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UNITED STATES
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 September 30, | ||
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 ý 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: 5,449,539,9042009: 22,863,947,261
Available on the Webweb at www.citigroup.com
Citigroup Inc.
THIRD QUARTER OF 2009—FORM 10-Q
THE COMPANY | ||||||||
Citigroup Segments and Regions | 4 | |||||||
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 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 disruptionSignificant Events in the fixed income markets, and a general economic slowdown. The net lossThird Quarter 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 decline 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, BUSINESS AND REGIONAL—NETPRODUCT 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 | |||||||||
12 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 ViewRevenues
| | 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
13 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.CITICORP
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
Regional 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 inLatinNorth 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.
Regional 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. Regional Consumer Banking
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.Latin America Regional Consumer Banking
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 MANAGEMENTAsia Regional Consumer Banking
| | 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
AsiaInstitutional Clients Group (ICG)
. The reserve builds in 2008 were mainly for mortgages, FAS114 impairment, additional reserves required due to deterioration in risk rating of a loan facilitySecurities and for lending to address client liquidity needs related to their auction rate securities holdings inNorth America.Banking
Transaction Services
CITI HOLDINGS
Brokerage and Asset Management
Local Consumer Lending
Special Asset Pool
CORPORATE/OTHER
| | 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 DISCUSSIONSGOVERNMENT PROGRAMS
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the previous segment discussions.
NORTH AMERICA
| | 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%.Net Interest Revenue was 20% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the quarter. The increase was also driven by growth in average loans of 2% and average deposits of 3%.Non-Interest 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%.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-downs and losses related to the fixed income and credit markets inS&B. 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.
LATIN AMERICA
| | Third Quarter | | Nine Months | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||
| In millions of dollars | 2008 | 2007 | 2008 | 2007 | |||||||||||||||
Net interest revenue | $ | 2,061 | $ | 1,933 | 7 | % | $ | 6,245 | $ | 5,212 | 20 | % | |||||||
Non-interest revenue | 1,017 | 2,061 | (51 | ) | 4,213 | 4,714 | (11 | ) | |||||||||||
Total Revenues, net of interest expense | $ | 3,078 | $ | 3,994 | (23 | )% | $ | 10,458 | $ | 9,926 | 5 | % | |||||||
Total operating expenses | 1,849 | 1,830 | 1 | 5,158 | 4,962 | 4 | |||||||||||||
Provisions for credit losses and for benefits and claims | $ | 968 | $ | 640 | 51 | $ | 2,534 | $ | 1,307 | 94 | |||||||||
Income before taxes and minority interest | $ | 261 | $ | 1,524 | (83 | )% | $ | 2,766 | $ | 3,657 | (24 | )% | |||||||
Income taxes | (20 | ) | 439 | NM | 630 | 999 | (37 | ) | |||||||||||
Minority interest, net of tax | 1 | 1 | — | 3 | 2 | 50 | |||||||||||||
Net income | $ | 280 | $ | 1,084 | (74 | )% | $ | 2,133 | $ | 2,656 | (20 | )% | |||||||
Average assets(in billions of dollars) | $ | 156 | $ | 150 | 4 | % | $ | 156 | $ | 141 | 11 | % | |||||||
Return on assets | 0.71 | % | 2.87 | % | 1.83 | % | 2.52 | % | |||||||||||
Key Drivers(in billions of dollars, except branches) | |||||||||||||||||||
Average Loans | $ | 61.0 | $ | 58.5 | 4 | % | |||||||||||||
Average Consumer Banking Loans | 16.0 | 13.9 | 15 | ||||||||||||||||
Average deposits (and other consumer liability balances) | $ | 67.9 | $ | 66.0 | 3 | % | |||||||||||||
Branches/offices | 2,598 | 2,664 | (2 | ) | |||||||||||||||
3Q08 vs. 3Q07
Total Revenue was 23% lower than the prior year, due to the absence of of $729 million from the Redecard gain on sale recorded last year in the Global Cards business. Consumer Banking revenues declined 5% largely resulting from the Chile business divestiture in the first quarter of 2008, partially offset by growth in deposits of 5% and in average loans of 15%.S&B revenues decreased 43%, driven by adverse market conditions impacting the FX, interest rates and equities businesses.Transaction Services revenues grew 25%, due to steady growth in the Direct Custody business, as average customer deposits increased 11%, and due to the impact of the Cuscatlan acquisition. GWM revenues were flat due to increased market volatility.
Operating expense increased slightly over the prior year, up 1%, mainly because of $95 million in repositioning charges. Excluding these charges, expenses declined 4%, with declines in legal costs, advertising and marketing, and incentive compensation, partially offset by an increase in Cards and the impact of fx translation.
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% was primarily driven by acquisitions and volume growth, higher collection costs, legal costs and reserves, and repositioning charges, partially offset by a $282 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 in loan loss reserve builds, reflecting a legacy portfolio sale in 2007, asset deterioration, and volume growth.
| | 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 Revenue increased 16%. Global Cards Revenue growth of 11% was driven by 14% growth 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 continued 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% and 31% in the 2008 third quarter and year-to-date periods, respectively.Operating Expenses excluding CFJ decreased 6% in the third quarter while it increased 17% in the year-to-date period, and Net 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.
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 are described in Citigroup's 2007 Annual Report on Form 10-K.
DETAILS OFLOAN AND CREDIT LOSS EXPERIENCEDETAILS
| In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr.(1) 2008 | 1st Qtr.(1) 2008 | 4th Qtr.(1) 2007 | 3rd Qtr.(1) 2007 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | $ | 20,777 | $ | 18,257 | $ | 16,117 | $ | 12,728 | $ | 10,381 | |||||||
Provision for loan losses | |||||||||||||||||
Consumer(2) | $ | 7,855 | $ | 6,259 | $ | 5,332 | $ | 6,438 | $ | 4,427 | |||||||
Corporate | 1,088 | 724 | 245 | 882 | 154 | ||||||||||||
| $ | 8,943 | $ | 6,983 | $ | 5,577 | $ | 7,320 | $ | 4,581 | ||||||||
Gross credit losses | |||||||||||||||||
Consumer | |||||||||||||||||
In U.S. offices | $ | 3,069 | $ | 2,599 | $ | 2,325 | $ | 1,895 | $ | 1,364 | |||||||
In offices outside the U.S. | 1,914 | 1,798 | 1,637 | 1,415 | 1,434 | ||||||||||||
Corporate | |||||||||||||||||
In U.S. offices | 160 | 346 | 40 | 596 | 20 | ||||||||||||
In offices outside the U.S. | 200 | 36 | 97 | 169 | 74 | ||||||||||||
| $ | 5,343 | $ | 4,779 | $ | 4,099 | $ | 4,075 | $ | 2,892 | ||||||||
Credit recoveries | |||||||||||||||||
Consumer | |||||||||||||||||
In U.S. offices | $ | 137 | $ | 148 | $ | 172 | $ | 162 | $ | 160 | |||||||
In offices outside the U.S. | 252 | 286 | 253 | 254 | 219 | ||||||||||||
Corporate | |||||||||||||||||
In U.S. offices | 3 | 24 | 3 | 15 | 1 | ||||||||||||
In offices outside the U.S. | 31 | 1 | 33 | 55 | 59 | ||||||||||||
| $ | 423 | $ | 459 | $ | 461 | $ | 486 | $ | 439 | ||||||||
Net credit losses | |||||||||||||||||
In U.S. offices | $ | 3,089 | $ | 2,773 | $ | 2,190 | $ | 2,314 | $ | 1,223 | |||||||
In offices outside the U.S. | 1,831 | 1,547 | 1,448 | 1,275 | 1,230 | ||||||||||||
Total | $ | 4,920 | $ | 4,320 | $ | 3,638 | $ | 3,589 | $ | 2,453 | |||||||
Other—net(3)(4)(5)(6)(7) | $ | (795 | ) | $ | (143 | ) | $ | 201 | $ | (342 | ) | $ | 219 | ||||
Allowance for loan losses at end of period | $ | 24,005 | $ | 20,777 | $ | 18,257 | $ | 16,117 | $ | 12,728 | |||||||
Allowance for unfunded lending commitments(8) | $ | 957 | $ | 1,107 | $ | 1,250 | $ | 1,250 | $ | 1,150 | |||||||
Total allowance for loan losses and unfunded lending commitments | $ | 24,962 | $ | 21,884 | $ | 19,507 | $ | 17,367 | $ | 13,878 | |||||||
Net consumer credit losses | $ | 4,594 | $ | 3,963 | $ | 3,537 | $ | 2,894 | $ | 2,419 | |||||||
As a percentage of average consumer loans | 3.35 | % | 2.83 | % | 2.52 | % | 2.07 | % | 1.82 | % | |||||||
Net corporate credit losses (recoveries) | $ | 326 | $ | 357 | $ | 101 | $ | 695 | $ | 34 | |||||||
As a percentage of average corporate loans | 0.19 | % | 0.19 | % | 0.05 | % | 0.34 | % | 0.02 | % | |||||||
Loans Outstanding
Details of $1,443 million, $882 million, and $443 million as of September 30, 2008, June 30, 2008 and March 31, 2008, respectively.Credit Loss Experience
Non-Accrual Assets
Consumer Loan Balances, Net of Unearned IncomeDetails
| | 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 | |||||||||||||
On-balance sheet(2) | $ | 539.0 | $ | 550.1 | $ | 537.0 | $ | 544.6 | $ | 563.9 | $ | 527.5 | |||||||
Securitized receivables (all inNorth America Cards) | 107.9 | 111.0 | 104.0 | 108.8 | 107.4 | 101.1 | |||||||||||||
Credit card receivables held-for-sale(3) | — | — | 3.0 | — | 1.0 | 3.0 | |||||||||||||
Total managed(4) | $ | 646.9 | $ | 661.1 | $ | 644.0 | $ | 653.4 | $ | 672.3 | $ | 631.6 | |||||||
Consumer Loan Modification Programs
U.S. Consumer Mortgage Lending
N.A. Cards
U.S. Installment and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $3 billion for the third quarter of 2008, approximately $3 billion and $2 billion for the second quarter of 2008 and approximately $2 billion and $2 billion for the third quarter of 2007, respectively, which are included in ConsumerOther Revolving Loans on the Consolidated Balance Sheet.
Citigroup's total allowance for loans, leases and unfunded lending commitments of $25.0 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 billion at September 30, 2008, $16.5 billion at June 30, 2008 and $9.2 billion at September 30, 2007. The increase in the allowance for loan losses from September 30, 2007 of $9.9 billion included net builds of $10.9 billion.
The builds consisted of $10.8 billion in Consumer ($8.8 billion inNorth America and $2.0 billion in regions outside ofNorth America) and $131 million in GWM.Corporate Loan Details
The build of $8.8 billion inNorth America Consumer primarily reflects an increase in the losses embedded in the portfolio as a result of weakening leading credit indicators, including increased delinquencies on first mortgages, unsecured personal loans, credit cards, and auto loans. Also, the build reflected trends in the U.S. macro-economic environment, including the housing market downturn, rising unemployment rates and portfolio growth. The build of $2.0 billion in regions outside ofNorth America Consumer primarily reflects portfolio growth and the impact of recent acquisitions and credit deterioration in certain countries.
On-balance-sheet consumer loans of $539.0 billion increased $2.0 billion from September 30, 2007, primarily driven by increases in all Global Cards and GWM regions, partially offset by decreases in Consumer 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, as well as macroeconomic and regulatory policies.
EXPOSURE TO U.S. REAL ESTATE IN SECURITIES AND BANKING
Subprime-Related Direct Exposure in Securities and BankingCiti Holdings—Special Asset Pool
The following table summarizes Citigroup's U.S. subprime-related direct exposures in Securities and Banking (S&B) at September 30, 2008 and June 30, 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 | ) | |||||||||||
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 billion in net U.S. subprime-related direct exposures in itsS&B business at September 30, 2008.
The exposure consisted of (a) approximately $16.3 billion of net exposures in the super senior tranches (i.e., most senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities, derivatives on asset-backed securities or both (ABS CDOs), and (b) approximately $3.3 billion of exposures in its lending and structuring business.
Direct ABS CDO Super Senior Exposures
The net $16.3 billion in ABS CDO super senior exposures as of September 30, 2008 is collateralized primarily by subprime residential mortgage-backed securities (RMBS), derivatives on RMBS or both. These exposures include $13.3 billion in commercial paper (ABCP) issued as the super senior tranches of ABS CDOs and approximately $3.0 billion of other super senior tranches of ABS CDOs.
Citigroup's CDO super senior subprime direct exposures are Level 3 assets and 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 current fair value.
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.
As was the case in the second quarter of 2008, the third quarter housing-price changes were estimated using a forward-looking projection. However, for the third quarter of 2008, this projection incorporates 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 for 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, 2008 assumes a cumulative decline in U.S. housing prices from peakExposure to trough of 32%. This rate assumes declines of 16% and 10% in 2008 and 2009, respectively, the remainder of the 32% 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.
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 indicies and other referenced cash bonds and solves for the discount margin that produces the 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.Commercial Real Estate
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 ABCP 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 million change in the fair value of the Company's direct ABCP and CDO-squared super senior exposures as at September 30, 2008. This applies to both decreases in the discount rate (which would decrease the value of these assets and increase 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 billion of subprime-related exposures includes approximately $0.1 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $2.1 billion of actively managed subprime loans purchased for resale or securitization, at a discount to par, during 2007, and approximately $1.1 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, 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: approximately $11.1 billion of securities, loans and other items linked to commercial real estate that are carried at fair value as Trading account assets, approximately $3.7 billion of commercial real estate loans and loan commitments classified as held-for-sale and measured at the lower of cost or market (LOCOM) and approximately $2.1 billion of securities backed by commercial real estate carried at fair value as available-for-sale Investments. Changes in fair value for these Trading 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 value hierarchy. In recent months, weakening 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) Loans and commitments: approximately $19.8 billion of commercial real estate loan exposures, all of which are recorded at cost, less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for credit losses and in net credit losses.
(3) Equity and other investments: Approximately $5.3 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" on page 8 for a description of incremental write-downs on Alt-A mortgage securities inS&B.
EVALUATING INVESTMENTS FOR OTHER THAN TEMPORARY IMPAIRMENTS
Available-for-Sale Unrealized Losses
The following table presents the amortized cost, the gross unrealized gains and losses, and the fair value for available-for-sale securities at September 30, 2008:
| | 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 reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff Position FAS No. 115-1, "The Meaning of Other-Than-Temporary Impairment and Its Application 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 reflected in the 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 widening 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 equal 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 asserted
that it has the intent and ability 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 maturity of the securities. The weighted-average estimated life of the securities is currently approximately 7 years for U.S. mortgage-backed securities, 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 Securities
The increase in gross unrealized losses on state and municipal 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 all principal and interest on these securities is probable.
For further disclosures regarding available-for-sale investments, see footnote 10 on 100.
CITIGROUP DERIVATIVES
Notionals(1)
| | Trading derivatives(2) | Asset/liability management hedges(3) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | September 30, 2008 | December 31, 2007 | September 30, 2008 | December 31, 2007 | |||||||||||
| Interest rate contracts | |||||||||||||||
| Swaps | $ | 16,581,844 | $ | 16,433,117 | $ | 778,256 | $ | 521,783 | |||||||
| Futures and forwards | 2,953,595 | 1,811,599 | 164,513 | 176,146 | |||||||||||
| Written options | 3,417,946 | 3,479,071 | 28,470 | 16,741 | |||||||||||
| Purchased options | 3,516,775 | 3,639,075 | 83,731 | 167,080 | |||||||||||
| Total interest rate contract notionals | $ | 26,470,160 | $ | 25,362,862 | $ | 1,054,970 | $ | 881,750 | |||||||
| Foreign exchange contracts | |||||||||||||||
| Swaps | $ | 947,800 | $ | 1,062,267 | $ | 64,131 | $ | 75,622 | |||||||
| Futures and forwards | 2,760,597 | 2,795,180 | 45,167 | 46,732 | |||||||||||
| Written options | 644,152 | 653,535 | 6,509 | 292 | |||||||||||
| Purchased options | 651,239 | 644,744 | 1,038 | 686 | |||||||||||
| Total foreign exchange contract notionals | $ | 5,003,788 | $ | 5,155,726 | $ | 116,845 | $ | 123,332 | |||||||
| Equity contracts | |||||||||||||||
| Swaps | $ | 142,569 | $ | 140,256 | $ | — | $ | — | |||||||
| Futures and forwards | 24,030 | 29,233 | — | — | |||||||||||
| Written options | 848,644 | 625,157 | — | — | |||||||||||
| Purchased options | 806,346 | 567,030 | — | — | |||||||||||
| Total equity contract notionals | $ | 1,821,589 | $ | 1,361,676 | $ | — | $ | — | |||||||
| Commodity and other contracts | |||||||||||||||
| Swaps | $ | 44,734 | $ | 29,415 | $ | — | $ | — | |||||||
| Futures and forwards | 100,212 | 66,860 | — | — | |||||||||||
| Written options | 32,480 | 27,087 | — | — | |||||||||||
| Purchased options | 37,076 | 30,168 | — | — | |||||||||||
| Total commodity and other contract notionals | $ | 214,502 | $ | 153,530 | $ | — | $ | — | |||||||
| Credit derivatives(4) | |||||||||||||||
| Citigroup as the Guarantor: | |||||||||||||||
| Credit default swaps | $ | 1,575,754 | $ | 1,755,440 | $ | — | $ | — | |||||||
| Total return swaps | 2,048 | 12,121 | — | — | |||||||||||
| Credit default options | 581 | 276 | — | — | |||||||||||
| Citigroup as the Beneficiary: | |||||||||||||||
| Credit default swaps | $ | 1,672,042 | $ | 1,890,611 | $ | — | $ | — | |||||||
| Total return swaps | 40,257 | 15,895 | — | — | |||||||||||
| Credit default options | 742 | 450 | — | — | |||||||||||
| Total credit derivatives | $ | 3,291,424 | $ | 3,674,793 | $ | — | $ | — | |||||||
| Total derivative notionals | $ | 36,801,463 | $ | 35,708,587 | $ | 1,171,815 | $ | 1,005,082 | |||||||
[Table continues on the following page.]
Mark-to-Market (MTM) Receivables/Payables
Highly Leveraged Financing Transactions
| | 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 | |||||||
The market value adjustments applied by the Company consist of the following items:
Counterparty and own credit adjustments consider the estimated future cash flows between Citi and its counterparties under the terms of the derivative 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. All or a portion of these credit value adjustments may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of Citi or its counterparties, changes in the credit mitigants associated with the derivative instruments, or, if such adjustments are not realized, upon settlement of the derivative instruments. A narrowing of Citigroup's credit spreads would generally adversely affect 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-tax gains (losses) related to changes in credit valuation adjustments on derivatives for the specified periods were as follows (in millions of dollars):
| | 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 | ) | |||
The own-credit amounts shown above relate solely to the derivative portfolio, and do not include:
Credit DerivativesDERIVATIVES
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. 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.
60 The following tables summarize the key characteristics of the Company's credit derivative portfolio by activity, counterparty and derivative instrument as of September 30, 2008 and December 31, 2007:
September 30, 2008:
| | Market values | Notionals | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | |||||||||
By Activity: | |||||||||||||
Credit portfolio | $ | 2,143 | $ | 53 | $ | 80,413 | $ | — | |||||
Dealer/client | 163,849 | 148,773 | 1,632,628 | 1,578,383 | |||||||||
Total by Activity | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | |||||
By Industry/Counterparty | |||||||||||||
Bank | $ | 92,169 | $ | 91,263 | $ | 1,054,002 | $ | 1,017,928 | |||||
Broker-dealer | 41,667 | 40,231 | 434,390 | 399,523 | |||||||||
Monoline | 6,641 | 114 | 11,537 | 176 | |||||||||
Non-financial | 398 | 517 | 4,477 | 6,578 | |||||||||
Insurance and other financial institutions | 25,117 | 16,701 | 208,635 | 154,178 | |||||||||
Total by Industry/Counterparty | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | |||||
By Instrument: | |||||||||||||
Credit default swaps and options | $ | 164,235 | $ | 148,103 | $ | 1,672,785 | $ | 1,576,338 | |||||
Total return swaps and other | 1,757 | 723 | 40,256 | 2,045 | |||||||||
Total by Instrument | $ | 165,992 | $ | 148,826 | $ | 1,713,041 | $ | 1,578,383 | |||||
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 market 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 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 managing 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% of
the receivables as of September 30, 2008 and December 31, 2007, respectively, 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 PROCESSMarket 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. Liquidity risk is discussed in the "Capital Resources and Liquidity" section beginning on page 59. 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 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (1,811 | ) | $ | 893 | $ | (1,236 | ) | $ | 1,170 | $ | (684 | ) | $ | 738 | ||||
Gradual change | $ | (707 | ) | $ | 490 | $ | (756 | ) | $ | 633 | $ | (337 | ) | $ | 372 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | (23 | ) | $ | 23 | $ | (24 | ) | $ | 24 | $ | 5 | $ | (5 | ) | ||||
Gradual change | $ | (19 | ) | $ | 19 | $ | (19 | ) | $ | 19 | $ | (1 | ) | $ | 1 | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (52 | ) | $ | 52 | $ | (71 | ) | $ | 71 | $ | (92 | ) | $ | 92 | ||||
Gradual change | $ | (41 | ) | $ | 41 | $ | (51 | ) | $ | 51 | $ | (38 | ) | $ | 38 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | 142 | NM | $ | 131 | NM | $ | 58 | NM | ||||||||||
Gradual change | $ | 72 | NM | $ | 73 | NM | $ | 43 | NM | ||||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | 16 | $ | (16 | ) | $ | 13 | $ | (13 | ) | $ | (5 | ) | $ | 5 | ||||
Gradual change | $ | 13 | $ | (13 | ) | $ | 15 | $ | (15 | ) | $ | 8 | $ | (8 | ) | ||||
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, 2008 primarily reflect movements in customer-related asset and liability mix, the expected impact of market rates on customer behavior, as well as Citigroup's view of prevailing interest rates.
The following table shows the estimated one year impact to NIR from the change in a combination of two factors, the overnight rate and the 10-year rate, under six different scenarios.
| | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||
Impact to net interest revenue | $ | (100 | ) | $ | (585 | ) | $ | (1,139 | ) | $ | 935 | $ | 518 | $ | (56 | ) | |||
Value at Risk (VAR)
For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $237 million, $255 million, and $135 million at September 30, 2008, June 30, 2008, and September 30, 2007, respectively. Daily exposures averaged $240 million during the third quarter of 2008 and ranged from $265 million to $220 million.
The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2008, June 30, 2008, and September 30, 2007, including the Total VAR, the specific risk only component of VAR, and Total—General market factors only, 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 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 240 | $ | 265 | $ | 288 | $ | 301 | $ | 96 | $ | 101 | |||||||
Foreign exchange | 40 | 43 | 47 | 49 | 28 | 29 | |||||||||||||
Equity | 106 | 99 | 95 | 79 | 104 | 98 | |||||||||||||
Commodity | 20 | 20 | 45 | 51 | 33 | 31 | |||||||||||||
Covariance adjustment | (169 | ) | (187 | ) | (220 | ) | (188 | ) | (126 | ) | (118 | ) | |||||||
Total—All market risk factors, including general and specific risk | $ | 237 | $ | 240 | $ | 255 | $ | 292 | $ | 135 | $ | 141 | |||||||
Specific risk only component | $ | 20 | $ | 14 | $ | 15 | $ | 7 | $ | 24 | $ | 26 | |||||||
Total—General market factors only | $ | 217 | $ | 226 | $ | 240 | $ | 285 | $ | 111 | $ | 115 | |||||||
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 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Low | High | Low | High | Low | High | |||||||||||||
Interest rate | $ | 239 | $ | 292 | $ | 268 | $ | 339 | $ | 87 | $ | 119 | |||||||
Foreign exchange | 28 | 71 | 33 | 81 | 23 | 35 | |||||||||||||
Equity | 80 | 134 | 63 | 181 | 82 | 120 | |||||||||||||
Commodity | 12 | 46 | 40 | 60 | 24 | 41 | |||||||||||||
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. It includes the reputation and franchise risk associated with business practices or market conduct that the Company undertakes. Operational risk is inherent in Citigroup's global business activities and, as with other risk types, is managed through an overall framework with checks and balances that include:
Framework
Citigroup's approach to operational risk is defined in the Citigroup Risk and Control Self-Assessment (RCSA)/Operational Risk Policy.
The objective of the Policy is to establish a consistent, value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. Each major business segment must implement an operational risk process consistent with the requirements of this Policy.
The RCSA standards establish a formal governance structure to provide direction, oversight, and monitoring of Citigroup's RCSA programs. The RCSA standards 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 Process
Country and alignmentCross-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
Analysis of capital assessments with risk management objectives. The entire process is subjectChanges in Interest Revenue
Analysis of Changes in Interest Expense and Net Interest Revenue
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
Common Equity
Funding and Liquidity
Off-Balance Sheet Arrangements
CONTRACTUAL OBLIGATIONS
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
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Submission of Matters to audit by Citigroup's ARR, and the resultsa Vote of RCSA are included in periodic management reporting, including reporting to seniorSecurity Holders
Item 6. Exhibits
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 approximately 200 million customer accounts and does business in more than 140 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). Citibank, N.A. is a U.S. national bank subject to supervision and examination by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Some of the Company's other subsidiaries are also subject to supervision and examination by their respective federal and state authorities or, in the case of overseas subsidiaries, the regulators of the respective jurisdictions.
This Quarterly Report on Form 10-Q should be read in conjunction with Citigroup's Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Annual Report on Form 10-K), Citigroup's updated 2008 historical financial statements and notes filed on Form 8-K with the Securities and Exchange Commission (SEC) on October 13, 2009 and Citigroup's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2009 and March 31, 2009. Additional financial, statistical, and business-related information for the third quarter of 2009, as well as business and segment trends, are included in a Financial Supplement that was furnished as Exhibit 99.2 to the Company's Form 8-K, filed with the SEC on October 15, 2009.
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.
Citigroup is 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—Page 1
| | | | | Nine Months Ended September 30, | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Third Quarter | | | |||||||||||||||||
| In millions of dollars, except per share amounts | % Change | % Change | ||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 11,998 | $ | 13,404 | (10 | )% | $ | 37,753 | $ | 40,478 | (7 | )% | ||||||||
Non-interest revenue | 8,392 | 2,854 | NM | 37,127 | 5,475 | NM | ||||||||||||||
Revenues, net of interest expense | $ | 20,390 | $ | 16,258 | 25 | % | $ | 74,880 | $ | 45,953 | 63 | % | ||||||||
Operating expenses | 11,824 | 14,007 | (16 | ) | 35,508 | 44,598 | (20 | ) | ||||||||||||
Provisions for credit losses and for benefits and claims | 9,095 | 9,067 | — | 32,078 | 22,019 | 46 | ||||||||||||||
Income (Loss) from Continuing Operations before Income Taxes | $ | (529 | ) | $ | (6,816 | ) | 92 | $ | 7,294 | $ | (20,664 | ) | NM | |||||||
Income taxes (benefits) | (1,122 | ) | (3,295 | ) | 66 | 620 | (9,628 | ) | NM | |||||||||||
Income (Loss) from Continuing Operations | $ | 593 | $ | (3,521 | ) | NM | $ | 6,674 | $ | (11,036 | ) | NM | ||||||||
Income (Loss) from Discontinued Operations, net of taxes | (418 | ) | 613 | NM | (677 | ) | 578 | NM | ||||||||||||
Net Income (Loss) before attribution of Noncontrolling Interests | $ | 175 | $ | (2,908 | ) | NM | $ | 5,997 | $ | (10,458 | ) | NM | ||||||||
Net Income (Loss) attributable to Noncontrolling Interests | 74 | (93 | ) | NM | 24 | (37 | ) | NM | ||||||||||||
Citigroup's Net Income (Loss) | $ | 101 | $ | (2,815 | ) | NM | $ | 5,973 | $ | (10,421 | ) | NM | ||||||||
Less: | ||||||||||||||||||||
Preferred dividends—Basic | $ | (272 | ) | $ | (389 | ) | 30 | % | $ | (2,988 | ) | $ | (833 | ) | 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 | (16 | ) | — | NM | (123 | ) | — | NM | ||||||||||||
Impact of the Public and Private Preferred stock exchange offer | (3,055 | ) | — | NM | (3,055 | ) | — | NM | ||||||||||||
Income (loss) available to common stockholders | (3,242 | ) | (3,204 | ) | (1 | ) | (1,478 | ) | (11,254 | ) | 87 | |||||||||
Allocation of dividends to common stock and participating securities, net of forfeitures | — | (1,738 | ) | NM | (63 | ) | (5,151 | ) | 99 | |||||||||||
Undistributed earnings (loss) for basic EPS | $ | (3,242 | ) | $ | (4,942 | ) | 34 | % | $ | (1,541 | ) | $ | (16,405 | ) | 91 | % | ||||
Convertible Preferred Stock Dividends | — | 270 | NM | 540 | 606 | (11 | ) | |||||||||||||
Undistributed earnings (loss) for diluted EPS | $ | (3,242 | ) | $ | (4,672 | ) | 31 | % | $ | (1,001 | ) | $ | (15,799 | ) | 94 | % | ||||
Earnings per share | ||||||||||||||||||||
Basic(2) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.23 | ) | $ | (0.72 | ) | 68 | % | $ | (0.10 | ) | $ | (2.28 | ) | 96 | % | ||||
Net income (loss) | (0.27 | ) | (0.61 | ) | 56 | (0.19 | ) | (2.17 | ) | 91 | ||||||||||
Diluted(2) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | (0.23 | ) | $ | (0.72 | ) | 68 | % | $ | (0.10 | ) | $ | (2.28 | ) | 96 | % | ||||
Net income (loss) | (0.27 | ) | (0.61 | ) | 56 | (0.19 | ) | (2.17 | ) | 91 | ||||||||||
[Continued on the following page, including notes to table.]
SUMMARY OF SELECTED FINANCIAL DATA—Page 2
| | | | | Nine Months Ended September 2009, | | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Third Quarter | | | ||||||||||||||||
| | % Change | % Change | |||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||
At September 30: | |||||||||||||||||||
Total assets | $ | 1,888,599 | $ | 2,050,131 | (8 | )% | |||||||||||||
Total deposits | 832,603 | 780,343 | 7 | ||||||||||||||||
Long-term debt | 379,557 | 393,097 | (3 | ) | |||||||||||||||
Mandatorily redeemable securities of subsidiary Trusts (included in Long-term debt) | 34,531 | 23,836 | 45 | ||||||||||||||||
Common stockholders' equity | 140,530 | 98,638 | 42 | ||||||||||||||||
Total stockholders' equity | 140,842 | 126,062 | 12 | ||||||||||||||||
Direct staff(in thousands) | 276 | 352 | (22 | ) | |||||||||||||||
Ratios: | |||||||||||||||||||
Return on common stockholders' equity(3) | (12.2 | )% | (12.2 | )% | (2.3 | )% | (13.8 | )% | |||||||||||
Tier 1 Common(4) | 9.12 | % | 3.72 | % | |||||||||||||||
Tier 1 Capital | 12.76 | % | 8.19 | % | |||||||||||||||
Total Capital | 16.58 | % | 11.68 | % | |||||||||||||||
Leverage(5) | 6.87 | % | 4.70 | % | |||||||||||||||
Common stockholders' equity to assets | 7.4 | % | 4.8 | % | |||||||||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 0.96 | NM | 1.16 | NM | |||||||||||||||
NM Not meaningful
Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation.
Within this Form 10-Q, please refer to the indices on pages 2 and 86 for page references to the Management's Discussion and Analysis section and Notes to Consolidated Financial Statements, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER OF 2009 MANAGEMENT SUMMARY
Citigroup reported net income of $101 million, and a loss of ($0.27) per diluted share, for the third quarter of 2009. The ($0.27) loss per share reflected a $3.1 billion charge to retained earnings related to the closing of the exchange offers, the remaining preferred stock dividends required to be paid prior to the closing of the exchange offers and the remaining quarterly accretion of the Series H preferred stock discount.
Revenues of $20.4 billion increased 25% from year-ago levels due primarily to positive revenue marks and gains in Citi Holdings relative to the prior-year period, and a $1.4 billion gain from the extinguishment of debt associated with the closing of the exchange offers. The increase was partially offset by credit valuation adjustments (CVA) of $1.7 billion in Securities and Banking, the absence of Smith Barney revenues of $2.0 billion in the third quarter of 2009 and foreign currency translation.
Net interest revenue declined 10% from the 2008 third quarter, primarily reflecting the Company's smaller balance sheet. Net interest margin in the third quarter of 2009 was 2.95%, down 20 basis points from the third quarter of 2008, reflecting a decrease in asset yields related to the decrease in the Federal funds rate, largely offset by significantly lower funding costs.Non-interest revenue increased $5.5 billion from a year ago, primarily reflecting the absence of significant losses in the Citi Holdings Special Asset Pool portfolio.
Operating expenses decreased 16% from the year-ago quarter and were down 1% from the second quarter of 2009 primarily due to divestitures, including Smith Barney, the re-sizing of the Citi Holdings businesses, the re-engineering of Citicorp processes, expense control, and the impact of foreign currency translation. Headcount of 276,000 was down 76,000 from September 30, 2008 and down 3,000 from June 30, 2009.
The Company's total allowance for loan losses totaled $36.4 billion at September 30, 2009, a coverage ratio of 5.85% of total loans up from 5.6% at June 30, 2009, even though corporate loans declined by $13 billion during the quarter and consumer loans decreased by $6 billion. During the third quarter of 2009, the Company recorded a net build of $802 million to its credit reserves. The build for the quarter was $3.1 billion lower than the second quarter of 2009, consisting of a net build of $893 million for consumer loans and a net release of $91 million for corporate loans.
Consumer non-accrual loans totaled $17.9 billion at September 30, 2009, compared to $15.8 billion at June 30, 2009 and $10.8 billion at September 30, 2008, primarily related to the recognition of SFAS 114 charge-offs in the quarter. The consumer loan delinquency rate was 4.70% at September 30, 2009, compared to 4.24% at June 30, 2009 and 2.66% a year ago. Delinquencies continue to rise for the first mortgage portfolio in the U.S. due primarily to the lengthening of the foreclosure process by many states and the increasing impact of the Home Affordable Modification Program (HAMP). Loans in the HAMP trial modification period are reported as delinquent if the original contractual payments are not received on time (even if the reduced payments agreed to under the program are made by the borrower) until the loan has completed the trial period under the program (see "Loan and Credit Details—Consumer Loan Modification Programs" and "—U.S. Consumer Mortgage Lending" below).
Corporate non-accrual loans were $14.8 billion at September 30, 2009, compared to $12.4 billion at June 30, 2009 and $2.7 billion a year ago. The increase from the prior quarter is mainly due to the Company's continued policy of actively moving loans into non-accrual at earlier stages of anticipated distress. Over two-thirds of the non-accrual corporate loans are current and continue to make their contractual payments. The increase from prior-year levels is also attributable to the transfer of non-accrual loans from the held-for-sale portfolio (which are carried at lower-of-cost-or-fair value and excluded from non-accrual loans) to the held-for-investment portfolio during the fourth quarter of 2008. The total allowance for loan loss reserve balance for funded corporate loans remained stable at $8 billion at the end of the quarter, or 4.4% of corporate loans, up from 4.1% in the second quarter of 2009.
The Company's effective tax rate on continuing operations in the third quarter of 2009 was 212% versus 48% in the prior-year period. The tax provision reflected a higher proportion of income earned and indefinitely reinvested in countries with relatively lower tax rates as well as a higher proportion of income from tax advantaged sources. The current quarter also includes a tax benefit of $103 million in continuing operations relating to a release of tax reserves on interchange fees, which was supported by a favorable Tax Court decision in a case litigated by another financial institution.
Total deposits were $833 billion at September 30, 2009, up 3% from June 30, 2009 and up 7% from year-ago levels. At September 30, 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 72% at September 30, 2009. Over the past six months, Citigroup and its subsidiaries have issued $20 billion of non-guaranteed debt outside of the FDIC's TLGP.
Citigroup has continued its deleveraging, reducing total assets from $2,050 billion a year ago to $1,889 billion at September 30, 2009. Asset reductions in Citi Holdings made up approximately 98% of the decline, reflecting the Company's continued strategy of reducing its assets and exposures in this business segment, which are down by almost one-third since the peak levels of early 2008.
Primarily as a result of the exchange offers, Citigroup increased its Tier 1 Common by $63 billion from the second quarter of 2009 to $90 billion. In addition, the Company's Tangible Common Equity (TCE) increased by $62 billion from the second quarter of 2009 to $102 billion at September 30, 2009. (TCE and Tier 1 Common are non-GAAP financial
measures. See "Capital Resources and Liquidity" for additional information on these measures.)
The closing of the exchange offers also resulted in a reconstitution of the Company's equity base. Common Equity increased 98% from December 31, 2008 to $140.5 billion. Citigroup's total stockholders' equity decreased by $11.5 billion during the third quarter of 2009 to $140.8 billion, primarily reflecting the impact of the exchange offers, partially offset by a $4.0 billion improvement inAccumulated Other Comprehensive Income. Citigroup's total equity capital base and trust preferred securities were $175.4 billion at September 30, 2009. The Tier 1 Capital ratio and Tier 1 Common ratio were 12.76% and 9.12%, respectively, at September 30, 2009.
SIGNIFICANT EVENTS IN THE THIRD QUARTER OF 2009
Certain significant events have occurred during the fiscal year to date, including events subsequent to September 30, 2009, that 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 throughout this MD&A.
EXCHANGE OFFERS
Private Exchange Offers
On July 23, 2009, Citigroup closed its exchange offers with the private holders of $12.5 billion aggregate liquidation value of preferred stock. The U.S. Treasury (UST) matched these exchange offers by exchanging $12.5 billion aggregate liquidation value of its preferred stock, for a total closing of $25 billion. Following the approval, on September 2, 2009, by Citi shareholders of an increase in Citi's authorized common stock, on September 10, 2009, the private holders and the UST received an aggregate of approximately 7,692 million shares of Citigroup common stock.
Public Exchange Offers
On July 29, 2009, Citigroup closed its exchange offers with the holders of approximately $20.4 billion in aggregate liquidation value of publicly-held preferred stock and trust preferred securities, representing 99% of the total liquidation value of securities Citigroup was offering to exchange. Upon closing of the public exchange offers, Citi issued approximately 5.8 billion shares of common stock to the public exchange offer participants.
In addition, on July 30, 2009, the UST matched the public exchange offers by exchanging an additional $12.5 billion aggregate liquidation value of its preferred stock. Following the increase in Citigroup's authorized common stock, on September 10, 2009, the UST received an additional approximately 3.8 billion shares of Citigroup common stock.
In total, approximately $58 billion in aggregate liquidation value of preferred stock and trust preferred securities were exchanged for common stock upon completion of all stages of the exchange offers. As a result of the exchange offers, the UST owned approximately 33.6% of Citigroup's outstanding common stock, not including the exercise of the warrants issued to the UST as part of TARP and pursuant to the loss-sharing agreement. See "Government Programs" below.
Trust Preferred Securities
On July 30, 2009, all remaining preferred stock of Citigroup held by the UST and the FDIC that was not exchanged into Citigroup common stock in connection with the exchange offers, in an aggregate liquidation amount of approximately $27.1 billion, was exchanged into newly issued 8% trust preferred securities.
Accounting Impact
The accounting for the exchange offers resulted 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 was 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 the U.S. Government (USG) preferred stock that was converted to 8% trust preferred securities, the newly issued trust preferred securities were 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 was recorded inRetained earnings after adjusting for the appropriate deferred tax liability (impacting net income available to common shareholders and EPS). For trust preferred securities exchanged for common stock, the carrying amount recorded as long-term debt was de-recognized and the common stock issued was recorded at fair value in theCommon Stock and theAdditional Paid-in Capital accounts in equity. The difference between the carrying amount of the trust preferred securities and the fair value of the common stock was recorded in Other revenue in the third quarter of 2009.
The following table presents the impact of the completion of all stages of the exchange offers to Citigroup's common shares outstanding and to its balance sheet:
| (in millions of dollars, except incremental number of Citigroup common shares) | Impact on | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Security | Notional Amounts | Converted Into | Incremental Number of Citigroup Common Shares | Date of Settlement | Other Assets(3) | Long- Term Debt | Preferred Stock | Common Stock | Additional Paid In Capital | Income Statement(2) | Retained Earnings(1) | ||||||||||||||||||||||
| | | | (in millions) | | | | | | | | | ||||||||||||||||||||||
Convertible Preferred Stock held by Private Investors | $ | 12,500 | Common Stock | 3,846 | 7/23/2009 | $ | — | — | $ | (12,500 | ) | $ | 38 | $ | 21,801 | $ | — | $ | (9,340 | ) | |||||||||||||
Convertible Preferred Stock held by Public Investors | 3,146 | Common Stock | 823 | 7/29/2009 | — | — | (3,146 | ) | 8 | 5,128 | — | (1,990 | ) | ||||||||||||||||||||
Non-Convertible Preferred Stock held by Public Investors | 11,465 | Common Stock | 3,351 | 7/29/2009 | — | — | (11,465 | ) | 33 | 9,116 | — | 2,316 | |||||||||||||||||||||
Trust Preferred Securities held by Public Investors | 5,773 | Common Stock | 1,660 | 7/29/2009 | (602 | ) | (5,972 | ) | — | 17 | 4,515 | 851 | 851 | ||||||||||||||||||||
USG TARP Preferred Stock matching the Preferred Stock held by Private Investors | 12,500 | Common Stock | 3,846 | 7/23/2009 | — | — | (11,924 | ) | 38 | 10,615 | — | 1,270 | |||||||||||||||||||||
USG TARP Preferred Stock matching the Preferred Stock and Trust Preferred Securities held by Public Investors | 12,500 | Common Stock | 3,846 | 7/30/2009 | — | — | (11,926 | ) | 39 | 10,615 | — | 1,272 | |||||||||||||||||||||
USG TARP Preferred Stock | 20,000 | TruPS | — | 7/30/2009 | (2,883 | ) | 12,004 | (19,514 | ) | — | — | — | 4,627 | ||||||||||||||||||||
Non-Convertible Preferred Stock held by U.S. Treasury and FDIC related to covered asset guarantee (loss-sharing agreement) | 7,059 | TruPS | — | 7/30/2009 | (503 | ) | 4,237 | (3,530 | ) | — | — | — | (1,210 | ) | |||||||||||||||||||
Total | 17,372 | $ | (3,988 | ) | $ | 10,269 | $ | (74,005 | ) | $ | 173 | $ | 61,790 | $ | 851 | $ | (2,204 | ) | |||||||||||||||
Note: Table may not foot due to roundings.
Summary of Impact of Exchange Offers
During the third quarter of 2009, TCE increased by $60 billion as a result of the exchange of approximately $74 billion carrying amount of preferred shares and $6 billion carrying value of trust preferred securities for 17,372 million shares of common stock and approximately $27.1 billion liquidation amount of trust preferred securities (recorded asLong-term debt at its fair value of $16.2 billion). This resulted in an increase to common stock and APIC of $62 billion and a reduction inRetained earnings of approximately $2 billion, for a total increase in TCE of approximately $60 billion. The additional $64 billion of Tier 1 Common includes the impact of the above plus a reduction in the disallowed Deferred tax asset (which increases Tier 1 Common) that arises from the accounting for the transactions. TCE and Tier 1 Common are non-GAAP financial measures. See "Capital Resources and Liquidity" below for additional information on these measures.
Earnings per share in the third quarter of 2009 was impacted by (1) the increase in shares outstanding as a result of the issuance of common shares and interim securities and the timing thereof, (2) the net impact toRetained earnings and income statement resulting from the exchange offers and (3) dividends on USG preferred shares accrued up to the date of their conversion to interim securities and trust preferred securities.
Deferred taxes are recorded for the future consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. Deferred tax assets (DTAs) are recognized subject to management's judgment that realization is more likely than not.
As of September 30, 2009, Citigroup had recognized a net deferred tax asset of approximately $38 billion, down $4 billion from approximately $42 billion at June 30, 2009 and down $6.5 billion from approximately $44.5 billion at December 31, 2008. Approximately $13 billion of the net deferred tax asset is included in Tier 1 and Tier 1 Common regulatory capital. The principal items reducing the deferred tax asset during 2009 were a decrease of approximately $3.9 billion relating to the exchange offers and $2.8 billion due to an increase in Other Comprehensive Income.
Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset at September 30, 2009 is more likely than not based upon expectations of future taxable income in the jurisdictions in which it operates and available tax planning strategies.
Approximately $17 billion of Citigroup's DTA is represented by U.S. federal, state and local tax return carry-forwards subject to expiration substantially beginning in 2017 and continuing through 2028. The remaining $21 billion DTA is largely due to timing differences between the recognition of income for GAAP and tax, representing net deductions that have not yet been taken on a tax return and are not currently subject to expiration. The most significant source of these timing differences is the loan loss reserve build, which accounts for approximately $14 billion of the net DTA. In general, Citigroup would need to generate approximately $85 billion of taxable income during the respective carry-forward periods to fully realize its U.S. federal, state and local DTA.
Citi's ability to utilize its deferred tax assets to offset future taxable income may be significantly limited if Citi experiences an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur if there is a cumulative change in Citi's ownership by "5% shareholders" (as defined in the Code) that exceeds 50 percentage points over a rolling three-year period.
The common stock issued pursuant to the exchange offers did not result in an ownership change under the Code. On June 9, 2009, the board of directors of Citigroup adopted a tax benefits preservation plan (the "Plan"). The purpose of the Plan is to minimize the likelihood of an ownership change occurring for Section 382 purposes and thus protect Citigroup's ability to utilize certain of its deferred tax assets, such as net operating loss and tax credit carry forwards, to offset future income. Despite adoption of the Plan, future stock issuance or transactions in our stock that may not be in our control, including sales by the USG, may cause Citi to experience an ownership change and thus limit the Company's ability to utilize its deferred tax asset and reduce its TCE and stockholders' equity.
DIVESTITURES
Sale of Nikko Cordial Securities
On October 1, 2009, Citigroup completed the sale of its domestic Japanese domestic securities business, conducted principally through Nikko Cordial Securities Inc. (NCS) to Sumitomo Mitsui Banking Corporation in a transaction with a total cash value of approximately $8.7 billion (¥776 billion). The transaction will be recorded in the fourth quarter of 2009. After considering the impact of foreign exchange hedges of the proceeds of the transaction (most of which has been recorded in the second and third quarters of 2009), the sale will result in an immaterial after-tax gain to Citigroup.
Beginning in the second quarter of 2009, the results of NCS and its related companies are reflected as Discontinued Operations in the Company's Consolidated Financial Statements. At September 30, 2009, assets of $23.6 billion and liabilities of $16.0 billion are reflected on the Consolidated Balance Sheet as "Assets/ Liabilities of discontinued operations held for sale", respectively, including $3.8 billion of identifiable goodwill and intangibles.
SUBSEQUENT EVENTS
As required by SFAS 165, Subsequent Events, the Company has evaluated subsequent events through November 6, 2009, which is the date its Consolidated Financial Statements were issued.
ACCOUNTING CHANGES AND FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 to the Consolidated Financial Statements for a discussion of "Accounting Changes" and "Future Application of Accounting Standards."
SEGMENT, BUSINESS AND PRODUCT INCOME (LOSS) AND REVENUES
The following tables show the income (loss) and revenues for Citigroup on a segment, business and product view:
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Income from Continuing Operations | |||||||||||||||||||||
CITICORP | |||||||||||||||||||||
Regional Consumer Banking | |||||||||||||||||||||
North America | $ | 163 | $ | (44 | ) | NM | $ | 345 | $ | 470 | (27 | )% | |||||||||
EMEA | (23 | ) | 31 | NM | (166 | ) | 87 | NM | |||||||||||||
Latin America | 29 | 102 | (72 | )% | 268 | 867 | (69 | ) | |||||||||||||
Asia | 446 | 357 | 25 | 969 | 1,344 | (28 | ) | ||||||||||||||
Total | $ | 615 | $ | 446 | 38 | $ | 1,416 | $ | 2,768 | (49 | )% | ||||||||||
Securities and Banking | |||||||||||||||||||||
North America | $ | (77 | ) | $ | 1,340 | NM | $ | 2,493 | $ | 3,368 | (26 | )% | |||||||||
EMEA | 548 | 102 | NM | 3,466 | 674 | NM | |||||||||||||||
Latin America | 216 | 227 | (5 | )% | 1,137 | 853 | 33 | ||||||||||||||
Asia | 68 | 569 | (88 | ) | 1,720 | 1,502 | 15 | ||||||||||||||
Total | $ | 755 | $ | 2,238 | (66 | )% | $ | 8,816 | $ | 6,397 | 38 | % | |||||||||
Transaction Services | |||||||||||||||||||||
North America | $ | 152 | $ | 94 | 62 | % | $ | 471 | $ | 243 | 94 | % | |||||||||
EMEA | 308 | 348 | (11 | ) | 984 | 925 | 6 | ||||||||||||||
Latin America | 148 | 159 | (7 | ) | 458 | 451 | 2 | ||||||||||||||
Asia | 331 | 317 | 4 | 904 | 899 | 1 | |||||||||||||||
Total | $ | 939 | $ | 918 | 2 | % | $ | 2,817 | $ | 2,518 | 12 | % | |||||||||
Institutional Clients Group | $ | 1,694 | $ | 3,156 | (46 | )% | $ | 11,633 | $ | 8,915 | 30 | % | |||||||||
Total Citicorp | $ | 2,309 | $ | 3,602 | (36 | )% | $ | 13,049 | $ | 11,683 | 12 | % | |||||||||
CITI HOLDINGS | |||||||||||||||||||||
Brokerage and Asset Management | $ | 139 | $ | (57 | ) | NM | $ | 7,011 | $ | 96 | NM | ||||||||||
Local Consumer Lending | (2,099 | ) | (2,285 | ) | 8 | % | (7,711 | ) | (3,366 | ) | NM | ||||||||||
Special Asset Pool | 142 | (4,594 | ) | NM | (5,095 | ) | (18,041 | ) | 72 | % | |||||||||||
Total Citi Holdings | $ | (1,818 | ) | $ | (6,936 | ) | 74 | % | $ | (5,795 | ) | $ | (21,311 | ) | 73 | % | |||||
Corporate/Other | $ | 102 | $ | (187 | ) | NM | $ | (580 | ) | $ | (1,408 | ) | 59 | ||||||||
Income (Loss) from Continuing Operations | $ | 593 | $ | (3,521 | ) | NM | $ | 6,674 | $ | (11,036 | ) | NM | |||||||||
Discontinued Operations | $ | (418 | ) | $ | 613 | $ | (677 | ) | $ | 578 | |||||||||||
Net Income (Loss) attributable to Noncontrolling Interests | 74 | $ | (93 | ) | 24 | $ | (37 | ) | |||||||||||||
Citigroup's Net Income (Loss) | $ | 101 | $ | (2,815 | ) | NM | $ | 5,973 | $ | (10,421 | ) | NM | |||||||||
NM Not meaningful
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
CITICORP | |||||||||||||||||||||
Regional Consumer Banking | |||||||||||||||||||||
North America | $ | 1,754 | $ | 1,472 | 19 | % | $ | 5,604 | $ | 5,917 | (5 | )% | |||||||||
EMEA | 415 | 498 | (17 | ) | 1,169 | 1,467 | (20 | ) | |||||||||||||
Latin America | 1,826 | 2,300 | (21 | ) | 5,436 | 6,906 | (21 | ) | |||||||||||||
Asia | 1,680 | 1,839 | (9 | ) | 4,842 | 5,674 | (15 | ) | |||||||||||||
Total | $ | 5,675 | $ | 6,109 | (7 | )% | $ | 17,051 | $ | 19,964 | (15 | )% | |||||||||
Securities and Banking | |||||||||||||||||||||
North America | $ | 1,312 | $ | 4,018 | (67 | )% | $ | 8,454 | $ | 11,117 | (24 | )% | |||||||||
EMEA | 2,198 | 1,395 | 58 | 8,974 | 5,098 | 76 | |||||||||||||||
Latin America | 703 | 469 | 50 | 2,547 | 1,872 | 36 | |||||||||||||||
Asia | 680 | 1,463 | (54 | ) | 4,214 | 4,382 | (4 | ) | |||||||||||||
Total | $ | 4,893 | $ | 7,345 | (33 | )% | $ | 24,189 | $ | 22,469 | 8 | % | |||||||||
Transaction Services | |||||||||||||||||||||
North America | $ | 643 | $ | 540 | 19 | % | $ | 1,888 | $ | 1,557 | 21 | % | |||||||||
EMEA | 845 | 953 | (11 | ) | 2,549 | 2,784 | (8 | ) | |||||||||||||
Latin America | 337 | 378 | (11 | ) | 1,020 | 1,092 | (7 | ) | |||||||||||||
Asia | 632 | 695 | (9 | ) | 1,857 | 2,029 | (8 | ) | |||||||||||||
Total | $ | 2,457 | $ | 2,566 | (4 | ) | $ | 7,314 | $ | 7,462 | (2 | )% | |||||||||
Institutional Clients Group | $ | 7,350 | $ | 9,911 | (26 | )% | $ | 31,503 | $ | 29,931 | 5 | % | |||||||||
Total Citicorp | $ | 13,025 | $ | 16,020 | (19 | )% | $ | 48,554 | $ | 49,895 | (3 | )% | |||||||||
CITI HOLDINGS | |||||||||||||||||||||
Brokerage and Asset Management | $ | 670 | $ | 2,094 | (68 | )% | $ | 14,710 | $ | 6,951 | NM | ||||||||||
Local Consumer Lending | 4,647 | 5,432 | (14 | ) | 15,030 | 19,156 | (22 | )% | |||||||||||||
Special Asset Pool | 1,377 | (6,822 | ) | NM | (3,844 | ) | (27,842 | ) | 86 | ||||||||||||
Total Citi Holdings | $ | 6,694 | $ | 704 | NM | $ | 25,896 | $ | (1,735 | ) | NM | ||||||||||
Corporate/Other | $ | 671 | $ | (466 | ) | NM | $ | 430 | $ | (2,207 | ) | NM | |||||||||
Total Net Revenues | $ | 20,390 | $ | 16,258 | 25 | % | $ | 74,880 | $ | 45,953 | 63 | % | |||||||||
NM Not meaningful
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 8,435 | $ | 8,316 | 1 | % | $ | 25,067 | $ | 24,980 | — | ||||||||||
Non-interest revenue | 4,590 | 7,704 | (40 | ) | 23,487 | 24,915 | (6 | )% | |||||||||||||
Total Revenues, net of interest expense | $ | 13,025 | $ | 16,020 | (19 | )% | $ | 48,554 | $ | 49,895 | (3 | )% | |||||||||
Provision for credit losses and for benefits and claims | |||||||||||||||||||||
Net credit losses | $ | 1,718 | $ | 1,317 | 30 | % | $ | 4,515 | $ | 3,535 | 28 | % | |||||||||
Credit reserve build (release) | 465 | 799 | (42 | ) | 2,570 | 1,846 | 39 | ||||||||||||||
Provision for loan losses | $ | 2,183 | $ | 2,116 | 3 | $ | 7,085 | $ | 5,381 | 32 | % | ||||||||||
Provision for benefits & claims | 14 | — | — | 41 | 3 | NM | |||||||||||||||
Provision for unfunded lending commitments | — | (80 | ) | 100 | 115 | (155 | ) | NM | |||||||||||||
Total provision for credit losses and for benefits and claims | $ | 2,197 | $ | 2,036 | 8 | % | $ | 7,241 | $ | 5,229 | 38 | % | |||||||||
Total operating expenses | $ | 8,181 | $ | 8,948 | (9 | ) | $ | 23,227 | $ | 28,174 | (18 | )% | |||||||||
Income from continuing operations before taxes | $ | 2,647 | $ | 5,036 | (47 | )% | $ | 18,086 | $ | 16,492 | 10 | % | |||||||||
Provision for income taxes | 338 | 1,434 | (76 | ) | 5,037 | 4,809 | 5 | ||||||||||||||
Income from continuing operations | $ | 2,309 | $ | 3,602 | (36 | )% | $ | 13,049 | $ | 11,683 | 12 | % | |||||||||
Net income (loss) attributable to noncontrolling interests | 25 | 16 | 56 | 25 | 50 | (50 | ) | ||||||||||||||
Citicorp's net income | $ | 2,284 | $ | 3,586 | (36 | )% | $ | 13,024 | $ | 11,633 | 12 | % | |||||||||
Balance Sheet Data (in billions) | |||||||||||||||||||||
Total EOP assets | $ | 1,014 | $ | 1,158 | (12 | )% | |||||||||||||||
Average assets | $ | 1,032 | $ | 1,175 | (12 | )% | $ | 1,024 | $ | 1,287 | (20 | )% | |||||||||
Total EOP deposits | $ | 728 | $ | 683 | 7 | % | |||||||||||||||
NM Not meaningful
| | Third Quarter | | Nine Months | | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||
Net interest revenue | $ | 3,992 | $ | 4,224 | (5 | )% | $ | 11,508 | $ | 12,429 | (7 | )% | ||||||||||
Non-interest revenue | 1,683 | 1,885 | (11 | ) | 5,543 | 7,535 | (26 | ) | ||||||||||||||
Total Revenues, net of interest expense | $ | 5,675 | $ | 6,109 | (7 | )% | $ | 17,051 | $ | 19,964 | (15 | )% | ||||||||||
Total operating expenses | $ | 3,547 | $ | 4,029 | (12 | )% | $ | 10,344 | $ | 12,005 | (14 | )% | ||||||||||
Net credit losses | $ | 1,426 | $ | 1,096 | 30 | % | $ | 3,978 | $ | 2,940 | 35 | % | ||||||||||
Credit reserve build (release) | 319 | 514 | (38 | ) | 1,575 | 1,346 | 17 | |||||||||||||||
Provision for benefits & claims | 14 | — | — | 41 | 3 | NM | ||||||||||||||||
Provision for loan losses and for benefits and claims | $ | 1,759 | $ | 1,610 | 9 | % | $ | 5,594 | $ | 4,289 | 30 | % | ||||||||||
Income from continuing operations before taxes | 369 | $ | 470 | (21 | ) | 1,113 | $ | 3,670 | (70 | )% | ||||||||||||
Income taxes (benefits) | (246 | ) | 24 | NM | (303 | ) | 902 | NM | ||||||||||||||
Income from continuing operations | $ | 615 | $ | 446 | 38 | % | $ | 1,416 | $ | 2,768 | (49 | )% | ||||||||||
Net income (loss) attributable to noncontrolling interests | 2 | 5 | (60 | ) | 2 | 10 | (80 | ) | ||||||||||||||
Net income | $ | 613 | $ | 441 | 39 | % | $ | 1,414 | $ | 2,758 | (49 | )% | ||||||||||
Average assets(in billions of dollars) | $ | 201 | $ | 222 | (9 | )% | 191 | $ | 225 | (15 | )% | |||||||||||
Return on assets | 1.21 | % | 0.79 | % | 0.99 | % | 1.64 | % | ||||||||||||||
Average deposits(in billions of dollars) | 275 | 266 | 3 | % | ||||||||||||||||||
Net credit losses as a % of average loans | 4.70 | % | 3.35 | % | ||||||||||||||||||
Revenue by business | ||||||||||||||||||||||
Retail Banking | $ | 3,315 | $ | 3,531 | (6 | )% | $ | 9,463 | $ | 10,559 | (10 | )% | ||||||||||
Citi-Branded Cards | 2,360 | 2,578 | (8 | ) | 7,588 | 9,405 | (19 | ) | ||||||||||||||
Total revenues | $ | 5,675 | $ | 6,109 | (7 | )% | $ | 17,051 | $ | 19,964 | (15 | )% | ||||||||||
Income (loss) from continuing operations by business | ||||||||||||||||||||||
Retail Banking | $ | 609 | $ | 563 | 8 | % | $ | 1,480 | $ | 1,826 | (19 | )% | ||||||||||
Citi-Branded Cards | 6 | (117 | ) | NM | (64 | ) | 942 | NM | ||||||||||||||
Total | $ | 615 | $ | 446 | 38 | % | $ | 1,416 | $ | 2,768 | (49 | )% | ||||||||||
NM Not meaningful
NORTH AMERICA REGIONAL CONSUMER BANKING
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 1,224 | $ | 978 | 25 | % | $ | 3,394 | $ | 2,673 | 27 | % | |||||||||
Non-interest revenue | 530 | 494 | 7 | 2,210 | 3,244 | (32 | ) | ||||||||||||||
Total Revenues, net of interest expense | $ | 1,754 | $ | 1,472 | 19 | % | $ | 5,604 | $ | 5,917 | (5 | )% | |||||||||
Total operating expenses | $ | 1,331 | $ | 1,444 | (8 | )% | $ | 4,023 | $ | 4,507 | (11 | )% | |||||||||
Net credit losses | $ | 280 | $ | 144 | 94 | % | $ | 843 | $ | 425 | 98 | % | |||||||||
Credit reserve build (release) | 30 | (9 | ) | NM | 402 | 286 | 41 | ||||||||||||||
Provision for benefits and claims | 14 | — | — | 41 | 2 | NM | |||||||||||||||
Provisions for loan losses and for benefits and claims | $ | 324 | $ | 135 | NM | $ | 1,286 | $ | 713 | 80 | % | ||||||||||
Income (loss) from continuing operations before taxes | $ | 99 | $ | (107 | ) | NM | $ | 295 | $ | 697 | (58 | )% | |||||||||
Income taxes (benefits) | (64 | ) | (63 | ) | (2 | )% | (50 | ) | 227 | NM | |||||||||||
Income (loss) from continuing operations | $ | 163 | $ | (44 | ) | NM | $ | 345 | $ | 470 | (27 | )% | |||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 163 | $ | (44 | ) | NM | $ | 345 | $ | 470 | (27 | )% | |||||||||
Average deposits(in billions of dollars) | $ | 139 | $ | 121 | 15 | % | |||||||||||||||
Net credit losses as a % of average loans | 5.94 | % | 3.51 | % | |||||||||||||||||
Revenue by business | |||||||||||||||||||||
Retail banking | $ | 1,070 | $ | 1,004 | 7 | % | $ | 2,907 | $ | 2,806 | 4 | % | |||||||||
Citi-branded cards | 684 | 468 | 46 | 2,697 | 3,111 | (13 | ) | ||||||||||||||
Total | $ | 1,754 | $ | 1,472 | 19 | % | $ | 5,604 | $ | 5,917 | (5 | )% | |||||||||
Income (loss) from continuing operations by business | |||||||||||||||||||||
Retail banking | $ | 150 | $ | 143 | 5 | % | $ | 319 | $ | 205 | 56 | % | |||||||||
Citi-branded cards | 13 | (187 | ) | NM | 26 | 265 | (90 | ) | |||||||||||||
Total | $ | 163 | $ | (44 | ) | NM | $ | 345 | $ | 470 | (27 | )% | |||||||||
NM Not meaningful
3Q09 vs. 3Q08
Overall, most key revenue drivers in North America regional consumer banking were stable or higher in the third quarter of 2009 as compared to the second quarter of 2009. The key focus in Citi's North America consumer businesses will likely remain on engagement with customers to raise deposits and to offer loans. However, recovery is expected to be driven by improvement in credit in the key North American businesses. For a further discussion, see "Loan and Credit Details—Consumer Loan Modification Programs" and "—U.S. Consumer Mortgage Lending" below.
Revenues, net of interest expense, increased 19%, primarily reflecting higher net interest margin in cards, higher volumes in retail banking, and better securitization revenue, offset by higher credit losses in the securitization trusts.Net interest revenue was up 25% driven by higher net interest margin in cards as a result of higher interest revenue from pricing actions and lower funding costs, and by the impact of higher deposit and loan volumes in retail banking. Average deposits were 15% higher than the prior year, driven by growth in both consumer and commercial deposits.Non-interest revenue increased 7% primarily driven by better securitization revenue, partially offset by higher credit losses flowing through the securitization trusts.
Operating expenses declined 8%, primarily reflecting the benefits from re-engineering efforts and lower marketing costs.
Provisions for loan losses and for benefits and claims increased $189 million primarily due to rising net credit losses in both cards and retail banking. Continued weakening of leading credit indicators and trends in the macro-economic environment, including rising unemployment and higher bankruptcy filings, drove higher credit costs. The cards net credit loss ratio increased 339 basis points to 7.06%, while the retail banking net credit loss ratio increased 120 basis points to 4.23%.
The increase inNet Income also reflected a tax benefit resulting from the federal tax reserve release in the third quarter of 2009.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, declined 5%, primarily reflecting higher credit losses in the securitization trusts, offset by higher net interest margin in cards and higher volumes in retail banking.Net interest revenue was up 27% driven by the impact of pricing actions and lower funding costs in cards, and by higher deposit volumes in retail banking, with average deposits up 10% from the prior-year period.Non-interest revenue declined 32% driven by higher credit losses flowing through the securitization trusts partially offset by better
securitization revenue, and by the absence of a $349 million gain on the sale of Visa shares and a $170 million gain from a cards portfolio sale in the prior-year period.
Operating expenses declined 11%, reflecting the benefits from re-engineering efforts, lower marketing costs, and the absence of $126 million of repositioning charges recorded in the prior-year period, offset by the absence of a prior-year $159 million Visa litigation reserve release.
Provisions for loan losses and for benefits and claims increased $573 million or 80% primarily due to rising net credit losses in both cards and retail banking. Continued weakening of leading credit indicators and trends in the macro-economic environment, including rising unemployment and higher bankruptcy filings, drove higher credit costs. The cards net credit loss ratio increased 332 basis points to 6.74%, while the retail banking net credit loss ratio increased 70 basis points to 4.12%.
EMEA REGIONAL CONSUMER BANKING
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 262 | $ | 350 | (25 | )% | $ | 729 | $ | 984 | (26 | )% | |||||||||
Non-interest revenue | 153 | 148 | 3 | 440 | 483 | (9 | ) | ||||||||||||||
Total Revenues, net of interest expense | $ | 415 | $ | 498 | (17 | )% | $ | 1,169 | $ | 1,467 | (20 | )% | |||||||||
Total operating expenses | $ | 270 | $ | 372 | (27 | )% | $ | 808 | $ | 1,142 | (29 | )% | |||||||||
Net credit losses | $ | 139 | $ | 55 | NM | $ | 349 | $ | 150 | NM | |||||||||||
Credit reserve build (release) | 67 | 33 | NM | 297 | 64 | NM | |||||||||||||||
Provisions for loan losses and for benefits and claims | $ | 206 | $ | 88 | NM | $ | 646 | $ | 214 | NM | |||||||||||
Income (loss) from continuing operations before taxes | $ | (61 | ) | $ | 38 | NM | $ | (285 | ) | $ | 111 | NM | |||||||||
Income taxes (benefits) | (38 | ) | 7 | NM | (119 | ) | 24 | NM | |||||||||||||
Income (loss) from continuing operations | $ | (23 | ) | $ | 31 | NM | $ | (166 | ) | $ | 87 | NM | |||||||||
Net income (loss) attributable to noncontrolling interests | 2 | 5 | (60 | )% | 2 | 11 | (82 | )% | |||||||||||||
Net income (loss) | $ | (25 | ) | $ | 26 | NM | $ | (168 | ) | $ | 76 | NM | |||||||||
Average assets(in billions of dollars) | $ | 11 | $ | 14 | (21 | )% | $ | 11 | $ | 14 | (21 | )% | |||||||||
Return on assets | (0.90 | )% | 0.74 | % | (2.04 | )% | 0.73 | % | |||||||||||||
Average deposits(in billions of dollars) | 10 | 11 | (9 | )% | |||||||||||||||||
Net credit losses as a % of average loans | 6.34 | % | 2.10 | % | |||||||||||||||||
Revenue by business | |||||||||||||||||||||
Retail banking | $ | 237 | $ | 310 | (24 | )% | $ | 676 | $ | 931 | (27 | )% | |||||||||
Citi-branded cards | 178 | 188 | (5 | ) | 493 | 536 | (8 | ) | |||||||||||||
Total | $ | 415 | $ | 498 | (17 | )% | $ | 1,169 | $ | 1,467 | (20 | )% | |||||||||
Income (loss) from continuing operations by business | |||||||||||||||||||||
Retail banking | $ | (23 | ) | $ | (2 | ) | NM | $ | (140 | ) | $ | (4 | ) | NM | |||||||
Citi-branded cards | — | 33 | (100 | )% | (26 | ) | 91 | NM | |||||||||||||
Total | $ | (23 | ) | $ | 31 | NM | $ | (166 | ) | $ | 87 | NM | |||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, declined 17%. More than half of the revenue decline was attributable to changes in foreign currency translation (generally referred to throughout this report as "FX translation"). Other drivers included lower wealth management and lending revenues due to lower volumes and spread compression. Investment sales and assets under management declined by 29% and 25%, respectively.Net interest revenue was 25% lower than the prior-year period with average loans for retail banking down 22% as a result of a lower risk profile, branch closures and the impact of FX translation.
Operating expenses declined 27%, reflecting expense control actions, lower marketing expenditure and the impact of FX translation. Cost savings were primarily achieved by branch closures, headcount reductions and re-engineering efforts.
Provisions for loan losses and for benefits and claims increased $118 million to $206 million in the third quarter of 2009. While delinquencies improved during the third quarter of 2009 as compared to the second quarter of 2009, net credit losses continued to increase from $55 million to $139 million, and the loan loss reserve build increased from $33 million to $67 million. Higher credit costs reflected continued credit deterioration, particularly in the UAE, Turkey, Poland and Russia.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, declined 20%. Over half of the revenue decline was attributable to the impact of FX translation. Other drivers included lower wealth management and lending revenues due to lower volumes and spread compression. Investment sales and assets under management declined by 42% and 25%, respectively.Net interest revenue was 26% lower than the prior-year period with average loans for retail banking down 20% and average deposits down 22%.Non-interest revenue decreased by 9%, primarily due to the impact of FX translation.
Operating expenses declined 29%, reflecting expense control actions, lower marketing spend and the impact of FX translation. Cost savings were achieved by branch closures, headcount reductions and re-engineering efforts.
Provisions for loan losses and for benefits and claims increased $432 million to $646 million. Net credit losses increased from $150 million to $349 million, while the loan loss reserve build increased from $64 million to $297 million. Higher credit costs reflected continued credit deterioration across the region.
LATIN AMERICA REGIONAL CONSUMER BANKING
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 1,339 | $ | 1,669 | (20 | )% | $ | 3,940 | $ | 5,046 | (22 | )% | |||||||||
Non-interest revenue | 487 | 631 | (23 | ) | 1,496 | 1,860 | (20 | ) | |||||||||||||
Total Revenues, net of interest expense | $ | 1,826 | $ | 2,300 | (21 | )% | $ | 5,436 | $ | 6,906 | (21 | )% | |||||||||
Total operating expenses | $ | 1,077 | $ | 1,292 | (17 | )% | $ | 3,027 | $ | 3,475 | (13 | )% | |||||||||
Net credit losses | $ | 656 | $ | 640 | 3 | % | $ | 1,809 | $ | 1,661 | 9 | % | |||||||||
Credit reserve build (release) | 141 | 301 | (53 | ) | 461 | 695 | (34 | ) | |||||||||||||
Provision for benefits and claims | — | — | — | — | 1 | (100 | ) | ||||||||||||||
Provisions for loan losses and for benefits and claims | $ | 797 | $ | 941 | (15 | )% | $ | 2,270 | $ | 2,357 | (4 | )% | |||||||||
Income from continuing operations before taxes | $ | (48 | ) | $ | 67 | NM | $ | 139 | $ | 1,074 | (87 | )% | |||||||||
Income taxes (benefits) | (77 | ) | (35 | ) | NM | (129 | ) | 207 | NM | ||||||||||||
Income from continuing operations | $ | 29 | $ | 102 | (72 | )% | $ | 268 | $ | 867 | (69 | )% | |||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | — | — | |||||||||||||||
Net income | $ | 29 | $ | 102 | (72 | )% | $ | 268 | $ | 867 | (69 | )% | |||||||||
Average assets(in billions of dollars) | 61 | $ | 81 | (25 | )% | 59 | $ | 78 | (24 | )% | |||||||||||
Return on assets | 0.19 | % | 0.50 | % | 0.61 | % | 1.48 | % | |||||||||||||
Average deposits(in billions of dollars) | 36 | 42 | (14 | )% | |||||||||||||||||
Net credit losses as a % of average loans | 9.04 | 7.79 | |||||||||||||||||||
Revenue by business | |||||||||||||||||||||
Retail banking | $ | 969 | $ | 1,067 | (9 | )% | $ | 2,843 | $ | 3,180 | (11 | )% | |||||||||
Citi-branded cards | 857 | 1,233 | (30 | ) | 2,593 | 3,726 | (30 | ) | |||||||||||||
Total | $ | 1,826 | $ | 2,300 | (21 | )% | $ | 5,436 | $ | 6,906 | (21 | )% | |||||||||
Income (loss) from continuing operations by business | |||||||||||||||||||||
Retail banking | $ | 106 | $ | 112 | (5 | )% | $ | 436 | $ | 573 | (24 | )% | |||||||||
Citi-branded cards | (77 | ) | (10 | ) | NM | (168 | ) | 294 | NM | ||||||||||||
Total | $ | 29 | $ | 102 | (72 | )% | $ | 268 | $ | 867 | (69 | )% | |||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, declined 21%, mainly due to the impact of FX translation, lower cards receivables and spread compression, partially offset by higher business volumes in retail banking. Net interest revenue was 20% lower than the prior year caused by the decrease in cards receivables as well as lower spreads resulting from a lower risk profile, partially offset by higher business volumes in retail banking. Average deposits were down 14%, due primarily to the impact of FX translation. Non-interest revenue declined 23%, primarily due to the impact of FX translation.
Operating expenses declined 17%, reflecting the benefits from re-engineering efforts and the impact of FX translation.
