distributions | shares | Redeemable | |||||||||||
guaranteed by | Issuance | Securities | Liquidation | Coupon | issued | by issuer | |||||||
Citigroup | date | issued | value | (1) | rate | to parent | Amount | Maturity | beginning | ||||
In millions of dollars, except share amounts | |||||||||||||
Citigroup Capital III | Dec. 1996 | 194,053 | $ | 194 | 7.625 | % | 6,003 | $ | 200 | Dec. 1, 2036 | Not redeemable | ||
Citigroup Capital VII | July 2001 | 35,885,898 | 897 | 7.125 | % | 1,109,874 | 925 | July 31, 2031 | July 31, 2006 | ||||
Citigroup Capital VIII | Sept. 2001 | 43,651,597 | 1,091 | 6.950 | % | 1,350,050 | 1,125 | Sept. 15, 2031 | Sept. 17, 2006 | ||||
Citigroup Capital IX | Feb. 2003 | 33,874,813 | 847 | 6.000 | % | 1,047,675 | 873 | Feb. 14, 2033 | Feb. 13, 2008 | ||||
Citigroup Capital X | Sept. 2003 | 14,757,823 | 369 | 6.100 | % | 456,428 | 380 | Sept. 30, 2033 | Sept. 30, 2008 | ||||
Citigroup Capital XI | Sept. 2004 | 18,387,128 | 460 | 6.000 | % | 568,675 | 474 | Sept. 27, 2034 | Sept. 27, 2009 | ||||
Citigroup Capital XII | Mar. 2010 | 92,000,000 | 2,300 | 8.500 | % | 1,000 | 2,300 | Mar. 30, 2040 | Mar. 30, 2015 | ||||
Citigroup Capital XIII | Sept. 2010 | 89,840,000 | 2,246 | 7.875 | % | 1,000 | 2,246 | Oct. 30, 2040 | Oct. 30, 2015 | ||||
Citigroup Capital XIV | June 2006 | 12,227,281 | 306 | 6.875 | % | 40,000 | 307 | June 30, 2066 | June 30, 2011 | ||||
Citigroup Capital XV | Sept. 2006 | 25,210,733 | 630 | 6.500 | % | 40,000 | 631 | Sept. 15, 2066 | Sept. 15, 2011 | ||||
Citigroup Capital XVI | Nov. 2006 | 38,148,947 | 954 | 6.450 | % | 20,000 | 954 | Dec. 31, 2066 | Dec. 31, 2011 | ||||
Citigroup Capital XVII | Mar. 2007 | 28,047,927 | 701 | 6.350 | % | 20,000 | 702 | Mar. 15, 2067 | Mar. 15, 2012 | ||||
Citigroup Capital XVIII | June 2007 | 99,901 | 155 | 6.829 | % | 50 | 155 | June 28, 2067 | June 28, 2017 | ||||
Citigroup Capital XIX | Aug. 2007 | 22,771,968 | 569 | 7.250 | % | 20,000 | 570 | Aug. 15, 2067 | Aug. 15, 2012 | ||||
Citigroup Capital XX | Nov. 2007 | 17,709,814 | 443 | 7.875 | % | 20,000 | 443 | Dec. 15, 2067 | Dec. 15, 2012 | ||||
Citigroup Capital XXI | Dec. 2007 | 2,345,801 | 2,346 | 8.300 | % | 500 | 2,346 | Dec. 21, 2077 | Dec. 21, 2037 | ||||
Citigroup Capital XXXIII | July 2009 | 3,025,000 | 3,025 | 8.000 | % | 100 | 3,025 | July 30, 2039 | July 30, 2014 | ||||
3 mo. LIB | |||||||||||||
Adam Capital Trust III | Dec. 2002 | 17,500 | 18 | +335 bp. | 542 | 18 | Jan. 7, 2033 | Jan. 7, 2008 | |||||
3 mo. LIB | |||||||||||||
Adam Statutory Trust III | Dec. 2002 | 25,000 | 25 | +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | |||||
3 mo. LIB | |||||||||||||
Adam Statutory Trust IV | Sept. 2003 | 40,000 | 40 | +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | |||||
3 mo. LIB | |||||||||||||
Adam Statutory Trust V | Mar. 2004 | 35,000 | 35 | +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | |||||
Total obligated | $ | 17,651 | $ | 17,777 |
(1) | Represents the notional value received by investors from the trusts at the time of issuance. |
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, Citigroup Capital XVIII and Citigroup Capital XXI on which distributions are payable semiannually.
In connection with the fourth and final remarketing of trust securities held by ADIA, during the second quarter of 2011, Citigroup exchanged the junior subordinated debentures owned by Citigroup Capital Trust XXXII for $1.875 billion of senior notes with a coupon of 3.953%, payable semiannually. The senior notes mature on June 15, 2016.
212
20. REGULATORY CAPITAL
Citigroup is subject to
risk-based capital and leverage guidelines issued by the Board of Governors of
the Federal Reserve System (FRB). Its 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. As of December 31, 2011 and 2010, all of Citigroup's
U.S. insured subsidiary depository institutions were "well capitalized."
At
December 31, 2011, regulatory capital as set forth in guidelines issued by the
U.S. federal bank regulators is as follows:
Well- | |||||||||||
Required | capitalized | ||||||||||
In millions of dollars | minimum | minimum | Citigroup | Citibank, N.A. | |||||||
Tier 1 Common | $ | 114,854 | $ | 121,269 | |||||||
Tier 1 Capital | 131,874 | 121,862 | |||||||||
Total Capital (1) | 165,384 | 134,284 | |||||||||
Tier 1 Common ratio | N/A | N/A | 11.80 | % | 14.63 | % | |||||
Tier 1 Capital ratio | 4.0 | % | 6.0 | % | 13.55 | 14.70 | |||||
Total Capital ratio | 8.0 | 10.0 | 16.99 | 16.20 | |||||||
Leverage ratio | 3.0 | 5.0 | (2) | 7.19 | 9.66 |
(1) | Total Capital includes Tier 1 Capital and Tier 2 Capital. | |
(2) | Applicable only to depository institutions. | |
N/A | Not Applicable |
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 $10.9
billion in dividends from Citibank, N.A. in 2011.
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 | |||||
Net | Excess over | ||||
capital or | minimum | ||||
Subsidiary | Jurisdiction | equivalent | requirement | ||
Citigroup Global Markets Inc. | U.S. Securities | ||||
and Exchange | |||||
Commission | |||||
Uniform Net | |||||
Capital Rule | |||||
(Rule 15c3-1) | $7,773 | $6,978 | |||
Citigroup Global Markets Limited | United Kingdom's | ||||
Financial | |||||
Services | |||||
Authority | $8,140 | $5,757 |
213
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, 2011 are as follows:
Foreign | |||||||||||||||
Net | currency | ||||||||||||||
unrealized | translation | Accumulated | |||||||||||||
gains (losses) | adjustment, | Pension | other | ||||||||||||
on investment | net of | Cash flow | liability | comprehensive | |||||||||||
In millions of dollars | securities | hedges | hedges | adjustments | income (loss) | ||||||||||
Balance at January 1, 2009 | $ | (10,060 | ) | $ | (7,744 | ) | $ | (5,189 | ) | $ | (2,615 | ) | $ | (25,608 | ) |
Change in net unrealized gains (losses) on investment securities, net of taxes (1) | 5,713 | - | - | - | 5,713 | ||||||||||
Foreign currency translation adjustment, net of taxes (2) | - | (203 | ) | - | - | (203 | ) | ||||||||
Cash flow hedges, net of taxes (3) | - | - | 2,007 | - | 2,007 | ||||||||||
Pension liability adjustment, net of taxes (4) | - | - | - | (846 | ) | (846 | ) | ||||||||
Change | $ | 5,713 | $ | (203 | ) | $ | 2,007 | $ | (846 | ) | $ | 6,671 | |||
Balance at December 31, 2009 | $ | (4,347 | ) | $ | (7,947 | ) | $ | (3,182 | ) | $ | (3,461 | ) | $ | (18,937 | ) |
Change in net unrealized gains (losses) on investment securities, | |||||||||||||||
net of taxes (1) | 1,952 | - | - | - | 1,952 | ||||||||||
Foreign currency translation adjustment, net of taxes (2) | - | 820 | - | - | 820 | ||||||||||
Cash flow hedges, net of taxes (3) | - | - | 532 | - | 532 | ||||||||||
Pension liability adjustment, net of taxes (4) | - | - | - | (644 | ) | (644 | ) | ||||||||
Change | $ | 1,952 | $ | 820 | $ | 532 | $ | (644 | ) | $ | 2,660 | ||||
Balance at December 31, 2010 | $ | (2,395 | ) | $ | (7,127 | ) | $ | (2,650 | ) | $ | (4,105 | ) | $ | (16,277 | ) |
Change in net unrealized gains (losses) on investment securities, net of taxes (1) | 2,360 | - | - | - | 2,360 | ||||||||||
Foreign currency translation adjustment, net of taxes (2) | - | (3,524 | ) | - | - | (3,524 | ) | ||||||||
Cash flow hedges, net of taxes (3) | - | - | (170 | ) | - | (170 | ) | ||||||||
Pension liability adjustment, net of taxes (4) | - | - | - | (177 | ) | (177 | ) | ||||||||
Change | $ | 2,360 | $ | (3,524 | ) | $ | (170 | ) | $ | (177 | ) | $ | (1,511 | ) | |
Balance at December 31, 2011 | $ | (35 | ) | $ | (10,651 | ) | $ | (2,820 | ) | $ | (4,282 | ) | $ | (17,788 | ) |
(1) | The after-tax realized gains (losses) on sales and impairments of securities during the years ended December 31, 2011, 2010 and 2009 were $(122) million, $657 and $(445) million, respectively. For details of the unrealized gains and losses on Citigroup's available-for-sale and held-to-maturity securities, and the net gains (losses) included in income, see Note 15 to the Consolidated Financial Statements. | |
(2) | Primarily reflects the movements in (by order of impact) 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 and 2009. | |
(3) | Primarily driven by Citigroup's pay fixed/receive floating interest rate swap programs that are hedging the floating rates on deposits and long-term debt. | |
(4) | Reflects adjustments to the funded status of pension and postretirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation. |
214
22. SECURITIZATIONS AND VARIABLE INTEREST ENTITIES
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 many 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
and not reflected in the transferring company's balance sheet, assuming
applicable accounting requirements are
satisfied.
Investors usually 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. The SPE 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 now VIEs, as
described below.
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:
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 act as a derivative
counterparty (for example, interest rate swap, cross-currency 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); may act as
underwriter or placement agent; may provide administrative, trustee or other
services; or may 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.
215
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, 2011 and December 31, 2010 is presented below:
In millions of dollars | As of December 31, 2011 | |||||||||||||||||||||||
Maximum exposure to loss in significant | ||||||||||||||||||||||||
unconsolidated VIEs | (1) | |||||||||||||||||||||||
Funded exposures | (2) | Unfunded exposures | (3) | |||||||||||||||||||||
Total | ||||||||||||||||||||||||
involvement | Significant | Guarantees | ||||||||||||||||||||||
with SPE | Consolidated | unconsolidated | Debt | Equity | Funding | and | ||||||||||||||||||
Citicorp | assets | VIE / SPE assets | VIE assets | (4) | investments | investments | commitments | derivatives | Total | |||||||||||||||
Credit card securitizations | $ | 56,177 | $ | 56,177 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Mortgage securitizations (5) | ||||||||||||||||||||||||
U.S. agency-sponsored | 232,179 | - | 232,179 | 3,769 | - | - | 26 | 3,795 | ||||||||||||||||
Non-agency-sponsored | 11,167 | 1,705 | 9,462 | 372 | - | - | - | 372 | ||||||||||||||||
Citi-administered asset-backed | ||||||||||||||||||||||||
commercial paper conduits | ||||||||||||||||||||||||
(ABCP) | 34,987 | 21,971 | 13,016 | - | - | 13,016 | - | 13,016 | ||||||||||||||||
Third-party commercial | ||||||||||||||||||||||||
paper conduits | 7,955 | - | 7,955 | 448 | - | 298 | - | 746 | ||||||||||||||||
Collateralized debt obligations | ||||||||||||||||||||||||
(CDOs) | 3,334 | - | 3,334 | 20 | - | - | - | 20 | ||||||||||||||||
Collateralized loan obligations | ||||||||||||||||||||||||
(CLOs) | 8,127 | - | 8,127 | 64 | - | - | - | 64 | ||||||||||||||||
Asset-based financing | 18,586 | 1,303 | 17,283 | 7,444 | 2 | 2,891 | 121 | 10,458 | ||||||||||||||||
Municipal securities tender | ||||||||||||||||||||||||
option bond trusts (TOBs) | 16,849 | 8,224 | 8,625 | 708 | - | 5,413 | - | 6,121 | ||||||||||||||||
Municipal investments | 19,931 | 299 | 19,632 | 2,220 | 3,397 | 1,439 | - | 7,056 | ||||||||||||||||
Client intermediation | 2,110 | 24 | 2,086 | 468 | - | - | - | 468 | ||||||||||||||||
Investment funds | 3,415 | 30 | 3,385 | - | 171 | 63 | - | 234 | ||||||||||||||||
Trust preferred securities | 17,882 | - | 17,882 | - | 128 | - | - | 128 | ||||||||||||||||
Other | 6,210 | 97 | 6,113 | 354 | 172 | 279 | 79 | 884 | ||||||||||||||||
Total | $ | 438,909 | $ | 89,830 | $ | 349,079 | $ | 15,867 | $ | 3,870 | $ | 23,399 | $ | 226 | $ | 43,362 | ||||||||
Citi Holdings | ||||||||||||||||||||||||
Credit card securitizations | $ | 31,686 | $ | 31,487 | $ | 199 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Mortgage securitizations | ||||||||||||||||||||||||
U.S. agency-sponsored | 152,265 | - | 152,265 | 1,159 | - | - | 120 | 1,279 | ||||||||||||||||
Non-agency-sponsored | 17,396 | 1,681 | 15,715 | 56 | - | - | 2 | 58 | ||||||||||||||||
Student loan securitizations | 1,822 | 1,822 | - | - | - | - | - | - | ||||||||||||||||
Third-party commercial paper conduits | - | - | - | - | - | - | - | - | ||||||||||||||||
Collateralized debt obligations | ||||||||||||||||||||||||
(CDOs) | 6,581 | - | 6,581 | 117 | - | - | 120 | 237 | ||||||||||||||||
Collateralized loan obligations | ||||||||||||||||||||||||
(CLOs) | 7,479 | - | 7,479 | 1,125 | - | 6 | 90 | 1,221 | ||||||||||||||||
Asset-based financing | 11,927 | 73 | 11,854 | 5,008 | 3 | 250 | - | 5,261 | ||||||||||||||||
Municipal investments | 5,637 | - | 5,637 | 206 | 265 | 71 | - | 542 | ||||||||||||||||
Client intermediation | 111 | 111 | - | - | - | - | - | - | ||||||||||||||||
Investment funds | 1,114 | 14 | 1,100 | - | 43 | - | - | 43 | ||||||||||||||||
Other | 6,762 | 6,581 | 181 | 3 | 36 | 15 | - | 54 | ||||||||||||||||
Total | $ | 242,780 | $ | 41,769 | $ | 201,011 | $ | 7,674 | $ | 347 | $ | 342 | $ | 332 | $ | 8,695 | ||||||||
Total Citigroup | $ | 681,689 | $ | 131,599 | $ | 550,090 | $ | 23,541 | $ | 4,217 | $ | 23,741 | $ | 558 | $ | 52,057 |
(1) | The definition of maximum exposure to loss is included in the text that follows. | |
(2) | Included in Citigroup's December 31, 2011 Consolidated Balance Sheet. | |
(3) | Not included in Citigroup's December 31, 2011 Consolidated Balance Sheet. | |
(4) | 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 "Re-Securitizations" below for further discussion. | |
Reclassified to conform to the current year's presentation. |
216
In millions of dollars | As of December 31, 2010 | |||||||||||||||||||||||
Maximum exposure to loss in significant | ||||||||||||||||||||||||
unconsolidated VIEs | (1) | |||||||||||||||||||||||
Funded exposures | (2) | Unfunded exposures | (3) | |||||||||||||||||||||
Total | ||||||||||||||||||||||||
involvement | Consolidated | Significant | Guarantees | |||||||||||||||||||||
with SPE | VIE / SPE | unconsolidated | Debt | Equity | Funding | and | ||||||||||||||||||
assets | assets | VIE assets | (4) | investments | investments | commitments | derivatives | Total | ||||||||||||||||
$ | 62,061 | $ | 62,061 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||
211,178 | - | 211,178 | 3,331 | - | - | 27 | 3,358 | |||||||||||||||||
16,441 | 1,454 | 14,987 | 718 | - | - | - | 718 | |||||||||||||||||
30,941 | 21,312 | 9,629 | - | - | 9,629 | - | 9,629 | |||||||||||||||||
4,845 | 308 | 4,537 | 415 | - | 298 | - | 713 | |||||||||||||||||
5,379 | - | 5,379 | 103 | - | - | - | 103 | |||||||||||||||||
6,740 | - | 6,740 | 68 | - | - | - | 68 | |||||||||||||||||
17,571 | 1,421 | 16,150 | 5,641 | - | 5,596 | 11 | 11,248 | |||||||||||||||||
17,047 | 8,105 | 8,942 | - | - | 6,454 | 423 | 6,877 | |||||||||||||||||
13,720 | 178 | 13,542 | 2,057 | 2,929 | 1,836 | - | 6,822 | |||||||||||||||||
6,190 | 1,899 | 4,291 | 1,070 | 8 | - | - | 1,078 | |||||||||||||||||
3,741 | 259 | 3,482 | 2 | 82 | 66 | 19 | 169 | |||||||||||||||||
19,776 | - | 19,776 | - | 128 | - | - | 128 | |||||||||||||||||
4,750 | 1,412 | 3,338 | 467 | 32 | 119 | 80 | 698 | |||||||||||||||||
$ | 420,380 | $ | 98,409 | $ | 321,971 | $ | 13,872 | $ | 3,179 | $ | 23,998 | $ | 560 | $ | 41,609 | |||||||||
$ | 33,606 | $ | 33,196 | $ | 410 | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||
207,729 | - | 207,729 | 2,701 | - | - | 108 | 2,809 | |||||||||||||||||
22,274 | 2,727 | 19,547 | 160 | - | - | - | 160 | |||||||||||||||||
2,893 | 2,893 | - | - | - | - | - | - | |||||||||||||||||
3,365 | - | 3,365 | - | - | 252 | - | 252 | |||||||||||||||||
8,452 | 755 | 7,697 | 189 | - | - | 141 | 330 | |||||||||||||||||
12,234 | - | 12,234 | 1,754 | - | 29 | 401 | 2,184 | |||||||||||||||||
22,756 | 136 | 22,620 | 8,626 | 3 | 300 | - | 8,929 | |||||||||||||||||
5,241 | - | 5,241 | 561 | 200 | 196 | - | 957 | |||||||||||||||||
624 | 195 | 429 | 27 | - | - | 345 | 372 | |||||||||||||||||
1,961 | 627 | 1,334 | - | 70 | 45 | - | 115 | |||||||||||||||||
8,444 | 6,955 | 1,489 | 276 | 112 | 91 | - | 479 | |||||||||||||||||
$ | 329,579 | $ | 47,484 | $ | 282,095 | $ | 14,294 | $ | 385 | $ | 913 | $ | 995 | $ | 16,587 | |||||||||
$ | 749,959 | $ | 145,893 | $ | 604,066 | $ | 28,166 | $ | 3,564 | $ | 24,911 | $ | 1,555 | $ | 58,196 |
217
The previous tables do not include:
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. 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 mortgage-backed and asset-backed securitizations, where the Company has no variable interest or continuing involvement as servicer. The outstanding balance of the loans securitized was approximately $22 billion at December 31, 2011, related to legacy transactions sponsored by Securities and Banking during the period 2005 to 2008; and certain representations and warranties exposures in Consumer mortgage securitizations, where the original mortgage loan balances are no longer outstanding. 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.
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 plus any accrued interest and is adjusted for any
impairments in value recognized in earnings and any cash principal payments
received. 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, adjusted for any declines in fair value recognized in
earnings. 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.
218
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, 2011:
In millions of dollars | Liquidity facilities | Loan commitments | |||
Citicorp | |||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 13,016 | $ | - | |
Third-party commercial paper conduits | 298 | - | |||
Asset-based financing | 5 | 2,886 | |||
Municipal securities tender option bond trusts (TOBs) | 5,413 | - | |||
Municipal investments | 390 | 1,049 | |||
Investment funds | - | 63 | |||
Other | - | 279 | |||
Total Citicorp | $ | 19,122 | $ | 4,277 | |
Citi Holdings | |||||
Collateralized loan obligations (CLOs) | $ | - | $ | 6 | |
Asset-based financing | 79 | 171 | |||
Municipal investments | - | 71 | |||
Other | - | 15 | |||
Total Citi Holdings | $ | 79 | $ | 263 | |
Total Citigroup funding commitments | $ | 19,201 | $ | 4,540 |
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.
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:
In billions of dollars | December 31, 2011 | December 31, 2010 | ||||||||||||||||
Citicorp | Citi Holdings | Citigroup | Citicorp | Citi Holdings | Citigroup | |||||||||||||
Cash | $ | 0.2 | $ | 0.4 | $ | 0.6 | $ | 0.2 | $ | 0.6 | $ | 0.8 | ||||||
Trading account assets | 0.4 | 0.1 | 0.5 | 4.9 | 1.6 | 6.5 | ||||||||||||
Investments | 7.9 | 2.7 | 10.6 | 7.9 | - | 7.9 | ||||||||||||
Total loans, net | 80.8 | 38.3 | 119.1 | 85.3 | 44.7 | 130.0 | ||||||||||||
Other | 0.5 | 0.3 | 0.8 | 0.1 | 0.6 | 0.7 | ||||||||||||
Total assets | $ | 89.8 | $ | 41.8 | $ | 131.6 | $ | 98.4 | $ | 47.5 | $ | 145.9 | ||||||
Short-term borrowings | $ | 22.5 | $ | 0.8 | $ | 23.3 | $ | 23.1 | $ | 2.2 | $ | 25.3 | ||||||
Long-term debt | 32.6 | 17.9 | 50.5 | 47.6 | 22.1 | 69.7 | ||||||||||||
Other liabilities | 0.4 | 0.2 | 0.6 | 0.6 | 0.2 | 0.8 | ||||||||||||
Total liabilities | $ | 55.5 | $ | 18.9 | $ | 74.4 | $ | 71.3 | $ | 24.5 | $ | 95.8 |
219
Citicorp and Citi
Holdings Significant Variable Interests in Unconsolidated VIEs-Balance Sheet
Classification
The
following tables present the carrying amounts and classification of significant
variable interests in unconsolidated VIEs as of December 31, 2011 and December
31, 2010:
In billions of dollars | December 31, 2011 | December 31, 2010 | |||||||||||||||
Citicorp | Citi Holdings | Citigroup | Citicorp | Citi Holdings | Citigroup | ||||||||||||
Trading account assets | $ | 5.6 | $ | 1.0 | $ | 6.6 | $ | 4.7 | $ | 2.6 | $ | 7.3 | |||||
Investments | 3.8 | 4.4 | 8.2 | 3.8 | 5.9 | 9.7 | |||||||||||
Loans | 8.8 | 1.6 | 10.4 | 5.9 | 5.0 | 10.9 | |||||||||||
Other | 1.6 | 1.0 | 2.6 | 2.7 | 2.0 | 4.7 | |||||||||||
Total assets | $ | 19.8 | $ | 8.0 | $ | 27.8 | $ | 17.1 | $ | 15.5 | $ | 32.6 | |||||
Long-term debt | $ | 0.2 | $ | - | $ | 0.2 | $ | 0.4 | $ | 0.5 | $ | 0.9 | |||||
Other liabilities | - | - | - | - | - | - | |||||||||||
Total liabilities | $ | 0.2 | $ | - | $ | 0.2 | $ | 0.4 | $ | 0.5 | $ | 0.9 |
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. Since the adoption of SFAS 167 on January 1, 2010, the trusts are treated as consolidated entities, because, as servicer, Citigroup has the power to direct the activities 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 are required to
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:
Citicorp | Citi Holdings | ||||||||||
December 31, | December 31, | ||||||||||
In billions of dollars | 2011 | 2010 | 2011 | 2010 | |||||||
Principal amount of credit card receivables in trusts | $ | 59.6 | $ | 67.5 | $ | 30.8 | $ | 34.1 | |||
Ownership interests in principal amount of trust credit card receivables | |||||||||||
Sold to investors via trust-issued securities | $ | 30.4 | $ | 42.0 | $ | 12.6 | $ | 16.4 | |||
Retained by Citigroup as trust-issued securities | 7.7 | 3.4 | 7.1 | 7.1 | |||||||
Retained by Citigroup via non-certificated interests | 21.5 | 22.1 | 11.1 | 10.6 | |||||||
Total ownership interests in principal amount of trust credit card receivables | $ | 59.6 | $ | 67.5 | $ | 30.8 | $ | 34.1 |
220
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, 2011,
2010 and 2009:
In billions of dollars | 2011 | 2010 | 2009 | |||||
Proceeds from new securitizations | $ | - | $ | - | $ | 16.3 | ||
Pay down of maturing notes | (12.8 | ) | (24.5 | ) | N/A | |||
Proceeds from collections reinvested | ||||||||
in new receivables | N/A | N/A | 144.4 | |||||
Contractual servicing fees received | N/A | N/A | 1.3 | |||||
Cash flows received on retained | ||||||||
interests and other net cash flows | N/A | N/A | 3.1 |
Credit Card
Securitizations-Citi Holdings
The following table summarizes selected cash flow information related to
Citi Holdings' credit card securitizations for the years ended December 31,
2011, 2010 and 2009:
In billions of dollars | 2011 | 2010 | 2009 | |||||
Proceeds from new securitizations | $ | 3.9 | $ | 5.5 | $ | 29.4 | ||
Pay down of maturing notes | (7.7 | ) | (15.8 | ) | N/A | |||
Proceeds from collections reinvested | ||||||||
in new receivables | N/A | N/A | 46.0 | |||||
Contractual servicing fees received | N/A | N/A | 0.7 | |||||
Cash flows received on retained | ||||||||
interests and other net cash flows | N/A | N/A | 2.6 |
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.
Funding, Liquidity Facilities and
Subordinated Interests
Citigroup securitizes credit card receivables through two securitization
trusts-Citibank Credit Card Master Trust (Master Trust), which is part of
Citicorp, and the Citibank OMNI Master Trust (Omni Trust), which is part of Citi
Holdings as of December 31, 2011. 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 3.1 years as of
December 31, 2011 and 3.4 years as of December 31, 2010.
Master Trust Liabilities (at par value)
December 31, | December 31, | ||||
In billions of dollars | 2011 | 2010 | |||
Term notes issued to multi-seller | |||||
commercial paper conduits | $ | - | $ | 0.3 | |
Term notes issued to third parties | 30.4 | 41.8 | |||
Term notes retained by Citigroup affiliates | 7.7 | 3.4 | |||
Total Master Trust liabilities | $ | 38.1 | $ | 45.5 |
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 1.5 years as of December 31, 2011 and
1.8 years as of December 31, 2010.
Omni Trust Liabilities (at par value)
December 31, | December 31, | |||||
In billions of dollars | 2011 | 2010 | ||||
Term notes issued to multi-seller | ||||||
commercial paper conduits | $ | 3.4 | $ | 7.2 | ||
Term notes issued to third parties | 9.2 | 9.2 | ||||
Term notes retained by Citigroup affiliates | 7.1 | 7.1 | ||||
Total Omni Trust liabilities | $ | 19.7 | $ | 23.5 |
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.
221
The Company securitizes mortgage loans generally through either a government-sponsored agency, such as Ginnie Mae, FNMA or Freddie Mac (U.S. agency-sponsored mortgages), or private label (non-agency-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-agency-sponsored 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 (1) the power to direct the activities and (2) 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-Citicorp
The following tables summarize selected cash flow information related to
mortgage securitizations for the years ended December 31, 2011, 2010 and
2009:
2011 | 2010 | 2009 | |||||||||
Agency- and | Agency- and | ||||||||||
U.S. agency- | Non-agency- | non-agency- | non-agency- | ||||||||
sponsored | sponsored | sponsored | sponsored | ||||||||
In billions of dollars | mortgages | mortgages | mortgages | mortgages | |||||||
Proceeds from new securitizations | $ | 57.1 | $ | 0.2 | $ | 65.1 | $ | 15.7 | |||
Contractual servicing fees received | 0.5 | - | 0.5 | - | |||||||
Cash flows received on retained interests and other net cash flows | 0.1 | - | 0.1 | 0.1 |
Gains (losses) recognized on the securitization of U.S. agency-sponsored mortgages during 2011 were $(8) million. For the year ended December 31, 2011, gains (losses) recognized on the securitization of non-agency-sponsored mortgages were $(1) million.
Agency and non-agency mortgage securitization gains (losses) for the years ended December 31, 2010 and 2009 were $(5) million and $18 million, respectively.
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, 2011 and 2010 are as follows:
December 31, 2011 | December 31, 2010 | ||||||||
Non-agency-sponsored mortgages | (1) | ||||||||
U.S. agency- | Senior | Subordinated | Agency- and non-agency- | ||||||
sponsored mortgages | interests | interests | sponsored mortgages | ||||||
Discount rate | 0.6% to 28.3 | % | 2.4% to 10.0 | % | 8.4% to 17.6 | % | 0.1% to 44.9 | % | |
Weighted average discount rate | 12.0 | % | 4.5 | % | 11.0 | % | |||
Constant prepayment rate | 2.2% to 30.6 | % | 1.0% to 2.2 | % | 5.2% to 22.1 | % | 1.5% to 49.5 | % | |
Weighted average constant prepayment rate | 7.9 | % | 1.9 | % | 17.3 | % | |||
Anticipated net credit losses (2) | NM | 35.0% to 72.0 | % | 11.4% to 58.6 | % | 13.0% to 80.0 | % | ||
Weighted average anticipated net credit losses | NM | 45.3 | % | 25.0 | % |
(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. |
222
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 is disclosed 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.
At December 31, 2011, the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows:
December 31, 2011 | ||||||
Non-agency-sponsored mortgages | (1) | |||||
U.S. agency- | Senior | Subordinated | ||||
sponsored mortgages | interests | interests | ||||
Discount rate | 1.3% to 16.4 | % | 2.2% to 24.4 | % | 1.3% to 28.1 | % |
Weighted average discount rate | 8.1 | % | 9.6 | % | 13.5 | % |
Constant prepayment rate | 18.9% to 30.6 | % | 1.7% to 51.8 | % | 0.6% to 29.1 | % |
Weighted average constant prepayment rate | 28.7 | % | 26.2 | % | 10.5 | % |
Anticipated net credit losses (2) | NM | 0.0% to 77.9 | % | 29.3% to 90.0 | % | |
Weighted average anticipated net credit losses | NM | 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. |
U.S. agency-sponsored | Non-agency-sponsored mortgages | (1) | |||||||
In millions of dollars | mortgages | Senior interests | Subordinated interests | ||||||
Carrying value of retained interests | $ | 2,182 | $ | 88 | $ | 396 | |||
Discount rates | |||||||||
Adverse change of 10% | $ | (52 | ) | $ | (3 | ) | $ | (26 | ) |
Adverse change of 20% | (101 | ) | (6 | ) | (49 | ) | |||
Constant prepayment rate | |||||||||
Adverse change of 10% | $ | (129 | ) | $ | (6 | ) | $ | (8 | ) |
Adverse change of 20% | (249 | ) | (13 | ) | (18 | ) | |||
Anticipated net credit losses | |||||||||
Adverse change of 10% | $ | (12 | ) | $ | (2 | ) | $ | (10 | ) |
Adverse change of 20% | (23 | ) | (3 | ) | (19 | ) |
(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. |
Mortgage
Securitizations-Citi Holdings
The following tables summarize selected cash flow information related to
Citi Holdings mortgage securitizations for the years ended December 31, 2011,
2010 and 2009:
2011 | 2010 | 2009 | ||||||||||
Agency- and | Agency- and | |||||||||||
U.S. agency- | Non-agency- | non-agency- | non-agency- | |||||||||
In billions of dollars | sponsored mortgages | sponsored mortgages | sponsored mortgages | sponsored mortgages | ||||||||
Proceeds from new securitizations | $ | 1.1 | $ | - | $ | 0.6 | $ | 70.1 | ||||
Contractual servicing fees received | 0.5 | 0.1 | 0.8 | 1.4 | ||||||||
Cash flows received on retained interests and other net cash flows | 0.1 | - | 0.1 | 0.4 |
The Company did not recognize gains (losses) on the securitization of U.S. agency- and non-agency-sponsored mortgages in the years ended December 31, 2011 and 2010.
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.
223
The effect of adverse changes of 10% and 20% in each of the key assumptions used to determine the fair value of retained interests is disclosed 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.
