2017 ANNUAL REPORT
Citi’s Value Proposition:
A Mission of Enabling Growth and Progress
What You Can Expect From Us & What We Expect From Ourselves
Citi’s mission is to serve as a trusted partner
to our clients by responsibly providing
financial services that enable growth and
economic progress. Our core activities are
safeguarding assets, lending money, making
payments and accessing the capital markets
on behalf of our clients. We have 200 years of
experience helping our clients meet the world’s
toughest challenges and embrace its greatest
opportunities. We are Citi, the global bank —
an institution connecting millions of people
across hundreds of countries and cities.
We protect people’s savings and help them
make the purchases — from everyday
transactions to buying a home — that improve
the quality of their lives. We advise people on
how to invest for future needs, such as their
children’s education and their own retirement,
and help them buy securities such as stocks
and bonds.
We work with companies to optimize their daily
operations, whether they need working capital,
to make payroll or export their goods overseas.
By lending to companies large and small,
we help them grow, creating jobs and real
economic value at home and in communities
around the world. We provide financing and
support to governments at all levels, so they
can build sustainable infrastructure, such as
housing, transportation, schools and other vital
public works.
These capabilities create an obligation to act
responsibly, do everything possible to create the
best outcomes, and prudently manage risk. If we
fall short, we will take decisive action and learn
from our experience.
We strive to earn and maintain the public’s trust
by constantly adhering to the highest ethical
standards. We ask our colleagues to ensure that
their decisions pass three tests: they are in our
clients’ interests, create economic value, and are
always systemically responsible. When we do
these things well, we make a positive financial
and social impact in the communities we serve
and show what a global bank can do.
Financial Summary
In billions of dollars, except per-share amounts, ratios and direct staff
2017
2016
2015
Global Consumer Banking Net Revenues
$
32.7
$
31.5
$
32.3
Institutional Clients Group Net Revenues
Corporate/Other Net Revenues
Total Net Revenues
Net Income1
Diluted EPS — Net Income1
Diluted EPS — Income from Continuing Operations1
Assets
Deposits
Citigroup Stockholders’ Equity
Basel III Ratios — Full Implementation
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital
Supplementary Leverage
Return on Assets1
Efficiency Ratio
Return on Common Equity1
Book Value per Share
Tangible Book Value per Share
Common Shares Outstanding (millions)
Total Payout Ratio1
Market Capitalization
Direct Staff (thousands)
Totals may not sum due to rounding.
$
$
35.7
3.1
71.5
15.8
5.33
5.37
$
$
33.2
5.1
69.9
14.9
4.72
4.74
$
$
33.3
10.8
76.4
17.2
5.40
5.42
$
1,843
$
1,792
$
1,731
959.8
200.7
12.4%
14.1%
16.3%
6.7%
0.84%
58%
7.0%
929.4
225.1
12.6%
14.2%
16.2%
7.2%
0.82%
59%
6.6%
907.9
221.9
12.1%
13.5%
15.3%
7.1%
0.95%
57%
8.1%
$
70.62
$
74.26
$ 69.46
60.16
2,569.9
117.5%
$
191
209
64.57
2,772.4
77.1%
$
165
219
60.61
2,953.3
36.0%
$
153
231
1 2017 excludes the impact from Tax Reform. Results excluding the impact from Tax Reform are non-GAAP Financial measures. See page 9 in Citi’s 2017
Annual Report on Form 10-K for a summary of Tax Reform and a reconciliation of these results to reported results.
11
Letter To Shareholders
7
1
0
2
Michael L. Corbat
Chief Executive Officer
Dear Fellow Shareholders:
When we look back at 2017 from the vantage point of a few years from
now, I am confident we will point to it as a year Citi decisively emerged
from a prolonged period of simplification and restructuring into a new era
of sustainable client-led growth.
The growth we are driving today is sustainable, balanced and less exposed
to predictable and unpredictable risks than in the past. It is not going to
come from acquiring competitors, entering new territories, or expanding
into ancillary businesses that don’t fit our strategy. It is going to come from
serving our consumer and institutional clients with distinction. It is going
to come from earning and keeping clients’ trust and safeguarding their
security. And it is going to come from being seen as an indisputably strong
and stable company that takes as much justifiable pride in the positive
impacts we have on society as in our financial achievements.
That is the context in which, on Investor
Day in July 2017 — our first in nine
years — I reiterated our conviction that
with our restructuring complete, we
had crossed an inflection point. From
2017 forward, the decisions we made
to focus our franchise, invest in our
capabilities and improve our client
experience are bearing fruit in the form
of a more compelling value proposition,
accelerating growth and improved
returns for shareholders. Our overriding
goal is to combine the positive impact
of an improving macroeconomic
environment with even stronger
business performance to consistently
deliver higher returns on capital and
increased return of capital to our
shareholders through 2020 and beyond.
On an operating basis, our 2017 financial
results strongly support the strategy
we presented on Investor Day. Yet as
a consequence of the passage of tax
reform legislation in the U.S. in the fourth
quarter of 2017, we took a one-time, non-
cash charge of $22.6 billion, resulting in
a net loss on a reporting basis for the
year of $6.8 billion. Having put that one-
time charge behind us, however, we can
now focus on the positive impacts of tax
reform for us and our clients. A lower tax
rate leads to higher net income, which,
combined with a multi-billion-dollar
reduction in our tangible common equity,
will have a powerful positive impact on
our returns. We estimate the impact of
tax reform should drive our Return on
Tangible Common Equity (ROTCE) up by
200 basis points or more. On a symbolic
level, reducing the value of our Deferred
Tax Assets (DTA) — our remaining
remnant of the financial crisis — indelibly
10
In the U.S., Citi Retail
Services and BRP announce
new financial services
agreement
Citi powers data center in
Roanoke, Texas, with
clean, renewable energy
17
Citi Retail Services signs
long-term credit card
agreement with Kawasaki
Citibank nearly doubles
fee-free ATM network
across the U.S. with new
Cardtronics agreement
2
20
Citi named “Best Bank for
Liquidity Management” and
“Best Bank for Working Capital
Optimization” in Latin America
25
Citi ranks #1 in Fixed Income
Market Share for the second
consecutive year
Citi launches app-based login
solution for corporate clients
across 11 markets in Asia
Pacific
Citi joins New York City
Mayor’s Carbon Challenge to
reduce greenhouse gases at
its global headquarters
> JANUARY 2017 marks not just the end of a year, but the
end of an era.
The solid growth we achieved in our core
consumer and institutional businesses
came from a more focused country
presence in consumer and a more
selective client base in institutional,
each of which is roughly half the size it
was at its peak. We have continued to
execute on investments to streamline
our infrastructure and drive further
growth in targeted areas including our
Mexico, U.S. Cards, Treasury and Trade
Solutions, Equities and Investment
Banking franchises.
In Global Consumer Banking, which
serves more than 100 million consumer
clients in 19 markets in three regions
— Asia, Mexico and the U.S. — total
revenues were up 4 percent over 2016.
From a product perspective, Global Retail
Banking grew loans and assets under
management as we continued to shrink
our physical footprint. Global Cards also
delivered good growth, driven by higher
loan and purchase sales volumes in all
three regions.
Our Institutional Clients Group delivered
an impressive performance, driving total
revenues up 7 percent. Banking revenues
were higher across our franchise, from
our backbone Treasury and Trade
Solutions to Investment Banking, the
Private Bank and Corporate Lending.
In our Markets and Securities Services
segment, a weaker performance in Fixed
Income and Equities compared to the
more robust trading environment in
2016 was offset by growth in Securities
Services. Once again we demonstrated
the value of balance across and within
our businesses.
Investor Day 2017
Citi hosted our first Investor Day in nine
years on July 25. It was an opportunity
to engage directly with investors and
share the progress we’ve made as a
firm, as well as our objectives going
forward. The core message was that
we’ve crossed an inflection point as a
firm. Topics included the momentum
we’re seeing in our businesses, our
competitive advantages and the
confidence we have in our strategy.
Excluding the impact of tax reform, our
2017 net income of $15.8 billion was
nearly $1 billion — or 6 percent — higher
than our 2016 net income. On this basis,
earnings per share rose to $5.33, up 13
percent over the prior year, including
a benefit from share repurchases. We
also made progress toward the targets
we introduced on Investor Day. Due
to strong expense management, we
delivered a full-year Efficiency Ratio of
58 percent, a more than 150 basis point
improvement from 2016. We increased
our Return on Assets to 84 basis points.
And we achieved a ROTCE of 8.1 percent,
including the impact of our DTA. And
excluding the impact of our disallowed
DTAs, our ROTCE rose to 9.6 from 9
percent in 2016, showing progress
toward the 10 percent target we talked
about on Investor Day.
With regard to improving the return
of capital to our shareholders, the
solid results we achieved on our
Comprehensive Capital Analysis and
Review (CCAR) “stress test” again
enabled the planned return of $19
billion during the current CCAR cycle.
That laid the foundation for us to
reduce our outstanding share count
by over 200 million and return over
$17 billion of capital to shareholders
in 2017 through common share
repurchases and dividends. We
announced our intention to return —
subject to regulatory approval — at
least an additional $40 billion of
capital to shareholders over the next
two 2018 and 2019 CCAR cycles.
The Federal Reserve and the Federal
Deposit Insurance Corporation found
no deficiencies or shortcomings in our
2017 Resolution Plan. Both milestones
underscored the progress we made in
2017 toward our longstanding goal of
being an indisputably strong and
stable institution.
I would like to put these results in the
broader context of a mindset shift
we see as critical to sustaining these
positive trends and trajectories into
an uncertain future. We cannot control
the macroeconomic or interest rate
environment. But we can and must
control the impacts our decisions
and actions have on our clients’
experience of their interactions
and engagements with us.
30
Citi announces strategic
exit of mortgage servicing
operations by end of 2018
1
Citi and Sears Holdings
introduce the Sears
Mastercard with an industry-
leading “5-3-2-1 Shop Your
Way” rewards offer
Citi wins Risk’s OTC Client
Clearer of the Year award
for the third year running
27
Citi launches credit card
scanning ability within
mobile app
International Financing
Review names Citi
“Global Bank of the Year”
7
Citi awarded Type-A Bond
Settlement Agent license
in China
3
> FEBRUARY Letter To Shareholders
We know our clients’ expectations for
seamless experiences are rising by the
day. In response to that reality, our
consumer bank launched three times as
many digital features in 2017 as we did
in 2016, driving double-digit growth in
digital and mobile clients worldwide.
In our institutional business, Citi’s online
banking platform CitiDirect BE® was
ranked # 1 for the twelfth consecutive
year in the 2017 Greenwich Associates
Digital Banking Benchmarking study. We
partnered with Nasdaq on the rollout of
a pioneering application of blockchain
and distributed ledger technology
to facilitate and automate payment
processing. Our Treasury and Trade
Solutions business, which provides cash
management and trade finance services
to multinational corporations and public
sector clients worldwide, also launched
a host of digital offerings designed to
make our global network, the world’s
largest money mover, even more of a
competitive advantage than it is today.
All the innovations we launched, crucial
to serving clients with distinction,
would not have stood a chance of
gaining traction or acceptance with
clients if they required reassurance that
our reputation or values were sound.
Fortunately, the strong foundation
we have built, based on a culture of
competence, compliance and control
precedes us. On a number of occasions
in 2017, I had an opportunity to reaffirm
those core values as events transpired
to make taking a stand not just right
but necessary.
On the third day of January, in response
to a newly-released Executive Order
on Immigration in the U.S., I wrote to
my roughly 210,000 Citi colleagues in
nearly 100 countries where we open our
doors every day to remind them that our
diversity is a value not just fundamental
to our present and future, but — given
our globality — a real competitive
advantage for our firm.
To accelerate progress on this important
front, I asked at least one of my direct
reports to co-lead each of our newly-
established Affinity Groups — including
Pride, Black Heritage, Asian Heritage,
and Citi Salutes, dedicated to veterans’
support — with another senior Citi leader.
I wrote and said to my colleagues as I
made that announcement that while
I know we have more work to do, our
track record at getting difficult things
done makes me confident that we will
get to where we need to go.
In honor of our 12th annual Global
Community Day, I joined my colleagues
to plant trees, organize the library and
install computers at a primary school
outside Mexico City. I felt just as much
pride in the project as I did in the fact
that I was joining over 100,000 others
as they revitalized parks, served and
collected food to those in need, and
CITIGROUP — KEY CAPITAL METRICS
Common Equity Tier 1 Capital Ratio1
Supplementary Leverage Ratio2
TBV/Share3
12.1%
12.6%
12.4%
10.6%
10.6%
5.9%
7.1%
7.2%
6.7%
5.4%
$55.19
$56.71
$60.61
$64.57
$60.16
4Q’13
4Q’14
4Q’15
4Q’16
4Q’17
Basel III Risk-Weighted Assets ($ Billions)
$1,185
$1,293
$1,216
$1,190
$1,153
Note: Certain reclassifications have been made to the prior periods’ presentation to conform to the current period’s presentation.
1 Citigroup’s Common Equity Tier 1 Capital Ratio is a non-GAAP financial measure. For additional information, please see
“Capital Resources—Basel III (Full Implementation)” in Citi’s 2017 Annual Report on Form 10-K.
2 Citigroup’s Supplementary Leverage Ratio is a non-GAAP financial measure. For additional information, please see
“Capital Resources—Basel III (Full Implementation)” in Citi’s 2017 Annual Report on Form 10-K.
3 Tangible Book Value (TBV) per share is a non-GAAP financial measure. For additional information, please see
“Capital Resources—Tangible Common Equity, Tangible Book Value Per Share, Book Value Per Share and Returns
on Equity” in Citi’s 2017 Annual Report on Form 10-K.
> FEBRUARY
Citi launches one of its most
ambitious FinTech programs
to date, the Citi Tech for
Integrity Challenge
13
Thai Airways reaffirms
partnership with Citi
7
Citi Private Bank awarded
“Most Innovative Private Bank”
by Global Finance magazine
8
Citi presents forum on
cybersecurity in Latin
America in partnership
with NAP del Caribe and
AMCHAMDR’s IT committee
20
FinanceAsia magazine
recognizes Citi’s Asia growth
story with Best Bank win
4
21
CitiDirect BE ranked #1
in Greenwich Associates’
Digital Banking
Benchmarking Study
22
Citi Foundation’s Pathways
to Progress expands globally
with a three-year, $100 million
initiative to prepare 500,000
young people for today’s
competitive job market
Lorem ipsum
in so many other ways volunteered to
serve our communities.
Our commitment to support the
communities we serve was sorely tested
by the devastation wrought by hurricanes
Harvey and Irma, which in rapid
succession swept through Texas, Florida
and the Caribbean. In those and other
areas impacted by natural disasters in
2017, including Mexico City, which suffered
a massive earthquake, and Southeast
Asia, hit hard by flooding, hundreds of
our people went to extraordinary lengths
to support and protect their colleagues,
clients and communities. Working closely
with local and global nonprofits, including
the American Red Cross, in all those
stricken communities our rapid response
efforts provided funds, necessities and
volunteer contributions to those in urgent
need of relief. My Citi colleagues delivered
22 tons of food and supplies to colleagues
and communities across Puerto Rico in
the wake of the storms. Over a two-week
period after Irma and Harvey, we further
supported the Red Cross by enabling it to
re-route phone calls to specially trained
agents in our Hagerstown, Maryland call
center, who assisted 1,800 individuals
in search of emergency support or
family members.
The vast human and property losses
those destructive storms left in their
wake were powerful reminders of the
extreme weather many more places
are experiencing as a result of global
warming. With extreme weather events
becoming more common, enhancing
resiliency is a key objective of our
efforts to finance vital infrastructure in
partnership with public sector agencies
and entities worldwide.
2017 NET REVENUES1
2017 Net Revenues: $68.4 Billion
BY REGION
North America
49%
Europe,
Middle East
and Africa
(EMEA)
16%
Latin America
14%
Asia2
21%
BY BUSINESS
Global
Consumer
Banking (GCB)
48%
ICG Banking
27%
ICG Markets and
Securities Services
25%
ICG — Institutional Clients Group
1 Results excluding Corporate/Other are
non-GAAP financial measures.
2 Asia GCB includes the results of operations
of GCB activities in certain EMEA countries.
Three years ago, we established a new
Environmental Finance goal with a
ten-year target to finance and facilitate
$100 billion in environmental finance
activity and we are on track to meet it
several years early. In February 2017
we announced a new goal to obtain
100 percent of our global energy needs
through renewable sources by 2020.
In October, when we opened our new
plaza and entrance to our Global
Headquarters in New York City, we
highlighted the many sustainability
features incorporated into our plans
as the reason we are targeting 388
Greenwich Street for a LEED Platinum
designation, the U.S. Green Building
Council’s highest sustainability
certification.
2017 was also the year when the Citi
Foundation’s groundbreaking Pathways
to Progress program, which in its first
phase connected 100,000 young people
in ten U.S. cities to skills, jobs and career
opportunities, went global. Now, the
program is targeting 500,000 at-risk
youth to be reached worldwide by 2020.
The Foundation’s $100 million investment
in Pathways is the largest single
philanthropic commitment in its history.
In conclusion, a word I used more than
once at our Investor Day to describe
how I feel about where we are today and
where we are going is “pride.” The Citi
of today and tomorrow is a place all our
colleagues are proud to work for and all
our clients can be proud to work with. I
am grateful to you for standing with us.
Looking back on the decisions we made
to prudently grow, and the decision you
made to invest with us, I hope you share
my conviction and belief that our best
days and years are to come.
Sincerely,
Michael L. Corbat
Chief Executive Officer, Citigroup Inc.
27
Citi CEO Michael Corbat
honored with CECP CEO
Force for Good award at
12th annual Board of Boards
meeting in New York City
> MARCH
1
Citi named “Placement
Agent of the Year” by
Private Debt Investor
2
Citi Retail Services renews
agreement with Ford Motor
Company
Citi recognized for
Excellence in Private Banking
by Family Wealth Report
8
In the U.S., Citi secures
top spot as Nation’s
#1 Affordable Housing
Lender for the seventh
consecutive year
14
Citi launches mobile
password solution for
Treasury and Trade
Solutions clients
5
Global Consumer Banking
banks, serves as a trusted partner to more than 100 million customers
in 19 markets worldwide.
A global leader in credit cards, wealth management and commercial
banking, the Global Consumer Bank is a compelling franchise: a globally
recognized brand; strong competitive positions in a mix of developed and
emerging markets; best-in-class value propositions; high-quality target
clients; leading digital capabilities; and disciplined credit and expense
management.
BCiti’s Global Consumer Bank (GCB), one of the world’s leading digital
C
G
GCB drives client-led growth in three priority markets — Asia, Mexico
and the U.S. — by deploying its global scale, products and capabilities,
particularly digital, to differentiate locally with high impact and relevance.
In 2017, we continued to execute on investments in key growth areas,
especially U.S. Cards, Mexico and technology, fueling the engines of
future growth. We enhanced our products and expanded premier
partnerships, igniting growth in revenues, customers and customer
satisfaction while maintaining risk discipline. Our focus on wealth
management intensified, and we continued to calibrate our distribution
network, utilizing a mix of Citi Smart Banking formats, to ensure the right
mix of “bricks and clicks.”
With client engagement rapidly shifting to digital channels, mobile
continues to be at the core of a simpler, better customer experience.
With an increasingly agile model and mobile first approach, GCB
dramatically accelerated its speed to market and the number of new
digital features, up 300 percent versus 2016, driving robust double-digit
growth in the number of digital and mobile users globally. Innovative
solutions were launched across lending, wealth management, payments
and cards, many of which were industry firsts, delivering greater speed,
ease and convenience. And by partnering with leading digital ecosystems,
we embedded our services in the platforms our clients use every day,
driving increased engagement.
Today, following several years of streamlining and targeted investments,
GCB comes to market with leading positions in core markets, far
stronger products and digital capabilities than ever before, and multiple
engines for future growth. Clients and the industry took note with Citi
garnering key awards and recognition, including World’s Best Digital Bank
(Euromoney), Best Digital Bank in six Asia markets (Global Finance), #1 in
Customer Satisfaction for the second
consecutive year (American Customer
Satisfaction Index) and Best Retail Bank
for High-Net-Worth Families in the U.S.
(Kiplinger’s).
GCB operates approximately 2,450
branches and generated $7.2 billion
in pretax earnings, representing 32
percent of Citigroup’s total. In 2017, the
business held $306 billion in average
deposits, managed $418 billion in
average assets and included $297
billion in average loans.
Credit Cards
As the world’s largest credit card
issuer, Citi is a payments powerhouse,
with premier partners, more than 142
million accounts, $499 billion in annual
purchase sales, and $154 billion in
average receivables across Citi Branded
Cards and Citi Retail Services.
Citi Branded Cards
An important growth engine for GCB,
Citi Branded Cards provides payment
and credit solutions to consumers
and small businesses, with 56 million
accounts globally. In 2017, the business
generated annual purchase sales of
$418 billion and had an average loan
portfolio of $108 billion.
Building a balanced portfolio across
proprietary and co-brand products
coupled with acquiring multi-year
investments to provide differentiated
value and experiences are starting to
bear fruit, with gains in market share,
acquisitions, purchase sales and loans.
In the U.S., the Costco co-brand credit
card portfolio, acquired and converted
in 2016, continues to see customer
> MARCH
15
Citi hires women-owned firms
to lead distribution of $2.5
billion Citibank, N.A. bond
issuance
6
21
The Citi Foundation’s Advancing
Financial Inclusion in a Digital
Age: Asia Pacific Financial
Inclusion summit kicks off in
Hanoi, Vietnam
London Mayor’s Office
announces winner of the
Mayor Entrepreneur Awards
supported by Citi Foundation
16
Citi named “Equity
Capital Markets Bank
of the Year” in Central
and Eastern Europe, the
Middle East and Africa by
GlobalCapital magazine
20
Citi tops 1 million mark
for voice biometrics
authentication for
Asia Pacific Consumer
Banking clients
30
CLSA partners with Citi to
deliver a real-time delivery
versus payment solution
for Shanghai and Shenzhen
Connect
of the world’s biggest artists globally
and, as part of its partnership with
Live Nation, launched a new live music
platform, Citi Sound VaultSM, to provide
exclusive access to an extraordinary
music experience.
To empower customers with speed,
choice and convenience, we launched
new e-commerce and digital wallet
solutions. In the U.S., Citi PaySM,
a tokenized, omnichannel digital
wallet, rolled out to Citi’s Mastercard
cardmembers, and, through an
expanded agreement with PayPal,
eligible U.S. cardmembers will be
able to redeem ThankYou Points
when shopping online at millions
of merchants that accept PayPal.
Citi launched new mobile wallets to
customers in several Asia markets,
and we continue to drive digital
payment tokenization, certifying
several issuing platforms.
In addition to reaching clients where,
when and how they want to engage
with us, technology is enabling smarter,
more efficient decisions about what
products and services are best suited
for them. By deploying machine
learning and big data platforms, we
are improving the effectiveness of the
offers we provide. While at the early
stages, utilizing models that allow us
to understand each individual’s wallet
is driving significant improvements in
response rates, efficiency, and retention
of balances and spend. In the U.S., for
example, about half of new credit card
accounts originate through digital
channels, lowering costs to acquire
and serve.
Citi continues to enhance its branch network in Mexico, executing on its previously announced
$1 billion investment.
engagement exceeding expectations,
with more than 2.1 million new accounts
and $166 billion in purchase sales
since conversion. Prestige, Citi’s
premium rewards travel credit card,
was relaunched with a distinct look
and enhanced benefits. Double Cash,
the #1 cash back card in the U.S.
based on Net Promoter Score, and Citi
Simplicity®, the largest no-fee product
portfolio in the world, continued to
drive engagement and satisfaction with
industry-leading Net Promoter Scores.
Internationally, Citi strengthened its
card portfolio with new products and
partnerships. Citi launched rewards,
cash back and value cards, part of a
global set of core products, in Hong
Kong, Malaysia and the United Arab
Emirates, expanded its long-term
partnership with Expedia in Asia and
launched a new white label card
with Qantas in Australia. Citi also
completed the sale of its merchant
acquiring businesses in Hong Kong
and Singapore.
Citi continued to leverage the
advantage of its global scale and model.
Its unrivaled global rewards program
ThankYou® Rewards continued to
welcome new Points Transfer partners,
including JetPrivilege, Turkish Airlines
and Avianca LifeMiles, while in Asia,
Amazon Shop with Points launched for
Citi cardholders in five markets, the
first time Citi cardholders outside of
the U.S. can redeem ThankYou Rewards
for purchases at Amazon.com. Citi®
Private Pass,® Citi’s award-winning
global entertainment access program,
continued to grow. Citi offered access
to more than 12,000 events with many
> APRIL
7
Citi wins LatAm Structured
Products House of the
Year award
20
Citi Innovation Lab in
Singapore receives the
“Most Innovative Feature
Award” for Citi Interactive
Solutions at the Global
Monarch Innovation Awards
24
Citi releases 2016 Global
Citizenship Report
Citi is granted a license by
the Capital Market Authority
in Saudi Arabia that will
enable the bank to provide
a full range of investment
banking, debt and equity
capital markets, and
securities research services
to local and international
institutional clients
25
Council on Foundations awards
the Citi Foundation with the 2017
Wilmer Shields Rich Award for its
Pathways to Progress initiative
7
Global Consumer
Banking
Citi Retail Services
Citi Retail Services is one of North
America’s largest providers of private
label and co-brand credit cards for
retailers, serving 86 million accounts
for iconic brands, including Best Buy,
ExxonMobil, Macy’s, Sears, Shell and
The Home Depot.
In 2017, Citi Retail Services strengthened
its portfolio of leading brands by
renewing its agreement with Ford
Motor Company and expanding into
power sports and equipment through
agreements with American Honda Motor
Corp., BRP, Honda Power Equipment and
Kawasaki Motors Corp., U.S.A.
In addition to new and expanded
partnerships, Citi Retail Services utilized
its multi-channel expertise, advanced
data analytics and digital solutions
to help its retail partners grow their
businesses. These included “Apply and
Buy,” enabling consumers nationwide
to apply for the ExxonMobil Smart
Card credit card directly through the
app and begin immediately saving on
fuel purchases and the relaunch of the
Sears Mastercard with expanded Shop
Your Way rewards, an industry-leading
rewards offer in which customers can
earn rewards points on all purchases
everywhere they shop.
In 2017, Citi Retail Services saw purchase
sales of $81 billion and a loan portfolio
ending the year at $49 billion.
Retail Banking
Citibank’s relationship model serves
clients across the full spectrum of
consumer banking needs through its
lean, urban-based branch footprint,
leading digital capabilities and expanding
client-centric ecosystem.
A global leader in wealth management,
Citi provides personalized wealth
management services, including
dedicated bankers, fund access, and
a range of exclusive privileges,
preferred pricing and benefits to
clients around the globe through its
Citigold®, Citigold Private Client and
Citi Priority client offerings.
In the U.S., Citi’s growing retail bank
continues to implement a multi-year
network transformation, reducing its
branch footprint by nearly a third since
2013 while upgrading formats and
concentrating resources in six priority
markets. With the highest deposits per
branch versus peers in core markets,
Citi’s network is increasingly productive
and convenient. In 2017, Citi nearly
doubled its fee-free ATM network,
making it the largest nationwide.
Sweeping enhancements to its Citigold
wealth and investment offering,
introduced in late 2016, drove growth
in households and balances and
increased penetration of investment
products. In 2017, Citi added to the
number of Relationship Managers and
Financial Advisors by 18 percent and
opened a dedicated wealth center in
Miami and broke ground on another in
San Francisco to provide clients with
personalized service, industry-leading
expertise and a distinctive experience.
What if a bank
could help you feel
a little more of this?
next.citi.com
© 2018 Citigroup Inc. All rights reserved. Citi, Citi
and Arc Design and other marks used herein are
service marks of Citigroup Inc. or its affiliates, used
and registered throughout the world.
In 2017 we launched a series of ads in the U.S.
and Hong Kong that articulated our promise
of progress in an emotional way.
In tandem, new, more powerful digital
capabilities are driving significant gains
in client adoption, engagement and
satisfaction. Features and functionality
include Quick Lock for Debit, enabling
customers to lock and unlock their debit
card if lost or stolen, access to mobile
investment features that provide greater
control and flexibility to manage and
invest their money, and send and receive
capabilities for fast, safe and easy person-
to-person (P2P) payments through the
Zelle Network®. Zelle®, available within
the Citi Mobile® App for iPhone® and at
Citibank® Online, enables U.S. retail bank
customers to make fast, free payments
from their checking account to friends
and family who bank with most financial
institutions in the U.S.
> APRIL
> MAY
4
Citi expands long-term
partnership with Expedia
in Asia
5
Citibank opens Bayfront
Citigold Center in Miami
10
Citi CEO Michael Corbat is
one of 30 CEOs to sign an
open letter urging the United
States to remain committed
to the Paris Agreement
15
Citi’s mobile app received the
prestigious Ministry of Science,
ICT and Future Planning at the
Korea Multimedia Technology
Awards
18
Citi Foundation and Aprenda
offer awards for Peru’s
top microentrepreneurs as
part of Citi’s 12th Annual
Microentrepreneurship
Awards initiative
27
Citi Retail Services signs
agreement with Honda
Power Equipment
8
Across the U.S., Citi continued to
fuel the growth of small businesses,
supporting job creation and thriving
communities across the country. In
2017, Citi invested more than $11 billion
in small business lending in the U.S.
and also financed over $4.7 billion in
affordable housing projects.
In Mortgage, Citi announced it would
effectively exit direct servicing operations
by the end of 2018. This strategic action
will enable the business to intensify
focus on originations and simplify
operations. CitiMortgage, which provides
loans for home purchase and refinance
transactions in the U.S., originated $13.1
billion in new loans in 2017.
In Asia, Citi extended its leadership in
wealth management by refreshing the
Citigold brand campaign in 13 markets
and streamlined its branch network in
key markets, including China and Korea,
to adapt to consumers’ preference and
migration to digital channels. In addition,
partnerships with many of the most
popular digital ecosystems in the region
and a host of innovative digital solutions
were introduced. Digital and mobile
enhancements include instant lending
via mobile, simplified authentication
through a mobile token, fingerprint and
facial recognition, eFX capabilities and
two industry firsts: a natural language
chatbot on Facebook Messenger in
Singapore and interactive, live video
banking in India. Citi also introduced
P2P payments services in Hong Kong
and Singapore in conjunction with
government authorities.
In Mexico, Citibanamex enjoys a
preeminent position as the #1 recognized
bank brand with leading positions across
deposits, investments and loan products.
Following the 2016 announcement of
a $1 billion investment to upgrade its
network and technology, Citi continued
to execute, renovating more than 70
Smart branches and installing over
1,600 additional ATMs, sharpening
client segmentation, enhancing value
propositions and improving data
capabilities to enhance both acquisitions
and the client experience in digital.
Commercial Banking
Citi Commercial Banking brings the
best of Citi’s institutional and consumer
franchises to clients, providing global
banking capabilities and services to mid-
sized, trade-oriented companies within
Citi’s footprint. As many of these clients
expand internationally, Citi helps enable
their growth and ability to access capital
across multiple countries, one of Citi’s
core activities.
In 2017, the business successfully
deepened client relationships in key
segments and industries, digitized client
touch points and sales and service tools,
and improved client satisfaction. In the
U.S., Citi Commercial Bank earned a
Best Brand Award in Middle Market
Banking by Greenwich Associates
for embracing digitization, enabling
business growth and delivering
exceptional customer service.
24
In the Dominican Republic,
Citi successfully concludes
its 2017 Women’s
Entrepreneurs program
Citi wins Lifetime
Achievement Award for its
outstanding contribution to
African banking at the
African Banker Awards
25
Citi receives Secretaría
Distrital de la Mujer award
in Colombia
Citibank named Kiplinger’s
Best Bank for High-Net-Worth
Families
22
Citi and Nasdaq announce
pioneering blockchain and
global banking integration
26
Citi wins Derivatives Clearing
Bank of the Year Award
31
Citi named top for research
in Asia Pacific
9
Institutional Clients Group
clients’ most important and most trusted banking partner by offering
a comprehensive set of innovative products, services and solutions
around the world in an integrated and responsible manner, creating
sustainable value for shareholders.
GThe goal of Citi’s Institutional Clients Group (ICG) is to serve as our
C
I
Through our unmatched, worldwide proprietary network with a physical
presence in 98 markets, Citi is uniquely positioned to take advantage of
evolving global trends and provide large multinational corporations, public
sector entities, ultra high-net-worth households and investment managers
with a full suite of integrated products and services.
A trusted advisor and lender to our institutional clients, supporting
innovation and growth for corporations, Citi provides cash management
and trade solutions to 80% of Global Fortune 500 companies to help them
conduct daily operations, to hire, to grow and to succeed. In the public
sector, Citi helps build sustainable infrastructure, housing, transportation,
schools and other vital public works for the future. With trading floors in
77 markets, clearing and custody networks in 63 markets and connections
with 400 clearing systems, Citi maintains one of the largest global
In May, Citi partnered with Nasdaq to announce a pioneering blockchain and global
banking integration that enabled straight-through payment processing and automated
reconciliation by using a distributed ledger to record and transmit payment instructions.
financial infrastructures and facilitates
approximately $4 trillion of flows daily
on average. This is what enables Citi to
serve its core clients with distinction.
Utilizing a disciplined approach that has
allowed us to deliver industry-leading
efficiency and returns while investing
in our talent, we have created a culture
that is committed to enabling growth and
progress through responsible finance.
Accessing capital markets
Citi’s Capital Markets Origination
business is focused on the capital-
raising needs of institutional clients,
from inaugural issuances and
exchanges to cross-border transactions
and first-of-their-kind landmark
structures. Owing to an unmatched
global footprint and diverse range
of financial products, Citi aims to be
the first choice among issuers for
clients’ underwriting needs. Citi’s track
record of successfully executing in
both buoyant and challenging market
conditions is a testament to Citi’s
unwavering commitment to provide the
highest quality service to clients. Citi’s
structuring and execution expertise
has established the firm as a leader
in the equity capital markets, whether
measured by innovation or proceeds
raised, and has distinguished Citi as
the clear choice for debt underwriting,
with excellence across a broad range of
currencies and markets.
Citi successfully executed several
landmark transactions for clients in
2017. Citi structured and committed to
a bridge financing facility of $16 billion
on a sole basis on behalf of BD (Becton,
Dickinson and Company) to facilitate
> JUNE
1
Citi opens Korea Desks to
expand service for Korean
corporates in overseas markets
10
9
Deepwater Wind’s Block
Island Wind Farm — the first
offshore wind farm in the
U.S. — financed in part by
Citi — wins the Financial
Times and International
Finance Corporation
Transformational Business
Award for Excellence in
Climate Solutions
10
Citi celebrates 12th annual
Global Community Day with
more than 100,000 Citi
volunteers across 500 cities
around the world
12
Citi enables P2P payments with
Zelle Network®
Citi and ExxonMobil unveil new
in-app mobile feature: Apply,
purchase and save at the pump
with ExxonMobil’s Speedpass+ app
its acquisition of C.R. Bard, Inc. Citi
then served as lead left bookrunner
for all permanent financings for the
company, including its $5 billion of
simultaneous equity and mandatory
preferred offering, $10 billion of bond
offerings across multiple maturities,
a $2+ billion of term loan and $2+
billion revolving credit facility. We
served as joint global coordinator
on the €7 billion rights issue for
Banco Santander in connection with
its agreement to acquire Banco
Popular. Citi served as sole financial
advisor to Banco Santander on the
transaction. Citi also served as the
joint lead financial advisor and jointly
underwrote a $4.65 billion credit
facility supporting the $17.9 billion
privatization of the Singapore-listed
Global Logistic Properties, acting as
the facility agent and security agent for
the credit facilities and also provided
foreign exchange hedging solutions
and ratings advisory services to the
client. This was the largest ever private
equity buyout of an Asian company
and also the largest ever M&A in
Singapore. Citi served as exclusive
M&A financial advisor, co-structuring
bank and placement agent to Ørsted,
a global leader in offshore wind power,
on the sale and financing of a 50
percent stake in Walney Extension,
a U.K. offshore wind farm project
in the Irish Sea. The offshore wind
farm will have a total capacity of 659
megawatts — enough to power more
than 500,000 U.K. homes with clean,
renewable energy. The proceeds of
the £2 billion sale will partially fund
ICG Accolades
• Citi executed one of its most ambitious FinTech programs in 2017:
the Citi Tech for Integrity (T4I) Challenge. The global open innovation
competition, led by Citi in collaboration with public and private sector
allies, sought to source innovation in a number of areas, including
government transactions and procurement; culture, ethics and citizen
engagement; reduction of red tape; and information security and
identity. The T4I strategic allies included Clifford Chance, Facebook, IBM,
Let’s Talk Payments, Mastercard, Microsoft and PwC. From more than
1,000 initial registrations when the competition launched, Citi invited 96
finalists to present their ideas at Demo Days around the world. Through
T4I, Citi and its allies helped to identify a number of promising solutions
with the opportunity to develop further and move toward market
implementation to help tackle corruption around the world.
• Citi received several top awards from International Financing Review in
2017, including Best Global Bond House, Best Bank for Governments and
Best Global Credit Derivatives House, as well as regional and country
honors, including Best Bank in Asia, Best EMEA Equity House, Best
North America Equity House, Best North America Financial Bond House,
Best U.S. Bond House and Best Latin America Bond House.
• Citi Private Bank was awarded several prestigious accolades, including
Best Private Bank for Customer Service and Best Global Brand in
Private Banking from The Banker and Professional Wealth Management
Global Private Banking; Outstanding Private Bank for Ultra High-Net-
Worth Clients from Private Banker International Global Wealth Summit;
and the Law Firm Group was voted Best Private Banking Services;
Wealth Management/Financial Asset Advisory Provider, Business Bank
and Attorney Escrow Services from The National Law Journal.
the construction of the offshore wind
farm, which will be the largest in the
world once commissioned. Citi acted
as the sole placement agent for a
$307.5 million debt private placement
for an Infrastructure Public Private
Partnership to develop, finance,
construct, operate and maintain the
on-campus housing portfolio for Wayne
State University in Detroit, Michigan.
Corvias, LLC provided the equity. The
partnership includes construction
of 841 new beds, renovation of 368
beds and the management of the
existing 2,950 beds. The construction
is essential to meet exploding student
demand for housing at Wayne State, a
premier institution and Detroit’s only
public research university.
29
Citi signs statement of
support for the Financial
Stability Board Task
Force for Climate-related
Financial Disclosures
recommendations
> JULY
3
Citi becomes one of the
first batch of Bond Connect
trading dealers in China
6
Citi Pay launches in the U.S.
Citi named “Transition
Manager of the Year” by
Global Investor magazine
21
Citi recognized by the
Civic 50 as one of the
Most Community-Minded
Companies in the U.S. for
the fifth consecutive year
Citi named “Collateral
Management System of the
Year” by Global Investor
magazine
11
Institutional Clients
Group
Lending and advisory
Citi’s Corporate and Investment Banking
division provides comprehensive
relationship coverage to ensure the best
possible service and responsiveness to
clients. With its strong banker presence
in many countries, Citi uses sector and
product expertise to deliver global
capabilities to clients wherever they
choose to compete. Citi’s Corporate and
Investment Banking client teams are
organized by industry and by country.
Each team is composed of two parts:
Investment Banking Strategic Coverage
Officers who focus on mergers and
acquisitions and equity and related
strategic financing solutions, while
Corporate Bankers — in partnership
with Citi’s Capital Markets specialists
and with support from the Global
Subsidiaries Group — deliver corporate
banking and corporate finance services
to global, regional and local clients. By
serving these companies, we help them
grow, creating jobs and economic value
at home and in communities worldwide.
Citi played a key role in some of 2017’s
most significant transactions, including
its role as financial advisor to Intel
Corporation on its $14 billion acquisition
of Mobileye N.V. Citi served as a financial
advisor to Johnson & Johnson on its $31
billion acquisition of Actelion, as well as a
financial advisor to BD (Becton, Dickinson
and Company) on its approximately $25
billion acquisition of C.R. Bard, Inc. and
provided the $16 billion sole committed
bridge in support of the transaction.
ICG Accolades
• Citi won top honors in Euromoney’s Global Awards for Excellence,
including Best Digital Bank, Best Bank for Markets and Best Bank
for Transaction Services, as well as Best Bank for Markets in Latin
America and Western Europe. Also Best Bank for Financing in Central
and Eastern Europe, Best Bank for Transaction Services in Africa, Best
Investment Bank in Argentina, Africa, Finland, Ireland, India, Turkey
and Greece, and #1 Cash Management Bank in Latin America.
• Global Finance named Citi Best Global Custodian Bank, Securities
Lender and Best Corporate/Institutional Digital Bank in Latin America,
as well as Best Digital Bank for Corporate/Institutional and Consumer
Banking in Asia Pacific.
• Citi was awarded Risk’s OTC Client Clearer of the Year Award for
the third year, as well as Derivatives Clearing Bank of the Year from
Global Capital.
• Citi boasted the Most Rising Stars in Equity Research from Institutional
Investor magazine.
• CitiDirect BE ranked #1 in Greenwich Associates’ Digital Banking
Benchmarking Study.
• Citi was awarded the 2017 Euromoney Magazine inaugural award for
the “World’s Best Bank for Financial Inclusion” acknowledging Citi’s
pioneering partnerships with governments, clients and microfinance
institutions to build a more inclusive financial services industry that
better serves the unbanked.
Citi also served as exclusive financial
advisor to Deere & Company on its $5.3
billion acquisition of Wirtgen Group. The
transaction represents Deere’s largest
M&A transaction in its 180-year history.
Accessing global markets
Citi’s Markets and Securities Services
business provides world-class financial
products and services as diverse as the
needs of the thousands of corporations,
institutions, governments and investors
that Citi serves. Citi works to enrich the
relationships, products and technology
that define its market-making presence.
The global breadth, product depth and
strength of Citi’s sales and trading,
distribution and research capabilities
span a broad range of asset classes,
currencies, sectors and products,
including equities, commodities, credit,
foreign exchange, emerging markets,
G10 rates, municipals, prime, futures
and securities services businesses,
providing customized solutions that
support the diverse investment and
transaction strategies of investors and
intermediaries worldwide.
> JULY
10
Citi named Best Depositary
Receipt Bank in Asia
Citi awarded the Financial
Services Roundtable
Corporate Social Responsibility
Leadership award in
Washington, D.C.
1212
25
Citi holds first Investor Day
in nine years
20
Citi and PayPal expand
partnership to deliver
enhanced payment
24
Citi announces
collaboration with
Cornell Tech
18
In Mexico, Citi priced a
$229 million Social Bond — the
country’s first — to support
job creation and enterprise
development
Citi ranked first in Fixed Income Market
Share globally for the third consecutive
year according to Greenwich
Associates’ annual benchmarking
study. With a global fixed income
market share topping 10 percent, Citi
has grown its share more than any
other sell-side firm over the last 10
years. Citi’s leading market position
is driven by its strength in Global
Credit and Global Rates, ranked #1,
respectively, along with the top spot
in Municipal Bonds. Citi also ranked #1
in Sales Quality, Trading Quality and
e-Trading, according to the study.
Awarded Best Global Digital Bank by
Euromoney in 2017, Citi’s digital mindset
has never broken from the path of
progress. Throughout 2017, we invested
in the digital ecosystem to further
enhance the client experience, sales
trading and analytics capabilities and
productivity. Citi is one of the leading
dealers engaged in actively identifying,
evaluating and investing in FinTech
firms and deploying innovations across
all capital markets asset classes. Citi
also partnered with WeWork and
opened a London-based Innovations
Lab. In Business Intelligence and Big
Data Analytics, several leading data
capabilities — including Velocity Clarity
— went live using natural language
processing, and investments were
made in blockchain technology. Citi
Velocity®, the award-winning capital
markets platform, leverages the power
of agile business and technology teams,
bringing two software releases per day
on average to our global client base.
Citi was granted a license by the Capital Market
Authority in Saudi Arabia that will enable the
bank to provide a full range of investment
banking, debt and equity capital markets,
and securities research services to local and
international institutional clients.
Citi secured the top spot as the nation’s #1 Affordable
Housing Lender for the seventh consecutive year,
according to Affordable Housing Finance magazine,
for its commitment to projects such as Draper Hall,
a former nurses’ dormitory in East Harlem that was
made over to include access to services and open
space, providing 203 units of affordable housing
for seniors. SKA Marin’s Draper Hall won Affordable
Housing Finance’s Best Project of the Year for a
combination of new construction and adaptive reuse.
Citi raised $6.25 million in its fifth annual e for Education
campaign, a global initiative that has raised more than $22.5
million for education-focused nonprofits in the last five years.
The funds raised will be shared equally among seven education-
focused non-profits and will contribute to several key initiatives
supporting youth education and improving literacy globally.
26
Citi Retail Services expands
partnership with American
Honda Motor Corp.
Global Finance names Citi
“Best Global Custodian Bank”
in Latin America for the
second year in a row
> AUGUST
9
Citi sweeps Global Finance
magazine’s Awards for
“Excellence in Digital
Banking across Corporate/
Institutional and Consumer
Banking” in Asia Pacific
15
Citi recognized as one of the
best companies to work for
in Brazil by Great Place to
Work Institute
Citi’s inclusive finance
partnership with U.S.
Government’s Overseas
Private Investment
Corporation reaches
1.3 million people — 88%
are women
17
Citi and Presidents Cup
announce the “Citi 44 Million
Yard Challenge”
1313
Institutional Clients
Group
Safeguarding assets
Citi Private Bank is dedicated to serving
the world’s wealthiest individuals and
families. Its unique business model
enables us to focus on fewer, larger
and more sophisticated clients with
a net worth in excess of $100 million.
Private Bank clients enjoy an entirely
customized experience with access to a
comprehensive range of products
and services.
Its exclusive Global Client Service
facilitates clients’ growing appetite for
global financial assets by leveraging
Citi’s offices and capabilities worldwide,
allowing our clients to open accounts
across the globe with dedicated local
bankers who, together, will work as
one united team to provide a seamless
cross-border service. This translates
into tailored advice, competitive
pricing and timely execution for their
capital markets needs, financing
and refinancing in both commercial
and residential real estate globally,
and access to Citi’s Corporate and
Investment Bank locally for business
activities in their respective region.
With more than a thousand Family Office
clients around the world, Citi Private
Bank’s teams understand the challenges
that families and family office executives
regularly face: serving family offices of
varying size and complexity, executing
multi-disciplinary strategies based upon
each client’s requirements, working with
each family to create a strategy to help
In March, Citi announced the hiring of women-
owned firms as lead managers of a $2.5
billion bond issuance on behalf of Citibank,
N.A, illustrating Citi’s deep, long-standing
commitment to diversity and inclusion and to
the growth and success of women, minority
and veteran-owned businesses.
In 2017, Citi hosted Private Bank client
events in Cambridge, Florence, New York,
San Francisco and Shanghai, among
others, on topics ranging from disruptive
technology to family office management
and planning to renaissance art.
meet the family’s unique objectives,
and combining the personalized service
of a private bank with sophisticated
cross-border strategies that are typically
reserved for major institutions. Citi
frequently serves clients with family
members, businesses and foundations
that span multiple geographies around
the world, and regional client teams
work with a small number of Family
Office clients in order to ensure
high levels of service. This extensive
offering includes brokerage, investment
management, lending, banking, trust,
custody, and a wide range of corporate
advisory and financing services.
Citi Private Bank has deep experience
with the transition of personal wealth
following significant liquidity events, and
our partnership with other businesses
in ICG enables its shared clients to
seamlessly manage both their business
and private financial interests. Citi is
committed to objective advice and a
truly open architecture investment
platform, and with access to global
capital markets, cash management,
lending solutions, wealth planning and
trust services, we can meet the needs of
the world’s most sophisticated clients.
Delivering payments
Citi’s Treasury and Trade Solutions
(TTS) business provides integrated
cash management and trade finance
services to multinational corporations,
financial institutions and public sector
organizations around the globe. With
the industry’s most comprehensive suite
of digital-enabled platforms, tools and
analytics, TTS leads the way in delivering
innovative and tailored solutions to
clients. Offerings include payments,
> AUGUST
> SEPTEMBER
30
Citi and Bank of Thailand
introduce QR Code payments
in Thailand in move toward
cashless society
7
Citi recognized by World
Dow Jones Sustainability
Index for the 17th
consecutive year and
named to the FTSE4Good
Index for the 16th year in
a row
Citi launches Citi Bot in
Singapore, the bank’s new
natural language chatbot
on Facebook Messenger
1414
8
Citi celebrates 50 years in Korea
12
Citi runs fifth round of “e for
Education” campaign
15
Citi named “#1 Cash
Management Bank” in Latin
America by Euromoney for
the third consecutive year
19
Citi announced commitment
to be 100 percent powered by
renewable energy by 2020
Citi releases Banking on
2030: Citi & the Sustainable
Development Goals Report
receivables, liquidity management and
investment services, working capital
solutions, commercial card programs
and trade finance. Based on the belief
that client experience is the driver of
sustainable differentiation, TTS has
focused its efforts on transforming its
business to deliver a seamless, end-
to-end client experience through the
development of its capabilities, client
advocacy, network management and
service delivery across the entire
organization.
In 2017, TTS improved the efficiency of
its global network by launching API-
driven connectivity services and global
solutions for payments and receivables.
The CitiConnect® API allows clients
to directly connect with Citi across
96 countries to access services using
their own Treasury Workstations or
Enterprise Resource Platform, providing
convenience, potential cost savings and
reduced risk.
Partnering with Nasdaq, Citi participated
in a pioneering blockchain and global
banking integration that enabled
straight-through payment processing
and automated reconciliation by using a
distributed ledger to manage payment
instructions. This collaboration created
a solution that integrates blockchain
technology with Citi’s global network-
leveraging API technology. Citi also
provided the payment processing
services for Allianz Global Corporate
& Specialty SE in a successful trial of
blockchain technology for a global
captive insurance program, including
cash transfer between countries.
TTS continues building integrated global
solutions to optimize its global payments
network in an efficient and consistent
manner. These solutions offer clients
the ability to participate in commerce in
new markets, through low-cost payment
options delivered through digital
channels. Citi expanded the global reach
of its services to support the growing
needs of corporations to receive and
initiate payments. Citi Payer ID was
launched in 17 new markets across North
America and Western Europe, making it
now available in 44 countries to allow
institutional clients to manage their
working capital with greater efficiency.
Citi’s WorldLink® Payment Services
capability expanded cross-border ACH
capabilities to 60 countries, offering a
simple, global and digital cross-currency
payments solution with service offered
across a range of payment options in 135
currencies and 195 countries.
Our Trade business continues to help
our clients with various strategies to
optimize their working capital around
the globe. In addition, we continue
to drive innovation in our back office
using optical character recognition
to drive efficiencies and enhance our
client experience.
Citi, International Financing Review’s
Best Bank in Asia, and top-ranked
Asia Pacific Fixed Income Bank,
according to Greenwich Associates,
became one of the first batch of
Bond Connect trading dealers and
opened its first Korea Desk to expand
service for Korean corporates in
overseas markets.
21
Citi hosts over 220 clients
at its first Belt and Road
Client forum in Beijing
28
Citi awarded “Best
Innovative Model
Enterprises” from among
80,000 enterprises by the
Shanghai Free Trade Zone
> OCTOBER
2
John C. Dugan and S. Leslie
Ireland elected to Citi’s board
of directors
3
Citi opens public plaza in New
York City’s Tribeca neighborhood
as part of renovation of global
headquarters
12
Citi celebrates reappointment as
Domestic Settlement Bank for
U.S. Dollars in the Philippines
1515
Citizenship
Our impact and reach would not be possible without the commitment,
expertise and resources of partner organizations — from our clients and
suppliers to non-governmental organizations, the public sector and other
stakeholders. These partnerships enable us to understand and stay on top of
the changing social and economic landscape globally and, together, identify
and implement solutions that help address the world’s toughest challenges.
by deploying the resources and strengths of our core business and
operations. The Citi Foundation supports programs in its target focus
areas that help promote economic progress and improve the lives of
people in low-income communities around the world. We continually
look for ways to more effectively achieve our mission of enabling growth
and progress by serving as collaborative problem solvers in addressing
social and environmental challenges that impact our work today and for
future generations. We believe this approach to corporate citizenship
is fundamental to the long-term success of the communities where we
operate, our clients and our own company.
P Citi is committed to driving positive economic and social impacts
I
H
S
N
E
Z
I
T
I
C
Many of these challenges — including achieving financial security for
low-income communities, tackling youth unemployment and combating
climate change — are aligned with the Sustainable Development Goals
(SDGs), the 2030 Agenda for Sustainable Development adopted by the
193 Member States of the United Nations in 2015. As a global bank, Citi
believes it is important to take a leading role in contributing to the SDGs.
reaching
200k+
youth
Pathways to Progress
2020 Global Commitment
i n v ested $43MM+ in y
t i o n
a m m i n g across 79 markets
ee volunteers men t o r e d & c
#Pathways2Progress
To learn more, visit citifoundation.com
c h e d youth glo
Impacts on Youth: 2017
Citi F o
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ally
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In 2016, Citi released Banking on 2030:
Citi & the Sustainable Development
Goals, a report that looks at how
Citi and the Citi Foundation directly
contribute to the SDGs, with a focus on
seven goals where we are particularly
well-positioned to drive significant
progress based on our core business
and specialized Citizenship initiatives.
Issues core to our Citizenship efforts
include:
Jobs and the next generation
The world of work continues to evolve at
a rapid pace. The changing job landscape,
coupled with a persistently high youth
unemployment rate, requires young
people to have the power skills necessary
— like communications, networking
and problem-solving experiences — to
compete within high-growth fields,
including technology and healthcare.
Through Pathways to Progress, Citi and
the Citi Foundation are connecting young
people to jobs, financial education and
leadership opportunities that prepare
them for a 21st century job market.
In February 2017, under Pathways to
Progress, the Citi Foundation announced
its largest philanthropic commitment
ever to invest $100 million to reach
500,000 youth by 2020. Additionally,
we are leveraging the time and talents of
10,000 Citi volunteers to act as mentors
and coaches who can provide guidance
to help young people move toward their
career goals.
Together with our nonprofit partners
across the globe, we have reached more
than 200,000 young people in 2017 and
helped them gain employability skills and
connect to new or first job opportunities.
> NOVEMBER
> OCTOBER
17
Citi boasts “Most Rising Stars
in Equity Research” from
Institutional Investor magazine
20
Citibank extends Quick Lock
convenience to debit cards
16
23
Citi sponsors second annual
Hong Kong FinTech Week
25
Citi leaders recognized on
2017 OUTstanding/Financial
Times leading LGBT, Ally &
Future Leaders lists
27
Citi awarded “Best Private
Bank for Customer Service
Globally” and “Best Global
Brand in Private Banking” by
The Banker and Professional
Wealth Management
magazines
1
Citi Foundation expands
Community Progress
Makers Fund to support
U.S. nonprofit organizations
addressing urban challenges
s
s
e
r
g
o
r
P
o
t
s
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a
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Meet Mery
“When I interviewed with
companies, they told
me I didn’t have enough
experience or that they
would rather hire a man.”
Mery: Lima, Peru; Laboratoria
Mery had a degree in computer and information sciences but was
unable to secure a job in the tech industry. She was then recruited
by Laboratoria, a nonprofit organization that trains young women
in Lima, Peru to become web developers. After excelling in her
pre-admission classes and using the knowledge she acquired during
the program, Mery secured a full-time job as a front-end developer.
She is currently building a web platform that will allow companies
to post job opportunities exclusively for Laboratoria graduates.
Over 3,500 Citi employees have
volunteered to support the economic
aspirations of young people globally.
In 2017, as part of Pathways to Progress,
the Citi Foundation became the first
foundation to sign on to the Global
Initiative on Decent Jobs for Youth,
which is aligned with the SDGs. The Citi
Foundation is committed to supporting
the operationalization of the International
Labour Organization’s Global Initiative
and to report the outcomes of its work
and how it contributes to the provision of
decent jobs for youth.
Sustainable cities
Local governments and community
organizations are often on the front
line of complex challenges like strained
infrastructure, affordable housing
shortages and unemployment,
particularly in low-income areas. But
local leaders, in both the public and
nonprofit sectors, are continually
facing budget and resource shortages.
Increased collaboration and investment
in innovative, efficient solutions can help
address old problems in new ways.
Some of these efforts include supporting
integral parts of a thriving community,
including small businesses and affordable
housing. In 2017, Citi invested more than
$11 billion in small business lending in the
U.S. We also financed over $4.7 billion in
affordable housing projects in 2017.
To further test new ways to drive
sustainable growth while increasing
economic opportunity for lower-income
residents, the Citi Foundation’s City
Accelerator program, in partnership with
Living Cities, has worked directly with
17 municipalities in the U.S. since 2014.
For example, the city of San Francisco
used its City Accelerator support to
develop a financing plan to reinforce
the city’s coastal seawall, which protects
vital public transportation assets and
land designated for affordable housing
on a parcel adjacent to the Port of
San Francisco. Participation in the City
Accelerator program resulted in a cross-
departmental partnership that worked to
successfully include the seawall project
in the city’s 10-year capital plan and
secure millions of capital funding dollars.
In 2017, the Citi Foundation and Living
Cities announced the expansion of the City
Accelerator program to five additional U.S.
cities — Charlotte, Chicago, Los Angeles,
Memphis and Milwaukee. These cities will
work together over the next year to refine
their approach to procurement spending,
pursuing at least one new strategy to
increase the diversity of municipal vendors
and contractors and direct more spend to
local minority-owned businesses.
Citi and the Citi Foundation also work
with community organizations to
amplify their impact. Through the
Community Progress Makers Fund, the
Citi Foundation is helping to build vibrant,
sustainable cities that offer economic
opportunities for low-income residents.
The $20 million initiative provided multi-
year core operating grant support to 40
high-impact community organizations in
six U.S. cities. Over two years, Community
Progress Makers helped 14,000 people
build financial assets, including $137
million in tax credits and savings;
connected 3,000 youth to jobs; and
helped 1,000 small businesses expand or
improve. More than 120 Citi employees
provided pro bono, volunteer advisory
services to these community-based
organizations. In 2017, the Citi Foundation
announced an additional $20 million
investment in the Community Progress
Makers Fund.
7
Citi named International
Private Bank of the Year
by Spear’s magazine
13
Citi successfully pilots
new digital platform to
transform proxy voting
14
Citi releases Sustainable
Growth at Citi: Progress and
Impacts of Citi’s $100 Billion
Environmental Finance
Goal Report
16
Citibank ranks #1 in customer
satisfaction for second straight
year in American Customer
Satisfaction Index Report
In Latin America, Citi is
recognized for the eighth
consecutive year as the
Best Corporate/Institutional
Digital Bank by Global Finance
magazine
Citi named Best Brand in
Commercial and Business
Banking in the U.S. according
to Greenwich Associates
17
Custody Risk magazine
names Citi Custodian of the
Year for Latin America
17
Citizenship
Sustainable growth
As part of our ongoing support of the
Paris Agreement and as the flagship
initiative of our Sustainable Progress
Strategy, Citi continues to make
notable progress on our commitment
to finance and facilitate $100 billion
in environmental finance activity such
as renewable energy, sustainable
infrastructure and clean technology
projects that are helping to build a
more sustainable economy.
In our latest report, Sustainable Growth
at Citi: Progress and Impacts of Citi’s
$100 Billion Environmental Finance
Goal, we share details about our
progress to date, how we’re measuring
our environmental and social impacts
and what we’re learning in partnership
with our clients.
In the first four years of our 10-year
commitment, Citi has already financed
and facilitated $57 billion in environmental
solutions in partnership with our clients,
which will help address climate change
and benefit society.
In 2017, we also announced an
ambitious goal to source renewable
power for 100 percent of our global
energy needs by 2020. For the 57+
million square feet of real estate
owned or leased globally, Citi will
consider onsite power generation,
power purchase agreements for
energy-intensive properties such as
data centers, and appropriate use of
renewable energy credits, as well as
$100 BILLION ENVIRONMENTAL FINANCE GOAL: FINANCIAL HIGHLIGHTS, 2014–2017
$57.0B
toward the $100B
Environmental Finance Goal*
RESULTED IN
$11.8B
in public finance
$5.1B
in sustainable
transportation
$6.3B
in water quality
and conservation
$2.0B
in green building
$36.3B
in renewable energy
$9.3B
in green bonds
continued focus on energy efficiency
as a critical component of its strategy.
Citi’s new global headquarters
currently under construction in
New York City is being targeted for
LEED Platinum, the highest level of
certification under the U.S. Green
Building Council.
In 2017, Citi provided tax equity
financing with BHE Renewables
(a division of Berkshire Hathaway
Energy) to the Goldwind Americas
160 megawatt Rattlesnake Wind
Project in McCulloch County, Texas.
Citi also provided the long-term
fixed-price power hedge. Goldwind is
a subsidiary of China-based Xinjiang
Goldwind Science & Technology Co.
Ltd., the largest manufacturer of
permanent magnet direct-drive wind
turbines in the world. This project
will be Goldwind’s largest U.S. project
to date, utilizing 64 of its turbines.
The Rattlesnake Wind Project, valued
at approximately $250 million, will
bring significant economic benefit
to the community of McCulloch
County, and the company estimates
it will support approximately 250
well-paying construction and service-
related jobs. For more information on
our environmental finance activities,
please visit citi.com/citi/sustainability.
* Transactions fall within multiple categories of reporting.
> NOVEMBER
29
Citi raises record funds
through its fifth annual “e for
Education” campaign
Clients rank Citi Top 2017
Asia Pacific Fixed Income
Bank according to
Greenwich Associates
Citi Foundation becomes first
foundation to sign on to the
global initiative on “Decent
Jobs for Youth” as part of
Pathways to Progress
22
Citi inaugurates new
corporate headquarters
in Manila, Philippines
18
> DECEMBER
4
Citi co-convened
the inaugural U.K.-
International Metro
Mayors’ Summit
in London
6
Citi earns 32 spots on Bank
Investment Consultant’s
Top 100 Bank Advisors
for 2017
Global Community Day
In 2017, Citi celebrated its 12th annual
Global Community Day. More than
100,000 Citi employees, friends and
families participated in volunteer
projects ranging from revitalizing
parks to providing youth with financial
education, mentorship and literacy
training, and serving and collecting
food. Together, volunteers delivered
more than 29,000 hours of financial
education; provided over 14,300 youth
with access to education and career
activities, including mentoring; and
built or rehabilitated in excess of 380
homes to provide families with a safe
place to thrive.
More than 1,500 service projects were held in
500 cities and 91 countries for Citi’s 12th annual
Global Community Day.
Diversity Milestones
“At the end of the day, what matters to us most
is that all of us who come to work here from
different backgrounds, thoughts, experiences
and perspectives can feel good and proud
about our differences and our diversity. As Citi
colleagues, we should all feel pride in who we
are, where we’re from, and what we do for our
clients and for our communities.”
— CEO Mike Corbat
Citi celebrated International Women’s Day with over 238 events in
75 countries
Citi signs the Masterpiece Cakeshop Ltd. V. The Colorado Civil Rights
Commission amicus brief in support of the LGBTQ community
Citi leaders Raymond J. Mcguire and Mark Mason named to Black
Enterprise’s Most Powerful Executives list
Citi earns perfect score on Human Rights Campaign Foundation’s
Corporate Equality Index for the 14th consecutive year
Citi had six senior women on the American Banker magazine’s
Most Powerful Women in Banking lists
Citi Veterans Network Gala Dinner raised more than £300,000 for
military charities across the U.K.
Citi was awarded the Gold Award as a Military Friendly employer
Minds at Citi, an internal initiative focused on mental health, launched in
over 14 countries
Citi hosted the 15th annual women of ALPFA summit focused on Latina
empowerment in the workplace
Citi has launched more than 150 Network chapters as part of our
Employee Network Program
7
Great Place to Work Institute
recognizes Citi as one of the
best companies to work for
in Paraguay
8
Citi named “Best
Investment Bank” in Italy
by Mergermarket.com
Citi celebrates 20th year
of debit cards in India
15
Citi receives several awards
from International Financing
Review, including global
honors for Bond House, Bank
for Governments and Credit
Derivatives House, as well as
regional and country honors,
including Best Bank in Asia,
Best EMEA Equity House,
North America Equity House,
North America Financial
Bond House, Best U.S. Bond
House and Latin America
Bond House
19
IF ONE GIRL WITH
AN EDUCATION
CAN CHANGE THE
WORLD, WHAT CAN
130 MILLION DO?
Malala Yousafzai
Co-founder of Malala Fund
More than 130 million girls are not in school, due to poverty, conflict, and other societal barriers.
Malala Fund works to provide access to 12 years of free, safe, quality education for all girls.
To achieve this goal, it offers financial support to education advocates around the world.
Needing a bank with global reach, Malala Fund turned to Citi. With presence in nearly 100
countries, Citi assures these advocates ready, reliable access to the resources they need and
enables Malala Fund to expand its efforts with confidence. Education for a girl doesn’t just
improve her life; Malala is proof that it can help change the world.
For over 200 years, Citi’s job has been to believe in people and help make their ideas a reality.
citi.com/progressmakers
© 2017 Citigroup Inc. All rights reserved. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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.)
388 Greenwich Street, New York, NY
(Address of principal executive offices)
10013
(Zip code)
(212) 559-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.01
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
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
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of Citigroup Inc. common stock held by non-affiliates of Citigroup Inc. on June 30, 2017 was approximately $123.0 billion.
Number of shares of Citigroup Inc. common stock outstanding on January 31, 2018: 2,570,065,748
Documents Incorporated by Reference: Portions of the registrant’s proxy statement for the annual meeting of stockholders scheduled to be held on April 24,
2018, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Available on the web at www.citigroup.com
FORM 10-K CROSS-REFERENCE INDEX
Item Number
Part I
1.
Business
Page
Part III
4–30, 121–125,
128, 153,
303–304
10.
Directors, Executive
Officers and Corporate
Governance
1A. Risk Factors
56–64
11.
Executive Compensation
136–137, 157–159,
305–306
15.
Exhibits and Financial
Statement Schedules
310–314
307–309*
**
***
****
*****
12.
Security Ownership of
Certain Beneficial Owners
and Management and
Related Stockholder
Matters
13.
Certain Relationships and
Related Transactions and
Director Independence
14.
Principal Accountant Fees
and Services
Part IV
* For additional information regarding Citigroup’s Directors, see
“Corporate Governance,” “Proposal 1: Election of Directors” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in
the definitive Proxy Statement for Citigroup’s Annual Meeting of
Stockholders scheduled to be held on April 24, 2018, to be filed
with the SEC (the Proxy Statement), incorporated herein by
reference.
** See “Compensation Discussion and Analysis,” “The Personnel and
Compensation Committee Report,” “2017 Summary Compensation
Table and Compensation Information” and “CEO Pay Ratio”
in the Proxy Statement, incorporated herein by reference.
*** See “About the Annual Meeting,” “Stock Ownership” and “Equity
Compensation Plan Information” in the Proxy Statement,
incorporated herein by reference.
**** See “Corporate Governance—Director Independence,” “—Certain
Transactions and Relationships, Compensation Committee
Interlocks and Insider Participation” and “—Indebtedness” in the
Proxy Statement, incorporated herein by reference.
***** See “Proposal 2: Ratification of Selection of Independent
Registered Public Accounting Firm” in the Proxy Statement,
incorporated herein by reference.
1B. Unresolved Staff Comments
Not Applicable
2.
3.
Properties
Legal Proceedings—See
Note 27 to the Consolidated
Financial Statements
303–304
283–290
4.
Mine Safety Disclosures
Not Applicable
Part II
Market for Registrant’s
Common Equity, Related
Stockholder Matters and
Issuer Purchases of Equity
Securities
5.
6.
7.
Selected Financial Data
10–11
Management’s Discussion
and Analysis of Financial
Condition and Results of
Operations
6–32, 66–120
7A. Quantitative and Qualitative
Disclosures About Market
Risk
66–120, 154–156,
178–215, 222–275
8.
9.
Financial Statements and
Supplementary Data
132–302
Changes in and
Disagreements with
Accountants on Accounting
and Financial Disclosure
Not Applicable
9A. Controls and Procedures
126–127
9B. Other Information
Not Applicable
2
CITIGROUP’S 2017 ANNUAL REPORT ON FORM 10-K
OVERVIEW
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Summary
Impact of Tax Reform
Summary of Selected Financial Data
SEGMENT AND BUSINESS—INCOME (LOSS)
AND REVENUES
SEGMENT BALANCE SHEET
Global Consumer Banking
North America GCB
Latin America GCB
Asia GCB
Institutional Clients Group
Corporate/Other
OFF-BALANCE SHEET
ARRANGEMENTS
CONTRACTUAL OBLIGATIONS
CAPITAL RESOURCES
RISK FACTORS
Managing Global Risk Table of Contents
MANAGING GLOBAL RISK
SIGNIFICANT ACCOUNTING POLICIES AND
SIGNIFICANT ESTIMATES
FUTURE APPLICATION OF ACCOUNTING
STANDARDS
DISCLOSURE CONTROLS AND
PROCEDURES
MANAGEMENT’S ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL
REPORTING
FORWARD-LOOKING STATEMENTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM—INTERNAL
CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM—
CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND NOTES
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FINANCIAL DATA SUPPLEMENT
SUPERVISION, REGULATION AND OTHER
CORPORATE INFORMATION
Citigroup Executive Officers
Citigroup Board of Directors
4
6
6
9
10
12
14
16
18
20
22
24
29
31
32
33
56
65
66
121
124
126
127
128
129
130
131
132
140
302
303
307
307
308
3
OVERVIEW
Citigroup’s history dates back to the founding of the City
Bank of New York in 1812.
Citigroup is a global diversified financial services holding
company whose businesses provide consumers, corporations,
governments and institutions with a broad, yet focused, range
of financial products and services, including consumer
banking and credit, corporate and investment banking,
securities brokerage, trade and securities services and wealth
management. Citi has approximately 200 million customer
accounts and does business in more than 160 countries and
jurisdictions.
At December 31, 2017, Citi had approximately 209,000
full-time employees, compared to approximately 219,000 full-
time employees at December 31, 2016.
Citigroup currently operates, for management reporting
purposes, via two primary business segments: Global
Consumer Banking and Institutional Clients Group, with the
remaining operations in Corporate/Other. 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.
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
and proxy statements, as well as other filings with the U.S.
Securities and Exchange Commission (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 on Form 8-K and other
information regarding Citi at www.sec.gov.
Certain reclassifications, including a realignment of
certain businesses, 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 Note 3 to the Consolidated Financial
Statements.
Please see “Risk Factors” below for a discussion of the
most significant risks and uncertainties that could impact
Citigroup’s businesses, financial condition and results of
operations.
4
As described above, Citigroup is managed pursuant to two business segments: Global Consumer Banking and Institutional
Clients Group, with the remaining operations in Corporate/Other.
The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results
above.
(1) Latin America GCB consists of Citi’s consumer banking business in Mexico.
(2) Asia GCB includes the results of operations of GCB activities in certain EMEA countries for all periods presented.
(3) North America includes the U.S., Canada and Puerto Rico, Latin America includes Mexico and Asia includes Japan.
5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
As described further throughout this Executive Summary, Citi
reported balanced operating results for full-year 2017,
reflecting continued momentum across businesses and
geographies, notably many of those where Citi has been
making investments.
During 2017, Citi had revenue and loan growth and
positive operating leverage as well as operating margin
expansion in the Institutional Clients Group (ICG) and every
region in Global Consumer Banking (GCB). Citi also
continued to demonstrate strong expense discipline, resulting
in an operating efficiency ratio of 58% in 2017. Results in
2017 also included an updated estimate for a one-time, non-
cash charge of $22.6 billion related to the impact of the Tax
Cuts and Jobs Act (Tax Reform), which impacted the tax line
within Corporate/Other, as well as the tax lines in North
America GCB and ICG (for additional information on this
updated estimate, see “Impact of Tax Reform” below).
In 2017, Citi increased the amount of capital returned to
shareholders, while each of its key regulatory capital metrics
remained strong (see “Capital” below). During the year, Citi
returned approximately $17.1 billion in the form of common
stock repurchases and dividends and repurchased
approximately 214 million common shares as outstanding
common shares declined 7% from the prior year.
Going into 2018, while economic sentiment has improved
and the macroeconomic environment remains largely positive,
there continue to be various economic, political and other risks
and uncertainties that could impact Citi’s businesses and
future results. For a more detailed discussion of the risks and
uncertainties that could impact Citi’s businesses, results of
operations and financial condition during 2018, see each
respective business’s results of operations, “Risk Factors” and
“Managing Global Risk” below. Despite these risks and
uncertainties, Citi intends to continue to build on the progress
made during 2017 with a focus on further optimizing its
performance to benefit shareholders.
2017 Summary Results
Citigroup
Citigroup reported a net loss of $6.8 billion, or $2.98 per
share, compared to net income of $14.9 billion, or $4.72 per
share, in the prior year. Excluding the impact of Tax Reform,
Citigroup net income of $15.8 billion increased 6% compared
to the prior year, reflecting higher revenues, partially offset by
higher cost of credit, while earnings per share increased 13%,
including the impact of a 7% reduction in average shares
outstanding. (Citi’s results of operations excluding the impact
of Tax Reform are non-GAAP financial measures. Citi
believes the presentation of its results of operations excluding
the impact of Tax Reform provides a meaningful depiction for
investors of the underlying fundamentals of its businesses.)
For additional information regarding the impact of Tax
Reform, see “Impact of Tax Reform,” “Risk Factors,”
6
“Significant Accounting Policies and Significant Estimates—
Income Taxes” below and Notes 1 and 9 to the Consolidated
Financial Statements.
Citigroup revenues of $71.4 billion in 2017 increased 2%,
driven by 6% aggregate growth in ICG and GCB, partially
offset by a 40% decrease in Corporate/Other, primarily due to
the continued wind-down of legacy assets.
Citigroup’s end-of-period loans increased 7% to $667
billion versus the prior-year period. Excluding the impact of
foreign currency translation in U.S. dollars for reporting
purposes (FX translation), Citigroup’s end-of-period loans
grew 5%, as 9% growth in ICG and 4% growth in GCB was
partially offset by the continued wind-down of legacy assets in
Corporate/Other (Citi’s results of operations excluding the
impact of FX translation are non-GAAP financial measures.
Citi believes the presentation of its results of operations
excluding the impact of FX translation provides a meaningful
depiction for investors of the underlying fundamentals of its
businesses). Citigroup’s end-of-period deposits increased 3%
to $960 billion versus the prior year. Excluding the impact of
FX translation, Citigroup’s deposits were up 1%, as a 2%
increase in ICG deposits was partially offset by a decline in
Corporate/ Other deposits, and GCB deposits were largely
unchanged.
Expenses
Citigroup operating expenses were largely unchanged versus
the prior year, as the impact of higher volume-related expenses
and ongoing investments were offset by efficiency savings and
the wind-down of legacy assets. Year-over-year, ICG operating
expenses were up 3% and GCB operating expenses increased
2%, while Corporate/Other operating expenses declined 24%,
all versus the prior year.
Cost of Credit
Citi’s total provisions for credit losses and for benefits and
claims of $7.5 billion increased 7% from the prior year. The
increase was mostly driven by a $515 million increase in net
credit losses, primarily in North America GCB, partially offset
by a lower provision for benefits and claims due to continued
legacy asset divestitures within Corporate/Other. The net loan
loss reserve build of $266 million compared to a net loan loss
reserve build of $217 million in the prior year. The increase
was mostly due to volume growth and seasoning, as well as
the impact of loan loss reserve builds related to forward-
looking net credit loss expectations, all in the North America
cards portfolios, partially offset by a higher net reserve release
in ICG.
Net credit losses of $7.1 billion increased 8% versus the
prior year. Consumer net credit losses increased 11% to
$6.7 billion, mostly reflecting volume growth and seasoning in
the North America cards portfolios and the impact of acquiring
the Costco portfolio. The increase in consumer net credit
losses was partially offset by the continued wind-down of
legacy assets in Corporate/Other. Corporate net credit losses
decreased 26% to $379 million, largely driven by
improvement in the energy sector.
For additional information on Citi’s consumer and
corporate credit costs and allowance for loan losses, see each
respective business’s results of operations and “Credit Risk”
below.
Capital
Citigroup’s Common Equity Tier 1 Capital and Tier 1 Capital
ratios, on a fully implemented basis, were 12.4% and 14.1% as
of December 31, 2017 (based on the Basel III Standardized
Approach for determining risk-weighted assets), respectively,
compared to 12.6% and 14.2% as of December 31, 2016
(based on the Basel III Advanced Approaches for determining
risk-weighted assets). The decline in regulatory capital
reflected the return of capital to common shareholders and an
approximately $6 billion reduction in Common Equity Tier 1
(CET1) Capital due to the impact of Tax Reform, partially
offset by earnings growth. Citigroup’s Supplementary
Leverage ratio as of December 31, 2017, on a fully
implemented basis, was 6.7%, compared to 7.2% as of
December 31, 2016. For additional information on Citi’s
capital ratios and related components, including the impact of
Tax Reform on its capital ratios, see “Capital Resources”
below.
Global Consumer Banking
GCB net income decreased 21%. Excluding the impact of Tax
Reform, GCB net income decreased 6%, as higher revenues
were more than offset by higher expenses and higher cost of
credit. Operating expenses were $17.8 billion, up 2%, as
higher volume-related expenses and continued investments
were partially offset by efficiency savings.
GCB revenues of $32.7 billion increased 4% versus the
prior year, driven by growth across all regions. North America
GCB revenues increased 3% to $20.3 billion, driven by higher
revenues across all businesses. Citi-branded cards revenues of
$8.6 billion were up 5% versus the prior year, mostly
reflecting the addition of the Costco portfolio as well as
modest growth in interest-earning balances, partially offset by
the continued run-off of non-core portfolios as well as a higher
cost to fund growth in transactor and promotional balances,
given higher interest rates. Citi retail services revenues of $6.4
billion increased 1% versus the prior year, as continued loan
growth was partially offset by the impact of the renewal and
extension of certain partnerships, as well as the absence of
gains on sales of two cards portfolios in 2016. Retail banking
revenues increased 1% from the prior year to $5.3 billion.
Excluding mortgage revenues, retail banking revenues of $4.5
billion were up 9% from the prior year, driven by continued
growth in loans and assets under management, as well as a
benefit from higher interest rates.
North America GCB average deposits of $184 billion
increased 1% year-over-year, average retail loans of $56
billion grew 3% and assets under management of $60 billion
grew 14%. Average Citi-branded card loans of $85 billion
increased 15%, while Citi-branded card purchase sales of $320
billion increased 28% versus the prior year. Average Citi retail
services loans of $46 billion increased 4% versus the prior
7
year, while retail services purchase sales of $81 billion were
up 2%. For additional information on the results of operations
of North America GCB for 2017, see “Global Consumer
Banking—North America GCB” below.
International GCB revenues (consisting of Latin America
GCB and Asia GCB (which includes the results of operations
in certain EMEA countries)) increased 6% versus the prior
year to $12.4 billion. Excluding the impact of FX translation,
international GCB revenues increased 5% versus the prior
year. Latin America GCB revenues increased 6% versus the
prior year, driven by growth in loans and deposits, as well as
improved deposit spreads. Asia GCB revenues increased 5%
(4% excluding modest gains on the sales of merchant
acquiring businesses in the second and fourth quarters of
2017) versus the prior year, primarily reflecting an increase in
cards revenues and wealth management revenues, partially
offset by lower retail lending revenues. For additional
information on the results of operations of Latin America GCB
and Asia GCB for 2017, including the impact of FX
translation, see “Global Consumer Banking—Latin America
GCB” and “Global Consumer Banking—Asia GCB” below.
Year-over-year, international GCB average deposits of
$122 billion increased 5%, average retail loans of $87 billion
were largely unchanged, assets under management of $101
billion increased 14%, average card loans of $24 billion
increased 5% and card purchase sales of $98 billion increased
7%, all excluding the impact of FX translation.
Institutional Clients Group
ICG net income decreased 5%. Excluding the impact of Tax
Reform, ICG net income increased 16%, driven by higher
revenues and a small benefit to cost of credit (compared to a
$486 million cost of credit in the prior year), partially offset by
higher operating expenses. ICG operating expenses increased
3% to $19.6 billion, as higher compensation, investments and
volume-related expenses were partially offset by efficiency
savings.
ICG revenues were $35.7 billion in 2017, up 7% from the
prior year, primarily driven by a 16% increase in Banking
revenues. Markets and securities services were largely
unchanged versus the prior year. The increase in Banking
revenues included the impact of $133 million of losses on loan
hedges within corporate lending, compared to losses of $594
million in the prior year.
Banking revenues of $18.7 billion (excluding the impact
of losses on loan hedges within corporate lending) increased
12%, driven by solid growth across all products. Investment
banking revenues of $5.2 billion increased 20% versus the
prior year, reflecting wallet share gains across all products.
Advisory revenues increased 11% to $1.1 billion, equity
underwriting revenues increased 68% to $1.1 billion and debt
underwriting revenues increased 13% to $3.0 billion, all
versus the prior year.
Private bank revenues increased 14% from the prior year,
driven by growth in clients, loans, investments and deposits,
as well as improved spreads. Corporate lending revenues
increased 59% to $1.8 billion. Excluding the impact of losses
on loan hedges, corporate lending revenues increased 12%
versus the prior year, primarily driven by lower hedging costs,
as well as the prior-year adjustment to the residual value of a
lease financing. Treasury and trade solutions revenues of $8.5
billion increased 7% versus the prior year, reflecting volume
growth and improved spreads, with balanced growth across
net interest and fee income.
Markets and securities services revenues of $17.1 billion
were largely unchanged from the prior year, as a decline in
fixed income markets and equity markets revenues was offset
by an increase in securities services revenues as well as a $580
million gain on the sale of a fixed income analytics business.
Fixed income markets revenues of $12.1 billion decreased 6%
from the prior year, reflecting low volatility, as well as the
comparison to higher revenues from a more robust trading
environment in the prior year following the vote in the U.K. in
favor of its withdrawal from the European Union, as well as
the U.S. election. Equity markets revenues of $2.7 billion
decreased 2% from the prior year, driven by an episodic loss
in derivatives of roughly $130 million related to a single client
event. Excluding this item, equity markets revenues increased
2% from the prior year, driven by growth in client balances
and higher investor client revenue. Securities services
revenues of $2.3 billion increased 8%, driven by growth in
client volumes and higher interest revenue. For additional
information on the results of operations of ICG for 2017, see
“Institutional Clients Group” below.
Corporate/Other
Corporate/Other net loss was $19.7 billion in 2017, compared
to net income of $498 million in the prior year. Excluding the
impact of Tax Reform, Corporate/Other net income declined
69% to $153 million, reflecting lower revenues, partially
offset by lower operating expenses and lower cost of credit.
Operating expenses of $3.8 billion declined 24% from the
prior-year period, reflecting the wind-down of legacy assets
and lower legal expenses.
Corporate/Other revenues were $3.1 billion, down 40%
from the prior year, primarily reflecting the wind-down of
legacy assets as well as the absence of gains related to debt
buybacks in 2016.
Corporate/Other end-of-period assets of $77 billion
decreased 25% from the prior year, reflecting the continued
wind-down of legacy assets as well as the impact of Tax
Reform, which reduced assets by approximately $20 billion.
For additional information on the results of operations of
Corporate/Other for 2017, see “Corporate/Other” below.
8
made by Citigroup and additional guidance that may be issued
by the U.S. Department of the Treasury. For more information
on possible changes to the estimated impact related to Tax
Reform, see “Risk Factors—Strategic Risks” below and Notes
1 and 9 to the Consolidated Financial Statements.
Impact of Tax Reform
Citi’s full-year 2017 results included the updated estimate for
a one-time, non-cash charge of $22.6 billion, recorded within
Corporate/Other, North America GCB and ICG related to the
enactment of Tax Reform, which was signed into law on
December 22, 2017. This updated estimate resulted in a
downward adjustment to fourth-quarter and full-year 2017
financial results, as well as changes in the segments where the
impact was recorded (previously, the entire charge was
recorded in Corporate/Other), from those reported on January
16, 2018, by an aggregate of $594 million due to refinements
of original estimates. The approximate $6 billion reduction in
CET1 Capital due to the impact of Tax Reform was
unchanged.
This charge was composed of a $12.4 billion
remeasurement of Citi’s deferred tax assets (DTAs) due to the
reduction to the U.S. corporate tax rate and the change to a
quasi-territorial tax system (see “Significant Accounting
Policies and Estimates—Income Taxes” below), a $7.9 billion
valuation allowance against Citi’s foreign tax credit (FTC)
carry-forwards and its U.S. residual DTAs related to its non-
U.S. branches, and a $2.3 billion reduction in Citi’s FTC
carry-forwards related to the deemed repatriation of
undistributed earnings of non-U.S. subsidiaries.
The financial results in the table below disclose the as-
reported GAAP results for 2017 and 2016, the impact of Tax
Reform and the 2017 adjusted results excluding the impact of
Tax Reform. The charge related to Tax Reform is reflected in
Citi’s results throughout this Annual Report on Form 10-K,
unless otherwise noted.
The final impact of Tax Reform may differ from the
estimate due to, among other things, changes in assumptions
In millions of dollars, except per share amounts, and as
otherwise noted
Net income (loss)
Diluted earnings per share:
Income (loss) from continuing operations
Net income (loss)
Effective tax rate
2017
as
reported
$ (6,798)
Impact of
Tax
Reform
$ (22,594)
2017
adjusted
results(1)
$ 15,796
2016
as
reported
$ 14,912
2017 Ex-Tax Reform
increase/(decrease)
vs. 2016
$ Change % Change
$
884
6 %
(2.94)
(2.98)
(8.31)
(8.31)
5.37
5.33
4.74
4.72
129.1 %
(9,930) bps
29.8%
30.0%
Global Consumer Banking—Net income
$ 3,884
$
North America GCB—Net income
Institutional Clients Group—Net income
2,044
9,009
(750)
(750)
(2,000)
Corporate/Other—Net income (loss)
(19,691)
(19,844)
$
4,634
$
4,947
$
2,794
11,009
153
3,240
9,467
498
Performance and other metrics:
Return on average assets
Return on average common stockholders’ equity
Return on average total stockholders’ equity
Return on average tangible common equity
Dividend payout ratio
Total payout ratio
(1) Excludes the impact of Tax Reform.
(0.36)%
(3.9)
(3.0)
(4.6)
(32.2)
(213.9)
(120) bps
(1,090)
(1,000)
(1,270)
(5,020)
(33,140)
0.84%
7.0
7.0
8.1
18.0
117.5
0.82%
6.6
6.5
7.6
8.9
77.1
9
0.63
0.61
(313)
(446)
1,542
(345)
13
13
(20)
bps
(6)%
(14)
16
(69)
2
40
50
50
910
404
bps
RESULTS OF OPERATIONS
SUMMARY OF SELECTED FINANCIAL DATA—PAGE 1
In millions of dollars, except per-share amounts and ratios
2017
2016
2015
2014
2013
Citigroup Inc. and Consolidated Subsidiaries
Net interest revenue
Non-interest revenue
Revenues, net of interest expense
Operating expenses
Provisions for credit losses and for benefits and claims
Income from continuing operations before income taxes
Income taxes(1)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes(2)
Net income (loss) before attribution of noncontrolling
interests
Net income attributable to noncontrolling interests
Citigroup’s net income (loss)(1)
Less:
Preferred dividends—Basic
Dividends and undistributed earnings allocated to employee
restricted and deferred shares that contain nonforfeitable
rights to dividends, applicable to basic EPS
Income (loss) allocated to unrestricted common
shareholders for basic EPS
Add: Other adjustments to income
Income (loss) allocated to unrestricted common
shareholders for diluted EPS
Earnings per share
Basic
Income (loss) from continuing operations
Net income (loss)
Diluted
Income (loss) from continuing operations
Net income (loss)
Dividends declared per common share
$
$
$
$
$
$
$
$
$
$
$
44,687 $
45,104 $
46,630 $
47,993 $
26,762
24,771
29,724
29,226
71,449 $
69,875 $
76,354 $
77,219 $
41,237
7,451
41,416
6,982
43,615
7,913
55,051
7,467
22,761 $
21,477 $
24,826 $
14,701 $
29,388
6,444
7,440
(6,627) $
15,033 $
17,386 $
(111)
(58)
(54)
7,197
7,504 $
(2)
(6,738) $
14,975 $
17,332 $
7,502 $
60
63
90
192
(6,798) $
14,912 $
17,242 $
7,310 $
1,213 $
1,077 $
769 $
511 $
37
195
224
111
46,793
29,931
76,724
48,408
8,514
19,802
6,186
13,616
270
13,886
227
13,659
194
263
(8,048) $
13,640 $
16,249 $
6,688 $
13,202
—
—
—
1
1
(8,048) $
13,640 $
16,249 $
6,689 $
13,203
(2.94) $
(2.98)
4.74 $
4.72
5.43 $
5.41
2.21 $
2.21
(2.94) $
4.74 $
5.42 $
2.20 $
(2.98)
0.96
4.72
0.42
5.40
0.16
2.20
0.04
4.26
4.35
4.25
4.34
0.04
Table continues on the next page, including footnotes.