Provisions for loan losses and for benefits and claims decreased $144 million mainly due to lower loan loss reserve build of $160 million. While delinquencies decreased during the third quarter 2009 as compared to the second quarter 2009, cards net credit loss rates increased from 16.2% to 18.1%. Rising losses were apparent in Brazil and Mexico; however, the business continues to focus on repositioning and de-risking the portfolio, particularly in the Mexico cards business.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, declined 21% driven by the impact of FX translation, lower volumes and spread compression in the cards business. Net interest revenue was 22% lower than the prior year with average credit cards loans down 22%, and net interest margin decreasing as well due to the cards spread compression impact. Non-interest revenue declined 20%, primarily due to the decline in cards fees as well as the impact of FX translation.
Operating expenses declined 13%, reflecting the benefits from re-engineering efforts and the impact of FX translation. The prior-year period also included a $257 million expense benefit related to a legal vehicle restructuring in Mexico.
Provisions for loan losses and for benefits and claims decreased $87 million or 4%. Cards net credit loss rates increased from 11.6% to 16.7%. Credit deterioration was apparent in Brazil and Mexico where the business has focused its repositioning and derisking efforts.
ASIA REGIONAL CONSUMER BANKING
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | 1,167 | $ | 1,227 | (5 | )% | $ | 3,445 | $ | 3,726 | (8 | )% | |||||||||
Non-interest revenue | 513 | 612 | (16 | ) | 1,397 | 1,948 | (28 | ) | |||||||||||||
Total Revenues, net of interest expense | $ | 1,680 | $ | 1,839 | (9 | )% | $ | 4,842 | $ | 5,674 | (15 | )% | |||||||||
Total operating expenses | $ | 869 | $ | 921 | (6 | )% | $ | 2,486 | $ | 2,881 | (14 | )% | |||||||||
Net credit losses | $ | 351 | $ | 257 | 37 | 977 | $ | 704 | 39 | % | |||||||||||
Credit reserve build (release) | 81 | 189 | (57 | )% | 415 | 301 | 38 | ||||||||||||||
Provisions for loan losses and for benefits and claims | $ | 432 | $ | 446 | (3 | )% | $ | 1,392 | $ | 1,005 | 39 | % | |||||||||
Income from continuing operations before taxes | $ | 379 | $ | 472 | (20 | )% | $ | 964 | $ | 1,788 | (46 | )% | |||||||||
Income taxes (benefits) | (67 | ) | 115 | NM | (5 | ) | 444 | NM | |||||||||||||
Income from continuing operations | $ | 446 | $ | 357 | 25 | % | $ | 969 | $ | 1,344 | (28 | )% | |||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | (1 | ) | 100 | ||||||||||||||
Net income | $ | 446 | $ | 357 | 25 | % | $ | 969 | $ | 1,345 | (28 | )% | |||||||||
Average assets(in billions of dollars) | $ | 92 | $ | 95 | (3 | )% | $ | 87 | $ | 96 | (9 | ) | |||||||||
Return on assets | 1.92 | % | 1.49 | % | 1.49 | % | 1.87 | % | |||||||||||||
Average deposits(in billions of dollars) | 91 | 93 | (2 | ) | |||||||||||||||||
Net credit losses as a % of average loans | 2.17 | 1.44 | |||||||||||||||||||
Revenue by business | |||||||||||||||||||||
Retail banking | $ | 1,039 | $ | 1,150 | (10 | )% | $ | 3,037 | $ | 3,642 | (17 | )% | |||||||||
Citi-branded cards | 641 | 689 | (7 | ) | 1,805 | 2,032 | (11 | ) | |||||||||||||
Total | $ | 1,680 | $ | 1,839 | (9 | )% | $ | 4,842 | $ | 5,674 | (15 | )% | |||||||||
Income (loss) from continuing operations by business | |||||||||||||||||||||
Retail banking | $ | 376 | $ | 310 | 21 | % | $ | 865 | $ | 1,052 | (18 | )% | |||||||||
Citi-branded cards | 70 | 47 | 49 | 104 | 292 | (64 | ) | ||||||||||||||
Total | $ | 446 | $ | 357 | 25 | % | $ | 969 | $ | 1,344 | (28 | )% | |||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, declined 9% driven by the absence of Visa assets sales gains in the 2008 third quarter, lower investment product revenues, lower loan volumes and the impact of FX translation. Net interest revenue was 5% lower than the prior-year period. Average loans and deposits were down 9% and 1%, respectively, in each case primarily due to the impact of FX translation. Non-interest revenue declined 16%, primarily due to the decline in investment revenues, lower Cards Purchase sales, the absence of Visa share sales gains and the impact of FX translation.
Operating expenses declined 6%, reflecting the benefits from re-engineering efforts and the impact of FX translation.
Provisions for loan losses and for benefits and claims decreased 3%, mainly due to impact of lower credit reserve build, offset by an increase in net credit losses and the impact of FX translation. Rising credit losses were particularly apparent in the portfolios in India and Korea. Compared to the second quarter of 2009, delinquencies improved and net credit losses flattened as this region showed possible early signs of economic recovery and increased levels of customer activity.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, declined 15% driven by absence of Visa assets sales gains, a 34% decline in investment sales, lower loan and deposit volumes, and the impact of FX translation. Net interest revenue was 8% lower than the prior-year period reflecting lower Average loans and deposits. Non-interest revenue declined 28%, primarily due to the absence of Visa asset sales gains and the decline in investment sales.
Operating expenses declined 14%, reflecting the benefits from re-engineering efforts and the impact of FX translation.
Provisions for loan losses and for benefits and claims increased 39% mainly due to higher net credit losses in India and Korea and a higher credit reserve build.
INSTITUTIONAL CLIENTS GROUP (ICG)
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Commissions and Fees | $ | 565 | $ | 754 | (25 | )% | $ | 1,500 | $ | 2,269 | (34 | )% | |||||||||
Administration and Other Fiduciary Fees | 1,258 | 1,397 | (10 | ) | 3,717 | 4,148 | (10 | ) | |||||||||||||
Investment banking | 1,063 | 740 | 44 | 3,245 | 3,005 | 8 | |||||||||||||||
Principal transactions | (535 | ) | 3,116 | NM | 7,699 | 8,065 | (5 | ) | |||||||||||||
Other | 556 | (188 | ) | NM | 1,783 | (107 | ) | NM | |||||||||||||
Total non-interest revenue | $ | 2,907 | $ | 5,819 | (50 | )% | $ | 17,944 | $ | 17,380 | 3 | % | |||||||||
Net interest revenue (including dividends) | 4,443 | 4,092 | 9 | 13,559 | 12,551 | 8 | |||||||||||||||
Total revenues, net of interest expenses | $ | 7,350 | $ | 9,911 | (26 | )% | $ | 31,503 | $ | 29,931 | 5 | % | |||||||||
Total operating expenses | 4,634 | �� | 4,919 | (6 | ) | 12,883 | 16,169 | (20 | ) | ||||||||||||
Net credit losses | 292 | 221 | 32 | 537 | 595 | (10 | ) | ||||||||||||||
Provisions for unfunded lending commitments | — | (80 | ) | 100 | 115 | (155 | ) | NM | |||||||||||||
Credit reserve build (release) | 146 | 285 | (49 | ) | 995 | 500 | 99 | ||||||||||||||
Provision for credit losses | $ | 438 | $ | 426 | 3 | % | $ | 1,647 | $ | 940 | 75 | % | |||||||||
Income from continuing operations before taxes | $ | 2,278 | $ | 4,566 | (50 | )% | $ | 16,973 | $ | 12,822 | 32 | % | |||||||||
Income taxes (benefits) | 584 | 1,410 | (59 | ) | 5,340 | 3,907 | 37 | ||||||||||||||
Income from continuing operations | $ | 1,694 | $ | 3,156 | (46 | )% | $ | 11,633 | $ | 8,915 | 30 | % | |||||||||
Net income (loss) attributable to noncontrolling interests | 23 | 11 | NM | 23 | 40 | (43 | ) | ||||||||||||||
Net income | $ | 1,671 | $ | 3,145 | (47 | )% | $ | 11,610 | $ | 8,875 | 31 | % | |||||||||
Average assets(in billions of dollars) | $ | 831 | $ | 953 | (13 | )% | $ | 833 | $ | 1,062 | (22 | )% | |||||||||
Return on assets | 0.80 | % | 1.31 | % | 1.86 | % | 1.12 | % | |||||||||||||
Revenue by region: | |||||||||||||||||||||
North America | $ | 1,955 | $ | 4,558 | (57 | )% | $ | 10,342 | $ | 12,674 | (18 | )% | |||||||||
EMEA | 3,043 | 2,348 | 30 | 11,523 | 7,882 | 46 | |||||||||||||||
Latin America | 1,040 | 847 | 23 | 3,567 | 2,964 | 20 | |||||||||||||||
Asia | 1,312 | 2,158 | (39 | ) | 6,071 | 6,411 | (5 | ) | |||||||||||||
Total | $ | 7,350 | $ | 9,911 | (26 | )% | $ | 31,503 | $ | 29,931 | 5 | % | |||||||||
Income (loss) from continuing operations by region: | |||||||||||||||||||||
North America | $ | 75 | $ | 1,434 | (95 | )% | $ | 2,964 | $ | 3,611 | (18 | )% | |||||||||
EMEA | 856 | 450 | 90 | 4,450 | 1,599 | NM | |||||||||||||||
Latin America | 364 | 386 | (6 | ) | 1,595 | 1,304 | 22 | ||||||||||||||
Asia | 399 | 886 | (55 | ) | 2,624 | 2,401 | 9 | ||||||||||||||
Total | $ | 1,694 | $ | 3,156 | (46 | )% | $ | 11,633 | $ | 8,915 | 30 | % | |||||||||
Average loans by region(in billions): | |||||||||||||||||||||
North America | $ | 43 | $ | 52 | (17 | )% | |||||||||||||||
EMEA | 42 | 49 | (14 | ) | |||||||||||||||||
Latin America | 21 | 24 | (13 | ) | |||||||||||||||||
Asia | 27 | 36 | (25 | ) | |||||||||||||||||
Total | $ | 133 | $ | 161 | (17 | )% | |||||||||||||||
NM Not meaningful
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
Net interest revenue | $ | 3,050 | $ | 2,670 | 14 | % | $ | 9,305 | $ | 8,520 | 9 | % | ||||||||
Non-interest revenue | 1,843 | 4,675 | (61 | ) | 14,884 | 13,949 | 7 | |||||||||||||
Revenues, net of interest expense | $ | 4,893 | $ | 7,345 | (33 | )% | $ | 24,189 | $ | 22,469 | 8 | % | ||||||||
Operating expenses | 3,493 | 3,667 | (5 | ) | 9,580 | 12,322 | (22 | ) | ||||||||||||
Net credit losses | 294 | 223 | 32 | 539 | 593 | (9 | ) | |||||||||||||
Provision for unfunded lending commitments | — | (74 | ) | 100 | 115 | (149 | ) | NM | ||||||||||||
Credit reserve build (release) | 151 | 288 | (48 | ) | 994 | 494 | NM | |||||||||||||
Provision for credit losses | $ | 445 | $ | 437 | 2 | % | $ | 1,648 | $ | 938 | 76 | % | ||||||||
Income before taxes and noncontrolling interest | $ | 955 | $ | 3,241 | (71 | )% | $ | 12,961 | $ | 9,209 | 41 | % | ||||||||
Income taxes | 200 | 1,003 | (80 | ) | 4,145 | 2,812 | 47 | |||||||||||||
Income from continuing operations | 755 | 2,238 | (66 | ) | 8,816 | 6,397 | 38 | |||||||||||||
Net income attributable to noncontrolling interests | 18 | 2 | NM | 19 | 14 | 36 | ||||||||||||||
Net income | $ | 737 | $ | 2,236 | (67 | )% | $ | 8,797 | $ | 6,383 | 38 | % | ||||||||
Average assets(in billions of dollars) | $ | 771 | $ | 883 | (13 | )% | $ | 774 | $ | 990 | (22 | )% | ||||||||
Return on assets | 0.38 | % | 1.01 | % | 1.52 | % | 0.86 | % | ||||||||||||
Revenues by region: | ||||||||||||||||||||
North America | $ | 1,312 | $ | 4,018 | (67 | )% | $ | 8,454 | $ | 11,117 | (24 | )% | ||||||||
EMEA | 2,198 | 1,395 | 58 | 8,974 | 5,098 | 76 | ||||||||||||||
Latin America | 703 | 469 | 50 | 2,547 | 1,872 | 36 | ||||||||||||||
Asia | 680 | 1,463 | (54 | ) | 4,214 | 4,382 | (4 | ) | ||||||||||||
Total revenues | $ | 4,893 | $ | 7,345 | (33 | )% | $ | 24,189 | $ | 22,469 | 8 | % | ||||||||
Net income (loss) from continuing operations by region: | ||||||||||||||||||||
North America | $ | (77 | ) | $ | 1,340 | NM | $ | 2,493 | $ | 3,368 | (26 | )% | ||||||||
EMEA | 548 | 102 | NM | 3,466 | 674 | NM | ||||||||||||||
Latin America | 216 | 227 | (5 | )% | 1,137 | 853 | 33 | |||||||||||||
Asia | 68 | 569 | (88 | ) | 1,720 | 1,502 | 15 | |||||||||||||
Total net income from continuing operations | $ | 755 | $ | 2,238 | (66 | )% | $ | 8,816 | $ | 6,397 | 38 | % | ||||||||
Securities and Banking | ||||||||||||||||||||
Revenue details: | ||||||||||||||||||||
Net Investment Banking | $ | 1,163 | $ | 618 | 88 | % | $ | 3,305 | $ | 2,783 | 19 | % | ||||||||
Lending | (699 | ) | 1,262 | NM | (1,956 | ) | 2,026 | NM | ||||||||||||
Equity markets | 446 | 550 | (19 | ) | 3,151 | 3,237 | (3 | ) | ||||||||||||
Fixed income markets | 3,945 | 4,756 | (17 | ) | 19,739 | 13,927 | 42 | |||||||||||||
Private bank | 520 | 563 | (8 | ) | 1,496 | 1,789 | (16 | ) | ||||||||||||
Other Securities and Banking | (482 | ) | (404 | ) | (19 | ) | (1,546 | ) | (1,293 | ) | (20 | ) | ||||||||
Total Securities and Banking Revenues | $ | 4,893 | $ | 7,345 | (33 | )% | $ | 24,189 | $ | 22,469 | 8 | % | ||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, decreased 33% or $2.5 billion to $4.9 billion mainly from revenue marks of negative $1.4 billion, set forth in greater detail below, and a decrease in lending revenues of $2.0 billion to negative $699 million (mainly from losses on credit derivative positions). Fixed income markets revenues declined $811 million to $3.9 billion due to negative credit value adjustments of $760 million (mainly due to narrowing in Citigroup spreads, partially offset by the narrowing of counterparty spreads), compared to positive credit value adjustments of $2.6 billion in the third quarter of 2008, partially offset by stronger performances across most fixed income categories as market conditions improved. Equity markets revenues declined $104 million or 19% primarily driven by negative credit value adjustments of $878 million, offset by stronger results in proprietary trading and derivatives. Investment banking revenues increased $545 million, led by stronger high yield and investment grade debt issuances in debt underwriting, and stronger volumes in equity underwriting, with a decline in advisory revenues resulting from lower global M&A activity.
Operating expenses decreased 5% or $174 million to $3.5 billion, mainly driven by lower severance and the benefit of FX translation, offset partially by an increase in compensation costs.
Provisions for credit losses increased by 2% or $8 million to $445 million, mainly from higher net credit losses and a release of provisions for unfunded lending commitments in the prior-year period, offset partially by lower credit reserve builds.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, increased 8% or $1.7 billion, mainly due to an increase in fixed income markets of $5.8 billion to $19.7 billion reflecting strong trading results, particularly in the first and second quarters of 2009, offset partially by a decrease in lending revenues of $4.0 billion to
negative $2.0 billion (mainly from losses on credit default swap hedges).
Operating expenses decreased 22% or $2.7 billion driven by lower compensation due to headcount reductions and benefits from re-engineering and expense management.
Provisions for credit losses increased 76% or $710 million to $1.6 billion mainly from increased credit reserve builds on funded loans and higher provisions for unfunded lending commitments.
Third Quarter Revenue Impacting Citicorp—Securities and Banking
While not as significant as in prior quarters, certain items continued to impact Securities and Banking revenues during the third quarter of 2009. These items are set forth in the table below.
| | Pretax Revenue (in millions) | ||||||
|---|---|---|---|---|---|---|---|
| | Third Quarter 2009 | Third Quarter 2008 | |||||
Private Equity and equity investments | $ | 79 | $ | (50 | ) | ||
Alt-A Mortgages(1)(2) | 142 | (221 | ) | ||||
Commercial Real Estate (CRE) positions(1)(3) | 20 | 130 | |||||
CVA on Citi debt liabilities under fair value option | (955 | ) | 1,526 | ||||
CVA on derivatives positions, excluding monoline insurers | (722 | ) | 1,178 | ||||
Total significant revenue items | $ | (1,436 | ) | $ | 2,563 | ||
Credit Valuation Adjustment on Citi's Debt Liabilities for Which Citi Has Elected the Fair Value Option
The Company is required to use its own credit spreads in determining the current value of 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. The approximately $955 million of losses recorded by Securities and Banking on its fair value option liabilities (excluding derivative liabilities) during the third quarter of 2009 was principally due to the narrowing (improving) of the Company's credit spreads.
Credit Valuation Adjustment on Derivative Positions, excluding Monoline insurers
The approximately $722 million of pretax losses recorded by Securities and Banking on its derivative positions during the third quarter of 2009 was due to the narrowing of the Company's credit default swap spreads on its derivative liabilities. These losses were partially offset by gains due to the narrowing of the credit spreads of the Company's counterparties on its derivative assets. See "Derivatives—Fair Valuation Adjustments for Derivatives" below for a further discussion.
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
Net interest revenue | $ | 1,393 | $ | 1,422 | (2 | )% | $ | 4,254 | $ | 4,031 | 6 | % | ||||||||
Non-interest revenue | 1,064 | 1,144 | (7 | ) | 3,060 | 3,431 | (11 | ) | ||||||||||||
Revenues, net of interest expense | $ | 2,457 | $ | 2,566 | (4 | )% | $ | 7,314 | $ | 7,462 | (2 | )% | ||||||||
Operating expenses | 1,141 | 1,252 | (9 | ) | 3,303 | 3,847 | (14 | ) | ||||||||||||
Provision for credit losses and for benefits and claims | (7 | ) | (11 | ) | 36 | (1 | ) | 2 | NM | |||||||||||
Income before taxes and noncontrolling interest | $ | 1,323 | $ | 1,325 | — | $ | 4,012 | $ | 3,613 | 11 | % | |||||||||
Income taxes | 384 | 407 | (6 | )% | 1,195 | 1,095 | 9 | |||||||||||||
Income from continuing operations | 939 | 918 | 2 | 2,817 | 2,518 | 12 | ||||||||||||||
Net income (loss) attributable to noncontrolling interests | 5 | 9 | (44 | ) | 4 | 26 | (85 | ) | ||||||||||||
Net income | $ | 934 | $ | 909 | 3 | % | $ | 2,813 | $ | 2,492 | 13 | % | ||||||||
Average assets(in billions of dollars) | $ | 60 | $ | 70 | (14 | )% | $ | 59 | $ | 72 | (18 | )% | ||||||||
Return on assets | 6.18 | % | 5.17 | % | 6.37 | % | 4.62 | % | ||||||||||||
Revenues by region: | ||||||||||||||||||||
North America | $ | 643 | $ | 540 | 19 | % | $ | 1,888 | $ | 1,557 | 21 | % | ||||||||
EMEA | 845 | 953 | (11 | ) | 2,549 | 2,784 | (8 | ) | ||||||||||||
Latin America | 337 | 378 | (11 | ) | 1,020 | 1,092 | (7 | ) | ||||||||||||
Asia | 632 | 695 | (9 | ) | 1,857 | 2,029 | (8 | ) | ||||||||||||
Total revenues | $ | 2,457 | $ | 2,566 | — | $ | 7,314 | $ | 7,462 | (2 | )% | |||||||||
Net income (loss) from continuing operations by region: | ||||||||||||||||||||
North America | $ | 152 | $ | 94 | 62 | % | $ | 471 | $ | 243 | 94 | % | ||||||||
EMEA | 308 | 348 | (11 | ) | 984 | 925 | 6 | |||||||||||||
Latin America | 148 | 159 | (7 | ) | 458 | 451 | 2 | |||||||||||||
Asia | 331 | 317 | 4 | 904 | 899 | 1 | ||||||||||||||
Total net income from continuing operations | $ | 939 | $ | 918 | 2 | % | $ | 2,817 | $ | 2,518 | 12 | % | ||||||||
Key Indicators(in billions of dollars) | ||||||||||||||||||||
Average deposits and other customer liability balances | $ | 314 | $ | 273 | 15 | % | ||||||||||||||
EOP assets under custody(in trillions of dollars) | $ | 11.8 | $ | 11.9 | (1 | ) | ||||||||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, were $2.5 billion, down $109 million or 4% from strong prior-year performance due to spread compression (as global rates declined) and lower volumes as well as negative foreign exchange impact. This was partly offset by strong growth in liability balances and higher trade fees.
Operating expenses declined 9% or $111 million to $1.1 billion, driven by headcount reductions, re-engineering efforts, expense management initiatives and a benefit from FX translation.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, of $7.3 billion decreased slightly from the prior period driven primarily by the impact of lower fee revenues and negative foreign exchange. Average liability balances grew 6% driven by strong growth in North America as a result of successful implementation of deposit growth strategy.
Operating expenses declined 14%, driven by headcount reduction and re-engineering benefits.
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
Net interest revenue | $ | 4,024 | $ | 5,766 | (30 | )% | $ | 13,902 | $ | 17,292 | (20 | )% | ||||||||
Non-interest revenue | 2,670 | (5,062 | ) | NM | 11,994 | (19,027 | ) | NM | ||||||||||||
Total Revenues, net of interest expense | $ | 6,694 | $ | 704 | NM | $ | 25,896 | $ | (1,735 | ) | NM | |||||||||
Provision for credit losses and for benefits and claims | ||||||||||||||||||||
Net credit losses | $ | 6,250 | $ | 3,603 | 73 | % | $ | 19,090 | $ | 9,332 | NM | |||||||||
Credit reserve build (release) | 338 | 3,224 | (90 | ) | 4,743 | 6,790 | (30 | )% | ||||||||||||
Provision for loan losses | $ | 6,588 | $ | 6,827 | (4 | )% | $ | 23,833 | $ | 16,122 | 48 | % | ||||||||
Provision for benefits & claims | 310 | 273 | 14 | 923 | 805 | 15 | ||||||||||||||
Provision for unfunded lending commitments | — | (70 | ) | 100 | 80 | (138 | ) | NM | ||||||||||||
Total provision for credit losses and for benefits and claims | $ | 6,898 | $ | 7,030 | (2 | )% | $ | 24,836 | $ | 16,789 | 48 | % | ||||||||
Total operating expenses | $ | 3,202 | $ | 5,136 | (38 | )% | $ | 11,417 | $ | 16,406 | (30 | )% | ||||||||
Income (loss) from continuing operations before taxes | $ | (3,406 | ) | $ | (11,462 | ) | 70 | % | $ | (10,357 | ) | $ | (34,930 | ) | 70 | % | ||||
Provision (benefits) for income taxes | (1,588 | ) | (4,526 | ) | 65 | (4,562 | ) | (13,619 | ) | 67 | ||||||||||
Income (loss) from continuing operations | $ | (1,818 | ) | $ | (6,936 | ) | 74 | % | $ | (5,795 | ) | $ | (21,311 | ) | 73 | % | ||||
Net income (loss) attributable to noncontrolling interests | 49 | (109 | ) | NM | (1 | ) | (87 | ) | 99 | |||||||||||
Citi Holding's net income (loss) | $ | (1,867 | ) | $ | (6,827 | ) | 73 | % | $ | (5,794 | ) | $ | (21,224 | ) | 73 | % | ||||
Balance Sheet Data (in billions) | ||||||||||||||||||||
Total EOP assets | $ | 617 | $ | 775 | (20 | )% | ||||||||||||||
Total EOP deposits | 90 | 83 | 8 | |||||||||||||||||
NM Not meaningful
BROKERAGE AND ASSET MANAGEMENT
| | Third Quarter | | Nine Months | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | |||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Net interest revenue | $ | (56 | ) | $ | 318 | NM | $ | 460 | $ | 727 | (37 | )% | |||||||||
Non-interest revenue | 726 | 1,776 | (59 | )% | 14,250 | 6,224 | NM | ||||||||||||||
Total Revenues, net of interest expense | $ | 670 | $ | 2,094 | (68 | )% | $ | 14,710 | $ | 6,951 | NM | ||||||||||
Total operating expenses | $ | 358 | $ | 2,085 | (83 | )% | $ | 3,000 | $ | 6,537 | (54 | )% | |||||||||
Net credit losses | — | $ | 1 | (100 | )% | $ | 3 | $ | 11 | (73 | )% | ||||||||||
Credit reserve build (release) | $ | (11 | ) | (3 | ) | NM | 35 | 7 | NM | ||||||||||||
Provision for benefits and claims | 38 | 58 | (34 | ) | 113 | 155 | (27 | ) | |||||||||||||
Provisions for loan losses and for benefits and claims | $ | 27 | $ | 56 | (52 | )% | $ | 151 | $ | 173 | (13 | )% | |||||||||
Income from continuing operations before taxes | $ | 285 | $ | (47 | ) | NM | $ | 11,559 | $ | 241 | NM | ||||||||||
Income taxes | 146 | 10 | NM | 4,548 | 145 | NM | |||||||||||||||
Income (loss) from continuing operations | $ | 139 | $ | (57 | ) | NM | $ | 7,011 | $ | 96 | NM | ||||||||||
Net income (loss) attributable to noncontrolling interests | 16 | (98 | ) | NM | 5 | (60 | ) | NM | |||||||||||||
Net income | $ | 123 | $ | 41 | NM | $ | 7,006 | $ | 156 | NM | |||||||||||
EOP assets(in billions of dollars) | $ | 59 | $ | 62 | (5 | )% | |||||||||||||||
EOP deposits (in billions of dollars) | 60 | $ | 53 | 13 | |||||||||||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, decreased 68% primarily driven by the decrease in the Company's share of Smith Barney revenue resulting from the joint venture transaction. Revenues in the prior-year period included a $347 million pre-tax gain on sale of CitiStreet and charges related to settlement of auction rate securities (ARS) of $306 million pre-tax. 2009 third quarter revenue includes a $320 million pre-tax gain on the sale of the Managed Futures business to the Morgan Stanley Smith Barney joint venture.
Operating expenses decreased 83% from the prior-year period, mainly driven by the absence of Smith Barney expenses and the absence of restructuring expenses in retail alternative investments.
Provisions for loan losses and for benefits and claims decreased by 52% mainly reflecting lower provisions for benefits and claims.
End of Period Assets include approximately $24 billion of assets of discontinued operations held for sale.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, increased $7.8 billion due to an $11.1 billion pre-tax gain on sale ($6.7 billion after-tax) on the Morgan Stanley Smith Barney joint venture transaction, which closed on June 1, 2009. Excluding the gain, revenues declined $3.3 billion driven by the absence of Smith Barney revenues as well as the impact of market conditions on Smith Barney transactional and fee-based revenue compared to the prior year.
Operating expenses decreased $3.5 billion primarily driven by the absence of Smith Barney expenses, lower variable compensation and re-engineering efforts, particularly in retail alternative investments.
Provisions for loan losses and for benefits and claims declined 13% mainly reflecting lower provisions for benefits and claims.
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % Change | % Change | ||||||||||||||||||
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
Net interest revenue | $ | 3,453 | $ | 4,612 | (25 | )% | $ | 10,730 | $ | 14,015 | (23 | )% | ||||||||
Non-interest revenue | 1,194 | 820 | 46 | 4,300 | 5,141 | (16 | ) | |||||||||||||
Total Revenues, net of interest expense | $ | 4,647 | $ | 5,432 | (14 | )% | $ | 15,030 | $ | 19,156 | (22 | )% | ||||||||
Total operating expenses | $ | 2,611 | $ | 2,847 | (8 | )% | $ | 7,746 | $ | 9,094 | (15 | )% | ||||||||
Net credit losses | $ | 4,929 | $ | 3,487 | 41 | % | $ | 14,617 | $ | 9,116 | 60 | % | ||||||||
Credit reserve build (release) | 604 | 2,702 | (78 | ) | 5,003 | 5,858 | (15 | ) | ||||||||||||
Provision for benefits and claims | 272 | 215 | 27 | 810 | 650 | 25 | ||||||||||||||
Provisions for loan losses and for benefits and claims | $ | 5,805 | $ | 6,404 | (9 | )% | $ | 20,430 | $ | 15,624 | 31 | % | ||||||||
Loss from continuing operations before taxes | $ | (3,769 | ) | $ | (3,819 | ) | 1 | % | $ | (13,146 | ) | $ | (5,562 | ) | NM | |||||
Income taxes (benefits) | (1,670 | ) | (1,534 | ) | (9 | ) | (5,435 | ) | (2,196 | ) | NM | |||||||||
Loss from continuing operations | $ | (2,099 | ) | $ | (2,285 | ) | 8 | % | $ | (7,711 | ) | $ | (3,366 | ) | NM | |||||
Net income attributable to noncontrolling interests | 13 | 1 | NM | 23 | 13 | 77 | % | |||||||||||||
Net loss | $ | (2,112 | ) | $ | (2,286 | ) | 8 | % | $ | (7,734 | ) | $ | (3,379 | ) | NM | |||||
Average assets(in billions of dollars) | $ | 384 | $ | 456 | (16 | )% | $ | 397 | $ | 471 | (16 | )% | ||||||||
Net credit losses as a % of average loans | 6.11 | % | 3.83 | % | ||||||||||||||||
NM Not meaningful
3Q09 vs. 3Q08
Revenues, net of interest expense, decreased 14% due to lower net interest margin, partially offset by increased Cards securitization revenues of $0.7 billion.Net interest revenue was 25% lower than the prior year due to lower balances and the impact of delinquencies and loan modifications in Real Estate, North America Consumer Finance, and Cards. Net interest revenue as a percent of average loans decreased 98 basis points from the prior-year quarter in North America (ex Cards) and decreased 99 basis points in International, due principally to volume decreases. Average loans decreased 12%, with North America (ex Cards) down 10%, North America Cards down 19%, and International down 19%.Non-interest revenue increased 46% reflecting the increased revenue from Cards securitization.
Operating expenses declined 8% primarily due to lower volumes and reductions from expense re-engineering actions, partially offset by higher real estate owned (OREO) and collection costs.
Provisions for loan losses and for benefits and claims decreased 9% from the prior period reflecting lower reserve builds of $2.1 billion, partially offset by increased net credit losses of $1.4 billion, primarily in Real Estate and EMEA. The credit reserve build for the quarter included $350 million related to the UK Cards portfolio which was transferred to held-for-sale. The net credit loss ratio increased 228 basis points from the prior-year quarter with North America (ex Cards) up 184 basis points to 4.78%, International up 375 basis points to 9.77%, and North America Cards up 575 basis points to 14.58%.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, decreased 22% due to a decline in net interest revenue, higher net credit losses flowing through the securitization trusts in North America and a higher FDIC assessment.Net interest revenue was 23% lower than the prior year driven by lower balances (due to run-off and credit tightening) and spread compression due largely to higher non-accrual loans, the higher FDIC assessment and the impact of loan modifications.Non-interest revenue declined 16% primarily due to higher credit costs flowing through the securitization trusts in North America and lower securitization gains. Year-to-date non-interest revenue for 2009 also included a $1.1 billion pretax gain on the sale of the Company's remaining stake in Redecard as compared to a prior-year period pre-tax gain on sale of Redecard of $663 million.
Operating expenses decreased 15% primarily due to re-engineering actions, lower volumes and marketing expenses and the absence of prior-year repositioning charges. The declines in expenses were partially offset by higher OREO and collections costs.
Provisions for loan losses and for benefits and claims increased 31% reflecting higher net credit losses of $5.5 billion, partially offset by decreased reserve builds of $855 million.
The following table provides additional information, as of September 30, 2009, regarding the Local Consumer Lending loan details. For additional information on loans within Local Consumer Lending, see "Loan and Credit Details—Consumer Loan Details" below.
| Composition of Loans within Local Consumer Lending | Carrying Value of Assets | September 30, 2009 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| in billions of dollars | September 30, 2009 | June 30, 2009 | % of Assets under U.S. Government Loss- Sharing Agreement(1) | Net credit loss ratio | 90+ Days Past Due % | ||||||||||||
North America | |||||||||||||||||
First mortgages | $ | 123.3 | $ | 126.9 | 66 | % | 3.46 | % | 10.12 | % | |||||||
Second mortgages | 56.9 | 59.4 | 87 | 7.70 | 3.01 | ||||||||||||
Student | 26.5 | 26.6 | — | 0.39 | 3.25 | ||||||||||||
Cards (Retail Partners) | 21.7 | 22.8 | 4 | 14.58 | 4.08 | ||||||||||||
Personal and Other | 19.3 | 20.1 | 10 | 10.17 | 3.32 | ||||||||||||
Auto | 15.0 | 16.2 | 72 | 6.61 | 1.83 | ||||||||||||
Commercial Real Estate | 10.8 | 11.1 | 88 | 2.42 | 2.38 | ||||||||||||
Total North America | $ | 273.5 | $ | 283.1 | 56 | %. | 5.61 | % | 6.26 | % | |||||||
International | |||||||||||||||||
EMEA | $ | 26.1 | $ | 28.6 | — | 7.69 | % | 4.52 | % | ||||||||
Asia | 10.9 | 11.4 | — | 14.71 | 2.40 | ||||||||||||
Latin America | 0.3 | 0.3 | — | 19.14 | 1.74 | ||||||||||||
Total International | $ | 37.3 | $ | 40.3 | — | 9.77 | % | 3.88 | % | ||||||||
Total | $ | 310.8 | $ | 323.4 | 49 | % | 6.11 | % | 5.97 | % | |||||||
Note: Totals may not sum due to rounding.
| | Third Quarter | | Nine Months | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2009 | 2008 | % Change | 2009 | 2008 | % Change | ||||||||||||||
Net interest revenue | $ | 627 | $ | 836 | (25 | )% | $ | 2,712 | $ | 2,550 | 6 | % | ||||||||
Non-interest revenue | 750 | (7,658 | ) | NM | (6,556 | ) | (30,392 | ) | 78 | |||||||||||
Total Revenues, net of interest expense | $ | 1,377 | $ | (6,822 | ) | NM | $ | (3,844 | ) | $ | (27,842 | ) | 86 | % | ||||||
Total operating expenses | $ | 233 | $ | 204 | 14 | % | $ | 671 | $ | 775 | (13 | )% | ||||||||
Net credit losses | $ | 1,321 | $ | 115 | NM | $ | 4,470 | $ | 205 | NM | ||||||||||
Provision for unfunded lending commitments | — | (70 | ) | 100 | % | 80 | (138 | ) | NM | |||||||||||
Credit reserve builds (release) | (255 | ) | 525 | NM | (295 | ) | 925 | NM | ||||||||||||
Provisions for credit losses and for benefits and claims | $ | 1,066 | $ | 570 | 87 | % | $ | 4,255 | $ | 992 | NM | |||||||||
Income (Loss) from continuing operations before taxes | $ | 78 | $ | (7,596 | ) | NM | $ | (8,770 | ) | $ | (29,609 | ) | 70 | % | ||||||
Income taxes (benefits) | (64 | ) | (3,002 | ) | 98 | % | (3,675 | ) | (11,568 | ) | 68 | |||||||||
Income (Loss) from continuing operations | $ | 142 | $ | (4,594 | ) | NM | $ | (5,095 | ) | $ | (18,041 | ) | 72 | % | ||||||
Net income (loss) attributable to noncontrolling interests | 20 | (12 | ) | NM | 29 | (40 | ) | 28 | ||||||||||||
Net Income (loss) | $ | 122 | $ | (4,582 | ) | NM | $ | (5,066 | ) | $ | (18,001 | ) | 72 | % | ||||||
EOP assets(in billions of dollars) | $ | 182 | $ | 261 | (31 | )% | ||||||||||||||
3Q09 vs. 3Q08
Revenues, net of interest expense, increased $8.2 billion primarily due to favorable net revenue marks relative to the prior-year quarter, which are described in more detail below. Revenue in the current quarter included positive marks of $2.0 billion on subprime-related direct exposures and non-credit accretion of $502 million, partially offset by write-downs on CRE of $586 million and $506 million of other write-downs and losses.
Operating expenses increased 14% driven by the USG loss-sharing agreement (see "Government Programs—U.S. Government Loss-Sharing Agreement" below), partially offset by lower compensation expenses.
Provisions for credit losses and for benefits and claims increased $496 million primarily driven by $1.2 billion in increased net credit losses, partially offset by a lower provision of $780 million.
3Q09 YTD vs. 3Q08 YTD
Revenues, net of interest expense, increased $24.0 billion primarily due to favorable net revenue marks relative to the prior year. Revenue year-to-date included a $1.2 billion positive CVA on derivative positions, excluding monoline insurers, and positive marks of $284 million on subprime-related direct exposures, offset by negative revenue of $1.1 billion on Alt-A mortgages. Revenue year-to-date was also negatively impacted by $3.4 billion related to CVA on fair value option liabilities and monolines, CRE, and negative marks for private equity positions.
Operating expenses decreased 13% mainly driven by lower volumes and lower transaction expenses.
Provisions for credit losses and for benefits and claims increased $3.3 billion primarily driven by the $4.3 billion increase in write-offs over the prior period. Significant write-offs included exposures in Lyondell Basell. The net $295 million net credit reserve release in the current period was driven by a $2.1 billion release for specific counterparties (including Lyondell Basell), partially offset by builds for specific counterparties.
Assets declined 30% versus the prior year primarily driven by amortization/prepayments, sales, and marks/charge-offs.
The following table provides details of the composition of the Special Asset Pool assets as of September 30, 2009.
Assets within Special Asset Pool
| | Carrying Value of Assets | September 30, 2009 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
in billions of dollars | September 30, 2009 | June 30, 2009 | % of Assets under U.S. Government Loss-Sharing Program(1) | Face Value | Carrying value as % of Face Value | ||||||||||||
Securities in AFS/HTM(2) | |||||||||||||||||
Corporates | $ | 14.8 | $ | 17.1 | 4 | % | $ | 15.1 | 98 | % | |||||||
Prime and Non-U.S. MBS | 16.0 | 16.2 | 33 | 20.2 | 80 | ||||||||||||
Auction Rate Securities | 8.0 | 8.3 | 15 | 10.8 | 74 | ||||||||||||
Alt-A mortgages | 9.0 | 9.5 | 99 | 17.5 | 52 | ||||||||||||
Government Agencies | 0.7 | 6.2 | — | 0.8 | 97 | ||||||||||||
Other Securities(3) | 6.3 | 7.4 | 35 | 8.7 | 73 | ||||||||||||
Total Securities in AFS/HTM | $ | 54.8 | $ | 64.7 | 33 | % | $ | 72.9 | 75 | % | |||||||
Loan, leases & LC in HFI/HFS(4) | |||||||||||||||||
Corporates | $ | 26.4 | $ | 28.2 | 33 | % | $ | 28.4 | 93 | % | |||||||
Commercial Real Estate (CRE) | 15.3 | 15.8 | 65 | 16.7 | 92 | ||||||||||||
Other | 3.7 | 4.7 | — | 4.3 | 85 | ||||||||||||
Loan Loss Reserves | (4.0 | ) | (4.1 | ) | NM | NM | NM | ||||||||||
Total Loan, leases & LC in HFI/HFS | $ | 41.4 | $ | 44.6 | NM | NM | NM | ||||||||||
Mark to Market | |||||||||||||||||
Subprime securities(5) | $ | 8.0 | $ | 8.0 | — | $ | 20.9 | 38 | % | ||||||||
Other Securities(6) | 6.9 | 8.4 | 8 | % | 29.5 | 24 | |||||||||||
Derivatives | 9.4 | 10.8 | — | NM | NM | ||||||||||||
Loans, Leases and Letters of Credit | 7.3 | 7.8 | 28 | 11.5 | 63 | ||||||||||||
Repurchase agreements | 6.9 | 7.3 | — | NM | NM | ||||||||||||
Total Mark to Market | $ | 38.5 | $ | 42.1 | 9 | % | NM | NM | |||||||||
Highly Lev. Fin. Commitments | $ | 3.5 | $ | 4.6 | 5 | % | $ | 6.1 | 57 | % | |||||||
Equities (excludes ARS in AFS) | 12.9 | 13.8 | — | NM | NM | ||||||||||||
SIVs | 16.2 | 16.2 | 36 | 21.0 | 77 | ||||||||||||
Monolines | 1.3 | 1.7 | — | NM | NM | ||||||||||||
Consumer and Other(7) | 13.3 | 13.2 | NM | NM | NM | ||||||||||||
Total | $ | 181.9 | $ | 201.0 | |||||||||||||
Items Impacting Special Asset Pool Revenues
The table below provides additional information regarding the favorable net revenue marks affecting the Special Asset Pool during the third quarter of 2009.
| | Pretax Revenue (in millions) | ||||||
|---|---|---|---|---|---|---|---|
| | Third Quarter 2009 | Third Quarter 2008 | |||||
Sub-prime related direct exposures(1)(2) | $ | 1,967 | $ | (394 | ) | ||
Private Equity and equity investments | (20 | ) | (430 | ) | |||
Alt-A Mortgages(1)(3) | (196 | ) | (932 | ) | |||
Highly leveraged loans and financing commitments(4) | (24 | ) | (792 | ) | |||
Commercial Real Estate (CRE) positions(1)(5) | (594 | ) | (649 | ) | |||
Structured Investment Vehicles' (SIVs) Assets | (40 | ) | (2,004 | ) | |||
Auction Rate Securities (ARS) proprietary positions | — | (166 | ) | ||||
CVA related to exposure to monoline insurers | (61 | ) | (920 | ) | |||
CVA on Citi debt liabilities under fair value option | (64 | ) | — | ||||
CVA on derivatives positions, excluding monoline insurers | 43 | (64 | ) | ||||
Subtotal | $ | 1,011 | $ | (6,351 | ) | ||
Accretion on reclassified assets | 502 | — | |||||
Total significant revenue items | $ | 1,513 | $ | (6,351 | ) | ||
Credit Valuation Adjustment Related 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 exposure primarily relates to hedges on super senior subprime exposures that were executed with various monoline insurance companies. See "Direct Exposure to Monolines" below for a further discussion.
Credit Valuation Adjustment on Citi's Debt Liabilities for Which Citi Has Elected the Fair Value Option
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. The approximately $64 million of losses recorded by Citi Holdings on its fair value option liabilities (excluding derivative liabilities) during the third quarter of 2009 was principally due to the narrowing (improving) of the Company's credit spreads.
Credit Valuation Adjustment on Derivative Positions, excluding Monoline insurers
The approximately $43 million net gain on Citi Holdings' derivative positions during the third quarter of 2009 was due to the narrowing of the Company's counterparties on its derivative assets. See "Derivatives—Fair Valuation Adjustments for Derivatives" below for a further discussion.
Accretion on Reclassified Assets
In the fourth quarter of 2008, Citi Holdings 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. During the third quarter of 2009, Citi Holdings recognized approximately $502 million of interest revenue from this accretion.
| | Third Quarter | Nine Months | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||
Net interest revenue | $ | (461 | ) | $ | (678 | ) | $ | (1,216 | ) | $ | (1,794 | ) | |
Non-interest revenue | 1,132 | 212 | 1,646 | (413 | ) | ||||||||
Total Revenues, net of interest expense | $ | 671 | $ | (466 | ) | $ | 430 | $ | (2,207 | ) | |||
Total operating expenses | 441 | (77 | ) | 864 | 18 | ||||||||
Provisions for loan losses and for benefits and claims | — | 1 | 1 | 1 | |||||||||
Income (Loss) from continuing operations before taxes | $ | 230 | (390 | ) | $ | (435 | ) | $ | (2,226 | ) | |||
Income taxes (benefits) | 128 | (203 | ) | 145 | (818 | ) | |||||||
Income (Loss) from continuing operations | $ | 102 | $ | (187 | ) | $ | (580 | ) | $ | (1,408 | ) | ||
Income (loss) from discontinued operations, net of taxes | (418 | ) | 613 | (677 | ) | 578 | |||||||
Net Income (loss) before attribution of noncontrolling interests | $ | (316 | ) | $ | 426 | $ | (1,257 | ) | $ | (830 | ) | ||
Net Income (loss) attributable to noncontrolling interests | — | — | — | — | |||||||||
Net Income (loss) | $ | (316 | ) | $ | 426 | $ | (1,257 | ) | $ | (830 | ) | ||
3Q09 vs. 3Q08
Revenues,net of interest expense, increased primarily due to the pretax gain related to the preferred exchange, partly offset by the interest cost of the trust preferred securities.
Operating Expenses increased primarily due to intersegment eliminations and the absence of prior-year reserve releases.
3Q09 YTD vs. 3Q08 YTD
Revenues,net of interest expense, increased primarily due to the pretax gain related to the preferred exchange, intersegment eliminations, and the impact of changes in U.S. dollar rates, partly offset by the interest cost of the trust preferred securities.
Operating Expenses increased primarily due to intersegment eliminations and the absence of prior-year reserve releases.
Common Stock Warrants Issued to UST under TARP
In connection with its participation in TARP in October and December 2008, Citi issued two warrants exercisable for common stock to the UST. These warrants remain outstanding following the completion of the exchange offers.
The warrant issued to the UST in October 2008 has a term of 10 years, an exercise price of $17.85 per share and is exercisable for approximately 210.1 million shares of common stock. The value ascribed to the warrant, or $1.3 billion out of the $25 billion in cash proceeds, on a relative fair value basis, was recorded in Citigroup's stockholders' equity and resulted in an increase inAdditional paid-in capital.
The warrant issued to the UST in December 2008 also has a term of 10 years, an exercise price of $10.61 per share and is exercisable for approximately 188.5 million shares of common stock. The value ascribed to the warrant, or $0.5 billion out of the $20 billion in cash proceeds, on a relative fair value basis, was recorded in Citigroup's stockholders' equity and resulted in an increase inAdditional paid-in capital.
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.
See "U.S. Government Loss-Sharing Agreement" below for a description of the third common stock warrant issued, outstanding and held by the UST.
Implementation and Management of TARP Programs
Citigroup has established a Special TARP Committee composed of senior executives to approve, monitor and track how the USG's TARP funds invested in Citi, or $45 billion, are utilized. Citi is required to adhere to the following objectives as a condition of the USG's capital investments:
The Committee has established specific guidelines, which are consistent with the objectives and spirit of TARP. Pursuant to these guidelines, Citi will use TARP capital only for those purposes expressly approved by the Audit and Risk Management Committee.
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 August 11, 2009, Citi published its most recent quarterly report summarizing its TARP spending initiatives for the second quarter of 2009 (the report is available at www.citigroup.com). The report states that the Committee had authorized $50.8 billion in initiatives backed by TARP capital which has subsequently been increased to $53.8 billion. As of September 30, 2009, the Company has deployed approximately $18.3 billion of funds under the approved initiatives.
FDIC's Temporary Liquidity Guarantee Program
Under the terms of the FDIC's Temporary Liquidity Guarantee Program (TLGP), the FDIC guaranteed, 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 charged 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. The TLGP was terminated on October 31, 2009 and Citigroup and its affiliates have elected not to participate in any FDIC-approved extension of the program.
As of September 30, 2009, Citigroup and its affiliates had issued a total of $54.6 billion of long-term debt that is covered under the FDIC guarantee, with $6.35 billion maturing in 2010, $18.75 billion maturing in 2011 and $29.5 billion maturing in 2012.
In addition, as of September 30, 2009, Citigroup, through its subsidiaries, had $4.37 billion in outstanding commercial paper and interbank deposits backed by the FDIC. The FDIC also charged a fee ranging from 50 to 150 basis points in connection with the issuance of those instruments. As approved by the FDIC, effective October 1, 2009 through the termination of the TLGP program on October 31, 2009, Citigroup issued commercial paper of various tenors without the FDIC guarantee.
See "Capital Resources and Liquidity" below for further information on Citi's funding and liquidity programs.
U.S. Government Loss-Sharing Agreement
Background
On January 15, 2009, Citigroup entered into an agreement with the UST, the FDIC and the Federal Reserve Bank of New York (collectively referred to in this section as the USG) on losses arising on a $301 billion portfolio of Citigroup assets (valued as of November 21, 2008, other than as set forth in note 1 to the table below). Primarily as a result of the receipt of principal repayment and charge-offs to date, the total asset pool has declined by approximately $50 billion on a GAAP basis to approximately $250.4 billion as of September 30, 2009.
As consideration for the loss-sharing agreement, Citigroup issued approximately $7.1 billion in preferred stock to the UST and the FDIC, as well as a warrant exercisable for common stock to the UST. As part of the exchange offers, the preferred stock was exchanged for newly issued 8% trust preferred securities. See "Significant Events in the Third Quarter of 2009—Exchange Offers" above. The warrant issued to the UST as consideration for the loss-sharing agreement has a term of 10 years, an exercise price of $10.61 per share and is exercisable for approximately 66.5 million shares of common stock. The fair value of the warrant of $88
million was recorded as a credit toAdditional paid-in capital at the time of issuance.
Terms of Agreement
The loss-sharing agreement extends for 10 years for residential assets and five years for non-residential assets. Under the agreement, a "loss" on a portfolio asset is generally 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:
Approximately $2.8 billion of GAAP losses on the asset pool were recorded in the third quarter of 2009, bringing the GAAP losses on the portfolio to date to approximately $8.1 billion (i.e., for the period of November 21, 2008 through September 30, 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, if any, by making a loan 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 USG had a 120-day period, beginning April 15, 2009, to review the asset pool to confirm asset eligibility. The USG has completed its review and, in October 2009, substantially agreed with Citigroup on the final asset pool's composition. The USG's final approval of the pool is expected in November 2009. After final approval of the pool, the USG has the right to review and confirm Citigroup's first-loss position ($39.5 billion) and the consideration paid by Citigroup for the loss coverage, each based on expected losses and reserves associated with the final pool (using a methodology and assumptions consistent with those used to set the $39.5 billion first-loss position). The USG is expected to complete this review in the fourth quarter of 2009.
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 $19 billion, the USG may increase the required reporting or alter the thresholds for notice and approval. If covered losses exceed $27 billion, the USG has the right to replace Citi as the asset manager for the covered asset pool, among other things.
Accounting and Regulatory Capital Treatment
Citigroup accounts for the loss-sharing agreement as an indemnification agreement pursuant to the guidance in ASC 805-20-30-18,Business Combinations. Citigroup recorded an asset of $3.617 billion (equal to the fair value of the consideration issued to the USG) inOther assets on the Consolidated Balance Sheet. The asset will be amortized as anOther operating expense in the Consolidated Statement of Income on a straight-line basis over the coverage periods of 10 years and five years, respectively, based on the relative initial principal amounts of each group. During the quarter and nine months ended September 30, 2009, Citigroup recorded $122 million and $412 million, respectively, as anOther 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. GAAP on the covered assets exceed the $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.
Further, 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 agreement. 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.
The covered assets are risk-weighted at 20% for purposes of calculating the Tier 1 Capital ratio at September 30, 2009.
Asset Values as of September 30, 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 15, 2009, with their values as of November 21, 2008 (except as set forth in note 1 to the table below), and the balances as of September 30, 2009, reflecting changes in the balances of assets that remained qualified, plus approximately $10 billion of replacement assets that Citi substituted for non-qualifying assets between January 15, 2009 and April 15, 2009. The $250.4 billion of covered assets at September 30, 2009 are recorded in Citi Holdings within Local Consumer Lending ($171.9 billion) and Special Asset Pool ($78.5 billion). As discussed above, the asset pool, as revised, remains subject to the USG's final approval, which is expected in November 2009.
Assets
| In billions of dollars | September 30, 2009 | November 21, 2008(1) | ||||||
|---|---|---|---|---|---|---|---|---|
Loans: | ||||||||
First mortgages | $ | 81.0 | $ | 98.0 | ||||
Second mortgages | 49.6 | 55.4 | ||||||
Retail auto loans | 10.8 | 16.2 | ||||||
Other consumer loans | 17.6 | 19.7 | ||||||
Total consumer loans | $ | 159.0 | $ | 189.3 | ||||
CRE loans | $ | 10.8 | $ | 12.0 | ||||
Highly leveraged finance loans | 0.2 | 2.0 | ||||||
Other corporate loans | 10.5 | 14.0 | ||||||
Total corporate loans | $ | 21.5 | $ | 28.0 | ||||
Securities: | ||||||||
Alt-A | $ | 9.1 | $ | 11.4 | ||||
SIVs | 5.8 | 6.1 | ||||||
CRE | 1.5 | 1.4 | ||||||
Other | 8.2 | 11.2 | ||||||
Total securities | $ | 24.6 | $ | 30.1 | ||||
Unfunded lending commitments (ULC) | ||||||||
Second mortgages | $ | 18.3 | $ | 22.4 | ||||
Other consumer loans | 2.4 | 3.6 | ||||||
Highly leveraged finance | 0.0 | 0.1 | ||||||
CRE | 3.8 | 5.5 | ||||||
Other commitments | 20.8 | 22.0 | ||||||
Total ULC | $ | 45.3 | $ | 53.6 | ||||
Total covered assets | $ | 250.4 | $ | 301.0 | ||||
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 framework is described in Citigroup's 2008 Annual Report on Form 10-K.
| In millions of dollars | September 30, 2009 | June 30, 2009 | December 31, 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Consumer loans | |||||||||||
In U.S. offices: | |||||||||||
Mortgage and real estate(1) | $ | 191,748 | $ | 197,358 | $ | 219,482 | |||||
Installment, revolving credit, and other | 63,668 | 67,661 | 71,360 | ||||||||
Cards | 36,039 | 33,750 | 44,418 | ||||||||
Lease financing | 15 | 16 | 31 | ||||||||
| $ | 291,470 | $ | 298,785 | $ | 335,291 | ||||||
In offices outside the U.S.: | |||||||||||
Mortgage and real estate(1) | $ | 47,568 | $ | 45,986 | $ | 44,382 | |||||
Installment, revolving credit, and other | 48,027 | 48,467 | 44,189 | ||||||||
Cards | 41,443 | 42,262 | 42,586 | ||||||||
Commercial and industrial | 11,835 | 10,947 | 13,897 | ||||||||
Lease financing | 345 | 339 | 304 | ||||||||
| $ | 149,218 | $ | 148,001 | $ | 145,358 | ||||||
Total consumer loans | $ | 440,688 | $ | 446,786 | $ | 480,649 | |||||
Unearned income | 803 | 866 | 738 | ||||||||
Consumer loans, net of unearned income | $ | 441,491 | $ | 447,652 | $ | 481,387 | |||||
Corporate loans | |||||||||||
In U.S. offices: | |||||||||||
Commercial and industrial | $ | 23,345 | $ | 30,567 | $ | 33,450 | |||||
Loans to financial institutions | 7,666 | 8,181 | 10,200 | ||||||||
Mortgage and real estate(1) | 23,221 | 23,862 | 16,643 | ||||||||
Installment, revolving credit, and other | 14,081 | 15,414 | 15,047 | ||||||||
Lease financing | 1,275 | 1,284 | 1,476 | ||||||||
| $ | 69,588 | $ | 79,308 | $ | 76,816 | ||||||
In offices outside the U.S.: | |||||||||||
Commercial and industrial | $ | 73,564 | $ | 78,512 | $ | 85,492 | |||||
Installment, revolving credit, and other | 10,949 | 11,638 | 23,158 | ||||||||
Mortgage and real estate(1) | 12,023 | 11,887 | 11,375 | ||||||||
Loans to financial institutions | 16,906 | 15,856 | 18,413 | ||||||||
Lease financing | 1,462 | 1,560 | 1,850 | ||||||||
Governments and official institutions | 826 | 713 | 385 | ||||||||
| $ | 115,730 | $ | 120,166 | $ | 140,673 | ||||||
Total corporate loans | $ | 185,318 | $ | 199,474 | $ | 217,489 | |||||
Unearned income | (4,598 | ) | (5,436 | ) | (4,660 | ) | |||||
Corporate loans, net of unearned income | $ | 180,720 | $ | 194,038 | $ | 212,829 | |||||
Total loans—net of unearned income | $ | 622,211 | $ | 641,690 | $ | 694,216 | |||||
Allowance for loan losses—on drawn exposures | (36,416 | ) | (35,940 | ) | (29,616 | ) | |||||
Total loans—net of unearned income and allowance for credit losses | $ | 585,795 | $ | 605,750 | $ | 664,600 | |||||
Allowance for loan losses as a percentage of total loans—net of unearned income | 5.85 | % | 5.60 | % | 4.27 | % | |||||
Allowance for consumer loan losses as a percentage of total consumer loans—net of unearned income | 6.44 | % | 6.25 | % | 4.61 | % | |||||
Allowance for corporate loan losses as a percentage of total corporate loans—net of unearned income | 4.42 | 4.11 | 3.48 | ||||||||
Loan Accounting Policies
The following are the Company's accounting policies for Loans, Allowance for Loan Losses and related lending activities.
Loans
Loans are reported at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs except that credit card receivable balances also include accrued interest and fees. Loan origination fees and certain direct origination costs are generally deferred and recognized as adjustments to income over the lives of the related loans.
As described in Note 17 to the Consolidated Financial Statements, the Company has elected fair value accounting for certain loans. Such loans are carried at fair value with changes in fair value reported in earnings. Interest income on such loans is recorded inInterest revenue at the contractually specified rate.
Loans for which the fair value option has not been elected are classified upon origination or acquisition as either held-for-investment or held-for-sale. This classification is based on management's initial intent and ability with regard to those loans.
Loans that are held-for-investment are classified asLoans, net of unearned income on the Consolidated Balance Sheet, and the related cash flows are included within the cash flows from investing activities category in the Consolidated Statement of Cash Flows on the line Changes in loans. However, when the initial intent for holding a loan has changed from held-for-investment to held-for-sale, the loan is reclassified to held-for-sale, but the related cash flows continue to be reported in cash flows from investing activities in the Consolidated Statement of Cash Flows on the line Proceeds from sales and securitizations of loans.
Substantially all of the consumer loans sold or securitized by Citigroup are U.S. prime residential mortgage loans or U.S. credit card receivables. The practice of the U.S. prime mortgage business has been to sell all of its loans except for nonconforming adjustable rate loans. U.S. prime mortgage conforming loans are classified as held-for-sale at the time of origination. The related cash flows are classified in the Consolidated Statement of Cash Flows in the cash flows from operating activities category on the line Change in loans held-for-sale.
U.S. credit card receivables are classified at origination as loans-held-for sale to the extent that management does not have the intent to hold the receivables for the foreseeable future or until maturity. The U.S. credit card securitization forecast for the three months following the latest balance sheet date is the basis for the amount of such loans classified as held-for-sale. Cash flows related to U.S. credit card loans classified as held-for-sale at origination or acquisition are reported in the cash flows from operating activities category on the line Change in loans held-for-sale.
Consumer Loans
Consumer loans represent loans and leases managed primarily by theRegional Consumer Banking andLocal Consumer Lending businesses. As a general rule, interest accrual ceases for installment and real estate (both open and closed end) loans when payments are 90 days contractually past due. For credit cards and unsecured revolving loans, however, the Company generally accrues interest until payments are 180 days past due. Citi's charge-off policies follow the general guidelines below:
For a discussion of the impact of mortgage loan and credit card modification and forbearance programs on Citi's consumer loan businesses, see "Consumer Loan Modification Programs" below.
Corporate Loans
Corporate loans represent loans and leases managed by ICG or the Special Asset Pool. Corporate loans are identified as impaired and placed on a cash (non-accrual) basis when it is determined that the payment of interest or principal is doubtful or when interest or principal is 90 days past due, except when the loan is well collateralized and in the process of collection. Any interest accrued on impaired corporate loans and leases is reversed at 90 days and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is doubt regarding the ultimate collectability of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan.
Impaired corporate loans and leases are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans and leases, where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment, are written down to the lower of cost or collateral value. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance in accordance with the contractual terms.
Loans Held-for-Sale
Corporate and consumer loans that have been identified for sale are classified as loans held-for-sale included inOther assets. With the exception of certain mortgage loans for which the fair-value option has been elected, these loans are accounted for at the lower of cost or market value, with any write-downs or subsequent recoveries charged toOther revenue.
Allowance for Loan Losses
Allowance for loan losses represents management's best estimate of probable losses inherent in the portfolio, as well as probable losses related to large individually evaluated impaired loans and troubled debt restructurings. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the overall portfolio. Additions to the allowance are made through the provision for credit losses. Credit losses are deducted from the allowance, and subsequent recoveries are added. Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value, with any gain or loss reflected as a recovery or charge-off to the allowance, and are subsequently accounted for as securities available-for-sale.
Corporate Loans
In the corporate portfolios, larger-balance, non-homogeneous exposures representing significant individual credit exposures are evaluated based upon the borrower's overall financial condition, resources, the prospects for support from any financially responsible guarantors and, if appropriate, the realizable value of any collateral. Reserves are established for these loans based upon an estimate of probable losses for the individual loans deemed to be impaired. This estimate may consider the present value of the expected future cash flows discounted at the loan's contractual effective rate, the secondary market value of the loan or the fair value of collateral less disposal costs. The allowance for credit losses attributed to the remaining portfolio is established via a process that estimates the probable loss inherent in the portfolio based upon various analyses. These analyses consider historical default rates and loss severities, internal risk ratings, and geographic, industry, and other environmental factors.
Management also considers overall portfolio indicators, including trends in internally risk-rated exposures, classified exposures, cash-basis loans, historical and forecasted write-offs, and a review of industry, geographic, and portfolio concentrations, including current developments within those segments. In addition, management considers the current business strategy and credit process, including credit limit setting and compliance, credit approvals, loan underwriting criteria, and loan workout procedures.
Consumer Loans
ForConsumer loans, each portfolio of smaller-balance, homogeneous loans—including consumer mortgage, installment, revolving credit, and most other consumer loans—is independently evaluated for impairment. The allowance for loan losses attributed to these loans is established via a process that estimates the probable losses inherent in the specific portfolio based upon various analyses. These include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with analyses that reflect current trends and conditions.
Management also considers overall portfolio indicators, including historical credit losses, delinquent, non-performing, and classified loans, trends in volumes and terms of loans, an evaluation of overall credit quality, the credit process, including lending policies and procedures, and economic, geographical, product and other environmental factors.
In addition, valuation allowances are determined for impaired smaller-balance homogenous loans whose terms have been modified due to the borrowers' financial difficulties and where it has been determined that a concession will be granted to the borrower. Such modifications may include interest rate reductions, principal forgiveness and/or term extensions. These allowances are determined by comparing estimated cash flows of the loans discounted at the loans' original contractual interest rates to the carrying value of the loans.
Reserve Estimates and Policies
Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for loan losses. These reserves are established in accordance with Citigroup's Credit Reserve Policies, as approved by the Audit and Risk Management Committee of the Company's Board of Directors. The Company's Chief Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from the Risk Management and Finance staffs for each applicable business area.
During these reviews, the above-mentioned representatives covering the business area having classifiably managed portfolios (that is, portfolios where internal credit-risk ratings are assigned, which are primarilyICG, Regional Consumer Banking andLocal Consumer Lending) and modified consumer loans where a concession was granted due to the borrowers' financial difficulties, and present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. The quantitative data include:
In addition, representatives from both the Risk Management and Finance staffs that cover business areas that have delinquency-managed portfolios containing smaller homogeneous loans (primarily the non-commercial lending areas ofConsumer Banking) present their recommended reserve balances based upon leading credit indicators, including loan delinquencies and changes in portfolio size as well as economic trends including housing prices, unemployment and GDP. This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist.
This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates, the size and diversity of individual large credits, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing, among other things, are all taken into account during this review. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance. Changes to the reserve flow through the Consolidated Statement of Income on the linesProvision for loan losses andProvision for unfunded lending commitments.
Allowance for Unfunded Lending Commitments
A similar approach to the allowance for loan losses is used for calculating a reserve for the expected losses related to unfunded loan commitments and standby letters of credit. This reserve is classified on the balance sheet inOther liabilities.
Details of Credit Loss Experience
| In millions of dollars | 3rd Qtr. 2009 | 2nd Qtr. 2009(1) | 1st Qtr. 2009 | 4th Qtr 2008 | 3rd Qtr. 2008 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | $ | 35,940 | $ | 31,703 | $ | 29,616 | $ | 24,005 | $ | 20,777 | |||||||||
Provision for loan losses | |||||||||||||||||||
Consumer | $ | 7,321 | $ | 10,010 | $ | 8,010 | $ | 8,592 | $ | 7,831 | |||||||||
Corporate | 1,450 | 2,223 | 1,905 | 3,579 | 1,112 | ||||||||||||||
| $ | 8,771 | $ | 12,233 | $ | 9,915 | $ | 12,171 | $ | 8,943 | ||||||||||
Gross credit losses | |||||||||||||||||||
Consumer | |||||||||||||||||||
In U.S. offices | $ | 4,459 | $ | 4,694 | $ | 4,124 | $ | 3,610 | $ | 3,073 | |||||||||
In offices outside the U.S. | 2,406 | 2,305 | 1,936 | 1,818 | 1,914 | ||||||||||||||
Corporate | |||||||||||||||||||
In U.S. offices | 1,101 | 1,216 | 1,176 | 364 | 156 | ||||||||||||||
In offices outside the U.S. | 483 | 558 | 424 | 756 | 200 | ||||||||||||||
| $ | 8,449 | $ | 8,773 | $ | 7,660 | $ | 6,548 | $ | 5,343 | ||||||||||
Credit recoveries | |||||||||||||||||||
Consumer | |||||||||||||||||||
In U.S. offices | $ | 149 | $ | 131 | $ | 136 | $ | 132 | $ | 137 | |||||||||
In offices outside the U.S. | 288 | 261 | 213 | 219 | 252 | ||||||||||||||
Corporate | |||||||||||||||||||
In U.S. offices | 30 | 4 | 1 | 2 | 3 | ||||||||||||||
In offices outside the U.S. | 13 | 22 | 28 | 52 | 31 | ||||||||||||||
| $ | 480 | $ | 418 | $ | 378 | $ | 405 | $ | 423 | ||||||||||
Net credit losses | |||||||||||||||||||
In U.S. offices | $ | 5,381 | $ | 5,775 | $ | 5,163 | $ | 3,840 | $ | 3,089 | |||||||||
In offices outside the U.S. | 2,588 | 2,580 | 2,119 | 2,303 | 1,831 | ||||||||||||||
Total | $ | 7,969 | $ | 8,355 | $ | 7,282 | $ | 6,143 | $ | 4,920 | |||||||||
Other—net(2)(3)(4)(5)(6) | $ | (326 | ) | $ | 359 | $ | (546 | ) | $ | (417 | ) | $ | (795 | ) | |||||
Allowance for loan losses at end of period(7) | $ | 36,416 | $ | 35,940 | $ | 31,703 | $ | 29,616 | $ | 24,005 | |||||||||
Allowance for loan losses as a % of total loans | 5.85 | % | 5.60 | % | 4.82 | % | 4.27 | % | 3.35 | % | |||||||||
Allowance for unfunded lending commitments(8) | $ | 1,074 | $ | 1,082 | $ | 947 | $ | 887 | $ | 957 | |||||||||
Total allowance for loan losses and unfunded lending commitments | $ | 37,490 | $ | 37,022 | $ | 32,650 | $ | 30,503 | $ | 24,962 | |||||||||
Net consumer credit losses | $ | 6,428 | $ | 6,607 | $ | 5,711 | $ | 5,077 | $ | 4,598 | |||||||||
As a percentage of average consumer loans | 5.66 | % | 5.88 | % | 4.95 | % | 4.12 | % | 3.57 | % | |||||||||
Net corporate credit losses | $ | 1,541 | $ | 1,748 | $ | 1,571 | $ | 1,066 | $ | 322 | |||||||||
As a percentage of average corporate loans | 0.82 | % | 0.89 | % | 0.79 | % | 0.60 | % | 0.15 | % | |||||||||
Allowance for loan losses at end of period(9) | |||||||||||||||||||
Citicorp | $ | 10,286 | $ | 10,046 | $ | 8,520 | $ | 7,684 | $ | 6,651 | |||||||||
Citi Holdings | 26,130 | 25,894 | 23,183 | 21,932 | 17,354 | ||||||||||||||
Total Citigroup | $ | 36,416 | $ | 35,940 | $ | 31,703 | $ | 29,616 | $ | 24,005 | |||||||||
The table below summarizes the Company's view of non-accrual loans as of the periods indicated. Non-accrual loans are loans in which the borrower has fallen behind in interest payments, or, for corporate loans, where the Company has determined that the payment of interest or principal is doubtful, and are therefore considered impaired. As discussed under "Accounting Policies" above, 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. There is no industry-wide definition of non-accrual assets, however, and as such, analysis against the industry is not always comparable.
As discussed above under "Third Quarter of 2009 Management Summary," the Company has been actively moving corporate loans into the non-accrual category at earlier stages of anticipated distress. Corporate non-accrual loans may still be current on interest payments, however. Of the total portfolio of non-accrual corporate loans as of September 30, 2009, over two-thirds are current and continue to make their contractual payments.
Non-accrual loans
| In millions of dollars | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 1st Qtr. 2009 | 4th Qtr. 2008 | 3rd Qtr. 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Citicorp | $ | 5,131 | $ | 5,314 | $ | 3,829 | $ | 3,193 | $ | 2,408 | |||||||
Citi Holdings | 27,553 | 22,932 | 22,282 | 19,104 | 11,135 | ||||||||||||
Total Non-accrual loans (NAL) | $ | 32,684 | $ | 28,246 | $ | 26,111 | $ | 22,297 | $ | 13,543 | |||||||
Corporate non-accrual loans(1) | |||||||||||||||||
North America | $ | 5,263 | $ | 3,499 | $ | 3,789 | $ | 2,660 | $ | 851 | |||||||
EMEA | 7,969 | 7,690 | 6,479 | 6,330 | 1,406 | ||||||||||||
Latin America | 416 | 230 | 300 | 229 | 125 | ||||||||||||
Asia | 1,128 | 1,013 | 639 | 513 | 357 | ||||||||||||
| $ | 14,776 | $ | 12,432 | $ | 11,207 | $ | 9,732 | $ | 2,739 | ||||||||
Citicorp | $ | 2,999 | $ | 3,045 | $ | 1,825 | $ | 1,364 | $ | 605 | |||||||
Citi Holdings | $ | 11,777 | $ | 9,387 | $ | 9,382 | $ | 8,368 | $ | 2,134 | |||||||
| $ | 14,776 | $ | 12,432 | $ | 11,207 | $ | 9,732 | $ | 2,739 | ||||||||
Consumer non-accrual loans(1) | |||||||||||||||||
North America(2) | $ | 14,609 | $ | 12,154 | $ | 11,687 | $ | 9,617 | $ | 7,941 | |||||||
EMEA | 1,314 | 1,356 | 1,128 | 948 | 904 | ||||||||||||
Latin America | 1,342 | 1,520 | 1,338 | 1,290 | 1,343 | ||||||||||||
Asia | 643 | 784 | 751 | 710 | 616 | ||||||||||||
| $ | 17,908 | $ | 15,814 | $ | 14,904 | $ | 12,565 | $ | 10,804 | ||||||||
Citicorp | $ | 2,132 | $ | 2,269 | $ | 2,004 | $ | 1,829 | $ | 1,803 | |||||||
Citi Holdings | 15,776 | 13,545 | 12,900 | 10,736 | 9,001 | ||||||||||||
| $ | 17,908 | $ | 15,814 | $ | 14,904 | $ | 12,565 | $ | 10,804 | ||||||||
Non-Accrual Assets (Continued)
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.
| OREO | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 1st Qtr. 2009 | 4th Qtr. 2008 | 3rd Qtr. 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Citicorp | $ | 284 | $ | 291 | $ | 307 | $ | 371 | $ | 425 | |||||||
Citi Holdings | 585 | 664 | 854 | 1,022 | 1,092 | ||||||||||||
Corporate/Other | 15 | 14 | 41 | 40 | 85 | ||||||||||||
Total OREO | $ | 884 | $ | 969 | $ | 1,202 | $ | 1,433 | $ | 1,602 | |||||||
North America | $ | 682 | $ | 789 | $ | 1,115 | $ | 1,349 | $ | 1,525 | |||||||
EMEA | 105 | 97 | 65 | 66 | 61 | ||||||||||||
Latin America | 40 | 29 | 20 | 16 | 14 | ||||||||||||
Asia | 57 | 54 | 2 | 2 | 2 | ||||||||||||
| $ | 884 | $ | 969 | $ | 1,202 | $ | 1,433 | $ | 1,602 | ||||||||
Other repossessed assets(1) | $ | 76 | $ | 72 | $ | 78 | $ | 78 | $ | 81 | |||||||
| Non-accrual assets—Total Citigroup | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 1st Qtr. 2009 | 4th Qtr. 2008 | 3rd Qtr. 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate non-accrual loans | $ | 14,776 | $ | 12,432 | $ | 11,207 | $ | 9,732 | $ | 2,739 | |||||||
Consumer non-accrual loans | 17,908 | 15,814 | 14,904 | 12,565 | 10,804 | ||||||||||||
Non-accrual loans (NAL) | $ | 32,684 | $ | 28,246 | $ | 26,111 | $ | 22,297 | $ | 13,543 | |||||||
OREO | $ | 884 | $ | 969 | $ | 1,202 | $ | 1,433 | $ | 1,602 | |||||||
Other repossessed assets | 76 | 72 | 78 | 78 | 81 | ||||||||||||
Non-accrual assets (NAA) | $ | 33,644 | $ | 29,287 | $ | 27,391 | $ | 23,808 | $ | 15,226 | |||||||
NAL as a % of total loans | 5.25 | % | 4.40 | % | 3.97 | % | 3.21 | % | 1.89 | % | |||||||
NAA as a % of total assets | 1.78 | % | 1.59 | % | 1.50 | % | 1.23 | % | 0.74 | % | |||||||
Allowance for loan losses as a % of NAL(1) | 111 | % | 127 | % | 121 | % | 133 | % | 177 | % | |||||||
| Non-accrual assets—Total Citicorp | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 1st Qtr. 2009 | 4th Qtr. 2008 | 3rd Qtr. 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Non-accrual loans (NAL) | $ | 5,131 | $ | 5,314 | $ | 3,829 | $ | 3,193 | $ | 2,408 | |||||||
OREO | 284 | 291 | 307 | 371 | 425 | ||||||||||||
Other repossessed assets | N/A | N/A | N/A | N/A | N/A | ||||||||||||
Non-accrual assets (NAA) | $ | 5,415 | $ | 5,605 | $ | 4,136 | $ | 3,564 | $ | 2,833 | |||||||
NAA as a % of total assets | 0.53 | % | 0.57 | % | 0.43 | % | 0.36 | % | 0.24 | % | |||||||
Allowance for loan losses as a % of NAL | 200 | % | 189 | % | 223 | % | 241 | % | 276 | % | |||||||
Non-accrual assets—Total Citi Holdings | |||||||||||||||||
Non-accrual loans (NAL) | $ | 27,553 | $ | 22,932 | $ | 22,282 | $ | 19,104 | $ | 11,135 | |||||||
OREO | 585 | 664 | 854 | 1,022 | 1,092 | ||||||||||||
Other repossessed assets | N/A | N/A | N/A | N/A | N/A | ||||||||||||
Non-accrual assets (NAA) | $ | 28,138 | $ | 23,596 | $ | 23,136 | $ | 20,126 | $ | 12,227 | |||||||
NAA as a % of total assets | 4.56 | % | 3.64 | % | 3.49 | % | 2.81 | % | 1.58 | % | |||||||
Allowance for loan losses as a % of NAL | 95 | % | 113 | % | 104 | % | 115 | % | 156 | % | |||||||
N/A Not available at the Citicorp or Citi Holdings level.
