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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | ||
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) | 52-1568099 (I.R.S. Employer Identification No.) | |
399 Park Avenue, New York, New York (Address of principal executive offices) | 10043 (Zip Code) | |
(212) 559-1000 (Registrant's telephone number, including area code) | ||
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. Yes ý No o
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). Yes o No 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. (Check one):
| Large accelerated filerý | Accelerated filero | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of September 30, 2008: 5,449,539,904March 31, 2009: 5,512,800,000
Available on the Web at www.citigroup.com
Citigroup Inc.
FIRST QUARTER OF 2009—FORM 10-Q
THE COMPANY | |||||||
Citigroup Segments | 3 | ||||||
Citigroup Regions | 3 | ||||||
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a global diversified financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.
The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal and state authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2007 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 16, 2008.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212 559 1000. Additional information about Citigroup is available on the Company's Web site atwww.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports, are available free of charge through the Company's Web site by clicking on the "Investor Relations" page and selecting "All SEC Filings." The SEC Web site contains reports, proxy and information statements, and other information regarding the Company atwww.sec.gov.
Citigroup is managed along the following segment and regional lines:
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results.
CITIGROUP INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars, except per share amounts | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue | $ | 13,406 | $ | 11,844 | 13 | % | $ | 40,439 | $ | 33,146 | 22 | % | ||||||||
Non-interest revenue | 3,274 | 9,796 | (67 | ) | 6,759 | 38,930 | (83 | ) | ||||||||||||
Revenues, net of interest expense | $ | 16,680 | $ | 21,640 | (23 | )% | $ | 47,198 | $ | 72,076 | (35 | )% | ||||||||
Operating expenses | 14,425 | 14,152 | 2 | 45,844 | 43,702 | 5 | ||||||||||||||
Provisions for credit losses and for benefits and claims | 9,067 | 4,867 | 86 | 22,019 | 10,256 | NM | ||||||||||||||
Income (loss) from continuing operations before taxes and minority interest | $ | (6,812 | ) | $ | 2,621 | NM | $ | (20,665 | ) | $ | 18,118 | NM | ||||||||
Income taxes (benefits) | (3,294 | ) | 492 | NM | (9,637 | ) | 4,908 | NM | ||||||||||||
Minority interest, net of taxes | (95 | ) | 20 | NM | (40 | ) | 190 | NM | ||||||||||||
Income (loss) from continuing operations | $ | (3,423 | ) | $ | 2,109 | NM | $ | (10,988 | ) | $ | 13,020 | NM | ||||||||
Income (loss) from discontinued operations, net of taxes(1) | 608 | 103 | NM | 567 | 430 | 32 | % | |||||||||||||
Net income (loss) | $ | (2,815 | ) | $ | 2,212 | NM | $ | (10,421 | ) | $ | 13,450 | NM | ||||||||
Earnings per share | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.43 | NM | $ | (2.26 | ) | $ | 2.65 | NM | ||||||||
Net Income (loss) | (0.60 | ) | 0.45 | NM | (2.15 | ) | 2.74 | NM | ||||||||||||
Diluted(2) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.42 | NM | $ | (2.26 | ) | 2.60 | NM | |||||||||
Net Income (loss) | (0.60 | ) | 0.44 | NM | (2.15 | ) | 2.69 | NM | ||||||||||||
Dividends declared per common share | $ | 0.32 | $ | 0.54 | (41 | )% | $ | 0.96 | $ | 1.62 | (41 | )% | ||||||||
Preferred Dividends—Basic(in millions) | $ | 389 | $ | 6 | $ | 833 | $ | 36 | ||||||||||||
Preferred Dividends—Diluted(in millions) | $ | 119 | $ | 6 | $ | 227 | $ | 36 | ||||||||||||
At September 30: | ||||||||||||||||||||
Total assets | $ | 2,050,131 | $ | 2,358,115 | (13 | )% | ||||||||||||||
Total deposits | 780,343 | 812,850 | (4 | ) | ||||||||||||||||
Long-term debt | 393,097 | 364,526 | 8 | |||||||||||||||||
Mandatorily redeemable securities of subsidiary trusts | 23,674 | 11,542 | NM | |||||||||||||||||
Common stockholders' equity | 98,638 | 126,762 | (22 | ) | ||||||||||||||||
Total stockholders' equity | 126,062 | 126,962 | (1 | ) | ||||||||||||||||
Ratios: | ||||||||||||||||||||
Return on common stockholders' equity(3) | (12.2 | )% | 6.9 | % | (13.8 | )% | 14.6 | % | ||||||||||||
Tier 1 Capital | 8.19 | % | 7.32 | % | ||||||||||||||||
Total Capital | 11.68 | 10.61 | ||||||||||||||||||
Leverage(4) | 4.70 | 4.13 | ||||||||||||||||||
Common Stockholders' equity to assets | 4.81 | % | 5.38 | % | ||||||||||||||||
Dividend payout ratio(5) | N/A | 122.7 | N/A | 60.2 | ||||||||||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 0.45 | x | 1.13 | x | 0.50 | x | 1.32 | x | ||||||||||||
NM Not meaningful
Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.
Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including, but not limited to, those described in Citigroup's 2007 Annual Report on Form 10-K under "Risk Factors" beginning on page 38.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER OF 2008 MANAGEMENT SUMMARYManagement Summary
Citigroup reported a $3.4 billion loss from continuing operations ($0.71 per share) for the third quarter of 2008. The third quarter results were impacted by higher consumer credit costs, continued losses related to the disruption in the fixed income markets, and a general economic slowdown. The net loss of $2.8 billion ($0.60 per share) in the third quarter includes the results of our German Retail Banking Operations and CitiCapital (which are now reflected as discontinued operations).
Revenues were $16.7 billion, down 23% from a year ago. The declineEvents in revenues was driven by $4.4 billion in net write-downs inS&B (after reflection of the gain on Citigroup's liabilities under the fair value option), lower securitization results in North America Cards, and a $612 million write-down related to the auction rates securities (ARS) settlement, partially offset by a $347 million pre-tax gain on the sale of CitiStreet. The prior-year period included a $729 million pre-tax gain on the sale of Redecard shares. Revenues across all businesses reflect the impact of a difficult economic environment and weak capital markets.2009
Global Cards revenues declined 40%, mainly due to lower securitization results inNorth America and the absence of a gain on the sale of Redecard shares. Consumer Banking revenues grew 2%, as increased revenues inNorth America were partially offset by declines inLatin America andAsia. ICGS&B revenues were ($81) million, due to write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion (net of hedges) on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures.S&B revenues also included a $306 million write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option.Transaction Services revenues were up 20% to $2.5 billion, reflecting double-digit revenue growth across all regions. GWM revenues decreased 10%, driven by a decline in capital markets and investment revenues, partially offset by higher banking and lending revenues. GWM revenues also included a $347 million pre-tax gain on the sale of CitiStreet, partially offset by a $306 million write-down related to the ARS settlement.
Net interest revenue increased 13% from last year, reflecting volume increases across most products. Net interest margin (NIM) in the third quarter of 2008 was 3.13%, up 79 basis points from the third quarter of 2007, reflecting lower cost of funding, partially offset by a decrease in asset yields related to the decrease in the Fed Funds rate. (See discussion of NIM on page 49).
Operating expenses increased 2% from the third quarter of 2007. Expense growth reflected $459 million in repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts. Expenses declined for the third consecutive quarter, due to lower incentive compensation accruals and continued benefits from re-engineering efforts. Headcount was down 11,000 from June 30, 2008, and approximately 23,000 year-to-date.
Total credit costs of $8.8 billion included NCLs of $4.9 billion up from $2.5 billion in the third quarter of 2007 and a net build of $3.9 billion to credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion inNorth America and $855 million in regions outside ofNorth America), $612 million in ICG and $64 million in GWM. The incremental net charge to increase loan loss reserves of $1.7 billion was mainly due to Consumer Banking and Cards inNorth America, andS&B. The Consumer loans loss rate was 3.35%, a 153 basis-point increase from the third quarter of 2007. Corporate cash-basis loans were $2.7 billion at September 30, 2008, an increase of $1.4 billion from year-ago levels. The allowance for loan losses totaled $24.0 billion at September 30, 2008, a coverage ratio of 3.35% of total loans.
The effective tax rate of 48% in the third quarter of 2008 primarily resulted from the pretax losses in the Company'sS&B business taxed in the U.S. (the U.S. is a higher tax rate jurisdiction). In addition, the tax benefits of permanent differences, including the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested, favorably affected the Company's effective tax rate.
Stockholders' equity and trust preferred securities were $149.7 billion at September 30, 2008. We distributed $2.1 billion in dividends to shareholders during the quarter. On October 20, 2008, as previously announced, the Company decreased the quarterly dividend on its common stock to $0.16 per share. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.19% at September 30, 2008.
On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced TARP Capital Purchase Program. All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.
In addition, the pending sale of our German retail banking operation, which is expected to result in an estimated after-tax gain of approximately $4 billion in the fourth quarter of 2008.
Our liquidity position also remained very strong during the third quarter of 2008 and will continue to be enhanced through the sale to the U.S. Department of the Treasury of perpetual preferred stock and a warrant to purchase common stock, the sale of the German Retail Banking Operations and continued balance sheet de-leveraging. At September 30, 2008, we had increased our structural liquidity (equity, long-term debt, and deposits), as a percentage of assets, from 55% at September 30, 2007 to approximately 64% at September 30, 2008.
At September 30, 2008, the maturity profile of Citigroup's senior long-term unsecured borrowings had a weighted average maturity of seven years. We also reduced our commercial paper program from $35 billion at December 31, 2007 to $29 billion at September 30, 2008.
Our reserves of cash and highly liquid securities stood at approximately $51 billion at September 30, 2008, up from $24 billion at December 31, 2007. Continued de-leveraging and the enhancement of our liquidity position have allowed us to continue to maintain sufficient liquidity to meet all debt obligations maturing within a one-year period without having to access unsecured capital markets. See "Funding" on page 61 for further information on Citigroup's liquidity and funding.
U.S. Department of the Treasury Troubled Asset Relief Program (TARP) and FDIC Guarantee
Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced Troubled Asset Relief Program (TARP) Capital Purchase Program.
All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.
The preferred stock will have an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years, and 9% thereafter. Dividends will be cumulative and payable quarterly. The warrant will have an exercise price of $17.85 and will be exercisable for 210,084,034 shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009.
The issuance of the warrant will result in a conversion price reset of the $12.5 billion of 7% convertible preferred stock sold in private offerings in January 2008. See "Capital Resources" beginning on page 57 for a further discussion.
FDIC Guarantee
The Federal Deposit Insurance Corporation (FDIC) will guarantee until June of 2012 some senior unsecured debt issued by certain Citigroup entities between October 14, 2008 and June 30, 2009, in amounts up to 125% of the qualifying debt for each entity under the terms of the plan. The FDIC will charge a 75bps fee for any new qualifying debt issued with the FDIC guarantee.
Impact on Citigroup's Credit Spreads
As a result of government actions and for other reasons, credit spreads on Citigroup's debt instruments have substantially narrowed since September 30, 2008. Although this may change before the end of the year, if Citigroup's credit spreads are substantially narrower at December 31, 2008 than at September 30, 2008, it could have a meaningful impact on the value of derivative instruments and those liabilities for which the Company has elected the fair value option. See "Derivatives" on page 40 and Note 17 on Fair Value on page 125 for a discussion on the impact of changes in credit spreads in the third quarter.
Auction Rate Securities (ARS) Settlement
In the third quarter of 2008, Citigroup announced an agreement in principle with the New York Attorney General, under which it agreed to offer to purchase the failed ARS of its retail clients for par value. This agreement resulted in a $712 million loss being recorded during the third quarter.
The loss comprises (1) fines of $100 million ($50 million to the State of New York and $50 million to the other state regulatory agencies); (2) an estimated contingent loss of $425 million, recorded at the time of the announcement, reflecting the estimated difference between the fair value and par value of the securities to be purchased; and (3) an incremental loss of $187 million due to the decline in value of these ARS since the time of announcement (mainly due to the widening spreads on municipal obligations).
The securities Citigroup will be purchasing under this agreement have an estimated notional value of $6.2 billion, consisting of $4.2 billion of Preferred Share ARS, $1.8 billion of Municipal ARS and $0.2 billion of Student Loan ARS. The pretax losses of $712 million have been divided equally betweenS&B and GWM, both inNorth America.
Write-Downs on Structured Investment Vehicles (SIVs)
During the third quarter of 2008, Citigroup wrote down $2.0 billion on SIV assets, bringing the year-to-date write-downs to $2.2 billion. Citigroup increased its mezzanine financing to $4.5 billion, reflecting an increase of $1.0 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September 30, 2008. The total SIV assets as of September 30, 2008 and June 30, 2008 were approximately $27.5 billion and $34.8 billion, respectively. See "Structured Investment Vehicles" on page 74 for a further discussion.
Write-downs on Alt-A Mortgage Securities in S&B
During the third quarter of 2008, Citigroup recorded additional pretax losses of approximately $1.2 billion, net of hedges, on Alt-A mortgage securities held inS&B, bringing the year-to-date net loss to $2.5 billion. For these purposes, Alt-A mortgage securities are 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.
The Company had $13.6 billion in Alt-A mortgage securities carried at fair value at September 30, 2008, which decreased from $16.4 billion at June 30, 2008. Of the $13.6 billion, $3.4 billion were classified as Trading assets, of which $573 million of fair value write-downs, net of hedging, were recorded in earnings, and $10.2 billion were classified as available-for-sale investments, on which $580 million of write-downs were recorded in earnings due to other-than-temporary impairments. In addition, an incremental $1.5 billion of pretax fair value unrealized losses were recorded in Accumulated Other Comprehensive Income (OCI).
Write-Downs on Monoline Insurers
During the third quarter of 2008, Citigroup recorded pretax write-downs of credit value adjustments (CVA) of $919 million on its exposure to monoline insurers, bringing the year-to-date write-downs to $4.8 billion. CVA is calculated by applying the counterparty's current credit spread to the expected exposure on the trade. The majority of the exposure relates to hedges on super senior positions that were executed
with various monoline insurance companies. See "Direct Exposure to Monolines" on page 38 for a further discussion.
Write-Downs on Highly Leveraged Loans and Financing Commitments
Due to the continued dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments that began during the second half of 2007, liquidity in the market for highly leveraged financings is very limited. This has resulted in the Company's recording additional pretax write-downs of $792 million on funded and unfunded highly leveraged finance exposures, bringing the total year-to-date write-downs to $4.3 billion.
Citigroup's exposure to highly leveraged financings totaled $23 billion at September 30, 2008 ($10 billion in funded and $13 billion in unfunded commitments), reflecting a decrease of $1 billion from June 30, 2008. See "Highly Leveraged Financing Commitments" on page 78 for further discussion.
Write-Downs on Commercial Real Estate Exposures
S&B's commercial real estate exposure can be split into three categories: assets held at fair value, loans and commitments, and equity and other investments. For assets that are held at fair value, Citigroup recorded an additional $518 million of fair value write-downs on these exposures, net of hedges, during the third quarter of 2008 on commercial real estate exposure, bringing the year-to-date fair value write-downs to $1.6 billion. See "Exposure to Commercial Real Estate" on page 37 for a further discussion.
Write-Downs on Subprime-Related Direct Exposures
During the third quarter of 2008,S&B recorded losses of $394 million pretax, net of hedges, on its subprime-related direct exposures, bringing the total losses year-to-date to $9.7 billion. The Company's remaining $19.6 billion in U.S. subprime net direct exposure in S&B at September 30, 2008 consisted of (a) approximately $16.3 billion of net exposures to the super senior tranches of collateralized debt obligations, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both and (b) approximately $3.3 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Real Estate" on page 34 for a further discussion of such exposures and the associated losses recorded during the third quarter of 2008.
Losses on Auction Rate Securities (ARS)
As of September 30, 2008, ARS classified as Trading assets totaled $5.2 billion compared to $5.6 billion as of June 30, 2008. A significant majority are ARS where the underlying assets are student loans, while the remainder are ARS where the underlying assets are U.S. municipal securities as well as various other assets.
During the third quarter of 2008,S&B recorded $166 million in pretax losses in Principal transactions, primarily due to widening spreads and reduced liquidity in the market. The total year-to-date net losses on ARS positions was $1.4 billion, a significant majority of which relates to ARS where student loans are the underlying assets.
Credit Reserves
During the third quarter of 2008, the Company recorded a net build of $3.9 billion to its credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion inNorth America and $855 million in regions outside ofNorth America), $612 million in ICG and $64 million in GWM.
The $2.3 billion build inNorth America Consumer primarily reflected a weakening of leading credit indicators, including higher delinquencies on first mortgages, unsecured personal loans, credit cards and auto loans. Reserves also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates.
The $855 million build in regions outside ofNorth America was primarily driven by deterioration in Mexico, Brazil andEMEA cards, and India Consumer Banking.
The build of $612 million in ICG primarily reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.
As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company's loss rates may exceed their historical peaks.
The total allowance for loan losses and unfunded lending commitments totaled $25.0 billion at September 30, 2008.
Repositioning Charges
In the third quarter of 2008, Citigroup recorded repositioning charges of $459 million pretax related to Citigroup's ongoing reengineering plans, which will result in certain branch closings and headcount reductions of approximately 6,300 employees. The year-to-date repositioning charges equal $1.6 billion. Direct staff at September 30, 2008 was approximately 352,000, a decrease of approximately 11,000 from June 30, 2008.
Sale of CitiCapital
On July 31, 2008, Citigroup sold CitiCapital, the equipment finance unit inNorth America. A pre-tax loss of $517 million was recorded in the second quarter of 2008 in Discontinued Operations on the Company's Consolidated Statement of Income and was reduced by approximately $9 million in the third quarter for various closing adjustments. Approximately $4 million of net income related to CitiCapital was recorded in the third quarter of 2008. In addition, the income statement results of all CitiCapital businesses have been reported as Discontinued Operations for all periods presented.
Sale of CitiStreet
In the third quarter of 2008, Citigroup and State Street Corporation completed the sale of CitiStreet, a benefits servicing business, to ING Group in an all-cash transaction valued at $900 million. CitiStreet is a joint venture formed in 2000, which, prior to the sale, was owned 50 percent each by Citigroup and State Street. The transaction closed on July 1, 2008 and generated an after-tax gain of $222 million ($347 million pretax) that was recorded in GWM.
Sale of Citigroup's German Retail Banking Operation
On July 11, 2008, Citigroup announced the agreement to sell its German retail banking operations to Credit Mutuel for Euro 4.9 billion in cash plus the German retail banks operating net earnings accrued in 2008 through the closing. The transaction is expected to result in an after-tax gain of approximately $4 billion. The sale does not include the corporate and investment banking business or the Germany-based European data center. The sale is expected to close in the fourth quarter of 2008 pending regulatory approvals.
The German retail banking operations generated total revenue of $1.7 billion and $1.6 billion, and pretax earnings of $521 million and $398 million for the nine months ended September 30, 2008 and 2007, respectively. These results are reported in Discontinued operations on the Company's Consolidated Statement of Income. In addition to these results, there was a $330 million pre-tax foreign exchange gain realized during the third quarter of 2008 from hedging the sale proceeds, which are denominated in Euros, and a tax benefit of $279 million that arose as a result of this sale. Including these two items, total revenue and after-tax income from discontinued operations for the nine months ended September 30, 2008 was $2.0 billion and $829 million, respectively. Furthermore, the assets and liabilities as of September 30, 2008 of the German retail banking operations to be sold are included within Assets of discontinued operations held for sale, and liabilities of discontinued operations held for sale, respectively, on the Company's Consolidated Balance Sheet.
Sale of Citigroup's Interest in Citigroup Global Services Limited
On October 8, 2008, Citigroup announced an agreement with Tata Consultancy Services Limited (TCS) to sell all of Citigroup's interest in Citigroup Global Services Limited (CGSL) for all cash consideration of approximately $505 million, subject to closing adjustments. CGSL is the Citigroup captive provider of business process outsourcing services solely within the Banking and Financial Services sector.
In addition to the sale, Citigroup signed an agreement for TCS to provide, through CGSL, process outsourcing services to Citigroup and its affiliates in an aggregate amount of $2.5 billion over a period of 9.5 years. The agreement builds upon the existing relationship between Citigroup and TCS, whereby TCS provides application development, infrastructure support, help desk and other process outsourcing services to Citigroup. CGSL generated for the full year 2007 approximately $212 million of revenues and pretax earnings of approximately $37 million. CGSL does not qualify as a discontinued operation due to the continued involvement of Citigroup.
The transaction is expected to close in the fourth quarter of 2008 pending regulatory approvals and required consents.
Lehman Brothers Holding, Inc. Bankruptcy
On September 15, 2008, Lehman Brothers Holding, Inc. ("LBHI", and, together with its subsidiaries, "Lehman") filed for Chapter 11 bankruptcy in U.S. Federal Court. A number of LBHI subsidiaries have subsequently filed bankruptcy or similar insolvency proceedings in the U.S. and other jurisdictions. Lehman's bankruptcy caused Citigroup to terminate cash management and foreign exchange clearance arrangements, close out approximately 40,000 Lehman foreign exchange, derivative and other transactions and quantify other exposures. Citigroup expects to file claims in the relevant Lehman bankruptcy proceedings, as appropriate. Citigroup's net exposure, after application of available collateral and offsets, is expected to be modest.
SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUE
REVENUES
The following tables present net income (loss) and revenues for Citigroup's businesses on a segment view and on a regional view:
Citigroup Net Income (Loss)—Segment View
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
Global Cards | |||||||||||||||||||||
North America | $ | (873 | ) | $ | 808 | NM | $ | (158 | ) | $ | 2,391 | NM | |||||||||
EMEA | (25 | ) | 30 | NM | 21 | 112 | (81 | )% | |||||||||||||
Latin America | (36 | ) | 563 | NM | 645 | 982 | (34 | ) | |||||||||||||
Asia | 32 | 41 | (22 | )% | 268 | 255 | 5 | ||||||||||||||
Total Global Cards | $ | (902 | ) | $ | 1,442 | NM | $ | 776 | $ | 3,740 | (79 | )% | |||||||||
Consumer Banking | |||||||||||||||||||||
North America | $ | (1,080 | ) | $ | 59 | NM | $ | (2,364 | ) | $ | 1,700 | NM | |||||||||
EMEA | (94 | ) | (28 | ) | NM | (242 | ) | (58 | ) | NM | |||||||||||
Latin America | 29 | 102 | (72 | )% | 376 | 454 | (17 | )% | |||||||||||||
Asia | 46 | 23 | 100 | 355 | 639 | (44 | ) | ||||||||||||||
Total Consumer Banking | $ | (1,099 | ) | $ | 156 | NM | $ | (1,875 | ) | $ | 2,735 | NM | |||||||||
Institutional Clients Group (ICG) | |||||||||||||||||||||
North America | $ | (2,950 | ) | $ | (720 | ) | NM | $ | (11,758 | ) | $ | 2,002 | NM | ||||||||
EMEA | 104 | (26 | ) | NM | (1,127 | ) | 1,472 | NM | |||||||||||||
Latin America | 271 | 407 | (33 | )% | 1,055 | 1,164 | (9 | )% | |||||||||||||
Asia | 558 | 606 | (8 | ) | 1,412 | 1,930 | (27 | ) | |||||||||||||
Total ICG | $ | (2,017 | ) | $ | 267 | NM | $ | (10,418 | ) | $ | 6,568 | NM | |||||||||
Global Wealth Management (GWM) | |||||||||||||||||||||
North America | $ | 264 | $ | 334 | (21 | )% | $ | 738 | $ | 1,029 | (28 | )% | |||||||||
EMEA | 24 | 4 | NM | 70 | 57 | 23 | |||||||||||||||
Latin America | 16 | 12 | 33 | 57 | 56 | 2 | |||||||||||||||
Asia | 59 | 140 | (58 | ) | 197 | 308 | (36 | ) | |||||||||||||
Total GWM | $ | 363 | $ | 490 | (26 | )% | $ | 1,062 | $ | 1,450 | (27 | )% | |||||||||
Corporate/Other(1) | $ | 232 | $ | (246 | ) | NM | $ | (533 | ) | $ | (1,473 | ) | 64 | % | |||||||
Income (Loss) from Continuing Operations | $ | (3,423 | ) | $ | 2,109 | NM | $ | (10,988 | ) | $ | 13,020 | NM | |||||||||
Discontinued Operations | $ | 608 | $ | 103 | $ | 567 | $ | 430 | |||||||||||||
Net Income (Loss) | $ | (2,815 | ) | $ | 2,212 | NM | $ | (10,421 | ) | $ | 13,450 | NM | |||||||||
Citigroup Net Income (Loss)—Regional View
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
North America | |||||||||||||||||||||
Global Cards | $ | (873 | ) | $ | 808 | NM | $ | (158 | ) | $ | 2,391 | NM | |||||||||
Consumer Banking | (1,080 | ) | 59 | NM | (2,364 | ) | 1,700 | NM | |||||||||||||
ICG | (2,950 | ) | (720 | ) | NM | (11,758 | ) | 2,002 | NM | ||||||||||||
Securities & Banking | (3,037 | ) | (780 | ) | NM | (11,975 | ) | 1,856 | NM | ||||||||||||
Transaction Services | 87 | 60 | 45 | % | 217 | 146 | 49 | % | |||||||||||||
GWM | 264 | 334 | (21 | ) | 738 | 1,029 | (28 | ) | |||||||||||||
TotalNorth America | $ | (4,639 | ) | $ | 481 | NM | $ | (13,542 | ) | $ | 7,122 | NM | |||||||||
EMEA | |||||||||||||||||||||
Global Cards | $ | (25 | ) | $ | 30 | NM | $ | 21 | $ | 112 | (81 | )% | |||||||||
Consumer Banking | (94 | ) | (28 | ) | NM | (242 | ) | (58 | ) | NM | |||||||||||
ICG | 104 | (26 | ) | NM | (1,127 | ) | 1,472 | NM | |||||||||||||
Securities & Banking | (175 | ) | (205 | ) | 15 | % | (1,866 | ) | 970 | NM | |||||||||||
Transaction Services | 279 | 179 | 56 | 739 | 502 | 47 | |||||||||||||||
GWM | 24 | 4 | NM | 70 | 57 | 23 | |||||||||||||||
TotalEMEA | $ | 9 | $ | (20 | ) | NM | $ | (1,278 | ) | $ | 1,583 | NM | |||||||||
Latin America | |||||||||||||||||||||
Global Cards | $ | (36 | ) | $ | 563 | NM | $ | 645 | $ | 982 | (34 | )% | |||||||||
Consumer Banking | 29 | 102 | (72 | )% | 376 | 454 | (17 | ) | |||||||||||||
ICG | 271 | 407 | (33 | ) | 1,055 | 1,164 | (9 | ) | |||||||||||||
Securities & Banking | 126 | 297 | (58 | ) | 636 | 887 | (28 | ) | |||||||||||||
Transaction Services | 145 | 110 | 32 | 419 | 277 | 51 | |||||||||||||||
GWM | 16 | 12 | 33 | 57 | 56 | 2 | |||||||||||||||
TotalLatin America | $ | 280 | $ | 1,084 | (74 | )% | $ | 2,133 | $ | 2,656 | (20 | )% | |||||||||
Asia | |||||||||||||||||||||
Global Cards | $ | 32 | $ | 41 | (22 | )% | $ | 268 | $ | 255 | 5 | % | |||||||||
Consumer Banking | 46 | 23 | 100 | 355 | 639 | (44 | ) | ||||||||||||||
ICG | 558 | 606 | (8 | ) | 1,412 | 1,930 | (27 | ) | |||||||||||||
Securities & Banking | 252 | 364 | (31 | ) | 537 | 1,300 | (59 | ) | |||||||||||||
Transaction Services | 306 | 242 | 26 | 875 | 630 | 39 | |||||||||||||||
GWM | 59 | 140 | (58 | ) | 197 | 308 | (36 | ) | |||||||||||||
TotalAsia | $ | 695 | $ | 810 | (14 | )% | $ | 2,232 | $ | 3,132 | (29 | )% | |||||||||
Corporate/Other | 232 | (246 | ) | NM | (533 | ) | (1,473 | ) | 64 | % | |||||||||||
Income (Loss) from Continuing Operations | $ | (3,423 | ) | $ | 2,109 | NM | $ | (10,988 | ) | $ | 13,020 | NM | |||||||||
Income (Loss) from Discontinued Operations | $ | 608 | $ | 103 | $ | 567 | $ | 430 | |||||||||||||
Net Income (Loss) | $ | (2,815 | ) | $ | 2,212 | NM | $ | (10,421 | ) | $ | 13,450 | NM | |||||||||
Citigroup Revenues—Segment View
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
Global Cards | |||||||||||||||||||||
North America | $ | 1,388 | $ | 3,510 | (60 | )% | $ | 7,659 | $ | 10,215 | (25 | )% | |||||||||
EMEA | 593 | 566 | 5 | 1,789 | 1,390 | 29 | |||||||||||||||
Latin America | 1,143 | 1,728 | (34 | ) | 4,148 | 3,585 | 16 | ||||||||||||||
Asia | 665 | 538 | 24 | 1,999 | 1,582 | 26 | |||||||||||||||
Total Global Cards | $ | 3,789 | $ | 6,342 | (40 | )% | $ | 15,595 | $ | 16,772 | (7 | )% | |||||||||
Consumer Banking | |||||||||||||||||||||
North America | $ | 4,414 | $ | 4,164 | 6 | % | $ | 13,023 | $ | 12,446 | 5 | % | |||||||||
EMEA | 622 | 625 | — | 2,084 | 1,788 | 17 | |||||||||||||||
Latin America | 1,015 | 1,071 | (5 | ) | 3,101 | 3,013 | 3 | ||||||||||||||
Asia | 1,378 | 1,442 | (4 | ) | 4,367 | 4,375 | — | ||||||||||||||
Total Consumer Banking | $ | 7,429 | $ | 7,302 | 2 | % | $ | 22,575 | $ | 21,622 | 4 | % | |||||||||
Institutional Clients Group (ICG) | |||||||||||||||||||||
North America | $ | (2,165 | ) | $ | 110 | NM | $ | (11,737 | ) | $ | 8,381 | NM | |||||||||
EMEA | 1,913 | 1,398 | 37 | % | 3,786 | 7,218 | (48 | )% | |||||||||||||
Latin America | 828 | 1,103 | (25 | ) | 2,915 | 3,053 | (5 | ) | |||||||||||||
Asia | 1,817 | 2,006 | (9 | ) | 5,410 | 5,879 | (8 | ) | |||||||||||||
Total ICG | $ | 2,393 | $ | 4,617 | (48 | )% | $ | 374 | $ | 24,531 | (98 | )% | |||||||||
Global Wealth Management (GWM) | |||||||||||||||||||||
North America | $ | 2,317 | $ | 2,455 | (6 | )% | $ | 7,120 | $ | 7,281 | (2 | )% | |||||||||
EMEA | 147 | 139 | 6 | 470 | 384 | 22 | |||||||||||||||
Latin America | 92 | 92 | — | 294 | 275 | 7 | |||||||||||||||
Asia | 608 | 833 | (27 | ) | 1,874 | 1,594 | 18 | ||||||||||||||
Total GWM | $ | 3,164 | $ | 3,519 | (10 | )% | $ | 9,758 | $ | 9,534 | 2 | % | |||||||||
Corporate/Other | (95 | ) | (140 | ) | 32 | (1,104 | ) | (383 | ) | NM | |||||||||||
Total Net Revenues | $ | 16,680 | $ | 21,640 | (23 | )% | $ | 47,198 | $ | 72,076 | (35 | )% | |||||||||
NM Not meaningful
Citigroup Revenues—Regional View
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
North America | |||||||||||||||||||||
Global Cards | $ | 1,388 | $ | 3,510 | (60 | )% | $ | 7,659 | $ | 10,215 | (25 | )% | |||||||||
Consumer Banking | 4,414 | 4,164 | 6 | 13,023 | 12,446 | 5 | |||||||||||||||
ICG | (2,165 | ) | 110 | NM | (11,737 | ) | 8,381 | NM | |||||||||||||
Securities & Banking | (2,693 | ) | (336 | ) | NM | (13,254 | ) | 7,226 | NM | ||||||||||||
Transaction Services | 528 | 446 | 18 | 1,517 | 1,155 | 31 | |||||||||||||||
GWM | 2,317 | 2,455 | (6 | ) | 7,120 | 7,281 | (2 | ) | |||||||||||||
TotalNorth America | $ | 5,954 | $ | 10,239 | (42 | )% | $ | 16,065 | $ | 38,323 | (58 | )% | |||||||||
EMEA | |||||||||||||||||||||
Global Cards | $ | 593 | $ | 566 | 5 | % | $ | 1,789 | $ | 1,390 | 29 | % | |||||||||
Consumer Banking | 622 | 625 | — | 2,084 | 1,788 | 17 | |||||||||||||||
ICG | 1,913 | 1,398 | 37 | 3,786 | 7,218 | (48 | ) | ||||||||||||||
Securities & Banking | 1,043 | 674 | 55 | 1,234 | 5,216 | (76 | ) | ||||||||||||||
Transaction Services | 870 | 724 | 20 | 2,552 | 2,002 | 27 | |||||||||||||||
GWM | 147 | 139 | 6 | 470 | 384 | 22 | |||||||||||||||
TotalEMEA | $ | 3,275 | $ | 2,728 | 20 | % | $ | 8,129 | $ | 10,780 | (25 | )% | |||||||||
Latin America | |||||||||||||||||||||
Global Cards | $ | 1,143 | $ | 1,728 | (34 | )% | $ | 4,148 | $ | 3,585 | 16 | % | |||||||||
Consumer Banking | 1,015 | 1,071 | (5 | ) | 3,101 | 3,013 | 3 | ||||||||||||||
ICG | 828 | 1,103 | (25 | ) | 2,915 | 3,053 | (5 | ) | |||||||||||||
Securities & Banking | 463 | 812 | (43 | ) | 1,850 | 2,266 | (18 | ) | |||||||||||||
Transaction Services | 365 | 291 | 25 | 1,065 | 787 | 35 | |||||||||||||||
GWM | 92 | 92 | — | 294 | 275 | 7 | |||||||||||||||
TotalLatin America | $ | 3,078 | $ | 3,994 | (23 | )% | $ | 10,458 | $ | 9,926 | 5 | % | |||||||||
Asia | |||||||||||||||||||||
Global Cards | $ | 665 | $ | 538 | 24 | % | $ | 1,999 | $ | 1,582 | 26 | % | |||||||||
Consumer Banking | 1,378 | 1,442 | (4 | ) | 4,367 | 4,375 | — | ||||||||||||||
ICG | 1,817 | 2,006 | (9 | ) | 5,410 | 5,879 | (8 | ) | |||||||||||||
Securities & Banking | 1,106 | 1,398 | (21 | ) | 3,323 | 4,257 | (22 | ) | |||||||||||||
Transaction Services | 711 | 608 | 17 | 2,087 | 1,622 | 29 | |||||||||||||||
GWM | 608 | 833 | (27 | ) | 1,874 | 1,594 | 18 | ||||||||||||||
TotalAsia | $ | 4,468 | $ | 4,819 | (7 | )% | $ | 13,650 | $ | 13,430 | 2 | % | |||||||||
Corporate/Other | (95 | ) | (140 | ) | 32 | % | (1,104 | ) | (383 | ) | NM | ||||||||||
Total Net Revenue | $ | 16,680 | $ | 21,640 | (23 | )% | $ | 47,198 | $ | 72,076 | (35 | )% | |||||||||
NM Not meaningful
15
GLOBAL CARDS
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue | $ | 2,884 | $ | 2,723 | 6 | % | $ | 8,588 | $ | 7,674 | 12 | % | ||||||||
Non-interest revenue | 905 | 3,619 | (75 | ) | 7,007 | 9,098 | (23 | ) | ||||||||||||
Revenues, net of interest expense | $ | 3,789 | $ | 6,342 | (40 | )% | $ | 15,595 | $ | 16,772 | (7 | )% | ||||||||
Operating expenses | 2,595 | 2,610 | (1 | ) | 7,900 | 7,489 | 5 | |||||||||||||
Provision for credit losses and for benefits and claims | 2,672 | 1,568 | 70 | 6,582 | 3,730 | 76 | ||||||||||||||
Income (loss) before taxes and minority interest | $ | (1,478 | ) | $ | 2,164 | NM | $ | 1,113 | $ | 5,553 | (80 | )% | ||||||||
Income taxes (benefits) | (579 | ) | 719 | NM | 327 | 1,806 | (82 | ) | ||||||||||||
Minority interest, net of taxes | 3 | 3 | — | 10 | 7 | 43 | ||||||||||||||
Net income (loss) | $ | (902 | ) | $ | 1,442 | NM | $ | 776 | $ | 3,740 | (79 | )% | ||||||||
Average assets(in billions of dollars) | $ | 119 | $ | 113 | 5 | % | $ | 122 | $ | 109 | 12 | % | ||||||||
Return on assets | (3.02 | )% | 5.06 | % | 0.85 | % | 4.59 | % | ||||||||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||||
North America | $ | 1,388 | $ | 3,510 | (60 | )% | $ | 7,659 | $ | 10,215 | (25 | )% | ||||||||
EMEA | 593 | 566 | 5 | 1,789 | 1,390 | 29 | ||||||||||||||
Latin America | 1,143 | 1,728 | (34 | ) | 4,148 | 3,585 | 16 | |||||||||||||
Asia | 665 | 538 | 24 | 1,999 | 1,582 | 26 | ||||||||||||||
Total revenues | $ | 3,789 | $ | 6,342 | (40 | )% | $ | 15,595 | $ | 16,772 | (7 | )% | ||||||||
Net income (loss) by region: | ||||||||||||||||||||
North America | $ | (873 | ) | $ | 808 | NM | $ | (158 | ) | $ | 2,391 | NM | ||||||||
EMEA | (25 | ) | 30 | NM | 21 | 112 | (81 | )% | ||||||||||||
Latin America | (36 | ) | 563 | NM | 645 | 982 | (34 | ) | ||||||||||||
Asia | 32 | 41 | (22 | )% | 268 | 255 | 5 | |||||||||||||
Total net income (loss) | $ | (902 | ) | $ | 1,442 | NM | $ | 776 | $ | 3,740 | (79 | )% | ||||||||
Key Drivers(in billions of dollars) | ||||||||||||||||||||
Average loans | $ | 89.9 | $ | 82.6 | 9 | % | ||||||||||||||
Purchase sales | $ | 111.1 | $ | 110.6 | — | |||||||||||||||
Open accounts(in millions) | 182.7 | 184.0 | (1 | ) | ||||||||||||||||
Loans 90+ days past due as a % of EOP loans | 2.39 | % | 2.02 | % | ||||||||||||||||
3Q08 vs. 3Q07
Global Cards revenue decreased 40%. Net Interest Revenue was 6% higher than the prior year primarily driven by growth in average loans of 9%. Non-Interest Revenue decreased 75% primarily due to lower securitization results inNorth America and the absence of a prior-year $729 million pretax gain on sale of Redecard shares.
InNorth America, a 60% revenue decline was mainly due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset.
Outside ofNorth America, revenue decreased by 15% primarily due to the absence of a prior-year gain on sale of Redecard shares. Excluding this item, revenue increased 14% with 5% growth inEMEA, 14% inLatin America and 24% inAsia. These increases were driven by growth in purchase sales and average loans in all regions. Revenues also increased driven by foreign currency translation gains related to the strengthening of local currencies (generally referred to hereinafter as "fx translation") and the Bank of Overseas Chinese acquisition.
Operating expenses decreased 1%, primarily due to lower compensation and marketing expenses, partially offset by business volumes, higher credit management costs and repositioning charges, fx translation and acquisitions.
Provision for credit losses and for benefits and claims increased $1.1 billion, reflecting increases of $543 million in net credit losses and $566 million in loan loss reserve builds. InNorth America, credit costs increased $620 million, driven by higher net credit losses, up $311 million or 68%, and a higher loan loss reserve build, up $309 million. The net charge to increase loan loss reserves included $243 million related to assets that were brought back on to the balance sheet due to rate and liquidity disruptions in the securitization market. Higher credit costs reflected a weakening of leading credit indicators, trends in the macroeconomic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, and higher bankruptcy filings, as the continued acceleration in the rate at which delinquent customers advanced to write-off, a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes. The net credit loss ratio increased by 293 basis points to 7.30%.
Outside ofNorth America, credit costs increased by $79 million, $303 million, and $107 million inEMEA,Latin
America, andAsia, respectively. These increases were driven by higher net credit losses, which were up $5 million, $185 million, and $42 million inEMEA,Latin America, andAsia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India. Also contributing to the increase were higher loan loss reserve builds, which were up $74 million, $118 million, and $65 million inEMEA,Latin America, andAsia, respectively, as well as higher business volumes.
2008 YTD vs. 2007 YTD
Global Cards revenue decreased 7%. Net Interest Revenue was 12% higher than the prior year primarily driven by growth in average loans of 16% and purchase sales of 6%. Non-Interest Revenue decreased by 23% primarily due to lower securitization results inNorth America. Results were also impacted by the following pre-tax gains: sale of Mastercard shares in the first, second and third quarters of 2007 totaling $322 million, sales of Redecard shares $729 million in the third quarter of 2007 and $663 million in the first quarter of 2008, IPO and subsequent sales of Visa shares in the first and third quarter of 2008 totaling $523 million, Upromise Cards portfolio sale in the second quarter of 2008 of $170 million and DCI sale of $111 million in the second quarter of 2008.
InNorth America, a 25% revenue decline was driven by lower securitization revenues, which reflected the impact of higher funding costs and higher credit losses in the securitization trusts, the absence of a $257 million prior year gain on sale of Mastercard shares, partially offset by a current period gain from sale of Visa shares, the Upromise Cards portfolio sale, and the DCI sale resulting in pre-tax gains of $349 million, $170 million and $29 million, respectively. Average loans were up 2% while purchase sales remained flat.
Outside ofNorth America, revenues increased by 29%, 16%, and 26% inEMEA,Latin America, andAsia, respectively. These increases were driven by double-digit growth in purchase sales and average loans in all regions. The pretax gain on sale of DCI in the second quarter of 2008 impactedEMEA,Latin America, andAsia by $34 million, $17 million, and $31 million, respectively. The pretax gain on sale of Visa shares in the first and third quarters of 2008 impactedLatin America andAsia by $37 million and $138 million, respectively. Current-year revenues were unfavorably impacted by a $66 million pretax lower gain on sales of Redecard shares inLatin America and the absence of the prior-year pretax gain on sale of MasterCard shares of $7 million, $37 million and $21 million forEMEA,Latin America andAsia, respectively. Results include the impact of fx translation, as well as the acquisitions of Egg, Grupo Financiero Uno, Grupo Cuscatlán, and Bank of Overseas Chinese.
Operating expenses increased 5%, primarily due to business volumes, higher credit management costs, the impact of acquisitions, repositioning charges and the impact of fx translation. These increases were partially offset by a $159 million Visa Litigation reserve release and $36 million legal vehicle restructuring in Mexico, both in the first quarter of 2008.
Provision for credit losses and for benefits and claims increased $2.9 billion reflecting an increase of $1.5 billion in net credit losses and $1.4 billion in loan loss reserve builds. InNorth America, credit costs increased $1.4 billion, driven by higher net credit losses, up $674 million or 48%, and a higher loan loss reserve build, up $764 million. Higher credit costs reflected a weakening of leading credit indicators, trends in the macro-economic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, higher bankruptcy filings, the continued acceleration in the rate at which delinquent customers advanced to write-off a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes.
Outside ofNorth America, credit costs increased by $277 million, $894 million, and $237 million inEMEA,Latin America, andAsia, respectively. These increases were driven by higher net credit losses, which were up $170 million, $542 million, and $105 million inEMEA,Latin America, andAsia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India, as well as the impact of acquisitions. Also contributing to the increase were higher loan loss reserve builds, which were up $107 million, $352 million, and $132 million inEMEA,Latin America, andAsia, respectively, and higher business volumes.
CONSUMER BANKING
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue | $ | 5,709 | $ | 5,258 | 9 | % | $ | 17,139 | $ | 15,457 | 11 | % | ||||||||
Non-interest revenue | 1,720 | 2,044 | (16 | ) | 5,436 | 6,165 | (12 | ) | ||||||||||||
Revenues, net of interest expense | $ | 7,429 | $ | 7,302 | 2 | % | $ | 22,575 | $ | 21,622 | 4 | % | ||||||||
Operating expenses | 4,188 | 4,270 | (2 | ) | 12,939 | 12,054 | 7 | |||||||||||||
Provision for credit losses and for benefits and claims | 5,333 | 3,005 | 77 | 13,391 | 5,928 | NM | ||||||||||||||
Income (loss) before taxes and minority interest | $ | (2,092 | ) | $ | 27 | NM | $ | (3,755 | ) | $ | 3,640 | NM | ||||||||
Income taxes (benefits) | (996 | ) | (136 | ) | NM | (1,894 | ) | 872 | NM | |||||||||||
Minority interest, net of taxes | 3 | 7 | (57 | )% | 14 | 33 | (58 | )% | ||||||||||||
Net income (loss) | $ | (1,099 | ) | $ | 156 | NM | $ | (1,875 | ) | $ | 2,735 | NM | ||||||||
Average assets(in billions of dollars) | $ | 542 | $ | 576 | (6 | )% | $ | 560 | $ | 573 | (2 | )% | ||||||||
Return on assets | (0.81 | )% | 0.11 | % | (0.45 | )% | 0.64 | % | ||||||||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||||
North America | $ | 4,414 | $ | 4,164 | 6 | % | $ | 13,023 | $ | 12,446 | 5 | % | ||||||||
EMEA | 622 | 625 | — | 2,084 | 1,788 | 17 | ||||||||||||||
Latin America | 1,015 | 1,071 | (5 | ) | 3,101 | 3,013 | 3 | |||||||||||||
Asia | 1,378 | 1,442 | (4 | ) | 4,367 | 4,375 | — | |||||||||||||
Total revenues | $ | 7,429 | $ | 7,302 | 2 | % | $ | 22,575 | $ | 21,622 | 4 | % | ||||||||
Net income (loss) by region: | ||||||||||||||||||||
North America | $ | (1,080 | ) | $ | 59 | NM | $ | (2,364 | ) | $ | 1,700 | NM | ||||||||
EMEA | (94 | ) | (28 | ) | NM | (242 | ) | (58 | ) | NM | ||||||||||
Latin America | 29 | 102 | (72 | ) | 376 | 454 | (17 | ) | ||||||||||||
Asia | 46 | 23 | 100 | 355 | 639 | (44 | ) | |||||||||||||
Total net income (loss) | $ | (1,099 | ) | $ | 156 | NM | $ | (1,875 | ) | $ | 2,735 | NM | ||||||||
Consumer Finance Japan (CFJ)—NIR | $ | 224 | $ | 263 | (15 | )% | $ | 661 | $ | 1,022 | (35 | )% | ||||||||
Consumer Banking, excluding CFJ—NIR | $ | 5,485 | $ | 4,995 | 10 | % | $ | 16,478 | $ | 14,435 | 14 | % | ||||||||
CFJ—Operating expenses | $ | 84 | $ | 251 | (67 | )% | $ | 280 | $ | 479 | (42 | )% | ||||||||
Consumer Banking, excluding CFJ-operating expenses | $ | 4,104 | $ | 4,019 | 2 | % | $ | 12,659 | $ | 11,575 | 9 | % | ||||||||
CFJ—Net income | $ | (159 | ) | $ | (298 | ) | 47 | $ | (399 | ) | $ | (336 | ) | (19 | ) | |||||
Consumer Banking, excluding CFJ—Net income (loss) | $ | (940 | ) | $ | 454 | NM | $ | (1,476 | ) | $ | 3,071 | NM | ||||||||
Key Indicators | ||||||||||||||||||||
Average loans(in billions) | $ | 390.7 | $ | 386.0 | 1 | % | ||||||||||||||
Average deposits(in billions) | $ | 286.8 | $ | 283.1 | 1 | |||||||||||||||
Accounts(in millions) | 80.0 | 76.6 | 4 | |||||||||||||||||
Loans 90+ days past due as % of EOP loans | 2.86 | % | 1.69 | % | ||||||||||||||||
Branches | 7,875 | 8,014 | (2 | ) | ||||||||||||||||
3Q08 vs 3Q07
Consumer Banking revenues grew 2%, as increased revenues inNorth America were partially offset by declines inLatin America andAsia.Net Interest Revenue was 9% higher than the prior year from spread expansion and growth in average loans and deposits of 1%.Non-Interest Revenue declined 16%, primarily due to a 26% decline in investment sales and a $192 million loss resulting from the mark-to-market on the Mortage Servicing Rights (MSR) asset and related hedge inNorth America. Current and historical German Retail Banking operations income statement items have been reclassified as discontinued operations within the Corporate/Other Segment.
InNorth America, revenues increased 6%.Net Interest Revenue was 13% higher than the prior-year period, primarily driven by volume growth in personal loans, as well as increased deposit revenue. Average loans and deposits were essentially flat with the prior-year period, with a reduction in residential real estate loans offset by growth in personal loans.Non-Interest Revenue declined 14%, mainly due to a $192 million loss from the mark-to-market on the MSR asset and related hedge. Revenues inEMEA remained flat as growth in average loans of 5% was offset by softening investment sales
revenues due to market volatility. Revenues inLatin America were down 5% versus last year driven by spread compression not fully offset by average loan and deposit growth of 15% and 5%, respectively.Asia, excluding CFJ, revenues declined 2%, as growth in average loans and deposits, up 8% and 4%, respectively, was more than offset by a decline in investment sales, down 56%, due to a decline in equity markets acrossAsia. In CFJ, revenues declined 15%, reflecting an 8% decline in average loans as the portfolio continues to be managed down.
Consumer BankingOperating Expenses declined 2%, as benefits from re-engineering efforts more than offset the impact of acquisitions and higher credit management costs. Expenses in the third quarter of 2007 included a $152 million write-down of customer intangibles and fixed assets in CFJ expenses in the third quarter of 2008 included a $150 million repositioning charge.
North America expenses increased 2%, mainly due to an $87 million repositioning charge, higher credit management expenses and acquisitions, partially offset by lower compensation costs.EMEA expenses were essentially even with the prior-year period. Expenses inLatin America increased 5%, primarily driven by a $61 million repositioning charge and higher business volumes.Asia expenses declined 19%, primarily due to a $152 million write-down of customer intangibles and fixed assets recorded in the prior-year period.
Provisions for credit losses and for benefits and claimsincreased 77% or $2.3 billion reflecting significantly higher net credit losses up $1.6 billion, primarily in North Americaand Latin America, as well as a $739 million incremental pretax charge to increase loan loss reserves in North America.
North America credit costs increased $2.2 billion, due to higher net credit losses, up $1.4 billion, and increased loan loss reserves, up $739 million from the prior-year period. Higher credit costs were mainly driven by residential real estate loans and reflected a weakening of leading credit indicators, as well as trends in the macro-economic environment. The net credit loss ratio increased 194 basis points to 2.95%. Credit costs increased 45% inEMEA, reflecting higher net credit losses, up 55% or $67 million, and an $18 million incremental net charge to increase loan loss reserves. Higher credit costs reflected weakening in the macro-economic environment in certain developed countries, such as Spain and the U.K.. The net credit loss ratio increased 96 basis points to 2.95% with some impact due to lower volumes. Credit costs inLatin America increased 15%, as higher net credit losses, up $94 million, reflected deterioration in Mexico, Brazil and Colombia. The increase in credit costs was partially offset by a $13 million net release to loan loss reserves in the quarter, mainly due to reduced exposures to specific government-related entities. The net credit loss ratio increased 202 basis points to 4.53%. Credit costs inAsia increased 8%, driven by higher net credit losses, up 13% or $54 million. Higher credit costs were mainly driven by continued deterioration in the credit environment in India, where the business is being actively repositioned to reduce costs and mitigate losses. The net credit loss ratio increased 23 basis points to 3.23%.
2008 YTD vs. 2007 YTD
Consumer Banking revenue increased 4%.Net Interest Revenue was 11% higher than the prior year, as growth of 8% in average loans and 8% in deposits and margin expansion was partially offset by a 35%net interest revenue decline in CFJ. Acquisitions and fx translation also contributed to the increase in revenues.Non-Interest Revenue declined 12%, primarily due to a 20% decline in investment sales and a loss from the mark-to-market on the MSR asset and related hedge inNorth America.
InNorth America, revenues increased 5%.Net Interest Revenue was 14% higher than the prior year, primarily due to increased average loans and deposits, up 6% and 2%, respectively, margin expansion in residential real estate loans, and higher deposit revenue.Non-Interest Revenue declined 19%, mainly due to a loss from the mark-to-market on the MSR asset and related hedge. Excluding the impact from the MSR asset and related hedge, total revenues increased 12%. Revenues inEMEA increased by 17%, driven by strong growth in average loans and deposits, improved net interest margin and the impact of the Egg acquisition. Revenues inLatin America were up 3%, driven by 21% growth in average loans and 11% growth in deposits (including the impact of acquisitions of Grupo Financiero Uno and Grupo Cuscatlan), partially offset by spread compression and lower revenues from the Chile divestiture.Asia revenues were basically flat, as growth in average loans and deposits of 11% and 9%, respectively, was offset by a 34% total revenue decline in CFJ and lower investment sales. Excluding CFJ, revenues increased 6%. Volume growth inEMEA, Latin America andAsia was partially offset by a double-digit decline in investment sales due to a decline in equity markets across the regions.
Operating expense growth of 7% was primarily driven by higher business volumes, increased credit management costs, a $492 million repositioning charge, and acquisitions, partially offset by a $221 million benefit related to a legal vehicle repositioning in Mexico, lower incentive compensation expenses and the prior year write-down of customer intangibles and fixed assets in CFJ.
Expenses were up 10% inNorth America, primarily driven by a $304 million repositioning charge, higher credit management expenses, and acquisitions. Excluding the repositioning charge, expenses increased 5%.EMEA expenses were up 17% primarily due to the impact of repositioning charges in 2008 and the impact of the Egg acquisition, partially offset by a decline in incentive compensation and the benefits from re-engineering efforts and fx translation. Expenses decreased 1% inLatin America primarily driven by a $221 million benefit related to a legal vehicle repositioning in Mexico, offset by acquisitions and volume growth. The 2% growth inAsia was primarily driven by the acquisition of BOOC and higher volumes.
Provisions for credit losses and for benefits and claims increased $7.5 billion, reflecting significantly higher net credit losses inNorth America, Mexico and India, as well as a $3.2 billion incremental pretax charge to increase loan loss reserves, primarily inNorth America. The impact of portfolio growth and acquisitions also contributed to the increase in credit costs.
Credit costs inNorth America increased by $6.5 billion, due to higher net credit losses, up $3.5 billion, and a $3.0 billion incremental pre-tax charge to increase loan loss reserves. Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages, auto and unsecured personal loans, as well as trends in the macro-economic environment, including the housing market downturn. The net credit loss ratio increased 151 basis points to 2.42%.EMEA credit costs increased 53% reflecting deterioration in Western European countries as well as the Egg acquisition. InLatin America, credit costs increased $265 million, primarily due to higher net credit losses, the absence of recoveries in the prior-year period in Mexico and lower loan loss reserve builds. Credit costs inAsia increased 25% primarily driven by a $149 million incremental pretax charge to increase loan loss reserves, increased credit costs, especially in India, acquisitions and portfolio growth.
INSTITUTIONAL CLIENTS GROUP (ICG)
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue | $ | 4,450 | $ | 3,374 | 32 | % | $ | 13,576 | $ | 8,619 | 58 | % | ||||||||
Non-interest revenue | (2,057 | ) | 1,243 | NM | (13,202 | ) | 15,912 | NM | ||||||||||||
Revenues, net of interest expense | $ | 2,393 | $ | 4,617 | (48 | )% | $ | 374 | $ | 24,531 | (98 | )% | ||||||||
Operating expenses | 5,202 | 4,463 | 17 | 17,030 | 15,203 | 12 | % | |||||||||||||
Provision for credit losses and for benefits and claims | 997 | 238 | NM | 1,920 | 514 | NM | ||||||||||||||
Income (loss) before taxes and minority interest | $ | (3,806 | ) | $ | (84 | ) | NM | $ | (18,576 | ) | $ | 8,814 | NM | |||||||
Income taxes (benefits) | (1,690 | ) | (320 | ) | NM | (8,084 | ) | 2,153 | NM | |||||||||||
Minority interest, net of taxes | (99 | ) | (31 | ) | NM | (74 | ) | 93 | NM | |||||||||||
Net income (loss) | $ | (2,017 | ) | $ | 267 | NM | $ | (10,418 | ) | $ | 6,568 | NM | ||||||||
Average assets(in billions of dollars) | $ | 1,203 | $ | 1,434 | (16 | )% | $ | 1,333 | $ | 1,293 | 3 | % | ||||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||||
North America | $ | (2,165 | ) | $ | 110 | NM | $ | (11,737 | ) | $ | 8,381 | NM | ||||||||
EMEA | 1,913 | 1,398 | 37 | % | 3,786 | 7,218 | (48 | )% | ||||||||||||
Latin America | 828 | 1,103 | (25 | ) | 2,915 | 3,053 | (5 | ) | ||||||||||||
Asia | 1,817 | 2,006 | (9 | ) | 5,410 | 5,879 | (8 | ) | ||||||||||||
Total revenues | $ | 2,393 | $ | 4,617 | (48 | )% | $ | 374 | $ | 24,531 | (98 | )% | ||||||||
Net income (loss) by region: | ||||||||||||||||||||
North America | $ | (2,950 | ) | $ | (720 | ) | NM | $ | (11,758 | ) | $ | 2,002 | NM | |||||||
EMEA | 104 | (26 | ) | NM | (1,127 | ) | 1,472 | NM | ||||||||||||
Latin America | 271 | 407 | (33 | )% | 1,055 | 1,164 | (9 | )% | ||||||||||||
Asia | 558 | 606 | (8 | ) | 1,412 | 1,930 | (27 | ) | ||||||||||||
Total net income (loss) | $ | (2,017 | ) | $ | 267 | NM | $ | (10,418 | ) | $ | 6,568 | NM | ||||||||
Total net income (loss) by product: | ||||||||||||||||||||
Securities and Banking | $ | (2,834 | ) | $ | (324 | ) | NM | $ | (12,668 | ) | $ | 5,013 | NM | |||||||
Transaction Services | 817 | 591 | 38 | % | 2,250 | 1,555 | 45 | % | ||||||||||||
Total net income (loss) | $ | (2,017 | ) | $ | 267 | NM | $ | (10,418 | ) | $ | 6,568 | NM | ||||||||
Securities and Banking | ||||||||||||||||||||
Revenue details | ||||||||||||||||||||
Net Investment Banking | $ | 142 | $ | 528 | (73 | )% | $ | (1,072 | ) | $ | 3,592 | NM | ||||||||
Lending | 1,346 | 439 | NM | 2,025 | 1,513 | 34 | % | |||||||||||||
Equity markets | 476 | 1,033 | (54 | ) | 2,853 | 4,098 | (30 | ) | ||||||||||||
Fixed income markets | (2,412 | ) | 733 | NM | (10,068 | ) | 9,836 | NM | ||||||||||||
Other Securities and Banking | 367 | (185 | ) | NM | (585 | ) | (74 | ) | NM | |||||||||||
Total Securities and Banking Revenues | $ | (81 | ) | $ | 2,548 | NM | $ | (6,847 | ) | $ | 18,965 | NM | ||||||||
Transaction Services | 2,474 | 2,069 | 20 | % | 7,221 | 5,566 | 30 | % | ||||||||||||
Total revenues | $ | 2,393 | $ | 4,617 | (48 | )% | $ | 374 | $ | 24,531 | (98 | )% | ||||||||
Transaction Services | ||||||||||||||||||||
Key Indicators | ||||||||||||||||||||
Average deposits and other customer liability balances(in billions) | $ | 273 | $ | 256 | 7 | % | ||||||||||||||
Assets under custody(EOP in trillions) | $ | 11.9 | $ | 12.7 | (6 | )% | ||||||||||||||
3Q08 vs. 3Q07
Revenues, net of interest expense, were negative inS&B due to substantial write-downs and losses related to the fixed income and credit markets. These included write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion, net of hedges, on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million, net of underwriting fees, on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. Negative revenues also included a $306 million
write-down related to the ARS settlement and were partially offset by a $1.5 billion gain related to the inclusion of Citigroup's credit spreads in the determination of the market value of those liabilities for which the fair value option was elected.Transaction Services revenues were up 20% to a record $2.5 billion, reflecting double-digit revenue growth across all regions. Average deposits and other customer liability balances increased 7%, while a decline in global equity markets resulted in a 6% reduction in assets under custody.
Operating expenses increased inS&B, reflecting a significant downward adjustment to incentive compensation in the prior-year period. Expense growth also includes a $221 million repositioning charge in the current quarter, partially offset by a decline in other operating and administrative costs.Transaction Services expenses grew 5%, primarily driven by higher business volumes and the Bisys acquisition.
Theprovision for credit losses inS&B increased significantly, mainly driven by an incremental net charge to increase loan loss reserves of $447 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio. Credit costs were also driven by a $287 million increase in net credit losses, mainly associated with loan sales.
2008 YTD vs. 2007 YTD
Revenues, net of interest expense, were negative inS&B due to substantial write-downs and losses related to the fixed income and credit markets. Included in this decrease are $9.7 billion of write-downs on subprime-related direct exposure, $4.8 billion of downward credit market value adjustments related to exposure to monoline insurers, $4.3 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, $2.5 billion of write-downs on Alt-A mortgage securities, net of hedges, $2.2 billion of write-downs of SIV assets, $1.6 billion of write-downs on commercial real estate positions and $1.4 billion of write-downs on auction rate securities inventory due to failed auctions, predominately in the first quarter of 2008, and deterioration in the credit markets.Transaction Services revenues grew 30% driven by new business wins and implementations, growth in customer liability balances and the impact of acquisitions.
Operating expenses increased 17% inTransaction Services due to increased investment spending, business volumes and the acquisition of The Bisys Group. Expenses increased 11% inS&B, reflecting $773 million of repositioning charges and the absence of a litigation reserve release recorded in the prior year, offset partially by a decrease in compensation costs.
Theprovision for credit losses inS&B increased, primarily from a $799 million increase in net credit losses mainly associated with loan sales and an incremental net charge to increase loan loss reserves of $542 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.Transaction Services credit costs increased, primarily due to a charge to increase loan loss reserves, mainly from the commercial banking portfolio in the emerging markets.
GLOBAL WEALTH MANAGEMENT
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue | $ | 671 | $ | 538 | 25 | % | $ | 1,840 | $ | 1,593 | 16 | % | ||||||||
Non-interest revenue | 2,493 | 2,981 | (16 | ) | 7,918 | 7,941 | — | |||||||||||||
Revenues, net of interest expense | $ | 3,164 | $ | 3,519 | (10 | )% | $ | 9,758 | $ | 9,534 | 2 | % | ||||||||
Operating expenses | 2,513 | 2,621 | (4 | ) | 7,943 | 7,185 | 11 | |||||||||||||
Provision for credit losses and for benefits and claims | 65 | 57 | 14 | 126 | 86 | 47 | ||||||||||||||
Income before taxes and minority interest | $ | 586 | $ | 841 | (30 | )% | $ | 1,689 | $ | 2,263 | (25 | )% | ||||||||
Income taxes (benefits) | 225 | 312 | (28 | ) | 616 | 759 | (19 | ) | ||||||||||||
Minority interest, net of taxes | (2 | ) | 39 | NM | 11 | 54 | (80 | ) | ||||||||||||
Net income | $ | 363 | $ | 490 | (26 | )% | $ | 1,062 | $ | 1,450 | (27 | )% | ||||||||
Average assets(in billions of dollars) | $ | 111 | $ | 97 | 14 | % | $ | 109 | $ | 80 | 36 | % | ||||||||
Return on assets | 1.30 | % | 2.00 | % | 1.30 | % | 2.42 | % | ||||||||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||||
North America | $ | 2,317 | $ | 2,455 | (6 | )% | $ | 7,120 | $ | 7,281 | (2 | )% | ||||||||
EMEA | 147 | 139 | 6 | 470 | 384 | 22 | ||||||||||||||
Latin America | 92 | 92 | — | 294 | 275 | 7 | ||||||||||||||
Asia | 608 | 833 | (27 | ) | 1,874 | 1,594 | 18 | |||||||||||||
Total revenues | $ | 3,164 | $ | 3,519 | (10 | )% | $ | 9,758 | $ | 9,534 | 2 | % | ||||||||
Net income by region: | ||||||||||||||||||||
North America | $ | 264 | $ | 334 | (21 | )% | $ | 738 | $ | 1,029 | (28 | )% | ||||||||
EMEA | 24 | 4 | NM | 70 | 57 | 23 | ||||||||||||||
Latin America | 16 | 12 | 33 | 57 | 56 | 2 | ||||||||||||||
Asia | 59 | 140 | (58 | ) | 197 | 308 | (36 | ) | ||||||||||||
Total net income | $ | 363 | $ | 490 | (26 | )% | $ | 1,062 | $ | 1,450 | (27 | )% | ||||||||
Key Indicators(in billions of dollars, except for offices) | ||||||||||||||||||||
Average loans | $ | 64 | $ | 57 | 12 | % | ||||||||||||||
Average deposits and other customer liability balances | $ | 124 | $ | 119 | 4 | % | ||||||||||||||
Offices | 831 | 871 | (5 | ) | ||||||||||||||||
Total client assets | $ | 1,532 | $ | 1,820 | (16 | )% | ||||||||||||||
Clients assets under fee-based management | $ | 415 | $ | 515 | (19 | ) | ||||||||||||||
3Q08 vs. 3Q07
Revenues, net of interest expense, declined 10% primarily due to the impact of challenging market conditions on Investment and Capital Market revenues, particularly inNorth America andAsia, partially offset by greater Banking revenues inNorth America,EMEA andAsia and an increase in Lending revenues across regions. The consolidated revenue also includes the gain on sale of CitiStreet and charges related to settlement of auction rate securities (ARS).
Total client assets, including assets under fee-based management, decreased $288 billion, or 16%, mainly reflecting the impact of market declines over the past year. Net client asset flows decreased compared to the prior year, to $3 billion. GWM had 14,735 financial advisors/bankers as of September 30, 2008, compared with 15,458 as of September 30, 2007, driven by attrition inNorth America andAsia, as well as planned eliminations.
Operating expenses decreased 4% driven by lower variable expense and incentive compensation, and the impact of reengineering projects, partially offset by the ARS settlement penalty of $50 million.
Theprovision for credit losses increased by $8 million. Provision for the quarter represents builds related to SFAS 114 impaired loans and additional reserves due to loan deterioration.
2008 YTD vs. 2007 YTD
Revenues, net of interest expense, increased 2% primarily due to the impact of the Nikko Cordial acquisition, an increase in Banking and Lending revenues across most regions and an increase in EMEAand Latin AmericaCapital Markets, partially offset by lower Capital Markets revenue in Asiaand North America.
Operating expenses increased 11% primarily due to the impact of acquisitions, a reserve of $250 million in the first quarter of 2008 related to an offer to facilitate the liquidation of investments in a Citi-managed fund for its clients, repositioning charges, and the ARS settlement penalty.
Theprovision for credit losses increased by $40 million, reflecting reserve builds and $9 million of write-downs in
Asia. The reserve builds in 2008 were mainly for mortgages, FAS114 impairment, additional reserves required due to deterioration in risk rating of a loan facility and for lending to address client liquidity needs related to their auction rate securities holdings inNorth America.
| | Third Quarter | Nine Months | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||
Net interest revenue | $ | (308 | ) | $ | (49 | ) | $ | (704 | ) | $ | (197 | ) | |
Non-interest revenue | 213 | (91 | ) | (400 | ) | (186 | ) | ||||||
Revenues, net of interest expense | $ | (95 | ) | $ | (140 | ) | $ | (1,104 | ) | $ | (383 | ) | |
Operating expense | (73 | ) | 188 | 32 | 1,771 | ||||||||
Provision for loan losses | — | (1 | ) | — | (2 | ) | |||||||
(Loss) before taxes and minority interest | $ | (22 | ) | $ | (327 | ) | $ | (1,136 | ) | $ | (2,152 | ) | |
Income taxes (benefits) | (254 | ) | (83 | ) | (602 | ) | (682 | ) | |||||
Minority interest, net of taxes | — | 2 | (1 | ) | 3 | ||||||||
Income (loss) from continuing operations | $ | 232 | $ | (246 | ) | $ | (533 | ) | $ | (1,473 | ) | ||
Income (loss) from discontinued operations, net of tax | $ | 608 | $ | 103 | $ | 567 | $ | 430 | |||||
Net income (loss) | $ | 840 | $ | (143 | ) | $ | 34 | $ | (1,043 | ) | |||
3Q08 vs. 3Q07
Revenues, net of interest expense, increased primarily due to lower funding costs and effective hedging activities, partly offset by funding of higher tax assets and enhancements to our liquidity position.
Operating expenses decreased primarily due to Incentive Compensation accrual reductions and lower SFAS 123(R)-related expenses, partly offset by repositioning charges.
Income tax benefits increased due to higher tax benefits held at Corporate.
2008 YTD vs. 2007 YTD
Revenues, net of interest expense, decreased primarily due to inter-company transaction costs related to current year capital raises and the sale of CitiCapital, funding of higher tax assets and enhancements to our liquidity position as well as the absence of a prior-year gain on the sale of certain corporate-owned assets.
Operating expenses, excluding the 2007 first quarter repositioning charge of $1,836 million, decreased primarily due to lower Incentive Compensation accrual reductions and SFAS 123(R)-related expenses.
REGIONAL DISCUSSIONS
The following are the four regions North America
EMEA
Latin America
Asia
TARP AND OTHER REGULATORY PROGRAMS
MANAGING GLOBAL RISK
Details of Credit Loss Experience
Non-Performing Assets
Significant Exposures in which Citigroup operates. The regional results are fully reflected in the previous segment discussions.Securities and Banking
NORTH AMERICAExposure to Commercial Real Estate
| | Third Quarter | | Nine Months | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||
Net interest revenue | $ | 7,072 | $ | 5,876 | 20 | % | $ | 20,943 | $ | 16,798 | 25 | % | |||||||
Non-interest revenue | (1,118 | ) | 4,363 | NM | (4,878 | ) | 21,525 | NM | |||||||||||
Total Revenues, net of interest expense | $ | 5,954 | $ | 10,239 | (42 | )% | $ | 16,065 | $ | 38,323 | (58 | )% | |||||||
Total operating expenses | 7,533 | 6,844 | 10 | 23,956 | 21,912 | 9 | |||||||||||||
Provisions for credit losses and for benefits and claims | $ | 6,078 | $ | 2,774 | NM | $ | 14,888 | $ | 5,803 | NM | |||||||||
Income (loss) before taxes and minority interest | $ | (7,657 | ) | $ | 621 | NM | $ | (22,779 | ) | $ | 10,608 | NM | |||||||
Income taxes (benefits) | (2,892 | ) | 143 | NM | (9,127 | ) | 3,393 | NM | |||||||||||
Minority interest, net of tax | (126 | ) | (3 | ) | NM | (110 | ) | 93 | NM | ||||||||||
Net income (loss) | $ | (4,639 | ) | $ | 481 | NM | $ | (13,542 | ) | $ | 7,122 | NM | |||||||
Average assets | $ | 1,118 | $ | 1,254 | (11 | )% | $ | 1,226 | $ | 1,208 | 1 | % | |||||||
Return on assets | (1.65 | )% | 0.15 | % | (1.48 | )% | 0.79 | % | |||||||||||
Key Drivers (in billions of dollars, | |||||||||||||||||||
Average Loans | $ | 526.5 | $ | 516.0 | 2 | % | |||||||||||||
Average Consumer Banking Loans | $ | 291.7 | $ | 293.2 | (1 | ) | |||||||||||||
Average deposits (and other consumer liability balances) | $ | 250.8 | $ | 244.2 | 3 | ||||||||||||||
Branches/offices | 4,117 | 4,178 | (1 | ) | |||||||||||||||
3Q08 vs. 3Q07
Total revenues decreased 42%.Direct Exposure to Monolines
Highly Leveraged Financing Transactions
DERIVATIVES
Market Risk Management Process
Operational Risk Management Process
Country and Cross-Border Risk
INTEREST REVENUE/EXPENSE AND YIELDS
AVERAGE BALANCES AND INTEREST RATES—ASSETS
Average Balances and Interest Rates—Liabilities and Equity, and Net Interest Revenue
was 20% higher than the prior year primarily driven by lower funding costs which resultedAnalysis of Changes in higher spreads during the quarter. The increase was also driven by growth in average loans of 2% and average deposits of 3%.Non-InterestInterest Revenue decreased $5.5 billion primarily due toS&B's write-downs and losses related to the credit markets. These included write-downs on SIV assets, Alt-A mortgages, funded and unfunded highly leveraged finance commitments and positions, subprime-related direct exposures and a downward credit value adjustments related to exposure to monoline insurers.S&B revenues also included a write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option. In Global Cards, a 60% revenue decline was due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset. Revenues also included a $347 million gain on the sale of CitiStreet recorded in GWM. In Consumer Banking, revenue was negatively impacted by the loss from the mark-to-market on the MSR asset and related hedge.
Operating expenses increased 10% primarily due to repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts.
Provisions for credit losses and for benefits and claims increased $3.3 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.
2008 YTD vs. 2007 YTD
Total revenues decreased 58%.Analysis of Changes in Interest Expense and Net Interest Revenue was 25% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the first nine months of 2008. The increase was also driven by growth in average loans of 8% and average deposits of 6%.Non-Interest Revenue decreased $26.4 billion driven by substantial
write-downsCAPITAL RESOURCES AND LIQUIDITY
Capital Resources
Common Equity
Funding
Liquidity
Off-Balance-Sheet Arrangements
FAIR VALUATION
CONTROLS AND PROCEDURES
FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS FOR FINANCIAL STATEMENTS AND NOTES
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER INFORMATION
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and losses relatedUse of Proceeds
Submission of Matters to the fixed income and credit markets ina Vote of Security Holders
S&B Signatures
Exhibit Index
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company, Citi or Citigroup) is a global diversified financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.
The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal and state authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2008 Annual Report on Form 10-K. Additional financial, statistical, and business-related information, as well as business and segment trends, are included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on Apri1 17, 2009. On January 16, 2009, Citigroup announced a realignment of its businesses to be effective, for financial reporting purposes, in the second quarter of 2009. Accordingly, Citi's businesses in this Form 10-Q are presented under the same structure that was reported at December 31, 2008.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212 559 1000. Additional information about Citigroup is available on the Company's Web site atwww.citigroup.com. Citigroup's recent annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as the Company's other filings with the SEC are available free of charge through the Company's Web site by clicking on the "Investors" page and selecting "All SEC Filings." The SEC Web site contains reports, proxy and information statements, and other information regarding the Company atwww.sec.gov. The decrease inS&B was partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads of those liabilities for which the Company has elected the fair value option. In Global Cards, a 25% revenue decline was due to lower securitization revenue which was driven primarily by a write-down in the residual interest in securitized balances. The decrease was also attributable to the absence of a prior-year $257 million gain on sale of MasterCard shares. The decrease was partially offset by a $349 million gain on the IPO of Visa shares in the 2008 first quarter and gains in the 2008 second quarter of $170 million on the Upromise Cards Portfolio sale and $29 million on the sale of DCI. Negative revenues were also partially offset by a $347 million gain on the sale of CitiStreet in 2008 third quarter. In Consumer Banking, revenue was negatively impacted by the loss from the MSR-related mark-to-market.
Operating expenses increased 9%, reflecting repositioning charges, the impact of acquisitions, a $100 million fine related to the ARS settlement and the absence of a prior year litigation reserve release inS&B. Expense growth was partially offset by benefits from re-engineering efforts and by a partial release of the Visa-related litigation reserve in the first quarter 2008.
Provisions for credit losses and for benefits and claims increased $9.1 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.
| | Third Quarter | | Nine Months | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||
Net interest revenue | $ | 2,066 | $ | 1,922 | 7 | % | $ | 6,537 | $ | 5,149 | 27 | % | |||||||
Non-interest revenue | 1,209 | 806 | 50 | 1,592 | 5,631 | (72 | ) | ||||||||||||
Total Revenues, net of interest expense | $ | 3,275 | $ | 2,728 | 20 | % | $ | 8,129 | $ | 10,780 | (25 | )% | |||||||
Total operating expenses | 2,504 | 2,362 | 6 | 8,464 | 7,755 | 9 | |||||||||||||
Provisions for credit losses and for benefits and claims | $ | 988 | $ | 620 | 59 | $ | 2,056 | $ | 1,264 | 63 | |||||||||
Income (loss) before taxes and minority interest | $ | (217 | ) | $ | (254 | ) | 15 | % | $ | (2,391 | ) | $ | 1,761 | NM | |||||
Income taxes (benefits) | (254 | ) | (255 | ) | — | (1,183 | ) | 115 | NM | ||||||||||
Minority interest, net of tax | 28 | 21 | 33 | 70 | 63 | 11 | % | ||||||||||||
Net income (loss) | $ | 9 | $ | (20 | ) | NM | $ | (1,278 | ) | $ | 1,583 | NM | |||||||
Average assets(in billions of dollars) | $ | 364 | $ | 440 | (17 | )% | $ | 390 | $ | 398 | (2 | )% | |||||||
Return on assets | 0.01 | % | (0.02 | )% | (0.44 | )% | 0.53 | % | |||||||||||
Key Drivers(in billions of dollars, except branches) | |||||||||||||||||||
Average Loans | $ | 113.4 | $ | 128.3 | (12 | )% | |||||||||||||
Average Consumer Banking Loans | $ | 25.3 | $ | 24.0 | 5 | ||||||||||||||
Average deposits (and other consumer liability balances) | $ | 160.6 | $ | 150.5 | 7 | ||||||||||||||
Branches/offices | 788 | 782 | 1 | ||||||||||||||||
3Q08 vs. 3Q07
Total Revenues increased 20% largely driven byS&B andTransaction Services. In Global Cards, revenues increased by 5%, driven by higher purchase sales and average loans, up 7% and 14%, respectively. Consumer Banking revenues remained flat as growth in average loans of 5% was offset by impairment of the U.K. Held for Sale loan portfolio and softening revenues due to market volatility. Current and historical Germany retail banking results and condition have been reclassified as discontinued operations and are included in the Corporate/Other segment.
In ICG,S&B revenues were up 55% from the 2007 third quarter, mainly because the subprime-related direct exposures are now managed primarily inNorth America and have been transferred fromEMEA toNorth America (from the second quarter of 2008 forward). The current quarter included write-downs in commercial real estate positions and highly-leveraged finance commitments. Revenues also reflected strong results in local markets sales and trading.Transaction Services revenues increased 20% with continued growth in customer liability balances, up 16%.
Revenues in GWM grew by 6% with the strength of annuity revenues more than offsetting a decline in capital markets and investment revenue. Average loans grew 12% while client assets under fee-based management decreased 19% primarily due to lower market values.
Operating Expenses were up 6% from the third quarter of 2007 but declined for the third consecutive quarter. The growth from the prior period was primarily driven by lower compensation accruals inS&B in the third quarter of 2007. Underlying costs continue to trend down reflecting lower headcount and continued benefits from re-engineering efforts.
Provisions for credit losses and for benefits and claims increased 59%. The increase was primarily driven by losses associated with loan sales inS&B, deterioration in the credit environment in Southern Europe, the U.K. and Pakistan and higher loan loss reserve builds.
2008 YTD vs. 2007 YTD
Revenues were down 25% due to write-downs inS&B, partially offset by double-digit growth across all other segments.
Global Cards revenues increased by 29%, driven by double-digit growth in purchase sales and average loans. Revenues in Consumer Banking increased by 17%, driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg acquisition.
In ICG,S&B revenue was down 76% from last year due to write-downs on subprime-related direct exposures in the first quarter of 2008 and write-downs in commercial real estate positions and in funded and unfunded highly-leveraged loan commitments. Revenues inS&B also included a strong performance in local markets sales and trading.Transaction Services revenues increased by 27% driven by increased customer volumes and deposit growth.
Revenues in GWM grew by 22% primarily driven by an increase in annuity revenues and the impact of the acquisition of Quilter.
Operating Expenses were up 9% compared to 2007 due to the impact of organizational and repositioning charges in 2008, the impact of acquisitions and fx translation, offset by a decline in incentive compensation and the benefits from reengineering efforts.
Provisions for credit losses and for benefits and claims increased 63% primarily due to an increase in net credit losses and an incremental net charge to increase loan loss reserves.
At March 31, 2009, Citigroup was managed along the following segment and product lines:
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results.
CITIGROUP INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
| | Three Months Ended March 31, | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars, except per share amounts | % Change | ||||||||||
| 2009 | 2008 | ||||||||||
Net interest revenue | $ | 12,898 | $ | 13,068 | (1 | )% | |||||
Non-interest revenue | 11,891 | (627 | ) | NM | |||||||
Revenues, net of interest expense | 24,789 | 12,441 | 99 | % | |||||||
Operating expenses | 12,087 | 15,775 | (23 | ) | |||||||
Provisions for credit losses and for benefits and claims | 10,307 | 5,852 | 76 | ||||||||
Income (Loss) from Continuing Operations before Income Taxes | 2,395 | (9,186 | ) | NM | |||||||
Income taxes (benefits) | 785 | (3,939 | ) | NM | |||||||
Income (Loss) from Continuing Operations | 1,610 | (5,247 | ) | NM | |||||||
Income (Loss) from Discontinued Operations, net of taxes | (33 | ) | 115 | NM | |||||||
Net Income (Loss) before attribution of Noncontrolling Interests | 1,577 | (5,132 | ) | NM | |||||||
Net Income (Loss) attributable to Noncontrolling Interests | (16 | ) | (21 | ) | 24 | % | |||||
Citigroup's Net Income (Loss) | $ | 1,593 | $ | (5,111 | ) | NM | |||||
Less: | |||||||||||
Preferred dividends—Basic | 1,221 | 83 | NM | ||||||||
Impact of the conversion price reset related to the $12.5 billion convertible preferred stock private issuance—Basic(1) | 1,285 | — | NM | ||||||||
Preferred stock Series H discount accretion—Basic(1) | 53 | — | NM | ||||||||
Income (loss) available to common stockholders for Basic EPS | $ | (966 | ) | $ | (5,194 | ) | 81 | % | |||
Earnings per share | |||||||||||
Basic(2) | |||||||||||
Income (loss) from continuing operations | $ | (0.18 | ) | $ | (1.06 | ) | 83 | % | |||
Net income (loss) | $ | (0.18 | ) | $ | (1.03 | ) | 83 | ||||
Diluted(2) | |||||||||||
Income (loss) from continuing operations | $ | (0.18 | ) | $ | (1.06 | ) | 83 | % | |||
Net income (loss) | (0.18 | ) | (1.03 | ) | 83 | ||||||
Dividends declared per common share | $ | 0.01 | $ | 0.32 | (97 | ) | |||||
At March 31: | |||||||||||
Total assets | $ | 1,822,578 | $ | 2,199,697 | (17 | )% | |||||
Total deposits | 762,696 | 831,208 | (8 | ) | |||||||
Long-term debt | 337,252 | 424,959 | (21 | ) | |||||||
Mandatorily redeemable securities of subsidiary trusts | 24,532 | 23,959 | 2 | ||||||||
Common stockholders' equity | 69,688 | 108,684 | (36 | ) | |||||||
Total stockholders' equity | $ | 143,934 | $ | 128,068 | 12 | ||||||
Direct staff(in thousands) | 309 | 369 | (16 | ) | |||||||
Ratios: | |||||||||||
Return on common stockholders' equity(3) | (5.6 | )% | (18.6 | )% | |||||||
Tier 1 Common(4) | 2.16 | % | 4.22 | % | |||||||
Tier 1 Capital | 11.92 | % | 7.71 | % | |||||||
Total Capital | 15.61 | % | 11.18 | % | |||||||
Leverage(5) | 6.60 | % | 4.45 | % | |||||||
Common stockholders' equity to assets | 3.82 | % | 4.94 | % | |||||||
Dividend payout ratio(6) | N/A | N/A | |||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 1.06x | NM | |||||||||
NM Not meaningful
Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation.
Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including, but not limited to, those described in Citigroup's 2008 Annual Report on Form 10-K under "Risk Factors."
Within this Form 10-Q, please refer to the indices on pages 1 and 64 for page references to the Management's Discussion and Analysis section and Notes to Consolidated Financial Statements, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER OF 2009 MANAGEMENT SUMMARY
Citigroup reported net income of $1.593 billion for the first quarter of 2009. The results reflected Revenues of $24.8 billion, driven by strong results inICG, partially offset by net write-downs, $7.3 billion in net credit losses and a $2.7 billion net loan loss reserve builds.
The $0.18 loss per share reflected the reset in January 2009 of the conversion price of $12.5 billion of convertible preferred stock issued in a private offering in January 2008. This did not have an impact on net income or total capital but resulted in a reduction to income available to common shareholders of $1.285 billion or $0.24 per share. Without this reduction, EPS was positive. The loss per share also reflected preferred stock dividends and the quarterly accretion of the Series H warrant discount, which did not impact net income but reduced income available to common shareholders by $1.274 billion.
Revenues of $24.8 billion increased 99% from year-ago levels, with sequential improvement across all regions. Strong trading results and lower net write-downs (partially attributable to a positive credit valuation adjustment (CVA) in respect of the Company's own debt and derivatives) in S&B drove revenues. The difficult economic environment continued to have a negative impact on all businesses.
Net interest revenue declined 1% from the 2008 first quarter, reflecting the smaller balance sheet. Net interest margin in the first quarter of 2009 was 3.30%, up 50 basis points from the first quarter of 2008, reflecting significantly lower cost of funding, partially offset by a decrease in asset yields related to the decrease in the fed funds rate. Non-interest revenue increased $12.5 billion from a year ago, primarily reflecting lower write-downs on highly leveraged finance commitments, subprime-related direct exposures and other fixed income exposures.
Operating expenses decreased 23% from the previous year, reflecting benefits from Citi's ongoing re-engineering efforts, the impact of foreign exchange translation, and a $250 million litigation reserve release. Expenses in the prior-year period included $626 million of net non-recurring charges. Expenses have continued their downward momentum, due to lower compensation costs and continued benefits from re-engineering efforts. Headcount was down 60,000 from March 31, 2008 and 14,000 from December 31, 2008.
The Company's equity capital base and trust preferred securities were $168.5 billion at March 31, 2009. Citigroup's Stockholders' equity increased by $2.3 billion during the first quarter of 2009 to $143.9 billion. The Company issued $3.6 billion in preferred stock and warrants related to the loss-sharing agreement during the first quarter and distributed $1.06 billion in dividends to its preferred shareholders. Citigroup had a Tier 1 Capital Ratio of 11.92% at March 31, 2009.
During the first quarter of 2009, the Company recorded a net build of $2.7 billion to its credit reserves. The net build consisted of $2.3 billion inGlobal Cards andConsumer Banking ($1.6 billion inNorth America Consumer and $642 million in regions outside ofNorth America), $313 million inICG and $94 million inGWM. The Consumer credit loss rate was 4.64%, a 212 basis-point increase from the first quarter of 2008. Corporate cash-basis loans were $10.8 billion at March 31, 2009, an increase of $8.8 billion from year-ago levels. This increase is primarily attributable to the transfer of non-accrual loans from the held-for-sale portfolio to the held-for-investment portfolio during the fourth quarter of 2008. The allowance for loan losses totaled $31.7 billion at March 31, 2009, a coverage ratio of 4.82% of total loans.
The Company's effective tax rate was 32.8% in the first quarter of 2009, which includes a tax benefit of $110 million relating to the conclusion of the audit of certain issues in the Company's 2003-2005 U.S. Federal tax audit.
At March 31, 2009, the Company had increased its structural liquidity (equity, long-term debt and deposits) as a percentage of assets from 66% at December 31, 2008 to approximately 68% at March 31, 2009. Citigroup has continued its deleveraging, reducing total assets from $1,938 billion at December 31, 2008 to $1,823 billion at March 31, 2009.
At March 31, 2009, the maturity profile of Citigroup's senior long-term unsecured borrowings had a weighted average maturity of seven years.
On February 27, 2009, the Company announced an exchange offer of its common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 per share (Exchange Offer). On May 7, 2009, the Company announced that it will expand the Exchange Offer by increasing the maximum amount of preferred securities and trust preferred securities that it will accept in the Exchange Offer by $5.5 billion to a total of $33 billion. All other terms of the Exchange Offer, including that the U.S. government (USG) will match the Exchange Offer up to a maximum of $25 billion of its preferred stock at the same conversion price, remain unchanged. The increase in the Exchange Offer reflects the results of the USG's Supervisory Capital Assessment Program (SCAP) and will further increase the Company's Tier 1 Common without any additional USG investment or conversion of USG securities into common stock.
In April 2009, Citi's shareholders elected four new directors to its board. Additionally, the Company recently announced several senior management appointments, including Edward (Ned) Kelly as Chief Financial Officer, replacing Gary Crittenden, who was appointed Chairman of Citi Holdings.
During the first quarter of 2009, Citi continued to extend significant amounts of credit to U.S. consumers and continued to focus on supporting the U.S. housing market. In the first quarter of 2009, Citi successfully worked with approximately 80,000 borrowers, whose mortgages Citi owns or services, to avoid potential foreclosure through modifications, extensions, forbearances, and reinstatements of loans totaling more than $9 billion. Citi was able to keep more than 9 out of 10 distressed borrowers with Citi mortgages owned by the Company in their homes. Also, Citi's U.S. Cards business is currently providing help to 1.3 million card members to help them manage their credit card debt through a variety of forbearance programs.
EVENTS IN 2009
Certain significant events during the first quarter of 2009 had, or could have, an effect on Citigroup's current and future financial condition, results of operations, liquidity and capital resources. These events are summarized below and discussed in more detail throughout this MD&A.
EXCHANGE OFFER AND CONVERSIONS
On February 27, 2009, Citigroup announced an exchange offer of its common stock for up to a total of $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 per share (Exchange Offer). As described above, on May 7, 2009, the Company announced that it will expand the Exchange Offer by increasing the maximum amount of preferred securities and trust preferred securities that it will accept in the Exchange Offer by $5.5 billion to a total of $33 billion. All other terms of the Exchange Offer, including that the USG will match the Exchange Offer up to a maximum of $25 billion of its preferred stock at the same conversion price, remain unchanged. All remaining preferred stock held by the USG that is not converted to common stock in the Exchange Offer will be exchanged into newly issued 8% trust preferred securities.
This transaction could increase Tier 1 Common of the Company from the first quarter of 2009 level of $22.1 billion to as much as $86.2 billion, which assumes the exchange of $33 billion of preferred securities and trust preferred securities, the maximum eligible under the transaction. Citi's tangible common equity (TCE), which was $30.9 billion as of March 31, 2009, will increase by as much as $60.4 billion to up to $91.3 billion.
Based on the maximum participation in the Exchange Offer, the USG would own approximately 34% of Citi's outstanding common stock and existing common stockholders would own approximately 24% of the outstanding common stock.
Citi intends to continue to pay full dividends on the preferred stock up to and including the closing of the public exchange offers, at which point the dividends will be suspended. Citi does not intend to pay common stock dividends during this period. The Company has no plans to suspend distributions at current rates on its trust preferred securities.
The accounting for the Exchange Offer will result in the de-recognition of preferred stock and the recognition of the common stock issued at fair value, in theCommon stock andAdditional paid-in capital accounts in equity. The difference between the carrying amount of preferred stock and the fair value of the common stock will be recorded inRetained earnings (impacting net income available to common shareholders and EPS) orAdditional paid-in capital accounts in equity, depending on whether the preferred stock was originally non-convertible or convertible.
For USG preferred stock that is converted to 8% trust preferred securities, the newly issued trust preferred securities will be initially recorded at fair value asLong-term debt. The difference between the carrying amount of the preferred stock and the fair value of the trust preferred securities will be recorded inRetained earnings after adjusting for appropriate deferred tax liability (impacting net income available to common shareholders and EPS).
On January 23, 2009, pursuant to Citigroup's prior agreement with the purchasers of the $12.5 billion of convertible preferred stock issued in a private offering in January 2008, the conversion price was reset from $31.62 per share to $26.35 per share. The reset will result in Citigroup's issuing up to approximately 79 million additional common shares when the preferred stock is converted. There was no impact toNet income, total Citigroup stockholders' equity or capital ratios due to the reset. However, the reset resulted in a reclassification fromRetained earnings toAdditional paid-in capital of $1.285 billion reflecting the benefit of the reset to the preferred stockholders. The reclassification of $1.285 billion represents (i) the reset conversion rate ($12.5 billion divided by the reset price of $26.35) multiplied by (ii) the difference between Citi's stock price on the commitment date ($29.06) and the reset price ($26.35). This reclassification resulted in a corresponding reduction of income available to common shareholders during the first quarter of 2009, reducing basic and diluted EPS by approximately 24 cents.
THE SUPERVISORY CAPITAL ASSESSMENT PROGRAM (SCAP)
On May 7, 2009, the USG released the results of its Supervisory Capital Assessment Program (SCAP). The SCAP constituted a comprehensive capital assessment of the 19 largest U.S. financial institutions, including Citi.
Based on the results of the USG's assessment under the SCAP, Citi will be required to increase its Tier 1 Common by an additional $5.5 billion, which the Company intends to accomplish by expanding its previously-announced Exchange Offer (as described above) from $27.5 billion to $33 billion, an action that will require no additional USG investment or conversion of USG preferred securities into Citi common stock.
Pursuant to the SCAP, any financial institution that is required to augment its capital as a result of the SCAP must develop a capital plan, to be approved by the Federal Reserve Board in consultation with the FDIC, and will have six months to implement this plan. Capital plans must be submitted and approved by June 8, 2009 and the required capital increase must be established by November 9, 2009. Like other financial institutions, Citi's capital plan must consist of three main elements:
In addition, as required by the SCAP, Citi, like other financial institutions required to augment their capital, will review its existing management and Board of Directors in
order to assure that the leadership of the Company has sufficient expertise and ability to manage the risks presented by the current economic environment and maintain capacity on its balance sheet sufficient to continue prudent lending to meet the credit needs of the economy. This review must be completed by June 8, 2009.
LOSS-SHARING AGREEMENT
On January 16, 2009, Citigroup issued preferred shares to the U.S. Treasury (UST) and the FDIC, and a warrant to the UST, in exchange for $301 billion of loss protection on a specified pool of Citigroup assets. Under the agreement, the Company will absorb the first $39.5 billion of losses plus 10% of the remaining losses incurred.
The fair value of the preferred shares of $3.529 billion was recorded asPreferred stock; the fair value of the warrant of $88 million was recorded as a credit toAdditional paid-in capital at the time of issuance; and an asset related to the loss-sharing agreement of $3.617 billion was recorded inOther assets. See "TARP and Other Regulatory Programs—U.S. Government Loss-Sharing Agreement." The loss-sharing agreement is accounted for as an indemnification agreement and amortized on a straight line basis over five years for non-residential assets and 10 years for residential assets. Amortization expense of $171 million was recorded in the first quarter of 2009.
The USG has a 120-day confirmation period to finalize the composition of the asset pool from the date that Citi submitted its revised asset pool. The revised asset pool was submitted by Citigroup on April 15, 2009 and, therefore, is expected to be finalized by the USG by August 13, 2009. The advisor to the USG has commenced its review of the assets. In addition, as a result of receipt of principal repayments and charge-offs, the total asset pool has declined by approximately $17 billion from the original $301 billion. Approximately $2.0 billion of losses on the asset pool were recorded in the first quarter of 2009, bringing the agreement-to-date losses to approximately $2.9 billion. See "TARP and Other Regulatory Programs—U.S. Government Loss-Sharing Agreement."
ITEMS IMPACTING THE SECURITIES AND BANKING BUSINESS
Securities and Banking Significant Revenue Items and Risk Exposure
| | Pretax Revenue Marks (in millions) | Risk Exposure (in billions) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First Quarter 2009 | Mar. 31, 2009 | Dec. 31, 2008 | % Change | |||||||||
Sub-prime related direct exposures | $ | (2,296 | ) | $ | 10.2 | $ | 14.1 | (28 | )% | ||||
Private Equity and equity investments | (1,240 | ) | 8.5 | 11.3 | (25 | ) | |||||||
CVA related to exposure to monoline insurers | (1,090 | ) | N/A | N/A | — | ||||||||
Alt-A Mortgages(1) | (490 | ) | 12.5 | 12.6 | (1 | ) | |||||||
Highly leveraged loans and financing commitments(2) | (247 | ) | 9.5 | 10.0 | (5 | ) | |||||||
Commercial Real Estate (CRE) positions(2)(3) | (186 | ) | 36.1 | 37.5 | (4 | ) | |||||||
Structured Investment Vehicles' (SIVs) Assets | (47 | ) | 16.2 | 16.6 | (2 | ) | |||||||
Auction Rate Securities (ARS) proprietary positions | (23 | ) | 8.5 | 8.8 | (3 | ) | |||||||
CVA on Citi debt liabilities under fair value option | 180 | N/A | N/A | — | |||||||||
CVA on derivatives positions, excluding monoline insurers | 2,738 | N/A | N/A | — | |||||||||
Subtotal | $ | (2,701 | ) | ||||||||||
Non-credit accretion on reclassified assets | 541 | ||||||||||||
Total significant revenue items | $ | (2,160 | ) | ||||||||||
Subprime-Related Direct Exposures
During the first quarter of 2009, S&B recorded write-downs of $2.296 billion pretax, net of hedges, on its subprime-related direct exposures. The Company's remaining $10.2 billion in U.S. subprime net direct exposure in S&B at March 31, 2009 consisted of (i) approximately $8.5 billion of net exposures to the super senior tranches of CDOs, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both, and (ii) approximately $1.7 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Residential Real Estate in Securities and Banking" for a further discussion of such exposures and the associated losses recorded.
Private Equity and Equity Investments
In the first quarter of 2009, Citi recognized pretax losses of $1.240 billion on private equity and equity investments, reflecting weakness in the developed global equities markets during the first quarter of 2009. The Company had $8.5 billion in private equity and equity investments securities at March 31, 2009, which decreased $2.8 billion from December 31, 2008.
Monoline Insurers Credit Valuation Adjustment (CVA)
During the first quarter of 2009, Citigroup recorded a pretax loss on CVA of $1.090 billion on its exposure to monoline insurers. CVA is calculated by applying forward default probabilities, which are derived using the counterparty's current credit spread, to the expected exposure profile. The majority of the exposure relates to hedges on super senior subprime exposures that were executed with various monoline insurance companies. See "Direct Exposure to Monolines" for a further discussion.
Alt-A Mortgage Securities
In the first quarter of 2009, Citigroup recorded pretax losses of approximately $490 million, net of hedges, on Alt-A mortgage securities held in S&B. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.
The Company had $12.5 billion in Alt-A mortgage securities at March 31, 2009, which decreased $136 million from December 31, 2008. Of the $12.5 billion, $1.5 billion was classified asTrading account assets, on which $79 million of fair value losses, net of hedging, was recorded in earnings, $0.4 billion was classified as available-for-sale (AFS) investments, and $10.6 billion was classified as held-to-maturity (HTM) investments, on which $411 million of losses was recorded in earnings due to credit impairments.
Highly Leveraged Loans and Financing Commitments
The Company recorded pretax losses of $247 million on funded and unfunded highly leveraged finance exposures in the first quarter of 2009. Citigroup's exposure to highly leveraged financings totaled $9.5 billion at March 31, 2009 ($9.0 billion in funded and $0.5 billion in unfunded commitments), reflecting a decrease of $0.5 billion from December 31, 2008. See "Highly Leveraged Financing Transactions" for a further discussion.
Commercial Real Estate (CRE)
S&B's commercial real estate exposure is split into three categories: assets held at fair value; held to maturity/held for investment; and equity. During the first quarter of 2009, pretax losses of $186 million, net of hedges, were booked on exposures recorded at fair value. S&B had $36.1 billion in CRE positions at March 31, 2009, which decreased $1.4 billion from December 31, 2008. See "Exposure to Commercial Real Estate" for a further discussion.