At December 31, 2011, the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows:
December 31, 2011 | ||||||
Non-agency-sponsored mortgages | (1) | |||||
U.S. agency- | Senior | Subordinated | ||||
sponsored mortgages | interests | interests | ||||
Discount rate | 6.9 | % | 2.9% to 18.0 | % | 6.7% to 18.2 | % |
Weighted average discount rate | 6.9 | % | 9.8 | % | 9.2 | % |
Constant prepayment rate | 30.0 | % | 38.8 | % | 2.0% to 9.6 | % |
Weighted average constant prepayment rate | 30.0 | % | 38.8 | % | 8.1 | % |
Anticipated net credit losses | NM | 0.4 | % | 57.2% to 90.0 | % | |
Weighted average anticipated net credit losses | NM | 0.4 | % | 63.2 | % | |
Weighted average life | 3.7 years | 3.3-4.7 years | 0.0-8.1 years |
(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. | |
NM | Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees. |
U.S. agency-sponsored | Non-agency-sponsored mortgages | (1) | ||||||||
In millions of dollars | mortgages | Senior interests | Subordinated interests | |||||||
Carrying value of retained interests | $ | 1,074 | $ | 170 | $ | 27 | ||||
Discount rates | ||||||||||
Adverse change of 10% | $ | (29 | ) | $ | (2 | ) | $ | (3 | ) | |
Adverse change of 20% | (56 | ) | (3 | ) | (4 | ) | ||||
Constant prepayment rate | ||||||||||
Adverse change of 10% | $ | (94 | ) | $ | (25 | ) | $ | (1 | ) | |
Adverse change of 20% | (180 | ) | (51 | ) | (1 | ) | ||||
Anticipated net credit losses | ||||||||||
Adverse change of 10% | $ | (20 | ) | $ | (9 | ) | $ | (4 | ) | |
Adverse change of 20% | (40 | ) | (16 | ) | (6 | ) |
(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. |
Mortgage Servicing
Rights
In connection with the
securitization of mortgage loans, the Company's U.S. Consumer mortgage business
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 $2.6 billion and $4.6 billion at December 31, 2011 and 2010, respectively. The MSRs correspond to principal loan balances of $401 billion and $455 billion as of December 31, 2011 and 2010, respectively. The following table summarizes the changes in capitalized MSRs for the years ended December 31, 2011 and 2010:
In millions of dollars | 2011 | 2010 | ||||
Balance, beginning of year | $ | 4,554 | $ | 6,530 | ||
Originations | 611 | 658 | ||||
Changes in fair value of MSRs due to changes in | ||||||
inputs and assumptions | (1,210 | ) | (1,067 | ) | ||
Other changes (1) | (1,174 | ) | (1,567 | ) | ||
Sale of MSRs | (212 | ) | - | |||
Balance, end of year | $ | 2,569 | $ | 4,554 |
(1) | Represents changes due to customer payments and passage of time. |
224
The
market for MSRs is not sufficiently liquid to provide participants with quoted
market prices. Therefore, the Company uses an option-adjusted spread valuation
approach to determine the fair value of MSRs. This approach consists of
projecting servicing cash flows under multiple interest rate scenarios and
discounting these cash flows using risk-adjusted discount rates. The key
assumptions used in the valuation of MSRs include mortgage prepayment speeds and
discount rates. The model assumptions and the MSRs' fair value estimates are
compared to observable trades of similar MSR portfolios and interest-only
security portfolios, as available, as well as to MSR broker valuations and
industry surveys. The cash flow model and underlying prepayment and interest
rate models used to value these MSRs are subject to validation in accordance
with the Company's model validation policies.
The fair value of the MSRs is primarily affected by changes in
prepayments 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
commitments of mortgage-backed securities and purchased securities classified as
trading.
The Company receives fees
during the course of servicing previously securitized mortgages. The amounts of
these fees for the years ended December 31, 2011, 2010 and 2009 were as
follows:
In millions of dollars | 2011 | 2010 | 2009 | |||||
Servicing fees | $ | 1,170 | $ | 1,356 | $ | 1,635 | ||
Late fees | 76 | 87 | 93 | |||||
Ancillary fees | 130 | 214 | 77 | |||||
Total MSR fees | $ | 1,376 | $ | 1,657 | $ | 1,805 |
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 12 months ended December 31, 2011, Citi transferred non-agency
(private label) securities with an original par value of approximately $303
million to re-securitization entities. These securities are backed by either
residential or commercial mortgages and are often structured on behalf of
clients. As of December 31, 2011, the fair value of Citi-retained interests in
private-label re-securitization transactions structured by Citi totaled
approximately $340 million ($39 million of which relates to re-securitization
transactions executed in 2011) and are recorded in trading assets. Of this
amount, approximately $17 million and $323 million related to senior and
subordinated beneficial interests, respectively. The original par value of
private label re-securitization transactions in which Citi holds a retained
interest as of December 31, 2011 was approximately $7.2
billion.
The Company also re-securitizes U.S. government-agency guaranteed
mortgage-backed (agency) securities. During the 12 months ended December 31,
2011, Citi transferred agency securities with a fair value of approximately
$37.7 billion to re-securitization entities. As of December 31, 2011, the fair
value of Citi-retained interests in agency re-securitization transactions
structured by Citi totaled approximately $2.3 billion ($2.1 billion of which
related to re-securitization transactions executed in 2011) and are recorded in
trading assets. The original fair value of agency re-securitization transactions
in which Citi holds a retained interest as of December 31, 2011 was
approximately $50.6 billion.
As of December 31, 2011, the Company did not consolidate any
private-label or agency re-securitization entities.
225
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 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 60 days. As of December 31, 2011 and December 31, 2010, the weighted
average lives of the commercial paper issued by consolidated and unconsolidated
conduits were approximately 37 and 41 days, respectively, at each period
end.
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 be 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
$2.0 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.
226
Finally, the Company is one of several named dealers in the commercial
paper issued by the conduits and earns a market-based 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, 2011, the
Company owned $144 million of the commercial paper issued by its unconsolidated
administered conduit.
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, 2011 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, 2011, this unconsolidated
government-guaranteed loan conduit held assets of approximately $13.0
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. As of December 31, 2011, the
notional amount of these facilities was approximately $746 million, of which
$448 million was funded under these facilities. 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.
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 asset-backed 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. Thus, 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.
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.
227
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.
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 positions have included facilities structured in the form
of short-term commercial paper, where the Company wrote put options ("liquidity
puts") to certain CDOs. Under the terms of the liquidity puts, if the CDO was
unable to issue commercial paper at a rate below a specified maximum (generally
LIBOR + 35 bps to LIBOR + 40 bps), the Company was obligated to fund the senior
tranche of the CDO at a specified interest rate. As of December 31, 2011, the
Company no longer had exposure to this commercial paper as all of the underlying
CDOs had been liquidated.
The Company does not generally
have the power to direct the activities of the entity that most significantly
impacts 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.
Key Assumptions and Retained
Interests-Citi Holdings
The
key assumptions, used for the securitization of CDOs and CLOs during the year
ended December 31, 2011, in measuring the fair value of retained interests at
the date of sale or securitization are as follows:
CDOs | CLOs | |||
Discount rate | 42.0% to 55.3 | % | 4.1% to 5.0 | % |
The effect of two negative changes in discount rates used to determine the fair value of retained interests is disclosed below:
In millions of dollars | CDOs | CLOs | ||||
Carrying value of retained interests | $ | 14 | $ | 149 | ||
Discount rates | ||||||
Adverse change of 10% | $ | (3 | ) | $ | (5 | ) |
Adverse change of 20% | (5 | ) | (11 | ) |
The cash flows received on retained interests and other net cash flows from Citi's CLOs for the year ended December 31, 2011 were $93 million.
228
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.
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, 2011 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.
Total | Maximum | ||||
In billions of dollars | assets | exposure | |||
Type | |||||
Commercial and other real estate | $ | 3.0 | $ | 1.5 | |
Hedge funds and equities | 6.0 | 2.3 | |||
Airplanes, ships and other assets | 8.3 | 6.7 | |||
Total | $ | 17.3 | $ | 10.5 |
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, 2011 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.
Total | Maximum | ||||
In billions of dollars | assets | exposure | |||
Type | |||||
Commercial and other real estate | $ | 3.9 | $ | 0.7 | |
Corporate loans | 4.8 | 3.9 | |||
Airplanes, ships and other assets | 3.2 | 0.6 | |||
Total | $ | 11.9 | $ | 5.2 |
The following table summarizes selected cash flow information related to asset-based financings for the years ended December 31, 2011, 2010 and 2009:
In billions of dollars | 2011 | 2010 | 2009 | |||||
Cash flows received on retained interests and | ||||||||
other net cash flows | $ | 1.4 | $ | 2.8 | $ | 2.7 |
The effect of two negative changes in discount rates used to determine the fair value of retained interests at December 31, 2011 is disclosed below.
Asset-based | ||
In millions of dollars | financing | |
Carrying value of retained interests | $ | 3,943 |
Value of underlying portfolio | ||
Adverse change of 10% | $ | - |
Adverse change of 20% | - |
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 Tender Option Bond 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 tax-exempt
money market funds. The Residuals are typically held by the original owner of
the municipal securities being financed.
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.
229
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, 2011, the Company held $120 million of Floaters related
to both customer and non-customer TOB trusts.
For certain non-customer trusts, the Company also provides credit
enhancement. Approximately $240 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 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, 2011, liquidity agreements
provided with respect to customer TOB trusts totaled $5.4 billion of which $4.0
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, that are not
variable interest entities, and municipality-related issuers that totaled $11.7
billion as of December 31, 2011. These liquidity agreements and letters of
credit are offset by reimbursement agreements with various term-out provisions.
In addition, as of December 31, 2011 the Company has provided liquidity
arrangements with a notional amount of $20 million for other non-consolidated
non-customer TOB trusts described below.
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.
Total assets in non-customer TOB trusts also include $22
million of assets where the Residuals are held by hedge funds that are
consolidated and managed by the Company. The assets and the associated
liabilities of these TOB trusts are not consolidated by the hedge funds (and,
thus, are not consolidated by the Company) under the application of ASC 946, Financial Services-Investment
Companies , which precludes consolidation of
owned investments. The Company consolidates the hedge funds, because the Company
holds controlling financial interests in the hedge funds. Certain of the
Company's equity investments in the hedge funds are hedged with derivatives
transactions executed by the Company with third parties referencing the returns
of the hedge fund.
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.
230
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 (GIC) 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.
Where
the Company has determined that certain investment entities 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.
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 third-party 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.
231
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 risk-management 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-Own Account: Citigroup trades derivatives for its own account and 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 deposit liabilities, as well as other interest-sensitive assets and liabilities. In addition, foreign-exchange contracts are used to hedge non-U.S.-dollar-denominated debt, foreign-currency-denominated available-for-sale securities and net investment exposures. 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 in
periods of high volatility and financial stress at a reasonable cost.
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, 2011 and
December 31, 2010 are presented in the table below.
232
Derivative Notionals
Hedging instruments under | |||||||||||||||||||
ASC 815 (SFAS 133) | (1)(2) | Other derivative instruments | |||||||||||||||||
Trading derivatives | Management hedges | (3) | |||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||
In millions of dollars | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest rate contracts | |||||||||||||||||||
Swaps | $ | 163,079 | $ | 155,972 | $ | 28,069,960 | $ | 27,084,014 | $ | 119,344 | $ | 135,979 | |||||||
Futures and forwards | - | - | 3,549,642 | 4,401,923 | 43,965 | 46,140 | |||||||||||||
Written options | - | - | 3,871,700 | 3,431,608 | 16,786 | 8,762 | |||||||||||||
Purchased options | - | - | 3,888,415 | 3,305,664 | 7,338 | 18,030 | |||||||||||||
Total interest rate contract notionals | $ | 163,079 | $ | 155,972 | $ | 39,379,717 | $ | 38,223,209 | $ | 187,433 | $ | 208,911 | |||||||
Foreign exchange contracts | |||||||||||||||||||
Swaps | $ | 27,575 | $ | 29,599 | $ | 1,182,363 | $ | 1,118,610 | $ | 22,458 | $ | 27,830 | |||||||
Futures and forwards | 55,211 | 79,168 | 3,191,687 | 2,746,348 | 31,095 | 28,191 | |||||||||||||
Written options | 4,292 | 1,772 | 591,818 | 599,025 | 190 | 50 | |||||||||||||
Purchased options | 39,163 | 16,559 | 583,891 | 535,606 | 53 | 174 | |||||||||||||
Total foreign exchange contract notionals | $ | 126,241 | $ | 127,098 | $ | 5,549,759 | $ | 4,999,589 | $ | 53,796 | $ | 56,245 | |||||||
Equity contracts | |||||||||||||||||||
Swaps | $ | - | $ | - | $ | 86,978 | $ | 67,637 | $ | - | $ | - | |||||||
Futures and forwards | - | - | 12,882 | 19,816 | - | - | |||||||||||||
Written options | - | - | 552,333 | 491,519 | - | - | |||||||||||||
Purchased options | - | - | 509,322 | 473,621 | - | - | |||||||||||||
Total equity contract notionals | $ | - | $ | - | $ | 1,161,515 | $ | 1,052,593 | $ | - | $ | - | |||||||
Commodity and other contracts | |||||||||||||||||||
Swaps | $ | - | $ | - | $ | 23,403 | $ | 19,213 | $ | - | $ | - | |||||||
Futures and forwards | - | - | 73,090 | 115,578 | - | - | |||||||||||||
Written options | - | - | 90,650 | 61,248 | - | - | |||||||||||||
Purchased options | - | - | 99,234 | 61,776 | - | - | |||||||||||||
Total commodity and other contract notionals | $ | - | $ | - | $ | 286,377 | $ | 257,815 | $ | - | $ | - | |||||||
Credit derivatives (4) | |||||||||||||||||||
Protection sold | $ | - | $ | - | $ | 1,394,528 | $ | 1,223,116 | $ | - | $ | - | |||||||
Protection purchased | 4,253 | 4,928 | 1,486,723 | 1,289,239 | 21,914 | 28,526 | |||||||||||||
Total credit derivatives | $ | 4,253 | $ | 4,928 | $ | 2,881,251 | $ | 2,512,355 | $ | 21,914 | $ | 28,526 | |||||||
Total derivative notionals | $ | 293,573 | $ | 287,998 | $ | 49,258,619 | $ | 47,045,561 | $ | 263,143 | $ | 293,682 |
(1) | 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 $7,060 million and $8,023 million at December 31, 2011 and December 31, 2010, respectively. | |
(2) | 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. | |
(3) | 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. | |
(4) | 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. |
233
Derivative Mark-to-Market (MTM) Receivables/Payables
Derivatives classified in trading | Derivatives classified in other | ||||||||||||
account assets/liabilities | (1)(2) | assets/liabilities | (2) | ||||||||||
In millions of dollars at December 31, 2011 | Assets | Liabilities | Assets | Liabilities | |||||||||
Derivative instruments designated as ASC 815 (SFAS 133) hedges | |||||||||||||
Interest rate contracts | $ | 8,274 | $ | 3,306 | $ | 3,968 | $ | 1,518 | |||||
Foreign exchange contracts | 3,706 | 1,451 | 1,201 | 863 | |||||||||
Total derivative instruments designated as ASC 815 (SFAS 133) hedges | $ | 11,980 | $ | 4,757 | $ | 5,169 | $ | 2,381 | |||||
Other derivative instruments | |||||||||||||
Interest rate contracts | $ | 749,213 | $ | 736,785 | $ | 212 | $ | 96 | |||||
Foreign exchange contracts | 90,611 | 95,912 | 325 | 959 | |||||||||
Equity contracts | 20,235 | 33,139 | - | - | |||||||||
Commodity and other contracts | 13,763 | 14,631 | - | - | |||||||||
Credit derivatives (3) | 90,424 | 84,726 | 430 | 126 | |||||||||
Total other derivative instruments | $ | 964,246 | $ | 965,193 | $ | 967 | $ | 1,181 | |||||
Total derivatives | $ | 976,226 | $ | 969,950 | $ | 6,136 | $ | 3,562 | |||||
Cash collateral paid/received (4)(5) | 6,634 | 7,870 | 307 | 180 | |||||||||
Less: Netting agreements and market value adjustments (6) | (875,592 | ) | (870,366 | ) | - | - | |||||||
Less: Netting cash collateral received/paid (7) | (44,941 | ) | (51,181 | ) | (3,462 | ) | - | ||||||
Net receivables/payables | $ | 62,327 | $ | 56,273 | $ | 2,981 | $ | 3,742 |
(1) | The trading derivatives fair values are presented in Note 14 to the Consolidated Financial Statements. | |
(2) | 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 . | |
(3) | 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. | |
(4) | For the trading asset/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. | |
(5) | For the other asset/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. | |
(6) | Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements. | |
(7) | Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. |
Derivatives classified in trading | Derivatives classified in other | ||||||||||||
account assets/liabilities | (1)(2) | assets/liabilities | (2) | ||||||||||
In millions of dollars at December 31, 2010 | Assets | Liabilities | Assets | Liabilities | |||||||||
Derivative instruments designated as ASC 815 (SFAS 133) hedges | |||||||||||||
Interest rate contracts | $ | 867 | $ | 72 | $ | 6,342 | $ | 2,437 | |||||
Foreign exchange contracts | 357 | 762 | 1,656 | 2,603 | |||||||||
Total derivative instruments designated as ASC 815 (SFAS 133) hedges | $ | 1,224 | $ | 834 | $ | 7,998 | $ | 5,040 | |||||
Other derivative instruments | |||||||||||||
Interest rate contracts | $ | 475,805 | $ | 476,667 | $ | 2,756 | $ | 2,474 | |||||
Foreign exchange contracts | 84,144 | 87,512 | 1,401 | 1,433 | |||||||||
Equity contracts | 16,146 | 33,434 | - | - | |||||||||
Commodity and other contracts | 12,608 | 13,518 | - | - | |||||||||
Credit derivatives (3) | 65,041 | 59,461 | 88 | 337 | |||||||||
Total other derivative instruments | $ | 653,744 | $ | 670,592 | $ | 4,245 | $ | 4,244 | |||||
Total derivatives | $ | 654,968 | $ | 671,426 | $ | 12,243 | $ | 9,284 | |||||
Cash collateral paid/received (4)(5) | 5,557 | 9,033 | 11 | 625 | |||||||||
Less: Netting agreements and market value adjustments (6) | (581,026 | ) | (575,984 | ) | - | - | |||||||
Less: Netting cash collateral received/paid (7) | (29,286 | ) | (44,745 | ) | (2,415 | ) | (200 | ) | |||||
Net receivables/payables | $ | 50,213 | $ | 59,730 | $ | 9,839 | $ | 9,709 |
(1) | The trading derivatives fair values are presented in Note 14 to the Consolidated Financial Statements. | |
(2) | 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 . | |
(3) | The credit derivatives trading assets are composed of $42,403 million related to protection purchased and $22,638 million related to protection sold as of December 31, 2010. The credit derivatives trading liabilities are composed of $23,503 million related to protection purchased and $35,958 million related to protection sold as of December 31, 2010. | |
(4) | For the trading asset/liabilities, this is the net amount of the $50,302 million and $38,319 million of gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $44,745 million was used to offset derivative liabilities, and of the gross cash collateral received, $29,286 million was used to offset derivative assets. | |
(5) | For the other asset/liabilities, this is the net amount of the $211 million and $3,040 million of the gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $200 million was used to offset derivative liabilities, and of the gross cash collateral received, $2,415 million was used to offset derivative assets. | |
(6) | Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements. | |
(7) | Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. |
234
All
derivatives are reported on the 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, 2011, 2010 and
2009 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 non-derivative instruments within the same trading
portfolios, as this represents the way these portfolios are risk
managed.
Year ended December 31, | ||||||||||
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Interest rate contracts | $ | 5,136 | $ | 3,231 | $ | 6,211 | ||||
Foreign exchange | 2,309 | 1,852 | 2,762 | |||||||
Equity contracts | 3 | 995 | (334 | ) | ||||||
Commodity and other | 76 | 126 | 924 | |||||||
Credit derivatives | (290 | ) | 1,313 | (3,495 | ) | |||||
Total Citigroup (1) | $ | 7,234 | $ | 7,517 | $ | 6,068 |
(1) | 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, 2011, 2010 and 2009 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, | ||||||||||
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Interest rate contracts | $ | 1,192 | $ | (205 | ) | $ | 108 | |||
Foreign exchange | 224 | (2,052 | ) | 3,851 | ||||||
Equity contracts | - | - | (7 | ) | ||||||
Credit derivatives | 115 | (502 | ) | - | ||||||
Total Citigroup (1) | $ | 1,531 | $ | (2,759 | ) | $ | 3,952 |
(1) | Non-designated derivatives are derivative instruments not designated in qualifying hedging relationships. |
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 foreign-exchange 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.-dollar-functional-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.
235
For asset/liability management hedging, the fixed-rate long-term 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 would be 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 would be
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. The fixed cash flows from
those financing transactions are converted to benchmark variable-rate cash flows
by entering into receive-fixed, pay-variable interest rate swaps. Some of these
fair value hedge relationships use dollar-offset ratio analysis to determine
whether the hedging relationships are highly effective at inception and on an
ongoing basis, while others use regression.
Citigroup also hedges exposure to changes in the fair value of fixed-rate
assets, including available-for-sale debt securities and loans. The hedging
instruments used are receive-variable, pay-fixed interest rate swaps. Some of
these fair value hedging relationships use dollar-offset ratio analysis to
determine whether the hedging relationships are highly effective at inception
and on an ongoing basis, while others use regression analysis.
Hedging of foreign
exchange risk
Citigroup
hedges the change in fair value attributable to foreign-exchange 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
foreign-exchange 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.
236
The following table summarizes the gains (losses) on the Company's fair value hedges for the years ended December 31, 2011, 2010 and 2009:
Gains (losses) on fair value hedges | (1) | |||||||||
Year ended December 31, | ||||||||||
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Gain (loss) on derivatives in designated and qualifying fair value hedges | ||||||||||
Interest rate contracts | $ | 4,423 | $ | 948 | $ | (4,228 | ) | |||
Foreign exchange contracts | (117 | ) | 729 | 863 | ||||||
Total gain (loss) on derivatives in designated and qualifying fair value hedges | $ | 4,306 | $ | 1,677 | $ | (3,365 | ) | |||
Gain (loss) on the hedged item in designated and qualifying fair value hedges | ||||||||||
Interest rate hedges | $ | (4,296 | ) | $ | (945 | ) | $ | 4,065 | ||
Foreign exchange hedges | 26 | (579 | ) | (373 | ) | |||||
Total gain (loss) on the hedged item in designated and qualifying fair value hedges | $ | (4,270 | ) | $ | (1,524 | ) | $ | 3,692 | ||
Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | ||||||||||
Interest rate hedges | $ | 118 | $ | (23 | ) | $ | (179 | ) | ||
Foreign exchange hedges | 1 | 10 | 138 | |||||||
Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | $ | 119 | $ | (13 | ) | $ | (41 | ) | ||
Net gain (loss) excluded from assessment of the effectiveness of fair value hedges | ||||||||||
Interest rate contracts | $ | 9 | $ | 26 | $ | 16 | ||||
Foreign exchange contracts | (92 | ) | 140 | 352 | ||||||
Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges | $ | (83 | ) | $ | 166 | $ | 368 |
(1) | 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 benchmark interest rate
risk
Citigroup hedges variable cash
flows resulting from floating-rate liabilities and rollover (re-issuance) of
short-term 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.
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 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 total
return
Citigroup generally manages the
risk associated with highly leveraged financing it has entered into by seeking
to sell a majority of its exposures to the market prior to or shortly after
funding. The portion of the highly leveraged financing that is retained by
Citigroup is generally hedged with a total return
swap.
The amount
of hedge ineffectiveness on the cash flow hedges recognized in earnings for the
years ended December 31, 2011, 2010 and 2009 is not
significant.
237
The pretax change in Accumulated other comprehensive income (loss) from cash flow hedges for is presented below:
Year ended December 31, | ||||||||||
In millions of dollars | 2011 | 2010 | 2009 | |||||||
Effective portion of cash flow hedges included in AOCI | ||||||||||
Interest rate contracts | $ | (1,827 | ) | $ | (469 | ) | $ | 488 | ||
Foreign exchange contracts | 81 | (570 | ) | 689 | ||||||
Total effective portion of cash flow hedges included in AOCI | $ | (1,746 | ) | $ | (1,039 | ) | $ | 1,177 | ||
Effective portion of cash flow hedges reclassified from AOCI to earnings | ||||||||||
Interest rate contracts | $ | (1,224 | ) | $ | (1,400 | ) | $ | (1,687 | ) | |
Foreign exchange contracts | (257 | ) | (500 | ) | (308 | ) | ||||
Total effective portion of cash flow hedges reclassified from AOCI to earnings (1) | $ | (1,481 | ) | $ | (1,900 | ) | $ | (1,995 | ) |
(1) | Included primarily in Other revenue and Net interest revenue on the Consolidated Income Statement. |
The after-tax impact of cash flow hedges on AOCI is shown in Note 21 to the Consolidated Financial Statement
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, swaps
and foreign-currency-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 used in net
investment hedges, Citigroup follows the forward-rate method from FASB
Derivative Implementation Group Issue H8 (now ASC 815-35-35-16 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 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 $904 million, $(3,620)
million, and $(4,727) million, for the years ended December 31, 2011, 2010 and
2009, respectively.
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 referenced 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.
238
The Company
makes markets in and trades a range of credit derivatives, both on behalf of
clients as well as for its own account. Through these contracts, the Company
either purchases or writes protection on either a single name or a portfolio of
reference credits. The Company uses credit derivatives to help mitigate credit
risk in its Corporate and Consumer loan portfolios and other cash positions, to
take proprietary trading positions, and to facilitate client
transactions.
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 which 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, 2011 and December 31, 2010, the amount of credit-linked notes held by the
Company in trading inventory was immaterial.
The following tables summarize the key characteristics of the Company's credit derivative portfolio as protection seller as of December 31, 2011 and December 31, 2010:
Maximum potential | Fair | ||||||
In millions of dollars as of | amount of | value | |||||
December 31, 2011 | future payments | payable | (1)(2) | ||||
By industry/counterparty | |||||||
Bank | $ | 929,608 | $ | 45,920 | |||
Broker-dealer | 321,293 | 19,026 | |||||
Non-financial | 1,048 | 98 | |||||
Insurance and other financial institutions | 142,579 | 7,447 | |||||
Total by industry/counterparty | $ | 1,394,528 | $ | 72,491 | |||
By instrument | |||||||
Credit default swaps and options | $ | 1,393,082 | $ | 72,358 | |||
Total return swaps and other | 1,446 | 133 | |||||
Total by instrument | $ | 1,394,528 | $ | 72,491 | |||
By rating | |||||||
Investment grade | $ | 611,447 | $ | 16,913 | |||
Non-investment grade | 226,939 | 28,034 | |||||
Not rated | 556,142 | 27,544 | |||||
Total by rating | $ | 1,394,528 | $ | 72,491 | |||
By maturity | |||||||
Within 1 year | $ | 266,723 | $ | 3,705 | |||
From 1 to 5 years | 947,211 | 46,596 | |||||
After 5 years | 180,594 | 22,190 | |||||
Total by maturity | $ | 1,394,528 | $ | 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. |
Maximum potential | Fair | ||||||
In millions of dollars as of | amount of | value | |||||
December 31, 2010 | future payments | payable | (1)(2) | ||||
By industry/counterparty | |||||||
Bank | $ | 784,080 | $ | 20,718 | |||
Broker-dealer | 312,131 | 10,232 | |||||
Non-financial | 1,463 | 54 | |||||
Insurance and other financial institutions | 125,442 | 4,954 | |||||
Total by industry/counterparty | $ | 1,223,116 | $ | 35,958 | |||
By instrument | |||||||
Credit default swaps and options | $ | 1,221,211 | $ | 35,800 | |||
Total return swaps and other | 1,905 | 158 | |||||
Total by instrument | $ | 1,223,116 | $ | 35,958 | |||
By rating | |||||||
Investment grade | $ | 487,270 | $ | 6,124 | |||
Non-investment grade | 218,296 | 11,364 | |||||
Not rated | 517,550 | 18,470 | |||||
Total by rating | $ | 1,223,116 | $ | 35,958 | |||
By maturity | |||||||
Within 1 year | $ | 162,075 | $ | 353 | |||
From 1 to 5 years | 853,808 | 16,524 | |||||
After 5 years | 207,233 | 19,081 | |||||
Total by maturity | $ | 1,223,116 | $ | 35,958 |
(1) | In addition, fair value amounts payable under credit derivatives purchased were $23,840 million. | |
(2) | In addition, fair value amounts receivable under credit derivatives sold were $22,638 million. |
239
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 liability position at December 31, 2011 and
December 31, 2010 is $26 billion and $23 billion, respectively. The Company has
posted $21 billion and $18 billion as collateral for this exposure in the normal
course of business as of December 31, 2011 and December 31, 2010, respectively.
Each downgrade would trigger additional collateral requirements for the Company
and its affiliates. In the event that each legal entity was downgraded a single
notch as of December 31, 2011, the Company would be required to post additional
collateral of $3.1 billion.
240
24. CONCENTRATIONS OF CREDIT RISK
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, 2011,
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 $177.9 billion and $176.4 billion at December 31, 2011 and
2010, 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 $33.2 billion and
$39.2 billion at December 31, 2011 and 2010, respectively, and was composed of
investment securities, loans and trading assets. The Company's exposure to
Mexico amounted to $29.5 billion and $44.2 billion at December 31, 2011 and
2010, respectively, and was composed of investment securities, loans and trading
assets.
The Company's exposure to state and municipalities amounted to $39.5
billion and $34.7 billion at December 31, 2011 and 2010, respectively, and was
composed of trading assets, investment securities, derivatives and lending
activities.
25. FAIR VALUE MEASUREMENT
ASC 820-10 (formerly SFAS 157) defines
fair value, establishes a consistent framework for measuring fair value and
expands disclosure requirements 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. In addition, the use of block discounts is
precluded when measuring the fair value of instruments traded in an active
market. It also requires recognition of trade-date gains related to certain
derivative transactions whose fair values have been determined using
unobservable market inputs.
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, Fair Value Measurement ,
specifies a hierarchy of valuation techniques based on whether the inputs to
those valuation techniques 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:
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.
241
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 were previously 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.
If quoted market prices are not available,
fair value is based upon internally developed valuation techniques that use,
where possible, current market-based or independently sourced market 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 in Level 3 even though there may be some
significant inputs that are readily observable.
Where
available, the Company may also make use of quoted prices for recent trading
activity in positions with the same or similar characteristics to that being
valued. The frequency and size of transactions 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 would be classified as Level
2. If prices are not available, other valuation techniques would be used and the
item would be 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.
Securities purchased under
agreements to resell and securities sold under agreements to
repurchase
No quoted prices exist for
such instruments and 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 market rates appropriate to the maturity of the instrument as
well as the nature and amount of collateral taken or received. 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.
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
internal valuation techniques. Fair value estimates from 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. If available,
the Company may also use quoted prices for recent trading activity of assets
with similar characteristics to the bond or loan being valued. 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 or prices from independent sources vary, a loan or security is generally
classified as Level 3.
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 in the fair value hierarchy.
242
Trading account assets and
liabilities-derivatives
Exchange-traded derivatives are generally fair valued using quoted market
(i.e., exchange) prices and so 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 so 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, Black-Scholes 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, the spot price of the underlying
volatility and correlation. The item is placed in either Level 2 or Level 3
depending on the observability of the significant inputs to the model.
Correlation and items with longer tenors are generally less observable.
In the
fourth quarter of 2011, the Company began incorporating overnight indexed swap
("OIS") curves as fair value measurement inputs for the valuation of certain
collateralized interest-rate related derivatives. The OIS curves reflect the
interest rates paid on cash collateral provided against the fair value of these
derivatives. The Company believes using relevant OIS curves as inputs to
determine fair value measurements provides a more representative reflection of
the fair value of these collateralized interest-rate related derivatives.
Previously, the Company used the relevant benchmark curve for the currency of
the derivative (e.g., the London Interbank Offered Rate for U.S. dollar
derivatives) as the discount rate for these collateralized interest-rate related
derivatives. The Company recognized a pretax gain of approximately $167 million
upon the change in this fair value measurement input. For further information on
derivative instruments and hedging activities, see Note 23.
The valuation of high-grade and mezzanine asset-backed security (ABS) CDO positions uses trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. The high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are trader priced. 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 determined using the same
procedures described for trading securities above or, in some cases, using
vendor prices 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, using
commonly accepted valuation techniques, including the use of earnings multiples
based on comparable public securities, industry-specific non-earnings-based
multiples and discounted cash flow models. 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 NAV to value certain of these entities.
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 values of non-structured liabilities are determined by
discounting expected cash flows 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 values of structured liabilities (where performance
is linked to structured interest rates, inflation or currency risks) and hybrid
financial instruments (performance 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.
243
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 price at which the entire position could be
liquidated in an orderly manner. The liquidity reserve is based on the bid-offer
spread for an instrument, adjusted to take into account the size of the position
consistent with what Citi believes a market participant would
consider.
Counterparty credit-risk adjustments are applied to derivatives, such as
over-the-counter derivatives, where the base valuation uses market parameters
based on the LIBOR interest rate curves. Not all counterparties have the same
credit risk as that implied by the relevant LIBOR 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.