10
SUMMARY OF SELECTED FINANCIAL DATA—PAGE 2
In millions of dollars, except per-share amounts, ratios and direct staff
2017
2016
2015
2014
2013
Citigroup Inc. and Consolidated Subsidiaries
At December 31:
Total assets
Total deposits
Long-term debt
Citigroup common stockholders’ equity
Total Citigroup stockholders’ equity
Direct staff (in thousands)
Performance metrics
$ 1,842,465
$
1,792,077
$
1,731,210
$
1,842,181
$
1,880,035
959,822
236,709
181,487
200,740
209
929,406
206,178
205,867
225,120
219
907,887
201,275
205,139
221,857
231
899,332
223,080
199,717
210,185
241
968,273
221,116
197,254
203,992
251
Return on average assets
Return on average common stockholders’ equity(3)
Return on average total stockholders’ equity(3)
Efficiency ratio (total operating expenses/total revenues)
(0.36)%
0.82%
0.95%
0.39%
0.73%
(3.9)
(3.0)
58
6.6
6.5
59
8.1
7.9
57
3.4
3.5
71
7.0
6.9
63
Basel III ratios—full implementation
Common Equity Tier 1 Capital(4)
Tier 1 Capital(4)
Total Capital(4)
Supplementary Leverage ratio(5)
Citigroup common stockholders’ equity to assets
12.36 %
12.57%
12.07%
10.57%
10.57%
14.06
16.30
6.68
14.24
16.24
7.22
13.49
15.30
7.08
11.45
12.80
5.94
9.85 %
11.49%
11.85%
10.84%
Total Citigroup stockholders’ equity to assets
Dividend payout ratio(6)
Total payout ratio(7)
Book value per common share
Tangible book value (TBV) per share(8)
Ratio of earnings to fixed charges and preferred stock dividends
10.90
NM
NM
$
70.62
60.16
2.26x
12.56
8.9
77.1
12.82
3.0
36.0
11.41
1.8
19.9
$
74.26
$
69.46
$
66.05
$
64.57
2.54x
60.61
2.89x
56.71
2.00x
11.23
12.64
5.42
10.49%
10.85
0.9
7.1
65.12
55.19
2.18x
(1) 2017 includes the impact of Tax Reform. See “Impact of Tax Reform” above.
(2) See Note 2 to the Consolidated Financial Statements for additional information on Citi’s discontinued operations.
(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) Citi’s regulatory capital ratios reflect full implementation of the U.S. Basel III rules. As of December 31, 2017, Citi’s reportable Common Equity Tier 1 Capital
and Tier 1 Capital ratios were the lower derived under the Basel III Standardized Approach, whereas the reportable Total Capital ratio was the lower derived under
the Basel III Advanced Approaches framework. For all prior periods presented, Citi’s Common Equity Tier 1 Capital, Tier 1 Capital, and Total Capital ratios were
the lower derived under the Basel III Advanced Approaches framework.
(5) Citi’s Supplementary Leverage ratio reflects full implementation of the U.S. Basel III rules.
(6) Dividends declared per common share as a percentage of net income per diluted share.
(7) Total common dividends declared plus common stock repurchases as a percentage of net income available to common shareholders. See “Consolidated Statement
of Changes in Stockholders’ Equity,” Note 10 to the Consolidated Financial Statements and “Equity Security Repurchases” below for the component details.
(8) For information on TBV, see “Capital Resources—Tangible Common Equity, Tangible Book Value Per Share, Book Value Per Share and Returns on Equity”
below.
NM Not meaningful
11
SEGMENT AND BUSINESS—INCOME (LOSS) AND REVENUES
CITIGROUP INCOME
In millions of dollars
Income (loss) from continuing operations
Global Consumer Banking
North America
Latin America
Asia(2)
Total
Institutional Clients Group
North America
EMEA
Latin America
Asia
Total
Corporate/Other
Income (loss) from continuing operations
Discontinued operations
Net income (loss) attributable to noncontrolling interests
Citigroup’s net income (loss)
2017(1)
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
$
$
$
$
$
$
$
$
2,043 $
3,238 $
590
1,260
633
1,083
3,893 $
4,954 $
2,449 $
3,495 $
2,804
1,513
2,300
9,066 $
(19,586) $
2,365
1,454
2,211
9,525 $
554 $
4,188
826
1,200
6,214
3,316
2,230
1,351
2,213
9,110
2,062
(6,627) $
15,033 $
17,386
(111) $
60
(58) $
63
(54)
90
(6,798) $
14,912 $
17,242
(37)%
(7)
16
(21)%
(23)%
(23)
(10)
(20)%
(30)%
5 %
19
4
4
(5)%
NM
NM
(91)%
(5)
NM
6
8
—
5 %
(73)%
(14)%
(7)%
(30)
(14)%
(1) 2017 includes the impact of Tax Reform. See “Impact of Tax Reform” above.
(2) Asia GCB includes the results of operations of GCB activities in certain EMEA countries for all periods presented.
NM Not meaningful
12
CITIGROUP REVENUES
In millions of dollars
Global Consumer Banking
North America
Latin America
Asia(1)
Total
Institutional Clients Group
North America
EMEA
Latin America
Asia
Total
Corporate/Other
Total Citigroup net revenues
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
$
$
$
$
$
$
20,262 $
19,759 $
5,152
7,283
4,922
6,838
32,697 $
31,519 $
19,515
5,722
7,014
32,251
13,636 $
12,513 $
12,698
10,692
4,216
7,123
35,667 $
3,085 $
71,449 $
9,855
3,977
6,882
33,227 $
5,129 $
69,875 $
9,788
3,944
6,902
33,332
10,771
76,354
3 %
5
7
4 %
9 %
8
6
4
7 %
(40)%
2 %
1 %
(14)
(3)
(2)%
(1)%
1
1
—
— %
(52)%
(8)%
(1) Asia GCB includes the results of operations of GCB activities in certain EMEA countries for all periods presented.
13
SEGMENT BALANCE SHEET(1)
Citigroup
parent
company-
issued
long-term
debt and
stockholders’
equity(3)
Corporate/
Other
and
consolidating
eliminations(2)
Total
Citigroup
consolidated
Global
Consumer
Banking
Institutional
Clients
Group
$
11,446 $
65,916 $
103,154 $
— $
242
5,885
10,786
301,729
38,037
60,755
231,806
243,916
109,231
330,826
96,266
258,342
430
1,755
232,273
22,124
36,643
(319,097)
—
—
—
—
—
—
180,516
232,478
251,556
352,290
654,679
170,946
—
$
$
$
$
428,880 $
1,336,303 $
77,282 $
— $
1,842,465
307,244 $
639,487 $
13,091 $
— $
4,705
20
576
2,143
19,745
94,447
151,563
123,933
20,075
35,297
80,383
285,565
9
94
23,801
47,106
19,358
—
—
—
152,163
—
(27,109)
(352,903)
428,880 $
1,336,303 $
76,350 $
(200,740) $
—
—
932
200,740
428,880 $
1,336,303 $
77,282 $
— $
959,822
156,277
124,047
44,452
236,709
119,486
—
1,640,793
201,672
1,842,465
In millions of dollars
Assets
Cash and deposits with banks
Federal funds sold and securities borrowed or
purchased under agreements to resell
Trading account assets
Investments
Loans, net of unearned income and
allowance for loan losses
Other assets
Liquidity assets(4)
Total assets
Liabilities and equity
Total deposits
Federal funds purchased and securities loaned
or sold under agreements to repurchase
Trading account liabilities
Short-term borrowings
Long-term debt(3)
Other liabilities
Net inter-segment funding (lending)(3)
Total liabilities
Total equity(5)
Total liabilities and equity
(1) The supplemental information presented in the table above reflects Citigroup’s consolidated GAAP balance sheet by reporting segment as of December 31, 2017.
The respective segment information depicts the assets and liabilities managed by each segment as of such date.
(2) Consolidating eliminations for total Citigroup and Citigroup parent company assets and liabilities are recorded within Corporate/Other. The impact of Tax Reform
is included in North America GCB, ICG and Corporate/Other.
(3) The total stockholders’ equity and the majority of long-term debt of Citigroup reside in the Citigroup parent company Consolidated Balance Sheet. Citigroup
allocates stockholders’ equity and long-term debt to its businesses through inter-segment allocations as shown above.
(4) Represents the attribution of Citigroup’s liquidity assets (primarily consisting of cash and available-for-sale securities) to the various businesses based on Liquidity
Coverage Ratio (LCR) assumptions.
(5) Corporate/Other equity represents noncontrolling interests.
14
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15
GLOBAL CONSUMER BANKING
Global Consumer Banking (GCB) consists of consumer banking businesses in North America, Latin America (consisting of Citi’s
consumer banking business in Mexico) and Asia. GCB provides traditional banking services to retail customers through retail banking,
including commercial banking, and Citi-branded cards and Citi retail services (for additional information on these businesses, see
“Citigroup Segments” above). GCB is focused on its priority markets in the U.S., Mexico and Asia with 2,451 branches in 19
countries and jurisdictions as of December 31, 2017. At December 31, 2017, GCB had approximately $429 billion in assets and
$307 billion in deposits.
GCB’s overall strategy is to leverage Citi’s global footprint and be the pre-eminent bank for the emerging affluent and affluent
consumers in large urban centers. In credit cards and in certain retail markets, Citi serves customers in a somewhat broader set of
segments and geographies.
In millions of dollars except as otherwise noted
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
Net interest revenue
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision (release) for unfunded lending commitments
Provision for benefits and claims
Provisions for credit losses and for benefits and claims
Income from continuing operations before taxes
Income taxes
Income from continuing operations
Noncontrolling interests
Net income
Balance Sheet data (in billions of dollars)
Total EOP assets
Average assets
Return on average assets
Efficiency ratio
Average deposits
Net credit losses as a percentage of average loans
Revenue by business
Retail banking
Cards(1)
Total
Income from continuing operations by business
Retail banking
Cards(1)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
27,187
5,510
32,697
17,843
6,562
965
(2)
116
7,641
7,213
3,320
3,893
9
3,884
429
418
0.93%
55
306
2.21%
13,378
19,319
32,697
1,673
2,220
3,893
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
26,025
5,494
31,519
17,483
5,610
708
3
106
6,427
7,609
2,655
4,954
7
4,947
412
396
1.25%
55
298
$
2.01%
12,916
18,603
31,519
1,566
3,388
4,954
$
$
$
$
25,752
6,499
32,251
17,199
5,752
(395)
4
108
5,469
9,583
3,369
6,214
10
6,204
381
378
1.64%
53
295
2.12%
13,654
18,597
32,251
1,875
4,339
6,214
4 %
—
4 %
2 %
17 %
36
NM
9
19 %
(5)%
25
(21)%
29 %
(21)%
1 %
(15)
(2)%
2 %
(2)%
NM
(25)
(2)
18 %
(21)%
(21)
(20)%
(30)%
(20)%
4 %
8 %
6
3
4 %
4
4 %
7 %
(34)
(21)%
5
1
(5)%
—
(2)%
(16)%
(22)
(20)%
Table continues on the next page, including footnotes.
16
Foreign currency (FX) translation impact
Total revenue—as reported
Impact of FX translation(2)
Total revenues—ex-FX(3)
Total operating expenses—as reported
Impact of FX translation(2)
Total operating expenses—ex-FX(3)
Total provisions for LLR & PBC—as reported
Impact of FX translation(2)
Total provisions for LLR & PBC—ex-FX(3)
Net income—as reported
Impact of FX translation(2)
Net income—ex-FX(3)
$
$
$
$
$
$
$
$
32,697 $
31,519 $
—
32,697 $
17,843 $
—
17,843 $
7,641 $
—
7,641 $
3,884 $
—
66
31,585 $
17,483 $
54
17,537 $
6,427 $
(1)
6,426 $
4,947 $
7
3,884 $
4,954 $
32,251
(924)
31,327
17,199
(401)
16,798
5,469
(214)
5,255
6,204
(236)
5,968
4 %
4 %
2 %
2 %
19 %
19 %
(21)%
(2)%
1 %
2 %
4 %
18 %
22 %
(20)%
(22)%
(17)%
Includes both Citi-branded cards and Citi retail services.
(1)
(2) Reflects the impact of FX translation into U.S. dollars at the 2017 average exchange rates for all periods presented.
(3) Presentation of this metric excluding FX translation is a non-GAAP financial measure.
NM Not meaningful
17
NORTH AMERICA GCB
North America GCB provides traditional retail banking, including commercial banking, Citi-branded cards products and Citi retail
services card products to retail customers and small to mid-size businesses, as applicable, in the U.S. North America GCB’s U.S. cards
product portfolio includes its proprietary portfolio (including the Citi Double Cash, Thank You and Value cards) and co-branded cards
(including, among others, American Airlines and Costco) within Citi-branded cards as well as its co-brand and private label
relationships (including, among others, Sears, The Home Depot, Best Buy and Macy’s) within Citi retail services.
As previously announced, the Hilton Honors co-brand credit card partnership with Citi was scheduled to terminate as of year-end
2017. On October 23, 2017, Citi signed an agreement to sell the Hilton credit card portfolio (approximately $1.1 billion in outstanding
loan balances in Citi-branded cards as of December 31, 2017) to American Express. In connection with the sale agreement, the
existing partnership was extended through the closing date. The sale was completed on January 30, 2018, resulting in a pretax gain of
approximately $150 million, which approximates one year of revenues from the portfolio. The sale will impact North America GCB’s
quarterly comparisons in 2018.
As of December 31, 2017, North America GCB’s 694 retail bank branches are concentrated in the six key metropolitan areas of
New York, Chicago, Miami, Washington, D.C., Los Angeles and San Francisco. Also as of December 31, 2017, North America GCB
had approximately 9.2 million retail banking customer accounts, $56.0 billion in retail banking loans and $182.5 billion in deposits. In
addition, North America GCB had approximately 121 million Citi-branded and Citi retail services credit card accounts with $139.7
billion in outstanding card loan balances.
In millions of dollars, except as otherwise noted
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
Net interest revenue
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision for unfunded lending commitments
Provision for benefits and claims
Provisions for credit losses and for benefits and claims
Income from continuing operations before taxes
Income taxes
Income from continuing operations
Noncontrolling interests
Net income
Balance Sheet data (in billions of dollars)
Average assets
Return on average assets
Efficiency ratio
Average deposits
Net credit losses as a percentage of average loans
Revenue by business
Retail banking
Citi-branded cards
Citi retail services
Total
Income from continuing operations by business
Retail banking
Citi-branded cards
Citi retail services
Total
NM Not meaningful
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
18,881
1,381
20,262
10,160
4,796
869
4
33
5,702
4,400
2,357
2,043
(1)
2,044
248
0.82%
50
$
$
$
$
$
$
$
$
$
18,131
1,628
19,759
10,058
3,919
653
6
34
4,612
5,089
1,851
3,238
(2)
3,240
228
1.42%
51
184.4
$
183.2
$
17,409
2,106
19,515
9,369
3,751
(339)
8
39
3,459
6,687
2,499
4,188
3
4,185
208
2.01%
48
180.7
2.58%
2.29%
2.39%
$
$
$
5,257
8,578
6,427
20,262
455
1,019
569
5,222
$
8,150
6,387
19,759
533
1,441
1,264
$
$
2,043
$
3,238
$
5,312
7,781
6,422
19,515
616
2,057
1,515
4,188
18
4 %
(15)
3 %
1 %
22 %
33
(33)
(3)
24 %
(14)%
27
(37)%
50
(37)%
4 %
(23)
1 %
7 %
4 %
NM
(25)
(13)
33 %
(24)%
(26)
(23)%
NM
(23)%
9 %
10 %
1
1
1 %
5
1
3 %
(15)%
(29)
(55)
(37)%
(2)%
5
(1)
1 %
(13)%
(30)
(17)
(23)%
2017 vs. 2016
Net income decreased 37% and was impacted by an estimated
$750 million non-cash charge recorded in the tax line due to
the impact of Tax Reform (for additional information, see
“Impact of Tax Reform” above). Excluding the impact of Tax
Reform, net income decreased 14% due to higher cost of
credit and slightly higher expenses, partially offset by higher
revenues.
Revenues increased 3%, driven by higher revenues across
all businesses.
Retail banking revenues increased 1%. Excluding the
decline in mortgage revenues (down of 32%), retail banking
revenues were up 9%, driven by growth in checking deposits,
continued growth in loans (average loans up 3%) and assets
under management (up 14%) and increased commercial
banking activity, as well as a benefit from higher interest rates.
The decline in mortgage revenues was driven by lower
origination activity and higher cost of funds, reflecting the
higher interest rate environment, as well as the impact of the
previously announced sale of a portion of Citi’s mortgage
servicing rights.
Cards revenues increased 3%. In Citi-branded cards,
revenues increased 5%, primarily reflecting the acquisition of
the Costco portfolio (completed June 17, 2016), as well as
modest growth in interest-earning balances, partially offset by
the continued run-off of non-core portfolios and the higher
cost to fund growth in transactor and promotional balances,
given the higher interest rates. Average loans grew 15% and
purchase sales grew 28%. North America GCB expects that
additional terms in certain partnership contracts that go into
effect in 2018 will negatively impact Citi-branded cards
revenues going forward.
Citi retail services revenues increased 1%, as continued
loan growth was partially offset by the impact of the
previously disclosed renewal and extension of certain
partnerships within the portfolio, as well as the absence of
gains on sales of two cards portfolios in 2016. Average loans
grew 4% and purchase sales grew 2%.
Expenses increased 1%, driven by the addition of the
Costco portfolio, higher volume-related expenses and
investments, partially offset by efficiency savings. Also
included in expenses is an $80 million provision for
remediation costs related to a Credit Card Accountability
Responsibility and Disclosure Act (CARD Act) matter (for
additional information, see “Corporate/Other” below and
Note 27 to the Consolidated Financial Statements).
Provisions increased 24% from the prior year, driven by
higher net credit losses and a higher net loan loss reserve
build.
Net credit losses increased 22% to $4.8 billion, largely
driven by higher net credit losses in Citi-branded cards (up
28% to $2.4 billion) and Citi retail services (up 19% to $2.2
billion). The increase in net credit losses primarily reflected
volume growth and seasoning in both cards portfolios, as well
as the impact of acquiring the Costco portfolio in Citi-branded
cards.
The net loan loss reserve build in 2017 was $873 million
(compared to a build of $659 million in the prior year), driven
by volume growth and seasoning in both cards portfolios, as
19
well as the increase in net flow rates in later delinquency
buckets leading to higher inherent credit loss expectations,
primarily in Citi retail services.
For additional information on North America GCB’s retail
banking portfolios, including commercial banking, and its
Citi-branded cards and Citi retail services portfolios, see
“Credit Risk—Consumer Credit” below.
2016 vs. 2015
Net income decreased by 23% due to significantly higher cost
of credit and higher expenses, partially offset by higher
revenues.
Revenues increased 1%, reflecting higher revenues in
Citi-branded cards, partially offset by lower revenues in retail
banking and Citi retail services. Retail banking revenues
decreased 2%. Excluding the previously disclosed $110
million gain on sale of branches in Texas in the first quarter of
2015, retail banking revenues were largely unchanged, as
lower mortgage revenues were offset by continued volume
growth, including growth in average loans (9%) and average
checking deposits (9%).
Cards revenues increased 2%. In Citi-branded cards,
revenues increased 5%, primarily reflecting the acquisition of
the Costco portfolio as well as volume growth, partially offset
by higher investment-related acquisition and rewards costs and
the impact of higher promotional balances. Citi retail services
revenues decreased 1%, as the impact of the renewal and
extension of several partnerships within the portfolio as well
as the absence of revenues from portfolio exits were partially
offset by modest growth in average loans.
Expenses increased 7%, primarily due to the Costco
acquisition, continued investment spending, volume growth,
higher repositioning charges and regulatory and compliance
costs, partially offset by ongoing efficiency savings and lower
legal and related costs.
Provisions increased 33%, driven by a net loan loss
reserve build, compared to a loan loss reserve release in the
prior year, and higher net credit losses. The net loan loss
reserve build mostly reflected reserve builds in the cards
portfolios and was primarily driven by the impact of the
acquisition of the Costco portfolio, as well as volume growth
and seasoning of the portfolios and the absence of nearly $400
million of reserve releases in 2015 as credit normalized. The
reserve build was also due to the estimated impact of proposed
regulatory guidelines on third-party debt collections.
The increase in net credit losses was driven by increases
in cards and retail banking. In retail banking, net credit losses
grew 37%, primarily due to an increase related to Citi’s energy
and energy-related exposures within the commercial banking
portfolio, which was largely offset by releases of previously
established loan loss reserves. In Citi-branded cards, net credit
losses increased 1%, driven by volume growth, including the
impact of Costco beginning in the fourth quarter of 2016,
seasoning and the impact of the regulatory changes on
collections. In Citi retail services, net credit losses increased
6%, primarily due to portfolio growth and seasoning and the
impact of the regulatory changes on collections.
LATIN AMERICA GCB
Latin America GCB provides traditional retail banking, including commercial banking, and its Citi-branded card products to retail
customers and small to mid-size businesses in Mexico through Citibanamex, one of Mexico’s largest banks.
At December 31, 2017, Latin America GCB had 1,479 retail branches in Mexico, with approximately 27.7 million retail banking
customer accounts, $19.9 billion in retail banking loans and $27.1 billion in deposits. In addition, the business had approximately
5.6 million Citi-branded card accounts with $5.4 billion in outstanding loan balances.
On November 27, 2017, Citi entered into an agreement to sell its Mexico asset management business reported within Latin
America GCB. For additional information on this sale, see Note 2 to the Consolidated Financial Statements.
In millions of dollars, except as otherwise noted
Net interest revenue
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision (release) for unfunded lending commitments
Provision for benefits and claims
Provisions for credit losses and for benefits and claims (LLR &
PBC)
Income from continuing operations before taxes
Income taxes
Income from continuing operations
Noncontrolling interests
Net income
Balance Sheet data (in billions of dollars)
Average assets
Return on average assets
Efficiency ratio
Average deposits
Net credit losses as a percentage of average loans
Revenue by business
Retail banking
Citi-branded cards
Total
Income from continuing operations by business
Retail banking
Citi-branded cards
Total
FX translation impact
Total revenues—as reported
Impact of FX translation(1)
Total revenues—ex-FX(2)
Total operating expenses—as reported
Impact of FX translation(1)
Total operating expenses—ex-FX(2)
Provisions for LLR & PBC—as reported
Impact of FX translation(1)
Provisions for LLR & PBC—ex-FX(2)
Net income—as reported
Impact of FX translation(1)
Net income—ex-FX(2)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
2016
2015
3,638
1,514
5,152
2,920
1,117
125
(1)
83
1,324
908
318
590
5
585
45
1.30%
57
27.4
4.42%
3,690
1,462
5,152
410
180
590
5,152
—
5,152
2,920
—
2,920
1,324
—
1,324
585
—
585
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,431
1,491
4,922
2,838
1,040
83
1
72
1,196
888
255
633
5
628
49
1.28%
58
25.7
4.32%
3,447
1,475
4,922
355
278
633
4,922
(45)
4,877
2,838
(21)
2,817
1,196
(10)
1,186
628
(10)
618
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,849
1,873
5,722
3,251
1,280
33
(2)
69
1,380
1,091
265
826
3
823
53
1.55%
57
26.7
4.87%
3,933
1,789
5,722
520
306
826
5,722
(906)
4,816
3,251
(376)
2,875
1,380
(211)
1,169
823
(244)
579
% Change
2017 vs. 2016
6 %
2
5 %
3 %
7 %
51
NM
15
% Change
2016 vs. 2015
(11)%
(20)
(14)%
(13)%
(19)%
NM
NM
4
11 %
2 %
25
(7)%
—
(7)%
(8)%
(13)%
(19)%
(4)
(23)%
67
(24)%
(8)%
7
(4)
7 %
(1)
5 %
15 %
(35)
(7)%
5 %
6 %
3 %
4 %
11 %
12 %
(7)%
(5)%
(12)%
(18)
(14)%
(32)%
(9)
(23)%
(14)%
1 %
(13)%
(2)%
(13)%
1 %
(24)%
7 %
(1) Reflects the impact of FX translation into U.S. dollars at the 2017 average exchange rates for all periods presented.
(2) Presentation of this metric excluding FX translation is a non-GAAP financial measure.
20
NM Not meaningful
The discussion of the results of operations for Latin America GCB below excludes the impact of FX translation for all periods
presented. Presentations of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. For a
reconciliation of certain of these metrics to the reported results, see the table above.
2017 vs. 2016
Net income decreased 5%, primarily driven by higher credit
costs and expenses, partially offset by higher revenues.
2016 vs. 2015
Net income increased 7%, driven by higher revenues and
lower expenses, partially offset by higher credit costs.
Revenues increased 6%, driven by higher revenues in
Revenues increased 1%, driven by overall volume growth,
largely offset by the absence of a $160 million gain on sale
related to the sale of the merchant acquiring business in
Mexico in 2015. Excluding this gain, revenues increased 5%,
primarily due to higher revenues in retail banking, partially
offset by lower revenues in cards. Retail banking revenues
increased 3%. Excluding the gain on sale related to the
merchant acquiring business, revenues increased 9%, driven
by volume growth. Cards revenues decreased 4%, driven by
the impact of higher payment rates, partially offset by
increased purchase sales.
Expenses decreased 2%, as lower legal and related
expenses, the impact of business divestitures and ongoing
efficiency savings were partially offset by higher repositioning
charges and ongoing investment spending.
Provisions increased 1%, driven by a higher net loan loss
reserve build, partially offset by lower net credit losses. The
net loan loss reserve build increased $56 million, largely due
to volume growth. Net credit losses decreased 5%, largely
reflecting continued lower net credit losses in the cards
portfolio, partially offset by higher net credit losses in the
personal loan portfolio.
retail banking.
Retail banking revenues increased 8%, reflecting
continued growth in volumes, including an increase in average
deposits (8%), average loans (6%), reflecting growth across
most portfolios, an increase in assets under management (6%),
as well as improved deposit spreads, driven by higher interest
rates. Cards revenues were largely unchanged, as continued
improvement in full-rate revolving loans in the second half of
2017 was offset by a higher cost to fund non-revolving loans.
Purchase sales grew 8% and average card loans grew 5%.
Expenses increased 4%, as ongoing investment spending
and business growth were partially offset by efficiency
savings. Citi continues to execute on its investment plans for
Citibanamex (totaling more than $1 billion through 2020),
including initiatives to modernize the branch network,
enhance digital capabilities and upgrade core operating
platforms.
Provisions increased 12%, primarily driven by higher net
credit losses (8%) and a $42 million increase in the net loan
loss reserve build, largely reflecting volume growth and
seasoning. The increase in the loan loss reserve build was also
driven by a Mexico earthquake-related loan loss reserve build
in the third quarter of 2017 (approximately $25 million).
For additional information on Latin America GCB’s retail
banking portfolios, including commercial banking, and its
Citi-branded cards portfolio, see “Credit Risk—Consumer
Credit” below.
For additional information on potential macroeconomic
and geopolitical challenges and other risks facing Latin
America GCB, see “Risk Factors—Strategic Risks” below.
21
ASIA GCB
Asia GCB provides traditional retail banking, including commercial banking, and its Citi-branded card products to retail customers
and small to mid-size businesses, as applicable. As of December 31, 2017, Citi’s most significant revenues in the region were from
Singapore, Hong Kong, Korea, Australia, India, Taiwan, Indonesia, Philippines, Thailand and Malaysia. Included within Asia GCB,
traditional retail banking and Citi-branded card products are also provided to retail customers in certain EMEA countries, primarily in
Poland, Russia and the United Arab Emirates.
At December 31, 2017, on a combined basis, the businesses had 278 retail branches, approximately 16.0 million retail banking
customer accounts, $70.0 billion in retail banking loans and $97.7 billion in deposits. In addition, the businesses had approximately
16.4 million Citi-branded card accounts with $19.8 billion in outstanding loan balances.
In millions of dollars, except as otherwise noted(1)
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
Net interest revenue
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision (release) for unfunded lending commitments
Provisions for credit losses
Income from continuing operations before taxes
Income taxes
Income from continuing operations
Noncontrolling interests
Net income
Balance Sheet data (in billions of dollars)
Average assets
Return on average assets
Efficiency ratio
Average deposits
Net credit losses as a percentage of average loans
Revenue by business
Retail banking
Citi-branded cards
Total
Income from continuing operations by business
Retail banking
Citi-branded cards
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,668
2,615
7,283
4,763
649
(29)
(5)
615
1,905
645
1,260
5
1,255
125
1.00%
65
$
$
$
$
$
$
$
$
$
4,463
2,375
6,838
4,587
651
(28)
(4)
619
1,632
549
1,083
4
1,079
119
0.91%
67
94.6
$
0.76%
89.5
$
0.77%
4,431
2,852
7,283
808
452
1,260
$
$
$
$
4,247
2,591
6,838
678
405
1,083
$
$
$
$
4,494
2,520
7,014
4,579
721
(89)
(2)
630
1,805
605
1,200
4
1,196
117
1.02%
65
87.7
0.81%
4,409
2,605
7,014
739
461
1,200
5 %
10
7 %
4 %
— %
(4)
(25)
(1)%
17 %
17
16 %
25
16 %
(1)%
(6)
(3)%
— %
(10)%
69
(100)
(2)%
(10)%
(9)
(10)%
—
(10)%
5 %
2 %
6
2
4 %
10
7 %
19 %
12
16 %
(4)%
(1)
(3)%
(8)%
(12)
(10)%
22
FX translation impact
Total revenues—as reported
Impact of FX translation(2)
Total revenues—ex-FX(3)
Total operating expenses—as reported
Impact of FX translation(2)
Total operating expenses—ex-FX(3)
Provisions for credit losses—as reported
Impact of FX translation(2)
Provisions for credit losses—ex-FX(3)
Net income—as reported
Impact of FX translation(2)
Net income—ex-FX(3)
$
$
$
$
$
$
$
$
7,283
—
7,283
4,763
—
4,763
615
—
615
1,255
—
1,255
$
$
$
$
$
$
$
$
6,838
111
6,949
4,587
75
4,662
619
9
628
1,079
17
1,096
$
$
$
$
$
$
$
$
7,014
(18)
6,996
4,579
(25)
4,554
630
(3)
627
1,196
8
1,204
7 %
5 %
4 %
2 %
(1)%
(2)%
16 %
(3)%
(1)%
— %
2 %
(2)%
— %
(10)%
15 %
(9)%
(1) Asia GCB includes the results of operations of GCB activities in certain EMEA countries for all periods presented.
(2) Reflects the impact of FX translation into U.S. dollars at the 2017 average exchange rates for all periods presented.
(3) Presentation of this metric excluding FX translation is a non-GAAP financial measure.
The discussion of the results of operations for Asia GCB below excludes the impact of FX translation for all periods presented.
Presentations of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. For a
reconciliation of certain of these metrics to the reported results, see the table above.
2017 vs. 2016
Net income increased 15%, reflecting higher revenues and
lower cost of credit, partially offset by higher expenses.
2016 vs. 2015
Net income decreased 9%, reflecting lower revenues and
higher expenses.
Revenues increased 5%, driven by improvement in cards
Revenues decreased 1%, reflecting lower retail banking
revenues, partially offset by higher cards revenues. Retail
banking revenues decreased 2%, mainly due to a 5% decrease
in wealth management revenues due to lower client activity,
modestly lower investment assets under management and a
decline in average loans. The decline in revenues was partially
offset by growth in deposit volumes and higher insurance
revenues. Cards revenues increased 1%, driven by continued
improvement in yields, modestly abating regulatory
headwinds and modest volume growth due to continued
stabilizing payment rates.
Expenses increased 2%, primarily due to higher
repositioning costs, higher regulatory and compliance costs
and increased investment spending, partially offset by
efficiency savings.
Provisions were largely unchanged as lower net loan loss
reserve releases were offset by lower net credit losses,
primarily in the commercial portfolio.
and wealth management revenues, partially offset by
continued lower retail lending revenues.
Retail banking revenues increased 3%, primarily due to
the continued improvement in wealth management revenues,
partially offset by the repositioning of the retail loan portfolio.
Wealth management revenues increased due to improvement
in investor sentiment, stronger equity markets and increases in
assets under management (18%) and investment sales (38%).
Average deposits increased 5%. The increase in revenues was
partially offset by the lower retail lending revenues (down
4%), reflecting continued lower average loans (1%) due to the
continued optimization of this portfolio away from lower
yielding mortgage loans to focus on growing higher-return
personal loans.
Cards revenues increased 8%, reflecting 5% growth in
average loans and 7% growth in purchase sales, both of which
benefited from the previously disclosed portfolio acquisition
in Australia in 2017, as well as modest gains in 2017 related to
sales of merchant acquiring businesses in certain countries.
Expenses increased 2%, resulting from volume growth
and ongoing investment spending, partially offset by
efficiency savings.
Provisions decreased 2%, primarily driven by a decrease
in net credit losses.
For additional information on Asia GCB’s retail banking
portfolios, including commercial banking, and its Citi-branded
cards portfolio, see “Credit Risk—Consumer Credit” below.
23
INSTITUTIONAL CLIENTS GROUP
Institutional Clients Group (ICG) includes Banking and Markets and securities services (for additional information on these
businesses, see “Citigroup Segments” above). ICG provides corporate, institutional, public sector and high-net-worth clients around
the world with a full range of wholesale banking products and services, including fixed income and equity sales and trading, foreign
exchange, prime brokerage, derivative services, equity and fixed income research, corporate lending, investment banking and advisory
services, private banking, cash management, trade finance and securities services. ICG transacts with clients in both cash instruments
and derivatives, including fixed income, foreign currency, equity and commodity products.
ICG revenue is generated primarily from fees and spreads associated with these activities. ICG 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 and Investment banking. Revenue is also generated from transaction
processing and assets under custody and administration. Revenue generated from these activities is primarily recorded in
Administration and other fiduciary fees. In addition, as a market maker, ICG 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 (for additional information on
Principal transactions revenue, see Note 6 to the Consolidated Financial Statements). Other primarily includes mark-to-market gains
and losses on certain credit derivatives, gains and losses on available-for-sale (AFS) securities and other non-recurring gains and
losses. Interest income earned on assets held, less interest paid to customers on deposits and long- and short-term debt, is recorded as
Net interest revenue.
The amount and types of Markets revenues are impacted by a variety of interrelated factors, including market liquidity; changes in
market variables such as interest rates, foreign exchange rates, equity prices, commodity prices and credit spreads, as well as their
implied volatilities; investor confidence; and other macroeconomic conditions. Assuming all other market conditions do not change,
increases in client activity levels or bid/offer spreads generally result in increases in revenues. However, changes in market conditions
can significantly impact client activity levels, bid/offer spreads and the fair value of product inventory. For example, a decrease in
market liquidity may increase bid/offer spreads, decrease client activity levels and widen credit spreads on product inventory
positions.
ICG’s management of the Markets businesses involves daily monitoring and evaluating of the above factors at the trading desk as
well as the country level. ICG does not separately track the impact on total Markets revenues of the volume of transactions, bid/offer
spreads, fair value changes of product inventory positions and economic hedges because, as noted above, these components are
interrelated and are not deemed useful or necessary individually to manage the Markets businesses at an aggregate level.
In the Markets businesses, client revenues are those revenues directly attributable to client transactions at the time of inception,
including commissions, interest or fees earned. Client revenues do not include the results of client facilitation activities (for example,
holding product inventory in anticipation of client demand) or the results of certain economic hedging activities.
ICG’s international presence is supported by trading floors in approximately 80 countries and a proprietary network in 98
countries and jurisdictions. At December 31, 2017, ICG had approximately $1.3 trillion of assets and $640 billion of deposits, while
two of its businesses—securities services and issuer services—managed approximately $17.4 trillion of assets under custody
compared to $15.2 trillion at the end of the prior-year period.
In millions of dollars, except as otherwise noted
2017
2016
2015
Commissions and fees
Administration and other fiduciary fees
Investment banking
Principal transactions
Other(1)
Total non-interest revenue
Net interest revenue (including dividends)
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision (release) for unfunded lending commitments
Provisions for credit losses
Income from continuing operations before taxes
Income taxes
Income from continuing operations
$
$
$
$
$
$
$
$
$
4,045
$
2,262
3,655
7,335
(164)
17,133
16,094
33,227
18,956
516
(64)
34
486
13,785
4,260
9,525
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,314
2,523
4,404
7,740
1,149
20,130
15,537
35,667
19,608
365
(221)
(159)
(15)
16,074
7,008
9,066
24
4,088
2,248
4,110
5,824
1,394
17,664
15,668
33,332
19,087
214
654
94
962
13,283
4,173
9,110
% Change
2017 vs. 2016
% Change
2016 vs. 2015
7 %
(1)%
12
20
6
NM
17 %
(3)
7 %
3 %
(29)%
NM
NM
NM
17 %
65
(5)%
1
(11)
26
NM
(3)%
3
— %
(1)%
NM
NM
(64)
(49)%
4 %
2
5 %
Noncontrolling interests
Net income
Average assets (in billions of dollars)
Return on average assets
Efficiency ratio
CVA/DVA after-tax
Net income ex-CVA/DVA(2)
Revenues by region
North America
EMEA
Latin America
Asia
Total
Income from continuing operations by region
North America
EMEA
Latin America
Asia
Total
Average loans by region (in billions of dollars)
North America
EMEA
Latin America
Asia
Total
EOP deposits by business (in billions of dollars)
Treasury and trade solutions
All other ICG businesses
Total
57
9,009
1,358
$
$
0.66%
55
58
9,467
1,298
$
$
0.73%
57
— $
— $
9,009
9,467
51
9,059
1,272
0.71%
57
172
8,887
(2)
(5)%
5 %
— %
(5)
14
5 %
2 %
(100)%
7
13,636
$
12,513
$
12,698
9 %
(1)%
10,692
4,216
7,123
35,667
2,449
2,804
1,513
2,300
9,066
151
69
34
62
316
432
208
640
$
$
$
$
$
$
$
9,855
3,977
6,882
33,227
3,495
2,365
1,454
2,211
9,525
145
66
35
57
303
412
200
612
$
$
$
$
$
$
$
9,788
3,944
6,902
33,332
3,316
2,230
1,351
2,213
9,110
130
62
37
59
288
394
195
589
8
6
4
1
1
—
7 %
— %
(30)%
5 %
19
4
4
6
8
—
(5)%
5 %
4 %
12 %
5
(3)
9
4 %
5 %
4
5 %
6
(5)
(3)
5 %
5 %
3
4 %
$
$
$
$
$
$
$
$
$
$
$
(1) 2017 includes the $580 million gain on the sale of a fixed income analytics business. 2016 includes a charge of approximately $180 million, primarily reflecting
the write-down of Citi’s net investment in Venezuela as a result of changes in the exchange rate.
(2) Excludes CVA/DVA in 2015, consistent with current presentation. For additional information, see Notes 1 and 24 to the Consolidated Financial Statements.
NM Not meaningful
25
ICG Revenue Details—Excluding CVA/DVA and Gains (Losses) on Loan Hedges
In millions of dollars
Investment banking revenue details
Advisory
Equity underwriting
Debt underwriting
Total investment banking
Treasury and trade solutions
Corporate lending—excluding gains (losses) on loan hedges(1)
Private bank
Total banking revenues (ex-CVA/DVA and gains (losses) on
loan hedges)(2)
Corporate lending—gains (losses) on loan hedges(1)
Total banking revenues (ex-CVA/DVA and including gains
(losses) on loan hedges)(2)
Fixed income markets
Equity markets
Securities services
Other(3)
Total Markets and securities services (ex-CVA/DVA)(2)
Total ICG (ex-CVA/DVA)
CVA/DVA (excluded as applicable in lines above)
Fixed income markets
Equity markets
Private bank
Total revenues, net of interest expense
Commissions and fees
Principal transactions(4)
Other
Total non-interest revenue
Net interest revenue
Total fixed income markets (ex-CVA/DVA)(2)
Rates and currencies
Spread products / other fixed income
Total fixed income markets (ex-CVA/DVA)(2)
Commissions and fees
Principal transactions(4)
Other
Total non-interest revenue
Net interest revenue
Total equity markets (ex-CVA/DVA)(2)
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,108 $
1,000 $
1,053
3,011
628
2,674
5,172 $
4,302 $
8,473
1,922
3,088
7,897
1,718
2,709
18,655 $
16,626 $
(133) $
(594) $
18,522 $
12,127 $
16,032 $
12,853 $
2,747
2,329
(58)
2,812
2,152
(622)
17,145 $
35,667 $
17,195 $
33,227 $
—
—
—
—
—
—
—
—
1,093
906
2,558
4,557
7,482
1,827
2,582
16,448
324
16,772
11,277
3,101
2,114
(201)
16,291
33,063
269
220
47
2
35,667 $
33,227 $
33,332
625 $
474 $
6,826
590
8,041 $
4,086
12,127 $
8,783 $
3,344
12,127 $
1,234 $
382
4
1,620 $
1,127
2,747 $
6,538
591
7,603 $
5,250
12,853 $
9,289 $
3,564
12,853 $
1,300 $
134
139
1,573 $
1,239
2,812 $
467
5,374
330
6,171
5,106
11,277
7,616
3,661
11,277
1,338
270
54
1,662
1,439
3,101
11 %
68
13
20 %
7
12
14
12 %
78 %
16 %
(6)%
(2)
8
91
— %
7 %
NM
NM
NM
NM
7 %
32 %
4
—
6 %
(22)
(6)%
(5)%
(6)
(6)%
(5)%
NM
(97)
3 %
(9)
(2)%
(9)%
(31)
5
(6)%
6
(6)
5
1 %
NM
(4)%
14 %
(9)
2
NM
6 %
— %
NM
NM
NM
NM
— %
1 %
22
79
23 %
3
14 %
22 %
(3)
14 %
(3)%
(50)
NM
(5)%
(14)
(9)%
(1) Credit derivatives are used to economically hedge a portion of the corporate loan portfolio that includes both accrual loans and loans at fair value. Gains (losses)
on loan hedges includes the mark-to-market on the credit derivatives and the mark-to-market on the loans in the portfolio that are at fair value. The fixed premium
costs of these hedges are netted against the corporate lending revenues to reflect the cost of credit protection. Citigroup’s results of operations excluding the
impact of gains (losses) on loan hedges are non-GAAP financial measures.
(2) Excludes CVA/DVA in 2015, consistent with current presentation. For additional information, see Notes 1 and 24 to the Consolidated Financial Statements.
(3) 2017 includes the $580 million gain on the sale of a fixed income analytics business. 2016 includes a charge of approximately $180 million, primarily reflecting
the write-down of Citi’s net investment in Venezuela as a result of changes in the exchange rate.
(4) Excludes principal transactions revenues of ICG businesses other than Markets, primarily treasury and trade solutions and the private bank.
NM Not meaningful
26
The discussion of the results of operations for ICG below excludes the impact of CVA/DVA for 2015. Presentations of the results of
operations, excluding the impact of CVA/DVA and the impact of gains (losses) on hedges of accrual loans, are non-GAAP financial
measures. For a reconciliation of these metrics to the reported results, see the table above.
2017 vs. 2016
Net income decreased 5% and was impacted by an estimated
$2.0 billion non-cash charge recorded in the tax line due to the
impact of Tax Reform (for additional information, see “Impact
of Tax Reform” above). Excluding the impact of Tax Reform,
net income increased 16%, primarily driven by higher
revenues and lower cost of credit, partially offset by higher
expenses.
• Revenues increased 7%, reflecting a 16% increase in
Banking (including the losses on loan hedges). Excluding
the impact of the losses on loan hedges, Banking revenues
increased 12%, driven by solid growth across all products.
Markets and securities services were largely unchanged,
as growth in securities services revenues (increase of 8%)
as well as the $580 million gain on the sale of a fixed
income analytics business were offset by a 6% decrease in
fixed income markets and a 2% decrease in equity
markets revenues.
Within Banking:
•
•
Investment banking revenues increased 20%, largely
reflecting gains in wallet share across products and
regions as well as an improvement from the industry-wide
slowdown in activity levels during the first half of 2016,
particularly in equity underwriting and advisory. Advisory
revenues increased 11%, driven by North America and
EMEA, reflecting wallet share gains and the increased
market activity. Equity underwriting revenues increased
68%, driven by strength in North America and EMEA, due
to significant wallet share gains as well as the increase in
overall market activity. Debt underwriting revenues
increased 13%, reflecting strength across regions,
primarily driven by wallet share gains.
Treasury and trade solutions revenues increased 7%,
reflecting growth across all regions that was balanced
across both net interest and fee income. The increase was
primarily due to continued growth in transaction volumes
with new and existing clients, continued growth in deposit
balances and improved spreads in certain regions. The
trade business experienced modest revenue growth, as
continued focus on high-quality loan growth was largely
offset by industry-wide tightening of spreads. Average
deposit balances increased 4%, while average trade loans
increased 5% (4% excluding the impact of FX
translation).
• Corporate lending revenues increased 59%. Excluding
the impact of losses on loans hedges, revenues increased
12%, driven by lower hedging costs and the absence of a
prior-year adjustment to the residual value of a lease
financing transaction.
• Private bank revenues increased 14%, reflecting strength
across all regions and products. The increase in revenues
was primarily due to higher loan and deposit volumes,
27
higher deposit spreads and increased managed
investments and capital markets activity.
Within Markets and securities services:
• Fixed income markets revenues decreased 6%, with lower
revenues in all regions, primarily due to low volatility as
well as the comparison to higher revenues in the prior
year from a more robust trading environment following
the vote in the U.K. in favor of its withdrawal from the
European Union, as well as the U.S. election. The decline
in revenues was driven by lower net interest revenue
(decreased 22%), largely due to higher funding costs and
a change in the mix of trading positions in support of
client activity. The decline was partially offset by higher
principal transactions revenues and commissions and fees
revenues.
Rates and currencies revenues decreased 5%, driven
by lower G10 rates and currencies revenues. Despite the
challenging trading environment, corporate client
revenues in rates and currencies across the global network
remained strong. Spread products and other fixed income
revenues decreased 6%, due to a difficult trading
environment in the current year given low volatility,
driving lower credit markets and commodities revenues,
particularly in North America, partially offset by higher
municipals revenues, as well as higher securitized markets
revenues.
• Equity markets revenues decreased 2%. Excluding an
episodic loss in derivatives of approximately $130 million
in the fourth quarter of 2017 related to a single client
event, revenues increased 2%, as continued growth in
prime finance and delta one client balances and higher
investor client activity (particularly in EMEA and Asia)
were partially offset by lower episodic activity with
corporate clients in North America. Excluding the
episodic loss in derivatives, equity derivatives revenues
increased, driven by the stronger investor client activity.
Cash equities revenues were modestly higher as well,
driven by higher revenues in Asia, partially offset by
lower cash commissions, as clients continued to move
toward automated execution platforms across the industry.
Securities services revenues increased 8%. Excluding the
impact of the prior year’s divestiture of a private equity
fund services business, revenues increased 12%,
reflecting strength in all regions, driven by growth in
client volumes and higher interest revenue due to a more
favorable rate environment.
•
Expenses increased 3%, as higher compensation, volume-
related expenses and investments were partially offset by
efficiency savings.
Provisions improved $501 million, driven by a net loan
loss release of $380 million (compared to a net release of $30
million in the prior year) and a 29% decline in net credit
Within Markets and securities services:
• Fixed income markets revenues increased 14%, with
higher revenues in all regions, largely driven by both
higher principal transactions revenues (up 22%) and other
revenues (up 79%). The increase in principal transactions
revenues was primarily due to higher rates and currencies
revenues and higher spread products revenues. Other
revenues increased mainly due to foreign currency losses
in 2015. Rates and currencies revenues grew 22%,
primarily due to the more favorable trading environment
and higher client revenues following the vote in the U.K.
and the U.S. election. Spread products and other fixed
income revenues decreased 3%, due to lower securitized
products revenues, driven by the impact of significantly
lower liquidity in the market in the first quarter of 2016.
• Equity markets revenues declined 9%. Equity derivatives
and prime finance revenues declined 13%, reflecting both
a challenging trading environment across all regions
driven by lower volatility compared to 2015, and a
comparison to a more favorable trading environment in
2015 in Asia. The decline in equity markets revenue was
also due to lower equity cash commissions driven by a
continued shift to electronic trading and passive investing
by clients across the industry.
Securities services revenues increased 2%. Excluding the
impact of FX translation, revenues increased 5%, driven
by EMEA, primarily reflecting increased client activity, a
modest gain on the sale of a private equity fund services
business in the first quarter of 2016, higher deposit
volumes and improved spreads. The increase in revenues
was partially offset by the absence of revenues from
divestitures. Excluding the impact of FX translation and
divestitures, revenues increased 6%.
•
Expenses decreased 1% as a benefit from FX translation
and efficiency savings were partially offset by higher
compensation expense and higher repositioning charges.
Provisions decreased 49%, driven by a net loan loss
reserve release of $30 million (compared to a net build of
$748 million in the prior year). The significant decline in loan
loss reserve builds was related to energy and energy-related
exposures and was driven by stabilization of commodities as
oil prices continued to recover from lows in early 2016. The
decline in cost of credit was partially offset by higher net
credit losses of $516 million (compared to $214 million in the
prior year) mostly related to the energy and energy-related
exposures, with a vast majority offset by the release of
previously established loan loss reserves.
losses. The increase in net loan loss reserve releases was
driven by an improvement in the provision for unfunded
lending commitments in the corporate loan portfolio, as well
as a favorable credit environment, stability in commodity
prices and continued improvement in the portfolio. The
decline in net credit losses was largely driven by improvement
in the energy sector, partially offset by the impact of the single
client event in the fourth quarter noted above.
2016 vs. 2015
Net income increased 5%, primarily driven by lower expenses
and lower cost of credit.
• Revenues were largely unchanged, reflecting higher
revenues in Markets and securities services (increase of
6%), driven by fixed income markets, offset by lower
revenues in Banking (decrease of 4% including the gains
(losses) on loan hedges). Excluding the impact of the
gains (losses) on loan hedges, Banking revenues increased
1%, driven by treasury and trade solutions and the private
bank.
Within Banking:
•
•
Investment banking revenues decreased 6%, largely
reflecting the overall industry-wide slowdown in activity
levels in equity underwriting and advisory during the first
half of 2016. Advisory revenues decreased 9%, reflecting
strong performance in 2015. Equity underwriting
revenues decreased 31%, primarily reflecting the lower
market activity. Debt underwriting revenues increased
5%, primarily due to higher market activity reflecting a
favorable interest rate environment.
Treasury and trade solutions revenues increased 6%.
Excluding the impact of FX translation, revenues
increased 8%, reflecting growth across most regions. The
increase was primarily due to continued growth in
transaction volumes and deposit balances and improved
spreads in certain regions. Trade revenues increased
modestly due to loan growth as well as spread
improvements. End-of-period deposit balances increased
5% (6% excluding the impact of FX translation), while
average trade loans decreased 2% (1% excluding the
impact of FX translation).
• Corporate lending revenues decreased 48%. Excluding
the impact of gains (losses) on loan hedges, revenues
decreased 6%. Excluding the impact of gains (losses) on
loan hedges and FX translation, revenues decreased 1%,
mostly reflecting the adjustment to the residual value of a
lease financing transaction, spread compression and
higher hedging costs, partially offset by higher average
loans.
• Private bank revenues increased 5%, reflecting growth in
loan volumes and improved deposit spreads, partially
offset by lower capital markets activity and lower
managed investments revenues.
28
CORPORATE/OTHER
Corporate/Other includes certain unallocated costs of global staff functions (including finance, risk, human resources, legal and
compliance), other corporate expenses and unallocated global operations and technology expenses, Corporate Treasury, certain North
America and international legacy consumer loan portfolios, other legacy assets and discontinued operations (for additional information
on Corporate/Other, see “Citigroup Segments” above). At December 31, 2017, Corporate/Other had $77 billion in assets, a decrease
of 25% year-over-year and 23% from September 30, 2017. The decrease in assets included an approximate $20 billion decline in
DTAs during the fourth quarter of 2017 due to the impact of Tax Reform.
In millions of dollars
Net interest revenue
Non-interest revenue
Total revenues, net of interest expense
Total operating expenses
Net credit losses
Credit reserve build (release)
Provision (release) for unfunded lending commitments
Provision for benefits and claims
Provisions for loan losses and for benefits and claims
Income (loss) from continuing operations before taxes
Income taxes (benefits)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes
Net income (loss) before attribution of noncontrolling
interests
Noncontrolling interests
Net income (loss)
NM Not meaningful
2017
2016
2015
% Change
2017 vs. 2016
% Change
2016 vs. 2015
$
$
$
$
$
$
$
$
1,963 $
1,122
3,085 $
3,786 $
149
(317)
—
(7)
(175) $
(526) $
19,060
(19,586) $
(111)
(19,697) $
(6)
(19,691) $
2,985 $
2,144
5,129 $
4,977 $
435
(456)
(8)
98
69 $
83 $
(471)
554 $
(58)
496 $
(2)
498 $
5,210
5,561
10,771
7,329
1,336
(453)
(24)
623
1,482
1,960
(102)
2,062
(54)
2,008
29
1,979
(34)%
(48)
(40)%
(24)%
(66)%
30 %
100 %
NM
NM
NM
NM
NM
(91)%
NM
NM
NM
(43)%
(61)
(52)%
(32)%
(67)%
(1)%
67 %
(84)%
(95)%
(96)%
NM
(73)%
(7)
(75)%
NM
(75)%
2017 vs. 2016
The net loss was $19.7 billion in 2017, compared to net
income of $498 million in the prior year, primarily driven by
the estimated $19.8 billion non-cash charge recorded in the tax
line due to the impact of Tax Reform (for additional
information, see “Impact of Tax Reform” above). Excluding
the impact of Tax Reform, net income declined 69% to $153
million, reflecting lower revenues, partially offset by lower
expenses and lower cost of credit.
Revenues declined 40%, primarily reflecting the
continued wind-down of legacy assets and the absence of
gains related to debt buybacks in 2016. Revenues included
approximately $750 million in gains on asset sales in the first
quarter of 2017, which more than offset a roughly $300
million charge related to the exit of Citi’s U.S. mortgage
servicing operations in the quarter.
Expenses declined 24%, reflecting the wind-down of
legacy assets and lower legal expenses, partially offset by
approximately $100 million in episodic expenses primarily
related to the exit of the U.S. mortgage servicing operations.
Also included in expenses is an approximately $255 million
provision for remediation costs related to a CARD Act matter
(for additional information, see “North America GCB” above
and Note 27 to the Consolidated Financial Statements). Citi
believes the aggregate approximately $335 million provision
(including the $80 million provision in North America GCB)
to be sufficient for Citi’s planned remediation.
29
Provisions decreased $244 million to a net benefit of
$175 million, primarily due to lower net credit losses and a
lower provision for benefits and claims, partially offset by a
lower net loan loss reserve release. Net credit losses declined
66% to $149 million, primarily reflecting the impact of
ongoing divestiture activity and the continued wind-down of
the North America mortgage portfolio. The provision for
benefits and claims declined by $105 million, primarily due to
lower insurance activity. The net reserve release declined by
$147 million to $317 million, and reflected the continued
wind-down of the legacy North America mortgage portfolio
and divestitures.
2016 vs. 2015
Net income was $498 million, compared to net income of $2.0
billion in 2015, primarily reflecting lower revenues and a
higher effective tax rate in 2016 due to the absence of certain
tax benefits in 2015.
Revenues decreased 52%, primarily driven by the overall
wind-down of legacy assets and lower net gains on sales,
particularly the sales of OneMain Financial and the retail
banking and credit cards businesses in Japan in the fourth
quarter of 2015.
Expenses decreased 32%, reflecting the sales and run-off
of assets, lower legal and related expenses and lower
repositioning costs.
Provisions decreased 95% due to lower net credit losses
and a lower provision for benefits and claims (decrease of
84%) due to lower insurance activity. Net credit losses
declined 67%, primarily due to the impact of divestitures and
continued credit improvements in North America mortgages.
Payment Protection Insurance (PPI)
The selling of PPI by financial institutions in the U.K. has
been the subject of intense review and focus by U.K.
regulators and the U.K. Supreme Court.
PPI is designed to cover a customer’s loan repayments if
certain events occur, such as long-term illness or
unemployment. The U.K. Financial Conduct Authority (FCA)
found certain problems across the industry with how these
products were sold, including customers not realizing that the
cost of PPI premiums was being added to their loan or PPI
being unsuitable for the customer. Redress generally involves
the repayment of premiums and the refund of all applicable
contractual interest, together with compensatory interest of
8%.
In addition, during the fourth quarter of 2014, the U.K.
Supreme Court issued a ruling in a case (Plevin) involving PPI
pursuant to which the court ruled, independent of the sale of
the PPI contract, that the PPI contract at issue in the case was
“unfair” due to the high sales commissions earned and the lack
of disclosure to the customer thereof.
In addition, the FCA released a policy statement related to
PPI that (i) set a deadline of August 29, 2019 by which
consumers must file PPI claims, (ii) provides for the launch of
FCA-led marketing campaigns to inform consumers of this
deadline, (iii) set new rules and guidance for the handling of
PPI complaints in light of the Supreme Court’s decision on
Plevin and (iv) requires all firms to contact all previously
rejected customers who may be able to complain under the
new “Plevin” rule (the Plevin Customer Contact
Exercise). Citi completed the Plevin Customer Contact
Exercise during the fourth quarter of 2017. The FCA-led
marketing campaigns began in August 2017 and will continue
through the August 2019 deadline. The level of PPI claims
also continues to be influenced by the solicitation activity of
Claims Management Companies (CMCs).
During 2017, Citi increased its PPI reserves by
approximately $109 million (with $105 million recorded in
Corporate/Other and $4 million recorded in Discontinued
operations). The increase for full-year 2017 compared to an
increase of $134 million during 2016 and was primarily due to
the ongoing level of PPI claims.
Citi’s year-end 2017 PPI reserve was $213 million,
compared to $228 million as of December 31, 2016.
Additional reserving actions, if any, in 2018 will largely
depend on the level of customer claims in response to the
FCA-led marketing campaigns and the level of ongoing CMC
activity.
30
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:
•
•
•
•
purchasing or retaining residual and other interests in
unconsolidated special purpose entities, such as
mortgage-backed and other asset-backed securitization
entities;
holding senior and subordinated debt, interests in limited
and general partnerships and equity interests in other
unconsolidated special purpose entities;
providing guarantees, indemnifications, loan
commitments, letters of credit and representations and
warranties; and
entering into operating leases for property and equipment.
Citi enters into these arrangements for a variety of
business purposes. For example, securitization arrangements
offer investors access to specific cash flows and risks created
through the securitization process. Securitization arrangements
also assist Citi and its customers in monetizing their financial
assets and securing financing at more favorable rates than Citi
or the customers could otherwise obtain.
The table below shows where a discussion of Citi’s
various off-balance sheet arrangements may be found in this
Form 10-K. In addition, see Note 1 to the Consolidated
Financial Statements.
Types of Off-Balance Sheet Arrangements Disclosures in
this Form 10-K
Variable interests and other
obligations, including
contingent obligations,
arising from variable
interests in nonconsolidated
VIEs
Letters of credit, and lending
and other commitments
Guarantees
Leases
See Note 21 to the Consolidated
Financial Statements.
See Note 26 to the Consolidated
Financial Statements.
See Note 26 to the Consolidated
Financial Statements.
See Note 26 to the Consolidated
Financial Statements.
31
CONTRACTUAL OBLIGATIONS
The following table includes information on Citigroup’s contractual obligations, as specified and aggregated pursuant to SEC
requirements:
In millions of dollars
Long-term debt obligations—principal(1)
Long-term debt obligations—interest payments(2)
Operating and capital lease obligations
Purchase obligations(3)
Other liabilities(4)
Total
Contractual obligations by year
2018
2019
2020
2021
2022
Thereafter
Total
$ 53,478 $ 36,289 $ 23,188 $ 21,019 $ 12,364 $
90,371 $ 236,709
7,496
5,894
4,832
4,043
3,447
33,955
59,667
968
407
34,180
837
347
498
676
358
93
568
318
87
469
316
80
2,593
1,147
1,794
6,111
2,893
36,732
$ 96,529 $ 43,865 $ 29,147 $ 26,035 $ 16,676 $
129,860 $ 342,112
(1) For additional information about long-term debt obligations, see “Liquidity Risk—Long-Term Debt” below and Note 17 to the Consolidated Financial Statements.
(2) Contractual obligations related to interest payments on long-term debt for 2018–2022 are calculated by applying the December 31, 2017 weighted-average interest
rate (3.57%) on average outstanding long-term debt to the average remaining contractual obligations on long-term debt for each of those years. The “Thereafter”
interest payments on long-term debt for the remaining years to maturity (2023–2098) are calculated by applying current interest rates on the remaining contractual
obligations on long-term debt for each of those years.
(3) Purchase obligations consist of obligations to purchase goods or services that are enforceable and legally binding on Citi. For presentation purposes, purchase
obligations are included in the table above through the termination date of the respective agreements, even if the contract is renewable. Many of the purchase
agreements for goods or services include clauses that would allow Citi to cancel the agreement with specified notice, however, that impact is not included in the
table above (unless Citi has already notified the counterparty of its intention to terminate the agreement).
(4) Other liabilities reflected on Citigroup’s Consolidated Balance Sheet includes accounts payable, accrued expenses, uncertain tax positions and other liabilities that
have been incurred and will ultimately be paid in cash; legal reserve accruals are not included in the table above. Also includes discretionary contributions in 2018
for Citi’s employee-defined benefit obligations for the pension, postretirement and post employment plans and defined contribution plans.
32
Risk-Based Capital Ratios
The U.S. Basel III rules set forth the composition of regulatory
capital (including the application of regulatory capital
adjustments and deductions), as well as two comprehensive
methodologies (a Standardized Approach and Advanced
Approaches) for measuring total risk-weighted assets. Total
risk-weighted assets under the Advanced Approaches, which
are primarily models based, include credit, market, and
operational risk-weighted assets. Conversely, the Standardized
Approach excludes operational risk-weighted assets and
generally applies prescribed supervisory risk weights to broad
categories of credit risk exposures. As a result, credit risk-
weighted assets calculated under the Advanced Approaches
are more risk sensitive than those calculated under the
Standardized Approach. Market risk-weighted assets are
derived on a generally consistent basis under both approaches.
The U.S. Basel III rules establish stated minimum
Common Equity Tier 1 Capital, Tier 1 Capital and Total
Capital ratios for substantially all U.S. banking organizations,
including Citi and Citibank, N.A. (Citibank). Moreover, these
rules provide for both a fixed Capital Conservation Buffer and,
for Advanced Approaches banking organizations, such as Citi
and Citibank, also a discretionary Countercyclical Capital
Buffer. These capital buffers would be available to absorb
losses in advance of any potential impairment of regulatory
capital below the stated minimum risk-based capital ratio
requirements. In December 2017, the Federal Reserve Board
voted to affirm the Countercyclical Capital Buffer amount at
the current level of 0%.
Further, the U.S. Basel III rules implement the “capital
floor provision” of the so-called “Collins Amendment” of the
Dodd-Frank Act, which requires Advanced Approaches
banking organizations to calculate each of the three risk-based
capital ratios (Common Equity Tier 1 Capital, Tier 1 Capital,
and Total Capital) under both the U.S. Basel III Standardized
Approach and the Advanced Approaches and publicly report
(as well as measure compliance against) the lower of each of
the resulting risk-based capital ratios.
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, noncumulative perpetual
preferred stock and equity issued through awards under
employee benefit plans, among other issuances. Further, Citi’s
capital levels may also be affected by changes in accounting
and regulatory standards, as well as U.S. corporate tax laws
and the impact of future events on Citi’s business results, such
as changes in interest and foreign exchange rates, as well as
business and asset dispositions.
During 2017, Citi returned a total of $17.1 billion of
capital to common shareholders in the form of share
repurchases (approximately 214 million common shares) and
dividends.
Capital Management
Citi’s capital management framework is designed to ensure
that Citigroup and its principal subsidiaries maintain sufficient
capital consistent with each entity’s respective risk profile,
management targets and all applicable regulatory standards
and guidelines. Citi assesses its capital adequacy against a
series of internal quantitative capital goals, designed to
evaluate the Company’s capital levels in expected and stressed
economic environments. Underlying these internal
quantitative capital goals are strategic capital considerations,
centered on preserving and building financial strength. The
Citigroup Capital Committee, with oversight from the Risk
Management Committee of Citigroup’s Board of Directors,
has responsibility for Citi’s aggregate capital structure,
including the capital assessment and planning process, which
is integrated into Citi’s capital plan. Balance sheet
management, including oversight of capital adequacy, for
Citigroup’s subsidiaries is governed by each entity’s Asset and
Liability Committee, where applicable. For additional
information regarding Citi’s capital planning and stress testing
exercises, see “Stress Testing—Component of Capital
Planning” below.
Current Regulatory Capital Standards
Citi is subject to regulatory capital standards issued by the
Federal Reserve Board, which constitute the U.S. Basel III
rules. These rules establish an integrated capital adequacy
framework, encompassing both risk-based capital ratios and
leverage ratios.
33
The following table sets forth Citi’s GSIB surcharge as
derived under method 1 and method 2 for 2017 and 2016.
Method 1
Method 2
2017
2016
2.0%
3.0
2.0%
3.5
Citi’s GSIB surcharge effective for 2017 and 2016 was
3.0% and 3.5%, respectively, as derived under the higher
method 2 result. Citi’s GSIB surcharge effective for 2018 will
remain unchanged at 3.0%, as derived under the higher
method 2 result. Citi expects that its method 2 GSIB surcharge
will continue to remain higher than its method 1 GSIB
surcharge, and as such Citi’s GSIB surcharge effective for
2019 will not exceed 3.0%, and Citi’s GSIB surcharge
effective for 2020 is not expected to exceed 3.0%.
Transition Provisions
The U.S. Basel III rules contain several differing, largely
multi-year transition provisions (i.e., “phase-ins” and “phase-
outs”), including with respect to substantially all regulatory
capital adjustments and deductions, and non-qualifying Tier 1
and Tier 2 Capital instruments (such as non-grandfathered
trust preferred securities and certain subordinated debt
issuances). Moreover, the GSIB surcharge, Capital
Conservation Buffer, and any Countercyclical Capital Buffer
(currently 0%), commenced phase-in on January 1, 2016,
becoming fully effective on January 1, 2019. With the
exception of the non-grandfathered trust preferred securities,
which do not fully phase-out until January 1, 2022, and the
capital buffers and GSIB surcharge, which do not fully phase-
in until January 1, 2019, all other transition provisions will be
entirely reflected in Citi’s regulatory capital ratios by January
1, 2018. Citi considers all of these transition provisions as
being fully implemented on January 1, 2019 (full
implementation), with the inclusion of the capital buffers and
GSIB surcharge.
The following chart sets forth the transitional progression
from January 1, 2016 to full implementation by January 1,
2019 of the regulatory capital components (i.e., inclusive of
the mandatory 2.5% Capital Conservation Buffer and the
Countercyclical Capital Buffer at its current level of 0%, as
well as an estimated 3.0% GSIB surcharge) comprising the
effective minimum risk-based capital ratios.
GSIB Surcharge
The Federal Reserve Board imposes a risk-based capital
surcharge upon U.S. bank holding companies that are
identified as global systemically important bank holding
companies (GSIBs), including Citi. The GSIB surcharge
augments the Capital Conservation Buffer and, if invoked, any
Countercyclical Capital Buffer, and would result in restrictions
on earnings distributions (e.g., dividends, equity repurchases,
and discretionary executive bonuses) should the expanded
buffer be breached to absorb losses during periods of financial
or economic stress, with the degree of such restrictions based
upon the extent to which the expanded buffer is breached.
Under the Federal Reserve Board’s rule, identification of
a GSIB is based primarily on quantitative measurement
indicators underlying five equally weighted broad categories
of systemic importance: (i) size, (ii) interconnectedness, (iii)
cross-jurisdictional activity, (iv) substitutability, and (v)
complexity. With the exception of size, each of the other
categories are composed of multiple indicators also of equal
weight, and amounting to 12 indicators in total.
A U.S. bank holding company that is designated a GSIB
under the established methodology is required, on an annual
basis, to calculate a surcharge using two methods and will be
subject to the higher of the resulting two surcharges. The first
method (“method 1”) is based on the same five broad
categories of systemic importance used to identify a GSIB.
Under the second method (“method 2”), the substitutability
category is replaced with a quantitative measure intended to
assess the extent of a GSIB’s reliance on short-term wholesale
funding. Moreover, method 1 incorporates relative measures
of systemic importance across certain global banking
organizations and a year-end spot foreign exchange rate,
whereas method 2 uses fixed measures of systemic importance
and application of an average foreign exchange rate over a
three-year period. Effective for 2017 and thereafter, the GSIB
surcharges calculated under both method 1 and method 2 are
based on measures of systemic importance from the year
immediately preceding that in which the GSIB surcharge
calculations are being performed (e.g., the method 1 and
method 2 GSIB surcharges to be calculated by December 31,
2017 will be based on 2016 systemic indicator data).
Generally, the surcharge derived under method 2 will result in
a higher surcharge than derived under method 1.
Should a GSIB’s systemic importance change year-over-
year such that it becomes subject to a higher surcharge, the
higher surcharge would not become effective for a full year
(e.g., a higher surcharge calculated by December 31, 2018
would not become effective until January 1, 2020). However,
if a GSIB’s systemic importance changes such that the GSIB
would be subject to a lower surcharge, the GSIB would be
subject to the lower surcharge beginning with the next
calendar year (e.g., a lower surcharge calculated by December
31, 2018 would become effective January 1, 2019).
34
Basel III Transition Arrangements: Minimum Risk-Based Capital Ratios
The following chart presents the transition arrangements (phase-in and phase-out) from January 1, 2016 through January 1, 2018
under the U.S. Basel III rules for significant regulatory capital adjustments and deductions relative to Citi.
Basel III Transition Arrangements: Significant Regulatory Capital Adjustments and Deductions
January 1,
2016
2017
2018
60 % 80 % 100 %
60 % 80 % 100 %
40 % 20 %
0 %
100 % 100 % 100 %
40 % 20 %
0 %
Phase-in of Significant Regulatory Capital Adjustments and Deductions
Common Equity Tier 1 Capital(1)
Common Equity Tier 1 Capital(2)
Additional Tier 1 Capital(2)
Phase-out of Significant AOCI Regulatory Capital Adjustments
Common Equity Tier 1 Capital(3)
(1)
Includes the phase-in of Common Equity Tier 1 Capital deductions for all intangible assets other than goodwill and mortgage servicing rights (MSRs); and excess
over 10%/15% limitations for deferred tax assets (DTAs) arising from temporary differences, significant common stock investments in unconsolidated financial
institutions and MSRs. Goodwill (including goodwill “embedded” in the valuation of significant common stock investments in unconsolidated financial
institutions) is fully deducted in arriving at Common Equity Tier 1 Capital. The amount of all other intangible assets, aside from MSRs, not deducted in arriving at
Common Equity Tier 1 Capital are risk-weighted at 100%, as are the excess over the 10%/15% limitations for DTAs arising from temporary differences,
significant common stock investments in unconsolidated financial institutions and MSRs through December 31, 2017. Commencing January 1, 2018, the amount
of temporary difference DTAs, significant common stock investments in unconsolidated financial institutions and MSRs not deducted in arriving at Common
Equity Tier 1 Capital are risk-weighted at 250%.
Includes the phase-in of the Common Equity Tier 1 Capital and Additional Tier 1 Capital adjustment for cumulative unrealized net gains (losses) related to
changes in fair value of financial liabilities attributable to Citi’s own creditworthiness; and the phase-in of Common Equity Tier 1 Capital and Additional Tier 1
Capital deductions related to DTAs arising from net operating loss, foreign tax credit and general business credit carry-forwards and defined benefit pension plan
net assets;
Includes the phase-out from Common Equity Tier 1 Capital of adjustments related to net unrealized gains (losses) on available-for-sale (AFS) debt securities;
unrealized gains on AFS equity securities; net unrealized gains (losses) on held-to-maturity (HTM) securities included in Accumulated other comprehensive
income (loss) (AOCI); and defined benefit plans liability adjustment.
(2)
(3)
35
Tier 1 Leverage Ratio
Under the U.S. Basel III rules, Citi, as with principally all U.S.
banking organizations, is also required to maintain a minimum
Tier 1 Leverage ratio of 4.0%. The Tier 1 Leverage ratio, a
non-risk-based measure of capital adequacy, is defined as Tier
1 Capital as a percentage of quarterly adjusted average total
assets less amounts deducted from Tier 1 Capital.
Supplementary Leverage Ratio
Advanced Approaches banking organizations are additionally
required to calculate a Supplementary Leverage ratio, which
significantly differs from the Tier 1 Leverage ratio by also
including certain off-balance sheet exposures within the
denominator of the ratio (Total Leverage Exposure). The
Supplementary Leverage ratio represents end of period Tier 1
Capital to Total Leverage Exposure, with the latter defined as
the sum of the daily average of on-balance sheet assets for the
quarter and the average of certain off-balance sheet exposures
calculated as of the last day of each month in the quarter, less
applicable Tier 1 Capital deductions. Effective January 1,
2018, Advanced Approaches banking organizations are
required to maintain a stated minimum Supplementary
Leverage ratio of 3.0%.
Further, U.S. GSIBs, and their subsidiary insured
depository institutions, including Citi and Citibank, are subject
to enhanced Supplementary Leverage ratio standards. The
enhanced Supplementary Leverage ratio standards establish a
2.0% leverage buffer for U.S. GSIBs in addition to the stated
3.0% minimum Supplementary Leverage ratio requirement in
the U.S. Basel III rules. If a U.S. GSIB fails to exceed the
2.0% leverage buffer, it will be subject to increasingly onerous
restrictions (depending upon the extent of the shortfall)
regarding capital distributions and discretionary executive
bonus payments. Accordingly, U.S. GSIBs are effectively
subject to a 5.0% minimum Supplementary Leverage ratio
requirement. Citi is required to be compliant with this higher
effective minimum ratio requirement on January 1, 2018.
Prompt Corrective Action Framework
The U.S. Basel III rules revised the Prompt Corrective Action
(PCA) regulations applicable to insured depository institutions
in certain respects.
In general, the PCA regulations direct the U.S. banking
agencies to enforce increasingly strict limitations on the
activities of insured depository institutions that fail to meet
certain regulatory capital thresholds. The PCA framework
contains five categories of capital adequacy as measured by
risk-based capital and leverage ratios: (i) “well capitalized,”
(ii) “adequately capitalized,” (iii) undercapitalized,” (iv)
“significantly undercapitalized,” and (v) “critically
undercapitalized.”
Accordingly, an insured depository institution, such as
Citibank, must maintain minimum Common Equity Tier 1
Capital, Tier 1 Capital, Total Capital, and Tier 1 Leverage
ratios of 6.5%, 8.0%, 10.0% and 5.0%, respectively, to be
considered “well capitalized.” Additionally, insured depository
institution subsidiaries of U.S. GSIBs, such as Citibank, must
maintain a minimum Supplementary Leverage ratio of 6.0%,
effective January 1, 2018, to be considered “well capitalized.”
36
Stress Testing Component of Capital Planning
Citi is subject to an annual assessment by the Federal Reserve
Board as to whether Citigroup has effective capital planning
processes as well as sufficient regulatory capital to absorb
losses during stressful economic and financial conditions,
while also meeting obligations to creditors and counterparties
and continuing to serve as a credit intermediary. This annual
assessment includes two related programs:
• The Comprehensive Capital Analysis and Review
(CCAR) evaluates Citi’s capital adequacy, capital
adequacy process, and its planned capital distributions,
such as dividend payments and common stock
repurchases. As part of CCAR, the Federal Reserve Board
assesses whether Citi has sufficient capital to continue
operations throughout times of economic and financial
market stress and whether Citi has robust, forward-
looking capital planning processes that account for its
unique risks. The Federal Reserve Board may object to
Citi’s annual capital plan based on either quantitative or
qualitative grounds. If the Federal Reserve Board objects
to Citi’s annual capital plan, Citi may not undertake any
capital distribution unless the Federal Reserve Board
indicates in writing that it does not object to the
distribution.
• Dodd-Frank Act Stress Testing (DFAST) is a forward-
looking quantitative evaluation of the impact of stressful
economic and financial market conditions on Citi’s
regulatory capital. This program serves to inform the
Federal Reserve Board, the financial companies, and the
general public, how Citi’s regulatory capital ratios might
change using a hypothetical set of adverse economic
conditions as designed by the Federal Reserve Board. In
addition to the annual supervisory stress test conducted by
the Federal Reserve Board, Citi is required to conduct
annual company-run stress tests under the same adverse
economic conditions designed by the Federal Reserve
Board, as well as conduct a mid-cycle stress test under
company-developed scenarios.
Both CCAR and DFAST include an estimate of projected
revenues, losses, reserves, pro forma regulatory capital ratios,
and any other additional capital measures deemed relevant by
Citi. Projections are required over a nine-quarter planning
horizon under three supervisory scenarios (baseline, adverse
and severely adverse conditions). All risk-based capital ratios
reflect application of the Standardized Approach framework
and the transition arrangements under the U.S. Basel III rules.
Moreover, the Federal Reserve Board has deferred the use of
the Advanced Approaches framework indefinitely. Beginning
in 2018, CCAR incorporates the Supplementary Leverage
ratio. Accordingly, Advanced Approaches banking
organizations are required to demonstrate an ability to
maintain a Supplementary Leverage ratio in excess of the
stated minimum requirement for all quarters of the 2018
CCAR planning horizon.
For additional information regarding CCAR, see “Risk
Factors—Strategic Risks” below.
Citigroup’s Capital Resources Under Current Regulatory
Standards
Citi is required to maintain stated minimum Common Equity
Tier 1 Capital, Tier 1 Capital and Total Capital ratios of 4.5%,
6.0% and 8.0%, respectively.
Citi’s effective minimum Common Equity Tier 1 Capital,
Tier 1 Capital and Total Capital ratios during 2017, inclusive
of the 50% phase-in of both the 2.5% Capital Conservation
Buffer and the 3.0% GSIB surcharge (all of which is to be
composed of Common Equity Tier 1 Capital), are 7.25%,
8.75% and 10.75%, respectively. Citi’s effective minimum
Common Equity Tier 1 Capital, Tier 1 Capital and Total
Capital ratios during 2016, inclusive of the 25% phase-in of
both the 2.5% Capital Conservation Buffer and the 3.5% GSIB
surcharge (all of which is to be composed of Common Equity
Tier 1 Capital), were 6.0%, 7.5% and 9.5%, respectively.
Furthermore, 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 6.0%, a
Total Capital ratio of at least 10.0%, and not be subject to a
Federal Reserve Board directive to maintain higher capital
levels.
The following tables set forth the capital tiers, total risk-
weighted assets and underlying risk components, risk-based
capital ratios, quarterly adjusted average total assets, Total
Leverage Exposure and leverage ratios under current
regulatory standards (reflecting Basel III Transition
Arrangements) for Citi as of December 31, 2017 and
December 31, 2016.
Citigroup Capital Components and Ratios Under Current Regulatory Standards (Basel III Transition Arrangements)
In millions of dollars, except ratios
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital (Tier 1 Capital + Tier 2 Capital)(1)
Total Risk-Weighted Assets
Credit Risk(1)
Market Risk
Operational Risk
Common Equity Tier 1 Capital ratio(2)
Tier 1 Capital ratio(2)
Total Capital ratio(2)
In millions of dollars, except ratios
Quarterly Adjusted Average Total Assets(3)
Total Leverage Exposure(4)
Tier 1 Leverage ratio
Supplementary Leverage ratio
December 31, 2017
December 31, 2016
Advanced
Approaches
Standardized
Approach
Advanced
Approaches
Standardized
Approach
$
147,891
$
147,891
$
167,378
$
167,378
164,841
190,331
164,841
202,284
178,387
202,146
178,387
214,938
1,134,864
1,138,167
1,166,764
1,126,314
$
749,322
$ 1,072,440
$
773,483
$ 1,061,786
65,003
320,539
65,727
—
64,006
329,275
64,528
—
13.03%
12.99%
14.35%
14.86%
14.53
16.77
14.48
17.77
15.29
17.33
15.84
19.08
December 31, 2017
December 31, 2016
$ 1,869,206
2,433,371
8.82%
6.77
$ 1,768,415
2,351,883
10.09%
7.58
(1) Under the U.S. Basel III rules, credit risk-weighted assets during the transition period reflect the effects of transition arrangements related to regulatory capital
adjustments and deductions and, as a result, will differ from credit risk-weighted assets derived under full implementation of the rules.
(2) As of December 31, 2017, Citi’s reportable Common Equity Tier 1 Capital and Tier 1 Capital ratios were the lower derived under the Basel III Standardized
Approach, whereas the reportable Total Capital ratio was the lower derived under the Basel III Advanced Approaches framework. As of December 31, 2016, Citi’s
reportable Common Equity Tier 1 Capital, Tier 1 Capital, and Total Capital ratios were the lower derived under the Basel III Advanced Approaches framework.
(3) Tier 1 Leverage ratio denominator.
(4) Supplementary Leverage ratio denominator.
As indicated in the table above, Citigroup’s capital ratios
at December 31, 2017 were in excess of the stated and
effective minimum requirements under the U.S. Basel III
rules. In addition, Citi was also “well capitalized” under
current federal bank regulatory agency definitions as of
December 31, 2017.
37
Components of Citigroup Capital Under Current Regulatory Standards (Basel III Transition Arrangements)
In millions of dollars
Common Equity Tier 1 Capital
Citigroup common stockholders’ equity(1)
Add: Qualifying noncontrolling interests
Regulatory Capital Adjustments and Deductions:
Less: Net unrealized losses on securities available-for-sale (AFS), net of tax(2)(3)
Less: Defined benefit plans liability adjustment, net of tax(3)
Less: Accumulated net unrealized losses on cash flow hedges, net of tax(4)
Less: Cumulative unrealized net loss related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax(3)(5)
Less: Intangible assets:
Goodwill, net of related deferred tax liabilities (DTLs)(6)
Identifiable intangible assets other than mortgage servicing rights (MSRs), net of related
DTLs(3)
Less: Defined benefit pension plan net assets(3)
Less: Deferred tax assets (DTAs) arising from net operating loss, foreign tax credit and
general business credit carry-forwards(3)(7)
Less: Excess over 10%/15% limitations for other DTAs, certain common stock investments,
and MSRs(3)(7)(8)
Total Common Equity Tier 1 Capital (Standardized Approach and Advanced Approaches)
Additional Tier 1 Capital
Qualifying noncumulative perpetual preferred stock(1)
Qualifying trust preferred securities(9)
Qualifying noncontrolling interests
Regulatory Capital Adjustment and Deductions:
Less: Cumulative unrealized net loss related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax(3)(5)
Less: Defined benefit pension plan net assets(3)
Less: DTAs arising from net operating loss, foreign tax credit and
general business credit carry-forwards(3)(7)
Less: Permitted ownership interests in covered funds(10)
Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries(11)
Total Additional Tier 1 Capital (Standardized Approach and Advanced Approaches)
Total Tier 1 Capital (Common Equity Tier 1 Capital + Additional Tier 1 Capital)
(Standardized Approach and Advanced Approaches)
Tier 2 Capital
Qualifying subordinated debt
Qualifying trust preferred securities(12)
Qualifying noncontrolling interests
Eligible allowance for credit losses(13)
Regulatory Capital Adjustment and Deduction:
Add: Unrealized gains on AFS equity exposures includable in Tier 2 Capital
Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries(11)
Total Tier 2 Capital (Standardized Approach)
Total Capital (Tier 1 Capital + Tier 2 Capital) (Standardized Approach)
Adjustment for excess of eligible credit reserves over expected credit losses(13)
Total Tier 2 Capital (Advanced Approaches)
Total Capital (Tier 1 Capital + Tier 2 Capital) (Advanced Approaches)
Footnotes are presented on the following page.
38
December 31,
2017
December 31,
2016
$
181,671 $
206,051
224
259
(232)
(1,237)
(698)
(577)
(320)
(2,066)
(560)
(37)
22,052
20,858
3,521
717
2,926
514
10,458
12,802
—
147,891 $
4,815
167,378
19,069 $
1,377
105
19,069
1,371
17
(144)
179
2,614
900
52
(24)
343
8,535
533
61
16,950 $
11,009
164,841 $
178,387
23,673 $
22,818
329
40
317
22
13,453
13,452
—
52
37,443 $
202,284 $
(11,953) $
25,490 $
190,331 $
3
61
36,551
214,938
(12,792)
23,759
202,146
$
$
$
$
$
$
$
$
$
$
(1)
(2)
Issuance costs of $184 million related to noncumulative perpetual preferred stock outstanding at December 31, 2017 and December 31, 2016 are excluded from
common stockholders’ equity and netted against such preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ
from those under U.S. generally accepted accounting principles (GAAP).
In addition, includes the net amount of unamortized loss on held-to-maturity (HTM) securities. This amount relates to securities that 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.
(3) The transition arrangements for significant regulatory capital adjustments and deductions impacting Common Equity Tier 1 Capital and Additional Tier 1 Capital
are set forth above in the chart entitled “Basel III Transition Arrangements: Significant Regulatory Capital Adjustments and Deductions.”
(4) Common Equity Tier 1 Capital is adjusted for accumulated net unrealized gains (losses) on cash flow hedges included in Accumulated other comprehensive
income (loss) (AOCI) that relate to the hedging of items not recognized at fair value on the balance sheet.
(5) The cumulative impact of changes in Citigroup’s own creditworthiness in valuing liabilities for which the fair value option has been elected, and own-credit
valuation adjustments on derivatives, are excluded from Common Equity Tier 1 Capital and Additional Tier 1 Capital, in accordance with the U.S. Basel III rules.
Includes goodwill “embedded” in the valuation of significant common stock investments in unconsolidated financial institutions.
(6)
(7) Of Citi’s $22.5 billion of net DTAs at December 31, 2017, $10.2 billion were includable in regulatory capital pursuant to the U.S. Basel III rules, while $12.3
billion were excluded. Excluded from Citi’s regulatory capital at December 31, 2017 was in total $13.1 billion of net DTAs arising from net operating loss, foreign
tax credit and general business credit carry-forwards, of which $10.5 billion were deducted from Common Equity Tier 1 Capital and $2.6 billion were deducted
from Additional Tier 1 Capital, which was reduced by $0.8 billion of net DTLs primarily associated with goodwill and certain other intangible assets. Separately,
under the U.S. Basel III rules, goodwill and these other intangible assets are deducted net of associated DTLs in arriving at Common Equity Tier 1 Capital. DTAs
arising from net operating loss, foreign tax credit and general business credit carry-forwards are required to be deducted from both Common Equity Tier 1 Capital
and Additional Tier 1 Capital under the transition arrangements of the U.S. Basel III rules; whereas DTAs arising from temporary differences are deducted solely
from Common Equity Tier 1 Capital under these rules, if in excess of 10%/15% limitations.
(8) Assets subject to 10%/15% limitations include MSRs, DTAs arising from temporary differences and significant common stock investments in unconsolidated
financial institutions. At December 31, 2017, none of these assets were in excess of the 10%/15% limitations. At December 31, 2016, this deduction related only to
DTAs arising from temporary differences that exceeded the 10% limitation.
(9) Represents Citigroup Capital XIII trust preferred securities, which are permanently grandfathered as Tier 1 Capital under the U.S. Basel III rules.
(10) Banking entities are required to be in compliance with the Volcker Rule of the Dodd-Frank Act which prohibits conducting certain proprietary investment
activities and limits their ownership of, and relationships with, covered funds. Accordingly, Citi is required by the Volcker Rule to deduct from Tier 1 Capital all
permitted ownership interests in covered funds that were acquired after December 31, 2013.
(11) 50% of the minimum regulatory capital requirements of insurance underwriting subsidiaries must be deducted from each of Tier 1 Capital and Tier 2 Capital.
