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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

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, NY
(Address of principal executive offices)

 

10022
(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.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

        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 June 30, 2013: 3,041,026,489

Available on the web at www.citigroup.com

   


CITIGROUP INC
SECOND QUARTER 2013—FORM 10-Q

OVERVIEW

    3  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   
5
 

Executive Summary

   
5
 

Summary of Selected Financial Data

   
9
 

SEGMENT AND BUSINESS—INCOME (LOSS) AND REVENUES

   
11
 

CITICORP

   
13
 

Global Consumer Banking

   
14
 

North America Regional Consumer Banking

   
15
 

EMEA Regional Consumer Banking

   
17
 

Latin America Regional Consumer Banking

   
19
 

Asia Regional Consumer Banking

   
21
 

Institutional Clients Group

   
23
 

Securities and Banking

   
24
 

Transaction Services

   
27
 

Corporate/Other

   
29
 

CITI HOLDINGS

   
30
 

Brokerage and Asset Management

   
31
 

Local Consumer Lending

   
32
 

Special Asset Pool

   
34
 

BALANCE SHEET REVIEW

   
35
 

CAPITAL RESOURCES AND LIQUIDITY

   
39
 

Capital Resources

   
39
 

Funding and Liquidity

   
45
 

OFF-BALANCE-SHEET ARRANGEMENTS

   
53
 

MANAGING GLOBAL RISK

   
54
 

CREDIT RISK

   
55
 

Loans Outstanding

   
55
 

Details of Credit Loss Experience

   
56
 

Non-Accrual Loans and Assets and Renegotiated Loans

   
58
 

North America Consumer Mortgage Lending

   
62
 

North America Cards

   
75
 

Consumer Loan Details

   
76
 

Corporate Credit Details

   
78
 

MARKET RISK

   
80
 

COUNTRYAND CROSS-BORDER RISK

   
92
 

Country Risk

   
92
 

Cross-Border Risk

   
100
 

FAIR VALUE ADJUSTMENTS FOR DERIVATIVES AND STRUCTURED DEBT

   
101
 

CREDIT DERIVATIVES

   
102
 

INCOME TAXES

   
104
 

DISCLOSURE CONTROLS AND PROCEDURES

   
105
 

DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT

   
105
 

FORWARD-LOOKING STATEMENTS

   
106
 

FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS

   
108
 

CONSOLIDATED FINANCIAL STATEMENTS

   
109
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   
115
 

LEGAL PROCEEDINGS

   
241
 

UNREGISTERED SALES OF EQUITY, PURCHASES OF EQUITY SECURITIES, DIVIDENDS

   
242
 

2



OVERVIEW

        Citigroup's history dates back to the founding of Citibank in 1812. Citigroup's original corporate predecessor was incorporated in 1988 under the laws of the State of Delaware. Following a series of transactions over a number of years, Citigroup Inc. was formed in 1998 upon the merger of Citicorp and Travelers Group Inc.

        Citigroup is a global diversified financial services holding company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. Citi has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions.

        Citigroup currently operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of Citi's Global Consumer Banking businesses and Institutional Clients Group; and Citi Holdings, consisting of Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool. For a further description of the business segments and the products and services they provide, see "Citigroup Segments" below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 to the Consolidated Financial Statements.

        Throughout this report, "Citigroup," "Citi" and "the Company" refer to Citigroup Inc. and its consolidated subsidiaries.

        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, 2012 filed with the U.S. Securities and Exchange Commission (SEC) on March 1, 2013 (2012 Annual Report on Form 10-K) and Citigroup's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 3, 2013 (First Quarter of 2013 Form 10-Q). Additional information about Citigroup is available on Citi's website at www.citigroup.com. Citigroup's recent annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, as well as other filings with the SEC, are available free of charge through Citi's website by clicking on the "Investors" page and selecting "All SEC Filings." The SEC's website also contains current reports, information statements, and other information regarding Citi at www.sec.gov.

        Within this Form 10-Q, please refer to the tables of contents on pages 2 and 108 for page references to Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements, respectively.

        Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation. For information on certain recent such reclassifications, see Citi's Forms 8-K furnished to the SEC on April 5, 2013 and June 28, 2013.

3



As described above, Citigroup is managed pursuant to the following segments:

GRAPHIC

        The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.

GRAPHIC

   


(1)
North America includes the U.S., Canada and Puerto Rico, Latin America includes Mexico, and Asia includes Japan.

4



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

Second Quarter of 2013 Summary Results

        During the second quarter of 2013, Citi saw growth in its core businesses in Citicorp versus the prior-year period, driven principally by strong results in its markets businesses within Securities and Banking as well as an improved credit environment. Despite this growth, Citi's results for the second quarter of 2013 also reflected a continued challenging operating environment, including slowing growth in the emerging markets, continued spread compression(1) globally impacting its Global Consumer Banking (GCB) and Transaction Services businesses and elevated legal and related expenses as Citi continues to work through its "legacy" legal issues. Legal and related expenses are expected to continue to remain elevated and somewhat volatile as Citi works through these issues, although Citi was able to resolve a portion of its legacy representation and warranty issues during the second quarter of 2013, with its announced agreement with Fannie Mae (see "Managing Global Risk—Credit Risk—Citigroup—Residential Mortgages—Representations and Warranties" below).

Citigroup

        Citigroup reported second quarter of 2013 net income of $4.2 billion, or $1.34 per diluted share. Citi's reported net income increased by 42%, or $1.2 billion, from the second quarter of 2012. Results for the second quarter of 2013 included a positive credit valuation adjustment (CVA) on derivatives (counterparty and own-credit), net of hedges, and debt valuation adjustment (DVA) on Citi's fair value option debt of $477 million ($293 million after-tax), compared to $219 million ($140 million after-tax) in the second quarter of 2012, reflecting a widening of Citi's credit spreads and a tightening of counterparty spreads during the quarter. Second quarter of 2012 results also included a net loss of $424 million ($274 million after-tax) related to the sale of a 10.1% stake in Akbank T.A.S (Akbank).

        Excluding CVA/DVA in both periods and the Akbank loss in the second quarter of 2012,(2) Citigroup net income increased 26% to $3.9 billion. Earnings per share of $1.25 increased 25% compared to $1.00 in the prior year period. The year-over-year increase in earnings per share primarily reflected higher revenues and lower net credit losses, partially offset by higher legal and related expenses, a lower loan loss reserve release and a higher effective tax rate as compared to the prior-year period. Citi's higher effective tax rate in the second quarter of 2013 reflected higher earnings in North America, a higher effective tax rate on its international operations due to the previously-disclosed change in its assertion surrounding the indefinite reinvestment of earnings in certain of its international entities as well as the resolution of certain tax issues in the current quarter (for additional information, see "Income Taxes" below).

        Citi's revenues, net of interest expense, were $20.5 billion in the second quarter of 2013, up 11% versus the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, revenues were $20.0 billion, up 8% compared to the prior-year period, as revenues in Citicorp and Citi Holdings grew by 7% and 17%, respectively. Net interest revenues of $11.7 billion were 3% higher than the prior-year period, as growth in Securities and Banking in Citicorp and an increase in Local Consumer Lending in Citi Holdings was partially offset by the ongoing impact of spread compression in Transaction Services in Citicorp, which Citi expects will likely continue to negatively impact net interest revenues in the near term. Non-interest revenues were $8.8 billion, up 25% from the prior-year period, driven by growth in Securities and Banking revenues and the absence of the Akbank loss in the second quarter of 2012. Excluding CVA/DVA in both periods and the Akbank loss in the second quarter of 2012, non-interest revenues of $8.3 billion were 15% higher than the prior-year period.

Operating Expenses

        Citigroup expenses increased 1% versus the prior-year period to $12.1 billion, driven by higher legal and related expenses in Citi Holdings (see below), partially offset by lower repositioning charges of $75 million in the second quarter of 2013 compared to $186 million in the prior-year period. Citi incurred legal and related expenses of $832 million (compared to $480 million in the prior-year period). Excluding legal and related expenses, repositioning charges and the impact of foreign exchange translation into U.S. dollars for reporting purposes (as used throughout this report, FX translation),(3) Citi's operating expenses were $11.2 billion, a 1% reduction versus the prior-year period. This expense decline reflected approximately $200 million of repositioning savings, partially offset by higher performance-based compensation expense as compared to the prior-year period given the improved operating performance.

        Citicorp's expenses were $10.6 billion, down 2% from the prior-year period, largely reflecting lower legal and related expenses. Citicorp legal and related expenses were $131 million in the second quarter of 2013, compared to $278 million in the prior-year period. Citi Holdings expenses increased 25% from the prior-year period to $1.5 billion, principally due to the higher legacy legal and related expenses, which were primarily reflected in the Special Asset Pool. Citi Holdings legal and related expenses were $702 million in the second quarter of 2013, compared to $202 million in the prior-year period.

   


(1)
As used throughout this report, spread compression refers to the reduction in net interest revenue as a percentage of loans or deposits, as applicable, as driven by either lower yields on interest-earning assets or higher costs to fund such assets (or a combination thereof).

(2)
Citigroup's results of operations, excluding the impact of CVA/DVA and gains/(losses) on minority investments, are non-GAAP financial measures. Citi believes the presentation of its results of operations excluding the impact of CVA/DVA and gains/(losses) on minority investments provides a more meaningful depiction of the underlying fundamentals of its businesses.

(3)
FX translation decreased reported operating expenses by approximately $0.1 billion in the second quarter of 2013 as compared to the prior-year period. For the impact of FX translation on second quarter 2013 results of operations for each of EMEA Regional Consumer Banking (RCB), Latin America RCB, Asia RCB and Transaction Services, see the table accompanying the discussion of each respective business' results of operations below.

5


Credit Costs and Loan Loss Reserve Positions

        Citi's total provisions for credit losses and for benefits and claims of $2.0 billion declined 25% from the prior-year period. Net credit losses of $2.6 billion were down 25% from the second quarter of 2012. Consumer net credit losses declined 23% to $2.6 billion reflecting improvements in mortgages in Citi Holdings—Local Consumer Lending and North America Citi-branded cards and Citi retail services in Citicorp. Corporate net credit losses were $45 million in the second quarter of 2013, compared to $154 million in second quarter of 2012.

        The net release of allowance for loan losses and unfunded lending commitments was $784 million in the second quarter of 2013, 22% lower than the prior-year period, with $705 million related to Consumer and the remainder in Corporate. Of the $784 million net reserve release, $311 million was attributable to Citicorp, compared to a $740 million release in the prior-year period. The decline in the Citicorp reserve release principally reflected lower releases in North America RCB largely related to cards. The $473 million net reserve release in Citi Holdings increased from $269 million in the prior-year period and included a reserve release of approximately $525 million related to North America mortgages.

        Citigroup's total allowance for loan losses was $21.6 billion at quarter end, or 3.4% of total loans, compared to $27.6 billion, or 4.3%, at the end of the prior-year period. The decline in the total allowance for loan losses reflected asset sales, lower non-accrual loans, and overall continued improvement in the credit quality of Citi's loan portfolios.

        The Consumer allowance for loan losses was $18.9 billion, or 5.0% of total Consumer loans, at quarter end, compared to $24.6 billion, or 6.0% of total loans, at June 30, 2012. Total non-accrual assets decreased 12% to $10.1 billion as compared to June 30, 2012. Corporate non-accrual loans declined 17% to $2.1 billion, reflecting continued credit improvement. Consumer non-accrual loans declined 9%, to $7.6 billion, versus the prior-year period.

Capital

        Citigroup's Basel I Tier 1 Capital and Tier 1 Common ratios were 13.2% and 12.2% as of June 30, 2013, respectively, each reflecting the final U.S. market risk capital rules (Basel II.5) which became effective on January 1, 2013. Citi's estimated Tier 1 Common ratio under Basel III was 10.0% at the end of the second quarter of 2013, up from an estimated 9.3% at March 31, 2013. Citi's estimated Basel III Supplementary Leverage Ratio for the second quarter of 2013 was 4.9%.(4)

Citicorp(5)

        Citicorp net income increased 23% from the prior-year period to $4.8 billion. CVA/DVA in Securities and Banking was $462 million ($284 million after-tax), compared to $198 million ($127 million after-tax) in the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, Citicorp net income increased 12% from the prior-year period to $4.5 billion, as revenue growth, lower operating expenses and lower net credit losses were partially offset by lower loan loss reserve releases and a higher effective tax rate.

        Citicorp revenues, net of interest expense, were $19.4 billion in the second quarter of 2013, up 11% versus the prior-year period. Excluding CVA/DVA and the Akbank loss in the second quarter of 2012, Citicorp revenues were $18.9 billion in the quarter, a 7% increase versus the prior-year period, as growth in Securities and Banking and GCB revenues was partially offset by a decline in Transaction Services revenues.

        Global Consumer Banking revenues of $9.7 billion increased 2% versus the prior-year period. North America RCB revenues of $5.1 billion declined 1% from the prior-year period, driven by a 4% decline in retail banking revenues with total cards revenues (Citi-branded cards and Citi retail services) unchanged. The decline in retail banking revenues was driven by lower mortgage servicing revenues combined with ongoing spread compression, partially offset by a gain of approximately $180 million on the sale of a mortgage portfolio during the current quarter. Citi expects retail banking revenues will continue to be negatively impacted due to the current interest rate environment as historically high mortgage origination volumes are expected to decline and gain on sale margins to reduce. Spread compression in the deposit portfolio is also expected to continue to negatively impact retail banking revenues. North America RCB average retail loans of $41 billion grew 2% and average deposits of $165 billion grew 8%, both versus the prior-year period. North America RCB cards revenues remained unchanged, as a 1% increase in Citi retail services revenues to $1.5 billion was offset by a 1% decline in Citi-branded cards revenues to $2.0 billion. Average card loans of $104 billion declined 4% versus the prior-year period, driven by increased payment rates resulting from ongoing consumer deleveraging. Citi retail services revenues were also negatively impacted by higher contractual partner payments due to the impact of continued improving credit trends. Card purchase sales of $60 billion increased 2% versus the prior-year period.

        International GCB revenues (consisting of Asia RCB, Latin America RCB and EMEA RCB) grew 6% versus the prior-year period. Excluding the impact of FX translation, international GCB revenues grew 5%, driven by 8% revenue growth in Latin America RCB and 2% revenue growth in each of Asia RCB and EMEA RCB. While international GCB revenues continued to reflect spread compression in certain markets, as well as the impact of regulatory changes, particularly in Asia, most underlying business metrics continued to exhibit growth. International GCB average retail loans increased 5% versus the prior-year period, investment sales grew 36%, average card

   


(4)
Citi's estimated Basel III Tier 1 Common ratio and estimated Basel III Supplementary Leverage ratio as of June 30, 2013 are based on the U.S. banking agencies proposed Basel III rules (Basel III NPR). In July 2013, the U.S. banking agencies adopted the final U.S. Basel III rules. Citi continues to review these and other recent developments relating to the future capital requirements of financial institutions such as Citi. In addition, Citi's estimated Basel III Tier 1 Common ratio, Supplementary Leverage ratio and certain related components are non-GAAP financial measures. For additional information on these matters, see "Capital Resources and Liquidity—Capital Resources" below.

(5)
Citicorp includes Citi's three operating businesses—Global Consumer Banking, Securities and Banking and Transaction Services—as well as Corporate/Other. See "Citicorp" below for additional information on the results of operations for each of the businesses in Citicorp.

6


loans grew 3%, and card purchase sales grew 9%, all excluding the impact of FX translation.

        Securities and Banking revenues were $6.8 billion in the second quarter of 2013, up 25% from the prior-year period. Excluding CVA/DVA,(6) Securities and Banking revenues of $6.4 billion increased 21% from the prior-year period, driven principally by growth in equity and fixed income markets and investment banking revenues.

        Fixed income markets revenues of $3.4 billion, excluding CVA/DVA, increased 18% from the prior-year period with strength in all major products. Equity markets revenues of $942 million in the second quarter of 2013, excluding CVA/DVA, increased 68% from the prior-year period, driven by an improvement in derivatives performance as well as higher cash equity volumes.

        Investment banking revenues rose 21% from the prior-year period to $1.0 billion with higher revenues in all major products. Private Bank revenues of $645 million, excluding CVA/DVA, increased 9% from the prior-year period, with growth in all regions. Lending revenues decreased to $424 million from $571 million in the prior-year period, reflecting $23 million of mark-to-market gains on hedges related to accrual loans as credit spreads widened less significantly during the second quarter of 2013 (compared to a $156 million gain in the prior-year period). Excluding the mark-to-market impact on hedges related to accrual loans, core lending revenues declined 3% to $401 million versus the prior year, as lower volumes were offset by slightly higher spreads.

        Transaction Services revenues declined 1% to $2.7 billion versus the prior-year period. Treasury and Trade Solutions revenues declined 3%, as the impact of spread compression globally was only partially offset by loan and deposit growth. Securities and Fund Services revenues increased 5% (6% excluding the impact of FX translation), as higher settlement volumes and fees offset lower net interest spreads. Despite the continued negative impact of spread compression on revenues in Transaction Services, underlying volumes continued to grow, with average deposits and other customer liability balances up 7% and assets under custody up 10%, each versus the prior-year period.

        Citicorp end of period loans increased 3% from the prior-year period to $544 billion, with Consumer loans flat and 7% growth in Corporate loans. Excluding $3.2 billion of Consumer loans as of the end of the second quarter of 2012 (related to Citi's agreement to sell Credicard, which was moved to discontinued operations in Corporate/Other in the second quarter of 2013), (7) Consumer loans grew 1% versus the prior-year period. Growth in Corporate loans included the impact of adding approximately $7 billion of previously unconsolidated assets during the second quarter of 2013, reflected in North America Transaction Services (for additional information, see "Balance Sheet—Loans" as well as Note 19 to the Consolidated Financial Statements). Excluding this consolidation, Corporate loans increased 4% compared to the prior-year period.

Citi Holdings(8)

        During the second quarter of 2013, Citi continued to make progress on its goal of reducing the negative impact of Citi Holdings on its overall results of operations. Citi Holdings net loss was $570 million in the second quarter of 2013, compared to a net loss of $910 million in the second quarter of 2012. Excluding CVA/DVA,(9) Citi Holdings net loss decreased to $579 million compared to a net loss of $923 million in the prior-year period, as growth in revenues and lower credit costs were partially offset by higher expenses. Expenses increased 25% from the prior-year period reflecting the higher legal and related costs discussed above. Excluding legal and related costs, expenses declined 18% versus the prior-year period.

        Citi Holdings revenues increased 16% to $1.1 billion from $938 million in the prior-year period. Excluding CVA/DVA, Citi Holdings revenues increased 17% to $1.1 billion versus the prior-year period, as higher revenues in Local Consumer Lending and the Special Asset Pool were partially offset by a decline in Brokerage and Asset Management revenues.

        Local Consumer Lending revenues of $1.1 billion increased 13% from the prior year primarily due to lower funding costs. Special Asset Pool revenues, excluding CVA/DVA, were $42 million in the second quarter of 2013, compared to $(102) million in the prior-year period, primarily reflecting lower funding costs and improved asset marks. Brokerage and Asset Management revenues were $(20) million, compared to $87 million in the prior year, reflecting lower Morgan Stanley Smith Barney (MSSB) joint venture equity-related revenues. As previously announced, Citigroup completed the sale of its remaining 35% stake in the MSSB joint venture during the second quarter of 2013. Net interest revenues increased 32% to $784 million versus the prior-year period, driven predominately by improvements in Local Consumer Lending and the Special Asset Pool. Non-interest revenues, excluding CVA/DVA, declined 9% from the prior-year period to $293 million, driven by lower Brokerage and Asset Management revenues.

        Citi Holdings end of period assets declined 31% from the prior-year to $131 billion at the end of the second quarter of 2013 (for additional information on the drivers of the asset decline during the current quarter, see "Citi Holdings" below). At the end of the quarter, Citi Holdings assets comprised approximately 7% of total Citigroup GAAP assets, 12% of risk-weighted assets (as defined under current regulatory guidelines), and 21% of its estimated risk-weighted assets under Basel III. Local Consumer Lending continued to represent the largest segment within Citi Holdings, with $115 billion of assets as of the end of second quarter of 2013, of which approximately 70%, or $80 billion, were related to mortgages in North America real estate lending.

   


(6)
For the summary of CVA/DVA by business within Securities and Banking for the second quarter of 2013 and comparable periods, see "Citicorp—Institutional Clients Group" below.

(7)
For additional information, see "Citigroup—Global Consumer BankingLatin America Regional Consumer Banking" below and Note 2 to the Consolidated Financial Statements.

(8)
Citi Holdings includes Local Consumer Lending, Special Asset Pool and Brokerage and Asset Management. See "Citi Holdings" below for additional information on the results of operations for each of the businesses in Citi Holdings.

(9)
CVA/DVA in Citi Holdings, recorded in the Special Asset Pool, was $15 million in the second quarter of 2013, compared to $21 million in the prior-year period.

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8



RESULTS OF OPERATIONS

SUMMARY OF SELECTED FINANCIAL DATA—Page 1

  
 
Citigroup Inc. and Consolidated Subsidiaries
 

 


 

Second Quarter

 

 


 

Six Months

 

 


 
 
  %
Change
  %
Change
 
In millions of dollars, except per-share amounts and ratios
  2013   2012   2013   2012  

Net interest revenue

  $ 11,682   $ 11,343     3 % $ 23,312   $ 23,059     1 %

Non-interest revenue

    8,797     7,044     25     17,394     14,449     20  
                           

Total revenues, net of interest expense

  $ 20,479   $ 18,387     11 % $ 40,706   $ 37,508     9 %

Operating expenses

    12,140     11,994     1     24,407     24,173     1  

Provisions for credit losses and for benefits and claims

    2,024     2,696     (25 )   4,483     5,596     (20 )
                           

Income from continuing operations before income taxes

  $ 6,315   $ 3,697     71 % $ 11,816   $ 7,739     53 %

Income taxes

    2,127     718     NM     3,697     1,715     NM  
                           

Income from continuing operations

  $ 4,188   $ 2,979     41 % $ 8,119   $ 6,024     35 %

Income (loss) from discontinued operations, net of taxes(1)

    30     7     NM     (3 )   19     NM  
                           

Net income before attribution of noncontrolling interests

  $ 4,218   $ 2,986     41 % $ 8,116   $ 6,043     34 %

Net income attributable to noncontrolling interests

    36     40     (10 )   126     166     (24 )
                           

Citigroup's net income

  $ 4,182   $ 2,946     42 % $ 7,990   $ 5,877     36 %
                           

Less:

                                     

Preferred dividends—Basic

    9     9     %   13     13     %

Dividends and undistributed earnings allocated to employee restricted and deferred shares that contain nonforfeitable rights to dividends, applicable to Basic EPS                     

    83     69     20     155     123     26  
                           

Income allocated to unrestricted common shareholders for Basic EPS

  $ 4,090   $ 2,868     43 % $ 7,822   $ 5,741     36 %

Add: Interest expense, net of tax, and dividends on convertible securities and adjustment of undistributed earnings allocated to employee restricted and deferred shares that contain nonforfeitable rights to dividends, applicable to diluted EPS                                

    1     4     (75 )   1     8     (88 )
                           

Income allocated to unrestricted common shareholders for diluted EPS

  $ 4,091   $ 2,872     42 % $ 7,823   $ 5,749     36 %

Earnings per share

                                     

Basic

                                     

Income from continuing operations

    1.34     0.98     37     2.57     1.96     31  

Net income

    1.35     0.98     38     2.57     1.96     31  
                           

Diluted

                                     

Income from continuing operations

  $ 1.33   $ 0.95     40 % $ 2.57   $ 1.90     35 %

Net income

    1.34     0.95     41     2.57     1.91     35  

Dividends declared per common share

    0.01     0.01         0.02     0.02      
                           

Statement continues on the next page, including notes to the table.

9



SUMMARY OF SELECTED FINANCIAL DATA—Page 2

Citigroup Inc. and Consolidated Subsidiaries
 
 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except per-share amounts, ratios and direct staff
  2013   2012   2013   2012  

At June 30:

                                     

Total assets

  $ 1,883,988   $ 1,916,451     (2 )                  

Total deposits

    938,427     914,308     3                    

Long-term debt

    220,959     288,334     (23 )                  

Citigroup common stockholders' equity

    191,633     183,599     4                    

Total Citigroup stockholders' equity

    195,926     183,911     7                    

Direct staff (in thousands)

    253     261     (3 )                  
                           

Ratios

                                     

Return on average assets

    0.89 %   0.62 %         0.85 %   0.62 %      

Return on average common stockholders' equity(3)

    8.8 %   6.5 %         8.5 %   6.5 %      

Return on average total stockholders' equity(3)

    8.6 %   6.5 %         8.3 %   6.5 %      

Efficiency ratio

    59 %   65 %         60 %   64 %      
                           

Tier 1 Common(4)(5)

    12.16 %   12.71 %                        

Tier 1 Capital(5)

    13.24 %   14.46 %                        

Total Capital(5)

    16.18 %   17.70 %                        

Leverage(6)

    7.86 %   7.66 %                        
                           

Citigroup common stockholders' equity to assets

    10.17 %   9.58 %                        

Total Citigroup stockholders' equity to assets

    10.40 %   9.60 %                        

Dividend payout ratio(2)

    0.7 %   1.1 %                        

Book value per common share

  $ 63.02   $ 62.61     1                    

Ratio of earnings to fixed charges and preferred stock dividends

    2.44x     1.67x           2.35x     1.69x        
                           

(1)
Discontinued operations for 2013 and 2012 includes the announced sale of Citi's Brazil Credicard business. Discontinued operations in 2013 also includes a carve-out of Citi's liquid strategies business within Citi Capital Advisors, the sale of which is to occur pursuant to two separate transactions, the first of which closed in February 2013. Discontinued operations in 2013 and 2012 also reflect the sale of the Egg Banking PLC credit card business. For additional information, see Note 2 to the Consolidated Financial Statements.

(2)
Dividends declared per common share as a percentage of net income per diluted share.

(3)
The return on average common stockholders' equity is calculated using net income less preferred stock dividends divided by average common stockholders' equity. The return on average total Citigroup stockholders' equity is calculated using net income divided by average Citigroup stockholders' equity.

(4)
As currently defined by the U.S. banking regulators, the Tier 1 Common ratio represents Tier 1 Capital less non-common elements, including qualifying perpetual preferred stock, qualifying noncontrolling interests in subsidiaries and qualifying trust preferred securities divided by risk-weighted assets.

(5)
Second quarter of 2013 Basel I capital ratios reflect the final (revised) U.S. market risk capital rules (Basel II.5) that were effective on January 1, 2013.

(6)
The leverage ratio represents Tier 1 Capital divided by quarterly adjusted average total assets.

10



SEGMENT AND BUSINESS—INCOME (LOSS) AND REVENUES

        The following tables show the income (loss) and revenues for Citigroup on a segment and business view:


CITIGROUP INCOME

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2013   2012   2013   2012  

Income (loss) from continuing operations

                                     

CITICORP

                                     

Global Consumer Banking

                                     

North America

  $ 1,124   $ 1,174     (4 )% $ 2,237   $ 2,471     (9 )%

EMEA

    28     13     NM     35          

Latin America

    371     335     11     751     710     6  

Asia

    432     449     (4 )   849     950     (11 )
                           

Total

  $ 1,955   $ 1,971     (1 )% $ 3,872   $ 4,131     (6 )%
                           

Securities and Banking

                                     

North America

  $ 849   $ 549     55 % $ 2,001   $ 736     NM  

EMEA

    787     365     NM     1,232     879     40 %

Latin America

    350     309     13     662     633     5  

Asia

    396     252     57     842     563     50  
                           

Total

  $ 2,382   $ 1,475     61 % $ 4,737   $ 2,811     69 %
                           

Transaction Services

                                     

North America

  $ 161   $ 122     32 % $ 290   $ 248     17 %

EMEA

    229     317     (28 )   452     617     (27 )

Latin America

    179     181     (1 )   343     355     (3 )

Asia

    239     269     (11 )   493     566     (13 )
                           

Total

  $ 808   $ 889     (9 )% $ 1,578   $ 1,786     (12 )%
                           

Institutional Clients Group

  $ 3,190   $ 2,364     35 % $ 6,315   $ 4,597     37 %
                           

Corporate/Other

  $ (388 ) $ (447 )   13 % $ (710 ) $ (778 )   9 %
                           

Total Citicorp

  $ 4,757   $ 3,888     22 % $ 9,477   $ 7,950     19 %
                           

CITI HOLDINGS

                                     

Brokerage and Asset Management

  $ (53 ) $ (24 )   NM   $ (132 ) $ (161 )   18 %

Local Consumer Lending

    (134 )   (819 )   84 %   (427 )   (1,452 )   71  

Special Asset Pool

    (382 )   (66 )   NM     (799 )   (313 )   NM  
                           

Total Citi Holdings

  $ (569 ) $ (909 )   37 % $ (1,358 ) $ (1,926 )   29 %
                           

Income from continuing operations

  $ 4,188   $ 2,979     41 % $ 8,119   $ 6,024     35 %
                           

Discontinued operations

  $ 30   $ 7     NM   $ (3 ) $ 19     NM  

Net income attributable to noncontrolling interests

    36     40     (10 )%   126     166     (24 )%
                           

Citigroup's net income

  $ 4,182   $ 2,946     42 % $ 7,990   $ 5,877     36 %
                           

NM Not meaningful

11



CITIGROUP REVENUES

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2013   2012   2013   2012  

CITICORP

                                     

Global Consumer Banking

                                     

North America

  $ 5,052   $ 5,102     (1 )% $ 10,162   $ 10,268     (1 )%

EMEA

    364     358     2     732     727     1  

Latin America

    2,327     2,095     11     4,638     4,283     8  

Asia

    1,968     1,952     1     3,928     3,950     (1 )
                           

Total

  $ 9,711   $ 9,507     2 % $ 19,460   $ 19,228     1 %
                           

Securities and Banking

                                     

North America

  $ 2,599   $ 2,017     29 % $ 5,569   $ 3,459     61 %

EMEA

    2,166     1,612     34     4,039     3,571     13  

Latin America

    747     730     2     1,517     1,453     4  

Asia

    1,329     1,112     20     2,694     2,330     16  
                           

Total

  $ 6,841   $ 5,471     25 % $ 13,819   $ 10,813     28 %
                           

Transaction Services

                                     

North America

  $ 667   $ 663     1 % $ 1,293   $ 1,302     (1 )%

EMEA

    921     908     1     1,782     1,781      

Latin America

    467     446     5     914     888     3  

Asia

    677     750     (10 )   1,349     1,501     (10 )
                           

Total

  $ 2,732   $ 2,767     (1 )% $ 5,338   $ 5,472     (2 )%
                           

Institutional Clients Group

  $ 9,573   $ 8,238     16 % $ 19,157   $ 16,285     18 %
                           

Corporate/Other

  $ 103   $ (296 )   NM   $ 96   $ 175     (45 )%
                           

Total Citicorp

  $ 19,387   $ 17,449     11 % $ 38,713   $ 35,688     8 %
                           

CITI HOLDINGS

                                     

Brokerage and Asset Management

  $ (20 ) $ 87     NM   $ (37 ) $ 39     NM  

Local Consumer Lending

    1,055     932     13 %   2,111     2,256     (6 )%

Special Asset Pool

    57     (81 )   NM     (81 )   (475 )   83  
                           

Total Citi Holdings

  $ 1,092   $ 938     16 % $ 1,993   $ 1,820     10 %
                           

Total Citigroup net revenues

  $ 20,479   $ 18,387     11 % $ 40,706   $ 37,508     9 %
                           

NM Not meaningful

12



CITICORP

        Citicorp is Citigroup's global bank for consumers and businesses and represents Citi's core franchises. Citicorp is focused on providing best-in-class products and services to customers and leveraging Citigroup's unparalleled global network, including many of the world's emerging economies. Citicorp is physically present in approximately 100 countries, many for over 100 years, and offers services in over 160 countries and jurisdictions. Citi believes this global network provides a strong foundation for servicing the broad financial services needs of its large multinational clients and for meeting the needs of retail, private banking, commercial, public sector and institutional clients around the world. At June 30, 2013, Citicorp had approximately $1.8 trillion of assets and $874 billion of deposits, representing 93% of Citi's total assets and deposits, respectively.

        Citicorp consists of the following operating businesses: Global Consumer Banking (which consists of Regional Consumer Banking in North America, EMEA, Latin America and Asia) and Institutional Clients Group (which includes Securities and Banking and Transaction Services). Citicorp also includes Corporate/Other.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 10,898   $ 10,748     1 % $ 21,775   $ 21,755      

Non-interest revenue

    8,489     6,701     27     16,938     13,933     22 %
                           

Total revenues, net of interest expense

  $ 19,387   $ 17,449     11 % $ 38,713   $ 35,688     8 %
                           

Provisions for credit losses and for benefits and claims

                                     

Net credit losses

  $ 1,838   $ 2,162     (15 )% $ 3,786   $ 4,286     (12 )%

Credit reserve build (release)

    (301 )   (766 )   61     (618 )   (1,365 )   55  
                           

Provision for loan losses

  $ 1,537   $ 1,396     10 % $ 3,168   $ 2,921     8 %

Provision for benefits and claims

    46     49     (6 )   109     107     2  

Provision (release) for unfunded lending commitments

    (10 )   26     NM     8     14     (43 )
                           

Total provisions for credit losses and for benefits and claims

  $ 1,573   $ 1,471     7 % $ 3,285   $ 3,042     8 %
                           

Total operating expenses

  $ 10,593   $ 10,759     (2 )% $ 21,358   $ 21,721     (2 )%
                           

Income from continuing operations before taxes

  $ 7,221   $ 5,219     38 % $ 14,070   $ 10,925     29 %

Provisions for income taxes

    2,464     1,331     85     4,593     2,975     54  
                           

Income from continuing operations

  $ 4,757   $ 3,888     22 % $ 9,477   $ 7,950     19 %

Income (loss) from discontinued operations, net of taxes

    30     7     NM     (3 )   19     NM  

Noncontrolling interests

    35     39     (10 )   120     163     (26 )%
                           

Net income

  $ 4,752   $ 3,856     23 % $ 9,354   $ 7,806     20 %
                           

Balance sheet data (in billions of dollars)

                                     

Total end-of-period (EOP) assets

  $ 1,753   $ 1,725     2 %                  

Average assets

    1,751     1,714     2   $ 1,743   $ 1,702     2 %

Return on average assets

    1.09 %   0.91 %         1.08 %   0.92 %      

Efficiency ratio (Operating expenses/Total revenues)

    55 %   62 %         55 %   61 %      

Total EOP loans

  $ 544   $ 527     3                    

Total EOP deposits

  $ 874   $ 852     3                    
                           

NM Not meaningful

13



GLOBAL CONSUMER BANKING

        Global Consumer Banking (GCB) consists of Citigroup's four geographical Regional Consumer Banking (RCB) businesses that provide traditional banking services to retail customers through retail banking, commercial banking, Citi-branded cards and Citi retail services. GCB is a globally diversified business with 3,912 branches in 38 countries around the world as of June 30, 2013. For the quarter ended June 30, 2013, GCB had $391 billion of average assets and $326 billion of average deposits. Citi's strategy is to focus on the top 150 cities globally that it believes have the highest growth potential in consumer banking. Consistent with this strategy, as announced in the fourth quarter of 2012 as part of its repositioning efforts, Citi intends to optimize its branch footprint and further concentrate its presence in major metropolitan areas. As of June 30, 2013, Citi had consumer banking operations in approximately 120, or 80%, of these cities.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 7,072   $ 7,010     1 % $ 14,243   $ 14,174      

Non-interest revenue

    2,639     2,497     6     5,217     5,054     3 %
                           

Total revenues, net of interest expense

  $ 9,711   $ 9,507     2 % $ 19,460   $ 19,228     1 %
                           

Total operating expenses

  $ 5,131   $ 5,183     (1 )% $ 10,340   $ 10,263     1 %
                           

Net credit losses

  $ 1,785   $ 2,039     (12 )% $ 3,694   $ 4,220     (12 )%

Credit reserve build (release)

    (237 )   (753 )   69     (577 )   (1,509 )   62  

Provisions (release) for unfunded lending commitments

    9             24     (1 )   NM  

Provision for benefits and claims

    46     50     (8 )   109     108     1 %
                           

Provisions for credit losses and for benefits and claims

  $ 1,603   $ 1,336     20 % $ 3,250   $ 2,818     15 %
                           

Income from continuing operations before taxes

  $ 2,977   $ 2,988       $ 5,870   $ 6,147     (5 )%

Income taxes

    1,022     1,017         1,998     2,016     (1 )
                           

Income from continuing operations

  $ 1,955   $ 1,971       $ 3,872   $ 4,131     (6 )%

Noncontrolling interests

    6     (1 )   NM     11          
                           

Net income

  $ 1,949   $ 1,972     (1 )% $ 3,861   $ 4,131     (7 )%
                           

Balance Sheet data (in billions of dollars)

                                     

Average assets

  $ 391   $ 382     2 % $ 396   $ 384     3 %

Return on assets

    2.00 %   2.10 %         1.98 %   2.19 %      

Efficiency ratio

    53 %   55 %         53 %   53 %      

Total EOP assets

  $ 395   $ 388     2                    

Average deposits

  $ 326   $ 318     3   $ 328   $ 318     3  

Net credit losses as a percentage of average loans

    2.53 %   2.94 %         2.61 %   3.01 %      
                           

Revenue by business

                                     

Retail banking

  $ 4,535   $ 4,430     2 % $ 9,070   $ 8,979     1 %

Cards(1)

    5,176     5,077     2     10,390     10,249     1  
                           

Total

  $ 9,711   $ 9,507     2 % $ 19,460   $ 19,228     1 %
                           

Income from continuing operations by business

                                     

Retail banking

  $ 723   $ 808     (11 )% $ 1,449   $ 1,636     (11 )%

Cards(1)

    1,232     1,163     6     2,423     2,495     (3 )
                           

Total

  $ 1,955   $ 1,971       $ 3,872   $ 4,131     (6 )%
                           

Foreign Currency (FX) Translation Impact

                                     

Total revenue—as reported

  $ 9,711   $ 9,507     2 % $ 19,460   $ 19,228     1 %

Impact of FX translation(2)

        36               (4 )      
                           

Total revenues—ex-FX

  $ 9,711   $ 9,543     2 % $ 19,460   $ 19,224     1 %
                           

Total operating expenses—as reported

  $ 5,131   $ 5,183     (1 )% $ 10,340   $ 10,263     1 %

Impact of FX translation(2)

        (8 )             (58 )      
                           

Total operating expenses—ex-FX

  $ 5,131   $ 5,175     (1 )% $ 10,340   $ 10,205     1 %
                           

Total provisions for LLR & PBC—as reported

  $ 1,603   $ 1,336     20 % $ 3,250   $ 2,818     15 %

Impact of FX translation(2)

        13               7        
                           

Total provisions for LLR & PBC—ex-FX

  $ 1,603   $ 1,349     19 % $ 3,250   $ 2,825     15 %
                           

Net income—as reported

  $ 1,949   $ 1,972     (1 )% $ 3,861   $ 4,131     (7 )%

Impact of FX translation(2)

        25               29        
                           

Net income—ex-FX

  $ 1,949   $ 1,997     (2 )% $ 3,861   $ 4,160     (7 )%
                           

(1)
Includes both Citi-branded cards and Citi retail services.

(2)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2013 exchange rates for all periods presented.

NM Not meaningful

14


NORTH AMERICA REGIONAL CONSUMER BANKING

        North America Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded cards and Citi retail services to retail customers and small to mid-size businesses in the U.S. NA RCB's approximate 983 retail bank branches as of June 30, 2013 are largely concentrated in the greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., Boston, Philadelphia, Dallas, Houston, San Antonio and Austin. At June 30, 2013, NA RCB had approximately 12.0 million customer accounts, $41.7 billion of retail banking loans and $165.9 billion of deposits. In addition, NA RCB had approximately 99.7 million Citi-branded and Citi retail services credit card accounts, with $105.3 billion in outstanding card loan balances.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 4,065   $ 4,002     2 % $ 8,217   $ 8,096     1 %

Non-interest revenue

    987     1,100     (10 )   1,945     2,172     (10 )%
                           

Total revenues, net of interest expense

  $ 5,052   $ 5,102     (1 )% $ 10,162   $ 10,268     (1 )%
                           

Total operating expenses

  $ 2,384   $ 2,452     (3 )% $ 4,813   $ 4,792      
                           

Net credit losses

  $ 1,190   $ 1,511     (21 )% $ 2,445   $ 3,140     (22 )%

Credit reserve build (release)

    (351 )   (814 )   57     (721 )   (1,655 )   56  

Provisions for benefits and claims

                         

Provision (release) for unfunded lending commitments

    13     19     (32 )%   27     33     (18 )%
                           

Provisions for credit losses and for benefits and claims

  $ 852   $ 716     19 % $ 1,751   $ 1,518     15 %
                           

Income from continuing operations before taxes

  $ 1,816   $ 1,934     (6 )% $ 3,598   $ 3,958     (9 )%

Income taxes

    692     760     (9 )   1,361     1,487     (8 )
                           

Income from continuing operations

  $ 1,124   $ 1,174     (4 )% $ 2,237   $ 2,471     (9 )%

Noncontrolling interests

    1             1          
                           

Net income

  $ 1,123   $ 1,174     (4 )% $ 2,236   $ 2,471     (10 )%
                           

Balance Sheet data (in billions of dollars)

                                     

Average assets

  $ 172   $ 171     1 % $ 174   $ 170     2 %

Return on average assets

    2.62 %   2.76 %         2.59 %   2.92 %      

Efficiency ratio

    47 %   48 %         47 %   47 %      

Average deposits

  $ 165   $ 152     9   $ 165   $ 151     9  

Net credit losses as a percentage of average loans

    3.29 %   4.07 %         3.34 %   4.20 %      
                           

Revenue by business

                                     

Retail banking

  $ 1,591   $ 1,650     (4 )% $ 3,164   $ 3,279     (4 )%

Citi-branded cards

    1,978     1,988     (1 )   4,004     4,034     (1 )

Citi retail services

    1,483     1,464     1     2,994     2,955     1  
                           

Total

  $ 5,052   $ 5,102     (1 )% $ 10,162   $ 10,268     (1 )%
                           

Income from continuing operations by business

                                     

Retail banking

  $ 274   $ 337     (19 )% $ 503   $ 671     (25 )%

Citi-branded cards

    457     413     11     905     1,005     (10 )

Citi retail services

    393     424     (7 )   829     795     4  
                           

Total

  $ 1,124   $ 1,174     (4 )% $ 2,237   $ 2,471     (9 )%
                           

15



2Q13 vs. 2Q12

        Net income decreased 4%, mainly driven by a $463 million reduction in loan loss reserve releases, partially offset by a $321 million reduction in net credit losses and lower expenses.

        Revenues decreased 1%, as higher volumes in retail banking were offset by significant continued spread compression.

        Retail banking revenues of $1.6 billion declined 4% due to lower mortgage servicing revenues and ongoing spread compression in both mortgage gain-on-sale margins and in the deposit portfolio. The decline in retail banking revenues was partially offset by a gain of approximately $180 million on the sale of a mortgage portfolio during the current quarter. Mortgage originations increased 33%, average retail loans were unchanged and average deposits increased 9%. Citi expects retail banking revenues will continue to be negatively impacted due to the current interest rate environment as historically high mortgage origination volumes are expected to decline and gain on sale margins to reduce. Spread compression in the deposit portfolio is also expected to continue to negatively impact retail banking revenues.

        Cards revenues were unchanged, as improved net interest spreads, benefitting from both higher yields and lower funding costs, were offset by continued lower average loan balances. In Citi-branded cards, revenues declined 1% to $2.0 billion, reflecting a 5% decline in average loans, partly offset by an improvement in net interest spreads. Net interest revenue increased 2%, reflecting lower cost of funds, partially offset by the decline in average loans and a continued increased payment rate from consumer deleveraging. In Citi retail services, revenues increased 1% to $1.5 billion. Net interest revenues increased 3% due to improved spreads, partially offset by a 2% decline in average loans as well as declining non-interest revenues, driven by improving credit and the resulting impact on contractual partner payments. Citi expects cards revenues could continue to be negatively impacted by higher payment rates for consumers, reflecting ongoing economic uncertainty and deleveraging as well as Citi's shift to higher credit quality borrowers.

        As previously disclosed, as part of its U.S. Citi-branded cards business, Citibank, N.A. issues a co-branded credit card product with American Airlines, the Citi/AAdvantage card. AMR Corporation and certain of its subsidiaries, including American Airlines, Inc. (collectively, AMR), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in November 2011, and on February 14, 2013, AMR and US Airways Group, Inc. announced a merger agreement under which the companies would be combined. In a filing in U.S. Bankruptcy Court on June 3, 2013, AMR agreed to assume the agreements for the Citi/AAdvantage card program upon confirmation of its filed plan of reorganization, which includes the merger with US Airways. AMR's filed plan of reorganization and the assumption of the Citi/AAdvantage card program agreements are subject to U.S. Bankruptcy Court approval.

        Expenses decreased 3%, primarily due to lower legal and related costs, lower repositioning charges as well as efficiency savings, partially offset by higher volume-related mortgage origination costs.

        Provisions increased 19%, as lower net credit losses in the cards portfolio and in retail banking were offset by continued lower loan loss reserve releases largely related to cards ($351 million compared to $814 million in the prior-year period).


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, NA RCB has experienced similar trends to those described above. Net income decreased 10%, mainly due to lower loan loss reserve releases, partially offset by lower net credit losses.

        Revenues decreased 1%, as a 1% increase in net interest revenue offset a 10% decrease in non-interest revenue. Retail banking revenues declined 4%, as higher mortgage originations and average deposits were more than offset by the significant continued spread compression. Cards revenues were unchanged as improved net interest spreads were offset by lower volumes, driven by the factors described above.

        Expenses were flat as lower legal and related costs and efficiency savings were offset by higher volume-related mortgage origination costs.

        Provisions increased 15% due to a $934 million reduction in loan loss reserve releases, partially offset by a $696 million reduction in net credit losses in the cards portfolio and in retail banking.

16



EMEA REGIONAL CONSUMER BANKING

        EMEA Regional Consumer Banking (EMEA RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, primarily in Central and Eastern Europe and the Middle East. The countries in which EMEA RCB has the largest presence are Poland, Turkey, Russia and the United Arab Emirates. As part of Citi's previously announced repositioning efforts, in July 2013, Citi completed the sales of its consumer operations in Romania and Turkey, including approximately $113 million and $628 million of consumer loan balances and $210 million and $790 million of deposits, respectively.

        At June 30, 2013, EMEA RCB had 222 retail bank branches with approximately 3.8 million customer accounts, $5.3 billion in retail banking loans, $13.0 billion in deposits, and 2.8 million Citi-branded card accounts with $2.8 billion in outstanding card loan balances.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 237   $ 248     (4 )% $ 483   $ 501     (4 )%

Non-interest revenue

    127     110     15     249     226     10  
                           

Total revenues, net of interest expense

  $ 364   $ 358     2 % $ 732   $ 727     1 %
                           

Total operating expenses

  $ 333   $ 337     (1 )% $ 677   $ 696     (3 )%
                           

Net credit losses

  $ (1 ) $ 14     NM   $ 28   $ 43     (35 )%

Credit reserve build (release)

    (9 )   (13 )   31 %   (20 )   (18 )   (11 )

Provision (release) for unfunded lending commitments        

    (1 )               (1 )   100  
                           

Provisions for credit losses

  $ (11 ) $ 1     NM   $ 8   $ 24     (67 )%
                           

Income from continuing operations before taxes

  $ 42   $ 20     NM   $ 47   $ 7     NM  

Income taxes

    14     7     100 %   12     7     71 %
                           

Income from continuing operations

  $ 28   $ 13     NM   $ 35   $      

Noncontrolling interests

    5     1     NM     8     2     NM  
                           

Net income (loss)

  $ 23   $ 12     92 % $ 27   $ (2 )   NM  
                           

Balance Sheet data (in billions of dollars)

                                     

Average assets

  $ 10   $ 9     11 % $ 10   $ 9     11 %

Return on average assets

    0.92 %   0.54 %         0.54 %   (0.04 )%      

Efficiency ratio

    91 %   94 %         92 %   96 %      

Average deposits

  $ 13   $ 12     5   $ 13   $ 12     5  

Net credit losses as a percentage of average loans

    (0.05 )%   0.75 %         0.70 %   1.17 %      
                           

Revenue by business

                                     

Retail banking

  $ 214   $ 210     2 % $ 429   $ 426     1 %

Citi-branded cards

    150     148     1     303     301     1  
                           

Total

  $ 364   $ 358     2 % $ 732   $ 727     1 %
                           

Income (loss) from continuing operations by business

                                     

Retail banking

  $   $ (9 )   100 % $ (8 ) $ (35 )   77 %

Citi-branded cards

    28     22     27     43     35     23  
                           

Total

  $ 28   $ 13     NM   $ 35   $      
                           

Foreign Currency (FX) Translation Impact

                                     

Total revenue—as reported

  $ 364   $ 358     2 % $ 732   $ 727     1 %

Impact of FX translation(1)

        (1 )             (9 )      
                           

Total revenues—ex-FX

  $ 364   $ 357     2 % $ 732   $ 718     2 %
                           

Total operating expenses—as reported

  $ 333   $ 337     (1 )% $ 677   $ 696     (3 )%

Impact of FX translation(1)

        (1 )             (10 )      
                           

Total operating expenses—ex-FX

  $ 333   $ 336     (1 )% $ 677   $ 686     (1 )%
                           

Provisions for credit losses—as reported

  $ (11 ) $ 1     NM   $ 8   $ 24     (67 )%

Impact of FX translation(1)

        1                      
                           

Provisions for credit losses—ex-FX

  $ (11 ) $ 2     NM   $ 8   $ 24     (67 )%
                           

Net income (loss)—as reported

  $ 23   $ 12     92 % $ 27   $ (2 )   NM  

Impact of FX translation(1)

                    $ 1        
                           

Net income (loss)—ex-FX

  $ 23   $ 12     92 % $ 27   $ (1 )   NM  
                           

(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2013 exchange rates for all periods presented.

NM Not meaningful

17


        The discussion of the results of operations for EMEA RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of EMEA RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.


2Q13 vs. 2Q12

        Net income of $23 million compared to net income of $12 million in the prior-year period and was mainly due to lower net credit losses and higher revenues.

        Revenues increased 2%, with growth across all major products due to higher investment and loan volumes, partially offset by lower revenues that occurred after Citi announced the sale of its consumer operations in Turkey and Romania. Net interest revenue decreased 4%, due to spread compression in cards as well as portfolio liquidation, partially offset by growth in average deposits of 6%, average retail loans of 12% and average cards loans of 3%. Interest rate caps on credit cards, particularly in Poland, the continued liquidation of a higher yielding non-strategic retail banking portfolio and the continued low interest rate environment were the main contributors to the lower spreads. Citi expects continued regulatory changes and spread compression to continue to negatively impact revenues in this business during the remainder of 2013. Non-interest revenue increased 16%, mainly reflecting higher investment fees and card fees due to increased sales volumes. Cards purchase sales increased 8% and investment sales increased 26%.

        Expenses declined 1%, as efficiency savings were mostly offset by continued investment spending on new internal operating platforms and higher repositioning charges related to the sales of the consumer operations in Turkey and Romania.

        Provisions were a benefit of $11 million, due to a net credit recovery as a result of sales of written-off accounts and the sales of the consumer operations in Turkey and Romania, partially offset by lower loan loss reserve releases. Net credit losses also continued to reflect stabilizing credit quality and Citi's strategic move toward lower-risk customers. Assuming the underlying core portfolio continues to grow during the remainder of 2013, Citi believes credit costs in EMEA RCB could begin to rise.


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, EMEA RCB has experienced similar trends to those described above. Net income of $27 million compared to a net loss of $1 million in the prior-year period and was primarily due to lower net credit losses, higher revenues and lower operating expenses.

        Revenues increased 2%, with growth across all major products due to higher volumes, partially offset by lower revenues resulting from the exit of certain markets, including the sales of the consumer operations in Turkey and Romania. Net interest revenue declined 2% primarily due to spread compression, driven by the same factors described above. Non-interest revenue increased 11%, mainly reflecting higher investment fees and card fees due to increased sales volume, partially offset by a loss on the sale of certain businesses. Cards purchase sales increased 8% and investment sales increased 19%.

        Expenses decreased 1%, primarily due to efficiency savings and lower repositioning charges, partially offset by the continued investment spending.

        Provisions decreased 67% to $8 million, primarily due to lower net credit losses, driven by the factors described above.

18



LATIN AMERICA REGIONAL CONSUMER BANKING

        Latin America Regional Consumer Banking (Latin America RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest presence in Mexico and Brazil. Latin America RCB includes branch networks throughout Latin America as well as Banco Nacional de Mexico, or Banamex, Mexico's second-largest bank, with nearly 1,700 branches. As part of Citi's previously announced repositioning efforts, during the second quarter of 2013, Citi entered into an agreement to sell Credicard, Citi's non-Citibank branded cards business and consumer finance business in Brazil, including approximately $3.3 billion in consumer loan balances. Results of operations have been restated for all historical periods, while all balance sheet data have been reclassified as of the second quarter of 2013, to reflect Credicard as discontinued operations and reported in Corporate/Other (for additional information, see Note 2 to the Consolidated Financial Statements). During the second quarter of 2013, Citi also entered into an agreement to sell its retail banking operations in Uruguay, including approximately $69 million of consumer loan balances and $267 million of deposits, respectively.

        At June 30, 2013, Latin America RCB had 2,136 retail branches, with approximately 32.2 million customer accounts, $29.9 billion in retail banking loans and $46.6 billion in deposits. In addition, the business had approximately 9.3 million Citi-branded card accounts with $11.5 billion in outstanding loan balances.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 1,580   $ 1,474     7 % $ 3,126   $ 2,963     6 %

Non-interest revenue

    747     621     20     1,512     1,320     15  
                           

Total revenues, net of interest expense

  $ 2,327   $ 2,095     11 % $ 4,638   $ 4,283     8 %
                           

Total operating expenses

  $ 1,307   $ 1,230     6 % $ 2,615   $ 2,461     6 %
                           

Net credit losses

  $ 416   $ 315     32 % $ 835   $ 648     29 %

Credit reserve build

    104     95     9     142     186     (24 )

Provision for benefits and claims

    33     31     6     82     75     9  
                           

Provisions for loan losses and for benefits and claims (LLR & PBC)

  $ 553   $ 441     25 % $ 1,059   $ 909     17 %
                           

Income from continuing operations before taxes

  $ 467   $ 424     10 % $ 964   $ 913     6 %

Income taxes

    96     89     8     213     203     5  
                           

Income from continuing operations

  $ 371   $ 335     11 % $ 751   $ 710     6 %

Noncontrolling interests

        (2 )   100     2     (2 )   NM  
                           

Net income

  $ 371   $ 337     10 % $ 749   $ 712     5 %
                           

Balance Sheet data (in billions of dollars)

                                     

Average assets

  $ 80   $ 78     3 % $ 83   $ 80     4 %

Return on average assets

    1.86 %   1.83 %         1.86 %   1.88 %      

Efficiency ratio

    56 %   59 %         56 %   57 %      

Average deposits

  $ 46   $ 44     4   $ 46   $ 45     2  

Net credit losses as a percentage of average loans

    4.03 %   3.57 %         4.09 %   3.62 %      
                           

Revenue by business

                                     

Retail banking

  $ 1,538   $ 1,405     9 % $ 3,085   $ 2,879     7 %

Citi-branded cards

    789     690     14     1,553     1,404     11  
                           

Total

  $ 2,327   $ 2,095     11 % $ 4,638   $ 4,283     8 %
                           

Income from continuing operations by business

                                     

Retail banking

  $ 211   $ 238     (11 )% $ 459   $ 454     1 %

Citi-branded cards

    160     97     65     292     256     14  
                           

Total

  $ 371   $ 335     11 % $ 751   $ 710     6 %
                           

Foreign Currency (FX) Translation Impact

                                     

Total revenue—as reported

  $ 2,327   $ 2,095     11 % $ 4,638   $ 4,283     8 %

Impact of FX translation(1)

        68               60        
                           

Total revenues—ex-FX

  $ 2,327   $ 2,163     8 % $ 4,638   $ 4,343     7 %
                           

Total operating expenses—as reported

  $ 1,307   $ 1,230     6 % $ 2,615   $ 2,461     6 %

Impact of FX translation(1)

        25               8        
                           

Total operating expenses—ex-FX

  $ 1,307   $ 1,255     4 % $ 2,615   $ 2,469     6 %
                           

Provisions for LLR & PBC—as reported

  $ 553   $ 441     25 % $ 1,059   $ 909     17 %

Impact of FX translation(1)

        12               5        
                           

Provisions for LLR & PBC—ex-FX                                

  $ 553   $ 453     22 % $ 1,059   $ 914     16 %
                           

Net income—as reported

  $ 371   $ 337     10 % $ 749   $ 712     5 %

Impact of FX translation(1)

        21               23        
                           

Net income—ex-FX

  $ 371   $ 358     4 % $ 749   $ 735     2 %
                           

(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2013 exchange rates for all periods presented.

19


The discussion of the results of operations for Latin America RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Latin America RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.


2Q13 vs. 2Q12

        Net income increased 4% as higher revenues were partially offset by higher credit costs and higher expenses.

        Revenues increased 8%, primarily due to volume growth in retail banking and cards, partially offset by continued spread compression. Net interest revenue increased 5% due to increased volumes, partially offset by spread compression. Citi expects slower volume growth and continued spread compression to negatively impact net interest revenues during the remainder of 2013. Non-interest revenue increased 17%, primarily due to higher fees from increased business volumes in retail and cards. Retail banking revenues increased 6% as average loans increased 13% and investment sales increased 19% while deposits were flat. Cards revenues increased 12% as average loans increased 9% and purchase sales increased 13%.

        Despite the year-over-year growth, Citi expects overall volume growth could begin to slow, particularly in Mexico, due to slowing economic growth in the region. In addition, the Mexico governmental authorities are considering various reforms, including reducing borrowing costs through increased banking competition, increasing lending activity, increasing disclosure requirements and client mobility as well as imposing additional requirements in the consumer finance area. These reforms have not yet been adopted, and thus the impact on Citi's businesses is not certain. For information on the potential impact to Latin America RCB from foreign exchange controls, see "Managing Global Risk—Cross-Border Risk" below.

        Expenses increased 4% on increased volume-related costs, mandatory salary increases in certain countries and higher transactional costs, partially offset by lower repositioning charges and marketing costs.

        Provisions increased 22%, primarily due to higher net credit losses as well as a higher loan loss reserve build. Net credit losses increased 32%, primarily in the Mexico cards and personal loan portfolios, reflecting both portfolio seasoning and volume growth. The higher loan loss reserve build in the current quarter was partially due to an increase in reserves for Mexican homebuilders. Homebuilders in Mexico have recently begun to experience financial difficulties, primarily due to, among other things, decreases in government subsidies, new government policies promoting vertical housing and an overall renewed government emphasis on urban planning. Citi's outstanding loans to the top three builders totaled approximately $300 million at the end of the current quarter, with nearly 100% collateralized. Citi currently expects the net credit loss rate in Latin America to remain relatively unchanged for the remainder of 2013, although the rate could be higher if any material losses are incurred in the Mexico homebuilder portfolio.


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, Latin America RCB has experienced similar trends to those described above. Net income increased 2% as higher revenues were partially offset by higher expenses and credit costs.

        Revenues increased 7%, primarily due to volume growth in retail banking and cards, partially offset by spread compression, driven by the factors described above. Net interest revenue increased 4% due to increased volumes, partially offset by continued spread compression. Non-interest revenue increased 13%, primarily due to higher fees from increased business volumes in retail and cards. Retail banking revenues increased 6% as average loans increased 14%, investment sales increased 14% while deposits grew 1%. Cards revenues increased 12% as average loans increased 9% and purchase sales increased 13%.

        Expenses increased 6% on increased volume-related costs, higher repositioning charges, mandatory salary increases in certain countries and higher transactional and marketing costs.

        Provisions increased 16%, primarily due to higher net credit losses, partially offset by lower loan loss reserve builds. Net credit losses increased 29%, primarily in the Mexico personal loan and card portfolios, reflecting both volume growth and portfolio seasoning.

20


ASIA REGIONAL CONSUMER BANKING

        Asia Regional Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest Citi presence in Korea, Australia, Singapore, Hong Kong, Taiwan, Japan, India, Malaysia and Indonesia. At June 30, 2013, Asia RCB had 571 retail branches, approximately 16.9 million customer accounts, $68.5 billion in retail banking loans and $101.2 billion in deposits. In addition, the business had approximately 16.4 million Citi-branded card accounts with $18.9 billion in outstanding loan balances.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 1,190   $ 1,286     (7 )% $ 2,417   $ 2,614     (8 )%

Non-interest revenue

    778     666     17     1,511     1,336     13  
                           

Total revenues, net of interest expense

  $ 1,968   $ 1,952     1 % $ 3,928   $ 3,950     (1 )%
                           

Total operating expenses

  $ 1,107   $ 1,164     (5 )% $ 2,235   $ 2,314     (3 )%
                           

Net credit losses

  $ 180   $ 199     (10 )% $ 386   $ 389     (1 )%

Credit reserve build (release)

    19     (21 )   NM     22     (22 )   NM  

Provision (release) for unfunded lending commitments

    10             24          
                           

Provisions for credit losses

  $ 209   $ 178     17 % $ 432   $ 367     18 %
                           

Income from continuing operations before taxes

  $ 652   $ 610     7 % $ 1,261   $ 1,269     (1 )%

Income taxes

    220     161     37     412     319     29  
                           

Income from continuing operations

  $ 432   $ 449     (4 )% $ 849   $ 950     (11 )%

Noncontrolling interests

                         
                           

Net income

  $ 432   $ 449     (4 )% $ 849   $ 950     (11 )%
                           

Balance Sheet data (in billions of dollars)

                                     

Average assets

  $ 129   $ 124     4 % $ 129   $ 125     3 %

Return on average assets

    1.34 %   1.46 %         1.33 %   1.53 %      

Efficiency ratio

    56 %   60 %         57 %   59 %      

Average deposits

  $ 102   $ 110     (7 ) $ 105   $ 110     (5 )

Net credit losses as a percentage of average loans

    0.82 %   0.92 %         0.88 %   0.89 %      
                           

Revenue by business

                                     

Retail banking

  $ 1,192   $ 1,165     2 % $ 2,392   $ 2,395      

Citi-branded cards

    776     787     (1 )   1,536     1,555     (1 )%
                           

Total

  $ 1,968   $ 1,952     1 % $ 3,928   $ 3,950     (1 )%
                           

Income from continuing operations by business

                                     

Retail banking

  $ 238   $ 242     (2 )% $ 495   $ 546     (9 )%

Citi-branded cards

    194     207     (6 )   354     404     (12 )
                           

Total

  $ 432   $ 449     (4 )% $ 849   $ 950     (11 )%
                           

Foreign Currency (FX) Translation Impact

                                     

Total revenue—as reported

  $ 1,968   $ 1,952     1 % $ 3,928   $ 3,950     (1 )%

Impact of FX translation(1)

        (31 )             (55 )      
                           

Total revenues—ex-FX

  $ 1,968   $ 1,921     2 % $ 3,928   $ 3,895     1 %
                           

Total operating expenses—as reported

  $ 1,107   $ 1,164     (5 )% $ 2,235   $ 2,314     (3 )%

Impact of FX translation(1)

        (32 )             (56 )      
                           

Total operating expenses—ex-FX                           

  $ 1,107   $ 1,132     (2 )% $ 2,235   $ 2,258     (1 )%
                           

Provisions for credit losses—as reported

  $ 209   $ 178     17 % $ 432   $ 367     18 %

Impact of FX translation(1)

                      2        
                           

Provisions for credit losses—ex-FX                           

  $ 209   $ 178     17 % $ 432   $ 369     17 %
                           

Net income—as reported

  $ 432   $ 449     (4 )% $ 849   $ 950     (11 )%

Impact of FX translation(1)

        4               5        
                           

Net income—ex-FX

  $ 432   $ 453     (5 )% $ 849   $ 955     (11 )%
                           

(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2013 exchange rates for all periods presented.

NM Not meaningful

21


The discussion of the results of operations for Asia RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Asia RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.


2Q13 vs. 2Q12

        Net income decreased 5%, primarily due to a higher effective tax rate (see "Income Taxes" below) and higher credit costs, partially offset by higher revenues and lower expenses.

        Revenues increased 2%, as higher non-interest revenue was partially offset by lower net interest revenue. Several key markets experienced strong revenue growth, including India, Hong Kong and Singapore, partially offset by the continued negative impacts from the low interest rate environment and ongoing regulatory changes in the region, particularly Korea as well as Indonesia and Taiwan. Net interest revenue declined 6%, primarily driven by continued spread compression, particularly in Korea. Average retail deposits declined 4%, partly reflecting an outflow to investment products and efforts to rebalance the deposit portfolio mix. Average retail loans increased 2% (11% excluding Korea). Spread compression and regulatory changes in the region are expected to continue to have an adverse impact on cards revenue.

        Non-interest revenue increased 20%, including a 62% increase in investment sales, due to favorable market conditions. Most underlying business metrics continued to improve in Asia RCB, including a 7% increase in cards purchase sales.

        Expenses declined 2%, as efficiency savings were partially offset by increased investment spending, particularly investments in China cards, and higher volume related growth.

        Provisions increased 17%, reflecting a higher loan loss reserve build, primarily due to regulatory requirements in Korea as well as volume growth in China, India and Singapore, partially offset by lower net credit losses due to higher recoveries as a result of sales of written-off accounts in the current quarter. Despite this increase year-over-year, overall credit quality in the region continued to remain stable.


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, Asia RCB has experienced similar trends to those described above. Net income decreased 11%, primarily due to the higher effective tax rate as well as higher credit costs, partially offset by higher revenues and lower expenses.

        Revenues increased 1%, due to higher non-interest revenue, partially offset by lower net interest revenue. Net interest revenue declined 7%, primarily driven by the ongoing spread compression. Average retail deposits declined 3%, partly reflecting an outflow to investment products and efforts to rebalance the deposit portfolio mix. Non-interest revenue increased 16%, reflecting a 52% increase in investment sales, due to favorable market conditions, and a 6% increase in Citi-branded cards purchase sales.

        Expenses declined 1%, as efficiency savings were mostly offset by increased investment spending and higher volume-related growth.

        Provisions increased 17%, primarily reflecting a higher loan loss reserve build, driven by the factors described above.

22



INSTITUTIONAL CLIENTS GROUP

        Institutional Clients Group (ICG) includes Securities and Banking and Transaction Services. ICG provides corporate, institutional, public sector and high-net-worth clients around the world with a full range of products and services, including cash management, foreign exchange, trade finance and services, securities services, sales and trading of loans and securities, institutional brokerage, underwriting, lending and advisory services. ICG's international presence is supported by trading floors in approximately 75 countries and jurisdictions and a proprietary network within Transaction Services in over 95 countries and jurisdictions. At June 30, 2013, ICG had approximately $1.1 trillion of assets and $532 billion of deposits.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Commissions and fees

  $ 1,156   $ 1,081     7 % $ 2,335   $ 2,222     5 %

Administration and other fiduciary fees

    696     742     (6 )   1,390     1,438     (3 )

Investment banking

    983     793     24     2,068     1,604     29  

Principal transactions

    2,407     1,434     68     4,822     3,350     44  

Other

    368     326     13     727     (79 )   NM  
                           

Total non-interest revenue

  $ 5,610   $ 4,376     28 % $ 11,342   $ 8,535     33 %

Net interest revenue (including dividends)

    3,963     3,862     3     7,815     7,750     1  
                           

Total revenues, net of interest expense

  $ 9,573   $ 8,238     16 % $ 19,157   $ 16,285     18 %
                           

Total operating expenses

  $ 4,937   $ 4,979     (1 )% $ 9,925   $ 10,066     (1 )%
                           

Net credit losses

  $ 53   $ 122     (57 )% $ 92   $ 64     44 %

Provision (release) for unfunded lending commitments                           

    (19 )   26     NM     (16 )   15     NM  

Credit reserve build

    (64 )   (13 )   NM     (41 )   145     NM  
                           

Provisions for credit losses

  $ (30 ) $ 135     NM   $ 35   $ 224     (84 )%
                           

Income from continuing operations before taxes

  $ 4,666   $ 3,124     49 % $ 9,197   $ 5,995     53 %

Income taxes

    1,476     760     94     2,882     1,398     NM  
                           

Income from continuing operations

  $ 3,190   $ 2,364     35 % $ 6,315   $ 4,597     37 %

Noncontrolling interests

    23     31     (26 )   73     91     (20 )
                           

Net income

  $ 3,167   $ 2,333     36 % $ 6,242   $ 4,506     39 %
                           

Average assets (in billions of dollars)

  $ 1,090   $ 1,051     4 % $ 1,080   $ 1,035     4 %

Return on average assets

    1.17 %   0.89 %         1.17 %   0.88 %      

Efficiency ratio

    52 %   60 %         52 %   62 %      
                           

Revenues by region

                                     

North America

  $ 3,266   $ 2,680     22 % $ 6,862   $ 4,761     44 %

EMEA

    3,087     2,520     23     5,821     5,352     9  

Latin America

    1,214     1,176     3     2,431     2,341     4  

Asia

    2,006     1,862     8     4,043     3,831     6  
                           

Total revenues

  $ 9,573   $ 8,238     16 % $ 19,157   $ 16,285     18 %
                           

Income from continuing operations by region

                                     

North America

  $ 1,010   $ 671     51 % $ 2,291   $ 984     NM  

EMEA

    1,016     682     49     1,684     1,496     13 %

Latin America

    529     490     8     1,005     988     2  

Asia

    635     521     22     1,335     1,129     18  
                           

Total income from continuing operations

  $ 3,190   $ 2,364     35 % $ 6,315   $ 4,597     37 %
                           

Average loans by region (in billions of dollars)

                                     

North America

  $ 96   $ 82     17 % $ 93   $ 78     19 %

EMEA

    56     52     8     55     52     6  

Latin America

    37     34     9     38     34     12  

Asia

    64     63     2     62     62      
                           

Total average loans

  $ 253   $ 231     10 % $ 248   $ 226     10 %
                           

NM Not meaningful

23



SECURITIES AND BANKING

        Securities and Banking (S&B) offers a wide array of investment and commercial banking services and products for corporations, governments, institutional and public sector entities and high-net-worth individuals. S&B transacts with clients in both cash instruments and derivatives, including fixed income, foreign currency, equity and commodity products. S&B includes investment banking and advisory services, lending, debt and equity sales and trading, institutional brokerage, derivative services and private banking.

        S&B revenue is generated primarily from fees and spreads associated with these activities. S&B earns fee income for assisting clients in clearing transactions, providing brokerage and investment banking services and other such activities. Revenue generated from these activities is recorded in Commissions and fees. In addition, as a market maker, S&B facilitates transactions, including holding product inventory to meet client demand, and earns the differential between the price at which it buys and sells the products. These price differentials and the unrealized gains and losses on the inventory are recorded in Principal transactions. S&B interest income earned on inventory and loans held is recorded as a component of Net interest revenue.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 2,573   $ 2,369     9 % $ 5,010   $ 4,708     6 %

Non-interest revenue

  $ 4,268     3,102     38     8,809     6,105     44  
                           

Total revenues, net of interest expense

  $ 6,841   $ 5,471     25 % $ 13,819   $ 10,813     28 %
                           

Total operating expenses

  $ 3,495   $ 3,568     (2 )% $ 7,059   $ 7,269     (3 )%
                           

Net credit losses

  $ 37   $ 97     (62 )% $ 72   $ 37     95 %

Provision (release) for unfunded lending commitments                           

    (19 )   26     NM     (16 )   9     NM  

Credit reserve build

    (97 )   (64 )   (52 )   (63 )   71     NM  
                           

Provisions for credit losses

  $ (79 ) $ 59     NM   $ (7 ) $ 117     NM  
                           

Income before taxes and noncontrolling interests

  $ 3,425   $ 1,844     86 % $ 6,767   $ 3,427     97 %

Income taxes

    1,043     369     NM   $ 2,030     616     NM  
                           

Income from continuing operations

  $ 2,382   $ 1,475     61 % $ 4,737   $ 2,811     69 %

Noncontrolling interests

    18     26     (31 )   62     82     (24 )
                           

Net income

  $ 2,364   $ 1,449     63 % $ 4,675   $ 2,729     71 %
                           

Average assets (in billions of dollars)

  $ 933   $ 913     2 % $ 929   $ 899     3 %

Return on average assets

    1.02 %   0.64 %         1.01 %   0.61 %      

Efficiency ratio

    51 %   65 %         51 %   67 %      
                           

Revenues by region

                                     

North America

  $ 2,599   $ 2,017     29 % $ 5,569   $ 3,459     61 %

EMEA

    2,166     1,612     34     4,039     3,571     13  

Latin America

    747     730     2     1,517     1,453     4  

Asia

    1,329     1,112     20     2,694     2,330     16  
                           

Total revenues

  $ 6,841   $ 5,471     25 % $ 13,819   $ 10,813     28 %
                           

Income from continuing operations by region

                                     

North America

  $ 849   $ 549     55 % $ 2,001   $ 736     NM  

EMEA

    787     365     NM     1,232     879     40 %

Latin America

    350     309     13     662     633     5  

Asia

    396     252     57     842     563     50  
                           

Total income from continuing operations

  $ 2,382   $ 1,475     61 % $ 4,737   $ 2,811     69 %
                           

Securities and Banking revenue details (excluding CVA/DVA)

                                     

Total investment banking

  $ 1,039   $ 860     21 % $ 2,102   $ 1,732     21 %

Fixed income markets

    3,372     2,861     18     7,995     7,642     5  

Equity markets

    942     561     68     1,768     1,477     20  

Lending

    424     571     (26 )   733     583     26  

Private bank

    645     591     9     1,274     1,189     7  

Other Securities and Banking

    (43 )   (171 )   75     (205 )   (632 )   68  
                           

Total Securities and Banking revenues (ex-CVA/DVA)

  $ 6,379   $ 5,273     21 % $ 13,667   $ 11,991     14 %
                           

CVA/DVA

  $ 462   $ 198     NM   $ 152   $ (1,178 )   NM  
                           

Total revenues, net of interest expense

  $ 6,841   $ 5,471     25 % $ 13,819   $ 10,813     28 %
                           

NM Not meaningful

24



2Q13 vs. 2Q12

        Net income increased 63%. Excluding $462 million of CVA/DVA (see table below), net income increased 57%, primarily driven by an increase in revenues and a decline in expenses, partially offset by a higher effective tax rate (see "Income Taxes" below).

        Revenues increased 25%. Excluding CVA/DVA:

        Expenses decreased 2%, primarily due to efficiency savings due to the impact of repositioning, partially offset by higher incentive compensation and volume-based transaction expenses driven by improved performance.

        Provisions declined to a net credit benefit of $79 million, primarily reflecting lower net credit losses and a higher loan loss reserve release reflecting portfolio improvement.

2Q13 YTD vs. 2Q12 YTD

        Year-to-date, S&B has experienced similar trends to those described above. Net income increased 71%. Excluding $152 million of CVA/DVA (see table below), net income increased 33%, primarily driven by the increase in revenues and decline in expenses, partially offset by the higher effective tax rate.

        Revenues increased 28%. Excluding CVA/DVA:

        Expenses decreased 3%, primarily due to efficiency savings due to the impact of repositioning, partially offset by higher incentive compensation and volume-based transaction expenses driven by improved performance.

        Provisions declined $124 million, primarily due to a loan loss reserve release resulting from portfolio improvement, partially offset by higher net credit losses.

25


 
  Three Months
Ended June 30,
  Six Months
Ended June 30,
 
In millions of dollars   2013   2012   2013   2012  

S&B CVA/DVA

                         

Fixed Income Markets

  $ 434   $ 146   $ 141   $ (940 )

Equity Markets

    28     50     12     (234 )

Private Bank

        2     (1 )   (4 )
                   

Total S&B CVA/DVA

  $ 462   $ 198   $ 152   $ (1,178 )
                   

S&B Hedges on Accrual Loans gain (loss)(1)

  $ 23   $ 156   $ (1 ) $ (188 )
                   

(1)
Hedges on S&B accrual loans reflect the mark-to-market on credit derivatives used to economically hedge the corporate loan accrual portfolio. The fixed premium cost of these hedges is included (netted against) the core lending revenues to reflect the cost of the credit protection.

26



TRANSACTION SERVICES

        Transaction Services is composed of Treasury and Trade Solutions and Securities and Fund Services. Treasury and Trade Solutions provides comprehensive cash management and trade finance services for corporations, financial institutions and public sector entities worldwide. Securities and Fund Services provides securities services to investors, such as global asset managers, custody and clearing services to intermediaries, such as broker-dealers, and depository and agency/trust services to multinational corporations and governments globally. Revenue is generated from net interest revenue on the spread between trade loans or intercompany placements and interest paid to customers on deposits as well as fees for transaction processing and fees on assets under custody and administration.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 1,390   $ 1,493     (7 )% $ 2,805   $ 3,042     (8 )%

Non-interest revenue

    1,342     1,274     5     2,533     2,430     4  
                           

Total revenues, net of interest expense

  $ 2,732   $ 2,767     (1 )% $ 5,338   $ 5,472     (2 )%

Total operating expenses

    1,442     1,411     2     2,866     2,797     2  

Provisions (releases) for credit losses

    49     76     (36 )   42     107     (61 )
                           

Income before taxes and noncontrolling interests

  $ 1,241   $ 1,280     (3 )% $ 2,430   $ 2,568     (5 )%

Income taxes

    433     391     11     852     782     9  
                           

Income from continuing operations

  $ 808   $ 889     (9 )% $ 1,578   $ 1,786     (12 )%

Noncontrolling interests

    5     5         11     9     22  
                           

Net income

  $ 803   $ 884     (9 )% $ 1,567   $ 1,777     (12 )%
                           

Average assets (in billions of dollars)

  $ 157   $ 138     14 % $ 151   $ 136     11 %

Return on average assets

    2.05 %   2.58 %         2.09 %   2.63 %      

Efficiency ratio

    53 %   51 %         54 %   51 %      
                           

Revenues by region

                                     

North America

  $ 667   $ 663     1 % $ 1,293   $ 1,302     (1 )%

EMEA

    921     908     1     1,782     1,781      

Latin America

    467     446     5     914     888     3  

Asia

    677     750     (10 )   1,349     1,501     (10 )
                           

Total revenues

  $ 2,732   $ 2,767     (1 )% $ 5,338   $ 5,472     (2 )%
                           

Income from continuing operations by region

                                     

North America

  $ 161   $ 122     32 % $ 290   $ 248     17 %

EMEA

    229     317     (28 )   452     617     (27 )

Latin America

    179     181     (1 )   343     355     (3 )

Asia

    239     269     (11 )   493     566     (13 )
                           

Total income from continuing operations

  $ 808   $ 889     (9 )% $ 1,578   $ 1,786     (12 )%
                           

Foreign Currency (FX) Translation Impact

                                     

Total revenue—as reported

  $ 2,732   $ 2,767     (1 )% $ 5,338   $ 5,472     (2 )%

Impact of FX translation(1)

        (21 )             (62 )      
                           

Total revenues—ex-FX

  $ 2,732   $ 2,746     (1 )% $ 5,338   $ 5,410     (1 )%
                           

Total operating expenses—as reported

  $ 1,442   $ 1,411     2 % $ 2,866   $ 2,797     2 %

Impact of FX translation(1)

        (8 )             (23 )      
                           

Total operating expenses—ex-FX

  $ 1,442   $ 1,403     3 % $ 2,866   $ 2,774     3 %
                           

Net income—as reported

  $ 803   $ 884     (9 )% $ 1,567   $ 1,777     (12 )%

Impact of FX translation(1)

        (13 )             (35 )      
                           

Net income—ex-FX

  $ 803   $ 871     (8 )% $ 1,567   $ 1,742     (10 )%
                           

Key indicators (in billions of dollars)

                                     

Average deposits and other customer liability balances—as reported

  $ 424   $ 396     7 %                  

Impact of FX translation(1)

        (1 )                        
                           

Average deposits and other customer liability balances—ex-FX

  $ 424   $ 395     7 %                  
                           

EOP assets under custody(2) (in trillions of dollars)

  $ 13.4   $ 12.2     10 %                  
                           

(1)
Reflects the impact of foreign exchange (FX) translation into U.S. dollars at the second quarter of 2013 exchange rates for all periods presented.

(2)
Includes assets under custody, assets under trust and assets under administration.

NM Not meaningful

27


The discussion of the results of operations for Transaction Services below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Transaction Services' results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.


2Q13 vs. 2Q12

        Net income decreased 8%, primarily reflecting lower revenues, higher expenses and a higher effective tax rate on international operations (see "Income Taxes" below).

        Revenues decreased 1% as higher deposit balances, trade loans and higher market volumes were more than offset by continued spread compression, particularly in Asia. Volume growth remains challenged in Asia. Treasury and Trade Solutions revenues declined 3%, driven by spread compression globally, partially offset by continued growth in balances as average deposits increased 7% and average trade loans increased 16% (excluding the impact of adding approximately $7 billion of previously unconsolidated assets during the quarter; for additional information, see "Balance Sheet—Loans" below and Note 19 to the Consolidated Financial Statements). Securities and Fund Services revenues increased 6%, as settlement volumes increased 13% and assets under custody increased 10%, partially offset by spread compression related to deposits. Despite the overall underlying volume growth, Citi expects spread compression will continue to negatively impact Transaction Services net interest revenues in the near term.

        Expenses increased 3%, primarily driven by volume-related growth and increased financial transaction taxes in EMEA, which are expected to continue in future periods, mostly offset by efficiency savings and lower legal and related expenses.

        Average deposits and other customer liabilities increased 7%, primarily as a result of client activity in Latin America and EMEA (for additional information on Citi's deposits, see "Capital Resources and Liquidity—Funding and Liquidity" below).


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, Transaction Services has experienced similar trends to those described above. Net income decreased 10%, primarily reflecting lower revenues, higher expenses and the higher effective tax rate on international operations.

        Revenues decreased 1% as higher deposit balances, trade loans and higher market volumes were more than offset by continued spread compression. Treasury and Trade Solutions revenues declined 3%, driven by spread compression globally, partially offset by continued growth in balances as average deposits increased 8% and average trade loans increased over 18% (excluding the addition of the previously unconsolidated assets described above). Securities and Fund Services revenues increased 4%, as settlement volumes increased 9% and assets under custody increased 10%, partially offset by spread compression related to deposits.

        Expenses increased 3%, primarily driven by volume-related growth and the financial transaction taxes described above, partially offset by efficiency savings.

        Average deposits and other customer liabilities increased 9%, primarily as a result of the client activity in Latin America and EMEA.

28



CORPORATE/OTHER

        Corporate/Other includes unallocated global staff functions (including finance, risk, human resources, legal and compliance), other corporate expenses and unallocated global operations and technology expenses, Corporate Treasury and discontinued operations. As described under "Latin America Regional Consumer Banking" above, as of the second quarter of 2013, Credicard was moved to Corporate/Other and reported as discontinued operations. At June 30, 2013, Corporate/Other had approximately $290 billion of assets, or 15% of Citigroup's total assets, consisting primarily of Citi's liquidity portfolio (approximately $95 billion of cash and cash equivalents and $141 billion of liquid available-for-sale securities, each as of June 30, 2013). For additional information, see "Balance Sheet Review" and "Capital Resources and Liquidity—Funding and Liquidity" below.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2013   2012   2013   2012  

Net interest revenue

  $ (137 ) $ (124 )   (10 )% $ (283 ) $ (169 )   (67 )%

Non-interest revenue

    240     (172 )   NM     379     344     10  
                           

Total revenues, net of interest expense

  $ 103   $ (296 )   NM   $ 96   $ 175     (45 )%
                           

Total operating expenses

  $ 525   $ 597     (12 )% $ 1,093   $ 1,392     (21 )%

Provisions for loan losses and for benefits and claims

                         
                           

Loss from continuing operations before taxes

  $ (422 ) $ (893 )   53 % $ (997 ) $ (1,217 )   18 %

Income taxes (benefits)

    (34 )   (446 )   92     (287 )   (439 )   35  
                           

Loss from continuing operations

  $ (388 ) $ (447 )   13 % $ (710 ) $ (778 )   9 %

Loss (gain) from discontinued operations, net of taxes

    30     7     NM     (3 )   19     NM  
                           

Net loss before attribution of noncontrolling interests

  $ (358 ) $ (440 )   19 % $ (713 ) $ (759 )   6 %

Noncontrolling interests

    6     9     (33 )   36     72     (50 )
                           

Net loss

  $ (364 ) $ (449 )   19 % $ (749 ) $ (831 )   10 %
                           

EOP assets (in billions of dollars)

  $ 290   $ 285     2 %                  
                           

NM Not meaningful


2Q13 vs. 2Q12

        The net loss decreased 19%, primarily due to an increase in revenues, partially offset by a lower tax benefit.

        Revenues increased $399 million to $103 million, driven by the absence of the impact of minority investments in the prior-year period,(10) partially offset by the impact of hedging activities and lower revenue from both sales of available-for-sale (AFS) securities and investment yields on Citi's treasury portfolio in the current quarter.

        Expenses decreased 12%, largely driven by lower legal and related costs and lower repositioning charges.


2Q13 YTD vs. 2Q12 YTD

        The net loss decreased 10%, primarily due to lower expenses and a lower tax benefit, partially offset by lower revenues.

        Revenues decreased 45%, driven by the impact of hedging activities and lower revenue from both sales of AFS securities and investment yields on Citi's treasury portfolio, partially offset by the absence of the impact of minority investments in the prior-year period.(11)

        Expenses decreased 21%, largely driven by lower legal and related costs.

   


(10)
In the second quarter of 2012, Citi recorded a net pretax loss of $424 million ($274 million after-tax) related to the sale of a 10.1% stake in Akbank T.A.S.

(11)
In the first six months of 2012, Citi recorded a net pretax gain on minority investments of $53 million ($29 million after-tax), which included pretax gains of $1.1 billion and $542 million on the sales of Citi's remaining stake in Housing Development Finance Corporation Ltd. (HDFC) and its stake in Shanghai Pudong Development Bank (SPDB), respectively, offset by a pretax impairment charge relating to Akbank T.A.S. of $1.2 billion and the net pretax loss of $424 million related to the sale of the 10.1% stake in Akbank T.A.S.

29



CITI HOLDINGS

        Citi Holdings contains businesses and portfolios of assets that Citigroup has determined are not central to its core Citicorp businesses and consists of Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool.

        As of June 30, 2013, Citi Holdings assets were approximately $131 billion, a decrease of approximately 31% year-over-year and 12% from March 31, 2013. The decline in assets of $18 billion from March 31, 2013 was composed of approximately $8 billion related to the sale of Citi's remaining interest in the MSSB joint venture, $4 billion of loan and other asset sales and $6 billion of run-off, pay-downs and charge-offs. As of June 30, 2013, Citi Holdings represented approximately 7% of Citi's GAAP assets, 12% of Citi's risk-weighted assets (as defined under current regulatory guidelines), and 21% of its estimated risk-weighted assets under Basel III.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 784   $ 595     32 % $ 1,537   $ 1,304     18 %

Non-interest revenue

    308     343     (10 )   456     516     (12 )
                           

Total revenues, net of interest expense

  $ 1,092   $ 938     16 % $ 1,993   $ 1,820     10 %
                           

Provisions for credit losses and for benefits and claims

                                     

Net credit losses

  $ 770   $ 1,329     (42 )% $ 1,700   $ 3,063     (44 )%

Credit reserve build (release)

    (480 )   (250 )   (92 )   (827 )   (800 )   (3 )
                           

Provision for loan losses

  $ 290   $ 1,079     (73 )% $ 873   $ 2,263     (61 )%

Provision for benefits and claims

    154     165     (7 )   322     336     (4 )

Provision (release) for unfunded lending commitments

    7     (19 )   NM     3     (45 )   NM  
                           

Total provisions for credit losses and for benefits and claims

  $ 451   $ 1,225     (63 )% $ 1,198   $ 2,554     (53 )%
                           

Total operating expenses

  $ 1,547   $ 1,235     25 % $ 3,049   $ 2,452     24 %
                           

Loss from continuing operations before taxes

  $ (906 ) $ (1,522 )   40 % $ (2,254 ) $ (3,186 )   29 %

Benefits for income taxes

    (337 )   (613 )   45     (896 )   (1,260 )   29  
                           

(Loss) from continuing operations

  $ (569 ) $ (909 )   37 % $ (1,358 ) $ (1,926 )   29 %

Noncontrolling interests

    1     1         6     3     100  
                           

Citi Holdings net loss

  $ (570 ) $ (910 )   37 % $ (1,364 ) $ (1,929 )   29 %
                           

Balance sheet data (in billions of dollars)

                                     

Average assets

  $ 144   $ 202     (29 )% $ 149   $ 213     (30 )%

Total EOP assets

    131     191     (31 )                  

Total EOP loans

    100     128     (22 )                  

Total EOP deposits

    65     63     3 %                  
                           

NM Not meaningful

30



BROKERAGE AND ASSET MANAGEMENT

        Brokerage and Asset Management (BAM) currently consists primarily of retail alternative investments. On June 28, 2013, Citi completed the sale of its remaining 35% interest in the MSSB joint venture, which included approximately $8 billion of assets. See "Capital Resources and Liquidity—Funding and Liquidity—Deposits" for a discussion of the deposits associated with the MSSB joint venture as well as Note 12 to the Consolidated Financial Statements. At June 30, 2013, BAM had approximately $1 billion of assets, or less than 1% of Citi Holdings assets.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ (87 ) $ (122 )   29 % $ (171 ) $ (253 )   32 %

Non-interest revenue

    67     209     (68 )   134     292     (54 )
                           

Total revenues, net of interest expense

  $ (20 ) $ 87     NM   $ (37 ) $ 39     NM  
                           

Total operating expenses

  $ 63   $ 126     (50 )% $ 168   $ 283     (41 )%
                           

Net credit losses

  $   $     % $   $     %

Credit reserve build (release)

                    (1 )   100  

Provisions for loan losses

                    (1 )   100  
                           

Loss from continuing operations before taxes

  $ (83 ) $ (39 )   NM   $ (205 ) $ (243 )   16 %

Income tax benefits

    (30 )   (15 )   (100 )%   (73 )   (82 )   11  
                           

Loss from continuing operations

  $ (53 ) $ (24 )   NM   $ (132 ) $ (161 )   18 %

Noncontrolling interests

    1     1         6     2     NM  
                           

Net loss

  $ (54 ) $ (25 )   NM   $ (138 ) $ (163 )   15 %
                           

EOP assets (in billions of dollars)

  $ 1   $ 22     (95 )%                  

EOP deposits (in billions of dollars)

    57     55     4                    
                           

NM Not meaningful


2Q13 vs. 2Q12

        The net loss in BAM increased by $29 million to $54 million, primarily due to a decrease in revenues, partially offset by lower expenses.

        Revenues decreased $107 million to $(20) million, driven by lower ongoing MSSB equity-related revenues and lower transition services revenues, partially offset by lower funding costs due to a 95% decline in year-over-year assets from $22 billion to $1 billion.

        Expenses decreased 50%, driven by lower costs related to transition services provided to the MSSB joint venture and lower expense related to retail alternative investments.