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.
Auction rate
securities
Auction rate securities
(ARS) are long-term municipal bonds, corporate bonds, securitizations and
preferred stocks with interest rates or dividend yields that are reset through
periodic auctions. The coupon paid in the current period is based on the rate
determined by the prior auction. In the event of an auction failure, ARS holders
receive a "fail rate" coupon, which is specified in the original issue
documentation of each ARS.
Where insufficient orders to purchase all
of the ARS issue to be sold in an auction were received, the primary dealer or
auction agent would traditionally have purchased any residual unsold inventory
(without a contractual obligation to do so). This residual inventory would then
be repaid through subsequent auctions, typically in a short time. Due to this
auction mechanism and generally liquid market, ARS have historically traded and
were valued as short-term instruments.
Citigroup acted in the capacity of primary dealer for approximately $72
billion of ARS and continued to purchase residual unsold inventory in support of
the auction mechanism until mid-February 2008. After this date, liquidity in the
ARS market deteriorated significantly, auctions failed due to a lack of bids
from third-party investors, and Citigroup ceased to purchase unsold inventory.
Following a number of ARS refinancings, at December 31, 2011, Citigroup
continued to act in the capacity of primary dealer for approximately $15 billion
of outstanding ARS.
The Company classifies its ARS as trading and
available-for-sale securities. Trading ARS include primarily securitization
positions and are classified as Asset-backed securities within Trading
securities in the table below. Available-for-sale ARS include primarily
preferred instruments (interests in closed-end mutual funds) and are classified
as Equity securities within Investments.
Prior to
the Company's first auction failing in the first quarter of 2008, Citigroup
valued ARS based on observation of auction market prices, because the auctions
had a short maturity period (7, 28 or 35 days). This generally resulted in
valuations at par. Once the auctions failed, ARS could no longer be valued using
observation of auction market prices. Accordingly, the fair values of ARS are
currently estimated using internally developed discounted cash flow valuation
techniques specific to the nature of the assets underlying each ARS.
For ARS
with student loans as underlying assets, future cash flows are estimated based
on the terms of the loans underlying each individual ARS, discounted at an
appropriate rate in order to estimate the current fair value. The key
assumptions that impact the ARS valuations are the expected weighted average
life of the structure, estimated fail rate coupons, the amount of leverage in
each structure and the discount rate used to calculate the present value of
projected cash flows. The discount rate used for each ARS is based on rates
observed for basic securitizations with similar maturities to the loans
underlying each ARS being valued. In order to arrive at the appropriate discount
rate, these observed rates were adjusted upward to factor in the specifics of
the ARS structure being valued, such as callability, and the illiquidity in the
ARS market.
The majority of ARS continue to be classified as Level
3.
244
Alt-A mortgage
securities
The Company classifies its
Alt-A mortgage securities as held-to-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 (1)
the underlying collateral has weighted average FICO scores between 680 and 720
or (2) 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. Vendors 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 internal valuation techniques used for Alt-A mortgage
securities, as with other mortgage exposures, consider estimated housing price
changes, unemployment rates, interest rates and borrower attributes. They also
consider prepayment rates as well as 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 more recent vintages 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.
Commercial real estate
exposure
Citigroup reports
a number of different exposures linked to commercial real estate at fair value
with changes in fair value reported in earnings, including securities, loans and
investments in entities that hold commercial real estate loans or commercial
real estate directly. The Company also reports securities backed by commercial
real estate as available-for-sale investments, which are carried at fair value
with changes in fair value reported in AOCI.
Similar to the valuation methodologies used for other trading securities
and trading loans, the Company generally determines the fair value of securities
and loans linked to commercial real estate utilizing internal valuation
techniques. Fair value estimates from internal valuation techniques are
verified, where possible, to prices obtained from independent vendors. Vendors
compile prices from various sources. Where available, the Company may also make
use of quoted prices for recent trading activity in securities or loans with the
same or similar characteristics to that being valued. Securities and loans
linked to commercial real estate valued using these methodologies are generally
classified as Level 3 as a result of the current reduced liquidity in the market
for such exposures.
The fair value of investments in entities that hold commercial real
estate loans or commercial real estate directly is determined using a similar
methodology to that used for other non-public investments in real estate held by
the S&B business. The Company uses an established process
for determining the fair value of such securities, using commonly accepted
valuation techniques, including the use of earnings multiples based on
comparable public securities, industry-specific non-earnings-based multiples and
discounted cash flow models. In determining the fair value of such investments,
the Company also considers events, such as a proposed sale of the investee
company, initial public offerings, equity issuances, or other observable
transactions. Such investments are generally classified as Level 3 of the fair
value hierarchy.
245
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, 2011 and December 31, 2010. The Company's hedging of positions that have
been classified in the Level 3 category is not limited to other financial
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.
Gross | Net | ||||||||||||
In millions of dollars at December 31, 2011 | Level 1 | Level 2 | Level 3 | inventory | Netting | (1) | balance | ||||||
Assets | |||||||||||||
Federal funds sold and securities borrowed or purchased under | |||||||||||||
agreements to resell | $ | - | $ | 188,034 | $ | 4,701 | $ | 192,735 | $ | (49,873 | ) | $ | 142,862 |
Trading securities | |||||||||||||
Trading mortgage-backed securities | |||||||||||||
U.S. government-sponsored agency guaranteed | $ | - | $ | 26,674 | $ | 861 | $ | 27,535 | $ | - | $ | 27,535 | |
Prime | - | 118 | 759 | 877 | - | 877 | |||||||
Alt-A | - | 444 | 165 | 609 | - | 609 | |||||||
Subprime | - | 524 | 465 | 989 | - | 989 | |||||||
Non-U.S. residential | - | 276 | 120 | 396 | - | 396 | |||||||
Commercial | - | 1,715 | 618 | 2,333 | - | 2,333 | |||||||
Total trading mortgage-backed securities | $ | - | $ | 29,751 | $ | 2,988 | $ | 32,739 | $ | - | $ | 32,739 | |
U.S. Treasury and federal agency securities | |||||||||||||
U.S. Treasury | $ | 15,612 | $ | 2,615 | $ | - | $ | 18,227 | $ | - | $ | 18,227 | |
Agency obligations | - | 1,169 | 3 | 1,172 | - | 1,172 | |||||||
Total U.S. Treasury and federal agency securities | $ | 15,612 | $ | 3,784 | $ | 3 | $ | 19,399 | $ | - | $ | 19,399 | |
State and municipal | $ | - | $ | 5,112 | $ | 252 | $ | 5,364 | $ | - | $ | 5,364 | |
Foreign government | 52,429 | 26,601 | 521 | 79,551 | - | 79,551 | |||||||
Corporate | - | 33,786 | 3,240 | 37,026 | - | 37,026 | |||||||
Equity securities | 29,707 | 3,279 | 244 | 33,230 | - | 33,230 | |||||||
Asset-backed securities | - | 1,270 | 5,801 | 7,071 | - | 7,071 | |||||||
Other debt securities | - | 12,818 | 2,209 | 15,027 | - | 15,027 | |||||||
Total trading securities | $ | 97,748 | $ | 116,401 | $ | 15,258 | $ | 229,407 | $ | - | $ | 229,407 | |
Trading account derivatives | |||||||||||||
Interest rate contracts | $ | 67 | $ | 755,473 | $ | 1,947 | $ | 757,487 | |||||
Foreign exchange contracts | - | 93,536 | 781 | 94,317 | |||||||||
Equity contracts | 2,240 | 16,376 | 1,619 | 20,235 | |||||||||
Commodity contracts | 958 | 11,940 | 865 | 13,763 | |||||||||
Credit derivatives | - | 81,123 | 9,301 | 90,424 | |||||||||
Total trading account derivatives | $ | 3,265 | $ | 958,448 | $ | 14,513 | $ | 976,226 | |||||
Gross cash collateral paid | 57,815 | ||||||||||||
Netting agreements and market value adjustments | $ | (971,714 | ) | ||||||||||
Total trading account derivatives | $ | 3,265 | $ | 958,448 | $ | 14,513 | $ | 1,034,041 | $ | (971,714 | ) | $ | 62,327 |
Investments | |||||||||||||
Mortgage-backed securities | |||||||||||||
U.S. government-sponsored agency guaranteed | $ | 59 | $ | 45,043 | $ | 679 | $ | 45,781 | $ | - | $ | 45,781 | |
Prime | - | 105 | 8 | 113 | - | 113 | |||||||
Alt-A | - | 1 | - | 1 | - | 1 | |||||||
Subprime | - | - | - | - | - | - | |||||||
Non-U.S. residential | - | 4,658 | - | 4,658 | - | 4,658 | |||||||
Commercial | - | 472 | - | 472 | - | 472 | |||||||
Total investment mortgage-backed securities | $ | 59 | $ | 50,279 | $ | 687 | $ | 51,025 | $ | - | $ | 51,025 | |
U.S. Treasury and federal agency securities | |||||||||||||
U.S. Treasury | $ | 11,642 | $ | 38,587 | $ | - | $ | 50,229 | $ | - | $ | 50,229 | |
Agency obligations | - | 34,834 | 75 | 34,909 | - | 34,909 | |||||||
Total U.S. Treasury and federal agency securities | $ | 11,642 | $ | 73,421 | $ | 75 | $ | 85,138 | $ | - | $ | 85,138 |
246
Gross | Net | ||||||||||||||||
In millions of dollars at December 31, 2011 | Level 1 | Level 2 | Level 3 | inventory | Netting | (1) | balance | ||||||||||
State and municipal | $ | - | $ | 13,732 | $ | 667 | $ | 14,399 | $ | - | $ | 14,399 | |||||
Foreign government | 33,544 | 50,523 | 447 | 84,514 | - | 84,514 | |||||||||||
Corporate | - | 9,268 | 989 | 10,257 | - | 10,257 | |||||||||||
Equity securities | 6,634 | 98 | 1,453 | 8,185 | - | 8,185 | |||||||||||
Asset-backed securities | - | 6,962 | 4,041 | 11,003 | - | 11,003 | |||||||||||
Other debt securities | - | 563 | 120 | 683 | - | 683 | |||||||||||
Non-marketable equity securities | - | 518 | 8,318 | 8,836 | - | 8,836 | |||||||||||
Total investments | $ | 51,879 | $ | 205,364 | $ | 16,797 | $ | 274,040 | $ | - | $ | 274,040 | |||||
Loans (2) | $ | - | $ | 583 | $ | 4,682 | $ | 5,265 | $ | - | $ | 5,265 | |||||
Mortgage servicing rights | - | - | 2,569 | 2,569 | - | 2,569 | |||||||||||
Nontrading derivatives and other financial assets measured | |||||||||||||||||
on a recurring basis, gross | $ | - | $ | 12,151 | $ | 2,245 | $ | 14,396 | |||||||||
Gross cash collateral paid | 307 | ||||||||||||||||
Netting agreements and market value adjustments | $ | (3,462 | ) | ||||||||||||||
Nontrading derivatives and other financial assets measured | |||||||||||||||||
on a recurring basis | $ | - | $ | 12,151 | $ | 2,245 | $ | 14,703 | $ | (3,462 | ) | $ | 11,241 | ||||
Total assets | $ | 152,892 | $ | 1,480,981 | $ | 60,765 | $ | 1,752,760 | $ | (1,025,049 | ) | $ | 727,711 | ||||
Total as a percentage of gross assets (3) | 9.0 | % | 87.4 | % | 3.6 | % | 100.0 | % | |||||||||
Liabilities | |||||||||||||||||
Interest-bearing deposits | $ | - | $ | 895 | $ | 431 | $ | 1,326 | $ | - | $ | 1,326 | |||||
Federal funds purchased and securities loaned or sold under | |||||||||||||||||
agreements to repurchase | - | 161,582 | 1,061 | 162,643 | (49,873 | ) | 112,770 | ||||||||||
Trading account liabilities | |||||||||||||||||
Securities sold, not yet purchased | 58,456 | 10,941 | 412 | 69,809 | 69,809 | ||||||||||||
Trading account derivatives | |||||||||||||||||
Interest rate contracts | 37 | 738,833 | 1,221 | 740,091 | |||||||||||||
Foreign exchange contracts | - | 96,549 | 814 | 97,363 | |||||||||||||
Equity contracts | 2,822 | 26,961 | 3,356 | 33,139 | |||||||||||||
Commodity contracts | 873 | 11,959 | 1,799 | 14,631 | |||||||||||||
Credit derivatives | - | 77,153 | 7,573 | 84,726 | |||||||||||||
Total trading account derivatives | $ | 3,732 | $ | 951,455 | $ | 14,763 | $ | 969,950 | |||||||||
Gross cash collateral received | 52,811 | ||||||||||||||||
Netting agreements and market value adjustments | $ | (966,488 | ) | ||||||||||||||
Total trading account derivatives | $ | 3,732 | $ | 951,455 | $ | 14,763 | $ | 1,022,761 | $ | (966,488 | ) | $ | 56,273 | ||||
Short-term borrowings | - | 1,067 | 287 | 1,354 | - | 1,354 | |||||||||||
Long-term debt | - | 18,227 | 5,945 | 24,172 | - | 24,172 | |||||||||||
Nontrading derivatives and other financial liabilities measured | |||||||||||||||||
on a recurring basis, gross | $ | - | $ | 3,559 | $ | 3 | $ | 3,562 | |||||||||
Gross cash collateral received | $ | 3,642 | |||||||||||||||
Netting agreements and market value adjustments | $ | (3,462 | ) | ||||||||||||||
Nontrading derivatives and other financial liabilities measured | |||||||||||||||||
on a recurring basis | $ | - | $ | 3,559 | $ | 3 | $ | 7,204 | $ | (3,462 | ) | $ | 3,742 | ||||
Total liabilities | $ | 62,188 | $ | 1,147,726 | $ | 22,902 | $ | 1,289,269 | $ | (1,019,823 | ) | $ | 269,446 | ||||
Total as a percentage of gross liabilities (3) | 5.0 | % | 93.1 | % | 1.9 | % | 100.0 | % |
(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. | |
(2) | There is no allowance for loan losses recorded for loans reported at fair value. | |
(3) | Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives. |
247
Gross | Net | ||||||||||||
In millions of dollars at December 31, 2010 | Level 1 | Level 2 | Level 3 | inventory | Netting | (1) | balance | ||||||
Assets | |||||||||||||
Federal funds sold and securities borrowed or purchased under | |||||||||||||
agreements to resell | $ | - | $ | 131,831 | $ | 4,911 | $ | 136,742 | $ | (49,230 | ) | $ | 87,512 |
Trading securities | |||||||||||||
Trading mortgage-backed securities | |||||||||||||
U.S. government-sponsored agency guaranteed | - | 26,296 | 831 | 27,127 | - | 27,127 | |||||||
Prime | - | 920 | 594 | 1,514 | - | 1,514 | |||||||
Alt-A | - | 1,117 | 385 | 1,502 | - | 1,502 | |||||||
Subprime | - | 911 | 1,125 | 2,036 | - | 2,036 | |||||||
Non-U.S. residential | - | 828 | 224 | 1,052 | - | 1,052 | |||||||
Commercial | - | 1,340 | 418 | 1,758 | - | 1,758 | |||||||
Total trading mortgage-backed securities | $ | - | $ | 31,412 | $ | 3,577 | $ | 34,989 | $ | - | $ | 34,989 | |
U.S. Treasury and federal agency securities | |||||||||||||
U.S. Treasury | $ | 18,449 | $ | 1,719 | $ | - | $ | 20,168 | $ | - | $ | 20,168 | |
Agency obligations | 6 | 3,340 | 72 | 3,418 | - | 3,418 | |||||||
Total U.S. Treasury and federal agency securities | $ | 18,455 | $ | 5,059 | $ | 72 | $ | 23,586 | $ | - | $ | 23,586 | |
State and municipal | $ | - | $ | 7,285 | $ | 208 | $ | 7,493 | $ | - | $ | 7,493 | |
Foreign government | 64,096 | 23,649 | 566 | 88,311 | - | 88,311 | |||||||
Corporate | - | 46,263 | 5,004 | 51,267 | - | 51,267 | |||||||
Equity securities | 33,509 | 3,151 | 776 | 37,436 | - | 37,436 | |||||||
Asset-backed securities | - | 1,141 | 7,620 | 8,761 | - | 8,761 | |||||||
Other debt securities | - | 13,911 | 1,305 | 15,216 | - | 15,216 | |||||||
Total trading securities | $ | 116,060 | $ | 131,871 | $ | 19,128 | $ | 267,059 | $ | - | $ | 267,059 | |
Trading account derivatives | |||||||||||||
Interest rate contracts | $ | 509 | $ | 473,579 | $ | 2,584 | $ | 476,672 | |||||
Foreign exchange contracts | 11 | 83,465 | 1,025 | 84,501 | |||||||||
Equity contracts | 2,581 | 11,807 | 1,758 | 16,146 | |||||||||
Commodity contracts | 590 | 10,973 | 1,045 | 12,608 | |||||||||
Credit derivatives | - | 51,819 | 13,222 | 65,041 | |||||||||
Total trading account derivatives | $ | 3,691 | $ | 631,643 | $ | 19,634 | $ | 654,968 | |||||
Gross cash collateral paid | 50,302 | ||||||||||||
Netting agreements and market value adjustments | $ | (655,057 | ) | ||||||||||
Total trading account derivatives | $ | 3,691 | $ | 631,643 | $ | 19,634 | $ | 705,270 | $ | (655,057 | ) | $ | 50,213 |
Investments | |||||||||||||
Mortgage-backed securities | |||||||||||||
U.S. government-sponsored agency guaranteed | $ | 70 | $ | 23,531 | $ | 22 | $ | 23,623 | $ | - | $ | 23,623 | |
Prime | - | 1,660 | 166 | 1,826 | - | 1,826 | |||||||
Alt-A | - | 47 | 1 | 48 | - | 48 | |||||||
Subprime | - | 119 | - | 119 | - | 119 | |||||||
Non-U.S. residential | - | 316 | - | 316 | - | 316 | |||||||
Commercial | - | 47 | 527 | 574 | - | 574 | |||||||
Total investment mortgage-backed securities | $ | 70 | $ | 25,720 | $ | 716 | $ | 26,506 | $ | - | $ | 26,506 | |
U.S. Treasury and federal agency securities | |||||||||||||
U.S. Treasury | $ | 14,031 | $ | 44,417 | $ | - | $ | 58,448 | $ | - | $ | 58,448 | |
Agency obligations | - | 43,597 | 17 | 43,614 | - | 43,614 | |||||||
Total U.S. Treasury and federal agency | $ | 14,031 | $ | 88,014 | $ | 17 | $ | 102,062 | $ | - | $ | 102,062 | |
State and municipal | $ | - | $ | 12,731 | $ | 504 | $ | 13,235 | $ | - | $ | 13,235 | |
Foreign government | 51,419 | 47,902 | 358 | 99,679 | - | 99,679 | |||||||
Corporate | - | 15,152 | 525 | 15,677 | - | 15,677 | |||||||
Equity securities | 3,721 | 184 | 2,055 | 5,960 | - | 5,960 | |||||||
Asset-backed securities | - | 3,624 | 5,424 | 9,048 | - | 9,048 | |||||||
Other debt securities | - | 1,185 | 727 | 1,912 | - | 1,912 | |||||||
Non-marketable equity securities | - | 135 | 6,960 | 7,095 | - | 7,095 | |||||||
Total investments | $ | 69,241 | $ | 194,647 | $ | 17,286 | $ | 281,174 | $ | - | $ | 281,174 |
248
Gross | Net | ||||||||||||||||
In millions of dollars at December 31, 2010 | Level 1 | Level 2 | Level 3 | inventory | Netting | (1) | balance | ||||||||||
Loans (2) | $ | - | $ | 1,159 | $ | 3,213 | $ | 4,372 | $ | - | $ | 4,372 | |||||
Mortgage servicing rights | - | - | 4,554 | 4,554 | - | 4,554 | |||||||||||
Nontrading derivatives and other financial assets measured | |||||||||||||||||
on a recurring basis, gross | $ | - | $ | 19,425 | $ | 2,509 | $ | 21,934 | |||||||||
Gross cash collateral paid | $ | 211 | |||||||||||||||
Netting agreements and market value adjustments | $ | (2,615 | ) | ||||||||||||||
Nontrading derivatives and other financial assets measured | |||||||||||||||||
on a recurring basis | $ | - | $ | 19,425 | $ | 2,509 | $ | 22,145 | $ | (2,615 | ) | $ | 19,530 | ||||
Total assets | $ | 188,992 | $ | 1,110,576 | $ | 71,235 | $ | 1,421,316 | $ | (706,902 | ) | $ | 714,414 | ||||
Total as a percentage of gross assets (3) | 13.8 | % | 81.0 | % | 5.2 | % | 100 | % | |||||||||
Liabilities | |||||||||||||||||
Interest-bearing deposits | $ | - | $ | 988 | $ | 277 | $ | 1,265 | $ | - | $ | 1,265 | |||||
Federal funds purchased and securities loaned or sold under | |||||||||||||||||
agreements to repurchase | - | 169,162 | 1,261 | 170,423 | (49,230 | ) | 121,193 | ||||||||||
Trading account liabilities | |||||||||||||||||
Securities sold, not yet purchased | $ | 59,968 | $ | 9,169 | $ | 187 | $ | 69,324 | $ | - | $ | 69,324 | |||||
Trading account derivatives | |||||||||||||||||
Interest rate contracts | 489 | 472,936 | 3,314 | 476,739 | |||||||||||||
Foreign exchange contracts | 2 | 87,411 | 861 | 88,274 | |||||||||||||
Equity contracts | 2,551 | 27,486 | 3,397 | 33,434 | |||||||||||||
Commodity contracts | 482 | 10,968 | 2,068 | 13,518 | |||||||||||||
Credit derivatives | - | 48,535 | 10,926 | 59,461 | |||||||||||||
Total trading account derivatives | $ | 3,524 | $ | 647,336 | $ | 20,566 | $ | 671,426 | |||||||||
Gross cash collateral received | 38,319 | ||||||||||||||||
Netting agreements and market value adjustments | $ | (650,015 | ) | ||||||||||||||
Total trading account derivatives | $ | 3,524 | $ | 647,336 | $ | 20,566 | $ | 709,745 | $ | (650,015 | ) | $ | 59,730 | ||||
Short-term borrowings | - | 1,627 | 802 | 2,429 | - | 2,429 | |||||||||||
Long-term debt | - | 17,612 | 8,385 | 25,997 | - | 25,997 | |||||||||||
Nontrading derivatives and other financial liabilities measured | |||||||||||||||||
on a recurring basis, gross | $ | - | $ | 9,266 | $ | 19 | $ | 9,285 | |||||||||
Gross cash collateral received | $ | 3,040 | |||||||||||||||
Netting agreements and market value adjustments | $ | (2,615 | ) | ||||||||||||||
Nontrading derivatives and other financial liabilities measured | |||||||||||||||||
on a recurring basis | $ | - | $ | 9,266 | $ | 19 | $ | 12,325 | $ | (2,615 | ) | $ | 9,710 | ||||
Total liabilities | $ | 63,492 | $ | 855,160 | $ | 31,497 | $ | 991,508 | $ | (701,860 | ) | $ | 289,648 | ||||
Total as a percentage of gross liabilities (3) | 6.7 | % | 90.0 | % | 3.3 | % | 100 | % |
(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. | |
(2) | There is no allowance for loan losses recorded for loans reported at fair value. | |
(3) | Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives. |
249
Changes in Level 3 Fair Value
Category
The following tables present the
changes in the Level 3 fair value category for the twelve months ended December
31, 2011 and December 31, 2010. The Company classifies financial instruments in
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. Thus, the gains and losses presented below include
changes in the fair value related to both observable and unobservable inputs.
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.
Net realized/unrealized | Transfers | Unrealized | ||||||||||||||||||||||||||
gains (losses) included in | in and/or | gains | ||||||||||||||||||||||||||
Dec. 31, | Principal | out of | Dec. 31, | (losses) | ||||||||||||||||||||||||
In millions of dollars | 2010 | transactions | Other | (1)(2) | Level 3 | Purchases | Issuances | Sales | Settlements | 2011 | still held | (3) | ||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Fed funds sold and securities | ||||||||||||||||||||||||||||
borrowed or purchased
under agreements to resell | $ | 4,911 | $ | 90 | $ | - | $ | (300 | ) | $ | - | $ | - | $ | - | $ | - | $ | 4,701 | $ | 89 | |||||||
Trading securities | ||||||||||||||||||||||||||||
Trading
mortgage-backed securities | ||||||||||||||||||||||||||||
U.S. government-sponsored | ||||||||||||||||||||||||||||
agency guaranteed | $ | 831 | $ | (62 | ) | $ | - | $ | 169 | $ | 677 | $ | 73 | $ | (686 | ) | $ | (141 | ) | $ | 861 | $ | (100 | ) | ||||
Prime | 594 | 125 | - | 59 | 1,608 | - | (1,608 | ) | (19 | ) | 759 | 48 | ||||||||||||||||
Alt-A | 385 | 19 | - | (8 | ) | 1,638 | - | (1,849 | ) | (20 | ) | 165 | 2 | |||||||||||||||
Subprime | 1,125 | (2 | ) | - | (148 | ) | 550 | - | (1,021 | ) | (39 | ) | 465 | 103 | ||||||||||||||
Non-U.S. residential | 224 | 6 | - | (41 | ) | 354 | - | (423 | ) | - | 120 | (35 | ) | |||||||||||||||
Commercial | 418 | 33 | - | 345 | 418 | - | (570 | ) | (26 | ) | 618 | (57 | ) | |||||||||||||||
Total trading
mortgage- backed securities | $ | 3,577 | $ | 119 | $ | - | $ | 376 | $ | 5,245 | $ | 73 | $ | (6,157 | ) | $ | (245 | ) | $ | 2,988 | $ | (39 | ) | |||||
U.S. Treasury and
federal agency securities | ||||||||||||||||||||||||||||
U.S. Treasury | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Agency obligations | 72 | 9 | - | (45 | ) | 8 | - | (41 | ) | - | 3 | - | ||||||||||||||||
Total U.S. Treasury and federal | ||||||||||||||||||||||||||||
agency securities | $ | 72 | $ | 9 | $ | - | $ | (45 | ) | $ | 8 | $ | - | $ | (41 | ) | $ | - | $ | 3 | $ | - | ||||||
State and municipal | $ | 208 | $ | 67 | $ | - | $ | 102 | $ | 1,128 | $ | - | $ | (1,243 | ) | $ | (10 | ) | $ | 252 | $ | (35 | ) | |||||
Foreign government | 566 | (33 | ) | - | (243 | ) | 1,556 | - | (797 | ) | (528 | ) | 521 | (22 | ) | |||||||||||||
Corporate | 5,004 | (60 | ) | - | 1,452 | 3,272 | - | (3,864 | ) | (2,564 | ) | 3,240 | (680 | ) | ||||||||||||||
Equity securities | 776 | (202 | ) | - | (145 | ) | 191 | - | (376 | ) | - | 244 | (143 | ) | ||||||||||||||
Asset-backed securities | 7,620 | 128 | - | 606 | 5,198 | - | (6,069 | ) | (1,682 | ) | 5,801 | (779 | ) | |||||||||||||||
Other debt securities | 1,305 | (170 | ) | - | 185 | 1,573 | - | (680 | ) | (4 | ) | 2,209 | 68 | |||||||||||||||
Total trading securities | $ | 19,128 | $ | (142 | ) | $ | - | $ | 2,288 | $ | 18,171 | $ | 73 | $ | (19,227 | ) | $ | (5,033 | ) | $ | 15,258 | $ | (1,630 | ) | ||||
Derivatives, net (4) | ||||||||||||||||||||||||||||
Interest rate contracts | $ | (730 | ) | $ | (242 | ) | $ | - | $ | 1,549 | $ | 111 | $ | - | $ | (21 | ) | $ | 59 | $ | 726 | $ | 52 | |||||
Foreign exchange contracts | 164 | 31 | - | (83 | ) | 11 | - | (3 | ) | (153 | ) | (33 | ) | (100 | ) | |||||||||||||
Equity contracts | (1,639 | ) | 471 | - | (28 | ) | 362 | - | (242 | ) | (661 | ) | (1,737 | ) | (1,139 | ) | ||||||||||||
Commodity contracts | (1,023 | ) | 426 | - | (83 | ) | 2 | - | (104 | ) | (152 | ) | (934 | ) | (48 | ) | ||||||||||||
Credit derivatives | 2,296 | 520 | - | 183 | 8 | - | (1 | ) | (1,278 | ) | 1,728 | 1,615 | ||||||||||||||||
Total derivatives, net (4) | $ | (932 | ) | $ | 1,206 | $ | - | $ | 1,538 | $ | 494 | $ | - | $ | (371 | ) | $ | (2,185 | ) | $ | (250 | ) | $ | 380 | ||||
Investments | ||||||||||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||||||
U.S. government-sponsored | ||||||||||||||||||||||||||||
agency guaranteed | $ | 22 | $ | - | $ | (22 | ) | $ | 416 | $ | 270 | $ | - | $ | (7 | ) | $ | - | $ | 679 | $ | (38 | ) | |||||
Prime | 166 | - | (1 | ) | (109 | ) | 7 | - | (54 | ) | (1 | ) | 8 | - | ||||||||||||||
Alt-A | 1 | - | (1 | ) | - | - | - | - | - | - | - | |||||||||||||||||
Subprime | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Commercial | 527 | - | (4 | ) | (513 | ) | 42 | - | (52 | ) | - | - | - | |||||||||||||||
Total
investment mortgage-backed | ||||||||||||||||||||||||||||
debt securities | $ | 716 | $ | - | $ | (28 | ) | $ | (206 | ) | $ | 319 | $ | - | $ | (113 | ) | $ | (1 | ) | $ | 687 | $ | (38 | ) | |||
U.S. Treasury and
federal agency securities | $ | 17 | $ | - | $ | - | $ | 60 | $ | - | $ | - | $ | (2 | ) | $ | - | $ | 75 | $ | - | |||||||
State and municipal | 504 | - | (10 | ) | (59 | ) | 324 | - | (92 | ) | - | 667 | (20 | ) | ||||||||||||||
Foreign government | $ | 358 | $ | - | $ | 13 | $ | (21 | ) | $ | 352 | $ | - | $ | (67 | ) | $ | (188 | ) | $ | 447 | $ | 6 | |||||
Corporate | 525 | - | (106 | ) | 199 | 732 | - | (56 | ) | (305 | ) | 989 | 6 | |||||||||||||||
Equity securities | 2,055 | - | (38 | ) | (31 | ) | - | - | (84 | ) | (449 | ) | 1,453 | - | ||||||||||||||
Asset-backed securities | 5,424 | - | 43 | 55 | 106 | - | (460 | ) | (1,127 | ) | 4,041 | 5 | ||||||||||||||||
Other debt securities | 727 | - | 26 | 121 | 35 | - | (289 | ) | (500 | ) | 120 | (2 | ) | |||||||||||||||
Non-marketable equity securities | 6,960 | - | 862 | (886 | ) | 4,881 | - | (1,838 | ) | (1,661 | ) | 8,318 | 580 | |||||||||||||||
Total investments | $ | 17,286 | $ | - | $ | 762 | $ | (768 | ) | $ | 6,749 | $ | - | $ | (3,001 | ) | $ | (4,231 | ) | $ | 16,797 | $ | 537 |
250
Net realized/unrealized | Transfers | Unrealized | ||||||||||||||||||||||||
gains (losses) included in | in and/or | gains | ||||||||||||||||||||||||
Dec. 31, | Principal | out of | Dec. 31, | (losses) | ||||||||||||||||||||||
In millions of dollars | 2010 | transactions | Other | (1)(2) | Level 3 | Purchases | Issuances | Sales | Settlements | 2011 | still held | (3) | ||||||||||||||
Loans | $ | 3,213 | $ | - | $ | (309 | ) | $ | 425 | $ | 250 | $ | 2,002 | $ | (85 | ) | $ | (814 | ) | $ | 4,682 | $ | (265 | ) | ||
Mortgage servicing rights | 4,554 | - | (1,465 | ) | - | - | 408 | (212 | ) | (716 | ) | 2,569 | (1,465 | ) | ||||||||||||
Other financial assets measured | ||||||||||||||||||||||||||
on a recurring basis | 2,509 | - | 109 | (90 | ) | 57 | 553 | (172 | ) | (721 | ) | 2,245 | 112 | |||||||||||||
Liabilities | ||||||||||||||||||||||||||
Interest-bearing deposits | $ | 277 | $ | - | $ | 86 | $ | (72 | ) | $ | - | $ | 325 | $ | - | $ | (13 | ) | $ | 431 | $ | (76 | ) | |||
Federal funds purchased and | ||||||||||||||||||||||||||
securities loaned or sold | ||||||||||||||||||||||||||
under agreements to repurchase | 1,261 | (22 | ) | - | 45 | - | - | (117 | ) | (150 | ) | 1,061 | (64 | ) | ||||||||||||
Trading account liabilities | ||||||||||||||||||||||||||
Securities sold, not yet purchased | 187 | 48 | - | 438 | - | - | 413 | (578 | ) | 412 | 42 | |||||||||||||||
Short-term borrowings | 802 | 190 | - | (432 | ) | - | 551 | - | (444 | ) | 287 | 39 | ||||||||||||||
Long-term debt | 8,385 | 181 | 266 | (937 | ) | - | 1,084 | - | (2,140 | ) | 5,945 | (225 | ) | |||||||||||||
Other financial liabilities measured | ||||||||||||||||||||||||||
on a recurring basis | 19 | - | (19 | ) | 7 | 1 | 13 | (1 | ) | (55 | ) | 3 | (3 | ) |
Net realized/unrealized | Transfers | Purchases, | Unrealized | |||||||||||||||||
gains (losses) included in | in and/or | issuances | gains | |||||||||||||||||
December 31, | Principal | out of | and | December 31, | (losses) | |||||||||||||||
In millions of dollars | 2009 | transactions | Other | (1)(2) | Level 3 | settlements | 2010 | still held | (3) | |||||||||||
Assets | ||||||||||||||||||||
Fed funds sold and securities borrowed or | ||||||||||||||||||||
purchased under agreements to resell (5) | $ | 1,127 | $ | 100 | $ - | $ | 3,019 | $ | 665 | $ | 4,911 | $ | 374 | |||||||
Trading securities | ||||||||||||||||||||
Trading mortgage-backed securities | ||||||||||||||||||||
U.S. government-sponsored agency guaranteed | 972 | (108 | ) | - | 170 | (203 | ) | 831 | (48 | ) | ||||||||||
Prime | 384 | 77 | - | 255 | (122 | ) | 594 | 27 | ||||||||||||
Alt-A | 387 | 54 | - | 259 | (315 | ) | 385 | (51 | ) | |||||||||||
Subprime | 8,998 | 321 | - | (699 | ) | (7,495 | ) | 1,125 | 94 | |||||||||||
Non-U.S. residential | 572 | 47 | - | 528 | (923 | ) | 224 | 39 | ||||||||||||
Commercial | 2,451 | 64 | - | (308 | ) | (1,789 | ) | 418 | 55 | |||||||||||
Total trading mortgage-backed securities | $ | 13,764 | $ | 455 | $ - | $ | 205 | $ | (10,847 | ) | $ | 3,577 | $ | 116 | ||||||
U.S. Treasury and federal agency securities | ||||||||||||||||||||
U.S. Treasury | $ | - | $ | - | $ - | $ | - | $ | - | $ | - | $ | - | |||||||
Agency obligations | - | (3 | ) | - | 63 | 12 | 72 | (24 | ) | |||||||||||
Total U.S. Treasury and federal | ||||||||||||||||||||
agency securities | $ | - | $ | (3 | ) | $ - | $ | 63 | $ | 12 | $ | 72 | $ | (24 | ) | |||||
State and municipal | $ | 222 | $ | 53 | $ - | $ | 297 | $ | (364 | ) | $ | 208 | $ | 7 | ||||||
Foreign government | 459 | 20 | - | (68 | ) | 155 | 566 | (10 | ) | |||||||||||
Corporate | 7,801 | 140 | - | (818 | ) | (2,119 | ) | 5,004 | 305 | |||||||||||
Equity securities | 640 | 77 | - | 312 | (253 | ) | 776 | 416 | ||||||||||||
Asset-backed securities | 3,825 | 89 | - | 4,988 | (1,282 | ) | 7,620 | (5 | ) | |||||||||||
Other debt securities | 13,231 | 48 | - | 90 | (12,064 | ) | 1,305 | 8 | ||||||||||||
Total trading securities | $ | 39,942 | $ | 879 | $ - | $ | 5,069 | $ | (26,762 | ) | $ | 19,128 | $ | 813 | ||||||
Derivatives, net (4) | ||||||||||||||||||||
Interest rate contracts | $ | (374 | ) | $ | 513 | $ - | $ | 467 | $ | (1,336 | ) | $ | (730 | ) | $ | 20 | ||||
Foreign exchange contracts | (38 | ) | 203 | - | (43 | ) | 42 | 164 | (314 | ) | ||||||||||
Equity contracts | (1,110 | ) | (498 | ) | - | (331 | ) | 300 | (1,639 | ) | (589 | ) | ||||||||
Commodity and other contracts | (529 | ) | (299 | ) | - | (95 | ) | (100 | ) | (1,023 | ) | (486 | ) | |||||||
Credit derivatives | 5,159 | (1,405 | ) | - | (635 | ) | (823 | ) | 2,296 | (867 | ) | |||||||||
Total derivatives, net (4) | $ | 3,108 | $ | (1,486 | ) | $ - | $ | (637 | ) | $ | (1,917 | ) | $ | (932 | ) | $ | (2,236 | ) |
251
Net realized/unrealized | Transfers | Purchases, | Unrealized | |||||||||||||||||||
gains (losses) included in | in and/or | issuances | gains | |||||||||||||||||||
December 31, | Principal | out of | and | December 31, | (losses) | |||||||||||||||||
In millions of dollars | 2009 | transactions | Other | (1)(2) | Level 3 | settlements | 2010 | still held | (3) | |||||||||||||
Investments | ||||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||
U.S. government-sponsored agency guaranteed | $ | 2 | $ | - | $ | (1 | ) | $ | 21 | $ | - | $ | 22 | $ | - | |||||||
Prime | 736 | - | (35 | ) | (493 | ) | (42 | ) | 166 | - | ||||||||||||
Alt-A | 55 | - | 12 | 24 | (90 | ) | 1 | - | ||||||||||||||
Subprime | 1 | - | (2 | ) | 1 | - | - | - | ||||||||||||||
Commercial | 746 | - | (443 | ) | 3 | 221 | 527 | - | ||||||||||||||
Total investment mortgage-backed | ||||||||||||||||||||||
debt securities | $ | 1,540 | $ | - | $ | (469 | ) | $ | (444 | ) | $ | 89 | $ | 716 | $ | - | ||||||
U.S. Treasury and federal agency securities | $ | 21 | $ | - | $ | (21 | ) | $ | - | $ | 17 | $ | 17 | $ | (1 | ) | ||||||
State and municipal | 217 | - | - | 481 | (194 | ) | 504 | (75 | ) | |||||||||||||
Foreign government | 270 | - | 9 | 15 | 64 | 358 | 1 | |||||||||||||||
Corporate | 674 | - | 32 | (49 | ) | (132 | ) | 525 | (32 | ) | ||||||||||||
Equity securities | 2,513 | - | 65 | (1 | ) | (522 | ) | 2,055 | (77 | ) | ||||||||||||
Asset-backed securities | 8,272 | - | (123 | ) | (111 | ) | (2,614 | ) | 5,424 | (15 | ) | |||||||||||
Other debt securities | 560 | - | (13 | ) | (13 | ) | 193 | 727 | 25 | |||||||||||||
Non-marketable equity securities | 7,336 | - | 662 | 18 | (1,056 | ) | 6,960 | 512 | ||||||||||||||
Total investments | $ | 21,403 | $ | - | $ | 142 | $ | (104 | ) | $ | (4,155 | ) | $ | 17,286 | $ | 338 | ||||||
Loans | $ | 213 | $ | - | $ | (158 | ) | $ | 1,217 | $ | 1,941 | $ | 3,213 | $ | (332 | ) | ||||||
Mortgage servicing rights | 6,530 | - | (1,146 | ) | - | (830 | ) | 4,554 | (1,146 | ) | ||||||||||||
Other financial assets measured on a | ||||||||||||||||||||||
recurring basis | 1,101 | - | (87 | ) | 2,022 | (527 | ) | 2,509 | (87 | ) | ||||||||||||
Liabilities | ||||||||||||||||||||||
Interest-bearing deposits | $ | 28 | $ | - | $ | 11 | $ | (41 | ) | $ | 301 | $ | 277 | $ | (71 | ) | ||||||
Federal funds purchased and securities | ||||||||||||||||||||||
loaned or sold under agreements to | ||||||||||||||||||||||
repurchase | 929 | (28 | ) | - | 174 | 130 | 1,261 | (104 | ) | |||||||||||||
Trading account liabilities | ||||||||||||||||||||||
Securities sold, not yet purchased | 774 | (39 | ) | - | (47 | ) | (579 | ) | 187 | (153 | ) | |||||||||||
Short-term borrowings | 231 | (6 | ) | - | 614 | (49 | ) | 802 | (78 | ) | ||||||||||||
Long-term debt | 9,654 | 125 | 201 | 389 | (1,332 | ) | 8,385 | (225 | ) | |||||||||||||
Other financial liabilities measured on a | ||||||||||||||||||||||
recurring basis | 13 | - | (52 | ) | - | (46 | ) | 19 | (20 | ) |
(1) | Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss) , while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income. |
(2) | Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income. |
(3) | 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, 2011 and 2010. |
(4) | Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only. |
(5) | Reflects the reclassification of $1,127 million of structured reverse repos from Federal funds purchased and securities loaned or sold under agreements to repurchase to Federal funds sold and securities borrowed or purchased under agreements to resell . These structured reverse repos assets were incorrectly classified in 2009, but were correctly classified on Citi's Consolidated Balance Sheet for all periods. |
The significant changes from December 31, 2010 to December 31, 2011 in Level 3 assets and liabilities were due to:
A net decrease in trading securities of $3.9 billion that included:– 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 corporate debt trading securities of $3.0 billion and sales of $3.6 billion, reflecting strong trading activity.