(12) Effective January 1, 2016, non-grandfathered trust preferred securities are not eligible for inclusion in Tier 1 Capital, but are eligible for inclusion in Tier 2 Capital
subject to full phase-out by January 1, 2022. Non-grandfathered trust preferred securities are eligible for inclusion in Tier 2 Capital in an amount up to 50% and
60% during 2017 and 2016, respectively, of the aggregate outstanding principal amounts of such issuances as of January 1, 2014, in accordance with the transition
arrangements for non-qualifying capital instruments under the U.S. Basel III rules.
(13) Under the Standardized Approach, the allowance for credit losses is eligible for inclusion in Tier 2 Capital up to 1.25% of credit risk-weighted assets, with any
excess allowance for credit losses being deducted in arriving at credit risk-weighted assets, which differs from the Advanced Approaches framework, in which
eligible credit reserves that exceed expected credit losses are eligible for inclusion in Tier 2 Capital to the extent the excess reserves do not exceed 0.6% of credit
risk-weighted assets. The total amount of eligible credit reserves in excess of expected credit losses that were eligible for inclusion in Tier 2 Capital, subject to
limitation, under the Advanced Approaches framework was $1.5 billion and $0.7 billion at December 31, 2017 and December 31, 2016, respectively.
39
Citigroup Capital Rollforward Under Current Regulatory Standards (Basel III Transition Arrangements)
In millions of dollars
Common Equity Tier 1 Capital, beginning of period
Net loss
Common and preferred stock dividends declared
Net increase in treasury stock
Net change in common stock and additional paid-in capital
Net increase in foreign currency translation adjustment net of hedges, net of tax
Net increase in unrealized losses on securities AFS, net of tax
Net increase in defined benefit plans liability adjustment, net of tax
Net change in adjustment related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax
Net increase in goodwill, net of related DTLs
Net change in identifiable intangible assets other than MSRs, net of related DTLs
Net increase in defined benefit pension plan net assets
Net decrease in DTAs arising from net operating loss, foreign tax credit and
general business credit carry-forwards
Net decrease in excess over 10%/15% limitations for other DTAs, certain common
stock investments and MSRs
Other
Net decrease in Common Equity Tier 1 Capital
Common Equity Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Additional Tier 1 Capital, beginning of period
Net increase in qualifying trust preferred securities
Net change in adjustment related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax
Net change in defined benefit pension plan net assets
Net decrease in DTAs arising from net operating loss, foreign tax credit and
general business credit carry-forwards
Net change in permitted ownership interests in covered funds
Other
Net increase in Additional Tier 1 Capital
Additional Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Tier 2 Capital, beginning of period (Standardized Approach)
Net increase in qualifying subordinated debt
Net increase in qualifying trust preferred securities
Net decrease in eligible allowance for credit losses
Other
Net change in Tier 2 Capital (Standardized Approach)
Tier 2 Capital, end of period (Standardized Approach)
Total Capital, end of period (Standardized Approach)
Tier 2 Capital, beginning of period (Advanced Approaches)
Net increase in qualifying subordinated debt
Net increase in qualifying trust preferred securities
Net increase in excess of eligible credit reserves over expected credit losses
Other
Net increase in Tier 2 Capital (Advanced Approaches)
Tier 2 Capital, end of period (Advanced Approaches)
Total Capital, end of period (Advanced Approaches)
40
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
162,008 $
(18,893)
(1,160)
(5,480)
112
(2,381)
(792)
(674)
(58)
(520)
7
(141)
5,596
6,948
3,319
(14,117) $
147,891 $
15,296 $
3
61
(35)
1,400
228
(3)
1,654 $
16,950 $
164,841 $
37,483 $
95
—
(145)
10
(40) $
37,443 $
202,284 $
25,339 $
95
—
46
10
151 $
25,490 $
190,331 $
167,378
(6,798)
(3,808)
(14,666)
(35)
(202)
(447)
(1,848)
(29)
(1,194)
(595)
(203)
2,344
4,815
3,179
(19,487)
147,891
11,009
6
120
164
5,921
(367)
97
5,941
16,950
164,841
36,551
855
12
1
24
892
37,443
202,284
23,759
855
12
840
24
1,731
25,490
190,331
Citigroup Risk-Weighted Assets Rollforward Under Current Regulatory Standards
(Basel III Standardized Approach with Transition Arrangements)
In millions of dollars
Total Risk-Weighted Assets, beginning of period
Changes in Credit Risk-Weighted Assets
Net increase in general credit risk exposures(1)
Net increase in repo-style transactions(2)
Net change in securitization exposures(3)
Net increase in equity exposures
Net decrease in over-the-counter (OTC) derivatives(4)
Net decrease in other exposures(5)
Net increase in off-balance sheet exposures(6)
Net change in Credit Risk-Weighted Assets
Changes in Market Risk-Weighted Assets
Net increase in risk levels(7)
Net decrease due to model and methodology updates(8)
Net increase in Market Risk-Weighted Assets
Total Risk-Weighted Assets, end of period
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
$
1,158,679 $
1,126,314
10,883
4,071
514
269
(24,058)
(12,910)
203
(21,028) $
1,091 $
(575)
516 $
26,037
19,489
(5,669)
1,825
(22,312)
(11,510)
2,794
10,654
15,254
(14,055)
1,199
1,138,167 $
1,138,167
$
$
$
$
(1) General credit risk exposures include cash and balances due from depository institutions, securities, and loans and leases. General credit risk exposures increased
during the three and twelve months ended December 31, 2017 primarily due to corporate loan growth.
(2) Repo-style transactions include repurchase or reverse repurchase transactions and securities borrowing or securities lending transactions.
(3) Securitization exposures decreased during the twelve months ended December 31, 2017 principally as a result of certain securitization exposures becoming subject
to deduction from Tier 1 Capital under the Volcker Rule of the Dodd-Frank Act.
(4) OTC derivatives decreased during the three and twelve months ended December 31, 2017 primarily due to notional decreases.
(5) Other exposures include cleared transactions, unsettled transactions, and other assets. Other exposures decreased during the three and twelve months ended
December 31, 2017 primarily due to a reduction in Citi’s deferred tax assets as a result of Tax Reform. For additional information regarding the impact of Tax
Reform, see “Impact of Tax Reform” above.
(6) Off-balance sheet exposures increased during the twelve months ended December 31, 2017 primarily due to growth in corporate exposures.
(7) Risk levels increased during the three months ended December 31, 2017 primarily due to an increases in exposures subject to securitization charges and
incremental risk charges, partially offset by a decrease in exposures subject to comprehensive risk and Risk Not In the Model. Risk levels increased during the
twelve months ended December 31, 2017 primarily due to an increase in exposure levels subject to Stressed Value at Risk, as well as an increase in positions
subject to securitization charges.
(8) Risk-weighted assets declined during the twelve months ended December 31, 2017, as Citi received supervisory approval to remove the Comprehensive Risk
Measure model surcharge for correlation trading portfolios, commencing with the third quarter of 2017. Further contributing to the decline in risk-weighted assets
during the twelve months ended December 31, 2017 were changes in model inputs regarding volatility and the correlation between market risk factors.
41
Citigroup Risk-Weighted Assets Rollforward Under Current Regulatory Standards
(Basel III Advanced Approaches with Transition Arrangements)
In millions of dollars
Total Risk-Weighted Assets, beginning of period
Changes in Credit Risk-Weighted Assets
Net change in retail exposures(1)
Net increase in wholesale exposures(2)
Net change in repo-style transactions(3)
Net change in securitization exposures(4)
Net increase in equity exposures
Net decrease in over-the-counter (OTC) derivatives(5)
Net decrease in derivatives CVA(6)
Net decrease in other exposures(7)
Net decrease in supervisory 6% multiplier(8)
Net decrease in Credit Risk-Weighted Assets
Changes in Market Risk-Weighted Assets
Net increase in risk levels(9)
Net decrease due to model and methodology updates(10)
Net increase in Market Risk-Weighted Assets
Net decrease in Operational Risk-Weighted Assets(11)
Total Risk-Weighted Assets, end of period
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
$
1,143,448 $
1,166,764
994
8,676
(2,097)
2,139
272
(1,724)
(3,533)
(11,726)
(208)
(5,763)
2,730
2,563
(4,338)
1,608
(6,733)
(3,616)
(9,449)
(1,163)
$
$
$
$
$
(7,207) $
(24,161)
1,210 $
(575)
635 $
(2,012) $
15,052
(14,055)
997
(8,736)
1,134,864 $
1,134,864
(1) Retail exposures increased during the three months ended December 31, 2017 primarily due to increases in qualifying revolving (cards) exposures attributable to
seasonal holiday spending. Retail exposures decreased during the twelve months ended December 31, 2017 principally resulting from residential mortgage loan
sales and repayments, and divestitures of certain legacy assets.
(2) Wholesale exposures increased during the three and twelve months ended December 31, 2017 primarily due to corporate loan growth. The increase in wholesale
exposures during the twelve months ended December 31, 2017 was partially offset by annual updates to model parameters.
(3) Repo-style transactions decreased during the three months ended December 31, 2017 primarily due to improved portfolio credit quality. Repo-style transactions
increased during the twelve months ended December 31, 2017 primarily due to increased activity and a decline in portfolio credit quality.
(4) Securitization exposures increased during the three months ended December 31, 2017 primarily due to increased activity. Securitization exposures decreased
during the twelve months ended December 31, 2017 principally as a result of certain securitization exposures becoming subject to deduction from Tier 1 Capital
under the Volcker Rule of the Dodd-Frank Act.
(5) OTC derivatives decreased during the three months ended December 31, 2017 primarily due to decreases in trade volume and changes in fair value. OTC
derivatives decreased during the twelve months ended December 31, 2017 primarily due to changes in fair value and improved portfolio credit quality.
(6) Derivatives CVA decreased during the three and twelve months ended December 31, 2017 primarily driven by decreased volatility and exposure reduction.
(7) Other exposures include cleared transactions, unsettled transactions, assets other than those reportable in specific exposure categories and non-material portfolios.
Other exposures decreased during the three and twelve months ended December 31, 2017 primarily due to a reduction in Citi’s deferred tax assets as a result of
Tax Reform. For additional information regarding the impact of Tax Reform, see “Impact of Tax Reform” above.
(8) Supervisory 6% multiplier does not apply to derivatives CVA.
(9) Risk levels increased during the three months ended December 31, 2017 primarily due to an increases in exposures subject to securitization charges and
incremental risk charges, partially offset by a decrease in exposures subject to comprehensive risk and Risk Not In the Model. Risk levels increased during the
twelve months ended December 31, 2017 primarily due to an increase in exposure levels subject to Stressed Value at Risk, as well as an increase in positions
subject to securitization charges.
(10) Risk-weighted assets declined during the twelve months ended December 31, 2017, as Citi received supervisory approval to remove the Comprehensive Risk
Measure model surcharge for correlation trading portfolios, commencing with the third quarter of 2017. Further contributing to the decline in risk-weighted assets
during the twelve months ended December 31, 2017 were changes in model inputs regarding volatility and the correlation between market risk factors.
(11) Operational risk-weighted assets decreased during the three months ended December 31, 2017 primarily due to changes in operational loss severity and frequency.
Operational risk-weighted assets decreased during the twelve months ended December 31, 2017 primarily due to assessed improvements in the business
environment and risk controls and changes in operational loss severity and frequency.
42
Capital Resources of Citigroup’s Subsidiary U.S.
Depository Institutions Under Current Regulatory Standards
Citigroup’s subsidiary U.S. depository institutions are also
subject to regulatory capital standards issued by their
respective primary federal bank regulatory agencies, which are
similar to the standards of the Federal Reserve Board.
During 2017, Citi’s primary subsidiary U.S. depository
institution, Citibank, N.A. (Citibank), is subject to effective
minimum Common Equity Tier 1 Capital, Tier 1 Capital and
Total Capital ratios, inclusive of the 50% phase-in of the 2.5%
Capital Conservation Buffer, of 5.75%, 7.25% and 9.25%,
respectively. Citibank’s effective minimum Common Equity
Tier 1 Capital, Tier 1 Capital and Total Capital ratios during
2016, inclusive of the 25% phase-in of the 2.5% Capital
Conservation Buffer, were 5.125%, 6.625% and 8.625%,
respectively. Citibank is required to maintain stated minimum
Common Equity Tier 1 Capital, Tier 1 Capital and Total
Capital ratios of 4.5%, 6.0% and 8.0%, respectively.
The following tables set forth the capital tiers, total risk-
weighted assets and underlying risk components, risk-based
capital ratios, quarterly adjusted average total assets, Total
Leverage Exposure and leverage ratios under current
regulatory standards (reflecting Basel III Transition
Arrangements) for Citibank, Citi’s primary subsidiary U.S.
depository institution, as of December 31, 2017 and
December 31, 2016.
Citibank Capital Components and Ratios Under Current Regulatory Standards (Basel III Transition Arrangements)
In millions of dollars, except ratios
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital (Tier 1 Capital + Tier 2 Capital)(1)
Total Risk-Weighted Assets
Credit Risk
Market Risk
Operational Risk
Common Equity Tier 1 Capital ratio(2)
Tier 1 Capital ratio(2)
Total Capital ratio(2)
In millions of dollars, except ratios
Quarterly Adjusted Average Total Assets(3)
Total Leverage Exposure(4)
Tier 1 Leverage ratio
Supplementary Leverage ratio
December 31, 2017
December 31, 2016
Advanced
Approaches
Standardized
Approach
Advanced
Approaches
Standardized
Approach
$ 124,733
$
124,733
$
126,220
$
126,220
126,303
139,351
954,559
126,303
150,289
1,014,242
126,465
138,821
973,933
126,465
150,291
1,001,016
$ 663,783
$
970,064
$
669,920
$
955,767
43,300
247,476
44,178
—
44,579
259,434
45,249
—
13.07%
12.30%
12.96%
12.61%
13.23
14.60
12.45
14.82
12.99
14.25
12.63
15.01
December 31, 2017
December 31, 2016
$ 1,401,615
1,901,069
9.01%
6.64
$ 1,333,161
1,859,394
9.49%
6.80
(1) Under the Advanced Approaches framework eligible credit reserves that exceed expected credit losses are eligible for inclusion in Tier 2 Capital to the extent the
excess reserves do not exceed 0.6% of credit risk-weighted assets, which differs from the Standardized Approach in which the allowance for credit losses is
eligible for inclusion in Tier 2 Capital up to 1.25% of credit risk-weighted assets, with any excess allowance for credit losses being deducted in arriving at credit
risk-weighted assets.
(2) As of December 31, 2017 and December 31, 2016, Citibank’s reportable Common Equity Tier 1 Capital and Tier 1 Capital ratios were the lower derived under
the Basel III Standardized Approach. As of December 31, 2017 and December 31, 2016, Citibank’s reportable Total Capital ratio was the lower derived under the
Basel III Advanced Approaches framework.
(3) Tier 1 Leverage ratio denominator.
(4) Supplementary Leverage ratio denominator.
As indicated in the table above, Citibank’s capital ratios at
December 31, 2017 were in excess of the stated and effective
minimum requirements under the U.S. Basel III rules. In
addition, Citibank was also “well capitalized” as of
December 31, 2017 under the revised PCA regulations.
Further, Citibank is required to conduct the annual Dodd-
Frank Act Stress Test. The annual stress test consists of a
forward-looking quantitative evaluation of the impact of
stressful economic and financial market conditions under
43
several scenarios on Citibank’s regulatory capital. This
program serves to inform the Office of the Comptroller of
the Currency as to how Citibank’s regulatory capital ratios
might change during a hypothetical set of adverse economic
conditions and to ultimately evaluate the reliability of
Citibank’s capital planning process.
Impact of Changes on Citigroup and Citibank Capital Ratios
Under Current Regulatory Capital Standards
The following tables present the estimated sensitivity of
Citigroup’s and Citibank’s capital ratios to changes of $100
million in Common Equity Tier 1 Capital, Tier 1 Capital and
Total Capital (numerator), and changes of $1 billion in
Advanced Approaches and Standardized Approach risk-
weighted assets and quarterly adjusted average total assets, as
well as Total Leverage Exposure (denominator), under current
regulatory capital standards (reflecting Basel III Transition
Arrangements), as of December 31, 2017. This information is
provided for the purpose of analyzing the impact that a change
in Citigroup’s or Citibank’s financial position or results of
operations could have on these ratios. These sensitivities only
consider a single change to either a component of regulatory
capital, risk-weighted assets, quarterly adjusted average total
assets or Total Leverage Exposure. Accordingly, an event that
affects more than one factor may have a larger basis point
impact than is reflected in these tables.
Impact of Changes on Citigroup and Citibank Risk-Based Capital Ratios (Basel III Transition Arrangements)
Common Equity
Tier 1 Capital ratio
Impact of
$100 million
change in
Common
Equity
Tier 1 Capital
Impact of
$1 billion
change in
risk-
weighted
assets
0.9
0.9
1.0
1.0
1.1
1.1
1.4
1.2
Tier 1 Capital ratio
Total Capital ratio
Impact of
$100 million
change in
Tier 1 Capital
0.9
0.9
1.0
1.0
Impact of
$1 billion
change in
risk-
weighted
assets
1.3
1.3
1.4
1.2
Impact of
$100 million
change in
Total Capital
0.9
0.9
1.0
1.0
Impact of
$1 billion
change in
risk-
weighted
assets
1.5
1.6
1.5
1.5
In basis points
Citigroup
Advanced Approaches
Standardized Approach
Citibank
Advanced Approaches
Standardized Approach
Impact of Changes on Citigroup and Citibank Leverage Ratios (Basel III Transition Arrangements)
In basis points
Citigroup
Citibank
Tier 1 Leverage ratio
Supplementary Leverage ratio
Impact of
$1 billion
change in
quarterly
adjusted
average total
assets
0.5
0.6
Impact of
$100 million
change in
Tier 1 Capital
0.4
0.5
Impact of
$1 billion
change in
Total
Leverage
Exposure
0.3
0.3
Impact of
$100 million
change in
Tier 1 Capital
0.5
0.7
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 December 31, 2017.
Citigroup Broker-Dealer Subsidiaries
At December 31, 2017, 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
$11.0 billion, which exceeded the minimum requirement by
$9.0 billion.
Moreover, Citigroup Global Markets Limited, a broker-
dealer registered with the United Kingdom’s Prudential
Regulation Authority (PRA) that is also an indirect wholly
owned subsidiary of Citigroup, had total capital of $18.1
billion at December 31, 2017, which exceeded the PRA's
minimum regulatory capital requirements.
44
Basel III (Full Implementation)
Citigroup’s Capital Resources Under Basel III
(Full Implementation)
Citi currently estimates that its effective minimum Common
Equity Tier 1 Capital, Tier 1 Capital and Total Capital ratio
requirements under the U.S. Basel III rules, on a fully
implemented basis, inclusive of the 2.5% Capital Conservation
Buffer and the Countercyclical Capital Buffer at its current
level of 0%, as well as an expected 3.0% GSIB surcharge, may
be 10.0%, 11.5% and 13.5%, respectively.
Further, under the U.S. Basel III rules, Citi must also
comply with a 4.0% minimum Tier 1 Leverage ratio
requirement and an effective 5.0% minimum Supplementary
Leverage ratio requirement.
The following tables set forth the capital tiers, total risk-
weighted assets and underlying risk components, risk-based
capital ratios, quarterly adjusted average total assets, Total
Leverage Exposure and leverage ratios, assuming full
implementation under the U.S. Basel III rules, for Citi as of
December 31, 2017 and December 31, 2016.
At December 31, 2017, Citi’s constraining Common
Equity Tier 1 Capital and Tier 1 Capital ratios were those
derived under the Basel III Standardized Approach, whereas
Citi’s binding Total Capital ratio was that resulting from
application of the Basel III Advanced Approaches framework.
Further, each of Citi’s risk-based capital ratios was constrained
by the Basel III Advanced Approaches framework for all
periods prior to June 30, 2017.
Citigroup Capital Components and Ratios Under Basel III (Full Implementation)
In millions of dollars, except ratios
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital (Tier 1 Capital + Tier 2 Capital)
Total Risk-Weighted Assets
Credit Risk
Market Risk
Operational Risk
Common Equity Tier 1 Capital ratio(1)(2)
Tier 1 Capital ratio(1)(2)
Total Capital ratio(1)(2)
In millions of dollars, except ratios
Quarterly Adjusted Average Total Assets(3)
Total Leverage Exposure(4)
Tier 1 Leverage ratio(2)
Supplementary Leverage ratio(2)
December 31, 2017
December 31, 2016
Advanced
Approaches
Standardized
Approach
Advanced
Approaches
Standardized
Approach
$
142,822
$
142,822
$ 149,516
$
149,516
162,377
187,877
162,377
199,989
169,390
193,160
169,390
205,975
1,152,644
1,155,099
1,189,680
1,147,956
$
767,102
$ 1,089,372
$ 796,399
$ 1,083,428
65,003
320,539
65,727
—
64,006
329,275
64,528
—
12.39%
12.36%
12.57%
13.02%
14.09
16.30
14.06
17.31
14.24
16.24
14.76
17.94
December 31, 2017
December 31, 2016
$ 1,868,326
2,432,491
8.69%
6.68
$ 1,761,923
2,345,391
9.61%
7.22
(1) As of December 31, 2017, Citi’s reportable Common Equity Tier 1 Capital and Tier 1 Capital ratios were the lower derived under the Basel III Standardized
Approach, whereas the reportable Total Capital ratio was the lower derived under the Basel III Advanced Approaches framework. As of December 31, 2016, Citi’s
reportable Common Equity Tier 1 Capital, Tier 1 Capital, and Total Capital ratios were the lower derived under the Basel III Advanced Approaches framework.
(2) Citi’s Basel III risk-based capital and leverage ratios and related components, on a fully implemented basis, are non-GAAP financial measures. Citi believes these
ratios and the related components provide useful information to investors and others by measuring Citi’s progress against future regulatory capital standards.
(3) Tier 1 Leverage ratio denominator.
(4) Supplementary Leverage ratio denominator.
Common Equity Tier 1 Capital Ratio
Citi’s Common Equity Tier 1 Capital ratio was 12.4% at
December 31, 2017, compared to 13.0% at September 30,
2017 and 12.6% at December 31, 2016. The ratio declined
quarter-over-quarter and year-over-year, primarily due to a
reduction in Common Equity Tier 1 Capital resulting from the
return of capital to common shareholders as well as the impact
of Tax Reform.
45
Components of Citigroup Capital Under Basel III (Full Implementation)
In millions of dollars
Common Equity Tier 1 Capital
Citigroup common stockholders’ equity(1)
Add: Qualifying noncontrolling interests
Regulatory Capital Adjustments and Deductions:
Less: Accumulated net unrealized losses on cash flow hedges, net of tax(2)
Less: Cumulative unrealized net loss related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax(3)
Less: Intangible assets:
Goodwill, net of related DTLs(4)
Identifiable intangible assets other than MSRs, net of related DTLs
Less: Defined benefit pension plan net assets
Less: DTAs arising from net operating loss, foreign tax credit and general business credit
carry-forwards(5)
Less: Excess over 10%/15% limitations for other DTAs, certain common stock investments,
and MSRs(5)(6)
Total Common Equity Tier 1 Capital (Standardized Approach and Advanced Approaches)
Additional Tier 1 Capital
Qualifying noncumulative perpetual preferred stock(1)
Qualifying trust preferred securities(7)
Qualifying noncontrolling interests
Regulatory Capital Deductions:
Less: Permitted ownership interests in covered funds(8)
Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries(9)
Total Additional Tier 1 Capital (Standardized Approach and Advanced Approaches)
Total Tier 1 Capital (Common Equity Tier 1 Capital + Additional Tier 1 Capital)
(Standardized Approach and Advanced Approaches)
Tier 2 Capital
Qualifying subordinated debt
Qualifying trust preferred securities(10)
Qualifying noncontrolling interests
Eligible allowance for credit losses(11)
Regulatory Capital Deduction:
Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries(9)
Total Tier 2 Capital (Standardized Approach)
Total Capital (Tier 1 Capital + Tier 2 Capital) (Standardized Approach)
Adjustment for excess of eligible credit reserves over expected credit losses(11)
Total Tier 2 Capital (Advanced Approaches)
Total Capital (Tier 1 Capital + Tier 2 Capital) (Advanced Approaches)
$
$
$
$
$
$
$
$
$
$
December 31,
2017
December 31,
2016
$
181,671 $
153
(698)
(721)
22,052
4,401
896
13,072
—
142,822 $
19,069 $
1,377
61
900
52
206,051
129
(560)
(61)
20,858
4,876
857
21,337
9,357
149,516
19,069
1,371
28
533
61
19,555 $
19,874
162,377 $
169,390
23,673 $
22,818
329
50
13,612
52
37,612 $
199,989 $
(12,112) $
25,500 $
187,877 $
317
36
13,475
61
36,585
205,975
(12,815)
23,770
193,160
(1)
Issuance costs of $184 million related to noncumulative perpetual preferred stock outstanding at December 31, 2017 and December 31, 2016 are excluded from
common stockholders’ equity and netted against such preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ
from those under U.S. GAAP.
(2) Common Equity Tier 1 Capital is adjusted for accumulated net unrealized gains (losses) on cash flow hedges included in AOCI that relate to the hedging of items
not recognized at fair value on the balance sheet.
(3) The cumulative impact of changes in Citigroup’s own creditworthiness in valuing liabilities for which the fair value option has been elected, and own-credit
valuation adjustments on derivatives, are excluded from Common Equity Tier 1 Capital, in accordance with the U.S. Basel III rules.
Includes goodwill “embedded” in the valuation of significant common stock investments in unconsolidated financial institutions.
(4)
Footnotes continue on the following page.
46
(5) Of Citi’s $22.5 billion of net DTAs at December 31, 2017, $10.2 billion were includable in Common Equity Tier 1 Capital pursuant to the U.S. Basel III rules,
while $12.3 billion were excluded. Excluded from Citi’s Common Equity Tier 1 Capital as of December 31, 2017 was $13.1 billion of net DTAs arising from net
operating loss, foreign tax credit and general business credit carry-forwards, which was reduced by $0.8 billion of net DTLs primarily associated with goodwill
and certain other intangible assets. Separately, under the U.S. Basel III rules, goodwill and these other intangible assets are deducted net of associated DTLs in
arriving at Common Equity Tier 1 Capital. DTAs arising from net operating loss, foreign tax credit and general business credit carry-forwards are required to be
entirely deducted from Common Equity Tier 1 Capital under full implementation of the U.S. Basel III rules; whereas DTAs arising from temporary differences are
deducted from Common Equity Tier 1 Capital if in excess of 10%/15% limitations.
(6) Assets subject to 10%/15% limitations include MSRs, DTAs arising from temporary differences and significant common stock investments in unconsolidated
financial institutions. At December 31, 2017, none of these assets were in excess of the 10%/15% limitations. At December 31, 2016, this deduction related only to
DTAs arising from temporary differences that exceeded the 10% limitation.
(7) Represents Citigroup Capital XIII trust preferred securities, which are permanently grandfathered as Tier 1 Capital under the U.S. Basel III rules.
(8) Banking entities are required to be in compliance with the Volcker Rule of the Dodd-Frank Act which prohibits conducting certain proprietary investment
activities and limits their ownership of, and relationships with, covered funds. Accordingly, Citi is required by the Volcker Rule to deduct from Tier 1 Capital all
permitted ownership interests in covered funds that were acquired after December 31, 2013.
(9) 50% of the minimum regulatory capital requirements of insurance underwriting subsidiaries must be deducted from each of Tier 1 Capital and Tier 2 Capital.
(10) Represents the amount of non-grandfathered trust preferred securities eligible for inclusion in Tier 2 Capital under the U.S. Basel III rules, which will be fully
phased-out of Tier 2 Capital by January 1, 2022.
(11) Under the Standardized Approach, the allowance for credit losses is eligible for inclusion in Tier 2 Capital up to 1.25% of credit risk-weighted assets, with any
excess allowance for credit losses being deducted in arriving at credit risk-weighted assets, which differs from the Advanced Approaches framework, in which
eligible credit reserves that exceed expected credit losses are eligible for inclusion in Tier 2 Capital to the extent the excess reserves do not exceed 0.6% of credit
risk-weighted assets. The total amount of eligible credit reserves in excess of expected credit losses that were eligible for inclusion in Tier 2 Capital, subject to
limitation, under the Advanced Approaches framework was $1.5 billion and $0.7 billion at December 31, 2017 and December 31, 2016, respectively.
47
Citigroup Capital Rollforward Under Basel III (Full Implementation)
In millions of dollars
Common Equity Tier 1 Capital, beginning of period
Net loss
Common and preferred stock dividends declared
Net increase in treasury stock
Net change in common stock and additional paid-in capital
Net increase in foreign currency translation adjustment net of hedges, net of tax
Net increase in unrealized losses on securities AFS, net of tax
Net increase in defined benefit plans liability adjustment, net of tax
Net change in adjustment related to changes in fair value of financial liabilities
attributable to own creditworthiness, net of tax
Net increase in goodwill, net of related DTLs
Net decrease in identifiable intangible assets other than MSRs, net of related DTLs
Net increase in defined benefit pension plan net assets
Net decrease in DTAs arising from net operating loss, foreign tax credit and
general business credit carry-forwards
Net decrease in excess over 10%/15% limitations for other DTAs, certain common stock
investments and MSRs
Other
Net decrease in Common Equity Tier 1 Capital
Common Equity Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Additional Tier 1 Capital, beginning of period
Net increase in qualifying trust preferred securities
Net change in permitted ownership interests in covered funds
Other
Net change in Additional Tier 1 Capital
Additional Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Tier 1 Capital, end of period
(Standardized Approach and Advanced Approaches)
Tier 2 Capital, beginning of period (Standardized Approach)
Net increase in qualifying subordinated debt
Net increase in eligible allowance for credit losses
Other
Net increase in Tier 2 Capital (Standardized Approach)
Tier 2 Capital, end of period (Standardized Approach)
Total Capital, end of period (Standardized Approach)
Tier 2 Capital, beginning of period (Advanced Approaches)
Net increase in qualifying subordinated debt
Net increase in excess of eligible credit reserves over expected credit losses
Other
Net increase in Tier 2 Capital (Advanced Approaches)
Tier 2 Capital, end of period (Advanced Approaches)
Total Capital, end of period (Advanced Approaches
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
153,534 $
(18,893)
(1,160)
(5,480)
112
(2,381)
(990)
(843)
3
(520)
9
(176)
6,996
9,298
3,313
(10,712) $
142,822 $
19,315 $
3
228
9
240 $
19,555 $
162,377 $
37,490 $
95
14
13
122 $
37,612 $
199,989 $
25,346 $
95
46
13
154 $
25,500 $
187,877 $
149,516
(6,798)
(3,808)
(14,666)
(35)
(202)
(359)
(1,019)
91
(1,194)
475
(39)
8,265
9,357
3,238
(6,694)
142,822
19,874
6
(367)
42
(319)
19,555
162,377
36,585
855
137
35
1,027
37,612
199,989
23,770
855
840
35
1,730
25,500
187,877
48
Citigroup Risk-Weighted Assets Rollforward (Basel III Standardized Approach with Full Implementation)
In millions of dollars
Total Risk-Weighted Assets, beginning of period
Changes in Credit Risk-Weighted Assets
Net increase in general credit risk exposures(1)
Net increase in repo-style transactions
Net change in securitization exposures
Net increase in equity exposures
Net decrease in over-the-counter (OTC) derivatives
Net decrease in other exposures(2)
Net increase in off-balance sheet exposures
Net change in Credit Risk-Weighted Assets
Changes in Market Risk-Weighted Assets
Net increase in risk levels
Net decrease due to model and methodology updates
Net increase in Market Risk-Weighted Assets
Total Risk-Weighted Assets, end of period
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
$
1,182,918 $
1,147,956
10,883
4,071
514
493
(24,058)
(20,441)
203
(28,335) $
1,091 $
(575)
516 $
26,037
19,489
(5,669)
2,332
(22,312)
(16,727)
2,794
5,944
15,254
(14,055)
1,199
1,155,099 $
1,155,099
$
$
$
$
(1) General credit risk exposures include cash and balances due from depository institutions, securities, and loans and leases.
(2) Other exposures include cleared transactions, unsettled transactions, and other assets.
Citigroup Risk-Weighted Assets Rollforward (Basel III Advanced Approaches with Full Implementation)
In millions of dollars
Total Risk-Weighted Assets, beginning of period
Changes in Credit Risk-Weighted Assets
Net change in retail exposures
Net increase in wholesale exposures
Net change in repo-style transactions
Net change in securitization exposures
Net increase in equity exposures
Net decrease in over-the-counter (OTC) derivatives
Net decrease in derivatives CVA
Net decrease in other exposures(1)
Net decrease in supervisory 6% multiplier(2)
Net decrease in Credit Risk-Weighted Assets
Changes in Market Risk-Weighted Assets
Net increase in risk levels
Net decrease due to model and methodology updates
Net increase in Market Risk-Weighted Assets
Net decrease in Operational Risk-Weighted Assets
Total Risk-Weighted Assets, end of period
Three Months Ended
December 31, 2017
Twelve Months Ended
December 31, 2017
$
1,169,142 $
1,189,680
994
8,676
(2,097)
2,139
496
(1,724)
(3,533)
(19,416)
(656)
(15,121) $
1,210 $
(575)
635 $
(2,012) $
1,152,644 $
(5,763)
2,730
2,563
(4,338)
2,115
(6,733)
(3,616)
(14,801)
(1,454)
(29,297)
15,052
(14,055)
997
(8,736)
1,152,644
$
$
$
$
$
(1) Other exposures include cleared transactions, unsettled transactions, assets other than those reportable in specific exposure categories, and non-material portfolios.
(2) Supervisory 6% multiplier does not apply to derivatives CVA.
49
Total risk-weighted assets under the Basel III
Standardized Approach increased from year-end 2016
substantially due to higher credit risk-weighted assets,
primarily resulting from corporate loan growth and increased
repo-style transaction activity, partially offset by a decrease in
OTC derivative trade activity and a reduction in Citi’s deferred
tax assets as a result of Tax Reform.
Total risk-weighted assets under the Basel III Advanced
Approaches decreased from year-end 2016, driven by
substantially lower credit and operational risk-weighted assets.
The decrease in credit risk-weighted assets was primarily due
to a reduction in Citi’s deferred tax assets as a result of Tax
Reform, changes in fair value and improved portfolio credit
quality of OTC derivatives, residential mortgage loan sales
and repayments, and divestitures of certain legacy assets.
Operational risk-weighted assets decreased from year-end
2016 primarily due to assessed improvements in the business
environment and risk controls, as well as changes in
operational loss severity and frequency.
50
Supplementary Leverage Ratio
Citigroup’s Supplementary Leverage ratio was 6.7% for the
fourth quarter of 2017, compared to 7.1% for the third quarter
of 2017 and 7.2% for the fourth quarter of 2016. The decline
in the ratio quarter-over-quarter was principally driven by a
reduction in Tier 1 Capital resulting from the return of $6.3
billion of capital to common shareholders as well as the
impact of Tax Reform. The decline in the ratio from the fourth
quarter of 2016 was largely attributable to a reduction in Tier 1
Capital resulting from the return of $17.1 billion of capital to
common shareholders as well as the impact of Tax Reform, in
conjunction with an increase in Total Leverage Exposure
primarily due to growth in average on-balance sheet assets.
The following table sets forth Citi’s Supplementary
Leverage ratio and related components, assuming full
implementation under the U.S. Basel III rules, for the three
months ended December 31, 2017 and December 31, 2016.
Citigroup Basel III Supplementary Leverage Ratio and Related Components (Full Implementation)
In millions of dollars, except ratios
Tier 1 Capital
Total Leverage Exposure (TLE)
On-balance sheet assets(1)
Certain off-balance sheet exposures:(2)
Potential future exposure on derivative contracts
Effective notional of sold credit derivatives, net(3)
Counterparty credit risk for repo-style transactions(4)
Unconditionally cancelable commitments
Other off-balance sheet exposures
Total of certain off-balance sheet exposures
Less: Tier 1 Capital deductions
Total Leverage Exposure
Supplementary Leverage ratio
December 31, 2017
December 31, 2016
$
$
$
$
162,377
1,909,699
191,555
59,207
27,005
67,644
218,754
564,165
41,373
2,432,491
6.68%
$
$
$
$
169,390
1,819,802
211,009
64,366
22,002
66,663
219,428
583,468
57,879
2,345,391
7.22%
(1) Represents the daily average of on-balance sheet assets for the quarter.
(2) Represents the average of certain off-balance sheet exposures calculated as of the last day of each month in the quarter.
(3) Under the U.S. Basel III rules, banking organizations are required to include in TLE the effective notional amount of sold credit derivatives, with netting of
exposures permitted if certain conditions are met.
(4) Repo-style transactions include repurchase or reverse repurchase transactions and securities borrowing or securities lending transactions.
Citibank’s Supplementary Leverage ratio, assuming full
implementation under the U.S. Basel III rules, was 6.6% for
the fourth quarter of 2017, compared to 6.7% for the third
quarter of 2017 and 6.6% for the fourth quarter of 2016. The
quarter-over-quarter decrease was primarily driven by a
reduction in Tier 1 Capital resulting from the impact of Tax
Reform, partially offset by capital contributions from
Citibank’s parent, Citicorp, as well as a decrease in Total
Leverage Exposure primarily due to a decline in potential
future exposure on derivative contracts. The ratio remained
unchanged from the fourth quarter of 2016, as an increase in
Tier 1 Capital was offset by an increase in Total Leverage
Exposure.
51
Regulatory Capital Standards Developments
The Basel Committee on Banking Supervision (Basel
Committee) issued several proposed and final rules during
2017, the most significant of which was designed to address
final revisions or enhancements to the Basel III capital
framework.
Basel III: Finalizing Post-Crisis Regulatory Capital Reforms
In December 2017, the Basel Committee issued a rule that
finalizes several outstanding Basel III post-crisis regulatory
capital reforms. The reforms, which generally become
effective in 2022, relate to the methodologies in deriving
credit and operational risk-weighted assets, the imposition of a
new aggregate output floor for risk-weighted assets, and
revisions to the leverage ratio framework.
The final rule, in part, revises the Standardized Approach
in measuring credit risk-weighted assets with respect to certain
on-balance sheet assets, such as in relation to the risk-
weighting methodologies employed with respect to bank,
corporate, and real estate (both residential and commercial)
exposures; the treatment of off-balance sheet commitments;
and aspects of the credit risk mitigation framework. Moreover,
the final rule permits the use of external credit ratings
combined with due diligence requirements in the calculation
of credit risk-weighted assets for exposures to banks and
corporates, while also providing alternative approaches for
jurisdictions that do not allow the use of external credit ratings
for risk-based capital purposes, such as the U.S.
The final rule also revises the internal ratings-based (IRB)
approaches, in part, by prohibiting the use of such approaches
for so-called “low default” exposures, including those to banks
and other financial institutions, as well as large corporations.
Further, the final rule also prohibits the use of the IRB
approaches for equity exposures in the banking book.
Additionally, for other exposures where the IRB approaches
are still permissible, the final rule establishes floors by
exposure type regarding the estimation of certain model
parameters used in the derivation of credit risk-weighted
assets, and also provides greater specification as to permissible
parameter estimation practices under the IRB approaches.
Apart from credit risk, the final rule substantially revises
the operational risk capital framework applicable to the
Advanced Approaches for calculating risk-weighted assets by
introducing the Standardized Measurement Approach (SMA).
Operational risk capital is derived under the SMA through the
combination of two components: a so-called “Business
Indicator Component” and a “Loss Component.” The Business
Indicator Component, primarily reflective of various income
statement elements (i.e., a modified gross income indicator), is
calculated as the sum of the three-year average of its
components. The Loss Component reflects the operational loss
exposure of a banking organization that can be inferred from
internal loss experience, and is based on a 10-year average.
To reduce excessive variability with respect to risk-
weighted assets, and to therefore enhance the comparability of
risk-based capital ratios, the final rule establishes a floor
requirement that is to be applied to total risk-weighted assets.
More specifically, the risk-weighted assets that banks must use
to determine compliance with risk-based capital requirements
52
must be calculated as the maximum of (i) total risk-weighted
assets calculated using the approaches that the bank has
supervisory approval to use in accordance with the Basel III
capital framework (including both standardized and internally-
modeled based approaches), and (ii) 72.5% of the total risk-
weighted assets, calculated using only standardized
approaches.
Lastly, the final rule revises the design and calibration of
the Basel III leverage ratio (similar to the U.S. Basel III
Supplementary Leverage ratio). Among the revisions are those
with respect to the exposure measure (i.e., the denominator of
the ratio) in relation to the treatment of derivative exposures,
provisions, and off-balance sheet exposures.
Although the U.S. banking agencies subsequently issued a
statement announcing support for these finalized Basel III
reforms, further indicating that they will “consider how to
appropriately apply these revisions,” significant uncertainty
nonetheless currently exists with regard to the manner and
timeframe in which these Basel III capital reforms will be
implemented in the U.S.
Pillar 3 Disclosure Requirements—Consolidated and
Enhanced Framework
In March 2017, the Basel Committee issued a final rule
that adopts further revisions arising from the second phase of
its review of the “Pillar 3” disclosure requirements, and which
builds on the initial revisions from phase one of the review,
which were finalized in January 2015.
The final rule consolidates all existing Basel Committee
disclosure requirements into the Pillar 3 framework, with these
constituting the disclosure requirements regarding the
composition of capital, leverage ratio, Liquidity Coverage
Ratio, Net Stable Funding Ratio, indicators for measuring the
global systemic importance of banks, Countercyclical Capital
Buffer, interest rate risk in the banking book, and
remuneration. Moreover, the final rule introduces
enhancements to the Pillar 3 framework, in part, by
incorporating a “dashboard” of a banking organization’s key
regulatory capital and liquidity metrics. The final rule also sets
forth revisions and additions to the Pillar 3 framework
resulting from ongoing reforms to the regulatory capital
framework, including incorporating disclosure requirements
arising from the Financial Stability Board’s total loss-
absorbing capacity (TLAC) regime applicable to global
systemically important banks (GSIBs), and revised disclosure
requirements for market risk attributable to the revised market
risk framework.
The Basel Committee announced in the final rule that it
had commenced the third phase of its review of “Pillar 3”
disclosure requirements, which will build further upon the
revisions arising from the second phase of its review. Among
other requirements, the third phase will include development
of any disclosure requirements arising from the finalization of
the Basel III post-crisis regulatory reforms.
Citi is currently subject to the Advanced Approaches
disclosure requirements, as well as those with respect to
market risk, under the U.S. Basel III rules. The U.S. banking
agencies may revise the nature and extent of these disclosure
requirements in the future, as a result of the Basel
Committee’s revised Pillar 3 disclosure requirements.
Regulatory Treatment of Accounting Provisions for
Expected Credit Losses—Interim Approach and Transitional
Arrangements
In March 2017, the Basel Committee issued a final rule that
retains, for an interim period, the current Basel III treatment,
under both the Standardized Approach and Internal Ratings-
Based Approaches, applicable to accounting provisions for
credit losses. Such measure is in recognition of the
promulgation by both the International Accounting Standards
Board and more recently the U.S. Financial Accounting
Standards Board of new accounting pronouncements (IFRS 9,
“Financial Instruments,” and ASU No. 2016-13, “Financial
Instruments—Credit Losses,” respectively) regarding the
impairment of financial assets and adoption of provisioning
standards which incorporate forward-looking assessments in
the estimation of expected credit losses, which represents a
substantial departure from the recognition of credit losses
under the current incurred loss model. Measuring the
impairment of loans and other financial assets under expected
credit loss models may result in earlier recognition of, and
higher accounting provisions for, credit losses, and
consequently may increase volatility in regulatory capital. The
current Basel III treatment is being retained so as to afford the
Basel Committee additional time in which to thoroughly
consider and develop a permanent regulatory capital treatment
with respect to accounting provisions for expected credit
losses.
Moreover, the final rule provides for optional transitional
arrangements, which may be availed by jurisdictions, that
would permit banking organizations to more evenly absorb the
potentially significant adverse impact on regulatory capital
arising from the recognition of higher expected credit loss
provisions. The final rule also establishes standards with
which these transitional arrangements must comply.
The U.S. banking agencies may revise the Basel III rules
in the future in conjunction with the adoption by U.S. banking
organizations of the current expected credit loss model as set
forth under ASU 2016-13.
Revised Assessment Framework for Global Systemically
Important Banks
In March 2017, the Basel Committee issued a consultative
document which proposes revisions to the framework for
assessing the global systemic importance of banks. The
current framework employed by the Basel Committee as to the
identification of GSIBs and the assessment of a surcharge is
based primarily on quantitative measurement indicators
underlying five equally weighted broad categories of systemic
importance: (i) size, (ii) interconnectedness, (iii) cross-
jurisdictional activity, (iv) substitutability/financial institution
infrastructure, and (v) complexity. With the exception of size,
each of the other categories is composed of multiple
indicators, amounting to 12 indicators in total.
The proposal, which reflects the results of the Basel
Committee’s planned initial review, sets forth several
modifications to its GSIB framework, the most significant of
53
which for Citi would be the removal of the existing cap on the
substitutability/financial institution infrastructure category.
Among the other changes proposed by the Basel Committee
and estimated to be of lesser impact to Citi, would be the
introduction within the substitutability/financial institution
infrastructure category of a trading volume indicator,
accompanied by an equivalent reduction in the current
weighting of the existing underwriting indicator. Moreover,
the Basel Committee’s proposed requirement to expand the
scope of consolidation to include exposures of insurance
subsidiaries within the size, interconnectedness, and
complexity categories would raise the global aggregate of
these respective measures of systemic importance to which all
GSIBs are subject, and as a result it is estimated that Citi
would benefit on a relative basis vis-a-vis certain other GSIBs,
given that its insurance subsidiaries are presently consolidated
under U.S. generally accepted accounting principles and for
regulatory purposes. Aside from these proposed modifications,
the Basel Committee is also separately seeking feedback on
the potential for a new indicator regarding short-term
wholesale funding.
In contrast, a U.S. bank holding company that is
designated a GSIB under the Federal Reserve Board’s rule is
required, on an annual basis, to calculate a surcharge using
two methods, and is subject to the higher of the resulting two
surcharges. The first method (“method 1”) is based on the
same five broad categories of systemic importance resident
under the Basel Committee’s framework to identify a GSIB
and derive a surcharge. Under the second method (“method
2”), the substitutability category is replaced with a quantitative
measure intended to assess the extent of a GSIB’s reliance on
short-term wholesale funding.
Accordingly, if the Federal Reserve Board were to adopt
the Basel Committee’s proposed revisions with respect to the
U.S. GSIB framework, Citi’s method 1 GSIB surcharge could
potentially increase, while its method 2 GSIB surcharge would
remain unchanged. Further, while it is currently estimated that
under these circumstances method 2 would remain Citi’s
binding constraint for GSIB surcharge purposes, nonetheless
an increase in Citi’s method 1 GSIB surcharge could impact
the extent to which Citi satisfies certain TLAC minimum
requirements in the future.
Revisions to the Securitization Framework
In July 2017, the Basel Committee issued two consultative
documents: one which establishes criteria for identifying
“simple, transparent, and comparable” (STC) short-term
securitizations, and another which provides for an alternative,
and potentially preferential, regulatory capital treatment for
short-term securitizations identified as STC. The Basel
Committee had previously issued criteria solely for identifying
STC securitizations in July 2015, and also previously issued
an alternative regulatory capital treatment for STC
securitizations in July 2016. The July 2017 consultative
documents, however, introduce identification criteria and
regulatory capital treatments that are uniquely tailored to
short-term securitizations, with a focus on exposures related to
asset-backed commercial paper conduits.
The U.S. banking agencies may revise the regulatory
capital treatment of STC short-term securitizations in the
future, based upon any revisions adopted by the Basel
Committee.
Identification and Management of Step-in Risk
In October 2017, the Basel Committee issued final guidelines
regarding the identification and management of so-called
“step-in risk,” which is defined as “the risk that a bank decides
to provide financial support to an unconsolidated entity that is
facing stress, in the absence of, or in excess of, any contractual
obligations to provide such support.” The guidelines establish
a framework to be used by banks for conducting a self-
assessment of step-in risk, which would also be reported to
each bank’s respective national supervisors. The self-
assessment of step-in risk should consider the risk
characteristics of certain unconsolidated entities, as well as the
bank’s relationship to such entities. The framework, however,
does not require any additional regulatory capital or liquidity
charges beyond the current Basel III rules.
The Basel Committee expects the guidelines to be enacted
by member jurisdictions no later than 2020. The U.S. banking
agencies may issue guidelines regarding the identification and
measurement of step-in risk in the future, as a result of the
Basel Committee’s guidelines.
54
Tangible Common Equity, Tangible Book Value Per Share,
Book Value Per Share and Returns on Equity
Tangible common equity (TCE), as defined by Citi, represents
common equity less goodwill and other intangible assets
(other than MSRs). Other companies may calculate TCE in a
different manner. TCE, tangible book value per share and
returns on average TCE are non-GAAP financial measures.
Citi believes these capital metrics provide alternative measures
of capital strength and performance and are commonly used
by investors and industry analysts.
In millions of dollars or shares, except per share amounts
Total Citigroup stockholders’ equity
Less: Preferred stock
Common stockholders’ equity
Less:
Goodwill
Intangible assets (other than MSRs)
Goodwill and intangible assets (other than MSRs) related to assets held-for-sale (HFS)
Tangible common equity (TCE)
Common shares outstanding (CSO)
Book value per share (common equity/CSO)
Tangible book value per share (TCE/CSO)
In millions of dollars
Net income less preferred dividends
Average common stockholders’ equity
Average TCE
Less: Average net DTAs excluded from Common Equity Tier 1 Capital(2)
Average TCE, excluding net DTAs excluded from Common Equity Tier 1 Capital
Return on average common stockholders’ equity
Return on average TCE (ROTCE)(3)
Return on average TCE, excluding net DTAs excluded from Common Equity Tier 1 Capital
December 31,
2017
December 31,
2016
$
$
$
$
$
$
$
$
200,740
19,253
181,487
22,256
4,588
32
154,611
2,569.9
70.62
60.16
Year ended
December 31,
2017(1)
14,583
207,747
180,458
28,569
151,889
7.0%
8.1
9.6
$
$
$
$
$
$
$
$
225,120
19,253
205,867
21,659
5,114
72
179,022
2,772.4
74.26
64.57
Year ended
December 31,
2016
13,835
209,629
182,135
29,013
153,122
6.6%
7.6
9.0
(1) Year ended December 31, 2017 excludes the impact of Tax Reform. For a reconciliation of these measures, see “Impact of Tax Reform” above.
(2) Represents average net DTAs excluded in arriving at Common Equity Tier 1 Capital under full implementation of the U.S. Basel III rules.
(3) ROTCE represents net income available to common shareholders as a percentage of average TCE.
55
RISK FACTORS
The following discussion sets forth what management
currently believes could be the most significant risks and
uncertainties that could impact Citi’s businesses, results of
operations and financial condition. Other risks and
uncertainties, including those not currently known to Citi or its
management, could also negatively impact Citi’s businesses,
results of operations and financial condition. Thus, the
following should not be considered a complete discussion of
all of the risks and uncertainties Citi may face.
STRATEGIC RISKS
Citi’s Ability to Return Capital to Common Shareholders
Consistent with Its Capital Optimization Efforts
Substantially Depends on the CCAR Process and the Results
of Regulatory Stress Tests.
In addition to Board of Director approval, Citi’s ability to
return capital to its common shareholders consistent with its
capital optimization efforts, whether through its common stock
dividend or through a share repurchase program, substantially
depends on regulatory approval, including through the CCAR
process required by the Federal Reserve Board and the
supervisory stress tests required under the Dodd-Frank Act.
For additional information on Citi’s return of capital to
common shareholders in 2017 as well as the CCAR process
and supervisory stress test requirements, see “Capital
Resources—Overview” and “Capital Resources—Stress
Testing Component of Capital Planning” above.
Citi’s ability to accurately predict, interpret or explain to
stakeholders the outcome of the CCAR process, and thus
address any such market or investor perceptions, is difficult as
the Federal Reserve Board’s assessment of Citi’s capital
adequacy is conducted using the Board’s proprietary stress test
models, as well as a number of qualitative factors, including a
detailed assessment of Citi’s “capital adequacy process,” as
defined by the Board. The Federal Reserve Board has stated
that it expects leading capital adequacy practices will continue
to evolve and will likely be determined by the Board each year
as a result of its cross-firm review of capital plan submissions.
Similarly, the Federal Reserve Board has indicated that, as part
of its stated goal to continually evolve its annual stress testing
requirements, several parameters of the annual stress testing
process may be altered from time to time, including the
severity of the stress test scenario, the Federal Reserve Board
modeling of Citi’s balance sheet and the addition of
components deemed important by the Federal Reserve Board
(e.g., additional macroprudential considerations such as
funding and liquidity shocks).
Moreover, in 2016, senior officials at the Federal Reserve
Board indicated that the Board was considering integration of
the annual stress testing requirements with ongoing regulatory
capital requirements. While there has been no formal proposal
from the Federal Reserve Board to date, changes to the stress
testing regime being discussed, among others, include
introduction of a firm-specific “stress capital buffer” (SCB),
which would be equal to the maximum decline in a firm’s
Common Equity Tier 1 Capital ratio under a severely adverse
56
scenario over a nine-quarter CCAR measurement period,
subject to a minimum requirement of 2.5%. Accordingly, a
firm’s SCB would change annually based on its stress test
results in the prior year. Officials discussed the idea that the
SCB would replace the capital conservation buffer in both the
firm’s ongoing regulatory capital requirements and as part of
the floor for capital distributions in the CCAR process.
Federal Reserve Board senior officials also noted that
introduction of the SCB would have the effect of incorporating
a firm’s then-effective GSIB surcharge into its post-stress test
minimum capital requirements, which the Board has
previously indicated it is considering.
Although various uncertainties exist regarding the extent
of, and the ultimate impact to Citi from, these changes to the
Federal Reserve Board’s stress testing and CCAR regimes,
these changes would likely increase the level of capital Citi is
required to hold, thus potentially impacting the extent to
which Citi is able to return capital to shareholders.
Citi, Its Management and Businesses Must Continually
Review, Analyze and Successfully Adapt to Ongoing
Regulatory and Other Uncertainties and Changes in the U.S.
and Globally.
Despite the adoption of final regulations in numerous areas
impacting Citi and its businesses over the past several years,
Citi, its management and businesses continually face ongoing
regulatory uncertainties and changes, both in the U.S. and
globally. While the areas of ongoing regulatory uncertainties
and changes facing Citi are too numerous to list completely,
various examples include, but are not limited to (i)
uncertainties and potential fiscal, monetary and regulatory
changes arising from the U.S. Presidential administration and
Congress; (ii) potential changes to various aspects of the
regulatory capital framework applicable to Citi (see the CCAR
risk factor and “Capital Resources—Regulatory Capital
Standards Developments” above); and (iii) the terms of and
other uncertainties resulting from the U.K.’s potential exit
from the European Union (EU) (see the macroeconomic
challenges and uncertainties risk factor below).
Ongoing regulatory uncertainties and changes make Citi’s
and its management’s long-term business, balance sheet and
budget planning difficult or subject to change. For example,
the U.S. Presidential administration has discussed various
changes to certain regulatory requirements, which would
require ongoing assessment by management as to the impact
to Citi, its businesses and business planning. Business
planning is required to be based on possible or proposed rules
or outcomes, which can change dramatically upon finalization,
or upon implementation or interpretive guidance from
numerous regulatory bodies worldwide, and such guidance
can change.
Moreover, U.S. and international regulatory initiatives
have not always been undertaken or implemented on a
coordinated basis, and areas of divergence have developed and
continue to develop with respect to the scope, interpretation,
timing, structure or approach, leading to inconsistent or even
conflicting regulations, including within a single jurisdiction.
For example, in 2016, the European Commission proposed to
introduce a new requirement for major banking groups
headquartered outside the EU (which would include Citi) to
establish an intermediate EU holding company where the
foreign bank has two or more institutions (broadly meaning
banks, broker-dealers and similar financial firms) established
in the EU. While the proposal mirrors an existing U.S.
requirement for non-U.S. banking organizations to form U.S.
intermediate holding companies, if adopted, it could lead to
additional complexity with respect to Citi’s resolution
planning, capital and liquidity allocation and efficiency in
various jurisdictions. Regulatory changes have also
significantly increased Citi’s compliance risks and costs (see
the implementation and interpretation of regulatory changes
risk factor below).
Citi’s Ability to Utilize Its DTAs, and Thus Reduce the
Negative Impact of the DTAs on Citi’s Regulatory Capital,
Will Be Driven by Its Ability to Generate U.S. Taxable
Income and by the Provisions of and Guidance Issued in
Connection with Tax Reform.
At December 31, 2017, after the $22.6 billion remeasurement
of DTAs due to the impact of Tax Reform, Citi’s net DTAs
were $22.5 billion, net of a valuation allowance of $9.4
billion, of which $12.3 billion was excluded from Citi’s
Common Equity Tier 1 Capital, on a fully implemented basis,
under the U.S. Basel III rules (for additional information, see
“Capital Resources—Components of Citigroup Capital Under
Basel III (Advanced Approaches with Full Implementation)”
above). Of the net DTAs at December 31, 2017, $7.6 billion
related to foreign tax credit carry-forwards (FTCs), net of a
valuation allowance. The carry-forward utilization period for
FTCs is 10 years and represents the most time-sensitive
component of Citi’s DTAs. The FTC carry-forwards at
December 31, 2017 expire over the period of 2018–2027. Citi
must utilize any FTCs generated in the then-current year tax
return prior to utilizing any carry-forward FTCs.
The accounting treatment for realization of DTAs,
including FTCs, is complex and requires significant judgment
and estimates regarding future taxable earnings in the
jurisdictions in which the DTAs arise and available tax
planning strategies. Citi’s ability to utilize its DTAs, including
the FTC components, will be dependent upon Citi’s ability to
generate U.S. taxable income in the relevant tax carry-forward
periods. Failure to realize any portion of the DTAs would also
have a corresponding negative impact on Citi’s net income.
Citi expects transitional guidance from the U.S.
Department of the Treasury (U.S. Treasury) in 2018 regarding
the required allocation of existing FTC carry-forwards to the
appropriate FTC baskets as redefined by Tax Reform. The
U.S. Treasury is also expected to provide transitional guidance
that addresses the allocation of the overall domestic loss
(ODL) to these FTC baskets. An ODL allows a company to
recharacterize domestic income as income from sources
outside the U.S., which enables a taxpayer to use FTC carry-
forwards and FTCs generated in future years, assuming the
generation of sufficient U.S. taxed income. If the guidance
issued by the U.S. Treasury differs from Citi’s assumptions,
the valuation allowance against Citi’s FTC carry-forwards
would increase or decrease, depending upon the guidance
received. Citi’s net income would change by a corresponding
57
amount. However, a change in recognized FTC carry-forwards
would not impact Citi’s regulatory capital, given that such
amounts are already fully disallowed.
Citi does not expect to be subject to the Base Erosion
Anti-Abuse Tax (BEAT) added by Tax Reform. However, U.S.
Treasury guidance regarding BEAT could affect Citi’s
decisions as to how to structure its non-U.S. operations,
possibly in a less cost efficient manner. In addition, if BEAT
were to be applicable to Citi in any given year, it could have a
significantly adverse effect on both Citi’s net income and
regulatory capital.
For additional information on the impact of Tax Reform
and on Citi’s DTAs, including the FTCs, see “Significant
Accounting Policies and Significant Estimates—Income
Taxes” below and Notes 1 and 9 to the Consolidated Financial
Statements.
Citi’s Interpretation or Application of the Complex Tax Laws
to Which It Is Subject Could Differ from Those of the
Relevant Governmental Authorities, Which Could Result in
the Payment of Additional Taxes, Penalties or Interest.
Citi is subject to the various tax laws of the U.S. and its states
and municipalities, as well as the numerous non-U.S.
jurisdictions in which it operates. These tax laws are
inherently complex and Citi must make judgments and
interpretations about the application of these laws, including
Tax Reform as mentioned above, to its entities, operations and
businesses. Citi’s interpretations and application of the tax
laws, including with respect to Tax Reform, withholding tax
obligations and stamp and other transactional taxes, could
differ from that of the relevant governmental taxing authority,
which could result in the payment of additional taxes,
penalties or interest, which could be material.
Citi’s Ongoing Investments and Efficiency Initiatives May
Not Be as Successful as It Projects or Expects.
Citi continues to make important investments to streamline its
infrastructure and improve its client experience. For example,
Citi has been investing in higher return businesses, including
the U.S. cards and wealth management businesses in Global
Consumer Banking as well as certain businesses in
Institutional Clients Group, such as equities. Citi continues to
invest in its technology systems to enhance its digital
capabilities across the franchise. In addition, in 2016, Citi
announced a more than $1 billion investment in Citibanamex
that is expected to be completed by 2020. Citi’s investment
strategy will likely continue to evolve and change as its
business strategy and priorities change. Citi also has been
pursuing efficiency savings through its technology and digital
initiatives, location strategy and organizational simplification.
These investments and efficiency initiatives are being
undertaken as part of Citi’s overall strategy to meet
operational and financial objectives and targets, including
earnings growth expectations. There is no guarantee that these
or other initiatives Citi may pursue in its businesses or
operations will be as productive or effective as Citi expects, or
at all. Further, Citi’s ability to achieve expected returns on its
investments and costs savings depends, in part, on factors that
it cannot control, such as macroeconomic conditions, customer
and client reactions and ongoing regulatory changes, among
others.
Citi Has Co-Branding and Private Label Credit Card
Relationships with Various Retailers and Merchants and the
Failure to Maintain These Relationships Could Have a
Negative Impact on Citi’s Results of Operations or Financial
Condition.
Citi has co-branding and private label relationships through its
Citi-branded cards and Citi retail services credit card
businesses with various retailers and merchants globally in the
ordinary course of business whereby Citi issues credit cards to
customers of the retailers or merchants. Citi’s co-branding and
private label agreements provide for shared economics
between the parties and generally have a fixed term. The five
largest relationships constituted an aggregate of approximately
11% of Citi’s revenues for 2017.
These relationships could be negatively impacted due to,
among other things, declining sales and revenues or other
difficulties of the retailer or merchant, termination due to a
breach by Citi, the retailer or merchant of its responsibilities,
or external factors, including bankruptcies, liquidations,
restructurings, consolidations and other similar events. Over
the last several years, a number of retailers in the U.S. have
continued to experience declining sales, which has resulted in
significant numbers of store closures and, in a number of
cases, bankruptcies, as retailers attempt to cut costs and
compete with online retailers. In addition, as has been widely
reported, competition among card issuers, including Citi, for
these relationships is significant, and it has become
increasingly difficult in recent years to maintain such
relationships on the same terms or at all. While various
mitigating factors could be available to Citi if any of these
events were to occur—such as by replacing the retailer or
merchant or offering other card products—such events could
negatively impact Citi’s results of operations or financial
condition, including as a result of loss of revenues, higher cost
of credit, impairment of purchased credit card relationships
and contract-related intangibles or other losses (for
information on Citi’s credit card related intangibles generally,
see Note 16 to the Consolidated Financial Statements).
Macroeconomic and Geopolitical Challenges and
Uncertainties Globally Could Have a Negative Impact on
Citi’s Businesses and Results of Operations.
Citi has experienced, and could experience in the future,
negative impacts to its businesses and results of operations as
a result of macroeconomic and geopolitical challenges,
uncertainties and volatility. As a result of a 2016 U.K.
referendum, the U.K. triggered Article 50 in March 2017,
beginning the two-year period in which the U.K. will negotiate
its exit from the EU. Since then, numerous uncertainties have
arisen, including, among others, (i) potential changes to Citi’s
legal entity and booking model strategy and/or structure in
both the U.K. and the EU based on the outcome of
negotiations relating to the regulation of financial services; (ii)
the potential impact of the exit to the U.K. and European
economies and other financial markets; and (iii) the potential
impact to Citi’s exposures to counterparties as a result of any
economic slowdown in the U.K. or Europe.
In addition, governmental fiscal and monetary actions, or
expected actions, such as changes in the federal funds rate and
any balance sheet normalization program implemented by the
Federal Reserve Board or other central banks, could impact
interest rates, economic growth rates, the volatilities of global
financial markets, foreign exchange rates and capital flows
among countries. Although Citi estimates its overall net
interest revenue would generally increase due to higher
interest rates, higher rates could adversely affect Citi’s funding
costs, levels of deposits in its consumer and institutional
businesses and certain business or product revenues. Also, the
U.S. Presidential administration has indicated it may pursue
protectionist trade and other policies, which could result in
additional macroeconomic and/or geopolitical challenges,
uncertainties and volatilities. Further, the economic and fiscal
situations of certain European countries have remained fragile,
and concerns and uncertainties remain in Europe over the
potential exit of additional countries from the EU.
These and other global macroeconomic and geopolitical
challenges, uncertainties and volatilities have negatively
impacted, and could continue to negatively impact, Citi’s
businesses, results of operations and financial condition,
including its credit costs, revenues in its Markets and
securities services and other businesses, and AOCI (which
would in turn negatively impact Citi’s book and tangible book
value).
Citi’s Presence in the Emerging Markets Subjects It to
Various Risks as well as Increased Compliance and
Regulatory Risks and Costs.
During 2017, emerging markets revenues accounted for
approximately 36% of Citi’s total revenues (Citi generally
defines emerging markets as countries in Latin America, Asia
(other than Japan, Australia and New Zealand), Central and
Eastern Europe, the Middle East and Africa).
Citi’s presence in the emerging markets subjects it to a
number of risks, including sovereign volatility, political
events, foreign exchange controls, limitations on foreign
investment, sociopolitical instability (including from hyper-
inflation), fraud, nationalization or loss of licenses, business
restrictions, sanctions or asset freezes, potential criminal
charges, closure of branches or subsidiaries and confiscation
of assets. For example, Citi operates in several countries that
have, or have had in the past, strict foreign exchange controls,
such as Argentina, that limit its ability to convert local
currency into U.S. dollars and/or transfer funds outside the
country. In prior years, Citi has also discovered fraud in
certain emerging markets in which it operates. Political
turmoil and other instability have occurred in certain regions
and countries, including Asia, the Middle East and Latin
America, which have required management time and attention
in prior years (e.g., monitoring the impact of sanctions on the
Venezuelan and other countries’ economies as well as Citi’s
businesses and results of operations).
Citi’s emerging markets presence also increases its
compliance and regulatory risks and costs. For example, Citi’s
operations in emerging markets, including facilitating cross-
58
border transactions on behalf of its clients, subject it to higher
compliance risks under U.S. regulations primarily focused on
various aspects of global corporate activities, such as anti-
money laundering regulations and the Foreign Corrupt
Practices Act. These risks can be more acute in less-developed
markets and thus require substantial investment in compliance
infrastructure or could result in a reduction in certain of Citi’s
business activities. Any failure by Citi to comply with
applicable U.S. regulations, as well as the regulations in the
countries and markets in which it operates as a result of its
global footprint, could result in fines, penalties, injunctions or
other similar restrictions, any of which could negatively
impact Citi’s results of operations and reputation.
Citi’s Inability in Its Resolution Plan Submissions to Address
Any Deficiencies Identified or Future Guidance Provided by
the Federal Reserve Board and FDIC Could Subject Citi to
More Stringent Capital, Leverage or Liquidity Requirements,
or Restrictions on Its Growth, Activities or Operations, and
Could Eventually Require Citi to Divest Assets or
Operations.
Title I of the Dodd-Frank Act requires Citi to prepare and
submit a plan to the Federal Reserve Board and the FDIC for
the orderly resolution of Citigroup (the bank holding
company) and its significant legal entities, under the U.S.
Bankruptcy Code in the event of future material financial
distress or failure. Citi submitted its most recent resolution
plan in July 2017. On December 19, 2017, the Federal Reserve
and the FDIC informed Citi that (i) the agencies jointly
decided that Citi’s 2017 resolution plan submission
satisfactorily addressed the shortcomings identified in the
2015 resolution plan submission, and (ii) the agencies did not
identify any deficiencies in the 2017 resolution plan
submission. Citi’s next resolution plan submission is due July
1, 2019. For additional information on Citi’s 2017 resolution
plan submission, see “Managing Global Risk—Liquidity
Risk” below.
Under Title I, if the Federal Reserve Board and the FDIC
jointly determine that Citi’s resolution plan is not
“credible” (which, although not defined, is generally believed
to mean the regulators do not believe the plan is feasible or
would otherwise allow the regulators to resolve Citi in a way
that protects systemically important functions without severe
systemic disruption), or would not facilitate an orderly
resolution of Citi under the U.S. Bankruptcy Code, and Citi
fails to resubmit a resolution plan that remedies any identified
deficiencies, Citi could be subjected to more stringent capital,
leverage or liquidity requirements, or restrictions on its
growth, activities or operations. If within two years from the
imposition of any requirements or restrictions Citi has still not
remediated any identified deficiencies, then Citi could
eventually be required to divest certain assets or operations.
Any such restrictions or actions would negatively impact
Citi’s reputation, market and investor perception, operations
and strategy.
Citi’s Performance and the Performance of Its Individual
Businesses Could Be Negatively Impacted if Citi Is Not Able
to Hire and Retain Highly Qualified Employees for Any
Reason.
Citi’s performance and the performance of its individual
businesses largely depends on the talents and efforts of its
highly skilled employees. Specifically, Citi’s continued ability
to compete in its businesses, to manage its businesses
effectively and to continue to execute its overall global
strategy depends on its ability to attract new employees and to
retain and motivate its existing employees. If Citi is unable to
continue to attract and retain the most highly qualified
employees for any reason, Citi’s performance, including its
competitive position, the successful execution of its overall
strategy and its results of operations could be negatively
impacted.
Citi’s ability to attract and retain employees depends on
numerous factors, some of which are outside of its control. For
example, the banking industry generally is subject to more
stringent regulation of executive and employee compensation
than other industries, including deferral and clawback
requirements for incentive compensation. Citi often competes
in the market for talent with entities that are not subject to
such significant regulatory restrictions on the structure of
incentive compensation. Other factors that could impact Citi’s
ability to attract and retain employees include its culture,
compensation, and the management and leadership of the
company as well as its individual businesses, presence in the
particular market or region at issue and the professional
opportunities it offers.
U.S. and Non-U.S. Financial Services Companies and
Others Pose Increasingly Competitive Challenges to Citi.
Citi operates in an increasingly competitive environment,
which includes both financial and non-financial services firms.
These companies compete on the basis of, among other
factors, quality and type of products and services offered,
price, technology and reputation. Citi competes with financial
services companies in the U.S. and globally, which continually
develop and introduce new products and services. In addition,
in recent years, non-financial services firms, such as financial
technology firms, have begun to offer services traditionally
provided by financial institutions, such as Citi. These firms
attempt to use technology and mobile platforms to enhance the
ability of companies and individuals to borrow money, save
and invest. To the extent it is not able to effectively compete
with these and other firms, Citi could be placed at a
competitive disadvantage, which could result in loss of
customers and market share, and its businesses, results of
operations and financial condition could suffer. For additional
information on Citi’s competitors, see the co-brand and private
label cards risk factor above and “Supervision, Regulation and
Other—Competition” below.
59
CREDIT RISKS
Concentrations of Risk Can Increase the Potential for Citi to
Incur Significant Losses.
Concentrations of risk, particularly credit and market risk, can
increase Citi’s risk of significant losses. As of year-end 2017,
Citi’s most significant concentration of credit risk was with the
U.S. government and its agencies, which primarily results
from trading assets and investments issued by the U.S.
government and its agencies (for additional information,
including concentrations of credit risk to other public sector
entities, see Note 23 to the Consolidated Financial
Statements). Citi also routinely executes a high volume of
securities, trading, derivative and foreign exchange
transactions with counterparties in the financial services
industry, including banks, insurance companies, investment
banks, governments, central banks and other financial
institutions.
As regulatory or market developments continue to lead to
increased centralization of trading activity through particular
clearing houses, central agents, exchanges or other financial
market utilities, Citi could also experience an increase in
concentration of risk to these industries. These concentrations
of risk as well as the risk of failure of a large counterparty,
central counterparty clearing house or financial market utility
could limit the effectiveness of Citi’s hedging strategies and
cause Citi to incur significant losses.
LIQUIDITY RISKS
The Maintenance of Adequate Liquidity and Funding
Depends on Numerous Factors, Including Those Outside of
Citi’s Control, Such as Market Disruptions and Increases in
Citi’s Credit Spreads.
As a global financial institution, adequate liquidity and
sources of funding are essential to Citi’s businesses. Citi’s
liquidity and sources of funding can be significantly and
negatively impacted by factors it cannot control, such as
general disruptions in the financial markets, governmental
fiscal and monetary policies, regulatory changes or negative
investor perceptions of Citi’s creditworthiness.
In addition, Citi’s costs to obtain and access secured
funding and long-term unsecured funding are directly related
to its credit spreads. Changes in credit spreads constantly
occur and are market driven, including both external market
factors and factors specific to Citi, and can be highly volatile.
Moreover, Citi’s ability to obtain funding may be
impaired if other market participants are seeking to access the
markets at the same time, or if market appetite is reduced, as is
likely to occur in a liquidity or other market crisis. A sudden
drop in market liquidity could also cause a temporary or
lengthier dislocation of underwriting and capital markets
activity. In addition, clearing organizations, regulators, clients
and financial institutions with which Citi interacts may
exercise the right to require additional collateral based on
these market perceptions or market conditions, which could
further impair Citi’s access to and cost of funding.
As a holding company, Citi relies on interest, dividends,
distributions and other payments from its subsidiaries to fund
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dividends as well as to satisfy its debt and other obligations.
Several of Citi’s U.S. and non-U.S. subsidiaries are or may be
subject to capital adequacy or other regulatory or contractual
restrictions on their ability to provide such payments,
including any local regulatory stress test requirements.
Limitations on the payments that Citi receives from its
subsidiaries could also impact its liquidity.
The Credit Rating Agencies Continuously Review the Credit
Ratings of Citi and Certain of Its Subsidiaries, and Ratings
Downgrades Could Have a Negative Impact on Citi’s
Funding and Liquidity Due to Reduced Funding Capacity
and Increased Funding Costs, Including Derivatives
Triggers That Could Require Cash Obligations or Collateral
Requirements.
The credit rating agencies, such as Fitch, Moody’s and S&P,
continuously evaluate Citi and certain of its subsidiaries, and
their ratings of Citi and its more significant subsidiaries’ long-
term/senior debt and short-term/commercial paper, as
applicable, are based on a number of factors, including
standalone financial strength, as well as factors not entirely
within the control of Citi and its subsidiaries, such as the
agencies’ proprietary rating agency methodologies and
assumptions and conditions affecting the financial services
industry and markets generally.
Citi and its subsidiaries may not be able to maintain their
current respective ratings. Ratings downgrades could
negatively impact Citi’s ability to access the capital markets
and other sources of funds as well as the costs of those funds,
and its ability to maintain certain deposits. A ratings
downgrade could also have a negative impact on Citi’s
funding and liquidity due to reduced funding capacity, as well
as the impact of derivative triggers, which could require Citi to
meet cash obligations and collateral requirements. In addition,
a ratings downgrade could also have a negative impact on
other funding sources, such as secured financing and other
margined transactions for which there may be no explicit
triggers, as well as on contractual provisions and other credit
requirements of Citi’s counterparties and clients, which may
contain minimum ratings thresholds in order for Citi to hold
third-party funds.
Moreover, credit ratings downgrades can have impacts
that may not be currently known to Citi or are not possible to
quantify. For example, some entities may have ratings
limitations as to their permissible counterparties, of which Citi
may or may not be aware. In addition, certain of Citi’s
corporate customers and trading counterparties, among other
clients, could re-evaluate their business relationships with Citi
and limit the trading of certain contracts or market instruments
with Citi in response to ratings downgrades. Changes in
customer and counterparty behavior could impact not only
Citi’s funding and liquidity but also the results of operations of
certain Citi businesses. For additional information on the
potential impact of a reduction in Citi’s or Citibank’s credit
ratings, see “Managing Global Risk—Liquidity Risk” below.
OPERATIONAL RISKS
A Disruption of Citi’s Operational Systems Could Negatively
Impact Citi’s Reputation, Customers, Clients, Businesses or
Results of Operations and Financial Condition.
A significant portion of Citi’s operations relies heavily on the
secure processing, storage and transmission of confidential
and other information as well as the monitoring of a large
number of complex transactions on a minute-by-minute basis.
For example, through its Global Consumer Banking and credit
card and securities services businesses in Institutional Clients
Group, Citi obtains and stores an extensive amount of personal
and client-specific information for its retail, corporate and
governmental customers and clients and must accurately
record and reflect their extensive account transactions.
With the evolving proliferation of new technologies and
the increasing use of the Internet, mobile devices and cloud
technologies to conduct financial transactions, large global
financial institutions such as Citi have been, and will continue
to be, subject to an increasing risk of operational disruption or
cyber or information security incidents from these activities
(for additional information on cybersecurity risk, see the
discussion below). These incidents are unpredictable and can
arise from numerous sources, not all of which are in Citi’s
control, including among others human error, fraud or malice
on the part of employees, accidental technological failure,
electrical or telecommunication outages, failures of computer
servers or other similar damage to Citi’s property or assets.
These issues can also arise as a result of failures by third
parties with which Citi does business, such as failures by
Internet, mobile technology and cloud service providers or
other vendors to adequately safeguard their systems and
prevent system disruptions or cyber attacks.
Such events could cause interruptions or malfunctions in
the operations of Citi (such as the temporary loss of
availability of Citi’s online banking system or mobile banking
platform), as well as the operations of its clients, customers or
other third parties. Given Citi’s global footprint and the high
volume of transactions processed by Citi, certain errors or
actions may be repeated or compounded before they are
discovered and rectified, which would further increase these
costs and consequences. Any such events could also result in
financial losses as well as misappropriation, corruption or loss
of confidential and other information or assets, which could
negatively impact Citi’s reputation, customers, clients,
businesses or results of operations and financial condition,
perhaps significantly.
Citi’s and Third Parties’ Computer Systems and Networks
Have Been, and Will Continue to Be, Subject to an
Increasing Risk of Continually Evolving, Sophisticated
Cybersecurity Risks That Could Result in the Theft, Loss,
Misuse or Disclosure of Confidential Client or Customer
Information, Damage to Citi’s Reputation, Additional Costs
to Citi, Regulatory Penalties, Legal Exposure and Financial
Losses.
Citi’s computer systems, software and networks are subject to
ongoing cyber incidents such as unauthorized access, loss or
destruction of data (including confidential client information),
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account takeovers, unavailability of service, computer viruses
or other malicious code, cyber attacks and other similar
events. These threats can arise from external parties, including
criminal organizations, extremist parties and certain foreign
state actors that engage in cyber activities.
Third parties with which Citi does business, as well as
retailers and other third parties with which Citi’s customers do
business, may also be sources of cybersecurity risks,
particularly where activities of customers are beyond Citi’s
security and control systems. For example, Citi outsources
certain functions, such as processing customer credit card
transactions, uploading content on customer-facing websites,
and developing software for new products and services. These
relationships allow for the storage and processing of customer
information by third-party hosting of or access to Citi
websites, which could result in compromise or the potential to
introduce vulnerable or malicious code, resulting in security
breaches impacting Citi customers. Furthermore, because
financial institutions are becoming increasingly interconnected
with central agents, exchanges and clearing houses, including
as a result of the derivatives reforms over the last few years,
Citi has increased exposure to cyber attacks through third
parties.
As further evidence of the increasing and potentially
significant impact of cyber incidents, in 2017, a credit bureau
reported a cyber incident that impacted sensitive information
of an estimated 143 million consumers. In addition, in recent
years, several U.S. retailers and financial institutions and other
multinational companies reported cyber incidents that
compromised customer data or resulted in theft of funds or
theft or destruction of corporate information or other assets.
Moreover, the U.S. government as well as several
multinational companies reported cyber incidents in prior
years that affected their computer systems resulting in the data
of millions of customers and employees being compromised.
These incidents have resulted in increased legislative and
regulatory scrutiny of firms’ cybersecurity protection services
and calls for additional laws and regulations to further enhance
protection of consumers’ personal data.
While Citi has not been materially impacted by these
reported or other cyber incidents, Citi has been subject to other
intentional cyber incidents from external sources over the last
several years, including (i) denial of service attacks, which
attempted to interrupt service to clients and customers, (ii)
data breaches, which obtained unauthorized access to
customer account data and (iii) malicious software attacks on
client systems, which attempted to allow unauthorized
entrance to Citi’s systems under the guise of a client and the
extraction of client data. While Citi’s monitoring and
protection services were able to detect and respond to the
incidents targeting its systems before they became significant,
they still resulted in limited losses in some instances as well as
increases in expenditures to monitor against the threat of
similar future cyber incidents. There can be no assurance that
such cyber incidents will not occur again, and they could
occur more frequently and on a more significant scale.
Further, although Citi devotes significant resources to
implement, maintain, monitor and regularly upgrade its
systems and networks with measures such as intrusion
detection and prevention and firewalls to safeguard critical
business applications, there is no guarantee that these
measures or any other measures can provide absolute security.
Because the methods used to cause cyber attacks change
frequently or, in some cases, are not recognized until
launched, Citi may be unable to implement effective
preventive measures or proactively address these methods
until they are discovered. In addition, while Citi engages in
certain actions to reduce the exposure resulting from
outsourcing, such as performing onsite security control
assessments and limiting third-party access to the least
privileged level necessary to perform job functions, these
actions cannot prevent all external cyber attacks, information
breaches or similar losses.
Cyber incidents can result in the disclosure of personal,
confidential or proprietary customer or client information,
damage to Citi’s reputation with its clients and the market,
customer dissatisfaction, additional costs (including credit
costs) to Citi (such as repairing systems, replacing customer
payment cards or adding new personnel or protection
technologies), regulatory penalties, loss of revenues, exposure
to litigation and other financial losses, including loss of funds,
to both Citi and its clients and customers (for additional
information on the potential impact from cyber incidents, see
the operational systems risk factor above).
While Citi maintains insurance coverage that may,
subject to policy terms and conditions including significant
self-insured deductibles, cover certain aspects of cyber risks,
such insurance coverage may be insufficient to cover all
losses.
Incorrect Assumptions or Estimates in Citi’s Financial
Statements Could Cause Significant Unexpected Losses in
the Future, and Changes to Financial Accounting and
Reporting Standards or Interpretations Could Have a
Material Impact on How Citi Records and Reports Its
Financial Condition and Results of Operations.
U.S. GAAP requires Citi to use certain assumptions and
estimates in preparing its financial statements, including
reserves related to litigation and regulatory exposures,
valuation of DTAs, the estimate of the allowance for credit
losses and the fair values of certain assets and liabilities,
among other items. If Citi’s assumptions or estimates
underlying its financial statements are incorrect or differ from
actual future events, Citi could experience unexpected losses,
some of which could be significant.
The Financial Accounting Standards Board (FASB) has
issued several financial accounting and reporting standards
that will govern key aspects of Citi’s financial statements or
interpretations thereof when those standards become effective,
including those areas where Citi is required to make
assumptions or estimates. For example, the FASB’s new
accounting standard on credit losses, which will become
effective for Citi on January 1, 2020, will require earlier
recognition of credit losses on financial assets. The new
accounting model requires that lifetime “expected credit
losses” on financial assets not recorded at fair value through
net income, such as loans and held-to-maturity securities, be
recorded at inception of the financial asset, replacing the
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multiple existing impairment models under U.S. GAAP that
generally require that a loss be “incurred” before it is
recognized (for additional information on this and other
accounting standards, see “Significant Accounting Policies
and Significant Estimates” below).
Changes to financial accounting or reporting standards or
interpretations, whether promulgated or required by the FASB
or other regulators, could present operational challenges and
could require Citi to change certain of the assumptions or
estimates it previously used in preparing its financial
statements, which could negatively impact how it records and
reports its financial condition and results of operations
generally and/or with respect to particular businesses. For
additional information on the key areas for which assumptions
and estimates are used in preparing Citi’s financial statements,
see “Significant Accounting Policies and Significant
Estimates” below and Notes 1 and 27 to the Consolidated
Financial Statements.
Citi May Incur Significant Losses and Its Regulatory Capital
and Capital Ratios Could be Negatively Impacted if Its Risk
Management Process, Strategies or Models Are Deficient or
Ineffective.
Citi utilizes a broad and diversified set of risk management
and mitigation processes and strategies, including the use of
various risk models in analyzing and monitoring the various
risks Citi assumes in conducting its activities. For example,
Citi uses models as part of its various stress testing initiatives
across Citi. Citi also relies on data to aggregate, assess and
manage various risk exposures. Management of these risks is
made even more challenging within a global financial
institution such as Citi, particularly given the complex, diverse
and rapidly changing financial markets and conditions in
which Citi operates.
These processes, strategies and models are inherently
limited because they involve techniques, including the use of
historical data in many circumstances, and judgments that
cannot anticipate every economic and financial outcome in the
markets in which Citi operates, nor can they anticipate the
specifics and timing of such outcomes. Citi could incur
significant losses and its regulatory capital and capital ratios
could be negatively impacted, if Citi’s risk management
processes, including its ability to manage and aggregate data
in a timely and accurate manner, strategies or models are
deficient or ineffective. Such deficiencies or ineffectiveness
could also result in inaccurate financial, regulatory or risk
reporting.
Moreover, Citi’s Basel III regulatory capital models,
including its credit, market and operational risk models,
currently remain subject to ongoing regulatory review and
approval, which may result in refinements, modifications or
enhancements (required or otherwise) to these models.
Modifications or requirements resulting from these ongoing
reviews, as well as any future changes or guidance provided
by the U.S. banking agencies regarding the regulatory capital
framework applicable to Citi, have resulted in, and could
continue to result in, significant changes to Citi’s risk-
weighted assets. These changes can negatively impact Citi’s
capital ratios and its ability to achieve its regulatory capital
requirements as it projects or as required.
COMPLIANCE, CONDUCT AND LEGAL RISKS
Ongoing Implementation and Interpretation of Regulatory
Changes and Requirements in the U.S. and Globally Have
Increased Citi’s Compliance Risks and Costs.
As referenced above, over the past several years, Citi has been
required to implement a significant number of regulatory
changes across all of its businesses and functions, and these
changes continue. In some cases, Citi’s implementation of a
regulatory requirement is occurring simultaneously with
changing or conflicting regulatory guidance, legal challenges
or legislative action to modify or repeal existing rules or enact
new rules. Moreover, in many cases, these are entirely new
regulatory requirements or regimes, resulting in much
uncertainty regarding regulatory expectations as to what is
definitely required in order to be in compliance.
Accompanying this compliance uncertainty is heightened
regulatory scrutiny and expectations in the U.S. and globally
for the financial services industry with respect to governance
and risk management practices, including its compliance and
regulatory risks (for a discussion of heightened regulatory
expectations on “conduct risk” at, and the overall “culture” of,
financial institutions such as Citi, see the legal and regulatory
proceedings risk factor below). All of these factors have
resulted in increased compliance risks and costs for Citi.
Examples of regulatory changes that have resulted in
increased compliance risks and costs include (i) the Federal
Reserve Board’s “total loss absorbing capacity” (TLAC)
requirements, including consequences of a breach of the
external long-term debt (LTD) requirement and the clean
holding company requirements, given there are no cure
periods for the requirements, and the new “anti-evasion”
provision that authorizes the Federal Reserve Board to exclude
from a bank holding company’s outstanding external LTD any
debt having certain features that would, in the Board’s view,
“significantly impair” the debt’s ability to absorb losses; (ii)
the Volcker Rule, which requires Citi to maintain an extensive
global compliance regime, including significant
documentation to support the prohibition against proprietary
trading; and (iii) a proliferation of laws relating to the
limitation of cross-border data movement, including data
localization and protection and privacy laws, which can
conflict with or increase compliance complexity with respect
to anti-money laundering laws.
Extensive compliance requirements can result in
increased reputational and legal risks, as failure to comply
with regulations and requirements, or failure to comply as
expected, can result in enforcement and/or regulatory
proceedings (for additional discussion, see the legal and
regulatory proceedings risk factor below). In addition,
increased and ongoing compliance requirements and
uncertainties have resulted in higher costs for Citi. For
example, Citi employed roughly 30,000 risk, regulatory and
compliance staff as of year-end 2017, out of a total employee
population of 209,000, compared to approximately 14,000 as
of year-end 2008 with a total employee population of 323,000.
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These higher regulatory and compliance costs can impede
Citi’s ongoing, business-as-usual cost reduction efforts, and
can also require management to reallocate resources, including
potentially away from ongoing business investment initiatives,
as discussed above.