2Q13 YTD vs. 2Q12 YTD

        The net loss in BAM decreased by $25 million to $138 million, primarily due to lower operating expenses, partially offset by lower revenues.

        Revenues decreased $76 million to $(37) million, driven by lower ongoing transition services and equity revenues associated with the MSSB joint venture, partially offset by lower funding costs.

        Expenses decreased 41%, driven by lower costs related to transition services provided to the MSSB joint venture and lower legal and related costs and lower expenses related to retail alternative investments.

31



LOCAL CONSUMER LENDING

        Local Consumer Lending (LCL) includes a substantial portion of Citigroup's North America mortgage business (see "North America Consumer Mortgage Lending" below), CitiFinancial North America (consisting of the OneMain and CitiFinancial Servicing businesses), remaining student loans and credit card portfolios, and other local consumer finance businesses globally (including Western European cards and retail banking and Japan Consumer Finance). At June 30, 2013, LCL consisted of approximately $115 billion of assets (with approximately $108 billion in North America), or approximately 88% of Citi Holdings assets, and thus represents the largest segment within Citi Holdings. The North America assets primarily consisted of residential mortgages (residential first mortgages and home equity loans), which were approximately $80 billion as of June 30, 2013.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 869   $ 782     11 % $ 1,709   $ 1,711      

Non-interest revenue

    186     150     24     402     545     (26 )%
                           

Total revenues, net of interest expense

  $ 1,055   $ 932     13 % $ 2,111   $ 2,256     (6 )%
                           

Total operating expenses

  $ 806   $ 1,043     (23 )% $ 1,631   $ 2,040     (20 )%
                           

Net credit losses

  $ 775   $ 1,289     (40 )% $ 1,695   $ 3,041     (44 )%

Credit reserve build (release)

    (475 )   (186 )   NM     (800 )   (706 )   (13 )

Provision for benefits and claims

    154     165     (7 )   322     336     (4 )
                           

Provisions for credit losses and for benefits and claims

  $ 454   $ 1,268     (64 )% $ 1,217   $ 2,671     (54 )%
                           

Loss from continuing operations before taxes

  $ (205 ) $ (1,379 )   85 % $ (737 ) $ (2,455 )   70 %

Benefits for income taxes

    (71 )   (560 )   87     (310 )   (1,003 )   69  
                           

Loss from continuing operations

  $ (134 ) $ (819 )   84 % $ (427 ) $ (1,452 )   71 %

Noncontrolling interests

                    1     (100 )
                           

Net loss

  $ (134 ) $ (819 )   84 % $ (427 ) $ (1,453 )   71 %
                           

Balance sheet data (in billions of dollars)

                                     

Average assets

  $ 118   $ 143     (17 )% $ 121   $ 150     (19 )%

EOP assets

    115     137     (16 )                  

Net credit losses as a percentage of average loans

    2.98 %   4.09 %         3.18 %   4.71 %      
                           


2Q13 vs. 2Q12

        The net loss decreased by 84%, driven mainly by the improved credit environment primarily in North America mortgages, increased revenues and lower operating expenses.

        Revenues increased 13%, with an increase in both net interest and non-interest revenues. The increase in net interest revenue was driven by lower funding costs. The increase in non-interest revenue was driven by asset sales and higher mortgage servicing revenues, partially offset by a higher residential mortgage repurchase reserve build. The repurchase reserve build in the current quarter was $245 million, compared to $148 million in the prior-year period (see "Managing Global Risk—Credit Risk—Citigroup Residential Mortgages—Representations and Warranties" below).

        Expenses decreased 23%, driven by lower volumes and divestitures as well as lower legal and related costs, which declined 73% due to the absence of reserves related to payment protection insurance (PPI) taken in the prior-year period (see "Payment Protection Insurance" below).

        Provisions decreased 64%, driven primarily by improved credit in North America mortgages, lower volumes and divestitures. Net credit losses decreased by 40%, driven by improved credit performance. Net credit losses in the current quarter included $30 million related to the national mortgage and independent foreclosure review settlements. Net credit losses in LCL will likely continue to be impacted as Citi completes its mortgage assistance obligations under the independent foreclosure review settlement, which is currently estimated to result in approximately $30 million of quarterly net credit losses during the remainder of 2013 (see "Managing Global Risk—Credit Risk—National Mortgage Settlement/Independent Foreclosure Review Settlement" below for additional information).

        Net credit losses in LCL declined 40%, with net credit losses in North America mortgages decreasing by 37%, other portfolios in North America by 35% and international by 67%. These declines were driven by lower overall asset levels, the sale of current and delinquent loans as well as underlying credit improvements. Loan loss reserve releases increased $289 million to $475 million, primarily due to a loan loss reserve release of approximately $525 million related to the North America mortgage portfolio.

        Average assets declined 17%, driven by asset sales and portfolio run-off, including declines of $16 billion in North America mortgage loans and $5 billion in international assets.


2Q13 YTD vs. 2Q12 YTD

        Year-to-date, LCL has experienced similar trends to those described above. The net loss decreased by 71%, driven mainly by the improved credit environment primarily in North America mortgages and lower operating expenses.

        Revenues decreased 6%, driven by a decrease in non-interest revenues. Net interest revenue was unchanged from the prior-year period. Non-interest revenue declined due to higher residential mortgage repurchase reserve builds and lower loan balances due to continued asset sales, divestitures and run off, partially offset by improvements in asset sales and higher mortgage servicing revenues. The repurchase reserve build in the current period was $470 million, compared to $332 million in the prior-year period (see "Managing Global Risk—Credit

32


Risk—Citigroup Residential Mortgages—Representations and Warranties" below).

        Expenses decreased 20%, driven by lower volumes and divestitures as well as lower legal and related costs, which declined 57% due to the absence of reserves related to PPI taken in the prior-year period and lower independent foreclosure review charges as a result of the previously announced independent foreclosure review settlement.

        Provisions decreased 54%, driven primarily by the improved credit in North America mortgages, lower volumes and divestitures. Net credit losses decreased by 44%, driven by improved credit performance as well as the absence of $413 million of incremental charge-offs in the first half of 2012 related to the national mortgage settlement. Net credit losses in the current period included $106 million related to the national mortgage and independent foreclosure review settlements. Loan loss reserve releases increased 13%, due to the improved credit environment, primarily in North America mortgages.

        Average assets decreased 19%, driven by asset sales and portfolio run-off, including declines of $16 billion in North America mortgage loans and $6 billion in international assets.

Payment Protection Insurance

        Over the past several years Citi, along with other financial institutions in the UK, has been subject to an increased number of claims relating to the sale of payment protection insurance products (PPI). For additional information, see "Citi Holdings—Local Consumer Lending—Payment Protection Insurance" in Citi's 2012 Annual Report on Form 10-K.

        As previously disclosed, during the second quarter of 2013, Citi moved into the full execution phase of its customer contact exercise to contact proactively any customers who may have been mis-sold PPI after January 2005 and invite them to have their individual sale reviewed (Customer Contact Exercise). In addition, Citi completed its re-evaluation of PPI customer complaints that were reviewed and rejected prior to December 2010 (the Customer Re-evaluation Exercise). The number of customer complaints regarding the sale of PPI remained elevated during the second quarter of 2013, primarily as a result of the Customer Contact Exercise and PPI complaints received directly from customers.

        During the second quarter of 2013, Citi did not increase its PPI reserves and paid PPI claims totaling $55 million, all of which were charged against its reserves. At June 30, 2013, Citi's PPI reserve was $252 million.

33



SPECIAL ASSET POOL

        The Special Asset Pool (SAP) consists of a portfolio of securities, loans and other assets that Citigroup intends to continue to reduce over time through asset sales and portfolio run-off. SAP had approximately $15 billion of assets as of June 30, 2013, which constituted approximately 11% of Citi Holdings assets.

 
  Second Quarter    
  Six Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except as otherwise noted   2013   2012   2013   2012  

Net interest revenue

  $ 2   $ (65 )   NM   $ (1 ) $ (154 )   99 %

Non-interest revenue

    55     (16 )   NM     (80 )   (321 )   75  
                           

Total revenues, net of interest expense

  $ 57   $ (81 )   NM   $ (81 ) $ (475 )   83 %
                           

Total operating expenses

  $ 678   $ 66     NM   $ 1,250   $ 129     NM  
                           

Net credit losses

  $ (5 ) $ 40     NM   $ 5   $ 22     (77 )%

Credit reserve builds (releases)

    (5 )   (64 )   92 %   (27 )   (93 )   71  

Provision (releases) for unfunded lending commitments

    7     (19 )   NM     3     (45 )   NM  
                           

Provisions for credit losses

  $ (3 ) $ (43 )   93 % $ (19 ) $ (116 )   84 %
                           

Loss from continuing operations before taxes

  $ (618 ) $ (104 )   NM   $ (1,312 ) $ (488 )   NM  

Income taxes (benefits)

    (236 )   (38 )   NM     (513 )   (175 )   NM  
                           

Loss from continuing operations

  $ (382 ) $ (66 )   NM   $ (799 ) $ (313 )   NM  

Noncontrolling interests

                         
                           

Net loss

  $ (382 ) $ (66 )   NM   $ (799 ) $ (313 )   NM  
                           

EOP assets (in billions of dollars)

  $ 15   $ 32     (53 )%                  
                           

NM Not meaningful


2Q13 vs. 2Q12

        The net loss increased by $316 million, mainly driven by higher legal and related expenses, partially offset by increased revenues.

        Revenues increased $138 million. CVA/DVA was $15 million, compared to $21 million in the prior-year period. Excluding the impact of CVA/DVA, revenues in SAP were $42 million, compared to $(102) million in the prior-year period. The improvement in revenues was primarily driven by an improvement in non-interest revenue, primarily due to lower asset marks, as well as net interest revenues, primarily due to lower funding costs.

        Expenses increased $612 million, primarily driven by higher legal and related costs.

        Provisions were a benefit of $3 million, which represented a 93% decline from the prior-year period, due to a decrease in loan loss reserves releases and an increase in the provision for unfunded lending commitments, partially offset by a decrease in net credit losses (a net credit benefit of $5 million in the current quarter compared to net credit losses of $40 million in the prior-year period).

        Assets declined 53% to $15 billion, primarily driven by sales, amortization and prepayments. Asset sales of $2.4 billion in the current quarter generated a pretax loss of $13 million, compared to asset sales of $2.8 billion and a pretax gain of $76 million in the prior-year period.


2Q13 YTD vs. 2Q12 YTD

        The net loss increased by $486 million, mainly driven by higher legal and related expenses, partially offset by increased revenues.

        Revenues improved 83% to $(81) million. CVA/DVA was $6 million, compared to $109 million in the prior-year period. Excluding the impact of CVA/DVA, revenues in SAP were $(87) million, compared to $(584) million in the prior-year period. The improvement in non-interest revenue and net interest revenues were driven by the factors described above.

        Expenses increased $1.1 billion, primarily driven by higher legal and related costs.

        Provisions were a benefit of $19 million, which represented an 84% decline from the prior-year period, due to the decrease in loan loss reserve releases and an increase in the provision for unfunded lending commitments, partially offset by the decrease in net credit losses.

        Assets declined 53% to $15 billion, primarily driven by sales, amortization and prepayments.

34



BALANCE SHEET REVIEW

        The following sets forth a general discussion of the changes in certain of the more significant line items of Citi's Consolidated Balance Sheet. For additional information on Citigroup's liquidity resources, including its deposits, short-term and long-term debt and secured financing transactions, see "Capital Resources and Liquidity—Funding and Liquidity" below.

In billions of dollars   June 30,
2013
  March 31,
2013
  December 31,
2012
  2Q13 vs.
1Q13
Increase
(decrease)
  %
Change
  2Q13 vs.
4Q12
Increase
(decrease)
  %
Change
 

Assets

                                           

Cash and deposits with banks

  $ 189   $ 174   $ 139   $ 15     9 % $ 50     36 %

Federal funds sold and securities borrowed or purchased under agreements to resell

    263     270     261     (7 )   (3 )   2     1  

Trading account assets

    307     308     321     (1 )       (14 )   (4 )

Investments

    300     305     312     (5 )   (2 )   (12 )   (4 )

Loans, net of unearned income and allowance for loan losses

    622     623     630     (1 )       (8 )   (1 )

Other assets

    203     202     202     1         1      
                               

Total assets

  $ 1,884   $ 1,882   $ 1,865   $ 2     % $ 19     1 %
                               

Liabilities

                                           

Deposits

  $ 938   $ 934   $ 931   $ 4     % $ 7     1 %

Federal funds purchased and securities loaned or sold under agreements to repurchase

    218     222     211     (4 )   (2 )   7     3  

Trading account liabilities

    123     120     116     3     3     7     6  

Short-term borrowings

    59     48     52     11     23     7     13  

Long-term debt

    221     234     239     (13 )   (6 )   (18 )   (8 )

Other liabilities

    127     129     125     (2 )   (2 )   2     2  
                               

Total liabilities

  $ 1,686   $ 1,687   $ 1,674   $ (1 )   % $ 12     1 %

Total equity

    198     195     191     3     2     7     4  
                               

Total liabilities and equity

  $ 1,884   $ 1,882   $ 1,865   $ 2     % $ 19     1 %
                               


ASSETS

Cash and Deposits with Banks

        Cash and deposits with banks is composed of both Cash and due from banks and Deposits with banks. Cash and due from banks includes (i) cash on hand at Citi's domestic and overseas offices, and (ii) non-interest-bearing balances due from banks, including non-interest-bearing demand deposit accounts with correspondent banks, central banks (such as the Federal Reserve Bank), and other banks or depository institutions for normal operating purposes. Deposits with banks includes interest-bearing balances, demand deposits and time deposits held in or due from banks (including correspondent banks, central banks and other banks or depository institutions) maintained for, among other things, normal operating and regulatory reserve requirement purposes.

        During the second quarter of 2013, cash and deposits with banks increased $15 billion, or 9%, driven by a $15 billion, or 10%, increase in deposits with banks while due from banks remained relatively unchanged. The growth in cash balances was driven by the continued reduction of Citi Holdings assets, particularly due to the cash proceeds received from the completion of the sale of Citi's remaining 35% interest in the MSSB joint venture, additional short-term borrowings, higher deposits in Transactions Services and other Citi Holdings asset sales and runoff, partially offset by trade lending growth and long-term debt maturities and repurchases. This increase in cash balances was driven in part to prepare for the third quarter of 2013 deposit transfer to Morgan Stanley. For additional information on this transfer and Citi's deposits, see "Capital Resources and Liquidity—Funding and Liquidity" below.


Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell (Reverse Repos)

        Federal funds sold consist of unsecured advances to third parties of excess balances in reserve accounts held at the Federal Reserve Bank. During the second quarter of 2013, Citi's federal funds sold were not significant.

        Reverse repos and securities borrowed decreased by $7 billion, or 3%, in the second quarter of 2013, primarily due to a reduction in trading activity in Securities and Banking, including client and market-driven changes in prime finance as well as in fixed income finance.

        For further information regarding these balance sheet categories, see Note 10 to the Consolidated Financial Statements.


Trading Account Assets

        Trading account assets includes debt and marketable equity securities, derivatives in a net receivable position, residual interests in securitizations and physical commodities inventory. In addition, certain assets that Citigroup has elected to carry at fair value, such as certain loans and purchase guarantees, are also included in trading account assets.

        Trading account assets were relatively unchanged quarter-over-quarter, as decreases in foreign government securities ($3 billion, or 4%), equity securities ($2 billion, or 3%) and corporate debt securities ($2 billion, or 6%) were offset by a $4 billion, or 22%, increase in U.S. Treasury and federal agency

35


securities and a $1 billion, or 3%, increase in derivative assets. Average trading account assets were $263 billion in the second quarter of 2013, compared to $265 billion in the first quarter of 2013. The changes in the asset levels reflected normal trading fluctuations in line with market movements during the quarter.

        For further information on Citi's trading account assets, see Note 11 to the Consolidated Financial Statements.


Investments

        Investments consist of debt and equity securities that are available-for-sale, debt securities that are held-to-maturity, non-marketable equity securities that are carried at fair value and non-marketable equity securities carried at cost. Debt securities include bonds, notes and redeemable preferred stock, as well as certain mortgage-backed and asset-backed securities and other structured notes. Marketable and non-marketable equity securities carried at fair value include common and nonredeemable preferred stock. Nonmarketable equity securities carried at cost primarily include equity shares issued by the Federal Reserve Bank and the Federal Home Loan Banks (FHLB) that Citigroup is required to hold.

        During the second quarter of 2013, investments decreased $5 billion, or 2%, primarily due to a $4 billion, or 1%, decline in AFS securities, predominantly U.S. Treasury securities driven by Citi Treasury liquidity and spread management activities.

        For further information regarding investments, see Note 12 to the Consolidated Financial Statements.


Loans

        Loans represent the largest asset category of Citi's balance sheet. Citi's total loans, net of unearned income, were $644 billion at June 30, 2013, compared to $646 billion at March 31, 2013 and $655 billion at June 30, 2012. The impact of FX translation was a negative $8 billion year-over-year and a negative $7 billion quarter-over-quarter. In addition, approximately $3 billion of loans were moved to Discontinued operations during the second quarter of 2013 as a result of the agreement to sell Citi's Brazil Credicard business (see Note 2 to the Consolidated Financial Statements).

        Excluding the impact of FX translation and the Credicard loans,(12) loans decreased 1% from the prior-year period and increased 1% quarter-over-quarter. At the end of the second quarter of 2013, Consumer and Corporate loans represented 60% and 40%, respectively, of Citi's total loans.

        The decline in loans from the prior-year period reflected a 21% decline in Citi Holdings loans, due to continued run-off and asset sales, partially offset by 4% growth in Citicorp. Within Citicorp, Consumer loans grew 2% from the prior-year period, as growth in all international regions, led by Latin America, was offset by continued customer deleveraging in North America. Corporate loans grew 8% from the prior-year period, with growth across almost all regions and segments, particularly in international trade loans.

        Quarter-over-quarter, Citi Holdings loans declined 7% and Citicorp loans increased 2%. Citicorp Corporate loans increased 5% while Citicorp Consumer loans remained relatively unchanged. The Corporate loan growth was driven by North America Transaction Services, and was due to the addition of approximately $7 billion of previously unconsolidated assets during the current quarter, which consisted of trade loans (see Note 19 to the Consolidated Financial Statements). Excluding the impact of the consolidation, Corporate loans grew 2% sequentially, driven by increased trade loans overseas within Transaction Services. Consumer loans remained relatively unchanged.

        During the second quarter of 2013, average loans of $642 billion yielded an average rate of 7.1%, compared to $643 billion and 7.2%, respectively, in the first quarter of 2013.

        For further information on Citi's loan portfolios, see generally "Managing Global Risk—Credit Risk" below and Note 13 to the Consolidated Financial Statements.


Other Assets

        Other assets consists of brokerage receivables, goodwill, intangibles and mortgage servicing rights in addition to other assets (including, among other items, loans held-for-sale, deferred tax assets, equity-method investments, interest and fees receivable, premises and equipment, certain end-user derivatives in a net receivable position, repossessed assets and other receivables).

        During the second quarter of 2013, other assets remained relatively unchanged at $203 billion as an $8 billion increase in brokerage receivables was offset by the reduction in other assets due to the sale of Citi's remaining 35% investment in the MSSB joint venture.

        For further information regarding goodwill and intangible assets, see Note 15 to the Consolidated Financial Statements.


LIABILITIES

Deposits

        Deposits represent customer funds that are payable on demand or upon maturity. For a discussion of Citi's deposits, see "Capital Resources and Liquidity—Funding and Liquidity" below.


Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase (Repos)

        Federal funds purchased consist of unsecured advances of excess balances in reserve accounts held at the Federal Reserve Banks from third parties. During the second quarter of 2013, Citi's federal funds purchased were not significant.

        Repos and securities lent decreased by $4 billion, or 2%, in the second quarter of 2013, primarily due to the reduction in client and market-driven trading activity in reverse repos and securities borrowing transactions, as discussed above. For further information on Citi's secured financing transactions, including repos and securities lending transactions, see "Capital Resources and Liquidity—Funding and Liquidity" below. See also Note 10 to the Consolidated Financial Statements for additional information on these balance sheet categories.

   


(12)
Throughout this section, the discussion of loans excludes the impact of FX translation and reflects the movement of the Credicard loans to Discontinued operations during the second quarter of 2013.

36



Trading Account Liabilities

        Trading account liabilities includes securities sold, not yet purchased (short positions), and derivatives in a net payable position, as well as certain liabilities that Citigroup has elected to carry at fair value.

        During the second quarter of 2013, trading account liabilities increased by $3 billion, or 3%, substantially all of which was due to an increase in short equity positions, which was aligned with the corresponding increase in securities borrowing transactions discussed above. Average trading account liabilities were $82 billion, compared to $72 billion in the first quarter of 2013, primarily due to higher average Institutional Clients Group volumes in the beginning of the current quarter.

        For further information on Citi's trading account liabilities, see Note 11 to the Consolidated Financial Statements.


Debt

        Debt is composed of both short-term and long-term borrowings. Short-term borrowings include commercial paper and borrowings from unaffiliated banks and other market participants, including the FHLB. Long-term borrowings include senior notes, subordinated notes, trust preferred securities and securitizations. For further information on Citi's long-term and short-term debt borrowings, see "Capital Resources and Liquidity—Funding and Liquidity" below and Note 16 to the Consolidated Financial Statements.


Other Liabilities

        Other liabilities consists of brokerage payables and other liabilities (including, among other items, accrued expenses and other payables, deferred tax liabilities, certain end-user derivatives in a net payable position, and reserves for legal claims, taxes, repositioning, unfunded lending commitments, and other matters).

        During the second quarter of 2013, other liabilities decreased $2 billion, or 2%, driven by normal business fluctuations.

37



SEGMENT BALANCE SHEET AT JUNE 30, 2013(1)

In millions of dollars   Global
Consumer
Banking
  Institutional
Clients
Group
  Corporate/Other,
Discontinued
Operations
and
Consolidating
Eliminations(2)
  Subtotal
Citicorp
  Citi
Holdings
  Citigroup
Parent
Company-
Issued
Long-Term
Debt and
Stockholders'
Equity(3)
  Total
Citigroup
Consolidated
 

Assets

                                           

Cash and deposits with banks

  $ 18,827   $ 73,389   $ 95,424   $ 187,640   $ 1,533   $   $ 189,173  

Federal funds sold and securities borrowed or purchased under agreements to resell

    5,727     256,509         262,236     969         263,205  

Trading account assets

    8,923     292,635     244     301,802     4,768         306,570  

Investments

    33,262     104,106     147,778     285,146     15,194         300,340  

Loans, net of unearned income and allowance for loan losses

    272,816     257,336         530,152     92,009         622,161  

Other assets

    55,042     84,037     46,625     185,704     16,835         202,539  
                               

Total assets

  $ 394,597   $ 1,068,012   $ 290,071   $ 1,752,680   $ 131,308       $ 1,883,988  
                               

Liabilities and equity

                                           

Total deposits

  $ 326,564   $ 531,931   $ 15,241   $ 873,736   $ 64,691   $   $ 938,427  

Federal funds purchased and securities loaned or sold under agreements to repurchase

    7,374     210,877         218,251     1         218,252  

Trading account liabilities

    67     121,645     140     121,852     1,170         123,022  

Short-term borrowings

    256     47,108     11,217     58,581     226         58,807  

Long-term debt

    2,164     39,573   $ 10,131     51,868     6,550     162,541     220,959  

Other liabilities

    19,611     79,030     15,912   $ 114,553     12,142         126,695  

Net inter-segment funding (lending)          

    38,561     37,848     235,530     311,939     46,528     (358,467 )    
                               

Total liabilities

  $ 394,597   $ 1,068,012   $ 288,171   $ 1,750,780   $ 131,308   $ (195,926 ) $ 1,686,162  

Total equity

            1,900     1,900         195,926     197,826  
                               

Total liabilities and equity

  $ 394,597   $ 1,068,012   $ 290,071   $ 1,752,680   $ 131,308   $ _—   $ 1,883,988  
                               

(1)
The supplemental information presented in the table above reflects Citigroup's consolidated GAAP balance sheet by reporting segment as of June 30, 2013. The respective segment information depicts the assets and liabilities managed by each segment as of such date. While this presentation is not defined by GAAP, Citi believes that these non-GAAP financial measures enhance investors' understanding of the balance sheet components managed by the underlying business segments, as well as the beneficial inter-relationship of the asset and liability dynamics of the balance sheet components among Citi's business segments.

(2)
Consolidating eliminations for total Citigroup and Citigroup parent company assets and liabilities are recorded within the Corporate/Other segment.

(3)
The total stockholders' equity and the majority of long-term debt of Citigroup resides in the Citigroup parent company Consolidated Balance Sheet. Citigroup allocates stockholders' equity and long-term debt to its businesses through inter-segment allocations as described above.

38



CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES

Overview

        Capital is used principally to support assets in Citi's businesses and to absorb credit, market and operational losses. Citi primarily generates capital through earnings from its operating businesses. Citi may augment its capital through issuances of common stock, perpetual preferred stock and equity issued through awards under employee benefit plans, among other issuances. During the first six months of 2013, Citi issued $1.8 billion of noncumulative perpetual preferred stock, resulting in a total of approximately $4.3 billion outstanding as of June 30, 2013.

        Citi has also previously augmented its regulatory capital through the issuance of trust preferred securities, although the treatment of such instruments as regulatory capital will be phased out under the final U.S. Basel III rules (Final Basel III Rules) (see "Regulatory Capital Standards Developments" below). Accordingly, Citi continues to redeem certain of its trust preferred securities in contemplation of such future phase out (see "Funding and Liquidity—Long-Term Debt" below).

        Further, changes in regulatory and accounting standards as well as the impact of future events on Citi's business results, such as corporate and asset dispositions, may also affect Citi's capital levels.

        For additional information on Citi's capital resources, including an overview of Citigroup's capital management framework and regulatory capital standards, see "Capital Resources and Liquidity—Capital Resources" and "Risk Factors—Regulatory Risks" in Citigroup's 2012 Annual Report on Form 10-K.

Current Regulatory Capital Guidelines

Citigroup Capital Resources Under Current Regulatory Guidelines

        Citigroup is subject to the risk-based capital guidelines issued by the Federal Reserve Board which, as currently in effect, constitute the Basel I credit risk capital rules and, beginning January 1, 2013, also the final (revised) market risk capital rules (Basel II.5).

        Historically, capital adequacy has been measured, in part, based on two risk-based capital ratios, the Tier 1 Capital and Total Capital (Tier 1 Capital + Tier 2 Capital) ratios. Tier 1 Capital consists of the sum of "core capital elements," such as qualifying common stockholders' equity, as adjusted, qualifying perpetual preferred stock, qualifying noncontrolling interests, and qualifying trust preferred securities, principally reduced by goodwill, other disallowed intangible assets, and disallowed deferred tax assets. Total Capital also includes "supplementary" Tier 2 Capital elements, such as qualifying subordinated debt and a limited portion of the allowance for credit losses. Both measures of capital adequacy are stated as a percentage of risk-weighted assets.

        In 2009, the U.S. banking regulators developed a new supervisory measure of capital termed "Tier 1 Common," which is defined as Tier 1 Capital less non-common elements, including qualifying perpetual preferred stock, qualifying noncontrolling interests, and qualifying trust preferred securities.

        Citigroup's risk-weighted assets are principally derived from application of the risk-based capital guidelines related to the measurement of credit risk. Pursuant to these guidelines, on balance sheet assets and the credit equivalent amount of certain off-balance-sheet exposures (such as financial guarantees, unfunded lending commitments, letters of credit and derivatives) are assigned to one of several prescribed risk-weight categories based upon the perceived credit risk associated with the obligor or, if relevant, the guarantor, the nature of the collateral, or external credit ratings. Risk-weighted assets also incorporate a measure for market risk on covered trading account positions and foreign exchange and commodity positions whether or not carried in the trading account. Excluded from risk-weighted assets are any assets, such as goodwill and deferred tax assets, to the extent required to be deducted from regulatory capital.

        Citigroup is also subject to a Leverage ratio requirement, a non-risk-based measure of capital adequacy, which is defined as Tier 1 Capital as a percentage of quarterly adjusted average total assets.

        To be "well capitalized" under current federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital ratio of at least 6%, a Total Capital ratio of at least 10%, and not be subject to a Federal Reserve Board directive to maintain higher capital levels. In addition, the Federal Reserve Board currently expects bank holding companies to maintain a minimum Leverage ratio of 3% or 4%, depending on factors specified in its regulations. The following table sets forth Citigroup's regulatory capital ratios as of June 30, 2013 and December 31, 2012:

 
  Jun. 30,
2013(1)
  Dec. 31,
2012(2)
 

Tier 1 Common

    12.16 %   12.67 %

Tier 1 Capital

    13.24     14.06  

Total Capital (Tier 1 Capital + Tier 2 Capital)

    16.18     17.26  

Leverage

    7.86     7.48  
           

(1)
Tier 1 Common, Tier 1 Capital, and Total Capital ratios are calculated based on Basel I credit risk capital rules and final (revised) market risk capital rules (Basel II.5) effective on January 1, 2013.

(2)
Tier 1 Common, Tier 1 Capital, and Total Capital ratios are calculated based on Basel I credit risk and market risk capital rules.

        As indicated in the table above, Citigroup was "well capitalized" under the current federal bank regulatory agency definitions as of June 30, 2013 and December 31, 2012.

39


Components of Citigroup Capital Under Current Regulatory Guidelines

In millions of dollars   June 30,
2013
  December 31,
2012
 

Tier 1 Common Capital

             

Citigroup common stockholders' equity(1)

  $ 191,672   $ 186,487  

Regulatory Capital Adjustments and Deductions:

             

Less: Net unrealized gains (losses) on securities available-for-sale, net of tax(2)(3)

    (1,290 )   597  

Less: Accumulated net unrealized losses on cash flow hedges, net of tax

    (1,671 )   (2,293 )

Less: Pension liability adjustment, net of tax(4)

    (4,615 )   (5,270 )

Less: Cumulative effect included in fair value of financial liabilities attributable to the change in own creditworthiness, net of tax(5)

    11     18  

Less: Disallowed deferred tax assets(6)

    40,054     41,800  

Less: Intangible assets:

             

Goodwill, net of related deferred tax liability (DTL)

    23,360     24,170  

Other disallowed intangible assets, net of related DTL

    3,559     3,868  

Other

    (440 )   (502 )
           

Total Tier 1 Common Capital

  $ 131,824   $ 123,095  
           

Tier 1 Capital

             

Qualifying perpetual preferred stock(1)

  $ 4,254   $ 2,562  

Qualifying trust preferred securities

    6,562     9,983  

Qualifying noncontrolling interests

    862     892  
           

Total Tier 1 Capital

  $ 143,502   $ 136,532  
           

Tier 2 Capital

             

Allowance for credit losses(7)

  $ 13,676   $ 12,330  

Qualifying subordinated debt(8)

    18,167     18,689  

Net unrealized pretax gains on available-for-sale equity securities(2)

    34     135  
           

Total Tier 2 Capital

  $ 31,877   $ 31,154  
           

Total Capital (Tier 1 Capital + Tier 2 Capital)

  $ 175,379   $ 167,686  
           

Citigroup Risk-Weighted Assets

In millions of dollars   June 30,
2013
  December 31,
2012(10)
 

Credit Risk-Weighted Assets(9)

  $ 939,472   $ 929,722  

Market Risk-Weighted Assets

    144,600     41,531  
           

Total Risk-Weighted Assets

  $ 1,084,072   $ 971,253  
           

(1)
Issuance costs related to preferred stock outstanding at June 30, 2013 are excluded from common stockholders' equity and netted against preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ from those under U.S. GAAP.

(2)
Tier 1 Capital excludes net unrealized gains (losses) on AFS debt securities and net unrealized gains on AFS equity securities with readily determinable fair values, in accordance with risk-based capital guidelines. In arriving at Tier 1 Capital, banking organizations are required to deduct net unrealized losses on AFS equity securities with readily determinable fair values, net of tax. Banking organizations are permitted to include in Tier 2 Capital up to 45% of net unrealized pretax gains on AFS equity securities with readily determinable fair values.

(3)
In addition, includes the net amount of unamortized loss on held-to-maturity (HTM) securities. This amount relates to securities which were previously transferred from AFS to HTM, and non-credit-related factors such as changes in interest rates and liquidity spreads for HTM securities with other than temporary impairment.

(4)
The Federal Reserve Board granted interim capital relief for the impact of ASC 715-20, Compensation—Retirement Benefits—Defined Benefits Plans (formerly SFAS 158).

(5)
The impact of changes in Citigroup's own creditworthiness in valuing liabilities for which the fair value option has been elected is excluded from Tier 1 Capital, in accordance with risk-based capital guidelines.

(6)
Of Citi's approximately $54 billion of net deferred tax assets at June 30, 2013, approximately $11 billion of such assets were not deducted in calculating regulatory capital pursuant to current risk-based capital guidelines, while approximately $40 billion of such assets exceeded the limitation imposed by these guidelines and were deducted in arriving at Tier 1 Capital. Citi's approximately $3 billion of other net deferred tax assets primarily represented deferred tax assets related to the regulatory capital adjustments for the pension liability, unrealized gains (losses) on AFS securities and cash flow hedges, offset by deferred tax liabilities related to the adjustments for goodwill and certain other intangible assets, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.

(7)
Includable up to 1.25% of risk-weighted assets. Any excess allowance for credit losses is deducted in arriving at risk-weighted assets.

(8)
Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital.

(9)
Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of approximately $66 billion for interest rate, commodity, equity, foreign exchange, and credit derivative contracts as of June 30, 2013, compared with approximately $62 billion as of December 31, 2012. Credit risk-weighted assets also include those deriving from certain other off-balance-sheet exposures, such as financial guarantees, unfunded lending commitments and letters of credit, and reflect deductions such as for certain intangible assets and any excess allowance for credit losses.

(10)
Risk-weighted assets as computed under Basel I credit risk and market risk capital rules. Total risk-weighted assets at December 31, 2012, including estimated market risk-weighted assets of approximately $169.3 billion assuming application of Basel II.5, would have been approximately $1.11 trillion.

40


Capital Resources of Citigroup's Subsidiary U.S. Depository Institutions Under Current Regulatory Guidelines

        Citigroup's subsidiary U.S. depository institutions are also subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the guidelines of the Federal Reserve Board. The following table sets forth the capital tiers and capital ratios under current regulatory guidelines for Citibank, N.A., Citi's primary subsidiary U.S. depository institution, as of June 30, 2013 and December 31, 2012.

In billions of dollars, except ratios   Jun. 30,
2013
  Dec. 31,
2012(1)
 

Tier 1 Common Capital

  $ 119.4   $ 116.6  

Tier 1 Capital

    120.1     117.4  

Total Capital (Tier 1 Capital + Tier 2 Capital)

    139.0     135.5  
           

Tier 1 Common ratio

    13.26 %   14.12 %

Tier 1 Capital ratio

    13.34     14.21  

Total Capital ratio

    15.45     16.41  

Leverage ratio

    9.44     8.97  
           

(1)
Risk-weighted assets as computed under Basel I credit risk and market risk capital rules.

Impact of Changes on Citigroup and Citibank, N.A. Capital Ratios Under Current Regulatory Guidelines

        The following table presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s capital ratios to changes of $100 million in Tier 1 Common Capital, Tier 1 Capital or Total Capital (numerator), or changes of $1 billion in risk-weighted assets or adjusted average total assets (denominator), as of June 30, 2013. This information is provided for the purpose of analyzing the impact that a change in Citigroup's or Citibank, N.A.'s financial position or results of operations could have on these ratios. These sensitivities only consider a single change to either a component of capital, risk-weighted assets or adjusted average total assets. Accordingly, an event that affects more than one factor may have a larger basis point impact than is reflected in this table.

 
  Tier 1 Common ratio   Tier 1 Capital ratio   Total Capital ratio   Leverage ratio  
 
  Impact of $100
million change in
Tier 1 Common Capital
  Impact of $1
billion change in
risk-weighted
assets
  Impact of $100
million change in
Tier 1 Capital
  Impact of $1
billion change in
risk-weighted
assets
  Impact of $100
million change in
Total Capital
  Impact of $1
billion change in
risk-weighted
assets
  Impact of $100
million change in
Tier 1 Capital
  Impact of $1
billion change in
adjusted average
total assets
 

Citigroup

    0.9 bps     1.1 bps     0.9 bps     1.2 bps     0.9 bps     1.5 bps     0.5 bps     0.4 bps  
                                   

Citibank, N.A. 

    1.1 bps     1.5 bps     1.1 bps     1.5 bps     1.1 bps     1.7 bps     0.8 bps     0.7 bps  
                                   

Citigroup Broker-Dealer Subsidiaries

        At June 30, 2013, Citigroup Global Markets Inc., a U.S. broker-dealer registered with the SEC that is an indirect wholly owned subsidiary of Citigroup, had net capital, computed in accordance with the SEC's net capital rule, of $5.1 billion, which exceeded the minimum requirement by $4.3 billion.

        In addition, certain of Citi's other broker-dealer subsidiaries are subject to regulation in the countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. Citigroup's other broker-dealer subsidiaries were in compliance with their capital requirements at June 30, 2013.


Basel III

Tier 1 Common Ratio

        At June 30, 2013, Citi's estimated Basel III Tier 1 Common ratio was 10.0%, compared to an estimated 9.3% at March 31, 2013 (each based on total "advanced approaches" risk-weighted assets, and including Basel II.5).(13) The increase in Citi's estimated Basel III Tier 1 Common ratio quarter-over-quarter was primarily due to quarterly net income and other improvements to Tier 1 Common Capital, the most significant of which was attributable to the sale of Citi's remaining 35% interest in the MSSB joint venture, as well as the further utilization of DTAs (see "Income Taxes" below) and continued lower overall risk-weighted assets. These increases were partially offset by reductions in Citi's Accumulated other comprehensive income (AOCI), primarily due to the rising interest rate environment during the current quarter and the resulting impact on the unrealized gains (losses) in Citi's available-for-sale investment securities. For additional information on the impacts of changes in AOCI on Citi's Basel III Tier 1 Common ratio, see "Market Risk" below.

        The table below sets forth the components of Citi's Basel III Tier 1 Common Capital and risk-weighted assets as of June 30, 2013 and December 31, 2012.

41


Components of Citigroup Tier 1 Common Capital and Risk-Weighted Assets Under Basel III

In millions of dollars   June 30,
2013
  December 31,
2012
 

Tier 1 Common Capital(1)

             

Citigroup common stockholders' equity(2)

  $ 191,672   $ 186,487  

Add: Qualifying noncontrolling interests

    161     171  

Regulatory Capital Adjustments and Deductions:

             

Less: Accumulated net unrealized losses on cash flow hedges, net of tax

    (1,671 )   (2,293 )

Less: Cumulative change in fair value of financial liabilities attributable to the change in own creditworthiness, net of tax

    524     587  

Less: Intangible assets:

             

Goodwill, net of related deferred tax liability (DTL)(3)

    24,553     25,488  

Identifiable intangible assets other than mortgage servicing rights (MSRs), net of related DTL

    5,057     5,632  

Less: Defined benefit pension plan net assets

    876     732  

Less: Deferred tax assets (DTAs) arising from tax credit and net operating loss carryforwards

    27,900     28,800  

Less: Excess over 10%/15% limitations for other DTAs, certain common equity investments, and MSRs(4)

    17,447     22,316  
           

Total Tier 1 Common Capital

  $ 117,147   $ 105,396  
           

Total Risk-Weighted Assets(5)

  $ 1,167,597   $ 1,206,153  
           

(1)
Calculated based on the Basel III NPR.

(2)
Issuance costs related to preferred stock outstanding at June 30, 2013 are excluded from common stockholders' equity and netted against preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ from those under U.S. GAAP.

(3)
Includes goodwill "embedded" in the valuation of significant common stock investments in unconsolidated financial institutions.

(4)
Aside from MSRs, reflects DTAs arising from temporary differences and significant common stock investments in unconsolidated financial institutions.

(5)
Calculated based on the Basel III NPR "advanced approaches" for determining risk-weighted assets, and including Basel II.5.

Supplementary Leverage Ratio

        Citigroup's estimated Basel III Supplementary Leverage ratio was 4.9% for the second quarter of 2013.(13) The ratio represents the average for the quarter of the three monthly ratios of Tier 1 Capital to total leverage exposure (i.e., the sum of the ratios calculated for April, May and June, divided by three). Total leverage exposure is the sum of: (i) the carrying value of all on-balance sheet assets less applicable Tier 1 Capital deductions; (ii) the potential future exposure on derivative contracts; (iii) 10% of the notional amount of unconditionally cancellable commitments; and (iv) the full notional amount of certain other off-balance sheet exposures (e.g., other commitments and contingencies).

   


(13)
Citigroup's estimated Basel III Tier 1 Common ratio and estimated Basel III Supplementary Leverage ratio as of June 30, 2013 are based on the U.S. banking agencies proposed Basel III rules (Basel III NPR). In July 2013, the U.S. banking agencies adopted the Final Basel III Rules. Citi continues to review these and other recent developments relating to the future capital requirements of financial institutions such as Citi (see "Regulatory Capital Standards Developments" below). As a result, Citi's Basel III estimates are based on its current understanding, expectations and interpretation of the Basel III NPR and are necessarily subject to, among other matters, Citi's review and implementation of the Final Basel III Rules, anticipated compliance with all required enhancements to model calibration and other refinements with respect to the Basel III Tier 1 Common ratio, and further regulatory implementation guidance in the U.S. Citi's estimated Basel III Tier 1 Common ratio and estimated Basel III Supplementary Leverage ratio and certain related components are non-GAAP financial measures. Citigroup believes these ratios and their components provide useful information to investors and others by measuring Citigroup's progress against expected future regulatory capital standards.

42



Regulatory Capital Standards Developments

Basel II.5

        In June 2012, the U.S. banking agencies released final (revised) market risk capital rules (Basel II.5), which became effective on January 1, 2013. Subsequently, in July 2013, the U.S. banking agencies issued a notice of proposed rulemaking that would amend Basel II.5 by conforming such rules to certain elements of the Final Basel III Rules, as well as incorporating additional clarifications. Citi does not expect that these changes to Basel II.5, if adopted as proposed, would have a material impact on the measurement of market risk capital.

Basel III

        In July 2013, the U.S. banking agencies released the Final Basel III Rules which comprehensively revise the regulatory capital framework for substantially all U.S. banking organizations, and implement many aspects of the Basel Committee on Banking Supervision's (BCBS) Basel III rules as well as incorporate relevant provisions of the Dodd-Frank Act. The Final Basel III Rules are largely consistent with the Basel III NPR (including the Standardized Approach NPR and the Advanced Approaches NPR) issued in June 2012, as applicable to "Advanced Approaches" banking organizations (generally those with consolidated total assets of at least $250 billion or consolidated total on balance sheet foreign exposures of at least $10 billion), which includes Citi and Citibank, N.A. Advanced Approaches banking organizations are required to adopt the Final Basel III Rules effective January 1, 2014, with the exception of the "Standardized Approach" for deriving risk-weighted assets which becomes effective January 1, 2015. For additional information regarding the Basel III NPR, see "Capital Resources and Liquidity—Capital Resources—Regulatory Capital Standards—Basel III" in Citi's 2012 Annual Report on Form 10-K.

        Among the more significant of the revisions under the Final Basel III rules relative to Advanced Approaches banking organizations are the treatment of non-qualifying Tier 1 and Tier 2 Capital instruments and expansion of the capital floor provision of the "Collins Amendment" of the Dodd-Frank Act to include the Capital Conservation Buffer.

        The Final Basel III Rules require that Advanced Approaches banking organizations phase-out from Tier 1 Capital trust preferred securities issued prior to May 19, 2010 by January 1, 2016, with 50% of these capital instruments includable in Tier 1 Capital in 2014 and 25% includable in 2015. The trust preferred securities excluded from Tier 1 Capital may be included in full in Tier 2 Capital during those two years, but must be phased out of Tier 2 Capital by January 1, 2022 (declining in 10% annual increments starting at 60% in 2016).

        Furthermore, in connection with the Final Basel III Rules, the U.S. banking agencies indicated their views regarding the appropriate subordination standard for Tier 2 qualifying subordinated debt, which represent a departure from the current guidance upon which bank holding companies have, in part, historically relied. Under the Final Basel III Rules, any nonconforming Tier 2 subordinated debt issued prior to May 19, 2010 will be required to be phased out by January 1, 2016, but issuances after May 19, 2010 will be required to be excluded from capital as of January 1, 2014. As set forth under "Components of Citigroup Capital Under Current Regulatory Guidelines" above, Citi had approximately $18.2 billion of currently qualifying Tier 2 subordinated debt outstanding as of June 30, 2013. It is Citi's understanding, however, that after recognizing this apparent modification of current guidance, the U.S. banking agencies are considering clarifying the intent and effect of the Final Basel III Rules on such guidance. Citi will review any future clarifying guidance from the U.S. banking agencies and assess the resulting impact, if any, on its currently outstanding Tier 2 qualifying subordinated debt.

        With regard to minimum required risk-based capital ratios, the Final Basel III Rules modify the regulations implementing the capital floor provision of the Collins Amendment as adopted in June 2011. This provision requires Advanced Approaches banking organizations to calculate each of the three risk-based capital ratios (Tier 1 Common, Tier 1 Capital and Total Capital) under both the Standardized Approach starting on January 1, 2015 (or, for 2014, prior to the effective date of the Standardized Approach, the existing Basel I capital rules) and the "Advanced Approaches" and report the lower (most conservative) of each of the resulting capital ratios.

        In contrast to the Basel III NPR, however, the Final Basel III Rules also require that the Capital Conservation Buffer for Advanced Approaches banking organizations, as well as the Countercyclical Capital Buffer, if invoked, be calculated in accordance with the Collins Amendment, thus requiring use of both the Advanced Approaches and the Standardized Approach (or the existing Basel I capital rules in 2014) to determine compliance based on the lower (more conservative) of the two. The buffers are to be phased in incrementally from January 1, 2016 through January 1, 2019.

        The Final Basel III Rules are substantially consistent with the Basel III NPR with regard to the Standardized Approach, although the Final Basel III Rules did not adopt modifications to the calculation of risk-weighting for residential mortgages as were proposed. The Final Basel III Rules pertaining to the Standardized Approach are applicable to substantially all U.S. banking organizations and, when effective on January 1, 2015, will become the generally applicable risk based standard for purposes of the Collins Amendment floor, replacing the existing Basel I rules governing the calculation of risk-weighted assets for credit risk.

        Under the Final Basel III Rules, consistent with the Basel III NPR, Advanced Approaches banking organizations are also required to calculate two leverage ratios, a "Tier 1" Leverage ratio and a "Supplementary" Leverage ratio. Citi, as with substantially all U.S. banking organizations, will be required to maintain a minimum Tier 1 Leverage ratio of 4%. The Supplementary Leverage ratio significantly differs from the Tier 1 Leverage ratio by including certain off-balance sheet exposures within the denominator of the ratio. Advanced Approaches banking organizations will be required to maintain a minimum Supplementary Leverage ratio of 3% commencing on January 1, 2018, but must commence disclosing this ratio on January 1, 2015.

        In July 2013, subsequent to the release of the Final Basel III rules, the U.S. banking agencies also issued a notice of proposed rulemaking which would amend the Final Basel III Rules to impose on the eight largest U.S. bank holding companies

43


(currently identified as globally systemically important banks (G-SIBs) by the Financial Stability Board, which includes Citi) a 2% leverage buffer in addition to the stated 3% minimum Supplementary Leverage ratio requirement. The leverage buffer would operate in a manner similar to that of the Capital Conservation Buffer, such that if a banking organization failed to exceed the 2% requirement it would be subject to increasingly onerous restrictions (depending upon the extent of the shortfall) regarding capital distributions and discretionary executive bonus payments. Accordingly, the proposal would effectively raise the Supplementary Leverage ratio requirement to 5%. Additionally, the proposed rules would require that insured depository institution subsidiaries of these bank holding companies, such as Citibank, N.A. maintain a minimum Supplementary Leverage ratio of 6% to be considered "well capitalized" under the revised prompt corrective action framework.

        Separately, in June 2013, the BCBS proposed revisions that would significantly increase the denominator of the Basel III Leverage ratio (the equivalent of the U.S. Supplementary Leverage ratio), primarily in relation to the measurement of exposure regarding derivatives and securities financing transactions. The U.S. banking agencies may revise the Supplementary Leverage ratio in the future based upon any revisions adopted by the BCBS.


Tangible Common Equity and Tangible Book Value Per Share

        Tangible common equity (TCE), as currently defined by Citigroup, represents common equity less goodwill and other intangible assets (other than mortgage servicing rights (MSRs)). Other companies may calculate TCE in a different manner.

        The following table sets forth Citi's TCE and related information as of June 30, 2013 and December 31, 2012.(14) The decline in Citi's TCE ratio during the first half of 2013 was primarily due to a significant increase in market risk-weighted assets resulting from the adoption of Basel II.5 on January 1, 2013, offset in part by net income during the period.

In millions of dollars or shares, except ratios and per share data   June 30,
2013
  December 31,
2012
 

Total Citigroup stockholders' equity

  $ 195,926   $ 189,049  

Less:

             

Preferred stock

    4,293     2,562  
           

Common equity

  $ 191,633   $ 186,487  

Less:

             

Goodwill

    24,896     25,673  

Other intangible assets (other than MSRs)

    4,981     5,697  

Goodwill and other intangible assets (other than MSRs) related to assets of discontinued operations held for sale

    267     32  

Net deferred tax assets related to goodwill and other intangible assets

        32  
           

Tangible common equity (TCE)

  $ 161,489   $ 155,053  
           

Tangible assets

             

GAAP assets

  $ 1,883,988   $ 1,864,660  

Less:

             

Goodwill

    24,896     25,673  

Other intangible assets (other than MSRs)

    4,981     5,697  

Goodwill and other intangible assets (other than MSRs) related to assets for discontinued operations held for sale

    267     32  

Net deferred tax assets related to goodwill and other intangible assets

        309  
           

Tangible assets (TA)

  $ 1,853,844   $ 1,832,949  
           

Risk-weighted assets (RWA)

  $ 1,084,072 (1) $ 971,253 (2)
           

TCE/TA ratio

    8.71 %   8.46 %
           

TCE/RWA ratio

    14.90 %   15.96 %
           

Common shares outstanding (CSO)

    3,041.0     3,028.9  
           

Book value per share (common equity/CSO)

  $ 63.02   $ 61.57  

Tangible book value per share (TCE/CSO)

  $ 53.10   $ 51.19  
           

(1)
Risk-weighted assets as computed under current regulatory capital guidelines.

(2)
Risk-weighted assets as computed under Basel I credit risk and market risk capital rules.

   


(14)
TCE, tangible book value per share and related ratios are non-GAAP financial measures. Citigroup believes these ratios and their components provide useful information to investors as they are capital adequacy metrics used and relied upon by investors and industry analysts.

44



FUNDING AND LIQUIDITY

Overview

        Citi's funding and liquidity objectives are to maintain liquidity to fund its existing asset base as well as grow its core businesses in Citicorp, while at the same time maintain sufficient excess liquidity, structured appropriately, so that it can operate under a wide variety of market conditions, including market disruptions for both short- and long-term periods. Citigroup's primary liquidity objectives are established by entity, and in aggregate, across three major categories:

        At an aggregate level, Citigroup's goal is to ensure that there is sufficient funding in amount and tenor to ensure that customer assets are fully funded, as well as an appropriate amount of cash and high quality liquid assets(15) in these entities. The liquidity framework requires that entities be self-sufficient or net providers of liquidity, including in conditions established under their designated stress tests.

        Citi's primary sources of funding include (i) deposits via Citi's bank subsidiaries, which are Citi's most stable and lowest cost source of long-term funding, (ii) long-term debt (primarily senior and subordinated debt) primarily issued at the parent and certain bank subsidiaries, and (iii) stockholders' equity. These sources may be supplemented by short-term borrowings, primarily in the form of secured financing transactions (securities loaned or sold under agreements to repurchase, or repos).

        As referenced above, Citigroup works to ensure that the structural tenor of these funding sources is sufficiently long in relation to the tenor of its asset base. The key goal of Citi's asset/liability management is to ensure that there is excess tenor in the liability structure so as to provide excess liquidity after funding the assets. The excess liquidity resulting from a longer-term tenor profile can effectively offset potential decreases in liquidity that may occur under stress. This excess funding is held in the form of high quality liquid assets which Citi generally refers to as its "liquidity resources," and is described further below.

   


(15)
As set forth in the table below, "high quality liquid assets" generally is defined as available cash at central banks and unencumbered liquid securities and is based on Citi's current interpretation of the definition of "high quality liquid assets" under the proposed Basel III Liquidity Coverage Ratio. See "Liquidity Measures" below.

45



High Quality Liquid Assets

 
  Parent   Significant Citibank Entities   Other Citibank and Banamex Entities   Total  
In billions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
  Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
  Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
  Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
 

Available cash

  $ 34.0   $ 39.3   $ 55.6   $ 68.0   $ 53.6   $ 53.0   $ 13.5   $ 10.4   $ 14.0   $ 115.6   $ 103.3   $ 122.6  

Unencumbered liquid securities

    24.2     24.0     37.6     170.3     169.2     168.4     79.1     79.3     83.5     273.6     272.5     289.6  
                                                   

Total

  $ 58.2   $ 63.3   $ 93.2   $ 238.3   $ 222.8   $ 221.4   $ 92.6   $ 89.7   $ 97.5   $ 389.2   $ 375.8   $ 412.2  
                                                   

Note: Amounts for the first and second quarter of 2013 are based on Citi's current interpretation of the definition of "high quality liquid assets" under the proposed Basel III Liquidity Coverage Ratio. Amounts for the second quarter of 2012 are based on Citi's prior internal view of its liquidity resources (available cash at central banks and unencumbered liquid securities); such amounts have not been adjusted due to immateriality. All amounts in the table above are as of period-end and may increase or decrease intra-period in the ordinary course of business.

        As set forth in the table above, Citigroup's liquidity resources totaled approximately $389.2 billion at June 30, 2013, compared to $375.8 billion at March 31, 2013 and $412.2 billion at June 30, 2012. Citigroup's liquidity resources at June 30, 2013 included approximately $20 billion of cash to fund the transfer of MSSB deposits to Morgan Stanley during the third quarter of 2013 (see "Deposits" below).

        At June 30, 2013, Citigroup's parent liquidity resources totaled approximately $58.2 billion, compared to $63.3 billion at March 31, 2013 and $93.2 billion at June 30, 2012. These amounts include unencumbered liquid securities and available cash held in Citi's U.S. and non-U.S. broker-dealer entities. The decrease quarter-over-quarter was primarily due to the continued repayment and runoff of long-term debt.

        Citigroup's significant Citibank entities had approximately $238.3 billion of liquidity resources as of June 30, 2013, compared to $222.8 billion at March 31, 2013 and $221.4 billion at June 30, 2012. As of June 30, 2013, the significant Citibank entities' liquidity resources included $68.0 billion of cash on deposit with major central banks(16) and other cash held in vaults, compared with $53.6 billion at March 31, 2013 and $53.0 billion at June 30, 2012. As discussed in more detail under "Balance Sheet Review—Cash and Deposits with Banks" above, the increase in available cash quarter-over-quarter was primarily driven by the continued reduction of Citi Holdings assets, particularly due to the cash proceeds from the completion of the sale of Citi's remaining interest in the MSSB joint venture.

        The significant Citibank entities' liquidity resources as of June 30, 2013 also included unencumbered liquid securities that are available for sale, as collateral for secured financing through private markets or by pledging to the major central banks. The liquidity value of these securities was $170.3 billion at June 30, 2013 compared to $169.2 billion at March 31, 2013 and $168.4 billion at June 30, 2012.

        Citi estimates that its other Citibank and Banamex entities and subsidiaries held approximately $92.6 billion in liquidity resources as of June 30, 2013, compared to $89.7 billion at March 31, 2013 and $97.5 billion at June 30, 2012. The increase quarter-over-quarter was primarily due to deposit growth and modest reductions in lending in those entities. The $92.6 billion as of June 30, 2013 included $13.5 billion of available cash and $79.1 billion of unencumbered liquid securities.

        Citi's liquidity resources as of June 30, 2013 do not include additional potential liquidity in the form of Citigroup's borrowing capacity from the various Federal Home Loan Banks (FHLB), which was approximately $27 billion as of June 30, 2013 and is maintained by pledged collateral to all such banks. The liquidity resources shown above also do not include Citi's borrowing capacity at the U.S. Federal Reserve Bank discount window or international central banks, which capacity would also be in addition to the resources noted above.

        Moreover, in general, Citigroup can freely fund legal entities within its bank vehicles. Citigroup's bank subsidiaries, including Citibank, N.A., can lend to the Citigroup parent and broker-dealer entities in accordance with Section 23A of the Federal Reserve Act. As of June 30, 2013, the amount available for lending to these entities under Section 23A was approximately $18 billion (compared to approximately $17 billion at March 31, 2013), provided the funds are collateralized appropriately.

   


(16)
Includes the U.S. Federal Reserve Bank, European Central Bank, Bank of England, Swiss National Bank, Bank of Japan, the Monetary Authority of Singapore and the Hong Kong Monetary Authority.

46


High Quality Liquid Assets—By Type

        The following table shows the composition of Citi's liquidity resources by type of asset as of each of the periods indicated. For securities, the amounts represent the liquidity value that could potentially be realized, and thus excludes any securities that are encumbered, as well as the haircuts that would be required for secured financing transactions.

In billions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
 

Available cash

  $ 115.6   $ 103.3   $ 122.6  

U.S. Treasuries

    81.1     79.9     77.4  

U.S. Agencies/Agency MBS

    63.4     61.7     71.4  

Foreign Government(1)

    118.6     119.8     132.9  

Other Investment Grade(2)

    10.5     11.1     7.9  
               

Total

  $ 389.2     375.8   $ 412.2  
               

Note: Amounts for the first and second quarter of 2013 are based on Citi's current interpretation of the definition of "high quality liquid assets" under the proposed Basel III Liquidity Coverage Ratio. Amounts for the second quarter of 2012 are based on Citi's prior internal view of its liquidity resources; such amounts have not been adjusted due to immateriality.

(1)
Foreign government also includes foreign government agencies, multinationals and foreign government guaranteed securities. Foreign government securities are held largely to support local liquidity requirements and Citi's local franchises and, as of June 30, 2013, principally included government bonds from Korea, Japan, Mexico, Brazil, Hong Kong, Singapore and Taiwan.

(2)
Includes contractual committed facilities from central banks in the amount of $0.7 billion and $1.2 billion at the end of the second and first quarters of 2013, respectively.

        Citi's liquidity resources are composed entirely of cash, securities positions and contractual committed facilities from the central banks. While Citi utilizes derivatives to manage the interest rate and currency risks related to the liquidity resources, credit derivatives are not used.


Deposits

        Deposits are the primary and lowest cost funding source for Citi's bank subsidiaries. The table below sets forth the end of period deposits, by business and/or segment, and the total average deposits for each of the periods indicated.

In billions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
 

Global Consumer Banking

                   

North America

  $ 165.9   $ 166.8   $ 153.2  

EMEA

    12.9     13.1     12.6  

Latin America

    46.6     49.1     45.8  

Asia

    101.2     106.8     112.5  
               

Total

  $ 326.6   $ 335.8   $ 324.1  
               

ICG

                   

Securities and Banking

  $ 105.8   $ 111.9   $ 121.5  

Transaction Services

    426.1     411.6     399.3  
               

Total

  $ 531.9   $ 523.5   $ 520.8  

Corporate/Other

    15.2     8.8     6.7  
               

Total Citicorp

  $ 873.7   $ 868.1   $ 851.6  

Total Citi Holdings

    64.7     65.7     62.7  
               

Total Citigroup Deposits (EOP)

  $ 938.4   $ 933.8   $ 914.3  
               

Total Citigroup Deposits (AVG)

  $ 924.5   $ 920.4   $ 893.4  
               

        Quarter-over-quarter, end-of-period deposits of $938.4 billion increased by $4.6 billion, or less than 1%. Excluding the impact of FX translation, deposits grew 4% year-over-year, and 2% quarter-over-quarter. Excluding the impact of FX translation, Global Consumer Banking deposits increased 2% year-over-year and 1% quarter-over-quarter. Domestic growth was offset by a decline in Asia, as Citi optimized the high deposit to loan ratios in this region by reducing cost of funds. Excluding the impact of FX translation, Transaction Services deposits grew by 7% year-over-year, and 4% quarter-over-quarter, primarily as a result of client activity in Latin America and EMEA.

        In connection with the MSSB joint venture, Citi held $57 billion of deposits related to MSSB customers as of June 30, 2013. As previously disclosed, pursuant to its agreement with Morgan Stanley, Citi will transfer these deposits to Morgan Stanley in stages, starting with approximately $20 billion during the third quarter of 2013, and approximately $5 billion per quarter for the next two years.

        During the second quarter of 2013, the composition of Citi's deposits continued to shift toward a greater proportion of operating balances.(17) Operating balances represented 79% of Citicorp's total deposit base as of June 30, 2013, compared to 78% at March 31, 2013 and 74% at June 30, 2012. This continued shift to operating balances, combined with overall market conditions and prevailing interest rates, continued to reduce Citi's cost of deposits during the second quarter of 2013. Excluding the impact of FDIC assessments and deposit insurance, the average rate on Citi's total deposits was 0.56% at June 30, 2013, compared with 0.61% at March 31, 2013 and 0.74% at June 30, 2012.

        Deposits can be interest-bearing or non-interest-bearing. Of Citi's $938 billion of deposits as of June 30, 2013, $188 billion were non-interest-bearing, compared to $190 billion at March 31, 2013, and $180 billion at June 30, 2012. The remaining $750 billion of deposits were interest-bearing, compared to $744 billion at March 31, 2013 and $734 billion at June 30, 2012. As of June 30, 2013, approximately 58% of Citi's deposits were located outside of the U.S., compared to 59% at March 31, 2013 and 61% at June 30, 2012.


Long-Term Debt

        Long-term debt (generally defined as original maturities of one year or more) continued to represent the most significant component of Citi's funding for the parent entities. The vast majority of this funding is composed of senior term debt, along with subordinated instruments.

        Senior long-term debt includes benchmark notes and structured notes, such as equity- and credit-linked notes. Citi's issuance of structured notes is generally driven by customer demand and is not a significant source of liquidity for Citi. Structured notes frequently contain contractual features, such as call options, which can lead to an expectation that the debt will be redeemed earlier than one year, despite contractually scheduled original maturities greater than one year. As such, when considering the measurement of Citi's long-term "structural" liquidity, structured notes with these contractual

   


(17)
Citi defines operating balances as checking and savings accounts for individuals, as well as cash management accounts for corporations. This compares to time deposits, where rates are fixed for the term of the deposit and which have generally lower margins.

47


features are not included (see footnote 1 to the "Long-Term Debt Issuances and Maturities" table below).

        Long-term debt is an important funding source for Citi's parent entities due in part to its multi-year maturity structure. The weighted average maturities of long-term debt issued by Citigroup and its affiliates (including Citibank, N.A.) with a remaining life greater than one year (excluding trust preferred securities) was approximately 7.0 years as of June 30, 2013, unchanged from the prior quarter and prior-year period.

Long-Term Debt Outstanding

        The following table sets forth Citi's total long-term debt outstanding for the periods indicated:

In billions of dollars   June 30,
2013
  March 31,
2013
  June 30,
2012
 

Parent

  $ 172.6   $ 184.9   $ 222.8  

Senior/subordinated debt(1)

    160.0     168.4     194.4  

Trust preferred securities

    6.6     9.6     16.0  

Securitizations(1)(2)

    0.3     0.3     3.2  

Local country(1)

    5.7     6.6     9.2  
               

Bank

  $ 48.4   $ 49.4   $ 65.5  

Senior/subordinated debt

    0.0     0.1     4.6  

Securitizations(1)(2)

    26.4     25.0     34.5  

FHLB borrowings

    14.5     16.3     17.8  

Local country

    7.5     8.0     8.6  
               

Total long-term debt

  $ 221.0   $ 234.3   $ 288.3  
               

(1)
Includes structured notes in the amount of $21.7 billion, $22.5 billion and $25.1 billion for the second quarter of 2013, the first quarter of 2013 and the second quarter of 2012, respectively.

(2)
Of the approximate $26.7 billion of total bank and parent securitizations as of June 30, 2013, approximately $23.9 billion related to credit card securitizations, the vast majority of which is at the bank level.

        As set forth in the table above, Citi's overall long-term debt decreased by approximately $13 billion quarter-over-quarter. In the bank, the decrease was due to FHLB run-off that was replaced with deposit growth. Additionally, securitization maturities were offset by $2.5 billion of second quarter issuance in the Citibank Credit Card Issuance Trust (CCCIT). In the parent, the decrease was primarily due to debt maturities, trust preferred redemptions, and debt repurchases through tender offers or buybacks, partially offset by issuances. These reductions are in keeping with Citi's continued strategy to deleverage its balance sheet and lower its funding costs.

        As previously disclosed and as part of its liquidity and funding strategy, Citi has considered, and may continue to consider, opportunities to repurchase its long-term and short-term debt pursuant to open market purchases, tender offers or other means. Such repurchases further decrease Citi's overall funding costs. During the second quarter of 2013, Citi repurchased an aggregate of approximately $5.0 billion of its outstanding long-term and short-term debt, including the $3.0 billion of trust preferred securities primarily pursuant to selective public tender offers and open market purchases. Additionally, Citi redeemed one series of its outstanding trust preferred securities for an aggregate amount of approximately $1.0 billion, which closed on July 15, 2013 (for details on Citi's remaining outstanding trust preferred securities, see Note 16 to the Consolidated Financial Statements).

        Year-to-date, Citi has reduced its long-term debt outstanding by approximately $19 billion, including $10 billion net reduction from maturities and issuances, $5 billion of mark-to-market decrease due to increasing interest rates, and $4 billion of foreign exchange decrease primarily due to the weakening of the Japanese Yen, Pound Sterling and Euro. While Citi expects to continue to reduce its outstanding long-term debt during the remainder of 2013, such reductions will likely occur at a more moderate rate as compared to the significant decrease during 2012 (approximately $84 billion). These reductions could occur through maturities as well as continued repurchases, tender offers, redemptions and similar means. Generally, reductions in Citi's long-term debt will reflect the funding needs of its businesses, and will also be dependent on the economic environment as well as any potential new regulatory changes, such as prescribed levels of debt required to be maintained by Citi pursuant to the U.S. banking regulators orderly liquidation authority (for additional information, see "Risk Factors—Regulatory Risks" in Citi's 2012 Annual Report on Form 10-K).

48


Long-Term Debt Issuances and Maturities

        The table below details Citi's long-term debt issuances and maturities (including repurchases and redemptions) during the periods presented:

 
  2Q13   1Q13   2Q12  
In billions of dollars   Maturities   Issuances   Maturities   Issuances   Maturities   Issuances  

Parent

  $ 13.7   $ 5.4   $ 8.2   $ 8.7   $ 18.9   $ 3.4  

Structural long-term debt(1)

    12.5     4.8     6.4     8.2     17.7     3.0  

Local country level, and other(1)

    1.2     0.6     1.8     0.5     1.2     0.4  

Securitizations

    0.0     0.0     0.0     0.0     0.0     0.0  
                           

Bank

  $ 4.7   $ 4.3   $ 1.9   $ 0.6   $ 14.4   $ 7.7  

Structural long-term debt(1)

    0.0     0.0     0.0     0.0     6.0     0.0  

Local country level, and other

    1.0     0.8     1.0     0.6     1.1     0.2  

FHLB borrowings

    2.8     1.0     0.0     0.0     0.7     7.5  

Securitizations

    0.9     2.5     0.9     0.0     6.6     0.0  
                           

Total

  $ 18.4   $ 9.7   $ 10.1   $ 9.3   $ 33.3   $ 11.1  
                           

(1)
Citi defines structural long-term debt as its long-term debt (original maturities of one year or more), excluding certain structured debt, such as equity-linked and credit-linked notes, with early redemption features effective within one year. Structured debt excluded from Citi's structural long-term debt is included in "other." Structural long-term debt is a non-GAAP measure. Citigroup believes that the structural long-term debt measure provides useful information to its investors as it excludes long-term debt that could be redeemed by the holders thereof within one year. The amount of structured debt issuances included in "other", and thus excluded from "structural long-term debt," were $0.7 billion, $0.4 billion and $0.3 billion in the second quarter of 2013, first quarter of 2013 and second quarter of 2012, respectively. The amount of structured debt maturities included in "other", and thus excluded from "structural long-term debt," were $0.8 billion, $1.6 billion and $0.7 billion, in the second quarter of 2013, first quarter of 2013 and second quarter of 2012, respectively.

        The table below shows Citi's aggregate expected annual long-term debt maturities (including repurchases and redemptions) as of June 30, 2013:

 
   
  Expected Long-Term Debt Maturities as of June 30, 2013  
In billions of dollars   2013(1)   2014   2015   2016   2017   2018   Thereafter   Total  

Parent

  $ 36.4   $ 26.3   $ 20.7   $ 16.5   $ 20.9   $ 10.2   $ 63.6   $ 194.6  

Senior/subordinated debt(2)

    31.5     24.0     20.0     16.0     20.6     10.1     56.3     178.5  

Trust preferred securities

    3.9     0.0     0.0     0.0     0.0     0.0     5.7     9.6  

Securitizations

    0.0     0.0     0.0     0.0     0.0     0.0     0.2     0.2  

Local country

    1.0     2.3     0.7     0.5     0.3     0.1     1.4     6.3  
                                   

Bank

  $ 17.3   $ 10.4   $ 10.6   $ 6.4   $ 3.1   $ 4.2   $ 3.0   $ 55.0  

Securitizations

    2.4     6.5     7.6     2.8     2.3     4.0     2.5     28.1  

Local country

    3.1     2.4     2.0     0.6     0.8     0.2     0.5     9.6  

FHLB borrowings

    11.8     1.5     1.0     3.0     0.0     0.0     0.0     17.3  
                                   

Total long-term debt

  $ 52.7   $ 36.7   $ 31.3   $ 22.9   $ 24.0   $ 14.4   $ 67.6   $ 249.6  
                                   

(1)
Includes $28.5 billion of first half 2013 maturities.

(2)
Includes certain structured debt, such as equity-linked and credit-linked notes, with early redemption features effective within one year. The amount and maturity of such debt included is as follows: $0.2 billion maturing in 2013; $0.6 billion in 2014; $0.6 billion in 2015; $0.6 billion in 2016; $0.5 billion in 2017; $0.3 billion in 2018; and $1.2 billion thereafter.

49


Secured Financing Transactions and Short-Term Borrowings

        As referenced above, Citi supplements its primary sources of funding with short-term borrowings. Short-term borrowings generally include (i) secured financing (securities loaned or sold under agreements to repurchase, or repos) and (ii) short-term borrowings consisting of commercial paper and borrowings from the FHLB and other market participants. See Note 16 to the Consolidated Financial Statements for further information on Citigroup's and its affiliates' outstanding short-term borrowings.

Secured Financing

        Secured financing is primarily conducted through Citi's broker-dealer subsidiaries to facilitate customer matched-book activity and to efficiently fund a portion of the trading inventory. Generally, changes in the level of secured financing are primarily due to fluctuations in inventory (either on an end-of-quarter or on an average basis).

        Secured financing was $218 billion as of June 30, 2013, compared to $222 billion as of March 31, 2013 and $215 billion as of June 30, 2012. The decrease in secured financing quarter-over-quarter was primarily driven by a reduction in trading positions in Securities and Banking businesses, particularly in the latter part of the second quarter (see "Balance Sheet Review—Assets" above).

        Average balances for secured financing were approximately $243 billion for the quarter ended June 30, 2013, compared to $233 billion for the quarter ended March 31, 2013 and $225 billion for the quarter ended June 30, 2012. The increase in average balances quarter-over-quarter was primarily due to seasonal intra-quarter growth, particularly in EMEA.

Commercial Paper

        The following table sets forth Citi's commercial paper outstanding for each of its parent and significant Citibank entities, respectively, for each of the periods indicated. The increase in the significant Citibank entities' outstanding commercial paper balances quarter-over-quarter was driven by the consolidation of $7 billion of previously unconsolidated assets during the current quarter, which consisted of trade loans within North America Transaction Services (see "Balance Sheet—Loans" above and Note 19 to the Consolidated Financial Statements).

In billions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Jun. 30,
2012
 

Commercial paper

                   

Parent

  $ 0.2   $ 0.3   $ 5.1  

Significant Citibank Entities

    18.1     11.7     15.6  
               

Total

  $ 18.3   $ 12.0   $ 20.7  
               

Other Short-Term Borrowings

        At June 30, 2013, Citi's other short-term borrowings, which includes borrowings from the FHLB and other market participants, were approximately $41 billion, compared with $36 billion at March 31, 2013 and $38 billion at June 30, 2012. The increase in short-term borrowings quarter-over-quarter primarily related to FHLB borrowings and was in preparation for the MSSB deposit transfers beginning in the third quarter of 2013 (as discussed above).

Liquidity Management, Measures and Stress Testing

        For a discussion of Citi's liquidity management and stress testing, see "Capital Resources and Liquidity—Funding and Liquidity—Liquidity Management, Measures and Stress Testing" in Citi's 2012 Annual Report on Form 10-K.

Liquidity Measures

        Citi uses multiple measures in monitoring its liquidity, including those described below.

        The structural liquidity ratio, defined as the sum of deposits, long-term debt and stockholders' equity as a percentage of total assets, measures whether the asset base is funded by sufficiently long-dated liabilities. Citi's structural liquidity ratio remained stable at approximately 72% as of June 30, 2013.

        In addition, Citi believes it is currently in compliance with the proposed Basel III Liquidity Coverage Ratio (LCR), as amended by the Basel Committee on Banking Supervision on January 7, 2013 (the amended LCR guidelines), even though such ratio is not proposed to take full effect until 2019. Based on Citi's current interpretation of the amended LCR guidelines, Citi's estimated LCR was approximately 110% as of June 30, 2013, compared with approximately 116% at March 31, 2013 and 127% at June 30, 2012.(18) Approximately 5 percentage points of the decrease in Citi's LCR quarter-over-quarter was driven by the MSSB transaction.

        Citi's 110% LCR represents additional liquidity of approximately $37 billion above the proposed minimum 100% LCR threshold. Citi continues to expect to operate with an LCR in the range of 110% going forward, with the potential for modest variability from quarter-to-quarter.

        The LCR is designed to ensure banks maintain an adequate level of unencumbered cash and highly liquid securities that can be converted to cash to meet liquidity needs under an acute 30-day stress scenario. Under the amended LCR guidelines, the LCR is to be calculated by dividing the amount of unencumbered cash and highly liquid, unencumbered government, government-backed and corporate securities by estimated net outflows over a stressed 30-day period. The net outflows are calculated by applying assumed outflow factors, prescribed in the amended LCR guidelines, to various categories of liabilities, such as deposits, unsecured and secured wholesale borrowings, unused commitments and derivatives-related exposures, partially offset by inflows from assets maturing within 30 days. The amended LCR requirements expanded the definition of liquid assets, and reduced outflow estimates for certain types of deposits and commitments.

   


(18)
Citi's estimated LCR is a non-GAAP financial measure. Citi believes this measure provides useful information to investors and others by measuring Citi's progress toward potential future expected regulatory liquidity standards. Citi's estimated LCR for all periods presented is based on its current interpretation, expectations and understanding of the proposed LCR calculation requirements and is necessarily subject to final regulatory clarity and rulemaking and other implementation guidance.

50


Credit Ratings

        Citigroup's funding and liquidity, including its funding capacity, ability to access the capital markets and other sources of funds, as well as the cost of these funds, and its ability to maintain certain deposits, is partially dependent on its credit ratings. The table below indicates the ratings for Citigroup, Citibank, N.A. and Citigroup Global Markets Inc. (a broker-dealer subsidiary of Citigroup) as of June 30, 2013.

Debt Ratings as of June 30, 2013

 
  Citigroup Inc.   Citibank, N.A.
 
  Senior
debt
  Commercial
paper
  Long-
term
  Short-
term

Fitch Ratings (Fitch)

  A   F1   A   F1

Moody's Investors Service (Moody's)

  Baa2   P-2   A3   P-2

Standard & Poor's (S&P)

  A-   A-2   A   A-1
                 

Note: Citigroup Global Markets Inc. (CGMI) is rated A/A-1 by Standard & Poor's.

NR Not rated.

Recent Credit Rating Developments

        On June 20, 2013, S&P changed the outlook on the long-term debt ratings of Citibank, N.A. to "stable" from "negative," citing Citi's "progress on shedding assets from Citi Holdings and reducing the risk in that portfolio."

        S&P further stated that it is reconsidering the amount of government support factored into long-term ratings at the non-operating holding company level for eight U.S. banks, including Citi. At this time, S&P is not reassessing support assumptions of operating subsidiaries. S&P noted that it is closely monitoring the evolution and implementation of the Dodd-Frank regulations, including the Title II orderly liquidation authority single-point-of-entry resolution plan, and expects to update holding company support assumptions once proposed rules are written. The senior long-term debt ratings of Citigroup Inc. receive two notches of government support uplift under S&P's current methodology.

Potential Impacts of Ratings Downgrades

        Ratings downgrades by Moody's, Fitch or S&P could negatively impact Citigroup's and/or Citibank, N.A.'s funding and liquidity due to reduced funding capacity, including derivatives triggers, which could take the form of cash obligations and collateral requirements.

        The following information is provided for the purpose of analyzing the potential funding and liquidity impact to Citigroup and Citibank, N.A. of a hypothetical, simultaneous ratings downgrade across all three major rating agencies. This analysis is subject to certain estimates, estimation methodologies, and judgments and uncertainties, including without limitation those relating to potential ratings limitations certain entities may have with respect to permissible counterparties, as well as general subjective counterparty behavior (e.g., certain corporate customers and trading counterparties could re-evaluate their business relationships with Citi, and limit the trading of certain contracts or market instruments with Citi). Moreover, changes in counterparty behavior could impact Citi's funding and liquidity as well as the results of operations of certain of its businesses. Accordingly, the actual impact to Citigroup or Citibank, N.A. is unpredictable and may differ materially from the potential funding and liquidity impacts described below.

        For additional information on the impact of credit rating changes on Citi and its applicable subsidiaries, see "Risk Factors—Liquidity Risks" in Citi's 2012 Annual Report on Form 10-K.

51


Citigroup Inc. and Citibank, N.A.—Potential Derivative Triggers

        As of June 30, 2013, Citi estimates that a hypothetical one-notch downgrade of the senior debt/long-term rating of Citigroup across all three major rating agencies could impact Citigroup's funding and liquidity due to derivative triggers by approximately $0.9 billion. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.

        In addition, as of June 30, 2013, Citi estimates that a hypothetical one-notch downgrade of the senior debt/long-term rating of Citibank, N.A. across all three major rating agencies could impact Citibank, N.A.'s funding and liquidity due to derivative triggers by approximately $2.7 billion.

        In total, Citi estimates that a one-notch downgrade of Citigroup and Citibank, N.A., across all three major rating agencies, could result in aggregate cash obligations and collateral requirements of approximately $3.6 billion (see also Note 20 to the Consolidated Financial Statements). As set forth under "High Quality Liquid Assets" above, the liquidity resources of Citi's parent entities were approximately $58 billion, and the liquidity resources of Citi's significant Citibank entities and other Citibank and Banamex entities were approximately $331 billion, for a total of approximately $389 billion as of June 30, 2013. These liquidity resources are available in part as a contingency for the potential events described above.

        In addition, a broad range of mitigating actions are currently included in Citigroup's and Citibank, N.A.'s contingency funding plans. For Citigroup, these mitigating factors include, but are not limited to, accessing surplus funding capacity from existing clients, tailoring levels of secured lending, adjusting the size of select trading books and collateralized borrowings from Citi's significant bank subsidiaries. Mitigating actions available to Citibank, N.A. include, but are not limited to, selling or financing highly liquid government securities, tailoring levels of secured lending, adjusting the size of select trading books, reducing loan originations and renewals, raising additional deposits, or borrowing from the FHLB or central banks. Citi believes these mitigating actions could substantially reduce the funding and liquidity risk, if any, of the potential downgrades described above.

Citibank, N.A.—Additional Potential Impacts

        In addition to the above derivative triggers, Citi believes that a potential one-notch downgrade of Citibank, N.A.'s senior debt/long-term rating by S&P and Fitch could also have an adverse impact on the commercial paper/short-term rating of Citibank, N.A. As of June 30, 2013, Citibank, N.A. had liquidity commitments of approximately $18.1 billion to consolidated asset-backed commercial paper conduits (as referenced in Note 19 to the Consolidated Financial Statements).

        In addition to the above-referenced liquidity resources of Citi's significant Citibank entities and other Citibank and Banamex entities, as well as the various mitigating actions previously noted, mitigating actions available to Citibank, N.A. to reduce the funding and liquidity risk, if any, of the potential downgrades described above, include repricing or reducing certain commitments to commercial paper conduits.

        In addition, in the event of the potential downgrades described above, Citi believes that certain corporate customers could re-evaluate their deposit relationships with Citibank, N.A. Among other things, this re-evaluation could include adjusting their discretionary deposit levels or changing their depository institution, each of which could potentially reduce certain deposit levels at Citibank, N.A. As a potential mitigant, however, Citi could choose to adjust pricing or offer alternative deposit products to its existing customers, or seek to attract deposits from new customers, as well as utilize the other mitigating actions referenced above.

52



OFF-BALANCE-SHEET ARRANGEMENTS

        Citigroup enters into various types of off-balance-sheet arrangements in the ordinary course of business. Citi's involvement in these arrangements can take many different forms, including without limitation:

        Citi enters into these arrangements for a variety of business purposes. These securitization entities offer investors access to specific cash flows and risks created through the securitization process. The securitization arrangements also assist Citi and Citi's customers in monetizing their financial assets at more favorable rates than Citi or the customers could otherwise obtain.

        The table below presents where a discussion of Citi's various off-balance-sheet arrangements may be found in this Form 10-Q. In addition, see "Significant Accounting Policies and Significant Estimates—Securitizations" as well as Notes 1, 22 and 27 to the Consolidated Financial Statements in Citigroup's 2012 Annual Report on Form 10-K.


Types of Off-Balance-Sheet Arrangements Disclosures in this Form 10-Q

Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs

  See Note 19 to the Consolidated Financial Statements.

Letters of credit, and lending and other commitments

  See Note 23 to the Consolidated Financial Statements.

Guarantees

  See Note 23 to the Consolidated Financial Statements.

53



MANAGING GLOBAL RISK

        Citigroup believes that effective risk management is of primary importance to its overall operations. Accordingly, Citi's risk management process has been designed to monitor, evaluate and manage the principal risks it assumes in conducting its activities. These include credit, market and operational risks.

        Citigroup's risk management framework is designed to balance business ownership and accountability for risks with well-defined independent risk management oversight and responsibility. Further, the risk management organization is structured so as to facilitate the management of risk across three dimensions: businesses, regions and critical products.

        For more information on Citi's risk management, as well as a discussion of operational risk, see "Managing Global Risk" in Citigroup's 2012 Annual Report on Form 10-K. See also "Risk Factors" in Citi's 2012 Annual Report on Form 10-K.

54



CREDIT RISK

Loans Outstanding

In millions of dollars   2nd Qtr.
2013
  1st Qtr.
2013
  4th Qtr.
2012
  3rd Qtr.
2012
  2nd Qtr.
2012
 

Consumer loans

                               

In U.S. offices

                               

Mortgage and real estate(1)

  $ 112,890   $ 120,768   $ 125,946   $ 128,737   $ 132,931  

Installment, revolving credit, and other

    13,061     12,955     14,070     14,210     14,757  

Cards

    104,925     104,535     111,403     108,819     109,755  

Commercial and industrial

    5,620     5,386     5,344     5,042     4,668  
                       

  $ 236,496   $ 243,644   $ 256,763   $ 256,808   $ 262,111  
                       

In offices outside the U.S.

                               

Mortgage and real estate(1)

  $ 53,507   $ 54,717   $ 54,709   $ 54,529   $ 53,058  

Installment, revolving credit, and other

    32,296     34,020     33,958     34,094     33,125  

Cards

    35,748     39,522     40,653     39,671     38,721  

Commercial and industrial

    23,849     22,906     22,225     22,266     21,751  

Lease financing

    712     745     781     742     719  
                       

  $ 146,112   $ 151,910   $ 152,326   $ 151,302   $ 147,374  
                       

Total Consumer loans

  $ 382,608   $ 395,554   $ 409,089   $ 408,110   $ 409,485  

Unearned income

    (456 )   (378 )   (418 )   (358 )   (358 )
                       

Consumer loans, net of unearned income

  $ 382,152   $ 395,176   $ 408,671   $ 407,752   $ 409,127  
                       

Corporate loans

                               

In U.S. offices

                               

Commercial and industrial

  $ 30,798   $ 28,558   $ 26,985   $ 30,056   $ 24,889  

Loans to financial institutions

    23,982     16,500     18,159     17,376     19,134  

Mortgage and real estate(1)

    26,215     25,576     24,705     24,221     23,239  

Installment, revolving credit, and other

    31,919     33,621     32,446     32,987     33,838  

Lease financing

    1,535     1,369     1,410     1,394     1,295  
                       

  $ 114,449   $ 105,624   $ 103,705   $ 106,034   $ 102,395  
                       

In offices outside the U.S.

                               

Commercial and industrial

  $ 84,317   $ 85,258   $ 82,939   $ 85,854   $ 87,347  

Installment, revolving credit, and other

    14,581     14,733     14,958     16,758     17,001  

Mortgage and real estate(1)

    6,276     6,231     6,485     6,214     6,517  

Loans to financial institutions

    40,303     38,332     37,739     35,014     31,302  

Lease financing

    556     593     605     574     538  

Governments and official institutions

    1,579     1,265     1,159     984     1,527  
                       

  $ 147,612   $ 146,412   $ 143,885   $ 145,398   $ 144,232  
                       

Total Corporate loans

  $ 262,061   $ 252,036   $ 247,590   $ 251,432   $ 246,627  

Unearned income

    (472 )   (848 )   (797 )   (761 )   (786 )
                       

Corporate loans, net of unearned income

  $ 261,589   $ 251,188   $ 246,793   $ 250,671   $ 245,841  
                       

Total loans—net of unearned income

  $ 643,741   $ 646,364   $ 655,464   $ 658,423   $ 654,968  

Allowance for loan losses—on drawn exposures

    (21,580 )   (23,727 )   (25,455 )   (25,916 )   (27,611 )
                       

Total loans—net of unearned income and allowance for credit losses

  $ 622,161   $ 622,637   $ 630,009   $ 632,507   $ 627,357  

Allowance for loan losses as a percentage of total loans—net of unearned income(2)

    3.38 %   3.70 %   3.92 %   3.97 %   4.25 %
                       

Allowance for Consumer loan losses as a percentage of total Consumer loans—net of unearned income(2)

    4.95 %   5.32 %   5.57 %   5.68 %   6.04 %
                       

Allowance for Corporate loan losses as a percentage of total Corporate loans—net of unearned income(2)

    1.05 %   1.12 %   1.14 %   1.14 %   1.23 %
                       

(1)
Loans secured primarily by real estate.

(2)
All periods exclude loans which are carried at fair value.

55



Details of Credit Loss Experience

In millions of dollars   2nd Qtr.
2013
  1st Qtr.
2013
  4th Qtr.
2012
  3rd Qtr.
2012
  2nd Qtr.
2012
 

Allowance for loan losses at beginning of period

  $ 23,727   $ 25,455   $ 25,916   $ 27,611   $ 29,020  
                       

Provision for loan losses

                               

Consumer(1)

  $ 1,850   $ 2,158   $ 2,847   $ 2,493   $ 2,389  

Corporate

    (23 )   56     (9 )   (57 )   86  
                       

  $ 1,827   $ 2,214   $ 2,838   $ 2,436   $ 2,475  
                       

Gross credit losses

                               

Consumer

                               

In U.S. offices(1)

  $ 2,157   $ 2,367   $ 2,442   $ 3,297   $ 2,971  

In offices outside the U.S. 

    1,003     1,017     1,066     1,023     1,007  

Corporate

                               

In U.S. offices

    47     20     58     47     104  

In offices outside the U.S. 

    50     40     74     149     123  
                       

  $ 3,257   $ 3,444   $ 3,640   $ 4,516   $ 4,205  
                       

Credit recoveries

                               

Consumer

                               

In U.S. offices

  $ 275   $ 309   $ 297   $ 282   $ 369  

In offices outside the U.S. 

    322     242     261     258     272  

Corporate

                               

In U.S. offices

    28     5     55     45     54  

In offices outside the U.S. 

    24     10     42     34     19  
                       

  $ 649   $ 566   $ 655   $ 619   $ 714  
                       

Net credit losses

                               

In U.S. offices(1)

  $ 1,901   $ 2,073   $ 2,148   $ 3,017   $ 2,652  

In offices outside the U.S. 

    707     805     837     880     839  
                       

Total

  $ 2,608   $ 2,878   $ 2,985   $ 3,897   $ 3,491  
                       

Other—net(2)(3)(4)(5)(6)

  $ (1,366 ) $ (1,064 )   (314 ) $ (234 ) $ (393 )
                       

Allowance for loan losses at end of period

  $ 21,580   $ 23,727   $ 25,455   $ 25,916   $ 27,611  
                       

Allowance for loan losses as a % of total loans(7)

    3.38 %   3.70 %   3.92 %   3.97 %   4.25 %

Allowance for unfunded lending commitments(8)

  $ 1,133   $ 1,132   $ 1,119   $ 1,063   $ 1,104  
                       

Total allowance for loan losses and unfunded lending commitments

  $ 22,713   $ 24,859   $ 26,574   $ 26,979   $ 28,715  
                       

Net consumer credit losses(1)

  $ 2,563   $ 2,833   $ 2,950   $ 3,780   $ 3,337  

As a percentage of average consumer loans

    2.65 %   2.88 %   2.91 %   3.72 %   3.29 %
                       

Net corporate credit losses

  $ 45   $ 45   $ 35   $ 117   $ 154  

As a percentage of average corporate loans

    0.07 %   0.07 %   0.06 %   0.19 %   0.26 %
                       

Allowance for loan losses at end of period(9)

                               

Citicorp

  $ 13,425   $ 14,330   $ 14,623   $ 14,828   $ 15,387  

Citi Holdings

    8,155     9,397     10,832     11,088     12,224  
                       

Total Citigroup

  $ 21,580   $ 23,727   $ 25,455   $ 25,916   $ 27,611  
                       

Allowance by type

                               

Consumer

  $ 18,872   $ 20,948   $ 22,679   $ 23,099   $ 24,639  

Corporate

    2,708     2,779     2,776     2,817     2,972  
                       

Total Citigroup

  $ 21,580   $ 23,727   $ 25,455   $ 25,916   $ 27,611  
                       

(1)
The third quarter of 2012 included approximately $635 million of incremental charge-offs related to Office of the Comptroller of the Currency (OCC) guidance regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. There was a corresponding approximately $600 million reserve release in the third quarter of 2012 specific to these mortgage loans. The fourth quarter of 2012 included a benefit to charge-offs of approximately $40 million related to finalizing the impact of the OCC guidance.

(2)
The second quarter of 2013 includes a reduction of approximately $650 million related to the sale or transfers to held-for-sale of various U.S. loan portfolios and a reduction of approximately $360 million related to the Brazil Credicard transfer to Discontinued operations. Additionally, a reduction of approximately $90 million related to a transfer to held-for-sale of a loan portfolio in Greece and a reduction of approximately $220 million related to FX translation.