252
– Purchases of asset-backed securities of $5.0 billion and sales of $5.9 billion, reflecting trading in CLO and CDO positions.
– Transfers of $2.3 billion from Level 2 to Level 3, consisting mainly of transfers of corporate debt securities of $1.5 billion due primarily to less price transparency for these securities.
– Settlements of $5.0 billion, which included $1.2 billion related to the scheduled termination of a structured transaction, with a corresponding decrease in Long-term debt , and $1 billion of redemptions of auction rate securities.
A net increase in interest rate contracts of $1.5 billion, including transfers of $1.5 billion from Level 2 to Level 3. A net decrease in credit derivatives of $0.6 billion. The net decrease was comprised of gains of $0.5 billion recorded in Principal transactions, relating mainly to total return swaps referencing returns on corporate loans, offset by losses on the referenced loans which are classified as Level 2. Settlements of $1.3 billion related primarily to the settlement of certain contracts under which the Company had purchased credit protection on commercial mortgage-backed securities from a single counterparty. A net decrease in Level 3 Investments of $0.5 billion. There was a net increase in non-marketable equity securities of $1.4 billion. Purchases of non-marketable equity securities of $4.9 billion included Citi's acquisition of the share capital of Maltby Acquisitions Limited, the holding company that controls EMI Group Ltd. Purchases also included subscriptions in Citi-advised private equity and hedge funds. Sales of $1.8 billion and settlements of $1.7 billion related primarily to sales and redemptions by the Company of investments in private equity and hedge funds. A net increase in Loans of $1.5 billion, including transfers from Level 2 to Level 3 of $0.4 billion, due to a lack of observable prices. Issuances of $2.0 billion included new margin loans advanced by the Company. A net decrease in Mortgage servicing rights of $2.0 billion, due to a reduction in interest rates. A net decrease in Level 3 Long-term debt of $2.4 billion, which included settlements of $2.1 billion, $1.2 billion of which related to the scheduled termination of a structured transaction, with a corresponding decrease in corporate debt trading securities.
The significant changes from December 31, 2009 to December 31, 2010 in Level 3 assets and liabilities are due to:
An increase in Federal funds sold and securities borrowed or purchased under agreements to resell of $3.8 billion, driven primarily by transfers of certain collateralized long-dated callable reverse repos (structured reverse repos) of $3.0 billion from Level 2 to Level 3. The Company has noted that there is more transparency and observability for repo curves (used in the determination of the fair value of structured reverse repos) with a tenor of five years or less; thus, structured reverse repos that are expected to mature beyond the five-year point are generally classified as Level 3. The primary factor drivingthe change in expected maturities in structured reverse repo transactions is the embedded call option feature that enables the investor (the Company) to elect to terminate the trade early. During 2010, the decrease in interest rates caused the estimated maturity dates of certain structured reverse repos to lengthen to more than five years, resulting in the transfer from Level 2 to Level 3.
A net decrease in trading securities of $20.8 billion that was driven by:– A net decrease of $10.2 billion in trading mortgage-backed securities, driven mainly by liquidations of subprime securities of $7.5 billion and commercial mortgage-backed securities of $1.8 billion;
– A net increase of $3.8 billion in asset-backed securities, including transfers to Level 3 of $5.0 billion. Substantially all of these Level 3 transfers related to the reclassification of certain securities to trading securities under the fair value option upon adoption of ASU 2010-11 on July 1, 2010, as described in Note 1 to the Consolidated Financial Statements (for purposes of the Level 3 roll-forward table above, Level 3 investments that were reclassified to trading upon adoption of ASU 2010-11 have been classified as transfers to Level 3 trading securities); and
– A decrease of $11.9 billion in Other debt securities, due primarily to the impact of the consolidation of the credit card securitization trusts by the Company upon adoption of SFAS 166/167 on January 1, 2010. Upon consolidation of the trusts, the Company recorded the underlying credit card receivables on its Consolidated Balance Sheet as Loans accounted for at amortized cost. At January 1, 2010, the Company's investments in the trusts and other inter-company balances were eliminated. At January 1, 2010, the Company's investment in these newly consolidated VIEs, which is eliminated for accounting purposes, included certificates issued by these trusts of $11.1 billion that were classified as Level 3 at December 31, 2009. The impact of the elimination of these certificates has been reflected as net settlements in the Level 3 roll-forward table above.
A net decrease in Derivatives of $4.0 billion, including net trading losses of $1.5 billion, net settlements of $1.9 billion and net transfers out of Level 3 to Level 2 of $0.6 billion. A net decrease in Level 3 Investments of $4.1 billion, including net sales of asset-backed securities of $2.6 billion and sales of non-marketable equity securities of $1.1 billion. A net increase in Loans of $3 billion, due largely to the Company's consolidation of certain VIEs upon the adoption of SFAS 167 on January 1, 2010, for which the fair value option was elected. The impact from consolidation of these VIEs on Level 3 loans has been reflected as purchases in the Level 3 roll-forward above. A decrease in Mortgage servicing rights of $2 billion due primarily to losses of $1.1 billion, resulting from a reduction in interest rates. A decrease in Long-term debt of $1.3 billion, driven mainly by $1.3 billion of net terminations of structured notes.
253
Transfers between Level 1 and
Level 2 of the Fair
Value Hierarchy
The
Company did not have any significant transfers of assets or liabilities between
Levels 1 and 2 of the fair value hierarchy during the twelve months ended
December 31, 2011 and December 31, 2010.
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).
The
following table presents the carrying amounts of all assets that were still held
as of December 31, 2011 and December 31, 2010, and for which a nonrecurring fair
value measurement was recorded during the twelve months then ended:
In millions of dollars | Fair value | Level 2 | Level 3 | ||||||
December 31, 2011 | |||||||||
Loans held-for-sale | $ | 2,644 | $ | 1,668 | $ | 976 | |||
Other real estate owned | 271 | 88 | 183 | ||||||
Loans (1) | 3,911 | 3,185 | 726 | ||||||
Total assets at fair value on a | |||||||||
nonrecurring basis | $ | 6,826 | $ | 4,941 | $ | 1,885 |
(1) | Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate secured loans. |
In millions of dollars | Fair value | Level 2 | Level 3 | ||||||
December 31, 2010 (1) | $ | 3,083 | $ | 859 | $ | 2,224 |
(1) | Excludes loans held for investment whose carrying amount is based on the fair value of underlying collateral. |
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.
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, 2011 and 2010.
In millions of dollars | December 31, 2011 | |||
Loans held-for-sale | $ | (201 | ) | |
Other real estate owned | (71 | ) | ||
Loans (1) | (973 | ) | ||
Total nonrecurring fair value gains/losses | $ | (1,245 | ) |
(1) | Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate loans. |
In millions of dollars | December 31, 2010 | ||
Total nonrecurring fair value gains/losses (1) | $(51 | ) |
(1) | Excludes loans held for investment whose carrying amount is based on the fair value of underlying collateral. |
254
26. FAIR VALUE ELECTIONS
The Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument 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
must now be recognized initially at fair value. The Company has elected fair
value accounting for its mortgage servicing rights. See Notes 1 and 22 to the
Consolidated Financial Statements for further discussions regarding the
accounting and reporting of MSRs.
The following table presents, as of December 31, 2011 and 2010, 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, 2011 and 2010:
Fair value at | Changes
in fair value gains (losses) for the years ended December 31, | |||||||||||
December 31, | December 31, | |||||||||||
In millions of dollars | 2011 | 2010 | 2011 | 2010 | ||||||||
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) | $ | 142,862 | $ | 87,512 | $ | (138 | ) | $ | 56 | |||
Trading account assets | 14,179 | 14,289 | (1,775 | ) | 611 | |||||||
Investments | 526 | 646 | 233 | 98 | ||||||||
Loans | ||||||||||||
Certain Corporate loans (2) | 3,939 | 2,627 | 82 | (214 | ) | |||||||
Certain Consumer loans (2) | 1,326 | 1,745 | (281 | ) | 193 | |||||||
Total loans | $ | 5,265 | $ | 4,372 | $ | (199 | ) | $ | (21 | ) | ||
Other assets | ||||||||||||
MSRs | $ | 2,569 | $ | 4,554 | $ | (1,465 | ) | $ | (1,146 | ) | ||
Certain mortgage loans (HFS) | 6,213 | 7,230 | 172 | 9 | ||||||||
Certain equity method investments | 47 | 229 | (17 | ) | (37 | ) | ||||||
Total other assets | $ | 8,829 | $ | 12,013 | $ | (1,310 | ) | $ | (1,174 | ) | ||
Total assets | $ | 171,661 | $ | 118,832 | $ | (3,189 | ) | $ | (430 | ) | ||
Liabilities | ||||||||||||
Interest-bearing deposits | $ | 1,326 | $ | 1,265 | $ | 121 | $ | 8 | ||||
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) | 112,770 | 121,193 | (108 | ) | 149 | |||||||
Trading account liabilities | 1,763 | 3,953 | 872 | (481 | ) | |||||||
Short-term borrowings | 1,354 | 2,429 | 370 | (13 | ) | |||||||
Long-term debt | 24,172 | 25,997 | 2,559 | (215 | ) | |||||||
Total | $ | 141,385 | $ | 154,837 | $ | 3,814 | $ | (552 | ) |
(1) | Reflects netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase. |
(2) | Includes mortgage loans held by mortgage loan securitization VIEs consolidated upon the adoption of SFAS 167 on January 1, 2010. |
255
Own Debt Valuation
Adjustment
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
instrument-specific credit risk) was a gain of $1,774 million and a loss of $589
million for the years ended December 31, 2011 and 2010, 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.
The Fair Value Option for
Financial Assets and
Financial Liabilities
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
non-collateralized 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.
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.
The notional amount of these unfunded
letters of credit was $0.6 billion as of December 31, 2011 and $1.1 billion as
of December 31, 2010. The amount funded was insignificant with no amounts 90
days or more past due or on non-accrual status at December 31, 2011 and
2010.
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.
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 is a
highly leveraged financing commitment. 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.
256
The following table provides information about certain credit products carried at fair value at December 31, 2011 and 2010:
December 31, 2011 | December 31, 2010 | |||||||||||||
In millions of dollars | Trading assets | Loans | Trading assets | Loans | ||||||||||
Carrying amount reported on the Consolidated Balance Sheet | $ | 14,150 | $ | 3,735 | $ | 14,241 | $ | 1,748 | ||||||
Aggregate unpaid principal balance in excess of fair value | 540 | (3 | ) | 167 | (88 | ) | ||||||||
Balance of non-accrual loans or loans more than 90 days past due | 134 | - | 221 | - | ||||||||||
Aggregate unpaid principal balance in excess of fair value for non-accrual | ||||||||||||||
loans or loans more than 90 days past due | 43 | - | 57 | - |
In addition to
the amounts reported above, $648 million and $621 million of unfunded loan
commitments related to certain credit products selected for fair value
accounting were outstanding as of December 31, 2011 and 2010,
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, 2011 and 2010 due to instrument-specific
credit risk totaled to a gain of $53 million and a loss of $6 million,
respectively.
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.
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.
257
The following table provides information about certain mortgage loans HFS carried at fair value at December 31, 2011 and, 2010:
In millions of dollars | December 31, 2011 | December 31, 2010 | ||
Carrying amount reported on the Consolidated Balance Sheet | $6,213 | $7,230 | ||
Aggregate fair value in excess of unpaid principal balance | 274 | 81 | ||
Balance of non-accrual loans or loans more than 90 days past due | - | 1 | ||
Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due | - | 1 |
The changes in fair values of these mortgage loans are reported in Other revenue in the Company's Consolidated Statement of Income. The changes in fair value during the years ended December 31, 2011 and 2010 due to instrument-specific credit risk resulted in a loss of $0.1 million and $1 million, respectively. 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.
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 $275 million a
gain of $190 million for the years ended December 31, 2011 and 2010,
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 $984 million and
$857 million as of December 31, 2011 and 2010, respectively.
258
The following table provides information about Corporate and Consumer loans of consolidated VIEs carried at fair value at December 31, 2011 and December 31, 2010:
December 31, 2011 | December 31, 2010 | |||||||||||
In millions of dollars | Corporate loans | Consumer loans | Corporate loans | Consumer loans | ||||||||
Carrying amount reported on the Consolidated Balance Sheet | $198 | $1,292 | $425 | $1,718 | ||||||||
Aggregate unpaid principal balance in excess of fair value | 394 | 436 | 357 | 527 | ||||||||
Balance of non-accrual loans or loans more than 90 days past due | 23 | 86 | 45 | 133 | ||||||||
Aggregate unpaid principal balance in excess of fair value for non-accrual | ||||||||||||
loans or loans more than 90 days past due | 42 | 120 | 43 | 139 |
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
structured debt with embedded equity, referenced credit or commodity underlyings
includes an economic component for accrued interest. For structured debt that
contains embedded interest rate, inflation or currency risks, related interest
expense is measured based on the contracted interest rates and reported as such
in the Consolidated Statement of Income.
Certain non-structured
liabilities
The Company has elected
the fair value option for certain non-structured liabilities with fixed and
floating interest rates (non-structured 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 continues to be measured based on the
contractual interest rates and reported as such in the Consolidated Statement of
Income.
The following table provides information about long-term debt carried at fair value, excluding the debt issued by the consolidated VIEs, at December 31, 2011 and 2010:
In millions of dollars | December 31, 2011 | December 31, 2010 | ||
Carrying amount reported on the Consolidated Balance Sheet | $22,614 | $22,055 | ||
Aggregate unpaid principal balance in excess of fair value | 1,680 | 477 |
The following table provides information about short-term borrowings carried at fair value at December 31, 2011 and 2010:
In millions of dollars | December 31, 2011 | December 31, 2010 | ||
Carrying amount reported on the Consolidated Balance Sheet | $1,354 | $2,429 | ||
Aggregate unpaid principal balance in excess of fair value | 49 | 81 |
259
27. FAIR VALUE OF FINANCIAL INSTRUMENTS
The table below presents the carrying value and fair value of Citigroup's financial instruments. The disclosure 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 (but includes mortgage servicing rights), 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 both trading and end-user derivatives, as well as for liabilities, such as long-term debt, with quoted prices. 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, 2011 | December 31, 2010 | |||||||
Carrying | Estimated | Carrying | Estimated | |||||
In billions of dollars | value | fair value | value | fair value | ||||
Assets | ||||||||
Investments | $293.4 | $292.4 | $318.2 | $319.0 | ||||
Federal funds sold and securities borrowed | ||||||||
or purchased under | ||||||||
agreements to resell | 275.8 | 275.8 | 246.7 | 246.7 | ||||
Trading account assets | 291.7 | 291.7 | 317.3 | 317.3 | ||||
Loans (1) | 614.6 | 603.9 | 605.5 | 584.3 | ||||
Other financial assets (2) | 257.5 | 257.2 | 280.5 | 280.2 | ||||
December 31, 2011 | December 31, 2010 | |||||||
Carrying | Estimated | Carrying | Estimated | |||||
In billions of dollars | value | fair value | value | fair value | ||||
Liabilities | ||||||||
Deposits | $865.9 | $865.8 | $845.0 | $843.2 | ||||
Federal funds purchased and | ||||||||
securities
loaned or sold under | ||||||||
agreements to repurchase | 198.4 | 198.4 | 189.6 | 189.6 | ||||
Trading account liabilities | 126.1 | 126.1 | 129.1 | 129.1 | ||||
Long-term debt | 323.5 | 313.8 | 381.2 | 384.5 | ||||
Other financial liabilities (3) | 146.2 | 146.2 | 171.2 | 171.2 |
(1) | The carrying value of loans is net of the Allowance for loan losses of $30.1 billion for December 31, 2011 and $40.7 billion for December 31, 2010. In addition, the carrying values exclude $2.5 billion and $2.6 billion of lease finance receivables at December 31, 2011 and December 31, 2010, respectively. |
(2) | Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverable, mortgage servicing rights, separate and variable accounts 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. |
(3) | Includes brokerage payables, separate and variable accounts, short-term borrowings 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. |
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 $10.7 billion and by $21.2 billion at December 31, 2011 and
December 31, 2010, respectively. At December 31, 2011, the carrying values, net
of allowances, exceeded the estimated fair values by $8.4 billion and $2.3
billion for Consumer loans and Corporate loans, respectively.
The
estimated fair values of the Company's corporate unfunded lending commitments at
December 31, 2011 and December 31, 2010 were liabilities of $4.7 billion and
$5.6 billion, respectively. The Company does not estimate the fair values of
consumer unfunded lending commitments, which are generally cancelable by
providing notice to the borrower.
260
28. 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, securities financing agreements, secured liabilities
of consolidated VIEs and other borrowings. At December 31, 2011 and 2010, the
approximate carrying values of the significant components of pledged assets
recognized on the Company's balance sheet include:
In millions of dollars | 2011 | 2010 | ||||
Investment securities | $ | 129,093 | $ | 154,692 | ||
Loans | 235,031 | 269,607 | ||||
Trading account assets | 114,539 | 140,695 | ||||
Total | $ | 478,663 | $ | 564,994 |
In addition, included in cash and due from
banks at December 31, 2011 and 2010 are $13.6 billion and $15.6 billion,
respectively, of cash segregated under federal and other brokerage regulations
or deposited with clearing organizations.
At December 31, 2011 and 2010, the Company had $1.4
billion and $1.1 billion, respectively, of outstanding letters of credit from
third-party banks to satisfy various collateral and margin
requirements.
Collateral
At December 31, 2011 and 2010, 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 $350.0 billion and
$335.3 billion, respectively. This collateral was received in connection with
resale agreements, securities borrowings and loans, derivative transactions and
margined broker loans.
At December 31, 2011 and 2010, 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 addition, at December 31, 2011 and 2010, the Company had pledged $187 billion and $271 billion, respectively, of collateral that may not be sold or repledged by the secured parties.
Lease
Commitments
Rental expense (principally
for offices and computer equipment) was $1.6 billion, $1.6 billion and $2.0
billion for the years ended December 31, 2011, 2010 and 2009,
respectively.
Future minimum annual rentals under noncancelable leases, net
of sublease income, are as follows:
In millions of dollars | ||
2012 | $ | 1,199 |
2013 | 1,096 | |
2014 | 1,008 | |
2015 | 906 | |
2016 | 793 | |
Thereafter | 2,292 | |
Total | $ | 7,294 |
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 obligation undertaken in
issuing the guarantee.
In addition, the guarantor must disclose
the maximum potential amount of future payments 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. 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, 2011 and December 31, 2010:
Maximum potential amount of future payments | ||||||||
Expire within | Expire after | Total amount | Carrying value | |||||
In billions of dollars at December 31, except carrying value in millions | 1 year | 1 year | outstanding | (in millions) | ||||
2011 | ||||||||
Financial standby letters of credit | $ | 25.2 | $ | 79.5 | $ | 104.7 | $ | 417.5 |
Performance guarantees | 7.8 | 4.5 | 12.3 | 43.9 | ||||
Derivative instruments considered to be guarantees | 11.1 | 10.2 | 21.3 | 2,569.7 | ||||
Loans sold with recourse | - | 0.4 | 0.4 | 89.6 | ||||
Securities lending indemnifications (1) | 90.9 | - | 90.9 | - | ||||
Credit card merchant processing (1) | 70.2 | - | 70.2 | - | ||||
Custody indemnifications and other | - | 40.0 | 40.0 | 30.7 | ||||
Total | $ | 205.2 | $ | 134.6 | $ | 339.8 | $ | 3,151.4 |
(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. |
261
Maximum potential amount of future payments | ||||||||||||
In billions of dollars at December 31, | Expire within | Expire after | Total amount | Carrying value | ||||||||
except carrying value in millions | 1 year | 1 year | outstanding | (in millions) | ||||||||
2010 | ||||||||||||
Financial standby letters of credit | $ | 26.4 | $ | 68.4 | $ | 94.8 | $ | 225.9 | ||||
Performance guarantees | 9.1 | 4.6 | 13.7 | 35.8 | ||||||||
Derivative instruments considered to be guarantees | 7.5 | 7.5 | 15.0 | 1,445.2 | ||||||||
Loans sold with recourse | - | 0.4 | 0.4 | 117.3 | ||||||||
Securities lending indemnifications (1) | 70.4 | - | 70.4 | - | ||||||||
Credit card merchant processing (1) | 65.0 | - | 65.0 | - | ||||||||
Custody indemnifications and other | - | 40.2 | 40.2 | 253.8 | ||||||||
Total | $ | 178.4 | $ | 121.1 | $ | 299.5 | $ | 2,078.0 |
(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. |
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.
Performance
guarantees
Performance guarantees and
letters of credit are issued to guarantee a customer's tender bid on a
construction or systems-installation 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.
Derivatives are financial instruments whose cash flows are based on a notional amount and an underlying, 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 this presentation, as they are disclosed separately in Note 23 to the Consolidated Financial Statements. In addition, non-credit derivative 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 disclosure above.
In instances where the Company's maximum potential future payment is
unlimited, the notional amount of the contract is disclosed.
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's
taking back any loans that become delinquent.
In
addition to the amounts shown in the table above, the repurchase reserve for
Consumer mortgages representations and warranties was $1,188 million and $969
million at December 31, 2011 and December 31, 2010, respectively, and these
amounts are included in Other
liabilities on the Consolidated Balance
Sheet.
The repurchase reserve estimation process is subject to numerous
estimates and judgments. The assumptions used to calculate the repurchase
reserve contain a level of uncertainty and risk that, if different from actual
results, could have a material impact on the reserve amounts. The key
assumptions are:
Citi estimates that if there were a simultaneous 10% adverse change in each of the significant assumptions, the repurchase reserve would increase by approximately $620 million as of December 31, 2011. This potential change is hypothetical and intended to indicate the sensitivity of the repurchase reserve to changes in the key assumptions. Actual changes in the key assumptions may not occur at the same time or to the same degree (i.e., an adverse change in one assumption may be offset by an improvement in another). Citi does not believe it has sufficient information to estimate a range of reasonably possible loss (as defined under ASC 450) relating to its Consumer representations and warranties.
262
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.
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: (a) provides transaction processing services to
various merchants with respect to its private-label cards and (b) 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 (a) 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 (b) 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, 2011 and December 31, 2010, this
maximum potential exposure was estimated to be $70 billion and $65 billion,
respectively.
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, 2011 and December 31, 2010, the estimated losses incurred and the carrying amounts of the Company's contingent obligations related to merchant processing activities were immaterial.
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, 2011 and 2010, the
actual and estimated losses incurred and the carrying value of the Company's
obligations related to these programs were immaterial.
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
263
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.
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, 2011 or December 31, 2010 for
potential obligations that could arise from the Company's involvement with VTN
associations.
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 $4.4 billion at December
31, 2011 and $3.6 billion at December 31, 2010) 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, 2011 related to this indemnification. However, Citi continues to closely monitor its potential exposure under this indemnification obligation.
Carrying Value-Guarantees and
Indemnifications
At December 31, 2011 and
December 31, 2010, 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 $2.1 billion, respectively. The carrying value of
derivative instruments is included in either Trading liabilities or Other liabilities ,
depending upon whether the derivative was entered into for trading or
non-trading 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, 2011 and December 31, 2010, Other
liabilities on the Consolidated Balance Sheet
include an allowance for credit losses of $1,136 million and $1,066 million,
respectively, relating to letters of credit and unfunded lending
commitments.
Collateral
Cash collateral available to the Company to reimburse losses
realized under these guarantees and indemnifications amounted to $35 billion at
December 31, 2011 and December 31, 2010. Securities and other marketable assets
held as collateral amounted to $65 billion and $41 billion at December 31, 2011
and December 31, 2010, respectively, the majority of which 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 $1.5 billion and $2.0 billion at December 31, 2011 and December 31,
2010, 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.
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.
264
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, 2011 and December 31, 2010. 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. Such amounts bear no relationship to the anticipated losses, if any, on these guarantees.