Consumer Loan Delinquency Amounts, Net Credit Losses and Ratios
Table presents consumer credit information on a held basis.
| | Total loans(1) | 90 days or more past due(2) | | Net credit losses(2) | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except total and average loan amounts in billions | Sept. 2009 | Sept. 2009 | June 2009 | Sept. 2008 | Average loans(1) 3Q 2009 | 3Q 2009 | 2Q 2009 | 3Q 2008 | |||||||||||||||||||
Citicorp | |||||||||||||||||||||||||||
Total | $ | 124.3 | $ | 1,909 | $ | 2,218 | $ | 1,634 | $ | 120.5 | $ | 1,426 | $ | 1,392 | $ | 1,096 | |||||||||||
Ratio | 1.54 | % | 1.89 | % | 1.29 | % | 4.70 | % | 4.78 | % | 3.35 | % | |||||||||||||||
Retail Bank | |||||||||||||||||||||||||||
Total | 80.0 | 749 | 831 | 616 | 77.7 | 379 | 414 | 317 | |||||||||||||||||||
Ratio | 0.94 | % | 1.10 | % | 0.77 | % | 1.93 | % | 2.22 | % | 1.51 | % | |||||||||||||||
North America | 7.5 | 93 | 97 | 54 | 7.4 | 79 | 86 | 35 | |||||||||||||||||||
Ratio | 1.24 | % | 1.35 | % | 1.10 | % | 4.23 | % | 4.85 | % | 3.03 | % | |||||||||||||||
EMEA | 5.7 | 62 | 70 | 35 | 5.7 | 84 | 74 | 36 | |||||||||||||||||||
Ratio | 1.09 | % | 1.23 | % | 0.48 | % | 5.84 | % | 5.34 | % | 1.99 | % | |||||||||||||||
Latin America | 17.7 | 324 | 360 | 323 | 16.9 | 113 | 140 | 147 | |||||||||||||||||||
Ratio | 1.83 | % | 2.18 | % | 1.89 | % | 2.65 | % | 3.43 | % | 3.29 | % | |||||||||||||||
Asia | 49.1 | 270 | 304 | 204 | 47.7 | 103 | 114 | 99 | |||||||||||||||||||
Ratio | 0.55 | % | 0.66 | % | 0.40 | % | 0.85 | % | 0.99 | % | 0.73 | % | |||||||||||||||
Citi-Branded Cards(3) | |||||||||||||||||||||||||||
Total | 44.3 | 1,160 | 1,387 | 1,018 | 42.8 | 1,047 | 978 | 779 | |||||||||||||||||||
Ratio | 2.61 | % | 3.29 | % | 2.20 | % | 9.71 | % | 9.32 | % | 6.58 | % | |||||||||||||||
North America(4) | 12.4 | 241 | 248 | 118 | 11.3 | 201 | 219 | 109 | |||||||||||||||||||
Ratio | 1.94 | % | 2.21 | % | 0.94 | % | 7.06 | % | 7.51 | % | 3.67 | % | |||||||||||||||
EMEA | 3.0 | 85 | 94 | 35 | 3.0 | 55 | 47 | 19 | |||||||||||||||||||
Ratio | 2.83 | % | 3.35 | % | 1.12 | % | 7.43 | % | 6.70 | % | 2.45 | % | |||||||||||||||
Latin America | 11.9 | 519 | 695 | 603 | 11.9 | 543 | 472 | 493 | |||||||||||||||||||
Ratio | 4.36 | % | 5.89 | % | 4.31 | % | 18.05 | % | 16.22 | % | 13.16 | % | |||||||||||||||
Asia | 17.0 | 315 | 350 | 262 | 16.6 | 248 | 240 | 158 | |||||||||||||||||||
Ratio | 1.85 | % | 2.15 | % | 1.57 | % | 5.93 | % | 6.00 | % | 3.63 | % | |||||||||||||||
Citi Holdings—Local Consumer Lending | |||||||||||||||||||||||||||
Total | 310.8 | 18,538 | 16,486 | 11,294 | 319.6 | 4,929 | 5,156 | 3,487 | |||||||||||||||||||
Ratio | 5.96 | % | 5.10 | % | 3.13 | % | 6.12 | % | 6.25 | % | 3.83 | % | |||||||||||||||
International | 37.3 | 1,447 | 1,535 | 1,033 | 39.5 | 973 | 976 | 737 | |||||||||||||||||||
Ratio | 3.88 | % | 3.81 | % | 2.21 | % | 9.77 | % | 9.69 | % | 6.02 | % | |||||||||||||||
North America Retail Partners Cards(3)(4) | 21.7 | 885 | 917 | 810 | 23.7 | 867 | 872 | 646 | |||||||||||||||||||
Ratio | 4.08 | % | 4.06 | % | 2.73 | % | 14.51 | % | 14.82 | % | 8.80 | % | |||||||||||||||
North America (excluding Cards) | 251.8 | 16,206 | 14,034 | 9,451 | 256.4 | 3,089 | 3,308 | 2,104 | |||||||||||||||||||
Ratio | 6.44 | % | 5.39 | % | 3.33 | % | 4.78 | % | 4.98 | % | 2.94 | % | |||||||||||||||
Total Citigroup (excluding Special Asset Pool) | $ | 435.1 | $ | 20,447 | $ | 18,704 | $ | 12,928 | $ | 440.1 | $ | 6,355 | $ | 6,548 | $ | 4,583 | |||||||||||
Ratio | 4.70 | % | 4.24 | % | 2.66 | % | 5.73 | % | 5.87 | % | 3.70 | % | |||||||||||||||
Consumer Loan Modification Programs
The Company has instituted a variety of programs to assist borrowers with financial difficulties. These programs include modifying the original loan terms, reducing interest rates, extending the remaining loan duration and/or waiving a portion of the remaining principal balance. The Company's programs consist of the U.S. Treasury's Home Affordable Modification Program (HAMP), as well as short-term forbearance and long-term modification programs, summarized below. The short and long-term programs are available to credit card, residential mortgage, personal installment, and auto borrowers both internationally and in the U.S.
HAMP. As of September 30, 2009, $5.7 billion of first mortgages, have been enrolled in HAMP, pending successful completion of a trial period (described below). The HAMP is designed to reduce monthly mortgage payments to a 31% housing debt ratio by lowering the interest rate, extending the term of the loan and forbearing principal of certain eligible borrowers who have defaulted on their mortgages or who are at risk of imminent default due to economic hardship. In order to be entitled to loan modifications, borrowers must complete a three- to five-month trial period, make the agreed payments and provide the required documentation before the end of the trial period. During the trial period, the original terms of the loans remain in effect pending final modification.
Short-Term Programs. Citigroup has also instituted programs to assist borrowers experiencing temporary hardships. These programs include short-term (twelve months or less) interest rate reductions and deferrals of past due payments. The loan volume under these short-term programs has increased significantly during 2009. As of September 30, 2009, short-term interest rate reduction programs covered loans in the residential mortgage ($7.4 billion), personal installment ($0.9 billion), credit card ($0.9 billion) and auto ($0.5 billion) businesses. Payment deferrals primarily occur in the U.S. residential mortgage business. Appropriate loan loss reserves have been established, giving consideration to the higher risk associated with those borrowers.
Long-Term Programs. Long-term modification programs, or "Troubled Debt Restructurings" (TDRs), occur when the terms of a loan have been modified due to the borrowers' financial difficulties and a long-term concession has been granted to the borrower. TDRs totaled $13.6 billion as of September 30, 2009. TDRs can be applied to credit card, residential mortgage, personal installment and auto loans. Valuation allowances for TDRs are determined by comparing estimated cash flows of the loans discounted at the loans' original contractual interest rates to the carrying value of the loans.
U.S. Consumer Mortgage Lending
Overview
The Company's U.S. consumer mortgage portfolio consists of both first lien and second lien mortgages, managed primarily by Local Consumer Lending (LCL) within Citi Holdings. However, $0.5 billion of first lien mortgages and $1.7 billion of second lien mortgages are reported in Citicorp. As of September 30, 2009, the U.S. first lien mortgage portfolio totaled approximately $122 billion while the U.S. second lien mortgage portfolio was approximately $53 billion.
Data appearing throughout this report, including in the tables below, have been sourced from the Company's risk systems and, as such, may not reconcile with Citi's disclosures elsewhere generally due to differences in methodology and/or inconsistencies or variations in the manner in which information is captured. In addition, while the Company's risk management function continually reviews and refines its data capture and processing systems, certain Fair Isaac Corporation (FICO) and loan-to-value (LTV) data on the Company's mortgage portfolio is not available. The Company has noted such variations or inabilities to capture data, as applicable, below where material.
It is generally the Company's credit risk policy not to offer option ARMs/negative amortizing mortgage products to its customers. Option ARMs/negative amortizing mortgages represent a very insignificant portion of total balances that were acquired only incidentally as part of prior portfolio and business purchases.
A portion of loans in the Company's U.S. mortgage portfolio currently requires a payment to satisfy only the current accrued interest for the payment period or an interest-only payment. The Company's mortgage portfolio includes approximately $30 billion of first and second lien home equity lines of credit (HELOCs) with the interest-only payment feature that are still within their revolving period and have not commenced amortization. The interest-only payment feature during the revolving period is standard for the HELOC product across the industry. The first mortgage portfolio also contains approximately $35 billion of mostly adjustable rate mortgages (ARMs) that are currently required to make an interest-only payment. These loans will be required to make a fully amortizing payment upon expiration of their interest-only payment period, and most will do so within a few years of origination. Borrowers that are currently required to make an interest only payment cannot select a lower payment that will negatively amortize the loan. First mortgage loans with the interest-only payment feature are primarily to high credit quality borrowers that have on average significantly higher refreshed FICO scores than other loans in the first mortgage portfolio.
Loan Balances
First Mortgages—Loan Balances. Approximately 83% of the Company's first lien mortgage portfolio had FICO credit scores of at least 620 at origination. As a consequence of the difficult economic environment and the decrease in housing prices, LTV ratios and FICO scores have deteriorated since originations, as depicted in the tables below. On a refreshed basis, approximately 31% of first lien mortgages had a FICO score below 620, compared to approximately 17% at origination.
Balances: September 30, 2009—First Lien Mortgages
At Origination | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 57 | % | 5 | % | 6 | % | ||||
80% < LTV < 90% | 3 | % | 2 | % | 4 | % | ||||
LTV³ 90% | 10 | % | 6 | % | 7 | % | ||||
Refreshed | FICO³660 | 620£FICO<660 | FICO£620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 29 | % | 4 | % | 11 | % | ||||
80% < LTV < 90% | 8 | % | 1 | % | 4 | % | ||||
LTV³ 90% | 23 | % | 4 | % | 16 | % | ||||
Note: First lien mortgage table excludes loans in Canada, Puerto Rico and loans sold with recourse. Balances exclude deferred fees/costs. Refreshed FICO scores based on updated credit scores obtained from Fair Isaac Corporation. Refreshed LTV ratios are derived from data at origination updated using mainly the Case-Shiller Home Price Index or the Federal Housing Finance Agency Price Index. Tables exclude $3.1 billion from At Origination balances and $2.6 billion from Refreshed balances for which FICO or LTV data was unavailable. The 90 or more days past due (90+DPD) delinquency rate for mortgages with unavailable FICO or LTV is 13.9% At Origination and 10.2% from Refreshed vs. 10.2% for total portfolio. Excluding government-insured loans, loans subject to long-term standby commitments and PMI loans described below, the 90+DPD delinquency rate for the first lien mortgage portfolio as of September 30, 2009 is 9.0%.
The Company's first lien mortgage portfolio includes $4.8 billion of loans with Federal Housing Administration or Veterans Administration guarantees. These portfolios consist of loans originated to low-to-moderate-income borrowers with lower FICO scores and generally have higher LTVs. These loans have high delinquency rates (approximately 37% 90+DPD) but, given the guarantees, the Company has experienced negligible credit losses on these loans. The first lien mortgage portfolio also includes $2.4 billion of loans with LTVs above 80%, which have insurance through private mortgage insurance (PMI) companies, and $4.2 billion of loans subject to Long-Term Standby Commitments(1) with Government Sponsored Enterprises (GSE), for which the Company has limited exposure to credit losses.
Second Mortgages—Loan Balances. In the second lien mortgage portfolio, the majority of loans are in the higher FICO categories. However, the challenging economic conditions have created a migration towards lower FICO scores and higher LTV ratios. Approximately 61% of that portfolio had refreshed LTV ratios of 90% or more, compared to about 36% at origination. However, many of the loans in the portfolio are HELOC's, where the LTV ratio is calculated as if the line were fully drawn. As a majority of lines are only partially drawn, current LTVs on a drawn basis will be lower.
Balances: September 30, 2009—Second Lien Mortgages
At Origination | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 48 | % | 2 | % | 2 | % | ||||
80% < LTV < 90% | 10 | % | 1 | % | 1 | % | ||||
LTV³ 90% | 33 | % | 2 | % | 1 | % | ||||
Refreshed | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 22 | % | 2 | % | 3 | % | ||||
80% < LTV < 90% | 9 | % | 1 | % | 2 | % | ||||
LTV³ 90% | 44 | % | 5 | % | 12 | % | ||||
Note: Second lien mortgage table excludes loans in Canada and Puerto Rico. Refreshed FICO scores based on updated credit scores obtained from Fair Isaac Corporation. Refreshed LTV ratios are derived from data at origination updated using mainly the Case-Shiller Home Price Index or the Federal Housing Finance Agency Price Index. Tables exclude $1.8 billion from At Origination balances and $1.6 billion from Refreshed balances for which FICO or LTV data was unavailable. As of September 30, 2009, the 90+ DPD delinquency rate for mortgages with unavailable FICO or LTV is 3.8% At Origination and 7.1% from Refreshed vs. 3.1% for total portfolio.
The second lien mortgage portfolio includes $1.8 billion of loans subject to LTSC with one of the GSE, hence limiting the Company's exposure to credit losses.
Delinquencies and Net Credit Losses
The tables below provide delinquency statistics for loans 90+DPD, as a percentage of outstandings in each of the FICO/LTV combinations, in both the first lien and second lien mortgage portfolios. For example, loans with FICO³ 660 and LTV£ 80% at origination have a 90+DPD rate of 6.6%.
As evidenced by the tables below, loans with FICO scores of less than 620 exhibit significantly higher delinquencies than in any other FICO band. Similarly, loans with LTVs equal to or greater than 90% have higher delinquencies than LTVs of less than 90%.
In addition, the first mortgage delinquencies continued to rise during the third quarter. Further breakout of the FICO below 620 segment indicates that delinquencies in this segment, on a refreshed basis, are about three times higher than in the overall first mortgage portfolio.
Delinquencies: 90+DPD Rates—First Lien Mortgages
At Origination | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 6.6 | % | 11.3 | % | 13.5 | % | ||||
80%> < LTV < 90% | 7.9 | % | 14.3 | % | 17.8 | % | ||||
LTV³ 90% | 10.1 | % | 17.6 | % | 24.7 | % | ||||
Refreshed | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 0.2 | % | 3.4 | % | 17.8 | % | ||||
80%£ LTV < 90% | 0.5 | % | 5.9 | % | 24.7 | % | ||||
LTV³ 90% | 1.7 | % | 13.7 | % | 36.3 | % | ||||
Note: 90+DPD are based on balances referenced in the tables above.
Delinquencies: 90+DPD Rates—Second Lien Mortgages
At Origination | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 1.5 | % | 4.0 | % | 5.1 | % | ||||
80% < LTV < 90% | 3.3 | % | 5.0 | % | 5.8 | % | ||||
LTV³ 90% | 4.7 | % | 5.6 | % | 7.6 | % | ||||
Refreshed | FICO³660 | 620£FICO<660 | FICO<620 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
LTV£ 80% | 0.0 | % | 0.9 | % | 8.3 | % | ||||
80% < LTV < 90% | 0.0 | % | 0.7 | % | 8.5 | % | ||||
LTV³ 90% | 0.3 | % | 3.6 | % | 18.1 | % | ||||
Note: 90+DPD are based on balances referenced in the tables above.
The following charts detail the quarterly trends in delinquencies and net credit losses for the Company's first and second N.A. consumer mortgage portfolios.
Both losses and delinquencies for the first mortgage portfolio have been impacted by the HAMP. As set forth in the first chart, first mortgage delinquencies continued to increase in the third quarter of 2009, exacerbated in part by the reduction in loan balances. However, the continued increase in first mortgage delinquencies during the third quarter 2009 is largely explained by the impact of HAMP. As mentioned elsewhere in this report, loans in the HAMP trial modification period are reported as delinquent if the original contractual payments are not received on time (even if the reduced payments agreed to under the program are made by the borrower).
Further, HAMP impacted Citi's net credit losses in the first mortgage portfolio during the third quarter of 2009 as
loans in the trial period are not charged off at 180 DPD as long as they have made at least one payment. Nearly half of the sequential decline in net credit losses on first mortgages during the third quarter 2009 was attributable to HAMP. The Company has increased its loan loss provisions to offset this impact.
Based on these trends described above, the Company believes that the success rate of HAMP will be a key factor influencing net credit losses from delinquent first mortgage loans in the near future, and the outcome of the program will largely depend on the success rates of borrowers completing the trial period and meeting the documentation requirements.
By contrast, during the third quarter of 2009, second mortgage delinquencies began to moderate, as did net credit losses, as compared to the prior quarter. The Company continues to actively manage this exposure by reducing the riskiest accounts, including by tightening credit requirements through higher FICOs, lower LTVs, increased documentation and verifications.
It should be noted that first mortgage net credit losses, as a percentage of average loans, are nearly half the level of those in the second mortgage portfolio, despite much higher delinquencies in the first mortgage portfolio. The Company believes that two major factors explain this relationship:
Note: Includes loans for Canada, Puerto Rico and loans held for sale. Balances include deferred fees/costs.
Note: Includes loans for Canada and Puerto Rico.
Origination Channel, Geographic Distribution and Origination Vintage
The following tables detail the Company's first and second U.S. Consumer mortgage portfolios by origination channels, geographic distribution and origination vintage.
By Origination Channel
The Company's U.S. consumer mortgage portfolio has been originated from three main channels: retail, broker and correspondent.
First Lien Mortgages: September 30, 2009
| CHANNEL ($ in billions) | First Lien Mortgages | Channel % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Retail | $ | 50.5 | 41.5 | % | 4.4 | % | $ | 14.6 | $ | 16.4 | ||||||
Broker | $ | 21.0 | 17.3 | % | 10.5 | % | $ | 4.2 | $ | 10.0 | ||||||
Correspondent | $ | 50.2 | 41.2 | % | 15.9 | % | $ | 18.6 | $ | 26.0 | ||||||
Note: First lien mortgage table excludes Canada and Puerto Rico, deferred fees/costs and loans sold with recourse.
As of September 30, 2009, approximately 41% of the first lien mortgage portfolio was originated through the correspondent channel, a reduction from approximately 43% as of the end of 2008. Given that loans originated through correspondents have exhibited higher 90+DPD delinquency rates than retail originated mortgages, the Company terminated business with a number of correspondent sellers in 2007 and 2008. During 2008, the Company severed relationships with a number of brokers, only maintaining those who have produced strong, high-quality and profitable volume.
Second Lien Mortgages: September 30, 2009
| CHANNEL ($ in billions) | Second Lien Mortgages | Channel % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Retail | $ | 27.0 | 50.8 | % | 1.6 | % | $ | 3.9 | $ | 12.4 | ||||||
Broker | $ | 13.2 | 24.9 | % | 4.0 | % | $ | 2.2 | $ | 9.9 | ||||||
Correspondent | $ | 12.9 | 24.3 | % | 5.2 | % | $ | 3.1 | $ | 9.5 | ||||||
Note: Excludes Canada and Puerto Rico.
For second lien mortgages, approximately 49% of the loans were originated through third-party channels. As these mortgages have demonstrated a higher incidence of delinquencies, the Company no longer originates second mortgages through third-party channels, which represented approximately 54% of the portfolio as of the end of 2008.
By State
Approximately half of the Company's U.S. consumer mortgage portfolio is located in five states: California, New York, Florida, Texas and Illinois. Those states represent 49% of first lien mortgages and 54% of second lien mortgages.
Florida and Illinois have above average 90+DPD delinquency rates. Florida has 39% of its first mortgage lien portfolio in the FICO<620 band; and 66% of its loan portfolio has refreshed LTV³90. Illinois has 33% of its loans in the FICO<620 band; and 54% of its loan portfolio has LTV³90. Texas, despite having 44% of its portfolio with FICO<620, has a lower delinquency rate relative to the overall portfolio. Texas has only 8% of its loan portfolio with refreshed LTV³90.
First Lien Mortgages: September 30, 2009
| STATES ($ in billions) | First Lien Mortgages | State % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
California | $ | 32.3 | 26.6 | % | 9.0 | % | $ | 5.2 | $ | 18.3 | ||||||
New York | $ | 10.0 | 8.2 | % | 6.8 | % | $ | 2.0 | $ | 1.7 | ||||||
Florida | $ | 7.3 | 6.0 | % | 16.8 | % | $ | 2.8 | $ | 4.8 | ||||||
Texas | $ | 5.3 | 4.3 | % | 8.7 | % | $ | 2.3 | $ | 0.4 | ||||||
Illinois | $ | 5.2 | 4.3 | % | 11.4 | % | $ | 1.7 | $ | 2.8 | ||||||
Others | $ | 61.7 | 50.7 | % | 10.6 | % | $ | 23.4 | $ | 24.3 | ||||||
Note: First lien mortgage table excludes Canada and Puerto Rico, deferred fees/costs and loans sold with recourse.
In the second lien mortgage portfolio, Florida continues to experience above-average delinquencies, with approximately 81% of their loans with LTV³ 90 compared to 60% overall for second lien mortgages.
Second Lien Mortgages: September 30, 2009
| STATES ($ in billions) | Second Lien Mortgages | State % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
California | $ | 14.6 | 27.4 | % | 3.8 | % | $ | 2.0 | $ | 10.4 | ||||||
New York | $ | 6.9 | 12.9 | % | 1.9 | % | $ | 0.8 | $ | 2.2 | ||||||
Florida | $ | 3.6 | 6.8 | % | 5.2 | % | $ | 0.8 | $ | 2.9 | ||||||
Illinois | $ | 2.1 | 3.9 | % | 3.0 | % | $ | 0.4 | $ | 1.5 | ||||||
Texas | $ | 1.5 | 2.8 | % | 1.2 | % | $ | 0.2 | $ | 0.2 | ||||||
Others | $ | 24.5 | 46.1 | % | 2.8 | % | $ | 5.0 | $ | 14.5 | ||||||
Note: Excludes Canada and Puerto Rico.
By Vintage
For the Company's combined U.S. consumer mortgage portfolio (first and second lien mortgages), approximately half of the portfolio consists of 2006 and 2007 vintages, which demonstrate above average delinquencies. In first mortgages, approximately 43% of the portfolio is of 2006 and 2007 vintages, which have 90+DPD rates well above the overall portfolio rate. In second mortgages, 64% of the portfolio is of 2006 and 2007 vintages, which again have higher delinquencies compared to the overall portfolio rate.
First Lien Mortgages: September 30, 2009
| VINTAGES ($ in billions) | First Lien Mortgages | Vintage % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2009 | $ | 4.1 | 3.3 | % | 0.3 | % | $ | 0.6 | $ | 0.9 | ||||||
2008 | $ | 15.1 | 12.4 | % | 5.2 | % | $ | 3.3 | $ | 5.5 | ||||||
2007 | $ | 30.0 | 24.6 | % | 15.8 | % | $ | 11.5 | $ | 18.7 | ||||||
2006 | $ | 22.2 | 18.2 | % | 13.7 | % | $ | 7.6 | $ | 13.3 | ||||||
2005 | $ | 20.8 | 17.1 | % | 7.5 | % | $ | 5.0 | $ | 9.6 | ||||||
£ 2004 | $ | 29.5 | 24.3 | % | 7.7 | % | $ | 9.5 | $ | 4.5 | ||||||
Note: First lien mortgage table excludes Canada and Puerto Rico, deferred fees/costs and loans sold with recourse.
Second Lien Mortgages: September 30, 2009
| VINTAGES ($ in billions) | Second Lien Mortgages | Vintage % Total | 90+DPD % | *FICO < 620 | *LTV³ 90 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2009 | $ | 0.5 | 0.9 | % | 0.6 | % | $ | 0.0 | $ | 0.0 | ||||||
2008 | $ | 4.4 | 8.3 | % | 0.9 | % | $ | 0.5 | $ | 1.5 | ||||||
2007 | $ | 16.0 | 30.0 | % | 3.5 | % | $ | 3.0 | $ | 10.4 | ||||||
2006 | $ | 17.8 | 33.6 | % | 3.8 | % | $ | 3.4 | $ | 12.9 | ||||||
2005 | $ | 10.1 | 18.9 | % | 2.7 | % | $ | 1.5 | $ | 6.2 | ||||||
£ 2004 | $ | 4.4 | 8.3 | % | 1.7 | % | $ | 0.7 | $ | 0.9 | ||||||
Note: Excludes Canada and Puerto Rico.
The Company's N.A. cards portfolio consists of its Citi-branded and retail partner cards portfolios located in Citicorp and Citi Holdings—Local Consumer Lending, respectively. As of September 30, 2009, the U.S. Citi-branded portfolio totaled approximately $84 billion while the U.S. retail partner cards portfolio was approximately $57 billion, both reported on a managed basis.
In the Company's experience to date, these portfolios have significantly different characteristics:
As set forth in the table below, on a refreshed basis approximately 73% of the Citi-branded portfolio had FICO credit scores of at least 660 as of September 30, 2009, while 62% of the retail partner cards portfolio had scores of at least 660.
Balances: September 30, 2009
| Refreshed | Citi Branded | Retail Partners | |||||
|---|---|---|---|---|---|---|---|
FICO³ 660 | 73 | % | 62 | % | |||
620£FICO<660 | 11 | % | 13 | % | |||
FICO<620 | 16 | % | 25 | % | |||
Note: Based on balances of $138 billion. Balances include interest and fees. Excludes Canada, Puerto Rico, Installment and Classified portfolios. Excludes balances where FICO was unavailable ($0.9 billion for Citi-branded, $2.2 billion for retail partner cards). 90+DPD delinquency rate for balances where FICO was unavailable is 9.83% for Citi-branded and 9.38% for retail partner cards vs. overall rate of 2.63% for Citi-branded and 4.49% for retail partner cards.
In each of the two portfolios, Citi has been actively eliminating riskier accounts and sales to mitigate losses. First, the Company has removed high risk customers from the portfolio by either reducing available lines of credit or closing accounts. End-of-period open accounts are down 16% in branded cards and 13% in retail partner cards versus prior year levels. Second, the Company has improved the tools used to identify and manage exposure in each of the portfolios by targeting unique customer attributes. Loss mitigation programs that entail a reduction in customers' monthly payments obligation constitutes less than 5% of the overall managed portfolio as of September 30, 2009. These programs along with other loss mitigation activities have stabilized reported delinquencies and net credit losses and importantly, early indicators of re-default rates related to these programs are within expected norms.
The table below provides delinquency statistics for loans 90+DPD for both the Citi-branded and retail partner cards portfolios as of September 30, 2009. Given the economic environment, customers have migrated down from higher FICO score ranges, driven by their delinquencies with Citi and/or with other creditors. As these customers roll through the delinquency buckets, they materially damage their credit score and may ultimately go to charge-off. Loans with FICO scores less than 620, which constitute 16% of the Citi-branded portfolio, have a 90+DPD rate of 15.2%; in the retail partner cards portfolio, loans with FICO scores less than 620 constitute 25% of the portfolio and have a 90+DPD rate of 16.8%.
90+DPD Delinquency Rate: September 30, 2009
| Refreshed | Citi Branded 90+DPD% | Retail Partners 90+DPD% | |||||
|---|---|---|---|---|---|---|---|
FICO³ 660 | 0.1 | % | 0.2 | % | |||
620£FICO<660 | 0.3 | % | 0.6 | % | |||
FICO<620 | 15.2 | % | 16.8 | % | |||
Note: Based on balances of $138 billion. Balances include interest and fees. Excludes Canada, Puerto Rico, Installment and Classified portfolios. Loans 90 days or more past due are more likely to be associated with low refreshed FICO scores both because low scores are indicative of repayment risk and because their delinquency has been reported by the Company to the credit bureaus.
The following charts detail the quarterly trends in delinquencies and net credit losses for the Company's N.A. Citi-branded and retail partner cards portfolios.
The Company believes that net credit losses in each of the cards portfolios will continue to remain at elevated levels and will continue to be highly dependent on the external environment and industry changes.
Note: Includes Puerto Rico.
Note: Includes Canada and Puerto Rico.
The Credit Card Accountability Responsibility and Disclosure Act of 2009
On May 22, 2009, The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) was enacted into law. The CARD Act will affect various credit card practices of card issuers, including Citigroup, such as marketing, underwriting, pricing, billing and disclosure requirements, thus reshaping the way consumers have access to and use their credit cards. Currently, many of the provisions in the CARD Act are to take effect in February 2010, although some provisions were effective in August 2009 and some will take effect in August 2010. However, legislation has been introduced in Congress to accelerate certain provisions of the CARD Act.
Certain provisions of the CARD Act are consistent with Citigroup's existing practices and will not require any changes or modifications. Other provisions, however, such as those that restrict the ability of an issuer to increase APRs on outstanding balances or that establish standards for penalty fees and payment allocation, will require Citigroup to make fundamental changes to its credit card business model. The impact of the CARD Act on Citigroup's credit businesses is not fully known at this time. The final impact will ultimately depend upon the successful implementation of changes to Citigroup's business model and the continued regulatory actions on and interpretations of the CARD Act, among other considerations.
U.S. Installment and Other Revolving Loans
In the table below, the Company's U.S. Installment portfolio consists of consumer loans in the following businesses: Consumer Finance, Retail Banking, Auto, Student Lending and Cards. Other Revolving consists of consumer loans (Ready Credit and Checking Plus products) in the Consumer Retail Banking business. Commercial-related loans are not included.
As of September 30, 2009, the U.S. Installment portfolio totaled approximately $58 billion, while the U.S. Other Revolving portfolio was approximately $1 billion. While substantially all of the U.S. Installment portfolio is managed under LCL within Citi Holdings, it does include $0.4 billion of Consumer Retail Banking loans which are reported in Citicorp. The U.S. Other Revolving portfolio is managed under Citicorp. The U.S. Installment portfolio includes $21 billion of student loans originated under the Federal Family Education Loan Program where losses are substantially mitigated by federal guarantees if the loans are properly serviced.
Approximately 44% of the Installment portfolio had FICO credit scores less than 620 on a refreshed basis. The Company continues to execute its strategy to wind down the assets in Citi Holdings. Approximately 29% of the Other Revolving portfolio is composed of loans having FICO less than 620.
Balances: September 30, 2009
Refreshed | Installment | Other Revolving | |||||
|---|---|---|---|---|---|---|---|
FICO³ 660 | 41 | % | 56 | % | |||
620£FICO<660 | 15 | % | 15 | % | |||
FICO<620 | 44 | % | 29 | % | |||
Note: Based on balances of $56 billion for Installment and $0.9 billion for Other Revolving. Excludes Canada and Puerto Rico. Excludes balances where FICO was unavailable ($2.3 billion for Installment, $0.1 billion for Other Revolving). 90+ DPD delinquency rate for balances where FICO was unavailable is 3.55% for Installment and 6.34% for Other Revolving vs. overall rate of 2.84% for Installment and 3.12% for Other Revolving.
The table below provides delinquency statistics for loans 90+DPD for both the Installment and Other Revolving portfolios. On a refreshed basis, loans with FICO scores of less than 620 exhibit significantly higher delinquencies than in any other FICO band and will drive the majority of the losses.
90+DPD Delinquency Rate: September 30, 2009
Refreshed | Installment 90+DPD% | Other Revolving 90+DPD% | |||||
|---|---|---|---|---|---|---|---|
FICO³ 660 | 0.1 | % | 0.0 | % | |||
620£FICO<660 | 0.3 | % | 0.4 | % | |||
FICO<620 | 6.2 | % | 9.2 | % | |||
Note: Based on balances of $56 billion for Installment and $0.9 billion for Other Revolving. Excludes Canada and Puerto Rico. Loans 90 days or more past due are more likely to be associated with low refreshed FICO scores both because low scores are indicative of repayment risk and because their delinquency has been reported by the Company to the credit bureaus.
For corporate clients and investment banking activities across Citigroup, the credit process is grounded in a series of fundamental policies, including:
Corporate Credit Portfolio
The following table presents credit data for the Company's corporate loans and unfunded lending commitments at September 30, 2009:
| | At September 30, 2009 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate Loans(1)(in millions of dollars) | Recorded Investment in Loans(2) | % of Total(3) | Unfunded Lending Commitments | % of Total(3) | |||||||||||
Investment grade(4) | $ | 96,689 | 57 | % | $ | 275,556 | 88 | % | |||||||
Non-investment grade(4) | |||||||||||||||
Noncriticized | 21,010 | 12 | 14,268 | 5 | |||||||||||
Criticized performing(5) | 36,803 | 22 | 20,384 | 6 | |||||||||||
Commercial real estate (CRE) | 6,170 | 4 | 1,786 | 0 | |||||||||||
Commercial & Industrial | 30,633 | 18 | 18,598 | 6 | |||||||||||
Criticized non-performing(5) | 14,776 | 9 | 3,246 | 1 | |||||||||||
Commercial real estate (CRE) | 3,783 | 3 | 913 | 0 | |||||||||||
Commercial & Industrial | 10,993 | 6 | 2,333 | 1 | |||||||||||
Total non-investment grade | $ | 72,589 | 43 | % | $ | 37,898 | 12 | % | |||||||
Private Banking loans managed on a delinquency basis(4)(6) | 14,565 | 2,275 | |||||||||||||
Loans at fair value | 1,475 | — | |||||||||||||
Total Corporate Loans | $ | 185,318 | $ | 315,754 | |||||||||||
Unearned income | (4,598 | ) | — | ||||||||||||
Corporate Loans, net of unearned income | $ | 180,720 | $ | 315,754 | |||||||||||
The following tables represent the corporate credit portfolio (excluding Private Banking), before consideration of collateral, by maturity at September 30, 2009. The corporate portfolio is broken out by direct outstandings which include drawn loans, overdrafts, interbank placements, bankers' acceptances, certain investment securities and leases and unfunded commitments which include unused commitments to lend, letters of credit and financial guarantees.
| | At September 30, 2009 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Due within 1 year | Greater than 1 year but within 5 years | Greater than 5 years | Total exposure | |||||||||
Direct outstandings | $ | 158 | $ | 88 | $ | 8 | $ | 254 | |||||
Unfunded lending commitments | 182 | 126 | 9 | 317 | |||||||||
Total | $ | 340 | $ | 214 | $ | 17 | $ | 571 | |||||
| | At December 31, 2008 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Due within 1 year | Greater than 1 year but within 5 years | Greater than 5 years | Total exposure | |||||||||
Direct outstandings | $ | 161 | $ | 100 | $ | 9 | $ | 270 | |||||
Unfunded lending commitments | 206 | 141 | 12 | 359 | |||||||||
Total | $ | 367 | $ | 241 | $ | 21 | $ | 629 | |||||
Portfolio Mix
The corporate credit portfolio (excluding Private Banking) is diverse across counterparty, industry and geography. The following table shows direct outstandings and unfunded commitments by region:
| | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
North America | 46 | % | 48 | % | |||
EMEA | 32 | 31 | |||||
Latin America | 9 | 8 | |||||
Asia | 13 | 13 | |||||
Total | 100 | % | 100 | % | |||
The maintenance of accurate and consistent risk ratings across the corporate credit portfolio facilitates the comparison of credit exposure across all lines of business, geographic regions and products.
Obligor risk ratings reflect an estimated probability of default for an obligor and are derived primarily through the use of statistical models (which are validated periodically), external rating agencies (under defined circumstances) or approved scoring methodologies. Facility risk ratings are assigned, using the obligor risk rating, and then factors that affect the loss-given default of the facility, such as support or collateral, are taken into account.
Internal obligor ratings equivalent to BBB and above are considered investment grade. Ratings below the equivalent of the BBB category are considered non-investment grade.
The following table presents the corporate credit portfolio (excluding Private Banking) by facility risk rating at September 30, 2009 and December 31, 2008, as a percentage of the total portfolio:
| | Direct outstandings and unfunded commitments | ||||||
|---|---|---|---|---|---|---|---|
| | September 30, 2009 | December 31, 2008 | |||||
AAA/AA/A | 54 | % | 57 | % | |||
BBB | 25 | 24 | |||||
BB/B | 13 | 13 | |||||
CCC or below | 8 | 6 | |||||
Unrated | — | — | |||||
Total | 100 | % | 100 | % | |||
The corporate credit portfolio (excluding Private Banking) is diversified by industry, with a concentration only in the financial sector, including banks, other financial institutions, insurance companies, investment banks and government and central banks. The following table shows the allocation of direct outstandings and unfunded commitments to industries as a percentage of the total corporate portfolio:
| | Direct outstandings and unfunded commitments | ||||||
|---|---|---|---|---|---|---|---|
| | September 30, 2009 | December 31, 2008 | |||||
Government and central banks | 14 | % | 12 | % | |||
Investment banks | 6 | 7 | |||||
Banks | 10 | 7 | |||||
Other financial institutions | 5 | 5 | |||||
Utilities | 5 | 5 | |||||
Insurance | 4 | 4 | |||||
Petroleum | 5 | 4 | |||||
Agriculture and food preparation | 5 | 4 | |||||
Telephone and cable | 3 | 3 | |||||
Industrial machinery and equipment | 3 | 3 | |||||
Global information technology | 2 | 3 | |||||
Chemicals | 3 | 3 | |||||
Other industries(1) | 35 | 40 | |||||
Total | 100 | % | 100 | % | |||
Credit Risk Mitigation
As part of its overall risk management activities, the Company uses credit derivatives and other risk mitigants to hedge portions of the credit risk in its portfolio, in addition to outright asset sales. The purpose of these transactions is to transfer credit risk to third parties. The results of the mark-to-market and any realized gains or losses on credit derivatives are reflected in thePrincipal transactions line on the Consolidated Statement of Income.
At September 30, 2009 and December 31, 2008, $66.3 billion and $95.5 billion, respectively, of credit risk exposure were economically hedged. Citigroup's expected loss model used in the calculation of its loan loss reserve does not include the favorable impact of credit derivatives and other risk mitigants. In addition, the reported amounts of direct outstandings and unfunded commitments in this report do not reflect the impact of these hedging transactions. At September 30, 2009 and December 31, 2008, the credit protection was economically hedging underlying credit exposure with the following risk rating distribution, respectively:
Rating of Hedged Exposure
| | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
AAA/AA/A | 45 | % | 54 | % | |||
BBB | 37 | 32 | |||||
BB/B | 11 | 9 | |||||
CCC or below | 7 | 5 | |||||
Total | 100 | % | 100 | % | |||
At September 30, 2009 and December 31, 2008, the credit protection was economically hedging underlying credit exposure with the following industry distribution, respectively:
Industry of Hedged Exposure
| | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Utilities | 9 | % | 10 | % | |||
Telephone and cable | 8 | 9 | |||||
Agriculture and food preparation | 7 | 7 | |||||
Petroleum | 6 | 7 | |||||
Industrial machinery and equipment | 6 | 6 | |||||
Insurance | 4 | 5 | |||||
Chemicals | 7 | 5 | |||||
Retail | 4 | 5 | |||||
Other financial institutions | 4 | 4 | |||||
Autos | 5 | 4 | |||||
Pharmaceuticals | 5 | 4 | |||||
Natural gas distribution | 4 | 4 | |||||
Global information technology | 3 | 4 | |||||
Metals | 4 | 3 | |||||
Other industries(1) | 24 | 23 | |||||
Total | 100 | % | 100 | % | |||
U.S. Subprime-Related Direct Exposure in Citi Holdings—Special Asset Pool
The following table summarizes Citigroup's U.S. subprime-related direct exposures in Citi Holdings at September 30, 2009 and June 30, 2009:
In billions of dollars | June 30, 2009 exposures | Third Quarter 2009 write-ups (downs)(1) | Third Quarter 2009 Other(2) | September 30, 2009 exposures | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct ABS CDO super senior exposures: | ||||||||||||||
Gross ABS CDO super senior exposures (A) | $ | 14.5 | $ | 15.1 | ||||||||||
Hedged exposures (B) | 6.3 | 6.3 | ||||||||||||
Net ABS CDO super senior exposures: | ||||||||||||||
ABCP/CDO(3) | 7.3 | $ | 1.6 | $ | (1.3 | ) | 7.7 | |||||||
High grade | 0.7 | 0.1 | — | 0.8 | ||||||||||
Mezzanine | 0.2 | 0.2 | (4) | (0.1 | ) | 0.3 | ||||||||
Total net ABS CDO super senior exposures (A-B=C) | $ | 8.3 | $ | 2.0 | $ | (1.5 | )(4) | $ | 8.8 | |||||
Lending and structuring exposures (D) | $ | 1.4 | $ | — | $ | (0.1 | ) | $ | 1.2 | |||||
Total net exposures (C+D)(5)(6) | $ | 9.6 | $ | 2.0 | $ | (1.7 | ) | $ | 10.0 | |||||
Credit adjustment on hedged counterparty exposures (E)(7) | $ | (0.1 | ) | |||||||||||
Total net write-ups (downs) (C+D+E) | $ | 1.9 | ||||||||||||
Note: Table may not foot or cross-foot due to roundings.
Citi Holdings had approximately $10.0 billion in net U.S. subprime-related direct exposures in the Special Asset Pool at September 30, 2009. The exposure consisted of (a) approximately $8.8 billion of net exposures in the super senior tranches (i.e., the most senior tranches) of CDOs, which are collateralized by asset-backed securities, derivatives on asset-backed securities, or both (ABS CDOs), and (b) approximately $1.2 billion of exposures in its lending and structuring business.
The Special Asset Pool 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 ABS CDO Super Senior Exposures
The net $8.8 billion in ABS CDO super senior exposures as of September 30, 2009 is collateralized primarily by subprime RMBS, derivatives on RMBS, or both.
Citi Holdings' 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 positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are trader priced. This results in closer symmetry in the way these long and short positions are valued by the business. Citi Holdings 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 positions is subject to valuation based on significant unobservable inputs. Fair value of these exposures 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. The model is calibrated using available mortgage loan information including historical loan performance. An appropriate discount rate is then applied to the cash flows generated for each ABCP tranche, in order to estimate its fair value under current market conditions.
The valuation as of September 30, 2009 assumes a cumulative decline in U.S. housing prices from peak to trough of 30.5%. This rate assumes declines of 10% in 2009 and flat for 2010, respectively, the remainder of the 30.5% decline having already occurred before the end of 2008.
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. Each 10 basis point change in the discount rate used generally results in an approximate $26 million change in the fair value of the Company's direct ABCP exposures as of September 30, 2009.
Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. For a further discussion of the valuation methodology and assumptions used to value direct ABS CDO super senior exposures to U.S. Subprime Mortgages, see Note 17 to the Consolidated Financial Statements, "Fair Value Measurement."
Lending and Structuring Exposures
The $1.2 billion of subprime-related exposures includes approximately $0.8 billion of actively managed subprime loans purchased for resale or securitization at a discount to par during 2007 and approximately $0.4 billion of financing transactions with customers secured by subprime collateral, and are carried at fair value.
Exposure to Commercial Real Estate
ICG and the Special Asset Pool, through their business activities and as capital markets participants, incur exposures that are directly or indirectly tied to the commercial real estate market. These exposures are represented primarily by the following three categories:
(1) Assets held at fair value include approximately $5.7 billion, of which approximately $4.6 billion are securities, loans and other items linked to CRE that are carried at fair value as trading account assets, and of which approximately $1.0 billion are securities backed by CRE carried at fair value as available-for-sale (AFS) investments. Changes in fair value for these trading account assets are reported in current earnings, while AFS 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-value hierarchy. Weakening 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 $1.8 billion of securities classified as HTM and $22.8 billion of loans and commitments. The HTM securities were classified as such during the fourth quarter of 2008 and were previously classified as either trading or AFS. They are accounted for at amortized cost, subject to other-than-temporary impairment. Loans and commitments are recorded at amortized cost, less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for loan losses and in net credit losses.
(3) Equity and other investments include approximately $4.9 billion of equity and other investments such as limited partner fund investments which are accounted for under the equity method, which recognizes gains or losses based on the investor's share of the net income of the investee.
Citi Holdings has exposure, via the Special Asset Pool, 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. Citi Holdings recorded an additional $61 million in downward CVA related to exposure to Monolines during the third quarter of 2009, bringing the total CVA balance to $5.3 billion.
The following table summarizes the market value of Citi Holdings' 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 September 30, 2009 and June 30, 2009.
| | September 30, 2009 | June 30, 2009 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | $ | 4,495 | $ | 5,295 | $ | 4,525 | $ | 5,328 | |||||
Trading assets—non-subprime: | |||||||||||||
MBIA | $ | 1,898 | $ | 3,871 | $ | 2,123 | $ | 3,868 | |||||
FSA | 74 | 847 | 128 | 1,108 | |||||||||
Assured | 80 | 458 | 126 | 466 | |||||||||
Radian | 8 | 150 | 19 | 150 | |||||||||
Ambac | — | 407 | — | 407 | |||||||||
Subtotal trading assets—non-subprime | $ | 2,061 | $ | 5,733 | $ | 2,396 | $ | 5,999 | |||||
Total gross fair-value direct exposure | $ | 6,556 | $ | 6,921 | |||||||||
Credit valuation adjustment | (5,274 | ) | (5,213 | ) | |||||||||
Total net fair-value direct exposure | $ | 1,282 | $ | 1,708 | |||||||||
The fair-value exposure, net of payable and receivable positions, represents the market value of the contract as of September 30, 2009 and June 30, 2009, respectively, 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 CVA 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 September 30, 2009 and June 30, 2009, Citi Holdings had $6.3 billion in notional amount of hedges against its direct subprime ABS CDO super senior positions. Of those amounts, $5.3 billion was purchased from Monolines and is included in the notional amount of transactions in the table above.
With respect to Citi Holdings' trading assets, there were $2.1 billion and $2.4 billion of fair-value exposure to Monolines as of September 30, 2009 and June 30, 2009, 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 September 30, 2009 was $5.7 billion. Of the $5.7 billion, $5.0 billion was in the form of credit default swaps and total return swaps with a fair value exposure of $2.1 billion. The remaining notional amount comprised $697 million primarily in interest-rate swaps with a corresponding fair value exposure of $9 million net payable.
The notional amount of transactions related to the remaining non-subprime trading assets at June 30, 2009 was $6.0 billion with a corresponding fair value exposure of $2.4 billion. Of the $6.0 billion, $5.0 billion was in the form of credit default swaps and total return swaps with a fair value of $2.4 billion. The remaining notional amount comprised $955 million primarily in interest-rate swaps with a corresponding fair value exposure of $2.1 million net payable.
The Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection was approximately $243 million and $316 million as of September 30, 2009 and June 30, 2009, respectively, 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 table and discussion above do not reflect this type of indirect exposure to the Monolines.
Highly Leveraged Financing Transactions
Highly leveraged financing commitments 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. In recent years through mid-2008, highly leveraged financing had 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 for other types of financing.
Prior to funding, highly leveraged financing commitments are assessed for impairment and losses are recorded when they are probable and reasonably estimable. For the 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 $24 million in the third quarter of 2009, bringing the cumulative write-downs for the first nine months of 2009 to $508 million.
Citigroup's exposures to highly leveraged financing commitments totaled $6.2 billion at September 30, 2009 ($5.9 billion funded and $0.3 billion in unfunded commitments), reflecting a decrease of $2.3 billion from June 30, 2009.
In 2008, the Company completed the transfer of approximately $12.0 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 AFS 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 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 $6.8 billion and fair value of $6.9 billion at September 30, 2009, and the payables under the TRS, which have a fair value of $0.1 billion at September 30, 2009. The change in the value of the retained senior debt securities that are classified as AFS securities are recorded in AOCI as they are deemed temporary. The offsetting change in the TRS are recorded as cash flow hedges within AOCI. See Note 14 to the Consolidated Financial Statements for additional information.
See Note 16 to the Consolidated Financial Statements for a discussion and disclosures related to the Company's Derivative activities. The following discussions relate to the Fair Valuation Adjustment for Derivatives and Credit Derivatives activities.
Fair Valuation Adjustments for Derivatives
The fair value adjustments applied by the Company to its derivative carrying values consist of the following items:
The Company's CVA methodology comprises two steps. First, the exposure profile for each counterparty is determined using the terms of all individual derivative positions and a Monte Carlo simulation or other quantitative analysis to generate a series of expected cash flows at future points in time. The calculation of this exposure profile considers the effect of credit risk mitigants, including pledged cash or other collateral and any legal right of offset that exists with a counterparty through arrangements such as netting agreements. Individual derivative contracts that are subject to an enforceable master netting agreement with a counterparty are aggregated for this purpose, since it is those aggregate net cash flows that are subject to nonperformance risk. This process identifies specific, point in time future cash flows that are subject to nonperformance risk, rather than using the current recognized net asset or liability as a basis to measure the CVA.
Second, market-based views of default probabilities derived from observed credit spreads in the 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. However, most derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually, or if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business.
In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of Citi or its counterparties, or changes in the credit mitigants (collateral and netting agreements) associated with the derivative instruments. Historically, Citigroup's credit spreads have 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 narrowed, each of which positively affected revenues. Conversely, in the second and third quarters of 2009, Citigroup's credit spreads narrowed and negatively affected revenues.
The table below summarizes pretax gains (losses) related to changes in CVAs on derivative instruments for the quarters ended September 30, 2009 and 2008, respectively:
| | Credit valuation adjustment gain (loss) | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Non-monoline counterparties | $ | 855 | $ | (851 | ) | ||
Citigroup (own) | (1,534 | ) | 1,951 | ||||
Net non-monoline CVA | $ | (679 | ) | $ | 1,100 | ||
Monoline counterparties | (61 | ) | (920 | ) | |||
Total CVA—derivative instruments | $ | (740 | ) | $ | 180 | ||
The table below summarizes pretax gains (losses) related to changes in CVAs on derivative instruments for the nine months ended September 30, 2009 and 2008, respectively:
| | Credit valuation adjustment gain (loss) | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Non-monoline counterparties | $ | 5,387 | $ | (2,236 | ) | ||
Citigroup (own) | (1,891 | ) | 3,165 | ||||
Net non-monoline CVA | $ | 3,496 | $ | 929 | |||
Monoline counterparties | (995 | ) | (4,839 | ) | |||
Total CVA—derivative instruments | $ | 2,501 | $ | (3,910 | ) | ||
The table below summarizes the CVA applied to the fair value of derivative instruments as of September 30, 2009 and December 31, 2008, respectively.
| | Credit valuation adjustment Contra liability (contra asset) | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | September 30, 2009 | December 31, 2008 | |||||
Non-monoline counterparties | $ | (2,878 | ) | $ | (8,266 | ) | |
Citigroup (own) | 1,754 | 3,611 | |||||
Net non-monoline CVA | $ | (1,124 | ) | $ | (4,655 | ) | |
Monoline counterparties | (5,274 | ) | (4,279 | ) | |||
Total CVA—derivative instruments | $ | (6,398 | ) | $ | (8,934 | ) | |
The CVA amounts shown above relate solely to the derivative portfolio, and do not include:
Note 17 to the Consolidated Financial Statements for further information.
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 portfolio 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 pre-defined 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 (or comparable events) of the reference credit and, in a more limited range of transactions, debt restructuring.
Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. In certain transactions on a portfolio of referenced credits or asset-backed securities, the seller of protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.
The following tables summarize the key characteristics of the Company's credit derivative portfolio by counterparty and derivative instrument as of September 30, 2009 and December 31, 2008, respectively:
September 30, 2009:
| | Fair values | Notionals | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | |||||||||
By Industry/Counterparty: | |||||||||||||
Bank | $ | 62,785 | $ | 61,679 | $ | 914,418 | $ | 860,437 | |||||
Broker-dealer | 23,425 | 22,323 | 321,199 | 301,216 | |||||||||
Monoline | 6,572 | 1 | 8,299 | — | |||||||||
Non-financial | 181 | 193 | 3,405 | 2,127 | |||||||||
Insurance and other financial institutions | 19,264 | 16,379 | 202,054 | 151,326 | |||||||||
Total by Industry/Counterparty | $ | 112,227 | $ | 100,575 | $ | 1,449,375 | $ | 1,315,106 | |||||
By Instrument: | |||||||||||||
Credit default swaps and options | $ | 107,770 | $ | 99,376 | $ | 1,418,691 | $ | 1,314,282 | |||||
Total return swaps | 4,457 | 1,199 | 30,684 | 824 | |||||||||
Total by Instrument | $ | 112,227 | $ | 100,575 | $ | 1,449,375 | $ | 1,315,106 | |||||
December 31, 2008(1):
| | Fair values | Notionals | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Receivable | Payable | Beneficiary | Guarantor | |||||||||
By Industry/Counterparty: | |||||||||||||
Bank | $ | 128,042 | $ | 121,811 | $ | 996,248 | $ | 943,949 | |||||
Broker-dealer | 59,321 | 56,858 | 403,501 | 365,664 | |||||||||
Monoline | 6,886 | 91 | 9,973 | 139 | |||||||||
Non-financial | 4,874 | 2,561 | 5,608 | 7,540 | |||||||||
Insurance and other financial institutions | 29,228 | 22,388 | 180,354 | 125,988 | |||||||||
Total by Industry/Counterparty | $ | 228,351 | $ | 203,709 | $ | 1,595,684 | $ | 1,443,280 | |||||
By Instrument: | |||||||||||||
Credit default swaps and options | $ | 221,159 | $ | 203,220 | $ | 1,560,222 | $ | 1,441,375 | |||||
Total return swaps | 7,192 | 489 | 35,462 | 1,905 | |||||||||
Total by Instrument | $ | 228,351 | $ | 203,709 | $ | 1,595,684 | $ | 1,443,280 | |||||
The fair 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 as both an active two-way market-maker for clients and to manage credit risk. The majority of this activity was transacted with other financial intermediaries, including both banks and broker-dealers. 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 87% of the gross receivables as of September 30, 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.
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. Liquidity risk is discussed in "Capital Resources and Liquidity" below. 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 100 basis points change, as well as a more gradual 100 basis points (25 basis points per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.
| | September 30, 2009 | June 30, 2009 | September 30, 2008 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (1,193 | ) | $ | 1,427 | $ | (1,767 | ) | $ | 1,935 | $ | (1,811 | ) | $ | 893 | ||||
Gradual change | $ | (563 | ) | $ | 526 | $ | (1,005 | ) | $ | 936 | $ | (707 | ) | $ | 490 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 25 | $ | (25 | ) | $ | (21 | ) | $ | 21 | $ | (23 | ) | $ | 23 | ||||
Gradual change | $ | 11 | $ | (11 | ) | $ | (15 | ) | $ | 15 | $ | (19 | ) | $ | 19 | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | 52 | $ | (4 | ) | $ | (29 | ) | $ | 21 | $ | (52 | ) | $ | 52 | ||||
Gradual change | $ | 12 | $ | (12 | ) | $ | (35 | ) | $ | 35 | $ | (41 | ) | $ | 41 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | 228 | NM | $ | 215 | NM | $ | 142 | NM | ||||||||||
Gradual change | $ | 135 | NM | $ | 122 | NM | $ | 72 | NM | ||||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (11 | ) | $ | 24 | $ | (11 | ) | $ | 11 | $ | 16 | $ | (16 | ) | ||||
Gradual change | $ | (11 | ) | $ | 11 | $ | (14 | ) | $ | 14 | $ | 13 | $ | (13 | ) | ||||
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, 2009 to September 30, 2009 are related to customer-related asset and liability mix, term debt issuance, as well as Citigroup's view of prevailing interest rates.
Certain risk positions in the non-trading portfolio are economically hedged with offsetting positions in the mark-to-market portfolio, which are reflected in the Value at Risk metrics. If the effect of these hedging transactions were netted against the non-trading portfolio it would reduce Citi's risk from an instantaneous parallel increase in rates from ($1,193) million to ($569) million and decrease Citi's opportunity from an instantaneous parallel decrease in rates from $1,427 million to $803 million.
The following table shows the risk to NIR from six different changes in the implied forward rates. Each scenario assumes that the rate change will occur on a gradual basis every three months over the course of one year.
| | Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||
Impact to net interest revenue | $ | 8 | $ | (514 | ) | $ | (1,131 | ) | $ | 62 | $ | 269 | $ | (61 | ) | ||||
Value at Risk
For Citigroup's major trading centers, the aggregate pretax value at risk (VAR) in the trading portfolios was $273 million, $277 million, $319 million and $237 million at September 30, 2009, June 30, 2009, December 31, 2008 and September 30, 2008, respectively. Daily Citigroup trading VAR averaged $281 million and ranged from $247 million to $312 million during the third quarter of 2009. The following table summarizes VAR for Citigroup trading portfolios at September 30, 2009, June 30, 2009, December 31, 2008 and September 30, 2008, including the total VAR, the specific risk only component of VAR, and general market factor VAR's, along with the quarterly averages:
| In million of dollars | September 30, 2009 | Third Quarter 2009 Average | June 30, 2009 | Second Quarter 2009 Average | December 31, 2008 | Fourth Quarter 2008 Average | September 30, 2008 | Third Quarter 2008 Average | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 240 | $ | 237 | $ | 226 | $ | 217 | $ | 320 | $ | 272 | $ | 240 | $ | 265 | |||||||||
Foreign exchange | 98 | 90 | 84 | 61 | 118 | 80 | 40 | 43 | |||||||||||||||||
Equity | 51 | 62 | 65 | 94 | 84 | 94 | 106 | 99 | |||||||||||||||||
Commodity | 41 | 38 | 36 | 38 | 15 | 16 | 20 | 20 | |||||||||||||||||
Diversification benefit | (157 | ) | (146 | ) | (134 | ) | (150 | ) | (218 | ) | (167 | ) | (169 | ) | (187 | ) | |||||||||
Total—All market risk factors, including general and specific risk | $ | 273 | $ | 281 | $ | 277 | $ | 260 | $ | 319 | $ | 295 | $ | 237 | $ | 240 | |||||||||
Specific risk only component | $ | 12 | $ | 17 | $ | 18 | $ | 20 | $ | 8 | 25 | $ | 20 | $ | 14 | ||||||||||
Total—General market factors only | $ | 261 | $ | 264 | $ | 259 | $ | 240 | $ | 311 | $ | 270 | $ | 217 | $ | 226 | |||||||||
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 market factor VARs, inclusive of specific risk, across the quarters ended:
| | September 30, 2009 | June 30, 2009 | December 31, 2008 | September 30, 2008 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Low | High | Low | High | Low | High | Low | High | |||||||||||||||||
Interest rate | $ | 218 | $ | 260 | $ | 193 | $ | 240 | $ | 227 | $ | 328 | $ | 239 | $ | 292 | |||||||||
Foreign exchange | 55 | 110 | 31 | 91 | 43 | 130 | 28 | 71 | |||||||||||||||||
Equity | 51 | 95 | 50 | 153 | 68 | 122 | 80 | 134 | |||||||||||||||||
Commodity | 32 | 45 | 26 | 50 | 12 | 22 | 12 | 46 | |||||||||||||||||
The following table provides the VAR for Citicorp's Securities and Banking business for the second and third quarters of 2009:
| In millions of dollars | September 30, 2009 | June 30, 2009 | |||||
|---|---|---|---|---|---|---|---|
Total—All market risk factors, including general and specific risk | $ | 168 | $ | 213 | |||
Average—during quarter | 184 | 186 | |||||
High—during quarter | 247 | 214 | |||||
Low—during quarter | 148 | 148 | |||||
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems or human factors, or from external events. It includes the reputation and franchise risk associated with business practices or market conduct in which the Company is involved. Operational risk is inherent in Citigroup's global business activities and, as with other risk types, is managed through an overall framework designed to balance strong corporate oversight with well-defined independent risk management. This framework includes:
The goal is to keep operational risk at appropriate levels relative to the characteristics of 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
To monitor, mitigate and control operational risk, Citigroup maintains a system of comprehensive policies and has 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 framework. The process for operational risk management includes the following steps:
The operational risk standards facilitate the effective communication and mitigation of operational risk both within and across businesses. As new products and business activities are developed, processes are designed, modified or sourced through alternative means and operational risks are considered. 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 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, 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) cross-border outstandings exceed 0.75% of total Citigroup assets:
| | 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 | |||||||||||||||||||||
| | September 30, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In Billions of U.S. dollars | |||||||||||||||||||||||||||||||
| Cross-Border Claims on Third Parties | |||||||||||||||||||||||||||||||
| | 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 | |||||||||||||||||||||
Germany | $ | 9.0 | $ | 4.9 | $ | 7.2 | $ | 21.1 | $ | 19.4 | $ | 6.3 | $ | 27.4 | $ | 56.6 | $ | 29.9 | $ | 48.6 | |||||||||||
France | 10.1 | 5.9 | 8.9 | 24.9 | 21.0 | 0.1 | 25.0 | 75.2 | 21.4 | 66.4 | |||||||||||||||||||||
India | 0.9 | 0.2 | 6.9 | 8.0 | 5.0 | 15.0 | 23.0 | 1.6 | 28.0 | 1.6 | |||||||||||||||||||||
Netherlands | 6.3 | 3.3 | 10.5 | 20.1 | 16.2 | — | 20.1 | 73.8 | 17.7 | 67.4 | |||||||||||||||||||||
South Korea | 2.0 | 0.9 | 5.1 | 8.0 | 7.8 | 11.2 | 19.2 | 14.1 | 22.0 | 15.7 | |||||||||||||||||||||
United Kingdom | 6.3 | 0.2 | 9.5 | 16.0 | 13.4 | — | 16.0 | 135.5 | 26.3 | 128.3 | |||||||||||||||||||||
Italy | 0.8 | 8.7 | 3.0 | 12.5 | 10.1 | 3.1 | 15.6 | 21.7 | 14.7 | 20.2 | |||||||||||||||||||||
Cayman Islands | 0.2 | — | 14.2 | 14.4 | 13.3 | — | 14.4 | 6.8 | 22.1 | 8.2 | |||||||||||||||||||||
Canada | 1.3 | 0.5 | 3.5 | 5.3 | 3.6 | 8.0 | 13.3 | 7.4 | 16.1 | 36.1 | |||||||||||||||||||||
INTEREST REVENUE/EXPENSE AND YIELDS
Average Rates—Interest Revenue, Interest Expense, and Net Interest Margin
| In millions of dollars | 3rd Qtr. 2008 | 2nd Qtr. 2008 | 3rd Qtr. 2007 | Change 3Q08 vs. 3Q07 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue(1) | $ | 26,182 | $ | 27,372 | $ | 32,267 | (19 | )% | ||||||
Interest Expense(2) | 12,776 | 13,407 | 20,423 | (37 | ) | |||||||||
Net Interest Revenue(1)(2) | $ | 13,406 | $ | 13,965 | $ | 11,844 | 13 | % | ||||||
Interest Revenue—Average Rate | 6.11 | % | 6.16 | % | 6.38 | % | (27) bps | |||||||
Interest Expense—Average Rate | 3.24 | % | 3.29 | % | 4.42 | % | (118) bps | |||||||
Net Interest Margin (NIM) | 3.13 | % | 3.14 | % | 2.34 | % | 79 bps | |||||||
Interest Rate Benchmarks: | ||||||||||||||
Federal Funds Rate—End of Period | 2.00 | % | 2.00 | % | 4.75 | % | (275) bps | |||||||
2 Year U.S. Treasury Note—Average Rate | 2.36 | % | 2.42 | % | 4.39 | % | (203) bps | |||||||
10 Year U.S. Treasury Note—Average Rate | 3.86 | % | 3.88 | % | 4.74 | % | (88) bps | |||||||
10 Year vs. 2 Year Spread | 150 bps | 146 bps | 35 bps | |||||||||||
| In millions of dollars | 3rd Qtr. 2009 | 2nd Qtr. 2009(1) | 3rd Qtr. 2008(1) | Change 3Q09 vs. 3Q08 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue(2) | $ | 18,678 | $ | 19,671 | $ | 26,130 | (29 | )% | ||||||
Interest Expense(3) | 6,680 | 6,842 | 12,726 | (48 | ) | |||||||||
Net Interest Revenue(2)(3) | $ | 11,998 | $ | 12,829 | $ | 13,404 | (10 | )% | ||||||
Interest Revenue—Average Rate | �� | 4.59 | % | 4.97 | % | 6.14 | % | (155 | ) bps | |||||
Interest Expense—Average Rate | 1.83 | % | 1.93 | % | 3.23 | % | (140 | ) bps | ||||||
Net Interest Margin (NIM) | 2.95 | % | 3.24 | % | 3.15 | % | (20 | ) bps | ||||||
Interest Rate Benchmarks: | ||||||||||||||
Federal Funds Rate—End of Period | 0.00-0.25 | % | 0.00-0.25 | % | 2.00 | % | (175+ | ) bps | ||||||
2 Year U.S. Treasury Note—Average Rate | 1.03 | % | 1.02 | % | 2.36 | % | (133 | ) bps | ||||||
10 Year U.S. Treasury Note—Average Rate | 3.52 | % | 3.32 | % | 3.86 | % | (34 | ) bps | ||||||
10 Year vs. 2 Year Spread | 249 bps | 230 bps | 150 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 isare 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 third quarter of 2008,2009, the yields across both the interest earning assets as well as the interest earning liabilities dropped significantly from the same period in 2008. The lower asset yields more than offset the lower cost of funding offset the lower asset yields,funds, resulting in relatively flat NIM. Bothlower NIM compared to the average assets and liabilities showed decline in yields resulting from a fullprior-year period.