(3)
The first quarter of 2013 includes a reduction of approximately $855 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios and a reduction of approximately $165 million related to a transfer to held-for-sale of a loan portfolio in Greece.

(4)
The fourth quarter of 2012 included a reduction of approximately $255 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios.

(5)
The third quarter of 2012 included a reduction of approximately $300 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios.

(6)
The second quarter of 2012 included a reduction of approximately $175 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios and a reduction of approximately $200 million related to the impact of FX translation.

(7)
June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012, and June 30, 2012 exclude $4.9 billion, $5.0 billion, $5.3 billion, $5.4 billion, and $5.1 billion, respectively, of loans which are carried at fair value.

(8)
Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet.

56


(9)
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.


Allowance for Loan Losses (continued)

        The following table details information on Citi's allowance for loan losses, loans and coverage ratios as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013  
In billions of dollars   Allowance for
loan losses
  Loans, net of
unearned income
  Allowance as a
percentage of loans(1)
 

North America cards(2)

  $ 6.5   $ 105.5     6.1 %

North America mortgages(3)

    6.7     111.9     5.9  

North America other

    1.2     21.4     5.6  

International cards

    2.3     35.6     6.5  

International other(4)

    2.2     107.7     2.1  
               

Total Consumer

  $ 18.9   $ 382.1     4.9 %

Total Corporate

    2.7     261.6     1.0  
               

Total Citigroup

  $ 21.6   $ 643.7     3.4 %
               

(1)
Allowance as a percentage of loans excludes loans that are carried at fair value.

(2)
Includes both Citi-branded cards and Citi retail services. The $6.5 billion of loan loss reserves for North America cards as of June 30, 2013 represented approximately 17 months of coincident net credit loss coverage.

(3)
Of the $6.7 billion, approximately $6.4 billion was allocated to North America mortgages in Citi Holdings. The $6.7 billion of loans loss reserves for North America mortgages as of June 30, 2013 represented approximately 35 months of coincident net credit loss coverage.

(4)
Includes mortgages and other retail loans.

 
  December 31, 2012  
In billions of dollars   Allowance for
loan losses
  Loans, net of
unearned income
  Allowance as a
percentage of loans(1)
 

North America cards(2)

  $ 7.3   $ 112.0     6.5 %

North America mortgages(3)

    8.6     125.4     6.9  

North America other

    1.5     22.1     6.8  

International cards

    2.9     40.7     7.0  

International other(4)

    2.4     108.5     2.2  
               

Total Consumer

  $ 22.7   $ 408.7     5.6 %

Total Corporate

    2.8     246.8     1.1  
               

Total Citigroup

  $ 25.5   $ 655.5     3.9 %
               

(1)
Allowance as a percentage of loans excludes loans that are carried at fair value.

(2)
Includes both Citi-branded cards and Citi retail services. The $7.3 billion of loan loss reserves for North America cards as of December 31, 2012 represented approximately 18 months of coincident net credit loss coverage.

(3)
Of the $8.6 billion, approximately $8.4 billion was allocated to North America mortgages in Citi Holdings. Excluding the $40 million benefit related to finalizing the impact of the OCC guidance in the fourth quarter of 2012, the $8.6 billion of loans loss reserves for North America mortgages as of December 31, 2012 represented approximately 33 months of coincident net credit loss coverage.

(4)
Includes mortgages and other retail loans.

57



Non-Accrual Loans and Assets and Renegotiated Loans

        The following pages include information on Citi's "Non-Accrual Loans and Assets" and "Renegotiated Loans." There is a certain amount of overlap among these categories. The following summary provides a general description of each category:

Non-Accrual Loans and Assets:

Renegotiated Loans:

Non-Accrual Loans and Assets

        The table below summarizes Citigroup's non-accrual loans as of the periods indicated. Non-accrual loans may still be current on interest payments. In situations where Citi reasonably expects that only a portion of the principal owed will ultimately be collected, all payments received are reflected as a reduction of principal and not as interest income. For all other non-accrual loans, cash interest receipts are generally recorded as revenue.

58



Non-Accrual Loans

In millions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Dec. 31,
2012
  Sept. 30,
2012
  Jun. 30,
2012
 

Citicorp

  $ 4,011   $ 4,235   $ 4,096   $ 4,090   $ 4,000  

Citi Holdings

    5,695     6,418     7,433     8,100     6,917  
                       

Total non-accrual loans (NAL)

  $ 9,706   $ 10,653   $ 11,529   $ 12,190   $ 10,917  
                       

Corporate non-accrual loans(1)

                               

North America

  $ 811   $ 1,007   $ 735   $ 900   $ 724  

EMEA

    972     1,077     1,131     1,054     1,169  

Latin America

    91     116     128     151     209  

Asia

    270     304     339     324     469  
                       

Total corporate non-accrual loans

  $ 2,144   $ 2,504   $ 2,333   $ 2,429   $ 2,571  
                       

Citicorp

  $ 1,728   $ 1,975   $ 1,909   $ 1,928   $ 2,014  

Citi Holdings

    416     529     424     501     557  
                       

Total corporate non-accrual loans

  $ 2,144   $ 2,504   $ 2,333   $ 2,429   $ 2,571  
                       

Consumer non-accrual loans(1)

                               

North America(2)

  $ 5,568   $ 6,171   $ 7,148   $ 7,698   $ 6,403  

EMEA

    234     263     380     379     371  

Latin America

    1,430     1,313     1,285     1,275     1,158  

Asia

    330     402     383     409     414  
                       

Total consumer non-accrual loans(2)

  $ 7,562   $ 8,149   $ 9,196   $ 9,761   $ 8,346  
                       

Citicorp

  $ 2,283   $ 2,260   $ 2,187   $ 2,162   $ 1,986  

Citi Holdings(2)

    5,279     5,889     7,009     7,599     6,360  
                       

Total consumer non-accrual loans(2)

  $ 7,562   $ 8,149   $ 9,196   $ 9,761   $ 8,346  
                       

(1)
Excludes purchased distressed loans as they are generally accreting interest. The carrying value of these loans was $606 million at June 30, 2013, $566 million at March 31, 2013, $538 million at December 31, 2012, $533 million at September 30, 2012 and $532 million at June 30, 2012.

(2)
The third quarter of 2012 includes an increase in Consumer non-accrual loans in North America of approximately $1.5 billion as a result of OCC guidance received in the quarter regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. Of the $1.5 billion of such non-accrual loans, $1.3 billion was current as of September 30, 2012.

59



Non-Accrual Loans and Assets (continued)

        The table below summarizes Citigroup's other real estate owned (OREO) assets as of the periods indicated. This represents the carrying value of all real estate property acquired by foreclosure or other legal proceedings when Citi has taken possession of the collateral.

In millions of dollars   Jun. 30,
2013
  Mar. 31,
2013
  Dec. 31,
2012
  Sept. 30,
2012
  Jun. 30,
2012
 

OREO

                               

Citicorp

  $ 52   $ 49   $ 49   $ 57   $ 57  

Citi Holdings

    339     363     391     417     484  
                       

Total OREO

  $ 391   $ 412   $ 440   $ 474   $ 541  
                       

North America

  $ 267   $ 286   $ 299   $ 315   $ 366  

EMEA

    76     85     99     111     127  

Latin America

    46     39     40     48     48  

Asia

    2     2     2          
                       

Total OREO

  $ 391   $ 412   $ 440   $ 474   $ 541  
                       

Other repossessed assets

  $   $ 1   $ 1   $ 1   $ 2  
                       

Non-accrual assets—Total Citigroup 

                               

Corporate non-accrual loans

  $ 2,144   $ 2,504   $ 2,333   $ 2,429   $ 2,571  

Consumer non-accrual loans(1)

    7,562     8,149     9,196     9,761     8,346  
                       

Non-accrual loans (NAL)

  $ 9,706   $ 10,653   $ 11,529   $ 12,190   $ 10,917  
                       

OREO

    391     412     440     474     541  

Other repossessed assets

        1     1     1     2  
                       

Non-accrual assets (NAA)

  $ 10,097   $ 11,066   $ 11,970   $ 12,665   $ 11,460  
                       

NAL as a percentage of total loans

    1.51 %   1.65 %   1.76 %   1.85 %   1.67 %

NAA as a percentage of total assets

    0.54     0.59     0.64     0.66     0.60  

Allowance for loan losses as a percentage of NAL(2)

    222     223     221     213     253  
                       

 

Non-accrual assets—Total Citicorp   Jun. 30,
2013
  Mar. 31,
2013
  Dec. 31,
2012
  Sept. 30,
2012
  Jun. 30,
2012
 

Non-accrual loans (NAL)

  $ 4,011   $ 4,235   $ 4,096   $ 4,090   $ 4,000  

OREO

    52     49     49     57     57  

Other repossessed assets

    N/A     N/A     N/A     N/A     N/A  
                       

Non-accrual assets (NAA)

  $ 4,063   $ 4,284   $ 4,145   $ 4,147   $ 4,057  
                       

NAA as a percentage of total assets

    0.23 %   0.25 %   0.24 %   0.24 %   0.24 %

Allowance for loan losses as a percentage of NAL(2)

    335     338     357     363     385  
                       

Non-accrual assets—Total Citi Holdings 

                               

Non-accrual loans (NAL)(1)

 
$

5,695
 
$

6,418
 
$

7,433
 
$

8,100
 
$

6,917
 

OREO

    339     363     391     417     484  

Other repossessed assets

    N/A     N/A     N/A     N/A     N/A  
                       

Non-accrual assets (NAA)

  $ 6,034   $ 6,781   $ 7,824   $ 8,517   $ 7,401  
                       

NAA as a percentage of total assets

    4.61 %   4.55 %   5.02 %   4.98 %   3.87 %

Allowance for loan losses as a percentage of NAL(2)

    143     146     146     137     177  
                       

(1)
The third quarter of 2012 includes an increase in Consumer non-accrual loans of approximately $1.5 billion as a result of OCC guidance received in the quarter regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. Of the $1.5 billion of such non-accrual loans, $1.3 billion was current as of September 30, 2012.

(2)
The allowance for loan losses includes the allowance for Citi's credit card portfolios and purchased distressed loans, while the non-accrual loans exclude credit card balances (with the exception of certain international portfolios) and purchased distressed loans as these continue to accrue interest until charge-off.

N/A Not available at the Citicorp or Citi Holdings level.

60



Renegotiated Loans

        The following table presents Citi's loans modified in TDRs.

In millions of dollars   Jun. 30,
2013
  Dec. 31,
2012
 

Corporate renegotiated loans(1)

             

In U.S. offices

             

Commercial and industrial(2)

  $ 42   $ 180  

Mortgage and real estate(3)

    159     72  

Loans to financial institutions

    16     17  

Other

    417     447  
           

  $ 634   $ 716  
           

In offices outside the U.S.

             

Commercial and industrial(2)

  $ 131   $ 95  

Mortgage and real estate(3)

    59     59  

Other

    1     3  
           

  $ 191   $ 157  
           

Total Corporate renegotiated loans

  $ 825   $ 873  
           

Consumer renegotiated loans(4)(5)(6)(7)

             

In U.S. offices

             

Mortgage and real estate(8)

  $ 19,281   $ 22,903  

Cards

    2,973     3,718  

Installment and other(9)

    611     1,088  
           

  $ 22,865   $ 27,709  
           

In offices outside the U.S.

             

Mortgage and real estate

  $ 823   $ 932  

Cards(10)

    801     866  

Installment and other

    771     904  
           

  $ 2,395   $ 2,702  
           

Total Consumer renegotiated loans

  $ 25,260   $ 30,411  
           

(1)
Includes $299 million and $267 million of non-accrual loans included in the non-accrual assets table above at June 30, 2013 and December 31, 2012, respectively. The remaining loans are accruing interest.

(2)
In addition to modifications reflected as TDRs at June 30, 2013, Citi also modified $192 million of commercial loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in offices outside the U.S. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).

(3)
In addition to modifications reflected as TDRs at June 30, 2013, Citi also modified $1 million of commercial real estate loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in U.S. offices. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).

(4)
Includes $3,582 million and $4,198 million of non-accrual loans included in the non-accrual assets table above at June 30, 2013 and December 31, 2012, respectively. The remaining loans are accruing interest.

(5)
Includes $36 million and $38 million of commercial real estate loans at June 30, 2013 and December 31, 2012, respectively.

(6)
Includes $230 million and $261 million of commercial loans at June 30, 2013 and December 31, 2012, respectively.

(7)
Smaller-balance homogeneous loans were derived from Citi's risk management systems.

(8)
Reduction in 2013 includes $3,973 million related to TDRs sold or transferred to held-for-sale.

(9)
Reduction in 2013 includes approximately $345 million related to TDRs sold or transferred to held-for-sale.

(10)
Reduction in 2013 includes $64 million related to the Brazil Credicard transfer to Discontinued operations.

61



North America Consumer Mortgage Lending

Overview

        Citi's North America Consumer mortgage portfolio consists of both residential first mortgages and home equity loans. As of June 30, 2013, Citi's North America Consumer residential first mortgage portfolio totaled $77.8 billion, while the home equity loan portfolio was $34.2 billion. This compared to $84.4 billion and $35.6 billion of residential first mortgages and home equity loans as of March 31, 2013, respectively. Of the first mortgages at June 30, 2013, $48.6 billion were recorded in LCL within Citi Holdings, with the remaining $29.2 billion recorded in Citicorp. With respect to the home equity loan portfolio, $31.2 billion were recorded in LCL, with the remaining $3.0 billion in Citicorp.

        Citi's residential first mortgage portfolio included $8.1 billion of loans with FHA insurance or VA guarantees as of June 30, 2013, compared to $8.6 billion as of March 31, 2013. This portfolio consists of loans to low-to-moderate-income borrowers with lower FICO (Fair Isaac Corporation) scores and generally has higher loan-to-value ratios (LTVs). Credit losses on FHA loans are borne by the sponsoring governmental agency, provided that the insurance terms have not been rescinded as a result of an origination defect. With respect to VA loans, the VA establishes a loan-level loss cap, beyond which Citi is liable for loss. While FHA and VA loans have high delinquency rates, given the insurance and guarantees, respectively, Citi has experienced negligible credit losses on these loans.

        In addition, as of June 30, 2013, Citi's residential first mortgage portfolio included $1.6 billion of loans with origination LTVs above 80%, compared to $1.5 billion at March 31, 2013, which have insurance through mortgage insurance companies. As of June 30, 2013, the residential first mortgage portfolio also had $0.9 billion of loans subject to long-term standby commitments (LTSCs) with U.S. government-sponsored entities (GSEs) (unchanged from March 31, 2013), for which Citi has limited exposure to credit losses. Citi's home equity loan portfolio also included $0.3 billion of loans subject to LTSCs with GSEs (unchanged from March 31, 2013), for which Citi also has limited exposure to credit losses. These guarantees and commitments may be rescinded in the event of loan origination defects.

        Citi's allowance for loan loss calculations takes into consideration the impact of these guarantees and commitments.

        Citi does not offer option-adjustable rate mortgages/negative amortizing mortgage products to its customers. As a result, option-adjustable rate mortgages/negative amortizing mortgages represent an insignificant portion of total balances, since they were acquired only incidentally as part of prior portfolio and business purchases.

        As of June 30, 2013, Citi's North America residential first mortgage portfolio contained approximately $6.1 billion of adjustable rate mortgages that are currently required to make a payment only of accrued interest for the payment period, or an interest-only payment, compared to $6.9 billion at March 31, 2013. The decline quarter-over-quarter resulted from conversions to amortizing loans of $268 million and repayments of $324 million, with the remainder primarily due to asset sales and transfers to held-for-sale of $203 million. Borrowers who are currently required to make an interest-only payment cannot select a lower payment that would negatively amortize the loan. Residential first mortgages with this payment feature are primarily to high-credit-quality borrowers who have on average significantly higher origination and refreshed FICO scores than other loans in the residential first mortgage portfolio, and have exhibited significantly lower 30+ delinquency rates as compared with residential first mortgages without this payment feature. As such, Citi does not believe the residential mortgage loans with this payment feature represent substantially higher risk in the portfolio.

North America Consumer Mortgage Quarterly Credit Trends—Delinquencies and Net Credit Losses—Residential First Mortgages

        The following charts detail the quarterly trends in delinquencies and net credit losses for Citigroup's residential first mortgage portfolio in North America. Approximately 62% of Citi's residential first mortgage exposure arises from its portfolio within Citi Holdings—LCL.

GRAPHIC

62


GRAPHIC


(1)
1Q'12 included approximately $315 million of incremental charge-offs related to previously deferred principal balances on modified loans related to anticipated forgiveness of principal in connection with the national mortgage settlement. Excluding the impact of these charge-offs, net credit losses would have been $0.45 billion and $0.43 billion for the Citigroup and Citi Holdings portfolios, respectively.

(2)
Includes the following amounts of charge-offs related to Citi's fulfillment of its obligations under the national mortgage and independent foreclosure review settlements: 2Q'12, $22 million; 3Q'12, $25 million; 4Q'12, $32 million; 1Q'13, $25 million; and 2Q'13, $18 million. Citi expects net credit losses in its residential first mortgage portfolio in Citi Holdings to continue to be impacted by its fulfillment of the terms of the independent foreclosure review settlement. See also "Citi Holdings—Local Consumer Lending" above and "National Mortgage Settlement/Independent Foreclosure Review Settlement" below.

(3)
3Q'12 included approximately $181 million of charge-offs related to OCC guidance with respect to the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy. 4Q'12 included approximately $10 million benefit to charge-offs related to finalizing the impact of the OCC guidance. Excluding these impacts, net credit losses would have been $0.47 billion in 3Q'12 and $0.39 billion in 4Q'12 for the Citigroup portfolio, and $0.44 billion in 3Q'12 and $0.38 billion in 4Q'12 for the Citi Holdings portfolio.

GRAPHIC


Note:
For each of the tables above, past due exclude (i) U.S. mortgage loans that are guaranteed by U.S. government-sponsored agencies because the potential loss predominantly resides with the U.S. agencies, and (ii) loans recorded at fair value. Totals may not sum due to rounding.

63


        Continued management actions, including asset sales and, to a lesser extent, modification programs, as well as the improvement in the Home Price Index (HPI), were the drivers of the overall improved asset performance within Citi's residential first mortgage portfolio in Citi Holdings during the second quarter of 2013. In addition, Citi continued to observe fewer loans entering the 30-89 days past due delinquency bucket during the quarter, which it attributes to the continued general improvement in the economic environment during the quarter coupled with Citi's sale of re-performing mortgages.

        During the second quarter of 2013, Citi sold approximately $0.7 billion of delinquent residential first mortgages (compared to $1.0 billion in the first quarter of 2013) and $2.4 billion of re-performing residential first mortgages (compared to $1.3 billion in the first quarter of 2013). Since the beginning of 2010, Citi has sold approximately $11.4 billion of delinquent residential first mortgages.

        In addition, Citi modified approximately $0.4 billion of residential first mortgage loans during the second quarter of 2013 (consistent with $0.4 billion in the first quarter of 2013), including loan modifications pursuant to the national mortgage and independent foreclosure review settlements. Loan modifications under the national mortgage and independent foreclosure review settlements have improved Citi's 30+ days past due delinquencies by approximately $531 million as of the end of the second quarter of 2013. While re-defaults of previously modified mortgages under the HAMP and Citi Supplemental Modification (CSM) programs continued to track favorably versus expectations as of June 30, 2013, Citi's residential first mortgage portfolio continued to show some signs of the impact of re-defaults of previously modified mortgages. For additional information on Citi's residential first mortgage loan modifications, see Note 13 to the Consolidated Financial Statements.

        Citi believes that its ability to reduce delinquencies or net credit losses in its residential first mortgage portfolio, due to any deterioration of the underlying credit performance of these loans, portfolio mix, re-defaults, the lengthening of the foreclosure process (see "Foreclosures" below) or otherwise, pursuant to asset sales or modifications could be limited going forward due to, among other things, the lower remaining inventory of delinquent loans to sell or modify or the lack of market demand for asset sales. In addition, Citi has observed that sales of re-performing residential first mortgages tend to be yield sensitive, meaning that as interest rates increase, it could negatively impact Citi's ability to sell such loans. Citi has taken these trends and uncertainties, including the potential for re-defaults, into consideration in determining its loan loss reserves. See "North America Consumer Mortgages—Loan Loss Reserve Coverage" below.

North America Residential First Mortgages—State Delinquency Trends

        The following tables set forth, for total Citigroup, the six states and/or regions with the highest concentration of Citi's residential first mortgages as of June 30, 2013 and March 31, 2013.

 
  June 30, 2013   March 31, 2013  
In billions of dollars
State(1)
  ENR(2)   ENR
Distribution
  90+DPD
%
  % LTV
> 100%
  Refreshed
FICO
  ENR(2)   ENR
Distribution
  90+DPD
%
  % LTV
> 100%
  Refreshed
FICO
 

CA

  $ 19.0     29 %   1.4 %   10 %   734   $ 20.5     29 %   1.6 %   18 %   733  

NY/NJ/CT

    11.1     17     3.1     7     728     11.6     16     3.2     7     727  

IN/OH/MI

    3.3     5     4.1     32     659     3.7     5     4.4     33     658  

FL

    3.3     5     6.0     33     684     3.5     5     6.2     37     681  

IL

    2.8     4     4.5     35     699     3.0     4     4.9     36     697  

AZ/NV

    1.6     2     3.1     38     707     1.8     2     3.8     45     706  

Other

    24.7     38     4.6     12     669     27.7     39     4.7     13     670  
                                           

Total

  $ 65.8     100 %   3.4 %   14 %   700   $ 71.8     100 %   3.6 %   18 %   699  
                                           

Note: Totals may not sum due to rounding.

(1)
Certain of the states are included as part of a region based on Citi's view of similar HPI within the region. New York, New Jersey, Connecticut, Indiana, Ohio, Florida and Illinois are judicial states.

(2)
Ending net receivables. Excludes loans in Canada and Puerto Rico, loans guaranteed by U.S. government agencies, loans recorded at fair value and loans subject to LTSCs. Excludes balances for which FICO or LTV data are unavailable.

        As evidenced by the table above, Citi's residential first mortgages portfolio is primarily concentrated in California and the New York/New Jersey/Connecticut region (with New York as the largest of the three states). The general improvement in refreshed LTV percentages at June 30, 2013 was primarily the result of improvements in HPI across substantially all metropolitan statistical areas, thereby increasing values used in the determination of LTV. Additionally, delinquent and re-performing mortgage asset sales of high LTV loans during the second quarter of 2013 further reduced the amount of loans with greater than 100% LTV. To a lesser extent, modification programs involving principal forgiveness further reduced the loans in this category during the second quarter of 2013. While Citi's 90+ days past due delinquency rates for the states/regions above have improved, with the continued lengthening of the foreclosure process (see discussion under "Foreclosures" below) in all of these states and regions during the second quarter of 2013, Citi expects it could experience less improvement in the 90+ days past due delinquency rate in certain of these states and/or regions in the future.

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Foreclosures

        The substantial majority of Citi's foreclosure inventory consists of residential first mortgages. As of June 30, 2013, approximately 1.4% (approximately $1.0 billion) of Citi's residential first mortgage portfolio was in Citi's foreclosure inventory, compared to 1.2% ($0.9 billion) as of March 31, 2013 and 2.1% ($1.7 billion) as of June 30, 2012 (for each period, based on the dollar amount of ending net receivables of loans in foreclosure inventory as of such date, excluding loans that are guaranteed by U.S. government agencies and loans subject to LTSCs).

        The increase in Citi's foreclosure inventory quarter-over-quarter was primarily a result of the initiation of new foreclosures that had previously been delayed from entering foreclosure due to increased state requirements and other regulatory requirements for foreclosure filings (e.g., extensive documentation, processing and filing requirements). Despite this slight increase quarter-over-quarter, Citi's foreclosure inventory remained below prior-year levels, due primarily to the foreclosure delays discussed above as well as Citi's continued asset sales of delinquent first mortgages and loan modifications, including under the national mortgage and independent foreclosure review settlements.

        Although there was an increase in the initiation of foreclosures during the second quarter of 2013, the foreclosure process largely remains stagnant across most states, driven primarily by the additional regulatory requirements necessary to complete foreclosures as well as the continued lengthening of the foreclosure process. Citi continues to experience average timeframes to foreclosure that are two to three times longer than historical norms. Extended foreclosure timelines continue to be more pronounced in the judicial states (i.e., states that require foreclosures to be processed via court approval), where Citi has a higher concentration of residential first mortgages in foreclosure (see "North America Residential First Mortgages—State Delinquency Trends" above).

        In addition, active foreclosure units in process for two years or more as a percentage of Citi's total residential and home equity foreclosure inventory was approximately 32%, unchanged from March 31, 2013, and increased from 19% as of June 30, 2012, reflecting the extended foreclosure timelines and lower number of loans moving into foreclosure.

        Citi's servicing agreements associated with its sales of mortgage loans to the GSEs generally provide the GSEs with a high level of servicing oversight, including, among other things, timelines in which foreclosures or modification activities are to be completed. The agreements allow for the GSEs to take action against a servicer for violation of the timelines, which includes imposing compensatory fees. While the GSEs have not historically exercised their rights to impose compensatory fees, they have begun to do so on a regular basis. To date, the imposition of compensatory fees, as a result of the extended foreclosure timelines or otherwise, has not had a material impact on Citi.

North America Consumer Mortgage Quarterly Credit Trends—Delinquencies and Net Credit Losses—Home Equity Loans

        Citi's home equity loan portfolio consists of both fixed-rate home equity loans and loans extended under home equity lines of credit. Fixed-rate home equity loans are fully amortizing. Home equity lines of credit allow for amounts to be drawn for a period of time with the payment of interest only and then, at the end of the draw period, the then-outstanding amount is converted to an amortizing loan (the interest-only payment feature during the revolving period is standard for this product across the industry). Prior to June 2010, Citi's originations of home equity lines of credit typically had a 10-year draw period. Beginning in June 2010, Citi's originations of home equity lines of credit typically have a five-year draw period as Citi changed these terms to mitigate risk. After conversion, the home equity loans typically have a 20-year amortization period.

        As of June 30, 2013, Citi's home equity loan portfolio of $34.2 billion included approximately $20.4 billion of home equity lines of credit (Revolving HELOCs) that are still within their revolving period and have not commenced amortization, or "reset." This compared to $21.1 billion at March 31, 2013. The following chart sets forth these Revolving HELOCs and the year in which they reset, as well as certain FICO and combined loan-to-value (CLTV) characteristics of the portfolio:

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GRAPHIC


Note:
Totals may not sum due to rounding.

Average refreshed FICO for Revolving HELOCs that will amortize between 2013-2014 was 720.

Average refreshed CLTV for Revolving HELOCs that will amortize between 2013-2014 was 64%.

Average refreshed FICO for Revolving HELOCs that will amortize between 2015-2017 was 722.

Average refreshed CLTV for Revolving HELOCs that will amortize between 2015-2017 was 82%.

        As indicated by the chart above, as of June 30, 2013, approximately only 4% of Citi's Revolving HELOCs had commenced amortization. Approximately 8% and 72% of the Revolving HELOCs will commence amortization during the remainder of the periods 2013-2014 and 2015-2017, respectively. Based on the limited sample of Revolving HELOCs that has begun amortization, Citi has experienced marginally higher delinquency rates in its amortizing home equity loan portfolio as compared to its non-amortizing loan portfolio. However, these resets have generally occurred during a period of declining interest rates, which Citi believes has likely reduced the overall "payment shock" to the borrower. Citi continues to monitor this reset risk closely, particularly as it approaches 2015, and Citi will continue to consider any potential impact in determining its allowance for loan loss reserves. In addition, management is reviewing additional actions to offset potential reset risk, such as extending offers to non-amortizing home equity loan borrowers to convert the non-amortizing home equity loan to a fixed-rate amortizing loan.

        As of June 30, 2013, the percentage of Citi's U.S. home equity loans in a junior lien position where Citi also owned or serviced the first lien was approximately 30%. However, for all home equity loans (regardless of whether Citi owns or services the first lien), Citi manages its home equity loan account strategy through obtaining and reviewing refreshed credit bureau scores (which reflect the borrower's performance on all of its debts, including a first lien, if any), refreshed CLTV ratios and other borrower credit-related information. Historically, the default and delinquency statistics for junior liens where Citi also owns or services the first lien have been better than for those where Citi does not own or service the first lien. Citi believes this is generally attributable to origination channels and better credit characteristics of the portfolio, including FICO and CLTV, for those junior liens where Citi also owns or services the first lien.

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        The following charts detail the quarterly trends in delinquencies and net credit losses for Citi's home equity loan portfolio in North America. The vast majority of Citi's home equity loan exposure arises from its portfolio within Citi Holdings—LCL.

GRAPHIC

GRAPHIC


(1)
1Q'12 included approximately $55 million of charge-offs related to previously deferred principal balances on modified loans related to anticipated forgiveness of principal in connection with the national mortgage settlement. Excluding the impact of these charge-offs, net credit losses would have been $0.51 billion and $0.50 billion for the Citigroup and Citi Holdings portfolios, respectively.

(2)
Includes the following amounts of charge-offs related to Citi's fulfillment of its obligations under the national mortgage and independent foreclosure review settlements: 2Q'12, $21 million; 3Q'12, $16 million; 4Q'12, $30 million; 1Q'13, $51 million; and 2Q'13, $12 million. Citi expects net credit losses in its home equity loan portfolio in Citi Holdings to continue to be impacted by its fulfillment of the terms of the independent foreclosure review settlement. See also "Citi Holdings—Local Consumer Lending" above, and "National Mortgage Settlement/Independent Foreclosure Review Settlement" below.

(3)
3Q'12 included approximately $454 million of charge-offs related to OCC guidance with respect to the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy. 4Q'12 included approximately $30 million benefit to charge-offs related to finalizing the impact of the OCC guidance. Excluding these impacts, net credit losses would have been $0.43 billion in 3Q'12 and $0.39 billion in 4Q'12 for the Citigroup portfolio, and $0.41 billion in 3Q'12 and $0.38 billion in 4Q'12 for the Citi Holdings portfolio.

(4)
Year-over-year change in the S&P/Case-Shiller U.S. National Home Price Index.

N/A Not Applicable

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GRAPHIC


Note:
For each of the tables above, days past due exclude (i) U.S. mortgage loans that are guaranteed by U.S. government-sponsored agencies, because the potential loss predominantly resides with the U.S. agencies, and (ii) loans recorded at fair value. Totals may not sum due to rounding.

        As evidenced by the tables above, home equity loan delinquencies improved during the second quarter of 2013, including fewer loans entering the 30-89 days past due delinquency bucket. The improvement quarter-over-quarter was driven by continued modifications and improvement in HPI. Given the lack of a market in which to sell delinquent home equity loans, as well as the relatively smaller number of home equity loan modifications and modification programs (see Note 13 to the Consolidated Financial Statements), Citi's ability to reduce delinquencies or net credit losses in its home equity loan portfolio in Citi Holdings, whether pursuant to deterioration of the underlying credit performance of these loans or otherwise, is more limited as compared to residential first mortgages. Citi has taken these trends and uncertainties into consideration in determining its loan loss reserves. See "North America Consumer Mortgages—Loan Loss Reserve Coverage" below.

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North America Home Equity Loans—State Delinquency Trends

        The following tables set forth, for total Citigroup, the six states and/or regions with the highest concentration of Citi's home equity loans as of June 30, 2013 and March 31, 2013.

 
  June 30, 2013   March 31, 2013  
In billions of dollars
State(1)
  ENR(2)   ENR
Distribution
  90+DPD %   %
CLTV >
100%(3)
  Refreshed
FICO
  ENR(2)   ENR
Distribution
  90+DPD
%
  %
CLTV >
100%(3)
  Refreshed
FICO
 

CA

  $ 8.9     28 %   1.8 %   26 %   725   $ 9.3     28 %   1.9 %   36 %   723  

NY/NJ/CT

    7.6     24     2.3     20     717     7.7     23     2.3     22     715  

FL

    2.3     7     3.2     51     701     2.3     7     3.3     55     700  

IL

    1.3     4     1.9     57     712     1.3     4     1.7     59     710  

IN/OH/MI

    1.1     3     1.7     59     686     1.1     3     2.0     59     681  

AZ/NV

    0.8     2     2.5     63     712     0.8     2     2.7     69     710  

Other

    10.3     32     1.9     32     698     10.8     33     2.0     38     696  
                                           

Total

  $ 32.3     100 %   2.1 %   31 %   711   $ 33.3     100 %   2.1 %   37 %   709  
                                           

Note:
Totals may not sum due to rounding.

(1)
Certain of the states are included as part of a region based on Citi's view of similar HPI within the region. New York, New Jersey, Connecticut, Indiana, Ohio, Florida and Illinois are judicial states.

(2)
Ending net receivables. Excludes loans in Canada and Puerto Rico and loans subject to LTSCs. Excludes balances for which FICO or LTV data are unavailable.

(3)
Represents combined loan-to-value (CLTV) for both residential first mortgages and home equity loans.

        As evidenced by the table above, Citi's home equity portfolio is primarily concentrated in California and the New York/New Jersey/Connecticut region (with New York as the largest of the three states). The stable to improving refreshed CLTV percentages at June 30, 2013 was primarily the result of improvements in HPI in these states/regions, thereby increasing values used in the determination of CLTV. For the reasons described under "North America Consumer Mortgage Quarterly Credit Trends—Delinquencies and Net Credit Losses—Home Equity Loans" above, Citi could experience increased delinquencies and thus increased net credit losses in certain of these states and/or regions going forward.

National Mortgage Settlement/Independent Foreclosure Review Settlement

        Under the national mortgage settlement, entered into by Citi and other financial institutions in February 2012, Citi agreed to provide (i) customer relief in the form of loan modifications for delinquent borrowers, including principal reductions, and other loss mitigation activities to be completed over three years, with a required settlement value of $1.4 billion; and (ii) refinancing concessions to enable current borrowers whose properties are worth less than the balance of their loans to reduce their interest rates, also to be completed over three years, with a required settlement value of $378 million. Pursuant to the independent foreclosure review settlement, entered into by Citi and other major mortgage servicers in January 2013, Citi agreed to offer $487 million of mortgage assistance to borrowers in accordance with agreed criteria.

        For additional information regarding the national mortgage settlement and the independent foreclosure review settlement, including Citi's accounting for the various loan modifications and refinancing concessions offered, see "Managing Global Risk—Credit Risk—National Mortgage Settlement" and "—Independent Foreclosure Review Settlement" in Citi's 2012 Annual Report on Form 10-K.

        As of the end of the second quarter of 2013, Citi believes it has fulfilled its requirement for the loan modification remediation and refinancing concessions under the national mortgage settlement. The results are pending review and certification of the monitor required by the national mortgage settlement, which is not expected to be completed until later in 2013.

        Through June 30, 2013, Citi assisted approximately 47,000 customers under the loan modification and other loss-mitigation activities provisions of the national mortgage settlement, resulting in an aggregate principal reduction of approximately $3.2 billion that is potentially eligible for inclusion in the settlement value (like other financial institutions party to the national mortgage settlement, Citi does not receive dollar-for-dollar settlement value for the relief it

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provides under the national mortgage settlement in all cases). Net credit losses of approximately $600 million have been incurred to date relating to the loan modifications under the national mortgage settlement, all of which were offset by loan loss reserve releases (net credit losses included approximately $370 million of incremental charge-offs related to anticipated forgiveness of principal in connection with the national mortgage settlement in the first quarter of 2012).

        In addition, as of June 30, 2013, Citi has provided refinance concessions under the national mortgage settlement to approximately 17,000 customers holding loans with a total unpaid principal balance of $2.8 billion, thus reducing their interest rate to 5.25% or less for the remaining life of the loan.

        As of June 30, 2013, approximately 8,000 customers holding loans with a total unpaid principal balance of $1.2 billion who were provided refinance concessions under the national mortgage settlement have been accounted for as TDRs. These refinancing concessions have not had a material impact on the fair value of the modified mortgage loans. Further, Citi estimates the forgone future interest income as a result of the refinance concessions under the national mortgage settlement that were not accounted for as TDRs was approximately $15 million during the second quarter of 2013, and that the total amount of expected forgone future interest income as a result of the refinancing concessions will be approximately $60 million annually.

        With respect to the independent foreclosure review settlement, Citi continues to fulfill its obligations under the settlement, and estimates it will incur additional net credit losses of approximately $30 million per quarter during the remainder of 2013. Citi continues to believe its loan loss reserve as of June 30, 2013 will be sufficient to cover any mortgage assistance under the independent foreclosure review settlement.

Consumer Mortgage FICO and LTV

        The following charts detail the quarterly trends for Citi's residential first mortgage and home equity loan portfolios by risk segment (FICO and LTV) and the 90+ day delinquency rates for those risk segments. For example, in the second quarter of 2013, residential first mortgages had $4.9 billion of balances with refreshed FICO < 660 and refreshed LTV > 100%. Approximately 15.4% of these loans in this segment were over 90+ days past due.

Residential First Mortgages

In billions of dollars

GRAPHIC

Home Equity Loans

In billions of dollars

GRAPHIC


Notes:

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        Citi's residential first mortgages with an LTV above 100% has declined by 27% since the first quarter of 2013, and high LTV loans with FICO scores of less than 660 decreased by 18% to $4.9 billion. The residential first mortgage portfolio has migrated to a higher FICO and lower LTV distribution as a result of home price appreciation, asset sales and principal forgiveness. Loans 90+ days past due in the residential first mortgage portfolio with refreshed FICO scores of less than 660 as well as higher LTVs have declined by approximately 19%, or $0.2 billion, quarter-over-quarter to approximately $0.8 billion. This can be attributed to asset sales and modification programs, offset by the lengthening of the foreclosure process, as discussed in the sections above. Citi's home equity loans with a CLTV above 100% have declined by 18% since the first quarter of 2013, and high CLTV loans with FICO scores of less than 660 decreased by 17% to approximately $2.9 billion. The CLTV improvement was primarily the result of home price appreciation, charge offs and repayments.

        Residential first mortgages historically have experienced higher delinquency rates, as compared to home equity loans, despite the fact that home equity loans are typically in junior lien positions and residential first mortgages are typically in a first lien position. Citi believes this difference is primarily because residential first mortgages are written down to collateral value less cost to sell at 180 days past due and remain in the delinquency population until full disposition through sale, repayment or foreclosure; however, home equity loans are generally fully charged off at 180 days past due and thus removed from the delinquency calculation. In addition, due to the longer timelines to foreclose on a residential first mortgage (see "Foreclosures" above), these loans tend to remain in the delinquency statistics for a longer period and, consequently, the 90 days or more delinquencies of these loans remain higher.

Mortgage Servicing Rights

        To minimize credit and liquidity risk, Citi sells most of the conforming mortgage loans it originates but retains the servicing rights. These sale transactions create an intangible asset referred to as mortgage servicing rights (MSRs), which are recorded at fair value on Citi's Consolidated Balance Sheet. The fair value of MSRs is primarily affected by changes in prepayments of mortgages that result from shifts in mortgage interest rates. Specifically, higher interest rates tend to lead to declining prepayments which causes the fair value of the MSRs to increase. In managing this risk, Citi economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase and sale commitments of mortgage-backed securities and purchased securities classified as trading account assets.

        Citi's MSRs totaled $2.5 billion as of June 30, 2013, compared to $2.2 billion and $1.9 billion at March 31, 2013 and December 31, 2012, respectively. The increase in the value of Citi's MSRs from March 31, 2013 primarily reflected the impact from higher interest rates partially offset by amortization. As of June 30, 2013, approximately $1.9 billion of MSRs were specific to Citicorp, with the remainder to Citi Holdings.

        For additional information on Citi's MSRs, see Note 19 to the Consolidated Financial Statements.

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Citigroup Residential Mortgages—Representations and Warranties

Overview

        In connection with Citi's sales of residential mortgage loans to the U.S. government-sponsored entities (GSEs) and, in most cases, other mortgage loan sales and private-label securitizations, Citi makes representations and warranties that the loans sold meet certain requirements. The specific representations and warranties made by Citi in any particular transaction depend on, among other things, the nature of the transaction and the requirements of the investor (e.g., whole loan sale to the GSEs versus loans sold through securitization transactions), as well as the credit quality of the loan (e.g., prime, Alt-A or subprime).

        These sales expose Citi to potential claims for alleged breaches of its representations and warranties. In the event of a breach of its representations and warranties, Citi could be required either to repurchase the mortgage loans with the identified defects (generally at unpaid principal balance plus accrued interest) or to indemnify ("make whole") the investors for their losses on these loans. Investors could also seek recovery for alleged breaches of representations and warranties, as well as losses caused by non-performing loans more generally, through litigation premised on a variety of legal theories.

        As of the first quarter of 2013, Citi considers private-label securitization representation and warranty claims as part of its litigation accrual analysis (see "Managing Global Risk—Credit Risk—Citigroup Residential Mortgages—Representation and Warranties—Repurchase Reserve" in Citi's First Quarter of 2013 Form 10-Q for additional information). For additional information, see Note 24 to the Consolidated Financial Statements.

Whole Loan Sales

        Citi is exposed to representation and warranty repurchase claims primarily as a result of its whole loan sales to the GSEs and, to a lesser extent private investors, through its Consumer business in CitiMortgage. For the types of representation and warranties made to these investors, see "Managing Global Risk—Credit Risk—Citigroup Residential Mortgages—Representation and Warranties" in Citi's 2012 Annual Report on Form 10-K. To the extent Citi made representation and warranties on loans it purchased from third-party sellers that remain financially viable, Citi may have the right to seek recovery of repurchase losses or make-whole payments from the third party based on representations and warranties made by the third party to Citi (a "back-to-back" claim).

        During the period 2006 through 2008, Citi sold a total of approximately $321 billion of whole loans, substantially all to the GSEs (this amount has not been adjusted for subsequent borrower repayments of principal, defaults or repurchase activity to date). The vast majority of these loans were either originated by Citi or purchased from third-party sellers that Citi believes would be unlikely to honor back-to-back claims because they are in bankruptcy, liquidation or financial distress and, thus, are no longer financially viable. As discussed below, however, Citi's repurchase reserve takes into account estimated reimbursements, if any, to be received from third-party sellers.

        On June 28, 2013, Citi reached an agreement with Fannie Mae to resolve potential future repurchase claims for breaches of representations and warranties on 3.7 million residential first mortgage loans sold to Fannie Mae that were originated between 2000 and 2012 (Covered Loans). Citi paid Fannie Mae $968 million under the agreement, substantially all of which was covered by Citi's existing mortgage repurchase reserves as of March 31, 2013. The agreement covers potential future origination-related representation and warranty claims on the Covered Loans. The agreement does not release Citi's liability with respect to its servicing or other ongoing contractual obligations on the Covered Loans. It also does not release liability to a population of less than 12,000 loans originated between 2000 and 2012 with certain characteristics such as loans sold with a performance guarantee or under special credit enhancement programs.

Private-Label Residential Mortgage Securitizations

        Citi is also exposed to representation and warranty repurchase claims as a result of mortgage loans sold through private-label residential mortgage securitizations. For the types of representation and warranties made to these investors, which were generally made or assigned to the issuing trust, as well as other additional information relating to Citi's private-label residential mortgage securitizations, see "Managing Global Risk—Credit Risk—Citigroup Residential Mortgages—Representation and Warranties" in Citi's 2012 Annual Report on Form 10-K.

        During the period 2005 through 2008, Citi sold loans into and sponsored private-label securitizations through both its Consumer business in CitiMortgage and its legacy S&B business. Citi sold approximately $91 billion of mortgage loans through private-label securitizations during this period.

CitiMortgage

        During the period 2005 through 2008, Citi sold approximately $24.6 billion of loans through private-label mortgage securitization trusts via its Consumer business in CitiMortgage. These $24.6 billion of securitization trusts were composed of approximately $15.4 billion in prime trusts and $9.2 billion in Alt-A trusts, each as classified at issuance.

        As of June 30, 2013, approximately $7.8 billion of the $24.6 billion remained outstanding (compared to $8.3 billion at March 31, 2013) as a result of repayments of approximately $15.4 billion and cumulative losses (incurred by the issuing trusts) of approximately $1.4 billion. The remaining outstanding amount is composed of approximately $3.8 billion in prime trusts and approximately $4.0 billion in Alt-A trusts, as classified at issuance. As of June 30, 2013, the remaining outstanding amount had a 90 days or more delinquency rate of approximately 16.3% (compared to 15.9% at March 31, 2013).

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Legacy S&B Securitizations

        During the period 2005 through 2008, S&B, through its legacy business, sold approximately $66.4 billion of loans through private-label mortgage securitization trusts. These $66.4 billion of securitization trusts were composed of approximately $15.4 billion in prime trusts, $12.4 billion in Alt-A trusts and $38.6 billion in subprime trusts, each as classified at issuance.

        As of June 30, 2013, approximately $18.3 billion of the $66.4 billion remained outstanding (compared to $19.1 billion at March 31, 2013) as a result of repayments of approximately $36.9 billion and cumulative losses (incurred by the issuing trusts) of approximately $11.1 billion (of which approximately $8.4 billion related to loans in subprime trusts). The remaining outstanding amount is composed of approximately $4.6 billion in prime trusts, $3.9 billion in Alt-A trusts and $9.8 billion in subprime trusts, as classified at issuance. As of June 30, 2013, the remaining outstanding amount had a 90 days or more delinquency rate of approximately 24.1% (compared to 25.4% at March 31, 2013).

Whole Loan Representation and Warranty Claims by Claimant

        The following table sets forth the original principal balance of representation and warranty claims by claimant, as well as the original principal balance of unresolved claims by claimant, for each of the quarterly periods presented:

 
  Claims during the three months ended(1)  
In millions of dollars   June 30,
2013
  March 31,
2013
  December 31,
2012
  September 30,
2012
  June 30,
2012
 

GSEs and others(2)

  $ 634   $ 1,110   $ 769   $ 863   $ 860  

Mortgage insurers(3)

    13     16     18     21     90  
                       

Total

  $ 647   $ 1,126   $ 787   $ 884   $ 950  
                       

 

 
  Unresolved claims at(1)  
In millions of dollars   June 30,
2013
  March 31,
2013
  December 31,
2012
  September 30,
2012
  June 30,
2012
 

GSEs and others(2)

  $ 259   $ 1,246   $ 1,224   $ 1,371   $ 1,263  

Mortgage insurers(3)

    5     6     5     4     15  
                       

Total

  $ 264   $ 1,252   $ 1,229   $ 1,375   $ 1,278  
                       

(1)
As noted above, excludes private-label securitization claims which Citi considers as part of its litigation accrual analysis and not as part of its repurchase reserve. The original principal balance of representation and warranty claims received on private-label securitizations was $1.5 billion during 2012 and $1.0 billion year-to-date in 2013. The original principal balance of unresolved private-label securitization representation and warranty claims was $2.7 billion as of June 30, 2013.

(2)
Predominantly related to claims from the GSEs. The quarter-over-quarter decrease in unresolved claims to the GSEs and others reflects the agreement with Fannie Mae.

(3)
Represents the insurer's rejection of a claim for loss reimbursement that has yet to be resolved and includes only GSE whole loan activity. To the extent that mortgage insurance will not cover the claim on a loan, Citi may have to make the GSE whole. Failure to collect from mortgage insurers is considered in determining the repurchase reserve. Citi does not believe the inability to collect reimbursement from mortgage insurers is likely to have a material impact on its repurchase reserve.

Repurchase Reserve

        Citi has recorded a repurchase reserve for its potential repurchase or make-whole liability regarding representation and warranty claims, which primarily relates to whole loan sales to the GSEs. Specifically, the repurchase reserve balance is available to cover representation and warranty claims on residential mortgage loans sold to Freddie Mac, loans sold to Fannie Mae that are excluded from the Fannie Mae agreement (as discussed above) and loans sold to private investors.

        The repurchase reserve is based on various assumptions which are primarily based on Citi's historical repurchase activity with the GSEs. As of June 30, 2013, the most significant assumptions used to calculate the reserve levels are the: (i) probability of a claim based on correlation between loan characteristics and repurchase claims; (ii) claims appeal success rates; and (iii) estimated loss per repurchase or make-whole payment. In addition, Citi considers reimbursements estimated to be received from third-party sellers, if any, which are generally based on Citi's analysis of its most recent collection trends and the financial solvency or viability of the third-party sellers.

        During the second quarter of 2013, Citi recorded an additional reserve of $245 million relating to its whole loan sales repurchase exposure, which was recorded in Citi Holdings—Local Consumer Lending. The change in estimate in the second quarter of 2013 primarily resulted from (i) a continued heightened focus by Freddie Mac, including elevated loan documentation requests, resulting in increased estimates of repurchase claims, (ii) a deteriorating repurchase estimate associated with mortgage insurance rescission behavior, and (iii) an incremental reserve related to the Fannie Mae agreement. Citi's claims appeal success rate remained stable during the second quarter of 2013, with approximately half of repurchase claims successfully appealed and thus resulting in no loss to Citi.

        As referenced above, the repurchase reserve estimation process for potential whole loan representation and warranty claims relies on various assumptions that involve numerous estimates and judgments, including with respect to certain future events, and thus entails inherent uncertainty. Citi estimates that the range of reasonably possible loss for whole loan sale representation and warranty claims in excess of amounts accrued as of June 30, 2013 could be up to $0.2 billion. This estimate was derived by modifying the key assumptions discussed above to reflect management's judgment regarding reasonably possible adverse changes to those assumptions.

73


Citi's estimate of reasonably possible loss is based on currently available information, significant judgment and numerous assumptions that are subject to change.

        The table below sets forth the activity in the repurchase reserve for each of the quarterly periods presented:

 
  Three Months Ended  
In millions of dollars   June 30,
2013
  March 31,
2013
  December 31,
2012
  September 30,
2012
  June 30,
2012
 

Balance, beginning of period

  $ 1,415   $ 1,565   $ 1,516   $ 1,476   $ 1,376  

Reclassification(1)

        (244 )            

Additions for new sales(2)

    9     7     6     7     4  

Change in estimate(3)

    245     225     173     200     242  

Utilizations

    (37 )   (138 )   (130 )   (167 )   (146 )

Fannie Mae Agreement(4)

    (913 )                
                       

Balance, end of period

  $ 719   $ 1,415   $ 1,565   $ 1,516   $ 1,476  
                       

(1)
Reflects first quarter of 2013 reclassification of $244 million of the repurchase reserve relating to private-label securitizations to Citi's litigation accruals (see discussion above).

(2)
Reflects new whole loan sales, primarily to the GSEs.

(3)
The change in estimate for the second quarter of 2013 related to whole loan sales to the GSEs and private investors.

(4)
Reflects $968 million paid pursuant to the Fannie Mae agreement, net of repurchases made in the first quarter of 2013, as set forth in the Fannie Mae agreement.

        The following table sets forth the unpaid principal balance of loans repurchased due to representation and warranty claims during each of the quarterly periods presented:

 
  Three Months Ended  
In millions of dollars   June 30,
2013
  March 31,
2013
  December 31,
2012
  September 30,
2012
  June 30,
2012
 

GSEs and others(1)

  $ 220   $ 190   $ 157   $ 105   $ 202  
                       

(1)
Predominantly related to claims from the GSEs.

        In addition to the amounts set forth in the table above, Citi recorded make-whole payments of $59 million, $93 million, $92 million, $118 million and $91 million for the quarterly periods ended June 30, 2013, March 31, 2013, December 31, 2012, September 30, 2012 and June 30, 2012, respectively. Nearly all of these make-whole payments were to the GSEs.

        To date, the majority of Citi's repurchases have related to loans originated from 2006 through 2008, which also represent the vintages with the highest loss severity. An insignificant percentage of repurchases and make-whole payments have been from vintages pre-2006 and post-2008, which Citi attributes to better credit performance of these vintages and to the enhanced underwriting standards implemented beginning in the second half of 2008. Issues related to (i) misrepresentation of facts by either the borrower or a third party (e.g., income, employment, debts, etc.), (ii) appraisal issues (e.g., an error or misrepresentation of value), and (iii) program requirements (e.g., a loan that does not meet investor guidelines, such as contractual interest rate) have been the primary drivers of Citi's repurchases and make-whole payments to the GSEs. The type of defect that results in a repurchase or make-whole payment, however, has varied and will likely continue to vary over time. There has not been a meaningful difference in Citi's incurred or estimated loss for any particular type of defect.

74



North America Cards

Overview

        Citi's North America cards portfolio primarily consists of its Citi-branded cards and Citi retail services portfolios in Citicorp. As of June 30, 2013, the Citicorp Citi-branded cards portfolio totaled approximately $69 billion, while the Citi retail services portfolio was approximately $36 billion.

        See Note 13 to the Consolidated Financial Statements for additional information on Citi's North America cards modifications.

North America Cards Quarterly Credit Trends—Delinquencies and Net Credit Losses

        The following charts detail the quarterly trends in delinquencies and net credit losses for Citigroup's North America Citi-branded cards and Citi retail services portfolios in Citicorp. Assuming no downturn in the U.S. economic environment, Citi believes credit trends have largely stabilized in the cards portfolios.

GRAPHIC

GRAPHIC

75



CONSUMER LOAN DETAILS

Consumer Loan Delinquency Amounts and Ratios

 
  Total
loans(1)
  90+ days past due(2)   30-89 days past due(2)  
In millions of dollars,
except EOP loan amounts in billions
  June
2013
  June
2013
  March
2013
  June
2012
  June
2013
  March
2013
  June
2012
 

Citicorp(3)(4)

                                           

Total

  $ 283.7   $ 2,644   $ 2,941   $ 3,090   $ 2,967   $ 3,389   $ 3,449  

Ratio

          0.94 %   1.02 %   1.09 %   1.05 %   1.18 %   1.22 %
                               

Retail banking

                                           

Total

  $ 145.2   $ 849   $ 863   $ 869   $ 1,085   $ 1,191   $ 1,049  

Ratio

          0.59 %   0.59 %   0.63 %   0.75 %   0.81 %   0.76 %

North America

    41.7     285     282     294     217     226     215  

Ratio

          0.71 %   0.68 %   0.74 %   0.54 %   0.54 %   0.54 %

EMEA

    5.3     41     43     49     68     70     78  

Ratio

          0.77 %   0.83 %   1.07 %   1.28 %   1.35 %   1.70 %

Latin America

    29.7     318     309     285     368     427     316  

Ratio

          1.07 %   1.02 %   1.10 %   1.24 %   1.41 %   1.22 %

Asia

    68.5     205     229     241     432     468     440  

Ratio

          0.30 %   0.33 %   0.36 %   0.63 %   0.67 %   0.65 %
                               

Cards

                                           

Total

  $ 138.5   $ 1,795   $ 2,078   $ 2,221   $ 1,882   $ 2,198   $ 2,400  

Ratio

          1.30 %   1.47 %   1.53 %   1.36 %   1.55 %   1.65 %

North America—Citi-branded

    69.3     663     732     830     588     679     744  

Ratio

          0.96 %   1.06 %   1.14 %   0.85 %   0.98 %   1.02 %

North America—Citi retail services

    36.0     556     651     721     615     685     852  

Ratio

          1.54 %   1.84 %   1.97 %   1.71 %   1.94 %   2.33 %

EMEA

    2.8     44     45     43     57     60     61  

Ratio

          1.57 %   1.61 %   1.54 %   2.04 %   2.14 %   2.18 %

Latin America

    11.5     323     418     405     335     449     428  

Ratio

          2.81 %   2.81 %   2.96 %   2.91 %   3.01 %   3.12 %

Asia

    18.9     209     232     222     287     325     315  

Ratio

          1.11 %   1.20 %   1.13 %   1.52 %   1.68 %   1.61 %
                               

Citi Holdings—Local Consumer Lending(5)(6)

                                           

Total

  $ 97.9   $ 3,207   $ 3,678   $ 5,354   $ 3,151   $ 3,407   $ 4,614  

Ratio

          3.56 %   3.80 %   4.64 %   3.50 %   3.52 %   4.00 %

International

    6.2     242     269     363     255     286     453  

Ratio

          3.90 %   4.08 %   3.90 %   4.11 %   4.33 %   4.87 %

North America

    91.7     2,965     3,409     4,991     2,896     3,121     4,161  

Ratio

          3.53 %   3.78 %   4.71 %   3.45 %   3.46 %   3.93 %
                               

Total Citigroup (excluding Special Asset Pool)

  $ 381.6   $ 5,851   $ 6,619   $ 8,444   $ 6,118   $ 6,796   $ 8,063  

Ratio

          1.57 %   1.72 %   2.12 %   1.65 %   1.76 %   2.02 %
                               

(1)
Total loans include interest and fees on credit cards.

(2)
The ratios of 90+ days past due and 30-89 days past due are calculated based on end-of-period (EOP) loans.

(3)
The 90+ days past due balances for North America—Citi-branded cards and North America—Citi retail services are generally still accruing interest. Citigroup's policy is generally to accrue interest on credit card loans until 180 days past due, unless notification of bankruptcy filing has been received earlier.

(4)
The 90+ days and 30-89 days past due and related ratios for North America Regional Consumer Banking exclude U.S. mortgage loans that are guaranteed by U.S. government-sponsored entities since the potential loss predominantly resides within the U.S. government agencies. The amounts excluded for loans 90+ days past due and (EOP loans) were $728 million ($1.3 billion), $736 million ($1.5 billion), and $748 million ($1.2 billion) at June 30, 2013, March 31, 2013 and June 30, 2012, respectively. The amounts excluded for loans 30-89 days past due (EOP loans have the same adjustment as above) were $144 million, $121 million, and $124 million, at June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(5)
The 90+ days and 30-89 days past due and related ratios for North America Local Consumer Lending exclude U.S. mortgage loans that are guaranteed by U.S. government-sponsored entities since the potential loss predominantly resides within the U.S. agencies. The amounts excluded for loans 90+ days past due and (EOP loans) for each period were $3.5 billion ($6.8 billion), $3.7 billion ($7.0 billion), and $4.3 billion ($7.4 billion) at June 30, 2013, March 31, 2013 and June 30, 2012, respectively. The amounts excluded for loans 30-89 days past due (EOP loans have the same adjustment as above) for each period were $1.2 billion, $1.1 billion, and $1.3 billion, at June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(6)
The June 30, 2013, March 31, 2013 and June 30, 2012 loans 90+ days past due and 30-89 days past due and related ratios for North America exclude $1.0 billion, $1.2 billion and $1.2 billion, respectively, of loans that are carried at fair value.

76



Consumer Loan Net Credit Losses and Ratios

 
   
  Net credit losses(2)  
 
  Average
loans(1)
2Q13
 
In millions of dollars, except average loan amounts in billions   2Q13   1Q13   2Q12  

Citicorp

                         

Total

  $ 282.5   $ 1,785   $ 1,909   $ 2,039  

Ratio

          2.53 %   2.69 %   2.94 %
                   

Retail banking

                         

Total

  $ 145.0   $ 299   $ 338   $ 276  

Ratio

          0.83 %   0.93 %   0.80 %

North America

    41.0     44     55     62  

Ratio

          0.43 %   0.52 %   0.61 %

EMEA

    5.3     (2 )   9     7  

Ratio

          (0.15 %)   0.72 %   0.60 %

Latin America

    29.9     204     207     135  

Ratio

          2.74 %   2.86 %   2.15 %

Asia

    68.8     53     67     72  

Ratio

          0.31 %   0.39 %   0.43 %
                   

Cards

                         

Total

  $ 137.5   $ 1,486   $ 1,571   $ 1,763  

Ratio

          4.33 %   4.53 %   5.04 %

North America—Citi-branded

    68.4     665     692     840  

Ratio

          3.90 %   4.03 %   4.71 %

North America—retail services

    35.8     481     508     609  

Ratio

          5.39 %   5.61 %   6.71 %

EMEA

    2.8     1     20     7  

Ratio

          0.14 %   2.80 %   1.01 %

Latin America

    11.5     212     212     180  

Ratio

          7.39 %   7.48 %   7.03 %

Asia

    19.0     127     139     127  

Ratio

          2.68 %   2.85 %   2.62 %
                   

Citi Holdings—Local Consumer Lending

                         

Total

  $ 104.2   $ 775   $ 920   $ 1,289  

Ratio

          2.98 %   3.37 %   4.09 %

International

    6.4     51     85     154  

Ratio

          3.20 %   4.72 %   6.45 %

North America

    97.8     724     835     1,135  

Ratio

          2.97 %   3.28 %   3.90 %
                   

Total Citigroup (excluding Special Asset Pool)

  $ 386.7   $ 2,560   $ 2,829   $ 3,328  

Ratio

          2.66 %   2.88 %   3.30 %
                   

(1)
Average loans include interest and fees on credit cards.

(2)
The ratios of net credit losses are calculated based on average loans, net of unearned income.

77



CORPORATE CREDIT DETAILS

        For additional information on the credit process for Citi's corporate clients and investment banking activities, see "Managing Global Risk—Risk Management—Overview" and "Managing Global Risk—Credit Risk—Corporate Loan Details" in Citigroup's 2012 Annual Report on Form 10-K.


Corporate Credit Portfolio

        The following table represents the Corporate credit portfolio (excluding Private Bank in Securities and Banking), before consideration of collateral or hedges, by remaining tenor at June 30, 2013 and December 31, 2012. The Corporate credit portfolio includes loans and unfunded lending commitments in Citi's institutional client exposure in ICG and SAP by Citi's internal management hierarchy and is broken out by (i) direct outstandings, which include drawn loans, overdrafts, bankers' acceptances and leases, and (ii) unfunded lending commitments, which include unused commitments to lend, letters of credit and financial guarantees.

 
  At June 30, 2013   At December 31, 2012  
In billions of dollars   Due
within 1
year
  Greater
than 1 year
but within
5 years
  Greater
than
5 years
  Total
Exposure
  Due
within
1 year
  Greater
than 1 year
but within
5 years
  Greater
than
5 years
  Total
exposure
 

Direct outstandings

  $ 107   $ 72   $ 31   $ 210   $ 92   $ 76   $ 28   $ 196  

Unfunded lending commitments

    90     194     18     302     88     199     28     315  
                                   

Total

  $ 197   $ 266   $ 49   $ 512   $ 180   $ 275   $ 56   $ 511  
                                   


Portfolio Mix—Geography, Counterparty and Industry

        Citi's Corporate credit portfolio is diverse across geography and counterparty. The following table shows the percentage of direct outstandings and unfunded lending commitments by region based on Citi's internal management geography:

 
  June 30,
2013
  December 31,
2012
 

North America

    51 %   52 %

EMEA

    27     27  

Asia

    15     14  

Latin America

    7     7  
           

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. Counterparty risk ratings reflect an estimated probability of default for a counterparty and are derived primarily through the use of validated statistical models, scorecard models and external agency ratings (under defined circumstances), in combination with consideration of factors specific to the obligor or market, such as management experience, competitive position and regulatory environment. Facility risk ratings are assigned that reflect the probability of default of the obligor and factors that affect the loss-given-default of the facility, such as support or collateral. Internal obligor ratings that generally correspond to BBB and above are considered investment grade, while those below are considered non-investment grade.

        Citigroup also has incorporated climate risk assessment criteria for certain obligors, as necessary. Factors evaluated include consideration of climate risk to an obligor's business and physical assets and, when relevant, consideration of cost-effective options to reduce greenhouse gas emissions.

        The following table presents the Corporate credit portfolio by facility risk rating at June 30, 2013 and December 31, 2012, as a percentage of the total Corporate credit portfolio:

 
  Direct outstandings and
unfunded lending commitments
 
 
  June 30,
2013
  December 31,
2012
 

AAA/AA/A

    51 %   52 %

BBB

    15     14  

BB/B

    32     32  

CCC or below

    2     2  

Unrated

         
           

Total

    100 %   100 %
           

78


        Citi's Corporate credit portfolio is also diversified by industry, with a concentration in the financial sector, broadly defined, and 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 lending commitments to industries as a percentage of the total Corporate credit portfolio:

 
  Direct outstandings and
unfunded lending commitments
 
 
  June 30,
2013
  December 31,
2012
 

Transportation and industrial

    21 %   21 %

Petroleum, energy, chemical and metal

    20     20  

Consumer retail and health

    15     15  

Banks/broker-dealers

    11     10  

Technology, media and telecom

    10     9  

Public sector

    7     8  

Insurance and special purpose entities

    5     6  

Real estate

    5     4  

Hedge funds

    4     4  

Other industries

    2     3  
           

Total

    100 %   100 %
           


Credit Risk Mitigation

        As part of its overall risk management activities, Citigroup uses credit derivatives and other risk mitigants to hedge portions of the credit risk in its Corporate credit portfolio, in addition to outright asset sales. The purpose of these transactions is to transfer credit risk to third parties. The results of the mark to market and any realized gains or losses on credit derivatives are reflected in Principal transactions on the Consolidated Statement of Income.

        At June 30, 2013 and December 31, 2012, $30.3 billion and $33.0 billion, respectively, of the Corporate credit portfolio was economically hedged. Citigroup's expected loss model used in the calculation of its loan loss reserve does not include the favorable impact of credit derivatives and other mitigants that are marked-to-market. In addition, the reported amounts of direct outstandings and unfunded lending commitments in the tables above do not reflect the impact of these hedging transactions. At June 30, 2013 and December 31, 2012, the credit protection was economically hedging underlying Corporate credit portfolio with the following risk rating distribution:


Rating of Hedged Exposure

 
  June 30,
2013
  December 31,
2012
 

AAA/AA/A

    30     34  

BBB

    41     39  

BB/B

    24     23  

CCC or below

    5     4  
           

Total

    100     100  
           

        At June 30, 2013 and December 31, 2012, the credit protection was economically hedging underlying Corporate credit portfolio exposures with the following industry distribution:


Industry of Hedged Exposure

 
  June 30,
2013
  December 31,
2012
 

Transportation and industrial

    27 %   27 %

Petroleum, energy, chemical and metal

    22     25  

Technology, media and telecom

    13     11  

Banks/broker-dealers

    12     10  

Public sector

    9     5  

Consumer retail and health

    9     13  

Insurance and special purpose entities

    5     5  

Other industries

    3     4  
           

Total

    100 %   100 %
           

        For additional information on Citi's Corporate credit portfolio, including allowance for loan losses, coverage ratios and Corporate non-accrual loans, see "Credit Risk—Loans Outstanding, Details of Credit Loss Experience, Allowance for Loan Losses and Non-Accrual Loans and Assets" above.

79



MARKET RISK

        Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary such as Citi. For a discussion of funding and liquidity risk, see "Capital Resources and Liquidity—Funding and Liquidity" above. Price risk losses arise from fluctuations in the market value of trading and non-trading positions resulting from changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and in their implied volatilities. For additional information, see "Managing Global Risk—Market Risk" in Citi's 2012 Annual Report on Form 10-K.

Price Risk—Non-Trading Portfolios

Interest Rate Exposure (IRE)

        The exposures in the following table represent the approximate annualized risk to Citi's net interest revenue assuming an unanticipated parallel instantaneous 100 basis point change in interest rates compared with the market forward interest rates in selected currencies.

 
  June 30, 2013   March 31, 2013   June 30, 2012
In millions of dollars   Increase   Decrease   Increase   Decrease   Increase   Decrease

U.S. dollar(1)

  $ 1,117   NM   $ 881   NM   $ 691   NM

Mexican peso

    77   (77)     38   (38)     42   (42)

Euro

    3   NM     12   NM     32   NM

Japanese yen

    58   NM     65   NM     79   NM

Pound sterling

    54   NM     46   NM     46   NM

All other currencies(2)

    455   NM     483   NM     430   NM
                         

(1)
Certain trading-oriented businesses within Citi have accrual-accounted positions that are excluded from the table since these exposures are economically managed in combination with marked-to-market positions. The U.S. dollar IRE associated with these businesses was $(244) million for a 100 basis point instantaneous increase in interest rates as of June 30, 2013.

(2)
Other currencies, excluding certain trading-oriented businesses, includes 77 additional currencies.

NM Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the yield curve.

        Generally, Citi manages its IRE for non-trading portfolios as a consolidated net position by currency. Citi's client-facing businesses create interest rate sensitive positions, including loans and deposits, as part of their on-going activities and transfer the risk to Citi Treasury. Operating within established limits, Citi Treasury makes positioning decisions and uses tools, such as Citi's investment securities portfolio, firm-issued debt and related interest rate derivatives, to achieve the desired risk profile. Changes in net IRE reflect the accumulated changes in all non-trading assets and liabilities, with potentially large and offsetting impacts, as well as Citi Treasury's positioning decisions.

        The changes in the U.S. dollar IRE from the prior quarter and year primarily reflected changes in Citi's balance sheet composition, including the growth and seasoning of Citi's deposit balances, increases in Citi's capital base and Citi Treasury positioning.

        Citi routinely runs multiple interest rate scenarios, including rate increases and decreases as well as steepening and flattening of the yield curve, to anticipate how net interest revenue might behave in different interest rate environments.

        The following table shows the approximate annualized risk to net interest revenue from six different changes in the implied-forward rates for the U.S. dollar. Each scenario assumes that the rate change will occur instantaneously, and that there are no changes to Citi's portfolio positioning as a result of the interest rate changes.

 
  Scenario 1   Scenario 2   Scenario 3   Scenario 4   Scenario 5   Scenario 6  

Overnight rate change (bps)

        100     200     (200 )   (100 )    

10-year rate change (bps)

    (100 )       100     (100 )       100  
                           

Impact to net interest revenue (in millions of dollars)

  $ (119 ) $ 1,090   $ 2,209     NM     NM   $ 88  
                           

80



Changes in Interest Rates and Foreign Exchange Rates—Impacts on Accumulated Other Comprehensive Income and Capital

        Changes in interest rates and foreign currency exchange rates can also impact Citi's Accumulated other comprehensive income (AOCI), which can in turn impact Citi's common equity, tangible book equity and regulatory capital ratios. For the reasons discussed below, however, Citi believes that changes in foreign exchange rates are less likely to have a significant impact on Citi's estimated Basel III Tier 1 Common ratio.

        As of June 30, 2013, Citi estimates the effect of a parallel instantaneous 100 basis point increase in interest rates could reduce Citi's AOCI by approximately $2.4 billion, or 1.5% of tangible common equity (TCE), driven by a reduction in unrealized gains or an increase in unrealized losses on the available-for-sale securities portfolio, partially offset by increases in the value of cash flow hedges and pension liability adjustments. Citi further estimates that these changes could reduce its estimated Basel III Tier 1 Common ratio (as calculated based on the Basel III NPR) by approximately 35 basis points. In accordance with the definition of Tier 1 Capital under Basel III, this estimate excludes the effect of cash flow hedges and considers the effect of Citi's deferred tax asset position.

        During the second quarter of 2013, interest rates in many of Citi's markets increased markedly. Primarily as a result of these increases, Citi's AOCI, excluding foreign currency translation, declined by approximately $1.2 billion after-tax, driven by a $2.1 billion after-tax decline in unrealized gains (losses) on investment securities, partially offset by increases in the value of cash flow hedges and pension liability adjustments. Citi estimates that this change reduced its estimated Basel III Tier 1 Common ratio by approximately 14 basis points, excluding the potential effects of changes in Citi's deferred tax asset position.

        With respect to changes in foreign exchange rates, as of June 30, 2013, Citi estimates that a simultaneous 5% appreciation of the U.S. dollar against all of Citi's foreign currencies could reduce Citi's foreign currency translation adjustment, net of hedges, by approximately $2.3 billion, and its TCE by approximately $1.6 billion, or 1.0% of TCE. The difference between common equity and TCE relates to the translation of goodwill and other intangibles denominated in foreign currencies. These changes would primarily be driven by changes in the value of the Mexican peso, the British pound sterling, the Japanese yen, the Korean won and the Euro.

        Despite this decrease in TCE, Citi believes its business model and management of foreign currency translation exposure work to minimize the effect of changes in foreign exchange rates on its estimated Basel III Tier 1 Common ratio. Specifically, as currency movements change the value of Citi's capital denominated in foreign currencies, these movements also change the value of Citi's risk-weighted assets denominated in those currencies. This effect, coupled with Citi's foreign currency hedging strategies, limits the effect of foreign currency translation on Citi's Basel III Tier 1 Common ratio, thus typically resulting in an immaterial impact from quarter-to-quarter.

        During the second quarter of 2013, the U.S. dollar appreciated by approximately 3.5% against the major currencies to which Citi is exposed, resulting in a reduction in TCE of approximately $1.2 billion after-tax, or approximately 0.7%. Despite this reduction, the impact on Citi's estimated Basel III Tier 1 Common ratio was a reduction of approximately 4 basis points, as the decline in AOCI was partly offset by foreign currency reductions in risk-weighted assets.

        For additional information in the changes in AOCI during the second quarter and first half of 2013 (and comparable periods), see Note 17 to the Consolidated Financial Statements.


Price Risk—Trading Portfolios

Value at Risk

        Value at risk (VAR) estimates, at a 99% confidence level, the potential decline in the value of a position or a portfolio under normal market conditions assuming a one-day holding period. VAR statistics, which are based on historical data, can be materially different across firms due to differences in portfolio composition, differences in VAR methodologies, and differences in model parameters. Due to these inconsistencies, Citi believes VAR statistics can be used more effectively as indicators of trends in risk taking within a firm, rather than as a basis for inferring differences in risk taking across firms.

        In addition to VAR, Citi monitors the price risk of its trading portfolios using other measures such as, but not limited to, risk factor sensitivities and stress testing. For additional information on risk factor sensitivities and stress testing, see "Managing Global Risk—Market Risk—Price Risk—Trading Portfolios" in Citi's 2012 Annual Report on Form 10-K.

        Citi uses a single, independently approved Monte Carlo simulation VAR model (see "VAR Model Review and Validation" below) which has been designed to capture material risk sensitivities (such as first- and second-order sensitivities of positions to changes in market prices) of various asset classes/risk types (such as interest rate, foreign exchange, equity and commodity risks). Citi's VAR includes all positions which are measured at fair value; it does not include investment securities classified as available-for-sale or held-to-maturity. For information on these securities, see Note 12 to the Consolidated Financial Statements.

        Citi believes its VAR model is conservatively calibrated to incorporate the greater of short-term (most recent month) and long-term (three years) market volatility. The Monte Carlo simulation involves approximately 300,000 market factors, making use of 180,000 time series, with risk sensitivities updated daily and model parameters updated weekly.

        The conservative features of the VAR calibration contribute approximately 14% add-on to what would be a VAR estimated under the assumption of stable and perfectly normally distributed markets. Under normal and stable market conditions, Citi would thus expect the number of days where trading losses exceed its VAR to be less than two or three exceptions per year. Periods of unstable market conditions could increase the number of these exceptions. During the last four quarters, there have been no back-testing exceptions (back-testing is the process in which the daily one-day 99% confidence interval regulatory capital VAR is

81


compared to the change in the market value of transactions included in that VAR calculation).

        As set forth in the table below, Citi's total trading and credit portfolios VAR was $123 million, $99 million and $143 million at June 30, 2013, March 31, 2013 and June 30, 2012, respectively. Daily total trading and credit portfolio VAR averaged $120 million in the second quarter of 2013 and ranged between $104 million to $142 million. The increase in Citi's average total trading and credit portfolio VAR quarter-over-quarter was due to increased foreign exchange exposures within Citicorp FX and local markets. The decrease in Citi's average total trading and credit portfolio VAR year-over-year was due to both position moves as well as the fact that the relatively higher volatilities from 2009 and 2010 are no longer included in the three-year volatility time horizon used for VAR, as previously disclosed, as well as reduced risk in the credit portfolios.

In millions of dollars   June 30,
2013
  Second Quarter
2013 Average
  March 31,
2013
  First Quarter
2013 Average
  June 30,
2012
  Second Quarter
2012 Average
 

Interest rate

  $ 117   $ 111   $ 112   $ 113   $ 122   $ 119  

Foreign exchange

    32     41     28     27     42     40  

Equity

    33     28     22     12     21     31  

Commodity

    12     12     12     34     17     18  

Diversification benefit(1)

    (78 )   (80 )   (81 )   (81 )   (86 )   (86 )
                           

Total trading VAR—all market risk factors, including general and specific risk (excluding credit portfolios)(2)

  $ 116   $ 112   $ 93   $ 105   $ 116   $ 122  
                           

Specific risk-only component(3)

  $ 13   $ 11   $ 9   $ 18   $ 23   $ 17  
                           

Total—general market factors only

  $ 103   $ 101   $ 84   $ 87   $ 93   $ 105  

Incremental impact of credit portfolios(4)

  $ 7   $ 8   $ 6   $ 5   $ 27   $ 27  
                           

Total trading and credit portfolios VAR

  $ 123   $ 120   $ 99   $ 110   $ 143   $ 149  
                           

(1)
Covariance adjustment (also known as diversification benefit) equals the difference between the total VAR and the sum of the VARs tied to each individual risk type. The benefit reflects the fact that the risks within each and across risk types are not perfectly correlated and, consequently, the total VAR on a given day will be lower than the sum of the VARs relating to each individual risk type. The determination of the primary drivers of changes to the covariance adjustment is made by an examination of the impact of both model parameter and position changes.

(2)
The total trading VAR includes trading positions from S&B, Citi Holdings and Citi Treasury.

(3)
The specific risk-only component represents the level of equity and fixed income issuer-specific risk embedded in VAR.

(4)
The credit portfolios are composed of the counterparty CVA on derivative exposures and all associated CVA hedges. Derivative own credit CVA and own credit fair value option (FVO) debt DVA are not included. The incremental impact on credit portfolios also includes hedges to the loan portfolio, fair value option loans, and tail hedges that are not explicitly hedging the trading book.

        The table below provides the range of market factor VARs for total trading VAR, inclusive of specific risk, across the following quarters:

 
  Second Quarter 2013   First Quarter 2013   Second Quarter 2012  
In millions of dollars   Low   High   Low   High   Low   High  

Interest rate

  $ 96   $ 126   $ 92   $ 137   $ 109   $ 149  

Foreign exchange

    27     66     24     63     32     53  

Equity

    20     60     19     39     21     43  

Commodity

    9     18     8     17     13     21  
                           

        The following table provides the VAR for S&B during the second quarter of 2013, excluding hedges to the loan portfolio, fair value option loans and DVA/CVA, net of hedges.

In millions of dollars   June 30, 2013  

Total—all market risk factors, including general and specific risk

  $ 113  
       

Average—during year

  $ 106  

High—during quarter

    127  

Low—during quarter

    94  
       

82


VAR Model Review and Validation

        Generally, Citi's VAR review and model validation process entails reviewing the model framework, major assumptions, and implementation of the mathematical algorithm. In addition, as part of the model validation process, product specific back-testing on hypothetical portfolios are periodically completed and reviewed with Citi's U.S. banking regulators. Furthermore, back-testing is performed against the actual change in market value of transactions on a quarterly basis at multiple levels of the organization (trading desk level, ICG business segment and Citigroup) and the results are also shared with the U.S. banking regulators.

        Significant VAR model and assumption changes must be independently validated within Citi's risk management organization. This validation process includes a review by Citi's model validation group and further approval from its model validation review committee, which is composed of senior quantitative risk management officers. In the event of significant model changes, parallel model runs are undertaken prior to implementation. In addition, significant model and assumption changes are subject to the periodic reviews and approval by Citi's U.S. banking regulators.

        Citi uses the same independently validated VAR model for both regulatory capital and external market risk disclosure purposes and, as such, the model review and oversight process for both purposes is as described above. While the scope of positions included in the VAR model calculations for regulatory capital purposes differs from the scope of positions for external market risk disclosure purposes, these differences are due to the fact that certain positions included for external market risk purposes are not eligible for market risk treatment under the U.S. regulatory capital rules (Basel II.5) (e.g., the interest rate sensitivity of repos and reverse repos and the credit and market sensitivities of the derivatives CVA are included for external market risk disclosure purposes, but are not included for regulatory capital purposes). The applicability of the VAR model for positions eligible for market risk treatment under U.S. regulatory capital rules is periodically reviewed and approved by Citi's U.S. banking regulators.

83



INTEREST REVENUE/EXPENSE YIELDS

GRAPHIC

In millions of dollars, except as otherwise noted   2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
  Change 2Q13 vs.
2Q12
 

Interest revenue(1)

  $ 15,982   $ 16,087   $ 16,825     (5 )%

Interest expense

    4,158     4,330     5,343     (22 )
                   

Net interest revenue(1)(2)(3)

  $ 11,824   $ 11,757   $ 11,482     3 %
                   

Interest revenue—average rate

    3.85 %   3.94 %   4.03 %   (18 ) bps

Interest expense—average rate

    1.21     1.29     1.52     (31 ) bps

Net interest margin

    2.85     2.88     2.75     10  bps
                   

Interest-rate benchmarks

                         

Two-year U.S. Treasury note—average rate

    0.27 %   0.26 %   0.29 %   (2 ) bps

10-year U.S. Treasury note—average rate

    1.99     1.95     1.83     16  bps
                   

10-year vs. two-year spread

    172  bps   169  bps   154  bps      
                   

(1)
Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $142 million, $127 million and $139 million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(2)
Excludes expenses associated with certain hybrid financial instruments. These obligations are classified as Long-term debt and accounted for at fair value with changes recorded in Principal transactions.

(3)
Interest revenue, expense, rates and volumes exclude Brazil Credicard (Discontinued operations) for all periods presented. See Note 2 to the Consolidated Financial Statements.

        A significant portion of Citi's business activities are based upon gathering deposits and borrowing money, then lending or investing those funds, or participating in market-making activities in tradable securities. Citi's net interest margin (NIM) is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.

        As shown in the table above, Citi's NIM decreased by 3 basis points to 285 basis points on a sequential basis. The decline quarter-over-quarter was driven by continued pressure on loan and investment yields, partially offset by an improvement in deposit and long-term debt costs. Absent any significant changes or events, Citi continues to believe that on a full-year 2013 basis, it should be able to maintain its NIM slightly above the 282 basis points achieved in 2012, although with some quarterly fluctuations.

84



AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

Taxable Equivalent Basis

 
  Average volume   Interest revenue   % Average rate  
In millions of dollars,
except rates
  2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
  2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
  2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
 

Assets

                                                       

Deposits with banks(5)

  $ 130,920   $ 123,784   $ 160,735   $ 252   $ 256   $ 329     0.77 %   0.84 %   0.82 %
                                       

Federal funds sold and securities borrowed or purchased under agreements to resell(6)

                                                       

In U.S. offices

    159,604   $ 162,905   $ 158,267   $ 290   $ 316   $ 380     0.73 %   0.79 %   0.97 %

In offices outside the U.S.(5)

    116,021     109,283     127,781     412     372     522     1.42     1.38     1.64  
                                       

Total

  $ 275,625   $ 272,188   $ 286,048   $ 702   $ 688   $ 902     1.02 %   1.03 %   1.27 %
                                       

Trading account assets(7)(8)

                                                       

In U.S. offices

  $ 131,542   $ 130,230   $ 124,160   $ 963   $ 938   $ 988     2.94 %   2.92 %   3.20 %

In offices outside the U.S.(5)

    131,468     134,945     127,239     740     728     753     2.26     2.19     2.38  
                                       

Total

  $ 263,010   $ 265,175   $ 251,399   $ 1,703   $ 1,666   $ 1,741     2.6 %   2.55 %   2.79 %
                                       

Investments

                                                       

In U.S. offices

                                                       

Taxable

  $ 179,112   $ 176,825   $ 164,847   $ 676   $ 686   $ 706     1.51 %   1.57 %   1.72 %

Exempt from U.S. income tax

    18,486     18,468     15,039     217     197     194     4.71     4.33     5.19  

In offices outside the U.S.(5)

    109,843     112,897     113,924     893     1,007     1,034     3.26     3.62     3.65  
                                       

Total

  $ 307,441   $ 308,190   $ 293,810   $ 1,786   $ 1,890   $ 1,934     2.33 %   2.49 %   2.65 %
                                       

Loans (net of unearned income)(9)

                                                       

In U.S. offices

  $ 350,655   $ 353,287   $ 359,902   $ 6,328   $ 6,485   $ 6,714     7.24 %   7.44 %   7.50 %

In offices outside the U.S.(5)

    291,715     289,776     283,053     4,981     4,943     5,073     6.85     6.92     7.21  
                                       

Total

  $ 642,370   $ 643,063   $ 642,955   $ 11,309   $ 11,428   $ 11,787     7.06 %   7.21 %   7.37 %
                                       

Other interest-earning assets

  $ 46,606   $ 42,229   $ 43,420   $ 230   $ 159   $ 132     1.98 %   1.53 %   1.22 %
                                       

Total interest-earning assets

  $ 1,665,972   $ 1,654,629   $ 1,678,367   $ 15,982   $ 16,087   $ 16,825     3.85 %   3.94 %   4.03 %
                                       

Non-interest-earning assets(7)

  $ 229,708   $ 228,840   $ 234,352                                      

Total assets from discontinued operations

    3,194     3,320     3,366                                      
                                                   

Total assets

  $ 1,898,874   $ 1,886,789   $ 1,916,085                                      
                                       

(1)
Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $142 million, $127 million and $139 million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(5)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(6)
Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest revenue excludes the impact of FIN 41 (ASC 210-20-45).

(7)
The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities.

(8)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

(9)
Includes cash-basis loans.

85



AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)

Taxable Equivalent Basis

 
  Average volume   Interest expense   % Average rate  
In millions of dollars, except rates   2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
  2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
  2nd Qtr.
2013
  1st Qtr.
2013
  2nd Qtr.
2012
 

Liabilities

                                                       

Deposits

                                                       

In U.S. offices(5)

  $ 261,403   $ 254,714   $ 228,957   $ 454   $ 490   $ 515     0.70 %   0.78 %   0.90 %

In offices outside the U.S.(6)

    477,207     480,497     486,761     1,129     1,186     1,418     0.95     1.00     1.17  
                                       

Total

  $ 738,610   $ 735,211   $ 715,718   $ 1,583   $ 1,676   $ 1,933     0.86 %   0.92 %   1.09 %
                                       

Federal funds purchased and securities loaned or sold under agreements to repurchase(7)

                                                       

In U.S. offices

  $ 136,587   $ 129,545   $ 121,713   $ 218   $ 167   $ 270     0.64 %   0.52 %   0.89 %

In offices outside the U.S.(6)

    106,544     103,747     103,074     412     442     483     1.55     1.73     1.88  
                                       

Total

  $ 243,131   $ 233,292   $ 224,787   $ 630   $ 609   $ 753     1.04 %   1.06 %   1.35 %
                                       

Trading account liabilities(8)(9)

                                                       

In U.S. offices

  $ 26,548   $ 26,330   $ 30,896   $ 21   $ 22   $ 37     0.32 %   0.34 %   0.48 %

In offices outside the U.S.(6)

    55,335     45,463     51,517     22     20     15     0.16     0.18     0.12  
                                       

Total

  $ 81,883   $ 71,793   $ 82,413   $ 43   $ 42   $ 52     0.21 %   0.24 %   0.25 %
                                       

Short-term borrowings

                                                       

In U.S. offices

  $ 76,248   $ 70,728   $ 81,760   $ 45   $ 44   $ 69     0.24 %   0.25 %   0.34 %

In offices outside the U.S.(6)

    35,585     37,977     30,253     103     119     114     1.16     1.27     1.52  
                                       

Total

  $ 111,833   $ 108,705   $ 112,013   $ 148   $ 163   $ 183     0.53 %   0.61 %   0.66 %
                                       

Long-term debt(10)

                                                       

In U.S. offices

  $ 195,063   $ 204,629   $ 260,276   $ 1,727   $ 1,816   $ 2,358     3.55 %   3.60 %   3.64 %

In offices outside the U.S.(6)

    10,117     11,110     15,025     27     24     64     1.07     0.88     1.71  
                                       

Total

  $ 205,180   $ 215,739   $ 275,301   $ 1,754   $ 1,840   $ 2,422     3.43 %   3.46 %   3.54 %
                                       

Total interest-bearing liabilities

  $ 1,380,637   $ 1,364,740   $ 1,410,232   $ 4,158   $ 4,330   $ 5,343     1.21 %   1.29 %   1.52 %
                                       

Demand deposits in U.S. offices

  $ 23,673   $ 12,728   $ 11,166                                      

Other non-interest-bearing liabilities(8)

    296,401     315,707     309,169                                      

Total liabilities from discontinued operations

    565     593     785                                      
                                                   

Total liabilities

  $ 1,701,276   $ 1,693,768   $ 1,731,352                                      
                                                   

Citigroup stockholders' equity(11)

  $ 195,594   $ 191,027   $ 182,807                                      

Noncontrolling interest

    2,004     1,994     1,926                                      
                                                   

Total equity(11)

  $ 197,598   $ 193,021   $ 184,733                                      
                                                   

Total liabilities and stockholders' equity

  $ 1,898,874   $ 1,886,789   $ 1,916,085                                      
                                                   

Net interest revenue as a percentage of average interest-earning assets(12)

                                                       

In U.S. offices

  $ 924,336   $ 917,077   $ 938,961   $ 6,200   $ 6,223   $ 5,912     2.69 %   2.75 %   2.53 %

In offices outside the U.S.(6)

    741,636     737,552     739,406     5,624     5,534     5,570     3.04     3.04     3.03  
                                       

Total

  $ 1,665,972   $ 1,654,629   $ 1,678,367   $ 11,824   $ 11,757   $ 11,482     2.85 %   2.88 %   2.75 %
                                       

(1)
Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $142 million, $127 million and $139 million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(5)
Consists of other time deposits and savings deposits. Savings deposits are made up of insured money market accounts, NOW accounts, and other savings deposits. The interest expense on savings deposits includes FDIC deposit insurance fees and charges.

(6)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)
Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest expense excludes the impact of FIN 41 (ASC 210-20-45).

(8)
The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities.

(9)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

(10)
Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as Long-term debt, as these obligations are accounted for in changes in fair value recorded in Principal transactions.

(11)
Includes stockholders' equity from discontinued operations.

(12)
Includes allocations for capital and funding costs based on the location of the asset.

86



AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

Taxable Equivalent Basis

 
  Average volume   Interest revenue   % Average rate  
In millions of dollars, except rates   Six Months
2013
  Six Months
2012
  Six Months
2013
  Six Months
2012
  Six Months
2013
  Six Months
2012
 

Assets

                                     

Deposits with banks(5)

  $ 127,352   $ 160,701   $ 508   $ 694     0.80 %   0.87 %
                           

Federal funds sold and securities borrowed or purchased under agreements to resell(6)

                                     

In U.S. offices

  $ 161,255   $ 155,961   $ 606   $ 756     0.76 %   0.97 %

In offices outside the U.S.(5)

    112,652     128,007     784     1,089     1.40     1.71  
                           

Total

  $ 273,907   $ 283,968   $ 1,390   $ 1,845     1.02 %   1.31 %
                           

Trading account assets(7)(8)

                                     

In U.S. offices

  $ 130,886   $ 121,546   $ 1,901   $ 1,947     2.93 %   3.22 %

In offices outside the U.S.(5)

    133,207     127,652     1,468     1,532     2.22     2.41  
                           

Total

  $ 264,093   $ 249,198   $ 3,369   $ 3,479     2.57 %   2.81 %
                           

Investments

                                     

In U.S. offices

                                     

Taxable

  $ 177,969   $ 168,380   $ 1,362   $ 1,468     1.54 %   1.75 %

Exempt from U.S. income tax

    18,477     14,822     414     405     4.52     5.50  

In offices outside the U.S.(5)

    111,370     113,583     1,900     2,061     3.44     3.65  
                           

Total

  $ 307,816   $ 296,785   $ 3,676   $ 3,934     2.41 %   2.67 %
                           

Loans (net of unearned income)(9)

                                     

In U.S. offices

  $ 351,971   $ 360,025   $ 12,813   $ 13,619     7.34 %   7.61 %

In offices outside the U.S.(5)

    290,746     283,119     9,924     10,412     6.88     7.40  
                           

Total

  $ 642,717   $ 643,144   $ 22,737   $ 24,031     7.13 %   7.51 %
                           

Other interest-earning assets

  $ 44,418   $ 43,325   $ 389   $ 270     1.77 %   1.25 %
                           

Total interest-earning assets

  $ 1,660,303   $ 1,677,121   $ 32,069   $ 34,253     3.90 %   4.11 %
                           

Non-interest-earning assets(7)

  $ 229,274   $ 233,269                          

Total assets from discontinued operations

    3,257     3,565                          
                                   

Total assets

  $ 1,892,834   $ 1,913,955                          
                           

(1)
Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $142 million, $127 million and $139 million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(5)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(6)
Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest revenue excludes the impact of FIN 41 (ASC 210-20-45).