Maximum potential amount of future payments | ||||||||||||
Investment | Non-investment | Not | ||||||||||
In billions of dollars as of December 31, 2011 | grade | grade | rated | Total | ||||||||
Financial standby letters of credit | $ | 79.3 | $ | 17.2 | $ | 8.2 | $ | 104.7 | ||||
Performance guarantees | 6.9 | 3.2 | 2.2 | 12.3 | ||||||||
Derivative instruments deemed to be guarantees | - | - | 21.3 | 21.3 | ||||||||
Loans sold with recourse | - | - | 0.4 | 0.4 | ||||||||
Securities lending indemnifications | - | - | 90.9 | 90.9 | ||||||||
Credit card merchant processing | - | - | 70.2 | 70.2 | ||||||||
Custody indemnifications and other | 40.0 | - | - | 40.0 | ||||||||
Total | $ | 126.2 | $ | 20.4 | $ | 193.2 | $ | 339.8 | ||||
Maximum potential amount of future payments | ||||||||||||
Investment | Non-investment | Not | ||||||||||
In billions of dollars as of December 31, 2010 | grade | grade | rated | Total | ||||||||
Financial standby letters of credit | $ | 58.7 | $ | 13.2 | $ | 22.9 | $ | 94.8 | ||||
Performance guarantees | 7.0 | 3.4 | 3.3 | 13.7 | ||||||||
Derivative instruments deemed to be guarantees | - | - | 15.0 | 15.0 | ||||||||
Loans sold with recourse | - | - | 0.4 | 0.4 | ||||||||
Securities lending indemnifications | - | - | 70.4 | 70.4 | ||||||||
Credit card merchant processing | - | - | 65.0 | 65.0 | ||||||||
Custody indemnifications and other | 40.2 | - | - | 40.2 | ||||||||
Total | $ | 105.9 | $ | 16.6 | $ | 177.0 | $ | 299.5 |
265
Credit Commitments and Lines of
Credit
The table below summarizes
Citigroup's credit commitments as of December, 31 2011 and December 31,
2010:
Outside of | December 31, | December 31, | ||||||||||
In millions of dollars | U.S. | U.S. | 2011 | 2010 | ||||||||
Commercial and similar letters of credit | $ | 1,819 | $ | 7,091 | $ | 8,910 | $ | 8,974 | ||||
One- to four-family residential mortgages | 3,007 | 497 | 3,504 | 2,980 | ||||||||
Revolving open-end loans secured by one- to four-family residential properties | 16,476 | 2,850 | 19,326 | 20,934 | ||||||||
Commercial real estate, construction and land development | 1,679 | 289 | 1,968 | 2,407 | ||||||||
Credit card lines | 521,034 | 115,040 | 636,074 | 698,673 | ||||||||
Commercial and other consumer loan commitments | 138,183 | 85,926 | 224,109 | 210,404 | ||||||||
Total | $ | 682,198 | $ | 211,693 | $ | 893,891 | $ | 944,372 |
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.
Commercial and similar letters of
credit
A commercial letter of credit
is an instrument by which Citi substitutes its credit for that of a customer to
enable the customer to finance the purchase of goods or to incur other
commitments. Citi 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
Citi.
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.
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.
Credit card
lines
Citi provides credit to
customers by issuing credit cards. The 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 $65 billion and $79 billion
with an original maturity of less than one year at December 31, 2011 and
December 31, 2010, 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 buyouts and similar transactions.
266
29. CONTINGENCIES
Overview
In addition to the matters described below, in the ordinary
course of business, Citigroup and 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,
disgorgement, injunctions or other relief. 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 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.
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.
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 therefore 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 an 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.
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
267
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, 2011, Citigroup estimates that the reasonably possible
unaccrued loss in future periods for these matters ranges up to approximately $4
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.
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.
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 and state
securities and fraud laws; (ii) participants and purported classes of
participants in Citigroup's retirement plans, alleging violations of the
Employee Retirement Income Security Act (ERISA); (iii) counterparties to
transactions adversely affected by developments in the credit and mortgage
markets; (iv) individual investors and purported classes of investors in
securities and other investments underwritten, issued or marketed by Citigroup,
including collateralized debt obligations (CDOs), mortgage-backed securities
(MBS), auction-rate securities (ARS), investment funds, and other structured or
leveraged instruments, that have suffered losses as a result of the credit
crisis; and (v) individual borrowers asserting claims related to their loans.
These matters have been filed in state and federal courts across the country, as
well as in arbitrations before the Financial Industry Regulatory Authority
(FINRA) and other arbitration associations.
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 mortgage-related
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 MBS and CDOs and its origination, sale or other transfer,
servicing, and foreclosure of residential mortgages, including its compliance
with the Servicemembers Civil Relief Act (SCRA).
Mortgage-Related Litigation and
Other Matters
Beginning in November
2007, Citigroup and Related Parties have been named as defendants in numerous
legal actions and other proceedings brought by Citigroup shareholders,
investors, counterparties, regulators and others concerning Citigroup's
activities relating to mortgages, including
268
Citigroup's involvement with CDOs, MBS and structured investment
vehicles, Citigroup's underwriting activity for mortgage lenders, and Citigroup's more general mortgage- and
credit-related activities.
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 pay $30 million in prejudgment interest and a $95 million penalty.
On November 28, 2011, the district court issued an order refusing to approve the proposed settlement and ordering trial to
begin on July 16, 2012. On December 15 and 19, 2011, respectively, the SEC and CGMI filed notices of appeal from the
district court's November 28 order. On December 27, 2011, the United States Court of Appeals for the Second Circuit
granted an emergency stay of further proceedings in the district court, pending the Second Circuit's ruling on the
SEC's motion to stay the district court proceedings during the pendency of the appeals. Additional information relating
to 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.).
On
February 9, 2012, Citigroup announced that CitiMortgage, along with other major mortgage servicers, had reached an agreement
in principle with the United States and with the Attorneys General for 49 states (Oklahoma did not participate) and the
District of Columbia to settle a number of related investigations into residential loan servicing and origination practices
(the National Mortgage Settlement). The agreement is subject to the satisfaction of certain conditions, including final
court approval.
Under
the National Mortgage Settlement, Citigroup commits to make payments and provide financial relief to homeowners in
three categories: (1) cash payments payable to the states and federal agencies in the aggregate amount of $415 million, a
portion of which will be used by the states for payments to homeowners affected by foreclosure practices; (2) customer
relief in the form of loan modifications for delinquent borrowers, including principal reductions, to be completed over
three years, with a total value of $1,411 million; and (3) refinancing concessions to enable current borrowers whose
properties are worth less than the value of their loans to reduce their interest rates, to be completed over three years,
with a total value of $378 million. The total amount of the financial consideration to be paid by Citigroup is $2.2 billion.
As of December 31, 2011, Citigroup had fully provided for the cash payments called for under the National Mortgage
Settlement (see Note 30 to the Consolidated Financial Statements). Citigroup expects that its loan loss reserves as of
December 31, 2011 will be sufficient to cover the customer relief payments to delinquent borrowers. The impact of the
refinancing concessions will be recognized over a period of years in the form of lower interest income. What impact, if any,
the National Mortgage Settlement will have on the behavior of borrowers in general, however, whether or not their loans are
within the scope of the settlement, is uncertain and difficult to predict.
The National Mortgage Settlement also provides for mortgage servicing
standards in addition to those previously agreed in Consent Orders dated April
13, 2011 with the Federal Reserve Board and the Office of Comptroller of the
Currency. While Citigroup expects to incur additional operating expenses in
implementing these standards, it does not currently expect that the impact of
these expenses will be material.
Citigroup is receiving legal releases in
connection with the National Mortgage Settlement. These releases will address a
broad range of, but not all, potential claims related to mortgage servicing and
origination. Citigroup will not receive releases related to securitizations or
whole loan sales, nor will it receive releases from criminal, tax,
environmental, and certain other categories of liability.
In
conjunction with the National Mortgage Settlement, Citigroup and Related Parties
also entered into a settlement with the United States Attorney's Office for the
Southern District of New York of a "qui tam" action. This action alleged that,
as a participant in the Direct Endorsement Lender program, CitiMortgage had
certified to the United States Department of Housing and Urban Development (HUD)
and the Federal Housing Administration (FHA) that certain loans were eligible
for FHA insurance when in fact they were not. The settlement releases Citigroup
from claims arising out of its acts or omissions relating to the origination,
underwriting, or endorsement of all FHA-insured loans prior to the effective
date of the settlement. Under the settlement, Citigroup will pay the United
States $158.3 million, for which Citigroup had fully provided as of December 31,
2011 (see Note 30 to the Consolidated Financial Statements). CitiMortgage will continue to participate in the Direct Endorsement Lender
program. Additional information relating to this action is publicly available in
court filings under the docket number 11 Civ. 5423 (S.D.N.Y.) (Marrero,
J.).
Federal and state regulators have served subpoenas or otherwise requested
information concerning a variety of aspects of Citigroup's mortgage origination
and mortgage servicing practices, including with respect to ancillary insurance
products or practices. The subjects of such inquiries have included, among other
things, Citigroup's compliance with the SCRA and analogous state statutes. Many,
but not all, of these inquiries are within the scope of the claims released in
the National Mortgage Settlement. In some instances, Citigroup is also a
defendant in purported class actions, "qui tam" actions, or other actions
addressing the same or similar subject matters, including the SCRA. Such actions
by private litigants or counties and municipalities are not released in the
National Mortgage Settlement.
Federal and state regulators, including
the SEC, also have served subpoenas or otherwise requested information related
to Citigroup's issuing, sponsoring, or underwriting of MBS. These inquiries
include a subpoena from the Civil Division of the Department of Justice that
Citigroup received on January 27, 2012.
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Securities
Actions: Citigroup and Related Parties have
been named as defendants in four putative class actions filed in the United
States District Court for the Southern District of New York. On August 19, 2008,
these actions were consolidated under the caption IN RE CITIGROUP INC.
SECURITIES LITIGATION. The consolidated amended complaint asserts claims arising
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 district 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.
Fact discovery is underway. Plaintiffs have not yet quantified the putative
class's alleged damages. During the putative class period, as narrowed by the
district court, the price of Citigroup's common stock declined from $54.73 at
the beginning of the period to $25.11 at the end of the period. (These share
prices represent Citi's common stock prices prior to its 1-for-10 reverse stock
split, effective May 6, 2011. See "Earnings Per Share" in Note 1 to the
Consolidated Financial Statements.) Additional information relating to 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 two putative class
actions filed in New York state court, but since removed to the United States
District Court for the Southern District of New York, alleging violations of
Sections 11, 12 and 15 of the Securities Act of 1933 in connection with various
offerings of Citigroup securities. On December 10, 2008, these actions were
consolidated under the caption IN RE CITIGROUP INC. BOND LITIGATION. In the
consolidated action, lead plaintiffs assert claims on behalf of a putative class
of purchasers of corporate debt securities, preferred stock and interests in
preferred stock issued by Citigroup and related issuers over a two-year period
from 2006 to 2008. On July 12, 2010, the district 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 is underway. Plaintiffs have not yet quantified the putative
class's alleged damages. Additional information relating to this action is
publicly available in court filings under the consolidated lead docket number 08
Civ. 9522 (S.D.N.Y.) (Stein, J.).
Citigroup and CGMI have been named as
defendants in two putative class actions filed in the United States District
Court for the Southern District of California, but since transferred by the
Judicial Panel on Multidistrict Litigation to the United States District Court
for the Southern District of New York. In the consolidated action, lead
plaintiffs assert claims on behalf of a putative class of participants in
Citigroup's Voluntary Financial Advisor Capital Accumulation Plan from November
2006 through January 2009. On June 7, 2011, the district court granted
defendants' motion to dismiss the complaint and subsequently entered judgment.
On November 14, 2011, the district court granted in part plaintiffs' motion to
alter or amend the judgment and granted plaintiffs leave to amend the complaint.
On November 23, 2011, plaintiffs filed an amended complaint alleging violations
of Section 12 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934.
Defendants filed a motion to dismiss certain of plaintiffs' claims on December
21, 2011. Additional information relating to this action is publicly available
in court filings under the docket number 09 Civ. 7359 (S.D.N.Y.) (Stein,
J.).
Several institutional or high-net-worth investors that purchased debt and
equity securities issued by Citigroup and affiliated issuers also have filed
actions on their own behalf against Citigroup and Related Parties in federal and
state court. These actions assert claims similar to those asserted in the IN RE
CITIGROUP INC. SECURITIES LITIGATION and IN RE CITIGROUP INC. BOND LITIGATION
actions described above. Collectively, these investors seek damages exceeding $1
billion. Additional information relating to these individual actions is publicly
available in court filings under the docket numbers 09 Civ. 8755 (S.D.N.Y.)
(Stein, J.), 10 Civ. 7202 (S.D.N.Y.) (Stein, J.), 10 Civ. 9325 (S.D.N.Y.)
(Stein, J.), 10 Civ. 9646 (S.D.N.Y.) (Stein, J.), 11 Civ. 314 (S.D.N.Y.) (Stein,
J.), 11 Civ. 4788 (S.D.N.Y.) (Stein, J.), 11 Civ. 7138 (S.D.N.Y.) (Stein, J.),
11 Civ. 8291 (S.D.N.Y.) (Stein, J.), and Case No. 110105028 (Pa. Commw. Ct.)
(Sheppard, J.).
ERISA Actions : Beginning in
November 2007, numerous putative class actions were filed in the United States
District Court for the Southern District of New York by current or former
Citigroup employees asserting claims under ERISA against Citigroup and Related
Parties alleged to have served as ERISA plan fiduciaries. On August 31, 2009,
the district court granted defendants' motion to dismiss the consolidated class
action complaint, captioned IN RE CITIGROUP ERISA LITIGATION. Plaintiffs
appealed the dismissal and, on October 19, 2011, the United States Court of
Appeals for the Second Circuit affirmed the district court's order dismissing
the case. Additional information relating to this action is publicly available
in court filings under the docket number 07 Civ. 9790 (S.D.N.Y.) (Stein, J.) and
09-3804 (2d Cir.).
Beginning on October 28, 2011, several putative class actions
were filed in the United States District Court for the Southern District of New
York by current or former Citigroup employees asserting claims under ERISA
against Citigroup and Related Parties alleged to have served as ERISA plan
fiduciaries from 2008 to 2009. Additional information relating to these actions
is publicly available in court filings under the docket numbers 11 Civ. 7672,
7943, 8982, 8990 and 8999 (S.D.N.Y.) (Koeltl, J.).
Derivative Actions and Related Proceedings : Numerous derivative actions have been filed in federal and state courts
against various current and former officers and directors of Citigroup alleging
mismanagement in connection with mortgage-related issues, including Citigroup's
exposure to subprime-related assets and servicing and foreclosure of residential
mortgages. Citigroup is named as a nominal defendant in these actions. Certain
of these actions have been dismissed either in their entirety or in large part.
Additional information relating to the actions still pending is publicly
available in court filings under the docket numbers 650417/09 (N.Y. Sup. Ct.)
(Fried, J.), 11 Civ. 2693 (S.D.N.Y.) (Griesa, J.), and 3338-VCG (Del. Ch.)
(Glasscock, V.C.). In addition, a committee of Citigroup's Board of Directors is
reviewing a shareholder demand that raises RMBS-related issues and a shareholder
demand that raises issues relating to Citigroup's structuring and sale of Class
V.
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Mortgage-Backed Securities and CDO Investor Actions and Repurchase
Claims: Beginning in July 2010, several
investors, including Cambridge Place Investment Management, The Charles Schwab
Corporation, the Federal Home Loan Bank of Chicago, the Federal Home Loan Bank
of Boston, Allstate Insurance Company and affiliated entities, Union Central
Life Insurance Co. and affiliated entities, the Federal Housing Finance Agency,
the Western & Southern Life Insurance Company and affiliated entities,
Moneygram Payment Systems, Inc., and Loreley Financing (Jersey) No. 3 Ltd. and
affiliated entities, have filed lawsuits against Citigroup and Related Parties
alleging actionable misstatements or omissions in connection with the issuance
and underwriting of MBS and CDOs. These actions are in early stages. As a
general matter, plaintiffs in these actions are seeking rescission of their
investments or other damages. Additional information relating to these actions
is publicly available in court filings under the docket numbers 10-2741-BLS1
(Mass. Super. Ct.) (Lauriat, J.), 11-0555-BLS1 (Mass. Super. Ct.) (Lauriat, J.),
CGC-10-501610 (Cal. Super. Ct.) (Kramer, J.), 10 CH 45033 (Ill. Super. Ct.)
(Allen, J.), LC091499 (Cal. Super. Ct.) (Mohr, J.), 11 Civ. 10952 (D. Mass.)
(O'Toole, J.), 11 Civ. 1927 (S.D.N.Y.) (Sullivan, J.), 11 Civ. 2890 (S.D.N.Y.)
(Daniels, J.), 11 Civ. 6188 (S.D.N.Y.) (Cote, J.), 11 Civ. 6196 (S.D.N.Y.)
(Cote, J.), 11 Civ. 6916 (S.D.N.Y.) (Cote, J.), 11 Civ. 7010 (S.D.N.Y.) (Cote,
J.), A 1105042 (Ohio Ct. Common Pleas) (Myers, J.), No. 27-CB-11-21348 (Minn.
Dist. Ct.) (Howard, J.) and 650212/12 (N.Y. Sup. Ct.). Other purchasers of MBS
or CDOs sold or underwritten by Citigroup affiliates have threatened to file
lawsuits asserting similar claims, some of which Citigroup has agreed to toll
pending further discussions with these investors.
In
addition, various parties to MBS securitizations, among others, have asserted
that certain Citigroup affiliates breached representations and warranties made
in connection with mortgage loans placed into securitization trusts. Citigroup
also has experienced an increase in the level of inquiries relating to these
securitizations, particularly requests for loan files from trustees of
securitization trusts and others. 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. The
letter asserts that Gibbs & Bruns LLP's clients collectively hold 25% or
more of the voting rights in 35 MBS trusts issued and/or underwritten by
Citigroup affiliates, and that these trusts have an aggregate outstanding
balance in excess of $9 billion. The letter alleges that certain mortgages in
these trusts were sold or deposited into the trusts based on misrepresentations
by the mortgage originators, sellers and/or depositors and that Citigroup
improperly serviced mortgage loans in those trusts. The letter further threatens
to instruct trustees of the trusts to assert claims against Citigroup based on
these allegations. Gibbs & Bruns LLP subsequently informed Citigroup that
its clients hold the requisite interest in 70 trusts in total, with an alleged
total unpaid principal balance of $24 billion, for which Gibbs & Bruns LLP
asserts that Citigroup affiliates have repurchase obligations. Citigroup is also
a trustee of securitization trusts for MBS issued by unaffiliated issuers that
have received similar letters from Gibbs & Bruns, LLP.
Given the continued and increased focus on mortgage-related matters, as
well as the increasing level of litigation and regulatory activity relating to
mortgage loans and mortgage-backed securities, the level of inquiries and
assertions respecting securitizations may further increase. These inquiries and
assertions could lead to actual claims for breaches of representations and
warranties, or to litigation relating to such breaches or other
matters.
Underwriting Matters :
Certain Citigroup affiliates have been named as defendants arising out of their
activities as underwriters of securities in actions brought by investors in
securities of issuers adversely affected by the credit crisis, including AIG,
Fannie Mae, Freddie Mac, Ambac and Lehman, among others. These matters are in
various stages of litigation. As a general matter, issuers indemnify
underwriters in connection with such claims. In certain of these matters,
however, Citigroup affiliates are not being indemnified or may in the future
cease to be indemnified because of the financial condition of the
issuer.
On September 28, 2011, the United States District Court for the Southern
District of New York approved a stipulation of settlement with the underwriter
defendants in IN RE AMBAC FINANCIAL GROUP, INC. SECURITIES LITIGATION and judgment was entered. A member of the
settlement class has appealed the judgment to the United States Court of Appeals
for the Second Circuit. On December 22, 2011, the underwriter defendants moved
to dismiss the appeal. Additional information relating to this action is
publicly available in court filings under the docket numbers 08 Civ. 0411
(S.D.N.Y.) (Buchwald, J.) and 11-4643 (2d Cir.).
Counterparty and Investor
Actions
Citigroup and Related Parties
have been named as defendants in actions brought in various state and federal
courts, as well as in arbitrations, by counterparties and investors that claim
to have suffered losses as a result of the credit crisis. These actions include
an arbitration brought by Abu Dhabi Investment Authority (ADIA) alleging
statutory and common law claims in connection with its $7.5 billion investment
in Citigroup. ADIA sought rescission of the investment agreement or, in the
alternative, more than $4 billion in damages. A hearing took place in May 2011.
Following 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. Additional information regarding this matter is publicly available in
court filings under the docket number 12 Civ. 283 (S.D.N.Y.) (Daniels,
J.).
In August 2011, two Saudi nationals and related entities commenced a
FINRA arbitration against Citigroup Global Markets, Inc. (CGMI) alleging $380
million in losses resulting from certain options trades referencing a portfolio
of hedge funds and certain credit facilities collateralized by a private equity
portfolio. CGMI did not serve as the counterparty or credit facility provider in
these transactions. In September 2011, CGMI commenced an action in the United
States District Court for the Southern District of New York seeking to enjoin
the arbitration. Simultaneously with that filing, the Citigroup entities that served as the
counterparty or credit facility provider to the transactions commenced actions
in London and Switzerland for declaratory judgments of no liability.
271
ASTA/MAT and Falcon-Related
Litigation and Other Matters
ASTA/MAT
and Falcon were alternative investment funds managed and marketed by certain
Citigroup affiliates that suffered substantial losses during the credit crisis.
The SEC is investigating the management and marketing of the ASTA/MAT and Falcon
funds. Citigroup is cooperating fully with the SEC's
inquiry.
In addition,
numerous investors in ASTA/MAT have filed lawsuits or arbitrations against
Citigroup and Related Parties seeking recoupment of their alleged losses.
Although many of these investor disputes have been resolved, others remain
pending. In April 2011, a FINRA arbitration panel awarded two ASTA/MAT investors
$54 million in damages and attorneys' fees, including punitive damages, against
Citigroup. In December 2011, the United States District Court for the District
of Colorado entered an order confirming the FINRA panel's award. Citigroup has
filed a notice of appeal to the 10th Circuit Court of Appeals. Additional
information relating to this matter is publicly available in court filings under
the docket number 11 Civ. 971 (D. Colo.) (Arguello, J.).
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 customers
concerning ARS, many of which have been resolved. These have included, among
others: (i) numerous lawsuits and arbitrations filed by customers of Citigroup
and its affiliates seeking damages in connection with investments in ARS; (ii) a
consolidated putative class action asserting claims for federal securities
violations, which has been dismissed and is now pending on appeal; (iii) two
putative class actions asserting violations of Section 1 of the Sherman Act,
which have been dismissed and are now pending on appeal; and (iv) a derivative
action filed against certain Citigroup officers and directors, which has been
dismissed. In addition, based on an investigation, report and recommendation
from a committee of Citigroup's Board of Directors, the Board refused a
shareholder demand that was made after dismissal of the derivative action.
Additional information relating to certain of these actions is publicly
available in court filings under the docket numbers 08 Civ. 3095 (S.D.N.Y.)
(Swain, J.), 10-722 (2d Cir.); 10-867 (2d Cir.); 11-1270 (2d Cir.).
Lehman Structured Notes
Matters
Like many other financial
institutions, Citigroup, through certain of its affiliates and subsidiaries,
distributed structured notes (Notes) issued and guaranteed by Lehman entities to
retail customers in various countries outside the United States, principally in
Europe and Asia. After the relevant Lehman entities filed for bankruptcy
protection in September 2008, certain regulators in Europe and Asia commenced
investigations into the conduct of financial institutions involved in such
distribution, including Citigroup entities. Some of those regulatory
investigations have resulted in adverse
findings against Citigroup entities. Some
purchasers of the Notes have filed civil actions or otherwise complained about
the sales process. Citigroup has resolved the vast majority of such actions or
complaints either on an individual basis or through settlement offers, made
without admission of liability, to all eligible purchasers of Notes distributed
by Citigroup in certain countries.
In Belgium, criminal charges were brought
against a Citigroup subsidiary (CBB) and three current or 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. CBB was fined 165,000 Euro
and was ordered to compensate 63 non-settling claimants for the par value of
their Notes (2.4 million Euro in the aggregate), net of any recovery they
receive in the Lehman bankruptcies. Both CBB and the Public Prosecutor have
appealed the judgment. The appellate court has indicated that it will render its
decision on April 2, 2012.
Lehman Brothers Bankruptcy
Proceedings
On March 18, 2011,
Citigroup and Related Parties were named as defendants in an adversary
proceeding captioned LEHMAN BROTHERS INC. v. CITIBANK, N.A., ET AL. In the complaint, which asserts claims under
federal bankruptcy and state law, the Securities Investor Protection Act Trustee
alleges that a $1 billion cash deposit Lehman Brothers Inc. (LBI) placed with
Citibank prior to the commencement of liquidation proceedings should be returned
to the bankruptcy estate, that Citibank's setoff against the $1 billion deposit
to satisfy its claims against LBI should be set aside, and that approximately
$342 million in additional deposits by LBI currently held by Citibank and its
affiliates should be returned to the estate. Citigroup has moved to dismiss the
adversary complaint. Additional information relating to this adversary
proceeding is publicly available in court filings under the docket number
11-01681 (Bankr. S.D.N.Y.) (Peck, J.). Additional information relating to the
LBI liquidation proceeding, captioned IN RE LEHMAN BROTHERS INC., is publicly
available in court filings under the docket number 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 captioned LEHMAN BROTHERS HOLDINGS INC.
v. CITIBANK, N.A., ET AL. The proceeding principally concerns proofs of claim
Citigroup entities have filed against Lehman Brothers Holdings Inc. (LBHI) and
its affiliates, in which Citigroup entities have claimed they are owed more than
$2.6 billion under derivatives contracts, loan documents, and clearing
agreements, among other arrangements. Citigroup has further asserted a right to
offset approximately $2.3 billion of these claims against $2 billion deposited
by LBHI with Citibank, N.A. in June 2008, as well as certain other LBHI deposits
and other payables owed by the Citigroup entities.
The
complaint asserts claims under state and federal law to recover the $2 billion
deposit and obtain a declaration that it may not be used to offset any Citigroup
entities' claims, to avoid a $500 million transfer and an amendment to a
guarantee in favor of Citigroup, and for other relief. The complaint also raises
objections to proofs of claim filed by Citigroup
272
entities against LBHI and its affiliates.
The claim objections seek to reduce or avoid approximately $2 billion in claims
relating to terminated derivatives contracts and to disallow all claims against
LBHI to the extent they seek to recover against the disputed deposit or
guarantee. Additional information relating to this adversary proceeding is
publicly available in court filings under the docket number 12-01044 (Bankr.
S.D.N.Y.) (Peck, J.).
Additional information relating to the Chapter 11 bankruptcy proceedings
of LBHI and its subsidiaries, captioned IN RE LEHMAN BROTHERS HOLDINGS INC., is publicly available in court filings under
the docket number 08-13555 (Bankr. S.D.N.Y.) (Peck, J.).
On
September 15, 2008, LBHI subsidiary Lehman Brothers International (Europe)
(LBIE) entered administration under English law. Since that time, Citigroup and
Related Parties have held as custodians approximately $2 billion of proprietary
assets and cash of LBIE. During the course of LBIE's administration, Citigroup
and Related Parties asserted a contractual right to retain the proprietary
assets and cash as security for amounts owed to Citigroup and Related Parties by
LBIE and its affiliates (including LBHI and LBI), a right that the
administrators for LBIE disputed. On June 28, 2011, Citigroup and Related
Parties entered into a settlement agreement with LBIE resolving the parties'
disputes with respect to the LBIE proprietary assets and cash held by Citigroup
and Related Parties as custodians. Under the terms of the settlement, Citigroup
and Related Parties have undertaken the return of LBIE's proprietary assets and
cash and released all claims in respect of those assets and cash in exchange for
releases, the payment of fees and preservation of certain claims asserted by
Citigroup and Related Parties in LBIE's insolvency proceeding in England. The
settlement does not affect the deposits, claims or setoff rights at issue in the
disputes with LBI and LBHI described above. Additional information relating to
the administration of LBIE is available at
www.pwc.co.uk/eng/issues/lehman_updates.html.
Terra Firma
Litigation
In December 2009,
plaintiffs, general partners of two related private equity funds, filed a
complaint in New York state court, subsequently removed to the Southern District
of New York, against certain Citigroup affiliates. Plaintiffs allege that during
the May 2007 auction of the music company EMI, Citigroup, as advisor to EMI and
as a potential lender to plaintiffs' acquisition vehicle Maltby, fraudulently or
negligently orally misrepresented the intentions of another potential bidder
regarding the auction. Plaintiffs alleged that, but for the oral
misrepresentations, Maltby would not have acquired EMI for approximately £4.2
billion. Plaintiffs further alleged that, following the acquisition of EMI,
certain Citigroup entities tortiously interfered with plaintiffs' business
relationship with EMI. Plaintiffs sought billions of dollars in damages. On
September 15, 2010, the district court issued an order granting in part and
denying in part Citigroup's motion for summary judgment. Plaintiffs' claims for
negligent misrepresentation and tortious interference were dismissed. On October
18, 2010, a jury trial commenced on plaintiffs' remaining claims for fraudulent
misrepresentation and fraudulent concealment. The court dismissed the fraudulent
concealment claim before sending the case to the jury. On November 4, 2010,
the jury returned a verdict on the fraudulent misrepresentation claim in favor of Citigroup. Judgment dismissing the complaint was entered on December 9, 2010. Plaintiffs have appealed the judgment as to the negligent misrepresentation claim, the fraudulent concealment claim and the fraudulent misrepresentation claim. Additional information relating to 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.).
Interbank Offered Rates-Related
Litigation and Other Matters
Government agencies in the U.S., including the Department of Justice, the
Commodity Futures Trading Commission and the Securities and Exchange Commission,
as well as agencies in other jurisdictions, including the European Commission,
the U.K. Financial Services Authority, the Japanese Financial Services Agency
(JFSA) and the Canadian Competition Bureau, are conducting investigations or
making inquiries regarding submissions made by panel banks to bodies that
publish various interbank offered 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 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. The inquiries by government agencies into various
interbank offered rates are ongoing.
Additionally, beginning in April 2011, a
number of purported class actions and other private civil suits were filed in
various courts against banks that served on the LIBOR panel and their
affiliates, including certain Citigroup subsidiaries. The actions, which assert
various federal and state law claims relating to the setting of LIBOR, have been
consolidated into a multidistrict litigation proceeding before Judge Buchwald in
the Southern District of New York. Additional information relating to these
actions is publicly available in court filings under docket number 1:11-md-2262
(S.D.N.Y.) (Buchwald, J.).
KIKOs
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 Korean won in 2008, 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, 2011,
there were 83 civil lawsuits filed by SMEs against CKI. To
273
date, 79 decisions have been rendered at
the district court level, and CKI has prevailed in 63 of those decisions. In the
other 16 decisions, plaintiffs were awarded only a portion of the damages
sought. The damage awards total in the aggregate approximately $19.5 million.
CKI is appealing the 16 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. In the
single plaintiff's appeal that has been decided, the decision was in CKI's
favor.
Korean
prosecutors undertook a criminal investigation of local banks, including CKI,
based on allegations of fraud in the sale of these products. In July 2011
prosecutors decided not to proceed with indictments. That decision has been
appealed.
Tribune Company
Bankruptcy
Certain Citigroup
affiliates have been named as defendants in adversary proceedings related to the
Chapter 11 cases of Tribune Company (Tribune) pending in the United States
Bankruptcy Court for the District of Delaware. The complaints, which arise out
of the approximate $11 billion leveraged buyout (LBO) of Tribune in 2007, were
stayed by court order pending a confirmation hearing on competing plans of
reorganization. On October 31, 2011, the bankruptcy court denied confirmation of
both the competing plans. A third amended plan of reorganization was then
proposed, and confirmation proceedings are expected to take place in 2012.
Additional information relating to these actions is publicly available in court
filings under the lead docket number 08-13141 (Bankr. D. Del.) (Carey, J.).
Certain Citigroup affiliates also have been named as defendants in actions
brought by Tribune creditors alleging state law constructive fraudulent
conveyance claims relating to the Tribune LBO. These actions have been stayed
pending confirmation of a plan of reorganization. Additional information
relating to these actions is publicly available in court filings under the
docket number 11 MD 02296 (S.D.N.Y.) (Holwell, 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. These actions were consolidated with other related
cases in the Eastern District of New York and captioned IN RE PAYMENT CARD
INTERCHANGE FEE AND MERCHANT DISCOUNT ANTITRUST LITIGATION. The plaintiffs in
the consolidated class action are merchants that accept Visa- and
MasterCard-branded payment cards, as well as membership associations that claim
to represent certain groups of merchants. The pending complaint alleges, 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 in
violation of Section 1 of the Sherman Act. The complaint also alleges additional
Sherman Act and California law violations, including alleged unlawful
maintenance of monopoly power and alleged unlawful contracts in restraint of
trade pertaining to various Visa and MasterCard rules governing merchant conduct
(including rules allegedly affecting merchants' ability, at the point of sale,
to surcharge payment card transactions or steer customers to particular payment
cards). In addition, supplemental complaints filed against defendants in the
class action allege 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.