Credit Valuation Adjustment on Citi's Debt Liabilities for Which Citi Has Elected the Fair Value Option
Under SFAS 157, the Company is required to use its own-credit spreads in determining the current value for its derivative liabilities and all other liabilities for which it has elected the fair value option. When Citi's credit spreads widen (deteriorate), Citi recognizes a gain on these liabilities because the value of the liabilities has decreased. When Citi's credit spreads narrow (improve), Citi recognizes a loss on these liabilities because the value of the liabilities has increased.
During the first quarter of 2009, the Company recorded a gain of approximately $180 million on its fair value option liabilities (excluding derivative liabilities) due to the widening of the Company's credit spreads.
Credit Valuation Adjustment on Derivative Positions, excluding Monoline insurers
During the first quarter of 2009, Citigroup recorded a net gain of approximately $2.7 billion on its derivative positions primarily due to the widening of the Company's credit default swap spread. See "Citigroup Derivatives" for a further discussion.
Non-Credit Accretion on Reclassified Assets
In the fourth quarter of 2008, the Company reclassified $33.3 billion of debt securities from trading securities to HTM investments, $4.7 billion of debt securities from trading securities to AFS, and $15.7 billion of loans from held-for-sale to held-for-investment. All assets were reclassified with an amortized cost equal to the fair value on the date of reclassification. The difference between the amortized cost basis and the expected principal cash flows is treated as a purchase discount and accreted into income over the remaining life of the security or loan. In the first quarter of 2009, the Company recognized approximately $541 million of interest revenue based on this accretion.
DIVESTITURES
Joint Venture with Morgan Stanley
On January 13, 2009, Citi and Morgan Stanley (MS) announced a joint venture (JV) that will combine theGlobal Wealth Management platform of MS with the Smith Barney, Quilter and Australia private client networks. Citi will sell 100% of these businesses to Morgan Stanley in exchange for a 49% stake in the JV and an estimated $2.7 billion of cash at closing. At the time of the announcement, the estimated pretax gain was $9.5 billion ($5.8 billion after-tax), based on valuations performed at that time. Since the actual gain that will be recorded is dependent upon the value of the JV on the date the transaction closes, it may differ from the estimated amount. The transaction is anticipated to close no later than third quarter of 2009. It is anticipated that Citi will continue to support the clearing and settling of the JV activities for a period of between two to three years.
Sale of Citigroup Technology Services Ltd.
On December 23, 2008, Citigroup announced an agreement with Wipro Limited to sell all of Citigroup's interest in Citi Technology Services Ltd., Citigroup's India-based captive provider of technology infrastructure support and application development, for all cash consideration of approximately $127 million. The transaction closed on January 20, 2009 and resulted in an after-tax loss of $6 million after reflecting an allocation of a portion of the proceeds to the Master Services Agreement.
Sale of Citi's Nikko Citi Trust and Banking Corporation
On December 16, 2008, Citigroup executed a definitive agreement to sell all of the shares of Nikko Citi Trust and Banking Corporation to Mitsubishi UFJ Trust and Banking Corporation (MUTB). At the closing, MUTB is to pay all cash consideration of ¥25 billion, subject to certain purchase price adjustments. The closing is subject to regulatory approvals and other closing conditions. Citi's announcement on May 1, 2009 of the Nikko Cordial Securities transaction (as described under "Subsequent Event" below) and certain other developments affect the rights of the parties under the agreement with MUTB. As was announced on March 26, 2009, the parties have agreed to extend the closing of the transaction and a new closing date will be announced when determined.
OTHER ITEMS
Income Taxes
The Company's effective tax rate was 32.8% in the first quarter of 2009, versus 42.9% in the prior-year period, which includes a tax benefit of $110 million relating to the conclusion of the audit of certain issues in the Company's 2003-2005 U.S. federal tax audit.
The Company expects to conclude the audit of its U.S. federal consolidated income tax returns for the years 2003-2005 within the next 12 months. The gross uncertain tax position at March 31, 2009 for the items expected to be resolved is approximately $245 million plus gross interest of about $50 million. The potential net tax benefit to continuing operations could be approximately $225 million. This is in addition to the $110 million benefit booked in the first quarter of 2009 for issues already concluded, discussed above.
The Company's net deferred tax asset of $44.5 billion at December 31, 2008 decreased by approximately $1 billion at March 31, 2009, principally due to $1 billion in compensation deductions under SFAS 123(R) which reduced additional paid-in capital in the first quarter of 2009. Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset at March 31, 2009 is more likely than not based upon expectations as to future taxable income in the jurisdictions in which it operates and available tax planning strategies.
Sale of Redecard Shares
In the first quarter of 2009, Citigroup sold its entire 17% equity interest in Redecard through a private and public offering. The sale resulted in an after-tax gain of $704 million ($1.116 billion pretax) and was recorded in theGlobal Cards business inLatin America.
SUBSEQUENT EVENT
Sale of Nikko Cordial
On May 1, 2009, Citigroup reached a definitive agreement to sell its Japanese domestic securities business, conducted principally through Nikko Cordial Securities Inc., to Sumitomo Mitsui Banking Corporation in a transaction with a total cash value to Citi of approximately $7.9 billion (¥774.5 billion). Citi's ownership interests in Nikko Citigroup Limited, Nikko Asset Management Co., Ltd., and Nikko Principal Investments Japan Ltd. are not included in the transaction. The transaction is expected to generate approximately $2.5 billion of tangible common equity (TCE) for Citi at closing, with Citi expected to recognize an after-tax loss of approximately $0.2 billion. On a pro forma basis, Citi's March 31, 2009 Tier 1 Capital Ratio would have increased by approximately 27 basis points. The transaction is expected to close by the end of the fourth quarter of 2009, subject to regulatory approvals and customary closing conditions.
SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUES
The following tables show the net income (loss) and revenues for Citigroup's businesses on a segment and product view as well as a regional view:
Citigroup Net Income (Loss)—Segment View
| | First Quarter | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||||
| In millions of dollars | 2009 | 2008 | ||||||||||
Global Cards | ||||||||||||
North America | $ | (209 | ) | $ | 537 | NM | ||||||
EMEA | (65 | ) | 42 | NM | ||||||||
Latin America | 669 | 516 | 30 | % | ||||||||
Asia | 22 | 131 | (83 | ) | ||||||||
Total Global Cards | $ | 417 | $ | 1,226 | (66 | )% | ||||||
Consumer Banking | ||||||||||||
North America | $ | (1,245 | ) | $ | (333 | ) | NM | |||||
EMEA | (178 | ) | (85 | ) | NM | |||||||
Latin America | 81 | 271 | (70 | )% | ||||||||
Asia | 116 | 199 | (42 | ) | ||||||||
Total Consumer Banking | $ | (1,226 | ) | $ | 52 | NM | ||||||
Institutional Clients Group (ICG) | ||||||||||||
North America | $ | (135 | ) | $ | (5,955 | ) | 98 | % | ||||
EMEA | 2,019 | (1,142 | ) | NM | ||||||||
Latin America | 442 | 382 | 16 | |||||||||
Asia | 507 | 358 | 42 | |||||||||
Total ICG | $ | 2,833 | $ | (6,357 | ) | NM | ||||||
Global Wealth Management (GWM) | ||||||||||||
North America | $ | 244 | $ | 165 | 48 | % | ||||||
EMEA | 26 | 26 | — | |||||||||
Latin America | (9 | ) | 26 | NM | ||||||||
Asia | — | 77 | (100 | ) | ||||||||
Total GWM | $ | 261 | $ | 294 | (11 | )% | ||||||
Corporate/Other | $ | (675 | ) | $ | (462 | ) | (46 | )% | ||||
Income (Loss) from Continuing Operations | $ | 1,610 | $ | (5,247 | ) | NM | ||||||
Income (Loss) from Discontinued Operations | $ | (33 | ) | $ | 115 | NM | ||||||
Net Income (Loss) attributable to Noncontrolling Interests | $ | (16 | ) | $ | (21 | ) | ||||||
Citigroup's Net Income (Loss) | $ | 1,593 | $ | (5,111 | ) | NM | ||||||
NM Not meaningful
Citigroup Net Income (Loss)—Regional View
| | First Quarter | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||||
| In millions of dollars | 2009 | 2008 | ||||||||||
North America | ||||||||||||
Global Cards | $ | (209 | ) | $ | 537 | NM | ||||||
Consumer Banking | (1,245 | ) | (333 | ) | NM | |||||||
ICG | (135 | ) | (5,955 | ) | 98 | % | ||||||
Securities & Banking | (269 | ) | (6,034 | ) | 96 | |||||||
Transaction Services | 134 | 79 | 70 | |||||||||
GWM | 244 | 165 | 48 | |||||||||
TotalNorth America | $ | (1,345 | ) | $ | (5,586 | ) | 76 | % | ||||
EMEA | ||||||||||||
Global Cards | $ | (65 | ) | $ | 42 | NM | ||||||
Consumer Banking | (178 | ) | (85 | ) | NM | |||||||
ICG | 2,019 | (1,142 | ) | NM | ||||||||
Securities & Banking | 1,728 | (1,364 | ) | NM | ||||||||
Transaction Services | 291 | 222 | 31 | % | ||||||||
GWM | 26 | 26 | — | |||||||||
TotalEMEA | $ | 1,802 | $ | (1,159 | ) | NM | ||||||
Latin America | ||||||||||||
Global Cards | $ | 669 | $ | 516 | 30 | % | ||||||
Consumer Banking | 81 | 271 | (70 | ) | ||||||||
ICG | 442 | 382 | 16 | |||||||||
Securities & Banking | 294 | 250 | 18 | |||||||||
Transaction Services | 148 | 132 | 12 | |||||||||
GWM | (9 | ) | 26 | NM | ||||||||
TotalLatin America | $ | 1,183 | $ | 1,195 | (1 | )% | ||||||
Asia | ||||||||||||
Global Cards | $ | 22 | $ | 131 | (83 | )% | ||||||
Consumer Banking | 116 | 199 | (42 | ) | ||||||||
ICG | 507 | 358 | 42 | |||||||||
Securities & Banking | 237 | 59 | NM | |||||||||
Transaction Services | 270 | 299 | (10 | ) | ||||||||
GWM | — | 77 | (100 | ) | ||||||||
TotalAsia | $ | 645 | $ | 765 | (16 | )% | ||||||
Corporate/Other | $ | (675 | ) | $ | (462 | ) | (46 | )% | ||||
Income (Loss) from Continuing Operations | $ | 1,610 | $ | (5,247 | ) | NM | ||||||
Income (Loss) from Discontinued Operations | $ | (33 | ) | $ | 115 | NM | ||||||
Net Income (Loss) attributable to Noncontrolling Interests | $ | (16 | ) | $ | (21 | ) | ||||||
Citigroup's Net Income (Loss) | $ | 1,593 | $ | (5,111 | ) | NM | ||||||
NM Not meaningful
Citigroup Revenues—Segment View
| | First Quarter | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||||
| In millions of dollars | 2009 | 2008 | ||||||||||
Global Cards | ||||||||||||
North America | $ | 2,775 | $ | 3,343 | (17 | )% | ||||||
EMEA | 492 | 585 | (16 | ) | ||||||||
Latin America | 1,950 | 1,776 | 10 | |||||||||
Asia | 548 | 675 | (19 | ) | ||||||||
Total Global Cards | $ | 5,765 | $ | 6,379 | (10 | )% | ||||||
Consumer Banking | ||||||||||||
North America | $ | 3,955 | $ | 4,485 | (12 | )% | ||||||
EMEA | 506 | 700 | (28 | ) | ||||||||
Latin America | 818 | 1,048 | (22 | ) | ||||||||
Asia | 1,123 | 1,558 | (28 | ) | ||||||||
Total Consumer Banking | $ | 6,402 | $ | 7,791 | (18 | )% | ||||||
Institutional Clients Group (ICG) | ||||||||||||
North America | $ | 2,095 | $ | (7,824 | ) | NM | ||||||
EMEA | 4,597 | 133 | NM | |||||||||
Latin America | 1,129 | 1,012 | 12 | % | ||||||||
Asia | 1,686 | 1,721 | (2 | ) | ||||||||
Total ICG | $ | 9,507 | $ | (4,958 | ) | NM | ||||||
Global Wealth Management (GWM) | ||||||||||||
North America | $ | 1,981 | $ | 2,376 | (17 | )% | ||||||
EMEA | 126 | 170 | (26 | ) | ||||||||
Latin America | 60 | 100 | (40 | ) | ||||||||
Asia | 452 | 633 | (29 | ) | ||||||||
Total GWM | $ | 2,619 | $ | 3,279 | (20 | )% | ||||||
Corporate/Other | $ | 496 | $ | (50 | ) | NM | ||||||
Total Net Revenues | $ | 24,789 | $ | 12,441 | 99 | % | ||||||
NM Not meaningful
Citigroup Revenues—Regional View
| | First Quarter | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||||
| In millions of dollars | 2009 | 2008 | ||||||||||
North America | ||||||||||||
Global Cards | $ | 2,775 | $ | 3,343 | (17 | )% | ||||||
Consumer Banking | 3,955 | 4,485 | (12 | ) | ||||||||
ICG | 2,095 | (7,824 | ) | NM | ||||||||
Securities & Banking | 1,512 | (8,317 | ) | NM | ||||||||
Transaction Services | 583 | 493 | 18 | |||||||||
GWM | 1,981 | 2,376 | (17 | ) | ||||||||
TotalNorth America | $ | 10,806 | $ | 2,380 | NM | |||||||
EMEA | ||||||||||||
Global Cards | $ | 492 | $ | 585 | (16 | )% | ||||||
Consumer Banking | 506 | 700 | (28 | ) | ||||||||
ICG | 4,597 | 133 | NM | |||||||||
Securities & Banking | 3,810 | (680 | ) | NM | ||||||||
Transaction Services | 787 | 813 | (3 | ) | ||||||||
GWM | 126 | 170 | (26 | ) | ||||||||
TotalEMEA | $ | 5,721 | $ | 1,588 | NM | |||||||
Latin America | ||||||||||||
Global Cards | $ | 1,950 | $ | 1,776 | 10 | % | ||||||
Consumer Banking | 818 | 1,048 | (22 | ) | ||||||||
ICG | 1,129 | 1,012 | 12 | |||||||||
Securities & Banking | 794 | 680 | 17 | |||||||||
Transaction Services | 335 | 332 | 1 | |||||||||
GWM | 60 | 100 | (40 | ) | ||||||||
TotalLatin America | $ | 3,957 | $ | 3,936 | 1 | % | ||||||
Asia | ||||||||||||
Global Cards | $ | 548 | $ | 675 | (19 | )% | ||||||
Consumer Banking | 1,123 | 1,558 | (28 | ) | ||||||||
ICG | 1,686 | 1,721 | (2 | ) | ||||||||
Securities & Banking | 1,069 | 1,012 | 6 | |||||||||
Transaction Services | 617 | 709 | (13 | ) | ||||||||
GWM | 452 | 633 | (29 | ) | ||||||||
TotalAsia | $ | 3,809 | $ | 4,587 | (17 | )% | ||||||
Corporate/Other | $ | 496 | $ | (50 | ) | NM | ||||||
Total Net Revenue | $ | 24,789 | $ | 12,441 | 99 | % | ||||||
NM Not meaningful
| | First Quarter | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | ||||||||||
| In millions of dollars | 2009 | 2008 | |||||||||
Net interest revenue | $ | 2,672 | $ | 2,706 | (1 | )% | |||||
Non-interest revenue | 3,093 | 3,673 | (16 | ) | |||||||
Revenues, net of interest expense | $ | 5,765 | $ | 6,379 | (10 | )% | |||||
Operating expenses | 2,196 | 2,595 | (15 | ) | |||||||
Provision for credit losses and for benefits and claims | 3,093 | 1,891 | 64 | ||||||||
Income before taxes and noncontrolling interests | $ | 476 | $ | 1,893 | (75 | )% | |||||
Income taxes | 58 | 664 | (91 | ) | |||||||
Net income (loss) attributable to noncontrolling interests | 1 | 3 | (67 | ) | |||||||
Net income | $ | 417 | $ | 1,226 | (66 | )% | |||||
Average assets(in billions of dollars) | $ | 107 | $ | 123 | (13 | )% | |||||
Return on assets | 1.58 | % | 4.01 | % | |||||||
Revenues, net of interest expense, by region: | |||||||||||
North America | $ | 2,775 | $ | 3,343 | (17 | )% | |||||
EMEA | 492 | 585 | (16 | ) | |||||||
Latin America | 1,950 | 1,776 | 10 | ||||||||
Asia | 548 | 675 | (19 | ) | |||||||
Total revenues | $ | 5,765 | $ | 6,379 | (10 | )% | |||||
Net income (loss) by region: | |||||||||||
North America | $ | (209 | ) | $ | 537 | NM | |||||
EMEA | (65 | ) | 42 | NM | |||||||
Latin America | 669 | 516 | 30 | % | |||||||
Asia | 22 | 131 | (83 | ) | |||||||
Total net income (loss) | $ | 417 | $ | 1,226 | (66 | )% | |||||
Key Drivers(in billions of dollar, except accounts) | |||||||||||
Average loans | $ | 83.0 | $ | 92.8 | (11 | )% | |||||
Purchase sales | 86.2 | 106.8 | (19 | ) | |||||||
Open accounts(in millions) | 170.5 | 186.0 | (8 | ) | |||||||
NM Not meaningful
1Q09 vs. 1Q08
Global Cards revenue decreased 10% primarily due to higher credit losses flowing through the securitization trusts inNorth America.Net Interest Revenue was 1% lower than the prior year driven by lower average loans of 11%. The decline in average loans was primarily due to a 19% decline in purchase sales.Non-Interest Revenue decreased 16% primarily due to lower securitization results inNorth America, reflecting higher credit costs flowing through the securitization trusts. A $1.1 billion pretax gain on the sale of the Company's remaining stake in Redecard was partially offset by a prior-year pretax gain on sale of Redecard of $663 million and a pretax gain on sale of Visa shares of $439 million.
InNorth America, a 17% revenue decline was mainly driven by lower securitization revenues, which reflected the impact of higher credit losses in the securitization trusts and the absence of a $349 million pretax gain on the sale of Visa shares. Purchase sales were 18% lower than the prior year reflecting a continued decline in discretionary and non-discretionary consumer spending.
Outside ofNorth America, revenues decreased by 16% and 19% inEMEA andAsia, respectively, and increased by 10% inLatin America. The decreases inEMEA andAsia were driven by changes in foreign currency translation (generally referred to throughout this report as "FX translation") related to strengthening of the U.S. dollar, and declines in purchase sales inEMEA andLatin America. WhileLatin America purchase sales also declined, the pretax gain on sale of Redecard affectedLatin America in the current period by $1.1 billion, and by $663 million in the prior-year period. The prior-year period also included pretax gains related to Visa shares of $10 million inLatin America and $81 million inAsia.
Operating expenses decreased 15% primarily due to lower marketing costs, lower business volumes, restructuring efforts and prior-year repositioning charges, which were partially offset by higher credit management costs, the absence of a prior-year pretax Visa-related litigation reserve release of $159 million and a legal vehicle restructuring. Expenses decreased by 11% inNorth America, 27% inEMEA, 18% inLatin America, and 21% inAsia. Outside ofNorth America, FX translation also contributed to the decrease in expenses.
Provisions for credit losses and for benefits and claims increased $1.202 billion, reflecting increases of $695 million in net credit losses and $485 million in higher loan loss reserve builds. InNorth America, credit costs increased $840 million, driven by higher net credit losses, up $498 million or
81%, and a higher loan loss reserve build, up $342 million. Higher credit costs reflected a weakening of leading credit indicators, trends in the macro-economic environment, including the housing market downturn, rising unemployment trends and higher bankruptcy filings, and the continued acceleration in the rate at which delinquent customers advanced to write-off. The net credit loss ratio increased by 503 basis points to 10.42%.
Outside ofNorth America, credit costs increased by $261 million and $110 million inEMEA andAsia, respectively, and decreased by $31 million inLatin America. Net credit losses were up $94 million, $61 million and $42 million inEMEA,Latin America andAsia, respectively. Also contributing to the increase were higher loan loss reserve builds, which were up $143 million.
On December 18, 2008, the federal banking regulators adopted final rules under the Federal Truth-in-Lending Act and the Federal Trade Commission Act which represent a substantial overhaul of credit card disclosure rules and lender practices. These rules take effect July 1, 2010 and could have an adverse impact on theGlobal Cards business. Subsequent to March 31, 2009, the U.S. House of Representatives and the Senate have proposed additional legislation regarding credit card disclosures and practices. These bills, if passed, may further impact the U.S. credit card business.
| | First Quarter | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | ||||||||||
| In millions of dollars | 2009 | 2008 | |||||||||
Net interest revenue | $ | 4,845 | $ | 5,651 | (14 | )% | |||||
Non-interest revenue | 1,557 | 2,140 | (27 | ) | |||||||
Revenues, net of interest expense | $ | 6,402 | $ | 7,791 | (18 | )% | |||||
Operating expenses | 3,536 | 4,309 | (18 | ) | |||||||
Provision for credit losses and for benefits and claims | 5,213 | 3,643 | 43 | ||||||||
Income (loss) before taxes and noncontrolling interests | $ | (2,347 | ) | $ | (161 | ) | NM | ||||
Income taxes benefits | (1,126 | ) | (215 | ) | NM | ||||||
Net income attributable to noncontrolling interests | 5 | 2 | NM | ||||||||
Net income (loss) | $ | (1,226 | ) | $ | 52 | NM | |||||
Average assets(in billions of dollars) | $ | 477 | $ | 568 | (16 | )% | |||||
Return on assets | (1.04 | )% | 0.04 | % | |||||||
Revenues, net of interest expense, by region: | |||||||||||
North America | $ | 3,955 | $ | 4,485 | (12 | )% | |||||
EMEA | 506 | 700 | (28 | ) | |||||||
Latin America | 818 | 1,048 | (22 | ) | |||||||
Asia | 1,123 | 1,558 | (28 | ) | |||||||
Total revenues | $ | 6,402 | $ | 7,791 | (18 | )% | |||||
Net income (loss) by region: | |||||||||||
North America | $ | (1,245 | ) | $ | (333 | ) | NM | ||||
EMEA | (178 | ) | (85 | ) | NM | ||||||
Latin America | 81 | 271 | (70 | )% | |||||||
Asia | 116 | 199 | (42 | ) | |||||||
Total net income (loss) | $ | (1,226 | ) | $ | 52 | NM | |||||
Consumer Finance Japan (CFJ)—NIR | $ | 162 | $ | 264 | (39 | )% | |||||
Consumer Banking, excluding CFJ—NIR | $ | 4,683 | $ | 5,387 | (13 | )% | |||||
CFJ—Operating expenses | $ | 59 | $ | 95 | (38 | )% | |||||
Consumer Banking, excluding CFJ-operating expenses | $ | 3,477 | $ | 4,214 | (17 | )% | |||||
CFJ—Net loss | $ | (36 | ) | $ | (86 | ) | 58 | % | |||
Consumer Banking, excluding CFJ—Net income (loss) | $ | (1,190 | ) | $ | 138 | NM | |||||
Key Indicators | |||||||||||
Average loans(in billions of dollars) | $ | 366.2 | $ | 407.7 | (10 | )% | |||||
Average deposits(in billions of dollars) | $ | 267.7 | $ | 297.8 | (10 | ) | |||||
Accounts(in millions) | 77.0 | 80.1 | (4 | ) | |||||||
Branches | 7,310 | 8,160 | (10 | ) | |||||||
NM Not meaningful
1Q09 vs. 1Q08
Consumer Banking revenue declined 18% driven by a 42% decline in investment sales, lower volumes and spread compression. A general slowdown in the global capital markets drove the decline in investment sales.Net interest revenue was 14% lower than the prior year with average loans and deposits both down 10%, and net interest margin decreasing as well.Non-interest revenue declined 27%, primarily due to the decline in investment sales. The impact of FX translation also contributed to the overall decline in revenue.
InNorth America, revenues declined 12% primarily due to lower volumes and spread compression.Net Interest Revenue was 7% lower than the prior-year period, primarily driven by lower loan volumes and spread compression due largely to higher non-accrual loans and lower interest rates on loan modifications. Average loans were down 8% while deposits increased by 4% compared with the prior-year period. The decrease in loan volume was mainly due to a reduction in residential real estate loans.Non-Interest Revenue declined 24%, mainly driven by higher run-off of the servicing portfolio due to mortgage refinancing, a 47% decline in investment sales, and the absence of gains on the sale of assets in the prior-year period. Revenues inEMEA declined 28% as investment sales and assets under management declined 64% and 49%, respectively, mainly due to adverse market conditions. Average loans were down 21% due to tighter underwriting criteria, the exiting from certain markets, and the impact of FX translation. Average deposits were down 35%, reflecting a decline in balances in the UK as customers aligned deposits with government insurance programs and the impact of FX translation. Revenue inLatin America declined 22% and average loans and deposits were down 7% and 19%, respectively, due to the impact of FX translation. InAsia, revenues declined 28% driven by a significant decline in investment revenues, reflecting a continued decline in equity markets across the region. Average loans and deposits declined 19% and 15%, respectively, mainly due to the impact of FX translation.
Operating expenses declined 18%, reflecting the benefits from re-engineering efforts and the impact of FX translation. The prior-year period also included a $221 million expense benefit related to a legal vehicle restructuring in Mexico.
In North America, Expenses were 14% lower than the prior-year period, with benefits from re-engineering efforts and the absence of a $126 million repositioning charge in the prior-year period being partially offset by higher collection and credit-related expenses. InEMEA, expenses were 40% lower than the prior-year period due to benefits of re-engineering efforts, the impact of FX translation and the absence of a $71 million repositioning charge in the prior-year period. InLatin America, expenses were 5% higher due to the absence of a $221 million expense benefit related to a legal vehicle restructuring, partially offset by the benefits of reengineering efforts and the impact of FX translation. InAsia, expenses were 26% lower than the prior-year period due to the benefits of re-engineering efforts including Consumer Finance Japan (CFJ).
Provisions for credit losses and for benefits and claims increased $1.6 billion or 43% mainly due to higher net credit losses inNorth America residential real estate. The $1.2 billion net loan loss reserve build in the first quarter reflected the continued weakening of leading credit indicators, including a continued rise in delinquencies.
Credit costs inNorth America increased 51%, due to higher net credit losses, up 88% or $1.4 billion, and a $989 million net loan loss reserve build, driven primarily by residential real estate. The loan loss reserve build was $44 million lower than the prior-year period. Credit costs reflected a continued weakening of leading credit indicators, including a continued rise in delinquencies in first and second mortgages, personal, and commercial loans. Credit costs also reflected trends in the macro-economic environment, including the housing market downturn. The net credit loss ratio increased 213 basis points to 4.15%.
InEMEA, credit costs nearly doubled as a result of higher net credit losses and an incremental net loan loss reserve build of $100 million. Higher credit costs reflected continued credit deterioration, particularly in Spain, Greece and the UK. The net credit loss ratio increased 256 basis points to 5.11%. InLatin America, credit costs increased 15% due to a $20 million incremental net loan loss reserve build. The net credit loss ratio increased 32 basis points to 4.10%. InAsia, credit costs were down slightly as higher net credit losses, mainly in India, were offset by a net loan loss reserve release in CFJ.
INSTITUTIONAL CLIENTS GROUP (ICG)
| | First Quarter | | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||
| In millions of dollars | 2009 | 2008 | ||||||||
Net interest revenue | $ | 5,348 | $ | 4,303 | 24 | % | ||||
Non-interest revenue | 4,159 | (9,261 | ) | NM | ||||||
Revenues, net of interest expense | $ | 9,507 | $ | (4,958 | ) | NM | ||||
Operating expenses | 3,965 | 5,970 | (34 | )% | ||||||
Provision for credit losses and for benefits and claims | 1,889 | 297 | NM | |||||||
Income (loss) before taxes and noncontrolling interests | $ | 3,653 | $ | (11,225 | ) | NM | ||||
Income taxes (benefits) | 841 | (4,832 | ) | NM | ||||||
Net loss attributable to noncontrolling interests | (21 | ) | (36 | ) | 42 | % | ||||
Net income (loss) | $ | 2,833 | $ | (6,357 | ) | NM | ||||
Average assets(in billions of dollars) | $ | 1,062 | $ | 1,440 | (26 | )% | ||||
Revenues, net of interest expense, by region: | ||||||||||
North America | $ | 2,095 | $ | (7,824 | ) | NM | ||||
EMEA | 4,597 | 133 | NM | |||||||
Latin America | 1,129 | 1,012 | 12 | % | ||||||
Asia | 1,686 | 1,721 | (2 | ) | ||||||
Total revenues | $ | 9,507 | $ | (4,958 | ) | NM | ||||
Net income (loss) by region: | ||||||||||
North America | $ | (135 | ) | $ | (5,955 | ) | 98 | % | ||
EMEA | 2,019 | (1,142 | ) | NM | ||||||
Latin America | 442 | 382 | 16 | |||||||
Asia | 507 | 358 | 42 | |||||||
Total net income (loss) | $ | 2,833 | $ | (6,357 | ) | NM | ||||
Total net income (loss) by product: | ||||||||||
Securities and Banking | $ | 1,990 | $ | (7,089 | ) | NM | ||||
Transaction Services | 843 | 732 | 15 | % | ||||||
Total net income (loss) | $ | 2,833 | $ | (6,357 | ) | NM | ||||
Securities and Banking | ||||||||||
Revenue details | ||||||||||
Net Investment Banking | $ | 1,219 | $ | (1,667 | ) | NM | ||||
Lending | (364 | ) | 584 | NM | ||||||
Equity markets | 1,903 | 979 | 94 | % | ||||||
Fixed income markets | 4,688 | (7,023 | ) | NM | ||||||
Other Securities and Banking | (261 | ) | (178 | ) | (47 | ) | ||||
Total Securities and Banking Revenues | $ | 7,185 | $ | (7,305 | ) | NM | ||||
Transaction Services | 2,322 | 2,347 | (1 | )% | ||||||
Total revenues | $ | 9,507 | $ | (4,958 | ) | NM | ||||
NM Not meaningful
1Q09 vs. 1Q08
Revenues, net of interest expense, were $7.2 billion in S&B mainly due to $4.7 billion of fixed income markets revenues reflecting strong trading results. Included in fixed income markets revenues is a $2.5 billion positive credit value adjustment (CVA) on derivative positions, excluding monolines and Citi debt liabilities, offset partially by $2.3 billion of net write-downs on subprime-related direct exposures, $1.2 billion in private equity and equity investment losses and $1.1 billion downward CVA related to exposure to monoline insurers and other revenue write-downs and losses detailed under "Items Impacting the Securities and Banking Business." Also included in S&B is $1.9 billion in equity markets revenues, primarily driven by derivatives, convertibles and equity trading, and $1.2 billion of net investment banking revenues mainly from debt underwriting. Revenue growth was offset partially by lending revenues of negative $364 million driven by losses on credit default swap hedges and $247 million of net write-downs and impairments on highly leveraged finance commitments. Transaction Services revenues declined 1% to $2.3 billion and average deposits and other customer liability balances declined 2%. Growth in both revenues and deposits, driven by double-digit revenue growth inNorth America and strong growth inEMEA, was more than offset by the impact of FX translation. Assets under custody declined 20% largely due to declining equity markets.
Operating expenses decreased 39% in S&B and included a $250 million litigation reserve release. The prior-year period included a $202 million write-down of the Old Lane intangible asset and $305 million of repositioning charges. Excluding these items from both periods, expenses declined 25%, driven by lower compensation due to headcount reductions and benefits from re-engineering and expense management. Transaction Services expenses declined 15%, driven by headcount reductions and re-engineering benefits, as well as the impact of FX translation.
Theprovision for credit losses in S&B increased significantly to $1.8 billion. Net credit losses were up $1.4 billion mainly due to the write-off of LyondellBasell. The $306 million net loan loss reserve build was driven by a $1.2 billion build for specific counterparties and a $506 million build to reflect a general weakening in the corporate credit environment, largely offset by a $1.4 billion release for specific counterparties, mainly LyondellBasell.
| | First Quarter | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | ||||||||||
| In millions of dollars | 2009 | 2008 | |||||||||
Net interest revenue | $ | 698 | $ | 570 | 22 | % | |||||
Non-interest revenue | 1,921 | 2,709 | (29 | ) | |||||||
Revenues, net of interest expense | $ | 2,619 | $ | 3,279 | (20 | )% | |||||
Operating expenses | 2,101 | 2,796 | (25 | ) | |||||||
Provision for credit losses and for benefits and claims | 112 | 21 | NM | ||||||||
Income before taxes and noncontrolling interest | $ | 406 | $ | 462 | (12 | )% | |||||
Income taxes | 145 | 159 | (9 | ) | |||||||
Net income attributable to noncontrolling interests | — | 9 | (100 | ) | |||||||
Net income | $ | 261 | $ | 294 | (11 | )% | |||||
Average assets(in billions of dollars) | $ | 93 | $ | 107 | (13 | )% | |||||
Return on assets | 1.30 | % | 2.00 | % | |||||||
Revenues, net of interest expense, by region: | |||||||||||
North America | $ | 1,981 | $ | 2,376 | (17 | )% | |||||
EMEA | 126 | 170 | (26 | ) | |||||||
Latin America | 60 | 100 | (40 | ) | |||||||
Asia | 452 | 633 | (29 | ) | |||||||
Total revenues | $ | 2,619 | $ | 3,279 | (20 | )% | |||||
Net income (loss) by region: | |||||||||||
North America | $ | 244 | $ | 165 | 48 | % | |||||
EMEA | 26 | 26 | — | ||||||||
Latin America | (9 | ) | 26 | NM | |||||||
Asia | — | 77 | (100 | ) | |||||||
Total net income | $ | 261 | $ | 294 | (11 | )% | |||||
Key Indicators(in billions of dollars, except for offices) | |||||||||||
Average loans | $ | 53 | $ | 64 | (17 | )% | |||||
Average deposits and other customer liability balances | $ | 117 | $ | 132 | (11 | ) | |||||
Offices | 777 | 859 | (10 | ) | |||||||
Total client assets | $ | 1,196 | $ | 1,707 | (30 | ) | |||||
Clients assets under fee-based management | $ | 293 | $ | 481 | (39 | ) | |||||
NM Not meaningful
1Q09 vs. 1Q08
Revenues, net of interest expense, decreased 20% primarily due to lower investment management fees and the impact of lower client transactional activity, partially offset by higher banking revenues, driven by the bank deposit program and a higher net interest margin inNorth America. The impact of market conditions on capital markets revenue was the main driver of decreased revenues inAsia. Other drivers of theInternational revenue decline included lower management fees and lower banking revenue.
Total client assets, including assets under fee-based management, decreased $511 billion, or 30%, mainly reflecting the impact of market declines over the past year. Net outflows of $40 billion in the quarter resulted from financial advisor attrition and client diversification. GWMhad 12,659 financial advisors/bankers as of March 31, 2009, compared with 15,241 as of March 31, 2008. The decline in advisors was weighted towards the lower end of the performance scale in North America, consistent with previously announced compensation plans, and also reflected the elimination of low performing bankers and advisors in Asia.
Operating expenses decreased 25% primarily due to lower compensation costs and continued expense management. Lower expenses also reflect the absence of a first quarter 2008 reserve of $250 million related to an offer to facilitate the liquidation of investments in a Citi-managed fund for its clients.
Theprovision for credit losses increased by $91 million, reflecting higher reserve builds of $83 million and increased net credit losses of $8 million. The reserve builds and net credit losses in the 2009 first quarter reflect the impact on clients of deteriorating financial and real estate markets. The reserve builds were mainly inNorth America for statistical builds (primarily related to residential real estate), SFAS 114 impaired loans and lending to address client liquidity needs related to auction rate securities holdings.
| | First Quarter | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Net interest revenue | $ | (665 | ) | $ | (162 | ) | |
Non-interest revenue | 1,161 | 112 | |||||
Revenues, net of interest expense | $ | 496 | $ | (50 | ) | ||
Operating expense | 289 | 105 | |||||
(Loss) from continuing operations before taxes | $ | 207 | $ | (155 | ) | ||
Noncontrolling interests intersegment elimination | 16 | 21 | |||||
Income taxes | 867 | 286 | |||||
Income (loss) from continuing operations | $ | (675 | ) | $ | (462 | ) | |
Income (loss) from discontinued operations, net of taxes | (33 | ) | 115 | ||||
Net Income (loss) before attribution of noncontrolling interests | $ | (708 | ) | $ | (347 | ) | |
Net Income (loss) attributable to noncontrolling interests | (16 | ) | (21 | ) | |||
Citigroup's Net income (loss) | $ | (692 | ) | $ | (326 | ) | |
1Q09 vs. 1Q08
Revenues, net of interest expense, increased primarily driven by hedging activities and the impact of changes in U.S. dollar rates.
Operating Expenses increased primarily due to the $171 million amortization of the cost of the loss-sharing agreement with the USG.
Income Tax reflects higher taxes held at Corporate.
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the previous segment discussions.
NORTH AMERICA
| | First Quarter | | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||
| In millions of dollars | 2009 | 2008 | ||||||||
Net interest revenue | $ | 7,840 | $ | 6,691 | 17 | % | ||||
Non-interest revenue | 2,966 | (4,311 | ) | NM | ||||||
Total Revenues, net of interest expense | $ | 10,806 | $ | 2,380 | NM | |||||
Total operating expenses | 6,343 | 8,277 | (23 | )% | ||||||
Provisions for credit losses and for benefits and claims | 7,205 | 3,889 | 85 | |||||||
Loss before taxes and noncontrolling interests | $ | (2,742 | ) | $ | (9,786 | ) | 72 | % | ||
Income benefits | (1,382 | ) | (4,165 | ) | 67 | |||||
Net loss attributable to noncontrolling interests | (15 | ) | (35 | ) | 57 | |||||
Net loss | $ | (1,345 | ) | $ | (5,586 | ) | 76 | % | ||
Average assets(in billions of dollars) | $ | 1,021 | $ | 1,289 | (21 | )% | ||||
Return on assets | (0.53 | )% | (1.74 | )% | ||||||
Key Drivers(in billions of dollars, except branches) | ||||||||||
Average Loans | $ | 422.5 | $ | 442.3 | (4 | )% | ||||
Average Consumer Banking Loans | $ | 283.3 | $ | 307.2 | (8 | ) | ||||
Average deposits (and other consumer liability balances) | $ | 281.4 | $ | 263.7 | 7 | |||||
Branches/offices | 3,955 | 4,251 | (7 | ) | ||||||
NM Not meaningful
1Q09 vs. 1Q08
Revenues, net of interest expense, increased $8.4 billion driven by significant fixed income market revenues inS&B, which reflected strong trading results and lower net write-downs. Included in fixed income market revenues is a positive credit value adjustment (CVA) on derivative positions, excluding monolines and Citi liabilities, offset partially by net write-downs on subprime-related direct exposures, private equity and equity investment losses, and a downward CVA related to exposure to monoline insurers and other revenue write-downs and losses detailed under "Items Impacting the Securities and Banking Business."
InGlobal Cards, a 17% revenue decline was mainly driven by lower securitization revenues, which reflected the impact of higher credit losses in the securitization trusts and the absence of a $349 million pretax gain on the sale of Visa shares. Purchase sales were 18% lower than the prior year reflecting a confined decline in discretionary and non-discretionary consumer spending.
InConsumer Banking, revenues declined 12% primarily due to lower volumes and spread compression.Net Interest Revenue was 7% lower than the prior-year period, primarily driven by lower loan volumes and spread compression due largely to higher non-accrual loans and lower interest rates on loan modifications. Average loans were down 8% while deposits increased by 4% compared with the prior-year period. The decrease in loan volume was mainly due to a reduction in residential real estate loans.Non-Interest Revenue declined 24%, mainly driven by higher run-off of the servicing portfolio due to mortgage refinancing, a 47% decline in investment sales, and the absence of gains on the sale of assets in the prior-year period.
InGWM, revenues decreased 17% primarily due to lower investment management fees and the impact of lower client transactional activity, partially offset by higher banking revenues, driven by the bank deposit program and a higher net interest margin.
Operating expenses decreased 23%, primarily due to lower marketing costs, lower business volumes, restructuring efforts and prior-year repositioning charges, which were partially offset by higher credit management costs, the absence of a prior-year pretax Visa-related litigation reserve release and legal vehicle restructuring. Offsetting the decreases were higher collection and credit-related expenses.
Provisions for loan losses and for benefits and claims increased 85%.Consumer Banking credit costs increased 51% mainly due to a $1.4 billion increase in net credit losses.Global Cards credit costs increased 91%, due to an increase of $498 million in net credit losses and an increase in reserve builds of $342 million.ICG increased $1.0 billion, mainly due to $1.1 billion increase in net credit losses.
EMEA
| | First Quarter | | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||
| In millions of dollars | 2009 | 2008 | ||||||||
Net interest revenue | $ | 2,031 | $ | 2,104 | (3 | )% | ||||
Non-interest revenue | 3,690 | (516 | ) | NM | ||||||
Total Revenues, net of interest expense | $ | 5,721 | $ | 1,588 | NM | |||||
Total operating expenses | 1,936 | 3,072 | (37 | )% | ||||||
Provisions for credit losses and for benefits and claims | 1,227 | 456 | NM | |||||||
Income (loss) before taxes and noncontrolling interests | $ | 2,558 | $ | (1,940 | ) | NM | ||||
Income taxes (benefits) | 755 | (802 | ) | NM | ||||||
Net income attributable to noncontrolling interests | 1 | 21 | (95 | )% | ||||||
Net income (loss) | $ | 1,802 | $ | (1,159 | ) | NM | ||||
Average assets(in billions of dollars) | $ | 286 | $ | 432 | (34 | )% | ||||
Return on assets | 2.56 | % | (1.08 | )% | ||||||
Key Drivers(in billions of dollars, except branches) | ||||||||||
Average Loans | $ | 91.5 | $ | 123.2 | (26 | )% | ||||
Average Consumer Banking Loans | $ | 19.9 | $ | 25.1 | (21 | ) | ||||
Average deposits (and other consumer liability balances) | $ | 135.4 | $ | 163.0 | (17 | ) | ||||
Branches/offices | 730 | 842 | (13 | ) | ||||||
NM Not meaningful
1Q09 vs. 1Q08
Revenues increased to $5.7 billion largely driven by S&B. Revenues inGlobal Cards andConsumer Banking decreased by 16% and 28% respectively, driven by continued deterioration in the market environment and the negative impact of FX translation.
InICG, S&B had record revenues, based on significant contributions across all products, and in particular Rates & Currencies which benefited from high volatility and wide-spreads. The first quarter of 2008 included write-downs in subprime-related losses of $1.4 billion and $0.6 billion in commercial real estate and highly leveraged finance commitments. The current quarter included $0.6 billion of CVA on derivatives, which is now reported within the region. Transaction Services revenues decreased 3% largely due to a decline in customer liability balances, down 8%, and headwinds from FX translation and interest rates.
Revenues inGWM declined by 26% due to lower capital markets and investment activity, FX translation impact and reduction in loan balances and customer deposits. Average loans declined 30% due to client pay-downs and active asset management, while client assets under fee-based management decreased 40% primarily due to lower market values and FX translation impact.
Operating Expenses were down 37% from the first quarter of 2008 driven by lower headcount and continued benefits from re-engineering efforts, the favorable impact of FX translation, lower incentive compensation and repositioning charges.
Provisions for credit losses and for benefits and claimsincreased by $771 million from the first quarter of 2008 due to ongoing deterioration in market conditions, predominantly in the UK, Spain and Greece, and losses associated with loan sales in ICG.
LATIN AMERICA
| | Third Quarter | | Nine Months | | First Quarter | | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | % Change | ||||||||||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | 2009 | 2008 | |||||||||||||||||||||||
Net interest revenue | $ | 2,061 | $ | 1,933 | 7 | % | $ | 6,245 | $ | 5,212 | 20 | % | $ | 1,597 | $ | 2,015 | (21 | )% | |||||||||||
Non-interest revenue | 1,017 | 2,061 | (51 | ) | 4,213 | 4,714 | (11 | ) | 2,360 | 1921 | 23 | ||||||||||||||||||
Total Revenues, net of interest expense | $ | 3,078 | $ | 3,994 | (23 | )% | $ | 10,458 | $ | 9,926 | 5 | % | $ | 3,957 | $ | 3,936 | 1 | % | |||||||||||
Total operating expenses | 1,849 | 1,830 | 1 | 5,158 | 4,962 | 4 | 1,345 | 1,487 | (10 | ) | |||||||||||||||||||
Provisions for credit losses and for benefits and claims | $ | 968 | $ | 640 | 51 | $ | 2,534 | $ | 1,307 | 94 | 887 | 781 | 14 | ||||||||||||||||
Income before taxes and minority interest | $ | 261 | $ | 1,524 | (83 | )% | $ | 2,766 | $ | 3,657 | (24 | )% | |||||||||||||||||
Income before taxes and noncontrolling interests | $ | 1,725 | $ | 1,668 | 3 | % | |||||||||||||||||||||||
Income taxes | (20 | ) | 439 | NM | 630 | 999 | (37 | ) | 541 | 472 | 15 | ||||||||||||||||||
Minority interest, net of tax | 1 | 1 | — | 3 | 2 | 50 | |||||||||||||||||||||||
Net income attributable to noncontrolling interests | 1 | 1 | — | ||||||||||||||||||||||||||
Net income | $ | 280 | $ | 1,084 | (74 | )% | $ | 2,133 | $ | 2,656 | (20 | )% | $ | 1,183 | $ | 1,195 | (1 | )% | |||||||||||
Average assets(in billions of dollars) | $ | 156 | $ | 150 | 4 | % | $ | 156 | $ | 141 | 11 | % | $ | 130 | $ | 153 | (15 | )% | |||||||||||
Return on assets | 0.71 | % | 2.87 | % | 1.83 | % | 2.52 | % | 3.69 | % | 3.14 | % | |||||||||||||||||
Key Drivers(in billions of dollars, except branches) | |||||||||||||||||||||||||||||
Average Loans | $ | 61.0 | $ | 58.5 | 4 | % | $ | 49.9 | $ | 60.3 | (17 | )% | |||||||||||||||||
Average Consumer Banking Loans | 16.0 | 13.9 | 15 | 13.6 | 14.6 | (7 | ) | ||||||||||||||||||||||
Average deposits (and other consumer liability balances) | $ | 67.9 | $ | 66.0 | 3 | % | $ | 56.2 | $ | 70.4 | (20 | ) | |||||||||||||||||
Branches/offices | 2,598 | 2,664 | (2 | ) | 2,450 | 2,645 | (7 | ) | |||||||||||||||||||||
3Q081Q09 vs. 3Q071Q08
Total RevenueRevenues was 23% lower thanincreased 1% over the prior year, due towith strong trading results and one-time gains mostly offset by the absenceimpact of of $729 million fromFX translation across the Redecardregion and unfavorable market conditions during the quarter.Global Cards revenue grew 10%, driven by the $1.1 billion gain on the sale recorded last year in the Global Cards business. Consumer Banking revenues declined 5% largely resulting from the Chile business divestitureof Redecard shares in the first quarter of 2008,2009, offset partially offset by growth in depositsthe prior-year $663 million gain on sale of 5% andRedecard shares.Consumer Banking revenue decreased 22% driven by a 7% decline in average loans, of 15%.a 19% decline in average deposits, and lower investment sales and assets under management.S&BICG revenue increased 12%, mostly due to S&B revenues decreased 43%,being 17% higher, driven by adverse market conditions impactingstronger fixed income trading results, offset partially by declines in investment banking and lending. Transaction Services revenues were up 1% with stronger trade services performance due to higher spreads mostly offset by weakness in the FX, interest ratessecurities and equities businesses.funds services business.Transaction ServicesGWM revenues grew 25%, due to steady growthrevenue fell 40% driven by decreases in the Direct Custody business, as average customer deposits increased 11%,investments, capital markets, and due tobanking businesses reflecting the impact of the Cuscatlan acquisition. GWM revenues were flat due to increased market volatility.conditions.
Operating expenseexpenses increased slightly overdecreased 10% from the prior year, up 1%,prior-year quarter mainly because of $95 milliondue to re-engineering efforts which resulted in repositioning charges. Excluding these charges, expenses declined 4%, with declinessignificant savings in legal costs, advertising and marketing, and incentive compensation,addition to the benefit from FX translation, partially offset by a $282 million benefit related to a legal vehicle restructuring in Mexico in the prior year.
Provisions for loan losses and for benefits and claimsincreased 14% mainly due to increases in ICGand Consumer Banking.
ASIA
| | First Quarter | | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | |||||||||
| In millions of dollars | 2009 | 2008 | ||||||||
Net interest revenue (NIR) | $ | 2,095 | $ | 2,419 | (13 | )% | ||||
Non-interest revenue | 1,714 | 2,168 | (21 | ) | ||||||
Total Revenues, net of interest expense | $ | 3,809 | $ | 4,587 | (17 | )% | ||||
Total operating expenses | 2,174 | 2,834 | (23 | ) | ||||||
Provisions for credit losses and for benefits and claims | 989 | 727 | 36 | % | ||||||
Income before taxes and noncontrolling interests | $ | 646 | $ | 1,026 | (37 | )% | ||||
Income taxes | 4 | 269 | (99 | ) | ||||||
Net loss attributable to noncontrolling interests | (3 | ) | (8 | ) | 63 | % | ||||
Net income | $ | 645 | $ | 765 | (16 | )% | ||||
Average assets(in billions of dollars) | $ | 301 | $ | 364 | (17 | )% | ||||
Return on assets | 0.87 | % | 0.85 | % | ||||||
Consumer Finance Japan (CFJ)—NIR | $ | 162 | $ | 264 | (39 | )% | ||||
Asia excluding CFJ—NIR | $ | 1,933 | $ | 2,155 | (10 | ) | ||||
CFJ—Operating Expenses | $ | 59 | $ | 95 | (38 | )% | ||||
Asia excluding CFJ—Operating Expenses | $ | 2,115 | $ | 2,739 | (23 | )% | ||||
CFJ—Provision for loan losses and for benefits and claims | $ | 264 | $ | 317 | (17 | )% | ||||
Asia excluding CFJ—provision for loan losses and for benefits and claims | $ | 725 | $ | 410 | 77 | |||||
CFJ—Net loss | $ | (36 | ) | $ | (86 | ) | 58 | % | ||
Asia excluding CFJ—Net Income | $ | 681 | $ | 851 | (20 | ) | ||||
Key Drivers(in billions of dollars, except branches) | ||||||||||
Average Loans | $ | 107.5 | $ | 135.5 | (21 | )% | ||||
Average Consumer Banking Loans | $ | 41.8 | $ | 51.9 | (19 | ) | ||||
Average deposits (and other consumer liability balances) | $ | 189.7 | $ | 215.7 | (12 | ) | ||||
Branches/offices | 952 | 1,281 | (26 | )% | ||||||
1Q09 vs. 1Q08
Revenues, net of interest expense, decreased 17%.Global Cards revenue decreased 19% as continued growth in core revenue was more than offset by the impact of FX translation and the absence of an increase$81 million gain on Visa shares in Cardsthe prior-year period.Consumer Banking revenues, excluding Consumer Finance Japan (CFJ), decreased by 25%, driven by the impact of FX translation, lower investment revenue due to market disruption, and lower deposit spreads as interest rates declined across the region. S&B revenues increased 6%, driven by strong results from rates and currencies trading which was partially offset by write-downs of $657 million on Private Equity and Equity Investments. Transaction Services revenue decreased 13%, mostly driven by reduced Securities Funds Services revenue, due to decline in global stock markets. GWM revenue declined by 29%, due to the global decline in stock markets, and de-leveraging by our customers.
Operating Expenses decreased 23% reflecting benefits of re-engineering efforts and the impact of fx translation.FX translation, and the absence of repositioning charges in the prior-year period.
Provisions for credit losses and for benefits and claims increased $328 million or 51% as the credit environment worsened, particularly in Mexico and Brazil. Net credit losses grew 82% primarily due to portfolio growth and deteriorating portfolio quality in Cards and Consumer Banking.
2008 YTD vs. 2007 YTD
Total Revenue was 5% higher than the prior year, with a growth of 15% in average loans, and 17% in total customer deposits.Transaction Services revenues increased 35%, mainly from the custody business as average deposits grew rapidly in the third quarter of 2007 and have remained at those levels. [Global Cards grew 16% on higher volumes; the first nine months of 2008 include a $663 million Redecard gain on sale, while the first nine months of 2007 included a $729 million Redecard gain on sale.] Revenue gains were partially offset by an 18% decrease inS&B revenues due to write-downs and losses related to fixed income and equities.
Operating expense growth of 4% was36% primarily driven by acquisitions and volume growth, higher collection costs, legal costs and reserves, and repositioning charges, partially offset by a $282$152 million benefit related to a legal vehicle repositioning in Mexico in the first quarter of 2008. Certain poorly performing branches were closed, mainly in Brazil and Mexico, partially offset by openings in Mexico, due to repositioning and realignment in both Retail and Consumer Finance.
Provisions for credit losses and for benefits and claims increased 94% as the credit environment worsened, primarily reflecting a $953 million increase in net credit losses and an increase inincremental loan loss reserve builds, reflecting a legacy portfolio sale in 2007, asset deterioration, and volume growth.
build related to ASIAGlobal Cards
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Net interest revenue (NIR) | $ | 2,514 | $ | 2,162 | 16 | % | $ | 7,417 | $ | 6,185 | 20 | % | ||||||||
Non-interest revenue | 1,954 | 2,657 | (26 | ) | 6,233 | 7,245 | (14 | ) | ||||||||||||
Total Revenues, net of interest expense | $ | 4,468 | $ | 4,819 | (7 | )% | $ | 13,650 | $ | 13,430 | 2 | % | ||||||||
Total operating expenses | 2,612 | 2,928 | (11 | ) | 8,234 | 7,302 | 13 | |||||||||||||
Provisions for credit losses and for benefits and claims | $ | 1,032 | $ | 832 | 24 | % | $ | 2,540 | $ | 1,883 | 35 | % | ||||||||
Income before taxes and minority interest | $ | 824 | $ | 1,059 | (22 | )% | $ | 2,876 | $ | 4,245 | (32 | )% | ||||||||
Income taxes | 127 | 249 | (49 | ) | 650 | 1,079 | (40 | ) | ||||||||||||
Minority interest, net of tax | 2 | — | — | (6 | ) | 34 | NM | |||||||||||||
Net income | $ | 695 | $ | 810 | (14 | )% | $ | 2,232 | $ | 3,132 | (29 | )% | ||||||||
Average assets | ||||||||||||||||||||
(in billions of dollars) | $ | 337 | $ | 375 | (10 | )% | $ | 352 | $ | 307 | 15 | % | ||||||||
Return on assets | 0.82 | % | 0.86 | % | 0.85 | % | 1.36 | % | ||||||||||||
Consumer Finance Japan (CFJ)—NIR | $ | 224 | $ | 263 | (15 | )% | $ | 661 | $ | 1,022 | (35 | )% | ||||||||
Asia excluding CFJ—NIR | $ | 2,290 | $ | 1,899 | 21 | $ | 6,756 | $ | 5,163 | 31 | % | |||||||||
CFJ—Operating Expenses | $ | 84 | $ | 251 | (67 | )% | $ | 280 | $ | 479 | (42 | )% | ||||||||
Asia excluding CFJ—Operating Expenses | $ | 2,528 | $ | 2,677 | (6 | )% | $ | 7,954 | $ | 6,823 | 17 | % | ||||||||
CFJ—Net Income | $ | (159 | ) | (298 | ) | 47 | % | $ | (399 | ) | $ | (336 | ) | (19 | )% | |||||
Asia excluding CFJ—Net Income | $ | 854 | 1,108 | (23 | ) | $ | 2,631 | $ | 3,468 | (24 | )% | |||||||||
Key Drivers | ||||||||||||||||||||
(in billions of dollars, except branches) | ||||||||||||||||||||
Average Loans | $ | 128.1 | $ | 129.4 | (1 | )% | ||||||||||||||
Average Consumer Banking Loans | $ | 49.9 | $ | 46.4 | 8 | |||||||||||||||
Average deposits (and other consumer liability balances) | $ | 204.5 | $ | 197.4 | 4 | |||||||||||||||
Branches/offices | 1,203 | 1,261 | (5 | )% | ||||||||||||||||
3Q08 vs. 3Q07,
Net Interest RevenueConsumer Banking increased 16%. Global Cards Revenue growth of 11% was driven by 14% growthand S&B, in purchase sales and 17% growth in average loans. Consumer Banking excluding Consumer Finance Japan (CFJ) grew by 4%, driven by 8% growth in average loans and 4% growth in deposits.Transaction Services exhibited strong Revenue growth across all products resulting in 19% growth.S&B grew $226 million, reflecting improved spreads.
Non-Interest Revenue decreased 26%, asS&B continuedaddition to be impacted by market volatility and declining valuations. Outside ofS&B, non-interest revenue increased in Global Cards andTransaction Services, partially offset by lower Investment Sales in Consumer Banking and GWM.
Operating Expenses decreased 11% reflecting a lower level of incentive compensation, the benefits of reengineering, and the absence of a prior-year restructuring charge, partly offset by the current year repositioning charge.
Provisions for credit losses and for benefits and claims increased 24% driven by a $372 million pretax charge to increase loan loss reserves and by higher credit costs which were due to a combination of portfolio growth and some deterioration in the macroeconomic environment, including India.
Asia Excluding CFJ
As disclosed in the table above, NIR excluding CFJ, increased 21%net interest revenue decreased 10%. Driven by a 19% decline in average loans and 31%a 15% decline in deposits, which was mainly due to the 2008 third quarter and year-to-date periods, respectively.impact of FX translation.Operating Expensesexpenses excluding CFJ decreased 6% in the third quarter while it increased 17% in the year-to-date period,23% and Netnet income excluding CFJ decreased 23% and 24%, respectively.
2008 YTD vs. 2007 YTD
Net Interest Revenue increased 20%. Global Cards growth of 19% was driven by 20% growth in purchase sales and 24% growth in average loans. Consumer Banking excluding CFJ grew by 15%, driven by growth of 14% in average loans and 9% growth in deposits.Transaction Services exhibited strong growth across all products resulting in 28% growth.S&B grew $738 million reflecting better spreads in the quarter, and higher dividend revenue. Growth was also impacted by foreign exchange, acquisitions and portfolio purchases.
Non-Interest Revenue decreased 14% asS&B continued to be impacted by market volatility and declining valuations. Outside ofS&B, non-interest revenue increased 17% with strong growth in Global Cards,Transaction Services and GWM, partially offset by lower Investment Sales in Consumer Banking and GWM. Results included a $31 million gain on the sale of DCI, partially offset by a $21 million gain on the sale of MasterCard shares in the prior-year period.
Operating Expense increased 13% primarily driven by the impact of acquisitions, strengthening local currencies and repositioning charges, partly offset by benefits of reengineering.
Provisions for credit losses and for benefits and claims increased 35% primarily driven by a $267 million incremental pretax charge to increase loan loss reserves, increased credit costs in India, acquisitions and portfolio growth.
TARP AND OTHER REGULATORY PROGRAMS
Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP
On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual, cumulative preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury (UST) as part of the UST's Troubled Asset Relief Program (TARP) Capital Purchase Program. All of the proceeds were treated as Tier 1 Capital for regulatory capital purposes.
The preferred stock has an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years and 9% thereafter. Dividends are cumulative and payable quarterly in cash. As previously disclosed, Citi will continue to pay full dividends on the preferred stock up to and including the closing of the public exchange offers, at which point the dividends will be suspended.
Of the $25 billion in cash proceeds, $23.7 billion was allocated to preferred stock and $1.3 billion to the warrant on a relative fair value basis. The discount on the preferred stock will be accreted and recognized as a preferred dividend (reduction ofRetained earnings) over a period of five years. The warrant has a term of ten years, an exercise price of $17.85 per share and is exercisable for approximately 210.1 million shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009. The value ascribed to the warrant was recorded in Citigroup's stockholders' equity and resulted in an increase inAdditional paid-in capital.
Additional Issuance of $20 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP
On December 31, 2008, Citigroup raised an additional $20 billion through the sale of non-voting perpetual, cumulative preferred stock and a warrant to purchase common stock to the UST as part of TARP. All of the proceeds were treated as Tier 1 Capital for regulatory capital purposes.
The preferred stock has an aggregate liquidation preference of $20 billion and an annual dividend rate of 8%. Dividends are cumulative and payable quarterly in cash. Of the $20 billion in cash proceeds, $19.5 billion was allocated to preferred stock and $0.5 billion to the warrant on a relative fair value basis. The discount on the preferred stock will not be accreted and will only be recognized as a preferred dividend (reduction ofRetained earnings) at the time of redemption. The warrant has a term of 10 years, an exercise price of $10.61 per share and is exercisable for approximately 188.5 million common shares. The value ascribed to the warrant was recorded in Citigroup's stockholders' equity and resulted in an increase inAdditional paid-in capital.
The issuance of the warrants in October and December 2008, as well as other common stock issuances, resulted in a conversion price reset of the $12.5 billion of 7% convertible preferred stock sold in a private offering in January 2008. See "Events in 2009," "Capital Resources" and Note 13 for a further discussion. As previously disclosed, Citi will continue to pay full dividends on the preferred stock up to and including the closing of the public exchange offers, at which point the dividends will be suspended.
For both the October 2008 and December 2008 issuances under TARP, the proceeds were allocated between the preferred stock and warrants on a relative fair value basis. The fair value for the preferred stock was calculated using a discounted cash flow approach. The cash flows were based on the stated dividend rate on the preferred stock. The discount rate was selected from the range of observable yield to maturities based on the secondary trading prices for similar instruments issued by Citigroup. The fair value for the warrants was calculated using the Black-Scholes option pricing model. The valuation was based on the Citigroup stock price, stock volatility, dividend yield, and the risk free rate on the measurement date for both the issuances.
FDIC's Temporary Liquidity Guarantee Program
Under the terms of the FDIC's Temporary Liquidity Guarantee Program (TLGP), the FDIC will guarantee, until the earlier of either its maturity or June 30, 2012 (for qualifying debt issued before April 1, 2009) or December 31, 2012 (for qualifying debt issued on or after April 1, 2009 through October 31, 2009), certain qualifying senior unsecured debt issued by certain Citigroup entities between October 31, 2008 and October 31, 2009 in amounts up to 125% of the qualifying debt for each qualifying entity. The FDIC charges Citigroup a fee ranging from 50 to 150 basis points in accordance with a prescribed fee schedule for any qualifying debt issued with the FDIC guarantee.
As to any entity participating in the TLGP, the TLGP regulations grant discretion to the FDIC, after consultation with the participating entity's appropriate Federal banking agency, to determine that the entity will no longer be permitted to continue to participate in the TLGP. If the FDIC makes that determination, it will inform the entity that it will no longer be provided the protections of the TLGP. Such a determination will not affect the guarantee of prior debt issuances under the TLGP.
As of March 31, 2009, Citigroup and its affiliates had issued $27.6 billion of long-term debt that is covered under the FDIC guarantee ($5.75 billion of which was issued by Citigroup in December 2008), with $6.35 billion maturing in 2010, $6.25 billion maturing in 2011 and $15.0 billion maturing in 2012. During the second quarter of 2009, Citigroup affiliates have issued an additional $7.0 billion of long-term debt under this program.
In addition, Citigroup, through its subsidiaries, also had $29.9 billion in commercial paper and interbank deposits backed by the FDIC outstanding as of March 31, 2009. The FDIC also charges a fee ranging from 50 to 150 basis points in connection with the issuance of those instruments.
FDIC Increased Deposit Insurance
On October 4, 2008, as a part of TARP, the FDIC increased the insurance it provides on U.S. deposits in most banks and savings associations located in the United States, including Citibank, N.A., from $100,000 to $250,000 per depositor, per insured bank.
U.S. Government Loss-Sharing Agreement
Background
On January 15, 2009, Citigroup entered into a definitive agreement with the UST, the FDIC and the Federal Reserve Bank of New York (collectively, the USG) on losses arising on a $301 billion portfolio of Citigroup assets (valued as of November 21, 2008, other than with respect to approximately $99 billion in "replacement" assets which are valued as of January 15, 2009). As consideration for the loss-sharing agreement, Citigroup issued non-voting perpetual, cumulative preferred stock to the UST and the FDIC, as well as a warrant to the UST.
The preferred stock issued to the UST and the FDIC has an aggregate liquidation preference of $7.059 billion and an annual dividend rate of 8%. As previously disclosed, Citi will continue to pay full dividends on the preferred stock up to and including the closing of the public exchange offers, at which point the dividends will be suspended.
The warrant has a term of 10 years, an exercise price of $10.61 per share and is exercisable for approximately 66.5 million common shares. Citigroup received no additional cash proceeds for their issuance. Of the issuance, $3.617 billion, representing the total fair value of the issued shares and warrant, is treated as Tier 1 Capital.
The loss-sharing program extends for 10 years for residential assets and five years for non-residential assets. Under the agreement, a "loss" on a portfolio asset is defined to include a charge-off or a realized loss upon collection, through a permitted disposition or exchange, or upon a foreclosure or short-sale loss, but not merely through a change in Citigroup's fair value accounting for the asset or the creation or increase of a related loss reserve. Once a loss is recognized under the agreement, the aggregate amount of qualifying losses across the portfolio in a particular period is netted against the aggregate recoveries and gains across the portfolio, all on a pretax basis. The resulting net loss amount on the portfolio is the basis of the loss-sharing agreement between Citigroup and the USG. Citigroup will bear the first $39.5 billion of such net losses, which amount was determined using (i) an agreed-upon $29 billion of first losses, (ii) Citigroup's then-existing reserve with respect to the portfolio of approximately $9.5 billion, and (iii) an additional $1.0 billion as an agreed-upon amount in exchange for excluding the effects of certain hedge positions from the portfolio. Net losses, if any, on the portfolio after Citigroup's losses exceed the $39.5 billion first-loss amount will be borne 90% by the USG and 10% by Citigroup in the following manner:
As discussed below, the Company recognized approximately $2.9 billion of qualifying losses related to the portfolio (excluding the replacement assets) from November 21, 2008 through March 31, 2009. These losses count towards Citigroup's $39.5 billion first-loss position.
The Federal Reserve Bank of New York will implement its loss-sharing obligations under the agreement by making a loan, after Citigroup's first-loss position and the obligations of the UST and FDIC have been exhausted, in an amount equal to the then aggregate value of the remaining covered asset pool (after reductions for charge-offs, pay-downs and realized losses) as determined in accordance with the agreement. Following the loan, as losses are incurred on the remaining covered asset pool, Citigroup will be required to immediately repay 10% of such losses to the Federal Reserve Bank of New York. The loan is non-recourse to Citigroup, other than with respect to the repayment obligation in the preceding sentence and interest on the loan. The loan is recourse only to the remaining covered asset pool, which is the sole collateral to secure the loan. The loan will bear interest at the overnight index swap rate plus 300 basis points.
The covered asset pool includes U.S.-based exposures and transactions that were originated prior to March 14, 2008. Pursuant to the terms of the agreement, the composition of the covered asset pool, the amount of Citigroup's first-loss position and the premium paid for loss coverage are subject to final confirmation by the USG of, among other things, the qualification of assets under the asset eligibility criteria, expected losses and reserves. See "Events in 2009—Loss-Sharing Agreement."
The USG has a 120-day confirmation period to finalize the composition of the asset pool from the date that Citi submitted its revised asset pool. The revised asset pool was submitted by Citigroup on April 15, 2009 and, therefore, is expected to be finalized by the USG by August 13, 2009. The advisor to the USG has commenced its review of the assets. In addition, as a result of receipt of principal repayments and charge-offs, the total asset pool has declined by approximately $17 billion from the original $301 billion. Approximately $2.0 billion of losses on the asset pool were recorded in the first quarter of 2009, bringing the agreement-to-date losses to approximately $2.9 billion.
The agreement includes guidelines for governance and asset management with respect to the covered asset pool, including reporting requirements and notice and approval rights of the USG at certain thresholds. If covered losses exceed $27 billion, the USG has the right to change the asset manager for the covered asset pool.
Accounting and Regulatory Capital Treatment
Citigroup accounts for the USG loss-sharing agreement as an indemnification agreement pursuant to the guidance in FASB Statement No. 141 (revised 2007),Business Combinations. Citigroup recorded an asset of $3.617 billion (equal to the fair value of the consideration issued to the USG) in Other assets on the Consolidated Balance Sheet. The asset will be amortized as an Other operating expense in the Consolidated Statement of Income on a straight-line basis over the coverage periods of 10 years for residential assets and five years for non-residential assets, based on the relative initial principal amounts of each group. During the quarter ended March 31, 2009, Citigroup recorded $171 million as an Other operating expense.
Under indemnification accounting, recoveries (gains), if any, will be recognized in the Consolidated Statement of Income in the same future periods that cumulative losses recorded under U.S. Generally Accepted Accounting Principles (GAAP) on the covered assets exceed our $39.5 billion first-loss amount. The Company will recognize and
measure an indemnification asset on the same basis that it recognizes losses on the covered assets in the Consolidated Statement of Income. For example, for a covered loan classified as held-for-investment and reported in the balance sheet at amortized cost, the Company would recognize and measure an indemnification asset due from the USG at the same time related loan loss reserves are recorded for that loan equal to 90% of the amount of the loan loss reserve, subject to the first-loss limitation. Under indemnification accounting, recoveries (gains) may be recorded at times when such amounts are not contractually receivable from the USG based on the definition of covered losses in the loss-sharing program; such amounts may or may not thereafter become contractually receivable, depending upon whether or not they become covered "losses" (see above for definition of covered "loss"). Indemnification accounting matches the amount and timing of the recording of recoveries with the amount and timing of the recognition of losses based on the U.S. GAAP accounting for the covered assets, as opposed to the amount and timing of recognition as defined in the loss-sharing agreement. The indemnification asset amount recorded will be adjusted, as appropriate, to take into consideration additional revenue and expense amounts related to the covered assets specifically defined as recoverable or non-recoverable in the loss sharing program. As of March 31, 2009, the Company has recognized cumulative U.S. GAAP losses on the covered assets that are substantially below our first-loss amount and, therefore, no additional indemnification asset has been recognized at this time.
The covered assets are risk-weighted at 20% for purposes of calculating the Tier 1 Capital ratio at March 31, 2009.
The following table summarizes the assets that were part of the covered asset pool agreed to between Citigroup and the USG as of January 16, 2009, with their values as of November 21, 2008 (except as set forth in the note to the table below and as described above), and the balances as of March 31, 2009, reflecting changes in the balances of assets that remained qualified, plus approximately $10 billion of new replacement assets that Citi substituted for non-qualifying assets. The asset pool, as revised, remains subject to the USG's final confirmation process, anticipated to occur by August 13, 2009. See "Events in 2009—Loss-Sharing Agreement":
Assets
| In billions of dollars | March 31, 2009 | November 21, 2008(1)(2) | ||||||
|---|---|---|---|---|---|---|---|---|
Loans: | ||||||||
First mortgages | $ | 91.6 | $ | 98.0 | ||||
Second mortgages | 54.5 | 55.4 | ||||||
Retail auto loans | 14.2 | 16.2 | ||||||
Other consumer loans | 19.2 | 19.7 | ||||||
Total consumer loans | $ | 179.5 | $ | 189.3 | ||||
CRE loans | $ | 12.0 | $ | 12.0 | ||||
Highly leveraged finance loans | 1.9 | 2.0 | ||||||
Other corporate loans | 14.0 | 14.0 | ||||||
Total corporate loans | $ | 27.9 | $ | 28.0 | ||||
Securities: | ||||||||
Alt-A | $ | 10.9 | $ | 11.4 | ||||
SIVs | 6.1 | 6.1 | ||||||
CRE | 1.4 | 1.4 | ||||||
Other | 10.0 | 11.2 | ||||||
Total securities | $ | 28.4 | $ | 30.1 | ||||
Unfunded Lending Commitments (ULC) | ||||||||
Second mortgages | $ | 20.7 | $ | 22.4 | ||||
Other consumer loans | 2.9 | 3.6 | ||||||
Highly leveraged finance | 0.1 | 0.1 | ||||||
CRE | 4.5 | 5.5 | ||||||
Other commitments | 20.2 | 22.0 | ||||||
Total ULC | $ | 48.4 | $ | 53.6 | ||||
Total covered assets | $ | 284.2 | $ | 301.0 | ||||
Exchange Offer
On February 27, 2009, the Company announced an exchange offer of its common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 per share. On May 7, 2009, as a result of the USG's Supervisory Capital Assessment Program (SCAP), the Company announced that it will expand the Exchange Offer by increasing the maximum amount of preferred securities and trust preferred securities that it will accept in the Exchange Offer by $5.5 billion to a total of $33 billion. The USG will match the exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. See "Events in 2009—Exchange Offer and Conversions" and "—The Supervisory Capital Assessment Program (SCAP)."
Implementation and Management of TARP Programs
After Citigroup received the TARP capital, it established a Special TARP Committee composed of senior executives to approve, monitor and track how the funds are utilized. The TARP securities purchase agreements stipulate that Citi will adhere to the following objectives as a condition of the UST's capital investment:
The Committee has established specific guidelines, which are consistent with the objectives and spirit of the program. Pursuant to these guidelines, Citi will use TARP capital only for those purposes expressly approved by the Committee. TARP capital will not be used for compensation and bonuses, dividend payments, lobbying or government relations activities, or any activities related to marketing, advertising and corporate sponsorship. TARP capital will be used exclusively to support assets and not for expenses.
Committee approval is the final stage in a four-step review process to evaluate proposals from Citi businesses for the use of TARP capital, considering the risk, the potential financial impact and returns.
On February 3, 2009, Citi published a report summarizing its TARP spending initiatives for the 2008 fourth quarter and made this report available at www.citigroup.com. The report indicated that the Committee had authorized $36.5 billion in initiatives backed by TARP capital. Subsequently, an additional $8.25 billion of spending initiatives has been approved, bringing the total approved spending to $44.8 billion. As of March 31, 2009, the Company has deployed approximately $8.2 billion of funds under the approved initiatives.
Separately from the Company's initiatives under TARP, the report also describes Citigroup's other efforts to help U.S. homeowners remain in their homes, assist distressed borrowers and support U.S consumers and businesses.
Citi will update this TARP report each quarter following its quarterly earnings announcement and will make the report publicly available. In addition, Citi is committed to meeting all reporting requirements associated with TARP.
Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions for each business and region, as well as cross-business product expertise. The Citigroup risk management policies and practices areframework is described in Citigroup's 20072008 Annual Report on Form 10-K.
DETAILS OF CREDIT LOSS EXPERIENCE
| In millions of dollars | In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr.(1) 2008 | 1st Qtr.(1) 2008 | 4th Qtr.(1) 2007 | 3rd Qtr.(1) 2007 | In millions of dollars | 1st Qtr. 2009 | 4th Qtr 2008 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 1st Qtr. 2008 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | Allowance for loan losses at beginning of period | $ | 20,777 | $ | 18,257 | $ | 16,117 | $ | 12,728 | $ | 10,381 | Allowance for loan losses at beginning of period | $ | 29,616 | $ | 24,005 | $ | 20,777 | $ | 18,257 | $ | 16,117 | |||||||||||||
Provision for loan losses | Provision for loan losses | Provision for loan losses | |||||||||||||||||||||||||||||||||
Consumer(2) | $ | 7,855 | $ | 6,259 | $ | 5,332 | $ | 6,438 | $ | 4,427 | Consumer(1) | $ | 8,127 | $ | 8,836 | $ | 7,855 | $ | 6,259 | $ | 5,332 | ||||||||||||||
Corporate | 1,088 | 724 | 245 | 882 | 154 | Corporate | 1,788 | 3,335 | 1,088 | 724 | 245 | ||||||||||||||||||||||||
| �� | |||||||||||||||||||||||||||||||||||
| $ | 8,943 | $ | 6,983 | $ | 5,577 | $ | 7,320 | $ | 4,581 | $ | 9,915 | $ | 12,171 | $ | 8,943 | $ | 6,983 | $ | 5,577 | ||||||||||||||||
Gross credit losses | Gross credit losses | Gross credit losses | |||||||||||||||||||||||||||||||||
Consumer | |||||||||||||||||||||||||||||||||||
Consumer(1) | Consumer(1) | ||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 3,069 | $ | 2,599 | $ | 2,325 | $ | 1,895 | $ | 1,364 | In U.S. offices | $ | 4,159 | $ | 3,687 | $ | 3,069 | $ | 2,599 | $ | 2,325 | ||||||||||||||
In offices outside the U.S. | 1,914 | 1,798 | 1,637 | 1,415 | 1,434 | In offices outside the U.S. | 1,936 | 1,818 | 1,914 | 1,798 | 1,637 | ||||||||||||||||||||||||
Corporate | Corporate | Corporate | |||||||||||||||||||||||||||||||||
In U.S. offices | 160 | 346 | 40 | 596 | 20 | In U.S. offices | 1,140 | 287 | 160 | 185 | 40 | ||||||||||||||||||||||||
In offices outside the U.S. | 200 | 36 | 97 | 169 | 74 | In offices outside the U.S. | 424 | 756 | 200 | 197 | 97 | ||||||||||||||||||||||||
| $ | 5,343 | $ | 4,779 | $ | 4,099 | $ | 4,075 | $ | 2,892 | $ | 7,659 | $ | 6,548 | $ | 5,343 | $ | 4,779 | $ | 4,099 | ||||||||||||||||
Credit recoveries | Credit recoveries | Credit recoveries | |||||||||||||||||||||||||||||||||
Consumer | Consumer | Consumer | |||||||||||||||||||||||||||||||||
In U.S. offices | $ | 137 | $ | 148 | $ | 172 | $ | 162 | $ | 160 | In U.S. offices | $ | 135 | $ | 132 | $ | 137 | $ | 148 | $ | 172 | ||||||||||||||
In offices outside the U.S. | 252 | 286 | 253 | 254 | 219 | In offices outside the U.S. | 213 | 219 | 252 | 286 | 253 | ||||||||||||||||||||||||
Corporate | Corporate | Corporate | |||||||||||||||||||||||||||||||||
In U.S. offices | 3 | 24 | 3 | 15 | 1 | In U.S. offices | 1 | 2 | 3 | 2 | 3 | ||||||||||||||||||||||||
In offices outside the U.S. | 31 | 1 | 33 | 55 | 59 | In offices outside the U.S. | 28 | 52 | 31 | 23 | 33 | ||||||||||||||||||||||||
| $ | 423 | $ | 459 | $ | 461 | $ | 486 | $ | 439 | $ | 377 | $ | 405 | $ | 423 | $ | 459 | $ | 461 | ||||||||||||||||
Net credit losses | Net credit losses | Net credit losses | |||||||||||||||||||||||||||||||||
In U.S. offices | $ | 3,089 | $ | 2,773 | $ | 2,190 | $ | 2,314 | $ | 1,223 | In U.S. offices | $ | 5,163 | $ | 3,840 | $ | 3,089 | $ | 2,634 | $ | 2,190 | ||||||||||||||
In offices outside the U.S. | 1,831 | 1,547 | 1,448 | 1,275 | 1,230 | In offices outside the U.S. | $ | 2,119 | $ | 2,303 | 1,831 | 1,686 | 1,448 | ||||||||||||||||||||||
Total | Total | $ | 4,920 | $ | 4,320 | $ | 3,638 | $ | 3,589 | $ | 2,453 | Total | 7,282 | 6,143 | $ | 4,920 | $ | 4,320 | $ | 3,638 | |||||||||||||||
Other—net | Other—net | $ | (795 | ) | $ | (143 | ) | $ | 201 | $ | (342 | ) | $ | 219 | Other—net | $ | (546 | ) | $ | (417 | ) | $ | (795 | ) | $ | (143 | ) | $ | 201 | ||||||
Allowance for loan losses at end of period | Allowance for loan losses at end of period | $ | 24,005 | $ | 20,777 | $ | 18,257 | $ | 16,117 | $ | 12,728 | Allowance for loan losses at end of period | 31,703 | 29,616 | $ | 24,005 | $ | 20,777 | $ | 18,257 | |||||||||||||||
Allowance for unfunded lending commitments(8) | $ | 957 | $ | 1,107 | $ | 1,250 | $ | 1,250 | $ | 1,150 | |||||||||||||||||||||||||
Allowance for loan losses as a % of total loans | Allowance for loan losses as a % of total loans | 4.82 | % | 4.27 | % | 3.35 | % | 2.78 | % | 2.31 | % | ||||||||||||||||||||||||
Allowance for unfunded lending commitments(7) | Allowance for unfunded lending commitments(7) | $ | 947 | $ | 887 | $ | 957 | $ | 1,107 | $ | 1,250 | ||||||||||||||||||||||||
Total allowance for loan losses and unfunded lending commitments | Total allowance for loan losses and unfunded lending commitments | $ | 24,962 | $ | 21,884 | $ | 19,507 | $ | 17,367 | $ | 13,878 | Total allowance for loan losses and unfunded lending commitments | $ | 32,650 | $ | 30,503 | $ | 24,962 | $ | 21,884 | $ | 19,507 | |||||||||||||
Allowance for loan losses as % of loans | Allowance for loan losses as % of loans | ||||||||||||||||||||||||||||||||||
Net consumer credit losses | Net consumer credit losses | $ | 4,594 | $ | 3,963 | $ | 3,537 | $ | 2,894 | $ | 2,419 | Net consumer credit losses | $ | 5,747 | $ | 5,154 | $ | 4,594 | $ | 3,963 | $ | 3,537 | |||||||||||||
As a percentage of average consumer loans | As a percentage of average consumer loans | 3.35 | % | 2.83 | % | 2.52 | % | 2.07 | % | 1.82 | % | As a percentage of average consumer loans | 4.64 | % | 3.93 | % | 3.35 | % | 2.83 | % | 2.52 | % | |||||||||||||
Net corporate credit losses (recoveries) | $ | 326 | $ | 357 | $ | 101 | $ | 695 | $ | 34 | |||||||||||||||||||||||||
Net corporate credit losses/(recoveries) | Net corporate credit losses/(recoveries) | $ | 1,535 | $ | 989 | $ | 326 | $ | 357 | $ | 101 | ||||||||||||||||||||||||
As a percentage of average corporate loans | As a percentage of average corporate loans | 0.19 | % | 0.19 | % | 0.05 | % | 0.34 | % | 0.02 | % | As a percentage of average corporate loans | 0.92 | % | 0.56 | % | 0.19 | % | 0.19 | % | 0.05 | % | |||||||||||||
NON-PERFORMING ASSETS (NON-ACCRUAL LOANS, OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS)
The table below summarizes the Company's non-accrual loans. These are loans in which the borrower has fallen behind in interest payments, or for corporate loans where the Company has determined that the payment of interest or principal is doubtful, and are now considered impaired. In situations where the Company reasonably expects that only a portion of the principal and interest owed will ultimately be collected, all payments received are reflected as a reduction of principal and not as interest income.
| In millions of dollars | 1st Qtr. 2009 | 4th Qtr 2008 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 1st Qtr. 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate non-accrual loans(1) | ||||||||||||||||
North America | $ | 3,305 | $ | 2,415 | $ | 715 | $ | 469 | $ | 443 | ||||||
EMEA | 6,503 | 6,375 | 1,433 | 1,602 | 1,276 | |||||||||||
Latin America | 322 | 238 | 133 | 81 | 74 | |||||||||||
Asia | 679 | 541 | 385 | 124 | 241 | |||||||||||
| $ | 10,809 | $ | 9,569 | $ | 2,666 | $ | 2,276 | $ | 2,034 | |||||||
Consumer non-accrual loans(1)(2) | ||||||||||||||||
North America | $ | 12,185 | $ | 9,876 | $ | 8,149 | $ | 6,471 | $ | 5,724 | ||||||
EMEA | 1,085 | 886 | 801 | 815 | 663 | |||||||||||
Latin America | 1,321 | 1,284 | 1,339 | 1,436 | 1,291 | |||||||||||
Asia | 711 | 682 | 588 | 628 | 623 | |||||||||||
| $ | 15,302 | $ | 12,728 | $ | 10,877 | $ | 9,350 | $ | 8,301 | |||||||
The table below summarizes the Company's other real estate owned (OREO) assets. This represents the carrying value of all property acquired by foreclosure or other legal proceedings when the Company has taken possession of the collateral.
| | 1st Qtr. 2009 | 4th Qtr 2008 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 1st Qtr. 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate OREO | ||||||||||||||||
North America | $ | 180 | $ | 246 | $ | 371 | $ | 453 | $ | 484 | ||||||
EMEA | 15 | 23 | 15 | 17 | 13 | |||||||||||
Latin America | 10 | 14 | 16 | 19 | 48 | |||||||||||
Asia | 69 | 53 | — | — | — | |||||||||||
| $ | 274 | $ | 336 | $ | 402 | $ | 489 | $ | 545 | |||||||
Consumer OREO | ||||||||||||||||
North America | $ | 846 | $ | 1,013 | $ | 1,112 | $ | 1,028 | $ | 856 | ||||||
EMEA | 65 | 67 | 68 | 70 | 71 | |||||||||||
Latin America | 15 | 15 | 19 | 20 | 77 | |||||||||||
Asia | 2 | 2 | 1 | 3 | 4 | |||||||||||
| $ | 928 | $ | 1,097 | $ | 1,200 | $ | 1,121 | $ | 1,008 | |||||||
Other repossessed assets(3) | $ | 78 | $ | 78 | $ | 81 | $ | 94 | $ | 107 | ||||||
There is no industry-wide definition of non-performing assets. As such, analysis against the industry is not always comparable. The table below represents the Company's view of non-performing assets. As a general rule, unsecured consumer loans are charged off at 120 days past due and credit card loans are charged off at 180 days contractually past due. Consumer loans secured with non-real-estate collateral are written down to the estimated value of the collateral, less costs to sell, at 120 days past due. Consumer real-estate secured loans are written down to the estimated value of the property, less costs to sell, when they are 180 days contractually past due. Impaired corporate loans and leases are written down to the extent that principal is judged to be uncollectible.
| Non-performing assets | 1st Qtr. 2009 | 4th Qtr 2008 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 1st Qtr. 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate non-accrual loans | $ | 10,809 | $ | 9,569 | $ | 2,666 | $ | 2,276 | $ | 2,034 | |||||||
Consumer non-accrual loans | 15,302 | 12,728 | 10,877 | 9,350 | 8,301 | ||||||||||||
Non-accrual loans (NAL) | $ | 26,111 | $ | 22,297 | $ | 13,543 | $ | 11,626 | $ | 10,335 | |||||||
OREO | $ | 1,202 | $ | 1,433 | $ | 1,602 | $ | 1,610 | $ | 1,553 | |||||||
Other repossessed assets | 78 | 78 | 81 | 94 | 107 | ||||||||||||
Non-performing assets (NPA) | $ | 27,391 | $ | 23,808 | $ | 15,226 | $ | 13,330 | $ | 11,995 | |||||||
NAL as a % of total loans | 3.97 | % | 3.21 | % | 1.89 | % | 1.56 | % | 1.31 | % | |||||||
NPA as a % of total assets | 1.50 | % | 1.23 | % | 0.74 | % | 0.63 | % | 0.55 | % | |||||||
Allowance for loan losses as a % of NAL(1) | 121 | % | 133 | % | 177 | % | 179 | % | 177 | % | |||||||
Consumer Loan Balances, Net of Unearned Income
| | End of Period | Average | End of Period | Average | ||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Sept. 30, 2008 | Jun. 30,(1) 2008 | Sept. 30,(1) 2007 | 3rd Qtr. 2008 | 2nd Qtr.(1) 2008 | 3rd Qtr.(1) 2007 | Mar. 31, 2009 | Dec. 31,(1) 2008 | Mar. 31,(1) 2008 | 1st Qtr. 2009 | 4th Qtr.(1) 2008 | 1st Qtr.(1) 2008 | ||||||||||||||||||||||||||
On-balance sheet(2) | $ | 539.0 | $ | 550.1 | $ | 537.0 | $ | 544.6 | $ | 563.9 | $ | 527.5 | $ | 488.9 | $ | 515.7 | $ | 561.6 | $ | 502.2 | $ | 521.0 | $ | 564.6 | ||||||||||||||
Securitized receivables (all inNorth America Cards) | 107.9 | 111.0 | 104.0 | 108.8 | 107.4 | 101.1 | ||||||||||||||||||||||||||||||||
Securitized receivables (all inU.S. Cards) | 106.0 | 105.9 | 109.5 | 102.6 | 105.6 | 105.8 | ||||||||||||||||||||||||||||||||
Credit card receivables held-for-sale(3) | — | — | 3.0 | — | 1.0 | 3.0 | — | — | 0.9 | — | — | 1.0 | ||||||||||||||||||||||||||
Total managed(4) | $ | 646.9 | $ | 661.1 | $ | 644.0 | $ | 653.4 | $ | 672.3 | $ | 631.6 | $ | 594.9 | $ | 621.6 | $ | 672.0 | $ | 604.8 | $ | 626.6 | $ | 671.4 | ||||||||||||||
Citigroup's total allowanceAllowance for loans, leases and unfunded lending commitments of $25.0$32.650 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for loan losses attributed to the Consumer portfolio was $19.1$24.281 billion at September 30, 2008, $16.5March 31, 2009, $22.366 billion at June 30,December 31, 2008 and $9.2$14.368 billion at September 30, 2007.March 31, 2008. The increase in the allowanceAllowance for loan losses from September 30, 2007March 31, 2008 of $9.9$9.913 billion included net builds of $10.9$11.619 billion.
The builds consisted of $10.8$11.287 billion inGlobal Cards andConsumer Banking($8.88.514 billion inNorth America and $2.0$2.773 billion in regions outside ofNorth AmericaAmerica)) and $131$332 million in GWM.Global Wealth Management.
The build of $8.8$8.514 billion inNorth America Consumer primarily reflectsreflected an increase in the estimate of losses embedded in the portfolio as a result ofacross all portfolios based on weakening leading credit indicators, including increased delinquencies on first and second mortgages, unsecured personal loans, credit cards and auto loans. Also, theThe build also reflected trends in the U.S. macro-economicmacroeconomic environment, including the housing market downturn, rising unemployment rates and portfolio growth. The build of $2.0$2.773 billion in regions outside ofNorth America Consumer primarily reflects portfolio growth and the impact of recent acquisitions andreflected credit deterioration in certain countries.Mexico, the U.K., Spain, Greece, and India.
On-balance-sheet consumer loans of $539.0$488.9 billion increased $2.0decreased $72.7 billion, or 13%, from September 30, 2007,March 31, 2008, primarily driven by increasesa decrease in all Global Cards and GWM regions, partially offset by decreasesresidential real estate lending inConsumer Banking. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors,Banking North America as well as macroeconomicthe impact of FX translation acrossGlobal Cards, Consumer Banking and regulatory policies.GWM.
EXPOSURE TO U.S. REAL ESTATESIGNIFICANT EXPOSURES IN SECURITIES AND BANKING
U.S. Subprime-Related Direct Exposure in Securities and Banking
The following table summarizes Citigroup's U.S. subprime-related direct exposures in Securities and Banking (S&B) at September 30, 2008March 31, 2009 and June 30,December 31, 2008:
| In billions of dollars | June 30, 2008 exposures | Third quarter 2008 write-downs(1) | Third quarter 2008 sales/transfers(2) | September 30, 2008 exposures | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Direct ABS CDO Super Senior Exposures: | ||||||||||||||
| Gross ABS CDO Super Senior Exposures (A) | $ | 27.9 | $ | 25.7 | ||||||||||
| Hedged Exposures (B) | 9.8 | 9.4 | ||||||||||||
| Net ABS CDO Super Senior Exposures: | ||||||||||||||
| ABCP/CDO(3) | $ | 14.4 | $ | (0.8 | ) | $ | (0.3 | ) | $ | 13.3 | ||||
| High grade | 2.0 | 0.2 | (4) | (1.1 | ) | 1.1 | ||||||||
| Mezzanine | 1.6 | 0.3 | (4) | (0.2 | ) | 1.7 | ||||||||
| ABS CDO-squared | 0.2 | 0.0 | (0.0 | ) | 0.1 | |||||||||
| Total Net Direct ABS CDO Super Senior Exposures (A-B)=(C) | $ | 18.1 | $ | (0.3 | ) | $ | (1.5 | )(5) | $ | 16.3 | ||||
| Lending & Structuring Exposures: | ||||||||||||||
| CDO warehousing/unsold tranches of ABS CDOs | $ | 0.1 | $ | (0.0 | ) | $ | (0.0 | ) | $ | 0.1 | ||||
| Subprime loans purchased for sale or securitization | 2.8 | (0.3 | ) | (0.4 | ) | 2.1 | ||||||||
| Financing transactions secured by subprime | 1.5 | (0.2 | )(4) | (0.2 | ) | 1.1 | ||||||||
| Total Lending and Structuring Exposures (D) | $ | 4.3 | $ | (0.5 | ) | $ | (0.6 | ) | $ | 3.3 | ||||
| Total Net Exposures C+D(6) | $ | 22.5 | $ | (0.8 | ) | $ | (2.1 | ) | $ | 19.6 | ||||
| Credit Adjustment on Hedged Counterparty Exposures (E)(7) | $ | (0.9 | ) | |||||||||||
| Total Net Write-Downs (C+D+E) | $ | (1.7 | ) | |||||||||||
| In billions of dollars | December 31, 2008 exposures | First Quarter 2009 write-downs(1) | First Quarter 2009 sales/transfers(2) | March 31, 2009 exposures | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct ABS CDO super senior exposures: | ||||||||||||||
Gross ABS CDO super senior exposures (A) | $ | 18.9 | $ | 15.2 | ||||||||||
Hedged exposures (B) | 6.9 | 6.6 | ||||||||||||
Net ABS CDO super senior exposures: | ||||||||||||||
ABCP/CDO(3) | 9.9 | $ | (2.0 | ) | $ | (0.4 | ) | 7.6 | ||||||
High grade | 0.8 | (0.1 | ) | 0.0 | 0.6 | |||||||||
Mezzanine | 1.3 | (0.2 | )(4) | (0.8 | ) | 0.3 | ||||||||
Total net ABS CDO super senior exposures (A-B=C) | $ | 12.0 | $ | (2.3 | ) | $ | (1.2 | )(5) | $ | 8.5 | ||||
Lending and structuring exposures: | ||||||||||||||
CDO warehousing/unsold tranches of ABS CDOs | $ | 0.1 | $ | 0.0 | $ | 0.0 | $ | 0.0 | ||||||
Subprime loans purchased for sale or securitization | 1.3 | (0.1 | ) | (0.1 | ) | 1.1 | ||||||||
Financing transactions secured by subprime | 0.7 | 0.0 | (4) | (0.1 | ) | 0.5 | ||||||||
Total lending and structuring exposures (D) | $ | 2.0 | $ | (0.1 | ) | $ | (0.3 | ) | $ | 1.7 | ||||
Total net exposures C+D(6) | $ | 14.1 | $ | (2.4 | ) | $ | (1.4 | ) | $ | 10.2 | ||||
Credit adjustment on hedged counterparty exposures (E)(7) | $ | (1.1 | ) | |||||||||||
Total net write-downs (C+D+E) | $ | (3.5 | ) | |||||||||||
Note: Table may not foot or cross-foot due to roundings.
Subprime-Related Direct Exposure in Securities and Banking
The Company had approximately $19.6$10.2 billion in net U.S. subprime-related direct exposures in itsS&B business at September 30, 2008.March 31, 2009.
The exposure consisted of (a) approximately $16.3$8.5 billion of net exposures in the super senior tranches (i.e., the most senior tranches) of collateralized debt obligationsCDOs, which are collateralized by asset-backed securities, derivatives on asset-backed securities, or both (ABS CDOs), and (b) approximately $3.3$1.7 billion of exposures in its lending and structuring business.
Direct ABS CDO Super Senior Exposures
The net $16.3$8.5 billion in ABS CDO super senior exposures as of September 30, 2008March 31, 2009 is collateralized primarily by subprime residential mortgage-backed securities (RMBS), derivatives on RMBS, or both. These exposures include $13.3$7.6 billion in commercial paper (ABCP) issued as the super senior tranches of ABS CDOs initially issued as commercial paper (ABCP) and approximately $3.0 billion$900 million of other super senior tranches of ABS CDOs.
Citigroup's CDO super senior subprime direct exposures are Level 3 assets. The valuation of the high-grade and mezzanine ABS CDO positions uses trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. Unlike the ABCP- and CDO-squared positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are, by necessity, trader priced. This results in closer symmetry in the way these long and short positions are valued by the Company. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.
The valuation of the ABCP- and CDO-squared positions are subject to valuation based on significant unobservable inputs. Fair value of these exposures (other than high grade and mezzanine as described below) is based on estimates of future cash flows from the mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios, the Company estimates the prepayments, defaults and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates, and borrower and loan attributes, such as age, credit scores, documentation status, loan-to-value (LTV) ratios and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each ABCPABCP- and CDO-squared tranche, in order to estimate its fair value under current fair value.market conditions.
When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the quarter along with discount rates that are based upon a
weighted average combination of implied spreads from single namesingle-name ABS bond prices and ABX indices, as well as CLO spreads.
As was the case in the second quarter of 2008, the third quarterspreads under current market conditions. The housing-price changes were estimated using a forward-looking projection. However, for the third quarter of 2008, this projection, incorporateswhich incorporated the Loan Performance Index, whereas in the second quarter of 2008, it incorporated the S&P Case Shiller Index. This change was made because the Loan Performance Index provided more comprehensive geographic data. In addition, the Company's mortgage default model has been updated foralso uses recent mortgage performance data, from the first half of 2008, a period of sharp home price declines and high levels of mortgage foreclosures.
The valuation as of September 30, 2008March 31, 2009, assumes a cumulative decline in U.S. housing prices from peak to trough of 32%33%. This rate assumes declines of 16%9.3% and 10%3.9% in 20082009 and 2009,2010, respectively, the remainder of the 32%33% decline having already occurred before the end of 2007. The valuation methodology as of June 30, 2008 assumed a cumulative decline in U.S. housing prices from peak to trough of 23%, with assumed declines of 12% and 3% in 2008 and 2009, respectively.2008.
In addition, during the second and third quarters of 2008, the discount rates were based on a weighted average combination of the implied spreads from single namesingle-name ABS bond prices, ABX indices and CLO spreads, depending on vintage and asset types. To determine the discount margin, the Company applies the mortgage default model to the bonds underlying the ABX indiciesindices and other referenced cash bonds and solves for the discount margin that produces the current market prices of those instruments. Using this methodology, the impact of the decrease of the home price appreciation projection from -23% to -32% resulted in a decrease in the discount margins incorporated in the valuation model. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30th carrying amount of the positions liquidated.
For the third quarter of 2008, the valuation of the high-grade and mezzanine ABS CDO positions was changed from model valuation to trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. Unlike the ABCP and CDO-squared positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are, by necessity, trader priced. Thus, this change brings closer symmetry in the way these long and short positions are valued by the Company. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30, 2008 carrying amount of the positions liquidated. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.
The primary drivers that currently impact the model valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance. In valuing its direct ABCPABCP- and CDO-squared super senior exposures, the Company has made its best estimate of the key inputs that should be used in its valuation methodology. However, the size and nature of these positions as well as current market conditions are such that changes in inputs such as the discount rates used to calculate the present value of the cash flows can have a significant impact on the reported value of these exposures. For instance, each 10 basis point change in the discount rate used generally results in an approximate $48$25 million change in the fair value of the Company's direct ABCPABCP- and CDO-squared super senior exposures as at September 30, 2008.of March 31, 2009. This applies to both decreases in the discount rate (which would decreaseincrease the value of these assets and increasedecrease reported write-downs) and increases in the discount rate (which would decrease the value of these assets and increase reported write-downs).
Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. In addition, while Citigroup believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Further, any observable transactions in respect of some or all of these exposures could be employed in the fair valuation process in accordance with and in the manner called for by SFAS 157.