Net interest margin decreased by 29 basis points compared to the second quarter of lower Fed Funds target rate.2009, driven by two principal items. First, the Company experienced a higher cost of borrowings due to debt issuances outside of the government programs (e.g., non-TLGP debt) as well the increased interest paid on the additional trust preferred securities outstanding as a result of the completion of the exchange offers. Second, Citi's business spread compression, generally of two types—narrowing of yields in Citi's asset businesses, due to the continued de-risking of loan portfolios and expansion of loss mitigation efforts, and the natural compression of spreads in the Company's deposit businesses as a result of the continued low interest rate environment.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | 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 | ||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Deposits with banks(4) | $ | 66,922 | $ | 63,952 | $ | 60,972 | $ | 803 | $ | 773 | $ | 855 | 4.77 | % | 4.86 | % | 5.56 | % | |||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(5) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 157,355 | $ | 182,672 | $ | 213,438 | $ | 1,272 | $ | 1,326 | $ | 3,217 | 3.22 | % | 2.92 | % | 5.98 | % | |||||||||||
In offices outside the U.S.(4) | 76,982 | 59,182 | 156,123 | 950 | 1,051 | 1,873 | 4.91 | 7.14 | 4.76 | ||||||||||||||||||||
Total | $ | 234,337 | $ | 241,854 | $ | 369,561 | $ | 2,222 | $ | 2,377 | $ | 5,090 | 3.77 | % | 3.95 | % | 5.46 | % | |||||||||||
Trading account assets(6)(7) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 210,248 | $ | 241,068 | $ | 281,590 | $ | 2,740 | $ | 3,249 | $ | 3,662 | 5.18 | % | 5.42 | % | 5.16 | % | |||||||||||
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 | ||||||||||||||||||||
Total | $ | 368,657 | $ | 410,346 | $ | 487,688 | $ | 4,154 | $ | 4,644 | $ | 5,156 | 4.48 | % | 4.55 | % | 4.19 | % | |||||||||||
Investments(1) | |||||||||||||||||||||||||||||
In U.S. offices | |||||||||||||||||||||||||||||
Taxable | $ | 118,950 | $ | 110,977 | $ | 127,706 | $ | 1,185 | $ | 1,105 | $ | 1,636 | 3.96 | % | 4.00 | % | 5.08 | % | |||||||||||
Exempt from U.S. income tax | 13,057 | 13,089 | 19,207 | 136 | 138 | 242 | 4.14 | 4.24 | 5.00 | ||||||||||||||||||||
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 | ||||||||||||||||||||
Total | $ | 225,178 | $ | 222,055 | $ | 257,894 | $ | 2,597 | $ | 2,548 | $ | 3,340 | 4.59 | % | 4.62 | % | 5.14 | % | |||||||||||
Loans (net of unearned income)(8) | |||||||||||||||||||||||||||||
Consumer loans | |||||||||||||||||||||||||||||
In U.S. offices | $ | 362,490 | $ | 379,970 | $ | 364,576 | $ | 7,034 | $ | 7,269 | $ | 7,649 | 7.72 | % | 7.69 | % | 8.32 | % | |||||||||||
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 | ||||||||||||||||||||
Total consumer loans | $ | 546,319 | $ | 565,339 | $ | 531,236 | $ | 11,925 | $ | 12,208 | $ | 12,089 | 8.68 | % | 8.69 | % | 9.03 | % | |||||||||||
Corporate loans | |||||||||||||||||||||||||||||
In U.S. offices | $ | 41,006 | $ | 42,377 | $ | 39,346 | $ | 499 | $ | 464 | $ | 662 | 4.84 | % | 4.40 | % | 6.68 | % | |||||||||||
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 | ||||||||||||||||||||
Total corporate loans | $ | 172,603 | $ | 189,262 | $ | 202,349 | $ | 3,603 | $ | 3,733 | $ | 4,252 | 8.30 | % | 7.93 | % | 8.34 | % | |||||||||||
Total loans | $ | 718,922 | $ | 754,601 | $ | 733,585 | $ | 15,528 | $ | 15,941 | $ | 16,341 | 8.59 | % | 8.50 | % | 8.84 | % | |||||||||||
Other interest-earning Assets | $ | 92,022 | $ | 94,129 | $ | 97,506 | $ | 878 | $ | 1,089 | $ | 1,485 | 3.80 | % | 4.65 | % | 6.04 | % | |||||||||||
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 | % | |||||||||||
Non-interest-earning assets(6) | 363,733 | 373,759 | 252,557 | ||||||||||||||||||||||||||
Total Assets from discontinued operations | $ | 25,237 | $ | 35,165 | $ | 36,838 | |||||||||||||||||||||||
Total assets | $ | 2,095,008 | $ | 2,195,861 | $ | 2,296,601 | |||||||||||||||||||||||
| | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | ||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Deposits with banks(5) | $ | 190,269 | $ | 168,631 | $ | 65,667 | $ | 313 | $ | 377 | $ | 792 | 0.65 | % | 0.90 | % | 4.80 | % | |||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 140,756 | $ | 131,522 | $ | 157,355 | $ | 476 | $ | 515 | $ | 1,272 | 1.34 | % | 1.57 | % | 3.22 | % | |||||||||||
In offices outside the U.S.(5) | 70,790 | 61,382 | 73,631 | 252 | 279 | 943 | 1.41 | 1.82 | 5.10 | ||||||||||||||||||||
Total | $ | 211,546 | $ | 192,904 | $ | 230,986 | $ | 728 | $ | 794 | $ | 2,215 | 1.37 | % | 1.65 | % | 3.81 | % | |||||||||||
Trading account assets(7)(8) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 138,781 | $ | 134,334 | $ | 210,248 | $ | 1,668 | $ | 1,785 | $ | 2,740 | 4.77 | % | 5.33 | % | 5.18 | % | |||||||||||
In offices outside the U.S.(5) | 129,135 | 120,468 | 150,985 | 986 | 1,136 | 1,397 | 3.03 | 3.78 | 3.68 | ||||||||||||||||||||
Total | $ | 267,916 | $ | 254,802 | $ | 361,233 | $ | 2,654 | $ | 2,921 | $ | 4,137 | 3.93 | % | 4.60 | % | 4.56 | % | |||||||||||
Investments(1) | |||||||||||||||||||||||||||||
In U.S. offices | |||||||||||||||||||||||||||||
Taxable | $ | 122,608 | $ | 123,181 | $ | 118,950 | $ | 1,568 | $ | 1,674 | $ | 1,185 | 5.07 | % | 5.45 | % | 3.96 | % | |||||||||||
Exempt from U.S. income tax | 18,666 | 16,293 | 13,057 | 226 | 247 | 136 | 4.80 | 6.08 | 4.14 | ||||||||||||||||||||
In offices outside the U.S.(5) | 121,950 | 118,891 | 92,241 | 1,489 | 1,514 | 1,276 | 4.84 | 5.11 | 5.50 | ||||||||||||||||||||
Total | $ | 263,224 | $ | 258,365 | $ | 224,248 | $ | 3,283 | $ | 3,435 | $ | 2,597 | 4.95 | % | 5.33 | % | 4.61 | % | |||||||||||
Loans (net of unearned income)(9) | |||||||||||||||||||||||||||||
Consumer loans | |||||||||||||||||||||||||||||
In U.S. offices | $ | 299,069 | $ | 306,273 | $ | 329,520 | $ | 5,346 | $ | 5,410 | $ | 6,755 | 7.09 | % | 7.09 | % | 8.16 | % | |||||||||||
In offices outside the U.S.(5) | 151,124 | 153,352 | 179,660 | 3,339 | 3,236 | 4,709 | 8.77 | 8.46 | 10.43 | ||||||||||||||||||||
Total consumer loans | $ | 450,193 | $ | 459,625 | $ | 509,180 | $ | 8,685 | $ | 8,646 | $ | 11,464 | 7.65 | % | 7.55 | % | 8.96 | % | |||||||||||
Corporate loans | |||||||||||||||||||||||||||||
In U.S. offices | $ | 71,401 | $ | 79,074 | $ | 73,976 | $ | 593 | $ | 844 | $ | 778 | 3.30 | % | 4.28 | % | 4.18 | % | |||||||||||
In offices outside the U.S.(5) | 117,087 | 117,242 | 135,766 | 2,323 | 2,439 | 3,286 | 7.87 | 8.34 | 9.63 | ||||||||||||||||||||
Total corporate loans | $ | 188,488 | $ | 196,316 | $ | 209,742 | $ | 2,916 | $ | 3,283 | $ | 4,064 | 6.14 | % | 6.71 | % | 7.71 | % | |||||||||||
Total loans | $ | 638,681 | $ | 655,941 | $ | 718,922 | $ | 11,601 | $ | 11,929 | $ | 15,528 | 7.21 | % | 7.29 | % | 8.59 | % | |||||||||||
Other interest-earning Assets | $ | 43,869 | $ | 57,416 | $ | 91,182 | $ | 99 | $ | 215 | $ | 861 | 0.90 | % | 1.50 | % | 3.76 | % | |||||||||||
Total interest-earning Assets | $ | 1,615,505 | $ | 1,588,059 | $ | 1,692,238 | $ | 18,678 | $ | 19,671 | $ | 26,130 | 4.59 | % | 4.97 | % | 6.14 | % | |||||||||||
Non-interest-earning assets(7) | 253,316 | 262,840 | 357,433 | ||||||||||||||||||||||||||
Total Assets from discontinued operations | $ | 21,418 | $ | 19,048 | $ | 45,337 | |||||||||||||||||||||||
Total assets | $ | 1,890,239 | $ | 1,869,947 | $ | 2,095,008 | |||||||||||||||||||||||
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 | % | |||||||||||
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)
| | Average Volume | Interest Expense | % Average Rate | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | 3rd Qtr. 2009 | 2nd Qtr. 2009 | 3rd Qtr. 2008 | ||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Deposits | |||||||||||||||||||||||||||||
In U.S. offices | |||||||||||||||||||||||||||||
Savings deposits(5) | $ | 173,999 | $ | 173,168 | $ | 161,437 | $ | 613 | $ | 999 | $ | 611 | 1.40 | % | 2.31 | % | 1.51 | % | |||||||||||
Other time deposits | 62,256 | 57,869 | 54,928 | 224 | 278 | 554 | 1.43 | 1.93 | 4.01 | ||||||||||||||||||||
In offices outside the U.S.(6) | 459,142 | 428,188 | 464,429 | 1,461 | 1,563 | 3,750 | 1.26 | 1.46 | 3.21 | ||||||||||||||||||||
Total | $ | 695,397 | $ | 659,225 | $ | 680,794 | $ | 2,298 | $ | 2,840 | $ | 4,915 | 1.31 | % | 1.73 | % | 2.87 | % | |||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 131,641 | $ | 133,948 | $ | 160,202 | $ | 248 | $ | 288 | $ | 1,185 | 0.75 | % | 0.86 | % | 2.94 | % | |||||||||||
In offices outside the U.S.(6) | 72,302 | 74,346 | 99,047 | 524 | 643 | 1,536 | 2.88 | 3.47 | 6.17 | ||||||||||||||||||||
Total | $ | 203,943 | $ | 208,294 | $ | 259,249 | $ | 772 | $ | 931 | $ | 2,721 | 1.50 | % | 1.79 | % | 4.18 | % | |||||||||||
Trading account liabilities(8)(9) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 21,204 | $ | 19,592 | $ | 30,251 | $ | 28 | $ | 50 | $ | 251 | 0.52 | % | 1.02 | % | 3.30 | % | |||||||||||
In offices outside the U.S.(6) | 39,431 | 36,652 | 41,816 | 15 | 19 | 34 | 0.15 | 0.21 | 0.32 | ||||||||||||||||||||
Total | $ | 60,635 | $ | 56,244 | $ | 72,067 | $ | 43 | $ | 69 | $ | 285 | 0.28 | % | 0.49 | % | 1.57 | % | |||||||||||
Short-term borrowings | |||||||||||||||||||||||||||||
In U.S. offices | $ | 108,474 | $ | 136,200 | $ | 149,398 | $ | 259 | $ | 209 | $ | 729 | 0.95 | % | 0.62 | % | 1.94 | % | |||||||||||
In offices outside the U.S.(6) | 30,985 | 35,299 | 45,497 | 91 | 106 | 195 | 1.17 | 1.20 | 1.71 | ||||||||||||||||||||
Total | $ | 139,459 | $ | 171,499 | $ | 194,895 | $ | 350 | $ | 315 | $ | 924 | 1.00 | % | 0.74 | % | 1.89 | % | |||||||||||
Long-term debt(10) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 318,610 | $ | 296,324 | $ | 323,788 | $ | 2,952 | $ | 2,427 | $ | 3,460 | 3.68 | % | 3.29 | % | 4.25 | % | |||||||||||
In offices outside the U.S.(6) | 27,447 | 29,318 | 36,375 | 265 | 260 | 421 | 3.83 | 3.56 | 4.60 | ||||||||||||||||||||
Total | $ | 346,057 | $ | 325,642 | $ | 360,163 | $ | 3,217 | $ | 2,687 | $ | 3,881 | 3.69 | % | 3.31 | % | 4.29 | % | |||||||||||
Total interest-bearing liabilities | $ | 1,445,491 | $ | 1,420,904 | $ | 1,567,168 | $ | 6,680 | $ | 6,842 | $ | 12,726 | 1.83 | % | 1.93 | % | 3.23 | % | |||||||||||
Demand deposits in U.S. offices | 34,592 | 19,584 | 7,326 | ||||||||||||||||||||||||||
Other non-interest-bearing liabilities(8) | 250,768 | 267,055 | 351,379 | ||||||||||||||||||||||||||
Total liabilities from discontinued operations | 14,189 | 12,122 | 30,467 | ||||||||||||||||||||||||||
Total liabilities | $ | 1,745,040 | $ | 1,719,665 | $ | 1,956,340 | |||||||||||||||||||||||
Citigroup equity(11) | $ | 143,547 | $ | 148,448 | $ | 131,771 | |||||||||||||||||||||||
Noncontrolling Interest | 1,652 | 1,834 | 6,897 | ||||||||||||||||||||||||||
Total Equity | $ | 145,199 | $ | 150,282 | $ | 138,668 | |||||||||||||||||||||||
Total Liabilities and Equity | $ | 1,890,239 | $ | 1,869,947 | $ | 2,095,008 | |||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | |||||||||||||||||||||||||||||
In U.S. offices | $ | 947,414 | $ | 944,819 | $ | 976,773 | $ | 5,694 | $ | 6,452 | 6,424 | 2.38 | % | 2.74 | % | 2.62 | % | ||||||||||||
In offices outside the U.S.(6) | 668,091 | 643,240 | 715,465 | 6,304 | 6,377 | 6,980 | 3.74 | 3.98 | 3.88 | ||||||||||||||||||||
Total | $ | 1,615,505 | $ | 1,588,059 | $ | 1,692,238 | $ | 11,998 | $ | 12,829 | $ | 13,404 | 2.95 | % | 3.24 | % | 3.15 | % | |||||||||||
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 | ||||||||||||||||
| | Average Volume | Interest Revenue | % Average Rate | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Nine Months 2009 | Nine Months 2008 | Nine Months 2009 | Nine Months 2008 | Nine Months 2009 | Nine Months 2008 | ||||||||||||||
Assets | ||||||||||||||||||||
Deposits with banks(5) | $ | 176,014 | $ | 63,190 | $ | 1,126 | $ | 2,329 | 0.86 | % | 4.92 | % | ||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||
In U.S. offices | $ | 133,427 | $ | 172,482 | $ | 1,541 | $ | 4,344 | 1.54 | % | 3.36 | % | ||||||||
In offices outside the U.S.(5) | 61,534 | 76,851 | 866 | 3,407 | 1.88 | 5.92 | ||||||||||||||
Total | $ | 194,961 | $ | 249,333 | $ | 2,407 | $ | 7,751 | 1.65 | % | 4.15 | % | ||||||||
Trading account assets(7)(8) | ||||||||||||||||||||
In U.S. offices | $ | 140,210 | $ | 235,157 | $ | 5,437 | $ | 9,623 | 5.18 | % | 5.47 | % | ||||||||
In offices outside the U.S.(5) | 119,351 | 161,297 | 3,089 | 3,939 | 3.46 | 3.26 | ||||||||||||||
Total | $ | 259,561 | $ | 396,454 | $ | 8,526 | $ | 13,562 | 4.39 | % | 4.57 | % | ||||||||
Investments(1) | ||||||||||||||||||||
In U.S. offices | ||||||||||||||||||||
Taxable | $ | 122,563 | $ | 111,467 | $ | 4,722 | $ | 3,469 | 5.15 | % | 4.16 | % | ||||||||
Exempt from U.S. income tax | 16,511 | 13,059 | 591 | 433 | 4.79 | 4.43 | ||||||||||||||
In offices outside the U.S.(5) | 115,930 | 96,486 | 4,581 | 3,930 | 5.28 | 5.44 | ||||||||||||||
Total | $ | 255,004 | $ | 221,012 | $ | 9,894 | $ | 7,832 | 5.19 | % | 4.73 | % | ||||||||
Loans (net of unearned income)(9) | ||||||||||||||||||||
Consumer loans | ||||||||||||||||||||
In U.S. offices | $ | 309,443 | $ | 343,107 | $ | 16,807 | $ | 20,913 | 7.26 | % | 8.14 | % | ||||||||
In offices outside the U.S.(5) | 151,272 | 180,010 | 10,087 | 14,129 | 8.92 | 10.48 | ||||||||||||||
Total consumer loans | $ | 460,715 | $ | 523,117 | $ | 26,894 | $ | 35,042 | 7.80 | % | 8.95 | % | ||||||||
Corporate loans | ||||||||||||||||||||
In U.S. offices | $ | 76,986 | $ | 75,177 | $ | 2,217 | $ | 2,529 | 3.85 | % | 4.49 | % | ||||||||
In offices outside the U.S.(5) | 117,745 | 147,278 | 7,274 | 10,312 | 8.26 | 9.35 | ||||||||||||||
Total corporate loans | $ | 194,731 | $ | 222,455 | $ | 9,491 | $ | 12,841 | 6.52 | % | 7.71 | % | ||||||||
Total loans | $ | 655,446 | $ | 745,572 | $ | 36,385 | $ | 47,883 | 7.42 | % | 8.58 | % | ||||||||
Other interest-earning assets | $ | 50,972 | $ | 100,709 | $ | 594 | $ | 3,271 | 1.56 | % | 4.34 | % | ||||||||
Total interest-earning assets | $ | 1,591,958 | $ | 1,776,270 | $ | 58,932 | $ | 82,628 | 4.95 | % | 6.21 | % | ||||||||
Non-interest-earning assets(7) | 277,243 | 375,399 | ||||||||||||||||||
Total assets from discontinued operations | 20,183 | 53,742 | ||||||||||||||||||
Total assets | $ | 1,889,384 | $ | 2,205,411 | ||||||||||||||||
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 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | Nine Months 2008 | Nine Months 2007 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
In U. S. offices | ||||||||||||||||||||
Savings deposits(5) | $ | 161,377 | $ | 147,171 | $ | 2,334 | $ | 3,569 | 1.93 | % | 3.24 | |||||||||
Other time deposits | 59,210 | 55,005 | 1,945 | 2,346 | 4.39 | 5.70 | ||||||||||||||
In offices outside the U.S.(6) | 486,320 | 469,567 | 11,912 | 14,869 | 3.27 | 4.23 | ||||||||||||||
Total | $ | 706,907 | $ | 671,743 | $ | 16,191 | $ | 20,784 | 3.06 | % | 4.14 | |||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||
In U.S. offices | $ | 188,653 | $ | 247,893 | $ | 4,519 | $ | 11,193 | 3.20 | % | 6.04 | |||||||||
In offices outside the U.S.(6) | 103,237 | 145,660 | 5,085 | 6,633 | 6.58 | 6.09 | ||||||||||||||
Total | $ | 291,890 | $ | 393,553 | $ | 9,604 | $ | 17,826 | 4.40 | % | 6.06 | |||||||||
Trading account liabilities(8)(9) | ||||||||||||||||||||
In U.S. offices | $ | 32,576 | $ | 49,507 | $ | 934 | $ | 849 | 3.83 | % | 2.29 | |||||||||
In offices outside the U.S.(6) | 47,468 | 59,360 | 145 | 209 | 0.41 | 0.47 | ||||||||||||||
Total | $ | 80,044 | $ | 108,867 | $ | 1,079 | $ | 1,058 | 1.80 | % | 1.30 | |||||||||
Short-term borrowings | ||||||||||||||||||||
In U.S. offices | $ | 156,458 | $ | 167,264 | $ | 2,695 | $ | 4,629 | 2.30 | % | 3.70 | |||||||||
In offices outside the U.S.(6) | 60,264 | 59,010 | 633 | 601 | 1.40 | 1.36 | ||||||||||||||
Total | $ | 216,722 | $ | 226,274 | $ | 3,328 | $ | 5,230 | 2.05 | % | 3.09 | |||||||||
Long-term debt(10) | ||||||||||||||||||||
In U.S. offices | $ | 312,940 | $ | 256,617 | $ | 10,745 | $ | 10,217 | 4.59 | % | 5.32 | |||||||||
In offices outside the U.S.(6) | 37,956 | 34,052 | 1,358 | 1,312 | 4.78 | 5.15 | ||||||||||||||
Total | $ | 350,896 | $ | 290,669 | $ | 12,103 | $ | 11,529 | 4.61 | % | 5.30 | |||||||||
Total interest-bearing liabilities | $ | 1,646,459 | $ | 1,691,106 | $ | 42,305 | $ | 56,427 | 3.43 | % | 4.46 | |||||||||
Demand deposits in U.S. offices | 13,288 | 12,025 | ||||||||||||||||||
Other non-interest bearing liabilities(8) | 394,985 | 288,490 | ||||||||||||||||||
Total liabilities from discontinued operations | 19,435 | 18,235 | ||||||||||||||||||
Total liabilities | $ | 2,074,167 | $ | 2,009,856 | ||||||||||||||||
Total stockholders' equity(11) | $ | 131,245 | $ | 123,636 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,205,412 | $ | 2,133,492 | ||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | ||||||||||||||||||||
In U.S. offices | $ | 1,025,789 | $ | 1,075,893 | $ | 19,187 | $ | 15,991 | 2.50 | % | 1.99 | % | ||||||||
In offices outside the U.S.(6) | 765,238 | 787,801 | 21,252 | 17,155 | 3.71 | 2.91 | ||||||||||||||
Total | $ | 1,791,027 | $ | 1,863,694 | $ | 40,439 | $ | 33,146 | 3.02 | % | 2.38 | % | ||||||||
| | Average Volume | Interest Expense | % Average Rate | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Nine Months 2009 | Nine Months 2008 | Nine Months 2009 | Nine Months 2008 | Nine Months 2009 | Nine Months 2008 | ||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
In U.S. offices | ||||||||||||||||||||
Savings deposits(5) | $ | 170,715 | $ | 166,799 | $ | 2,245 | $ | 2,334 | 1.76 | % | 1.87 | % | ||||||||
Other time deposits | 60,469 | 59,210 | 918 | 1,946 | 2.03 | 4.39 | ||||||||||||||
In offices outside the U.S.(6) | 432,057 | 486,320 | 4,823 | 11,912 | 1.49 | 3.27 | ||||||||||||||
Total | $ | 663,241 | $ | 712,329 | $ | 7,986 | $ | 16,191 | 1.61 | % | 3.04 | % | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||
In U.S. offices | $ | 139,282 | $ | 188,653 | $ | 852 | $ | 4,519 | 0.82 | % | 3.20 | % | ||||||||
In offices outside the U.S.(6) | 71,611 | 100,437 | 1,955 | 5,040 | 3.65 | 6.70 | ||||||||||||||
Total | $ | 210,893 | $ | 289,090 | $ | 2,807 | $ | 9,559 | 1.78 | % | 4.42 | % | ||||||||
Trading account liabilities(8)(9) | ||||||||||||||||||||
In U.S. offices | $ | 20,503 | $ | 32,576 | $ | 171 | $ | 934 | 1.12 | % | 3.83 | % | ||||||||
In offices outside the U.S.(6) | 35,728 | 46,387 | 49 | 130 | 0.18 | 0.37 | ||||||||||||||
Total | $ | 56,231 | $ | 78,963 | $ | 220 | $ | 1,064 | 0.52 | % | 1.80 | % | ||||||||
Short-term borrowings | ||||||||||||||||||||
In U.S. offices | $ | 131,116 | $ | 156,458 | $ | 835 | $ | 2,695 | 0.85 | % | 2.30 | % | ||||||||
In offices outside the U.S.(6) | 33,833 | 54,438 | 293 | 538 | 1.16 | 1.32 | ||||||||||||||
Total | $ | 164,949 | $ | 210,896 | $ | 1,128 | $ | 3,233 | 0.91 | % | 2.05 | % | ||||||||
Long-term debt(10) | ||||||||||||||||||||
In U.S. offices | $ | 308,201 | $ | 312,940 | $ | 8,199 | $ | 10,745 | 3.56 | % | 4.59 | % | ||||||||
In offices outside the U.S.(6) | 30,274 | 37,885 | 839 | 1,358 | 3.71 | 4.79 | ||||||||||||||
Total | $ | 338,475 | $ | 350,825 | $ | 9,038 | $ | 12,103 | 3.57 | % | 4.61 | % | ||||||||
Total interest-bearing liabilities | $ | 1,433,789 | $ | 1,642,103 | $ | 21,179 | $ | 42,150 | 1.97 | % | 3.43 | % | ||||||||
Demand deposits in U.S. offices | 23,186 | 7,865 | ||||||||||||||||||
Other non-interest bearing liabilities(8) | 272,809 | 387,673 | ||||||||||||||||||
Total liabilities from discontinued operations | 12,670 | 31,013 | ||||||||||||||||||
Total liabilities | $ | 1,742,454 | $ | 2,068,654 | ||||||||||||||||
Total Citigroup equity(11) | $ | 145,097 | $ | 131,245 | ||||||||||||||||
Noncontrolling interest | 1,833 | 5,512 | ||||||||||||||||||
Total Equity | $ | 146,930 | $ | 136,757 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,889,384 | $ | 2,205,411 | ||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | ||||||||||||||||||||
In U.S. offices | $ | 954,220 | $ | 1,025,789 | $ | 18,789 | $ | 19,187 | 2.63 | % | 2.50 | % | ||||||||
In offices outside the U.S.(6) | 637,738 | 750,481 | 18,964 | 21,291 | 3.98 | 3.79 | ||||||||||||||
Total | $ | 1,591,958 | $ | 1,776,270 | $ | 37,753 | $ | 40,478 | 3.17 | % | 3.04 | % | ||||||||
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 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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 | |||||||||||||
Deposits with banks(3) | $ | 36 | $ | (6 | ) | $ | 30 | $ | 79 | $ | (131 | ) | $ | (52 | ) | ||||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||||||||||||
In U.S. offices | $ | (195 | ) | $ | 141 | $ | (54 | ) | $ | (704 | ) | $ | (1,241 | ) | $ | (1,945 | ) | ||
In offices outside the U.S.(3) | 268 | (369 | ) | (101 | ) | (975 | ) | 52 | (923 | ) | |||||||||
Total | $ | 73 | $ | (228 | ) | $ | (155 | ) | $ | (1,679 | ) | $ | (1,189 | ) | $ | (2,868 | ) | ||
Trading account assets(4) | |||||||||||||||||||
In U.S. offices | $ | (404 | ) | $ | (105 | ) | $ | (509 | ) | $ | (930 | ) | $ | 8 | $ | (922 | ) | ||
In offices outside the U.S.(3) | (93 | ) | 112 | 19 | (386 | ) | 306 | (80 | ) | ||||||||||
Total | $ | (497 | ) | $ | 7 | $ | (490 | ) | $ | (1,316 | ) | $ | 314 | $ | (1,002 | ) | |||
Investments(1) | |||||||||||||||||||
In U.S. offices | $ | 79 | $ | (1 | ) | $ | 78 | $ | (177 | ) | $ | (380 | ) | $ | (557 | ) | |||
In offices outside the U.S.(3) | (65 | ) | 36 | (29 | ) | (242 | ) | 56 | (186 | ) | |||||||||
Total | $ | 14 | $ | 35 | $ | 49 | $ | (419 | ) | $ | (324 | ) | $ | (743 | ) | ||||
Loans—consumer | |||||||||||||||||||
In U.S. offices | $ | (338 | ) | $ | 103 | $ | (235 | ) | $ | (44 | ) | $ | (571 | ) | $ | (615 | ) | ||
In offices outside the U.S.(3) | (41 | ) | (7 | ) | (48 | ) | 457 | (6 | ) | 451 | |||||||||
Total | $ | (379 | ) | $ | 96 | $ | (283 | ) | $ | 413 | $ | (577 | ) | $ | (164 | ) | |||
Loans—corporate | |||||||||||||||||||
In U.S. offices | $ | (15 | ) | $ | 50 | $ | 35 | $ | 27 | $ | (190 | ) | $ | (163 | ) | ||||
In offices outside the U.S.(3) | (354 | ) | 189 | (165 | ) | (728 | ) | 242 | (486 | ) | |||||||||
Total | $ | (369 | ) | $ | 239 | $ | (130 | ) | $ | (701 | ) | $ | 52 | $ | (649 | ) | |||
Total loans | $ | (748 | ) | $ | 335 | $ | (413 | ) | $ | (288 | ) | $ | (525 | ) | $ | (813 | ) | ||
Other interest-earning assets | $ | (24 | ) | $ | (187 | ) | $ | (211 | ) | $ | (79 | ) | $ | (528 | ) | $ | (607 | ) | |
Total interest revenue | $ | (1,146 | ) | $ | (44 | ) | $ | (1,190 | ) | $ | (3,702 | ) | $ | (2,383 | ) | $ | (6,085 | ) | |
| | 3rd Qtr. 2009 vs. 2nd Qtr. 2009 | 3rd Qtr. 2009 vs. 3rd Qtr. 2008 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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 | |||||||||||||
Deposits with banks(4) | $ | 44 | $ | (108 | ) | $ | (64 | ) | $ | 611 | $ | (1,090 | ) | $ | (479 | ) | |||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||||||||||||
In U.S. offices | $ | 34 | $ | (73 | ) | $ | (39 | ) | $ | (122 | ) | $ | (674 | ) | $ | (796 | ) | ||
In offices outside the U.S.(4) | 39 | (66 | ) | (27 | ) | (35 | ) | (656 | ) | (691 | ) | ||||||||
Total | $ | 73 | $ | (139 | ) | $ | (66 | ) | $ | (157 | ) | $ | (1,330 | ) | $ | (1,487 | ) | ||
Trading account assets(5) | |||||||||||||||||||
In U.S. offices | $ | 58 | $ | (175 | ) | $ | (117 | ) | $ | (872 | ) | $ | (200 | ) | $ | (1,072 | ) | ||
In offices outside the U.S.(4) | 77 | (227 | ) | (150 | ) | (186 | ) | (225 | ) | (411 | ) | ||||||||
Total | $ | 135 | $ | (402 | ) | $ | (267 | ) | $ | (1,058 | ) | $ | (425 | ) | $ | (1,483 | ) | ||
Investments(1) | |||||||||||||||||||
In U.S. offices | $ | 25 | $ | (152 | ) | $ | (127 | ) | $ | 98 | $ | 375 | $ | 473 | |||||
In offices outside the U.S.(4) | 38 | (63 | ) | (25 | ) | 376 | (163 | ) | 213 | ||||||||||
Total | $ | 63 | $ | (215 | ) | $ | (152 | ) | $ | 474 | $ | 212 | $ | 686 | |||||
Loans—consumer | |||||||||||||||||||
In U.S. offices | $ | (128 | ) | $ | 64 | $ | (64 | ) | $ | (591 | ) | $ | (818 | ) | $ | (1,409 | ) | ||
In offices outside the U.S.(4) | (48 | ) | 151 | 103 | (689 | ) | (681 | ) | (1,370 | ) | |||||||||
Total | $ | (176 | ) | $ | 215 | $ | 39 | $ | (1,280 | ) | $ | (1,499 | ) | $ | (2,779 | ) | |||
Loans—corporate | |||||||||||||||||||
In U.S. offices | $ | (76 | ) | $ | (175 | ) | $ | (251 | ) | $ | (26 | ) | $ | (159 | ) | $ | (185 | ) | |
In offices outside the U.S.(4) | (3 | ) | (113 | ) | (116 | ) | (417 | ) | (546 | ) | (963 | ) | |||||||
Total | $ | (79 | ) | $ | (288 | ) | $ | (367 | ) | $ | (443 | ) | $ | (705 | ) | $ | (1,148 | ) | |
Total loans | $ | (255 | ) | $ | (73 | ) | $ | (328 | ) | $ | (1,723 | ) | $ | (2,204 | ) | $ | (3,927 | ) | |
Other interest-earning assets | $ | (43 | ) | $ | (73 | ) | $ | (116 | ) | $ | (309 | ) | $ | (453 | ) | $ | (762 | ) | |
Total interest revenue | $ | 17 | $ | (1,010 | ) | $ | (993 | ) | $ | (2,162 | ) | $ | (5,290 | ) | $ | (7,452 | ) | ||
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)
| | 3rd Qtr. 2008 vs. 2nd Qtr. 2008 | 3rd Qtr. 2008 vs. 3rd Qtr. 2007 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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 | |||||||||||||
Deposits | |||||||||||||||||||
In U.S. offices | $ | (66 | ) | $ | (66 | ) | $ | (132 | ) | $ | 47 | $ | (869 | ) | $ | (822 | ) | ||
In offices outside the U.S.(3) | (190 | ) | 155 | (35 | ) | (386 | ) | (1,333 | ) | (1,719 | ) | ||||||||
Total | $ | (256 | ) | $ | 89 | $ | (167 | ) | $ | (339 | ) | $ | (2,202 | ) | $ | (2,541 | ) | ||
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 | ) | ||
In offices outside the U.S.(3) | 254 | (367 | ) | (113 | ) | (808 | ) | (19 | ) | (827 | ) | ||||||||
Total | $ | 1 | $ | (228 | ) | $ | (227 | ) | $ | (2,102 | ) | $ | (1,592 | ) | $ | (3,694 | ) | ||
Trading account liabilities(4) | |||||||||||||||||||
In U.S. offices | $ | 7 | $ | (169 | ) | $ | (162 | ) | $ | (131 | ) | $ | 80 | $ | (51 | ) | |||
In offices outside the U.S.(3) | (3 | ) | (1 | ) | (4 | ) | (25 | ) | (5 | ) | (30 | ) | |||||||
Total | $ | 4 | $ | (170 | ) | $ | (166 | ) | $ | (156 | ) | $ | 75 | $ | (81 | ) | |||
Short-term borrowings | |||||||||||||||||||
In U.S. offices | $ | (16 | ) | $ | (69 | ) | $ | (85 | ) | $ | (305 | ) | $ | (721 | ) | $ | (1,026 | ) | |
In offices outside the U.S.(3) | (46 | ) | 90 | 44 | (84 | ) | 98 | 14 | |||||||||||
Total | $ | (62 | ) | $ | 21 | $ | (41 | ) | $ | (389 | ) | $ | (623 | ) | $ | (1,012 | ) | ||
Long-term debt | |||||||||||||||||||
In U.S. offices | $ | 87 | $ | (81 | ) | $ | 6 | $ | 603 | $ | (790 | ) | $ | (187 | ) | ||||
In offices outside the U.S.(3) | (14 | ) | (22 | ) | (36 | ) | (64 | ) | (68 | ) | (132 | ) | |||||||
Total | $ | 73 | $ | (103 | ) | $ | (30 | ) | $ | 539 | $ | (858 | ) | $ | (319 | ) | |||
Total interest expense | $ | (240 | ) | $ | (391 | ) | $ | (631 | ) | $ | (2,447 | ) | $ | (5,200 | ) | $ | (7,647 | ) | |
Net interest revenue | $ | (906 | ) | $ | 347 | $ | (559 | ) | $ | (1,255 | ) | $ | 2,817 | $ | 1,562 | ||||
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 | ||||
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)
| | 3rd Qtr. 2009 vs. 2nd Qtr. 2009 | 3rd Qtr. 2009 vs. 3rd Qtr. 2008 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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 | |||||||||||||
Deposits | |||||||||||||||||||
In U.S. offices | $ | 28 | $ | (468 | ) | $ | (440 | ) | $ | 99 | $ | (427 | ) | $ | (328 | ) | |||
In offices outside the U.S.(4) | 108 | (210 | ) | (102 | ) | (42 | ) | (2,247 | ) | (2,289 | ) | ||||||||
Total | $ | 136 | $ | (678 | ) | $ | (542 | ) | $ | 57 | $ | (2,674 | ) | $ | (2,617 | ) | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||||||||||||
In U.S. offices | $ | (5 | ) | $ | (35 | ) | $ | (40 | ) | $ | (181 | ) | $ | (756 | ) | $ | (937 | ) | |
In offices outside the U.S.(4) | (17 | ) | (102 | ) | (119 | ) | (340 | ) | (672 | ) | (1,012 | ) | |||||||
Total | $ | (22 | ) | $ | (137 | ) | $ | (159 | ) | $ | (521 | ) | $ | (1,428 | ) | $ | (1,949 | ) | |
Trading account liabilities(5) | |||||||||||||||||||
In U.S. offices | $ | 4 | $ | (26 | ) | $ | (22 | ) | $ | (59 | ) | $ | (164 | ) | $ | (223 | ) | ||
In offices outside the U.S.(4) | 1 | (5 | ) | (4 | ) | (2 | ) | (17 | ) | (19 | ) | ||||||||
Total | $ | 5 | $ | (31 | ) | $ | (26 | ) | $ | (61 | ) | $ | (181 | ) | $ | (242 | ) | ||
Short-term borrowings | |||||||||||||||||||
In U.S. offices | $ | (49 | ) | $ | 99 | $ | 50 | $ | (164 | ) | $ | (306 | ) | $ | (470 | ) | |||
In offices outside the U.S.(4) | (13 | ) | (2 | ) | (15 | ) | (52 | ) | (52 | ) | (104 | ) | |||||||
Total | $ | (62 | ) | $ | 97 | $ | 35 | $ | (216 | ) | $ | (358 | ) | $ | (574 | ) | |||
Long-term debt | |||||||||||||||||||
In U.S. offices | $ | 191 | $ | 334 | $ | 525 | $ | (55 | ) | $ | (453 | ) | $ | (508 | ) | ||||
In offices outside the U.S.(4) | (17 | ) | 22 | 5 | (93 | ) | (63 | ) | (156 | ) | |||||||||
Total | $ | 174 | $ | 356 | $ | 530 | $ | (148 | ) | $ | (516 | ) | $ | (664 | ) | ||||
Total interest expense | $ | 231 | $ | (393 | ) | $ | (162 | ) | $ | (889 | ) | $ | (5,157 | ) | $ | (6,046 | ) | ||
Net interest revenue | $ | (214 | ) | $ | (617 | ) | $ | (831 | ) | $ | (1,273 | ) | $ | (133 | ) | $ | (1,406 | ) | |
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)
| | Nine Months 2009 vs. Nine Months 2008 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Increase (Decrease) Due to Change in: | | ||||||||
| In millions of dollars | Average Volume | Average Rate | Net Change(2) | |||||||
Deposits at interest with banks(4) | $ | 1,809 | $ | (3,012 | ) | $ | (1,203 | ) | ||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||
In U.S. offices | $ | (827 | ) | $ | (1,976 | ) | $ | (2,803 | ) | |
In offices outside the U.S.(4) | (574 | ) | (1,967 | ) | (2,541 | ) | ||||
Total | $ | (1,401 | ) | $ | (3,943 | ) | $ | (5,344 | ) | |
Trading account assets(5) | ||||||||||
In U.S. offices | $ | (3,705 | ) | $ | (481 | ) | $ | (4,186 | ) | |
In offices outside the U.S.(4) | (1,074 | ) | 224 | (850 | ) | |||||
Total | $ | (4,779 | ) | $ | (257 | ) | $ | (5,036 | ) | |
Investments(1) | ||||||||||
In U.S. offices | $ | 491 | $ | 920 | $ | 1,411 | ||||
In offices outside the U.S.(4) | 771 | (120 | ) | 651 | ||||||
Total | $ | 1,262 | $ | 800 | $ | 2,062 | ||||
Loans—consumer | ||||||||||
In U.S. offices | $ | (1,946 | ) | $ | (2,160 | ) | $ | (4,106 | ) | |
In offices outside the U.S.(4) | (2,081 | ) | (1,961 | ) | (4,042 | ) | ||||
Total | $ | (4,027 | ) | $ | (4,121 | ) | $ | (8,148 | ) | |
Loans—corporate | ||||||||||
In U.S. offices | $ | 60 | $ | (372 | ) | $ | (312 | ) | ||
In offices outside the U.S.(4) | (1,914 | ) | (1,124 | ) | (3,038 | ) | ||||
Total | $ | (1,854 | ) | $ | (1,496 | ) | $ | (3,350 | ) | |
Total loans | $ | (5,881 | ) | $ | (5,617 | ) | $ | (11,498 | ) | |
Other interest-earning assets | $ | (1,165 | ) | $ | (1,512 | ) | $ | (2,677 | ) | |
Total interest revenue | $ | (10,155 | ) | $ | (13,541 | ) | $ | (23,696 | ) | |
Deposits | ||||||||||
In U.S. offices | $ | 96 | $ | (1,212 | ) | $ | (1,116 | ) | ||
In offices outside the U.S.(4) | (1,206 | ) | (5,883 | ) | (7,089 | ) | ||||
Total | $ | (1,110 | ) | $ | (7,095 | ) | $ | (8,205 | ) | |
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||
In U.S. offices | $ | (954 | ) | $ | (2,713 | ) | $ | (3,667 | ) | |
In offices outside the U.S.(4) | (1,192 | ) | (1,893 | ) | (3,085 | ) | ||||
Total | $ | (2,146 | ) | $ | (4,606 | ) | $ | (6,752 | ) | |
Trading account liabilities(5) | ||||||||||
In U.S. offices | $ | (262 | ) | $ | (501 | ) | $ | (763 | ) | |
In offices outside the U.S.(4) | (25 | ) | (56 | ) | (81 | ) | ||||
Total | $ | (287 | ) | $ | (557 | ) | $ | (844 | ) | |
Short-term borrowings | ||||||||||
In U.S. offices | $ | (380 | ) | $ | (1,480 | ) | $ | (1,860 | ) | |
In offices outside the U.S.(4) | (185 | ) | (60 | ) | (245 | ) | ||||
Total | $ | (565 | ) | $ | (1,540 | ) | $ | (2,105 | ) | |
Long-term debt | ||||||||||
In U.S. offices | $ | (160 | ) | $ | (2,386 | ) | $ | (2,546 | ) | |
In offices outside the U.S.(4) | (244 | ) | (275 | ) | (519 | ) | ||||
Total | $ | (404 | ) | $ | (2,661 | ) | $ | (3,065 | ) | |
Total interest expense | $ | (4,512 | ) | $ | (16,459 | ) | $ | (20,971 | ) | |
Net interest revenue | $ | (5,643 | ) | $ | 2,918 | $ | (2,725 | ) | ||
CAPITAL RESOURCES AND LIQUIDITY
Overview
Generally, capital is generated by earnings from Citi's operating businesses. Primarily as a result of the exchange offers, Citigroup increased its Tier 1 Common by $63 billion from the second quarter of 2009 to $90 billion. In addition, the Company's Tangible Common Equity (TCE) increased by $62 billion from the second quarter of 2009 to $102 billion at September 30, 2009. Tier 1 Common, TCE and related ratios are used and relied on by the Company's banking regulators as a measure of capital adequacy, but are considered "non-GAAP financial measures" for SEC purposes. See "Capital Ratios," "Components of Capital Under Regulatory Guidelines" and "Tangible Common Equity" below for additional information on these measures.
The Company may also augment its capital 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. Future business results of the Company, including events such as corporate dispositions, also affect the Company's capital levels. Moreover, changes that the FASB has adopted regarding off-balance sheet assets, consolidation and sale treatment will have an incremental impact on Citi's capital ratios. For more information on this, see Note 1 "Future Application of Accounting Standards" and Note 15 to the Consolidated Financial Statements, including "Funding, Liquidity Facilities and Subordinate Interests."
Capital is used primarily to support assets in the Company's businesses and to absorb expected and unexpected market, credit or operational losses. While capital may be used for other purposes, such as to pay dividends or repurchase common stock, the Company's ability to utilize its capital for these purposes is currently restricted due to its participation in TARP and other government programs, as explained more fully in the Company's 2008 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2009 and March 31, 2009, respectively.
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 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.
Capital Ratios
Citigroup is subject to risk-based capital ratio guidelines issued by the FRB. CapitalHistorically, capital adequacy ishas been 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.allowance for credit losses. Both measures of capital adequacy are stated as a percentpercentage of risk-adjustedrisk-weighted assets. Risk-adjustedIn conjunction with the conclusion of the Supervisory Capital Assessment Program (SCAP), the banking regulators developed a new measure of capital called Tier 1 Common defined as Tier 1 Capital less non-common elements including qualifying perpetual preferred stock, qualifying noncontrolling interests in subsidiaries and qualifying mandatorily redeemable securities of subsidiary trusts.
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. See "Components of Capital Under Regulatory Guidelines" below.
Citigroup is also subject to thea Leverage Ratioratio 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 total assets.
To be "well capitalized" under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratioratio of at least 6%, a Total Capital Ratioratio 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.
As noted in the The following table Citigroup maintained a "well capitalized" position atsets forth Citigroup's regulatory capital ratios as of September 30, 20082009 and December 31, 2007.2008.
Citigroup Regulatory Capital Ratios
| | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Tier 1 Capital | 8.19 | % | 7.12 | % | |||
Total Capital (Tier 1 and Tier 2) | 11.68 | 10.70 | |||||
Leverage(1) | 4.70 | 4.03 | |||||
| | Sept. 30, 2009 | Dec. 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Tier 1 Common | 9.12 | % | 2.30 | % | |||
Tier 1 Capital | 12.76 | 11.92 | |||||
Total Capital (Tier 1 and Tier 2) | 16.58 | 15.70 | |||||
Leverage(1) | 6.87 | 6.08 | |||||
As noted in the table above, Citigroup was "well capitalized" under the federal bank regulatory agency definitions as of September 30, 2009 and December 31, 2008.
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 | Sept. 30, 2009 | Dec. 31, 2008(1) | ||||||
|---|---|---|---|---|---|---|---|---|
Tier 1 Common | ||||||||
Citigroup common stockholders' equity | $ | 140,530 | $ | 70,966 | ||||
Less: Net unrealized losses on securities available-for-sale, net of tax(2) | (4,242 | ) | (9,647 | ) | ||||
Less: Accumulated net losses on cash flow hedges, net of tax | (4,177 | ) | (5,189 | ) | ||||
Less: Pension liability adjustment, net of tax(3) | (2,619 | ) | (2,615 | ) | ||||
Less: Cumulative effect included in fair value of financial liabilities attributable to the change in own credit worthiness, net of tax(4) | 1,862 | 3,391 | ||||||
Less: Disallowed deferred tax assets(5) | 21,917 | 23,520 | ||||||
Less: Intangible assets: | ||||||||
Goodwill(6) | 26,436 | 27,132 | ||||||
Other disallowed intangible assets(6) | 10,179 | 10,607 | ||||||
Other | (892 | ) | (840 | ) | ||||
Total Tier 1 Common | $ | 90,282 | $ | 22,927 | ||||
Qualifying perpetual preferred stock | $ | 312 | $ | 70,664 | ||||
Qualifying mandatorily redeemable securities of subsidiary trusts | 34,403 | 23,899 | ||||||
Qualifying noncontrolling interests | 1,288 | 1,268 | ||||||
Total Tier 1 Capital | $ | 126,285 | $ | 118,758 | ||||
Tier 2 Capital | ||||||||
Allowance for credit losses(7) | $ | 12,701 | $ | 12,806 | ||||
Qualifying subordinated debt(8) | 24,355 | 24,791 | ||||||
Net unrealized pretax gains on available-for- sale equity securities(2) | 753 | 43 | ||||||
Total Tier 2 Capital | $ | 37,809 | $ | 37,640 | ||||
Total Capital (Tier 1 and Tier 2) | $ | 164,094 | $ | 156,398 | ||||
Risk-Weighted Assets(9) | $ | 989,711 | $ | 996,247 | ||||
Recent Actions Impacting Citigroup's Risk-Weighted Assets
All three of Citigroup's primary credit card securitization trusts—the Master Trust, Omni Trust and Broadway Trust—had bonds placed on ratings watch with negative implications by rating agencies during the first and second quarters of 2009. As a result of the ratings watch status, certain actions were taken by Citi with respect to each of the trusts. In general, the actions subordinated certain senior interests in the trust assets that were retained by Citi, which effectively placed these interests below investor interests in terms of priority of payment.
With respect to the Master Trust, in the first quarter of 2009, Citi subordinated a portion of its "seller's interest," which represents a senior interest in trust receivables, thus making those cash flows available to pay investor coupons each month. In addition, during the second quarter of 2009, a subordinated note with a $3 billion principal amount was issued by the Master Trust and retained by Citibank (South Dakota), N.A. in order to provide additional credit support for the senior note classes. The note is classified as a held-to-maturity investment security.
With respect to the Omni Trust, in the second quarter of 2009, subordinated notes with a principal amount of $2 billion were issued by the trust and retained by Citibank (South Dakota), N.A. in order to provide additional credit support for the senior note classes. The notes are classified as Trading account assets. These notes are in addition to a $265 million subordinated note issued by Omni Trust and retained by Citibank (South Dakota), N.A. in the fourth quarter of 2008 for the same purpose of providing additional credit support for senior noteholders.
With respect to the Broadway Trust, in the second quarter of 2009, subordinated notes with a principal amount of $82 million were issued by the trust and retained by Citibank, N.A. in order to provide additional credit support for the senior note classes. The notes are classified as Trading account assets.
As a result of these actions, based on the applicable regulatory capital rules, Citigroup included the sold assets of the Master and Omni Trusts (commencing with the first quarter of
2009) and the Broadway Trust (commencing with the second quarter of 2009) in its risk-weighted assets for purposes of calculating its risk-based capital ratios. The effect of these changes increased Citigroup's risk-weighted assets by approximately $82 billion, and decreased Citigroup's Tier 1 Capital ratio by approximately 100 basis points, each as of March 31, 2009, with respect to the Master and Omni Trusts. The inclusion of the Broadway Trust increased Citigroup's risk-weighted assets by an additional approximately $900 million at June 30, 2009. All bond ratings for each of the trusts have been affirmed by the rating agencies, and no downgrades have occurred as of September 30, 2009.
Citigroup's common stockholders' equity decreasedincreased by approximately $14.8$70 billion to $98.6$141 billion, representing 4.8%and represented 7.4% of total assets as of September 30, 20082009, from $113.4$71 billion and 5.2%3.7% at December 31, 2007.2008.
DuringThe table below summarizes the change in Citigroup's common stockholders' equity during the first nine months of 2008,2009:
| In billions of dollars | | |||
|---|---|---|---|---|
Common equity, December 31, 2008 | $ | 71.0 | ||
Net income(1) | 6.0 | |||
Employee benefit plans and other activities | 0.5 | |||
Dividends | (3.4 | ) | ||
Exchange offers(1) | 58.9 | |||
Net change in Accumulated other comprehensive income (loss), net of tax | 7.5 | |||
Common equity, September 30, 2009 | $ | 140.5 | ||
As of September 30, 2009, $6.7 billion of Convertible Preferred Stockstock repurchases remained under authorized repurchase programs. No material repurchases were made in 2008 and the first nine months of 2009.
Tangible Common Equity
TCE, as defined by Citigroup, representsCommon equity lessGoodwill andIntangible assets (excluding MSRs) net of therelated net deferred tax liabilities. Other companies may calculate TCE in a Private Offering
Subsequent to September 30, 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%.2009 and $31.1 billion at December 31, 2008.
The preferred stock will have an aggregate liquidation preferenceTCE ratio (TCE divided by risk-weighted assets—see "Components of $25 billionCapital Under Regulatory Guidelines" above) was 10.3% at September 30, 2009 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 by3.1% at December 31, 2009.
The terms2008. A reconciliation 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 equalCitigroup's total stockholders' equity 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.TCE follows:
Capital Resources of Citigroup's Depository Institutions
Citigroup's U.S. subsidiary depository institutions 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 these regulatory 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, 2009, all of Citigroup's subsidiary depository institutions were "well capitalized" under federal bank regulatory agency 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 | Sept. 30, 2009 | Dec. 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Tier 1 Capital | $ | 95.8 | $ | 71.0 | |||
Total Capital (Tier 1 and Tier 2) | 110.8 | 108.4 | |||||
Tier 1 Capital Ratio | 15.16 | % | 9.94 | % | |||
Total Capital Ratio (Tier 1 and Tier 2) | 17.53 | 15.18 | |||||
Leverage Ratio(1) | 8.37 | 5.82 | |||||
Citibank, N.A. had a net loss of $2.3 billion for the first nine months of 2009.
In addition, during the first nine months of 2009, Citibank, N.A. received capital contributions from its immediate parent company, Citicorp, in the amount of $30.5 billion.
Total subordinated notes issued to Citibank, N.A.'s immediate parent company, Citicorp, included in Citibank, N.A.'s Tier 2 Capital declined from $28.2 billion outstanding at December 31, 2008 to $6.5 billion outstanding at September 30, 2009, reflecting the redemption of $21.7 billion of subordinated notes in the first nine months of 2009.
The significant events in the latter half of 2008 and the first nine months of 2009 impacting the capital of Citigroup also affected, or could affect, Citibank, N.A. which is subject to separate banking regulation and examination.
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-weighted assets or adjusted average total assets (denominator) based on financial information as of September 30, 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 could have on these ratios. These sensitivities only consider a single change to either a component of capital, risk-weighted assets or adjusted average total assets. Accordingly, an event that affects more than one factor may have a larger basis-point impact than what is reflected in this table.
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Broker-Dealer Subsidiaries
At September 30, 2009, Citigroup Global Markets Inc., an indirect wholly-owned subsidiary of Citigroup Global Markets Holdings Inc., had net capital, computed in accordance with the SEC's net capital rule, of $9.1 billion, which exceeded the minimum requirement by $8.4 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, 2009. The requirements applicable to these subsidiaries in the U.S. and in particular other jurisdictions are the subject of political debate and potential change in light of recent events.
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.
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 reviewingintends to implement Basel II within the timeframe required by the final rules. The Basel II (or its timetable for adoption.
The regulators have not determined any regulatory response to proposed changessuccessor) requirements are the subject of accounting treatment regarding Qualifying Special Purpose Entities (QSPEs) or variable interest entities.political debate and potential change in light of recent events.
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. CertainCitigroup's liquidity management is structured to optimize the free flow of funds through the Company's legal and regulatory structure; however, various constraints, discussed below, limit certain subsidiaries' dividend paying abilities may be limiteddividend-paying abilities. Consistent with these constraints, Citigroup's primary objectives for liquidity management are established by covenant restrictionsentity and in credit agreements, regulatory requirements and/or rating agency requirementsaggregate across three main operating entities, as follows: (i) Citigroup, as the parent holding company; (ii) banking subsidiaries; and (iii) non-banking subsidiaries.
Citigroup
As a result of continued deleveraging, deposit growth, term securitization under government and non-government programs, and the issuance of long-term debt under government guarantees and non-guaranteed debt, over the last several quarters, Citigroup has substantially increased its cash balances and reduced its short-term borrowings. In addition, as of September 30, 2009, Citigroup had largely eliminated utilization of short-term government funding programs.
Beginning in October 2008, Citi and certain of its subsidiaries participated in the FDIC's TLGP pursuant to which certain qualifying senior unsecured debt issued by such entities is guaranteed, pursuant to the applicable time period, in amounts up to 125% of the qualifying debt for each qualifying entity (see "Government Programs—FDIC's Temporary Liquidity Guarantee Program" above). As of September 30, 2009, Citigroup and its affiliates have issued a total of approximately $54.7 billion of long-term debt that also impact their capitalization levels.is covered under the FDIC guarantee. Also as of September 30, 2009, Citigroup, through its subsidiaries, has issued approximately $4.37 billion in commercial paper and interbank deposits backed by the FDIC program.
Our liquidity position remained very strong duringThe TLGP expired on October 31, 2009 and Citigroup and its affiliates have elected not to participate in any FDIC- approved extension of the third quarterprogram. In anticipation of 2008the expiration of the program, and as market conditions began to improve, Citigroup and its first tier subsidiaries have issued $20 billion of non-guaranteed debt outside of TLGP over the past six months. Such issuances have been at various maturities, with a weighted average maturity of over 10 years, in multiple currencies. In addition, beginning October 1, 2009, Citigroup has been issuing commercial paper, of any tenor, outside of the TLGP and the Company currently anticipates that commercial paper will continue to be enhanced through the sale of perpetual preferred stock and warrants to the U.S. Department of the Treasury, sale of our German Retail Banking Operations and continued balance sheet de-leveraging.an important funding source during 2010, although not at 2008/2009 levels.
During the second half of 2007At September 30, 2009, long-term debt and the first nine months of 2008, the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reducedfor Citigroup, CGMHI, Citigroup Funding Inc. (CFI) and other Citigroup subsidiaries, collectively, were as follows:
| In billions of dollars | Citigroup parent company | CGMHI(1) | CFI(1) | Other Citigroup Subsidiaries | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 215.0 | $ | 15.4 | $ | 51.2 | $ | 98.0 | (2) | ||||
Commercial paper | $ | — | $ | — | $ | 10.0 | $ | 0.4 | |||||
The table below details the Parent Companylong-term debt issuances of Citigroup during the past four quarters.
| In billions of dollars | 4Q08 | 1Q09 | 2Q09 | 3Q09 | Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Debt issued under TLGP guarantee | $ | 5.8 | $ | 21.9 | $ | 17.0 | $ | 10.0 | $ | 54.7 | |||||||
Debt issued without TLGP guarantee: | |||||||||||||||||
Citigroup parent company/CFI | 0.3 | 2.0 | 7.4 | 12.6 | 22.3 | ||||||||||||
Other Citigroup subsidiaries | 0.5 | 0.5 | 10.1 | (1) | 7.9 | (2) | 19.0 | ||||||||||
Total | $ | 6.6 | $ | 24.4 | $ | 34.5 | $ | 30.5 | $ | 96.0 | |||||||
See Note 12 to the Consolidated Financial Statements for further detail on Citigroup's and its affiliates' long-term debt and commercial paper outstanding.
Outside of long-term debt funding, Citi has been actively building its structural liquidity portfolio (a portfolioin two important ways. First, Citi has focused on growing a geographically diverse retail and corporate deposit base which stood at approximately $833 billion as of cashSeptember 30, 2009, up $28 billion compared to June 30, 2009. On a volume basis, deposit increases were noted in Regional Consumer Banking, particularly in North America, and highly liquid securities)in Transaction Services due to growth in all regions and broker-dealer "cash box" (unencumbered cash deposits) werestrength in Treasury and Trade Solutions, excluding the impact of foreign exchange on a volume basis. Citi's deposit base has increased substantially, and the amount of unsecured overnight bank borrowings was reduced. Forsequentially over each of the pastlast five months inquarters. These deposits are diversified across products and regions, with approximately 61% outside of the period endingU.S. This diversification provides the Company with an important and low-cost source of funding. A significant portion of these deposits has been, and is currently expected to be, long-term and stable and is considered to be core.
Second, total assets as of September 30, 2008,2009 have declined 8% as compared to September 30, 2008. Loans, which are one of the Company was, on average, a net lenderCompany's most illiquid assets, are down $107 billion, or approximately 15%.
Table of funds in the interbank market.Contents
As of September 30, 2008, the Parent Company2009, Citigroup and affiliates liquidity portfolio and broker-dealer "cash box" totaled $50.5$76.0 billion as compared with $24.2$66.8 billion at December 31, 20072008 and $24.0$50.5 billion at September 30, 2007.
2008, and Citigroup's bank subsidiaries had an aggregate of approximately $148.8 billion of cash on deposit with major Central Banks (including the U.S. Federal Reserve Bank of New York, the European Central Bank, Bank of England, Swiss National Bank and Bank of Japan), compared with approximately $72 billion at December 31, 2008. These actions served Citigroup well duringamounts are in addition to cash deposited from the unprecedented market conditions atbroker-dealer "cash box" noted above. Citigroup's bank subsidiaries also have significant additional liquidity resources through unencumbered highly liquid securities and other assets available for secured funding through private markets or that are, or could be, pledged to the endmajor Central Banks and the U.S. Federal Home Loan Banks. The liquidity value of the 2008 third quarter. Continued de-leveragingliquid securities was $59.4 billion at September 30, 2009 compared with $53.3 billion at June 30, 2009. Significant amounts of cash and liquid securities are also available in other Citigroup entities.
As a result of the actions described above and the enhancement of our liquidity position have allowed theCompany's current funding levels, management currently believes Citi is largely pre-funded heading into 2010, with a deliberately liquid and flexible balance sheet. 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 by a large retail and corporate deposit base of $780 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 core. During the three months ending September 30, 2008, 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. On a volume basis, significant increases inTransaction Services deposits were driven by higher cash 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.
Banking SubsidiariesSubsidiaries—Constraints on Dividends
There are various legal limitations on the ability of Citigroup's subsidiary depository institutions to extend credit, pay dividends or otherwise supply funds to Citigroup and its nonbanknon-bank subsidiaries. TheCurrently, the approval of the Office of the Comptroller of the Currency,OCC, 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. ConsistentCitigroup did not receive any dividends from its banking subsidiaries during the third quarter of 2009.
Non-Banking Subsidiaries—Constraints on Dividends
Citigroup's non-bank subsidiaries, including Citigroup Global Market Holdings Inc. (CGMHI), 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 these rulesthe vast majority of its assets consisting of marketable securities and other considerations, Citigroup estimatescollateralized 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 asits capital base supports the regulatory capital requirements of September 30, 2008, its subsidiaries.
Some of Citigroup's non-bank subsidiaries, including CGMHI, have credit facilities with Citigroup's subsidiary depository institutions, could distribute dividends to Citigroupincluding Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of approximately $7.2 billion.
At September 30, 2008, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. (CFI) and Citigroup's Subsidiaries were as follows:
| In billions of dollars | Citigroup Parent company | CGMHI(1) | Citigroup Funding Inc.(1) | Other Citigroup Subsidiaries(2) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 185.1 | $ | 21.9 | $ | 41.6 | $ | 144.5 | |||||
Commercial paper | $ | — | $ | — | $ | 28.7 | $ | 1.0 | |||||
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 on page 104 for further detail on long-term debt and commercial paper outstanding.Statements.
Credit Ratings
Citigroup's ability to access the capital markets and other sources of wholesale 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, 2008, Fitch Ratings, Moody's Investors Service, Generally, since May of 2009, Citigroup's ratings have largely been consistent and Standard & Poor's placed the ratings outlook of Citigroup, Inc. and its subsidiaries on "Watch Negative", "Under Review for possible downgrade", and "CreditWatch with negative implication", respectively.stable.
As a result of the Citigroup guarantee, changes in ratings and ratings outlooks for Citigroup Funding Inc.CFI are the same as those of Citigroup Inc. noted above.
Citigroup's Debt Ratings as of September 30, 20082009
| | 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 September 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 $15.9 billion funding requirement in the form of collateral and cash obligations. Further, as of September 30, 2009, a one-notch downgrade of the senior debt/long-term ratings of Citibank, N.A. would result in an approximately $4.4 billion funding requirement in the form of collateral and cash obligations. Because of the current credit ratings of Citibank, N.A., a one-notch downgrade of its senior debt/long-term rating is unlikely to have any impact on its commercial paper/short-term rating.
As a result of the adoption of SFAS No. 166 and SFAS 167 (see Note 1 to the Consolidated Financial Statements), certain credit rating agencies have raised concerns about the loss of GAAP sale treatment in certain securitization transactions and the resulting effects under the FDIC's securitization rule. Specifically, under the FDIC's securitization rule, so long as a securitization is accounted for as a sale for GAAP purposes and certain other conditions are satisfied, the FDIC, when acting as conservator or receiver of an insolvent bank, will also treat the transferred assets as sold and thus surrender its rights to reclaim the financial assets transferred in the securitization. With the adoption of SFAS 166 and SFAS 167, GAAP sales treatment will be eliminated in certain securitizations, thus potentially putting securitized assets at risk of seizure by the FDIC in cases of conservatorship or receivership.
The FDIC is considering a revision to its current regulations that would continue to recognize the legal isolation of securitized assets after the adoption of SFAS 166 and SFAS 167; however, it is unclear at this time what changes to the rules, if any, will be made or if the affected securitization structures will need to be modified in order to comply with those rules. If the FDIC does not act and/or if the affected securitization vehicles are unable to take appropriate steps to restructure their programs, the bond ratings of certain notes issued by these securitization vehicles, including Citi's credit card securitization vehicles, could be lowered or withdrawn. In addition, these securitization vehicles may be unable to issue new bonds with a rating that is higher than the sponsoring bank's then-current rating.
LIQUIDITYTable of Contents
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-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.
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 in Regional Consumer Banking and letters of creditLocal Consumer Lending. 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 conduitscertain identified significant unconsolidated variable interest entities (VIEs) 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.2009. 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 of 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 December 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. 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.Consolidated Financial Statements.
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 exposureSee 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 Model for Variable Interest Entities."
| | | | Credit rating distribution | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Citi-Administered Asset-Backed Commercial Paper Conduits | Total assets (in billions) | Weighted average life | AAA | AA | A | BBB/BBB+ and below | ||||||||||||
| $ | 39.7 | 4.55 years | 41 | % | 44 | % | 11 | % | 4 | % | ||||||||
The FASB has issued an Exposure Draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the proposed standard has not been finalized and the Board's proposals are subject to a public comment period, this change may have a significant impact on Citigroup's consolidated financial statements as the Company may lose sales treatment for assets previously sold to a QSPE, as well as for future sales, and for transfers of a portion of an asset. This proposed revision could become effective in January 2010. As of September 30, 2008, the total assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment were approximately $820 billion.
| Asset class | % of total portfolio | |||
|---|---|---|---|---|
Student loans | 31 | % | ||
Trade receivables | 9 | % | ||
Credit cards and consumer loans | 4 | % | ||
Portfolio finance | 11 | % | ||
Commercial loans and corporate credit | 17 | % | ||
Export finance | 19 | % | ||
Auto | 5 | % | ||
Residential mortgage | 4 | % | ||
Total | 100 | % | ||
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.
| | | | 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) | $ | 16.1 | 3.9 years | 12 | % | 12 | % | 12 | % | 49 | % | 15 | % | ||||||||
Collateralized loan obligations (CLOs) | $ | 13.8 | 6.6 years | 1 | % | 1 | % | 45 | % | 8 | % | 45 | % | ||||||||
The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed.
| | 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) | $ | 8.5 | 12.4 years | 12 | % | 85 | % | 3 | % | ||||||
Proprietary TOB trusts (consolidated and non-consolidated) | $ | 13.0 | 16.3 years | 8 | % | 77 | % | 15 | % | ||||||
QSPE TOB trusts (not consolidated) | $ | 0.7 | 10.9 years | 88 | % | 12 | % | 0 | % | ||||||
Credit Commitments and LinesTable of CreditContents
The table below summarizes Citigroup's credit commitments as of September 30,See the Company's 2008 Annual Report on Form 10-K 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 1812 to the Consolidated Financial Statements, on page 143herein, for additional information on credit commitments and linesa discussion of credit.contractual obligations.