Plaintiffs
seek injunctive relief as well as joint and several liability for treble their
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. Certain publicly available documents estimate that Visa- and
MasterCard-branded cards generated approximately $40 billion in interchange fees
industry wide in 2009. Defendants dispute that the manner in which interchange
and merchant discount fees are set, or the rules governing merchant conduct, are
anticompetitive. Fact and expert discovery has closed. Defendants' motions to
dismiss the pending class action complaint and the supplemental complaints are
pending. Also pending are plaintiffs' motion to certify nationwide classes
consisting of all U.S. merchants that accept Visa- and MasterCard-branded
payment cards and motions by both plaintiffs and defendants for summary
judgment. The parties have been engaged in mediation for several years, including recent settlement conferences held at the
direction of the court. Additional information relating to these consolidated
actions is publicly available in court filings under the docket number MDL
05-1720 (E.D.N.Y.) (Gleeson, J.).
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 on three counterclaims. The
court entered judgment for Citibank on the counterclaims in the amount of $431
million, which is accruing interest. On December 22, 2011, the intermediate
appellate court unanimously affirmed the judgment. On January 23, 2012, Bondi
petitioned the New Jersey Supreme Court to review the decisions of the lower
courts. Additional information concerning this matter is publicly available in
court filings under docket number A-2654-08T2 (N.J. Sup. Ct.).
In
addition, 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, it is possible that 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, Bondi
has purported to file a civil complaint against Citigroup in the context of the
Parma criminal proceedings, seeking 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.
274
Research Analyst
Litigation
In March 2004, a putative
research-related customer class action alleging various state law claims arising
out of the issuance of allegedly misleading research analyst reports concerning
numerous issuers was filed against certain Citigroup affiliates in Illinois
state court. On October 13, 2011, the court entered an order dismissing with
prejudice all class-action claims asserted in the action on the ground that the
Securities Litigation Uniform Standards Act of 1998 precludes those claims. The
court granted leave for the putative representative plaintiff to file an amended
complaint asserting only his individual claims within 21 days. An amended
complaint was not filed within the 21-day period. The putative representative
plaintiff has filed a notice of appeal from the court's October 13, 2011 order.
Additional information concerning this matter is publicly available in court
filings under docket numbers 04-L-265 (Ill. Cir.) (Hylla, J.) and 5-11-0504
(Ill. App. Ct. 5 Dist.).
Companhia Industrial de
Instrumentos de Precisão Litigation
A
commercial customer, Companhia Industrial de Instrumentos de Precisão (CIIP),
filed a lawsuit against Citibank, N.A., Brazil branch (Citi Brazil), in 1992,
alleging damages arising from an unsuccessful attempt by Citi Brazil in 1975 to
declare CIIP bankrupt after CIIP defaulted on a loan owed to Citi Brazil. The
trial court ruled in favor of CIIP and awarded damages that Citigroup had
estimated at more than $330 million after taking into account interest, currency
adjustments, and current exchange rates. Citi Brazil lost its appeal but filed a
special appeal to the Superior Tribunal of Justice (STJ), the highest appellate
court for federal law in Brazil. The 4th Section of the STJ ruled 3-2 in favor
of Citi in November 2008. CIIP appealed the decision to the Special Court of the
STJ on procedural grounds. In December 2009, the Special Court of the STJ
decided 9-0 in favor of CIIP on the procedural issue, overturning the 3-2 merits
decision in favor of Citi. Citi Brazil filed a motion for clarification with the
Special Court of the STJ, and on May 4, 2011, the Special Court ruled 5-3 in
favor of Citi Brazil. This ruling has the effect of reinstating the 3-2 decision
of the 4th Section of the STJ in favor of Citi Brazil rendered in November 2008,
which had reversed the adverse judgment of the trial court. The only procedural
recourse remaining to CIIP would be to file a constitutional claim with the
Supreme Court of Brazil.
Allied Irish Bank
Litigation
In 2003, Allied Irish Bank
(AIB) filed a complaint in the Southern District of New York seeking to hold
Citibank and Bank of America, 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 and Bank of America collectively.
In 2006, the Court granted in part and denied in part defendants' motion to
dismiss. In 2009, AIB filed an amended complaint. In 2011, the parties completed
fact discovery. 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.
275
30. SUBSEQUENT EVENTS
Agreement in Principle with Certain U.S. Federal
Government Agencies and
State Attorneys General
On February 9, 2012, Citi announced that it had
reached an agreement in principle with the United States and state attorneys general regarding the settlement of a number of
related investigations into residential loan servicing and origination practices, as well as the resolution of related
mortgage litigation. Citi has adjusted its 2011 results of operations that were previously announced on January 17, 2012
for an additional $209 million (after tax) charge related to these matters. See Notes 29 and 32 to the Consolidated
Financial Statements.
31. CONDENSED CONSOLIDATING
FINANCIAL
STATEMENTS SCHEDULES
These condensed Consolidating Financial Statements schedules are presented for purposes of additional analysis, but should be considered in relation to the Consolidated Financial Statements of Citigroup taken as a whole.
Citigroup Parent
Company
The holding company, Citigroup
Inc.
Citigroup Global Markets Holdings
Inc. (CGMHI)
Citigroup guarantees various
debt obligations of CGMHI as well as all of the outstanding debt obligations
under CGMHI's publicly issued debt.
Citigroup Funding Inc.
(CFI)
CFI is a first-tier subsidiary of
Citigroup, which issues commercial paper, medium-term notes and structured
equity-linked and credit-linked notes, all of which are guaranteed by
Citigroup.
CitiFinancial Credit Company
(CCC)
An indirect wholly owned subsidiary
of Citigroup. CCC is a wholly owned subsidiary of Associates. Citigroup has
issued a full and unconditional guarantee of the outstanding indebtedness of
CCC.
Associates First Capital
Corporation (Associates)
A wholly owned
subsidiary of Citigroup. Citigroup has issued a full and unconditional guarantee
of the outstanding long-term debt securities and commercial paper of Associates.
In addition, Citigroup guaranteed various debt obligations of Citigroup Finance
Canada Inc. (CFCI), a wholly owned subsidiary of Associates. CFCI continues to
issue debt in the Canadian market supported by a Citigroup guarantee. Associates
is the immediate parent company of CCC.
Other Citigroup
Subsidiaries
Includes all other
subsidiaries of Citigroup, intercompany eliminations and income (loss) from
discontinued operations.
Consolidating
Adjustments
Includes Citigroup parent
company elimination of distributed and undistributed income of subsidiaries,
investment in subsidiaries and the elimination of CCC, which is included in the
Associates column.
276
Condensed Consolidating Statements of Income
Year ended December 31, 2011 | |||||||||||||||||||||||
Other | |||||||||||||||||||||||
Citigroup | |||||||||||||||||||||||
subsidiaries, | |||||||||||||||||||||||
eliminations | |||||||||||||||||||||||
and income | |||||||||||||||||||||||
Citigroup | from | ||||||||||||||||||||||
parent | discontinued | Consolidating | Citigroup | ||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | operations | adjustments | consolidated | |||||||||||||||
Revenues | |||||||||||||||||||||||
Dividends from subsidiaries | $ | 13,046 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (13,046 | ) | $ | - | ||||||
Interest revenue | 220 | 5,852 | - | 4,036 | 4,666 | 61,943 | (4,036 | ) | 72,681 | ||||||||||||||
Interest revenue-intercompany | 3,464 | 2,143 | 2,496 | 101 | 370 | (8,473 | ) | (101 | ) | - | |||||||||||||
Interest expense | 8,138 | 2,387 | 2,057 | 97 | 281 | 11,371 | (97 | ) | 24,234 | ||||||||||||||
Interest expense-intercompany | (520 | ) | 3,357 | 432 | 1,438 | 1,261 | (4,530 | ) | (1,438 | ) | - | ||||||||||||
Net interest revenue | $ | (3,934 | ) | $ | 2,251 | $ | 7 | $ | 2,602 | $ | 3,494 | $ | 46,629 | $ | (2,602 | ) | $ | 48,447 | |||||
Commissions and fees | $ | - | $ | 4,209 | $ | - | $ | 6 | $ | 85 | $ | 8,556 | $ | (6 | ) | $ | 12,850 | ||||||
Commissions and fees-intercompany | - | 24 | - | 84 | 98 | (122 | ) | (84 | ) | - | |||||||||||||
Principal transactions | (166 | ) | 1,540 | 2,253 | - | (22 | ) | 3,629 | - | 7,234 | |||||||||||||
Principal transactions-intercompany | (4 | ) | (793 | ) | (1,208 | ) | - | - | 2,005 | - | - | ||||||||||||
Other income | (3,891 | ) | 719 | 27 | 562 | 603 | 12,364 | (562 | ) | 9,822 | |||||||||||||
Other income-intercompany | 5,000 | 377 | 75 | (115 | ) | 6 | (5,458 | ) | 115 | - | |||||||||||||
Total non-interest revenues | $ | 939 | $ | 6,076 | $ | 1,147 | $ | 537 | $ | 770 | $ | 20,974 | $ | (537 | ) | $ | 29,906 | ||||||
Total revenues, net of interest expense | $ | 10,051 | $ | 8,327 | $ | 1,154 | $ | 3,139 | $ | 4,264 | $ | 67,603 | $ | (16,185 | ) | $ | 78,353 | ||||||
Provisions for credit losses and for benefits | |||||||||||||||||||||||
and claims | $ | - | $ | 7 | $ | - | $ | 1,518 | $ | 1,707 | $ | 11,082 | $ | (1,518 | ) | $ | 12,796 | ||||||
Expenses | |||||||||||||||||||||||
Compensation and benefits | $ | 133 | $ | 5,540 | $ | - | $ | 449 | $ | 632 | $ | 19,383 | $ | (449 | ) | $ | 25,688 | ||||||
Compensation and benefits-intercompany | 7 | 237 | - | 117 | 117 | (361 | ) | (117 | ) | - | |||||||||||||
Other expense | 948 | 2,734 | 2 | 572 | 712 | 20,849 | (572 | ) | 25,245 | ||||||||||||||
Other expense-intercompany | 415 | 718 | (34 | ) | 332 | 386 | (1,485 | ) | (332 | ) | - | ||||||||||||
Total operating expenses | $ | 1,503 | $ | 9,229 | $ | (32 | ) | $ | 1,470 | $ | 1,847 | $ | 38,386 | $ | (1,470 | ) | $ | 50,933 | |||||
Income (loss) before taxes and equity in | |||||||||||||||||||||||
undistributed income of subsidiaries | $ | 8,548 | $ | (909 | ) | $ | 1,186 | $ | 151 | $ | 710 | $ | 18,135 | $ | (13,197 | ) | $ | 14,624 | |||||
Provision (benefit) for income taxes | (1,821 | ) | (238 | ) | 422 | 44 | 295 | 4,863 | (44 | ) | 3,521 | ||||||||||||
Equity in undistributed income of subsidiaries | 698 | - | - | - | - | - | (698 | ) | - | ||||||||||||||
Income (loss) from continuing operations | $ | 11,067 | $ | (671 | ) | $ | 764 | $ | 107 | $ | 415 | $ | 13,272 | $ | (13,851 | ) | $ | 11,103 | |||||
Income (loss) from discontinued operations, | |||||||||||||||||||||||
net of taxes | - | - | - | - | - | 112 | - | 112 | |||||||||||||||
Net income (loss) before attribution of | |||||||||||||||||||||||
noncontrolling interests | $ | 11,067 | $ | (671 | ) | $ | 764 | $ | 107 | $ | 415 | $ | 13,384 | $ | (13,851 | ) | $ | 11,215 | |||||
Net income (loss) attributable to | |||||||||||||||||||||||
noncontrolling interests | - | 25 | - | - | - | 123 | - | 148 | |||||||||||||||
Net income (loss) after attribution of | |||||||||||||||||||||||
noncontrolling interests | $ | 11,067 | $ | (696 | ) | $ | 764 | $ | 107 | $ | 415 | $ | 13,261 | $ | (13,851 | ) | $ | 11,067 |
277
Condensed Consolidating Statements of Income
Year ended December 31, 2010 | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Citigroup | ||||||||||||||||||||||||
subsidiaries, | ||||||||||||||||||||||||
eliminations | ||||||||||||||||||||||||
and income | ||||||||||||||||||||||||
Citigroup | from | |||||||||||||||||||||||
parent | discontinued | Consolidating | Citigroup | |||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | operations | adjustments | consolidated | ||||||||||||||||
Revenues | ||||||||||||||||||||||||
Dividends from subsidiaries | $ | 14,448 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (14,448 | ) | $ | - | |||||||
Interest revenue | 269 | 6,213 | 8 | 5,097 | 5,860 | 66,932 | (5,097 | ) | 79,282 | |||||||||||||||
Interest revenue-intercompany | 2,968 | 2,167 | 2,990 | 81 | 385 | (8,510 | ) | (81 | ) | - | ||||||||||||||
Interest expense | 8,601 | 2,145 | 2,356 | 79 | 274 | 11,720 | (79 | ) | 25,096 | |||||||||||||||
Interest expense-intercompany | (873 | ) | 3,134 | 260 | 1,929 | 1,364 | (3,885 | ) | (1,929 | ) | - | |||||||||||||
Net interest revenue | $ | (4,491 | ) | $ | 3,101 | $ | 382 | $ | 3,170 | $ | 4,607 | $ | 50,587 | $ | (3,170 | ) | $ | 54,186 | ||||||
Commissions and fees | $ | - | $ | 4,677 | $ | - | $ | 45 | $ | 136 | $ | 8,845 | $ | (45 | ) | $ | 13,658 | |||||||
Commissions and fees-intercompany | - | 108 | - | 140 | 159 | (267 | ) | (140 | ) | - | ||||||||||||||
Principal transactions | (270 | ) | 7,207 | (136 | ) | - | 8 | 708 | - | 7,517 | ||||||||||||||
Principal transactions-intercompany | (6 | ) | (4,056 | ) | (12 | ) | - | (122 | ) | 4,196 | - | - | ||||||||||||
Other income | (1,246 | ) | 838 | 212 | 493 | 664 | 10,772 | (493 | ) | 11,240 | ||||||||||||||
Other income-intercompany | 1,552 | 44 | (90 | ) | (2 | ) | 73 | (1,579 | ) | 2 | - | |||||||||||||
Total non-interest revenues | $ | 30 | $ | 8,818 | $ | (26 | ) | $ | 676 | $ | 918 | $ | 22,675 | $ | (676 | ) | $ | 32,415 | ||||||
Total revenues, net of interest expense | $ | 9,987 | $ | 11,919 | $ | 356 | $ | 3,846 | $ | 5,525 | $ | 73,262 | $ | (18,294 | ) | $ | 86,601 | |||||||
Provisions for credit losses and for benefits | ||||||||||||||||||||||||
and claims | $ | - | $ | 17 | $ | - | $ | 2,306 | $ | 2,516 | $ | 23,509 | $ | (2,306 | ) | $ | 26,042 | |||||||
Expenses | ||||||||||||||||||||||||
Compensation and benefits | $ | 136 | $ | 5,457 | $ | - | $ | 518 | $ | 704 | $ | 18,133 | $ | (518 | ) | $ | 24,430 | |||||||
Compensation and benefits-intercompany | 6 | 214 | - | 126 | 126 | (346 | ) | (126 | ) | - | ||||||||||||||
Other expense | 413 | 2,943 | 2 | 3,374 | 518 | 19,069 | (3,374 | ) | 22,945 | |||||||||||||||
Other expense-intercompany | 323 | 478 | 9 | 555 | 593 | (1,403 | ) | (555 | ) | - | ||||||||||||||
Total operating expenses | $ | 878 | $ | 9,092 | $ | 11 | $ | 4,573 | $ | 1,941 | $ | 35,453 | $ | (4,573 | ) | $ | 47,375 | |||||||
Income (loss) before taxes and equity in | ||||||||||||||||||||||||
undistributed income of subsidiaries | $ | 9,109 | $ | 2,810 | $ | 345 | $ | (3,033 | ) | $ | 1,068 | $ | 14,300 | $ | (11,415 | ) | $ | 13,184 | ||||||
Provision (benefit) for income taxes | (2,480 | ) | 860 | 167 | (927 | ) | 367 | 3,319 | 927 | 2,233 | ||||||||||||||
Equity in undistributed income of subsidiaries | (987 | ) | - | - | - | - | - | 987 | - | |||||||||||||||
Income (loss) from continuing operations | $ | 10,602 | $ | 1,950 | $ | 178 | $ | (2,106 | ) | $ | 701 | $ | 10,981 | $ | (11,355 | ) | $ | 10,951 | ||||||
Income (loss) from discontinued operations, | ||||||||||||||||||||||||
net of taxes | - | - | - | - | - | (68 | ) | - | (68 | ) | ||||||||||||||
Net income (loss) before attribution of | ||||||||||||||||||||||||
noncontrolling interests | $ | 10,602 | $ | 1,950 | $ | 178 | $ | (2,106 | ) | $ | 701 | $ | 10,913 | $ | (11,355 | ) | $ | 10,883 | ||||||
Net income (loss) attributable to | ||||||||||||||||||||||||
noncontrolling interests | - | 53 | - | - | - | 228 | - | 281 | ||||||||||||||||
Net income (loss) after attribution of | ||||||||||||||||||||||||
noncontrolling interests | $ | 10,602 | $ | 1,897 | $ | 178 | $ | (2,106 | ) | $ | 701 | $ | 10,685 | $ | (11,355 | ) | $ | 10,602 |
278
Condensed Consolidating Statements of Income
Year ended December 31, 2009 | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Citigroup | ||||||||||||||||||||||||
subsidiaries, | ||||||||||||||||||||||||
eliminations | ||||||||||||||||||||||||
and income | ||||||||||||||||||||||||
Citigroup | from | |||||||||||||||||||||||
parent | discontinued | Consolidating | Citigroup | |||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | operations | adjustments | consolidated | ||||||||||||||||
Revenues | ||||||||||||||||||||||||
Dividends from subsidiaries | $ | 1,049 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (1,049 | ) | $ | - | |||||||
Interest revenue | 299 | 7,447 | 1 | 6,150 | 7,049 | 61,602 | (6,150 | ) | 76,398 | |||||||||||||||
Interest revenue-intercompany | 2,387 | 2,806 | 4,132 | 69 | 421 | (9,746 | ) | (69 | ) | - | ||||||||||||||
Interest expense | 9,354 | 2,585 | 1,911 | 86 | 376 | 13,676 | (86 | ) | 27,902 | |||||||||||||||
Interest expense-intercompany | (758 | ) | 2,390 | 823 | 2,243 | 1,572 | (4,027 | ) | (2,243 | ) | - | |||||||||||||
Net interest revenue | $ | (5,910 | ) | $ | 5,278 | $ | 1,399 | $ | 3,890 | $ | 5,522 | $ | 42,207 | $ | (3,890 | ) | $ | 48,496 | ||||||
Commissions and fees | $ | - | $ | 5,945 | $ | - | $ | 51 | $ | 128 | $ | 9,412 | $ | (51 | ) | $ | 15,485 | |||||||
Commissions and fees-intercompany | - | 741 | (6 | ) | 134 | 152 | (887 | ) | (134 | ) | - | |||||||||||||
Principal transactions | 359 | (267 | ) | (1,905 | ) | - | 2 | 7,879 | - | 6,068 | ||||||||||||||
Principal transactions-intercompany | (649 | ) | 3,605 | 224 | - | (109 | ) | (3,071 | ) | - | - | |||||||||||||
Other income | (3,731 | ) | 13,586 | 38 | 428 | 584 | (241 | ) | (428 | ) | 10,236 | |||||||||||||
Other income-intercompany | (3,663 | ) | (21 | ) | (47 | ) | 2 | 44 | 3,687 | (2 | ) | - | ||||||||||||
Total non-interest revenues | $ | (7,684 | ) | $ | 23,589 | $ | (1,696 | ) | $ | 615 | $ | 801 | $ | 16,779 | $ | (615 | ) | $ | 31,789 | |||||
Total revenues, net of interest expense | $ | (12,545 | ) | $ | 28,867 | $ | (297 | ) | $ | 4,505 | $ | 6,323 | $ | 58,986 | $ | (5,554 | ) | $ | 80,285 | |||||
Provisions for credit losses and for benefits | ||||||||||||||||||||||||
and claims | $ | - | $ | 129 | $ | - | $ | 3,894 | $ | 4,354 | $ | 35,779 | $ | (3,894 | ) | $ | 40,262 | |||||||
Expenses | ||||||||||||||||||||||||
Compensation and benefits | $ | 101 | $ | 6,389 | $ | - | $ | 523 | $ | 686 | $ | 17,811 | $ | (523 | ) | $ | 24,987 | |||||||
Compensation and benefits-intercompany | 7 | 470 | - | 141 | 141 | (618 | ) | (141 | ) | - | ||||||||||||||
Other expense | 791 | 2,739 | 2 | 578 | 735 | 18,568 | (578 | ) | 22,835 | |||||||||||||||
Other expense-intercompany | 782 | 637 | 4 | 526 | 573 | (1,996 | ) | (526 | ) | - | ||||||||||||||
Total operating expenses | $ | 1,681 | $ | 10,235 | $ | 6 | $ | 1,768 | $ | 2,135 | $ | 33,765 | $ | (1,768 | ) | $ | 47,822 | |||||||
Income (loss) before taxes and equity in | ||||||||||||||||||||||||
undistributed income of subsidiaries | $ | (14,226 | ) | $ | 18,503 | $ | (303 | ) | $ | (1,157 | ) | $ | (166 | ) | $ | (10,558 | ) | $ | 108 | $ | (7,799 | ) | ||
Provision (benefit) for income taxes | (7,298 | ) | 6,852 | (146 | ) | (473 | ) | (131 | ) | (6,010 | ) | 473 | (6,733 | ) | ||||||||||
Equity in undistributed income of subsidiaries | 5,322 | - | - | - | - | - | (5,322 | ) | - | |||||||||||||||
Income (loss) from continuing operations | $ | (1,606 | ) | $ | 11,651 | $ | (157 | ) | $ | (684 | ) | $ | (35 | ) | $ | (4,548 | ) | $ | (5,687 | ) | $ | (1,066 | ) | |
Income from discontinued operations, | ||||||||||||||||||||||||
net of taxes | - | - | - | - | - | (445 | ) | - | (445 | ) | ||||||||||||||
Net income (loss) before attribution of | ||||||||||||||||||||||||
noncontrolling interests | $ | (1,606 | ) | $ | 11,651 | $ | (157 | ) | $ | (684 | ) | $ | (35 | ) | $ | (4,993 | ) | $ | (5,687 | ) | $ | (1,511 | ) | |
Net income (loss) attributable to | ||||||||||||||||||||||||
noncontrolling interests | - | (18 | ) | - | - | - | 113 | - | 95 | |||||||||||||||
Net income (loss) after attribution of | ||||||||||||||||||||||||
noncontrolling interests | $ | (1,606 | ) | $ | 11,669 | $ | (157 | ) | $ | (684 | ) | $ | (35 | ) | $ | (5,106 | ) | $ | (5,687 | ) | $ | (1,606 | ) |
279
Condensed Consolidating Balance Sheet
December 31, 2011 | |||||||||||||||||||||||
Other | |||||||||||||||||||||||
Citigroup | |||||||||||||||||||||||
Citigroup | subsidiaries | ||||||||||||||||||||||
parent | and | Consolidating | Citigroup | ||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | eliminations | adjustments | consolidated | |||||||||||||||
Assets | |||||||||||||||||||||||
Cash and due from banks | $ | - | $ | 1,237 | $ | - | $ | 211 | $ | 254 | $ | 27,210 | $ | (211 | ) | $ | 28,701 | ||||||
Cash and due from banks-intercompany | 3 | 2,963 | - | 161 | 175 | (3,141 | ) | (161 | ) | - | |||||||||||||
Federal funds sold and resale agreements | - | 209,618 | - | - | - | 66,231 | - | 275,849 | |||||||||||||||
Federal funds sold and resale agreements- | |||||||||||||||||||||||
intercompany | - | 10,981 | - | - | - | (10,981 | ) | - | - | ||||||||||||||
Trading account assets | 7 | 123,017 | 18 | - | 12 | 168,680 | - | 291,734 | |||||||||||||||
Trading account assets-intercompany | 92 | 9,319 | 269 | - | - | (9,680 | ) | - | - | ||||||||||||||
Investments | 37,477 | 110 | - | 2,177 | 2,250 | 253,576 | (2,177 | ) | 293,413 | ||||||||||||||
Loans, net of unearned income | - | 205 | - | 24,899 | 28,556 | 618,481 | (24,899 | ) | 647,242 | ||||||||||||||
Loans, net of unearned income-intercompany | - | - | 58,039 | 4,916 | 8,585 | (66,624 | ) | (4,916 | ) | - | |||||||||||||
Allowance for loan losses | - | (47 | ) | - | (2,299 | ) | (2,547 | ) | (27,521 | ) | 2,299 | (30,115 | ) | ||||||||||
Total loans, net | $ | - | $ | 158 | $ | 58,039 | $ | 27,516 | $ | 34,594 | $ | 524,336 | $ | (27,516 | ) | $ | 617,127 | ||||||
Advances to subsidiaries | 108,644 | - | - | - | - | (108,644 | ) | - | - | ||||||||||||||
Investments in subsidiaries | 194,979 | - | - | - | - | - | (194,979 | ) | - | ||||||||||||||
Other assets | 35,776 | 49,207 | 367 | 4,000 | 7,132 | 274,572 | (4,000 | ) | 367,054 | ||||||||||||||
Other assets-intercompany | 29,935 | 42,974 | 3,257 | 4 | 2,366 | (78,532 | ) | (4 | ) | - | |||||||||||||
Total assets | $ | 406,913 | $ | 449,584 | $ | 61,950 | $ | 34,069 | $ | 46,783 | $ | 1,103,627 | $ | (229,048 | ) | $ | 1,873,878 | ||||||
Liabilities and equity | |||||||||||||||||||||||
Deposits | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 865,936 | $ | - | $ | 865,936 | |||||||
Federal funds purchased and securities | |||||||||||||||||||||||
loaned or sold | - | 149,725 | - | - | - | 48,648 | - | 198,373 | |||||||||||||||
Federal funds purchased and securities | |||||||||||||||||||||||
loaned or sold-intercompany | 185 | 25,902 | - | - | - | (26,087 | ) | - | - | ||||||||||||||
Trading account liabilities | - | 72,493 | 298 | - | - | 53,291 | - | 126,082 | |||||||||||||||
Trading account liabilities-intercompany | 96 | 8,530 | 90 | - | - | (8,716 | ) | - | - | ||||||||||||||
Short-term borrowings | 13 | 1,229 | 7,133 | 750 | 1,100 | 44,966 | (750 | ) | 54,441 | ||||||||||||||
Short-term borrowings-intercompany | - | 43,056 | 3,153 | 10,243 | 10,792 | (57,001 | ) | (10,243 | ) | - | |||||||||||||
Long-term debt | 181,702 | 6,884 | 45,081 | 2,742 | 5,680 | 84,158 | (2,742 | ) | 323,505 | ||||||||||||||
Long-term debt-intercompany | 19 | 59,958 | 2,971 | 14,919 | 20,692 | (83,640 | ) | (14,919 | ) | - | |||||||||||||
Advances from subsidiaries | 17,027 | - | - | - | - | (17,027 | ) | - | - | ||||||||||||||
Other liabilities | 19,625 | 63,012 | 889 | 1,453 | 2,483 | 39,959 | (1,453 | ) | 125,968 | ||||||||||||||
Other liabilities-intercompany | 10,440 | 10,575 | 352 | 199 | 52 | (21,419 | ) | (199 | ) | - | |||||||||||||
Total liabilities | $ | 229,107 | $ | 441,364 | $ | 59,967 | $ | 30,306 | $ | 40,799 | $ | 923,068 | $ | (30,306 | ) | $ | 1,694,305 | ||||||
Citigroup stockholders' equity | $ | 177,806 | $ | 7,825 | $ | 1,983 | $ | 3,763 | $ | 5,984 | $ | 179,187 | $ | (198,742 | ) | $ | 177,806 | ||||||
Noncontrolling interests | - | 395 | - | - | - | 1,372 | - | 1,767 | |||||||||||||||
Total equity | $ | 177,806 | $ | 8,220 | $ | 1,983 | $ | 3,763 | $ | 5,984 | $ | 180,559 | $ | (198,742 | ) | $ | 179,573 | ||||||
Total liabilities and equity | $ | 406,913 | $ | 449,584 | $ | 61,950 | $ | 34,069 | $ | 46,783 | $ | 1,103,627 | $ | (229,048 | ) | $ | 1,873,878 |
280
Condensed Consolidating Balance Sheet
December 31, 2010 | ||||||||||||||||||||||
Other | ||||||||||||||||||||||
Citigroup | ||||||||||||||||||||||
Citigroup | subsidiaries | |||||||||||||||||||||
parent | and | Consolidating | Citigroup | |||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | eliminations | adjustments | consolidated | ||||||||||||||
Assets | ||||||||||||||||||||||
Cash and due from banks | $ | - | $ | 2,553 | $ | - | $ | 170 | $ | 221 | $ | 25,198 | $ | (170 | ) | $ | 27,972 | |||||
Cash and due from banks-intercompany | 11 | 2,667 | - | 153 | 177 | (2,855 | ) | (153 | ) | - | ||||||||||||
Federal funds sold and resale agreements | - | 191,963 | - | - | - | 54,754 | - | 246,717 | ||||||||||||||
Federal funds sold and resale agreements- | ||||||||||||||||||||||
intercompany | - | 14,530 | - | - | - | (14,530 | ) | - | - | |||||||||||||
Trading account assets | 15 | 135,224 | 60 | - | 9 | 181,964 | - | 317,272 | ||||||||||||||
Trading account assets-intercompany | 55 | 11,195 | 426 | - | - | (11,676 | ) | - | - | |||||||||||||
Investments | 21,982 | 263 | - | 2,008 | 2,093 | 293,826 | (2,008 | ) | 318,164 | |||||||||||||
Loans, net of unearned income | - | 216 | - | 32,948 | 37,803 | 610,775 | (32,948 | ) | 648,794 | |||||||||||||
Loans, net of unearned income-intercompany | - | - | 95,507 | 3,723 | 6,517 | (102,024 | ) | (3,723 | ) | - | ||||||||||||
Allowance for loan losses | - | (46 | ) | - | (3,181 | ) | (3,467 | ) | (37,142 | ) | 3,181 | (40,655 | ) | |||||||||
Total loans, net | $ | - | $ | 170 | $ | 95,507 | $ | 33,490 | $ | 40,853 | $ | 471,609 | $ | (33,490 | ) | $ | 608,139 | |||||
Advances to subsidiaries | 133,320 | - | - | - | - | (133,320 | ) | - | - | |||||||||||||
Investments in subsidiaries | 205,043 | - | - | - | - | - | (205,043 | ) | - | |||||||||||||
Other assets | 19,572 | 66,467 | 561 | 4,318 | 8,311 | 300,727 | (4,318 | ) | 395,638 | |||||||||||||
Other assets-intercompany | 10,609 | 46,856 | 2,549 | - | 1,917 | (61,931 | ) | - | - | |||||||||||||
Total assets | $ | 390,607 | $ | 471,888 | $ | 99,103 | $ | 40,139 | $ | 53,581 | $ | 1,103,766 | $ | (245,182 | ) | $ | 1,913,902 | |||||
Liabilities and equity | ||||||||||||||||||||||
Deposits | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 844,968 | $ | - | $ | 844,968 | ||||||
Federal funds purchased and securities | ||||||||||||||||||||||
loaned or sold | - | 156,312 | - | - | - | 33,246 | - | 189,558 | ||||||||||||||
Federal funds purchased and securities | ||||||||||||||||||||||
loaned or sold-intercompany | 185 | 7,537 | - | - | - | (7,722 | ) | - | - | |||||||||||||
Trading account liabilities | - | 75,454 | 45 | - | - | 53,555 | - | 129,054 | ||||||||||||||
Trading account liabilities-intercompany | 55 | 10,265 | 88 | - | - | (10,408 | ) | - | - | |||||||||||||
Short-term borrowings | 16 | 2,296 | 11,024 | 750 | 1,491 | 63,963 | (750 | ) | 78,790 | |||||||||||||
Short-term borrowings-intercompany | - | 66,838 | 33,941 | 4,208 | 2,797 | (103,576 | ) | (4,208 | ) | - | ||||||||||||
Long-term debt | 191,944 | 9,566 | 50,629 | 3,396 | 6,603 | 122,441 | (3,396 | ) | 381,183 | |||||||||||||
Long-term debt-intercompany | 389 | 60,088 | 1,705 | 26,339 | 33,224 | (95,406 | ) | (26,339 | ) | - | ||||||||||||
Advances from subsidiaries | 22,698 | - | - | - | - | (22,698 | ) | - | - | |||||||||||||
Other liabilities | 5,841 | 58,056 | 175 | 1,922 | 3,104 | 57,384 | (1,922 | ) | 124,560 | |||||||||||||
Other liabilities-intercompany | 6,011 | 9,883 | 277 | 668 | 295 | (16,466 | ) | (668 | ) | - | ||||||||||||
Total liabilities | $ | 227,139 | $ | 456,295 | $ | 97,884 | $ | 37,283 | $ | 47,514 | $ | 919,281 | $ | (37,283 | ) | $ | 1,748,113 | |||||
Citigroup stockholders' equity | $ | 163,468 | $ | 15,178 | $ | 1,219 | $ | 2,856 | $ | 6,067 | $ | 182,579 | $ | (207,899 | ) | $ | 163,468 | |||||
Noncontrolling interests | - | 415 | - | - | - | 1,906 | - | 2,321 | ||||||||||||||
Total equity | $ | 163,468 | $ | 15,593 | $ | 1,219 | $ | 2,856 | $ | 6,067 | $ | 184,485 | $ | (207,899 | ) | $ | 165,789 | |||||
Total liabilities and equity | $ | 390,607 | $ | 471,888 | $ | 99,103 | $ | 40,139 | $ | 53,581 | $ | 1,103,766 | $ | (245,182 | ) | $ | 1,913,902 |
281
Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2011 | |||||||||||||||||||||||||
Other | |||||||||||||||||||||||||
Citigroup | |||||||||||||||||||||||||
Citigroup | subsidiaries | ||||||||||||||||||||||||
parent | and | Consolidating | Citigroup | ||||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | eliminations | adjustments | consolidated | |||||||||||||||||
Net cash provided by operating | |||||||||||||||||||||||||
activities of continuing operations | $ | 1,710 | $ | 16,469 | $ | 1,523 | $ | 2,113 | $ | 1,290 | $ | 23,749 | $ | (2,113 | ) | $ | 44,741 | ||||||||
Cash flows from investing activities of | |||||||||||||||||||||||||
continuing operations | |||||||||||||||||||||||||
Change in loans | $ | - | $ | - | $ | 37,822 | $ | 2,220 | $ | 2,824 | $ | (52,205 | ) | $ | (2,220 | ) | $ | (11,559 | ) | ||||||