(7)
The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities.

(8)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

(9)
Includes cash-basis loans.

87



AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)

Taxable Equivalent Basis

 
  Average volume   Interest expense   % Average rate  
In millions of dollars, except rates   Six Months
2013
  Six Months
2012
  Six Months
2013
  Six Months
2012
  Six Months
2013
  Six Months
2012
 

Liabilities

                                     

Deposits

                                     

In U.S. offices(5)

  $ 258,059   $ 227,369   $ 944   $ 1,094     0.74 %   0.97 %

In offices outside the U.S.(6)

    478,852     477,909     2,315     2,849     0.97     1.20  
                           

Total

  $ 736,911   $ 705,278   $ 3,259   $ 3,943     0.89 %   1.12 %
                           

Federal funds purchased and securities loaned or sold under agreements to repurchase(7)

                                     

In U.S. offices

  $ 133,066   $ 119,897   $ 385   $ 456     0.58 %   0.76 %

In offices outside the U.S.(6)

    105,146     102,162     854     992     1.64     1.95  
                           

Total

  $ 238,212   $ 222,059   $ 1,239   $ 1,448     1.05 %   1.31 %
                           

Trading account liabilities(8)(9)

                                     

In U.S. offices

  $ 26,439   $ 31,260   $ 43   $ 69     0.33 %   0.44 %

In offices outside the U.S.(6)

    50,399     48,210     42     36     0.17     0.15  
                           

Total

  $ 76,838   $ 79,470   $ 85   $ 105     0.22 %   0.27 %
                           

Short-term borrowings

                                     

In U.S. offices

  $ 73,488   $ 83,165   $ 89   $ 107     0.24 %   0.26 %

In offices outside the U.S.(6)

    36,781     30,725     222     284     1.22     1.86  
                           

Total

  $ 110,269   $ 113,890   $ 311   $ 391     0.57 %   0.69 %
                           

Long-term debt(10)

                                     

In U.S. offices

  $ 199,846   $ 277,908   $ 3,543   $ 4,850     3.58 %   3.51 %

In offices outside the U.S.(6)

    10,614     15,312     51     184     0.97     2.42  
                           

Total

  $ 210,460   $ 293,220   $ 3,594   $ 5,034     3.44 %   3.45 %
                           

Total interest-bearing liabilities

  $ 1,372,690   $ 1,413,917   $ 8,488   $ 10,921     1.25 %   1.55 %
                           

Demand deposits in U.S. offices

  $ 18,201   $ 12,099                          

Other non-interest-bearing liabilities(8)

    306,054     303,553                          

Total liabilities from discontinued operations

    579     806                          
                                   

Total liabilities

  $ 1,697,524   $ 1,730,375                          
                                   

Citigroup stockholders' equity(11)

  $ 193,311   $ 181,755                          

Noncontrolling interest

    1,999     1,825                          
                                   

Total equity(11)

  $ 195,310   $ 183,580                          
                                   

Total liabilities and stockholders' equity

  $ 1,892,834   $ 1,913,955                          
                                   

Net interest revenue as a percentage of average interest-earning assets(12)

                                     

In U.S. offices

  $ 920,709   $ 946,698   $ 12,423   $ 12,044     2.72 %   2.56 %

In offices outside the U.S.(6)

    739,594     730,423     11,158     11,288     3.04     3.11  
                           

Total

  $ 1,660,303   $ 1,677,121   $ 23,581   $ 23,332     2.86 %   2.80 %
                           

(1)
Net interest revenue includes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $142 million, $127 million and $139 million for the three months ended June 30, 2013, March 31, 2013 and June 30 2012, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(5)
Consists of other time deposits and savings deposits. Savings deposits are made up of insured money market accounts, NOW accounts, and other savings deposits. The interest expense on savings deposits includes FDIC deposit insurance fees and charges.

(6)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)
Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 (ASC 210-20-45). However, Interest expense excludes the impact of FIN 41 (ASC 210-20-45).

(8)
The fair value carrying amounts of derivative contracts are reported in Non-interest-earning assets and Other non-interest-bearing liabilities.

(9)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

(10)
Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as Long-term debt, as these obligations are accounted for in changes in fair value recorded in Principal transactions.

(11)
Includes stockholders' equity from discontinued operations.

(12)
Includes allocations for capital and funding costs based on the location of the asset.

88



ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)(3)

 
  2nd Qtr. 2013 vs. 1st Qtr. 2013   2nd Qtr. 2013 vs. 2nd Qtr. 2012  
 
  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)

  $ 14   $ (18 ) $ (4 ) $ (58 ) $ (19 ) $ (77 )
                           

Federal funds sold and securities borrowed or purchased under agreements to resell

                                     

In U.S. offices

  $ (6 ) $ (20 ) $ (26 ) $ 3   $ (93 ) $ (90 )

In offices outside the U.S.(4)

    24     16     40     (45 )   (65 )   (110 )
                           

Total

  $ 18   $ (4 ) $ 14   $ (42 ) $ (158 ) $ (200 )
                           

Trading account assets(5)

                                     

In U.S. offices

  $ 10   $ 15   $ 25   $ 57   $ (82 ) $ (25 )

In offices outside the U.S.(4)

    (19 )   31     12     25     (38 )   (13 )
                           

Total

  $ (9 ) $ 46   $ 37   $ 82   $ (120 ) $ (38 )
                           

Investments(1)

                                     

In U.S. offices

  $ 10   $   $ 10   $ 84   $ (91 ) $ (7 )

In offices outside the U.S.(4)

    (27 )   (87 )   (114 )   (36 )   (105 )   (141 )
                           

Total

  $ (17 ) $ (87 ) $ (104 ) $ 48   $ (196 ) $ (148 )
                           

Loans (net of unearned income)(6)

                                     

In U.S. offices

  $ (48 ) $ (109 ) $ (157 ) $ (170 ) $ (216 ) $ (386 )

In offices outside the U.S.(4)

    33     5     38     152     (244 )   (92 )
                           

Total

  $ (15 ) $ (104 ) $ (119 ) $ (18 ) $ (460 ) $ (478 )
                           

Other interest-earning assets

  $ 18   $ 53   $ 71   $ 10   $ 88   $ 98  
                           

Total interest revenue

  $ 9   $ (114 ) $ (105 ) $ 22   $ (865 ) $ (843 )
                           

(1)
The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% and is included in this presentation.

(2)
Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(4)
Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(5)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

(6)
Includes cash-basis loans.

89



ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)

 
  2nd Qtr. 2013 vs. 1st Qtr. 2013   2nd Qtr. 2013 vs. 2nd Qtr. 2012  
 
  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

  $ 13   $ (49 ) $ (36 ) $ 67   $ (128 ) $ (61 )

In offices outside the U.S.(4)

    (8 )   (49 )   (57 )   (27 )   (262 )   (289 )
                           

Total

  $ 5   $ (98 ) $ (93 ) $ 40   $ (390 ) $ (350 )
                           

Federal funds purchased and securities loaned or sold under agreements to repurchase

                                     

In U.S. offices

  $ 9   $ 42   $ 51   $ 30   $ (82 ) $ (52 )

In offices outside the U.S.(4)

    12     (42 )   (30 )   16     (87 )   (71 )
                           

Total

  $ 21   $   $ 21   $ 46   $ (169 ) $ (123 )
                           

Trading account liabilities(5)

                                     

In U.S. offices

  $   $ (1 ) $ (1 ) $ (5 ) $ (11 ) $ (16 )

In offices outside the U.S.(4)

    4     (2 )   2     1     6     7  
                           

Total

  $ 4   $ (3 ) $ 1   $ (4 ) $ (5 ) $ (9 )
                           

Short-term borrowings

                                     

In U.S. offices

  $ 3   $ (2 ) $ 1   $ (4 ) $ (20 ) $ (24 )

In offices outside the U.S.(4)

    (7 )   (9 )   (16 )   18     (29 )   (11 )
                           

Total

  $ (4 ) $ (11 ) $ (15 ) $ 14   $ (49 ) $ (35 )
                           

Long-term debt

                                     

In U.S. offices

  $ (85 ) $ (4 ) $ (89 ) $ (578 ) $ (53 ) $ (631 )

In offices outside the U.S.(4)

    (2 )   5     3     (17 )   (20 )   (37 )
                           

Total

  $ (87 ) $ 1   $ (86 ) $ (595 ) $ (73 ) $ (668 )
                           

Total interest expense

  $ (61 ) $ (111 ) $ (172 ) $ (499 ) $ (686 ) $ (1185 )
                           

Net interest revenue

  $ 70   $ (3 ) $ 67   $ 521   $ (179 ) $ 342  
                           

(1)
The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% and is included in this presentation.

(2)
Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations. See Note 2 to the Consolidated Financial Statements.

(4)
Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(5)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in interest on Trading account assets and Trading account liabilities, respectively.

90



ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)

 
  Six Months 2013 vs. Six Months 2012  
 
  Increase (decrease)
due to change in:
   
 
In millions of dollars   Average
volume
  Average
rate
  Net
change(2)
 

Deposits at interest with banks(4)

  $ (136 ) $ (50 ) $ (186 )
               

Federal funds sold and securities borrowed or purchased under agreements to resell

                   

In U.S. offices

  $ 25   $ (175 ) $ (150 )

In offices outside the U.S.(4)

    (121 )   (184 )   (305 )
               

Total

  $ (96 ) $ (359 ) $ (455 )
               

Trading account assets(5)

                   

In U.S. offices

  $ 143   $ (189 ) $ (46 )

In offices outside the U.S.(4)

    65     (129 )   (64 )
               

Total

  $ 208   $ (318 ) $ (110 )
               

Investments(1)

                   

In U.S. offices

  $ 129   $ (226 ) $ (97 )

In offices outside the U.S.(4)

    (40 )   (121 )   (161 )
               

Total

  $ 89   $ (347 ) $ (258 )
               

Loans (net of unearned income)(6)

                   

In U.S. offices

  $ (300 ) $ (506 ) $ (806 )

In offices outside the U.S.(4)

    275     (763 )   (488 )
               

Total

  $ (25 ) $ (1,269 ) $ (1,294 )
               

Other interest-earning assets

  $ 7   $ 112   $ 119  
               

Total interest revenue

  $ 47   $ (2,231 ) $ (2,184 )
               

Deposits(7)

                   

In U.S. offices

  $ 135   $ (285 ) $ (150 )

In offices outside the U.S.(4)

    6     (540 )   (534 )
               

Total

  $ 141   $ (825 ) $ (684 )
               

Federal funds purchased and securities loaned or sold under agreements to repurchase

                   

In U.S. offices

  $ 46   $ (117 ) $ (71 )

In offices outside the U.S.(4)

    28     (166 )   (138 )
               

Total

  $ 74   $ (283 ) $ (209 )
               

Trading account liabilities(5)

                   

In U.S. offices

  $ (10 ) $ (16 ) $ (26 )

In offices outside the U.S.(4)

    2     4     6  
               

Total

  $ (8 ) $ (12 ) $ (20 )
               

Short-term borrowings

                   

In U.S. offices

  $ (12 ) $ (6 ) $ (18 )

In offices outside the U.S.(4)

    49     (111 )   (62 )
               

Total

  $ 37   $ (117 ) $ (80 )
               

Long-term debt

                   

In U.S. offices

  $ (1,383 ) $ 76   $ (1,307 )

In offices outside the U.S.(4)

    (45 )   (88 )   (133 )
               

Total

  $ (1,428 ) $ (12 ) $ (1,440 )
               

Total interest expense

  $ (1,184 ) $ (1,249 ) $ (2,433 )
               

Net interest revenue

  $ 1,231   $ (982 ) $ 249  
               

(1)
The taxable equivalent adjustment is based on the U.S. Federal statutory tax rate of 35% and is included in this presentation.

(2)
Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)
Detailed average volume, Interest revenue and Interest expense exclude Discontinued operations.

(4)
Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(5)
Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(6)
Includes cash-basis loans.

(7)
The interest expense on deposits includes the FDIC assessment and deposit insurance fees and charges of $588 million and $669 million for the six months ended June 30, 2013 and 2012, respectively.

91



COUNTRY AND CROSS-BORDER RISK

Country Risk

Overview

        Country risk is the risk that an event in a country (precipitated by developments within or external to a country) could directly or indirectly impair the value of Citi's franchise or adversely affect the ability of obligors within that country to honor their obligations to Citi, any of which could negatively impact Citi's results of operations or financial condition. Country risk events could include sovereign volatility or defaults, banking failures or defaults, redenomination events (which could be accompanied by a revaluation (either devaluation or appreciation) of the affected currency), currency crises, foreign exchange and/or capital controls and/or political events and instability. Country risk events could result in mandatory loan loss and other reserve requirements imposed by U.S. regulators due to a particular country's economic situation. For additional information, including Citi's country risk management processes, see "Managing Global Risk—Risk Management—Overview" and "—Country Risk—Overview," as well as "Risk Factors—Market and Economic Risks" in Citi's 2012 Annual Report on Form 10-K.

        While Citi continues to work to mitigate its exposures to potential country risk events, the impact of any such event is highly uncertain and will be based on the specific facts and circumstances. As a result, there can be no assurance that the various steps Citi has taken to protect its businesses, results of operations and financial condition against these events will be sufficient. In addition, there could be negative impacts to Citi's businesses, results of operations or financial condition that are currently unknown to Citi and thus cannot be mitigated as part of its ongoing contingency planning.

        Several European countries, including Greece, Ireland, Italy, Portugal, Spain (GIIPS) and France, have been the subject of credit deterioration due to weaknesses in their economic and fiscal situations. Moreover, the ongoing Eurozone debt and economic crisis and other developments in the European Monetary Union (EMU) could lead to the withdrawal of one or more countries from the EMU or a partial or complete break-up of the EMU. Given investor interest in this area, the narrative and tables below set forth certain information regarding Citi's country risk exposures on these topics.

Credit Risk

        Generally, credit risk measures Citi's net exposure to a credit or market risk event. Citi's credit risk reporting is based on Citi's internal risk management measures and systems. The country designation in Citi's internal risk management systems is based on the country to which the client relationship, taken as a whole, is most directly exposed to economic, financial, sociopolitical or legal risks. As a result, Citi's reported credit risk exposures in a particular country may include exposures to subsidiaries within the client relationship that are actually domiciled outside of the country (e.g., Citi's Greece credit risk exposures may include loans, derivatives and other exposures to a U.K. subsidiary of a Greece-based corporation).

        Citi believes that the risk of loss associated with the exposures set forth below, which are based on Citi's internal risk management measures and systems, is likely materially lower than the exposure amounts disclosed below and is sized appropriately relative to its franchise in these countries. In addition, the sovereign entities of the countries disclosed below, as well as the financial institutions and corporations domiciled in these countries, are important clients in the global Citi franchise. Citi fully expects to maintain its presence in these markets to service all of its global customers. As such, Citi's credit risk exposure in these countries may vary over time based on its franchise, client needs and transaction structures.

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Sovereign, Financial Institution and Corporate Exposures

 
   
   
   
   
   
  GIIPS(1)  
In billions of U.S. dollars   Greece   Ireland   Italy   Portugal   Spain   June 30,
2013
  March 31,
2013
 

Funded loans, before reserves(2)

  $ 1.0   $ 0.3   $ 2.4   $ 0.2   $ 3.6   $ 7.5   $ 7.4  

Derivative counterparty mark-to-market, inclusive of CVA(3)

    0.5     0.4     8.7     0.3     2.0     11.9     12.8  
                               

Gross funded credit exposure

  $ 1.5   $ 0.6   $ 11.1   $ 0.5   $ 5.6   $ 19.4   $ 20.2  
                               

Less: margin and collateral(4)

  $ (0.2 ) $ (0.2 ) $ (1.2 ) $ (0.2 ) $ (2.5 ) $ (4.2 ) $ (5.1 )

Less: purchased credit protection(5)

    (0.3 )   (0.0 )   (7.2 )   (0.2 )   (1.4 )   (9.2 )   (9.6 )
                               

Net current funded credit exposure

  $ 1.1   $ 0.4   $ 2.7   $ 0.1   $ 1.7   $ 6.0   $ 5.5  
                               

Net trading exposure

  $ 0.0   $ 0.1   $ 1.2   $ 0.1   $ 1.0   $ 2.5   $ 1.5  

AFS exposure

    0.0     0.0     0.2     0.0     0.0     0.3     0.2  
                               

Net trading and AFS exposure

  $ 0.0   $ 0.2   $ 1.4   $ 0.1   $ 1.1   $ 2.8   $ 1.8  
                               

Net current funded exposure

  $ 1.1   $ 0.6   $ 4.1   $ 0.2   $ 2.7   $ 8.8   $ 7.3  
                               

Additional collateral received, not reducing amounts above

  $ (0.8 ) $ (0.2 ) $ (0.1 ) $ (0.0 ) $ (0.4 ) $ (1.4 ) $ (1.5 )
                               

Net current funded credit exposure detail

                                           

Sovereigns

  $ 0.2   $ 0.0   $ 0.8   $ 0.0   $ 0.0   $ 1.1   $ 1.0  

Financial institutions

    0.0     0.0     0.1     0.0     0.7     0.8     0.6  

Corporations

    0.9     0.4     1.8     0.1     0.9     4.1     3.9  
                               

Net current funded credit exposure

  $ 1.1   $ 0.4   $ 2.7   $ 0.1   $ 1.7   $ 6.0   $ 5.5  
                               

Net unfunded commitments(6)

                                           

Sovereigns

  $   $ 0.0   $ 0.0   $ 0.0   $   $ 0.0   $ 0.0  

Financial institutions

    0.0     0.0     0.1     0.0     0.2     0.4     0.3  

Corporations, net

    0.3     0.4     3.4     0.2     2.4     6.7     6.5  
                               

Total net unfunded commitments

  $ 0.3   $ 0.4   $ 3.5   $ 0.3   $ 2.6   $ 7.1   $ 6.8  
                               

Note: Totals may not sum due to rounding. The exposures in the table above do not include retail, small business and Citi Private Bank exposures in the GIIPS. See "GIIPS—Retail, Small Business and Citi Private Bank" below. Citi has exposures to obligors located within the GIIPS that are not included in the table above because Citi's internal risk management systems determine that the client relationship, taken as a whole, is not in the GIIPS (e.g., a funded loan to a Greece subsidiary of a Switzerland-based corporation). However, the total amount of such exposures was less than $1.8 billion of funded loans and $1.7 billion of unfunded commitments across the GIIPS as of June 30, 2013.

(1)
Greece, Ireland, Italy, Portugal and Spain.

(2)
As of June 30, 2013, Citi held $0.3 billion in reserves against these loans.

(3)
Includes the net credit exposure arising from secured financing transactions, such as repurchase agreements and reverse repurchase agreements. See "Secured Financing Transactions" below.

(4)
For derivatives and loans, includes margin and collateral posted under legally enforceable margin agreements. Does not include collateral received on secured financing transactions.

(5)
Credit protection purchased primarily from investment grade, global financial institutions predominantly outside of the GIIPS and France. See "Credit Default Swaps" below.

(6)
Unfunded commitments net of approximately $0.8 billion of purchased credit protection as of June 30, 2013.

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GIIPS

Sovereign, Financial Institution and Corporate Exposures

        As noted in the table above, Citi's gross funded credit exposure to sovereign entities, financial institutions and multinational and local corporations designated in the GIIPS under Citi's risk management systems was $19.4 billion at June 30, 2013, composed of $7.5 billion in gross funded loans, before reserves, and $11.9 billion in derivative counterparty mark-to-market exposure, inclusive of CVA. Further, as of June 30, 2013, Citi's net current funded exposure to sovereigns, financial institutions and corporations designated in the GIIPS under Citi's risk management systems was $8.8 billion. The increase from March 31, 2013 primarily reflected an increase in net trading and AFS exposure, as discussed below.

Net Trading and AFS Exposure—$2.8 billion

        Included in the net current funded exposure at June 30, 2013 was a net position of $2.8 billion in securities and derivatives with GIIPS sovereigns, financial institutions and corporations as the issuer or reference entity. These securities and derivatives are marked to market daily. Citi's trading exposure levels vary as it maintains inventory consistent with customer needs.

        Included within the net position of $2.8 billion as of June 30, 2013 was a net position of $(0.87) billion of indexed and tranched credit derivatives (compared to a net position of $(0.01) billion at March 31, 2013).

Net Current Funded Credit Exposure—$6.0 billion

        As of June 30, 2013, Citi's net current funded credit exposure to GIIPS sovereigns, financial institutions and corporations was $6.0 billion, the majority of which was to corporations designated in the GIIPS.

        Consistent with its internal risk management measures and as set forth in the table above, Citi's gross funded credit exposure as of June 30, 2013 has been reduced by $4.2 billion of margin and collateral posted under legally enforceable margin agreements. As of June 30, 2013, the majority of Citi's margin and collateral netted against its gross funded credit exposure to the GIIPS was in the form of cash, with the remainder in predominantly non-GIIPS securities, which are included at fair value.

        Gross funded credit exposure as of June 30, 2013 has also been reduced by $9.2 billion in purchased credit protection, predominantly from financial institutions outside of the GIIPS and France (see "Credit Default Swaps" below). Included within the $9.2 billion of purchased credit protection as of June 30, 2013 was $0.4 billion of indexed and tranched credit derivatives (compared to $0.5 billion as of March 31, 2013) executed to hedge Citi's exposure on funded loans and CVA on derivatives, a significant portion of which is reflected in Italy and Spain.

        Purchased credit protection generally pays out only upon the occurrence of certain credit events with respect to the country or borrower covered by the protection, as determined by a committee composed of dealers and other market participants. In addition to general counterparty credit risks, the credit protection may not fully cover all situations that may adversely affect the value of Citi's exposure and, accordingly, Citi could still experience losses despite the existence of the credit protection.

        As of June 30, 2013, Citi also held $1.4 billion of collateral that has not been netted against its gross funded credit exposure to the GIIPS. Collateral received but not netted against Citi's gross funded credit exposure in the GIIPS may take a variety of forms, including securities, receivables and physical assets, and is held under a variety of collateral arrangements.

Net Unfunded Commitments—$7.1 billion

        As of June 30, 2013, Citi had $7.1 billion of net unfunded commitments to GIIPS sovereigns, financial institutions and corporations, with $6.7 billion of this amount to corporations. As of June 30, 2013, net unfunded commitments in the GIIPS included approximately $5.0 billion of unfunded loan commitments that generally have standard conditions that must be met before they can be drawn, and $2.1 billion of letters of credit (compared to $4.9 billion and $2.0 billion at March 31, 2013).

Other Activities

        In addition to the exposures described above, like other banks, Citi also provides settlement and clearing facilities for a variety of clients in these countries and actively monitors and manages these intra-day exposures.

Retail, Small Business and Citi Private Bank

        As of June 30, 2013, Citi had approximately $5.0 billion of mostly locally funded accrual loans to retail, small business and Citi Private Bank customers in the GIIPS, the vast majority of which was in Citi Holdings. This compared to $5.4 billion as of March 31, 2013. Of the $5.0 billion, approximately (i) $3.3 billion consisted of retail and small business exposures in Spain ($2.7 billion) and Greece ($0.6 billion), (ii) $1.2 billion related to held-to-maturity securitized retail assets (primarily mortgage-backed securities in Spain), and (iii) $0.4 billion related to Private Bank customers, substantially all in Spain. This compared to approximately (i) $3.4 billion of retail and small business exposures in Spain ($2.7 billion) and Greece ($0.8 billion), (ii) $1.6 billion related to held-to-maturity securitized retail assets, and (iii) $0.4 billion related to Private Bank customers as of March 31, 2013.

        In addition, Citi had approximately $4.0 billion of unfunded commitments to GIIPS retail customers as of June 30, 2013, unchanged from March 31, 2013. Citi's unfunded commitments to GIIPS retail customers, in the form of unused credit card lines, are generally cancellable upon the occurrence of significant credit events, including redenomination events.

94


France

 
  France  
In billions of U.S. dollars as of June 30, 2013   June 30,
2013
  March 31,
2013
 

Funded loans, before reserves(1)

  $ 6.2   $ 5.5  

Derivative counterparty mark-to-market, inclusive of CVA(2)

    5.4     5.9  
           

Gross funded credit exposure

  $ 11.6   $ 11.4  
           

Less: margin and collateral(3)

  $ (4.1 ) $ (4.8 )

Less: purchased credit protection(4)

    (2.2 )   (2.2 )
           

Net current funded credit exposure

  $ 5.3   $ 4.4  
           

Net trading exposure

  $ (0.1 ) $ 2.3  

AFS exposure

    0.2     0.3  
           

Net trading and AFS exposure

  $ 0.2   $ 2.5  
           

Net current funded exposure

  $ 5.5   $ 7.0  
           

Additional collateral received, not reducing amounts above

  $ (3.1 ) $ (3.9 )
           

Net current funded credit exposure detail

             

Sovereigns

  $ 0.6   $ (0.1 )

Financial institutions

    2.4     2.0  

Corporations

    2.3     2.5  
           

Net current funded credit exposure

  $ 5.3   $ 4.4  
           

Net unfunded commitments(5)

             

Sovereigns

  $ 0.1   $ 0.1  

Financial institutions

    2.9     3.1  

Corporations, net

    10.3     10.1  
           

Total net unfunded commitments

  $ 13.2   $ 13.2  
           

Note: Totals may not sum due to rounding. The exposures in the table above do not include retail, small business and Citi Private Bank exposure in France, which was not material as of June 30 and March 31, 2013. Citi has exposures to obligors located within France that are not included in the table above because Citi's internal risk management systems determine that the client relationship, taken as a whole, is not in France (e.g., a funded loan to a French subsidiary of a Switzerland-based corporation). However, the total amount of such exposures was less than $0.5 billion of funded loans and $0.2 billion of unfunded commitments as of June 30, 2013.

(1)
As of June 30, 2013, Citi held $0.1 billion in reserves against these loans.

(2)
Includes the net credit exposure arising from secured financing transactions, such as repurchase agreements and reverse repurchase agreements. See "Secured Financing Transactions" below.

(3)
For derivatives and loans, includes margin and collateral posted under legally enforceable margin agreements. Does not include collateral received on secured financing transactions.

(4)
Credit protection purchased primarily from investment grade, global financial institutions predominantly outside of the GIIPS and France. See "Credit Default Swaps" below.

(5)
Unfunded commitments net of approximately $1.0 billion of purchased credit protection as of June 30, 2013.

Sovereign, Financial Institution and Corporate Exposures

        Citi's gross funded credit exposure to the sovereign entity of France, as well as financial institutions and multinational and local corporations designated in France under Citi's risk management systems, was $11.6 billion at June 30, 2013, composed of $6.2 billion in gross funded loans, before reserves, and $5.4 billion in derivative counterparty mark-to-market exposure, inclusive of CVA. Further, as of June 30, 2013, Citi's net current funded exposure to the French sovereign and financial institutions and corporations designated in France under Citi's risk management systems was $5.5 billion. The decrease from March 31, 2013 primarily reflected a decrease in net trading and AFS exposure, as discussed below.

Net Trading and AFS Exposure—$0.2 billion

        Included in the net current funded exposure at June 30, 2013 was a net position of $0.2 billion in securities and derivatives with the French sovereign, financial institutions and corporations as the issuer or reference entity. These securities and derivatives are marked to market daily. Citi's trading exposure levels vary as it maintains inventory consistent with customer needs.

        Included within the net position of $0.2 billion as of June 30, 2013 was a net position of $(0.2) billion of indexed and tranched credit derivatives (compared to a net position of $1.3 billion at March 31, 2013).

Net Current Funded Credit Exposure—$5.3 billion

        As of June 30, 2013, the net current funded credit exposure to the French sovereign, financial institutions and corporations was $5.3 billion. Of this amount, $0.6 billion was to the sovereign entity, $2.4 billion was to financial institutions and $2.3 billion was to corporations.

        Consistent with its internal risk management measures and as set forth in the table above, Citi's gross funded credit exposure has been reduced by $4.1 billion of margin and collateral posted under legally enforceable margin agreements. As of June 30, 2013, the majority of Citi's margin and collateral netted against its gross funded credit exposure to France was in the form of cash, with the remainder in predominantly non-French securities, which are included at fair value.

95


        Gross funded credit exposure as of June 30, 2013 has also been reduced by $2.2 billion in purchased credit protection, predominantly from financial institutions outside of the GIIPS and France (see "Credit Default Swaps" below). Included within the $2.2 billion of purchased credit protection as of June 30, 2013 was $0.9 billion of indexed and tranched credit derivatives executed to hedge Citi's exposure on funded loans and CVA on derivatives (compared to $0.6 billion at March 31, 2013).

        Purchased credit protection generally pays out only upon the occurrence of certain credit events with respect to the country or borrower covered by the protection, as determined by a committee composed of dealers and other market participants. In addition to general counterparty credit risks, the credit protection may not fully cover all situations that may adversely affect the value of Citi's exposure and, accordingly, Citi could still experience losses despite the existence of the credit protection.

        As of June 30, 2013, Citi also held $3.1 billion of collateral that has not been netted against its gross funded credit exposure to France. As described above, this collateral can take a variety of forms and is held under a variety of collateral arrangements.

Net Unfunded Commitments—$13.2 billion

        As of June 30, 2013, Citi had $13.2 billion of net unfunded commitments to the French sovereign, financial institutions and corporations, with $10.3 billion of this amount to corporations. As of June 30, 2013, net unfunded commitments in France included $10.4 billion of unfunded loan commitments that generally have standard conditions that must be met before they can be drawn, and $2.8 billion of letters of credit (compared to $10.2 billion and $3.0 billion at March 31, 2013).

Other Activities

        In addition to the exposures described above, like other banks, Citi also provides settlement and clearing facilities for a variety of clients in France and actively monitors and manages these intra-day exposures.

96


Credit Default Swaps—GIIPS and France

        Citi buys and sells credit protection, through credit default swaps (CDS), on underlying GIIPS and French entities as part of its market-making activities for clients in its trading portfolios. Citi also purchases credit protection, through CDS, to hedge its own credit exposure to these underlying entities that arises from loans to these entities or derivative transactions with these entities.

        Citi buys and sells CDS as part of its market-making activity, and purchases CDS for credit protection, primarily with investment grade, global financial institutions predominantly outside the GIIPS and France. The counterparty credit exposure that can arise from the purchase or sale of CDS, including any GIIPS or French counterparties, is managed and mitigated through legally enforceable netting and margining agreements with a given counterparty. Thus, the credit exposure to that counterparty is measured and managed in aggregate across all products covered by a given netting or margining agreement.

        The notional amount of credit protection purchased or sold on GIIPS and French underlying single reference entities as of June 30, 2013 is set forth in the table below. The net notional contract amounts, less mark-to-market adjustments, are included in "Net current funded exposure" in the tables under "Sovereign, Financial Institution and Corporate Exposures" above, and appear in either "Net trading exposure" when part of a trading strategy or in "Purchased credit protection" when purchased as a hedge against a credit exposure.

 
  CDS purchased or sold on underlying single reference entities in these countries  
In billions of U.S. dollars as of June 30, 2013   GIIPS   Greece   Ireland   Italy   Portugal   Spain   France  

Notional CDS contracts on underlying reference entities

                                           

Net purchased(1)

  $ (15.3 ) $ (0.4 ) $ (0.9 ) $ (10.2 ) $ (2.2 ) $ (6.1 ) $ (7.9 )

Net sold(1)

    6.5     0.3     0.8     3.5     2.0     4.3     5.6  

Sovereign underlying reference entity

                                           

Net purchased(1)

    (11.9 )   (0.0 )   (0.6 )   (8.8 )   (1.6 )   (4.1 )   (3.6 )

Net sold(1)

    5.0     0.0     0.7     2.5     1.6     3.6     3.9  

Financial institution underlying reference entity

                                           

Net purchased(1)

    (2.0 )           (1.4 )   (0.2 )   (1.0 )   (1.5 )

Net sold(1)

    2.0             1.5     0.3     0.9     1.2  

Corporate underlying reference entity

                                           

Net purchased(1)

    (3.8 )   (0.4 )   (0.3 )   (1.7 )   (0.7 )   (2.0 )   (5.0 )

Net sold(1)

    2.0     0.3     0.4     1.2     0.5     0.9     2.7  
                               

(1)
The summation of notional amounts for each GIIPS country does not equal the notional amount presented in the GIIPS total column in the table above, as additional netting is achieved at the agreement level with a specific counterparty across various GIIPS countries.

        When Citi purchases CDS as a hedge against a credit exposure, it generally seeks to purchase products from counterparties that would not be correlated with the underlying credit exposure it is hedging. In addition, Citi generally seeks to purchase products with a maturity date similar to the exposure against which the protection is purchased. While certain exposures may have longer maturities that extend beyond the CDS tenors readily available in the market, Citi generally will purchase credit protection with a maximum tenor that is readily available in the market.

        The above table contains all net CDS purchased or sold on GIIPS and French underlying single reference entities, whether part of a trading strategy or as purchased credit protection. With respect to the $15.3 billion net purchased CDS contracts on underlying GIIPS reference entities at June 30, 2013 (compared to $15.4 billion at March 31, 2013), approximately 92% was purchased from non-GIIPS counterparties and 83% was purchased from investment grade counterparties. With respect to the $7.9 billion net purchased CDS contracts on underlying French reference entities (compared to $7.7 billion at March 31, 2013), approximately 96% was purchased from non-French counterparties and 94% was purchased from investment grade counterparties.

97


Secured Financing Transactions—GIIPS and France

        As part of its banking activities with its clients, Citi enters into secured financing transactions, such as repurchase agreements and reverse repurchase agreements. These transactions typically involve the lending of cash, against which securities are taken as collateral. The amount of cash loaned against the securities collateral is a function of the liquidity and quality of the collateral as well as the credit quality of the counterparty. The collateral is typically marked to market daily, and Citi has the ability to call for additional collateral (usually in the form of cash) if the value of the securities falls below a pre-defined threshold.

        As shown in the table below, at June 30, 2013, Citi had loaned $12.7 billion in cash through secured financing transactions with GIIPS and French counterparties, usually through reverse repurchase agreements. This compared to $11.8 billion as of March 31, 2013. Against those loans, it held approximately $14.7 billion fair value of securities collateral (compared to $14.0 billion as of March 31, 2013). In addition, Citi held $0.7 billion in variation margin (unchanged from March 31, 2013), most of which was in cash, against all secured financing transactions.

        Consistent with Citi's risk management systems, secured financing transactions are included in the counterparty derivative mark-to-market exposure at their net credit exposure value, which is typically small or zero given the over-collateralized structure of these transactions.

In billions of dollars as of June 30, 2013   Cash financing out   Securities collateral in(1)  

Lending to GIIPS and French counterparties through secured financing transactions

  $ 12.7   $ 14.7  
           

(1)
Citi has also received approximately $0.7 billion in variation margin, predominantly cash, associated with secured financing transactions with these counterparties.

        Collateral taken in against secured financing transactions is generally high quality, marketable securities, consisting of government debt, corporate debt, or asset-backed securities. The table below sets forth the fair value of the securities collateral taken in by Citi against secured financing transactions as of June 30, 2013.

In billions of dollars as of June 30, 2013   Total   Government
bonds
  Municipal or
Corporate bonds
  Asset-backed
bonds
 

Securities pledged by GIIPS and French counterparties in secured financing transaction lending(1)

  $ 14.7   $ 5.2   $ 1.7   $ 7.8  
                   

Investment grade

  $ 14.3   $ 5.2   $ 1.4   $ 7.8  

Non-investment grade

    0.3     0.0     0.3      

Not rated

    0.1         0.1      
                   

(1)
Total includes approximately $3.2 billion in correlated risk collateral, predominantly French and Spanish sovereign debt pledged by French counterparties.

        Secured financing transactions can be short term or can extend beyond one year. In most cases, Citi has the right to call for additional margin daily, and can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin. The table below sets forth the remaining transaction tenor for these transactions as of June 30, 2013.

 
  Remaining transaction tenor  
In billions of dollars as of June 30, 2013   Total   <1 year   1-3 years   >3 years  

Cash extended to GIIPS and French counterparties in secured financing transactions lending(1)

  $ 12.7   $ 5.2   $ 3.1   $ 4.4  
                   

(1)
The longest remaining tenor trades mature November 2018.

98


Redenomination and Devaluation Risk

        As referenced above, the ongoing Eurozone debt crisis and other developments in the European Monetary Union (EMU) could lead to the withdrawal of one or more countries from the EMU or a partial or complete break-up of the EMU. See also "Risk Factors—Market and Economic Risks" in Citi's 2012 Annual Report on Form 10-K. If one or more countries were to leave the EMU, certain obligations relating to the exiting country could be redenominated from the Euro to a new country currency. While alternative scenarios could develop, redenomination could be accompanied by immediate devaluation of the new currency as compared to the Euro and the U.S. dollar.

        Citi, like other financial institutions with substantial operations in the EMU, is exposed to potential redenomination and devaluation risks arising from (i) Euro-denominated assets and/or liabilities located or held within the exiting country that are governed by local country law ("local exposures"), as well as (ii) other Euro-denominated assets and liabilities, such as loans, securitized products or derivatives, between entities outside of the exiting country and a client within the country that are governed by local country law ("offshore exposures"). However, the actual assets and liabilities that could be subject to redenomination and devaluation risk are subject to substantial legal and other uncertainty.

        Citi has been, and will continue to be, engaged in contingency planning for such events, particularly with respect to Greece, Ireland, Italy, Portugal and Spain. Generally, to the extent that Citi's local and offshore assets are approximately equal to its liabilities within the exiting country, and assuming both assets and liabilities are symmetrically redenominated and devalued, Citi believes that its risk of loss as a result of a redenomination and devaluation event would not be material. However, to the extent its local and offshore assets and liabilities are not equal, or there is asymmetrical redenomination of assets versus liabilities, Citi could be exposed to losses in the event of a redenomination and devaluation. Moreover, a number of events that could accompany a redenomination and devaluation, including a drawdown of unfunded commitments or "deposit flight," could exacerbate any mismatch of assets and liabilities within the exiting country.

        Citi's redenomination and devaluation exposures to the GIIPS as of June 30, 2013 are not additive to its credit risk exposures to such countries as described under "Credit Risk" above. Rather, Citi's credit risk exposures in the affected country would generally be reduced to the extent of any redenomination and devaluation of assets.

        As of June 30, 2013, Citi estimates that it had net asset exposure subject to redenomination and devaluation in Italy, principally relating to derivatives contracts. Citi also estimates that, as of such date, it had net asset exposure subject to redenomination and devaluation in Spain, principally related to offshore exposures related to held-to-maturity securitized retail assets (primarily mortgage-backed securities) (see "GIIPS—Retail, Small Business and Citi Private Bank" above). However, as of June 30, 2013, Citi's estimated redenomination and devaluation exposure to Italy was less than Citi's net current funded credit exposure to Italy (before purchased credit protection) as reflected under "Credit Risk" above. Further, as of June 30, 2013, Citi's estimated redenomination and devaluation exposure to Spain was less than Citi's net current funded credit exposure to Spain (before purchased credit protection), as reflected under "Credit Risk" above. As of June 30, 2013, Citi had a net liability position in each of Greece, Ireland and Portugal.

        As referenced above, Citi's estimated redenomination and devaluation exposure does not include purchased credit protection. As described under "Credit Risk" above, Citi has purchased credit protection primarily from investment grade, global financial institutions predominantly outside of the GIIPS and France. To the extent the purchased credit protection is available in a redenomination/devaluation event, any redenomination/devaluation exposure could be reduced.

        Any estimates of redenomination/devaluation exposure are subject to ongoing review and necessarily involve numerous assumptions, including which assets and liabilities would be subject to redenomination in any given case, the availability of purchased credit protection and the extent of any utilization of unfunded commitments, each as referenced above. In addition, other events outside of Citi's control—such as the extent of any deposit flight and devaluation, the imposition of exchange and/or capital controls, the requirement by U.S. regulators of mandatory loan loss and other reserve requirements or any required timing of functional currency changes and the accounting impact thereof—could further negatively impact Citi in such an event. Accordingly, in an actual redenomination and devaluation scenario, Citi's exposures could vary considerably based on the specific facts and circumstances.

99



CROSS-BORDER RISK

Overview

        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/U.S. dollars and/or the transfer of funds outside the country, among other risks, thereby impacting the ability of Citigroup and its customers to transact business across borders. Examples of cross-border risk include actions taken by foreign governments such as exchange controls and restrictions on the remittance of funds. These actions might restrict the transfer of funds or the ability of Citigroup to obtain payment from customers on their contractual obligations, and could expose Citi to risk of loss in the event that the local currency devalued as compared to the U.S. dollar. For additional information, including Citi's cross-border risk management process, see "Managing Global Risk—Risk Management—Overview" and—Cross-Border Risk—Overview," as well as "Risk Factors—Market and Economic Risks" in Citi's 2012 Annual Report on Form 10-K.

Argentina and Venezuela Developments

        As previously disclosed, Argentina and Venezuela are two countries in which Citi operates with strict foreign exchange controls. For additional information, see "Managing Global Risk—Cross-Border Risk—Argentina and Venezuela Developments" in Citi's 2012 Annual Report on Form 10-K.

Argentina

        As of June 30, 2013, Citi's net investment in its Argentine operations was approximately $770 million, compared to $740 million at each of March 31, 2013 and December 31, 2012, respectively. As previously disclosed, Citi uses the Argentine peso as the functional currency in Argentina and translates its financial statements into U.S. dollars using the official exchange rate as published by the Central Bank of Argentina. During the second quarter of 2013, devaluation of the Argentine peso continued, with an official exchange rate of 5.39 Argentine pesos to one U.S. dollar at June 30, 2013, compared to 5.12 and 4.90 Argentine pesos to one U.S. dollar at March 31, 2013 and December 31, 2012, respectively.

        At June 30, 2013, Citi had cumulative translation losses related to its investment in Argentina, net of qualifying net investment hedges, of approximately $1.12 billion (pretax) (compared to $1.08 billion and $1.04 billion (pretax) as of March 31, 2013 and December 31, 2012, respectively), which were recorded in stockholders' equity. The cumulative translation losses would not be reclassified into earnings unless realized upon sale or liquidation of Citi's Argentine operations.

        At June 30, 2013, Citi hedged approximately $220 million of its net investment in Argentina (compared with $180 million and $200 million as of March 31, 2013 and December 31, 2012, respectively) using foreign currency forwards that are recorded as net investment hedges under ASC 815. In addition, as of June 30, 2013, Citi hedged foreign currency risk associated with its net investment by holding in its Argentine operations both U.S.-dollar-denominated net monetary assets of approximately $390 million (compared to $330 million and $280 million as of March 31, 2013 and December 31, 2012, respectively) and foreign currency futures with a notional value of approximately $180 million (compared to $160 million and $170 million as of March 31, 2013 and December 31, 2012, respectively), neither of which qualify as net investment hedges under ASC 815.

Venezuela

        Citi uses the official exchange rate, as fixed by the Foreign Currency Administration Commission (CADIVI) of Venezuela, to re-measure foreign currency transactions in the financial statements of its Venezuelan operations, which use the U.S. dollar as the functional currency, into U.S. dollars. Citi uses the official exchange rate as it is the only rate legally available in the country, despite the limited availability of U.S. dollars from CADIVI and although the official rate may not necessarily be reflective of economic reality. Re-measurement of Citi's bolivar-denominated assets and liabilities due to change in the official exchange rate is recorded in earnings.

        As of June 30, 2013, Citi's net investment in Venezuela was approximately $220 million (compared to $210 million and $300 million at March 31, 2013 and December 31, 2012, respectively), which included net monetary assets denominated in Venezuelan bolivars of approximately $200 million (unchanged from March 31, 2013 and compared to $290 million at December 31, 2012).

Egypt

        There has been ongoing political transition and civil unrest in Egypt, contributing to significant economic uncertainty and volatility. Citi operates in Egypt through a branch of Citibank N.A., and uses the Egyptian pound as the functional currency to translate its financial statements into U.S. dollars using quoted exchange rates. As of June 30, 2013, Citi's net investment in Egypt was approximately $250 million, and Citi had cumulative translation losses related to its investment in Egypt, net of qualifying net investment hedges, of approximately $101 million (pretax). Substantially all of the net investment is hedged with forward foreign exchange derivatives. Total third-party assets of the Egypt Citibank, N.A. branch were approximately $1.6 billion, comprised primarily of cash on deposit with the Central Bank of Egypt, loans and short-term local government debt securities. A significant majority of these third party assets were funded with local deposit liabilities. Citi continues to closely monitor the political and economic situation in Egypt, and will continue to take actions to mitigate its exposures to potential risk events.

100



FAIR VALUE ADJUSTMENTS FOR DERIVATIVES AND STRUCTURED DEBT

        The following discussion relates to the derivative obligor information and the fair valuation for derivatives and structured debt. See Note 20 to the Consolidated Financial Statements for additional information on Citi's derivative activities.

Fair Valuation Adjustments for Derivatives

        The fair value adjustments applied by Citigroup to its derivative carrying values consist of the following items:

Citi's CVA methodology is composed of 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 (CDS) market are applied to the expected future cash flows determined in step one. Citi's own-credit CVA is determined using Citi-specific CDS spreads for the relevant tenor. Generally, counterparty CVA is determined using CDS spread indices for each credit rating and tenor. For certain identified netting sets where individual analysis is practicable (e.g., exposures to counterparties with liquid CDS), counterparty-specific CDS spreads are used.

        The CVA adjustment is designed to incorporate a market view of the credit risk inherent in the derivative portfolio. However, most derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually or, if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Therefore, the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of the CVA may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of Citi or its counterparties, or changes in the credit mitigants (collateral and netting agreements) associated with the derivative instruments.

        The table below summarizes the CVA applied to the fair value of derivative instruments for the periods indicated:

 
  Credit valuation adjustment
contra-liability (contra-asset)
 
In millions of dollars   June 30,
2013
  December 31,
2012
 

Non-monoline counterparties

  $ (2,325 ) $ (2,971 )

Citigroup (own)

    831     918  
           

Total CVA—derivative instruments

  $ (1,494 ) $ (2,053 )
           

Own Debt Valuation Adjustments for Structured Debt

        Own debt valuation adjustments (DVA) are recognized on Citi's debt liabilities for which the fair value option (FVO) has been elected using Citi's credit spreads observed in the bond market. Accordingly, the fair value of debt liabilities for which the fair value option has been elected (other than non-recourse and similar liabilities) is impacted by the narrowing or widening of Citi's credit spreads. Changes in fair value resulting from changes in Citi's instrument-specific credit risk are estimated by incorporating Citi's current credit spreads observable in the bond market into the relevant valuation technique used to value each liability.

        The table below summarizes pretax gains (losses) related to changes in CVA on derivative instruments, net of hedges, and DVA on own FVO debt for the periods indicated:

 
  Credit/debt valuation
adjustment gain (loss)
 
 
  Three Months
Ended June 30,
  Six Months
Ended June 30,
 
In millions of dollars   2013   2012   2013   2012  

Derivative counterparty CVA

  $ 206   $ (143 ) $ 223   $ 410  

Derivative own-credit CVA

    69     92     (57 )   (487 )
                   

Total CVA—derivative instruments

  $ 275   $ (51 ) $ 166   $ (77 )
                   

DVA related to own FVO debt

  $ 202   $ 270   $ (8 ) $ (992 )
                   

Total CVA and DVA

  $ 477   $ 219   $ 158   $ (1,069 )
                   

        The CVA and DVA amounts shown in the table above do not include losses, related to counterparty credit risk, on non-derivative instruments, such as bonds and loans.

101



CREDIT DERIVATIVES

        Citigroup makes markets in and trades a range of credit derivatives on behalf of clients and in connection with its risk management activities. Through these contracts, Citi either purchases or writes protection on either a single-name or portfolio basis. Citi primarily uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash 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, which are defined by the form of the derivative and the referenced credit, are generally limited to the market standard of failure to pay indebtedness and bankruptcy (or comparable events) of the reference credit and, in a more limited range of transactions, debt restructuring.

        Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. In certain transactions on a portfolio of referenced credits or asset-backed securities, the seller of protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.

        The fair values shown below are prior to the application of any netting agreements, cash collateral, and market or credit valuation adjustments.

        Citi actively participates in trading a variety of credit derivatives products as both an active two-way market-maker for clients and to manage credit risk. The majority of this activity was transacted with other financial intermediaries, including both banks and broker-dealers. Citi generally has a mismatch between the total notional amounts of protection purchased and sold and it may hold the reference assets directly, rather than entering into offsetting credit derivative contracts as and when desired. The open risk exposures from credit derivative contracts are largely matched after certain cash positions in reference assets are considered and after notional amounts are adjusted, either to a duration-based equivalent basis or to reflect the level of subordination in tranched structures.

        Citi actively monitors its counterparty credit risk in credit derivative contracts. As of June 30, 2013 and December 31, 2012, approximately 96% of the gross receivables are from counterparties with which Citi maintains collateral agreements. A majority of Citi's top 15 counterparties (by receivable balance owed to Citi) are banks, financial institutions or other dealers. Contracts with these counterparties do not include ratings-based termination events. However, counterparty ratings downgrades may have an incremental effect by lowering the threshold at which Citi may call for additional collateral.

        The ratings of the credit derivatives portfolio presented in the following table are based on the assigned internal or external ratings of the referenced asset or entity. Where external ratings are used, investment-grade ratings are considered to be Baa/BBB and above, while anything below is considered non-investment grade. Citi's 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 and are primarily related to credit default swaps and other derivatives referencing investment grade and high yield credit index products and customized baskets.

102


        The following tables summarize the key characteristics of Citi's credit derivatives portfolio by counterparty and derivative form as of June 30, 2013 and December 31, 2012:


June 30, 2013

 
  Fair values   Notionals  
In millions of dollars   Receivable(1)   Payable(2)   Protection
purchased
  Protection
sold
 

By industry/counterparty

                         

Bank

  $ 28,336   $ 26,197   $ 891,743   $ 871,431  

Broker-dealer

    10,301     11,340     315,808     290,286  

Monoline

    2         106      

Non-financial

    170     127     4,310     3,317  

Insurance and other financial institutions

    6,405     6,269     215,329     195,813  
                   

Total by industry/counterparty

  $ 45,214   $ 43,933   $ 1,427,296   $ 1,360,847  
                   

By instrument

                         

Credit default swaps and options

  $ 44,902   $ 43,108   $ 1,415,787   $ 1,359,548  

Total return swaps and other

    312     825     11,509     1,299  
                   

Total by instrument

  $ 45,214   $ 43,933   $ 1,427,296   $ 1,360,847  
                   

By rating

                         

Investment grade

  $ 15,154   $ 14,378   $ 664,434   $ 618,914  

Non-investment grade

    15,974     14,518     194,513     188,392  

Not rated

    14,086     15,037     568,349     553,541  
                   

Total by rating

  $ 45,214   $ 43,933   $ 1,427,296   $ 1,360,847  
                   

By maturity

                         

Within 1 year

  $ 3,527   $ 3,309   $ 270,655   $ 255,357  

From 1 to 5 years

    33,276     33,117     1,070,029     1,027,097  

After 5 years

    8,411     7,507     86,612     78,393  
                   

Total by maturity

  $ 45,214   $ 43,933   $ 1,427,296   $ 1,360,847  
                   

(1)
The fair value amounts receivable were $25,386 million and $19,828 million under protection purchased and sold, respectively.

(2)
The fair value amounts payable were $20,541 million and $23,392 million under protection purchased and sold, respectively.


December 31, 2012

 
  Fair values   Notionals  
In millions of dollars   Receivable(1)   Payable(2)   Protection
purchased
  Protection
sold
 

By industry/counterparty

                         

Bank

  $ 33,938   $ 31,914   $ 914,542   $ 863,411  

Broker-dealer

    13,302     14,098     321,418     304,968  

Monoline

    5         141      

Non-financial

    210     164     4,022     3,241  

Insurance and other financial institutions

    6,671     6,486     194,166     174,874  
                   

Total by industry/counterparty

  $ 54,126   $ 52,662   $ 1,434,289   $ 1,346,494  
                   

By instrument

                         

Credit default swaps and options

  $ 54,024   $ 51,270   $ 1,421,122   $ 1,345,162  

Total return swaps and other

    102     1,392     13,167     1,332  
                   

Total by instrument

  $ 54,126   $ 52,662   $ 1,434,289   $ 1,346,494  
                   

By rating

                         

Investment grade

  $ 17,236   $ 16,252   $ 694,590   $ 637,343  

Non-investment grade

    22,385     20,420     210,478     200,529  

Not rated

    14,505     15,990     529,221     508,622  
                   

Total by rating

  $ 54,126   $ 52,662   $ 1,434,289   $ 1,346,494  
                   

By maturity

                         

Within 1 year

  $ 4,826   $ 5,324   $ 311,202   $ 287,670  

From 1 to 5 years

    37,660     37,311     1,014,459     965,059  

After 5 years

    11,640     10,027     108,628     93,765  
                   

Total by maturity

  $ 54,126   $ 52,662   $ 1,434,289   $ 1,346,494  
                   

(1)
The fair value amounts receivable were $34,416 million and $19,710 million under protection purchased and sold, respectively.

(2)
The fair value amounts payable were $20,832 million and $31,830 million under protection purchased and sold, respectively.

103



INCOME TAXES

Deferred Tax Assets

        Deferred tax assets (DTAs) are recorded for the future tax consequences of events that have been recognized in the financial statements or tax returns, based upon enacted tax laws and rates. DTAs are recognized subject to management's judgment that realization is more likely than not. For additional information, see "Risk Factors" and "Significant Accounting Policies and Significant Estimates—Income Taxes" in Citi's 2012 Annual Report on Form 10-K.

        At June 30, 2013, Citigroup had recorded net DTAs of approximately $54.0 billion, a decrease of $0.6 billion from March 31, 2013 and $1.3 billion from December 31, 2012. The sequential decrease in DTAs was driven primarily by the generation of U.S. taxable earnings, including a continued decline in losses within Citi Holdings, partially offset by the tax effect of net losses in Accumulated other comprehensive income (loss) during the second quarter of 2013.

        Although realization is not assured, Citi believes that the realization of its recognized net DTAs at June 30, 2013 is more-likely-than-not based on (i) expectations as to future taxable income in the jurisdictions in which the DTAs arise, and (ii) available tax planning strategies (as defined in ASC 740, Income Taxes) that would be implemented, if necessary, to prevent a carry-forward from expiring. Realization of the DTAs will continue to be driven by Citi's ability to generate U.S. taxable earnings in the carry-forward period, including through actions that optimize Citi's U.S. taxable earnings. Citi does not expect a significant reduction in the balance of its DTAs during the remainder of 2013.

        The following table summarizes Citi's net DTAs balance at June 30, 2013 and December 31, 2012:


Jurisdiction/Component

 
  DTAs balance  
In billions of dollars   June 30, 2013   December 31, 2012  

Total U.S

  $ 50.6   $ 52.0  

Total foreign

    3.4     3.3  
           

Total

  $ 54.0 (1) $ 55.3  
           

(1)
Approximately $11 billion of the net DTAs was not deducted in calculating regulatory capital pursuant to current risk-based capital guidelines as of June 30, 2013.


Effective Tax Rate

        Citi's effective tax rate for the second quarter of 2013 was 33.7%. This included a tax expense of $53 million for the resolution of a tax issue in the current quarter. Citi expects its effective tax rate will remain higher than in prior years due to higher expected taxable earnings in North America as well as a higher tax rate on its international operations. As previously disclosed, the increased rate on Citi's earnings outside of North America is due to a change in Citi's assertion that earnings in certain entities would be indefinitely reinvested outside the U.S. (indefinite reinvestment assertions under ASC 740).


Unrecognized Tax Benefits

        As disclosed in Note 10 to the Consolidated Financial Statements in Citi's 2012 Annual Report on Form 10-K, Citi noted that it could resolve certain issues with IRS Appeals for the 2003-2005 and 2006-2008 cycles during 2013. The $53 million issue noted under "Effective Tax Rate" above was a second quarter of 2013 resolution. As of June 30, 2013, the remaining unrecognized tax benefits that may be resolved for these years are as much as $300 million plus gross interest of $73 million. The potential tax benefit to continuing operations could be anywhere in a range between $175 million and $300 million.

        Regarding the audit of its German tax group for the years 2005-2008, as of June 30, 2013, the amount of potential tax benefit (including a pretax indemnification amount) is approximately $100 million, almost all of which would go to Discontinued operations.

        As a result of the resolution of certain issues in Citi's current IRS audit, Citi's gross unrecognized tax benefits, which were $3.1 billion at December 31, 2012, were reduced by approximately $700 million in the second quarter of 2013, with no effect on either net income or the DTAs. Citi may resolve further issues in its IRS audit for the years 2009-2011 within the next 12 months. The gross unrecognized tax benefits are as much as $618 million. The potential tax benefit to continuing operations could be anywhere in a range between $0 and $250 million while the potential tax benefit to retained earnings could be anywhere in a range between $0 and $350 million.

104



DISCLOSURE CONTROLS AND PROCEDURES

        Citi's disclosure controls and procedures are designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including without limitation that information required to be disclosed by Citi in its SEC filings is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as appropriate to allow for timely decisions regarding required disclosure.

        Citi's Disclosure Committee assists the CEO and CFO in their responsibilities to design, establish, maintain and evaluate the effectiveness of Citi's disclosure controls and procedures. The Disclosure Committee is responsible for, among other things, the oversight, maintenance and implementation of the disclosure controls and procedures, subject to the supervision and oversight of the CEO and CFO.

        Citi's management, with the participation of its CEO and CFO, has evaluated the effectiveness of Citigroup's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2013 and, based on that evaluation, the CEO and CFO have concluded that at that date Citigroup's disclosure controls and procedures were effective.


DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT

        Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended, Citi is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities that are subject to sanctions under U.S. law. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.

        Citi, through its wholly owned banking subsidiary, Citibank, N.A., has branch operations in Bahrain (Citibank Bahrain) and Venezuela (Citibank Venezuela). These branches participate in the local government-run clearing and settlement exchange networks in each country for transactions involving automated teller machines (ATM), point-of-sale (POS) debit card transactions and/or the clearing and settlement of domestic checks. In addition, as required by the local law and the applicable operating rules for these exchange networks, all network participants, including these Citibank branches, must process transactions in which funds are drawn from, or deposited into, client accounts of other network participants.

        The Office of Foreign Assets Control (OFAC) has been aware of the requirement for financial institutions operating within a particular country to participate in these local government-run clearing and exchange networks (including the participation of these Citi branches in such networks), despite the fact that certain banks that have been designated for sanctions by OFAC based on their ties to Iran and involvement in certain activities (OFAC Designated Banks) also participate in these networks. Citi has license applications pending with OFAC in connection with this activity.

        During the second quarter of 2013, Citibank Bahrain processed approximately 1,921 domestic check and ATM transactions (or approximately 1.3% of all domestic check and ATM transactions for Citibank Bahrain during the second quarter of 2013) involving Future Bank, an OFAC Designated Bank. The domestic check transactions resulted in no revenues or net income to Citi. The ATM transactions resulted in approximately $8.00 in gross revenues and approximately $4.00 in net income to Citi.

        During the second quarter of 2013, Citibank Venezuela processed a total of two domestic check transactions (which in aggregate, equaled approximately $2,200.00) involving Banco Internacional de Desarrollo, an OFAC Designated Bank. The transactions resulted in no revenues or net income to Citi.

        In addition, Citibank's branch operation in the United Arab Emirates (Citibank UAE) is compelled by local law to participate in the local government-run Wage Protection System (WPS), an electronic salary-transfer platform that is operated by the Central Bank of the UAE (CBUAE). All registered financial institutions are required by local law to participate in the WPS. Under the WPS, each local employer sends a secure file to its bank which in turn must process the file payments via the WPS to the various receiving banks where the employees hold their accounts. While transactions clear through the WPS at the CBUAE and Citibank UAE does not transact directly with the counterparty banks, certain OFAC Designated Banks are participants in the WPS and act as sending and/or receiving banks. Citi has discussed those banks' participation and the WPS requirements with OFAC, and has a license application pending with the agency.

        During the second quarter of 2013, Citibank UAE processed one WPS payment that was destined to the account of one of its commercial customer's employees at an OFAC Designated Bank. The value of the transaction was approximately $1,500.00 and the gross revenue and net profit to Citi was approximately $7.00 and $4.00, respectively.

        During the second quarter of 2013, Citi branches in Milan and London processed five funds transfer transactions originated by Citi's client, the United Nations World Food Program (WFP), in the aggregate amount of Euros 3,245,000 (approximately $4,221,630) for WFP's humanitarian aid programs in North Korea. The payments were processed through an intermediary bank for the WFP's account with a bank in North Korea that had been designated by OFAC on March 11, 2013 as subject to sanctions under the Non-Proliferation of Weapons of Mass Destruction sanctions program. The transactions resulted in approximately Euro 30 (approximately $39.00) in gross revenue and Euro 12 (approximately $7.80) in net income to Citi and Citi does not currently anticipate processing any further payments to this account.

105



FORWARD-LOOKING STATEMENTS

        Certain statements in this Form 10-Q, including but not limited to statements included within the Management's Discussion and Analysis of Financial Condition and Results of Operations, are "forward-looking statements" within the meaning of the rules and regulations of the SEC. In addition, Citigroup also may make forward-looking statements in its other documents filed or furnished with the SEC, and its management may make forward-looking statements orally to analysts, investors, representatives of the media and others.

        Generally, forward-looking statements are not based on historical facts but instead represent Citigroup's and its management's beliefs regarding future events. Such statements may be identified by words such as believe, expect, anticipate, intend, estimate, may increase, may fluctuate, and similar expressions, or future or conditional verbs such as will, should, would and could.

        Such statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial condition may differ materially from those included in these statements due to a variety of factors, including without limitation the precautionary statements included in this Form 10-Q, the factors listed and described under "Risk Factors" in Citi's 2012 Annual Report on Form 10-K and the factors and uncertainties summarized below:

106


        Any forward-looking statements made by or on behalf of Citigroup speak only as to the date they are made, and Citi does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

107


FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS

   

Consolidated Statement of Income (Unaudited)—For the Three and Six Months Ended June 30, 2013 and 2012

 
109

Consolidated Statement of Comprehensive Income (Unaudited)—For the Three and Six Months Ended June 30, 2013 and 2012

 
110

Consolidated Balance Sheet—June 30, 2013 (Unaudited) and December 31, 2012

 
111

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—For the Six Months Ended June 30, 2013 and 2012

 
113

Consolidated Statement of Cash Flows (Unaudited)—For the Six Months Ended June 30, 2013 and 2012

 
114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   

Note 1—Basis of Presentation

 
115

Note 2—Discontinued Operations

 
119

Note 3—Business Segments

 
121

Note 4—Interest Revenue and Expense

 
122

Note 5—Commissions and Fees

 
123

Note 6—Principal Transactions

 
124

Note 7—Incentive Plans

 
125

Note 8—Retirement Benefits

 
126

Note 9—Earnings per Share

 
130

Note 10—Federal Funds/Securities Borrowed, Loaned and Subject to Repurchase Agreements

 
131

Note 11—Trading Account Assets and Liabilities

 
133

Note 12—Investments

 
134

Note 13—Loans

 
145

Note 14—Allowance for Credit Losses

 
158

Note 15—Goodwill and Intangible Assets

 
160

Note 16—Debt

 
162

Note 17—Changes in Accumulated Other Comprehensive Income (Loss)

 
164

Note 18—Preferred Stock

 
167

Note 19—Securitizations and Variable Interest Entities

 
168

Note 20—Derivatives Activities

 
187

Note 21—Fair Value Measurement

 
198

Note 22—Fair Value Elections

 
227

Note 23—Guarantees and Commitments

 
232

Note 24—Contingencies

 
238

108



CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

Citigroup Inc. and Subsidiaries

 
  Three Months Ended June 30,   Six Months Ended June 30,  
In millions of dollars, except per share amounts   2013   2012   2013   2012  

Revenues

                         

Interest revenue

  $ 15,840   $ 16,686   $ 31,800   $ 33,980  

Interest expense

    4,158     5,343     8,488     10,921  
                   

Net interest revenue

  $ 11,682   $ 11,343   $ 23,312   $ 23,059  
                   

Commissions and fees

  $ 3,344   $ 3,032   $ 6,823   $ 6,119  

Principal transactions

    2,640     1,640     5,087     3,571  

Administration and other fiduciary fees

    1,083     1,037     2,151     2,018  

Realized gains on sales of investments, net

    251     273     701     2,198  

Other-than-temporary impairment losses on investments

                         

Gross impairment losses(1)

    (162 )   (172 )   (423 )   (1,499 )

Less: Impairments recognized in AOCI

        44         66  
                   

Net impairment losses recognized in earnings

  $ (162 ) $ (128 ) $ (423 ) $ (1,433 )
                   

Insurance premiums

  $ 582   $ 601   $ 1,172   $ 1,213  

Other revenue

    1,059     589     1,883     763  
                   

Total non-interest revenues

  $ 8,797   $ 7,044   $ 17,394   $ 14,449  
                   

Total revenues, net of interest expense

  $ 20,479   $ 18,387   $ 40,706   $ 37,508  
                   

Provisions for credit losses and for benefits and claims

                         

Provision for loan losses

  $ 1,827   $ 2,475   $ 4,041   $ 5,184  

Policyholder benefits and claims

    200     214     431     443  

Provision (release) for unfunded lending commitments

    (3 )   7     11     (31 )
                   

Total provisions for credit losses and for benefits and claims

  $ 2,024   $ 2,696   $ 4,483   $ 5,596  
                   

Operating expenses

                         

Compensation and benefits

  $ 6,075   $ 6,110   $ 12,410   $ 12,479  

Premises and equipment

    762     803     1,606     1,597  

Technology/communication

    1,486     1,463     3,016     2,826  

Advertising and marketing

    480     576     929     1,065  

Other operating

    3,337     3,042     6,446     6,206  
                   

Total operating expenses

  $ 12,140   $ 11,994   $ 24,407   $ 24,173  
                   

Income from continuing operations before income taxes

  $ 6,315   $ 3,697   $ 11,816   $ 7,739  

Provision for income taxes

    2,127     718     3,697     1,715  
                   

Income from continuing operations

  $ 4,188   $ 2,979   $ 8,119   $ 6,024  
                   

Discontinued operations

                         

Income (loss) from discontinued operations

  $ 51   $ 5   $ (52 ) $ 28  

Gain (loss) on sale

            56     (1 )

Provision (benefit) for income taxes

    21     (2 )   7     8  
                   

Income (loss) from discontinued operations, net of taxes

  $ 30   $ 7   $ (3 ) $ 19  
                   

Net income before attribution of noncontrolling interests

  $ 4,218   $ 2,986   $ 8,116   $ 6,043  

Noncontrolling interests

    36     40     126     166  
                   

Citigroup's net income

  $ 4,182   $ 2,946   $ 7,990   $ 5,877  
                   

Basic earnings per share(2)

                         

Income from continuing operations

  $ 1.34   $ 0.98   $ 2.57   $ 1.96  

Income from discontinued operations, net of taxes

    0.01             0.01  
                   

Net income

  $ 1.35   $ 0.98   $ 2.57   $ 1.96  
                   

Weighted average common shares outstanding

    3,040.7     2,926.6     3,040.4     2,926.4  
                   

Diluted earnings per share(2)

                         

Income from continuing operations

  $ 1.33   $ 0.95   $ 2.57   $ 1.90  

Income from discontinued operations, net of taxes

    0.01             0.01  
                   

Net income

  $ 1.34   $ 0.95   $ 2.57   $ 1.91  
                   

Adjusted weighted average common shares outstanding

    3,046.3     3,015.0     3,045.5     3,014.8  
                   

(1)
The first quarter of 2012 included the recognition of a $1,181 million impairment charge related to Citi's investment in Akbank. See Note 12 to the Consolidated Financial Statements.

(2)
Due to rounding, earnings per share on continuing operations and discontinuing operations may not sum to earnings per share on net income.

The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

109



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

Citigroup Inc. and Subsidiaries

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Net income before attribution of noncontrolling interests

  $ 4,218   $ 2,986   $ 8,116   $ 6,043  
                   

Citigroup's other comprehensive income (loss)

                         

Net change in unrealized gains and losses on investment securities, net of taxes

  $ (2,056 ) $ 564   $ (1,887 ) $ (210 )

Net change in cash flow hedges, net of taxes

    497     (89 )   622     131  

Pension liability adjustment, net of taxes(1)

    401     107     655     17  

Net change in foreign currency translation adjustment, net of taxes and hedges

    (1,707 )   (1,596 )   (2,418 )   101  
                   

Citigroup's total other comprehensive income (loss)

  $ (2,865 ) $ (1,014 ) $ (3,028 ) $ 39  
                   

Other comprehensive income (loss) attributable to noncontrolling interests

                         

Net change in unrealized gains and losses on investment securities, net of taxes

  $ (10 ) $   $ (26 ) $ 9  

Net change in foreign currency translation adjustment, net of taxes

    (14 )   (53 )   (49 )   2  
                   

Total other comprehensive income (loss) attributable to noncontrolling interests

  $ (24 ) $ (53 ) $ (75 ) $ 11  
                   

Total comprehensive income before attribution of noncontrolling interests

  $ 1,329   $ 1,919   $ 5,013   $ 6,093  

Total comprehensive income attributable to noncontrolling interests

    12     (13 )   51     177  
                   

Citigroup's comprehensive income

  $ 1,317   $ 1,932   $ 4,962   $ 5,916  
                   

(1)
Primarily reflects adjustments based on the periodic actuarial valuations of the Company's pension and postretirement plans and amortization of amounts previously recognized in Other comprehensive income.

The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

110



CONSOLIDATED BALANCE SHEET

Citigroup Inc. and Subsidiaries

In millions of dollars   June 30,
2013
  December 31,
2012
 
 
  (Unaudited)
   
 

Assets

             

Cash and due from banks (including segregated cash and other deposits)

  $ 31,145   $ 36,453  

Deposits with banks

    158,028     102,134  

Federal funds sold and securities borrowed or purchased under agreements to resell (including $164,166 and $160,589 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    263,205     261,311  

Brokerage receivables

    33,484     22,490  

Trading account assets (including $123,218 and $105,458 pledged to creditors at June 30, 2013 and December 31, 2012, respectively)

    306,570     320,929  

Investments (including $27,680 and $21,423 pledged to creditors at June 30, 2013 and December 31, 2012, respectively, and $283,098 and $294,463 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    300,340     312,326  

Loans, net of unearned income

             

Consumer (including $1,041 and $1,231 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    382,152     408,671  

Corporate (including $3,827 and $4,056 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    261,589     246,793  
           

Loans, net of unearned income

  $ 643,741   $ 655,464  

Allowance for loan losses

    (21,580 )   (25,455 )
           

Total loans, net

  $ 622,161   $ 630,009  

Goodwill

    24,896     25,673  

Intangible assets (other than MSRs)

    4,981     5,697  

Mortgage servicing rights (MSRs)

    2,524     1,942  

Other assets (including $10,521 and $13,299 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    133,348     145,660  

Assets of discontinued operations held for sale

    3,306     36  
           

Total assets

  $ 1,883,988   $ 1,864,660  
           

        The following table presents certain assets of consolidated variable interest entities (VIEs), which are included in the Consolidated Balance Sheet above. The assets in the table below include only those assets that can be used to settle obligations of consolidated VIEs on the following page, and are in excess of those obligations. Additionally, the assets in the table below include third-party assets of consolidated VIEs only, and exclude intercompany balances that eliminate in consolidation.

In millions of dollars   June 30,
2013
  December 31,
2012
 
 
  (Unaudited)
   
 

Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs

             

Cash and due from banks

  $ 447   $ 498  

Trading account assets

    1,382     481  

Investments

    10,510     10,751  

Loans, net of unearned income

             

Consumer (including $995 and $1,191 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    57,686     93,936  

Corporate (including $137 and $157 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    29,367     23,684  
           

Loans, net of unearned income

  $ 87,053   $ 117,620  

Allowance for loan losses

    (3,486 )   (5,854 )
           

Total loans, net

  $ 83,567   $ 111,766  

Other assets

    1,364     674  
           

Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs

  $ 97,270   $ 124,170  
           

Statement continues on the next page.

111



CONSOLIDATED BALANCE SHEET
(Continued)

Citigroup Inc. and Subsidiaries

In millions of dollars, except shares and per share amounts   June 30,
2013
  December 31,
2012
 
 
  (Unaudited)
   
 

Liabilities

             

Non-interest-bearing deposits in U.S. offices

  $ 124,141   $ 129,657  

Interest-bearing deposits in U.S. offices (including $895 and $889 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    270,687     247,716  

Non-interest-bearing deposits in offices outside the U.S. 

    63,793     65,024  

Interest-bearing deposits in offices outside the U.S. (including $616 and $558 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    479,806     488,163  
           

Total deposits

  $ 938,427   $ 930,560  

Federal funds purchased and securities loaned or sold under agreements to repurchase (including $120,512 and $116,689 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    218,252     211,236  

Brokerage payables

    61,705     57,013  

Trading account liabilities

    123,022     115,549  

Short-term borrowings (including $4,493 and $818 as June 30, 2013 and December 31, 2012, respectively, at fair value)

    58,807     52,027  

Long-term debt (including $27,157 and $29,764 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    220,959     239,463  

Other liabilities (including $2,665 and $2,910 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    62,928     67,815  

Liabilities of discontinued operations held for sale

    2,062      
           

Total liabilities

  $ 1,686,162   $ 1,673,663  
           

Stockholders' equity

             

Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares: 171,720 as of June 30, 2013 and 102,038 as of December 31, 2012, at aggregate liquidation value

  $ 4,293   $ 2,562  

Common stock ($0.01 par value; authorized shares: 6 billion), issued shares: 3,062,092,531 as of June 30, 2013 and 3,043,153,204 as of December 31, 2012

    31     30  

Additional paid-in capital

    106,876     106,391  

Retained earnings

    105,725     97,809  

Treasury stock, at cost: June 30, 2013—21,066,042 shares and December 31, 2012—14,269,301 shares

    (1,075 )   (847 )

Accumulated other comprehensive income (loss)

    (19,924 )   (16,896 )
           

Total Citigroup stockholders' equity

  $ 195,926   $ 189,049  

Noncontrolling interest

    1,900     1,948  
           

Total equity

  $ 197,826   $ 190,997  
           

Total liabilities and equity

  $ 1,883,988   $ 1,864,660  
           

        The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheet above. The liabilities in the table below include third-party liabilities of consolidated VIEs only, and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts where creditors or beneficial interest holders have recourse to the general credit of Citigroup.

In millions of dollars   June 30,
2013
  December 31,
2012
 
 
  (Unaudited)
   
 

Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Citigroup

             

Short-term borrowings

  $ 22,408   $ 15,637  

Long-term debt (including $1,114 and $1,330 as of June 30, 2013 and December 31, 2012, respectively, at fair value)

    26,736     26,346  

Other liabilities

    1,347     1,224  
           

Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Citigroup

  $ 50,491   $ 43,207  
           

The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

112



CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

Citigroup Inc. and Subsidiaries

 
  Six Months Ended June 30,  
In millions of dollars, except shares in thousands   2013   2012  

Preferred stock at aggregate liquidation value

             

Balance, beginning of year

  $ 2,562   $ 312  

Issuance of preferred stock

    1,825      

Redemption of preferred stock

    (94 )    
           

Balance, end of period

  $ 4,293   $ 312  
           

Common stock and additional paid-in capital

             

Balance, beginning of year

  $ 106,421   $ 105,833  

Employee benefit plans

    510     154  

Other

    (24 )   4  
           

Balance, end of period

  $ 106,907   $ 105,991  
           

Retained earnings

             

Balance, beginning of year

  $ 97,809   $ 90,520  

Adjustment to opening balance, net of taxes(1)

        (107 )
           

Adjusted balance, beginning of year

  $ 97,809   $ 90,413  

Citigroup's net income

    7,990     5,877  

Common dividends(2)

    (61 )   (61 )

Preferred dividends

    (13 )   (13 )
           

Balance, end of period

  $ 105,725   $ 96,216  
           

Treasury stock, at cost

             

Balance, beginning of year

  $ (847 ) $ (1,071 )

Issuance of shares pursuant to employee benefit plans

    (46 )   216  

Treasury stock acquired(3)

    (182 )   (4 )
           

Balance, end of period

  $ (1,075 ) $ (859 )
           

Citigroup's accumulated other comprehensive income (loss)

             

Balance, beginning of year

  $ (16,896 ) $ (17,788 )

Net change in Citigroup's Accumulated other comprehensive income (loss)

    (3,028 )   39  
           

Balance, end of period

  $ (19,924 ) $ (17,749 )
           

Total Citigroup common stockholders' equity (shares outstanding: 3,041,026 as of June 30, 2013 and 3,028,884 as of December 31, 2012)

  $ 191,633   $ 183,599  
           

Total Citigroup stockholders' equity

  $ 195,926   $ 183,911  
           

Noncontrolling interest

             

Balance, beginning of year

  $ 1,948   $ 1,767  

Initial origination of a noncontrolling interest

    5     88  

Transactions between noncontrolling-interest shareholders and the related consolidated subsidiary

    (2 )    

Transactions between Citigroup and the noncontrolling-interest shareholders

    25     (29 )

Net income attributable to noncontrolling-interest shareholders

    126     166  

Dividends paid to noncontrolling-interest shareholders

    (4 )   (4 )

Net change in Accumulated other comprehensive income (loss)

    (75 )   11  

Other

    (123 )   (71 )
           

Net change in noncontrolling interests

  $ (48 ) $ 161  
           

Balance, end of period

  $ 1,900   $ 1,928  
           

Total equity

  $ 197,826   $ 185,839  
           

(1)
The adjustment to the opening balance for Retained earnings in 2012 represents the cumulative effect of adopting ASU 2010-26, Financial Services—Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. See Note 1 to the Consolidated Financial Statements.

(2)
Common dividends declared were $0.01 per share in the first and second quarter of 2013 and 2012.

(3)
Consists of shares added to treasury stock related to (i) activity on employee stock option program exercises where the employee delivers existing shares to cover the option exercise, or (ii) under Citi's employee restricted or deferred stock programs where shares are withheld to satisfy tax requirements.

The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

113



CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

Citigroup Inc. and Subsidiaries

 
  Six Months Ended June 30,  
In millions of dollars   2013   2012  

Cash flows from operating activities of continuing operations

             

Net income before attribution of noncontrolling interests

  $ 8,116   $ 6,043  

Net income attributable to noncontrolling interests

    126     166  
           

Citigroup's net income

  $ 7,990   $ 5,877  

Income (loss) from discontinued operations, net of taxes

    (41 )   20  

Gain (loss) on sale, net of taxes

    38     (1 )
           

Income from continuing operations—excluding noncontrolling interests

  $ 7,993   $ 5,858  

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations

             

Depreciation and amortization

    1,218     1,512  

Provision for credit losses

    4,052     5,382  

Realized gains from sales of investments

    (701 )   (2,198 )

Net impairment losses recognized in earnings

    423     1,433  

Change in trading account assets

    14,359     (18,512 )

Change in trading account liabilities

    7,473     2,736  

Change in federal funds sold and securities borrowed or purchased under agreements to resell

    (1,894 )   3,185  

Change in federal funds purchased and securities loaned or sold under agreements to repurchase

    7,016     16,478  

Change in brokerage receivables net of brokerage payables

    (6,302 )   (9,785 )

Change in loans held-for-sale

    (3,383 )   1,970  

Change in other assets

    15,744     3,219  

Change in other liabilities

    (4,887 )   (2,802 )

Other, net

    3,939     (4,343 )
           

Total adjustments

  $ 37,057   $ (1,725 )
           

Net cash provided by operating activities of continuing operations

  $ 45,050   $ 4,133  
           

Cash flows from investing activities of continuing operations

             

Change in deposits with banks

  $ (55,894 ) $ 730  

Change in loans

    (5,567 )   (10,599 )

Proceeds from sales and securitizations of loans

    4,912     2,970  

Purchases of investments

    (122,776 )   (126,454 )

Proceeds from sales of investments

    79,832     68,868  

Proceeds from maturities of investments

    45,479     51,952  

Capital expenditures on premises and equipment and capitalized software

    (1,475 )   (1,774 )

Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets

    295     315  
           

Net cash used in investing activities of continuing operations

  $ (55,194 ) $ (13,992 )
           

Cash flows from financing activities of continuing operations

             

Dividends paid

  $ (74 ) $ (71 )

Issuance of preferred stock

    1,825      

Redemption of preferred stock

    (94 )    

Treasury stock acquired

    (182 )   (4 )

Stock tendered for payment of withholding taxes

    (448 )   (191 )

Issuance of long-term debt

    18,994     18,925  

Payments and redemptions of long-term debt

    (28,646 )   (56,424 )

Change in deposits

    7,867     48,372  

Change in short-term borrowings

    6,780     4,757  
           

Net cash provided by financing activities of continuing operations

  $ 6,022   $ 15,364  
           

Effect of exchange rate changes on cash and cash equivalents

  $ (1,186 ) $ (279 )
           

Change in cash and due from banks

  $ (5,308 ) $ 5,226  

Cash and due from banks at beginning of period

    36,453     28,701  
           

Cash and due from banks at end of period

  $ 31,145   $ 33,927  
           

Supplemental disclosure of cash flow information for continuing operations

             

Cash paid during the year for income taxes

  $ 2,452   $ 1,845  

Cash paid during the year for interest

  $ 6,568   $ 10,023  
           

Non-cash investing activities

             

Increase in corporate loans due to consolidation of a commercial paper conduit

  $ 6,718   $  

Transfers to OREO and other repossessed assets

    122     263  

Non-cash financing activities

             

Increase in short-term borrowings due to consolidation of a commercial paper conduit

  $ 6,718   $  
           

The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BASIS OF PRESENTATION

        The accompanying unaudited Consolidated Financial Statements as of June 30, 2013 and for the three- and six-month periods ended June 30, 2013 and 2012 include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries (collectively, the Company, Citi or Citigroup). 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 Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Citigroup's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (2012 Annual Report on Form 10-K) and Citigroup's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

        Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), 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.

        Throughout these Notes, "Citigroup," "Citi" and the "Company" refer to Citigroup Inc. and its consolidated subsidiaries.

        Certain reclassifications have been made to the prior-period's financial statements and notes to conform to the current period's presentation.

        As noted above, the Notes to Consolidated Financial Statements are unaudited.


Principles of Consolidation

        The Consolidated Financial Statements include the accounts of Citigroup and its subsidiaries prepared in accordance with GAAP. The Company consolidates subsidiaries in which it holds, directly or indirectly, more than 50% of the voting rights or where it exercises control. Entities where the Company holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence, other than investments of designated venture capital subsidiaries or investments accounted for at fair value under the fair value option, are accounted for under the equity method, and the pro rata share of their income (loss) is included in Other revenue. Income from investments in less than 20%-owned companies is recognized when dividends are received. As discussed in more detail in Note 19 to the Consolidated Financial Statements, Citigroup consolidates entities deemed to be variable interest entities when Citigroup is determined to be the primary beneficiary. Gains and losses on the disposition of branches, subsidiaries, affiliates, buildings, and other investments are included in Other revenue.


Citibank, N.A.

        Citibank, N.A. is a commercial bank and wholly owned subsidiary of Citigroup Inc. Citibank's principal offerings include: Consumer finance, mortgage lending, and retail banking products and services; investment banking, commercial banking, cash management, trade finance and e-commerce products and services; and private banking products and services.


Significant Accounting Policies

        The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified six 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 Litigation Accruals. The Company, in consultation with the Audit Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described under "Significant Accounting Policies and Significant Estimates" and Note 1 to the Consolidated Financial Statements in the Company's 2012 Annual Report on Form 10-K.

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ACCOUNTING CHANGES

Remeasurement of Significant Pension and Postretirement Benefit Plans

        In the second quarter of 2013, the Company changed the method of accounting for its most significant pension and postretirement benefit plans (Significant Plans) such that plan obligations, plan assets and periodic plan expense will be remeasured and disclosed quarterly, instead of annually. The effect of remeasuring the Significant Plan obligations and assets by updating plan actuarial assumptions on a quarterly basis will also be reflected in Accumulated other comprehensive income (loss) and periodic plan expense. The Significant Plans capture approximately 80% of the Company's global pension and postretirement plan obligations at December 31, 2012. All other plans (All Other Plans) will continue to be remeasured annually. Quarterly measurement for the Significant Plans provides a more timely measurement of the funded status and periodic plan expense for the Company's significant pension and postretirement benefit plans.

        The cumulative effect of this change in accounting policy was an approximate $20 million (pretax) decrease in net periodic plan expense in the second quarter of 2013, as well as a pretax increase of approximately $22 million to Accumulated other comprehensive income (loss) as of April 1, 2013. The change in accounting methodology had an immaterial impact on prior periods. For additional information, see Note 8 to the Consolidated Financial Statements.


Reclassification out of Accumulated Other Comprehensive Income

        In February 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which required new footnote disclosures of items reclassified from accumulated Other Comprehensive Income (OCI) to net income. The requirements became effective for the first quarter of 2013 and are included in Note 17 to the Consolidated Financial Statements.


Testing Indefinite-Lived Intangible Assets for Impairment

        In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The ASU is intended to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Some examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses and distribution rights. The ASU allows companies to perform a qualitative assessment about the likelihood of impairment of an indefinite-lived intangible asset to determine whether further impairment testing is necessary, similar in approach to the goodwill impairment test. The ASU became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.


Offsetting

        In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The ASU requires new disclosures for derivatives, resale and repurchase agreements, and securities borrowing and lending transactions that are either offset in the balance sheet (presented on a net basis) or subject to an enforceable master netting arrangement or similar arrangement. The standard requires disclosures that provide incremental gross and net information in the current notes to the financial statements for the relevant assets and liabilities. The ASU did not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The new incremental disclosure requirements became effective for Citigroup on January 1, 2013 and are required to be presented retrospectively for prior periods. The incremental requirements can be found in Note 10 to the Consolidated Financial Statements for resale and repurchase agreements and securities borrowing and lending transactions and Note 20 to the Consolidated Financial Statements for derivatives.


OCC Chapter 7 Bankruptcy Guidance

        In the third quarter of 2012, the Office of the Comptroller of the Currency (OCC) issued guidance relating to the accounting for mortgage loans discharged through bankruptcy proceedings pursuant to Chapter 7 of the U.S. Bankruptcy Code (Chapter 7 bankruptcy). Under this OCC guidance, the discharged loans are accounted for as troubled debt restructurings (TDRs). These TDRs, other than FHA-insured loans, are written down to their collateral value less cost to sell. FHA-insured loans are reserved for based on a discounted cash flow model. As a result of implementing this guidance, Citigroup recorded an incremental $635 million of charge-offs in the third quarter of 2012, the vast majority of which related to loans that were current. These charge-offs were substantially offset by a related loan loss reserve release of approximately $600 million, with a net reduction in pretax income of $35 million. In the fourth quarter of 2012, Citigroup recorded a benefit to charge-offs of approximately $40 million related to finalizing the impact of this OCC guidance. Furthermore, as a result of this OCC guidance, TDRs increased by $1.7 billion, and non-accrual loans increased by $1.5 billion in the third quarter of 2012 ($1.3 billion of which was current).


Presentation of Comprehensive Income

        In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The ASU requires an entity to present the total of comprehensive income, the components of net income, and the components of OCI either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Citigroup selected the two-statement approach. Under this approach, Citi is required to present components of net income and total net income in the Statement of Income. The Statement of Comprehensive Income follows the Statement of Income and includes the components of OCI and a total for OCI, along with a total for comprehensive income. The ASU removed the option of reporting OCI in the statement of changes in stockholders' equity. This ASU became

116


effective for Citigroup on January 1, 2012 and a Statement of Comprehensive Income is included in these Consolidated Financial Statements.


Fair Value Measurement

        In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The ASU created a common definition of fair value for U.S. GAAP and IFRS and aligned the measurement and disclosure requirements. It required significant additional disclosures both of a qualitative and quantitative nature, particularly for those instruments measured at fair value that are classified in Level 3 of the fair value hierarchy. Additionally, the ASU provided guidance on when it is appropriate to measure fair value on a portfolio basis and expanded the prohibition on valuation adjustments where the size of the Company's position is a characteristic of the adjustment from Level 1 to all levels of the fair value hierarchy.

        The ASU became effective for Citigroup on January 1, 2012. As a result of implementing the prohibition on valuation adjustments where the size of the Company's position is a characteristic, the Company released reserves of approximately $125 million, increasing pretax income in the first quarter of 2012.


Deferred Asset Acquisition Costs

        In October 2010, the FASB issued ASU No. 2010-26, Financial Services—Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The ASU amended the guidance for insurance entities that required deferral and subsequent amortization of certain costs incurred during the acquisition of new or renewed insurance contracts, commonly referred to as deferred acquisition costs (DAC). The new guidance limited DAC to those costs directly related to the successful acquisition of insurance contracts; all other acquisition-related costs must be expensed as incurred. Under prior guidance, DAC consisted of those costs that vary with, and primarily relate to, the acquisition of insurance contracts.

        The ASU became effective for Citigroup on January 1, 2012 and was adopted using the retrospective method. As a result of implementing the ASU, in the first quarter of 2012, DAC was reduced by approximately $165 million and a $58 million deferred tax asset was recorded with an offset to opening retained earnings of $107 million (net of tax).


FUTURE APPLICATION OF ACCOUNTING STANDARDS

Investment Companies

        In June 2013, the FASB issued ASU No. 2013-08, Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. This ASU introduces a new approach for assessing whether an entity is an investment company. To determine whether an entity is an investment company for accounting purposes, Citi will now be required to evaluate the fundamental and typical characteristics of the entity including its purpose and design.

        The amendments in the ASU will be effective for Citi in the first quarter of 2014. Earlier application is prohibited. The Company is evaluating the impact of adopting this ASU.


OIS Benchmark Rate

        In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the Fed funds effective swap rate (OIS) to be used as a U.S. benchmark interest rate, in addition to the U.S. Treasury rate and LIBOR, for hedge accounting purposes. The ASU also permits using different benchmark rates for similar hedges.

        This ASU is effective immediately and may only be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. Citi is evaluating the impact of adopting this ASU.


Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

        In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). As a result of applying this ASU, an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss (NOL) or other tax credit carryforward when settlement in this manner is available under the tax law. The assessment of whether settlement is available under the tax law would be based on facts and circumstances as of the balance sheet reporting date and would not consider future events (e.g., upcoming expiration of related NOL carryforwards). This classification should not affect an entity's analysis of the realization of its deferred tax assets. Gross presentation in the rollforward of unrecognized tax positions in the notes to the financial statements would still be required.