Citi Is Subject to Extensive Legal and Regulatory
Proceedings, Investigations and Inquiries That Could Result
in Significant Penalties and Other Negative Impacts on Citi,
Its Businesses and Results of Operations.
At any given time, Citi is defending a significant number of
legal and regulatory proceedings and is subject to numerous
governmental and regulatory examinations, investigations and
other inquiries. Over the last several years, the frequency with
which such proceedings, investigations and inquiries are
initiated have increased substantially, and the global judicial,
regulatory and political environment has generally been
unfavorable for large financial institutions. The complexity of
the federal and state regulatory and enforcement regimes in
the U.S., coupled with the global scope of Citi’s operations,
also means that a single event or issue may give rise to a large
number of overlapping investigations and regulatory
proceedings, either by multiple federal and state agencies in
the U.S. or by multiple regulators and other governmental
entities in different jurisdictions.
Moreover, U.S. and non-U.S. regulators have been
increasingly focused on “conduct risk,” a term used to
describe the risks associated with behavior by employees and
agents, including third-party vendors utilized by Citi, that
could harm clients, customers, investors or the markets, such
as improperly creating, selling, marketing or managing
products and services or improper incentive compensation
programs with respect thereto, failures to safeguard a party’s
personal information, or failures to identify and manage
conflicts of interest. In addition to increasing Citi’s
compliance and reputational risks, this focus on conduct risk
could lead to more regulatory or other enforcement
proceedings and civil litigation, including for practices which
historically were acceptable but are now receiving greater
scrutiny. Further, while Citi takes numerous steps to prevent
and detect conduct by employees and agents that could
potentially harm clients, customers, investors or the markets,
such behavior may not always be deterred or prevented.
Banking regulators have also focused on the overall culture of
financial services firms, including Citi. In addition to
regulatory restrictions or structural changes that could result
from perceived deficiencies in Citi’s culture, such focus could
also lead to additional regulatory proceedings.
Further, the severity of the remedies sought in legal and
regulatory proceedings to which Citi is subject has increased
substantially in recent years. U.S. and certain international
governmental entities have increasingly brought criminal
actions against, or have sought criminal convictions from,
financial institutions, and criminal prosecutors in the U.S.
have increasingly sought and obtained criminal guilty pleas or
deferred prosecution agreements against corporate entities and
other criminal sanctions from those institutions. For example,
in 2015, an affiliate of Citi pleaded guilty to an antitrust
violation and paid a substantial fine to resolve a U.S.
Department of Justice investigation into Citi’s foreign
exchange business practices. These types of actions by U.S.
and international governmental entities may, in the future,
have significant collateral consequences for a financial
institution, including loss of customers and business, and the
inability to offer certain products or services and/or operate
certain businesses. Citi may be required to accept or be subject
to similar types of criminal remedies, consent orders,
sanctions, substantial fines and penalties, remediation and
other financial costs or other requirements in the future,
including for matters or practices not yet known to Citi, any of
which could materially and negatively affect Citi’s businesses,
business practices, financial condition or results of operations,
require material changes in Citi’s operations or cause Citi
reputational harm.
Further, many large claims—both private civil and
regulatory—asserted against Citi are highly complex, slow to
develop and may involve novel or untested legal theories. The
outcome of such proceedings is difficult to predict or estimate
until late in the proceedings. Although Citi establishes accruals
for its legal and regulatory matters according to accounting
requirements, Citi’s estimates of, and changes to, these
accruals involve significant judgment and may be subject to
significant uncertainty, and the amount of loss ultimately
incurred in relation to those matters may be substantially
higher than the amounts accrued. In addition, certain
settlements are subject to court approval and may not be
approved.
For additional information relating to Citi’s legal and
regulatory proceedings and matters, including Citi’s policies
on establishing legal accruals, see Note 27 to the Consolidated
Financial Statements.
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Managing Global Risk Table of Contents
MANAGING GLOBAL RISK
Overview
CREDIT RISK(1)
Overview
Consumer Credit
Corporate Credit
Additional Consumer and Corporate Credit Details
Loans Outstanding
Details of Credit Loss Experience
Allowance for Loan Losses
Non-Accrual Loans and Assets and Renegotiated Loans
Forgone Interest Revenue on Loans
LIQUIDITY RISK
Overview
High-Quality Liquid Assets (HQLA)
Loans
Deposits
Long-Term Debt
Secured Funding Transactions and Short-Term Borrowings
Liquidity Monitoring and Measurement
Credit Ratings
MARKET RISK(1)
Overview
Market Risk of Non-Trading Portfolios
Net Interest Revenue at Risk
Interest Rate Risk of Investment Portfolios—Impact on AOCI
Changes in Foreign Exchange Rates—Impacts on AOCI and Capital
Interest Revenue/Expense and Net Interest Margin
Additional Interest Rate Details
Market Risk of Trading Portfolios
Factor Sensitivities
Value at Risk (VAR)
Stress Testing
OPERATIONAL RISK
COMPLIANCE RISK
CONDUCT RISK
LEGAL RISK
REPUTATIONAL RISK
STRATEGIC RISK
Country Risk
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(1) For additional information regarding certain credit risk, market risk and other quantitative and qualitative information, refer to Citi’s Pillar 3 Basel III Advanced
Approaches Disclosures, as required by the rules of the Federal Reserve Board, on Citi’s Investor Relations website.
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MANAGING GLOBAL RISK
Overview
For Citi, 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.
Specifically, the activities that Citi engages in, and the risks
those activities generate, must be consistent with Citi’s
mission and value proposition, the key principles that guide it,
and Citi's risk appetite.
Risk management must be built on a foundation of ethical
culture. Under Citi’s mission and value proposition, which
was developed by Citi’s senior leadership and distributed
throughout the Company, Citi strives to serve its clients as a
trusted partner by responsibly providing financial services that
enable growth and economic progress while earning and
maintaining the public’s trust by constantly adhering to the
highest ethical standards. As such, Citi asks all employees to
ensure that their decisions pass three tests: they are in our
clients’ interests, create economic value and are always
systemically responsible. Additionally, Citi evaluates
employees’ performance against behavioral expectations set
out in Citi’s leadership standards, which were designed in part
to effectuate Citi’s mission and value proposition. Other
culture-related efforts in connection with conduct risk, ethics
and leadership, escalation, and treating customers fairly help
Citi to execute its mission and value proposition.
Citi’s Company-wide risk governance framework consists
of the policies, procedures, and processes through which Citi
identifies, measures, manages, monitors, reports and controls
risks across the Company. It also emphasizes Citi’s risk
culture and lays out standards, procedures and programs that
are designed and undertaken to enhance the Company’s risk
culture, embed this culture deeply within the organization, and
give employees tools to make sound and ethical risk decisions
and to escalate issues appropriately. The risk governance
framework has been developed in alignment with the
expectations of the Office of the Comptroller of the Currency
(OCC) Heightened Standards. It is also aligned with the
relevant components of the Basel Committee on Banking
Supervision’s corporate governance principles for banks and
relevant components of the Federal Reserve’s Enhanced
Prudential Standards for Bank Holding Companies and
Foreign Banking Organizations.
Four key principles—common purpose, responsible
finance, ingenuity and leadership—guide Citi as it performs its
mission. Citi’s risk appetite, which is approved by the
Citigroup Board of Directors, specifies the aggregate levels
and types of risk the Board and management are willing to
assume to achieve Citi’s strategic objectives and business plan,
consistent with applicable capital, liquidity and other
regulatory requirements.
Citi selectively takes risks in support of its underlying
business strategy, while striving to ensure it operates within its
mission and value proposition and risk appetite.
Citi’s risks are generally categorized and summarized as
follows:
•
• Credit risk is the risk of loss resulting from the decline in
credit quality or failure of a borrower, counterparty, third
party or issuer to honor its financial or contractual
obligations.
Liquidity risk is the risk that the Company will not be able
to efficiently meet both expected and unexpected current
and future cash flow and collateral needs without
adversely affecting either daily operations or financial
condition of the Company. The risk may be exacerbated
by the inability of the Company to access funding sources
or monetize assets and the composition of liability
funding and liquid assets.
• Market risk is the risk of loss arising from changes in the
value of Citi’s assets and liabilities resulting from changes
in market variables, such as interest rates, exchange rates
or credit spreads. Losses can be exacerbated by the
presence of basis or correlation risks.
• Operational risk is the risk of loss resulting from
inadequate or failed internal processes, systems, human
factors, or from external events. It includes risk of failing
to comply with applicable laws and regulations, but
excludes strategic risk (see below). It also includes the
reputation and franchise risk associated with business
practices or market conduct in which Citi is involved as
well as compliance, conduct and legal risks. Operational
risk is inherent in Citi’s global business activities, as well
as related support, and can result in losses arising from
events related to fraud, theft and unauthorized activity;
employment practices and workplace environment;
clients, products and business practices; physical assets
and infrastructure; and execution, delivery and process
management.
• Compliance risk is the risk arising from violations of, or
non-conformance with, local, national or cross-border
laws, rules or regulations, Citi’s internal policies or other
relevant standards of conduct or risk of harming
customers, clients or the integrity of the market.
• Conduct risk is the risk that Citi’s employees or agents
•
may (intentionally or through negligence) harm
customers, clients or the integrity of the markets, and
thereby the integrity of Citi.
Legal risk includes the risk from uncertainty due to legal
or regulatory actions, proceedings or investigations, or
uncertainty in the applicability or interpretation of
contracts, laws or regulations.
• Reputational risk is the risk to current or anticipated
•
earnings, capital, or franchise or enterprise value arising
from negative public opinion.
Strategic risk is the risk to current or anticipated earnings,
capital, or franchise or enterprise value arising from poor,
but authorized business decisions, an inability to adapt to
changes in the operating environment or other external
factors that may impair the ability to carry out a business
strategy. Strategic risk also includes:
• Country risk which is the risk that an event in a
country (precipitated by developments within or
external to a country) will impair the value of Citi’s
franchise or will adversely affect the ability of
obligors within that country to honor their
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obligations. Country risk events may include
sovereign defaults, banking crises, currency crises,
currency convertibility and/or transferability
restrictions, or political events.
Citi manages its risks through each of its three lines of
defense: (i) business management, (ii) independent control
functions and (iii) internal audit. The three lines of defense
collaborate with each other in structured forums and processes
to bring various perspectives together and to lead the
organization toward outcomes that are in clients’ interests,
create economic value and are systemically responsible.
First Line of Defense: Business Management
Each of Citi’s businesses owns its risks and is responsible for
assessing and managing its risks. Each business is also
responsible for establishing and operating controls to mitigate
key risks, assessing internal controls and promoting a culture
of compliance and control. In doing so, a business is required
to maintain appropriate staffing and implement appropriate
procedures to fulfill its risk governance responsibilities.
The CEOs of each region and business report to the
Citigroup CEO. The Head of Operations and Technology and
the Head of Productivity, who are considered part of the first
line of defense, also report to the Citigroup CEO.
Businesses at Citi organize and chair committees and
councils that cover risk considerations with participation from
independent control functions, including committees or
councils that are designed to consider matters related to
capital, assets and liabilities, business practices, business risks
and controls, mergers and acquisitions, the Community
Reinvestment Act and fair lending and incentives.
Second Line of Defense: Independent Control Functions
Citi’s independent control functions, including Risk,
Independent Compliance Risk Management, Human
Resources, Legal, Finance and Finance & Risk Infrastructure,
set standards by which Citi and its businesses manage and
oversee risks, including compliance with applicable laws,
regulatory requirements, policies and other relevant standards
of conduct. Additionally, among other responsibilities, the
independent control functions provide advice and training to
Citi’s businesses and establish tools, methodologies, processes
and oversight for controls used by the businesses to foster a
culture of compliance and control.
Risk
The Risk organization is designed to act as an independent
partner of the business to manage market, credit and
operational risk in a manner consistent with Citi’s risk
appetite. Risk establishes policies and guidelines for risk
assessments and risk management and contributes to controls
and tools to manage, measure and mitigate risks taken by the
Company.
The Chief Risk Officer reports to the Citigroup CEO and
the Risk Management Committee of the Citigroup Board of
Directors. The Chief Risk Officer has regular and unrestricted
access to the Risk Management Committee of the Board and
67
also to the Citigroup Board of Directors to address risks and
issues identified through Risk’s activities.
Independent Compliance Risk Management
The Independent Compliance Risk Management (ICRM)
organization is designed to protect Citi by overseeing senior
management, the businesses, and other control functions in
managing compliance risk, as well as promoting business
conduct and activity that is consistent with Citi’s mission and
value proposition. Citi’s objective is to embed an enterprise-
wide compliance risk management framework and culture that
identifies, measures, monitors, mitigates and controls
compliance risk across the three lines of defense. For further
information on Citi’s compliance risk framework, see
“Compliance Risk” below.
The Chief Compliance Officer reports to the Citigroup
CEO and has regular and unrestricted access to the committees
of the Citigroup Board of Directors, including the Audit
Committee and the Ethics and Culture Committee.
Human Resources
The Human Resources organization provides personnel
support and governance in connection with, among other
things: recognizing and rewarding employees who
demonstrate Citi’s values and excel in their roles and
responsibilities; setting ethical- and performance-related
expectations and developing and promoting employees who
meet those expectations; and searching for, assessing and
hiring staff who exemplify Citi’s leadership standards, which
outline Citi’s expectations of its employees’ behavior.
The Head of Human Resources reports to the Citigroup
CEO and interacts regularly with the Personnel and
Compensation Committee of the Citigroup Board of Directors.
Legal
The Legal organization is involved in a number of activities
designed to promote the appropriate management of Citi’s
exposure to legal risk, which includes the risk of loss, whether
financial or reputational, due to legal or regulatory actions,
proceedings or investigations, or uncertainty in the
applicability or interpretation of contracts, laws or regulations.
Activities designed to promote appropriate management of
legal risk include, among others: promoting and supporting
Citigroup’s governance processes; advising business
management, other independent control functions, the
Citigroup Board of Directors and committees of the Board
regarding analysis of laws and regulations, regulatory matters,
disclosure matters, and potential risks and exposures on key
litigation and transactional matters, among other things;
advising other independent control functions in their efforts to
ensure compliance with applicable laws and regulations as
well as internal standards of conduct; serving on key
management committees; reporting and escalating key legal
issues to senior management or other independent control
functions; participating in internal investigations and
overseeing regulatory investigations; and advising businesses
on a day-to-day basis on legal, regulatory and contractual
matters.
Finance & Risk Infrastructure
Finance & Risk Infrastructure (FRI) is a Citi global function
that was formed in April 2016 from groups within the Finance
and Risk global functions. FRI was established to globally
implement common data and data standards, common
processes and integrated technology platforms as well as
integrate infrastructure activities across both Finance and
Risk. FRI works to drive straight through data processing and
produce more effective and efficient processes and governance
aimed at supporting both the Finance and Risk organizations.
The head of the FRI global function reports jointly to
Citi’s CFO and Chief Risk Officer.
Third Line of Defense: Internal Audit
Citi’s Internal Audit function independently reviews activities
of the first two lines of defense based on a risk-based audit
plan and methodology approved by the Audit Committee of
the Citigroup Board of Directors. Internal Audit also provides
independent assurance to the Citigroup Board of Directors, the
Audit Committee of the Board, senior management and
regulators regarding the effectiveness of Citi’s governance and
controls designed to mitigate Citi’s exposure to risks and to
enhance Citi’s culture of compliance and control.
The Chief Auditor reports functionally to the Chairman of
the Citigroup Audit Committee and administratively to the
CEO of Citigroup. Internal Audit’s responsibilities are carried
out independently under the oversight of the Audit Committee.
Internal Audit’s employees accordingly report to the Chief
Auditor and do not have reporting lines to front-line units or
senior management. Internal Audit’s staff members are not
permitted to provide internal-audit services for a business line
or function in which they had business line or function
responsibilities within the previous 12 months.
The General Counsel reports to the Citigroup CEO and is
responsible to the full Citigroup Board. In addition to having
regular and unrestricted access to the full Citigroup Board of
Directors, the General Counsel or his/her delegates regularly
attend meetings of the Risk Management Committee, Audit
Committee, Personnel and Compensation Committee, Ethics
and Culture Committee, Operations and Technology
Committee, and Nomination, Governance and Public Affairs
Committee, as well as other ad hoc committees of the
Citigroup Board of Directors.
Finance
The Finance organization is primarily composed of the
following disciplines: treasury, controllers, tax and financial
planning and analysis. These disciplines partner with the
businesses, providing key data and consultation to facilitate
sound decisions in support of the businesses’ objectives.
Through these activities, Finance serves as an independent
control function advising business management, escalating
identified risks and establishing policies or processes to
manage risk.
Through the treasury discipline, Finance has overall
responsibility for managing Citi’s balance sheet and
accordingly partners with the businesses to manage Citi’s
liquidity and interest rate risk (price risk for non-trading
portfolios). Treasury works with the businesses to establish
balance sheet targets and limits, as well as sets policies on
funding costs charged for business assets based on their
liquidity and duration.
Principally through the controllers discipline, Finance is
responsible for establishing a strong control environment over
Citi’s financial reporting processes consistent with the 2013
Committee of Sponsoring Organizations of the Treadway
Commission, or COSO, Internal Control-Integrated
Framework.
Finance is led by Citi’s Chief Financial Officer (CFO),
who reports directly to the Citigroup CEO. The CFO chairs or
co-chairs several management committees that serve as key
governance and oversight forums for business activities. In
addition, the CFO has regular and unrestricted access to the
full Citigroup Board of Directors as well as to the Audit
Committee of the Board of Directors.
68
Three Lines of Defense
Citigroup Board of Directors and Committees of the Board
Citigroup’s Board of Directors oversees Citi’s risk-taking
activities and holds management accountable for adhering to
the risk governance framework. To do so, directors review
reports prepared by the businesses, Risk, Independent
Compliance Risk Management, Internal Audit and others, and
exercise sound independent judgment to question, probe and
challenge recommendations and decisions made by
management.
The standing committees of the Citigroup Board of
Directors are the Executive Committee, Risk Management
Committee, Audit Committee, Personnel and Compensation
Committee, Ethics and Culture Committee, Operations and
Technology Committee and Nomination, Governance and
Public Affairs Committee. In addition to the standing
committees, the Board creates ad hoc committees from time to
time in response to regulatory, legal or other requirements.
69
potential incremental credit costs that would occur as a result
of either downgrades in the credit quality or defaults of the
obligors or counterparties.
There is an independent Chief Risk Officer for each of
Citi’s consumer, commercial and corporate lending businesses
within ICG and GCB (Business CROs). Each of these
Business CROs reports directly to Citi’s Chief Risk Officer.
The Business CROs are the focal point for most day-to-day
risk decisions, such as setting risk limits and approving
transactions within the businesses. In addition there are
Regional and Legal Entity Chief Risk Officers. There is an
independent Chief Risk Officer for Asia, EMEA and Latin
America, including Mexico (Regional CROs). Each of these
Regional CROs reports directly to Citi’s Chief Risk Officer.
The Regional CROs are accountable for overseeing the
management of all risks in their geographic areas and across
businesses, and are the primary risk contacts for the Regional
Chief Executive Officers and local regulators. Legal Entity
Chief Risk Officers are responsible for identifying and
managing risks in Citibank as well as other specific legal
entities, with Citibank’s Chief Risk Officer reporting directly
to Citi’s Chief Risk Officer.
For additional information on Citi’s credit risk
management, see Note 14 to the Consolidated Financial
Statements.
CREDIT RISK
Overview
Credit risk is the risk of loss resulting from the decline in
credit quality or the failure of a borrower, counterparty, third
party or issuer to honor its financial or contractual obligations.
Credit risk arises in many of Citigroup’s business activities,
including:
•
•
•
•
consumer, commercial and corporate lending;
capital markets derivative transactions;
structured finance; and
securities financing transactions (repurchase and reverse
repurchase agreements, securities loaned and borrowed).
Credit risk also arises from settlement and clearing
activities, when Citi transfers an asset in advance of receiving
its counter-value or advances funds to settle a transaction on
behalf of a client. Concentration risk, within credit risk, is the
risk associated with having credit exposure concentrated
within a specific client, industry, region or other category.
Credit risk is one of the most significant risks Citi faces as
an institution. As a result, Citi has a well-established
framework in place for managing credit risk across all
businesses. This includes a defined risk appetite, credit limits
and credit policies, both at the business level as well as at the
company-wide level. Citi’s credit risk management also
includes processes and policies with respect to problem
recognition, including “watch lists,” portfolio reviews, stress
tests, updated risk ratings and classification triggers.
With respect to Citi’s settlement and clearing activities,
intra-day client usage of lines is monitored against limits, as
well as against usage patterns. To the extent a problem
develops, Citi typically moves the client to a secured
(collateralized) operating model. Generally, Citi’s intra-day
settlement and clearing lines are uncommitted and cancelable
at any time.
To manage concentration of risk within credit risk, Citi
has in place a correlation framework consisting of industry
limits, an idiosyncratic framework consisting of single name
concentrations for each business and across Citigroup and a
specialized framework consisting of product limits.
Credit exposures are generally reported in notional terms
for accrual loans, reflecting the value at which the loans as
well as loan and other off-balance sheet commitments are
carried on the Consolidated Balance Sheet. Credit exposure
arising from capital markets activities is generally expressed
as the current mark-to-market, net of margin, reflecting the net
value owed to Citi by a given counterparty.
The credit risk associated with these credit exposures is a
function of the idiosyncratic creditworthiness of the obligor, as
well as the terms and conditions of the specific obligation. Citi
assesses the credit risk associated with its credit exposures on
a regular basis through its loan loss reserve process (see
“Significant Accounting Policies and Significant Estimates—
Allowance for Credit Losses” below and Notes 1 and 15 to the
Consolidated Financial Statements), as well as through regular
stress testing at the company, business, geography and product
levels. These stress-testing processes typically estimate
70
Consumer Credit
Citi provides traditional retail banking, including commercial
banking, and credit card products in 19 countries and
jurisdictions through North America GCB, Latin America
GCB and Asia GCB. The retail banking products include
consumer mortgages, home equity, personal and commercial
loans and lines of credit and similar related products with a
focus on lending to prime customers. Citi uses its risk appetite
framework to define its lending parameters. In addition, Citi
uses proprietary scoring models for new customer approvals.
As stated in “Global Consumer Banking” above, GCB’s
overall strategy is to leverage Citi’s global footprint and be the
pre-eminent bank for the affluent and emerging affluent
consumers in large urban centers. In credit cards and in certain
retail markets, Citi serves customers in a somewhat broader
set of segments and geographies. GCB’s commercial banking
business focuses on small to mid-sized businesses.
Consumer Credit Portfolio
The following table shows Citi’s quarterly end-of-period consumer loans:(1)
In billions of dollars
Retail banking:
Mortgages
Commercial banking
Personal and other
Total retail banking
Cards:
Citi-branded cards
Citi retail services
Total cards
Total GCB
GCB regional distribution:
North America
Latin America
Asia(2)
Total GCB
Corporate/Other
Total consumer loans
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
$
$
$
$
$
$
$
79.4
$
81.2
$
81.4
$
32.0
24.9
136.3
$
108.3
$
47.3
155.6
291.9
$
$
64%
8
28
100%
33.9
26.3
141.4
105.7
44.2
149.9
291.3
$
$
$
$
62%
9
29
100%
34.8
27.2
143.4
$
109.9
$
45.2
155.1
298.5
$
$
62%
9
29
100%
81.4
35.5
27.3
144.2
110.7
45.9
156.6
300.8
$
$
$
$
$
62%
9
29
100%
33.2
325.1
$
$
29.3
320.6
$
$
26.8
325.3
$
$
24.8
325.6
$
$
81.7
36.3
27.9
145.9
115.7
49.2
164.9
310.8
63%
8
29
100%
22.9
333.7
(1) End-of-period loans include interest and fees on credit cards.
(2) Asia includes loans and leases in certain EMEA countries for all periods presented.
For information on changes to Citi’s average consumer
loans, see “Liquidity Risk—Loans” below.
71
Overall Consumer Credit Trends
The following charts show the quarterly trends in
delinquencies and net credit losses across both retail banking,
including commercial banking, and cards for total GCB and by
region.
Global Consumer Banking
Latin America
North America
North America GCB provides mortgages, home equity
loans, personal loans and commercial banking products
through Citi’s retail banking network and card products
through Citi-branded cards and Citi retail services businesses.
The retail bank is concentrated in six major metropolitan cities
in the United States (for additional information on the U.S.
retail bank, see “North America GCB” above).
As of December 31, 2017, approximately 71% of North
America GCB consumer loans consisted of Citi-branded and
Citi retail services cards, which generally drives the overall
credit performance of North America GCB, including the
credit performance year-over-year as of the fourth quarter of
2017 (for additional information on North America GCB’s
cards portfolios, including delinquency and net credit loss
rates, see “Credit Card Trends” below).
Quarter-over-quarter, 90+ days past due delinquency
rates increased, primarily due to seasonality in the cards
portfolios and the hurricane-related impact to the mortgage
portfolio. The net credit loss rate decreased quarter-over-
quarter, primarily reflecting the absence of an episodic charge-
off in the commercial portfolio that occurred in the third
quarter of 2017. The net credit loss rate increased year-over-
year primarily due to seasoning in both cards portfolios.
Latin America GCB operates in Mexico through
Citibanamex, one of Mexico’s largest banks, and provides
credit cards, consumer mortgages, personal loans and
commercial banking products. Latin America GCB serves a
more mass market segment in Mexico and focuses on
developing multi-product relationships with customers.
As set forth in the chart above, 90+ days past due
delinquency rates improved year-over-year and quarter-over-
quarter, largely driven by the commercial portfolio. The
improvement year-over-year was partially offset by a higher
delinquency rate in cards due to the seasoning of the
portfolio. The net credit loss rate increased in Latin America
GCB year-over-year and quarter-over-quarter as of the fourth
quarter of 2017, primarily due to an episodic charge-off in the
commercial portfolio as well as seasoning in the cards
portfolio.
Asia(1)
(1) Asia includes GCB activities in certain EMEA countries for all
periods presented.
Asia GCB operates in 17 countries in Asia and EMEA
and provides credit cards, consumer mortgages, personal loans
and commercial banking products. As shown in the chart
above, 90+ days past due delinquency and net credit loss rates
were largely stable in Asia GCB year-over-year and quarter-
over-quarter as of the fourth quarter of 2017. This stability
reflects the strong credit profiles in Asia GCB’s target
customer segments. In addition, regulatory changes in many
markets in Asia over the past few years have resulted in stable
or improved portfolio credit quality, despite weaker
macroeconomic conditions in several countries.
For additional information on cost of credit, loan
delinquency and other information for Citi’s consumer loan
portfolios, see each respective business’s results of operations
above and Note 14 to the Consolidated Financial Statements.
72
Credit Card Trends
The following charts show the quarterly trends in
delinquencies and net credit losses for total GCB cards, Citi’s
North America Citi-branded cards and Citi retail services
portfolios as well as for Citi’s Latin America and Asia Citi-
branded cards portfolios.
Total Cards
North America Citi Retail Services
North America Citi-Branded Cards
North America GCB’s Citi-branded cards portfolio issues
proprietary and co-branded cards. As shown in the chart
above, the 90+ days past due delinquency rate in Citi-branded
cards was stable year-over-year and seasonally higher quarter-
over-quarter. The net credit loss rate increased year-over-year
primarily due to seasoning, and decreased quarter-over-quarter
primarily due to seasonality as well as higher asset sales.
Citi retail services partners directly with more than 20
retailers and dealers to offer private-label and co-branded
consumer and commercial cards. Citi retail services’ target
market is focused on select industry segments such as home
improvement, specialty retail, consumer electronics and fuel.
Citi retail services continually evaluates opportunities to add
partners within target industries that have strong loyalty,
lending or payment programs and growth potential.
Citi retail services’ delinquency and net credit loss rates
increased year-over-year, primarily due to seasoning as well as
softness in the collections rates experienced once an account
reaches mid-stage delinquency. The quarter-over-quarter
increase in both loss and delinquency rates is also due to the
seasonal movements observed in Citi retail services.
Latin America Citi-Branded Cards
Latin America GCB issues proprietary and co-branded
cards. As set forth in the chart above, the net credit loss and
delinquency rates increased year-over-year due to seasoning.
The decrease quarter-over-quarter of the net credit loss and
delinquency rates was primarily driven by higher payment
rates reflecting the payment of year-end bonuses.
73
Asia Citi-Branded Cards(1)
Citi-Branded
FICO distribution
2017
2016
December 31,
> 760
680 - 760
< 680
Total
Citi Retail Services
42%
41
17
100%
FICO distribution
2017
2016
December 31,
> 760
680 - 760
< 680
Total
24%
43
33
100%
42%
43
15
100%
24%
43
33
100%
Both the Citi-branded cards’ and Citi retail services’
cards FICO distributions remained stable as of year-end 2017.
For additional information on FICO scores, see Note 14
to the Consolidated Financial Statements.
(1) Asia includes loans and leases in certain EMEA countries for all
periods presented.
Asia GCB issues proprietary and co-branded cards. As set
forth in the chart above, 90+ days past due delinquency and
net credit loss rates have remained broadly stable, driven by
the mature and well-diversified nature of the cards portfolio.
For additional information on cost of credit, delinquency
and other information for Citi’s cards portfolios, see each
respective business’s results of operations above and Note 14
to the Consolidated Financial Statements.
North America Cards FICO Distribution
The following tables show the current FICO score
distributions for Citi’s North America Citi-branded cards and
Citi retail services portfolios. FICO scores are updated
monthly for substantially all of the portfolio and on a quarterly
basis for the remaining portfolio.
74
North America Home Equity Lines of Credit Amortization – Citigroup
Total ENR by Reset Year
In billions of dollars as of December 31, 2017
North America Consumer Mortgage Portfolio
Citi’s North America consumer mortgage portfolio consists of
both residential first mortgages and home equity loans. The
following table shows the outstanding quarterly end-of-period
loans for Citi’s North America residential first mortgage and
home equity loan portfolios:
In billions of dollars
4Q’16 1Q’17
2Q’17
3Q’17 4Q’17
GCB:
Residential firsts
$ 40.2 $ 40.3 $ 40.2 $ 40.1 $ 40.1
Home equity
Total GCB
Corporate/Other:
4.0
4.0
4.1
4.1
4.2
$ 44.2 $ 44.3 $ 44.3 $ 44.2 $ 44.3
Residential firsts
$ 13.4 $ 12.3 $ 11.0 $ 10.1 $ 9.3
Note: Totals may not sum due to rounding.
Home equity
15.0
13.4
12.4
11.5
10.6
Total Corporate/Other
$ 28.4 $ 25.7 $ 23.4 $ 21.6 $ 19.9
Total Citigroup—
North America
$ 72.6 $ 70.0 $ 67.7 $ 65.8 $ 64.2
For additional information on delinquency and net credit loss
trends in Citi’s consumer mortgage portfolio, see “Additional
Consumer Credit Details” below.
Home Equity Loans—Revolving HELOCs
As set forth in the table above, Citi had $14.8 billion of home
equity loans as of December 31, 2017, of which $3.4 billion
are fixed-rate home equity loans and $11.4 billion are
extended under home equity lines of credit (Revolving
HELOCs). Fixed-rate home equity loans are fully amortizing.
Revolving HELOCs 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 outstanding amount is
converted to an amortizing loan, or “reset” (the interest-only
payment feature during the revolving period is standard for
this product across the industry). Upon reset, these borrowers
will be required to pay both interest, usually at a variable rate,
and principal that amortizes typically over 20 years, rather
than the standard 30-year amortization.
Of the Revolving HELOCs at December 31, 2017, $6.8
billion had reset (compared to $6.2 billion at December 31,
2016) and $4.6 billion were still within their revolving period
and had not reset (compared to $7.8 billion at December 31,
2016). The following chart indicates the FICO and combined
loan-to-value (CLTV) characteristics of Citi’s Revolving
HELOCs portfolio and the year in which they reset:
Approximately 59% of Citi’s total Revolving HELOCs
portfolio had reset as of December 31, 2017 (compared to
44% as of December 31, 2016). Of the remaining Revolving
HELOCs portfolio, approximately 29% will reset during 2018.
Citi’s customers with Revolving HELOCs that reset could
experience “payment shock” due to the higher required
payments on the loans. Citi currently estimates that the
monthly loan payment for its Revolving HELOCs that reset
during 2018 could increase on average by approximately
$308, or 118%. Increases in interest rates could further
increase these payments given the variable nature of the
interest rates on these loans post-reset. Of the Revolving
HELOCs that will reset during 2018, approximately $10
million, or 1%, of the loans have a CLTV greater than 100%
as of December 31, 2017. Borrowers’ high loan-to-value
positions, as well as the cost and availability of refinancing
options, could limit borrowers’ ability to refinance their
Revolving HELOCs as these loans reset.
Approximately 5.9% of the Revolving HELOCs that have
reset as of December 31, 2017 were 30+ days past due,
compared to 3.9% of the total outstanding home equity loan
portfolio (amortizing and non-amortizing). This compared to
6.7% and 3.9%, respectively, as of December 31, 2016. As
newly amortizing loans continue to season, the delinquency
rate of Citi’s total home equity loan portfolio could increase.
In addition, resets to date have generally occurred during a
period of historically low interest rates, which Citi believes
has likely reduced the overall “payment shock” to the
borrower.
Citi monitors this reset risk closely and will continue to
consider any potential impact in determining its allowance for
loan loss reserves. In addition, management continues to
review and take additional actions to offset potential reset risk,
such as a borrower outreach program to provide reset risk
education and proactively working with high-risk borrowers
through a specialized single point of contact unit.
75
Additional Consumer Credit Details
Consumer Loan Delinquency Amounts and Ratios
In millions of dollars, except EOP loan
amounts in billions
Global Consumer Banking(3)(4)
Total
Ratio
Retail banking
Total
Ratio
North America
Ratio
Latin America
Ratio
Asia(5)
Ratio
Cards
Total
Ratio
North America—Citi-branded
Ratio
North America—Citi retail services
Ratio
Latin America
Ratio
Asia(5)
Ratio
Corporate/Other—Consumer(6)(7)
Total
Ratio
International
Ratio
North America
Ratio
Total Citigroup
Ratio
$
$
145.9 $
56.0
19.9
70.0
$
164.9 $
90.5
49.2
5.4
19.8
$
22.9 $
1.6
21.3
$
333.7 $
EOP
loans(1)
December
31,
90+ days past due(2)
30–89 days past due(2)
December 31,
December 31,
2017
2017
2016
2015
2017
2016
2015
310.8 $
$
2,478
0.80%
$
2,293
0.79%
$
2,119
0.77%
$
2,762
0.89%
$
2,540
0.87%
2,418
0.88%
$
$
515
0.35%
199
0.36%
130
0.65%
186
0.27%
1,963
1.19%
768
0.85%
845
1.72%
151
2.80%
199
1.01%
$
$
557
2.57%
43
2.69%
514
2.56%
3,035
0.91%
$
$
474
0.35%
181
0.33%
136
0.76%
157
0.25%
1,819
1.17%
748
0.87%
761
1.61%
130
2.71%
180
1.03%
$
$
834
2.62%
94
3.92%
740
2.52%
3,127
0.97%
$
$
523
0.38%
165
0.32%
185
0.94%
173
0.25%
1,596
1.17%
538
0.80%
705
1.53%
173
3.20%
180
1.02%
$
$
927
1.99%
157
1.91%
770
2.01%
3,046
0.94%
$
$
822
0.57%
306
0.55%
195
0.98%
321
0.46%
1,940
1.18%
698
0.77%
830
1.69%
153
2.83%
259
1.31%
$
$
542
2.50%
40
2.50%
502
2.50%
3,304
1.00%
$
$
726
0.54%
214
0.39%
185
1.03%
327
0.52%
1,814
1.17%
688
0.80%
777
1.64%
125
2.60%
224
1.28%
$
$
735
2.31%
49
2.04%
686
2.33%
3,275
1.01%
739
0.53%
221
0.43%
184
0.93%
334
0.49%
1,679
1.23%
523
0.78%
773
1.68%
157
2.91%
226
1.28%
1,036
2.23%
179
2.18%
857
2.24%
3,454
1.07%
(1) End-of-period (EOP) 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 EOP loans, net of unearned income.
(3) The 90+ days past due balances for North America—Citi-branded 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 GCB North America retail 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-sponsored entities. The amounts excluded for loans 90+
days past due and (EOP loans) were $298 million ($0.7 billion), $327 million ($0.7 billion) and $491 million ($1.1 billion) at December 31, 2017, 2016 and 2015,
respectively. The amounts excluded for loans 30–89 days past due (EOP loans have the same adjustment as above) were $88 million, $70 million and $87 million
at December 31, 2017, 2016 and 2015, respectively.
(5) Asia includes delinquencies and loans in certain EMEA countries for all periods presented.
(6) The 90+ days and 30–89 days past due and related ratios for Corporate/Other—Consumer North America 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-sponsored entities. The amounts excluded for loans
90+ days past due (and EOP loans) were $0.6 billion ($1.1 billion), $0.9 billion ($1.4 billion) and $1.5 billion ($2.2 billion) at December 31, 2017, 2016 and 2015,
respectively. The amounts excluded for loans 30–89 days past due (EOP loans have the same adjustment as above) for each period were $0.1 billion, $0.2 billion
and $0.2 billion at December 31, 2017, 2016 and 2015, respectively.
(7) The December 31, 2017, 2016 and 2015, loans 90+ days past due and 30–89 days past due and related ratios for North America exclude $4 million, $7 million and
$11 million, respectively, of loans that are carried at fair value.
76
Consumer Loan Net Credit Losses and Ratios
In millions of dollars, except average loan amounts in billions
Global Consumer Banking
Total
Ratio
Retail banking
Total
Ratio
North America
Ratio
Latin America
Ratio
Asia(5)
Ratio
Cards
Total
Ratio
North America—Citi-branded
Ratio
North America—Retail services
Ratio
Latin America
Ratio
Asia(5)
Ratio
Corporate/Other—Consumer(3)(4)
Total
Ratio
International
Ratio
North America
Ratio
Other(6)
Total Citigroup
Ratio
Average
loans(1)
2017
Net credit losses(2)(3)(4)
2016
2017
2015
$
$
296.8 $
142.7 $
55.7 $
20.0 $
67.0 $
$
154.1 $
84.6 $
45.6 $
5.3 $
18.6 $
$
27.2 $
1.9 $
25.3 $
— $
324.0 $
$
$
6,562
2.21%
$
5,610
2.01%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,023
0.72%
194
0.35%
584
2.92%
245
0.37%
5,539
3.60%
2,447
2.89%
2,155
4.73%
533
10.06%
404
2.17%
156
0.57%
82
4.32%
74
0.29%
(21)
6,697
2.07%
$
$
$
$
$
$
$
$
$
$
$
$
1,007
0.72%
205
0.38%
541
2.85%
261
0.39%
4,603
3.30%
1,909
2.61%
1,805
4.12%
499
9.78%
390
2.24%
438
1.06%
269
5.17%
169
0.47%
— $
$
6,048
1.88%
5,752
2.12%
1,058
0.75%
150
0.30%
589
2.89%
319
0.45%
4,694
3.59%
1,892
2.96%
1,709
3.94%
691
11.71%
402
2.28%
1,306
1.96%
443
4.43%
863
1.52%
—
7,058
2.08%
(1) Average loans include interest and fees on credit cards.
(2) The ratios of net credit losses are calculated based on average loans, net of unearned income.
(3) As a result of Citigroup's entry into agreements in October 2016 to sell its Argentina and Brazil consumer banking businesses, these businesses were classified as
HFS at the end of the fourth quarter 2016. Loans HFS are excluded from this table as they are recorded in Other assets. In addition, as a result of HFS accounting
treatment, approximately $128 million and $42 million of net credit losses (NCLs) were recorded as a reduction in revenue (Other revenue) during 2017 and 2016,
respectively. Accordingly, these NCLs are not included in this table. The sales of the Argentina and Brazil consumer banking businesses were completed in the
first and fourth quarters of 2017, respectively.
(4) As a result of the entry into an agreement to sell OneMain Financial (OneMain), OneMain was classified as HFS beginning March 31, 2015. Loans HFS are
excluded from this table as they are recorded in Other assets. In addition, as a result of HFS accounting treatment, approximately $350 million of NCLs were
recorded as a reduction in revenue (Other revenue) during 2015. Accordingly, these NCLs are not included in this table. The OneMain sale was completed on
November 15, 2015.
(5) Asia includes average loans and NCLs in certain EMEA countries for all periods presented.
(6) 2017 NCLs represent a recovery related to legacy assets.
77
Loan Maturities and Fixed/Variable Pricing
U.S. Consumer Mortgages
Greater
than 1
year
but
within
5 years
Due
within
1 year
Greater
than 5
years
Total
$
$
96 $
15
111 $
543 $ 50,248 $ 50,887
14,580
856
13,709
1,399 $ 63,957 $ 65,467
$
1,187 $ 39,084
212
24,873
1,399 $ 63,957
$
In millions of dollars at
year-end 2017
U.S. consumer
mortgage loan
portfolio
Residential first
mortgages
Home equity loans
Total
Fixed/variable
pricing of U.S.
consumer mortgage
loans with maturities
due after one year
Loans at fixed interest
rates
Loans at floating or
adjustable interest
rates
Total
78
Corporate Credit
Consistent with its overall strategy, Citi’s corporate clients are
typically large, multinational corporations that value Citi’s
global network. Citi aims to establish relationships with these
clients that encompass multiple products, consistent with
client needs, including cash management and trade services,
foreign exchange, lending, capital markets and M&A advisory.
Corporate Credit Portfolio
The following table sets forth Citi’s corporate credit portfolio
within ICG (excluding private bank), before consideration of
collateral or hedges, by remaining tenor for the periods
indicated:
At December 31, 2017
At September 30, 2017
At December 31, 2016
Greater
than
1 year
but
within
5 years
Due
within
1 year
Greater
than
5 years
Total
exposure
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
$ 127 $
96 $
22 $
245 $ 124 $
96 $
23 $
243 $ 109 $
94 $
22 $
225
111
222
20
353
104
219
20
343
103
218
23
$ 238 $
318 $
42 $
598 $ 228 $
315 $
43 $
586 $ 212 $
312 $
45 $
344
569
In billions of dollars
Direct outstandings
(on-balance sheet)(1)
Unfunded lending
commitments
(off-balance sheet)(2)
Total exposure
(1)
(2)
Includes drawn loans, overdrafts, bankers’ acceptances and leases.
Includes unused commitments to lend, letters of credit and financial guarantees.
Portfolio Mix—Geography, Counterparty and Industry
Citi’s corporate credit portfolio is diverse across geography
and counterparty. The following table shows the percentage by
region based on Citi’s internal management geography:
North America
EMEA
Asia
Latin America
Total
December 31,
2017
September 30,
2017
December 31,
2016
54%
27
12
7
100%
55%
26
12
7
100%
55%
26
12
7
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, regulatory environment and
commodity prices. 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.
79
Citigroup also has incorporated climate risk assessment
and reporting 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 as a percentage of the total corporate
credit portfolio:
Total exposure
December 31,
2017
September 30,
2017
December 31,
2016
AAA/AA/A
BBB
BB/B
CCC or below
Total
49%
34
16
1
49%
34
16
1
48%
34
16
2
100%
100%
100%
Note: Total exposure includes direct outstandings and unfunded lending
commitments.
Citi’s corporate credit portfolio is also diversified by
Rating of Hedged Exposure
AAA/AA/A
BBB
BB/B
CCC or below
Total
December 31,
2017
September 30,
2017
December 31,
2016
23%
43
31
3
16%
48
33
3
16%
49
31
4
100%
100%
100%
The credit protection was economically hedging underlying
corporate credit portfolio exposures with the following
industry distribution:
Industry of Hedged Exposure
Transportation and
industrial
Energy and
commodities
Power, chemicals,
metals and mining
Technology,
media and telecom
Public sector
Consumer retail
and health
Banks/broker-
dealers
Insurance and
special purpose
entities
Other industries
Total
December 31,
2017
September 30,
2017
December 31,
2016
27%
27%
29%
15
14
12
12
10
6
2
2
17
12
14
8
12
5
2
3
20
12
13
5
10
4
3
4
100%
100%
100%
industry. The following table shows the allocation of Citi’s
total corporate credit portfolio by industry:
Total exposure
December 31,
2017
September 30,
2017
December 31,
2016
22%
22%
22%
16
12
10
8
8
8
5
5
4
2
16
11
10
8
8
7
5
5
4
4
16
12
11
9
6
7
5
5
5
2
100%
100%
100%
Transportation and
industrial
Consumer retail
and health
Technology, media
and telecom
Power, chemicals,
metals and mining
Energy and
commodities
Banks/broker-
dealers/finance
companies
Real estate
Insurance and
special purpose
entities
Public sector
Hedge funds
Other industries
Total
Note: Total exposure includes direct outstandings and unfunded lending
commitments.
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 results of the mark-to-
market and any realized gains or losses on credit derivatives
are reflected primarily in Other revenue on the Consolidated
Statement of Income.
As of December 31, 2017, September 30, 2017 and
December 31, 2016, $16.3 billion, $22.2 billion and
$29.5 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. The credit protection was economically hedging
underlying corporate credit portfolio exposures with the
following risk rating distribution:
80
Loan Maturities and Fixed/Variable Pricing of Corporate
Loans
Over 1
year
but
within
5 years
Due
within
1 year
Over 5
years
Total
$ 20,679 $ 18,474 $ 12,166 $ 51,319
In millions of dollars at
December 31, 2017
Corporate loans
In U.S. offices
Commercial and
industrial loans
Financial institutions
15,767
14,085
9,276
39,128
Mortgage and real
estate
Installment,
revolving credit and
other
Lease financing
In offices outside
the U.S.
Total corporate
loans
Fixed/variable
pricing of corporate
loans with
maturities due after
one year(1)
Loans at fixed
interest rates
Loans at floating or
adjustable interest
rates
Total
18,005
16,085
10,593
44,683
13,369
11,945
7,867
33,181
593
529
348
1,470
106,000
49,295
9,065
164,360
$ 174,413 $ 110,413 $ 49,315 $ 334,141
$ 21,048 $ 15,276
89,365
34,039
$ 110,413 $ 49,315
(1) Based on contractual terms. Repricing characteristics may effectively
be modified from time to time using derivative contracts. See Note 22
to the Consolidated Financial Statements.
81
Additional Consumer and Corporate Credit Details
Loans Outstanding
In millions of dollars
Consumer loans
In U.S. offices
Mortgage and real estate(1)
Installment, revolving credit and other
Cards
Commercial and industrial
Total
In offices outside the U.S.
Mortgage and real estate(1)
Installment, revolving credit and other
Cards
Commercial and industrial
Lease financing
Total
Total consumer loans
Unearned income(2)
Consumer loans, net of unearned income
Corporate loans
In U.S. offices
Commercial and industrial
Financial institutions
Mortgage and real estate(1)
Installment, revolving credit and other
Lease financing
Total
In offices outside the U.S.
Commercial and industrial
Financial institutions
Mortgage and real estate(1)
Installment, revolving credit and other
Lease financing
Governments and official institutions
Total
Total corporate loans
Unearned income(3)
Corporate loans, net of unearned income
Total loans—net of unearned income
Allowance for loan losses—on drawn exposures
Total loans—net of unearned income
and allowance for credit losses
Allowance for loan losses as a percentage of total loans—
net of unearned income(4)
Allowance for consumer loan losses as a percentage of
total consumer loans—net of unearned income(4)
Allowance for corporate loan losses as a percentage of
total corporate loans—net of unearned income(4)
2017
2016
December 31,
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
65,467
3,398
139,006
7,840
215,711
44,081
26,556
26,257
20,238
76
117,208
332,919
737
333,656
51,319
39,128
44,683
33,181
1,470
169,781
93,750
35,273
7,309
22,638
190
5,200
164,360
334,141
(763)
333,378
667,034
(12,355)
654,679
$
$
$
$
$
$
$
$
$
$
$
$
$
$
72,957
3,395
132,654
7,159
216,165
42,803
24,887
23,783
16,568
81
108,122
324,287
776
325,063
49,586
35,517
38,691
34,501
1,518
159,813
81,882
26,886
5,363
19,965
251
5,850
140,197
300,010
(704)
299,306
624,369
(12,060)
$
$
$
$
$
$
$
$
$
$
$
$
$
80,281
3,480
112,800
6,407
202,968
47,062
29,480
27,342
17,410
362
121,656
324,624
830
325,454
46,011
36,425
32,623
33,423
1,780
150,262
82,689
28,704
5,106
20,853
303
4,911
142,566
292,828
(665)
292,163
617,617
(12,626)
$
$
$
$
$
$
$
$
$
$
$
$
$
96,533
14,450
112,982
5,895
229,860
54,462
31,128
32,032
18,294
546
136,462
366,322
(679)
365,643
39,542
36,324
27,959
29,246
1,758
134,829
83,506
33,269
6,031
19,259
419
2,236
144,720
279,549
(557)
278,992
644,635
(15,994)
$
$
$
$
$
$
$
$
$
$
$
$
$
108,453
13,398
115,651
6,592
244,094
55,511
33,182
36,740
20,623
710
146,766
390,860
(567)
390,293
36,993
25,130
25,075
34,467
1,647
123,312
86,147
38,372
6,274
18,714
586
2,341
152,434
275,746
(567)
275,179
665,472
(19,648)
612,309
$
604,991
$
628,641
$
645,824
1.87%
2.96%
0.76%
1.94%
2.88%
0.91%
2.06%
3.02%
0.97%
2.50%
3.71%
0.90%
2.97%
4.36%
0.99%
(1) Loans secured primarily by real estate.
(2) Unearned income on consumer loans primarily represents unamortized origination fees, costs, premiums and discounts. Prior to December 31, 2015, these items
were more than offset by prepaid interest on loans outstanding issued by OneMain Financial. The sale of OneMain Financial was completed on November 15,
2015.
(3) Unearned income on corporate loans primarily represents interest received in advance, but not yet earned on loans originated on a discount basis.
(4) All periods exclude loans that are carried at fair value.
82
Details of Credit Loss Experience
In millions of dollars
Allowance for loan losses at beginning of period
Provision for loan losses
Consumer
Corporate
Total
Gross credit losses
Consumer
In U.S. offices
In offices outside the U.S.
Corporate
Commercial and industrial, and other
In U.S. offices
In offices outside the U.S.
Loans to financial institutions
In U.S. offices
In offices outside the U.S.
Mortgage and real estate
In U.S offices
In offices outside the U.S.
Total
Credit recoveries(1)
Consumer
In U.S. offices
In offices outside the U.S.
Corporate
Commercial and industrial, and other
In U.S. offices
In offices outside the U.S.
Loans to financial institutions
In U.S. offices
In offices outside the U.S.
Mortgage and real estate
In U.S. offices
In offices outside the U.S.
Total
Net credit losses
In U.S. offices
In offices outside the U.S.
Total
Other—net(2)(3)(4)(5)(6)(7)(8)
Allowance for loan losses at end of period
Allowance for loan losses as a percentage of total loans(9)
Allowance for unfunded lending commitments(8)(10)
Total allowance for loan losses and unfunded lending
commitments
Net consumer credit losses
As a percentage of average consumer loans
Net corporate credit losses
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2017
12,060
7,363
140
7,503
5,736
2,447
151
331
3
1
2
2
2016
12,626
6,321
428
6,749
$
$
$
2015
15,994
6,228
880
7,108
$
$
$
2014
19,648
6,699
129
6,828
$
$
$
4,970
$
5,500
$
6,780
$
2,672
3,192
3,874
274
256
5
5
34
6
112
182
—
4
8
43
66
310
2
13
8
55
2013
25,455
7,591
13
7,604
8,402
3,926
125
216
2
7
62
29
8,673
$
8,222
$
9,041
$
11,108
$
12,769
$
903
583
$
980
614
975
659
$
1,122
$
853
1,073
1,008
20
86
1
1
2
1
$
$
$
$
$
$
$
$
$
1,597
4,966
2,110
7,076
(132)
12,355
1.87%
1,258
13,613
6,697
2.07%
379
83
23
41
1
1
1
22
67
7
2
7
—
1,661
4,278
2,283
6,561
$
$
$
—
1,739
4,609
2,693
7,302
$
$
$
64
84
1
11
—
—
2,135
5,669
3,304
8,973
$
$
$
(754) $
(3,174) $
(1,509) $
12,060
1.94%
1,418
13,478
6,048
1.88%
513
$
$
$
$
$
12,626
2.06%
1,402
14,028
7,058
2.08%
244
$
$
$
$
$
15,994
2.50%
1,063
17,057
8,679
2.31%
294
$
$
$
$
$
62
109
1
20
31
2
2,306
7,424
3,039
10,463
(2,948)
19,648
2.97%
1,229
20,877
10,247
2.63%
216
As a percentage of average corporate loans
Allowance by type(11)
Consumer
Corporate
Total Citigroup
0.12%
0.17%
0.08%
0.10%
0.08%
$
$
9,869
2,486
12,355
$
$
9,358
2,702
12,060
$
$
9,835
2,791
12,626
$
$
13,547
2,447
15,994
$
$
16,974
2,674
19,648
(1) Recoveries have been reduced by certain collection costs that are incurred only if collection efforts are successful.
(2)
Includes all adjustments to the allowance for credit losses, such as changes in the allowance from acquisitions, dispositions, securitizations, FX translation,
purchase accounting adjustments, etc.
(3) 2017 includes reductions of approximately $261 million related to the sale or transfer to HFS of various loan portfolios, which includes approximately $106
million related to the transfer of various real estate loan portfolios to HFS. Additionally, 2017 includes an increase of approximately $115 million related to FX
translation.
(4) 2016 includes reductions of approximately $574 million related to the sale or transfer to HFS of various loan portfolios, which includes approximately $106
million related to the transfer of various real estate loan portfolios to HFS. Additionally, 2016 includes a reduction of approximately $199 million related to FX
translation.
(5) 2015 includes reductions of approximately $2.4 billion related to the sale or transfer to HFS of various loan portfolios, which includes approximately $1.5 billion
related to the transfer of various real estate loan portfolios to HFS. Additionally, 2015 includes a reduction of approximately $474 million related to FX
translation.
(6) 2014 includes reductions of approximately $1.1 billion related to the sale or transfer to HFS of various loan portfolios, which includes approximately $411 million
related to the transfer of various real estate loan portfolios to HFS, approximately $204 million related to the transfer to HFS of a business in Greece,
approximately $177 million related to the transfer to HFS of a business in Spain, approximately $29 million related to the transfer to HFS of a business in
Honduras, and approximately $108 million related to the transfer to HFS of various EMEA loan portfolios. Additionally, 2014 includes a reduction of
approximately $463 million related to FX translation.
(7) 2013 includes reductions of approximately $2.4 billion related to the sale or transfer to HFS of various loan portfolios, which includes approximately $360 million
related to the sale of Credicard and approximately $255 million related to a transfer to HFS of a loan portfolio in Greece, approximately $230 million related to a
non-provision transfer of reserves associated with deferred interest to other assets which includes deferred interest and approximately $220 million related to FX
translation.
(8) 2015 includes a reclassification of $271 million of Allowance for loan losses to allowance for unfunded lending commitments, included in the Other line item.
This reclassification reflects the re-attribution of $271 million in allowance for credit losses between the funded and unfunded portions of the corporate credit
portfolios and does not reflect a change in the underlying credit performance of these portfolios.
(9) December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 exclude $4.4 billion, $3.5 billion, $5.0 billion, $5.9
billion and $5.0 billion, respectively, of loans which are carried at fair value.
(10) Represents additional credit reserves recorded as Other liabilities on the Consolidated Balance Sheet.
(11) 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. See “Significant Accounting Policies and Significant Estimates” and Note 1 to the
Consolidated Financial Statements below. 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.
84
Allowance for Loan Losses
The following tables detail information on Citi’s allowance for loan losses, loans and coverage ratios:
December 31, 2017
(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 $6.1 billion of loan loss reserves represented approximately 16 months of coincident net credit loss
coverage.
(3) Of the $0.7 billion, approximately $0.6 billion was allocated to North America mortgages in Corporate/Other. Of the $0.7 billion, approximately $0.2 billion and
$0.5 billion are determined in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. Of the $64.2 billion in loans,
approximately $60.4 billion and $3.7 billion of the loans are evaluated in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings),
respectively. For additional information, see Note 15 to the Consolidated Financial Statements.
Includes mortgages and other retail loans.
(4)
December 31, 2016
Allowance for
loan losses
Loans, net of
unearned income
139.7
64.2
13.0
25.7
91.1
333.7
333.3
667.0
6.1 $
0.7
0.3
1.3
1.5
9.9 $
2.5
12.4 $
Allowance as a
percentage of loans(1)
4.4%
1.1
2.3
5.1
1.6
3.0%
0.8
1.9%
Allowance for
loan losses
Loans, net of
unearned income
133.3
72.6
13.6
23.1
82.5
325.1
299.3
624.4
5.2 $
1.1
0.5
1.2
1.4
9.4 $
2.7
12.1 $
Allowance as a
percentage of loans(1)
3.9%
1.5
3.7
5.2
1.7
2.9%
0.9
1.9%
$
$
$
$
$
$
In billions of dollars
North America cards(2)
North America mortgages(3)
North America other
International cards
International other(4)
Total consumer
Total corporate
Total Citigroup
In billions of dollars
North America cards(2)
North America mortgages(3)
North America other
International cards
International other(4)
Total consumer
Total corporate
Total Citigroup
(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 $5.2 billion of loan loss reserves represented approximately 15 months of coincident net credit loss
coverage.
(3) Of the $1.1 billion, approximately $1.0 billion was allocated to North America mortgages in Corporate/Other. Of the $1.1 billion, approximately $0.4 billion and
$0.7 billion are determined in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. Of the $72.6 billion in loans,
approximately $67.7 billion and $4.8 billion of the loans are evaluated in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings),
respectively. For additional information, see Note 15 to the Consolidated Financial Statements.
Includes mortgages and other retail loans.
(4)
85
Non-Accrual Loans and Assets and Renegotiated Loans
There is a certain amount of overlap among non-accrual loans
and assets and renegotiated loans. The following summary
provides a general description of each category:
Non-Accrual Loans and Assets:
• Corporate and consumer (including commercial banking)
non-accrual status is based on the determination that
payment of interest or principal is doubtful.
• A corporate loan may be classified as non-accrual and still
be performing under the terms of the loan structure.
Payments received on corporate non-accrual loans are
generally applied to loan principal and not reflected as
interest income. Approximately 74%, 69% and 64% of
Citi’s corporate non-accrual loans were performing at
December 31, 2017, September 30, 2017 and December
31, 2016, respectively.
• Consumer non-accrual status is generally based on aging,
i.e., the borrower has fallen behind on payments.
• Consumer mortgage loans, other than Federal Housing
Administration (FHA) insured loans, are classified as
non-accrual within 60 days of notification that the
borrower has filed for bankruptcy. In addition, home
equity loans are classified as non-accrual if the related
residential first mortgage loan is 90 days or more past
due.
• North America Citi-branded cards and Citi retail services
are not included because, under industry standards, credit
card loans accrue interest until such loans are charged off,
which typically occurs at 180 days of contractual
delinquency.
Renegotiated Loans:
•
•
Includes both corporate and consumer loans whose terms
have been modified in a troubled debt restructuring
(TDR).
Includes both accrual and non-accrual TDRs.
86
Non-Accrual Loans
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.
In millions of dollars
Corporate non-accrual loans(1)(2)
North America
EMEA
Latin America
Asia
Total corporate non-accrual loans
Consumer non-accrual loans(1)(3)
North America
Latin America
Asia(4)
Total consumer non-accrual loans
Total non-accrual loans
2017
2016
2015
2014
2013
December 31,
$
$
$
$
$
784 $
984 $
818 $
321 $
849
280
29
904
379
154
347
303
128
285
417
179
735
812
132
279
1,942 $
2,421 $
1,596 $
1,202 $
1,958
1,650 $
2,160 $
2,515 $
4,411 $
756
284
2,690 $
4,632 $
711
287
3,158 $
5,579 $
874
269
3,658 $
5,254 $
1,188
306
5,905 $
7,107 $
5,239
1,420
386
7,045
9,003
(1) Excludes purchased distressed loans, as they are generally accreting interest. The carrying value of these loans was $167 million at December 31, 2017, $187
million at December 31, 2016, $250 million at December 31, 2015, $421 million at December 31, 2014 and $703 million at December 31, 2013.
(2) The increase in corporate non-accrual loans from December 31, 2015 to December 31, 2016 was primarily related to Citi’s North America and EMEA energy and
energy-related corporate credit exposure during 2016.
(3) 2015 decline includes the impact related to the transfer of approximately $8 billion of mortgage loans to Loans HFS (included within Other assets).
(4) Asia includes balances in certain EMEA countries for all periods presented.
The changes in Citigroup’s non-accrual loans were as follows:
Year ended
December 31, 2017
Year ended
December 31, 2016
In millions of dollars
Corporate
Consumer
Total
Corporate
Consumer
Total
Non-accrual loans at beginning of period
$
2,421 $
3,158 $
5,579 $
1,596 $
3,658 $
Additions
Sales and transfers to held-for-sale
Returned to performing
Paydowns/settlements
Charge-offs
Other
Ending balance
1,347
(134)
(47)
(1,400)
(144)
(101)
3,508
(379)
(634)
(1,163)
(1,869)
69
4,855
(513)
(681)
(2,563)
(2,013)
(32)
2,713
(82)
(150)
(1,198)
(386)
(72)
4,460
(738)
(606)
(1,648)
(1,855)
(113)
$
1,942 $
2,690 $
4,632 $
2,421 $
3,158 $
5,254
7,173
(820)
(756)
(2,846)
(2,241)
(185)
5,579
87
Non-Accrual Assets
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
OREO(1)
North America
EMEA
Latin America
Asia
Total OREO
Non-accrual assets
Corporate non-accrual loans
Consumer non-accrual loans(2)
Non-accrual loans (NAL)
OREO
Non-accrual assets (NAA)
NAL as a percentage of total loans
NAA as a percentage of total assets
Allowance for loan losses as a percentage of NAL(3)
2017
2016
2015
2014
2013
December 31,
$
$
$
$
$
$
$
$
$
$
$
$
89
2
35
18
144
1,942
2,690
4,632
144
4,776
0.69%
0.26
267
161
$
166
$
196
$
—
18
7
186
2,421
3,158
5,579
186
5,765
0.89%
0.32
216
$
$
$
$
$
1
38
4
209
1,596
3,658
5,254
209
5,463
0.85%
0.32
240
$
$
$
$
$
7
47
10
260
1,202
5,905
7,107
260
7,367
1.10%
0.40
225
$
$
$
$
$
304
59
47
6
416
1,958
7,045
9,003
416
9,419
1.35%
0.50
218
(1) Reflects a decrease of $130 million related to the adoption of ASU 2014-14 in the fourth quarter of 2014, which requires certain government guaranteed mortgage
loans to be recognized as separate other receivables upon foreclosure. Prior periods have not been restated.
(2) 2015 decline includes the impact related to the transfer of approximately $8 billion of mortgage loans to Loans HFS (included within Other assets).
(3) 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.
88
Renegotiated Loans
The following table presents Citi’s loans modified in TDRs:
Forgone Interest Revenue on Loans(1)
In millions of dollars
Interest revenue that
would have been
accrued at original
contractual rates(2)
Amount recognized as
interest revenue(2)
Forgone interest
revenue
$
$
In U.S.
offices
In non-
U.S.
offices
2017
total
637 $
416 $
1,053
299
133
338 $
283 $
432
621
(1) Relates to corporate non-accrual loans, renegotiated loans and consumer
(2)
loans on which accrual of interest has been suspended.
Interest revenue in offices outside the U.S. may reflect prevailing local
interest rates, including the effects of inflation and monetary correction
in certain countries.
In millions of dollars
Corporate renegotiated loans(1)
In U.S. offices
Commercial and industrial(2)
Mortgage and real estate
Financial institutions
Other
In offices outside the U.S.
Commercial and industrial(2)
Mortgage and real estate
Financial institutions
Lease Financing
Total corporate renegotiated loans
Consumer renegotiated loans(3)(4)(5)
In U.S. offices
Mortgage and real estate(6)
Cards
Installment and other
In offices outside the U.S.
Mortgage and real estate
Cards
Installment and other
Total consumer renegotiated loans
Dec. 31,
2017
Dec. 31,
2016
$
$
$
$
$
$
$
$
$
$
225 $
90
33
45
393 $
392 $
11
15
7
425 $
818 $
89
84
9
228
410
319
3
—
—
322
732
3,709 $ 4,695
1,246
1,313
169
117
5,124 $ 6,125
345 $
541
427
447
435
443
1,313 $ 1,325
6,437 $ 7,450
(1)
(2)
(3)
(4)
(5)
Includes $715 million and $445 million of non-accrual loans included in
the non-accrual loans table above at December 31, 2017 and
December 31, 2016, respectively. The remaining loans are accruing
interest.
In addition to modifications reflected as TDRs at December 31, 2017
and December 31, 2016, Citi also modified $51 million and $257
million, respectively, and $95 million and $217 million, respectively, of
commercial loans risk rated “Substandard Non-Performing” or worse
(asset category defined by banking regulators) in offices inside and
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).
Includes $1,376 million and $1,502 million of non-accrual loans
included in the non-accrual loans table above at December 31, 2017 and
2016, respectively. The remaining loans are accruing interest.
Includes $26 million and $58 million of commercial real estate loans at
December 31, 2017 and 2016, respectively.
Includes $165 million and $105 million of other commercial loans at
December 31, 2017 and 2016, respectively.
(6) Reduction in 2017 includes $892 million related to TDRs sold or
transferred to held-for-sale.
89
LIQUIDITY RISK
Overview
Adequate and diverse sources of funding and liquidity are
essential to Citi’s businesses. Funding and liquidity risks arise
from several factors, many of which are mostly or entirely
outside Citi’s control, such as disruptions in the financial
markets, changes in key funding sources, credit spreads,
changes in Citi’s credit ratings and geopolitical and
macroeconomic conditions. For additional information, see
“Risk Factors” above.
Citi’s funding and liquidity objectives are aimed at (i)
funding its existing asset base, (ii) growing its core businesses,
(iii) maintaining sufficient liquidity, structured appropriately,
so that Citi can operate under a variety of adverse
circumstances, including potential Company-specific and/or
market liquidity events in varying durations and severity, and
(iv) satisfying regulatory requirements, including, among
other things, those related to resolution and resolution
planning (for additional information, see “Resolution Plan”
and “Total Loss-Absorbing Capacity (TLAC)” below).
Citigroup’s primary liquidity objectives are established by
entity, and in aggregate, across two major categories:
• Citibank (including Citibank Europe plc, Citibank
•
Singapore Ltd. and Citibank (Hong Kong) Ltd.); and
the non-bank and other, which includes the parent holding
company (Citigroup), Citi’s primary intermediate holding
company (Citicorp LLC), Citi’s broker-dealer subsidiaries
(including Citigroup Global Markets Inc., Citigroup
Global Markets Ltd. and Citigroup Global Markets Japan
Inc.) and other bank and non-bank subsidiaries that are
consolidated into Citigroup (including Citibanamex).
At an aggregate level, Citigroup’s goal is to maintain
sufficient funding in amount and tenor to fully fund customer
assets and to provide an appropriate amount of cash and high-
quality liquid assets (as discussed further below), even in
times of stress. The liquidity risk management framework
provides that in addition to the aggregate requirements, certain
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 funding
transactions.
As referenced above, Citi works to ensure that the tenor
of these funding sources is sufficiently long in relation to the
tenor of its asset base. The goal of Citi’s asset/liability
management is to ensure that there is excess liquidity and
tenor in the liability structure relative to the liquidity profile of
the assets. This reduces the risk that liabilities will become due
before asset maturities or monetizations through sale. This
excess liquidity is held primarily in the form of high-quality
liquid assets (HQLA), as set forth in the table below.
Citi’s Treasurer has overall responsibility for management
of Citi’s HQLA. Citi’s liquidity is managed via a centralized
treasury model by Corporate Treasury, in conjunction with
regional and in-country treasurers. Pursuant to this approach,
Citi’s HQLA is managed with emphasis on asset-liability
management and entity-level liquidity adequacy throughout
Citi.
Citi’s Chief Risk Officer is responsible for the overall
liquidity risk profile of Citi. The Chief Risk Officer and Citi’s
CFO co-chair Citi’s Asset Liability Management Committee
(ALCO), which includes Citi’s Treasurer and other senior
executives. ALCO sets the strategy of the liquidity portfolio
and monitors its performance. Significant changes to portfolio
asset allocations need to be approved by ALCO.
90
High-Quality Liquid Assets (HQLA)
In billions of dollars
Available cash
U.S. sovereign
U.S. agency/agency MBS
Foreign government debt(1)
Other investment grade
Dec. 31,
2017
Citibank
Sept. 30,
2017
Dec. 31,
2016
Non-bank and Other
Sept. 30,
2017
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
Total
Sept. 30,
2017
Dec. 31,
2016
$
94.3 $
92.7 $
80.9 $
30.9 $
32.9 $
18.4 $
125.2 $
125.6 $
113.2
80.8
80.5
0.7
108.4
68.1
101.3
0.5
113.6
62.8
87.5
0.9
27.9
0.5
16.4
1.2
26.6
0.6
16.3
1.2
22.5
0.1
15.5
1.5
141.1
81.3
96.9
1.9
135.0
68.7
117.6
1.7
99.2
136.1
63.0
103.0
2.5
Total HQLA (AVG)
$
369.5 $
371.0 $
345.7 $
76.9 $
77.6 $
58.0 $
446.4 $
448.6 $
403.7
Note: The amounts set forth in the table above are presented on an average basis. For securities, the amounts represent the liquidity value that potentially could be
realized and, therefore, exclude any securities that are encumbered and incorporate any haircuts that would be required for securities financing transactions.
(1) Foreign government debt includes securities issued or guaranteed by foreign sovereigns, agencies and multilateral development banks. Foreign government debt
securities are held largely to support local liquidity requirements and Citi’s local franchises and primarily include government bonds from Hong Kong, Singapore,
Korea, India and Mexico.
As set forth in the table above, Citi’s total HQLA increased
year-over-year, primarily driven by an increase in cash related
to resolution planning. Sequentially, Citi’s HQLA decreased
modestly, primarily driven by loan growth, partially offset by
growth in deposits.
Citi’s HQLA as set forth above does not include Citi’s
available borrowing capacity from the Federal Home Loan
Banks (FHLB) of which Citi is a member, which was
approximately $10 billion as of December 31, 2017 (compared
to $16 billion as of September 30, 2017 and $21 billion as of
December 31, 2016) and maintained by eligible collateral
pledged to such banks. The HQLA also does not include Citi’s
borrowing capacity at the U.S. Federal Reserve Bank discount
window or other central banks, which would be in addition to
the resources noted above.
In general, Citi’s liquidity is fungible across legal entities
within its bank group. Citi’s bank subsidiaries, including
Citibank, can lend to the Citi parent and broker-dealer entities
in accordance with Section 23A of the Federal Reserve Act. As
of December 31, 2017, the capacity available for lending to
these entities under Section 23A was approximately $15
billion, unchanged from both September 30, 2017 and
December 31, 2016, subject to certain eligible non-cash
collateral requirements.
Loans
As part of its funding and liquidity objectives, Citi seeks to
fund its existing asset base appropriately as well as maintain
sufficient liquidity to grow its GCB and ICG businesses,
including its loan portfolio. Citi maintains a diversified
portfolio of loans to its consumer and institutional clients. The
table below sets forth the average loans, by business and/or
segment, and the total end-of-period loans for each of the
periods indicated:
In billions of dollars
Global Consumer Banking
North America
Latin America
Asia(1)
Total
Institutional Clients Group
Corporate lending
Treasury and trade solutions
(TTS)
Private Bank
Dec. 31,
2017
Sept. 30,
2017
Dec. 31,
2016
$
189.7 $
186.7 $
182.0
25.7
87.9
26.8
86.2
23.5
81.9
$
303.3 $
299.7 $
287.4
124.8
123.3
118.9
77.0
85.9
74.9
82.6
71.5
75.2
Markets and securities services
and other
Total
40.4
40.1
38.6
$
328.2 $
320.9 $
304.3
Total Corporate/Other
23.6
25.8
34.6
Total Citigroup loans (AVG)
Total Citigroup loans (EOP)
$
$
655.1 $
646.3 $
626.3
667.0 $
653.2 $
624.4
(1)
Includes loans in certain EMEA countries for all periods presented.
91
As set forth in the table above, end-of-period loans
increased 7% year-over-year and 2% sequentially in the fourth
quarter. On an average basis, loans increased 5% year-over-
year and 1% sequentially.
Excluding the impact of FX translation, average loans
increased 3% year-over-year, driven by 5% aggregate across
GCB and ICG. Within GCB, loans grew 4%, with growth
across all regions.
Average ICG loans increased 6% year-over-year, driven
primarily by client-led growth in the private bank. Treasury
and trade solutions and corporate lending increased 6% and
4%, respectively, both driven by growth in Asia and EMEA.
Average Corporate/Other loans decreased 32% year-over-
year, driven by the continued wind-down of legacy assets.
Deposits
Deposits are Citi’s primary and lowest-cost funding source.
The table below sets forth the average deposits, by business
and/or segment, and the total end-of-period deposits for each
of the periods indicated:
In billions of dollars
Global Consumer Banking
North America
Latin America
Asia(1)
Total
Institutional Clients Group
Treasury and trade solutions
(TTS)
Banking ex-TTS
Markets and securities services
Total
Total Corporate/Other
Total Citigroup deposits (AVG)
Total Citigroup deposits (EOP)
Dec. 31,
2017
Sept. 30,
2017
Dec. 31,
2016
$
182.7 $
184.1 $
186.0
27.8
96.0
28.8
95.2
25.2
89.9
$
306.5 $
308.1 $
301.1
444.5
126.9
82.9
427.8
122.4
84.7
654.4 $
12.4
634.9 $
22.9
415.4
122.4
81.7
619.5
14.6
973.3 $
965.9 $
935.1
959.8 $
964.0 $
929.4
$
$
$
(1)
Includes deposits in certain EMEA countries for all periods presented.
End-of-period deposits increased 3% year-over-year and
remained unchanged sequentially in the fourth quarter. On an
average basis, deposits increased 4% year-over-year and 1%
sequentially.
Excluding the impact of FX translation, average deposits
increased 3% year-over-year, driven primarily by 6% growth
in TTS, as well as 4% aggregate growth in Asia GCB and
Latin America GCB. North America GCB deposits declined
2% year-over-year, with half of the decline coming from lower
escrow balances as a result of lower mortgage activity. Growth
in checking deposits was more than offset by a reduction in
money market balances, as clients transferred cash to
investment accounts.
Long-Term Debt
Long-term debt (generally defined as debt with original
maturities of one year or more) represents the most significant
component of Citi’s funding for the parent entities and is a
supplementary source of funding for the bank entities.
Long-term debt is an important funding source due in part
to its multi-year contractual maturity structure. The weighted-
average maturity of unsecured long-term debt issued by
Citigroup and its affiliates (including Citibank) with a
remaining life greater than one year (excluding remaining trust
preferred securities outstanding) was approximately 6.8 years
as of December 31, 2017, unchanged sequentially and a
modest decline from 7.0 years from the prior year.
Citi’s long-term debt outstanding at the parent includes
senior and subordinated debt and what Citi refers to as
customer-related debt, consisting of structured notes, such as
equity- and credit-linked notes, as well as non-structured
notes. Citi’s issuance of customer-related debt is generally
driven by customer demand and supplements benchmark debt
issuance as a source of funding for Citi’s parent entities. Citi’s
long-term debt at the bank also includes benchmark senior
debt, FHLB advances and securitizations.
Long-Term Debt Outstanding
The following table sets forth Citi’s total long-term debt
outstanding for the periods indicated:
In billions of dollars
Parent and other(1)
Benchmark debt:
Senior debt
Subordinated debt
Trust preferred
Customer-related debt
Local country and other(2)
Total parent and other
Bank
FHLB borrowings
Securitizations(3)
CBNA benchmark senior debt
Local country and other(2)
Total bank
Total long-term debt
Dec. 31,
2017
Sept. 30,
2017
Dec. 31,
2016
$ 109.8 $ 109.8 $
99.9
26.8
1.7
25.8
2.5
$ 170.9 $ 170.6 $ 156.7
27.0
1.7
30.3
1.8
26.9
1.7
30.7
1.8
$
19.3 $
30.3
12.5
3.7
65.8 $
21.6
23.5
—
4.4
$
49.5
$ 236.7 $ 232.7 $ 206.2
19.8 $
28.6
9.5
4.2
62.1 $
Note: Amounts represent the current value of long-term debt on Citi’s
Consolidated Balance Sheet which, for certain debt instruments, includes
consideration of fair value, hedging impacts and unamortized discounts and
premiums.
(1) “Parent and other” includes long-term debt issued to third parties by the
parent holding company (Citigroup) and Citi’s non-bank subsidiaries
(including broker-dealer subsidiaries) that are consolidated into
Citigroup. As of December 31, 2017 “parent and other” included $18.7
billion of long-term debt issued by Citi’s broker-dealer subsidiaries.
(2) Local country debt includes debt issued by Citi’s affiliates in support of
their local operations.
(3) Predominantly credit card securitizations, primarily backed by Citi-
branded credit card receivables.
Citi’s total long-term debt outstanding increased both
year-over-year and quarter-over-quarter. The increase year-
over-year was primarily driven by an increase in senior debt at
92
the parent, as well as increases in both Citibank benchmark
senior debt and securitizations at the bank. In addition, the
year-over-year increase in outstanding customer-related debt
was driven by stronger customer demand and fewer maturities
and redemptions. Sequentially, the increase was driven
primarily by an increase in Citibank benchmark debt and
securitizations at the bank.
As part of its liability management, Citi has considered,
and may continue to consider, opportunities to repurchase its
long-term debt pursuant to open market purchases, tender
offers or other means. Such repurchases help reduce Citi’s
overall funding costs and assist it in meeting regulatory
changes and requirements. During 2017, Citi repurchased an
aggregate of approximately $2.6 billion of its outstanding
long-term debt, including early redemptions of FHLB
advances.
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:
In billions of dollars
Parent and other
Benchmark debt:
Senior debt
Subordinated debt
Trust preferred
Customer-related debt
Local country and other
Total parent and other
Bank
FHLB borrowings
Securitizations
CBNA benchmark senior debt
Local country and other
Total bank
Total
2017
2016
2015
Maturities
Issuances
Maturities
Issuances
Maturities
Issuances
$
14.1 $
21.6 $
14.9 $
26.0 $
23.9 $
20.2
1.6
—
7.6
1.1
1.3
—
12.3
0.1
3.2
—
10.2
2.1
4.0
—
10.5
2.2
4.0
—
9.9
0.4
7.5
—
9.5
1.9
24.5 $
35.3 $
30.4 $
42.7 $
38.2 $
39.1
7.8 $
5.5 $
10.5 $
14.3 $
4.0 $
5.3
—
3.4
16.5 $
41.0 $
12.2
12.6
2.3
32.6 $
68.0 $
10.7
—
3.9
25.1 $
55.5 $
3.3
—
3.4
7.9
—
2.8
21.0 $
63.7 $
14.7 $
52.9 $
2.0
0.8
—
2.7
5.5
44.6
$
$
$
$
The table below shows Citi’s aggregate long-term debt maturities (including repurchases and redemptions) in 2017, as well as its
aggregate expected annual long-term debt maturities as of December 31, 2017:
In billions of dollars
Parent and other
Benchmark debt:
Senior debt
Subordinated debt
Trust preferred
Customer-related debt
Local country and other
Total parent and other
Bank
FHLB borrowings
Securitizations
CBNA benchmark senior debt
Local country and other
Total bank
Total long-term debt
2017
2018
2019
2020
2021
2022
Thereafter
Total
Maturities
$
14.1 $
18.4 $
14.8 $
8.9 $
14.4 $
8.1 $
45.3 $
109.8
1.6
—
7.6
1.1
1.0
—
4.2
0.6
1.4
—
2.8
0.1
—
—
3.9
0.2
—
—
2.5
0.1
0.8
—
2.0
0.1
23.7
1.7
15.4
0.7
26.9
1.7
30.7
1.8
24.5 $
24.2 $
19.0 $
12.9 $
16.9 $
10.9 $
86.8 $
170.9
7.8 $
16.8 $
2.6 $
— $
— $
— $
— $
5.3
—
3.4
8.7
2.2
1.5
9.0
4.7
1.0
4.6
5.2
0.5
3.9
—
0.2
1.3
—
0.2
2.8
0.3
0.3
16.5 $
29.3 $
17.2 $
10.3 $
4.1 $
1.5 $
3.5 $
19.3
30.3
12.5
3.7
65.8
41.0 $
53.5 $
36.3 $
23.2 $
21.0 $
12.4 $
90.3 $
236.7
$
$
$
$
93
Resolution Plan
Under Title I of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act),
Citigroup has developed a “single point of entry” resolution
strategy and plan under the U.S. Bankruptcy Code. On July 1,
2017, Citi submitted its 2017 resolution plan to the Federal
Reserve and FDIC. On December 19, 2017, the Federal
Reserve and FDIC informed Citi that (i) the agencies jointly
decided that Citi’s 2017 resolution plan submission
satisfactorily addressed the shortcomings identified in the
2015 resolution plan submission, and (ii) the agencies together
did not identify any shortcomings or deficiencies in the 2017
resolution plan submission. Citi’s next resolution plan
submission is due July 1, 2019. For additional information on
Citi’s resolution plan submissions, see “Risk Factors—
Strategic Risks” above.
Under Citi’s resolution plan, only Citigroup, the parent
holding company, would enter into bankruptcy, while
Citigroup’s material legal entities (as defined in the public
section of its 2017 resolution plan, which can be found on the
Federal Reserve and FDIC websites) would remain
operational and outside of any resolution or insolvency
proceedings. Citigroup believes its resolution plan has been
designed to minimize the risk of systemic impact to the U.S.
and global financial systems, while maximizing the value of
the bankruptcy estate for the benefit of Citigroup’s creditors,
including its unsecured long-term debt holders. In addition, in
line with the Federal Reserve’s final total loss-absorbing
capacity (TLAC) rule, Citigroup believes it has developed the
resolution plan so that Citigroup’s shareholders and unsecured
creditors—including its unsecured long-term debt holders—
bear any losses resulting from Citigroup’s bankruptcy.
In response to feedback received from the Federal
Reserve and FDIC on Citigroup’s 2015 resolution plan,
Citigroup took the following actions in connection with its
2017 resolution plan submission (which, as noted above, did
not contain any shortcomings or deficiencies):
(i) Citicorp LLC (Citicorp), an existing wholly owned
subsidiary of Citigroup, was established as an
intermediate holding company (an IHC) for certain of
Citigroup’s operating material legal entities;
(ii) Citigroup executed an inter-affiliate agreement with
Citicorp, Citigroup’s operating material legal entities
and certain other affiliated entities pursuant to which
Citicorp is required to provide liquidity and capital
support to Citigroup’s operating material legal entities
in the event Citigroup were to enter bankruptcy
proceedings (Citi Support Agreement);
(iii) pursuant to the Citi Support Agreement:
• Citigroup made an initial contribution of assets,
including certain high-quality liquid assets and
inter-affiliate loans (Contributable Assets), to
Citicorp, and Citicorp became the business as usual
funding vehicle for Citigroup’s operating material
legal entities;
• Citigroup will be obligated to continue to transfer
Contributable Assets to Citicorp over time, subject
to certain amounts retained by Citigroup to, among
94
•
other things, meet Citigroup’s near-term cash
needs;
in the event of a Citigroup bankruptcy, Citigroup
will be required to contribute most of its remaining
assets to Citicorp; and
(iv) the obligations of both Citigroup and Citicorp under the
Citi Support Agreement, as well as the Contributable
Assets, are secured pursuant to a security agreement.
The Citi Support Agreement provides two mechanisms,
besides Citicorp’s issuing of dividends to Citigroup, pursuant
to which Citicorp will be required to transfer cash to Citigroup
during business as usual so that Citigroup can fund its debt
service as well as other operating needs: (i) one or more
funding notes issued by Citicorp to Citigroup and (ii) a
committed line of credit under which Citicorp may make loans
to Citigroup.
Total Loss-Absorbing Capacity (TLAC)
In 2016, the Federal Reserve Board released a final rule that
imposes minimum external loss-absorbing capacity (TLAC)
and long-term debt (LTD) requirements on U.S. global
systemically important bank holding companies (GSIBs),
including Citi. The intended purpose of the final rule is to
facilitate the orderly resolution of U.S. GSIBs under the U.S.
Bankruptcy Code and Title II of the Dodd-Frank Act. The
effective date for all requirements under the final rule is
January 1, 2019. While Citi believes that it meets the final
minimum TLAC and LTD requirements as of December, 31,
2017, there are uncertainties regarding certain key aspects of
the final rule. For additional information, see “Risk Factors—
Compliance, Conduct and Legal Risks” above. For additional
discussion of the method 1 and method 2 GSIB capital
surcharge methodology, see “Capital Resources—Current
Regulatory Capital Standards” above.
Under the Federal Reserve Board’s final rule, U.S. GSIBs
will be required to maintain minimum levels of TLAC and
eligible LTD, each set by reference to the GSIB’s consolidated
risk-weighted assets (RWA) and total leverage exposure and as
described further below.
Minimum TLAC Requirements
The minimum TLAC requirement is the greater of (i) 18% of
the GSIB’s RWA plus the then-applicable RWA-based TLAC
buffer (see below) and (ii) 7.5% of the GSIB’s total leverage
exposure plus a leveraged-based TLAC buffer of 2% (i.e.,
9.5%). The RWA-based TLAC buffer equals the 2.5% capital
conservation buffer, plus any applicable countercyclical
capital buffer (currently 0%), plus the GSIB’s capital
surcharge as determined under method 1 of the GSIB
surcharge rule (2.0% for Citi as of January 1, 2018).
Accordingly, Citi estimates its total current minimum TLAC
requirement is 22.5% of RWA under the final rule. Pursuant to
the final rule, TLAC may generally only consist of the GSIB’s
(i) Common Equity Tier 1 Capital and Additional Tier 1
Capital issued directly by the bank holding company
(excluding qualifying trust preferred securities) plus (ii)
eligible LTD (as discussed below). Breach of either the RWA-
or leveraged-based TLAC buffer would result in restrictions
on distributions and discretionary bonus payments.
Minimum Eligible LTD Requirements
The minimum LTD requirement is the greater of (i) 6% of the
GSIB’s RWA plus its capital surcharge as determined under
method 2 of the GSIB surcharge rule (3.0% for Citi as of
January 1, 2018), for a total current requirement of 9% of
RWA for Citi, and (ii) 4.5% of the GSIB’s total leverage
exposure.
Generally, under the final rule, eligible LTD is defined as
the unpaid principal balance of unsecured, “plain vanilla” debt
securities (i.e., would not include certain of Citi’s customer-
related debt) issued directly by the bank holding company,
governed by U.S. law, with a remaining maturity greater than
one year and which provides for acceleration only upon the
occurrence of insolvency or non-payment of principal or
interest for 30 days or more. Further, pursuant to what has
been referred to as the “haircut” provision, otherwise eligible
LTD with a remaining maturity between one and two years is
subject to a 50% haircut for purposes of meeting the minimum
LTD requirement (although such LTD would continue to count
at full value for purposes of the minimum TLAC requirement;
eligible LTD with a remaining maturity of less than one year
would not count toward either the minimum TLAC or eligible
LTD requirement). The final rule provides that debt issued
prior to December 31, 2016 with acceleration provisions other
than those summarized above or governed by non-U.S. law is
permanently grandfathered and may count as eligible LTD,
assuming it otherwise meets the requirements of eligible LTD.
Clean Holding Company Requirements
The final rule prohibits or limits certain financial
arrangements at the bank holding company level, or what are
referred to as “clean holding company” requirements.
Pursuant to these requirements, Citi, as the bank holding
company, is prohibited from having certain types of third-
party liabilities, including short-term debt, certain derivatives
and other qualified financial contracts, liabilities guaranteed
by a subsidiary (i.e., upstream guarantees) and guarantees of
subsidiary liabilities or similar arrangements, if the liability or
guarantee includes a default right linked to the insolvency of
the bank holding company (i.e., downstream guarantees with
cross default provisions). In addition, the final rule limits
third-party, non-contingent liabilities of the bank holding
company (other than those related to TLAC or eligible LTD)
to 5% of the U.S. GSIB’s outstanding TLAC. Examples of the
types of liabilities subject to this 5% limit include structured
notes and various operating liabilities, such as rent and
obligations to employees, as well as litigation and similar
liabilities.