Proceeds from sales and securitizations of loans | - | 3 | - | 3,112 | 3,437 | 6,582 | (3,112 | ) | 10,022 | ||||||||||||||||
Purchases of investments | (47,190 | ) | (1 | ) | - | (768 | ) | (768 | ) | (266,291 | ) | 768 | (314,250 | ) | |||||||||||
Proceeds from sales of investments | 9,524 | 105 | - | 330 | 330 | 172,607 | (330 | ) | 182,566 | ||||||||||||||||
Proceeds from maturities of investments | 22,386 | - | - | 274 | 274 | 117,299 | (274 | ) | 139,959 | ||||||||||||||||
Changes in investments and advances-intercompany | 32,419 | 2,147 | - | (1,193 | ) | (2,068 | ) | (32,498 | ) | 1,193 | - | ||||||||||||||
Business acquisitions | (10 | ) | - | - | - | - | 10 | - | - | ||||||||||||||||
Other investing activities | - | 10,341 | - | - | - | (5,813 | ) | - | 4,528 | ||||||||||||||||
Net cash provided by (used in) investing activities | |||||||||||||||||||||||||
of continuing operations | $ | 17,129 | $ | 12,595 | $ | 37,822 | $ | 3,975 | $ | 4,029 | $ | (60,309 | ) | $ | (3,975 | ) | $ | 11,266 | |||||||
Cash flows from financing activities of | |||||||||||||||||||||||||
continuing operations | |||||||||||||||||||||||||
Dividends paid | $ | (113 | ) | $ | - | $ | - | $ | - | $ | - | $ | 6 | $ | - | $ | (107 | ) | |||||||
Treasury stock acquired | (1 | ) | - | - | - | - | - | - | (1 | ) | |||||||||||||||
Proceeds/(repayments) from issuance of | |||||||||||||||||||||||||
long-term debt-third-party, net | (16,481 | ) | (2,443 | ) | (5,718 | ) | (654 | ) | (360 | ) | (33,847 | ) | 654 | (58,849 | ) | ||||||||||
Proceeds/(repayments) from issuance of | |||||||||||||||||||||||||
long-term debt-intercompany, net | - | 3,311 | 881 | (11,420 | ) | (12,532 | ) | 8,340 | 11,420 | - | |||||||||||||||
Change in deposits | - | - | - | - | - | 23,858 | - | 23,858 | |||||||||||||||||
Net change in short-term borrowings and | |||||||||||||||||||||||||
other investment banking and brokerage | |||||||||||||||||||||||||
borrowings-third-party | - | (1,067 | ) | (3,910 | ) | - | (391 | ) | (19,699 | ) | - | (25,067 | ) | ||||||||||||
Net change in short-term borrowings and other | |||||||||||||||||||||||||
advances-intercompany | (5,772 | ) | (26,782 | ) | (30,520 | ) | 6,035 | 7,995 | 55,079 | (6,035 | ) | - | |||||||||||||
Capital contributions from parent | - | (3,103 | ) | - | - | - | 3,103 | - | - | ||||||||||||||||
Other financing activities | 3,520 | - | (78 | ) | - | - | 78 | - | 3,520 | ||||||||||||||||
Net cash (used in) provided by financing activities | |||||||||||||||||||||||||
of continuing operations | $ | (18,847 | ) | $ | (30,084 | ) | $ | (39,345 | ) | $ | (6,039 | ) | $ | (5,288 | ) | $ | 36,918 | $ | 6,039 | $ | (56,646 | ) | |||
Effect of exchange rate changes on cash and | |||||||||||||||||||||||||
due from banks | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (1,301 | ) | $ | - | $ | (1,301 | ) | |||||||
Net cash provided by (used in) discontinued | |||||||||||||||||||||||||
operations | - | - | - | - | - | 2,669 | - | 2,669 | |||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | (8 | ) | $ | (1,020 | ) | $ | - | $ | 49 | $ | 31 | $ | 1,726 | $ | (49 | ) | $ | 729 | ||||||
Cash and due from banks at beginning of period | 11 | 5,220 | - | 323 | 398 | 22,343 | (323 | ) | 27,972 | ||||||||||||||||
Cash and due from banks at end of period | $ | 3 | $ | 4,200 | $ | - | $ | 372 | $ | 429 | $ | 24,069 | $ | (372 | ) | $ | 28,701 | ||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
for continuing operations | |||||||||||||||||||||||||
Cash paid during the year for | |||||||||||||||||||||||||
Income taxes | $ | (458 | ) | $ | 321 | $ | (323 | ) | $ | 93 | $ | 140 | $ | 3,025 | $ | (93 | ) | $ | 2,705 | ||||||
Interest | 9,271 | 5,084 | 591 | 1,781 | 1,569 | 4,715 | (1,781 | ) | 21,230 | ||||||||||||||||
Non-cash investing activities | |||||||||||||||||||||||||
Transfers to repossessed assets | - | 40 | - | 643 | 691 | 553 | (643 | ) | 1,284 | ||||||||||||||||
Transfers to trading account
assets from investments (held-to-maturity) | - | - | - | - | - | 12,700 | - | 12,700 |
282
Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2010 | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Citigroup | ||||||||||||||||||||||||
Citigroup | subsidiaries | |||||||||||||||||||||||
parent | and | Consolidating | Citigroup | |||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | eliminations | adjustments | consolidated | ||||||||||||||||
Net cash provided by (used in) operating | ||||||||||||||||||||||||
activities of continuing operations | $ | 8,756 | $ | 28,432 | $ | 326 | $ | 3,084 | $ | 3,767 | $ | (5,595 | ) | $ | (3,084 | ) | $ | 35,686 | ||||||
Cash flows from investing activities of | ||||||||||||||||||||||||
continuing operations | ||||||||||||||||||||||||
Change in loans | $ | - | $ | 27 | $ | 34,004 | $ | 3,098 | $ | 3,935 | $ | 22,764 | $ | (3,098 | ) | $ | 60,730 | |||||||
Proceeds from sales and securitizations of loans | - | 103 | - | 1,865 | 1,898 | 7,917 | (1,865 | ) | 9,918 | |||||||||||||||
Purchases of investments | (31,346 | ) | (11 | ) | - | (518 | ) | (521 | ) | (374,168 | ) | 518 | (406,046 | ) | ||||||||||
Proceeds from sales of investments | 6,029 | 27 | - | 557 | 669 | 176,963 | (557 | ) | 183,688 | |||||||||||||||
Proceeds from maturities of investments | 16,834 | - | - | 356 | 365 | 172,615 | (356 | ) | 189,814 | |||||||||||||||
Changes in investments and advances-intercompany | 13,363 | 3,503 | - | (336 | ) | 744 | (17,610 | ) | 336 | - | ||||||||||||||
Business acquisitions | (20 | ) | - | - | - | - | 20 | - | - | |||||||||||||||
Other investing activities | - | (14,746 | ) | - | (22 | ) | (22 | ) | 20,001 | 22 | 5,233 | |||||||||||||
Net cash provided by (used in) investing activities | ||||||||||||||||||||||||
of continuing operations | $ | 4,860 | $ | (11,097 | ) | $ | 34,004 | $ | 5,000 | $ | 7,068 | $ | 8,502 | $ | (5,000 | ) | $ | 43,337 | ||||||
Cash flows from financing activities of | ||||||||||||||||||||||||
continuing operations | ||||||||||||||||||||||||
Dividends paid | $ | (9 | ) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (9 | ) | ||||||
Dividends paid-intercompany | - | (7,045 | ) | (1,500 | ) | - | - | 8,545 | - | - | ||||||||||||||
Treasury stock acquired | (6 | ) | - | - | - | - | - | - | (6 | ) | ||||||||||||||
Proceeds/(repayments) from issuance of | ||||||||||||||||||||||||
long-term debt-third-party, net | (8,339 | ) | (3,044 | ) | (5,326 | ) | 1,503 | 61 | (25,585 | ) | (1,503 | ) | (42,233 | ) | ||||||||||
Proceeds/(repayments) from issuance of | ||||||||||||||||||||||||
long-term debt-intercompany, net | - | (2,208 | ) | - | (11,261 | ) | 18,946 | (16,738 | ) | 11,261 | - | |||||||||||||
Change in deposits | - | - | - | - | - | 9,065 | - | 9,065 | ||||||||||||||||
Net change in short-term borrowings and | ||||||||||||||||||||||||
other investment banking and brokerage | ||||||||||||||||||||||||
borrowings-third-party | 11 | (2,297 | ) | 954 | 750 | 1,112 | (46,969 | ) | (750 | ) | (47,189 | ) | ||||||||||||
Net change in short-term borrowings and other | ||||||||||||||||||||||||
advances-intercompany | (8,211 | ) | (2,468 | ) | (28,459 | ) | 904 | (31,021 | ) | 70,159 | (904 | ) | - | |||||||||||
Other financing activities | 2,944 | - | - | - | - | - | - | 2,944 | ||||||||||||||||
Net cash (used in) provided by financing activities | ||||||||||||||||||||||||
of continuing operations | $ | (13,610 | ) | $ | (17,062 | ) | $ | (34,331 | ) | $ | (8,104 | ) | $ | (10,902 | ) | $ | (1,523 | ) | $ | 8,104 | $ | (77,428 | ) | |
Effect of exchange rate changes on cash and | ||||||||||||||||||||||||
due from banks | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 691 | $ | - | $ | 691 | ||||||||
Net cash provided by (used in) discontinued | ||||||||||||||||||||||||
operations | - | - | - | - | - | 214 | - | 214 | ||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 6 | $ | 273 | $ | (1 | ) | $ | (20 | ) | $ | (67 | ) | $ | 2,289 | $ | 20 | $ | 2,500 | |||||
Cash and due from banks at beginning of period | 5 | 4,947 | 1 | 343 | 465 | 20,054 | (343 | ) | 25,472 | |||||||||||||||
Cash and due from banks at end of period | $ | 11 | $ | 5,220 | $ | - | $ | 323 | $ | 398 | $ | 22,343 | $ | (323 | ) | $ | 27,972 | |||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||
for continuing operations | ||||||||||||||||||||||||
Cash paid during the year for | ||||||||||||||||||||||||
Income taxes | $ | (507 | ) | $ | 246 | $ | 348 | $ | (20 | ) | $ | (5 | ) | $ | 4,225 | $ | 20 | $ | 4,307 | |||||
Interest | 9,317 | 5,194 | 1,014 | 2,208 | 1,593 | 6,091 | (2,208 | ) | 23,209 | |||||||||||||||
Non-cash investing activities | ||||||||||||||||||||||||
Transfers to repossessed assets | - | 222 | - | 1,274 | 1,336 | 1,037 | (1,274 | ) | 2,595 | |||||||||||||||
Transfers to trading
accounting assets from investments (available-for-sale) | - | - | - | - | - | 12,001 | - | 12,001 |
283
Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2009 | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Citigroup | ||||||||||||||||||||||||
Citigroup | subsidiaries | |||||||||||||||||||||||
parent | and | Consolidating | Citigroup | |||||||||||||||||||||
In millions of dollars | company | CGMHI | CFI | CCC | Associates | eliminations | adjustments | consolidated | ||||||||||||||||
Net cash (used in) provided by operating | ||||||||||||||||||||||||
activities of continuing operations | $ | (5,318 | ) | $ | 19,442 | $ | 1,238 | $ | 4,408 | $ | 4,852 | $ | (74,824 | ) | $ | (4,408 | ) | $ | (54,610 | ) | ||||
Cash flows from investing activities of | ||||||||||||||||||||||||
continuing operations | ||||||||||||||||||||||||
Change in loans | $ | - | $ | - | $ | 5,759 | $ | 1,024 | $ | 1,191 | $ | (155,601 | ) | $ | (1,024 | ) | $ | (148,651 | ) | |||||
Proceeds from sales and securitizations of loans | - | 176 | - | 6 | - | 241,191 | (6 | ) | 241,367 | |||||||||||||||
Purchases of investments | (17,056 | ) | (13 | ) | - | (589 | ) | (650 | ) | (263,396 | ) | 589 | (281,115 | ) | ||||||||||
Proceeds from sales of investments | 7,092 | 32 | - | 520 | 598 | 77,673 | (520 | ) | 85,395 | |||||||||||||||
Proceeds from maturities of investments | 21,030 | - | - | 348 | 459 | 112,125 | (348 | ) | 133,614 | |||||||||||||||
Changes in investments and advances-intercompany | (22,371 | ) | - | - | (165 | ) | 3,657 | 18,714 | 165 | - | ||||||||||||||
Business acquisitions | 384 | - | - | - | - | (384 | ) | - | - | |||||||||||||||
Other investing activities | - | 6,259 | - | - | - | 299 | - | 6,558 | ||||||||||||||||
Net cash (used in) provided by investing activities | ||||||||||||||||||||||||
of continuing operations | $ | (10,921 | ) | $ | 6,454 | $ | 5,759 | $ | 1,144 | $ | 5,255 | $ | 30,621 | $ | (1,144 | ) | $ | 37,168 | ||||||
Cash flows from financing activities of | ||||||||||||||||||||||||
continuing operations | ||||||||||||||||||||||||
Dividends paid | $ | (3,237 | ) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (3,237 | ) | ||||||
Dividends paid-intercompany | (121 | ) | (1,000 | ) | - | - | - | 1,121 | - | - | ||||||||||||||
Issuance of common stock | 17,514 | - | - | - | - | - | - | 17,514 | ||||||||||||||||
Treasury stock acquired | (3 | ) | - | - | - | - | - | - | (3 | ) | ||||||||||||||
Proceeds/(repayments) from issuance of | ||||||||||||||||||||||||
long-term debt-third-party, net | (9,591 | ) | (2,788 | ) | 18,090 | 679 | (791 | ) | (18,575 | ) | (679 | ) | (13,655 | ) | ||||||||||
Proceeds/(repayments) from issuance of | ||||||||||||||||||||||||
long-term debt-intercompany, net | - | 1,550 | - | (3,122 | ) | (3,377 | ) | 1,827 | 3,122 | - | ||||||||||||||
Change in deposits | - | - | - | - | - | 61,718 | - | 61,718 | ||||||||||||||||
Net change in short-term borrowings and | ||||||||||||||||||||||||
other investment banking and brokerage | ||||||||||||||||||||||||
borrowings-third-party | (1,339 | ) | (5,142 | ) | (20,847 | ) | - | (10 | ) | (24,657 | ) | - | (51,995 | ) | ||||||||||
Net change in short-term borrowings and other | ||||||||||||||||||||||||
advances-intercompany | 10,344 | (18,126 | ) | (4,240 | ) | (3,056 | ) | (5,819 | ) | 17,841 | 3,056 | - | ||||||||||||
Other financing activities | 2,664 | - | - | - | (41 | ) | 41 | - | 2,664 | |||||||||||||||
Net cash provided by (used in) financing activities | ||||||||||||||||||||||||
of continuing operations | $ | 16,231 | $ | (25,506 | ) | $ | (6,997 | ) | $ | (5,499 | ) | $ | (10,038 | ) | $ | 39,316 | $ | 5,499 | $ | 13,006 | ||||
Effect of exchange rate changes on cash and | ||||||||||||||||||||||||
due from banks | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 632 | $ | - | $ | 632 | ||||||||
Net cash provided by (used in) discontinued | ||||||||||||||||||||||||
operations | - | - | - | - | - | 23 | - | 23 | ||||||||||||||||
Net (decrease) increase in cash and due from banks | $ | (8 | ) | $ | 390 | $ | - | $ | 53 | $ | 69 | $ | (4,232 | ) | $ | (53 | ) | $ | (3,781 | ) | ||||
Cash and due from banks at beginning of period | 13 | 4,557 | 1 | 290 | 396 | 24,286 | (290 | ) | 29,253 | |||||||||||||||
Cash and due from banks at end of period | $ | 5 | $ | 4,947 | $ | 1 | $ | 343 | $ | 465 | $ | 20,054 | $ | (343 | ) | $ | 25,472 | |||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||
for continuing operations | ||||||||||||||||||||||||
Cash paid during the year for | ||||||||||||||||||||||||
Income taxes | $ | 412 | $ | (663 | ) | $ | 101 | $ | (12 | ) | $ | (137 | ) | $ | (2 | ) | $ | 12 | $ | (289 | ) | |||
Interest | 8,891 | 7,311 | 2,898 | 3,046 | 530 | 8,759 | (3,046 | ) | 28,389 | |||||||||||||||
Non-cash investing activities | ||||||||||||||||||||||||
Transfers to repossessed assets | - | - | - | 1,642 | 1,704 | 1,176 | (1,642 | ) | 2,880 |
284
32. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2011 | 2010 | |||||||||||||||||||
In millions of dollars, except per share amounts | Fourth | (1) | Third | Second | First | Fourth | Third | Second | First | |||||||||||
Revenues, net of interest expense | $ | 17,174 | $ | 20,831 | $ | 20,622 | $ | 19,726 | $ | 18,371 | $ | 20,738 | $ | 22,071 | $ | 25,421 | ||||
Operating expenses | 13,211 | 12,460 | 12,936 | 12,326 | 12,471 | 11,520 | 11,866 | 11,518 | ||||||||||||
Provisions for credit losses and for benefits and claims | 2,874 | 3,351 | 3,387 | 3,184 | 4,840 | 5,919 | 6,665 | 8,618 | ||||||||||||
Income from continuing operations before income taxes | $ | 1,089 | $ | 5,020 | $ | 4,299 | $ | 4,216 | $ | 1,060 | $ | 3,299 | $ | 3,540 | $ | 5,285 | ||||
Income taxes (benefits) | 91 | 1,278 | 967 | 1,185 | (313 | ) | 698 | 812 | 1,036 | |||||||||||
Income from continuing operations | $ | 998 | $ | 3,742 | $ | 3,332 | $ | 3,031 | $ | 1,373 | $ | 2,601 | $ | 2,728 | $ | 4,249 | ||||
Income (loss) from discontinued operations, net of taxes | - | 1 | 71 | 40 | 98 | (374 | ) | (3 | ) | 211 | ||||||||||
Net income before attribution of noncontrolling interests | $ | 998 | $ | 3,743 | $ | 3,403 | $ | 3,071 | $ | 1,471 | $ | 2,227 | $ | 2,725 | $ | 4,460 | ||||
Net income (loss) attributable to noncontrolling interests | 42 | (28 | ) | 62 | 72 | 162 | 59 | 28 | 32 | |||||||||||
Citigroup's net income | $ | 956 | $ | 3,771 | $ | 3,341 | $ | 2,999 | $ | 1,309 | $ | 2,168 | $ | 2,697 | $ | 4,428 | ||||
Earnings per share (2)(3) | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Income (loss) from continuing operations | $ | 0.32 | $ | 1.27 | $ | 1.10 | $ | 1.01 | $ | 0.41 | $ | 0.85 | $ | 0.93 | $ | 1.47 | ||||
Net income (loss) | 0.32 | 1.27 | 1.12 | 1.02 | 0.45 | 0.74 | 0.93 | 1.55 | ||||||||||||
Diluted | ||||||||||||||||||||
Income (loss) from continuing operations | 0.31 | 1.23 | 1.07 | 0.97 | 0.40 | 0.83 | 0.90 | 1.43 | ||||||||||||
Net income (loss) | 0.31 | 1.23 | 1.09 | 0.99 | 0.43 | 0.72 | 0.90 | 1.50 | ||||||||||||
Common stock price per share (2) | ||||||||||||||||||||
High | $ | 34.17 | $ | 42.88 | $ | 45.90 | $ | 51.30 | $ | 48.10 | $ | 43.00 | $ | 49.70 | $ | 43.10 | ||||
Low | 23.11 | 23.96 | 36.81 | 43.90 | 39.50 | 36.60 | 36.30 | 31.50 | ||||||||||||
Close | 26.31 | 25.62 | 41.64 | 44.20 | 47.30 | 39.10 | 37.60 | 40.50 | ||||||||||||
Dividends per share of common stock | 0.01 | 0.01 | 0.01 | - | - | - | - | - |
This Note to the Consolidated Financial Statements is unaudited due to the Company's individual quarterly results not being subject to an audit.
(1) | Citi has adjusted its fourth quarter results of operations, that were previously announced on January 17, 2012, for an additional $209 million (after tax) charge. This charge relates to the agreement in principle with the United States and state attorneys general announced on February 9, 2012 regarding the settlement of a number of investigations into residential loan servicing and origination litigation, as well as the resolution of related mortgage litigation (see Notes 29 and 30 to the Consolidated Financial Statements). The impact of these adjustments was a $275 million (pretax) increase in Other operating expenses , a $209 million (after-tax) reduction in Net income and a $0.07 (after-tax) reduction in Diluted earnings per share , each for the fourth quarter of 2011. | |
(2) | All per share amounts for all periods reflect Citigroup's 1-for-10 reverse stock split, which was effective May 6, 2011. | |
(3) | Due to averaging of shares, quarterly earnings per share may not add up to the totals reported for the full year. |
[End of Consolidated Financial Statements and Notes to Consolidated Financial Statements]
285
FINANCIAL DATA SUPPLEMENT (Unaudited)
RATIOS
2011 | 2010 | 2009 | ||||
Citigroup's net income (loss) to average assets | 0.57 | % | 0.53 | % | (0.08 | )% |
Return on average common stockholders' equity (1) | 6.3 | 6.8 | (9.4 | ) | ||
Return on average total stockholders' equity (2) | 6.3 | 6.8 | (1.1 | ) | ||
Total average equity to average assets (3) | 8.9 | 7.8 | 7.6 | |||
Dividends payout ratio (4) | 0.8 | NM | NM |
(1) | Based on Citigroup's net income less preferred stock dividends as a percentage of average common stockholders' equity. | |
(2) | Based on Citigroup's net income as a percentage of average total Citigroup stockholders' equity. | |
(3) | Based on average Citigroup stockholders' equity as a percentage of average assets. | |
(4) | Dividends declared per common share as a percentage of net income per diluted share. | |
NM | Not Meaningful |
AVERAGE DEPOSIT LIABILITIES IN OFFICES OUTSIDE THE U.S. (1)
2011 | 2010 | 2009 | ||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||
In millions of dollars at year end | interest rate | balance | interest rate | balance | interest rate | balance | ||||||||
Banks | 0.78 | % | $ | 50,831 | 0.83 | % | $ | 63,637 | 1.11 | % | $ | 58,046 | ||
Other demand deposits | 0.91 | 248,925 | 0.75 | 210,465 | 0.66 | 187,478 | ||||||||
Other time and savings deposits (2) | 1.52 | 245,208 | 1.54 | 258,999 | 1.85 | 237,653 | ||||||||
Total | 1.17 | % | $ | 544,964 | 1.14 | % | $ | 533,101 | 1.30 | % | $ | 483,177 |
(1) | Interest rates and amounts include the effects of risk management activities and also reflect the impact of the local interest rates prevailing in certain countries. | |
(2) | Primarily consists of certificates of deposit and other time deposits in denominations of $100,000 or more. |
MATURITY PROFILE OF TIME DEPOSITS
($100,000 OR MORE) IN U.S. OFFICES
In millions of dollars | Under 3 | Over 3 to 6 | Over 6 to 12 | Over 12 | ||||||||
at December 31, 2011 | months | months | months | months | ||||||||
Certificates of deposit | $ | 4,375 | $ | 2,712 | $ | 1,806 | $ | 2,595 | ||||
Other time deposits | $ | 2,614 | $ | 59 | $ | 504 | $ | 1,707 |
286
SUPERVISION AND REGULATION
Citigroup is subject to regulation under U.S. federal and state laws, as well as applicable laws in the other jurisdictions in which it does business.
General
As a registered bank holding company and
financial holding company, Citigroup is regulated and supervised by the Board of
Governors of the Federal Reserve System (FRB). Citigroup's nationally chartered
subsidiary banks, including Citibank, N.A., are regulated and supervised by the
Office of the Comptroller of the Currency (OCC) and its state-chartered
depository institution by the relevant State's banking department and the
Federal Deposit Insurance Corporation (FDIC). The FDIC also has back-up
enforcement authority for banking subsidiaries whose deposits it insures.
Overseas branches of Citibank are regulated and supervised by the FRB and OCC
and overseas subsidiary banks by the FRB. Such overseas branches and subsidiary
banks are also regulated and supervised by regulatory authorities in the host
countries.
A U.S.
financial holding company and the companies under its control are permitted to
engage in a broader range of activities in the U.S. and abroad than permitted
for bank holding companies and their subsidiaries. Unless otherwise limited by
the FRB, financial holding companies generally can engage, directly or
indirectly in the U.S. and abroad, in financial activities, either de novo or by
acquisition, by providing after-the-fact notice to the FRB. These financial
activities include underwriting and dealing in securities, insurance
underwriting and brokerage and making investments in non-financial companies for
a limited period of time, as long as Citi does not manage the non-financial
company's day-to-day activities, and its banking subsidiaries engage only in
permitted cross-marketing with the non-financial company. If Citigroup ceases to
qualify as a financial holding company, it could be barred from new financial
activities or acquisitions, and have to discontinue the broader range of
activities permitted to financial holding companies.
Citi is permitted to acquire U.S. depository institutions, including
out-of-state banks, subject to certain restrictions and the prior approval of
federal banking regulators. In addition, intrastate bank mergers are permitted
and banks in states that do not prohibit out-of-state mergers may merge. A
national bank can generally also establish a new branch in any state (to the
same extent as banks organized in the subject state) and state banks may
establish a branch in another state if permitted by the other state. However,
all bank holding companies, including Citigroup, must obtain the prior approval
of the FRB before acquiring more than 5% of any class of voting stock of a U.S.
depository institution or bank holding company. The FRB must also approve
certain additional capital contributions to an existing non-U.S. investment and
certain acquisitions by Citigroup of an interest in a non-U.S. company,
including in a foreign bank, as well as the establishment by Citibank of foreign
branches in certain circumstances.
For more information on U.S. and foreign
regulation affecting Citigroup and its subsidiaries, see "Risk
Factors-Regulatory Risks" above.
Changes in
Regulation
Proposals to change the laws
and regulations affecting the banking and financial services industries are
frequently introduced in Congress, before regulatory bodies and abroad that may
affect the operating environment of Citigroup and its subsidiaries in
substantial and unpredictable ways. This has been particularly true as a result
of the financial crisis. Citigroup cannot determine whether any such proposals
will be enacted and, if enacted, the ultimate effect that any such potential
legislation or implementing regulations would have upon the financial condition
or results of operations of Citigroup or its subsidiaries. For additional
information regarding recently enacted and proposed legislative and regulatory
initiatives, including significant provisions of the Dodd-Frank Act that have
not been fully implemented by the U.S. banking agencies, see "Capital Resources
and Liquidity-Regulatory Capital Standards" and "Risk Factors-Regulatory Risks"
above.
Other Bank and Bank Holding
Company Regulation
Citigroup and its
banking subsidiaries are subject to other regulatory limitations, including
requirements for banks to maintain reserves against deposits, requirements as to
risk-based capital and leverage (see "Capital Resources and Liquidity" above and
Note 20 to the Consolidated Financial Statements), restrictions on the types and
amounts of loans that may be made and the interest that may be charged, and
limitations on investments that can be made and services that can be offered.
The FRB may also expect Citigroup to commit resources to its subsidiary banks in
certain circumstances. Citigroup is also subject to anti-money laundering and
financial transparency laws, including standards for verifying client
identification at account opening and obligations to monitor client transactions
and report suspicious activities.
Securities and Commodities
Regulation
Citigroup conducts securities
underwriting, brokerage and dealing activities in the U.S. through Citigroup
Global Markets Inc., its primary broker-dealer, and other broker-dealer
subsidiaries, which are subject to regulations of the SEC, the Financial
Industry Regulatory Authority and certain exchanges, among others. Citigroup
conducts similar securities activities outside the U.S., subject to local
requirements, through various subsidiaries and affiliates, principally Citigroup
Global Markets Limited in London, which is regulated principally by the U.K.
Financial Services Authority, and Citigroup Global Markets Japan Inc. in Tokyo,
which is regulated principally by the Financial Services Agency of
Japan.
Citigroup also has subsidiaries that are members of futures exchanges and
are registered accordingly. In the U.S., CGMI is a member of the principal U.S.
futures exchanges, and Citigroup has subsidiaries that are registered as futures
commission merchants and commodity pool operators with the Commodity Futures
Trading Commission (CTFC).
287
CGMI is also subject to Rule 15c3-1 of the SEC and Rule 1.17 of the CTFC, which specify uniform minimum net capital requirements. Compliance with these rules could limit those operations of CGMI that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also limits the ability of broker-dealers to transfer large amounts of capital to parent companies and other affiliates. See also "Capital Resources-Broker-Dealer Subsidiaries" and Note 20 to the Consolidated Financial Statements for a further discussion of capital considerations of Citigroup's non-banking subsidiaries.
Dividends
Citigroup is currently subject to restrictions on its ability
to pay common stock dividends. See "Risk Factors" above. For information on the
ability of Citigroup's subsidiary depository institutions and non-bank
subsidiaries to pay dividends, see "Capital Resources-Capital Resources of
Citigroup's U.S. Depository Institutions" and Note 20 to the Consolidated
Financial Statements above.
Transactions with
Affiliates
The types and amounts of
transactions between Citigroup's U.S. subsidiary depository institutions and
their non-bank affiliates are regulated by the FRB, and are generally required
to be on arm's-length terms. See also "Funding and Liquidity" above.
Insolvency of an Insured U.S.
Subsidiary Depository Institution
If the
FDIC is appointed the conservator or receiver of an FDIC-insured U.S. subsidiary
depository institution such as Citibank, N.A., upon its insolvency or certain
other events, the FDIC has the ability to transfer any of the depository
institution's assets and liabilities to a new obligor without the approval of
the depository institution's creditors, enforce the terms of the depository
institution's contracts pursuant to their terms or repudiate or disaffirm
contracts or leases to which the depository institution is a
party.
Additionally,
the claims of holders of deposit liabilities and certain claims for
administrative expenses against an insured depository institution would be
afforded priority over other general unsecured claims against such an
institution, including claims of debt holders of the institution and depositors
in non-U.S. offices, in the liquidation or other resolution of such an
institution by any receiver. As a result, such persons would be treated
differently from and could receive, if anything, substantially less than the
depositors in U.S. offices of the depository institution.
An FDIC-insured
financial institution that is affiliated with a failed FDIC-insured institution
may have to indemnify the FDIC for losses resulting from the insolvency of the
failed institution. Such an FDIC indemnity claim is generally superior in right
of payment to claims of the holding company and its affiliates and depositors
against such depository institution.
Privacy and Data
Security
Citigroup is subject to many
U.S., state and international laws and regulations relating to policies and
procedures designed to protect the non-public information of its consumers.
Citigroup must periodically disclose its privacy policy to consumers and must
permit consumers to opt out of Citigroup's ability to use such information to
market to affiliates and third-party non-affiliates under certain circumstances.
See also "Risk Factors-Business Risks" and "Operational Risk-Information
Security and Continuity of Business" above.
CUSTOMERS
In Citigroup's judgment, no material part of Citigroup's
business depends upon a single customer or group of customers, the loss of which
would have a materially adverse effect on Citi, and no one customer or group of
affiliated customers accounts for at least 10% of Citigroup's consolidated
revenues.