        This ASU is effective for Citi in its 2014 fiscal year, and may be applied on a prospective basis to all unrecognized tax benefits that exist at the effective date. Citi has the option to apply the ASU retrospectively. Early adoption is also permitted. The impact of adopting this ASU is not material to Citi.

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Accounting for Financial Instruments—Credit Losses

        In December 2012, the FASB issued a proposed ASU, Financial Instruments—Credit Losses. This proposed ASU, or exposure draft, was issued for public comment in order to allow stakeholders the opportunity to review the proposal and provide comments to the FASB, and does not constitute accounting guidance until a final ASU is issued.

        The exposure draft contains proposed guidance developed by the FASB with the goal of improving financial reporting about expected credit losses on loans, securities and other financial assets held by banks, financial institutions, and other public and private organizations. The exposure draft proposes a new accounting model intended to require earlier recognition of credit losses, while also providing additional transparency about credit risk.

        The FASB's proposed model would utilize a single "expected credit loss" measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired, replacing the multiple existing impairment models in U.S. GAAP which generally require that a loss be "incurred" before it is recognized.

        The FASB's proposed model represents a significant departure from existing U.S. GAAP, and may result in material changes to the Company's accounting for financial instruments. The impact of the FASB's final ASU to the Company's financial statements will be assessed when it is issued. The exposure draft does not contain a proposed effective date; this would be included in the final ASU, when issued.


Other Potential Amendments to Current Accounting Standards

        The FASB and IASB, either jointly or separately, are currently working on several major projects, including amendments to existing accounting standards governing financial instruments, leases and consolidation. As part of the joint financial instruments project, the FASB has issued a proposed ASU that would result in significant changes to the guidance for recognition and measurement of financial instruments, in addition to the proposed ASU that would change the accounting for credit losses on financial instruments discussed above.

        The FASB is also working on a joint project that would require substantially all leases to be capitalized on the balance sheet. Additionally, the FASB has issued a proposal on principal-agent considerations that would change the way the Company needs to evaluate whether to consolidate VIEs and non-VIE partnerships.

        The principal-agent consolidation proposal would require all VIEs, including those that are investment companies, to be evaluated for consolidation under the same requirements. All of these projects may have significant impacts for the Company. Upon completion of the standards, the Company will need to re-evaluate its accounting and disclosures. However, due to ongoing deliberations of the standard setters, the Company is currently unable to determine the effect of future amendments or proposals.

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2.     DISCONTINUED OPERATIONS

Sale of Brazil Credicard business

        On May 14, 2013, Citi entered into a definitive agreement to sell Credicard, its non-Citibank branded cards and consumer finance business in Brazil (Brazil Credicard), which is part of the Global Consumer Banking segment, for approximately $1.24 billion to Banco Itau Unibanco. The sale is expected to result in an after-tax gain of approximately $300 million upon closing (expected to occur by early 2014, subject to Brazilian regulatory approvals). Citi will retain its Citi-branded and Diners credit cards, along with certain affluent segments currently associated with Credicard, which will be re-branded as Citi.

        Brazil Credicard is reported as discontinued operations for the current and all historical periods.

        The following is a summary as of June 30, 2013 of the assets held for sale on the Consolidated Balance Sheet related to Brazil Credicard:

In millions of dollars   June 30, 2013  

Assets

       

Deposits at interest with banks

  $ 84  

Loans (net allowance of $358)

    2,619  

Goodwill and intangible assets

    265  

Other assets

    330  
       

Total assets

  $ 3,298  
       

        Summarized financial information for Discontinued operations for the credit card operations related to Brazil Credicard follows:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Total revenues, net of interest expense

  $ 251   $ 255   $ 515   $ 540  
                   

Income from discontinued operations

    55     5     107     31  

Income taxes

    19     (2 )   37     7  
                   

Income from discontinued operations, net of taxes

  $ 36   $ 7   $ 70   $ 24  
                   


Sale of Certain Citi Capital Advisors Business

        During the third quarter of 2012, the Company executed definitive agreements to transition a carve-out of its liquid strategies business within Citi Capital Advisors (CCA), which is part of the Institutional Clients Group segment, to certain employees responsible for managing those operations. This transition will occur pursuant to two separate transactions, creating two separate management companies, with each such transaction accounted for as a sale. At the close of the first transaction in February 2013, Citigroup retained a 24.9% passive equity interest in the management company created as a result of the sale (which will continue to be held in Citi's Institutional Clients Group segment) and recorded a gain on sale of $56 million. The second transaction is expected to be completed in 2013.

        This sale is reported as discontinued operations for the second half of 2012 and going forward. Prior periods were not reclassified due to the immateriality of the impact in those periods.

        The following is a summary as of June 30, 2013 of the assets held for sale on the Consolidated Balance Sheet or sold related to CCA:

In millions of dollars   June 30, 2013  

Assets

       

Deposits at interest with banks

  $ 4  

Goodwill

    2  

Other assets

    2  
       

Total assets

  $ 8  
       

        Summarized financial information for Discontinued operations for the operations related to CCA follows:

In millions of dollars   Three Months
Ended
June 30, 2013
  Six Months
Ended
June 30, 2013
 

Total revenues, net of interest expense

  $ 7   $ 65  
           

Loss from discontinued operations

    (3 )   (131 )

Gain on sale

        56  

Benefit for income taxes

    (1 )   (23 )
           

Loss from discontinued operations, net of taxes

  $ (2 ) $ (52 )
           


Sale of Egg Banking plc Credit Card Business

        On March 1, 2011, the Company announced that Egg Banking plc (Egg), an indirect subsidiary that was part of Citi Holdings, entered into a definitive agreement to sell its credit card business to Barclays PLC. The sale closed on April 28, 2011.

        This sale is reported as discontinued operations for 2011 and going forward; 2010 was not reclassified, due to the immateriality of the impact in that period. An after-tax gain on sale of $126 million was recognized upon closing. Egg operations had total assets and total liabilities of approximately $2.7 billion and $39 million, respectively, at the time of sale.

119


        Summarized financial information for Discontinued operations for the credit card operations related to Egg follows:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Total revenues, net of interest expense

  $   $   $   $ 1  
                   

Loss from discontinued operations

    (1 )       (28 )   (3 )

Loss on sale

                (1 )

Benefit for income taxes

            (10 )   (1 )
                   

Loss from discontinued operations, net of taxes

  $ (1 ) $   $ (18 ) $ (3 )
                   


Combined Results for Discontinued Operations

        The following is summarized financial information for Brazil Credicard, CCA, Egg and previous discontinued operations, for which Citi continues to have minimal residual costs associated with the sales.

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Total revenues, net of interest expense

  $ 258   $ 255   $ 580   $ 541  
                   

Income from discontinued operations

    51     5     (52 )   28  

Gain (loss) on sale

            56     (1 )

Provision for income taxes (benefits)

    21     (2 )   7     8  
                   

Income (loss) from discontinued operations, net of taxes

  $ 30   $ 7   $ (3 ) $ 19  
                   

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3.     BUSINESS SEGMENTS

        Citigroup is a diversified bank holding company whose businesses provide a broad range of financial services to Consumer and Corporate customers around the world. The Company's activities are conducted through the Global Consumer Banking (GCB), Institutional Clients Group (ICG), Corporate/Other and Citi Holdings business segments.

        The GCB segment includes a global, full-service Consumer franchise delivering a wide array of banking, credit card lending and investment services through a network of local branches, offices and electronic delivery systems and is composed of four Regional Consumer Banking businesses: North America, EMEA, Latin America and Asia.

        The Company's ICG segment is composed of Securities and Banking and Transaction Services and provides corporate, institutional, public sector and high net-worth clients in approximately 100 countries with a broad range of banking and financial products and services.

        Corporate/Other includes net treasury results, unallocated corporate expenses, offsets to certain line-item reclassifications (eliminations), the results of discontinued operations and unallocated taxes.

        The Citi Holdings segment is composed of Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool.

        The accounting policies of these reportable segments are the same as those disclosed in Note 1 to the Consolidated Financial Statements in Citi's 2012 Annual Report on Form 10-K.

        The prior-period balances reflect reclassifications to conform the presentation in those periods to the current period's presentation. Reclassifications during the second quarter of 2013 related to the reporting of Citi's announced sale of its Brazil Credicard business as discontinued operations for all periods presented. Reclassifications during the first quarter of 2013 related to the re-allocation of certain administrative and funding costs among Citi's businesses.

        The following table presents certain information regarding the Company's continuing operations by segment:

 
  Total revenues,
net of interest expense(1)
  Provision (benefit)
for income taxes
  Income (loss) from
continuing operations(2)
  Identifiable assets  
 
  Three Months Ended June 30,    
   
 
In millions of dollars, except
identifiable assets in billions
  June 30,
2013
  December 31,
2012
 
  2013   2012   2013   2012   2013   2012  

Global Consumer Banking

  $ 9,711   $ 9,507   $ 1,022   $ 1,017   $ 1,955   $ 1,971   $ 395   $ 404  

Institutional Clients Group

    9,573     8,238     1,476     760     3,190     2,364     1,068     1,062  

Corporate/Other

    103     (296 )   (34 )   (446 )   (388 )   (447 )   290     243  
                                   

Total Citicorp

  $ 19,387   $ 17,449   $ 2,464   $ 1,331   $ 4,757   $ 3,888   $ 1,753   $ 1,709  

Citi Holdings

    1,092     938     (337 )   (613 )   (569 )   (909 )   131     156  
                                   

Total

  $ 20,479   $ 18,387   $ 2,127   $ 718   $ 4,188   $ 2,979   $ 1,884   $ 1,865  
                                   

 

 
  Total revenues,
net of interest expense(1)
  Provision (benefit)
for income taxes
  Income (loss) from
continuing operations(2)
 
 
  Six Months Ended June 30,  
In millions of dollars, except
identifiable assets in billions
 
  2013   2012   2013   2012   2013   2012  

Global Consumer Banking

  $ 19,460   $ 19,228   $ 1,998   $ 2,016   $ 3,872   $ 4,131  

Institutional Clients Group

    19,157     16,285     2,882     1,398     6,315     4,597  

Corporate/Other

    96     175     (287 )   (439 )   (710 )   (778 )
                           

Total Citicorp

  $ 38,713   $ 35,688   $ 4,593   $ 2,975   $ 9,477   $ 7,950  

Citi Holdings

    1,993     1,820     (896 )   (1,260 )   (1,358 )   (1,926 )
                           

Total

  $ 40,706   $ 37,508   $ 3,697   $ 1,715   $ 8,119   $ 6,024  
                           

(1)
Includes Citicorp total revenues, net of interest expense, in North America of $8.3 billion and $7.7 billion; in EMEA of $3.5 billion and $2.9 billion; in Latin America of $3.5 billion and $3.3 billion; and in Asia of $4.0 billion and $3.8 billion for the three months ended June 30, 2013 and 2012, respectively. Includes Citicorp total revenues, net of interest expense, in North America of $17 billion and $15 billion; in EMEA of $6.6 billion and $6.1 billion; in Latin America of $7.1 billion and $6.6 billion; and in Asia of $8.0 billion and $7.8 billion for the six months ended June 30, 2013 and 2012, respectively. Regional numbers exclude Citi Holdings and Corporate/Other, which largely operate within the U.S.

(2)
Includes pretax provisions (credits) for credit losses and for benefits and claims in the GCB results of $1.6 billion and $1.3 billion; in the ICG results of $(30) million and $135 million; and in the Citi Holdings results of $0.5 billion and $1.2 billion for the three months ended June 30, 2013 and 2012, respectively. Includes pretax provisions (credits) for credit losses and for benefits and claims in the GCB results of $3.3 billion and $2.8 billion; in the ICG results of $35 million and $224 million; and in the Citi Holdings results of $1.2 billion and $2.6 billion for the six months ended June 30, 2013 and 2012, respectively.

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4.     INTEREST REVENUE AND EXPENSE

        For the three and six months ended June 30, 2013 and 2012, respectively, Interest revenue and Interest expense consisted of the following:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Interest revenue

                         

Loan interest, including fees

  $ 11,300   $ 11,774   $ 22,725   $ 24,015  

Deposits with banks

    252     329     508     694  

Federal funds sold and securities borrowed or purchased under agreements to resell

    702     902     1,390     1,845  

Investments, including dividends

    1,687     1,854     3,489     3,764  

Trading account assets(1)

    1,669     1,695     3,299     3,392  

Other interest

    230     132     389     270  
                   

Total interest revenue

  $ 15,840   $ 16,686   $ 31,800   $ 33,980  
                   

Interest expense

                         

Deposits(2)

  $ 1,583   $ 1,933   $ 3,259   $ 3,943  

Federal funds purchased and securities loaned or sold under agreements to repurchase

    630     753     1,239     1,448  

Trading account liabilities(1)

    43     52     85     105  

Short-term borrowings

    148     183     311     391  

Long-term debt

    1,754     2,422     3,594     5,034  
                   

Total interest expense

  $ 4,158   $ 5,343   $ 8,488   $ 10,921  
                   

Net interest revenue

  $ 11,682   $ 11,343   $ 23,312   $ 23,059  

Provision for loan losses

    1,827     2,475     4,041     5,184  
                   

Net interest revenue after provision for loan losses

  $ 9,855   $ 8,868   $ 19,271   $ 17,875  
                   

(1)
Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue from Trading account assets.

(2)
Includes deposit insurance fees and charges of $289 million and $297 million for three months ended June 30, 2013 and 2012, respectively, and $588 million and $669 million for six months ended June 30, 2013 and 2012, respectively.

122


5.     COMMISSIONS AND FEES

        The table below sets forth Citigroup's Commissions and fees revenue for the three and six months ended June 30, 2013 and 2012, respectively. The primary components of Commissions and fees revenue for the three and six months ended June 30, 2013 were credit card and bank card fees, investment banking fees and trading-related fees.

        Credit card and bank card fees are primarily composed of interchange revenue and certain card fees, including annual fees, reduced by reward program costs and certain partner payments. Interchange revenue and fees are recognized when earned, except for annual card fees, which are deferred and amortized on a straight-line basis over a 12-month period. Reward costs are recognized when points are earned by the customers.

        Investment banking fees are substantially composed of underwriting and advisory revenues. Investment banking fees are recognized when Citigroup's performance under the terms of the contractual arrangements is completed, which is typically at the closing of the transaction. Underwriting revenue is recorded in Commissions and fees, net of both reimbursable and non-reimbursable expenses, consistent with the AICPA Audit and Accounting Guide for Brokers and Dealers in Securities (codified in ASC 940-605-05-1). Expenses associated with advisory transactions are recorded in Other operating expenses, net of client reimbursements. Out-of-pocket expenses are deferred and recognized at the time the related revenue is recognized. In general, expenses incurred related to investment banking transactions that fail to close (are not consummated) are recorded gross in Other operating expenses.

        Trading-related fees primarily include commissions and fees from the following: executing transactions for clients on exchanges and over-the-counter markets; sale of mutual funds, insurance and other annuity products; and assisting clients in clearing transactions, providing brokerage services and other such activities. Trading-related fees are recognized when earned in Commissions and fees. Gains or losses, if any, on these transactions are included in Principal transactions (see Note 6 to the Consolidated Financial Statements).

        The following table presents Commissions and fees revenue for the three and six months ended June 30:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Credit cards and bank cards

  $ 632   $ 693   $ 1,256   $ 1,346  

Investment banking

    841     652     1,768     1,306  

Trading-related

    664     552     1,359     1,160  

Transaction services

    536     514     920     887  

Other Consumer(1)

    230     215     458     439  

Checking-related

    72     76     278     314  

Loan servicing

    115     61     252     101  

Corporate finance(2)

    132     109     291     243  

Other

    122     160     241     323  
                   

Total commissions and fees

  $ 3,344   $ 3,032   $ 6,823   $ 6,119  
                   

(1)
Primarily consists of fees for investment fund administration and management, third-party collections, commercial demand deposit accounts and certain credit card services.

(2)
Consists primarily of fees earned from structuring and underwriting loan syndications.

123


6.     PRINCIPAL TRANSACTIONS

        Principal transactions revenue consists of realized and unrealized gains and losses from trading activities. Trading activities include revenues from fixed income, equities, credit and commodities products, and foreign exchange transactions. Not included in the table below is the impact of net interest revenue related to trading activities, which is an integral part of trading activities' profitability. See Note 4 to the Consolidated Financial Statements for information about net interest revenue related to trading activity. Principal transactions include CVA (credit valuation adjustment on derivatives) and DVA (debt valuation adjustments on issued debt earned at fair value).

        The following table presents principal transactions revenue for the three and six months ended June 30:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Global Consumer Banking

  $ 243   $ 159   $ 454   $ 415  

Institutional Clients Group

    2,407     1,434     4,822     3,350  

Corporate/Other

    (23 )   (44 )   (165 )   (164 )
                   

Subtotal Citicorp

  $ 2,627   $ 1,549   $ 5,111   $ 3,601  
                   

Local Consumer Lending

    (7 )   (17 )   (13 )   (40 )

Brokerage and Asset Management

    (2 )   (9 )   (7 )   (4 )

Special Asset Pool

    22     117     (4 )   14  
                   

Subtotal Citi Holdings

  $ 13   $ 91   $ (24 ) $ (30 )
                   

Total Citigroup

  $ 2,640   $ 1,640   $ 5,087   $ 3,571  
                   

Interest rate contracts(1)

  $ 1,647   $ 1,071   $ 3,129   $ 1,862  

Foreign exchange contracts(2)

    684     450     1,115     1,204  

Equity contracts(3)

    222     4     380     346  

Commodity and other contracts(4)

    91     84     207     63  

Credit derivatives(5)

    (4 )   31     256     96  
                   

Total

  $ 2,640   $ 1,640   $ 5,087   $ 3,571  
                   

(1)
Includes revenues from government securities and corporate debt, municipal securities, preferred stock, mortgage securities and other debt instruments. Also includes spot and forward trading of currencies and exchange-traded and over-the-counter (OTC) currency options, options on fixed income securities, interest rate swaps, currency swaps, swap options, caps and floors, financial futures, OTC options and forward contracts on fixed income securities.

(2)
Includes revenues from foreign exchange spot, forward, option and swap contracts, as well as FX translation gains and losses.

(3)
Includes revenues from common, preferred and convertible preferred stock, convertible corporate debt, equity-linked notes and exchange-traded and OTC equity options and warrants.

(4)
Primarily includes revenues from crude oil, refined oil products, natural gas and other commodities trades.

(5)
Includes revenues from structured credit products.

124


7.     INCENTIVE PLANS

        The Company makes restricted or deferred stock and/or deferred cash awards, as well as stock payments, as part of its discretionary annual incentive award programs involving a large segment of Citigroup's employees worldwide. Stock and deferred cash awards and grants of stock options may also be made at various times during the year as sign-on awards to induce new hires to join the Company, or to high-potential employees as long-term retention awards. Long-term restricted stock awards and salary stock payments have also been used to fulfill specific regulatory requirements to deliver annual salary and incentive awards to certain officers and highly-compensated employees in the form of equity. Consistent with long-standing practice, a portion of annual compensation for non-employee directors is also delivered in the form of equity awards. Various other incentive award programs are made on an annual or other regular basis to retain and motivate certain employees who do not participate in Citigroup's annual discretionary incentive awards.

        Recipients of Citigroup stock awards and option grants generally do not have any stockholder rights prior to vesting or exercise. Recipients of restricted or deferred stock awards, however, may be entitled to receive dividends or dividend-equivalent payments during the vesting period, unless the award is subject to performance criteria. Pursuant to an amendment to Citigroup's 2009 Stock Incentive Plan, approved by stockholders at the annual meeting on April 24, 2013, unvested stock awards subject to performance criteria may accrue rights to dividend equivalents that will be paid if and when, and only to the extent that, the shares awarded vest. Additionally, because unvested shares of restricted stock are considered issued and outstanding, recipients of such awards are generally entitled to vote the shares in their award during the vesting period. Once a stock award vests, the shares are freely transferable, unless they are subject to a restriction on sale or transfer for a specified period. Pursuant to a stock ownership commitment, certain executives have committed to holding most of their vested shares indefinitely.

        Most of the shares of common stock issued by Citigroup as part of its equity compensation programs are to settle the vesting of restricted and deferred stock awards granted as part of annual incentive awards. These annual incentive awards generally also include immediate cash bonus payments and deferred cash awards and, in the European Union (EU), immediately vested stock payments. Annual incentives are generally awarded in the first quarter of the year based upon previous years' performance.

        All equity awards granted since April 19, 2005 have been made pursuant to stockholder-approved stock incentive plans that are administered by the Personnel and Compensation Committee of the Citigroup Board of Directors (the Committee), which is composed entirely of independent non-employee directors. For additional information on Citi's incentive plans, see Note 8 to the Consolidated Financial Statements in Citi's 2012 Annual Report on Form 10-K.

Variable Incentive Compensation

        Citigroup has various incentive plans globally that are used to motivate and reward performance primarily in the areas of sales, operational excellence and customer satisfaction. These programs are reviewed on a periodic basis to ensure that they are structured appropriately, aligned to shareholder interests and adequately risk balanced.

125


8.     RETIREMENT BENEFITS

        For additional information on Citi's retirement benefits, see Note 9 to the Consolidated Financial Statements in the Company's 2012 Annual Report on Form 10-K.


Pension and Postretirement Plans

        The Company has several non-contributory defined benefit pension plans covering certain U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The U.S. qualified defined benefit plan was frozen effective January 1, 2008 for most employees. Accordingly, no additional compensation-based contributions were credited to the cash balance portion of the plan for existing plan participants after 2007. However, certain employees covered under the prior final pay plan formula continue to accrue benefits. The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States.

        Beginning in the second quarter of 2013, the Company utilizes a quarterly, rather than annual, measurement for the Significant Plans. The Significant Plans capture 80% of the Company's global pension and postretirement liabilities at December 31, 2012. For All Other Plans, the Company will continue to utilize an annual measurement approach. See Note 1 to the Consolidated Financial Statements for additional information on the change in accounting policy.


Net (Benefit) Expense

        The following table summarizes the components of net (benefit) expense recognized in the Consolidated Statement of Income for the Company's U.S. qualified and nonqualified pension plans, postretirement plans and plans outside the United States.

 
  Three Months Ended June 30,  
 
  Pension plans   Postretirement benefit plans  
 
  U.S. plans   Non-U.S. plans   U.S. plans   Non-U.S. plans  
In millions of dollars   2013   2012   2013   2012   2013   2012   2013   2012  

Benefits earned during the period

  $ 3   $ 3   $ 53   $ 50   $   $   $ 15   $ 7  

Interest cost on benefit obligation

    132     141     97     94     8     11     39     30  

Expected return on plan assets

    (215 )   (224 )   (104 )   (103 )   (1 )   (1 )   (41 )   (29 )

Amortization of unrecognized

                                                 

Prior service cost (benefit)

    (1 )       1     1         (1 )        

Net actuarial loss

    28     24     24     20             11     7  

Curtailment (gain) loss

                8                  
                                   

Net qualified plans (benefit) expense

  $ (53 ) $ (56 ) $ 71   $ 70   $ 7   $ 9   $ 24   $ 15  
                                   

U.S. nonqualified plans expense

  $ 12   $ 10   $   $   $   $   $   $  
                                   

Total net (benefit) expense

  $ (41 ) $ (46 ) $ 71   $ 70   $ 7   $ 9   $ 24   $ 15  
                                   

Cumulative effect of change in accounting policy(1)

  $ (23 ) $   $   $   $   $   $ 3   $  
                                   

Total adjusted net (benefit) expense

  $ (64 ) $ (46 ) $ 71   $ 70   $ 7   $ 9   $ 27   $ 15  
                                   

 

 
  Six Months Ended June 30,  
 
  Pension plans   Postretirement benefit plans  
 
  U.S. plans   Non-U.S. plans   U.S. plans   Non-U.S. plans  
In millions of dollars   2013   2012   2013   2012   2013   2012   2013   2012  

Benefits earned during the period

  $ 6   $ 6   $ 107   $ 100   $   $   $ 25   $ 14  

Interest cost on benefit obligation

    258     282     192     184     17     22     76     58  

Expected return on plan assets

    (429 )   (448 )   (205 )   (201 )   (2 )   (2 )   (72 )   (54 )

Amortization of unrecognized

                                                 

Prior service cost (benefit)

    (2 )       2     2         (1 )        

Net actuarial loss

    59     48     46     39         2     22     13  

Curtailment (gain) loss

                8                  
                                   

Net qualified plans (benefit) expense

  $ (108 ) $ (112 ) $ 142   $ 132   $ 15   $ 21   $ 51   $ 31  
                                   

U.S. nonqualified plans expense

  $ 24   $ 20   $   $   $   $   $   $  
                                   

Total net (benefit) expense

  $ (84 ) $ (92 ) $ 142   $ 132   $ 15   $ 21   $ 51   $ 31  
                                   

Cumulative effect of change in accounting policy(1)

  $ (23 ) $   $   $   $   $   $ 3   $  
                                   

Total adjusted net (benefit) expense

  $ (107 ) $ (92 ) $ 142   $ 132   $ 15   $ 21   $ 54   $ 31  
                                   

(1)
See Note 1 to the Consolidated Financial Statements for additional information on the change in accounting policy.

126



Funded Status and Accumulated Other Comprehensive Income

        The following table summarizes the funded status and amounts recognized in the Consolidated Balance Sheet for the Company's Significant Plans.


Net Amount Recognized

 
  Six months ended June 30, 2013  
 
  Pension plans   Postretirement plans  
In millions of dollars   U.S. plans(1)   Non-U.S. plans   U.S. plans   Non-U.S. plans  

Change in projected benefit obligation (PBO)

                         

Projected benefit obligation at beginning of year

  $ 13,268   $ 7,399   $ 1,072   $ 2,002  

PBO of plans measured annually at beginning of year(2)

        (3,674 )       (352 )
                   

Projected benefit obligation at beginning of year for Significant Plans

  $ 13,268   $ 3,725   $ 1,072   $ 1,650  

First quarter activity

    (27 )   10     (216 )   111  
                   

Projected benefit obligation at March 31, 2013 for Significant Plans(2)

  $ 13,241   $ 3,735   $ 856   $ 1,761  

Cumulative effect of change in accounting policy

    (368 )   385         81  

Benefits earned during the period

    3     15         13  

Interest cost on benefit obligation

    132     61     7     33  

Plan amendments

                 

Actuarial (gain) loss

    (646 )   (366 )   (59 )   (321 )

Benefits paid net participant contributions

    (164 )   (42 )   (20 )   (13 )

Foreign exchange impact and other

        (101 )       (86 )
                   

Projected benefit obligation at period end for Significant Plans

  $ 12,198   $ 3,687   $ 784   $ 1,468  
                   

Change in plan assets

                         

Plan assets at fair value at beginning of year

  $ 12,656   $ 7,154   $ 50   $ 1,497  

Plan assets at fair value of plans measured annually at beginning of year(2)

        (2,834 )       (10 )
                   

Plan assets at fair value at beginning of year for Significant Plans

  $ 12,656   $ 4,320   $ 50     1,487  

First quarter activity

    59     39     (4 )   267  
                   

Plan assets at fair value at March 31, 2013 for Significant Plans(2)

  $ 12,715   $ 4,359   $ 46   $ 1,754  

Cumulative effect of change in accounting policy

    (53 )   126     3     21  

Actual return on plan assets

    53     (377 )   (3 )   (294 )

Company contributions

        11     16      

Plan participants contributions

                 

Settlements

                 

Benefits paid

    (164 )   (42 )   (20 )   (13 )

Foreign exchange impact and other

        (98 )       (82 )
                   

Plan assets at fair value at period end for Significant Plans

  $ 12,551   $ 3,979   $ 42   $ 1,386  
                   

Funded status of Significant Plans at period end

  $ 353   $ 292   $ (742 ) $ (82 )
                   

Net amount recognized

                         

Benefit asset

  $ 353   $ 393   $   $  

Benefit liability

        (101 )   (742 )   (82 )
                   

Net amount recognized on the balance sheet

  $ 353   $ 292   $ (742 ) $ (82 )
                   

Amounts recognized in Accumulated other comprehensive income (loss)

                         

Prior service benefit

  $ (11 ) $ (2 ) $ (1 ) $ (3 )

Net actuarial loss (gain)

    4,068     1,277     (140 )   704  
                   

Net amount recognized in equity—pretax

  $ 4,057   $ 1,275   $ (141 ) $ 701  
                   

Accumulated benefit obligation at period end

  $ 12,178   $ 3,173     N/A     N/A  
                   

(1)
The U.S. plans exclude nonqualified plans, for which the aggregate PBO was $769 million at the beginning of the year.

(2)
Only Significant Plans are measured quarterly. All Other Plans are only measured annually.

127


        The following table shows the change in Accumulated other comprehensive income (loss) for the three months and six months ended June 30, 2013.

In millions of dollars(1)   Three months
ended
June 30, 2013
  Six months
ended
June 30, 2013
 

Beginning of period balance, net of tax

  $ (5,016 ) $ (5,270 )
           

Cumulative effect of change in accounting policy

    (22 )   (22 )

Actuarial assumptions changes and plan experience

    1,393     1,595  

Net asset gain due to actual returns exceeding expected returns

    (937 )   (937 )

Net amortizations

    72     145  

Foreign exchange impact and other

    143     216  

Change in deferred taxes, net

    (248 )   (342 )
           

Change, net of tax

    401     655  
           

End of period balance, net of tax(1)

  $ (4,615 ) $ (4,615 )
           

(1)
See Note 17 to the Consolidated Financial Statements for further discussion of net Accumulated other comprehensive income (loss) balance.


Plan Assumptions

        The Company utilizes a number of assumptions to determine plan obligations and expense. Changes in one or a combination of these assumptions will have an impact on the Company's pension and postretirement benefit obligation, funded status and (benefit) expense. Changes in the plans' funded status resulting from unexpected changes in the projected benefit obligation and fair value of plan assets will have a corresponding impact on Accumulated other comprehensive income (loss).

        As a result of the quarterly measurement of the Company's Significant Plans beginning in the second quarter of 2013, the obligations and assets of these plans are measured based on end-of-period discount rates and asset values, while benefit expense is measured based on beginning-of-period discount rates. Any material changes to all other assumptions for the Significant Plans during the quarterly period are updated during the period as necessary. If no material changes occur, these assumptions will remain the same as at the preceding period-end. All assumptions including discount rates for All Other Plans will continue to be the same as at the preceding year-end.

        The discount rates used in determining the pension and postretirement benefit obligations at June 30, 2013, March 31, 2013 and December 31, 2012, and the net benefit expenses for the Company's Significant Plans for the three months ended June 30, 2013, three months ended March 31, 2013 and the year ended December 31, 2012, are shown in the table below. Discount rates at period end are utilized to value the period end benefit obligations and compute the benefit expense in the subsequent quarter.

At period ended(1)   Jun. 30,
2013
  Mar. 31,
2013
  Year ended
Dec. 31, 2012

U.S. plans(2)

           

Pension

  4.75%   4.20%   3.90%

Postretirement

  4.40   3.60   3.60

Non-U.S. plans

           

Pension

  4.70 to 8.40   4.40 to 7.40   4.50 to 7.70

Weighted average

  6.52   6.09   6.21

Postretirement

  8.40   7.40   7.70

 

 
  Three months ended    
During the period(1)   Jun. 30,
2013
  Mar. 31,
2013
  Year ended
Dec. 31, 2012

U.S. plans(2)

           

Pension

  4.20%   3.90%   4.70%

Postretirement

  3.60   3.60   4.30

Non-U.S. plans

           

Pension

  4.40 to 7.40   4.50 to 7.70   5.20 to 8.50

Weighted average

  6.09   6.21   6.79

Postretirement

  7.40   7.70   8.50

(1)
Per the quarterly remeasurement process, only discount rates for the Significant Plans are listed above. For plan assumptions for All Other Plans, please refer to Note 9 to the Consolidated Financial Statements in the Company's 2012 Annual Report on Form 10-K.

(2)
Weighted-average rates for the U.S. plans equal the stated rates.

Sensitivities of Certain Key Assumptions

        The following tables summarize the effect on the Company's Significant Plans pension expense of a one-percentage-point change in the discount rate:

 
  One-percentage-
point increase
 
In millions of dollars   2013   2012  

U.S. plans

  $ 16   $ 18  

Non-U.S. plans

    (19 )   (19 )

 

 
  One-percentage-
point decrease
 
In millions of dollars   2013   2012  

U.S. plans

  $ (36 ) $ (36 )

Non-U.S. plans

    22     25  

        Since the Company's U.S. qualified pension plan was frozen, the majority of the prospective service cost has been eliminated and the gain/loss amortization period was changed to the life expectancy for inactive participants. As a result, pension expense for the Company's U.S. qualified pension plan is driven more by interest costs than service costs, and an increase in the discount rate would increase pension expense, while a decrease in the discount rate would decrease pension expense.


Contributions

        The Company's funding practice for U.S. and non-U.S. pension plans is generally to fund to minimum funding requirements in accordance with applicable local laws and regulations. The Company may increase its contributions above the minimum required contribution, if appropriate. In addition, management has the ability to change its funding practices. For the U.S. pension plans, there were no minimum required cash contributions during the second quarter of 2013.

        The following table summarizes the actual Company contributions for the six months ended June 30, 2013 and 2012, as well as estimated expected Company contributions for the remainder of 2013. Expected contributions are subject to change since contribution decisions are affected by various factors, such as market performance and regulatory requirements.

128



Summary of Company Contributions

 
  Pension plans   Postretirement benefit plans  
 
  U.S. plans(1)   Non-U.S. plans   U.S. plans   Non-U.S. plans  
In millions of dollars   2013   2012   2013   2012   2013   2012   2013   2012  

Company contributions(2) for the six months ended June 30

  $ 21   $ 25   $ 125   $ 75   $ 28   $ 28   $ 168   $ 3  
                                   

Company contributions expected for the remainder of the year

  $ 21   $ 21   $ 88   $ 137   $ 28   $ 27   $ 5   $ 84  
                                   

(1)
The U.S. pension plans include qualified and nonqualified plans.

(2)
Company contributions are composed of cash contributions made to the plans and benefits paid directly to participants by the Company.


Defined Contribution Plans

        The Company sponsors defined contribution plans in the U.S. and in certain non-U.S. locations, all of which are administered in accordance with local laws. The most significant defined contribution plan is the Citigroup 401(k) Plan sponsored by the Company in the U.S.

        Under the Citigroup 401(k) Plan, eligible U.S. employees receive matching contributions of up to 6% of their eligible compensation for 2013 and 2012, subject to statutory limits. Additionally, for eligible employees whose eligible compensation is $100,000 or less, a fixed contribution of up to 2% of eligible compensation is provided. All Company contributions are invested according to participants' individual elections. The pretax expense associated with this plan amounted to approximately $98 million and $92 million in the three months ended June 30, 2013 and 2012, and $202 million and $196 million in the six months ended June 30, 2013 and 2012, respectively.

Postemployment Plans

        The Company sponsors U.S. postemployment plans that provide income continuation and health and welfare benefits to certain eligible U.S. employees on long-term disability.

        The following table summarizes the components of net expense recognized in the Consolidated Statement of Income for the Company's U.S. postemployment plans.

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Service related expense

                         

Benefits earned during the year

  $ 6   $ 6   $ 13   $ 12  

Interest cost on benefit obligation

    3     3     6     7  

Amortization of unrecognized

                         

Prior service cost

    2     2     4     4  

Net actuarial loss

    3     3     6     6  
                   

Total service related expense

  $ 14   $ 14   $ 29   $ 29  
                   

Non-service related expense

  $ 6   $ 6   $ 13   $ 12  
                   

Total net expense

  $ 20   $ 20   $ 42   $ 41  
                   

129


9.     EARNINGS PER SHARE

        The following is a reconciliation of the income and share data used in the basic and diluted earnings per share (EPS) computations for the three and six months ended June 30:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions, except per-share amounts   2013   2012   2013   2012  

Income from continuing operations before attribution of noncontrolling interests

  $ 4,188   $ 2,979   $ 8,119   $ 6,024  

Less: Noncontrolling interests from continuing operations

    36     40     126     166  
                   

Net income from continuing operations (for EPS purposes)

  $ 4,152   $ 2,939   $ 7,993   $ 5,858  

Income (loss) from discontinued operations, net of taxes

    30     7     (3 )   19  
                   

Citigroup's net income

  $ 4,182   $ 2,946   $ 7,990   $ 5,877  

Less: Preferred dividends

    9     9     13     13  
                   

Net income available to common shareholders

  $ 4,173   $ 2,937   $ 7,977   $ 5,864  

Less: Dividends and undistributed earnings allocated to employee restricted and deferred shares with nonforfeitable rights to dividends, applicable to basic EPS

    83     69     155     123  
                   

Net income allocated to common shareholders for basic EPS

  $ 4,090   $ 2,868   $ 7,822   $ 5,741  

Add: Interest expense, net of tax, and dividends on convertible securities and adjustment of undistributed earnings allocated to employee restricted and deferred shares with nonforfeitable rights to dividends, applicable to diluted EPS

    1     4     1     8  
                   

Net income allocated to common shareholders for diluted EPS

  $ 4,091   $ 2,872   $ 7,823   $ 5,749  
                   

Weighted-average common shares outstanding applicable to basic EPS

    3,040.7     2,926.6     3,040.4     2,926.4  

Effect of dilutive securities

                         

T-DECs(1)

        87.8         87.8  

Options(2)

    5.0         4.5      

Other employee plans

    0.5     0.5     0.5     0.5  

Convertible securities(3)

    0.1     0.1     0.1     0.1  
                   

Adjusted weighted-average common shares outstanding applicable to diluted EPS

    3,046.3     3,015.0     3,045.5     3,014.8  
                   

Basic earnings per share(4)

                         

Income from continuing operations

  $ 1.34   $ 0.98   $ 2.57   $ 1.96  

Discontinued operations

    0.01             0.01  
                   

Net income

  $ 1.35   $ 0.98   $ 2.57   $ 1.96  
                   

Diluted earnings per share(4)

                         

Income from continuing operations

  $ 1.33   $ 0.95   $ 2.57   $ 1.90  

Discontinued operations

    0.01             0.01  
                   

Net income

  $ 1.34   $ 0.95   $ 2.57   $ 1.91  
                   

(1)
Pursuant to the terms of Citi's previously outstanding Tangible Dividend Enhanced Common Stock Securities (T-DECs), on December 17, 2012, the Company delivered 96,337,772 shares of Citigroup common stock for the final settlement of the prepaid stock purchase contract. The impact of the T-DECs is fully reflected in the basic shares for 2013 and diluted shares for 2012.

(2)
During the second quarters of 2013 and 2012, weighted-average options to purchase 8.2 million and 35.8 million shares of common stock, respectively, were outstanding but not included in the computation of earnings per share because the weighted-average exercise prices of $79.80 and $52.80, respectively, were anti-dilutive.

(3)
Warrants issued to the U.S. Treasury as part of the Troubled Asset Relief Program (TARP) and the loss-sharing agreement (all of which were subsequently sold to the public in January 2011), with an exercise price of $178.50 and $106.10 for approximately 21.0 million and 25.5 million shares of Citigroup common stock, respectively, were not included in the computation of earnings per share in the second quarters of 2013 and 2012 because they were anti-dilutive.

(4)
Due to rounding, earnings per share on continuing operations and discontinued operations may not sum to earnings per share on net income.

See Note 18 to the Consolidated Financial Statements for the future impact of preferred stock dividends.

130


10.   FEDERAL FUNDS/SECURITIES BORROWED, LOANED, AND SUBJECT TO REPURCHASE AGREEMENTS

        Federal funds sold and securities borrowed or purchased under agreements to resell, at their respective carrying values, consisted of the following at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Federal funds sold

  $ 288   $ 97  

Securities purchased under agreements to resell

    136,231     138,549  

Deposits paid for securities borrowed

    126,686     122,665  
           

Total

  $ 263,205   $ 261,311  
           

        Federal funds purchased and securities loaned or sold under agreements to repurchase, at their respective carrying values, consisted of the following at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Federal funds purchased

  $ 622   $ 1,005  

Securities sold under agreements to repurchase

    186,255     182,330  

Deposits received for securities loaned

    31,375     27,901  
           

Total

  $ 218,252   $ 211,236  
           

        The resale and repurchase agreements represent collateralized financing transactions. The Company executes these transactions through its broker-dealer subsidiaries to facilitate customer matched-book activity and to efficiently fund a portion of the Company's trading inventory. Transactions executed by the Company's bank subsidiaries primarily facilitate customer financing activity.

        It is the Company's policy to take possession of the underlying collateral, monitor its market value relative to the amounts due under the agreements and, when necessary, require prompt transfer of additional collateral in order to maintain contractual margin protection. Collateral typically consists of government and government-agency securities, corporate and municipal bonds, and mortgage-backed and other asset-backed securities.

        The resale and repurchase agreements are generally documented under industry standard agreements that allow the prompt close-out of all transactions (including the liquidation of securities held) and the offsetting of obligations to return cash or securities, as the case may be, by the non-defaulting party, following a payment or other type of default under the relevant master agreement. Events of default generally include: (i) failure to deliver cash or securities as required under the transaction, (ii) failure to provide or return cash or securities as used for margining purposes, (iii) breach of representation, (iv) cross-default to another transaction entered into among the parties, or, in some cases, their affiliates, and (v) a repudiation of obligations under the agreement. The counterparty that receives the securities in these transactions is generally unrestricted in its use of the securities, with the exception of transactions executed on a tri-party basis.

        The majority of the resale and repurchase agreements are recorded at fair value, as described in Note 22 to the Consolidated Financial Statements. The remaining portion is carried at the amount of cash initially advanced or received, plus accrued interest, as specified in the respective agreements.

        The securities borrowing and lending agreements also represent collateralized financing transactions similar to the resale and repurchase agreements. Collateral typically consists of government and government-agency securities and corporate debt and equity securities.

        Similar to the resale and repurchase agreements, securities borrowing and lending agreements are generally documented under industry standard agreements that allow the prompt close-out of all transactions (including the liquidation of securities held) and the offsetting of obligations to return cash or securities, as the case may be, by the non-defaulting party, following a payment or other default by the other party under the relevant master agreement. Events of default and rights to use securities under the securities borrowing and lending agreements are similar to the resale and repurchase agreements referenced above.

        A majority of securities borrowing and lending agreements are recorded at the amount of cash advanced or received. The remaining portion is recorded at fair value as the Company elected the fair value option for certain securities borrowed and loaned portfolios, as described in Note 22 to the Consolidated Financial Statements. With respect to securities loaned, the Company receives cash collateral in an amount generally in excess of the market value of the securities loaned. The Company monitors the market value of securities borrowed and securities loaned on a daily basis and obtains or posts additional collateral in order to maintain contractual margin protection.

        The enforceability of offsetting rights incorporated in the master netting agreements for resale and repurchase agreements and securities borrowing and lending agreements is evidenced to the extent that a supportive legal opinion has been obtained from counsel of recognized standing which provides the requisite level of certainty regarding the enforceability of these agreements and that the exercise of rights by the non-defaulting party to terminate and close-out transactions on a net basis under these agreements will not be stayed, or avoided under applicable law upon an event of default including bankruptcy, insolvency or similar proceeding.

        A legal opinion may not have been sought or obtained for certain jurisdictions where local law is silent or sufficiently ambiguous to determine the enforceability of offsetting rights or where adverse case law or conflicting regulation may cast doubt on the enforceability of such rights. In some jurisdictions and for some counterparty types, the insolvency law for a particular counterparty type may be nonexistent or unclear as overlapping regimes may exist. For example, this may be the case for certain sovereigns, municipalities, central banks and U.S. pension plans.

        The following tables present the gross and net resale and repurchase agreements and securities borrowing and lending agreements and the related offsetting amount permitted under ASC 210-20-45, as of June 30, 2013 and December 31, 2012. The tables also include amounts related to financial instruments that are not permitted to be offset under ASC 210-20-45 but would be eligible for offsetting to the extent an

131


event of default occurred and a legal opinion supporting enforceability of the offsetting rights has been obtained. Remaining exposures continue to be secured by financial collateral, but the Company may not have sought or been able to obtain a legal opinion evidencing enforceability of the offsetting right.

 
  As of June 30, 2013:  
In millions of dollars   Gross Amounts
of Recognized
Assets
  Gross Amounts
Offset on the
Consolidated
Balance Sheet(1)
  Net Amounts of
Assets Presented on
the Consolidated
Balance Sheet
  Amounts
Not Offset on the
Consolidated Balance
Sheet but Eligible for
Offsetting Upon
Counterparty Default(2)
  Net
Amounts(3)
 

Securities purchased under agreements to resell

  $ 202,464   $ 66,233   $ 136,231   $ 120,476   $ 15,755  

Deposits paid for securities borrowed

    126,686         126,686     34,713     91,973  
                       

Total

  $ 329,150   $ 66,233   $ 262,917   $ 155,189   $ 107,728  
                       

 

In millions of dollars   Gross Amounts
of Recognized
Liabilities
  Gross Amounts
Offset on the
Consolidated
Balance Sheet(1)
  Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
  Amounts
Not Offset on the
Consolidated Balance
Sheet but Eligible for
Offsetting Upon
Counterparty Default(2)
  Net
Amounts(3)
 

Securities sold under agreements to repurchase

  $ 252,488   $ 66,233   $ 186,255   $ 115,655   $ 70,600  

Deposits received for securities loaned

    31,375         31,375     29,906     1,469  
                       

Total

  $ 283,863   $ 66,233   $ 217,630   $ 145,561   $ 72,069  
                       

 

 
  As of December 31, 2012:  
In millions of dollars   Gross Amounts
of Recognized
Assets
  Gross Amounts
Offset on the
Consolidated
Balance Sheet(1)
  Net Amounts of
Assets Presented on
the Consolidated
Balance Sheet
  Amounts
Not Offset on the
Consolidated Balance
Sheet but Eligible for
Offsetting Upon
Counterparty Default(2)
  Net
Amounts(3)
 

Securities purchased under agreements to resell

  $ 187,950   $ 49,401   $ 138,549   $ 111,745   $ 26,804  

Deposits paid for securities borrowed

    122,665         122,665     34,733     87,932  
                       

Total

  $ 310,615   $ 49,401   $ 261,214   $ 146,478   $ 114,736  
                       

 

In millions of dollars   Gross Amounts
of Recognized
Liabilities
  Gross Amounts
Offset on the
Consolidated
Balance Sheet(1)
  Net Amounts of
Liabilities Presented
on the Consolidated
Balance Sheet
  Amounts
Not Offset on the
Consolidated Balance
Sheet but Eligible for
Offsetting Upon
Counterparty Default(2)
  Net
Amounts(3)
 

Securities sold under agreements to repurchase

  $ 231,731   $ 49,401   $ 182,330   $ 104,681   $ 77,649  

Deposits received for securities loaned

    27,901         27,901     15,579     12,322  
                       

Total

  $ 259,632   $ 49,401   $ 210,231   $ 120,260   $ 89,971  
                       

(1)
Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.

(2)
Includes financial instruments subject to enforceable master netting agreements that are not permitted to be offset under ASC 210-20-45 but would be eligible for offsetting to the extent an event of default has occurred and a legal opinion supporting enforceability of the offsetting right has been obtained.

(3)
Remaining exposures continue to be secured by financial collateral, but the Company may not have sought or been able to obtain a legal opinion evidencing enforceability of the offsetting right.

132


11.   TRADING ACCOUNT ASSETS AND LIABILITIES

        Trading account assets and Trading account liabilities, at fair value, consisted of the following at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Trading account assets

             

Mortgage-backed securities(1)

             

U.S. government-sponsored agency guaranteed

  $ 31,628   $ 31,160  

Prime

    1,491     1,248  

Alt-A

    746     801  

Subprime

    1,786     812  

Non-U.S. residential

    716     607  

Commercial

    2,476     2,441  
           

Total mortgage-backed securities

  $ 38,843   $ 37,069  
           

U.S. Treasury and federal agency securities

             

U.S. Treasury

  $ 20,129   $ 17,472  

Agency obligations

    2,993     2,884  
           

Total U.S. Treasury and federal agency securities

  $ 23,122   $ 20,356  
           

State and municipal securities

  $ 4,447   $ 3,806  

Foreign government securities

    82,263     89,239  

Corporate

    31,426     35,224  

Derivatives(2)

    56,797     54,620  

Equity securities

    52,642     56,998  

Asset-backed securities(1)

    5,397     5,352  

Other debt securities(3)

    11,633     18,265  
           

Total trading account assets

  $ 306,570   $ 320,929  
           

Trading account liabilities

             

Securities sold, not yet purchased

  $ 71,100   $ 63,798  

Derivatives(2)

    51,922     51,751  
           

Total trading account liabilities

  $ 123,022   $ 115,549  
           

(1)
The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company's maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 19 to the Consolidated Financial Statements.

(2)
Presented net, pursuant to enforceable master netting agreements. See Note 20 to the Consolidated Financial Statements for a discussion regarding the accounting and reporting for derivatives.

(3)
Includes investments in unallocated precious metals, as discussed in Note 22 to the Consolidated Financial Statements. Also includes physical commodities accounted for at the lower of cost or fair value.

133


12.   INVESTMENTS

Overview

In millions of dollars   June 30,
2013
  December 31,
2012
 

Securities available-for-sale

  $ 277,378   $ 288,695  

Debt securities held-to-maturity(1)

    9,602     10,130  

Non-marketable equity securities carried at fair value(2)

    5,720     5,768  

Non-marketable equity securities carried at cost(3)

    7,640     7,733  
           

Total investments

  $ 300,340   $ 312,326  
           

(1)
Recorded at amortized cost less impairment for securities that have credit-related impairment.

(2)
Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings.

(3)
Non-marketable equity securities carried at cost primarily consist of shares issued by the Federal Reserve Bank, Federal Home Loan Banks, foreign central banks and various clearing houses of which Citigroup is a member.

Securities Available-for-Sale

        The amortized cost and fair value of AFS securities at June 30, 2013 and December 31, 2012 were as follows:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Amortized
cost
  Gross
unrealized
gains(1)
  Gross
unrealized
losses(1)
  Fair
value
  Amortized
cost
  Gross
unrealized
gains(1)
  Gross
unrealized
losses(1)
  Fair
value
 

Debt securities AFS

                                                 

Mortgage-backed securities(2)

                                                 

U.S. government-sponsored agency guaranteed

  $ 49,450   $ 663   $ 705   $ 49,408   $ 46,001   $ 1,507   $ 163   $ 47,345  

Prime

    30             30     85     1         86  

Alt-A

    1             1     1             1  

Non-U.S. residential

    8,791     121     5     8,907     7,442     148         7,590  

Commercial

    451     10     9     452     436     16     3     449  
                                   

Total mortgage-backed securities

  $ 58,723   $ 794   $ 719   $ 58,798   $ 53,965   $ 1,672   $ 166   $ 55,471  
                                   

U.S. Treasury and federal agency securities

                                                 

U.S. Treasury

  $ 62,813   $ 577   $ 138   $ 63,252   $ 64,667   $ 943   $ 16   $ 65,594  

Agency obligations

    21,264     137     91     21,310     26,014     237     4     26,247  
                                   

Total U.S. Treasury and federal agency securities

  $ 84,077   $ 714   $ 229   $ 84,562   $ 90,681   $ 1,180   $ 20   $ 91,841  
                                   

State and municipal(3)

  $ 19,185   $ 83   $ 1,939   $ 17,329   $ 20,020   $ 132   $ 1,820   $ 18,332  

Foreign government

    86,351     464     508     86,307     93,298     903     154     94,047  

Corporate

    10,194     262     106     10,350     9,302     398     26     9,674  

Asset-backed securities(2)

    15,951     54     121     15,884     14,188     85     143     14,130  

Other debt securities

    256             256     256     2         258  
                                   

Total debt securities AFS

  $ 274,737   $ 2,371   $ 3,622   $ 273,486   $ 281,710   $ 4,372   $ 2,329   $ 283,753  
                                   

Marketable equity securities AFS

  $ 3,816   $ 224   $ 148   $ 3,892   $ 4,643   $ 444   $ 145   $ 4,942  
                                   

Total securities AFS

  $ 278,553   $ 2,595   $ 3,770   $ 277,378   $ 286,353   $ 4,816   $ 2,474   $ 288,695  
                                   

(1)
Gross unrealized gains and losses, as presented, do not include the impact of minority investments and the related allocations and pick up of unrealized gains and losses of AFS securities. These amounts totaled $76 million and $32 million of unrealized gains as of June 30, 2013 and December 31, 2012 respectively.

(2)
The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company's maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 19 to the Consolidated Financial Statements.

(3)
The unrealized losses on state and municipal debt securities are primarily attributable to the result of interest rates on taxable fixed income instruments decreasing relatively faster than the general tax-exempt municipal interest rates and the effects of fair value hedge accounting. Citi hedges certain fixed-rate tax-exempt state and municipal debt securities utilizing LIBOR-based interest rate swaps. During the hedge period, tax-exempt municipal interest rate yields have slightly decreased while LIBOR yields have significantly decreased. The losses on the LIBOR swaps were recorded in earnings and substantially offset by gains on the state and municipal debt securities attributable to changes in the LIBOR Swap Rate being hedged. Reclassification of the fair value gains on the state and municipal debt securities attributable to changes in the LIBOR Swap Rate from Accumulated other comprehensive income (AOCI) to earnings pursuant to fair value hedge accounting has resulted in unrealized losses on state and municipal debt securities in AOCI.

134


        As discussed in more detail below, the Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. Any credit-related impairment related to debt securities that the Company does not plan to sell and is not likely to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in Accumulated other comprehensive income (AOCI). For other debt securities with other-than-temporary impairment (OTTI), the entire impairment is recognized in the Consolidated Statement of Income.

        The table below shows the fair value of AFS securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of June 30, 2013 and December 31, 2012:

 
  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
 

June 30, 2013

                                     

Securities AFS

                                     

Mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed

  $ 24,792   $ 683   $ 539   $ 22   $ 25,331   $ 705  

Prime

    6         4         10      

Alt-A

                         

Non-U.S. residential

    1,248     5     11         1,259     5  

Commercial

    149   $ 8   $ 9   $ 1   $ 158   $ 9  
                           

Total mortgage-backed securities

  $ 26,195   $ 696   $ 563   $ 23   $ 26,758   $ 719  
                           

U.S. Treasury and federal agency securities

                                     

U.S. Treasury

  $ 26,193   $ 133   $ 105   $ 5   $ 26,298   $ 138  

Agency obligations

    8,575     91             8,575     91  
                           

Total U.S. Treasury and federal agency securities

  $ 34,768   $ 224   $ 105   $ 5   $ 34,873   $ 229  
                           

State and municipal

  $ 1,005     104   $ 10,832   $ 1,835   $ 11,837   $ 1,939  

Foreign government

    38,893     433     3,534     75     42,427     508  

Corporate

    4,257     101     124     5     4,381     106  

Asset-backed securities

    6,720     75     747     46     7,467     121  

Marketable equity securities AFS

    20     1     753     147     773     148  
                           

Total securities AFS

  $ 111,858   $ 1,634   $ 16,658   $ 2,136   $ 128,516   $ 3,770  
                           

December 31, 2012

                                     

Securities AFS

                                     

Mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed

  $ 8,759   $ 138   $ 464   $ 25   $ 9,223   $ 163  

Prime

    15         5         20      

Non-U.S. residential

    5         7         12      

Commercial

    29         24     3     53     3  
                           

Total mortgage-backed securities

  $ 8,808   $ 138   $ 500   $ 28   $ 9,308   $ 166  
                           

U.S. Treasury and federal agency securities

                                     

U.S. Treasury

  $ 9,374   $ 11   $ 105   $ 5   $ 9,479   $ 16  

Agency obligations

    1,001     4             1,001     4  
                           

Total U.S. Treasury and federal agency securities

  $ 10,375   $ 15   $ 105   $ 5   $ 10,480   $ 20  
                           

State and municipal

  $ 10   $   $ 11,095   $ 1,820   $ 11,105   $ 1,820  

Foreign government

    24,235     78     3,910     76     28,145     154  

Corporate

    1,420     8     225     18     1,645     26  

Asset-backed securities

    1,942     4     2,888     139     4,830     143  

Marketable equity securities AFS

    15     1     764     144     779     145  
                           

Total securities AFS

  $ 46,805   $ 244   $ 19,487   $ 2,230   $ 66,292   $ 2,474  
                           

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        The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Amortized
cost
  Fair value   Amortized
cost
  Fair value  

Mortgage-backed securities(1)

                         

Due within 1 year

  $ 26   $ 26   $ 10   $ 10  

After 1 but within 5 years

    363     372     365     374  

After 5 but within 10 years

    2,233     2,283     1,992     2,124  

After 10 years(2)

    56,101     56,117     51,598     52,963  
                   

Total

  $ 58,723   $ 58,798   $ 53,965   $ 55,471  
                   

U.S. Treasury and federal agency securities

                         

Due within 1 year

  $ 13,092   $ 13,114   $ 9,387   $ 9,499  

After 1 but within 5 years

    66,233     66,499     76,454     77,267  

After 5 but within 10 years

    1,901     2,019     2,171     2,408  

After 10 years(2)

    2,851     2,930     2,669     2,667  
                   

Total

  $ 84,077   $ 84,562   $ 90,681   $ 91,841  
                   

State and municipal

                         

Due within 1 year

  $ 187   $ 187   $ 208   $ 208  

After 1 but within 5 years

    3,220     3,216     3,221     3,223  

After 5 but within 10 years

    201     207     155     165  

After 10 years(2)

    15,577     13,719     16,436     14,736  
                   

Total

  $ 19,185   $ 17,329   $ 20,020   $ 18,332  
                   

Foreign government

                         

Due within 1 year

  $ 33,166   $ 33,154   $ 34,873   $ 34,869  

After 1 but within 5 years

    46,835     46,778     49,587     49,933  

After 5 but within 10 years

    5,417     5,373     7,239     7,380  

After 10 years(2)

    933     1,002     1,599     1,865  
                   

Total

  $ 86,351   $ 86,307   $ 93,298   $ 94,047  
                   

All other(3)

                         

Due within 1 year

  $ 2,379   $ 2,335   $ 1,001   $ 1,009  

After 1 but within 5 years

    10,302     10,392     11,285     11,351  

After 5 but within 10 years

    5,533     5,582     4,330     4,505  

After 10 years(2)

    8,187     8,181     7,130     7,197  
                   

Total

  $ 26,401   $ 26,490   $ 23,746   $ 24,062  
                   

Total debt securities AFS

  $ 274,737   $ 273,486   $ 281,710   $ 283,753  
                   

(1)
Includes mortgage-backed securities of U.S. government-sponsored agencies.

(2)
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.

(3)
Includes corporate, asset-backed and other debt securities.

        The following table presents interest and dividends on investments for the three and six months ended June 30, 2013 and 2012:

 
  Three Months Ended June 30,   Six Months Ended June 30,  
In millions of dollars   2013   2012   2013   2012  

Taxable interest

  $ 1,381   $ 1,604   $ 2,891   $ 3,264  

Interest exempt from U.S. federal income tax

    198     166     370     340  

Dividends

    108     84     228     160  
                   

Total interest and dividends

  $ 1,687   $ 1,854   $ 3,489   $ 3,764  
                   

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        The following table presents realized gains and losses on all investments for the three and six months ended June 30, 2013 and 2012. The gross realized investment losses exclude losses from OTTI:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Gross realized investment gains

  $ 620   $ 329   $ 1,114   $ 2,495  

Gross realized investment losses(1)

    (369 )   (56 )   (413 )   (297 )
                   

Net realized gains

  $ 251   $ 273   $ 701   $ 2,198  
                   

(1)
During the periods presented, the Company sold various debt securities that were classified as held-to-maturity. These sales were in response to a significant deterioration in the creditworthiness of the issuers or securities. In addition, certain securities were reclassified to AFS investments in response to significant credit deterioration. The Company intends to sell the securities and recorded OTTI reflected in the table under "Recognition and Measurement of OTTI" below. For the three months ended June 30, 2013, the securities sold had a carrying value of $318 million and the Company recorded a realized loss of $56 million; the securities reclassified to AFS investments had a carrying value of $300 million and the Company recorded OTTI of $61 million. For the six months ended June 30, 2013 and 2012, the securities sold had a carrying value of $485 million and $1,243 million, respectively, and the Company recorded a realized loss of $66 million and $169 million, respectively. For the six months ended June 30, 2013 and 2012, securities reclassified to AFS totaled $902 million and $107 million and the Company recorded OTTI of $155 million and $26 million, respectively.

Debt Securities Held-to-Maturity

        The carrying value and fair value of debt securities held-to-maturity (HTM) at June 30, 2013 and December 31, 2012 were as follows:

In millions of dollars   Amortized
cost(1)
  Net unrealized
losses
recognized in
AOCI
  Carrying
value(2)
  Gross
unrealized
gains
  Gross
unrealized
losses
  Fair
value
 

June 30, 2013

                                     

Debt securities held-to-maturity

                                     

Mortgage-backed securities(3)

                                     

Prime

  $ 130   $ 24   $ 106   $ 17   $ 4   $ 119  

Alt-A

    1,876     547     1,329     558     250     1,637  

Subprime

    17         17     2     5     14  

Non-U.S. residential

    1,661     265     1,396     47     39     1,404  

Commercial

    27         27             27  
                           

Total mortgage-backed securities

  $ 3,711   $ 836   $ 2,875   $ 624   $ 298   $ 3,201  
                           

State and municipal

    1,308     70     1,238     63     62     1,239  

Foreign government

    4,123         4,123     38     17     4,144  

Corporate

    825     91     734     94         828  

Asset-backed securities(3)

    670     38     632     43     10     665  
                           

Total debt securities held-to-maturity

  $ 10,637   $ 1,035   $ 9,602   $ 862   $ 387   $ 10,077  
                           

December 31, 2012

                                     

Debt securities held-to-maturity

                                     

Mortgage-backed securities(3)

                                     

Prime

  $ 258   $ 49   $ 209   $ 30   $ 4   $ 235  

Alt-A

    2,969     837     2,132     653     250     2,535  

Subprime

    201     43     158     13     21     150  

Non-U.S. residential

    2,488     401     2,087     50     81     2,056  

Commercial

    123         123     1     2     122  
                           

Total mortgage-backed securities

  $ 6,039   $ 1,330   $ 4,709   $ 747   $ 358   $ 5,098  
                           

State and municipal

  $ 1,278   $ 73   $ 1,205   $ 89   $ 37   $ 1,257  

Foreign government

    2,987         2,987             2,987  

Corporate

    829     103     726     73         799  

Asset-backed securities(3)

    529     26     503     8     8     503  
                           

Total debt securities held-to-maturity

  $ 11,662   $ 1,532   $ 10,130   $ 917   $ 403   $ 10,644  
                           

(1)
For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer plus any accretion income and less any impairments recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.

(2)
HTM securities are carried on the Consolidated Balance Sheet at amortized cost, plus or minus any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS to HTM. The changes in the values of these securities are not reported in the financial statements, except for other-than-temporary impairments. For HTM securities, only the credit loss component of the impairment is recognized in earnings, while the remainder of the impairment is recognized in AOCI.

(3)
The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company's maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 19 to the Consolidated Financial Statements.

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        The Company has the positive intent and ability to hold these securities to maturity absent any unforeseen further significant changes in circumstances, including deterioration in credit or with regard to regulatory capital requirements.

        The net unrealized losses classified in AOCI relate to debt securities previously reclassified from AFS investments to HTM investments. Additionally, for HTM securities that have suffered credit impairment, declines in fair value for reasons other than credit losses are recorded in AOCI, while credit-related impairment is recognized in earnings. The AOCI balance for HTM securities is amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same debt securities. This will have no impact on the Company's net income because the amortization of the unrealized holding loss reported in equity will offset the effect on interest income of the accretion of the discount on these securities.

        The table below shows the fair value of debt securities in HTM that have been in an unrecognized loss position for less than 12 months or for 12 months or longer as of June 30, 2013 and December 31, 2012:

 
  Less than 12 months   12 months or longer   Total  
In millions of dollars   Fair
value
  Gross
unrecognized
losses
  Fair
value
  Gross
unrecognized
losses
  Fair
value
  Gross
unrecognized
losses
 

June 30, 2013

                                     

Debt securities held-to-maturity

                                     

Mortgage-backed securities

  $ 40   $ 2   $ 586   $ 296   $ 626   $ 298  

State and municipal

    305     23     256     39     561     62  

Foreign government

    919     17             919     17  

Corporate

                         

Asset-backed securities

    125     4     207     6     332     10  
                           

Total debt securities held-to-maturity

  $ 1,389   $ 46   $ 1,049   $ 341   $ 2,438   $ 387  
                           

December 31, 2012

                                     

Debt securities held-to-maturity

                                     

Mortgage-backed securities

  $ 88   $ 7   $ 1,522   $ 351   $ 1,610   $ 358  

State and municipal

            383     37     383     37  

Foreign government

    294                 294      

Corporate

                         

Asset-backed securities

            406     8     406     8  
                           

Total debt securities held-to-maturity

  $ 382   $ 7   $ 2,311   $ 396   $ 2,693   $ 403  
                           

        Excluded from the gross unrecognized losses presented in the above table are the $1.0 billion and $1.5 billion of gross unrealized losses recorded in AOCI as of June 30, 2013 and December 31, 2012, respectively, mainly related to the HTM securities that were reclassified from AFS investments. Virtually all of these unrecognized losses relate to securities that have been in a loss position for 12 months or longer at June 30, 2013 and December 31, 2012.

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        The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Carrying value   Fair value   Carrying value   Fair value  

Mortgage-backed securities

                         

Due within 1 year

  $   $   $   $  

After 1 but within 5 years

            69     67  

After 5 but within 10 years

    27     27     54     54  

After 10 years(1)

    2,848     3,174     4,586     4,977  
                   

Total

  $ 2,875   $ 3,201   $ 4,709   $ 5,098  
                   

State and municipal

                         

Due within 1 year

  $ 7   $ 7   $ 14   $ 15  

After 1 but within 5 years

    24     25     36     37  

After 5 but within 10 years

    54     59     58     62  

After 10 years(1)

    1,153     1,148     1,097     1,143  
                   

Total

  $ 1,238   $ 1,239   $ 1,205   $ 1,257  
                   

Foreign government

                         

Due within 1 year

  $   $   $   $  

After 1 but within 5 years

    4,123     4,144     2,987     2,987  

After 5 but within 10 years

                 

After 10 years(1)

                 
                   

Total

  $ 4,123   $ 4,144   $ 2,987   $ 2,987  
                   

All other(2)

                         

Due within 1 year

  $   $   $   $  

After 1 but within 5 years

    735     828     728     802  

After 5 but within 10 years

                 

After 10 years(1)

    631     665     501     500  
                   

Total

  $ 1,366   $ 1,493   $ 1,229   $ 1,302  
                   

Total debt securities held-to-maturity

  $ 9,602   $ 10,077   $ 10,130   $ 10,644  
                   

(1)
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.

(2)
Includes corporate and asset-backed securities.

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Evaluating Investments for Other-Than-Temporary Impairment

Overview

        The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary.

        An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI for AFS securities. Losses related to HTM securities are not recorded, as these investments are carried at amortized cost. For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer, plus any accretion income and less any impairment recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.

        Regardless of the classification of the securities as AFS or HTM, the Company has assessed each position with an unrealized loss for other-than-temporary impairment (OTTI). Factors considered in determining whether a loss is temporary include:

        The Company's review for impairment generally entails:

Debt

        Under the guidance for debt securities, OTTI is recognized in earnings for debt securities that the Company has an intent to sell or that the Company believes it is more-likely-than-not that it will be required to sell prior to recovery of the amortized cost basis. For those securities that the Company does not intend to sell or expect to be required to sell, credit-related impairment is recognized in earnings, with the non-credit-related impairment recorded in AOCI.

        For debt securities that are not deemed to be credit impaired, management assesses whether it intends to sell or whether it is more-likely-than-not that it would be required to sell the investment before the expected recovery of the amortized cost basis. In most cases, management has asserted that it has no intent to sell and that it believes it is not likely to be required to sell the investment before recovery of its amortized cost basis. Where such an assertion cannot be made, the security's decline in fair value is deemed to be other than temporary and is recorded in earnings.

        For debt securities, a critical component of the evaluation for OTTI is the identification of credit impaired securities, where management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. For securities purchased and classified as AFS with the expectation of receiving full principal and interest cash flows as of the date of purchase, this analysis considers the likelihood of receiving all contractual principal and interest. For securities reclassified out of the trading category in the fourth quarter of 2008, the analysis considers the likelihood of receiving the expected principal and interest cash flows anticipated as of the date of reclassification in the fourth quarter of 2008. The extent of the Company's analysis regarding credit quality and the stress on assumptions used in the analysis have been refined for securities where the current fair value or other characteristics of the security warrant.

Equity

        For equity securities, management considers the various factors described above, including its intent and ability to hold the equity security for a period of time sufficient for recovery to cost or whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery of its cost basis. Where management lacks that intent or ability, the security's decline in fair value is deemed to be other-than-temporary and is recorded in earnings. AFS equity securities deemed other-than-temporarily impaired are written down to fair value, with the full difference between fair value and cost recognized in earnings.

        Management assesses equity method investments with fair value less than carrying value for OTTI. Fair value is measured as price multiplied by quantity if the investee has publicly listed securities. If the investee is not publicly listed, other methods are used (see Note 21 to the Consolidated Financial Statements).

        For impaired equity method investments that Citi plans to sell prior to recovery of value or would likely be required to sell, with no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in earnings as OTTI regardless of severity and duration. The measurement of the OTTI does not include partial projected recoveries subsequent to the balance sheet date.

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        For impaired equity method investments that management does not plan to sell prior to recovery of value and is not likely to be required to sell, the evaluation of whether an impairment is other-than-temporary is based on (i) whether and when an equity method investment will recover in value and (ii) whether the investor has the intent and ability to hold that investment for a period of time sufficient to recover the value. The determination of whether the impairment is considered other-than-temporary is based on all of the following indicators, regardless of the time and extent of impairment:

        The sections below describe current circumstances related to certain of the Company's significant equity method investments, specific impairments and the Company's process for identifying credit-related impairments in its security types with the most significant unrealized losses as of June 30, 2013.

Akbank

        In March 2012, Citi decided to reduce its ownership interest in Akbank T.A.S., an equity investment in Turkey (Akbank), to below 10%. As of March 31, 2012, Citi held a 20% equity interest in Akbank, which it purchased in January 2007, accounted for as an equity method investment. As a result of its decision to sell its share holdings in Akbank, in the first quarter of 2012 Citi recorded an impairment charge related to its total investment in Akbank amounting to approximately $1.2 billion pretax ($763 million after-tax). This impairment charge was primarily driven by the recognition of all net investment foreign currency hedging and translation losses previously reflected in AOCI as well as a reduction in the carrying value of the investment to reflect the market price of Akbank's shares. The impairment charge was recorded in OTTI losses on investments in the Consolidated Statement of Income. During the second quarter of 2012, Citi sold a 10.1% stake in Akbank, resulting in a loss on sale of $424 million ($274 million after-tax) recorded in Other revenue. As of June 30, 2013, the remaining 9.9% stake in Akbank is recorded within marketable equity securities available-for-sale.

MSSB

        On September 17, 2012, Citi sold to Morgan Stanley a 14% interest (the 14% Interest) in the MSSB joint venture, pursuant to the exercise of the purchase option by Morgan Stanley on June 1, 2012. Morgan Stanley paid Citi $1.89 billion in cash as the purchase price of the 14% Interest. The purchase price was based on an implied 100% valuation of the MSSB joint venture of $13.5 billion, as agreed between Morgan Stanley and Citi pursuant to an agreement dated September 11, 2012. The related approximate $4.5 billion in deposits were transferred to Morgan Stanley at no premium, as agreed between the parties.

        Prior to the September 2012 sale, Citi's carrying value of its 49% interest in the MSSB joint venture was approximately $11.3 billion. As a result of the agreement entered into with Morgan Stanley on September 11, 2012, Citi recorded a charge to net income in the third quarter of 2012 of approximately $2.9 billion after-tax ($4.7 billion pretax), consisting of (i) a charge recorded in Other revenue of approximately $800 million after-tax ($1.3 billion pretax), representing a loss on sale of the 14% Interest, and (ii) an OTTI of the carrying value of its remaining 35% interest in the MSSB joint venture of approximately $2.1 billion after-tax ($3.4 billion pretax).

        On June 21, 2013, Morgan Stanley notified Citi of its intent to exercise its call option with respect to Citi's remaining 35% investment in the MSSB joint venture, composed of an approximate $4.725 billion equity investment and $3 billion of other MSSB financing (consisting of approximately $2.028 billion of preferred stock and a $0.880 billion loan). At the closing of the transaction on June 28, 2013, the loan to MSSB was repaid and the MSSB interests and preferred stock were settled, with no significant gains or losses recorded at the time of settlement. In addition, MSSB made a dividend payment to Citi on June 28, 2013 in the amount of $37.5 million.

        With this sale of remaining interest, redemption of preferred stock, and repayment of the loan, Citi resolves all investment and financing balances associated with the MSSB joint venture, except for the deposits discussed below. Certain of the transition servicing agreements and clearing agreements remain in place for the remainder of the year to deliver customer statements and tax filings.

        At June 30, 2013, Citi held deposits of approximately $57 billion related to MSSB customers. Pursuant to its agreement with Morgan Stanley, Citi will transfer these deposits to Morgan Stanley in stages, starting with approximately $20 billion during the third quarter of 2013, and approximately $5 billion per quarter for the next two years. The transfer of approximately $18 billion occurred in July 2013, with the remaining deposit balances to be transferred over the subsequent two year period.

Mortgage-backed securities

        For U.S. mortgage-backed securities (and in particular for Alt-A and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates and recovery rates (on foreclosed properties).

        Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. Default rates are projected by considering current underlying mortgage loan performance, generally assuming the default of (i) 10% of current loans, (ii) 25% of 30-59 day delinquent loans, (iii) 70% of 60-90 day delinquent loans and (iv) 100% of 91+ day delinquent loans. These estimates are

141


extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions contemplate the actual collateral attributes, including geographic concentrations, rating actions and current market prices.

        The key assumptions for mortgage-backed securities as of June 30, 2013 are in the table below:

 
  June 30, 2013

Prepayment rate(1)

  1%-8% CRR

Loss severity(2)

  45%-90%

(1)
Conditional repayment rate (CRR) represents the annualized expected rate of voluntary prepayment of principal for mortgage-backed securities over a certain period of time.

(2)
Loss severity rates are estimated considering collateral characteristics and generally range from 45%-60% for prime bonds, 50%-90% for Alt-A bonds and 65%-90% for subprime bonds.

        In addition, cash flow projections are developed using more stressful parameters. Management assesses the results of those stress tests (including the severity of any cash shortfall indicated and the likelihood of the stress scenarios actually occurring based on the underlying pool's characteristics and performance) to assess whether management expects to recover the amortized cost basis of the security. If cash flow projections indicate that the Company does not expect to recover its amortized cost basis, the Company recognizes the estimated credit loss in earnings.

State and municipal securities

        Citigroup's AFS state and municipal bonds consist mainly of bonds that are financed through Tender Option Bond programs or were previously financed in this program (for additional information, see Note 19 to the Consolidated Financial Statements). The process for identifying credit impairments for these bonds is largely based on third-party credit ratings. Individual bond positions that are financed through Tender Option Bonds are required to meet minimum ratings requirements, which vary based on the sector of the bond issuer.

        Citigroup monitors the bond issuer and insurer ratings on a daily basis. The average portfolio rating, ignoring any insurance, is Aa3/AA-. In the event of a rating downgrade, the subject bond is specifically reviewed for potential shortfall in contractual principal and interest. The remainder of Citigroup's AFS and HTM state and municipal bonds are specifically reviewed for credit impairment based on instrument-specific estimates of cash flows, probability of default and loss given default.

        For impaired AFS state and municipal bonds that Citi plans to sell, or would likely be required to sell with no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in earnings.


Recognition and Measurement of OTTI

        The following table presents the total OTTI recognized in earnings for the three and six months ended June 30, 2013:

 
  Three Months Ended June 30,   Six Months Ended June 30,  
OTTI on Investments and Other Assets
In millions of dollars
  AFS(1)   HTM   Other Assets   Total   AFS(1)   HTM   Other Assets   Total  

Impairment losses related to securities that the Company does not intend to sell nor will likely be required to sell:

                                                 

Total OTTI losses recognized during the period ended June 30, 2013

  $ 3   $ 1   $   $ 4   $ 5   $ 12   $   $ 17  

Less: portion of impairment loss recognized in AOCI (before taxes)

                                 
                                   

Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell

  $ 3   $ 1   $   $ 4   $ 5   $ 12   $   $ 17  

Impairment losses recognized in earnings for securities that the Company intends to sell or more-likely-than-not will be required to sell before recovery(2)

    71         87     158     214         192     406  
                                   

Total impairment losses recognized in earnings

  $ 74   $ 1   $ 87   $ 162   $ 219   $ 12   $ 192   $ 423  
                                   

(1)
Includes OTTI on non-marketable equity securities.

(2)
The first quarter of 2013 included the recognition of a $105 million impairment charge related to the carrying value of Citi's remaining 35% interest in the MSSB joint venture which was offset by the equity pickup from the joint venture in the quarter which was recorded in Other revenue. See "MSSB" above.

142


        The following is a three-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2013 that the Company does not intend to sell nor will likely be required to sell:

 
  Cumulative OTTI credit losses recognized in earnings  
In millions of dollars   Mar. 31, 2013
balance
  Credit impairments
recognized in
earnings on
securities not
previously impaired
  Credit impairments
recognized in
earnings on
securities that have
been previously
impaired
  Reductions due to
credit-impaired
securities sold,
transferred or
matured
  Jun. 30, 2013
balance
 

AFS debt securities

                               

Mortgage-backed securities

  $ 295   $   $   $   $ 295  

Foreign government securities

    169                 169  

Corporate

    116             (1 )   115  

All other debt securities

    139     3             142  
                       

Total OTTI credit losses recognized for AFS debt securities

  $ 719   $ 3   $   $ (1 ) $ 721  
                       

HTM debt securities

                               

Mortgage-backed securities(1)

  $ 846   $   $   $ (122 ) $ 724  

Corporate

    56                 56  

All other debt securities

    135     1         (4 )   132  
                       

Total OTTI credit losses recognized for HTM debt securities

  $ 1,037   $ 1   $   $ (126 ) $ 912  
                       

(1)
Primarily consists of Alt-A securities.

        The following is a six-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of June 30, 2013 that the Company does not intend to sell nor will likely be required to sell:

 
  Cumulative OTTI credit losses recognized in earnings  
In millions of dollars   Dec. 31, 2012
balance
  Credit impairments
recognized in
earnings on
securities not
previously impaired
  Credit impairments
recognized in
earnings on
securities that have
been previously
impaired
  Reductions due to
credit-impaired
securities sold,
transferred or
matured
  Jun. 30, 2013
balance
 

AFS debt securities

                               

Mortgage-backed securities

  $ 295   $   $   $   $ 295  

Foreign government securities

    169                 169  

Corporate

    116             (1 )   115  

All other debt securities

    137     5             142  
                       

Total OTTI credit losses recognized for AFS debt securities

  $ 717   $ 5   $   $ (1 ) $ 721  
                       

HTM debt securities

                               

Mortgage-backed securities(1)

  $ 869   $ 10   $ 1   $ (156 ) $ 724  

Corporate

    56                 56  

All other debt securities

    135     1         (4 )   132  
                       

Total OTTI credit losses recognized for HTM debt securities

  $ 1,060   $ 11   $ 1   $ (160 ) $ 912  
                       

(1)
Primarily consists of Alt-A securities.

143



Investments in Alternative Investment Funds That Calculate Net Asset Value per Share

        The Company holds investments in certain alternative investment funds that calculate net asset value (NAV) per share, including hedge funds, private equity funds, funds of funds and real estate funds. The Company's investments include co-investments in funds that are managed by the Company and investments in funds that are managed by third parties. Investments in funds are generally classified as non-marketable equity securities carried at fair value.

        The fair values of these investments are estimated using the NAV per share of the Company's ownership interest in the funds, where it is not probable that the Company will sell an investment at a price other than the NAV.

 
  Fair value   Unfunded commitments    
   
 
 
  Redemption frequency
(if currently eligible)
monthly, quarterly,
annually
   
 
In millions of dollars   June 30,
2013
  December 31,
2012
  June 30,
2013
  December 31,
2012
  Redemption
notice period
 

Hedge funds

  $ 1,317   $ 1,316   $   $     Generally quarterly     10-95 days  

Private equity funds(1)(2)(3)

    855     837     252     342          

Real estate funds(3)(4)

    231     228     36     57          
                           

Total(5)

  $ 2,403   $ 2,381   $ 288   $ 399          
                           

(1)
Includes investments in private equity funds carried at cost with a carrying value of $1 million and $6 million at June 30, 2013 and December 31, 2012, respectively.

(2)
Private equity funds include funds that invest in infrastructure, leveraged buyout transactions, emerging markets and venture capital.

(3)
With respect to the Company's investments in private equity funds and real estate funds, distributions from each fund will be received as the underlying assets held by these funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over a period of several years as market conditions allow. Private equity and real estate funds do not allow redemption of investments by their investors. Investors are permitted to sell or transfer their investments, subject to the approval of the general partner or investment manager of these funds, which generally may not be unreasonably withheld.

(4)
Includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia.

(5)
Included in the total fair value of investments above are $1.5 billion and $0.4 billion of fund assets that are valued using NAVs provided by third-party asset managers as of June 30, 2013 and December 31, 2012, respectively. Amounts exclude investments in funds that are consolidated by Citi.

144


13.   LOANS

        Citigroup loans are reported in two categories—Consumer and Corporate. These categories are classified primarily according to the segment and subsegment that manage the loans.


Consumer Loans

        Consumer loans represent loans and leases managed primarily by the Global Consumer Banking businesses in Citicorp and Local Consumer Lending in Citi Holdings. The following table provides information by loan type:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Consumer loans

             

In U.S. offices

             

Mortgage and real estate(1)

  $ 112,890   $ 125,946  

Installment, revolving credit, and other

    13,061     14,070  

Cards

    104,925     111,403  

Commercial and industrial

    5,620     5,344  
           

  $ 236,496   $ 256,763  
           

In offices outside the U.S.

             

Mortgage and real estate(1)

  $ 53,507   $ 54,709  

Installment, revolving credit, and other

    32,296     33,958  

Cards

    35,748     40,653  

Commercial and industrial

    23,849     22,225  

Lease financing

    712     781  
           

  $ 146,112   $ 152,326  
           

Total Consumer loans

  $ 382,608   $ 409,089  

Net unearned income

    (456 )   (418 )
           

Consumer loans, net of unearned income

  $ 382,152   $ 408,671  
           

(1)
Loans secured primarily by real estate.

        Included in the loan table above are lending products whose terms may give rise to greater credit issues. Credit cards with below-market introductory interest rates and interest-only loans are examples of such products. These products are closely managed using credit techniques that are intended to mitigate their higher inherent risk.

        During the three and six months ended June 30, 2013 and 2012, the Company sold and/or reclassified (to held-for-sale) $6.5 billion and $0.8 billion, and $10.2 and $1.4 billion, respectively, of Consumer loans. The Company did not have significant purchases of Consumer loans during the three and six months ended June 30, 2013 or June 30, 2012.

        Citigroup has established a risk management process to monitor, evaluate and manage the principal risks associated with its Consumer loan portfolio. Credit quality indicators that are actively monitored include delinquency status, consumer credit scores (FICO), and loan to value (LTV) ratios, each as discussed in more detail below.

Delinquency Status

        Delinquency status is monitored and considered a key indicator of credit quality of Consumer loans. Substantially all of the U.S. residential first mortgage loans use the MBA method of reporting delinquencies, which considers a loan delinquent if a monthly payment has not been received by the end of the day immediately preceding the loan's next due date. All other loans use the OTS method of reporting delinquencies, which considers a loan delinquent if a monthly payment has not been received by the close of business on the loan's next due date.

        As a general policy, residential first mortgages, home equity loans and installment loans are classified as non-accrual when loan payments are 90 days contractually past due. Credit cards and unsecured revolving loans generally accrue interest until payments are 180 days past due. As a result of OCC guidance issued in the first quarter of 2012, home equity loans in regulated bank entities are classified as non-accrual if the related residential first mortgage is 90 days or more past due. As a result of OCC guidance issued in the third quarter of 2012, mortgage loans in regulated bank entities discharged through Chapter 7 bankruptcy, other than FHA-insured loans, are classified as non-accrual. Commercial market loans are placed on a cash (non-accrual) basis when it is determined, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or principal is doubtful or when interest or principal is 90 days past due.

        The policy for re-aging modified U.S. Consumer loans to current status varies by product. Generally, one of the conditions to qualify for these modifications is that a minimum number of payments (typically ranging from one to three) be made. Upon modification, the loan is re-aged to current status. However, re-aging practices for certain open-ended Consumer loans, such as credit cards, are governed by Federal Financial Institutions Examination Council (FFIEC) guidelines. For open-ended Consumer loans subject to FFIEC guidelines, one of the conditions for the loan to be re-aged to current status is that at least three consecutive minimum monthly payments, or the equivalent amount, must be received. In addition, under FFIEC guidelines, the number of times that such a loan can be re-aged is subject to limitations (generally once in 12 months and twice in five years). Furthermore, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans are modified under those respective agencies' guidelines and payments are not always required in order to re-age a modified loan to current.

145


        The following tables provide details on Citigroup's Consumer loan delinquency and non-accrual loans as of June 30, 2013 and December 31, 2012:


Consumer Loan Delinquency and Non-Accrual Details at June 30, 2013

In millions of dollars   Total
current(1)(2)
  30-89 days
past due(3)
  ³ 90 days
past due(3)
  Past due
government
guaranteed(4)
  Total
loans(2)
  Total
non-accrual
  90 days past due
and accruing
 

In North America offices

                                           

Residential first mortgages

  $ 67,553   $ 2,362   $ 2,303   $ 5,539   $ 77,757   $ 3,673   $ 4,210  

Home equity loans(5)

    33,006     494     700         34,200     1,517      

Credit cards

    103,088     1,213     1,228         105,529         1,228  

Installment and other

    12,403     202     205         12,810     209     5  

Commercial market loans

    8,342     45     33         8,420     139     10  
                               

Total

  $ 224,392   $ 4,316   $ 4,469   $ 5,539   $ 238,716   $ 5,538   $ 5,453  
                               

In offices outside North America

                                           

Residential first mortgages

  $ 44,254   $ 446   $ 405   $   $ 45,105   $ 648   $  

Home equity loans(5)

                             

Credit cards

    34,159     783     658         35,600     376     453  

Installment and other

    28,850     451     165         29,466     227      

Commercial market loans

    32,515     122     154         32,791     704      
                               

Total

  $ 139,778   $ 1,802   $ 1,382   $   $ 142,962   $ 1,955   $ 453  
                               

Total GCB and LCL

  $ 364,170   $ 6,118   $ 5,851   $ 5,539   $ 381,678   $ 7,493   $ 5,906  

SAP

    434     16     24         474     69      
                               

Total Citigroup

  $ 364,604   $ 6,134   $ 5,875   $ 5,539   $ 382,152   $ 7,562   $ 5,906  
                               

(1)
Loans less than 30 days past due are presented as current.

(2)
Includes $1.0 billion of residential first mortgages recorded at fair value.

(3)
Excludes loans guaranteed by U.S. government entities.

(4)
Consists of residential first mortgages that are guaranteed by U.S. government entities that are 30-89 days past due of $1.3 billion and ³ 90 days past due of $4.2 billion.

(5)
Fixed rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.


Consumer Loan Delinquency and Non-Accrual Details at December 31, 2012

In millions of dollars   Total
current(1)(2)
  30-89 days
past due(3)
  ³ 90 days
past due(3)
  Past due
government
guaranteed(4)
  Total
loans(2)
  Total
non-accrual
  90 days past due
and accruing
 

In North America offices

                                           

Residential first mortgages

  $ 75,791   $ 3,074   $ 3,339   $ 6,000   $ 88,204   $ 4,922   $ 4,695  

Home equity loans(5)

    35,740     642     843         37,225     1,797      

Credit cards

    108,892     1,582     1,527         112,001         1,527  

Installment and other

    13,319     288     325         13,932     179     8  

Commercial market loans

    7,874     32     19         7,925     210     11  
                               

Total

  $ 241,616   $ 5,618   $ 6,053   $ 6,000   $ 259,287   $ 7,108   $ 6,241  
                               

In offices outside North America

                                           

Residential first mortgages

  $ 45,496   $ 547   $ 485   $   $ 46,528   $ 807   $  

Home equity loans(5)

    4         2         6     2      

Credit cards

    38,920     970     805         40,695     516     508  

Installment and other

    29,350     496     167         30,013     254      

Commercial market loans

    31,263     106     181         31,550     428      
                               

Total

  $ 145,033   $ 2,119   $ 1,640   $   $ 148,792   $ 2,007   $ 508  
                               

Total GCB and LCL

  $ 386,649   $ 7,737   $ 7,693   $ 6,000   $ 408,079   $ 9,115   $ 6,749  

SAP

    545     18     29         592     81      
                               

Total Citigroup

  $ 387,194   $ 7,755   $ 7,722   $ 6,000   $ 408,671   $ 9,196   $ 6,749  
                               

(1)
Loans less than 30 days past due are presented as current.

(2)
Includes $1.2 billion of residential first mortgages recorded at fair value.

(3)
Excludes loans guaranteed by U.S. government entities.

(4)
Consists of residential first mortgages that are guaranteed by U.S. government entities that are 30-89 days past due of $1.3 billion and ³ 90 days past due of $4.7 billion.

(5)
Fixed rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.

146


Consumer Credit Scores (FICO)

        In the U.S., independent credit agencies rate an individual's risk for assuming debt based on the individual's credit history and assign every consumer a "FICO" credit score. These scores are continually updated by the agencies based upon an individual's credit actions (e.g., taking out a loan or missed or late payments).

        The following table provides details on the FICO scores attributable to Citi's U.S. Consumer loan portfolio as of June 30, 2013 and December 31, 2012 (commercial market loans are not included in the table since they are business-based and FICO scores are not a primary driver in their credit evaluation). FICO scores are updated monthly for substantially all of the portfolio or, otherwise, on a quarterly basis.

 
  June 30, 2013  
FICO score distribution in U.S. portfolio(1)(2)
In millions of dollars
  Less than
620
  ³ 620 but less
than 660
  Equal to or
greater
than 660
 

Residential first mortgages

  $ 13,210   $ 6,960   $ 45,758  

Home equity loans

    4,569     3,024     24,899  

Credit cards

    6,935     9,325     85,398  

Installment and other

    3,658     2,311     5,209  
               

Total

  $ 28,372   $ 21,620   $ 161,264  
               

(1)
Excludes loans guaranteed by U.S. government entities, loans subject to long-term standby commitments (LTSCs) with U.S. government-sponsored entities and loans recorded at fair value.

(2)
Excludes balances where FICO was not available. Such amounts are not material.

 
  December 31, 2012  
FICO score distribution in U.S. portfolio(1)(2)
In millions of dollars
  Less than
620
  ³ 620 but less
than 660
  Equal to or
greater
than 660
 

Residential first mortgages

  $ 16,754   $ 8,013   $ 50,833  

Home equity loans

    5,439     3,208     26,820  

Credit cards

    7,833     10,304     90,248  

Installment and other

    4,414     2,417     5,365  
               

Total

  $ 34,440   $ 23,942   $ 173,266  
               

(1)
Excludes loans guaranteed by U.S. government entities, loans subject to LTSCs with U.S. government-sponsored entities and loans recorded at fair value.