Lending and Structuring Exposures
The $3.3$1.7 billion of subprime-related exposures includes approximately $0.1 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $2.1$1.1 billion of actively managed subprime loans purchased for resale or securitization at a discount to par during 2007 and approximately $1.1$0.5 billion of financing transactions with customers secured by subprime collateral. These amounts represent the fair value as determined using observable inputs and other market data. The majority of the change from the June 30,December 31, 2008 balances reflects sales, transfers and liquidations.
S&B also has trading positions, both long and short, in U.S. subprime RMBS and related products, including ABS CDOs, which are not included in the figures above. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions.
Direct Exposure to Monolines
In itsS&B business, the Company has exposure to various monoline bond insurers (Monolines) listed in the table below from hedges on certain investments and from trading positions. The hedges are composed of credit default swaps and other hedge instruments. The Company recorded an additional $919 million in credit market value adjustments (CVA) during the third quarter of 2008 on the market value exposures to the Monolines. In addition, the Company recorded releases/utitilizations against the credit market value adjustment of $1.2 billion during the quarter.
The following table summarizes the market value of the Company's direct exposures to and the corresponding notional amounts of transactions with the various Monolines as well as the aggregate credit market value adjustment associated with these exposures as of September 30, 2008 and June 30, 2008 inS&B:
| | September 30, 2008 | | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Net Market Value Exposure June 30, 2008 | |||||||||
| In millions of dollars | Net Market Value Exposure | Notional Amount of Transactions | ||||||||
Direct Subprime ABS CDO Super Senior: | ||||||||||
Ambac | $ | 3,952 | $ | 5,298 | $ | 3,658 | ||||
FGIC | 1,300 | 1,450 | 1,260 | |||||||
ACA | — | — | 519 | |||||||
Subtotal Direct Subprime ABS CDO Super Senior | $ | 5,252 | $ | 6,748 | $ | 5,437 | ||||
Trading Assets—Subprime: | ||||||||||
Ambac | — | — | $ | 1,210 | ||||||
Trading Assets—Subprime | — | — | $ | 1,210 | ||||||
Trading Assets—Non Subprime: | ||||||||||
MBIA | $ | 1,167 | $ | 4,538 | $ | 1,103 | ||||
FSA | 126 | 1,126 | 94 | |||||||
ACA | — | — | 122 | |||||||
Assured | 63 | 488 | 51 | |||||||
Radian | 27 | 150 | 19 | |||||||
Ambac | (83 | ) | 1,043 | 2 | ||||||
Trading Assets—Non Subprime | $ | 1,300 | $ | 7,345 | $ | 1,391 | ||||
Subtotal Trading Assets | $ | 1,300 | $ | 7,345 | $ | 2,601 | ||||
Credit Market Value Adjustment | $ | (4,564 | ) | $ | (4,890 | ) | ||||
Total Net Market Value Direct Exposure | $ | 1,988 | $ | 14,093 | $ | 3,148 | ||||
The market value exposure, net of payable and receivable positions, represents the market value of the contract as of September 30 and June 30, 2008, excluding the credit market value adjustment. The notional amount of the transactions, including both long and short positions, is used as a reference value to calculate payments. The credit market value adjustment is a downward adjustment to the market value exposure to a counterparty to reflect the counterparty's creditworthiness in respect of the obligations in question.
Credit market value adjustments are based on credit spreads and on estimates of the terms and timing of the payment obligations of the Monolines. Timing in turn depends on estimates of the performance of the transactions to which the Company's exposure relates, estimates of whether and when liquidation of such transactions may occur and other factors, each considered in the context of the terms of the monolines' obligations. For a further discussion of the use of estimates by the Company, see the Company's 2007 Annual Report on Form 10-K.
As of September 30, 2008 and June 30, 2008, the Company had $9.4 billion notional amount of hedges against its Direct Subprime ABS CDO super senior positions. Of that $9.4 billion, $6.7 billion was purchased from monolines and is included in the notional amount of transactions in the table above. The market value of the hedges provided by the monolines against our direct subprime ABS CDO super senior positions was $5.3 billion as of September 30, 2008 and $5.4 billion as of June 30, 2008.
In addition, there was $1.3 billion and $2.6 billion of market value exposure to monolines related to our trading assets as of September 30, 2008 and June 30, 2008, respectively. Trading assets include trading positions, both long and short, in U.S. subprime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs. There was $1.2 billion net market value exposure related to subprime trading positions with a notional amount of $1.4 billion as of June 30, 2008, which was settled during the third quarter of 2008. The transaction was settled for a gain relative to the June 30, 2008 net market value exposure, which includes the credit market value adjustment related to this position.
The notional amount of transactions related to the remaining non-subprime trading assets as of September 30, 2008 was $7.3 billion with a corresponding market value exposure of $1.3 billion. The $7.3 billion notional amount of transactions comprised $2.0 billion primarily in interest rate swaps with a corresponding market value exposure of $15 million. The remaining notional amount of $5.2 billion was in the form of credit default swaps and total return swaps with a market value exposure of $1.2 billion.
The notional amount of transactions related to the remaining non-subprime trading assets at June 30, 2008 was $10.0 billion with a net market value exposure of $1.4 billion. The $10.1 billion notional amount of transactions comprised $2.8 billion primarily in interest rate swaps with a market value exposure of $14 million. The remaining notional amount of $7.3 billion was in the form of credit default swaps and total return swaps with a market value of $1.4 billion.
During the third quarter of 2008, the Company recorded an increase in the credit market value adjustment of $919 million. This increase was offset by utilizations/releases of $1.245 billion, resulting in a net decrease to the quarter-end balance of $326 million.
The Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection was approximately $500 million as of September 30, 2008 and approximately $400 million as of June 30, 2008 with nominal pending claims against this notional amount.
In addition, Citigroup has indirect exposure to Monolines in various other parts of its businesses. Indirect exposure includes circumstances in which the Company is not a contractual counterparty to the Monolines, but instead owns securities which may benefit from embedded credit enhancements provided by a Monoline. For example, corporate or municipal bonds in the trading business may be
insured by the Monolines. The previous table does not capture this type of indirect exposure to the Monolines.
Exposure to Commercial Real Estate
The Company, through its business activities and as a capital markets participant, incurs exposures that are directly or indirectly tied to the global commercial real estate market. These exposures are represented primarily by the following three categories:
(1)Assets held at fair value:value include: $5.7 billion, of which approximately $11.1$5.1 billion ofare securities, loans and other items linked to commercial real estate that are carried at fair value as Tradingtrading account assets, approximately $3.7$0.1 billion of commercial real estate loans and loan commitments classified aswhich are held-for-sale, and measured at the lower of cost or market (LOCOM) and approximately $2.1$0.5 billion ofwhich are securities backed by commercial real estate carried at fair value as available-for-sale Investments.investments. Changes in fair value for these Tradingtrading account assets and held-for-sale loans and loan commitments are reported in current earnings, while changes in fair value for these available-for-sale investments are reported in OCI with other-than-temporary impairments reported in current earnings.
The majority of these exposures are classified as Level 3 in the fair valuefair-value hierarchy. In recent months, weakeningWeakening activity in the trading markets for some of these instruments resulted in reduced liquidity, thereby decreasing the observable inputs for such valuations, and could have an adverse impact on how these instruments are valued in the future if such conditions persist.
(2)Assets held at amortized cost include approximately $2.0 billion of securities classified as held-to-maturity and $23.8 billion of loans and commitments. The held-to-maturity securities were classified as such during the fourth quarter of 2008 and were previously classified as either trading or available for sale. They are accounted for at amortized cost, subject to other-than-temporary impairment. Loans and commitments: approximately $19.8 billion of commercial real estate loan exposures, all of whichcommitments are recorded at amortized cost, less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for creditloan losses and in net credit losses.
(3)Equity and other investments: Approximately $5.3investments include approximately $4.6 billion of equity and other investments such as limited partner fund investments which are accounted for under the equity method.
Exposure to Alt-A Mortgage Securities
See "Events in 2008"method, which recognizes gains or losses based on page 8 for a descriptionthe investor's share of incremental write-downs on Alt-A mortgage securities inS&B.the net income of the investee.
Table of ContentsEVALUATING INVESTMENTS FOR OTHER THAN TEMPORARY IMPAIRMENTS
Available-for-Sale Unrealized LossesDirect Exposure to Monolines
In its S&B business, the Company has exposure to various monoline bond insurers (Monolines), listed in the table below, from hedges on certain investments and from trading positions. The hedges are composed of credit default swaps and other hedge instruments. The Company recorded an additional $1.1 billion in downward CVA related to exposure to Monolines during the first quarter of 2009, bringing the total CVA balance to $5.4 billion.
The following table presentssummarizes the amortized cost,market value of the gross unrealized gains and losses,Company's direct exposures to and the corresponding notional amounts of transactions with the various Monolines as well as the aggregate credit valuation adjustment associated with these exposures as of March 31, 2009 and December 31, 2008 in S&B:
| | March 31, 2009 | December 31, 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Fair- value exposure | Notional amount of transactions | Fair- value exposure | Notional amount of transactions | |||||||||
Direct subprime ABS CDO super senior: | |||||||||||||
Ambac | $ | 4,649 | $ | 5,352 | $ | 4,461 | $ | 5,357 | |||||
Subtotal direct subprime ABS CDO super senior | $ | 4,649 | $ | 5,352 | $ | 4,461 | $ | 5,357 | |||||
Trading assets—non-subprime: | |||||||||||||
MBIA | $ | 2,209 | $ | 4,567 | $ | 1,924 | $ | 4,040 | |||||
FSA | 294 | 1,119 | 204 | 1,126 | |||||||||
Assured | 147 | 454 | 141 | 465 | |||||||||
Radian | 39 | 150 | 58 | 150 | |||||||||
Ambac | 19 | 821 | 21 | 1,106 | |||||||||
Subtotal trading assets—non-subprime | $ | 2,708 | $ | 7,111 | $ | 2,348 | $ | 6,887 | |||||
Total gross fair-value direct exposure | $ | 7,357 | $ | 6,809 | |||||||||
Credit valuation adjustment | $ | (5,370 | ) | $ | (4,279 | ) | |||||||
Total net fair-value direct exposure | $ | 1,987 | $ | 2,530 | |||||||||
The fair-value exposure, net of payable and receivable positions, represents the market value of the contract as of March 31, 2009 and December 31, 2008, excluding the CVA. The notional amount of the transactions, including both long and short positions, is used as a reference value to calculate payments. The credit valuation adjustment is a downward adjustment to the fair-value exposure to a counterparty to reflect the counterparty's creditworthiness in respect of the obligations in question.
Credit valuation adjustments are based on credit spreads and on estimates of the terms and timing of the payment obligations of the Monolines. Timing in turn depends on estimates of the performance of the transactions to which the Company's exposure relates, estimates of whether and when liquidation of such transactions may occur and other factors, each considered in the context of the terms of the Monolines' obligations.
As of March 31, 2009 and December 31, 2008, the Company had $6.6 billion and $6.9 billion, respectively, in notional amount of hedges against its direct subprime ABS CDO super senior positions. Of those amounts, $5.4 billion and $5.4 billion, respectively, were purchased from Monolines and are included in the notional amount of transactions in the table above.
With respect to Citi's trading assets, there were $2.7 billion and $2.3 billion of fair-value exposure to Monolines as of March 31, 2009 and December 31, 2008, respectively. Trading assets include trading positions, both long and short in U.S. subprime RMBS and related products, including ABS CDOs.
The notional amount of transactions related to the remaining non-subprime trading assets as of March 31, 2009, was $7.1 billion. The $7.1 billion notional amount of transactions comprised $2.1 billion primarily in interest-rate swaps with a corresponding fair value for available-for-sale securitiesexposure of $10 million. The remaining notional amount of $5.0 billion was in the form of credit default swaps and total return swaps with a fair value exposure of $2.7 billion.
The notional amount of transactions related to the remaining non-subprime trading assets at September 30, 2008:December 31, 2008, was $6.9 billion with a corresponding fair value exposure of $2.3 billion. The $6.9 billion notional amount of transactions comprised $1.8 billion primarily in interest-rate swaps with a fair value exposure of $3.9 million. The remaining notional amount of $5.1 billion was in the form of credit default swaps and total return swaps with a fair value of $2.3 billion.
| | September 30, 2008 | Variance vs. June 30, 2008 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Amortized cost | Gross pretax unrealized gains | Gross pretax unrealized losses | Fair value | Amortized cost | Gross pretax unrealized gains | Gross pretax unrealized losses | Fair value | |||||||||||||||||
Securities available-for-sale | |||||||||||||||||||||||||
Mortgage-backed securities | $ | 56,641 | $ | 48 | $ | 7,878 | $ | 48,811 | $ | (5,305 | ) | $ | 14 | 3,464 | $ | (8,755 | ) | ||||||||
U.S. Treasury and federal agencies | 26,834 | 53 | 138 | 26,749 | (11,624 | ) | 27 | (107 | ) | (11,490 | ) | ||||||||||||||
State and municipal | 14,133 | 8 | 1,762 | 12,379 | 393 | (54 | ) | 1,039 | (700 | ) | |||||||||||||||
Foreign government | 69,542 | 303 | 720 | 69,125 | (2,865 | ) | (16 | ) | (647 | ) | (2,234 | ) | |||||||||||||
U.S. corporate | 12,024 | 26 | 457 | 11,593 | 3,735 | (13 | ) | 268 | 3,454 | ||||||||||||||||
Other debt securities | 14,673 | 47 | 176 | 14,544 | (4,500 | ) | (25 | ) | (110 | ) | (4,415 | ) | |||||||||||||
Total debt securities available-for-sale | $ | 193,847 | $ | 485 | $ | 11,131 | $ | 183,201 | $ | (20,166 | ) | $ | (67 | ) | $ | 3,907 | $ | (24,140 | ) | ||||||
Marketable equity securities available-for-sale | $ | 2,363 | $ | 1,250 | $ | 193 | $ | 3,420 | $ | (86 | ) | $ | (464 | ) | $ | 69 | $ | (619 | ) | ||||||
Total securities available-for-sale | $ | 196,210 | $ | 1,735 | $ | 11,324 | $ | 186,621 | $ | (20,252 | ) | $ | (531 | ) | $ | 3,976 | $ | (24,759 | ) | ||||||
The Company conducts periodic reviewshas purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection was approximately $300 million and $400 million as of March 31, 2009 and December 31, 2008, respectively, with nominal pending claims against this notional amount.
In addition, Citigroup has indirect exposure to identify and evaluate each investment that has an unrealized loss,Monolines in accordance with FASB Staff Position FAS No. 115-1, "The Meaningvarious other parts of Other-Than-Temporary Impairment and Its Applicationits businesses. Indirect exposure includes circumstances in which the Company is not a contractual counterparty to Certain Investments" (FSP FAS 115-1). 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 other comprehensive income (OCI).
Management has determined that the unrealized losses reflectedMonolines, but instead owns securities which may benefit from embedded credit enhancements provided by a Monoline. For example, corporate or municipal bonds in the trading business may be insured by the Monolines. The previous table above are temporary in nature. The Company's process for identifying other-than-temporary impairment is described in more detail in Footnote 10 on page 100.
Mortgage-backed securities
The increase in gross unrealized losses on mortgage-backed securities during the quarter ended September 30, 2008 was primarily related to ongoing wideningdoes not capture this type of market credit spreads on Alt-A and Non-Agency securities. These increased market spreads reflect increased risk/liquidity premiums that buyers securities are currently demanding. As market liquidity for these types of securities has decreased, the primary buyers of these securities typically demand a return on investments that is significally higher than historically experienced.
Consistent with prior periods, the Company has assessed each position for credit impairment. However, given the declines in fair values, and general concerns regarding housing prices, and the delinquency and default rates on the mortgage loans underlying these securities, the Company's analysis to identify securities in which it is not probable that all principal and interest contractually due will be recovered has been enhanced. The extent of the Company's analysis and the stress on assumptions used in the analysis are increased for securities where the current fair value or other characteristics of the security warrant heightened scrutiny regarding the credit quality of the investment.
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 remaining cash flows using a number of assumptions, including default rates, prepayment rates, and recovery rates (on foreclosed properties).
Management develops specific assumptions using as much market data as possible, and includes internal estimates as well as estimates published by rating agencies and other third-party sources. If the models predict, given the forward-looking assumptions, that it is not probable that a mortgage-backed security will recover all principal and interest due, the Company records other-than-temporary impairment in the Consolidated Statement of Income equalindirect exposure to the entire decline in fair value of the mortgage-backed security. During the third quarter of 2008, the Company recorded approximately $600 million of pretax losses in the Consolidated Statement of Income for mortgage-backed securities where management determined it was not probable the Company would be able to collect all principal and interest when due.
Where a mortgage-backed security is not deemed to be credit-impaired, management performs additional analysis to assess whether it has the intent and ability to hold each security for a period of time sufficient for a forecasted recovery of fair value. In most cases, management has assertedMonolines.
Highly Leveraged Financing Transactions
Highly leveraged financing commitments are agreements that it hasprovide funding to a borrower with higher levels of debt (measured by the intent and abilityratio of debt capital to hold investments for the forecasted recovery period, which in some cases may be the security's maturity date. Where such an assertion has not been made, the securities decline in fair value is deemed to be other-than-temporary and recorded in earnings. Management has asserted significant holding periods for mortgage-backed securities that in certain cases now approach the maturityequity capital of the securities. The weighted-average estimated life ofborrower) than is generally the securities is currently approximately 7case for other companies. In recent years for U.S. mortgage-backed securities,through mid-2008, highly leveraged financing had been commonly employed in corporate acquisitions, management buy-outs and approximately 4 years for European mortgage-backed securities. The estimated life of the securities may change depending on future performance of the underlying loans, including prepayment activity and experienced credit losses.
State and Municipal Debt Securitiessimilar transactions.
The increase in gross unrealized losses on state and municipalIn these financings, debt securities during the quarter ended September 30, 2008 was a result of market disruption late in the quarter causing reduced liquidity and an increase in short-term yields. The Company continues to believe that receipt of allservice (that is, principal and interest on these securitiespayments) absorbs a significant portion of the cash flows generated by the borrower's business. Consequently, the risk that the borrower may not be able to meet its debt obligations is probable.greater. Due to this risk, the interest rates and fees charged for this type of financing are generally higher than for other types of financing.
Prior to funding, highly leveraged financing commitments are assessed for impairment in accordance with SFAS 5, and losses are recorded when they are probable and reasonably estimable. For further disclosures regarding available-for-salethe portion of loan commitments that relates to loans that will be held for investment, loss estimates are made based on the borrower's ability to repay the facility according to its contractual terms. For the portion of loan commitments that relates to loans that will be held for sale, loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). Loan origination, commitment, underwriting and other fees are netted against any recorded losses.
Citigroup generally manages the risk associated with highly leveraged financings it has entered into by seeking to sell a majority of its exposures to the market prior to or shortly after funding. In certain cases, all or a portion of a highly leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. Thus, when a highly leveraged financing is funded, Citigroup records the resulting loan as follows:
Due to the dislocation of the credit markets and the reduced market interest in higher-risk/higher-yield instruments since the latter half of 2007, liquidity in the market for highly leveraged financings has been limited. This has resulted in the Company's recording pretax write-downs on funded and unfunded highly leveraged finance exposures of $247 million in the first quarter of 2009 and $4.9 billion in full year 2008.
Citigroup's exposures to highly leveraged financing commitments totaled $9.5 billion at March 31, 2009 ($9.0 billion funded and $0.5 billion in unfunded commitments), reflecting a decrease of $0.5 billion from December 31, 2008.
In 2008, the Company completed the transfer of approximately $12 billion of loans to third parties, of which $8.5 billion relates to highly leveraged loan commitments. In these transactions, the third parties purchased subordinate interests backed by the transferred loans. These subordinate interests absorb first loss on the transferred loans and provide the third parties with control of the loans. The Company retained senior debt securities backed by the transferred loans. These transactions were accounted for as sales of the transferred loans. The loans were removed from the balance sheet and the retained securities are classified as Available-for-sale securities on the Company's Consolidated Balance Sheet.
In addition, the Company purchased protection on the senior debt securities from the third-party subordinate interest holders via total return swaps (TRS). The counterparty credit risk in the TRS is protected through margin agreements that provide for both initial margin and additional margin at specified triggers. Due to the initial cash margin received, the existing margin requirements on the TRS, and the substantive subordinate investments see footnote 10 on 100.made by third parties, the Company believes that the transactions largely mitigate the Company's risk related to the transferred loans. The Company's sole remaining exposure to the transferred loans are the senior debt securities, which have an amortized cost basis of $6.3 billion and fair value of $4.7 billion at March 31, 2009, and the receivables under the TRS, which have a fair value of $1.5 billion at March 31, 2009. The change in the value of the retained senior debt securities that are classified as Available-for-sale securities are recorded in AOCI as they are deemed temporary. The offsetting change in the total return swaps are recorded as cash flow hedges within AOCI. See Note 14 to the Consolidated Financial Statements for additional information.
Presented below are the notional and the mark-to-market receivables and payables for Citigroup's derivative exposures as of March 31, 2009 and December 31, 2008:
Notionals(1)
| | | Trading derivatives(2) | Asset/liability management hedges(3) | | Trading derivatives(2) | Non-trading Derivatives(3) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | In millions of dollars | September 30, 2008 | December 31, 2007 | September 30, 2008 | December 31, 2007 | In millions of dollars | March 31, 2009 | December 31, 2008 | March 31, 2009 | December 31, 2008 | ||||||||||||||||||||
| Interest rate contracts | Interest rate contracts | Interest rate contracts | ||||||||||||||||||||||||||||
| Swaps | $ | 16,581,844 | $ | 16,433,117 | $ | 778,256 | $ | 521,783 | Swaps | $ | 13,903,004 | $ | 15,096,293 | $ | 274,692 | $ | 306,501 | |||||||||||||
| Futures and forwards | 2,953,595 | 1,811,599 | 164,513 | 176,146 | Futures and forwards | 3,262,752 | 2,619,952 | 97,827 | 118,440 | |||||||||||||||||||||
| Written options | 3,417,946 | 3,479,071 | 28,470 | 16,741 | Written options | 2,970,815 | 2,963,280 | 18,038 | 20,255 | |||||||||||||||||||||
| Purchased options | 3,516,775 | 3,639,075 | 83,731 | 167,080 | Purchased options | 3,045,784 | 3,067,443 | 45,244 | 38,344 | |||||||||||||||||||||
| Total interest rate contract notionals | Total interest rate contract notionals | $ | 26,470,160 | $ | 25,362,862 | $ | 1,054,970 | $ | 881,750 | Total interest rate contract notionals | $ | 23,182,355 | $ | 23,746,968 | $ | 435,801 | $ | 483,540 | ||||||||||||
| Foreign exchange contracts | Foreign exchange contracts | Foreign exchange contracts | ||||||||||||||||||||||||||||
| Swaps | $ | 947,800 | $ | 1,062,267 | $ | 64,131 | $ | 75,622 | Swaps | $ | 855,791 | $ | 882,327 | $ | 69,473 | $ | 62,491 | |||||||||||||
| Futures and forwards | 2,760,597 | 2,795,180 | 45,167 | 46,732 | Futures and forwards | 1,853,854 | 2,165,377 | 34,561 | 40,694 | |||||||||||||||||||||
| Written options | 644,152 | 653,535 | 6,509 | 292 | Written options | 435,205 | 483,036 | 9,258 | 3,286 | |||||||||||||||||||||
| Purchased options | 651,239 | 644,744 | 1,038 | 686 | Purchased options | 480,574 | 539,164 | 292 | 676 | |||||||||||||||||||||
| Total foreign exchange contract notionals | Total foreign exchange contract notionals | $ | 5,003,788 | $ | 5,155,726 | $ | 116,845 | $ | 123,332 | Total foreign exchange contract notionals | $ | 3,625,424 | $ | 4,069,904 | $ | 113,584 | $ | 107,147 | ||||||||||||
| Equity contracts | Equity contracts | Equity contracts | ||||||||||||||||||||||||||||
| Swaps | $ | 142,569 | $ | 140,256 | $ | — | $ | — | Swaps | $ | 73,126 | $ | 98,315 | $ | — | $ | — | |||||||||||||
| Futures and forwards | 24,030 | 29,233 | — | — | Futures and forwards | 14,060 | 17,390 | — | — | |||||||||||||||||||||
| Written options | 848,644 | 625,157 | — | — | Written options | 470,176 | 507,327 | — | — | |||||||||||||||||||||
| Purchased options | 806,346 | 567,030 | — | — | Purchased options | 442,612 | 471,532 | — | — | |||||||||||||||||||||
| Total equity contract notionals | Total equity contract notionals | $ | 1,821,589 | $ | 1,361,676 | $ | — | $ | — | Total equity contract notionals | $ | 999,974 | $ | 1,094,564 | $ | — | $ | — | ||||||||||||
| Commodity and other contracts | Commodity and other contracts | Commodity and other contracts | ||||||||||||||||||||||||||||
| Swaps | $ | 44,734 | $ | 29,415 | $ | — | $ | — | Swaps | $ | 22,516 | $ | 44,020 | $ | — | $ | — | |||||||||||||
| Futures and forwards | 100,212 | 66,860 | — | — | Futures and forwards | 72,103 | 60,625 | — | — | |||||||||||||||||||||
| Written options | 32,480 | 27,087 | — | — | Written options | 29,722 | 31,395 | — | — | |||||||||||||||||||||
| Purchased options | 37,076 | 30,168 | — | — | Purchased options | 33,303 | 32,892 | — | — | |||||||||||||||||||||
| Total commodity and other contract notionals | Total commodity and other contract notionals | $ | 214,502 | $ | 153,530 | $ | — | $ | — | Total commodity and other contract notionals | $ | 157,644 | $ | 168,932 | $ | — | $ | — | ||||||||||||
| Credit derivatives(4) | Credit derivatives(4) | Credit derivatives(4) | ||||||||||||||||||||||||||||
| Citigroup as the Guarantor: | Citigroup as the Guarantor: | |||||||||||||||||||||||||||||
| Credit default swaps | $ | 1,575,754 | $ | 1,755,440 | $ | — | $ | — | Credit default swaps | $ | 1,404,588 | $ | 1,441,117 | $ | — | $ | — | |||||||||||||
| Total return swaps | 2,048 | 12,121 | — | — | Total return swaps | 1,203 | 1,905 | — | — | |||||||||||||||||||||
| Credit default options | 581 | 276 | — | — | Credit default options | 340 | 258 | — | — | |||||||||||||||||||||
| Citigroup as the Beneficiary: | Citigroup as the Beneficiary: | — | ||||||||||||||||||||||||||||
| Credit default swaps | $ | 1,672,042 | $ | 1,890,611 | $ | — | $ | — | Credit default swaps | 1,514,613 | 1,560,087 | — | — | |||||||||||||||||
| Total return swaps | 40,257 | 15,895 | — | — | Total return swaps | 22,347 | 29,990 | 6,321 | 8,103 | |||||||||||||||||||||
| Credit default options | 742 | 450 | — | — | Credit default options | 216 | 135 | — | — | |||||||||||||||||||||
| Total credit derivatives | Total credit derivatives | $ | 3,291,424 | $ | 3,674,793 | $ | — | $ | — | Total credit derivatives | $ | 2,943,307 | $ | 3,033,492 | $ | 6,321 | $ | 8,103 | ||||||||||||
| Total derivative notionals | Total derivative notionals | $ | 36,801,463 | $ | 35,708,587 | $ | 1,171,815 | $ | 1,005,082 | Total derivative notionals | $ | 30,908,704 | $ | 32,113,860 | $ | 555,706 | $ | 598,790 | ||||||||||||
See the following page for footnotes
[Table continues on the following page.]
Mark-to-Market (MTM) Receivables/Payables
| | Derivatives receivables—MTM | Derivatives payables—MTM | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | September 30, 2008 | December 31, 2007 | September 30, 2008 | December 31, 2007 | |||||||||||
| Trading Derivatives(2) | |||||||||||||||
| Interest rate contracts | $ | 285,307 | $ | 269,400 | $ | 286,838 | $ | 257,329 | |||||||
| Foreign exchange contracts | 123,328 | 77,942 | 115,397 | 71,991 | |||||||||||
| Equity contracts | 35,487 | 27,934 | 63,889 | 66,916 | |||||||||||
| Commodity and other contracts | 17,310 | 8,540 | 17,444 | 8,887 | |||||||||||
| Credit derivatives: | |||||||||||||||
| Citigroup as the Guarantor | 3,831 | 4,967 | 144,400 | 73,103 | |||||||||||
| Citigroup as the Beneficiary | 162,161 | 78,426 | 4,426 | 11,191 | |||||||||||
| Total | $ | 627,424 | $ | 467,209 | $ | 632,394 | $ | 489,417 | |||||||
| Less: Netting agreements, cash collateral and market value adjustments | (534,516 | ) | (390,328 | ) | (529,033 | ) | (385,876 | ) | |||||||
| Net Receivables/Payables | $ | 92,908 | $ | 76,881 | $ | 103,361 | $ | 103,541 | |||||||
| Asset/Liability Management Hedges(3) | |||||||||||||||
| Interest rate contracts | $ | 4,896 | $ | 8,529 | $ | 3,780 | $ | 7,176 | |||||||
| Foreign exchange contracts | 2,451 | 1,634 | 971 | 972 | |||||||||||
| Total | $ | 7,347 | $ | 10,163 | $ | 4,751 | $ | 8,148 | |||||||
| | Derivatives receivables—MTM | Derivatives payables—MTM | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | March 31, 2009 | December 31, 2008 | March 31, 2009 | December 31, 2008 | |||||||||||
Trading derivatives(2) | |||||||||||||||
Interest rate contracts | $ | 615,052 | $ | 667,597 | $ | 595,184 | $ | 654,178 | |||||||
Foreign exchange contracts | 106,245 | 153,197 | 114,285 | 160,628 | |||||||||||
Equity contracts | 31,061 | 35,717 | 49,126 | 57,292 | |||||||||||
Commodity and other contracts | 26,582 | 23,924 | 24,832 | 22,473 | |||||||||||
Credit derivatives:(4) | |||||||||||||||
Citigroup as the Guarantor | 6,796 | 5,890 | 206,411 | 198,233 | |||||||||||
Citigroup as the Beneficiary | 231,023 | 222,461 | 6,375 | 5,476 | |||||||||||
Cash collateral paid/received | 65,165 | 63,866 | 61,740 | 65,010 | |||||||||||
Total | $ | 1,081,924 | $ | 1,172,652 | $ | 1,057,953 | $ | 1,163,290 | |||||||
Less: Netting agreements and market value adjustments | (986,064 | ) | (1,057,363 | ) | (976,815 | ) | (1,046,505 | ) | |||||||
Net receivables/payables | $ | 95,860 | $ | 115,289 | $ | 81,138 | $ | 116,785 | |||||||
Non-trading derivatives | |||||||||||||||
Interest rate contracts | $ | 10,078 | $ | 14,755 | $ | 5,070 | $ | 7,742 | |||||||
Foreign exchange contracts | 4,853 | 2,408 | 3,609 | 3,746 | |||||||||||
Credit Derivatives | 1,597 | — | — | — | |||||||||||
Total | $ | 16,528 | $ | 17,163 | $ | 8,679 | $ | 11,488 | |||||||
Fair Valuation Adjustments for Derivatives
The marketfair value adjustments applied by the Company to its derivative carrying values consist of the following items:
Counterparty and own credit adjustments considerThe Company's CVA methodology comprises two steps. First, the estimated future cash flows between Citi and its counterparties underexposure profile for each counterparty is determined using the terms of theall individual derivative instrument,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 on the valuation of thosemitigants, including pledged 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 pledgedother collateral and any legal right of offset (to the extent such offset exists)that exists with a counterparty through arrangements such as netting agreements. AllIndividual 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 credit default swap market, are applied to the expected future cash flows determined in step one. 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 as required by SFAS 157. 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 thesethe credit valuevaluation adjustments 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, or, if such adjustments are not realized, upon settlement of the derivative instruments. A narrowing ofHistorically, Citigroup's credit spreads wouldhave moved in tandem with general counterparty credit spreads, thus providing offsetting CVAs affecting revenue. However, in the first quarter of 2009, Citigroup's credit spreads widened and
counterparty credit spreads generally adversely affectnarrowed, each of which positively affected revenues.
The credit valuation adjustment (CVA) to the fair value of derivative instruments as of September 30, 2008 was as follows (in millions of dollars):
| Non-Monoline | | | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Counterparty | Citigroup (Own) | Total | Monoline Counterparty | Total CVA | ||||||||||
| $ | (3,841 | ) | $ | 4,494 | $ | 653 | $ | (4,564 | ) | $ | (3,911 | ) | ||
The pre-taxtable below summarizes pretax gains (losses) related to changes in credit valuation adjustments on derivativesderivative instruments for the specified periods were as follows (in millions of dollars):quarters ended March 31, 2009 and 2008:
| | Non-Monoline | | | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars gain (loss) | Counterparty | Citigroup (Own) | Net | Monoline Counterparty | Net Gain (Loss) | |||||||||||
Three months ended September 30, 2008 | $ | (852 | ) | $ | 1,951 | $ | 1,099 | $ | (919 | ) | $ | 180 | ||||
Nine months ended September 30, 2008 | $ | (2,237 | ) | $ | 3,164 | $ | 927 | $ | (4,838 | ) | $ | (3,911 | ) | |||
| | Credit valuation adjustment gain (loss) | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Non-monoline counterparties | $ | 166 | $ | (1,790 | ) | ||
Citigroup (own) | 2,572 | 1,513 | |||||
Net non-monoline CVA | $ | 2,738 | $ | (277 | ) | ||
Monoline counterparties | (1,091 | ) | (1,491 | ) | |||
Total CVA—derivative instruments | $ | 1,647 | $ | (1,768 | ) | ||
The own-credittable below summarizes the CVA applied to the fair value of derivative instruments as of March 31, 2009 and December 31, 2008.
| | Credit valuation adjustment Contra liability (contra asset) | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | March 31, 2009 | December 31, 2008 | |||||
Non-monoline counterparties | $ | (8,100 | ) | $ | (8,266 | ) | |
Citigroup (own) | 6,183 | 3,611 | |||||
Net non-monoline CVA | $ | (1,917 | ) | $ | (4,655 | ) | |
Monoline counterparties(1) | (5,370 | ) | (4,279 | ) | |||
Total CVA—derivative instruments | $ | (7,287 | ) | $ | (8,934 | ) | |
| �� | |||||||
The credit valuation adjustment amounts shown above relate solely to the derivative portfolio, and do not include:
Credit Derivatives
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 credits.basis. The Company uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions, to take proprietary trading positions, and to facilitate client transactions.
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 are defined by the form of the derivative and the referenced 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 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 following tables summarize the key characteristics of the Company's credit derivative portfolio by activity, counterparty and derivative instrumentform as of September 30, 2008March 31, 2009 and December 31, 2007:2008:
September 30,March 31, 2009:
| | Fair values | Notionals | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | |||||||||
By Activity: | |||||||||||||
Credit portfolio | $ | 2,799 | $ | 28 | $ | 55,057 | $ | — | |||||
Dealer/client | 236,617 | 212,758 | 1,488,440 | 1,406,131 | |||||||||
Total by Activity | $ | 239,416 | $ | 212,786 | $ | 1,543,497 | $ | 1,406,131 | |||||
By Industry/Counterparty: | |||||||||||||
Bank | $ | 131,386 | $ | 127,684 | $ | 965,983 | $ | 919,354 | |||||
Broker-dealer | 60,990 | 57,443 | 380,412 | 345,582 | |||||||||
Monoline | 7,434 | 91 | 9,942 | 139 | |||||||||
Non-financial | 6,029 | 5,435 | 4,123 | 5,327 | |||||||||
Insurance and other financial institutions | 33,577 | 22,133 | 183,037 | 135,729 | |||||||||
Total by Industry/Counterparty | $ | 239,416 | $ | 212,786 | $ | 1,543,497 | $ | 1,406,131 | |||||
By Instrument: | |||||||||||||
Credit default swaps and options | $ | 232,009 | $ | 212,166 | $ | 1,514,829 | $ | 1,404,928 | |||||
Total return swaps and other | 7,407 | 620 | 28,668 | 1,203 | |||||||||
Total by Instrument | $ | 239,416 | $ | 212,786 | $ | 1,543,497 | $ | 1,406,131 | |||||
December 31, 2008:
| | Market values | Notionals | Fair values | Notionals | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | Receivable | Payable | Beneficiary | Guarantor | ||||||||||||||||||
By Activity: | ||||||||||||||||||||||||||
Credit portfolio | $ | 2,143 | $ | 53 | $ | 80,413 | $ | — | $ | 3,257 | $ | 15 | $ | 71,131 | $ | — | ||||||||||
Dealer/client | 163,849 | 148,773 | 1,632,628 | 1,578,383 | 225,094 | 203,694 | 1,527,184 | 1,443,280 | ||||||||||||||||||
Total by Activity | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | $ | 228,351 | $ | 203,709 | $ | 1,598,315 | $ | 1,443,280 | ||||||||||
By Industry/Counterparty | ||||||||||||||||||||||||||
By Industry/Counterparty: | ||||||||||||||||||||||||||
Bank | $ | 92,169 | $ | 91,263 | $ | 1,054,002 | $ | 1,017,928 | $ | 128,042 | $ | 121,811 | $ | 996,248 | $ | 943,949 | ||||||||||
Broker-dealer | 41,667 | 40,231 | 434,390 | 399,523 | 59,321 | 56,858 | 403,501 | 365,664 | ||||||||||||||||||
Monoline | 6,641 | 114 | 11,537 | 176 | 6,886 | 91 | 9,973 | 139 | ||||||||||||||||||
Non-financial | 398 | 517 | 4,477 | 6,578 | 4,874 | 2,561 | 5,608 | 7,540 | ||||||||||||||||||
Insurance and other financial institutions | 25,117 | 16,701 | 208,635 | 154,178 | 29,228 | 22,388 | 182,985 | 125,988 | ||||||||||||||||||
Total by Industry/Counterparty | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | $ | 228,351 | $ | 203,709 | $ | 1,598,315 | $ | 1,443,280 | ||||||||||
By Instrument: | ||||||||||||||||||||||||||
Credit default swaps and options | $ | 164,235 | $ | 148,103 | $ | 1,672,785 | $ | 1,576,338 | $ | 221,159 | $ | 203,220 | $ | 1,560,222 | $ | 1,441,375 | ||||||||||
Total return swaps and other | 1,757 | 723 | 40,256 | 2,045 | 7,192 | 489 | 38,093 | 1,905 | ||||||||||||||||||
Total by Instrument | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | $ | 228,351 | $ | 203,709 | $ | 1,598,315 | $ | 1,443,280 | ||||||||||
December 31, 2007(1):
| | Market values | Notionals | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | |||||||||
By Activity: | |||||||||||||
Credit portfolio | $ | 626 | $ | 129 | $ | 91,228 | $ | — | |||||
Dealer/client | 82,767 | 84,165 | 1,815,728 | 1,767,837 | |||||||||
Total by Activity | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | |||||
By Industry/Counterparty: | |||||||||||||
Bank | $ | 28,571 | $ | 34,425 | $ | 1,035,217 | $ | 970,831 | |||||
Broker-dealer | 28,183 | 31,519 | 633,745 | 585,549 | |||||||||
Monoline | 5,044 | 88 | 15,064 | 1,243 | |||||||||
Non-financial | 220 | 331 | 3,682 | 4,253 | |||||||||
Insurance and other financial institutions | 21,375 | 17,931 | 219,248 | 205,961 | |||||||||
Total by Industry/Counterparty | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | |||||
By Instrument: | |||||||||||||
Credit default swaps and options | $ | 82,752 | $ | 83,015 | $ | 1,891,061 | $ | 1,755,716 | |||||
Total return swaps and other | 641 | 1,279 | 15,895 | 12,121 | |||||||||
Total by Instrument | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | |||||
The marketfair values shown are prior to the application of any netting agreements, cash collateral, and market or credit value adjustments.
The Company actively participates in trading a variety of credit derivatives products to manage its own credit risk in loan and other portfolios ("credit portfolio" activity) and as both an active two-way market-maker for clients ("dealer/client" activity). During 2007, Citigroup and the industry experienced a material increase in trading volumes. The volatility and liquidity challenges in the credit markets during the third and fourth quarters drove derivatives trading volumes as credit derivatives became the instrument of choice for managingto manage credit risk. The majority of this activity was transacted with other financial intermediaries, including both banks and broker-dealers. During the full year 2007, the total notional amount of protection purchased and sold increased $906 billion and $824 billion, respectively, and by various market participants. The total market value increase of $69 billion each for protection purchased and sold was primarily due to an increase in volume growth of $63 billion and $62 billion, and market spread changes of $6 billion and $7 billion for protection purchased and sold, respectively.
During the first nine months of 2008, the total notional amount of protection purchased and sold decreased $194 billion and $189 billion, respectively as volume continued to decline. The corresponding market value increased $83 billion for protection purchased and $65 billion for protection sold. These market value increases were due to changes in market conditions.
The Company 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.
The Company actively monitors its counterparty credit risk in credit derivative contracts. Approximately 84% and 77%91% of
the gross receivables as of September 30, 2008 and DecemberMarch 31, 2007, respectively,2009 are from counterparties with which the Company maintains collateral agreements. A majority of the Company's top 15 counterparties (by receivable balance owed to the Company) are banks, financial institutions or other dealers. Contracts with these counterparties do not include ratings-based termination events. However, counterparty rating downgrades may have an incremental effect by lowering the threshold at which the Company may call for additional collateral. A number of the remaining significant counterparties are monolines. See page 38 for a discussion of the Company's exposure to monolines. The master agreements with these monolines are generally unsecured. As with all derivative contracts, the Company considers counterparty credit risk in the valuation of its positions and recognizes credit valuation adjustments as appropriate. During the third quarter of 2008, the Company recorded an additional $919 million in credit market value adjustments on market value exposures to the monolines as a result of widening credit spreads and an increase in the expected exposure to the monolines.
MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due, as a result of the unavailability of funds.due. Liquidity risk is discussed in the "Capital Resources and Liquidity" section beginning on page 59.Liquidity." 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.
Interest Rate Exposure (IRE)
The exposures in the following table represent the approximate annualized risk to Net Interest Revenue (NIR) assuming an unanticipated parallel instantaneous 100bp change, as well as a more gradual 100bp (25bps per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.
| | September 30, 2008 | June 30, 2008 | September 30, 2007 | March 31, 2009 | December 31, 2008 | March 31, 2008 | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | ||||||||||||||||||||||||||
U.S. dollar | ||||||||||||||||||||||||||||||||||||||
Instantaneous change | $ | (1,811 | ) | $ | 893 | $ | (1,236 | ) | $ | 1,170 | $ | (684 | ) | $ | 738 | $ | (1,654 | ) | $ | 1,543 | $ | (801 | ) | $ | 391 | $ | (1,423 | ) | $ | 1,162 | ||||||||
Gradual change | $ | (707 | ) | $ | 490 | $ | (756 | ) | $ | 633 | $ | (337 | ) | $ | 372 | $ | (888 | ) | $ | 660 | $ | (456 | ) | $ | 81 | $ | (781 | ) | $ | 666 | ||||||||
Mexican peso | ||||||||||||||||||||||||||||||||||||||
Instantaneous change | $ | (23 | ) | $ | 23 | $ | (24 | ) | $ | 24 | $ | 5 | $ | (5 | ) | $ | (20 | ) | $ | 20 | $ | (18 | ) | $ | 18 | $ | (20 | ) | $ | 20 | ||||||||
Gradual change | $ | (19 | ) | $ | 19 | $ | (19 | ) | $ | 19 | $ | (1 | ) | $ | 1 | $ | (14 | ) | $ | 14 | $ | (14 | ) | $ | 14 | $ | 4 | $ | (4 | ) | ||||||||
Euro | ||||||||||||||||||||||||||||||||||||||
Instantaneous change | $ | (52 | ) | $ | 52 | $ | (71 | ) | $ | 71 | $ | (92 | ) | $ | 92 | $ | 11 | $ | (12 | ) | $ | (56 | ) | $ | 57 | $ | (51 | ) | $ | 51 | ||||||||
Gradual change | $ | (41 | ) | $ | 41 | $ | (51 | ) | $ | 51 | $ | (38 | ) | $ | 38 | $ | 12 | $ | (12 | ) | $ | (43 | ) | $ | 43 | $ | (39 | ) | $ | 39 | ||||||||
Japanese yen | ||||||||||||||||||||||||||||||||||||||
Instantaneous change | $ | 142 | NM | $ | 131 | NM | $ | 58 | NM | $ | 195 | NM | $ | 172 | NM | $ | 65 | NM | ||||||||||||||||||||
Gradual change | $ | 72 | NM | $ | 73 | NM | $ | 43 | NM | $ | 122 | NM | $ | 51 | NM | $ | 43 | NM | ||||||||||||||||||||
Pound sterling | ||||||||||||||||||||||||||||||||||||||
Instantaneous change | $ | 16 | $ | (16 | ) | $ | 13 | $ | (13 | ) | $ | (5 | ) | $ | 5 | $ | 1 | $ | (5 | ) | $ | (1 | ) | $ | 1 | $ | (17 | ) | $ | 17 | ||||||||
Gradual change | $ | 13 | $ | (13 | ) | $ | 15 | $ | (15 | ) | $ | 8 | $ | (8 | ) | $ | (1 | ) | $ | 1 | $ | — | $ | — | $ | (4 | ) | $ | 4 | |||||||||
NM Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the Japanese yen yield curve.
The changes in the U.S. dollar interest rate exposures from June 30,December 31, 2008 primarily reflect movements in customer-related asset and liability mix, the expected impact of market rates on customer behavior, as well as Citigroup'sare related to Citi's view of prevailing interest rates.rates and incremental assets added to the non-trading portfolio that were previously held as mark to market securities.
The following table shows the estimated one year impactrisk to NIR from the change in a combination of two factors, the overnight rate and the 10-year rate, under six different scenarios.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 | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | — | 100 | 200 | (200 | ) | (100 | ) | — | ||||||||||||||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | (100 | ) | — | 100 | (100 | ) | — | 100 | ||||||||||||||||||||||
Impact to net interest revenue | $ | (100 | ) | $ | (585 | ) | $ | (1,139 | ) | $ | 935 | $ | 518 | $ | (56 | ) | $ | (98 | ) | $ | (748 | ) | $ | (1,337 | ) | $ | 616 | $ | 411 | $ | (161 | ) | ||||||
Value at Risk (VAR)
For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $237$292 million, $255$319 million, and $135$393 million at September 30, 2008, June 30,March 31, 2009, December 31, 2008, and September 30, 2007,March 31, 2008, respectively. Daily exposures averaged $240$291 million during the thirdfirst quarter of 20082009 and ranged from $265$251 million to $220$335 million.
The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2008, June 30,March 31, 2009, December 31, 2008, and September 30, 2007,March 31, 2008, including the Total VAR, the specific risk only component of VAR, and Total—Generalgeneral market factors only VAR, along with the quarterly averages:
| In million of dollars | September 30, 2008(1) | Third Quarter 2008 Average(1) | June 30, 2008(1) | Second Quarter 2008 Average(1) | September 30, 2007 | Third Quarter 2007 Average | March 31, 2009 | First Quarter 2009 Average | December 31, 2008 | Fourth Quarter 2008 Average | March 31, 2008 | First Quarter 2008 Average | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 240 | $ | 265 | $ | 288 | $ | 301 | $ | 96 | $ | 101 | $ | 239 | $ | 272 | $ | 320 | $ | 272 | $ | 281 | $ | 283 | ||||||||||||||
Foreign exchange | 40 | 43 | 47 | 49 | 28 | 29 | 38 | 73 | 118 | 80 | 77 | 45 | ||||||||||||||||||||||||||
Equity | 106 | 99 | 95 | 79 | 104 | 98 | 144 | 97 | 84 | 94 | 235 | 125 | ||||||||||||||||||||||||||
Commodity | 20 | 20 | 45 | 51 | 33 | 31 | 34 | 22 | 15 | 16 | 53 | 47 | ||||||||||||||||||||||||||
Covariance adjustment | (169 | ) | (187 | ) | (220 | ) | (188 | ) | (126 | ) | (118 | ) | (163 | ) | (173 | ) | (218 | ) | (167 | ) | (253 | ) | (159 | ) | ||||||||||||||
Total—All market risk factors, including general and specific risk | $ | 237 | $ | 240 | $ | 255 | $ | 292 | $ | 135 | $ | 141 | $ | 292 | $ | 291 | $ | 319 | $ | 295 | $ | 393 | $ | 341 | ||||||||||||||
Specific risk only component | $ | 20 | $ | 14 | $ | 15 | $ | 7 | $ | 24 | $ | 26 | $ | 14 | $ | 19 | $ | 8 | $ | 25 | $ | 39 | $ | 37 | ||||||||||||||
Total—General market factors only | $ | 217 | $ | 226 | $ | 240 | $ | 285 | $ | 111 | $ | 115 | $ | 278 | $ | 272 | $ | 311 | $ | 270 | $ | 354 | $ | 304 | ||||||||||||||
The specific risk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup's specific risk model conforms to the 4x-multiplier treatment and is subject to extensive annual hypothetical back-testing.
The table below provides the range of VAR in each type of trading portfolio that was experienced during the quarters ended:
| | September 30, 2008 | June 30, 2008 | September 30, 2007 | March 31, 2009 | December 31, 2008 | March 31, 2008 | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Low | High | Low | High | Low | High | Low | High | Low | High | Low | High | ||||||||||||||||||||||||||
Interest rate | $ | 239 | $ | 292 | $ | 268 | $ | 339 | $ | 87 | $ | 119 | $ | 209 | $ | 320 | $ | 227 | $ | 328 | $ | 278 | $ | 293 | ||||||||||||||
Foreign exchange | 28 | 71 | 33 | 81 | 23 | 35 | 29 | 140 | 43 | 130 | 23 | 77 | ||||||||||||||||||||||||||
Equity | 80 | 134 | 63 | 181 | 82 | 120 | 47 | 167 | 68 | 122 | 58 | 235 | ||||||||||||||||||||||||||
Commodity | 12 | 46 | 40 | 60 | 24 | 41 | 12 | 34 | 12 | 22 | 36 | 58 | ||||||||||||||||||||||||||
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed internal processes, peoplesystems or systems,human factors, or from external events. It includes the reputation and franchise risk associated with business practices or market conduct thatin which the Company undertakes.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 checks and balances that include:well-defined independent risk management. This framework includes:
The goal is to keep operational risk at appropriate levels relative to the characteristics of our businesses, the markets in which we operate, our capital and liquidity, and the competitive, economic and regulatory environment. Notwithstanding these controls, Citigroup incurs operational losses.
Framework
Citigroup's approach toTo monitor, mitigate and control operational risk, is defined in the Citigroup Riskmaintains a system of comprehensive policies and Control Self-Assessment (RCSA)/Operational Risk Policy.
The objective of the Policy is to establishhas established a consistent, value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. An Operational Risk Council has been established to provide 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. The Council's focus is on further advancing operational risk management at Citigroup with focus on proactive identification and mitigation of operational risk and related incidents. The Council works with the business segments and the control functions to help ensure 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 Policy.
framework. The RCSA standards establish a formal governance structure to provide direction, oversight, and monitoring of Citigroup's RCSA programs. The RCSA standardsprocess for risk and control assessment are applicable to all businesses and staff functions. They establish RCSA as the process whereby important risks inherent in the activities of a business are identified and the effectiveness of the key controls over those risks are evaluated and monitored. RCSA processes facilitate Citigroup's adherence to internal control over financial reporting, regulatory requirements (including Sarbanes-Oxley and FDICIA) the International Convergence of Capital Measurement and Capital Standards (Basel II), and other corporate initiatives, including Operational Risk Management and alignment of capital assessments withoperational risk management objectives. The entire process is subjectincludes 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. Information about the businesses' operational risk, historical losses, and the control environment is reported by each major business segment and functional area, and summarized for senior managementSenior Management and the Citigroup 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. An enhanced version of the 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" (AMA) 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 of Citigroup. The Company has implemented an Information Security Program that complies with the Gramm-Leach-Bliley Act and other 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,Senior Management, continues to coordinate global preparedness and mitigate business continuity risks by reviewing and testing recovery procedures.
COUNTRY AND FFIEC CROSS-BORDER RISK MANAGEMENT PROCESS
Country Risk
Country risk is the risk that an event in a foreign country will impair the value of Citigroup assets or will adversely affect the ability of obligors within that country to honor their obligations to Citigroup. Country risk events may include sovereign defaults, banking or currency crises, social instability, and changes in governmental policies (for example, expropriation, nationalization, confiscation of assets and other changes in legislation relating to international ownership). Country risk includes local franchise risk, credit risk, market risk, operational risk, and cross-border risk.
The country risk management framework at Citigroup includes a number of tools and management processes designed to facilitate the ongoing analysis of individual countries and their risks. These include country risk rating models, scenario planning and stress testing, internal watch lists, and the Country Risk Committee process.
The Citigroup Country Risk Committee is the senior forum to evaluate the Company's total business footprint within a specific country franchise with emphasis on responses to current potential country risk events. The Committee is chaired by the Head of Global Country Risk Management and includes as its members senior risk management officers, senior regional business heads, and senior product heads. The Committee regularly reviews all risk exposures within a country, makes recommendations as to actions, and follows up to ensure appropriate accountability.
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, thereby impacting the ability of the Company and its customers to transact business across borders.
Examples of cross-border risk include actions taken by foreign governments such as exchange controls, debt moratoria, or restrictions on the remittance of funds. These actions might restrict the transfer of funds or the ability of the Company to obtain payment from customers on their contractual obligations.
Management oversight of cross-border risk is performed through a formal review process that includes annual setting of cross-border limits and/or exposures, monitoring of economic conditions globally, and the establishment of internal cross-border risk management policies.
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.
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 in accordance with FFIEC guidelines.
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 shows all countries where total Federal Financial Institutions Examination Council (FFIEC)FFIEC cross-border outstandings exceed 0.75% of total Citigroup assets:
| March 31, 2009 | March 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cross-Border Claims on Third Parties | Cross-Border Claims on Third Parties | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In Billions of U.S. dollars | Banks | Public | Private | Total | Trading and Short- Term Claims | Investments in and Funding of Local Franchises | Total Cross- Border Outstandings | Commitments | Total Cross- Border Outstandings | Commitments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
India | $ | 1.0 | $ | — | $ | 6.9 | $ | 7.9 | $ | 5.0 | $ | 19.6 | $ | 27.5 | $ | 1.5 | $ | 28.0 | $ | 1.6 | ||||||||||||||||||||||||||||||||||||||||||
South Korea | 2.4 | 1.0 | 4.4 | 7.8 | 7.6 | 17.6 | 25.4 | 14.3 | 22.0 | 15.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | 9.2 | 3.0 | 8.2 | 20.4 | 18.5 | 4.5 | 24.9 | 45.9 | 29.9 | 48.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cayman Islands | 0.1 | — | 22.3 | 22.4 | 20.8 | — | 22.4 | 7.2 | 22.1 | 8.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
France | 11.9 | 2.2 | 7.3 | 21.4 | 18.4 | 0.4 | 21.8 | 64.3 | 21.4 | 66.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 9.4 | 0.1 | 9.0 | 18.5 | 16.2 | — | 18.5 | 122.5 | 26.3 | 128.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | 5.6 | 1.6 | 9.7 | 16.9 | 11.5 | — | 16.9 | 64.0 | 17.7 | 67.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Australia | 1.2 | — | 1.4 | 2.6 | 1.7 | 12.5 | 15.1 | 24.0 | 12.5 | 24.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 0.9 | 7.5 | 2.0 | 10.4 | 8.6 | �� | 3.5 | 13.9 | 17.5 | 14.7 | 20.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 1.5 | 0.3 | 3.1 | 4.9 | 3.7 | 8.2 | 13.1 | 30.8 | 16.1 | 36.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| | September 30, 2008 | December 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Cross-Border Claims on Third Parties | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In billions of U.S. dollars | Banks | Public | Private | Total | Trading and Short-Term Claims(1) | Investments in and Funding of Local Franchises(2) | Total Cross-Border Outstandings | Commitments | Total Cross-Border Outstandings | Commitments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | $ | 8.2 | $ | 5.4 | $ | 8.9 | $ | 22.5 | $ | 19.9 | $ | 13.8 | $ | 36.3 | $ | 42.9 | $ | 29.3 | $ | 46.4 | ||||||||||||||||||||||||||||||||||||||||||
India | 1.0 | 0.1 | 8.9 | 10.0 | 7.1 | 20.7 | 30.7 | 1.7 | 39.0 | 1.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cayman Islands | 0.3 | — | 28.0 | 28.3 | 25.8 | — | 28.3 | 8.6 | 9.0 | 6.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 9.8 | — | 16.3 | 26.1 | 23.8 | — | 26.1 | 215.8 | 24.7 | 366.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
South Korea | 2.2 | 0.4 | 2.7 | 5.3 | 5.1 | 16.2 | 21.5 | 17.3 | 21.9 | 22.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | 6.5 | 0.5 | 13.7 | 20.7 | 14.3 | — | 20.7 | 55.0 | 23.1 | 20.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
France | 9.2 | 2.3 | 7.8 | 19.3 | 16.4 | — | 19.3 | 54.7 | 24.3 | 107.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 1.2 | 6.4 | 3.2 | 10.8 | 8.7 | 4.5 | 15.3 | 15.0 | 18.8 | 5.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | 4.6 | 0.3 | 6.8 | 11.7 | 8.8 | 3.6 | 15.3 | 12.2 | 21.3 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Table of local country assets over local country liabilities.
INTEREST REVENUE/EXPENSE AND YIELDS
Average Rates—Rates- Interest Revenue, Interest Expense, and Net Interest Margin
| In millions of dollars | In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | Change 3Q08 vs. 3Q07 | In millions of dollars | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008(1) | Change 1Q09 vs. 1Q08 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue | Interest Revenue | $ | 26,182 | $ | 27,372 | $ | 32,267 | (19 | )% | Interest Revenue | $ | 20,609 | $ | 23,911 | $ | 29,190 | (29 | )% | ||||||||||
Interest Expense | Interest Expense | 12,776 | 13,407 | 20,423 | (37 | ) | Interest Expense | 7,711 | 10,658 | 16,122 | (52 | ) | ||||||||||||||||
Net Interest Revenue | Net Interest Revenue | $ | 13,406 | $ | 13,965 | $ | 11,844 | 13 | % | Net Interest Revenue | $ | 12,898 | $ | 13,253 | $ | 13,068 | (1 | )% | ||||||||||
Interest Revenue—Average Rate | Interest Revenue—Average Rate | 6.11 | % | 6.16 | % | 6.38 | % | (27) bps | Interest Revenue—Average Rate | 5.27 | % | 5.81 | % | 6.24 | % | (97) bps | ||||||||||||
Interest Expense—Average Rate | Interest Expense—Average Rate | 3.24 | % | 3.29 | % | 4.42 | % | (118) bps | Interest Expense—Average Rate | 2.16 | % | 2.79 | % | 3.75 | % | (159) bps | ||||||||||||
Net Interest Margin (NIM) | Net Interest Margin (NIM) | 3.13 | % | 3.14 | % | 2.34 | % | 79 bps | Net Interest Margin (NIM) | 3.30 | % | 3.22 | % | 2.80 | % | 50 bps | ||||||||||||
Interest Rate Benchmarks: | Interest Rate Benchmarks: | Interest Rate Benchmarks: | ||||||||||||||||||||||||||
Federal Funds Rate—End of Period | Federal Funds Rate—End of Period | 2.00 | % | 2.00 | % | 4.75 | % | (275) bps | Federal Funds Rate—End of Period | 0.00-0.25 | % | 0.00-0.25 | % | 2.25 | % | (200+) bps | ||||||||||||
2 Year U.S. Treasury Note—Average Rate | 2 Year U.S. Treasury Note—Average Rate | 2.36 | % | 2.42 | % | 4.39 | % | (203) bps | 2 Year U.S. Treasury Note—Average Rate | 0.90 | % | 1.22 | % | 2.03 | % | (113) bps | ||||||||||||
10 Year U.S. Treasury Note—Average Rate | 10 Year U.S. Treasury Note—Average Rate | 3.86 | % | 3.88 | % | 4.74 | % | (88) bps | 10 Year U.S. Treasury Note—Average Rate | 2.74 | % | 3.23 | % | 3.67 | % | (93) bps | ||||||||||||
10 Year vs. 2 Year Spread | 150 bps | 146 bps | 35 bps | 10 Year vs. 2 Year Spread | 184 bps | 201 bps | 164 bps | |||||||||||||||||||||
Reclassified to conform to the current period's presentation and has been reclassified to exclude Discontinued Operations.
A significant portion of the Company's business activities is based upon gathering deposits and borrowing money and then lending or investing those funds, including market-making activities in tradeabletradable securities. Net interest margin (NIM) is calculated by dividing annualized gross interest revenue less gross interest expense by average interest earning assets.
During the thirdfirst quarter of 2008,2009, the significantly lower cost of funding more than offset the lower asset yields, resulting in relatively flathigher NIM. BothThe widening between the average assetsshort-term and liabilities showed decline in yields resulting fromthe long-term spreads as well as the short-term liability sensitive positions contributed to the upward movement of the NIM. The impact of a full quarter of significantly lower Fed Funds target rate.rate affected the yields on all lines and most significantly on our Deposits with banks and Fed Funds Sold on the asset side and the Deposits and Fed Funds Purchased on the liability side. Additionally, the yield on the floating long-term debt decreased significantly from prior quarters.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | | Average Volume | Interest Revenue | % Average Rate | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | In millions of dollars | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | ||||||||||||||||||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits with banks | Deposits with banks | $ | 66,922 | $ | 63,952 | $ | 60,972 | $ | 803 | $ | 773 | $ | 855 | 4.77 | % | 4.86 | % | 5.56 | % | Deposits with banks | $ | 170,463 | $ | 120,963 | $ | 63,314 | $ | 432 | $ | 759 | $ | 784 | 1.03 | % | 2.50 | % | 4.98 | % | ||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | Federal funds sold and securities borrowed or purchased under agreements to resell | Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 157,355 | $ | 182,672 | $ | 213,438 | $ | 1,272 | $ | 1,326 | $ | 3,217 | 3.22 | % | 2.92 | % | 5.98 | % | In U.S. offices | $ | 128,004 | $ | 141,482 | $ | 177,420 | $ | 550 | $ | 727 | $ | 1,746 | 1.74 | % | 2.04 | % | 3.96 | % | ||||||||||||||||||||
In offices outside the U.S.(4) | 76,982 | 59,182 | 156,123 | 950 | 1,051 | 1,873 | 4.91 | 7.14 | 4.76 | |||||||||||||||||||||||||||||||||||||||||||||||||
| In offices outside the U.S.(5) | In offices outside the U.S.(5) | 54,631 | 68,238 | 104,895 | 338 | 677 | 1,426 | 2.51 | 3.95 | 5.47 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 234,337 | $ | 241,854 | $ | 369,561 | $ | 2,222 | $ | 2,377 | $ | 5,090 | 3.77 | % | 3.95 | % | 5.46 | % | Total | $ | 182,635 | $ | 209,720 | $ | 282,315 | $ | 888 | $ | 1,404 | $ | 3,172 | 1.97 | % | 2.66 | % | 4.52 | % | ||||||||||||||||||||
Trading account assets | Trading account assets | Trading account assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 210,248 | $ | 241,068 | $ | 281,590 | $ | 2,740 | $ | 3,249 | $ | 3,662 | 5.18 | % | 5.42 | % | 5.16 | % | In U.S. offices | $ | 147,516 | $ | 180,350 | $ | 254,155 | $ | 1,984 | $ | 2,708 | $ | 3,634 | 5.45 | % | 5.97 | % | 5.75 | % | ||||||||||||||||||||
In offices outside the U.S.(4) | 158,409 | 169,278 | 206,098 | 1,414 | 1,395 | 1,494 | 3.55 | 3.31 | 2.88 | |||||||||||||||||||||||||||||||||||||||||||||||||
| In offices outside the U.S.(5) | In offices outside the U.S.(5) | 116,492 | 128,375 | 180,714 | 974 | 1,184 | 1,165 | 3.39 | 3.67 | 2.59 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 368,657 | $ | 410,346 | $ | 487,688 | $ | 4,154 | $ | 4,644 | $ | 5,156 | 4.48 | % | 4.55 | % | 4.19 | % | Total | $ | 264,008 | $ | 308,725 | $ | 434,869 | $ | 2,958 | $ | 3,892 | $ | 4,799 | 4.54 | % | 5.02 | % | 4.44 | % | ||||||||||||||||||||
Investments(1) | Investments(1) | Investments(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | In U.S. offices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 118,950 | $ | 110,977 | $ | 127,706 | $ | 1,185 | $ | 1,105 | $ | 1,636 | 3.96 | % | 4.00 | % | 5.08 | % | Taxable | $ | 121,901 | $ | 113,882 | $ | 104,474 | $ | 1,480 | $ | 1,377 | $ | 1,179 | 4.92 | % | 4.81 | % | 4.54 | % | |||||||||||||||||||||
Exempt from U.S. income tax | 13,057 | 13,089 | 19,207 | 136 | 138 | 242 | 4.14 | 4.24 | 5.00 | Exempt from U.S. income tax | 14,574 | 15,159 | 13,031 | 118 | 180 | 159 | 3.28 | 4.72 | 4.91 | |||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(4) | 93,171 | 97,989 | 110,981 | 1,276 | 1,305 | 1,462 | 5.45 | 5.36 | 5.23 | |||||||||||||||||||||||||||||||||||||||||||||||||
| In offices outside the U.S.(5) | In offices outside the U.S.(5) | 107,639 | 90,311 | 99,762 | �� | 1,578 | 1,329 | 1,349 | 5.95 | 5.85 | 5.44 | |||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 225,178 | $ | 222,055 | $ | 257,894 | $ | 2,597 | $ | 2,548 | $ | 3,340 | 4.59 | % | 4.62 | % | 5.14 | % | Total | $ | 244,114 | $ | 219,352 | $ | 217,267 | $ | 3,176 | $ | 2,886 | $ | 2,687 | 5.28 | % | 5.23 | % | 4.97 | % | ||||||||||||||||||||
Loans (net of unearned income) | Loans (net of unearned income) | Loans (net of unearned income) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | Consumer loans | Consumer loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 362,490 | $ | 379,970 | $ | 364,576 | $ | 7,034 | $ | 7,269 | $ | 7,649 | 7.72 | % | 7.69 | % | 8.32 | % | In U.S. offices | $ | 356,600 | $ | 364,433 | $ | 385,485 | $ | 6,252 | $ | 6,826 | $ | 7,528 | 7.11 | % | 7.45 | % | 7.85 | % | ||||||||||||||||||||
In offices outside the U.S.(4) | 183,829 | 185,369 | 166,660 | 4,891 | 4,939 | 4,440 | 10.58 | 10.72 | 10.57 | |||||||||||||||||||||||||||||||||||||||||||||||||
| In offices outside the U.S.(5) | In offices outside the U.S.(5) | 148,014 | 159,494 | 181,151 | 3,507 | 3,974 | 4,829 | 9.61 | 9.91 | 10.72 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total consumer loans | Total consumer loans | $ | 546,319 | $ | 565,339 | $ | 531,236 | $ | 11,925 | $ | 12,208 | $ | 12,089 | 8.68 | % | 8.69 | % | 9.03 | % | Total consumer loans | $ | 504,614 | $ | 523,927 | $ | 566,636 | $ | 9,759 | $ | 10,800 | $ | 12,357 | 7.84 | % | 8.20 | % | 8.77 | % | ||||||||||||||||||||
Corporate loans | Corporate loans | Corporate loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 41,006 | $ | 42,377 | $ | 39,346 | $ | 499 | $ | 464 | $ | 662 | 4.84 | % | 4.40 | % | 6.68 | % | In U.S. offices | $ | 46,868 | $ | 48,184 | $ | 43,523 | $ | 579 | $ | 670 | $ | 648 | 5.01 | % | 5.53 | % | 5.99 | % | ||||||||||||||||||||
In offices outside the U.S.(4) | 131,597 | 146,885 | 163,003 | 3,104 | 3,269 | 3,590 | 9.38 | 8.95 | 8.74 | |||||||||||||||||||||||||||||||||||||||||||||||||
| In offices outside the U.S.(5) | In offices outside the U.S.(5) | 120,233 | 129,269 | 153,034 | 2,517 | 2,983 | 3,409 | 8.49 | 9.18 | 8.96 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total corporate loans | Total corporate loans | $ | 172,603 | $ | 189,262 | $ | 202,349 | $ | 3,603 | $ | 3,733 | $ | 4,252 | 8.30 | % | 7.93 | % | 8.34 | % | Total corporate loans | $ | 167,101 | $ | 177,453 | $ | 196,557 | $ | 3,096 | $ | 3,653 | $ | 4,057 | 7.51 | % | 8.19 | % | 8.30 | % | ||||||||||||||||||||
Total loans | Total loans | $ | 718,922 | $ | 754,601 | $ | 733,585 | $ | 15,528 | $ | 15,941 | $ | 16,341 | 8.59 | % | 8.50 | % | 8.84 | % | Total loans | $ | 671,715 | $ | 701,380 | $ | 763,193 | $ | 12,855 | $ | 14,453 | $ | 16,414 | 7.76 | % | 8.20 | % | 8.65 | % | ||||||||||||||||||||
Other interest-earning Assets | Other interest-earning Assets | $ | 92,022 | $ | 94,129 | $ | 97,506 | $ | 878 | $ | 1,089 | $ | 1,485 | 3.80 | % | 4.65 | % | 6.04 | % | Other interest-earning Assets | $ | 53,163 | $ | 75,714 | $ | 119,148 | $ | 300 | $ | 517 | $ | 1,334 | 2.29 | % | 2.72 | % | 4.50 | % | ||||||||||||||||||||
Total interest-earning Assets | Total interest-earning Assets | $ | 1,706,038 | $ | 1,786,937 | $ | 2,007,206 | $ | 26,182 | $ | 27,372 | $ | 32,267 | 6.11 | % | 6.16 | % | 6.38 | % | Total interest-earning Assets | $ | 1,586,098 | $ | 1,635,854 | $ | 1,880,106 | $ | 20,609 | $ | 23,911 | $ | 29,190 | 5.27 | % | 5.81 | % | 6.24 | % | ||||||||||||||||||||
Non-interest-earning assets | Non-interest-earning assets | 363,733 | 373,759 | 252,557 | Non-interest-earning assets | 321,873 | 406,405 | 407,606 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets from discontinued operations | Total Assets from discontinued operations | $ | 25,237 | $ | 35,165 | $ | 36,838 | Total Assets from discontinued operations | — | $ | 11,415 | 37,656 | ||||||||||||||||||||||||||||||||||||||||||||||
Total assets | Total assets | $ | 2,095,008 | $ | 2,195,861 | $ | 2,296,601 | Total assets | $ | 1,907,971 | $ | 2,053,674 | $ | 2,325,368 | ||||||||||||||||||||||||||||||||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,AND NET INTEREST REVENUE(1)(2)(3)
| | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | ||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Deposits | |||||||||||||||||||||||||||||
In U. S. offices | |||||||||||||||||||||||||||||
Savings deposits(4) | $ | 155,260 | $ | 163,923 | $ | 148,736 | $ | 611 | $ | 683 | $ | 1,221 | 1.57 | % | 1.68 | % | 3.26 | % | |||||||||||
Other time deposits | 54,928 | 57,911 | 56,473 | 554 | 614 | 766 | 4.01 | 4.26 | 5.38 | ||||||||||||||||||||
In offices outside the U.S.(5) | 464,429 | 488,304 | 502,059 | 3,750 | 3,785 | 5,469 | 3.21 | 3.12 | 4.32 | ||||||||||||||||||||
Total | $ | 674,617 | $ | 710,138 | $ | 707,268 | $ | 4,915 | $ | 5,082 | $ | 7,456 | 2.90 | % | 2.88 | % | 4.18 | % | |||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(6) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 160,202 | $ | 195,879 | $ | 272,927 | $ | 1,185 | $ | 1,299 | $ | 4,052 | 2.94 | % | 2.67 | % | 5.89 | % | |||||||||||
In offices outside the U.S.(5) | 102,178 | 87,468 | 155,354 | 1,552 | 1,665 | 2,379 | 6.04 | 7.66 | 6.08 | ||||||||||||||||||||
Total | $ | 262,380 | $ | 283,347 | $ | 428,281 | $ | 2,737 | $ | 2,964 | $ | 6,431 | 4.15 | % | 4.21 | % | 5.96 | % | |||||||||||
Trading account liabilities(7)(8) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 30,251 | $ | 29,764 | $ | 48,063 | $ | 251 | $ | 413 | $ | 302 | 3.30 | % | 5.58 | % | 2.49 | % | |||||||||||
In offices outside the U.S.(5) | 42,789 | 46,184 | 69,791 | 39 | 43 | 69 | 0.36 | 0.37 | 0.39 | ||||||||||||||||||||
Total | $ | 73,040 | $ | 75,948 | $ | 117,854 | $ | 290 | $ | 456 | $ | 371 | 1.58 | % | 2.41 | % | 1.25 | % | |||||||||||
Short-term borrowings | |||||||||||||||||||||||||||||
In U.S. offices | $ | 149,398 | $ | 152,356 | $ | 187,286 | $ | 729 | $ | 814 | $ | 1,755 | 1.94 | % | 2.15 | % | 3.72 | % | |||||||||||
In offices outside the U.S.(5) | 50,966 | 65,411 | 76,164 | 224 | 180 | 210 | 1.75 | 1.11 | 1.09 | ||||||||||||||||||||
Total | $ | 200,364 | $ | 217,767 | $ | 263,450 | $ | 953 | $ | 994 | $ | 1,965 | 1.89 | % | 1.84 | % | 2.96 | % | |||||||||||
Long-term debt(9) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 323,788 | $ | 315,686 | $ | 273,739 | $ | 3,460 | $ | 3,454 | $ | 3,647 | 4.25 | % | 4.40 | % | 5.29 | % | |||||||||||
In offices outside the U.S.(5) | 36,430 | 37,647 | 41,612 | 421 | 457 | 553 | 4.60 | 4.88 | 5.27 | ||||||||||||||||||||
Total | $ | 360,218 | $ | 353,333 | $ | 315,351 | $ | 3,881 | $ | 3,911 | $ | 4,200 | 4.29 | % | 4.45 | % | 5.28 | % | |||||||||||
Total interest-bearing liabilities | $ | 1,570,619 | $ | 1,640,533 | $ | 1,832,204 | $ | 12,776 | $ | 13,407 | $ | 20,423 | 3.24 | % | 3.29 | % | 4.42 | % | |||||||||||
Demand deposits in U.S. offices | 13,503 | 13,402 | 13,683 | ||||||||||||||||||||||||||
Other non-interest-bearing liabilities(7) | 360,076 | 386,579 | 305,391 | ||||||||||||||||||||||||||
Total liabilities from discontinued operations | 19,039 | 20,337 | 18,516 | ||||||||||||||||||||||||||
Total liabilities | $ | 1,963,237 | $ | 2,060,851 | $ | 2,169,794 | |||||||||||||||||||||||
Total stockholders' equity | $ | 131,771 | $ | 135,010 | $ | 126,807 | |||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,095,008 | $ | 2,195,861 | $ | 2,296,601 | |||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(10) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 976,773 | $ | 1,036,000 | $ | 1,116,639 | $ | 6,424 | $ | 6,631 | $ | 5,716 | 2.62 | % | 2.57 | % | 2.03 | % | |||||||||||
In offices outside the U.S.(5) | 729,265 | 750,937 | 890,567 | 6,982 | 7,334 | 6,128 | 3.81 | % | 3.93 | % | 2.73 | % | |||||||||||||||||
Total | $ | 1,706,038 | $ | 1,786,937 | $ | 2,007,206 | $ | 13,406 | $ | 13,965 | $ | 11,844 | 3.13 | % | 3.14 | % | 2.34 | % | |||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | Average Volume | Interest Revenue | % Average Rate | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | ||||||||||||||
Assets | ||||||||||||||||||||
Deposits with banks(5) | $ | 64,729 | $ | 52,249 | $ | 2,360 | $ | 2,301 | 4.87 | % | 5.89 | % | ||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||
In U.S. offices | $ | 172,482 | $ | 194,217 | $ | 4,344 | $ | 9,098 | 3.36 | % | 6.26 | % | ||||||||
In offices outside the U.S.(5) | 80,353 | 133,672 | 3,427 | 4,943 | 5.70 | 4.94 | ||||||||||||||
Total | $ | 252,835 | $ | 327,889 | $ | 7,771 | $ | 14,041 | 4.11 | % | 5.73 | % | ||||||||
Trading account assets(7)(8) | ||||||||||||||||||||
In U.S. offices | $ | 235,157 | $ | 260,893 | $ | 9,623 | $ | 9,595 | 5.47 | % | 4.92 | % | ||||||||
In offices outside the U.S.(5) | 169,467 | 173,244 | 3,974 | 3,876 | 3.13 | 2.99 | ||||||||||||||
Total | $ | 404,624 | $ | 434,137 | $ | 13,597 | $ | 13,471 | 4.49 | % | 4.15 | % | ||||||||
Investments(1) | ||||||||||||||||||||
In U.S. offices | ||||||||||||||||||||
Taxable | $ | 111,467 | $ | 145,794 | $ | 3,469 | $ | 5,497 | 4.16 | % | 5.04 | % | ||||||||
Exempt from U.S. income tax | 13,059 | 18,329 | 433 | 705 | 4.43 | 5.14 | ||||||||||||||
In offices outside the U.S.(5) | 96,974 | 109,145 | 3,930 | 4,225 | 5.41 | 5.18 | ||||||||||||||
Total | $ | 221,500 | $ | 273,268 | $ | 7,832 | $ | 10,427 | 4.72 | % | 5.10 | % | ||||||||
Loans (net of unearned income)(9) | ||||||||||||||||||||
Consumer loans | ||||||||||||||||||||
In U.S. offices | $ | 375,982 | $ | 357,422 | $ | 21,831 | $ | 22,339 | 7.76 | % | 8.36 | % | ||||||||
In offices outside the U.S.(5) | 183,450 | 152,362 | 14,659 | 12,186 | 10.67 | 10.69 | ||||||||||||||
Total consumer loans | $ | 559,432 | $ | 509,784 | $ | 36,490 | $ | 34,525 | 8.71 | % | 9.05 | % | ||||||||
Corporate loans | ||||||||||||||||||||
In U.S. offices | $ | 42,302 | $ | 33,035 | $ | 1,611 | $ | 1,718 | 5.09 | % | 6.95 | % | ||||||||
In offices outside the U.S.(5) | 143,839 | 150,550 | 9,782 | 9,857 | 9.08 | 8.75 | ||||||||||||||
Total corporate loans | $ | 186,141 | $ | 183,585 | $ | 11,393 | $ | 11,575 | 8.18 | % | 8.43 | % | ||||||||
Total loans | $ | 745,573 | $ | 693,369 | $ | 47,883 | $ | 46,100 | 8.58 | % | 8.89 | % | ||||||||
Other interest-earning assets | $ | 101,766 | $ | 82,782 | $ | 3,301 | $ | 3,233 | 4.33 | % | 5.22 | % | ||||||||
Total interest-earning assets | $ | 1,791,027 | $ | 1,863,694 | $ | 82,744 | $ | 89,573 | 6.17 | % | 6.43 | % | ||||||||
Non-interest-earning assets(7) | 381,699 | 232,997 | ||||||||||||||||||
Total assets from discontinued operations | 32,686 | 36,801 | ||||||||||||||||||
Total assets | $ | 2,205,412 | $ | 2,133,492 | ||||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
| | | Average Volume | Interest Expense | % Average Rate | | Average Volume | Interest Expense | % Average Rate | |||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | In millions of dollars | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | In millions of dollars | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | 1st Qtr. 2009 | 4th Qtr. 2008 | 1st Qtr. 2008 | ||||||||||||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits | Deposits | |||||||||||||||||||||||||||||||||||||||||||||||
In U. S. offices | In U. S. offices | In U. S. offices | |||||||||||||||||||||||||||||||||||||||||||||||
Savings deposits(5) | $ | 161,377 | $ | 147,171 | $ | 2,334 | $ | 3,569 | 1.93 | % | 3.24 | Savings deposits(5) | $ | 164,977 | $ | 164,111 | $ | 164,945 | $ | 334 | $ | 587 | $ | 1,040 | 0.82 | % | 1.42 | % | 2.54 | % | |||||||||||||||||||
Other time deposits | 59,210 | 55,005 | 1,945 | 2,346 | 4.39 | 5.70 | Other time deposits | 61,283 | 58,359 | 64,792 | 715 | 659 | 777 | 4.73 | 4.49 | 4.82 | |||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 486,320 | 469,567 | 11,912 | 14,869 | 3.27 | 4.23 | In offices outside the U.S.(6) | 408,840 | 434,845 | 506,228 | 1,799 | 2,834 | 4,377 | 1.78 | 2.59 | 3.48 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 706,907 | $ | 671,743 | $ | 16,191 | $ | 20,784 | 3.06 | % | 4.14 | Total | $ | 635,100 | $ | 657,315 | $ | 735,965 | $ | 2,848 | $ | 4,080 | $ | 6,194 | 1.82 | % | 2.47 | % | 3.38 | % | ||||||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | |||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 188,653 | $ | 247,893 | $ | 4,519 | $ | 11,193 | 3.20 | % | 6.04 | In U.S. offices | $ | 152,256 | $ | 176,526 | $ | 209,878 | $ | 316 | $ | 547 | $ | 2,035 | 0.84 | % | 1.23 | % | 3.90 | % | ||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 103,237 | 145,660 | 5,085 | 6,633 | 6.58 | 6.09 | In offices outside the U.S.(6) | 71,133 | 85,673 | 120,066 | 803 | 1,179 | 1,868 | 4.58 | 5.47 | 6.26 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 291,890 | $ | 393,553 | $ | 9,604 | $ | 17,826 | 4.40 | % | 6.06 | Total | $ | 223,389 | $ | 262,199 | $ | 329,944 | $ | 1,119 | $ | 1,726 | $ | 3,903 | 2.03 | % | 2.62 | % | 4.76 | % | ||||||||||||||||||
Trading account liabilities(8)(9) | Trading account liabilities(8)(9) | Trading account liabilities(8)(9) | |||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 32,576 | $ | 49,507 | $ | 934 | $ | 849 | 3.83 | % | 2.29 | In U.S. offices | $ | 20,712 | $ | 30,206 | $ | 37,713 | $ | 93 | $ | 173 | $ | 270 | 1.82 | % | 2.28 | % | 2.88 | % | ||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 47,468 | 59,360 | 145 | 209 | 0.41 | 0.47 | In offices outside the U.S.(6) | 31,965 | 33,562 | 53,432 | 20 | 25 | 63 | 0.25 | 0.30 | 0.47 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 80,044 | $ | 108,867 | $ | 1,079 | $ | 1,058 | 1.80 | % | 1.30 | Total | $ | 52,677 | $ | 63,768 | $ | 91,145 | $ | 113 | $ | 198 | $ | 333 | 0.87 | % | 1.24 | % | 1.47 | % | ||||||||||||||||||
Short-term borrowings | Short-term borrowings | Short-term borrowings | |||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 156,458 | $ | 167,264 | $ | 2,695 | $ | 4,629 | 2.30 | % | 3.70 | In U.S. offices | $ | 148,673 | $ | 147,386 | $ | 167,619 | $ | 367 | $ | 546 | $ | 1,152 | 1.00 | % | 1.47 | % | 2.76 | % | ||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 60,264 | 59,010 | 633 | 601 | 1.40 | 1.36 | In offices outside the U.S.(6) | 41,249 | 48,834 | 64,414 | 130 | 165 | 229 | 1.28 | 1.34 | 1.43 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 216,722 | $ | 226,274 | $ | 3,328 | $ | 5,230 | 2.05 | % | 3.09 | Total | $ | 189,922 | $ | 196,220 | $ | 232,033 | $ | 497 | $ | 711 | $ | 1,381 | 1.06 | % | 1.44 | % | 2.39 | % | ||||||||||||||||||
Long-term debt(10) | Long-term debt(10) | Long-term debt(10) | |||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 312,940 | $ | 256,617 | $ | 10,745 | $ | 10,217 | 4.59 | % | 5.32 | In U.S. offices | $ | 309,670 | $ | 306,933 | $ | 299,347 | $ | 2,820 | $ | 3,560 | $ | 3,831 | 3.69 | % | 4.61 | % | 5.15 | % | ||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 37,956 | 34,052 | 1,358 | 1,312 | 4.78 | 5.15 | In offices outside the U.S.(6) | 34,108 | 34,323 | 39,790 | 314 | 383 | 480 | 3.73 | 4.44 | 4.85 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 350,896 | $ | 290,669 | $ | 12,103 | $ | 11,529 | 4.61 | % | 5.30 | Total | $ | 343,778 | $ | 341,256 | $ | 339,137 | $ | 3,134 | $ | 3,943 | $ | 4,311 | 3.70 | % | 4.60 | % | 5.11 | % | ||||||||||||||||||
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,646,459 | $ | 1,691,106 | $ | 42,305 | $ | 56,427 | 3.43 | % | 4.46 | Total interest-bearing liabilities | $ | 1,444,866 | $ | 1,520,758 | $ | 1,728,224 | $ | 7,711 | $ | 10,658 | $ | 16,122 | 2.16 | % | 2.79 | % | 3.75 | % | ||||||||||||||||||
Demand deposits in U.S. offices | Demand deposits in U.S. offices | 13,288 | 12,025 | Demand deposits in U.S. offices | 15,383 | 15,162 | 12,960 | ||||||||||||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities(8) | 394,985 | 288,490 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other non-interest-bearing liabilities(8) | Other non-interest-bearing liabilities(8) | 304,425 | 370,536 | 438,301 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations | Total liabilities from discontinued operations | 19,435 | 18,235 | Total liabilities from discontinued operations | — | 10,122 | 18,928 | ||||||||||||||||||||||||||||||||||||||||||
Total liabilities | Total liabilities | $ | 2,074,167 | $ | 2,009,856 | Total liabilities | $ | 1,764,674 | $ | 1,916,578 | $ | 2,198,413 | |||||||||||||||||||||||||||||||||||||
Total stockholders' equity(11) | $ | 131,245 | $ | 123,636 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Citigroup stockholders' equity(11) | Total Citigroup stockholders' equity(11) | $ | 143,297 | $ | 137,096 | $ | 126,955 | ||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,205,412 | $ | 2,133,492 | |||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and Citigroup stockholders' equity | Total liabilities and Citigroup stockholders' equity | $ | 1,907,971 | $ | 2,053,674 | $ | 2,325,368 | ||||||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | Net interest revenue as a percentage of average interest-earning assets(12) | Net interest revenue as a percentage of average interest-earning assets(12) | |||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 1,025,789 | $ | 1,075,893 | $ | 19,187 | $ | 15,991 | 2.50 | % | 1.99 | % | In U.S. offices | $ | 970,429 | $ | 944,288 | $ | 1,064,593 | $ | 6,643 | $ | 6,706 | $ | 6,132 | 2.78 | % | 2.83 | % | 2.32 | % | |||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 765,238 | 787,801 | 21,252 | 17,155 | 3.71 | 2.91 | In offices outside the U.S.(6) | 615,669 | 691,566 | 815,513 | 6,255 | 6,547 | 6,936 | 4.12 | 3.77 | 3.42 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 1,791,027 | $ | 1,863,694 | $ | 40,439 | $ | 33,146 | 3.02 | % | 2.38 | % | Total | $ | 1,586,098 | $ | 1,635,854 | $ | 1,880,106 | $ | 12,898 | $ | 13,253 | $ | 13,068 | 3.30 | % | 3.22 | % | 2.80 | % | |||||||||||||||||
Reclassified to conform to the current period's presentation.
ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)
(3)
| | 3rd Qtr. 2008 vs. 2nd Qtr. 2008 | 3rd Qtr. 2008 vs. 3rd Qtr. 2007 | 1st Qtr. 2009 vs. 4th Qtr. 2008 | 1st Qtr. 2009 vs. 1st Qtr. 2008 | ||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | ||||||||||||||||||||||||||||||
| In millions of dollars | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | ||||||||||||||||||||||||||
Deposits with banks | $ | 36 | $ | (6 | ) | $ | 30 | $ | 79 | $ | (131 | ) | $ | (52 | ) | $ | 235 | $ | (562 | ) | $ | (327 | ) | $ | 609 | $ | (961 | ) | $ | (352 | ) | |||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (195 | ) | $ | 141 | $ | (54 | ) | $ | (704 | ) | $ | (1,241 | ) | $ | (1,945 | ) | $ | (65 | ) | $ | (112 | ) | $ | (177 | ) | $ | (396 | ) | $ | (800 | ) | $ | (1,196 | ) | |||
In offices outside the U.S.(3) | 268 | (369 | ) | (101 | ) | (975 | ) | 52 | (923 | ) | ||||||||||||||||||||||||||||
In offices outside the U.S.(4) | (117 | ) | (222 | ) | (339 | ) | (509 | ) | (579 | ) | (1,088 | ) | ||||||||||||||||||||||||||
Total | $ | 73 | $ | (228 | ) | $ | (155 | ) | $ | (1,679 | ) | $ | (1,189 | ) | $ | (2,868 | ) | $ | (182 | ) | $ | (334 | ) | $ | (516 | ) | $ | (905 | ) | $ | (1,379 | ) | $ | (2,284 | ) | |||
Trading account assets | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (404 | ) | $ | (105 | ) | $ | (509 | ) | $ | (930 | ) | $ | 8 | $ | (922 | ) | $ | (460 | ) | $ | (264 | ) | $ | (724 | ) | $ | (1,445 | ) | $ | (205 | ) | $ | (1,650 | ) | |||
In offices outside the U.S.(3) | (93 | ) | 112 | 19 | (386 | ) | 306 | (80 | ) | |||||||||||||||||||||||||||||
In offices outside the U.S.(4) | (105 | ) | (105 | ) | (210 | ) | (481 | ) | 290 | (191 | ) | |||||||||||||||||||||||||||
Total | $ | (497 | ) | $ | 7 | $ | (490 | ) | $ | (1,316 | ) | $ | 314 | $ | (1,002 | ) | $ | (565 | ) | $ | (369 | ) | $ | (934 | ) | $ | (1,926 | ) | $ | 85 | $ | (1,841 | ) | |||||
Investments(1) | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 79 | $ | (1 | ) | $ | 78 | $ | (177 | ) | $ | (380 | ) | $ | (557 | ) | $ | 88 | $ | (47 | ) | $ | 41 | $ | 221 | $ | 39 | $ | 260 | |||||||||
In offices outside the U.S.(3) | (65 | ) | 36 | (29 | ) | (242 | ) | 56 | (186 | ) | ||||||||||||||||||||||||||||
In offices outside the U.S.(4) | 254 | (5 | ) | 249 | 111 | 118 | 229 | |||||||||||||||||||||||||||||||
Total | $ | 14 | $ | 35 | $ | 49 | $ | (419 | ) | $ | (324 | ) | $ | (743 | ) | $ | 342 | $ | (52 | ) | $ | 290 | $ | 332 | $ | 157 | $ | 489 | ||||||||||
Loans—consumer | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (338 | ) | $ | 103 | $ | (235 | ) | $ | (44 | ) | $ | (571 | ) | $ | (615 | ) | $ | (144 | ) | $ | (430 | ) | $ | (574 | ) | $ | (540 | ) | $ | (736 | ) | $ | (1,276 | ) | |||
In offices outside the U.S.(3) | (41 | ) | (7 | ) | (48 | ) | 457 | (6 | ) | 451 | ||||||||||||||||||||||||||||
In offices outside the U.S.(4) | (278 | ) | (189 | ) | (467 | ) | (822 | ) | (500 | ) | (1,322 | ) | ||||||||||||||||||||||||||
Total | $ | (379 | ) | $ | 96 | $ | (283 | ) | $ | 413 | $ | (577 | ) | $ | (164 | ) | $ | (422 | ) | $ | (619 | ) | $ | (1,041 | ) | $ | (1,362 | ) | $ | (1,236 | ) | $ | (2,598 | ) | ||||
Loans—corporate | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (15 | ) | $ | 50 | $ | 35 | $ | 27 | $ | (190 | ) | $ | (163 | ) | $ | (18 | ) | $ | (73 | ) | $ | (91 | ) | $ | 47 | $ | (116 | ) | $ | (69 | ) | ||||||
In offices outside the U.S.(3) | (354 | ) | 189 | (165 | ) | (728 | ) | 242 | (486 | ) | ||||||||||||||||||||||||||||
In offices outside the U.S.(4) | (200 | ) | (266 | ) | (466 | ) | (696 | ) | (196 | ) | (892 | ) | ||||||||||||||||||||||||||
Total | $ | (369 | ) | $ | 239 | $ | (130 | ) | $ | (701 | ) | $ | 52 | $ | (649 | ) | $ | (218 | ) | $ | (339 | ) | $ | (557 | ) | $ | (649 | ) | $ | (312 | ) | $ | (961 | ) | ||||
Total loans | $ | (748 | ) | $ | 335 | $ | (413 | ) | $ | (288 | ) | $ | (525 | ) | $ | (813 | ) | $ | (640 | ) | $ | (958 | ) | $ | (1,598 | ) | $ | (2,011 | ) | $ | (1,548 | ) | $ | (3,559 | ) | |||
Other interest-earning assets | $ | (24 | ) | $ | (187 | ) | $ | (211 | ) | $ | (79 | ) | $ | (528 | ) | $ | (607 | ) | $ | (137 | ) | $ | (80 | ) | $ | (217 | ) | $ | (546 | ) | $ | (488 | ) | $ | (1,034 | ) | ||
Total interest revenue | $ | (1,146 | ) | $ | (44 | ) | $ | (1,190 | ) | $ | (3,702 | ) | $ | (2,383 | ) | $ | (6,085 | ) | $ | (947 | ) | $ | (2,355 | ) | $ | (3,302 | ) | $ | (4,447 | ) | $ | (4,134 | ) | $ | (8,581 | ) | ||
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)
| | 3rd Qtr. 2008 vs. 2nd Qtr. 2008 | 3rd Qtr. 2008 vs. 3rd Qtr. 2007 | 1st Qtr. 2009 vs. 4th Qtr. 2008 | 1st Qtr. 2009 vs. 1st Qtr. 2008 | ||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | ||||||||||||||||||||||||||||||
| In millions of dollars | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | ||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (66 | ) | $ | (66 | ) | $ | (132 | ) | $ | 47 | $ | (869 | ) | $ | (822 | ) | $ | 21 | $ | (218 | ) | $ | (197 | ) | $ | (27 | ) | $ | (741 | ) | $ | (768 | ) | ||||
In offices outside the U.S.(3) | (190 | ) | 155 | (35 | ) | (386 | ) | (1,333 | ) | (1,719 | ) | |||||||||||||||||||||||||||
In offices outside the U.S.(4) | (161 | ) | (874 | ) | (1,035 | ) | (726 | ) | (1,852 | ) | (2,578 | ) | ||||||||||||||||||||||||||
Total | $ | (256 | ) | $ | 89 | $ | (167 | ) | $ | (339 | ) | $ | (2,202 | ) | $ | (2,541 | ) | $ | (140 | ) | $ | (1,092 | ) | $ | (1,232 | ) | $ | (753 | ) | $ | (2,593 | ) | $ | (3,346 | ) | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (253 | ) | $ | 139 | $ | (114 | ) | $ | (1,294 | ) | $ | (1,573 | ) | $ | (2,867 | ) | $ | (68 | ) | $ | (163 | ) | $ | (231 | ) | $ | (445 | ) | $ | (1,274 | ) | $ | (1,719 | ) | |||
In offices outside the U.S.(3) | 254 | (367 | ) | (113 | ) | (808 | ) | (19 | ) | (827 | ) | |||||||||||||||||||||||||||
In offices outside the U.S.(4) | (183 | ) | (193 | ) | (376 | ) | (636 | ) | (429 | ) | (1,065 | ) | ||||||||||||||||||||||||||
Total | $ | 1 | $ | (228 | ) | $ | (227 | ) | $ | (2,102 | ) | $ | (1,592 | ) | $ | (3,694 | ) | $ | (251 | ) | $ | (356 | ) | $ | (607 | ) | $ | (1,081 | ) | $ | (1,703 | ) | $ | (2,784 | ) | |||
Trading account liabilities | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 7 | $ | (169 | ) | $ | (162 | ) | $ | (131 | ) | $ | 80 | $ | (51 | ) | $ | (47 | ) | $ | (33 | ) | $ | (80 | ) | $ | (97 | ) | $ | (80 | ) | $ | (177 | ) | ||||
In offices outside the U.S.(3) | (3 | ) | (1 | ) | (4 | ) | (25 | ) | (5 | ) | (30 | ) | ||||||||||||||||||||||||||
In offices outside the U.S.(4) | (1 | ) | (4 | ) | (5 | ) | (20 | ) | (23 | ) | (43 | ) | ||||||||||||||||||||||||||
Total | $ | 4 | $ | (170 | ) | $ | (166 | ) | $ | (156 | ) | $ | 75 | $ | (81 | ) | $ | (48 | ) | $ | (37 | ) | $ | (85 | ) | $ | (117 | ) | $ | (103 | ) | $ | (220 | ) | ||||
Short-term borrowings | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (16 | ) | $ | (69 | ) | $ | (85 | ) | $ | (305 | ) | $ | (721 | ) | $ | (1,026 | ) | $ | 5 | $ | (184 | ) | $ | (179 | ) | $ | (118 | ) | $ | (667 | ) | $ | (785 | ) | |||
In offices outside the U.S.(3) | (46 | ) | 90 | 44 | (84 | ) | 98 | 14 | ||||||||||||||||||||||||||||||
In offices outside the U.S.(4) | (24 | ) | (11 | ) | (35 | ) | (75 | ) | (24 | ) | (99 | ) | ||||||||||||||||||||||||||
Total | $ | (62 | ) | $ | 21 | $ | (41 | ) | $ | (389 | ) | $ | (623 | ) | $ | (1,012 | ) | $ | (19 | ) | $ | (195 | ) | $ | (214 | ) | $ | (193 | ) | $ | (691 | ) | $ | (884 | ) | |||
Long-term debt | ||||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 87 | $ | (81 | ) | $ | 6 | $ | 603 | $ | (790 | ) | $ | (187 | ) | $ | 31 | $ | (771 | ) | $ | (740 | ) | $ | 128 | $ | (1,139 | ) | $ | (1,011 | ) | |||||||
In offices outside the U.S.(3) | (14 | ) | (22 | ) | (36 | ) | (64 | ) | (68 | ) | (132 | ) | ||||||||||||||||||||||||||
In offices outside the U.S.(4) | (2 | ) | (67 | ) | (69 | ) | (62 | ) | (104 | ) | (166 | ) | ||||||||||||||||||||||||||
Total | $ | 73 | $ | (103 | ) | $ | (30 | ) | $ | 539 | $ | (858 | ) | $ | (319 | ) | $ | 29 | $ | (838 | ) | $ | (809 | ) | $ | 66 | $ | (1,243 | ) | $ | (1,177 | ) | ||||||
Total interest expense | $ | (240 | ) | $ | (391 | ) | $ | (631 | ) | $ | (2,447 | ) | $ | (5,200 | ) | $ | (7,647 | ) | $ | (429 | ) | $ | (2,518 | ) | $ | (2,947 | ) | $ | (2,078 | ) | $ | (6,333 | ) | $ | (8,411 | ) | ||
Net interest revenue | $ | (906 | ) | $ | 347 | $ | (559 | ) | $ | (1,255 | ) | $ | 2,817 | $ | 1,562 | $ | (518 | ) | $ | 163 | $ | (355 | ) | $ | (2,369 | ) | $ | 2,199 | $ | (170 | ) | |||||||
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)
| | Nine Months 2008 vs. Nine Months 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Increase (Decrease) Due to Change in: | | ||||||||
| In millions of dollars | Average Volume | Average Rate | Net Change(2) | |||||||
Deposits at interest with banks(4) | $ | 495 | $ | (436 | ) | $ | 59 | |||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||
In U.S. offices | $ | (926 | ) | $ | (3,828 | ) | $ | (4,754 | ) | |
In offices outside the U.S.(4) | (2,190 | ) | 674 | (1,516 | ) | |||||
Total | $ | (3,116 | ) | $ | (3,154 | ) | $ | (6,270 | ) | |
Trading account assets(5) | ||||||||||
In U.S. offices | $ | (996 | ) | $ | 1,024 | $ | 28 | |||
In offices outside the U.S.(4) | (86 | ) | 184 | 98 | ||||||
Total | $ | (1,082 | ) | $ | 1,208 | $ | 126 | |||
Investments(1) | ||||||||||
In U.S. offices | $ | (1,346 | ) | $ | (954 | ) | $ | (2,300 | ) | |
In offices outside the U.S.(4) | (487 | ) | 192 | (295 | ) | |||||
Total | $ | (1,833 | ) | $ | (762 | ) | $ | (2,595 | ) | |
Loans—consumer | ||||||||||
In U.S. offices | $ | 1,125 | $ | (1,633 | ) | $ | (508 | ) | ||
In offices outside the U.S.(4) | 2,484 | (11 | ) | 2,473 | ||||||
Total | $ | 3,609 | $ | (1,644 | ) | $ | 1,965 | |||
Loans—corporate | ||||||||||
In U.S. offices | $ | 416 | $ | (523 | ) | $ | (107 | ) | ||
In offices outside the U.S.(4) | (449 | ) | 374 | (75 | ) | |||||
Total | $ | (33 | ) | $ | (149 | ) | $ | (182 | ) | |
Total loans | $ | 3,576 | $ | (1,793 | ) | $ | 1,783 | |||
Other interest-earning assets | $ | 669 | $ | (601 | ) | $ | 68 | |||
Total interest revenue | $ | (1,291 | ) | $ | (5,538 | ) | $ | (6,829 | ) | |
Deposits | ||||||||||
In U.S. offices | $ | 500 | $ | (2,136 | ) | $ | (1,636 | ) | ||
In offices outside the U.S.(4) | 514 | (3,471 | ) | (2,957 | ) | |||||
Total | $ | 1,014 | $ | (5,607 | ) | $ | (4,593 | ) | ||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||
In U.S. offices | $ | (2,251 | ) | $ | (4,423 | ) | $ | (6,674 | ) | |
In offices outside the U.S.(4) | (2,055 | ) | 507 | (1,548 | ) | |||||
Total | $ | (4,306 | ) | $ | (3,916 | ) | $ | (8,222 | ) | |
Trading account liabilities(5) | ||||||||||
In U.S. offices | $ | (356 | ) | $ | 441 | $ | 85 | |||
In offices outside the U.S.(4) | (39 | ) | (25 | ) | (64 | ) | ||||
Total | $ | (395 | ) | $ | 416 | $ | 21 | |||
Short-term borrowings | ||||||||||
In U.S. offices | $ | (283 | ) | $ | (1,651 | ) | $ | (1,934 | ) | |
In offices outside the U.S.(4) | 13 | 19 | 32 | |||||||
Total | $ | (270 | ) | $ | (1,632 | ) | $ | (1,902 | ) | |
Long-term debt | ||||||||||
In U.S. offices | $ | 2,053 | $ | (1,525 | ) | $ | 528 | |||
In offices outside the U.S.(4) | 144 | (98 | ) | 46 | ||||||
Total | $ | 2,197 | $ | (1,623 | ) | $ | 574 | |||
Total interest expense | $ | (1,760 | ) | $ | (12,362 | ) | $ | (14,122 | ) | |
Net interest revenue | $ | 469 | $ | 6,824 | $ | 7,293 | ||||
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES
Overview
Capital is generally generated by earnings from operating businesses. This is augmented through issuances of common stock, convertible preferred stock, preferred stock, subordinated debt underlying trust preferred securities, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company's businesses and to absorb expected and unexpected market, credit or operational losses. The Company's uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008 as explained more fully in the 2008 Annual Report on Form 10-K. See also "Events in 2009" and "TARP and Other Regulatory Programs" and "Common Equity."
Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity and country level.
Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity matters. Among other things, the Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity and the impact of currency translation on non-U.S. earnings and capital. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. At March 31, 2009, these targets exceeded the regulatory standards.
Impact of Recent U.S. Government Agreements
During the first quarter of 2009, Citigroup issued $7.059 billion of preferred stock to the U.S. Treasury and the FDIC, and a warrant to purchase common stock to the U.S. Treasury, as consideration for the loss-sharing agreement with the USG. See "TARP and Other Regulatory Programs." Citigroup received no additional cash proceeds for their issuance. Of the issuance, $3.617 billion, representing the fair value of the issued shares and warrant, was treated as Tier 1 Capital, adding approximately 35 basis points to the Tier 1 Capital ratio during the first quarter.
In addition, on February 27, 2009, the Company announced an exchange offer of its common stock for up to a total of $27.5 billion of its existing preferred stock and trust preferred securities. On May 7, 2009, as a result of the USG's Supervisory Capital Assessment Program (SCAP), the Company announced that it will expand the Exchange Offer by increasing the maximum amount of preferred securities and trust preferred securities that it will accept in the Exchange Offer by $5.5 billion to a total of $33 billion. The USG will match the exchange by converting up to a maximum of $25 billion of its preferred stock into common stock. This transaction could increase Tier 1 Common of the Company from the first quarter of 2009 level of $22.1 billion to as much as $86.2 billion, which assumes the exchange of $33 billion of preferred securities and trust preferred securities, the maximum eligible under the transaction. Citi's tangible common equity (TCE), which was $30.9 billion as of March 31, 2009, will increase by as much as $60.4 billion to up to $91.3 billion.There will be no impact to Tier 1 Capital resulting from the exchange offer.
These first quarter 2009 transactions built upon actions taken by the Company, in conjunction with the USG, during the latter part of 2008 to increase its capital, including without limitation the issuance of an aggregate of $45 billion in preferred stock and warrants to the USG under TARP, all of which was treated as Tier 1 Capital for regulatory capital purposes. See "Events in 2009" and "TARP and Other Regulatory Programs." As a result of these and other issuances of preferred stock, the conversion price of the Company's preferred stock issued in a private offering in January 2008 was reset, resulting in a reclassification fromRetained earnings toAdditional paid in capital of approximately $1.285 billion. See "Events in 2009—Exchange Offer and Conversions."
Future business results of the Company, including events such as corporate dispositions, will continue to affect the Company's capital levels. Moreover, changes that the FASB has proposed regarding off-balance sheet assets, consolidation and sale treatment could also have an incremental impact on capital ratios. See also Note 15 to the Consolidated Financial Statements, including "Funding, Liquidity Facilities and Subordinate Interests."
Capital Ratios
Citigroup is subject to risk-based capital ratio guidelines issued by the FRB.Federal Reserve Board (FRB). Capital adequacy is measured, viain part, based on two risk-based capital ratios, the Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). ratios. Tier 1 Capital is consideredconsists of core capital, while Total Capital also includes other items such as subordinated debt and loan loss reserves. Both measures of capital adequacy are stated as a percentpercentage of risk-adjustedrisk-weighted assets. Risk-adjusted
Citigroup's risk-weighted assets are measured primarily on their perceivedprincipally derived from application of the risk-based capital guidelines related to the measurement of credit risk, under which on-balance sheet assets and includethe credit equivalent amount of certain off-balance-sheetoff-balance sheet exposures such(such as financial guarantees, unfunded loanlending commitments, and letters of credit, and derivatives) are assigned to one of several prescribed risk weight categories based upon the notional amountsperceived credit risk associated with the obligor, or if relevant, the guarantor, the nature of derivativethe collateral, or external credit ratings. Risk-weighted assets also incorporate a measure for market risk on covered trading account positions, and all foreign exchange contracts.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.
Citigroup is also subject to thea Leverage Ratio requirement, a non-risk-based asset ratio,measure of capital adequacy, which is defined as Tier 1 Capital as a percentage of quarterly adjusted average assets.
To be "well capitalized" under 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 a Leverage Ratio of at least 3%, and not be subject to an FRB directive to maintain higher capital levels.
In conjunction with the conclusion of the SCAP, the Banking Regulators have developed a new measure of capital called Tier 1 Common defined as Tier 1 Capital less non-common elements including qualified perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities.
As noted in the following table, Citigroup maintained awas "well capitalized" positionunder federal bank regulatory agency definitions at September 30, 2008March 31, 2009 and December 31, 2007.2008.
Citigroup Regulatory Capital Ratios
| | September 30, 2008 | December 31, 2007 | Mar. 31, 2009 | Dec. 31, 2008 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Common | 2.16 | % | 2.30 | % | ||||||||||
Tier 1 Capital | 8.19 | % | 7.12 | % | 11.92 | 11.92 | ||||||||
Total Capital (Tier 1 and Tier 2) | 11.68 | 10.70 | 15.61 | 15.70 | ||||||||||
Leverage(1) | 4.70 | 4.03 | 6.60 | 6.08 | ||||||||||
Components of Capital Under Regulatory Guidelines
| In millions of dollars | Sept. 30, 2008 | Dec. 31,(1) 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | ||||||||
Common stockholders' equity(2) | $ | 98,638 | $ | 113,447 | ||||
Qualifying perpetual preferred stock | 27,424 | — | ||||||
Qualifying mandatorily redeemable securities of subsidiary trusts | 23,674 | 23,594 | ||||||
Minority interest | 1,479 | 4,077 | ||||||
Less: Net unrealized gains (losses) on securities available-for-sale, net of tax(3) | (6,186 | ) | 471 | |||||
Less: Accumulated net losses on cash flow hedges, net of tax | (3,475 | ) | (3,163 | ) | ||||
Less: Pension liability adjustment, net of tax(4) | (1,149 | ) | (1,196 | ) | ||||
Less: Cumulative effect included in fair value of financial liabilities attributable to own credit worthiness, net of tax(5) | 2,215 | 1,352 | ||||||
Less: Restricted Core Capital Elements(6) | — | 1,364 | ||||||
Less: Disallowed Deferred Tax Assets(7) | 10,023 | — | ||||||
Less: Intangible assets: | ||||||||
Goodwill | 40,824 | 41,053 | ||||||
Other disallowed intangible assets | 11,584 | 10,511 | ||||||
Other | (1,104 | ) | (1,500 | ) | ||||
Total Tier 1 Capital | $ | 96,275 | $ | 89,226 | ||||
Tier 2 Capital | ||||||||
Allowance for credit losses(8) | $ | 14,888 | $ | 15,778 | ||||
Qualifying debt(9) | 25,724 | 26,690 | ||||||
Unrealized marketable equity securities gains(3) | 475 | 1,063 | ||||||
Restricted Core Capital Elements(6) | — | 1,364 | ||||||
Total Tier 2 Capital | $ | 41,087 | $ | 44,895 | ||||
Total Capital (Tier 1 and Tier 2) | $ | 137,362 | $ | 134,121 | ||||
Risk-Adjusted Assets(10) | $ | 1,175,706 | $ | 1,253,321 | ||||
| In millions of dollars | Mar. 31, 2009 | Dec. 31, 2008(1) | ||||||
|---|---|---|---|---|---|---|---|---|
| Tier 1 Common | ||||||||
| Citigroup common stockholders' equity | $ | 69,688 | $ | 70,966 | ||||
| Less: Net unrealized gains (losses) on securities available-for-sale, net of tax(2) | (10,040 | ) | (9,647 | ) | ||||
| Less: Accumulated net losses on cash flow hedges, net of tax | (3,706 | ) | (5,189 | ) | ||||
| Less: Pension liability adjustment, net of tax(3) | (2,549 | ) | (2,615 | ) | ||||
| Less: Cumulative effect included in fair value of financial liabilities attributable to credit worthiness, net of tax(4) | 3,487 | 3,391 | ||||||
| Less: Disallowed deferred tax assets(5) | 22,920 | 23,520 | ||||||
| Less: Intangible assets: | ||||||||
| Goodwill | 26,410 | 27,132 | ||||||
| Other disallowed intangible assets | 10,205 | 10,607 | ||||||
| Other | (870 | ) | (840 | ) | ||||
| Total Tier 1 Common | $ | 22,091 | $ | 22,927 | ||||
| Qualifying perpetual preferred stock | $ | 74,246 | $ | 70,664 | ||||
| Qualifying mandatorily redeemable securities of subsidiary trusts | 24,532 | 23,899 | ||||||
| Minority interest | 1,056 | 1,268 | ||||||
| Total Tier 1 Capital | $ | 121,925 | $ | 118,758 | ||||
| Tier 2 Capital | ||||||||
| Allowance for credit losses(6) | $ | 13,200 | $ | 12,806 | ||||
| Qualifying debt(7) | 24,379 | 24,791 | ||||||
| Unrealized marketable equity securities gains(2) | 157 | 43 | ||||||
| Total Tier 2 Capital | $ | 37,736 | $ | 37,640 | ||||
| Total Capital (Tier 1 and Tier 2) | $ | 159,661 | $ | 156,398 | ||||
| Risk-Weighted Assets(8) | $ | 1,023,038 | $ | 996,247 | ||||
Common stockholders' equity decreased approximately $14.8 billion to $98.6 billion, representing 4.8%All three of total assets, as of September 30, 2008 from $113.4 billionCitigroup's primary credit card securitization trusts—Master Trust, Omni Trust, and 5.2% at December 31, 2007.
DuringBroadway Trust—have had bonds placed on ratings watch by rating agencies. The Master Trust and Broadway Trust had bonds placed on ratings watch with negative implications during the first nine monthsquarter of 2008,2009. As a result of the Company completed the following common stock and preferred stock issuances:
Subsequent to September 30, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stockratings watch status, certain actions were taken or announced with respect to the U.S. DepartmentMaster Trust. The actions subordinated certain senior interests in the trust assets that were retained by Citigroup, which effectively placed these interests below investor interests in terms of priority of payment. While the Omni Trust bonds had not been placed on ratings watch status until April 2009, the Omni Trust had nonetheless previously issued a subordinated note with a face amount of $265 million in October 2008 to Citibank (South Dakota) N.A., in order to avert a downgrade of its outstanding AAA and A securities. The Federal Reserve has concluded that as a result of these actions commencing with the first quarter of 2009, Citigroup is also required to include the sold assets of the Treasury as partMaster and Omni trusts in its risk-weighted assets for purposes of the Treasury's previously announced TARP Capital Purchase Program.
Allcalculating its risk-based capital ratios. The effect of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis,decision increased Citigroup's risk-weighted assets by approximately $82 billion at September 30, 2008,March 31, 2009, and decreased Citigroup's Tier 1 Capital ratio would have beenby approximately 10.4%.
The preferred stock will have an aggregate liquidation preference100 bps, as of $25 billion and an annual dividend rate of 5% forMarch 31, 2009. See Note 15 to the first five years, and 9% thereafter. Dividends will be cumulative and payable quarterly. The warrant will have an exercise price of $17.85 and will be exercisable for 210,084,034 shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009.
The terms of the $12.5 billion of 7% convertible preferred stock sold in private offerings in January 2008 provide for the purchase of Citigroup common shares at a price per share originally equal to $31.62. This purchase price is subject to reset in the case of certain equity and equity-linked issuances of Citigroup with gross proceeds in excess of $5 billion prior to January 23, 2009. After giving effect to Citigroup's issuance of common stock in April 2008 and the issuance of the warrant in October 2008, if the applicable reset were effected currently, the maximum purchase price per share would be $27.6958. The actual reset will be determined and effected within 90 days after January 23, 2009 and will be subject to further adjustment for additional issues of reset-causing equity or equity-linked securities before January 23, 2009, provided that the reset purchase price cannot be less than $26.3517 per share.Consolidated Financial Statements.
Common Equity
Citigroup's common stockholders' equity decreased approximately $1.3 billion to $69.7 billion, and represents 3.8% of total assets as of March 31, 2009, from $71.0 billion and 3.7% at December 31, 2008.
The table below summarizes the change in Citigroup's common stockholders' equity:equity during the first three months of 2009:
| In billions of dollars | | |||
|---|---|---|---|---|
Common Equity, December 31, 2007 | $ | 113.4 | ||
Net income (loss) | (10.4 | ) | ||
Employee benefit plans and other activities | 1.6 | |||
Dividends | (6.0 | ) | ||
Issuance of common stock | 4.9 | |||
Issuance of shares for Nikko Cordial acquisition | 4.4 | |||
Net change in Accumulated other comprehensive income (loss), net of tax | (9.3 | ) | ||
Common Equity, September 30, 2008 | $ | 98.6 | ||
| In billions of dollars | | |||
|---|---|---|---|---|
| Common equity, December 31, 2008 | $ | 71.0 | ||
| Net income | 1.6 | |||
| Dividends | (1.1 | ) | ||
| Net change in Accumulated other comprehensive income (loss), net of tax | (1.8 | ) | ||
| Common equity, March 31, 2009 | $ | 69.7 | ||
As of September 30, 2008,March 31, 2009, $6.7 billion of stock repurchases remained under authorized repurchase programs after the repurchase of $0.7 billionno material repurchases were made in shares during 2007. In addition, under the2008. Under TARP, Capital Purchase Program the Company is restricted from repurchasing common stock, subject to certain exceptions, including in the ordinary course of business as part of employee benefit programs. On October 20, 2008, the Board decreased theIn addition, in accordance with various TARP programs, Citigroup has agreed not to pay a quarterly dividend on the Company's common stock dividend exceeding $0.01 per share per quarter for three years (beginning in 2009) without the consent of the U.S. Treasury. Further, as previously announced, in connection with the proposed exchange offer, Citi suspended dividends on its common stock. See "Events in 2009—Exchange Offer and Conversions."
Tangible Common Equity (TCE)
Citigroup management believes TCE is useful because it is a measure utilized by market analysts in evaluating a company's financial condition and capital strength. Tangible common equity (TCE), as defined by the Company, representsCommon equity lessGoodwill andIntangible assets (excluding MSRs) net of therelated deferred tax liabilities. TCE was $30.9 billion at March 31, 2009 and $31.1 at December 31, 2008.
The TCE Ratio (TCE divided by risk-weighted assets (see above under "Components of Capital Under Regulatory Guidelines"), was 3.0% at March 31, 2009, and 3.1% at December 31, 2008, respectively.
TCE and the TCE Ratio are non-GAAP financial measures. Other companies may calculate TCE in a manner different from Citigroup. A reconciliation of Citigroup's total stockholders' equity to $0.16 per share.TCE follows:
| In millions of dollars, except ratio | March 31, 2009 | December 31, 2008 | ||||||
|---|---|---|---|---|---|---|---|---|
| Total Citigroup Stockholders' Equity | $ | 143,934 | $ | 141,630 | ||||
| Preferred Stock | (74,246 | ) | (70,664 | ) | ||||
| Common Equity | $ | 69,688 | $ | 70,966 | ||||
| Goodwill | (26,410 | ) | (27,132 | ) | ||||
| Intangible Assets (excluding MSRs) | (13,612 | ) | 1,254 | |||||
| Related net deferred tax liabilities | (14,159 | ) | 1,382 | |||||
| Tangible Common Equity (TCE) | $ | 30,920 | $ | 31,057 | ||||
| Tangible Assets | ||||||||
| GAAP assets | $ | 1,822,578 | $ | 1,938,470 | ||||
| Goodwill | (26,410 | ) | (27,132 | ) | ||||
| Intangible Assets (excluding MSRs) | (13,612 | ) | (14,159 | ) | ||||
| Related deferred tax assets | (1,275 | ) | (1,285 | ) | ||||
| Tangible Assets (TA)(1) | $ | 1,781,281 | $ | 1,895,894 | ||||
| Risk-Weighted Assets (RWA) | $ | 1,023,038 | $ | 996,247 | ||||
| TCE/TA RATIO | 1.7 | % | 1.6 | % | ||||
| TCE RATIO (TCE/RWA) | 3.0 | % | 3.1 | % | ||||
Capital Resources of Citigroup's Depository Institutions
Citigroup's subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the FRB's guidelines. To be "well capitalized" under federal bank regulatory agency definitions, Citigroup's depository institutions must have a Tier 1 Capital Ratio of at least 6%, a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%, and not be subject to a regulatory directive to meet and maintain higher capital levels.
At September 30, 2008,March 31, 2009, all of Citigroup's subsidiary depository institutions were "well capitalized" under the federal regulatory agencies' definitions, including Citigroup's primary depository institution, Citibank, N.A., as noted in the following table:
Citibank, N.A. Components of Capital and Ratios Under Regulatory Guidelines
| In billions of dollars | September 30, 2008 | December 31, 2007 | Mar. 31, 2009 | Dec. 31, 2008 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | $ | 77.2 | $ | 82.0 | $ | 98.7 | $ | 71.0 | ||||||
Total Capital (Tier 1 and Tier 2) | 116.5 | 121.6 | 122.5 | 108.4 | ||||||||||
Tier 1 Capital Ratio | 8.86 | % | 8.98 | % | 14.64 | % | 9.94 | % | ||||||
Total Capital (Tier 1 and Tier 2) Ratio | 13.38 | 13.33 | ||||||||||||
| Total Capital Ratio (Tier 1 and Tier 2) | 18.19 | 15.18 | ||||||||||||
Leverage Ratio(1) | 6.51 | 6.65 | 8.38 | 5.82 | ||||||||||
Citibank, N.A. had a net lossincome of $1.5 billion for the first nine monthsquarter of 2008.2009.
During the first quarter of 2009, Citibank, N.A. did not issue any additional subordinated notes during the first nine monthsreceived capital contributions from its parent company of 2008. For the full year 2007,$27.5 billion. Citibank, N.A. issued an additional $5.2redeemed $13.2 billion of subordinated notes to Citicorp Holdings Inc. that qualify for inclusion in Citibank, N.A.'s Tier 2 Capital.the first quarter of 2009. Total subordinated notes issued to Citicorp Holdings Inc. that were outstanding at September 30, 2008March 31, 2009 and December 31, 2007,2008 and included in Citibank, N.A.'s Tier 2 Capital, amounted to $15.0 billion and $28.2 billion.billion, respectively. The significant events in 2008 and the first quarter of 2009 impacting the capital of Citigroup, and the potential future events discussed under "Capital Resources and Liquidity," also affected, or could affect, Citibank, N.A.
The following table presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s Capital Ratios to changes of $100 million of Tier 1 or Total Capital (numerator), or changes of $1 billion in risk-adjustedrisk-weighted assets or adjusted average assets (denominator) based on financial information as of September 30,2008.March 31, 2009. This information is provided solely for the purpose of analyzing the impact that a change in the Company's financial position or results of operations hascould have on these ratios. These sensitivities only consider a single change to either a component of Capital, risk-adjustedrisk-weighted assets or adjusted average assets. Accordingly, an event that affects more than one factor may have a larger basis pointbasis-point impact than what is reflected in this table.
| | Tier 1 Capital Ratio | Total Capital Ratio | Leverage Ratio | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Impact of $100 million change in Tier 1 Capital | Impact of $1 billion change in assets | Impact of $100 million change in | Impact of $1 billion change in assets | Impact of $100 million change in Tier 1 Capital | Impact of $1 billion change in adjusted average assets | ||||||||||||||||
Citigroup | 1.0 bps | 1.5 bps | 0.5 bps | |||||||||||||||||||
| ||||||||||||||||||||||
| Citibank, N.A. | 1.5 bps | 1.5 bps | 2.7 bps | 0.8 bps | ||||||||||||||||||
Broker-Dealer Subsidiaries
At September 30, 2008,March 31, 2009, Citigroup Global Markets Inc., an indirect wholly ownedwholly-owned subsidiary of Citigroup Global MarketMarkets Holdings Inc. (CGMHI), had net capital, computed in accordance with the Net Capital Rule, of $4.9$8.5 billion, which exceeded the minimum requirement by $3.9$7.7 billion.
In addition, certain of the Company's broker-dealer subsidiaries are subject to regulation in the other countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. The Company's broker-dealer subsidiaries were in compliance with their capital requirements at September 30, 2008.March 31, 2009.
Regulatory Capital Standards Developments
Citigroup supports the move to a new set of risk-based regulatory capital standards, published on June 26, 2004 (and subsequently amended in November 2005) by the Basel Committee on Banking Supervision, consisting of central banks and bank supervisors from 13 countries. The international version of the Basel II framework will allow Citigroup to leverage internal risk models used to measure credit, operational, and market risk exposures to drive regulatory capital calculations.
On December 7, 2007, the U.S. banking regulators published the rules for large banks to comply with Basel II in the U.S. These rules require Citigroup, as a large and internationally active bank, to comply with the most advanced Basel II approaches for calculating credit and operational risk capital requirements. The U.S. implementation timetable consists of a parallel calculation period under the current regulatory capital regime (Basel I) and Basel II, starting any timeanytime between April 1, 2008, and April 1, 2010 followed by a three-year transition period, typically starting 12 months after the beginning of parallel reporting. The U.S. regulators have reserved the right to change how Basel II is applied in the U.S. following a review at the end of the second year of the transitional period, and to retain the existing prompt corrective action and leverage capital requirements applicable to banking organizations in the U.S.
The Company is currently reviewing its timetable for adoption.
The regulators have not determined any regulatory responseintends to proposed changes of accounting treatment regarding Qualifying Special Purpose Entities (QSPEs) or variable interest entities.implement Basel II within the timeframe required by the final rules.
FUNDING
Overview
AsBecause Citigroup is a bank holding company, substantially all of Citigroup'sits net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend payingdividend-paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agencyrating-agency requirements that also impact their capitalization levels.
OurAs discussed in more detail in the Company's 2008 Annual Report on Form 10-K, global financial markets faced unprecedented disruption in the latter part of 2008. Citigroup and other U.S. financial services firms are currently benefiting from numerous government programs that are improving markets and providing Citigroup and other institutions with significant current funding capacity and significant liquidity position remained very strong during the third quarter of 2008support. See "TARP and will continue to be enhanced through the sale of perpetual preferred stock and warrantsOther Regulatory Programs."
In addition to the U.S. Department ofabove programs, since the Treasury, sale of our German Retail Banking Operations and continued balance sheet de-leveraging.
During the second halfmiddle of 2007, and the first nine months of 2008, the Company tookhas taken a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Companyparent company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. For each of the past fiveeleven months in the period ending September 30, 2008,March 31, 2009, the Company was, on average, a net lender of funds in the interbank market.market or had excess cash placed in its account at the Federal Reserve Bank of New York. As of September 30, 2008,March 31, 2009, the Parent Companyparent company liquidity portfolio and broker-dealer "cash box" totaled $50.5$65.1 billion as compared with $24.2$66.8 billion at December 31, 20072008 and $24.0$30.0 billion at September 30, 2007.March 31, 2008.
These actions served Citigroup well duringto reduce funding risks, the unprecedented market conditions at the endreduction of the 2008 third quarter. Continued de-leveragingbalance sheet and the enhancement of our liquidity positionsubstantial support provided by U.S. government programs have allowed the combined Parentparent and Broker—Dealerbroker-dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon, without accessing the unsecured markets.
Citigroup's funding continues to be enhanced bysources are diversified across funding types and geography, a largebenefit of its global franchise. Funding for Citigroup and its major operating subsidiaries includes a geographically diverse retail and corporate deposit base of $780$762.7 billion. These deposits are diversified across products and regions, with approximately two-thirds of them outside of the U.S. This diversification including deep access to international deposits, provides the Company with an important, stable and low-cost source of funding. A significant portion of these deposits has been, and is expected to be, long-term and stable, and are considered to be core. During
Excluding the three months ending September 30, 2008,impact of changes in foreign exchange rates during the quarter ended March 31, 2009, the Company's deposit base remained stable with deposits lower by $23.3 billion, or 1%. The decrease reflected the reclassification of $13.5 billion in deposits held by our German Retail Banking operations to discontinued operations. Deposit balances were also negatively impacted by a stronger U.S. dollar and by the Company's decisions to reduce deposits, considered wholesale funding, consistent with the Company's de-leveraging efforts. On a constant dollar basis, deposit volumes were higher during the third quarter.stable. On a volume basis, significantdeposit increases inTransaction Services deposits were drivennoted in U.S. and International Retail Banking, and in Smith Barney. This was partially offset by higher cashdeclines in Corporate balances maintained by clients and a flight to quality. Overall, consumer deposits outside the U.S. were essentially flat, excluding the impact of foreign exchange translation and the reclassification of the deposits of the German Retail Banking business.Private Bank.
Banking Subsidiaries
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 nonbanknon-bank subsidiaries. The approval of the Office of the Comptroller of the Currency, in the case of national banks, or the Office of Thrift Supervision, in the case of federal savings banks, 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 declaration of 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. Consistent with these rules and other considerations, Citigroup estimates that, as of September 30, 2008,March 31, 2009, its subsidiary depository institutions couldwould distribute dividends to Citigroup of approximately $7.2 billion.$205 million.
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. However, the ability of CGMHI to declare dividends can be restricted by capital considerations of its broker-dealer subsidiaries.
CGMHI's consolidated balance sheet is liquid, with the vast majority of its assets consisting of marketable securities and collateralized short-term financing agreements arising from securities transactions. CGMHI monitors and evaluates the adequacy of its capital and borrowing base on a daily basis to maintain liquidity and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries.
Some of Citigroup's non-bank subsidiaries, including CGMHI, 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. There are various legal restrictions on the extent to which a bank holding company and certain of its non-bank subsidiaries can borrow or obtain credit from Citigroup's subsidiary depository institutions or engage in certain other transactions with them. In general, these restrictions require that transactions be on arm's length terms and be secured by designated amounts of specified collateral. See Note 12 to the Consolidated Financial Statements.
At September 30, 2008,March 31, 2009, long-term debt and commercial paper outstanding for Citigroup, Parent Company, CGMHI, Citigroup Funding Inc. (CFI) and Citigroup's Subsidiariessubsidiaries were as follows:
| In billions of dollars | Citigroup Parent company | CGMHI(1) | Citigroup Funding Inc.(1) | Other Citigroup Subsidiaries(2) | Citigroup parent company | CGMHI(2) | Citigroup Funding Inc.(2) | Other Citigroup Subsidiaries | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 185.1 | $ | 21.9 | $ | 41.6 | $ | 144.5 | $ | 188.8 | $ | 15.3 | $ | 40.5 | $ | 92.6 | (1) | |||||||||
Commercial paper | $ | — | $ | — | $ | 28.7 | $ | 1.0 | $ | — | $ | — | $ | 29.1 | $ | 0.1 | ||||||||||
See "TARP and Other Regulatory Programs—FDIC Temporary Liquidity Guarantee Program" regarding FDIC guarantees of certain long-term debt and commercial paper and interbank deposits. See also Note 12 to the Consolidated Financial Statements on page 104 for further detail on long-term debt and commercial paper outstanding.
Credit Ratings
Citigroup's ability to access the capital markets and other sources of wholesale funds is currently significantly subject to government funding and liquidity support. Any ability to access the capital markets or other sources of funds, as well as the cost of these funds and its ability to maintain certain deposits, is highly dependent on its credit ratings. The table below indicates the current ratings for Citigroup.
On September 29,November 24, 2008, Fitch Ratings lowered Citigroup Inc.'s and Citibank, N.A.'s senior debt rating to "A+" from "AA-." In doing so, Fitch removed the rating from "Watch Negative" and applied a "Stable Outlook."
On February 27, 2009, Moody's Investors Service lowered Citigroup Inc.'s senior debt rating to "A3" from "A2" and Citibank, N.A.'s long-term rating to "A1" from "Aa3." In doing so, Moody's removed the ratings from "Under Review for possible downgrade" and applied a "Stable Outlook."
On December 19, 2008, Standard & Poor's lowered Citigroup Inc.'s senior debt rating to "A" from "AA-" and Citibank, N.A.'s long-term rating to "A+" from "AA." In doing so, Standard & Poor's removed the rating from "CreditWatch Negative" and applied a "Stable Outlook." On December 19, 2008, Standard & Poor's also lowered the short-term and commercial paper ratings of Citigroup and Citibank, N.A. to "A-1" from "A-1+". On February 27, 2009, Standard & Poor's placed the ratings outlook of Citigroup Inc. and its subsidiaries on "Watch"Negative Outlook." On May 4, 2009, Standard & Poor's placed the ratings of Citigroup Inc. and its subsidiaries on "Credit Watch Negative." On May 8th 2009 Standard & Poor's affirmed the ratings of Citigroup Inc. and its Subsidiaries. In doing so Standard & Poor's removed the rating from "Credit Watch Negative", "Under Review for possible downgrade", and "CreditWatch with negative implication", respectively.applied a "Stable Outlook".
As a result of the Citigroup guarantee, changes in ratings and ratings outlooks for Citigroup Funding Inc. are the same as those of Citigroup Inc. noted above.
Citigroup's Debt Ratings as of September 30, 2008March 31, 2009
| | Citigroup Inc. | Citigroup Funding Inc. | Citibank, N.A. | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Senior | Commercial paper | Senior debt | Commercial paper | Long- term | Short- term | ||||||||||
Fitch Ratings | F1+ | F1+ | F1+ | |||||||||||||
Moody's Investors Service | P-1 | P-1 | P-1 | |||||||||||||
Standard & Poor's | A-1 | A-1 | A-1 | |||||||||||||
Ratings downgrades by Fitch Ratings, Moody's Investors Service or Standard & Poor's have had and could continue to have impacts on funding and liquidity, and could also have further explicit impact on liquidity due to collateral triggers and other cash requirements. Because of the current credit ratings of Citigroup Inc., a one-notch downgrade of its senior debt/long-term rating would likely impact Citigroup Inc.'s commercial paper/short-term rating. As of April 30, 2009, a one-notch downgrade of the senior debt/long-term rating of Citigroup Inc. accompanied by a one-notch downgrade of Citigroup Inc.'s commercial paper/short-term rating would result in an approximately $12.0 billion funding requirement in the form of collateral and cash obligations. Further, as of April 30, 2009, a one-notch downgrade of the senior debt/long-term ratings of Citibank, N.A. would result in an approximately $5.0 billion funding requirement in the form of collateral and cash obligations. Because of the 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.
LIQUIDITY
Citigroup's liquidity management is structured to optimize the free flow of funds through the Company's legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints, Citigroup's primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:
Within this construct, there is a funding framework for the Company's activities. The primary benchmark for the Parent and Broker-DealerBroker—Dealer Entities is that on a combined basis, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets. The resulting "short-term ratio" is monitored on a daily basis.
Starting in the latter part of 2008, serious credit and other market disruptions caused significant potential constraints on liquidity for financial institutions. Citigroup and other U.S. financial services firms are currently benefiting from numerous government programs that are providing Citigroup and other institutions with significant liquidity support. See "TARP and Other Regulatory Programs."
OFF-BALANCE SHEET ARRANGEMENTS
Overview
Citigroup and its subsidiaries are involved with numerousseveral types of off-balance-sheetoff-balance sheet arrangements, including special purpose entities (SPEs), linesprimarily in connection with securitization activities inGlobal Cards,Consumer Banking and letters of creditICG. Citigroup and loan commitments.
Uses ofits subsidiaries use SPEs
An SPE is an entity in the form of a trust or other legal vehicle designed to fulfill a specific limited need of the company that organized it.
The principal uses of SPEs are principally to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup's financial assets, to assistassisting clients in securitizing their financial assets and to createcreating investment products for clients. For further information about the Company's securitization activities and involvement in SPEs, may be organized as trusts, partnerships, or corporations. In a securitization, the company transferring assets to an SPE converts those assets into cash before they would have been realized in the normal course of business, through the SPE's issuing 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 on the transferring company's balance sheet, assuming applicable accounting requirements are satisfied. Investors usually have recoursesee Note 15 to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or overcollateralization in the form of excess assets in the SPE, or from a liquidity facility, such as a line of credit, 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. 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.
SPEs may be Qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs) or neither.
Qualifying SPEs
QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing ofConsolidated Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.
Variable Interest Entities
VIEs are entities defined in FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003)" (FIN 46-R), and are entities that have either a total equity investment at risk 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, right to receive the expected residual returns of the entity, and 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 will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE. Consolidation under FIN 46-R is based onexpected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.
All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it to be the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, a more detailed and quantitative analysis is required to make such a determination.
The Company generally considers the following types of involvement to be significant:
Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the seniority or perceived risk of the Company's involvement, is included as significant.
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 Companypays 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 significant" under FIN 46-R.
Citigroup's total involvement with SPEs, including QSPEs, consolidated VIEs and significant unconsolidated VIEs as of September 30, 2008 and December 31, 2007 is presented below:
| | September 30, 2008 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars of SPE assets | Total involvement with SPEs | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(1) | ||||||||||
Consumer Banking | ||||||||||||||
Credit card securitizations | $ | 122,490 | $ | 122,490 | $ | — | $ | — | ||||||
Mortgage loan securitizations | 578,277 | 578,273 | 4 | — | ||||||||||
Other | 17,579 | 15,999 | 1,580 | — | ||||||||||
Total | $ | 718,346 | $ | 716,762 | $ | 1,584 | $ | — | ||||||
Institutional Clients Group | ||||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 63,462 | $ | — | $ | — | $ | 63,462 | ||||||
Third-party commercial paper conduits | 23,304 | — | — | 23,304 | ||||||||||
Collateralized debt obligations (CDOs) | 34,508 | — | 16,347 | 18,161 | ||||||||||
Collateralized loan obligations (CLOs) | 24,515 | — | 156 | 24,359 | ||||||||||
Mortgage loan securitizations | 88,721 | 88,721 | — | — | ||||||||||
Asset-based financing | 113,331 | — | 3,966 | 109,365 | ||||||||||
Municipal securities tender option bond trusts (TOBs) | 39,531 | 8,795 | 13,042 | 17,694 | ||||||||||
Municipal investments | 16,382 | — | 940 | 15,442 | ||||||||||
Client intermediation | 12,336 | — | 3,702 | 8,634 | ||||||||||
Structured investment vehicles | 27,467 | — | 27,467 | — | ||||||||||
Investment funds | 13,454 | — | 2,991 | 10,463 | ||||||||||
Other | 26,035 | 5,285 | 11,219 | 9,531 | ||||||||||
Total | $ | 483,046 | $ | 102,801 | $ | 79,830 | $ | 300,415 | ||||||
Global Wealth Management | ||||||||||||||
Investment Funds | $ | 463 | $ | — | $ | 435 | $ | 28 | ||||||
Corporate/Other | ||||||||||||||
Trust preferred securities | $ | 23,836 | $ | — | $ | — | $ | 23,836 | ||||||
Citigroup Total | $ | 1,225,691 | $ | 819,563 | $ | 81,849 | $ | 324,279 | ||||||
| | December 31, 2007(1) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars of SPE assets | Total involvement with SPEs | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(2) | ||||||||||
Consumer Banking | ||||||||||||||
Credit card securitizations | $ | 125,109 | $ | 125,109 | $ | — | $ | — | ||||||
Mortgage loan securitizations | 550,965 | 550,902 | 63 | — | ||||||||||
Leasing | 35 | — | 35 | — | ||||||||||
Other | 16,267 | 14,882 | 1,385 | — | ||||||||||
Total | $ | 692,376 | $ | 690,893 | $ | 1,483 | $ | — | ||||||
Institutional Clients Group | ||||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 72,558 | $ | — | $ | — | $ | 72,558 | ||||||
Third-party commercial paper conduits | 27,021 | — | — | 27,021 | ||||||||||
Collateralized debt obligations (CDOs) | 74,106 | — | 22,312 | 51,794 | ||||||||||
Collateralized loan obligations (CLOs) | 23,227 | — | 1,353 | 21,874 | ||||||||||
Mortgage loan securitizations | 92,263 | 92,263 | — | — | ||||||||||
Asset-based financing | 96,072 | — | 4,468 | 91,604 | ||||||||||
Municipal securities tender option bond trusts (TOBs) | 50,129 | 10,556 | 17,003 | 22,570 | ||||||||||
Municipal investments | 13,715 | — | 53 | 13,662 | ||||||||||
Client intermediation | 12,383 | — | 2,790 | 9,593 | ||||||||||
Structured investment vehicles | 58,543 | — | 58,543 | — | ||||||||||
Investment funds | 11,422 | — | 140 | 11,282 | ||||||||||
Other | 37,895 | 14,526 | 12,809 | 10,560 | ||||||||||
Total | $ | 569,334 | $ | 117,345 | $ | 119,471 | $ | 332,518 | ||||||
Global Wealth Management | ||||||||||||||
Investment Funds | $ | 656 | $ | — | $ | 604 | $ | 52 | ||||||
Corporate/Other | ||||||||||||||
Trust preferred securities | $ | 23,756 | $ | — | $ | — | $ | 23,756 | ||||||
Citigroup Total | $ | 1,286,122 | $ | 808,238 | $ | 121,558 | $ | 356,326 | ||||||
These tables do not include:
The significant variances between the balances reported in the September 30, 2008 and December 31, 2007 tables are primarily due to:
Primary Uses of SPEs by Consumer Banking
Securitization of Credit Card Receivables
Credit card receivables are sold through securitized trusts, which are established to purchase the receivables. 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 trusts. The Company relies on securitizations to fund a significant portion of its managedN.A.Cards business, which includes both on-balance-sheet and securitized receivables.
The following table reflects amounts related to the Company's securitized credit card receivables at September 30, 2008 and December 31, 2007:
| In billions of dollars | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Principal amount of credit card receivables in trusts | $ | 122.5 | $ | 125.1 | |||
Ownership interests in principal amount of trust credit card receivables: | |||||||
Sold to investors via trust-issued securities | $ | 100.5 | $ | 102.3 | |||
Retained by Citigroup as trust-issued securities | 6.3 | 4.5 | |||||
Retained by Citigroup via non-certificated interests recorded as consumer loans | 15.7 | 18.3 | |||||
Total ownership interests in principal amount of trust credit card receivables | $ | 122.5 | $ | 125.1 | |||
Other amounts recorded on the balance sheet related to interests retained in the trust assets: | |||||||
Other retained interest in securitized assets | $ | 2.8 | $ | 3.0 | |||
Residual interest in securitized assets(1) | 1.6 | 3.4 | |||||
Amounts payable to trusts | 2.0 | 1.6 | |||||
In the third quarters of 2008 and 2007, the Company recorded net gains (losses) from securitization of credit card receivables of ($1,443) million and $169 million, and ($1,398) million and $747 million during the first nine months of 2008 and 2007, respectively. Net gains (losses) reflect the following:
Securitization of Originated Mortgage and Other Consumer Loans
The Company's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans). 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.
The Company's mortgage and student 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.
The Company recognized gains (losses) related to the securitization of these mortgage and other consumer loan products of ($80) million and $60 million in the third quarters of 2008 and 2007, respectively, and $2 million and $249 million in the first nine months of 2008 and 2007, respectively.
Primary Uses of SPEs by Institutional Clients Group
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.
The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to customers 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 conduit is facilitated by the liquidity support and credit enhancements provided by the Company and by certain third parties. As administrator to the conduits, the Company is responsible for the selection and structuring of 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 clients for individual transactions and earns an administration fee from the conduit, which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees. This administration fee is fairly stable, since most risks and rewards of the underlying assets are passed back to the customers 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 seller, including over-collateralization, cash and excess spread collateral accounts, direct recourse or third-party guarantees. Credit enhancements are sized based on historic asset performance to achieve an internal risk rating that, on average, approximates an AA or A rating.
Over time, substantially all of the funding of the conduits is in the form of commercial paper, with a weighted average life historically ranging from 35-45 days. As of September 30, 2008 and December 31, 2007, the weighted average life of the commercial paper issued was approximately 58 days and 30 days, respectively. In addition, the conduits have issued Subordinate Loss Notes and equity with a notional amount of approximately $81 million and $77 million as of September 30, 2008 and December 31, 2007, respectively, with varying remaining tenors ranging from nine months to seven years.
The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancement described above. In addition, there are two additional forms of credit enhancement that protect the commercial paper investors from defaulting assets. First, the Subordinate Loss Notes issued by each conduit absorb any credit losses up to their full notional amount. It is expected that the Subordinate Loss Notes issued by each conduit are sufficient to absorb a majority of the expected losses from each conduit, thereby making the single investor in the Subordinate Loss Note the primary beneficiary under FIN 46-R. Second, each conduit has obtained either a letter of credit from the Company or a surety bond from a monoline insurer that will reimburse the conduit for any losses up to a specified amount, which is generally 8-10% of the conduit's assets. Where surety bonds are obtained, the Company, in turn, provides the surety bond provider a reimbursement guarantee up to a stated amount for aggregate losses incurred by any of the conduits covered by the surety bond. The total of the letters of credit and the reimbursement guarantee provided by the Company is approximately $1.8 billion and is considered in the Company's maximum exposure to loss. The net result across all multi-seller conduits administered by the Company is that, in the event of defaulted assets in excess of the transaction-specific credit enhancement described above, any losses in each conduit are allocated in the following order:
The Company, along with third parties, also provides the conduits with two forms of liquidity facilities that are used to provide funding to the conduits in the event of a market disruption, among other events. Each asset of the conduit is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA). Under the APA, the Company has agreed to purchase non-defaulted eligible receivables from the conduit at par. Any assets purchased under the APA are subject to increased pricing. The APA is not designed to provide credit support to the conduit, as it generally does not permit the purchase of defaulted or impaired assets and generally reprices the assets purchased to consider any potential increased credit risk. The APA covers all assets in the conduits and is considered in the Company's maximum exposure to loss. 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 total notional exposure under the program-wide liquidity agreement is $11.3 billion and is considered in the Company's maximum exposure to loss. The Company receives fees for providing both types of liquidity agreements, and considers these fees to be on fair market terms.
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 September 30, 2008 and December 31, 2007, the Company owned approximately $449 million and $10 million, respectively, of commercial paper issued by its administered conduits.
FIN 46-R requires that the Company quantitatively analyze the expected variability of the Conduit to determine whether the Company is the primary beneficiary of the conduit. The Company performs this analysis on a quarterly basis, and has concluded that the Company is not the primary beneficiary of the conduits as defined in FIN 46-R and, therefore, does not consolidate the conduits it administers. In conducting this analysis, the Company considers three primary sources of variability in the conduit: credit risk, interest rate risk and fee variability.
The Company models the credit risk of the conduit's assets using a Credit Value at Risk (C-VaR) model. The C-VaR model considers changes in credit spreads (both within a rating class as well as due to rating upgrades and downgrades), name-specific changes in credit spreads, credit defaults and recovery rates and diversification effects of pools of financial assets. The model incorporates data from independent rating agencies as well as the Company's own proprietary information regarding spread changes, ratings transitions and losses given default. Using this credit data, a Monte Carlo simulation is performed to develop a distribution of credit risk for the portfolio of assets owned by each conduit, which is then applied on a probability-weighted basis to determine expected losses due to credit risk. In addition, the Company continuously monitors the specific credit characteristics of the conduit's assets and the current credit environment to confirm that the C-VaR model used continues to incorporate the Company's best information regarding the expected credit risk of the conduit's assets.
The Company also analyzes the variability in the fees that it earns from the conduit, using monthly actual historical cash flow data to determine average fee and standard deviation measures for each conduit. Because any unhedged interest rate and foreign currency risk not contractually passed on to customers is absorbed by the fees earned by the Company, the fee variability analysis incorporates those risks.
The fee variability and credit risk variability are then combined into a single distribution of the conduit's overall returns. This return distribution is updated and analyzed on at least a quarterly basis to ensure that the amount of the Subordinate Loss Notes issued to third parties is sufficient to absorb greater than 50% of the total expected variability in the conduit's returns. The expected variability absorbed by the Subordinate Loss Note investors is therefore measured to be greater than the expected variability absorbed by the Company through its liquidity arrangements and other fees earned, the surety bond providers, and the investors in commercial paper and medium-term notes. While the notional amounts of the Subordinate Loss Notes are quantitatively small compared to the size of the conduits, this is reflective of the fact that most of the substantive risks of the conduits are absorbed by the enhancements provided by the sellers and other third parties that provide transaction-level credit enhancements. Because FIN 46-R requires these risks and related enhancements to be excluded from the analysis, the remaining risks and expected variability are quantitatively small. The calculation of variability under FIN 46-R focuses primarily onexpected variability, rather than the risks associated with extreme outcomes (for example, large levels of default) that are expected to occur very infrequently. So while the Subordinate Loss Notes are sized appropriately compared to expected losses as measured in FIN 46-R, they do not provide significant protection against extreme or unusual credit losses.Statements.
The following tables describe the importantcertain characteristics of assets owned by the administered multi-seller conduits as of September 30, 2008 and December 31, 2007:
| | | Credit rating distribution | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Weighted average life | ||||||||||||||
| | AAA | AA | A | BBB | |||||||||||
September 30, 2008 | 3.7years | 35 | % | 48 | % | 11 | % | 6 | % | ||||||
December 31, 2007 | 2.5 years | 30 | % | 59 | % | 9 | % | 2 | % | ||||||
| | % of Total Portfolio | ||||||
|---|---|---|---|---|---|---|---|
| Asset Class | September 30, 2008 | December 31, 2007 | |||||
Student loans | 24 | % | 21 | % | |||
Trade receivables | 15 | % | 16 | % | |||
Credit cards and consumer loans | 7 | % | 13 | % | |||
Portfolio finance | 15 | % | 11 | % | |||
Commercial loans and corporate credit | 17 | % | 15 | % | |||
Export finance | 10 | % | 9 | % | |||
Auto | 8 | % | 8 | % | |||
Residential mortgage | 4 | % | 7 | % | |||
Total | 100 | % | 100 | % | |||
Third-party 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 for each conduit. The notional amount of these facilities is approximately $1.3 billion and $2.2 billion as of September 30, 2008 and December 31, 2007, respectively. The conduits received $25 million of funding as of September 30, 2008, compared to zero as of December 31, 2007.
Collateralized Debt Obligations
A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and/or synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs, and placing securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued securities.
A cash CDO, or arbitrage CDO, is a CDO designed to take advantage of the difference between the anticipated 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 vehicles 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. In a typical cash CDO, the third-party manager selects a portfolio of assets, which the Company funds through a "warehouse" financing arrangement prior to the creation of the CDO. The Company then sells the debt securities to the CDO in exchange for cash raised through the issuance of notes. The Company's involvement in cash CDOs after issuance is typically limited to investing in a portion of the notes or loans issued by the CDO, making a market in those securities, and acting as derivative counterparty for interest rate or foreign currency swaps used in the structuring of the CDO.
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 selected 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 CDO's obligations on the credit default swaps written to counterparties. The Company's involvement in synthetic CDOs after issuance generally includes purchasing credit protection through credit default swaps with the CDO, owning a portion of the capital structure of the CDO 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, lending to the CDO, and making a market in those funded notes.
The following table describes credit ratings of assets of unconsolidated CDOs with which the Company had significant involvement as of September 30, 2008 and December 31, 2007:
| | Credit rating distribution | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Weighted average life | A or higher | BBB | BB/B | CCC | Unrated | ||||||||||||
September 30, 2008 | 3.6 years | 24 | % | 13 | % | 10 | % | 33 | % | 20 | % | |||||||
December 31, 2007 | 5.1 years | 40 | % | 20 | % | 12 | % | 25 | % | 3 | % | |||||||
Asset-Backed Commercial Paper CDOs (CPCDOs)
During the second half of 2007, the market interest rates on commercial paper issued by certain CDO structures increased significantly. To pre-empt the formal exercise of liquidity puts provided by the Company to its CDO structures, the Company purchased all of the outstanding commercial paper issued by these entities, which totaled approximately $25 billion. Because of these purchases, which are deemed to be FIN 46-R reconsideration events, and because the value of the CDOs' commercial paper and subordinated tranches were deteriorating as the underlying collateral of the CDOs (primarily residential mortgage-backed securities) was being downgraded, the Company concluded that it was the primary beneficiary of these entities and began consolidating them in the fourth quarter of 2007. The commercial paper was subsequently converted to a funding note.
Upon consolidation, the Company reflected the underlying assets of the CDOs on its balance sheet in Trading account assets at fair value, eliminated the commercial paper assets previously recognized, and recognized the subordinate CDO liabilities (owned by third parties) at fair value. This resulted in a balance sheet gross-up of approximately $400 million as of December 31, 2007 compared to the prior accounting treatment as unconsolidated VIEs.
During the third quarter of 2008 and the fourth quarter of 2007, the Company recognized pretax losses of $0.8 billion and $4.3 billion, respectively, for changes in the fair value of the consolidated CPCDOs' assets.
CDO Super Senior Exposure
In addition to asset-backed commercial paper positions in consolidated CDOs, 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. However, since inception of these transactions, the subordinate positions have diminished significantly in value and in rating. There have been substantial reductions in value of these super senior positions since the fourth quarter of 2007.
At inception of the transactions, the super senior tranches were well protected from the expected losses of these CDOs. Subsequent declines in value of the subordinate tranches and the super senior tranches in the fourth quarter of 2007
indicated that the super senior tranches now are exposed to a significant portion of the expected losses of the CDOs, based on current market assumptions. The Company evaluates these transactions for consolidation when reconsideration events occur, as defined in FIN 46-R. The Company continues to monitor its involvement in these transactions and, if the Company were to acquire additional interests in these vehicles or if the CDOs' contractual arrangements were to be changed to reallocate expected losses or residual returns among the various interest holders, the Company may be required to consolidate the CDOs. For cash CDOs, the net result of such consolidation would generally be to gross up the Company's balance sheet by the current fair value of the subordinate securities held by third parties, which amounts are not considered material. For synthetic CDOs, the net result of such consolidation may reduce the Company's balance sheet by eliminating intercompany derivative receivables and payables in consolidation.
During the third quarter, the Company purchased additional interests in certain CDO transactions. These purchases were determined to be reconsideration events as defined in FIN 46-R, and as a result it was determined that the Company is required to consolidate certain CDO's as it has become the primary beneficiary.
The consolidation of these entities reduced the disclosed total assets ofidentified significant unconsolidated VIEs reflected above by $9.3 billion (representing the original cost basis or total notional of the VIE's asset positions), and reduced the Company's disclosed maximum exposure to significant unconsolidated VIEs by $0.9 billion. Upon consolidating these VIEs, the Company eliminates previously recognized assets and liabilities (including derivative payables and receivables with the VIEs), and recognizes the underlying third-party assets and liabilities of the VIEs at current fair value. The current fair value of the assets owned by these CDO VIEs is approximately $1.6 billion. The consolidation of the CDOs results in a net reduction of assets on the Company's consolidated balance sheet of approximately $4.5 billion.
Collateralized Loan Obligations
A 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.
The following table describes credit ratings of assets of unconsolidated CLOs with which the Company had significant involvement as of September 30, 2008 and DecemberMarch 31, 2007, respectively:
Credit rating distribution
| | Weightedp average life | A or Higher | BBB | BB/B | CCC | Unrated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2008 | 4.1 years | 1 | % | 5 | % | 71 | % | 0 | % | 23 | % | |||||||
December 31, 2007 | 5.0 years | 7 | % | 11 | % | 56 | % | 0 | % | 26 | % | |||||||
Mortgage Loan Securitizations
CMB is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE.2009. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until they can be sold to independent investors and makes a market in those securities on an ongoing basis. These securities are held as trading assets on the balance sheet, are managed as part of the Company's trading activities, and are marked to market with changes in value recognized in earnings. The Company sometimes retains servicing rights for certain entities. The table on page 64 shows the assets for mortgage QSPEs in which ICG acted as principal in transferring mortgages to the QSPE.
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, and related loan loss reserves are reported as part of the Company's Allowance for loan losses. 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 primary types of asset-based financing, total assets of the unconsolidated VIEs with significant involvement, and the Company's maximum exposure to loss at September 30, 2008 and December 31, 2007 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.
| In billions of dollars | September 30, 2008 | December 31, 2007 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Type | Total assets | Maximum exposure | Total assets | Maximum exposure | |||||||||
Commercial and other real estate | $ | 46.1 | $ | 11.7 | $ | 34.3 | $ | 16.0 | |||||
Hedge funds and equities | 37.3 | 12.7 | 36.0 | 13.1 | |||||||||
Corporate loans | 9.8 | 8.3 | — | — | |||||||||
Asset purchasing vehicles/SIVs | 3.2 | 0.8 | 10.2 | 2.5 | |||||||||
Other assets | 13.0 | 3.5 | 11.1 | 2.7 | |||||||||
Total | $ | 109.4 | $ | 37.0 | $ | 91.6 | $ | 34.3 | |||||
The amounts disclosed as corporate loan assets and exposure relate to the senior financing the Company provided to the purchaser of a portfolio of corporate loans, including highly leveraged loans. The Company has purchased credit protection on the senior financing via total return swaps with the third parties who also own the subordinate interests in the loans. The credit risk in the total return swap is protected through margin agreements that provide for both initial margin as well as additional margin at specified triggers.
The Company's involvement in the asset purchasing vehicles and Structured Investment Vehicles (SIVs) sponsored and managed by third parties is primarily in the form of providing backstop liquidity. Those vehicles finance a majority of their asset purchases with commercial paper and short-term notes. Certain of the assets owned by the vehicles have suffered significant declines in fair value, leading to an inability to re-issue maturing commercial paper and short-term notes. Citigroup has been required to provide loans to those vehicles to replace maturing commercial paper and short-term notes, in accordance with the original terms of the backstop liquidity facilities.
The asset quality of the third-party asset purchasing vehicles and SIVs to which the Company had provided backstop liquidity as of September 30, 2008 and December 31, 2007 consisted of the following:
| | Credit rating distribution | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | A or Higher | BBB | BB/B | CCC | Unrated | |||||||||||
September 30, 2008 | 64 | % | 2 | % | 34 | % | 0 | % | 0 | % | ||||||
December 31, 2007 | 96 | % | 1 | % | 3 | % | 0 | % | 0 | % | ||||||
Municipal Securities Tender Option Bond (TOB) Trusts
The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state and local municipalities. The trusts are single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating-rate notes ("Floaters") and junior residual securities ("Residuals"). 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. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.
The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts, and QSPE TOB trusts.
The total assets and other characteristics of the three categories of TOB trusts as of September 30, 2008 and December 31, 2007 are as follows:
September 30, 2008
| | | | Credit rating distribution | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| TOB trust type | Total assets (in billions) | Weighted average life | AAA/Aaa | AA/Aa1– AA-/Aa3 | Less than AA-/Aa3 | ||||||||||
Customer TOB Trusts (Not consolidated) | $ | 11.5 | 10.9 years | 47 | % | 38 | % | 15 | % | ||||||
Proprietary TOB Trusts (Consolidated and Non-consolidated) | $ | 19.2 | 19.2 years | 52 | % | 46 | % | 2 | % | ||||||
QSPE TOB Trusts (Not consolidated) | $ | 8.8 | 7.3 years | 63 | % | 34 | % | 3 | % | ||||||
December 31, 2007
| | | | Credit rating distribution | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| TOB trust type | Total assets (in billions) | Weighted average life | AAA/Aaa | AA/Aa1– AA-/Aa3 | Less than AA-/Aa3 | ||||||||||
Customer TOB Trusts (Not consolidated) | $ | 17.6 | 8.4 years | 84 | % | 16 | % | — | |||||||
Proprietary TOB Trusts (Consolidated and Non-consolidated) | $ | 22.0 | 18.1 years | 67 | % | 33 | % | — | |||||||
QSPE TOB Trusts (Not consolidated) | $ | 10.6 | 3.0 years | 80 | % | 20 | % | — | |||||||
Credit rating distribution is based on the external rating of the municipal bonds within the TOB trusts, including any credit enhancement provided by monoline insurance companies or the Company in the primary or secondary markets, as discussed below. The total assets for proprietary TOB Trusts (Consolidated and Non-consolidated) include $6.1 billion and $5.0 billion of assets as of September 30, 2008 and December 31, 2007, respectively, where the Residuals are held by hedge funds that are consolidated and managed by the Company.
The TOB trusts fund the purchase of their assets by issuing Floaters along with Residuals, which are frequently less than 1% of a trust's total funding. The tenor of the Floaters matches the maturity of the TOB trust and is equal to or shorter than the tenor of the municipal bond held by the trust. The Floaters bear interest rates that are typically reset weekly to a new market rate (based on the SIFMA index). Floater holders have an option to tender the Floaters they hold back to the trust periodically. Customer TOB trusts issue the Floaters and Residuals to third parties. Proprietary and QSPE TOB trusts issue the Floaters to third parties, and the Residuals are held by the Company.
Approximately $2.8 billion as of September 30, 2008 and $5.7 billion as of December 31, 2007 of the municipal bonds owned by TOB trusts have an additional credit guarantee provided by the Company. In all other cases, the assets are either unenhanced or are insured with a monoline insurance provider in the primary market or in the secondary market. While the trusts have not encountered any adverse credit events as defined in the underlying trust agreements, certain monoline insurance companies have experienced downgrades. In these cases, the Company has proactively managed the TOB programs by applying additional secondary market insurance on the assets or proceeding with orderly unwinds of the trusts.
The Company, in its capacity as remarketing agent, facilitates the sale of the Floaters to third parties at inception of the trust and facilitates the reset of the Floater coupon and tenders of 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) or may choose to buy the Floaters into its own inventory and may continue to try to sell it to a third-party investor. While the levels of the Company's inventory of Floaters fluctuates, the Company held approximately $7.0 billion and $0.9 billion of Floater inventory related to the Customer, Proprietary and QSPE TOB programs as of September 30, 2008 and December 31, 2007, respectively.
If a trust is unwound early due to an event other than a credit event on the underlying municipal bond, the underlying municipal bond is sold in the secondary market. If there is an accompanying shortfall in the trust's cash flows to fund the redemption of the Floaters after the sale of the underlying municipal bond, the trust draws on a liquidity agreement in an amount equal to the shortfall. Liquidity agreements are generally provided to the trust directly by the Company. 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 municipal bond. These reimbursement agreements are actively margined based on changes in value of the underlying municipal bond to mitigate the Company's counterparty credit risk. In cases where a third party provides liquidity to a proprietary or QSPE 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 September 30, 2008 and December 31, 2007, liquidity agreements provided with respect to customer TOB trusts totaled $8.8 billion and $14.4 billion, offset by reimbursement agreements in place with a notional amount of $6.8 billion and $11.5 billion, respectively. The remaining exposure relates to TOB transactions where the Residual owned by the customer is at least 25% of the bond value at the inception of the transaction. In addition, the Company has provided liquidity arrangements with a notional amount of $12.1 billion as of September 30, 2008, and $11.4 billion as of
December 31, 2007, to QSPE TOB trusts and other non-consolidated proprietary TOB trusts described above.
The Company considers the customer and proprietary TOB trusts (excluding QSPE TOB trusts) to be variable interest entities within the scope of FIN 46-R. Because third-party investors hold the Residual and Floater interests in the customer TOB trusts, the Company's involvement and variable interests include only its role as remarketing agent and liquidity provider. On the basis of the variability absorbed by the customer through the reimbursement arrangement or significant residual investment, the Company does not consolidate the Customer TOB trusts. The Company's variable interests in the Proprietary TOB trusts include the Residual as well as the remarketing and liquidity agreements with the trusts. On the basis of the variability absorbed through these contracts (primarily the Residual), the Company generally consolidates the Proprietary TOB trusts. Finally, certain proprietary TOB trusts and QSPE TOB trusts are not consolidated by application of specific accounting literature. For the nonconsolidated proprietary TOB trusts and QSPE TOB trusts, the Company recognizes only its residual investment on its balance sheet at fair value and the third-party financing raised by the trusts is off-balance sheet.
Municipal Investments
Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits earned from the affordable housing investments made by the partnership.
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 SPE 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 SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE invests the proceedsVIEs are described 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 counterpartyNote 15 to the SPE's derivative instruments and investing in a portion of the notes issued by the SPE. 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's maximum risk of loss in these transactions is defined as the amount invested in notes issued by the SPE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the SPE. The derivative instrument held by the Company may generate a receivable from the SPE (for example, where the Company purchases credit protection from the SPE in connection with the SPE's issuance of a credit-linked note), which is collateralized by the assets owned by the SPE. These derivative instruments are not considered to be variable interests under FIN 46-R and any associated receivables are not included in the calculation of maximum exposureConsolidated Financial Statements. See also Note 1 to the SPE.
Mutual Fund Deferred Sales Commission (DSC) Securitizations
Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover sales commissions owed to brokers associated with the shares sold.
The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:
Structured Investment Vehicles
Citigroup became the SIVs' primary beneficiary and began consolidating the SIVs on December 13, 2007, as a result of providing mezzanine financing to the SIVs, the terms of which were finalized on February 12, 2008. The mezzanine financing ranks senior to the junior notes and junior to the SIVs' senior debt. Citigroup increased its mezzanine financing to $4.5 billion, reflecting an increase of $1 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September quarter-end.
The impact of this consolidation on Citigroup's Consolidated Balance Sheet as of September 30, 2008 and December 31, 2007 is as follows:
| In billions of dollars | September 30, 2008 | December 31, 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Cash and due from banks | $ | 5.4 | $ | 11.8 | ||||
Trading account assets | 21.5 | 46.4 | ||||||
Other assets | 0.6 | 0.3 | ||||||
Total assets | $ | 27.5 | $ | 58.5 | ||||
Liabilities | ||||||||
Short-term borrowings | $ | 5.0 | $ | 11.7 | ||||
Long-term borrowings | 21.7 | 45.9 | ||||||
Other liabilities | 0.8 | 0.9 | ||||||
Total liabilities | $ | 27.5 | $ | 58.5 | ||||
Balances include intercompany assets of $0.4 billion and intercompany liabilities of $6.7 billion as of September 30, 2008 and intercompany assets of $1 billion and intercompany liabilities of $7 billion as of December 31, 2007, respectively, which are eliminated in consolidation. In addition, long-term borrowings include the current portion of medium-term notes with an original maturity of greater than 364 days.
The following tables summarize the seven Citigroup-advised SIVs as of September 30, 2008 and December 31, 2007 as well as the aggregate asset mix and credit quality of the SIV assets.
| In billions of dollars | September 30, 2008 | December 31, 2007 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SIV | Assets | Short-term borrowings | Long-term borrowings | Assets | Short-term borrowings | Long-term borrowings | |||||||||||||
Beta | $ | 8.7 | $ | 1.1 | $ | 7.5 | $ | 14.8 | $ | 0.4 | $ | 14.2 | |||||||
Centauri | 8.1 | 1.7 | 6.2 | 14.9 | 0.8 | 13.8 | |||||||||||||
Dorada | 4.3 | 1.0 | 3.2 | 8.4 | 1.0 | 7.2 | |||||||||||||
Five | 3.8 | 0.8 | 2.9 | 8.7 | 2.6 | 6.0 | |||||||||||||
Sedna | 2.0 | — | 1.8 | 9.1 | 5.5 | 3.6 | |||||||||||||
Zela | 0.6 | 0.4 | 0.1 | 1.9 | 1.1 | 0.7 | |||||||||||||
Vetra | — | — | — | 0.7 | 0.3 | 0.4 | |||||||||||||
Total | $ | 27.5 | $ | 5.0 | $ | 21.7 | $ | 58.5 | $ | 11.7 | $ | 45.9 | |||||||
| | September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Average Credit Quality(1)(2) | | Average Credit Quality(1)(2) | |||||||||||||||||||||
| | Average Asset Mix | Average Asset Mix | |||||||||||||||||||||||
| | Aaa | Aa | A/Baa/B(3) | Aaa | Aa | A | |||||||||||||||||||
Financial Institutions Debt | 57 | % | 7 | % | 40 | % | 10 | % | 59 | % | 12 | % | 43 | % | 4 | % | |||||||||
Sovereign Debt | — | — | — | — | 1 | % | 1 | % | — | — | |||||||||||||||
Structured Finance | |||||||||||||||||||||||||
MBS—Non-U.S. residential | 10 | % | 10 | % | — | — | 12 | % | 12 | % | — | — | |||||||||||||
CBOs, CLOs, CDOs | 6 | % | 6 | % | — | — | 6 | % | 6 | % | — | — | |||||||||||||
MBS—U.S. residential | 9 | % | 9 | % | — | — | 7 | % | 7 | % | — | — | |||||||||||||
CMBS | 4 | % | 4 | % | — | — | 4 | % | 4 | % | — | — | |||||||||||||
Student loans | 8 | % | 8 | % | — | — | 6 | % | 6 | % | — | — | |||||||||||||
Credit cards | 5 | % | 5 | % | — | — | 5 | % | 5 | % | — | — | |||||||||||||
Other | 1 | % | — | — | 1 | % | — | — | — | ||||||||||||||||
Total Structured Finance | 43 | % | 42 | % | — | 1 | % | 40 | % | 40 | % | — | — | ||||||||||||
Total | 100 | % | 49 | % | 40 | % | 11 | % | 100 | % | 53 | % | 43 | % | 4 | % | |||||||||
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 a recourse and non-recourse basis for a portion of the employees' investment commitments.
Certain Fixed Income Funds Managed By Institutional Clients Group
Falcon multi-strategy fixed income funds
On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Institutional Clients Group. As a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the Falcon funds were approximately $1.3 billion.
ASTA/MAT municipal funds
On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Institutional Clients Group that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the MOFs were approximately $1.5 billion.
Primary Uses of SPEs by Corporate/Other
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. These trusts have no other assets and no 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. These trusts' obligations are fully and unconditionally guaranteed by the Company.
Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R, even though the Company 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 balance sheet as long-term liabilities.
See Note 12 on page 104 for additional information about the Company's involvement with trust preferred securities. See Note 15 on page 109 for additional information regarding the Company's off-balance-sheet arrangements with respect to securitizations and SPEs.
EliminationFinancial Statements, "Elimination of QSPEs and Changes in the FIN 46(R) Consolidation ModelModel."
| | | | Credit rating distribution | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Citi-Administered Asset-Backed Commercial Paper Conduits | Total assets (in billions) | Weighted average life | AAA | AA | A | BBB/BBB+ and below | ||||||||||||
| $ | 50.3 | 4.1 years | 43 | % | 37 | % | 17 | % | 3 | % | ||||||||
| Asset class | % of total portfolio | |||
|---|---|---|---|---|
Student loans | 28 | % | ||
Trade receivables | 10 | % | ||
Credit cards and consumer loans | 7 | % | ||
Portfolio finance | 14 | % | ||
Commercial loans and corporate credit | 16 | % | ||
Export finance | 15 | % | ||
Auto | 7 | % | ||
Residential mortgage | 3 | % | ||
Total | 100 | % | ||
| | | | Credit rating distribution | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Collateralized Debt and Loan Obligations | Total assets (in billions) | Weighted average life | A or higher | BBB | BB/B | CCC | Unrated | ||||||||||||||
Collateralized debt obligations (CDOs) | $ | 16.8 | 4.0 years | 27 | % | 14 | % | 12 | % | 39 | % | 8 | % | ||||||||
Collateralized loan obligations (CLOs) | $ | 22.9 | 6.1 years | 3 | % | 2 | % | 50 | % | 2 | % | 43 | % | ||||||||
| | Credit rating distribution | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Municipal Securities Tender Option Bond Trusts (TOB) | Total assets (in billions) | Weighted average life | AAA/Aaa | AA/Aa1— AA-/Aa3 | Less than AA-/Aa3 | ||||||||||
Customer TOB trusts (not consolidated) | $ | 7.8 | 11.5 years | 53 | % | 43 | % | 4 | % | ||||||
Proprietary TOB trusts (consolidated and non-consolidated) | $ | 15.1 | 19.9 years | 58 | % | 30 | % | 12 | % | ||||||
QSPE TOB trusts (not consolidated) | $ | 5.6 | 9.2 years | 66 | % | 27 | % | 7 | % | ||||||
In connection with the proposed changes to SFAS 140, the FASB has also issued a separate exposure draft of a proposed standard that proposes three key changes to the consolidation model in FIN 46(R). First, the Board will now include former QSPEs in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of power combined with benefits and losses instead of today's risks and rewards model. Finally, the proposed standard requires all VIEs and their primary beneficiaries to be reevaluated whenever circumstances change. The existing rules require reconsideration only when specified reconsideration events occur. As of September 30, 2008, the total assets of significant unconsolidated VIEs with which Citigroup is involved were approximately $325 billion.
The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed.
Credit Commitments and Lines of Credit
The table below summarizes Citigroup's credit commitments as of September 30, 2008 and December 31, 2007:
| In millions of dollars | U.S. | Outside of U.S. | September 30, 2008 | December 31, 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial standby letters of credit and foreign office guarantees | $ | 55,448 | $ | 27,536 | $ | 82,984 | $ | 87,066 | |||||
Performance standby letters of credit and foreign office guarantees | 5,997 | 10,207 | 16,204 | 18,055 | |||||||||
Commercial and similar letters of credit | 2,440 | 7,249 | 9,689 | 9,175 | |||||||||
One- to four-family residential mortgages | 832 | 363 | 1,195 | 4,587 | |||||||||
Revolving open-end loans secured by one- to four-family residential properties | 25,193 | 2,926 | 28,119 | 35,187 | |||||||||
Commercial real estate, construction and land development | 2,496 | 700 | 3,196 | 4,834 | |||||||||
Credit card lines(1) | 939,992 | 155,872 | 1,095,864 | 1,103,535 | |||||||||
Commercial and other consumer loan commitments(2) | 267,119 | 133,605 | 400,724 | 473,631 | |||||||||
Total | $ | 1,299,517 | $ | 338,458 | $ | 1,637,975 | $ | 1,736,070 | |||||
See Note 18 to the Consolidated Financial Statements on page 143 for additional information on credit commitments and lines of credit.
Highly Leveraged Financing Commitments
Included in the line item "Commercial and other consumer loan commitments" in the table above 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 the case for other companies. Highly leveraged financing has been commonly employed in corporate acquisitions, management buy-outs and similar transactions.
In these financings, debt service (that is, principal and interest payments) absorbs a significant portion of the cash flows generated by the borrower's business. Consequently, the risk that the borrower may not be able to meet its debt obligations is greater. Due to this risk, the interest rates and fees charged for this type of financing are generally higher than other types of financing.
Prior to funding, highly leveraged financing commitments are assessed for impairment in accordance with SFAS 5 and losses are recorded when they are probable and reasonably estimable. For the portion of loan commitments that relate to loans that will be held for investment, loss estimates are made based on the borrower's ability to repay the facility according to its contractual terms. For the portion of loan commitments that relate to loans that will be held for sale, loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). Loan origination, commitment, underwriting, and other fees are netted against any recorded losses.
Citigroup generally manages the risk associated with highly leveraged financings it has entered into by seeking to sell a majority of its exposures to the market prior to or shortly after funding. In certain cases, all or a portion of a highly leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. Thus, when a highly leveraged financing is funded, Citigroup records the resulting loan as follows:
Due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments since the latter half of 2007, liquidity in the market for highly leveraged financings has been limited.
Citigroup's exposures for highly leveraged financings totaled $23 billion at September 30, 2008 ($10 billion funded, recorded as loans-held-for-sale in other assets and carried at LOCOM, and $13 billion in unfunded commitments). This compares to total commitments of $43 billion ($22 billion funded and $21 billion unfunded) at December 31, 2007. During the third quarter of 2008, the Company recorded an incremental net $792 million pretax write down on its highly leveraged financing commitments as a result of the reduction in liquidity in the market for such instruments. This brings the cumulative write-downs for the nine months of 2008 to $4.3 billion pretax.
On April 17, 2008, the Company completed the transfer of approximately $12 billion of loans to third parties, of which $8.5 billion relates to highly leveraged loans and commitments. In these transactions, the third parties purchased subordinate interests backed by the transferred loans. These subordinate interests absorb first loss on the transferred loans and provide the third parties with control of the loans. The Company retained senior debt securities backed by the transferred loans. These senior debt securities have a fair value of approximately $8.3 billion as of September 30, 2008 and are the Company's sole remaining risk with respect to the transferred loans. The Company purchased protection on these retained senior positions from the third party subordinate interest holders via total return swaps. The credit risk in the total return swap is protected through margin arrangements that provide for both initial margin as well as additional margin at specified triggers. These transactions were accounted for as sales of the transferred loans. The loans were removed from the balance sheet and the retained securities are classified as available-for-sale securities on the Company's consolidated balance sheet. Due to the initial cash margin received and the existing margin requirements on the total return swaps, and the substantive subordinate investments made by third parties, the Company believes that the transactions largely mitigate the Company's risk related to these transferred loans.
FAIR VALUATION
For a discussion of fair value of assets and liabilities, see NoteNotes 17 and 18 to the Consolidated Financial Statements on page 125.Statements.
Disclosure
The Company's management, with the participation of the Company's CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2008March 31, 2009 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company's disclosure controls and procedures were effective.
Financial Reporting
There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2008March 31, 2009 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
In this Quarterly Report on Form 10-Q, the Company uses certain forward-looking statements whenWhen describing future business conditions.conditions in this Form 10-Q, including, but not limited to, descriptions in the section titled "Management's Discussion and Analysis," the Company makes certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from those included in the forward-looking statements, andwhich are indicated 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."
These forward-looking statements are based on management's current expectations and involve external risks and uncertainties including, but not limited to, those described under "Risk Factors" in the Company's 2007Citigroup's 2008 Annual Report on Form 10-K section entitled "Risk Factors": economic conditions; credit, market and liquidity risk; competition; country risk; operational risk; fiscal and monetary policies; reputational and legal risk; and certain regulatory considerations. Risks10-K. Other risks and uncertainties disclosed in this 10-Qherein include, but are not limited to:
CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Citigroup Inc.
TABLE OF CONTENTS
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CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
| | Three Months Ended September 30, | Nine Months Ended September 30, | Three months ended March 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars, except per share amounts | 2008 | 2007(1) | 2008 | 2007(1) | 2009 | 2008(1) | ||||||||||||||
Revenues | ||||||||||||||||||||
Interest revenue | $ | 26,182 | $ | 32,267 | $ | 82,744 | $ | 89,573 | $ | 20,609 | $ | 29,190 | ||||||||
Interest expense | 12,776 | 20,423 | 42,305 | 56,427 | 7,711 | 16,122 | ||||||||||||||
Net interest revenue | $ | 13,406 | $ | 11,844 | $ | 40,439 | $ | 33,146 | $ | 12,898 | $ | 13,068 | ||||||||
Commissions and fees | $ | 3,425 | $ | 3,944 | $ | 11,044 | $ | 15,958 | $ | 4,326 | $ | 1,576 | ||||||||
Principal transactions | (2,904 | ) | (246 | ) | (15,156 | ) | 5,547 | 3,794 | (6,663 | ) | ||||||||||
Administration and other fiduciary fees | 2,165 | 2,460 | 6,752 | 6,635 | 1,662 | 2,298 | ||||||||||||||
Realized gains (losses) from sales of investments | (605 | ) | 263 | (863 | ) | 855 | ||||||||||||||
| Realized gains (losses) on sales of investments | 757 | 197 | ||||||||||||||||||
| Other-than-temporary impairment losses on investments (For the three months ended March 31, 2009, gross impairment losses were $1,379 of which $631 was recognized in AOCI.)(2) | (748 | ) | (316 | ) | ||||||||||||||||
Insurance premiums | 823 | 772 | 2,513 | 2,245 | 755 | 843 | ||||||||||||||
Other revenue | 370 | 2,603 | 2,469 | 7,690 | 1,345 | 1,438 | ||||||||||||||
Total non-interest revenues | $ | 3,274 | $ | 9,796 | $ | 6,759 | $ | 38,930 | $ | 11,891 | $ | (627 | ) | |||||||
Total revenues, net of interest expense | $ | 16,680 | $ | 21,640 | $ | 47,198 | $ | 72,076 | $ | 24,789 | $ | 12,441 | ||||||||
Provision for credit losses and for benefits and claims | ||||||||||||||||||||
| Provisions for credit losses and for benefits and claims | ||||||||||||||||||||
Provision for loan losses | $ | 8,943 | $ | 4,581 | $ | 21,503 | $ | 9,512 | $ | 9,915 | $ | 5,577 | ||||||||
Policyholder benefits and claims | 274 | 236 | 809 | 694 | 332 | 275 | ||||||||||||||
Provision for unfunded lending commitments | (150 | ) | 50 | (293 | ) | 50 | 60 | — | ||||||||||||
Total provision for credit losses and for benefits and claims | $ | 9,067 | $ | 4,867 | $ | 22,019 | $ | 10,256 | ||||||||||||
| Total provisions for credit losses and for benefits and claims | $ | 10,307 | $ | 5,852 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||
Compensation and benefits | $ | 7,865 | $ | 7,595 | $ | 25,858 | $ | 24,948 | $ | 6,419 | $ | 8,764 | ||||||||
Premises and equipment | 1,771 | 1,741 | 5,388 | 4,861 | 1,144 | 1,356 | ||||||||||||||
Technology/communication | 1,240 | 1,159 | 3,703 | 3,268 | 1,179 | 1,542 | ||||||||||||||
Advertising and marketing | 515 | 766 | 1,799 | 2,077 | 343 | 636 | ||||||||||||||
Restructuring | 8 | 35 | (21 | ) | 1,475 | (13 | ) | 15 | ||||||||||||
Other operating | 3,026 | 2,856 | 9,117 | 7,073 | 3,015 | 3,462 | ||||||||||||||
Total operating expenses | $ | 14,425 | $ | 14,152 | $ | 45,844 | $ | 43,702 | $ | 12,087 | $ | 15,775 | ||||||||
Income (loss) from continuing operations before income taxes and minority interest | $ | (6,812 | ) | $ | 2,621 | $ | (20,665 | ) | $ | 18,118 | ||||||||||
Provision (benefits) for income taxes | (3,294 | ) | 492 | (9,637 | ) | 4,908 | ||||||||||||||
Minority interest, net of income taxes | (95 | ) | 20 | (40 | ) | 190 | ||||||||||||||
| Income (loss) from continuing operations before income taxes | $ | 2,395 | $ | (9,186 | ) | |||||||||||||||
| Provision (benefit) for income taxes | 785 | (3,939 | ) | |||||||||||||||||
Income (loss) from continuing operations | $ | (3,423 | ) | $ | 2,109 | $ | (10,988 | ) | $ | 13,020 | $ | 1,610 | $ | (5,247 | ) | |||||
Discontinued operations | ||||||||||||||||||||
Income from discontinued operations | $ | 501 | $ | 148 | $ | 896 | $ | 631 | ||||||||||||
| Income (loss) from discontinued operations | $ | (18 | ) | $ | 163 | |||||||||||||||
Gain (loss) on sale | 9 | — | (508 | ) | — | (12 | ) | — | ||||||||||||
Provision (benefits) for income taxes | (98 | ) | 45 | (179 | ) | 201 | ||||||||||||||
| Provision (benefit) for income taxes | 3 | 48 | ||||||||||||||||||
Income from discontinued operations, net | $ | 608 | $ | 103 | $ | 567 | $ | 430 | ||||||||||||
| Income (loss) from discontinued operations, net of taxes | $ | (33 | ) | $ | 115 | |||||||||||||||
Net Income (loss) | $ | (2,815 | ) | $ | 2,212 | $ | (10,421 | ) | $ | 13,450 | ||||||||||
| Net income (loss) before attribution of noncontrolling Interests | $ | 1,577 | $ | (5,132 | ) | |||||||||||||||
| Net Income (loss) attributable to noncontrolling Interests | (16 | ) | (21 | ) | ||||||||||||||||
Basic earnings per share(2) | ||||||||||||||||||||
| Citigroup's net income (loss) | $ | 1,593 | $ | (5,111 | ) | |||||||||||||||
| Basic earnings per share(3) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.43 | $ | (2.26 | ) | $ | 2.65 | $ | (0.18 | ) | $ | (1.06 | ) | ||||
Income from discontinued operations | 0.11 | 0.02 | 0.11 | 0.09 | ||||||||||||||||
| Income from discontinued operations, net of taxes | — | 0.03 | ||||||||||||||||||
Net Income (loss) | $ | (0.60 | ) | $ | 0.45 | $ | (2.15 | ) | $ | 2.74 | ||||||||||
| Net income (loss) | $ | (0.18 | ) | $ | (1.03 | ) | ||||||||||||||
Weighted average common shares outstanding | 5,341.8 | 4,916.1 | 5,238.3 | 4,897.1 | 5,385.0 | 5,085.6 | ||||||||||||||
Diluted earnings per share(2) | ||||||||||||||||||||
| Diluted earnings per share(3) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.42 | $ | (2.26 | ) | $ | 2.60 | $ | (0.18 | ) | $ | (1.06 | ) | ||||
Income from discontinued operations | 0.11 | 0.02 | 0.11 | 0.09 | ||||||||||||||||
| Income from discontinued operations, net of taxes | — | 0.03 | ||||||||||||||||||
Net Income (loss) | $ | (0.60 | ) | $ | 0.44 | $ | (2.15 | ) | $ | 2.69 | ||||||||||
| Net income (loss) | $ | (0.18 | ) | $ | (1.03 | ) | ||||||||||||||
Adjusted weighted average common shares outstanding | 5,867.3 | 5,010.9 | 5,752.8 | 4,990.6 | 5,953.3 | 5,575.7 | ||||||||||||||
See Notes to the unaudited Consolidated Financial Statement.Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
| In millions of dollars, except shares | September 30, 2008 | December 31, 2007(1) | ||||||
|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | ||||||
Assets | ||||||||
Cash and due from banks (including segregated cash and other deposits) | $ | 63,026 | $ | 38,206 | ||||
Deposits at interest with banks | 78,670 | 69,366 | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $71,768 and $84,305 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 225,409 | 274,066 | ||||||
Brokerage receivables | 80,532 | 57,359 | ||||||
Trading account assets (including $117,667 and $157,221 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) | 457,462 | 538,984 | ||||||
Investments (including $21,932 and $21,449 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) | 205,731 | 215,008 | ||||||
Loans, net of unearned income | ||||||||
Consumer (including $32 as of September 30, 2008 at fair value) | 543,436 | 592,307 | ||||||
Corporate (including $3,430 and $3,727 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 173,519 | 185,686 | ||||||
Loans, net of unearned income | $ | 716,955 | $ | 777,993 | ||||
Allowance for loan losses | (24,005 | ) | (16,117 | ) | ||||
Total loans, net | $ | 692,950 | $ | 761,876 | ||||
Goodwill | 39,662 | 41,053 | ||||||
Intangible assets (including $8,346 and $8,380 at September 30,2008 and December 31,2007, respectively, at fair value) | 23,464 | 22,687 | ||||||
Other assets (including $14,110 and $9,802 as of September 30, 2008 and December 31, 2007 respectively, at fair value) | 164,598 | 168,875 | ||||||
Assets of discontinued operations held for sale | 18,627 | — | ||||||
Total assets | $ | 2,050,131 | $ | 2,187,480 | ||||
Liabilities | ||||||||
Non-interest-bearing deposits in U.S. offices | $ | 61,694 | $ | 40,859 | ||||
Interest-bearing deposits in U.S. offices (including $1,655 and $1,337 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 215,423 | 225,198 | ||||||
Non-interest-bearing deposits in offices outside the U.S. | 46,348 | 43,335 | ||||||
Interest-bearing deposits in offices outside the U.S. (including $1,848 and $2,261 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 456,878 | 516,838 | ||||||
Total deposits | $ | 780,343 | $ | 826,230 | ||||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $156,234 and $199,854 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 250,419 | 304,243 | ||||||
Brokerage payables | 117,536 | 84,951 | ||||||
Trading account liabilities | 169,283 | 182,082 | ||||||
Short-term borrowings (including $7,307 and $13,487 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 104,855 | 146,488 | ||||||
Long-term debt (including $47,482 and $79,312 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 393,097 | 427,112 | ||||||
Other liabilities (including $2,923 and $1,568 as of September 30, 2008 and December 31, 2007, respectively, at fair value) | 94,263 | 102,927 | ||||||
Liabilities of discontinued operations held for sale | 14,273 | — | ||||||
Total liabilities | $ | 1,924,069 | $ | 2,074,033 | ||||
Stockholders' equity | ||||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 27,424 | $ | — | ||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares—5,671,743,807 at September 30, 2008 and 5,477,416,086 at December 31, 2007 | 57 | 55 | ||||||
Additional paid-in capital | 16,884 | 18,007 | ||||||
Retained earnings | 105,340 | 121,769 | ||||||
Treasury stock, at cost:September 30, 2008—222,203,903 shares and December 31, 2007—482,834,568 shares | (9,642 | ) | (21,724 | ) | ||||
Accumulated other comprehensive income (loss) | (14,001 | ) | (4,660 | ) | ||||
Total stockholders' equity | $ | 126,062 | $ | 113,447 | ||||
Total liabilities and stockholders' equity | $ | 2,050,131 | $ | 2,187,480 | ||||
| In millions of dollars, except shares | March 31, 2009 | December 31, 2008 | ||||||
|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | ||||||
| Assets | ||||||||
| Cash and due from banks (including segregated cash and other deposits) | $ | 31,063 | $ | 29,253 | ||||
| Deposits with banks | 159,503 | 170,331 | ||||||
| Federal funds sold and securities borrowed or purchased under agreements to resell (including $79,674 and $70,305 as of March 31, 2009 and December 31, 2008, respectively, at fair value) | 179,603 | 184,133 | ||||||
| Brokerage receivables | 43,329 | 44,278 | ||||||
| Trading account assets (including $119,211 and $148,703 pledged to creditors at March 31, 2009 and December 31, 2008, respectively) | 335,222 | 377,635 | ||||||
| Investments (including $15,459 and $14,875 pledged to creditors at March 31, 2009 and December 31, 2008, respectively) | 238,806 | 256,020 | ||||||
| Loans, net of unearned income | ||||||||
| Consumer (including$32 and $36 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 489,805 | 519,673 | ||||||
| Corporate (including $2,321 and $2,696 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 167,487 | 174,543 | ||||||
| Loans, net of unearned income | $ | 657,292 | $ | 694,216 | ||||
| Allowance for loan losses | (31,703 | ) | (29,616 | ) | ||||
| Total loans, net | $ | 625,589 | $ | 664,600 | ||||
| Goodwill | 26,410 | 27,132 | ||||||
| Intangible assets (other than MSRs) | 13,612 | 14,159 | ||||||
| Mortgage servicing rights (MSRs) | 5,481 | 5,657 | ||||||
| Other assets (including $8,253 and $5,722 as of March 31, 2009 and December 31, 2008 respectively, at fair value) | 163,960 | 165,272 | ||||||
| Total assets | $ | 1,822,578 | $ | 1,938,470 | ||||
| Liabilities | ||||||||
| Non-interest-bearing deposits in U.S. offices | $ | 83,245 | $ | 60,070 | ||||
| Interest-bearing deposits in U.S. offices (including $1,188 and $1,335 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 214,673 | 229,906 | ||||||
| Non-interest-bearing deposits in offices outside the U.S. | 36,602 | 37,412 | ||||||
| Interest-bearing deposits in offices outside the U.S. (including $1,061 and $1,271 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 428,176 | 446,797 | ||||||
| Total deposits | $ | 762,696 | $ | 774,185 | ||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase (including $122,317 and $138,866 as of March 31, 2009 and December 31, 2008, respectively, at fair value) | 184,803 | 205,293 | ||||||
| Brokerage payables | 58,950 | 70,916 | ||||||
| Trading account liabilities | 130,826 | 167,478 | ||||||
| Short-term borrowings (including $7,289 and $17,607 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 116,389 | 126,691 | ||||||
| Long-term debt (including $23,335 and $27,263 at March 31, 2009 and December 31, 2008, respectively, at fair value) | 337,252 | 359,593 | ||||||
| Other liabilities (including $8,065 and $3,696 as of March 31, 2009 and December 31, 2008, respectively, at fair value) | 85,735 | 90,292 | ||||||
| Total liabilities | $ | 1,676,651 | $ | 1,794,448 | ||||
| Citigroup stockholders' equity | ||||||||
| Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares:835,632 at March 31, 2009, at aggregate liquidation value | $ | 74,246 | $ | 70,664 | ||||
| Common stock ($0.01 par value; authorized shares: 15 billion), issued shares:5,671,743,807 at March 31, 2009 and December 31, 2008. | 57 | 57 | ||||||
| Additional paid-in capital | 16,525 | 19,165 | ||||||
| Retained earnings | 86,115 | 86,521 | ||||||
| Treasury stock, at cost:March 31, 2009—158,895,165 shares and December 31, 2008—221,675,719 shares | (5,996 | ) | (9,582 | ) | ||||
| Accumulated other comprehensive income (loss) | (27,013 | ) | (25,195 | ) | ||||
| Total Citigroup stockholders' equity | $ | 143,934 | $ | 141,630 | ||||
| Noncontrolling interest | 1,993 | 2,392 | ||||||
| Total equity | $ | 145,927 | $ | 144,022 | ||||
| Total liabilities and equity | $ | 1,822,578 | $ | 1,938,470 | ||||
See Notes to the unauditedUnaudited Consolidated Financial Statements.
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CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
| | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except shares in thousands | 2008 | 2007 | 2009 | 2008 | ||||||||||
Preferred stock at aggregate liquidation value | ||||||||||||||
Balance, beginning of period | $ | — | $ | 1,000 | $ | 70,664 | $ | — | ||||||
Issuance of preferred stock | 27,424 | — | 3,582 | 19,384 | ||||||||||
Redemption or retirement of preferred stock | — | (800 | ) | |||||||||||
Balance, end of period | $ | 27,424 | $ | 200 | $ | 74,246 | $ | 19,384 | ||||||
Common stock and additional paid-in capital | ||||||||||||||
Balance, beginning of period | $ | 18,062 | $ | 18,308 | $ | 19,222 | $ | 18,062 | ||||||
Employee benefit plans | (2,405 | ) | (74 | ) | (4,013 | ) | (3,387 | ) | ||||||
Issuance of common stock | 4,911 | — | ||||||||||||
Issuance of shares(1) | (3,500 | ) | 118 | |||||||||||
| Issuance of shares for Nikko Cordial acquisition | — | (3,485 | ) | |||||||||||
| Issuance of TARP-related warrants | 88 | — | ||||||||||||
| Reset of convertible preferred stock conversion price | 1,285 | — | ||||||||||||
Other | (127 | ) | — | — | (4 | ) | ||||||||
Balance, end of period | $ | 16,941 | $ | 18,352 | $ | 16,582 | $ | 11,186 | ||||||
Retained earnings | ||||||||||||||
Balance, beginning of period, as previously reported | $ | 121,769 | $ | 129,267 | ||||||||||
Prior period adjustment(2) | — | (151 | ) | |||||||||||
Balance, beginning of period, as restated | $ | 121,769 | $ | 129,116 | ||||||||||
Adjustment to opening balance, net of tax(3) | — | (186 | ) | |||||||||||
| Balance, beginning of period | $ | 86,521 | $ | 121,920 | ||||||||||
| Adjustment to opening balance, net of tax(1)(2) | 413 | (151 | ) | |||||||||||
Adjusted balance, beginning of period | $ | 121,769 | $ | 128,930 | $ | 86,934 | $ | 121,769 | ||||||
Net income (loss) | (10,421 | ) | 13,450 | 1,593 | (5,111 | ) | ||||||||
Common dividends(4) | (5,175 | ) | (8,043 | ) | ||||||||||
| Common dividends(3) | (63 | ) | (1,676 | ) | ||||||||||
Preferred dividends | (833 | ) | (43 | ) | (1,011 | ) | (83 | ) | ||||||
| Preferred stock Series H discount accretion | (53 | ) | — | |||||||||||
| Reset of convertible preferred stock conversion price | (1,285 | ) | — | |||||||||||
Balance, end of period | $ | 105,340 | $ | 134,294 | $ | 86,115 | $ | 114,899 | ||||||
Treasury stock, at cost | ||||||||||||||
Balance, beginning of period | $ | (21,724 | ) | $ | (25,092 | ) | $ | (9,582 | ) | $ | (21,724 | ) | ||
Issuance of shares pursuant to employee benefit plans | 4,210 | 2,763 | 3,579 | 3,843 | ||||||||||
Treasury stock acquired(5) | (7 | ) | (663 | ) | ||||||||||
Issuance of shares(1) | 7,858 | 637 | ||||||||||||
| Treasury stock acquired(4) | (1 | ) | (6 | ) | ||||||||||
| Issuance of shares for Nikko Cordial acquisition | — | 7,858 | ||||||||||||
Other | 21 | 26 | 8 | 9 | ||||||||||
Balance, end of period | $ | (9,642 | ) | $ | (22,329 | ) | $ | (5,996 | ) | $ | (10,020 | ) | ||
Accumulated other comprehensive income (loss) | ||||||||||||||
Balance, beginning of period | $ | (4,660 | ) | $ | (3,700 | ) | $ | (25,195 | ) | $ | (4,660 | ) | ||
Adjustment to opening balance, net of tax(6) | — | 149 | ||||||||||||
| Adjustment to opening balance, net of tax(1) | (413 | ) | — | |||||||||||
Adjusted balance, beginning of period | $ | (4,660 | ) | $ | (3,551 | ) | $ | (25,608 | ) | $ | (4,660 | ) | ||
Net change in unrealized gains and losses on investment securities, net of tax | (6,657 | ) | (410 | ) | 20 | (2,387 | ) | |||||||
Net change in cash flow hedges, net of tax | (312 | ) | (1,396 | ) | 1,483 | (1,638 | ) | |||||||
Net change in foreign currency translation adjustment, net of tax | (2,419 | ) | 1,558 | |||||||||||
| Net change in FX translation adjustment, net of tax | (2,974 | ) | 1,273 | |||||||||||
Pension liability adjustment, net of tax | 47 | 244 | 66 | 31 | ||||||||||
Net change in Accumulated other comprehensive income (loss) | $ | (9,341 | ) | $ | (4 | ) | $ | (1,405 | ) | $ | (2,721 | ) | ||
Balance, end of period | $ | (14,001 | ) | $ | (3,555 | ) | $ | (27,013 | ) | $ | (7,381 | ) | ||
Total common stockholders' equity (shares outstanding: 5,449,540 at September 30, 2008 and 4,994,581 at December 31, 2007) | $ | 98,638 | $ | 126,762 | ||||||||||
| Total Citigroup common stockholders' equity (shares outstanding: 5,512,849 at March 31, 2009 and 5,450,068 at December 31, 2008) | $ | 69,688 | $ | 108,684 | ||||||||||
Total stockholders' equity | $ | 126,062 | $ | 126,962 | ||||||||||
| Total Citigroup stockholders' equity | $ | 143,934 | $ | 128,068 | ||||||||||
Comprehensive income (loss) | ||||||||||||||
Net income (loss) | $ | (10,421 | ) | $ | 13,450 | |||||||||
Net change in Accumulated other comprehensive income (loss) | (9,341 | ) | (4 | ) | ||||||||||
| Noncontrolling interests | ||||||||||||||
| Balance, beginning of period | $ | 2,392 | $ | 5,308 | ||||||||||
| Initial origination of a noncontrolling interests | — | 1,409 | ||||||||||||
| Transactions between noncontrolling interest shareholders and the related consolidating subsidiary | (120 | ) | (2,465 | ) | ||||||||||
| Transactions between Citigroup and the noncontrolling interest shareholders | (216 | ) | (98 | ) | ||||||||||
| Net income attributable to noncontrolling interest shareholders | (16 | ) | (21 | ) | ||||||||||
| Dividends paid to noncontrolling interest shareholders | (6 | ) | (56 | ) | ||||||||||
| Accumulated other comprehensive income—Net change in unrealized gains and losses on investments securities, net of tax | (3 | ) | 1 | |||||||||||
| Accumulated other comprehensive income—Net change in FX translation adjustment, net of tax | (86 | ) | 69 | |||||||||||
| All other | 48 | 95 | ||||||||||||
Total comprehensive income (loss) | $ | (19,762 | ) | $ | 13,446 | |||||||||
| Net change in noncontrolling interests | $ | (399 | ) | $ | (1,066 | ) | ||||||||
| Balance, end of period | $ | 1,993 | $ | 4,242 | ||||||||||
| Total equity | $ | 145,927 | $ | 132,310 | ||||||||||
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars, except shares in thousands | 2009 | 2008 | |||||
| Comprehensive income (loss) | |||||||
| Net income (loss) before attribution of noncontrolling interests | $ | 1,577 | $ | (5,132 | ) | ||
| Net change in accumulated other comprehensive income (loss) | (1,494 | ) | (2,651 | ) | |||
| Total comprehensive income (loss) | $ | 83 | $ | (7,783 | ) | ||
| Comprehensive income attributable to the noncontrolling interest | (105 | ) | 49 | ||||
| Comprehensive income attributable to Citigroup | $ | 188 | $ | (7,832 | ) | ||
See Notes 1 and 17 on pages 88 and 126, respectively.