FAIR VALUATION For a discussion of fair value of assets and liabilities, see Note 17 and Note 18 to the Consolidated Financial 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, 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, Citigroup Inc. Financial Statements: Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended September 30, Consolidated Balance Sheet—September 30, Consolidated Statement of Changes in Consolidated Statement of Cash Flows (Unaudited)—Nine Months Ended Consolidated Balance Sheet—Citibank, N.A. and Notes to Consolidated Financial Statements (Unaudited): Note 1—Basis of Presentation Note 2—Discontinued Operations Note 3—Business Segments Note 4—Interest Revenue and Expense Note 5—Commissions and Fees Note 6—Retirement Benefits Note 7—Restructuring Note 8—Earnings Per Share Note 9—Trading Account Assets and Liabilities Note 10—Investments Note 11—Goodwill and Intangible Assets Note 12—Debt Note 13—Preferred Stock Note 14—Changes in Accumulated Other Comprehensive Income (Loss) Note 15—Securitizations and Variable Interest Entities Note 16—Derivatives Activities Note 17— Note 18— Note 19—Fair Value of Financial Instruments Note 20—Guarantees Note 21—Contingencies Note Note Note 24—Condensed Consolidating Financial Statement Schedules CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) Citigroup Inc. and Subsidiaries Revenues Interest revenue Interest expense Net interest revenue Commissions and fees Principal transactions Administration and other fiduciary fees Realized gains (losses) from sales of investments Insurance premiums Other revenue Total non-interest revenues Total revenues, net of interest expense Provision for credit losses and for benefits and claims Provision for loan losses Policyholder benefits and claims Provision for unfunded lending commitments Total provision for credit losses and for benefits and claims Operating expenses Compensation and benefits Premises and equipment Technology/communication Advertising and marketing Restructuring Other operating Total operating expenses Income (loss) from continuing operations before income taxes and minority interest Provision (benefits) for income taxes Minority interest, net of income taxes Income (loss) from continuing operations Discontinued operations Income from discontinued operations Gain (loss) on sale Provision (benefits) for income taxes Income from discontinued operations, net Net Income (loss) Basic earnings per share(2) Income (loss) from continuing operations Income from discontinued operations Net Income (loss) Weighted average common shares outstanding Diluted earnings per share(2) Income (loss) from continuing operations Income from discontinued operations Net Income (loss) Adjusted weighted average common shares outstanding Revenues Interest revenue Interest expense Net interest revenue Commissions and fees Principal transactions Administration and other fiduciary fees Realized gains (losses) on sales of investments Other-than-temporary impairment losses on investments(1) Gross impairment losses Less: Impairments recognized in OCI Net impairment losses recognized in earnings Insurance premiums Other revenue Total non-interest revenues Total revenues, net of interest expense Provisions for credit losses and for benefits and claims Provision for loan losses Policyholder benefits and claims Provision for unfunded lending commitments Total provisions for credit losses and for benefits and claims Operating expenses Compensation and benefits Premises and equipment Technology/communication Advertising and marketing Restructuring Other operating Total operating expenses Income (loss) from continuing operations before income taxes Provision (benefit) for income taxes Income (loss) from continuing operations Discontinued operations Income (loss) from discontinued operations Gain (loss) on sale Provision (benefit) for income taxes Income (loss) from discontinued operations, net of taxes Net income (loss) before attribution of noncontrolling interests Net Income (loss) attributable to noncontrolling interests Citigroup's net income (loss) Basic earnings per share(2) Income (loss) from continuing operations Income (loss) from discontinued operations, net of taxes Net income (loss) Weighted average common shares outstanding Diluted earnings per share(2) Income (loss) from continuing operations Income (loss) from discontinued operations, net of taxes Net income (loss) Adjusted weighted average common shares outstanding See Notes to the Assets Cash and due from banks (including segregated cash and other deposits) Deposits at interest with banks 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) Brokerage receivables Trading account assets (including $117,667 and $157,221 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) Investments (including $21,932 and $21,449 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) Loans, net of unearned income Consumer (including $32 as of September 30, 2008 at fair value) Corporate (including $3,430 and $3,727 as of September 30, 2008 and December 31, 2007, respectively, at fair value) Loans, net of unearned income Allowance for loan losses Total loans, net Goodwill Intangible assets (including $8,346 and $8,380 at September 30,2008 and December 31,2007, respectively, at fair value) Other assets (including $14,110 and $9,802 as of September 30, 2008 and December 31, 2007 respectively, at fair value) Assets of discontinued operations held for sale Total assets Liabilities Non-interest-bearing deposits in U.S. offices 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) Non-interest-bearing deposits in offices outside the U.S. 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) Total deposits 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) Brokerage payables Trading account liabilities Short-term borrowings (including $7,307 and $13,487 as of September 30, 2008 and December 31, 2007, respectively, at fair value) Long-term debt (including $47,482 and $79,312 as of September 30, 2008 and December 31, 2007, respectively, at fair value) Other liabilities (including $2,923 and $1,568 as of September 30, 2008 and December 31, 2007, respectively, at fair value) Liabilities of discontinued operations held for sale Total liabilities Stockholders' equity Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value Common stock ($.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 Additional paid-in capital Retained earnings Treasury stock, at cost:September 30, 2008—222,203,903 shares and December 31, 2007—482,834,568 shares Accumulated other comprehensive income (loss) Total stockholders' equity Total liabilities and stockholders' equity CITIGROUP INC. AND SUBSIDIARIES Citigroup Inc. and Subsidiaries Assets Cash and due from banks (including segregated cash and other deposits) Deposits with banks Federal funds sold and securities borrowed or purchased under agreements to resell (including $87,886 and $70,305 as of September 30, 2009 and December 31, 2008, respectively, at fair value) Brokerage receivables Trading account assets (including $128,154 and $148,703 pledged to creditors at September 30, 2009 and December 31, 2008, respectively) Investments (including $18,413 and $14,875 pledged to creditors at September 30, 2009 and December 31, 2008, respectively) Loans, net of unearned income Consumer (including $30 and $36 at September 30, 2009 and December 31, 2008, respectively, at fair value) Corporate (including $1,475 and $2,696 at September 30, 2009 and December 31, 2008, respectively, at fair value) Loans, net of unearned income Allowance for loan losses Total loans, net Goodwill Intangible assets (other than MSRs) Mortgage servicing rights (MSRs) Other assets (including $13,670 and $21,372 as of September 30, 2009 and December 31, 2008 respectively, at fair value) Assets of discontinued operations held for sale Total assets Liabilities Deposits Non-interest-bearing deposits in U.S. offices Interest-bearing deposits in U.S. offices (including $919 and $1,335 at September 30, 2009 and December 31, 2008, respectively, at fair value) Total U.S. deposits Non-interest-bearing deposits in offices outside the U.S. Interest-bearing deposits in offices outside the U.S. (including $1,110 and $1,271 at September 30, 2009 and December 31, 2008, respectively, at fair value) Total international deposits Total deposits Federal funds purchased and securities loaned or sold under agreements to repurchase (including $116,693 and $138,866 as of September 30, 2009 and December 31, 2008, respectively, at fair value) Brokerage payables Trading account liabilities Short-term borrowings (including $1,443 and $17,607 at September 30, 2009 and December 31, 2008, respectively, at fair value) Long-term debt (including $27,186 and $27,263 at September 30, 2009 and December 31, 2008, respectively, at fair value) Other liabilities (including $14,819 and $11,889 as of September 30, 2009 and December 31, 2008, respectively, at fair value) Liabilities of discontinued operations held for sale Total liabilities Citigroup stockholders' equity Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares:12,038 at September 30, 2009, at aggregate liquidation value Common stock ($0.01 par value; authorized shares: 60 billion), issued shares:23,044,331,654 and 5,671,743,807 at September 30, 2009 and December 31, 2008, respectively. Additional paid-in capital Retained earnings Treasury stock, at cost:September 30, 2009—180,384,393 shares and December 31, 2008—221,675,719 shares Accumulated other comprehensive income (loss) Total Citigroup stockholders' equity Noncontrolling interest Total equity Total liabilities and equity See Notes to the Consolidated Financial Statements. CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN Preferred stock at aggregate liquidation value Balance, beginning of period Issuance of preferred stock Redemption or retirement of preferred stock Balance, end of period Common stock and additional paid-in capital Balance, beginning of period Employee benefit plans Issuance of common stock Issuance of shares(1) Other Balance, end of period Retained earnings Balance, beginning of period, as previously reported Prior period adjustment(2) Balance, beginning of period, as restated Adjustment to opening balance, net of tax(3) Adjusted balance, beginning of period Net income (loss) Common dividends(4) Preferred dividends Balance, end of period Treasury stock, at cost Balance, beginning of period Issuance of shares pursuant to employee benefit plans Treasury stock acquired(5) Issuance of shares(1) Other Balance, end of period Accumulated other comprehensive income (loss) Balance, beginning of period Adjustment to opening balance, net of tax(6) Adjusted balance, beginning of period Net change in unrealized gains and losses on investment securities, net of tax Net change in cash flow hedges, net of tax Net change in foreign currency translation adjustment, net of tax Pension liability adjustment, net of tax Net change in Accumulated other comprehensive income (loss) Balance, end of period Total common stockholders' equity (shares outstanding: 5,449,540 at September 30, 2008 and 4,994,581 at December 31, 2007) Total stockholders' equity Comprehensive income (loss) Net income (loss) Net change in Accumulated other comprehensive income (loss) Total comprehensive income (loss) Preferred stock at aggregate liquidation value Balance, beginning of period Issuance of preferred stock Conversion of preferred stock Balance, end of period Common stock and additional paid-in capital Balance, beginning of period Employee benefit plans Issuance of Common stock Issuance of shares for Nikko Cordial acquisition Issuance of TARP-related warrants Reset of convertible preferred stock conversion price Conversion of preferred stock to common stock Other Balance, end of period Retained earnings Balance, beginning of period Adjustment to opening balance, net of tax(1) Adjusted balance, beginning of period Net income (loss) Common dividends(2) Preferred dividends Preferred stock Series H discount accretion Reset of convertible preferred stock conversion price Conversion of Preferred stock Balance, end of period Treasury stock, at cost Balance, beginning of period Issuance of shares pursuant to employee benefit plans Treasury stock acquired(3) Issuance of shares for Nikko Cordial acquisition Other Balance, end of period Accumulated other comprehensive income (loss) Balance, beginning of period Adjustment to opening balance, net of tax(1) Adjusted balance, beginning of period Net change in unrealized gains and losses on investment securities, net of tax Net change in cash flow hedges, net of tax Net change in FX translation adjustment, net of tax Pension liability adjustment, net of tax Net change in Accumulated other comprehensive income (loss) Balance, end of period Total Citigroup common stockholders' equity (shares outstanding: 22,863,947 at September 30, 2009 and 5,450,068 at December 31, 2008) Total Citigroup stockholders' equity Noncontrolling interests Balance, beginning of period Initial origination of a noncontrolling interest Transactions between noncontrolling interest shareholders and the related consolidating subsidiary Transactions between Citigroup and the noncontrolling interest shareholders Net income attributable to noncontrolling interest shareholders Dividends paid to noncontrolling interest shareholders Accumulated other comprehensive income—Net change in unrealized gains and losses on investments securities, net of tax Accumulated other comprehensive income—Net change in FX translation adjustment, net of tax All other Net change in noncontrolling interests Balance, end of period Total equity Comprehensive income (loss) Net income (loss) before attribution of noncontrolling interests Net change in accumulated other comprehensive income (loss) Total comprehensive income (loss) Comprehensive income (loss) attributable to the noncontrolling interest Comprehensive income (loss) attributable to Citigroup See Notes to the CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Cash Flows from operating activities of continuing operations Net income (loss) Income from discontinued operations, net of taxes Loss on sale, net of taxes Income (loss) from 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 Additions to deferred policy acquisition costs Depreciation and amortization Provision for credit losses Change in trading account assets Change in trading account liabilities Change in federal funds sold and securities borrowed or purchased under agreements to resell Change in federal funds purchased and securities loaned or sold under agreements to repurchase Change in brokerage receivables net of brokerage payables Net losses/(gains) from sales of investments Change in loans held-for-sale Other, net Total adjustments Net cash provided by (used in) operating activities of continuing operations Cash flows from investing activities of continuing operations Change in deposits at interest with banks Change in loans Proceeds from sales and securitizations of loans Purchases of investments Proceeds from sales of investments Proceeds from maturities of investments Capital expenditures on premises and equipment Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets Business acquisitions Net cash used in investing activities of continuing operations Cash flows from financing activities of continuing operations Dividends paid Issuance of common stock Issuance (redemptions) of preferred stock Treasury stock acquired Stock tendered for payment of withholding taxes Issuance of long-term debt Payments and redemptions of long-term debt Change in deposits Change in short-term borrowings Net cash (used in) provided by financing activities of continuing operations Effect of exchange rate changes on cash and cash equivalents Net cash from discontinued operations Change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period Supplemental disclosure of cash flow information for continuing operations Cash paid during the period for income taxes Cash paid during the period for interest Non-cash investing activities Transfers to repossessed assets Cash flows from operating activities of continuing operations Net income (loss) before attribution of noncontrolling interests Net income (loss) attributable to noncontrolling interests Citigroup's net income (loss) Income (loss) from discontinued operations, net of taxes Gain (loss) on sale, net of taxes Income (loss) from continuing operations—excluding noncontrolling interests 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 Additions to deferred policy acquisition costs Depreciation and amortization Provision for credit losses Change in trading account assets Change in trading account liabilities Change in federal funds sold and securities borrowed or purchased under agreements to resell Change in federal funds purchased and securities loaned or sold under agreements to repurchase Change in brokerage receivables net of brokerage payables Net losses (gains) from sales of investments Change in loans held-for-sale Other, net Total adjustments Net cash provided by (used in) operating activities of continuing operations Cash flows from investing activities of continuing operations Change in deposits at interest with banks Change in loans Proceeds from sales and securitizations of loans Purchases of investments Proceeds from sales of investments Proceeds from maturities of investments Capital expenditures on premises and equipment Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets Net cash provided by investing activities of continuing operations Cash flows from financing activities of continuing operations Dividends paid Issuance of common stock Issuance (redemptions) of preferred stock Treasury stock acquired Stock tendered for payment of withholding taxes Issuance of long-term debt Payments and redemptions of long-term debt Change in deposits Change in short-term borrowings Net cash (used in) provided by financing activities of continuing operations Effect of exchange rate changes on cash and cash equivalents Net cash from discontinued operations Change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period Supplemental disclosure of cash flow information for continuing operations Cash (received)paid during the period for income taxes Cash paid during the period for interest Non-cash investing activities Transfers to repossessed assets See Notes to the Assets Cash and due from banks Deposits at interest with banks Federal funds sold and securities purchased under agreements to resell Trading account assets (including $17,741 and $22,716 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) Investments (including $3,380 and $3,099 pledged to creditors as of September 30, 2008 and December 31, 2007, respectively) Loans, net of unearned income Allowance for loan losses Total loans, net Goodwill Intangible assets Premises and equipment, net Interest and fees receivable Other assets Assets of discontinued operations held for sale Total assets Liabilities Non-interest-bearing deposits in U.S. offices Interest-bearing deposits in U.S. offices Non-interest-bearing deposits in offices outside the U.S. Interest-bearing deposits in offices outside the U.S. Total deposits Trading account liabilities Purchased funds and other borrowings Accrued taxes and other expense Long-term debt and subordinated notes Other liabilities Liabilities of discontinued operations held for sale Total liabilities Stockholder's equity Capital stock ($20 par value) outstanding shares: 37,534,553 in each period Surplus Retained earnings Accumulated other comprehensive income (loss)(1) Total stockholder's equity Total liabilities and stockholder's equity Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under agreements to resell Trading account assets (including $9,539 and $12,092 pledged to creditors at September 30, 2009 and December 31, 2008, respectively) Investments (including $2,633 and $3,028 pledged to creditors at September 30, 2009 and December 31, 2008, respectively) Loans, net of unearned income Allowance for loan losses Total loans, net Goodwill Intangible assets Premises and equipment, net Interest and fees receivable Other assets Total assets Liabilities Non-interest-bearing deposits in U.S. offices Interest-bearing deposits in U.S. offices Non-interest-bearing deposits in offices outside the U.S. Interest-bearing deposits in offices outside the U.S. Total deposits Trading account liabilities Purchased funds and other borrowings Accrued taxes and other expenses Long-term debt and subordinated notes Other liabilities Total liabilities Citibank stockholder's equity Capital stock ($20 par value) outstanding shares: 37,534,553 in each period Surplus Retained earnings Accumulated other comprehensive income (loss)(1) Total Citibank stockholder's equity Noncontrolling interest Total equity Total liabilities and equity See Notes to the CITIGROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying 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. As noted above, the Notes to Consolidated Financial Statements are unaudited. FASB Launches Accounting Standards Codification The FASB has issued FASB Statement No. 168,The "FASB Accounting Standards Codification™" and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). The Statement establishes the FASB Accounting Standards Codification™ (Codification or ASC) as the single source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in the Codification have become nonauthoritative. Following the Codification, the Board will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASU), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the FASB's Codification project, but what does change is the way the guidance is organized and presented. As a result, these changes have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. Citigroup is providing references to the Codification topics alongside references to the existing standards. Significant Accounting Policies The Company's accounting policies are fundamental to understanding management's discussion and analysis of ACCOUNTING CHANGES Other-Than-Temporary Impairments on Investment Securities In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (ASC 320-10-65-1/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 available-for-sale (AFS) and held-to-maturity (HTM) debt securities that management has no intent to sell and believes that it more-likely-than-not will not be required to sell prior to recovery, only the credit loss component of the impairment is The cumulative effect of the change included an increase in the opening balance ofRetained 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 Measurement of Fair Value in 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" (ASC 820-10-65-4). 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 whether 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. Measuring Liabilities at Fair Value In August 2009, the FASB issued ASU No. 2009-05,Fair Value Measurements and Disclosure (Topic 820): Measuring Liabilities at Fair Value. This ASU provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: This ASU also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required, are Level 1 fair value measurements. This ASU is effective immediately and does not have a material impact to Citigroup. 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" (ASC 260-10-45 to 65). 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 The following table shows the effect of adopting the changed accounting for participating securities on Citigroup's basic and diluted EPS for 2008 and 2009: Basic and Diluted Earnings per Share(1) As reported Two-class method N/A Not Applicable Additional Disclosures for Derivative Instruments Business Combinations In December 2007, the FASB issued Statement No. 141(revised),Business Combinations (ASC 805-10/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 retains the fundamental requirements that the acquisition method of accounting (which was called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The Statement also retains the guidance for identifying and recognizing intangible assets separately from goodwill. The most significant changes 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 noncontrolling interest portion, and goodwill is recorded as if a 100% interest was acquired. Citigroup adopted ASC 805-10 (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 (ASC 810-10-65-1/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, ASC 810-10-65-1 (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 The gain or loss on the Citigroup adopted ASC 810-10-65-1 (SFAS 160) on January 1, 2009. As a result, $2.392 billion of noncontrolling interests was reclassified fromOther liabilities to Citigroup's Stockholders' equity. Sale with Citigroup adopted the FUTURE APPLICATION OF ACCOUNTING STANDARDS In The disclosures about plan assets required by this FSP are effective for fiscal years ending after December 15, 2009. This FSP will have no effect on the Company's accounting for plan benefits and Investments in Certain Entities that Calculate Net Asset Value per Share On September 30, 2009, the Proposed Additional Disclosures Regarding Fair Value Measurements On August 28, 2009, the FASB issued an exposure draft of a proposed ASU,Improving Disclosures About Fair Value Measurements, which proposes new disclosures about fair value measurements. Certain of the proposed amendments would be effective for In June 2008, the FASB issued an Elimination of QSPEs and Changes in the As a result of implementing these new accounting standards, Citigroup expects to be required to consolidate certain of the VIEs and former QSPEs with which it currently has involvement. An ongoing evaluation of the application of these new requirements could, with the resolution of certain uncertainties, result in the identification of additional VIEs and QSPEs, other than those presented below, needing to be consolidated. It is not currently anticipated, however, that any such newly identified VIEs and QSPEs would have a significant impact on Citigroup's Consolidated Financial Statements or capital position. In accordance with SFAS 167, Citigroup is currently evaluating two approaches for consolidating all of the VIEs and QSPEs that it expects to consolidate. The first approach would require initially measuring the assets, liabilities, and noncontrolling interests of the VIEs and QSPEs at their carrying values (the amounts at which the assets, liabilities, and noncontrolling interests would have been carried in the Consolidated Financial Statements, if Citigroup were to be designated as the primary beneficiary). The second approach under consideration would be to elect the fair value option, in which all of the financial assets and liabilities of certain designated VIEs and QSPEs would be recorded at fair value upon adoption of SFAS 167 and continue to be marked to market thereafter, with changes in fair value reported in earnings. While this review has not yet been completed, Citigroup's tentative approach would be to consolidate all of the VIEs and QSPEs that it expects to consolidate at carrying value, except for certain private label residential mortgages, for which the fair value option would be elected. The following tables present the pro forma impact of adopting these new accounting standards applying this tentative approach. The actual impact of adopting these new accounting requirements could, however, be significantly different should Citigroup change from this methodology. For instance, if Citigroup were to consolidate its off-balance sheet credit card securitization vehicles applying the fair value option, an associated allowance for loan losses would not be established upon adoption of SFAS 167, with an offsetting charge toRetained earnings. Rather, the charge toRetained earnings would be affected by the difference between the fair value of the assets and liabilities that Citigroup would consolidate, which would result in a lesser charge toRetained earnings than under the carrying value approach. The pro forma impact of these impending changes on incremental GAAP assets and resulting risk-weighted assets for those VIEs and former QSPEs that are currently expected to be consolidated or deconsolidated for accounting purposes as of January 1, 2010 (based on financial information as of September 30, Impact of Consolidation: Credit cards Commercial paper conduits Student loans Private label consumer mortgages Investment funds Commercial mortgages Muni bonds Mutual fund deferred sales commissions Subtotal Impact of Deconsolidation: Collateralized debt obligations(2) Total In September 2009, the U.S. banking and thrift regulatory agencies issued a notice of proposed rulemaking in which the agencies proposed, in part, to eliminate the existing provision in the risk-based capital rules that permits a banking organization, if it is required to consolidate for accounting purposes a qualifying ABCP program that it sponsors, to exclude the consolidated assets from its risk-weighted assets. If this exclusion under the existing risk-based capital rules for qualifying ABCP programs, such as commercial paper conduits, were to be eliminated, as proposed, Citigroup's total incremental risk-weighted assets (based on financial information as of September 30, 2009) would be greater by approximately an additional $15.9 billion. The above table reflects: (i) the estimated portion of the assets of former QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment as of September 30, 2009 (totaling approximately $733.5 billion), and (ii) the estimated assets of significant unconsolidated VIEs as of September 30, 2009 with which Citigroup is involved In addition, the cumulative effect of adopting these new accounting standards as of January 1, 2010, based on financial information as of September 30, 2009, would result in an estimated aggregate after-tax charge toRetained earnings of approximately $7.8 billion, reflecting the net effect of an overall pretax charge toRetained earnings (primarily relating to the establishment of loan loss reserves and the reversal of residual interests held) of approximately $12.5 billion and the recognition of related deferred tax assets amounting to approximately $4.7 billion. The Tier 1 Capital Total Capital Elimination of the exclusion noted above under the existing risk-based capital rules for qualifying ABCP programs, such as commercial paper conduits, would further adversely affect certain of Citigroup's regulatory capital ratios. The pro forma impact on Citigroup's Tier 1 Capital and Total Capital ratios (based on financial information as of September 30, 2009), including the additional approximately $15.9 billion of risk-weighted assets arising from the consolidation of the commercial paper conduits, would be a total reduction in these ratios from those reported at September 30, 2009 of approximately 151 bps and 154 bps, respectively. The actual impact of adopting the new accounting standards on January 1, 2010 could differ, as financial information changes from the September 30, 2009 estimates and as several uncertainties in the application of these 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" Sale of On The Results for all of the The following is a summary as of September 30, Assets Cash due from banks Deposits at interest with banks Investments Loans Allowance for Loan Losses Goodwill Other Assets Total assets Liabilities Deposits Other Liabilities Total liabilities Assets Cash due from banks Deposits at interest with banks Federal funds sold and securities borrowed or purchased under agreements to resell Brokerage receivables Trading account assets Investments Goodwill Intangibles Other assets Total assets Liabilities Federal funds purchased and securities loaned or sold under agreements to repurchase sold under agreements to repurchase Brokerage payables Trading account liabilities Short term borrowings Other liabilities Total liabilities Summarized financial information for discontinued operations, including cash flows, related to the sale of Total revenues, net of interest expense Income from discontinued operations Provision (benefit) for income taxes (1) Income from discontinued operations, net Total revenues, net of interest expense Income (loss) from discontinued operations Provision (benefit) for income taxes and noncontrolling interest, net of taxes(1) Income (loss) from discontinued operations, net of taxes Cash flows from: Operating activities Investing activities Financing activities Net cash provided by discontinued operations Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations Sale of Citigroup's German Retail Banking Operations On December 5, 2008, Citigroup sold its German retail banking operations to Credit Mutuel for Euro 5.2 billion in cash plus the German retail bank's operating net earnings accrued in 2008 through the closing. The sale resulted in an after-tax gain of approximately $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 did not include the corporate and investment banking business or the Germany-based European data center. Results for all of the German retail banking businesses sold are reported asDiscontinued operations for all periods presented. Summarized financial information forDiscontinued operations, including cash flows, related to the sale of the German retail banking operations is as follows: Total revenues, net of interest expense Income (loss) from discontinued operations Gain (loss) on sale(1) Provision (benefit) for income taxes and noncontrolling interest, net of taxes Income (loss) from discontinued operations, net of taxes Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations CitiCapital On July 31, 2008, America. The total proceeds from the transaction were approximately $12.5 billion and resulted in an after-tax loss to Citigroup of $305 Results for all of the CitiCapital businesses sold Summarized financial information for Total revenues, net of interest expense Income (loss) from discontinued operations Gain (loss) from sale Provision (benefit) for income taxes Income (loss) from discontinued operations, net Cash flows from: Operating activities Investing activities Financing activities Net cash provided by discontinued operations Total revenues, net of interest expense Income (loss) from discontinued operations Gain (loss) on sale(1) Provision (benefit) for income taxes and noncontrolling interest, net of taxes Income (loss) from discontinued operations, net of taxes Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations Combined Results for Discontinued Operations Total revenues, net of interest expense Income (loss) from discontinued operations Gain (loss) from sale Provision (benefit) for income taxes Income (loss) from discontinued operations, net Total revenues, net of interest expense Income (loss) from discontinued operations Gain (loss) on sale Provision (benefit) for income taxes and noncontrolling interest, net of taxes Income from discontinued operations, net of taxes Cash flows from: Operating activities Investing activities Financing activities Net cash provided by discontinued operations Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations 3. BUSINESS SEGMENTS The following Global Cards Consumer Banking Institutional Clients Group Global Wealth Management Corporate/Other(4) Total Regional Consumer Banking Institutional Clients Group Subtotal Citicorp Citi Holdings Corporate/Other Total Global Cards Consumer Banking Institutional Clients Group Global Wealth Management Corporate/Other(4) Total Regional Consumer Banking Institutional Clients Group Subtotal Citicorp Citi Holdings Corporate/Other Total 4. INTEREST REVENUE AND EXPENSE For the three- and nine-month periods ended September 30, Interest revenue Loan interest, including fees Deposits at interest with banks Federal funds sold and securities purchased under agreements to resell Investments, including dividends Trading account assets(2) Other interest Total interest revenue Interest expense Deposits Trading account liabilities(2) Short-term debt and other liabilities Long-term debt Total interest expense Net interest revenue Provision for loan losses Net interest revenue after provision for loan losses Interest revenue Loan interest, including fees Deposits at interest with banks Federal funds sold and securities purchased under agreements to resell Investments, including dividends Trading account assets(1) Other interest Total interest revenue Interest expense Deposits(2) Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities(1) Short-term borrowing Long-term debt Total interest expense Net interest revenue Provision for loan losses Net interest revenue after provision for loan losses 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, Credit cards and bank cards Investment banking Smith Barney ICG trading-related Other Consumer Transaction services Checking-related Nikko Cordial-related(2) Other ICG Primerica Loan servicing(3) Corporate finance(4) Other Total commissions and fees Credit cards and bank cards Investment banking Smith Barney ICG trading-related Other Consumer Transaction services Checking-related Other ICG Primerica Loan servicing(1) Corporate finance(2) Other Total commissions and fees 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 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, Net Expense (Benefit) Benefits earned during the period Interest cost on benefit obligation Expected return on plan assets Amortization of unrecognized: Net transition obligation Prior service cost (benefit) Net actuarial loss Net expense (benefit) Benefits earned during the period Interest cost on benefit obligation Expected returns on plan assets Amortization of unrecognized: Net transition obligation Prior service cost (benefit) Net actuarial loss Curtailment (gain) loss Net expense (benefit) Benefits earned during the period Interest cost on benefit obligation Expected return on plan assets Amortization of unrecognized: Net transition obligation Prior service cost (benefit) Net actuarial loss Net expense (benefit) Benefits earned during the period Interest cost on benefit obligation Expected returns on plan assets Amortization of unrecognized: Net transition obligation Prior service cost (benefit) Net actuarial loss Curtailment (gain) loss Net expense (benefit) 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. 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 Restructuring Initiative and the 2007 Structural Expense Review Restructuring Initiative were: 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. The following 2008 Re-engineering Projects Restructuring Charges Total Citigroup (pretax) Original restructuring charge, First quarter of 2007 Utilization Balance at March 31, 2007 Second quarter of 2007: Additional Charge Foreign exchange Utilization Balance at June 30, 2007 Third quarter of 2007: Additional Charge Foreign exchange Utilization Balance at September 30, 2007 Fourth quarter of 2007: Additional Charge Foreign Exchange Utilization Changes in Estimates Balance at December 31, 2007 First quarter of 2008: Additional Charge Foreign Exchange Utilization Balance at March 31, 2008 Second quarter of 2008: Additional Charge Foreign Exchange Utilization Changes in Estimates Balance at June 30, 2008 Third quarter of 2008: Additional Charge Foreign Exchange Utilization Changes in Estimates Balance at September 30, 2008 Total Citigroup (pretax) Original restructuring charge Utilization Balance at December 31, 2008 Additional charge Foreign exchange Utilization Changes in estimates Balance at March 31, 2009 Additional charge Foreign exchange Utilization Changes in estimates Balance at June 30, 2009 Additional charge Foreign exchange Utilization Changes in estimates Balance at September 30, 2009 Note: The total Citigroup charge in the table above does not include a $51 million one-time pension curtailment charge related to this restructuring initiative, which is recorded as part of the Company'sRestructuring charge in the Consolidated Statement of Income at December 31, 2008. 2007 Structural Expense Review Restructuring Charges Total Citigroup (pretax) Original restructuring charge Additional charge Foreign exchange Utilization Changes in estimates Balance at December 31, 2007 Additional charge Foreign exchange Utilization Changes in estimates Balance at December 31, 2008 Foreign exchange Utilization Changes in estimates Balance at March 31, 2009 Note: The 2007 structural expense review restructuring initiative was fully utilized as of March 31, 2009. The total restructuring reserve balance and total charges as of September 30, 2009 and December 31, 2008 2008 Re-engineering Projects Consumer Banking Global Cards Institutional Clients Group Global Wealth Management Corporate/Other Total Citigroup (pretax) Citicorp Citi Holdings Corporate/Other Total Citigroup (pretax) Citicorp Citi Holdings Corporate/Other Total Citigroup (pretax) The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the Income (loss) from continuing operations Discontinued operations Preferred dividends Income available to common stockholders for basic EPS Effect of dilutive securities Income available to common stockholders for diluted EPS(1) Weighted average common shares outstanding applicable to basic EPS Effect of dilutive securities: Convertible Securities Options Restricted and deferred stock Adjusted weighted average common shares outstanding applicable to diluted EPS Basic earnings per share(2) Income (loss) from continuing operations Discontinued operations Net income (loss) Diluted earnings per share(2) Income (loss) from continuing operations Discontinued operations Net income (loss) Income (loss) before attribution of noncontrolling interests Noncontrolling interest Net income (loss) from continuing operations (for EPS purposes) Income (loss) from discontinued operations, net of taxes Citigroup's net income (loss) Preferred dividends Impact of the conversion price reset related to the $12.5 billion convertible preferred stock private issuance(2) Preferred stock Series H discount accretion Impact of the Public and Private Preferred Stock exchange offer Income (loss) available to common stockholders Allocation of dividends to common stock and participating securities, net of forfeitures Undistributed earnings (loss) for basic EPS(3) Effect of dilutive securities Undistributed earnings (loss) for diluted EPS(4) Weighted average common shares outstanding applicable to basic EPS Effect of dilutive securities: Convertible securities Options Adjusted weighted average common shares outstanding applicable to diluted EPS(3) Basic earnings per share(3)(4) Income (loss) from continuing operations Discontinued operations Net income (loss) Diluted earnings per share(3)(4) Income (loss) from continuing operations Discontinued operations Net income (loss) 9. TRADING ACCOUNT ASSETS AND LIABILITIES Trading account assets and liabilities, at fair value, consisted of the following at September 30, Trading account assets U.S. Treasury and federal agency securities State and municipal securities Foreign government securities Corporate and other debt securities Derivatives(2) Equity securities Mortgage loans and collateralized mortgage securities Other Total trading account assets Trading account liabilities Securities sold, not yet purchased Derivatives(2) Total trading account liabilities Trading account assets Trading mortgage-backed securities Agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total trading mortgage-backed securities U.S. Treasury and Federal Agencies U.S. Treasuries Agency and direct obligations Total U.S. Treasury and Federal Agencies State and municipal securities Foreign government securities Corporate Derivatives(1) Equity securities Other debt securities Total trading account assets Trading account liabilities Securities sold, not yet purchased Derivatives(1) Total trading account liabilities Securities available-for-sale Non-marketable equity securities carried at fair value(1) Non-marketable equity securities carried at cost(2) Debt securities held-to-maturity(3) Total Securities available-for-sale Debt securities held-to-maturity(1) Non-marketable equity securities carried at fair value(2) Non-marketable equity securities carried at cost(3) Total investments Securities Available-for-Sale The amortized cost and fair value of securities available-for-sale (AFS) at September 30, Securities available-for-sale Mortgage-backed securities U.S. Treasury and federal agencies State and municipal Foreign government U.S. corporate Other debt securities Total debt securities available-for-sale Marketable equity securities available-for-sale Total securities available-for-sale Debt securities available-for-sale: Mortgage-backed securities U.S. government agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total mortgage-backed securities U.S. Treasury and federal agency securities U.S. Treasury Agency obligations Total U.S. Treasury and federal agency securities State and municipal Foreign government Corporate Other debt securities Total debt securities available- for-sale Marketable equity securities available-for-sale Total securities available-for-sale The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. As The table below shows the fair value of investments in AFS securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of September 30, 2009 and December 31, 2008: September 30, 2009 Securities available-for-sale Mortgage-backed securities U.S. government agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total mortgage-backed securities U.S. Treasury and federal agency securities U.S. Treasury Agency obligations Total U.S. Treasury and federal agency securities State and municipal Foreign government Corporate Other debt securities Marketable equity securities available-for-sale Total securities available-for-sale December 31, 2008(1) Securities available-for-sale Mortgage-backed securities U.S. government agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total mortgage-backed securities U.S. Treasury and federal agencies U.S. Treasury Agency obligations Total U.S. Treasury and federal agency securities State and municipal Foreign government Corporate Other debt securities Marketable equity securities available-for-sale Total securities available-for-sale The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of September 30, 2009, and December 31, 2008: Mortgage-backed securities(2) Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(3) Total U.S. Treasury and federal agencies Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(3) Total State and municipal Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(3) Total Foreign government Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(3) Total All other(4) Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(3) Total Total debt securities available-for-sale The following tables present interest and dividends on investments for the periods ended September 30, 2009 and 2008: Taxable interest Interest exempt from U.S. federal income tax Dividends Total interest and dividends Taxable interest Interest exempt from U.S. federal income tax Dividends Total interest and dividends The following table presents realized gains and losses on investments for the periods ended September 30, 2009 and 2008. The gross realized investment losses exclude losses from other-than-temporary impairment: Gross realized investment gains Gross realized investment losses Net realized gains (losses) Debt Securities Held-to-Maturity The carrying value and fair value of securities held-to-maturity (HTM) at September 30, 2009 and December 31, 2008 were as follows: September 30, 2009 Debt securities held-to-maturity Mortgage-backed securities U.S. government agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total mortgage-backed securities U.S. Treasury and federal agency securities U.S. Treasury Agency and direct obligations Total U.S. Treasury and federal agency securities State and municipal Corporate Asset-backed securities Other debt securities Total debt securities held-to-maturity December 31, 2008 Debt securities held-to-maturity Mortgage-backed securities U.S. government agency guaranteed Prime Alt-A Subprime Non-U.S. residential Commercial Total mortgage-backed securities U.S. Treasury and federal agency securities U.S. Treasury Agency and direct obligations Total U.S. Treasury and federal agency securities State and municipal Corporate Asset-backed securities Other debt securities Total debt securities held-to-maturity The net unrealized losses classified in accumulated other comprehensive income (AOCI) relate to debt securities reclassified from AFS investments to HTM investments, and to additional declines in fair value for HTM securities that suffer credit impairment. The balance was $8.1 billion as of September 30, 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 HTM that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of September 30, 2009 and December 31, 2008: September 30, 2009 Debt securities held-to-maturity Mortgage-backed securities State and municipal Corporate Asset-backed securities Other debt securities Total debt securities held-to-maturity December 31, 2008 Debt securities held-to-maturity Mortgage-backed securities State and municipal Corporate Asset-backed securities Other debt securities Total debt securities held-to-maturity Excluded from the gross unrealized losses presented in the above table is the $8.1 billion and $8.0 billion of gross unrealized losses recorded in AOCI related to the HTM securities that were reclassified from AFS investments as of September 30, 2009 and December 31, 2008, respectively. Approximately $6.6 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 September 30, 2009 and December 31, 2008, respectively. The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of September 30, 2009 and December 31, 2008: Mortgage-backed securities Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(1) Total State and municipal Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(2) Total All other(2) Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years(1) Total Total debt securities held-to-maturity Evaluating Investments for Other-than-Temporary Impairments The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. Prior to January 1, 2009, these reviews were conducted pursuant to FASB Staff Position No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (ASC 320-10-35). 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 (ASC 320-10-65-1). Accordingly, any credit-related impairment related to debt securities the Company does not plan to sell and is not likely to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in OCI. For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income. 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 Factors considered in determining whether a loss is temporary include: The Company's review for impairment generally entails: For equity securities, management considers the various factors described above, including its intent and ability to hold For debt securities that are not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell or more-likely-than-not would 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 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. For securities purchased and classified as AFS with the expectation of receiving full principal and interest cash flows, this analysis the likelihood of receiving all contractual principal and interest. For securities reclassified out of the trading category in the fourth quarter of 2008, the analysis considers the likelihood of receiving the expected principal and interest cash flows anticipated as of the date of reclassification in the fourth quarter of 2008. The extent of the Company's analysis regarding credit quality and the stress on assumptions used in the analysis have been refined for securities where the current fair value or other characteristics of the security warrant. The paragraphs below describe the Company's process for identifying credit impairment in security types with the most significant unrealized losses as of September 30, 2009. 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. 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 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:•The portion that Citigroup will seek to sell is recorded as a loan held-for-sale in Other Assets on the Consolidated Balance Sheet, and measured at the lower-of-cost-or-market (LOCOM)•The portion that will be retained is recorded as a loan held-for-investment in Loans and measured at amortized cost less impairment. 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.Statements on page 125.Statements.20082009 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company's disclosure controls and procedures were effective.20082009 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.InCertain statements in this Quarterly Report on Form 10-Q, including but not limited to statements included within the Company uses certain forward-looking"Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, "forward-looking statements" are not based on historical facts but instead represent only the Company's and management's beliefs regarding future events. Such statements when describing future business conditions. The Company's actual results may differ materially from those included in the forward-looking statements and are indicatedbe identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions, or future or conditional verbs such as "will," "should," "would,""would" and "could."These forward-lookingSuch statements involve external risksare based on management's current expectations and uncertaintiesare 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 the Company's 2007 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. Risks and uncertainties disclosed in this 10-Q include, but are not limited to:below:impactfactors listed and described under "Risk Factors" in Citigroup's 2008 Annual Report on the value of those liabilities for which the Company has elected the fair value option if credit spreads on the Company's debt instruments are substantially narrower at December 31, 2008 than at September 30, 2008;Form 10-K;possibilityCompany's ability to continue to successfully execute its strategy in winding down Citi Holdings;losses may continue to rise well into 2009 as businesses;environment for consumereffectiveness of Citi's loan modification programs (both Citi-instituted programs and the Home Affordable Modification Program (HAMP)) and their impact on Citi's future results, including delinquency trends, loan loss reserves and net credit continues to deteriorate;losses;Securities & Banking'sthe Special Asset Pool's trading positions in U.S. subprime RMBS and related products, including ABS CDOs, in the event of material changes in market conditions; andimpactoutcome of legal, regulatory, legislative, judicial and other proceedings, both within and outside of the elimination of QSPEs from the guidance on SFAS 140 may have on the Company's consolidated financial statements.U.S.Citigroup Inc. CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS Page No. 20082009 and 20072008 8187 20082009 (Unaudited) and December 31, 20072008 8288 Stockholders' Equity (Unaudited)—Nine Months Ended September 30, 20082009 and 20072008 8489 SeptemberSept 30, 20082009 and 20072008 8691 Subsidiaries Subsidiaries—September 30, 20082009 (Unaudited) and December 31, 20072008 8792 8893 9299 94101 95102 95103 96104 97105 99108 100109 100110 102120 104122 107125 108127 109128 121150 Fair ValueFair-Value Measurement 125158 Guarantees and Credit CommitmentsFair-Value Elections 142172
178
179 145184 20—22—Citibank, N.A. and Subsidiaries Statement of Changes in Stockholder's Equity (Unaudited) 146185 21—23—Subsequent Events
186 147186
CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended September 30, Nine Months Ended September 30, In millions of dollars, except per share amounts 2008 2007(1) 2008 2007(1) $ 26,182 $ 32,267 $ 82,744 $ 89,573 12,776 20,423 42,305 56,427 $ 13,406 $ 11,844 $ 40,439 $ 33,146 $ 3,425 $ 3,944 $ 11,044 $ 15,958 (2,904 ) (246 ) (15,156 ) 5,547 2,165 2,460 6,752 6,635 (605 ) 263 (863 ) 855 823 772 2,513 2,245 370 2,603 2,469 7,690 $ 3,274 $ 9,796 $ 6,759 $ 38,930 $ 16,680 $ 21,640 $ 47,198 $ 72,076 $ 8,943 $ 4,581 $ 21,503 $ 9,512 274 236 809 694 (150 ) 50 (293 ) 50 $ 9,067 $ 4,867 $ 22,019 $ 10,256 $ 7,865 $ 7,595 $ 25,858 $ 24,948 1,771 1,741 5,388 4,861 1,240 1,159 3,703 3,268 515 766 1,799 2,077 8 35 (21 ) 1,475 3,026 2,856 9,117 7,073 $ 14,425 $ 14,152 $ 45,844 $ 43,702
$
(6,812
)
$
2,621
$
(20,665
)
$
18,118 (3,294 ) 492 (9,637 ) 4,908 (95 ) 20 (40 ) 190 $ (3,423 ) $ 2,109 $ (10,988 ) $ 13,020 $ 501 $ 148 $ 896 $ 631 9 — (508 ) — (98 ) 45 (179 ) 201 $ 608 $ 103 $ 567 $ 430 $ (2,815 ) $ 2,212 $ (10,421 ) $ 13,450 $ (0.71 ) $ 0.43 $ (2.26 ) $ 2.65 0.11 0.02 0.11 0.09 $ (0.60 ) $ 0.45 $ (2.15 ) $ 2.74 5,341.8 4,916.1 5,238.3 4,897.1 $ (0.71 ) $ 0.42 $ (2.26 ) $ 2.60 0.11 0.02 0.11 0.09 $ (0.60 ) $ 0.44 $ (2.15 ) $ 2.69 5,867.3 5,010.9 5,752.8 4,990.6 Three months ended September 30, Nine months ended September 30, In millions of dollars, except per share amounts 2009 2008 2009 2008 $ 18,678 $ 26,130 $ 58,932 $ 82,628 6,680 12,726 21,179 42,150 $ 11,998 $ 13,404 $ 37,753 $ 40,478 $ 3,218 $ 3,208 $ 12,823 $ 10,348 1,660 (3,013 ) 5,763 (15,447 ) 1,085 2,081 4,163 6,479 427 150 1,719 376 (2,453 ) (755 ) (6,161 ) (1,239 ) 1,741 — 4,006 — $ (712 ) $ (755 ) $ (2,155 ) $ (1,239 ) 763 823 2,263 2,513 1,951 360 12,551 2,445 $ 8,392 $ 2,854 $ 37,127 $ 5,475 $ 20,390 $ 16,258 $ 74,880 $ 45,953 $ 8,771 $ 8,943 $ 30,919 $ 21,503 324 274 964 809 — (150 ) 195 (293 ) $ 9,095 $ 9,067 $ 32,078 $ 22,019 $ 6,136 $ 7,544 $ 18,730 $ 24,798 1,035 1,342 3,209 3,983 1,114 1,515 3,410 4,534 317 496 1,002 1,713 (34 ) 8 (79 ) (21 ) 3,256 3,102 9,236 9,591 $ 11,824 $ 14,007 $ 35,508 $ 44,598 $ (529 ) $ (6,816 ) $ 7,294 $ (20,664 ) (1,122 ) (3,295 ) 620 (9,628 ) $ 593 $ (3,521 ) $ 6,674 $ (11,036 ) $ (204 ) $ 507 $ (635 ) $ 898 — 9 2 (508 ) 214 (97 ) 44 (188 ) $ (418 ) $ 613 $ (677 ) $ 578 $ 175 $ (2,908 ) $ 5,997 $ (10,458 ) 74 (93 ) 24 (37 ) $ 101 $ (2,815 ) $ 5,973 $ (10,421 ) $ (0.23 ) $ (0.72 ) $ (0.10 ) $ (2.28 ) (0.04 ) 0.11 (0.09 ) 0.11 $ (0.27 ) $ (0.61 ) $ (0.19 ) $ (2.17 ) 12,104.3 5,341.8 7,629.6 5,238.3 $ (0.23 ) $ (0.72 ) $ (0.10 ) $ (2.28 ) (0.04 ) 0.11 (0.09 ) 0.11 $ (0.27 ) $ (0.61 ) $ (0.19 ) $ (2.17 ) 12,216.0 5,831.1 8,045.7 5,727.9 ReclassifiedFor the three and nine months ended September 30, 2009, OTTI losses on investments are accounted for in accordance ASC 320-10-65-1 (FSP FAS 115-2) (see "Accounting Changes" in Note 1 to the Consolidated Financial Statements).period's presentation.(2) shares used in the diluted EPS calculation represent basicfor 2009 and 2008 utilizes Basic shares for the 2008 periodsand Income available to common shareholders (Basic) due to the net loss.negative Income available to common shareholders. Using actual dilutedDiluted shares and Income available to common shareholders (Diluted) would result in anti-dilution. unaudited Consolidated Financial Statement. CITIGROUP INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETIn millions of dollars, except shares September 30,
2008 December 31,
2007(1) (Unaudited) $ 63,026 $ 38,206 78,670 69,366 225,409 274,066 80,532 57,359 457,462 538,984 205,731 215,008 543,436 592,307 173,519 185,686 $ 716,955 $ 777,993 (24,005 ) (16,117 ) $ 692,950 $ 761,876 39,662 41,053 23,464 22,687 164,598 168,875 18,627 — $ 2,050,131 $ 2,187,480 $ 61,694 $ 40,859 215,423 225,198 46,348 43,335 456,878 516,838 $ 780,343 $ 826,230 250,419 304,243 117,536 84,951 169,283 182,082 104,855 146,488 393,097 427,112 94,263 102,927 14,273 — $ 1,924,069 $ 2,074,033 $ 27,424 $ — 57 55 16,884 18,007 105,340 121,769 (9,642 ) (21,724 ) (14,001 ) (4,660 ) $ 126,062 $ 113,447 $ 2,050,131 $ 2,187,480 (1)Reclassified to conform to the current period's presentation. See Notes to the unaudited Consolidated Financial Statements.[This space intentionally left blank]Table of ContentsIn millions of dollars, except shares September 30,
2009 December 31,
2008 (Unaudited) $ 26,482 $ 29,253 217,730 170,331 197,357 184,133 34,667 44,278 340,697 377,635 261,890 256,020 441,491 481,387 180,720 212,829 $ 622,211 $ 694,216 (36,416 ) (29,616 ) $ 585,795 $ 664,600 25,423 27,132 8,957 14,159 6,228 5,657 159,769 165,272 23,604 — $ 1,888,599 $ 1,938,470 $ 77,460 $ 55,485 244,856 234,491 $ 322,316 $ 289,976 40,606 37,412 469,681 446,797 $ 510,287 $ 484,209 $ 832,603 $ 774,185 178,159 205,293 57,672 70,916 130,540 165,800 64,731 126,691 379,557 359,593 86,384 91,970 16,004 — $ 1,745,650 $ 1,794,448 $ 312 $ 70,664 230 57 78,802 19,165 85,208 86,521 (6,059 ) (9,582 ) (17,651 ) (25,195 ) $ 140,842 $ 141,630 2,107 2,392 $ 142,949 $ 144,022 $ 1,888,599 $ 1,938,470 STOCKHOLDERS' EQUITY (Unaudited) Nine Months Ended September 30, In millions of dollars, except shares in thousands 2008 2007 $ — $ 1,000 27,424 — — (800 ) $ 27,424 $ 200 $ 18,062 $ 18,308 (2,405 ) (74 ) 4,911 — (3,500 ) 118 (127 ) — $ 16,941 $ 18,352 $ 121,769 $ 129,267 — (151 ) $ 121,769 $ 129,116 — (186 ) $ 121,769 $ 128,930 (10,421 ) 13,450 (5,175 ) (8,043 ) (833 ) (43 ) $ 105,340 $ 134,294 $ (21,724 ) $ (25,092 ) 4,210 2,763 (7 ) (663 ) 7,858 637 21 26 $ (9,642 ) $ (22,329 ) $ (4,660 ) $ (3,700 ) — 149 $ (4,660 ) $ (3,551 ) (6,657 ) (410 ) (312 ) (1,396 ) (2,419 ) 1,558 47 244 $ (9,341 ) $ (4 ) $ (14,001 ) $ (3,555 ) $ 98,638 $ 126,762 $ 126,062 $ 126,962 $ (10,421 ) $ 13,450 (9,341 ) (4 ) $ (19,762 ) $ 13,446 Nine Months Ended September 30, In millions of dollars, except shares in thousands 2009 2008 $ 70,664 $ — 3,653 27,424 (74,005 ) — $ 312 $ 27,424 $ 19,222 $ 18,062 (3,508 ) (2,405 ) 173 4,911 — (3,500 ) 88 — 1,285 — 61,790 — (18 ) (127 ) $ 79,032 $ 16,941 �� $ 86,521 $ 121,769 413 — $ 86,934 $ 121,769 5,973 (10,421 ) (34 ) (5,175 ) (3,201 ) (833 ) (124 ) — (1,285 ) — (3,055 ) — $ 85,208 $ 105,340 $ (9,582 ) $ (21,724 ) 3,505 4,210 (3 ) (7 ) — 7,858 21 21 $ (6,059 ) $ (9,642 ) $ (25,195 ) $ (4,660 ) (413 ) — $ (25,608 ) $ (4,660 ) 5,818 (6,657 ) 1,012 (312 ) 1,131 (2,419 ) (4 ) 47 $ 7,957 $ (9,341 ) $ (17,651 ) $ (14,001 ) $ 140,530 $ 98,638 $ 140,842 $ 126,062 $ 2,392 $ 5,308 124 1,409 (134 ) (2,347 ) (350 ) (836 ) 24 (37 ) (16 ) (136 ) 7 3 31 6 29 92 $ (285 ) $ (1,846 ) $ 2,107 $ 3,462 $ 142,949 $ 129,524 $ 5,997 $ (10,458 ) 7,995 (9,332 ) $ 13,992 $ (19,790 ) 62 (28 ) $ 13,930 $ (19,762 ) The issuance of shares for the nine months ended September 30, 2008 related to the acquisition of the remaining stake in Nikko Cordial. The issuance of shares for the nine months ended September 30, 2007 related to the acquisition of Grupo Cuscatlan.(2)Citigroup's January 1, 2007 opening Retained earnings balance has been reduced by $151 million to reflect a prior period adjustment to goodwill. This reduction adjusts goodwill to reflect a portion of the losses incurred in January 2002, related to the sale of the Argentinean subsidiary of Banamex, Bansud, that was recorded as an adjustment to the purchase price of Banamex. There is no tax benefit and there is no income statement impact for the quarter and nine-months ended September 30, 2008 and 2007 from this adjustment. See "Legal Proceedings" for further discussion.(3)balance ofbalances for Retained earnings and Accumulated other comprehensive income (loss) represents the totalcumulative effect of initially adopting ASC 320-10-65-1 (FSP FAS 115-2). See Note 1 to the after-tax gain (loss) amountsConsolidated Financial Statements for the adoption of the following accounting pronouncements:further disclosure.•SFAS 157 for $75 million,•SFAS 159 for ($99) million,•FSP 13-2 for ($148) million, and•FIN 48 for ($14) million.See Notes 1 and 17 on pages 88 and 126, respectively.(4)(2)2008 and $0.54 per share in the first, second and third quarters of 2007.2008.(5)(3)plan.plan and relate to customer fails/errors.(6)The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to the Legg Mason securities as well as several miscellaneous items previously reported in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). The related unrealized gains and losses were reclassified to Retained earnings upon the adoption of the fair value option in accordance with SFAS 159. See Notes 1 and 17 on pages 88 and 126 for further discussions. unaudited Consolidated Financial Statements. Nine Months Ended September 30, In millions of dollars 2008 2007(1) $ (10,421 ) $ 13,450 896 430 (329 ) — $ (10,988 ) $ 13,020 252 281 (311 ) (358 ) 1,953 1,808 21,210 9,562 81,930 (150,371 ) (12,799 ) 54,434 48,657 (71,008 ) (53,824 ) 79,143 9,412 (16,633 ) 863 (855 ) 22,398 (28,908 ) (9,800 ) (857 ) $ 109,941 $ (123,762 ) $ 98,953 $ (110,742 ) $ (9,326 ) $ (6,563 ) (187,859 ) (275,915 ) 203,863 196,938 (272,815 ) (202,646 ) 60,255 147,573 194,312 100,577 (2,111 ) (2,804 ) 15,644 1,949 — (15,186 ) $ 1,963 $ (56,077 ) $ (6,008 ) $ (8,086 ) 4,961 1,007 27,424 (800 ) (7 ) (663 ) (377 ) (926 ) 67,311 89,657 (94,073 ) (49,989 ) (32,411 ) 84,523 (41,633 ) 63,063 $ (74,813 ) $ 177,786 (1,105 ) $ 810 (178 ) (65 ) $ 24,820 $ 11,712 38,206 $ 26,514 $ 63,026 $ 38,226 $ 2,123 $ 4,623 $ 44,294 $ 53,158 $ 2,574 $ 1,539 (1)Reclassified to conform to the current period's presentation Nine Months Ended September 30, In millions of dollars 2009 2008 $ 5,997 $ (10,458 ) 24 (37 ) $ 5,973 $ (10,421 ) (679 ) 882 2 (304 ) $ 6,650 $ (10,999 ) 298 252 (354 ) (311 ) 1,290 1,953 31,114 21,210 28,355 81,930 (32,437 ) (12,799 ) (19,061 ) 48,657 (24,008 ) (53,824 ) (2,360 ) 9,412 (1,719 ) 863 (1,605 ) 22,398 3 (9,796 ) $ (20,484 ) $ 109,945 $ (13,834 ) $ 98,946 $ (47,797 ) $ (9,326 ) (127,661 ) (187,859 ) 185,442 203,863 (167,115 ) (272,815 ) 66,890 60,255 90,218 194,312 (859 ) (2,111 ) 5,590 15,644 $ 4,708 $ 1,963 $ (3,235 ) $ (6,008 ) — 4,961 — 27,424 (3 ) (7 ) (116 ) (377 ) 90,464 67,311 (83,850 ) (94,073 ) 58,418 (32,411 ) (56,143 ) (41,633 ) $ 5,535 $ (74,813 ) $ 582 $ (1,105 ) $ 238 $ (171 ) $ (2,771 ) $ 24,820 $ 29,253 $ 38,206 $ 26,482 $ 63,026 $ (1,251 ) $ 2,123 $ 21,338 $ 44,294 $ 2,149 $ 2,574 unauditedUnaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIESIn millions of dollars, except shares September 30,
2008 December 31,
2007 (Unaudited) $ 54,318 $ 28,966 63,323 57,216 39,227 23,563 202,793 215,454 125,705 150,058 587,275 644,597 (15,860 ) (10,659 ) $ 571,415 $ 633,938 17,626 19,294 10,618 11,007 5,889 8,191 7,702 8,958 89,764 95,070 18,627 — $ 1,207,007 $ 1,251,715 $ 61,252 $ 41,032 168,790 186,080 42,293 38,775 463,030 516,517 735,365 $ 782,404 85,627 59,472 83,848 74,112 10,220 12,752 144,970 184,317 42,037 39,352 14,273 — $ 1,116,340 $ 1,152,409 $ 751 $ 751 69,319 69,135 30,431 31,915 (9,834 ) (2,495 ) $ 90,667 $ 99,306 $ 1,207,007 $ 1,251,715 Citibank, N.A. and Subsidiaries In millions of dollars, except shares September 30,
2009 December 31,
2008 (Unaudited) $ 21,016 $ 22,107 207,082 156,774 16,396 41,613 163,542 197,052 187,406 165,914 507,629 555,198 (23,299 ) (18,273 ) $ 484,330 $ 536,925 10,210 10,148 8,010 7,689 4,954 5,331 6,740 7,171 77,068 76,316 $ 1,186,754 $ 1,227,040 $ 80,425 $ 55,223 188,803 185,322 39,403 33,769 477,170 480,984 $ 785,801 $ 755,298 56,917 108,921 88,889 116,333 9,347 8,192 85,573 113,381 44,508 42,475 $ 1,071,035 $ 1,144,600 $ 751 $ 751 105,293 74,767 19,988 21,735 (11,415 ) (15,895 ) $ 114,617 $ 81,358 1,102 1,082 $ 115,719 $ 82,440 $ 1,186,754 $ 1,227,040 20082009 and December 31, 20072008 include the after-tax amounts for net unrealized gains (losses) on investment securities of ($6.233)4.653) billion and ($1.262)8.008) billion, respectively, for foreign currencyFX translation of ($556) million3.114) billion and $1.687($3.964) billion, respectively, for cash flow hedges of ($2.298)2.965) billion and ($2.085)3.247) billion, respectively, and for pension liability adjustments of ($747)683) million and ($835)676) million, respectively. unaudited Consolidated Financial Statements.unaudited consolidated financial statementsUnaudited Consolidated Financial Statements as of September 30, 20082009 and for the three- and nine-month periodperiods ended September 30, 20082009 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.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.SEC Staff Guidance on Loan Commitments Recorded atInterim Disclosures about Fair Value through Earningsof Financial InstrumentsOn January 1, 2008,In April 2009, the Company adopted Staff Accounting Bulletin No. 109 (SAB 109), whichFASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," (ASC 825-10-65-1). This FSP requires thatdisclosing qualitative and quantitative information about the fair value of all financial instruments on a written loan commitmentquarterly basis, including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The disclosures required by this FSP were effective for the quarter ended June 30, 2009. This FSP has no effect on how Citigroup accounts for these instruments.marked to market throughrecognized in earnings, should includewhile the futurerest of the fair value loss is recognized inAccumulated 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 of 2009 was higher by $631 million on a pretax basis ($391 million on an after-tax basis), respectively.loan's servicing rights. However,Company's investment securities and OTTI.written loan commitment still must excludeparticipating security. In accordance with the expectedFSP, restricted and deferred shares are now included in the basic EPS calculation. 1Q08 2Q08 3Q08 4Q08 Full Year
2008 1Q09 $ (1.02 ) $ (0.54 ) $ (0.60 ) $ (3.40 ) $ (5.59 ) N/A $ (1.03 ) $ (0.55 ) $ (0.61 ) $ (3.40 ) $ (5.61 ) $ (0.18 ) cash flows relatedloss available to internally developed intangible assets (such as customer relationship intangible assets).common shareholders. Using actual diluted shares would result in anti-dilution. SAB 109 applies On January 1, 2009, the Company adopted SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment 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 FASSFAS 133 (derivative loan commitments); (ASC 815-10-65-1 /SFAS 161). The standard requires enhanced disclosures about derivative instruments and (2) other written loan commitmentshedged items that are accounted for under ASC 815-10 (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. ASC 815-10-65-1 (SFAS 161) had no impact on how Citigroup accounts for these instruments.through earnings under Statement 159's fair-value election. SAB 109 supersedes SAB 105, which applied only to derivative loan commitments and allowedat the expected future cash flows related todate of deconsolidation.associated servicingdeconsolidation of the loan to be recognized only aftersubsidiary is measured using the servicing asset had been contractually separated from the underlying loan by sale or securitizationfair value of the loanremaining investment, rather than the previous carrying amount of that retained investment.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.Netting of Cash Collateral against Derivative ExposuresRepurchase Financing AgreementsDuring 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:•Level 1—Quoted prices foridentical instruments in active markets.•Level 2—Quoted prices forsimilar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.•Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the 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" (ASC 860-10-40). The adoption of SFAS 157 has also resulted in some other changes toThis FSP provides implementation guidance on whether a security transfer with a contemporaneous repurchase financing involving 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),transferred financial asset must be evaluated as one linked transaction or $0.05 per diluted share, which was recorded in the first quarter of 2007 earnings within theS&B business.two separate de-linked transactions.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, andThe FSP 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.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.Fair Value Option (SFAS 159)Table of Contents In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option on an instrument-by-instrument basis for most financial assets and liabilities 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. 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.Accounting for Uncertainty in Income Taxes In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes," 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 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 transparency 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. 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 estimate of the change in FIN 48 liabilities cannot be made at this time due to the number of items still being reviewed by the IRS.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.New AdditionalFair Value Disclosures for Derivative Instrumentsabout Pension Plan AssetsSeptember 2008, the FASB issued FASB Staff Position No. FAS 133-1 and FIN 45-4 "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45, and Clarification of 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 amountof future payments, the related fair value, and the current status of the payment/performance risk. These new disclosure requirements 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 of 2009. The standard expands the disclosure requirements for derivatives and hedged items and has 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 attempts 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. 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 Agreements 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 June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities." Under theFAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" (ASC 715-20-65-2). This FSP unvested share-based payment awardsrequires that contain nonforfeitable rights to dividendsinformation about plan assets be disclosed on an annual basis. Citigroup will be consideredrequired to beseparate plan assets into the three fair value hierarchy levels and provide a separate classrollforward of common stockthe changes in fair value of plan assets classified as Level 3 in Citigroup's annual Consolidated Financial Statements.will be includedobligations.basic EPS calculation usingFASB issued Accounting Standards Update (ASU) 2009-12,Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent), to provide guidance on measuring the "two-class method."fair value of certain alternative investments. The FSP willASU permits entities to use net asset value as a practical expedient to measure the fair value of its investments in certain investment funds. The ASU also requires additional disclosures regarding the nature and risks of such investments. The ASU provides guidance on the classification of such investments as Level 2 or Level 3 of the fair-value hierarchy. The ASU is effective for reporting periods ending after December 15, 2009. This ASU is not expected to have a material impact on the Company's accounting for its investments in alternative investment funds.the Company on January 1, 2009, and willreporting periods ending after December 15, 2009. Additional disclosures have been proposed that would 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 ofdiluted EPS. The Exposure Draft does not contain an effective date. The Company is currently evaluatingsensitivity analysis regarding the impact of these changes.unobservable inputs on the fair valuation of Level 3 instruments, which would be effective for reporting periods ending after March 15, 2010.New Loss-Contingency DisclosuresExposure Draftexposure draft proposing expanded disclosures regarding loss contingencies accounted for under FASB Statement No. 5, "AccountingAccounting for Contingencies" (ASC 450-10 to 20), and FASB Statement No.ASC 805-10 (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 isfor fiscal years ending after December 31, 2009.15, 2009, but will have no effect on the Company's accounting for loss contingencies.FIN 46(R) Consolidation Model for Variable Interest Entities The In May 2009, the FASB has issued SFAS No. 166,Accounting for Transfers of Financial Assets, an Exposure Draftamendment of a proposed standardFASB Statement No. 140 (SFAS 166), that wouldwill eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the proposed standard has not been finalized and the Board's proposals are subject to a public comment period, this. This change maywill have a significant impact on Citigroup's consolidated financial statementsConsolidated Financial Statements as the Company maywill lose sales treatment for certain assets previously sold to a QSPE,QSPEs, as well as for certain future sales, and for certain transfers of a portionportions of an asset. This proposed revision could becomeassets that do not meet the definition of participating interests. SFAS 166 is effective in January 2010. As of September 30, 2008, the total assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment were approximately $820 billion.for fiscal years that begin after November 15, 2009. In connection with the proposed changes to SFAS 140, Simultaneously, the FASB has also issued a separate exposure draft of a proposed standard that proposesSFAS No. 167,Amendments to FASB Interpretation No. 46(R) (SFAS 167), which details three key changes to the consolidation model in FIN 46(R).model. First, the Boardformer QSPEs will now include former QSPEsbe included in the scope of FIN 46(R).SFAS 167. In addition, the FASB supports amending FIN 46(R) to changehas changed the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE (known as the primary beneficiary) to a primarily qualitative determination of which party to the VIE has power combined with potentially significant benefits and losses, instead of today'sthe current quantitative risks and rewards model. The entity that has power has the ability to direct the activities of the VIE that most significantly impact the VIE's economic performance. Finally, the proposednew standard requires all VIEs and theirthat the primary beneficiaries tobeneficiary analysis be reevaluatedre-evaluated whenever circumstances change. The existingcurrent rules require reconsideration of the primary beneficiary only when specified reconsideration events occur.2008,2009), reflecting Citigroup's present understanding of the new requirements, and assuming continued application of existing risk-based capital rules, would be as follows: Incremental In billions of dollars GAAP
assets Risk-
weighted
assets(1) $ 84.2 $ 0.9 39.7 — 13.9 4.0 7.7 4.6 3.8 0.4 1.4 1.3 0.6 0.1 0.6 0.6 $ 151.9 $ 11.9 $ 1.9 $ 5.9 $ 153.8 $ 17.8 were(totaling approximately $325$231.4 billion) that would be required to be consolidated under the new accounting standards. Due to the variety of transaction structures and the level of Citigroup involvement in individual former QSPEs and VIEs, only a portion of the former QSPEs and VIEs with which the Company is involved is expected to be consolidated.Company willpro forma impact on certain of Citigroup's regulatory capital ratios of adopting these new accounting standards (based on financial information as of September 30, 2009), and assuming the continued application of the existing risk-based capital rules, would be evaluatingas follows: As of September 30, 2009 As Reported Pro Forma Impact 12.76 % 11.44 % (132) bps 16.58 % 15.26 % (132) bps changes on Citigroup's consolidated financial statements once the actual guidelinesnew standards are completed..resolved.(SOP(ASC 946-10/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 07-1This statement sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. In addition, SOP 07-1ASC 946-10 (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.the SOP.Citigroup's German Retail Banking OperationNikko CordialJuly 11, 2008, CitigroupOctober 1, 2009, the Company announced the agreementsuccessful completion of the sale of Nikko Cordial Securities to sell its German retail banking operationsSumitomo Mitsui Banking Corporation. The transaction has a total cash value to Credit MutuelCiti of ¥776 billion (US$8.7 billion at an exchange rate of ¥89.60 to US$1.00 as of September 30, 2009). The cash value is composed of the purchase price for Euro 4.9the transferred business of ¥545 billion, inthe purchase price for certain Japanese-listed equity securities held by Nikko Cordial Securities of ¥30 billion, and ¥201 billion of excess cash plus the German operating net earnings accrued in 2008derived through the closing. Therepayment of outstanding indebtedness to Citi. After considering the impact of foreign exchange hedges of the proceeds of the transaction is expected to(most of which has been recorded in the second and third quarters of 2009), the sale will result in an immaterial after-tax gain to Citigroup. A total 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 closeabout 7,800 employees are included in the fourth quarter of 2008 pending regulatory approvals.transaction.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 bankingNikko Cordial operations had total assets and total liabilities as of September 30, 2008,2009 of $18.6$23.6 billion and $14.3$16.0 billion, respectively.German retail bankingNikko Cordial businesses sold are reported asDiscontinued operations for all periods presented. The assets and liabilities of the businesses being sold are included inAssets of Discontinueddiscontinued operations held for sale andLiabilities of Discontinueddiscontinued operations held for sale on the Consolidated Balance Sheet.20082009 of the assets and liabilities ofDiscontinued operations held for sale on the Consolidated Balance Sheet for the operations related to the German retail bankingNikko Cordial businesses to be sold:In millions of dollars September 30, 2008 $ 218 22 998 15,632 (244 ) 1,162 839 $ 18,627 $ 13,476 797 $ 14,273 (1)To mark assets held-for-sale to their selling price.In millions of dollars September 30,
2009 $ 224 398 5,837 1,293 8,583 490 567 3,289 2,923 $ 23,604 $ 3,126 2,566 2,823 5,817 1,672 $ 16,004 the German retail bankNikko Cordial follows: Three Months Ended
September 30, Nine Months Ended
September 30, In millions of dollars 2008 2007 2008 2007 $ 847 $ 550 $ 2,001 $ 1,628 $ 503 $ 104 $ 851 $ 398 (101 ) 34 22 128 $ 604 $ 70 $ 829 $ 270 Three Months
Ended Sept. 30, Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 2009 2008 $ 173 $ 422 $ 553 $ 1,245 $ (221 ) $ 6 $ (603 ) $ 2 208 1 75 (9 ) $ (429 ) $ 5 $ (678 ) $ 11 recognitionthird quarter of a German foreign tax credit...(more language2009 related to follow)the fourth quarter 2009 sale of Nikko Cordial. Nine Months Ended September 30, In millions of dollars 2008 2007 $ (1,252 ) $ (2,185 ) 1,833 (1,864 ) (760 ) (385 ) $ (179 ) $ (647 ) Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 $ (1,320 ) $ (4,519 ) (9,579 ) (1,381 ) 11,108 5,907 $ 209 $ 7 Three Months
Ended Sept. 30, Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 2009 2008 $ 25 $ 847 $ 61 $ 2,001 $ 18 $ 503 $ (21 ) $ 851 — — (41 ) — 6 (101 ) (42 ) 22 $ 12 $ 604 $ (20 ) $ 829 Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 $ 6 $ (1,252 ) 1 1,833 (7 ) (760 ) $ — $ (179 ) 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.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.as well as the net loss recognized in the second quarter of 2008 from this sale, are reported asDiscontinued operations for all periods presented. 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 $ 96 $ 203 $ 14 $ 778 $ (2 ) $ 44 $ 45 $ 233 9 — (508 ) — 3 11 (201 ) 73 $ 4 $ 33 $ (262 ) $ 160 Nine Months Ended September 30, In millions of dollars 2008 2007 $ (287 ) $ (942 ) 349 968 (61 ) (26 ) $ 1 $ (1 ) Three Months
Ended Sept. 30, Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 2009 2008 $ 7 $ 96 $ 37 $ 14 $ (1 ) $ (2 ) $ (11 ) $ 45 — 9 14 (508 ) — 3 1 (201 ) $ (1 ) $ 4 $ 2 $ (262 ) Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 $ — $ (287 ) — 349 — (61 ) $ — $ 1 SummarizedThe following is summarized financial information for the Nikko Cordial business, 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, In millions of dollars 2008 2007 2008 2007 $ 943 $ 753 $ 2,015 $ 2,406 $ 501 $ 148 $ 896 $ 631 9 — (508 ) — (98 ) 45 (179 ) 201 $ 608 $ 103 $ 567 $ 430 Three Months
Ended Sept. 30, Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 2009 2008 $ 205 $ 1,365 $ 651 $ 3,260 $ (204 ) $ 507 $ (635 ) $ 898 — 9 2 (508 ) 214 (97 ) 44 (188 ) $ (418 ) $ 613 $ (677 ) $ 578
Cash Flows from Discontinued Operations Nine Months Ended September 30, In millions of dollars 2008 2007 $ (1,539 ) $ (1,243 ) 2182 (897 ) (821 ) (411 ) $ (178 ) $ (65 ) Nine Months
Ended Sept. 30, In millions of dollars 2009 2008 $ (1,314 ) $ (6,058 ) (9,549 ) 801 11,101 5,086 $ 238 $ (171 ) 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) $ 3,789 $ 6,342 $ (579 ) $ 719 $ (902 ) $ 1,442 $ 118 $ 128 7,429 7,302 (996 ) (136 ) (1,099 ) 156 536 599 2,393 4,617 (1,690 ) (320 ) (2,017 ) 267 1,166 1,317 3,164 3,519 225 312 363 490 108 104 (95 ) (140 ) (254 ) (83 ) 232 (246 ) 103 40 $ 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(1) Identifiable assets(2) Three Months Ended September 30, In millions of dollars, except
identifiable assets in billions Sept. 30,
2009 Dec. 31,
2008 2009 2008 2009 2008 2009 2008 $ 5,675 $ 6,109 $ (246 ) $ 24 $ 615 $ 446 $ 205 $ 200 7,350 9,911 584 1,410 1,694 3,156 809 802 13,025 16,020 338 1,434 2,309 3,602 1,014 1,002 6,694 704 (1,588 ) (4,526 ) (1,818 ) (6,936 ) 617 715 671 (466 ) 128 (203 ) 102 (187 ) 258 221 $ 20,390 $ 16,258 $ (1,122 ) $ (3,295 ) $ 593 $ (3,521 ) $ 1,889 $ 1,938 Revenues, net of interest expense Provision (benefit) for income taxes Income (Loss) from Continuing Operations Nine Months Ended September 30, In millions of dollars 2008 2007(2) 2008 2007(2) 2008 2007(2) $ 15,595 $ 16,772 $ 327 $ 1,806 $ 776 $ 3,740 22,575 21,622 (1,894 ) 872 (1,875 ) 2,735 374 24,531 (8,084 ) 2,153 (10,418 ) 6,568 9,758 9,534 616 759 1,062 1,450 (1,104 ) (383 ) (602 ) (682 ) (533 ) (1,473 ) $ 47,198 $ 72,076 $ (9,637 ) $ 4,908 $ (10,988 ) $ 13,020 Revenues, net
of interest expense Provision (benefit)
for income taxes Income (loss) from
continuing operations(1) Nine Months Ended September 30, In millions of dollars 2009 2008 2009 2008 2009 2008 $ 17,051 $ 19,964 $ (303 ) $ 902 $ 1,416 $ 2,768 31,503 29,931 5,340 3,907 11,633 8,915 48,554 49,895 5,037 4,809 13,049 11,683 25,896 (1,735 ) (4,562 ) (13,619 ) (5,795 ) (21,311 ) 430 (2,207 ) 145 (818 ) (580 ) (1,408 ) $ 74,880 $ 45,953 $ 620 $ (9,628 ) $ 6,674 $ (11,036 ) the Global Cards results of $2.7 billion and $1.6 billion; in theRegional Consumer Banking results of $5.3$1.8 billion and $3.0 billion;$1.6 billion, in the ICG results of $1.0$0.4 billion and $238 million;$0.4 billion and in the GWMCiti Holdings results of $65 million$6.9 billion and $57 million$7.0 billion for the third quarters of 2009 and 2008, respectively. Includes pretax provisions for credit losses and 2007,for benefits and claims in Regional Consumer Banking results of $5.6 billion and $4.3 billion, ICG results of $1.6 billion and $0.9 billion and in Citi Holdings results of $24.8 billion and $16.8 billion for the nine months of 2009 and 2008, respectively.Reclassified to conform to the current period's presentation.(3)2008 exclude2009 include assets of discontinued operations held-for-sale.(4)Corporate/Other reflects the restructuring chargeheld for sale of $1.475$23.6 billion recorded in the nine months ending September 30, 2007. See Note 7 on page 97 for further discussion.Citi Holdings.20082009 and 2007,2008, interest revenue and expense consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, In millions of dollars 2008 2007(1) 2008 2007(1) $ 15,528 $ 16,341 $ 47,883 $ 46,100 803 855 2,360 2,301 2,222 5,090 7,771 14,041 2,597 3,340 7,832 10,427 4,154 5,156 13,597 13,471 878 1,485 3,301 3,233 $ 26,182 $ 32,267 $ 82,744 $ 89,573 $ 4,915 $ 7,456 $ 16,191 $ 20,784 290 371 1,079 1,058 3,690 8,396 12,932 23,056 3,881 4,200 12,103 11,529 $ 12,776 $ 20,423 $ 42,305 $ 56,427 $ 13,406 $ 11,844 $ 40,439 $ 33,146 8,943 4,581 21,503 9,512 $ 4,463 $ 7,263 $ 18,936 $ 23,634 Three Months
Ended September 30, Nine Months
Ended September 30, In millions of dollars 2009 2008 2009 2008 $ 11,601 $ 15,528 $ 36,385 $ 47,883 313 792 1,126 2,329 728 2,215 2,407 7,751 3,283 2,597 9,894 7,832 2,654 4,137 8,526 13,562 99 861 594 3,271 $ 18,678 $ 26,130 $ 58,932 $ 82,628 $ 2,298 $ 4,915 $ 7,986 $ 16,191 772 2,721 2,807 9,559 43 285 220 1,064 350 924 1,128 3,233 3,217 3,881 9,038 12,103 $ 6,680 $ 12,726 $ 21,179 $ 42,150 $ 11,998 $ 13,404 $ 37,753 $ 40,478 8,771 8,943 30,919 21,503 $ 3,227 $ 4,461 $ 6,834 $ 18,975 Reclassified to conform to the current period's presentation.(2)Institutional Clients GroupICG is reported as a reduction of interest revenue forTrading account assets.assets.20082009 and 2007:2008: Three Months Ended September 30, Nine Months Ended September 30, In millions of dollars 2008 2007(1) 2008 2007(1) $ 1,113 $ 1,317 $ 3,504 $ 3,815 545 1,161 2,337 3,976 688 817 2,196 2,394 628 717 1,930 2,001 235 118 870 322 359 318 1,076 800 282 293 868 813 271 269 871 532 338 108 582 249 98 112 315 341 (336 ) (268 ) 771 1,219 (649 ) (1,076 ) (4,149 ) (595 ) (147 ) 58 (127 ) 91 $ 3,425 $ 3,944 $ 11,044 $ 15,958 Three Months
Ended September 30, Nine Months
Ended September 30, In millions of dollars 2009 2008 2009 2008 $ 1,048 $ 1,113 $ 3,025 $ 3,504 774 545 2,659 2,337 1 688 837 2,196 466 628 1,288 1,930 323 235 935 870 337 359 980 1,076 261 282 773 868 176 338 364 582 78 98 227 315 (339 ) (336 ) 1,224 771 130 (649 ) 551 (4,149 ) (37 ) (93 ) (40 ) 48 $ 3,218 $ 3,208 $ 12,823 $ 10,348 Reclassified to conform to the current period's presentation.(2)Commissions and fees for Nikko Cordial have not been detailed due to unavailability of the information.(3)(4)(2)net of underwriting fees, for the three and nine months ended September 30, 2008, net of underwriting fees on funded and unfunded highly leveraged finance commitments. Write-downs were recorded on all highly leveraged finance commitments where there was value impairment, regardless of funding date.Retirement Benefit Plansretirement benefit plans and Pension Assumptions,pension assumptions, see Citigroup's 20072008 Annual Report on Form 10-K.20082009 and 2007.2008. 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 $ 3 $ 92 $ 54 $ 49 $ — $ — $ 9 $ 9 176 155 93 80 17 14 26 21 (245 ) (222 ) (128 ) (133 ) (4 ) (2 ) (29 ) (30 ) — — — 1 — — — — — (1 ) 1 1 — — — — — 9 6 3 3 — 5 6 $ (66 ) $ 33 $ 26 $ 1 $ 16 $ 12 $ 11 $ 6 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 2009 2008 2009 2008 2009 2008 2009 2008 $ 1 $ 3 $ 38 $ 54 $ 1 $ — $ 7 $ 9 177 176 78 93 16 17 23 26 (232 ) (245 ) (87 ) (128 ) (2 ) (4 ) (19 ) (29 ) — — (1 ) — — — — — — — 1 1 (1 ) — — — (1 ) — 18 6 — 3 4 5 29 — — — — — — — $ (26 ) $ (66 ) $ 47 $ 26 $ 14 $ 16 $ 15 $ 11 Nine 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 $ 18 $ 226 $ 157 $ 139 $ 1 $ 1 $ 28 $ 20 505 481 275 229 47 44 76 56 (712 ) (667 ) (378 ) (349 ) (9 ) (8 ) (86 ) (77 ) — — 1 2 — — — — (1 ) (2 ) 3 2 — (2 ) — — — 63 19 28 3 2 16 10 $ (190 ) $ 101 $ 77 $ 51 $ 42 $ 37 $ 34 $ 9 Nine 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 2009 2008 2009 2008 2009 2008 2009 2008 $ 13 $ 18 $ 109 $ 157 $ 1 $ 1 $ 20 $ 28 503 505 222 275 46 47 66 76 (690 ) (712 ) (249 ) (378 ) (7 ) (9 ) (57 ) (86 ) — — (1 ) 1 — — — — (1 ) (1 ) 3 3 (1 ) — — — 1 — 51 19 1 3 13 16 29 — — — — — — — $ (145 ) $ (190 ) $ 135 $ 77 $ 40 $ 42 $ 42 $ 34 $9$12 million and $11$9 million for the three months ended September 30, 20082009 and 2007,2008, respectively, and $29$31 million and $35$29 million for the first nine months of 20082009 and 2007,2008, respectively.AtAs of September 30, 2008 and December 31, 2007, there2009, the Company contributions to the U.S. pension plan include $9 million relating to certain investment advisory fees that were paid by the Company. 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$124 million as of September 30, 2008.2009. Citigroup presently anticipates contributing an additional $65$113 million to fund its non-U.S. plans in 20082009 for a total of $162$237 million.DuringIn the firstfourth quarter of 2008, Citigroup recorded a pretax restructuring expense of $1.581 billion related to the implementation of a Company-wide re-engineering plan. For the three months ended September 30, 2009, Citigroup recorded a pretax net restructuring release of $34 million composed of a gross charge of $12 million and a credit of $46 million due to changes in estimates. 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.Eliminateeliminate layers of management/improve workforce management;Consolidateconsolidate certain back-office, middle-office and corporate functions;Increaseincrease the use of shared services;Expandexpand centralized procurement; andContinuecontinue to rationalize operational spending on technology. 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. 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.table detailstables detail the Company's restructuring reserves. Severance In millions of dollars SFAS
112(1) SFAS
146(2) Contract
termination
costs Asset
write-
downs(3) Employee
termination
cost Total
Citigroup $ 950 $ 11 $ 25 $ 352 $ 39 $ 1,377 — — — (268 ) — (268 ) $ 950 $ 11 $ 25 $ 84 $ 39 $ 1,109 $ 8 $ 12 $ 23 $ 19 $ 1 $ 63 8 — 1 — — 9 (197 ) (18 ) (12 ) (72 ) (4 ) (303 ) $ 769 $ 5 $ 37 $ 31 $ 36 $ 878 $ 11 $ 14 $ — $ — $ 10 $ 35 8 — 1 — — 9 (195 ) (13 ) (9 ) (10 ) (23 ) (250 ) $ 593 $ 6 $ 29 $ 21 $ 23 $ 672 $ 23 $ 70 $ 6 $ 8 $ — $ 107 3 — — — — 3 (155 ) (44 ) (7 ) (13 ) (6 ) (225 ) (39 ) — (6 ) (1 ) (8 ) (54 ) $ 425 $ 32 $ 22 $ 15 $ 9 $ 503 $ 5 $ 5 $ 3 $ 2 $ — $ 15 5 — — — — 5 (114 ) (22 ) (4 ) (2 ) (1 ) (143 ) $ 321 $ 15 $ 21 $ 15 $ 8 $ 380 $ 2 $ 9 $ 20 $ 3 $ — $ 34 — — — — — — (77 ) (12 ) (5 ) (3 ) (3 ) (100 ) (69 ) (1 ) — (4 ) (3 ) (77 ) $ 177 $ 11 $ 36 $ 11 $ 2 $ 237 $ 1 $ — $ 18 $ 1 $ — $ 20 (9 ) — (2 ) — — (11 ) (67 ) — (9 ) (1 ) (2 ) (79 ) (12 ) — — — — (12 ) $ 90 $ 11 $ 43 $ 11 $ — $ 155 Severance Contract
termination
costs Asset
write-downs(3) Employee
termination
cost Total
Citigroup In millions of dollars ASC 712(1) ASC 420(2) $ 1,254 $ 79 $ 55 $ 123 $ 19 $ 1,530 (114 ) (3 ) (2 ) (100 ) — (219 ) $ 1,140 $ 76 $ 53 $ 23 $ 19 $ 1,311 $ 14 $ 6 $ 4 $ 5 $ — $ 29 (14 ) — — (12 ) (1 ) (27 ) (541 ) (76 ) (11 ) (7 ) (5 ) (640 ) (38 ) (1 ) — — — (39 ) $ 561 $ 5 $ 46 $ 9 $ 13 $ 634 $ 6 $ 17 $ 1 $ 1 $ — $ 25 26 — 2 1 — 29 (190 ) (19 ) (8 ) (3 ) (1 ) (221 ) (53 ) (1 ) (1 ) — (2 ) (57 ) $ 350 $ 2 $ 40 $ 8 $ 10 $ 410 $ — $ 5 $ 6 $ 1 $ — $ 12 3 — 1 — — 4 (84 ) (6 ) (6 ) (2 ) — (98 ) (38 ) — (2 ) (4 ) (2 ) (46 ) $ 231 $ 1 $ 39 $ 3 $ 8 $ 282 Severance Contract
termination
costs Asset
write-downs(3) Employee
termination
cost Total
Citigroup In millions of dollars ASC 712(1) ASC 420(2) $ 950 $ 11 $ 25 $ 352 $ 39 $ 1,377 $ 42 $ 96 $ 29 $ 27 $ 11 $ 205 19 — 2 — — 21 (547 ) (75 ) (28 ) (363 ) (33 ) (1,046 ) (39 ) — (6 ) (1 ) (8 ) (54 ) $ 425 $ 32 $ 22 $ 15 $ 9 $ 503 $ 10 $ 14 $ 43 $ 6 $ — $ 73 (11 ) — (4 ) — — (15 ) (288 ) (34 ) (22 ) (7 ) (6 ) (357 ) (93 ) (2 ) (2 ) (4 ) (3 ) (104 ) $ 43 $ 10 $ 37 $ 10 $ — $ 100 (1 ) — (1 ) — — (2 ) (41 ) (10 ) (35 ) (9 ) — (95 ) (1 ) — (1 ) (1 ) — (3 ) $ — $ — $ — $ — $ — $ — SFASASC 712 (SFAS No. 112, "Employer'sEmployer's Accounting for Post Employment Benefits" (SFAS 112)Benefits).SFASASC 420 (SFAS No. 146, "AccountingAccounting for Costs Associated with Exit or Disposal Activities" (SFAS 146)Activities).SFASASC 360 (SFAS No. 144, "AccountingAccounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144)Assets).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 included 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 business. Restructuring charges In millions of dollars Ending balance
September 30, 2008 Three months ended
September 30, 2008 Total Since
Inception(1) $ 56 $ 1 $ 822 12 — 143 5 — 285 21 — 98 61 19 160 $ 155 $ 20 $ 1,508 For the quarter ended September 30, 2009 In millions of dollars Total
restructuring
reserve
balance as of
September 30,
2009 Restructuring
charges
recorded in the
three months
ended September 30,
2009 Total
restructuring
charges since
inception(1)(2) $ 132 $ 5 $ 846 14 1 239 136 6 369 $ 282 $ 12 $ 1,454 $143$46 million, $57 million and $39 million related to changes in estimates recorded during the third, second and first quarters of 2009, respectively. For the year ended December 31, 2008 In millions of dollars Total
restructuring
reserve
balance as of
December 31,
2008 Total
restructuring
charges(1) $ 789 $ 890 184 267 338 373 $ 1,311 $ 1,530 2007, second, and third quarterof 2008.periodsthree and nine months ended September 30, 20082009 and 2007:2008: Three Months Ended September 30, Nine Months Ended September 30, In millions, except per share amounts 2008 2007 2008 2007 $ (3,423 ) $ 2,109 $ (10,988 ) $ 13,020 608 103 567 430 (389 ) (6 ) (833 ) (36 ) $ (3,204 ) $ 2,206 $ (11,254 ) $ 13,414 270 — 606 — $ (2,934 ) $ 2,206 $ (10,648 ) $ 13,414 5,341.8 4,916.1 5,238.3 4,897.1 489.2 — 489.2 — 0.1 15.2 0.4 22.4 36.2 79.6 24.9 71.1 5,867.3 5,010.9 5,752.8 4,990.6 $ (0.71 ) $ 0.43 $ (2.26 ) $ 2.65 0.11 0.02 0.11 0.09 $ (0.60 ) $ 0.45 $ (2.15 ) $ 2.74 $ (0.71 ) $ 0.42 $ (2.26 ) $ 2.60 0.11 0.02 0.11 0.09 $ (0.60 ) $ 0.44 $ (2.15 ) $ 2.69 Three Months Ended September 30, Nine Months Ended September 30, In millions, except per share amounts 2009 2008(1) 2009 2008(1) $ 593 $ (3,521 ) $ 6,674 $ (11,036 ) 74 (93 ) 24 (37 ) $ 519 $ (3,428 ) $ 6,650 $ (10,999 ) (418 ) 613 (677 ) 578 $ 101 $ (2,815 ) $ 5,973 $ (10,421 ) (272 ) (389 ) (2,988 ) (833 ) — — (1,285 ) — (16 ) — (123 ) — (3,055 ) — (3,055 ) — (3,242 ) (3,204 ) (1,478 ) (11,254 ) — (1,738 ) (63 ) (5,151 ) (3,242 ) (4,942 ) (1,541 ) (16,405 ) — 270 540 606 $ (3,242 ) $ (4,672 ) $ (1,001 ) $ (15,799 ) 12,104.3 5,341.8 7,629.6 5,238.3 111.7 489.2 416.1 489.2 — 0.1 — 0.4 12,216.0 5,831.1 8,045.7 5,727.9 $ (0.23 ) $ (0.72 ) $ (0.10 ) $ (2.28 ) (0.04 ) 0.11 (0.09 ) 0.11 $ (0.27 ) $ (0.61 ) $ (0.19 ) $ (2.17 ) $ (0.23 ) $ (0.72 ) $ (0.10 ) $ (2.28 ) (0.04 ) 0.11 (0.09 ) 0.11 $ (0.27 ) $ (0.61 ) $ (0.19 ) $ (2.17 ) first, secondthree and third quarters ofnine months ended September 30, 2009 and 2008, income (loss)loss available to common stockholders for basic EPS was used to calculate dilutedDiluted earnings per share. Adding back the effect of dilutive securities would result in anti-dilution.(2)(4)Diluted shares used in the diluted EPS calculation represent basic shares for the 2008 periods dueDue to the net loss. Using actual dilutedloss available to common shareholders for Diluted EPS in the three and nine months ended September 30, 2009 and 2008, basic shares were used to calculate Diluted earnings per share. Adding dilutive securities to the denominator would result in anti-dilution.20082009 and December 31, 2007:2008:In millions of dollars September 30,
2008 December 31,
2007(1) $ 36,090 $ 32,180 17,893 18,574 60,401 52,332 106,593 156,242 92,908 76,881 70,280 106,868 38,242 56,740 35,055 39,167 $ 457,462 $ 538,984 $ 65,922 $ 78,541 103,361 103,541 $ 169,283 $ 182,082 In millions of dollars September 30,
2009 December 31,
2008 $ 23,549 $ 32,981 1,177 1,416 1,305 913 10,638 14,552 1,923 2,447 3,975 2,501 $ 42,567 $ 54,810 $ 20,803 $ 7,370 3,933 4,017 $ 24,736 $ 11,387 $ 7,196 $ 9,510 66,425 57,422 47,485 54,654 68,670 115,289 46,463 48,503 37,155 26,060 $ 340,697 $ 377,635 $ 67,988 $ 50,693 62,552 115,107 $ 130,540 $ 165,800 Reclassified to conform to the current period's presentation.(2)PursuantPresented net, pursuant to master netting agreements. See Note 16 to the Consolidated Financial Statements, Derivatives Activities, for a discussion regarding the accounting and reporting for derivatives.In millions of dollars September 30,
2008 December 31,
2007 $ 186,621 $ 193,113 11,227 13,603 7,882 8,291 1 1 $ 205,731 $ 215,008 In millions of dollars September 30,
2009 December 31,
2008 $ 190,252 $ 175,189 55,816 64,459 7,765 9,262 8,057 7,110 $ 261,890 $ 256,020 (2)(3)are periodically evaluated for other-than-temporary impairment.(3)Recorded at amortized cost.primarily consist of shares issued by the Federal Reserve Bank, Federal Home Loan Bank, foreign central banks and various clearing houses of which Citigroup is a member.20082009 and December 31, 20072008 were as follows: September 30, 2008 December 31, 2007(1) In millions of dollars Amortized
cost Gross
unrealized
gains Gross
unrealized
losses Fair
value Amortized
cost Fair
value $ 56,641 $ 48 $ 7,878 $ 48,811 $ 63,888 $ 63,075 26,834 53 138 26,749 19,428 19,424 14,133 8 1,762 12,379 13,342 13,206 69,542 303 720 69,125 72,339 72,075 12,024 26 457 11,593 9,648 9,598 14,673 47 176 14,544 12,336 11,969 $ 193,847 $ 485 $ 11,131 $ 183,201 $ 190,981 $ 189,347 $ 2,363 $ 1,250 $ 193 $ 3,420 $ 1,404 $ 3,766 $ 196,210 $ 1,735 $ 11,324 $ 186,621 $ 192,385 $ 193,113 September 30, 2009 December 31, 2008(1) In millions of dollars Amortized
cost Gross
unrealized
gains Gross
unrealized
losses Fair
value Amortized
cost Gross
unrealized
gains Gross
unrealized
losses Fair
value $ 23,163 $ 487 $ 31 $ 23,619 $ 23,527 $ 261 $ 67 $ 23,721 7,436 102 1,260 6,278 8,475 3 2,965 5,513 390 86 6 470 54 — 9 45 36 — 17 19 38 — 21 17 271 — 5 266 185 2 — 187 919 10 120 809 519 — 134 385 32,215 685 1,439 31,461 32,798 266 3,196 29,868 6,194 41 1 6,234 3,465 125 — 3,590 16,897 84 14 16,967 20,237 215 77 20,375 23,091 125 15 23,201 23,702 340 77 23,965 17,967 197 1,339 16,825 18,156 38 4,370 13,824 79,965 974 268 80,671 79,505 945 408 80,042 20,444 436 172 20,708 10,646 65 680 10,031 11,701 201 255 11,647 11,784 36 224 11,596 185,383 2,618 3,488 184,513 176,591 1,690 8,955 169,326 4,065 1,929 255 5,739 5,768 554 459 5,863 $ 189,448 $ 4,547 $ 3,743 $ 190,252 $ 182,359 $ 2,244 $ 9,414 $ 175,189 describeddiscussed in more detail below, the Company conducts periodicprior to January 1, 2009, these reviews were conducted pursuant to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff Position FAS No. 115-1, "TheThe Meaning of Other-Than-TemporaryOther-Than-Temporary Impairment and Its Application to Certain Investments"Investments115-1)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 will not to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in Other Comprehensive Income (OCI). For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income. See Note 1 to the Consolidated Financial Statements for additional information. 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 $ 3,024 $ 23 $ 300 $ 8 $ 3,324 $ 31 4,999 1,224 268 36 5,267 1,260 90 — 47 6 137 6 4 — 13 17 17 17 266 5 — — 266 5 84 64 389 56 473 120 8,467 1,316 1,017 123 9,484 1,439 97 — 61 1 158 1 2,995 14 1 — 2,996 14 3,092 14 62 1 3,154 15 4,321 214 877 1,125 5,198 1,339 22,290 129 5,732 139 28,022 268 956 56 1,266 116 2,222 172 1,183 93 1,378 162 2,561 255 2,555 225 117 30 2,672 255 $ 42,864 $ 2,047 $ 10,449 $ 1,696 $ 53,313 $ 3,743 $ 5,281 $ 9 $ 432 $ 58 $ 5,713 $ 67 2,258 1,127 3,108 1,838 5,366 2,965 38 8 5 1 43 9 — — 15 21 15 21 10 — — — 10 — 213 33 233 101 446 134 7,800 1,177 3,793 2,019 11,593 3,196 — — — — — — 1,654 76 1 1 1,655 77 1,654 76 1 1 1,655 77 12,827 3,872 3,762 498 16,589 4,370 10,697 201 9,080 207 19,777 408 1,985 270 4,393 410 6,378 680 944 96 303 128 1,247 224 3,254 386 102 73 3,356 459 $ 39,161 $ 6,078 $ 21,434 $ 3,336 $ 60,595 $ 9,414 September 30,
2009 December 31,
2008(1) In millions of dollars Amortized
Cost Fair
value Amortized
cost Fair
value $ 2 $ 2 $ 87 $ 80 29 30 639 567 690 658 1,362 1,141 31,494 30,771 30,710 28,080 $ 32,215 $ 31,461 $ 32,798 $ 29,868 $ 5,546 $ 5,556 $ 15,736 $ 15,846 7,600 7,629 5,755 5,907 6,535 6,593 1,902 1,977 3,410 3,423 309 235 $ 23,091 $ 23,201 $ 23,702 $ 23,965 $ 219 $ 219 $ 214 $ 214 111 121 84 84 354 381 411 406 17,283 16,104 17,447 13,120 $ 17,967 $ 16,825 $ 18,156 $ 13,824 $ 34,753 $ 34,824 $ 26,481 $ 26,937 37,442 37,945 45,652 45,462 6,711 6,706 6,771 6,899 1,059 1,196 601 744 $ 79,965 $ 80,671 $ 79,505 $ 80,042 $ 2,893 $ 2,883 $ 4,160 $ 4,319 23,456 23,711 2,662 2,692 3,282 3,327 12,557 11,842 2,514 2,434 3,051 2,774 $ 32,145 $ 32,355 $ 22,430 $ 21,627 $ 185,383 $ 184,513 $ 176,591 $ 169,326 Three months ended In millions of dollars Sept 30,
2009 Sept 30,
2008 $ 2,956 $ 2,334 226 136 101 127 $ 3,283 $ 2,597 Nine months ended In millions of dollars Sept 30,
2009 Sept 30,
2008 $ 9,084 $ 7,019 591 433 219 380 $ 9,894 $ 7,832 Three months ended Nine months ended In millions of dollars Sept 30,
2009 Sept 30,
2008 Sept 30,
2009 Sept 30,
2008 $ 439 $ 192 $ 1,797 $ 506 (12 ) (42 ) (78 ) (130 ) $ 427 $ 150 $ 1,719 $ 376 In millions of dollars Amortized
cost(1) Net unrealized
loss recognized
in OCI Carrying
value(2) Gross
unrecognized
gains Gross
unrecognized
losses Fair
value $ — $ — $ — $ — $ — $ — 6,388 1,211 5,177 50 50 5,177 15,436 4,609 10,827 411 419 10,819 1,165 171 994 56 117 933 9,485 1,168 8,317 364 240 8,441 1,308 52 1,256 — 377 879 33,782 7,211 26,571 881 1,203 26,249 — — — — — — — — — — — — — — — — — — 3,169 146 3,023 200 138 3,085 7,365 307 7,058 472 138 7,392 19,590 427 19,163 435 722 18,876 7 6 1 — — 1 $ 63,913 $ 8,097 $ 55,816 $ 1,988 $ 2,201 $ 55,603 $ — $ — $ — $ — $ — $ — 7,481 1,436 6,045 — 623 5,422 16,658 4,216 12,442 23 1,802 10,663 1,368 125 1,243 15 163 1,095 10,496 1,128 9,368 5 397 8,976 1,021 — 1,021 — 130 891 37,024 6,905 30,119 43 3,115 27,047 1 — 1 — — 1 — — — — — — 1 — 1 — — 1 3,371 183 3,188 14 253 2,949 6,906 175 6,731 130 305 6,556 22,698 415 22,283 86 555 21,814 2,478 341 2,137 — 127 2,010 $ 72,478 $ 8,019 $ 64,459 $ 273 $ 4,355 $ 60,377 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 $ 5,235 $ 1,046 $ 13,656 $ 157 $ 18,891 $ 1,203 733 138 — — 733 138 2,801 138 — — 2,801 138 5,713 701 807 21 6,520 722 — — — — — — $ 14,482 $ 2,023 $ 14,463 $ 178 $ 28,945 $ 2,201 $ 2,348 $ 631 $ 24,236 $ 2,484 $ 26,584 $ 3,115 2,499 253 — — 2,499 253 23 — 4,107 305 4,130 305 9,051 381 4,164 174 13,215 555 439 — 5,246 127 5,685 127 $ 14,360 $ 1,265 $ 37,753 $ 3,090 $ 52,113 $ 4,355 September 30, 2009 December 31, 2008 In millions of dollars Carrying
value Fair
value Carrying
value Fair
value $ 1 $ 1 $ 88 $ 65 479 314 363 282 1,922 1,787 513 413 24,169 24,147 29,155 26,287 $ 26,571 $ 26,249 $ 30,119 $ 27,047 $ 6 $ 6 $ 86 $ 86 48 81 105 105 168 140 112 106 2,801 2,858 2,885 2,652 $ 3,023 $ 3,085 $ 3,188 $ 2,949 $ 5,618 $ 5,888 $ 4,482 $ 4,505 5,636 5,587 10,892 10,692 6,852 7,087 6,358 6,241 8,116 7,707 9,420 8,943 $ 26,222 $ 26,269 $ 31,152 $ 30,381 $ 55,816 $ 55,603 $ 64,459 $ 60,377 Accumlated other comprehensiveAOCI for AFS securities, while such losses related to HTM securities are not recorded, as these investments are carried at their amortized cost. For securities transferred to HTM fromTrading account assets, amortized cost is defined as the fair value of the securities at the date of transfer, plus any accretion income (OCI). Unrealized losses identifiedand less any impairment recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as other than temporary are recorded directlythe original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in the Consolidated Statement of Income.earnings subsequent to transfer.ForRegardless of the investments inclassification of the table above, managementsecurities as AFS or HTM, 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.Thethe length of time and the extent to which fair value has been below cost;Thethe severity of the impairment;Thethe cause of the impairment and the financial condition and near-term prospects of the issuer; andActivityactivity in the market of the issuer which may indicate adverse credit conditions. 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.•First, management determines whether it is probable that the Company will receive all amounts due according to the contractual terms of the security (principalconditions; and interest). The identification of credit- impaired securities considers a number of factors, including the nature of the security and the underlying collateral, the amount of subordination or credit enhancement supporting the security, published rating agency and other third-party views and information, and other evidential analyses of the probable cash flows from the security. If recovery of all amounts due is not probable, a "credit impairment" is deemed to exist, and the entire unrealized loss is recorded directly in the Consolidated Statement of Income. This unrealized loss recorded in income represents the security's entire decline in fair value, including the decline due to forecasted cash flow shortfalls as well as general market spread widening.For securities with no identified credit impairment, management then determines whether it has the positiveCompany's ability and intent and ability to hold eachthe investment for a period of time sufficient to allow for any anticipated recovery.anticipatedunrealized loss position and the expected recovery in fair value. Management estimatesperiod;forecasted recovery period using current estimatesresults of volatility in market interest rates (including liquidity and risk premiums). Management's assertion regardingthese analyses, as required under business policies.investmentsthe 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.factors,assumptions, including a quantitative estimate of the expecteddefault rates, prepayment rates, and recovery period and the length of that period (which may extend to maturity), the severity of the impairment, and management's intended strategy with respect to the identified security or portfolio. If management does not have the intent 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 and state and municipal debt securities during the 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 maturity of the securities. The weighted-average estimated life of the securities 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.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 (1) 10% of current loans, (2) 25% of 30-59 day delinquent loans, (3) 75% of 60-90 day delinquent loans and (4) 100% of 91+ day delinquent loans. These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions 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 September 30, 2009 are in the table below:
| September 30, 2009 | ||||
|---|---|---|---|---|
Prepayment rate | 3-8 CRR | |||
Loss severity(1) | 45%-75 | % | ||
Unemployment rate | 10 | % | ||
Peak-to-trough housing price decline | 32.3 | % | ||
In addition, cash flow projections are developed using more stressful parameters, and management assesses the results of those stress tests (including the severity of any cash shortfall indicated and the likelihood of the stress scenario's actually occurring based on the underlying pool's characteristics and performance) to assess whether management expects to recover the amortized cost basis of the security. If cash flow projections indicate that the Company does not expect to recover its amortized cost basis, the Company recognizes the estimated credit loss in earnings.