The financial services industry, including each of Citigroup's businesses, is highly competitive. Citigroup's competitors include a variety of other financial services and advisory companies such as banks, thrifts, credit unions, credit card issuers, mortgage banking companies, trust companies, investment banking companies, brokerage firms, investment advisory companies, hedge funds, private equity funds, securities processing companies, mutual fund companies, insurance companies, automobile financing companies, and internet-based financial services companies.
Citigroup competes for clients and capital (including deposits and funding in the short- and long-term debt markets) with some of these competitors globally and with others on a regional or product basis. Citigroup's competitive position depends on many factors, including the value of Citi's brand name, reputation, the types of clients and geographies served, the quality, range, performance, innovation and pricing of products and services, the effectiveness of and access to distribution channels, technology advances, customer service and convenience, effectiveness of transaction execution, interest rates and lending limits, regulatory constraints and the effectiveness of sales promotion efforts. Citigroup's ability to compete effectively also depends upon its ability to attract new employees and retain and motivate existing employees, while managing compensation and other costs. See "Risk Factors-Regulatory Risks" above.
In recent years, Citigroup has experienced intense price competition in some of its businesses. For example, the increased pressure on trading commissions from growing direct access to automated, electronic markets
288
may continue to impact Securities and
Banking , and technological
advances that enable more companies to provide funds transfers may diminish the
importance of Global Consumer
Banking's role as a financial
intermediary.
There has been
substantial consolidation among companies in the financial services industry,
particularly as a result of the financial crisis, through mergers, acquisitions
and bankruptcies. This consolidation may produce larger, better capitalized and
more geographically diverse competitors able to offer a wider array of products
and services at more competitive prices around the world. In certain geographic
regions, including "emerging markets," our competitors may have a stronger local
presence, longer operating histories, and more established relationships with
clients and regulators.
PROPERTIES
Citigroup's principal executive offices are
located at 399 Park Avenue in New York City. Citigroup, and certain of its
subsidiaries, is the largest tenant, and the offices are the subject of a lease.
Citigroup also has additional office space at 601 Lexington Avenue in New York
City, under a long-term lease. Citibank leases one building and owns a
commercial condominium unit in a separate building in Long Island City, New
York, and has a long-term lease on a building at 111 Wall Street in New York
City, each of which are totally occupied by Citigroup and certain of its
subsidiaries.
Citigroup Global
Markets Holdings Inc. leases its principal offices at 388 Greenwich Street in
New York City, and also leases the neighboring building at 390 Greenwich Street,
both of which are fully occupied by Citigroup and certain of its
subsidiaries.
Citigroup's principal executive offices
in EMEA are located at 25 and 33 Canada Square in
London's Canary Wharf, with both buildings subject to long-term leases.
Citigroup is the largest tenant of 25 Canada Square and the sole tenant of 33
Canada Square.
In Asia , Citigroup's
principal executive offices are in leased premises located at Citibank Tower in
Hong Kong. Citigroup also has significant lease premises in Singapore and Japan.
Citigroup has major or full ownership interests in country headquarter locations
in Shanghai, Seoul, Kuala Lumpur, Manila, and Mumbai.
Citigroup's principal executive offices
in Latin America , which also serve as the headquarters of Banamex,
are located in Mexico City, in a two-tower complex with six floors each,
totaling 257,000 rentable square feet.
Citigroup also owns or leases over 74.6 million square feet of real
estate in 101 countries, comprised of 12,415 properties.
Citigroup continues to evaluate its
current and projected space requirements and may determine from time to time
that certain of its premises and facilities are no longer necessary for its
operations. There is no assurance that Citigroup will be able to dispose of any
such excess premises or that it will not incur charges in connection with such
dispositions. Such disposition costs may be material to Citigroup's operating
results in a given period.
Citi has developed
programs for its properties to achieve long-term energy efficiency objectives
and reduce its greenhouse gas emissions to lessen its impact on climate change.
Citi has also integrated a climate change adaptation strategy into its
operational strategy, which includes redundancy measures, to address risks from
climate change and weather influenced events. These activities could help to
mitigate, but will not eliminate, Citi's potential risk from future climate
change regulatory requirements or Citi's risk of increased costs from extreme
weather events.
For further information
concerning leases, see Note 28 to the Consolidated Financial
Statements.
LEGAL PROCEEDINGS
For a discussion of Citigroup's litigation and
related matters, see Note 29 to the Consolidated Financial
Statements.
289
UNREGISTERED SALES OF EQUITY; PURCHASES OF EQUITY SECURITIES; DIVIDENDS
Unregistered Sales of Equity
Securities
None.
Share
Repurchases
Under its long-standing
repurchase program, Citigroup may buy back common shares in the market or
otherwise from time to time. This program is used for many purposes, including
offsetting dilution from stock-based compensation programs.
The following table summarizes Citigroup's share repurchases during 2011:
Approximate dollar | |||||||
value of shares that | |||||||
Average | may yet be purchased | ||||||
Total shares | price paid | under the plan or | |||||
In millions, except per share amounts | purchased | (1) | per share | programs | |||
First quarter 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,731 | ||
Employee transactions (2) | 1.1 | 48.07 | N/A | ||||
Total first quarter 2011 | 1.1 | $ | 48.07 | $ | 6,731 | ||
Second quarter 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,731 | ||
Employee transactions (2) | 0.1 | 41.58 | N/A | ||||
Total second quarter 2011 | 0.1 | $ | 41.58 | $ | 6,731 | ||
Third quarter 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,731 | ||
Employee transactions (2) | 0.1 | 31.69 | N/A | ||||
Total third quarter 2011 | 0.1 | $ | 31.69 | $ | 6,730 | ||
October 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,730 | ||
Employee transactions (2) | - | - | N/A | ||||
November 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,730 | ||
Employee transactions (2) | - | - | N/A | ||||
December 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,730 | ||
Employee transactions (2) | - | - | N/A | ||||
Fourth quarter 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,730 | ||
Employee transactions (2) | - | - | N/A | ||||
Total fourth quarter 2011 | - | $ | - | $ | 6,730 | ||
Year-to-date 2011 | |||||||
Open market repurchases (1) | - | $ | - | $ | 6,730 | ||
Employee transactions (2) | 1.3 | 45.98 | N/A | ||||
Total year-to-date 2011 | 1.3 | $ | 45.98 | $ | 6,730 |
(1) | Open market repurchases are transacted under an existing authorized share repurchase plan. Since 2000, the Board of Directors has authorized the repurchase of shares in the aggregate amount of $40 billion under Citi's existing share repurchase plan. | |
(2) | Consists of shares added to treasury stock related to activity on employee stock option program exercises, where the employee delivers existing shares to cover the option exercise, or under Citi's employee restricted or deferred stock program, where shares are withheld to satisfy tax requirements. | |
N/A | Not applicable |
For so long as the U.S. government continues to hold any Citigroup trust preferred securities acquired pursuant to the exchange offers consummated in 2009, Citigroup is, subject to certain exemptions, generally restricted from
redeeming or repurchasing any of its equity or trust preferred securities, or paying regular cash dividends in excess of $0.01 per share of common stock per quarter, which restriction may be waived.
290
Dividends
For a summary of the cash dividends paid on Citi's outstanding
common stock during 2009 and 2010, see Note 32 to the Consolidated Financial
Statements. For so long as the U.S. government holds any Citigroup trust
preferred securities acquired pursuant to Citi's exchange offers consummated in
2009, Citigroup has agreed not to pay a quarterly common stock dividend
exceeding $0.01 per quarter, subject to certain customary exceptions. Further,
any dividend on Citi's outstanding common stock would need to be made in
compliance with Citi's obligations to any remaining outstanding Citigroup
preferred stock.
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative
Total Return
The following graph and table
compare the cumulative total return on Citigroup's common stock with the
cumulative total return of the S&P 500 Index and the S&P Financial Index
over the five-year period extending through December 31, 2011. The graph and
table assume that $100 was invested on December 31, 2006 in Citigroup's common
stock, the S&P 500 Index and the S&P Financial Index and that all
dividends were reinvested.
DATE | CITI | S&P 500 | S&P FINANCIALS |
29-Dec-2006 | 100.00 | 100.00 | 100.00 |
31-Dec-2007 | 55.29 | 105.49 | 81.37 |
31-Dec-2008 | 13.28 | 66.46 | 36.36 |
31-Dec-2009 | 6.57 | 84.05 | 42.62 |
31-Dec-2010 | 9.39 | 96.71 | 47.79 |
30-Dec-2011 | 5.23 | 98.76 | 39.64 |
291
CORPORATE INFORMATION
CITIGROUP EXECUTIVE
OFFICERS
Citigroup's executive officers as
of February 24, 2012 are:
Name | Age | Position and office held | ||
Stephen Bird | 45 | CEO, Asia Pacific | ||
Don Callahan | 55 | Chief Administrative Officer; | ||
Chief Operations and Technology Officer | ||||
Michael L. Corbat | 51 | CEO Europe, Middle East and Africa | ||
John C. Gerspach | 58 | Chief Financial Officer | ||
John Havens | 55 | President and Chief Operating Officer; | ||
CEO, Institutional Clients Group | ||||
Michael S. Helfer | 66 | General Counsel and Corporate Secretary | ||
Brian Leach | 52 | Chief Risk Officer | ||
Eugene M. McQuade | 63 | CEO, Citibank, N.A. | ||
Manuel Medina-Mora | 61 | CEO, Global Consumer Banking; | ||
Chairman of the Global Consumer Council | ||||
William J. Mills | 56 | CEO, North America | ||
Vikram S. Pandit | 55 | Chief Executive Officer | ||
Jeffrey R. Walsh | 54 | Controller and Chief Accounting Officer |
Each executive officer has held executive or management positions with Citigroup for at least five years, except that:
Mr. Callahan joined Citigroup in 2007. Prior to joining Citi, Mr. Callahan was a Managing Director and Head of Client Coverage Strategy for the Investment Banking Division at Credit Suisse. From 1993 to 2006, Mr. Callahan worked at Morgan Stanley, serving in numerous roles, including Global Head of Marketing and Head of Marketing for the Institutional Equities Division and for the Institutional Securities Group. Mr. Havens joined Citigroup in 2007. Prior to joining Citigroup, Mr. Havens was a partner of Old Lane, LP, a multi-strategy hedge fund and private equity fund manager that was acquired by Citi in 2007 (Old Lane). Mr. Havens, along with several former colleagues from Morgan Stanley (including Mr. Leach and Mr. Pandit), founded Old Lane in 2005. Before forming Old Lane, Mr. Havens was Head of Institutional Equity at Morgan Stanley and a member of the firm's Management Committee. Mr. Leach became Citi's Chief Risk Officer in March 2008. Prior to that, Mr. Leach was a founder and the co-COO of Old Lane. Earlier, he had worked for his entire financial career at Morgan Stanley, finishing as Risk Manager of the Institutional Securities Business. Code of Conduct; Code of
Ethics
Citigroup has a Code of Conduct
that maintains its commitment to the highest standards of conduct. The Code of
Conduct is supplemented by a Code of Ethics for Financial Professionals
(including finance, accounting, treasury, tax and investor relations
professionals) that applies worldwide. The Code of Ethics for Financial
Professionals applies to Citigroup's principal executive officer, principal
financial officer and principal accounting officer. Amendments and waivers, if
any, to the Code of Ethics for Financial Professionals will be disclosed on
Citi's web site, www.citigroup.com .
Both the Code of Conduct and the Code of Ethics for
Financial Professionals can be found on the
Citigroup web site. The Code of Conduct can be found by clicking on "About
Citi," and the Code of Ethics for Financial Professionals can be found by
further clicking on "Corporate Governance" and then "Governance Documents."
Citi's Corporate Governance Guidelines can also be found there. The charters for
the Audit Committee, the Citi Holdings Oversight Committee, the Nomination,
Governance and Public Affairs Committee, the Personnel and Compensation
Committee and the Risk Management and Finance Committee of the Board are also
available by further clicking on "Board of Directors" and then "Charters." These
materials are also available by writing to Citigroup Inc., Corporate Governance,
425 Park Avenue, 2nd Floor, New York, New York 10022.
292
Stockholder
Information
Citigroup common stock is
listed on the NYSE under the ticker symbol "C" and on the Tokyo Stock Exchange
and the Mexico Stock Exchange. Citigroup preferred stock Series F, T and AA are
also listed on the NYSE.
Because Citigroup's common stock is listed on the NYSE, the Chief
Executive Officer is required to make an annual certification to the NYSE
stating that he was not aware of any violation by Citigroup of the corporate
governance listing standards of the NYSE. The annual certification to that
effect was made to the NYSE on May 20, 2011.
As of
January 31, 2012, Citigroup had approximately 105,437 common stockholders of
record. This figure does not represent the actual number of beneficial owners of
common stock because shares are frequently held in "street name" by securities
dealers and others for the benefit of individual owners who may vote the
shares.
Transfer Agent
Stockholder address changes and inquiries regarding stock
transfers, dividend replacement, 1099-DIV reporting and lost securities for
common and preferred stock should be directed to:
Computershare
P.O. Box 43078
Providence, RI 02940-3078
Telephone No. 781 575 4555
Toll-free No. 888 250 3985
E-mail address: [email protected]
Web address: www.computershare.com/investor
Exchange Agent
Holders of Golden State Bancorp, Associates First Capital
Corporation, Citicorp or Salomon Inc. common stock, Citigroup Inc. Preferred
Stock Series Q, S or T, or Salomon Inc. Preferred Stock Series D should arrange
to exchange their certificates by contacting:
Computershare
P.O. Box 43078
Providence, RI 02940-3078
Telephone No. 781 575 4555
Toll-free No. 888 250 3985
E-mail address: [email protected]
Web address: www.computershare.com/investor
On May 9, 2011, Citi effected a 1-for-10
reverse stock split. All Citi common stock certificates issued prior to that
date must be exchanged for new certificates by contacting Computershare at the
address noted above.
Citi's 2011 Form 10-K filed with the SEC,
as well as other annual and quarterly reports, are available from Citi Document
Services toll free at 877 936 2737 (outside the United States at 716 730 8055),
by e-mailing a request to [email protected] , or by writing
to:
Citi Document
Services
540 Crosspoint
Parkway
Getzville, NY
14068
Stockholder
Inquiries
Information about Citi,
including quarterly earnings releases and filings with the U.S. Securities and
Exchange Commission, can be accessed via its Web site at www.citigroup.com . Stockholder inquiries can also be directed by e-mail
to [email protected] .
293
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
24th day of February, 2012.
Citigroup Inc.
(Registrant)
John C. Gerspach
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 24th day of February, 2012.
Citigroup's Principal Executive Officer and a Director:
Vikram S. Pandit
Citigroup's Principal Financial Officer:
John C. Gerspach
Citigroup's Principal Accounting Officer:
Jeffrey R. Walsh
The Directors of Citigroup listed below executed a power of attorney appointing John C. Gerspach their attorney-in-fact, empowering him to sign this report on their behalf.
Alain J.P. Belda | Judith Rodin |
Timothy C. Collins | Robert L. Ryan |
Robert L. Joss, Ph.D. | Anthony M. Santomero |
Michael E. O'Neill | Diana L. Taylor |
Richard D. Parsons | William S. Thompson, Jr. |
Lawrence R. Ricciardi | Ernesto Zedillo |
John C. Gerspach
294
CITIGROUP BOARD OF DIRECTORS
Alain J.P.
Belda Timothy C.
Collins Robert L. Joss,
Ph.D. Professor of Finance Emeritus and Former Dean Stanford University Graduate School of Business Michael E.
O'Neill | Vikram S.
Pandit Richard D.
Parsons Lawrence R.
Ricciardi | Judith Rodin Robert L.
Ryan Anthony M.
Santomero | Diana L.
Taylor William S. Thompson,
Jr. Ernesto
Zedillo |
295
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296
EXHIBIT INDEX
Exhibit | ||
Number | Description of Exhibit | |
2.01 | Share Purchase Agreement, dated July 11, 2008, by and between Citigroup Global Markets Finance Corporation & Co. Beschrankt Haftende KG, CM Akquisitions GmbH, and Banque Federative du Credit Mutuel S.A., incorporated by reference to Exhibit 2.01 to the Quarterly Report on Form 10-Q of Citigroup Inc. (the "Company") for the fiscal quarter ended September 30, 2008 (File No. 1-9924) (the "Company's September 30, 2008 10-Q"). | |
2.02 | Amended and Restated Joint Venture Contribution and Formation Agreement, dated May 29, 2009, by and among the Company, Morgan Stanley and Morgan Stanley Smith Barney Holdings LLC, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 3, 2009 (File No. 1-9924). | |
2.03 | Share Purchase Agreement, dated May 1, 2009, by and among Nikko Citi Holdings Inc., Nikko Cordial Securities Inc., Nikko Citi Business Services Inc., Nikko Citigroup Limited, and Sumitomo Mitsui Banking Corporation, incorporated by reference to Exhibit 2.02 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2009 (File No. 1-9924). | |
3.01.1 | Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009 (File No. 1-9924) (the "Company's September 30, 2009 10-Q"). | |
3.01.2 | Certificate of Amendment of the Restated Certificate of Incorporation of the Company, dated May 6, 2011, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 9, 2011 (File No. 1-9924). | |
3.02 | By-Laws of the Company, as amended, effective December 15, 2009, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed December 16, 2009 (File No. 1-9924). | |
4.01 | Warrant Agreement (relating to Warrants (expiring January 4, 2019)), dated as of January 25, 2011, between the Company and Computershare Inc. and Computershare Trust Company, N.A., as Warrant Agent, incorporated by reference to Exhibit 4.1 to the Company's Form 8-A filed January 26, 2011 (File No. 1-9924; Acc. No. 0000950123-11-005308). | |
4.02 | Specimen Warrant for 255,033,142 Warrants, incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed January 26, 2011 (File No. 1-9924; Acc. No. 0000950123-11-005308). | |
4.03 | Warrant Agreement (relating to Warrants (expiring October 28, 2018)), dated as of January 25, 2011, between the Company and Computershare Inc. and Computershare Trust Company, N.A., as Warrant Agent, incorporated by reference to Exhibit 4.1 to the Company's Form 8-A filed January 26, 2011 (File No. 1-9924; Acc. No. 0000950123-11-005381). | |
4.04 | Specimen Warrant for 210,084,034 Warrants, incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed January 26, 2011 (File No. 1-9924; Acc. No. 0000950123-11-005381). |
4.05 | Tax Benefits Preservation Plan, dated June 9, 2009, between the Company and Computershare Trust Company, N.A., incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed June 10, 2009 (File No. 1-9924). | |
4.06 | Capital Securities Guarantee Agreement, dated as of July 30, 2009, between the Company, as Guarantor, and The Bank of New York Mellon, as Guarantee Trustee, incorporated by reference to Exhibit 4.03 to the Company's Current Report on Form 8-K filed July 30, 2009 (File No. 1-9924). | |
4.07 | Registration Rights Agreement, dated as of January 27, 2011, between the Company and The Bank of New York Mellon, not in its individual capacity but solely as Trustee, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed March 28, 2011 (No. 333-173113). | |
4.08 | Termination of the Capital Replacement Covenants agreement, dated April 1, 2011, between the Company and The Bank of New York Mellon, as Institutional Trustee of Citigroup Capital XI, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 4, 2011 (File No. 1-9924). | |
4.09 | Specimen Physical Common Stock Certificate of the Company, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 9, 2011 (File No. 1-9924). | |
10.01.1* | Supplemental ERISA Compensation Plan of Citibank, N.A. and Affiliates, as amended and restated (the "Citibank Supplemental ERISA Plan"), incorporated by reference to Exhibit 10.(G) to Citicorp's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5378). | |
10.01.2* | Amendment to the Citibank Supplemental ERISA Plan (the "1999 Amended Citibank Supplemental ERISA Plan"), incorporated by reference to Exhibit 10.21.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-9924) (the "Company's 1999 10-K"). | |
10.01.3* | Amendment to the 1999 Amended Citibank Supplemental ERISA Plan (the "2005 Amended Citibank Supplemental ERISA Plan"), incorporated by reference to Exhibit 10.04.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 1-9924). | |
10.01.4* | Amendment to the 2005 Amended Citibank Supplemental ERISA Plan, as amended January 1, 2009 (the "2009 Amended Citibank Supplemental ERISA Plan"), incorporated by reference to Exhibit 10.01.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 1-9924) (the "Company's 2009 10-K"). | |
10.01.5* | Nonqualified Plan Amendment to the 2009 Amended Citibank Supplemental ERISA Plan, adopted November 19, 2009, incorporated by reference to Exhibit 10.01.5 to the Company's 2009 10-K. | |
10.02* | Citigroup Inc. Amended and Restated Compensation Plan for Non-Employee Directors (as of September 21, 2004), incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005 (File No. 1-9924). | |
10.03.1* | Form of Citigroup Inc. Non-Employee Director Equity Award Agreement (pursuant to the Amended and Restated Compensation Plan for Non-Employee Directors), incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 14, 2005 (File No. 1-9924). |
10.03.2* | Form of Citigroup Inc. Non-Employee Director Equity Award Agreement (effective November 1, 2006), incorporated by reference to Exhibit 10.05 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006 (File No. 1-9924). | |
10.04.1* | Travelers Group Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 (File No. 1-9924). | |
10.04.2* | Amendment to the Travelers Group Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.08.2 to the Company's 1999 10-K. | |
10.04.3* | Amendment to the Travelers Group Capital Accumulation Plan (as amended through July 23, 1997), incorporated by reference to Exhibit 10.05.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File No. 1-9924) (the "Company's 2008 10-K"). | |
10.05.1 | Citigroup Employee Incentive Plan, amended and restated as of April 17, 2001, incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 1-9924). | |
10.05.2 | Amendment to the Citigroup Employee Incentive Plan, incorporated by reference to Exhibit 10.08.2 to the Company's 2008 10-K. | |
10.06.1* | Citicorp 1997 Stock Incentive Plan, incorporated by reference to Citicorp's 1997 Proxy Statement filed February 26, 1997 (File No. 1-5378). | |
10.06.2* | Amendment to the Citicorp 1997 Stock Incentive Plan, incorporated by reference to Exhibit 10.19.2 to the Company's 1999 10-K. | |
10.06.3* | Amendment to the Citicorp 1997 Stock Incentive Plan, incorporated by reference to Exhibit 10.11.3 to the Company's 2008 10-K. | |
10.07.1* | Citicorp Directors' Deferred Compensation Plan, Restated May 1, 1988, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-9924). | |
10.07.2* | Amendment to the Citicorp Directors' Deferred Compensation Plan (effective as of December 31, 2001), incorporated by reference to Exhibit 10.22.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-9924) (the "Company's 2001 10-K"). | |
10.08* | Citigroup 1999 Stock Incentive Plan (as amended and restated effective January 1, 2009), incorporated by reference to Exhibit 10.15 to the Company's 2008 10-K. | |
10.09* | Form of Citigroup Directors' Stock Option Grant Notification, incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-9924). | |
10.10 | Lease, dated as of September 25, 2002, between BP 399 Park Avenue LLC (as Landlord) and Citigroup Inc. (as Tenant), incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 (File No. 1-9924). | |
10.11.1* | Form of Citigroup Equity Award Agreement (effective November 1, 2007), incorporated by reference to Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007 (File No. 1-9924) (the "Company's September 30, 2007 10-Q"). |
10.11.2* | Form of Citigroup Equity or Deferred Cash Award Agreement (effective January 1, 2009), incorporated by reference to Exhibit 10.01 to the Company's September 30, 2008 10-Q. | |
10.11.3* | Form of Citigroup Equity or Deferred Cash Award Agreement (effective November 1, 2009), incorporated by reference to Exhibit 10.01 to the Company's September 30, 2009 10-Q. | |
10.11.4* | Form of Citigroup Equity or Deferred Cash Award Agreement (effective November 1, 2010), incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010 (File No. 1-9924) (the "Company's September 30, 2010 10-Q"). | |
10.11.5* | Form of Citigroup Inc. 2012 Discretionary Incentive and Retention Award Agreement, incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011 (File No. 1-9924) (the "Company's September 30, 2011 10-Q"). | |
10.12 | Citigroup Management Committee Termination Notice and Non-Solicitation Policy, effective October 2, 2006, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 6, 2006 (File No. 1-9924). | |
10.13* | Citigroup Inc. Non-Employee Directors Compensation Plan (effective as of January 1, 2008), incorporated by reference to Exhibit 10.01 to the Company's September 30, 2007 10-Q. | |
10.14.1 | Lease, dated as of May 12, 2005, between Reckson Court Square, LLC (Landlord) and Citibank, N.A. (Tenant); Premises: One Court Square, 25-01 Jackson Avenue, Long Island City, New York 11120, incorporated by reference to Exhibit 10.40.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 1-9924) (the "Company's 2007 10-K"). | |
10.14.2 | First Amendment to Lease, dated as of August 3, 2005, between Reckson Court Square, LLC (Landlord) and Citibank, N.A. (Tenant); Premises: One Court Square, Long Island City, Queens County, New York, incorporated by reference to Exhibit 10.40.2 to the Company's 2007 10-K. | |
10.15 | Lease, dated as of December 18, 2007, between 388 Realty Owner LLC (Landlord) and Citigroup Global Markets Inc. (Tenant); Premises: 388 Greenwich Street, New York, New York 10013, incorporated by reference to Exhibit 10.41 to the Company's 2007 10-K. | |
10.16 | Lease, dated as of December 18, 2007, between 388 Realty Owner LLC (Landlord) and Citigroup Global Markets Inc. (Tenant); Premises: 390 Greenwich Street, New York, New York 10013, incorporated by reference to Exhibit 10.42 to the Company's 2007 10-K. | |
10.17* | Aircraft Time Sharing Agreement, dated December 12, 2007, between Citiflight, Inc. and Vikram Pandit, incorporated by reference to Exhibit 10.43 to the Company's 2007 10-K. | |
10.18 | Joint Venture Contribution and Formation Agreement, dated as of January 13, 2009, by and between the Company and Morgan Stanley, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 16, 2009 (File No. 1-9924). | |
10.19 | Form of Addendum to Indemnification Agreement dated December 16, 2008 between the Company and each member of its Board of Directors, incorporated by reference to Exhibit 10.44 to the Company's 2008 10-K. | |
10.20* | Form of Citigroup Performance Stock Award Agreement, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed January 21, 2009 (File No. 1-9924). |
10.21* | Form of Citigroup Executive Premium Price Option Agreement, incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed January 21, 2009 (File No. 1-9924). | |
10.22.1* | Citicorp Deferred Compensation Plan, effective October 1995, incorporated by reference to Exhibit 10 to Citicorp's Registration Statement on Form S-8 filed February 15, 1996 (No. 333-0983). | |
10.22.2* | Amendment to the Citicorp Deferred Compensation Plan, incorporated by reference to Exhibit 10.18.2 to the Company's 1999 10-K. | |
10.22.3* | Amendment to the Citicorp Deferred Compensation Plan, effective as of September 28, 2001, incorporated by reference to Exhibit 10.17.3 to the Company's 2001 10-K. | |
10.22.4* | Nonqualified Plan Amendment to the Citicorp Deferred Compensation Plan, adopted November 19, 2009, incorporated by reference to Exhibit 10.01.5 to the Company's 2009 10-K. | |
10.23* | Form of 2009 Citi Stock Payment Program Notification for awards granted on November 30, 2009, incorporated by reference to Exhibit 10.31 to the Company's 2009 10-K. | |
10.24* | Form of Citi Long-Term Restricted Stock Award Agreement for awards granted on December 30, 2009, incorporated by reference to Exhibit 10.33 to the Company's 2009 10-K. | |
10.25* | Form of 2009 Citi Stock Incentive Program Notification for awards granted on December 30, 2009, incorporated by reference to Exhibit 10.34 to the Company's 2009 10-K. | |
10.26 | Exchange Agreement, dated June 9, 2009, between the Company and the Federal Deposit Insurance Corporation, incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the Company's Registration Statement on Form S-4 filed June 10, 2009 (333-158100). | |
10.27 | Amended and Restated Global Selling Agency Agreement, dated August 26, 2011, among Citigroup Funding Inc., the Company, Citigroup Global Markets Inc., UBS Financial Services Inc. and Wells Fargo Securities, LLC, incorporated by reference to Exhibit 10.02 to the Company's September 30, 2011 10-Q. | |
10.28.1* | Letter Agreement, dated April 5, 2010, between the Company and Dr. Robert L. Joss (the "Joss Letter Agreement"), incorporated by reference to Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010 (File No. 1-9924) (the "Company's March 31, 2010 10-Q"). | |
10.28.2* | Joss Letter Agreement Renewal, dated October 28, 2010, between the Company and Dr. Robert L. Joss, incorporated by reference to Exhibit 10.43.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 1-9924) (the "Company's 2010 10-K"). | |
10.28.3*+ | Joss Letter Agreement Renewal, dated January 1, 2012, between the Company and Dr. Robert L. Joss. | |
10.29* | Individual Employment Contract, dated November 8, 1971, between Banco Nacional de Mexico, S.A. and Manuel Medina-Mora (English translation), incorporated by reference to Exhibit 10.07 to the Company's March 31, 2010 10-Q. | |
10.30* | Form of 2010 Citi Stock Payment Program Notification for Awards Granted on September 30, 2010, incorporated by reference to Exhibit 10.02 to the Company's September 30, 2010 10-Q. | |
10.31* | Form of 2010 Citi Stock Payment Program Notification for Awards Granted in October, November and December 2010, incorporated by reference to Exhibit 10.03 to the Company's September 30, 2010 10-Q. |
10.32* | Form of Citi Long-Term Restricted Stock Award Agreement (effective November 1, 2010), incorporated by reference to Exhibit 10.04 to the Company's September 30, 2010 10-Q. | |
10.33* | Citigroup Inc. 2010 Key Employee Profit Sharing Plan, incorporated by reference to Exhibit 10.50 to the Company's 2010 10-K. | |
10.34* | Form of Citigroup Inc. 2010 Key Employee Profit Sharing Plan Award Agreement, incorporated by reference to Exhibit 10.51 to the Company's 2010 10-K. | |
10.35* | Citigroup Inc. 2010 Key Risk Employee Plan, incorporated by reference to Exhibit 10.52 to the Company's 2010 10-K. | |
10.36* | Form of Citigroup Inc. 2010 Key Risk Employee Plan Award Agreement, incorporated by reference to Exhibit 10.53 to the Company's 2010 10-K. | |
10.37* | Citigroup Inc. 2011 Key Employee Profit Sharing Plan, incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 (File No. 1-9924) (the "Company's March 31, 2011 10-Q"). | |
10.38* | Citigroup Inc. 2011 Key Employee Profit Sharing Plan Award Agreement, incorporated by reference to Exhibit 10.02 to the Company's March 31, 2011 10-Q. | |
10.39* | Form of Citigroup Inc. Employee Option Grant Agreement, incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 (File No. 1-9924) (the "Company's June 30, 2011 10-Q"). | |
10.40.1* | Citigroup 2009 Stock Incentive Plan (as amended and restated effective April 21, 2011), incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed April 22, 2011 (No. 333-173683). | |
10.40.2*+ | Amendment to the Citigroup 2009 Stock Incentive Plan (as amended and restated effective April 21, 2011). | |
10.41* | 2011 Citigroup Executive Performance Plan, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 26, 2011 (File No. 1-9924). | |
10.42* | Citigroup Inc. 2011 Key Employee Profit Sharing Plan Award Agreement, dated May 17, 2011, between the Company and Vikram S. Pandit, incorporated by reference to Exhibit 10.02 to the Company's June 30, 2011 10-Q. | |
10.43* | Citigroup Inc. Equity Award Agreement, dated May 17, 2011, between the Company and Vikram S. Pandit, incorporated by reference to Exhibit 10.03 to the Company's June 30, 2011 10-Q. | |
10.44* | Citigroup Inc. Executive Option grant Agreement, dated May 17, 2011, between the Company and Vikram S. Pandit, incorporated by reference to Exhibit 10.04 to the Company's June 30, 2011 10-Q. | |
10.45* | Letter Agreement, dated December 21, 2011, between Citigroup Inc. and Michael Corbat, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed December 22, 2011 (File No. 1-9924). | |
10.46*+ | Citigroup Inc. Deferred Cash Award Plan (Amended and Restated Effective as of January 1, 2012). |
10.47*+ | Citi Discretionary Incentive and Retention Award Plan (Amended and Restated Effective January 1, 2012). | |
12.01+ | Calculation of Ratio of Income to Fixed Charges. | |
12.02+ | Calculation of Ratio of Income to Fixed Charges Including Preferred Stock Dividends. | |
21.01+ | Subsidiaries of the Company. | |
23.01+ | Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |
24.01+ | Powers of Attorney. | |
31.01+ | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.02+ | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.01+ | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.01+ | List of Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934. | |
101.01+ | Financial statements from the Annual Report on Form 10-K of Citigroup Inc. for the fiscal year ended December 31, 2011, filed on February 24, 2012, formatted in XBRL: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements. |
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the SEC upon request.
Copies of any of the exhibits referred to above will be furnished at a cost of $0.25 per page (although no charge will be made for the 2011 Annual Report on Form 10-K) to security holders who make written request therefor to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd Floor, New York, New York 10022.
* Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a) of Form 10-K.
+ Filed herewith.