Secured Funding 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 funding transactions (securities
loaned or sold under agreements to repurchase, or repos) and
(ii) to a lesser extent, short-term borrowings consisting of
commercial paper and borrowings from the FHLB and other
market participants (see Note 17 to the Consolidated Financial
Statements for further information on Citigroup’s and its
affiliates’ outstanding short-term borrowings).
Outside of secured funding transactions, Citi’s short-term
borrowings increased both year-over-year (a 45% increase)
and sequentially (a 17% increase), driven by an increase in
FHLB borrowing, as Citi continued to optimize liquidity
across its legal vehicles.
Secured Funding
Secured funding is primarily accessed through Citi’s broker-
dealer subsidiaries to fund efficiently both secured lending
activity and a portion of securities inventory held in the
context of market making and customer activities. Citi also
executes a smaller portion of its secured funding transactions
through its bank entities, which is typically collateralized by
foreign government debt securities. Generally, daily changes
in the level of Citi’s secured funding are primarily due to
fluctuations in secured lending activity in the matched book
(as described below) and securities inventory.
Secured funding of $156 billion as of December 31, 2017
increased 10% from the prior-year period and declined 3%
sequentially. Excluding the impact of FX translation, secured
funding increased 5% from the prior-year period and
decreased 3% sequentially, both driven by normal business
activity. Average balances for secured funding were
approximately $163 billion for the quarter ended December
31, 2017.
The portion of secured funding in the broker-dealer
subsidiaries that funds secured lending is commonly referred
to as “matched book” activity. The majority of this activity is
secured by high-quality liquid securities such as U.S. Treasury
securities, U.S. agency securities and foreign government debt
securities. Other secured funding is secured by less-liquid
securities, including equity securities, corporate bonds and
asset-backed securities. The tenor of Citi’s matched book
liabilities is generally equal to or longer than the tenor of the
corresponding matched book assets.
The remainder of the secured funding activity in the
broker-dealer subsidiaries serves to fund securities inventory
held in the context of market making and customer activities.
To maintain reliable funding under a wide range of market
conditions, including under periods of stress, Citi manages
these activities by taking into consideration the quality of the
underlying collateral, and stipulating financing tenor. The
weighted average maturity of Citi’s secured funding of less-
liquid securities inventory was greater than 110 days as of
December 31, 2017.
Citi manages the risks in its secured funding by
conducting daily stress tests to account for changes in
capacity, tenors, haircut, collateral profile and client actions.
95
Additionally, Citi maintains counterparty diversification by
establishing concentration triggers and assessing counterparty
reliability and stability under stress. Citi generally sources
secured funding from more than 150 counterparties.
Overall Short-Term Borrowings
The following table contains the year-end, average and maximum month-end amounts for the following respective short-term
borrowings categories at the end of each of the three prior fiscal years:
In billions of dollars
Amounts outstanding at year end
Average outstanding during the year(4)(5)
Maximum month-end outstanding
Weighted-average interest rate
During the year(4)(5)(6)
At year end(7)
Federal funds purchased and
securities sold under
agreements to repurchase
2015
2016
2017
Short-term borrowings(1)
Commercial paper(2)
Other short-term borrowings(3)
2017
2016
2015
2017
2016
2015
$ 156.3
$ 141.8
$ 146.5
$
9.9
$
157.7
163.0
158.1
171.7
174.5
186.2
10.0
10.1
$
10.0
10.0
10.2
$
10.0
10.7
15.3
34.5
23.2
34.5
$
$
20.7
14.8
20.9
11.1
22.2
41.9
1.69%
1.21%
0.92%
1.27%
0.80%
0.36%
2.81%
2.32%
1.40%
1.02
0.63
0.59
1.28
0.79
0.22
1.62
1.39
1.50
(1) Original maturities of less than one year.
(2) Substantially all commercial paper outstanding was issued by certain Citibank entities for the periods presented.
(3) Other short-term borrowings include borrowings from the FHLB and other market participants.
(4)
(5) Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to ASC 210-20-45; average rates exclude the impact of
Interest rates and amounts include the effects of risk management activities associated with the respective liability categories.
ASC 210-20-45.
(6) Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.
(7) Based on contractual rates at respective year ends; non-interest-bearing accounts are excluded from the weighted average interest rate calculated at year end.
96
In billions of dollars
HQLA
Net outflows
LCR
Dec. 31,
2017
Sept. 30,
2017
Dec. 31,
2016
$ 446.4
$ 448.6
$ 403.7
364.3
365.1
332.5
123%
123%
121%
HQLA in excess of net outflows
$ 82.1
$
83.5
$
71.3
Note: Amounts set forth in the table above are presented on an average basis.
As set forth in the table above, Citi’s LCR increased year-
over-year, as the increase in the HQLA (as discussed above)
more than offset an increase in modeled net outflows. The
increase in modeled net outflows was primarily driven by
changes in assumptions, including changes in methodology to
better align Citi’s outflow assumptions with those embedded
in its resolution planning. Sequentially, Citi’s LCR remained
unchanged.
Long-Term Liquidity Measurement: Net Stable Funding
Ratio (NSFR)
In 2016, the Federal Reserve Board, the FDIC and the OCC
issued a proposed rule to implement the Basel III NSFR
requirement.
The U.S.-proposed NSFR is largely consistent with the
Basel Committee’s final NSFR rules. In general, the NSFR
assesses the availability of a bank’s stable funding against a
required level. A bank’s available stable funding would
include portions of equity, deposits and long-term debt, while
its required stable funding would be based on the liquidity
characteristics of its assets, derivatives and commitments.
Prescribed factors would be required to be applied to the
various categories of asset and liabilities classes. The ratio of
available stable funding to required stable funding would be
required to be greater than 100%. While Citi believes that it is
compliant with the proposed U.S. NSFR rules as of December
31, 2017, it will need to evaluate a final version of the rules,
which are expected to be released during 2018. Citi expects
that the NSFR final rules implementation period will be
communicated along with the final version of the rules.
Liquidity Monitoring and Measurement
Stress Testing
Liquidity stress testing is performed for each of Citi’s major
entities, operating subsidiaries and/or countries. Stress testing
and scenario analyses are intended to quantify the potential
impact of an adverse liquidity event on the balance sheet and
liquidity position, and to identify viable funding alternatives
that can be utilized. These scenarios include assumptions
about significant changes in key funding sources, market
triggers (such as credit ratings), potential uses of funding and
geopolitical and macroeconomic conditions. These conditions
include expected and stressed market conditions as well as
Company-specific events.
Liquidity stress tests are conducted to ascertain potential
mismatches between liquidity sources and uses over a variety
of time horizons and over different stressed conditions.
Liquidity limits are set accordingly. To monitor the liquidity of
an entity, these stress tests and potential mismatches are
calculated with varying frequencies, with several tests
performed daily.
Given the range of potential stresses, Citi maintains
contingency funding plans on a consolidated basis and for
individual entities. These plans specify a wide range of readily
available actions for a variety of adverse market conditions or
idiosyncratic stresses.
Short-Term Liquidity Measurement: Liquidity Coverage
Ratio (LCR)
In addition to internal liquidity stress metrics that Citi has
developed for a 30-day stress scenario, Citi also monitors its
liquidity by reference to the LCR, as calculated pursuant to the
U.S. LCR rules.
Generally, the LCR is designed to ensure that banks
maintain an adequate level of HQLA to meet liquidity needs
under an acute 30-day stress scenario. The LCR is calculated
by dividing HQLA by estimated net outflows over a stressed
30-day period, with the net outflows determined by applying
prescribed outflow factors to various categories of liabilities,
such as deposits, unsecured and secured wholesale
borrowings, unused lending commitments and derivatives-
related exposures, partially offset by inflows from assets
maturing within 30 days. Banks are required to calculate an
add-on to address potential maturity mismatches between
contractual cash outflows and inflows within the 30-day
period in determining the total amount of net outflows. The
minimum LCR requirement is 100%, effective January 2017.
Pursuant to the Federal Reserve Board’s final rule
regarding LCR disclosures, effective April 1, 2017, Citi began
to disclose LCR in the prescribed format.
The table below sets forth the components of Citi’s LCR
calculation and HQLA in excess of net outflows for the
periods indicated:
97
.
Credit Ratings
Citigroup’s funding and liquidity, funding capacity, ability to
access capital markets and other sources of funds, the cost of
these funds and its ability to maintain certain deposits are
partially dependent on its credit ratings.
The table below sets forth the ratings for Citigroup and
Citibank as of December 31, 2017. While not included in the
table below, the long-term and short-term ratings of Citigroup
Global Markets Inc. (CGMI) were “A2/P-1” at Moody’s, “A+/
A-1” at Standard & Poor’s and “A+/F1” at Fitch as of
December 31, 2017. The long-term and short-term ratings of
CGMHI were “BBB+/A-2” at Standard & Poor’s and “A/F1”
at Fitch as of December 31, 2017.
Fitch Ratings (Fitch)
Moody’s Investors Service (Moody’s)
Standard & Poor’s (S&P)
Recent Credit Rating Developments
As of November 14, 2017, Moody's Investors Service has
placed Citi on "Positive" outlook, citing Citi’s durable
business model with a narrower geographic footprint and
refined customer base targets, and the ability to demonstrate a
strengthened risk asset profile as well as improved earnings
stability.
Potential Impacts of Ratings Downgrades
Ratings downgrades by Moody’s, Fitch or S&P could
negatively impact Citigroup’s and/or Citibank’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 of a hypothetical, simultaneous
ratings downgrade across all three major rating agencies. This
analysis is subject to certain estimates, estimation
methodologies, judgments and uncertainties. Uncertainties
include potential ratings limitations that certain entities may
have with respect to permissible counterparties, as well as
general subjective counterparty behavior. For example, certain
corporate customers and markets counterparties could re-
evaluate their business relationships with Citi and limit
transactions in certain contracts or market instruments with
Citi. Changes in counterparty behavior could impact Citi’s
funding and liquidity, as well as the results of operations of
certain of its businesses. The actual impact to Citigroup or
Citibank 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” above.
Citigroup Inc.
Citibank, N.A.
Senior
debt
Commercial
paper
A
Baa1
BBB+
F1
P-2
A-2
Outlook
Stable
Positive
Stable
Long-
term
Short-
term
A+
A1
A+
F1
P-1
A-1
Outlook
Stable
Positive
Stable
Citigroup Inc. and Citibank—Potential Derivative Triggers
As of December 31, 2017, Citi estimates that a hypothetical
one-notch downgrade of the senior debt/long-term rating of
Citigroup Inc. across all three major rating agencies could
impact Citigroup’s funding and liquidity due to derivative
triggers by approximately $0.8 billion, compared to
$1.0 billion as of September 30, 2017. Other funding sources,
such as securities financing transactions and other margin
requirements, for which there are no explicit triggers, could
also be adversely affected.
As of December 31, 2017, Citi estimates that a
hypothetical one-notch downgrade of the senior debt/long-
term rating of Citibank across all three major rating agencies
could impact Citibank’s funding and liquidity by
approximately $0.4 billion, compared to $0.5 billion as of
September 30, 2017, due to derivative triggers.
In total, Citi estimates that a one-notch downgrade of
Citigroup and Citibank, across all three major rating agencies,
could result in increased aggregate cash obligations and
collateral requirements of approximately $1.2 billion,
compared to $1.5 billion as of September 30, 2017 (see also
Note 22 to the Consolidated Financial Statements). As set
forth under “High-Quality Liquid Assets” above, the liquidity
resources of Citibank were approximately $369 billion and the
liquidity resources of Citi’s non-bank and other entities were
approximately $77 billion, for a total of approximately
$446 billion as of December 31, 2017. 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’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 and
adjusting the size of select trading books and collateralized
borrowings from certain Citibank subsidiaries. Mitigating
98
actions available to Citibank include, but are not limited to,
selling or financing highly liquid government securities,
tailoring levels of secured lending, adjusting the size of select
trading assets, 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—Additional Potential Impacts
In addition to the above derivative triggers, Citi believes that a
potential one-notch downgrade of Citibank’s senior debt/long-
term rating by S&P could also have an adverse impact on the
commercial paper/short-term rating of Citibank. As of
December 31, 2017, Citibank had liquidity commitments of
approximately $9.9 billion to consolidated asset-backed
commercial paper conduits, compared to $10.0 billion as of
September 30, 2017 (as referenced in Note 21 to the
Consolidated Financial Statements).
In addition to the above-referenced liquidity resources of
certain Citibank and Citibanamex entities, Citibank could
reduce the funding and liquidity risk, if any, of the potential
downgrades described above through mitigating actions,
including repricing or reducing certain commitments to
commercial paper conduits. In the event of the potential
downgrades described above, Citi believes that certain
corporate customers could re-evaluate their deposit
relationships with Citibank. This re-evaluation could result in
clients adjusting their discretionary deposit levels or changing
their depository institution, which could potentially reduce
certain deposit levels at Citibank. However, Citi could choose
to adjust pricing, offer alternative deposit products to its
existing customers or seek to attract deposits from new
customers, in addition to the mitigating actions referenced
above.
99
implements such strategies when it believes those actions are
prudent.
Citi manages interest rate risk as a consolidated company-
wide position. Citi’s client-facing businesses create interest-
rate sensitive positions, including loans and deposits, as part of
their ongoing activities. Citi Treasury aggregates these risk
positions and manages them centrally. Operating within
established limits, Citi Treasury makes positioning decisions
and uses tools, such as Citi’s investment securities portfolio,
company-issued debt and interest rate derivatives, to target the
desired risk profile. Changes in Citi’s interest rate risk position
reflect the accumulated changes in all non-trading assets and
liabilities, with potentially large and offsetting impacts, as well
as in Citi Treasury’s positioning decisions.
Citigroup employs additional measurements, including
stress testing the impact of non-linear interest rate movements
on the value of the balance sheet; the analysis of portfolio
duration and volatility, particularly as they relate to mortgage
loans and mortgage-backed securities; and the potential impact
of the change in the spread between different market indices.
Interest Rate Risk of Investment Portfolios—Impact on
AOCI
Citi also measures the potential impacts of changes in interest
rates on the value of its AOCI, which can in turn impact Citi’s
common equity and tangible common equity. This will impact
Citi’s Common Equity Tier 1 and other regulatory capital
ratios. Citi’s goal is to benefit from an increase in the market
level of interest rates, while limiting the impact of changes in
AOCI on its regulatory capital position.
AOCI at risk is managed as part of the company-wide
interest rate risk position. AOCI at risk considers potential
changes in AOCI (and the corresponding impact on the
Common Equity Tier 1 Capital ratio) relative to Citi’s capital
generation capacity.
MARKET RISK
Overview
Market risk is the potential for losses arising from changes in
the value of Citi’s assets and liabilities resulting from changes
in market variables such as interest rates, foreign exchange
rates, equity prices, commodity prices and credit spreads, as
well as their implied volatilities.
Each business is required to establish, with approval from
Citi’s market risk management, a market risk limit framework
for identified risk factors that clearly defines approved risk
profiles and is within the parameters of Citi’s overall risk
appetite. These limits are monitored by the Risk organization,
Citi’s country and business Asset and Liability Committees
and the Citigroup Asset and Liability Committee. In all cases,
the businesses are ultimately responsible for the market risks
taken and for remaining within their defined limits.
Market risk emanates from both Citi’s trading and non-
trading portfolios. Trading portfolios comprise all assets and
liabilities marked-to-market, with results reflected in earnings.
Non-trading portfolios include all other assets and liabilities.
Market Risk of Non-Trading Portfolios
Market risk from non-trading portfolios stems from the
potential impact of changes in interest rates and foreign
exchange rates on Citi’s net interest revenues, the changes in
Accumulated other comprehensive income (loss) (AOCI) from
its investment portfolios and capital invested in foreign
currencies.
Net Interest Revenue at Risk
Net interest revenue, for interest rate exposure purposes, is the
difference between the yield earned on the non-trading
portfolio assets (including customer loans) and the rate paid on
the liabilities (including customer deposits or company
borrowings). Net interest revenue is affected by changes in the
level of interest rates, as well as the amounts and mix of assets
and liabilities, and the timing of contractual and assumed
repricing of assets and liabilities to reflect market rates.
Citi’s principal measure of risk to net interest revenue is
interest rate exposure (IRE). IRE measures the change in
expected net interest revenue in each currency resulting solely
from unanticipated changes in forward interest rates.
Citi’s estimated IRE incorporates various assumptions
including prepayment rates on loans, customer behavior and
the impact of pricing decisions. For example, in rising interest
rate scenarios, portions of the deposit portfolio may be
assumed to experience rate increases that are less than the
change in market interest rates. In declining interest rate
scenarios, it is assumed that mortgage portfolios experience
higher prepayment rates. IRE assumes that businesses and/or
Citi Treasury make no additional changes in balances or
positioning in response to the unanticipated rate changes.
In order to manage changes in interest rates effectively,
Citi may modify pricing on new customer loans and deposits,
purchase fixed-rate securities, issue debt that is either fixed or
floating or enter into derivative transactions that have the
opposite risk exposures. Citi regularly assesses the viability of
these and other strategies to reduce its interest rate risks and
100
The following table sets forth the estimated impact to Citi’s net interest revenue, AOCI and the Common Equity Tier 1 Capital ratio
(on a fully implemented basis), each assuming an unanticipated parallel instantaneous 100 bps increase in interest rates:
In millions of dollars (unless otherwise noted)
Estimated annualized impact to net interest revenue
U.S. dollar(1)
All other currencies
Total
As a percentage of average interest-earning assets
Estimated initial impact to AOCI (after-tax)(2)(3)
Estimated initial impact on Common Equity Tier 1 Capital ratio (bps)(3)
Dec. 31, 2017
Sept. 30, 2017
Dec. 31, 2016
$
$
$
1,471
598
2,069
$
$
1,449
610
2,059
$
$
0.12%
0.12%
(4,853)
$
(4,206) $
(35)
(48)
1,586
550
2,136
0.13%
(4,617)
(53)
(1) Certain trading-oriented businesses within Citi have accrual-accounted positions that are excluded from the estimated impact to net interest revenue in the table
since these exposures are managed economically in combination with mark-to-market positions. The U.S. dollar interest rate exposure associated with these
businesses was $(182) million for a 100 bps instantaneous increase in interest rates as of December 31, 2017.
Includes the effect of changes in interest rates on AOCI related to investment securities, cash flow hedges and pension liability adjustments.
(2)
(3) Results as of December 31, 2017 reflect the impact of Tax Reform, including the lower expected effective tax rate and the impact to Citi’s DTA position. Prior
periods have not been restated. The estimated initial impact on Common Equity Tier I Capital ratio (bps) is calculated on a pre-tax basis prior to December 31,
2017.
The 2017 decrease in the estimated impact to net interest
revenue primarily reflected changes in Citi’s balance sheet
composition, including increases in loan balances and
increased sensitivity in deposits, net of Citi Treasury
positioning. The 2017 changes in the estimated impact to
AOCI and the Common Equity Tier 1 Capital ratio primarily
reflected the impact of Tax Reform, including the lower
expected effective tax rate and the impact to Citi’s DTA
position, net of changes in the composition of Citi Treasury’s
investment and derivatives portfolio.
In the event of an unanticipated parallel instantaneous 100
bps increase in interest rates, Citi expects that the negative
impact to AOCI would be offset in shareholders’ equity
through the combination of expected incremental net interest
In millions of dollars (unless otherwise noted)
Overnight rate change (bps)
10-year rate change (bps)
Estimated annualized impact to net interest revenue
U.S. dollar
All other currencies
Total
Estimated initial impact to AOCI (after-tax)(1)
Estimated initial impact to Common Equity Tier 1 Capital ratio (bps)(2)
revenue and the expected recovery of the impact on AOCI
through accretion of Citi’s investment portfolio over a period
of time. As of December 31, 2017, Citi expects that the
negative $4.9 billion impact to AOCI in such a scenario could
potentially be offset over approximately 21 months.
The following table sets forth the estimated impact to
Citi’s net interest revenue, AOCI and the Common Equity
Tier 1 Capital ratio (on a fully implemented basis) under four
different changes in interest rate scenarios for the U.S. dollar
and Citi’s other currencies. While Citi also monitors the
impact of a parallel decrease in interest rates, a 100 bps
decrease in short-term rates is not meaningful, as it would
imply negative interest rates in many of Citi’s markets.
Scenario 1 Scenario 2 Scenario 3 Scenario 4
100
100
100
—
1,471 $
1,377 $
598
558
2,069 $
1,935 $
—
100
86 $
35
121 $
—
(100)
(102)
(35)
(137)
(4,853) $
(3,046) $
(2,010) $
1,484
(35)
(22)
(15)
11
$
$
$
Note: Each scenario in the table above assumes that the rate change will occur instantaneously. Changes in interest rates for maturities between the overnight rate and
the 10-year rate are interpolated.
(1)
(2) Results as of December 31, 2017 reflect the impact of Tax Reform, including the lower expected effective tax rate and the impact to Citi’s DTA position.
Includes the effect of changes in interest rates on AOCI related to investment securities, cash flow hedges and pension liability adjustments.
As shown in the table above, the magnitude of the impact
to Citi’s net interest revenue and AOCI is greater under
scenario 2 as compared to scenario 3. This is because the
combination of changes to Citi’s investment portfolio,
partially offset by changes related to Citi’s pension liabilities,
results in a net position that is more sensitive to rates at shorter
and intermediate term maturities.
101
The effect of Citi’s ongoing management strategies with
respect to changes in foreign exchange rates and the impact of
these changes on Citi’s TCE and Common Equity Tier 1
Capital ratio are shown in the table below. For additional
information on the changes in AOCI, see Note 19 to the
Consolidated Financial Statements.
Changes in Foreign Exchange Rates—Impacts on AOCI
and Capital
As of December 31, 2017, Citi estimates that an unanticipated
parallel instantaneous 5% appreciation of the U.S. dollar
against all of the other currencies in which Citi has invested
capital could reduce Citi’s tangible common equity (TCE) by
approximately $1.6 billion, or 1.0%, as a result of changes to
Citi’s foreign currency translation adjustment in AOCI, net of
hedges. This impact would be primarily due to changes in the
value of the Mexican peso, the Euro and the British pound
sterling.
This impact is also before any mitigating actions Citi may
take, including ongoing management of its foreign currency
translation exposure. Specifically, as currency movements
change the value of Citi’s net investments in foreign currency-
denominated capital, these movements also change the value
of Citi’s risk-weighted assets denominated in those currencies.
This, coupled with Citi’s foreign currency hedging strategies,
such as foreign currency borrowings, foreign currency
forwards and other currency hedging instruments, lessens the
impact of foreign currency movements on Citi’s Common
Equity Tier 1 Capital ratio. Changes in these hedging
strategies, as well as hedging costs, divestitures and tax
impacts, can further affect the actual impact of changes in
foreign exchange rates on Citi’s capital as compared to an
unanticipated parallel shock, as described above.
In millions of dollars (unless otherwise noted)
Change in FX spot rate(1)
Change in TCE due to FX translation, net of hedges
As a percentage of TCE
Estimated impact to Common Equity Tier 1 Capital ratio (on a fully implemented basis) due
to changes in FX translation, net of hedges (bps)
For the quarter ended
Dec. 31, 2017
Sept. 30, 2017
Dec. 31, 2016
(1.2)%
1.1%
(5.2)%
$
(498)
$
222
$
(1,668)
(0.3)%
(5)
0.1%
(3)
(0.9)%
—
(1) FX spot rate change is a weighted average based upon Citi’s quarterly average GAAP capital exposure to foreign countries.
102
Interest Revenue/Expense and Net Interest Margin
In millions of dollars, except as otherwise noted
Interest revenue(1)
Interest expense (2)
Net interest revenue
2017
2016
2015
$ 61,700
$ 58,077
$ 59,040
16,517
12,511
11,921
$ 45,183
$ 45,566
$ 47,119
Interest revenue—average rate
Interest expense—average rate
Net interest margin (3)
Interest rate benchmarks
Two-year U.S. Treasury note—average rate
10-year U.S. Treasury note—average rate
3.69%
1.28
2.70
1.40%
2.33
3.64%
1.03
2.86
0.83%
1.83
3.68%
0.95
2.93
0.69%
2.14
10-year vs. two-year spread
93
bps
100
bps
145
bps
Change
2017 vs. 2016
Change
2016 vs. 2015
6 %
32
(1)%
5
25
(16)
57
50
bps
bps
bps
bps
bps
(2)%
5
(3)%
(4)
8
(7)
14
(31)
bps
bps
bps
bps
bps
Note: All interest expense amounts include FDIC deposit insurance assessments.
(1) Net interest revenue includes the taxable equivalent adjustments related to the tax-exempt bond portfolio (based on the U.S. federal statutory tax rate of 35%) of
$496 million, $462 million and $489 million for 2017, 2016 and 2015, respectively.
Interest expense associated with certain hybrid financial instruments, which are classified as Long-term debt and accounted for at fair value, is reported together
(2)
with any changes in fair value as part of Principal transactions in the Consolidated Statements of Income and is therefore not reflected in Interest expense in the
table above.
(3) Citi’s net interest margin (NIM) is calculated by dividing gross interest revenue less gross interest expense by average interest-earning assets.
Citi’s net interest revenue in the fourth quarter of 2017
remained largely unchanged versus the prior-year period at
$11.2 billion ($11.4 billion on a taxable equivalent basis).
Excluding the impact of FX translation, Citi’s net interest
revenue was down slightly versus the prior-year period (down
$50 million), as higher core accrual net interest revenue ($10.4
billion, up approximately 5% or $0.5 billion) was offset by
lower trading-related net interest revenue ($0.5 billion, down
approximately 46% or $0.4 billion) and lower net interest
revenue associated with legacy assets in Corporate/Other
($0.3 billion, down approximately 34% or $0.1 billion). The
increase in core accrual net interest revenue was driven mainly
by the benefit of the December 2016, March 2017 and June
2017 interest rate increases and volume growth.
Citi’s net interest revenue for the full-year remained
largely unchanged versus the prior-year at $44.7 billion ($45.2
billion on a taxable equivalent basis). Excluding the impact of
FX translation, Citi’s net interest revenue declined by
approximately $0.5 billion, as higher core accrual net interest
revenue (approximately $40.5 billion, up 5%, or $2.0 billion)
was offset by lower trading-related net interest revenue
(approximately $2.9 billion, down 37%, or $1.7 billion),
largely driven by higher wholesale funding costs, and lower
net interest revenue associated with legacy assets in
Corporate/Other (approximately $1.2 billion, down 40%, or
$0.8 billion). The increase in core accrual net interest revenue
was primarily due to the benefit of the interest rate increases
and volume growth.
103
Citi’s NIM was 2.63% on a taxable equivalent basis in the
fourth quarter of 2017, a decrease of 9 bps from the third
quarter of 2017, driven primarily by lower trading-related
NIM. On a full-year basis, Citi’s NIM was 2.70% on a taxable
equivalent basis, compared to 2.86% in 2016, a decrease of 16
bps. Citi’s full-year core accrual NIM was 3.45%, a decline of
5 bps from the prior year, as higher core accrual net interest
revenue was more than offset by balance sheet growth. (Citi’s
core accrual net interest revenue and core accrual NIM are
non-GAAP financial measures. Citi believes these measures
provide a more meaningful depiction for investors of the
underlying fundamentals of its business results.)
104
Additional Interest Rate Details
Average Balances and Interest Rates—Assets(1)(2)(3)(4)
In millions of dollars, except rates
2017
2016
2015
2017
2016
2015
2017
2016
2015
Average volume
Interest revenue
% Average rate
Assets
Deposits with banks(5)
Federal funds sold and securities
borrowed or purchased under
agreements to resell(6)
In U.S. offices
In offices outside the U.S.(5)
Total
Trading account assets(7)(8)
In U.S. offices
In offices outside the U.S.(5)
Total
Investments
In U.S. offices
Taxable
Exempt from U.S. income tax
In offices outside the U.S.(5)
Total
Loans (net of unearned income)(9)
In U.S. offices
In offices outside the U.S.(5)
Total
Other interest-earning assets(10)
Total interest-earning assets
Non-interest-earning assets(7)
Total assets
$
169,385 $
131,925 $
133,853 $
1,635 $
971 $
727
0.97% 0.74%
0.54%
$
$
$
$
141,308 $
147,734 $
150,340 $
1,922 $
1,483 $
1,215
1.36% 1.00%
0.81%
106,605
85,142
84,013
1,326
1,060
1,301
1.24
1.24
1.55
247,913 $
232,876 $
234,353 $
3,248 $
2,543 $
2,516
1.31% 1.09%
1.07%
99,755 $
103,610 $
113,475 $
3,531 $
3,791 $
3,945
3.54% 3.66%
3.48%
104,196
94,603
96,333
2,117
2,095
2,140
2.03
2.21
2.22
203,951 $
198,213 $
209,808 $
5,648 $
5,886 $
6,085
2.77% 2.97%
2.90%
$
226,227 $
225,764 $
214,683 $
4,450 $
3,980 $
3,812
1.97% 1.76%
1.78%
18,152
106,040
19,079
106,159
20,034
102,374
775
3,309
693
3,157
443
3,071
4.27
3.12
3.63
2.97
2.21
3.00
350,419 $
351,002 $
337,091 $
8,534 $
7,830 $
7,326
2.44% 2.23%
2.17%
371,711 $
360,957 $
354,434 $ 25,943 $ 24,240 $ 25,082
6.98% 6.72%
7.08%
267,774
262,715
273,064
15,529
15,578
15,465
5.80
5.93
639,485 $
623,672 $
627,498 $ 41,472 $ 39,818 $ 40,547
6.49% 6.38%
60,628 $
56,398 $
63,209 $
1,163 $
1,029 $
1,839
1.92% 1.82%
$ 1,671,781 $ 1,594,086 $ 1,605,812 $ 61,700 $ 58,077 $ 59,040
3.69% 3.64%
$
203,657 $
214,642 $
218,025
$ 1,875,438 $ 1,808,728 $ 1,823,837
5.66
6.46%
2.91%
3.68%
$
$
$
$
(1) Net interest revenue includes the taxable equivalent adjustments related to the tax-exempt bond portfolio (based on the U.S. federal statutory tax rate of 35%) of
$496 million, $462 million and $489 million for 2017, 2016 and 2015, respectively.
Interest rates and amounts include the effects of risk management activities associated with the respective asset categories.
(2)
(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 ASC 210-20-45. However, Interest revenue excludes
the impact of ASC 210-20-45.
(7) The fair value carrying amounts of derivative contracts are reported net, pursuant to ASC 815-10-45, in Non-interest-earning assets and Other non-interest-
(8)
bearing liabilities.
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.
(10) Includes brokerage receivables.
105
Average Balances and Interest Rates—Liabilities and Equity, and Net Interest Revenue(1)(2)(3)(4)
In millions of dollars, except rates
2017
2016
2015
2017
2016
2015
2017
2016
2015
Average volume
Interest expense
% Average rate
Liabilities
Deposits
In U.S. offices(5)
In offices outside the U.S.(6)
Total
Federal funds purchased and
securities loaned or sold under
agreements to repurchase(7)
In U.S. offices
In offices outside the U.S.(6)
Total
Trading account liabilities(8)(9)
In U.S. offices
In offices outside the U.S.(6)
Total
Short-term borrowings(10)
In U.S. offices
In offices outside the U.S.(6)
Total
Long-term debt(11)
In U.S. offices
In offices outside the U.S.(6)
Total
$
$
$
$
$
$
$
$
$
$
313,094 $
288,817 $
273,135 $
2,530 $
1,630 $
1,291
0.81% 0.56%
0.47%
436,949
429,608
425,086
4,056
3,670
3,761
0.93
0.85
0.88
750,043 $
718,425 $
698,221 $
6,586 $
5,300 $
5,052
0.88% 0.74%
0.72%
96,258 $
100,472 $
108,320 $
1,574 $
1,024 $
61,434
57,588
66,197
1,087
888
614
998
1.64% 1.02%
0.57%
1.77
1.54
1.51
157,692 $
158,060 $
174,517 $
2,661 $
1,912 $
1,612
1.69% 1.21%
0.92%
33,399 $
29,481 $
24,711 $
380 $
242 $
57,149
44,669
45,252
258
168
90,548 $
74,150 $
69,963 $
638 $
410 $
74,825 $
61,015 $
64,973 $
684 $
202 $
22,837
19,184
50,803
375
275
97,662 $
80,199 $
115,776 $
1,059 $
477 $
107
110
217
224
299
523
1.14% 0.82%
0.43%
0.45
0.38
0.24
0.70% 0.55%
0.31%
0.91% 0.33%
0.34%
1.64
1.43
0.59
1.08% 0.59%
0.45%
192,079 $
175,342 $
182,347 $
5,382 $
4,179 $
4,308
2.80% 2.38%
2.36%
4,615
6,426
7,642
191
233
209
4.14
3.63
196,694 $
181,768 $
189,989 $
5,573 $
4,412 $
4,517
2.83% 2.43%
2.73
2.38%
0.95%
Total interest-bearing liabilities
$ 1,292,639 $ 1,212,602 $ 1,248,466 $ 16,517 $ 12,511 $ 11,921
1.28% 1.03%
Demand deposits in U.S. offices
$
37,824 $
38,120 $
26,144
Other non-interest-bearing
liabilities(8)
Total liabilities
Citigroup stockholders’ equity(12)
Noncontrolling interest
Total equity(12)
Total liabilities and stockholders’
equity
Net interest revenue as a
percentage of average interest-
earning assets(13)
In U.S. offices
In offices outside the U.S.(6)
Total
316,379
328,822
330,037
$ 1,646,842 $ 1,579,544 $ 1,604,647
$
$
227,599 $
228,065 $
217,875
997
1,119
1,315
228,596 $
229,184 $
219,190
$ 1,875,438 $ 1,808,728 $ 1,823,837
$
967,752 $
944,893 $
931,258 $ 27,551 $ 27,929 $ 28,492
2.85% 2.96%
3.06%
704,029
649,193
674,554
17,632
17,637
18,627
2.50
2.72
2.76
$ 1,671,781 $ 1,594,086 $ 1,605,812 $ 45,183 $ 45,566 $ 47,119
2.70% 2.86%
2.93%
(1) Net interest revenue includes the taxable equivalent adjustments related to the tax-exempt bond portfolio (based on the U.S. federal statutory tax rate of 35%) of
$496 million, $462 million and $489 million for 2017, 2016 and 2015, respectively.
Interest rates and amounts include the effects of risk management activities associated with the respective liability categories.
(2)
(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 assessments.
(6) Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.
(7) Average volumes of securities sold under agreements to repurchase are reported net pursuant to ASC 210-20-45. However, Interest expense excludes the impact of
ASC 210-20-45.
(8) The fair value carrying amounts of derivative contracts are reported net, pursuant to ASC 815-10-45, in Non-interest-earning assets and Other non-interest-
bearing liabilities.
106
(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) Includes brokerage payables.
(11) 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.
(12) Includes stockholders’ equity from discontinued operations.
(13) Includes allocations for capital and funding costs based on the location of the asset.
Analysis of Changes in Interest Revenue(1)(2)(3)
In millions of dollars
Deposits with banks(4)
Federal funds sold and securities borrowed or
purchased under agreements to resell
In U.S. offices
In offices outside the U.S.(4)
Total
Trading account assets(5)
In U.S. offices
In offices outside the U.S.(4)
Total
Investments(1)
In U.S. offices
In offices outside the U.S.(4)
Total
Loans (net of unearned income)(6)
In U.S. offices
In offices outside the U.S.(4)
Total
Other interest-earning assets(7)
Total interest revenue
2017 vs. 2016
Increase (decrease)
due to change in:
2016 vs. 2015
Increase (decrease)
due to change in:
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
$
$
$
$
$
$
$
$
$
$
$
317 $
347 $
664 $
(11) $
255 $
244
(67) $
506 $
439 $
(21) $
289 $
267
(1)
266
17
(258)
200 $
505 $
705 $
(4) $
31 $
268
(241)
27
(139) $
(121) $
(260) $
(354) $
200 $
(154)
203
(181)
22
(38)
(7)
(45)
64 $
(302) $
(238) $
(392) $
193 $
(199)
(9) $
(4)
561 $
552 $
188 $
230 $
156
152
113
(27)
(13) $
717 $
704 $
301 $
203 $
418
86
504
734 $
969 $
1,703 $
455 $ (1,297) $
(842)
297
(346)
(49)
(598)
711
1,031 $
623 $
1,654 $
(143) $
(586) $
80 $
54 $
134 $
(182) $
(628) $
1,679 $
1,944 $
3,623 $
(431) $
(532) $
113
(729)
(810)
(963)
(1) The taxable equivalent adjustment is related to the tax-exempt bond portfolio 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.
Includes cash-basis loans.
Includes brokerage receivables.
(6)
(7)
107
Analysis of Changes in Interest Expense and Net Interest Revenue(1)(2)(3)
In millions of dollars
Deposits
In U.S. offices
In offices outside the U.S.(4)
Total
Federal funds purchased and securities loaned or
sold under agreements to repurchase
In U.S. offices
In offices outside the U.S.(4)
Total
Trading account liabilities(5)
In U.S. offices
In offices outside the U.S.(4)
Total
Short-term borrowings(6)
In U.S. offices
In offices outside the U.S.(4)
Total
Long-term debt
In U.S. offices
In offices outside the U.S.(4)
Total
Total interest expense
Net interest revenue
2017 vs. 2016
Increase (decrease)
due to change in:
2016 vs. 2015
Increase (decrease)
due to change in:
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
$
$
$
$
$
$
$
$
$
$
$
$
147 $
753 $
900 $
77 $
262 $
64
322
386
40
(131)
211 $
1,075 $
1,286 $
117 $
131 $
(45) $
595 $
550 $
(47) $
457 $
62
137
199
(132)
22
17 $
732 $
749 $
(179) $
479 $
35 $
103 $
138 $
24 $
111 $
52
38
90
(1)
59
87 $
141 $
228 $
23 $
170 $
55 $
427 $
482 $
(13) $
(9) $
57
43
100
(267)
243
112 $
470 $
582 $
(280) $
234 $
339
(91)
248
410
(110)
300
135
58
193
(22)
(24)
(46)
424 $
779 $
1,203 $
(167) $
38 $
(129)
(72)
30
(42)
(37)
61
24
352 $
809 $
1,161 $
(204) $
99 $
(105)
779 $
3,227 $
4,006 $
(523) $
1,113 $
590
900 $ (1,283) $
(383) $
92 $ (1,645) $ (1,553)
(1) The taxable equivalent adjustment is related to the tax-exempt bond portfolio 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.
Includes brokerage payables.
(6)
108
Market Risk of Trading Portfolios
Trading portfolios include positions resulting from market
making activities, hedges of certain available-for-sale (AFS)
debt securities, the CVA relating to derivative counterparties
and all associated hedges, fair value option loans, hedges to
the loan portfolio and the leverage finance pipeline within
capital markets origination within ICG.
The market risk of Citi’s trading portfolios is monitored
using a combination of quantitative and qualitative measures,
including, but not limited to:
•
•
•
factor sensitivities;
value at risk (VAR); and
stress testing.
Each trading portfolio across Citi’s businesses has its own
market risk limit framework encompassing these measures and
other controls, including trading mandates, permitted product
lists and a new product approval process for complex
products.
The following chart of total daily trading-related revenue
(loss) captures trading volatility and shows the number of days
in which revenues for Citi’s trading businesses fell within
particular ranges. Trading-related revenue includes trading, net
interest and other revenue associated with Citi’s trading
businesses. It excludes DVA, FVA and CVA adjustments
incurred due to changes in the credit quality of counterparties,
as well as any associated hedges to that CVA. In addition, it
excludes fees and other revenue associated with capital
markets origination activities. Trading-related revenues are
driven by both customer flows and the changes in valuation of
the trading inventory. As shown in the chart, positive trading-
related revenue was achieved for 99.6% of the trading days in
2017.
Daily Trading-Related Revenue (Loss) (1)— Twelve Months ended December 31, 2017
In millions of dollars
(1) Reflects the effects of asymmetrical accounting for economic hedges of certain AFS debt securities. Specifically, the change in the fair value of hedging
derivatives is included in Trading-related revenue, while the offsetting change in the fair value of hedged AFS debt securities is included in AOCI and not
reflected above.
109
Factor Sensitivities
Factor sensitivities are expressed as the change in the value of
a position for a defined change in a market risk factor, such as
a change in the value of a U.S. Treasury bill for a one-basis-
point change in interest rates. Citi’s market risk management,
within the Risk organization, works to ensure that factor
sensitivities are calculated, monitored and, in most cases,
limited for all material risks taken in the trading portfolios.
Value at Risk (VAR)
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. As a result, Citi believes
VAR statistics can be used more effectively as indicators of
trends in risk-taking within a firm, rather than as a basis for
inferring differences in risk-taking across firms.
Citi uses 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, credit
spread, foreign exchange, equity and commodity risks). Citi’s
VAR includes positions which are measured at fair value; it
does not include investment securities classified as AFS or
HTM. For information on these securities, see Note 13 to the
Consolidated Financial Statements.
Citi believes its VAR model is conservatively calibrated
to incorporate fat-tail scaling and the greater of short-term
(approximately the most recent month) and long-term (three
years) market volatility. The Monte Carlo simulation involves
approximately 350,000 market factors, making use of
approximately 200,000 time series, with sensitivities updated
daily, volatility parameters updated daily to weekly and
correlation parameters updated monthly. The conservative
features of the VAR calibration contribute an approximate
20% add-on to what would be a VAR estimated under the
assumption of stable and perfectly, normally distributed
markets.
As set forth in the table below, Citi’s average trading VAR
increased from December 31, 2016 to December 31, 2017,
mainly due to changes in interest rate exposures from mark-to-
market hedging activity against non-trading positions in the
Markets and securities services businesses within ICG. The
increase was partially offset by lower credit spread exposures
and volatilities. Average trading and credit portfolio VAR was
largely unchanged from December 31, 2016 to December 31,
2017, mainly due to a reduction of the hedging related to
lending activities offsetting the increase in average trading
VAR.
110
Year-end and Average Trading VAR and Trading and Credit Portfolio VAR
In millions of dollars
Interest rate
Credit spread
Covariance adjustment(1)
Fully diversified interest rate and credit spread(2)
Foreign exchange
Equity
Commodity
Covariance adjustment(1)
Total trading VAR—all market risk factors, including general and specific risk
(excluding credit portfolios)(2)
Specific risk-only component(3)
Total trading VAR—general market risk factors only (excluding credit
portfolios)
Incremental impact of the credit portfolio(4)
Total trading and credit portfolio VAR
December 31,
2017
2017
Average
December 31,
2016
2016
Average
$
$
$
$
$
$
$
69 $
58 $
54
(25)
48
(20)
98 $
86 $
25
17
17
(63)
94 $
— $
94 $
11 $
105 $
25
15
22
(64)
84 $
1 $
83 $
10 $
94 $
37 $
63
(17)
83 $
32
13
27
35
62
(28)
69
24
14
21
(70)
(58)
85 $
3 $
82 $
20 $
105 $
70
7
63
22
92
(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 mark-to-market and certain fair value option trading positions in ICG, with the exception of hedges to the loan portfolio, fair value
option loans and all CVA exposures. Available-for-sale and accrual exposures are not included.
(3) The specific risk-only component represents the level of equity and fixed income issuer-specific risk embedded in VAR.
(4) The credit portfolio is composed of mark-to-market positions associated with non-trading business units including Citi Treasury, the CVA relating to derivative
counterparties and all associated CVA hedges. FVA and DVA are not included. The credit portfolio also includes hedges to the loan portfolio, fair value option
loans and hedges to the leveraged finance pipeline within capital markets origination in ICG.
111
The table below provides the range of market factor VARs associated with Citi’s total trading VAR, inclusive of specific risk:
In millions of dollars
Interest rate
Credit spread
Fully diversified interest rate and credit spread
Foreign exchange
Equity
Commodity
Total trading
Total trading and credit portfolio
2017
2016
Low
High
Low
High
$
$
$
29 $
38
59 $
16
6
13
58 $
67
97 $
63
109 $
49
27
31
116 $
123
25 $
55
59 $
14
6
10
53 $
72
64
73
97
46
26
33
106
131
Note: No covariance adjustment can be inferred from the above table as the high and low for each market factor will be from different close-of-business dates.
The following table provides the VAR for ICG, excluding the
CVA relating to derivative counterparties, hedges of CVA, fair
value option loans and hedges to the loan portfolio:
In millions of dollars
Dec. 31, 2017
Total—all market risk factors, including
general and specific risk
Average—during year
High—during year
Low—during year
$
$
93
83
115
57
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 portfolios is periodically completed
and reviewed with Citi’s U.S. banking regulators.
Furthermore, Regulatory VAR back-testing (as described
below) is performed against buy-and-hold profit and loss on a
monthly basis for multiple sub-portfolios across the
organization (trading desk level, ICG business segment and
Citigroup) and the results are shared with 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 VAR and Risk Management VAR (i.e.,
total trading and total trading and credit portfolios VARs) and,
as such, the model review and oversight process for both
purposes is as described above.
Regulatory VAR, which is calculated in accordance with
Basel III, differs from Risk Management VAR due to the fact
that certain positions included in Risk Management VAR are
112
not eligible for market risk treatment in Regulatory VAR. The
composition of Risk Management VAR is discussed under
“Value at Risk” above. 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.
In accordance with Basel III, Regulatory VAR includes all
trading book-covered positions and all foreign exchange and
commodity exposures. Pursuant to Basel III, Regulatory VAR
excludes positions that fail to meet the intent and ability to
trade requirements and are therefore classified as non-trading
book and categories of exposures that are specifically
excluded as covered positions. Regulatory VAR excludes CVA
on derivative instruments and DVA on Citi’s own fair value
option liabilities. CVA hedges are excluded from Regulatory
VAR and included in credit risk-weighted assets as computed
under the Advanced Approaches for determining risk-
weighted assets.
Regulatory VAR Back-Testing
In accordance with Basel III, Citi is required to perform back-
testing to evaluate the effectiveness of its Regulatory VAR
model. Regulatory VAR back-testing is the process in which
the daily one-day VAR, at a 99% confidence interval, is
compared to the buy-and-hold profit and loss (i.e., the profit
and loss impact if the portfolio is held constant at the end of
the day and re-priced the following day). Buy-and-hold profit
and loss represents the daily mark-to-market profit and loss
attributable to price movements in covered positions from the
close of the previous business day. Buy-and-hold profit and
loss excludes realized trading revenue, net interest, fees and
commissions, intra-day trading profit and loss and changes in
reserves.
Based on a 99% confidence level, Citi would expect two
to three days in any one year where buy-and-hold losses
exceeded the Regulatory VAR. Given the conservative
calibration of Citi’s VAR model (as a result of taking the
greater of short- and long-term volatilities and fat-tail scaling
of volatilities), Citi would expect fewer exceptions under
normal and stable market conditions. Periods of unstable
market conditions could increase the number of back-testing
exceptions.
The following graph shows the daily buy-and-hold profit
and loss associated with Citi’s covered positions compared to
Citi’s one-day Regulatory VAR during 2017. During 2017,
there were no back-testing exceptions observed for Citi’s
Regulatory VAR.
The difference between the 45.4% of days with buy-and-
hold gains for Regulatory VAR back-testing and the 99.6% of
days with trading, net interest and other revenue associated
with Citi’s trading businesses, shown in the histogram of daily
trading-related revenue below, reflects, among other things,
that a significant portion of Citi’s trading-related revenue is
not generated from daily price movements on these positions
and exposures, as well as differences in the portfolio
composition of Regulatory VAR and Risk Management VAR.
Regulatory Trading VAR and Associated Buy-and-Hold Profit and Loss (1)—12 Months ended December 31, 2017
In millions of dollars
(1) Buy-and-hold profit and loss, as defined by the banking regulators under Basel III, represents the daily mark-to-market revenue movement attributable to the
trading position from the close of the previous business day. Buy-and-hold profit and loss excludes realized trading revenue and net interest intra-day trading
profit and loss on new and terminated trades, as well as changes in reserves. Therefore, it is not comparable to the trading-related revenue presented in the chart of
daily trading-related revenue above.
113
Stress Testing
Citi performs market risk stress testing on a regular basis to
estimate the impact of extreme market movements. It is
performed on individual positions and trading portfolios, as
well as in aggregate, inclusive of multiple trading portfolios.
Citi’s market risk management, after consultations with the
businesses, develops both systemic and specific stress
scenarios, reviews the output of periodic stress testing
exercises, and uses the information to assess the ongoing
appropriateness of exposure levels and limits. Citi uses two
complementary approaches to market risk stress testing across
all major risk factors (i.e., equity, foreign exchange,
commodity, interest rate and credit spreads): top-down
systemic stresses and bottom-up business-specific stresses.
Systemic stresses are designed to quantify the potential impact
of extreme market movements on an institution-wide basis,
and are constructed using both historical periods of market
stress and projections of adverse economic scenarios.
Business-specific stresses are designed to probe the risks of
particular portfolios and market segments, especially those
risks that are not fully captured in VAR and systemic stresses.
The systemic stress scenarios and business-specific stress
scenarios at Citi are used in several reports reviewed by senior
management and also to calculate internal risk capital for
trading market risk. In general, changes in market values are
defined over a one-year horizon. For the most liquid positions
and market factors, changes in market values are defined over
a shorter two-month horizon. The limited set of positions and
market factors whose market value changes are defined over a
two-month time horizon are those that in management’s
judgment have historically remained very liquid during
financial crises, even as the trading liquidity of most other
positions and market factors materially declined.
114
Citigroup and to provide a forum to assess Citi’s operational
risk profile and ensure actions are taken so that Citi’s
operational risk exposure is actively managed consistent with
Citi’s risk appetite. The Committee seeks to ensure that these
actions address the root causes that persistently lead to
operational risk losses and create lasting solutions to
minimize these losses. Members include Citi’s Chief Risk
Officer and Citi’s Head of Operational Risk and senior
members of their organizations. These members cover
multiple dimensions of risk management and include business
and regional Chief Risk Officers and senior operational risk
managers.
In addition, Risk management, including Operational
Risk Management, works proactively with the businesses
and other independent control functions to embed a strong
operational risk management culture and framework across
Citi. Operational Risk Management engages with the
businesses to ensure effective implementation of the
Operational Risk Management framework by focusing on (i)
identification, analysis and assessment of operational risks,
(ii) effective challenge of key control issues and operational
risks and (iii) anticipation and mitigation of operational risk
events.
Information about the businesses’ operational risk,
historical operational risk losses and the control
environment is reported by each major business segment and
functional area. The information is summarized and reported
to senior management, as well as to the Audit Committee of
Citi’s Board of Directors.
Operational risk is measured and assessed through risk
capital. Projected operational risk losses under stress scenarios
are also required as part of the Federal Reserve Board’s CCAR
process.
COMPLIANCE RISK
Compliance risk is the risk arising from violations of, or non-
conformance with, local, national, or cross-border laws, rules,
or regulations, Citi's internal policies, or other relevant
standards of conduct or the risk of harming customers, clients
or the integrity of the market.
As the champion of responsible finance, Independent
Compliance Risk Management’s primary objectives are to:
• Maintain a framework that facilitates enterprise-wide
•
compliance with local, national or cross-border laws, rules
or regulations, Citi’s internal policies and procedures and
relevant standards of conduct;
Support Citi’s operations by assisting in the management
of compliance risk across products, business lines,
functions and geographies, supported by globally
consistent systems and processes; and
• Drive and embed a risk culture of compliance, control and
ethical conduct throughout Citi.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, systems or human factors, or from
external events. It includes risk of failing to comply with
applicable laws and regulations, but excludes strategic risk.
Operational risk includes the reputation and franchise risk
associated with business practices or market conduct in which
Citi is involved, as well as compliance, conduct and legal
risks.
Operational risk is inherent in Citi’s global business
activities, as well as related support functions, and can result
in losses arising from events associated with the following,
among others:
•
•
•
•
•
fraud, theft and unauthorized activity;
employment practices and workplace environment;
clients, products and business practices;
physical assets and infrastructure; and
execution, delivery and process management.
Citi manages operational risk consistent with the overall
framework described in “Managing Global Risk—Overview”
above. The Company’s goal is to keep operational risk at
appropriate levels relative to the characteristics of Citi’s
businesses, the markets in which it operates, its capital and
liquidity and the competitive, economic and regulatory
environment.
To anticipate, mitigate and control operational risk, Citi
has established policies and a global framework for assessing,
monitoring and communicating operational risks and the
overall operating effectiveness of the internal control
environment across Citigroup. As part of this framework, Citi
has defined its operational risk appetite and has established a
manager’s control assessment (MCA) process (a process
through which managers at Citi identify, monitor, measure,
report on and manage risks and the related controls) to help
managers self-assess significant operational risks and key
controls and identify and address weaknesses in the design
and/or operating effectiveness of internal controls that mitigate
significant operational risks.
Each major business segment must implement an
operational risk process consistent with the requirements of
this framework. The process for operational risk management
includes the following steps:
•
•
•
•
•
•
identify and assess key operational risks;
design controls to mitigate identified risks;
establish key risk indicators;
implement a process for early problem recognition and
timely escalation;
produce comprehensive operational risk reporting; and
ensure that sufficient resources are available to actively
improve the operational risk environment and mitigate
emerging risks.
As new products and business activities are developed,
processes are designed, modified or sourced through
alternative means and operational risks are considered.
An Operational Risk Management Committee has been
established to provide oversight for operational risk across
115
Independent Compliance Risk Management (ICRM)
Program
To anticipate, mitigate and control compliance risk, Citi has
established a global independent compliance risk management
framework for assessing, monitoring and communicating
compliance risks. To achieve this mission, ICRM seeks to:
• Communicate a strong culture of compliance, control and
•
•
•
•
•
ethical conduct.
Identify compliance risk and AML compliance risk for
which each business or function has responsibility,
including through compliance risk assessments, and set
standards with respect to these requirements.
Identify regulatory changes and oversee the assessment of
impact, as well as capture and monitor adherence to
existing regulatory requirements, providing the businesses
with guidance and support as needed in accordance with
the regulatory change management standard.
Provide credible challenge to the first-line units in their
assessment and management of compliance risk.
Perform compliance assurance activities to oversee
adherence to applicable requirements.
Issue policies, procedures and other documentation that
set standards for employees in conducting Citi’s business
and provide oversight in the application of those standards
to specific circumstances.
• Manage regulatory examinations and other supervisory
activity impacting Citi’s businesses and global control
functions in accordance with the regulatory exam
management governance and process standards.
Provide training to support the effective execution of roles
and responsibilities related to the identification, control,
reporting and escalation of matters related to compliance
risks.
•
• Report to senior management and the Citigroup Board of
Directors or their designated committees on the
effectiveness of the processes and standards implemented
to manage compliance risk.
• Escalate through the appropriate channels, which may
include governance forums, the results of monitoring,
testing, reporting or other oversight activities that may
represent a violation of law, regulation, policy or other
significant compliance risk and take reasonable action to
see that the matter is appropriately identified, tracked and
resolved, including through the issuance of corrective
action plans against the first line of defense.
• Advise, as needed or when required by policy, on the
degree to which existing and new business processes,
methodologies, performance, products, services,
transactions or customer segments satisfy Citi standards
and are consistent with the prudent management of
compliance risk.
CONDUCT RISK
Citi places conduct risk within compliance risk and defines
conduct risk as the risk that Citi’s employees or agents may—
intentionally or through negligence—harm customers, clients,
or the integrity of the markets, and thereby the integrity of the
Company. Citi manages its exposure to conduct risk through a
global conduct risk program that is implemented across its
businesses and functions. The conduct risk program requires
all three lines of defense to understand and perform certain
key roles and responsibilities. The first line of defense owns
and manages the risks inherent in or arising from the business,
including conduct risk, and is responsible for managing,
minimizing and mitigating those risks. The second line of
defense takes a risk-based approach to assess, advise on,
monitor and test current and emerging significant conduct
risks across products, businesses, functions, countries and
regions and works to enhance the effectiveness of controls.
The third line of defense provides independent risk-based
assurance over the conduct risk program based upon a risk-
based audit plan and audit methodology as approved by the
Citigroup Board of Directors.
Each business and function identifies its significant
conduct risks through a diagnostic process that includes
broadly understanding their potential significant conduct risks
in the context of their overall activities, identifying and
flagging their significant conduct risks and related controls
and incorporating the results of this diagnostic process into
their annual risk assessment process. Citi also manages its
conduct risk through other initiatives, including various
culture-related efforts.
LEGAL RISK
Citi views legal risk as qualitative in nature because it does not
lend itself to an appetite expressed through a numerical limit
and it cannot be reliably estimated or measured based on
forecasts. As such, Citi seeks to manage this risk in
accordance with its qualitative risk appetite principle, which
generally states that activities in which Citi engages and the
risks those activities generate must be consistent with Citi’s
underlying commitment to the principle of responsible finance
and managed with a goal to eliminate, minimize or mitigate
this risk, as practicable. To accomplish this goal, legal risk is
managed in accordance with the overall framework described
in greater detail in “Managing Global Risk—Overview”
above.
REPUTATIONAL RISK
Citi’s reputation is a vital asset in building trust with its
stakeholders and Citi is diligent in communicating its
corporate values, including the importance of protecting Citi’s
reputation, to its employees, customers and investors. The
responsibility for maintaining Citi’s reputation is shared by all
employees, who are guided by Citi’s code of conduct.
Employees are expected to exercise sound judgment and
common sense in every action they take and issues that
present potential franchise, reputational and/or systemic risks
are to be appropriately escalated. The business practices
committees for each of Citi’s businesses and regions are part
of the governance infrastructure Citi has in place to properly
116
review business activities, sales practices, product design,
perceived conflicts of interest and other potential franchise or
reputational risks that arise in these businesses and regions.
These committees may also raise potential franchise,
reputational or systemic risks for due consideration by the
business practices committee at the corporate level. All of
these committees, which are composed of Citi’s most senior
executives, provide the guidance necessary for Citi’s business
practices to meet the highest standards of professionalism,
integrity and ethical behavior consistent with Citi’s mission
and value proposition.
STRATEGIC RISK
Citi senior management, led by Citi’s CEO, is responsible for
the development and execution of the strategy of the
Company. Significant strategic actions are reviewed and
approved by, or notified to, the Citigroup and Citibank Board
of Directors, as appropriate. The Citigroup Board of Directors
holds an annual strategic meeting and annual regional strategic
meetings, and receives business presentations at its regular
meetings, in order to monitor management’s execution of
Citi’s strategy. At the business level, business heads are
accountable for the interpretation and execution of the
Company-wide strategy, as it applies to their area, including
decisions on new business and product entries.
The management of strategic risk rests upon the
foundational elements that include an annual financial
operating plan encompassing all businesses, products and
geographies and defined financial and operating targets,
derived from the operating plan, which can be monitored
throughout the year in order to assess strategic and operating
performance. Strategic risk is monitored through various
mechanisms, including regular updates to senior management
and the Board of Directors on performance against the
operating plan, quarterly business reviews between the Citi
CEO and business and regional CEOs in which the
performance and risks of each major business and region are
discussed, ongoing reporting to senior management and
executive management scorecards.
117
Country Risk
Top 25 Country Exposures
The following table presents Citi’s top 25 exposures by
country (excluding the U.S.) as of December 31, 2017. The
total exposure as of December 31, 2017 to the top 25 countries
disclosed below, in combination with the U.S., would
represent, approximately 94% of Citi’s exposure to all
countries. For purposes of the table, loan amounts are reflected
in the country where the loan is booked, which is generally
based on the domicile of the borrower. For example, a loan to
a Chinese subsidiary of a Switzerland-based corporation will
generally be categorized as a loan in China. In addition, Citi
has developed regional booking centers in certain countries,
most significantly in the United Kingdom (U.K.) and Ireland,
in order to more efficiently serve its corporate customers. As
an example, with respect to the U.K., only 24% of corporate
loans presented in the table below are to U.K. domiciled
entities (25% for unfunded commitments), with the balance of
the loans predominately to European domiciled counterparties.
Approximately 80% of the total U.K. funded loans and 88% of
the total U.K. unfunded commitments were investment grade
as of December 31, 2017. Trading account assets and
investment securities are generally categorized based on the
domicile of the issuer of the security of the underlying
reference entity. For additional information on the assets
included in the table, see the footnotes to the table below.
For a discussion of uncertainties arising as a result of the
terms and other uncertainties resulting from the U.K.’s
potential exit from the EU, see “Risk Factors—Strategic
Risks” above.
In billions of
dollars
United
Kingdom
Mexico
Hong Kong
Singapore
Korea
Ireland
India
Australia
Brazil(2)
China
Germany
Japan
Taiwan
Canada
Poland
Malaysia
Thailand
United Arab
Emirates
Russia
Indonesia
Luxembourg
Colombia(2)
Jersey
South Africa
Argentina(2)
ICG
loans(1)
GCB
loans
Other
funded(3) Unfunded(4)
Net MTM
on
derivatives
/repos(5)
Total
hedges
(on loans
and
CVA)
Investment
securities(6)
Trading
account
assets(7)
Total
as of
4Q17
Total
as of
3Q17
Total
as of
4Q16
Total as a
% of Citi
as of
4Q17(8)
$ 36.1 $ — $
4.6 $
60.3 $
8.4 $
(2.2) $
7.0 $
(1.0) $
113.2 $
110.2 $
107.5
7.2%
9.4
16.3
15.2
2.2
12.6
6.4
4.4
11.7
8.0
0.1
3.1
4.5
1.8
3.6
1.4
0.9
2.9
1.8
1.9
—
1.7
3.2
1.6
1.9
25.3
11.6
12.4
19.9
—
7.0
10.9
—
4.6
—
0.1
9.1
0.6
2.0
4.9
2.2
1.5
1.0
1.1
—
1.6
—
—
—
0.4
0.7
0.3
0.2
2.3
0.6
—
—
0.4
—
0.2
0.1
0.5
—
0.3
—
0.1
—
—
—
—
—
—
—
7.3
6.4
5.1
3.3
15.8
5.3
5.6
2.7
1.8
3.9
2.7
1.1
7.0
3.1
2.1
1.8
2.5
1.0
1.5
—
1.1
1.6
1.2
0.1
0.5
0.7
1.2
2.2
0.4
1.1
0.8
5.0
1.8
4.3
2.8
0.3
1.8
—
0.1
0.1
0.3
1.9
—
0.5
0.3
—
0.4
1.3
(0.7)
(0.3)
(0.2)
(1.2)
—
(0.7)
(0.5)
(1.8)
(0.7)
(1.9)
(1.0)
—
(0.4)
(0.1)
(0.1)
—
(0.1)
(0.1)
(0.1)
(0.3)
—
—
(0.1)
(0.4)
13.1
5.7
7.1
7.7
—
9.3
3.8
3.2
3.8
8.9
5.3
1.3
4.4
5.0
0.9
1.8
—
0.8
1.5
4.6
0.4
—
1.4
0.4
3.1
1.1
0.3
1.0
0.8
1.3
0.2
3.9
(0.3)
3.8
4.5
0.9
0.6
0.4
0.4
0.6
(0.2)
0.2
0.4
0.6
—
—
(0.2)
0.9
58.4
42.2
41.4
35.3
31.9
30.3
25.2
24.7
19.4
19.1
17.7
17.3
16.3
14.0
10.0
7.4
7.0
6.6
6.3
5.4
5.1
4.8
4.3
4.2
62.8
40.8
43.8
34.2
28.8
28.7
27.0
28.0
20.8
18.6
18.8
18.5
16.0
13.6
9.1
7.0
6.7
5.0
6.2
6.1
4.9
4.5
4.3
4.3
52.4
35.9
36.4
34.0
24.8
30.9
22.4
28.5
17.2
16.0
18.3
16.6
17.0
11.8
9.3
5.8
6.0
5.3
5.2
5.4
5.6
3.7
3.9
2.2
3.7
2.7
2.6
2.3
2.0
1.9
1.6
1.6
1.2
1.2
1.1
1.1
1.0
0.9
0.6
0.5
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.3
Total
36.2%
(1)
ICG loans reflect funded corporate loans and private bank loans, net of unearned income. As of December 31, 2017, private bank loans in the table above totaled
$23.5 billion, concentrated in Singapore ($7.0 billion), Hong Kong ($6.8 billion) and the U.K. ($5.1 billion).
118
(2) GCB loans include funded loans in Argentina, Brazil and Colombia related to businesses that were transferred to Corporate/Other as of January 1, 2016. The sales
of the Argentina and Brazil consumer banking businesses were completed in the first and fourth quarters of 2017, respectively.
(3) Other funded includes other direct exposure such as accounts receivable, loans held-for-sale, other loans in Corporate/Other and investments accounted for under
the equity method.
(4) Unfunded exposure includes unfunded corporate lending commitments, letters of credit and other contingencies.
(5) Net mark-to-market on derivatives and securities lending/borrowing transactions (repos). Exposures are shown net of collateral and inclusive of CVA. Includes
margin loans.
Investment securities include securities available-for-sale, recorded at fair market value, and securities held-to-maturity, recorded at historical cost.
(6)
(7) Trading account assets are shown on a net basis and include issuer risk on cash products and derivative exposure where the underlying reference entity/issuer is
located in that country.
Argentina
As of December 31, 2017, Citi’s net investment in its
Argentine operations was approximately $954 million,
compared to $725 million at December 31, 2016.
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. The impact of devaluations of the
Argentine peso on Citi’s net investment in Argentina, net of
hedges, is reported as a translation loss in stockholders’ equity.
Although Citi currently uses the Argentine peso as the
functional currency, an increase in inflation resulting in a
cumulative three-year inflation rate of 100% or more would
result in a change in the functional currency to the U.S. dollar.
Citi has historically based its evaluation of the cumulative
three-year inflation rate on the CPI (Consumer Price Index)
inflation statistics published by INDEC, the Argentine
government’s statistics agency. However, for the period from
November 2015 to April 2016, INDEC did not publish CPI
statistics, which has led to uncertainty about the cumulative
three-year inflation rate. As of December 31, 2017, Citi
evaluated the available CPI statistics as well as inflation
statistics published by the Argentine Central Bank and
concluded that Argentina’s cumulative three-year inflation rate
had not reached 100%. However, uncertainty continues as to
the cumulative three-year inflation rate, and additional
information received in future periods could result in a change
of functional currency to the U.S. dollar in 2018.
While a change in the functional currency to the U.S.
dollar would not result in any immediate gains or losses to
Citi, it would result in future changes in the translation of
Citi’s Argentine peso-denominated assets and liabilities into
U.S. dollars being recorded in earnings instead of
stockholders’ equity.
FFIEC—Cross-Border Claims on Third Parties and Local
Country Assets
Citi’s cross-border disclosures are based on the country
exposure bank regulatory reporting guidelines of the Federal
Financial Institutions Examination Council (FFIEC). The
following summarizes some of the FFIEC key reporting
guidelines:
• Amounts are based on the domicile of the ultimate
obligor, counterparty, collateral, issuer or guarantor, as
applicable.
• Amounts do not consider the benefit of collateral received
for secured financing transactions (i.e., repurchase
agreements, reverse repurchase agreements and securities
loaned and borrowed) and are reported based on notional
amounts.
• Netting of derivative receivables and payables, reported at
fair value, is permitted, but only under a legally binding
netting agreement with the same specific counterparty,
and does not include the benefit of margin received or
hedges.
• The netting of long and short positions for AFS securities
and trading portfolios is not permitted.
• Credit default swaps (CDS) are included based on the
gross notional amount sold and purchased and do not
include any offsetting CDS on the same underlying entity.
• Loans are reported without the benefit of hedges.
Given the requirements noted above, Citi’s FFIEC cross-
border exposures and total outstandings tend to fluctuate, in
some cases, significantly, from period to period. As an
example, because total outstandings under FFIEC guidelines
do not include the benefit of margin or hedges, market
volatility in interest rates, foreign exchange rates and credit
spreads may cause significant fluctuations in the level of total
outstandings, all else being equal.
119
The tables below set forth each country whose total outstandings exceeded 0.75% of total Citigroup assets:
December 31, 2017
Cross-border claims on third parties and local country assets
Short-term
Other
claims(2)
(corporate
(included
and households)
in (a))
(a)
Total
outstanding(3)
(sum of (a))
Trading
assets(2)
(included
in (a))
Commitments
and
guarantees(4)
Credit
derivatives
purchased(5)
Credit
derivatives
sold(5)
Banks
(a)
Public
(a)
NBFIs(1)
(a)
$ 17.3 $ 23.2 $
36.4 $
19.4 $
13.5 $
62.4 $
96.3 $
32.3 $
74.9 $
—
6.9
25.4
4.8
14.3
2.5
1.9
6.0
4.6
5.2
0.8
3.7
5.8
1.0
4.3
1.2
3.3
—
38.3
25.8
18.3
5.1
15.8
22.5
12.7
8.2
9.5
9.8
11.4
9.5
6.1
4.7
13.7
11.3
63.6
9.3
6.4
7.9
21.1
1.9
4.3
4.4
4.7
3.7
3.0
0.9
4.9
2.2
7.8
1.3
0.6
8.6
11.8
8.5
34.4
6.1
24.4
15.0
16.0
15.0
12.9
16.1
10.5
6.1
13.3
4.9
4.2
1.3
4.3
10.2
13.3
4.7
8.7
1.4
0.4
5.6
7.3
3.6
5.0
5.5
4.1
2.7
2.9
1.7
7.5
45.3
45.4
49.6
42.8
37.2
38.3
33.6
25.8
19.3
24.4
23.9
17.3
15.9
16.9
11.1
17.2
9.3
72.2
66.2
66.1
65.4
46.6
44.6
43.7
39.1
32.5
31.3
29.7
26.6
26.3
22.5
21.7
20.4
16.5
5.2
12.1
6.1
19.6
23.6
16.7
10.9
9.5
13.2
3.9
14.5
2.2
9.8
14.1
13.3
5.1
2.7
—
54.6
22.9
6.4
59.8
14.4
1.8
2.5
13.2
14.2
2.5
10.6
27.3
0.1
5.4
19.3
59.6
77.1
—
54.1
22.3
6.2
60.6
12.4
1.8
2.1
13.3
14.5
2.3
9.6
27.8
0.1
6.2
19.4
58.4
December 31, 2016
Cross-border claims on third parties and local country assets
Banks
(a)
Public
(a)
NBFIs(1)
(a)
Other
(corporate
and households)
(a)
Trading
assets(2)
(included
in (a))
Short-term
claims(2)
(included
in (a))
Total
outstanding(3)
(sum of (a))
Commitments
and
guarantees(4)
Credit
derivatives
purchased(5)
Credit
derivatives
sold(5)
$ 15.0 $ 18.1 $
6.4
18.3
35.3 $
7.7
20.0 $
30.7
8.7 $
4.5
47.7 $
29.9
88.4 $
63.1
23.2 $
17.0
81.8 $
7.3
0.1
21.2
7.9
15.8
2.2
2.6
5.7
3.5
6.2
4.2
8.8
0.9
1.9
4.2
0.9
2.4
—
27.3
26.7
4.3
15.4
17.4
11.5
11.9
7.4
12.2
9.9
10.3
13.1
4.5
5.8
8.5
55.6
7.4
8.8
24.5
0.8
2.4
2.1
0.8
4.5
2.4
6.2
2.7
1.2
5.8
1.7
1.3
3.8
3.0
6.7
2.8
21.6
14.3
13.3
15.0
12.3
11.2
4.4
13.4
4.8
6.2
11.4
1.0
1.3
7.2
4.2
2.9
1.4
1.1
2.8
5.1
6.0
3.8
2.1
4.9
0.7
2.2
1.9
3.8
35.5
42.1
28.3
36.1
32.1
28.2
23.2
19.8
14.3
25.7
14.2
24.4
17.2
8.9
15.4
5.9
59.5
58.9
50.1
47.4
40.0
36.7
32.6
31.2
30.4
30.0
29.3
27.3
21.0
20.7
19.8
13.2
2.9
7.2
12.9
11.9
16.4
11.9
7.9
5.1
11.8
3.9
7.7
12.9
5.5
13.9
12.6
2.7
0.4
25.3
65.4
64.9
11.0
1.5
2.1
11.9
17.5
12.6
29.5
2.3
20.8
6.6
0.1
66.0
82.9
6.7
0.1
24.9
63.5
64.4
9.4
1.4
1.6
10.1
17.2
13.2
29.3
1.9
20.7
6.8
0.1
63.6
In billions of
U.S. dollars
United
Kingdom
Cayman
Islands
Germany
Japan
Mexico
France
South Korea
Singapore
India
Australia
China
Hong Kong
Brazil
Netherlands
Taiwan
Canada
Switzerland
Italy
In billions of
U.S. dollars
United
Kingdom
Mexico
Cayman
Islands
Japan
Germany
France
Korea
Singapore
India
Brazil
Australia
China
Netherlands
Hong Kong
Switzerland
Canada
Taiwan
Italy
(1) Non-bank financial institutions.
(2)
(3) Total outstanding includes cross-border claims on third parties, as well as local country assets. Cross-border claims on third parties include cross-border loans,
Included in total outstanding.
securities, deposits with banks and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products.
(4) Commitments (not included in total outstanding) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the
FFIEC guidelines. The FFIEC definition of commitments includes commitments to local residents to be funded with local currency liabilities originated within the
country.
(5) CDS are not included in total outstanding.
120
SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
This section contains a summary of Citi’s most significant
accounting policies and accounting standards that have been
issued, but are not yet effective. Note 1 to the Consolidated
Financial Statements contains a summary of Citigroup’s
significant accounting policies, including a discussion of
recently adopted accounting pronouncements. These
policies, as well as estimates made by management, are
integral to the presentation of Citi’s results of operations and
financial condition. While all of these policies require a
certain level of management judgment and estimates, this
section highlights and discusses the significant accounting
policies that require management to make highly difficult,
complex or subjective judgments and estimates at times
regarding matters that are inherently uncertain and
susceptible to change (see also “Risk Factors—Operational
Risks” above). Management has discussed each of these
significant accounting policies, the related estimates and its
judgments with the Audit Committee of the Citigroup Board
of Directors.
Valuations of Financial Instruments
Citigroup holds debt and equity securities, derivatives,
retained interests in securitizations, investments in private
equity and other financial instruments. Substantially all of
these assets and liabilities are reflected at fair value on Citi’s
Consolidated Balance Sheet.
Citi purchases securities under agreements to
resell (reverse repos) and sells securities under agreements
to repurchase (repos), a majority of which are carried at
fair value. In addition, certain loans, short-term borrowings,
long-term debt and deposits, as well as certain securities
borrowed and loaned positions that are collateralized with
cash, are carried at fair value. Citigroup holds its
investments, trading assets and liabilities, and resale and
repurchase agreements on the Consolidated Balance Sheet to
meet customer needs and to manage liquidity needs, interest
rate risks and private equity investing.
When available, Citi generally uses quoted market
prices to determine fair value and classifies such items
within Level 1 of the fair value hierarchy established under
ASC 820-10, Fair Value Measurement. If quoted market
prices are not available, fair value is based upon internally
developed valuation models that use, where possible, current
market-based or independently sourced market parameters,
such as interest rates, currency rates and option volatilities.
Such models are often based on a discounted cash flow
analysis. In addition, items valued using such internally
generated valuation techniques are classified according to
the lowest level input or value driver that is significant to the
valuation. Thus, an item may be classified under the fair
value hierarchy as Level 3 even though there may be some
significant inputs that are readily observable.
Citi is required to exercise subjective judgments relating
to the applicability and functionality of internal valuation
models, the significance of inputs or value drivers to the
valuation of an instrument and the degree of illiquidity and
subsequent lack of observability in certain markets. These
judgments have the potential to impact the Company’s
financial performance for instruments where the changes in
fair value are recognized in either the Consolidated
Statement of Income or in AOCI.
Moreover, for certain investments, decreases in fair
value are only recognized in earnings in the Consolidated
Statement of Income if such decreases are judged to be an
other-than-temporary impairment (OTTI). Adjudicating the
temporary nature of fair value impairments is also inherently
judgmental.
The fair value of financial instruments incorporates the
effects of Citi’s own credit risk and the market view of
counterparty credit risk, the quantification of which is also
complex and judgmental. For additional information on
Citi’s fair value analysis, see Notes 1, 6, 24 and 25 to the
Consolidated Financial Statements.
Allowance for Credit Losses
Management provides reserves for an estimate of probable
losses inherent in the funded loan portfolio and in unfunded
loan commitments and standby letters of credit on the
Consolidated Balance Sheet in the Allowance for loan losses
and in Other liabilities, respectively.
Estimates of these probable losses are based upon (i)
Citigroup’s internal system of credit-risk ratings that are
analogous to the risk ratings of the major credit rating
agencies and (ii) historical default and loss data, including
rating agency information regarding default rates from 1983
to 2016 and internal data dating to the early 1970s on
severity of losses in the event of default. Adjustments may
be made to this data, including (i) statistically calculated
estimates to cover the historical fluctuation of the default
rates over the credit cycle, the historical variability of loss
severity among defaulted loans and the degree to which
there are large obligor concentrations in the global portfolio
and (ii) adjustments made for specifically known items, such
as current environmental factors and credit trends.
In addition, representatives from both the risk
management and finance staffs who cover business areas
with delinquency-managed portfolios containing smaller
balance homogeneous loans present their recommended
reserve balances based upon leading credit indicators,
including loan delinquencies and changes in portfolio size,
as well as economic trends, including housing prices,
unemployment and GDP. This methodology is applied
separately for each individual product within each
geographic region in which these portfolios exist.
This evaluation process is subject to numerous estimates
and judgments. The frequency of default, risk ratings, loss
recovery rates, the size and diversity of individual large
credits and the ability of borrowers with foreign currency
obligations to obtain the foreign currency necessary for
orderly debt servicing, among other things, are all taken into
account during this review. Changes in these estimates could
have a direct impact on Citi’s credit costs and the allowance
in any period.
121
For a further description of the loan loss reserve and
related accounts, see Notes 1 and 15 to the Consolidated
Financial Statements.
Goodwill
Citi tests goodwill for impairment annually on July 1 (the
annual test) and between annual tests (the interim test) 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, such as a significant adverse
change in the business climate, a decision to sell or dispose
of all or a significant portion of a reporting unit or a
significant decline in Citi’s stock price. During 2017, annual
and interim tests were performed, which resulted in no
goodwill impairment as described in Note 16 to the
Consolidated Financial Statements.
As of December 31, 2017, Citigroup’s activities are
conducted through the Global Consumer Banking and
Institutional Clients Group business segments and
Corporate/Other. Goodwill impairment testing is performed
at the level below the business segment (referred to as a
reporting unit). Goodwill is recorded in a business
combination under the acquisition method of accounting
when the acquisition price is higher than the fair value of net
assets, including identifiable intangible assets. At the time a
business is acquired, goodwill is allocated to Citi’s
applicable reporting units based on relative fair value. Once
goodwill has been allocated to the reporting units, it
generally no longer retains its identification with a particular
acquisition, but instead becomes identified with the reporting
unit as a whole. As a result, all of the fair value of each
reporting unit is available to support the allocated goodwill.
If any significant business reorganization occurs, Citi may
reallocate the goodwill.
Consistent with prior years, Citi utilizes allocated equity
as a proxy for the carrying value of its reporting units for
purposes of goodwill impairment testing. The allocated
equity in the reporting units is determined based on the
capital the business would require if it were operating as a
standalone entity, incorporating sufficient capital to be in
compliance with regulatory capital requirements, including
capital for specifically identified goodwill and intangible
assets. The capital allocated to the businesses is incorporated
into the annual budget process, which is approved by Citi’s
Board of Directors.
Goodwill impairment testing involves management
judgment, requiring an assessment of whether the carrying
value of the reporting unit can be supported by the fair value
of the reporting unit using widely accepted valuation
techniques, such as the market approach (earnings multiples
and/or transaction multiples) and/or the income approach
(discounted cash flow (DCF) method). In applying these
methodologies, Citi utilizes a number of factors, including
actual operating results, future business plans, economic
projections and market data.
Similar to 2016, Citigroup engaged an independent
valuation specialist in 2017 to assist in Citi’s valuation for
most of the reporting units employing both the market
approach and the DCF method. For reporting units in which
both methods were utilized in 2017, the resulting fair values
were relatively consistent and appropriate weighting was
given to outputs from both methods.
The DCF method utilized at the time of each
impairment test used discount rates that Citi believes
adequately reflected the risk and uncertainty in the financial
markets in the internally generated cash flow projections.
The DCF method employs a capital asset pricing model in
estimating the discount rate.
Since none of the Company’s reporting units are
publicly traded, individual reporting unit fair-value
determinations cannot be directly correlated to Citigroup’s
common stock price. The sum of the fair values of the
reporting units exceeded the overall market capitalization of
Citi as of July 1, 2017. However, Citi believes that it is not
meaningful to reconcile the sum of the fair values of the
Company’s reporting units to its market capitalization due to
several factors. The market capitalization of Citigroup
reflects the execution risk in a transaction involving
Citigroup due to its size. However, the individual reporting
units’ fair values are not subject to the same level of
execution risk nor a business model that is perceived to be as
complex. In addition, the market capitalization of Citigroup
does not include consideration of the individual reporting
unit’s control premium.
See Note 16 to the Consolidated Financial Statements
for additional information on goodwill, including the
changes in the goodwill balance year-over-year and the
reporting unit goodwill balances as of December 31, 2017.
Income Taxes
Overview
Citi is subject to the income tax laws of the U.S., its states
and local municipalities and the non-U.S. jurisdictions in
which Citi operates. These tax laws are complex and are
subject to differing interpretations by the taxpayer and the
relevant governmental taxing authorities. Disputes over
interpretations of the tax laws may be subject to review and
adjudication by the court systems of the various tax
jurisdictions or may be settled with the taxing authority upon
audit.
In establishing a provision for income tax expense, Citi
must make judgments and interpretations about the
application of these inherently complex tax laws. Citi must
also make estimates about when in the future certain items
will affect taxable income in the various tax jurisdictions,
both domestic and foreign. Deferred taxes are recorded for
the future consequences of events that have been recognized
in the financial statements or tax returns, based upon enacted
tax laws and rates. Deferred tax assets (DTAs) are
recognized subject to management’s judgment that
realization is more-likely-than-not.
On December 22, 2017, the President signed the Tax
Cuts and Jobs Act (Tax Reform), reflecting many of the
anticipated changes to U.S. corporate taxation, including a
lower statutory tax rate of 21%, a quasi-territorial regime
and a deemed repatriation of all accumulated earnings and
profits of foreign subsidiaries. The new law was generally
effective January 1, 2018.
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Citi recorded a charge to continuing operations of $22.6
billion in the fourth quarter of 2017, composed of a $12.4
billion remeasurement due to the reduction to the U.S.
corporate tax rate and a change to a quasi- territorial tax
system, a $7.9 billion valuation allowance against Citi’s
FTC carry-forwards and its U.S. residual DTAs related to its
non-U.S. branches, and a $2.3 billion reduction in Citi’s FTC
carry-forwards related to the deemed repatriation of
undistributed earnings of non-U.S. subsidiaries. Quasi-
territorial refers to the continued U.S. taxation of non-U.S.
branches, with a separate FTC basket for branches, and the
application of Global Intangible Low Taxed Income (GILTI)
provisions to intangible income (e.g., services income) of
non-U.S. subsidiaries. The valuation allowance against FTCs
results from the impact of the lower tax rate and the new
separate FTC basket for non-U.S. branches, as well as
diminished ability under Tax Reform to generate income
from sources outside the U.S. to support FTC utilization.
Some of the components of the charge are provisional
amounts as defined in SAB 118 and therefore will be revised
in 2018. For additional information, see Note 1 to the
Consolidated Financial Statements.
Citi has an overall domestic loss (ODL) of
approximately $52 billion. An ODL allows a company to
recharacterize domestic income as income from sources
outside the U.S., which enables a taxpayer to use FTC carry-
forwards and FTCs generated in future years, assuming the
generation of sufficient U.S. taxed income. The change in
Tax Reform to allow a taxpayer to elect to recharacterize up
to 100% of its domestic source income as non-U.S. source
income (up from 50%) is not expected to materially impact
the valuation allowance.
Beginning in 2018, Citi will be taxed on income
generated by its U.S. operations at a federal tax rate of 21%.
The effect on its state tax rate is dependent upon how and
when the individual states choose to or automatically adopt
the various new provisions of the U.S. Internal Revenue
Code.
Citi’s non-U.S. branches and subsidiaries will be subject
to tax at their local tax rates. While non-U.S. branches
continue to be subject to U.S. taxation, Citi expects no
material residual U.S. tax on such earnings since its overall
non-U.S. branch tax rate is in excess of 21%. With respect to
non-U.S. subsidiaries, dividends from these subsidiaries will
be excluded from U.S. taxation. While Citi expects that the
majority of its non-U.S. subsidiary earnings may be
classified as GILTI, it similarly expects no material residual
U.S. tax on such earnings based on its non-U.S. subsidiaries’
local tax rates, which exceed, on average, the GILTI tax rate.
Although Citi is still in the process of analyzing the
provisions of Tax Reform associated with GILTI, it does not
expect a material change in impact. Finally, Citi does not
expect the BEAT (Base Erosion Anti-Abuse Tax) to affect its
tax provision.
Citi expects that its effective tax rate will be roughly
25% in 2018 with the possibility of lower effective tax rates
in subsequent years.
DTAs
At December 31, 2017, Citi had net DTAs of $22.5 billion.
In the fourth quarter of 2017, Citi’s DTAs decreased by
$23.0 billion, driven primarily by the remeasurement related
to Tax Reform and by earnings, partially offset by an
increase in AOCI. On a full-year basis, Citi’s DTAs
decreased $24.2 billion from $46.7 billion at December 31,
2016. The decrease in total DTAs year-over-year was
primarily due to Tax Reform and earnings, partially offset by
an increase in AOCI.
Citi expects that the absolute amount of its $5.7 billion
valuation allowance against FTC carry-forwards may grow
in future years as it generates additional FTCs relating to its
non-U.S. branches due to their higher overall local tax rate
reduced by the statutory expiration of FTC carry-forwards.
With respect to the portion of the valuation allowance
established on its FTC carry-forwards that are available for
use in the general basket, changes in the amount of earnings
from sources outside the U.S. could alter the amount of
valuation allowance that is eventually needed against such
FTCs.
FTCs comprised approximately $7.6 billion of Citi’s
DTAs as of December 31, 2017, compared to approximately
$14.2 billion as of December 31, 2016. The decrease in
FTCs year-over-year was primarily due to the use of FTCs
against the deemed repatriation under Tax Reform, the
valuation allowance established as a result of the reduced
future corporate tax rate and the change to a quasi-territorial
tax system. This represented $6.6 billion of the $24.2 billion
decrease in Citi’s overall DTAs noted above. The FTC carry-
forward periods represent the most time-sensitive component
of Citi’s DTAs.
Citi believes the U.S. federal and New York state and
city net operating loss carry-forward period of 20 years
provides enough time to fully utilize the net DTAs pertaining
to the existing net operating loss carry-forwards. This is due
to Citi’s forecast of sufficient U.S. taxable income and the
continued taxation of Citi’s non-U.S. income by New York
state and city. Although realization is not assured, Citi
believes that the realization of the recognized net DTAs of
$22.5 billion at December 31, 2017 is more-likely-than-not,
based upon management’s expectations as to future taxable
income in the jurisdictions in which the DTAs arise as well
as available tax planning strategies (as defined in ASC Topic
740, Income Taxes) that would be implemented, if necessary,
to prevent a carry-forward from expiring. Citi has concluded
that it has the necessary positive evidence to support the
realization of its net DTAs after taking its valuation
allowances into consideration.
For additional information on Citi’s income taxes,
including its income tax provision, tax assets and liabilities,
and a tabular summary of Citi’s net DTAs balance as of
December 31, 2017 (including the FTCs and applicable
expiration dates of the FTCs), see Note 9 to the Consolidated
Financial Statements. For additional discussion of the
potential impact to Citi’s DTAs that could arise from Tax
Reform, see “Risk Factors—Strategic Risks” above.
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Litigation Accruals
See the discussion in Note 27 to the Consolidated Financial
Statements for information regarding Citi’s policies on
establishing accruals for litigation and regulatory
contingencies.
change in presentation will not have an impact on Income from
continuing operations; however, this standard would have
increased Citi’s efficiency ratio by approximately 57 bps for
the year ended December 31, 2017. The impact for 2018 is
expected to be consistent with 2017.
FUTURE APPLICATION OF ACCOUNTING
STANDARDS
Accounting for Financial Instruments—Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments—Credit Losses (Topic 326). The ASU introduces
a new credit loss methodology, Current Expected Credit
Losses (CECL), which requires earlier recognition of credit
losses, while also providing additional transparency about
credit risk.