State and Municipal Securities
Citigroup's AFS state and municipal bonds consist 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 AFS 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
The following table presents the total other-than-temporary impairments recognized during the three months and nine months ended September 30, 2009:
Other-Than-Temporary Impairments (OTTI) on Investments
| | Three months ended Sept. 30, 2009 | Nine months ended Sept. 30, 2009 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | AFS | HTM | Total | AFS | HTM | Total | ||||||||||||||
Impairment losses related to securities which the Company does not intend to sell nor will likely be required to sell: | ||||||||||||||||||||
Total OTTI losses recognized during the quarter ended September 30, 2009 | $ | 158 | $ | 2,182 | $ | 2,340 | $ | 263 | $ | 5,730 | $ | 5,993 | ||||||||
Less: portion of OTTI loss recognized in OCI (before taxes) | 25 | 1,716 | 1,741 | 54 | 3,952 | 4,006 | ||||||||||||||
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell | $ | 133 | $ | 466 | $ | 599 | $ | 209 | $ | 1,778 | $ | 1,987 | ||||||||
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 | 113 | — | 113 | 168 | — | 168 | ||||||||||||||
Total impairment losses recognized in earnings | $ | 246 | $ | 466 | $ | 712 | $ | 377 | $ | 1,778 | $ | 2,155 | ||||||||
The following is a three-month roll forward of the credit-related position recognized in earnings for AFS and HTM debt securities held as of September 30, 2009:
| | Cumulative Other-Than-Temporary Impairment Credit Losses Recognized in Earnings | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | June 30, 2009 Balance | Credit impairments recognized in earnings on securities not previously impaired | Credit impairments recognized in earnings on securities than have been previously impaired | Reductions due to sales of credit impaired securities sold or matured | Sept. 30, 2009 Balance | ||||||||||||
AFS debt securities | |||||||||||||||||
Mortgage-backed securities | |||||||||||||||||
Prime | $ | 7 | $ | 92 | $ | — | $ | — | $ | 99 | |||||||
Commercial real estate | 2 | — | — | — | 2 | ||||||||||||
Total mortgage-backed securities | 9 | 92 | — | — | 101 | ||||||||||||
Foreign government | 14 | — | — | (1 | ) | 13 | |||||||||||
Corporate | 97 | 24 | 10 | — | 131 | ||||||||||||
Asset backed securities | 3 | — | 5 | — | 8 | ||||||||||||
Other debt securities | 6 | 2 | — | — | 8 | ||||||||||||
Total OTTI credit losses recognized for AFS debt securities | $ | 129 | $ | 118 | $ | 15 | $ | (1 | ) | $ | 261 | ||||||
HTM debt securities | |||||||||||||||||
Mortgage-backed securities | |||||||||||||||||
Prime | $ | 14 | $ | 93 | $ | 1 | $ | — | $ | 108 | |||||||
Alt-A | 1,901 | 297 | — | — | 2,198 | ||||||||||||
Subprime | 105 | 66 | — | — | 171 | ||||||||||||
Non-U.S. residential | 96 | — | — | — | 96 | ||||||||||||
Commercial real estate | 4 | — | — | — | 4 | ||||||||||||
Total mortgage-backed securities | 2,120 | 456 | 1 | — | 2,577 | ||||||||||||
Corporate | 320 | 8 | — | (3 | ) | 325 | |||||||||||
Asset backed securities | 32 | — | — | — | 32 | ||||||||||||
Other debt securities | 3 | — | 1 | — | 4 | ||||||||||||
Total OTTI credit losses recognized for HTM debt securities | $ | 2,475 | $ | 464 | $ | 2 | $ | (3 | ) | $ | 2,938 | ||||||
The following is a nine-month roll forward of the credit-related position recognized in earnings for AFS and HTM debt securities held as of September 30, 2009:
| | Cumulative Other-Than-Temporary Impairment Credit Losses Recognized in Earnings | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | January 1, 2009 Balance | Credit impairments recognized in earnings on securities not previously impaired | Credit impairments recognized in earnings on securities than have been previously impaired | Reductions due to sales of credit impaired securities sold or matured | Sept. 30, 2009 Balance | ||||||||||||
| AFS debt securities | |||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||
| Prime | $ | — | $ | 99 | $ | — | $ | — | $ | 99 | |||||||
| Commercial real estate | 1 | 1 | — | — | 2 | ||||||||||||
| Total mortgage-backed securities | 1 | 100 | — | — | 101 | ||||||||||||
| Foreign government | — | 14 | — | (1 | ) | 13 | |||||||||||
| Corporate | 53 | 54 | 25 | (1 | ) | 131 | |||||||||||
| Asset backed securities | — | 3 | 5 | — | 8 | ||||||||||||
| Other debt securities | — | 8 | — | — | 6 | ||||||||||||
| Total OTTI credit losses recognized for AFS debt securities | $ | 54 | $ | 179 | $ | 30 | $ | (2 | ) | $ | 261 | ||||||
| HTM debt securities | |||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||
| Prime | $ | 8 | $ | 99 | $ | 1 | $ | — | $ | 108 | |||||||
| Alt-A | 1,091 | 1,088 | 19 | — | 2,198 | ||||||||||||
| Subprime | 85 | 86 | — | — | 171 | ||||||||||||
| Non- U.S. residential | 28 | 68 | — | — | 96 | ||||||||||||
| Commercial real estate | 4 | — | — | — | 4 | ||||||||||||
| Total mortgage-backed securities | 1,216 | 1,341 | 20 | — | 2,577 | ||||||||||||
| Corporate | — | 398 | — | (73 | ) | 325 | |||||||||||
| Asset backed securities | 17 | 15 | — | — | 32 | ||||||||||||
| Other debt securities | — | 3 | 1 | — | 4 | ||||||||||||
| Total OTTI credit losses recognized for HTM debt securities | $ | 1,233 | $ | 1,757 | $ | 21 | $ | (73 | ) | $ | 2,938 | ||||||
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in goodwill during the first nine months of 2008ended September 30, 2009 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 | ||
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.
| 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 | ||
Morgan Stanley Smith Barney joint venture | (1,146 | ) | ||
Estimated impact from the Sale of Nikko Cordial Securities, reclassified asAssets of discontinued operations held for sale | (533 | ) | ||
Foreign exchange translation | 847 | |||
Balance at June 30, 2009 | $ | 25,578 | ||
Estimated impact from the Sale of Nikko Asset Management, reclassified asOther Assets of businesses held for sale | (446 | ) | ||
Foreign exchange translation | 409 | |||
Purchase accounting adjustments and other | (118 | ) | ||
Balance at September 30, 2009 | $ | 25,423 | ||
During the first nine months of 2008,2009, no goodwill was written off due to impairment. The Company performed its annual goodwill impairment test during the third quarter of 2009 and while no impairment was noted in step one for any of the reporting units, goodwill for the Latin America Regional Consumer Banking and Local Consumer Lending—Cards reporting units may be particularly sensitive to further deterioration in economic conditions. The fair value as a percentage of allocated book value for Latin America Regional Consumer Banking and Local Consumer Lending—Cards is 111% and 112%, respectively. If the future were to differ adversely from management's best estimate of key economic assumptions and associated cash flows were to decrease by a small margin, the Company could potentially experience future material impairment charges with respect to the $1,317 million and $4,751 million of goodwill remaining in our Latin America Regional Consumer Banking and Local Consumer Lending—Cards reporting units, respectively. Any such charges, by themselves, would not negatively affect the Company's Tier 1, Tier 1 Common and Total Capital regulatory ratios, its Tangible Common Equity or the Company's liquidity position.
The following tables present the Company's goodwill balances by reporting unit and by segment at September 30, 2009:
| In millions of dollars | September 30, 2009 | ||||
|---|---|---|---|---|---|
By Reporting Unit | |||||
North America Regional Consumer Banking | $ | 2,461 | |||
EMEA Regional Consumer Banking | 342 | ||||
Asia Regional Consumer Banking | 5,375 | ||||
Latin America Regional Consumer Banking | 1,317 | ||||
Securities and Banking | 8,767 | ||||
Transaction Services | 1,579 | ||||
Brokerage and Asset Management | 831 | ||||
Local Consumer Lending—Cards | 4,751 | ||||
Local Consumer Lending—Other | — | ||||
Total | $ | 25,423 | |||
By Segment | |||||
Regional Consumer Banking | $ | 9,495 | |||
Institutional Clients Group | 10,346 | ||||
Citi Holdings | 5,582 | ||||
Total | $ | 25,423 | |||
Intangible Assets
The components of intangible assets were as follows:
| | September 30, 2008 | December 31, 2007 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 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 | |||||||
Core deposit intangibles | 1,520 | 741 | 779 | 1,435 | 518 | 917 | |||||||||||||
Other customer relationships | 3,676 | 215 | 3,461 | 2,746 | 197 | 2,549 | |||||||||||||
Present value of future profits | 427 | 268 | 159 | 427 | 257 | 170 | |||||||||||||
Other(1) | 5,590 | 1,317 | 4,273 | 5,783 | 1,157 | 4,626 | |||||||||||||
Total amortizing intangible assets | $ | 19,946 | $ | 7,078 | $ | 12,868 | $ | 18,890 | $ | 6,174 | $ | 12,716 | |||||||
Indefinite-lived intangible assets | 2,250 | N/A | 2,250 | 1,591 | N/A | 1,591 | |||||||||||||
Mortgage servicing rights | 8,346 | N/A | 8,346 | 8,380 | N/A | 8,380 | |||||||||||||
Total intangible assets | $ | 30,542 | $ | 7,078 | $ | 23,464 | $ | 28,861 | $ | 6,174 | $ | 22,687 | |||||||
| | September 30, 2009 | December 31, 2008 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||
Purchased credit card relationships | $ | 8,138 | $ | 4,684 | $ | 3,454 | $ | 8,443 | $ | 4,513 | $ | 3,930 | |||||||
Core deposit intangibles | 1,351 | 744 | 607 | 1,345 | 662 | 683 | |||||||||||||
Other customer relationships | 696 | 170 | 526 | 4,031 | 168 | 3,863 | |||||||||||||
Present value of future profits | 416 | 275 | 141 | 415 | 264 | 151 | |||||||||||||
Other(1) | 4,965 | 1,292 | 3,673 | 5,343 | 1,285 | 4,058 | |||||||||||||
Total amortizing intangible assets | $ | 15,566 | $ | 7,165 | $ | 8,401 | $ | 19,577 | $ | 6,892 | $ | 12,685 | |||||||
Indefinite-lived intangible assets | 556 | N/A | 556 | 1,474 | N/A | 1,474 | |||||||||||||
Mortgage servicing rights | 6,228 | N/A | 6,228 | 5,657 | N/A | 5,657 | |||||||||||||
Total intangible assets | $ | 22,350 | $ | 7,165 | $ | 15,185 | $ | 26,708 | $ | 6,892 | $ | 19,816 | |||||||
N/A
The changes in intangible assets during the first nine months of 2008ended September 30, 2009 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 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 4,454 | $ | 103 | $ | (504 | ) | $ | — | $ | 143 | $ | 4,196 | ||||||
Core deposit intangibles | 917 | 15 | (120 | ) | — | (33 | ) | 779 | |||||||||||
Other customer relationships | 2,549 | 1,355 | (162 | ) | — | (281 | ) | 3,461 | |||||||||||
Present value of future profits | 170 | — | (10 | ) | — | (1 | ) | 159 | |||||||||||
Indefinite-lived intangible assets | 1,591 | 550 | — | — | 109 | 2,250 | |||||||||||||
Other | 4,626 | 189 | (269 | ) | (213 | ) | (60 | ) | 4,273 | ||||||||||
| $ | 14,307 | $ | 2,212 | $ | (1,065 | ) | $ | (213 | ) | $ | (123 | ) | $ | 15,118 | |||||
Mortgage servicing rights(3) | $ | 8,380 | $ | 8,346 | |||||||||||||||
Total intangible assets | $ | 22,687 | $ | 23,464 | |||||||||||||||
| In millions of dollars | Net carrying amount at December 31, 2008 | Acquisitions / Divestitures | Amortization | Impairments | FX and other(1) | Net carrying amount at September 30, 2009 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 3,930 | $ | (72 | ) | $ | (444 | ) | $ | — | $ | 40 | $ | 3,454 | |||||
Core deposit intangibles | 683 | — | (86 | ) | (3 | ) | 13 | 607 | |||||||||||
Other customer relationships(2) | 3,863 | (3,253 | ) | (145 | ) | — | 61 | 526 | |||||||||||
Present value of future profits | 151 | — | (10 | ) | — | — | 141 | ||||||||||||
Indefinite-lived intangible assets(2) | 1,474 | (967 | ) | — | — | 49 | 556 | ||||||||||||
Other | 4,058 | (133 | ) | (222 | ) | (53 | ) | 23 | 3,673 | ||||||||||
| $ | 14,159 | $ | (4,425 | ) | $ | (907 | ) | $ | (56 | ) | $ | 186 | $ | 8,957 | |||||
Mortgage servicing rights(3) | 5,657 | 6,228 | |||||||||||||||||
Total intangible assets | $ | 19,816 | $ | 15,185 | |||||||||||||||
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 | |||||
|---|---|---|---|---|---|---|---|
Commercial paper | |||||||
Citigroup Funding Inc. | $ | 28,685 | $ | 34,939 | |||
Other Citigroup Subsidiaries | 967 | 2,404 | |||||
| $ | 29,652 | $ | 37,343 | ||||
Other short-term borrowings | 75,203 | 109,145 | |||||
Total short-term borrowings | $ | 104,855 | $ | 146,488 | |||
| In millions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Commercial paper | |||||||
Citigroup Funding Inc. | $ | 9,983 | $ | 28,654 | |||
Other Citigroup subsidiaries | 433 | 471 | |||||
| $ | 10,416 | $ | 29,125 | ||||
Other short-term borrowings | 54,315 | 97,566 | |||||
Total short-term borrowings | $ | 64,731 | $ | 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-bank subsidiaries have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act.
Citigroup Global Markets Holdings Inc. (CGMHI) has committed financing with unaffiliated banks. At September 30, 2009, CGMHI had drawn down the full $1.175 billion available under these facilities, of which $725 million is guaranteed by Citigroup. CGMHI has a bilateral facility totaling $400 million with an unaffiliated bank maturing prior to year end. It also has substantial borrowing agreements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.
Long-Term Debt
| In millions of dollars | September 30, 2008 | December 31, 2007 | |||||
|---|---|---|---|---|---|---|---|
Citigroup Parent Company | $ | 185,145 | $ | 171,637 | |||
Other Citigroup Subsidiaries(1) | 144,542 | 187,657 | |||||
Citigroup Global Markets Holdings Inc.(2) | 21,856 | 31,401 | |||||
Citigroup Funding Inc.(3)(4) | 41,554 | 36,417 | |||||
Total long-term debt | $ | 393,097 | $ | 427,112 | |||
| In millions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Citigroup parent company | $ | 214,981 | $ | 192,290 | |||
Other Citigroup subsidiaries(1) | 97,965 | 109,306 | |||||
Citigroup Global Markets Holdings Inc. (CGMHI) | 15,403 | 20,623 | |||||
Citigroup Funding Inc. (CFI)(2) | 51,208 | 37,374 | |||||
Total long term debt | $ | 379,557 | $ | 359,593 | |||
CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion, which was undrawn at September 30, 2009 and 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, 2008,2009, CGMHI had drawn down the full $2.075 billion$900 million available under these facilities, of which $1.08 billion$150 million is guaranteed by Citigroup. AGenerally, a bank can terminate these facilities by giving CGMHI one-year 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.notice.
The Company issues both fixed and variable rate debt in a range of currencies. It uses derivative contracts, primarily interest rate swaps, to effectively convert a portion of its fixed rate debt to variable rate debt and variable rate debt to fixed rate debt. The maturity structure of the derivatives generally corresponds to the maturity structure of the debt being hedged. In addition, the Company uses other derivative contracts to manage the foreign exchange impact of FX translation certain debt issuances.
Citigroup and other U.S. financial services firms are currently benefiting from government programs that are improving markets and providing Citigroup and other institutions with significant current funding capacity and significant liquidity support, including the Temporary Liquidity Guarantee Program (TLGP). See "TARP and Other Regulatory Programs" above.
Long-term debt at September 30, 20082009 and December 31, 20072008 includes $23.8$34.5 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)(1) issuing Trust Securitiestrust securities representing undivided beneficial interests in the assets of the Trust; (ii)trust; (2) investing the gross proceeds of the Trusttrust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and (iii)(3) engaging in only those activities necessary or incidental thereto. Upon approval from the Federal Reserve Board, 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. In addition, see Note 23 to the Consolidated Financial Statements, "Exchange Offers," below.
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, 2008:2009:
| | | | | | | 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 | ||||||||||||||||||||||
Citigroup Capital III | 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 | |||||||||||||
Citigroup Capital VIII | 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 | |||||||||||||
Citigroup Capital X | 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 | |||||||||||||
Citigroup Capital XIV | 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 | |||||||||||||
Citigroup Capital XVI | 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 | |||||||||||||
Citigroup Capital XVIII | June 2007 | 500,000 | 891 | 6.829 | % | 50 | 891 | 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 | |||||||||||||
Citigroup Capital XX | 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 | |||||||||||||
Citigroup Capital XXIX | 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 | |||||||||||||
Citigroup Capital XXXI | 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 | |||||||||||||
Adam Capital Trust III | 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 | ||||||||||||||
Adam Statutory Trust IV | 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 | ||||||||||||||
Total obligated | $ | 23,422 | $ | 23,584 | ||||||||||||||||||
| | | | | | | Junior subordinated debentures owned by trust | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | 194,053 | $ | 194 | 7.625 | % | 6,003 | $ | 200 | Dec. 1, 2036 | Not redeemable | ||||||||||||||
| Citigroup Capital VII | July 2001 | 35,885,898 | 897 | 7.125 | % | 1,109,874 | 925 | July 31, 2031 | July 31, 2006 | ||||||||||||||||
| Citigroup Capital VIII | Sept. 2001 | 43,651,597 | 1,091 | 6.950 | % | 1,350,050 | 1,125 | Sept. 15, 2031 | Sept. 17, 2006 | ||||||||||||||||
| Citigroup Capital IX | Feb. 2003 | 33,874,813 | 847 | 6.000 | % | 1,047,675 | 873 | Feb. 14, 2033 | Feb. 13, 2008 | ||||||||||||||||
| Citigroup Capital X | Sept. 2003 | 14,757,823 | 369 | 6.100 | % | 456,428 | 380 | Sept. 30, 2033 | Sept. 30, 2008 | ||||||||||||||||
| Citigroup Capital XI | Sept. 2004 | 18,387,128 | 460 | 6.000 | % | 568,675 | 474 | Sept. 27, 2034 | Sept. 27, 2009 | ||||||||||||||||
| Citigroup Capital XIV | June 2006 | 12,227,281 | 306 | 6.875 | % | 40,000 | 307 | June 30, 2066 | June 30, 2011 | ||||||||||||||||
| Citigroup Capital XV | Sept. 2006 | 25,210,733 | 630 | 6.500 | % | 40,000 | 631 | Sept. 15, 2066 | Sept. 15, 2011 | ||||||||||||||||
| Citigroup Capital XVI | Nov. 2006 | 38,148,947 | 954 | 6.450 | % | 20,000 | 954 | Dec. 31, 2066 | Dec. 31, 2011 | ||||||||||||||||
| Citigroup Capital XVII | Mar. 2007 | 28,047,927 | 701 | 6.350 | % | 20,000 | 702 | Mar. 15, 2067 | Mar. 15, 2012 | ||||||||||||||||
| Citigroup Capital XVIII | June 2007 | 99,901 | 160 | 6.829 | % | 50 | 160 | June 28, 2067 | June 28, 2017 | ||||||||||||||||
| Citigroup Capital XIX | Aug. 2007 | 22,771,968 | 569 | 7.250 | % | 20,000 | 570 | Aug. 15, 2067 | Aug. 15, 2012 | ||||||||||||||||
| Citigroup Capital XX | Nov. 2007 | 17,709,814 | 443 | 7.875 | % | 20,000 | 443 | Dec. 15, 2067 | Dec. 15, 2012 | ||||||||||||||||
| Citigroup Capital XXI | Dec. 2007 | 2,345,801 | 2,346 | 8.300 | % | 500 | 2,346 | Dec. 21, 2077 | Dec. 21, 2037 | ||||||||||||||||
| Citigroup Capital XXIX | 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 | ||||||||||||||||
| Citigroup Capital XXXI | 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 | ||||||||||||||||
| Citigroup Capital XXXIII | July 2009 | 27,059,000 | 27,059 | 8.000 | % | 100 | 27,059 | July 30, 2039 | July 30, 2014 | ||||||||||||||||
| Adam Capital Trust III | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 7, 2033 | Jan. 7, 2008 | |||||||||||||||||
| Adam Statutory Trust III | 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 | |||||||||||||||||
| Adam Statutory Trust V | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | |||||||||||||||||
| Total obligated | $ | 44,644 | $ | 44,770 | |||||||||||||||||||||
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 third quarter of 2009, pursuant to the "Exchange Offers", Citigroup converted $5.8 billion liquidation value of trust preferred securities across Citigroup Capital III, Citigroup Capital VII, Citigroup Capital VIII, Citigroup Capital IX, Citigroup Capital X, Citigroup Capital XI, Citigroup Capital XIV, Citigroup Capital XV, Citigroup Capital XVI, Citigroup Capital XVII, Citigroup Capital XVIII, Citigroup Capital XIX, Citigroup Capital XX and Citigroup Capital XXI to common stock and issued $27.1 billion of Citigroup Capital XXXIII trust preferred securities to the USG in exchange for the Series G and I of preferred stock.
The following table summarizes the Company's Preferredpreferred stock outstanding at September 30, 20082009, June 30, 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) | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Redemption price per depositary share / preference share | | ||||||||||||||||
| | Dividend rate | Number of depositary shares | September 30, 2009 | June 30, 2009 | December 31, 2008 | ||||||||||||||
Series A1(1) | 7.000 | % | $ | 50 | 137,600,000 | $ | — | $ | 6,880 | $ | 6,880 | ||||||||
Series B1(1) | 7.000 | % | 50 | 60,000,000 | — | 3,000 | 3,000 | ||||||||||||
Series C1(1) | 7.000 | % | 50 | 20,000,000 | — | 1,000 | 1,000 | ||||||||||||
Series D1(1) | 7.000 | % | 50 | 15,000,000 | — | 750 | 750 | ||||||||||||
Series E(2) | 8.400 | % | 1,000 | 6,000,000 | 121 | 6,000 | 6,000 | ||||||||||||
Series F(3) | 8.500 | % | 25 | 81,600,000 | 71 | 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 | — | 23,835 | 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 | — | 450 | 450 | ||||||||||||
Series K1(1) | 7.000 | % | 50 | 8,000,000 | — | 400 | 400 | ||||||||||||
Series L2(1) | 7.000 | % | 50 | 100,000 | — | 5 | 5 | ||||||||||||
Series N1(1) | 7.000 | % | 50 | 300,000 | — | 15 | 15 | ||||||||||||
Series T(7) | 6.500 | % | 50 | 63,373,000 | 23 | 3,169 | 3,169 | ||||||||||||
Series AA(8) | 8.125 | % | 25 | 148,600,000 | 97 | 3,715 | 3,715 | ||||||||||||
| $ | 312 | $ | 74,301 | $ | 70,664 | ||||||||||||||
If dividendsOther than securities containing customary anti-dilution provisions, Citigroup's only outstanding instruments subject to potential resets are declaredthe warrant to purchase 210,084,034 shares of common stock issued to the U.S. Treasury as part of TARP on Series ENovember 28, 2008, the warrant to purchase 188,501,414 shares of common stock issued to the U.S. Treasury as scheduled,part of TARP on December 31, 2008, and the impact from preferred dividendswarrant to purchase 66,531,728 shares of common stock issued to the U.S. Treasury as consideration for the loss-sharing agreement on earnings per share inJanuary 15, 2009. Under the firstterms of the warrants, the number of shares of common stock for which the warrants are exercisable and third quartersthe exercise price of the warrants will be lower thansubject to a reset if, prior to the impact inthird anniversary of issue date of the second and fourth quarters. All other series currently have a quarterly dividend declaration schedule.warrants, Citigroup issues shares of common stock (or
rights or warrants or other securities exercisable or convertible into or exchangeable for shares of common stock) (collectively, "convertible securities") without consideration or at a consideration per share (or having a conversion price per share) that is less than 90% of the market price of Citigroup's common stock on the last trading day preceding the date of the agreement on pricing such shares (or such convertible securities), subject to specified exceptions.
Exchange Offers
During the third quarter of 2009, Citigroup closed its exchange offers with the private and public holders of preferred stock. The UST matched $25 billion of these exchange offers. In total, approximately $74 billion in preferred stock was exchanged for common stock and converted into TRuPs as a result of the completion of the exchange offers.
14. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of "AccumulatedAccumulated Other Comprehensive Income (Loss)" (AOCI) for the first second and thirdthree quarters of 20082009 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 (ASC 320-10-65- 1/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 | ) | |
Decrease (increase) in net unrealized gains (losses) on investment securities, net of taxes(1)(3) | 2,890 | — | — | — | 2,890 | |||||||||||
Less: Reclassification adjustment for gains included in net income, net of taxes | 95 | — | — | — | 95 | |||||||||||
FX translation adjustment, net of taxes(4) | — | 2,406 | — | — | 2,406 | |||||||||||
Cash flow hedges, net of taxes(3) | — | — | 41 | — | 41 | |||||||||||
Pension liability adjustment, net of taxes | — | — | — | (62 | ) | (62 | ) | |||||||||
Change | $ | 2,985 | $ | 2,406 | $ | 41 | $ | (62 | ) | $ | 5,370 | |||||
Citigroup Stockholders AOCI balance, June 30, 2009 | $ | (7,055 | ) | $ | (8,312 | ) | $ | (3,665 | ) | $ | (2,611 | ) | $ | (21,643 | ) | |
Decrease (increase) in net unrealized gains (losses) on investment securities, net of taxes(1)(3) | 2,968 | — | — | — | 2,968 | |||||||||||
Less: Reclassification adjustment for gains included in net income, net of taxes | (155 | ) | — | — | — | (155 | ) | |||||||||
FX translation adjustment, net of taxes(5) | — | 1,699 | — | — | 1,699 | |||||||||||
Cash flow hedges, net of taxes(3) | — | — | (512 | ) | — | (512 | ) | |||||||||
Pension liability adjustment, net of taxes | — | — | — | (8 | ) | (8 | ) | |||||||||
Change | $ | 2,813 | $ | 1,699 | $ | (512 | ) | $ | (8 | ) | $ | 3,992 | ||||
Citigroup Stockholders AOCI balance, September 30, 2009 | $ | (4,242 | ) | $ | (6,613 | ) | $ | (4,177 | ) | $ | (2,619 | ) | $ | (17,651 | ) | |
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 to the Consolidated Financial Statements for a discussion of impending accounting changes to the accounting for transfers and servicing of financial assets and Consolidation of Variable Interest Entities, including the elimination of qualifying SPEs
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 that 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 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 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".
Citigroup's involvement with QSPEs and Consolidated and Unconsolidated VIEs with which the Company holds significant variable interests as of September 30, 2009 and December 31, 2008 is presented below:
| As of September 30, 2009 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Maximum exposure to loss in significant unconsolidated VIEs(1) | ||||||||||||||||||||
| | | | | | Funded exposures(2) | Unfunded exposures(3) | |||||||||||||||||||
| | Total involvement with SPE assets | | | | |||||||||||||||||||||
| In millions of dollars | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(4) | Debt investments | Equity investments | Funding commitments | Guarantees and derivatives | ||||||||||||||||||
Citicorp | |||||||||||||||||||||||||
Credit card securitizations | $ | 78,346 | $ | 78,346 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | 24,733 | — | — | 24,733 | 109 | — | 24,250 | 374 | |||||||||||||||||
Third-party commercial paper conduits | 4,114 | — | — | 4,114 | — | — | 353 | — | |||||||||||||||||
Collateralized debt obligations (CDOs) | 3,477 | — | — | 3,477 | 15 | — | — | — | |||||||||||||||||
Collateralized loan obligations (CLOs) | 3,991 | — | — | 3,991 | 44 | — | — | — | |||||||||||||||||
Mortgage loan securitization | 82,916 | 82,916 | — | — | — | — | — | — | |||||||||||||||||
Asset-based financing | 19,763 | — | 1,426 | 18,337 | 3,965 | 44 | 649 | 491 | |||||||||||||||||
Municipal securities tender option bond trusts (TOBs) | 19,754 | 710 | 9,781 | 9,263 | — | — | 6,079 | 689 | |||||||||||||||||
Municipal investments | 577 | — | — | 577 | — | 40 | 17 | — | |||||||||||||||||
Client intermediation | 7,525 | — | 2,948 | 4,577 | 1,225 | 12 | — | — | |||||||||||||||||
Investment funds | 108 | — | 38 | 70 | 13 | — | — | 2 | |||||||||||||||||
Trust preferred securities | 34,531 | — | — | 34,531 | — | 128 | — | — | |||||||||||||||||
Other | 7,643 | 1,809 | 1,782 | 4,052 | 258 | — | 10 | — | |||||||||||||||||
Total | $ | 287,478 | $ | 163,781 | $ | 15,975 | $ | 107,722 | $ | 5,629 | $ | 224 | $ | 31,358 | $ | 1,556 | |||||||||
Citi Holdings | |||||||||||||||||||||||||
Credit card securitizations | $ | 41,315 | $ | 41,315 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Mortgage securitizations | 513,004 | 513,004 | — | — | — | — | — | — | |||||||||||||||||
Student loan securitizations | 14,691 | 14,691 | — | — | — | — | — | — | |||||||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | 15,106 | — | 153 | 14,953 | — | — | 14,935 | 18 | |||||||||||||||||
Third-party commercial paper conduits | 7,770 | — | — | 7,770 | 298 | — | 252 | — | |||||||||||||||||
Collateralized debt obligations (CDOs) | 21,148 | — | 8,491 | 12,657 | 962 | — | — | 463 | |||||||||||||||||
Collateralized loan obligations (CLOs) | 9,896 | — | 72 | 9,824 | 1,543 | — | 32 | 247 | |||||||||||||||||
Asset-based financing | 53,381 | — | 430 | 52,951 | 16,166 | 75 | 1,697 | — | |||||||||||||||||
Municipal securities tender option bond trusts (TOBs) | 2,336 | — | 2,336 | — | — | — | — | — | |||||||||||||||||
Municipal investments | 16,294 | — | 879 | 15,415 | — | 2,012 | 529 | — | |||||||||||||||||
Client intermediation | 671 | — | 226 | 445 | 43 | — | — | 353 | |||||||||||||||||
Investment funds | 10,042 | — | 1,283 | 8,759 | — — | 247 | 169 | — | |||||||||||||||||
Other | 3,427 | 694 | 1,866 | 867 | 203 | 125 | 224 | — | |||||||||||||||||
Total | $ | 709,081 | $ | 569,704 | $ | 15,736 | $ | 123,641 | $ | 19,215 | $ | 2,459 | $ | 17,838 | $ | 1,081 | |||||||||
Total Citigroup | $ | 996,559 | $ | 733,485 | $ | 31,711 | $ | 231,363 | $ | 24,844 | $ | 2,683 | $ | 49,196 | $ | 2,637 | |||||||||
| As of September 30, 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) | ||||||||||||
| $ | — | $ | 78,254 | $ | 78,254 | $ | — | $ | — | $ | — | ||||||
| 24,733 | 36,108 | — | — | 36,108 | 36,108 | ||||||||||||
| 353 | 10,589 | — | — | 10,589 | 579 | ||||||||||||
| 15 | 4,042 | — | — | 4,042 | 12 | ||||||||||||
| 44 | 3,343 | — | — | 3,343 | 2 | ||||||||||||
| — | 84,953 | 84,953 | — | — | — | ||||||||||||
| 5,149 | 16,930 | — | 1,629 | 15,301 | 4,556 | ||||||||||||
| 6,768 | 27,047 | 5,964 | 12,135 | 8,948 | 7,884 | ||||||||||||
| 57 | 593 | — | — | 593 | 35 | ||||||||||||
| 1,237 | 8,332 | — | 3,480 | 4,852 | 1,476 | ||||||||||||
| 15 | 71 | — | 45 | 26 | 31 | ||||||||||||
| 128 | 23,899 | — | — | 23,899 | 162 | ||||||||||||
| 268 | 10,394 | 3,737 | 2,419 | 4,238 | 370 | ||||||||||||
| $ | 38,767 | $ | 304,555 | $ | 172,908 | $ | 19,708 | $ | 111,939 | $ | 51,215 | ||||||
| $ | — | $ | 45,613 | $ | 45,613 | $ | — | $ | — | $ | — | ||||||
| — | 586,410 | 586,407 | 3 | — | — | ||||||||||||
| — | 15,650 | 15,650 | — | — | — | ||||||||||||
| 14,953 | 23,527 | — | — | 23,527 | 23,527 | ||||||||||||
| 550 | 10,166 | — | — | 10,166 | 820 | ||||||||||||
| 1,425 | 26,018 | — | 11,466 | 14,552 | 1,461 | ||||||||||||
| 1,822 | 19,610 | — | 122 | 19,488 | 1,680 | ||||||||||||
| 17,938 | 85,224 | — | 2,218 | 83,006 | 23,676 | ||||||||||||
| — | 3,024 | 540 | 2,484 | — | — | ||||||||||||
| 2,541 | 16,545 | — | 866 | 15,679 | 2,915 | ||||||||||||
| 396 | 1,132 | — | 331 | 801 | 61 | ||||||||||||
| 416 | 10,330 | — | 2,084 | 8,246 | 158 | ||||||||||||
| 552 | 9,472 | 1,014 | 4,306 | 4,152 | 892 | ||||||||||||
| $ | 40,593 | $ | 852,721 | $ | 649,224 | $ | 23,880 | $ | 179,617 | $ | 55,190 | ||||||
| $ | 79,360 | $ | 1,157,276 | $ | 822,132 | $ | 43,588 | $ | 291,556 | $ | 106,405 | ||||||
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 table 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 (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.
Funding Commitments for Significant Unconsolidated VIEs—Liquidity Facilities and Loan Commitments
The following table presents the notional amount of liquidity facilities and loan commitments that are classified as funding commitments in the SPE table as of September 30, 2009:
| In billions of dollars | Liquidity Facilities | Loan Commitments | |||||
|---|---|---|---|---|---|---|---|
Citicorp | |||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 22,456 | $ | 1,794 | |||
Third-party commercial paper conduits | 353 | — | |||||
Asset-based financing | — | 649 | |||||
Municipal securities tender option bond trusts (TOBs) | 6,079 | — | |||||
Municipal investments | — | 17 | |||||
Other | 10 | — | |||||
Total Citicorp | $ | 28,898 | $ | 2,460 | |||
Citi Holdings | |||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 13,329 | $ | 1,606 | |||
Third-party commercial paper conduits | 252 | — | |||||
Collateralized loan obligations (CLOs) | 32 | — | |||||
Asset-based financing | — | 1,697 | |||||
Municipal investments | — | 529 | |||||
Investment Funds | — | 169 | |||||
Other | — | 224 | |||||
Total Citi Holdings | $ | 13,613 | $ | 4,225 | |||
Total Citigroup funding commitments | $ | 42,511 | $ | 6,685 | |||
Citicorp's 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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Cash | $ | 0.0 | $ | 0.7 | |||
Trading account assets | 3.5 | 4.3 | |||||
Investments | 10.2 | 12.5 | |||||
Loans | 0.3 | 0.5 | |||||
Other assets | 2.0 | 1.7 | |||||
Total assets of consolidated VIEs | $ | 16.0 | $ | 19.7 | |||
The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Short-term borrowings | $ | 9.4 | $ | 14.2 | |||
Long-term debt | 5.6 | 5.6 | |||||
Other liabilities | 0.2 | 0.9 | |||||
Total liabilities of consolidated VIEs | $ | 15.2 | $ | 20.7 | |||
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.
Citi Holdings' 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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Cash | $ | 0.5 | $ | 1.2 | |||
Trading account assets | 10.9 | 16.6 | |||||
Investments | 3.1 | 3.3 | |||||
Loans | 0.6 | 2.1 | |||||
Other assets | 0.6 | 0.7 | |||||
Total assets of consolidated VIEs | $ | 15.7 | $ | 23.9 | |||
The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Trading account liabilities | $ | 0.2 | $ | 0.5 | |||
Short-term borrowings | 3.0 | 2.8 | |||||
Long-term debt | 0.5 | 1.2 | |||||
Other liabilities | 1.2 | 2.1 | |||||
Total liabilities of consolidated VIEs | $ | 4.9 | $ | 6.6 | |||
Citicorp's Significant Interests in Unconsolidated VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classification of significant interests in unconsolidated VIEs:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Trading account assets | $ | 3.4 | $ | 1.9 | |||
Investments | 0.8 | 0.2 | |||||
Loans | 2.4 | 3.5 | |||||
Other assets | 0.6 | 0.4 | |||||
Total assets of significant interest in unconsolidated VIEs | $ | 7.2 | $ | 6.0 | |||
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Long-term debt | $ | 0.5 | $ | 0.4 | |||
Total liabilities of significant interest in unconsolidated VIEs | $ | 0.5 | $ | 0.4 | |||
Citi Holdings' Significant Interests in Unconsolidated VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classification of significant interests in unconsolidated VIEs:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Trading account assets | $ | 2.8 | $ | 4.4 | |||
Investments | 8.8 | 8.2 | |||||
Loans | 12.6 | 12.4 | |||||
Other assets | 0.1 | 2.6 | |||||
Total assets of significant interest in unconsolidated VIEs | $ | 24.3 | $ | 27.6 | |||
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Trading account liabilities | $ | 0.0 | $ | 0.2 | |||
Other liabilities | 0.3 | 0.6 | |||||
Total liabilities of significant interest in unconsolidated VIEs | $ | 0.3 | $ | 0.8 | |||
Credit Card Securitizations
The Company securitizes credit card receivables through trusts that 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 September 30, 2009 and December 31, 2008:
| | Citicorp | Citi Holdings | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | December 31, 2008 | September 30, 2009 | December 31, 2008 | |||||||||
Principal amount of credit card receivables in trusts | $ | 78.3 | $ | 78.3 | $ | 41.3 | $ | 45.7 | |||||
Ownership interests in principal amount of trust credit card receivables: | |||||||||||||
Sold to investors via trust-issued securities | 65.5 | 68.2 | 26.5 | 30.0 | |||||||||
Retained by Citigroup as trust-issued securities | 5.1 | 1.2 | 9.5 | 5.4 | |||||||||
Retained by Citigroup via non-certificated interests recorded as consumer loans | 7.7 | 8.9 | 5.3 | 10.3 | |||||||||
Total ownership interests in principal amount of trust credit card receivables | $ | 78.3 | $ | 78.3 | $ | 41.3 | $ | 45.7 | |||||
Other amounts recorded on the balance sheet related to interests retained in the trusts: | |||||||||||||
Other retained interests in securitized assets | $ | 1.3 | $ | 1.2 | $ | 1.6 | $ | 2.0 | |||||
Residual interest in securitized assets(1) | 0.3 | 0.3 | 1.0 | 1.4 | |||||||||
Amounts payable to trusts | 1.1 | 1.0 | 0.7 | 0.7 | |||||||||
Credit Card Securitizations—Citicorp
In the third quarter of 2009 and 2008, the Company recorded net gains (losses) from securitization of Citicorp's credit card receivables of $102 million and ($682) million, and $253 million and ($828) million for the nine months ended September 30, 2009 and 2008, respectively. Net gains (losses) reflect the following:
The following tables summarize selected cash flow information related to Citicorp's credit card securitizations for the three and nine months ended September 30, 2009 and 2008:
| | Three months ended | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | 1.0 | $ | 0.8 | |||
Proceeds from collections reinvested in new receivables | 38.5 | 42.4 | |||||
Contractual servicing fees received | 0.3 | 0.3 | |||||
Cash flows received on retained interests and other net cash flows | 0.7 | 1.0 | |||||
| | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | 11.7 | $ | 10.0 | |||
Proceeds from collections reinvested in new receivables | 110.0 | 129.1 | |||||
Contractual servicing fees received | 1.0 | 1.0 | |||||
Cash flows received on retained interests and other net cash flows | 2.3 | 3.1 | |||||
As of September 30, 2009 and December 31, 2008, the residual interest in securitized include corporate debt instruments (in cashcredit card receivables was valued at $0 for Citicorp. As such, key assumptions used in measuring the fair value of the residual interest are not provided for the three months ended September 30, 2009 or as of September 30, 2009. Key assumptions used in measuring the fair value of the residual interests at the date of sale or securitization of Citicorp's credit card receivables for the three months ended September 30 are as follows:
| September 30, 2009 | September 30, 2008 | |||
|---|---|---|---|---|
Discount rate | NA | 14.5% to 17.4% | ||
Constant prepayment rate | NA | 5.9% to 20.0% | ||
Anticipated net credit losses | NA | 5.8% to 6.2% | ||
At September 30, 2009, the sensitivity of the fair value to adverse changes of 10% and synthetic form), auto loans, and student loans.20% in each of the key assumptions were as follows:
| In millions of dollars | Residual interest | Retained certificates | Other retained interests | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying value of retained interests | $ | — | $ | 5,186 | $ | 1,547 | |||||
Discount rates | |||||||||||
Adverse change of 10% | $ | — | $ | (6 | ) | $ | (1 | ) | |||
Adverse change of 20% | — | (12 | ) | (2 | ) | ||||||
Constant prepayment rate | |||||||||||
Adverse change of 10% | $ | — | $ | — | $ | — | |||||
Adverse change of 20% | — | — | — | ||||||||
Anticipated net credit losses | |||||||||||
Adverse change of 10% | $ | — | $ | — | $ | (31 | ) | ||||
Adverse change of 20% | — | — | (62 | ) | |||||||
Managed Loans—Citicorp
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.
Managed-basis (Managed) presentations are non-GAAP financial measures. Managed presentations include results from both the on-balance sheet loans and off-balance sheet loans, and exclude the impact of card securitization activity. Managed presentations assume that securitized loans have not been sold and present the results of the securitized loans in the same manner as Citigroup's owned loans. Citigroup's management believes that Managed presentations provide a greater understanding of ongoing operations and enhance comparability of those results in prior periods as well as demonstrating the effects of unusual gains and charges in the current period. Management further believes that a meaningful analysis of the Company's financial performance requires an understanding of the factors underlying that performance and that investors find it useful to see these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in Citigroup's underlying performance.
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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Loan amounts, at period end | |||||||
On balance sheet | $ | 44.3 | $ | 45.5 | |||
Securitized amounts | 70.8 | 69.5 | |||||
Total managed loans | $ | 115.1 | $ | 115.0 | |||
Delinquencies, at period end | |||||||
On balance sheet | $ | 1,160 | $ | 1,126 | |||
Securitized amounts | 1,730 | 1,543 | |||||
Total managed delinquencies | $ | 2,890 | $ | 2,669 | |||
| Credit losses, net of recoveries, for the three months ended September 30, | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 1,047 | $ | 779 | |||
Securitized amounts | 1,876 | 1,123 | |||||
Total managed | $ | 2,923 | $ | 1,902 | |||
| Credit losses, net of recoveries, for the nine months ended September 30, | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 2,862 | $ | 2,117 | |||
Securitized amounts | 5,205 | 3,046 | |||||
Total managed | $ | 8,067 | $ | 5,163 | |||
Credit Card Securitizations—Citi Holdings
In the third quarter of 2009 and 2008, the Company recorded net gains (losses) from securitization of Citi Holding's credit card receivables of ($105) million and ($762) million, and ($781) million and ($570) million for the nine months ended September 30, 2009 and 2008, respectively.
The following tables summarize selected cash flow information related to Citi Holding's credit card securitizations for the three and nine months ended September 30, 2009 and 2008:
| | Three months ended | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | 4.3 | $ | 2.5 | |||
Proceeds from collections reinvested in new receivables | 11.1 | 13.9 | |||||
Contractual servicing fees received | 0.2 | 0.2 | |||||
Cash flows received on retained interests and other net cash flows | 0.7 | 0.8 | |||||
| | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | 23.0 | $ | 13.3 | |||
Proceeds from collections reinvested in new receivables | 36.9 | 40.3 | |||||
Contractual servicing fees received | 0.5 | 0.5 | |||||
Cash flows received on retained interests and other net cash flows | 1.9 | 2.6 | |||||
Key assumptions used in measuring the fair value of the residual interest at the date of sale or securitization of Citi Holding's credit card receivables for the three months ended September 30, 2009 and 2008, respectively, are as follows:
| September 30, 2009 | September 30, 2008 | |||
|---|---|---|---|---|
Discount rate | 19.7% | 17.9% to 20.9% | ||
Constant prepayment rate | 6.0% to 10.7% | 6.4% to 12.4% | ||
Anticipated net credit losses | 13.1% to 13.2% | 6.8% to 8.3% | ||
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 balances 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 September 30, 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:
| September 30, 2009 | ||
|---|---|---|
Discount rate | 19.7% | |
Constant prepayment rate | 6.0% to 10.6% | |
Anticipated net credit losses | 13.2% | |
Weighted average life | 11.7 months | |
| In millions of dollars | Residual interest | Retained certificates | Other retained interests | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying value of retained interests | $ | 628 | $ | 9,398 | $ | 1,926 | |||||
Discount rates | |||||||||||
Adverse change of 10% | $ | (31 | ) | $ | (14 | ) | $ | (6 | ) | ||
Adverse change of 20% | (61 | ) | (29 | ) | (12 | ) | |||||
Constant prepayment rate | |||||||||||
Adverse change of 10% | $ | (33 | ) | $ | — | $ | — | ||||
Adverse change of 20% | (63 | ) | — | — | |||||||
Anticipated net credit losses | |||||||||||
Adverse change of 10% | $ | (353 | ) | $ | — | $ | (41 | ) | |||
Adverse change of 20% | (628 | ) | — | (83 | ) | ||||||
Managed Loans—Citi Holdings
After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides and at times arrangesservicing for third parties to provide credit enhancementreceivables transferred to the trusts, including cash collateral accounts, subordinatedtrusts. As a result, the Company considers the securitized credit card receivables to be part of the business it manages.
Managed-basis (Managed) presentations are non-GAAP financial measures. Managed presentations include results from both the on-balance sheet loans and off-balance sheet loans, and exclude the impact of card securitization activity. Managed presentations assume that securitized loans have not been sold and present the results of the securitized loans in the same manner as Citigroup's owned loans. Citigroup's management believes that Managed presentations provide a greater understanding of ongoing operations and enhance comparability of those results in prior periods as well as demonstrating the effects of unusual gains and charges in the current period. Management further believes that a meaningful analysis of the Company's financial performance requires an understanding of the factors underlying that performance and that investors find it useful to see these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in Citigroup's underlying performance.
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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Loan amounts, at period end | |||||||
On balance sheet | $ | 21.7 | $ | 30.1 | |||
Securitized amounts | 36.5 | 36.3 | |||||
Total managed loans | $ | 58.2 | $ | 66.4 | |||
Delinquencies, at period end | |||||||
On balance sheet | $ | 885 | $ | 1,017 | |||
Securitized amounts | 1,219 | 1,113 | |||||
Total managed delinquencies | $ | 2,104 | $ | 2,130 | |||
| Credit losses, net of recoveries, for the three months ended September 30, | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 867 | $ | 646 | |||
Securitized amounts | 1,137 | 812 | |||||
Total managed | $ | 2,004 | $ | 1,458 | |||
| Credit losses, net of recoveries, for the nine months ended September 30, | 2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
On balance sheet | $ | 2,640 | $ | 1,694 | |||
Securitized amounts | 3,472 | 2,248 | |||||
Total managed | $ | 6,112 | $ | 3,942 | |||
Funding, Liquidity Facilities and Subordinated Interests
Citigroup securitizes credit card receivables through three securitization trusts—Citibank Credit Card Master Trust ("Master Trust"), which is part of Citicorp and the Citibank OMNI Master Trust ("Omni Trust") and Broadway Credit Card Trust ("Broadway Trust"), which are part of Citi Holdings.
Master Trust issues fixed and floating-rate term notes as well as commercial paper. Some of the term notes are issued to multi-seller commercial paper conduits. In the first half of 2009, the Master Trust has issued $4.3 billion of notes that are eligible for the Term Asset-Backed Securities Loan Facility (TALF) program, where investors can borrow from the Federal Reserve using the trust securities liquidity facilitiesas collateral. The
weighted average maturity of the term notes issued by the Master Trust was 3.7 years as of September 30, 2009 and letters3.8 years as of credit. As specified inDecember 31, 2008.
Master Trust liabilities:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Term notes issued to multi- seller CP conduits | $ | 0.5 | $ | 1.0 | |||
Term notes issued to other third parties | 53.0 | 56.2 | |||||
Term notes retained by Citigroup affiliates | 5.1 | 1.2 | |||||
Commercial paper | 12.0 | 11.0 | |||||
Total Master Trust liabilities | $ | 70.6 | $ | 69.4 | |||
Both Omni and Broadway Trusts issue fixed and floating-rate term notes, some of which are purchased by multi-seller commercial paper conduits. The Omni Trust also issues commercial paper. From time to time, a portion of the Omni Trust commercial paper has been purchased by the Federal Reserve's Commercial Paper Funding Facility (CPFF). In addition, some of the sale agreements,multi-seller conduits that hold Omni Trust term notes have placed commercial paper with CPFF. The total amount of Omni Trust liabilities funded directly or indirectly through the net revenue collectedCPFF was $5.2 billion at September 30, 2009 and $6.9 billion at December 31, 2008.
In the third quarter of 2009, Omni Trust issued $3.7 billion of term notes that are eligible for the TALF program. The weighted average maturity of the third party term notes issued by the Omni Trust was 2.6 years as of September 30, 2009 and 0.5 years as of December 31, 2008. The weighted average maturity of the third party term notes issued by the Broadway Trust was 2.4 years as of September 30, 2009 and 3.3 years as of December 31, 2008.
Omni Trust liabilities:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Term notes issued to multi- seller CP conduits | $ | 12.3 | $ | 17.8 | |||
Term notes issued to other third parties | 8.3 | 2.3 | |||||
Term notes retained by Citigroup affiliates | 9.2 | 5.1 | |||||
Commercial paper | 4.4 | 8.5 | |||||
Total Omni Trust liabilities | $ | 34.2 | $ | 33.7 | |||
Broadway Trust liabilities:
| In billions of dollars | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Term notes issued to multi- seller CP conduits | $ | 0.5 | $ | 0.4 | |||
Term notes issued to other third parties | 1.0 | 1.0 | |||||
Term notes retained by Citigroup affiliates | 0.3 | 0.3 | |||||
Total Broadway Trust liabilities | $ | 1.8 | $ | 1.7 | |||
Citibank (South Dakota), N.A. is the sole provider of full liquidity facilities to the commercial paper programs of the Master and Omni Trusts. Both of these facilities, which represent contractual obligations on the part of Citibank (South Dakota), N.A. to provide liquidity for the issued commercial paper, are made available on market terms to each month is accumulated upof 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 enhancements outstanding, typically in the form of subordinated notes. The liquidity commitment related to the Omni Trust commercial paper programs, amounted to $4.4 billion at September 30, 2009 and $8.5 billion at December 31, 2008. The liquidity commitment related to the Master Trust commercial paper program amounted to $12 billion at September 30, 2009 and $11 billion at December 31, 2008. As of September 30, 2009 and December 31, 2008, none of the Master Trust or Omni Trust liquidity commitments were 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 $5.2 billion at September 30, 2009 and $4 billion at December 31, 2008. As of that transactionSeptember 30, 2009 and December 31, 2008, none of this liquidity commitment was drawn.
All three of Citigroup's primary credit card securitization trusts have had bonds placed on ratings watch with negative implications by rating agencies during the first, second and third quarters of 2009. As a result of the ratings watch status, certain actions were taken with respect to make paymentseach of yield, fees, and transaction coststhe trusts. In general, the actions subordinated certain senior interests in the eventtrust assets that netwere retained by Citigroup, which effectively placed these interests below investor interests in terms of priority of payment. With respect to the Master Trust, in the first quarter of 2009, Citigroup subordinated a portion of its "seller's interest", which represents a senior interest in Trust receivables, thus making those cash flows fromavailable to pay investor coupon each month. In addition, during the receivables are not sufficient. Once the predeterminedsecond quarter of 2009, a subordinated note with a $3 billion principal amount is reached, net revenue is recognizedwas issued by the Master Trust and retained by Citibank (South Dakota), N.A., in order to provide additional credit support for the senior note classes. The note is classified as held-to-maturity investment securities as Citigroup subsidiary that soldhas the receivables.intent and ability to hold the security until its maturity. With respect to the Omni Trust, in the second quarter of 2009, subordinated notes with a principal amount of $2 billion were issued by the Trust and retained by Citibank (South Dakota), N.A., in order to provide additional credit support for the senior note classes. The notes are classified asTrading account assets. These notes are in addition to a $265 million subordinated note issued by Omni Trust and retained by Citibank (South Dakota), N.A. in the fourth quarter of 2008 for the purpose of providing additional credit support for senior noteholders. With respect to the Broadway Trust, subordinated notes with a principal amount of $82 million were issued by the Trust and retained by Citibank, N.A., in order to provide additional credit support for the senior note classes. The notes are classified asTrading account assets.
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 and Special Asset Pool 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.
Mortgage Securitizations—Citicorp
The following tables summarize selected cash flow information related to credit card, mortgage and certain other securitizations for the three months ended September 30, 2008 and 2007:
| | Three 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 | $ | 3.3 | $ | 19.1 | $ | 0.7 | $ | 0.6 | |||||
Proceeds from collections reinvested in new receivables | 56.2 | — | — | 0.3 | |||||||||
Contractual servicing fees received | 0.5 | 0.4 | — | — | |||||||||
Cash flows received on retained interests and other net cash flows | 1.8 | 0.2 | — | 0.2 | |||||||||
| | Three 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 | 7.1 | $ | 26.4 | $ | 7.5 | $ | 3.3 | ||||||
Proceeds from collections reinvested in new receivables | 58.1 | — | — | 0.3 | |||||||||
Contractual servicing fees received | 0.6 | 0.5 | — | — | |||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | 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 recognized gains (losses) on securitizations of U.S. Consumer mortgages of ($81) million and $46 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 nine months ended September 30, 20082009 and 2007, respectively.2008:
| | Three months ended September 30, 2009 | Three months ended September 30, 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | U.S. agency sponsoredp mortgages | Non-agency sponsored mortgages | Agency and non-agency sponsored mortgages | |||||||
Proceeds from new securitizations | $ | 3.5 | $ | 1.5 | $ | 0.7 | ||||
Contractual servicing fees received | — | — | — | |||||||
Cash flows received on retained interests and other net cash flows | — | — | — | |||||||
| | Nine months ended September 30, 2009 | Nine months ended September 30, 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | U.S. agency sponsoredp mortgages | Non-agency sponsored mortgages | Agency and non-agency sponsored mortgages | |||||||
Proceeds from new securitizations | $ | 8.8 | $ | 3.2 | $ | 5.9 | ||||
Contractual servicing fees received | — | — | — | |||||||
Cash flows received on retained interests and other net cash flows | — | — | 0.2 | |||||||
Gains (losses) recognized on the securitization of Institutional Clients Group activities and other assetsagency sponsored mortgage activity during the third quarter of 20082009 were $4 million. For the nine months ended September 30, 2009, gains (losses) recognized on the securitization of agency and 2007non-agency sponsored mortgages were $1($2) million and $15$21 million, respectively,respectively.