(2)
Excludes balances where FICO was not available. Such amounts are not material.

Loan to Value (LTV) Ratios

        LTV ratios (loan balance divided by appraised value) are calculated at origination and updated by applying market price data.

        The following tables provide details on the LTV ratios attributable to Citi's U.S. Consumer mortgage portfolios as of June 30, 2013 and December 31, 2012. LTV ratios are updated monthly using the most recent Core Logic HPI data available for substantially all of the portfolio applied at the Metropolitan Statistical Area level, if available, or the state level if not. The remainder of the portfolio is updated in a similar manner using the Office of Federal Housing Enterprise Oversight indices.

 
  June 30, 2013  
LTV distribution in U.S. portfolio(1)(2)
In millions of dollars
  Less than or
equal to 80%
  > 80% but less
than or equal to
100%
  Greater
than
100%
 

Residential first mortgages

  $ 41,153   $ 15,499   $ 9,299  

Home equity loans

    13,097     9,047     10,135  
               

Total

  $ 54,250   $ 24,546   $ 19,434  
               

(1)
Excludes loans guaranteed by U.S. government entities, loans subject to LTSCs with U.S. government-sponsored entities and loans recorded at fair value.

(2)
Excludes balances where LTV was not available. Such amounts are not material.

 
  December 31, 2012  
LTV distribution in U.S. portfolio(1)(2)
In millions of dollars
  Less than or
equal to 80%
  > 80% but less
than or equal to
100%
  Greater
than
100%
 

Residential first mortgages

  $ 41,555   $ 19,070   $ 14,995  

Home equity loans

    12,611     9,529     13,153  
               

Total

  $ 54,166   $ 28,599   $ 28,148  
               

(1)
Excludes loans guaranteed by U.S. government entities, loans subject to LTSCs with U.S. government-sponsored entities and loans recorded at fair value.

(2)
Excludes balances where LTV was not available. Such amounts are not material.

147



Impaired Consumer Loans

        Impaired loans are those loans about which Citigroup believes it is probable that it will not collect all amounts due according to the original contractual terms of the loan. Impaired Consumer loans include non-accrual commercial market loans, as well as smaller-balance homogeneous loans whose terms have been modified due to the borrower's financial difficulties and where Citigroup has granted a concession to the borrower. These modifications may include interest rate reductions and/or principal forgiveness. Impaired Consumer loans exclude smaller-balance homogeneous loans that have not been modified and are carried on a non-accrual basis. In addition, impaired Consumer loans exclude substantially all loans modified pursuant to Citi's short-term modification programs (i.e., for periods of 12 months or less) that were modified prior to January 1, 2011.

        As a result of OCC guidance issued in the third quarter of 2012, mortgage loans to borrowers that have gone through Chapter 7 bankruptcy are classified as TDRs. These TDRs, other than FHA-insured loans, are written down to collateral value less cost to sell. FHA-insured loans are reserved based on a discounted cash flow model (see Note 1 to the Consolidated Financial Statements in Citi's 2012 Annual Report on Form 10-K). The recorded investment in receivables reclassified to TDRs in the third quarter of 2012 as a result of this OCC guidance approximated $1,714 million, composed of $1,327 million of residential first mortgages and $387 million of home equity loans.

        The following tables present information about total impaired Consumer loans at and for the periods ending June 30, 2013 and December 31, 2012, respectively, and for the three and six months ended June 30, 2013 and June 30, 2012 for interest income recognized on impaired Consumer loans:


Impaired Consumer Loans

 
   
   
   
   
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  June 30, 2013   2013   2012   2013   2012  
In millions of dollars   Recorded
investment(1)(2)
  Unpaid
principal
balance
  Related
specific
allowance(3)
  Average
carrying
value(4)
  Interest
income
recognized(5)(6)
  Interest
income
recognized(5)(6)
  Interest
income
recognized(5)(6)
  Interest
income
recognized(5)(6)
 

Mortgage and real estate

                                                 

Residential first mortgages

  $ 17,323   $ 18,287   $ 2,656   $ 19,657   $ 207   $ 209   $ 424   $ 423  

Home equity loans

    2,032     2,637     532     2,090     18     17     39     32  

Credit cards

    3,774     3,820     1,384     4,412     61     78     126     166  

Installment and other

                                                 

Individual installment and other

    1,093     1,117     619     1,453     34     60     83     130  

Commercial market loans

    419     647     102     455     8     9     12     13  
                                   

Total(7)

  $ 24,641   $ 26,508   $ 5,293   $ 28,067   $ 328   $ 373   $ 684   $ 764  
                                   

(1)
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount and direct write-downs and includes accrued interest only on credit card loans.

(2)
$2,095 million of residential first mortgages, $416 million of home equity loans and $175 million of commercial market loans do not have a specific allowance.

(3)
Included in the Allowance for loan losses.

(4)
Average carrying value represents the average recorded investment ending balance for the last four quarters and does not include the related specific allowance.

(5)
Includes amounts recognized on both an accrual and cash basis.

(6)
Cash interest receipts on smaller-balance homogeneous loans are generally recorded as revenue. The interest recognition policy for commercial market loans is identical to that for Corporate loans, as described below.

(7)
Prior to 2008, the Company's financial accounting systems did not separately track impaired smaller-balance, homogeneous Consumer loans whose terms were modified due to the borrowers' financial difficulties and where it was determined that a concession was granted to the borrower. Smaller-balance Consumer loans modified since January 1, 2008 amounted to $24.2 billion at June 30, 2013. However, information derived from Citi's risk management systems indicates that the amounts of outstanding modified loans, including those modified prior to 2008, approximated $25.0 billion at June 30, 2013.

148


 
  December 31, 2012  
In millions of dollars   Recorded
investment(1)(2)
  Unpaid
principal balance
  Related specific
allowance(3)
  Average
carrying value(4)
 

Mortgage and real estate

                         

Residential first mortgages

  $ 20,870   $ 22,062   $ 3,585   $ 19,956  

Home equity loans

    2,135     2,727     636     1,911  

Credit cards

    4,584     4,639     1,800     5,272  

Installment and other

                         

Individual installment and other

    1,612     1,618     860     1,958  

Commercial market loans

    439     737     60     495  
                   

Total(5)

  $ 29,640   $ 31,783   $ 6,941   $ 29,592  
                   

(1)
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount and direct write-downs and includes accrued interest only on credit card loans.

(2)
$2,344 million of residential first mortgages, $378 million of home equity loans and $183 million of commercial market loans do not have a specific allowance.

(3)
Included in the Allowance for loan losses.

(4)
Average carrying value represents the average recorded investment ending balance for last four quarters and does not include related specific allowance.

(5)
Prior to 2008, the Company's financial accounting systems did not separately track impaired smaller-balance, homogeneous Consumer loans whose terms were modified due to the borrowers' financial difficulties and where it was determined that a concession was granted to the borrower. Smaller-balance Consumer loans modified since January 1, 2008 amounted to $29.2 billion at December 31, 2012. However, information derived from Citi's risk management systems indicates that the amounts of outstanding modified loans, including those modified prior to 2008, approximated $30.1 billion at December 31, 2012.


Consumer Troubled Debt Restructurings

        The following tables present Consumer TDRs occurring during the three- and six-months ended June 30, 2013 and 2012:

 
  For the three months ended June 30, 2013  
In millions of dollars except number of loans modified   Number of
loans modified
  Post-modification
recorded
investment(1)(2)
  Deferred
principal(3)
  Contingent
principal
forgiveness(4)
  Principal
forgiveness(5)
  Average
interest rate
reduction
 

North America

                                     

Residential first mortgages

    9,085   $ 1,214   $ 14   $ 2   $ 42     1 %

Home equity loans

    2,504     81             8     1  

Credit cards

    36,785     182                 14  

Installment and other revolving

    12,293     87                 7  

Commercial markets(6)

    65     5                  
                           

Total

    60,732   $ 1,569   $ 14   $ 2   $ 50        
                           

International

                                     

Residential first mortgages

    1,032   $ 48   $   $   $ 1     1 %

Home equity loans

    2                      

Credit cards

    29,674     130             4     17  

Installment and other revolving

    12,793     77             2     16  

Commercial markets(6)

    122     36     1              
                           

Total

    43,623   $ 291   $ 1   $   $ 7        
                           

149


 
  For the three months ended June 30, 2012  
In millions of dollars except number of loans modified   Number of
loans modified
  Post-modification
recorded
investment(1)
  Deferred
principal(3)
  Contingent
principal
forgiveness(4)
  Principal
forgiveness(5)
  Average
interest rate
reduction
 

North America

                                     

Residential first mortgages

    10,523   $ 1,933   $ 2   $ 2   $ 290     %

Home equity loans

    2,240     78     1         22     2  

Credit cards

    55,757     296                 16  

Installment and other revolving

    15,250     112                 6  

Commercial markets(6)

    59     5                  
                           

Total

    83,829   $ 2,424   $ 3   $ 2   $ 312        
                           

International

                                     

Residential first mortgages

    1,155   $ 39   $   $   $ 1     1 %

Home equity loans

                         

Credit cards

    34,453     126             6     17  

Installment and other revolving

    14,781     84             2     17  

Commercial markets(6)

    152     37             1      
                           

Total

    50,541   $ 286   $   $   $ 10        
                           

(1)
Post-modification balances include past due amounts that are capitalized at modification date.

(2)
Post-modification balances in North America in the second quarter of 2013 include $126 million of residential first mortgages and $25 million of home equity loans to borrowers that have gone through Chapter 7 bankruptcy. These amounts include $82 million of residential first mortgages and $22 million of home equity loans that are newly classified as TDRs as a result of OCC guidance received in the third quarter of 2012, as described above.

(3)
Represents portion of contractual loan principal that is non-interest bearing but still due from borrower. Such deferred principal is charged-off at the time of permanent modification to the extent that the related loan balance exceeds the underlying collateral value.

(4)
Represents portion of contractual loan principal that is non-interest bearing and, depending upon borrower performance, eligible for forgiveness.

(5)
Represents portion of contractual loan principal that is forgiven at the time of permanent modification.

(6)
Commercial markets loans are generally borrower-specific modifications and incorporate changes in the amount and/or timing of principal and/or interest.

 
  For the six months ended June 30, 2013  
In millions of dollars except number of loans modified   Number of
loans modified
  Post-modification
recorded
investment(1)(2)
  Deferred
principal(3)
  Contingent
principal
forgiveness(4)
  Principal
forgiveness(5)
  Average
interest rate
reduction
 

North America

                                     

Residential first mortgages

    18,252   $ 2,456   $ 19   $ 2   $ 96     2 %

Home equity loans

    5,501     164     1         35     2  

Credit cards

    79,761     406                 14  

Installment and other revolving

    25,905     185                 7  

Commercial markets(6)

    122     19                  
                           

Total

    129,541   $ 3,230   $ 20   $ 2   $ 131        
                           

International

                                     

Residential first mortgages

    1,966   $ 85   $   $   $ 2     1 %

Home equity loans

    6                      

Credit cards

    61,972     261             8     17  

Installment and other revolving

    26,886     165             4     18  

Commercial markets(6)

    208     46     1              
                           

Total

    91,038   $ 557   $ 1   $   $ 14        
                           

150


 
  For the six months ended June 30, 2012  
In millions of dollars except number of loans modified   Number of
loans modified
  Post-modification
recorded
investment(1)
  Deferred
principal(3)
  Contingent
principal
forgiveness(4)
  Principal
forgiveness(5)
  Average
interest rate
reduction
 

North America

                                     

Residential first mortgages

    16,724   $ 2,766   $ 6   $ 4   $ 311     1 %

Home equity loans

    4,885     184     3         24     3  

Credit cards

    137,110     708                 16  

Installment and other revolving

    35,227     259                 6  

Commercial markets(6)

    96     6                  
                           

Total

    194,042   $ 3,923   $ 9   $ 4   $ 335        
                           

International

                                     

Residential first mortgages

    2,168   $ 76   $   $   $ 2     1 %

Home equity loans

    2                      

Credit cards

    72,728     256             14     17  

Installment and other revolving

    31,351     167             4     17  

Commercial markets(6)

    223     56         1     2      
                           

Total

    106,472   $ 555   $   $ 1   $ 22        
                           

(1)
Post-modification balances include past due amounts that are capitalized at modification date.

(2)
Post-modification balances in North America in the first six months of 2013 include $249 million of residential first mortgages and $45 million of home equity loans to borrowers that have gone through Chapter 7 bankruptcy. These amounts include $178 million of residential first mortgages and $38 million of home equity loans that are newly classified as TDRs as a result of OCC guidance received in the third quarter of 2012, as described above.

(3)
Represents portion of contractual loan principal that is non-interest bearing but still due from borrower. Such deferred principal is charged-off at the time of permanent modification to the extent that the related loan balance exceeds the underlying collateral value.

(4)
Represents portion of contractual loan principal that is non-interest bearing and, depending upon borrower performance, eligible for forgiveness.

(5)
Represents portion of contractual loan principal that is forgiven at the time of permanent modification.

(6)
Commercial markets loans are generally borrower-specific modifications and incorporate changes in the amount and/or timing of principal and/or interest.

151


        The following table presents Consumer TDRs that defaulted(1) during the three months and six months ended June 30, 2013 and 2012, respectively, and for which the payment default occurred within one year of a permanent modification:

 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

North America

                         

Residential first mortgages

  $ 271   $ 210   $ 512   $ 650  

Home equity loans

    52     22     99     52  

Credit cards

    49     132     114     327  

Installment and other revolving

    20     30     45     64  

Commercial markets

    2         2      
                   

Total

  $ 394   $ 394   $ 772   $ 1,093  
                   

International

                         

Residential first mortgages

  $ 17   $ 18   $ 32   $ 35  

Home equity loans

                 

Credit cards

    58     49     108     103  

Installment and other revolving

    34     27     65     56  

Commercial markets

    2     1     4     1  
                   

Total

  $ 111   $ 95   $ 209   $ 195  
                   

(1)
Default is defined as 60 days past due, except for classifiably managed commercial markets loans, where default is defined as 90 days past due.


Corporate Loans

        Corporate loans represent loans and leases managed by the Institutional Clients Group in Citicorp or the Special Asset Pool in Citi Holdings. The following table presents information by Corporate loan type as of June 30, 2013 and December 31, 2012:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Corporate

             

In U.S. offices

             

Commercial and industrial

  $ 30,798   $ 26,985  

Financial institutions

    23,982     18,159  

Mortgage and real estate(1)

    26,215     24,705  

Installment, revolving credit and other

    31,919     32,446  

Lease financing

    1,535     1,410  
           

  $ 114,449   $ 103,705  
           

In offices outside the U.S.

             

Commercial and industrial

  $ 84,317   $ 82,939  

Installment, revolving credit and other

    14,581     14,958  

Mortgage and real estate(1)

    6,276     6,485  

Financial institutions

    40,303     37,739  

Lease financing

    556     605  

Governments and official institutions

    1,579     1,159  
           

  $ 147,612   $ 143,885  
           

Total Corporate loans

  $ 262,061   $ 247,590  

Net unearned income (loss)

    (472 )   (797 )
           

Corporate loans, net of unearned income

  $ 261,589   $ 246,793  
           

(1)
Loans secured primarily by real estate.

        The Company sold and/or reclassified (to held-for-sale) $1,143 and $2,172 million of Corporate loans during the three and six months ended June 30, 2013, respectively, and $714 million and $1,639 million during the three and six months ended June 30, 2012, respectively.

        Corporate loans are identified as impaired and placed on a cash (non-accrual) basis when it is determined, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or principal is doubtful or when interest or principal is 90 days past due, except when the loan is well collateralized and in the process of collection. Any interest accrued on impaired Corporate loans and leases is reversed at 90 days and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is doubt regarding the ultimate collectability of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan. While Corporate loans are generally managed based on their internally assigned risk rating (see further discussion below), the following tables present delinquency information by Corporate loan type as of June 30, 2013 and December 31, 2012:

152



Corporate Loan Delinquency and Non-Accrual Details at June 30, 2013

In millions of dollars   30-89 days
past due
and accruing(1)
  ³ 90 days
past due and
accruing(1)
  Total past due
and accruing
  Total
non-accrual(2)
  Total
current(3)
  Total
loans
 

Commercial and industrial

  $ 38   $ 5   $ 43   $ 917   $ 112,887   $ 113,847  

Financial institutions

    16         16     356     62,478     62,850  

Mortgage and real estate

    357     130     487     616     31,260     32,363  

Leases

    5     1     6     188     1,897     2,091  

Other

    55     6     61     67     46,483     46,611  

Loans at fair value

                                  3,827  
                           

Total

  $ 471   $ 142   $ 613   $ 2,144   $ 255,005   $ 261,589  
                           

(1)
Corporate loans that are ³ 90 days past due are generally classified as non-accrual. Corporate loans are considered past due when principal or interest is contractually due but unpaid.

(2)
Citi generally does not manage Corporate loans on a delinquency basis. Non-accrual loans generally include those loans that are ³ 90 days past due or those loans for which Citi believes, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or principal is doubtful.

(3)
Corporate loans are past due when principal or interest is contractually due but unpaid. Loans less than 30 days past due are presented as current.


Corporate Loan Delinquency and Non-Accrual Details at December 31, 2012

In millions of dollars   30-89 days
past due
and accruing(1)
  ³ 90 days
past due and
accruing(1)
  Total past due
and accruing
  Total
non-accrual(2)
  Total
current(3)
  Total
loans
 

Commercial and industrial

  $ 38   $ 10   $ 48   $ 1,078   $ 107,650   $ 108,776  

Financial institutions

    5         5     454     53,858     54,317  

Mortgage and real estate

    224     109     333     680     30,057     31,070  

Leases

    7         7     52     1,956     2,015  

Other

    70     6     76     69     46,414     46,559  

Loans at fair value

                                  4,056  
                           

Total

  $ 344   $ 125   $ 469   $ 2,333   $ 239,935   $ 246,793  
                           

(1)
Corporate loans that are ³ 90 days past due are generally classified as non-accrual. Corporate loans are considered past due when principal or interest is contractually due but unpaid.

(2)
Citi generally does not manage Corporate loans on a delinquency basis. Non-accrual loans generally include those loans that are ³ 90 days past due or those loans for which Citi believes, based on actual experience and a forward-looking assessment of the collectability of the loan in full, that the payment of interest or principal is doubtful.

(3)
Corporate loans are past due when principal or interest is contractually due but unpaid. Loans less than 30 days past due are presented as current.

153


        Citigroup has a risk management process to monitor, evaluate and manage the principal risks associated with its Corporate loan portfolio. As part of its risk management process, Citi assigns numeric risk ratings to its Corporate loan facilities based on quantitative and qualitative assessments of the obligor and facility. These risk ratings are reviewed at least annually or more often if material events related to the obligor or facility warrant. Factors considered in assigning the risk ratings include: financial condition of the obligor, qualitative assessment of management and strategy, amount and sources of repayment, amount and type of collateral and guarantee arrangements, amount and type of any contingencies associated with the obligor, and the obligor's industry and geography.

        The obligor risk ratings are defined by ranges of default probabilities. The facility risk ratings are defined by ranges of loss norms, which are the product of the probability of default and the loss given default. The investment grade rating categories are similar to the category BBB-/Baa3 and above as defined by S&P and Moody's. Loans classified according to the bank regulatory definitions as special mention, substandard and doubtful will have risk ratings within the non-investment grade categories.


Corporate Loans Credit Quality Indicators at June 30, 2013 and December 31, 2012

 
  Recorded investment in loans(1)  
In millions of dollars   June 30,
2013
  December 31,
2012
 

Investment grade(2)

             

Commercial and industrial

  $ 81,428   $ 73,822  

Financial institutions

    52,835     43,895  

Mortgage and real estate

    12,476     12,587  

Leases

    1,488     1,404  

Other

    43,698     42,575  
           

Total investment grade

  $ 191,925   $ 174,283  
           

Non-investment grade(2)

             

Accrual

             

Commercial and industrial

  $ 31,503   $ 33,876  

Financial institutions

    9,659     9,968  

Mortgage and real estate

    3,501     2,858  

Leases

    415     559  

Other

    2,846     3,915  

Non-accrual

             

Commercial and industrial

    917     1,078  

Financial institutions

    356     454  

Mortgage and real estate

    616     680  

Leases

    188     52  

Other

    67     69  
           

Total non-investment grade

  $ 50,068   $ 53,509  
           

Private Banking loans managed on a delinquency basis(2)

  $ 15,769   $ 14,945  

Loans at fair value

    3,827     4,056  
           

Corporate loans, net of unearned income

  $ 261,589   $ 246,793  
           

(1)
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount, less any direct write-downs.

(2)
Held-for-investment loans accounted for on an amortized cost basis.

        Corporate loans and leases identified as impaired and placed on non-accrual status are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans and leases, where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment, are written down to the lower of cost or collateral value, less cost to sell. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance, generally six months, in accordance with the contractual terms of the loan.

154


        The following tables present non-accrual loan information by Corporate loan type at June 30, 2013 and December 31, 2012, respectively, and interest income recognized on non-accrual Corporate loans for the three and six months ended June 30, 2013 and 2012, respectively:


Non-Accrual Corporate Loans

 
  June 30, 2013   Three Months Ended
June 30, 2013
  Six Months Ended
June 30, 2013
 
In millions of dollars   Recorded
investment(1)
  Unpaid
principal balance
  Related specific
allowance
  Average
carrying value(2)
  Interest income
recognized(4)
  Interest income
recognized(4)
 

Non-accrual Corporate loans

                                     

Commercial and industrial

  $ 917   $ 1,142   $ 124   $ 1,035   $ 7   $ 14  

Financial institutions

    356     396     17     431     2     2  

Mortgage and real estate

    616     727     67     692         1  

Lease financing

    188     194     118     109          

Other

    67     194     21     86     1     1  
                           

Total non-accrual Corporate loans

  $ 2,144   $ 2,653   $ 347   $ 2,353   $ 10   $ 18  
                           

 

 
  December 31, 2012  
In millions of dollars   Recorded
investment(1)
  Unpaid
principal balance
  Related specific
allowance
  Average
carrying value(3)
 

Non-accrual Corporate loans

                         

Commercial and industrial

  $ 1,078   $ 1,368   $ 155   $ 1,076  

Loans to financial institutions

    454     504     14     518  

Mortgage and real estate

    680     810     74     811  

Lease financing

    52     61     16     19  

Other

    69     245     25     154  
                   

Total non-accrual Corporate loans

  $ 2,333   $ 2,988   $ 284   $ 2,578  
                   

 

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Recorded
investment(1)
  Related specific
allowance
  Recorded
investment(1)
  Related specific
allowance
 

Non-accrual Corporate loans with valuation allowances

                         

Commercial and industrial

  $ 490   $ 124   $ 608   $ 155  

Financial institutions

    25     17     41     14  

Mortgage and real estate

    336     67     345     74  

Lease financing

    186     118     47     16  

Other

    52     21     59     25  
                   

Total non-accrual Corporate loans with specific allowance

  $ 1,089   $ 347   $ 1,100   $ 284  
                   

Non-accrual Corporate loans without specific allowance

                         

Commercial and industrial

  $ 427         $ 470        

Financial institutions

    331           413        

Mortgage and real estate

    280           335        

Lease financing

    2           5        

Other

    15           10        
                   

Total non-accrual Corporate loans without specific allowance

  $ 1,055     N/A   $ 1,233     N/A  
                   

(1)
Recorded investment in a loan includes net deferred loan fees and costs, unamortized premium or discount, less any direct write-downs.

(2)
Average carrying value represents the average recorded investment balance and does not include related specific allowance.

(3)
Average carrying value does not include related specific allowance.

(4)
Interest income recognized for the three- and six-month periods ended June 30, 2012 were $37 million and $63 million, respectively.

N/A Not Applicable

155



Corporate Troubled Debt Restructurings

        The following tables provide details on TDR activity and default information as of and for the three- and six-month periods ended June 30, 2013 and June 30, 2012.

        The following table presents TDRs occurring during the three months ended June 30, 2013.

In millions of dollars   Carrying
Value
  TDRs
involving changes
in the amount
and/or timing of
principal payments(1)
  TDRs
involving changes
in the amount
and/or timing of
interest payments(2)
  TDRs
involving changes
in the amount
and/or timing of
both principal and
interest payments
  Balance of
principal forgiven
or deferred
  Net
P&L
impact(3)
 

Commercial and industrial

  $ 42   $ 14   $ 28   $   $   $  

Financial institutions

                         

Mortgage and real estate

                         

Other

                         
                           

Total

  $ 42   $ 14   $ 28   $   $   $  
                           

(1)
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.

(2)
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.

(3)
Balances reflect charge-offs and reserves recorded during the three months ended June 30, 2013 on loans subject to a TDR during the period then ended.

        The following table presents TDRs occurring during the three months ended June 30, 2012.

In millions of dollars   Carrying
Value
  TDRs
involving changes
in the amount
and/or timing of
principal payments(1)
  TDRs
involving changes
in the amount
and/or timing of
interest payments(2)
  TDRs
involving changes
in the amount
and/or timing of
both principal and interest
payments
  Balance of
principal forgiven
or deferred
  Net
P&L
impact(3)
 

Commercial and industrial

  $ 22   $ 7   $ 4   $ 11   $   $  

Financial institutions

                         

Mortgage and real estate

    32             32          

Other

                         
                           

Total

  $ 54   $ 7   $ 4   $ 43   $   $  
                           

(1)
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.

(2)
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.

(3)
Balances reflect charge-offs and reserves recorded during the three months ended June 30, 2012 on loans subject to a TDR during the period then ended.

        The following table presents TDRs occurring during the six months ended June 30, 2013.

In millions of dollars   Carrying
Value
  TDRs
involving changes
in the amount
and/or timing of
principal payments(1)
  TDRs
involving changes
in the amount
and/or timing of
interest payments(2)
  TDRs
involving changes
in the amount
and/or timing of
both principal and
interest payments
  Balance of
principal forgiven
or deferred
  Net
P&L
impact(3)
 

Commercial and industrial

  $ 89   $ 55   $ 28   $ 6   $   $  

Loans to financial institutions

                         

Mortgage and real estate

    14         14              

Other

    4             4          
                           

Total

  $ 107   $ 55   $ 42   $ 10   $   $  
                           

(1)
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.

(2)
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.

(3)
Balances reflect charge-offs and reserves recorded during the six months ended June 30, 2013 on loans subject to a TDR during the period then ended.

156


        The following table presents TDRs occurring during the six months ended June 30, 2012.

In millions of dollars   Carrying
Value
  TDRs
involving changes
in the amount
and/or timing of
principal payments(1)
  TDRs
involving changes
in the amount
and/or timing of
interest payments(2)
  TDRs
involving changes
in the amount
and/or timing of
both principal and interest
payments
  Balance of
principal forgiven
or deferred
  Net
P&L
impact(3)
 

Commercial and industrial

  $ 39   $ 24   $ 4   $ 11   $   $ 1  

Loans to financial institutions

                         

Mortgage and real estate

    93     60         33          

Other

                         
                           

Total

  $ 132   $ 84   $ 4   $ 44   $   $ 1  
                           

(1)
TDRs involving changes in the amount or timing of principal payments may involve principal forgiveness or deferral of periodic and/or final principal payments.

(2)
TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.

(3)
Balances reflect charge-offs and reserves recorded during the six months ended June 30, 2012 on loans subject to a TDR during the period then ended.

        The following table presents total corporate loans modified in a troubled debt restructuring at June 30, 2013 and 2012, as well as those TDRs that defaulted during the three and six months of 2013 and 2012, and for which the payment default occurred within one year of modification.

In millions of dollars   TDR balances at
June 30, 2013
  TDR loans in
payment default
three months ended
June 30, 2013
  TDR loans in
payment default
six months ended
June 30, 2013
  TDR balances at
June 30, 2012
  TDR loans in
payment default
three months ended
June 30, 2012
  TDR loans in
payment default
six months ended
June 30, 2012
 

Commercial and industrial

  $ 173   $   $ 15   $ 388   $ 7   $ 7  

Loans to financial institutions

    16             30          

Mortgage and real estate

    218     2     2     153          

Other

    418             572          
                           

Total

  $ 825   $ 2   $ 17   $ 1,143   $ 7   $ 7  
                           

157


14.   ALLOWANCE FOR CREDIT LOSSES

 
  Three months ended
June 30,
  Six months ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Allowance for loan losses at beginning of period

  $ 23,727   $ 29,020   $ 25,455   $ 30,115  

Gross credit losses(1)

    (3,257 )   (4,205 )   (6,701 )   (8,849 )

Gross recoveries

    649     714     1,215     1,500  
                   

Net credit losses (NCLs)

  $ (2,608 ) $ (3,491 ) $ (5,486 ) $ (7,349 )
                   

NCLs replenishments

  $ 2,608   $ 3,491   $ 5,486   $ 7,349  

Net reserve builds (releases)(1)(2)

    (642 )   (641 )   (948 )   (855 )

Net specific reserve builds (releases)(1)(2)

    (139 )   (375 )   (497 )   (1,310 )
                   

Total provision for credit losses

  $ 1,827   $ 2,475   $ 4,041   $ 5,184  

Other, net(3)

    (1,366 )   (393 )   (2,430 )   (339 )
                   

Allowance for loan losses at end of period

  $ 21,580   $ 27,611   $ 21,580   $ 27,611  
                   

Allowance for credit losses on unfunded lending commitments at beginning of period(4)

  $ 1,132   $ 1,097   $ 1,119   $ 1,136  

Provision (release) for unfunded lending commitments

    (3 )   7     11     (31 )

Other, net

    4         3     (1 )
                   

Allowance for credit losses on unfunded lending commitments at end of period(4)

  $ 1,133   $ 1,104   $ 1,133   $ 1,104  
                   

Total allowance for loans, leases, and unfunded lending commitments

  $ 22,713   $ 28,715   $ 22,713   $ 28,715  
                   

(1)
The first quarter of 2012 included approximately $370 million of incremental charge-offs related to previously deferred principal balances on modified mortgages related to anticipated forgiveness of principal in connection with the national mortgage settlement. There was a corresponding approximate $350 million reserve release in the first and second quarters of 2012 specific to these charge-offs.

(2)
The first and second quarters of 2013 include $148 million and $124 million, respectively, of builds (releases) related to gains (losses) on loan sales. The first and second quarters of 2012 include $60 million and $73 million, respectively, of builds (releases) related to gains (losses) on loan sales.

(3)
The second quarter of 2013 includes a reduction of approximately $650 million related to the sale or transfers to held-for-sale of various U.S. loan portfolios and a reduction of approximately $360 million related to the Brazil Credicard transfer to Discontinued operations. Additionally, a reduction of approximately $90 million related to a transfer to held-for-sale of a loan portfolio in Greece and a reduction of approximately $220 million related to foreign currency translation. The first quarter of 2013 primarily includes reductions of approximately $855 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios and a reduction of $165 million related to a transfer to held-for-sale of a loan portfolio in Greece. The second quarter of 2012 includes a reduction of approximately $175 million related to the sale or transfers to held-for-sale of various U.S. loan portfolios and a reduction of approximately $200 million related to foreign currency translation. The first quarter of 2012 primarily includes reductions of approximately $145 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios.

(4)
Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet.


Allowance for Credit Losses and Investment in Loans

 
  Three months ended
June 30, 2013
  Six months ended
June 30, 2013
 
In millions of dollars   Corporate   Consumer   Total   Corporate   Consumer   Total  

Allowance for loan losses at beginning of year

  $ 2,779   $ 20,948   $ 23,727   $ 2,776   $ 22,679   $ 25,455  

Charge-offs

    (97 )   (3,160 )   (3,257 )   (157 )   (6,544 )   (6,701 )

Recoveries

    52     597     649     67     1,148     1,215  

Replenishment of net charge-offs

    45     2,563     2,608     90     5,396     5,486  

Net reserve releases

    (98 )   (544 )   (642 )   (129 )   (819 )   (948 )

Net specific reserve builds (releases)

    30     (169 )   (139 )   72     (569 )   (497 )

Other

    (3 )   (1,363 )   (1,366 )   (11 )   (2,419 )   (2,430 )
                           

Ending balance

  $ 2,708   $ 18,872   $ 21,580   $ 2,708   $ 18,872   $ 21,580  
                           

 

 
  Three months ended
June 30, 2012
  Six months ended
June 30, 2012
 
In millions of dollars   Corporate   Consumer   Total   Corporate   Consumer   Total  

Allowance for loan losses at beginning of year

  $ 3,057   $ 25,963   $ 29,020   $ 2,879   $ 27,236   $ 30,115  

Charge-offs

    (227 )   (3,978 )   (4,205 )   (312 )   (8,537 )   (8,849 )

Recoveries

    73     641     714     241     1,259     1,500  

Replenishment of net charge-offs

    154     3,337     3,491     71     7,278     7,349  

Net reserve releases

    (77 )   (564 )   (641 )   77     (932 )   (855 )

Net specific reserve builds (releases)

    9     (384 )   (375 )   5     (1,315 )   (1,310 )

Other

    (17 )   (376 )   (393 )   11     (350 )   (339 )
                           

Ending balance

  $ 2,972   $ 24,639   $ 27,611   $ 2,972   $ 24,639   $ 27,611  
                           

158



 
  June 30, 2013   December 31, 2012  
In millions of dollars   Corporate   Consumer   Total   Corporate   Consumer   Total  

Allowance for loan losses

                                     

Determined in accordance with ASC 450-20

  $ 2,291   $ 13,548   $ 15,839   $ 2,429   $ 15,703   $ 18,132  

Determined in accordance with ASC 310-10-35

    347     5,293     5,640     284     6,941     7,225  

Determined in accordance with ASC 310-30

    70     31     101     63     35     98  
                           

Total allowance for loan losses

  $ 2,708   $ 18,872   $ 21,580   $ 2,776   $ 22,679   $ 25,455  
                           

Loans, net of unearned income

                                     

Loans collectively evaluated for impairment in accordance with ASC 450-20

  $ 255,124   $ 355,976   $ 611,100   $ 239,849   $ 377,374   $ 617,223  

Loans evaluated for impairment in accordance with ASC 310-10-35

    2,526     24,641     27,167     2,776     29,640     32,416  

Loans acquired with deteriorated credit quality in accordance with ASC 310-30

    112     494     606     112     426     538  

Loans held at fair value

    3,827     1,041     4,868     4,056     1,231     5,287  
                           

Total loans, net of unearned income

  $ 261,589   $ 382,152   $ 643,741   $ 246,793   $ 408,671   $ 655,464  
                           

159


15.   GOODWILL AND INTANGIBLE ASSETS

Goodwill

        The changes in Goodwill during the first six months of 2013 were as follows:

In millions of dollars    
 

Balance at December 31, 2012

  $ 25,673  

Foreign exchange translation and other

    (199 )
       

Balance at March 31, 2013

  $ 25,474  

Foreign exchange translation and other

    (516 )

Discontinued operations

    (62 )
       

Balance at June 30, 2013

  $ 24,896  
       

        Goodwill is tested for impairment annually during the third quarter at the reporting unit level and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During the first six months of 2013, no interim impairment test on goodwill was performed and no goodwill was written off due to impairment.

        While no goodwill was written off during the second quarter of 2013, the Company will continue to monitor the Brokerage and Asset Management (BAM) and Local Consumer Lending Cards (LCL Cards) reporting units, as goodwill present in these reporting units may be particularly sensitive to further deterioration in economic conditions. If the future were to differ adversely from management's best estimate of key economic assumptions and associated cash flows were to decrease by a small margin, the Company could potentially experience future impairment charges with respect to the $42 million and $106 million of goodwill remaining in the BAM and LCL Cards reporting units, respectively. The fair value as a percentage of allocated book value as of the July 1, 2012 test for BAM and LCL Cards was 121% and 110%, respectively. Any such charges, by themselves, would not negatively affect the Company's Tier 1 Common, Tier 1 Capital or Total Capital regulatory ratios (based on current regulatory guidelines), its Tangible Common Equity or the Company's liquidity position.

        The following table shows reporting units with goodwill balances as of June 30, 2013.

In millions of dollars
Reporting unit(1)
  Goodwill  

North America Regional Consumer Banking

  $ 6,789  

EMEA Regional Consumer Banking

    343  

Asia Regional Consumer Banking

    5,097  

Latin America Regional Consumer Banking

    1,797  

Securities and Banking

    9,138  

Transaction Services

    1,584  

Brokerage and Asset Management

    42  

Local Consumer Lending—Cards

    106  
       

Total

  $ 24,896  
       

(1)
Local Consumer Lending—Other is excluded from the table as there is no goodwill allocated to it.

160


INTANGIBLE ASSETS

        The components of intangible assets were as follows:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Gross
carrying
amount
  Accumulated
amortization
  Net
carrying
amount
  Gross
carrying
amount
  Accumulated
amortization
  Net
carrying
amount
 

Purchased credit card relationships

  $ 7,516   $ 5,819   $ 1,697   $ 7,632   $ 5,726   $ 1,906  

Core deposit intangibles

    1,250     1,012     238     1,315     1,019     296  

Other customer relationships

    698     376     322     767     380     387  

Present value of future profits

    238     141     97     239     135     104  

Indefinite-lived intangible assets

    325         325     487         487  

Other(1)

    4,668     2,366     2,302     4,764     2,247     2,517  
                           

Intangible assets (excluding MSRs)

  $ 14,695   $ 9,714   $ 4,981   $ 15,204   $ 9,507   $ 5,697  

Mortgage servicing rights (MSRs)

    2,524         2,524     1,942         1,942  
                           

Total intangible assets

  $ 17,219   $ 9,714   $ 7,505   $ 17,146   $ 9,507   $ 7,639  
                           

(1)
Includes contract-related intangible assets.

        The changes in intangible assets during the first six months of 2013 were as follows:

In millions of dollars   Net carrying
amount at
December 31,
2012
  Acquisitions/
divestitures
  Amortization   Impairments   FX and
other
  Discontinued
Operations
  Net carrying
amount at
June 30,
2013
 

Purchased credit card relationships

  $ 1,906   $   $ (190 ) $ (4 ) $ (5 ) $ (10 ) $ 1,697  

Core deposit intangibles

    296         (37 )   (21 )           238  

Other customer relationships

    387         (18 )       (47 )       322  

Present value of future profits

    104         (7 )               97  

Indefinite-lived intangible assets

    487                 2     (164 )   325  

Other

    2,517         (155 )       (31 )   (29 )   2,302  
                               

Intangible assets (excluding MSRs)

  $ 5,697   $   $ (407 ) $ (25 ) $ (81 ) $ (203 ) $ 4,981  

Mortgage servicing rights (MSRs)(1)

    1,942                                   2,524  
                               

Total intangible assets

  $ 7,639                                 $ 7,505  
                               

(1)
See Note 19 to the Consolidated Financial Statements for the roll-forward of MSRs.

161


16.   DEBT

Short-Term Borrowings

        Short-term borrowings consist of commercial paper and other borrowings at June 30, 2013 and December 31, 2012 as follows:

In millions of dollars   June 30,
2013
  December 31,
2012
 

Commercial paper

             

Significant Citibank Entities(1)

  $ 18,063   $ 11,092  

Parent(2)

    220     378  
           

  $ 18,283   $ 11,470  

Other borrowings(3)

    40,524     40,557  
           

Total

  $ 58,807   $ 52,027  
           

(1)
Significant Citibank Entities consists of Citibank, N.A. units domiciled in the U.S., Western Europe, Hong Kong and Singapore.

(2)
Parent includes the parent holding company (Citigroup Inc.) and Citi's broker-dealer subsidiaries that are consolidated into Citigroup.

(3)
At June 30, 2013 and December 31, 2012, collateralized short-term advances from the Federal Home Loan Banks were $11 billion and $4 billion, respectively.

        Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate, or bids submitted by the banks. Citigroup pays commitment fees for its lines of credit.

        Some of Citigroup's parent subsidiaries have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities are secured in accordance with Section 23A of the Federal Reserve Act.

        Citigroup Global Markets Holdings Inc. (CGMHI) has borrowing agreements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.

Long-Term Debt

In millions of dollars   June 30,
2013
  December 31,
2012
 

Citigroup parent company

  $ 162,541   $ 176,553  

Bank(1)

    48,315     51,234  

Other non-bank

    10,103     11,676  
           

Total(2)

  $ 220,959   $ 239,463  
           

(1)
Represents the Significant Citibank Entities as well as other Citibank and Banamex entities. At June 30, 2013 and December 31, 2012, collateralized long-term advances from the Federal Home Loan Banks were $14.5 billion and $16.3, respectively.

(2)
Includes senior notes with carrying values of $160 million issued to Safety First Trust Series 2008-1, 2008-2, 2008-3, 2008-4, 2008-5, 2008-6, 2009-1, 2009-2, and 2009-3 at June 30, 2013 and $186 million issued to Safety First Trust Series 2007-4, 2008-1, 2008-2, 2008-3, 2008-4, 2008-5, 2008-6, 2009-1, 2009-2, and 2009-3 at December 31, 2012. Citigroup owns all of the voting securities of the Safety First Trusts. The Safety First Trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Safety First Trust securities and the Safety First Trusts' common securities.

        Long-term debt outstanding includes trust preferred securities with a balance sheet carrying value of $6.6 billion and $10.1 billion at June 30, 2013 and December 31, 2012, respectively. In issuing these trust preferred securities, Citi formed statutory business trusts under the laws of the State of Delaware. The trusts exist for the exclusive purposes of (i) issuing trust preferred securities representing undivided beneficial interests in the assets of the trust; (ii) investing the gross proceeds of the trust preferred securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and (iii) engaging in only those activities necessary or incidental thereto. Generally, upon receipt of certain regulatory approvals, Citigroup has the right to redeem these securities upon the date specified in the respective security. The respective common securities issued by each trust and held by Citigroup are redeemed concurrently with the redemption of the applicable trust preferred securities.

162


        The following table summarizes the Company's outstanding trust preferred securities at June 30, 2013:

 
   
   
   
   
   
  Junior subordinated debentures owned by trust  
Trust securities with
distributions guaranteed by
Citigroup
In millions of dollars, except share amounts
   
   
   
   
  Common
shares
issued
to parent
 
  Issuance
date
  Securities
issued
  Liquidation
value(1)
  Coupon
rate
  Amount   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 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 XIII

    Sept. 2010     89,840,000     2,246   7.875%     1,000     2,246     Oct. 30, 2040     Oct. 30, 2015  

Citigroup Capital XVI(2)

    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

    Jun. 2007     99,901     152   6.829%     50     152     June 28, 2067     June 28, 2017  

Citigroup Capital XXXIII(3)                            

    Jul. 2009     3,025,000     2,225   8.000%     100     2,225     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

              $ 8,266             $ 8,327              
                                             

(1)
Represents the notional value received by investors from the trusts at the time of issuance.

(2)
On June 13, 2013, Citi announced the redemption, in whole, of Citigroup Capital XVI. The redemption closed on July 15, 2013.

(3)
On February 4, 2013, Citigroup completed an exchange of $800 million of the $3.025 billion issued under Citigroup Capital XXXIII that was held by the U.S. Treasury for $894 million in subordinated debt, leaving $2.225 billion of trust preferred securities outstanding under Citigroup Capital XXXIII as of June 30, 2013 held by the Federal Deposit Insurance Corporation.

        In each case, the coupon rate on the subordinated debentures is the same as that on the trust preferred securities. Distributions on the trust preferred securities and interest on the subordinated debentures are payable quarterly, except for Citigroup Capital III and Citigroup Capital XVIII on which distributions are payable semiannually.

163


17.   CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        Changes in each component of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012 are as follows:

Three months ended June 30, 2013:
In millions of dollars
  Net unrealized
gains (losses)
on investment
securities
  Cash flow
hedges
  Pension
liability
adjustments
  Foreign
currency
translation
adjustment,
net of
hedges
  Accumulated
other
comprehensive
income (loss)
 

Balance at March 31, 2013

  $ 766   $ (2,168 ) $ (5,016 ) $ (10,641 ) $ (17,059 )
                       

Other comprehensive income before reclassifications

  $ (1,940 ) $ 346   $ 368   $ (1,707 ) $ (2,933 )

Increase (decrease) due to amounts reclassified from AOCI

    (116 )   151     33         68  
                       

Change, net of taxes(1)(2)(3)

  $ (2,056 ) $ 497     401     (1,707 )   (2,865 )
                       

Balance at June 30, 2013

  $ (1,290 ) $ (1,671 ) $ (4,615 ) $ (12,348 ) $ (19,924 )
                       

 

Six months ended June 30, 2013:
In millions of dollars
   
   
   
   
   
 

Balance at December 31, 2012

  $ 597   $ (2,293 ) $ (5,270 ) $ (9,930 ) $ (16,896 )
                       

Other comprehensive income before reclassifications

  $ (1,578 ) $ 332   $ 575   $ (2,418 ) $ (3,089 )

Increase (decrease) due to amounts reclassified from AOCI

    (309 )   290     80         61  
                       

Change, net of taxes(1)(2)(3)

    (1,887 )   622     655     (2,418 )   (3,028 )
                       

Balance at June 30, 2013

  $ (1,290 ) $ (1,671 ) $ (4,615 ) $ (12,348 ) $ (19,924 )
                       

 

Three months ended June 30, 2012:
In millions of dollars
   
   
   
   
   
 

Balance at March 31, 2012

  $ (809 ) $ (2,600 ) $ (4,372 ) $ (8,954 ) $ (16,735 )

Change, net of taxes(1)(2)(3)(4)(5)

    564     (89 )   107     (1,596 )   (1,014 )
                       

Balance at June 30, 2012

  $ (245 ) $ (2,689 ) $ (4,265 ) $ (10,550 ) $ (17,749 )
                       

 

Six months ended June 30, 2012:
In millions of dollars
   
   
   
   
   
 

Balance at December 31, 2011

  $ (35 ) $ (2,820 ) $ (4,282 ) $ (10,651 ) $ (17,788 )

Change, net of taxes(1)(2)(3)(4)(5)

    (210 )   131     17     101     39  
                       

Balance at June 30, 2012

  $ (245 ) $ (2,689 ) $ (4,265 ) $ (10,550 ) $ (17,749 )
                       

(1)
For the second quarter 2013, primarily reflects the movements in (by order of impact) the Mexican peso, Brazilian real, Australian dollar, and Indian rupee against the U.S. dollar, and changes in related tax effects and hedges. For the first quarter 2013, primarily reflects the movements in (by order of impact) the Mexican peso, Japanese yen, British pound, and Korean won against the U.S. dollar, and changes in related tax effects and hedges. For the second quarter of 2012, primarily reflected the movements in (by order of impact) the Mexican peso, Brazilian real, Indian rupee, Russian ruble and Polish zloty against the U.S. dollar, and changes in related tax effects and hedges. For the first quarter of 2012, primarily reflected the movements in (by order of impact) the Mexican peso, Turkish lira, Japanese yen, Euro and Polish zloty against the U.S. dollar, and changes in related tax effects and hedges.

(2)
For cash flow hedges, primarily driven by Citigroup's pay fixed/receive floating interest rate swap programs that are hedging the floating rates on liabilities.

(3)
For the pension liability adjustment, primarily reflects adjustments based on the periodic actuarial valuations of the Company's pension and postretirement plans and amortization of amounts previously recognized in other comprehensive income.

(4)
For net unrealized gains (losses) on investment securities, includes the after-tax impact of realized gains from the sales of minority investments: $672 million from the Company's remaining interest in Housing Development Finance Corporation Ltd. (HDFC); and $421 million from the Company's entire interest in Shanghai Pudong Development Bank (SPDB).

(5)
The after-tax impact due to impairment charges and the loss related to Akbank, included within the foreign currency translation adjustment, was $667 million during the six months ended June 30, 2012. See Note 12 to the Consolidated Financial Statements.

164


        The pretax and after-tax changes in each component of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012 are as follows:

Three months ended June 30, 2013:
In millions of dollars
  Pretax   Tax effect   After-tax  

Balance, March 31, 2013

  $ (25,201 ) $ 8,142   $ (17,059 )

Change in net unrealized gains (losses) on investment securities

    (3,256 )   1,200     (2,056 )

Cash flow hedges

    804     (307 )   497  

Pension liability adjustment

    649     (248 )   401  

Foreign currency translation adjustment

    (1,842 )   135     (1,707 )
               

Change

  $ (3,645 ) $ 780   $ (2,865 )
               

Balance, June 30, 2013

  $ (28,846 ) $ 8,922   $ (19,924 )
               

 

Six months ended June 30, 2013:
In millions of dollars
   
   
   
 

Balance, December 31, 2012

  $ (25,334 ) $ 8,438   $ (16,896 )

Change in net unrealized gains (losses) on investment securities

    (2,976 )   1,089     (1,887 )

Cash flow hedges

    1,005     (383 )   622  

Pension liability adjustment

    997     (342 )   655  

Foreign currency translation adjustment

    (2,538 )   120     (2,418 )
               

Change

  $ (3,512 ) $ 484   $ (3,028 )
               

Balance, June 30, 2013

  $ (28,846 ) $ 8,922   $ (19,924 )
               

 

Three months ended June 30, 2012:
In millions of dollars
   
   
   
 

Balance, March 31, 2012

  $ (25,045 ) $ 8,310   $ (16,735 )

Change in net unrealized gains (losses) on investment securities

    945     (381 )   564  

Cash flow hedges

    (140 )   51     (89 )

Pension liability adjustment

    127     (20 )   107  

Foreign currency translation adjustment

    (1,779 )   183     (1,596 )
               

Change

  $ (847 ) $ (167 ) $ (1,014 )
               

Balance, June 30, 2012

  $ (25,892 ) $ 8,143   $ (17,749 )
               

 

Six months ended June 30, 2012:
In millions of dollars
   
   
   
 

Balance, December 31, 2011

  $ (25,807 ) $ 8,019   $ (17,788 )

Change in net unrealized gains (losses) on investment securities

    (259 )   49     (210 )

Cash flow hedges

    219     (88 )   131  

Pension liability adjustment

    157     (140 )   17  

Foreign currency translation adjustment

    (202 )   303     101  
               

Change

  $ (85 ) $ 124   $ 39  
               

Balance, June 30, 2012

  $ (25,892 ) $ 8,143   $ (17,749 )
               

165


        During the three and six months ended June 30, 2013, the Company recognized a pretax loss of $122 million ($68 million net of tax) and $130 million ($61 million net of tax), respectively, related to amounts reclassified out of Accumulated other comprehensive income (loss) into the Consolidated Statement of income.

 
  Increase (Decrease) in AOCI due to amounts
reclassified to Consolidated Statement of Income
 
In millions of dollars   Three months ended
June 30, 2013
  Six months ended
June 30, 2013
 

Realized gains on sales of investments

  $ (251 ) $ (701 )

OTTI gross impairment losses

    75     231  
           

Subtotal

  $ (176 ) $ (470 )

Tax effect

    60     161  
           

Net realized gains (losses) on investment securities(1)

  $ (116 ) $ (309 )
           

Interest rate contracts

  $ 202   $ 385  

Foreign exchange contracts

    43     86  
           

Subtotal

  $ 245   $ 471  

Tax effect

    (94 )   (181 )
           

Amortization of cash flow hedges(2)

  $ 151   $ 290  
           

Amortization of prior service costs

  $ 2   $ 5  

Amortization of prior of actuarial gains (losses)

    71     144  

Cumulative adjustment due to accounting policy change(3)(4)

    (20 )   (20 )
           

Subtotal

  $ 53   $ 129  

Tax effect

    (20 )   (49 )
           

Amortization of pension liability adjustment(3)

  $ 33   $ 80  
           

Foreign currency translation adjustment

  $   $  
           

Total amounts reclassified out of AOCI—pretax

  $ 122   $ 130  

Total tax effect

    (54 )   (69 )
           

Total amounts reclassified out of AOCI—after-tax

  $ 68   $ 61  
           

(1)
The pretax amount is reclassified to Realized gains (losses) on sales of investments, net and Gross impairment losses on the Consolidated Statement of Income.

(2)
See Note 20 to the Consolidated Financial Statements for additional details.

(3)
See Note 8 to the Consolidated Financial Statements for additional details.

(4)
See Note 1 to the Consolidated Financial Statements for additional details.

166


18.   PREFERRED STOCK

        The following table summarizes the Company's preferred stock outstanding at June 30, 2013 and December 31, 2012:

 
   
   
   
  Carrying value
in millions of dollars
 
 
  Dividend
rate
  Redemption
price per depositary
share / preference share
  Number of
depositary
shares
  June 30,
2013
  December 31,
2012
 

Series AA(1)

    8.125 % $ 25     3,870,330   $ 97   $ 97  

Series A(2)

    5.950 %   1,000     1,500,000     1,500     1,500  

Series B(3)

    5.900 %   1,000     750,000     750     750  

Series C(4)

    5.800 %   25     23,000,000     575      

Series D(5)

    5.350 %   1,000     1,250,000     1,250      

Series E(6)

    8.400 %   1,000     121,254     121     121  

Series F(7)

    8.500 %   25     2,863,369         71  

Series T(8)

    6.500 %   50     453,981         23  
                             

                    $ 4,293   $ 2,562  
                             

(1)
Issued on January 25, 2008 as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative preferred stock. Redeemable in whole or in part on or after February 15, 2018. The dividend of $0.51 per depositary share is payable quarterly when, as and if declared by the Company's Board of Directors. Redemption is subject to a capital replacement covenant.

(2)
Issued on October 29, 2012 as depositary shares, each representing a 1/25th interest in a share of perpetual 5.950% fixed rate/floating rate non-cumulative preferred stock. Redeemable in whole or in part on or after January 30, 2023. The first dividend date was July 30, 2013. The dividend is paid semi-annually, when, as and if declared by Citi's Board of Directors, on January 30 and July 30. Redemption is subject to a capital replacement covenant.

(3)
Issued on December 13, 2012 as depositary shares, each representing a 1/25th interest in a share of perpetual 5.90% fixed rate/floating rate non-cumulative preferred stock. Redeemable in whole or in part on or after February 15, 2023. The first dividend date, if declared by Citigroup's Board of Directors, is August 15, 2013. The dividend is paid semi-annually when, as and if declared by Citi's Board of Directors, on February 15 and August 15. Redemption is subject to a capital replacement covenant.

(4)
Issued on March 26, 2013 as depositary shares, each representing a 1/1,000th interest in a share of perpetual 5.80% non-cumulative preferred stock. Redeemable (i) in whole or in part, from time to time, on any dividend payment date on or after April 22, 2018, or (ii) in whole but not in part at any time within 90 days following a regulatory capital event. The first dividend date was July 22, 2013. The dividend is paid quarterly in arrears, when, as and if declared by Citi's Board of Directors, on each January 22, April 22, July 22 and October 22.

(5)
Issued on April 30, 2013 as depositary shares, each representing a 1/25th interest in a share of perpetual 5.35% fixed rate/floating rate non-cumulative preferred stock. Redeemable (i) in whole or in part, from time to time, on any dividend payment date on or after May 15, 2023, or (ii) in whole but not in part at any time within 90 days following a regulatory capital event. The first dividend date, if declared by Citigroup's Board of Directors, is November 15, 2013. The dividend is paid semi-annually, when, as and if declared by Citi's Board of Directors, on May 15 and November 15.

(6)
Issued on April 28, 2008 as depositary shares, each representing a 1/25th interest in a share of the corresponding series of fixed rate/floating rate non-cumulative preferred stock. Redeemable in whole or in part on or after April 30, 2018. Dividends are payable semi-annually for the first 10 years until April 30, 2018 at $42.70 per depositary share and thereafter quarterly at a floating rate when, as and if declared by the Company's Board of Directors.

(7)
The Series F preferred stock was redeemed in full on June 15, 2013.

(8)
The Series T preferred stock was redeemed in full on June 17, 2013.

        Year-to-date, Citi has distributed approximately $13 million in dividends on its outstanding preferred stock. Based on its preferred stock outstanding as of June 30, 2013, Citi estimates it will distribute preferred dividends of approximately $110 million in the third quarter of 2013, and approximately $52 million in the fourth quarter of 2013, in each case assuming such dividends are approved by Citigroup's Board of Directors.

167


19.   SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

Uses of SPEs

        A special purpose entity (SPE) is an entity designed to fulfill a specific limited need of the company that organized it. The principal uses of SPEs are to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup's financial assets, to assist clients in securitizing their financial assets and to create investment products for clients. SPEs may be organized in various legal forms including trusts, partnerships or corporations. In a securitization, the company transferring assets to an SPE converts all (or a portion) of those assets into cash before they would have been realized in the normal course of business through the SPE's issuance of debt and equity instruments, certificates, commercial paper and other notes of indebtedness. These issuances are recorded on the balance sheet of the SPE, which may or may not be consolidated onto the balance sheet of the company that organized the SPE.

        Investors usually only have recourse to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or over-collateralization in the form of excess assets in the SPE, a line of credit, or a liquidity facility, such as a liquidity put option or asset purchase agreement. Because of these enhancements, the SPE issuances can typically obtain a more favorable credit rating from rating agencies than the transferor could obtain for its own debt issuances. This results in less expensive financing costs than unsecured debt. The SPE may also enter into derivative contracts in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors or to limit or change the credit risk of the SPE. Citigroup may be the provider of certain credit enhancements as well as the counterparty to any related derivative contracts.

        Most of Citigroup's SPEs are variable interest entities (VIEs), as described below.

Variable Interest Entities

        VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights, and right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests or other counterparties providing other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity.

        The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Citigroup would be deemed to have a controlling financial interest and be the primary beneficiary if it has both of the following characteristics:

        The Company must evaluate its involvement in each VIE and understand the purpose and design of the entity, the role the Company had in the entity's design and its involvement in the VIE's ongoing activities. The Company then must evaluate which activities most significantly impact the economic performance of the VIE and who has the power to direct such activities.

        For those VIEs where the Company determines that it has the power to direct the activities that most significantly impact the VIE's economic performance, the Company then must evaluate its economic interests, if any, and determine whether it could absorb losses or receive benefits that could potentially be significant to the VIE. When evaluating whether the Company has an obligation to absorb losses that could potentially be significant, it considers the maximum exposure to such loss without consideration of probability. Such obligations could be in various forms, including, but not limited to, debt and equity investments, guarantees, liquidity agreements, and certain derivative contracts.

        In various other transactions, the Company may: (i) 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); (ii) act as underwriter or placement agent; (iii) provide administrative, trustee or other services; or (iv) make a market in debt securities or other instruments issued by VIEs. The Company generally considers such involvement, by itself, not to be variable interests and thus not an indicator of power or potentially significant benefits or losses.

168


        Citigroup's involvement with consolidated and unconsolidated VIEs with which the Company holds significant variable interests or has continuing involvement through servicing a majority of the assets in a VIE, each as of June 30, 2013 and December 31, 2012, is presented below:

As of June 30, 2013  
 
   
   
   
  Maximum exposure to loss in significant unconsolidated VIEs(1)  
 
   
   
   
  Funded exposures(2)   Unfunded exposures(3)    
 
 
  Total
involvement
with SPE
assets
   
   
   
 
In millions of dollars   Consolidated
VIE / SPE
assets
  Significant
unconsolidated
VIE assets(4)
  Debt
Investments
  Equity
investments
  Funding
commitments
  Guarantees
and
derivatives
  Total  

Citicorp

                                                 

Credit card securitizations(5)

  $ 44,893   $ 44,893   $   $   $   $   $   $  

Mortgage securitizations(6)

                                                 

U.S. agency-sponsored

    233,282         233,282     3,490             41     3,531  

Non-agency-sponsored

    7,828     914     6,914     517                 517  

Citi-administered asset-backed commercial paper conduits (ABCP)

    28,705     28,705                          

Collateralized debt obligations (CDOs)

    4,502         4,502     50                 50  

Collateralized loan obligations (CLOs)

    11,426         11,426     1,298                 1,298  

Asset-based financing

    38,584     1,012     37,572     14,985     73     2,941     157     18,156  

Municipal securities tender option bond trusts (TOBs)

    13,798     7,205     6,593     84         4,398         4,482  

Municipal investments

    18,085     229     17,856     1,939     2,797     1,522         6,258  

Client intermediation

    2,047     65     1,982     243                 243  

Investment funds

    5,819     4,004     1,815         49             49  

Trust preferred securities

    8,420         8,420         63             63  

Other

    2,162     293     1,869     119     528     48     71     766  
                                   

Total

  $ 419,551   $ 87,320   $ 332,231   $ 22,725   $ 3,510   $ 8,909   $ 269   $ 35,413  
                                   

Citi Holdings

                                                 

Credit card securitizations

  $ 1,809   $ 1,485   $ 324   $   $   $   $   $  

Mortgage securitizations

                                                 

U.S. agency-sponsored

    85,833         85,833     699             142     841  

Non-agency-sponsored

    15,251     1,893     13,358     48             2     50  

Student loan securitizations

    1,602     1,602                          

Collateralized debt obligations (CDOs)

    4,191         4,191     138             105     243  

Collateralized loan obligations (CLOs)

    3,215         3,215     388         8     110     506  

Asset-based financing

    3,442     3     3,439     621     3     240         864  

Municipal investments

    7,492         7,492     19     226     952         1,197  

Client intermediation

    10     10                          

Investment funds

    1,362         1,362         61             61  

Other

    5,079     4,957     122                      
                                   

Total

  $ 129,286   $ 9,950   $ 119,336   $ 1,913   $ 290   $ 1,200   $ 359   $ 3,762  
                                   

Total Citigroup

  $ 548,837   $ 97,270   $ 451,567   $ 24,638   $ 3,800   $ 10,109   $ 628   $ 39,175  
                                   

(1)
The definition of maximum exposure to loss is included in the text that follows this table.

(2)
Included in Citigroup's June 30, 2013 Consolidated Balance Sheet.

(3)
Not included in Citigroup's June 30, 2013 Consolidated Balance Sheet.

(4)
A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant, regardless of the likelihood of loss or the notional amount of exposure.

(5)
During the first quarter of 2013, the Company elected to remove approximately $27 billion of randomly selected credit card receivables from the Master Trust ($12 billion) and Omni Trust ($15 billion) that represented a portion of the excess seller's interest in each trust (for a discussion of Citi's credit card securitizations, see "Credit Card Securitizations" below). These credit card receivables continue to be included in Consumer loans on the Consolidated Balance Sheet as of June 30, 2013.

(6)
Citicorp mortgage securitizations also include agency and non-agency (private-label) re-securitization activities. These SPEs are not consolidated. See "Re-Securitizations" below for further discussion.

169


As of December 31, 2012  
 
   
   
   
  Maximum exposure to loss in significant unconsolidated VIEs(1)  
 
   
   
   
  Funded exposures(2)   Unfunded exposures(3)    
 
 
  Total
involvement
with SPE
assets
   
   
   
 
In millions of dollars   Consolidated
VIE / SPE
assets
  Significant
unconsolidated
VIE assets(4)
  Debt
Investments
  Equity
investments
  Funding
commitments
  Guarantees
and
derivatives
  Total  

Citicorp

                                                 

Credit card securitizations

  $ 77,770   $ 77,770   $   $   $   $   $   $  

Mortgage securitizations(5)

                                                 

U.S. agency-sponsored

    232,741         232,741     3,042             45     3,087  

Non-agency-sponsored

    8,810     1,188     7,622     382                 382  

Citi-administered asset-backed commercial paper conduits (ABCP)

    30,002     22,387     7,615             7,615         7,615  

Collateralized debt obligations (CDOs)

    5,539         5,539     24                 24  

Collateralized loan obligations (CLOs)

    15,120         15,120     642     19             661  

Asset-based financing

    41,399     1,125     40,274     14,798     84     2,081     159     17,122  

Municipal securities tender option bond trusts (TOBs)

    15,163     7,573     7,590     352         4,628         4,980  

Municipal investments

    19,693     255     19,438     2,003     3,049     1,669         6,721  

Client intermediation

    2,486     151     2,335     319                 319  

Investment funds

    4,286     2,196     2,090         14             14  

Trust preferred securities

    12,221         12,221         126             126  

Other

    2,023     115     1,908     113     382     22     76     593  
                                   

Total

  $ 467,253   $ 112,760   $ 354,493   $ 21,675   $ 3,674   $ 16,015   $ 280   $ 41,644  
                                   

Citi Holdings

                                                 

Credit card securitizations

  $ 2,177   $ 1,736   $ 441   $   $   $   $   $  

Mortgage securitizations

                                                 

U.S. agency-sponsored

    106,888         106,888     700             163     863  

Non-agency-sponsored

    17,192     2,127     15,065     43             2     45  

Student loan securitizations

    1,681     1,681                          

Collateralized debt obligations (CDOs)

    4,752         4,752     139             124     263  

Collateralized loan obligations (CLOs)

    4,676         4,676     435         13     108     556  

Asset-based financing

    4,166     3     4,163     984     6     243         1,233  

Municipal investments

    7,766         7,766     90     235     992         1,317  

Client intermediation

    13     13                          

Investment funds

    1,083         1,083         47             47  

Other

    6,005     5,851     154         3             3  
                                   

Total

  $ 156,399   $ 11,411   $ 144,988   $ 2,391   $ 291   $ 1,248   $ 397   $ 4,327  
                                   

Total Citigroup

  $ 623,652   $ 124,171   $ 499,481   $ 24,066   $ 3,965   $ 17,263   $ 677   $ 45,971  
                                   

(1)
The definition of maximum exposure to loss is included in the text that follows this table.

(2)
Included in Citigroup's December 31, 2012 Consolidated Balance Sheet.

(3)
Not included in Citigroup's December 31, 2012 Consolidated Balance Sheet.

(4)
A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant, regardless of the likelihood of loss or the notional amount of exposure.

(5)
Citicorp mortgage securitizations also include agency and non-agency (private-label) re-securitization activities. These SPEs are not consolidated. See "Re-Securitizations" below for further discussion.

170


        The previous tables do not include:

        The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e.g., security or loan) and the Company's standard accounting policies for the asset type and line of business.

        The asset balances for unconsolidated VIEs where the Company has significant involvement represent the most current information available to the Company. In most cases, the asset balances represent an amortized cost basis without regard to impairments in fair value, unless fair value information is readily available to the Company. For VIEs that obtain asset exposures synthetically through derivative instruments (for example, synthetic CDOs), the tables generally include the full original notional amount of the derivative as an asset balance.

        The maximum funded exposure represents the balance sheet carrying amount of the Company's investment in the VIE. It reflects the initial amount of cash invested in the VIE adjusted for any accrued interest and cash principal payments received. The carrying amount may also be adjusted for increases or declines in fair value or any impairment in value recognized in earnings. The maximum exposure of unfunded positions represents the remaining undrawn committed amount, including liquidity and credit facilities provided by the Company, or the notional amount of a derivative instrument considered to be a variable interest. In certain transactions, the Company has entered into derivative instruments or other arrangements that are not considered variable interests in the VIE (e.g., interest rate swaps, cross-currency swaps, or where the Company is the purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE). Receivables under such arrangements are not included in the maximum exposure amounts.

171


Funding Commitments for Significant Unconsolidated VIEs—Liquidity Facilities and Loan Commitments

        The following tables present the notional amount of liquidity facilities and loan commitments that are classified as funding commitments in the VIE tables above as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Liquidity
facilities
  Loan
commitments
  Liquidity
facilities
  Loan
commitments
 

Citicorp

                         

Citi-administered asset-backed commercial paper conduits (ABCP)

  $   $   $ 7,615   $  

Asset-based financing

    5     2,936     6     2,075  

Municipal securities tender option bond trusts (TOBs)

    4,398         4,628      

Municipal investments

        1,522         1,669  

Other

        48         22  
                   

Total Citicorp

  $ 4,403   $ 4,506   $ 12,249   $ 3,766  
                   

Citi Holdings

                         

Collateralized loan obligations (CLOs)

  $ 8   $   $ 13   $  

Asset-based financing

        240         243  

Municipal investments

        952         992  
                   

Total Citi Holdings

  $ 8   $ 1,192   $ 13   $ 1,235  
                   

Total Citigroup funding commitments

  $ 4,411   $ 5,698   $ 12,262   $ 5,001  
                   

Citicorp and Citi Holdings Consolidated VIEs

        The Company engages in on-balance-sheet securitizations which are securitizations that do not qualify for sales treatment; thus, the assets remain on the Company's balance sheet. The consolidated VIEs included in the tables below represent hundreds of separate entities with which the Company is involved. In general, the third-party investors in the obligations of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have such recourse to the Company, except where the Company has provided a guarantee to the investors or is the counterparty to certain derivative transactions involving the VIE. In addition, the assets are generally restricted only to pay such liabilities.

        Thus, the Company's maximum legal exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing. Intercompany assets and liabilities are excluded from the table. All assets are restricted from being sold or pledged as collateral. The cash flows from these assets are the only source used to pay down the associated liabilities, which are non-recourse to the Company's general assets.

        The following table presents the carrying amounts and classifications of consolidated assets that are collateral for consolidated VIE and SPE obligations as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In billions of dollars  
  Citicorp   Citi Holdings   Citigroup   Citicorp   Citi Holdings   Citigroup  

Cash

  $ 0.2   $ 0.2   $ 0.4   $ 0.3   $ 0.2   $ 0.5  

Trading account assets

    1.4         1.4     0.5         0.5  

Investments

    10.5         10.5     10.7         10.7  

Total loans, net

    74.0     9.5     83.5     100.8     11.0     111.8  

Other

    1.2     0.2     1.4     0.5     0.2     0.7  
                           

Total assets

  $ 87.3   $ 9.9   $ 97.2   $ 112.8   $ 11.4   $ 124.2  
                           

Short-term borrowings

  $ 24.8   $   $ 24.8   $ 17.9   $   $ 17.9  

Long-term debt

    24.5     2.3     26.8     23.8     2.6     26.4  

Other liabilities

    1.2     0.1     1.3     1.1     0.1     1.2  
                           

Total liabilities

  $ 50.5   $ 2.4   $ 52.9   $ 42.8   $ 2.7   $ 45.5  
                           

172


Citicorp and Citi Holdings Significant Interests in Unconsolidated VIEs—Balance Sheet Classification

        The following table presents the carrying amounts and classification of significant variable interests in unconsolidated VIEs as of June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In billions of dollars  
  Citicorp   Citi Holdings   Citigroup   Citicorp   Citi Holdings   Citigroup  

Trading account assets

  $ 4.2   $ 0.5   $ 4.7   $ 4.0   $ 0.5   $ 4.5  

Investments

    4.5     0.5     5.0     5.4     0.7     6.1  

Total loans, net

    15.7     0.7     16.4     14.6     0.9     15.5  

Other

    1.8     0.6     2.4     1.4     0.5     1.9  
                           

Total assets

  $ 26.2   $ 2.3   $ 28.5   $ 25.4   $ 2.6   $ 28.0  
                           

Credit Card Securitizations

        The Company securitizes credit card receivables through trusts that are established to purchase the receivables. Citigroup transfers receivables into the trusts on a non-recourse basis. Credit card securitizations are revolving securitizations; as customers pay their credit card balances, the cash proceeds are used to purchase new receivables and replenish the receivables in the trust.

        Substantially all of the Company's credit card securitization activity is through two trusts—Citibank Credit Card Master Trust (Master Trust) and the Citibank Omni Master Trust (Omni Trust). These trusts are treated as consolidated entities because, as servicer, Citigroup has the power to direct the activities that most significantly impact the economic performance of the trusts, holds a seller's interest and certain securities issued by the trusts, and provides liquidity facilities to the trusts, which could result in potentially significant losses or benefits from the trusts. Accordingly, the transferred credit card receivables remain on Citi's Consolidated Balance Sheet with no gain or loss recognized. The debt issued by the trusts to third parties is included in Citi's Consolidated Balance Sheet.

        The Company relies on securitizations to fund a significant portion of its credit card businesses in North America. The following table reflects amounts related to the Company's securitized credit card receivables as of June 30, 2013 and December 31, 2012:

 
  Citicorp   Citi Holdings  
In billions of dollars   June 30,
2013
  December 31,
2012
  June 30,
2013
  December 31,
2012
 

Ownership interests in principal amount of trust credit card receivables

                         

Sold to investors via trust-issued securities

  $ 23.8   $ 22.9   $ 0.1   $ 0.1  

Retained by Citigroup as trust-issued securities

    6.1     11.9     1.3     1.4  

Retained by Citigroup via non-certificated interests(1)

    15.6     44.6     0.1     0.2  
                   

Total ownership interests in principal amount of trust credit card receivables

  $ 45.5   $ 79.4   $ 1.5   $ 1.7  
                   

(1)
During the first quarter of 2013, Citi elected to remove approximately $27 billion of randomly selected credit card receivables from the Master Trust ($12 billion) and Omni Trust ($15 billion) that represented a portion of the excess seller's interest in each trust. These credit card receivables continue to be included in Consumer loans on the Consolidated Balance Sheet as of June 20, 2013.

Credit Card Securitizations—Citicorp

        The following tables summarize selected cash flow information related to Citicorp's credit card securitizations for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended
June 30,
 
In billions of dollars   2013   2012  

Proceeds from new securitizations

  $ 3.6   $  

Pay down of maturing notes

    (1.2 )   (6.4 )
           

 

 
  Six months ended June 30,  
In billions of dollars   2013   2012  

Proceeds from new securitizations

  $ 4.5   $  

Pay down of maturing notes

    (10.1 )   (11.4 )
           

Credit Card Securitizations—Citi Holdings

        The following tables summarize selected cash flow information related to Citi Holding's credit card securitizations for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended
June 30,
 
In billions of dollars   2013   2012  

Proceeds from new securitizations

  $   $  

Pay down of maturing notes

        (0.1 )
           

 

 
  Six months ended
June 30,
 
In billions of dollars   2013   2012  

Proceeds from new securitizations

  $   $  

Pay down of maturing notes

    (0.1 )   (0.1 )
           

173


Managed Loans

        After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. As a result, the Company considers the securitized credit card receivables to be part of the business it manages. As Citigroup consolidates the credit card trusts, all managed securitized card receivables are on-balance sheet.

Funding, Liquidity Facilities and Subordinated Interests

        As noted above, Citigroup securitizes credit card receivables through two securitization trusts—Master Trust, which is part of Citicorp, and Omni Trust, which is also substantially part of Citicorp. The liabilities of the trusts are included in the Consolidated Balance Sheet, excluding those retained by Citigroup.

        Master Trust issues fixed- and floating-rate term notes. Some of the term notes are issued to multi-seller commercial paper conduits. The weighted average maturity of the term notes issued by the Master Trust was 3.6 years as of June 30, 2013 and 3.8 years as of December 31, 2012.

Master Trust Liabilities (at par value)

In billions of dollars   June 30,
2013
  December 31,
2012
 

Term notes issued to third parties

  $ 19.5   $ 18.6  

Term notes retained by Citigroup affiliates

    4.3     4.8  
           

Total Master Trust liabilities

  $ 23.8   $ 23.4  
           

        The Omni Trust issues fixed- and floating-rate term notes, some of which are purchased by multi-seller commercial paper conduits. The weighted average maturity of the third-party term notes issued by the Omni Trust was 1.2 years as of June 30, 2013 and 1.7 years as of December 31, 2012.

Omni Trust Liabilities (at par value)

In billions of dollars   June 30,
2013
  December 31,
2012
 

Term notes issued to third parties

  $ 4.4   $ 4.4  

Term notes retained by Citigroup affiliates

    1.9     7.1  
           

Total Omni Trust liabilities

  $ 6.3   $ 11.5  
           

Mortgage Securitizations

        The Company provides a wide range of mortgage loan products to a diverse customer base. Once originated, the Company often securitizes these loans through the use of SPEs. These SPEs are funded through the issuance of trust certificates backed solely by the transferred assets. These certificates have the same life as the transferred assets. In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers. These mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. However, the Company's Consumer business generally retains the servicing rights and in certain instances retains investment securities, interest-only strips and residual interests in future cash flows from the trusts and also provides servicing for a limited number of Securities and Banking securitizations. Securities and Banking and Special Asset Pool do not retain servicing for their mortgage securitizations.

        The Company securitizes mortgage loans generally through either a government-sponsored agency, such as Ginnie Mae, Fannie Mae or Freddie Mac (U.S. agency-sponsored mortgages), or private-label (non-agency-sponsored mortgages) securitization. The Company is not the primary beneficiary of its U.S. agency-sponsored mortgage securitizations because Citigroup does not have the power to direct the activities of the SPE that most significantly impact the entity's economic performance. Therefore, Citi does not consolidate these U.S. agency-sponsored mortgage securitizations.

        The Company does not consolidate certain non-agency-sponsored mortgage securitizations because Citi is either not the servicer with the power to direct the significant activities of the entity or Citi is the servicer but the servicing relationship is deemed to be a fiduciary relationship and, therefore, Citi is not deemed to be the primary beneficiary of the entity.

        In certain instances, the Company has (i) the power to direct the activities and (ii) the obligation to either absorb losses or the right to receive benefits that could be potentially significant to its non-agency-sponsored mortgage securitizations and, therefore, is the primary beneficiary and thus consolidates the SPE.

174


Mortgage Securitizations—Citicorp

        The following tables summarize selected cash flow information related to Citicorp mortgage securitizations for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended June 30,  
 
  2013   2012  
In billions of dollars   U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
  U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
 

Proceeds from new securitizations

  $ 20.4   $ 2.6   $ 10.3   $ 0.2  

Contractual servicing fees received

    0.1         0.1      
                   

 

 
  Six months ended June 30,  
 
  2013   2012  
In billions of dollars   U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
  U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
 

Proceeds from new securitizations

  $ 38.8   $ 3.0   $ 26.9   $ 0.5  

Contractual servicing fees received

    0.2         0.2      
                   

        Gains (losses) recognized on the securitization of U.S. agency-sponsored mortgages were $142.9 million and $144.1 million for the three and six months ended June 30, 2013, respectively. For the three and six months ended June 30, 2013, gains (losses) recognized on the securitization of non-agency sponsored mortgages were $23.7 million and $31.6 million, respectively.

        Gains (losses) recognized on the securitization of U.S. agency-sponsored mortgages were $3.0 million and $5.9 million for the three and six months ended June 30, 2012, respectively. For the three and six months ended June 30, 2012, gains (losses) recognized on the securitization of non-agency sponsored mortgages were $(1.0) million and $(1.5) million, respectively.

        Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables for the three and six months ended June 30, 2013 and 2012 were as follows:

 
  Three months ended June 30, 2013
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  1.1% to 10.4%   2.3% to 4.3%   5.5% to 12.0%

Weighted average discount rate

  9.1%   3.3%   8.2%

Constant prepayment rate

  4.3% to 19.0%   5.5% to 10.0%   5.5% to 10.0%

Weighted average constant prepayment rate

  5.8%   7.9%   8.6%

Anticipated net credit losses(2)

  NM   47.2% to 53.0%   47.2% to 53.0%

Weighted average anticipated net credit losses

  NM   49.8%   48.9%

Weighted average life

  0.1 to 11.8 years   2.9 to 9.7 years   2.5 to 10.7 years
             

 

 
  Three months June 30, 2012
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  1.5% to 14.4%   13.4%   10.7% to 15.8%

Weighted average discount rate

  11.5%   13.4%   13.9%

Constant prepayment rate

  8.1% to 21.4%   8.1%   4.8% to 5.1%

Weighted average constant prepayment rate

  9.1%   8.1%   4.9%

Anticipated net credit losses(2)

  NM   50.5%   57.7% to 59.8%

Weighted average anticipated net credit losses

  NM   50.5%   58.5%

Weighted average life

  1.8 to 11.8 years   9.0 years   9.0 to 9.8 years
             

175


 
  Six months ended June 30, 2013
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  1.1% to 12.4%   2.3% to 4.3%   5.5% to 19.2%

Weighted average discount rate

  10.0%   3.3%   8.2%

Constant prepayment rate

  4.0% to 21.4%   5.5% to 10.0%   1.3% to 10.0%

Weighted average constant prepayment rate

  5.8%   7.9%   7.0%

Anticipated net credit losses(2)

  NM   47.2% to 53.0%   44.7% to 89.0%

Weighted average anticipated net credit losses

  NM   49.8%   57.9%

Weighted average life

  0.1 to 11.8 years   2.9 to 9.7 years   2.5 to 16.5 years
             

 

 
  Six months ended June 30, 2012
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  1.5% to 14.4%   13.4%   10.7% to 19.3%

Weighted average discount rate

  11.2%   13.4%   17.1%

Constant prepayment rate

  7.3% to 21.4%   8.1%   2.2% to 5.4%

Weighted average constant prepayment rate

  10.0%   8.1%   3.8%

Anticipated net credit losses(2)

  NM   50.5%   55.2% to 62.9%

Weighted average anticipated net credit losses

  NM   50.5%   59.0%

Weighted average life

  1.8 to 11.8 years   9.0 years   5.9 to 9.8 years
             

(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests' position in the capital structure of the securitization.

(2)
Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above. Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests in mortgage securitizations.


NM
Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

176


        The interests retained by the Company range from highly rated and/or senior in the capital structure to unrated and/or residual interests.

        At June 30, 2013 and December 31, 2012, 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, are set forth in the tables below. The negative effect of each change is calculated independently, holding all other assumptions constant. Because the key assumptions may not 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.

 
  June 30, 2013
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  0.0% to 14.2%   0.4% to 21.5%   2.8% to 36.6%

Weighted average discount rate

  6.3%   7.2%   13.1%

Constant prepayment rate

  5.6% to 24.0%   1.4% to 100.0%   0.6% to 27.6%

Weighted average constant prepayment rate

  14.2%   7.2%   7.0%

Anticipated net credit losses(2)

  NM   0.1% to 80.5%   23.1% to 90.0%

Weighted average anticipated net credit losses

  NM   56.0%   51.0%

Weighted average life

  3.5 to 27.4 years   0.6 to 12.3 years   0.1 to 23.6 years
             

 

 
  December 31, 2012
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  0.6% to 17.2%   1.2% to 24.0%   1.1% to 29.2%

Weighted average discount rate

  6.1%   9.0%   13.8%

Constant prepayment rate

  9.0% to 57.8%   1.9% to 24.9%   0.5% to 29.4%

Weighted average constant prepayment rate

  27.7%   12.3%   10.0%

Anticipated net credit losses(2)

  NM   0.1% to 80.2%   33.4% to 90.0%

Weighted average anticipated net credit losses

  NM   47.0%   54.1%

Weighted average life

  0.3 to 18.3 years   0.4 to 11.2 years   0.0 to 25.7 years
             

(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests' position in the capital structure of the securitization.

(2)
Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above. Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests in mortgage securitizations.

NM
Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

 
   
  Non-agency-sponsored mortgages(1)  
In millions of dollars at June 30, 2013   U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests
 

Carrying value of retained interests

  $ 2,424   $ 138   $ 417  
               

Discount rates

                   

Adverse change of 10%

  $ (67 ) $ (3 ) $ (27 )

Adverse change of 20%

    (131 )   (6 )   (52 )

Constant prepayment rate

                   

Adverse change of 10%

    (97 )   (1 )   (8 )

Adverse change of 20%

    (186 )   (2 )   (16 )

Anticipated net credit losses

                   

Adverse change of 10%

    NM     (1 )   (9 )

Adverse change of 20%

    NM     (3 )   (19 )
               

177


 
   
  Non-agency-sponsored mortgages(1)  
In millions of dollars at December 31, 2012   U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests
 

Carrying value of retained interests

  $ 1,987   $ 88   $ 466  
               

Discount rates

                   

Adverse change of 10%

  $ (46 ) $ (2 ) $ (31 )

Adverse change of 20%

    (90 )   (4 )   (59 )

Constant prepayment rate

                   

Adverse change of 10%

    (110 )   (1 )   (11 )

Adverse change of 20%

    (211 )   (3 )   (22 )

Anticipated net credit losses

                   

Adverse change of 10%

    NM     (1 )   (13 )

Adverse change of 20%

    NM     (3 )   (24 )
               

(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests' position in the capital structure of the securitization.

NM
Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

Mortgage Securitizations—Citi Holdings

        The following tables summarize selected cash flow information related to Citi Holdings mortgage securitizations for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended June 30,  
 
  2013   2012  
In billions of dollars   U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
  U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
 

Proceeds from new securitizations

  $   $   $ 0.1   $  

Contractual servicing fees received

    0.1         0.1      
                   

 

 
  Six months ended June 30,  
 
  2013   2012  
In billions of dollars   U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
  U.S. agency-
sponsored
mortgages
  Non-agency-
sponsored
mortgages
 

Proceeds from new securitizations

  $   $   $ 0.3   $  

Contractual servicing fees received

    0.1         0.2      
                   

        Gains (losses) recognized on the securitization of U.S. agency-sponsored mortgages were $4.4 million and $6.9 million for the three and six months ended June 30, 2013, respectively. Gains recognized on the securitization of U.S. agency-sponsored mortgages were $10.6 million and $30.8 million for the three and six months ended June 30, 2012, respectively. The Company did not securitize non-agency-sponsored mortgages for the three and six months ended June 30, 2013 and 2012.

        Similar to Citicorp mortgage securitizations discussed above, the range in the key assumptions is due to the different characteristics of the interests retained by the Company. The interests retained range from highly rated and/or senior in the capital structure to unrated and/or residual interests.

        At June 30, 2013 and December 31, 2012, 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, are set forth in the tables below. The negative effect of each change is calculated independently, holding all other assumptions constant. Because the key assumptions may not in fact be independent, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.

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  June 30, 2013
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  0.0% to 51.9%   7.6% to 11.0%   6.6% to 15.9%

Weighted average discount rate

  9.9%   10.3%   11.4%

Constant prepayment rate

  7.2% to 31.5%   14.0% to 30.3%   5.4% to 8.2%

Weighted average constant prepayment rate

  23.6%   16.9%   6.9%

Anticipated net credit losses

  NM   0.3%   53.8% to 56.6%

Weighted average anticipated net credit losses

  NM   0.3%   55.2%

Weighted average life

  2.3 to 7.9 years   4.1 to 5.1 years   8.1 to 10.6 years
             

 

 
  December 31, 2012
 
   
  Non-agency-sponsored mortgages(1)
 
  U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests

Discount rate

  0.0.% to 52.7%   4.1% to 29.2%   3.4% to 12.4%

Weighted average discount rate

  9.7%   4.2%   8.0%

Constant prepayment rate

  8.2% to 37.4%   21.7% to 26.0%   12.7% to 18.7%

Weighted average constant prepayment rate

  28.6%   21.7%   15.7%

Anticipated net credit losses

  NM   0.5%   50.0% to 50.1%

Weighted average anticipated net credit losses

  NM   0.5%   50.1%

Weighted average life

  2.2 to 7.8 years   2.1 to 4.4 years   6.0 to 7.4 years
             

(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests' position in the capital structure of the securitization.

NM
Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

 
   
  Non-agency-sponsored mortgages(1)  
In millions of dollars at June 30, 2013   U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests
 

Carrying value of retained interests

  $ 634   $ 63   $ 16  
               

Discount rates

                   

Adverse change of 10%

  $ (22 ) $ (3 ) $ (1 )

Adverse change of 20%

    (44 )   (5 )   (2 )

Constant prepayment rate

                   

Adverse change of 10%

    (43 )   (3 )    

Adverse change of 20%

    (84 )   (5 )   (1 )

Anticipated net credit losses

                   

Adverse change of 10%

    NM     (9 )   (1 )

Adverse change of 20%

    NM     (17 )   (2 )
               

 

 
   
  Non-agency-sponsored mortgages(1)  
In millions of dollars at December 31, 2012   U.S. agency-
sponsored mortgages
  Senior
interests
  Subordinated
interests
 

Carrying value of retained interests

  $ 618   $ 39   $ 16  
               

Discount rates

                   

Adverse change of 10%

  $ (22 ) $   $ (1 )

Adverse change of 20%

    (42 )   (1 )   (2 )

Constant prepayment rate

                   

Adverse change of 10%

    (57 )   (3 )    

Adverse change of 20%

    (109 )   (7 )   (1 )

Anticipated net credit losses

                   

Adverse change of 10%

    NM     (9 )   (2 )

Adverse change of 20%

    NM     (19 )   (4 )
               

(1)
Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests' position in the capital structure of the securitization.

NM
Not meaningful. Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

179


Mortgage Servicing Rights

        In connection with the securitization of mortgage loans, the Company's U.S. Consumer mortgage business generally retains the servicing rights, which entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees.

        The fair value of capitalized mortgage servicing rights (MSRs) was $2.5 billion and $2.1 billion at June 30, 2013 and 2012, respectively. The MSRs correspond to principal loan balances of $301 billion and $367 billion as of June 30, 2013 and 2012, respectively. The following tables summarize the changes in capitalized MSRs for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended
June 30,
 
In millions of dollars   2013   2012  

Balance, as of March 31

  $ 2,203   $ 2,691  

Originations

    204     79  

Changes in fair value of MSRs due to changes in inputs and assumptions

    247     (420 )

Other changes(1)

    (130 )   (233 )

Sale of MSRs

         
           

Balance, as of June 30

  $ 2,524   $ 2,117  
           

 

 
  Six months ended
June 30,
 
In millions of dollars   2013   2012  

Balance, beginning of year

  $ 1,942   $ 2,569  

Originations

    376     223  

Changes in fair value of MSRs due to changes in inputs and assumptions

    470     (171 )

Other changes(1)

    (263 )   (504 )

Sale of MSRs

    (1 )    
           

Balance, as of June 30

  $ 2,524   $ 2,117  
           

(1)
Represents changes due to customer payments and passage of time.

        The fair value of the MSRs is primarily affected by changes in prepayments of mortgages that result from shifts in mortgage interest rates. In managing this risk, the Company economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase and sale commitments of mortgage-backed securities and purchased securities classified as Trading account assets.

        The Company receives fees during the course of servicing previously securitized mortgages. The amounts of these fees for the three and six months ended June 30 31, 2013 and 2012 were as follows:

 
  Three months ended
June 30,
  Six months ended
June 30,
 
In millions of dollars   2013   2012   2013   2012  

Servicing fees

  $ 198   $ 253   $ 415   $ 521  

Late fees

    11     16     19     33  

Ancillary fees

    21     25     52     53  
                   

Total MSR fees

  $ 230   $ 294   $ 486   $ 607  
                   

        These fees are classified in the Consolidated Statement of Income as Other revenue.

Re-securitizations

        The Company engages in re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. During the three and six months ended June 30, 2013, Citi transferred non-agency (private-label) securities with an original par value of approximately $152 million and $396 million, respectively, to re-securitization entities, compared to $283 million and $792 million for the three and six months ended June 30, 2012. These securities are backed by either residential or commercial mortgages and are often structured on behalf of clients.

        As of June 30, 2013, the fair value of Citi-retained interests in private-label re-securitization transactions structured by Citi totaled approximately $376 million ($78 million of which related to re-securitization transactions executed in 2013), and are recorded in Trading account assets. Of this amount, approximately $28 million was related to senior beneficial interests, and approximately $348 million was related to subordinated beneficial interests. As of December 31, 2012, the fair value of Citi retained interests in private label re-securitization transactions structured by Citi totaled approximately $380 million ($128 million of which related to re-securitization transactions executed in 2012). Of this amount, approximately $11 million was related to senior beneficial interests, and approximately $369 million was related to subordinated beneficial interests. The original par value of private-label re-securitization transactions in which Citi holds a retained interest as of June 30, 2013 and December 31, 2012 was approximately $5.9 billion and $7.1 billion, respectively.