See Notes to the unauditedUnaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | 2008 | 2007(1) | In millions of dollars | 2009 | 2008(1) | |||||||||||
Cash Flows from operating activities of continuing operations | |||||||||||||||||
Net income (loss) | $ | (10,421 | ) | $ | 13,450 | ||||||||||||
| Cash flows from operating activities of continuing operations | Cash flows from operating activities of continuing operations | ||||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | Net income (loss) before attribution of noncontrolling interests | $ | 1,577 | $ | (5,132 | ) | |||||||||||
| Net income (loss) attributable to noncontrolling interests | Net income (loss) attributable to noncontrolling interests | (16 | ) | (21 | ) | ||||||||||||
| Citigroup's net income (loss) | Citigroup's net income (loss) | $ | 1,593 | $ | (5,111 | ) | |||||||||||
Income from discontinued operations, net of taxes | 896 | 430 | Income (loss) from discontinued operations, net of taxes | (21 | ) | 115 | |||||||||||
Loss on sale, net of taxes | (329 | ) | — | Gain on sale, net of taxes | (12 | ) | — | ||||||||||
Income (loss) from continuing operations | $ | (10,988 | ) | $ | 13,020 | Income (loss) from continuing operations—excluding noncontrolling interests | $ | 1,626 | $ | (5,226 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations | 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 | 252 | 281 | Amortization of deferred policy acquisition costs and present value of future profits | 101 | 81 | ||||||||||||
Additions to deferred policy acquisition costs | (311 | ) | (358 | ) | Additions to deferred policy acquisition costs | (90 | ) | (105 | ) | ||||||||
Depreciation and amortization | 1,953 | 1,808 | Depreciation and amortization | 13 | 812 | ||||||||||||
Provision for credit losses | 21,210 | 9,562 | Provision for credit losses | 9,975 | 5,751 | ||||||||||||
Change in trading account assets | 81,930 | (150,371 | ) | Change in trading account assets | 42,413 | (39,453 | ) | ||||||||||
Change in trading account liabilities | (12,799 | ) | 54,434 | Change in trading account liabilities | (36,652 | ) | 19,904 | ||||||||||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | 48,657 | (71,008 | ) | Change in federal funds sold and securities borrowed or purchased under agreements to resell | 4,530 | 35,060 | |||||||||||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | (53,824 | ) | 79,143 | Change in federal funds purchased and securities loaned or sold under agreements to repurchase | (20,490 | ) | (24,682 | ) | |||||||||
Change in brokerage receivables net of brokerage payables | 9,412 | (16,633 | ) | Change in brokerage receivables net of brokerage payables | (11,017 | ) | 2,352 | ||||||||||
Net losses/(gains) from sales of investments | 863 | (855 | ) | Net losses (gains) from sales of investments | (757 | ) | 119 | ||||||||||
Change in loans held-for-sale | 22,398 | (28,908 | ) | Change in loans held-for-sale | (889 | ) | 6,369 | ||||||||||
Other, net | (9,800 | ) | (857 | ) | Other, net | 2,911 | 769 | ||||||||||
Total adjustments | Total adjustments | $ | 109,941 | $ | (123,762 | ) | Total adjustments | $ | 9,952 | $ | 6,977 | ||||||
Net cash provided by (used in) operating activities of continuing operations | Net cash provided by (used in) operating activities of continuing operations | $ | 98,953 | $ | (110,742 | ) | Net cash provided by (used in) operating activities of continuing operations | $ | (8,326 | ) | $ | 1,751 | |||||
Cash flows from investing activities of continuing operations | Cash flows from investing activities of continuing operations | Cash flows from investing activities of continuing operations | |||||||||||||||
| Change in deposits at interest with banks | Change in deposits at interest with banks | $ | 10,828 | $ | (3,952 | ) | |||||||||||
| Change in loans | Change in loans | (31,999 | ) | (83,273 | ) | ||||||||||||
| Proceeds from sales and securitizations of loans | Proceeds from sales and securitizations of loans | 60,329 | 67,525 | ||||||||||||||
| Purchases of investments | Purchases of investments | (58,136 | ) | (92,497 | ) | ||||||||||||
| Proceeds from sales of investments | Proceeds from sales of investments | 27,774 | 39,571 | ||||||||||||||
| Proceeds from maturities of investments | Proceeds from maturities of investments | 32,928 | 58,849 | ||||||||||||||
| Capital expenditures on premises and equipment | Capital expenditures on premises and equipment | (282 | ) | (744 | ) | ||||||||||||
| Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,032 | 1,165 | ||||||||||||||
Change in deposits at interest with banks | $ | (9,326 | ) | $ | (6,563 | ) | |||||||||||
Change in loans | (187,859 | ) | (275,915 | ) | |||||||||||||
Proceeds from sales and securitizations of loans | 203,863 | 196,938 | |||||||||||||||
Purchases of investments | (272,815 | ) | (202,646 | ) | |||||||||||||
Proceeds from sales of investments | 60,255 | 147,573 | |||||||||||||||
Proceeds from maturities of investments | 194,312 | 100,577 | |||||||||||||||
Capital expenditures on premises and equipment | (2,111 | ) | (2,804 | ) | |||||||||||||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 15,644 | 1,949 | |||||||||||||||
Business acquisitions | — | (15,186 | ) | ||||||||||||||
Net cash used in investing activities of continuing operations | $ | 1,963 | $ | (56,077 | ) | ||||||||||||
| Net cash provided by (used in) investing activities of continuing operations | Net cash provided by (used in) investing activities of continuing operations | $ | 42,474 | $ | (13,356 | ) | |||||||||||
Cash flows from financing activities of continuing operations | Cash flows from financing activities of continuing operations | Cash flows from financing activities of continuing operations | |||||||||||||||
Dividends paid | $ | (6,008 | ) | $ | (8,086 | ) | |||||||||||
Issuance of common stock | 4,961 | 1,007 | |||||||||||||||
Issuance (redemptions) of preferred stock | 27,424 | (800 | ) | ||||||||||||||
Treasury stock acquired | (7 | ) | (663 | ) | |||||||||||||
Stock tendered for payment of withholding taxes | (377 | ) | (926 | ) | |||||||||||||
Issuance of long-term debt | 67,311 | 89,657 | |||||||||||||||
Payments and redemptions of long-term debt | (94,073 | ) | (49,989 | ) | |||||||||||||
Change in deposits | (32,411 | ) | 84,523 | ||||||||||||||
Change in short-term borrowings | (41,633 | ) | 63,063 | ||||||||||||||
| Dividends paid | Dividends paid | $ | (1,074 | ) | $ | (1,759 | ) | ||||||||||
| Issuance of common stock | Issuance of common stock | — | 46 | ||||||||||||||
| Issuance (redemptions) of preferred stock | Issuance (redemptions) of preferred stock | — | 19,384 | ||||||||||||||
| Treasury stock acquired | Treasury stock acquired | (1 | ) | (6 | ) | ||||||||||||
| Stock tendered for payment of withholding taxes | Stock tendered for payment of withholding taxes | (88 | ) | (286 | ) | ||||||||||||
| Issuance of long-term debt | Issuance of long-term debt | 65,398 | 19,900 | ||||||||||||||
| Payments and redemptions of long-term debt | Payments and redemptions of long-term debt | (74,055 | ) | (27,502 | ) | ||||||||||||
| Change in deposits | Change in deposits | (11,489 | ) | 4,978 | |||||||||||||
| Change in short-term borrowings | Change in short-term borrowings | (10,302 | ) | (10,689 | ) | ||||||||||||
Net cash (used in) provided by financing activities of continuing operations | Net cash (used in) provided by financing activities of continuing operations | $ | (74,813 | ) | $ | 177,786 | Net cash (used in) provided by financing activities of continuing operations | $ | (31,611 | ) | $ | 4,066 | |||||
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1,105 | ) | $ | 810 | Effect of exchange rate changes on cash and cash equivalents | $ | (756 | ) | $ | 335 | ||||||
Net cash from discontinued operations | Net cash from discontinued operations | (178 | ) | (65 | ) | Net cash from discontinued operations | $ | 29 | $ | (165 | ) | ||||||
Change in cash and due from banks | Change in cash and due from banks | $ | 24,820 | $ | 11,712 | Change in cash and due from banks | $ | 1,810 | $ | (7,369 | ) | ||||||
Cash and due from banks at beginning of period | Cash and due from banks at beginning of period | 38,206 | $ | 26,514 | Cash and due from banks at beginning of period | $ | 29,253 | $ | 38,206 | ||||||||
Cash and due from banks at end of period | Cash and due from banks at end of period | $ | 63,026 | $ | 38,226 | Cash and due from banks at end of period | $ | 31,063 | $ | 30,837 | |||||||
Supplemental disclosure of cash flow information for continuing operations | Supplemental disclosure of cash flow information for continuing operations | Supplemental disclosure of cash flow information for continuing operations | |||||||||||||||
Cash paid during the period for income taxes | Cash paid during the period for income taxes | $ | 2,123 | $ | 4,623 | Cash paid during the period for income taxes | $ | 1,111 | $ | (141 | ) | ||||||
Cash paid during the period for interest | Cash paid during the period for interest | $ | 44,294 | $ | 53,158 | Cash paid during the period for interest | $ | 8,362 | $ | 17,120 | |||||||
Non-cash investing activities | Non-cash investing activities | Non-cash investing activities | |||||||||||||||
Transfers to repossessed assets | Transfers to repossessed assets | $ | 2,574 | $ | 1,539 | Transfers to repossessed assets | $ | 643 | $ | 766 | |||||||
See Notes to the unauditedUnaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
| In millions of dollars, except shares | In millions of dollars, except shares | September 30, 2008 | December 31, 2007 | March 31, 2009 | December 31, 2008 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | (Unaudited) | | (Unaudited) | | ||||||||||
Assets | Assets | ||||||||||||||
Cash and due from banks | Cash and due from banks | $ | 54,318 | $ | 28,966 | $ | 24,479 | $ | 22,107 | ||||||
Deposits at interest with banks | 63,323 | 57,216 | |||||||||||||
| Deposits with banks | 148,462 | 156,774 | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | Federal funds sold and securities purchased under agreements to resell | 39,227 | 23,563 | 21,747 | 41,613 | ||||||||||
Trading account assets (including $17,741 and $22,716 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) | 202,793 | 215,454 | |||||||||||||
Investments (including $3,380 and $3,099 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) | 125,705 | 150,058 | |||||||||||||
| Trading account assets (including $9,924 and $12,092 pledged to creditors at March 31, 2009 and December 31, 2008, respectively) | 165,032 | 197,052 | |||||||||||||
| Investments (including $2,371 and $3,028 pledged to creditors at March 31, 2009 and December 31, 2008, respectively) | 168,782 | 165,914 | |||||||||||||
Loans, net of unearned income | Loans, net of unearned income | 587,275 | 644,597 | 528,104 | 555,198 | ||||||||||
Allowance for loan losses | Allowance for loan losses | (15,860 | ) | (10,659 | ) | (19,443 | ) | (18,273 | ) | ||||||
Total loans, net | Total loans, net | $ | 571,415 | $ | 633,938 | $ | 508,661 | $ | 536,925 | ||||||
Goodwill | Goodwill | 17,626 | 19,294 | 9,706 | 10,148 | ||||||||||
Intangible assets | Intangible assets | 10,618 | 11,007 | 7,423 | 7,689 | ||||||||||
Premises and equipment, net | Premises and equipment, net | 5,889 | 8,191 | 4,959 | 5,331 | ||||||||||
Interest and fees receivable | Interest and fees receivable | 7,702 | 8,958 | 6,662 | 7,171 | ||||||||||
Other assets | Other assets | 89,764 | 95,070 | 77,648 | 76,316 | ||||||||||
Assets of discontinued operations held for sale | 18,627 | — | |||||||||||||
Total assets | Total assets | $ | 1,207,007 | $ | 1,251,715 | $ | 1,143,561 | $ | 1,227,040 | ||||||
Liabilities | Liabilities | ||||||||||||||
Non-interest-bearing deposits in U.S. offices | $ | 61,252 | $ | 41,032 | |||||||||||
Interest-bearing deposits in U.S. offices | 168,790 | 186,080 | |||||||||||||
Non-interest-bearing deposits in offices outside the U.S. | 42,293 | 38,775 | |||||||||||||
Interest-bearing deposits in offices outside the U.S. | 463,030 | 516,517 | |||||||||||||
| Non-interest-bearing deposits in U.S. offices | $ | 86,245 | $ | 59,808 | |||||||||||
| Interest-bearing deposits in U.S. offices | 160,306 | 180,737 | |||||||||||||
| Non-interest-bearing deposits in offices outside the U.S. | 32,890 | 33,769 | |||||||||||||
| Interest-bearing deposits in offices outside the U.S. | 432,378 | 480,984 | |||||||||||||
Total deposits | Total deposits | 735,365 | $ | 782,404 | $ | 711,819 | $ | 755,298 | |||||||
Trading account liabilities | Trading account liabilities | 85,627 | 59,472 | 79,634 | 110,599 | ||||||||||
Purchased funds and other borrowings | Purchased funds and other borrowings | 83,848 | 74,112 | 102,589 | 116,333 | ||||||||||
Accrued taxes and other expense | 10,220 | 12,752 | |||||||||||||
| Accrued taxes and other expenses | 6,475 | 8,192 | |||||||||||||
Long-term debt and subordinated notes | Long-term debt and subordinated notes | 144,970 | 184,317 | 88,525 | 113,381 | ||||||||||
Other liabilities | Other liabilities | 42,037 | 39,352 | 44,338 | 40,797 | ||||||||||
Liabilities of discontinued operations held for sale | 14,273 | — | |||||||||||||
Total liabilities | Total liabilities | $ | 1,116,340 | $ | 1,152,409 | $ | 1,033,380 | $ | 1,144,600 | ||||||
Stockholder's equity | |||||||||||||||
| Citibank stockholder's equity | |||||||||||||||
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | $ | 751 | $ | 751 | $ | 751 | $ | 751 | ||||||
Surplus | Surplus | 69,319 | 69,135 | 102,219 | 74,767 | ||||||||||
Retained earnings | Retained earnings | 30,431 | 31,915 | 23,724 | 21,735 | ||||||||||
Accumulated other comprehensive income (loss)(1) | Accumulated other comprehensive income (loss)(1) | (9,834 | ) | (2,495 | ) | (17,373 | ) | (15,895 | ) | ||||||
Total stockholder's equity | $ | 90,667 | $ | 99,306 | |||||||||||
| Total Citibank stockholder's equity | $ | 109,321 | $ | 81,358 | |||||||||||
| Noncontrolling interest | 860 | 1,082 | |||||||||||||
Total liabilities and stockholder's equity | $ | 1,207,007 | $ | 1,251,715 | |||||||||||
| Total equity | $ | 110,181 | $ | 82,440 | |||||||||||
| Total liabilities and equity | $ | 1,143,561 | $ | 1,227,040 | |||||||||||
See Notes to the unauditedUnaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statementsUnaudited Consolidated Financial Statements as of September 30, 2008March 31, 2009 and for the three- and nine-monththree-month period ended September 30, 2008March 31, 2009 include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries (collectively, the Company). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation, have been reflected. The accompanying unaudited consolidated financial statementsUnaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and related notes included in Citigroup's 20072008 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2008 and June 30, 2008.10-K.
Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted.
Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures. While management makes its best judgment, actual results could differ from those estimates. Current market conditions increase the risk and complexity of the judgments in these estimates.
Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.
Significant Accounting Policies
The Company's accounting policies are fundamental to understanding management's discussion and analysis of the results of operations and financial condition. The Company has identified fivesix policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Goodwill, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 20072008 Annual Report on Form 10-K.
ACCOUNTING CHANGES
SEC Staff GuidanceOther-Than-Temporary Impairments on Loan Commitments RecordedInvestment 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) 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 AFS and HTM debt securities that management has no intent to sell and believes that it is more-likely-than-not will not be required to be sold 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 using its base assumptions. As a result of the adoption of the FSP, Citigroup's income in the first quarter is higher by $631 million on a pretax basis ($391 million after-tax).
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 10 to the Consolidated Financial Statements, Investments, for disclosures related to the Company's investment securities and OTTI.
Measurement of Fair Value through Earningsin Inactive Markets
In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." The FSP reaffirms that fair value is 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 under current market conditions. The FSP also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive.
The adoption of the FSP had no effect on the Company's Consolidated Financial Statements.
Revisions to the Earnings per Share Calculation
In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." Under the FSP, unvested share-based payment awards that contain nonforfeitable rights to dividends are considered to be a separate class of common stock and included in the EPS calculation using the "two-class method." Citigroup's restricted and deferred share awards meet the definition of a participating security. In accordance with the FSP, restricted and deferred shares are now included in the basic EPS calculation.
The following table shows the effect of adopting the FSP on Citigroup's basic and diluted EPS for 2008 and 2009:
| | 1Q08 | 2Q08 | 3Q08 | 4Q08 | Full Year 2008 | 1Q09 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Basic and Diluted Earnings per Share(1) | |||||||||||||||||||
As reported | $ | (1.02 | ) | $ | (0.54 | ) | $ | (0.60 | ) | $ | (3.40 | ) | $ | (5.59 | ) | N/A | |||
Two-class method | $ | (1.03 | ) | $ | (0.55 | ) | $ | (0.61 | ) | $ | (3.40 | ) | $ | (5.61 | ) | $ | (0.18 | ) | |
N/A Not Applicable
Additional Disclosures for Derivative Instruments
On January 1, 2008,2009, the Company adopted Staff Accounting BulletinSFAS No. 109 (SAB 109)161,Disclosures about Derivative Instruments and Hedging Activities, an amendment to SFAS 133 (SFAS 161). The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and related interpretations. No comparative information for periods prior to the effective date is required. See Note 16 to the Consolidated Financial Statements, Derivatives Activities, for disclosures related to the Company's hedging activities and derivative instruments. SFAS 161 had no impact on how Citigroup accounts for these instruments.
Business Combinations
In December 2007, the FASB issued Statement No. 141(revised),Business Combinations (SFAS 141(R)), which is designed to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. The Statement replaces SFAS 141,Business Combinations. SFAS 141(R) retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141(R) also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. The most significant changes in SFAS 141(R) are: (1) acquisition costs and restructuring costs will now be expensed; (2) stock consideration will be measured based on the quoted market price as of the acquisition date instead of the date the deal is announced; and (3) the acquirer will record a 100% step-up to fair value for all assets and liabilities, including the minority interest portion, and goodwill is recorded as if a 100% interest was acquired.
Citigroup adopted SFAS 141(R) on January 1, 2009, and the standard is applied prospectively.
Noncontrolling Interests in Subsidiaries
In December 2007, the FASB issued Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements (SFAS 160), 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. Upon adoption, SFAS 160 requires that the equity interest of noncontrolling shareholders, partners, or other equity holders in subsidiaries be presented as a separate item in Citigroup's stockholders' 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 a written loan commitmentthe remaining investment, rather than the previous carrying amount of that is marked to market through earnings should include the future cash flows related to the loan's servicing rights. However, the fair value measurement of a written loan commitment still must exclude the expected net cash flows related to internally developed intangible assets (such as customer relationship intangible assets).
SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans that will be held-for-sale when funded that are marked to market as derivatives under FAS 133 (derivative loan commitments); and (2) other written loan commitments that are accounted for at fair value through earnings under Statement 159's fair-value election. SAB 109 supersedes SAB 105, which applied only to derivative loan commitments and allowed the expected future cash flows related to the associated servicing of the loan to be recognized only after the servicing asset had been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained. SAB 109 was applied prospectively to loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The impact of adopting this SAB was immaterial.retained investment.
Netting Citigroup adopted SFAS 160 on January 1, 2009. As a result, $2.392 billion of Cash Collateral against Derivative Exposuresnoncontrolling interests was reclassified fromOther liabilities to Citigroup'sStockholders' equity.
Sale with Repurchase Financing Agreements
During April 2007,In February 2008, the FASB issued FASB Staff Position No. FIN 39-1, "Amendment of FASB Interpretation No. 39" (FSP FIN 39-1) modifying certain provisions of FIN 39, "Offsetting of Amounts Related to Certain Contracts". This amendment clarified the acceptability of the existing market practice of offsetting the amounts recorded for cash collateral receivables or payables against the fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting agreement, which was the Company's prior accounting practice. Thus, this amendment did not affect the Company's consolidated financial statements as of September 30, 2008.
Adoption of SFAS 157—Fair Value Measurements
The Company elected to early-adopt SFAS No. 157, "Fair Value Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 defines fair value, expands disclosure requirements around fair value and 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 create the following fair value hierarchy:
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
For some products or in certain market conditions, observable inputs may not always be available. For example, during the market dislocations that started in the second half of 2007, certain markets became illiquid, and some key observable inputs used in valuing certain exposures were unavailable. When and if these markets become liquid, the valuation of these exposures will use the related observable inputs available at that time from these markets.
Under SFAS 157, Citigroup is required to take into account its own credit risk when measuring the fair value of derivative positions as well as the other liabilities for which fair value accounting has been elected under SFAS 155,(FSP) FAS 140-3, "Accounting for Certain Hybrid Financial Instruments" (SFAS 155) and SFAS 159, "The Fair Value Option forTransfers of Financial Assets and Financial Liabilities" (SFAS 159).Repurchase Financing Transactions." This FSP provides implementation guidance on whether a security transfer with a contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.
The adoption of SFAS 157 has also resulted in some other changes to the valuation techniques used by Citigroup when determining fair value, most notably the changes to the way that the probability of default of a counterparty is factored in and the elimination of a derivative valuation adjustment which is no longer necessary under SFAS 157. The cumulative effect at January 1, 2007 of making these changes was a gain of $250 million after-tax ($402 million pretax), or $0.05 per diluted share, which was recorded in the first quarter of 2007 earnings within the
SFAS 157 also precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities, andFSP requires the recognition of trade-date gains after considerationthe transfer and the repurchase agreement as one linked transaction, unless all of all appropriate valuation adjustments relatedthe following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement's price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to certain derivative tradestransfers and subsequent repurchase financings that use unobservable inputsare entered into contemporaneously or in determining their fair value. Previous accounting guidance allowedcontemplation of one another. Citigroup adopted the use of block discounts in certain circumstances and prohibited the recognition of day-one gainsFSP on certain derivative trades when determining the fair value of instruments not traded in an active market. The cumulative effect of these changes resulted in an increase to January 1, 2007 retained earnings2009. The impact of $75 million.adopting this FSP was not material.
The following accounting pronouncements became effective for Citigroup on January 1, 2009. The impact of adopting these pronouncements did not have a material impact on Citigroup's Consolidated Financial Statements.
Fair Value Option (SFAS 159)Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock
In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, "The Fair Value OptionEITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock."
Transition Guidance for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option on an instrument-by-instrument basisConforming Changes to Issue No. 98-5
EITF Issue 08-4, "Transition Guidance for most financial assets and liabilitiesConforming Changes to be reported at fair value with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that resulted prior to its adoption from being required to apply fair value accounting to certain economic hedges (e.g., derivatives) while having to measure the assets and liabilities being economically hedged using an accounting method other than fair value.Issue No. 98-5."
Equity Method Investment Accounting Considerations
Under the SFAS 159 transition provisions, the Company elected to apply fair value accounting to certain financial instruments held at January 1, 2007 with future changes in value reported in earnings. The adoption of SFAS 159 resulted in a decrease to January 1, 2007 retained earnings of $99 million.
See Note 17 on page 126 for additional information.EITF Issue 08-6, "Equity Method Investment Accounting Considerations."
Accounting for Uncertainty in Income TaxesDefensive Intangible Assets
In July 2006, the FASB issued FIN 48,EITF Issue 08-7, "Accounting for Uncertainty in Income Taxes,Defensive Intangible Assets." which attempts to set out a consistent framework for preparers to use to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained. The amount
Determination of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparencyUseful Life of an entity's tax reserves. Citigroup adopted this Interpretation as of January 1, 2007. The adoption of FIN 48 resulted in a reduction to 2007 opening retained earnings of $14 million.Intangible Assets
The Company is presently under audit by the Internal Revenue Service (IRS) for 2003-2005. It is reasonably possible that the exam will conclude within the next 12 months. An estimateFSP FAS 142-3 "Determination of the change in FIN 48 liabilities cannot be made at this time due to the numberUseful Life of items still being reviewed by the IRS.Intangible Assets."
Leveraged Leases
On January 1, 2007, the Company adopted FASB Staff Position No. 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction" (FSP 13-2), which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.
Leveraged leases can provide significant tax benefits to the lessor, primarily as a result of the timing of tax payments. Since changes in the timing and/or amount of these tax benefits may have a significant effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. Previously, Citigroup did not recalculate the tax benefits if only the timing of cash flows had changed.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
New AdditionalInterim Disclosures for Derivativeabout Fair Value of Financial Instruments
In September 2008,April 2009, the FASB issued FASB Staff Position No.FSP FAS 133-1107-1 and FIN 45-4 "DisclosuresAPB 28-1, "Interim Disclosures about Credit DerivativesFair Value of Financial Instruments." The FSP requires disclosing qualitative and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45, and Clarification ofquantitative information about the Effective Date of FASB Statement No. 161," (FSP FAS 133-1 and FIN 45-4), that require additional disclosures for sellers of credit derivative instruments and certain guarantees. This FSP amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," by requiring additional disclosures for certain guarantees and credit derivatives sold including: maximum potential amount
of future payments, the related fair value of all financial instruments on a quarterly basis, including methods and significant assumptions used to estimate fair value during the current status ofperiod. These disclosures were previously only done annually. The disclosures required by the payment/performance risk.
These new disclosure requirementsFSP are effective for the 2008 Annual Report. While the Company already provides some of these disclosures, enhancements will be incorporated into the 2008 Annual Report.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (SFAS 161), an amendment to SFAS 133. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and related interpretations. The standard will be effective for all of the Company's interim and annual financial statements beginning with the first quarter ofending June 30, 2009. The standard expands the disclosure requirements for derivatives and hedged items andFSP has no impacteffect on how Citigroup accounts for these instruments.
Business Combinations
In December 2007, the FASB issued Statement No. 141 (revised),"Business Combinations" (SFAS 141(R)), which attempts to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reportsFair Value Disclosures about a business combination and its effects. This Statement replaces SFAS 141,"Business Combinations". SFAS 141(R) retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. The most significant changes in SFAS 141(R) are: (1) acquisition costs and restructuring costs would now be expensed; (2) stock consideration will be measured based on the quoted market price as of the acquisition date instead of the date the deal is announced; (3) contingent consideration arising from contractual and noncontractual contingencies that meet the more-likely-than-not recognition threshold will be measured and recognized as an asset or liability at fair value at the acquisition date using a probability-weighted discounted cash flows model, with subsequent changes in fair value reflected in earnings. Noncontractual contingencies that do not meet the more-likely-than-not criteria will continue to be recognized when they are probable and reasonably estimable; and (4) acquirer records 100% step-up to fair value for all assets & liabilities, including the minority interest portion, and goodwill is recorded as if a 100% interest was acquired.
SFAS 141(R) is effective for Citigroup on January 1, 2009. The Company is currently evaluating the potential impact of adopting this statement.
Noncontrolling Interests in Subsidiaries
In December 2007, the FASB issued Statement No. 160,"Noncontrolling Interests in Consolidated Financial Statements" (SFAS 160), which establishes standards for the accounting and reporting of noncontrolling interests in subsidiaries (that is, minority interests) in consolidated financial statements and for the loss of control of subsidiaries.
SFAS 160 requires: (1) the equity interest of noncontrolling shareholders, partners, or other equity holders in subsidiaries to be accounted for and presented in equity, separately from the parent shareholder's equity, rather than as liabilities or as "mezzanine" items between liabilities and equity; (2) the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated statement of income; and (3) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment.
SFAS 160 is effective for Citigroup on January 1, 2009. Early application is not allowed. The Company is currently evaluating the potential impact of adopting this statement.
Sale with Repurchase Financing AgreementsPension Plan Assets
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 140-3, "Accounting for Transfers of Financial Assets and Repurchase Financing Transactions." The objective of this FSP is to provide implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.
Current practice records the transfer as a sale and the repurchase agreement as a financing. The FSP requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement's price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another.
The FSP will be effective for Citigroup on January 1, 2009. Early adoption is prohibited. The Company is currently evaluating the potential impact of adopting this FSP.
Revisions to the Earnings Per Share Calculation
In JuneDecember 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets." UnderThis FSP requires that information about plan assets be disclosed, on an annual basis, based on the FSP, unvested share-based payment awards that contain nonforfeitable rights to dividendsfair value disclosure requirements of SFAS 157. Citigroup will be consideredrequired to beseparate plan assets into the three fair value hierarchy levels and provide a separate classrollforward of common stock and will be includedthe changes in the basic EPS calculation using the "two-class method."fair value of plan assets classified as Level 3. The disclosures about plan assets required by this FSP are effective for fiscal years ending after December 15, 2009. This FSP will be effectivehave no effect on the Company's accounting for the Company on January 1, 2009,plan benefits and will require restatement of all prior periods presented.
In August 2008, the FASB also issued a revised Exposure Draft of a proposed amendment to FASB Statement No. 128, "Earnings per Share." This proposed amendment seeks to simplify the method of calculating EPS, while promoting the international convergence of accounting standards. This proposed amendment reaffirms the requirements of FSP EITF 03-6-1 for basic EPS and also changes the calculation of
diluted EPS. The Exposure Draft does not contain an effective date.
The Company is currently evaluating the impact of these changes.obligations.
New Loss-Contingency Disclosures
In June 2008, the FASB issued an Exposure Draftexposure draft proposing expanded disclosures regarding loss contingencies accounted for under FASB Statement No. 5, "AccountingAccounting for Contingencies", and FASB Statement No.SFAS 141(R), "Business Combinations.". This proposal increases the number of loss contingencies subject to disclosure and requires substantial quantitative and qualitative information to be provided about those loss contingencies. The proposed effective date is December 31, 2009.2009, but will have no effect on the Company's accounting for loss contingencies.
Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model
The FASB has issued an Exposure Draftexposure draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "AccountingAccounting for Transfers and Servicing of Financial Assets and ExtinguishmentExtinguishments of Liabilities."Liabilities. While the proposed standard has not been finalized, and the Board's proposals are subject to a public comment period,if it is issued in its current form, this change may have a significant impact on Citigroup's consolidated financial statementsConsolidated Financial Statements as the Company may lose sales treatment for certain assets previously sold to a QSPE, as well as for certain future sales, and for certain transfers of a portionportions of an asset.assets that do not meet the proposed definition of participating interests. This proposed revision could become effective in January 2010. As of September 30, 2008, the total assets of2010 and should this occur, these QSPEs will then become subject to which Citigroup, acting as principal, has transferred assets and received sales treatment were approximately $820 billion.review under FIN 46(R).
In connection with the proposed changes to SFAS 140, the FASB has also issued a separate exposure draft of a proposed standard that proposesdetails three key changes to the consolidation model in FINFASB Interpretation No. 46 (Revised December 2003), "Consolidation of Variable Interest Entities" (FIN 46(R)). First, the BoardFASB will now include former QSPEs in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE (the primary beneficiary) to that of a primarily qualitative determination of power combined with benefits and losses instead of today'sthe current risks and rewards model. Finally, the proposed standard requires all VIEs and theirthat the analysis of primary beneficiaries to be reevaluated whenever circumstances change. The existing rules require reconsideration only when specified reconsideration events occur.
FASB is currently redeliberating these proposed standards; therefore, they are still subject to change. Since QSPEs will likely be eliminated from SFAS 140 and thus become subject to FIN 46(R) consolidation guidance, and since FIN 46(R)'s method of determining which party must consolidate a VIE will likely change, we expect to consolidate only certain of the VIEs and QSPEs with which Citigroup is involved.
The Company's estimate of the incremental impact of adopting these changes on Citigroup's Consolidated Balance Sheet and risk-weighted assets, based on March 31, 2009 balances, reflecting Citigroup's understanding of the proposed changes to the standards and a proposed January 1, 2010 effective date is presented below. The actual impact of adopting the amended standards as of January 1, 2010 could materially differ.
The pro forma impact of the proposed changes on GAAP assets and resulting risk-weighted assets for those entities we estimate would likely require consolidation under the proposed rules, and assuming application of existing risk-based capital rules, at January 1, 2010 (based on the balances at March 31, 2009) would result in the recognition of incremental assets as follows:
| | Incremental | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | GAAP assets | Risk- weighted assets(1) | |||||
Credit cards | $ | 90.5 | $ | 1.3 | |||
Commercial paper conduits | 50.3 | — | |||||
Private label consumer mortgages | 4.1 | 2.5 | |||||
Student loans | 14.2 | 3.8 | |||||
Muni bonds | 4.8 | 1.6 | |||||
Mutual fund deferred sales commission securitization | 0.8 | 0.6 | |||||
Investment funds | 1.1 | 1.1 | |||||
Total | $ | 165.8 | $ | 10.9 | |||
The table reflects (i) the estimated portion of the assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment as of March 31, 2009 (totaling approximately $767.7 billion), and (ii) the estimated assets of significant unconsolidated VIEs as of March 31, 2009 with which Citigroup is involved were(totaling approximately $325 billion.
The$264.3 billion) that would be consolidated under the proposal. Due to the variety of transaction structures and level of the Company's involvement in individual QSPEs and VIEs, only a subset of the QSPEs and VIEs with which the Company willis involved are expected to be evaluatingconsolidated under the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed..proposed change.
Investment Company Audit Guide (SOP 07-1)
In July 2007, the AICPA issued Statement of Position 07-1, "Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" (SOP 07-1), which was expected to be effective for fiscal years beginning on or after December 15, 2007. However, in February 2008, the FASB delayed the effective date indefinitely by issuing an FSP SOP 07-1-1, "Effective Date of AICPA Statement of Position 07-1." SOP 07-1 sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. In addition, SOP 07-1 establishes new criteria for a parent company or equity method investor to retain investment company accounting in their consolidated financial statements. Investment companies record all their investments at fair value with changes in value reflected in earnings. The Company is
currently evaluating the potential impact of adopting SOP 07-1.
Sale of Citigroup's German Retail Banking OperationOperations
On July 11,December 5, 2008, Citigroup announced the agreement to sellsold its German retail banking operations to Credit Mutuel for Euro 4.95.2 billion in cash plus the German retail bank's operating net earnings accrued in 2008 through the closing. The transaction is expected to resultsale resulted in an after-tax gain of approximately $4 billion.$3.9 billion including the after-tax gain on the foreign currency hedge of $383 million recognized during the fourth quarter of 2008.
The sale doesdid not include the corporate and investment banking business or the Germany-based European data center. The sale is expected to close in the fourth quarter of 2008 pending regulatory approvals.
The German retail banking operations generated total revenue of $1.7 billion and $1.6 billion, and pretax earnings of $521 million and $398 million for the nine months ended September 30, 2008 and 2007, respectively. These results are reported in Discontinued operations on the Company's Consolidated Statement of Income. In addition to these results, there was a $330 million pre-tax FX gain realized during the third quarter of 2008 from the hedging of the sale proceeds, which are denominated in Euros, and a tax benefit of $279 million that arose as a result of this sale. Including these two items, total revenue and after-tax income from discontinued operations for the nine months ended September 30, 2008 was $2.0 billion and $829 million, respectively.
The German retail banking operations had total assets and total liabilities as of September 30, 2008, of $18.6 billion and $14.3 billion, respectively.
Results for all of the German retail banking businesses sold, are reported asDiscontinued operations for all periods presented. The assets and liabilities of the businesses being sold are included in Assets of Discontinued operations held for sale and Liabilities of Discontinued operations held for sale on the Consolidated Balance Sheet.
The following is a summary as of September 30, 2008 of the assets and liabilities of Discontinued operations held for sale on the Consolidated Balance Sheet for the operations related to the German retail banking businesses to be sold:
| In millions of dollars | September 30, 2008 | |||
|---|---|---|---|---|
Assets | ||||
Cash due from banks | $ | 218 | ||
Deposits at interest with banks | 22 | |||
Investments | 998 | |||
Loans | 15,632 | |||
Allowance for Loan Losses | (244 | ) | ||
Goodwill | 1,162 | |||
Other Assets | 839 | |||
Total assets | $ | 18,627 | ||
Liabilities | ||||
Deposits | $ | 13,476 | ||
Other Liabilities | 797 | |||
Total liabilities | $ | 14,273 | ||
Summarized financial information for discontinuedDiscontinued operations, including cash flows, related to the sale of the German retail bankbanking operations is as follows:
| | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||
Total revenues, net of interest expense | $ | 847 | $ | 550 | $ | 2,001 | $ | 1,628 | |||||
Income from discontinued operations | $ | 503 | $ | 104 | $ | 851 | $ | 398 | |||||
Provision (benefit) for income taxes (1) | (101 | ) | 34 | 22 | 128 | ||||||||
Income from discontinued operations, net | $ | 604 | $ | 70 | $ | 829 | $ | 270 | |||||
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Total revenues, net of interest expense | $ | 6 | $ | 579 | |||
Income (loss) from discontinued operations | $ | (19 | ) | $ | 159 | ||
Gain on sale(1) | (41 | ) | — | ||||
Provision for income taxes and minority interest, net of taxes | — | 56 | |||||
Income (loss) from discontinued operations, net of taxes | $ | (60 | ) | $ | 103 | ||
| | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | ||||||
Cash flows from: | ||||||||
Operating activities | $ | (1,252 | ) | $ | (2,185 | ) | ||
Investing activities | 1,833 | (1,864 | ) | |||||
Financing activities | (760 | ) | (385 | ) | ||||
Net cash provided by discontinued operations | $ | (179 | ) | $ | (647 | ) | ||
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Cash flows from operating activities | $ | 19 | $ | (818 | ) | ||
Cash flows from investing activities | (10 | ) | (975 | ) | |||
Cash flows from financing activities | (9 | ) | 1,627 | ||||
Net cash provided by (used in) discontinued operations | $ | — | $ | (166 | ) | ||
CitiCapital
On July 31, 2008, the Company completed the sale ofCitigroup sold substantially all of its CitiCapital, businessthe equipment finance unit to GE Capital, which includes its inNorth American commercial lending and leasing business.
America. The total proceeds from the transaction were approximately $12.5 billion and resulted in an after-tax loss to Citigroup of $305 million, with both amounts subject to closing adjustments.million. This loss is included inIncome from discontinued operations on the Company's Consolidated Statement of Income for the thirdsecond quarter of 2008.
This transaction encompassed seven CitiCapital equipment finance business lines, including Healthcare Finance, Private Label Equipment Finance, Material Handling Finance, Franchise Finance, Construction Equipment Finance, Bankers Leasing, and CitiCapital Canada. CitiCapital's Tax Exempt Finance business was not part of the transaction and remained with Citigroup.
CitiCapital has approximately 1,400 employees and 160,000 customers throughoutNorth America.
Results for all of the CitiCapital businesses sold, as well as the net loss recognized in the second quarter of 2008 from this sale, are reported asDiscontinued operations for all periods presented.
Summarized financial information for discontinuedDiscontinued operations, including cash flows, related to the sale of CitiCapital is as follows:
| | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||
Total revenues, net of interest expense | $ | 96 | $ | 203 | $ | 14 | $ | 778 | |||||
Income (loss) from discontinued operations | $ | (2 | ) | $ | 44 | $ | 45 | $ | 233 | ||||
Gain (loss) from sale | 9 | — | (508 | ) | — | ||||||||
Provision (benefit) for income taxes | 3 | 11 | (201 | ) | 73 | ||||||||
Income (loss) from discontinued operations, net | $ | 4 | $ | 33 | $ | (262 | ) | $ | 160 | ||||
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Total revenues, net of interest expense | $ | 9 | $ | 199 | |||
Income from discontinued operations(1) | $ | 1 | $ | 4 | |||
Benefit for income taxes and minority interest, net of taxes | (7 | ) | (8 | ) | |||
Income from discontinued operations, net of taxes | $ | 8 | $ | 12 | |||
| | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | ||||||
Cash flows from: | ||||||||
Operating activities | $ | (287 | ) | $ | (942 | ) | ||
Investing activities | 349 | 968 | ||||||
Financing activities | (61 | ) | (26 | ) | ||||
Net cash provided by discontinued operations | $ | 1 | $ | (1 | ) | |||
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Cash flows from operating activities | $ | — | $ | (143 | ) | ||
Cash flows from investing activities | — | 175 | |||||
Cash flows from financing activities | — | (31 | ) | ||||
Net cash provided by (used in) discontinued operations | $ | — | $ | 1 | |||
Combined Results for Discontinued Operations
SummarizedThe following is summarized financial information for the German retail banking operations and CitiCapital business. Additionally, contingency consideration payments received during the CitiCapitalfirst quarter of 2009, of $29 million pretax ($19 million after tax) related to the sale of Citigroup's Asset Management business, which was sold in December 2005, is as follows:also included in these balances.
| | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | 2009 | 2008 | ||||||||||||||
Total revenues, net of interest expense | $ | 943 | $ | 753 | $ | 2,015 | $ | 2,406 | $ | 15 | $ | 778 | ||||||||
Income (loss) from discontinued operations | $ | 501 | $ | 148 | $ | 896 | $ | 631 | $ | (18 | ) | $ | 163 | |||||||
Gain (loss) from sale | 9 | — | (508 | ) | — | |||||||||||||||
Provision (benefit) for income taxes | (98 | ) | 45 | (179 | ) | 201 | ||||||||||||||
Gain on sale | (12 | ) | — | |||||||||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes | 3 | 48 | ||||||||||||||||||
Income (loss) from discontinued operations, net | $ | 608 | $ | 103 | $ | 567 | $ | 430 | ||||||||||||
Income from discontinued operations, net of taxes | $ | (33 | ) | $ | 115 | |||||||||||||||
Cash Flows from Discontinued Operations
| | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | ||||||
Cash flows from: | ||||||||
Operating activities | $ | (1,539 | ) | $ | (1,243 | ) | ||
Investing activities | 2182 | (897 | ) | |||||
Financing activities | (821 | ) | (411 | ) | ||||
Net cash provided by discontinued operations | $ | (178 | ) | $ | (65 | ) | ||
| | Three Months Ended March 31 | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Cash flows from operating activities | $ | 19 | $ | (961 | ) | ||
Cash flows from investing activities | 19 | (800 | ) | ||||
Cash flows from financing activities | (9 | ) | 1,596 | ||||
Net cash provided by (used in) discontinued operations | $ | 29 | $ | (165 | ) | ||
3. BUSINESS SEGMENTS
The following tables presenttable presents certain information regarding the Company's operations by segment:
| | Revenues, net of interest expense | Provision (benefit) for income taxes | Income (Loss) from Continuing Operations(1) | Identifiable assets | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended September 30, | | | ||||||||||||||||||||||
| In millions of dollars, except identifiable assets in billions | Sept. 30, 2008(3) | Dec. 31, 2007(2) | |||||||||||||||||||||||
| 2008 | 2007(2) | 2008 | 2007(2) | 2008 | 2007(2) | ||||||||||||||||||||
Global Cards | $ | 3,789 | $ | 6,342 | $ | (579 | ) | $ | 719 | $ | (902 | ) | $ | 1,442 | $ | 118 | $ | 128 | |||||||
Consumer Banking | 7,429 | 7,302 | (996 | ) | (136 | ) | (1,099 | ) | 156 | 536 | 599 | ||||||||||||||
Institutional Clients Group | 2,393 | 4,617 | (1,690 | ) | (320 | ) | (2,017 | ) | 267 | 1,166 | 1,317 | ||||||||||||||
Global Wealth Management | 3,164 | 3,519 | 225 | 312 | 363 | 490 | 108 | 104 | |||||||||||||||||
Corporate/Other(4) | (95 | ) | (140 | ) | (254 | ) | (83 | ) | 232 | (246 | ) | 103 | 40 | ||||||||||||
Total | $ | 16,680 | $ | 21,640 | $ | (3,294 | ) | $ | 492 | $ | (3,423 | ) | $ | 2,109 | $ | 2,031 | $ | 2,188 | |||||||
| | Revenues, net of interest expense | Provision (benefit) for income taxes | Income (Loss) from Continuing Operations | Revenues, net of interest expense | Provision (benefit) for income taxes | Income (loss) from continuing operations(1) | Identifiable assets | |||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Nine Months Ended September 30, | First Quarter | | | ||||||||||||||||||||||||||||||||||||||||
| In millions of dollars | 2008 | 2007(2) | 2008 | 2007(2) | 2008 | 2007(2) | ||||||||||||||||||||||||||||||||||||||
| In millions of dollars, except identifiable assets in billions | First Quarter | Mar. 31, 2009 | Dec. 31, 2008(2) | |||||||||||||||||||||||||||||||||||||||||
Global Cards | $ | 15,595 | $ | 16,772 | $ | 327 | $ | 1,806 | $ | 776 | $ | 3,740 | $ | 5,765 | $ | 6,379 | $ | 58 | $ | 664 | $ | 417 | $ | 1,226 | $ | 102 | $ | 114 | ||||||||||||||||
Consumer Banking | 22,575 | 21,622 | (1,894 | ) | 872 | (1,875 | ) | 2,735 | 6,402 | 7,791 | (1,126 | ) | (215 | ) | (1,226 | ) | 52 | 473 | 496 | |||||||||||||||||||||||||
Institutional Clients Group | 374 | 24,531 | (8,084 | ) | 2,153 | (10,418 | ) | 6,568 | 9,507 | (4,958 | ) | 841 | (4,832 | ) | 2,833 | (6,357 | ) | 949 | 1,003 | |||||||||||||||||||||||||
Global Wealth Management | 9,758 | 9,534 | 616 | 759 | 1,062 | 1,450 | 2,619 | 3,279 | 145 | 159 | 261 | 294 | 91 | 99 | ||||||||||||||||||||||||||||||
Corporate/Other(4) | (1,104 | ) | (383 | ) | (602 | ) | (682 | ) | (533 | ) | (1,473 | ) | ||||||||||||||||||||||||||||||||
Corporate/Other | 496 | (50 | ) | 867 | 285 | (675 | ) | (462 | ) | 208 | 226 | |||||||||||||||||||||||||||||||||
Total | $ | 47,198 | $ | 72,076 | $ | (9,637 | ) | $ | 4,908 | $ | (10,988 | ) | $ | 13,020 | $ | 24,789 | $ | 12,441 | $ | 785 | $ | (3,939 | ) | $ | 1,610 | $ | (5,247 | ) | $ | 1,823 | $ | 1,938 | ||||||||||||
4. INTEREST REVENUE AND EXPENSE
For the three-three months ended March 31, 2009 and nine-month periods ended September 30, 2008, and 2007,respectively, interest revenue and expense consisted of the following:
| | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007(1) | 2008 | 2007(1) | 2009 | 2008 | ||||||||||||||
Interest revenue | ||||||||||||||||||||
Loan interest, including fees | $ | 15,528 | $ | 16,341 | $ | 47,883 | $ | 46,100 | $ | 12,855 | $ | 16,414 | ||||||||
Deposits at interest with banks | 803 | 855 | 2,360 | 2,301 | 432 | 784 | ||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 2,222 | 5,090 | 7,771 | 14,041 | ||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | 888 | 3,172 | ||||||||||||||||||
Investments, including dividends | 2,597 | 3,340 | 7,832 | 10,427 | 3,176 | 2,687 | ||||||||||||||
Trading account assets | 4,154 | 5,156 | 13,597 | 13,471 | 2,958 | 4,799 | ||||||||||||||
Other interest | 878 | 1,485 | 3,301 | 3,233 | 300 | 1,334 | ||||||||||||||
Total interest revenue | $ | 26,182 | $ | 32,267 | $ | 82,744 | $ | 89,573 | $ | 20,609 | $ | 29,190 | ||||||||
Interest expense | ||||||||||||||||||||
Deposits | $ | 4,915 | $ | 7,456 | $ | 16,191 | $ | 20,784 | $ | 2,848 | $ | 6,194 | ||||||||
Trading account liabilities(2) | 290 | 371 | 1,079 | 1,058 | ||||||||||||||||
Short-term debt and other liabilities | 3,690 | 8,396 | 12,932 | 23,056 | ||||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 1,119 | 3,903 | ||||||||||||||||||
Trading account liabilities(1) | 113 | 333 | ||||||||||||||||||
Short-term borrowings | 497 | 1,381 | ||||||||||||||||||
Long-term debt | 3,881 | 4,200 | 12,103 | 11,529 | 3,134 | 4,311 | ||||||||||||||
Total interest expense | $ | 12,776 | $ | 20,423 | $ | 42,305 | $ | 56,427 | $ | 7,711 | $ | 16,122 | ||||||||
Net interest revenue | $ | 13,406 | $ | 11,844 | $ | 40,439 | $ | 33,146 | $ | 12,898 | $ | 13,068 | ||||||||
Provision for loan losses | 8,943 | 4,581 | 21,503 | 9,512 | 9,915 | 5,577 | ||||||||||||||
Net interest revenue after provision for loan losses | $ | 4,463 | $ | 7,263 | $ | 18,936 | $ | 23,634 | $ | 2,983 | $ | 7,491 | ||||||||
5. COMMISSIONS AND FEES
Commissions and fees revenue includes charges to customers for credit and bank cards, including transaction-processing fees and annual fees; advisory, and equity and debt underwriting services; lending and deposit-related transactions, such as loan commitments, standby letters of credit, and other deposit and loan servicing activities; investment management-related fees, including brokerage services, and custody and trust services; and insurance fees and commissions.
The following table presents commissions and fees revenue for the three and nine months ended September 30, 2008March 31, 2009 and 2007:2008:
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007(1) | 2008 | 2007(1) | 2009 | 2008(1) | ||||||||||||||
Credit cards and bank cards | $ | 1,113 | $ | 1,317 | $ | 3,504 | $ | 3,815 | $ | 977 | $ | 1,204 | ||||||||
Investment banking | 545 | 1,161 | 2,337 | 3,976 | 814 | 795 | ||||||||||||||
Smith Barney | 688 | 817 | 2,196 | 2,394 | 515 | 763 | ||||||||||||||
ICG trading-related | 628 | 717 | 1,930 | 2,001 | 347 | 702 | ||||||||||||||
Other Consumer | 235 | 118 | 870 | 322 | 241 | 311 | ||||||||||||||
Transaction services | 359 | 318 | 1,076 | 800 | 316 | 353 | ||||||||||||||
Checking-related | 282 | 293 | 868 | 813 | 264 | 290 | ||||||||||||||
Nikko Cordial-related(2) | 271 | 269 | 871 | 532 | 181 | 300 | ||||||||||||||
Other ICG | 338 | 108 | 582 | 249 | 150 | 130 | ||||||||||||||
Primerica | 98 | 112 | 315 | 341 | 73 | 110 | ||||||||||||||
Loan servicing(3) | (336 | ) | (268 | ) | 771 | 1,219 | 196 | (284 | ) | |||||||||||
Corporate finance(4) | (649 | ) | (1,076 | ) | (4,149 | ) | (595 | ) | 250 | (3,111 | ) | |||||||||
Other | (147 | ) | 58 | (127 | ) | 91 | 2 | 13 | ||||||||||||
Total commissions and fees | $ | 3,425 | $ | 3,944 | $ | 11,044 | $ | 15,958 | $ | 4,326 | $ | 1,576 | ||||||||
The Company has several non-contributory defined benefit pension plans covering U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The principal U.S. defined benefit plan, which formerly covered substantially all U.S. employees, is closed to new entrants and, effective January 1, 2008, no longer accrues benefits for most employees. Employees satisfying certain age and service requirements remain covered by a prior final pay formula.
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. For information on the Company's Retirement Benefit Plansretirement benefit plans and Pension Assumptions,pension assumptions, see Citigroup's 20072008 Annual Report on Form 10-K.
The following tables summarize the components of the net expense recognized in the Consolidated Statement of Income for the three and nine months ended September 30, 2008March 31, 2009 and 2007.2008.
Net Expense (Benefit)
| | Three Months Ended September 30, | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Pension Plans | Postretirement Benefit Plans | ||||||||||||||||||||||||
| | U.S. Plans(1) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | ||||||||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Benefits earned during the period | $ | 3 | $ | 92 | $ | 54 | $ | 49 | $ | — | $ | — | $ | 9 | $ | 9 | ||||||||||
Interest cost on benefit obligation | 176 | 155 | 93 | 80 | 17 | 14 | 26 | 21 | ||||||||||||||||||
Expected return on plan assets | (245 | ) | (222 | ) | (128 | ) | (133 | ) | (4 | ) | (2 | ) | (29 | ) | (30 | ) | ||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||||
Net transition obligation | — | — | — | 1 | — | — | — | — | ||||||||||||||||||
Prior service cost (benefit) | — | (1 | ) | 1 | 1 | — | — | — | — | |||||||||||||||||
Net actuarial loss | — | 9 | 6 | 3 | 3 | — | 5 | 6 | ||||||||||||||||||
Net expense (benefit) | $ | (66 | ) | $ | 33 | $ | 26 | $ | 1 | $ | 16 | $ | 12 | $ | 11 | $ | 6 | |||||||||
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Pension Plans | Postretirement Benefit Plans | | Pension Plans | Postretirement Benefit Plans | ||||||||||||||||||||||||||||||||||||||||||||||
| | | U.S. Plans(1) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | | U.S. Plans(1) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | ||||||||||||||||||||||||||||||||||||||||||
| In millions of dollars | In millions of dollars | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | In millions of dollars | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
Benefits earned during the period | Benefits earned during the period | $ | 18 | $ | 226 | $ | 157 | $ | 139 | $ | 1 | $ | 1 | $ | 28 | $ | 20 | Benefits earned during the period | $ | 6 | $ | 8 | $ | 37 | $ | 51 | $ | — | $ | — | $ | 7 | $ | 7 | ||||||||||||||||||
Interest cost on benefit obligation | Interest cost on benefit obligation | 505 | 481 | 275 | 229 | 47 | 44 | 76 | 56 | Interest cost on benefit obligation | 163 | 164 | 70 | 83 | 15 | 15 | 21 | 20 | ||||||||||||||||||||||||||||||||||
Expected return on plan assets | Expected return on plan assets | (712 | ) | (667 | ) | (378 | ) | (349 | ) | (9 | ) | (8 | ) | (86 | ) | (77 | ) | Expected return on plan assets | (229 | ) | (233 | ) | (78 | ) | (128 | ) | (2 | ) | (2 | ) | (18 | ) | (28 | ) | ||||||||||||||||||
Amortization of unrecognized: | Amortization of unrecognized: | Amortization of unrecognized: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net transition obligation | — | — | 1 | 2 | — | — | — | — | Net transition obligation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Prior service cost (benefit) | (1 | ) | (2 | ) | 3 | 2 | — | (2 | ) | — | — | Prior service cost (benefit) | 1 | (1 | ) | — | 1 | — | — | — | — | |||||||||||||||||||||||||||||||
Net actuarial loss | — | 63 | 19 | 28 | 3 | 2 | 16 | 10 | Net actuarial loss | — | — | 15 | 9 | 1 | — | 4 | 3 | |||||||||||||||||||||||||||||||||||
Net expense (benefit) | Net expense (benefit) | $ | (190 | ) | $ | 101 | $ | 77 | $ | 51 | $ | 42 | $ | 37 | $ | 34 | $ | 9 | Net expense (benefit) | $ | (59 | ) | $ | (62 | ) | $ | 44 | $ | 16 | $ | 14 | $ | 13 | $ | 14 | $ | 2 | |||||||||||||||
Employer Contributions
Citigroup's pension funding policy for U.S. plans and non-U.S. plans is generally to fund to applicable minimum funding requirements, rather than to the amounts of accumulated benefit obligations. For the U.S. plans, the Company may increase its contributions above the minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), if appropriate to its tax and cash position and the plan's funded position. At September 30, 2008March 31, 2009 and December 31, 2007,2008, there were no minimum required contributions and no discretionary cash or non-cash contributions are currently planned for the U.S. plans. For the non-U.S. plans, the Company contributed $97$51 million as of September 30, 2008.in the three months ended March 31, 2009. Citigroup presently anticipates contributing an additional $65$109 million to fund its non-U.S. plans in 20082009 for a total of $162$160 million.
7. RESTRUCTURING
DuringIn the firstfourth quarter of 2008, Citigroup recorded a pretax restructuring expense of $1.797 billion related to the implementation of a Company-wide re-engineering plan. For the three months ended March 31, 2009, Citigroup recorded a pretax net restructuring release of $10 million composed of a gross charge of $29 million and a credit of $39 million due to changes in estimates. This initiative will generate headcount reductions of approximately 20,600. The charges related to the 2008 Re-engineering Projects Restructuring Initiative are reported in the Restructuring line on the Company's Consolidated Statement of Income and are recorded in each segment.
In 2007, the Company completed a review of its structural expense base in a Company-wide effort to create a more streamlined organization, reduce expense growth, and provide investment funds for future growth initiatives. As a result of this review, a pretax restructuring charge of $1.4 billion was recorded inCorporate/Other during the first quarter of 2007. Additional net charges of $151 million were recognized in subsequent quarters throughout 2007, and net releases of $31 million and $3 million in 2008 and 2009, due to changes in estimates. The charges related to the 2007 Structural Expense Review Restructuring Initiative are reported in the Restructuring line on the Company's Consolidated Statement of Income.
The primary goals of the 2008 Re-engineering Projects and Restructuring Initiatives and the 2007 Structural Expense Review and Restructuring were:
For the three months ended September 30, 2008, Citigroup recorded a pretax net restructuring expense of $8 million composed of a gross charge of $20 million and a credit of $12 million due to changes in estimates attributable to lower than anticipated costs of implementing certain projects and the sale of businesses in Europe.
The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges began in the second quarter of 2007 and fourth quarter of 2008 for the 2007 and 2008 initiatives, respectively, in addition to normal scheduled depreciation.
Additional net charges totaling approximately $5 million pretax are anticipated to be recorded by the end of the fourth quarter of 2008. Of this charge, $5 million is attributable to Corporate/Other.
The following table detailstables detail the Company's restructuring reserves.
2008 Re-engineering Projects Restructuring Charges
| Severance | | | | | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Severance | | | | | Contract termination costs | Asset write- downs(3) | Employee termination cost | Total Citigroup(4) | |||||||||||||||||||||||||||||
| In millions of dollars | In millions of dollars | SFAS 112(1) | SFAS 146(2) | Contract termination costs | Asset write- downs(3) | Employee termination cost | Total Citigroup | SFAS 112(1) | SFAS 146(2) | ||||||||||||||||||||||||||||||
Total Citigroup (pretax) | Total Citigroup (pretax) | ||||||||||||||||||||||||||||||||||||||
Original restructuring charge | $ | 1,254 | $ | 295 | $ | 55 | $ | 123 | $ | 19 | $ | 1,746 | |||||||||||||||||||||||||||
Original restructuring charge, First quarter of 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 352 | $ | 39 | $ | 1,377 | |||||||||||||||||||||||||||
Utilization | (114 | ) | (3 | ) | (2 | ) | (100 | ) | — | (219 | ) | ||||||||||||||||||||||||||||
Utilization | — | — | — | (268 | ) | — | (268 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2008 | $ | 1,140 | $ | 292 | $ | 53 | $ | 23 | $ | 19 | $ | 1,527 | |||||||||||||||||||||||||||
Additional charge | $ | 14 | $ | 6 | $ | 4 | $ | 5 | $ | — | $ | 29 | |||||||||||||||||||||||||||
Foreign exchange | (14 | ) | 2 | — | (12 | ) | (1 | ) | (25 | ) | |||||||||||||||||||||||||||||
Utilization | (541 | ) | (294 | ) | (11 | ) | (7 | ) | (5 | ) | (858 | ) | |||||||||||||||||||||||||||
Changes in estimates | (38 | ) | (1 | ) | — | — | — | (39 | ) | ||||||||||||||||||||||||||||||
Balance at March 31, 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 84 | $ | 39 | $ | 1,109 | |||||||||||||||||||||||||||
Balance at March 31, 2009 | $ | 561 | $ | 5 | $ | 46 | $ | 9 | $ | 13 | $ | 634 | |||||||||||||||||||||||||||
Second quarter of 2007: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 8 | $ | 12 | $ | 23 | $ | 19 | $ | 1 | $ | 63 | |||||||||||||||||||||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | |||||||||||||||||||||||||||||||||
Utilization | (197 | ) | (18 | ) | (12 | ) | (72 | ) | (4 | ) | (303 | ) | |||||||||||||||||||||||||||
Balance at June 30, 2007 | $ | 769 | $ | 5 | $ | 37 | $ | 31 | $ | 36 | $ | 878 | |||||||||||||||||||||||||||
Third quarter of 2007: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 11 | $ | 14 | $ | — | $ | — | $ | 10 | $ | 35 | |||||||||||||||||||||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | |||||||||||||||||||||||||||||||||
Utilization | (195 | ) | (13 | ) | (9 | ) | (10 | ) | (23 | ) | (250 | ) | |||||||||||||||||||||||||||
Balance at September 30, 2007 | $ | 593 | $ | 6 | $ | 29 | $ | 21 | $ | 23 | $ | 672 | |||||||||||||||||||||||||||
Fourth quarter of 2007: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 23 | $ | 70 | $ | 6 | $ | 8 | $ | — | $ | 107 | |||||||||||||||||||||||||||
Foreign Exchange | 3 | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||
Utilization | (155 | ) | (44 | ) | (7 | ) | (13 | ) | (6 | ) | (225 | ) | |||||||||||||||||||||||||||
Changes in Estimates | (39 | ) | — | (6 | ) | (1 | ) | (8 | ) | (54 | ) | ||||||||||||||||||||||||||||
Balance at December 31, 2007 | $ | 425 | $ | 32 | $ | 22 | $ | 15 | $ | 9 | $ | 503 | |||||||||||||||||||||||||||
First quarter of 2008: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 5 | $ | 5 | $ | 3 | $ | 2 | $ | — | $ | 15 | |||||||||||||||||||||||||||
Foreign Exchange | 5 | — | — | — | — | 5 | |||||||||||||||||||||||||||||||||
Utilization | (114 | ) | (22 | ) | (4 | ) | (2 | ) | (1 | ) | (143 | ) | |||||||||||||||||||||||||||
Balance at March 31, 2008 | $ | 321 | $ | 15 | $ | 21 | $ | 15 | $ | 8 | $ | 380 | |||||||||||||||||||||||||||
Second quarter of 2008: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 2 | $ | 9 | $ | 20 | $ | 3 | $ | — | $ | 34 | |||||||||||||||||||||||||||
Foreign Exchange | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Utilization | (77 | ) | (12 | ) | (5 | ) | (3 | ) | (3 | ) | (100 | ) | |||||||||||||||||||||||||||
Changes in Estimates | (69 | ) | (1 | ) | — | (4 | ) | (3 | ) | (77 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2008 | $ | 177 | $ | 11 | $ | 36 | $ | 11 | $ | 2 | $ | 237 | |||||||||||||||||||||||||||
Third quarter of 2008: | |||||||||||||||||||||||||||||||||||||||
Additional Charge | $ | 1 | $ | — | $ | 18 | $ | 1 | $ | — | $ | 20 | |||||||||||||||||||||||||||
Foreign Exchange | (9 | ) | — | (2 | ) | — | — | (11 | ) | ||||||||||||||||||||||||||||||
Utilization | (67 | ) | — | (9 | ) | (1 | ) | (2 | ) | (79 | ) | ||||||||||||||||||||||||||||
Changes in Estimates | (12 | ) | — | — | — | — | (12 | ) | |||||||||||||||||||||||||||||||
Balance at September 30, 2008 | $ | 90 | $ | 11 | $ | 43 | $ | 11 | $ | — | $ | 155 | |||||||||||||||||||||||||||
2007 Structural Expense Review Restructuring Charges
| | Severance | | | | | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Contract termination costs | Asset write- downs(3) | Employee termination cost | Total(5) Citigroup | |||||||||||||||
| In millions of dollars | SFAS 112(1) | SFAS 146(2) | |||||||||||||||||
Total Citigroup (pretax) | |||||||||||||||||||
Original restructuring charge | $ | 950 | $ | 11 | $ | 25 | $ | 352 | $ | 39 | $ | 1,377 | |||||||
Additional charge | $ | 42 | $ | 96 | $ | 29 | $ | 27 | $ | 11 | $ | 205 | |||||||
Foreign exchange | 19 | — | 2 | — | — | 21 | |||||||||||||
Utilization | (547 | ) | (75 | ) | (28 | ) | (363 | ) | (33 | ) | (1,046 | ) | |||||||
Changes in estimates | (39 | ) | — | (6 | ) | (1 | ) | (8 | ) | (54 | ) | ||||||||
Balance at December 31, 2007 | $ | 425 | $ | 32 | $ | 22 | $ | 15 | $ | 9 | $ | 503 | |||||||
Additional charge | $ | 10 | $ | 14 | $ | 43 | $ | 6 | $ | — | $ | 73 | |||||||
Foreign exchange | (11 | ) | — | (4 | ) | — | — | (15 | ) | ||||||||||
Utilization | (288 | ) | (34 | ) | (22 | ) | (7 | ) | (6 | ) | (357 | ) | |||||||
Changes in estimates | (93 | ) | (2 | ) | (2 | ) | (4 | ) | (3 | ) | (104 | ) | |||||||
Balance at December 31, 2008 | $ | 43 | $ | 10 | $ | 37 | $ | 10 | $ | — | $ | 100 | |||||||
Foreign exchange | (1 | ) | — | (1 | ) | — | — | (2 | ) | ||||||||||
Utilization | (41 | ) | (10 | ) | (35 | ) | (9 | ) | — | (95 | ) | ||||||||
Changes in estimates | (1 | ) | — | (1 | ) | (1 | ) | — | (3 | ) | |||||||||
Balance at March 31, 2009 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
The total restructuring reserve balance and total charges as of September 30,March 31, 2009 and December 31, 2008 net restructuring charges forrelated to the three-month period then ended and cumulative net restructuring expense incurred to date2008 Re-engineering Projects Restructuring Initiatives are presented below by business segment. The net expense is includedsegment in the Corporate/Other segment because this company-wide restructuring was a corporate initiative.following tables. These charges are reported in the Restructuring line on the Company's Consolidated Statement of Income and are recorded in each segment.
2008 Re-engineering Projects
| | | Restructuring charges | For the quarter ended March 31, 2009 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Ending balance September 30, 2008 | Three months ended September 30, 2008 | Total Since Inception(1) | Total restructuring reserve balance as of March 31, 2009 | Restructuring charges recorded in the three months ended March 31, 2009 | Total restructuring charges since inception(1)(2) | ||||||||||||||
Consumer Banking | $ | 56 | $ | 1 | $ | 822 | $ | 115 | $ | 2 | $ | 382 | ||||||||
Global Cards | 12 | — | 143 | 58 | — | 111 | ||||||||||||||
Institutional Clients Group | 5 | — | 285 | 146 | 12 | 600 | ||||||||||||||
Global Wealth Management | 21 | — | 98 | 48 | — | 302 | ||||||||||||||
Corporate/Other | 61 | 19 | 160 | 267 | 15 | 392 | ||||||||||||||
Total Citigroup (pretax) | $ | 155 | $ | 20 | $ | 1,508 | $ | 634 | $ | 29 | $ | 1,787 | ||||||||
| | For the year ended December 31, 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Total restructuring reserve balance as of December 31, 2008 | Total restructuring charges, excluding pension curtailment | Pension curtailment charges | Total restructuring charges(1) | |||||||||
Consumer Banking | $ | 265 | $ | 356 | $ | 26 | $ | 382 | |||||
Global Cards | 111 | 118 | 1 | 119 | |||||||||
Institutional Clients Group | 515 | 594 | 14 | 608 | |||||||||
Global Wealth Management | 293 | 300 | 5 | 305 | |||||||||
Corporate/Other | 343 | 378 | 5 | 383 | |||||||||
Total Citigroup (pretax) | $ | 1,527 | $ | 1,746 | $ | 51 | $ | 1,797 | |||||
8. EARNINGS PER SHARE
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the periodsthree months ended September 30, 2008March 31, 2009 and 2007:2008:
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions, except per share amounts | 2008 | 2007 | 2008 | 2007 | March 31, 2009 | March 31, 2008(1) | ||||||||||||||
Income (loss) from continuing operations | $ | (3,423 | ) | $ | 2,109 | $ | (10,988 | ) | $ | 13,020 | $ | 1,610 | $ | (5,247 | ) | |||||
Discontinued operations | 608 | 103 | 567 | 430 | (33 | ) | 115 | |||||||||||||
| Noncontrolling interest | (16 | ) | (21 | ) | ||||||||||||||||
Preferred dividends | (389 | ) | (6 | ) | (833 | ) | (36 | ) | (1,221 | ) | (83 | ) | ||||||||
| Impact on the conversion price reset related to the $12.5 billion convertible preferred stock private issuance(2) | (1,285 | ) | — | |||||||||||||||||
| Preferred stock Series H discount accretion | (53 | ) | — | |||||||||||||||||
Income available to common stockholders for basic EPS | $ | (3,204 | ) | $ | 2,206 | $ | (11,254 | ) | $ | 13,414 | ||||||||||
| Income (loss) available to common stockholders for basic EPS | (966 | ) | (5,194 | ) | ||||||||||||||||
Effect of dilutive securities | 270 | — | 606 | — | 270 | 66 | ||||||||||||||
Income available to common stockholders for diluted EPS(1) | $ | (2,934 | ) | $ | 2,206 | $ | (10,648 | ) | $ | 13,414 | ||||||||||
| Income (loss) available to common stockholders for diluted EPS(3) | $ | (696 | ) | $ | (5,128 | ) | ||||||||||||||
Weighted average common shares outstanding applicable to basic EPS | 5,341.8 | 4,916.1 | 5,238.3 | 4,897.1 | 5,385.0 | 5,085.6 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||
Convertible Securities | 489.2 | — | 489.2 | — | ||||||||||||||||
| Convertible securities | 568.3 | 489.2 | ||||||||||||||||||
Options | 0.1 | 15.2 | 0.4 | 22.4 | — | 0.9 | ||||||||||||||
Restricted and deferred stock | 36.2 | 79.6 | 24.9 | 71.1 | ||||||||||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS | 5,867.3 | 5,010.9 | 5,752.8 | 4,990.6 | ||||||||||||||||
| Adjusted weighted average common shares outstanding applicable to diluted EPS(3) | 5,953.3 | 5,575.7 | ||||||||||||||||||
Basic earnings per share(2) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.43 | $ | (2.26 | ) | $ | 2.65 | ||||||||||
| Basic earnings per share(3)(4) | ||||||||||||||||||||
| Loss from continuing operations | $ | (0.18 | ) | $ | (1.06 | ) | ||||||||||||||
Discontinued operations | 0.11 | 0.02 | 0.11 | 0.09 | — | 0.03 | ||||||||||||||
Net income (loss) | $ | (0.60 | ) | $ | 0.45 | $ | (2.15 | ) | $ | 2.74 | ||||||||||
| Net loss | $ | (0.18 | ) | $ | (1.03 | ) | ||||||||||||||
Diluted earnings per share | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.71 | ) | $ | 0.42 | $ | (2.26 | ) | $ | 2.60 | ||||||||||
| Loss from continuing operations | $ | (0.18 | ) | $ | (1.06 | ) | ||||||||||||||
Discontinued operations | 0.11 | 0.02 | 0.11 | 0.09 | — | 0.03 | ||||||||||||||
Net income (loss) | $ | (0.60 | ) | $ | 0.44 | $ | (2.15 | ) | $ | 2.69 | ||||||||||
| Net loss | $ | (0.18 | ) | $ | (1.03 | ) | ||||||||||||||
9. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, at fair value, consisted of the following at September 30, 2008March 31, 2009 and December 31, 2007:2008:
| In millions of dollars | September 30, 2008 | December 31, 2007(1) | In millions of dollars | March 31, 2009 | December 31, 2008(1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trading account assets | Trading account assets | ||||||||||||||
U.S. Treasury and federal agency securities | $ | 36,090 | $ | 32,180 | |||||||||||
Trading mortgage-backed securities | Trading mortgage-backed securities | ||||||||||||||
Agency guaranteed | $ | 24,479 | $ | 32,981 | |||||||||||
Prime | 2,355 | 1,416 | |||||||||||||
Alt-A | 1,225 | 913 | |||||||||||||
Subprime | 11,512 | 14,552 | |||||||||||||
Non-U.S. residential | 399 | 2,447 | |||||||||||||
Commercial | 2,501 | 2,501 | |||||||||||||
Total Trading mortgage-backed securities | Total Trading mortgage-backed securities | $ | 42,471 | $ | 54,810 | ||||||||||
U.S. Treasury and Federal Agencies | U.S. Treasury and Federal Agencies | ||||||||||||||
U.S. Treasuries | $ | 8,530 | $ | 7,370 | |||||||||||
Agency and direct obligations | 5,653 | 4,017 | |||||||||||||
Total U.S. Treasury and Federal Agencies | Total U.S. Treasury and Federal Agencies | $ | 14,183 | $ | 11,387 | ||||||||||
State and municipal securities | 17,893 | 18,574 | State and municipal securities | 6,614 | 9,510 | ||||||||||
Foreign government securities | 60,401 | 52,332 | Foreign government securities | 62,213 | 57,422 | ||||||||||
Corporate and other debt securities | 106,593 | 156,242 | |||||||||||||
Corporate | Corporate | 55,076 | 54,654 | ||||||||||||
Derivatives(2) | 92,908 | 76,881 | Derivatives(2) | 95,860 | 115,289 | ||||||||||
Equity securities | 70,280 | 106,868 | Equity securities | 33,987 | 48,503 | ||||||||||
Mortgage loans and collateralized mortgage securities | 38,242 | 56,740 | |||||||||||||
Other | 35,055 | 39,167 | |||||||||||||
Other debt securities | Other debt securities | $ | 24,818 | $ | 26,060 | ||||||||||
Total trading account assets | $ | 457,462 | $ | 538,984 | Total trading account assets | $ | 335,222 | $ | 377,635 | ||||||
Trading account liabilities | Trading account liabilities | ||||||||||||||
Securities sold, not yet purchased | $ | 65,922 | $ | 78,541 | Securities sold, not yet purchased | $ | 49,688 | $ | 50,693 | ||||||
Derivatives(2) | 103,361 | 103,541 | Derivatives(2) | 81,138 | 116,785 | ||||||||||
Total trading account liabilities | $ | 169,283 | $ | 182,082 | Total trading account liabilities | $ | 130,826 | $ | 167,478 | ||||||
10. INVESTMENTS
| In millions of dollars | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Securities available-for-sale | $ | 186,621 | $ | 193,113 | |||
Non-marketable equity securities carried at fair value(1) | 11,227 | 13,603 | |||||
Non-marketable equity securities carried at cost(2) | 7,882 | 8,291 | |||||
Debt securities held-to-maturity(3) | 1 | 1 | |||||
Total | $ | 205,731 | $ | 215,008 | |||
| In millions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Securities available-for-sale | $ | 163,311 | $ | 175,189 | |||
Debt securities held-to-maturity(1) | 60,760 | 64,459 | |||||
Non-marketable equity securities carried at fair value(2) | 7,595 | 9,262 | |||||
Non-marketable equity securities carried at cost(3) | 7,140 | 7,110 | |||||
Total investments | $ | 238,806 | $ | 256,020 | |||
Securities Available-for-Sale
The amortized cost and fair value of securities available-for-sale at September 30, 2008March 31, 2009 and December 31, 20072008 were as follows:
| | September 30, 2008 | December 31, 2007(1) | | March 31, 2009 | December 31, 2008(1) | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Fair value | In millions of dollars | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||||||||||||||||||||
Securities available-for-sale | |||||||||||||||||||||||||||||||||||||||||||||
Debt securities available-for-sale: | Debt securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | $ | 56,641 | $ | 48 | $ | 7,878 | $ | 48,811 | $ | 63,888 | $ | 63,075 | Mortgage-backed securities | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | 26,834 | 53 | 138 | 26,749 | 19,428 | 19,424 | |||||||||||||||||||||||||||||||||||||||
U.S. government agency guaranteed | $ | 27,012 | $ | 462 | $ | 65 | $ | 27,409 | $ | 23,527 | $ | 261 | $ | 67 | $ | 23,721 | |||||||||||||||||||||||||||||
Prime | 8,969 | 2 | 2,763 | 6,208 | 8,475 | 3 | 2,965 | 5,513 | |||||||||||||||||||||||||||||||||||||
Alt-A | 413 | — | 16 | 397 | 54 | — | 9 | 45 | |||||||||||||||||||||||||||||||||||||
Subprime | 36 | — | 24 | 12 | 38 | — | 21 | 17 | |||||||||||||||||||||||||||||||||||||
Non-U.S. residential | 420 | — | 7 | 413 | 185 | 2 | — | 187 | |||||||||||||||||||||||||||||||||||||
Commercial | 598 | 1 | 130 | 469 | 519 | — | 134 | 385 | |||||||||||||||||||||||||||||||||||||
Total mortgage-backed securities | Total mortgage-backed securities | $ | 37,448 | $ | 465 | $ | 3,005 | $ | 34,908 | $ | 32,798 | $ | 266 | $ | 3,196 | 29,868 | |||||||||||||||||||||||||||||
U.S. Treasury and federal agency securities | U.S. Treasury and federal agency securities | ||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury | 4,892 | 142 | — | 5,034 | 3,465 | 125 | — | 3,590 | |||||||||||||||||||||||||||||||||||||
Agency obligations | 9,336 | 32 | 39 | 9,329 | 20,237 | 215 | 77 | 20,375 | |||||||||||||||||||||||||||||||||||||
Total U.S. Treasury and federal agency securities | Total U.S. Treasury and federal agency securities | $ | 14,228 | $ | 174 | $ | 39 | $ | 14,363 | $ | 23,702 | $ | 340 | $ | 77 | $ | 23,965 | ||||||||||||||||||||||||||||
State and municipal | 14,133 | 8 | 1,762 | 12,379 | 13,342 | 13,206 | State and municipal | 17,520 | 161 | 3,649 | 14,032 | 18,156 | 38 | 4,370 | 13,824 | ||||||||||||||||||||||||||||||
Foreign government | 69,542 | 303 | 720 | 69,125 | 72,339 | 72,075 | Foreign government | 65,773 | 843 | 489 | 66,127 | 79,505 | 945 | 408 | 80,042 | ||||||||||||||||||||||||||||||
U.S. corporate | 12,024 | 26 | 457 | 11,593 | 9,648 | 9,598 | |||||||||||||||||||||||||||||||||||||||
Corporate | Corporate | 21,293 | 193 | 933 | 20,553 | 10,646 | 65 | 680 | 10,031 | ||||||||||||||||||||||||||||||||||||
Other debt securities | 14,673 | 47 | 176 | 14,544 | 12,336 | 11,969 | Other debt securities | 10,094 | 61 | 1,926 | 8,229 | 11,784 | 36 | 224 | 11,596 | ||||||||||||||||||||||||||||||
Total debt securities available-for-sale | $ | 193,847 | $ | 485 | $ | 11,131 | $ | 183,201 | $ | 190,981 | $ | 189,347 | |||||||||||||||||||||||||||||||||
Total debt securities available- for-sale | Total debt securities available- for-sale | 166,356 | 1,897 | 10,041 | 158,212 | 176,591 | 1,690 | 8,955 | 169,326 | ||||||||||||||||||||||||||||||||||||
Marketable equity securities available-for-sale | $ | 2,363 | $ | 1,250 | $ | 193 | $ | 3,420 | $ | 1,404 | $ | 3,766 | Marketable equity securities available-for-sale | 4,750 | 753 | 404 | 5,099 | 5,768 | 554 | 459 | 5,863 | ||||||||||||||||||||||||
Total securities available-for-sale | $ | 196,210 | $ | 1,735 | $ | 11,324 | $ | 186,621 | $ | 192,385 | $ | 193,113 | Total securities available-for-sale | $ | 171,106 | $ | 2,650 | $ | 10,445 | $ | 163,311 | $ | 182,359 | $ | 2,244 | $ | 9,414 | $ | 175,189 | ||||||||||||||||
The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. As describeddiscussed in more detail below, prior to January 1, 2009, these reviews were conducted pursuant to FASB Staff Position No. 115-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1). Any unrealized loss identified as other than temporary was recorded directly in the Consolidated Statement of Income. As of January 1, 2009, the Company adopted FSP FAS 115-2 and FAS 124-2. Accordingly, any credit-related impairment related to debt securities the Company does not plan to sell and is more-likely-than-not not to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in OCI. For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income. See Note 1 for additional information.
The table below shows the fair value of investments in available-for-sale securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of March 31, 2009 and December 31, 2008:
| | March 31, 2009 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Less than 12 months | 12 months or longer | Total | |||||||||||||||||
| In millions of dollar | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | ||||||||||||||
Securities available-for-sale | ||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||
U.S. government agency guaranteed | $ | 3,249 | $ | 3 | $ | 977 | $ | 62 | $ | 4,226 | $ | 65 | ||||||||
Prime | 1,102 | 51 | 5,042 | 2,712 | 6,144 | 2,763 | ||||||||||||||
Alt-A | 354 | 7 | 41 | 9 | 395 | 16 | ||||||||||||||
Subprime | — | — | 9 | 24 | 9 | 24 | ||||||||||||||
Non-U.S. residential | — | 2 | 375 | 5 | 375 | 7 | ||||||||||||||
Commercial | 140 | 17 | 287 | 113 | 427 | 130 | ||||||||||||||
Total mortgage-backed securities | 4,845 | 80 | 6,731 | 2,925 | 11,576 | 3,005 | ||||||||||||||
U.S. Treasury and federal agency securities | ||||||||||||||||||||
U.S. Treasury | — | — | — | — | — | — | ||||||||||||||
Agency obligations | 2,279 | 32 | 1 | 7 | 2,280 | 39 | ||||||||||||||
Total U.S. Treasury and federal agency securities | 2,279 | 32 | 1 | 7 | 2,280 | 39 | ||||||||||||||
State and municipal | 10,866 | 2,031 | 3,280 | 1,618 | 14,146 | 3,649 | ||||||||||||||
Foreign government | 12,871 | 244 | 2,752 | 245 | 15,623 | 489 | ||||||||||||||
Corporate | 1,536 | 227 | 8,446 | 706 | 9,982 | 933 | ||||||||||||||
Other debt securities | 5,646 | 1,705 | 514 | 221 | 6,160 | 1,926 | ||||||||||||||
Marketable equity securities available-for-sale | 3,268 | 330 | 97 | 74 | 3,365 | 404 | ||||||||||||||
Total securities available-for-sale | $ | 41,311 | $ | 4,649 | $ | 21,821 | $ | 5,796 | $ | 63,132 | $ | 10,445 | ||||||||
| | December 31, 2008(1) | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Less than 12 months | 12 months or longer | Total | |||||||||||||||||
| In millions of dollar | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | ||||||||||||||
Securities available-for-sale | ||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||
U.S. government agency guaranteed | $ | 5,281 | $ | 9 | $ | 432 | $ | 58 | $ | 5,713 | $ | 67 | ||||||||
Prime | 2,258 | 1,127 | 3,108 | 1,838 | 5,366 | 2,965 | ||||||||||||||
Alt-A | 38 | 8 | 5 | 1 | 43 | 9 | ||||||||||||||
Subprime | — | — | 15 | 21 | 15 | 21 | ||||||||||||||
Non- U.S. residential | 10 | — | — | — | 10 | — | ||||||||||||||
Commercial | 213 | 33 | 233 | 101 | 446 | 134 | ||||||||||||||
Total mortgage-backed securities | 7,800 | 1,177 | 3,793 | 2,019 | 11,593 | 3,196 | ||||||||||||||
U.S. Treasury and federal agencies | ||||||||||||||||||||
U.S. Treasury | — | — | — | — | — | — | ||||||||||||||
Agency obligations | 1,654 | 76 | 1 | 1 | 1,655 | 77 | ||||||||||||||
Total U.S. Treasury and federal agency securities | 1,654 | 76 | 1 | 1 | 1,655 | 77 | ||||||||||||||
State and municipal | 12,827 | 3,872 | 3,762 | 498 | 16,589 | 4,370 | ||||||||||||||
Foreign government | 10,697 | 201 | 9,080 | 207 | 19,777 | 408 | ||||||||||||||
Corporate | 1,985 | 270 | 4,393 | 410 | 6,378 | 680 | ||||||||||||||
Other debt securities | 944 | 96 | 303 | 128 | 1,247 | 224 | ||||||||||||||
Marketable equity securities available-for-sale | 3,254 | 386 | 102 | 73 | 3,356 | 459 | ||||||||||||||
Total securities available-for-sale | $ | 39,161 | $ | 6,078 | $ | 21,434 | $ | 3,336 | $ | 60,595 | $ | 9,414 | ||||||||
The following table presents the amortized cost and fair value of debt securities available-for-sale by contractual maturity dates as of March 31, 2009, and December 31, 2008:
| | March 31,2009 | December 31, 2008(1) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Amortized cost | Fair value | Amortized cost | Fair value | |||||||||
| Mortgage-backed securities(2) | |||||||||||||
| Due within 1 year | $ | 2 | $ | 4 | $ | 87 | $ | 80 | |||||
| After 1 but within 5 years | 38 | 38 | 639 | 567 | |||||||||
| After 5 but within 10 years | 882 | 889 | 1,362 | 1,141 | |||||||||
| After 10 years(3) | 36,526 | 33,977 | 30,710 | 28,080 | |||||||||
| Total | $ | 37,448 | $ | 34,908 | $ | 32,798 | $ | 29,868 | |||||
| U.S. Treasury and federal agencies | |||||||||||||
| Due within 1 year | $ | 3,295 | $ | 3,300 | $ | 15,736 | $ | 15,846 | |||||
| After 1 but within 5 years | 4,160 | 4,177 | 5,755 | 5,907 | |||||||||
| After 5 but within 10 years | 3,183 | 3,200 | 1,902 | 1,977 | |||||||||
| After 10 years(3) | 3,590 | 3,686 | 309 | 235 | |||||||||
| Total | $ | 14,228 | $ | 14,363 | $ | 23,702 | $ | 23,965 | |||||
| State and municipal | |||||||||||||
| Due within 1 year | $ | 219 | $ | 219 | $ | 214 | $ | 214 | |||||
| After 1 but within 5 years | 85 | 88 | 84 | 84 | |||||||||
| After 5 but within 10 years | 405 | 406 | 411 | 406 | |||||||||
| After 10 years(3) | 16,811 | 13,319 | 17,447 | 13,120 | |||||||||
| Total | $ | 17,520 | $ | 14,032 | $ | 18,156 | $ | 13,824 | |||||
| Foreign government | |||||||||||||
| Due within 1 year | $ | 23,345 | $ | 23,413 | $ | 26,481 | $ | 26,937 | |||||
| After 1 but within 5 years | 34,698 | 35,179 | 45,652 | 45,462 | |||||||||
| After 5 but within 10 years | 6,801 | 6,576 | 6,771 | 6,899 | |||||||||
| After 10 years(3) | 929 | 959 | 601 | 744 | |||||||||
| Total | $ | 65,773 | $ | 66,127 | $ | 79,505 | $ | 80,042 | |||||
| All other(4) | |||||||||||||
| Due within 1 year | $ | 4,908 | $ | 4,954 | $ | 4,160 | $ | 4,319 | |||||
| After 1 but within 5 years | 15,409 | 15,075 | 2,662 | 2,692 | |||||||||
| After 5 but within 10 years | 9,582 | 7,714 | 12,557 | 11,842 | |||||||||
| After 10 years(3) | 1,488 | 1,039 | 3,051 | 2,774 | |||||||||
| Total | $ | 31,387 | $ | 28,782 | $ | 22,430 | $ | 21,627 | |||||
| Total debt securities available-for-sale | $ | 166,356 | $ | 158,212 | $ | 176,591 | $ | 169,326 | |||||
The following table presents interest and dividends on investments for the first quarter ended March 31, 2009 and 2008:
| In millions of dollars | Three months ended March 31, 2009 | Three months ended March 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Taxable interest | $ | 2,916 | $ | 2,389 | |||
| Interest exempt from U.S. federal income tax | 215 | 189 | |||||
| Dividends | 45 | 109 | |||||
| Total interest and dividends | $ | 3,176 | $ | 2,687 | |||
The following table presents realized gains and losses on investments for the quarters ended March 31, 2009 and 2008. The gross realized investment losses exclude losses from other-than-temporary impairment:
| In millions of dollars | Three months ended March 31, 2009 | Three months ended March 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Gross realized investment gains | $ | 781 | $ | 239 | |||
| Gross realized investment losses | (24 | ) | (42 | ) | |||
| Net realized gains (losses) | $ | 757 | $ | 197 | |||
Debt Securities Held-to-Maturity
The carrying value and fair value of securities held-to-maturity at March 31, 2009 and December 31, 2008 were as follows:
| In millions of dollars | Amortized cost(1) | Net unrealized loss on date of transfer | Carrying value(2) | Gross unrecognized gains | Gross unrecognized losses | Fair value | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2009 | ||||||||||||||||||||
| Debt securities held-to-maturity | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| U.S. government agency guaranteed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Prime | 7,128 | 1,332 | 5,796 | 4 | 1,430 | 4,370 | ||||||||||||||
| Alt-A | 16,296 | 4,390 | 11,906 | 20 | 3,131 | 8,795 | ||||||||||||||
| Subprime | 1,267 | 95 | 1,172 | 3 | 188 | 987 | ||||||||||||||
| Non-U.S. residential | 8,085 | 934 | 7,151 | — | 535 | 6,616 | ||||||||||||||
| Commercial | 1,507 | 69 | 1,438 | 33 | 304 | 1,167 | ||||||||||||||
| Total mortgage-backed securities | 34,283 | 6,820 | 27,463 | 60 | 5,588 | 21,935 | ||||||||||||||
| U.S. Treasury and federal agency securities | ||||||||||||||||||||
| U.S. Treasury | 1 | — | 1 | — | — | 1 | ||||||||||||||
| Agency and direct obligations | — | — | — | — | — | — | ||||||||||||||
| Total U.S. Treasury and federal agency securities | 1 | — | 1 | — | — | 1 | ||||||||||||||
| State and municipal | 3,161 | 16 | 3,145 | 2 | 119 | 3,028 | ||||||||||||||
| Corporate | 7,257 | 347 | 6,910 | 37 | 1,154 | 5,793 | ||||||||||||||
| Asset-backed securities | 20,871 | 373 | 20,498 | 130 | 717 | 19,911 | ||||||||||||||
| Other debt securities | 3,094 | 351 | 2,743 | 13 | 436 | 2,320 | ||||||||||||||
| Total debt securities held-to-maturity | $ | 68,667 | $ | 7,907 | $ | 60,760 | $ | 242 | $ | 8,014 | $ | 52,988 | ||||||||
| December 31, 2008(3) | ||||||||||||||||||||
| Debt securities held-to-maturity | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| U.S. government agency guaranteed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Prime | 7,481 | 1,436 | 6,045 | — | 623 | 5,422 | ||||||||||||||
| Alt-A | 16,658 | 4,216 | 12,442 | 23 | 1,802 | 10,663 | ||||||||||||||
| Subprime | 1,368 | 125 | 1,243 | 15 | 163 | 1,095 | ||||||||||||||
| Non-U.S. residential | 10,496 | 1,128 | 9,368 | 5 | 397 | 8,976 | ||||||||||||||
| Commercial | 1,021 | — | 1,021 | — | 130 | 891 | ||||||||||||||
| Total mortgage-backed securities | 37,024 | 6,905 | 30,119 | 43 | 3,115 | 27,047 | ||||||||||||||
| U.S. Treasury and federal agency securities | ||||||||||||||||||||
| U.S. Treasury | 1 | — | 1 | — | — | 1 | ||||||||||||||
| Agency and direct obligations | — | — | — | — | — | — | ||||||||||||||
| Total U.S. Treasury and federal agency securities | 1 | — | 1 | — | — | 1 | ||||||||||||||
| State and municipal | 3,371 | 183 | 3,188 | 14 | 253 | 2,949 | ||||||||||||||
| Corporate | 6,906 | 175 | 6,731 | 130 | 305 | 6,556 | ||||||||||||||
| Asset-backed securities | 22,698 | 415 | 22,283 | 86 | 555 | 21,814 | ||||||||||||||
| Other debt securities | 2,478 | 341 | 2,137 | — | 127 | 2,010 | ||||||||||||||
| Total debt securities held-to-maturity | $ | 72,478 | $ | 8,019 | $ | 64,459 | $ | 273 | $ | 4,355 | $ | 60,377 | ||||||||
The net unrealized losses classified in accumulated other comprehensive income that relates to debt securities reclassified from available-for-sale investments to held-to-maturity investments was $7.9 billion as of March 31, 2009, compared to $8.0 billion as of December 31, 2008. This balance 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 transferred 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.
The table below shows the fair value of investments in held-to-maturity that have been in an unrealized loss position for less than 12 months or longer as of March 31, 2009 and December 31, 2008:
| | Less than 12 months | 12 months or longer | Total | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | |||||||||||||
| March 31, 2009 | |||||||||||||||||||
| Debt securities held-to-maturity | |||||||||||||||||||
| Mortgage-backed securities | $ | 2,186 | $ | 396 | $ | 18,938 | $ | 5,192 | $ | 21,124 | $ | 5,588 | |||||||
| State and municipal | 1,308 | 119 | — | — | 1,308 | 119 | |||||||||||||
| Corporate | — | — | 5,735 | 1,154 | 5,735 | 1,154 | |||||||||||||
| Asset-backed securities | 8,098 | 454 | 5,226 | 263 | 13,324 | 717 | |||||||||||||
| Other debt securities | — | — | 2,319 | 436 | 2,319 | 436 | |||||||||||||
| Total debt securities held-to-maturity | $ | 11,592 | $ | 969 | $ | 32,218 | $ | 7,045 | $ | 43,810 | $ | 8,014 | |||||||
| December 31, 2008(1) | |||||||||||||||||||
| Debt securities held-to-maturity | |||||||||||||||||||
| Mortgage-backed securities | $ | 2,348 | $ | 631 | $ | 24,236 | $ | 2,484 | $ | 26,584 | $ | 3,115 | |||||||
| State and municipal | 2,499 | 253 | — | — | 2,499 | 253 | |||||||||||||
| Corporate | 23 | — | 4,107 | 305 | 4,130 | 305 | |||||||||||||
| Asset-backed securities | 9,051 | 381 | 4,164 | 174 | 13,215 | 555 | |||||||||||||
| Other debt securities | 439 | — | 5,246 | 127 | 5,685 | 127 | |||||||||||||
| Total debt securities held-to-maturity | $ | 14,360 | $ | 1,265 | $ | 37,753 | $ | 3,090 | $ | 52,113 | $ | 4,355 | |||||||
Excluded from the gross unrealized losses presented in the above table is the $7.9 billion and $8.0 billion of gross unrealized losses recorded in AOCI related to the held-to-maturity securities that were reclassified from available-for-sale investments as of March 31, 2009 and December 31, 2008, respectively. Approximately $5.6 billion and $5.2 billion of these unrealized losses relate to securities that have been in a loss position for 12 months or longer at March 31, 2009 and December 31, 2008, respectively,
The following table presents the carrying value and fair value of debt securities held-to-maturity by contractual maturity dates as of March 31, 2009 and December 31, 2008:
| In millions of dollars | Carrying value | Fair value | |||||
|---|---|---|---|---|---|---|---|
| March 31, 2009: | |||||||
| Mortgage-backed securities | |||||||
| Due within 1 year | $ | — | $ | — | |||
| After 1 but within 5 years | 103 | 103 | |||||
| After 5 but within 10 years | — | — | |||||
| After 10 years(1) | 27,360 | 21,832 | |||||
| Total | $ | 27,463 | $ | 21,935 | |||
| State and municipal | |||||||
| Due within 1 year | $ | 6 | $ | 6 | |||
| After 1 but within 5 years | 76 | 76 | |||||
| After 5 but within 10 years | 105 | 104 | |||||
| After 10 years(1) | 2,958 | 2,842 | |||||
| Total | $ | 3,145 | $ | 3,028 | |||
| All other(2) | |||||||
| Due within 1 year | $ | 7,261 | $ | 7,109 | |||
| After 1 but within 5 years | 7,428 | 7,217 | |||||
| After 5 but within 10 years | 9,581 | 8,293 | |||||
| After 10 years(1) | 5,882 | 5,406 | |||||
| Total | $ | 30,152 | $ | 28,025 | |||
| Total debt securities held-to-maturity | $ | 60,760 | $ | 52,988 | |||
| December 31, 2008(3): | |||||||
| Mortgage-backed securities | |||||||
| Due within 1 year | $ | 88 | $ | 65 | |||
| After 1 but within 5 years | 363 | 282 | |||||
| After 5 but within 10 years | 513 | 413 | |||||
| After 10 years (1) | 29,155 | 26,287 | |||||
| Total | $ | 30,119 | $ | 27,047 | |||
| State and municipal | |||||||
| Due within 1 year | $ | 86 | $ | 86 | |||
| After 1 but within 5 years | 105 | 105 | |||||
| After 5 but within 10 years | 112 | 106 | |||||
| After 10 years(1) | 2,885 | 2,652 | |||||
| Total | $ | 3,188 | $ | 2,949 | |||
| All other(2) | |||||||
| Due within 1 year | $ | 4,482 | $ | 4,505 | |||
| After 1 but within 5 years | 10,892 | 10,692 | |||||
| After 5 but within 10 years | 6,358 | 6,241 | |||||
| After 10 years(1) | 9,420 | 8,943 | |||||
| Total | $ | 31,152 | $ | 30,381 | |||
| Total debt securities held-to-maturity | $ | 64,459 | $ | 60,377 | |||
Evaluating Investments for Other-than-Temporary Impairments
The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff PositionFSP FAS No. 115-1 "The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments" (FSPFSP FAS 115-1).115-2. 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 AccumlatedAccumulated other comprehensive income (OCI). Unrealized (AOCI) for available-for-sale securities, while such losses identifiedrelated to held-to-maturity securities are not recorded, as other than temporarythese investments are recorded directlycarried at their amortized cost. For securities transferred to held-to-maturity fromTrading 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 impairment recognized in earnings subsequent to transfer. For securities transferred to held-to-maturity from available-for-sale, amortized cost is defined as the Consolidated Statementoriginal purchase cost, plus or minus any accretion or amortization of Income.a purchase discount or premium, less any impairment recognized in earnings subsequent to transfer.
ForRegardless of the investments inclassification of the table above, managementsecurities as available-for-sale or held-to-maturity, the Company has determined that the unrealized losses are temporary in nature. The primary factor considered in making that determination is management's intent and ability to holdassessed each investmentposition for a period of time sufficient to allow for an anticipated recovery in fair value. Management has the positive intent and ability to hold each investment until the earlier of its anticipated recovery or maturity. Other factorscredit impairment.
Factors considered in determining whether a loss is temporary include:
For each debt security whose fair value is less than amortized cost, the determination of whether the unrealized loss is other than temporary in nature is made in two steps.
The Company's review for impairment generally entails:
For debt securities that are not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell or would more-likely-than-not not 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 more-likely-than-not that it will not be required to sell the investment before recovery of its amortized cost basis. Where such an assertion has not been made, the security's decline in fair value. Management estimatesvalue is deemed to be other than temporary and is recorded in earnings.
Similarly, for equity securities, management considers the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums). Management's assertion regardingvarious factors described above, including its intent and ability to hold investments considersthe equity security for a period of time sufficient for recovery to amortized cost. 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.
For debt securities, a critical component of the evaluation for Other-than-temporary impairments 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. 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 impairment in security types with the most significant unrealized losses as of March 31, 2009.
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 factors,assumptions, including default rates, prepayment rates, and recovery rates (on foreclosed properties).
Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. Default rates are projected by considering current underlying mortgage loan performance, generally assuming the default of a) 10% of current loans, b) 25% of 30-59 day delinquent loans, c) 75% of 60-90 day delinquent loans and d) 100% of 91+ day delinquent loans. These estimates are extrapolated along a quantitativedefault timing curve to estimate the total lifetime pool default rate. Other assumptions used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating actions and current market prices. The key base assumptions for mortgage-backed securities as of March 31, 2009 are in the expected recovery periodtable below:
| March 31, 2009 | ||||
|---|---|---|---|---|
Prepayment rate | 3-8 CRR | |||
Loss severity(1) | 45%-75 | % | ||
Unemployment rate | 9 | % | ||
Peak-to-trough housing price decline | 33 | % | ||
In addition, cash flow projections are developed using more stressful parameters, and management assesses the lengthresults of that period (which may extend to maturity),those stress tests (including the severity of any cash shortfall indicated and the impairment,likelihood of the stress scenario actually occurring based on the underlying pool's characteristics and management's intended strategy with respectperformance) to assess whether management expects to recover the identified security or portfolio.amortized cost basis of the security. If managementcash flow projections indicate that the Company does not haveexpect to recover its amortized cost basis, the intentCompany recognizes the estimated credit loss in earnings.
State and ability to hold the security for a sufficient time period, the unrealized loss is recorded directly in the Consolidated Statement of Income.
The increase in gross unrealized losses on mortgage-backed securities andCitigroup's available-for-sale state and municipal bonds consist primarily of bonds that are financed through Tender Option Bond programs. The process for identifying credit impairment for bonds in this program is largely based on third-party credit ratings. Individual bond positions must meet minimum ratings requirements, which vary based on the sector of the bond issuer. The average portfolio rating, ignoring any insurance, is Aa3/AA-. Citigroup monitors the bond issuer and insurer ratings on a daily basis. In the event of a downgrade of the bond below the Aa3/AA-, the subject bond is specifically reviewed for potential shortfall in contractual principal and interest. Citigroup has not recorded any credit impairments on bonds held as part of the Tender Option Bond program. The remainder of Citigroup's available-for-sale state and municipal bonds, outside of the Tender Option Bond Programs, are specifically reviewed for credit impairment based on instrument-specific estimates of cash flows, probability of default and loss given default.
Recognition and Measurement of Other-Than-Temporary Impairment
AFS and HTM debt securities that have been identified as other-than-temporarily impaired are written down to their current fair value. For debt securities that are intended to be sold, or that management believes it is more-likely-than-not that it will be required to be sold prior to recovery, the full impairment is recognized immediately in earnings.
For AFS and HTM debt securities that management has no intent to sell and believes that it is more-likely-than not that it will not be required to be sold 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 OCI. 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 using its base assumptions.
AFS equity securities deemed other-than-temporarily impaired are written down to fair value, with the full difference between fair value and amortized cost recognized in earnings.
The following table presents the total other-than-temporary impairments recognized during the first quarter ended September 30, 2008 was primarily related to a widening of market spreads, reflecting an increase in risk/liquidity premiums. Management has asserted significant holding periods for mortgage-backed securities that in certain cases now approach maturity2009.
Other-Than-Temporary Impairments on Investments
| In millions of dollars | Available-for- Sale Securities | Held-to-Maturity Securities | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Impairment losses related to securities which the Company does not intend to sell or it is more-likely-than-not that it will not be required to sell: | |||||||||||
| Total OTTI losses recognized during the quarter ended March 31, 2009 | $ | 55 | $ | 1,285 | $ | 1,340 | |||||
| Less: portion of OTTI loss recognized in Other comprehensive income (before taxes) | 14 | 617 | 631 | ||||||||
| Net impairment losses recognized in earnings for securities that the Company does not intend to sell or it is more likely-than-not that it will not be required to sell | $ | 41 | $ | 668 | $ | 709 | |||||
| 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 | 39 | — | 39 | ||||||||
| Total impairment losses recognized in earnings | $ | 80 | $ | 668 | $ | 748 | |||||
The first quarter of 2009 roll forward of the securities. The weighted-average estimated lifecredit-related position recognized in earnings for all securities still held as of the securitiesMarch 31, 2009 is currently approximately 7 years for U.S. mortgage-backed securities, and approximately 4 years for European mortgage-backed securities. The estimated life of these securities may change depending on future performance of the underlying loans, including prepayment activity and experienced credit losses.as follows:
| | Cumulative Other-Than-Temporary Impairment Credit Losses Recognized in Earnings for Available-for-Sale Securities | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | January 1, 2009 Cumulative OTTI credit losses recognized for securities still held | Additions for OTTI securities where no credit losses were recognized prior to January 1, 2009 | Additions for OTTI securities where credit losses have been recognized prior to January 1, 2009 | Reductions due to sales of credit impaired securities | March 31, 2009 Cumulative OTTI credit losses recognized for securities still held | ||||||||||||
| OTTI credit losses recognized for available-for-sale debt securities | |||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||
| Commercial real estate | $ | 1 | $ | 1 | — | — | $ | 2 | |||||||||
| Corporate | 53 | 22 | 10 | (1 | ) | 84 | |||||||||||
| Asset backed securities | — | 2 | — | — | 2 | ||||||||||||
| Other debt securities | — | 6 | — | — | 6 | ||||||||||||
| Total OTTI credit losses recognized for available-for-sale debt securities | $ | 54 | $ | 31 | $ | 10 | $ | (1 | ) | $ | 94 | ||||||
| | Cumulative Other-Than-Temporary Impairment Credit Losses Recognized in Earnings For Held-to-Maturity Securities | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | January 1, 2009 Cumulative OTTI credit losses recognized for securities still held | Additions for OTTI securities where no credit losses were recognized prior to January 1, 2009 | Additions for OTTI securities where credit losses have been recognized prior to January 1, 2009 | March 31, 2009 Cumulative OTTI credit losses recognized for securities still held | ||||||||||
| OTTI credit losses recognized for held-to-maturity debt securities | ||||||||||||||
| Mortgage-backed securities | ||||||||||||||
| Prime | $ | 8 | — | — | $ | 8 | ||||||||
| Alt-A | 1,091 | 395 | 19 | 1,505 | ||||||||||
| Subprime | 85 | 10 | — | 95 | ||||||||||
| Non- U.S. residential | 28 | 6 | — | 34 | ||||||||||
| Commercial real estate | 4 | 0 | — | 4 | ||||||||||
| Corporate | — | 221 | — | 221 | ||||||||||
| Asset backed securities | 17 | 15 | — | 32 | ||||||||||
| Other debt securities | — | 2 | — | 2 | ||||||||||
| Total OTTI credit losses recognized for held-to-maturity debt securities | $ | 1,233 | $ | 649 | $ | 19 | $ | 1,901 | ||||||
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in goodwill during the first ninethree months of 20082009 were as follows:
| In millions of dollars | Goodwill | |||
|---|---|---|---|---|
Balance at December 31, 2007 (as previously reported) | $ | 41,204 | ||
Prior Period Adjustment(1) | (151 | ) | ||
Balance at December 31, 2007 (as restated) | $ | 41,053 | ||
Purchase of the remaining shares of Nikko Cordial | $ | 1,492 | ||
Purchase accounting adjustment—BOOC acquisition | 100 | |||
Acquisition of the U.S. branches of Banco de Chile | 88 | |||
Purchase accounting adjustment—Bisys acquisition | 68 | |||
Foreign exchange translation and other | 670 | |||
Balance at March 31, 2008 | $ | 43,471 | ||
Purchase accounting adjustment—Nikko Cordial | $ | (1,145 | ) | |
Sale of CitiCapital(2) | (221 | ) | ||
Acquisition of the Legg Mason Private Portfolio Group | 98 | |||
Purchase accounting adjustment—Grupo Cuscatlan | 68 | |||
Foreign exchange translation and other | 115 | |||
Balance at June 30, 2008 | $ | 42,386 | ||
Pending sale of German Retail Banking Operation(3) | $ | (1,162 | ) | |
Foreign exchange translation | (1,466 | ) | ||
Purchase accounting adjustment—Bisys | (103 | ) | ||
Other | 7 | |||
Balance at September 30, 2008 | $ | 39,662 | ||
| In millions of dollars | Goodwill | |||
|---|---|---|---|---|
Balance at December 31, 2008 | $ | 27,132 | ||
Foreign exchange translation | (844 | ) | ||
Purchase accounting adjustments and other | 122 | |||
Balance at March 31, 2009 | $ | 26,410 | ||
Identification of New Reporting Units
The changes in the organizational structure resulted in the creation of new reporting segments. As a result, commencing with the third quarter 2008, the Company has identified new reporting units as required under SFAS 142,Goodwill and Other Intangible Assets. Goodwill affected by the reorganization has been reassigned from seven reporting units to ten, using a fair value approach. Subsequent to June 30, 2008, goodwill will be allocated to disposals and tested for impairment under the new reporting units.
During the first nine monthsquarter of 2008,2009, no goodwill was written off due to impairment.
Intangible Assets
The components of intangible assets were as follows:
| | September 30, 2008 | December 31, 2007 | March 31, 2009 | December 31, 2008 | ||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||
Purchased credit card relationships | $ | 8,733 | $ | 4,537 | $ | 4,196 | $ | 8,499 | $ | 4,045 | $ | 4,454 | $ | 8,334 | $ | 4,560 | $ | 3,774 | $ | 8,443 | $ | 4,513 | $ | 3,930 | ||||||||||||||
Core deposit intangibles | 1,520 | 741 | 779 | 1,435 | 518 | 917 | 1,314 | 671 | 643 | 1,345 | 662 | 683 | ||||||||||||||||||||||||||
Other customer relationships | 3,676 | 215 | 3,461 | 2,746 | 197 | 2,549 | 3,662 | 168 | 3,494 | 4,031 | 168 | 3,863 | ||||||||||||||||||||||||||
Present value of future profits | 427 | 268 | 159 | 427 | 257 | 170 | 414 | 267 | 147 | 415 | 264 | 151 | ||||||||||||||||||||||||||
Other(1) | 5,590 | 1,317 | 4,273 | 5,783 | 1,157 | 4,626 | 5,512 | 1,349 | 4,163 | 5,343 | 1,285 | 4,058 | ||||||||||||||||||||||||||
Total amortizing intangible assets | $ | 19,946 | $ | 7,078 | $ | 12,868 | $ | 18,890 | $ | 6,174 | $ | 12,716 | $ | 19,236 | $ | 7,015 | $ | 12,221 | $ | 19,577 | $ | 6,892 | $ | 12,685 | ||||||||||||||
Indefinite-lived intangible assets | 2,250 | N/A | 2,250 | 1,591 | N/A | 1,591 | 1,391 | N/A | 1,391 | 1,474 | N/A | 1,474 | ||||||||||||||||||||||||||
Mortgage servicing rights | 8,346 | N/A | 8,346 | 8,380 | N/A | 8,380 | 5,481 | N/A | 5,481 | 5,657 | N/A | 5,657 | ||||||||||||||||||||||||||
Total intangible assets | $ | 30,542 | $ | 7,078 | $ | 23,464 | $ | 28,861 | $ | 6,174 | $ | 22,687 | $ | 26,108 | $ | 7,015 | $ | 19,093 | $ | 26,708 | $ | 6,892 | $ | 19,816 | ||||||||||||||
N/A
The changes in intangible assets during the first nine monthsquarter of 20082009 were as follows:
| In millions of dollars | Net carrying amount at December 31, 2007 | Acquisitions | Amortization | Impairments(1) | FX and other(2) | Net carrying amount at September 30, 2008 | Net carrying amount at December 31, 2008 | Acquisitions | Amortization | Impairments | FX and other(1) | Net carrying amount at March 31, 2009 | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 4,454 | $ | 103 | $ | (504 | ) | $ | — | $ | 143 | $ | 4,196 | $ | 3,930 | $ | — | $ | (145 | ) | $ | — | $ | (11 | ) | $ | 3,774 | |||||||||||
Core deposit intangibles | 917 | 15 | (120 | ) | — | (33 | ) | 779 | 683 | — | (29 | ) | — | (11 | ) | 643 | ||||||||||||||||||||||
Other customer relationships | 2,549 | 1,355 | (162 | ) | — | (281 | ) | 3,461 | 3,863 | — | (79 | ) | — | (290 | ) | 3,494 | ||||||||||||||||||||||
Present value of future profits | 170 | — | (10 | ) | — | (1 | ) | 159 | 151 | — | (3 | ) | — | (1 | ) | 147 | ||||||||||||||||||||||
Indefinite-lived intangible assets | 1,591 | 550 | — | — | 109 | 2,250 | 1,474 | — | — | — | (83 | ) | 1,391 | |||||||||||||||||||||||||
Other | 4,626 | 189 | (269 | ) | (213 | ) | (60 | ) | 4,273 | 4,058 | 220 | (75 | ) | — | (40 | ) | 4,163 | |||||||||||||||||||||
| $ | 14,307 | $ | 2,212 | $ | (1,065 | ) | $ | (213 | ) | $ | (123 | ) | $ | 15,118 | $ | 14,159 | $ | 220 | $ | (331 | ) | $ | — | $ | (436 | ) | $ | 13,612 | ||||||||||
Mortgage servicing rights | $ | 8,380 | $ | 8,346 | 5,657 | 5,481 | ||||||||||||||||||||||||||||||||
Total intangible assets | $ | 22,687 | $ | 23,464 | $ | 19,816 | $ | 19,093 | ||||||||||||||||||||||||||||||
Short-Term Borrowings
Short-term borrowings consist of commercial paper and other borrowings as follows:
| In millions of dollars | September 30, 2008 | December 31, 2007 | March 31, 2009 | December 31, 2008 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial paper | ||||||||||||||
Citigroup Funding Inc. | $ | 28,685 | $ | 34,939 | $ | 29,141 | $ | 28,654 | ||||||
Other Citigroup Subsidiaries | 967 | 2,404 | 107 | 471 | ||||||||||
| $ | 29,652 | $ | 37,343 | $ | 29,248 | $ | 29,125 | |||||||
Other short-term borrowings | 75,203 | 109,145 | 87,141 | 97,566 | ||||||||||
Total short-term borrowings | $ | 104,855 | $ | 146,488 | $ | 116,389 | $ | 126,691 | ||||||
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-banknonbank 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.
CGMHI has committed financing with unaffiliated banks. At March 31, 2009, CGMHI had drawn down the full $1.175 billion available under these facilities, of which $725 million is guaranteed by Citigroup. CGMHI has bilateral facilities totaling $575 million with unaffiliated banks with maturities occurring on various dates in the second half of 2009 and early 2010. They also have 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
| In millions of dollars | September 30, 2008 | December 31, 2007 | March 31, 2009 | December 31, 2008 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Citigroup Parent Company | $ | 185,145 | $ | 171,637 | $ | 188,826 | $ | 192,281 | ||||||
Other Citigroup Subsidiaries(1) | 144,542 | 187,657 | 92,592 | 109,314 | ||||||||||
Citigroup Global Markets Holdings Inc. | 21,856 | 31,401 | 15,311 | 20,623 | ||||||||||
Citigroup Funding Inc. | 41,554 | 36,417 | 40,523 | 37,375 | ||||||||||
Total long-term debt | $ | 393,097 | $ | 427,112 | ||||||||||
| Total long term debt | $ | 337,252 | $ | 359,593 | ||||||||||
CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion, which matures in 2011. CGMHI also has bilateral facilities totaling $575 million with unaffiliated banks maturing on various dates in 2009.
CGMHI also has committed long-term financing facilities with unaffiliated banks. At September 30, 2008,March 31, 2009, CGMHI had drawn down the full $2.075 billion$900 million available under these facilities, of which $1.08 billion$350 million is guaranteed by Citigroup. A bank can terminate these facilities by giving CGMHI prior notice (generally one year).
CGMHI also has substantial borrowing arrangements 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.
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.
Long-term debt at September 30, 2008March 31, 2009 and December 31, 20072008 includes $23.8$24.7 billion and $24.1 billion, respectively, of junior subordinated debt. 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 Securitiestrust securities representing undivided beneficial interests in the assets of the Trust;trust; (ii) investing the gross proceeds of the Trusttrust 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, Citigroup has the right to redeem these securities.
Citigroup has contractually agreed not to redeem or purchase (i) the 6.50% Enhanced Trust Preferred Securities of Citigroup Capital XV before September 15, 2056, (ii) the
6.45% Enhanced Trust Preferred Securities of Citigroup Capital XVI before December 31, 2046, (iii) the 6.35%
Enhanced Trust Preferred Securities of Citigroup Capital XVII before March 15, 2057, (iv) the 6.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28, 2047, (v) the 7.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15, 2047, (vi) the 7.875% Enhanced Trust Preferred Securities of Citigroup Capital XX before December 15, 2067, and (vii) the 8.300% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XXI before December 21, 2067 unless certain conditions, described in Exhibit 4.03 to Citigroup's Current Report on Form 8-K filed on September 18, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on November 28, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on March 8, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on July 2, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on August 17, 2007, in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on November 27, 2007, and in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on December 21, 2007, respectively, are met. These agreements are for the benefit of the holders of Citigroup's 6.00% Junior Subordinated Deferrable Interest Debentures due 2034.
Citigroup owns all of the voting securities of these subsidiary trusts. These subsidiary trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the subsidiary trusts and the subsidiary trusts' common securities. These subsidiary trusts' obligations are fully and unconditionally guaranteed by Citigroup.
The following table summarizes the financial structure of each of the Company's subsidiary trusts at September 30, 2008:
| | | | | | | Junior subordinated debentures owned by trust | | | | | | Junior subordinated debentures owned by trust | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Common shares issued to parent | ||||||||||||||||||||||||||||||||||||||||||
| Trust securities with distributions guaranteed by Citigroup | Issuance date | Securities issued | Liquidation value | Coupon rate | Amount(1) | Maturity | Redeemable by issuer beginning | ||||||||||||||||||||||||||||||||||||||||
In millions of dollars, except share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| Trust securities with distributions guaranteed by Citigroup In millions of dollars, except share amounts | Issuance date | Securities issued | Liquidation value | Coupon rate | Common shares issued to parent | Amount(1) | Maturity | Redeemable by issuer beginning | |||||||||||||||||||||||||||||||||||||||
Citigroup Capital III | Dec. 1996 | 200,000 | $ | 200 | 7.625 | % | 6,186 | $ | 206 | Dec. 1, 2036 | Not redeemable | Dec. 1996 | 200,000 | $ | 200 | 7.625 | % | 6,186 | $ | 206 | Dec. 1, 2036 | Not redeemable | |||||||||||||||||||||||||
Citigroup Capital VII | July 2001 | 46,000,000 | 1,150 | 7.125 | % | 1,422,681 | 1,186 | July 31, 2031 | July 31, 2006 | July 2001 | 46,000,000 | 1,150 | 7.125 | % | 1,422,681 | 1,186 | July 31, 2031 | July 31, 2006 | |||||||||||||||||||||||||||||
Citigroup Capital VIII | Sept. 2001 | 56,000,000 | 1,400 | 6.950 | % | 1,731,959 | 1,443 | Sept. 15, 2031 | Sept. 17, 2006 | Sept. 2001 | 56,000,000 | 1,400 | 6.950 | % | 1,731,959 | 1,443 | Sept. 15, 2031 | Sept. 17, 2006 | |||||||||||||||||||||||||||||
Citigroup Capital IX | Feb. 2003 | 44,000,000 | 1,100 | 6.000 | % | 1,360,825 | 1,134 | Feb. 14, 2033 | Feb. 13, 2008 | Feb. 2003 | 44,000,000 | 1,100 | 6.000 | % | 1,360,825 | 1,134 | Feb. 14, 2033 | Feb. 13, 2008 | |||||||||||||||||||||||||||||
Citigroup Capital X | Sept. 2003 | 20,000,000 | 500 | 6.100 | % | 618,557 | 515 | Sept. 30, 2033 | Sept. 30, 2008 | Sept. 2003 | 20,000,000 | 500 | 6.100 | % | 618,557 | 515 | Sept. 30, 2033 | Sept. 30, 2008 | |||||||||||||||||||||||||||||
Citigroup Capital XI | Sept. 2004 | 24,000,000 | 600 | 6.000 | % | 742,269 | 619 | Sept. 27, 2034 | Sept. 27, 2009 | Sept. 2004 | 24,000,000 | 600 | 6.000 | % | 742,269 | 619 | Sept. 27, 2034 | Sept. 27, 2009 | |||||||||||||||||||||||||||||
Citigroup Capital XIV | June 2006 | 22,600,000 | 565 | 6.875 | % | 40,000 | 566 | June 30, 2066 | June 30, 2011 | June 2006 | 22,600,000 | 565 | 6.875 | % | 40,000 | 566 | June 30, 2066 | June 30, 2011 | |||||||||||||||||||||||||||||
Citigroup Capital XV | Sept. 2006 | 47,400,000 | 1,185 | 6.500 | % | 40,000 | 1,186 | Sept. 15, 2066 | Sept. 15, 2011 | Sept. 2006 | 47,400,000 | 1,185 | 6.500 | % | 40,000 | 1,186 | Sept. 15, 2066 | Sept. 15, 2011 | |||||||||||||||||||||||||||||
Citigroup Capital XVI | Nov. 2006 | 64,000,000 | 1,600 | 6.450 | % | 20,000 | 1,601 | Dec. 31, 2066 | Dec. 31, 2011 | Nov. 2006 | 64,000,000 | 1,600 | 6.450 | % | 20,000 | 1,601 | Dec. 31, 2066 | Dec. 31, 2011 | |||||||||||||||||||||||||||||
Citigroup Capital XVII | Mar. 2007 | 44,000,000 | 1,100 | 6.350 | % | 20,000 | 1,101 | Mar. 15, 2067 | Mar. 15, 2012 | Mar. 2007 | 44,000,000 | 1,100 | 6.350 | % | 20,000 | 1,101 | Mar. 15, 2067 | Mar. 15, 2012 | |||||||||||||||||||||||||||||
Citigroup Capital XVIII | June 2007 | 500,000 | 891 | 6.829 | % | 50 | 891 | June 28, 2067 | June 28, 2017 | June 2007 | 500,000 | 717 | 6.829 | % | 50 | 717 | June 28, 2067 | June 28, 2017 | |||||||||||||||||||||||||||||
Citigroup Capital XIX | Aug. 2007 | 49,000,000 | 1,225 | 7.250 | % | 20 | 1,226 | Aug. 15, 2067 | Aug. 15, 2012 | Aug. 2007 | 49,000,000 | 1,225 | 7.250 | % | 20 | 1,226 | Aug. 15, 2067 | Aug. 15, 2012 | |||||||||||||||||||||||||||||
Citigroup Capital XX | Nov. 2007 | 31,500,000 | 788 | 7.875 | % | 20,000 | 788 | Dec. 15, 2067 | Dec. 15, 2012 | Nov. 2007 | 31,500,000 | 788 | 7.875 | % | 20,000 | 788 | Dec. 15, 2067 | Dec. 15, 2012 | |||||||||||||||||||||||||||||
Citigroup Capital XXI | Dec. 2007 | 3,500,000 | 3,500 | 8.300 | % | 500 | 3,501 | Dec. 21, 2077 | Dec. 21, 2037 | Dec. 2007 | 3,500,000 | 3,500 | 8.300 | % | 500 | 3,501 | Dec. 21, 2077 | Dec. 21, 2037 | |||||||||||||||||||||||||||||
Citigroup Capital XXIX | Nov. 2007 | 1,875,000 | 1,875 | 6.320 | % | 10 | 1,875 | Mar. 15, 2041 | Mar. 15, 2013 | Nov. 2007 | 1,875,000 | 1,875 | 6.320 | % | 10 | 1,875 | Mar. 15, 2041 | Mar. 15, 2013 | |||||||||||||||||||||||||||||
Citigroup Capital XXX | Nov. 2007 | 1,875,000 | 1,875 | 6.455 | % | 10 | 1,875 | Sept. 15, 2041 | Sept. 15, 2013 | Nov. 2007 | 1,875,000 | 1,875 | 6.455 | % | 10 | 1,875 | Sept. 15, 2041 | Sept. 15, 2013 | |||||||||||||||||||||||||||||
Citigroup Capital XXXI | Nov. 2007 | 1,875,000 | 1,875 | 6.700 | % | 10 | 1,875 | Mar. 15, 2042 | Mar. 15, 2014 | Nov. 2007 | 1,875,000 | 1,875 | 6.700 | % | 10 | 1,875 | Mar. 15, 2042 | Mar. 15, 2014 | |||||||||||||||||||||||||||||
Citigroup Capital XXXII | Nov. 2007 | 1,875,000 | 1,875 | 6.935 | % | 10 | 1,875 | Sept. 15, 2042 | Sept. 15, 2014 | Nov. 2007 | 1,875,000 | 1,875 | 6.935 | % | 10 | 1,875 | Sept. 15, 2042 | Sept. 15, 2014 | |||||||||||||||||||||||||||||
Adam Capital Trust III | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | |||||||||||||||||||||||||||||||
Adam Statutory Trust III | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | |||||||||||||||||||||||||||||||
Adam Statutory Trust IV | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | |||||||||||||||||||||||||||||||
Adam Statutory Trust V | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | |||||||||||||||||||||||||||||||
Total obligated | $ | 23,422 | $ | 23,584 | $ | 23,248 | $ | 23,410 | |||||||||||||||||||||||||||||||||||||||
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.
During the first quarter of 2009, Citigroup did not issue any Enhanced Trust Preferred Securities.
The following table summarizes the Company's Preferredpreferred stock outstanding at September 30, 2008March 31, 2009 and December 31, 2007:2008:
| | | | | | Carrying Value (in millions of dollars) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Convertible to approximate number of Citigroup common shares | |||||||||||||||
| | Dividend Rate | Redemption price per depositary share | Number of depositary shares | September 30, 2008 | December 31, 2007 | ||||||||||||||
Series A(1) | 7.000 | % | $ | 50 | 137,600,000 | 248,413,202 | $ | 6,880 | $ | — | |||||||||
Series B(1) | 7.000 | % | 50 | 60,000,000 | 108,319,710 | 3,000 | — | ||||||||||||
Series C(1) | 7.000 | % | 50 | 20,000,000 | 36,106,570 | 1,000 | — | ||||||||||||
Series D(1) | 7.000 | % | 50 | 15,000,000 | 27,079,928 | 750 | — | ||||||||||||
Series E(2) | 8.400 | % | 1,000 | 6,000,000 | — | 6,000 | — | ||||||||||||
Series F(3) | 8.500 | % | 25 | 81,600,000 | — | 2,040 | — | ||||||||||||
Series J(1) | 7.000 | % | 50 | 9,000,000 | 16,247,957 | 450 | — | ||||||||||||
Series K(1) | 7.000 | % | 50 | 8,000,000 | 14,442,628 | 400 | — | ||||||||||||
Series L1(1) | 7.000 | % | 50 | 100,000 | 180,533 | 5 | — | ||||||||||||
Series N(1) | 7.000 | % | 50 | 300,000 | 541,599 | 15 | — | ||||||||||||
Series T(4) | 6.500 | % | 50 | 63,373,000 | 93,940,986 | 3,169 | — | ||||||||||||
Series AA(5) | 8.125 | % | 25 | 148,600,000 | — | 3,715 | — | ||||||||||||
| 545,273,113 | $ | 27,424 | $ | — | |||||||||||||||
| | | | | | Carrying value (in millions of dollars) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Convertible to approximate number of Citigroup common shares | |||||||||||||||
| | | Redemption price per depositary share / preference share | | ||||||||||||||||
| | Dividend rate | Number of depositary shares | March 31, 2009 | December 31, 2008 | |||||||||||||||
| Series A1(1) | 7.000 | % | $ | 50 | 137,600,000 | 261,083,726 | $ | 6,880 | $ | 6,880 | |||||||||
| Series B1(1) | 7.000 | % | 50 | 60,000,000 | 113,844,648 | 3,000 | 3,000 | ||||||||||||
| Series C1(1) | 7.000 | % | 50 | 20,000,000 | 37,948,216 | 1,000 | 1,000 | ||||||||||||
| Series D1(1) | 7.000 | % | 50 | 15,000,000 | 28,461,162 | 750 | 750 | ||||||||||||
| Series E(2) | 8.400 | % | 1,000 | 6,000,000 | — | 6,000 | 6,000 | ||||||||||||
| Series F(3) | 8.500 | % | 25 | 81,600,000 | — | 2,040 | 2,040 | ||||||||||||
| Series G(4) | 8.000 | % | 1,000,000 | 7,059 | — | 3,529 | — | ||||||||||||
| Series H(5) | 5.000 | % | 1,000,000 | 25,000 | — | 23,780 | 23,727 | ||||||||||||
| Series I(6) | 8.000 | % | 1,000,000 | 20,000 | — | 19,513 | 19,513 | ||||||||||||
| Series J1(1) | 7.000 | % | 50 | 9,000,000 | 17,076,698 | 450 | 450 | ||||||||||||
| Series K1(1) | 7.000 | % | 50 | 8,000,000 | 15,179,287 | 400 | 400 | ||||||||||||
| Series L2(1) | 7.000 | % | 50 | 100,000 | 189,742 | 5 | 5 | ||||||||||||
| Series N1(1) | 7.000 | % | 50 | 300,000 | 569,224 | 15 | 15 | ||||||||||||
| Series T(7) | 6.500 | % | 50 | 63,373,000 | 93,940,986 | 3,169 | 3,169 | ||||||||||||
| Series AA(8) | 8.125 | % | 25 | 148,600,000 | — | 3,715 | 3,715 | ||||||||||||
| 568,293,689 | $ | 74,246 | $ | 70,664 | |||||||||||||||
If dividends are declared on Series E as scheduled, the impact from preferred dividends on earnings per share in the first and third quarters will be lower than the impact in the second and fourth quarters. All other series currently have a quarterly dividend declaration schedule. As previously announced, in connection with the proposed exchange offer, Citigroup intends to pay full dividends on the preferred stock through and until the closing of the public exchange offers, at which point the dividends will be suspended.
14. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of "AccumulatedAccumulated Other Comprehensive Income (Loss)" for first, second and third quarters of 2008the three-month period ended March 31, 2009 were as follows:
In millions of dollars | Net unrealized gains (losses) on investment securities | Foreign currency translation adjustment | Cash flow hedges | Pension liability adjustments | Accumulated other comprehensive income (loss) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2007 | $ | 471 | $ | (772 | ) | $ | (3,163 | ) | $ | (1,196 | ) | $ | (4,660 | ) | ||
Increase in net unrealized losses on investment securities, net of taxes(1) | (2,464 | ) | — | — | — | (2,464 | ) | |||||||||
Less: Net losses included in income, after taxes | 77 | — | — | — | 77 | |||||||||||
Foreign currency translation adjustment, net of taxes(2) | — | 1,273 | — | — | 1,273 | |||||||||||
Cash flow hedges, net of taxes(3) | — | — | (1,638 | ) | — | (1,638 | ) | |||||||||
Pension liability adjustment, net of taxes | — | — | — | 31 | 31 | |||||||||||
Change | $ | (2,387 | ) | $ | 1,273 | $ | (1,638 | ) | $ | 31 | $ | (2,721 | ) | |||
Balance, March 31, 2008 | $ | (1,916 | ) | $ | 501 | $ | (4,801 | ) | $ | (1,165 | ) | $ | (7,381 | ) | ||
Increase in net unrealized losses on investment securities, net of taxes(4) | (1,418 | ) | — | — | — | (1,418 | ) | |||||||||
Less: Net losses included in income, after taxes | 90 | — | — | — | 90 | |||||||||||
Foreign currency translation adjustment, net of taxes(5) | — | (162 | ) | — | — | (162 | ) | |||||||||
Cash flow hedges, net of taxes(6) | — | — | 878 | — | 878 | |||||||||||
Pension liability adjustment, net of taxes | — | — | — | (56 | ) | (56 | ) | |||||||||
Change | $ | (1,328 | ) | $ | (162 | ) | $ | 878 | $ | (56 | ) | $ | (668 | ) | ||
Balance, June 30, 2008 | $ | (3,244 | ) | $ | 339 | $ | (3,923 | ) | $ | (1,221 | ) | $ | (8,049 | ) | ||
Increase in net unrealized losses on investment securities, net of taxes(7) | $ | (3,320 | ) | — | — | — | $ | (3,320 | ) | |||||||
Less: Net losses included in income, after taxes | 378 | — | — | — | 378 | |||||||||||
Foreign currency translation adjustment, net of taxes(8) | — | (3,530 | ) | — | — | (3,530 | ) | |||||||||
Cash flow hedges, net of taxes(9) | — | — | 448 | — | 448 | |||||||||||
Pension liability adjustment, net of taxes | — | — | — | 72 | 72 | |||||||||||
Change | (2,942 | ) | (3,530 | ) | 448 | 72 | (5,952 | ) | ||||||||
Balance, September 30, 2008 | $ | (6,186 | ) | $ | (3,191 | ) | $ | (3,475 | ) | $ | (1,149 | ) | $ | (14,001 | ) | |
| In millions of dollars | Net unrealized gains (losses) on investment securities | Foreign currency translation adjustment, net of hedges | Cash flow hedges | Pension liability adjustments | Accumulated other comprehensive income (loss) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2008 | $ | (9,647 | ) | $ | (7,744 | ) | $ | (5,189 | ) | $ | (2,615 | ) | $ | (25,195 | ) | |
| Cumulative effect of accounting change (FSP FAS 115-2) | (413 | ) | — | — | — | (413 | ) | |||||||||
| Balance, January 1, 2009 | $ | (10,060 | ) | $ | (7,744 | ) | $ | (5,189 | ) | $ | (2,615 | ) | $ | (25,608 | ) | |
| Decrease (increase) in net unrealized gains (losses) on investment securities, net of taxes(1)(3) | 31 | — | — | — | 31 | |||||||||||
| Less: Reclassification adjustment for gains included in net income, net of taxes | (11 | ) | — | — | — | (11 | ) | |||||||||
| FX translation adjustment, net of taxes(2) | — | (2,974 | ) | — | — | (2,974 | ) | |||||||||
| Cash flow hedges, net of taxes(3) | — | — | 1,483 | — | 1,483 | |||||||||||
| Pension liability adjustment, net of taxes | — | — | — | 66 | 66 | |||||||||||
| Change | $ | 20 | $ | (2,974 | ) | $ | 1,483 | $ | 66 | $ | (1,405 | ) | ||||
| Citigroup Stockholders AOCI balance, March 31, 2009 | $ | (10,040 | ) | $ | (10,718 | ) | $ | (3,706 | ) | $ | (2,549 | ) | $ | (27,013 | ) | |
15. SECURITIZATIONS AND VARIABLE INTEREST ENTITIES
Overview
Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 for a discussion of proposed accounting changes to SFAS 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140), and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R))."
Uses of SPEs
An 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 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 on 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, or from a liquidity facility, such as a line of credit, 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. 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.
SPEs may be Qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs) or neither.
Qualifying SPEs
QSPEs are a special class of SPEs defined in SFAS 140. QSPEs have significant limitations on the types of assets and derivative instruments they may own or enter into and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.
Variable Interest Entities
VIEs are entities defined in FIN 46(R), as 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, right to receive the expected residual returns of the entity and 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 will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.
All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, a more detailed and quantitative analysis is required to make such a determination.
The Company primarilygenerally considers the following types of involvement to be significant:
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 significant" under FIN 46(R).
Citigroup's involvement with QSPEs, Consolidated and Unconsolidated VIEs with which the Company holds significant variable interests as of March 31, 2009 and December 31, 2008 is presented below:
| As of March 31, 2009 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Maximum exposure to loss in significant unconsolidated VIEs(1) | ||||||||||||||||||||
| | | | | | Funded exposures(3) | Unfunded exposures(4) | |||||||||||||||||||
| In millions of dollars | Total involvement with SPE assets | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(2) | Debt investments | Equity investments | Funding commitments | Guarantees and derivatives | |||||||||||||||||
| Consumer Banking | |||||||||||||||||||||||||
| Credit card securitizations | $ | 117,943 | $ | 117,943 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
| Mortgage securitizations | 539,628 | 539,628 | — | — | — | — | — | — | |||||||||||||||||
| Student loan securitizations | 15,333 | 15,333 | — | — | — | — | — | — | |||||||||||||||||
| Other | 1,273 | — | 1,273 | — | — | — | — | — | |||||||||||||||||
| Total | $ | 674,177 | $ | 672,904 | $ | 1,273 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
| Institutional Clients Group | |||||||||||||||||||||||||
| Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 50,323 | $ | — | $ | — | $ | 50,323 | $ | 5 | $ | — | $ | 49,368 | $ | 950 | |||||||||
| Third-party commercial paper conduits | 18,955 | — | — | 18,955 | 2 | — | 1,167 | 20 | |||||||||||||||||
| Collateralized debt obligations (CDOs) | 25,197 | — | 8,409 | 16,788 | 655 | — | — | 473 | |||||||||||||||||
| Collateralized loan obligations (CLOs) | 23,013 | — | 68 | 22,945 | 1,837 | — | 43 | 225 | |||||||||||||||||
| Mortgage loan securitization | 84,629 | 84,629 | — | — | — | — | — | — | |||||||||||||||||
| Asset-based financing | 88,590 | — | 2,725 | 85,865 | 21,624 | 112 | 2,951 | 117 | |||||||||||||||||
| Municipal securities tender option bond trusts (TOBs) | 28,456 | 5,595 | 14,704 | 8,157 | 185 | — | 6,515 | 107 | |||||||||||||||||
| Municipal investments | 17,142 | — | 871 | 16,271 | — | 2,315 | 749 | — | |||||||||||||||||
| Client intermediation | 9,602 | — | 3,023 | 6,579 | 1,463 | — | — | — | |||||||||||||||||
| Investment funds | 8,280 | — | 1,302 | 6,978 | — | 167 | — | — | |||||||||||||||||
| Other | 15,159 | 4,546 | 3,972 | 6,641 | 784 | 85 | 334 | — | |||||||||||||||||
| Total | $ | 369,346 | $ | 94,770 | $ | 35,074 | $ | 239,502 | $ | 26,555 | $ | 2,679 | $ | 61,127 | $ | 1,892 | |||||||||
| Global Wealth Management | |||||||||||||||||||||||||
| Investment funds | $ | 57 | $ | — | $ | 37 | $ | 20 | $ | 17 | $ | — | $ | 2 | $ | — | |||||||||
| Other | 30 | — | 30 | — | — | — | — | — | |||||||||||||||||
| Total | $ | 87 | $ | — | $ | 67 | $ | 20 | $ | 17 | $ | — | $ | 2 | $ | — | |||||||||
| Corporate/Other | |||||||||||||||||||||||||
| Trust preferred securities | $ | 24,694 | $ | — | $ | — | $ | 24,694 | $ | — | $ | 162 | $ | — | $ | — | |||||||||
| Total Citigroup | $ | 1,068,304 | $ | 767,674 | $ | 36,414 | $ | 264,216 | $ | 26,572 | $ | 2,841 | $ | 61,129 | $ | 1,892 | |||||||||
| As of March 31, 2009 (continued) | As of December 31, 2008(1) In millions of dollars | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total maximum exposure to loss in significant unconsolidated VIEs (continued)(3) | Total involvement with SPEs | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(2) | Maximum exposure to loss in significant unconsolidated VIE assets(3) | |||||||||||||
| $ | — | $ | 123,867 | $ | 123,867 | $ | — | $ | — | $ | — | |||||||
| — | 584,154 | 584,151 | 3 | — | — | |||||||||||||
| — | 15,650 | 15,650 | — | — | — | |||||||||||||
| — | 1,446 | — | 1,446 | — | — | |||||||||||||
| $ | — | $ | 725,117 | $ | 723,668 | $ | 1,449 | $ | — | $ | — | |||||||
| $ | 50,323 | $ | 59,635 | $ | — | $ | — | $ | 59,635 | $ | 59,635 | |||||||
| 1,189 | 20,755 | — | — | 20,755 | 1,399 | |||||||||||||
| 1,128 | 30,060 | — | 11,466 | 18,594 | 1,473 | |||||||||||||
| 2,105 | 22,953 | — | 122 | 22,831 | 1,682 | |||||||||||||
| — | 87,209 | 87,209 | — | — | — | |||||||||||||
| 24,804 | 102,154 | — | 3,847 | 98,307 | 28,231 | |||||||||||||
| 6,807 | 30,071 | 6,504 | 14,619 | 8,948 | 7,884 | |||||||||||||
| 3,064 | 17,138 | — | 866 | 16,272 | 3,536 | |||||||||||||
| 1,463 | 9,464 | — | 3,811 | 5,653 | 1,537 | |||||||||||||
| 167 | 10,556 | — | 2,157 | 8,399 | 158 | |||||||||||||
| 1,203 | 18,411 | 4,751 | 5,270 | 8,390 | 1,262 | |||||||||||||
| $ | 92,253 | $ | 408,406 | $ | 98,464 | $ | 42,158 | $ | 267,784 | $ | 106,797 | |||||||
| $ | 19 | $ | 71 | $ | — | $ | 45 | $ | 26 | $ | 32 | |||||||
| — | 9 | — | 9 | — | — | |||||||||||||
| $ | 19 | $ | 80 | $ | — | $ | 54 | $ | 26 | $ | 32 | |||||||
| $ | 162 | $ | 23,899 | $ | — | $ | — | $ | 23,899 | $ | 162 | |||||||
| $ | 92,434 | $ | 1,157,502 | $ | 822,132 | $ | 43,661 | $ | 291,709 | $ | 106,991 | |||||||
This table does not include:
The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e.g., security or loan) and the Company's standard accounting policies for the asset type and line of business.
The asset balances for unconsolidated VIEs where the Company has significant involvement represent the most current information available to the Company. In most cases, the asset balances represent an amortized cost basis without regard to impairments in fair value, unless fair value information is readily available to the Company. For VIEs that obtain asset exposures synthetically through derivative instruments (for example, synthetic CDOs), the Company includes 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 under FIN 46(R) (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.
Consolidated VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classifications of consolidated assets that are collateral for consolidated VIE obligations:
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Cash | $ | 0.9 | $ | 1.9 | |||
| Trading account assets | 14.4 | 21.0 | |||||
| Investments | 16.6 | 15.8 | |||||
| Loans | 2.2 | 2.6 | |||||
| Other assets | 2.3 | 2.4 | |||||
| Total assets of consolidated VIEs | $ | 36.4 | $ | 43.7 | |||
The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs:
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Trading account liabilities | $ | 1.1 | $ | 0.5 | |||
| Short-term borrowings | 16.6 | 17.0 | |||||
| Long-term debt | 5.9 | 6.8 | |||||
| Other liabilities | 0.8 | 3.0 | |||||
| Total liabilities of consolidated VIEs | $ | 24.4 | $ | 27.3 | |||
The consolidated VIEs included in the table above 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 liabilities are excluded from the table.
Significant Interests in VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classification of significant interests in VIEs:
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Trading account assets | $ | 5.8 | $ | 6.3 | |||
| Investments | 8.8 | 11.0 | |||||
| Loans | 14.5 | 15.9 | |||||
| Other assets | 0.6 | 0.5 | |||||
| Total assets of significant interest in consolidated VIEs | $ | 29.7 | $ | 33.7 | |||
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Trading account liabilities | $ | 0.0 | $ | 0.2 | |||
| Long-term debt | 0.4 | 0.4 | |||||
| Other liabilities | 0.5 | 0.6 | |||||
| Total liabilities of significant interest in consolidated VIEs | $ | 0.9 | $ | 1.2 | |||
The Company securitizes credit card receivables through trusts which are established to purchase the receivables. Citigroup sells receivables into the QSPE 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 mortgages. Other typesreplenish the receivables in the trust. The Company relies on securitizations to fund a significant portion of its managedNorth America Cards business.
The following table reflects amounts related to the Company's securitized credit card receivables at March 31, 2009 and December 31, 2008:
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Principal amount of credit card receivables in trusts | $ | 117.9 | $ | 123.9 | |||
| Ownership interests in principal amount of trust credit card receivables: | |||||||
| Sold to investors via trust-issued securities | 97.5 | 98.2 | |||||
| Retained by Citigroup as trust-issued securities | 7.8 | 6.5 | |||||
| Retained by Citigroup via non-certificated interests recorded as consumer loans | 12.6 | 19.2 | |||||
| Total ownership interests in principal amount of trust credit card receivables | $ | 117.9 | $ | 123.9 | |||
| Other amounts recorded on the balance sheet related to interests retained in the trusts: | |||||||
| Other retained interests in securitized assets | $ | 4.0 | $ | 3.1 | |||
| Residual interest in securitized assets(1) | 1.5 | 1.7 | |||||
| Amounts payable to trusts | 2.5 | 1.7 | |||||
The Company recorded net gains (losses) from securitization of credit card receivables of $35 million and $221 million during the three months ended March 31, 2009 and 2008, respectively. Net gains (losses) reflect the following:
The following table summarizes selected cash flow information related to credit card securitizations for the three months ended March 31, 2009 and 2008:
| In billions of dollars | March 31, 2009 | March 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Proceeds from new securitizations | $ | 12.9 | $ | 10.0 | |||
| Proceeds from collections reinvested in new receivables | 47.0 | 55.0 | |||||
| Contractual servicing fees received | 0.5 | 0.5 | |||||
| Cash flows received on retained interests and other net cash flows | 1.5 | 2.0 | |||||
Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of credit card receivables for the three months ended March 31, 2009 and 2008, respectively, are as follows:
| | March 31, 2009 | March 31, 2008 | ||
|---|---|---|---|---|
| Discount rate | 19.7% | 17.9% | ||
| Constant prepayment rate | 6.0% to 11.0% | 7.5% to 11.6% | ||
| Anticipated net credit losses | 12.6% | 7.2% | ||
The constant prepayment rate assumption range reflects the projected payment rates over the life of a credit card balance, excluding new card purchases. This results in a high payment in the early life of the securitized include corporate debt instruments (in cashbalances followed by a much lower payment rate, which is depicted in the disclosed range.
The effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests is required to be disclosed. The negative effect of each change must be 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 March 31, 2009, the key assumptions used to value retained interests and synthetic form), auto loans,the sensitivity of the fair value to adverse changes of 10% and student loans.20% in each of the key assumptions were as follows:
| March 31, 2009 | ||
|---|---|---|
| Discount rate | 19.7% | |
| Constant prepayment rate | 6.0% to 10.7% | |
| Anticipated net credit losses | 12.6% | |
| Weighted average life | 11.7 months | |
| In millions of dollars | Residual interest | Retained certificates | Other retained interests | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying value of retained interests | $ | 904 | $ | 7,446 | $ | 4,641 | |||||
| Discount rates | |||||||||||
| Adverse change of 10% | $ | (42 | ) | $ | (84 | ) | $ | (6 | ) | ||
| Adverse change of 20% | (83 | ) | (167 | ) | (12 | ) | |||||
| Constant prepayment rate | |||||||||||
| Adverse change of 10% | $ | (82 | ) | $ | — | $ | — | ||||
| Adverse change of 20% | (156 | ) | — | — | |||||||
| Anticipated net credit losses | |||||||||||
| Adverse change of 10% | $ | (378 | ) | $ | — | $ | (77 | ) | |||
| Adverse change of 20% | (747 | ) | — | (154 | ) | ||||||
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.
The Company providesfollowing tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) and credit losses, net of recoveries.
| In millions of dollars, except loans in billions | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Loan amounts, at period end | |||||||
| On balance sheet | $ | 75.2 | $ | 87.5 | |||
| Securitized amounts | 106.0 | 105.9 | |||||
| Loans held-for-sale | — | — | |||||
| Total managed loans | $ | 181.2 | $ | 193.4 | |||
| Delinquencies, at period end | |||||||
| On balance sheet | $ | 2,583 | $ | 2,490 | |||
| Securitized amounts | 3,138 | 2,655 | |||||
| Loans held-for-sale | — | — | |||||
| Total managed delinquencies | $ | 5,721 | $ | 5,145 | |||
| Credit losses, net of recoveries, for the quarter ended March 31, | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
| On balance sheet | $ | 1,943 | $ | 1,248 | |||
| Securitized amounts | 2,549 | 1,591 | |||||
| Loans held-for-sale | — | — | |||||
| Total managed | $ | 4,492 | $ | 2,839 | |||
Funding, Liquidity Facilities and Subordinated Interests
Citigroup securitizes credit card receivables through three securitization trusts. The trusts are funded through a mix of sources, including commercial paper and medium- and long-term notes. Term notes can be issued at times arranges for third partiesa fixed or floating rate.
During the first quarter of 2009, the credit card securitization trusts increased their participation in certain government programs aimed at financing the purchase of asset-backed securities. As of March 31, 2009, the Omni Master Trust (the "Omni Trust") had approximately $14.9 billion of commercial paper outstanding, issued directly or indirectly through the Commercial Paper Funding Facility (CPFF), up from $6.9 billion at December 31, 2008. In addition, during the first quarter of 2009, the Citibank Master Credit Card Trust (the "Master Trust") issued a $3 billion term note through the Term Asset-Backed Securities Loan Facility (TALF), which was a new program launched by the government in March 2009.
Citigroup is the sole provider of full liquidity facilities to the commercial paper programs of the two primary securitization trusts with which it transacts. Both of these facilities, which represent contractual obligations on the part of Citigroup to provide liquidity for the issued commercial paper, are made available on market terms to each of the trusts. The liquidity facilities require Citibank (South Dakota), N.A. to purchase the commercial paper issued by each trust at maturity, if the commercial paper does not roll over, as long as there are available credit enhancementenhancements outstanding, typically in the form of subordinated notes. The liquidity commitment related to the trusts, including cash collateral accounts, subordinated securities,Omni Trust commercial paper programs, amounted to $12.5 billion at March 31, 2009 and $8.5 billion at December 31, 2008, respectively. The liquidity facilitiescommitment related to the Master Trust commercial paper program amounted to $11 billion at both March 31, 2009 and lettersDecember 31, 2008. As of credit. As specified in someMarch 31, 2009 and December 31, 2008, none of the sale agreements,liquidity commitments were drawn. During the net revenue collected each month is accumulated upsecond quarter of 2009, $4 billion of the Omni Trust liquidity facility was drawn.
In addition, Citibank (South Dakota), N.A. provides liquidity to a predetermined maximum amount,third-party, non-consolidated multi-seller commercial paper conduit, which is not a VIE. The commercial paper conduit has acquired notes issued by the Omni Trust. Citibank (South Dakota), N.A. provides the liquidity facility on market terms. Citibank (South Dakota), N.A. will be required to act in its capacity as liquidity provider as long as there are available credit enhancements outstanding and if: (1) the conduit is availableunable to roll over its maturing commercial paper; or (2) Citibank (South Dakota), N.A. loses its A-1/P-1 credit rating. The liquidity commitment to the remaining termthird party conduit was $6.1 billion at March 31, 2009 and $4 billion at December 31, 2008. As of that transactionMarch, 31, 2009 and December 31, 2008, none of this liquidity commitment was drawn.
All three securitization trusts—Master Trust, Omni Trust, and Broadway Trust—have had bonds placed on ratings watch by rating agencies. The Master Trust and Broadway Trust had bonds placed on ratings watch with negative implications during the first quarter of 2009. As a result of the ratings watch status, certain actions were taken or announced with respect to make payments of yield, fees, and transaction coststhe Master Trust. The actions subordinated certain senior interests in the eventtrust assets that net cash flows fromwere retained by Citigroup, which effectively placed these interests below investor interests in terms of priority of payment. While the receivables areOmni Trust bonds had not sufficient. Oncebeen placed on ratings watch status until April 2009, the predeterminedOmni Trust had nonetheless previously issued a subordinated note with a face amount of $265 million in October 2008 to Citibank (South Dakota) N.A., in order to avert a downgrade of its outstanding AAA and A securities. The Federal Reserve concluded that as a result of these actions, commencing with the first quarter of 2009, Citigroup is reached, net revenue is recognizedalso required to include the sold assets of the Master and Omni trusts in its risk-weighted assets for purposes of calculating its risk-based capital ratios. The effect of this decision increased Citigroup's risk-weighted assets by approximately $82 billion, and decreased Citigroup's Tier 1 Capital ratio by approximately 100 bps, as of March 31, 2009. In April 2009, the Omni Trust issued $2.3 billion of additional subordinated bonds. The bonds were acquired by Citibank (South Dakota) N.A. The subordinated bonds were issued by the Omni Trust in response to the ratings watch status.
On April 30, 2009, the Broadway Trust issued a subordinated note with a face amount of $82 million. This note was acquired by Citibank, N.A. As with the Master and Omni trust actions, this action will also require the inclusion of the sold assets of the Broadway Trust in Citigroup's risk-
weighted assets in the second quarter of 2009, thereby increasing Citigroup's risk-weighted assets by approximately $900 million.
In December 2008, the excess spread for the Master Trust fell below the trigger level of 4.50%. Beginning in January 2009, this event required the excess cash in the Master Trust to be diverted to a spread account set aside for the benefit of the investors in the Trust, instead of reverting back to Citigroup subsidiaryimmediately. The excess spread is a measure of the profitability of the credit card accounts in the Master Trust expressed as a percent of the principal balance outstanding. In February 2009, the three-month average excess spread moved back above the trigger level of 4.50%. As such, the funds that soldhad been deposited into the receivables.spread account were released back to Citigroup.
Mortgage Securitizations
The Company provides a wide range of mortgage and other loan products to a diverse customer base. In connection with the securitization of these 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. In non-recourse servicing, the principal credit risk to the Company is the cost of temporary advances of funds. In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as FNMA or FHLMC, or with a private investor, insurer or guarantor. Losses on recourse servicing occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage loan are less than the outstanding principal balance and accrued interest of the loan and the cost of holding and disposing of the underlying property. The Company's 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. Institutional Clients GroupSecurities and Banking retains servicing for a limited number of its mortgage securitizations.
The Company's Consumer business provides a wide range of mortgage loan products to its customers. Once originated, the Company often securitizes these loans through the use of QSPEs. These QSPEs 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 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.
The following tables summarize selected cash flow information related to credit card, mortgage and certain other securitizations for the three months ended September 30, 2008March 31, 2009 and 2007:2008:
| | Three Months Ended September 30, 2008 | Three months ended March 31, 2009 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Credit cards | U.S. Consumer mortgages | Institutional Clients Group mortgages | Other(1) | U.S. Consumer mortgages | Securities and Banking mortgages | ||||||||||||||
Proceeds from new securitizations | $ | 3.3 | $ | 19.1 | $ | 0.7 | $ | 0.6 | $ | 20.0 | $ | 1.3 | ||||||||
Proceeds from collections reinvested in new receivables | 56.2 | — | — | 0.3 | ||||||||||||||||
Contractual servicing fees received | 0.5 | 0.4 | — | — | 0.4 | — | ||||||||||||||
Cash flows received on retained interests and other net cash flows | 1.8 | 0.2 | — | 0.2 | 0.1 | — | ||||||||||||||
| | Three Months Ended September 30, 2007 | Three months ended March 31, 2008 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Credit cards | U.S. Consumer mortgages | Institutional Clients Group mortgages | Other(1) | U.S. Consumer mortgages | Securities and Banking mortgages | ||||||||||||||
Proceeds from new securitizations | 7.1 | $ | 26.4 | $ | 7.5 | $ | 3.3 | $ | 23.7 | $ | 2.0 | |||||||||
Proceeds from collections reinvested in new receivables | 58.1 | — | — | 0.3 | ||||||||||||||||
Contractual servicing fees received | 0.6 | 0.5 | — | — | 0.4 | — | ||||||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | 0.1 | — | — | 0.2 | 0.1 | ||||||||||||||
| | Nine Months Ended September 30, 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Credit cards | U.S. Consumer mortgages | Institutional Clients Group mortgages | Other(1) | |||||||||
Proceeds from new securitizations | $ | 22.4 | $ | 67.2 | $ | 5.9 | $ | 3.3 | |||||
Proceeds from collections reinvested in new receivables | 168.4 | — | — | 0.9 | |||||||||
Contractual servicing fees received | 1.5 | 1.3 | — | — | |||||||||
Cash flows received on retained interests and other net cash flows | 5.7 | 0.5 | 0.2 | 0.6 | |||||||||
| | Nine Months Ended September 30, 2007 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Credit cards | U.S. Consumer mortgages | Institutional Clients Group mortgages | Other(1) | |||||||||
Proceeds from new securitizations | $ | 19.7 | $ | 83.0 | $ | 37.1 | $ | 7.5 | |||||
Proceeds from collections reinvested in new receivables | 165.8 | — | — | 1.6 | |||||||||
Contractual servicing fees received | 1.7 | 1.3 | — | 0.1 | |||||||||
Cash flows received on retained interests and other net cash flows | 6.3 | 0.2 | — | 0.1 | |||||||||
The Company recognizeddid not recognize gains (losses) on securitizationsthe securitization of U.S. Consumer mortgages in the first quarter of ($81) million and $462009. There were securitization gains of $2 million for the third quarters of 2008 and 2007, respectively, and ($4) and $129 million for the nine-month periods ended September 30, 2008 and 2007, respectively. In the third quarter of 2008 and 2007, the Company recorded gains (losses) of ($1,443) million and $169 million related to the securitization of credit card receivables, and ($1,398) million and $747 million for the ninethree months ended September 30, 2008 and 2007, respectively.2008. Gains (losses) recognized on the securitization of Institutional Clients GroupSecurities and Banking activities and other assets during the third quarterthree months ended March 31 of 2009 and 2008 and 2007 were $1$4 million and $15$4 million, respectively, and $6 million and $120 million for the first nine months ended September 30, 2008 and 2007, respectively.
Key assumptions used for the securitization of credit cards, mortgages, and certain other assets during the third quarter of 2008 and 2007 in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables for the three months ended March 31, 2009 and 2008 are as follows:
| | Three March 31, 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| | U.S. Consumer | mortgages | ||||||
Discount rate | ||||||||
| Constant prepayment rate | ||||||||
| 2.0% to | |||||||
| Anticipated net credit losses | 0.1% | |||||||
| ||||||||
| | Three March 31,2008 | |||||||
|---|---|---|---|---|---|---|---|---|
| | Consumer mortgages | and Banking mortgages | ||||||
Discount rate | ||||||||
| Constant prepayment rate | ||||||||
| ||||||||
Anticipated net credit losses | ||||||||
The range in the 2008key assumptions for retained interests in Securities and 2007 third quarters were valued using third-party quotationsBanking is due to the different characteristics of the interests retained by the Company. The interests retained by Securities and thus are not dependent on proprietary valuation models using assumptions.
As required by SFAS 140, theThe effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests mustis required to be disclosed. The negative effect of each change must be 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 September 30, 2008,March 31, 2009, 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:
Key Assumptions at September 30, 2008
| | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | mortgages | Banking mortgages | |||||||||
Discount rate | % | 2.9% to | |||||||||
| Constant prepayment rate | |||||||||||
| 2.0% to | ||||||||||
Anticipated net credit losses | % | 40.0% to | |||||||||
| |||||||||||
| | September 30, 2008 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Credit Cards | | | | |||||||||||||||
In millions of dollars | Residual interest | Retained certificates | Other retained interests | U.S. Consumer mortgages | Institutional Clients Group mortgages | Other(1) | |||||||||||||
Carrying value of retained interests | $ | 1,036 | $ | 6,013 | $ | 3,374 | $ | 11,178 | $ | 1,611 | $ | 2,133 | |||||||
Discount Rates | |||||||||||||||||||
Adverse change of 10% | $ | (54 | ) | $ | (9 | ) | $ | (7 | ) | $ | (344 | ) | $ | (73 | ) | $ | (30 | ) | |
Adverse change of 20% | (106 | ) | (15 | ) | (14 | ) | (662 | ) | (139 | ) | (58 | ) | |||||||
Constant prepayment rate | |||||||||||||||||||
Adverse change of 10% | $ | (112 | ) | $ | — | $ | — | $ | (522 | ) | $ | (19 | ) | $ | (10 | ) | |||
Adverse change of 20% | (210 | ) | — | — | (998 | ) | (33 | ) | (20 | ) | |||||||||
Anticipated net credit losses | |||||||||||||||||||
Adverse change of 10% | $ | (380 | ) | $ | — | $ | (55 | ) | $ | (20 | ) | $ | (74 | ) | $ | (7 | ) | ||
Adverse change of 20% | (611 | ) | — | (109 | ) | (40 | ) | (132 | ) | (14 | ) | ||||||||
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.
The following tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) and credit losses, net of recoveries.
| In millions of dollars, except loans in billions | Sept. 30, 2008 | Dec. 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Loan amounts, at period end | |||||||
On balance sheet | $ | 89.4 | $ | 94.1 | |||
Securitized amounts | 107.9 | 108.1 | |||||
Loans held-for-sale | — | 1.0 | |||||
Total managed loans | $ | 197.3 | $ | 203.2 | |||
Delinquencies, at period end | |||||||
On balance sheet | $ | 2,136 | $ | 1,937 | |||
Securitized amounts | 2,248 | 1,864 | |||||
Loans held-for-sale | — | 14 | |||||
Total managed delinquencies | $ | 4,384 | $ | 3,815 | |||
| Credit losses, net of recoveries, for the three months ended September 30, | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 1,588 | $ | 1,045 | |||
Securitized amounts | 1,935 | 1,198 | |||||
Loans held-for-sale | — | — | |||||
Total managed | $ | 3,523 | $ | 2,243 | |||
| Credit losses, net of recoveries, for the nine months ended September 30, | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 4,248 | $ | 2,757 | |||
Securitized amounts | 5,292 | 3,506 | |||||
Loans held-for-sale | — | — | |||||
Total managed | $ | 9,540 | $ | 6,263 | |||
| In millions of dollars | U.S. Consumer mortgages | Securities and Banking mortgages | ||||||
|---|---|---|---|---|---|---|---|---|
Carrying value of retained interests | $ | 6,755 | $ | 1,158 | ||||
Discount rates | ||||||||
Adverse change of 10% | $ | (154 | ) | $ | (30 | ) | ||
Adverse change of 20% | (300 | ) | (63 | ) | ||||
Constant prepayment rate | ||||||||
Adverse change of 10% | $ | (462 | ) | $ | (8 | ) | ||
Adverse change of 20% | (877 | ) | (17 | ) | ||||
Anticipated net credit losses | ||||||||
Adverse change of 10% | $ | (21 | ) | $ | (39 | ) | ||
Adverse change of 20% | (42 | ) | (75 | ) | ||||
Mortgage Servicing Rights
The fair value of capitalized mortgage loan servicing rights (MSRs)(MSR) was $8.3$5.5 billion and $10.0$7.7 billion at September 30,March 31, 2009 and 2008, respectively. The MSRs correspond to principal loan balances of $610 billion and 2007,$626 billion as of March 31, 2009 and 2008, respectively. The following table summarizes the changes in capitalized MSRs:MSRs for the three months ended March 31, 2009 and 2008:
| | Three Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | |||||
Balance, beginning of period | $ | 8,934 | $ | 10,072 | |||
Originations | 297 | 477 | |||||
Purchases | — | 271 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (595 | ) | (555 | ) | |||
Transfer to Trading account assets | — | — | |||||
Other changes(1) | (290 | ) | (308 | ) | |||
Balance, end of period | $ | 8,346 | $ | 9,957 | |||
| | Nine Months Ended September 30, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2009 | 2008 | ||||||||||
Balance, beginning of period | $ | 8,380 | $ | 5,439 | ||||||||||
| Balance, beginning of year | $ | 5,657 | $ | 8,380 | ||||||||||
Originations | 1,066 | 1,438 | 235 | 345 | ||||||||||
Purchases | 1 | 3,404 | — | 1 | ||||||||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (90 | ) | 611 | 174 | (561 | ) | ||||||||
Transfer to Trading account assets | (163 | ) | — | — | (104 | ) | ||||||||
Other changes(1) | (848 | ) | (935 | ) | (585 | ) | (345 | ) | ||||||
Balance, end of period | $ | 8,346 | $ | 9,957 | ||||||||||
| Balance, end of year | $ | 5,481 | $ | 7,716 | ||||||||||
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 amount of contractually specified servicingthese fees late fees and ancillary fees earned were $429 million, $25 million and $16 million, respectively, for the quarterthree months ended September 30,March 31, 2009 and 2008 and $481 million, $24 million, and $16 million, respectively, for the third quarter of 2007.were as follows:
| In millions of dollars | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
| Servicing fees | $ | 429 | $ | 411 | |||
| Late fees | 25 | 26 | |||||
| Ancillary fees | 20 | 17 | |||||
| Total MSR fees | $ | 474 | $ | 454 | |||
These fees are classified in the Consolidated Statement of Income asCommissions and Fees.
feesSpecial-Purpose Entities.
Primary Uses of and Involvement in SPEsStudent Loan Securitizations
Citigroup is involved with many types of special-purpose entities (SPEs) in the normal course of business. The primary uses of SPEs are to obtain sources of liquidity for the Company and its clients through securitization vehicles and commercial paper conduits; to create investment products for clients; to provide asset-based financing to clients; or to raise financing for the Company.
The Company provides various products and servicesmaintains programs to SPEs. For example, it may:
Under terms of credit, guarantees, credit default swaps or total return swaps (wherethe trust arrangements, the Company receiveshas no obligations to provide financial support and has not provided such support. A substantial portion of the total return on certain assets heldcredit risk associated with the securitized loans has been transferred to third-party guarantors or insurers either under the Federal Family Education Loan Program, authorized by the SPE);
SPEs used by the Company are generally accounted for as qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs), as described below.
Qualifying SPEs
QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.private credit insurance.
The following table summarizes the Company's involvement in QSPEs by business segment at September 30, 2008 and December 31, 2007:
| | Assets of QSPEs | Retained interests | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In million of dollars | Sept. 30, 2008 | Dec.31,(1) 2007 | Sept. 30, 2008 | Dec. 31,(1) 2007 | |||||||||
Global Consumer | |||||||||||||
Credit Cards | $ | 122,490 | $ | 125,109 | $ | 10,423 | $ | 10,683 | |||||
Mortgages | 578,273 | 550,902 | 11,263 | 13,801 | |||||||||
Other | 15,999 | 14,882 | 936 | 981 | |||||||||
Total | $ | 716,762 | $ | 690,893 | $ | 22,622 | $ | 25,465 | |||||
Institutional Clients Group | |||||||||||||
Mortgages | $ | 88,721 | $ | 92,263 | $ | 1,611 | $ | 4,617 | |||||
Municipal TOBs | 8,795 | 10,556 | 946 | 817 | |||||||||
DSC Securitizations and other | 5,285 | 14,526 | 166 | 344 | |||||||||
Total | $ | 102,801 | $ | 117,345 | $ | 2,723 | $ | 5,778 | |||||
Citigroup Total | $ | 819,563 | $ | 808,238 | $ | 25,345 | $ | 31,243 | |||||
Credit Card Master Trusts
The Company securitizes credit card receivables through trusts which are established to purchase the receivables. Citigroup sells receivables into the QSPE 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 trusts. The Company relies on securitizations to fund a significant portion of its managedN.A. Cards business.
Citigroup is a provider of liquidity facilities to the commercial paper programs of the two primary securitization trusts it transacts with. Both facilities are made available on market terms to each trust. With respect to the Palisades commercial paper program in the Omni Master Trust, Citibank (South Dakota), N. A. is the sole provider of a full liquidity facility. The liquidity facility requires Citibank (South Dakota), N.A. to purchase Palisades's commercial paper at maturity if the commercial paper does not roll over as long as there are available credit enhancements outstanding, typically in the form of subordinated notes. The Palisades liquidity commitment amounted to $9.5 billion at September 30, 2008 and $7.5 billion at December 31, 2007. During the 2008 second quarter, Citibank (South Dakota) N.A. also became the sole provider of a full liquidity facility to the Dakota commercial program of the Citibank Master Credit Card Trust. This facility requires Citibank (South Dakota) N.A. to purchase Dakota commercial paper at maturity if the commercial paper does not roll over as long as there are
available credit enhancements outstanding, typically in the form of subordinated notes. The Dakota liquidity commitment amounted to $9.0 billion at September 30, 2008.
Mortgage and Other Consumer Loan Securitization Vehicles
The Company's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans) through the use of QSPEs. 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 and student loan securitizations are primarily non-recoursefor the three months ended March 31, 2009 and 2008:
| In billions of dollars | March 31, 2009 | March 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Cash flows received on retained interests and other net cash flows | $ | 0.1 | $ | — | |||
At March 31, 2009, the key assumptions used to value retained interests and the Company, thereby effectively transferring the risk of future credit losses to the purchaserssensitivity of the securities issued byfair value to adverse changes of 10% and 20% in each of the trust. However, the Company generally retains the servicing rights and a residual interest in future cash flows from the trusts.key assumptions were as follows:
| Retained interests | ||||
|---|---|---|---|---|
| Discount rate | 10.8% to 15.8% | |||
| Constant prepayment rate | 0.6% to 6.8% | |||
| Anticipated net credit losses | 0.2% to 1.6% | |||
| In millions of dollars | Retained interests | ||||
|---|---|---|---|---|---|
| Carrying value of retained interests | $ | 841 | |||
| Discount rates | |||||
| Adverse change of 10% | $ | (27 | ) | ||
| Adverse change of 20% | (51 | ) | |||
| Constant prepayment rate | |||||
| Adverse change of 10% | $ | (9 | ) | ||
| Adverse change of 20% | (17 | ) | |||
| Anticipated net credit losses | |||||
| Adverse change of 10% | $ | (7 | ) | ||
| Adverse change of 20% | (13 | ) | |||
Municipal Tender Option Bond (TOB) QSPEsOn-Balance Sheet Securitizations
The Company sponsors QSPE TOB trustsengages in on-balance sheet securitizations. These are securitizations that hold municipal securities and issue long-term senior floating-rate notes ("Floaters") to third-party investors and junior residual securities ("Residuals") todo not qualify for sales treatment; thus, the Company.
Unlike other Proprietary TOB trusts, and to conform to the requirements for a QSPE, the Company has no ability to unilaterally unwind QSPE TOB trusts. The Company would reconsider consolidation of the QSPE TOB trusts in the event that the amount of Floaters held by third parties decreased to such a level that the QSPE TOB trusts no longer met the definition of a QSPE because of insufficient third-party investor ownership of the Floaters.
Mutual Fund Deferred Sales Commission (DSC) Securitizations
Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover the sales commissions associated with the shares sold.
The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:
Mortgage Loan Securitizations
Institutional Clients Group is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until they can be sold to independent investors, and makes a market in those securities on an ongoing basis. The Company sometimes retains servicing rights for certain entities. These securities are held as trading assetsremain on the Company's balance sheet, are managed as part of the Company's trading activities, and are marked—to-market with most changes in value recognized in earnings. The table above shows the assets and retained interests for mortgage QSPEs in which the Company acted as principal in transferring mortgages to the QSPE.
Variable Interest Entities
VIEs are entities defined in FIN 46-R as entities which either have a total equity investment at risk 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, right to receive the expected residual returns of the entity, and 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 will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE. Consolidation under FIN 46-R is based onexpected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.
All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, more detailed and quantitative analysis is required to make such a determination.
FIN 46-R requires disclosure of the Company's maximum exposure to loss where the Company has "significant" variable interests in an unconsolidated VIE. FIN 46-R does not define "significant" and, as such, judgment is required. The Company
generally considers the following types of involvement to be "significant":
Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the seniority or perceived risk of the Company's involvement, is included as significant. The Company believes that this more expansive interpretation of "significant" provides more meaningful and consistent information regarding its involvement in various VIE structures and provides more data for an independent assessment of the potential risks of the Company's involvement in various VIEs and asset classes.
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 Companypays 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 significant" under FIN 46-R.
[This space intentionally left blank.]
The following tables summarize the Company's significant involvement in VIEs in millions of dollars:
| | As of September 30, 2008 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Maximum exposure to loss in significant unconsolidated VIEs(1) | ||||||||||||||||
| | | | Funded exposures | Unfunded exposures | |||||||||||||||
| | Consolidated VIE assets | Significant unconsolidated VIE assets(2) | Debt investments | Equity investments | Funding Commitments | Guarantees and derivatives | |||||||||||||
Consumer Banking | |||||||||||||||||||
Mortgages | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Leasing | 4 | — | — | — | — | — | |||||||||||||
Other | 1,580 | — | — | — | — | — | |||||||||||||
Total | $ | 1,584 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Institutional Clients Group | |||||||||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | — | $ | 63,462 | $ | — | $ | — | $ | 63,462 | $ | — | |||||||
Third-party commercial paper conduits | — | 23,304 | 25 | — | 1,296 | 16 | |||||||||||||
Collateralized debt obligations (CDOs) | 16,347 | 18,161 | 1,613 | 1 | 292 | 595 | |||||||||||||
Collateralized loan obligations (CLOs) | 156 | 24,359 | 1,526 | 3 | 334 | 171 | |||||||||||||
Asset-based financing | 3,966 | 109,365 | 30,790 | 55 | 6,058 | 129 | |||||||||||||
Municipal securities tender option bond trusts (TOBs) | 13,042 | 17,694 | 3,772 | 110 | 9,040 | 3,638 | |||||||||||||
Municipal investments | 940 | 15,442 | — | 2,415 | 1,015 | — | |||||||||||||
Client intermediation | 3,702 | 8,634 | 2,122 | — | — | 2 | |||||||||||||
Structured investment vehicles | 27,467 | — | — | — | — | — | |||||||||||||
Investment funds | 2,991 | 10,463 | — | 317 | — | — | |||||||||||||
Other | 11,219 | 9,531 | 607 | 790 | 398 | — | |||||||||||||
Total | $ | 79,830 | $ | 300,415 | $ | 40,455 | $ | 3,691 | $ | 81,895 | $ | 4,551 | |||||||
Global Wealth Management | |||||||||||||||||||
Investment funds | $ | 435 | $ | 28 | $ | 25 | $ | — | $ | 10 | $ | — | |||||||
Corporate/Other | |||||||||||||||||||
Trust Preferred Securities | $ | — | $ | 23,836 | $ | — | $ | 162 | $ | — | $ | — | |||||||
Total Citigroup | $ | 81,849 | $ | 324,279 | $ | 40,480 | $ | 3,853 | $ | 81,905 | $ | 4,551 | |||||||
| As of September 30, 2008 (continued) | | | | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Maximum exposure to loss in significant unconsolidated VIEs (continued) | As of December 31, 2007(1) | |||||||||||||||
| Total maximum exposure | Consolidated VIE assets | Significant unconsolidated VIE assets(2) | Maximum exposure to loss in significant unconsolidated VIE assets(3) | |||||||||||||
| $ | — | $ | 63 | $ | — | $ | — | |||||||||
| — | 35 | — | — | |||||||||||||
| — | 1,385 | — | — | |||||||||||||
| $ | — | $ | 1,483 | $ | — | $ | — | |||||||||
| $ | 63,462 | $ | — | $ | 72,558 | $ | 72,558 | |||||||||
| 1,337 | — | 27,021 | 2,154 | |||||||||||||
| 2,501 | 22,312 | 51,794 | 13,979 | |||||||||||||
| 2,034 | 1,353 | 21,874 | 4,762 | |||||||||||||
| 37,032 | 4,468 | 91,604 | 34,297 | |||||||||||||
| 16,560 | 17,003 | 22,570 | 17,843 | |||||||||||||
| 3,430 | 53 | 13,662 | 2,711 | |||||||||||||
| 2,124 | 2,790 | 9,593 | 1,643 | |||||||||||||
| — | 58,543 | — | — | |||||||||||||
| 317 | 140 | 11,282 | 212 | |||||||||||||
| 1,795 | 12,809 | 10,560 | 1,882 | |||||||||||||
| $ | 130,592 | $ | 119,471 | $ | 332,518 | $ | 152,041 | |||||||||
| $ | 35 | $ | 604 | $ | 52 | $ | 45 | |||||||||
| $ | 162 | $ | — | $ | 23,756 | $ | 162 | |||||||||
| $ | 130,789 | $ | 121,558 | $ | 356,326 | $ | 152,248 | |||||||||
These tables do not include:
The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (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 regarding the remaining principal balance of cash assets owned. 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 Company includes 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 in the form of purchased debt, funded loans or retained equity interest. 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 (such as guarantees) 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 under FIN 46-R (for example, 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 Companypays the total return on certain assets to the SPE). Receivables under such arrangements are not included in the maximum exposure amounts.
Consolidated VIEs—Balance Sheet Classification
sheet. The following table presents the carrying amounts and classification of consolidated assets thatand liabilities transferred in transactions from the Consumer credit card, student loan, mortgage and auto businesses, accounted for as secured borrowings:
| In billions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Cash | $ | 0.4 | $ | 0.3 | |||
| Available-for-sale securities | 0.4 | 0.1 | |||||
| Loans | 9.4 | 7.5 | |||||
| Allowance for loan losses | (0.1 | ) | (0.1 | ) | |||
| Total assets | $ | 10.1 | $ | 7.8 | |||
Long-term debt | $ | 8.0 | $ | 6.3 | |||
| Other liabilities | 0.1 | 0.3 | |||||
| Total liabilities | $ | 8.1 | $ | 6.6 | |||
All assets are collateral for VIE obligations:
| In billions of dollars | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Cash | $ | 8.1 | $ | 12.3 | |||
Trading account assets | 52.6 | 87.3 | |||||
Investments | 15.3 | 15.0 | |||||
Loans | 2.0 | 2.2 | |||||
Other assets | 3.8 | 4.8 | |||||
Total assets of consolidated VIEs | $ | 81.8 | $ | 121.6 | |||
restricted from being sold or pledged as collateral. The consolidated VIEs included incash flows from these assets are the table above represent hundreds of separate entities withonly source used to pay down the associated liabilities, which the Company is involved. In general, the third-party investors in the obligations of consolidated VIEs have recourse onlyare non-recourse to the assets of the VIEs and do not have 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. Thus, the Company's maximum 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.general assets.
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.
The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to customers and are funded by issuing high-grade commercial paper to third-party investors. The conduits generally do not purchase assets originated by the Company. The funding of the conduit is facilitated by the liquidity support and credit enhancementenhancements provided by the Company and by certain third parties.Company.
As administrator to the conduits, the Company is responsible for selecting and structuring of assets purchased or financed by the conduits, making decisions regarding the funding of the conduit,conduits, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduit'sconduits' assets, and facilitating the operations and cash flows of the conduit.conduits. In return, the Company earns structuring fees from clientscustomers for individual transactions and earns an administration fee from the conduit, which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees. This administration fee is fairly stable, since most risks and rewards of the underlying assets are passed back to the customers 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 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 30-45 days. As of March 31, 2009, and December 31, 2008, the weighted average life of the commercial paper issued was approximately 33 and 37 days, respectively. In addition, the conduits have issued subordinate loss notes and equity with a notional amount of approximately $80 million and varying remaining tenors ranging from three months to six years.
The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancement described above. In addition, there are two additional forms of credit enhancement that protect the commercial paper investors from defaulting assets. First, the subordinate loss notes issued by each conduit absorb any credit losses up to their full notional amount. It is expected that the subordinate loss notes issued by each conduit are sufficient to absorb a majority of the expected losses from each conduit, thereby making the single investor in the Subordinate Loss Note the primary beneficiary under FIN 46(R). Second, each conduit has obtained a letter of credit from the Company, which is generally 8-10% of the conduit's assets. The letters of credit provided by the Company total approximately $5.5 billion and are included in the Company's maximum exposure to loss. The net result across all multi-seller conduits administered by the Company is that, in the event defaulted assets exceed the transaction-specific credit enhancement described above, any losses in each conduit are allocated in the following order:
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 conduit is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA). Under the APA, the Company has agreed to purchase non-defaulted eligible receivables from the conduit at par. Any assets purchased under the APA are subject to increased pricing. The APA is not designed to provide credit support to the conduit, as it generally does not permit the purchase of defaulted or impaired assets and generally reprices the assets purchased to consider potential increased credit risk. The APA covers all assets in the conduits and is considered in the Company's maximum exposure to loss. 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 total notional exposure under the program-wide liquidity agreement is $11.3 billion and is considered in the Company's maximum exposure to loss. The Company receives fees for providing both types of liquidity agreement and considers these fees to be on fair market terms.
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 March 31, 2009, the Company owned $5 million of commercial paper issued by its administered conduits.
FIN 46(R) requires that the Company quantitatively analyze the expected variability of the conduit to determine whether the Company is the primary beneficiary of the conduit. The Company performs this analysis on a quarterly basis and has concluded that the Company is not the primary beneficiary of the conduits as defined in FIN 46(R) and, therefore, does not consolidate the conduits it administers. In conducting this analysis, the Company considers three primary sources of variability in the conduit: credit risk, interest-rate risk and fee variability.
The Company models the credit risk of the conduit's assets using a Credit Value at Risk (C-VaR) model. The C-VaR model considers changes in credit spreads (both within a rating class as well as due to rating upgrades and downgrades), name-specific changes in credit spreads, credit defaults and recovery rates and diversification effects of pools of financial assets. The model incorporates data from independent rating agencies as well as the Company's own proprietary information regarding spread changes, ratings transitions and losses given default. Using this credit data, a Monte Carlo simulation is performed to develop a distribution of credit risk for the portfolio of assets owned by each conduit, which is then applied on a probability-weighted basis to determine expected losses due to credit risk. In addition, the Company continuously monitors the specific credit characteristics of the conduit's assets and the current credit environment to confirm that the C-VaR model used continues to incorporate the Company's best information regarding the expected credit risk of the conduit's assets.
The Company also analyzes the variability in the fees that it earns from the conduit using monthly actual historical cash flow data to determine average fee and standard deviation measures for each conduit. Because any unhedged interest rate and foreign-currency risk not contractually passed on to
customers is absorbed by the fees earned by the Company, the fee variability analysis incorporates those risks.
The fee variability and credit risk variability are then combined into a single distribution of the conduit's overall returns. This return distribution is updated and analyzed on at least a quarterly basis to ensure that the amount of the subordinate loss notes issued to third parties is sufficient to absorb greater than 50% of the total expected variability in the conduit's returns. The expected variability absorbed by the subordinate loss note investors is therefore measured to be greater than the expected variability absorbed by the Company through its liquidity arrangements and other fees earned, and the investors in commercial paper and medium-term notes. While the notional amounts of the subordinate loss notes are quantitatively small compared to the size of the conduits, this is reflective of the fact that most of the substantive risks of the conduits are absorbed by the enhancements provided by the sellers (customers) and other third parties that provide transaction-level credit enhancement. Because FIN 46(R) requires these risks and related enhancements to be excluded from the analysis, the remaining risks and expected variability are quantitatively small. The calculation of variability under FIN 46(R) focuses primarily onexpected variability, rather than the risks associated with extreme outcomes (for example, large levels of default) that are expected to occur very infrequently. So while the subordinate loss notes are sized appropriately compared to expected losses as measured in FIN 46(R), they do not provide significant protection against extreme or unusual credit losses.
Third-Party Commercial Paper Conduits
The Company also provides liquidity facilities to single-andsingle- 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. TheAs of March 31, 2009, the notional amount of these facilities iswas approximately $1.3$1.2 billion as of September 30, 2008, and $2.2 billion as of December 31, 2007. The conduits received $25$2 million of funding as of September 30, 2008, compared to zero as of December 31, 2007.was funded under these facilities.
Collateralized Debt and Loan Obligations
A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and/orand synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs and placing debt securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued notes.
Collateralized Loan Obligations 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 vehicles 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. Both types of CDOs are typically managed by a third-party asset manager. 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. In a typical cash CDO, a third-party investment manager selects a portfolio of assets, which the Company funds through a warehouse financing arrangement prior to the creation of the CDO. The Company then sells the debt securities to the CDO in exchange for cash raised through the issuance of notes. The Company's continuing involvement in cash CDOs is typically limited to investing in a portion of the notes or loans issued by the CDO and making a market in those securities, and acting as derivative counterparty for interest rate or foreign currency swaps used in the structuring of the CDO.
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 CDO's obligations on the credit default swaps written to counterparties. The Company's continuing involvement in synthetic CDOs generally includes purchasing credit protection through credit default swaps with the CDO, owning a portion of the capital structure of the CDO, 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, lending to the CDO, and making a market in those funded notes.
A 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.
CertainConsolidation
The Company has retained significant portions of the assets"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, exposure amounts relateat the time of structuring, were senior to CLO warehouses, wherebytranches rated AAA by independent rating agencies. These positions include facilities structured in the form of short-term commercial paper, where the Company provideswrote 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 + 35bps to LIBOR + 40 bps), the Company
was obligated to fund the senior financingtranche of the CDO at a specified interest rate. As of March 31, 2009, the Company had purchased all $25 billion of the commercial paper subject to these liquidity puts.
Since inception of many CDO transactions, the subordinate tranches of the CDOs have diminished significantly in value and in rating. The declines in value of the subordinate tranches and in the super senior tranches indicate that the super senior tranches are now exposed to a significant portion of the expected losses of the CDOs, based on current market assumptions. The Company evaluates these transactions for consolidation when reconsideration events occur, as defined in FIN 46(R).
Upon a reconsideration event, the Company is at risk for consolidation only if the Company owns a majority of either a single tranche or a group of tranches that absorb the remaining risk of the CDO. Due to reconsideration events during 2007 and 2008, the Company has consolidated 33 of the 51 CDOs/CLOs in which the Company holds a majority of the senior interests of the transaction.
The Company continues to monitor its involvement in unconsolidated VIEs and if the Company were to acquire additional interests in these vehicles or if the CDOs' contractual arrangements were to be changed to reallocate expected losses or residual returns among the various interest holders, the Company may be required to consolidate the CDOs. For cash CDOs, the net result of such consolidation would be to gross up the Company's balance sheet by the current fair value of the subordinate securities held by third parties, which amounts are not considered material. For synthetic CDOs, the net result of such consolidation may reduce the Company's balance sheet by eliminating intercompany derivative receivables and payables in consolidation.
Cash Flows and Retained Interests
The following tables summarize selected cash flow information related to CDO and CLO to purchase assetssecuritizations for the three months ended March 31, 2009:
| In billions of dollars | CDOs | CLOs | |||||
|---|---|---|---|---|---|---|---|
| Cash flows received on retained interests | — | — | |||||
The key assumptions, used for the securitization of CDOs and CLOs during the warehouse period.three months ended March 31, 2009, in measuring the fair value of retained interests at the date of sale or securitization, are as follows:
| CDOs | CLOs | |||
|---|---|---|---|---|
| Discount rate | 43.3% to 47.2% | 5.5% to 6.0% | ||
The senior financingeffect of two negative changes in discount rates used to determine the fair value of retained interests is repaid upon issuance of notes to third-parties.disclosed below.
| In millions of dollars | CDOs | CLOs | ||||||
|---|---|---|---|---|---|---|---|---|
| Carrying value of retained interests | $ | 236 | $ | 1,043 | ||||
| Discount rates | ||||||||
| Adverse change of 10% | $ | (26 | ) | $ | (17 | ) | ||
| Adverse change of 20% | (50 | ) | (33 | ) | ||||
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, and related loan loss reserves are reported as part of the Company's Allowance for loan losses. FinancingCompany. Financings in the form of debt securities or derivatives is,are, in most circumstances, reported inTrading account assets and accounted for at fair value through earnings.
The primary types of asset-based financing, total assets of the unconsolidated VIEs with significant involvement and the Company's maximum exposure to loss at March 31, 2009 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.
| In billions of dollars Type | Total assets | Maximum exposure | |||||
|---|---|---|---|---|---|---|---|
| Commercial and other real estate | $ | 48.4 | $ | 9.1 | |||
| Hedge funds and equities | 15.9 | 6.5 | |||||
| Corporate loans | 7.4 | 6.3 | |||||
| Airplanes, ships and other assets | 14.2 | 2.9 | |||||
| Total | $ | 85.9 | $ | 24.8 | |||
The following table summarizes selected cash flow information related to asset-based financing for the three months ended March 31, 2009 and 2008:
| | Three months ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
| Cash flows received on retained interests and other net cash flows | $ | 1.9 | $ | — | |||
The effect of two negative changes in discount rates used to determine the fair value reported in earnings.of retained interests is disclosed below.
| In millions of dollars | Asset based financing | ||||
|---|---|---|---|---|---|
| Carrying value of retained interests | $ | 4,695 | |||
| Value of underlying portfolio | |||||
| Adverse change of 10% | $ | (480 | ) | ||
| Adverse change of 20% | (960 | ) | |||
Municipal Securities Tender Option Bond (TOB) Trusts
The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state or local municipalities. The trusts are typically single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating rate notes ("Floaters")(Floaters) and junior residual securities ("Residuals")(Residuals). 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. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.
The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts and QSPE TOB trusts.
Credit rating distribution is based on the external rating of the municipal bonds within the TOB trusts, including any credit enhancement provided by monoline insurance companies or the Company in the primary or secondary markets, as discussed below. The total assets for proprietary TOB Trusts (consolidated and non-consolidated) includes $0.4 billion of assets where the Residuals are held by a hedge fund that is consolidated and managed by the Company.
The TOB trusts fund the purchase of their assets by issuing Floaters along with Residuals, which are frequently less than 1% of a trust's total funding. The tenor of the Floaters matches the maturity of the TOB trust and is equal to or shorter than the tenor of the municipal bond held by the trust, and the Floaters bear interest rates that are typically reset weekly to a new market rate (based on the SIFMA index). Floater holders have an option to tender the Floaters they hold back to the trust periodically. Customer TOB trusts issue the Floaters and Residuals to third parties. Proprietary and QSPE TOB trusts issue the Floaters to third parties and the Residuals are held by the Company.
Approximately $3.4 billion of the municipal bonds owned by TOB trusts have an additional credit guarantee provided by the Company. In all other cases, the assets are either unenhanced or are insured with a monoline insurance provider in the primary market or in the secondary market. While the trusts have not encountered any adverse credit events as defined in the underlying trust agreements, certain monoline insurance companies have experienced downgrades. In these cases, the Company has proactively managed the TOB programs by applying additional secondary market insurance on the assets or proceeding with orderly unwinds of the trusts.
The Company, in its capacity as remarketing agent, facilitates the sale of the Floaters to third parties at inception of the trust and facilitates the reset of the Floater coupon and tenders of 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) or may choose to buy the Floaters into its own inventory and may continue to try to sell it to a third-party investor. While the level of the Company's inventory of Floaters fluctuates, the Company held approximately $1.6 billion of Floater inventory related to the Customer, Proprietary and QSPE TOB programs as of March 31, 2009.
If a trust is unwound early due to an event other than a credit event on the underlying municipal bond, the underlying municipal bond is sold in the secondary market. If there is an accompanying shortfall in the trust's cash flows to fund the redemption of the Floaters after the sale of the underlying municipal bond, the trust draws on a liquidity agreement in an amount equal to the shortfall. Liquidity agreements are generally provided to the trust directly by the Company. 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 municipal bond. These reimbursement agreements are actively margined based on changes in value of the underlying municipal bond to mitigate the Company's counterparty credit risk. In cases where a third party provides liquidity to a proprietary or QSPE 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 March 31, 2009, liquidity agreements provided with respect to customer TOB trusts totaled $6.1 billion, offset by reimbursement agreements in place with a notional amount of $4.7 billion. The remaining exposure relates to TOB transactions where the Residual owned by the customer is at least 25% of the bond value at the inception of the transaction. In addition, the Company has provided liquidity arrangements with a notional amount of $5.0 billion to QSPE TOB trusts and other non-consolidated proprietary TOB trusts described above.
The Company considers the customer and proprietary TOB trusts (excluding QSPE TOB trusts) to be variable interest entities within the scope of FIN 46(R). Because third-party investors hold the Residual and Floater interests in the customer TOB trusts, the Company's involvement and variable interests include only its role as remarketing agent and liquidity provider. On the basis of the variability absorbed by the customer through the reimbursement arrangement or significant residual investment, the Company does not consolidate the Customer TOB trusts. The Company's residual interestvariable interests in the Proprietary TOB trusts include the Residual as well as the remarking and liquidity agreements with the trusts. On the basis of the variability absorbed through these contracts (primarily the Residual), the Company generally consolidates the Proprietary TOB trusts. Finally, certain proprietary TOB trusts and QSPE TOB trusts are evaluated for bifurcation in accordance with SFAS 133. Any embedded derivatives are separately reportednot consolidated by application of specific accounting literature. For the nonconsolidated proprietary TOB trusts and QSPE TOB trusts, the Company recognizes only its residual investment on its balance sheet at fair value whileand the debt host contracts are classified as available-for-sale securities.third-party financing raised by the trusts is off-balance sheet.
The total assets offollowing table summarizes selected cash flow information related to municipal bond securitizations for the three categories of TOB trusts as of September 30, 2008months ended March 31, 2009 and December 31, 2007 are as follows:2008:
| In billions of dollars | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
TOB trust type | |||||||
Customer TOB Trusts (Not consolidated) | $ | 11.5 | $ | 17.6 | |||
Proprietary TOB Trusts (Consolidated and Non-consolidated) | $ | 19.2 | $ | 22.0 | |||
QSPE TOB Trusts (Not consolidated) | $ | 8.8 | $ | 10.6 | |||
| | Three months ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
| Proceeds from new securitizations | — | $ | 0.1 | ||||
| Cash flows received on retained interests and other net cash flows | — | $ | 0.1 | ||||
Municipal Investments
Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits accordedearned from the affordable housing investments made by the partnership.
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 SPE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument, such as a total returntotal-return swap or a credit defaultcredit-default swap. In turn the SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE 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 SPE's derivative instruments and investing in a portion of the notes issued by the SPE.
Other In certain transactions, the investor's maximum risk of loss is limited and the Company absorbs risk of loss above a specified level.
Other vehicles includeThe Company's maximum risk of loss in these transactions is defined as the Company'samount invested in notes issued by the SPE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the SPE. The derivative instrument held by the Company may generate a receivable from the SPE (for example, where the Company purchases credit protection from the SPE in connection with the SPE's issuance of a credit-linked note), which is collateralized by the assets owned by the SPE. These derivative instruments are not considered variable interests under FIN 46(R) and any associated receivables are not included in entities establishedthe calculation of maximum exposure to facilitate various client financing transactions as well as a variety of investment partnerships.the SPE.
Structured Investment Vehicles
OnStructured Investment Vehicles (SIVs) are SPEs that issue junior notes and senior debt (medium-term notes and short-term commercial paper) to fund the purchase of high quality assets. The Company acts as manager for the SIVs and, prior to December 13, 2007, aswas not contractually obligated to provide liquidity facilities or guarantees to the SIVs.
As a result of providing mezzanine financinga commitment to provide support facilities to the SIVs the terms of which were finalizedannounced on February 12, 2008, the CompanyDecember 13, 2007, Citigroup became the SIVs' primary beneficiary of the SIVs and began consolidating these entities.
In order to complete the wind-down of the SIVs, the Company purchased the remaining assets of the SIVs at fair value, with a trade date of November 18, 2008. The Company increased its mezzanine financingfunded the purchase of the SIV assets by assuming the obligation to $4.5pay amounts due under the medium-term notes issued by the SIVs, as the medium-term notes mature. The net funding provided by the Company to fund the purchase of the SIV assets was $0.3 billion. During the period to November 18, 2008, the Company wrote down $3.3 billion reflecting an increaseon SIV assets.
As of $1March 31, 2009, the carrying amount of the purchased SIV assets was $16.2 billion, from the original $3.5of which $16.1 billion financing. This additional mezzanine financing was funded subsequent to September quarter-end.is classified as HTM assets.
Investment Funds
The Company is the investment manager for certain VIEsinvestment 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. As of September 30, 2008 and December 31, 2007 the total amount invested in these funds was $0.3 billion and $0.2 billion, respectively.
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 a recourse and non-recourse basis for a portion of the employees' investment commitments.
Certain Fixed Income Funds Managed by Institutional Clients Group
Falcon multi-strategy fixed income funds
On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Institutional Clients Group. As a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the Falcon funds were approximately $1.3 billion.
ASTA/MAT municipal funds
On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Institutional Clients Group that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the MOFs were approximately $1.5 billion.
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. These trusts have no other assets, and no 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. These trusts' obligations are fully and unconditionally guaranteed by the Company.
Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R,46(R), even though the Company 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 balance sheet as long-term liabilities.
16. DERIVATIVES ACTIVITIES
In the ordinary course of business, Citigroup enters into various types of derivative transactions. These derivative transactions include:
Citigroup enters into these derivative contracts relating to interest rate, foreign currency, commodity, and other market/credit risks for the following reasons:
A more detailed explanation of Citi's use of and exposure to credit derivatives is provided in Footnote 19—Guarantees.
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 collectibility. 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 March 31, 2009 are presented in the table below:
| | Hedging Instruments under SFAS 133(1) | Other Derivative Instruments | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars at March 31, 2009 | | Trading Derivatives(2) | Management Hedges(3) | ||||||||
| Interest rate contracts | |||||||||||
| Swaps | $ | 119,966 | $ | 13,903,004 | $ | 154,726 | |||||
| Futures and forwards | — | 3,262,752 | 97,827 | ||||||||
| Written options | — | 2,970,815 | 18,038 | ||||||||
| Purchased options | — | 3,045,784 | 45,244 | ||||||||
| Total interest rate contract notionals | $ | 119,966 | $ | 23,182,355 | $ | 315,835 | |||||
| Foreign exchange contracts | |||||||||||
| Swaps | $ | 29,166 | $ | 855,791 | $ | 40,307 | |||||
| Futures and forwards | 33,536 | 1,824,123 | 30,756 | ||||||||
| Written options | 1,329 | 435,205 | 7,929 | ||||||||
| Purchased options | 6,258 | 474,608 | — | ||||||||
| Total foreign exchange contract notionals | $ | 70,289 | $ | 3,589,727 | $ | 78,992 | |||||
| Equity contracts | |||||||||||
| Swaps | $ | — | $ | 73,126 | $ | — | |||||
| Futures and forwards | — | 14,060 | — | ||||||||
| Written options | — | 470,176 | — | ||||||||
| Purchased options | — | 442,612 | — | ||||||||
| Total equity contract notionals | $ | — | $ | 999,974 | $ | — | |||||
| Commodity and other contracts | |||||||||||
| Swaps | $ | — | $ | 22,516 | $ | — | |||||
| Futures and forwards | — | 72,103 | — | ||||||||
| Written options | — | 29,722 | — | ||||||||
| Purchased options | — | 33,303 | — | ||||||||
| Total commodity and other contract notionals | $ | — | $ | 157,644 | $ | — | |||||
| Credit derivatives(4) | |||||||||||
| Citigroup as the Guarantor | $ | — | $ | 1,406,131 | $ | — | |||||
| Citigroup as the Beneficiary | 6,321 | 1,537,176 | — | ||||||||
| Total credit derivatives | $ | 6,321 | $ | 2,943,307 | $ | — | |||||
| Total derivative notionals | $ | 196,576 | $ | 30,873,007 | $ | 394,827 | |||||
Mark-to-Market (MTM) Receivables/Payables
| | Derivative instruments designated as SFAS 133 hedges | Other derivative instruments | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars at March 31, 2009 | Assets | Liabilities | Assets | Liabilities | ||||||||||
| Derivatives classified in Trading account assets/liabilities | ||||||||||||||
| Interest rate contracts | $ | 553 | $ | 1,785 | $ | 614,499 | $ | 593,399 | ||||||
| Foreign exchange contracts | 829 | 523 | 105,416 | 113,762 | ||||||||||
| Equity contracts | — | — | 31,061 | 49,126 | ||||||||||
| Commodity and other contracts | — | — | 26,582 | 24,832 | ||||||||||
| Credit derivatives | — | — | 237,819 | 212,786 | ||||||||||
| Total derivatives in Trading account assets/liabilities(1) | $ | 1,382 | $ | 2,308 | $ | 1,015,377 | $ | 993,905 | ||||||
| Derivatives classified in Other assets/liabilities | ||||||||||||||
| Interest rate contracts | $ | 6,479 | $ | 3,303 | $ | 3,599 | $ | 1,767 | ||||||
| Foreign exchange contracts | 2,869 | 2,448 | 1,984 | 1,161 | ||||||||||
| Credit derivatives | 1,597 | — | — | — | ||||||||||
| Total Derivatives in Other Assets / Liabilities(2) | $ | 10,945 | $ | 5,751 | $ | 5,583 | $ | 2,928 | ||||||
All derivatives are reported on the balance sheet at fair value. The balances presented in the table above are reported gross, prior to counterparty netting and cash collateral netting in accordance with existing master netting agreements, as well as market valuation adjustment. The effect from these items on the gross derivative assets and liabilities was a reduction of $986,064 million and $976,815 million, respectively. Within these balances, the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivative was $48,937 million, while the amount of receivables in respect of cash collateral paid that was netted with unrealized losses from derivatives was $56,376 million as of March 31, 2009.