Agency and $6 million and $120 millionnon-agency securitization gains (losses) for the firstthree and nine months ended September 30, 2008 were $1 and 2007,($14) million, 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 September 30, 2009 and 2008 are as follows:
| | Three | Three months ended September 30, 2008 | ||||||
|---|---|---|---|---|---|---|---|---|
| | U.S. | sponsored mortgages | ||||||
Discount rate | ||||||||
Constant prepayment rate | 2.0% to 23.2% | |||||||
Anticipated net credit losses | 25.0% to 80.0% | |||||||
| ||||||||
| ||||||||
| ||||||||
As required by SFAS 140, theThe effect of two negativeadverse changes of 10% and 20% in each of the key assumptions used to determine the fair value of retained interests must be disclosed.is disclosed below. The negative effect of each change must beis 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, 2008,2009, 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
| September 30, 2009 | ||||
|---|---|---|---|---|
| U.S. agency sponsored mortgages | Non-agency sponsored mortgages | |||
Discount rate | 2.6% to 43.3% | 0.4% to 46.8% | ||
Constant prepayment rate | 1.2% to 45.6% | 4.0% to 31.3% | ||
Anticipated net credit losses | NA | 6.0% to 70.0% | ||
| In millions of dollars | U.S. agency sponsored mortgages | Non-agency sponsored mortgages | ||||||
|---|---|---|---|---|---|---|---|---|
Carrying value of retained interests | $ | 396 | $ | 655 | ||||
Discount rates | ||||||||
Adverse change of 10% | $ | (8 | ) | $ | (17 | ) | ||
Adverse change of 20% | (15 | ) | (33 | ) | ||||
Constant prepayment rate | ||||||||
Adverse change of 10% | $ | (2 | ) | $ | (4 | ) | ||
Adverse change of 20% | (4 | ) | (8 | ) | ||||
Anticipated net credit losses | ||||||||
Adverse change of 10% | $ | — | $ | (32 | ) | |||
Adverse change of 20% | — | (58 | ) | |||||
Mortgage Securitizations—Citi Holdings
The following tables summarize selected cash flow information related to mortgage securitizations for the three and nine months ended September 30, 2009 and 2008:
| | Three months ended September 30, 2009 | Three months ended September 30, 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | U.S. agency sponsored mortgages | Non-agency sponsored mortgages | Agency and non-agency sponsored mortgages | |||||||
Proceeds from new securitizations | $ | 15.9 | $ | — | $ | 19.1 | ||||
Contractual servicing fees received | 0.3 | — | 0.4 | |||||||
Cash flows received on retained interests and other net cash flows | 0.1 | — | 0.2 | |||||||
| | Nine months ended September 30, 2009 | Nine months ended September 30, 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | U.S. agency sponsored mortgages | Non-agency sponsored mortgages | Agency and non-agency sponsored mortgages | |||||||
Proceeds from new securitizations | $ | 61.0 | $ | — | $ | 65.5 | ||||
Contractual servicing fees received | 1.0 | — | 1.1 | |||||||
Cash flows received on retained interests and other net cash flows | 0.3 | 0.1 | 0.6 | |||||||
The Company did not recognize gains (losses) on the securitization of U.S. agency and non-agency sponsored mortgages in the third quarter of 2009, as well as the nine months ended September 30, 2009. There were gains (losses) from the securitization of agency and non-agency sponsored mortgages of ($81) million and ($4) million in the third quarter of 2008 and the nine months ended September 30, 2008, respectively.
Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables for the three months ended September 30, 2009 and 2008 are as follows:
| | Three months ended September 30, | Three months ended September 30,2008 | ||||||
|---|---|---|---|---|---|---|---|---|
| | sponsored mortgages | sponsored mortgages | sponsored mortgages | |||||
Discount rate | 10.8% to 15.3% | |||||||
Constant prepayment rate | 3.7% to 4.2% | 4.7% to | ||||||
Anticipated net credit losses | — | — | ||||||
The range in the key assumptions for the retained interests in Special Asset Pool is due to the different characteristics of the interests retained by the Company. The interests retained by Securities and Banking range from highly rated and/or senior in the capital structure to unrated and/or residual interests.
The effect of adverse changes of 10% and 20% in each of the key assumptions used to determine the fair value of retained interests is disclosed below. The negative effect of each change is calculated independently, holding all other assumptions constant. Because the key assumptions may not in fact be independent, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.
At September 30, 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:
| September 30, 2009 | ||||||||
|---|---|---|---|---|---|---|---|---|
| U.S. agency sponsored mortgages | Non-agency sponsored mortgages | |||||||
Discount rate | 13.1% | 0.4% to | ||||||
Constant prepayment rate | ||||||||
Anticipated net credit losses | 0.3% to | |||||||
Weighted average life | ||||||||
| | 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. agency sponsored mortgages | Non-agency sponsored mortgages | ||||||
|---|---|---|---|---|---|---|---|---|
Carrying value of retained interests | $ | 6,037 | $ | 1,011 | ||||
Discount rates | ||||||||
Adverse change of 10% | $ | (201 | ) | $ | (41 | ) | ||
Adverse change of 20% | (388 | ) | (79 | ) | ||||
Constant prepayment rate | ||||||||
Adverse change of 10% | $ | (361 | ) | $ | (51 | ) | ||
Adverse change of 20% | (693 | ) | (96 | ) | ||||
Anticipated net credit losses | ||||||||
Adverse change of 10% | $ | (19 | ) | $ | (44 | ) | ||
Adverse change of 20% | (37 | ) | (86 | ) | ||||
Mortgage Servicing Rights
The fair value of capitalized mortgage loan servicing rights (MSRs)(MSR) was $8.3$6.2 billion and $10.0$8.3 billion at September 30, 2009 and 2008, respectively. The MSRs correspond to principal loan balances of $577 billion and 2007,$648 billion as of September 30, 2009 and 2008, respectively. The following table summarizes the changes in capitalized MSRs:MSRs for the three and nine months ended September 30, 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 | |||
| | Three Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Balance, at June 30 | $ | 6,770 | $ | 8,934 | |||
Originations | 267 | 297 | |||||
Purchases | — | — | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (490 | ) | (595 | ) | |||
Transfer toTrading account assets | — | — | |||||
Other changes(1) | (319 | ) | (290 | ) | |||
Balance, at September 30 | $ | 6,228 | $ | 8,346 | |||
| | Nine Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2008 | 2007 | |||||
Balance, beginning of period | $ | 8,380 | $ | 5,439 | |||
Originations | 1,066 | 1,438 | |||||
Purchases | 1 | 3,404 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (90 | ) | 611 | ||||
Transfer to Trading account assets | (163 | ) | — | ||||
Other changes(1) | (848 | ) | (935 | ) | |||
Balance, end of period | $ | 8,346 | $ | 9,957 | |||
| | Nine Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | |||||
Balance, beginning of period | $ | 5,657 | $ | 8,380 | |||
Originations | 893 | 1,066 | |||||
Purchases | — | 1 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | 1,027 | (90 | ) | ||||
Transfer toTrading account assets | — | (163 | ) | ||||
Other changes(1) | (1,349 | ) | (848 | ) | |||
Balance, end of period | $ | 6,228 | $ | 8,346 | |||
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 quartermonths ended September 30, 2009 and 2008 and $481 million, $24 million, and $16 million, respectively, for the third quarter of 2007.were as follows:
| | Three months ended, | Nine months ended, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | 2009 | 2008 | 2009 | 2008 | |||||||||
Servicing fees | $ | 397 | $ | 429 | $ | 1,255 | $ | 1,261 | |||||
Late fees | 23 | 25 | 71 | 75 | |||||||||
Ancillary fees | 18 | 16 | 60 | 50 | |||||||||
Total MSR fees | $ | 438 | $ | 470 | $ | 1,386 | $ | 1,386 | |||||
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 typesThrough the Company's Local Consumer Lending business within Citi Holdings, the Company maintains programs to securitize certain portfolios of special-purpose entities (SPEs)student loan assets. Under these securitization programs, transactions qualifying as sales are off-balance sheet transactions in which the normal courseloans are removed from the Consolidated Financial Statements of business. The primary uses of SPEs are to obtain sources of liquidity for the Company and its clientssold to a QSPE. These QSPEs are funded 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 services to SPEs.issuance of pass-through term notes collateralized solely by the trust assets. For example, it may:
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.
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, typicallyretains interests in the form of subordinated notes.residual interests (i.e., interest-only strips) and servicing rights.
Under terms of the trust arrangements, the Company has no obligations to provide financial support and has not provided such support. A substantial portion of the credit 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 U.S. Department of Education under the Higher Education Act of 1965, as amended, or private credit insurance.
The Palisades liquidity commitment amountedfollowing tables summarize selected cash flow information related to $9.5 billion atstudent loan securitizations for the three and nine months ended September 30, 20082009 and $7.5 billion at December 31, 2007. During2008:
| Three months ended | |||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | — | $ | — | |||
Proceeds from collections reinvested in new receivables | — | — | |||||
Contractual servicing fees received | — | — | |||||
Cash flows received on retained interests and other net cash flows | — | — | |||||
| | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | September 30, 2009 | September 30, 2008 | |||||
Proceeds from new securitizations | $ | — | $ | 2.0 | |||
Proceeds from collections reinvested in new receivables | — | — | |||||
Contractual servicing fees received | 0.1 | 0.1 | |||||
Cash flows received on retained interests and other net cash flows | 0.1 | 0.1 | |||||
The Company did not recognize any gains or losses during the 2008 second quarter, Citibank (South Dakota) N.A. also becamethird quarters of 2009 and 2008. The company recognized a gain of $1 million during 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 at9 months ended September 30, 2008.
Mortgage and Other Consumer Loan Securitization Vehicles
The Company's Consumer business provides a wide range Key assumptions used in measuring the fair value of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans) throughresidual interest at the usedate of QSPEs. In addition to providing a sourcesale or securitization of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers. These mortgage andCiti Holding's student loan securitizationsreceivables for the three months ended September 30, 2009 and 2008, respectively, are primarily non-recourseas follows:
| September 30, 2009 | September 30, 2008 | |||
|---|---|---|---|---|
Discount rate | NA | 11.1% to 14.1% | ||
Constant prepayment rate | NA | 1.1% to 9.9% | ||
Anticipated net credit losses | NA | 0.3% to 0.9% |
At September 30, 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 16.3% | |
Constant prepayment rate | 0.2% to 5.2% | |
Anticipated net credit losses | 0.3% to 0.7% | |
Weighted average life | 4.1 to 10.4 years |
| In millions of dollars | Retained interests | ||||
|---|---|---|---|---|---|
Carrying value of retained interests | $ | 1,045 | |||
Discount rates | |||||
Adverse change of 10% | $ | (29 | ) | ||
Adverse change of 20% | (55 | ) | |||
Constant prepayment rate | |||||
Adverse change of 10% | $ | (4 | ) | ||
Adverse change of 20% | (9 | ) | |||
Anticipated net credit losses | |||||
Adverse change of 10% | $ | (5 | ) | ||
Adverse change of 20% | (10 | ) | |||
Municipal Tender Option Bond (TOB) QSPEsOn-Balance Sheet Securitizations—Citi Holdings
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.
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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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Cash | $ | 0.7 | $ | 0.3 | |||
Available-for-sale securities | 0.1 | 0.1 | |||||
Loans | 21.8 | 7.5 | |||||
Allowance for loan losses | (0.2 | ) | (0.1 | ) | |||
Other | 1.0 | — | |||||
Total assets | $ | 23.4 | $ | 7.8 | |||
Long-term debt | $ | 17.2 | $ | 6.3 | |||
Other liabilities | 3.9 | 0.3 | |||||
Total liabilities | $ | 21.1 | $ | 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 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 September 30, 2009 and December 31, 2008, the weighted average life of the commercial paper issued was approximately 47 and 37 days, respectively. In addition, the conduits have issued subordinate loss notes and equity with a notional amount of approximately $76 million and varying remaining tenors ranging from 10 month to 6 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 generally 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 unconsolidated 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. 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 $3.7 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 September 30, 2009, the Company owned $109 million of the commercial paper issued by its administered conduits.
The Company is required to 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. For conduits where the subordinate loss notes or third-party guarantees are sufficient to absorb a majority of the expected loss of the conduit, the Company does not consolidate. In circumstances where the subordinate loss notes or third-party guarantees are insufficient to absorb a majority of the expected loss, the Company consolidates the conduit as its primary beneficiary due to the additional credit enhancement provided by the Company. 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 these risks and related enhancements are generally required to be excluded from the analysis, the remaining risks and expected variability are quantitatively small. The calculation of variability 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, they do not provide significant protection against extreme or unusual credit losses. Where such credit losses occur or become expected to occur, the Company would consolidate the conduit due to the additional credit enhancement provided by the Company.
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 September 30, 2009, the notional amount of these facilities iswas approximately $1.3 billion as of September 30, 2008,$903 million and $2.2 billion as of December 31, 2007. The conduits received $25$298 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 + 35 bps to LIBOR + 40 bps), the Company was obligated to fund the senior financingtranche of the CDO at a specified interest rate. As of September 30, 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.
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 30 of the 46 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—Citi Holdings
The following tables summarize selected cash flow information related to CDO and CLO to purchase assetssecuritizations for the three and nine months ended September 30, 2009:
| Three months ended September 30, 2009 | |||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | CDOs | CLOs | |||||
Cash flows received on retained interests | — | — | |||||
| Nine months ended September 30, 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 September 30, 2009, in measuring the fair value of retained interests at the date of sale or securitization, are as follows:
| CDOs | CLOs | |||
|---|---|---|---|---|
Discount rate | 36.4% to 39.7% | 5.7% to 6.3% |
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 | $ | 251 | $ | 709 | ||||
Discount rates | ||||||||
Adverse change of 10% | $ | (24 | ) | $ | (11 | ) | ||
Adverse change of 20% | (47 | ) | (23 | ) | ||||
Asset-Based FinancingFinancing—Citicorp
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 Citicorp's asset-based financing, total assets of the unconsolidated VIEs with significant involvement and the Company's maximum exposure to loss at September 30, 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 | $ | 0.6 | $ | — | |||
Hedge funds and equities | 5.8 | 3.1 | |||||
Airplanes, ships and other assets | 11.9 | 2.1 | |||||
Total | $ | 18.3 | $ | 5.2 | |||
Asset-Based Financing—Citi Holdings
The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company. Financings in the form of debt securities or derivatives are, in most circumstances, reported inTrading account assets and accounted for at fair value through earnings.
The primary types of Citi Holdings' asset-based financing, total assets of the unconsolidated VIEs with significant involvement and the Company's maximum exposure to loss at September 30, 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 | $ | 36.9 | $ | 7.0 | |||
Hedge funds and equities | 2.2 | 0.8 | |||||
Corporate loans | 7.9 | 6.7 | |||||
Airplanes, ships and other assets | 6.0 | 3.4 | |||||
Total | $ | 53.0 | $ | 17.9 | |||
The following table summarizes selected cash flow information related to asset-based financing for the three months ended September 30, 2009 and 2008:
| | Three months ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Cash flows received on retained interests and other net cash flows | $ | 0.4 | $ | — | |||
| | Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Cash flows received on retained interests and other net cash flows | $ | 2.4 | $ | — | |||
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 | $ | 6,882 | |||
Value of underlying portfolio | |||||
Adverse change of 10% | $ | — | |||
Adverse change of 20% | (436 | ) | |||
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 $0.8 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 $2.2 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 none of the Floater inventory related to the Customer, Proprietary and QSPE TOB programs as of September 30, 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 September 30, 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 $4.6 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 $0.2 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 VIEs. 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 Citicorp's municipal bond securitizations for the three categories of TOB trusts as ofand nine months ended September 30, 20082009 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 September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Proceeds from new securitizations | $ | 0.1 | $ | 0.6 | |||
Cash flows received on retained interests and other net cash flows | $ | 0.1 | $ | 0.1 | |||
| | Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Proceeds from new securitizations | $ | 0.3 | $ | 1.1 | |||
Cash flows received on retained interests and other net cash flows | $ | 0.7 | $ | 0.4 | |||
The following table summarizes selected cash flow information related to Citi Holdings' municipal bond securitizations for the three and nine months ended September 30, 2009 and 2008:
| Three months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Proceeds from new securitizations | $ | — | $ | — | |||
Cash flows received on retained interests and other net cash flows | $ | — | $ | — | |||
| | Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In billions of dollars | 2009 | 2008 | |||||
Proceeds from new securitizations | $ | — | $ | 0.1 | |||
Cash flows received on retained interests and other net cash flows | $ | — | $ | — | |||
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 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
On December 13, 2007,Structured 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 a resultmanager for the SIVs.
In order to complete the wind-down of providing mezzanine financing to the SIVs, the terms of which were finalized on February 12, 2008,Company purchased the Company became the primary beneficiaryremaining assets of the SIVs and began consolidating these entities.in November 2008. The Company increased its mezzanine financingfunded the purchase of the SIV assets by assuming the obligation to $4.5 billion, reflecting an increase of $1 billion frompay amounts due under the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September quarter-end.medium-term notes issued by the SIVs, as the medium-term notes mature.
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 and the proceeds to the Company from the receivable exceed the Company's investment in the VIE's equity shares, the Company is not permitted to consolidate the trusts, 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.
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:
Derivatives may expose Citigroup accountsto market, credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates, foreign-exchange rates and other factors and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement, and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectability. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in periods of high volatility and financial stress at a reasonable cost.
The notional amounts of Citigroup's derivative instruments for itsboth long and short derivative positions, representing the volume of derivative activity, as of September 30, 2009 are presented in the table below:
Notionals
| | Hedging Instruments under ASC 815 (SFAS 133)(1) | Other Derivative Instruments | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars at September 30, 2009 | | Trading Derivatives | Management Hedges(2) | ||||||||
Interest rate contracts | |||||||||||
Swaps | $ | 130,241 | $ | 14,903,492 | $ | 194,225 | |||||
Futures and forwards | — | 3,876,745 | 84,999 | ||||||||
Written options | — | 3,214,707 | 9,493 | ||||||||
Purchased options | — | 3,468,676 | 43,537 | ||||||||
Total interest rate contract notionals | $ | 130,241 | $ | 25,463,620 | $ | 332,254 | |||||
Foreign exchange contracts | |||||||||||
Swaps | $ | 61,527 | $ | 867,475 | $ | 101,151 | |||||
Futures and forwards | 18,190 | 2,025,595 | 10,672 | ||||||||
Written options | 316 | 392,903 | 15,150 | ||||||||
Purchased options | 501 | 415,386 | 2,603 | ||||||||
Total foreign exchange contract notionals | $ | 80,534 | $ | 3,701,359 | $ | 129,576 | |||||
Equity contracts | |||||||||||
Swaps | $ | — | $ | 81,620 | $ | — | |||||
Futures and forwards | — | 14,567 | — | ||||||||
Written options | — | 528,027 | — | ||||||||
Purchased options | — | 505,812 | — | ||||||||
Total equity contract notionals | $ | — | $ | 1,130,026 | $ | — | |||||
Commodity and other contracts | |||||||||||
Swaps | $ | — | $ | 29,746 | $ | — | |||||
Futures and forwards | — | 101,574 | — | ||||||||
Written options | — | 39,066 | — | ||||||||
Purchased options | — | 40,662 | — | ||||||||
Total commodity and other contract notionals | $ | — | $ | 211,048 | $ | — | |||||
Credit derivatives(3) | |||||||||||
Citigroup as the Guarantor | $ | — | $ | 1,315,106 | $ | — | |||||
Citigroup as the Beneficiary | 6,773 | 1,442,602 | — | ||||||||
Total credit derivatives | $ | 6,773 | $ | 2,757,708 | $ | — | |||||
Total derivative notionals | $ | 217,548 | $ | 33,263,761 | $ | 461,830 | |||||
Derivative contracts hedging the risks associated with the changesreference asset without directly purchasing it. The Company has entered into credit derivatives positions for purposes such as risk management, yield enhancement, reduction of credit concentrations and diversification of overall risk.
Mark-to-Market (MTM) Receivables/Payables
| | Derivatives classified in Trading account assets / liabilities(1) | Derivatives classified in Other assets / liabilities | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars at September 30, 2009 | Assets | Liabilities | Assets | Liabilities | ||||||||||
Derivative instruments designated as hedges | ||||||||||||||
Interest rate contracts | $ | 2,860 | $ | 4,380 | $ | 5,551 | $ | 1,156 | ||||||
Foreign exchange contracts | 134 | 1,246 | 3,942 | 2,826 | ||||||||||
Credit derivatives | — | — | — | 110 | ||||||||||
Total derivative instruments designated as hedges | $ | 2,994 | $ | 5,626 | $ | 9,493 | $ | 4,092 | ||||||
Other derivative instruments | ||||||||||||||
Interest rate contracts | $ | 523,370 | $ | 505,442 | $ | 3,062 | $ | 4,727 | ||||||
Foreign exchange contracts | 88,944 | 89,225 | 1,233 | 1,240 | ||||||||||
Equity contracts | 23,706 | 47,070 | — | — | ||||||||||
Commodity and other contracts | 16,692 | 16,275 | — | — | ||||||||||
Credit derivatives(2) | 112,227 | 100,575 | — | — | ||||||||||
Total other derivative instruments | $ | 764,939 | $ | 758,587 | $ | 4,295 | $ | 5,967 | ||||||
Total derivatives | $ | 767,933 | $ | 764,213 | $ | 13,788 | $ | 10,059 | ||||||
Cash collateral paid/received | 54,169 | 43,471 | 510 | 5,720 | ||||||||||
Less: Netting agreements and market value adjustments | (753,432 | ) | (745,132 | ) | (4,713 | ) | (4,713 | ) | ||||||
Net receivables/ payables | $ | 68,670 | $ | 62,552 | $ | 9,585 | $ | 11,066 | ||||||
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 isare included in this netting. However, non-cash collateral is not included.
As of September 30, 2008 and December 31, 2007,2009 the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivatives was $29$36 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$46 billion.
The amounts recognized in principal transactions in the Consolidated Statement of Income for the three and $37 billion, respectively.nine months ended September 30, 2009 related to derivatives not designated in a qualifying hedging relationship are shown in the table below. Citigroup has elected to present this disclosure by business classification, showing derivative gains and losses related to its trading activities together with gains and losses related to non-derivative instruments within the same trading portfolios, as this better represents the way that these portfolios are risk managed.
| In millions of dollars | Gains (losses) Three months ended September 30, 2009 | Gains (losses) Nine months ended September 30, 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
Fixed Income | $ | 428 | $ | 5,359 | ||||
Foreign exchange | 445 | 2,157 | ||||||
Equity | (353 | ) | 550 | |||||
Commodity and other products | 162 | 990 | ||||||
Credit products | 846 | (3,500 | ) | |||||
Total(1) | $ | 1,528 | $ | 5,556 | ||||
The amounts recognized in other revenue in the Consolidated Statement of Income for the three and nine months ended September 30, 2009 related to derivatives not designated in a qualifying hedging relationship, and not recorded within Trading account assets or liabilities are shown below.
| In millions of dollars | Gains (losses) Three months ended September 30, 2009 | Gains (losses) Nine months ended September 30, 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
Interest rate contracts | $ | (384 | ) | $ | 36 | |||
Foreign exchange contracts | (2,130 | ) | (4,496 | ) | ||||
Equity contracts | — | — | ||||||
Commodity and other contracts | — | — | ||||||
Credit derivatives | — | — | ||||||
Total(1) | $ | (2,514 | ) | $ | (4,460 | ) | ||
Accounting for Derivative Hedging
Citigroup accounts for its hedging activities in accordance with ASC 815 (SFAS 133). As a general rule, hedge accounting is permitted for those situations where the Company is exposed to a particular risk, such as interest-rate or foreign-exchange risk, that causes changes in the fair value of an asset or liability, or variability in the expected future cash flows of an existing asset, liability or a forecasted transaction that may affect earnings.
Derivative contracts hedging the risks associated with the changes in fair value are referred to as fair value hedges, while contracts hedging the risks affecting the expected future cash flows are called cash flow hedges. Hedges that utilize derivatives or debt instruments to manage the foreign exchange risk associated with equity investments in non-U.S. dollar functional currency foreign subsidiaries (net investment in a foreign operation) are called net investment hedges.
If certain hedging criteria specified in SFAS 133ASC 815 (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.value. 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 133a fair-value hedge.
Key aspects of achieving hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that, if excluded, are recognized in current earnings.
Fair-value hedgesTable of Contents
Fair value hedges
Hedging of benchmark interest rate risk—risk
Citigroup hedges exposure to changes in the fair value of outstanding fixed-rate financing transactions, including liabilities related to outstandingissued debt and borrowings. The fixed cash flows from those financing transactions are converted to benchmark variable-rate cash flows by entering into receive-fixed,receive fixed, pay-variable interest rate swaps. Typically theseThese fair-value hedge relationships use dollar-offset ratio analysis to assessdetermine whether the hedging relationships are highly effective at inception and on an ongoing basis.
Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale debt securities and 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.
Citigroup hedges the change in fair value attributable to foreign-exchange rate movements in available-for-sale securities that are denominated in currencies other than the functional currency of the entity holding the securities, which may be inwithin or outside the U.S. Typically, theThe hedging instrument employed is a forward foreign-exchange contract. In this type of hedge, the change in fair value of the hedged available-for-sale security attributable to the portion of foreign-exchangeforeign exchange risk hedged is reported in earnings and not Accumulated other comprehensive income—a process that serves to offset substantially the change in fair value of the forward contract that is also reflected in earnings. Citigroup typically considers the premium associated with forward contracts (differential between spot and contractual forward rates) as the cost of hedging; this is generally excluded from the assessment of hedge effectiveness and reflected directly in earnings. Dollar-offset method is typically used to assess hedge effectiveness. Since that assessment is based on changes in fair value attributable to changes in spot rates on both the available-for-sale securities and the forward contracts for the portion of the relationship hedged, the amount of hedge ineffectiveness is not significant.
The following table summarizes certain information related to the Company's fair value hedges for the three and nine months ended September 30, 2009:
| | Three months ended September 30, 2009 | Nine months ended September 30, 2009 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Principal Transactions | Other Revenue | Principal Transactions | Other Revenue | ||||||||||
Gain (loss) on designated and qualifying fair value hedges | ||||||||||||||
Interest rate contracts | $ | (238 | ) | $ | 1,511 | $ | 727 | $ | (4,375 | ) | ||||
Foreign exchange contracts | (640 | ) | 323 | 663 | 645 | |||||||||
Total gain (loss) on fair value designated and qualifying hedges | $ | (878 | ) | $ | 1,834 | $ | 1,390 | $ | (3,730 | ) | ||||
Gain (loss) on the hedged item in designated and qualifying fair value hedges | ||||||||||||||
Interest rate hedges | $ | 293 | $ | (1,516 | ) | $ | (749 | ) | $ | 4,474 | ||||
Foreign exchange hedges | 717 | (293 | ) | (434 | ) | (576 | ) | |||||||
Total gain (loss) on the hedged item in designated and qualifying fair value hedge | $ | 1,010 | $ | (1,809 | ) | $ | (1,183 | ) | $ | 3,898 | ||||
Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | ||||||||||||||
Interest rate hedges | $ | 182 | $ | (106 | ) | $ | 313 | $ | (21 | ) | ||||
Foreign exchange hedges | 14 | 60 | 22 | 92 | ||||||||||
Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges | $ | 196 | $ | (46 | ) | $ | 335 | $ | 71 | |||||
Net gain (loss) excluded from assessment of the effectiveness of fair value hedges | ||||||||||||||
Interest rate contracts | $ | (127 | ) | $ | 101 | $ | (335 | ) | $ | 120 | ||||
Foreign exchange contracts | 63 | (30 | ) | 207 | (23 | ) | ||||||||
Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges | $ | (64 | ) | $ | 71 | $ | (128 | ) | $ | 97 | ||||
Cash-flowTable of Contents
Cash flow hedges
Hedging of benchmark interest rate risk—risk
Citigroup hedges variable cash flows resulting from floating-rate liabilities and roll-overroll over (re-issuance) of short-term liabilities. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest-rate swaps and receive-variable, pay-fixed forward-starting interest-rate swaps. For some hedges, the hedge ineffectiveness is eliminated by matching all terms of the hedged item and the hedging derivative at inception and on an ongoing basis. Citigroup does not exclude any terms from consideration when applying the matched terms method. To the extent all terms are not perfectly matched, these cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly.
Citigroup also hedges variable cash flows resulting from investments in floating-rate available-for-sale debt securities. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. These cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Since efforts are made to align the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant.
Citigroup is currently not using the shortcut method for any cash-flow hedging relationships.
Citigroup locks in the functional currency equivalent of cash flows of various balance sheet liability exposures, including deposits, short-term borrowings and long-term debt (and the forecasted issuances or rollover of such items) that are denominated in a currency other than the functional currency of the issuing entity. Depending on the risk managementrisk-management objectives, these types of hedges are designated as either cash-flow hedges of only foreign exchange risk or cash-flow hedges of both foreign exchangeforeign-exchange and interest-rate risk. Theinterest rate risk, and the hedging instruments used are foreign-exchange forward contracts, cross-currency swaps and foreign-currency options. For some hedges, Citigroup matches all terms of the hedged item and the hedging derivative at inception and on an ongoing basis to eliminate hedge ineffectiveness. Citigroup does not exclude any terms from consideration when applying the matched terms method. To the extent all terms are not perfectly matched, any ineffectiveness is measured using the "hypothetical derivative method" from FASB Derivative Implementation Group Issue G7.. Efforts are made to match up the terms of the hypothetical and actual derivatives used as closely as possible. As a result, the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly.
Hedging total return
Citigroup generally manages the overallrisk associated with highly leveraged financing it has entered into by seeking to sell a majority of its exposures to the market prior to or shortly after funding. The portion of the highly leveraged financing that is retained by Citigroup is hedged with a total return swap.
The hedge ineffectiveness on the cash flow hedges recognized in earnings totals $3 million for the three months ended September 30, 2009 and $12 million for the nine months ended September 30, 2009.
The pretax change in Accumulated other comprehensive income (loss) from cash flow hedges for the three and nine months ended September 30, 2009 is presented below:
| In millions of dollars | Three months ended September 30, 2009 | Nine months ended September 30, 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
Effective portion of cash flow hedges included in AOCI | ||||||||
Interest rate contracts | $ | (291 | ) | $ | 279 | |||
Foreign exchange contracts | (312 | ) | 321 | |||||
Credit derivatives | (404 | ) | (46 | ) | ||||
Total effective portion of cash flow hedges included in AOCI | $ | (1,007 | ) | $ | 554 | |||
Effective portion of cash flow hedges reclassified from AOCI to Earnings | ||||||||
Interest rate contracts(1) | $ | (431 | ) | $ | (1,288 | ) | ||
Foreign exchange contracts(2) | (149 | ) | (128 | ) | ||||
Credit derivatives | — | — | ||||||
Total effective portion of cash flow hedges reclassified from AOCI to Earnings | $ | (580 | ) | $ | (1,416 | ) | ||
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 September 30, 2009 is approximately $2.1 billion.
The impact of cash flow hedges on an ongoing basis.
Net investment hedges
Consistent with SFAS No. 52, "Foreign Currency Translation" ASC 815-20-25-58 (SFAS 52), SFAS 133133) 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 rate method from FASB Derivative Implementation Group Issue H8.forward-rate method. 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 activities for the three and nine months ended September 30, 2008 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 the fair value of the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earnings of future periods to offset the variability of the hedged cash flows when such cash flows affect earnings.
The change in Accumulated other comprehensive income (loss) from cash-flownet investment hedges for the three and nine months ended September 30, 20082009:
| Net Investments Hedges(1) In millions of dollars | Three months ended September 30, 2009 | Nine months ended September 30, 2009 | |||||
|---|---|---|---|---|---|---|---|
Pretax gain (loss) included in FX translation adjustment with AOCI | $ | (1,232 | ) | $ | (4,144 | ) | |
Gain (loss) on hedge ineffectiveness on net investment hedges included in Other revenue | $ | — | $ | 4 | |||
| 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 excessnine months ended September 30, 2009. Additionally, no amount was excluded from the assessment of the amounts recordedeffectiveness of the net investment hedges during the three and nine months ended September 30, 2009.
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 Consolidated Balance Sheet. Market riskreference 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 productstructured 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 exposure created by potential fluctuations in interest rates, foreign-exchange rates and other values, and is a functioncarrying amount of the typecredit-linked note. As of product,September 30, 2009 and December 31,
2008, the volumeamount of transactions,credit-linked notes held by the tenor and termsCompany in trading inventory was immaterial.
The following tables summarize the key characteristics of the agreementCompany's credit derivative portfolio as protection seller (guarantor) as of September 30, 2009 and December 31, 2008:
| In millions of dollars as of September 30, 2009 | Maximum potential amount of future payments | Fair value payable(1) | |||||
|---|---|---|---|---|---|---|---|
By industry/counterparty | |||||||
Bank | $ | 860,437 | $ | 46,071 | |||
Broker-dealer | 301,216 | 17,661 | |||||
Monoline | — | — | |||||
Non-financial | 2,127 | 96 | |||||
Insurance and other financial institutions | 151,326 | 12,753 | |||||
Total by industry/counterparty | $ | 1,315,106 | $ | 76,581 | |||
By instrument: | |||||||
Credit default swaps and options | $ | 1,314,282 | $ | 76,383 | |||
Total return swaps | 824 | 198 | |||||
Total by instrument | $ | 1,315,106 | $ | 76,581 | |||
By rating: | |||||||
Investment grade | $ | 759,845 | 23,362 | ||||
Non-investment grade | 422,865 | 33,231 | |||||
Not rated | 132,396 | 19,988 | |||||
Total by rating | $ | 1,315,106 | $ | 76,581 | |||
| In millions of dollars as of December 31, 2008 | Maximum potential amount of future payments | Fair value payable(1) | |||||
|---|---|---|---|---|---|---|---|
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 | 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.
The maximum potential amount of future payments under credit derivative contracts presented in the table above is based on the notional value of the derivatives. The Company believes that the maximum potential amount of future payments for credit protection sold is not representative of the actual loss exposure based on historical experience. This amount has not been reduced by the Company's rights to the underlying assets and the related cash flows. In accordance with most credit derivative contracts, should a credit event (or settlement trigger) occur, the Company is usually liable for the difference between the protection sold and the recourse it holds in the value of the underlying volatility. Creditassets. Thus, if the reference entity defaults, Citi will generally have a right to collect on the underlying reference credit and any related cash flows, while being liable for the full notional amount of credit protection sold to the buyer. Furthermore, this maximum potential amount of future payments for credit protection sold has not been reduced for any cash collateral paid to a given counterparty, as such payments would be calculated after netting all derivative exposures, including any credit derivatives with that counterparty in accordance with a related master netting agreement. Due to such netting processes, determining the amount of collateral that corresponds to credit derivative exposures only is not possible. The Company actively monitors open credit risk exposures, and manages this exposure by using a variety of strategies including purchased credit derivatives, cash collateral or direct holdings of the referenced assets. This risk mitigation activity is not captured in the table above.
Credit-Risk-Related Contingent Features in Derivatives
Certain derivative instruments contain provisions that require the Company to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit risk-related event. These events, which are defined by the existing derivative contracts, are primarily downgrades in the credit ratings of the Company and its affiliates. The fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position at September 30, 2009 is $21 billion. The Company has posted $13 billion as collateral for this exposure to lossin the normal course of business as of September 30, 2009. Each downgrade would trigger additional collateral requirements for the Company and its affiliates. However, in the event that each legal entity was downgraded to below investment grade credit rating as of nonperformance bySeptember 30, 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.$5 billion.
17. FAIR VALUE (SFAS 155, SFAS 156, SFAS 157, and SFAS 159)FAIR-VALUE MEASUREMENT
Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair-value accounting. SFAS 157ASC 820-10 (SFAS 157). ASC 820-10 (SFAS 157) defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair-value measurements. SFAS 157, amongAmong other things, the standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, SFAS 157it precludes the use of block discounts when measuring the fair value of instruments traded in an active market, whichmarket; such 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 standard, 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.necessary.
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 157ASC 820-10 (SFAS 157) also 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, SFAS 155 or 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, 20082009 assumes a cumulative decline in U.S. housing prices from peak to trough of 32%30.5%. This rate assumes declines of 16% and 10% in 20082009 and 2009,flat in 2010, respectively, the remainder of the 32%30.5% 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.
value. Counterparty and own credit adjustments consider the estimatedexpected 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, 2008,2009, Citigroup continued to act in the capacity of primary dealer for approximately $41$31.5 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. 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 in Trading account assetsas held-to-maturity, available-for-sale, and trading investments. 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-value hierarchy.
Highly Leveraged Financing Commitments
The Company reports approximately $900 million of highly leveraged loans as held for sale, which are measured on a LOCOM basis. The fair value hierarchy.of such exposures is determined, where possible, using quoted secondary-market prices and classified in Level 2 of the fair-value hierarchy if there is a sufficient level of activity in the market and quotes or traded prices are available with suitable frequency.
However, 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. 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.
The following table presents, asTable 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 borrowings
The Company elected 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 these positions are managed on a fair value 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 liabilities 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 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 since September 1, 2007.
The balance 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 revenue in the Company's Consolidated Statement of Income. The changes in fair value during the nine months ended September 30, 2008 due to instrument-specific credit risk resulted in a $30 million loss. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
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 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 Sheet 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. 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 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 discount rates. The model assumptions used in 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 portion 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.
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, 20082009 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 September 30, 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 | $ | — | $ | 114,841 | $ | — | $ | 114,841 | $ | (26,955 | ) | $ | 87,886 | ||||||||||
Trading securities | |||||||||||||||||||||||
Trading mortgage-backed securities | |||||||||||||||||||||||
U.S. government sponsored | — | $ | 22,387 | $ | 1,162 | $ | 23,549 | $ | — | $ | 23,549 | ||||||||||||
Prime | — | 719 | 458 | 1,177 | — | 1,177 | |||||||||||||||||
Alt-A | — | 743 | 562 | 1,305 | — | 1,305 | |||||||||||||||||
Subprime | — | 880 | 9,758 | 10,638 | — | 10,638 | |||||||||||||||||
Non-U.S. residential | — | 1,633 | 290 | 1,923 | — | 1,923 | |||||||||||||||||
Commercial | — | 1,244 | 2,731 | 3,975 | — | 3,975 | |||||||||||||||||
Total trading mortgage-backed securities | $ | — | $ | 27,606 | $ | 14,961 | $ | 42,567 | $ | — | $ | 42,567 | |||||||||||
U.S. Treasury and federal agencies securities | |||||||||||||||||||||||
U.S. Treasury | $ | 20,527 | $ | 276 | $ | — | $ | 20,803 | $ | — | $ | 20,803 | |||||||||||
Agency obligations | — | 3,854 | 79 | 3,933 | — | 3,933 | |||||||||||||||||
Total U.S. Treasury and federal agencies securities | $ | 20,527 | $ | 4,130 | $ | 79 | $ | 24,736 | $ | — | $ | 24,736 | |||||||||||
Other trading securities | |||||||||||||||||||||||
State and municipal | $ | — | $ | 6,744 | $ | 452 | $ | 7,196 | — | $ | 7,196 | ||||||||||||
Foreign government | 48,200 | 17,781 | 444 | 66,425 | — | 66,425 | |||||||||||||||||
Corporate | — | 38,856 | 8,629 | 47,485 | — | 47,485 | |||||||||||||||||
Equity securities | 34,989 | 10,319 | 1,155 | 46,463 | — | 46,463 | |||||||||||||||||
Other debt securities | — | 20,789 | 16,366 | 37,155 | — | 37,155 | |||||||||||||||||
Total trading securities | $ | 103,716 | $ | 126,225 | $ | 42,086 | $ | 272,027 | $ | — | $ | 272,027 | |||||||||||
Derivatives | $ | 4,977 | $ | 786,659 | $ | 30,466 | $ | 822,102 | $ | (753,432 | ) | $ | 68,670 | ||||||||||
Investments | |||||||||||||||||||||||
Mortgage-backed securities | |||||||||||||||||||||||
U.S. government sponsored | $ | 1,387 | $ | 22,232 | $ | — | $ | 23,619 | $ | — | $ | 23,619 | |||||||||||
Prime | — | 5,405 | 873 | 6,278 | — | 6,278 | |||||||||||||||||
Alt-A | — | 403 | 67 | 470 | — | 470 | |||||||||||||||||
Subprime | — | — | 19 | 19 | — | 19 | |||||||||||||||||
Non-U.S. Residential | — | 266 | — | 266 | — | 266 | |||||||||||||||||
Commercial | — | 45 | 764 | 809 | — | 809 | |||||||||||||||||
Total investment mortgage-backed securities | $ | 1,387 | $ | 28,351 | $ | 1,723 | $ | 31,461 | $ | — | $ | 31,461 | |||||||||||
U.S. Treasury and federal Agency securities | |||||||||||||||||||||||
U.S. Treasury | $ | 4,599 | $ | 1,635 | $ | — | $ | 6,234 | $ | — | $ | 6,234 | |||||||||||
Agency obligations | — | 16,963 | 4 | 16,967 | — | 16,967 | |||||||||||||||||
Total U.S. Treasury and federal agency | $ | 4,599 | $ | 18,598 | $ | 4 | $ | 23,201 | $ | — | $ | 23,201 | |||||||||||
State and municipal | $ | — | $ | 16,571 | $ | 254 | $ | 16,825 | $ | — | $ | 16,825 | |||||||||||
Foreign government | 37,313 | 43,087 | 271 | 80,671 | — | 80,671 | |||||||||||||||||
Corporate | — | 19,303 | 1,405 | 20,708 | — | 20,708 | |||||||||||||||||
Equity securities | 3,088 | 109 | 2,542 | 5,739 | — | 5,739 | |||||||||||||||||
Other debt securities | 553 | 2,492 | 8,602 | 11,647 | — | 11,647 | |||||||||||||||||
Non-marketable equity securities | — | 119 | 7,646 | 7,765 | — | 7,765 | |||||||||||||||||
Total investments | $ | 46,940 | $ | 128,630 | $ | 22,447 | $ | 198,017 | $ | — | $ | 198,017 | |||||||||||
Items Measured at Fair Value on a Recurring Basis (continued)Table of Contents
| 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 September 30, 2009 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Loans(2) | — | $ | 1,290 | $ | 215 | $ | 1,505 | — | $ | 1,505 | ||||||||||
Mortgage servicing rights | — | — | 6,228 | 6,228 | — | 6,228 | ||||||||||||||
Assets of discontinued operations held for sale(3) | 5,961 | 2,516 | 727 | 9,204 | — | 9,204 | ||||||||||||||
Other financial assets measured on a recurring basis | — | 17,199 | 1,184 | 18,383 | (4,713 | ) | $ | 13,670 | ||||||||||||
Total assets | $ | 161,594 | $ | 1,177,360 | $ | 103,353 | $ | 1,442,307 | $ | (785,100 | ) | $ | 657,207 | |||||||
| 11.2 | % | 81.6 | % | 7.2 | % | 100.0 | % | |||||||||||||
Liabilities | ||||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 1,998 | $ | 31 | $ | 2,029 | $ | — | $ | 2,029 | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 135,165 | 8,483 | 143,648 | (26,955 | ) | 116,693 | |||||||||||||
Trading account liabilities | ||||||||||||||||||||
Securities sold, not yet purchased | 43,864 | 22,905 | 1,219 | 67,988 | — | 67,988 | ||||||||||||||
Derivatives | 5,601 | 772,149 | 29,934 | 807,684 | (745,132 | ) | 62,552 | |||||||||||||
Short-term borrowings | — | 1,284 | 159 | 1,443 | — | 1,443 | ||||||||||||||
Long-term debt | — | 16,080 | 11,106 | 27,186 | — | 27,186 | ||||||||||||||
Liabilities of discontinued operations held for sale(3) | 1,302 | 1,521 | — | 2,823 | — | 2,823 | ||||||||||||||
Other financial liabilities measured on a recurring basis | — | 19,531 | 1 | 19,532 | (4,713 | ) | 14,819 | |||||||||||||
Total liabilities | $ | 50,767 | $ | 970,633 | $ | 50,933 | $ | 1,072,333 | $ | (776,800 | ) | $ | 295,533 | |||||||
| 4.7 | % | 90.6 | % | 4.7 | % | 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 | — | 25,540 | 359 | 25,899 | (4,527 | ) | 21,372 | |||||||||||||
Total assets | $ | 144,547 | $ | 1,459,767 | $ | 145,947 | $ | 1,750,261 | $ | (1,088,109 | ) | $ | 662,152 | |||||||
| 8.3 | % | 83.4 | % | 8.3 | % | 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 | 1,094,435 | 57,139 | 1,161,612 | (1,046,505 | ) | 115,107 | |||||||||||||
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 | — | 18,093 | 1 | 18,094 | (4,527 | ) | 13,567 | |||||||||||||
Total liabilities | $ | 46,886 | $ | 1,314,533 | $ | 81,541 | $ | 1,442,960 | $ | (1,077,251 | ) | $ | 365,709 | |||||||
| 3.2 | % | 91.1 | % | 5.7 | % | 100.0 | % | |||||||||||||
Changes in Level 3 Fair-Value Category
The following tables present the changes in the Level 3 fair-value category for the three months and nine months ended September 30, 20082009 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 | June 30, 2009 | Principal transactions | Other(1)(2) | Sept. 30, 2009 | ||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Trading securities | ||||||||||||||||||||||||
Trading mortgage-backed securities | ||||||||||||||||||||||||
U.S. government sponsored | $ | 1,244 | $ | (71 | ) | $ | — | $ | 127 | $ | (138 | ) | $ | 1,162 | $ | (116 | ) | |||||||
Prime | 623 | (76 | ) | — | (39 | ) | (50 | ) | 458 | (37 | ) | |||||||||||||
Alt-A | 777 | 18 | — | (75 | ) | (158 | ) | 562 | 18 | |||||||||||||||
Subprime | 10,001 | 1,752 | — | (515 | ) | (1,480 | ) | 9,758 | 1,785 | |||||||||||||||
Non-U.S. residential | 345 | (3 | ) | — | (142 | ) | 90 | 290 | (3 | ) | ||||||||||||||
Commercial | 2,808 | (1 | ) | — | 114 | (190 | ) | 2,731 | 2 | |||||||||||||||
Total trading mortgage-backed securities | $ | 15,798 | $ | 1,619 | $ | — | $ | (530 | ) | $ | (1,926 | ) | $ | 14,961 | $ | 1,649 | ||||||||
U.S. Treasury and federal agencies securities | ||||||||||||||||||||||||
U.S. Treasury | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Agency obligations | 49 | 9 | — | 5 | 16 | 79 | 9 | |||||||||||||||||
Total U.S. Treasury and federal agencies securities | $ | 49 | $ | 9 | $ | — | $ | 5 | $ | 16 | $ | 79 | $ | 9 | ||||||||||
State and municipal | $ | 109 | $ | (49 | ) | $ | — | $ | 300 | $ | 92 | $ | 452 | $ | (49 | ) | ||||||||
Foreign government | 590 | 24 | — | (134 | ) | (36 | ) | 444 | 4 | |||||||||||||||
Corporate | 9,435 | 404 | — | (764 | ) | (446 | ) | 8,629 | 431 | |||||||||||||||
Equity securities | 1,866 | 161 | — | (899 | ) | 27 | 1,155 | 25 | ||||||||||||||||
Other debt securities | 16,846 | 1,133 | (1,122 | ) | (491 | ) | 16,366 | 1,018 | ||||||||||||||||
Total trading securities | $ | 44,693 | $ | 3,301 | $ | — | $ | (3,144 | ) | $ | (2,764 | ) | $ | 42,086 | $ | 3,087 | ||||||||
Derivatives, net(4) | $ | 1,180 | $ | (2,407 | ) | $ | — | $ | (1,107 | ) | $ | 2,866 | $ | 532 | $ | (3,064 | ) | |||||||
Investments | ||||||||||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
U.S. government sponsored | $ | 78 | $ | — | $ | 1 | $ | — | $ | (79 | ) | $ | — | $ | 1 | |||||||||
Prime | 775 | — | 50 | 99 | (51 | ) | 873 | 59 | ||||||||||||||||
Alt-A | 271 | — | 11 | (114 | ) | (101 | ) | 67 | 16 | |||||||||||||||
Subprime | 17 | — | — | 2 | — | 19 | — | |||||||||||||||||
Commercial | 719 | — | 62 | 2 | (19 | ) | 764 | 14 | ||||||||||||||||
Total investment mortgage-backed debt securities | $ | 1,860 | $ | — | $ | 124 | $ | (11 | ) | $ | (250 | ) | $ | 1,723 | $ | 90 | ||||||||
U.S. Treasury and federal agencies securities | ||||||||||||||||||||||||
U.S. Treasury | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Agency obligations | 9 | — | — | — | (5 | ) | 4 | — | ||||||||||||||||
Total U.S. Treasury and federal agencies securities | $ | 9 | $ | — | $ | — | $ | — | $ | (5 | ) | $ | 4 | $ | — | |||||||||
State and municipal | $ | 252 | $ | — | $ | 2 | $ | — | $ | — | $ | 254 | $ | — | ||||||||||
Foreign government | 168 | — | — | 89 | 14 | 271 | — | |||||||||||||||||
Corporate | 1,688 | — | 3 | (86 | ) | (200 | ) | 1,405 | $ | 5 | ||||||||||||||
Equity securities | 2,818 | — | (15 | ) | (22 | ) | (239 | ) | 2,542 | 10 | ||||||||||||||
Other debt securities | 8,429 | — | 523 | (194 | ) | (156 | ) | 8,602 | 454 | |||||||||||||||
Non-marketable equity securities | 7,800 | — | (40 | ) | (8 | ) | (106 | ) | 7,646 | (226 | ) | |||||||||||||
Total investments | $ | 23,024 | $ | — | $ | 597 | $ | (232 | ) | $ | (942 | ) | $ | 22,447 | $ | 333 | ||||||||
| | | 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 | | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| In millions of dollars | June 30, 2009 | Principal transactions | Other(1)(2) | Sept. 30, 2009 | |||||||||||||||||||
Loans | $ | 196 | $ | — | $ | 24 | $ | — | $ | (5 | ) | $ | 215 | $ | 24 | ||||||||
Mortgage servicing rights | $ | 6,770 | $ | — | $ | (444 | ) | $ | — | $ | (98 | ) | $ | 6,228 | $ | (444 | ) | ||||||
Other financial assets measured on a recurring basis | 1,645 | — | (347 | ) | (67 | ) | (47 | ) | 1,184 | $ | (347 | ) | |||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 112 | $ | — | $ | 63 | $ | — | $ | (18 | ) | $ | 31 | $ | 63 | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 7,204 | (32 | ) | — | 1,622 | (375 | ) | 8,483 | (40 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 961 | (14 | ) | — | (166 | ) | 410 | 1,219 | 15 | ||||||||||||||
Short-term borrowings | 377 | — | 9 | (75 | ) | (134 | ) | 159 | 9 | ||||||||||||||
Long-term debt | 11,201 | — | (385 | ) | 414 | (894 | ) | 11,106 | (456 | ) | |||||||||||||
Other financial liabilities measured on a recurring basis | 19 | — | (2 | ) | — | (20 | ) | 1 | (1 | ) | |||||||||||||
| | | 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, 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 | |||||||||||||||
Loans | 1,195 | — | — | (1,252 | ) | 59 | 2 | — | |||||||||||||||
Mortgage servicing rights | 10,072 | — | (267 | ) | — | 152 | 9,957 | (325 | ) | ||||||||||||||
Other financial assets measured on a recurring basis | 1,106 | — | 15 | — | 29 | 1,150 | 10 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 90 | $ | — | $ | — | $ | — | $ | (1 | ) | $ | 89 | $ | (3 | ) | |||||||
Securities sold under agreements to repurchase | 6,241 | (86 | ) | — | — | 160 | 6,487 | (81 | ) | ||||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 653 | (58 | ) | — | 46 | 137 | 894 | (41 | ) | ||||||||||||||
Short-term borrowings | 2,652 | — | (21 | ) | 1,831 | 1,532 | 6,036 | 14 | |||||||||||||||
Long-term debt | 1,804 | (92 | ) | 3,637 | 154 | 5,687 | (85 | ) | |||||||||||||||
Other financial liabilities measured on a recurring basis | 31 | — | 1 | — | (29 | ) | 1 | — | |||||||||||||||
| | | 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, 2008 | Principal transactions | Other(1)(2) | Sept. 30, 2009 | |||||||||||||||||||||
Assets | |||||||||||||||||||||||||
Trading securities | |||||||||||||||||||||||||
Trading mortgage-backed securities | |||||||||||||||||||||||||
U.S. government sponsored | $ | 1,325 | $ | 145 | $ | — | $ | 137 | $ | (445 | ) | $ | 1,162 | $ | 89 | ||||||||||
Prime | 147 | (131 | ) | — | 400 | 42 | 458 | (83 | ) | ||||||||||||||||
Alt-A | 1,153 | (101 | ) | — | (262 | ) | (228 | ) | 562 | (101 | ) | ||||||||||||||
Subprime | 13,844 | 56 | — | (1,225 | ) | (2,917 | ) | 9,758 | 2,262 | ||||||||||||||||
Non-U.S. residential | 858 | (77 | ) | — | (632 | ) | 141 | 290 | 12 | ||||||||||||||||
Commercial | 2,949 | (196 | ) | — | 273 | (295 | ) | 2,731 | (207 | ) | |||||||||||||||
Total trading mortgage-backed securities | $ | 20,276 | $ | (304 | ) | $ | — | $ | (1,309 | ) | $ | (3,702 | ) | $ | 14,961 | $ | 1,972 | ||||||||
U.S. Treasury and federal agencies securities | |||||||||||||||||||||||||
U.S. Treasury | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Agency obligations | 59 | — | — | 2 | 18 | 79 | 2 | ||||||||||||||||||
Total U.S. Treasury and federal agencies securities | $ | 59 | $ | — | $ | — | $ | 2 | $ | 18 | $ | 79 | $ | 2 | |||||||||||
State and municipal | $ | 233 | $ | (71 | ) | $ | — | $ | 220 | $ | 70 | $ | 452 | $ | (49 | ) | |||||||||
Foreign government | 1,261 | 120 | — | (501 | ) | (436 | ) | 444 | 29 | ||||||||||||||||
Corporate | 13,027 | (299 | ) | — | (1,556 | ) | (2,543 | ) | 8,629 | 457 | |||||||||||||||
Equity securities | 1,387 | 252 | — | (778 | ) | 294 | 1,155 | 90 | |||||||||||||||||
Other debt securities | 14,530 | 1,144 | — | (2,320 | ) | 3,012 | 16,366 | 1,044 | |||||||||||||||||
Total trading securities | $ | 50,773 | $ | 842 | $ | — | $ | (6,242 | ) | $ | (3,287 | ) | $ | 42,086 | $ | 3,545 | |||||||||
Derivatives, net(4) | $ | 3,586 | $ | (4,783 | ) | $ | — | $ | (1,824 | ) | $ | 3,553 | $ | 532 | $ | (3,026 | ) | ||||||||
Investments | |||||||||||||||||||||||||
Mortgage-backed securities | |||||||||||||||||||||||||
U.S. government sponsored | $ | — | $ | — | $ | 1 | $ | 75 | $ | (76 | ) | $ | — | $ | 3 | ||||||||||
Prime | 1,163 | — | 211 | 132 | (633 | ) | 873 | 213 | |||||||||||||||||
Alt-A | 111 | — | 44 | (51 | ) | (37 | ) | 67 | 17 | ||||||||||||||||
Subprime | 25 | — | (9 | ) | (8 | ) | 11 | 19 | — | ||||||||||||||||
Commercial | 964 | — | 71 | (461 | ) | 190 | 764 | 29 | |||||||||||||||||
Total investment mortgage-backed debt securities | $ | 2,263 | $ | — | $ | 318 | $ | (313 | ) | $ | (545 | ) | $ | 1,723 | $ | 262 | |||||||||
U.S. Treasury and federal agencies securities | |||||||||||||||||||||||||
U.S. Treasury | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Agency obligations | — | — | — | 9 | (5 | ) | 4 | — | |||||||||||||||||
Total U.S. Treasury and federal agencies securities | $ | — | $ | — | $ | — | $ | 9 | $ | (5 | ) | $ | 4 | $ | — | ||||||||||
| | | 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 | January 1, 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 | 22,415 | (1,485 | ) | — | 14,020 | 45,722 | 80,672 | (2,136 | ) | ||||||||||||||
Derivatives, net(4) | 1,875 | 2,010 | — | 1,142 | (3,468 | ) | 1,559 | (53 | ) | ||||||||||||||
Investments | 11,468 | — | 1,221 | 1,508 | 6,447 | 20,644 | 314 | ||||||||||||||||
Loans | — | (8 | ) | — | (793 | ) | 803 | 2 | — | ||||||||||||||
Mortgage servicing rights | 5,439 | — | 1,257 | — | 3,261 | 9,957 | 1,257 | ||||||||||||||||
Other financial assets measured on a recurring basis | 948 | — | 24 | — | 178 | 1,150 | 3 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 60 | $ | 12 | $ | — | $ | (33 | ) | $ | 74 | $ | 89 | $ | (4 | ) | |||||||
Securities sold under agreements to repurchase | 6,778 | (97 | ) | — | 84 | (472 | ) | 6,487 | (50 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 467 | (22 | ) | — | (167 | ) | 572 | 894 | (138 | ) | |||||||||||||
Short-term borrowings | 2,214 | 9 | (21 | ) | 1,483 | 2,327 | 6,036 | — | |||||||||||||||
Long-term debt | 1,693 | (11 | ) | (92 | ) | 3,729 | 162 | 5,687 | (70 | ) | |||||||||||||
Other financial liabilities measured on a recurring basis | — | — | (23 | ) | (1 | ) | (21 | ) | 1 | — | |||||||||||||
| | | 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, 2008 | Principal transactions | Other(1)(2) | Sept. 30, 2009 | ||||||||||||||||||||
State and municipal | $ | 222 | $ | — | $ | 2 | $ | 30 | $ | — | $ | 254 | $ | — | ||||||||||
Foreign government | 571 | — | — | (313 | ) | 13 | 271 | (1 | ) | |||||||||||||||
Corporate | 1,019 | — | 47 | 568 | (229 | ) | 1,405 | 40 | ||||||||||||||||
Equity securities | 3,807 | — | (495 | ) | (152 | ) | (618 | ) | 2,542 | (34 | ) | |||||||||||||
Other debt securities | 11,324 | — | 96 | (1,142 | ) | (1,676 | ) | 8,602 | 643 | |||||||||||||||
Non-marketable equity securities | 9,067 | — | (746 | ) | (247 | ) | (428 | ) | 7,646 | (238 | ) | |||||||||||||
Total investments | $ | 28,273 | $ | — | $ | (778 | ) | $ | (1,560 | ) | $ | (3,488 | ) | $ | 22,447 | $ | 672 | |||||||
Loans | $ | 160 | $ | — | $ | 43 | $ | — | $ | 12 | $ | 215 | $ | 24 | ||||||||||
Mortgage servicing rights | $ | 5,657 | $ | — | $ | 996 | $ | — | $ | (425 | ) | $ | 6,228 | $ | 996 | |||||||||
Other financial assets measured on a recurring basis | 359 | — | 205 | 689 | (69 | ) | 1,184 | $ | 205 | |||||||||||||||
Liabilities | ||||||||||||||||||||||||
Interest-bearing deposits | $ | 54 | $ | — | $ | 4 | $ | — | $ | (19 | ) | $ | 31 | $ | 49 | |||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 11,167 | 276 | — | (2,098 | ) | (310 | ) | 8,483 | (320 | ) | ||||||||||||||
Trading account liabilities | ||||||||||||||||||||||||
Securities sold, not yet purchased | 653 | 30 | — | (181 | ) | 777 | 1,219 | 25 | ||||||||||||||||
Short-term borrowings | 1,329 | — | (56 | ) | (821 | ) | (405 | ) | 159 | (72 | ) | |||||||||||||
Long-term debt | 11,198 | — | (349 | ) | 88 | (529 | ) | 11,106 | (215 | ) | ||||||||||||||
Other financial liabilities measured on a recurring basis | 1 | — | (45 | ) | — | (45 | ) | 1 | — | |||||||||||||||
| | | Net realized/ unrealized gains (losses) included in | | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| In millions of dollars | June 30, 2008 | Principal transactions | Other(1)(2) | Transfers in and/or out of Level 3 | 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 | 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 | ) | |||||||||||||
The following is a discussion of the changes to the Level 3 balances for each of the roll-forward tables presented above.
The significant changes from June 30, 2009 to September 30, 2009 Level 3 assets and liabilities are due to:
The significant changes from December 31, 2008 to September 30, 2009 Level 3 assets and liabilities are due to:
A decrease in trading derivatives of $3.1 billion includes net realized and unrealized losses of $4.8 billion recorded inPrincipal transactions, mainly on complex derivative contracts such as those linked to credit and equity exposures. These losses are partially offset by gains recognized on instruments that have been classified in Levels 1 and 2.
The following is a discussion of the changes to the Level 3 balances for each of the rollforward tables presented above.
certificates issued by the U.S credit card securitization trust and retained
by the Company were transferred 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, 20082009 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 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2009 | $ | 2.8 | $ | 1.6 | $ | 0.5 | $ | 1.1 | |||||
December 31, 2008 | 3.1 | 2.1 | 0.8 | 1.3 | |||||||||
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 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 ASC 825-10 (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 to adopt the fair-value accounting provisions for certain assets and liabilities prospectively. 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 fair value elections were made is presented in Note 17 to the Consolidated Financial Statements.
All servicing rights must now 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 to the Consolidated Financial Statements for further discussions regarding the accounting and reporting of mortgage servicing rights.
The following table presents, as of September 30, 2009, the fair value of those positions selected for fair-value accounting, as well as the changes in fair value for the nine months ended September 30, 2009 and September 30, 2008.
| | Fair Value at | Changes in fair value gains (losses) for nine months ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | September 30, 2009 | December 31, 2008 | 2009 | 2008(1) | ||||||||||
Assets | ||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||
Selected portfolios of securities purchased under agreements to resell, securities borrowed(2) | $ | 87,886 | $ | 70,305 | $ | (1,284 | ) | $ | 675 | |||||
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 | 28 | — | 61 | (2 | ) | |||||||||
Certain credit products | 16,695 | 16,254 | 5,461 | (1,143 | ) | |||||||||
Certain hybrid financial instruments | 6 | 33 | — | 3 | ||||||||||
Retained interests from asset securitizations | 2,153 | 3,026 | 1,522 | (521 | ) | |||||||||
Total trading account assets | $ | 18,882 | $ | 19,313 | $ | 7,044 | $ | (1,676 | ) | |||||
Investments: | ||||||||||||||
Certain investments in private equity and real estate ventures | $ | 359 | $ | 469 | $ | (52 | ) | $ | (54 | ) | ||||
Other | 237 | 295 | (83 | ) | (60 | ) | ||||||||
Total investments | $ | 596 | $ | 764 | $ | (135 | ) | $ | (114 | ) | ||||
Loans: | ||||||||||||||
Certain credit products | $ | 997 | $ | 2,315 | $ | 26 | $ | (54 | ) | |||||
Certain mortgage loans | 30 | 36 | (2 | ) | (22 | ) | ||||||||
Certain hybrid financial instruments | 478 | 381 | 54 | 5 | ||||||||||
Total loans | $ | 1,505 | $ | 2,732 | $ | 78 | $ | (71 | ) | |||||
Other assets: | ||||||||||||||
Mortgage servicing rights | $ | 6,228 | $ | 5,657 | $ | 996 | $ | 568 | ||||||
Certain mortgage loans | 2,857 | 4,273 | 81 | 21 | ||||||||||
Certain equity method investments | 769 | 936 | 174 | (154 | ) | |||||||||
Total other assets | $ | 9,854 | $ | 10,866 | $ | 1,251 | $ | 435 | ||||||
Total | $ | 118,723 | $ | 103,980 | $ | 6,954 | $ | (751 | ) | |||||
Liabilities | ||||||||||||||
Interest-bearing deposits: | ||||||||||||||
Certain structured liabilities | $ | 234 | $ | 320 | $ | — | $ | — | ||||||
Certain hybrid financial instruments | 1,795 | 2,286 | (562 | ) | 557 | |||||||||
Total interest-bearing deposits | $ | 2,029 | $ | 2,606 | $ | (562 | ) | $ | 557 | |||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||
Selected portfolios of securities sold under agreements to repurchase, securities loaned(2) | $ | 116,693 | $ | 138,866 | $ | 213 | $ | (44 | ) | |||||
Trading account liabilities: | ||||||||||||||
Selected letters of credit hedged by credit default swaps or participation notes | $ | — | $ | 72 | $ | 37 | $ | — | ||||||
Certain hybrid financial instruments | 5,980 | 4,679 | (1,798 | ) | 2,618 | |||||||||
Total trading account liabilities | $ | 5,980 | $ | 4,751 | $ | (1,761 | ) | $ | 2,618 | |||||
Short-term borrowings: | ||||||||||||||
Certain non-collateralized short-term borrowings | $ | 188 | $ | 2,303 | $ | 50 | $ | 45 | ||||||
Certain hybrid financial instruments | 523 | 2,112 | (84 | ) | 176 | |||||||||
Certain structured liabilities | 3 | 3 | — | 10 | ||||||||||
Certain non-structured liabilities | 729 | 13,189 | (33 | ) | — | |||||||||
Total short-term borrowings | $ | 1,443 | $ | 17,607 | $ | (67 | ) | $ | 231 | |||||
Long-term debt: | ||||||||||||||
Certain structured liabilities | $ | 3,395 | $ | 3,083 | $ | (64 | ) | $ | 446 | |||||
Certain non-structured liabilities | 7,510 | 7,189 | (102 | ) | 3,441 | |||||||||
Certain hybrid financial instruments | 16,281 | 16,991 | (1,572 | ) | 2,335 | |||||||||
Total long-term debt | $ | 27,186 | $ | 27,263 | $ | (1,738 | ) | $ | 6,222 | |||||
Total | $ | 153,331 | $ | 191,093 | $ | (3,915 | ) | $ | 9,584 | |||||
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 narrowing 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 loss of $1.019 billion and a gain of $1.525 billion for the three months ended September 30, 2009 and September 30, 2008, respectively, and a loss of $2.447 billion and a gain of $2.577 billion for the nine months ended September 30, 2009 and September 30, 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 resulted in a gain of $2.48 billion and a gain of $3.53 billion for the three and nine months ended September 30, 2008, respectively.
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 resulting charges taken on loans held-for-sale carried atsale 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, 2006 included inAccumulated other comprehensive income (loss). This unrealized loss was recorded upon election of a fair value below cost were $143as 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 and $3.8 billion, respectively, $1.8 billion was the resulting charge taken on loans held-for-sale carriedLegg shares at fair value below cost for the year ended December 31, 2007.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 $1.8 billion as of September 30, 2009 and $1.4 billion as of December 31, 2008. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at September 30, 2009 and December 31, 2008.
These items have been classified 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:
| | September 30, 2009 | December 31, 2008(1) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of dollars | Trading assets | Loans | Trading assets | Loans | |||||||||
Carrying amount reported on the Consolidated Balance Sheet | $ | 16,695 | $ | 997 | $ | 16,254 | $ | 2,315 | |||||
Aggregate unpaid principal balance in excess of fair value | $ | 1,016 | $ | (38 | ) | $ | 6,501 | $ | 3 | ||||
Balance of non-accrual loans or loans more than 90 days past due | $ | 794 | $ | — | $ | 77 | $ | — | |||||
Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due | $ | 461 | $ | — | $ | 190 | $ | — | |||||
In addition to the amounts reported above, $200 million and $72 million of unfunded loan commitments related to certain credit products selected for fair-value accounting were outstanding as of September 30, 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 nine months ended September 30, 2009 and 2008 due to instrument-specific credit risk totaled to a loss of $32 million and $32 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. 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 exceeded the aggregate fair value by $208 million and $671 million as of September 30, 2009 and December 31, 2008, respectively.
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 exceeded the aggregate fair value of such instruments by $41 million and $220 million as of September 30, 2009 and December 31, 2008, respectively.
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 by $637 million and $856 million as of September 30, 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 | September 30, 2009 | December 31, 2008 | |||||
|---|---|---|---|---|---|---|---|
Carrying amount reported on the Consolidated Balance Sheet | $ | 2,857 | $ | 4,273 | |||
Aggregate fair value in excess of unpaid principal balance | $ | 87 | $ | 138 | |||
Balance of non-accrual loans or loans more than 90 days past due | $ | 8 | $ | 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 nine months ended September 30, 2009 and September 30, 2008 due to instrument-specific credit risk resulted in a $6 million loss and $6 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
Certain hybrid financial instruments
The Company has elected to apply fair-value accounting 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 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 and that are classified asLong-term debt, the aggregate unpaid principal exceeded the aggregate fair value by $2.4 billion and $4.1 billion as of September 30, 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. 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 to the Consolidated Financial Statements for further discussions regarding the accounting and reporting of MSRs.
These MSRs, which totaled $6.2 billion and $5.7 billion as of September 30, 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.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
The table below presents the carrying value and fair value of Citigroup's financial instruments. The disclosure excludes leases, affiliate investments, pension and benefit obligations and insurance policy claim reserves. In addition, contract-holder fund amounts exclude certain insurance contracts. Also as required, the disclosure excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value associated with deposits with no fixed maturity and other expenses that would be incurred in a market transaction. In addition, the table excludes the values of non-financial assets and liabilities, as well as a wide range of franchise, relationship and intangible values (but includes mortgage servicing rights), which are integral to a full assessment of Citigroup's financial position and the value of its net assets.
The fair value represents management's best estimates based on a range of methodologies and assumptions. The carrying value of short-term financial instruments not accounted for at fair value, as well as receivables and payables arising in the ordinary course of business, approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used when available for investments and for both trading and end-user derivatives, as well as for liabilities, such as long-term debt, with quoted prices. For performing loans not accounted for at fair value, contractual cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. For loans with doubt as to collectability, expected cash flows are discounted using an appropriate rate considering the time of collection and the premium for the uncertainty of the flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC 820-10 (SFAS No. 157). The value of collateral is also considered. For liabilities such as long-term debt not accounted for at fair value and without quoted market prices, market borrowing rates of interest are used to discount contractual cash flows.
| | September 30, 2009 | December 31, 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Carrying value | Estimated fair value | Carrying value | Estimated fair value | |||||||||
Assets | |||||||||||||
Investments | $ | 261.9 | $ | 261.7 | $ | 256.0 | $ | 251.9 | |||||
Federal funds sold and securities borrowed or purchased under agreements to resell | 197.4 | 197.4 | 184.1 | 184.1 | |||||||||
Trading account assets | 340.7 | 340.7 | 377.6 | 377.6 | |||||||||
Loans(1) | 582.7 | 573.6 | 660.9 | 642.7 | |||||||||
Other financial assets(2) | 344.9 | 344.7 | 316.6 | 316.6 | |||||||||
| | September 30, 2009 | December 31, 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In billions of dollars | Carrying value | Estimated fair value | Carrying value | Estimated fair value | |||||||||
Liabilities | |||||||||||||
Deposits | $ | 832.6 | $ | 832.3 | $ | 774.2 | $ | 772.9 | |||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 178.2 | 178.2 | 205.3 | 205.3 | |||||||||
Trading account liabilities | 130.5 | 130.5 | 165.8 | 165.8 | |||||||||
Long-term debt | 379.6 | 374.9 | 359.6 | 317.1 | |||||||||
Other financial liabilities(3) | 171.7 | 171.7 | 255.6 | 255.6 | |||||||||
Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality, and market perceptions of value and as existing assets and liabilities run off and new transactions are entered into.
The estimated fair values of loans reflect changes in credit status since the loans were made, changes in interest rates in the case of fixed-rate loans, and premium values at origination of certain loans. The carrying values (reduced by theAllowance for loan losses) exceeded the estimated fair values of Citigroup's loans, in aggregate, by $9.1 billion and $18.2 billion at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009, the carrying values, net of allowances, exceeded the estimated fair values by $7 billion and $2 billion for consumer loans and corporate loans, respectively.
Citigroup has determined that it is not practicable to estimate the fair value on an ongoing basis of the loss sharing program with the United States Government because the program is a unique contract tailored to fit the specific portfolio of assets held by Citigroup, contains various public policy and other non-financial elements, and provides a significant Tier 1 Capital benefit.
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, forFor 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, 20082009 and December 31, 2007:2008:
| | 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 | |||||||||||||
Financial standby letters of credit | $ | 28.8 | $ | 54.2 | $ | 83.0 | $ | 154.4 | |||||
Performance guarantees | 8.4 | 7.8 | 16.2 | 27.5 | |||||||||
Derivative instruments | 9.2 | 85.1 | 94.3 | 10,556.0 | |||||||||
Loans sold with recourse | — | 0.4 | 0.4 | 59.0 | |||||||||
Securities lending indemnifications(1) | 114.1 | — | 114.1 | — | |||||||||
Credit card merchant processing(1) | 64.8 | — | 64.8 | — | |||||||||
Custody indemnifications and other | — | 33.1 | 33.1 | 147.3 | |||||||||
Total | $ | 225.3 | $ | 180.6 | $ | 405.9 | $ | 10,944.2 | |||||
| | 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) | |||||||||
2009 | |||||||||||||
Financial standby letters of credit | $ | 48.8 | $ | 48.2 | $ | 97.0 | $ | 465.7 | |||||
Performance guarantees | 9.1 | 5.4 | 14.5 | 32.5 | |||||||||
Derivative instruments considered to be guarantees | 6.8 | 9.6 | 16.4 | 855.2 | |||||||||
Loans sold with recourse | — | 0.3 | 0.3 | 65.6 | |||||||||
Securities lending indemnifications(1) | 66.1 | — | 66.1 | — | |||||||||
Credit card merchant processing(1) | 59.4 | — | 59.4 | — | |||||||||
Custody indemnifications and other | — | 27.5 | 27.5 | 154.6 | |||||||||
Total | $ | 190.2 | $ | 91.0 | $ | 281.2 | $ | 1,573.6 | |||||
| | 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) | |||||||||
2007(2) | |||||||||||||
Financial standby letters of credit | $ | 43.5 | $ | 43.6 | $ | 87.1 | $ | 160.6 | |||||
Performance guarantees | 11.3 | 6.8 | 18.1 | 24.4 | |||||||||
Derivative instruments | 9.6 | 91.4 | 101.0 | 3,911.0 | |||||||||
Loans sold with recourse | — | 0.5 | 0.5 | 45.5 | |||||||||
Securities lending indemnifications(1) | 153.4 | — | 153.4 | — | |||||||||
Credit card merchant processing(1) | 64.0 | — | 64.0 | — | |||||||||
Custody indemnifications and other | — | 53.4 | 53.4 | 306.0 | |||||||||
Total | $ | 281.8 | $ | 195.7 | $ | 477.5 | $ | 4,447.5 | |||||
| | 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) | |||||||||
2008 | |||||||||||||
Financial standby letters of credit | $ | 31.6 | $ | 62.6 | $ | 94.2 | $ | 289.0 | |||||
Performance guarantees | 9.4 | 6.9 | 16.3 | 23.6 | |||||||||
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 | — | 0.3 | 0.3 | 56.4 | |||||||||
Securities lending indemnifications(1) | 47.6 | — | 47.6 | — | |||||||||
Credit card merchant processing(1) | 56.7 | — | 56.7 | — | |||||||||
Custody indemnifications and other | — | 21.6 | 21.6 | 149.2 | |||||||||
Total | $ | 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 intoinstruments considered guarantees, which are presented in the table above, include only those instruments that require Citi to make payments to the counterparty based on changes in an underlying that is related to an asset, a liability, or an equity security held by the Company meetguaranteed party. More specifically, derivative instruments considered guarantees include certain over-the-counter written put options where the definitioncounterparty is not a bank, hedge fund or broker-dealer (such counterparties are considered to be
Table of a guarantee, including credit default swaps, total return swapsContents
dealers in these markets, and certain written options.may therefore not hold the underlying instruments). However, credit derivatives (that is, credit default swaps and total return swaps) with banks, hedge funds, and broker-
dealerssold by the Company are excluded from this definition as these counterparties are considered to be dealers in these instruments with the primary purpose of taking a risk position.presentation. 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. The Company's credit derivative portfolio as protection seller (guarantor) is presented in Note 16 to the Consolidated Financial Statements, "Derivative Activities."