The CECL methodology utilizes a lifetime “expected
credit loss” measurement objective for the recognition of
credit losses for loans, held-to-maturity securities and other
receivables at the time the financial asset is originated or
acquired. The expected credit losses are adjusted each period
for changes in expected lifetime credit losses. This
methodology replaces the multiple existing impairment
methods in current GAAP, which generally require that a loss
be incurred before it is recognized. For available-for-sale
securities where fair value is less than cost, credit-related
impairment, if any, will be recognized through an allowance
for credit losses and adjusted each period for changes in credit
risk.
The CECL methodology represents a significant change
from existing GAAP and may result in material changes to the
Company’s accounting for financial instruments. The
Company is evaluating the effect that ASU 2016-13 will have
on its Consolidated Financial Statements and related
disclosures. The impact of the ASU will depend upon the state
of the economy and the nature of Citi’s portfolios at the date
of adoption. Based on a preliminary analysis performed in
2017 and the environment and portfolios at that time, the
overall impact was estimated to be an approximate 10% to
20% increase in credit reserves as of that time. Moreover,
there are still some implementation questions that will need to
be resolved that could affect the estimated impact. The ASU
will be effective for Citi as of January 1, 2020.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be
entitled for the transfer of promised goods or services to
customers. The Company adopted the guidance as of January
1, 2018 using full retrospective application for all periods
presented. There is no material change in timing and amount
of revenue recognized associated with the adoption.
The new standard clarified the guidance related to
reporting revenue gross as a principal versus net as an agent.
The Company has identified transactions, including
underwriting activity where Citi is deemed the principal,
rather than the agent, which require a gross up of annual
revenues and expenses of approximately $1.0 billion. This
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Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842), which is intended to increase transparency and
comparability of accounting for lease transactions. The ASU
will require lessees to recognize leases on the balance sheet as
lease assets and lease liabilities and will require both
quantitative and qualitative disclosures regarding key
information about leasing arrangements. Lessor accounting is
largely unchanged. The guidance is effective beginning
January 1, 2019 with an option to early adopt. The Company
does not plan to early adopt the ASU. The Company estimates
that upon adoption, its Consolidated Balance Sheet will have
an approximate $5 billion increase in assets and liabilities.
Additionally, the Company estimates an approximate $200
million increase in retained earnings due to the cumulative
effect of recognizing previously deferred gains on sale/
leaseback transactions.
Income Tax Impact of Intra-Entity Transfers of Assets
In October 2016, the FASB issued ASU No. 2016-16, Income
Taxes—Intra-Entity Transfers of Assets Other Than Inventory,
which requires an entity to recognize the income tax
consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. The ASU was effective
January 1, 2018. The impact of this standard upon adoption is
an increase of DTAs by approximately $0.2 billion, a decrease
of retained earnings by approximately $0.2 billion and a
decrease of prepaid tax assets by approximately $0.4 billion.
Subsequent Measurement of Goodwill
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. The ASU simplifies the
subsequent measurement of goodwill impairment by
eliminating the requirement to calculate the implied fair value
of goodwill (i.e., the current Step 2 of the goodwill
impairment test) to measure a goodwill impairment charge.
Under the ASU, the impairment test is the comparison of the
fair value of a reporting unit with its carrying amount (the
current Step 1), with the impairment charge being the deficit
in fair value but not exceeding the total amount of goodwill
allocated to that reporting unit. The simplified one-step
impairment test applies to all reporting units (including those
with zero or negative carrying amounts).
The ASU will be effective for Citi as of January 1, 2020,
with early adoption permitted. The impact of the ASU will
depend upon the performance of the reporting units and the
market conditions impacting the fair value of each reporting
unit going forward.
Hedging
In August 2017, the FASB issued ASU No. 2017-12, Targeted
Improvements to Accounting for Hedging Activities, which
will better align an entity’s risk management activities and
financial reporting for hedging relationships through changes
to the designation and measurement guidance for qualifying
hedging relationships and the presentation of hedge results.
The mandatory effective date for calendar year-end public
companies is January 1, 2019, but the amendments may be
early adopted in any interim or annual period after issuance.
The targeted improvements in the ASU will allow Citi
increased flexibility to structure hedges of fixed- and floating-
rate instruments and will allow a one-time transfer of certain
pre-payable debt securities from HTM to AFS. Application of
the ASU is expected to better reflect the economics of Citi’s
risk management activities and will also reduce the volatility
associated with foreign currency hedging. The ASU requires
the change in the fair value of the hedging instrument to be
presented in the same income statement line as the hedged
item and also requires expanded disclosures. Citi adopted this
standard on January 1, 2018 and transferred approximately $4
billion of HTM securities into AFS classification as permitted
as a one-time transfer under the standard. The impact to
opening retained earnings was immaterial.
See Note 1 to the Consolidated Financial Statements for a
discussion of “Accounting Changes.”
Clarifying the Definition of a Business
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business. The definition of a business directly and indirectly
affects many areas of accounting (e.g., acquisitions, disposals,
goodwill and consolidation). The ASU narrows the definition
of a business by introducing a quantitative screen as the first
step, such that if substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or
a group of similar identifiable assets, the set of transferred
assets and activities is not a business. If the set is not scoped
out from the quantitative screen, the entity then evaluates
whether the set meets the requirement that a business include,
at a minimum, an input and a substantive process that together
significantly contribute to the ability to create outputs.
The ASU was effective for public entities, including Citi,
as of January 1, 2018 with prospective application. The impact
of the ASU will depend upon the acquisition and disposal
activities of Citi. If fewer transactions qualify as a business,
there could be less initial recognition of goodwill, but also less
goodwill allocated to disposals.
Changes in Accounting for Pension and Postretirement
(Benefit) Expense
In March 2017, the FASB issued ASU No. 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost, which changes the
income statement presentation of net benefit expense and
requires restating the Company’s financial statements for each
of the earlier periods presented in Citi’s annual and interim
financial statements. The change in presentation was effective
for annual and interim periods starting January 1, 2018. The
ASU requires that only the service cost component of net
benefit expense be included in Compensation and benefits on
the income statement. The other components of net benefit
expense will be required to be presented outside of
Compensation and benefits and will be presented in Other
operating expense. Since both of these income statement line
items are part of Operating expenses, total Operating expenses
will not change, nor will there be any change in Net
income. This change in presentation is not expected to have a
material effect on Compensation and benefits and Other
operating expenses and will be applied prospectively. The
components of the net benefit expense are currently disclosed
in Note 7 to the Consolidated Financial Statements.
The new standard also changes the components of net
benefit expense that are eligible for capitalization when
employee costs are capitalized in connection with various
activities, such as internally developed software, construction-
in-progress, and loan origination costs. Prospectively from
January 1, 2018, only the service cost component of net
benefit expense may be capitalized. Existing capitalized
balances are not affected. This change in amounts eligible for
capitalization is not expected to have a material effect on the
Company’s Consolidated Financial Statements and related
disclosures.
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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 December 31, 2017
and, based on that evaluation, the CEO and CFO have
concluded that at that date, Citigroup’s disclosure controls and
procedures were effective.
126
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Citi’s management is responsible for establishing and
maintaining adequate internal control over financial reporting.
Citi’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of its
financial reporting and the preparation of financial statements
for external reporting purposes in accordance with U.S.
generally accepted accounting principles. Citi’s internal
control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the
transactions and dispositions of Citi’s assets, (ii) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and
that Citi’s receipts and expenditures are made only in
accordance with authorizations of Citi’s management and
directors and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of Citi’s assets that could have a material effect
on its financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies
or procedures may deteriorate. In addition, given Citi’s large
size, complex operations and global footprint, lapses or
deficiencies in internal controls may occur from time to time.
Citi’s management assessed the effectiveness of
Citigroup’s internal control over financial reporting as of
December 31, 2017 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated
Framework (2013). Based on this assessment, management
believes that, as of December 31, 2017, Citi’s internal control
over financial reporting was effective. In addition, there were
no changes in Citi’s internal control over financial reporting
during the fiscal quarter ended December 31, 2017 that
materially affected, or are reasonably likely to materially
affect, Citi’s internal control over financial reporting.
The effectiveness of Citi’s internal control over financial
reporting as of December 31, 2017 has been audited by
KPMG LLP, Citi’s independent registered public accounting
firm, as stated in their report below, which expressed an
unqualified opinion on the effectiveness of Citi’s internal
control over financial reporting as of December 31, 2017.
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FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K, including but not
limited to statements included within the Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, are “forward-looking statements” within the
meaning of the rules and regulations of the U.S. Securities and
Exchange Commission (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, target, illustrate,
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 risks, uncertainties and changes
in circumstances. Actual results and capital and other financial
conditions may differ materially from those included in these
statements due to a variety of factors, including, without
limitation, (i) the precautionary statements included within
each individual business’s discussion and analysis of its results
of operations and (ii) the factors listed and described under
“Risk Factors” above.
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.
128
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM—
INTERNAL CONTROL OVER FINANCIAL REPORTING
Definition and Limitations of Internal Control Over Financial
Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
/s/ KPMG LLP
New York, New York
February 23, 2018
The Board of Directors and Stockholders
Citigroup Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Citigroup Inc. and subsidiaries’ (the
“Company”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheet of the
Company as of December 31, 2017 and 2016, the related
consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2017, and the
related notes (collectively, the “consolidated financial
statements”), and our report dated February 23, 2018
expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
management’s annual report on internal control over financial
reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
129
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM—
CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Citigroup Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet
of Citigroup Inc. and subsidiaries (the “Company”) as of
December 31, 2017 and 2016, and the related consolidated
statements of income, comprehensive income, changes in
stockholders’ equity and cash flows for each of the years in the
three-year period ended December 31, 2017, and the related
notes (collectively, the “consolidated financial statements”). In
our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results
of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2017, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over
financial reporting as of December 31, 2017, based on criteria
established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated February 23,
2018 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining,
on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 1969.
New York, New York
February 23, 2018
130
FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Income—
For the Years Ended December 31, 2017, 2016 and 2015
132
Consolidated Statement of Comprehensive Income—
For the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheet—December 31, 2017 and 2016
Consolidated Statement of Changes in Stockholders’ Equity
—For the Years Ended December 31, 2017, 2016 and 2015
133
134
136
Consolidated Statement of Cash Flows—
For the Years Ended December 31, 2017, 2016 and 2015
138
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1—Summary of Significant Accounting Policies
Note 2—Discontinued Operations and Significant Disposals
Note 3—Business Segments
Note 4—Interest Revenue and Expense
Note 5—Commissions and Fees
Note 6—Principal Transactions
Note 7—Incentive Plans
Note 8—Retirement Benefits
Note 9—Income Taxes
Note 10—Earnings per Share
Note 11—Federal Funds, Securities Borrowed, Loaned and
Subject to Repurchase Agreements
Note 12—Brokerage Receivables and Brokerage Payables
Note 13—Investments
Note 14—Loans
Note 15—Allowance for Credit Losses
140
151
153
154
155
156
157
161
174
178
179
183
184
196
208
Note 16—Goodwill and Intangible Assets
Note 17—Debt
Note 18—Regulatory Capital
Note 19—Changes in Accumulated Other Comprehensive
Income (Loss) (AOCI)
Note 20—Preferred Stock
Note 21—Securitizations and Variable Interest Entities
Note 22—Derivatives Activities
Note 23—Concentrations of Credit Risk
Note 24—Fair Value Measurement
Note 25—Fair Value Elections
Note 26—Pledged Assets, Collateral, Guarantees and
Commitments
Note 27—Contingencies
Note 28—Condensed Consolidating Financial Statements
Note 29—Selected Quarterly Financial Data (Unaudited)
211
214
216
217
220
222
234
249
250
272
276
283
291
301
131
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME Citigroup Inc. and Subsidiaries
In millions of dollars, except per share amounts
Revenues(1)
Interest revenue
Interest expense
Net interest revenue
Commissions and fees
Principal transactions
Administration and other fiduciary fees
Realized gains on sales of investments, net
Other-than-temporary impairment losses on investments
Gross impairment losses
Less: Impairments recognized in AOCI
Net impairment losses recognized in earnings
Other revenue
Total non-interest revenues
Total revenues, net of interest expense
Provisions for credit losses and for benefits and claims
Provision for loan losses
Policyholder benefits and claims
Provision (release) for unfunded lending commitments
Total provisions for credit losses and for benefits and claims
Operating expenses(1)
Compensation and benefits
Premises and equipment
Technology/communication
Advertising and marketing
Other operating
Total operating expenses
Income from continuing operations before income taxes
Provision for income taxes (benefits)
Income (loss) from continuing operations
Discontinued operations
Loss from discontinued operations
Provision (benefit) for income taxes
Loss from discontinued operations, net of taxes
Net income (loss) before attribution of noncontrolling
interests
Noncontrolling interests
Citigroup’s net income (loss)
Basic earnings per share(2)
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
Weighted average common shares outstanding
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
132
Years ended December 31,
2017
2016
2015
61,204 $
16,517
44,687 $
12,939 $
9,168
3,079
778
(63)
—
(63) $
861 $
26,762 $
71,449 $
7,503 $
109
(161)
7,451 $
57,615 $
12,511
45,104 $
11,938 $
7,585
2,783
948
(620)
—
(620) $
2,137 $
24,771 $
69,875 $
6,749 $
204
29
6,982 $
21,181 $
20,970 $
2,453
6,891
1,608
9,104
41,237 $
22,761 $
29,388
(6,627) $
(104) $
7
(111) $
(6,738) $
60
(6,798) $
(2.94) $
(0.04)
(2.98) $
2,698.5
2,542
6,685
1,632
9,587
41,416 $
21,477 $
6,444
15,033 $
(80) $
(22)
(58) $
14,975 $
63
14,912 $
4.74 $
(0.02)
4.72 $
2,888.1
58,551
11,921
46,630
14,485
6,008
2,856
682
(265)
—
(265)
5,958
29,724
76,354
7,108
731
74
7,913
21,769
2,878
6,581
1,547
10,840
43,615
24,826
7,440
17,386
(83)
(29)
(54)
17,332
90
17,242
5.43
(0.02)
5.41
3,004.0
CONSOLIDATED STATEMENT OF INCOME Citigroup Inc. and Subsidiaries
Diluted earnings per share(2)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes
Net income (loss)
Adjusted weighted average common shares outstanding
$
$
(2.94) $
(0.04)
(2.98) $
2,698.5
4.74 $
(0.02)
4.72 $
2,888.3
5.42
(0.02)
5.40
3,007.7
(1) Certain prior-period revenue and expense lines and totals were reclassified to conform to the current period’s presentation. See Note 3 to the Consolidated
Financial Statements.
(2) Due to rounding, earnings per share on continuing operations and discontinued operations may not sum to earnings per share on net income.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Citigroup Inc. and Subsidiaries
In millions of dollars
Citigroup’s net income (loss)
Add: Citigroup’s other comprehensive income (loss)
Net change in unrealized gains and losses on investment securities, net of taxes
Net change in debt valuation adjustment (DVA), net of taxes(1)
Net change in cash flow hedges, net of taxes
Benefit plans liability adjustment, net of taxes(2)
Net change in foreign currency translation adjustment, net of taxes and hedges
Citigroup’s total other comprehensive income (loss)(3)
Citigroup’s total comprehensive income (loss)
Add: Other comprehensive income (loss) attributable to noncontrolling interests
Add: Net income attributable to noncontrolling interests
Total comprehensive income (loss)
Years ended December 31,
2017
2016
2015
(6,798) $
14,912 $
17,242
(863) $
108 $
(569)
(138)
(1,019)
(202)
(2,791) $
(9,589) $
114 $
60
(337)
57
(48)
(2,802)
(3,022) $
11,890 $
(56) $
63
(964)
—
292
43
(5,499)
(6,128)
11,114
(83)
90
(9,415) $
11,897 $
11,121
$
$
$
$
$
$
(1) See Note 1 to the Consolidated Financial Statements.
(2) See Note 8 to the Consolidated Financial Statements.
(3) Includes the impact of ASU 2018-02, adopted in the fourth quarter of 2017. See Note 1 to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
133
CONSOLIDATED BALANCE SHEET
In millions of dollars
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities borrowed or purchased under agreements to resell (including $132,949
and $133,204 as of December 31, 2017 and December 31, 2016, respectively, at fair value)
Brokerage receivables
Trading account assets (including $99,460 and $80,986 pledged to creditors at December 31, 2017 and
December 31, 2016, respectively)
Investments:
Available for sale (including $9,493 and $8,239 pledged to creditors as of December 31, 2017 and
December 31, 2016, respectively)
Held to maturity (including $435 and $843 pledged to creditors as of December 31, 2017 and
December 31, 2016, respectively)
Non-marketable equity securities (including $1,206 and $1,774 at fair value as of December 31, 2017
and December 31, 2016, respectively)
Total investments
Loans:
Consumer (including $25 and $29 as of December 31, 2017 and December 31, 2016, respectively, at
fair value)
Corporate (including $4,349 and $3,457 as of December 31, 2017 and December 31, 2016, respectively,
at fair value)
Loans, net of unearned income
Allowance for loan losses
Total loans, net
Goodwill
Intangible assets (other than MSRs)
Mortgage servicing rights (MSRs)
Other assets (including $19,793 and $15,729 as of December 31, 2017 and December 31, 2016,
respectively, at fair value)
Total assets
$
$
$
$
Citigroup Inc. and Subsidiaries
December 31,
2017
2016
23,775 $
156,741
232,478
38,384
251,556
290,914
53,320
8,056
352,290 $
23,043
137,451
236,813
28,887
243,925
299,424
45,667
8,213
353,304
333,656
325,063
333,378
667,034 $
(12,355)
654,679 $
22,256
4,588
558
105,160
299,306
624,369
(12,060)
612,309
21,659
5,114
1,564
128,008
1,792,077
$
1,842,465 $
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 those assets that can only be used to settle obligations of
consolidated VIEs, presented 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
Assets of consolidated VIEs to be used to settle obligations of consolidated VIEs
Cash and due from banks
Trading account assets
Investments
Loans, net of unearned income
Consumer
Corporate
Loans, net of unearned income
Allowance for loan losses
Total loans, net
Other assets
Total assets of consolidated VIEs to be used to settle obligations of consolidated VIEs
December 31,
2017
2016
$
$
$
$
52 $
1,129
2,498
54,656
19,835
74,491 $
(1,930)
72,561 $
154
76,394 $
142
602
3,636
53,401
20,121
73,522
(1,769)
71,753
158
76,291
Statement continues on the next page.
134
CONSOLIDATED BALANCE SHEET
(Continued)
In millions of dollars, except shares and per share amounts
Liabilities
Non-interest-bearing deposits in U.S. offices
Interest-bearing deposits in U.S. offices (including $303 and $434 as of December 31, 2017 and
December 31, 2016, respectively, at fair value)
Non-interest-bearing deposits in offices outside the U.S.
Interest-bearing deposits in offices outside the U.S. (including $1,162 and $778 as of December 31, 2017
and December 31, 2016, respectively, at fair value)
Total deposits
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $40,638
and $33,663 as of December 31, 2017 and December 31, 2016, respectively, at fair value)
Brokerage payables
Trading account liabilities
Short-term borrowings (including $4,627 and $2,700 as of December 31, 2017 and December 31, 2016,
respectively, at fair value)
Long-term debt (including $31,392 and $26,254 as of December 31, 2017 and December 31, 2016,
respectively, at fair value)
Other liabilities (including $15,084 and $10,796 as of December 31, 2017 and December 31, 2016,
respectively, at fair value)
Total liabilities
Stockholders’ equity
Preferred stock ($1.00 par value; authorized shares: 30 million), issued shares: 770,120 as of
December 31, 2017 and December 31, 2016, at aggregate liquidation value
Common stock ($0.01 par value; authorized shares: 6 billion), issued shares: 3,099,523,273 and
3,099,482,042 as of December 31, 2017 and December 31, 2016, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost: December 31, 2017—529,614,728 shares and December 31, 2016—327,090,192
shares
Accumulated other comprehensive income (loss)
Total Citigroup stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
Citigroup Inc. and Subsidiaries
December 31,
2017
2016
126,880 $
136,698
318,613
87,440
426,889
959,822 $
156,277
61,342
124,047
44,452
300,972
77,616
414,120
929,406
141,821
57,152
139,045
30,701
236,709
206,178
58,144
1,640,793 $
61,631
1,565,934
19,253 $
19,253
31
108,008
138,425
(30,309)
(34,668)
200,740 $
932
201,672 $
1,842,465 $
31
108,042
146,477
(16,302)
(32,381)
225,120
1,023
226,143
1,792,077
$
$
$
$
$
$
$
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
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have
recourse to the general credit of Citigroup
Short-term borrowings
Long-term debt
Other liabilities
Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have
recourse to the general credit of Citigroup
December 31,
2017
2016
$
$
10,079 $
30,492
611
41,182 $
10,697
23,919
1,275
35,891
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
135
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Citigroup Inc. and Subsidiaries
In millions of dollars, except shares in thousands
Preferred stock at aggregate liquidation value
Balance, beginning of year
Issuance of new preferred stock
Balance, end of period
Common stock and additional paid-in capital
Balance, beginning of year
Employee benefit plans
Preferred stock issuance expense
Other
Balance, end of period
Retained earnings
Balance, beginning of year
Adjustment to opening balance, net of taxes(1)
Adjusted balance, beginning of period
Citigroup’s net income (loss)
Common dividends(2)
Preferred dividends
Impact of Tax Reform related to AOCI reclassification(3)
Other(4)
Balance, end of period
Treasury stock, at cost
Balance, beginning of year
Employee benefit plans(5)
Treasury stock acquired(6)
Balance, end of period
Citigroup’s accumulated other comprehensive income (loss)
Balance, beginning of year
Adjustment to opening balance, net of taxes(1)
Adjusted balance, beginning of period
Citigroup’s total other comprehensive income (loss)(3)
Balance, end of period
Total Citigroup common stockholders’ equity
Total Citigroup stockholders’ equity
Noncontrolling interests
Balance, beginning of year
Transactions between noncontrolling-interest shareholders and
the related consolidated subsidiary
Transactions between Citigroup and the noncontrolling-interest
shareholders
Net income attributable to noncontrolling-interest shareholders
Dividends paid to noncontrolling-interest shareholders
Other comprehensive income (loss) attributable to
noncontrolling-interest shareholders
Other
Net change in noncontrolling interests
Balance, end of period
Total equity
Years ended December 31,
Amounts
2017
2016
2015
2017
Shares
2016
2015
$
$
19,253 $
—
19,253 $
16,718 $
2,535
19,253 $
10,468
6,250
16,718
770
—
770
669
101
770
419
250
669
$ 108,073 $ 108,319 $ 108,010
357
(23)
(251)
(37)
(27)
—
3,099,482
41
—
3,099,482
—
—
3,082,038
17,438
—
(7)
42
(25)
—
—
6
$ 108,039 $ 108,073 $ 108,319
3,099,523
3,099,482
3,099,482
$ 146,477 $ 133,841 $ 117,852
(660)
15
—
$ 145,817 $ 133,856 $ 117,852
(6,798)
(2,595)
(1,213)
3,304
(90)
14,912
(1,214)
(1,077)
—
—
17,242
(484)
(769)
—
—
$ 138,425 $ 146,477 $ 133,841
$
(16,302) $
(7,677) $
(2,929)
(327,090)
(146,203)
(58,119)
531
826
704
11,651
14,256
13,318
(14,538)
(9,451)
(5,452)
(214,176)
(195,143)
(101,402)
(30,309) $
(16,302) $
(7,677)
(529,615)
(327,090)
(146,203)
(32,381) $
(29,344) $
(23,216)
504
(15)
—
(31,877) $
(29,359) $
(23,216)
(2,791)
(3,022)
(6,128)
$
$
$
2,569,908
2,772,392
2,953,279
(32,381) $
(34,668) $
(29,344)
$
$ 181,487 $ 205,867 $ 205,139
$ 200,740 $ 225,120 $ 221,857
$
1,023 $
1,235 $
1,511
(28)
(11)
—
(121)
60
(44)
114
(72)
(91) $
932 $
(130)
63
(42)
(56)
(36)
(164)
90
(78)
(83)
(41)
(212) $
(276)
1,023 $
1,235
$
$
$ 201,672 $ 226,143 $ 223,092
136
(1) See Note 1 to the Consolidated Financial Statements.
(2) Common dividends declared were $0.16 per share in the first and second quarters and $0.32 per share in the third and fourth quarters of 2017; $0.05 per share in
the first and second quarters and $0.16 per share in the third and fourth quarters of 2016; and $0.01 in the first quarter and $0.05 per share in the second, third and
fourth quarters of 2015.
Includes the impact of ASU 2018-02, which transferred those amounts from AOCI to Retained earnings. See Notes 1 and 19 to the Consolidated Financial
Statements.
(3)
(4) Includes the impact of ASU No. 2016-09. See Note 1 to the Consolidated Financial Statements.
(5)
Includes 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 or deferred-stock programs, where shares are withheld to satisfy tax requirements.
(6) For 2017, 2016 and 2015, primarily consists of open market purchases under Citi’s Board of Directors-approved common stock repurchase program.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
137
CONSOLIDATED STATEMENT OF CASH FLOWS
Citigroup Inc. and Subsidiaries
In millions of dollars
Cash flows from operating activities of continuing operations
Net income (loss) before attribution of noncontrolling interests
Net income attributable to noncontrolling interests
Citigroup’s net income (loss)
Loss from discontinued operations, net of taxes
Income (loss) from continuing operations—excluding noncontrolling interests
Adjustments to reconcile net income to net cash provided by operating activities of
continuing operations
Net gains on significant disposals(1)
Depreciation and amortization
Deferred tax provision (2)
Provision for loan losses
Realized gains from sales of investments
Net impairment losses on investments, goodwill and intangible assets
Change in trading account assets
Change in trading account liabilities
Change in brokerage receivables, net of brokerage payables
Change in loans held-for-sale (HFS)
Change in other assets
Change in other liabilities
Other, net
Total adjustments
Net cash provided by (used in) operating activities of continuing operations
Cash flows from investing activities of continuing operations
Change in deposits with banks
Change in federal funds sold and securities borrowed or purchased under agreements to resell
Change in loans
Proceeds from sales and securitizations of loans
Purchases of investments
Proceeds from sales of investments(3)
Proceeds from maturities of investments
Proceeds from significant disposals(1)
Payments due to transfers of net liabilities associated with significant disposals(1)(4)
Capital expenditures on premises and equipment and capitalized software
Proceeds from sales of premises and equipment, subsidiaries and affiliates
and repossessed assets
Net cash provided by (used in) investing activities of continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Issuance of preferred stock
Treasury stock acquired
Stock tendered for payment of withholding taxes
Change in federal funds purchased and securities loaned or sold under agreements to repurchase
Issuance of long-term debt
Payments and redemptions of long-term debt
Change in deposits
Change in short-term borrowings
138
$
$
$
$
$
$
$
$
Years ended December 31,
2017
2016
2015
(6,738) $
14,975 $
17,332
60
63
90
(6,798) $
14,912 $
17,242
(111)
(58)
(54)
(6,687) $
14,970 $
17,296
(602)
3,659
24,877
7,503
(778)
91
(7,726)
(14,998)
(5,307)
247
(2,489)
(3,421)
(2,956)
(404)
3,720
1,459
6,749
(948)
621
(2,710)
21,533
2,226
6,603
(6,859)
(28)
7,000
(1,900) $
(8,587) $
38,962 $
53,932 $
(19,290) $
(25,311) $
4,335
(58,062)
8,365
(17,138)
(39,761)
18,140
(3,210)
3,506
2,794
7,108
(682)
318
46,830
(21,524)
2,278
(7,207)
(32)
(1,135)
(6,603)
22,441
39,737
15,488
22,895
1,353
9,610
(185,740)
(211,402)
(242,362)
107,368
84,369
3,411
—
132,183
65,525
265
—
(3,361)
(2,756)
141,470
82,047
5,932
(18,929)
(3,198)
377
667
577
(58,228) $
(79,588) $
14,883
(3,797) $
(2,287) $
—
(14,541)
(405)
14,456
67,960
2,498
(9,290)
(316)
(4,675)
63,806
(40,986)
(55,460)
30,416
13,751
24,394
9,622
(1,253)
6,227
(5,452)
(428)
(26,942)
44,619
(52,843)
8,555
(37,256)
Net cash provided by (used in) financing activities of continuing operations
Effect of exchange rate changes on cash and cash equivalents
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information for continuing operations
Cash paid during the year for income taxes
Cash paid during the year for interest
Non-cash investing activities
Decrease in net loans associated with significant disposals reclassified to HFS
Decrease in investments associated with significant disposals reclassified to HFS
Decrease in goodwill and intangible assets associated with significant disposals reclassified to HFS
Decrease in deposits associated with banks with significant disposals reclassified to HFS
Transfers to loans HFS from loans
Transfers to OREO and other repossessed assets
Non-cash financing activities
$
$
$
$
$
$
66,854 $
28,292 $
(64,773)
693 $
732 $
(493) $
(1,055)
2,143 $
(11,208)
23,043
20,900
23,775 $
23,043 $
2,083 $
4,359 $
15,675
12,067
— $
— $
—
—
—
5,900
113
—
—
—
13,900
165
32,108
20,900
4,978
12,031
(9,063)
(1,402)
(223)
(404)
28,600
276
Decrease in long-term debt associated with significant disposals reclassified to HFS
$
— $
— $
(4,673)
(1) See Note 2 to the Consolidated Financial Statements for further information on significant disposals.
(2) Includes the full impact of the $22.6 billion non-cash charge related to the Tax Cuts and Jobs Act (Tax Reform). See Notes 1 and 9 to the Consolidated
Financial Statements for further information.
(3) Proceeds for 2016 include approximately $3.3 billion from the sale of Citi’s investment in China Guangfa Bank.
(4) The payments associated with significant disposals result primarily from the sale of deposit liabilities.
The Notes to the Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Throughout these Notes, “Citigroup,” “Citi” and the
“Company” refer to Citigroup Inc. and its consolidated
subsidiaries.
Certain reclassifications have been made to the prior
periods’ financial statements and Notes to conform to the
current period’s presentation.
Principles of Consolidation
The Consolidated Financial Statements include the accounts
of Citigroup and its subsidiaries prepared in accordance with
U.S. generally accepted accounting principles (GAAP). The
Company consolidates subsidiaries in which it holds,
directly or indirectly, more than 50% of the voting rights or
where it exercises control. Entities where the Company
holds 20% to 50% of the voting rights and/or has the ability
to exercise significant influence, other than investments of
designated venture capital subsidiaries or investments
accounted for at fair value under the fair value option, are
accounted for under the equity method, and the pro rata
share of their income (loss) is included in Other revenue.
Income from investments in less-than-20%-owned
companies is recognized when dividends are received. As
discussed in more detail in Note 21 to the Consolidated
Financial Statements, Citigroup also 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
Citibank, N.A. (Citibank) is a commercial bank and wholly
owned subsidiary of Citigroup. Citibank’s principal offerings
include consumer finance, mortgage lending and retail
banking (including commercial banking) products and
services; investment banking, cash management and trade
finance; and private banking products and services.
Variable Interest Entities
An entity is a variable interest entity (VIE) if it meets either
of the criteria outlined in Accounting Standards Codification
(ASC) Topic 810, Consolidation, which are (i) the entity has
equity that is insufficient to permit the entity to finance its
activities without additional subordinated financial support
from other parties, or (ii) the entity has equity investors that
cannot make significant decisions about the entity’s
operations or that do not absorb their proportionate share of
the entity’s expected losses or expected returns.
The Company consolidates a VIE when it has both the
power to direct the activities that most significantly impact
the VIE’s economic performance and a right to receive
benefits or the obligation to absorb losses of the entity that
could be potentially significant to the VIE (that is, Citi is the
primary beneficiary). In addition to variable interests held in
140
consolidated VIEs, the Company has variable interests in
other VIEs that are not consolidated because the Company is
not the primary beneficiary.
All unconsolidated VIEs are monitored by the Company
to assess whether any events have occurred to cause its
primary beneficiary status to change.
All entities not deemed to be VIEs with which the
Company has involvement are evaluated for consolidation
under other subtopics of ASC 810. See Note 21 to the
Consolidated Financial Statements for more detailed
information.
Foreign Currency Translation
Assets and liabilities of Citi’s foreign operations are
translated from their respective functional currencies into
U.S. dollars using period-end spot foreign exchange rates.
The effects of those translation adjustments are reported in
Accumulated other comprehensive income (loss), a
component of stockholders’ equity, net of any related hedge
and tax effects, until realized upon sale or substantial
liquidation of the foreign operation. Revenues and expenses
of Citi’s foreign operations are translated monthly from their
respective functional currencies into U.S. dollars at amounts
that approximate weighted average exchange rates.
For transactions that are denominated in a currency
other than the functional currency, including transactions
denominated in the local currencies of foreign operations
that use the U.S. dollar as their functional currency, the
effects of changes in exchange rates are primarily included
in Principal transactions, along with the related effects of
any economic hedges. Instruments used to hedge foreign
currency exposures include foreign currency forward, option
and swap contracts and, in certain instances, designated
issues of non-U.S. dollar debt. Foreign operations in
countries with highly inflationary economies designate the
U.S. dollar as their functional currency, with the effects of
changes in exchange rates primarily included in Other
revenue.
Investment Securities
Investments include fixed income and equity securities.
Fixed income instruments include bonds, notes and
redeemable preferred stocks, as well as certain loan-backed
and structured securities that are subject to prepayment risk.
Equity securities include common and nonredeemable
preferred stock.
Investment securities are classified and accounted for as
follows:
•
•
Fixed income securities classified as “held-to-maturity”
are securities that the Company has both the ability and
the intent to hold until maturity and are carried at
amortized cost. Interest income on such securities is
included in Interest revenue.
Fixed income securities and marketable equity securities
classified as “available-for-sale” are carried at fair value
with changes in fair value reported in Accumulated
other comprehensive income (loss), a component of
stockholders’ equity, net of applicable income taxes and
hedges. Realized gains and losses on sales are included
in income primarily on a specific identification cost
basis. Interest and dividend income on such securities is
included in Interest revenue.
• Certain investments in non-marketable equity securities
and certain investments that would otherwise have been
accounted for using the equity method are carried at fair
value, since the Company has elected to apply fair value
accounting. Changes in fair value of such investments
are recorded in earnings.
• Certain non-marketable equity securities are carried at
cost.
For investments in fixed income securities classified as
held-to-maturity or available-for-sale, the accrual of interest
income is suspended for investments that are in default or for
which it is likely that future interest payments will not be
made as scheduled.
Investment securities are subject to evaluation for other-
than-temporary impairment as described in Note 13 to the
Consolidated Financial Statements.
The Company uses a number of valuation techniques for
investments carried at fair value, which are described in
Note 24 to the Consolidated Financial Statements. Realized
gains and losses on sales of investments are included in
earnings.
Trading Account Assets and Liabilities
Trading account assets include debt and marketable equity
securities, derivatives in a receivable position, residual
interests in securitizations and physical commodities
inventory. In addition, as described in Note 25 to the
Consolidated Financial Statements, certain assets that
Citigroup has elected to carry at fair value under the fair
value option, such as loans and purchased guarantees, are
also included in Trading account assets.
Trading account liabilities include securities sold, not
yet purchased (short positions) and derivatives in a net
payable position, as well as certain liabilities that Citigroup
has elected to carry at fair value (as described in Note 25 to
the Consolidated Financial Statements).
Other than physical commodities inventory, all trading
account assets and liabilities are carried at fair value.
Revenues generated from trading assets and trading
liabilities are generally reported in Principal transactions
and include realized gains and losses as well as unrealized
gains and losses resulting from changes in the fair value of
such instruments. Interest income on trading assets is
recorded in Interest revenue reduced by interest expense on
trading liabilities.
Physical commodities inventory is carried at the lower
of cost or market with related losses reported in Principal
transactions. Realized gains and losses on sales of
commodities inventory are included in Principal
transactions. Investments in unallocated precious metals
accounts (gold, silver, platinum and palladium) are
accounted for as hybrid instruments containing a debt host
contract and an embedded non-financial derivative
instrument indexed to the price of the relevant precious
metal. The embedded derivative instrument is separated
from the debt host contract and accounted for at fair value.
The debt host contract is carried at fair value under the fair
value option, as described in Note 25 to the Consolidated
Financial Statements.
Derivatives used for trading purposes include interest
rate, currency, equity, credit and commodity swap
agreements, options, caps and floors, warrants, and financial
and commodity futures and forward contracts. Derivative
asset and liability positions are presented net by counterparty
on the Consolidated Balance Sheet when a valid master
netting agreement exists and the other conditions set out in
ASC Topic 210-20, Balance Sheet—Offsetting, are met. See
Note 22 to the Consolidated Financial Statements.
The Company uses a number of techniques to determine
the fair value of trading assets and liabilities, which are
described in Note 24 to the Consolidated Financial
Statements.
Securities Borrowed and Securities Loaned
Securities borrowing and lending transactions do not
constitute a sale of the underlying securities for accounting
purposes and are treated as collateralized financing
transactions. Such transactions are recorded at the amount of
proceeds advanced or received plus accrued interest. As
described in Note 25 to the Consolidated Financial
Statements, the Company has elected to apply fair value
accounting to a number of securities borrowing and lending
transactions. Fees paid or received for all securities lending
and borrowing transactions are recorded in Interest expense
or Interest revenue at the contractually specified rate.
The Company monitors the fair value of securities
borrowed or loaned on a daily basis and obtains or posts
additional collateral in order to maintain contractual margin
protection.
As described in Note 24 to the Consolidated Financial
Statements, the Company uses a discounted cash flow
technique to determine the fair value of securities lending
and borrowing transactions.
Repurchase and Resale Agreements
Securities sold under agreements to repurchase (repos) and
securities purchased under agreements to resell (reverse
repos) do not constitute a sale (or purchase) of the
underlying securities for accounting purposes and are treated
as collateralized financing transactions. As described in Note
25 to the Consolidated Financial Statements, the Company
has elected to apply fair value accounting to the majority of
such transactions, with changes in fair value reported in
earnings. Any transactions for which fair value accounting
has not been elected are recorded at the amount of cash
advanced or received plus accrued interest. Irrespective of
whether the Company has elected fair value accounting,
interest paid or received on all repo and reverse repo
transactions is recorded in Interest expense or Interest
revenue at the contractually specified rate.
Where the conditions of ASC 210-20-45-11, Balance
Sheet—Offsetting: Repurchase and Reverse Repurchase
141
Agreements, are met, repos and reverse repos are presented
net on the Consolidated Balance Sheet.
The Company’s policy is to take possession of securities
purchased under reverse repurchase agreements. The
Company monitors the fair value of securities subject to
repurchase or resale on a daily basis and obtains or posts
additional collateral in order to maintain contractual margin
protection.
As described in Note 24 to the Consolidated Financial
Statements, the Company uses a discounted cash flow
technique to determine the fair value of repo and reverse
repo transactions.
Loans
Loans are reported at their outstanding principal balances net
of any unearned income and unamortized deferred fees and
costs except that credit card receivable balances also include
accrued interest and fees. Loan origination fees and certain
direct origination costs are generally deferred and
recognized as adjustments to income over the lives of the
related loans.
As described in Note 25 to the Consolidated Financial
Statements, Citi has elected fair value accounting for certain
loans. Such loans are carried at fair value with changes in
fair value reported in earnings. Interest income on such loans
is recorded in Interest revenue at the contractually specified
rate.
Loans that are held-for-investment are classified as
Loans, net of unearned income on the Consolidated Balance
Sheet, and the related cash flows are included within the
cash flows from investing activities category in the
Consolidated Statement of Cash Flows on the line Change in
loans. However, when the initial intent for holding a loan
has changed from held-for-investment to HFS, the loan is
reclassified to held-for-sale, but the related cash flows
continue to be reported in cash flows from investing
activities in the Consolidated Statement of Cash Flows on
the line Proceeds from sales and securitizations of loans.
Consumer Loans
Consumer loans represent loans and leases managed
primarily by the Global Consumer Banking (GCB)
businesses and Corporate/Other.
Consumer Non-accrual and Re-aging Policies
As a general rule, interest accrual ceases for installment and
real estate (both open- and closed-end) loans when payments
are 90 days contractually past due. For credit cards and other
unsecured revolving loans, however, Citi generally accrues
interest until payments are 180 days past due. As a result of
OCC guidance, 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. Also as a result of
OCC guidance, mortgage loans in regulated bank entities
within 60 days of notification that the borrower has filed for
bankruptcy, other than FHA-insured loans, are classified as
non-accrual. Commercial market loans are placed on a cash
(non-accrual) basis when it is determined, based on actual
experience and a forward-looking assessment of the
collectability of the loan in full, that the payment of interest
or principal is doubtful or when interest or principal is 90
days past due.
Loans that have been modified to grant a concession to
a borrower in financial difficulty may not be accruing
interest at the time of the modification. The policy for
returning such modified loans to accrual status varies by
product and/or region. In most cases, a minimum number of
payments (ranging from one to six) is required, while in
other cases the loan is never returned to accrual status. For
regulated bank entities, such modified loans are returned to
accrual status if a credit evaluation at the time of, or
subsequent to, the modification indicates the borrower is
able to meet the restructured terms, and the borrower is
current and has demonstrated a reasonable period of
sustained payment performance (minimum six months of
consecutive payments).
For U.S. consumer loans, generally one of the
conditions to qualify for modification is that a minimum
number of payments (typically ranging from one to three)
must be made. Upon modification, the loan is re-aged to
current status. However, 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 may only be
modified under those respective agencies’ guidelines, and
payments are not always required in order to re-age a
modified loan to current.
Consumer Charge-Off Policies
Citi’s charge-off policies follow the general guidelines
below:
• Unsecured installment loans are charged off at 120 days
contractually past due.
• Unsecured revolving loans and credit card loans are
charged off at 180 days contractually past due.
• Loans secured with non-real estate collateral are written
down to the estimated value of the collateral, less costs
to sell, at 120 days contractually past due.
• Real estate-secured loans are written down to the
estimated value of the property, less costs to sell, at 180
days contractually past due.
• Real estate-secured loans are charged off no later than
180 days contractually past due if a decision has been
made not to foreclose on the loans.
• Unsecured loans in bankruptcy are charged off within
60 days of notification of filing by the bankruptcy court
or in accordance with Citi’s charge-off policy,
whichever occurs earlier.
142
• Real estate-secured loans in bankruptcy, other than
FHA-insured loans, are written down to the estimated
value of the property, less costs to sell, within 60 days of
notification that the borrower has filed for bankruptcy or
in accordance with Citi’s charge-off policy, whichever is
earlier.
• Commercial market loans are written down to the extent
that principal is judged to be uncollectable.
Corporate Loans
Corporate loans represent loans and leases managed by
Institutional Clients Group (ICG). 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 past due and charged
against current earnings, and interest is thereafter included in
earnings only to the extent actually received in cash. When
there is doubt regarding the ultimate collectability of
principal, all cash receipts are thereafter applied to reduce
the recorded investment in the loan.
Impaired corporate loans and leases are written down to
the extent that principal is deemed to be uncollectable.
Impaired collateral-dependent loans and leases, where
repayment is expected to be provided solely by the sale of
the underlying collateral and there are no other available and
reliable sources of repayment, are written down to the lower
of cost or collateral value. Cash-basis loans are returned to
accrual status when all contractual principal and interest
amounts are reasonably assured of repayment and there is a
sustained period of repayment performance in accordance
with the contractual terms.
Loans Held-for-Sale
Corporate and consumer loans that have been identified for
sale are classified as loans held-for-sale and included in
Other assets. The practice of Citi’s U.S. prime mortgage
business has been to sell substantially all of its conforming
loans. As such, U.S. prime mortgage conforming loans are
classified as held-for-sale and the fair value option is elected
at origination, with changes in fair value recorded in Other
revenue. With the exception of those loans for which the fair
value option has been elected, held-for-sale loans are
accounted for at the lower of cost or market value, with any
write-downs or subsequent recoveries charged to Other
revenue. The related cash flows are classified in the
Consolidated Statement of Cash Flows in the cash flows
from operating activities category on the line Change in
loans held-for-sale.
Allowance for Loan Losses
Allowance for loan losses represents management’s best
estimate of probable losses inherent in the portfolio,
including probable losses related to large individually
evaluated impaired loans and troubled debt restructurings.
Attribution of the allowance is made for analytical purposes
only, and the entire allowance is available to absorb probable
loan losses inherent in the overall portfolio. Additions to the
allowance are made through the Provision for loan losses.
Loan losses are deducted from the allowance and subsequent
recoveries are added. Assets received in exchange for loan
claims in a restructuring are initially recorded at fair value,
with any gain or loss reflected as a recovery or charge-off to
the provision.
Consumer Loans
For consumer loans, each portfolio of non-modified smaller-
balance homogeneous loans is independently evaluated for
impairment by product type (e.g., residential mortgage,
credit card, etc.) in accordance with ASC 450,
Contingencies. The allowance for loan losses attributed to
these loans is established via a process that estimates the
probable losses inherent in the specific portfolio. This
process includes migration analysis, in which historical
delinquency and credit loss experience is applied to the
current aging of the portfolio, together with analyses that
reflect current and anticipated economic conditions,
including changes in housing prices and unemployment
trends. Citi’s allowance for loan losses under ASC 450 only
considers contractual principal amounts due, except for
credit card loans, where estimated loss amounts related to
accrued interest receivable are also included.
Management also considers overall portfolio indicators,
including historical credit losses, delinquent, non-performing
and classified loans, trends in volumes and terms of loans, an
evaluation of overall credit quality, the credit process,
including lending policies and procedures, and economic,
geographical, product and other environmental factors.
Separate valuation allowances are determined for
impaired smaller-balance homogeneous loans whose terms
have been modified in a troubled debt restructuring (TDR).
Long-term modification programs, and short-term (less than
12 months) modifications that provide concessions (such as
interest rate reductions) to borrowers in financial difficulty,
are reported as TDRs. In addition, loan modifications that
involve a trial period are reported as TDRs at the start of the
trial period. The allowance for loan losses for TDRs is
determined in accordance with ASC 310-10-35, Receivables
—Subsequent Measurement, considering all available
evidence, including, as appropriate, the present value of the
expected future cash flows discounted at the loan’s original
contractual effective rate, the secondary market value of the
loan and the fair value of collateral less disposal costs. These
expected cash flows incorporate modification program
default rate assumptions. The original contractual effective
rate for credit card loans is the pre-modification rate, which
may include interest rate increases under the original
contractual agreement with the borrower.
143
Valuation allowances for commercial market loans,
which are classifiably managed consumer loans, are
determined in the same manner as for corporate loans and
are described in more detail in the following section.
Generally, an asset-specific component is calculated under
ASC 310-10-35 on an individual basis for larger-balance,
non-homogeneous loans that are considered impaired, and
the allowance for the remainder of the classifiably managed
consumer loan portfolio is calculated under ASC 450 using a
statistical methodology that may be supplemented by
management adjustment.
Corporate Loans
In the corporate portfolios, the Allowance for loan losses
includes an asset-specific component and a statistically
based component. The asset-specific component is
calculated under ASC 310-10-35 for larger-balance, non-
homogeneous loans that are considered impaired. An asset-
specific allowance is established when the discounted cash
flows, collateral value (less disposal costs) or observable
market price of the impaired loan are lower than its carrying
value. This allowance considers the borrower’s overall
financial condition, resources and payment record, the
prospects for support from any financially responsible
guarantors (discussed further below) and, if appropriate, the
realizable value of any collateral. The asset-specific
component of the allowance for smaller-balance impaired
loans is calculated on a pool basis considering historical loss
experience.
The allowance for the remainder of the loan portfolio is
determined under ASC 450 using a statistical methodology,
supplemented by management judgment. The statistical
analysis considers the portfolio’s size, remaining tenor and
credit quality as measured by internal risk ratings assigned to
individual credit facilities, which reflect probability of
default and loss given default. The statistical analysis
considers historical default rates and historical loss severity
in the event of default, including historical average levels
and historical variability. The result is an estimated range for
inherent losses. The best estimate within the range is then
determined by management’s quantitative and qualitative
assessment of current conditions, including general
economic conditions, specific industry and geographic
trends and internal factors including portfolio
concentrations, trends in internal credit quality indicators
and current and past underwriting standards.
For both the asset-specific and the statistically based
components of the Allowance for loan losses, management
may incorporate guarantor support. The financial
wherewithal of the guarantor is evaluated, as applicable,
based on net worth, cash flow statements and personal or
company financial statements, which are updated and
reviewed at least annually. Citi seeks performance on
guarantee arrangements in the normal course of business.
Seeking performance entails obtaining satisfactory
cooperation from the guarantor or borrower in the specific
situation. This regular cooperation is indicative of pursuit
and successful enforcement of the guarantee; the exposure is
reduced without the expense and burden of pursuing a legal
144
remedy. A guarantor’s reputation and willingness to work
with Citigroup is evaluated based on the historical
experience with the guarantor and the knowledge of the
marketplace. In the rare event that the guarantor is unwilling
or unable to perform or facilitate borrower cooperation, Citi
pursues a legal remedy; however, enforcing a guarantee via
legal action against the guarantor is not the primary means of
resolving a troubled loan situation and rarely occurs. If Citi
does not pursue a legal remedy, it is because Citi does not
believe that the guarantor has the financial wherewithal to
perform regardless of legal action or because there are legal
limitations on simultaneously pursuing guarantors and
foreclosure. A guarantor’s reputation does not impact Citi’s
decision or ability to seek performance under the guarantee.
In cases where a guarantee is a factor in the assessment
of loan losses, it is included via adjustment to the loan’s
internal risk rating, which in turn is the basis for the
adjustment to the statistically based component of the
Allowance for loan losses. To date, it is only in rare
circumstances that an impaired commercial loan or
commercial real estate loan is carried at a value in excess of
the appraised value due to a guarantee.
When Citi’s monitoring of the loan indicates that the
guarantor’s wherewithal to pay is uncertain or has
deteriorated, there is either no change in the risk rating,
because the guarantor’s credit support was never initially
factored in, or the risk rating is adjusted to reflect that
uncertainty or deterioration. Accordingly, a guarantor’s
ultimate failure to perform or a lack of legal enforcement of
the guarantee does not materially impact the allowance for
loan losses, as there is typically no further significant
adjustment of the loan’s risk rating at that time. Where Citi is
not seeking performance under the guarantee contract, it
provides for loan losses as if the loans were non-performing
and not guaranteed.
Reserve Estimates and Policies
Management provides reserves for an estimate of probable
losses inherent in the funded loan portfolio on the
Consolidated Balance Sheet in the form of an allowance for
loan losses. These reserves are established in accordance
with Citigroup’s credit reserve policies, as approved by the
Audit Committee of the Citigroup Board of Directors. Citi’s
Chief Risk Officer and Chief Financial Officer review the
adequacy of the credit loss reserves each quarter with
representatives from the risk management and finance staffs
for each applicable business area. Applicable business areas
include those having classifiably managed portfolios, where
internal credit-risk ratings are assigned (primarily ICG and
GCB) or modified consumer loans, where concessions were
granted due to the borrowers’ financial difficulties.
The above-mentioned representatives for these business
areas present recommended reserve balances for their funded
and unfunded lending portfolios along with supporting
quantitative and qualitative data discussed below:
Estimated probable losses for non-performing, non-
homogeneous exposures within a business line’s classifiably
managed portfolio and impaired smaller-balance
homogeneous loans whose terms have been modified due to
the borrowers’ financial difficulties, where it was determined
that a concession was granted to the borrower.
Consideration may be given to the following, as appropriate,
when determining this estimate: (i) the present value of
expected future cash flows discounted at the loan’s original
effective rate, (ii) the borrower’s overall financial condition,
resources and payment record and (iii) the prospects for
support from financially responsible guarantors or the
realizable value of any collateral. In the determination of the
allowance for loan losses for TDRs, management considers a
combination of historical re-default rates, the current
economic environment and the nature of the modification
program when forecasting expected cash flows. When
impairment is measured based on the present value of
expected future cash flows, the entire change in present
value is recorded in Provision for loan losses.
Statistically calculated losses inherent in the classifiably
managed portfolio for performing and de minimis non-
performing exposures. The calculation is based on (i) Citi’s
internal system of credit-risk ratings, which are analogous to
the risk ratings of the major rating agencies, and (ii)
historical default and loss data, including rating agency
information regarding default rates from 1983 to 2016 and
internal data dating to the early 1970s on severity of losses
in the event of default. Adjustments may be made to this
data. Such adjustments include (i) statistically calculated
estimates to cover the historical fluctuation of the default
rates over the credit cycle, the historical variability of loss
severity among defaulted loans and the degree to which
there are large obligor concentrations in the global portfolio,
and (ii) adjustments made for specific known items, such as
current environmental factors and credit trends.
In addition, representatives from each of the risk
management and finance staffs that cover business areas
with delinquency-managed portfolios containing smaller-
balance homogeneous loans present their recommended
reserve balances based on leading credit indicators,
including loan delinquencies and changes in portfolio size as
well as economic trends, including current and future
housing prices, unemployment, length of time in foreclosure,
costs to sell and GDP. This methodology is applied
separately for each individual product within each
geographic region in which these portfolios exist.
This evaluation process is subject to numerous estimates
and judgments. The frequency of default, risk ratings, loss
recovery rates, the size and diversity of individual large
credits and the ability of borrowers with foreign currency
obligations to obtain the foreign currency necessary for
orderly debt servicing, among other things, are all taken into
account during this review. Changes in these estimates could
have a direct impact on the credit costs in any period and
could result in a change in the allowance.
Allowance for Unfunded Lending Commitments
A similar approach to the allowance for loan losses is used
for calculating a reserve for the expected losses related to
unfunded lending commitments and standby letters of credit.
This reserve is classified on the balance sheet in Other
liabilities. Changes to the allowance for unfunded lending
commitments are recorded in Provision for unfunded lending
commitments.
Mortgage Servicing Rights
Mortgage servicing rights (MSRs) are recognized as
intangible assets when purchased or when the Company sells
or securitizes loans acquired through purchase or origination
and retains the right to service the loans. Mortgage servicing
rights are accounted for at fair value, with changes in value
recorded in Other revenue in the Company’s Consolidated
Statement of Income.
For additional information on the Company’s MSRs, see
Notes 16 and 21 to the Consolidated Financial Statements.
Goodwill
Goodwill represents the excess of acquisition cost over the
fair value of net tangible and intangible assets acquired in a
business combination. Goodwill is subject to annual
impairment testing 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.
Under ASC Topic 350, Intangibles—Goodwill and
Other, the Company has an option to assess qualitative
factors to determine if it is necessary to perform the goodwill
impairment test. If, after assessing the totality of events or
circumstances, the Company determines that it is not more-
likely-than-not that the fair value of a reporting unit is less
than its carrying amount, no further testing is necessary. If,
however, the Company determines that it is more-likely-
than-not that the fair value of a reporting unit is less than its
carrying amount, then the Company must perform the first
step of the two-step goodwill impairment test.
The Company has an unconditional option to bypass the
qualitative assessment for any reporting unit in any reporting
period and proceed directly to the first step of the goodwill
impairment test.
The first step requires a comparison of the fair value of
the individual reporting unit to its carrying value, including
goodwill. If the fair value of the reporting unit is in excess of
the carrying value, the related goodwill is considered not
impaired and no further analysis is necessary. If the carrying
value of the reporting unit exceeds the fair value, this is an
indication of potential impairment and the second step of
testing is performed to measure the amount of impairment, if
any, for that reporting unit.
If required, the second step involves calculating the
implied fair value of goodwill for each of the affected
reporting units. The implied fair value of goodwill is
determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of
the fair value of the reporting unit determined in step one
over the fair value of the net assets and identifiable
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intangibles as if the reporting unit were being acquired. If
the amount of the goodwill allocated to the reporting unit
exceeds the implied fair value of the goodwill in the pro
forma purchase price allocation, an impairment charge is
recorded for the excess. A recognized impairment charge
cannot exceed the amount of goodwill allocated to a
reporting unit and cannot subsequently be reversed even if
the fair value of the reporting unit recovers.
Upon any business disposition, goodwill is allocated to,
and derecognized with the disposed business based on the
ratio of the fair value of the disposed business to the fair
value of the reporting unit.
Additional information on Citi’s goodwill impairment
testing can be found in Note 16 to the Consolidated
Financial Statements.
Intangible Assets
Intangible assets, including core deposit intangibles, present
value of future profits, purchased credit card relationships,
credit card contract related intangibles, other customer
relationships and other intangible assets, but excluding
MSRs, are amortized over their estimated useful lives.
Intangible assets that are deemed to have indefinite useful
lives, primarily trade names, are not amortized and are
subject to annual impairment tests. An impairment exists if
the carrying value of the indefinite-lived intangible asset
exceeds its fair value. For other intangible assets subject to
amortization, an impairment is recognized if the carrying
amount is not recoverable and exceeds the fair value of the
intangible asset.
Other Assets and Other Liabilities
Other assets include, among other items, loans held-for-sale,
deferred tax assets, equity method investments, interest and
fees receivable, premises and equipment (including
purchased and developed software), repossessed assets and
other receivables. Other liabilities include, among other
items, accrued expenses and other payables, deferred tax
liabilities and reserves for legal claims, taxes, unfunded
lending commitments, repositioning reserves and other
matters.
Other Real Estate Owned and Repossessed Assets
Real estate or other assets received through foreclosure or
repossession are generally reported in Other assets, net of a
valuation allowance for selling costs and subsequent
declines in fair value.
Securitizations
There are two key accounting determinations that must be
made relating to securitizations. Citi first makes a
determination as to whether the securitization entity must be
consolidated. Second, it determines whether the transfer of
financial assets to the entity is considered a sale under
GAAP. If the securitization entity is a VIE, the Company
consolidates the VIE if it is the primary beneficiary (as
discussed in “Variable Interest Entities” above). For all other
securitization entities determined not to be VIEs in which
Citigroup participates, consolidation is based on which party
has voting control of the entity, giving consideration to
removal and liquidation rights in certain partnership
structures. Only securitization entities controlled by
Citigroup are consolidated.
Interests in the securitized and sold assets may be
retained in the form of subordinated or senior interest-only
strips, subordinated tranches, spread accounts and servicing
rights. In credit card securitizations, the Company retains a
seller’s interest in the credit card receivables transferred to
the trusts, which is not in securitized form. In the case of
consolidated securitization entities, including the credit card
trusts, these retained interests are not reported on Citi’s
Consolidated Balance Sheet. The securitized loans remain on
the balance sheet. Substantially all of the consumer loans
sold or securitized through non-consolidated trusts by
Citigroup are U.S. prime residential mortgage loans.
Retained interests in non-consolidated mortgage
securitization trusts are classified as Trading account assets,
except for MSRs, which are included in Mortgage servicing
rights on Citigroup’s Consolidated Balance Sheet.
Debt
Short-term borrowings and Long-term debt are accounted for
at amortized cost, except where the Company has elected to
report the debt instruments, including certain structured
notes at fair value, or the debt is in a fair value hedging
relationship.
Transfers of Financial Assets
For a transfer of financial assets to be considered a sale (i)
the assets must be legally isolated from the Company, even
in bankruptcy or other receivership, (ii) the purchaser must
have the right to pledge or sell the assets transferred or, if the
purchaser is an entity whose sole purpose is to engage in
securitization and asset-backed financing activities through
the issuance of beneficial interests and that entity is
constrained from pledging the assets it receives, each
beneficial interest holder must have the right to sell or
pledge their beneficial interests and (iii) the Company may
not have an option or obligation to reacquire the assets.
If these sale requirements are met, the assets are
removed from the Company’s Consolidated Balance Sheet.
If the conditions for sale are not met, the transfer is
considered to be a secured borrowing, the assets remain on
the Consolidated Balance Sheet and the sale proceeds are
recognized as the Company’s liability. A legal opinion on a
sale generally is obtained for complex transactions or where
the Company has continuing involvement with assets
transferred or with the securitization entity. For a transfer to
be eligible for sale accounting, those opinions must state that
the asset transfer would be considered a sale and that the
assets transferred would not be consolidated with the
Company’s other assets in the event of the Company’s
insolvency.
For a transfer of a portion of a financial asset to be
considered a sale, the portion transferred must meet the
definition of a participating interest. A participating interest
must represent a pro rata ownership in an entire financial
asset; all cash flows must be divided proportionately, with
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the same priority of payment; no participating interest in the
transferred asset may be subordinated to the interest of
another participating interest holder; and no party may have
the right to pledge or exchange the entire financial asset
unless all participating interest holders agree. Otherwise, the
transfer is accounted for as a secured borrowing.
See Note 21 to the Consolidated Financial Statements
for further discussion.
Risk Management Activities—Derivatives Used for
Hedging Purposes
The Company manages its exposures to market movements
outside of its trading activities by modifying the asset and
liability mix, either directly or through the use of derivative
financial products, including interest-rate swaps, futures,
forwards and purchased options, as well as foreign-exchange
contracts. These end-user derivatives are carried at fair value
in Other assets, Other liabilities, Trading account assets and
Trading account liabilities.
See Note 22 to the Consolidated Financial Statements
for a further discussion of the Company’s hedging and
derivative activities.
Employee Benefits Expense
Employee benefits expense includes current service costs of
pension and other postretirement benefit plans (which are
accrued on a current basis), contributions and unrestricted
awards under other employee plans, the amortization of
restricted stock awards and costs of other employee benefits.
For its most significant pension and postretirement benefit
plans (Significant Plans), Citigroup measures and discloses
plan obligations, plan assets and periodic plan expense
quarterly, instead of annually. The effect of remeasuring the
Significant Plan obligations and assets by updating plan
actuarial assumptions on a quarterly basis is reflected in
Accumulated other comprehensive income (loss) and
periodic plan expense. All other plans (All Other Plans) are
remeasured annually. See Note 8 to the Consolidated
Financial Statements.
Stock-Based Compensation
The Company recognizes compensation expense related to
stock and option awards over the requisite service period,
generally based on the instruments’ grant-date fair value,
reduced by actual forfeitures as they occur. Compensation
cost related to awards granted to employees who meet
certain age plus years-of-service requirements (retirement-
eligible employees) is accrued in the year prior to the grant
date, in the same manner as the accrual for cash incentive
compensation. Certain stock awards with performance
conditions or certain clawback provisions are subject to
variable accounting, pursuant to which the associated
compensation expense fluctuates with changes in Citigroup’s
common stock price. See Note 7 to the Consolidated
Financial Statements.
Income Taxes
The Company is subject to the income tax laws of the U.S.
and its states and municipalities, as well as the non-U.S.
jurisdictions in which it operates. These tax laws are
complex and may be subject to different interpretations by
the taxpayer and the relevant governmental taxing
authorities. In establishing a provision for income tax
expense, the Company must make judgments and
interpretations about these tax laws. The Company must also
make estimates about when in the future certain items will
affect taxable income in the various tax jurisdictions, both
domestic and foreign.
Disputes over interpretations of the tax laws may be
subject to review and adjudication by the court systems of
the various tax jurisdictions, or may be settled with the
taxing authority upon examination or audit. The Company
treats interest and penalties on income taxes as a component
of Income tax expense.
Deferred taxes are recorded for the future consequences
of events that have been recognized in financial statements
or tax returns, based upon enacted tax laws and rates.
Deferred tax assets are recognized subject to management’s
judgment about whether realization is more-likely-than-not.
ASC 740, Income Taxes, sets out a consistent framework to
determine the appropriate level of tax reserves to maintain
for uncertain tax positions. This interpretation uses a two-
step approach wherein a tax benefit is recognized if a
position is more-likely-than-not to be sustained. The amount
of the benefit is then measured to be the highest tax benefit
that is more than 50% likely to be realized. ASC 740 also
sets out disclosure requirements to enhance transparency of
an entity’s tax reserves.
On December 22, 2017, the SEC issued Staff
Accounting Bulletin (SAB) 118, which sets forth the
accounting for the changes in tax law caused by the
enactment of the Tax Cuts and Jobs Act (Tax Reform). The
Bulletin provides guidance as to how ASC 740 should be
applied for the quarterly reporting period that includes the
December 22, 2017 enactment date of Tax Reform. SAB 118
covers three different fact patterns that can be applied to
each aspect of Tax Reform. The first is where the accounting
is complete as of December 31, 2017; in this case, a
company must report the effects of Tax Reform in its
financial statements that include the enactment date. The
second situation is where a company cannot complete its
accounting as of December 31, 2017, but can provide a
reasonable estimate based upon the information available to
it and its ability to prepare and analyze this information
(including related computations). In the situation described,
the company must include the reasonable estimate it so
determined in its financial statements as a provisional
amount that will then be trued up within the one-year
measurement period after the date of enactment of Tax
Reform. The third situation, in which no reasonable estimate
can be made for an item, requires a company to apply ASC
740 using the pre-Tax Reform tax law until the first
reporting period in which it can make a reasonable estimate
for the item.
147
To the extent that a company records a provisional
amount in its financial statements, it must update its
reporting during the one-year measurement period whenever
the facts and circumstances existing at the enactment date
are further analyzed. Any company providing provisional
amounts must qualitatively disclose the income tax effects
for which the accounting is incomplete, the reason it is
incomplete and the additional information that is needed to
complete the accounting. In addition, when the company
revises or finalizes its provisional accounting for any item, it
must disclose the nature and amount of any measurement
period adjustments recognized in the reporting period, the
impact of such adjustments on its effective tax rate and a
confirmation when the accounting for such items is
complete.
Citi recorded a charge to continuing operations of $22.6
billion in the fourth quarter of 2017, composed of a $12.4
billion remeasurement due to the reduction to the U.S.
corporate tax rate and a change to a quasi-territorial tax
system, a $7.9 billion valuation allowance against Citi’s FTC
carry-forwards and its U.S. residual DTAs related to its non-
U.S. branches, and a $2.3 billion reduction in Citi’s FTC
carry-forwards related to the deemed repatriation of
undistributed earnings of non-U.S. subsidiaries.
Of the aforementioned amounts, the following are
considered to be provisional for which certain aspects of
Citi’s accounting is incomplete, as described below. First, of
the $12.4 billion, $6.2 billion is provisional as Citi continues
to analyze the aspects of the quasi-territorial tax regime,
particularly as it affects the deferred taxes, including
indefinite reinvestment assertions, for non-U.S. operations,
as well as the interaction with U.S. tax rate reduction. Also
included as provisional is Citi’s state income tax charge for
Tax Reform due to the uncertainty of how states will
interpret the new federal provisions. The remaining $6.2
billion primarily relates to the reduction in the U.S.
corporate tax rate and for which the accounting is complete.
Second, Citi’s reported valuation allowance of $7.9 billion is
a provisional amount, because there is uncertainty under Tax
Reform as to the calculation of the deemed repatriation tax
on non-U.S. subsidiary earnings, which itself is a provisional
amount, and thus the amount of FTC carry-forwards that will
be utilized to offset the resulting tax. In addition, such
valuation allowance is also affected by uncertainty as to the
methodology to be employed to allocate Citi’s FTC carry-
forwards and related overall domestic loss among the
redefined FTC baskets under Tax Reform, as well as related
calculations affecting the usage of its FTCs in future periods.
Transitional guidance is expected from the U.S. Treasury on
these issues. Citi also continues to analyze the effects on the
amount of residual U.S. tax related to its non-U.S. branches.
In all other material respects, Citi has completed its
accounting for Tax Reform, and there are no amounts for
which a reasonable estimate was not possible.
Additionally, Citi has not yet made a policy election
with respect to its treatment of GILTI. Companies can either
account for taxes on GILTI as incurred, or recognize
deferred taxes when basis differences exist that are expected
to impact the amount of the GILTI inclusion upon reversal.
148
Citi is still in the process of analyzing the provisions of Tax
Reform associated with GILTI and the expected future
impact.
See Note 9 to the Consolidated Financial Statements for
a further description of the Company’s tax provision and
related income tax assets and liabilities.
Commissions, Underwriting and Principal Transactions
Commissions revenues are recognized in income when
earned. Underwriting revenues are recognized in income
typically at the closing of the transaction. Principal
transactions revenues are recognized in income on a trade-
date basis. See Note 5 to the Consolidated Financial
Statements for a description of the Company’s revenue
recognition policies for commissions and fees, and Note 6 to
the Consolidated Financial Statements for details of
principal transactions revenue.
Earnings per Share
Earnings per share (EPS) is computed after deducting
preferred stock dividends. The Company has granted
restricted and deferred share awards with dividend rights that
are considered to be participating securities, which are akin
to a second class of common stock. Accordingly, a portion of
Citigroup’s earnings is allocated to those participating
securities in the EPS calculation.
Basic earnings per share is computed by dividing
income available to common stockholders after the
allocation of dividends and undistributed earnings to the
participating securities by the weighted average number of
common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised. It is computed after giving consideration to the
weighted average dilutive effect of the Company’s stock
options and warrants and convertible securities and after the
allocation of earnings to the participating securities. Anti-
dilutive options and warrants are disregarded in the EPS
calculations.
Use of Estimates
Management must make estimates and assumptions that
affect the Consolidated Financial Statements and the related
Notes to the Consolidated Financial Statements. Such
estimates are used in connection with certain fair value
measurements. See Note 24 to the Consolidated Financial
Statements for further discussions on estimates used in the
determination of fair value. Moreover, estimates are
significant in determining the amounts of other-than-
temporary impairments, impairments of goodwill and other
intangible assets, provisions for probable losses that may
arise from credit-related exposures and probable and
estimable losses related to litigation and regulatory
proceedings, and income taxes. While management makes
its best judgment, actual amounts or results could differ from
those estimates.
Cash Flows
Cash equivalents are defined as those amounts included in
Cash and due from banks. Cash flows from risk management
activities are classified in the same category as the related
assets and liabilities.
Related Party Transactions
The Company has related party transactions with certain of
its subsidiaries and affiliates. These transactions, which are
primarily short-term in nature, include cash accounts,
collateralized financing transactions, margin accounts,
derivative transactions, charges for operational support and
the borrowing and lending of funds, and are entered into in
the ordinary course of business.
ACCOUNTING CHANGES
Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income
On February 14, 2018, the Financial Accounting Standards
Board (FASB) issued ASU No. 2018-02, Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive
Income. The ASU allows a reclassification from
Accumulated other comprehensive income (loss) (AOCI) to
Retained earnings for the deferred taxes previously recorded
in AOCI that exceed the current federal tax rate of 21%
resulting from the newly enacted corporate tax rate in the
Tax Cuts and Jobs Act (Tax Reform) and other stranded tax
amounts related to the application of Tax Reform that Citi
elects to reclassify. The ASU allows adjustments to
reclassification amounts in subsequent periods as a result of
changes to the amounts recorded under SAB 118. If adopted,
the ASU is effective in years beginning after December 15,
2018, but permits early adoption in a period for which
financial statements have not yet been issued. Citi has
elected to early adopt the ASU, which affects only the period
that the effects related to Tax Reform are recognized. In
addition to the reclassification of deferred taxes recorded in
AOCI that exceed the current federal tax rate, Citi has also
reclassified amounts recorded in AOCI related to the effects
of the shift to a territorial system related to the application of
Tax Reform using the portfolio method.
The effect of adopting the ASU resulted in an increase
of $3.3 billion to Retained earnings at December 31, 2017
due to the reclassification of AOCI to Retained earnings.
This amount is provisional because more information needs
to be obtained and analyzed related to Tax Reform as noted
above and, thus, the amount to be reclassified
may change in 2018.
Premium Amortization on Purchased Callable Debt
Securities
In March 2017, the FASB issued ASU No. 2017-08,
Receivables—Nonrefundable Fees and Other Costs
(Subtopic 310-20): Premium Amortization on Purchased
Callable Debt Securities, which amends the amortization
period for certain purchased callable debt securities held at a
premium. The ASU requires entities to amortize premiums
on debt securities by the first call date when the securities
have fixed and determinable call dates and prices. The scope
of the ASU includes all accounting premiums, such as
purchase premiums and cumulative fair value hedge
adjustments. The ASU does not change the accounting for
discounts, which continue to be recognized over the
contractual life of a security.
The ASU is effective as of January 1, 2019, but it may
be early adopted in any interim or year-end period after
issuance. Adoption of the ASU is on a modified retrospective
basis through a cumulative effect adjustment to retained
earnings as of the beginning of the year of adoption. Citi
early adopted the ASU in the second quarter of 2017, with an
effective date of January 1, 2017. Adoption of the ASU
primarily affected Citi’s available-for-sale (AFS) and held-
to-maturity (HTM) portfolios of callable state and municipal
securities. The ASU adoption resulted in a net reduction to
total stockholders’ equity of $156 million (after tax),
effective as of January 1, 2017. This amount is composed of
a reduction of approximately $660 million to retained
earnings for the incremental amortization of purchase
premiums and cumulative hedge adjustments generated
under fair value hedges of these callable debt securities,
offset by an increase to AOCI of $504 million related to the
cumulative fair value hedge adjustments reclassified to
retained earnings for AFS securities.
Financial statements for periods prior to 2017 were not
subject to restatement under the provisions of this ASU. The
amortization recorded in each of quarter of 2017 and
cumulatively as of each quarter end under the provisions of
the ASU was not materially different than the amount that
would have been recorded if the ASU had not been early
adopted.
Accounting for Stock-Based Compensation
In March 2016, the FASB issued ASU No. 2016-09,
Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting in order to simplify certain complex aspects of
the accounting for income taxes and forfeitures related to
employee stock-based compensation. The guidance became
effective for Citi beginning on January 1, 2017. Under the
new standard, excess tax benefits and deficiencies related to
employee stock-based compensation are recognized directly
within Income tax expense or benefit in Citi’s Consolidated
Statement of Income, rather than within Additional paid-in
capital. The impact of this change was not material in the
first quarter of 2017 or each subsequent quarterly periods of
2017 as the majority of employees’ deferred stock-based
compensation awards are granted within the first quarter of
each year, and therefore vest within the first quarter of each
year, commensurate with vesting in equal annual
installments. For additional information on these receivables
and payables, see Note 7 to the Consolidated Financial
Statements.
Additionally, as permitted under the new guidance, Citi
made an accounting policy election to account for forfeitures
of awards as they occur, which represents a change from the
previous requirement to estimate forfeitures when
recognizing compensation expense. This change resulted in a
149
cumulative effect adjustment to retained earnings that was
not material at January 1, 2017.
Recognition and Measurement of Financial Assets and
Financial Liabilities
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and
Financial Liabilities, which addresses certain aspects of
recognition, measurement, presentation and disclosure of
financial instruments.
This ASU requires entities to present separately in
AOCI the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific
credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option
for financial instruments. It also requires equity investments
(except those accounted for under the equity method of
accounting or those that result in consolidation of the
investee) to be measured at fair value with changes in fair
value recognized in net income, thus eliminating eligibility
for the current available-for-sale category. However, Federal
Reserve Bank and Federal Home Loan Bank stock, as well
as certain exchange seats, will continue to be presented at
cost. The ASU also introduces a measurement alternative for
non-marketable equity securities.
Citi early adopted only the provisions of this ASU
related to presentation of the change in fair value of
liabilities for which the fair value option was elected, related
to changes in Citigroup’s own credit spreads in AOCI
effective January 1, 2016. Accordingly, since the first quarter
of 2016, these amounts have been reflected as a component
of AOCI, whereas these amounts were previously recognized
in Citigroup’s revenues and net income. The impact of
adopting this amendment resulted in a cumulative catch-up
reclassification from retained earnings to AOCI of an
accumulated after-tax loss of approximately $15 million at
January 1, 2016. Financial statements for periods prior to
2016 were not subject to restatement under the provisions of
this ASU. For additional information, see Notes 19, 24 and
25 to the Consolidated Financial Statements. Citi adopted
the other provisions of ASU 2016-01 on January 1, 2018.
The ASU does not have a significant impact on the
Company’s Consolidated Financial Statements and related
disclosures.
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2. DISCONTINUED OPERATIONS AND SIGNIFICANT DISPOSALS
Summary of Discontinued Operations
The Company’s discontinued operations consisted of residual
activities related to the sales of the Brazil Credicard business
in 2013, the Egg Banking plc Credit Card Business in 2011
and the German Retail Banking business in 2008. All
discontinued operations results are recorded within Corporate/
Other.
The following summarizes financial information for all
discontinued operations:
In millions of dollars
2017
2016
2015
Total revenues, net of interest expense
$ — $ — $ —
Sale of Fixed Income Analytics and Index Business
On August 31, 2017, Citi completed the sale of a fixed income
analytics business (Yield Book) and a fixed income index
business that were part of Markets and Securities Services
within Institutional Clients Group (ICG). As part of the sale,
Citi derecognized total assets of $112 million, including
goodwill of $72 million, while the derecognized liabilities
were $18 million. The transaction generated a pretax gain on
sale of $580 million ($355 million after-tax) recorded in Other
Revenue in ICG during 2017.
Income before taxes for the divested businesses,
excluding the pretax gain on sale, was as follows:
Income (loss) from discontinued
operations
$ (104) $ (80) $
Provision (benefit) for income taxes
7
(22)
(83)
(29)
In millions of dollars
Income before taxes
2017
2016
2015
$
31 $ 55 $ 54
Loss from discontinued operations, net
of taxes
$ (111) $ (58) $
(54)
Cash flows for discontinued operations were not material for
all periods presented.
Significant Disposals
The transactions during 2017, 2016 and 2015 described below
were identified as significant disposals. The major classes of
assets and liabilities derecognized from the Consolidated
Balance Sheet at closing, and the income (loss) before taxes
related to each business until the disposal date, are presented
below.
Sale of Mexico Asset Management Business
On November 27, 2017, Citi entered into an agreement to sell
its Mexico asset management business, which is part of Latin
America GCB. The transaction is expected to result in a pretax
gain on sale at closing, which is anticipated to occur during
the second half of 2018, subject to regulatory approval and
other customary closing conditions. The transaction will also
result in derecognition of approximately $72 million of net
book value, including $32 million of goodwill. Income before
taxes of the business was as follows:
In millions of dollars
Income before taxes
2017
2016
2015
$ 164 $ 155 $ 159
Exit of U.S. Mortgage Service Operations
Citigroup executed agreements during the first quarter of 2017
to effectively exit its direct U.S. mortgage servicing operations
by the end of 2018 to intensify focus on originations. The exit
of the mortgage servicing operations included the sale of
mortgage servicing rights and execution of a subservicing
agreement for the remaining Citi-owned loans and certain
other mortgage servicing rights. As part of this transaction,
Citi has also transferred certain employees.
This transaction, which was part of Corporate/Other,
resulted in a pretax loss of $331 million ($207 million after-
tax) recorded in Other revenue during 2017. The loss on sale
did not include certain other costs and charges related to the
disposed operation recorded primarily in Operating expenses
during 2017, resulting in a total pretax loss of $382 million. As
part of the completed sale, during 2017, Citi derecognized a
total of $1,162 million of servicing-related assets, including
$1,046 million of mortgage servicing rights, related to
approximately 750,000 Fannie Mae and Freddie Mac held
loans with outstanding balances of approximately $93 billion.
Excluding the loss on sale and the additional charges, income
before taxes for the disposed operation was immaterial for
2017, 2016 and 2015.
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Sale of Japan Cards Business
On December 14, 2015, Citi sold its Japan cards business,
which was part of Corporate/Other, including $1,350 million
of consumer loans (net of allowance), approximately 720,000
customer accounts and 840 employees. The transaction
generated a pretax gain on sale of $180 million, recorded in
Other revenue ($155 million after-tax) in 2015.
Loss before taxes, excluding the pretax gain on sale, was
as follows:
In millions of dollars
Loss before taxes
2017
2016
2015
$ — $ — $
(5)
Sale of Japan Retail Banking Business
On November 1, 2015, Citi sold its Japan retail banking
business, which was part of Corporate/Other, including $563
million of consumer loans (net of allowance), $20 billion of
deposits, approximately 725,000 customer accounts, 1,600
employees and 32 branches. The transaction generated a
pretax gain on sale of $446 million, recorded in Other revenue
($276 million after-tax) in 2015.
Loss before taxes, excluding the pretax gain on sale, was
as follows:
In millions of dollars
Loss before taxes
2017
2016
2015
$ — $ — $ (57)
Sale of CitiFinancial Canada Consumer Finance Business
On March 31, 2017, Citi completed the sale of CitiFinancial
Canada (CitiFinancial), which was part of Corporate/Other,
and included 220 retail branches and approximately 1,400
employees. As part of the sale, Citi derecognized total assets
of approximately $1.9 billion, including $1.7 billion consumer
loans (net of allowance), and total liabilities of approximately
$1.5 billion related to intercompany borrowings, which were
settled at closing of the transaction. Separately, during 2017
and prior to closing of the transaction, CitiFinancial settled
$0.4 billion of debt issued through loan securitizations. The
sale of CitiFinancial generated a pretax gain on sale of $350
million recorded in Other revenue ($178 million after-tax)
during 2017.
Income before taxes, excluding the pretax gain on sale,
was as follows:
In millions of dollars
Income before taxes
2017
2016
2015
$
41 $ 139 $ 118
Novation of the Primerica 80% Coinsurance Agreement
Effective January 1, 2016, Citi completed a novation (an
arrangement that extinguishes Citi’s rights and obligations
under a contract) of the Primerica 80% coinsurance
agreement, which was recorded in Corporate/Other, to a third-
party re-insurer. The novation resulted in revenues of $404
million recorded in Other revenue ($263 million after-tax)
during 2016. Furthermore, the novation resulted in
derecognition of $1.5 billion of available-for-sale securities
and cash, $0.95 billion of deferred acquisition costs and $2.7
billion of insurance liabilities.
Income before taxes, excluding the revenue upon
novation, was as follows:
In millions of dollars
Income before taxes
2017
2016
2015
$ — $ — $ 135
Sale of OneMain Financial Business
On November 15, 2015, Citi sold OneMain Financial
(OneMain), which was part of Corporate/Other, including
1,100 retail branches, 5,500 employees and approximately 1.3
million customer accounts. OneMain had approximately $10.2
billion of assets, including $7.8 billion of loans (net of
allowance), and $1.4 billion of available-for-sale securities.
OneMain also had $8.4 billion of liabilities, including $6.2
billion of long-term debt and $1.1 billion of short-term
borrowings. The transaction generated a pretax gain on sale of
$2.6 billion, recorded in Other revenue ($1.6 billion after-tax)
in 2015. However, when combined with the loss on
redemption of certain long-term debt supporting certain
Corporate/Other assets during the fourth quarter of 2015, the
resulting net after-tax gain was $0.8 billion.
Income before taxes, excluding the pretax gain on sale
and loss on redemption of debt, was as follows:
In millions of dollars
Income before taxes
2017
2016
2015
$ — $ — $ 663
152
3. BUSINESS SEGMENTS
Citigroup’s activities are conducted through the following
business segments: Global Consumer Banking (GCB)
and Institutional Clients Group (ICG). In addition, Corporate/
Other includes activities not assigned to a specific business
segment as well as certain North America and international
loan portfolios, other legacy assets and discontinued
operations.
The business segments are determined based on products
and services provided or type of customers served, of which
those identified as non-core are recorded in Corporate/Other
and are reflective of how management currently evaluates
financial information to make business decisions.
GCB includes a global, full-service consumer franchise
delivering a wide array of banking, including commercial
banking, credit card lending and investment services through a
network of local branches, offices and electronic delivery
systems and is composed of three GCB businesses: North
America, Latin America and Asia (including consumer
banking activities in certain EMEA countries).
ICG is composed of Banking and Markets and securities
services and provides corporate, institutional, public sector
and high-net-worth clients in 97 countries and jurisdictions
with a broad range of banking and financial products and
services.
Corporate/Other includes certain unallocated costs of
global functions, other corporate expenses and net treasury
results, unallocated corporate expenses, offsets to certain line-
item reclassifications and eliminations, the results of certain
North America and international legacy loan portfolios,
discontinued operations and unallocated taxes.
The accounting policies of these reportable segments are
the same as those disclosed in Note 1 to the Consolidated
Financial Statements.
The prior-period balances reflect reclassifications to
conform the presentation for all periods to the current period’s
presentation. Financial data was reclassified to reflect:
•
•
•
•
the reporting of the remaining businesses and portfolios of
assets of Citi Holdings as part of Corporate/Other (prior
to the first quarter of 2017, Citi Holdings was a separately
reported business segment);
the re-attribution of certain treasury-related costs between
Corporate/Other, GCB and ICG;
the re-attribution of regional revenues within ICG; and
certain other immaterial reclassifications.
Citi’s consolidated results remain unchanged for all periods
presented as a result of the changes and reclassifications
discussed above.
The following table presents certain information
regarding the Company’s continuing operations by segment:
Revenues,
net of interest expense(1)
Provision (benefits)
for income taxes(2)
Income (loss) from
continuing operations(2)(3)
Identifiable assets
In millions of dollars, except
identifiable assets in billions
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
3,320 $ 2,655 $
3,369 $
3,893 $ 4,954 $
6,214 $
429 $
412
Global Consumer Banking $ 32,697 $ 31,519 $ 32,251 $
Institutional Clients
Group
33,227
35,667
33,332
Corporate/Other
3,085
5,129
10,771
19,060
(471)
(102)
(19,586)
7,008
4,260
4,173
9,066
9,525
554
9,110
2,062
1,336
77
1,277
103
Total
$ 71,449 $ 69,875 $ 76,354 $ 29,388 $ 6,444 $
7,440 $ (6,627) $ 15,033 $ 17,386 $
1,842 $
1,792
(1) Includes total revenues, net of interest expense (excluding Corporate/Other), in North America of $33.9 billion, $32.2 billion and $32.2 billion; in EMEA of $10.7
billion, $9.9 billion and $9.8 billion; in Latin America of $9.4 billion, $8.9 billion and $9.7 billion; and in Asia of $14.4 billion, $13.7 billion and $13.9 billion in
2017, 2016 and 2015, respectively.
(2) Corporate/Other, GCB and ICG 2017 results include the impact of Tax Reform. See Notes 1 and 9 to the Consolidated Financial Statements.
(3) Includes pretax provisions for credit losses and for benefits and claims in the GCB results of $7.6 billion, $6.4 billion and $5.5 billion; in the ICG results of ($15)
million, $486 million and $962 million; and in Corporate/Other results of ($175) million, $69 million and $1.5 billion in 2017, 2016 and 2015, respectively.
153
4. INTEREST REVENUE AND EXPENSE
Interest revenue and Interest expense consisted of the following:
In millions of dollars
Interest revenue
Loan interest, including fees
Deposits with banks
Federal funds sold and securities borrowed or purchased under agreements to resell
Investments, including dividends
Trading account assets(1)
Other interest(2)
Total interest revenue
Interest expense
Deposits(3)
Federal funds purchased and securities loaned or sold under agreements to repurchase
Trading account liabilities(1)
Short-term borrowings
Long-term debt
Total interest expense
Net interest revenue
Provision for loan losses
Net interest revenue after provision for loan losses
2017
2016
2015
$
41,361 $
39,752 $
40,510
1,635
3,248
8,295
5,502
1,163
971
2,543
7,582
5,738
1,029
727
2,516
7,017
5,942
1,839
61,204 $
57,615 $
58,551
6,586 $
2,661
638
1,059
5,573
16,517 $
44,687 $
7,503
5,300 $
1,912
410
477
4,412
12,511 $
45,104 $
6,749
37,184 $
38,355 $
5,052
1,612
217
523
4,517
11,921
46,630
7,108
39,522
$
$
$
$
$
Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue from Trading account assets.
(1)
(2) During 2015, interest earned related to assets of significant disposals (primarily OneMain Financial) was reclassified to Other interest.
(3)
Includes deposit insurance fees and charges of $1,249 million, $1,145 million and $1,118 million for 2017, 2016 and 2015, respectively.
154
5. COMMISSIONS AND FEES
The primary components of Citi’s Commissions and fees
revenue are investment banking fees, trading-related fees, fees
related to trade and securities services in ICG and credit card
and bank card fees.
Investment banking fees are substantially composed of
underwriting and advisory revenues and are recognized when
Citigroup’s performance under the terms of a contractual
arrangement is completed, which is typically at the closing of
a transaction. Underwriting revenue is recorded in
Commissions and fees, net of both reimbursable and non-
reimbursable expenses, consistent with the AICPA 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; sales of mutual
funds 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).
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. Annual card fees 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.
Insurance premiums consists of premium income from
insurance policies which Citi has underwritten and sold to
policyholders. Insurance distribution revenue consists of
commissions earned from third party insurance companies for
marketing and selling insurance policies on behalf of such
entities.