The trading derivatives fair values are presented in Note 9—Trading Account Assets and Liabilities.
The amounts recognized in the Consolidated Statement of Income for the quarter ended March 31, 2009 related to derivatives not designated in a qualifying SFAS 133 hedging relationship are shown in the table below:
| | Non-designated derivatives(1)—gains (losses) | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of dollars for the three months ended March 31, 2009 | Principal transactions | Other revenues | ||||||
| Interest rate contracts | $ | 6,155 | $ | 228 | ||||
| Foreign exchange contracts | 250 | 996 | ||||||
| Equity contracts | (85 | ) | — | |||||
| Commodity and other contracts | 337 | — | ||||||
| Credit derivatives | 338 | — | ||||||
| Total gain (loss) on non-designated derivatives(1) | $ | 6,995 | $ | 1,224 | ||||
Accounting for Derivative Hedging
Citigroup accounts for its hedging activityactivities in accordance with SFAS 133. As a general rule, SFAS 133 hedge accounting is permitted for those situations where the Company is exposed to a particular risk, such as interest rateinterest-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 asfair value hedges,, while contracts hedging the risks affecting the expected future cash flows are calledcash flow hedges.hedges. Hedges that utilize derivatives or debt instruments to manage the foreign exchange risk associated with equity investments in non-U.S.-dollarnon-U.S. dollar functional currency foreign subsidiaries (net investment in a foreign operation) are callednet investment hedges.
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 is included in this netting. However, non-cash collateral is not included.
As of September 30, 2008 and December 31, 2007, the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivatives was $29 billion and $26 billion, respectively, while the amount of receivables in respect of cash collateral paid that was netted with unrealized losses from derivatives was $27 billion and $37 billion, respectively.hedges.
If certain hedging criteria specified in SFAS 133 are met, including testing for hedge effectiveness, special hedge accounting may be applied. The hedge-effectivenesshedge effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair-valuefair 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-flowcash flow hedges and net-investmentnet 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 wasis effective. Hedge ineffectiveness, in either case, is reflected in current earnings.
Continuing with the example referred to above, for Asset/Liability Management Hedging,For asset/liability management hedging, the fixed-rate long-term debt may be recorded at amortized cost under current U.S. GAAP. However, by electing to use SFAS 133 hedge accounting, the carrying value of this notethe 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, an economic hedge, which does not meet the SFAS 133 hedging criteria, would involve only recording 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 the underlying yield of the debt. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved or management decides not to apply SFAS 133 hedge accounting. Another alternative for the Company would be to elect to carry the notedebt at fair value under SFAS 159. Once the irrevocable election is made upon issuance of the note,debt, the full change in fair value of the notedebt would be reported in earnings. The related interest rate swap, with changes in fair value also reflected in earnings, provides a natural offset to the note'sdebt's fair value change. To the extent the two offsets would not be exactly equal, the difference would be reflected in current earnings. This type of economic hedge is undertaken when the Company prefers to follow this simpler method that achieves generally similar financial statement results to an SFAS 133 fair-value hedge.
Key aspects of achieving SFAS 133 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-valueFair value hedges
Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale debt securities and interbank placements.loans. The hedging instruments used are receive-variable, pay-fixed interest rate swaps and future contracts.swaps. Most of these fair-value hedging relationships use dollar-offset ratio analysis to assessdetermine whether the hedging relationships are highly effective at inception and on an ongoing basis, while certain others use regression analysis.
For a small number of fair-value hedges of benchmark interest-rate risk, Citigroup uses the "shortcut" method as SFAS 133 allows the Company to assume no ineffectiveness if the hedging relationship involves an interest-bearing financial asset or liability and an interest-rate swap. In order to assume no ineffectiveness, Citigroup ensures that all the shortcut method requirements of SFAS 133 for these types of hedging relationships are met. The amount of shortcut method hedges that Citigroup uses is de minimis.
The following table summarizes certain information related to the Company's fair value hedges for the quarter ended March 31, 2009:
| In millions of dollars for the three months ended March 31, 2009 | Principal Transactions | Other Revenue | ||||||
|---|---|---|---|---|---|---|---|---|
| Gain (loss) on fair value designated and qualifying hedges | ||||||||
| Interest rate contracts | $ | 456 | $ | (2,199 | ) | |||
| Foreign exchange contracts | 117 | (145 | ) | |||||
| Total gain (loss) on fair value designated and qualifying hedges | $ | 573 | $ | (2,344 | ) | |||
| Gain (loss) on the hedged item in designated and qualifying fair value hedges | ||||||||
| Interest rate hedges | $ | (449 | ) | $ | 2,444 | |||
| Foreign exchange hedges | 155 | 288 | ||||||
| Total gain (loss) on the hedged item in designated and qualifying fair value hedge | $ | (294 | ) | $ | 2,732 | |||
| Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | ||||||||
| Interest rate hedges | $ | 81 | $ | 255 | ||||
| Foreign exchange hedges | 11 | 137 | ||||||
| Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | $ | 92 | $ | 392 | ||||
| Net gain (loss) excluded from assessment of the effectiveness of fair value hedges | ||||||||
| Interest rate contracts | $ | (74 | ) | $ | (10 | ) | ||
| Foreign exchange contracts | 261 | 6 | ||||||
| Total net gain/(loss) excluded from assessment of the effectiveness of fair value hedges | $ | 187 | $ | (4 | ) | |||
Cash-flowCash flow hedges
Citigroup is currently not using The hedge ineffectiveness on the shortcut methodcash flow hedges recognized in earnings totals $4 million for any cash-flow hedging relationships.
The change in Accumulated other comprehensive income (loss) from cash flow hedges for the three months ended March 31, 2009 is presented below:
| In millions of dollars | Three months ended March 31, 2009 | ||||
|---|---|---|---|---|---|
| Effective portion of cash flow hedges included in AOCI, pretax | |||||
| Interest rate contracts | $ | 168 | |||
| Foreign exchange contracts | 400 | ||||
| Credit derivatives | 1,493 | ||||
| Total Effective portion of cash flow hedges included in AOCI, pretax | $ | 2,061 | |||
| Effective portion of cash flow hedges reclassified from AOCI to Earnings | |||||
| Interest rate contracts(1) | $ | 412 | |||
| Foreign exchange contracts(2) | 86 | ||||
| Credit derivatives | — | ||||
| Total effective portion of cash flow hedges reclassified from AOCI to Earnings | $ | (326 | ) | ||
Hedging the overall For cash flow hedges, any changes in cash flows—the fair value of the end-user derivative remaining inAccumulated other comprehensive income (loss)In situations where on the contractual rateConsolidated Balance Sheet will be included in earnings of a variable-rate asset or liability is not a benchmark rate, Citigroup designatesfuture periods to offset the riskvariability of overall changes inthe hedged cash flows as the hedged risk. Citigroup primarily hedges variability in the totalwhen such cash flows related to non-benchmark-rate-based liabilities and uses receive-variable, pay-fixed interest rate swaps as the hedging instrument. Theseaffect earnings. The net loss associated with cash flow hedging relationships use regression analysishedges expected to assess effectiveness at inception andbe reclassified fromAccumulated other comprehensive income within 12 months of March 31, 2009 is approximately $2.2 billion.
The impact of cash flow hedges on an ongoing basis.AOCI is also included within Note 14 to the Consolidated Financial Statements—Changes in Accumulated Comprehensive Income (Loss).
Net investment hedges
Consistent with SFAS No. 52, "ForeignForeign Currency Translation"Translation (SFAS 52), SFAS 133 allows hedging of the foreign-currency risk of a net investment in a foreign operation. Citigroup primarily uses foreign-currency forwards, options and 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. In accordance with SFAS 52, Citigroup records the change in the carrying amount of these investments in the cumulativeCumulative translation adjustment account withinAccumulated other comprehensive income (loss). Simultaneously, the effective portion of the hedge of this exposure is also recorded in the cumulativeCumulative 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 rateforward-rate method from FASB Derivative Implementation Group Issue H8.H8, "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 rateforward-rate component of the foreign-currency forward contracts and the time valuetime-value of foreign currency option,foreign-currency options, are recorded in the cumulativeCumulative translation adjustment account. For foreign-currency-denominatedforeign-currency denominated debt instruments that are designated as hedges of net investments, the translation gain or loss that is recorded in the cumulative 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 thea non-derivative debt instrument, such instrument is denominated in the functional currency of the net investment), no ineffectiveness is recorded in earnings.
Key aspects of achieving SFAS 133 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.
The following table summarizes certain information related to the Company's hedging activitiesnet investment hedges for the quarter ended March 31, 2009:
Net Investments Hedges(1) In millions of dollars | Three months ended March 31, 2009 | |||
|---|---|---|---|---|
| Pretax gain included in FX translation adjustment with AOCI | $ | 539 | ||
| Gain on hedge ineffectiveness on net investment hedges included in Other revenue | 9 | |||
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 rating of the Company and 2007:
| | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||
Fair value hedges | |||||||||||||
Hedge ineffectiveness recognized in earnings | $ | (24 | ) | $ | 85 | $ | 60 | $ | 93 | ||||
Net gain (loss) excluded from assessment of effectiveness | (61 | ) | 120 | 79 | 375 | ||||||||
Cash flow hedges | |||||||||||||
Hedge ineffectiveness recognized in earnings | (6 | ) | — | (21 | ) | — | |||||||
Net gain (loss) excluded from assessment of effectiveness | (2 | ) | — | (5 | ) | — | |||||||
Net investment hedges | |||||||||||||
Net gain (loss) included in foreign currency translation adjustment within Accumulated other comprehensive income | $ | 1,444 | $ | (572 | ) | $ | 967 | $ | (716 | ) | |||
For cash-flow hedges, any changes in theits affiliates. The fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position at March 31, 2009 is $27 billion. The Company has posted $18 billion as collateral for this exposure in the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earningsnormal course of future periods to offset the variabilitybusiness as of the hedged cash flows when such cash flows affect earnings.
The change in Accumulated other comprehensive income (loss) from cash-flow hedgesMarch 31, 2009. Each downgrade would trigger additional collateral requirements for the threeCompany and nine months ended September 30, 2008 and 2007 can be summarized as follows (after-tax):
| In millions of dollars | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
Beginning balance, January 1, | $ | (3,163 | ) | $ | (61 | ) | |
Net (loss) from cash flow hedges | (1,833 | ) | (347 | ) | |||
Net amounts reclassified to earnings | 195 | (92 | ) | ||||
Ending balance, March 31, | $ | (4,801 | ) | $ | (500 | ) | |
Net gain from cash flow hedges | $ | 752 | $ | 1,127 | |||
Net amounts reclassified to earnings | 126 | (81 | ) | ||||
Balance at June 30, | $ | (3,923 | ) | $ | 546 | ||
Net gain (loss) from cash flow hedges | $ | 192 | $ | (1,949 | ) | ||
Net amounts reclassified to earnings | 256 | (54 | ) | ||||
Balance at September 30, | $ | (3,475 | ) | $ | (1,457 | ) | |
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 values, 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 lossits affiliates. However, in the event that each legal entity was downgraded to below investment grade credit rating as of nonperformance byMarch 31, 2009, the other partyCompany would be required to the transaction where the valuepost additional collateral of any collateral held is not adequateup to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. 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.$10 billion.
17. FAIR VALUEFAIR-VALUE MEASUREMENT (SFAS 155, SFAS 156, SFAS 157, and SFAS 159)157)
Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair-value accounting.157. SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair-value measurements. SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, SFAS 157 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which discounts were previously applied to large holdings of publicly traded equity securities. It also requires recognition of trade-date gains related to certain derivative transactions whose fair value has been determined using unobservable market inputs. This guidance supersedes the guidance in Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF Issue 02-3), which prohibited the recognition of trade-date gains for such derivative transactions when determining the fair value of instruments not traded in an active market.
As a result of the adoption of SFAS 157, the Company has made some amendments to the techniques used in measuring the fair value of derivative and other positions. These amendments change the way that the probability of default of a counterparty is factored into the valuation of derivative positions, include for the first time the impact of Citigroup's own credit risk on derivatives and other liabilities measured at fair value, and also eliminate the portfolio servicing adjustment that is no longer necessary under SFAS 157.
Under SFAS 159, 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. After the initial adoption, the election is made at 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.
Additionally, the transition provisions of SFAS 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in opening retained earnings and future changes in fair value reported in earnings.
The Company also has elected the fair value accounting provisions permitted under FASB Statement No. 155, "Accounting for Certain Hybrid Financial Instruments" (SFAS 155), and FASB Statement No 156, "Accounting for Servicing of Financial Assets" (SFAS 156) for certain assets and liabilities. In accordance with SFAS 155, which was primarily adopted on a prospective basis, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. Additional discussion regarding the applicable areas in which SFAS 155 was adopted is presented below.
SFAS 156 requires all servicing rights to be recognized initially at fair value. At its initial adoption, the standard permits a one-time irrevocable election to re-measure each class of servicing rights at fair value, with the changes in fair value recorded in current earnings. The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. The Company has elected fair-value accounting for its mortgage and student loan classes of servicing rights. The impact of adopting this standard was not material. See Note 15 on page 109 for further discussions regarding the accounting and reporting of mortgage servicing rights.
Fair-Value Hierarchy
SFAS 157 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 transaction,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.
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 under SFAS 159, SFASFASB Statement No. 155,Accounting for Certain Hybrid Financial Instruments (SFAS 155), or SFASFASB Statement No. 156,Accounting for Servicing of Financial Assets (SFAS 156), 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 in 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 in 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 valueFair-value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors and brokersbrokers' 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 valuefair-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 as well as 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, such instruments are classified within Level 2 of the fair-value hierarchy as the inputs used in the fair valuation are readily observable.
Trading Account Assets—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 in 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 valuesFair-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 withinin Level 3 of the fair valuefair-value hierarchy. However, for other loan securitization markets, such as those related to conforming prime fixed ratefixed-rate and conforming adjustable-rate mortgage loans, pricing verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, these loan portfolios are classified as Level 2 withinin the fair valuefair-value hierarchy.
Trading Account Assets and Liabilities—Derivatives
Exchange-traded derivatives are generally fair valued using quoted market (i.e., exchange) prices and so are classified withinin 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.
Subprime-Related Direct Exposures in CDOs
The Company accounts for its CDO super senior subprime direct exposures and the underlying securities on a fair-value basis with all changes in fair value recorded in earnings. Citigroup's CDO super senior subprime direct exposures are not subject to valuation based on observable transactions. Accordingly, the fair value of these exposures is based on management's best estimates based on facts and circumstances as of the date of these consolidated financial statements.Consolidated Financial Statements.
Citigroup's CDO super senior subprime direct exposures are Level 3 assets. The valuation of the high-grade and mezzanine ABS CDO positions uses trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. Unlike the ABCP- and CDO-squared positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are, by necessity, trader priced. This results in closer symmetry in the way these long and short positions are valued by the Company. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.
The valuation of the ABCP and CDO-squared positions are subject to valuation based on significant unobservable inputs. Fair value of these exposures (other than high grade and mezzanine as described below) is based on estimates of future cash flows from the
mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios, the Company estimates the prepayments, defaults and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates and borrower and loan attributes, such as age, credit scores, documentation status, loan-to-value (LTV) ratios and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each ABCP and CDO-squared tranche, in order to estimate its fair value under current fair value.market conditions.
When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the quarter along with discount rates that are based upon a weighted average combination of implied spreads from single name ABS bond prices and ABX indices, as well as CLO spreads.spreads under current market conditions.
As was the case in the second quarter of 2008, the third quarterThe housing-price changes were estimated using a forward-looking projection. However, for third quarter 2008, this projection, incorporateswhich incorporated the Loan Performance Index, whereas in second quarter 2008, it incorporated the S&P Case Shiller Index. This change was made because the Loan Performance Index provided more comprehensive geographic data. In addition, the Company's mortgage default model has been updated foralso uses recent mortgage performance data, from the first half of 2008, a period of sharp home price declines and high levels of mortgage foreclosures.
The valuation as of September 30, 2008March 31, 2009 assumes a cumulative decline in U.S. housing prices from peak to trough of 32%33%. This
rate assumes declines of 16%9.3% and 10%3.9% in 20082009 and 2009,2010, respectively, the remainder of the 32%33% decline having already occurred before the end of 2007. The valuation methodology as of June 30, 2008 assumed a cumulative decline in U.S. housing prices from peak to trough of 23%, with assumed declines of 12% and 3% in 2008 and 2009, respectively.2008.
In addition, during the second and third quarters of 2008, the discount rates were based on a weighted average combination of the implied spreads from single name ABS bond prices, ABX indices and CLO spreads, depending on vintage and asset types. To determine the discount margin, the Company applies the mortgage default model to the bonds underlying the ABX indices and other referenced cash bonds and solves for the discount margin that produces the current market prices of those instruments. Using this methodology, the impact of the decrease of the home price appreciation projection from -23% to -32% resulted in a decrease in the discount margins incorporated in the valuation model.
For the third quarter of 2008, the valuation of the high grade and mezzanine ABS CDO positions was changed from model valuation to trader prices based on the underlying assets of each high grade and mezzanine ABS CDO. Unlike the ABCP and CDO-squared positions, the high grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are by necessity, trader priced. Thus, this change brings closer symmetry in the way these long and short positions are valued by the Company. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.
The primary drivers that currently impact the super senior valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance.
Given the above, the Company's CDO super senior subprime direct exposures were classified in Level 3 of the fair-value hierarchy.
For most of the lending and structuring direct subprime exposures (excluding super seniors), 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 theS&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 specificindustry-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.
Private equity securities are generally classified in Level 3 of the fair valuefair-value hierarchy.
Short-Term Borrowings and Long-Term Debt
TheWhere fair-value accounting has been elected, the fair value of non-structured liabilities is determined by discounting expected cash flows using the appropriate discount rate for the applicable maturity. Such instruments are generally classified in Level 2 of the fair-value hierarchy as all inputs are readily observable.
The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) and hybrid financial instruments (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 in Level 2 or Level 3 depending on the observability of significant inputs to the model.
Market Valuation Adjustments
Liquidity adjustments are applied to items in Level 2 orand Level 3 of the fair-value hierarchy to ensure that the fair value reflects the price at which the entire position could be liquidated. The liquidity reserve is based on the bid/offerbid-offer spread for an instrument, adjusted to take into account the size of the position.
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, in accordance with the requirements of SFAS 157.
Counterparty and own credit adjustments consider the estimated 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 Securitiesrate securities (ARS) are long-term municipal bonds, corporate bonds, securitizations and preferred stocks with interest rates or dividend yields that are re-setreset 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'"fail rate" coupon, which is specified by 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 timeframe. 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 September 30, 2008,March 31, 2009, Citigroup continued to act in the capacity of primary dealer for approximately $41$35 billion of outstanding ARS.
The Company classifies its ARS as held-to-maturity, available-for-sale and trading securities and accounts for them on a fair value basis with all changes in fair value recorded in earnings.securities.
Prior to our first auctionauction's 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
and 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 value of ARS is currently estimated using internally developed discounted cash flow valuation techniques specific to the nature of the assets underlying each ARS.
For ARS with U.S. municipal securities as underlying assets, future cash flows are estimated based on the terms of the securities underlying each individual ARS and discounted at an estimated discount rate in order to estimate the current fair value. The key assumptions that impact the ARS valuations are estimated prepayments and re-financings,refinancings, estimated fail rate coupons (i.e., the rate paid in the event of auction failure, which varies according to the current credit rating of the issuer), 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 straight issuances of other municipal securities. In order to arrive at the appropriate discount rate, these observed rates were adjusted upwardsupward to factor in the specifics of the ARS structure being valued, such as callability, and the illiquidity in the ARS market.
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 discount 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 vanillabasic 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 upwardsupward to factor in the specifics of the ARS structure being valued, such as callability, and the illiquidity in the ARS market.
During the first quarter of 2008, ARS for which the auctions failed and where no secondary market has developed were moved to Level 3, as the assets were subject to valuation using significant unobservable inputs. TheFor ARS which are subject to SFAS 157 classification, the majority of these ARS continuedcontinue to be classified in Level 3 since then.3.
Alt-A Mortgage Securities
The Company reportsclassifies its Alt-A mortgage securities inas Held-to-Maturity, Available-for-Sale, and Trading account assetsinvestments. The securities classified as trading and available-for-sale Investments. In both cases the securities are recorded at fair value with changes in fair value reported in current earnings and OCI,AOCI, respectively. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: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 value of Alt-A mortgage securities utilizing internal valuation techniques. Fair valueFair-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 that 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 in 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-saleAvailable-for-sale investments, which are carried at fair value with changes in fair valuefair-value reported in OCI.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 valueFair-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 reduced liquidity currently 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 specificindustry-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 in Level 3 of the fair valuefair-value hierarchy.
The following table presents, as of September 30, 2008, those positions selected for fair-value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the changes in fair value for the nine months ended September 30, 2008 and September 30, 2007.
| | | Changes in fair value gains (losses) | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year-to-Date 2008 | Year-to-Date 2007 | ||||||||||||||
| In millions of dollars | September 30, 2008 | Principal transactions | Other | Principal transactions | Other | ||||||||||||
Assets | |||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||||||||||
Selected portfolios of securities purchased under agreements to resell, securities borrowed(1) | $ | 71,768 | $ | 675 | $ | — | $ | 675 | $ | — | |||||||
Trading account assets: | |||||||||||||||||
Legg Mason convertible preferred equity securities originally classified as available-for-sale | $ | — | $ | (13 | ) | $ | — | $ | (90 | ) | $ | — | |||||
Selected letters of credit hedged by credit default swaps or participation notes | 7 | (2 | ) | — | (2 | ) | — | ||||||||||
Certain credit products | 24,211 | (1,143 | ) | — | (592 | ) | — | ||||||||||
Certain hybrid financial instruments | 52 | 3 | — | — | — | ||||||||||||
Retained interests from asset securitizations | 4,217 | (521 | ) | — | 215 | — | |||||||||||
Total trading account assets | $ | 28,487 | $ | (1,676 | ) | $ | — | $ | (469 | ) | $ | — | |||||
Investments: | |||||||||||||||||
Certain investments in private equity and real estate ventures | $ | 665 | $ | — | $ | (54 | ) | $ | — | $ | 44 | ||||||
Certain equity method investments | 1,064 | — | (154 | ) | — | 83 | |||||||||||
Other | 292 | — | (60 | ) | — | 7 | |||||||||||
Total investments | $ | 2,021 | $ | — | $ | (268 | ) | $ | — | $ | 134 | ||||||
Loans: | |||||||||||||||||
Certain credit products | $ | 2,926 | $ | (53 | ) | $ | — | $ | 37 | $ | — | ||||||
Certain mortgage loans | 32 | — | (22 | ) | — | — | |||||||||||
Certain hybrid financial instruments | 504 | 28 | — | $ | (69 | ) | — | ||||||||||
Total loans | $ | 3,462 | $ | (25 | ) | $ | (22 | ) | $ | (32 | ) | $ | — | ||||
Other assets: | |||||||||||||||||
Mortgage servicing rights | $ | 8,346 | $ | — | $ | 568 | $ | — | $ | 1,257 | |||||||
Certain mortgage loans | 6,592 | — | (45 | ) | — | 42 | |||||||||||
Total other assets | $ | 14,938 | $ | — | $ | 523 | $ | — | $ | 1,299 | |||||||
Total | $ | 120,676 | $ | (1,026 | ) | $ | 233 | $ | 174 | $ | 1,433 | ||||||
Liabilities | |||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||
Certain structured liabilities | $ | 380 | $ | — | $ | — | $ | 3 | $ | — | |||||||
Certain hybrid financial instruments | 3,123 | 376 | — | 84 | — | ||||||||||||
Total interest-bearing deposits | $ | 3,503 | $ | 376 | $ | — | $ | 87 | $ | — | |||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||||||||||
Selected portfolios of securities sold under agreements to repurchase, securities loaned(1) | $ | 156,234 | $ | (44 | ) | $ | — | $ | (128 | ) | $ | — | |||||
Trading account liabilities: | |||||||||||||||||
Certain hybrid financial instruments | $ | 10,048 | $ | 2,618 | $ | — | $ | (317 | ) | $ | — | ||||||
Short-term borrowings: | |||||||||||||||||
Certain non-collateralized short-term borrowings | $ | 3,382 | $ | 45 | $ | — | $ | (3 | ) | $ | — | ||||||
Certain hybrid financial instruments | 3,197 | 176 | — | 31 | — | ||||||||||||
Certain structured liabilities | 4 | 10 | — | — | — | ||||||||||||
Certain non-structured liabilities | 724 | — | — | — | — | ||||||||||||
Total short-term borrowings | $ | 7,307 | $ | 231 | $ | — | $ | 28 | $ | — | |||||||
Long-term debt: | |||||||||||||||||
Certain structured liabilities | $ | 2,905 | $ | 446 | $ | — | $ | 47 | $ | — | |||||||
Certain non-structured liabilities | 23,596 | 3,441 | — | 8 | — | ||||||||||||
Certain hybrid financial instruments | 20,981 | 2,335 | — | 806 | — | ||||||||||||
Total long-term debt | $ | 47,482 | $ | 6,222 | $ | — | $ | 861 | $ | — | |||||||
Total | $ | 224,574 | $ | 9,403 | $ | — | $ | 531 | $ | — | |||||||
The fair value of liabilities for which the fair-value option was elected (other than non-recourse and similar liabilities, such as the liabilities of the SIVs consolidated by the Company), was impacted by the widening of the Company's credit spread. The estimated change in the fair value of these liabilities due to such changes in the Company's own credit risk (or instrument-specific credit risk) was a gain of $1,525 million and $112 million for the three months ended September 30, 2008 and September 30, 2007, respectively, and a gain of $2,576 million and $241 million for the nine months ended September 30, 2008 and September 30, 2007, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current observable credit spreads into the relevant valuation technique used to value each liability as described above.
Impact on Retained earnings of certain fair-value elections in accordance with SFAS 159
Detailed below are the December 31, 2006 carrying values prior to adoption of SFAS 159, the transition adjustments booked to opening Retained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption) for those items that were selected for fair-value option accounting and that had an impact on Retained earnings:
| In millions of dollars | December 31, 2006 (carrying value prior to adoption) | Cumulative-effect adjustment to January 1, 2007 retained earnings— gain (loss) | January 1, 2007 fair value (carrying value after adoption) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Legg Mason convertible preferred equity securities originally classified as available-for-sale(1) | $ | 797 | $ | (232 | ) | $ | 797 | |||
Selected portfolios of securities purchased under agreements to resell(2) | 167,525 | 25 | 167,550 | |||||||
Selected portfolios of securities sold under agreements to repurchase(2) | 237,788 | 40 | 237,748 | |||||||
Selected non-collateralized short-term borrowings | 3,284 | (7 | ) | 3,291 | ||||||
Selected letters of credit hedged by credit default swaps or participation notes | — | 14 | 14 | |||||||
Various miscellaneous eligible items(1) | 96 | 3 | 96 | |||||||
Pretax cumulative effect of adopting fair value option accounting | $ | (157 | ) | |||||||
After-tax cumulative effect of adopting fair value option accounting | (99 | ) | ||||||||
Additional information regarding each of these items follows.
Legg Mason convertible preferred equity securities
The Legg Mason convertible preferred equity securities (Legg shares) were acquired in connection with the sale of Citigroup's Asset Management business in December 2005. The Company held these shares as a non-strategic investment for long-term appreciation and, therefore, selected fair-value option accounting in anticipation of the future implementation of the Investment Company Audit Guide Statement of Position 07-1, "Clarification of the Scope of Audit and Accounting GuideAudits of Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investment Companies" (SOP), which was to be effective beginning January 1, 2008. In February 2008, the FASB delayed the implementation of the SOP indefinitely.
Under the current investment company accounting model, investments held in investment company vehicles are recorded at full fair value (where changes in fair value are recorded in earnings) and are not subject to consolidation guidelines. Under the SOP, non-strategic investments not held in investment companies, which are deemed similar to non-strategic investments held in Citigroup's investment companies, must be accounted for at full fair value in order for Citigroup to retain investment company accounting in the Company's Consolidated Financial Statements. Therefore, we have utilized the fair-value option to migrate the Legg shares from available-for-sale (where changes in fair value are recorded in accumulated other comprehensive income (loss)) to a full fair value model (where changes in value are recorded in earnings).
Prior to the election of fair value option accounting, the shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31, 2006 included in Accumulated other comprehensive income (loss). In connection with the Company's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007 Retained earnings as part of the cumulative-effect adjustment.
During the first quarter of 2008, the Company sold the remaining 8.4 million Legg shares at a pretax loss of $10.3 million ($6.7 million after-tax).
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 borrowingsHighly Leveraged Financing Commitments
The Company elected the fair-value option retrospectivelyreports approximately $800 million of highly leveraged loans as held for our United States and United Kingdom portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings). The fair-value option was also elected prospectively in the second quarter of 2007 for certain portfolios of fixed-income securities lending and borrowing transactions based in Japan. In each case, the election was made because these positionssale, which are managedmeasured on a fair valueLOCOM basis. Specifically, related interest-rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings. Previously, these positions were accounted for on an accrual basis.
The cumulative effect of $58 million pretax ($37 million after-tax) from adopting the fair-value option for the U.S. and U.K. portfolios was recorded as an increase in the January 1, 2007 Retained earnings balance. The September 30, 2008 and December 31, 2007 net balances of $71.8 billion and $84.3 billion, respectively, for Securities purchased under agreements to resell and Securities borrowed, and $156.2 billion and $199.9 billion for Securities sold under agreements to repurchase and Securities loaned are included as such in the Consolidated Balance Sheet. The uncollateralized short-term borrowings of $3.4 billion and $5.1billion as of September 30, 2008 and December 31, 2007, respectively, are recorded in that account in the Consolidated Balance Sheet.
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 fair-value accounting for certain letters of credit that are hedged with derivative instruments or participation notes. Upon electing the fair-value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair-value option for these transactions because the risk is managed on a fair-value basis and to mitigate accounting mismatches.
The cumulative effect of $14 million pretax ($9 million after-tax) of adopting fair-value option accounting was recorded as an increase in the January 1, 2007 Retained earnings balance. The change in fair value, as well as the receipt of related fees, were reported as Principal transactions in the Company's Consolidated Statement of Income.
The notional amount of these unfunded letters of credit was $1.4 billion as of September 30, 2008 and December 31, 2007. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at September 30, 2008 and December 31, 2007.
These items have been classified appropriately in Trading account assets or Trading account liabilities on the Consolidated Balance Sheet.
Various miscellaneous eligible items
Several miscellaneous eligible items previously classified as available-for-sale securities were selected for fair-value option accounting. These items were selected in preparation for the adoption of the Investment Company Audit Guide SOP, as previously discussed. In February 2008, the FASB delayed the implementation of this SOP indefinitely.
Other items for which the fair value option was selected in accordance with SFAS 159
The Company has elected the fair-value option for the following eligible items, which did not affect opening Retained earnings:
Certain 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 trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that will either be sold or securitized in the near term, or transactions where the economic risks are hedged with derivative instruments. 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 those management objectives would not be met.
The balances for these loan products, which are classified in Trading account assets or Loans, were $24.2 billion and $2.9 billion as of September 30, 2008, and $26.0 billion and $3.0 billion as of December 31, 2007, respectively. The aggregate unpaid principal balances exceeded the aggregate fair values by $1.6 billion and $894 million as of September 30, 2008 and December 31, 2007, respectively. $77 million and $186 million of these loans were on a non-accrual basis as of September 30, 2008 and December 31, 2007, respectively. For those loans that are on a non-accrual basis, the aggregate unpaid principal balances exceeded the aggregate fair values by $141 million as of September 30, 2008 and $68 million as of December 31, 2007.
In addition, $164 million and $141 million of unfunded loan commitments related to certain credit products selected for fair-value accounting were outstanding as of September 30, 2008 and December 31, 2007, 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 loans depending on their balance sheet classifications. The changes in fair value for the nine months ended September 30, 2008 due to instrument-specific credit risk totaled to a loss of $32 million.
Certain investments in private equity and real estate ventures
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 in anticipation of the future implementation of the Investment Company Audit Guide SOP, because such investments are considered similar to many private equity or hedge fund activities in our investment companies, which are reported at fair value. See previous discussion regarding the SOP. The fair-value option brings consistency in the accounting and evaluation of certain of these investments. As required by SFAS 159, all investments (debt and equity) in such private equity and real estate entities are accounted for at fair value.
These investments, which totaled $665 million and $539 million as of September 30, 2008 and December 31, 2007, respectively, are classified as Investments 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 structured liabilities
The Company has elected the fair-value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency risks ("structured liabilities").
The Company has elected the fair-value option for structured liabilities, 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 according to their legal form on the Company's Consolidated Balance Sheet. The balances for these structured liabilities, which are classified as Interest-bearing deposits and Long-term debt on the Consolidated Balance Sheet, are $380 million and $2.9 billion as of September 30, 2008 and $264 million and $3.0 billion as of December 31, 2007.
For those structured liabilities classified as Long-term debt for which the fair-value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $211 million as of September 30, 2008 and $7 million as of December 31, 2007.
The change in fair value for these structured liabilitiesexposures is reported in Principal transactions 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 Income Statement.
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 fair valued. 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 balances of these short-term and long-term non-structured liabilities as of September 30, 2008 were $724 million and $23.6 billion and, as of December 31, 2007, were $4.8 billion and $49.1 billion, respectively.
The majority of these non-structured liabilities are a result of the Company's election of the fair value option for liabilities associated with the consolidation of CAI's Structured Investment Vehicles (SIVs) during the fourth quarter of 2007. The change in fair values of the SIV's liabilities reported in earnings was $298 million for the quarter ended September 30, 2008. For these non-structured liabilities the aggregate fair value approximates the aggregate unpaid principal balance of such instruments as of September 30, 2008.
For all other non-structured liabilities classified as Long-term debt for which the fair-value option has been elected, the aggregate fair value exceeds the aggregate unpaid principal balance of such instruments by $250 million as of September 30, 2008 and $112 million as of December 31, 2007. The change in fair value of these non-structured liabilities reported a loss of $1 million for the quarter ended September 30, 2008.
These non-structured liabilities for which the fair value option has been elected are classified as Long-term debt. 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 Income Statement.
Certain equity-method investments
Citigroup adopted fair-value accounting for various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. Management elected fair-value accounting to reduce operational and accounting complexity. Since the funds account for all of their underlying assets at full fair value, the impact of applying the equity method to Citigroup's investment in these funds was equivalent to fair value accounting. Thus, this fair-value election had no impact on opening Retained earnings.
These fund investments, which totaled $1.1 billion as of September 30, 2008 and $1.1 billion as of December 31, 2007, are classified as Investments on the Consolidated Balance Sheet. Changes in the fair values of these investments are classified in Other revenue in the Consolidated Statement of Income.
Certain mortgage loans
Citigroup has elected the fair-value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-for-sale. 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 casesdetermined,
where hedge accountingpossible, using quoted secondary-market prices and classified in Level 2 of the fair-value hierarchy if there is complex and to achieve operational simplifications. The fair-value option was not elected for loans held-for-investment, as those loans are not hedged with derivative instruments. This election was effective for applicable instruments originated or purchased since September 1, 2007.
The balancea sufficient level of these mortgage loans held-for-sale, which were classified as Other assets as of September 30, 2008 was $6.6 billion. As of December 31, 2007, the balance was $6.4 billion. The aggregate fair value exceeded the unpaid principal balances by $122 million as of September 30, 2008 and $136 million as of December 31, 2007. The balance of these loans 90 days or more past due and on a non-accrual basis was $5 million at September 30, 2008 and $17 million at December 31, 2007, with aggregate unpaid principal balances exceeding aggregate fair values by $6 million at September 30, 2008. The difference between aggregate fair values and aggregate unpaid principal balance was immaterial at December 31, 2007.
The changes in fair values of these mortgage loans held-for-sale is reported in Other revenueactivity in the Company's Consolidated Statement of Income. The changes in fair value during the nine months ended September 30, 2008market and quotes or traded prices are available with suitable frequency.
However, due to instrument-specificthe dislocation of the credit risk resultedmarkets and the reduced market interest in a $30 million loss. Related interest income continues to be measured based onhigher risk/higher yield instruments since the contractual interest rates and reported as suchlatter half of 2007, liquidity in the Consolidated Income Statement.
Items selectedmarket for fair-value accounting in accordance with SFAS 155 and SFAS 156
Certain hybrid financial instruments
The Companyhighly leveraged financings has elected to apply fair-value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate, foreign exchange or inflation (e.g., equity, credit or commodity risks). In addition, the Company has elected fair-value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets.
The Company has elected fair-value accounting for these instruments because thesebeen limited. Therefore, a majority of such exposures are considered to be trading-related positions and, therefore, are managed on a fair-value basis. In addition, the accounting for these instruments is simplified under a fair-value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. The hybrid financial instruments are classified as Loans, Deposits, Trading liabilities (for pre-paid derivatives) or debt on the Company's Consolidated Balance Sheet according to their legal form, while residual interests in certain securitizations are classified as Trading account assets.
The outstanding balances for these hybrid financial instruments classified in Loans is $504 million, while $3.1 billion was in Interest-bearing deposits, $10.0 billion in Trading account liabilities, $3.2 billion in Short-term borrowings and $21.0 billion in Long-term debt on the Consolidated Balance SheetLevel 3 as of September 30, 2008. As of December 31, 2007, the outstanding balances for such instruments classified in Loans was $689 million, while $3.3 billion was in Interest-bearing deposits, $12.1 billion in Trading account liabilities, $3.6 billion in Short-term borrowings and $27.3 billion in Long-term debt on the Consolidated Balance Sheet. In addition, $4.2 billion and $2.6 billion of the amount reported in Trading account assets as of September 30, 2008 and December 31, 2007, respectively, were primarily for the retained interests in securitizations.
For hybrid financial instruments for which fair-value accounting has been elected under SFAS 155 and that are classified as Long-term debt, the aggregate unpaid principal exceeds the aggregate fair value by $1.4 billion as of September 30, 2008, while the aggregate fair value exceeds the aggregate unpaid principal balance by $460 million as of December 31, 2007.quoted secondary market prices do not generally exist. The difference for those instruments classified as Loans is immaterial.
Changes in fair value for hybrid financial instruments, which in most cases includes a component for accrued interest, are recorded in Principal transactions in the Company's Consolidated Statement of Income. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value as Interest revenue in the Company's Consolidated Statement of Income.
Mortgage servicing rights
The Company accounts for mortgage servicing rights (MSRs) at fair value in accordance with SFAS 156. Fair value for MSRssuch exposures is determined using an option-adjusted spread valuation approach. This approach consists of projecting servicing cash flows under multiple interest-rate scenarios and discounting these cash flows using risk-adjusted discount rates. The model assumptions used inquoted prices for a similar asset or assets, adjusted for the valuation of MSRs include mortgage prepayment speeds and discount rates. The fair value of MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portionspecific attributes of the values of its MSRs through the use of interest-rate derivative contracts, forward-purchase commitments of mortgage-backed securities, and purchased securities classified as trading. See Note 15 on page 109 for further discussions regarding the accounting and reporting of MSRs.
These MSRs, which totaled $8.3 billion and $8.4 billion as of September 30, 2008 and December 31, 2007, respectively, are classified as Intangible assets on Citigroup's Consolidated Balance Sheet. Changes in fair value for MSRs are recorded in Commissions and fees in the Company's Consolidated Statement of Income.loan being valued.
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 September 30, 2008March 31, 2009 and December 31, 2007.2008. The Company often hedges positions that have been classified in the Level 3 category with financial instruments that have been classified as Level 1 or Level 2. In addition, the Company also hedges items classified in the Level 3 category with instruments classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.
| In millions of dollars at September 30, 2008 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 127,832 | $ | — | $ | 127,832 | $ | (56,064 | ) | $ | 71,768 | |||||||
Trading account assets | ||||||||||||||||||||
Trading securities and loans | 101,476 | 177,760 | 85,319 | 364,555 | — | 364,555 | ||||||||||||||
Derivatives | 9,521 | 583,994 | 33,909 | 627,424 | (534,516 | ) | 92,908 | |||||||||||||
Investments | 43,173 | 126,440 | 28,236 | 197,849 | — | 197,849 | ||||||||||||||
Loans(2) | — | 3,307 | 155 | 3,462 | — | 3,462 | ||||||||||||||
Mortgage servicing rights | — | — | 8,346 | 8,346 | — | 8,346 | ||||||||||||||
Other financial assets measured on a recurring basis | — | 16,961 | 1,676 | 18,637 | (4,527 | ) | 14,110 | |||||||||||||
Total assets | $ | 154,170 | $ | 1,036,294 | $ | 157,641 | $ | 1,348,105 | $ | (595,107 | ) | $ | 752,998 | |||||||
| 11.4 | % | 76.9 | % | 11.7 | % | 100.0 | % | |||||||||||||
Liabilities | ||||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,419 | $ | 84 | $ | 3,503 | $ | — | $ | 3,503 | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 209,479 | 2,819 | 212,298 | (56,064 | ) | 156,234 | |||||||||||||
Trading account liabilities | ||||||||||||||||||||
Securities sold, not yet purchased | 53,026 | 11,765 | 1,131 | 65,922 | — | 65,922 | ||||||||||||||
Derivatives | 9,016 | 586,321 | 37,057 | 632,394 | (529,033 | ) | 103,361 | |||||||||||||
Short-term borrowings | — | 5,416 | 1,891 | 7,307 | — | 7,307 | ||||||||||||||
Long-term debt | — | 13,667 | 33,815 | 47,482 | — | 47,482 | ||||||||||||||
Other financial liabilities measured on a recurring basis | — | 7,425 | 25 | 7,450 | (4,527 | ) | 2,923 | |||||||||||||
Total liabilities | $ | 62,042 | $ | 837,492 | $ | 76,822 | $ | 976,356 | $ | (589,624 | ) | $ | 386,732 | |||||||
| 6.4 | % | 85.8 | % | 7.8 | % | 100.0 | % | |||||||||||||
| In millions of dollars at March 31, 2009 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||||||||||||||||
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 106,306 | $ | — | $ | 106,306 | $ | (26,632 | ) | $ | 79,674 | |||||||||
| Trading securities | ||||||||||||||||||||||
| Trading mortgage-backed securities | ||||||||||||||||||||||
| U.S. government sponsored | $ | — | $ | 23,091 | $ | 1,388 | $ | 24,479 | $ | — | $ | 24,479 | ||||||||||
| Prime | — | 1,070 | 1,285 | 2,355 | — | 2,355 | ||||||||||||||||
| Alt-A | — | 393 | 832 | 1,225 | — | 1,225 | ||||||||||||||||
| Subprime | — | 476 | 11,036 | 11,512 | — | 11,512 | ||||||||||||||||
| Non-U.S. residential | — | 218 | 181 | 399 | — | 399 | ||||||||||||||||
| Commercial | — | 481 | 2,020 | 2,501 | — | 2,501 | ||||||||||||||||
| Total trading mortgage-backed securities | $ | — | $ | 25,729 | $ | 16,742 | $ | 42,471 | $ | — | $ | 42,471 | ||||||||||
| U.S. Treasury and federal agencies securities | ||||||||||||||||||||||
| U.S. Treasury | $ | 8,297 | $ | 233 | $ | — | $ | 8,530 | $ | — | $ | 8,530 | ||||||||||
| Agency obligations | 79 | 5,523 | 51 | 5,653 | — | 5,653 | ||||||||||||||||
| Total U.S. Treasury and federal agencies securities | $ | 8,376 | $ | 5,756 | $ | 51 | $ | 14,183 | $ | — | $ | 14,183 | ||||||||||
| Other trading securities | ||||||||||||||||||||||
| State and municipal | $ | — | $ | 6,416 | $ | 198 | $ | 6,614 | $ | — | $ | 6,614 | ||||||||||
| Foreign government | $ | 48,860 | $ | 12,342 | $ | 1,011 | $ | 62,213 | $ | — | $ | 62,213 | ||||||||||
| Corporate | $ | — | $ | 42,694 | $ | 12,382 | $ | 55,076 | $ | — | $ | 55,076 | ||||||||||
| Equity securities | $ | 28,241 | $ | 4,006 | $ | 1,740 | $ | 33,987 | $ | — | $ | 33,987 | ||||||||||
| Other debt securities | $ | — | $ | 14,072 | $ | 10,746 | $ | 24,818 | $ | — | $ | 24,818 | ||||||||||
| Total trading securities | $ | 85,477 | $ | 111,015 | $ | 42,870 | $ | 239,362 | $ | — | $ | 239,362 | ||||||||||
| Derivatives | $ | 7,703 | $ | 1,024,159 | $ | 49,911 | $ | 1,081,773 | $ | (985,913 | ) | $ | 95,860 | |||||||||
| Investments | ||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||
| U.S. government sponsored | $ | — | $ | 27,409 | $ | — | $ | 27,409 | $ | — | $ | 27,409 | ||||||||||
| Prime | — | 5,083 | 1,125 | 6,208 | — | 6,208 | ||||||||||||||||
| Alt-A | — | 220 | 177 | 397 | — | 397 | ||||||||||||||||
| Subprime | — | — | 12 | 12 | — | 12 | ||||||||||||||||
| Non-U.S. residential | — | 413 | — | 413 | — | 413 | ||||||||||||||||
| Commercial | — | — | 469 | 469 | — | 469 | ||||||||||||||||
| Total investment mortgage-backed securities | $ | — | $ | 33,125 | $ | 1,783 | $ | 34,908 | $ | — | $ | 34,908 | ||||||||||
| U.S. Treasury and federal Agency securities | ||||||||||||||||||||||
| U.S. Treasury | $ | 4,629 | $ | 405 | $ | — | $ | 5,034 | $ | — | $ | 5,034 | ||||||||||
| Agency obligations | 224 | 9,105 | — | 9,329 | — | 9,329 | ||||||||||||||||
| Total U.S. Treasury and federal agency | $ | 4,853 | $ | 9,510 | $ | — | $ | 14,363 | $ | — | $ | 14,363 | ||||||||||
| State and municipal | $ | — | $ | 13,825 | $ | 207 | $ | 14,032 | $ | — | $ | 14,032 | ||||||||||
| Foreign government | $ | 34,918 | $ | 30,566 | $ | 643 | $ | 66,127 | $ | — | $ | 66,127 | ||||||||||
| Corporate | $ | — | $ | 18,361 | $ | 2,192 | $ | 20,553 | $ | — | $ | 20,553 | ||||||||||
| Equity securities | $ | 1,624 | $ | 626 | $ | 2,849 | $ | 5,099 | $ | — | $ | 5,099 | ||||||||||
| Other debt securities | $ | — | $ | 687 | $ | 7,542 | $ | 8,229 | $ | — | $ | 8,229 | ||||||||||
| Non-Marketable equity securities | $ | 24 | $ | 92 | $ | 7,479 | $ | 7,595 | $ | — | $ | 7,595 | ||||||||||
| Total investments | $ | 41,419 | $ | 106,792 | $ | 22,695 | $ | 170,906 | $ | — | $ | 170,906 | ||||||||||
| Loans(2) | $ | — | $ | 2,182 | $ | 171 | $ | 2,353 | $ | — | $ | 2,353 | ||||||||||
| Mortgage servicing rights | $ | — | $ | — | $ | 5,481 | $ | 5,481 | $ | — | $ | 5,481 | ||||||||||
| Other financial assets measured on a recurring basis | $ | — | $ | 8,265 | $ | 2,515 | $ | 10,780 | $ | (2,527 | ) | $ | 8,253 | |||||||||
| Total assets | $ | 134,599 | $ | 1,358,719 | $ | 123,643 | $ | 1,616,961 | $ | (1,015,072 | ) | $ | 601,889 | |||||||||
| 8.3 | % | 84.0 | % | 7.7 | % | 100.0 | % | |||||||||||||||
Items Measured at Fair Value on a Recurring Basis (continued)
| In millions of dollars at December 31, 2007 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 132,383 | $ | 16 | $ | 132,399 | $ | (48,094 | ) | $ | 84,305 | |||||||
Trading account assets | ||||||||||||||||||||
Trading securities and loans | 151,684 | 234,846 | 75,573 | 462,103 | — | 462,103 | ||||||||||||||
Derivatives | 7,204 | 428,779 | 31,226 | 467,209 | (390,328 | ) | 76,881 | |||||||||||||
Investments | 64,375 | 125,282 | 17,060 | 206,717 | — | 206,717 | ||||||||||||||
Loans(2) | — | 3,718 | 9 | 3,727 | — | 3,727 | ||||||||||||||
Mortgage servicing rights | — | — | 8,380 | 8,380 | — | 8,380 | ||||||||||||||
Other financial assets measured on a recurring basis | — | 13,570 | 1,171 | 14,741 | (4,939 | ) | 9,802 | |||||||||||||
Total assets | $ | 223,263 | $ | 938,578 | $ | 133,435 | $ | 1,295,276 | $ | (443,361 | ) | $ | 851,915 | |||||||
| 17.2 | % | 72.5 | % | 10.3 | % | 100.0 | % | |||||||||||||
Liabilities | ||||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,542 | $ | 56 | $ | 3,598 | $ | — | $ | 3,598 | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 241,790 | 6,158 | 247,948 | (48,094 | ) | 199,854 | |||||||||||||
Trading account liabilities | ||||||||||||||||||||
Securities sold, not yet purchased | 68,928 | 9,140 | 473 | 78,541 | — | 78,541 | ||||||||||||||
Derivatives | 8,602 | 447,119 | 33,696 | 489,417 | (385,876 | ) | 103,541 | |||||||||||||
Short-term borrowings | — | 8,471 | 5,016 | 13,487 | — | 13,487 | ||||||||||||||
Long-term debt | — | 70,359 | 8,953 | 79,312 | — | 79,312 | ||||||||||||||
Other financial liabilities measured on a recurring basis | — | 6,506 | 1 | 6,507 | (4,939 | ) | 1,568 | |||||||||||||
Total liabilities | $ | 77,530 | $ | 786,927 | $ | 54,353 | $ | 918,810 | $ | (438,909 | ) | $ | 479,901 | |||||||
| 8.4 | % | 85.7 | % | 5.9 | % | 100.0 | % | |||||||||||||
| In millions of dollars at March 31, 2009 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | — | $ | 2,208 | $ | 41 | $ | 2,249 | $ | — | $ | 2,249 | ||||||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase | $ | — | $ | 138,217 | $ | 10,732 | $ | 148,949 | $ | (26,632 | ) | $ | 122,317 | |||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased | $ | 36,253 | $ | 12,124 | $ | 1,311 | $ | 49,688 | $ | — | $ | 49,688 | ||||||||
| Derivatives | $ | 7,847 | $ | 1,003,651 | $ | 46,372 | $ | 1,057,870 | $ | (976,732 | ) | $ | 81,138 | |||||||
| Short-term borrowings | $ | — | $ | 6,259 | $ | 1,030 | $ | 7,289 | $ | — | $ | 7,289 | ||||||||
| Long-term debt | $ | — | $ | 12,897 | $ | 10,438 | $ | 23,335 | $ | — | $ | 23,335 | ||||||||
| Other financial liabilities measured on a recurring basis | $ | — | $ | 10,591 | $ | 1 | $ | 10,592 | $ | (2,527 | ) | $ | 8,065 | |||||||
| Total liabilities | $ | 44,100 | $ | 1,185,947 | $ | 69,925 | $ | 1,299,972 | $ | (1,005,891 | ) | $ | 294,081 | |||||||
| 3.4 | % | 91.2 | % | 5.4 | % | 100.0 | % | |||||||||||||
| In millions of dollars at December 31, 2008 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||||||||||||||
| Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 96,524 | $ | — | $ | 96,524 | $ | (26,219 | ) | $ | 70,305 | |||||||
| Trading account assets | ||||||||||||||||||||
| Trading securities and loans | 90,530 | 121,043 | 50,773 | 262,346 | — | 262,346 | ||||||||||||||
| Derivatives | 9,675 | 1,102,252 | 60,725 | 1,172,652 | (1,057,363 | ) | 115,289 | |||||||||||||
| Investments | 44,342 | 111,836 | 28,273 | 184,451 | — | 184,451 | ||||||||||||||
| Loans(2) | — | 2,572 | 160 | 2,732 | — | 2,732 | ||||||||||||||
| Mortgage servicing rights | — | — | 5,657 | 5,657 | — | 5,657 | ||||||||||||||
| Other financial assets measured on a recurring basis | — | 9,890 | 359 | 10,249 | (4,527 | ) | 5,722 | |||||||||||||
| Total assets | $ | 144,547 | $ | 1,444,117 | $ | 145,947 | $ | 1,734,611 | $ | (1,088,109 | ) | $ | 646,502 | |||||||
| 8.3 | % | 83.3 | % | 8.4 | % | 100.0 | % | |||||||||||||
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | — | $ | 2,552 | $ | 54 | $ | 2,606 | $ | — | $ | 2,606 | ||||||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 153,918 | 11,167 | 165,085 | (26,219 | ) | 138,866 | |||||||||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased | 36,848 | 13,192 | 653 | 50,693 | — | 50,693 | ||||||||||||||
| Derivatives | 10,038 | 1,096,113 | 57,139 | 1,163,290 | (1,046,505 | ) | 116,785 | |||||||||||||
| Short-term borrowings | — | 16,278 | 1,329 | 17,607 | — | 17,607 | ||||||||||||||
| Long-term debt | — | 16,065 | 11,198 | 27,263 | — | 27,263 | ||||||||||||||
| Other financial liabilities measured on a recurring basis | — | 8,222 | 1 | 8,223 | (4,527 | ) | 3,696 | |||||||||||||
| Total liabilities | $ | 46,886 | $ | 1,306,340 | $ | 81,541 | $ | 1,434,767 | $ | (1,077,251 | ) | $ | 357,516 | |||||||
| 3.3 | % | 91.0 | % | 5.7 | % | 100.0 | % | |||||||||||||
Changes in Level 3 Fair-Value Category
TheDecember 31, the following tables present the changes in the Level 3 fair-value category for the three months ended March 31, 2009 and nine months ended September 30, 2008 and 2007.December 31, 2008. 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 gains (losses) included in | | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| In millions of dollars | June 30, 2008 | Principal transactions | Other(1)(2) | September 30, 2008 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities and loans | $ | 76,819 | $ | (5,640 | ) | $ | — | $ | 13,283 | $ | 857 | $ | 85,319 | $ | (5,439 | ) | |||||||
Investments | 27,086 | — | (1,287 | ) | 3,818 | (1,381 | ) | 28,236 | (1,190 | ) | |||||||||||||
Loans | 145 | (14 | ) | — | — | 24 | 155 | (22 | ) | ||||||||||||||
Mortgage servicing rights | 8,934 | — | (396 | ) | — | (192 | ) | 8,346 | (396 | ) | |||||||||||||
Other financial assets measured on a recurring basis | 1,451 | — | (26 | ) | 353 | (102 | ) | 1,676 | (3 | ) | |||||||||||||
Liabilities | �� | ||||||||||||||||||||||
Interest-bearing deposits | $ | 111 | $ | 10 | $ | — | $ | — | $ | (17 | ) | $ | 84 | $ | 8 | ||||||||
Securities sold under agreements to repurchase | 3,166 | (159 | ) | — | 73 | (579 | ) | 2,819 | (39 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 1,718 | 3 | — | 366 | (950 | ) | 1,131 | 34 | |||||||||||||||
Derivatives, net(4) | 102 | 2,904 | — | 3,072 | 2,878 | 3,148 | 3,092 | ||||||||||||||||
Short-term borrowings | 1,160 | 54 | — | 511 | 274 | 1,891 | 38 | ||||||||||||||||
Long-term debt | 38,355 | 940 | — | 3,277 | (6,877 | ) | 33,815 | 403 | |||||||||||||||
Other financial liabilities measured on a recurring basis | 26 | — | (45 | ) | — | (46 | ) | 25 | (45 | ) | |||||||||||||
| | | Net realized/ unrealized gains (losses) included in | | | | | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | |||||||||||||||||||
| In millions of dollars at March 31, 2009 | December 31, 2008 | Principal transactions | Other(1)(2) | March 31, 2009 | ||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Trading securities | ||||||||||||||||||||||||
| Trading mortgage-backed securities | ||||||||||||||||||||||||
| U.S. government sponsored | $ | 1,397 | $ | (28 | ) | $ | — | $ | 10 | $ | 9 | $ | 1,388 | $ | (1 | ) | ||||||||
| Prime | 850 | (35 | ) | — | 439 | 31 | 1,285 | (19 | ) | |||||||||||||||
| Alt-A | 735 | (69 | ) | — | (187 | ) | 353 | 832 | (9 | ) | ||||||||||||||
| Subprime | 14,494 | (2,363 | ) | — | (710 | ) | (385 | ) | 11,036 | (2,049 | ) | |||||||||||||
| Non-U.S. residential | 714 | (32 | ) | — | (490 | ) | (11 | ) | 181 | (3 | ) | |||||||||||||
| Commercial | 2,086 | (200 | ) | — | 159 | (25 | ) | 2,020 | (161 | ) | ||||||||||||||
| Total trading mortgage-backed securities | $ | 20,276 | $ | (2,727 | ) | $ | — | $ | (779 | ) | $ | (28 | ) | $ | 16,742 | $ | (2,242 | ) | ||||||
| U.S. Treasury and federal agencies securities | ||||||||||||||||||||||||
| U.S. Treasury | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Agency obligations | 59 | (9 | ) | — | — | 1 | 51 | (9 | ) | |||||||||||||||
| Total U.S. Treasury and federal agencies securities | $ | 59 | $ | (9 | ) | $ | — | $ | — | $ | 1 | $ | 51 | $ | (9 | ) | ||||||||
| Other trading securities | ||||||||||||||||||||||||
| State and municipal | $ | 233 | $ | 1 | — | $ | 56 | $ | (92 | ) | $ | 198 | $ | — | ||||||||||
| Foreign government | 1,261 | 36 | — | 23 | (309 | ) | 1,011 | 31 | ||||||||||||||||
| Corporate | 16,027 | (924 | ) | — | (1,041 | ) | (1,680 | ) | 12,382 | (1,045 | ) | |||||||||||||
| Equity securities | 1,387 | (21 | ) | — | 17 | 357 | 1,740 | 31 | ||||||||||||||||
| Other debt securities | 11,530 | (327 | ) | — | (1,307 | ) | 850 | 10,746 | (23 | ) | ||||||||||||||
| Total trading securities | $ | 50,773 | $ | (3,971 | ) | $ | — | (3,031 | ) | $ | (901 | ) | $ | 42,870 | $ | (3,257 | ) | |||||||
| Derivatives, net(4) | $ | 3,586 | $ | 116 | $ | — | $ | (1,081 | ) | $ | 918 | $ | 3,539 | $ | 26 | |||||||||
| Investments | ||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||
| Prime | $ | 1,163 | $ | — | $ | 2 | $ | 204 | $ | (244 | ) | $ | 1,125 | $ | (5 | ) | ||||||||
| Alt-A | 111 | — | (7 | ) | 8 | 65 | 177 | (10 | ) | |||||||||||||||
| Subprime | 25 | — | (6 | ) | — | (7 | ) | 12 | (5 | ) | ||||||||||||||
| Commercial | 964 | — | (19 | ) | (402 | ) | (74 | ) | 469 | (18 | ) | |||||||||||||
| Total investment mortgage-backed debt securities | $ | 2,263 | $ | — | (30 | ) | (190 | ) | (260 | ) | $ | 1,783 | $ | (38 | ) | |||||||||
| State and municipal | $ | 222 | $ | — | $ | — | $ | (15 | ) | $ | — | $ | 207 | $ | — | |||||||||
| Foreign government | 571 | — | — | 72 | — | 643 | — | |||||||||||||||||
| Corporate | 1,019 | — | (23 | ) | 753 | 443 | 2,192 | (2 | ) | |||||||||||||||
| Equity securities | 3,807 | — | (529 | ) | (123 | ) | (306 | ) | 2,849 | (389 | ) | |||||||||||||
| Other debt securities | 11,324 | — | (1,670 | ) | (562 | ) | (1,550 | ) | 7,542 | (1,741 | ) | |||||||||||||
| Non-Marketable equity securities | 9,067 | — | (727 | ) | (858 | ) | (3 | ) | 7,479 | (530 | ) | |||||||||||||
| Total investments | $ | 28,273 | $ | — | $ | (2,979 | ) | $ | (923 | ) | $ | (1,676 | ) | $ | 22,695 | $ | (2,700 | ) | ||||||
| | | Net realized/ unrealized gains (losses) included in | | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| In millions of dollars | December 31, 2007 | Principal transactions | Other(1)(2) | September 30, 2008 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | (16 | ) | $ | — | $ | — | ||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities and loans | 75,573 | (18,831 | ) | — | 32,028 | (3,451 | ) | 85,319 | (14,065 | ) | |||||||||||||
Investments | 17,060 | — | (2,834 | ) | 6,789 | 7,221 | 28,236 | (1,268 | ) | ||||||||||||||
Loans | 9 | (3 | ) | — | — | 149 | 155 | (2 | ) | ||||||||||||||
Mortgage servicing rights | 8,380 | — | 568 | — | (602 | ) | 8,346 | 568 | |||||||||||||||
Other financial assets measured on a recurring basis | 1,171 | — | 21 | 422 | 62 | 1,676 | 21 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 56 | $ | (9 | ) | $ | — | $ | 13 | $ | 6 | $ | 84 | $ | (3 | ) | |||||||
Securities sold under agreements to repurchase | 6,158 | (88 | ) | — | (2,293 | ) | (1,134 | ) | 2,819 | 45 | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 473 | (5 | ) | — | 998 | (345 | ) | 1,131 | 118 | ||||||||||||||
Derivatives, net(4) | 2,470 | 5,701 | — | 3,178 | 3,201 | 3,148 | 3,638 | ||||||||||||||||
Short-term borrowings | 5,016 | 203 | — | (1,772 | ) | (1,150 | ) | 1,891 | 110 | ||||||||||||||
Long-term debt | 8,953 | 1,349 | — | 41,296 | (15,085 | ) | 33,815 | 875 | |||||||||||||||
Other financial liabilities measured on a recurring basis | 1 | — | (59 | ) | — | (35 | ) | 25 | (5 | ) | |||||||||||||
| | | | Net realized/ unrealized gains (losses) included in | | | | | | | Net realized/ unrealized gains (losses) included in | | | | | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||||||||||||||||||
| In millions of dollars | June 30, 2007 | Principal transactions | Other(1)(2) | September 30, 2007 | ||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | ||||||||||||||||||||||||||||||||
Trading account assets | ||||||||||||||||||||||||||||||||||||||||||||||
Trading securities and loans | 42,945 | (1,609 | ) | — | 8,938 | 30,398 | 80,672 | (1,813 | ) | |||||||||||||||||||||||||||||||||||||
Derivatives, net(4) | (1,184 | ) | 1,325 | — | 2,248 | (830 | ) | 1,559 | 1,464 | |||||||||||||||||||||||||||||||||||||
Investments | 20,201 | — | 372 | 495 | (424 | ) | 20,644 | 106 | ||||||||||||||||||||||||||||||||||||||
| In millions of dollars at March 31, 2009 | In millions of dollars at March 31, 2009 | December 31, 2008 | Principal transactions | Other(1)(2) | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | March 31, 2009 | Unrealized gains (losses) still held(3) | ||||||||||||||||||||||||||||||||||||||
Loans | Loans | 1,195 | — | — | (1,252 | ) | 59 | 2 | — | Loans | $ | 160 | $ | — | $ | (5 | $ | 171 | ) | |||||||||||||||||||||||||||
Mortgage servicing rights | Mortgage servicing rights | 10,072 | — | (267 | ) | — | 152 | 9,957 | (325 | ) | Mortgage servicing rights | 5,657 | — | (130 | ) | — | (46 | ) | 5,481 | (130 | ) | |||||||||||||||||||||||||
Other financial assets measured on a recurring basis | Other financial assets measured on a recurring basis | 1,106 | — | 15 | — | 29 | 1,150 | 10 | Other financial assets measured on a recurring basis | 359 | — | 1,919 | 427 | (190 | ) | 2,515 | 1,640 | |||||||||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits | Interest-bearing deposits | $ | 90 | $ | — | $ | — | $ | — | $ | (1 | ) | $ | 89 | $ | (3 | ) | Interest-bearing deposits | $ | 54 | $ | — | $ | 4 | $ | — | $ | (9 | ) | $ | 41 | $ | 3 | |||||||||||||
Securities sold under agreements to repurchase | 6,241 | (86 | ) | — | — | 160 | 6,487 | (81 | ) | |||||||||||||||||||||||||||||||||||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase | Federal funds purchased and securities loaned or sold under agreements to repurchase | 11,167 | 32 | — | (329 | ) | (74 | ) | 10,732 | 32 | ||||||||||||||||||||||||||||||||||||
Trading account liabilities | Trading account liabilities | Trading account liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Securities sold, not yet purchased | 653 | (58 | ) | — | 46 | 137 | 894 | (41 | ) | Securities sold, not yet purchased | 653 | 36 | — | 419 | 275 | 1,311 | (8 | ) | ||||||||||||||||||||||||||||
Short-term borrowings | Short-term borrowings | 2,652 | — | (21 | ) | 1,831 | 1,532 | 6,036 | 14 | Short-term borrowings | 1,329 | — | (108 | ) | (697 | ) | 290 | 1,030 | (86 | ) | ||||||||||||||||||||||||||
Long-term debt | Long-term debt | 1,804 | (92 | ) | 3,637 | 154 | 5,687 | (85 | ) | Long-term debt | 11,198 | — | 448 | (377 | ) | 65 | 10,438 | 309 | ||||||||||||||||||||||||||||
Other financial liabilities measured on a recurring basis | Other financial liabilities measured on a recurring basis | 31 | — | 1 | — | (29 | ) | 1 | — | Other financial liabilities measured on a recurring basis | 1 | — | (1 | ) | — | (1 | ) | 1 | (1 | ) | ||||||||||||||||||||||||||
| | | | Net realized/ unrealized gains (losses) included in | | | | | | | Net realized/unrealized gains (losses) included in | | | | | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) Still held(3) | ||||||||||||||||||||||||||||||||||
| In millions of dollars | In millions of dollars | January 1, 2007 | Principal transactions | Other(1)(2) | September 30, 2007 | In millions of dollars | December 31, 2007 | Principal transactions | Other(1)(2) | March 31, 2008 | ||||||||||||||||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | (16 | ) | $ | — | $ | — | |||||||||||||||
Trading account assets | Trading account assets | Trading account assets | ||||||||||||||||||||||||||||||||||||||||||||
Trading securities and loans | 22,415 | (1,485 | ) | — | 14,020 | 45,722 | 80,672 | (2,136 | ) | Trading securities and loans | 75,573 | (28,052 | ) | — | 7,418 | (4,166 | ) | 50,773 | (19,572 | ) | ||||||||||||||||||||||||||
Derivatives, net(4) | 1,875 | 2,010 | — | 1,142 | (3,468 | ) | 1,559 | (53 | ) | Derivatives, net(4) | (2,470 | ) | 7,804 | — | (2,188 | ) | 440 | 3,586 | 9,622 | |||||||||||||||||||||||||||
Investments | Investments | 11,468 | — | 1,221 | 1,508 | 6,447 | 20,644 | 314 | Investments | 17,060 | — | (4,917 | ) | 5,787 | 10,343 | 28,273 | (801 | ) | ||||||||||||||||||||||||||||
Loans | Loans | — | (8 | ) | — | (793 | ) | 803 | 2 | — | Loans | 9 | — | (15 | ) | — | 166 | 160 | (19 | ) | ||||||||||||||||||||||||||
Mortgage servicing rights | Mortgage servicing rights | 5,439 | — | 1,257 | — | 3,261 | 9,957 | 1,257 | Mortgage servicing rights | 8,380 | — | (1,870 | ) | — | (853 | ) | 5,657 | (1,870 | ) | |||||||||||||||||||||||||||
Other financial assets measured on a recurring basis | Other financial assets measured on a recurring basis | 948 | — | 24 | — | 178 | 1,150 | 3 | Other financial assets measured on a recurring basis | 1,171 | — | 86 | 422 | (1,320 | ) | 359 | 86 | |||||||||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits | Interest-bearing deposits | $ | 60 | $ | 12 | $ | — | $ | (33 | ) | $ | 74 | $ | 89 | $ | (4 | ) | Interest-bearing deposits | $ | 56 | $ | (5 | ) | $ | — | $ | 13 | $ | (20 | ) | $ | 54 | $ | (3 | ) | |||||||||||
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 6,778 | (97 | ) | — | 84 | (472 | ) | 6,487 | (50 | ) | Securities sold under agreements to repurchase | 6,158 | (273 | ) | — | 6,158 | (1,422 | ) | 11,167 | (136 | ) | ||||||||||||||||||||||||
Trading account liabilities | Trading account liabilities | Trading account liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Securities sold, not yet purchased | 467 | (22 | ) | — | (167 | ) | 572 | 894 | (138 | ) | Securities sold, not yet purchased | 473 | 153 | — | 1,036 | (703 | ) | 653 | 328 | |||||||||||||||||||||||||||
Short-term borrowings | Short-term borrowings | 2,214 | 9 | (21 | ) | 1,483 | 2,327 | 6,036 | — | Short-term borrowings | 5,016 | 106 | — | (1,798 | ) | (1,783 | ) | 1,329 | (63 | ) | ||||||||||||||||||||||||||
Long-term debt | Long-term debt | 1,693 | (11 | ) | (92 | ) | 3,729 | 162 | 5,687 | (70 | ) | Long-term debt | 8,953 | 2,228 | — | 38,792 | (34,319 | ) | 11,198 | 1,115 | ||||||||||||||||||||||||||
Other financial liabilities measured on a recurring basis | Other financial liabilities measured on a recurring basis | — | — | (23 | ) | (1 | ) | (21 | ) | 1 | — | Other financial liabilities measured on a recurring basis | 1 | — | (61 | ) | — | (61 | ) | 1 | — | |||||||||||||||||||||||||
The following is a discussion of the changes to the Level 3 balances for each of the rollforwardroll-forward tables presented above.
The $15.1 billion increase in trading securities and loans of $9.7 billion aswas mainly driven by:
by the Company were transferredloans from Level 2 to Level 3 during the third quarter of 2008.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a non-recurringnonrecurring 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, assets such as loans held-for-saleheld for sale that are measured at the lower of cost or market (LOCOM) that were recognized at fair value below cost at the end of the period. Assets measured at cost that have been written down to fair value during the period as a result of an impairment are also included.
The fair value of loans measured on a LOCOM basis is determined where possible using quoted secondary-market prices. Such loans are generally classified in Level 2 of the fair-value hierarchy given the level of activity in the market and the frequency of available quotes. 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.
The following table presents all loans held-for-sale that are carried at LOCOM as of September 30, 2008March 31, 2009 and December 31, 20072008 (in billions):
| | Aggregate Cost | Fair value | Level 2 | Level 3 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2008 | $ | 19.4 | $ | 16.9 | $ | 2.0 | $ | 14.9 | |||||
December 31, 2007 | 33.6 | 31.9 | 5.1 | 26.8 | |||||||||
| | Aggregate Cost | Fair Value | Level 2 | Level 3 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2009 | $ | 1.0 | $ | 0.5 | $ | 0.5 | $ | 0.0 | |||||
December 31, 2008 | 3.1 | 2.1 | 0.8 | 1.3 | |||||||||
18. FAIR-VALUE ELECTIONS (SFAS 155, SFAS 156 and SFAS 159)
ForUnder SFAS 159, the threeCompany may elect to report most financial instruments and nine months ended September 30, 2008, the resulting charges taken on loans held-for-sale carriedcertain other items at fair value below cost were $143 millionon an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, 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.
Additionally, the transition provisions of SFAS 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in opening retained earnings and $3.8 billion, respectively, $1.8 billionfuture changes in fair value reported in earnings.
The Company also has elected the fair-value accounting provisions permitted under SFAS 155 and SFAS 156 for certain assets and liabilities. In accordance with SFAS 155, which was the resulting charge takenprimarily adopted on loans held-for-sale carrieda prospective basis, hybrid financial instruments, such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments, may be accounted for at fair value below costif the Company makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. Additional discussion regarding the applicable areas in which SFAS 155 was adopted is presented in Note 17.
SFAS 156 requires all servicing rights to be recognized initially at fair value. At its initial adoption, the standard permits a one-time irrevocable election to re-measure each class of servicing rights at fair value, with the changes in fair value recorded in current earnings. The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. The Company has elected fair-value accounting for its mortgage and student loan classes of servicing rights. The impact of adopting this standard was not material. See Note 15 for further discussions regarding the accounting and reporting of mortgage servicing rights.
The following table presents, as of March 31, 2009, the fair value of those positions selected for fair-value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the changes in fair value for the yearquarters ended March 31, 2009 and March 31, 2008.
| | Fair Value at | Changes in fair value gains (losses) for quarters ended March 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | March 31, 2009 | December 31, 2008 | 2009 | 2008(2) | ||||||||||
| Assets | ||||||||||||||
| Federal funds sold and securities borrowed or purchased under agreements to resell Selected portfolios of securities purchased under agreements to resell, securities borrowed(1) | $ | 79,674 | $ | 70,305 | $ | (289 | ) | $ | 1,093 | |||||
| Trading account assets: | ||||||||||||||
| Legg Mason convertible preferred equity securities originally classified as available-for-sale | $ | — | $ | — | $ | — | $ | (13 | ) | |||||
| Selected letters of credit hedged by credit default swaps or participation notes | 3 | — | 2 | — | ||||||||||
| Certain credit products | 13,047 | 16,254 | 1,139 | (635 | ) | |||||||||
| Certain hybrid financial instruments | 18 | 33 | — | 3 | ||||||||||
| Retained interests from asset securitizations | 2,728 | 3,026 | 507 | 80 | ||||||||||
| Total trading account assets | $ | 15,796 | $ | 19,313 | $ | 1,648 | $ | (565 | ) | |||||
| Investments: | ||||||||||||||
| Certain investments in private equity and real estate ventures | $ | 411 | $ | 469 | $ | (28 | ) | $ | 3 | |||||
| Other | 227 | 295 | (72 | ) | 3 | |||||||||
| Total investments | $ | 638 | $ | 764 | $ | (100 | ) | $ | 6 | |||||
| Loans: | ||||||||||||||
| Certain credit products | $ | 1,944 | $ | 2,315 | $ | (21 | ) | $ | (15 | ) | ||||
| Certain mortgage loans | 32 | 36 | (1 | ) | (2 | ) | ||||||||
| Certain hybrid financial instruments | 377 | 381 | (18 | ) | (5 | ) | ||||||||
| Total loans | $ | 2,353 | $ | 2,732 | $ | (40 | ) | $ | (22 | ) | ||||
| Other assets: | ||||||||||||||
| Mortgage servicing rights | $ | 5,481 | $ | 5,657 | $ | 130 | $ | (353 | ) | |||||
| Certain mortgage loans | 5,256 | 4,273 | 116 | 105 | ||||||||||
| Certain equity method investments | 759 | 936 | (22 | ) | (18 | ) | ||||||||
| Total other assets | $ | 11,496 | $ | 10,866 | $ | 224 | $ | (266 | ) | |||||
| Total | $ | 109,957 | $ | 103,980 | $ | 1,443 | $ | 246 | ||||||
| Liabilities | ||||||||||||||
| Interest-bearing deposits: | ||||||||||||||
| Certain structured liabilities | $ | 232 | $ | 320 | $ | — | $ | 1 | ||||||
| Certain hybrid financial instruments | 2,017 | 2,286 | (74 | ) | 276 | |||||||||
| Total interest-bearing deposits | $ | 2,249 | $ | 2,606 | $ | (74 | ) | $ | 277 | |||||
| Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||
| Selected portfolios of securities sold under agreements to repurchase, securities loaned(1) | $ | 122,317 | $ | 138,866 | $ | 27 | $ | (163 | ) | |||||
| Trading account liabilities: | ||||||||||||||
| Selected letters of credit hedged by credit default swaps or participation notes | $ | 35 | $ | 72 | $ | 37 | $ | — | ||||||
| Certain hybrid financial instruments | 4,237 | 4,679 | 528 | 1,176 | ||||||||||
| Total trading account liabilities | $ | 4,272 | $ | 4,751 | $ | 565 | $ | 1,176 | ||||||
| Short-term borrowings: | ||||||||||||||
| Certain non-collateralized short-term borrowings | $ | 1,342 | $ | 2,303 | $ | 34 | $ | (83 | ) | |||||
| Certain hybrid financial instruments | 615 | 2,112 | 30 | 31 | ||||||||||
| Certain structured liabilities | 3 | 3 | — | — | ||||||||||
| Certain non-structured liabilities | 5,329 | 13,189 | 8 | — | ||||||||||
| Total short-term borrowings | $ | 7,289 | $ | 17,607 | $ | 72 | $ | (52 | ) | |||||
| Long-term debt: | ||||||||||||||
| Certain structured liabilities | $ | 2,802 | $ | 3,083 | $ | 229 | $ | 102 | ||||||
| Certain non-structured liabilities | 5,870 | 7,189 | 44 | 2,409 | ||||||||||
| Certain hybrid financial instruments | 14,663 | 16,991 | 512 | 870 | ||||||||||
| Total long-term debt | $ | 23,335 | $ | 27,263 | $ | 785 | $ | 3,381 | ||||||
| Total | $ | 159,462 | $ | 191,093 | $ | 1,375 | $ | 4,619 | ||||||
Own-Credit Valuation Adjustment
The fair value of debt liabilities for which the fair-value option was elected (other than non-recourse and similar liabilities) was impacted by the widening of the Company's credit spread. 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 $180 million and $1.28 billion for the three months ended March 31, 2009 and March 31, 2008, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current observable credit spreads into the relevant valuation technique used to value each liability as described above.
During the fourth quarter of 2008, the Company changed the source of its credit spreads from those observed in the credit default swap market to those observed in the bond market. Had this modification been in place since the beginning of 2008, the change in the Company's own credit spread would have been a gain of $1.25 billion, or approximately $30 million less than that previously reported.
SFAS 159 The Fair-Value Option for Financial Assets and Financial Liabilities
Legg Mason convertible preferred equity securities
The Legg Mason convertible preferred equity securities (Legg shares) were acquired in connection with the sale of Citigroup's Asset Management business in December 2005. Prior to the election of fair-value option accounting, the shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31, 2007.2006 included inAccumulated other comprehensive income (loss). In connection with the Company's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007Retained earnings as part of the cumulative-effect adjustment.
During the first quarter of 2008, the Company sold the remaining 8.4 million Legg shares at a pretax loss of $10.3 million ($6.7 million after-tax).
Highly Leveraged Financing CommitmentsSelected 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 reportselected the fair-value option retrospectively for our United States and United Kingdom portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings). The fair-value option was also elected prospectively in the second quarter of 2007 for certain portfolios of fixed-income securities lending and borrowing transactions based in Japan. In each case, the election was made because the related interest-rate risk is managed on a numberportfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings. Previously, these positions were accounted for on an accrual basis.
Changes in fair value for transactions in these portfolios are recorded inPrincipal 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. Upon electing the fair-value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair-value option for these transactions because the risk is managed on a fair-value basis and to mitigate accounting mismatches.
The notional amount of these unfunded letters of credit was $1.4 billion as of March 31, 2009 and December 31, 2008. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at March 31, 2009 and December 31, 2008.
These items have been classified appropriately inTrading account assets orTrading account liabilities on the Consolidated Balance Sheet. Changes in fair value of these items are classified inPrincipal transactions in the Company's Consolidated Statement of Income.
Certain 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 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 held-for-sale,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 those management objectives would not be met.
The following table provides information about certain credit products carried at fair value:
| | March 31, 2009 | December 31, 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Trading assets | Loans | Trading assets | Loans | |||||||||
| Carrying amount reported on the Consolidated Balance Sheet | $ | 13,047 | $ | 1,944 | $ | 16,254 | $ | 2,315 | |||||
| Aggregate unpaid principal balance in excess of fair value | $ | 5,601 | $ | 13 | $ | 6,501 | $ | 3 | |||||
| Balance of non-accrual loans or loans more than 90 days past due | $ | 243 | $ | 1,055 | $ | 77 | $ | 1,113 | |||||
| Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due | $ | 114 | $ | (1 | ) | $ | 190 | $ | (4 | ) | |||
In addition to the amounts reported above, $75 million and $72 million of unfunded loan commitments related to certain credit products selected for fair-value accounting were outstanding as of March 31, 2009 and December 31, 2008, respectively.
Changes in fair value of funded and unfunded credit products are classified inPrincipal transactions in the Company's Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported asInterest revenue on trading account assets or loans depending on their balance sheet classifications. The changes in fair value for the three months ended March 31, 2009 and 2008 due to instrument-specific credit risk totaled to a loss of $9 million and $16 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 our investment companies, which are measuredreported at fair value. The fair-value option brings consistency in the accounting and evaluation of certain of these investments. As required by SFAS 159, all investments (debt and equity) in such private equity and real estate entities are accounted for at fair value. These investments are classified asInvestments on Citigroup's Consolidated Balance Sheet.
Citigroup also holds various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. 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. Thus, this fair-value election had no impact on openingRetained earnings. These investments are classified asOther assets on Citigroup's Consolidated Balance Sheet.
Changes in the fair values of these investments are classified inOther revenue in the Company's Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair-value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency 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 LOCOMfair-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.
For those structured liabilities classified asLong-term debt for which the fair-value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $9 million as of March 31, 2009 and $277 million as of December 31, 2008.
The change in fair value for these structured liabilities is reported inPrincipal transactions 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 Income Statement.
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 inShort-term borrowings andLong-term debt on the Company's Consolidated Balance Sheet.
For those non-structured liabilities classified asShort-term borrowings for which the fair-value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $12 million as of March 31, 2009 and the aggregate fair value exceeds the aggregate unpaid principal balance by $5 million as December 31, 2008.
For non-structured liabilities classified asLong-term debt for which the fair-value option has been elected, the aggregate unpaid principal balance exceeded the aggregate fair value of such instruments by $95 million and $97 million as of March 31, 2009 and December 31, 2008, respectively. The change in fair value for these non-structured liabilities is reported inPrincipal 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 Income Statement.
Certain mortgage loans
Citigroup has elected the fair-value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-for-sale. 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. The fair-value option was not elected for loans held-for-investment, as those loans are not hedged with derivative instruments. This election was effective for applicable instruments originated or purchased on or after September 1, 2007.
The following table provides information about certain mortgage loans carried at fair value:
| In millions of dollars | March 31, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
| Carrying amount reported on the Consolidated Balance Sheet | $ | 5,256 | $ | 4,273 | |||
| Aggregate fair value in excess of unpaid principal balance | $ | 155 | $ | 138 | |||
| Balance on non-accrual loans or loans more than 90 days past due | $ | 10 | $ | 9 | |||
| Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due | $ | 6 | $ | 2 | |||
The changes in fair values of these mortgage loans is reported inOther revenue in the Company's Consolidated Statement of Income. The changes in fair value during the three months ended March 31, 2009 and March 31, 2008 due to instrument-specific credit risk resulted in a $5 million loss and $8 million loss, respectively. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Statement of Income.
Items selected for fair-value accounting in accordance with SFAS 155 and SFAS 156
Certain hybrid financial instruments
The Company has elected to apply fair-value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate, foreign exchange or inflation (e.g., equity, credit or commodity risks). In addition, the Company has elected fair-value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets.
The Company has elected fair-value accounting for these instruments because these exposures are considered to be trading-related positions and, therefore, are managed on a fair-value basis. In addition, the accounting for these instruments is simplified under a fair-value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. The hybrid financial instruments are classified asTrading account assets, Loans,Deposits,Trading account liabilities (for prepaid derivatives),Short-term borrowings orLong-Term Debt on the Company's Consolidated Balance Sheet according to their legal form, while residual interests in certain securitizations are classified asTrading account assets.
For hybrid financial instruments for which fair-value accounting has been elected under SFAS 155 and that are classified asLong-term debt, the aggregate unpaid principal exceeds the aggregate fair value by $2.4 billion and $1.9 billion as of March 31, 2009 and December 31, 2008, respectively. The difference for those instruments classified asLoans is immaterial.
Changes in fair value for hybrid financial instruments, which in most cases includes a component for accrued interest, are recorded inPrincipal transactions in the Company's Consolidated Statement of Income. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value asInterest revenue in the Company's Consolidated Statement of Income.
Mortgage servicing rights
The Company accounts for mortgage servicing rights (MSRs) at fair value in accordance with SFAS 156. Fair value for MSRs is determined using an option-adjusted spread valuation approach. This approach consists of projecting servicing cash flows under multiple interest-rate scenarios and discounting these cash flows using risk-adjusted rates. The model assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The fair value of such exposuresMSRs is determined, where possible, using quoted secondary-market prices and classifiedprimarily affected by changes in Level 2prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the fair-value hierarchy if there is a sufficient levelvalues of activityits MSRs through the use of interest-rate derivative contracts, forward-purchase commitments of mortgage-backed securities, and purchased securities classified as trading. See Note 15 for further discussions regarding the accounting and reporting of MSRs.
These MSRs, which totaled $5.5 billion and $5.7 billion as of March 31, 2009 and December 31, 2008, respectively, are classified as Mortgage servicing rights on Citigroup's Consolidated Balance Sheet. Changes in fair value of MSRs are recorded inCommissions and fees in the market and quotes or traded prices are available with suitable frequency.
However, due to the dislocationCompany's Consolidated Statement of the credit markets and the reduced market interest in higher risk/higher yield instruments since the latter half of 2007, liquidity in the market for highly leveraged financings has been limited. Therefore, a majority of such exposures are classified in Level 3 as quoted secondary market prices do not generally exist. The fair value for such exposures is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of the loan being valued.Income.
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. FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), provides initial measurement and disclosure guidance in accounting for guarantees. FIN 45 requires that, for certain contracts meeting the definition of a guarantee, the guarantor must recognize, at inception, a liability for the fair value of the obligation undertaken in issuing the guarantee.
In addition, the guarantor must disclose the maximum potential amount of future payments 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 September 30, 2008March 31, 2009 and December 31, 2007:2008:
| | Maximum potential amount of future payments | | Maximum potential amount of future payments | | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars at September 30, except carrying value in millions | Expire within 1 year | Expire after 1 year | Total amount outstanding | Carrying value (in millions) | ||||||||||||||||||||||
2008 | ||||||||||||||||||||||||||
| In billions of dollars at March 31, except carrying value in millions | Expire within 1 year | Expire after 1 year | Total amount outstanding | Carrying value (in millions) | ||||||||||||||||||||||
| 2009 | ||||||||||||||||||||||||||
Financial standby letters of credit | $ | 28.8 | $ | 54.2 | $ | 83.0 | $ | 154.4 | $ | 63.8 | $ | 30.7 | $ | 94.5 | $ | 296.6 | ||||||||||
Performance guarantees | 8.4 | 7.8 | 16.2 | 27.5 | 11.5 | 3.5 | 15.0 | 24.9 | ||||||||||||||||||
Derivative instruments | 9.2 | 85.1 | 94.3 | 10,556.0 | ||||||||||||||||||||||
| Derivative instruments considered to be guarantees | 9.3 | 4.3 | 13.6 | 2,259.1 | ||||||||||||||||||||||
Loans sold with recourse | — | 0.4 | 0.4 | 59.0 | — | 0.3 | 0.3 | 54.8 | ||||||||||||||||||
Securities lending indemnifications(1) | 114.1 | — | 114.1 | — | 33.8 | — | 33.8 | — | ||||||||||||||||||
Credit card merchant processing(1) | 64.8 | — | 64.8 | — | 48.1 | — | 48.1 | — | ||||||||||||||||||
Custody indemnifications and other | — | 33.1 | 33.1 | 147.3 | — | 20.8 | 20.8 | 151.0 | ||||||||||||||||||
Total | $ | 225.3 | $ | 180.6 | $ | 405.9 | $ | 10,944.2 | $ | 166.5 | $ | 59.6 | $ | 226.1 | $ | 2,786.4 | ||||||||||
| | Maximum potential amount of future payments | | Maximum potential amount of future payments | | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars at December 31, except carrying value in millions | Expire within 1 year | Expire after 1 year | Total amount outstanding | Carrying value (in millions) | Expire within 1 year | Expire after 1 year | Total amount outstanding | Carrying value (in millions) | ||||||||||||||||||
2007(2) | ||||||||||||||||||||||||||
| 2008 | ||||||||||||||||||||||||||
Financial standby letters of credit | $ | 43.5 | $ | 43.6 | $ | 87.1 | $ | 160.6 | $ | 31.6 | $ | 62.6 | $ | 94.2 | $ | 289.0 | ||||||||||
Performance guarantees | 11.3 | 6.8 | 18.1 | 24.4 | 9.4 | 6.9 | 16.3 | 23.6 | ||||||||||||||||||
Derivative instruments | 9.6 | 91.4 | 101.0 | 3,911.0 | ||||||||||||||||||||||
| Derivative instruments considered to be guarantees(2) | 7.6 | 7.2 | 14.8 | 1,308.4 | ||||||||||||||||||||||
| Guarantees of collection of contractual cash flows(1) | — | 0.3 | 0.3 | — | ||||||||||||||||||||||
Loans sold with recourse | — | 0.5 | 0.5 | 45.5 | — | 0.3 | 0.3 | 56.4 | ||||||||||||||||||
Securities lending indemnifications(1) | 153.4 | — | 153.4 | — | 47.6 | — | 47.6 | — | ||||||||||||||||||
Credit card merchant processing(1) | 64.0 | — | 64.0 | — | 56.7 | — | 56.7 | — | ||||||||||||||||||
Custody indemnifications and other | — | 53.4 | 53.4 | 306.0 | — | 21.6 | 21.6 | 149.2 | ||||||||||||||||||
Total | $ | 281.8 | $ | 195.7 | $ | 477.5 | $ | 4,447.5 | $ | 152.9 | $ | 98.9 | $ | 251.8 | $ | 1,826.6 | ||||||||||
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 installationsystems-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.
Derivative Instruments Considered to Be Guarantees
Derivatives are financial instruments whose cash flows are based on a notional amount or an underlying instrument, where there is little or no initial investment, and whose terms require or permit net settlement.
The main use Derivatives may be used for a variety of derivatives isreasons, including risk management, or to reduce risk for one party while offering the potential for high return (at increased risk) to another.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. Certain
The derivative contracts entered into byinstruments considered guarantees, which are presented in the Company meettable above, include only those instruments that require Citi to make payments to the definition of a guarantee, including credit default swaps, total return swaps and certain written options. However, credit derivatives (that is, credit default swaps and total return swaps) with banks, hedge funds, and broker-
dealers are excluded from this definition as thesecounterparty based on changes in an underlying that is related to an asset, a liability, or an equity security held by the guaranteed party. More specifically, derivative instruments considered 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 instruments withmarkets, and may therefore not hold the primary purpose of taking a risk position.underlying instruments). However, credit derivatives sold by the Company are excluded from this presentation, as they are disclosed separately within this note below. 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 are also not considered guarantees under FIN 45. Accordingly, these contracts are excluded from the disclosure above.
In instances where the Company's maximum potential future payment is unlimited, such as in certain written foreign currency options, the notional amount of the contract is disclosed.
Guarantees of Collection of Contractual Cash Flows
Guarantees of collection of contractual cash flows protect investors in credit card receivables securitization trusts from loss of interest relating to insufficient collections on the underlying receivables in the trusts. The notional amount of these guarantees as of December 31, 2008 is $300 million. No such guarantees were outstanding at March 31, 2009.
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.
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 bankcard transactions on behalf of merchants.
Citigroup's primary credit card business is the issuance of credit cards to individuals. In addition, the Company provides transaction processing services to various merchants with respect to bankcard and private labelprivate-label cards. In the event of a billing dispute with respect to a bankcard transaction between a merchant and a cardholder that is ultimately resolved in the cardholder's favor, the third party holds the primary contingent liability to credit or refund the amount to the cardholder and charge back the transaction to the merchant. If the third party is unable to collect this amount from the merchant, it bears the loss for the amount of the credit or refund paid to the cardholder.
The Company continues to have the primary contingent liability with respect to its portfolio of private labelprivate-label merchants. The risk of loss is mitigated as the cash flows between the third party or the Company and the merchant are settled on a net basis and the third party or the Company has the right to offset any payments with cash flows otherwise due to the merchant. To further mitigate this risk, the third party or the Company may require a merchant to make an escrow deposit, delay settlement, or include event triggers to provide the third party or 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, Citigroup is contingently liable to credit or refund cardholders. In addition, although a third party holds the primary contingent liability with respect to the processing of bankcard transactions, in the event that the third party does not have sufficient collateral from the merchant or sufficient financial resources of its own to provide the credit or refunds to the cardholders, Citigroup would be liable to credit or refund the cardholders.
The Company's maximum potential contingent liability related to both bankcard and private label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid chargeback transactions at any given time. At September 30, 2008March 31, 2009 and December 31, 2007,2008, this maximum potential exposure was estimated to be $65$48 billion and $64$57 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 and its position as a secondary guarantor (in the case of bankcards). In most cases, 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 (in the case of bankcards) and the extent and nature of unresolved chargebacks and its historical loss experience. At September 30, 2008March 31, 2009 and December 31, 2007,2008, 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. The scope of the custody indemnifications also covers all clients' assets held by third-party subcustodians.
Other
In the fourth quarterAs of 2007,December 31, 2008, Citigroup recordedcarried a $306reserve of $149 million (pretax) charge related to certain of Visa USA's litigation matters. As of September 30, 2008,March 31, 2009, the carrying value of the reserve is $147 million andwas $151
million. This reserve is included inOther liabilities.liabilities on the Consolidated Balance Sheet.
Other Guarantees and Indemnifications
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 September 30,March 31, 2009 and December 31, 2008, the actual and estimated losses incurred and the carrying value of the Company's obligations related to these programs were immaterial.
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 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 tax indemnifications are essential components of many contractual relationships, they do not represent the underlying business purpose for the transactions. The indemnification clauses are often standard contractual terms related to the Company's own performance under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. Often these clauses are intended to ensure that terms of a contract are met at inception (for example, that loans transferred to a counterparty in a sales transaction did in fact meet the conditions specified in the contract at the transfer date). 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. There are no amounts reflected on the Consolidated Balance Sheet as of September 30, 2008March 31, 2009 and December 31, 2007,2008, related to these indemnifications and they are not included in the table.
In addition, the Company is a member of or shareholder in hundreds of value transfervalue-transfer networks (VTNs) (payment clearing and settlement systems as well as securities exchanges) around the world. As a condition of membership, many of these VTNs require that members stand ready to backstop the net effect on the VTNs of a member's default on its obligations. The Company's potential obligations as a shareholder or member of VTN associations are excluded from the scope of FIN 45, since the shareholders and members represent subordinated classes of investors in the VTNs. Accordingly, the Company's participation in VTNs is not reported in the table and there are no amounts reflected on the Consolidated Balance Sheet as of September 30, 2008March 31, 2009 or December 31, 20072008 for potential obligations that could arise from the Company's involvement with VTN associations.
At September 30, 2008March 31, 2009 and December 31, 2007,2008, the total carrying amounts of the liabilities related to the guarantees and indemnifications included in the table amounted to approximately $11 billion$2,786 million and $4 billion,$1,827 million, respectively. The carrying value of derivative instruments is included in eitherTrading liabilities orOther 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 inOther liabilities.liabilities. For loans sold with recourse, the carrying value of the liability is included inOther liabilities.liabilities. In addition, at September 30, 2008March 31, 2009 and December 31, 2007, 2008,Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $957$947 million and $1.250 billion$887 million relating to letters of credit and unfunded lending commitments, respectively.
In addition to the collateral available in respect of the credit card merchant processing contingent liability discussed above, the Company has collateral available to reimburse potential losses on its other guarantees.Collateral
Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $63$25 billion and $112$33 billion at September 30, 2008March 31, 2009 and December 31, 2007,2008, respectively. Securities and other marketable assets held as collateral amounted to $61$18 billion and $54$27 billion, andthe majority of which collateral is held to reimburse losses realized under securities lending indemnifications. The decrease from December 31, 2008 is in line with the decrease in the notional amount of these indemnifications, which are collateralized. Additionally, letters of credit in favor of the Company held as collateral amounted to $495$597 million and $370$503 million at September 30, 2008March 31, 2009 and December 31, 2007,2008, 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
Citigroup 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 Citigroup internal ratings are in line with the related external rating system. On certain underlying referenced credits or entities, ratings are not available. Such referenced credits are included in the "Not-rated" category. The maximum potential amount of the future payments related to guarantees and credit derivatives sold is determined to be the notional amount of these contracts, which is the par amount of the assets guaranteed.
Presented in the tables below is the maximum potential amount of future payments classified based upon internal and external credit ratings as of March 31, 2009 and December 31, 2008. 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 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars as of March 31, 2009 | Investment grade | Non-investment grade | Not rated | Total | |||||||||
| Financial standby letters of credit | $ | 36.4 | $ | 28.5 | $ | 29.6 | $ | 94.5 | |||||
| Performance guarantees | 5.9 | 3.8 | 5.3 | 15.0 | |||||||||
| Derivative instruments deemed to be guarantees | — | — | 13.6 | 13.6 | |||||||||
| Loans sold with recourse | — | — | 0.3 | 0.3 | |||||||||
| Securities lending indemnifications | — | — | 33.8 | 33.8 | |||||||||
| Credit card merchant processing | — | — | 48.1 | 48.1 | |||||||||
| Custody indemnifications and other | 17.6 | 3.2 | — | 20.8 | |||||||||
| Total | $ | 59.9 | $ | 35.5 | $ | 130.7 | $ | 226.1 | |||||
| | Maximum potential amount of future payments | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars as of December 31, 2008 | Investment grade | Non-investment grade | Not rated | Total | |||||||||
| Financial standby letters of credit | $ | 49.2 | $ | 28.6 | $ | 16.4 | $ | 94.2 | |||||
| Performance guarantees | 5.7 | 5.0 | 5.6 | 16.3 | |||||||||
| Derivative instruments deemed to be guarantees | — | — | 14.8 | 14.8 | |||||||||
| Guarantees of collection of contractual cash flows | — | — | 0.3 | 0.3 | |||||||||
| Loans sold with recourse | — | — | 0.3 | 0.3 | |||||||||
| Securities lending indemnifications | — | — | 47.6 | 47.6 | |||||||||
| Credit card merchant processing | — | — | 56.7 | 56.7 | |||||||||
| Custody indemnifications and other | 18.5 | 3.1 | — | 21.6 | |||||||||
| Total | $ | 73.4 | $ | 36.7 | $ | 141.7 | $ | 251.8 | |||||
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.
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 loan portfolio 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 and credit options.
A credit default swap is a contract in which, for a fee, a protection seller (guarantor) agrees to reimburse a protection buyer (beneficiary) 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 guarantor makes no payments to the beneficiary and receives only the contractually specified fee. However, if a credit event occurs as defined in the specific derivative contract sold, the guarantor will be required to make a payment to the beneficiary.
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 (beneficiary) receives a floating rate of interest and any depreciation on the reference asset from the protection seller (guarantor) 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 beneficiary 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 (guarantor) and the protection buyer (beneficiary).