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, was $300 million. No such guarantees were outstanding at September 30, 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, 20082009 and December 31, 2007,2008, this maximum potential exposure was estimated to be $65$59 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, 20082009 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, 2008,2009, the carrying value of the reserve is $147 million andwas $155 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, 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, 20082009 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,not considered to be guarantees, 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, 20082009 or December 31, 20072008 for potential obligations that could arise from the Company's involvement with VTN associations.
At September 30, 20082009 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$1.6 billion and $4$1.8 billion, 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, 20082009 and December 31, 2007, 2008,Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $957$1,074 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 billion and $112$36 billion at September 30, 20082009 and $33 billion at December 31, 2007, respectively.2008. Securities and other marketable assets held as collateral amounted to $61$39 billion and $54$27 billion at September 30, 2009 and December 31, 2008, respectively, the majority of which collateral is held to reimburse losses realized under securities lending indemnifications. Additionally, letters of credit in favor of the Company held as collateral amounted to $495$900 million and $370$503 million at September 30, 20082009 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 September 30, 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 September 30, 2009 | Investment grade | Non-investment grade | Not rated | Total | |||||||||
Financial standby letters of credit | $ | 48.5 | $ | 21.1 | $ | 27.4 | $ | 97.0 | |||||
Performance guarantees | 7.0 | 3.7 | 3.8 | 14.5 | |||||||||
Derivative instruments deemed to be guarantees | — | — | 16.4 | 16.4 | |||||||||
Loans sold with recourse | — | — | 0.3 | 0.3 | |||||||||
Securities lending indemnifications | — | — | 66.1 | 66.1 | |||||||||
Credit card merchant processing | — | — | 59.4 | 59.4 | |||||||||
Custody indemnifications and other | 22.3 | 5.2 | — | 27.5 | |||||||||
Total | $ | 77.8 | $ | 30.0 | $ | 173.4 | $ | 281.2 | |||||
| | 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 Commitments
The table below summarizes Citigroup's other commitments as of September 30, 20082009 and December 31, 2007.2008.
| In millions of dollars | U.S. | Outside of U.S. | September 30, 2008 | December 31, 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | 939,992 | 155,872 | 1,095,864 | 1,103,535 | |||||||||
Commercial and other consumer loan commitments | 267,119 | 133,605 | 400,724 | 473,631 | |||||||||
Total | $ | 1,238,072 | $ | 300,715 | $ | 1,538,787 | $ | 1,630,949 | |||||
| In millions of dollars | U.S. | Outside of U.S. | September 30, 2009 | December 31, 2008 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial and similar letters of credit | $ | 1,691 | $ | 5,625 | $ | 7,316 | $ | 8,215 | |||||
One- to four-family residential mortgages | 1,002 | 260 | 1,262 | 937 | |||||||||
Revolving open-end loans secured by one- to four-family residential properties | 22,186 | 2,919 | 25,105 | 25,212 | |||||||||
Commercial real estate, construction and land development | 1,059 | 604 | 1,663 | 2,702 | |||||||||
Credit card lines | 680,750 | 134,402 | 815,152 | 1,002,437 | |||||||||
Commercial and other consumer loan commitments | 172,708 | 89,451 | 262,159 | 309,997 | |||||||||
Total | $ | 879,396 | $ | 233,261 | $ | 1,112,657 | $ | 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, 20082009 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.
As described in the "Legal Proceedings" discussion on page 157, the Company has been 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 the "Legal Proceedings" discussion on page 157, the Company is also a defendant in numerous lawsuits and other legal proceedings 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.
20.22. CITIBANK, N.A. STOCKHOLDER'S EQUITY
Statement of Changes in Stockholder's Equity (Unaudited)
| | Nine Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars, except shares | 2008 | 2007 | |||||
Common stock ($20 par value) | |||||||
Balance, beginning of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | |||
Balance, end of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | |||
Surplus | |||||||
Balance, beginning of period | $ | 69,135 | $ | 43,753 | |||
Capital contribution from parent company | 77 | 11,794 | |||||
Employee benefit plans | 107 | 60 | |||||
Balance, end of period | $ | 69,319 | $ | 55,607 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 31,915 | $ | 30,358 | |||
Adjustment to opening balance, net of taxes(1) | — | (96 | ) | ||||
Adjusted balance, beginning of period | $ | 31,915 | $ | 30,262 | |||
Net income (loss) | (1,450 | ) | 6,821 | ||||
Dividends paid | (34 | ) | (582 | ) | |||
Balance, end of period | $ | 30,431 | $ | 36,501 | |||
Accumulated other comprehensive income (loss) | |||||||
Balance, beginning of period | $ | (2,495 | ) | $ | (1,709 | ) | |
Adjustment to opening balance, net of taxes(2) | — | (1 | ) | ||||
Adjusted balance, beginning of period | $ | (2,495 | ) | $ | (1,710 | ) | |
Net change in unrealized gains (losses) on investment securities available-for-sale, net of taxes | (4,971 | ) | (741 | ) | |||
Net change in foreign currency translation adjustment, net of taxes | (2,244 | ) | 1,688 | ||||
Net change in cash flow hedges, net of taxes | (214 | ) | (972 | ) | |||
Pension liability adjustment, net of taxes | 90 | 88 | |||||
Net change in Accumulated other comprehensive income (loss) | $ | (7,339 | ) | $ | 63 | ||
Balance, end of period | $ | (9,834 | ) | $ | (1,647 | ) | |
Total common stockholder's equity and total stockholder's equity | $ | 90,667 | $ | 91,212 | |||
Comprehensive income (loss) | |||||||
Net income (loss) | $ | (1,450 | ) | $ | 6,821 | ||
Net change in Accumulated other comprehensive income (loss) | (7,339 | ) | 63 | ||||
Comprehensive income (loss) | $ | (8,789 | ) | $ | 6,884 | ||
| | Nine Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|---|
| In millions of dollars, except shares | 2009 | 2008 | |||||
Common stock ($20 par value) | |||||||
Balance, beginning of period—Shares: 37,534,553 in 2009 and 2008 | $ | 751 | $ | 751 | |||
Balance, end of period—Shares: 37,534,553 in 2009 and 2008 | $ | 751 | $ | 751 | |||
Surplus | |||||||
Balance, beginning of period | $ | 74,767 | $ | 69,135 | |||
Capital contribution from parent company | 30,492 | 77 | |||||
Employee benefit plans | 34 | 107 | |||||
Balance, end of period | $ | 105,293 | $ | 69,319 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 21,735 | $ | 31,915 | |||
Adjustment to opening balance, net of taxes(1) | 402 | — | |||||
Adjusted balance, beginning of period | $ | 22,137 | $ | 31,915 | |||
Net income (loss) | (2,270 | ) | (1,450 | ) | |||
Dividends paid | 4 | (34 | ) | ||||
Other(2) | 117 | — | |||||
Balance, end of period | $ | 19,988 | $ | 30,431 | |||
Accumulated other comprehensive income (loss) | |||||||
Balance, beginning of period | $ | (15,895 | ) | $ | (2,495 | ) | |
Adjustment to opening balance, net of taxes(1) | (402 | ) | — | ||||
Adjusted balance, beginning of period | $ | (16,297 | ) | $ | (2,495 | ) | |
Net change in unrealized gains (losses) on investment securities available-for-sale, net of taxes | 3,758 | (4,971 | ) | ||||
Net change in FX translation adjustment, net of taxes | 850 | (2,244 | ) | ||||
Net change in cash flow hedges, net of taxes | 281 | (214 | ) | ||||
Pension liability adjustment, net of taxes | (7 | ) | 90 | ||||
Net change in Accumulated other comprehensive income (loss) | $ | 4,882 | $ | (7,339 | ) | ||
Balance, end of period | $ | (11,415 | ) | $ | (9,834 | ) | |
Total Citibank common stockholder's equity and total Citibank stockholder's equity | $ | 114,617 | $ | 90,667 | |||
Noncontrolling interest | |||||||
Balance, beginning of period | $ | 1,082 | $ | 1,266 | |||
Initial consolidation of a noncontrolling interest | 123 | — | |||||
Net income attributable to noncontrolling interest shareholders | 46 | 88 | |||||
Dividends paid to noncontrolling interest shareholders | (16 | ) | (86 | ) | |||
Accumulated other comprehensive income—Net change in unrealized gains and losses on investments securities, net of tax | 7 | 3 | |||||
Accumulated other comprehensive income—Net change in FX translation adjustment, net of tax | 15 | 6 | |||||
All other | (155 | ) | (5 | ) | |||
Net change in noncontrolling interest | $ | 20 | $ | 6 | |||
Balance, end of period | $ | 1,102 | $ | 1,272 | |||
Total equity | $ | 115,719 | $ | 91,939 | |||
Comprehensive income (loss) | |||||||
Net income (loss) before attribution of noncontrolling interest | $ | (2,224 | ) | $ | (1,362 | ) | |
Net change in Accumulated other comprehensive income (loss) | 4,904 | (7,330 | ) | ||||
Total comprehensive income (loss) | $ | 2,680 | $ | (8,692 | ) | ||
Comprehensive income attributable to the noncontrolling interest | 68 | 97 | |||||
Comprehensive income attributable to Citibank | $ | 2,612 | $ | (8,789 | ) | ||
See Notes 1 and 17 on pages 88 and 126, respectively.
The Company has evaluated subsequent events through November 6, 2009, which is the date its Consolidated Financial Statements were issued.
24. 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.Associates First Capital Corporation (described below). 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.CCC (described above).
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 INCOMETable of Contents
| | 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 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | 910 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (910 | ) | $ | — | ||||||||
Interest revenue | $ | 103 | $ | 8,716 | $ | 4 | $ | 1,743 | $ | 2,010 | $ | 21,434 | $ | (1,743 | ) | $ | 32,267 | ||||||||
Interest revenue—intercompany | 1,423 | 390 | 1,739 | 32 | 197 | (3,749 | ) | (32 | ) | — | |||||||||||||||
Interest expense | 2,043 | 6,798 | 1,322 | 44 | 189 | 10,071 | (44 | ) | 20,423 | ||||||||||||||||
Interest expense—intercompany | (26 | ) | 1,581 | 125 | 616 | 779 | (2,459 | ) | (616 | ) | — | ||||||||||||||
Net interest revenue | $ | (491 | ) | $ | 727 | $ | 296 | $ | 1,115 | $ | 1,239 | $ | 10,073 | $ | (1,115 | ) | $ | 11,844 | |||||||
Commissions and fees | $ | — | $ | 2,449 | $ | — | $ | 31 | $ | 53 | $ | 1,442 | $ | (31 | ) | $ | 3,944 | ||||||||
Commissions and fees—intercompany | — | 56 | — | 4 | 6 | (62 | ) | (4 | ) | — | |||||||||||||||
Principal transactions | 292 | (3,213 | ) | 60 | — | 1 | 2,614 | — | (246 | ) | |||||||||||||||
Principal transactions—intercompany | 83 | 1,098 | (313 | ) | — | 7 | (875 | ) | — | — | |||||||||||||||
Other income | (1,097 | ) | 1,096 | (17 | ) | 121 | 159 | 5,957 | (121 | ) | 6,098 | ||||||||||||||
Other income—intercompany | 821 | 451 | 26 | 7 | 4 | (1,302 | ) | (7 | ) | — | |||||||||||||||
Total non-interest revenues | $ | 99 | $ | 1,937 | $ | (244 | ) | $ | 163 | $ | 230 | $ | 7,774 | $ | (163 | ) | $ | 9,796 | |||||||
Total revenues, net of interest expense | $ | 518 | $ | 2,664 | $ | 52 | $ | 1,278 | $ | 1,469 | $ | 17,847 | $ | (2,188 | ) | $ | 21,640 | ||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 5 | $ | — | $ | 759 | $ | 839 | $ | 4,023 | $ | (759 | ) | $ | 4,867 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | 47 | $ | 1,812 | $ | — | $ | 176 | $ | 226 | $ | 5,510 | $ | (176 | ) | $ | 7,595 | ||||||||
Compensation and benefits—intercompany | 2 | 1 | — | 39 | 40 | (43 | ) | (39 | ) | — | |||||||||||||||
Other expense | 84 | 1,011 | 1 | 123 | 167 | 5,294 | (123 | ) | 6,557 | ||||||||||||||||
Other expense—intercompany | 62 | 512 | 14 | 73 | 114 | (702 | ) | (73 | ) | — | |||||||||||||||
Total operating expenses | $ | 195 | $ | 3,336 | $ | 15 | $ | 411 | $ | 547 | $ | 10,059 | $ | (411 | ) | $ | 14,152 | ||||||||
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 taxes (benefits) | (296 | ) | (253 | ) | 10 | 42 | 19 | 1,012 | (42 | ) | 492 | ||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 20 | — | 20 | |||||||||||||||||
Equities in undistributed income of subsidiaries | 1,593 | — | — | — | — | — | (1,593 | ) | — | ||||||||||||||||
Income (loss) from continuing operations | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,733 | $ | (2,569 | ) | $ | 2,109 | |||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | 103 | — | 103 | |||||||||||||||||
Net income (loss) | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | |||||||
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 | ) | ||||
| | Three Months Ended September 30, 2009 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | 1,005 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,005 | ) | $ | — | ||||||||
Interest revenue | $ | 57 | 1,682 | $ | — | $ | 1,526 | $ | 1,759 | $ | 15,180 | $ | (1,526 | ) | $ | 18,678 | |||||||||
Interest revenue—intercompany | 477 | (90 | ) | 1,053 | 1,689 | 96 | (1,536 | ) | (1,689 | ) | — | ||||||||||||||
Interest expense | 2,495 | 644 | 400 | 17 | 84 | 3,057 | (17 | ) | 6,680 | ||||||||||||||||
Interest expense—intercompany | (137 | ) | (165 | ) | 260 | 2,212 | 377 | (335 | ) | (2,212 | ) | — | |||||||||||||
Net interest revenue | $ | (1,824 | ) | $ | 1,113 | $ | 393 | $ | 986 | $ | 1,394 | $ | 10,922 | $ | (986 | ) | $ | 11,998 | |||||||
Commissions and fees | $ | — | $ | 1,229 | $ | — | $ | 16 | $ | 36 | $ | 1,953 | $ | (16 | ) | $ | 3,218 | ||||||||
Commissions and fees—intercompany | — | 188 | — | 51 | 63 | (251 | ) | (51 | ) | — | |||||||||||||||
Principal transactions | 317 | 2,431 | (610 | ) | — | 2 | (480 | ) | — | 1,660 | |||||||||||||||
Principal transactions—intercompany | (493 | ) | (1,380 | ) | 192 | — | (13 | ) | 1,694 | — | — | ||||||||||||||
Other income | (1,158 | ) | 676 | (100 | ) | 112 | 142 | 3,954 | (112 | ) | 3,514 | ||||||||||||||
Other income—intercompany | 2,485 | 23 | 77 | — | 5 | (2,590 | ) | — | — | ||||||||||||||||
Total non-interest revenues | $ | 1,151 | $ | 3,167 | $ | (441 | ) | $ | 179 | $ | 235 | $ | 4,280 | $ | (179 | ) | $ | 8,392 | |||||||
Total revenues, net of interest expense | $ | 332 | $ | 4,280 | $ | (48 | ) | $ | 1,165 | $ | 1,629 | $ | 15,202 | $ | (2,170 | ) | $ | 20,390 | |||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 58 | $ | — | $ | 770 | $ | 875 | $ | 8,162 | $ | (770 | ) | $ | 9,095 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | (44 | ) | $ | 1,471 | $ | — | $ | 134 | $ | 179 | $ | 4,530 | $ | (134 | ) | $ | 6,136 | |||||||
Compensation and benefits— intercompany | 2 | 68 | — | 35 | 35 | (105 | ) | (35 | ) | — | |||||||||||||||
Other expense | 192 | 683 | 1 | 169 | 209 | 4,603 | (169 | ) | 5,688 | ||||||||||||||||
Other expense—intercompany | 163 | 198 | 2 | 143 | 160 | (523 | ) | (143 | ) | — | |||||||||||||||
Total operating expenses | $ | 313 | $ | 2,420 | $ | 3 | $ | 481 | $ | 583 | $ | 8,505 | $ | (481 | ) | $ | 11,824 | ||||||||
Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | 19 | $ | 1,802 | $ | (51 | ) | $ | (86 | ) | $ | 171 | $ | (1,465 | ) | $ | (919 | ) | $ | (529 | ) | ||||
Income taxes (benefits) | (392 | ) | 608 | (18 | ) | (53 | ) | 37 | (1,357 | ) | 53 | (1,122 | ) | ||||||||||||
Equities in undistributed income of subsidiaries | (310 | ) | — | — | — | — | — | 310 | — | ||||||||||||||||
Income (Loss) from continuing operations | $ | 101 | $ | 1,194 | $ | (33 | ) | $ | (33 | ) | $ | 134 | $ | (108 | ) | $ | (662 | ) | $ | 593 | |||||
Income from discontinued operations, net of taxes | — | — | — | — | — | (418 | ) | — | (418 | ) | |||||||||||||||
Net income (Loss) before attribution of Noncontrolling Interests | $ | 101 | $ | 1,194 | $ | (33 | ) | $ | (33 | ) | $ | 134 | $ | (526 | ) | $ | (662 | ) | $ | 175 | |||||
Net Income (Loss) attributable to Noncontrolling Interests | — | 19 | — | — | — | 55 | — | 74 | |||||||||||||||||
Citigroup's Net Income (Loss) | $ | 101 | $ | 1,175 | $ | (33 | ) | $ | (33 | ) | $ | 134 | $ | (581 | ) | $ | (662 | ) | $ | 101 | |||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| | Nine Months Ended September 30, 2007 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | 7,746 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,746 | ) | $ | — | ||||||||
Interest revenue | $ | 299 | $ | 23,938 | $ | 4 | $ | 4,949 | $ | 5,771 | $ | 59,561 | $ | (4,949 | ) | $ | 89,573 | ||||||||
Interest revenue—intercompany | 4,065 | 1,086 | 4,435 | 105 | 460 | (10,046 | ) | (105 | ) | — | |||||||||||||||
Interest expense | 5,753 | 18,797 | 3,260 | 137 | 560 | 28,057 | (137 | ) | 56,427 | ||||||||||||||||
Interest expense—intercompany | (69 | ) | 4,107 | 521 | 1,650 | 2,147 | (6,706 | ) | (1,650 | ) | — | ||||||||||||||
Net interest revenue | $ | (1,320 | ) | $ | 2,120 | $ | 658 | $ | 3,267 | $ | 3,524 | $ | 28,164 | $ | (3,267 | ) | $ | 33,146 | |||||||
Commissions and fees | $ | — | $ | 8,122 | $ | — | $ | 75 | $ | 140 | $ | 7,696 | $ | (75 | ) | $ | 15,958 | ||||||||
Commissions and fees—intercompany | — | 95 | — | 14 | 16 | (111 | ) | (14 | ) | — | |||||||||||||||
Principal transactions | 91 | (887 | ) | (412 | ) | — | 4 | 6,751 | — | 5,547 | |||||||||||||||
Principal transactions—intercompany | 66 | 1,111 | (162 | ) | — | (31 | ) | (984 | ) | — | — | ||||||||||||||
Other income | (131 | ) | 3,446 | 119 | 341 | 504 | 13,487 | (341 | ) | 17,425 | |||||||||||||||
Other income—intercompany | (5 | ) | 1,079 | (89 | ) | 20 | (39 | ) | (946 | ) | (20 | ) | — | ||||||||||||
Total non-interest revenues | $ | 21 | $ | 12,966 | $ | (544 | ) | $ | 450 | $ | 594 | $ | 25,893 | $ | (450 | ) | $ | 38,930 | |||||||
Total revenues, net of interest expense | $ | 6,447 | $ | 15,086 | $ | 114 | $ | 3,717 | $ | 4,118 | $ | 54,057 | $ | (11,463 | ) | $ | 72,076 | ||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 29 | $ | — | $ | 1,587 | $ | 1,767 | $ | 8,460 | $ | (1,587 | ) | $ | 10,256 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | 99 | $ | 8,816 | $ | — | $ | 507 | $ | 667 | $ | 15,366 | $ | (507 | ) | $ | 24,948 | ||||||||
Compensation and benefits— intercompany | 8 | 1 | — | 120 | 121 | (130 | ) | (120 | ) | — | |||||||||||||||
Other expense | 324 | 2,617 | 2 | 399 | 541 | 15,270 | (399 | ) | 18,754 | ||||||||||||||||
Other expense—intercompany | 175 | 1,388 | 43 | 224 | 302 | (1,908 | ) | (224 | ) | — | |||||||||||||||
Total operating expenses | $ | 606 | $ | 12,822 | $ | 45 | $ | 1,250 | $ | 1,631 | $ | 28,598 | $ | (1,250 | ) | $ | 43,702 | ||||||||
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 taxes (benefits) | (857 | ) | 721 | 23 | 320 | 252 | 4,769 | (320 | ) | 4,908 | |||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 190 | — | 190 | |||||||||||||||||
Equities in undistributed income of subsidiaries | 6,752 | — | — | — | — | — | (6,752 | ) | — | ||||||||||||||||
Income (loss) from continuing operations | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,040 | $ | (15,058 | ) | $ | 13,020 | ||||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | 430 | — | 430 | |||||||||||||||||
Net income (loss) | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | ||||||||
| | Nine Months Ended September 30, 2009 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | 1,040 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,040 | ) | $ | — | ||||||||
Interest revenue | $ | 234 | $ | 5,881 | $ | 1 | $ | 4,732 | $ | 5,418 | $ | 47,398 | $ | (4,732 | ) | $ | 58,932 | ||||||||
Interest revenue—intercompany | 1,833 | 2,079 | 3,143 | 46 | 325 | (7,380 | ) | (46 | ) | — | |||||||||||||||
Interest expense | 6,707 | 2,060 | 1,365 | 63 | 303 | 10,744 | (63 | ) | 21,179 | ||||||||||||||||
Interest expense—intercompany | (667 | ) | 1,635 | 699 | 1,677 | 1,242 | (2,909 | ) | (1,677 | ) | — | ||||||||||||||
Net interest revenue | $ | (3,973 | ) | $ | 4,265 | $ | 1,080 | $ | 3,038 | $ | 4,198 | $ | 32,183 | $ | (3,038 | ) | $ | 37,753 | |||||||
Commissions and fees | $ | — | $ | 4,711 | $ | — | $ | 38 | $ | 95 | $ | 8,017 | $ | (38 | ) | $ | 12,823 | ||||||||
Commissions and fees—intercompany | — | 247 | — | 86 | 107 | (354 | ) | (86 | ) | — | |||||||||||||||
Principal transactions | 434 | 1,302 | (869 | ) | — | 2 | 4,894 | — | 5,763 | ||||||||||||||||
Principal transactions—intercompany | (714 | ) | 2,530 | 133 | — | (99 | ) | (1,850 | ) | — | — | ||||||||||||||
Other income | 3,514 | 13,296 | (25 | ) | 321 | 489 | 1,267 | (321 | ) | 18,541 | |||||||||||||||
Other income—intercompany | (1,906 | ) | (12 | ) | 16 | 2 | 37 | 1,865 | (2 | ) | — | ||||||||||||||
Total non-interest revenues | $ | 1,328 | $ | 22,074 | $ | (745 | ) | $ | 447 | $ | 631 | $ | 13,839 | $ | (447 | ) | $ | 37,127 | |||||||
Total revenues, net of interest expense | $ | (1,605 | ) | $ | 26,339 | $ | 335 | $ | 3,485 | $ | 4,829 | $ | 46,022 | $ | (4,525 | ) | $ | 74,880 | |||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 96 | $ | — | $ | 2,708 | $ | 3,044 | $ | 28,938 | $ | (2,708 | ) | $ | 32,078 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | (89 | ) | $ | 5,144 | $ | — | $ | 393 | $ | 514 | $ | 13,161 | $ | (393 | ) | $ | 18,730 | |||||||
Compensation and benefits— intercompany | 5 | 403 | — | 106 | 106 | (514 | ) | (106 | ) | — | |||||||||||||||
Other expense | 600 | 2,011 | 2 | 358 | 471 | 13,694 | (358 | ) | 16,778 | ||||||||||||||||
Other expense—intercompany | 260 | 538 | 7 | 416 | 465 | (1,270 | ) | (416 | ) | — | |||||||||||||||
Total operating expenses | $ | 776 | $ | 8,096 | $ | 9 | $ | 1,273 | $ | 1,556 | $ | 25,071 | $ | (1,273 | ) | $ | 35,508 | ||||||||
Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | (2,381 | ) | $ | 18,147 | $ | 326 | $ | (496 | ) | $ | 229 | $ | (7,987 | ) | $ | (544 | ) | $ | 7,294 | |||||
Income taxes (benefits) | (1,437 | ) | 6,772 | 97 | (201 | ) | 52 | (4,864 | ) | 201 | 620 | ||||||||||||||
Equities in undistributed income of subsidiaries | 6,917 | — | — | — | — | — | (6,917 | ) | — | ||||||||||||||||
Income (Loss) from continuing operations | $ | 5,973 | $ | 11,375 | $ | 229 | $ | (295 | ) | $ | 177 | $ | (3,123 | ) | $ | (7,662 | ) | $ | 6,674 | ||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | (677 | ) | — | (677 | ) | |||||||||||||||
Net income (Loss) before attribution of Noncontrolling Interests | $ | 5,973 | $ | 11,375 | $ | 229 | $ | (295 | ) | $ | 177 | $ | (3,800 | ) | $ | (7,662 | ) | $ | 5,997 | ||||||
Net Income (Loss) attributable to Noncontrolling Interests | — | (32 | ) | — | — | — | 56 | — | 24 | ||||||||||||||||
Citigroup's Net Income (Loss) | $ | 5,973 | $ | 11,407 | $ | 229 | $ | (295 | ) | $ | 177 | $ | (3,856 | ) | $ | (7,662 | ) | $ | 5,973 | ||||||
CONDENSED CONSOLIDATING BALANCE SHEETSTATEMENT OF INCOME
| | 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 | ||||||||
| | 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 | $ | 19,365 | $ | (1,819 | ) | $ | 26,130 | ||||||||
Interest revenue—intercompany | 1,098 | 565 | 1,269 | 21 | 147 | (3,079 | ) | (21 | ) | — | |||||||||||||||
Interest expense | 2,388 | 2,740 | 835 | 33 | 154 | 6,609 | (33 | ) | 12,726 | ||||||||||||||||
Interest expense—intercompany | (101 | ) | 1,867 | (1 | ) | 605 | 490 | (2,255 | ) | (605 | ) | — | |||||||||||||
Net interest revenue | $ | (963 | ) | $ | 413 | $ | 435 | $ | 1,202 | $ | 1,587 | $ | 11,932 | $ | (1,202 | ) | $ | 13,404 | |||||||
Commissions and fees | $ | — | $ | 1,841 | $ | — | $ | 20 | $ | 43 | $ | 1,324 | $ | (20 | ) | $ | 3,208 | ||||||||
Commissions and fees—intercompany | 346 | 21 | — | 9 | 11 | (378 | ) | (9 | ) | — | |||||||||||||||
Principal transactions | (497 | ) | (3,318 | ) | 2,239 | — | (1 | ) | (1,436 | ) | — | (3,013 | ) | ||||||||||||
Principal transactions—intercompany | 335 | (900 | ) | (1,542 | ) | — | 36 | 2,071 | — | — | |||||||||||||||
Other income | 332 | 784 | (130 | ) | 65 | 87 | 1,586 | (65 | ) | 2,659 | |||||||||||||||
Other income—intercompany | 206 | 35 | 97 | 8 | 3 | (341 | ) | (8 | ) | — | |||||||||||||||
Total non-interest revenues | $ | 722 | $ | (1,537 | ) | $ | 664 | $ | 102 | $ | 179 | $ | 2,826 | $ | (102 | ) | $ | 2,854 | |||||||
Total revenues, net of interest expense | $ | (72 | ) | $ | (1,124 | ) | $ | 1,099 | $ | 1,304 | $ | 1,766 | $ | 14,758 | $ | (1,473 | ) | $ | 16,258 | ||||||
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 | $ | 5,125 | $ | (174 | ) | $ | 7,544 | |||||||
Compensation and benefits— intercompany | 2 | 226 | — | 46 | 46 | (274 | ) | (46 | ) | — | |||||||||||||||
Other expense | 42 | 925 | 1 | 159 | 208 | 5,287 | (159 | ) | 6,463 | ||||||||||||||||
Other expense—intercompany | 451 | (120 | ) | 3 | 174 | 162 | (496 | ) | (174 | ) | — | ||||||||||||||
Total operating expenses | $ | 438 | $ | 3,275 | $ | 4 | $ | 553 | $ | 648 | $ | 9,642 | $ | (553 | ) | $ | 14,007 | ||||||||
Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | (510 | ) | $ | (4,406 | ) | $ | 1,095 | $ | (537 | ) | $ | (250 | ) | $ | (2,576 | ) | $ | 368 | $ | (6,816 | ) | |||
Income taxes (benefits) | (868 | ) | (1,893 | ) | 376 | (185 | ) | (77 | ) | (833 | ) | 185 | (3,295 | ) | |||||||||||
Equities in undistributed income of subsidiaries | (3,386 | ) | — | — | — | — | — | 3,386 | — | ||||||||||||||||
Income (Loss) from continuing operations | $ | (3,028 | ) | $ | (2,513 | ) | $ | 719 | $ | (352 | ) | $ | (173 | ) | $ | (1,743 | ) | $ | 3,569 | $ | (3,521 | ) | |||
Income from discontinued operations, net of taxes | 213 | — | — | — | — | 400 | — | 613 | |||||||||||||||||
Net income (Loss) before attribution of Noncontrolling Interests | $ | (2,815 | ) | $ | (2,513 | ) | $ | 719 | $ | (352 | ) | $ | (173 | ) | $ | (1,343 | ) | $ | 3,569 | $ | (2,908 | ) | |||
Net Income (Loss) attributable to Noncontrolling Interests | — | — | — | — | — | (93 | ) | — | (93 | ) | |||||||||||||||
Citigroup's Net Income (Loss) | $ | (2,815 | ) | $ | (2,513 | ) | $ | 719 | $ | (352 | ) | $ | (173 | ) | $ | (1,250 | ) | $ | 3,569 | $ | (2,815 | ) | |||
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 | $ | 60,566 | $ | (5,447 | ) | $ | 82,628 | ||||||||
Interest revenue—intercompany | 3,508 | 1,564 | 3,911 | 57 | 441 | (9,424 | ) | (57 | ) | ||||||||||||||||
Interest expense | 6,987 | 10,076 | 2,645 | 108 | 491 | 21,951 | (108 | ) | 42,150 | ||||||||||||||||
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 | $ | 35,079 | $ | (3,559 | ) | $ | 40,478 | |||||||
Commissions and fees | $ | — | $ | 6,381 | $ | 1 | $ | 61 | $ | 135 | $ | 3,831 | $ | (61 | ) | $ | 10,348 | ||||||||
Commissions and fees—intercompany | — | 453 | — | 24 | 32 | (485 | ) | (24 | ) | — | |||||||||||||||
Principal transactions | 5 | (20,400 | ) | 3,524 | — | (1 | ) | 1,425 | — | (15,447 | ) | ||||||||||||||
Principal transactions—intercompany | 115 | 4,680 | (2,647 | ) | — | 26 | (2,174 | ) | — | — | |||||||||||||||
Other income | 443 | 2,798 | (45 | ) | 286 | 378 | 7,000 | (286 | ) | 10,574 | |||||||||||||||
Other income—intercompany | (33 | ) | 619 | 33 | 21 | 78 | (697 | ) | (21 | ) | |||||||||||||||
Total non-interest revenues | $ | 530 | $ | (5,469 | ) | $ | 866 | $ | 392 | $ | 648 | $ | 8,900 | $ | (392 | ) | $ | 5,475 | |||||||
Total revenues, net of interest expense | $ | (546 | ) | $ | (3,035 | ) | $ | 1,947 | $ | 3,951 | $ | 5,225 | $ | 43,979 | $ | (5,568 | ) | $ | 45,953 | ||||||
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 | $ | 16,429 | $ | (545 | ) | $ | 24,798 | |||||||
Compensation and benefits— intercompany | 6 | 693 | — | 145 | 146 | (845 | ) | (145 | ) | — | |||||||||||||||
Other expense | 158 | 2,855 | 2 | 416 | 550 | 16,235 | (416 | ) | 19,800 | ||||||||||||||||
Other expense—intercompany | 596 | 711 | 49 | 336 | 367 | (1,723 | ) | (336 | ) | — | |||||||||||||||
Total operating expenses | $ | 654 | $ | 11,987 | $ | 51 | $ | 1,442 | $ | 1,810 | $ | 30,096 | $ | (1,442 | ) | $ | 44,598 | ||||||||
Income (Loss) before taxes and equity in undistributed income of subsidiaries | $ | (1,200 | ) | $ | (15,329 | ) | $ | 1,896 | $ | (537 | ) | $ | 100 | $ | (4,514 | ) | $ | (1,080 | ) | $ | (20,664 | ) | |||
Income taxes (benefits) | (1,643 | ) | (6,273 | ) | 656 | (174 | ) | 54 | (2,422 | ) | 174 | (9,628 | ) | ||||||||||||
Equities in undistributed income of subsidiaries | (11,077 | ) | — | — | — | — | — | 11,077 | — | ||||||||||||||||
Income (Loss) from continuing operations | $ | (10,634 | ) | $ | (9,056 | ) | $ | 1,240 | $ | (363 | ) | $ | 46 | $ | (2,092 | ) | $ | 9,823 | $ | (11,036 | ) | ||||
Income from discontinued operations, net of taxes | 213 | — | — | — | — | 365 | — | 578 | |||||||||||||||||
Net income (Loss) before attribution of Noncontrolling Interests | $ | (10,421 | ) | $ | (9,056 | ) | $ | 1,240 | $ | (363 | ) | $ | 46 | $ | (1,727 | ) | $ | 9,823 | $ | (10,458 | ) | ||||
Net Income (Loss) attributable to Noncontrolling Interests | — | (7 | ) | — | — | — | (30 | ) | — | (37 | ) | ||||||||||||||
Citigroup's Net Income (Loss) | $ | (10,421 | ) | $ | (9,049 | ) | $ | 1,240 | $ | (363 | ) | $ | 46 | $ | (1,697 | ) | $ | 9,823 | $ | (10,421 | ) | ||||
CONDENSED CONSOLIDATING BALANCE SHEET
| | December 31, 2007 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | — | $ | 4,405 | $ | 2 | $ | 182 | $ | 280 | $ | 33,519 | $ | (182 | ) | $ | 38,206 | ||||||||
Cash and due from banks—intercompany | 19 | 892 | — | 139 | 160 | (1,071 | ) | (139 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 242,771 | — | — | — | 31,295 | — | 274,066 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 12,668 | — | — | — | (12,668 | ) | — | — | ||||||||||||||||
Trading account assets | 12 | 273,662 | 303 | — | 30 | 264,977 | — | 538,984 | |||||||||||||||||
Trading account assets—intercompany | 262 | 7,648 | 1,458 | — | 5 | (9,373 | ) | — | — | ||||||||||||||||
Investments | 10,934 | 431 | — | 2,275 | 2,813 | 200,830 | (2,275 | ) | 215,008 | ||||||||||||||||
Loans, net of unearned income | — | 758 | — | 49,705 | 58,944 | 718,291 | (49,705 | ) | 777,993 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 106,645 | 3,987 | 12,625 | (119,270 | ) | (3,987 | ) | — | |||||||||||||||
Allowance for loan losses | — | (79 | ) | — | (1,639 | ) | (1,828 | ) | (14,210 | ) | 1,639 | (16,117 | ) | ||||||||||||
Total loans, net | $ | — | $ | 679 | $ | 106,645 | $ | 52,053 | $ | 69,741 | $ | 584,811 | $ | (52,053 | ) | $ | 761,876 | ||||||||
Advances to subsidiaries | 111,155 | — | — | — | — | (111,155 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 165,866 | — | — | — | — | — | (165,866 | ) | — | ||||||||||||||||
Other assets | 7,804 | 88,333 | 76 | 5,552 | 7,227 | 255,900 | (5,552 | ) | 359,340 | ||||||||||||||||
Other assets—intercompany | 6,073 | 32,051 | 4,846 | 273 | 480 | (43,450 | ) | (273 | ) | — | |||||||||||||||
Total assets | $ | 302,125 | $ | 663,540 | $ | 113,330 | $ | 60,474 | $ | 80,736 | $ | 1,193,615 | $ | (226,340 | ) | $ | 2,187,480 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 826,230 | $ | — | $ | 826,230 | |||||||||
Federal funds purchased and securities loaned or sold | — | 260,129 | — | — | — | 44,114 | — | 304,243 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 1,486 | 10,000 | — | — | — | (11,486 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 117,627 | 121 | — | — | 64,334 | — | 182,082 | |||||||||||||||||
Trading account liabilities—intercompany | 161 | 6,327 | 375 | — | 21 | (6,884 | ) | — | — | ||||||||||||||||
Short-term borrowings | 5,635 | 16,732 | 41,429 | — | 1,444 | 81,248 | — | 146,488 | |||||||||||||||||
Short-term borrowings—intercompany | — | 59,461 | 31,691 | 5,742 | 37,181 | (128,333 | ) | (5,742 | ) | — | |||||||||||||||
Long-term debt | 171,637 | 31,401 | 36,395 | 3,174 | 13,679 | 174,000 | (3,174 | ) | 427,112 | ||||||||||||||||
Long-term debt—intercompany | — | 39,606 | 957 | 42,293 | 19,838 | (60,401 | ) | (42,293 | ) | — | |||||||||||||||
Advances from subsidiaries | 3,555 | — | — | — | — | (3,555 | ) | — | — | ||||||||||||||||
Other liabilities | 4,580 | 98,425 | 268 | 2,027 | 1,960 | 82,645 | (2,027 | ) | 187,878 | ||||||||||||||||
Other liabilities—intercompany | 1,624 | 9,640 | 165 | 847 | 271 | (11,700 | ) | (847 | ) | — | |||||||||||||||
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 | ||||||||
| | September 30, 2009 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | — | $ | 2,798 | $ | — | $ | 181 | $ | 257 | $ | 23,427 | $ | (181 | ) | $ | 26,482 | ||||||||
Cash and due from banks—intercompany | 16 | 1,609 | 1 | 140 | 159 | (1,785 | ) | (140 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 176,406 | — | — | — | 20,951 | — | 197,357 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 23,165 | — | — | — | (23,165 | ) | — | — | ||||||||||||||||
Trading account assets | 25 | 145,444 | 41 | — | 16 | 195,171 | — | 340,697 | |||||||||||||||||
Trading account assets—intercompany | 1,152 | 8,592 | 811 | — | 6 | (10,561 | ) | — | — | ||||||||||||||||
Investments | 11,227 | 274 | — | 2,456 | 2,720 | 247,669 | (2,456 | ) | 261,890 | ||||||||||||||||
Loans, net of unearned income | — | 430 | — | 43,534 | 49,907 | 571,874 | (43,534 | ) | 622,211 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 144,343 | 3,512 | 6,716 | (151,059 | ) | (3,512 | ) | — | |||||||||||||||
Allowance for loan losses | — | (139 | ) | — | (3,425 | ) | (3,766 | ) | (32,511 | ) | 3,425 | (36,416 | ) | ||||||||||||
Total loans, net | $ | — | $ | 291 | $ | 144,343 | $ | 43,621 | $ | 52,857 | $ | 388,304 | $ | (43,621 | ) | $ | 585,795 | ||||||||
Advances to subsidiaries | 145,529 | — | — | — | — | (145,529 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 210,989 | — | — | — | — | — | (210,989 | ) | — | ||||||||||||||||
Other assets | 12,295 | 69,947 | 728 | 6,161 | 7,014 | 362,790 | (6,161 | ) | 452,774 | ||||||||||||||||
Other assets—intercompany | 10,853 | 54,776 | 3,235 | 31 | 1,353 | (70,217 | ) | (31 | ) | — | |||||||||||||||
Assets of discontinued operations held for sale | — | — | — | — | — | 23,604 | — | 23,604 | |||||||||||||||||
Total assets | $ | 392,086 | $ | 483,302 | $ | 149,159 | $ | 52,590 | $ | 64,382 | $ | 1,010,659 | $ | (263,579 | ) | $ | 1,888,599 | ||||||||
Liabilities and equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 832,603 | $ | — | $ | 832,603 | |||||||||
Federal funds purchased and securities loaned or sold | — | 139,681 | — | — | — | 38,478 | — | 178,159 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 185 | 4,485 | — | — | — | (4,670 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 77,681 | 52 | — | — | 52,807 | — | 130,540 | |||||||||||||||||
Trading account liabilities—intercompany | 989 | 8,839 | 1,260 | — | — | (11,088 | ) | — | — | ||||||||||||||||
Short-term borrowings | 1,249 | 5,554 | 10,065 | — | 434 | 47,429 | — | 64,731 | |||||||||||||||||
Short-term borrowings—intercompany | — | 91,015 | 80,610 | 5,135 | 34,483 | (206,108 | ) | (5,135 | ) | — | |||||||||||||||
Long-term debt | 214,981 | 15,403 | 51,208 | 1,677 | 6,348 | 91,617 | (1,677 | ) | 379,557 | ||||||||||||||||
Long-term debt—intercompany | 445 | 46,273 | 1,208 | 37,868 | 15,453 | (63,379 | ) | (37,868 | ) | — | |||||||||||||||
Advances from subsidiaries | 21,958 | — | — | — | — | (21,958 | ) | — | — | ||||||||||||||||
Other liabilities | 5,819 | 66,135 | 651 | 1,910 | 1,588 | 69,863 | (1,910 | ) | 144,056 | ||||||||||||||||
Other liabilities—intercompany | 5,618 | 9,378 | 177 | 700 | 325 | (15,498 | ) | (700 | ) | — | |||||||||||||||
Liabilities of discontinued operations held for sale | — | — | — | — | — | 16,004 | — | 16,004 | |||||||||||||||||
Total liabilities | $ | 251,244 | $ | 464,444 | $ | 145,231 | $ | 47,290 | $ | 58,631 | $ | 826,100 | $ | (47,290 | ) | $ | 1,745,650 | ||||||||
Citigroup stockholder's equity | $ | 140,842 | $ | 18,443 | $ | 3,928 | $ | 5,300 | $ | 5,751 | $ | 182,867 | $ | (216,289 | ) | $ | 140,842 | ||||||||
Noncontrolling interest | — | 415 | — | — | — | 1,692 | — | 2,107 | |||||||||||||||||
Total equity | $ | 140,842 | $ | 18,858 | $ | 3,928 | $ | 5,300 | $ | 5,751 | $ | 184,559 | $ | (216,289 | ) | $ | 142,949 | ||||||||
Total liabilities and equity | $ | 392,086 | $ | 483,302 | $ | 149,159 | $ | 52,590 | $ | 64,382 | $ | 1,010,659 | $ | (263,579 | ) | $ | 1,888,599 | ||||||||
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 | — | — | 95,780 | — | 165,800 | |||||||||||||||||
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 | 77,629 | (1,907 | ) | 162,886 | ||||||||||||||||
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 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | 927 | $ | (39,555 | ) | $ | (62 | ) | $ | 2,791 | $ | 2,063 | $ | (74,115 | ) | $ | (2,791 | ) | $ | (110,742 | ) | ||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | 106 | $ | (41,717 | ) | $ | (5,278 | ) | $ | (5,714 | ) | $ | (228,590 | ) | $ | 5,278 | $ | (275,915 | ) | ||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 196,938 | — | 196,938 | |||||||||||||||||
Purchases of investments | (8,277 | ) | (425 | ) | — | (546 | ) | (1,279 | ) | (192,665 | ) | 546 | (202,646 | ) | |||||||||||
Proceeds from sales of investments | 3,958 | — | — | 109 | 428 | 143,187 | (109 | ) | 147,573 | ||||||||||||||||
Proceeds from maturities of investments | 6,171 | — | — | 237 | 612 | 93,794 | (237 | ) | 100,577 | ||||||||||||||||
Changes in investments and advances—intercompany | (20,593 | ) | — | — | (103 | ) | (2,937 | ) | 23,530 | 103 | — | ||||||||||||||
Business acquisitions | — | — | — | — | — | (15,186 | ) | — | (15,186 | ) | |||||||||||||||
Other investing activities | — | (5,120 | ) | — | — | — | (2,298 | ) | — | (7,418 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | $ | (18,741 | ) | $ | (5,439 | ) | $ | (41,717 | ) | $ | (5,581 | ) | $ | (8,890 | ) | $ | 18,710 | $ | 5,581 | $ | (56,077 | ) | |||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (8,086 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (8,086 | ) | |||||||
Dividends paid-intercompany | — | (1,868 | ) | — | (4,900 | ) | (1,500 | ) | 3,368 | 4,900 | — | ||||||||||||||
Issuance of common stock | 1,007 | — | — | — | — | — | — | 1,007 | |||||||||||||||||
(Redemption)/Issuance of preferred stock | (800 | ) | — | — | — | — | — | — | (800 | ) | |||||||||||||||
Treasury stock acquired | (663 | ) | — | — | — | — | — | — | (663 | ) | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 23,674 | (1,127 | ) | 15,580 | 434 | 1,064 | 477 | (434 | ) | 39,668 | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | (399 | ) | 6,360 | 1,319 | 7,701 | (8,101 | ) | 821 | (7,701 | ) | — | ||||||||||||||
Change in deposits | — | — | — | — | — | 84,523 | — | 84,523 | |||||||||||||||||
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 advances—intercompany | (1,391 | ) | 30,562 | 15,370 | 747 | 16,166 | (60,707 | ) | (747 | ) | — | ||||||||||||||
Capital contributions from parent | — | — | 375 | — | — | (375 | ) | — | — | ||||||||||||||||
Other financing activities | (926 | ) | — | — | (1 | ) | — | — | 1 | (926 | ) | ||||||||||||||
Net cash provided by financing activities | $ | 17,828 | $ | 46,633 | $ | 41,831 | $ | 2,781 | $ | 6,822 | $ | 64,672 | $ | (2,781 | ) | $ | 177,786 | ||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 810 | $ | — | $ | 810 | |||||||||
Net cash from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (65 | ) | $ | — | $ | (65 | ) | |||||||
Net increase (decrease) in cash and due from banks | $ | 14 | $ | 1,639 | $ | 52 | $ | (9 | ) | $ | (5 | ) | $ | 10,012 | $ | 9 | $ | 11,712 | |||||||
Cash and due from banks at beginning of period | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | ||||||||||||||||
Cash and due from banks at end of period | $ | 35 | $ | 6,060 | $ | 52 | $ | 379 | $ | 498 | $ | 31,581 | $ | (379 | ) | $ | 38,226 | ||||||||
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 | ||||||
Interest | 5,058 | 22,397 | 4,848 | 1,876 | 324 | 20,531 | (1,876 | ) | 53,158 | ||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 857 | $ | 880 | $ | 659 | $ | (857 | ) | $ | 1,539 | ||||||||
| | Nine Months Ended September 30, 2009 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | $ | (1,854 | ) | $ | 18,928 | $ | 2,185 | $ | 3,312 | $ | 3,757 | $ | (36,850 | ) | $ | (3,312 | ) | $ | (13,834 | ) | |||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | — | $ | (9,324 | ) | $ | 1,528 | $ | 1,504 | $ | (119,841 | ) | $ | (1,528 | ) | $ | (127,661 | ) | |||||
Proceeds from sales and securitizations of loans | — | 163 | — | — | — | 185,279 | — | 185,442 | |||||||||||||||||
Purchases of investments | (13,777 | ) | (13 | ) | — | (531 | ) | (579 | ) | (152,746 | ) | 531 | (167,115 | ) | |||||||||||
Proceeds from sales of investments | 6,892 | — | — | 398 | 435 | 59,563 | (398 | ) | 66,890 | ||||||||||||||||
Proceeds from maturities of investments | 20,209 | — | — | 230 | 309 | 69,700 | (230 | ) | 90,218 | ||||||||||||||||
Changes in investments and advances—intercompany | (20,968 | ) | — | — | (290 | ) | 4,202 | 16,766 | 290 | — | |||||||||||||||
Business acquisitions | — | — | — | — | — | — | — | — | |||||||||||||||||
Other investing activities | — | (775 | ) | — | — | — | (42,291 | ) | — | (43,066 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | $ | (7,644 | ) | $ | (625 | ) | $ | (9,324 | ) | $ | 1,335 | $ | 5,871 | $ | 16,430 | $ | (1,335 | ) | $ | 4,708 | |||||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (3,235 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | (3,235 | ) | ||||||||
Dividends paid—intercompany | (122 | ) | (1,000 | ) | — | — | — | 1,122 | — | — | |||||||||||||||
Issuance of common stock | — | — | — | — | — | — | — | — | |||||||||||||||||
Issuance of preferred stock | — | — | — | — | — | — | — | — | |||||||||||||||||
Treasury stock acquired | (3 | ) | — | — | — | — | — | — | (3 | ) | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 12,235 | (2,406 | ) | 14,020 | (537 | ) | (1,985 | ) | (15,250 | ) | 537 | 6,614 | |||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net | — | (14,450 | ) | — | (2,854 | ) | (2,202 | ) | 16,652 | 2,854 | — | ||||||||||||||
Change in deposits | — | — | — | — | — | 58,418 | — | 58,418 | |||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (1,339 | ) | (4,181 | ) | (20,932 | ) | (1,225 | ) | (226 | ) | (29,465 | ) | 1,225 | (56,143 | ) | ||||||||||
Net change in short-term borrowings and other advances—intercompany | 2,081 | 3,583 | 14,056 | — | (5,154 | ) | (14,566 | ) | — | — | |||||||||||||||
Capital contributions from parent | — | — | — | — | — | — | — | — | |||||||||||||||||
Other financing activities | (116 | ) | — | (5 | ) | — | (41 | ) | 46 | — | (116 | ) | |||||||||||||
Net cash provided by (used in) financing activities | $ | 9,501 | $ | (18,454 | ) | $ | 7,139 | $ | (4,616 | ) | $ | (9,608 | ) | $ | 16,957 | $ | 4,616 | $ | 5,535 | ||||||
Effect of exchange rate changes on cash and due from banks | $ | — | — | — | — | — | $ | 582 | — | $ | 582 | ||||||||||||||
Net cash used in discontinued operations | $ | — | — | — | — | — | $ | 238 | — | $ | 238 | ||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 3 | $ | (151 | ) | $ | — | $ | 31 | $ | 20 | $ | (2,643 | ) | $ | (31 | ) | $ | (2,771 | ) | |||||
Cash and due from banks at beginning of period | 13 | 4,557 | 1 | 290 | 396 | 24,286 | (290 | ) | 29,253 | ||||||||||||||||
Cash and due from banks at end of period | $ | 16 | $ | 4,406 | $ | 1 | $ | 321 | $ | 416 | $ | 21,643 | $ | (321 | ) | $ | 26,482 | ||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
Cash paid during the year for: | |||||||||||||||||||||||||
Income taxes | $ | 613 | $ | (743 | ) | $ | 422 | $ | 96 | $ | 381 | $ | (1,924 | ) | $ | (96 | ) | $ | (1,251 | ) | |||||
Interest | 6,190 | 6,006 | 2,232 | 2,454 | 469 | 6,441 | (2,454 | ) | 21,338 | ||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 1,217 | $ | 1,261 | $ | 888 | $ | (1,217 | ) | $ | 2,149 | ||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | 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 | $ | (1,519 | ) | $ | 4,587 | $ | 1,981 | $ | 3,232 | $ | 2,920 | $ | 90,977 | $ | (3,232 | ) | $ | 98,946 | |||||||
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 | 14,608 | (9,068 | ) | 6,188 | (720 | ) | (2,223 | ) | (36,267 | ) | 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 | $ | 40,848 | $ | 13,774 | $ | (3,357 | ) | $ | 1,491 | $ | (1,788 | ) | $ | (124,290 | ) | $ | (1,491 | ) | $ | (74,813 | ) | ||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,105 | ) | $ | — | $ | (1,105 | ) | |||||||
Net cash from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (171 | ) | $ | — | $ | (171 | ) | |||||||
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 | ||||||||
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, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20082009 and June 30, 2008.2009.
ResearchSubprime Mortgage—Related Litigation and Other Matters
Telecommunications Research ClassSecurities Actions. On July 22, 2009, plaintiffs in BRECHER, ET AL. v. CGMI, ET AL. voluntarily dismissed the claims against the individual defendants and moved to remand the remaining action against Citigroup, CGMI, and the Personnel and Compensation Committee to state court. On September 8, 2009, the United States District Court for the Southern District of California ordered that defendants show cause as to why there was federal jurisdiction over the case. On September 17, 2009, defendants responded to the district court's order.
On August 7, 2009, the Judicial Panel on Multidistrict Litigation transferred BRECHER, ET AL. v. CITIGROUP INC., ET AL. to the Southern District of New York for coordination with IN RE CITIGROUP INC. SECURITIES LITIGATION.
On August 19, 2009, KOCH, ET AL. v. CITIGROUP INC., ET AL., a putative class action, was filed in the United States District Court for the Southern District of California on behalf of participants in Citigroup's Voluntary FA Capital Accumulation Program ("FA CAP Program") against various defendants, including Citigroup and CGMI, asserting claims under the Securities Act of 1933, the Securities Exchange Act of 1934, and Minnesota state law in connection with plaintiffs' acquisition of certain securities through the FA CAP Program. On September 30, 2008,2009, the Judicial Panel on Multidistrict Litigation conditionally transferred KOCH to the United States District Court of Appeals for the Second Circuit vacated theSouthern District Court's order granting class certification in the matterof New York as a potential tag-along to IN RE SALOMON ANALYST METROMEDIA. Thereafter, onCITIGROUP INC. SECURITIES LITIGATION. On October 1, 2008, the parties reached8, 2009, 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.
Parmalat
In BONDIconsolidated amended complaint was filed in BRECHER, ET AL. 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 Citigroup 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, pendingINC., ET AL. in the United States District Court for the Southern District of New York, asserting claims under the Court granted Citigroup's motion for summary judgment on August 11, 2008,federal securities laws and entered judgment in Citigroup's favor on allMinnesota and California state law. The complaint purports to consolidate the similar claims asserted and pending against Citigroup.in KOCH.
In criminal proceedings ongoing in Parma, Italy, onOn August 31, 2009, ASHER, ET AL. v. CITIGROUP INC., ET AL. and PELLEGRINI, ET AL. v. CITIGROUP INC., ET AL. were consolidated with IN RE CITIGROUP INC. BOND LITIGATION.
On October 8, 2008,14, 2009, INTERNATIONAL FUND MANAGEMENT S.A., ET AL. v. CITIGROUP INC., ET AL. was filed by several foreign investment funds and fund management companies and the court issued an order permitting Parmalat investors to proceed with civil claims against Citigroup, subject to proper serviceCity of a summons on Citigroup.
Subprime-Mortgage-Related Litigation
Securities Actions. On September 24, 2008, four actions alleging securities fraud claims were consolidatedRichmond in the United States District Court for the Southern District of New York, asserting, among other claims, claims under the captionSecurities Exchange Act of 1934 against various defendants, including Citigroup and several current and former Citigroup executives. The claims asserted in this action are similar to those asserted in IN RE CITIGROUP INC. SECURITIES LITIGATION. Lead Plaintiffs are expected to file a consolidated class action complaint by November 10, 2008.
Citigroup Inc., several current and former officers and directors, and numerous other financial institutions, have been named as defendants in a class action lawsuit filed on September 30, 2008, alleging violations of Sections 11, 12 and 15 of the Securities Act of 1933 arising out of offerings of Citigroup securities issued in 2006 and 2007. This action, LOUISIANA SHERIFFS' PENSION AND RELIEF FUND v. CITIGROUP INC., et al., is currently pending in New York state court.
Derivative Actions. On September 24, 2008, five actions alleging derivative claims were consolidated inAugust 25, 2009, the United States District Court for the Southern District of New York underdismissed without prejudice the captioncomplaint in IN RE CITIGROUP INC. SHAREHOLDER DERIVATIVE LITIGATION. Lead Plaintiffs are expectedLITIGATION for failure to filemake a consolidated class action complaint by November 10, 2008.pre-suit demand on the Board of Directors and failure to plead demand futility. On September 18, 2009, plaintiffs filed a motion for leave to amend the complaint.
Citigroup has received letters on behalf of purported shareholders demanding that the Board of Directors take remedial action, including the filing of legal claims, with respect to certain of the matters alleged in the subprime mortgage—related securities and derivative litigations, among other matters. The Board has formed a committee to consider the demands asserted in the letters.
ERISA Actions. On September 15, 2008, a consolidated amended ERISA complaint was filed in IN RE CITIGROUP ERISA LITIGATION, pending in the United States District Court for the Southern District of New York.
Other Matters. Citigroup Global Markets Inc., along with numerous other firms, has been named as a defendant in several lawsuits 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 inAugust 31, 2009, the United States District Court for the Southern District of New York dismissed the complaint in IN RE CITIGROUP ERISA LITIGATION for failure to state a claim that defendants breached their fiduciary duties by offering Citigroup stock as an investment option in the ERISA plans and entered judgment in which a consolidated amended class action complaintfavor of defendants. On September 8, 2009, plaintiffs appealed the dismissal to the United States Court of Appeals for the Second Circuit.
Other Matters. Underwriting Actions.American Home Mortgage. On July 27, 2009, UTAH RETIREMENT SYSTEMS v. STRAUSS, ET AL. was filed on August 22, 2008.in the United States District Court for the Eastern District of New York asserting, among other claims, claims under the Securities Act of 1933 and Utah state law arising out of an offering of American Home Mortgage common stock underwritten by CGMI.
On September 12, 2008,July 31, 2009, the United States District Court for the Eastern District of New York entered an order preliminarily approving settlements reached with all defendants including(including Citigroup Inc. and Citigroup Global Markets Inc., moved to dismiss the complaintCGMI) in IN RE AMERICAN HOME MORTGAGE SECURITIES LITIGATION.
AIG. On August 5, 2009, the underwriter defendants, including CGMI and CGML, moved to dismiss the consolidated amended complaint in IN RE AMERICAN INTERNATIONAL GROUP, INC. 2008 SECURITIES LITIGATION.
Discrimination in Lending Actions. On September 21, 2009, the United States District Court for the Central District of California denied defendant CitiMortgage's motion for summary judgment and granted its motion to strike the jury demand in NAACP v. AMERIQUEST MORTGAGE CO., ET AL.
Public Nuisance and Related Actions. On August 7, 2009, the City of Cleveland dismissed, without prejudice, its claims against CitiFinancial and CitiMortgage in CITY OF CLEVELAND v. JP MORGAN CHASE BANK, N.A., ET AL.
Counterparty Actions. On October 7, 2009, defendants filed a motion to dismiss the complaint in AMBAC CREDIT PRODUCTS, LLC v. CITIGROUP INC., ET AL.
Governmental and Regulatory Matters. Citigroup and certain of its affiliates and current and former employees 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 efforts to resolve certain of these matters.
Auction Rate Securities-RelatedSecurities—Related Litigation and Other Matters
Securities Actions. On September 19, 2008, MILLERJuly 23, 2009, the Judicial Panel on Multidistrict Litigation issued an order transferring K-V PHARMACEUTICAL CO. v. CALAMOS GLOBAL DYNAMIC INCOME FUND, et al., which had been pending inCGMI from the United States District Court for the Eastern District of Missouri to the United States District Court for the Southern District of New York and in which Citigroup Global Markets Inc. had been named as a defendant, was voluntarily dismissed.
On August 25, 2008, Lead Plaintiffs infor coordination with IN RE CITIGROUP AUCTION RATE SECURITIES LITIGATION, pending inLITIGATION. On August 24, 2009, CGMI moved to dismiss the complaint.
On September 11, 2009, the United States District Court for the Southern District of New York dismissed without prejudice the complaint in IN RE CITIGROUP AUCTION RATE SECURITIES LITIGATION. On October 15, 2009, lead plaintiff filed ana second consolidated amended consolidated class action complaint.complaint asserting claims under Sections 10 and 20 of the Securities Exchange Act of 1934.
Derivative Actions. On August 20, 2008, LOUISIANA MUNICIPAL POLICE EMPLOYEES' RETIREMENT SYSTEMOctober 2, 2009, the Judicial Panel on Multidistrict Litigation transferred OCWEN FINANCIAL CORP., ET AL. v. PANDIT, et al., was filed inCGMI to the United States District Court for the Southern District of New York against current and former officers and directors alleging several derivative claims.for coordination with IN RE CITIGROUP AUCTION RATE SECURITIES LITIGATION.
AntitrustDerivative 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 inOn September 10, 2009, the United States District Court for the Southern District of New York.York dismissed without prejudice the complaint in LOUISIANA MUNICIPAL POLICE EMPLOYEES RETIREMENT SYSTEM v. PANDIT, ET AL. for failure to make a pre-suit demand on the Board of Directors and failure to plead demand futility. On September 16, 2009, Citigroup received a letter on behalf of plaintiff demanding that the Board of Directors take remedial action, including the filing of legal claims, with respect to the matters alleged in the dismissed complaint. The Board has formed a committee to consider the demands asserted in the letter. On September 23, 2009, plaintiff filed a motion for reconsideration of the district court's order of dismissal.
Governmental and Regulatory Actions. Citigroup and certain of its affiliates and current and former employees 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 auction rate securities. Citigroup and its affiliates are cooperating fully and are engaged in discussions on these matters.
Falcon and ASTA/MAT-Related Litigation and Other Matters
ECA Acquisitions, Inc., et al. v. MAT Three LLC, et al.On August 7, 2008,September 14, 2009, defendants filed a motion to dismiss the Company reached a settlement withamended complaint.
Governmental and Regulatory Matters. Citigroup and 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 the New York Attorney General, the Securitiesmarketing 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 termsmanagement of the settlement),Falcon and charities that purchased ARS fromASTA/MAT funds. 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.its affiliates are cooperating fully and are engaged in discussions on these matters.
Interchange FeesAdelphia Communications Corporation
On September 18, 2008,Trial of the Court granted plaintiffs' motionAdelphia Recovery Trust's claims against Citigroup and numerous other defendants is scheduled to file an amended complaint. Discovery is ongoing.begin in April 2010.
Wachovia/Wells FargoIPO Securities Litigation
On September 29, 2008, Citigroup Inc. announced that it had reachedIn October 2009, the District Court entered an agreement-in-principle to acquire allorder granting final approval 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 Court for the Southern District 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.settlement.
Other Matters
Falcon/ASTA MATDestiny Litigations. On June 9 and 12, 2009, two actions—DESTINY USA HOLDINGS, LLC v. CITIGROUP GLOBAL MARKETS REALTY CORP. and CONGEL, ET. AL. v. CITIGROUP GLOBAL MARKETS REALTY CORP.—were filed in New York State Supreme Court, Onondaga County, against Citigroup Global Markets Realty Corp. (CGMRC), respectively relating to CGMRC's issuance of Deficiency and Default Notices (the "Notices") pursuant to a construction loan agreement with Destiny USA Holdings, LLC (Destiny). Destiny seeks declaratory and injunctive relief and damages for CGMRC's alleged breach of the loan agreement. On July 17, 2009, the court granted Destiny's motion for a preliminary injunction, vacated the Notices, and directed CGMRC to pay all sums due under Destiny's existing funding requests and to pay all future sums due as requested under the loan agreement. That order has been stayed pending the outcome of CGMRC's state court appeal.
Investor Actions. Investors in municipal bonds and other instruments affected by the collapse of the credit markets have sued Citigroup on a variety of theories. On September 26, 2008, the action ZENTNERAugust 10, 2009, certain such investors, a Norwegian securities firm and seven Norwegian municipalities, filed an action—TERRA SECURITIES ASA KONKURSBO, ET AL. v. CITIGROUP INC., ET AL., previously removed on June 3, 2008 to—in the United States District Court for the Southern District of New York was remanded to New Yorkagainst Citigroup, CGMI and Citigroup Alternative Investments LLC, asserting claims under Sections 10 and 20 of the Securities Exchange Act of 1934 and state court.
A consolidated amended class action complaint was filedlaw arising out of the municipalities' investment in IN RE MAT FIVE SECURITIES LITIGATION oncertain notes. 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.
Other ERISA Actions. The Company and its administration and investment committees7, 2009, defendants filed a motion to dismissdismiss.
Japan Regulatory Matters. Beginning in late 2008, certain Citigroup affiliates received requests for information from Japanese regulators relating to the purported classaccuracy of their large shareholding reporting in Japan. These Citigroup affiliates are cooperating fully with such requests and, among other things, in the third quarter of 2009 filed approximately 900 public reports in Japan correcting and supplementing previous large
shareholding reports. Administrative fines and other penalties may be imposed against these Citigroup affiliates.
Lehman Brothers—Structured Notes. Retail customers outside of the United States continue to file, and threaten to file, claims for the loss in value of their investments. There are currently 99 civil actions pending in six European countries related to the distribution of Lehman structured notes. The first court hearing in the Belgian criminal case (in which more than 1300 customers are expected to file as civil complainants seeking compensation) is expected to take place on December 1, 2009. A criminal investigation has begun in Poland, and the criminal investigations in Greece continue. Scrutiny by regulatory authorities outside of the United States is ongoing, and there have been a number of adverse regulatory findings.
Pension Plan Litigation. On October 19, 2009, the United States Court of Appeals for the Second Circuit reversed the district court's order granting summary judgment in favor of plaintiffs and dismissed plaintiffs' complaint. The Second Circuit held that Citigroup's pension plan did not violate ERISA's minimum benefit accrual rules and that there had been no violation of ERISA's notice requirements.
W.R. Huff Asset Management Co., LLC v. Kohlberg Kravis Roberts & Co., L.P. On August 6, 2009, the Circuit Court of Jefferson County, Alabama, granted defendant Robinson Humphrey Co. LLC's motion to strike the Fourth Amended Complaint on statute of limitations grounds, thereby dismissing Robinson Humphrey Co. LLC from the case. On August 25, 2009, the case was consolidated for discovery purposes, but not for trial, with the related case against Salomon Brothers, Inc., 27001 PARTNERSHIP, ET AL. v. BT SECURITIES CORP., ET AL. Trial in the 27001 PARTNERSHIP action complaintremains scheduled to commence in LEBER v. CITIGROUP, INC., et al., on August 29, 2008. The motion is currently pending.February 2010. On September 18, 2009, defendants Salomon Brothers, Inc. and Chemical Securities, Inc. moved for summary judgment, and plaintiffs moved for partial summary judgment.
Settlement Payments
Any payments required by Citigroup or its affiliates in connection with the 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 buysmay buy back common shares in the market or otherwise from time to time. This program ismay be 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 nine 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 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
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 | ||||||
Second quarter 2009 | |||||||||||
Open market repurchases(1) | 0.2 | $ | 3.27 | $ | 6,740 | ||||||
Employee transactions(2) | 4.4 | 3.67 | N/A | ||||||||
Total second quarter 2009 | 4.6 | $ | 3.65 | $ | 6,740 | ||||||
July 2009 | |||||||||||
Open market repurchases(1) | 0.4 | $ | 3.09 | $ | 6,739 | ||||||
Employee transactions(2) | 1.1 | 3.08 | N/A | ||||||||
August 2009 | |||||||||||
Open market repurchases(1) | — | $ | — | $ | 6,739 | ||||||
Employee transactions(2) | 0.1 | 3.66 | N/A | ||||||||
September 2009 | |||||||||||
Open market repurchases(1) | 0.1 | $ | 4.67 | $ | 6,739 | ||||||
Employee transactions(2) | 0.1 | 4.52 | N/A | ||||||||
Third quarter 2009 | |||||||||||
Open market repurchases(1) | 0.5 | $ | 3.21 | $ | 6,739 | ||||||
Employee transactions(2) | 1.3 | 3.22 | N/A | ||||||||
Total third quarter 2009 | 1.8 | $ | 3.22 | $ | 6,739 | ||||||
Year-to-date 2009 | |||||||||||
Open market repurchases(1) | 0.9 | $ | 3.18 | $ | 6,739 | ||||||
Employee transactions(2) | 16.4 | 3.56 | N/A | ||||||||
Total year-to-date 2009 | 17.3 | $ | 3.54 | $ | 6,739 | ||||||
N/A
In accordance with the recent exchange agreements with the USG, the Company agreed not to pay a quarterly common stock dividend exceeding $0.01 per share per quarter for so long as the USG holds any debt or equity security of Citigroup (or any affiliate thereof) acquired by the USG in connection with the public and private exchange offers, without the consent of the USG. Any dividend on Citi's outstanding common stock would need to be made in compliance with Citi's obligations to any remaining outstanding preferred stock. In addition, pursuant to various of its agreements with the USG, the Company agreed not to repurchase its common stock subject to certain limited exceptions, including in the ordinary course of business as part of employee benefit programs, without the consent of the USG.
Item 4. Submission of Matters to a Vote of Security Holders
On the July 24, 2009 voting deadline for Citigroup's Preferred Proxy Statement dated June 18, 2009, the votes cast on the proposals to amend the Company's restated certificate of incorporation and the certificates of designation of certain series of the Company's preferred stock did not meet the required quorum of a majority of the outstanding shares of the Company's common stock. As a result, the proposals were not approved.
Set forth below, with respect to the proposals covered by Citigroup's Preferred Proxy Statement dated June 18, 2009, are the number of votes consenting to approve the proposal, the number of votes withholding consent, and the number of abstentions.
| | | CONSENT | WITHHOLD CONSENT | ABSTAIN | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
(1) | Proposal to eliminate certain requirements with respect to the declaration and payment of dividends on the Company's preferred stock. | 1,616,485,022 | 133,242,379 | 188,213,673 | ||||||||
(2) | Proposal to eliminate the right of holders of the Company's preferred stock to elect two directors if dividends on that preferred stock have not been paid. | 1,608,466,652 | 137,116,210 | 192,358,085 | ||||||||
(3) | Proposal to clarify that shares of certain series of the Company's preferred stock acquired by the Company will be restored to the status of authorized but unissued shares without designation as to series. | 1,134,202,301 | 607,909,223 | 195,824,857 | ||||||||
(4) | Proposal to increase the number of authorized shares of preferred stock from 30 million to 2 billion. | 1,105,887,808 | 629,622,756 | 192,425,539 | ||||||||
On September 3, 2009, the Company announced that its common stockholders had approved the three proposed amendments to the Company's restated certificate of incorporation submitted to common stockholders in Citigroup's Common Proxy Statement dated June 18, 2009.
Set forth below, with respect to the proposals covered by Citigroup's Common Proxy Statement dated June 18, 2009, are the number of votes consenting to approve the proposal, the number of votes withholding consent, and the number of abstentions.
| | | CONSENT | WITHHOLD CONSENT | ABSTAIN | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
(1) | Proposal to increase the number of authorized shares of common stock from 15 billion to 60 billion shares. | 7,056,506,251 | 188,694,489 | 26,840,344 | ||||||||
(2) | Proposal to effect a reverse stock split of the Company's common stock at any time prior to June 30, 2010 at one of seven reverse split ratios, at the sole discretion of the Company's Board of Directors. | 8,558,930,213 | 537,925,274 | 78,420,206 | ||||||||
(3) | Proposal to eliminate the voting rights of shares of common stock with respect to any amendment to the Company's restated certificate of incorporation that relates solely to the terms of one or more outstanding series of the Company's preferred stock. | 6,629,778,336 | 604,659,624 | 37,525,290 | ||||||||
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 31st6th day of October, 2008.November, 2009.
CITIGROUP INC. (Registrant) | ||||
By | /s/ JOHN C. GERSPACH John C. Gerspach Chief Financial Officer (Principal Financial Officer) | |||
By | /s/ JEFFREY R. WALSH Jeffrey R. Walsh Controller and Chief Accounting Officer (Principal Accounting Officer) | |||
+ | |||
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). | ||
4.04 | Tax Benefits Preservation Plan, dated June 9, 2009, between the Company and Computershare Trust Company, N.A., incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed June 10, 2009 (File No. 1-9924). | ||
10.01 | + | Form of Citigroup Equity or Deferred Cash Award Agreement (effective | |
+ | 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. | ||
+ | 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. | ||
101.01 | + | Financial statements from the Quarterly Report on Form 10-Q of Citigroup Inc. for the quarter ended September 30, 2009, filed on November 6, 2009, formatted in XBRL: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text. | |
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.