The following table presents Commissions and fees
revenue:
In millions of dollars
Investment banking
Trading-related
Trade and securities services
Credit cards and bank cards
Corporate finance(1)
Other consumer(2)
Insurance distribution revenue(3)
Insurance premiums (3)
Checking-related
Loan servicing
Other
Total commissions and fees
2017
2016
2015
$
3,613 $
2,847 $
3,015
1,632
1,510
713
703
514
122
478
312
327
2,799
1,564
1,324
686
659
548
288
467
325
431
3,423
3,138
1,735
1,786
493
685
621
1,224
497
404
479
$
12,939 $
11,938 $
14,485
(1) Consists primarily of fees earned from structuring and underwriting loan syndications.
(2) Primarily consists of fees for investment fund administration and management, third-party collections, commercial demand deposit accounts and certain credit
card services.
Insurance premiums were previously separately reported on the Consolidated Statement of Income.
(3)
155
6. PRINCIPAL TRANSACTIONS
Citi’s 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
that are managed on a portfolio basis characterized by primary
risk. 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. For additional
information regarding Principal transactions revenue, see
Note 4 to the Consolidated Financial Statements for
information about net interest revenue related to trading
activities. Principal transactions include CVA (credit valuation
adjustments on derivatives), FVA (funding valuation
adjustments) on over-the-counter derivatives and, prior to
2016, DVA (debt valuation adjustments on issued liabilities for
which the fair value option has been elected). These
adjustments are discussed further in Note 24 to the
Consolidated Financial Statements.
The following table presents Principal transactions
revenue:
In millions of dollars
Global Consumer Banking(1)
Institutional Clients Group
Corporate/Other(1)
Total Citigroup
Interest rate risks(2)
Foreign exchange risks(3)
Equity risks(4)
Commodity and other risks(5)
Credit products and risks(6)
Total
2017
2016
2015
$
$
$
$
570 $
7,740
858
9,168 $
5,124 $
2,488
491
294
771
629 $
7,335
(379)
7,585 $
4,115 $
1,726
189
806
749
9,168 $
7,585 $
577
5,824
(393)
6,008
3,798
1,532
331
750
(403)
6,008
(1) Primarily relates to foreign exchange risks.
(2)
Includes revenues from government securities and corporate debt, municipal securities, mortgage securities and other debt instruments. Also includes spot and
forward trading of currencies and exchange-traded and over-the-counter (OTC) currency options, options on fixed income securities, interest rate swaps, currency
swaps, swap options, caps and floors, financial futures, OTC options and forward contracts on fixed income securities.
Includes revenues from foreign exchange spot, forward, option and swap contracts, as well as foreign currency translation (FX translation) gains and losses.
Includes revenues from common, preferred and convertible preferred stock, convertible corporate debt, equity-linked notes and exchange-traded and OTC equity
options and warrants.
(3)
(4)
(5) Primarily includes revenues from crude oil, refined oil products, natural gas and other commodities trades.
(6)
Includes revenues from structured credit products.
156
7. INCENTIVE PLANS
Discretionary Annual Incentive Awards
Citigroup grants immediate cash bonus payments and various
forms of immediate and deferred awards as part of its
discretionary annual incentive award program involving a
large segment of Citigroup’s employees worldwide. Most of
the shares of common stock issued by Citigroup as part of its
equity compensation programs are to settle the vesting of the
stock components of these awards.
Discretionary annual incentive awards are generally
awarded in the first quarter of the year based upon the
previous year’s performance. Awards valued at less than U.S.
$100,000 (or the local currency equivalent) are generally paid
entirely in the form of an immediate cash bonus. Pursuant to
Citigroup policy and/or regulatory requirements, certain
employees and officers are subject to mandatory deferrals of
incentive pay and generally receive 25% to 60% of their
awards in a combination of restricted or deferred stock,
deferred cash stock units, or deferred cash. Discretionary
annual incentive awards to many employees in the EU are
subject to deferral requirements regardless of the total award
value, with 50% of the immediate incentive delivered in the
form of a stock payment or stock unit award subject to a
restriction on sale or transfer or hold back (generally, for
twelve months).
Deferred annual incentive awards may be delivered in the
form of one or more award types—a restricted or deferred
stock award under Citi’s Capital Accumulation Program
(CAP), or a deferred cash stock unit award and/or a deferred
cash award under Citi’s Deferred Cash Award Plan. The
applicable mix of awards may vary based on the employee’s
minimum deferral requirement and the country of
employment.
Subject to certain exceptions (principally, for retirement-
eligible employees), continuous employment within Citigroup
is required to vest in CAP, deferred cash stock unit and
deferred cash awards. Post employment vesting by retirement-
eligible employees and participants who meet other conditions
is generally conditioned upon their refraining from
competition with Citigroup during the remaining vesting
period, unless the employment relationship has been
terminated by Citigroup under certain conditions.
Generally, the deferred awards vest in equal annual
installments over three- or four-year periods. Vested CAP
awards are delivered in shares of common stock. Deferred
cash awards are payable in cash and, except as prohibited by
applicable regulatory guidance, earn a fixed notional rate of
interest that is paid only if and when the underlying principal
award amount vests. Deferred cash stock unit awards are
payable in cash at the vesting value of the underlying stock.
Generally, in the EU, vested CAP shares are subject to a
restriction on sale or transfer after vesting, and vested deferred
cash awards and deferred cash stock units are subject to hold
back (generally, for twelve months in each case).
Unvested CAP, deferred cash stock units and deferred
cash awards are subject to one or more clawback provisions
that apply in certain circumstances, including gross
misconduct. CAP and deferred cash stock unit awards, made
157
to certain employees, are subject to a formulaic performance-
based vesting condition pursuant to which amounts otherwise
scheduled to vest will be reduced based on the amount of any
pretax loss in the participant’s business in the calendar year
preceding the scheduled vesting date. A minimum reduction of
20% applies for the first dollar of loss for CAP and deferred
cash stock unit awards.
In addition, deferred cash awards are subject to a
discretionary performance-based vesting condition under
which an amount otherwise scheduled to vest may be reduced
in the event of a “material adverse outcome” for which a
participant has “significant responsibility.” These awards are
also subject to an additional clawback provision pursuant to
which unvested awards may be canceled if the employee
engaged in misconduct or exercised materially imprudent
judgment, or failed to supervise or escalate the behavior of
other employees who did.
Sign-on and Long-Term Retention Awards
Stock awards and deferred cash awards may be made at
various times during the year as sign-on awards to induce new
hires to join Citi or to high-potential employees as long-term
retention awards.
Vesting periods and other terms and conditions pertaining
to these awards tend to vary by grant. Generally, recipients
must remain employed through the vesting dates to vest in the
awards, except in cases of death, disability or involuntary
termination other than for gross misconduct. These awards do
not usually provide for post-employment vesting by
retirement-eligible participants.
Outstanding (Unvested) Stock Awards
A summary of the status of unvested stock awards granted as
discretionary annual incentive or sign-on and long-term
retention awards is presented below:
Unvested stock awards
Shares
Weighted-
average grant
date fair
value per
share
Unvested at December 31, 2016
Granted(1)
Canceled
Vested(2)
Unvested at December 31, 2017
42,672,176 $
13,914,752
(1,335,297)
(18,320,591)
36,931,040 $
43.24
59.12
47.29
45.63
47.89
(1) The weighted-average fair value of the shares granted during 2016 and
2015 was $37.35 and $50.33, respectively.
(2) The weighted-average fair value of the shares vesting during 2017 was
approximately $57.45 per share.
Total unrecognized compensation cost related to unvested
stock awards was $530 million at December 31, 2017. The
cost is expected to be recognized over a weighted-average
period of 1.6 years.
A summary of the performance share unit activity for
2017 is presented below:
Performance Share Units
Units
Weighted-
average grant
date fair
value per unit
Outstanding, beginning of period
Granted(1)
Canceled
Payments
1,844,560 $
500,609
(277,546)
(280,897)
Outstanding, end of period
1,786,726 $
38.22
59.22
48.34
48.34
40.94
(1) The weighted-average grant date fair value per unit awarded in 2016 and
2015 was $27.03 and $44.07, respectively.
PSUs granted in 2015 and 2017 were equitably adjusted
after the enactment of Tax Reform, as required under the terms
of those awards. The adjustments were intended to reproduce
the expected value of the awards immediately prior to the
passage of Tax Reform.
Stock Option Programs
All outstanding stock options are fully vested with the related
expense recognized as a charge to income in prior periods.
Generally, the stock options outstanding have a six-year term,
with some stock options subject to various transfer
restrictions. Cash received from employee stock option
exercises under this program for the year ended December 31,
2017 was approximately $14 million.
Performance Share Units
Certain executive officers were awarded a target number of
performance share units (PSUs) each February from 2014 to
2017, for performance in the year prior to the award date. For
grants prior to 2016, PSUs will be earned only to the extent
that Citigroup attains specified performance goals relating to
Citigroup’s return on assets and relative total shareholder
return against peers over the three-year period beginning with
the year of award. The actual dollar amounts ultimately earned
could vary from zero, if performance goals are not met, to as
much as 150% of target, if performance goals are
meaningfully exceeded.
The PSUs granted in February 2016 are earned over a
three-year performance period based on Citigroup’s relative
total shareholder return as compared to peers. The actual
dollar amounts ultimately earned could vary from zero, if
performance goals are not met, to as much as 150% of target,
if performance goals are meaningfully exceeded.
The PSUs granted in February 2017 are earned over a
three-year performance period based half on return on tangible
common equity performance in 2019, and the remaining half
on cumulative earnings per share over 2017 to 2019.
For the PSUs awarded in 2016 and 2017, if the total
shareholder return is negative over the three-year performance
period, executives may earn no more than 100% of the target
PSUs, regardless of the extent to which Citi outperforms peer
firms.
For all award years, the value of each PSU is equal to the
value of one share of Citi common stock. Dividend
equivalents will be accrued and paid on the number of earned
PSUs after the end of the performance period.
PSUs are subject to variable accounting, pursuant to
which the associated value of the award will fluctuate with
changes in Citigroup’s stock price and the attainment of the
specified performance goals for each award, until the award is
settled solely in cash after the end of the performance period.
The value of the award, subject to the performance goals, is
estimated using a simulation model that incorporates multiple
valuation assumptions, including the probability of achieving
the specified performance goals of each award. The risk-free
rate used in the model is based on the applicable U.S. Treasury
yield curve. Other significant assumptions for the awards are
as follows:
Valuation Assumptions
2017
2016
2015
Expected volatility
Expected dividend yield
25.79% 24.37% 27.13%
1.30% 0.40%
0.08%
158
Information with respect to stock option activity under Citigroup’s stock option programs is shown below:
2017
Weighted-
average
exercise
price
Options
Intrinsic
value
per share
Options
2016
Weighted-
average
exercise
price
Intrinsic
value
per share
Options
2015
Weighted-
average
exercise
price
Intrinsic
value
per share
Outstanding, beginning of
period
1,527,396 $
131.78 $
Canceled
Expired
Exercised
—
—
—
—
—
—
—
6,656,588 $
67.92 $
— 26,514,119 $
48.00 $
6.11
(25,334)
(2,613,909)
40.80
48.80
49.10
—
—
(7,901)
(1,646,581)
6.60
(18,203,048)
40.80
40.85
41.39
—
—
13.03
(388,583)
43.35
15.67
(2,489,949)
Outstanding, end of period
1,138,813 $
161.96 $
—
1,527,396 $ 131.78 $
—
6,656,588 $
67.92 $
—
Exercisable, end of period
1,138,813
1,527,396
6,656,588
The following table summarizes information about stock options outstanding under Citigroup’s stock option programs at
December 31, 2017:
Range of exercise prices
$39.00—$99.99
$100.00—$199.99
$200.00—$299.99
$300.00—$399.99
Options outstanding
Options exercisable
Number
outstanding
Weighted-average
contractual life
remaining
Weighted-average
exercise price
Number
exercisable
Weighted-average
exercise price
312,309
502,416
124,088
200,000
3.0 years $
1.0 year
0.1 years
0.1 years
43.56
147.13
240.28
335.50
161.96
312,309 $
502,416
124,088
200,000
1,138,813 $
43.56
147.13
240.28
335.50
161.96
Total at December 31, 2017
1,138,813
1.3 years $
Other 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.
Participation in these plans is generally limited to employees
who are not eligible for discretionary annual incentive awards.
Other forms of variable compensation include monthly
commissions paid to Financial Advisors and Mortgage Loan
Officers.
Summary
Except for awards subject to variable accounting, the total
expense recognized for stock awards represents the grant date
fair value of such awards, which is generally recognized as a
charge to income ratably over the vesting period, other than
for awards to retirement-eligible employees and immediately
vested awards. Whenever awards are made or are expected to
be made to retirement-eligible employees, the charge to
income is accelerated based on when the applicable conditions
to retirement eligibility were or will be met. If the employee is
retirement eligible on the grant date, or the award is vested at
grant date, the entire expense is recognized in the year prior to
grant.
Recipients of Citigroup stock awards generally do not
have any stockholder rights until shares are delivered upon
vesting or exercise, or after the expiration of applicable
required holding periods. Recipients of restricted or deferred
stock awards and deferred cash stock unit awards, however,
may, except as prohibited by applicable regulatory guidance,
159
be entitled to receive dividends or dividend-equivalent
payments during the vesting period. Recipients of restricted
stock awards generally are 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.
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, which is
composed entirely of independent non-employee directors.
At December 31, 2017, approximately 39.2 million shares
of Citigroup common stock were authorized and available for
grant under Citigroup’s 2014 Stock Incentive Plan, the only
plan from which equity awards are currently granted.
The 2014 Stock Incentive Plan and predecessor plans
permit the use of treasury stock or newly issued shares in
connection with awards granted under the plans. Newly issued
shares were distributed to settle the vesting of the majority of
annual deferred stock awards from 2012 to 2015. Treasury
shares were used to settle vestings in 2016 and 2017, and the
first quarter of 2018, except where local laws favor newly
issued shares. The use of treasury stock or newly issued shares
to settle stock awards does not affect the compensation
expense recorded in the Consolidated Statement of Income for
equity awards.
Incentive Compensation Cost
The following table shows components of compensation
expense, relating to certain of the above incentive
compensation programs:
In millions of dollars
2017
2016
2015
Charges for estimated awards to
retirement-eligible employees
Amortization of deferred cash
awards, deferred cash stock units and
performance stock units
Immediately vested stock award
expense(1)
Amortization of restricted and
deferred stock awards(2)
Other variable incentive
compensation
$
659 $
555 $
541
354
336
325
70
474
694
73
509
710
61
461
773
Total
$ 2,251 $ 2,183 $ 2,161
(1) Represents expense for immediately vested stock awards that generally
were stock payments in lieu of cash compensation. The expense is
generally accrued as cash incentive compensation in the year prior to
grant.
(2) All periods include amortization expense for all unvested awards to non-
retirement-eligible employees.
Future Expenses Associated with Outstanding (Unvested)
Awards
Citi expects to record compensation expense in future periods
as a result of awards granted for performance in 2017 and
prior years. Because the awards contain service or other
conditions that will be satisfied in the future, the expense of
these already-granted awards is recognized over those future
periods. The portion of these awards that is subject to variable
accounting will cause the expense amount to fluctuate with
changes in Citigroup’s common stock price. Citi's expected
future expenses, excluding the impact of forfeitures,
cancelations, clawbacks and repositioning-related
accelerations that have not yet occurred, are summarized in
the table below:
In millions of dollars
Awards granted in 2017 and prior:
2018
2019
2020
2021 and
beyond(1)
Total
38
94
170
Deferred stock awards $ 276 $ 146 $ 67 $
Deferred cash awards
Future expense related
to awards already
granted
Future expense related
to awards granted in
2018(2)
Total
$ 238 $ 185 $ 148 $
$ 684 $ 425 $ 253 $
$ 446 $ 240 $ 105 $
11 $
8
500
310
19 $
810
682
111 $
130 $ 1,492
(1) Principally 2021.
(2) Refers to awards granted on or about February 15, 2018, as part of Citi's
discretionary annual incentive awards for services performed in 2017.
160
8. RETIREMENT BENEFITS
Pension and Postretirement Plans
The Company has several non-contributory defined benefit
pension plans covering certain U.S. employees and has various
defined benefit pension and termination indemnity plans
covering employees outside the U.S.
The U.S. qualified defined benefit plan was frozen
effective January 1, 2008 for most employees. Accordingly, no
additional compensation-based contributions have been
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
U.S.
The Company also sponsors a number of non-contributory,
nonqualified pension plans. These plans, which are unfunded,
provide supplemental defined pension benefits to certain U.S.
employees. With the exception of certain employees covered
under the prior final pay plan formula, the benefits under these
plans were frozen in prior years.
The plan obligations, plan assets and periodic plan expense
for the Company’s most significant pension and postretirement
benefit plans (Significant Plans) are measured and disclosed
quarterly, instead of annually. The Significant Plans captured
approximately 90% of the Company’s global pension and
postretirement plan obligations as of December 31, 2017. All
other plans (All Other Plans) are measured annually with a
December 31 measurement date.
Net (Benefit) Expense
The following table summarizes the components of net
(benefit) expense recognized in the Consolidated Statement of
Income for the Company’s pension and postretirement plans,
for Significant Plans and All Other Plans:
In millions of dollars
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
Pension plans
Postretirement benefit plans
U.S. plans
Non-U.S. plans
U.S. plans
Non-U.S. plans
Benefits earned during the year
$
3 $
4 $
6 $
153 $
154 $
168 $ — $ — $ — $
9 $
10 $
33
(3)
101
(89)
12
108
94
(86)
(105)
(10)
(10)
(11)
—
—
—
—
35
—
—
30
—
—
43
(1)
—
46
Interest cost on benefit obligation
533
548
581
295
282
317
Expected return on plan assets
(865)
(886)
(893)
(299)
(287)
(323)
Amortization of unrecognized
Prior service (benefit) cost
Net actuarial loss
Curtailment loss (gain)(1)
Settlement loss (1)
2
173
6
—
2
169
13
—
1
148
14
—
(3)
61
—
12
(1)
69
(2)
6
2
73
—
44
26
(6)
—
—
—
—
25
(9)
—
(1)
—
—
Total net (benefit) expense
$ (148) $ (150) $ (143) $
219 $
221 $
281 $
20 $
15 $
30 $
46 $
38 $
(1) Losses and gains due to curtailment and settlement benefits relate to repositioning and divestiture actions.
The estimated net actuarial loss and prior service (benefit) cost
that will be amortized from Accumulated other comprehensive
income (loss) into net expense in 2018 are approximately $241
million and $(2) million, respectively, for defined benefit
pension plans.
For postretirement plans, the estimated 2018 net actuarial
loss and prior service (benefit) cost amortizations are
approximately $28 million and $(9) million, respectively.
161
Contributions
The Company’s funding practice for U.S. and non-U.S. pension
and postretirement 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 required
minimum cash contributions for 2017 or 2016.
The following table summarizes the actual Company
contributions for the years ended December 31, 2017 and 2016,
as well as estimated expected Company contributions for 2018.
Expected contributions are subject to change, since contribution
decisions are affected by various factors, such as market
performance, tax considerations and regulatory requirements.
In millions of dollars
U.S. plans(2)
2017
2018
Pension plans(1)
Non-U.S. plans
Postretirement benefit plans(1)
U.S. plans
Non-U.S. plans
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
Contributions made by the Company
$ — $
50 $ 500 $
79 $
90 $
82 $ — $ 140 $ — $
4 $
4 $
Benefits paid directly by the Company
60
55
56
49
45
44
6
36
6
6
5
4
5
(1) Amounts reported for 2018 are expected amounts.
(2) The U.S. pension plans include benefits paid directly by the Company for the nonqualified pension plans.
Funded Status and Accumulated Other Comprehensive Income
The following tables summarize the funded status and amounts recognized in the Consolidated Balance Sheet for the Company’s
pension and postretirement plans:
In millions of dollars
U.S. plans
Non-U.S. plans
U.S. plans
Non-U.S. plans
2017
2016
2017
2016
2017
2016
2017
2016
Pension plans
Postretirement benefit plans
Change in projected benefit obligation
Projected benefit obligation at beginning of year
$ 14,000 $ 13,943 $
6,522 $
6,534 $
686 $
817 $
1,141 $
1,291
Benefits earned during the year
Interest cost on benefit obligation
Plan amendments
Actuarial loss (gain)
Benefits paid, net of participants’ contributions and
government subsidy
Divestitures
Settlement gain(1)
Curtailment (gain) loss(1)
Foreign exchange impact and other(2)
Projected benefit obligation at year end
3
533
—
536
4
548
—
367
(769)
(780)
—
—
6
—
—
13
(269)
(95)
153
295
4
127
(278)
(29)
(192)
(3)
834
154
282
(28)
589
—
26
—
43
—
25
—
(105)
(324)
(56)
(51)
(22)
(38)
(15)
(610)
—
—
—
—
—
—
—
—
9
101
—
19
(64)
(4)
—
—
59
10
94
—
3
(59)
—
—
(4)
(194)
$ 14,040 $ 14,000 $
7,433 $
6,522 $
699 $
686 $
1,261 $
1,141
(1) Curtailment and settlement (gains) losses relate to repositioning and divestiture activities.
(2) With respect to the U.S. Plan, de-risking activities during 2017 resulted in a reduction to plan obligations and assets.
162
In millions of dollars
Change in plan assets
Pension plans
Postretirement benefit plans
U.S. plans
Non-U.S. plans
U.S. plans
Non-U.S. plans
2017
2016
2017
2016
2017
2016
2017
2016
Plan assets at fair value at beginning of year
$ 12,363 $ 12,137 $
6,149 $
6,104 $
129 $
166 $
1,015 $
1,133
Actual return on plan assets
Company contributions
Divestitures
Settlements
Benefits paid, net of participants’ contributions and
government subsidy
Foreign exchange impact and other(1)
Plan assets at fair value at year end
1,295
105
—
—
572
556
—
—
(769)
(269)
(779)
(123)
462
135
(31)
(192)
(278)
883
967
126
(5)
(38)
(324)
(681)
13
176
—
—
(56)
—
8
6
—
—
(51)
—
113
9
—
—
(64)
46
122
9
—
—
(59)
(190)
$ 12,725 $ 12,363 $
7,128 $
6,149 $
262 $
129 $
1,119 $
1,015
Funded status of the plans
Qualified plans(2)
Nonqualified plans(3)
Funded status of the plans at year end
Net amount recognized
Qualified plans
Benefit asset
Benefit liability
Qualified plans
Nonqualified plans
$
(565) $
(908) $
(305) $
(373) $
(437) $
(557) $
(142) $
(126)
(750)
(729)
—
—
—
—
—
—
$ (1,315) $ (1,637) $
(305) $
(373) $
(437) $
(557) $
(142) $
(126)
$
$
— $
— $
900 $
711 $
— $
— $
181 $
(565)
(908)
(1,205)
(1,084)
(437)
(557)
(323)
(565) $
(908) $
(305) $
(373) $
(437) $
(557) $
(142) $
(750)
(729)
—
—
—
—
—
166
(292)
(126)
—
Net amount recognized on the balance sheet
$ (1,315) $ (1,637) $
(305) $
(373) $
(437) $
(557) $
(142) $
(126)
Amounts recognized in Accumulated other
comprehensive income (loss)
Net transition obligation
Prior service benefit
Net actuarial gain (loss)
$
— $
— $
(15)
(17)
(1) $
22
29
(6,823)
(6,891)
(1,318)
(1,302)
(1) $
— $
— $
— $
—
72
—
106
92
(382)
Net amount recognized in equity (pretax)
$ (6,838) $ (6,908) $ (1,297) $ (1,274) $
72 $
106 $
(290) $
—
98
(399)
(301)
Accumulated benefit obligation at year end
$ 14,034 $ 13,994 $
7,038 $
6,090 $
699 $
686 $
1,261 $
1,141
(1) With respect to the U.S. Plan, de-risking activities during 2017 resulted in a reduction to plan obligations and assets.
(2) The U.S. qualified pension plan is fully funded under specified Employee Retirement Income Security Act (ERISA) funding rules as of January 1, 2018 and no
minimum required funding is expected for 2018.
(3) The nonqualified plans of the Company are unfunded.
163
The following table shows the change in Accumulated other comprehensive income (loss) related to the Company’s pension,
postretirement and post employment plans:
In millions of dollars
Beginning of year balance, net of tax(1)(2)
Actuarial assumptions changes and plan experience
Net asset gain (loss) due to difference between actual and expected returns
Net amortizations
Prior service (cost) credit
Curtailment/settlement gain(3)
Foreign exchange impact and other
Impact of Tax Reform(4)
Change in deferred taxes, net
Change, net of tax
End of year balance, net of tax(1)(2)
2017
2016
2015
$
(5,164) $
(5,116) $
(760)
625
229
(4)
17
(93)
(1,020)
(13)
(1,019) $
(6,183) $
(854)
400
232
28
17
99
—
30
(48) $
(5,164) $
$
$
(5,159)
898
(1,457)
236
(6)
57
291
—
24
43
(5,116)
Includes net-of-tax amounts for certain profit sharing plans outside the U.S.
(1) See Note 19 to the Consolidated Financial Statements for further discussion of net Accumulated other comprehensive income (loss) balance.
(2)
(3) Curtailment and settlement gains broadly relate to repositioning and divestiture activities.
(4)
In the fourth quarter of 2017, Citi adopted ASU 2018-02, which transferred these amounts from AOCI to Retained earnings. See Note 1 to the Consolidated Financial
Statements.
At December 31, 2017 and 2016, the aggregate projected
benefit obligation (PBO), the aggregate accumulated benefit
obligation (ABO) and the aggregate fair value of plan assets are
presented for all defined benefit pension plans with a PBO in
excess of plan assets and for all defined benefit pension plans
with an ABO in excess of plan assets as follows:
PBO exceeds fair value of plan assets
U.S. plans(1)
Non-U.S. plans
ABO exceeds fair value of plan assets
U.S. plans(1)
Non-U.S. plans
In millions of dollars
2017
2016
2017
2016
2017
2016
2017
2016
Projected benefit obligation
$
14,040 $
14,000 $
2,721 $
2,484 $
14,040 $
14,000 $
2,596 $
Accumulated benefit obligation
Fair value of plan assets
14,034
12,725
13,994
12,363
2,381
1,516
2,168
1,399
14,034
12,725
13,994
12,363
2,296
1,407
2,282
2,012
1,224
(1) At December 31, 2017 and 2016, for both the U.S. qualified plan and nonqualified plans, the aggregate PBO and the aggregate ABO exceeded plan assets.
164
Plan Assumptions
The Company utilizes a number of assumptions to determine
plan obligations and expenses. Changes in one or a
combination of these assumptions will have an impact on the
Company’s pension and postretirement PBO, funded status and
(benefit) expense. Changes in the plans’ funded status resulting
from changes in the PBO and fair value of plan assets will have
a corresponding impact on Accumulated other comprehensive
income (loss).
The actuarial assumptions at the respective years ended
December 31 in the table below are used to measure the year-
end PBO and the net periodic (benefit) expense for the
subsequent year (period). Since Citi’s Significant Plans are
measured on a quarterly basis, the year-end rates for those plans
are used to calculate the net periodic (benefit) expense for the
subsequent year’s first quarter. As a result of the quarterly
measurement process, the net periodic (benefit) expense for the
Significant Plans is calculated at each respective quarter end
based on the preceding quarter-end rates (as shown below for
the U.S. and non-U.S. pension and postretirement plans). The
actuarial assumptions for All Other Plans are measured
annually.
Certain assumptions used in determining pension and
postretirement benefit obligations and net benefit expense for
the Company’s plans are shown in the following table:
During the year
2017
2016
2015
Discount rate
U.S. plans
Qualified
pension
Nonqualified
pension
Postretirement
4.10%/4.05%/
3.80%/3.75%
4.40%/3.95%/
3.65%/3.55%
4.00%/3.85%/
4.45%/4.35%
4.00/3.95/
3.75/3.65
3.90/3.85/
3.60/3.55
4.35/3.90/
3.55/3.45
4.20/3.75/
3.40/3.30
3.90/3.70/
4.30/4.25
3.80/3.65/
4.20/4.10
Non-U.S. pension plans(1)
Range
0.25 to 72.50
0.25 to 42.00
1.00 to 32.50
Weighted
average
4.40
4.76
4.74
Non-U.S. postretirement plans(1)
Range
Weighted
average
1.75 to 11.05
2.00 to 13.20
2.25 to 12.00
8.27
7.90
7.50
Future compensation increase rate (2)
Non-U.S. pension plans(1)
Range
1.25 to 70.00
1.00 to 40.00
0.75 to 30.00
Weighted
average
3.21
3.24
3.27
2017
2016
Expected return on assets
U.S. plans
Qualified
pension
Postretirement
Non-U.S. pension plans(1)
6.80
6.80
7.00
7.00
7.00
7.00
Range
1.00 to 11.50
1.60 to 11.50
1.30 to 11.50
Weighted
average
4.55
4.95
5.08
Non-U.S. postretirement plans(1)
Range
Weighted
average
8.00 to 10.30
8.00 to 10.70
8.50 to 10.40
8.02
8.01
8.51
(1) Reflects rates utilized to determine the first quarter expense for
Significant non-U.S. pension and postretirement plans.
(2) Not material for U.S. plans.
At year end
Discount rate
U.S. plans
Qualified pension
Nonqualified pension
Postretirement
Non-U.S. pension plans
Range
Weighted average
Non-U.S. postretirement plans
Range
Weighted average
3.60%
3.60
3.50
4.10%
4.00
3.90
0.00 to 10.20
4.17
0.25 to 72.50
4.40
1.75 to 10.10
8.10
1.75 to 11.05
8.27
Future compensation increase rate(1)
Non-U.S. pension plans
Range
Weighted average
Expected return on assets
U.S. plans
Qualified pension
Postretirement(2)
Non-U.S. pension plans
Range
Weighted average
Non-U.S. postretirement plans
Range
Weighted average
1.17 to 13.67
3.08
1.25 to 70.00
3.21
6.80
6.80/3.00
6.80
6.80
0.00 to 11.50
4.52
1.00 to 11.50
4.55
8.00 to 9.80
8.01
8.00 to 10.30
8.02
(1) Not material for U.S. plans.
(2)
In 2017, the VEBA Trust was funded with an expected rate of return of
assets of 3.00%.
165
The following table shows the expected rates of return
used in determining the Company’s pension expense compared
to the actual rate of return on plan assets during 2017, 2016 and
2015 for the U.S. pension and postretirement plans:
2017
2016
Expected rate of return(1) 6.80%/3.00% 7.00%
Actual rate of return(2)
10.90
4.90
2015
7.00%
(1.70)
(1)
In 2017, the VEBA Trust was funded for postretirement benefits with an
expected rate of return of assets of 3.00%.
(2) Actual rates of return are presented net of fees.
For the non-U.S. pension plans, pension expense for 2017 was
reduced by the expected return of $299 million, compared with
the actual return of $462 million. Pension expense for 2016 and
2015 was reduced by expected returns of $287 million and
$323 million, respectively.
Mortality Tables
At December 31, 2017, the Company maintained the
Retirement Plan 2014 (RP-2014) mortality table and adopted
the Mortality Projection 2017 (MP-2017) projection table for
the U.S. plans.
U.S. plans
Mortality
Pension
2017(1)
2016(2)
RP-2014/MP-2017 RP-2014/MP-2016
Postretirement
RP-2014/MP-2017 RP-2014/MP-2016
(1) The RP-2014 table is the white-collar RP-2014 table. The MP-2017
projection scale is projected from 2006, with convergence to .75%
ultimate rate of annual improvement by 2033.
(2) The RP-2014 table is the white-collar RP-2014 table, with a 4% increase
in rates to reflect the lower life expectancy of Citi plan participants. The
MP-2016 projection scale is projected from 2011, with convergence to
0.75% ultimate rate of annual improvement by 2032.
Discount Rate
The discount rates for the U.S. pension and postretirement
plans were selected by reference to a Citigroup-specific
analysis using each plan’s specific cash flows and compared
with high-quality corporate bond indices for reasonableness.
The discount rates for the non-U.S. pension and postretirement
plans are selected by reference to high-quality corporate bond
rates in countries that have developed corporate bond markets.
However, where developed corporate bond markets do not
exist, the discount rates are selected by reference to local
government bond rates with a premium added to reflect the
additional risk for corporate bonds in certain countries.
Effective December 31, 2017, the established rounding
convention was to the nearest 5 bps for the top five non-U.S.
countries, and 25 bps for all other countries.
Expected Rate of Return
The Company determines its assumptions for the expected rate
of return on plan assets for its U.S. pension and postretirement
plans using a “building block” approach, which focuses on
ranges of anticipated rates of return for each asset class. A
weighted average range of nominal rates is then determined
based on target allocations to each asset class. Market
performance over a number of earlier years is evaluated
covering a wide range of economic conditions to determine
whether there are sound reasons for projecting any past trends.
The Company considers the expected rate of return to be a
long-term assessment of return expectations and does not
anticipate changing this assumption unless there are significant
changes in investment strategy or economic conditions. This
contrasts with the selection of the discount rate and certain
other assumptions, which are reconsidered annually (or
quarterly for the Significant Plans) in accordance with GAAP.
The expected rate of return for the U.S. pension and
postretirement plans was 6.80% at December 31, 2017 and
2016 and 7.00% at December 31, 2015. The expected return on
assets reflects the expected annual appreciation of the plan
assets and reduces the Company’s annual pension expense. The
expected return on assets is deducted from the sum of service
cost, interest cost and other components of pension expense to
arrive at the net pension (benefit) expense. Net pension
(benefit) expense for the U.S. pension plans for 2017, 2016 and
2015 reflects deductions of $865 million, $886 million and
$893 million of expected returns, respectively.
166
Sensitivities of Certain Key Assumptions
The following tables summarize the effect on pension expense
of a one-percentage-point change in the discount rate:
In millions of dollars
2017
2016
2015
One-percentage-point increase
29 $
(27)
31 $
(33)
26
(32)
Health Care Cost Trend Rate
Assumed health care cost trend rates were as follows:
Health care cost increase rate for
U.S. plans
Following year
Ultimate rate to which cost increase is
assumed to decline
Year in which the ultimate rate is reached(1)
2017
2016
6.50%
6.50%
5.00
2023
5.00
2023
One-percentage-point decrease
(1) Weighted average for plans with different following year and ultimate
2017
2016
2015
rates.
U.S. plans
Non-U.S. plans
In millions of dollars
U.S. plans
Non-U.S. plans
$
$
(44) $
41
(47) $
37
(44)
44
Since the U.S. qualified pension plan was frozen, most of
the prospective service cost has been eliminated and the gain/
loss amortization period was changed to the life expectancy for
inactive participants. As a result, pension expense for the U.S.
qualified pension plan is driven more by interest costs than
service costs, and an increase in the discount rate would
increase pension expense, while a decrease in the discount rate
would decrease pension expense.
The following tables summarize the effect on pension
expense of a one-percentage-point change in the expected rates
of return:
One-percentage-point increase
In millions of dollars
2017
2016
2015
U.S. plans
Non-U.S. plans
$
(127) $
(127) $
(64)
(61)
(128)
(63)
One-percentage-point decrease
In millions of dollars
2017
2016
2015
U.S. plans
Non-U.S. plans
$
127 $
64
127 $
61
128
63
Health care cost increase rate for
Non-U.S. plans (weighted average)
Following year
Ultimate rate to which cost increase is
assumed to decline
2017
2016
6.87%
6.86%
6.87
6.85
Range of years in which the ultimate rate
is reached
2018–2019
2017–2029
A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
One-
percentage-
point increase
One-
percentage-
point decrease
In millions of dollars
2017
2016
2017
2016
U.S. plans
Effect on benefits earned and
interest cost for
postretirement plans
Effect on accumulated
postretirement benefit
obligation for postretirement
plans
In millions of dollars
Non-U.S. plans
Effect on benefits earned and
interest cost for
postretirement plans
Effect on accumulated
postretirement benefit
obligation for postretirement
plans
$
1 $
1 $
(1) $
(1)
33
30
(29)
(26)
One-percentage-
point increase
One-
percentage-
point decrease
2017
2016
2017
2016
$
13 $
12 $
(10) $
(10)
150
144
(125)
(118)
167
Plan Assets
Citigroup’s pension and postretirement plans’ asset allocations
for the U.S. plans and the target allocations by asset category
based on asset fair values, are as follows:
Asset category(1)
Equity securities(2)
Debt securities(3)
Real estate
Private equity
Other investments
Total
Target asset
allocation
U.S. pension assets
at December 31,
U.S. postretirement assets
at December 31,
2018
0-30%
25-72
0-10
0-12
0-37
2017
2016
2017
2016
20%
48
5
3
24
100%
18%
47
5
4
26
100%
20%
48
5
3
24
100%
18%
47
5
4
26
100%
(1) Asset allocations for the U.S. plans are set by investment strategy, not by investment product. For example, private equities with an underlying investment in real
estate are classified in the real estate asset category, not private equity.
(2) Equity securities in the U.S. pension and postretirement plans do not include any Citigroup common stock at the end of 2017 and 2016.
(3)
In December 2017, Citi contributed $140 million to the VEBA Trust for postretirement benefits, which amount was invested solely in debt securities which are not
reflected in the table above.
Third-party investment managers and advisers provide
their services to Citigroup’s U.S. pension and postretirement
plans. Assets are rebalanced as the Company’s Pension Plan
Investment Committee deems appropriate. Citigroup’s
investment strategy, with respect to its assets, is to maintain a
globally diversified investment portfolio across several asset
classes that, when combined with Citigroup’s contributions to
the plans, will maintain the plans’ ability to meet all required
benefit obligations.
Citigroup’s pension and postretirement plans’ weighted-
average asset allocations for the non-U.S. plans and the actual
ranges, and the weighted-average target allocations by asset
category based on asset fair values, are as follows:
Asset category(1)
Equity securities
Debt securities
Real estate
Other investments
Total
Non-U.S. pension plans
Target asset
allocation
Actual range
at December 31,
2018
0-63%
0-100
0-18
0-100
2017
0-67%
0-99
0-18
0-100
2016
0–69%
0–100
0–18
0–100
Weighted-average
at December 31,
2017
2016
15%
79
1
5
14%
79
1
6
100%
100%
(1) Similar to the U.S. plans, asset allocations for certain non-U.S. plans are set by investment strategy, not by investment product.
Asset category(1)
Equity securities
Debt securities
Other investments
Total
Target asset
allocation
2018
0-37%
58-100
0-5
Non-U.S. postretirement plans
Actual range
at December 31,
2017
0-38%
58-100
0-4
2016
0–38%
57–100
0–4
Weighted-average
at December 31,
2017
2016
38%
58
4
100%
38%
58
4
100%
(1) Similar to the U.S. plans, asset allocations for certain non-U.S. plans are set by investment strategy, not by investment product.
168
Fair Value Disclosure
For information on fair value measurements, including
descriptions of Levels 1, 2 and 3 of the fair value hierarchy and
the valuation methodology utilized by the Company, see Notes
1 and 24 to the Consolidated Financial Statements. ASU
2015-07 removed the requirement to categorize within the fair
value hierarchy investments for which fair value is measured
using the NAV per share practical expedient.
In millions of dollars
Asset categories
U.S. equities
Non-U.S. equities
Mutual funds
Commingled funds
Debt securities
Annuity contracts
Derivatives
Other investments
Total investments
Cash and short-term investments
Other investment liabilities
Net investments at fair value
Other investment receivables redeemed at NAV
Securities valued at NAV
Total net assets
Certain investments may transfer between the fair value
hierarchy classifications during the year due to changes in
valuation methodology and pricing sources.
Plan assets by detailed asset categories and the fair value
hierarchy are as follows:
U.S. pension and postretirement benefit plans(1)
Fair value measurement at December 31, 2017
Level 1
Level 2
Level 3
Total
$
726 $
926
271
—
1,381
—
11
—
3,315 $
257 $
(60)
3,512 $
$
$
$
— $
—
—
1,184
3,080
—
323
—
4,587 $
1,004 $
(343)
5,248 $
— $
—
—
—
—
1
—
22
23 $
— $
—
23 $
$
$
726
926
271
1,184
4,461
1
334
22
7,925
1,261
(403)
8,783
16
4,189
12,988
(1) The investments of the U.S. pension and postretirement plans are commingled in one trust. At December 31, 2017, the allocable interests of the U.S. pension and
postretirement plans were 99.0% and 1.0%, respectively. In 2017, the VEBA Trust was funded for postretirement benefits.
In millions of dollars
Asset categories
U.S. equities
Non-U.S. equities
Mutual funds
Commingled funds
Debt securities
Annuity contracts
Derivatives
Other investments
Total investments
Cash and short-term investments
Other investment liabilities
Net investments at fair value
Other investment receivables redeemed at NAV
Securities valued at NAV
Total net assets
U.S. pension and postretirement benefit plans(1)
Fair value measurement at December 31, 2016
Level 1
Level 2
Level 3
Total
$
639 $
773
216
—
1,297
—
8
—
2,933 $
116 $
(106)
2,943 $
$
$
$
— $
—
—
866
2,845
—
543
—
4,254 $
1,239 $
(553)
4,940 $
— $
—
—
—
—
1
—
4
5 $
— $
—
5 $
$
$
639
773
216
866
4,142
1
551
4
7,192
1,355
(659)
7,888
100
4,504
12,492
(1) The investments of the U.S. pension and postretirement plans are commingled in one trust. At December 31, 2016, the allocable interests of the U.S. pension and
postretirement plans were 99.0% and 1.0%, respectively.
169
In millions of dollars
Asset categories
U.S. equities
Non-U.S. equities
Mutual funds
Commingled funds
Debt securities
Real estate
Annuity contracts
Derivatives
Other investments
Total investments
Cash and short-term investments
Other investment liabilities
Net investments at fair value
Securities valued at NAV
Total net assets
In millions of dollars
Asset categories
U.S. equities
Non-U.S. equities
Mutual funds
Commingled funds
Debt securities
Real estate
Annuity contracts
Derivatives
Other investments
Total investments
Cash and short-term investments
Other investment liabilities
Net investments at fair value
Securities valued at NAV
Total net assets
Non-U.S. pension and postretirement benefit plans
Fair value measurement at December 31, 2017
Level 1
Level 2
Level 3
Total
$
4 $
12 $
— $
103
3,098
24
3,999
—
—
1
1
7,230 $
119 $
(2)
7,347 $
122
74
—
1,555
3
1
3,102
—
4,869 $
3 $
(4,220)
652 $
1
—
—
7
1
9
—
214
232 $
— $
—
232 $
$
$
16
226
3,172
24
5,561
4
10
3,103
215
12,331
122
(4,222)
8,231
16
8,247
Non-U.S. pension and postretirement benefit plans
Fair value measurement at December 31, 2016
Level 1
Level 2
Level 3
Total
4 $
11 $
— $
87
2,345
22
3,406
—
—
—
1
5,865 $
116 $
(1)
5,980 $
174
406
—
1,206
3
1
43
—
1,844 $
2 $
(960)
886 $
1
—
—
7
1
8
—
187
204 $
— $
—
204 $
$
$
15
262
2,751
22
4,619
4
9
43
188
7,913
118
(961)
7,070
92
7,162
$
$
$
$
$
$
$
170
Level 3 Rollforward
The reconciliations of the beginning and ending balances during the year for Level 3 assets are as follows:
In millions of dollars
U.S. pension and postretirement benefit plans
Asset categories
Annuity contracts
Other investments
Total investments
Beginning Level
3 fair value at
Dec. 31, 2016
Realized gains
(losses)
Unrealized gains
(losses)
Purchases,
sales and
issuances
Transfers in and/
or out of Level 3
Ending Level 3
fair value at Dec.
31, 2017
$
$
1 $
4
5 $
— $
— $
— $
— $
— $
18
18 $
— $
—
— $
1
22
23
In millions of dollars
U.S. pension and postretirement benefit plans
Asset categories
Annuity contracts
Other investments
U.S. equities
Total investments
Beginning Level 3
fair value at
Dec. 31, 2015
$
$
25 $
149
—
174 $
Realized gains
(losses)
Unrealized gains
(losses)
Purchases,
sales and issuances
Transfers in and/
or out of Level 3
Ending Level 3
fair value at Dec.
31, 2016
— $
8
(2)
6 $
(3) $
(10)
2
(11) $
(21) $
(143)
—
(164) $
— $
—
—
— $
1
4
—
5
In millions of dollars
Non-U.S. pension and postretirement benefit plans
Asset categories
Non-U.S. equities
Debt securities
Real estate
Annuity contracts
Other investments
Total investments
Beginning Level 3
fair value at
Dec. 31, 2016
Unrealized gains
(losses)
Purchases, sales and
issuances
Transfers in and/
or out of Level 3
Ending Level 3 fair
value at Dec. 31,
2017
$
$
1 $
7
1
8
187
204 $
— $
—
—
1
31
32 $
— $
—
—
—
(4)
(4) $
— $
—
—
—
—
— $
1
7
1
9
214
232
In millions of dollars
Non-U.S. pension and postretirement benefit plans
Asset categories
Non-U.S. equities
Debt securities
Real estate
Annuity contracts
Other investments
Total investments
Beginning Level 3
fair value at
Dec. 31, 2015
Unrealized gains
(losses)
Purchases, sales and
issuances
Transfers in and/
or out of Level 3
Ending Level 3 fair
value at Dec. 31, 2016
$
$
47 $
(3) $
5
1
8
196
257 $
—
—
—
—
(3) $
(2) $
2
—
—
(9)
(9) $
(41) $
—
—
—
—
(41) $
1
7
1
8
187
204
171
Oversight and Risk Management Practices
The framework for the Company’s pension oversight process
includes monitoring of retirement plans by plan fiduciaries and/
or management at the global, regional or country level, as
appropriate. Independent Risk Management contributes to the
risk oversight and monitoring for the Company’s U.S. qualified
pension plan and non-U.S. Significant Pension Plans. Although
the specific components of the oversight process are tailored to
the requirements of each region, country and plan, the
following elements are common to the Company’s monitoring
and risk management process:
•
•
•
•
•
periodic asset/liability management studies and strategic
asset allocation reviews;
periodic monitoring of funding levels and funding ratios;
periodic monitoring of compliance with asset allocation
guidelines;
periodic monitoring of asset class and/or investment
manager performance against benchmarks; and
periodic risk capital analysis and stress testing.
Investment Strategy
The Company’s global pension and postretirement funds’
investment strategy is to invest in a prudent manner for the
exclusive purpose of providing benefits to participants. The
investment strategies are targeted to produce a total return that,
when combined with the Company’s contributions to the funds,
will maintain the funds’ ability to meet all required benefit
obligations. Risk is controlled through diversification of asset
types and investments in domestic and international equities,
fixed income securities and cash and short-term investments.
The target asset allocation in most locations outside the U.S. is
primarily in equity and debt securities. These allocations may
vary by geographic region and country depending on the nature
of applicable obligations and various other regional
considerations. The wide variation in the actual range of plan
asset allocations for the funded non-U.S. plans is a result of
differing local statutory requirements and economic conditions.
For example, in certain countries local law requires that all
pension plan assets must be invested in fixed income
investments, government funds or local-country securities.
Significant Concentrations of Risk in Plan Assets
The assets of the Company’s pension plans are diversified to
limit the impact of any individual investment. The U.S.
qualified pension plan is diversified across multiple asset
classes, with publicly traded fixed income, hedge funds,
publicly traded equity and private equity representing the most
significant asset allocations. Investments in these four asset
classes are further diversified across funds, managers,
strategies, vintages, sectors and geographies, depending on the
specific characteristics of each asset class. The pension assets
for the Company’s non-U.S. Significant Plans are primarily
invested in publicly traded fixed income and publicly traded
equity securities.
Estimated Future Benefit Payments
The Company expects to pay the following estimated benefit payments in future years:
In millions of dollars
U.S. plans
Non-U.S. plans
U.S. plans
Non-U.S. plans
Pension plans
Postretirement benefit plans
$
787 $
432 $
61 $
398
425
434
457
2,532
60
59
58
56
248
65
70
75
81
87
532
2018
2019
2020
2021
2022
2023–2027
Prescription Drugs
In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (Act of 2003)
was enacted. The Act of 2003 established a prescription drug
benefit under Medicare known as “Medicare Part D,” and a
federal subsidy to sponsors of U.S. retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent
to Medicare Part D. The benefits provided to certain
participants are at least actuarially equivalent to Medicare
Part D and, accordingly, the Company is entitled to a subsidy.
The subsidy reduced the accumulated postretirement
benefit obligation (APBO) by approximately $4 million and $5
million as of December 31, 2017 and 2016, respectively, and
the postretirement expense by approximately $0.1 million and
$0.2 million for 2017 and 2016, respectively.
Certain provisions of the Patient Protection and Affordable
Care Act of 2010 improved the Medicare Part D option known
as the Employer Group Waiver Plan (EGWP) with respect to
the Medicare Part D subsidy. The EGWP provides prescription
814
846
864
876
4,480
172
drug benefits that are more cost effective for Medicare-eligible
participants and large employers. Effective April 1, 2013, the
Company began sponsoring and implementing an EGWP for
eligible retirees. The Company subsidy received under the
EGWP for 2017 and 2016 was $15.0 million and $12.9 million,
respectively.
The other provisions of the Act of 2010 are not expected to
have a significant impact on Citigroup’s pension and
postretirement plans.
Post Employment Plans
The Company sponsors U.S. post employment plans that
provide income continuation and health and welfare benefits to
certain eligible U.S. employees on long-term disability.
As of December 31, 2017 and 2016, the plans’ funded
status recognized in the Company’s Consolidated Balance
Sheet was $(46) million and $(157) million, respectively. The
pre-tax amounts recognized in Accumulated other
comprehensive income (loss) as of December 31, 2017 and
2016 were $3 million and $34 million, respectively. The
improvement in funded status as of December 31, 2017 was
primarily due to the Company’s funding of the VEBA Trust
during 2017.
The following table summarizes the components of net
expense recognized in the Consolidated Statement of Income
for the Company’s U.S. post employment plans:
In millions of dollars
Service related expense
Interest cost on benefit
obligation
Amortization of unrecognized
Prior service (benefit) cost
Net actuarial loss
Total service related benefit
Non-service related expense
Total net expense (benefit)
$
$
$
$
Net expense
2016
2017
2015
2 $
3 $
4
(31)
2
(31)
5
(27) $
(23) $
30 $
3 $
21 $
(2) $
(31)
12
(15)
3
(12)
The following table summarizes certain assumptions used
in determining the post employment benefit obligations and net
benefit expense for the Company’s U.S. post employment
plans:
Discount rate
Expected return on assets(1)
Health care cost increase rate
Following year
Ultimate rate to which cost increase is
assumed to decline
Year in which the ultimate rate is reached
2017
2016
3.20% 3.40%
3.00
N/A
6.50
6.50
5.00
2023
5.00
2023
1)
In 2017, the VEBA Trust was funded with an expected rate of return of
assets of 3.00%.
N/A Not applicable
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 Citi Retirement Savings Plan (formerly
known as the Citigroup 401(k) Plan) sponsored by the
Company in the U.S.
Under the Citi Retirement Savings Plan, eligible U.S.
employees received matching contributions of up to 6% of their
eligible compensation for 2017 and 2016, 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 following table summarizes the Company
contributions for the defined contribution plans:
In millions of dollars
2017
2016
2015
Company contributions
$
383 $
371 $
380
U.S. plans
In millions of dollars
2017
2016
2015
Company contributions
$
270 $
268 $
282
Non-U.S. plans
173
Tax Rate
The reconciliation of the federal statutory income tax rate to
the Company’s effective income tax rate applicable to income
from continuing operations (before non-controlling interests
and the cumulative effect of accounting changes) for each of
the periods indicated is as follows:
Federal statutory rate
State income taxes, net of federal
benefit
Non-U.S. income tax rate differential
Audit settlements(1)
Effect of tax law changes(2)
Basis difference in affiliates
Tax advantaged investments
Other, net
2017
2016
2015
35.0% 35.0% 35.0%
1.1
(1.6)
—
99.7
(2.1)
(2.2)
(0.8)
1.8
(3.6)
(0.6)
—
(0.1)
(2.4)
(0.1)
1.7
(4.6)
(1.7)
0.4
—
(1.8)
1.0
Effective income tax rate
129.1% 30.0% 30.0%
(1) For 2016, primarily relates to the conclusion of an IRS audit for 2012–
2013. For 2015, primarily relates to the conclusion of a New York City
tax audit for 2009–2011.
(2) For 2017, includes the $22,594 million charge for Tax Reform. For
2015, includes the results of tax reforms enacted in New York City and
several states, which resulted in a DTA charge of approximately $101
million.
As set forth in the table above, Citi’s effective tax rate for
2017 was 129.1% (29.8% before the effect of Tax Reform,
about the same as the effective tax rate in 2016).
9. INCOME TAXES
Details of the Company’s income tax provision are presented
below:
Income Tax Provision
In millions of dollars
2017
2016
2015
Current
Federal
Non-U.S.
State
$
332 $ 1,016 $
861
3,910
3,585
3,397
269
384
388
Total current income taxes
$ 4,511 $ 4,985 $ 4,646
Deferred
Federal
Non-U.S.
State
$24,902 $ 1,280 $ 3,019
(377)
352
53
126
(4)
(221)
Total deferred income taxes
$24,877 $ 1,459 $ 2,794
Provision for income tax on
continuing operations before non-
controlling interests(1)
Provision (benefit) for income taxes
on discontinued operations
Income tax expense (benefit) reported
in stockholders’ equity related to:
FX translation
Investment securities
Employee stock plans
Cash flow hedges
Benefit plans
FVO DVA
Retained earnings(2)
$29,388 $ 6,444 $ 7,440
7
(22)
(29)
188
(149)
(4)
(12)
13
(250)
(295)
(402)
59
13
27
(30)
(201)
—
(906)
(498)
(35)
176
(24)
—
—
Income taxes before non-controlling
interests
$28,886 $ 5,888 $ 6,124
(1)
Includes the effect of securities transactions and other-than-temporary-
impairment losses resulting in a provision (benefit) of $272 million and
$(22) million in 2017, $332 million and $(217) million in 2016 and $239
million and $(93) million in 2015, respectively.
(2) Reflects the tax effect of the accounting change for ASU 2017-08,
“Premium Amortization on Purchased Callable Debt Securities”. See
Note 1 to the Consolidated Financial Statements.
174
Deferred Income Taxes
Deferred income taxes at December 31 related to the
following:
Unrecognized Tax Benefits
The following is a rollforward of the Company’s unrecognized
tax benefits:
2017
2016
In millions of dollars
2017
2016
2015
In millions of dollars
Deferred tax assets
Credit loss deduction
Deferred compensation and employee benefits
Repositioning and settlement reserves
U.S. tax on non-U.S. earnings
Investment and loan basis differences
Cash flow hedges
$ 3,423 $ 5,146
1,585
454
3,798
1,033
2,452
10,050
3,384
5,594
233
327
Tax credit and net operating loss carry-forwards
21,575
20,793
Fixed assets and leases
Other deferred tax assets
Gross deferred tax assets
Valuation allowance
1,090
1,988
1,739
2,714
$36,184 $51,194
$ 9,387 $ —
Deferred tax assets after valuation allowance
$26,797 $51,194
Total unrecognized tax benefits at
January 1
Net amount of increases for current
year’s tax positions
Gross amount of increases for prior
years’ tax positions
Gross amount of decreases for prior
years’ tax positions
Amounts of decreases relating to
settlements
Reductions due to lapse of statutes of
limitation
Foreign exchange, acquisitions and
dispositions
Total unrecognized tax benefits at
December 31
$ 1,092 $ 1,235 $ 1,060
43
34
32
324
273
311
(246)
(225)
(61)
(199)
(174)
(45)
(11)
(21)
(22)
10
(30)
(40)
$ 1,013 $ 1,092 $ 1,235
Deferred tax liabilities
Intangibles
Debt issuances
Non-U.S. withholding taxes
Interest-related items
Other deferred tax liabilities
Gross deferred tax liabilities
Net deferred tax assets
In millions of dollars
$ (1,247) $ (1,711)
The total amounts of unrecognized tax benefits at
(294)
(668)
(562)
(1,545)
(641)
(739)
(765)
(670)
$ (4,316) $ (4,526)
$22,481 $46,668
December 31, 2017, 2016 and 2015 that, if recognized, would
affect Citi’s tax expense, are $0.8 billion, $0.8 billion and $0.9
billion, respectively. The remaining uncertain tax positions
have offsetting amounts in other jurisdictions or are temporary
differences.
Interest and penalties (not included in “unrecognized tax
benefits” above) are a component of Provision for income
taxes.
2017
2016
Pretax Net of tax Pretax Net of tax Pretax Net of tax
2015
Total interest and penalties on the Consolidated Balance Sheet at January 1
$
260 $
164 $ 233 $
146 $ 269 $
Total interest and penalties in the Consolidated Statement of Income
Total interest and penalties on the Consolidated Balance Sheet at December 31(1)
5
121
21
101
105
260
68
164
(29)
233
169
(18)
146
(1)
Includes $3 million for non-U.S. penalties in 2017, 2016 and 2015. Also includes $3 million for state penalties in 2017, 2016 and 2015.
As of December 31, 2017, Citi is under audit by the
Internal Revenue Service and other major taxing jurisdictions
around the world. It is thus reasonably possible that significant
changes in the gross balance of unrecognized tax benefits may
occur within the next 12 months, although Citi does not expect
such audits to result in amounts that would cause a significant
change to its effective tax rate.
The following are the major tax jurisdictions in which the
Company and its affiliates operate and the earliest tax year
subject to examination:
Jurisdiction
United States
Mexico
New York State and City
United Kingdom
India
Singapore
Hong Kong
Ireland
Tax year
2014
2011
2009
2014
2014
2011
2011
2013
175
Non-U.S. Earnings
Non-U.S. pretax earnings approximated $13.7 billion in 2017
(of which a $0.1 billion loss was recorded in Discontinued
operations), $11.6 billion in 2016 and $11.3 billion in 2015.
As a U.S. corporation, Citigroup and its U.S. subsidiaries are
currently subject to U.S. taxation on all non-U.S. pretax
earnings of a non-U.S. branch. Starting in 2018, there will be a
separate foreign tax credit (FTC) basket for branches. Also
starting in 2018, dividends from a non-U.S. subsidiary or
affiliate are effectively exempt from U.S. taxation. The
Company provides income taxes on the book over tax basis
differences of non-U.S. subsidiaries except to the extent that
such differences are indefinitely reinvested outside the U.S.
At December 31, 2017, $14.1 billion of basis differences
of non-U.S. subsidiaries was indefinitely invested. At the
existing tax rates, additional taxes (net of U.S. FTCs) of $3.5
billion would have to be provided if such basis differences
were realized. These amounts are significantly less than the
corresponding amounts at December 31, 2016 due to the
deemed repatriation of unremitted earnings of non-U.S.
subsidiaries under the provisions of Tax Reform.
Income taxes are not provided for the Company’s
“savings bank base year bad debt reserves” that arose before
1988, because under current U.S. tax rules, such taxes will
become payable only to the extent that such amounts are
distributed in excess of limits prescribed by federal law. At
December 31, 2017, the amount of the base year reserves
totaled approximately $358 million (subject to a tax of $75
million).
Deferred Tax Assets
As of December 31, 2017, Citi had a valuation allowance of
$9.4 billion, composed of valuation allowances of $5.7 billion
on its FTC carry-forwards, $2.2 billion on its U.S. residual
DTA related to its non-U.S. branches, $1.4 billion on local
non-U.S. DTAs and $0.1 billion on state net operating loss
carry-forwards. The valuation allowance against FTCs results
from the impact of the lower tax rate and the new separate
FTC basket for non-U.S. branches, as well as diminished
ability under Tax Reform to generate income from sources
outside the U.S. to support FTC utilization. The absolute
amount of Citi’s post-Tax Reform-related valuation
allowances may change in future years. First, the separate FTC
basket for non-U.S. branches will result in additional DTAs
(for FTCs) requiring a valuation allowance, given that the
local tax rate for these branches exceeds on average the U.S.
tax rate of 21%. Second, in Citi’s general basket for FTCs,
changes in the forecasted amount of income in U.S. locations
derived from sources outside the U.S. could alter the amount
of valuation allowance that is needed against such FTCs. As of
December 31, 2016, Citi had no valuation allowance on its
DTAs. The following table summarizes Citi’s DTAs:
In billions of dollars
Jurisdiction/component(1)
U.S. federal(2)
Net operating losses (NOLs)(3)
Foreign tax credits (FTCs)
General business credits (GBCs)
Future tax deductions and credits
Total U.S. federal
State and local
New York NOLs
Other state NOLs
Future tax deductions
Total state and local
Non-U.S.
NOLs
Future tax deductions
Total non-U.S.
Total
DTAs balance
December 31,
2017
DTAs balance
December 31,
2016
$
$
$
$
$
$
$
2.3 $
7.6
1.4
4.8
16.1 $
2.3 $
0.2
1.3
3.8 $
0.6 $
2.0
2.6 $
22.5 $
3.5
14.2
0.9
21.9
40.5
2.2
0.2
1.7
4.1
0.6
1.5
2.1
46.7
(1) All amounts are net of valuation allowances.
(2)
Included in the net U.S. federal DTAs of $16.1 billion as of December
31, 2017 were deferred tax liabilities of $2.4 billion that will reverse in
the relevant carry-forward period and may be used to support the DTAs.
(3) Consists of non-consolidated tax return NOL carry-forwards that are
eventually expected to be utilized in Citigroup’s consolidated tax return.
176
and available tax planning strategies (as defined in ASC 740,
Income Taxes) that would be implemented, if necessary, to
prevent a carry-forward from expiring.
Citi believes the U.S. federal and New York state and city
NOL carry-forward period of 20 years provides enough time
to fully utilize the DTAs pertaining to the existing NOL carry-
forwards. This is due to Citi’s forecast of sufficient U.S.
taxable income and the fact that New York state and city
continue to tax Citi’s non-U.S. income.
With respect to the FTCs component of the DTAs, the
carry-forward period is 10 years. Utilization of FTCs in any
year is restricted to 21% of foreign source taxable income in
that year. However, overall domestic losses that Citi has
incurred of approximately $52 billion as of December 31,
2017 are allowed to be reclassified as foreign source income
to the extent of 50%–100% of domestic source income
produced in subsequent years. Such resulting foreign source
income would cover the FTC carry-forwards after valuation
allowance. As noted in the tables above, Citi’s FTC carry-
forwards were $7.6 billion ($13.3 billion before valuation
allowance) as of December 31, 2017, compared to $14.2
billion as of December 31, 2016. This decrease represented
$6.6 billion of the $24.2 billion decrease in Citi’s overall
DTAs during 2017. Citi believes that it will generate sufficient
U.S. taxable income within the 10-year carry-forward period
to be able to utilize the net FTCs after the valuation allowance,
in addition to any FTCs produced in the tax return for such
period, which must be used prior to any carry-forward
utilization.
The following table summarizes the amounts of tax carry-
forwards and their expiration dates:
In billions of dollars
Year of expiration
U.S. tax return foreign tax credit
carry-forwards(1)
2018
2019
2020
2021
2022
2023(2)
2025(2)
2027(2)
Total U.S. tax return foreign tax credit
carry-forwards
U.S. tax return general business credit
carry-forwards
2032
2033
2034
2035
2036
2037
Total U.S. tax return general business
credit carry-forwards
U.S. subsidiary separate federal NOL
carry-forwards
2027
2028
2030
2032
2033
2034
2035
2036
2037
Total U.S. subsidiary separate federal
NOL carry-forwards(3)
New York State NOL carry-forwards(3)
2034
New York City NOL carry-forwards(3)
2034
Non-U.S. NOL carry-forwards(1)
Various
December
31, 2017
December
31, 2016
$
$
$
$
$
$
$
$
$
0.4 $
1.3
3.2
2.0
3.4
0.4
1.4
1.2
2.7
1.3
3.1
1.9
3.3
0.5
1.4
—
13.3 $
14.2
0.2 $
0.3
0.2
0.2
0.2
0.3
1.4 $
0.2 $
0.1
0.3
0.1
1.6
2.3
3.3
2.1
1.0
—
0.3
0.2
0.2
0.2
—
0.9
0.2
0.1
0.3
—
1.7
2.3
3.2
2.2
—
11.0 $
10.0
13.6 $
13.0
13.1 $
12.2
2.0 $
2.1
(1) Before valuation allowance.
(2) The $3.0 billion in FTC carry-forwards that expire in 2023, 2025 and
2027 are in a non-consolidated tax return entity but are eventually
expected to be utilized (net of valuation allowances) in Citigroup’s
consolidated tax return.
(3) Pretax.
The time remaining for utilization of the FTC component
has shortened, given the passage of time. Although realization
is not assured, Citi believes that the realization of the
recognized net DTAs of $22.5 billion at December 31, 2017 is
more-likely-than-not based upon expectations as to future
taxable income in the jurisdictions in which the DTAs arise
177
10. EARNINGS PER SHARE
The following table reconciles the income and share data used in the basic and diluted earnings per share (EPS) computations:
In millions, except per-share amounts
Income (loss) from continuing operations before attribution of noncontrolling interests
Less: Noncontrolling interests from continuing operations
Net income (loss) from continuing operations (for EPS purposes)
Income (loss) from discontinued operations, net of taxes
Citigroup's net income (loss)
Less: Preferred dividends(1)
Net income (loss) available to common shareholders
Less: Dividends and undistributed earnings allocated to employee restricted and deferred shares with
nonforfeitable rights to dividends, applicable to basic EPS
Net income (loss) allocated to common shareholders for basic EPS
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
Net income (loss) allocated to common shareholders for diluted EPS
Weighted-average common shares outstanding applicable to basic EPS
Effect of dilutive securities(2)
Options(3)
Other employee plans non-dividend eligible
Adjusted weighted-average common shares outstanding applicable to diluted EPS(4)
Basic earnings per share(5)
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Diluted earnings per share(5)
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
2017
2016
2015
(6,627) $
15,033 $
17,386
60
63
90
(6,687) $
14,970 $
17,296
(111)
(58)
(54)
(6,798) $
14,912 $
17,242
1,213
1,077
769
(8,011) $
13,835 $
16,473
37
195
224
(8,048) $
13,640 $
16,249
$
$
$
$
$
—
—
—
$
(8,048) $
13,640 $
16,249
2,698.5
2,888.1
3,004.0
—
—
0.1
0.1
3.6
0.1
2,698.5
2,888.3
3,007.7
$
$
$
$
(2.94) $
4.74 $
(0.04)
(0.02)
(2.98) $
4.72 $
(2.94) $
4.74 $
(0.04)
(0.02)
(2.98) $
4.72 $
5.43
(0.02)
5.41
5.42
(0.02)
5.40
(1) See Note 20 to the Consolidated Financial Statements for the potential future impact of preferred stock dividends.
(2) 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 exercise prices of $178.50 and $104.96 per share for approximately 21.0 million and 25.5 million shares of Citigroup common
stock, respectively. Both warrants were not included in the computation of earnings per share in 2017, 2016 and 2015 because they were anti-dilutive.
(3) During 2017, 2016 and 2015, weighted-average options to purchase 0.8 million, 4.2 million and 0.9 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 $204.80, $98.01 and $199.16 per share,
respectively, were anti-dilutive.
(4) Due to rounding, common shares outstanding applicable to basic EPS and the effect of dilutive securities may not sum to common shares outstanding applicable to
diluted EPS.
(5) Due to rounding, earnings per share on continuing operations and discontinued operations may not sum to earnings per share on net income.
178
142,646
125,685
A substantial portion of the resale and repurchase
11. 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:
In millions of dollars
Federal funds sold
Securities purchased under
agreements to resell
Deposits paid for securities
borrowed
Total(1)
December 31 December 31
2017
2016
$
— $
—
130,984
131,473
101,494
$
232,478 $
105,340
236,813
Federal funds purchased and securities loaned or sold
under agreements to repurchase, at their respective carrying
values, consisted of the following:
In millions of dollars
2017
2016
Federal funds purchased
$
326 $
178
December 31 December 31
Securities sold under agreements
to repurchase
Deposits received for securities
loaned
Total(1)
13,305
15,958
$
156,277 $
141,821
(1) The above tables do not include securities-for-securities lending
transactions of $14.0 billion and $9.3 billion at December 31, 2017 and
December 31, 2016, respectively, where the Company acts as lender and
receives securities that can be sold or pledged as collateral. In these
transactions, the Company recognizes the securities received at fair
value within Other assets and the obligation to return those securities as
a liability within Brokerage payables.
The resale and repurchase agreements represent
collateralized financing transactions. Citi executes these
transactions primarily through its broker-dealer subsidiaries to
facilitate customer matched-book activity and to efficiently
fund a portion of Citi’s trading inventory. Transactions
executed by Citi’s bank subsidiaries primarily facilitate
customer financing activity.
To maintain reliable funding under a wide range of market
conditions, including under periods of stress, Citi manages
these activities by taking into consideration the quality of the
underlying collateral, and stipulating financing tenor. Citi
manages the risks in its collateralized financing transactions
by conducting daily stress tests to account for changes in
capacity, tenors, haircut, collateral profile and client actions.
Additionally, Citi maintains counterparty diversification by
establishing concentration triggers and assessing counterparty
reliability and stability under stress.
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,
179
require prompt transfer of additional collateral in order to
maintain contractual margin protection. For resale and
repurchase agreements, when necessary, the company posts
additional collateral in order to maintain contractual margin
protection.
Collateral typically consists of government and
government-agency securities, corporate and municipal bonds,
equities 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 by the non-defaulting party, following a
payment default 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, where
the collateral is maintained by a custodian and operational
limitations may restrict its use of the securities.
agreements is recorded at fair value, as described in Notes 24
and 25 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 by the non-defaulting party, following a payment
default 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 substantial portion of securities borrowing and lending
agreements is 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 25 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 that
provides the requisite level of certainty regarding the
enforceability of these agreements. Also, the exercise of rights
by the non-defaulting party to terminate and closeout
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. 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 that an 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 December 31, 2017
In millions of dollars
Securities purchased under agreements to
resell
Deposits paid for securities borrowed
Total
Gross amounts
of recognized
assets
Gross amounts
offset on the
Consolidated
Balance Sheet(1)
Net amounts of
assets included on
the Consolidated
Balance Sheet(2)
Amounts
not offset on the
Consolidated Balance
Sheet but eligible for
offsetting upon
counterparty default(3)
Net
amounts(4)
$
$
204,460 $
101,494
305,954 $
73,476 $
—
73,476 $
130,984 $
101,494
232,478 $
103,022 $
22,271
27,962
79,223
125,293 $
107,185
In millions of dollars
Securities sold under agreements to
repurchase
Deposits received for securities loaned
Total
Gross amounts
of recognized
liabilities
Gross amounts
offset on the
Consolidated
Balance Sheet(1)
Net amounts of
liabilities included on
the Consolidated
Balance Sheet(2)
Amounts
not offset on the
Consolidated Balance
Sheet but eligible for
offsetting upon
counterparty default(3)
Net
amounts(4)
$
$
216,122 $
73,476 $
13,305
—
229,427 $
73,476 $
142,646 $
13,305
155,951 $
73,716 $
68,930
4,079
9,226
77,795 $
78,156
As of December 31, 2016
Gross amounts
of recognized
assets
Gross amounts
offset on the
Consolidated
Balance Sheet(1)
Net amounts of
assets included on
the Consolidated
Balance Sheet(2)
Amounts
not offset on the
Consolidated Balance
Sheet but eligible for
offsetting upon
counterparty default(3)
Net
amounts(4)
$
$
176,284 $
105,340
281,624 $
44,811 $
—
44,811 $
131,473 $
105,340
236,813 $
102,874 $
16,200
28,599
89,140
119,074 $
117,739
In millions of dollars
Securities purchased under agreements to
resell
Deposits paid for securities borrowed
Total
180
In millions of dollars
Securities sold under agreements to
repurchase
Deposits received for securities loaned
Total
Gross amounts
of recognized
liabilities
Gross amounts
offset on the
Consolidated
Balance Sheet(1)
Net amounts of
liabilities included on
the Consolidated
Balance Sheet(2)
Amounts
not offset on the
Consolidated Balance
Sheet but eligible for
offsetting upon
counterparty default(3)
Net
amounts(4)
$
$
170,496 $
44,811 $
15,958
—
186,454 $
44,811 $
125,685 $
15,958
141,643 $
63,517 $
3,529
67,046 $
62,168
12,429
74,597
Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45.
(1)
(2) The total of this column for each period excludes federal funds sold/purchased. See tables above.
(3)
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 that an event of default has occurred and a legal opinion supporting enforceability of the offsetting right has been obtained.
(4) Remaining exposures continue to be secured by financial collateral, but Citi may not have sought or been able to obtain a legal opinion evidencing enforceability
of the offsetting right.
The following tables present the gross amount of liabilities associated with repurchase agreements and securities lending agreements,
by remaining contractual maturity:
In millions of dollars
Securities sold under agreements to repurchase
Deposits received for securities loaned
Total
In millions of dollars
Securities sold under agreements to repurchase
Deposits received for securities loaned
Total
As of December 31, 2017
Open and
overnight
Up to 30 days
31–90 days
Greater than
90 days
Total
$
$
82,073 $
68,372 $
33,846 $
31,831 $
216,122
9,946
266
1,912
1,181
13,305
92,019 $
68,638 $
35,758 $
33,012 $
229,427
As of December 31, 2016
Open and
overnight
Up to 30
days
31–90 days
Greater than
90 days
Total
$
$
79,740 $
50,399 $
19,396 $
20,961 $
170,496
10,813
2,169
2,044
932
15,958
90,553 $
52,568 $
21,440 $
21,893 $
186,454
The following tables present the gross amount of liabilities associated with repurchase agreements and securities lending agreements,
by class of underlying collateral:
In millions of dollars
As of December 31, 2017
Repurchase
agreements
Securities
lending
agreements
Total
U.S. Treasury and federal agency securities
$
58,774 $
— $
State and municipal securities
Foreign government securities
Corporate bonds
Equity securities
Mortgage-backed securities
Asset-backed securities
Other
Total
1,605
89,576
20,194
20,724
17,791
5,479
1,979
—
105
657
11,907
—
—
636
58,774
1,605
89,681
20,851
32,631
17,791
5,479
2,615
$
216,122 $
13,305 $
229,427
181
In millions of dollars
U.S. Treasury and federal agency securities
State and municipal securities
Foreign government securities
Corporate bonds
Equity securities
Mortgage-backed securities
Asset-backed securities
Other
Total
As of December 31, 2016
Repurchase
agreements
$
66,263 $
334
52,988
17,164
12,206
11,421
5,428
4,692
Securities
lending
agreements
Total
— $
—
1,390
630
13,913
—
—
25
66,263
334
54,378
17,794
26,119
11,421
5,428
4,717
$
170,496 $
15,958 $
186,454
182
12. BROKERAGE RECEIVABLES AND BROKERAGE
PAYABLES
Citi has receivables and payables for financial instruments
sold to and purchased from brokers, dealers and customers,
which arise in the ordinary course of business. Citi is
exposed to risk of loss from the inability of brokers, dealers
or customers to pay for purchases or to deliver the financial
instruments sold, in which case Citi would have to sell or
purchase the financial instruments at prevailing market
prices. Credit risk is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the
transaction and replaces the broker, dealer or customer in
question.
Citi seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain
margin collateral in compliance with regulatory and internal
guidelines. Margin levels are monitored daily, and customers
deposit additional collateral as required. Where customers
cannot meet collateral requirements, Citi may liquidate
sufficient underlying financial instruments to bring the
customer into compliance with the required margin level.
Exposure to credit risk is impacted by market volatility,
which may impair the ability of clients to satisfy their
obligations to Citi. Credit limits are established and closely
monitored for customers and for brokers and dealers
engaged in forwards, futures and other transactions deemed
to be credit sensitive.
Brokerage receivables and Brokerage payables
consisted of the following:
In millions of dollars
December 31,
2017
2016
Receivables from customers
$
19,215 $
10,374
Receivables from brokers,
dealers and clearing
organizations
Total brokerage receivables(1) $
Payables to customers
$
Payables to brokers, dealers
and clearing organizations
Total brokerage payables(1)
19,169
38,384 $
38,741 $
22,601
$
61,342 $
18,513
28,887
37,237
19,915
57,152
(1) Includes brokerage receivables and payables recorded by Citi broker-
dealer entities that are accounted for in accordance with the AICPA
Accounting Guide for Brokers and Dealers in Securities as codified in
ASC 940-320.
183
13. INVESTMENTS
Overview
The following table presents Citi’s investments by category:
In millions of dollars
Securities available-for-sale (AFS)
Debt securities held-to-maturity (HTM)(1)
Non-marketable equity securities carried at fair value(2)
Non-marketable equity securities carried at cost(3)
Total investments
December 31,
2017
2016
$
290,914 $
299,424
53,320
1,206
6,850
45,667
1,774
6,439
$
352,290 $
353,304
(1) Carried at adjusted amortized cost basis, net of any credit-related impairment.
(2) Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings.
(3) Primarily consists of shares issued by the Federal Reserve Bank, Federal Home Loan Banks, and various clearing houses of which Citigroup is a member.
The following table presents interest and dividend income on investments:
In millions of dollars
Taxable interest
Interest exempt from U.S. federal income tax
Dividend income
Total interest and dividend income
2017
2016
2015
$
$
7,538 $
6,858 $
535
222
549
175
6,433
196
388
8,295 $
7,582 $
7,017
The following table presents realized gains and losses on the sale of investments, which excludes losses from other-than-temporary
impairment (OTTI):
In millions of dollars
Gross realized investment gains
Gross realized investment losses
Net realized gains on sale of investments
2017
2016
2015
$
$
1,039 $
(261)
778 $
1,460 $
(512)
948 $
1,124
(442)
682
The Company has sold certain debt securities that were
classified as HTM. These sales were in response to significant
deterioration in the creditworthiness of the issuers or
securities or because the Company has collected a substantial
portion (at least 85%) of the principal outstanding at
acquisition of the security. In addition, certain other securities
were reclassified to AFS investments in response to
significant credit deterioration. Because the Company
generally intends to sell these reclassified securities, Citi
recorded OTTI on the securities. The following table sets
forth, for the periods indicated, the carrying value of HTM
securities sold and reclassified to AFS, as well as the related
gain (loss) or the OTTI losses recorded on these securities.
In millions of dollars
Carrying value of HTM securities sold
Net realized gain (loss) on sale of HTM securities
Carrying value of securities reclassified to AFS
OTTI losses on securities reclassified to AFS
2017
2016
2015
$
81 $
49 $
13
74
—
14
150
(6)
392
10
243
(15)
184
Securities Available-for-Sale
The amortized cost and fair value of AFS securities were as follows:
In millions of dollars
Debt securities AFS
Mortgage-backed securities(1)
U.S. government-sponsored agency
guaranteed
Prime
Alt-A
Non-U.S. residential
Commercial
2017
2016
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
$
42,116 $
125 $
500 $ 41,741 $
38,663 $
248 $
506 $ 38,405
11
26
2,744
334
6
90
13
—
—
—
6
2
17
116
2,751
332
2
43
3,852
357
—
7
13
2
—
—
7
1
2
50
3,858
358
Total mortgage-backed securities
$
45,231 $
234 $
508 $ 44,957 $
42,917 $
270 $
514 $ 42,673
U.S. Treasury and federal agency
securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency
securities
State and municipal(2)
Foreign government
Corporate
Asset-backed securities(1)
Other debt securities
Total debt securities AFS
Marketable equity securities AFS
Total securities AFS
$
108,344 $
77 $
971 $ 107,450 $ 113,606 $
629 $
452 $ 113,783
10,813
7
124
10,696
9,952
21
85
9,888
$
$
$
$
$
119,157 $
8,870 $
100,615
14,144
3,906
297
84 $
140 $
508
51
14
—
1,095 $ 118,146 $ 123,558 $
245 $
8,765 $
10,797 $
650 $
80 $
537 $ 123,671
757 $ 10,120
590
100,533
86
2
—
14,109
3,918
297
98,112
17,195
6,810
503
590
105
6
—
554
176
22
—
98,148
17,124
6,794
503
292,220 $
1,031 $
2,526 $ 290,725 $ 299,892 $
1,701 $
2,560 $ 299,033
186 $
4 $
1 $
189 $
377 $
20 $
6 $
391
292,406 $
1,035 $
2,527 $ 290,914 $ 300,269 $
1,721 $
2,566 $ 299,424
(1) The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure
(2)
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 21 to the Consolidated Financial Statements.
In the second quarter of 2017, Citi early adopted ASU 2017-08. Upon adoption, a cumulative effect adjustment was recorded to reduce retained earnings,
effective January 1, 2017, for the incremental amortization of purchase premiums and cumulative fair value hedge adjustments on callable state and municipal
debt securities. See Note 1 to the Consolidated Financial Statements.
At December 31, 2017, the amortized cost of
approximately 4,600 investments in equity and fixed income
securities exceeded their fair value by $2,527 million. Of the
$2,527 million, the gross unrealized losses on equity
securities were $1 million. Of the remainder, $1,854 million
represented unrealized losses on fixed income investments
that have been in a gross-unrealized-loss position for less than
a year and, of these, 99% were rated investment grade; and
$672 million represented unrealized losses on fixed income
investments that have been in a gross-unrealized-loss position
for a year or more and, of these, 94% were rated investment
grade. Of the $672 million mentioned above, $234 million
represent state and municipal securities.
185
The following table shows the fair value of AFS securities that have been in an unrealized loss position:
In millions of dollars
December 31, 2017
Securities AFS
Mortgage-backed securities
Less than 12 months
12 months or longer
Total
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
U.S. government-sponsored agency guaranteed
$
30,994 $
438 $
2,206 $
62 $
33,200 $
U.S. government-sponsored agency guaranteed
$
23,534 $
436 $
2,236 $
70 $
25,770 $
Prime
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Other debt securities
Marketable equity securities AFS
Total securities AFS
December 31, 2016
Securities AFS
Mortgage-backed securities
Prime
Non-U.S. residential
Commercial
Total mortgage-backed securities
U.S. Treasury and federal agency securities
U.S. Treasury
Agency obligations
Total U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Asset-backed securities
Other debt securities
Marketable equity securities AFS
Total securities AFS
500
—
6
2
506
—
7
1
—
753
150
—
6
1
—
—
57
—
—
1
—
753
207
$
$
$
$
31,897 $
445 $
2,263 $
63 $
34,160 $
508
79,050 $
856 $
7,404 $
115 $
86,454 $
8,857
110
1,163
14
10,020
971
124
87,907 $
966 $
8,567 $
129 $
96,474 $
1,095
1,009 $
11 $
1,155 $
234 $
2,164 $
53,206
6,737
449
—
11
356
74
1
—
1
9,051
859
25
—
—
234
62,257
12
1
—
—
7,596
474
—
11
245
590
86
2
—
1
$ 181,216 $
1,854 $
21,920 $
673 $ 203,136 $
2,527
1
486
75
—
—
1
—
1,276
58
—
7
—
1
1,762
133
$
$
$
$
24,096 $
437 $
3,570 $
77 $
27,666 $
514
44,342 $
445 $
1,335 $
7 $
45,677 $
6,552
83
250
2
6,802
50,894 $
528 $
1,585 $
9 $
52,479 $
1,616 $
55 $
3,116 $
702 $
4,732 $
38,226
7,011
411
5
19
243
129
—
—
2
8,973
1,877
3,213
—
24
311
47,199
47
22
—
4
8,888
3,624
5
43
452
85
537
757
554
176
22
—
6
$ 122,278 $
1,394 $
22,358 $
1,172 $ 144,636 $
2,566
186
The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates:
In millions of dollars
Mortgage-backed securities(1)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(2)
Total
U.S. Treasury and federal agency securities
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(2)
Total
State and municipal
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(2)
Total
Foreign government
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(2)
Total
All other(3)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(2)
Total
Total debt securities AFS
December 31,
2017
2016
Amortized
cost
Fair
value
Amortized
cost
Fair
value
$
$
$
45 $
45 $
132 $
1,306
1,376
42,504
1,304
1,369
736
2,279
42,239
39,770
45,231 $
44,957 $
42,917 $
132
738
2,265
39,538
42,673
4,913 $
4,907 $
4,945 $
4,945
111,236
110,238
101,369
3,008
—
3,001
—
17,153
91
101,323
17,314
89
$
119,157 $
118,146 $
123,558 $
123,671
$
1,792 $
1,792 $
2,093 $
2,579
514
3,985
2,576
528
3,869
2,668
335
5,701
2,092
2,662
334
5,032
$
$
8,870 $
8,765 $
10,797 $
10,120
32,130 $
32,100 $
32,540 $
53,034
12,949
2,502
53,165
12,680
2,588
51,008
12,388
2,176
32,547
50,881
12,440
2,280
$
100,615 $
100,533 $
98,112 $
98,148
$
3,998 $
3,991 $
2,629 $
9,047
3,415
1,887
9,027
3,431
1,875
12,339
6,566
2,974
2,628
12,334
6,528
2,931
$
$
18,347 $
18,324 $
24,508 $
24,421
292,220 $
290,725 $
299,892 $
299,033
(1)
(2)
(3)
Includes mortgage-backed securities of U.S. government-sponsored agencies.
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment
rights.
Includes corporate, asset-backed and other debt securities.
187
Debt Securities Held-to-Maturity
The carrying value and fair value of debt securities HTM were as follows:
Net
unrealized
gains
(losses)
recognized in
AOCI
Adjusted
amortized
cost basis(1)
Carrying
value(2)
Gross
unrealized
gains
Gross
unrealized
(losses)
Fair
value
In millions of dollars
December 31, 2017
Debt securities held-to-maturity
Mortgage-backed securities(3)
U.S. government agency guaranteed
$
23,854 $
26 $
23,880 $
40 $
(157) $
23,763
Prime
Alt-A
Non-U.S. residential
Commercial
Total mortgage-backed securities
State and municipal (4)
Foreign government
Asset-backed securities(3)
Total debt securities held-to-maturity
December 31, 2016
Debt securities held-to-maturity
Mortgage-backed securities(3)
U.S. government agency guaranteed
Prime
Alt-A
Non-U.S. residential
Commercial
Total mortgage-backed securities
State and municipal
Foreign government
Asset-backed securities(3)
Total debt securities held-to-maturity(5)
$
$
$
$
$
$
$
—
206
1,887
237
26,184 $
8,925 $
740
17,588
—
(65)
(46)
—
(85) $
(28) $
—
(4)
—
141
1,841
237
26,099 $
8,897 $
740
17,584
—
57
65
—
162 $
378 $
—
162
—
—
—
—
(157) $
(73) $
(18)
(22)
53,437 $
(117) $
53,320 $
702 $
(270) $
—
198
1,906
237
26,104
9,202
722
17,724
53,752
22,462 $
33 $
22,495 $
47 $
(186) $
22,356
31
314
1,871
14
24,692 $
9,025 $
1,339
11,107
(7)
(27)
(47)
—
(48) $
(442) $
—
(6)
24
287
1,824
14
24,644 $
8,583 $
1,339
11,101
10
69
49
—
175 $
129 $
—
41
(1)
(1)
—
—
(188) $
(238) $
(26)
(5)
46,163 $
(496) $
45,667 $
345 $
(457) $
33
355
1,873
14
24,631
8,474
1,313
11,137
45,555
(1) For securities transferred to HTM from Trading account assets, adjusted amortized cost basis 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, adjusted
amortized cost basis is defined as the original purchase cost, adjusted for the cumulative accretion or amortization of any purchase discount or premium, plus or
minus any cumulative fair value hedge adjustments, net of accretion or amortization, and less any other-than-temporary impairment recognized in earnings.
(2) HTM securities are carried on the Consolidated Balance Sheet at adjusted amortized cost basis, plus or minus any unamortized unrealized gains and losses and
fair value hedge adjustments recognized in AOCI prior to reclassifying the securities from AFS to HTM. Changes in the values of these securities are not
reported in the financial statements, except for the amortization of any difference between the carrying value at the transfer date and par value of the securities,
and the recognition of any non-credit fair value adjustments in AOCI in connection with the recognition of any credit impairment in earnings related to securities
the Company continues to intend to hold until maturity.
(3) The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company’s maximum exposure
(4)
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 21 to the Consolidated Financial Statements.
In the second quarter of 2017, Citi early adopted ASU 2017-08. Upon adoption, a cumulative effect adjustment was recorded to reduce retained earnings,
effective January 1, 2017, for the incremental amortization of purchase premiums and cumulative fair value hedge adjustments that would have been recorded
under the ASU on callable state and municipal debt securities. See Note 1 to the Consolidated Financial Statements.