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 (guarantor) assumes the obligation to purchase or sell the reference asset at a specified "strike" spread level. The option purchaser (beneficiary) 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 March 31, 2009 and December 31, 2008, 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 (guarantor) as of March 31, 2009 and December 31, 2008:
| In millions of dollars as of March 31, 2009 | Maximum potential amount of future payments | Fair value payable | |||||
|---|---|---|---|---|---|---|---|
| By industry/counterparty | |||||||
| Bank | $ | 919,354 | $ | 123,437 | |||
| Broker-dealer | 345,582 | 56,181 | |||||
| Monoline | 139 | 91 | |||||
| Non-financial | 5,327 | 5,121 | |||||
| Insurance and other financial institutions | 135,729 | 21,581 | |||||
| Total by industry/counterparty | $ | 1,406,131 | $ | 206,411 | |||
| By instrument: | |||||||
| Credit default swaps and options | $ | 1,404,928 | $ | 206,057 | |||
| Total return swaps and other | 1,203 | 354 | |||||
| Total by instrument | $ | 1,406,131 | $ | 206,411 | |||
| By rating: | |||||||
| Investment grade | $ | 808,602 | $ | 88,952 | |||
| Non-investment grade | 362,851 | 79,409 | |||||
| Not rated | 234,678 | 38,050 | |||||
| Total by rating | $ | 1,406,131 | $ | 206,411 | |||
| In millions of dollars as of December 31, 2008 | Maximum potential amount of future payments | Fair value payable | |||||
|---|---|---|---|---|---|---|---|
| By industry/counterparty | |||||||
| Bank | $ | 943,949 | $ | 118,428 | |||
| Broker-dealer | 365,664 | 55,458 | |||||
| Monoline | 139 | 91 | |||||
| Non-financial | 7,540 | 2,556 | |||||
| Insurance and other financial institutions | 125,988 | 21,700 | |||||
| Total by industry/counterparty | $ | 1,443,280 | $ | 198,233 | |||
| By instrument: | |||||||
| Credit default swaps and options | $ | 1,441,375 | $ | 197,981 | |||
| Total return swaps and other | 1,905 | 252 | |||||
| Total by instrument | $ | 1,443,280 | $ | 198,233 | |||
| By rating: | |||||||
| Investment grade | $ | 851,426 | $ | 83,672 | |||
| Non-investment grade | 410,483 | 87,508 | |||||
| Not rated | 181,371 | 27,053 | |||||
| Total by rating | $ | 1,443,280 | $ | 198,233 | |||
Citigroup evaluates the payment/performance risk of the credit derivatives to which it stands as guarantor based on the credit rating which has been 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 referenced credit, 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 referenced 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.
Credit Commitments
The table below summarizes Citigroup's other commitments as of September 30, 2008March 31, 2009 and December 31, 2007.2008.
| In millions of dollars | U.S. | Outside of U.S. | September 30, 2008 | December 31, 2007 | U.S. | Outside U.S. | March 31, 2009 | December 31, 2008 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial and similar letters of credit | $ | 2,440 | $ | 7,249 | $ | 9,689 | $ | 9,175 | $ | 2,085 | $ | 5,233 | $ | 7,318 | $ | 8,215 | ||||||||||
One- to four-family residential mortgages | 832 | 363 | 1,195 | 4,587 | 734 | 258 | 992 | 937 | ||||||||||||||||||
Revolving open-end loans secured by one- to four-family residential properties | 25,193 | 2,926 | 28,119 | 35,187 | 24,611 | 2,573 | 27,184 | 25,212 | ||||||||||||||||||
Commercial real estate, construction and land development | 2,496 | 700 | 3,196 | 4,834 | 1,744 | 581 | 2,325 | 2,702 | ||||||||||||||||||
Credit card lines | 939,992 | 155,872 | 1,095,864 | 1,103,535 | 750,451 | 126,881 | 877,332 | 1,002,437 | ||||||||||||||||||
Commercial and other consumer loan commitments | 267,119 | 133,605 | 400,724 | 473,631 | 199,803 | 86,558 | 286,361 | 309,997 | ||||||||||||||||||
Total | $ | 1,238,072 | $ | 300,715 | $ | 1,538,787 | $ | 1,630,949 | $ | 979,428 | $ | 222,084 | $ | 1,201,512 | $ | 1,349,500 | ||||||||||
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 Citigroup substitutes its credit for that of a customer to enable the customercustomers to finance the purchase of goods or to incur
other commitments. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay them upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit. When drawn, the customer then is required to reimburse Citigroup.
One- to four-family residential mortgages
A one- to four-family residential mortgage commitment is a written confirmation from Citigroup to a seller of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.
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, constructionReal Estate, Construction and land developmentLand 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 realsecured-by-real estate and unsecured commitments are included in this line. In addition, undistributed loan proceeds where there is an obligation to advance for construction progress, payments are also included.included in this line. However, this line only includes those extensions of credit that once funded will be classified as Loans on the Consolidated Balance Sheet.
Credit card lines
Citigroup 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 commercial commitments to make or purchase loans, to purchase third-party receivables and to provide note issuance or revolving underwriting facilities. Amounts include $175$130 billion and $259$140 billion with an original maturity of less than one year at September 30, 2008March 31, 2009 and December 31, 2007,2008, respectively.
In addition, included in this line item are highly leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. This type of financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.
19.20. CONTINGENCIES
As described in the "Legal Proceedings" discussion on page 157, theThe Company has beenis a defendant in numerous lawsuits and other legal proceedings, arising out of alleged misconduct in connection with:
As of September 30, 2008, the Company's litigation reserve for these matters, net of amounts previously paid or not yet paid but committed to be paid in connection with settlements arising out of these matters, was approximately $0.8 billion. The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters.
As described in theunder "Legal Proceedings" discussion on page 157, the Company is also a defendant in numerous lawsuits and other legal proceedingsProceedings," arising out of alleged misconduct in connection with othercertain matters. In view of the large number of litigationsuch matters, the uncertainties of the timing and outcome of this type of litigation, the novel issues presented, and the significant amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the Company's litigation reserves. The Company will continue to defend itself vigorously in these cases, and seek to resolve them in the manner management believes is in the best interests of the Company.
In addition, in the ordinary course of business, Citigroup and its subsidiaries are defendants or co-defendants or parties in various litigation and regulatory matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the consolidated financial condition of the Company but, if involving monetary liability, may be material to the Company's operating results for any particular period.
20.21. CITIBANK, N.A. STOCKHOLDER'S EQUITY
Statement of Changes in Stockholder's Equity (Unaudited)
| | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars, except shares | 2008 | 2007 | 2009 | 2008 | ||||||||||
Common stock ($20 par value) | ||||||||||||||
Balance, beginning of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | ||||||||||
| Balance, beginning of period—Shares: 37,534,553 in 2009 and 2008 | $ | 751 | $ | 751 | ||||||||||
Balance, end of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | ||||||||||
| Balance, end of period—Shares: 37,534,553 in 2009 and 2008 | $ | 751 | $ | 751 | ||||||||||
Surplus | ||||||||||||||
Balance, beginning of period | $ | 69,135 | $ | 43,753 | $ | 74,767 | $ | 69,135 | ||||||
Capital contribution from parent company | 77 | 11,794 | 27,451 | 18 | ||||||||||
Employee benefit plans | 107 | 60 | 1 | 1 | ||||||||||
Balance, end of period | $ | 69,319 | $ | 55,607 | $ | 102,219 | $ | 69,154 | ||||||
Retained earnings | ||||||||||||||
Balance, beginning of period | $ | 31,915 | $ | 30,358 | $ | 21,735 | $ | 31,915 | ||||||
Adjustment to opening balance, net of taxes(1) | — | (96 | ) | 402 | — | |||||||||
Adjusted balance, beginning of period | $ | 31,915 | $ | 30,262 | $ | 22,137 | $ | 31,915 | ||||||
Net income (loss) | (1,450 | ) | 6,821 | 1,470 | (881 | ) | ||||||||
Dividends paid | (34 | ) | (582 | ) | — | (8 | ) | |||||||
| Other(2) | 117 | — | ||||||||||||
Balance, end of period | $ | 30,431 | $ | 36,501 | $ | 23,724 | $ | 31,026 | ||||||
Accumulated other comprehensive income (loss) | ||||||||||||||
Balance, beginning of period | $ | (2,495 | ) | $ | (1,709 | ) | $ | (15,895 | ) | $ | (2,495 | ) | ||
Adjustment to opening balance, net of taxes(2) | — | (1 | ) | |||||||||||
| Adjustment to opening balance, net of taxes(1) | (402 | ) | — | |||||||||||
Adjusted balance, beginning of period | $ | (2,495 | ) | $ | (1,710 | ) | $ | (16,297 | ) | $ | (2,495 | ) | ||
Net change in unrealized gains (losses) on investment securities available-for-sale, net of taxes | (4,971 | ) | (741 | ) | (125 | ) | (1,942 | ) | ||||||
Net change in foreign currency translation adjustment, net of taxes | (2,244 | ) | 1,688 | |||||||||||
| Net change in FX translation adjustment, net of taxes | (2,106 | ) | 799 | |||||||||||
Net change in cash flow hedges, net of taxes | (214 | ) | (972 | ) | 1,131 | (1,008 | ) | |||||||
Pension liability adjustment, net of taxes | 90 | 88 | 24 | 48 | ||||||||||
Net change in Accumulated other comprehensive income (loss) | $ | (7,339 | ) | $ | 63 | $ | (1,076 | ) | $ | (2,103 | ) | |||
Balance, end of period | $ | (9,834 | ) | $ | (1,647 | ) | $ | (17,373 | ) | $ | (4,598 | ) | ||
Total common stockholder's equity and total stockholder's equity | $ | 90,667 | $ | 91,212 | ||||||||||
| Total Citibank common stockholder's equity and total Citibank stockholder's equity | $ | 109,321 | $ | 96,333 | ||||||||||
| Noncontrolling interest | ||||||||||||||
| Balance, beginning of period | 1,082 | 1,266 | ||||||||||||
| Transactions between Citi and the noncontrolling interest shareholders | (130 | ) | — | |||||||||||
| Net income attributable to noncontrolling interest shareholders | 8 | 25 | ||||||||||||
| Dividends paid to noncontrolling interest shareholders | (6 | ) | (6 | ) | ||||||||||
| Accumulated other comprehensive income—Net change in unrealized gains and losses on investments securities, net of tax | (3 | ) | 1 | |||||||||||
| Accumulated other comprehensive income—Net change in FX translation adjustment, net of tax | (86 | ) | 69 | |||||||||||
| All other | (5 | ) | (2 | ) | ||||||||||
| Net change in noncontrolling interest | $ | (222 | ) | $ | 87 | |||||||||
| Balance, end of period | $ | 860 | $ | 1,353 | ||||||||||
| Total equity | $ | 110,181 | $ | 97,686 | ||||||||||
Comprehensive income (loss) | ||||||||||||||
Net income (loss) | $ | (1,450 | ) | $ | 6,821 | $ | 1,478 | $ | (856 | ) | ||||
Net change in Accumulated other comprehensive income (loss) | (7,339 | ) | 63 | (1,165 | ) | (2,033 | ) | |||||||
Comprehensive income (loss) | $ | (8,789 | ) | $ | 6,884 | $ | 313 | $ | (2,889 | ) | ||||
| Comprehensive income attributable to the noncontrolling interest | 81 | (95 | ) | |||||||||||
| Comprehensive income attributable to Citibank | $ | 394 | $ | (2,984 | ) | |||||||||
See Notes 1 and 17 on pages 88 and 126, respectively.
21.22. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES
These unaudited condensed consolidating financial statement 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-ownedwholly owned subsidiary of Citigroup. CCC is a wholly-ownedwholly 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-ownedwholly 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-ownedwholly 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 intercompany eliminations.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.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| | Three Months Ended September 30, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | |||||||||||||||||
Revenues | |||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 169 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (169 | ) | $ | — | ||||||||
Interest revenue | $ | 226 | $ | 4,455 | $ | — | $ | 1,819 | $ | 2,084 | $ | 19,417 | $ | (1,819 | ) | $ | 26,182 | ||||||||
Interest revenue—intercompany | 1,098 | 565 | 1,269 | 21 | 147 | (3,079 | ) | (21 | ) | — | |||||||||||||||
Interest expense | 2,388 | 2,740 | 835 | 33 | 154 | 6,659 | (33 | ) | 12,776 | ||||||||||||||||
Interest expense—intercompany | (101 | ) | 1,867 | (1 | ) | 605 | 490 | (2,255 | ) | (605 | ) | — | |||||||||||||
Net interest revenue | $ | (963 | ) | $ | 413 | $ | 435 | $ | 1,202 | $ | 1,587 | $ | 11,934 | $ | (1,202 | ) | $ | 13,406 | |||||||
Commissions and fees | $ | — | $ | 1,841 | $ | — | $ | 20 | $ | 43 | $ | 1,541 | $ | (20 | ) | $ | 3,425 | ||||||||
Commissions and fees—intercompany | 346 | 21 | — | 9 | 11 | (378 | ) | (9 | ) | — | |||||||||||||||
Principal transactions | (497 | ) | (3,318 | ) | 2,239 | — | (1 | ) | (1,327 | ) | — | (2,904 | ) | ||||||||||||
Principal transactions—intercompany | 335 | (900 | ) | (1,542 | ) | — | 36 | 2,071 | — | — | |||||||||||||||
Other income | 332 | 784 | (130 | ) | 65 | 87 | 1,680 | (65 | ) | 2,753 | |||||||||||||||
Other income—intercompany | 206 | 35 | 97 | 8 | 3 | (341 | ) | (8 | ) | — | |||||||||||||||
Total non-interest revenues | $ | 722 | $ | (1,537 | ) | $ | 664 | $ | 102 | $ | 179 | $ | 3,246 | $ | (102 | ) | $ | 3,274 | |||||||
Total revenues, net of interest expense | $ | (72 | ) | $ | (1,124 | ) | $ | 1,099 | $ | 1,304 | $ | 1,766 | $ | 15,180 | $ | (1,473 | ) | $ | 16,680 | ||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 7 | — | $ | 1,288 | $ | 1,368 | $ | 7,692 | $ | (1,288 | ) | $ | 9,067 | |||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | (57 | ) | $ | 2,244 | $ | — | $ | 174 | $ | 232 | $ | 5,446 | $ | (174 | ) | $ | 7,865 | |||||||
Compensation and benefits— intercompany | 2 | 226 | — | 46 | 46 | (274 | ) | (46 | ) | — | |||||||||||||||
Other expense | 42 | 925 | 1 | 159 | 208 | 5,384 | (159 | ) | 6,560 | ||||||||||||||||
Other expense—intercompany | 451 | (120 | ) | 3 | 174 | 162 | (496 | ) | (174 | ) | — | ||||||||||||||
Total operating expenses | $ | 438 | $ | 3,275 | $ | 4 | $ | 553 | $ | 648 | $ | 10,060 | $ | (553 | ) | $ | 14,425 | ||||||||
Income (loss) from continuing operations before taxes, minority interest, and equity in undistributed income of subsidiaries | $ | (510 | ) | $ | (4,406 | ) | $ | 1,095 | $ | (537 | ) | $ | (250 | ) | $ | (2,572 | ) | $ | 368 | $ | (6,812 | ) | |||
Income taxes (benefits) | (868 | ) | (1,893 | ) | 376 | (185 | ) | (77 | ) | (832 | ) | 185 | (3,294 | ) | |||||||||||
Minority interest, net of taxes | — | — | — | — | — | (95 | ) | — | (95 | ) | |||||||||||||||
Equities in undistributed income of subsidiaries | (3,386 | ) | — | — | — | — | — | 3,386 | — | ||||||||||||||||
Income (loss) from continuing operations | $ | (3,028 | ) | $ | (2,513 | ) | $ | 719 | $ | (352 | ) | $ | (173 | ) | $ | (1,645 | ) | $ | 3,569 | $ | (3,423 | ) | |||
Income from discontinued operations, net of taxes | 213 | — | — | — | — | 395 | — | 608 | |||||||||||||||||
Net income (loss) | $ | (2,815 | ) | $ | (2,513 | ) | $ | 719 | $ | (352 | ) | $ | (173 | ) | $ | (1,250 | ) | $ | 3,569 | $ | (2,815 | ) | |||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| | Three Months Ended September 30, 2007 | Three Months Ended March 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | ||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 910 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (910 | ) | $ | — | $ | 19 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (19 | ) | $ | — | ||||||||||||||||
Interest revenue | $ | 103 | $ | 8,716 | $ | 4 | $ | 1,743 | $ | 2,010 | $ | 21,434 | $ | (1,743 | ) | $ | 32,267 | 120 | 2,269 | — | 1,633 | 1,864 | 16,356 | (1,633 | ) | 20,609 | ||||||||||||||||||||||||
Interest revenue—intercompany | 1,423 | 390 | 1,739 | 32 | 197 | (3,749 | ) | (32 | ) | — | 802 | 708 | 1,060 | 10 | 116 | (2,686 | ) | (10 | ) | — | ||||||||||||||||||||||||||||||
Interest expense | 2,043 | 6,798 | 1,322 | 44 | 189 | 10,071 | (44 | ) | 20,423 | 2,224 | 691 | 516 | 25 | 102 | 4,178 | (25 | ) | 7,711 | ||||||||||||||||||||||||||||||||
Interest expense—intercompany | (26 | ) | 1,581 | 125 | 616 | 779 | (2,459 | ) | (616 | ) | — | (236 | ) | 1,099 | 179 | 576 | 470 | (1,512 | ) | (576 | ) | — | ||||||||||||||||||||||||||||
Net interest revenue | $ | (491 | ) | $ | 727 | $ | 296 | $ | 1,115 | $ | 1,239 | $ | 10,073 | $ | (1,115 | ) | $ | 11,844 | $ | (1,066 | ) | $ | 1,187 | $ | 365 | $ | 1,042 | $ | 1,408 | $ | 11,004 | $ | (1,042 | ) | $ | 12,898 | ||||||||||||||
Commissions and fees | $ | — | $ | 2,449 | $ | — | $ | 31 | $ | 53 | $ | 1,442 | $ | (31 | ) | $ | 3,944 | $ | — | $ | 1,653 | $ | — | $ | 11 | $ | 30 | $ | 2,643 | $ | (11 | ) | $ | 4,326 | ||||||||||||||||
Commissions and fees—intercompany | — | 56 | — | 4 | 6 | (62 | ) | (4 | ) | — | — | 33 | — | 19 | 21 | (54 | ) | (19 | ) | — | ||||||||||||||||||||||||||||||
Principal transactions | 292 | (3,213 | ) | 60 | — | 1 | 2,614 | — | (246 | ) | (357 | ) | (1,704 | ) | 986 | — | (2 | ) | 4,871 | — | 3,794 | |||||||||||||||||||||||||||||
Principal transactions—intercompany | 83 | 1,098 | (313 | ) | — | 7 | (875 | ) | — | — | 143 | 3,138 | (673 | ) | — | (10 | ) | (2,598 | ) | — | — | |||||||||||||||||||||||||||||
Other income | (1,097 | ) | 1,096 | (17 | ) | 121 | 159 | 5,957 | (121 | ) | 6,098 | 3,522 | 702 | (40 | ) | 102 | 148 | (561 | ) | (102 | ) | 3,771 | ||||||||||||||||||||||||||||
Other income—intercompany | 821 | 451 | 26 | 7 | 4 | (1,302 | ) | (7 | ) | — | (2,369 | ) | 18 | 30 | — | 24 | 2,297 | — | — | |||||||||||||||||||||||||||||||
Total non-interest revenues | $ | 99 | $ | 1,937 | $ | (244 | ) | $ | 163 | $ | 230 | $ | 7,774 | $ | (163 | ) | $ | 9,796 | $ | 939 | $ | 3,840 | $ | 303 | $ | 132 | $ | 211 | $ | 6,598 | $ | (132 | ) | $ | 11,891 | |||||||||||||||
Total revenues, net of interest expense | $ | 518 | $ | 2,664 | $ | 52 | $ | 1,278 | $ | 1,469 | $ | 17,847 | $ | (2,188 | ) | $ | 21,640 | $ | (108 | ) | $ | 5,027 | $ | 668 | $ | 1,174 | $ | 1,619 | $ | 17,602 | $ | (1,193 | ) | $ | 24,789 | |||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 5 | $ | — | $ | 759 | $ | 839 | $ | 4,023 | $ | (759 | ) | $ | 4,867 | $ | — | $ | 24 | $ | — | $ | 956 | $ | 1,051 | $ | 9,232 | $ | (956 | ) | $ | 10,307 | ||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 47 | $ | 1,812 | $ | — | $ | 176 | $ | 226 | $ | 5,510 | $ | (176 | ) | $ | 7,595 | $ | (50 | ) | $ | 1,857 | $ | — | $ | 120 | $ | 148 | $ | 4,464 | $ | (120 | ) | $ | 6,419 | |||||||||||||||
Compensation and benefits—intercompany | 2 | 1 | — | 39 | 40 | (43 | ) | (39 | ) | — | 2 | 193 | — | — | 37 | (232 | ) | — | — | |||||||||||||||||||||||||||||||
Other expense | 84 | 1,011 | 1 | 123 | 167 | 5,294 | (123 | ) | 6,557 | 228 | 659 | 1 | 109 | 147 | 4,633 | (109 | ) | 5,668 | ||||||||||||||||||||||||||||||||
Other expense—intercompany | 62 | 512 | 14 | 73 | 114 | (702 | ) | (73 | ) | — | 109 | 6 | 3 | 166 | 153 | (271 | ) | (166 | ) | — | ||||||||||||||||||||||||||||||
Total operating expenses | $ | 195 | $ | 3,336 | $ | 15 | $ | 411 | $ | 547 | $ | 10,059 | $ | (411 | ) | $ | 14,152 | $ | 289 | $ | 2,715 | $ | 4 | $ | 395 | $ | 485 | $ | 8,594 | $ | (395 | ) | $ | 12,087 | ||||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 323 | $ | (677 | ) | $ | 37 | $ | 108 | $ | 83 | $ | 3,765 | $ | (1,018 | ) | $ | 2,621 | ||||||||||||||||||||||||||||||||
| Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | (397 | ) | $ | 2,288 | $ | 664 | $ | (177 | ) | $ | 83 | $ | (224 | ) | $ | 158 | $ | 2,395 | |||||||||||||||||||||||||||||||
Income taxes (benefits) | (296 | ) | (253 | ) | 10 | 42 | 19 | 1,012 | (42 | ) | 492 | 651 | 692 | 232 | (59 | ) | 32 | (822 | ) | 59 | 785 | |||||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 20 | — | 20 | ||||||||||||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 1,593 | — | — | — | — | — | (1,593 | ) | — | 2,641 | — | — | — | — | — | (2,641 | ) | — | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,733 | $ | (2,569 | ) | $ | 2,109 | ||||||||||||||||||||||||||||||||
| Income (Loss) from continuing operations | $ | 1,593 | $ | 1,596 | $ | 432 | $ | (118 | ) | $ | 51 | $ | 598 | $ | (2,542 | ) | $ | 1,610 | ||||||||||||||||||||||||||||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | 103 | — | 103 | — | — | — | — | — | (33 | ) | — | (33 | ) | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | ||||||||||||||||||||||||||||||||
| Net income (Loss) before attribution of Noncontrolling Interests | $ | 1,593 | $ | 1,596 | $ | 432 | $ | (118 | ) | $ | 51 | $ | 565 | $ | (2,542 | ) | $ | 1,577 | ||||||||||||||||||||||||||||||||
| Net Income (Loss) attributable to Noncontrolling Interests | — | (1 | ) | — | — | — | (15 | ) | — | (16 | ) | |||||||||||||||||||||||||||||||||||||||
| Citigroup's Net Income (Loss) | $ | 1,593 | $ | 1,597 | $ | 432 | $ | (118 | ) | $ | 51 | $ | 580 | $ | (2,542 | ) | $ | 1,593 | ||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| | Nine Months Ended September 30, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | |||||||||||||||||
Revenues | |||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 1,617 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,617 | ) | $ | — | ||||||||
Interest revenue | $ | 544 | $ | 15,239 | $ | 1 | $ | 5,447 | $ | 6,278 | $ | 60,682 | $ | (5,447 | ) | $ | 82,744 | ||||||||
Interest revenue—intercompany | 3,508 | 1,564 | 3,911 | 57 | 441 | (9,424 | ) | (57 | ) | ||||||||||||||||
Interest expense | 6,987 | 10,076 | 2,645 | 108 | 491 | 22,106 | (108 | ) | 42,305 | ||||||||||||||||
Interest expense—intercompany | (242 | ) | 4,293 | 186 | 1,837 | 1,651 | (5,888 | ) | (1,837 | ) | — | ||||||||||||||
Net interest revenue | $ | (2,693 | ) | $ | 2,434 | $ | 1,081 | $ | 3,559 | $ | 4,577 | $ | 35,040 | $ | (3,559 | ) | $ | 40,439 | |||||||
Commissions and fees | $ | — | $ | 6,381 | $ | 1 | $ | 61 | $ | 135 | $ | 4,527 | $ | (61 | ) | $ | 11,044 | ||||||||
Commissions and fees—intercompany | — | 453 | $ | — | 24 | 32 | (485 | ) | (24 | ) | — | ||||||||||||||
Principal transactions | 5 | (20,400 | ) | 3,524 | — | (1 | ) | 1,716 | — | (15,156 | ) | ||||||||||||||
Principal transactions—intercompany | 115 | 4,680 | (2,647 | ) | — | 26 | (2,174 | ) | — | — | |||||||||||||||
Other income | 443 | 2,798 | (45 | ) | 286 | 378 | 7,297 | (286 | ) | 10,871 | |||||||||||||||
Other income—intercompany | (33 | ) | 619 | 33 | 21 | 78 | (697 | ) | (21 | ) | — | ||||||||||||||
Total non-interest revenues | $ | 530 | $ | (5,469 | ) | $ | 866 | $ | 392 | $ | 648 | $ | 10,184 | $ | (392 | ) | $ | 6,759 | |||||||
Total revenues, net of interest expense | $ | (546 | ) | $ | (3,035 | ) | $ | 1,947 | $ | 3,951 | $ | 5,225 | $ | 45,224 | $ | (5,568 | ) | $ | 47,198 | ||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 307 | $ | — | $ | 3,046 | $ | 3,315 | $ | 18,397 | $ | (3,046 | ) | $ | 22,019 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | (106 | ) | $ | 7,728 | $ | — | $ | 545 | $ | 747 | $ | 17,489 | $ | (545 | ) | $ | 25,858 | |||||||
Compensation and benefits—intercompany | 6 | 693 | — | 145 | 146 | (845 | ) | (145 | ) | — | |||||||||||||||
Other expense | 158 | 2,848 | 2 | 416 | 550 | 16,428 | (416 | ) | 19,986 | ||||||||||||||||
Other expense—intercompany | 596 | 711 | 49 | 336 | 367 | (1,723 | ) | (336 | ) | — | |||||||||||||||
Total operating expenses | $ | 654 | $ | 11,980 | $ | 51 | $ | 1,442 | $ | 1,810 | $ | 31,349 | $ | (1,442 | ) | $ | 45,844 | ||||||||
Income (loss) from continuing operations before taxes, minority interest, and equity in undistributed income of subsidiaries | $ | (1,200 | ) | $ | (15,322 | ) | $ | 1,896 | $ | (537 | ) | $ | 100 | $ | (4,522 | ) | $ | (1,080 | ) | $ | (20,665 | ) | |||
Income taxes (benefits) | (1,643 | ) | (6,273 | ) | 656 | (174 | ) | 54 | (2,431 | ) | 174 | (9,637 | ) | ||||||||||||
Minority interest, net of taxes | — | — | — | — | — | (40 | ) | — | (40 | ) | |||||||||||||||
Equities in undistributed income of subsidiaries | $ | (11,077 | ) | — | — | — | — | — | $ | 11,077 | — | ||||||||||||||
Income (loss) from continuing operations | $ | (10,634 | ) | $ | (9,049 | ) | $ | 1,240 | $ | (363 | ) | $ | 46 | $ | (2,051 | ) | $ | 9,823 | $ | (10,988 | ) | ||||
Income from discontinued operations, net of taxes | 213 | — | — | — | — | 354 | — | 567 | |||||||||||||||||
Net income (loss) | $ | (10,421 | ) | $ | (9,049 | ) | $ | 1,240 | $ | (363 | ) | $ | 46 | $ | (1,697 | ) | $ | 9,823 | $ | (10,421 | ) | ||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| | Nine Months Ended September 30, 2007 | Three Months Ended March 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | ||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 7,746 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,746 | ) | $ | — | $ | 1,366 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,366 | ) | $ | — | ||||||||||||||||
Interest revenue | $ | 299 | $ | 23,938 | $ | 4 | $ | 4,949 | $ | 5,771 | $ | 59,561 | $ | (4,949 | ) | $ | 89,573 | 134 | 5,824 | — | 1,812 | 2,092 | 21,140 | (1,812 | ) | 29,190 | ||||||||||||||||||||||||
Interest revenue—intercompany | 4,065 | 1,086 | 4,435 | 105 | 460 | (10,046 | ) | (105 | ) | — | 1,306 | 445 | 1,412 | 11 | 151 | (3,314 | ) | (11 | ) | — | ||||||||||||||||||||||||||||||
Interest expense | 5,753 | 18,797 | 3,260 | 137 | 560 | 28,057 | (137 | ) | 56,427 | 2,291 | 4,063 | 961 | 41 | 175 | 8,632 | (41 | ) | 16,122 | ||||||||||||||||||||||||||||||||
Interest expense—intercompany | (69 | ) | 4,107 | 521 | 1,650 | 2,147 | (6,706 | ) | (1,650 | ) | — | (27 | ) | 1,406 | 108 | 624 | 693 | (2,180 | ) | (624 | ) | — | ||||||||||||||||||||||||||||
Net interest revenue | $ | (1,320 | ) | $ | 2,120 | $ | 658 | $ | 3,267 | $ | 3,524 | $ | 28,164 | $ | (3,267 | ) | $ | 33,146 | $ | (824 | ) | $ | 800 | $ | 343 | $ | 1,158 | $ | 1,375 | $ | 11,374 | $ | (1,158 | ) | $ | 13,068 | ||||||||||||||
Commissions and fees | $ | — | $ | 8,122 | $ | — | $ | 75 | $ | 140 | $ | 7,696 | $ | (75 | ) | $ | 15,958 | $ | — | $ | 2,233 | $ | — | $ | 20 | $ | 47 | $ | (704 | ) | $ | (20 | ) | $ | 1,576 | |||||||||||||||
Commissions and fees—intercompany | — | 95 | — | 14 | 16 | (111 | ) | (14 | ) | — | (10 | ) | 72 | — | 7 | 11 | (73 | ) | (7 | ) | — | |||||||||||||||||||||||||||||
Principal transactions | 91 | (887 | ) | (412 | ) | — | 4 | 6,751 | — | 5,547 | 958 | (7,568 | ) | 816 | — | (4 | ) | (865 | ) | — | (6,663 | ) | ||||||||||||||||||||||||||||
Principal transactions—intercompany | 66 | 1,111 | (162 | ) | — | (31 | ) | (984 | ) | — | — | (284 | ) | 176 | (582 | ) | — | 23 | 667 | — | — | |||||||||||||||||||||||||||||
Other income | (131 | ) | 3,446 | 119 | 341 | 504 | 13,487 | (341 | ) | 17,425 | (1,756 | ) | 964 | (66 | ) | 109 | 134 | 5,184 | (109 | ) | 4,460 | |||||||||||||||||||||||||||||
Other income—intercompany | (5 | ) | 1,079 | (89 | ) | 20 | (39 | ) | (946 | ) | (20 | ) | — | 1,306 | 540 | 70 | 7 | 26 | (1,942 | ) | (7 | ) | — | |||||||||||||||||||||||||||
Total non-interest revenues | $ | 21 | $ | 12,966 | $ | (544 | ) | $ | 450 | $ | 594 | $ | 25,893 | $ | (450 | ) | $ | 38,930 | $ | 214 | $ | (3,583 | ) | $ | 238 | $ | 143 | $ | 237 | $ | 2,267 | $ | (143 | ) | $ | (627 | ) | |||||||||||||
Total revenues, net of interest expense | $ | 6,447 | $ | 15,086 | $ | 114 | $ | 3,717 | $ | 4,118 | $ | 54,057 | $ | (11,463 | ) | $ | 72,076 | $ | 756 | $ | (2,783 | ) | $ | 581 | $ | 1,301 | $ | 1,612 | $ | 13,641 | $ | (2,667 | ) | $ | 12,441 | |||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 29 | $ | — | $ | 1,587 | $ | 1,767 | $ | 8,460 | $ | (1,587 | ) | $ | 10,256 | $ | — | $ | 16 | $ | — | $ | 989 | $ | 1,086 | $ | 4,750 | $ | (989 | ) | $ | 5,852 | ||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 99 | $ | 8,816 | $ | — | $ | 507 | $ | 667 | $ | 15,366 | $ | (507 | ) | $ | 24,948 | $ | (7 | ) | $ | 2,804 | $ | — | $ | 198 | $ | 274 | $ | 5,693 | $ | (198 | ) | $ | 8,764 | |||||||||||||||
Compensation and benefits— intercompany | 8 | 1 | — | 120 | 121 | (130 | ) | (120 | ) | — | ||||||||||||||||||||||||||||||||||||||||
| Compensation and benefits—intercompany | 2 | 236 | — | 49 | 50 | (288 | ) | (49 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Other expense | 324 | 2,617 | 2 | 399 | 541 | 15,270 | (399 | ) | 18,754 | 49 | 959 | — | 125 | 167 | 5,836 | (125 | ) | 7,011 | ||||||||||||||||||||||||||||||||
Other expense—intercompany | 175 | 1,388 | 43 | 224 | 302 | (1,908 | ) | (224 | ) | — | 33 | 335 | 15 | 81 | 104 | (487 | ) | (81 | ) | — | ||||||||||||||||||||||||||||||
Total operating expenses | $ | 606 | $ | 12,822 | $ | 45 | $ | 1,250 | $ | 1,631 | $ | 28,598 | $ | (1,250 | ) | $ | 43,702 | $ | 77 | $ | 4,334 | $ | 15 | $ | 453 | $ | 595 | $ | 10,754 | $ | (453 | ) | $ | 15,775 | ||||||||||||||||
Income from continuing operations before taxes, minority interest, and equity in undistributed income of subsidiaries | $ | 5,841 | $ | 2,235 | $ | 69 | $ | 880 | $ | 720 | $ | 16,999 | $ | (8,626 | ) | $ | 18,118 | |||||||||||||||||||||||||||||||||
| Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | 679 | $ | (7,133 | ) | $ | 566 | $ | (141 | ) | $ | (69 | ) | $ | (1,863 | ) | $ | (1,225 | ) | $ | (9,186 | ) | ||||||||||||||||||||||||||||
Income taxes (benefits) | (857 | ) | 721 | 23 | 320 | 252 | 4,769 | (320 | ) | 4,908 | (437 | ) | (2,744 | ) | 200 | (45 | ) | (16 | ) | (942 | ) | 45 | (3,939 | ) | ||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 190 | — | 190 | ||||||||||||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 6,752 | — | — | — | — | — | (6,752 | ) | — | (6,227 | ) | — | — | — | — | — | 6,227 | — | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,040 | $ | (15,058 | ) | $ | 13,020 | |||||||||||||||||||||||||||||||||
| Income (Loss) from continuing operations | $ | (5,111 | ) | $ | (4,389 | ) | $ | 366 | $ | (96 | ) | $ | (53 | ) | $ | (921 | ) | $ | 4,957 | $ | (5,247 | ) | ||||||||||||||||||||||||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | 430 | — | 430 | — | — | — | — | — | 115 | — | 115 | ||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | |||||||||||||||||||||||||||||||||
| Net income (Loss) before attribution of Noncontrolling Interests | $ | (5,111 | ) | $ | (4,389 | ) | $ | 366 | $ | (96 | ) | $ | (53 | ) | $ | (806 | ) | $ | 4,957 | $ | (5,132 | ) | ||||||||||||||||||||||||||||
| Net Income (Loss) attributable to Noncontrolling Interests | — | (6 | ) | — | — | — | (15 | ) | — | (21 | ) | |||||||||||||||||||||||||||||||||||||||
| Citigroup's Net Income (Loss) | $ | (5,111 | ) | $ | (4,383 | ) | $ | 366 | $ | (96 | ) | $ | (53 | ) | $ | (791 | ) | $ | 4,957 | $ | (5,111 | ) | ||||||||||||||||||||||||||||
CONDENSED CONSOLIDATING BALANCE SHEETTable of Contents
| | September 30, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and due from banks | — | 3,910 | 6 | 159 | 243 | 58,867 | (159 | ) | 63,026 | ||||||||||||||||
Cash and due from banks—intercompany | 33 | 725 | 1 | 135 | 154 | (913 | ) | (135 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 206,681 | — | — | — | 18,728 | — | 225,409 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 19,370 | — | — | — | (19,370 | ) | — | — | ||||||||||||||||
Trading account assets | 19 | 211,596 | 174 | — | 21 | 245,652 | — | 457,462 | |||||||||||||||||
Trading account assets—intercompany | 725 | 8,008 | 1,899 | — | 28 | (10,660 | ) | — | — | ||||||||||||||||
Investments | 29,598 | 565 | — | 2,392 | 2,716 | 172,852 | (2,392 | ) | 205,731 | ||||||||||||||||
Loans, net of unearned income | — | 619 | — | 50,188 | 57,687 | 658,649 | (50,188 | ) | 716,955 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 106,504 | 5,040 | 11,712 | (118,216 | ) | (5,040 | ) | — | |||||||||||||||
Allowance for loan losses | — | (89 | ) | — | (2,689 | ) | (2,899 | ) | (21,017 | ) | 2,689 | (24,005 | ) | ||||||||||||
Total loans, net | $ | — | $ | 530 | $ | 106,504 | $ | 52,539 | $ | 66,500 | $ | 519,416 | $ | (52,539 | ) | $ | 692,950 | ||||||||
Advances to subsidiaries | 127,623 | — | — | — | — | (127,623 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 153,858 | — | — | — | — | — | (153,858 | ) | — | ||||||||||||||||
Other assets | 10,647 | 113,808 | 95 | 5,748 | 7,218 | 255,158 | (5,748 | ) | 386,926 | ||||||||||||||||
Other assets—intercompany | 8,386 | 51,172 | 3,377 | 251 | 1,298 | (64,233 | ) | (251 | ) | — | |||||||||||||||
Assets of discontinued operations held for sale | — | — | — | — | — | 18,627 | — | 18,627 | |||||||||||||||||
Total assets | $ | 330,889 | $ | 616,365 | $ | 112,056 | $ | 61,224 | $ | 78,178 | $ | 1,066,501 | $ | (215,082 | ) | $ | 2,050,131 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | — | — | — | — | — | 780,343 | — | 780,343 | |||||||||||||||||
Federal funds purchased and securities loaned or sold | — | 191,703 | — | — | — | 58,716 | — | 250,419 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 500 | 29,162 | — | — | — | (29,662 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 88,430 | 31 | — | — | 80,822 | — | 169,283 | |||||||||||||||||
Trading account liabilities—intercompany | 289 | 5,043 | 2,404 | — | — | (7,736 | ) | — | — | ||||||||||||||||
Short-term borrowings | 2,219 | 11,463 | 32,075 | — | 763 | 58,335 | — | 104,855 | |||||||||||||||||
Short-term borrowings—intercompany | — | 64,334 | 31,166 | 9,465 | 39,902 | (135,402 | ) | (9,465 | ) | — | |||||||||||||||
Long-term debt | 185,145 | 21,856 | 41,555 | 2,454 | 11,456 | 133,085 | (2,454 | ) | 393,097 | ||||||||||||||||
Long-term debt—intercompany | — | 62,643 | 689 | 40,780 | 17,658 | (80,990 | ) | (40,780 | ) | — | |||||||||||||||
Advances from subsidiaries | 8,101 | — | — | — | — | (8,101 | ) | — | — | ||||||||||||||||
Other liabilities | 5,991 | 126,924 | 696 | 1,912 | 1,901 | 76,287 | (1,912 | ) | 211,799 | ||||||||||||||||
Other liabilities—intercompany | 2,582 | 9,642 | 274 | 658 | 244 | (12,742 | ) | (658 | ) | — | |||||||||||||||
Liabilities of discontinued operations held for sale | — | — | — | — | — | 14,273 | — | 14,273 | |||||||||||||||||
Stockholders' equity | 126,062 | 5,165 | 3,166 | 5,955 | 6,254 | 139,273 | (159,813 | ) | 126,062 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 330,889 | $ | 616,365 | $ | 112,056 | $ | 61,224 | $ | 78,178 | $ | 1,066,501 | $ | (215,082 | ) | $ | 2,050,131 | ||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| | December 31, 2007 | March 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup consolidated | ||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 4,405 | $ | 2 | $ | 182 | $ | 280 | $ | 33,519 | $ | (182 | ) | $ | 38,206 | $ | — | $ | 2,901 | $ | — | $ | 136 | $ | 190 | $ | 27,972 | $ | (136 | ) | $ | 31,063 | ||||||||||||||||
Cash and due from banks—intercompany | 19 | 892 | — | 139 | 160 | (1,071 | ) | (139 | ) | — | 14 | 1,262 | 1 | 139 | 153 | (1,430 | ) | (139 | ) | — | ||||||||||||||||||||||||||||||
Federal funds sold and resale agreements | — | 242,771 | — | — | — | 31,295 | — | 274,066 | — | 163,989 | — | — | — | 15,614 | — | 179,603 | ||||||||||||||||||||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 12,668 | — | — | — | (12,668 | ) | — | — | — | 23,912 | — | — | — | (23,912 | ) | — | — | ||||||||||||||||||||||||||||||||
Trading account assets | 12 | 273,662 | 303 | — | 30 | 264,977 | — | 538,984 | 25 | 135,342 | 296 | — | 12 | 199,547 | — | 335,222 | ||||||||||||||||||||||||||||||||||
Trading account assets—intercompany | 262 | 7,648 | 1,458 | — | 5 | (9,373 | ) | — | — | 466 | 10,736 | 3,555 | — | 185 | (14,942 | ) | — | — | ||||||||||||||||||||||||||||||||
Investments | 10,934 | 431 | — | 2,275 | 2,813 | 200,830 | (2,275 | ) | 215,008 | 10,034 | 329 | — | 2,105 | 2,359 | 226,084 | (2,105 | ) | 238,806 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income | — | 758 | — | 49,705 | 58,944 | 718,291 | (49,705 | ) | 777,993 | — | 519 | — | 46,651 | 52,943 | 603,830 | (46,651 | ) | 657,292 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 106,645 | 3,987 | 12,625 | (119,270 | ) | (3,987 | ) | — | — | — | 137,373 | 5,152 | 9,271 | (146,644 | ) | (5,152 | ) | — | ||||||||||||||||||||||||||||||
Allowance for loan losses | — | (79 | ) | — | (1,639 | ) | (1,828 | ) | (14,210 | ) | 1,639 | (16,117 | ) | — | (143 | ) | — | (3,378 | ) | (3,629 | ) | (27,931 | ) | 3,378 | (31,703 | ) | ||||||||||||||||||||||||
Total loans, net | $ | — | $ | 679 | $ | 106,645 | $ | 52,053 | $ | 69,741 | $ | 584,811 | $ | (52,053 | ) | $ | 761,876 | $ | — | $ | 376 | $ | 137,373 | $ | 48,425 | $ | 58,585 | $ | 429,255 | $ | (48,425 | ) | $ | 625,589 | ||||||||||||||||
Advances to subsidiaries | 111,155 | — | — | — | — | (111,155 | ) | — | — | 134,731 | — | — | — | — | (134,731 | ) | — | — | ||||||||||||||||||||||||||||||||
Investments in subsidiaries | 165,866 | — | — | — | — | — | (165,866 | ) | — | 182,783 | — | — | — | — | — | (182,783 | ) | — | ||||||||||||||||||||||||||||||||
Other assets | 7,804 | 88,333 | 76 | 5,552 | 7,227 | 255,900 | (5,552 | ) | 359,340 | 16,416 | 69,188 | 53 | 6,216 | 7,032 | 319,606 | (6,216 | ) | 412,295 | ||||||||||||||||||||||||||||||||
Other assets—intercompany | 6,073 | 32,051 | 4,846 | 273 | 480 | (43,450 | ) | (273 | ) | — | 16,984 | 50,462 | 2,949 | 228 | 846 | (71,241 | ) | (228 | ) | — | ||||||||||||||||||||||||||||||
Total assets | $ | 302,125 | $ | 663,540 | $ | 113,330 | $ | 60,474 | $ | 80,736 | $ | 1,193,615 | $ | (226,340 | ) | $ | 2,187,480 | $ | 361,453 | $ | 458,497 | $ | 144,227 | $ | 57,249 | $ | 69,362 | $ | 971,822 | $ | (240,032 | ) | $ | 1,822,578 | ||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 826,230 | $ | — | $ | 826,230 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 762,696 | $ | — | $ | 762,696 | ||||||||||||||||||
Federal funds purchased and securities loaned or sold | — | 260,129 | — | — | — | 44,114 | — | 304,243 | — | 148,382 | — | — | — | 36,421 | — | 184,803 | ||||||||||||||||||||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 1,486 | 10,000 | — | — | — | (11,486 | ) | — | — | 185 | 9,603 | — | — | — | (9,788 | ) | — | — | ||||||||||||||||||||||||||||||||
Trading account liabilities | — | 117,627 | 121 | — | — | 64,334 | — | 182,082 | — | 63,108 | — | — | — | 67,718 | — | 130,826 | ||||||||||||||||||||||||||||||||||
Trading account liabilities—intercompany | 161 | 6,327 | 375 | — | 21 | (6,884 | ) | — | — | 781 | 9,689 | 2,706 | — | — | (13,176 | ) | — | — | ||||||||||||||||||||||||||||||||
Short-term borrowings | 5,635 | 16,732 | 41,429 | — | 1,444 | 81,248 | — | 146,488 | 2,364 | 7,080 | 30,912 | — | 7 | 76,026 | — | 116,389 | ||||||||||||||||||||||||||||||||||
Short-term borrowings—intercompany | — | 59,461 | 31,691 | 5,742 | 37,181 | (128,333 | ) | (5,742 | ) | — | — | 90,375 | 63,531 | 7,355 | 36,442 | (190,348 | ) | (7,355 | ) | — | ||||||||||||||||||||||||||||||
Long-term debt | 171,637 | 31,401 | 36,395 | 3,174 | 13,679 | 174,000 | (3,174 | ) | 427,112 | 186,740 | 15,311 | 40,523 | 2,124 | 7,691 | 86,987 | (2,124 | ) | 337,252 | ||||||||||||||||||||||||||||||||
Long-term debt—intercompany | — | 39,606 | 957 | 42,293 | 19,838 | (60,401 | ) | (42,293 | ) | — | 2,083 | 41,720 | 1,375 | 39,762 | 17,654 | (62,832 | ) | (39,762 | ) | — | ||||||||||||||||||||||||||||||
Advances from subsidiaries | 3,555 | — | — | — | — | (3,555 | ) | — | — | 10,508 | — | — | — | — | (10,508 | ) | — | — | ||||||||||||||||||||||||||||||||
Other liabilities | 4,580 | 98,425 | 268 | 2,027 | 1,960 | 82,645 | (2,027 | ) | 187,878 | 7,657 | 57,000 | 952 | 1,857 | 1,672 | 77,404 | (1,857 | ) | 144,685 | ||||||||||||||||||||||||||||||||
Other liabilities—intercompany | 1,624 | 9,640 | 165 | 847 | 271 | (11,700 | ) | (847 | ) | — | 7,201 | 6,491 | 98 | 852 | 518 | (14,308 | ) | (852 | ) | — | ||||||||||||||||||||||||||||||
Stockholders' equity | 113,447 | 14,192 | 1,929 | 6,391 | 6,342 | 143,403 | (172,257 | ) | 113,447 | |||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 302,125 | $ | 663,540 | $ | 113,330 | $ | 60,474 | $ | 80,736 | $ | 1,193,615 | $ | (226,340 | ) | $ | 2,187,480 | |||||||||||||||||||||||||||||||||
| Total liabilities | $ | 217,519 | $ | 448,759 | $ | 140,097 | $ | 51,950 | $ | 63,984 | $ | 806,292 | $ | (51,950 | ) | $ | 1,676,651 | |||||||||||||||||||||||||||||||||
| Citigroup stockholder's equity | 143,934 | 9,330 | 4,130 | 5,299 | 5,378 | 163,945 | (188,082 | ) | 143,934 | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | — | 408 | — | — | — | 1,585 | — | 1,993 | ||||||||||||||||||||||||||||||||||||||||||
| Total equity | $ | 143,934 | $ | 9,738 | $ | 4,130 | $ | 5,299 | $ | 5,378 | $ | 165,530 | $ | (188,082 | ) | $ | 145,927 | |||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 361,453 | $ | 458,497 | $ | 144,227 | $ | 57,249 | $ | 69,362 | $ | 971,822 | $ | (240,032 | ) | $ | 1,822,578 | |||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| | December 31, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup consolidated | |||||||||||||||||
| Assets | |||||||||||||||||||||||||
| Cash and due from banks | $ | — | $ | 3,142 | $ | — | $ | 149 | $ | 211 | $ | 25,900 | $ | (149 | ) | $ | 29,253 | ||||||||
| Cash and due from banks—intercompany | 13 | 1,415 | 1 | 141 | 185 | (1,614 | ) | (141 | ) | — | |||||||||||||||
| Federal funds sold and resale agreements | — | 167,589 | — | — | — | 16,544 | — | 184,133 | |||||||||||||||||
| Federal funds sold and resale agreements—intercompany | — | 31,446 | — | — | — | (31,446 | ) | — | — | ||||||||||||||||
| Trading account assets | 20 | 155,136 | 88 | — | 15 | 222,376 | — | 377,635 | |||||||||||||||||
| Trading account assets—intercompany | 818 | 11,197 | 4,439 | — | 182 | (16,636 | ) | — | — | ||||||||||||||||
| Investments | 25,611 | 382 | — | 2,059 | 2,366 | 227,661 | (2,059 | ) | 256,020 | ||||||||||||||||
| Loans, net of unearned income | — | 663 | — | 48,663 | 55,387 | 638,166 | (48,663 | ) | 694,216 | ||||||||||||||||
| Loans, net of unearned income—intercompany | — | — | 134,744 | 3,433 | 11,129 | (145,873 | ) | (3,433 | ) | — | |||||||||||||||
| Allowance for loan losses | — | (122 | ) | — | (3,415 | ) | (3,649 | ) | (25,845 | ) | 3,415 | (29,616 | ) | ||||||||||||
| Total loans, net | $ | — | $ | 541 | $ | 134,744 | $ | 48,681 | $ | 62,867 | $ | 466,448 | $ | (48,681 | ) | $ | 664,600 | ||||||||
| Advances to subsidiaries | 167,043 | — | — | — | — | (167,043 | ) | — | — | ||||||||||||||||
| Investments in subsidiaries | 149,424 | — | — | — | — | — | (149,424 | ) | — | ||||||||||||||||
| Other assets | 12,148 | 74,740 | 51 | 6,156 | 6,970 | 332,920 | (6,156 | ) | 426,829 | ||||||||||||||||
| Other assets—intercompany | 14,998 | 108,952 | 3,997 | 254 | 504 | (128,451 | ) | (254 | ) | — | |||||||||||||||
| Total assets | $ | 370,075 | $ | 554,540 | $ | 143,320 | $ | 57,440 | $ | 73,300 | $ | 946,659 | $ | (206,864 | ) | $ | 1,938,470 | ||||||||
| Liabilities and equity | |||||||||||||||||||||||||
| Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 774,185 | $ | — | $ | 774,185 | |||||||||
| Federal funds purchased and securities loaned or sold | — | 165,914 | — | — | — | 39,379 | — | 205,293 | |||||||||||||||||
| Federal funds purchased and securities loaned or sold—intercompany | 8,673 | 34,007 | — | — | — | (42,680 | ) | — | — | ||||||||||||||||
| Trading account liabilities | — | 70,006 | 14 | — | — | 97,458 | — | 167,478 | |||||||||||||||||
| Trading account liabilities—intercompany | 732 | 12,751 | 2,660 | — | — | (16,143 | ) | — | — | ||||||||||||||||
| Short-term borrowings | 2,571 | 9,735 | 30,994 | — | 222 | 83,169 | — | 126,691 | |||||||||||||||||
| Short-term borrowings—intercompany | — | 87,432 | 66,615 | 6,360 | 39,637 | (193,684 | ) | (6,360 | ) | — | |||||||||||||||
| Long-term debt | 192,290 | 20,623 | 37,374 | 2,214 | 8,333 | 100,973 | (2,214 | ) | 359,593 | ||||||||||||||||
| Long-term debt—intercompany | — | 60,318 | 878 | 40,722 | 17,655 | (78,851 | ) | (40,722 | ) | — | |||||||||||||||
| Advances from subsidiaries | 7,660 | — | — | — | — | (7,660 | ) | — | — | ||||||||||||||||
| Other liabilities | 7,347 | 75,247 | 855 | 1,907 | 1,808 | 75,951 | (1,907 | ) | 161,208 | ||||||||||||||||
| Other liabilities—intercompany | 9,172 | 10,213 | 232 | 833 | 332 | (19,949 | ) | (833 | ) | — | |||||||||||||||
| Total liabilities | $ | 228,445 | $ | 546,246 | $ | 139,622 | $ | 52,036 | $ | 67,987 | $ | 812,148 | $ | (52,036 | ) | $ | 1,794,448 | ||||||||
| Citigroup stockholders' equity | 141,630 | 7,819 | 3,698 | 5,404 | 5,313 | 132,594 | (154,828 | ) | 141,630 | ||||||||||||||||
| Noncontrolling interest | — | 475 | — | — | — | 1,917 | — | 2,392 | |||||||||||||||||
| Total equity | $ | 141,630 | $ | 8,294 | $ | 3,698 | $ | 5,404 | $ | 5,313 | $ | 134,511 | $ | (154,828 | ) | $ | 144,022 | ||||||||
| Total liabilities and equity | $ | 370,075 | $ | 554,540 | $ | $143,320 | $ | 57,440 | $ | 73,300 | $ | 946,659 | $ | (206,864 | ) | $ | 1,938,470 | ||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSTable of Contents
| | Nine Months Ended September 30, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Net cash (used in) provided by operating activities of continuing operations | $ | (1,646 | ) | $ | 4,587 | $ | 1,981 | $ | 3,232 | $ | 2,920 | $ | 91,111 | $ | (3,232 | ) | $ | 98,953 | |||||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | 67 | $ | 1,379 | $ | (3,434 | ) | $ | (2,003 | ) | $ | (187,302 | ) | 3,434 | $ | (187,859 | ) | ||||||
Proceeds from sales and securitizations of loans | — | 91 | — | — | — | 203,772 | — | 203,863 | |||||||||||||||||
Purchases of investments | (167,093 | ) | (134 | ) | — | (945 | ) | (1,142 | ) | (104,446 | ) | 945 | (272,815 | ) | |||||||||||
Proceeds from sales of investments | 11,727 | — | — | 208 | 473 | 48,055 | (208 | ) | 60,255 | ||||||||||||||||
Proceeds from maturities of investments | 137,005 | — | 2 | 475 | 584 | 56,721 | (475 | ) | 194,312 | ||||||||||||||||
Changes in investments and advances—intercompany | (20,954 | ) | — | — | (1,054 | ) | 913 | 20,041 | 1,054 | — | |||||||||||||||
Business acquisitions | — | — | — | — | — | — | — | — | |||||||||||||||||
Other investing activities | — | (19,046 | ) | — | — | — | 23,253 | — | 4,207 | ||||||||||||||||
Net cash (used in) provided by investing activities | $ | (39,315 | ) | $ | (19,022 | ) | $ | 1,381 | $ | (4,750 | ) | $ | (1,175 | ) | $ | 60,094 | $ | 4,750 | $ | 1,963 | |||||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (6,008 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (6,008 | ) | |||||||
Dividends paid-intercompany | (180 | ) | (84 | ) | — | — | — | 264 | — | — | |||||||||||||||
Issuance of common stock | 4,961 | — | — | — | — | — | — | 4,961 | |||||||||||||||||
Issuance/(Redemptions) of preferred stock | 27,424 | — | — | — | — | — | — | 27,424 | |||||||||||||||||
Treasury stock acquired | (6 | ) | — | — | — | — | (1 | ) | — | (7 | ) | ||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 14,735 | (9,068 | ) | 6,188 | (720 | ) | (2,223 | ) | (36,394 | ) | 720 | (26,762 | ) | ||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | — | 23,322 | — | (1,513 | ) | (2,181 | ) | (21,141 | ) | 1,513 | — | ||||||||||||||
Change in deposits | — | — | — | — | — | (32,411 | ) | — | (32,411 | ) | |||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (3,196 | ) | (5,269 | ) | (9,096 | ) | — | (105 | ) | (23,967 | ) | — | (41,633 | ) | |||||||||||
Net change in short-term borrowings and other advances—intercompany | 3,622 | 4,873 | (448 | ) | 3,724 | 2,721 | (10,768 | ) | (3,724 | ) | — | ||||||||||||||
Capital contributions from parent | — | — | (1 | ) | — | — | 1 | — | — | ||||||||||||||||
Other financing activities | (377 | ) | — | — | — | — | — | — | (377 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | $ | 40,975 | $ | 13,774 | $ | (3,357 | ) | $ | 1,491 | $ | (1,788 | ) | $ | (124,417 | ) | $ | (1,491 | ) | $ | (74,813 | ) | ||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,105 | ) | $ | — | $ | (1,105 | ) | |||||||
Net cash from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (178 | ) | $ | — | $ | (178 | ) | |||||||
Net increase (decrease) in cash and due from banks | $ | 14 | $ | (661 | ) | $ | 5 | $ | (27 | ) | $ | (43 | ) | $ | 25,505 | $ | 27 | $ | 24,820 | ||||||
Cash and due from banks at beginning of period | 19 | 5,297 | 2 | 321 | 440 | 32,448 | (321 | ) | 38,206 | ||||||||||||||||
Cash and due from banks at end of period | $ | 33 | $ | 4,636 | $ | 7 | $ | 294 | $ | 397 | $ | 57,953 | (294 | ) | $ | 63,026 | |||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
Cash paid during the year for: | |||||||||||||||||||||||||
Income taxes | $ | 339 | $ | (2,867 | ) | $ | 261 | $ | 304 | $ | 261 | $ | 4,129 | $ | (304 | ) | $ | 2,123 | |||||||
Interest | 7,083 | 14,582 | 2,916 | 1,428 | 252 | 19,461 | (1,428 | ) | 44,294 | ||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 1,108 | $ | 1,148 | $ | 1,426 | $ | (1,108 | ) | $ | 2,574 | ||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | Nine Months Ended September 30, 2007 | Three Months Ended March 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Net cash (used in) provided by operating activities of continuing operations | $ | 927 | $ | (39,555 | ) | $ | (62 | ) | $ | 2,791 | $ | 2,063 | $ | (74,115 | ) | $ | (2,791 | ) | $ | (110,742 | ) | |||||||||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (17,530 | ) | $ | 15,551 | $ | 1,623 | $ | 981 | $ | 826 | $ | (8,796 | ) | $ | (981 | ) | $ | (8,326 | ) | ||||||||||||||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in loans | $ | — | $ | 106 | $ | (41,717 | ) | $ | (5,278 | ) | $ | (5,714 | ) | $ | (228,590 | ) | $ | 5,278 | $ | (275,915 | ) | $ | — | $ | — | $ | (2,468 | ) | $ | 817 | $ | 1,053 | $ | (30,584 | ) | $ | (817 | ) | $ | (31,999 | ) | |||||||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 196,938 | — | 196,938 | — | 97 | — | — | — | 60,232 | — | 60,329 | ||||||||||||||||||||||||||||||||||
Purchases of investments | (8,277 | ) | (425 | ) | — | (546 | ) | (1,279 | ) | (192,665 | ) | 546 | (202,646 | ) | (9,590 | ) | (13 | ) | — | (195 | ) | (211 | ) | (48,322 | ) | 195 | (58,136 | ) | ||||||||||||||||||||||
Proceeds from sales of investments | 3,958 | — | — | 109 | 428 | 143,187 | (109 | ) | 147,573 | 6,892 | — | — | 34 | 42 | 20,840 | (34 | ) | 27,774 | ||||||||||||||||||||||||||||||||
Proceeds from maturities of investments | 6,171 | — | — | 237 | 612 | 93,794 | (237 | ) | 100,577 | 17,159 | — | — | 122 | 165 | 15,604 | (122 | ) | 32,928 | ||||||||||||||||||||||||||||||||
Changes in investments and advances—intercompany | (20,593 | ) | — | — | (103 | ) | (2,937 | ) | 23,530 | 103 | — | 7,526 | — | — | (1,719 | ) | 1,858 | (9,384 | ) | 1,719 | — | |||||||||||||||||||||||||||||
Business acquisitions | — | — | — | — | — | (15,186 | ) | — | (15,186 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Other investing activities | — | (5,120 | ) | — | — | — | (2,298 | ) | — | (7,418 | ) | — | 3,312 | — | — | — | 8,266 | — | 11,578 | |||||||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | $ | (18,741 | ) | $ | (5,439 | ) | $ | (41,717 | ) | $ | (5,581 | ) | $ | (8,890 | ) | $ | 18,710 | $ | 5,581 | $ | (56,077 | ) | $ | 21,987 | $ | 3,396 | $ | (2,468 | ) | $ | (941 | ) | $ | 2,907 | $ | 16,652 | $ | 941 | $ | 42,474 | ||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | $ | (8,086 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (8,086 | ) | $ | (1,074 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,074 | ) | ||||||||||||||
Dividends paid-intercompany | — | (1,868 | ) | — | (4,900 | ) | (1,500 | ) | 3,368 | 4,900 | — | (56 | ) | — | — | — | — | 56 | — | — | ||||||||||||||||||||||||||||||
Issuance of common stock | 1,007 | — | — | — | — | — | — | 1,007 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
(Redemption)/Issuance of preferred stock | (800 | ) | — | — | — | — | — | — | (800 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | (663 | ) | — | — | — | — | — | — | (663 | ) | (1 | ) | — | — | — | — | — | — | (1 | ) | ||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 23,674 | (1,127 | ) | 15,580 | 434 | 1,064 | 477 | (434 | ) | 39,668 | 1,791 | (1,428 | ) | 4,047 | (90 | ) | (642 | ) | (12,425 | ) | 90 | (8,657 | ) | |||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | (399 | ) | 6,360 | 1,319 | 7,701 | (8,101 | ) | 821 | (7,701 | ) | — | — | (18,200 | ) | — | (960 | ) | (1 | ) | 18,201 | 960 | — | ||||||||||||||||||||||||||||
Change in deposits | — | — | — | — | — | 84,523 | — | 84,523 | — | — | — | — | — | (11,489 | ) | — | (11,489 | ) | ||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings third-party | 5,412 | 12,706 | 9,187 | (1,200 | ) | (807 | ) | 36,565 | 1,200 | 63,063 | ||||||||||||||||||||||||||||||||||||||||
| Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | — | (2,656 | ) | (126 | ) | — | 51 | (7,571 | ) | — | (10,302 | ) | ||||||||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other advances—intercompany | (1,391 | ) | 30,562 | 15,370 | 747 | 16,166 | (60,707 | ) | (747 | ) | — | (5,028 | ) | 2,943 | (3,076 | ) | 994 | (3,195 | ) | 8,356 | (994 | ) | — | |||||||||||||||||||||||||||
Capital contributions from parent | — | — | 375 | — | — | (375 | ) | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Other financing activities | (926 | ) | — | — | (1 | ) | — | — | 1 | (926 | ) | (88 | ) | — | — | — | — | — | — | (88 | ) | |||||||||||||||||||||||||||||
Net cash provided by financing activities | $ | 17,828 | $ | 46,633 | $ | 41,831 | $ | 2,781 | $ | 6,822 | $ | 64,672 | $ | (2,781 | ) | $ | 177,786 | |||||||||||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | $ | (4,456 | ) | $ | (19,341 | ) | $ | 845 | $ | (56 | ) | $ | (3,787 | ) | $ | (4,872 | ) | $ | 56 | $ | (31,611 | ) | ||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 810 | $ | — | $ | 810 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (756 | ) | $ | — | $ | (756 | ) | ||||||||||||||||
Net cash from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (65 | ) | $ | — | $ | (65 | ) | ||||||||||||||||||||||||||||||||
| Net cash used in discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 29 | $ | — | $ | 29 | ||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 14 | $ | 1,639 | $ | 52 | $ | (9 | ) | $ | (5 | ) | $ | 10,012 | $ | 9 | $ | 11,712 | $ | 1 | $ | (394 | ) | $ | — | $ | (16 | ) | $ | (54 | ) | $ | 2,257 | $ | 16 | $ | 1,810 | |||||||||||||
Cash and due from banks at beginning of period | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | 13 | 4,557 | 1 | 290 | 396 | 24,286 | (290 | ) | 29,253 | ||||||||||||||||||||||||||||||||
Cash and due from banks at end of period | $ | 35 | $ | 6,060 | $ | 52 | $ | 379 | $ | 498 | $ | 31,581 | $ | (379 | ) | $ | 38,226 | $ | 14 | $ | 4,163 | $ | 1 | $ | 274 | $ | 342 | $ | 26,543 | $ | (274 | ) | $ | 31,063 | ||||||||||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash paid during the year for: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | $ | (1,733 | ) | $ | 366 | $ | (10 | ) | $ | 558 | $ | 45 | $ | 5,955 | $ | (558 | ) | $ | 4,623 | $ | (27 | ) | $ | — | $ | 148 | $ | 53 | $ | 94 | $ | 896 | $ | (53 | ) | $ | 1,111 | |||||||||||||
Interest | 5,058 | 22,397 | 4,848 | 1,876 | 324 | 20,531 | (1,876 | ) | 53,158 | 2,237 | 3,314 | 813 | 763 | 185 | 1,813 | (763 | ) | 8,362 | ||||||||||||||||||||||||||||||||
Non-cash investing activities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 857 | $ | 880 | $ | 659 | $ | (857 | ) | $ | 1,539 | $ | — | $ | — | $ | — | $ | 367 | $ | 380 | $ | 263 | $ | (367 | ) | $ | 643 | ||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | Three Months Ended March 31, 2008 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 5,962 | $ | 28,583 | $ | (26 | ) | $ | 987 | $ | 593 | $ | (33,361 | ) | $ | (987 | ) | $ | 1,751 | ||||||
| Cash flows from investing activities | |||||||||||||||||||||||||
| Change in loans | $ | — | $ | 54 | $ | (14,069 | ) | $ | (1,288 | ) | $ | (1,239 | ) | $ | (68,019 | ) | $ | 1,288 | $ | (83,273 | ) | ||||
| Proceeds from sales and securitizations of loans | — | 19 | — | — | — | 67,506 | — | 67,525 | |||||||||||||||||
| Purchases of investments | (47,741 | ) | (75 | ) | — | (207 | ) | (322 | ) | (44,359 | ) | 207 | (92,497 | ) | |||||||||||
| Proceeds from sales of investments | 8,565 | — | — | 65 | 162 | 30,844 | (65 | ) | 39,571 | ||||||||||||||||
| Proceeds from maturities of investments | 35,988 | — | — | 90 | 98 | 22,763 | (90 | ) | 58,849 | ||||||||||||||||
| Changes in investments and advances—intercompany | (16,236 | ) | — | — | (1,978 | ) | 514 | 15,722 | 1,978 | — | |||||||||||||||
| Business acquisitions | — | — | — | — | — | — | — | — | |||||||||||||||||
| Other investing activities | — | (20,058 | ) | — | — | — | 16,527 | — | (3,531 | ) | |||||||||||||||
| Net cash (used in) provided by investing activities | $ | (19,424 | ) | $ | (20,060 | ) | $ | (14,069 | ) | $ | (3,318 | ) | $ | (787 | ) | $ | 40,984 | $ | 3,318 | $ | (13,356 | ) | |||
| Cash flows from financing activities | |||||||||||||||||||||||||
| Dividends paid | $ | (1,759 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,759 | ) | |||||||
| Dividends paid-intercompany | — | (27 | ) | — | — | — | 27 | — | — | ||||||||||||||||
| Issuance of common stock | 46 | — | — | — | — | — | — | 46 | |||||||||||||||||
| Issuance of preferred stock | 19,384 | — | — | — | — | — | — | 19,384 | |||||||||||||||||
| Treasury stock acquired | (6 | ) | — | — | — | — | — | — | (6 | ) | |||||||||||||||
| Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 2,755 | (5,989 | ) | 1,318 | (456 | ) | (1,132 | ) | (4,554 | ) | 456 | (7,602 | ) | ||||||||||||
| Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | — | 4,190 | — | 50 | (1,036 | ) | (3,154 | ) | (50 | ) | — | ||||||||||||||
| Change in deposits | — | — | — | — | — | 4,978 | — | 4,978 | |||||||||||||||||
| Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (4,213 | ) | 1,866 | 2,726 | — | 6 | (11,074 | ) | — | (10,689 | ) | ||||||||||||||
| Net change in short-term borrowings and other advances—intercompany | (2,457 | ) | (9,385 | ) | 10,053 | 2,764 | 2,391 | (602 | ) | (2,764 | ) | — | |||||||||||||
| Capital contributions from parent | — | — | — | — | — | — | — | — | |||||||||||||||||
| Other financing activities | (286 | ) | — | 1 | — | — | (1 | ) | — | (286 | ) | ||||||||||||||
| Net cash provided by (used in) financing activities | $ | 13,464 | $ | (9,345 | ) | $ | 14,098 | $ | 2,358 | $ | 229 | $ | (14,380 | ) | $ | (2,358 | ) | $ | 4,066 | ||||||
| Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 335 | $ | — | $ | 335 | |||||||||
| Net cash used in discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (165 | ) | $ | — | $ | (165 | ) | |||||||
| Net increase (decrease) in cash and due from banks | $ | 2 | $ | (822 | ) | $ | 3 | $ | 27 | $ | 35 | $ | (6,587 | ) | $ | (27 | ) | $ | (7,369 | ) | |||||
| Cash and due from banks at beginning of period | 19 | 5,297 | 2 | 321 | 440 | 32,448 | (321 | ) | 38,206 | ||||||||||||||||
| Cash and due from banks at end of period | $ | 21 | $ | 4,475 | $ | 5 | $ | 348 | $ | 475 | $ | 25,861 | $ | (348 | ) | $ | 30,837 | ||||||||
| Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
| Cash paid during the year for: | |||||||||||||||||||||||||
| Income taxes | $ | 1,033 | $ | (1,976 | ) | $ | 91 | $ | 36 | $ | 16 | $ | 695 | $ | (36 | ) | $ | (141 | ) | ||||||
| Interest | 2,458 | 6,143 | 1,119 | 682 | 93 | 7,307 | (682 | ) | 17,120 | ||||||||||||||||
| Non-cash investing activities: | |||||||||||||||||||||||||
| Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 380 | $ | 394 | $ | 372 | $ | (380 | ) | $ | 766 | ||||||||
The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007,2008.
Enron
In April 2009, the parties in DK ACQUISITION PARTNERS, L.P., ET AL. v. J.P. MORGAN CHASE & CO., ET AL., AVENUE CAPITAL MANAGEMENT II, L.P., ET AL. v. J.P. MORGAN CHASE & CO., ET AL., and UNICREDITO ITALIANO SpA, ET AL. v. J.P. MORGAN CHASE BANK, ET AL., reached agreements in principle to settle these actions. The three actions, which were commenced separately but were consolidated and pending trial, were brought against Citigroup and its affiliates, and JPMorgan Chase and its affiliates, in their capacity as updated by our Quarterly Reportsco-agents on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008.certain Enron revolving credit facilities.
Research
Telecommunications Research ClassMetromedia Fiber Network. On February 27, 2009, the United States District Court for the Southern District of New York approved the class action settlement, and entered a final judgment dismissing the action with prejudice.
Subprime-Mortgage-Related Litigation and Other Matters
Securities Actions. On September 30, 2008, the Court of Appeals for the Second Circuit vacated the District Court's order granting class certificationFebruary 20, 2009, plaintiffs in the matter IN RE SALOMON ANALYST METROMEDIA. Thereafter, on October 1, 2008,CITIGROUP INC. SECURITIES LITIGATION, filed an amended consolidated class action complaint. On March 13, 2009, defendants filed motions to dismiss the parties reached a settlement pursuant to which the Company will pay $35 million to members of the settlement class that purchased or otherwise acquired MFN securities during the class period. The settlement is subject to judicial approval. The proposed settlement amount is covered by existing litigation reserves.
Parmalatcomplaints in IN RE CITIGROUP INC. SECURITIES LITIGATION and IN RE CITIGROUP INC. BOND LITIGATION.
In BONDI v. CITIGROUP, in Bergen County, New Jersey Superior Court, the jury returned a verdict on October 20, 2008, following a five-month trial. On plaintiff's claim, the jury ruled for Citigroup. On Citigroup's counterclaims, the jury ruled for CitigroupMarch 13 and awarded Citigroup damages of $364 million plus interest and court costs. Plaintiff has stated that he intends to appeal.
In IN RE PARMALAT SECURITIES LITIGATION, pending16, 2009, two cases were filed in the United States District Court for the Southern District of New York alleging violations of the Securities Act of 1933—BUCKINGHAM v. CITIGROUP INC., ET AL. and CHEN v. CITIGROUP INC., ET AL. and were later designated as related to IN RE CITIGROUP INC. BOND LITIGATION. On April 9, 2009, another case asserting violations of the Securities Act of 1933—PELLEGRINI v. CITIGROUP INC., ET AL.—was filed in the United Stated District Court granted Citigroup's motion for summary judgment on August 11, 2008,the Southern District of New York and entered judgment in Citigroup's favor on all claims assertedthe parties have jointly requested that the PELLEGRINI action be designated as related to IN RE CITIGROUP INC. SECURITIES LITIGATION and pending against Citigroup.IN RE CITIGROUP INC. BOND LITIGATION.
In criminalOn March 20, 2009, an action was filed in the United States District Court for the Southern District of New York alleging violations of the Securities Exchange Act of 1934 and related claims in connection with the marketing of certain CDO securities—EPIRUS CAPITAL MANAGEMENT, LLC, ET AL. v. CITIGROUP INC., ET AL. On April 24, 2009, defendants requested that the case be designated as related to IN RE CITIGROUP INC. SECURITIES LITIGATION.
On March 23, 2009, a case was filed in the United States District Court for the Southern District of California alleging violations of both the Securities Act of 1933 and the Securities Exchange Act of 1934—BRECHER v. CITIGROUP INC., ET AL. On April 16, 2009, Citigroup filed a motion before the Judicial Panel on Multidistrict Litigation for transfer of the BRECHER action to the Southern District of New York for coordinated pre-trial proceedings ongoing in Parma, Italy, on October 8, 2008, the court issued an order permitting Parmalat investors to proceed with civil claims against Citigroup, subject to proper service of a summons on Citigroup.
Subprime-Mortgage-Related LitigationIN RE CITIGROUP INC. SECURITIES LITIGATION and IN RE CITIGROUP INC. BOND LITIGATION.
SecuritiesDerivative Actions. On SeptemberFebruary 24, 2008,2009, the Delaware Court of Chancery granted in substantial part defendants' motion to dismiss the complaint in IN RE CITIGROUP INC. SHAREHOLDER DERIVATIVE LITIGATION. The court dismissed all but one claim for failure to make a pre-suit demand on the Citigroup Board of Directors or to plead demand futility. The sole surviving claim is for alleged waste in connection with the November 4, 2007 letter agreement with Charles Prince, Citigroup's former Chief Executive Officer. Discovery is ongoing.
Other Matters. Underwriting Actions. On March 20, 2009, four separately filed actions alleging securities fraud claims were consolidated inby the United States District Court for the Southern District of New York under the caption IN RE CITIGROUPAMERICAN INTERNATIONAL GROUP, INC. SECURITIES LITIGATION. Lead Plaintiffs are expected
Discrimination in Lending Actions. Two putative class actions have been filed alleging claims of racial discrimination in mortgage lending under the Equal Credit Opportunity Act, the Fair Housing Act, and/or the Civil Rights Act. The first action, PUELLO, ET AL. v. CITIFINANCIAL SERVICES, INC., ET AL., was filed against Citigroup and its affiliates in the United States District Court for the District of Massachusetts. The second action, NAACP v. AMERIQUEST MORTGAGE CO., ET AL., was filed against one of Citigroup's affiliates in the United States District Court for the Central District of California. In each action, defendants' motions to file a consolidated class action complaint by November 10, 2008.dismiss have been denied.
Public Nuisance and Related Actions. On February 12, 2009, BREWTONv. DEUTSCHE BANK TRUST CO., ET AL. was dismissed with prejudice due to plaintiff's lack of standing.
On January 7, 2009, the court held a hearing on the motion to sever filed by CitiFinancial, Inc. and CitiMortgage, Inc. in CITY OF CLEVELAND v. J.P. MORGAN CHASE BANK, N.A., ET AL.
Governmental and Regulatory Matters.Citigroup Inc., severaland certain of its affiliates are subject to formal and informal investigations, as well as subpoenas and/or requests for information, from various governmental and self-regulatory agencies relating to subprime mortgage—related activities. Citigroup and its affiliates are cooperating fully and are engaged in discussions on these matters.
Auction Rate Securities-Related Litigation and Other Matters
Securities Actions. Beginning in March 2008, Citigroup, its affiliates and certain current and former officers, and directors, and numerous other financial institutions,employees, have been named as defendants in aseveral individual and putative class action lawsuitlawsuits related to Auction Rate Securities (ARS). The putative securities class actions have been consolidated in the United States District Court for
the Southern District of New York as IN RE CITIGROUP INC. AUCTION RATE SECURITIES LITIGATION. Several individual ARS actions also have been filed on September 30, 2008, allegingin state and federal courts, asserting, among other things, violations of Sections 11, 12federal and 15state securities laws. Citigroup has moved the Judicial Panel on Multidistrict Litigation to transfer all of the Securities Actindividual ARS actions pending in federal court to the Southern District of 1933 arising out of offerings of Citigroup securities issuedNew York for consolidation or coordination with IN RE CITIGROUP INC. AUCTION RATE SECURITIES LITIGATION.
Antitrust Actions. On January 15, 2009, defendants filed motions to dismiss the complaints in 2006 and 2007. This action, LOUISIANA SHERIFFS' PENSION AND RELIEF FUNDMAYOR & CITY COUNCIL OF BALTIMORE, MARYLAND v. CITIGROUP INC., et al.ET AL. and RUSSELL MAYFIELD, ET AL. v. CITIGROUP INC., is currently pending in New York state court.ET AL.
Falcon and ASTA/MAT-Related Litigation and Other Matters
Derivative Actions.In re MAT Five Securities Litigation. On September 24,December 4, 2008, five actions alleging derivative claims were consolidateddefendants filed a motion in the United States District Court for the Southern District of New York underto dismiss the caption IN RE CITIGROUP INC. DERIVATIVE LITIGATION. Lead Plaintiffs are expectedcomplaint in this consolidated action brought by investors in MAT Five LLC. On February 2, 2009, lead plaintiffs informed the court they intended to file a consolidated classdismiss voluntarily this action complaint by November 10, 2008.in light of the settlement in MARIE RAYMOND REVOCABLE TRUST, ET AL. v. MAT FIVE LLC, ET AL. in the Delaware Chancery Court, which is currently being appealed. On April 16, 2009, lead plaintiffs requested that the action be stayed pending the outcome of the appeal in the Delaware case.
ERISA Actions.Puglisi v. Citigroup Alternative Investments LLC, et al. On September 15, 2008,January 9, 2009, plaintiff filed a motion to remand this action, previously consolidated amended ERISA complaint was filed inwith IN RE CITIGROUP ERISAMAT FIVE SECURITIES LITIGATION, pending into New York Supreme Court, after defendants had removed it to the United States District Court for the Southern District of New York.
Other Matters.Goodwill v. MAT Five LLC, et al. Citigroup Global Markets Inc., along with numerous other firms, has been named as a defendant in several lawsuitsA settlement of this action was approved by shareholders of Ambac Financial Group, Inc. for which CGMI underwrote securities offerings. These actions assert that CGMI violated Sections 11 and 12 of the Securities Act of 1933 arising out of allegedly false and misleading statements contained in the registration statements and prospectuses issued in connection with those offerings. Several of these actions have been consolidated under the caption IN RE AMBAC FINANCIAL GROUP, INC. SECURITIES LITIGATION, pending in the United States District Court for the Southern District of New York, and in which a consolidated amended classthis action complaint was fileddismissed on August 22, 2008.
On SeptemberMarch 12, 2008, defendants, including Citigroup Inc. and Citigroup Global Markets Inc., moved to dismiss the complaint in IN RE AMERICAN HOME MORTGAGE SECURITIES LITIGATION.
Auction Rate Securities-Related Litigation2009.
Securities Actions.Marie Raymond Revocable Trust, et al. v. MAT Five LLC, et al. On September 19, 2008, MILLERAn appeal from the Delaware Chancery Court's judgment approving the settlement was filed by objectors on January 14, 2009.
ECA Acquisitions, Inc. et al. v. CALAMOS GLOBAL DYNAMIC INCOME FUND,MAT Three LLC, et al., which had been pending Defendants removed this putative class action, filed by investors in MAT One LLC, MAT Two LLC, and MAT Three LLC, to the United States District Court for the Southern District of New York on January 21, 2009. Plaintiffs' motion for remand, filed on February 27, 2009, is currently pending.
Hahn, et al. v. Citigroup Inc., et al. On February 3, 2009, investors in MAT Five LLC filed this action against Citigroup and related entities in whichNew York Supreme Court. On April 9, 2009, defendants moved in the Delaware Chancery Court for an order enforcing the MARIE RAYMOND REVOCABLE TRUST settlement and enjoining plaintiffs from pursuing this action in New York Supreme Court. On April 15, 2009, defendants filed a motion in New York Supreme Court to dismiss this action.
Governmental and Regulatory Matters. Citigroup Global Markets Inc. had been named as a defendant, was voluntarily dismissed.and certain of its affiliates are also subject to investigations, subpoenas and/or requests for information from various governmental and self-regulatory agencies relating to the marketing and management of the Falcon and ASTA/MAT funds. Citigroup and its affiliates are cooperating fully on these matters.
Adelphia Communications Corporation
On August 25,December 3, 2008, Lead Plaintiffsthe Second Circuit Court of Appeals ruled that plaintiff in IN RE CITIGROUP AUCTION RATE SECURITIES LITIGATION, pending inW.R. HUFF ASSET MANAGEMENT CO., LLC v. DELOITTE & TOUCHE LLP, ET AL. lacked standing to sue. On January 6, 2009, the United States District Court for the Southern District of New York filed an amended consolidated class action complaint.
Derivative Actions.dismissed the action. On AugustApril 20, 2008, LOUISIANA MUNICIPAL POLICE EMPLOYEES' RETIREMENT SYSTEM v. PANDIT, et al., was filed in2009, the United States District Court for the Southern District of New York, against current and former officers and directors alleging several derivative claims.
Antitrust Actions. Citigroup Inc. and Citigroup Global Markets Inc., along with numerous other financial institutions, have been named as defendants in several lawsuits alleging that defendants artificially restrained trade in the market for auction rate securities in violation of the Sherman Act. These actions are (1) MAYOR AND CITY COUNCIL OF BALTIMORE, MARYLAND v. CITIGROUP INC., et al., and (2) MAYFIELD v. CITIGROUP INC., et al., and both are pending in the United States District Court for the Southern District of New York.
Regulatory Actions. On August 7, 2008, the Company reached a settlement with the New York Attorney General, the Securities and Exchange Commission, and other state regulatory agencies, pursuant to which the Company agreed to offer to purchase at par ARS that are not auctioning from all
Citigroup individual investors, small institutions (as defined by the terms of the settlement), and charities that purchased ARS from Citigroup prior to February 11, 2008. In addition, the Company agreed to pay a $50 million fine to the State of New York and a $50 million fine to the other state regulatory agencies.
Interchange Fees
On September 18, 2008, the Court granted plaintiffs' motion to file an amended complaint. Discovery is ongoing.
Wachovia/Wells Fargo Litigation
On September 29, 2008, Citigroup Inc. announced that it had reached an agreement-in-principle to acquire all of the banking subsidiaries of Wachovia Corporation ("Wachovia") in an open-bank transaction assisted by the Federal Deposit Insurance Corporation. On October 3, 2008, Wachovia announced that it had entered into an agreement with Wells Fargo & Co. ("Wells Fargo") for Wells Fargo to purchase Wachovia. Since October 4, 2008, litigation has been instigated by all three parties and others in various courts, including the New York State Supreme Court and the United States District Courtdenied plaintiff's petition for the Southern Districta writ of New York. In this litigation, Citigroup seeks compensatory and punitive damages from Wachovia and Wells Fargo and their respective directors and advisors on various claims, including violation of a binding exclusivity agreement (the "Exclusivity Agreement") between Citigroup and Wachovia; tortious interference with the Exclusivity Agreement; and unjust enrichment. Wachovia and Wells Fargo seek, among other relief, a declaration that the proposed Wells Fargo-Wachovia transaction is valid and proper and not prohibited by the Exclusivity Agreement and an injunction barring Citigroup from taking any steps to interfere with or impede the Wells Fargo-Wachovia transaction.certiorari.
Other Matters
Falcon/ASTA MAT Actions.Pension Plan Litigation. On September 26,March 20, 2009, the Second Circuit Court of Appeals heard oral argument on defendants' appeal and plaintiffs' cross-appeal.
Japan Regulatory Matters. Beginning in late 2008, the action ZENTNER v. CITIGROUP INC., ET AL., previously removed on June 3, 2008certain Citigroup affiliates received requests for information from Japanese regulators relating to the Southern Districtaccuracy of New York, was remanded to New York state court.
A consolidated amended class action complaint was filedtheir large shareholding reporting in IN RE MAT FIVE SECURITIES LITIGATION on October 2, 2008.
On July 21, 2008, the Court approved the voluntary dismissal without prejudice of FERGUSON FAMILY TRUST v. FALCON STRATEGIES TWO LLC, et al.Japan. Citigroup and its affiliates are cooperating fully with such requests.
Other ERISA Actions.Lehman Brothers—Structured Notes. Certain Citigroup subsidiaries served as a distributor of notes issued and guaranteed by Lehman Brothers to retail customers outside the United States. Following the bankruptcy of Lehman Brothers, numerous retail customers have filed, and threatened to file, claims for the loss in value of those investments. In addition, a Public Prosecutor in Belgium has begun a criminal investigation. The Company andis cooperating fully with the Belgian Public Prosecutor as well as with various other regulatory authorities outside the United States who continue to show an interest in the Company's role in the distribution of Lehman notes. In March 2009, the Ministry of Development in Greece imposed a $1.3 million fine for alleged violations of the Greek Consumer Protection Act, which the Company intends to appeal.
Settlement Payments
Any payments required by Citigroup or its administration and investment committees filed a motion to dismissaffiliates in connection with the purported class action complaint in LEBER v. CITIGROUP, INC., et al., on August 29, 2008. The motion is currently pending.settlement agreements described above either have been made, or are covered by existing litigation reserves.
There are no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) In connection with the November 2002 acquisition by the Company of Golden State Bancorp Inc., on September 26, 2008, the Company issued to GSB Investments Corp., a Delaware corporation (GSB Investments), and Hunter's Glen/Ford, Ltd., a limited partnership organized under the laws of the State of Texas (HG/F), respectively, 696,448 and 174,112 shares of Company common stock. These shares were issued in satisfaction of the rights of GSB Investments and HG/F to receive shares of Company common stock in respect of $16,266,737 of federal income tax benefits realized or to be realized by the Company.
The September 26, 2008 issuances were made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(2) thereof. GSB Investments and HG/F made certain representations to the Company as to investment intent and that they possessed a sufficient level of financial sophistication. The unregistered shares are subject to restrictions on transfer absent registration under or in compliance with the Securities Act of 1933.
(c) Share Repurchases
Under its long-standing repurchase program, the Company buys back common shares in the market or otherwise from time to time. This program is used for many purposes, including to offset dilution from stock-based compensation programs.
The following table summarizes the Company's share repurchases during the first ninethree months of 2008:2009:
In millions, except per share amounts | Total shares repurchased | Average price paid per share | Dollar value of remaining authorized repurchase program | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
First quarter 2008 | |||||||||||
Open market repurchases(1) | 0.2 | $ | 27.19 | $ | 6,743 | ||||||
Employee transactions(2) | 5.0 | 25.26 | N/A | ||||||||
Total first quarter 2008 | 5.2 | $ | 25.31 | $ | 6,743 | ||||||
Second Quarter 2008 | |||||||||||
Open market repurchases(1) | — | — | $ | 6,743 | |||||||
Employee transactions | 0.8 | $ | 22.91 | N/A | |||||||
Total second quarter 2008 | 0.8 | $ | 22.91 | $ | 6,743 | ||||||
July 2008 | |||||||||||
Open market repurchases | — | — | $ | 6,743 | |||||||
Employee transactions | 0.7 | $ | 17.42 | N/A | |||||||
August 2008 | |||||||||||
Open market repurchases | — | — | $ | 6,743 | |||||||
Employee transactions | 0.3 | 18.66 | N/A | ||||||||
September 2008 | |||||||||||
Open market repurchases | 0.1 | 20.27 | $ | 6,742 | |||||||
Employee transactions | 0.5 | 18.25 | N/A | ||||||||
Third quarter 2008 | |||||||||||
Open market repurchases(1) | 0.1 | $ | 20.27 | $ | 6,742 | ||||||
Employee transactions | 1.5 | 17.94 | N/A | ||||||||
Total third quarter 2008 | 1.6 | $ | 17.96 | $ | 6,742 | ||||||
Year-to-date 2008 | |||||||||||
Open market repurchases(1) | 0.3 | $ | 25.39 | $ | 6,742 | ||||||
Employee transactions | 7.3 | 23.43 | N/A | ||||||||
Total year-to-date 2008 | 7.6 | $ | 23.50 | $ | 6,742 | ||||||
| In millions, except per share amounts | Total shares purchased(1) | Average price paid per share | Approximate dollar value of shares that may yet be purchased under the plans or programs | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| January 2009 | |||||||||||
| Open market repurchases(1) | — | $ | — | $ | 6,741 | ||||||
| Employee transactions(2) | 9.6 | 3.52 | N/A | ||||||||
| February 2009 | |||||||||||
| Open market repurchases(1) | 0.1 | $ | 3.23 | $ | 6,741 | ||||||
| Employee transactions(2) | 0.4 | 5.66 | N/A | ||||||||
| March 2009 | |||||||||||
| Open market repurchases(1) | 0.1 | $ | 2.52 | $ | 6,741 | ||||||
| Employee transactions(2) | 0.7 | 2.81 | N/A | ||||||||
| First quarter 2009 | |||||||||||
| Open market repurchases(1) | 0.2 | $ | 3.03 | $ | 6,741 | ||||||
| Employee transactions(2) | 10.7 | 3.56 | N/A | ||||||||
| Total first quarter 2009 | 10.9 | $ | 3.55 | $ | 6,741 | ||||||
N/A Not applicable.
In accordance with the various U.S. government programs or agreements to which the Company is party, the Company has agreed not to pay a quarterly common stock dividend exceeding $0.01 per share per quarter for three years (beginning in 2009), or to repurchase its common stock (subject to certain limited exceptions), without the consent of the U.S. Treasury. Citi intends to continue to pay full dividends on its outstanding preferred stock through and until the closing of the public exchange offers, at which point the dividends will be suspended. Citi does not intend to pay common stock dividends during this period and for so long as the preferred stock dividends are suspended.
Item 4. Submission of Matters to a Vote of Security Holders
Citigroup's Annual Meeting of Stockholders was held on April 21, 2009. At the meeting:
Set forth below, with respect to each such matter, are the number of votes cast for or against, and where applicable, the number of abstentions and the number of broker non-votes.
| | FOR | AGAINST | ABSTAINED | BROKER NON-VOTES | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (1) Election of Directors: | ||||||||||
NOMINEE | ||||||||||
C. Michael Armstrong | 2,652,446,041 | 1,116,831,414 | N/A | N/A | ||||||
| Alain J.P. Belda | 3,022,486,697 | 904,215,624 | N/A | N/A | ||||||
| John M. Deutch | 2,763,632,744 | 1,082,994,711 | N/A | N/A | ||||||
| Jerry A. Grundhofer | 3,644,626,322 | 281,823,648 | N/A | N/A | ||||||
| Andrew N. Liveris | 3,324,738,608 | 518,759,237 | N/A | N/A | ||||||
| Anne Mulcahy | 2,971,366,829 | 878,616,981 | N/A | N/A | ||||||
| Michael E. O'Neill | 3,635,947,437 | 293,286,786 | N/A | N/A | ||||||
| Vikram S. Pandit | 3,589,130,584 | 342,950,642 | N/A | N/A | ||||||
| Richard D. Parsons | 3,250,927,915 | 517,709,078 | N/A | N/A | ||||||
| Lawrence R. Ricciardi | 3,610,264,074 | 318,141,540 | N/A | N/A | ||||||
| Judith Rodin | 3,321,205,768 | 526,914,875 | N/A | N/A | ||||||
| Robert L. Ryan | 3,595,912,438 | 330,821,814 | N/A | N/A | ||||||
| Anthony M. Santomero | 3,626,107,977 | 302,147,372 | N/A | N/A | ||||||
| William S. Thompson, Jr. | 3,640,847,453 | 290,582,223 | N/A | N/A | ||||||
(2) Ratification of Independent Registered Public Accounting Firm. | 3,773,157,923 | 167,307,553 | 37,393,365 | N/A | ||||||
(3) Proposal to approve the Citigroup 2009 Stock Incentive Plan. | 1,623,698,012 | 617,074,829 | 32,050,809 | 1,732,444,835 | ||||||
| | FOR | AGAINST | ABSTAINED | BROKER NON-VOTES | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
(4) Proposal to approve Citi's 2008 Executive Compensation. | 3,287,458,436 | 618,660,115 | 71,739,578 | N/A | ||||||
(5) Stockholder Proposal Requesting a report on prior governmental service of certain individuals. | 220,803,277 | 1,977,720,383 | 74,294,752 | 1,732,450,073 | ||||||
(6) Stockholder Proposal Requesting a report on political contributions. | 586,173,849 | 1,370,127,454 | 316,517,105 | 1,732,450,077 | ||||||
(7) Stockholder Proposal Requesting a report on predatory credit card practices. | 600,201,556 | 1,513,330,891 | 159,290,010 | 1,732,446,028 | ||||||
(8) Stockholder Proposal Requesting that two candidates be nominated for each board position. | 200,880,442 | 1,948,417,876 | 123,521,877 | 1,732,448,290 | ||||||
(9) Stockholder Proposal Requesting a report on the Carbon Principles. | 141,241,356 | 1,783,956,465 | 347,591,916 | 1,732,478,748 | ||||||
(10) Stockholder Proposal Requesting that executive officers retain 75% of the shares acquired through compensation plans for two years following termination of employment. | 704,417,260 | 1,538,534,342 | 29,866,903 | 1,732,449,980 | ||||||
(11) Stockholder Proposal Requesting additional disclosure regarding Citi's compensation consultants. | 1,029,895,487 | 1,215,878,347 | 27,045,018 | 1,732,449,633 | ||||||
(12) Stockholder Proposal Requesting that stockholders holding at least 10% of Citigroup's outstanding common stock have the right to call special shareholder meetings. | 1,051,475,100 | 1,186,034,929 | 35,313,706 | 1,732,444,749 | ||||||
(13) Stockholder Proposal Requesting cumulative voting. | 858,253,671 | 1,370,976,659 | 43,572,860 | 1,732,465,295 | ||||||
Item 6. Exhibits
See Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 31st8th day of October, 2008.May, 2009.
CITIGROUP INC. (Registrant) | ||||
By | /s/ Chief Financial Officer (Principal Financial Officer) | |||
By | /s/ JOHN C. GERSPACH John C. Gerspach Controller and Chief Accounting Officer (Principal Accounting Officer) | |||
Restated Certificate of Incorporation of Citigroup Inc. (the Company), incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-3 filed December 15, 1998 (No. 333-68949). | |||
3.01.2 | Certificate of Designation of 5.321% Cumulative Preferred Stock, Series YY, of the Company, incorporated by reference to Exhibit 4.45 to Amendment No. 1 to the Company's Registration Statement on Form S-3 filed January 22, 1999 (No. 333-68949). | ||
3.01.3 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2000, incorporated by reference to Exhibit 3.01.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. 1-9924). | ||
3.01.4 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 17, 2001, incorporated by reference to Exhibit 3.01.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (File No. 1-9924). | ||
3.01.5 | Certificate of Designation of 6.767% Cumulative Preferred Stock, Series YYY, of the Company, incorporated by reference to Exhibit 3.01.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-9924). | ||
3.01.6 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2006, incorporated by reference to Exhibit 3.01.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006 (File No. 1-9924). | ||
3.01.7 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.8 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.9 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.10 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.11 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.12 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.13 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.14 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series | ||
3.01.15 | Certificate of Designation of 6.5% Non-Cumulative Convertible Preferred Stock, Series T, of the Company, incorporated by reference to Exhibit 3.09 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | ||
3.01.16 | Certificate of Designation of 8.125% Non-Cumulative Preferred Stock, Series AA, of the Company, incorporated by reference to Exhibit 3.10 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | ||
3.01.17 | Certificate of Designation of 8.40% Fixed Rate/Floating Rate Non-Cumulative Preferred Stock, Series E, of the Company, incorporated by reference to Exhibit 3.01 to the Company's Current Report on Form 8-K filed April 28, 2008 (File No. 1-9924). | ||
3.01.18 | Certificate of Designation of 8.50% Non-Cumulative Preferred Stock, Series F, of the Company, incorporated by reference to Exhibit 3.01 to the Company's Current Report on Form 8-K filed May 13, 2008 (File No. 1-9924). | ||
3.01.19 | Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series H, of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed October 30, 2008 (File No. 1-9924). | ||
3.01.20 | Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series I, of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed December 31, 2008 (File No. 1-9924). | ||
| 3.01.21 | Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series G, of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed January 16, 2009 (File No. 1-9924). | ||
3.02 | By-Laws of the Company, as amended, effective October 16, 2007, incorporated by reference to Exhibit 3.1 to the | ||
| Company's Current Report on Form 8-K filed October 19, 2007 (File No. 1-9924). | |||
Warrant, dated October 28, 2008, issued by the Company to the United States Department of the Treasury (the UST), incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed October 30, 2008 (File No. 1-9924). | |||
4.02 | Warrant, dated December 31, 2008, issued by the Company to the UST, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed December 31, 2008 (File No. 1-9924). | ||
4.03 | Warrant, dated January 15, 2009, issued by the Company to the UST, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed January 16, 2009 (File No. 1-9924). | ||
10.01 | Amendment to the Travelers Group Capital Accumulation Plan, 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). | ||
10.02 | Amendment to the Citigroup Employee Incentive Plan, incorporated by reference to Exhibit 10.08.2 to the Company's 2008 10-K. | ||
10.03 | Amendment to the Citicorp 1997 Stock Incentive Plan, incorporated by reference to Exhibit 10.11.3 to the Company's 2008 10-K. | ||
10.04 | Citigroup Deferred Cash Award Plan, incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed January 21, 2009 (File No. 1-9924). | ||
10.05 | 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. | ||
10.06 | Citigroup 2009 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 22, 2009 (File No. 1-9924). | ||
10.07 | 2009 Deferred Cash Executive Retention Award Plan (amended and restated as of January 1, 2009), incorporated by reference to Exhibit 10.32 to the Company's 2008 10-K. | ||
10.08 | Master Agreement, dated as of January 15, 2009, among the Company, certain affiliates of the Company named therein, the UST, the Federal Deposit Insurance Corporation (the FDIC) and the Federal Reserve Bank of New York, 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). | ||
10.09 | Securities Purchase Agreement, dated January 15, 2009, among the Company, the UST and the FDIC, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 16, 2009 (File No. 1-9924). | ||
10.10 | 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). | ||
10.11 | Form of Citigroup | ||
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). | |||
10.13 | + | Letter of Understanding, dated April 22, 2008, between the Company and Ajaypal Banga. | |
12.01 | + | Calculation of Ratio of Income to Fixed Charges. | |
+ | Calculation of Ratio of Income to Fixed Charges (including preferred stock dividends). | ||
+ | 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. | |
+ | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
+ | Residual Value Obligation Certificate. |
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 Securities and Exchange Commission upon request.