        The Company also re-securitizes U.S. government-agency guaranteed mortgage-backed (agency) securities. During the three and six months ended June 30, 2013, Citi transferred agency securities with a fair value of approximately $7.3 billion and $14.8 billion, respectively, to re-securitization entities, compared to approximately $7.4 billion and $14.6 billion for the three and six months ended June 30, 2012. As of June 30, 2013, the fair value of Citi-retained interests in agency re-securitization transactions structured by Citi totaled approximately $1.6 billion ($1.2 billion of which related to re-securitization transactions executed in 2013) compared to $1.7 billion as of December 31, 2012 ($1.1 billion of which related to re-securitization transactions executed in 2012), which is recorded in Trading account assets. The original fair value of agency re-securitization transactions in which Citi holds a retained interest as of June 30, 2013 and December 31, 2012 was approximately $72.7 billion and $71.2 billion, respectively.

        As of June 30, 2013 and December 31, 2012, the Company did not consolidate any private-label or agency re-securitization entities.

180


Citi-Administered Asset-Backed Commercial Paper Conduits

        The Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.

        Citi's multi-seller commercial paper conduits are designed to provide the Company's clients access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to clients and are funded by issuing commercial paper to third-party investors. The conduits generally do not purchase assets originated by the Company. The funding of the conduits is facilitated by the liquidity support and credit enhancements provided by the Company.

        As administrator to Citi's conduits, the Company is generally responsible for selecting and structuring assets purchased or financed by the conduits, making decisions regarding the funding of the conduits, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduits' assets, and facilitating the operations and cash flows of the conduits. In return, the Company earns structuring fees from customers for individual transactions and earns an administration fee from the conduit, which is equal to the income from the client program and liquidity fees of the conduit after payment of conduit expenses. This administration fee is fairly stable, since most risks and rewards of the underlying assets are passed back to the clients. 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 generally designed to be held by the conduit, rather than actively traded and sold. The yield earned by the conduit on each asset is generally tied to the rate on the commercial paper issued by the conduit, thus passing interest rate risk to the client. Each asset purchased by the conduit is structured with transaction-specific credit enhancement features provided by the third-party client seller, including over collateralization, cash and excess spread collateral accounts, direct recourse or third-party guarantees. These credit enhancements are sized with the objective of approximating a credit rating of A or above, based on the Company's internal risk ratings. At the respective periods ended June 30, 2013 and December 31, 2012, the conduits had approximately $29 billion and $30 billion of purchased assets outstanding, respectively, and had incremental funding commitments with clients of approximately $15 billion and $14 billion, respectively.

        Substantially all of the funding of the conduits is in the form of short-term commercial paper, with a weighted average life generally ranging from 25 to 50 days. At the respective periods ended June 30, 2013 and December 31, 2012, the weighted average lives of the commercial paper issued by the conduits were approximately 44 and 38 days, respectively.

        The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancements described above. One conduit holds only loans that are fully guaranteed primarily by AAA-rated government agencies that support export and development financing programs. In addition to the transaction-specific credit enhancements, the conduits, other than the government guaranteed loan conduit, have obtained a letter of credit from the Company, which is equal to at least 8-10% of the conduit's assets with a minimum of $200 million. The letters of credit provided by the Company to the conduits total approximately $2.2 billion and $2.1 billion as of June 30, 2013 and December 31, 2012, respectively. The net result across multi-seller conduits administered by the Company, other than the government guaranteed loan conduit, is that, in the event defaulted assets exceed the transaction-specific credit enhancements described above, any losses in each conduit are allocated first to the Company and then the commercial paper investors.

        The Company also provides the conduits with two forms of liquidity agreements that are used to provide funding to the conduits in the event of a market disruption, among other events. Each asset of the conduits is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA). Under the APA, the Company has generally agreed to purchase non-defaulted eligible receivables from the conduit at par. The APA is not generally designed to provide credit support to the conduit, as it generally does not permit the purchase of defaulted or impaired assets. Any funding under the APA will likely subject the underlying conduit clients to increased interest costs. In addition, the Company provides the conduits with program-wide liquidity in the form of short-term lending commitments. Under these commitments, the Company has agreed to lend to the conduits in the event of a short-term disruption in the commercial paper market, subject to specified conditions. The Company receives fees for providing both types of liquidity agreements and considers these fees to be on fair market terms.

        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 June 30, 2013 and December 31, 2012, the Company owned $10.4 billion and $11.7 billion, respectively, of the commercial paper issued by its administered conduits.

        The asset-backed commercial paper conduits are consolidated by the Company. The Company determined that through its roles as administrator and liquidity provider it had the power to direct the activities that most significantly impacted the entities' economic performance. These powers included its ability to structure and approve the assets purchased by the conduits, its ongoing surveillance and credit mitigation activities, its ability to sell or repurchase assets out of the conduits, and its liability management. In addition, as a result of all the Company's involvement described above, it was concluded that the Company had an economic interest that could potentially be significant. However, the assets and liabilities of the conduits are separate and apart from those of Citigroup. No assets of any conduit are available to satisfy the creditors of Citigroup or any of its other subsidiaries.

        During the second quarter of 2013, Citi consolidated the government guaranteed loan conduit it administers that was previously not consolidated due to changes in the primary risks and design of the conduit which were identified as a reconsideration event. Citi, as the administrator and liquidity provider, previously determined it had an economic interest that could potentially be significant. Upon the reconsideration event,

181


it was determined that Citi now had the power to direct the activities that most significantly impacted the conduit's economic performance. The impact of the consolidation resulted in an increase of assets and liabilities of approximately $7 billion, each, and a net pretax gain to the Consolidated Statement of Income of approximately $40 million.

Collateralized Debt and Loan Obligations

        A securitized collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors.

        A cash CDO, or arbitrage CDO, is a CDO designed to take advantage of the difference between the yield on a portfolio of selected assets, typically residential mortgage-backed securities, and the cost of funding the CDO through the sale of notes to investors. "Cash flow" CDOs are entities in which the CDO passes on cash flows from a pool of assets, while "market value" CDOs pay to investors the market value of the pool of assets owned by the CDO at maturity. In these transactions, all of the equity and notes issued by the CDO are funded, as the cash is needed to purchase the debt securities.

        A synthetic CDO is similar to a cash CDO, except that the CDO obtains exposure to all or a portion of the referenced assets synthetically through derivative instruments, such as credit default swaps. Because the CDO does not need to raise cash sufficient to purchase the entire referenced portfolio, a substantial portion of the senior tranches of risk is typically passed on to CDO investors in the form of unfunded liabilities or derivative instruments. The CDO writes credit protection on select referenced debt securities to the Company or third parties. Risk is then passed on to the CDO investors in the form of funded notes or purchased credit protection through derivative instruments. Any cash raised from investors is invested in a portfolio of collateral securities or investment contracts. The collateral is then used to support the obligations of the CDO on the credit default swaps written to counterparties.

        A securitized collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above, except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds, rather than asset-backed debt securities.

        A third-party asset manager is typically retained by the CDO/CLO to select the pool of assets and manage those assets over the term of the SPE. The Company is the manager for a limited number of CLO transactions over the term of the SPE.

        The Company earns fees for warehousing assets prior to the creation of a "cash flow" or "market value" CDO/CLO, structuring CDOs/CLOs and placing debt securities with investors. In addition, the Company has retained interests in many of the CDOs/CLOs it has structured and makes a market in the issued notes.

        The Company's continuing involvement in synthetic CDOs/CLOs generally includes purchasing credit protection through credit default swaps with the CDO/CLO, owning a portion of the capital structure of the CDO/CLO in the form of both unfunded derivative positions (primarily super-senior exposures discussed below) and funded notes, entering into interest-rate swap and total-return swap transactions with the CDO/CLO, lending to the CDO/CLO, and making a market in the funded notes.

        Where a CDO/CLO entity issues preferred shares (or subordinated notes that are the equivalent form), the preferred shares generally represent an insufficient amount of equity (less than 10%) and create the presumption that preferred shares are insufficient to finance the entity's activities without subordinated financial support. In addition, although the preferred shareholders generally have full exposure to expected losses on the collateral and uncapped potential to receive expected residual returns, they generally do not have the ability to make decisions significantly affecting the entity's financial results because of their limited role in making day-to-day decisions and their limited ability to remove the asset manager. Because one or both of the above conditions will generally be met, the Company has concluded, even where a CDO/CLO entity issued preferred shares, the entity should be classified as a VIE.

        In general, the asset manager, through its ability to purchase and sell assets or—where the reinvestment period of a CDO/CLO has expired—the ability to sell assets, will have the power to direct the activities of the entity that most significantly impact the economic performance of the CDO/CLO. However, where a CDO/CLO has experienced an event of default or an optional redemption period has gone into effect, the activities of the asset manager may be curtailed and/or certain additional rights will generally be provided to the investors in a CDO/CLO entity, including the right to direct the liquidation of the CDO/CLO entity.

        The Company has retained significant portions of the "super-senior" positions issued by certain CDOs. These positions are referred to as "super-senior" because they represent the most senior positions in the CDO and, at the time of structuring, were senior to tranches rated AAA by independent rating agencies.

        The Company does not generally have the power to direct the activities of the entity that most significantly impact the economic performance of the CDOs/CLOs as this power is generally held by a third-party asset manager of the CDO/CLO. As such, those CDOs/CLOs are not consolidated. The Company may consolidate the CDO/CLO when: (i) the Company is the asset manager and no other single investor has the unilateral ability to remove the Company or unilaterally cause the liquidation of the CDO/CLO, or the Company is not the asset manager but has a unilateral right to remove the third-party asset manager or unilaterally liquidate the CDO/CLO and receive the underlying assets, and (ii) the Company has economic exposure to the entity that could be potentially significant to the entity.

        The Company continues to monitor its involvement in unconsolidated CDOs/CLOs to assess future consolidation risk. For example, if the Company were to acquire additional interests in these entities and obtain the right, due to an event of default trigger being met, to unilaterally liquidate or direct the activities of a CDO/CLO, the Company may be required to consolidate the asset entity. For cash CDOs/CLOs, the net result of such consolidation would be to gross up the Company's balance sheet by the current fair value of the securities held by third parties and assets held by the CDO/CLO, which amounts are not considered material. For synthetic CDOs/CLOs, the net result of such consolidation may reduce the Company's balance sheet, because intercompany derivative receivables and payables would be eliminated in consolidation, and other assets held by

182


the CDO/CLO and the securities held by third parties would be recognized at their current fair values.

Key Assumptions and Retained Interests—Citi Holdings

        At June 30, 2013 and December 31, 2012, 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, are set forth in the tables below:

 
  June 30, 2013
 
  CDOs   CLOs

Discount rate

  46.6% to 51.3%   1.5% to 1.7%
         

 

 
  December 31, 2012
 
  CDOs   CLOs

Discount rate

  46.9% to 51.6%   1.9% to 2.1%
         

 

 
  June 30, 2013  
In millions of dollars   CDOs   CLOs  

Carrying value of retained interests

  $ 16   $ 1,167  
           

Discount rates

             

Adverse change of 10%

  $ (1 ) $ (6 )

Adverse change of 20%

    (2 )   (13 )
           

 

 
  December 31, 2012  
In millions of dollars   CDOs   CLOs  

Carrying value of retained interests

  $ 16   $ 428  
           

Discount rates

             

Adverse change of 10%

  $ (2 ) $ (2 )

Adverse change of 20%

    (3 )   (4 )
           

Asset-Based Financing

        The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company. Financings in the form of debt securities or derivatives are, in most circumstances, reported in Trading account assets and accounted for at fair value through earnings. The Company generally does not have the power to direct the activities that most significantly impact these VIEs' economic performance and thus it does not consolidate them.

Asset-Based Financing—Citicorp

        The primary types of Citicorp's asset-based financings, total assets of the unconsolidated VIEs with significant involvement and the Company's maximum exposure to loss at June 30, 2013 and December 31, 2012 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.

 
  June 30, 2013  
In billions of dollars   Total
unconsolidated
VIE assets
  Maximum
exposure to
unconsolidated
VIEs
 

Type

             

Commercial and other real estate

  $ 12.5   $ 3.2  

Corporate loans

    2.2     1.8  

Hedge funds and equities

         

Airplanes, ships and other assets

    22.9     13.2  
           

Total

  $ 37.6   $ 18.2  
           

 

 
  December 31, 2012  
In billions of dollars   Total
unconsolidated
VIE assets
  Maximum
exposure to
unconsolidated
VIEs
 

Type

             

Commercial and other real estate

  $ 16.1   $ 3.1  

Corporate loans

    2.0     1.6  

Hedge funds and equities

    0.6     0.4  

Airplanes, ships and other assets

    21.5     12.0  
           

Total

  $ 40.2   $ 17.1  
           

        The following tables summarize selected cash flow information related to asset-based financings for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended June 30,  
In billions of dollars   2013   2012  

Cash flows received on retained interests and other net cash flows

  $ 0.3      
           

 

 
  Six months ended June 30,  
In billions of dollars   2013   2012  

Cash flows received on retained interests and other net cash flows

  $ 0.6      
           

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        The effect of adverse changes of 10% and 20% in the discount rate used to determine the fair value of retained interests at June 30, 2013 and December 31, 2012 are set forth below:

 
  June 30, 2013  
In millions of dollars   Asset-based Financing  

Carrying value of retained interests

  $ 1,241  
       

Value of underlying portfolio

       

Adverse change of 10%

  $ (12 )

Adverse change of 20%

    (24 )
       

 

 
  December 31, 2012  
In millions of dollars   Asset-based Financing  

Carrying value of retained interests

  $ 1,726  
       

Value of underlying portfolio

       

Adverse change of 10%

  $ (22 )

Adverse change of 20%

    (44 )
       

Asset-Based Financing—Citi Holdings

        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 June 30, 2013 and December 31, 2012 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.

 
  June 30, 2013  
In billions of dollars   Total
unconsolidated
VIE assets
  Maximum
exposure to
unconsolidated
VIEs
 

Type

             

Commercial and other real estate

  $ 0.8   $ 0.3  

Corporate loans

    0.1     0.1  

Airplanes, ships and other assets

    2.5     0.5  
           

Total

  $ 3.4   $ 0.9  
           

 

 
  December 31, 2012  
In billions of dollars   Total
unconsolidated
VIE assets
  Maximum
exposure to
unconsolidated
VIEs
 

Type

             

Commercial and other real estate

  $ 0.9   $ 0.3  

Corporate loans

    0.4     0.3  

Airplanes, ships and other assets

    2.9     0.6  
           

Total

  $ 4.2   $ 1.2  
           

        The following tables summarize selected cash flow information related to asset-based financings for the three and six months ended June 30, 2013 and 2012:

 
  Three months ended June 30,  
In billions of dollars   2013   2012  

Cash flows received on retained interests and other net cash flows

  $ 0.2   $ 0.4  
           

 

 
  Six months ended June 30,  
In billions of dollars   2013   2012  

Cash flows received on retained interests and other net cash flows

  $ 0.2   $ 1.3  
           

        The effects of adverse changes of 10% and 20% in the discount rate used to determine the fair value of retained interests at June 30, 2013 and December 31, 2012 are set forth below:

 
  June 30, 2013  
In millions of dollars   Asset-based Financing  

Carrying value of retained interests

  $ 107  
       

Value of underlying portfolio

       

Adverse change of 10%

  $  

Adverse change of 20%

     
       

 

 
  December 31, 2012  
In millions of dollars   Asset-based Financing  

Carrying value of retained interests

  $ 339  
       

Value of underlying portfolio

       

Adverse change of 10%

  $  

Adverse change of 20%

     
       

184


Municipal Securities Tender Option Bond (TOB) Trusts

        TOB trusts hold fixed- and floating-rate, taxable and tax-exempt securities issued by state and local governments and municipalities. The trusts are typically single-issuer trusts whose assets are purchased from the Company or from other investors in the municipal securities market. The TOB trusts fund the purchase of their assets by issuing long-term, putable floating rate certificates (Floaters) and residual certificates (Residuals). The trusts are referred to as TOB trusts because the Floater holders have the ability to tender their interests periodically back to the issuing trust, as described further below. The Floaters and Residuals evidence beneficial ownership interests in, and are collateralized by, the underlying assets of the trust. The Floaters are held by third-party investors, typically tax-exempt money market funds. The Residuals are typically held by the original owner of the municipal securities being financed.

        The Floaters and the Residuals have a tenor that is equal to or shorter than the tenor of the underlying municipal bonds. The Residuals entitle their holders to the residual cash flows from the issuing trust, the interest income generated by the underlying municipal securities net of interest paid on the Floaters, and trust expenses. The Residuals are rated based on the long-term rating of the underlying municipal bond. The Floaters bear variable interest rates that are reset periodically to a new market rate based on a spread to a high grade, short-term, tax-exempt index. The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust.

        There are two kinds of TOB trusts: customer TOB trusts and non-customer TOB trusts. Customer TOB trusts are trusts through which customers finance their investments in municipal securities. The Residuals are held by customers and the Floaters by third-party investors, typically tax-exempt money market funds. Non-customer TOB trusts are trusts through which the Company finances its own investments in municipal securities. In such trusts, the Company holds the Residuals and third-party investors, typically tax-exempt money market funds, hold the Floaters.

        The Company serves as remarketing agent to the trusts, placing the Floaters with third-party investors at inception, facilitating the periodic reset of the variable rate of interest on the Floaters and remarketing any tendered Floaters. If Floaters are tendered and the Company (in its role as remarketing agent) is unable to find a new investor within a specified period of time, it can declare a failed remarketing, in which case the trust is unwound. The Company may, but is not obligated to, buy the Floaters into its own inventory. The level of the Company's inventory of Floaters fluctuates over time. As of June 30, 2013 and December 31, 2012, the Company held $195 million and $203 million, respectively, of Floaters related to both customer and non-customer TOB trusts.

        For certain non-customer trusts, the Company also provides credit enhancement. As of June 30, 2013 and December 31, 2012, approximately $219 million and $184 million respectively, of the municipal bonds owned by TOB trusts have a credit guarantee provided by the Company.

        The Company provides liquidity to many of the outstanding trusts. If a trust is unwound early due to an event other than a credit event on the underlying municipal bond, the underlying municipal bonds are sold in the market. If there is a shortfall in the trust's cash flows between the redemption price of the tendered Floaters and the proceeds from the sale of the underlying municipal bonds, the trust draws on a liquidity agreement in an amount equal to the shortfall. For customer TOBs where the Residual is less than 25% of the trust's capital structure, the Company has a reimbursement agreement with the Residual holder under which the Residual holder reimburses the Company for any payment made under the liquidity arrangement. Through this reimbursement agreement, the Residual holder remains economically exposed to fluctuations in value of the underlying municipal bonds. These reimbursement agreements are generally subject to daily margining based on changes in value of the underlying municipal bond. In cases where a third party provides liquidity to a non-customer TOB trust, a similar reimbursement arrangement is made whereby the Company (or a consolidated subsidiary of the Company) as Residual holder absorbs any losses incurred by the liquidity provider.

        As of June 30, 2013 and December 31, 2012, liquidity agreements provided with respect to customer TOB trusts totaled $4.5 billion and $4.9 billion, respectively, of which $3.2 billion and $3.6 billion, respectively, were offset by reimbursement agreements. For the remaining exposure related to TOB transactions, where the Residual owned by the customer was at least 25% of the bond value at the inception of the transaction, no reimbursement agreement was executed. The Company also provides other liquidity agreements or letters of credit to customer-sponsored municipal investment funds, which are not variable interest entities, and municipality-related issuers that totaled $7.2 billion and $6.4 billion as of June 30, 2013 and December 31, 2012, respectively. These liquidity agreements and letters of credit are offset by reimbursement agreements with various term-out provisions.

        The Company considers the customer and non-customer TOB trusts to be VIEs. Customer TOB trusts are not consolidated by the Company. The Company has concluded that the power to direct the activities that most significantly impact the economic performance of the customer TOB trusts is primarily held by the customer Residual holder, which may unilaterally cause the sale of the trust's bonds.

        Non-customer TOB trusts generally are consolidated. Similar to customer TOB trusts, the Company has concluded that the power over the non-customer TOB trusts is primarily held by the Residual holder, which may unilaterally cause the sale of the trust's bonds. Because the Company holds the Residual interest, and thus has the power to direct the activities that most significantly impact the trust's economic performance, it consolidates the non-customer TOB trusts.

Municipal Investments

        Municipal investment transactions include debt and equity interests in partnerships that finance the construction and rehabilitation of low-income housing, facilitate lending in new or underserved markets, or finance the construction or operation of renewable municipal energy facilities. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits and grants earned from the investments made by the partnership. The Company may also provide construction loans or permanent loans to the development or operations of real estate properties held by partnerships. These entities are generally considered VIEs. The power to direct the activities of these entities is typically held by the general partner. Accordingly, these entities are not consolidated by the Company.

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Client Intermediation

        Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security, referenced asset or index. These transactions include credit-linked notes and equity-linked notes. In these transactions, the VIE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument, such as a total-return swap or a credit-default swap. In turn the VIE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The VIE invests the proceeds in a financial asset or a guaranteed insurance contract that serves as collateral for the derivative contract over the term of the transaction. The Company's involvement in these transactions includes being the counterparty to the VIE's derivative instruments and investing in a portion of the notes issued by the VIE. In certain transactions, the investor's maximum risk of loss is limited and the Company absorbs risk of loss above a specified level. The Company does not have the power to direct the activities of the VIEs that most significantly impact their economic performance and thus it does not consolidate them.

        The Company's maximum risk of loss in these transactions is defined as the amount invested in notes issued by the VIE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the VIE. The derivative instrument held by the Company may generate a receivable from the VIE (for example, where the Company purchases credit protection from the VIE in connection with the VIE's issuance of a credit-linked note), which is collateralized by the assets owned by the VIE. These derivative instruments are not considered variable interests and any associated receivables are not included in the calculation of maximum exposure to the VIE.

Investment Funds

        The Company is the investment manager for certain investment funds that invest in various asset classes including private equity, hedge funds, real estate, fixed income and infrastructure. The Company earns a management fee, which is a percentage of capital under management, and may earn performance fees. In addition, for some of these funds the Company has an ownership interest in the investment funds. The Company has also established a number of investment funds as opportunities for qualified employees to invest in private equity investments. The Company acts as investment manager to these funds and may provide employees with financing on both recourse and non-recourse bases for a portion of the employees' investment commitments.

        The Company has determined that a majority of the investment entities managed by Citigroup are provided a deferral from the requirements of SFAS 167, Amendments to FASB Interpretation No. 46(R), because they meet the criteria in Accounting Standards Update No. 2010-10, Consolidation (Topic 810), Amendments for Certain Investment Funds (ASU 2010-10). These entities continue to be evaluated under the requirements of ASC 810-10, prior to the implementation of SFAS 167 (FIN 46(R), Consolidation of Variable Interest Entities), which required that a VIE be consolidated by the party with a variable interest that will absorb a majority of the entity's expected losses or residual returns, or both.

Trust Preferred Securities

        The Company has raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a statutory business trust and owns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. The trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the preferred equity securities held by third-party investors. Obligations of the trusts are fully and unconditionally guaranteed by the Company.

        Because the sole asset of each of the trusts is a receivable from the Company and the proceeds to the Company from the receivable exceed the Company's investment in the VIE's equity shares, the Company is not permitted to consolidate the trusts, even though it owns all of the voting equity shares of the trust, has fully guaranteed the trusts' obligations, and has the right to redeem the preferred securities in certain circumstances. The Company recognizes the subordinated debentures on its Consolidated Balance Sheet as long-term liabilities. For additional information, see Note 16 to the Consolidated Financial Statements.

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20.   DERIVATIVES ACTIVITIES

        In the ordinary course of business, Citigroup enters into various types of derivative transactions. These derivative transactions include:

        Citigroup enters into these derivative contracts relating to interest rate, foreign currency, commodity and other market/credit risks for the following reasons:

        Derivatives may expose Citigroup to market, credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates, foreign-exchange rates and other factors and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectability. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted at a reasonable cost in periods of high volatility and financial stress.

        Derivative transactions are customarily documented under industry standard master agreements and credit support annexes, which provide that following an uncured payment default or other event of default the non-defaulting party may promptly terminate all transactions between the parties and determine a net amount due to be paid to, or by, the defaulting party. Events of default generally include: (i) failure to make a payment on a derivatives transaction (which remains uncured following applicable notice and grace periods), (ii) breach of a covenant (which remains uncured after applicable notice and grace periods), (iii) breach of a representation, (iv) cross default, either to third-party debt or to another derivatives transaction entered into among the parties, or, in some cases, their affiliates, (v) the occurrence of a merger or consolidation which results in a party becoming a materially weaker credit, and (vi) the cessation or repudiation of any applicable guarantee or other credit support document. An event of default may also occur under a credit support annex if a party fails to make a collateral delivery (which remains uncured following applicable notice and grace periods).

        The enforceability of offsetting rights incorporated in the master netting agreements for derivative transactions is evidenced to the extent that a supportive legal opinion has been obtained from counsel of recognized standing which provides the requisite level of certainty regarding the enforceability of these agreements and that the exercise of rights by the non-defaulting party to terminate and close-out transactions on a net basis under these agreements will not be stayed, or avoided under applicable law upon an event of default including bankruptcy, insolvency or similar proceeding.

        A legal opinion may not have been sought or obtained for certain jurisdictions where local law is silent or sufficiently ambiguous to determine the enforceability of offsetting rights or where adverse case law or conflicting regulation may cast doubt on the enforceability of such rights. In some jurisdictions and for some counterparty types, the insolvency law for a particular counterparty type may be nonexistent or unclear as overlapping regimes may exist. For example, this may be the case for certain sovereigns, municipalities, central banks and U.S. pension plans.

        Exposure to credit risk on derivatives is impacted by market volatility, which may impair the ability of clients to satisfy their obligations to the Company. Credit limits are established and closely monitored for customers engaged in derivatives transactions. Citi considers the level of legal certainty regarding enforceability of its offsetting rights under master netting

187


agreements and credit support annexes to be an important factor in its risk management process. For example, because derivatives executed under master netting agreements where Citi does not have the requisite level of legal certainty regarding enforceability consume much greater amounts of single counterparty credit limits than those executed under enforceable master netting agreements, Citi generally transacts much lower volumes of derivatives under master netting agreements where Citi does not have the requisite level of legal certainty regarding enforceability.

        Cash collateral and security collateral in the form of G10 government debt securities is generally posted to secure the net open exposure of derivative transactions, at a counterparty level, whereby the receiving party is free to comingle/rehypothecate such collateral in the ordinary course of its business. Nonstandard collateral such as corporate bonds, municipal bonds, U.S. agency securities and/or MBS may also be pledged as collateral for derivative transactions. Security collateral posted to open and maintain a master netting agreement with a counterparty, in the form of cash and securities, may from time to time be segregated in an account at a third-party custodian pursuant to a tri-party Account Control Agreement.

188


        Information pertaining to the volume of derivative activity is provided in the tables below. The notional amounts, for both long and short derivative positions, of Citigroup's derivative instruments as of June 30, 2013 and December 31, 2012 are presented in the table below.


Derivative Notionals

 
  Hedging instruments under
ASC 815 (SFAS 133)(1)(2)
  Other derivative instruments  
 
   
   
  Trading derivatives   Management hedges(3)  
In millions of dollars   June 30,
2013
  December 31,
2012
  June 30,
2013
  December 31,
2012
  June 30,
2013
  December 31,
2012
 

Interest rate contracts

                                     

Swaps

  $ 133,418   $ 114,296   $ 32,216,909   $ 30,050,856   $ 129,189   $ 99,434  

Futures and forwards

            6,040,887     4,823,370     79,803     45,856  

Written options

            4,169,564     3,752,905     15,521     22,992  

Purchased options

            3,971,417     3,542,048     7,717     7,890  
                           

Total interest rate contract notionals

  $ 133,418   $ 114,296   $ 46,398,777   $ 42,169,179   $ 232,230   $ 176,172  
                           

Foreign exchange contracts

                                     

Swaps

  $ 21,331   $ 22,207   $ 1,410,503   $ 1,393,368   $ 20,080   $ 16,900  

Futures and forwards

    60,414     70,484     3,583,955     3,484,193     21,808     33,768  

Written options

    118     96     1,235,021     781,698         989  

Purchased options

    630     456     1,224,655     778,438     63     2,106  
                           

Total foreign exchange contract notionals

  $ 82,493   $ 93,243   $ 7,454,134   $ 6,437,697   $ 41,951   $ 53,763  
                           

Equity contracts

                                     

Swaps

  $   $   $ 102,413   $ 96,039   $   $  

Futures and forwards

            22,955     16,171          

Written options

            355,941     320,243          

Purchased options

            338,180     281,236          
                           

Total equity contract notionals

  $   $   $ 819,489   $ 713,689   $   $  
                           

Commodity and other contracts

                                     

Swaps

  $   $   $ 27,966   $ 27,323   $   $  

Futures and forwards

            89,526     75,897          

Written options

            100,764     86,418          

Purchased options

            96,417     89,284          
                           

Total commodity and other contract notionals

  $   $   $ 314,673   $ 278,922   $   $  
                           

Credit derivatives(4)

                                     

Protection sold

  $   $   $ 1,360,847   $ 1,346,494   $   $  

Protection purchased

    107     354     1,409,444     1,412,194     17,745     21,741  
                           

Total credit derivatives

  $ 107   $ 354   $ 2,770,291   $ 2,758,688   $ 17,745   $ 21,741  
                           

Total derivative notionals

  $ 216,018   $ 207,893   $ 57,757,364   $ 52,358,175   $ 291,926   $ 251,676  
                           

(1)
The notional amounts presented in this table do not include hedge accounting relationships under ASC 815 (SFAS 133) where Citigroup is hedging the foreign currency risk of a net investment in a foreign operation by issuing a foreign-currency-denominated debt instrument. The notional amount of such debt was $5,332 and $4,888 million at June 30, 2013 and December 31, 2012, respectively.

(2)
Derivatives in hedge accounting relationships accounted for under ASC 815 (SFAS 133) are recorded in either Other assets/Other liabilities or Trading account assets/Trading account liabilities on the Consolidated Balance Sheet.

(3)
Management hedges represent derivative instruments used in certain economic hedging relationships that are identified for management purposes, but for which hedge accounting is not applied. These derivatives are recorded in either Other assets/Other liabilities or Trading account assets/Trading account liabilities on the Consolidated Balance Sheet.

(4)
Credit derivatives are arrangements designed to allow one party (protection buyer) to transfer the credit risk of a "reference asset" to another party (protection seller). These arrangements allow a protection seller to assume the credit risk associated with the reference asset without directly purchasing that asset. The Company has entered into credit derivative positions for purposes such as risk management, yield enhancement, reduction of credit concentrations and diversification of overall risk.

        The following tables present the gross and net fair values of the Company's derivative transactions, and the related offsetting amount permitted under ASC 210-20-45 and 815-10-45, as of June 30, 2013 and December 31, 2012. Under ASC 210-20-45, gross positive fair values are offset against gross negative fair values by counterparty pursuant to enforceable master netting agreements. Under ASC 815-10-45, payables and receivables in respect of cash collateral received from or paid to a given counterparty pursuant to an enforceable credit support annex are included in the offsetting amount. U.S. GAAP does not permit offsetting for security collateral posted. The table also includes amounts that are not permitted to be offset under ASC 210-20-45 and 815-10-45, such as security collateral posted or cash collateral posted at third-party custodians, but would be eligible for offsetting to the extent an event of default occurred and a legal opinion supporting enforceability of the offsetting rights has been obtained.

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Derivative Mark-to-Market (MTM) Receivables/Payables

 
  Derivatives classified in Trading
accounts assets / liabilities(1)(2)(3)
  Derivatives classified in Other
assets / liabilities(2)(3)
 
In millions of dollars at June 30, 2013   Assets   Liabilities   Assets   Liabilities  

Derivatives instruments designated as ASC 815 (SFAS 133) hedges

                         

Over-the-counter

  $ 2,042   $ 604   $ 3,261   $ 925  

Cleared

    3,005     806     7      

Exchange traded

                 
                   

Interest rate contracts

  $ 5,047   $ 1,410   $ 3,268   $ 925  
                   

Over-the-counter

  $ 1,681   $ 495   $ 495   $ 658  

Cleared

                 

Exchange traded

                 
                   

Foreign exchange contracts

  $ 1,681   $ 495   $ 495   $ 658  
                   

Over-the-counter

  $   $   $   $ 3  

Cleared

                 

Exchange traded

                 
                   

Credit Derivatives

  $   $   $   $ 3  
                   

Total derivative instruments designated as ASC 815 (SFAS 133) hedges

  $ 6,728   $ 1,905   $ 3,763   $ 1,586  
                   

Derivatives instruments not designated as ASC 815 (SFAS 133) hedges

                         

Over-the-counter

  $ 360,660   $ 351,664   $ 53   $ 88  

Cleared

    306,719     310,686     589     161  

Exchange traded

    202     283          
                   

Interest rate contracts

  $ 667,581   $ 662,633   $ 642   $ 249  
                   

Over-the-counter

  $ 95,368   $ 95,991   $ 64   $ 142  

Cleared

    4     3          

Exchange traded

    14     18          
                   

Foreign exchange contracts

  $ 95,386   $ 96,012   $ 64   $ 142  
                   

Over-the-counter

  $ 19,601   $ 32,600   $   $  

Cleared

                 

Exchange traded

    3,386     828          
                   

Equity contracts

  $ 22,987   $ 33,428   $   $  
                   

Over-the-counter

  $ 9,936   $ 11,185   $   $  

Cleared

                 

Exchange traded

    1,915     1,203          
                   

Commodity and other contracts

  $ 11,851   $ 12,388   $   $  
                   

Over-the-counter

  $ 43,591   $ 42,006   $ 147   $ 375  

Cleared

    1,476     1,549          

Exchange traded

                 
                   

Credit derivatives(4)

  $ 45,067   $ 43,555   $ 147   $ 375  
                   

Total derivatives instruments not designated as ASC 815 (SFAS 133) hedges

  $ 842,872   $ 848,016   $ 853   $ 766  
                   

Total derivatives

  $ 849,600   $ 849,921   $ 4,616   $ 2,352  
                   

Cash collateral paid/received(5)(6)

  $ 5,088   $ 8,814   $ 7   $ 313  

Less: Netting agreements(7)

    (764,620 )   (764,620 )        

Less: Netting cash collateral received/paid(8)

    (33,271 )   (42,193 )   (2,960 )    
                   

Net receivables/payables(9)

  $ 56,797   $ 51,922   $ 1,663   $ 2,665  
                   

Additional amounts subject to an enforceable master netting agreement but not offset on the Consolidated Balance Sheet

                         

Less: Does not meet applicable offsetting guidance

 
$

 
$

 
$

 
$

 

Less: Cash collateral received/paid

    (498 )   (15 )        

Less: Non-cash collateral received/paid

    (7,126 )   (5,913 )        
                   

Total Net receivables/payables(9)

  $ 49,173   $ 45,994   $ 1,663   $ 2,665  
                   

(1)
The trading derivatives fair values are presented in Note 11 to the Consolidated Financial Statements.

(2)
Derivative mark-to-market receivables/payables related to management hedges are recorded in either Other assets/Other liabilities or Trading account assets/Trading account liabilities.

(3)
Over-the-counter (OTC) derivatives include derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. Cleared derivatives include derivatives executed bilaterally with a counterparty in the OTC market but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. Exchange traded derivatives include derivatives executed directly on an organized exchange that provides pre-trade price transparency.

(4)
The credit derivatives trading assets are composed of $25,239 million related to protection purchased and $19,828 million related to protection sold as of June 30, 2013. The credit derivatives trading liabilities are composed of $20,163 million related to protection purchased and $23,392 million related to protection sold as of June 30, 2013.

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(5)
For the trading assets/liabilities, this is the net amount of the $47,281 million and $42,085 million of gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $42,193 million was used to offset derivative liabilities and, of the gross cash collateral received, $33,271 million was used to offset derivative assets.

(6)
For the other assets/liabilities, this is the net amount of the $7 million and $3,273 million of the gross cash collateral paid and received, respectively. Of the gross cash collateral received, $2,960 million was used to offset derivative assets.

(7)
Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.

(8)
Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements.

(9)
The net receivables/payables include approximately $15 billion and $18 billion of derivative asset and liability fair values, respectively, not subject to enforceable master netting agreements.

 
  Derivatives classified in Trading
accounts assets / liabilities(1)(2)(3)
  Derivatives classified in Other
assets / liabilities(2)(3)
 
In millions of dollars at December 31, 2012   Assets   Liabilities   Assets   Liabilities  

Derivatives instruments designated as ASC 815 (SFAS 133) hedges

                         

Over-the-counter

  $ 5,110   $ 1,702   $ 4,574   $ 1,175  

Cleared

    2,685     561         3  

Exchange traded

                 
                   

Interest Rate contracts

  $ 7,795   $ 2,263   $ 4,574   $ 1,178  
                   

Over-the-counter

  $ 341   $ 1,350   $ 978   $ 525  

Cleared

                 

Exchange traded

                 
                   

Foreign exchange contracts

  $ 341   $ 1,350   $ 978   $ 525  
                   

Over-the-counter

  $   $   $   $ 16  

Cleared

                 

Exchange traded

                 
                   

Credit derivatives

  $   $   $   $ 16  
                   

Total derivative instruments designated as ASC 815 (SFAS 133) hedges

  $ 8,136   $ 3,613   $ 5,552   $ 1,719  
                   

Derivatives instruments not designated as ASC 815 (SFAS 133) hedges

                         

Over-the-counter

  $ 485,100   $ 473,446   $ 438   $ 4  

Cleared

    406,384     416,127     11     25  

Exchange traded

    68     56          
                   

Interest Rate contracts

  $ 891,552   $ 889,629   $ 449   $ 29  
                   

Over-the-counter

  $ 75,933   $ 80,695   $ 200   $ 112  

Cleared

    4     4          

Exchange traded

                 
                   

Foreign exchange contracts

  $ 75,937   $ 80,699   $ 200   $ 112  
                   

Over-the-counter

  $ 14,273   $ 28,138   $   $  

Cleared

    53     91          

Exchange traded

    3,883     3,610          
                   

Equity contracts

  $ 18,209   $ 31,839   $   $  
                   

Over-the-counter

  $ 8,889   $ 10,154   $   $  

Cleared

                 

Exchange traded

    1,968     1,977          
                   

Commodity and other Contracts

  $ 10,857   $ 12,131   $   $  
                   

Over-the-counter

  $ 52,809   $ 51,175   $ 102   $ 392  

Cleared

    1,215     1,079          

Exchange traded

                 
                   

Credit derivatives(4)

  $ 54,024   $ 52,254   $ 102   $ 392  
                   

Total Derivatives instruments not designated as ASC 815 (SFAS 133) hedges

  $ 1,050,579   $ 1,066,552   $ 751   $ 533  
                   

Total derivatives

  $ 1,058,715   $ 1,070,165   $ 6,303   $ 2,252  
                   

Cash collateral paid/received(5)(6)

  $ 5,597   $ 7,923   $ 214   $ 658  

Less: Netting agreements(7)

    (970,782 )   (970,782 )        

Less: Netting cash collateral received/paid(8)

    (38,910 )   (55,555 )   (4,660 )    
                   

Net receivables/payables(9)

  $ 54,620   $ 51,751   $ 1,857   $ 2,910  
                   

Additional amounts subject to an enforceable master netting agreement but not offset on the Consolidated Balance Sheet

                         

Less: Does not meet applicable offsetting guidance

 
$

 
$

 
$

 
$

 

Less: Cash collateral received/paid

    (1,021 )   (10 )        

Less: Non-cash collateral received/paid

    (7,143 )   (5,641 )   (388 )    
                   

Total Net receivables/payables(9)

  $ 46,456   $ 46,100   $ 1,469   $ 2,910  
                   

(1)
The trading derivatives fair values are presented in Note 11 to the Consolidated Financial Statements.

(2)
Derivative mark-to-market receivables/payables related to management hedges are recorded in either Other assets/Other liabilities or Trading account assets/Trading account liabilities.

191


(3)
Over-the-counter (OTC) derivatives include derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. Cleared derivatives include derivatives executed bilaterally with a counterparty in the OTC market but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. Exchange traded derivatives include derivatives executed directly on an organized exchange that provides pre-trade price transparency.

(4)
The credit derivatives trading assets are composed of $34,314 million related to protection purchased and $19,710 million related to protection sold as of December 31, 2012. The credit derivatives trading liabilities are composed of $20,424 million related to protection purchased and $31,830 million related to protection sold as of December 31, 2012.

(5)
For the trading assets/liabilities, this is the net amount of the $61,152 million and $46,833 million of gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $55,555 million was used to offset derivative liabilities and, of the gross cash collateral received, $38,910 million was used to offset derivative assets.

(6)
For the other assets/liabilities, this is the net amount of the $214 million and $5,318 million of the gross cash collateral paid and received, respectively. Of the gross cash collateral received, $4,660 million was used to offset derivative assets.

(7)
Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.

(8)
Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements.

(9)
The net receivables/payables include approximately $17 billion and $18 billion of derivative asset and liability fair values, respectively, not subject to enforceable master netting agreements.

        The amounts recognized in Principal transactions in the Consolidated Statement of Income for the three and six months ended June 30, 2013 and 2012 related to derivatives not designated in a qualifying hedging relationship as well as the underlying non-derivative instruments are presented in Note 6 to the Consolidated Financial Statements. Citigroup presents this disclosure by business classification, showing derivative gains and losses related to its trading activities together with gains and losses related to non-derivative instruments within the same trading portfolios, as this represents the way these portfolios are risk managed.

        The amounts recognized in Other revenue in the Consolidated Statement of Income for the three and six months ended June 30, 2013 and 2012 are shown below. The table below does not include the offsetting gains/losses on the hedged items, which amounts are also recorded in Other revenue.

 
  Gains (losses) included in Other revenue  
 
  Three months ended June 30,   Six months ended June 30,  
In millions of dollars   2013   2012   2013   2012  

Interest rate contracts

  $ (65 ) $ 265   $ (250 ) $ (170 )

Foreign exchange

    169     (1,310 )   (902 )   (766 )

Credit derivatives

    (59 )   103     (170 )   (326 )
                   

Total Citigroup(1)

  $ 45   $ (942 ) $ (1,322 ) $ (1,262 )
                   

(1)
Non-designated derivatives are derivative instruments not designated in qualifying hedging relationships.


Accounting for Derivative Hedging

        Citigroup accounts for its hedging activities in accordance with ASC 815, Derivatives and Hedging (formerly SFAS 133). As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk, such as interest-rate or foreign-exchange risk, that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability or a forecasted transaction that may affect earnings.

        Derivative contracts hedging the risks associated with the changes in fair value are referred to as fair value hedges, while contracts hedging the risks affecting the expected future cash flows are called cash flow hedges. Hedges that utilize derivatives or debt instruments to manage the foreign exchange risk associated with equity investments in non-U.S.-dollar-functional-currency foreign subsidiaries (net investment in a foreign operation) are called net investment hedges.

        If certain hedging criteria specified in ASC 815 are met, including testing for hedge effectiveness, special hedge accounting may be applied. The hedge effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair value hedges, the changes in value of the hedging derivative, as well as the changes in value of the related hedged item due to the risk being hedged, are reflected in current earnings. For cash flow hedges and net investment hedges, the changes in value of the hedging derivative are reflected in Accumulated other comprehensive income (loss) in Citigroup's stockholders' equity, to the extent the hedge is effective. Hedge ineffectiveness, in either case, is reflected in current earnings.

        For asset/liability management hedging, the fixed-rate long-term debt would be recorded at amortized cost under current U.S. GAAP. However, by electing to use ASC 815 (SFAS 133) fair value hedge accounting, the carrying value of the debt is adjusted for changes in the benchmark interest rate, with any such changes in value recorded in current earnings. The related interest-rate swap is also recorded on the balance sheet at fair value, with any changes in fair value reflected in earnings. Thus, any ineffectiveness resulting from the hedging relationship is recorded in current earnings. Alternatively, a management hedge, which does not meet the ASC 815 hedging criteria, would involve recording only the derivative at fair value on the balance sheet, with its associated changes in fair value recorded in earnings. The debt would continue to be carried at amortized cost and, therefore, current earnings would be impacted only by the interest rate shifts and other factors that cause the change in the swap's value and may change the underlying yield of the debt. This type of hedge is undertaken when hedging requirements cannot be achieved or management decides not to apply ASC 815 hedge accounting. Another alternative for the Company is to elect to carry the debt at fair value under the fair value option. Once the irrevocable election is made upon issuance of the debt, the full change in fair value of the debt would be reported in earnings. The related interest rate swap, with changes in fair value, would also be reflected in earnings,

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and provides a natural offset to the debt's fair value change. To the extent the two offsets are not exactly equal, the difference is reflected in current earnings.

        Key aspects of achieving ASC 815 hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that, if excluded, are recognized in current earnings.


Fair Value Hedges

Hedging of benchmark interest rate risk

        Citigroup hedges exposure to changes in the fair value of outstanding fixed-rate issued debt and certificates of deposit. Depending on the risk management objectives, these types of hedges are designated as either fair value hedges of only the benchmark interest rate risk or fair value hedges of both the benchmark interest rate and foreign exchange risk. The fixed cash flows from those financing transactions are converted to benchmark variable-rate cash flows by entering into, respectively, receive-fixed, pay-variable interest rate swaps or receive-fixed in non-functional currency, pay variable in functional currency swaps. These fair value hedge relationships use either regression or dollar-offset ratio analysis to determine whether the hedging relationships are highly effective at inception and on an ongoing basis.

        Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale debt securities and loans. When certain interest rates do not qualify as a benchmark interest rate, Citigroup designates the risk being hedged as the risk of changes in overall fair value. The hedging instruments used are receive-variable, pay-fixed interest rate swaps. These fair value hedging relationships use either regression or dollar-offset ratio analysis to determine whether the hedging relationships are highly effective at inception and on an ongoing basis.

Hedging of foreign exchange risk

        Citigroup hedges the change in fair value attributable to foreign-exchange rate movements in available-for-sale securities that are denominated in currencies other than the functional currency of the entity holding the securities, which may be within or outside the U.S. The hedging instrument employed is a forward foreign-exchange contract. In this type of hedge, the change in fair value of the hedged available-for-sale security attributable to the portion of foreign exchange risk hedged is reported in earnings and not Accumulated other comprehensive income—a process that serves to offset substantially the change in fair value of the forward contract that is also reflected in earnings. Citigroup considers the premium associated with forward contracts (differential between spot and contractual forward rates) as the cost of hedging; this is excluded from the assessment of hedge effectiveness and reflected directly in earnings. The dollar-offset method is used to assess hedge effectiveness. Since that assessment is based on changes in fair value attributable to changes in spot rates on both the available-for-sale securities and the forward contracts for the portion of the relationship hedged, the amount of hedge ineffectiveness is not significant.

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        The following table summarizes the gains (losses) on the Company's fair value hedges for the three and six months ended June 30, 2013 and 2012:

 
  Gains (losses) on fair value hedges(1)  
 
  Three months ended June 30,   Six months ended June 30,  
In millions of dollars   2013   2012   2013   2012  

Gain (loss) on the derivatives in designated and qualifying fair value hedges

                         

Interest rate contracts

  $ (1,557 ) $ 1,945   $ (2,491 ) $ 453  

Foreign exchange contracts

    39     154     (253 )   404  
                   

Total gain (loss) on the derivatives in designated and qualifying fair value hedges

  $ (1,518 ) $ 2,099   $ (2,744 ) $ 857  
                   

Gain (loss) on the hedged item in designated and qualifying fair value hedges

                         

Interest rate hedges

  $ 1,536   $ (1,789 ) $ 2,468   $ (535 )

Foreign exchange hedges

    (4 )   (136 )   302     (370 )
                   

Total gain (loss) on the hedged item in designated and qualifying fair value hedges

  $ 1,532   $ (1,925 ) $ 2,770   $ (905 )
                   

Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges

                         

Interest rate hedges

  $ (21 ) $ 156   $ (23 ) $ (82 )

Foreign exchange hedges

    6     8     (6 )   11  
                   

Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges

  $ (15 ) $ 164   $ (29 ) $ (71 )
                   

Net gain (loss) excluded from assessment of the effectiveness of fair value hedges

                         

Interest rate contracts

  $   $   $   $  

Foreign exchange contracts

    29     10     55     23  
                   

Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges

  $ 29   $ 10   $ 55   $ 23  
                   

(1)
Amounts are included in Other revenue on the Consolidated Statement of Income. The accrued interest income on fair value hedges is recorded in Net interest revenue and is excluded from this table.

Cash Flow Hedges

Hedging of benchmark interest rate risk

        Citigroup hedges variable cash flows resulting from floating-rate liabilities and rollover (re-issuance) of liabilities. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps and receive-variable, pay-fixed forward-starting interest rate swaps. Citi also hedges variable cash flows from recognized and forecasted floating-rate assets and origination of short-term assets. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receive-fixed, 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. When certain interest rates do not qualify as a benchmark interest rate, Citigroup designates the risk being hedged as the risk of overall changes in the hedged cash flows. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant.

Hedging of foreign exchange risk

        Citigroup locks in the functional currency equivalent cash flows of long-term debt and short-term borrowings that are denominated in a currency other than the functional currency of the issuing entity. Depending on the risk management objectives, these types of hedges are designated as either cash flow hedges of only foreign exchange risk or cash flow hedges of both foreign exchange and interest rate risk, and the hedging instruments used are foreign exchange cross-currency swaps and forward contracts. These cash flow hedge relationships use dollar-offset ratio analysis to determine whether the hedging relationships are highly effective at inception and on an ongoing basis.

Hedging of overall changes in cash flows

        Citigroup hedges the overall exposure to variability in cash flows related to the future acquisition of mortgage-backed securities using "to be announced" forward contracts. Since the hedged transaction is the gross settlement of the forward, the assessment of hedge effectiveness is based on assuring that the terms of the hedging instrument and the hedged forecasted transaction are the same.

194


Hedging total return

        Citigroup generally manages the risk associated with leveraged loans it has originated or in which it participates by transferring a majority of its exposure to the market through SPEs prior to or shortly after funding. Retained exposures to leveraged loans receivable are generally hedged using total return swaps.

        The amount of hedge ineffectiveness on the cash flow hedges recognized in earnings for the three- and six-month periods ended June 30, 2013 and 2012 is not significant.

        The pretax change in Accumulated other comprehensive income (loss) from cash flow hedges is presented below:

 
  Three months ended June 30,   Six months ended June 30,  
In millions of dollars   2013   2012   2013   2012  

Effective portion of cash flow hedges included in AOCI

                         

Interest rate contracts

  $ 474   $ (278 ) $ 513   $ (265 )

Foreign exchange contracts

    71     (129 )   3     (60 )

Credit derivatives

    14           18        
                   

Total effective portion of cash flow hedges included in AOCI

  $ 559   $ (407 ) $ 534   $ (325 )
                   

Effective portion of cash flow hedges reclassified from AOCI to earnings

                         

Interest rate contracts

  $ (202 ) $ (223 ) $ (385 ) $ (461 )

Foreign exchange contracts

    (43 )   (44 )   (86 )   (84 )
                   

Total effective portion of cash flow hedges reclassified from AOCI to earnings(1)

  $ (245 ) $ (267 ) $ (471 ) $ (545 )
                   

(1)
Included primarily in Other revenue and Net interest revenue on the Consolidated Income Statement.

        For cash flow hedges, any changes in the fair value of the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earnings of future periods to offset the variability of the hedged cash flows when such cash flows affect earnings. The net loss associated with cash flow hedges expected to be reclassified from Accumulated other comprehensive income (loss) within 12 months of June 30, 2013 is approximately $1.0 billion. The maximum length of time over which forecasted cash flows are hedged is 10 years.

        The after-tax impact of cash flow hedges on AOCI is shown in Note 17 to the Consolidated Financial Statements.

Net Investment Hedges

        Consistent with ASC 830-20, Foreign Currency Matters—Foreign Currency Transactions (formerly SFAS 52, Foreign Currency Translation), ASC 815 allows hedging of the foreign currency risk of a net investment in a foreign operation. Citigroup uses foreign currency forwards, options and foreign-currency-denominated debt instruments to manage the foreign exchange risk associated with Citigroup's equity investments in several non-U.S.-dollar-functional-currency foreign subsidiaries. Citigroup records the change in the carrying amount of these investments in the Foreign currency translation adjustment account within Accumulated other comprehensive income (loss). Simultaneously, the effective portion of the hedge of this exposure is also recorded in the Foreign currency translation adjustment account and the ineffective portion, if any, is immediately recorded in earnings.

        For derivatives designated as net investment hedges, Citigroup follows the forward-rate method from FASB Derivative Implementation Group Issue H8 (now ASC 815-35-35-16 through 35-26), "Foreign Currency Hedges: Measuring the Amount of Ineffectiveness in a Net Investment Hedge." According to that method, all changes in fair value, including changes related to the forward-rate component of the foreign currency forward contracts and the time value of foreign currency options, are recorded in the Foreign currency translation adjustment account within Accumulated other comprehensive income (loss).

        For foreign-currency-denominated debt instruments that are designated as hedges of net investments, the translation gain or loss that is recorded in the Foreign currency translation adjustment account is based on the spot exchange rate between the functional currency of the respective subsidiary and the U.S. dollar, which is the functional currency of Citigroup. To the extent the notional amount of the hedging instrument exactly matches the hedged net investment and the underlying exchange rate of the derivative hedging instrument relates to the exchange rate between the functional currency of the net investment and Citigroup's functional currency (or, in the case of a non-derivative debt instrument, such instrument is denominated in the functional currency of the net investment), no ineffectiveness is recorded in earnings.

        The pretax gain (loss) recorded in the Foreign currency translation adjustment account within Accumulated other comprehensive income (loss), related to the effective portion of the net investment hedges, is $1,572 million and $2,062 million for the three-and six-month periods ended June 30, 2013, respectively and $949 million and $(1,056) million for the three-and six-month periods ended June 30, 2012, respectively.

195


Credit Derivatives

        A credit derivative is a bilateral contract between a buyer and a seller under which the seller agrees to provide protection to the buyer against the credit risk of a particular entity ("reference entity" or "reference credit"). Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined credit events (commonly referred to as "settlement triggers"). These settlement triggers are defined by the form of the derivative and the reference credit and are generally limited to the market standard of failure to pay on indebtedness and bankruptcy of the reference credit and, in a more limited range of transactions, debt restructuring. Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. In certain transactions, protection may be provided on a portfolio of reference credits or asset-backed securities. The seller of such protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.

        The Company makes markets and trades a range of credit derivatives. Through these contracts, the Company either purchases or writes protection on either a single name or a portfolio of reference credits. The Company also uses credit derivatives to help mitigate credit risk in its Corporate and Consumer loan portfolios and other cash positions, and to facilitate client transactions.

        The range of credit derivatives sold includes credit default swaps, total return swaps, credit options and credit-linked notes.

        A credit default swap is a contract in which, for a fee, a protection seller agrees to reimburse a protection buyer for any losses that occur due to a credit event on a reference entity. If there is no credit default event or settlement trigger, as defined by the specific derivative contract, then the protection seller makes no payments to the protection buyer and receives only the contractually specified fee. However, if a credit event occurs as defined in the specific derivative contract sold, the protection seller will be required to make a payment to the protection buyer.

        A total return swap transfers the total economic performance of a reference asset, which includes all associated cash flows, as well as capital appreciation or depreciation. The protection buyer receives a floating rate of interest and any depreciation on the reference asset from the protection seller and, in return, the protection seller receives the cash flows associated with the reference asset plus any appreciation. Thus, according to the total return swap agreement, the protection seller will be obligated to make a payment any time the floating interest rate payment and any depreciation of the reference asset exceed the cash flows associated with the underlying asset. A total return swap may terminate upon a default of the reference asset subject to the provisions of the related total return swap agreement between the protection seller and the protection buyer.

        A credit option is a credit derivative that allows investors to trade or hedge changes in the credit quality of the reference asset. For example, in a credit spread option, the option writer assumes the obligation to purchase or sell the reference asset at a specified "strike" spread level. The option purchaser buys the right to sell the reference asset to, or purchase it from, the option writer at the strike spread level. The payments on credit spread options depend either on a particular credit spread or the price of the underlying credit-sensitive asset. The options usually terminate if the underlying assets default.

        A credit-linked note is a form of credit derivative structured as a debt security with an embedded credit default swap. The purchaser of the note writes credit protection to the issuer, and receives a return that will be negatively affected by credit events on the underlying reference credit. If the reference entity defaults, the purchaser of the credit-linked note may assume the long position in the debt security and any future cash flows from it, but will lose the amount paid to the issuer of the credit-linked note. Thus the maximum amount of the exposure is the carrying amount of the credit-linked note. As of June 30, 2013 and December 31, 2012, the amount of credit-linked notes held by the Company in trading inventory was immaterial.

        The following tables summarize the key characteristics of the Company's credit derivative portfolio as protection seller as of June 30, 2013 and December 31, 2012:

In millions of dollars as of
June 30, 2013
  Maximum potential
amount of
future payments
  Fair
value
payable(1)(2)
 

By industry/counterparty

             

Bank

  $ 871,431   $ 13,677  

Broker-dealer

    290,286     6,428  

Non-financial

    3,317     89  

Insurance and other financial institutions

    195,813     3,198  
           

Total by industry/counterparty

  $ 1,360,847   $ 23,392  
           

By instrument

             

Credit default swaps and options

  $ 1,359,548   $ 23,301  

Total return swaps and other

    1,299     91  
           

Total by instrument

  $ 1,360,847   $ 23,392  
           

By rating

             

Investment grade

  $ 618,914   $ 6,391  

Non-investment grade

    188,392     9,121  

Not rated

    553,541     7,880  
           

Total by rating

  $ 1,360,847   $ 23,392  
           

By maturity

             

Within 1 year

  $ 255,357   $ 720  

From 1 to 5 years

    1,027,097     16,483  

After 5 years

    78,393     6,189  
           

Total by maturity

  $ 1,360,847   $ 23,392  
           

(1)
In addition, fair value amounts payable under credit derivatives purchased were $20,541 million.

(2)
In addition, fair value amounts receivable under credit derivatives sold were $19,828 million.

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In millions of dollars as of
December 31, 2012
  Maximum potential
amount of
future payments
  Fair
value
payable(1)(2)
 

By industry/counterparty

             

Bank

  $ 863,411   $ 18,824  

Broker-dealer

    304,968     9,193  

Non-financial

    3,241     87  

Insurance and other financial institutions

    174,874     3,726  
           

Total by industry/counterparty

  $ 1,346,494   $ 31,830  
           

By instrument

             

Credit default swaps and options

  $ 1,345,162   $ 31,624  

Total return swaps and other

    1,332     206  
           

Total by instrument

  $ 1,346,494   $ 31,830  
           

By rating

             

Investment grade

  $ 637,343   $ 6,290  

Non-investment grade

    200,529     15,591  

Not rated

    508,622     9,949  
           

Total by rating

  $ 1,346,494   $ 31,830  
           

By maturity

             

Within 1 year

  $ 287,670   $ 2,388  

From 1 to 5 years

    965,059     21,542  

After 5 years

    93,765     7,900  
           

Total by maturity

  $ 1,346,494   $ 31,830  
           

(1)
In addition, fair value amounts payable under credit derivatives purchased were $20,832 million.

(2)
In addition, fair value amounts receivable under credit derivatives sold were $19,710 million.

        Citigroup evaluates the payment/performance risk of the credit derivatives for which it stands as a protection seller based on the credit rating assigned to the underlying referenced credit. Where external ratings by nationally recognized statistical rating organizations (such as Moody's and S&P) are used, investment grade ratings are considered to be Baa/BBB or above, while anything below is considered non-investment grade. The Citigroup internal ratings are in line with the related external credit rating system. On certain underlying reference credits, mainly related to over-the-counter credit derivatives, ratings are not available, and these are included in the not-rated category. Credit derivatives written on an underlying non-investment grade reference credit represent greater payment risk to the Company. The non-investment grade category in the table above primarily includes credit derivatives where the underlying referenced entity has been downgraded subsequent to the inception of the derivative.

        The maximum potential amount of future payments under credit derivative contracts presented in the table above is based on the notional value of the derivatives. The Company believes that the maximum potential amount of future payments for credit protection sold is not representative of the actual loss exposure based on historical experience. This amount has not been reduced by the Company's rights to the underlying assets and the related cash flows. In accordance with most credit derivative contracts, should a credit event (or settlement trigger) occur, the Company is usually liable for the difference between the protection sold and the recourse it holds in the value of the underlying assets. Thus, if the reference entity defaults, Citi will generally have a right to collect on the underlying reference credit and any related cash flows, while being liable for the full notional amount of credit protection sold to the buyer. Furthermore, this maximum potential amount of future payments for credit protection sold has not been reduced for any cash collateral paid to a given counterparty as such payments would be calculated after netting all derivative exposures, including any credit derivatives with that counterparty in accordance with a related master netting agreement. Due to such netting processes, determining the amount of collateral that corresponds to credit derivative exposures alone is not possible. The Company actively monitors open credit risk exposures and manages this exposure by using a variety of strategies, including purchased credit derivatives, cash collateral or direct holdings of the referenced assets. This risk mitigation activity is not captured in the table above.

Credit-Risk-Related Contingent Features in Derivatives

        Certain derivative instruments contain provisions that require the Company to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit-risk-related event. These events, which are defined by the existing derivative contracts, are primarily downgrades in the credit ratings of the Company and its affiliates. The fair value (excluding CVA) of all derivative instruments with credit-risk-related contingent features that are in a net liability position at June 30, 2013 and December 31, 2012 is $28 and $36 billion, respectively. The Company has posted $25 and $32 billion as collateral for this exposure in the normal course of business as of June 30, 2013 and December 31, 2012, respectively.

        Each downgrade would trigger additional collateral or cash settlement requirements for the Company and its affiliates. In the event that each legal entity was downgraded a single notch by the three rating agencies as of June 30, 2013, the Company would be required to post an additional $3.5 billion, as either collateral or settlement of the derivative transactions. Additionally, the Company would be required to segregate with third-party custodians collateral previously received from existing derivative counterparties in the amount of $0.1 billion upon the single notch downgrade, resulting in aggregate cash obligations and collateral requirements of approximately $3.6 billion.

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21.   FAIR VALUE MEASUREMENT

        ASC 820-10 (formerly SFAS 157) Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Among other things, the standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

        Under ASC 820-10, the probability of default of a counterparty is factored into the valuation of derivative positions and includes the impact of Citigroup's own credit risk on derivatives and other liabilities measured at fair value.

Fair Value Hierarchy

        ASC 820-10 specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair value hierarchy:

        This hierarchy requires the use of observable market data when available. The Company considers relevant and observable market prices in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the liquidity of markets and the relevance of observed prices in those markets.

        The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the end of the reporting period.

Determination of Fair Value

        For assets and liabilities carried at fair value, the Company measures such value using the procedures set out below, irrespective of whether these assets and liabilities are carried at fair value as a result of an election or whether they are required to be carried at fair value.

        When available, the Company generally uses quoted market prices to determine fair value and classifies such items as Level 1. In some cases where a market price is available, the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified as Level 2.

        If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based parameters, such as interest rates, currency rates, option volatilities, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified as Level 3 even though there may be some significant inputs that are readily observable.

        The Company may also apply a price-based methodology, which utilizes, where available, quoted prices or other market information obtained from recent trading activity in positions with the same or similar characteristics to the position being valued. The market activity and the amount of the bid-ask spread are among the factors considered in determining the liquidity of markets and the relevance of observed prices from those markets. If relevant and observable prices are available, those valuations may be classified as Level 2. When less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the price of a similar security is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate the valuation, the "price" inputs are considered unobservable and the fair value measurements are classified as Level 3.

        Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors and brokers' valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models.

        The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models and any significant assumptions.

Market valuation adjustments

        Liquidity adjustments are applied to items in Level 2 and Level 3 of the fair value hierarchy to ensure that the fair value reflects the liquidity or illiquidity of the market. The liquidity reserve may utilize the bid-offer spread for an instrument as one of the factors.

        Counterparty credit-risk adjustments are applied to derivatives, such as over-the-counter uncollateralized derivatives, where the base valuation uses market parameters based on the relevant base interest rate curves. Not all counterparties have the same credit risk as that implied by the relevant base curve, so it is necessary to consider the market view of the credit risk of a counterparty in order to estimate the fair value of such an item.

        Bilateral or "own" credit-risk adjustments are applied to reflect the Company's own credit risk when valuing derivatives and liabilities measured at fair value. Counterparty and own credit adjustments consider the expected future cash flows between Citi and its counterparties under the terms of the instrument and the effect of credit risk on the valuation of those cash flows, rather than a point-in-time assessment of the current recognized net asset or liability. Furthermore, the credit-risk adjustments take into account the effect of credit-risk mitigants, such as pledged collateral and any legal right of offset (to the extent such offset exists) with a counterparty through arrangements such as netting agreements.

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        Generally, the unit of account for a financial instrument is the individual financial instrument. The Company applies market valuation adjustments that are consistent with the unit of account, which does not include adjustment due to the size of the Company's position, except as follows. ASC 820-10 permits an exception, through an accounting policy election, to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position when certain criteria are met. Citi has elected to measure certain portfolios of financial instruments, such as derivatives, that meet those criteria on the basis of the net open risk position. The Company applies market valuation adjustments, including adjustments to account for the size of the net open risk position, consistent with market participant assumptions and in accordance with the unit of account.

Valuation Process for Level 3 Fair Value Measurements

        Price verification procedures and related internal control procedures are governed by the Citigroup Pricing and Price Verification Policy and Standards, which is jointly owned by Finance and Risk Management. Finance has implemented the ICG Securities and Banking Pricing and Price Verification Standards and Procedures to facilitate compliance with this policy.

        For fair value measurements of substantially all assets and liabilities held by the Company, individual business units are responsible for valuing the trading account assets and liabilities, and Product Control within Finance performs independent price verification procedures to evaluate those fair value measurements. Product Control is independent of the individual business units and reports into the Global Head of Product Control. It has authority over the valuation of financial assets and liabilities. Fair value measurements of assets and liabilities are determined using various techniques, including, but not limited to, discounted cash flows and internal models, such as option and correlation models.

        Based on the observability of inputs used, Product Control classifies the inventory as Level 1, Level 2 or Level 3 of the fair value hierarchy. When a position involves one or more significant inputs that are not directly observable, additional price verification procedures are applied. These procedures may include reviewing relevant historical data, analyzing profit and loss, valuing each component of a structured trade individually, and benchmarking, among others.

        Reports of inventory that is classified within Level 3 of the fair value hierarchy are distributed to senior management in Finance, Risk and the individual business. This inventory is also discussed in Risk Committees and in monthly meetings with senior trading management. As deemed necessary, reports may go to the Audit Committee of the Board of Directors or to the full Board of Directors. Whenever a valuation adjustment is needed to bring the price of an asset or liability to its exit price, Product Control reports it to management along with other price verification results.

        In addition, the pricing models used in measuring fair value are governed by an independent control framework. Although the models are developed and tested by the individual business units, they are independently validated by the Model Validation Group within Risk Management and reviewed by Finance with respect to their impact on the price verification procedures. The purpose of this independent control framework is to assess model risk arising from models' theoretical soundness, calibration techniques where needed, and the appropriateness of the model for a specific product in a defined market. Valuation adjustments, if any, go through a similar independent review process as the valuation models. To ensure their continued applicability, models are independently reviewed annually. In addition, Risk Management approves and maintains a list of products permitted to be valued under each approved model for a given business.

Securities purchased under agreements to resell and securities sold under agreements to repurchase

        No quoted prices exist for such instruments, so fair value is determined using a discounted cash-flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivative or other features. Expected cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Generally, when such instruments are held at fair value, they are classified within Level 2 of the fair value hierarchy, as the inputs used in the valuation are readily observable. However, certain long-dated positions are classified within Level 3 of the fair value hierarchy.

Trading account assets and liabilities—trading securities and trading loans

        When available, the Company uses quoted market prices to determine the fair value of trading securities; such items are classified as Level 1 of the fair value hierarchy. Examples include some government securities and exchange-traded equity securities.

        For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing valuation techniques, including discounted cash flows, price-based and internal models, such as Black-Scholes and Monte Carlo simulation. Fair value estimates from these internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. A price-based methodology utilizes, where available, quoted prices or other market information obtained from recent trading activity of assets with similar characteristics to the bond or loan being valued. The yields used in discounted cash flow models are derived from the same price information. Trading securities and loans priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the price of a similar security or loan is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate valuation, a loan or security is generally classified as Level 3. The price input used in a price-based methodology may be zero for a security, such as a subprime CDO, that is not receiving any principal or interest and is currently written down to zero.

        Where the Company's principal market for a portfolio of loans is the securitization market, the Company uses the securitization price to determine the fair value of the portfolio. The securitization price is determined from the assumed

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proceeds of a hypothetical securitization in the current market, adjusted for transformation costs (i.e., direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. As a result of the severe reduction in the level of activity in certain securitization markets since the second half of 2007, observable securitization prices for certain directly comparable portfolios of loans have not been readily available. Therefore, such portfolios of loans are generally classified as Level 3 of the fair value hierarchy. However, for other loan securitization markets, such as commercial real estate loans, price verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, this loan portfolio is classified as Level 2 of the fair value hierarchy.

Trading account assets and liabilities—derivatives

        Exchange-traded derivatives are generally measured at fair value using quoted market (i.e., exchange) prices and are classified as Level 1 of the fair value hierarchy.

        The majority of derivatives entered into by the Company are executed over the counter and are valued using internal valuation techniques, as no quoted market prices exist for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. The principal techniques used to value these instruments are discounted cash flows and internal models, including 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, volatilities and correlation. The Company uses overnight indexed swap curves as fair value measurement inputs for the valuation of certain collateralized interest-rate related derivatives. The instrument is classified as either Level 2 or Level 3 depending upon the observability of the significant inputs to the model.

Subprime-related direct exposures in CDOs

        The valuation of high-grade and mezzanine asset-backed security (ABS) CDO positions utilizes prices based on the underlying assets of each high-grade and mezzanine ABS CDO. The high-grade and mezzanine positions are largely hedged through the ABS and bond short positions. This results in closer symmetry in the way these long and short positions are valued by the Company. Citigroup uses trader marks to value this portion of the portfolio and will do so as long as it remains largely hedged.

        For most of the lending and structured direct subprime exposures, fair value is determined utilizing observable transactions where available, other market data for similar assets in markets that are not active and other internal valuation techniques.

Investments

        The investments category includes available-for-sale debt and marketable equity securities, whose fair value is generally determined by utilizing similar procedures described for trading securities above or, in some cases, using consensus pricing as the primary source.

        Also included in investments are nonpublic investments in private equity and real estate entities held by the S&B business. Determining the fair value of nonpublic securities involves a significant degree of management resources and judgment, as no quoted prices exist and such securities are generally very thinly traded. In addition, there may be transfer restrictions on private equity securities. The Company's process for determining the fair value of such securities utilizes commonly accepted valuation techniques, including comparables analysis. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances or other observable transactions. As discussed in Note 12 to the Consolidated Financial Statements, the Company uses net asset value to value certain of these investments.

        Private equity securities are generally classified as Level 3 of the fair value hierarchy.

Short-term borrowings and long-term debt

        Where fair value accounting has been elected, the fair value of non-structured liabilities is determined by utilizing internal models using the appropriate discount rate for the applicable maturity. Such instruments are generally classified as Level 2 of the fair value hierarchy, as all inputs are readily observable.

        The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) and hybrid financial instruments (where performance is linked to risks other than interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above in "Trading account assets and liabilities—derivatives") given the nature of the embedded risk profile. Such instruments are classified as Level 2 or Level 3 depending on the observability of significant inputs to the model.

Alt-A mortgage securities

        The Company classifies its Alt-A mortgage securities as held-to-maturity, available-for-sale and trading investments. The securities classified as trading and available-for-sale are recorded at fair value with changes in fair value reported in current earnings and AOCI, respectively. For these purposes, Citi defines Alt-A mortgage securities as non-agency residential mortgage-backed securities (RMBS) where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.

        Similar to the valuation methodologies used for other trading securities and trading loans, the Company generally determines the fair values of Alt-A mortgage securities utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Consensus data providers compile prices from various sources. Where available, the

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Company may also make use of quoted prices for recent trading activity in securities with the same or similar characteristics to the security being valued.

        The valuation techniques used for Alt-A mortgage securities, as with other mortgage exposures, are price-based and yield analysis. The primary market-derived input is yield. Cash flows are based on current collateral performance with prepayment rates and loss projections reflective of current economic conditions of housing price change, unemployment rates, interest rates, borrower attributes and other market indicators.

        Alt-A mortgage securities that are valued using these methods are generally classified as Level 2. However, Alt-A mortgage securities backed by Alt-A mortgages of lower quality or subordinated tranches in the capital structure are mostly classified as Level 3 due to the reduced liquidity that exists for such positions, which reduces the reliability of prices available from independent sources.

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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 June 30, 2013 and December 31, 2012. The Company's hedging of positions that have been classified in the Level 3 category is not limited to other financial instruments (hedging instruments) that have been classified as Level 3, but also instruments classified as Level 1 or Level 2 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.

Fair Value Levels

In millions of dollars at June 30, 2013   Level 1(1)   Level 2(1)   Level 3   Gross
inventory
  Netting(2)   Net
balance
 

Assets

                                     

Federal funds sold and securities borrowed or purchased under agreements to resell

  $   $ 223,686   $ 4,177   $ 227,863   $ (63,697 ) $ 164,166  

Trading securities

                                     

Trading mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed

  $   $ 29,924   $ 1,704   $ 31,628   $   $ 31,628  

Residential

        1,801     2,938     4,739         4,739  

Commercial

        2,150     326     2,476         2,476  
                           

Total trading mortgage-backed securities

  $   $ 33,875   $ 4,968   $ 38,843   $   $ 38,843  
                           

U.S. Treasury and federal agency securities

  $ 18,339   $ 4,783   $   $ 23,122   $   $ 23,122  

State and municipal

        4,206     241     4,447         4,447  

Foreign government

    54,352     27,671     240     82,263         82,263  

Corporate

        29,738     1,688     31,426         31,426  

Equity securities

    49,861     2,591     190     52,642         52,642  

Asset-backed securities

        1,138     4,259     5,397         5,397  

Other debt securities

        9,357     2,276     11,633         11,633  
                           

Total trading securities

  $ 122,552   $ 113,359   $ 13,862   $ 249,773   $   $ 249,773  
                           

Trading account derivatives

                                     

Interest rate contracts

    38     669,070     3,520     672,628              

Foreign exchange contracts

    41     95,663     1,363     97,067              

Equity contracts

    3,921     17,399     1,667     22,987              

Commodity contracts

    836     10,133     882     11,851              

Credit derivatives

        42,007     3,060     45,067              
                               

Total trading account derivatives

  $ 4,836   $ 834,272   $ 10,492   $ 849,600              

Gross cash collateral paid(3)

                      5,088              

Netting agreements

                          $ (764,620 )      

Netting of cash collateral received

                            (33,271 )      
                           

Total trading account derivatives

  $ 4,836   $ 834,272   $ 10,492   $ 854,688   $ (797,891 ) $ 56,797  
                           

Investments

                                     

Mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed

  $   $ 48,988   $ 420   $ 49,408   $   $ 49,408  

Residential

        8,938         8,938         8,938  

Commercial

        449     3     452         452  
                           

Total investment mortgage-backed securities

  $   $ 58,375   $ 423   $ 58,798   $   $ 58,798  
                           

U.S. Treasury and federal agency securities

  $ 63,245   $ 21,308   $ 9   $ 84,562   $   $ 84,562  
                           

See footnotes on the next page.

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In millions of dollars at June 30, 2013   Level 1(1)   Level 2(1)   Level 3   Gross
inventory
  Netting(2)   Net
balance
 

State and municipal

  $   $ 16,645   $ 684   $ 17,329   $   $ 17,329  

Foreign government

    32,518     53,422     367     86,307         86,307  

Corporate

    6     9,940     404     10,350         10,350  

Equity securities

    2,545     568     779     3,892         3,892  

Asset-backed securities

        14,126     1,758     15,884         15,884  

Other debt securities

        205     51     256         256  

Non-marketable equity securities

        357     5,363     5,720         5,720  
                           

Total investments

  $ 98,314   $ 174,946   $ 9,838   $ 283,098   $   $ 283,098  
                           

Loans(4)

  $   $ 547   $ 4,321   $ 4,868   $   $ 4,868  

Mortgage servicing rights

            2,524     2,524         2,524  
                           

Nontrading derivatives and other financial assets measured on a recurring basis, gross

  $   $ 13,229   $ 245   $ 13,474              

Cash collateral paid

                    $ 7              

Netting of cash collateral received

                          $ (2,960 )      
                           

Nontrading derivatives and other financial assets measured on a recurring basis

  $   $ 13,229   $ 245   $ 13,481   $ (2,960 ) $ 10,521  
                           

Total assets

  $ 225,702   $ 1,360,039   $ 45,459   $ 1,636,295   $ (864,548 ) $ 771,747  

Total as a percentage of gross assets(5)

    13.8 %   83.4 %   2.8 %   100.0 %            
                           

Liabilities

                                     

Interest-bearing deposits

  $   $ 680   $ 831   $ 1,511   $   $ 1,511  

Federal funds purchased and securities loaned or sold under agreements to repurchase

        183,202     1,007     184,209     (63,697 )   120,512  

Trading account liabilities

                                     

Securities sold, not yet purchased

    59,423     11,227     450     71,100           71,100  

Trading account derivatives

                                     

Interest rate contracts

  $ 36   $ 661,570   $ 2,437   $ 664,043              

Foreign exchange contracts

    3     95,508     996     96,507              

Equity contracts

    3,947     26,722     2,759     33,428              

Commodity contracts

    641     10,647     1,100     12,388              

Credit derivatives

        40,454     3,101     43,555              
                               

Total trading account derivatives

  $ 4,627   $ 834,901   $ 10,393   $ 849,921              

Cash collateral received(6)

                      8,814              

Netting agreements

                          $ (764,620 )      

Netting of cash collateral paid

                            (42,193 )      
                           

Total trading account derivatives

  $ 4,627   $ 834,901   $ 10,393   $ 858,735   $ (806,813 ) $ 51,922  

Short-term borrowings

        4,158     335     4,493         4,493  

Long-term debt

        20,346     6,811     27,157         27,157  
                           

Nontrading derivatives and other financial liabilities measured on a recurring basis, gross

  $   $ 2,257   $ 95   $ 2,352              

Cash collateral received(7)

                    $ 313              

Nontrading derivatives and other financial liabilities measured on a recurring basis

        2,257     95     2,665         2,665  
                           

Total liabilities

  $ 64,050   $ 1,056,771   $ 19,922   $ 1,149,870   $ (870,510 ) $ 279,358  

Total as a percentage of gross liabilities(5)

    5.6 %   92.7 %   1.7 %   100.0 %            
                           

(1)
For the three and six months ended June 30, 2013, the Company transferred assets of approximately $0.5 billion and $0.9 billion, respectively, from Level 1 to Level 2. During the three and six months ended June 30, 2013, the Company transferred assets of approximately $0.2 billion and $49 billion, respectively, from Level 2 to Level 1. Almost all of the transfers during the six months ended June 2013 were related to U.S. Treasury securities held across the Company's major investment portfolios where Citi obtained additional information from its external pricing sources to meet the criteria for Level 1 classification. During the three and six months ended June 30, 2013, the Company transferred liabilities of $14 million and $25 million, respectively, from Level 1 to Level 2, and $33 million and $54 million, respectively from Level 2 to Level 1.

(2)
Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.

(3)
This is the net amount of the $47,281 million of gross cash collateral paid, of which $42,193 million was used to offset derivative liabilities.

(4)
There is no allowance for loan losses recorded for loans reported at fair value.

(5)
Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives.

(6)
This is the net amount of the $42,085 million of gross cash collateral received, of which $33,271 million was used to offset derivative assets.

(7)
This is the net amount of the $3,273 million of gross cash collateral received, of which $2,960 million was used to offset derivative assets.

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Fair Value Levels

In millions of dollars at December 31, 2012
  Level 1(1)   Level 2(1)   Level 3   Gross
inventory
  Netting(2)   Net
balance
 

Assets

                                     

Federal funds sold and securities borrowed or purchased under agreements to resell

  $   $ 198,278   $ 5,043   $ 203,321   $ (42,732 ) $ 160,589  

Trading securities

                                     

Trading mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed          

        29,835     1,325     31,160         31,160  

Residential

        1,663     1,805     3,468         3,468  

Commercial

        1,322     1,119     2,441         2,441  
                           

Total trading mortgage-backed securities

  $   $ 32,820   $ 4,249   $ 37,069   $   $ 37,069  
                           

U.S. Treasury and federal agency securities

  $ 15,416   $ 4,940   $   $ 20,356   $   $ 20,356  

State and municipal

        3,611     195     3,806         3,806  

Foreign government

    57,831     31,097     311     89,239         89,239  

Corporate

        33,194     2,030     35,224         35,224  

Equity securities

    54,640     2,094     264     56,998         56,998  

Asset-backed securities

        899     4,453     5,352         5,352  

Other debt securities

        15,944     2,321     18,265         18,265  
                           

Total trading securities

  $ 127,887   $ 124,599   $ 13,823   $ 266,309   $   $ 266,309  
                           

Trading account derivatives

                                     

Interest rate contracts

  $ 2   $ 897,635   $ 1,710   $ 899,347              

Foreign exchange contracts

    18     75,358     902     76,278              

Equity contracts

    2,359     14,109     1,741     18,209              

Commodity contracts

    410     9,752     695     10,857              

Credit derivatives

        49,858     4,166     54,024              
                               

Total trading account derivatives

  $ 2,789   $ 1,046,712   $ 9,214   $ 1,058,715              

Gross cash collateral paid(3)

                      5,597              

Netting agreements

                          $ (990,782 )      

Netting of cash collateral received

                            (38,910 )      
                           

Total trading account derivatives

  $ 2,789   $ 1,046,712   $ 9,214   $ 1,064,312   $ (1,009,692 ) $ 54,620  
                           

Investments

                                     

Mortgage-backed securities

                                     

U.S. government-sponsored agency guaranteed          

  $ 46   $ 45,841   $ 1,458   $ 47,345   $   $ 47,345  

Residential

        7,472     205     7,677         7,677  

Commercial

        449         449         449  
                           

Total investment mortgage-backed securities

  $ 46   $ 53,762   $ 1,663   $ 55,471   $   $ 55,471  
                           

U.S. Treasury and federal agency securities

  $ 13,204   $ 78,625   $ 12   $ 91,841   $   $ 91,841  
                           

See footnotes on the next page.

204


In millions of dollars at December 31, 2012
  Level 1(1)   Level 2(1)   Level 3   Gross
inventory
  Netting(2)   Net
balance
 

State and municipal

  $   $ 17,483   $ 849   $ 18,332   $   $ 18,332  

Foreign government

    36,048     57,616     383     94,047         94,047  

Corporate

        9,289     385     9,674         9,674  

Equity securities

    4,037     132     773     4,942         4,942  

Asset-backed securities

        11,910     2,220     14,130         14,130  

Other debt securities

            258     258         258  

Non-marketable equity securities

        404     5,364     5,768         5,768  
                           

Total investments

  $ 53,335   $ 229,221   $ 11,907   $ 294,463   $   $ 294,463  
                           

Loans(3)

  $   $ 356   $ 4,931   $ 5,287   $   $ 5,287  

Mortgage servicing rights

            1,942     1,942         1,942  
                           

Nontrading derivatives and other financial assets measured on a recurring basis, gross

  $   $ 15,293   $ 2,452   $ 17,745              

Cash collateral paid

                      214              

Netting of cash collateral received

                          $ (4,660 )      
                           

Nontrading derivatives and other financial assets measured on a recurring basis

  $   $ 15,293   $ 2,452   $ 17,959   $ (4,660 ) $ 13,299  
                           

Total assets

  $ 184,011   $ 1,614,459   $ 49,312   $ 1,853,593   $ (1,057,084 ) $ 796,509  

Total as a percentage of gross assets(5)

    9.9 %   87.4 %   2.7 %   100.0 %            
                           

Liabilities

                                     

Interest-bearing deposits

  $   $ 661   $ 786   $ 1,447   $   $ 1,447  

Federal funds purchased and securities loaned or sold under agreements to repurchase

        158,580     841     159,421     (42,732 )   116,689  

Trading account liabilities

                                     

Securities sold, not yet purchased

    55,145     8,288     365     63,798           63,798  

Trading account derivatives

                                     

Interest rate contracts

  $ 1   $ 890,362   $ 1,529   $ 891,892              

Foreign exchange contracts

    10     81,137     902     82,049              

Equity contracts

    2,664     25,986     3,189     31,839              

Commodity contracts

    317     10,348     1,466     12,131              

Credit derivatives

        47,746     4,508     52,254              
                               

Total trading account derivatives

  $ 2,992   $ 1,055,579   $ 11,594   $ 1,070,165              

Cash collateral received(6)

                      7,923              

Netting agreements

                          $ (970,782 )      

Netting of cash collateral paid

                            (55,555 )      
                           

Total trading account derivatives

  $ 2,992   $ 1,055,579   $ 11,594   $ 1,078,088   $ (1,026,337 ) $ 51,751  

Short-term borrowings

        706     112     818         818  

Long-term debt

        23,038     6,726     29,764         29,764  
                           

Nontrading derivatives and other financial liabilities measured on a recurring basis, gross

  $   $ 2,228   $ 24   $ 2,252              

Cash collateral received(7)

                    $ 658              

Nontrading derivatives and other financial liabilities measured on a recurring basis

  $   $ 2,228   $ 24   $ 2,910   $   $ 2,910  
                           

Total liabilities

  $ 58,137   $ 1,249,080   $ 20,448   $ 1,336,246   $ (1,069,069 ) $ 267,177  

Total as a percentage of gross liabilities(5)

    4.4 %   94.1 %   1.5 %   100.0 %            
                           

(1)
For both the three months and six months ended June 30, 2012, the Company transferred assets of $1.0 billion from Level 1 to Level 2, primarily related to foreign government bonds which were traded with less frequency. During the three months and six months ended June 30, 2012, the Company transferred assets of $46 million and $0.4 billion, respectively, from Level 2 to Level 1 related primarily to equity securities, which are now traded with sufficient frequency to constitute a liquid market. During the three months and six months ended June 30, 2012, the Company transferred liabilities of $18 million and $19 million, respectively, from Level 1 to Level 2, and $28 million and $36 million, respectively, from Level 2 to Level 1.

(2)
Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.

(3)
This is the net amount of the $61,152 million of gross cash collateral paid, of which $55,555 million was used to offset derivative liabilities.

(4)
There is no allowance for loan losses recorded for loans reported at fair value.

(5)
Percentage is calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding collateral paid/received on derivatives.

(6)
This is the net amount of the $46,833 million of gross cash collateral received, of which $38,910 million was used to offset derivative assets.

(7)
This is the net amount of the $5,318 million of gross cash collateral received, of which $4,660 million was used to offset derivative liabilities.

205


Changes in Level 3 Fair Value Category

        The following tables present the changes in the Level 3 fair value category for the three and six months ended June 30, 2013 and 2012. As discussed above, the Company classifies financial instruments as Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

        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.

Level 3 Fair Value Rollforward

 
   
  Net realized/unrealized gains
(losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Mar. 31,
2013
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Assets

                                                                   

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 4,349   $ (150 ) $   $   $ (39 ) $ 17   $   $   $   $ 4,177   $ 365  

Trading securities

                                                                   

Trading mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 1,278   $ 27   $   $ 345   $ (303 ) $ 689   $ 29   $ (339 ) $ (22 ) $ 1,704   $ (9 )

Residential

    2,112     187         219     (36 )   1,171         (715 )       2,938     44  

Commercial

    410     38         66     (148 )   79         (119 )       326     7  
                                               

Total trading mortgage-backed securities

  $ 3,800   $ 252   $   $ 630   $ (487 ) $ 1,939   $ 29   $ (1,173 ) $ (22 ) $ 4,968   $ 42  
                                               

State and municipal

  $ 209   $ 18   $   $   $   $ 56   $   $ (42 ) $   $ 241   $ (6 )

Foreign government

    228     (4 )       47     (25 )   52         (58 )       240     (2 )

Corporate

    1,736     74         62     (83 )   811         (376 )   (536 )   1,688     65  

Equity securities

    279     (33 )       25     (96 )   62         (47 )       190     (24 )

Asset-backed securities                  

    4,410     144         48     (23 )   1,449         (1,552 )   (217 )   4,259     (2 )

Other debt securities

    2,260     8         369     (571 )   789         (480 )   (99 )   2,276     (3 )
                                               

Total trading securities

  $ 12,922   $ 459   $   $ 1,181   $ (1,285 ) $ 5,158   $ 29   $ (3,728 ) $ (874 ) $ 13,862   $ 70  
                                               

206


 
   
  Net realized/unrealized gains
(losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Mar. 31,
2013
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Trading derivatives, net(4)

                                                                   

Interest rate contracts            

    298     339         235     275     52         (67 )   (49 )   1,083     434  

Foreign exchange contracts

    140     213         20     13     6         (1 )   (24 )   367     (64 )

Equity contracts

    (1,474 )   169         (2 )   265     67         5     (122 )   (1,092 )   (389 )

Commodity contracts

    (637 )   357         (1 )   7     12         (18 )   62     (218 )   528  

Credit derivatives

    (156 )   (43 )       102     (49 )   4             101     (41 )   7  
                                               

Total trading derivatives, net(4)

  $ (1,829 ) $ 1,035   $   $ 354   $ 511   $ 141   $   $ (81 ) $ (32 ) $ 99   $ 516  
                                               

Investments

                                                                   

Mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 2,526   $   $ (1 ) $ 264   $ (2,319 ) $ (1 ) $   $   $ (49 ) $ 420   $ 5  

Residential

    186         14         (60 )           (140 )            

Commercial

                3     (12 )   12                 3      
                                               

Total investment mortgage-backed securities

  $ 2,712   $   $ 13   $ 267   $ (2,391 ) $ 11   $   $ (140 ) $ (49 ) $ 423   $ 5  
                                               

U.S. Treasury and federal agency securities

  $ 11   $   $   $   $   $   $   $ (2 ) $   $ 9   $  

State and municipal

    748         15             126         (80 )   (125 )   684     13  

Foreign government

    268         (5 )   83     (27 )   159         (84 )   (27 )   367      

Corporate

    345         (4 )   191     (104 )   2         (4 )   (22 )   404     1  

Equity securities

    767         (5 )   17                         779     (38 )

Asset-backed securities                  

    3,815         12         (1,684 )   233             (618 )   1,758     6  

Other debt securities

    52                             (1 )       51      

Non-marketable equity securities

    5,287         109             513         (62 )   (484 )   5,363     72  
                                               

Total investments

  $ 14,005   $   $ 135   $ 558   $ (4,206 ) $ 1,044   $   $ (373 ) $ (1,325 ) $ 9,838   $ 59  
                                               

207


 
   
  Net realized/unrealized gains
(losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Mar. 31,
2013
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Loans

  $ 4,514   $   $ (3 ) $ 353   $   $ (36 ) $ 6   $ 57   $ (570 ) $ 4,321   $  

Mortgage servicing rights

  $ 2,203   $   $ 227   $   $   $   $ 205   $   $ (111 ) $ 2,524   $ 228  

Other financial assets measured on a recurring basis

  $ 2,428   $   $ (30 ) $   $   $ 78   $ 50   $ (2,005 ) $ (276 ) $ 245   $ (35 )
                                               

Liabilities

                                                                   

Interest-bearing deposits

  $ 834   $   $ (51 ) $   $   $   $ 38   $   $ (92 ) $ 831   $ (23 )

Federal funds purchased and securities loaned or sold under agreements to repurchase

    1,053     33             (15 )           2         1,007     29  

Trading account liabilities

                                                                   

Securities sold, not yet purchased                  

    335     (8 )       4     (6 )           130     (21 )   450     (40 )

Short-term borrowings

    53     (16 )           (4 )       290         (20 )   335     (45 )

Long-term debt

    6,847     380     36     730     (549 )       621         (422 )   6,811     (464 )

Other financial liabilities measured on a recurring basis

    16         (186 )   3         (1 )   88         (197 )   95     (196 )
                                               

(1)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss), unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.

(2)
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income.

(3)
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at June 30, 2013.

(4)
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

208


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Dec. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Assets

                                                                   

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 5,043   $ (163 ) $   $ 598   $ (1,318 ) $ 17   $   $   $   $ 4,177   $ 123  

Trading securities

                                                                   

Trading mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 1,325   $ 76   $   $ 737   $ (705 ) $ 969   $ 55   $ (707 ) $ (46 ) $ 1,704   $ 43  

Residential

    1,805     358         317     (212 )   1,898         (1,221 )   (7 )   2,938     99  

Commercial

    1,119     92         155     (184 )   146         (985 )   (17 )   326     8  
                                               

Total trading mortgage-backed securities

  $ 4,249   $ 526   $   $ 1,209   $ (1,101 ) $ 3,013   $ 55   $ (2,913 ) $ (70 ) $ 4,968   $ 150  
                                               

State and municipal

  $ 195   $ 19   $   $   $   $ 75   $   $ (48 ) $   $ 241   $ (6 )

Foreign government

    311     (2 )       53     (61 )   117         (178 )       240     (2 )

Corporate

    2,030     (30 )       138     (100 )   1,379         (819 )   (910 )   1,688     (406 )

Equity securities

    264     4         48     (159 )   140         (107 )       190     286  

Asset-backed securities

    4,453     368         86     (55 )   3,032         (3,408 )   (217 )   4,259     13  

Other debt securities

    2,321     106         508     (998 )   1,533         (996 )   (198 )   2,276     13  
                                               

Total trading securities

  $ 13,823   $ 991   $   $ 2,042   $ (2,474 ) $ 9,289   $ 55   $ (8,469 ) $ (1,395 ) $ 13,862   $ 48  
                                               

Trading derivatives, net(4)

                                                                   

Interest rate contracts

    181     312         749     108     143         (82 )   (328 )   1,083     983  

Foreign exchange contracts

        311         30     3     15         (8 )   16     367     (151 )

Equity contracts

    (1,448 )   261         (24 )   346     116         (56 )   (287 )   (1,092 )   (589 )

Commodity contracts

    (771 )   411         7     5     15         (25 )   140     (218 )   669  

Credit derivatives

    (342 )   (146 )       110     (178 )   12             503     (41 )   217  
                                               

Total trading derivatives, net(4)

  $ (2,380 ) $ 1,149   $   $ 872   $ 284   $ 301   $   $ (171 ) $ 44   $ 99   $ 1,129  
                                               

209


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Dec. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Investments

                                                                   

Mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 1,458   $   $ 2   $ 1,897   $ (3,350 ) $ 470   $   $   $ (57 ) $ 420   $ 2  

Residential

    205         23     60     (265 )   117         (140 )            

Commercial

                3     (12 )   12                 3      
                                               

Total investment mortgage-backed securities

  $ 1,663   $   $ 25   $ 1,960   $ (3,627 ) $ 599   $   $ (140 ) $ (57 ) $ 423   $ 2  
                                               

U.S. Treasury and federal agency securities

  $ 12   $   $   $   $   $   $   $ (3 ) $   $ 9   $  

State and municipal

    849         (2 )   7     (117 )   207         (135 )   (125 )   684     (6 )

Foreign government

    383         (4 )   105     (201 )   289         (151 )   (54 )   367     (6 )

Corporate

    385         (3 )   291     (116 )   16         (147 )   (22 )   404     3  

Equity securities

    773         (3 )   17         1         (9 )       779     (38 )

Asset-backed securities

    2,220         50     1,192     (1,684 )   925         (17 )   (928 )   1,758     6  

Other debt securities

    258                 (205 )           (2 )       51      

Non-marketable equity securities

    5,364         178             553         (83 )   (649 )   5,363     207  
                                               

Total investments

  $ 11,907   $   $ 241   $ 3,572   $ (5,950 ) $ 2,590   $   $ (687 ) $ (1,835 ) $ 9,838   $ 168  
                                               

210


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Dec. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2013
 

Loans

  $ 4,931   $   $ (78 ) $ 353   $   $ 59   $ 13   $ (6 ) $ (951 ) $ 4,321   $ 178  

Mortgage servicing rights

  $ 1,942   $   $ 417   $   $   $   $ 377   $ (1 ) $ (211 ) $ 2,524   $ 191  

Other financial assets measured on a recurring basis

  $ 2,452   $   $ 6   $ 1   $   $ 216   $ 340   $ (2,010 ) $ (760 ) $ 245   $ 194  
                                               

Liabilities

                                                                   

Interest-bearing deposits

  $ 786   $   $ (67 ) $ 22   $   $   $ 63   $   $ (107 ) $ 831   $ (164 )

Federal funds purchased and securities loaned or sold under agreements to repurchase

    841     60         201     (15 )           40         1,007     41  

Trading account liabilities

                                                                   

Securities sold, not yet purchased

    365     11         24     (11 )           176     (93 )   450     88  

Short-term borrowings

    112     26             (4 )       291         (38 )   335     (44 )

Long-term debt

    6,726     371     69     1,365     (1,014 )       905     (1 )   (730 )   6,811     (907 )

Other financial liabilities measured on a recurring basis

    24         (185 )   5     (2 )   (3 )   90         (204 )   95     (198 )
                                               

(1)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss), unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.

(2)
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income.

(3)
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at June 30, 2013.

(4)
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

211


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Mar. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Assets

                                                                   

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 4,497   $ 32   $   $   $ (115 ) $   $   $   $   $ 4,414   $ 33  

Trading securities

                                                                   

Trading mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 1,115   $ (17 ) $   $ 159   $ (218 ) $ 72   $ 14   $ (189 ) $ (41 ) $ 895   $ (42 )

Residential

    1,347     61         430     (120 )   625         (397 )   (1 )   1,945     (8 )

Commercial

    548     (3 )       55     (80 )   104         (208 )       416     (2 )
                                               

Total trading mortgage-backed securities

  $ 3,010   $ 41   $   $ 644   $ (418 ) $ 801   $ 14   $ (794 ) $ (42 ) $ 3,256   $ (52 )
                                               

U.S. Treasury and federal agency securities

  $   $   $   $   $   $ 13   $   $   $   $ 13   $  
                                               

State and municipal

  $ 223   $ 20   $   $   $ (7 ) $ 6   $   $ (19 ) $   $ 223   $ 8  

Foreign government

    833     1         10     (477 )   132         (166 )       333     (1 )

Corporate

    3,763     (110 )       21     (266 )   260         (804 )   (675 )   2,189     (70 )

Equity securities

    191     (75 )       1     (4 )   126         (22 )       217     (10 )

Asset-backed securities

    5,655     (113 )       148     (25 )   1,009         (1,239 )   (600 )   4,835     (139 )

Other debt securities

    3,013     53         429     (1,174 )   407         (307 )   (155 )   2,266     116  
                                               

Total trading securities

  $ 16,688   $ (183 ) $   $ 1,253   $ (2,371 ) $ 2,754   $ 14   $ (3,351 ) $ (1,472 ) $ 13,332   $ (148 )
                                               

Trading derivatives, net(4)

                                                                   

Interest rate contracts

    691     359         (219 )   (102 )   17         (10 )   (117 )   619     167  

Foreign exchange contracts

    (370 )   (93 )       (77 )   54     59         (90 )       (517 )   24  

Equity contracts

    (1,077 )   (275 )       (39 )   (69 )   69         (160 )   (36 )   (1,587 )   (260 )

Commodity contracts

    (859 )   (113 )           36     28         (10 )   16     (902 )   (97 )

Credit derivatives

    228     (217 )       74     (6 )   3             216     298     (325 )
                                               

Total trading derivatives, net(4)

  $ (1,387 ) $ (339 ) $   $ (261 ) $ (87 ) $ 176   $   $ (270 ) $ 79   $ (2,089 ) $ (491 )
                                               

212


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Mar. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Investments

                                                                   

Mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 932   $   $ (13 ) $   $ (880 ) $ 1,360   $   $   $   $ 1,399   $ (9 )

Residential

    2                     309                 311     (1 )

Commercial

    6                 (6 )   5                 5      
                                               

Total investment mortgage-backed securities

  $ 940   $   $ (13 ) $   $ (886 ) $ 1,674   $   $   $   $ 1,715   $ (10 )
                                               

U.S. Treasury and federal agency securities

  $   $   $   $   $   $   $   $   $   $   $  

State and municipal

    682         14         (151 )   126         (191 )       480     (7 )

Foreign government

    375         13     80     (139 )   112         (110 )   (2 )   329      

Corporate

    1,062         (1 )   45     (696 )   42         (29 )   (2 )   421     5  

Equity securities

    1,326         4                     (2 )   (148 )   1,180     2  

Asset-backed securities

    3,073         7             12         (43 )   (278 )   2,771     1  

Other debt securities

    55                                     55      

Non-marketable equity securities

    8,287         (17 )           129         (1,462 )   (659 )   6,278     (161 )
                                               

Total investments

  $ 15,800   $   $ 7   $ 125   $ (1,872 ) $ 2,095   $   $ (1,837 ) $ (1,089 ) $ 13,229   $ (170 )
                                               

213


 
   
  Net realized/unrealized
gains (losses) included in
   
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still
held(3)
 
In millions of dollars   Mar. 31,
2012
  Principal
transactions
  Other(1)(2)   Transfers
into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Loans

  $ 4,278   $   $ (25 ) $ 917   $   $ 21   $ 515   $ (87 ) $ (882 ) $ 4,737   $ 43  

Mortgage servicing rights

  $ 2,691   $   $ (480 ) $   $         $ 79         $ (173 ) $ 2,117   $ (479 )

Other financial assets measured on a recurring basis

  $ 2,322   $   $ 91   $   $ (30 ) $ 1   $ 353   $ (4 ) $ (358 ) $ 2,375   $ 86  
                                               

Liabilities

                                                                   

Interest-bearing deposits

  $ 458   $   $ (15 ) $ 130   $   $   $ 172   $   $ (77 ) $ 698   $ (109 )

Federal funds purchased and securities loaned or sold under agreements to repurchase

    1,025     (92 )                       4     (76 )   1,045     118  

Trading account liabilities

                                                                   

Securities sold, not yet purchased

    177     12         1     (24 )           69     (63 )   148     1  

Short-term borrowings

    423             3     (2 )       69         (126 )   367     40  

Long-term debt

    6,519     219     52     190     (490 )       888         (884 )   5,952     (174 )

Other financial liabilities measured on a recurring basis

    2         (1 )           (1 )   1         (1 )   2     (1 )
                                               

(1)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss) unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.

(2)
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income. See Note 12 to the Consolidated Financial Statements for a discussion of other-than-temporary impairment.

(3)
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at June 30, 2012.

(4)
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

214


 
   
  Net realized/unrealized gains (losses) included in    
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Dec. 31,
2011
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Assets

                                                                   

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 4,701   $ 65   $   $ 25   $ (377 ) $   $   $   $   $ 4,414   $ 65  

Trading securities

                                                                   

Trading mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 861   $ 33   $   $ 538   $ (345 ) $ 255   $ 45   $ (414 ) $ (78 ) $ 895   $ (17 )

Residential

    1,509     80         460     (300 )   1,317         (1,118 )   (3 )   1,945     (2 )

Commercial

    618     (70 )       91     (188 )   315         (350 )       416      
                                               

Total trading mortgage-backed securities

  $ 2,988   $ 43   $   $ 1,089   $ (833 ) $ 1,887   $ 45   $ (1,882 ) $ (81 ) $ 3,256   $ (19 )
                                               

U.S. Treasury and federal agency securities

  $ 3   $   $   $   $   $ 13   $   $ (3 ) $   $ 13   $  
                                               

State and municipal

  $ 252   $ 17   $   $   $ (7 ) $ 28   $   $ (67 ) $   $ 223   $ 2  

Foreign government            

    521     4         12     (740 )   842         (306 )       333     (1 )

Corporate

    3,240     9         348     (391 )   1,756         (1,399 )   (1,374 )   2,189     83  

Equity securities

    244     (71 )       19     (13 )   204         (142 )   (24 )   217     (14 )

Asset-backed securities

    5,801     222         165     (61 )   3,660         (4,293 )   (659 )   4,835     (76 )

Other debt securities            

    2,743     22         640     (1,423 )   1,362         (881 )   (197 )   2,266     118  
                                               

Total trading securities

  $ 15,792   $ 246   $   $ 2,273   $ (3,468 ) $ 9,752   $ 45   $ (8,973 ) $ (2,335 ) $ 13,332   $ 93  
                                               

Trading derivatives, net(4)

                                                                   

Interest rate contracts

    726     142         123     (119 )   216         (139 )   (330 )   619     (118 )

Foreign exchange contracts

    (562 )   80         (82 )   46     188         (197 )   10     (517 )   71  

Equity contracts

    (1,737 )   199         (36 )   367     203         (335 )   (248 )   (1,587 )   (476 )

Commodity contracts            

    (934 )   (39 )       (5 )   45     73         (78 )   36     (902 )   (308 )

Credit derivatives

    1,728     (1,452 )       (130 )   (59 )   114         (10 )   107     298     (1,424 )
                                               

Total trading derivatives, net(4)

  $ (779 ) $ (1,070 ) $   $ (130 ) $ 280   $ 794   $   $ (759 ) $ (425 ) $ (2,089 ) $ (2,255 )
                                               

215


 
   
  Net realized/unrealized gains (losses) included in    
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Dec. 31,
2011
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Investments

                                                                   

Mortgage-backed securities

                                                                   

U.S. government-sponsored agency guaranteed

  $ 679   $   $ (4 ) $   $ (1,521 ) $ 2,245   $   $   $   $ 1,399   $ (8 )

Residential

    8                 (6 )   309                 311     (2 )

Commercial

                    (6 )   11                 5      
                                               

Total investment mortgage-backed securities

  $ 687   $   $ (4 ) $   $ (1,533 ) $ 2,565   $   $   $   $ 1,715   $ (10 )
                                               

U.S. Treasury and federal agency securities

  $ 75   $   $   $   $ (75 ) $   $   $   $   $   $  

State and municipal

    667         13         (151 )   158         (207 )       480     (9 )

Foreign government            

    447         16     80     (156 )   201         (190 )   (69 )   329     1  

Corporate

    989         (5 )   45     (696 )   129         (36 )   (5 )   421     8  

Equity securities

    1,453         49                     (174 )   (148 )   1,180     (6 )

Asset-backed securities

    4,041         10         (43 )   12         (50 )   (1,199 )   2,771     1  

Other debt securities            

    120                             (64 )   (1 )   55      

Non-marketable equity securities

    8,318         179             267         (1,470 )   (1,016 )   6,278     73  
                                               

Total investments

  $ 16,797   $   $ 258   $ 125   $ (2,654 ) $ 3,332   $   $ (2,191 ) $ (2,438 ) $ 13,229   $ 58  
                                               

216


 
   
  Net realized/unrealized gains (losses) included in    
   
   
   
   
   
   
   
 
 
   
   
   
   
   
   
   
   
  Unrealized
gains
(losses)
still held(3)
 
In millions of dollars
  Dec. 31,
2011
  Principal
transactions
  Other(1)(2)   Transfers
Into
Level 3
  Transfers
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Jun. 30,
2012
 

Loans

  $ 4,682   $   $ (62 ) $ 917   $ (25 ) $ 107   $ 515   $ (95 ) $ (1,302 ) $ 4,737   $ 54  

Mortgage servicing rights

  $ 2,569   $   $ (293 ) $   $   $ 2   $ 221   $ (5 ) $ (377 ) $ 2,117   $ (295 )

Other financial assets measured on a recurring basis

  $ 2,245   $   $ 98   $ 8   $ (31 ) $ 2   $ 629   $ (42 ) $ (534 ) $ 2,375   $ 99  
                                               

Liabilities

                                                                   

Interest-bearing deposits

  $ 431   $   $ (20 ) $ 213   $   $   $ 180   $   $ (146 ) $ 698   $ (329 )

Federal funds purchased and securities loaned or sold under agreements to repurchase

    1,061     (65 )                       4     (85 )   1,045     118  

Trading account liabilities

                                                                   

Securities sold, not yet purchased

    412     (60 )       5     (31 )           140     (438 )   148     (53 )

Short-term borrowings

    499     (56 )       3     (11 )       195         (375 )   367     38  

Long-term debt

    6,904     141     81     349     (906 )       1,175         (1,348 )   5,952     (332 )

Other financial liabilities measured on a recurring basis

    3         (2 )           (2 )   1         (2 )   2      
                                               

(1)
Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss) unless other-than-temporarily impaired, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.

(2)
Unrealized gains (losses) on MSRs are recorded in Other revenue on the Consolidated Statement of Income. See Note 12 to the Consolidated Financial Statements for a discussion of other-than-temporary impairment.

(3)
Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value for available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at June 30, 2012.

(4)
Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

217


Level 3 Fair Value Rollforward

        The following were the significant Level 3 transfers from March 31, 2013 to June 30, 2013:

        The following were the significant Level 3 transfers from December 31, 2012 to June 30, 2013:

        The significant Level 3 transfers from March 31, 2012 to June 30, 2012 are related to:

        The significant Level 3 transfers from December 31, 2011 to June 30, 2012 are related to:


Valuation Techniques and Inputs for Level 3 Fair Value Measurements

        The Company's Level 3 inventory consists of both cash securities and derivatives of varying complexities. The valuation methodologies applied to measure the fair value of these positions include discounted cash flow analyses, internal models and comparative analysis. A position is classified within Level 3 of the fair value hierarchy when at least one input is unobservable and is considered significant to its valuation. The specific reason an input is deemed unobservable varies. For example, at least one significant input to the pricing model is not observable in the market, at least one significant input has been adjusted to make it more representative of the position being valued, or the price quote available does not reflect sufficient trading activities.

        The following tables present the valuation techniques covering the majority of Level 3 inventory and the most significant unobservable inputs used in Level 3 fair value measurements as of June 30, 2013 and December 31, 2012. Differences between this table and amounts presented in the Level 3 Fair Value Rollforward table represent individually immaterial items that have been measured using a variety of valuation techniques other than those listed.

218


Valuation Techniques and Inputs for Level 3 Fair Value Measurements

As of June 30, 2013
  Fair Value(1)
(in millions)
  Methodology   Input   Low(2)(3)   High(2)(3)   Weighted
Average(4)
 

Assets

                                 

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 3,924   Cash flow   Interest rate     1.87 %   2.13 %   2.03 %

Trading and investment securities

                                 

Mortgage-backed securities

  $ 3,446   Price-based   Price   $ 0.01   $ 122.54   $ 75.09  

    1,634   Yield analysis   Yield     0.03 %   23.78 %   7.33 %

State and municipal, foreign government, corporate and other debt securities

  $ 4,096   Price-based   Price   $ 0.00   $ 123.97   $ 81.67  

    1,143   Cash flow   Credit spread     0 bps     600 bps     78.99 bps  

            Yield     0.15 %   12.80 %   5.37 %

Equity securities

  $ 780   Cash flow   Yield     4.00 %   5.00 %   4.5 %

    186   Price-based   Weighted average life (WAL)     0.01 years     3.6 years     1.85 years  

            Price(5)   $ 0.00   $ 923.26   $ 44.62  

Asset-backed securities

  $ 4,385   Price-based   Price   $ 0.00   $ 108.13   $ 72.02  

  $ 1,301   Model-based                        

Non-marketable equity

  $ 2,866   Price-based   Fund NAV   $ 611   $ 494,842,539   $ 156,238,214  

    1,817   Comparables analysis   EBITDA multiples     4.4 x   17.5 x   9.69 x

    663   Cash flow   Price-to-book ratio     0.8 x   2.1 x   1.39 x

            Discount to price     0.00 %   75.00 %   7.29 %

            PE ratio     9.40 %   15.40 %   11.70 %

            Cost of capital     9.50 %   15.98 %   10.87 %
                           

Derivatives—Gross(6)

                                 

Interest rate contracts (gross)

  $ 5,484   Model-based   Interest rate (IR) volatility     15.00 %   90.00 %      

            Mean reversion     1.00 %   20.00 %      

Foreign exchange contracts (gross)

  $ 2,316   Model-based   Foreign exchange (FX) volatility     4.00 %   20.00 %      

            IR-FX correlation     40.00 %   60.00 %      

            IR-IR correlation     40.00 %   40.00 %      

Equity contracts (gross)(7)

  $ 4,143   Model-based   Equity volatility     12.65 %   72.53 %      

            Equity-equity correlation     (81.33 )%   99.45 %      

            Equity forward     84.92 %   116.70 %      

            Equity-FX correlation     (75.00 )%   40.00 %      

Commodity contracts (gross)

  $ 1,977   Model-based   Commodity volatility     3.00 %   124.00 %      

            Commodity correlation     (75.00 )%   93.00 %      

            Forward price     98.00 %   124.00 %      

Credit derivatives (gross)

  $ 4,633   Model-based   Recovery rate     7.18 %   65.00 %      

    1,517   Price-based   Price   $ 0.00   $ 114.15        

            Credit correlation     5.00 %   95.00 %      

Nontrading derivatives and other financial assets and liabilities measured on a recurring basis (gross)(6)

  $ 145   Model-based   Redemption rate     43.55 %   99.50 %      

    113   Price-based   EBITDA multiples     6.2 x   13.8 x      

    84   Comparables analysis   PE ratio     10.3 x   10.3 x      

            Price-to-book ratio     1.1 x   1.2 x      

            Discount to price     0.00 %   30.00 %      

Loans

  $ 2,022   Price-based   Price   $ 0.25   $ 105.20   $ 88.48  

    1,037   Yield analysis   Credit spread     48 bps     390.29 bps     110.31 bps  

    665   Model-based   Yield     1.60 %   3.00 %   2.14 %

    596   Cash flow                        
                           

Mortgage servicing rights

  $ 2,438   Cash flow   Yield     2.07 %   8.64 %   7.04 %

            WAL     3.89 years     9.33 years     6.23 years  

        See footnotes on the next page.

219


As of June 30, 2013
  Fair Value(1)
(in millions)
  Methodology   Input   Low(2)(3)   High(2)(3)   Weighted
Average(4)
 

Liabilities

                                 

Interest-bearing deposits

  $ 831   Model-based   Equity volatility     13.93 %   52.62 %   26.48 %

            Equity-IR correlation     21.00 %   25.00 %   22.52 %

            Forward price     98.00 %   124.00 %   111.00 %

            Commodity correlation     (75.00 )%   93.00 %   9.00 %

            Commodity volatility     3.00 %   124.00 %   63.50 %

            Mean reversion     1.00 %   20.00 %   10.50 %

Federal funds purchased and securities loaned or sold under agreements to repurchase

  $ 806   Model-based   Interest rate     1.26 %   3.16 %   2.55 %

    200   Cash flow                        

Trading account liabilities

                                 

Securities sold, not yet purchased

  $ 285   Model-based   Credit spread     98 bps     250 bps     230 bps  

    143   Price-based   Price   $ 0.00   $ 115.00   $ 82.95  

Short-term borrowings and long-term debt

  $ 5,160   Model-based   Price   $ 0.25   $ 113.69        

    1,220   Price-based   Credit spread     16 bps     300 bps        

    765   Yield analysis   Interest rate     4.00 %   10.00 %      

            Equity volatility     10.55 %   72.13 %      

            Equity forward     88.42 %   117.46 %      

            Equity-FX correlation     (75.00 )%   40.00 %      

            Equity-equity correlation     (81.33 )%   99.45 %      

            IR-IR correlation     (51.00 )%   (51.00 )%      

(1)
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.

(2)
Some inputs are shown as zero due to rounding.

(3)
When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to one large position only.

(4)
Where provided, weighted averages are calculated based on the fair value of the instrument.

(5)
For equity securities, the price input is expressed on an absolute basis, not as a percentage of the notional amount.

(6)
Both trading and nontrading account derivatives—assets and liabilities—are presented on a gross absolute value basis.

(7)
Includes hybrid products.

As of December 31, 2012
  Fair Value(1)
(in millions)
  Methodology   Input   Low(2)(3)   High(2)(3)  

Assets

                           

Federal funds sold and securities borrowed or purchased under agreements to resell

  $ 4,786   Cash flow   Interest rate     1.09 %   1.50 %

Trading and investment securities

                           

Mortgage-backed securities

  $ 4,402   Price-based   Price   $ 0.00   $ 135.00  

    1,148   Yield analysis   Yield     0.00 %   25.84 %

            Prepayment period     2.16 years     7.84 years  

State and municipal, foreign

  $ 4,416   Price-based   Price   $ 0.00   $ 159.63  

government, corporate and

    1,231   Cash flow   Yield     0.00 %   30.00 %

other debt securities

    787   Yield analysis   Credit spread     35 bps     300 bps  

Equity securities

  $ 792   Cash flow   Yield     9.00 %   10.00 %

    147   Price-based   Prepayment period     3 years     3 years  

            Price   $ 0.00   $ 750.00  

Asset-backed securities

  $ 4,253   Price-based   Price   $ 0.00   $ 136.63  

    1,775   Internal model   Yield     0.00 %   27.00 %

    561   Cash flow   Credit correlation     15.00 %   90.00 %

            Weighted average life (WAL)     0.34 years     16.07 years  

Non-marketable equity

  $ 2,768   Price-based   Fund NAV   $ 1.00   $ 456,773,838  

    1,803   Comparables analysis   EBITDA multiples     4.70 x   14.39 x

            Price-to-book ratio     0.77 x   1.50 x

    709   Cash flow   Discount to price     0.00 %   75.00 %

Derivatives—Gross(4)

                           

                           

220


As of December 31, 2012
  Fair Value(1)
(in millions)
  Methodology   Input   Low(2)(3)   High(2)(3)  

Interest rate contracts (gross)

  $ 3,202   Internal model   Interest rate (IR)-IR correlation     (98.00 )%   90.00 %

            Credit spread     0 bps     550.27 bps  

            IR volatility     0.09 %   100.00 %

            Interest rate     0 %   15.00 %

Foreign exchange contracts (gross)

  $ 1,542   Internal model   Foreign exchange (FX) volatility     3.20 %   67.35 %

            IR-FX correlation     40.00 %   60.00 %

            Credit spread     0 bps     376 bps  

Equity contracts (gross)(5)

  $ 4,669   Internal model   Equity volatility     1.00 %   185.20 %

            Equity forward     74.94 %   132.70 %

            Equity-equity correlation     1.00 %   99.90 %

Commodity contracts (gross)

  $ 2,160   Internal model   Forward price     37.45 %   181.50 %

            Commodity correlation     (77.00 )%   95.00 %

            Commodity volatility     5.00 %   148.00 %

Credit derivatives (gross)

  $ 4,777   Internal model   Price   $ 0.00   $ 121.16  

    3,886   Price-based   Recovery rate     6.50 %   78.00 %

            Credit correlation     5.00 %   99.00 %

            Credit spread     0 bps     2,236 bps  

            Upfront points     3.62     100.00  

Nontrading derivatives and other financial assets and liabilities measured on a recurring basis (gross)(4)

  $ 2,000   External model   Price   $ 100.00   $ 100.00  

    461   Internal model   Redemption rate     30.79 %   99.50 %
                       

Loans

  $ 2,447   Price-based   Price   $ 0.00   $ 103.32  

    1,423   Yield analysis   Credit spread     55 bps     600.19 bps  

    888   Internal model                  

Mortgage servicing rights

  $ 1,858   Cash flow   Yield     0.00 %   53.19 %

            Prepayment period     2.16 years     7.84 years  

Liabilities

                           

Interest-bearing deposits

  $ 785   Internal model   Equity volatility     11.13 %   86.10 %

            Forward price     67.80 %   182.00 %

            Commodity correlation     (76.00 )%   95.00 %

            Commodity volatility     5.00 %   148.00 %

Federal funds purchased and securities loaned or sold under agreements to repurchase

  $ 841   Internal model   Interest rate     0.33 %   4.91 %

Trading account liabilities

                           

Securities sold, not yet purchased          

  $ 265   Internal model   Price   $ 0.00   $ 166.47  

    75   Price-based                  

Short-term borrowings and long-term debt

  $ 5,067   Internal model   Price   $ 0.00   $ 121.16  

    1,112   Price-based   Equity volatility     12.40 %   185.20 %

    649   Yield analysis   Equity forward     75.40 %   132.70 %

            Equity-equity correlation     1.00 %   99.90 %

            Equity-FX correlation     (80.50 )%   50.40 %

(1)
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.

(2)
Some inputs are shown as zero due to rounding.

(3)
When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to one large position only.

(4)
Both trading and nontrading account derivatives—assets and liabilities—are presented on a gross absolute value basis.

(5)
Includes hybrid products.

221


Sensitivity to Unobservable Inputs and Interrelationships between Unobservable Inputs

        The impact of key unobservable inputs on the Level 3 fair value measurements may not be independent of one another. In addition, the amount and direction of the impact on a fair value measurement for a given change in an unobservable input depends on the nature of the instrument as well as whether the Company holds the instrument as an asset or a liability. For certain instruments, the pricing hedging and risk management are sensitive to the correlation between various inputs rather than on the analysis and aggregation of the individual inputs.

        The following section describes the sensitivities and interrelationships of the most significant unobservable inputs used by the Company in Level 3 fair value measurements.

Correlation

        Correlation is a measure of the co-movement between two or more variables. A variety of correlation-related assumptions are required for a wide range of instruments, including equity and credit baskets, foreign-exchange options, CDOs backed by loans or bonds, mortgages, subprime mortgages and many other instruments. For almost all of these instruments, correlations are not observable in the market and must be estimated using historical information. Estimating correlation can be especially difficult where it may vary over time. Extracting correlation information from market data requires significant assumptions regarding the informational efficiency of the market (for example, swaption markets). Changes in correlation levels can have a major impact, favorable or unfavorable, on the value of an instrument, depending on its nature. A change in the default correlation of the fair value of the underlying bonds comprising a CDO structure would affect the fair value of the senior tranche. For example, an increase in the default correlation of the underlying bonds would reduce the fair value of the senior tranche, because highly correlated instruments produce larger losses in the event of default and a part of these losses would become attributable to the senior tranche. That same change in default correlation would have a different impact on junior tranches of the same structure.

Volatility

        Volatility represents the speed and severity of market price changes and is a key factor in pricing options. Typically, instruments can become more expensive if volatility increases. For example, as an index becomes more volatile, the cost to Citi of maintaining a given level of exposure increases because more frequent rebalancing of the portfolio is required. Volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike are not observable. The general relationship between changes in the value of a portfolio to changes in volatility also depends on changes in interest rates and the level of the underlying index. Generally, long option positions (assets) benefit from increases in volatility, whereas short option positions (liabilities) will suffer losses. Some instruments are more sensitive to changes in volatility than others. For example, an at-the-money option would experience a larger percentage change in its fair value than a deep-in-the-money option. In addition, the fair value of an option with more than one underlying security (for example, an option on a basket of bonds) depends on the volatility of the individual underlying securities as well as their correlations.

Yield

        Adjusted yield is generally used to discount the projected future principal and interest cash flows on instruments, such as asset-backed securities. Adjusted yield is impacted by changes in the interest rate environment and relevant credit spreads.

        In some circumstances, the yield of an instrument is not observable in the market and must be estimated from historical data or from yields of similar securities. This estimated yield may need to be adjusted to capture the characteristics of the security being valued. In other situations, the estimated yield may not represent sufficient market liquidity and must be adjusted as well. Whenever the amount of the adjustment is significant to the value of the security, the fair value measurement is classified as Level 3.

Prepayment

        Voluntary unscheduled payments (prepayments) change the future cash flows for the investor and thereby change the fair value of the security. The effect of prepayments is more pronounced for residential mortgage-backed securities. An increase in prepayments—in speed or magnitude—generally creates losses for the holder of these securities. Prepayment is generally negatively correlated with delinquency and interest rate. A combination of low prepayment and high delinquencies amplify each input's negative impact on mortgage securities' valuation. As prepayment speeds change, the weighted average life of the security changes, which impacts the valuation either positively or negatively, depending upon the nature of the security and the direction of the change in the weighted average life.

Recovery

        Recovery is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many credit securities (such as asset-backed securities), there is no directly observable market input for recovery, but indications of recovery levels are available from pricing services. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. The recovery rate impacts the valuation of credit securities. Generally, an increase in the recovery rate assumption increases the fair value of the security. An increase in loss severity, the inverse of the recovery rate, reduces the amount of principal available for distribution and, as a result, decreases the fair value of the security.

Credit Spread

        Credit spread is a component of the security representing its credit quality. Credit spread reflects the market perception of changes in prepayment, delinquency and recovery rates, therefore capturing the impact of other variables on the fair value. Changes in credit spread affect the fair value of securities differently depending on the characteristics and maturity profile of the security. For example, credit spread is a more significant driver of the fair value measurement of a high yield bond as compared to an investment grade bond. Generally, the credit spread for an investment grade bond is

222


also more observable and less volatile than its high yield counterpart.

Qualitative Discussion of the Ranges of Significant Unobservable Inputs

        The following section describes the ranges of the most significant unobservable inputs used by the Company in Level 3 fair value measurements. The level of aggregation and the diversity of instruments held by the Company lead to a wide range of unobservable inputs that may not be evenly distributed across the Level 3 inventory.

Correlation

        There are many different types of correlation inputs, including credit correlation, cross-asset correlation (such as equity-interest rate correlation), and same-asset correlation (such as interest rate-interest rate correlation). Correlation inputs are generally used to value hybrid and exotic instruments. Generally, same-asset correlation inputs have a narrower range than cross-asset correlation inputs. However, due to the complex and unique nature of these instruments, the ranges for correlation inputs can vary widely across portfolios.

Volatility

        Similar to correlation, asset-specific volatility inputs vary widely by asset type. For example, ranges for foreign exchange volatility are generally lower and narrower than equity volatility. Equity volatilities are wider due to the nature of the equities market and the terms of certain exotic instruments. For most instruments, the interest rate volatility input is on the lower end of the range; however, for certain structured or exotic instruments (such as market-linked deposits or exotic interest rate derivatives), the range is much wider.

Yield

        Ranges for the yield inputs vary significantly depending upon the type of security. For example, securities that typically have lower yields, such as municipal bonds, will fall on the lower end of the range, while more illiquid securities or securities with lower credit quality, such as certain residual tranche asset-backed securities, will have much higher yield inputs.

Credit Spread

        Credit spread is relevant primarily for fixed income and credit instruments; however, the ranges for the credit spread input can vary across instruments. For example, certain fixed income instruments, such as certificates of deposit, typically have lower credit spreads, whereas certain derivative instruments with high-risk counterparties are typically subject to higher credit spreads when they are uncollateralized or have a longer tenor. Other instruments, such as credit default swaps, also have credit spreads that vary with the attributes of the underlying obligor. Stronger companies have tighter credit spreads, and weaker companies have wider credit spreads.

Price

        The price input is a significant unobservable input for certain fixed income instruments. For these instruments, the price input is expressed as a percentage of the notional amount, with a price of $100 meaning that the instrument is valued at par. For most of these instruments, the price varies between zero to $100, or slightly above $100. Relatively illiquid assets that have experienced significant losses since issuance, such as certain asset-backed securities, are at the lower end of the range, whereas most investment grade corporate bonds will fall in the middle to the higher end of the range. For certain structured debt instruments with embedded derivatives, the price input may be above $100 to reflect the embedded features of the instrument (for example, a step-up coupon or a conversion option).

        The price input is also a significant unobservable input for certain equity securities; however, the range of price inputs varies depending on the nature of the position, the number of shares outstanding and other factors.

Items Measured at Fair Value on a Nonrecurring Basis

        Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These include assets measured at cost that have been written down to fair value during the periods as a result of an impairment. In addition, these assets include loans held-for-sale and other real estate owned that are measured at the lower of cost or market.

        The following table presents the carrying amounts of all assets that were still held as of June 30, 2013 and December 31, 2012, and for which a nonrecurring fair value measurement was recorded during the six and twelve months then ended, respectively:

In millions of dollars   Fair value   Level 2   Level 3  

June 30, 2013

                   

Loans held-for-sale

  $ 4,764   $ 3,931   $ 833  

Other real estate owned

    168     26     142  

Loans(1)

    4,758     4,095     663  
               

Total assets at fair value on a nonrecurring basis

  $ 9,690   $ 8,052   $ 1,638  
               

(1)
Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate secured loans.

223


In millions of dollars   Fair value   Level 2   Level 3  

December 31, 2012

                   

Loans held-for-sale

  $ 2,647   $ 1,159   $ 1,488  

Other real estate owned

    201     22     179  

Loans(1)

    5,732     5,160     572  

Other assets(2)

    4,725     4,725      
               

Total assets at fair value on a nonrecurring basis

  $ 13,305   $ 11,066   $ 2,239  
               

(1)
Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate secured loans.

(2)
Represents Citi's then-remaining 35% investment in the Morgan Stanley Smith Barney joint venture whose carrying amount was the agreed purchase price. See Note 12 to the Consolidated Financial Statements.

        The fair value of loans-held-for-sale is determined where possible using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. Fair value for the other real estate owned is based on appraisals. For loans whose carrying amount is based on the fair value of the underlying collateral, the fair values depend on the type of collateral. Fair value of the collateral is typically estimated based on quoted market prices if available, appraisals or other internal valuation techniques.

        Where the fair value of the related collateral is based on an unadjusted appraised value, the loan is generally classified as Level 2. Where significant adjustments are made to the appraised value, the loan is classified as Level 3. Additionally, for corporate loans, appraisals of the collateral are often based on sales of similar assets; however, because the prices of similar assets require significant adjustments to reflect the unique features of the underlying collateral, these fair value measurements are generally classified as Level 3.

Valuation Techniques and Inputs for Level 3 Nonrecurring Fair Value Measurements

        The following tables present the valuation techniques covering the majority of Level 3 nonrecurring fair value measurements and the most significant unobservable inputs used in those measurements as of June 30, 2013 and December 31, 2012:

As of June 30, 2013   Fair Value(1)
(in millions)
  Methodology   Input   Low   High   Weighted
average(2)
 

Loans held-for-sale

  $ 800   Price-based   Price   $ 35.00   $ 100.00   $ 93.00  

            Discount to price     11.00 %   24.00 %   20.00 %

Other real estate owned

  $ 136   Price-based   Discount to price     24.00 %   57.00 %   35.39 %

            Price   $ 54.63   $ 100.00   $ 98.05  

            Appraised value   $ 0.00   $ 5,000,000   $ 472,023  

Loans(3)

  $ 381   Price-based   Appraised value   $ 433,649   $ 133,074,154   $ 58,648,490  

    131   Model-based   Discount to price     24.00 %   34.00 %   31.55 %

    77   Recovery analysis   Recovery rate     45.00 %   65.00 %   53.80 %

(1)
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.

(2)
Weighted averages are calculated based on the fair value of the instrument.

(3)
Represents loans held for investment whose carrying amounts are based on the fair value of the underlying collateral.

As of December 31, 2012   Fair Value(1)
(in millions)
  Methodology   Input   Low   High  

Loans held-for-sale

  $ 747   Price-based   Price   $ 63.42   $ 100.00  

    485   External model   Credit spread     40 bps     40 bps  

    174   Recovery analysis                  

Other real estate owned

    165   Price-based   Discount to price     11.00 %   50.00 %

            Price(2)   $ 39,774   $ 15,457,452  

Loans(3)

    351   Price-based   Discount to price     25.00 %   34.00 %

    111   Internal model   Price(2)   $ 6,272,242   $ 86,200,000  

            Discount rate     6.00 %   16.49 %

(1)
The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.

(2)
Prices are based on appraised values.

(3)
Represents loans held for investment whose carrying amounts are based on the fair value of the underlying collateral.

224


Nonrecurring Fair Value Changes

        The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at June 30, 2013 and 2012:

 
  Three months ended
June 30,
 
In millions of dollars   2013   2012  

Loans held-for-sale

  $ (63 ) $ (52 )

Other real estate owned

    (6 )   (11 )

Loans(1)

    (177 )   (138 )
           

Total nonrecurring fair value gains (losses)

  $ (246 ) $ (201 )
           

(1)
Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate loans.

 
  Six months ended June 30,  
In millions of dollars   2013   2012  

Loans held-for-sale

  $ (63 ) $ (51 )

Other real estate owned

    (10 )   (19 )

Loans(1)

    (343 )   (677 )
           

Total nonrecurring fair value gains (losses)

  $ (416 ) $ (747 )
           

(1)
Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, including primarily real-estate loans.

Estimated Fair Value of Financial Instruments Not Carried at Fair Value

        The table below presents the carrying value and fair value of Citigroup's financial instruments which are not carried at fair value. The table below therefore excludes items measured at fair value on a recurring basis presented in the tables above.

        The disclosure also excludes leases, affiliate investments, pension and benefit obligations and insurance policy claim reserves. In addition, contract-holder fund amounts exclude certain insurance contracts. Also, as required, the disclosure excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value associated with deposits with no fixed maturity, and other expenses that would be incurred in a market transaction. In addition, the table excludes the values of non-financial assets and liabilities, as well as a wide range of franchise, relationship and intangible values, which are integral to a full assessment of Citigroup's financial position and the value of its net assets.

        The fair value represents management's best estimates based on a range of methodologies and assumptions. The carrying value of short-term financial instruments not accounted for at fair value, as well as receivables and payables arising in the ordinary course of business, approximates fair value because of the relatively short period of time between their origination and expected realization. Quoted market prices are used when available for investments and for liabilities, such as long-term debt not carried at fair value. For loans not accounted for at fair value, cash flows are discounted at quoted secondary market rates or estimated market rates if available. Otherwise, sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. Expected credit losses are either embedded in the estimated future cash flows or incorporated as an adjustment to the discount rate used. The value of collateral is also considered. For liabilities such as long-term debt not accounted for at fair value and without quoted market prices, market borrowing rates of interest are used to discount contractual cash flows.

225


 
  June 30, 2013    
   
   
 
 
  Estimated fair value  
 
  Carrying
value
  Estimated
fair value
 
In billions of dollars   Level 1   Level 2   Level 3  

Assets

                               

Investments

  $ 17.2   $ 17.7   $ 4.1   $ 12.4   $ 1.2  

Federal funds sold and securities borrowed or purchased under agreements to resell

    99.0     99.0         90.6     8.4  

Loans(1)(2)

    614.5     605.1         4.6     600.5  

Other financial assets(2)(3)

    257.0     257.0     11.1     182.0     63.9  
                       

Liabilities

                               

Deposits

  $ 936.9   $ 935.1   $   $ 759.2   $ 175.9  

Federal funds purchased and securities loaned or sold under agreements to repurchase

    97.7     97.7         93.1     4.6  

Long-term debt(4)

    193.8     199.4         142.8     56.6  

Other financial liabilities(5)

    146.9     146.9         23.3     123.6  
                       

 

 
  December 31, 2012    
   
   
 
 
  Estimated fair value  
 
  Carrying
value
  Estimated
fair value
 
In billions of dollars   Level 1   Level 2   Level 3  

Assets

                               

Investments

  $ 17.9   $ 18.4   $ 3.0   $ 14.3   $ 1.1  

Federal funds sold and securities borrowed or purchased under agreements to resell

    100.7     100.7         94.8     5.9  

Loans(1)(2)

    621.9     612.2         4.2     608.0  

Other financial assets(2)(3)

    192.8     192.8     11.4     128.3     53.1  
                       

Liabilities

                               

Deposits

  $ 929.1   $ 927.4   $   $ 748.7   $ 178.7  

Federal funds purchased and securities loaned or sold under agreements to repurchase

    94.5     94.5         94.4     0.1  

Long-term debt(4)

    209.7     215.3         177.0     38.3  

Other financial liabilities(5)

    139.0     139.0         31.1     107.9  
                       

(1)
The carrying value of loans is net of the Allowance for loan losses of $21.6 billion for June 30, 2013 and $25.5 billion for December 31, 2012. In addition, the carrying values exclude $2.8 billion and $2.8 billion of lease finance receivables at June 30, 2013 and December 31, 2012, respectively.

(2)
Includes items measured at fair value on a nonrecurring basis.

(3)
Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverable and other financial instruments included in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.

(4)
The carrying value includes long-term debt balances carried at fair value under fair value hedge accounting.

(5)
Includes brokerage payables, separate and variable accounts, short-term borrowings (carried at cost) and other financial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.

        Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality and market perceptions of value, and as existing assets and liabilities run off and new transactions are entered into. The estimated fair values of loans reflect changes in credit status since the loans were made, changes in interest rates in the case of fixed-rate loans, and premium values at origination of certain loans. The carrying values (reduced by the Allowance for loan losses) exceeded the estimated fair values of Citigroup's loans, in aggregate, by $9.4 billion and by $9.7 billion at June 30, 2013 and December 31, 2012, respectively. At June 30, 2013, the carrying values, net of allowances, exceeded the estimated fair values by $7.1 billion and $2.3 billion for Consumer loans and Corporate loans, respectively.

        The estimated fair values of the Company's corporate unfunded lending commitments at June 30, 2013 and December 31, 2012 were liabilities of $4.2 billion and $4.9 billion, respectively, which are substantially classified as Level 3. The Company does not estimate the fair values of consumer unfunded lending commitments, which are generally cancelable by providing notice to the borrower.

226


22.   FAIR VALUE ELECTIONS

        The Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. The election is made upon the acquisition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made. The changes in fair value are recorded in current earnings. Additional discussion regarding the applicable areas in which fair value elections were made is presented in Note 21 to the Consolidated Financial Statements.

        All servicing rights are recognized initially at fair value. The Company has elected fair value accounting for its mortgage servicing rights. See Note 19 to the Consolidated Financial Statements for further discussions regarding the accounting and reporting of MSRs.

        The following table presents, as of June 30, 2013 and December 31, 2012, the fair value of those positions selected for fair value accounting, as well as the changes in fair value gains and losses for the six months ended June 30, 2013 and 2012:

 
  Fair value at   Changes in fair
value gains
(losses) for the
six months
ended June 30,
 
In millions of dollars   June 30,
2013
  December 31,
2012
  2013   2012  

Assets

                         

Federal funds sold and securities borrowed or purchased under agreements to resell

                         

Selected portfolios of securities purchased under agreements to resell and securities borrowed(1)

  $ 164,166   $ 160,589   $ (468 ) $ (159 )

Trading account assets

    11,031     17,206     (168 )   673  

Investments

    200     443     (57 )   (19 )

Loans

                         

Certain Corporate loans(2)

    3,827     4,056     287     35  

Certain Consumer loans(2)

    1,041     1,231     (67 )   (69 )
                   

Total loans

  $ 4,868   $ 5,287   $ 220   $ (34 )
                   

Other assets

                         

MSRs

  $ 2,524   $ 1,942   $ 416   $ (293 )

Certain mortgage loans held for sale

    5,433     6,879     (28 )   254  

Certain equity method investments

    235     22     (1 )   1  
                   

Total other assets

  $ 8,192   $ 8,843   $ 387   $ (38 )
                   

Total assets

  $ 188,457   $ 192,368   $ (86 ) $ 423  
                   

Liabilities

                         

Interest-bearing deposits

  $ 1,511   $ 1,447   $ 128   $ (40 )

Federal funds purchased and securities loaned or sold under agreements to repurchase

                         

Selected portfolios of securities sold under agreements to repurchase and securities loaned(1)

    120,512     116,689     73     1  

Trading account liabilities

    912     1,461     38     (91 )

Short-term borrowings

    4,493     818     132     88  

Long-term debt

    27,157     29,764     432     (221 )
                   

Total liabilities

  $ 154,585   $ 150,179   $ 803   $ (263 )
                   

(1)
Reflects netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase.

(2)
Includes mortgage loans held by mortgage loan securitization VIEs consolidated upon the adoption of SFAS 167 on January 1, 2010.

227



Own Debt Valuation Adjustments for Structured Debt

        Own debt valuation adjustments are recognized on Citi's debt liabilities for which the fair value option has been elected using Citi's credit spreads observed in the bond market. The fair value of debt liabilities for which the fair value option is elected (other than non-recourse and similar liabilities) is impacted by the narrowing or widening of the Company's credit spreads. The estimated change in the fair value of these debt liabilities due to such changes in the Company's own credit risk (or instrument-specific credit risk) was a gain of $202 million and $270 million for the three months ended June 30, 2013 and 2012, respectively, and a loss of $8 million and $992 million for the six months ended June 30, 2013 and 2012, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current credit spreads observable in the bond market into the relevant valuation technique used to value each liability as described above.


The Fair Value Option for Financial Assets and Financial Liabilities

Selected portfolios of securities purchased under agreements to resell, securities borrowed, securities sold under agreements to repurchase, securities loaned and certain non-collateralized short-term borrowings

        The Company elected the fair value option for certain portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase, securities borrowed, securities loaned, and certain non-collateralized short-term borrowings on broker-dealer entities in the United States, United Kingdom and Japan. In each case, the election was made because the related interest-rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings.

        Changes in fair value for transactions in these portfolios are recorded in Principal transactions. The related interest revenue and interest expense are measured based on the contractual rates specified in the transactions and are reported as interest revenue and expense in the Consolidated Statement of Income.

Certain loans and other credit products

        Citigroup has elected the fair value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup's lending and trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that are expected to be either sold or securitized in the near term, or transactions where the economic risks are hedged with derivative instruments such as purchased credit default swaps or total return swaps where the Company pays the total return on the underlying loans to a third party. Citigroup has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company.

        The following table provides information about certain credit products carried at fair value at June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Trading assets   Loans   Trading assets   Loans  

Carrying amount reported on the Consolidated Balance Sheet

  $ 9,982   $ 3,687   $ 11,658   $ 3,893  

Aggregate unpaid principal balance in excess of (less than) fair value

    (21 )   (12 )   31     (132 )

Balance of non-accrual loans or loans more than 90 days past due

    120         104      

Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due

    100         85      
                   

        In addition to the amounts reported above, $2,081 million and $1,891 million of unfunded loan commitments related to certain credit products selected for fair value accounting were outstanding as of June 30, 2013 and December 31, 2012, respectively.

        Changes in fair value of funded and unfunded credit products are classified in Principal transactions in the Company's Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported as Interest revenue on Trading account assets or loan interest depending on the balance sheet classifications of the credit products. The changes in fair value for the six months ended June 30, 2013 and 2012 due to instrument-specific credit risk totaled to a gain of $2 million and $29 million, respectively.

228


Certain investments in unallocated precious metals

        Citigroup invests in unallocated precious metals accounts (gold, silver, platinum and palladium) as part of its commodity and foreign currency trading activities or to economically hedge certain exposures from issuing structured liabilities. Under ASC 815, the investment is bifurcated into a debt host contract and a commodity forward derivative instrument. Citigroup elects the fair value option for the debt host contract, and reports the debt host contract within Trading account assets on the Company's Consolidated Balance Sheet. The total carrying amount of debt host contracts across unallocated precious metals accounts at June 30, 2013 was approximately $984 million and approximately $5.5 billion at December 31, 2012. The amounts are expected to fluctuate based on trading activity in future periods.

        As part of its commodity and foreign currency trading activities, Citi sells (buys) unallocated precious metals investments and executes forward purchase (sale) derivative contracts with trading counterparties. When Citi sells an unallocated precious metals investment, Citi's receivable from its depository bank is repaid and Citi derecognizes its investment in the unallocated precious metal. The forward purchase (sale) contract with the trading counterparty indexed to unallocated precious metals is accounted for as a derivative, at fair value through earnings. As of June 30, 2013, there were approximately $11.7 billion and $6.7 billion notional amount of such forward purchase and forward sale derivative contracts outstanding, respectively.

Certain investments in private equity and real estate ventures and certain equity method investments

        Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. The Company has elected the fair value option for certain of these ventures, because such investments are considered similar to many private equity or hedge fund activities in Citi's investment companies, which are reported at fair value. The fair value option brings consistency in the accounting and evaluation of these investments. All investments (debt and equity) in such private equity and real estate entities are accounted for at fair value. These investments are classified as Investments on Citigroup's Consolidated Balance Sheet.

        Citigroup also holds various non-strategic investments in leveraged buyout funds and other hedge funds for which the Company elected fair value accounting to reduce operational and accounting complexity. Since the funds account for all of their underlying assets at fair value, the impact of applying the equity method to Citigroup's investment in these funds was equivalent to fair value accounting. These investments are classified as Other assets on Citigroup's Consolidated Balance Sheet.

        Changes in the fair values of these investments are classified in Other revenue in the Company's Consolidated Statement of Income.

Certain mortgage loans (HFS)

        Citigroup has elected the fair value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans HFS. These loans are intended for sale or securitization and are hedged with derivative instruments. The Company has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications.

        The following table provides information about certain mortgage loans HFS carried at fair value at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30, 2013   December 31, 2012  

Carrying amount reported on the Consolidated Balance Sheet

  $ 5,433   $ 6,879  

Aggregate fair value in excess of unpaid principal balance

    (11 )   390  

Balance of non-accrual loans or loans more than 90 days past due

         

Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due

         
           

        The changes in fair values of these mortgage loans are reported in Other revenue in the Company's Consolidated Statement of Income. There was no net change in fair value during the six months ended June 30, 2013 and June 30, 2012 due to instrument-specific credit risk. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Statement of Income.

229


Certain consolidated VIEs

        The Company has elected the fair value option for all qualified assets and liabilities of certain VIEs that were consolidated upon the adoption of SFAS 167 on January 1, 2010, including certain private label mortgage securitizations, mutual fund deferred sales commissions and collateralized loan obligation VIEs. The Company elected the fair value option for these VIEs, as the Company believes this method better reflects the economic risks, since substantially all of the Company's retained interests in these entities are carried at fair value.

        With respect to the consolidated mortgage VIEs, the Company determined the fair value for the mortgage loans and long-term debt utilizing internal valuation techniques. The fair value of the long-term debt measured using internal valuation techniques is verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources and may apply matrix pricing for similar securities when no price is observable. Security pricing associated with long-term debt that is valued using observable inputs is classified as Level 2, and debt that is valued using one or more significant unobservable inputs is classified as Level 3. The fair value of mortgage loans in each VIE is derived from the security pricing. When substantially all of the long-term debt of a VIE is valued using Level 2 inputs, the corresponding mortgage loans are classified as Level 2. Otherwise, the mortgage loans of a VIE are classified as Level 3.

        With respect to the consolidated mortgage VIEs for which the fair value option was elected, the mortgage loans are classified as Loans on Citigroup's Consolidated Balance Sheet. The changes in fair value of the loans are reported as Other revenue in the Company's Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported as Interest revenue in the Company's Consolidated Statement of Income. Information about these mortgage loans is included in the table below. The change in fair value of these loans due to instrument-specific credit risk was a loss of $69 million for the six months ended June 30, 2013 and 2012.

        The debt issued by these consolidated VIEs is classified as long-term debt on Citigroup's Consolidated Balance Sheet. The changes in fair value for the majority of these liabilities are reported in Other revenue in the Company's Consolidated Statement of Income. Related interest expense is measured based on the contractual interest rates and reported as such in the Consolidated Statement of Income. The aggregate unpaid principal balance of long-term debt of these consolidated VIEs exceeded the aggregate fair value by $333 million and $869 million as of June 30, 2013 and December 31, 2012, respectively.

        The following table provides information about Corporate and Consumer loans of consolidated VIEs carried at fair value at June 30, 2013 and December 31, 2012:

 
  June 30, 2013   December 31, 2012  
In millions of dollars   Corporate loans   Consumer loans   Corporate loans   Consumer loans  

Carrying amount reported on the Consolidated Balance Sheet

  $ 137   $ 995   $ 157   $ 1,191  

Aggregate unpaid principal balance in excess of fair value

    344     222     347     293  

Balance of non-accrual loans or loans more than 90 days past due

    33     125     34     123  

Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due

    27     81     36     111  
                   

Certain structured liabilities

        The Company has elected the fair value option for certain structured liabilities whose performance is linked to structured interest rates, inflation, currency, equity, referenced credit or commodity risks (structured liabilities). The Company elected the fair value option, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. These positions will continue to be classified as debt, deposits or derivatives (Trading account liabilities) on the Company's Consolidated Balance Sheet according to their legal form.

        The following table provides information about the carrying value of structured notes, disaggregated by type of embedded derivative instrument at June 30, 2013 and December 31, 2012:

In billions of dollars   June 30, 2013   December 31, 2012  

Interest rate linked

  $ 9.0   $ 9.8  

Foreign exchange linked

    1.1     0.9  

Equity linked

    6.4     7.3  

Commodity linked

    1.6     1.0  

Credit linked

    3.6     4.7  
           

Total

  $ 21.7   $ 23.7  
           

        The change in fair value for these structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income. Changes in fair value for these structured liabilities include an economic component for accrued interest, which is included in the change in fair value reported in Principal transactions.

230


Certain non-structured liabilities

        The Company has elected the fair value option for certain non-structured liabilities with fixed and floating interest rates (non-structured liabilities). The Company has elected the fair value option where the interest-rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be accounted for at fair value through earnings. The election has been made to mitigate accounting mismatches and to achieve operational simplifications. These positions are reported in Short-term borrowings and Long-term debt on the Company's Consolidated Balance Sheet. The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income. Related interest expense on non-structured liabilities is measured based on the contractual interest rates and reported as such in the Consolidated Statement of Income.

        The following table provides information about long-term debt carried at fair value, excluding debt issued by consolidated VIEs, at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30, 2013   December 31, 2012  

Carrying amount reported on the Consolidated Balance Sheet

  $ 26,043   $ 28,434  

Aggregate unpaid principal balance in excess of (less than) fair value

    290     (226 )
           

        The following table provides information about short-term borrowings carried at fair value at June 30, 2013 and December 31, 2012:

In millions of dollars   June 30, 2013   December 31, 2012  

Carrying amount reported on the Consolidated Balance Sheet

  $ 4,493   $ 818  

Aggregate unpaid principal balance in excess of (less than) fair value

    28     (232 )
           

231


23.   GUARANTEES AND COMMITMENTS

        The Company provides a variety of guarantees and indemnifications to Citigroup customers to enhance their credit standing and enable them to complete a wide variety of business transactions. For certain contracts meeting the definition of a guarantee, the guarantor must recognize, at inception, a liability for the fair value of the obligation undertaken in issuing the guarantee.

        In addition, the guarantor must disclose the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, if there were a total default by the guaranteed parties. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. As such, the Company believes such amounts bear no relationship to the anticipated losses, if any, on these guarantees. The following tables present information about the Company's guarantees at June 30, 2013 and December 31, 2012 (for a discussion of the decrease in the carrying value period-over-period, see "Carrying Value—Guarantees and Indemnifications" below):

 
  Maximum potential amount of future payments    
 
In billions of dollars at June 30, 2013
except carrying value in millions
  Expire within
1 year
  Expire after
1 year
  Total amount
outstanding
  Carrying value
(in millions of dollars)
 

Financial standby letters of credit

  $ 27.6   $ 73.2   $ 100.8   $ 361.6  

Performance guarantees

    7.7     4.3     12.0     38.9  

Derivative instruments considered to be guarantees

    4.8     54.8     59.6     783.6  

Loans sold with recourse

        0.3     0.3     26.0  

Securities lending indemnifications(1)

    71.5         71.5      

Credit card merchant processing(1)

    72.8         72.8      

Custody indemnifications and other

        32.7     32.7      
                   

Total

  $ 184.4   $ 165.3   $ 349.7   $ 1,210.1  
                   

(1)
The carrying values of securities lending indemnifications and credit card merchant processing are not material, as the Company has determined that the amount and probability of potential liabilities arising from these guarantees are not significant.

 
  Maximum potential amount of future payments    
 
In billions of dollars at December 31, 2012
except carrying value in millions
  Expire within
1 year
  Expire after
1 year
  Total amount
outstanding
  Carrying value
(in millions of dollars)
 

Financial standby letters of credit

  $ 22.3   $ 79.8   $ 102.1   $ 432.8  

Performance guarantees

    7.3     4.7     12.0     41.6  

Derivative instruments considered to be guarantees

    11.2     45.5     56.7     2,648.7  

Loans sold with recourse

        0.5     0.5     87.0  

Securities lending indemnifications(1)

    80.4         80.4      

Credit card merchant processing(1)

    70.3         70.3      

Custody indemnifications and other

        30.2     30.2      
                   

Total

  $ 191.5   $ 160.7   $ 352.2   $ 3,210.1  
                   

(1)
The carrying values of securities lending indemnifications and credit card merchant processing are not material, as the Company has determined that the amount and probability of potential liabilities arising from these guarantees are not significant.

232


Financial standby letters of credit

        Citigroup issues standby letters of credit which substitute its own credit for that of the borrower. If a letter of credit is drawn down, the borrower is obligated to repay Citigroup. Standby letters of credit protect a third party from defaults on contractual obligations. Financial standby letters of credit include guarantees of payment of insurance premiums and reinsurance risks that support industrial revenue bond underwriting and settlement of payment obligations to clearing houses, and also support options and purchases of securities or are in lieu of escrow deposit accounts. Financial standbys also backstop loans, credit facilities, promissory notes and trade acceptances.

Performance guarantees

        Performance guarantees and letters of credit are issued to guarantee a customer's tender bid on a construction or systems-installation project or to guarantee completion of such projects in accordance with contract terms. They are also issued to support a customer's obligation to supply specified products, commodities, or maintenance or warranty services to a third party.

Derivative instruments considered to be guarantees

        Derivatives are financial instruments whose cash flows are based on a notional amount and an underlying instrument, where there is little or no initial investment, and whose terms require or permit net settlement. Derivatives may be used for a variety of reasons, including risk management, or to enhance returns. Financial institutions often act as intermediaries for their clients, helping clients reduce their risks. However, derivatives may also be used to take a risk position.

        The derivative instruments considered to be guarantees, which are presented in the tables above, include only those instruments that require Citi to make payments to the counterparty based on changes in an underlying instrument that is related to an asset, a liability, or an equity security held by the guaranteed party. More specifically, derivative instruments considered to be guarantees include certain over-the-counter written put options where the counterparty is not a bank, hedge fund or broker-dealer (such counterparties are considered to be dealers in these markets and may, therefore, not hold the underlying instruments). However, credit derivatives sold by the Company are excluded from the tables above as they are disclosed separately in Note 20 to the Consolidated Financial Statements. In addition, non-credit derivative contracts that are cash settled and for which the Company is unable to assert that it is probable the counterparty held the underlying instrument at the inception of the contract also are excluded from the tables above.

        In instances where the Company's maximum potential future payment is unlimited, the notional amount of the contract is disclosed.

Loans sold with recourse

        Loans sold with recourse represent the Company's obligations to reimburse the buyers for loan losses under certain circumstances. Recourse refers to the clause in a sales agreement under which a lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. This may be accomplished by the seller taking back any loans that become delinquent.

        In addition to the amounts shown in the tables above, Citi has recorded a repurchase reserve for its potential repurchases or make-whole liability regarding residential mortgage representation and warranty claims, which are primarily related to whole loan sales to the government-sponsored enterprises (GSEs). The repurchase reserve was $719 million and $1,565 million at June 30, 2013 and December 31, 2012, respectively, and these amounts are included in Other liabilities on the Consolidated Balance Sheet. On June 28, 2013, Citi reached an agreement with Fannie Mae to resolve potential future repurchase claims for breaches of representations and warranties on 3.7 million residential first mortgage loans sold to Fannie Mae that were originated between 2000 and 2012. Citi paid Fannie Mae $968 million under the agreement, substantially all of which was covered by Citi's existing mortgage repurchase reserves as of March 31, 2013.

        The repurchase reserve estimation process for potential residential mortgage whole loan representation and warranty claims is based on various assumptions which are primarily based on Citi's historical repurchase activity with the GSEs. The assumptions used to calculate this repurchase reserve include numerous estimates and judgments, including with respect to certain future events, and thus entail inherent uncertainty. As of June 30, 2013, Citi estimates that the range of reasonably possible loss for whole loan sale representation and warranty claims in excess of amounts accrued could be up to $0.2 billion. This estimate was derived by modifying the key assumptions discussed above to reflect management's judgment regarding reasonably possible adverse changes to those assumptions. Citi's estimate of reasonably possible loss is based on currently available information, significant judgment and numerous assumptions that are subject to change.

        Citi is also exposed to potential representation and warranty claims as a result of mortgage loans sold through private-label securitizations in its Consumer business in CitiMortgage as well as its legacy S&B business. Beginning in the first quarter of 2013, Citi considers private-label securitization representation and warranty claims as part of its litigation accrual analysis.

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.

233


Credit card merchant processing

        Credit card merchant processing guarantees represent the Company's indirect obligations in connection with: (i) providing transaction processing services to various merchants with respect to its private-label cards and (ii) potential liability for bank card transaction processing services. The nature of the liability in either case arises as a result of a billing dispute between a merchant and a cardholder that is ultimately resolved in the cardholder's favor. The merchant is liable to refund the amount to the cardholder. In general, if the credit card processing company is unable to collect this amount from the merchant, the credit card processing company bears the loss for the amount of the credit or refund paid to the cardholder.

        With regard to (i) above, the Company continues to have the primary contingent liability with respect to its portfolio of private-label merchants. The risk of loss is mitigated as the cash flows between the Company and the merchant are settled on a net basis and the Company has the right to offset any payments with cash flows otherwise due to the merchant. To further mitigate this risk, the Company may delay settlement, require a merchant to make an escrow deposit, include event triggers to provide the Company with more financial and operational control in the event of the financial deterioration of the merchant, or require various credit enhancements (including letters of credit and bank guarantees). In the unlikely event that a private-label merchant is unable to deliver products, services or a refund to its private-label cardholders, the Company is contingently liable to credit or refund cardholders.

        With regard to (ii) above, the Company has a potential liability for bank card transactions where Citi provides the transaction processing services as well as those where a third party provides the services and Citi acts as a secondary guarantor, should that processor fail to perform.

        The Company's maximum potential contingent liability related to both bank card and private-label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid charge-back transactions at any given time. At June 30, 2013 and December 31, 2012, this maximum potential exposure was estimated to be $73 billion and $70 billion, respectively.

        However, the Company believes that the maximum exposure is not representative of the actual potential loss exposure based on the Company's historical experience. This contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. The Company assesses the probability and amount of its contingent liability related to merchant processing based on the financial strength of the primary guarantor, the extent and nature of unresolved charge-backs and its historical loss experience. At June 30, 2013 and December 31, 2012, the losses incurred and the carrying amounts of the Company's contingent obligations related to merchant processing activities were immaterial.

Custody indemnifications

        Custody indemnifications are issued to guarantee that custody clients will be made whole in the event that a third-party subcustodian or depository institution fails to safeguard clients' assets.

Other guarantees and indemnifications

Credit Card Protection Programs

        The Company, through its credit card businesses, 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 June 30, 2013 and December 31, 2012, the actual and estimated losses incurred and the carrying value of the Company's obligations related to these programs were immaterial.

Other Representation and Warranty Indemnifications

        In the normal course of business, the Company provides standard representations and warranties to counterparties in contracts in connection with numerous transactions and also provides indemnifications, including indemnifications that protect the counterparties to the contracts in the event that additional taxes are owed due either to a change in the tax law or an adverse interpretation of the tax law. Counterparties to these transactions provide the Company with comparable indemnifications. While such representations, warranties and indemnifications are essential components of many contractual relationships, they do not represent the underlying business purpose for the transactions. The indemnification clauses are often standard contractual terms related to the Company's own performance under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. Often these clauses are intended to ensure that terms of a contract are met at inception. No compensation is received for these standard representations and warranties, and it is not possible to determine their fair value because they rarely, if ever, result in a payment. In many cases, there are no stated or notional amounts included in the indemnification clauses, and the contingencies potentially triggering the obligation to indemnify have not occurred and are not expected to occur. As a result, these indemnifications are not included in the tables above.

234


Value-Transfer Networks

        The Company is a member of, or shareholder in, hundreds of value-transfer networks (VTNs) (payment, clearing and settlement systems as well as exchanges) around the world. As a condition of membership, many of these VTNs require that members stand ready to pay a pro rata share of the losses incurred by the organization due to another member's default on its obligations. The Company's potential obligations may be limited to its membership interests in the VTNs, contributions to the VTN's funds, or, in limited cases, the obligation may be unlimited. The maximum exposure cannot be estimated as this would require an assessment of future claims that have not yet occurred. Citi believes the risk of loss is remote given historical experience with the VTNs. Accordingly, the Company's participation in VTNs is not reported in the Company's guarantees tables above, and there are no amounts reflected on the Consolidated Balance Sheet as of June 30, 2013 or December 31, 2012 for potential obligations that could arise from the Company's involvement with VTN associations.

Long-Term Care Insurance Indemnification

        In the sale of an insurance subsidiary, the Company provided an indemnification to an insurance company for policyholder claims and other liabilities relating to a book of long-term care (LTC) business (for the entire term of the LTC policies) that is fully reinsured by another insurance company. The reinsurer has funded two trusts with securities whose fair value (approximately $5.2 billion at June 30, 2013, compared to $4.9 billion at December 31, 2012) is designed to cover the insurance company's statutory liabilities for the LTC policies. The assets in these trusts are evaluated and adjusted periodically to ensure that the fair value of the assets continues to cover the estimated statutory liabilities related to the LTC policies, as those statutory liabilities change over time.

        If the reinsurer fails to perform under the reinsurance agreement for any reason, including insolvency, and the assets in the two trusts are insufficient or unavailable to the ceding insurance company, then Citigroup must indemnify the ceding insurance company for any losses actually incurred in connection with the LTC policies. Since both events would have to occur before Citi would become responsible for any payment to the ceding insurance company pursuant to its indemnification obligation, and the likelihood of such events occurring is currently not probable, there is no liability reflected in the Consolidated Balance Sheet as of June 30, 2013 related to this indemnification. Citi continues to closely monitor its potential exposure under this indemnification obligation.

Carrying Value—Guarantees and Indemnifications

        At June 30, 2013 and December 31, 2012, the total carrying amounts of the liabilities related to the guarantees and indemnifications included in the tables above amounted to approximately $1.2 billion and $3.2 billion, respectively. The decrease in the carrying value is primarily related to certain derivative instruments where Citigroup obtained additional contract level details during the second quarter of 2013, resulting in some of these contracts no longer being considered guarantees by Citigroup. The carrying value of derivative instruments is included in either Trading account liabilities or Other liabilities, depending upon whether the derivative was entered into for trading or non-trading purposes. The carrying value of financial and performance guarantees is included in Other liabilities. For loans sold with recourse, the carrying value of the liability is included in Other liabilities. In addition, at June 30, 2013 and December 31, 2012, Other liabilities on the Consolidated Balance Sheet included an allowance for credit losses of $1.1 billion and $1.1 billion, respectively, relating to letters of credit and unfunded lending commitments.

Collateral

        Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $46 billion and $39 billion at June 30, 2013 and December 31, 2012, respectively. Securities and other marketable assets held as collateral amounted to $36 billion and $51 billion at June 30, 2013 and December 31, 2012, respectively. The majority of collateral is held to reimburse losses realized under securities lending indemnifications. Additionally, letters of credit in favor of the Company held as collateral amounted to $4.7 billion and $3.4 billion at June 30, 2013 and December 31, 2012, 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.

235


Performance risk

        Citi evaluates the performance risk of its guarantees based on the assigned referenced counterparty internal or external ratings. Where external ratings are used, investment-grade ratings are considered to be Baa/BBB and above, while anything below is considered non-investment grade. The Citi internal ratings are in line with the related external rating system. On certain underlying referenced credits or entities, ratings are not available. Such referenced credits are included in the "not rated" category. The maximum potential amount of the future payments related to guarantees and credit derivatives sold is determined to be the notional amount of these contracts, which is the par amount of the assets guaranteed.

        Presented in the tables below are the maximum potential amounts of future payments that are classified based upon internal and external credit ratings as of June 30, 2013 and December 31, 2012. As previously mentioned, the determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. As such, the Company believes such amounts bear no relationship to the anticipated losses, if any, on these guarantees.

 
  Maximum potential amount of future payments  
In billions of dollars as of June 30, 2013
  Investment
grade
  Non-investment
grade
  Not
rated
  Total  

Financial standby letters of credit

  $ 74.6   $ 16.9   $ 9.3   $ 100.8  

Performance guarantees

    7.0     3.4     1.6     12.0  

Derivative instruments deemed to be guarantees

            59.6     59.6  

Loans sold with recourse

            0.3     0.3  

Securities lending indemnifications

            71.5     71.5  

Credit card merchant processing

            72.8     72.8  

Custody indemnifications and other

    32.6     0.1         32.7  
                   

Total

  $ 114.2   $ 20.4   $ 215.1   $ 349.7  
                   

 

 
  Maximum potential amount of future payments  
In billions of dollars as of December 31, 2012
  Investment
grade
  Non-investment
grade
  Not
rated
  Total  

Financial standby letters of credit

  $ 80.9   $ 11.0   $ 10.2   $ 102.1  

Performance guarantees

    7.3     3.0     1.7     12.0  

Derivative instruments deemed to be guarantees

            56.7     56.7  

Loans sold with recourse

            0.5     0.5  

Securities lending indemnifications

            80.4     80.4  

Credit card merchant processing

            70.3     70.3  

Custody indemnifications and other

    30.1     0.1         30.2  
                   

Total

  $ 118.3   $ 14.1   $ 219.8   $ 352.2  
                   

236


Credit Commitments and Lines of Credit

        The table below summarizes Citigroup's credit commitments as of June 30, 2013 and December 31, 2012:

In millions of dollars
  U.S.   Outside of
U.S.
  June 30,
2013
  December 31,
2012
 

Commercial and similar letters of credit

  $ 1,630   $ 6,415   $ 8,045   $ 7,311  

One- to four-family residential mortgages

    4,039     1,500     5,539     3,893  

Revolving open-end loans secured by one- to four-family residential properties

    14,382     3,090     17,472     18,176  

Commercial real estate, construction and land development

    2,104     1,434     3,538     3,496  

Credit card lines

    479,869     140,413     620,282     620,700  

Commercial and other consumer loan commitments

    134,487     91,228     225,715     228,492  

Other commitments and contingencies

    1,295     1,605     2,900     2,259  
                   

Total

  $ 637,806   $ 245,685   $ 883,491   $ 884,327  
                   

        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 customer to finance the purchase of goods or to incur other commitments. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay the supplier upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit. When a letter of credit is drawn, the customer is then required to reimburse Citigroup.

One- to four-family residential mortgages

        A one- to four-family residential mortgage commitment is a written confirmation from Citigroup to a buyer of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.

Revolving open-end loans secured by one- to four-family residential properties

        Revolving open-end loans secured by one- to four-family residential properties are essentially home equity lines of credit. A home equity line of credit is a loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt outstanding for the first mortgage.

Commercial real estate, construction and land development

        Commercial real estate, construction and land development include unused portions of commitments to extend credit for the purpose of financing commercial and multifamily residential properties as well as land development projects.

        Both secured-by-real-estate and unsecured commitments are included in this line, as well as undistributed loan proceeds, where there is an obligation to advance for construction progress payments. However, this line only includes those extensions of credit that, once funded, will be classified as Total loans, net on the Consolidated Balance Sheet.

Credit card lines

        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 overdraft and liquidity facilities, as well as commercial commitments to make or purchase loans, to purchase third-party receivables, to provide note issuance or revolving underwriting facilities and to invest in the form of equity. Amounts include $55 billion and $53 billion with an original maturity of less than one year at June 30, 2013 and December 31, 2012, 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.

Other commitments and contingencies

        Other commitments and contingencies include all other transactions related to commitments and contingencies not reported on the lines above.

237


24. CONTINGENCIES  

        The following information supplements and amends, as applicable, the disclosures in Note 28 to the Consolidated Financial Statements of Citigroup's 2012 Annual Report on Form 10-K and Note 23 to the Consolidated Financial Statements of Citigroup's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013. For purposes of this Note, Citigroup, its affiliates and subsidiaries, and current and former officers, directors and employees, are sometimes collectively referred to as Citigroup and Related Parties.

        In accordance with ASC 450 (formerly SFAS 5), Citigroup establishes accruals for litigation and regulatory matters, including matters disclosed herein, when Citigroup believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of loss ultimately incurred in relation to matters for which an accrual has been established may be substantially higher or lower than the amounts accrued for those matters.

        If Citigroup has not accrued for a matter because the matter does not meet the criteria for accrual (as set forth above), or Citigroup believes an exposure to loss exists in excess of the amount accrued for a particular matter, in each case assuming a material loss is reasonably possible, Citigroup discloses the matter. In addition, for such matters, Citigroup discloses an estimate of the aggregate reasonably possible loss or range of loss in excess of the amounts accrued for those matters as to which an estimate can be made. At June 30, 2013, Citigroup's estimate was materially unchanged from its estimate of approximately $5 billion at December 31, 2012, as more fully described in Note 28 to the Consolidated Financial Statements in the 2012 Annual Report on Form 10-K.

        As available information changes, the matters for which Citigroup is able to estimate, and the estimates themselves, will change. In addition, while many estimates presented in financial statements and other financial disclosure involve significant judgment and may be subject to significant uncertainty, estimates of the range of reasonably possible loss arising from litigation and regulatory proceedings are subject to particular uncertainties. For example, at the time of making an estimate, Citigroup may have only preliminary, incomplete or inaccurate information about the facts underlying the claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties or regulators, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that Citigroup had not accounted for in its estimates because it had deemed such an outcome to be remote. For all these reasons, the amount of loss in excess of accruals ultimately incurred for the matters as to which an estimate has been made could be substantially higher or lower than the range of loss included in the estimate.

        Subject to the foregoing, it is the opinion of Citigroup's management, based on current knowledge and after taking into account its current legal accruals, that the eventual outcome of all matters described in this Note would not be likely to have a material adverse effect on the consolidated financial condition of Citigroup. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse effect on Citigroup's consolidated results of operations or cash flows in particular quarterly or annual periods.

        For further information on ASC 450 and Citigroup's accounting and disclosure framework for litigation and regulatory matters, see Note 28 to the Consolidated Financial Statements of Citigroup's 2012 Annual Report on Form 10-K.


Credit Crisis-Related Litigation and Other Matters

Mortgage-Related Litigation and Other Matters

        Securities Actions:    On August 1, 2013, the United States District Court for the Southern District of New York entered an order finally approving the class action settlement in IN RE CITIGROUP INC. SECURITIES LITIGATION. Additional information relating to this action is publicly available in court filings under the consolidated lead docket number 07 Civ. 9901 (S.D.N.Y.) (Stein, J.).

        On July 23, 2013, the United States District Court for the Southern District of New York held a fairness hearing in IN RE CITIGROUP INC. BOND LITIGATION. Additional information relating to this action is publicly available in court filings under the consolidated lead docket number 07 Civ. 9522 (S.D.N.Y.) (Stein, J.).

        On May 31, 2013, the United States District Court for the Southern District of New York entered an order dismissing with prejudice the consolidated action INTERNATIONAL FUND MANAGEMENT S.A., ET AL. v. CITIGROUP INC., ET AL. and the individual action SWISSCANTO ASSET MANAGEMENT AG, ET AL. v. CITIGROUP INC., ET AL., pursuant to settlement agreements reached by the parties. Additional information relating to these actions is publicly available in court filings under the docket numbers 09 Civ. 8755 (S.D.N.Y.) (Stein, J.) and 12 Civ. 9050 (S.D.N.Y.) (Stein, J.).

        Mortgage-Backed Securities and CDO Investor Actions and Repurchase Claims:    On May 29, 2013, the United States District Court for the Southern District of New York so-ordered the parties' stipulation of voluntary dismissal with prejudice in FEDERAL HOUSING FINANCE AGENCY v. CITIGROUP INC., ET AL. On June 24, 2013, the court entered orders of voluntary dismissal with prejudice and bar orders in FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL. and FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL., dismissing with prejudice all claims against Citigroup in those actions. Additional information relating to these actions is publicly available in court filings under the docket numbers 11 Civ. 6196, 6188 and 7010 (S.D.N.Y.) (Cote, J.).

        On April 30, 2013, the United States District Court for the Southern District of New York issued an order reinstating certain RMBS claims on behalf of a putative class of purchasers of mortgage-backed securities issued by Residential Accredit Loans, Inc. in NEW JERSEY CARPENTERS HEALTH FUND v. RESIDENTIAL CAPITAL LLC, ET AL. Citigroup Global Markets Inc. is named as an underwriter defendant, along with several other underwriter defendants, in plaintiffs' consolidated third amended complaint, served on May 10, 2013. Additional information relating to this action is publicly available in court filings under the docket number 08 Civ. 8781 (S.D.N.Y.) (Baer, J.).

        As a result of these developments, among others, the aggregate original purchase amount of the purchases at issue in the pending RMBS and CDO investor suits, including claims that have been dismissed but are still subject to appeal or otherwise not fully resolved, is approximately $8 billion, and the aggregate original purchase amount of the purchases covered by tolling agreements with RMBS and CDO investors threatening litigation is approximately $6 billion.

238


KIKOs

        Prior to the devaluation of the Korean won in 2008, several local banks in Korea, including a Citigroup subsidiary (CKI), entered into foreign exchange derivative transactions with small and medium-size export businesses (SMEs) to enable the SMEs to hedge their currency risk. The derivatives had "knock-in, knock-out" features. Following the devaluation of the won, many of these SMEs incurred significant losses on the derivative transactions and filed civil lawsuits against the banks, including CKI. The claims generally allege that the products were not suitable and that the risk disclosure was inadequate.

        As of June 30, 2013, there were 94 civil lawsuits filed by SMEs against CKI. To date, 84 decisions have been rendered at the district court level, and CKI has prevailed in 64 of those decisions. In the other 20 decisions, plaintiffs were awarded only a portion of the damages sought. The damage awards total in the aggregate approximately $28.0 million. CKI is appealing the 20 adverse decisions. A significant number of plaintiffs that had decisions rendered against them are also filing appeals, including plaintiffs that were awarded less than all of the damages they sought.

        Of the 84 cases decided at the district court level, 62 have been appealed to the high court, including the 20 in which an adverse decision was rendered against CKI in the district court. Of the 22 appeals decided at high court level, CKI prevailed in 13 cases, and in the other nine plaintiffs were awarded partial damages, which increased the aggregate damages awarded against CKI by a further $9.8 million. CKI is appealing seven of the adverse decisions to the Korean Supreme Court.

Lehman Brothers Bankruptcy Proceedings

        On May 6, 2013, Citibank, N.A. filed a complaint in the United States District Court for the Southern District of New York against Barclays Bank, PLC, seeking payment under a contractual indemnity for losses suffered as a result of foreign exchange trading by Lehman Brothers Inc. in September 2008. Citi is carrying a receivable in Other assets related to the expected recovery under the indemnity based on external counsel's assessment that Citi should prevail in litigation to enforce the indemnity. Additional information relating to this action is publicly available in court filings under the docket number 13 Civ. 3063 (S.D.N.Y.) (Schofield, J.).

Lehman Structured Notes

        On June 19, 2013, the Belgian Supreme Court upheld the May 2012 decision of the Brussels Court of Appeal dismissing all criminal charges against Citibank Belgium and its former employees.

Terra Firma Litigation

        On May 31, 2013, the United States Court of Appeals for the Second Circuit vacated the November 2010 jury verdict in favor of Citigroup and ordered that the case be retried. The action was remanded to the United States District Court for the Southern District of New York, and retrial is scheduled to begin on October 7, 2013. Additional information relating to this action is publicly available in court filings under the docket numbers 09 Civ. 10459 (S.D.N.Y.) (Rakoff, J.) and 11-0126-cv (2d Cir.).

Credit Default Swaps Matters

        In April 2011, the European Commission (DG Competition) (the EC) opened an investigation (Case No COMP/39.745) concerning the market for pricing information concerning credit default swaps (CDS). On July 2, 2013, the EC served on Citigroup and Related Parties, as well as a dozen other CDS dealers, a Statement of Objections alleging that Citigroup and the other dealers colluded to prevent exchanges from entering the credit derivatives business. The Statement of Objections sets forth the EC case team's preliminary conclusions prior to hearing the dealers' defenses.

        In July 2009 and September 2011, the Antitrust Division of the U.S. Department of Justice served Civil Investigative Demands (CIDs) on Citigroup concerning potential anticompetitive conduct in the CDS industry. Citigroup has responded to the CIDs and is cooperating with the investigation.

        In addition, putative class action complaints have been filed by various entities against Citigroup, Citigroup Global Markets Inc. and Citibank, N.A., among other defendants, alleging anticompetitive conduct in the CDS industry and asserting various claims under Sections 1 and 2 of the Sherman Act as well as a state law claim for unjust enrichment. Additional information relating to these actions is publicly available in court filings under the docket numbers 1:13-cv-03357 (N.D. Ill.), 1:13-cv-04979 (N.D. Ill.), 1:13-cv-04928 (S.D.N.Y.), 1:13-cv-05413 (N.D. Ill.), and 1:13-cv-05417 (N.D. Ill.).

Interbank Offered Rates—Related Litigation and Other Matters

        Regulatory Actions:    On June 14, 2013, the Monetary Authority of Singapore (MAS) announced the results of its review of the submissions processes from 2007 to 2011 of twenty banks, including Citibank, N.A. Singapore Branch, for benchmarks set in Singapore, including the Singapore Interbank Offered Rates (SIBOR), Swap Offered Rates, and foreign exchange benchmarks used to settle non-deliverable forward FX contracts. All of the banks, including Citibank, N.A. Singapore Branch, were found to have deficiencies in governance, risk management, internal controls, and surveillance systems relating to benchmark submissions, and all were required, among other things, to adopt certain corrective measures, to make quarterly reports to the MAS, and (with one exception) to deposit additional statutory reserves with the MAS for a period of one year.

        Antitrust and Other Litigation:    On May 20, 2013, an individual action was brought against Citigroup and Citibank, N.A., as well as other USD LIBOR panel banks on behalf of certain hedge funds that were parties to interest rate swap transactions. Based on allegations that the panel bank defendants manipulated USD LIBOR, plaintiffs assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, tortious interference with contract, civil conspiracy, and unjust enrichment, and seek compensatory damages. Additional information concerning this action is publicly available in court filings under docket number 1:13-cv-4018 (S.D.N.Y.) (Buchwald, J.).

        Six individual actions were filed in federal courts in California, Texas, and Pennsylvania in June and July 2013 against Citigroup and related entities by municipal and state government entities claiming to have suffered losses as a result of purported LIBOR manipulation. These actions generally assert antitrust claims as well as claims under state law theories,

239


and seek compensatory damages, various forms of enhanced damages, attorneys' fees, and injunctive relief. Additional information concerning these actions is publicly available in court filings under docket numbers 3:13-cv-1466 (S.D. Cal.) (Lorenz, J.), 3:13-cv-2921 (N.D. Cal.) (Chesney, J.), 3:13-cv-2979 (N.D. Cal.) (Tigar, J.), 2:13-cv-1476 (E.D. Cal.) (Mueller, J.), 4:13-cv-2149 (S.D. Tex.) (Hoyt, J.), and 2:13-cv-4352 (E.D. Pa.) (Restrepo. J.).

Interchange Fees Litigation

        Numerous merchants, including large national merchants, have objected to or requested exclusion (opted out) from the class settlements, and some of those opting out have filed complaints against Visa, MasterCard, and in some instances one or more issuing banks. One of these suits, 7-ELEVEN, INC., ET AL. V. VISA INC., ET AL., names Citigroup as a defendant. Additional information concerning this action is publicly available in court filings under docket number 1:13-CV-04442 (S.D.N.Y.) (Hellerstein, J.).

Settlement Payments

        Payments required in settlement agreements described above have been made or are covered by existing litigation accruals.

*            *            *

        Additional matters asserting claims similar to those described above may be filed in the future.

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LEGAL PROCEEDINGS

        For a discussion of Citigroup's litigation and related matters, see Note 24 to the Consolidated Financial Statements.

241



UNREGISTERED SALES OF EQUITY, PURCHASES OF EQUITY SECURITIES, DIVIDENDS

Unregistered Sales of Equity Securities

        None.


Equity Security Repurchases

        The following table summarizes Citigroup's equity security repurchases, which consisted entirely of common stock repurchases, during the three months ended June 30, 2013:

In millions, except per share amounts   Total shares
purchased
  Average
price paid
per share
  Approximate dollar
value of shares that
may yet be purchased
under the plan or
programs
 

April 2013

                   

Open market repurchases(1)

    0.1   $ 46.73   $ 1,197  

Employee transactions(2)

            N/A  

May 2013

                   

Open market repurchases(1)

    0.4     48.98     1,177  

Employee transactions(2)

            N/A  

June 2013

                   

Open market repurchases(1)

    3.3     48.40     1,018  

Employee transactions(2)

            N/A  
               

Total

    3.8   $ 48.44   $ 1,018  
               

(1)
Represents repurchases under the $1.2 billion 2013 common stock repurchase program (2013 Repurchase Program) that was approved by Citigroup's Board of Directors and announced on April 25, 2013. Shares repurchased under the 2013 Repurchase Program are treasury stock. (See "Unregistered Sales of Equity, Purchases of Equity Securities, Dividends—Equity Security Repurchases" in the First Quarter of 2013 Form 10-Q for additional information.)

(2)
Consisted of shares added to treasury stock related to (i) certain activity on employee stock option program exercises where the employee delivers existing shares to cover the option exercise, or (ii) under Citi's employee restricted stock program where certain shares are withheld to satisfy tax requirements.

N/A Not applicable

        For so long as the FDIC continues to hold any Citigroup trust preferred securities acquired pursuant to the exchange offers consummated in 2009, Citigroup is, subject to certain exemptions, generally restricted from redeeming or repurchasing any of its equity or trust preferred securities, or paying regular cash dividends in excess of $0.01 per share of common stock per quarter, which restrictions may be waived. The FDIC consented to Citi's 2013 Repurchase Program (as defined above). Any dividend on Citi's outstanding common stock would also be subject to regulatory approval and need to be made in compliance with Citi's obligations to its outstanding preferred stock.

242



Exhibits

        See Exhibit Index.

243



SIGNATURES

        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 2nd day of August, 2013.


 

 

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)

244



EXHIBIT INDEX

  3.01 + Restated Certificate of Incorporation of the Company, as amended, as in effect on the date hereof.

 

12.01

+

Calculation of Ratio of Income to Fixed Charges.

 

12.02

+

Calculation of Ratio of Income to Fixed Charges Including Preferred Stock Dividends.

 

31.01

+

Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.02

+

Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.01

+

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.01

+

KPMG Preferability letter dated August 2, 2013 regarding Citi's change in the method of accounting for its most significant pension and postretirement benefit plans.

 

101.01

+

Financial statements from the Quarterly Report on Form 10-Q of Citigroup Inc. for the quarter ended June 30, 2013, filed on August 2, 2013, formatted in XBRL: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statement of Cash Flows and (v) the Notes to Consolidated Financial Statements.

The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the SEC upon request.

+
Filed herewith

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