(5) During the fourth quarter of 2016, securities with a total fair value of approximately $5.8 billion were transferred from AFS to HTM, composed of $5 billion of
U.S. government agency mortgage-backed securities and $830 million of municipal securities. The transfer reflects the Company’s intent to hold these securities
to maturity or to issuer call, in part, in order to reduce the impact of price volatility on AOCI and certain capital measures under Basel III. While these securities
were transferred to HTM at fair value as of the transfer date, no subsequent changes in value may be recorded, other than in connection with the recognition of
any subsequent other-than-temporary impairment and the amortization of differences between the carrying values at the transfer date and the par values of each
security as an adjustment of yield. Any net unrealized holding losses within AOCI related to the respective securities at the date of transfer, inclusive of any
cumulative fair value hedge adjustments, will be amortized as an adjustment of yield in a manner consistent with the amortization of any premium or discount.
188
The Company has the positive intent and ability to hold
these securities to maturity or, where applicable, the exercise
of any issuer call options, absent any unforeseen significant
changes in circumstances, including deterioration in credit or
changes in regulatory capital requirements.
The net unrealized losses classified in AOCI for HTM
securities primarily relate to debt securities previously
classified as AFS that were transferred to HTM, and include
any cumulative fair
value hedge adjustments. The net unrealized loss amount also
includes any non-credit-related changes in fair value of HTM
securities that have suffered credit impairment recorded in
earnings. The AOCI balance related to HTM securities is
amortized as an adjustment of yield, in a manner consistent
with the accretion of any difference between the carrying
value at the transfer date and par value of the same debt
securities.
The table below shows the fair value of debt securities HTM that have been in an unrecognized loss position:
157
73
18
22
270
188
238
26
5
457
In millions of dollars
December 31, 2017
Debt securities held-to-maturity
Mortgage-backed securities
State and municipal
Foreign government
Asset-backed securities
Less than 12 months
12 months or longer
Total
Fair
value
Gross
unrecognized
losses
Fair
value
Gross
unrecognized
losses
Fair
value
Gross
unrecognized
losses
$
46 $
— $ 15,096 $
157 $ 15,142 $
353
723
71
5
18
3
835
—
134
68
—
19
1,188
723
205
Total debt securities held-to-maturity
$
1,193 $
26 $ 16,065 $
244 $ 17,258 $
December 31, 2016
Debt securities held-to-maturity
Mortgage-backed securities
State and municipal
Foreign government
Asset-backed securities
$
17 $
— $ 17,176 $
188 $ 17,193 $
2,200
1,313
2
58
26
—
1,210
—
2,503
180
—
5
3,410
1,313
2,505
Total debt securities held-to-maturity
$
3,532 $
84 $ 20,889 $
373 $ 24,421 $
Note: Excluded from the gross unrecognized losses presented in the above table are $(117) million and $(496) million of net unrealized losses recorded in AOCI as of
December 31, 2017 and December 31, 2016, respectively, primarily related to the difference between the amortized cost and carrying value of HTM securities that
were reclassified from AFS. Substantially all of these net unrecognized losses relate to securities that have been in a loss position for 12 months or longer at
December 31, 2017 and December 31, 2016.
189
The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates:
In millions of dollars
Mortgage-backed securities
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(1)
Total
State and municipal
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(1)
Total
Foreign government
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(1)
Total
All other(2)
Due within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years(1)
Total
Total debt securities held-to-maturity
December 31,
2017
2016
Carrying
value
Fair value
Carrying
value
Fair value
$
$
$
$
$
$
$
$
$
— $
— $
— $
720
148
720
149
760
54
25,231
25,235
23,830
26,099 $
26,104 $
24,644 $
407 $
425 $
406 $
259
512
7,719
270
524
7,983
112
363
7,702
8,897 $
9,202 $
8,583 $
381 $
381 $
824 $
359
—
—
341
—
—
515
—
—
—
766
55
23,810
24,631
406
110
367
7,591
8,474
818
495
—
—
740 $
722 $
1,339 $
1,313
— $
—
1,669
15,915
17,584 $
53,320 $
— $
—
1,680
16,044
17,724 $
53,752 $
— $
—
513
10,588
11,101 $
45,667 $
—
—
514
10,623
11,137
45,555
(1)
(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.
Includes corporate and asset-backed securities.
190
Evaluating Investments for Other-Than-Temporary
Impairment (OTTI)
Overview
The Company conducts 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 adjusted 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 generally are not recorded,
as these investments are carried at adjusted amortized cost
basis. However, for HTM securities with credit-related losses,
the credit loss is recognized in earnings as OTTI and any
difference between the cost basis adjusted for the OTTI and
fair value is recognized in AOCI and amortized as an
adjustment of yield over the remaining contractual life of the
security.
Regardless of the classification of the securities as AFS
or HTM, the Company assesses each position with an
unrealized loss for OTTI. Factors considered in determining
whether a loss is temporary include:
•
•
•
•
•
the length of time and the extent to which fair value has
been below cost;
the severity of the impairment;
the cause of the impairment and the financial condition
and near-term prospects of the issuer;
activity in the market of the issuer that may indicate
adverse credit conditions; and
the Company’s ability and intent to hold the investment
for a period of time sufficient to allow for recovery of the
amortized cost basis.
The Company’s review for impairment generally entails:
•
•
•
•
identification and evaluation of impaired investments;
analysis of individual investments that have fair values
less than the amortized cost, including consideration of
the length of time the investment has been in an
unrealized loss position and the expected recovery
period;
consideration of evidential matter, including an
evaluation of factors or triggers that could cause
individual investments to qualify as having other-than-
temporary impairment and those that would not support
other-than-temporary impairment; and
documentation of the results of these analyses, as
required under business policies.
191
Debt Securities
The entire difference between the adjusted amortized cost
basis and fair value is recognized in earnings as OTTI for
impaired debt securities that the Company has an intent to sell
or for which the Company believes it will more-likely-than-
not be required to sell prior to recovery of the adjusted
amortized cost basis. However, for those securities that the
Company does not intend to sell and is not likely to be
required to sell, only the credit-related impairment is
recognized in earnings and any non-credit-related impairment
is recorded in AOCI.
For debt securities, credit impairment exists where the
present value of cash flows management expects to receive is
not sufficient to recover the entire amortized cost basis of a
security.
Equity Securities
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 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 to be other-than-temporarily impaired are
written down to fair value, with the full difference between
fair value and cost recognized in earnings.
Management also assesses equity method investments
that have fair values that are less than their respective
carrying values 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 24 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.
For impaired equity method investments that
management does not plan to sell and is not likely to be
required to sell prior to recovery of value, 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 considers
the following indicators, regardless of the time and extent of
impairment:
•
the cause of the impairment and the financial condition
and near-term prospects of the issuer, including any
specific events that may influence the operations of the
issuer;
•
•
the intent and ability to hold the investment for a period
of time sufficient to allow for any anticipated recovery in
market value; and
the length of time and extent to which fair value has been
less than the carrying value.
The sections below describe the Company’s process for
identifying credit-related impairments for security types that
have the most significant unrealized losses as of
December 31, 2017.
Mortgage-Backed Securities
For U.S. mortgage-backed securities, credit impairment is
assessed using a cash flow model that estimates the principal
and interest cash flows on the underlying mortgages using the
security-specific collateral and transaction structure. The
model distributes the estimated cash flows to the 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 estimates the remaining cash flows using a
number of assumptions, including default rates, prepayment
rates, recovery rates (on foreclosed properties) and loss
severity rates (on non-agency mortgage-backed securities).
Management develops specific assumptions using
market data, internal estimates and 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 extrapolated along a
default timing curve to estimate the total lifetime pool default
Recognition and Measurement of OTTI
The following tables present total OTTI recognized in earnings:
rate. Other assumptions contemplate the actual collateral
attributes, including geographic concentrations, rating actions
and current market prices.
Cash flow projections are developed using different stress
test scenarios. Management evaluates 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
The process for identifying credit impairments in Citigroup’s
AFS and HTM state and municipal bonds is primarily based
on a credit analysis that incorporates third-party credit ratings.
Citigroup monitors the bond issuers and any insurers
providing default protection in the form of financial guarantee
insurance. The average external credit rating, ignoring any
insurance, is Aa3/AA-. In the event of an external rating
downgrade or other indicator of credit impairment (i.e., based
on instrument-specific estimates of cash flows or probability
of issuer default), the subject bond is specifically reviewed for
adverse changes in the amount or timing of expected
contractual principal and interest payments.
For state and municipal bonds with unrealized losses that
Citigroup plans to sell or would be more-likely-than-not
required to sell (for AFS only) or that will be subject to an
issuer call deemed probable of exercise prior to the expected
recovery of its amortized cost basis (for AFS and HTM), the
full impairment is recognized in earnings as OTTI.
OTTI on Investments and Other Assets
In millions of dollars
Impairment losses related to securities that the Company does not intend to sell nor will
likely be required to sell:
Total OTTI losses recognized during the period
Less: portion of impairment loss recognized in AOCI (before taxes)
Net impairment losses recognized in earnings for securities that the Company does not
intend to sell nor will likely be required to sell
Impairment losses recognized in earnings for securities that the Company intends to sell,
would be more-likely-than-not required to sell or will be subject to an issuer call deemed
probable of exercise
Total impairment losses recognized in earnings
(1)
Includes OTTI on non-marketable equity securities.
Year ended
December 31, 2017
AFS(1)
HTM
Other
assets
Total
$
$
$
2 $
—
2 $
59
61 $
— $
—
— $
2
2 $
— $
—
— $
—
— $
2
—
2
61
63
192
OTTI on Investments and Other Assets
In millions of dollars
Year ended
December 31, 2016
AFS(1)(2)
HTM
Other
assets (3)
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
Less: portion of impairment loss recognized in AOCI (before taxes)
Net impairment losses recognized in earnings for securities that the Company does not
intend to sell nor will likely be required to sell
Impairment losses recognized in earnings for securities that the Company intends to sell,
would be more-likely-than-not required to sell or will be subject to an issuer call deemed
probable of exercise
Total impairment losses recognized in earnings
$
$
$
3 $
—
3 $
246
249 $
1 $
—
1 $
38
39 $
— $
—
— $
332
332 $
4
—
4
616
620
Includes OTTI on non-marketable equity securities.
Includes a $160 million impairment related to AFS securities affected by changes in the Venezuela exchange rate during the year ended December 31, 2016.
(1)
(2)
(3) The impairment charge is related to the carrying value of an equity investment, which was sold in 2016.
OTTI on Investments and Other Assets
In millions of dollars
Year ended
December 31, 2015
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
Less: portion of impairment loss recognized in AOCI (before taxes)
Net impairment losses recognized in earnings for securities that the Company does not
intend to sell nor will likely be required to sell
Impairment losses recognized in earnings for securities that the Company intends to sell or
more-likely-than-not will be required to sell before recovery
Total impairment losses recognized in earnings
$
$
$
33 $
—
33 $
182
215 $
1 $
—
1 $
43
44 $
— $
—
— $
6
6 $
34
—
34
231
265
(1)
Includes OTTI on non-marketable equity securities.
193
The following are 12-month rollforwards of the credit-related impairments recognized in earnings for AFS and HTM debt securities
held that the Company does not intend to sell nor likely will be required to sell:
Cumulative OTTI credit losses recognized in earnings on securities still held
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(1)
Dec. 31, 2017
balance
Dec. 31, 2016
balance
$
$
$
$
— $
— $
— $
4
—
5
22
31 $
101 $
3
104 $
—
—
—
—
— $
— $
—
— $
—
—
—
2
2 $
— $
—
— $
38 $
—
—
(1)
(22)
15 $
(47) $
—
(47) $
38
4
—
4
2
48
54
3
57
In millions of dollars
AFS debt securities
Mortgage-backed securities(1)(2)
State and municipal
Foreign government securities
Corporate
All other debt securities
Total OTTI credit losses recognized for AFS debt
securities
HTM debt securities
Mortgage-backed securities(1)(3)
State and municipal
Total OTTI credit losses recognized for HTM
debt securities
(1) Includes $38 million in cumulative OTTI reclassified from HTM to AFS due to the transfer of the related securities from HTM to AFS.
(2) Primarily consists of Prime securities.
(3) Primarily consists of Alt-A securities.
In millions of dollars
AFS debt securities
Mortgage-backed securities
State and municipal
Foreign government securities
Corporate
All other debt securities
Total OTTI credit losses recognized for AFS debt
securities
HTM debt securities
Mortgage-backed securities(1)
State and municipal
Total OTTI credit losses recognized for HTM debt
securities
(1) Primarily consists of Alt-A securities.
Cumulative OTTI credit losses recognized in earnings on securities still held
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
Dec. 31, 2016
balance
Dec. 31, 2015
balance
1 $
—
—
1
—
2 $
— $
1
1 $
— $
—
—
1
—
1 $
— $
—
— $
(1) $
(8)
(5)
(6)
(25)
(45) $
(31) $
(2)
(33) $
—
4
—
5
22
31
101
3
104
$
$
$
$
— $
12
5
9
47
73 $
132 $
4
136 $
194
Investments in Alternative Investment Funds That
Calculate Net Asset Value
The Company holds investments in certain alternative
investment funds that calculate net asset value (NAV) or its
equivalent, including hedge funds, private equity funds, funds
of funds and real estate funds, as provided by third-party asset
managers. Investments in such funds are generally classified
as non-marketable equity securities carried at fair value. The
fair values of these investments are estimated using the NAV
of the Company’s ownership interest in the funds. Some of
these investments are in “covered funds” for purposes of the
Volcker Rule, which prohibits certain proprietary investment
activities and limits the ownership of, and relationships with,
covered funds. On April 21, 2017, Citi’s request for extension
of the permitted holding period under the Volcker Rule for
certain of its investments in illiquid funds was approved. This
allows the Company to hold such investments until the earlier
of 5 years from the July 21, 2017 (expiration date of the
general conformance period), or the date such investments
mature or are otherwise conformed with the Volcker Rule.
Fair value
Unfunded
commitments
Redemption frequency
(if currently eligible)
monthly, quarterly, annually
Redemption
notice
period
In millions of dollars
Hedge funds
Private equity funds(1)(2)
Real estate funds(2)(3)
Total
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
$
$
1 $
372
31
404 $
4 $
348
56
408 $
— $
62
20
82 $
—
82
20
102
Generally quarterly
—
—
—
10–95 days
—
—
—
(1) Private equity funds include funds that invest in infrastructure, emerging markets and venture capital.
(2) With respect to the Company’s investments in private equity funds and real estate funds, distributions from each fund will be received as the underlying assets
held by these funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over a period of several years as market conditions
allow. Private equity and real estate funds do not allow redemption of investments by their investors. Investors are permitted to sell or transfer their investments,
subject to the approval of the general partner or investment manager of these funds, which generally may not be unreasonably withheld.
Includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia.
(3)
195
14. 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 GCB and Corporate/Other. The following table provides
Citi’s consumer loans by loan type:
In millions of dollars
In U.S. offices
Mortgage and real estate(1)
Installment, revolving credit and
other
Cards
Commercial and industrial
In offices outside the U.S.
Mortgage and real estate(1)
Installment, revolving credit and
other
Cards
Commercial and industrial
Lease financing
Total consumer loans
Net unearned income
Consumer loans, net of
unearned income
$
$
$
$
$
$
$
(1) Loans secured primarily by real estate.
December 31,
2017
2016
65,467 $
72,957
3,398
139,006
7,840
3,395
132,654
7,159
215,711 $
216,165
44,081 $
42,803
26,556
26,257
20,238
76
117,208 $
332,919 $
737 $
24,887
23,783
16,568
81
108,122
324,287
776
333,656 $
325,063
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.
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 years ended December 31, 2017 and 2016, the
Company sold and/or reclassified to held-for-sale, $4.9 billion
and $9.7 billion, respectively, of consumer loans.
Delinquency Status
Delinquency status is monitored and considered a key
indicator of credit quality of consumer loans. Principally, the
U.S. residential first mortgage loans use the Mortgage Bankers
Association (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 a method of reporting
delinquencies that 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. 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.
Mortgage loans, other than Federal Housing Administration
(FHA)-insured loans, are classified as non-accrual within 60
days of notification that the borrower has filed for bankruptcy.
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 a 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, 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.
196
Consumer Loan Delinquency and Non-Accrual Details at December 31, 2017
In millions of dollars
In North America offices
Residential first mortgages(5)
Home equity loans(6)(7)
Credit cards
Installment and other
Commercial market loans
Total
In offices outside North America
Residential first mortgages(5)
Credit cards
Installment and other
Commercial market loans
Total
Total GCB and Corporate/Other—
consumer
Other(8)
Total Citigroup
Total
current(1)(2)
30–89 days
past due(3)
90 days
past due(3)
Past due
government
guaranteed(4)
Total
loans(2)
Total
non-
accrual
90 days past due
and accruing
$
47,366 $
505 $
280 $
1,225 $
49,376 $
665 $
14,268
136,588
3,395
9,395
207
1,528
45
51
352
1,613
16
65
—
14,827
— 139,729
—
—
3,456
9,511
750
—
22
213
211,012 $
2,336 $
2,326 $
1,225 $ 216,899 $
1,650 $
37,062 $
209 $
148 $
— $
37,419 $
400 $
24,934
25,634
27,449
427
275
57
366
123
72
—
—
—
25,727
26,032
27,578
323
157
160
115,079 $
968 $
709 $
— $ 116,756 $
1,040 $
326,091 $
3,304 $
3,035 $
1,225 $ 333,655 $
2,690 $
1
—
—
—
1
—
326,092 $
3,304 $
3,035 $
1,225 $ 333,656 $
2,690 $
$
$
$
$
$
941
—
1,596
1
15
2,553
—
259
—
—
259
2,812
—
2,812
Includes $25 million of residential first mortgages recorded at fair value.
(1) Loans less than 30 days past due are presented as current.
(2)
(3) Excludes loans guaranteed by U.S. government-sponsored entities.
(4) Consists of residential first mortgages that are guaranteed by U.S. government-sponsored entities that are 30–89 days past due of $0.2 billion and 90 days or more
past due of $1.0 billion.
Includes approximately $0.1 billion of residential first mortgage loans in process of foreclosure.
Includes approximately $0.1 billion of home equity loans in process of foreclosure.
(5)
(6)
(7) Fixed-rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.
(8) Represents loans classified as consumer loans on the Consolidated Balance Sheet that are not included in GCB or Corporate/Other consumer credit metrics.
197
Consumer Loan Delinquency and Non-Accrual Details at December 31, 2016
In millions of dollars
In North America offices
Residential first mortgages(5)
Home equity loans(6)(7)
Credit cards
Installment and other
Commercial market loans
Total
In offices outside North America
Residential first mortgages(5)
Credit cards
Installment and other
Commercial market loans
Total
Total GCB and Corporate/Other—
consumer
Other(9)
Total Citigroup
Total
current(1)(2)
30–89 days
past due(3)
90 days
past due(3)
Past due
government
guaranteed(4)
Total
loans(2)
Total
non-accrual
90 days past due
and accruing
$
50,766 $
522 $
371 $
1,474 $ 53,133 $
848 $
18,767
130,327
4,486
8,876
249
1,465
106
23
438
1,509
38
74
—
19,454
— 133,301
—
—
4,630
8,973
914
—
70
328
213,222 $
2,365 $
2,430 $
1,474 $ 219,491 $
2,160 $
35,862 $
206 $
135 $
— $ 36,203 $
360 $
22,363
22,683
23,054
368
264
72
324
126
112
—
—
—
23,055
23,073
23,238
258
163
217
103,962 $
910 $
697 $
— $ 105,569 $
998 $
317,184 $
3,275 $
3,127 $
1,474 $ 325,060 $
3,158 $
3
—
—
—
3
—
317,187 $
3,275 $
3,127 $
1,474 $ 325,063 $
3,158 $
$
$
$
$
$
1,227
—
1,509
2
14
2,752
—
239
—
—
239
2,991
—
2,991
Includes $29 million of residential first mortgages recorded at fair value.
(1) Loans less than 30 days past due are presented as current.
(2)
(3) Excludes loans guaranteed by U.S. government-sponsored entities.
(4) Consists of residential first mortgages that are guaranteed by U.S. government-sponsored entities that are 30–89 days past due of $0.2 billion and 90 days or more
past due of $1.3 billion.
Includes approximately $0.1 billion of residential first mortgage loans in process of foreclosure.
Includes approximately $0.1 billion of home equity loans in process of foreclosure.
(5)
(6)
(7) Fixed-rate home equity loans and loans extended under home equity lines of credit, which are typically in junior lien positions.
(8) Represents loans classified as consumer loans on the Consolidated Balance Sheet that are not included in the Corporate/Other consumer credit metrics.
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” (Fair Isaac Corporation)
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 tables provide details on the FICO scores
for Citi’s U.S. consumer loan portfolio based on end-of-period
receivables (commercial market loans are excluded from 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 for the remaining portfolio.
FICO score
distribution in
U.S. portfolio(1)(2)
In millions of dollars
Residential first
mortgages
Home equity loans
Credit cards
Installment and
other
December 31, 2017
Less than
620
620 but less
than 660
Equal to or
greater
than 660
$
2,100 $
1,932 $
1,379
9,079
276
1,081
11,651
42,265
11,976
115,577
250
2,485
Total
$
12,834 $
14,914 $
172,303
198
Impaired Consumer Loans
A loan is considered impaired when Citi believes it is probable
that all amounts due according to the original contractual
terms of the loan will not be collected. 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
Citi 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.
FICO score
distribution in
U.S. portfolio(1)(2)
In millions of dollars
Residential first
mortgages
Home equity loans
Credit cards
Installment and other
December 31, 2016
Less than
620
620 but less
than 660
Equal to or
greater
than 660
$
2,744 $
2,422 $
1,750
8,310
284
1,418
11,320
271
44,279
14,743
110,522
2,601
Total
$
13,088 $
15,431 $
172,145
(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.
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 for
Citi’s U.S. consumer mortgage portfolios. LTV ratios are
updated monthly using the most recent Core Logic Home
Price Index 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 Federal Housing
Finance Agency indices.
LTV distribution in
U.S. portfolio(1)(2)
In millions of dollars
Residential first
mortgages
Home equity loans
Total
LTV distribution in
U.S. portfolio(1)(2)
In millions of dollars
Residential first
mortgages
Home equity loans
Total
December 31, 2017
Less than
or
equal to
80%
> 80% but less
than or equal
to
100%
Greater
than
100%
$
$
43,626 $
11,403
55,029 $
2,578 $
2,147
247
800
4,725 $
1,047
December 31, 2016
Less than
or
equal to
80%
> 80% but less
than or equal to
100%
Greater
than
100%
$
$
45,849 $
12,869
58,718 $
3,467 $
3,653
7,120 $
324
1,305
1,629
(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.
199
The following tables present information about impaired
consumer loans and interest income recognized on impaired
consumer loans:
In millions of dollars
Mortgage and real estate
Residential first mortgages
Home equity loans
Credit cards
Installment and other
Individual installment and other
Commercial market loans
Total
At and for the year ended December 31, 2017
Recorded
investment(1)(2)
Unpaid
principal
balance
Related
specific
allowance(3)
Average
carrying
value(4)
Interest
income
recognized(5)
$
2,877 $
3,121 $
278 $
3,155 $
1,151
1,787
1,590
1,819
431
334
460
541
216
614
175
51
1,181
1,803
415
429
$
6,580 $
7,531 $
1,334 $
6,983 $
119
28
150
25
20
342
(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) $607 million of residential first mortgages, $370 million of home equity loans and $10 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.
In millions of dollars
Mortgage and real estate
Residential first mortgages
Home equity loans
Credit cards
Installment and other
Individual installment and other
Commercial market loans
Total
At and for the year ended December 31, 2016
Recorded
investment(1)(2)
Unpaid
principal
balance
Related
specific
allowance(3)
Average
carrying
value(4)
Interest
income
recognized(5)(6)
$
3,786 $
4,157 $
540 $
4,632 $
1,298
1,747
1,824
1,781
455
513
481
744
189
566
215
98
1,326
1,831
475
538
$
7,799 $
8,987 $
1,608 $
8,802 $
170
35
158
27
12
402
(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.
Included in the Allowance for loan losses.
(2) $740 million of residential first mortgages, $406 million of home equity loans and $97 million of commercial market loans do not have a specific allowance.
(3)
(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) Interest income recognized for the year ended December 31, 2015 was $728 million.
200
Consumer Troubled Debt Restructurings
In millions of dollars except number of
loans modified
Number of
loans modified
North America
At and for the year ended December 31, 2017
Post-
modification
recorded
investment(1)(2)
Deferred
principal(3)
Contingent
principal
forgiveness(4)
Principal
forgiveness(5)
Average
interest rate
reduction
Residential first mortgages
4,063 $
580 $
6 $
— $
Home equity loans
Credit cards
Installment and other revolving
Commercial banking(6)
Total(8)
International
2,807
230,042
1,088
112
247
880
8
117
238,112 $
1,832 $
Residential first mortgages
4,477 $
123 $
Credit cards
Installment and other revolving
Commercial banking(6)
Total(8)
115,941
44,880
370
399
254
50
16
—
—
—
22 $
— $
—
—
—
—
—
—
—
— $
— $
—
—
—
165,668 $
826 $
— $
— $
In millions of dollars except number of
loans modified
Number of
loans modified
North America
At and for the year ended December 31, 2016
Post-
modification
recorded
investment(1)(7)
Deferred
principal(3)
Contingent
principal
forgiveness(4)
Principal
forgiveness(5)
Average
interest rate
reduction
Residential first mortgages
5,023 $
726 $
6 $
— $
Home equity loans
Credit cards
Installment and other revolving
Commercial banking(6)
Total(8)
International
4,100
196,004
5,649
132
200
762
47
91
210,908 $
1,826 $
Residential first mortgages
2,722 $
80 $
Credit cards
Installment and other revolving
Commercial banking(6)
Total(8)
137,466
60,094
162
385
276
109
6
—
—
—
12 $
— $
—
—
—
—
—
—
—
— $
— $
—
—
—
200,444 $
850 $
— $
— $
(1) Post-modification balances include past due amounts that are capitalized at the modification date.
(2) Post-modification balances in North America include $53 million of residential first mortgages and $21 million of home equity loans to borrowers who have gone
through Chapter 7 bankruptcy in the year ended December 31, 2017. These amounts include $36 million of residential first mortgages and $18 million of home
equity loans that were newly classified as TDRs during 2017, based on previously received OCC guidance.
(3) Represents portion of contractual loan principal that is non-interest bearing, but still due from the 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 was forgiven at the time of permanent modification.
(6) Commercial banking loans are generally borrower-specific modifications and incorporate changes in the amount and/or timing of principal and/or interest.
(7) Post-modification balances in North America include $74 million of residential first mortgages and $22 million of home equity loans to borrowers who have gone
through Chapter 7 bankruptcy in the year ended December 31, 2016. These amounts include $48 million of residential first mortgages and $20 million of home
equity loans that were newly classified as TDRs during 2016, based on previously received OCC guidance.
(8) The above tables reflect activity for loans outstanding as of the end of the reporting period that were considered TDRs.
201
2
1
—
—
—
3
—
7
11
—
18
1%
1
17
5
—
—%
11
9
—
3
1
—
—
—
4
—
9
7
—
16
1%
2
17
14
—
—%
12
7
—
The following table presents consumer TDRs that defaulted, for which the payment default occurred within one year of a
permanent modification. Default is defined as 60 days past due, except for classifiably managed commercial banking loans, where
default is defined as 90 days past due.
In millions of dollars
North America
Residential first mortgages
Home equity loans
Credit cards
Installment and other revolving
Commercial banking
Total
International
Residential first mortgages
Credit cards
Installment and other revolving
Commercial banking
Total
2017
2016
$
$
$
$
253 $
46
221
2
2
524 $
11 $
185
96
1
293 $
229
25
188
9
15
466
11
148
90
37
286
202
Corporate Loans
Corporate loans represent loans and leases managed by ICG.
The following table presents information by corporate loan
type:
In millions of dollars
In U.S. offices
December 31,
2017
December 31,
2016
Commercial and industrial
$
51,319 $
Financial institutions
Mortgage and real estate(1)
Installment, revolving credit
and other
Lease financing
39,128
44,683
33,181
1,470
49,586
35,517
38,691
34,501
1,518
In offices outside the U.S.
Commercial and industrial
Financial institutions
Mortgage and real estate(1)
Installment, revolving credit
and other
Lease financing
Governments and official
institutions
Total corporate loans
Net unearned income
Corporate loans, net of
unearned income
$
$
$
$
$
$
169,781 $
159,813
93,750 $
35,273
7,309
22,638
190
5,200
164,360 $
334,141 $
(763) $
81,882
26,886
5,363
19,965
251
5,850
140,197
300,010
(704)
333,378 $
299,306
(1) Loans secured primarily by real estate.
The Company sold and/or reclassified to held-for-sale
$1.0 billion and $4.2 billion of corporate loans during the
years ended December 31, 2017 and 2016, respectively. The
Company did not have significant purchases of corporate
loans classified as held-for-investment for the years ended
December 31, 2017 or 2016.
Delinquency Status
Citi generally does not manage corporate loans on a
delinquency basis. 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.
203
Corporate Loan Delinquency and Non-Accrual Details at December 31, 2017
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Loans at fair value
Total
30–89 days
past due
and accruing(1)
$
249 $
90 days
past due and
accruing(1)
Total past due
and accruing
Total
non-accrual(2)
Total
current(3)
Total
loans (4)
13 $
262 $
1,506 $
139,554 $
141,322
93
147
68
70
15
59
8
13
108
206
76
83
92
195
46
103
73,557
51,563
1,533
60,145
73,757
51,964
1,655
60,331
4,349
$
627 $
108 $
735 $
1,942 $
326,352 $
333,378
Corporate Loan Delinquency and Non-Accrual Details at December 31, 2016
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Loans at fair value
Total
30–89 days
past due
and accruing(1)
$
143 $
90 days
past due and
accruing(1)
Total past due
and accruing
Total
non-accrual(2)
Total
current(3)
Total
loans (4)
52 $
195 $
1,909 $
127,012 $
129,116
119
148
27
349
2
137
8
12
121
285
35
361
185
139
56
132
61,254
43,607
1,678
58,880
61,560
44,031
1,769
59,373
3,457
$
786 $
211 $
997 $
2,421 $
292,431 $
299,306
(1) Corporate loans that are 90 days past due are generally classified as non-accrual. Corporate loans are considered past due when principal or interest is
contractually due but unpaid.
(2) Non-accrual loans generally include those loans that are
90 days past due or those loans for which Citi believes, based on actual experience and a forward-
looking assessment of the collectability of the loan in full, that the payment of interest or principal is doubtful.
(3) Loans less than 30 days past due are presented as current.
(4) Total loans include loans at fair value, which are not included in the various delinquency columns.
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.
204
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.
Corporate Loans Credit Quality Indicators
In millions of dollars
Investment grade(2)
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Total investment grade
Non-investment grade(2)
Accrual
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Non-accrual
Commercial and industrial
Financial institutions
Mortgage and real estate
Leases
Other
Total non-investment grade
Private bank loans managed
on a delinquency basis(2)
Loans at fair value
Corporate loans, net of
unearned income
Recorded investment in loans(1)
December 31,
December 31,
2016
2017
$
101,313 $
60,404
23,213
1,090
56,306
87,201
50,597
18,718
1,303
52,828
$
$
$
$
$
242,326 $
210,647
38,503 $
13,261
2,881
518
3,924
1,506
92
195
46
103
39,874
10,873
1,821
410
6,450
1,909
185
139
56
132
61,029 $
61,849
25,674 $
4,349
23,353
3,457
333,378 $
299,306
(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 are accounted for on an amortized cost
basis.
205
The following tables present non-accrual loan information by corporate loan type and interest income recognized on non-
accrual corporate loans:
Non-Accrual Corporate Loans
In millions of dollars
Non-accrual corporate loans
At and for the year ended December 31, 2017
Recorded
investment(1)
Unpaid
principal balance
Related specific
allowance
Average
carrying value(2)
Interest income
recognized(3)
Commercial and industrial
$
1,506 $
1,775 $
368 $
1,547 $
Financial institutions
Mortgage and real estate
Lease financing
Other
92
195
46
103
102
324
46
212
41
11
4
2
212
183
59
108
Total non-accrual corporate loans $
1,942 $
2,459 $
426 $
2,109 $
23
1
10
—
1
35
In millions of dollars
Non-accrual corporate loans
At and for the year ended December 31, 2016
Recorded
investment(1)
Unpaid
principal balance
Related specific
allowance
Average
carrying value(2)
Interest income
recognized(3)
Commercial and industrial
$
1,909 $
2,259 $
362 $
1,919 $
Financial institutions
Mortgage and real estate
Lease financing
Other
185
139
56
132
192
250
56
197
16
10
4
—
183
174
44
87
Total non-accrual corporate loans
$
2,421 $
2,954 $
392 $
2,407 $
25
3
6
—
6
40
In millions of dollars
Non-accrual corporate loans with valuation allowances
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual corporate loans with specific
allowance
Non-accrual corporate loans without specific allowance
Commercial and industrial
Financial institutions
Mortgage and real estate
Lease financing
Other
Total non-accrual corporate loans without specific
allowance
$
$
$
$
December 31, 2017
December 31, 2016
Recorded
investment(1)
Related specific
allowance
Recorded
investment(1)
Related specific
allowance
1,017 $
368 $
1,343 $
88
51
46
13
41
11
4
2
45
41
55
1
1,215 $
426 $
1,485 $
489
4
144
—
90
727
$
N/A $
566
140
98
1
131
936
362
16
10
4
—
392
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)
N/A Not applicable
Interest income recognized for the year ended December 31, 2015 was $11 million.
206
Corporate Troubled Debt Restructurings
The following table presents corporate TDR activity at and for the year ended December 31, 2017:
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Total
$
$
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)
Carrying
Value
TDRs
involving changes
in the amount
and/or timing of
both principal and
interest payments
509 $
15
36
560 $
131 $
—
—
131 $
7 $
—
—
7 $
371
15
36
422
The following table presents corporate TDR activity at and for the year ended December 31, 2016:
In millions of dollars
Commercial and industrial
Financial institutions
Mortgage and real estate
Other
Total
$
$
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)
Carrying
Value
TDRs
involving changes
in the amount
and/or timing of
both principal and
interest payments
338 $
10
15
142
505 $
176 $
10
6
—
192 $
34 $
—
—
142
176 $
128
—
9
—
137
(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. Because forgiveness of principal is rare for corporate loans, modifications typically have little to no impact on the loans’ projected cash flows and
thus little to no impact on the allowance established for the loans. Charge-offs for amounts deemed uncollectable may be recorded at the time of the
restructuring or may have already been recorded in prior periods such that no charge-off is required at the time of the modification.
(2) TDRs involving changes in the amount or timing of interest payments may involve a below-market interest rate.
The following table presents total corporate loans modified in a TDR as well as those TDRs that defaulted and for which the
payment default occurred within one year of a permanent modification. Default is defined as 60 days past due, except for
classifiably managed commercial banking loans, where default is defined as 90 days past due.
In millions of dollars
TDR balances at
December 31, 2017
TDR loans in payment
default during the year
ended December 31, 2017
TDR balances at
December 31, 2016
TDR loans in payment default
during the year ended
December 31, 2016
Commercial and industrial
$
617 $
72 $
408 $
Financial institutions
Mortgage and real estate
Lease financing
Other
Total(1)
48
101
7
45
$
818 $
—
—
—
—
72 $
9
87
—
228
732 $
(1) The above tables reflect activity for loans outstanding as of the end of the reporting period that were considered TDRs.
7
—
8
—
—
15
207
15. ALLOWANCE FOR CREDIT LOSSES
In millions of dollars
Allowance for loan losses at beginning of period
Gross credit losses
Gross recoveries(1)
Net credit losses (NCLs)
NCLs
Net reserve builds (releases)
Net specific reserve releases
Total provision for loan losses
Other, net (see table below)
Allowance for loan losses at end of period
Allowance for credit losses on unfunded lending commitments at beginning of period
Provision (release) for unfunded lending commitments
Other, net(2)
Allowance for credit losses on unfunded lending commitments at end of period(3)
Total allowance for loans, leases and unfunded lending commitments
2017
2016
2015
$
$
$
$
$
$
$
$
12,060 $
12,626 $
(8,673)
1,597
(7,076) $
7,076 $
544
(117)
7,503 $
(132)
12,355 $
1,418 $
(161)
1
1,258 $
13,613 $
(8,222)
1,661
(6,561) $
6,561 $
340
(152)
6,749 $
(754)
12,060 $
1,402 $
29
(13)
1,418 $
13,478 $
15,994
(9,041)
1,739
(7,302)
7,302
139
(333)
7,108
(3,174)
12,626
1,063
74
265
1,402
14,028
(1) Recoveries have been reduced by certain collection costs that are incurred only if collection efforts are successful.
(2) 2015 includes a reclassification of $271 million of Allowance for loan losses to Allowance for unfunded lending commitments, included in Other, net. This
reclassification reflects the re-attribution of $271 million in Allowances for credit losses between the funded and unfunded portions of the corporate credit
portfolios and does not reflect a change in the underlying credit performance of these portfolios.
(3) Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet.
Other, net details:
In millions of dollars
Sales or transfers of various consumer loan portfolios to held-for-sale
Transfer of real estate loan portfolios
Transfer of other loan portfolios
Sales or transfers of various consumer loan portfolios to held-for-sale
FX translation, consumer
Other
Other, net
2017
2016
2015
$
$
$
(106)
$
(106)
$
(155)
(261) $
115
14
(468)
(574) $
(199)
19
(1,462)
(948)
(2,410)
(474)
(290)
(132) $
(754) $
(3,174)
208
Allowance for Credit Losses and Investment in Loans at December 31, 2017
In millions of dollars
Corporate
Consumer
Total
Allowance for loan losses at beginning of period
$
2,702 $
Charge-offs
Recoveries
Replenishment of net charge-offs
Net reserve builds (releases)
Net specific reserve builds (releases)
Other
Ending balance
Allowance for loan losses
Collectively evaluated in accordance with ASC 450
Individually evaluated in accordance with ASC 310-10-35
Purchased credit-impaired in accordance with ASC 310-30
Total allowance for loan losses
Loans, net of unearned income
Collectively evaluated for impairment in accordance with ASC 450
Individually evaluated for impairment in accordance with ASC 310-10-35
Purchased credit-impaired in accordance with ASC 310-30
Held at fair value
Total loans, net of unearned income
Allowance for Credit Losses and Investment in Loans at December 31, 2016
In millions of dollars
Allowance for loan losses at beginning of period
Charge-offs
Recoveries
Replenishment of net charge-offs
Net reserve builds (releases)
Net specific reserve builds (releases)
Other
Ending balance
Allowance for loan losses
Collectively evaluated in accordance with ASC 450
Individually evaluated in accordance with ASC 310-10-35
Purchased credit-impaired in accordance with ASC 310-30
Total allowance for loan losses
Loans, net of unearned income
Collectively evaluated for impairment in accordance with ASC 450
Individually evaluated for impairment in accordance with ASC 310-10-35
Purchased credit-impaired in accordance with ASC 310-30
Held at fair value
Total loans, net of unearned income
209
(491)
112
379
(267)
28
23
9,358 $
(8,182)
1,485
6,697
811
(145)
(155)
12,060
(8,673)
1,597
7,076
544
(117)
(132)
$
$
$
$
2,486 $
9,869 $
12,355
2,060 $
8,531 $
426
—
1,334
4
10,591
1,760
4
2,486 $
9,869 $
12,355
327,142 $
326,884 $
654,026
1,887
—
4,349
6,580
167
25
8,467
167
4,374
$
333,378 $
333,656 $
667,034
$
$
$
$
$
Corporate
Consumer
Total
2,791 $
(580)
9,835 $
(7,642)
67
513
(85)
—
(4)
1,594
6,048
425
(152)
(750)
12,626
(8,222)
1,661
6,561
340
(152)
(754)
2,702 $
9,358 $
12,060
2,310 $
7,744 $
392
—
1,608
6
10,054
2,000
6
2,702 $
9,358 $
12,060
293,218 $
317,048 $
2,631
—
3,457
7,799
187
29
610,266
10,430
187
3,486
$
299,306 $
325,063 $
624,369
Allowance for Credit Losses at December 31, 2015
In millions of dollars
Corporate
Consumer
Total
Allowance for loan losses at beginning of period
$
2,447 $
13,547 $
Charge-offs
Recoveries
Replenishment of net charge-offs
Net reserve builds (releases)
Net specific reserve builds (releases)
Other
Ending balance
(349)
105
244
550
86
(8,692)
1,634
7,058
(411)
(419)
(292)
2,791 $
(2,882)
9,835 $
$
15,994
(9,041)
1,739
7,302
139
(333)
(3,174)
12,626
210
16. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in Goodwill were as follows:
In millions of dollars
Balance at December 31, 2014
Foreign exchange translation and other
Divestitures(1)
Impairment of goodwill(2)
Balance at December 31, 2015
Foreign exchange translation and other
Divestitures(3)
Balance at December 31, 2016
Foreign exchange translation and other
Divestitures(4)
Impairment of goodwill(5)
Balance at December 31, 2017
The changes in Goodwill by segment were as follows:
In millions of dollars
Balance at December 31, 2015(7)
Foreign exchange translation and other
Divestitures(3)
Balance at December 31, 2016
Foreign exchange translation and other
Divestitures(4)
Impairment of goodwill(5)
Balance at December 31, 2017
$
$
$
$
$
$
$
23,592
(1,000)
(212)
(31)
22,349
(613)
(77)
21,659
729
(104)
(28)
22,256
Global
Consumer
Banking
Institutional
Clients Group
Corporate/
Other(6)
Total
$
$
$
$
$
12,704 $
(174) $
—
12,530 $
286 $
(32)
—
9,545 $
(447) $
(13)
9,085 $
443 $
(72)
—
100 $
8 $
(64)
44 $
— $
—
(28)
22,349
(613)
(77)
21,659
729
(104)
(28)
12,784 $
9,456 $
16 $
22,256
(1) Primarily related to the sales of the Latin America Retirement Services and Japan cards businesses completed in 2015, and agreements to sell certain
businesses in Citi Holdings as of December 31, 2015. See Note 2 to the Consolidated Financial Statements.
(2) Goodwill impairment related to reporting units subsequently sold, including Citi Holdings—Consumer Finance South Korea of $16 million and Citi
Holdings—Consumer Latin America of $15 million.
(3) Primarily related to the sale of the private equity services business completed in 2016 and agreements to sell Argentina and Brazil consumer operations as of
December 31, 2016.
(4) Primarily related to the sale of a fixed income analytics business and a fixed income index business completed in 2017 and an agreement to sell a Mexico
asset management business as of December 31, 2017. See Note 2 to the Consolidated Financial Statements.
(5) Goodwill impairment related to the mortgage servicing business upon transfer from North America GCB to Corporate/Other effective January 1, 2017.
(6) All Citi Holdings reporting units are presented in Corporate/Other. See Note 3 to the Consolidated Financial Statements.
(7) December 31, 2015 has been restated to reflect intersegment goodwill allocations that resulted from the reorganizations in 2016 and on January 1, 2017
including transfers of GCB businesses to ICG and to Corporate/Other. See Note 3 to the Consolidated Financial Statements.
Goodwill impairment testing is performed at the level
below each business segment (referred to as a reporting
unit). The Company performed its annual goodwill
impairment test as of July 1, 2017. The fair values of the
Company’s reporting units exceeded their carrying values
by approximately 32% to 168% and no reporting unit is at
risk of impairment, except for Citi Holdings—Consumer
Latin America.
Interim impairment tests were performed for Citi
Holdings—Consumer Latin America, which is reported as
part of Corporate/Other, for all other quarters in 2017.
While there is no indication of impairment, each interim
impairment test showed that the fair value of Citi Holdings
—Consumer Latin America reporting unit, which has $16
million of goodwill, only marginally exceeded its carrying
value. The fair value as a percentage of allocated book value
as of December 31, 2017 was 111%. Subsequently, on
January 31, 2018, Citi executed a definitive agreement to
sell the reporting unit and allocated the entire goodwill to
the sale, which is expected to result in a pre-tax gain upon
closing.
211
Further, effective January 1, 2017, the mortgage
servicing business in North America GCB was reorganized
and is now reported as part of Corporate/Other. Goodwill
was allocated to the transferred business based on its
relative fair value to the legacy North America GCB
reporting unit. An interim test was performed under both the
legacy and current reporting unit structures, which resulted
in full impairment of the $28 million of allocated goodwill
upon transfer to Citi Holdings—REL, recorded in Operating
expenses in 2017.
Intangible Assets
The components of intangible assets were as follows:
In millions of dollars
Purchased credit card relationships
Credit card contract related intangibles
Core deposit intangibles
Other customer relationships
Present value of future profits
Indefinite-lived intangible assets
Other
Intangible assets (excluding MSRs)
Mortgage servicing rights (MSRs)(1)
Total intangible assets
December 31, 2017
December 31, 2016
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
$
5,375 $
3,836 $
1,539 $
8,215 $
6,549 $ 1,666
5,045
2,456
2,589
5,149
2,177
2,972
639
459
32
244
100
628
272
28
—
86
11
187
4
244
14
801
474
31
210
504
771
272
27
—
474
30
202
4
210
30
$
$
11,894 $
7,306 $
4,588 $
15,384 $
10,270 $ 5,114
558
—
558
1,564
—
1,564
12,452 $
7,306 $
5,146 $
16,948 $
10,270 $ 6,678
(1)
In January 2017, Citi signed agreements to effectively exit its U.S. mortgage servicing operations by the end of 2018 and intensify its focus on loan
originations. For additional information on these transactions, see Note 2 to the Consolidated Financial Statements.
Intangible assets amortization expense was $603 million,
$595 million and $625 million for 2017, 2016 and 2015,
respectively. Intangible assets amortization expense is
estimated to be $503 million in 2018, $479 million in 2019,
$332 million in 2020, $314 million in 2021 and $866
million in 2022.
The changes in intangible assets were as follows:
In millions of dollars
Net carrying
amount at
December 31,
2016
Acquisitions/
divestitures Amortization Impairments
FX translation
and other
Net carrying
amount at
December 31,
2017
Purchased credit card relationships
Credit card contract-related intangibles(1)
Core deposit intangibles
$
Other customer relationships
Present value of future profits
Indefinite-lived intangible assets
Other
1,666 $
2,972
30
202
4
210
30
Intangible assets (excluding MSRs)
Mortgage servicing rights (MSRs)(2)
Total intangible assets
$
$
5,114 $
1,564
6,678
20 $
(149) $
— $
2 $
(393)
(20)
(24)
—
—
(17)
—
—
—
—
—
—
1
1
9
—
34
15
(603) $
— $
62 $
$
9
—
—
—
—
(14)
15 $
212
1,539
2,589
11
187
4
244
14
4,588
558
5,146
(1) Primarily reflects contract-related intangibles associated with the American Airlines, The Home Depot, Costco, Sears and AT&T credit card program
agreements, which represent 97% of the aggregate net carrying amount as of December 31, 2017.
(2) For additional information on Citi’s MSRs, including the rollforward from 2016 to 2017, see Note 21 to the Consolidated Financial Statements.
213
17. DEBT
Short-Term Borrowings
December 31,
2017
2016
In millions of dollars
Commercial paper
Other borrowings(1)
Total
Weighted
average
coupon
Balance
1.28% $ 9,989
Weighted
average
coupon
0.79%
Balance
9,940
$
34,512
1.62
20,712
1.39
$ 44,452
$ 30,701
(1)
Includes borrowings from the Federal Home Loan Banks and other
market participants. At December 31, 2017 and December 31, 2016,
collateralized short-term advances from the Federal Home Loan Banks
were $23.8 billion and $12.0 billion, respectively.
Borrowings under bank lines of credit may be at interest
rates based on LIBOR, CD rates, the prime rate or bids
submitted by the banks. Citigroup pays commitment fees for
its lines of credit.
Some of Citigroup’s non-bank subsidiaries have credit
facilities with Citigroup’s subsidiary depository institutions,
including Citibank. 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
Citigroup Inc.(1)
Senior debt
Subordinated debt(2)
Trust preferred
securities
Bank(3)
Senior debt
Broker-dealer(4)
Senior debt
Subordinated debt(2)
Total
Senior debt
Subordinated debt(2)
Trust preferred
securities
Total
Balances at
December 31,
Weighted
average
coupon Maturities
2017
2016
4.15% 2018-2098 $ 123,488 $ 118,881
26,758
4.48
2018-2046
26,963
6.90
2036-2067
1,712
1,694
2.06
2018-2049
65,856
49,454
3.44
5.37
3.57%
2018-2057
18,666
9,387
2021-2037
24
4
$ 236,709 $ 206,178
$ 208,010 $ 177,722
26,762
26,987
1,712
1,694
$ 236,709 $ 206,178
(1) Represents the parent holding company.
(2)
Includes notes that are subordinated within certain countries, regions
or subsidiaries.
(3) Represents Citibank entities as well as other bank entities. At
December 31, 2017 and December 31, 2016, collateralized long-term
advances from the Federal Home Loan Banks were $19.3 billion and
$21.6 billion, respectively.
(4) Represents broker-dealer and other non-bank subsidiaries that are
consolidated into Citigroup Inc., the parent holding company.
The Company issues both fixed- and variable-rate debt
in a range of currencies. It uses derivative contracts,
primarily interest rate swaps, to effectively convert a portion
of its fixed-rate debt to variable-rate debt. The maturity
structure of the derivatives generally corresponds to the
maturity structure of the debt being hedged. In addition, the
Company uses other derivative contracts to manage the
foreign exchange impact of certain debt issuances. At
December 31, 2017, the Company’s overall weighted
average interest rate for long-term debt was 3.57% on a
contractual basis and 2.70% including the effects of
derivative contracts.
214
Aggregate annual maturities of long-term debt obligations (based on final maturity dates) including trust preferred securities are as
follows:
In millions of dollars
2018
2019
2020
2021
2022
Thereafter
Total
Citigroup Inc.
Bank
Broker-dealer
Total
$
$
20,050 $
16,656 $
9,565 $
15,499 $
9,627 $
80,766 $
152,163
29,270
4,158
17,245
2,388
10,302
3,321
4,077
1,443
1,471
1,266
3,491
6,114
65,856
18,690
53,478 $
36,289 $
23,188 $
21,019 $
12,364 $
90,371 $
236,709
The following table summarizes the Company’s outstanding trust preferred securities at December 31, 2017:
Trust
Issuance
date
Securities
issued
Liquidation
value(1)
Coupon
rate(2)
In millions of dollars, except share amounts
Junior subordinated debentures owned by trust
Common
shares
issued
to parent
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 XIII
Sept. 2010 89,840,000
Citigroup Capital XVIII
June 2007
99,901
Total obligated
$
3 mo LIBOR
+ 637 bps
3 mo LIBOR
+ 88.75 bps
2,246
135
2,575
1,000
2,246
Oct. 30, 2040
Oct. 30, 2015
50
135
June 28, 2067
June 28, 2017
$
2,581
Note: Distributions on the trust preferred securities and interest on the subordinated debentures are payable semiannually for Citigroup Capital III and Citigroup
Capital XVIII and quarterly for Citigroup Capital XIII.
(1) Represents the notional value received by investors from the trusts at the time of issuance.
(2)
In each case, the coupon rate on the subordinated debentures is the same as that on the trust preferred securities.
215
18. REGULATORY CAPITAL
Citigroup is subject to risk-based capital and leverage
standards issued by the Federal Reserve Board, which
constitute the U.S. Basel III rules. Citi’s U.S.-insured
depository institution subsidiaries, including Citibank, are
subject to similar standards issued by their respective primary
federal bank regulatory agencies. These standards are used to
evaluate capital adequacy and include the required minimums
shown in the following table. The regulatory agencies are
required by law to take specific, prompt corrective actions
with respect to institutions that do not meet minimum capital
standards.
The following table sets forth for Citigroup and Citibank
the regulatory capital tiers, total risk-weighted assets, quarterly
adjusted average total assets, Total Leverage Exposure, risk-
based capital ratios and leverage ratios in accordance with
current regulatory standards (reflecting Basel III Transition
Arrangements):
In millions of dollars, except ratios
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital (Tier 1 Capital + Tier 2 Capital)(1)
Total risk-weighted assets(2)
Quarterly adjusted average total assets(3)
Total Leverage Exposure(4)
Common Equity Tier 1 Capital ratio(5)
Tier 1 Capital ratio(5)
Total Capital ratio(5)
Tier 1 Leverage ratio
Supplementary Leverage ratio(6)
Citigroup
Citibank
Stated
minimum
Well-
capitalized
minimum
December 31,
2017
$
147,891
Well-
capitalized
minimum
December 31,
2017
$
124,733
164,841
190,331
1,138,167
1,869,206
2,433,371
126,303
139,351
1,014,242
1,401,615
1,901,069
4.5%
6.0
8.0
4.0
N/A
N/A
6.0%
10.0
N/A
N/A
12.99%
6.5%
12.30%
14.48
16.77
8.82
6.77
8.0
10.0
5.0
N/A
12.45
14.60
9.01
6.64
(1) Reflected in the table above is Citigroup’s and Citibank’s Total Capital as derived under the Basel III Advanced Approaches framework. At December 31, 2017,
Citigroup’s and Citibank’s Total Capital as derived under the Basel III Standardized Approach was $202 billion and $150 billion, respectively.
(2) Reflected in the table above are Citigroup’s and Citibank’s total risk-weighted assets as derived under the Basel III Standardized Approach. At December 31,
2017, Citigroup’s and Citibank’s total risk-weighted assets as derived under the Basel III Advanced Approaches were $1,135 billion and $955 billion, respectively.
(3) Tier 1 Leverage ratio denominator.
(4) Supplementary Leverage ratio denominator.
(5) As of December 31, 2017, Citigroup’s and Citibank’s reportable Common Equity Tier 1 Capital and Tier 1 Capital ratios were the lower derived under the Basel
III Standardized Approach, whereas the reportable Total Capital ratios were the lower derived under the Basel III Advanced Approaches framework.
(6) Commencing on January 1, 2018, Citigroup and Citibank will be required to maintain a stated minimum Supplementary Leverage ratio of 3%, and Citibank will
be required to maintain a Supplementary Leverage ratio of 6% to be considered “well capitalized.”
N/A Not applicable
As indicated in the table above, Citigroup and Citibank
were “well capitalized” under the current federal bank
regulatory agency definitions as of December 31, 2017.
Banking Subsidiaries—Constraints on Dividends
There are various legal limitations on the ability of Citigroup’s
subsidiary depository institutions to extend credit, pay
dividends, or otherwise supply funds to Citigroup and its non-
bank subsidiaries. The approval of the Office of the
Comptroller of the Currency is required if total dividends
declared in any calendar year were to exceed amounts
specified by the applicable agency’s regulations.
In determining the dividends, each subsidiary depository
institution must also consider its effect on applicable risk-
based capital and leverage ratio requirements, as well as
policy statements of the federal bank regulatory agencies that
indicate that banking organizations should generally pay
dividends out of current operating earnings. Citigroup
received $7.5 billion and $13.8 billion in dividends from
Citibank during 2017 and 2016, respectively.
216
19. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI)
Changes in each component of Citigroup’s Accumulated other comprehensive income (loss):
In millions of dollars
Balance, December 31, 2014
Other comprehensive income before
reclassifications
Increase (decrease) due to amounts reclassified
from AOCI
Change, net of taxes
Balance, December 31, 2015
Adjustment to opening balance, net of taxes(1)
Adjusted balance, beginning of period
Other comprehensive income before
reclassifications
Increase (decrease) due to amounts reclassified
from AOCI
Change, net of taxes
Balance, December 31, 2016
Adjustment to opening balance, net of taxes (5)
Adjusted balance, beginning of period
Impact of Tax Reform(6)
Other comprehensive income before
reclassifications
Increase (decrease) due to amounts reclassified
from AOCI
Change, net of taxes
Balance at December 31, 2017
Net
unrealized
gains (losses)
on
investment
securities
Debt
valuation
adjustment
(DVA)(1)
Cash flow
hedges(2)
Benefit
plans(3)
Foreign
currency
translation
adjustment
(CTA), net of
hedges(4)
Accumulated
other
comprehensive
income (loss)
$
$
$
$
$
$
$
$
$
$
$
$
57 $
— $
(909) $
(5,159) $
(17,205) $
(23,216)
(695)
(269)
(964) $
(907) $
— $
(907) $
—
—
— $
— $
(15) $
(15) $
83
(143)
(5,465)
(6,220)
209
292 $
186
(34)
43 $
(5,499) $
(617) $
(5,116) $
(22,704) $
— $
— $
— $
92
(6,128)
(29,344)
(15)
(617) $
(5,116) $
(22,704) $
(29,359)
530 $
(335) $
(88) $
(208) $
(2,802) $
(2,903)
(422)
108 $
(799) $
504 $
(295) $
(223)
(2)
(337) $
(352) $
— $
(352) $
(139)
145
57 $
160
(48) $
—
(2,802) $
(119)
(3,022)
(560) $
(5,164) $
(25,506) $
(32,381)
— $
(560) $
(113)
— $
(5,164) $
(1,020)
— $
(25,506) $
(1,809)
(186)
(426)
(111)
(158)
1,607
(454)
(863) $
(1,158) $
(4)
(569) $
(921) $
86
(138) $
(698) $
159
(1,019) $
(6,183) $
—
(202) $
(25,708) $
(34,668)
504
(31,877)
(3,304)
726
(213)
(2,791)
(1) Beginning in the first quarter of 2016, changes in DVA are reflected as a component of AOCI, pursuant to the adoption of only the provisions of ASU 2016-01
relating to the presentation of DVA on fair value option liabilities. See Note 1 to the Consolidated Financial Statements for further information regarding this
change.
(2) Primarily driven by Citi’s pay fixed/receive floating interest rate swap programs that hedge the floating rates on liabilities.
(3) Primarily reflects adjustments based on the quarterly actuarial valuations of Citi’s significant pension and postretirement plans, annual actuarial valuations of
all other plans and amortization of amounts previously recognized in Other comprehensive income.
(4) Primarily reflects the movements in (by order of impact) the Euro, Mexican peso, Polish zloty and Korean won against the U.S. dollar and changes in related
tax effects and hedges for the year ended December 31, 2017. Primarily reflects the movements in (by order of impact) the Mexican peso, Euro, British pound
and Indian rupee against the U.S. dollar and changes in related tax effects and hedges for the year ended December 31, 2016. Primarily reflects the
movements in (by order of impact) the Mexican peso, Brazilian real, Korean won and Euro against the U.S. dollar and changes in related tax effects and
hedges for the year ended December 31, 2015.
In the second quarter of 2017, Citi early adopted ASU No. 2017-08. Upon adoption, a cumulative effect adjustment was recorded to reduce retained earnings,
effective January 1, 2017, for the incremental amortization of cumulative fair value hedge adjustments on callable state and municipal debt securities. See
Note 1 to the Consolidated Financial Statements.
In the fourth quarter of 2017, Citi adopted ASU 2018-02, which transferred these amounts from AOCI to Retained earnings. See Note 1 to the Consolidated
Financial Statements.
(6)
(5)
217
The pretax and after-tax changes in each component of Accumulated other comprehensive income (loss) are as follows:
In millions of dollars
Balance, December 31, 2014
Change in net unrealized gains (losses) on investment securities
Cash flow hedges
Benefit plans
Foreign currency translation adjustment
Change
Balance, December 31, 2015
Adjustment to opening balance(2)
Adjusted balance, beginning of period
Change in net unrealized gains (losses) on investment securities
Debt valuation adjustment (DVA)
Cash flow hedges
Benefit plans
Foreign currency translation adjustment
Change
Balance, December 31, 2016
Adjustment to opening balance(3)
Adjusted balance, beginning of period
Change in net unrealized gains (losses) on investment securities
Debt valuation adjustment (DVA)
Cash flow hedges
Benefit plans
Foreign currency translation adjustment
Change
Balance, December 31, 2017
Pretax
Tax Effect
Adoption of
ASU
2018-02 (1)
After-tax
$
$
$
$
$
$
$
$
$
(31,060) $
(1,462)
468
19
(6,405)
(7,380) $
(38,440) $
(26)
(38,466) $
167
(538)
84
(78)
(3,204)
(3,569) $
(42,035) $
803
(41,232) $
(1,088)
(680)
(37)
14
1,795
4 $
(41,228) $
7,844 $
498
(176)
24
906
1,252 $
9,096 $
11
9,107 $
(59)
201
(27)
30
402
547 $
9,654 $
(299)
9,355 $
448
250
12
(13)
(188)
509 $
9,864 $
— $
—
—
—
—
— $
— $
—
— $
—
—
—
—
—
— $
— $
—
— $
(223)
(139)
(113)
(1,020)
(1,809)
(3,304) $
(3,304) $
(23,216)
(964)
292
43
(5,499)
(6,128)
(29,344)
(15)
(29,359)
108
(337)
57
(48)
(2,802)
(3,022)
(32,381)
504
(31,877)
(863)
(569)
(138)
(1,019)
(202)
(2,791)
(34,668)
(1)
In the fourth quarter of 2017, Citi adopted ASU 2018-02, which transferred these amounts from AOCI to Retained earnings. See Note 1 to the Consolidated
Financial Statements.
(2) Represents the $(15) million adjustment related to the initial adoption of ASU 2016-01. See Note 1 to the Consolidated Financial Statements.
(3) In the second quarter of 2017, Citi early adopted ASU 2017-08. Upon adoption, a cumulative effect adjustment was recorded to reduce retained earnings,
effective January 1, 2017, for the incremental amortization of cumulative fair value hedge adjustments on callable state and municipal debt securities. See
Note 1 to the Consolidated Financial Statements.
218
The Company recognized pretax gain (loss) related to amounts in AOCI reclassified in the Consolidated Statement of Income as
follows:
In millions of dollars
Realized (gains) losses on sales of investments
OTTI gross impairment losses
Subtotal, pretax
Tax effect
Net realized (gains) losses on investment securities, after-tax(1)
Realized DVA (gains) losses on fair value option liabilities
Subtotal, pretax
Tax effect
Net realized debt valuation adjustment, after-tax
Interest rate contracts
Foreign exchange contracts
Subtotal, pretax
Tax effect
Amortization of cash flow hedges, after-tax(2)
Amortization of unrecognized
Prior service cost (benefit)
Net actuarial loss
Curtailment/settlement impact(3)
Subtotal, pretax
Tax effect
Amortization of benefit plans, after-tax(3)
Foreign currency translation adjustment
Tax effect
Foreign currency translation adjustment
Total amounts reclassified out of AOCI, pretax
Total tax effect
Total amounts reclassified out of AOCI, after-tax
Increase (decrease) in AOCI due to amounts reclassified to
Consolidated Statement of Income
Year ended December 31,
2017
2016
2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(778) $
63
(715) $
261
(454) $
(7) $
(7) $
3
(4) $
126 $
10
136 $
(50)
86 $
(42) $
271
17
246 $
(87)
159 $
— $
—
— $
(340) $
127
(213) $
(948) $
288
(660) $
238
(422) $
(3) $
(3) $
1
(2) $
140 $
93
233 $
(88)
145 $
(40) $
272
18
250 $
(90)
160 $
— $
—
— $
(180) $
61
(119) $
(682)
265
(417)
148
(269)
—
—
—
—
186
146
332
(123)
209
(40)
276
57
293
(107)
186
(53)
19
(34)
155
(63)
92
(1) The pretax amount is reclassified to Realized gains (losses) on sales of investments, net and Gross impairment losses in the Consolidated Statement of
Income. See Note 13 to the Consolidated Financial Statements for additional details.
(2) See Note 22 to the Consolidated Financial Statements for additional details.
(3) See Note 8 to the Consolidated Financial Statements for additional details.
219
20. PREFERRED STOCK
The following table summarizes the Company’s preferred stock outstanding:
Series AA(1)
Series E(2)
Series A(3)
Series B(4)
Series C(5)
Series D(6)
Series J(7)
Series K(8)
Series L(9)
Series M(10)
Series N(11)
Series O(12)
Series P(13)
Series Q(14)
Series R(15)
Series S(16)
Series T(17)
Issuance date
Redeemable by issuer
beginning
Dividend
rate
January 25, 2008
February 15, 2018
8.125% $
April 28, 2008
April 30, 2018
October 29, 2012
January 30, 2023
December 13, 2012
February 15, 2023
March 26, 2013
April 30, 2013
April 22, 2018
May 15, 2023
September 19, 2013
September 30, 2023
October 31, 2013
November 15, 2023
February 12, 2014
February 12, 2019
April 30, 2014
May 15, 2024
October 29, 2014
November 15, 2019
March 20, 2015
March 27, 2020
April 24, 2015
May 15, 2025
August 12, 2015
August 15, 2020
November 13, 2015
November 15, 2020
February 2, 2016
February 12, 2021
April 25, 2016
August 15, 2026
8.400
5.950
5.900
5.800
5.350
7.125
6.875
6.875
6.300
5.800
5.875
5.950
5.950
6.125
6.300
6.250
Carrying value
in millions of dollars
December 31,
2017
December 31,
2016
Redemption
price per
depositary
share/
preference
share
25
1,000
1,000
1,000
Number
of
depositary
shares
3,870,330 $
121,254
1,500,000
750,000
97 $
121
1,500
750
575
1,250
950
1,495
480
1,750
1,500
1,500
2,000
1,250
1,500
1,035
1,500
97
121
1,500
750
575
1,250
950
1,495
480
1,750
1,500
1,500
2,000
1,250
1,500
1,035
1,500
25
23,000,000
1,000
1,250,000
25
25
25
1,000
1,000
1,000
1,000
1,000
1,000
38,000,000
59,800,000
19,200,000
1,750,000
1,500,000
1,500,000
2,000,000
1,250,000
1,500,000
25
41,400,000
1,000
1,500,000
$
19,253 $
19,253
(5)
(4)
(3)
(2)
(1)
Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on February 15, May 15, August 15 and November 15, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on April 30 and October 30 at a fixed rate until April 30, 2018, thereafter payable quarterly on January 30, April 30, July 30 and October 30
at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on January 30 and July 30 at a fixed rate until January 30, 2023, thereafter payable quarterly on January 30, April 30, July 30 and
October 30 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on February 15 and August 15 at a fixed rate until February 15, 2023, thereafter payable quarterly on February 15, May 15, August 15 and
November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on January 22, April 22, July 22 and October 22 when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on May 15 and November 15 at a fixed rate until May 15, 2023, thereafter payable quarterly on February 15, May 15, August 15 and
November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on March 30, June 30, September 30 and December 30 at a fixed rate until September 30, 2023, thereafter payable quarterly on the same dates at
a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on February 15, May 15, August 15 and November 15 at a fixed rate until November 15, 2023, thereafter payable quarterly on the same dates at
a floating rate, in each case when, as and if declared by the Citi Board of Directors.
Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on February 12, May 12, August 12 and November 12 at a fixed rate, in each case when, as and if declared by the Citi Board of Directors.
(10) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on May 15 and November 15 at a fixed rate until May 15, 2024, thereafter payable quarterly on February 15, May 15, August 15 and
November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
(7)
(8)
(9)
(6)
(11) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on May 15 and November 15 at a fixed rate until, but excluding, November 15, 2019, and thereafter payable quarterly on February 15, May
15, August 15 and November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
(12) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on March 27 and September 27 at a fixed rate until, but excluding, March 27, 2020, and thereafter payable quarterly on March 27, June 27,
September 27 and December 27 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
220
(13) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on May 15 and November 15 at a fixed rate until, but excluding, May 15, 2025, and thereafter payable quarterly on February 15, May 15,
August 15 and November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
(14) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on February 15 and August 15 at a fixed rate until, but excluding, August 15, 2020, and thereafter payable quarterly on February 15, May
15, August 15 and November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
(15) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on May 15 and November 15 at a fixed rate until, but excluding, November 15, 2020, and thereafter payable quarterly on February 15, May
15, August 15 and November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
(16) Issued as depositary shares, each representing a 1/1,000th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable quarterly on February 12, May 12, August 12 and November 12 at a fixed rate, in each case when, as and if declared by the Citi Board of Directors.
(17) Issued as depositary shares, each representing a 1/25th interest in a share of the corresponding series of non-cumulative perpetual preferred stock. Dividends are
payable semiannually on February 15 and August 15 at a fixed rate until August 15, 2026, thereafter payable quarterly on February 15, May 15, August 15 and
November 15 at a floating rate, in each case when, as and if declared by the Citi Board of Directors.
During 2017, Citi distributed $1,213 million in dividends
on its outstanding preferred stock. Based on its preferred stock
outstanding as of December 31, 2017 and the planned
redemption of Series AA on February 15, 2018, Citi estimates
it will distribute preferred dividends of approximately $1,179
million during 2018, assuming such dividends are declared by
the Citi Board of Directors.
221
21. SECURITIZATIONS AND VARIABLE INTEREST
ENTITIES
Uses of Special Purpose Entities
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 by Citi are to obtain liquidity and
favorable capital treatment by securitizing certain 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, through the SPE’s issuance
of debt and equity instruments, certificates, commercial paper
or other notes of indebtedness, the company transferring assets
to the SPE converts all (or a portion) of those assets into cash
before they would have been realized in the normal course of
business. 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 have recourse only to the assets in the
SPE, but may also benefit from other credit enhancements,
such as a collateral account, 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
typically obtain a more favorable credit rating 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 or similar rights and a right to receive
the expected residual returns of the entity or an 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, certain
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:
•
•
power to direct the activities of the VIE that most
significantly impact the entity’s economic performance;
and
an obligation to absorb losses of the entity that could
potentially be significant to the VIE, or a right to receive
benefits from the entity that could potentially be
significant to the VIE.
The Company must evaluate each VIE to 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 must then
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.
222
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 is presented below:
As of December 31, 2017
Maximum exposure to loss in significant unconsolidated VIEs(1)
Funded exposures(2)
Unfunded exposures
Total
involvement
with SPE
assets
Consolidated
VIE/SPE
assets
Significant
unconsolidated
VIE assets(3)
Debt
investments
Equity
investments
Funding
commitments
Guarantees
and
derivatives
Total
$
50,795 $
50,795 $
— $
— $
— $
— $
— $
—
116,610
22,251
—
2,035
116,610
20,216
2,647
330
19,282
19,282
—
—
20,588
60,472
6,925
19,119
958
1,892
677
319,569 $
$
—
633
20,588
59,839
5,956
19,478
2,166
7
824
616
36
76,394 $
4,759
19,112
134
1,276
641
243,175 $
138
2,709
32
14
27
31,331 $
—
3,640
—
7
9
4,239 $
—
—
—
—
5,878
3,035
2,344
—
13
34
11,304 $
74
1
—
2,721
331
—
9
5,965
— 25,939
3,173
—
8,693
—
41
9
34
—
117
47
140 $ 47,014
Maximum exposure to loss in significant unconsolidated VIEs(1)
Funded exposures(2)
Unfunded exposures
As of December 31, 2016
Total
involvement
with SPE
assets
Consolidated
VIE/SPE
assets
Significant
unconsolidated
VIE assets(3)
Debt
investments
Equity
investments
Funding
commitments
Guarantees
and
derivatives
Total
$
50,171 $
50,171 $
— $
— $
— $
— $
— $
—
214,458
15,965
—
1,092
214,458
14,873
3,852
312
19,693
19,693
—
—
18,886
53,168
7,070
17,679
515
2,788
1,429
401,822 $
$
—
733
18,886
52,435
5,128
16,553
2,843
14
371
767
607
76,291 $
4,227
17,665
144
2,021
822
325,531 $
40
2,441
49
32
116
28,523 $
—
3,578
—
120
11
4,219 $
—
—
—
—
4,915
2,842
2,580
—
27
58
10,422 $
78
1
—
3,930
348
—
5,190
62
— 21,943
2,882
—
8,599
—
52
3
182
3
43
228
190 $ 43,354
—
—
—
—
583
—
35
—
—
475
In millions of dollars
Credit card securitizations
Mortgage securitizations(4)
U.S. agency-sponsored(5)
Non-agency-sponsored
Citi-administered asset-
backed commercial paper
conduits (ABCP)
Collateralized loan
obligations (CLOs)
Asset-based financing
Municipal securities tender
option bond trusts (TOBs)
Municipal investments
Client intermediation
Investment funds
Other
Total
In millions of dollars
Credit card securitizations
Mortgage securitizations(4)
U.S. agency-sponsored
Non-agency-sponsored
Citi-administered asset-
backed commercial paper
conduits (ABCP)
Collateralized loan
obligations (CLOs)
Asset-based financing
Municipal securities tender
option bond trusts (TOBs)
Municipal investments
Client intermediation
Investment funds
Other
Total
(1) The definition of maximum exposure to loss is included in the text that follows this table.
(2)
Included on Citigroup’s December 31, 2017 and 2016 Consolidated Balance Sheet.
(3) A significant unconsolidated VIE is an entity in which the Company has any variable interest or continuing involvement considered to be significant, regardless of
the likelihood of loss.
(4) Citigroup 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.
(5) See Note 2 to the Consolidated Financial Statements for more information on the exit of the U.S. mortgage servicing operations and sale of MSRs.
223
The previous tables do not include the following:
•
•
•
•
•
•
certain venture capital investments made by some of the
Company’s private equity subsidiaries, as the Company
accounts for these investments in accordance with the
Investment Company Audit Guide (codified in ASC Topic
946);
certain investment funds for which the Company provides
investment management services and personal estate
trusts for which the Company provides administrative,
trustee and/or investment management services;
certain VIEs structured by third parties in which the
Company holds securities in inventory, as these
investments are made on arm’s-length terms;
certain positions in mortgage-backed and asset-backed
securities held by the Company, which are classified as
Trading account assets or Investments, in which the
Company has no other involvement with the related
securitization entity deemed to be significant (for more
information on these positions, see Notes 13 and 24 to the
Consolidated Financial Statements);
certain representations and warranties exposures in legacy
ICG-sponsored mortgage-backed and asset-backed
securitizations, in which the Company has no variable
interest or continuing involvement as servicer. The
outstanding balance of mortgage loans securitized during
2005 to 2008 in which the Company has no variable
interest or continuing involvement as servicer was
approximately $9 billion and $10 billion at December 31,
2017 and 2016, respectively;
certain representations and warranties exposures in
Citigroup residential mortgage securitizations, in which
the original mortgage loan balances are no longer
outstanding; and
• VIEs such as trust preferred securities trusts used in
connection with the Company’s funding activities. The
Company does not have a variable interest in these trusts.
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., loan or security) and the Company’s standard
accounting policies for the asset type and line of business.
The asset balances for unconsolidated VIEs in which 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, unless fair value information is readily
available to the Company.
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.
224
Funding Commitments for Significant Unconsolidated VIEs—Liquidity Facilities and Loan Commitments
The following table presents the notional amount of liquidity facilities and loan commitments that are classified as funding
commitments in the VIE tables above:
In millions of dollars
Asset-based financing
Municipal securities tender option bond trusts (TOBs)
Municipal investments
Investment funds
Other
Total funding commitments
December 31, 2017
December 31, 2016
Liquidity
facilities
Loan/equity
commitments
Liquidity
facilities
Loan/equity
commitments
$
$
— $
3,035
—
—
—
5,878 $
—
2,344
13
34
5 $
2,842
—
—
—
3,035 $
8,269 $
2,847 $
4,910
—
2,580
27
58
7,575
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 Citi’s Consolidated
Balance Sheet, and any proceeds received are recognized as
secured liabilities. The consolidated VIEs 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
respective VIEs and do not have such recourse to the
Company, except where Citi has provided a guarantee to the
investors or is the counterparty to certain derivative
transactions involving the VIE. Thus, Citigroup’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 Citi’s
Consolidated Balance Sheet. All VIE 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 Citi’s general assets. See
the Consolidated Balance Sheet for more information about
these Consolidated VIE assets and liabilities.
Significant Interests in Unconsolidated VIEs—Balance Sheet Classification
The following table presents the carrying amounts and classification of significant variable interests in unconsolidated VIEs:
In billions of dollars
Cash
Trading account assets
Investments
Total loans, net of allowance
Other
Total assets
December 31,
2017
December 31,
2016
$
$
— $
8.5
4.4
22.2
0.5
35.6 $
0.1
8.0
4.4
18.8
1.5
32.8
225
Credit Card Securitizations
The Company securitizes credit card receivables through trusts
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 Citigroup’s credit card securitization
activity is through two trusts—Citibank Credit Card Master
Trust (Master Trust) and Citibank Omni Master Trust (Omni
Trust), with the substantial majority through the Master Trust.
These trusts are consolidated entities because, as servicer,
Citigroup has the power to direct the activities that most
significantly impact the economic performance of the trusts.
Citigroup holds a seller’s interest and certain securities issued
by the trusts, which could result in exposure to 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 on
Citi’s Consolidated Balance Sheet.
Citi utilizes securitizations as one of the sources of
funding for its business in North America. The following table
reflects amounts related to the Company’s securitized credit
card receivables:
In billions of dollars
Ownership interests in principal amount of trust credit card receivables
Sold to investors via trust-issued securities
Retained by Citigroup as trust-issued securities
Retained by Citigroup via non-certificated interests
Total
The following table summarizes selected cash flow
information related to Citigroup’s credit card securitizations:
In billions of dollars
Proceeds from new securitizations
Pay down of maturing notes
2017
2016
2015
$
11.1 $
(5.0)
3.3 $ —
(7.4)
(10.3)
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 and Omni
Trust. The liabilities of the trusts are included on the
Consolidated Balance Sheet, excluding those retained by
Citigroup.
December 31,
2017
December 31,
2016
$
$
28.8 $
7.6
14.4
50.8 $
22.7
7.4
20.6
50.7
The Master Trust issues fixed- and floating-rate term
notes. Some of the term notes may be issued to multi-seller
commercial paper conduits. The weighted average maturity of
the term notes issued by the Master Trust was 2.6 years as of
December 31, 2017 and 2016.
Master Trust Liabilities (at Par Value)
In billions of dollars
Term notes issued to third parties
Term notes retained by Citigroup
affiliates
Total Master Trust liabilities
Dec. 31,
2017
Dec. 31,
2016
$
$
27.8 $
5.7
33.5 $
21.7
5.5
27.2
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 1.9 years as of
December 31, 2017 and 2016.
Omni Trust Liabilities (at Par Value)
In billions of dollars
Term notes issued to third parties
Term notes retained by Citigroup
affiliates
Total Omni Trust liabilities
$
$
Dec. 31,
2017
Dec. 31,
2016
1.0 $
1.9
2.9 $
1.0
1.9
2.9
226
Mortgage Securitizations
Citigroup 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 VIEs. These VIEs
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 Citi’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, Citi’s U.S. consumer mortgage 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 ICG 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. Citi 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 VIE that most significantly impact the entity’s economic
performance. Therefore, Citi does not consolidate these U.S.
agency-sponsored mortgage securitizations. Substantially all
of the consumer loans sold or securitized through non-
consolidated trusts by Citigroup are U.S. prime residential
mortgage loans. Retained interests in non-consolidated
mortgage securitization trusts are classified as Trading
account assets, except for MSRs, which are included in
Mortgage servicing rights on Citigroup’s Consolidated
Balance Sheet.
Citigroup 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; 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 VIE.
The following table summarizes selected cash flow information related to Citigroup mortgage securitizations:
In billions of dollars
Proceeds from new securitizations(1)
Contractual servicing fees received
Cash flows received on retained interests and other net
cash flows
2017
2016
2015
U.S. agency-
sponsored
mortgages
Non-agency-
sponsored
mortgages
U.S. agency-
sponsored
mortgages
Non-agency-
sponsored
mortgages
U.S. agency-
sponsored
mortgages
Non-agency-
sponsored
mortgages
$
33.9 $
7.9 $
41.3 $
11.8 $
35.0 $
12.1
0.2
—
—
—
0.4
0.1
—
—
0.5
0.1
—
—
(1) The proceeds from new securitizations in 2016 and 2015 include $0.5 billion and $0.7 billion, respectively, related to personal loan securitizations.
Agency and non-agency securitization gains for the year
ended December 31, 2017 were $73 million and $77 million,
respectively.
Agency and non-agency securitization gains for the year
ended December 31, 2016 were $105 million and $107
million, respectively, and $149 million and $41 million,
respectively, for the year ended December 31, 2015.
Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables
were as follows:
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses(2)
Weighted average anticipated net credit losses
Weighted average life
December 31, 2017
Non-agency-sponsored mortgages(1)
Senior
interests
Subordinated
interests
—
—
—
—
—
—
—
—
—
—
—
—
—
—
U.S. agency-
sponsored
mortgages
1.8% to 19.9%
8.6%
3.8% to 31.6%
9.4%
NM
NM
2.5 to 20.7 years
227
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses(2)
Weighted average anticipated net credit losses
Weighted average life
December 31, 2016
Non-agency-sponsored mortgages(1)
Senior
interests
Subordinated
interests
—
—
—
—
—
—
—
—
—
—
—
—
—
—
U.S. agency-
sponsored mortgages
0.8% to 13.7%
9.9%
3.8% to 30.9%
11.1%
NM
NM
0.5 to 17.5 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 Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
The interests retained by Citi range from highly rated and/
or senior in the capital structure to unrated and/or residual
interests.
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.
December 31, 2017
Non-agency-sponsored mortgages(1)
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses(2)
Weighted average anticipated net credit losses
Weighted average life
Discount rate
Weighted average discount rate
Constant prepayment rate
Weighted average constant prepayment rate
Anticipated net credit losses(2)
Weighted average anticipated net credit losses
Weighted average life
Subordinated
interests
Senior
interests
U.S. agency-
sponsored
mortgages
1.8% to 84.2% 5.8% to 100.0%
5.8%
8.9% to 15.5%
8.9%
7.1%
6.9% to 27.8%
11.6%
NM
NM
0.1 to 27.8 years
2.8% to 35.1%
9.0%
8.6% to 13.1%
10.6%
0.4% to 46.9% 35.1% to 52.1%
44.9%
0.2 to 18.6 years
46.9%
4.8 to 5.3 years
December 31, 2016
Non-agency-sponsored mortgages(1)
U.S. agency-
sponsored mortgages
0.7% to 28.2%
9.0%
6.8% to 22.8%
10.2%
NM
NM
0.2 to 28.8 years
Senior
interests
0.0% to 8.1%
2.1%
4.2% to 14.7%
11.0%
0.5% to 85.6%
31.4%
5.0 to 8.5 years
Subordinated
interests
5.1% to 26.4%
13.1%
0.5% to 37.5%
10.8%
8.0% to 63.7%
48.3%
1.2 to 12.1 years
(1) Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
(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 Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
228
In millions of dollars
Carrying value of retained interests(1)
Discount rates
Adverse change of 10%
Adverse change of 20%
Constant prepayment rate
Adverse change of 10%
Adverse change of 20%
Anticipated net credit losses
Adverse change of 10%
Adverse change of 20%
In millions of dollars
Carrying value of retained interests(1)
Discount rates
Adverse change of 10%
Adverse change of 20%
Constant prepayment rate
Adverse change of 10%
Adverse change of 20%
Anticipated net credit losses
Adverse change of 10%
Adverse change of 20%
December 31, 2017
Non-agency-sponsored mortgages
U.S. agency-
sponsored
mortgages
Senior
interests
Subordinated
interests
$
$
1,634 $
(44) $
(85)
(41)
(84)
NM
NM
214 $
(2) $
(4)
(1)
(1)
(3)
(7)
139
(3)
(5)
(1)
(2)
—
—
December 31, 2016
Non-agency-sponsored mortgages
U.S. agency-
sponsored mortgages
Senior
interests
Subordinated
interests
$
$
2,258 $
(71) $
(138)
(80)
(160)
NM
NM
26 $
(7) $
(14)
(2)
(3)
(7)
(14)
161
(8)
(16)
(4)
(8)
(1)
(2)
(1) Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the
securitization.
NM Anticipated net credit losses are not meaningful due to U.S. agency guarantees.
Mortgage Servicing Rights
In connection with the securitization of mortgage loans, Citi’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.
These 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
Citi’s capitalized MSRs was $558 million and $1.6 billion at
December 31, 2017 and 2016, respectively. The MSRs
correspond to principal loan balances of $66 billion and $168
billion as of December 31, 2017 and 2016, respectively. The
following table summarizes the changes in capitalized MSRs:
In millions of dollars
Balance, beginning of year
Originations
Changes in fair value of MSRs due to
changes in inputs and assumptions
Other changes(1)
Sale of MSRs(2)
Balance, as of December 31
2017
2016
$
1,564 $
96
65
(110)
(1,057)
$
558 $
1,781
152
(36)
(313)
(20)
1,564
(1) Represents changes due to customer payments and passage of time.
(2) See Note 2 to the Consolidated Financial Statements for more
information on the exit of the U.S. mortgage servicing operations and
sale of MSRs. 2016 amount includes sales of credit-challenged MSRs
for which Citi paid the new servicer.
229
The fair value of the 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, Citigroup
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 all classified as Trading
account assets. The Company receives fees during the course
of servicing previously securitized mortgages. The amounts of
these fees were as follows:
In millions of dollars
Servicing fees
Late fees
Ancillary fees
Total MSR fees
2017
2016
2015
$
$
276 $
10
13
299 $
484 $
14
17
515 $
552
16
31
599
In the Consolidated Statement of Income these fees are
primarily classified as Commissions and fees, and changes in
MSR fair values are classified as Other revenue.
Citi signed agreements during the first quarter of 2017 to
effectively exit its direct U.S. mortgage servicing operations
by the end of 2018 to intensify focus on originations. The exit
of the mortgage servicing operations included the sale of
mortgage servicing rights and execution of a subservicing
agreement for the remaining Citi-owned loans and certain
other mortgage servicing rights. As part of this transaction,
Citi is also transferring certain employees. See Note 2 to the
Consolidated Financial Statements for more information on
the exit of the U.S. mortgage servicing operations and sale of
MSRs.
Re-securitizations
Citigroup engages in re-securitization transactions in which
debt securities are transferred to a VIE in exchange for new
beneficial interests. Citi did not transfer non-agency (private-
label) securities to re-securitization entities during the years
ended December 31, 2017 and 2016. These securities are
backed by either residential or commercial mortgages and are
often structured on behalf of clients.
As of December 31, 2017, the fair value of Citi-retained
interests in private-label re-securitization transactions
structured by Citi totaled approximately $79 million (all
related to re-securitization transactions executed prior to
2016), which has been recorded in Trading account assets. Of
this amount, substantially all was related to subordinated
beneficial interests. As of December 31, 2016, the fair value of
Citi-retained interests in private-label re-securitization
transactions structured by Citi totaled approximately $126
million (all related to re-securitization transactions executed
prior to 2016). Of this amount, substantially all 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 December 31, 2017 and 2016 was
approximately $887 million and $1.3 billion, respectively.
The Company also re-securitizes U.S. government-agency
guaranteed mortgage-backed (agency) securities. During the
years ended December 31, 2017 and 2016, Citi transferred
agency securities with a fair value of approximately $26.6
billion and $26.5 billion, respectively, to re-securitization
entities.
As of December 31, 2017, the fair value of Citi-retained
interests in agency re-securitization transactions structured by
Citi totaled approximately $2.1 billion (including $854 million
related to re-securitization transactions executed in 2017)
compared to $2.3 billion as of December 31, 2016 (including
$741 million related to re-securitization transactions executed
in 2016), 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 December 31, 2017
and 2016 was approximately $68.3 billion and $71.8 billion,
respectively.
As of December 31, 2017 and 2016, the Company did not
consolidate any private-label or agency re-securitization
entities.
Citi-Administered Asset-Backed Commercial Paper Conduits
The Company is active in the asset-backed commercial paper
conduit business as administrator of several multi-seller
commercial paper conduits and also as a service provider to
single-seller and other commercial paper conduits sponsored
by third parties.
Citi’s multi-seller commercial paper conduits are designed
to provide the Company’s clients access to low-cost funding in
the commercial paper markets. The conduits purchase assets
from or provide financing facilities to clients and are funded
by issuing commercial paper to third-party investors. The
conduits generally do not purchase assets originated by Citi.
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 Citi 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
230
were not driven by market illiquidity and, other than the
amounts required to be held pursuant to credit risk retention
rules, the Company is not obligated under any agreement to
purchase the commercial paper issued by the conduits.
The asset-backed commercial paper conduits are
consolidated by Citi. The Company has determined that,
through its roles as administrator and liquidity provider, it has
the power to direct the activities that most significantly impact
the entities’ economic performance. These powers include 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 Citi has 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.
Collateralized Loan Obligations
A collateralized loan obligation (CLO) is a VIE that purchases
a portfolio of assets consisting primarily of non-investment
grade corporate loans. CLOs issue multiple tranches of debt
and equity to investors to fund the asset purchases and pay
upfront expenses associated with forming the CLO. A third-
party asset manager is contracted by the CLO to purchase the
underlying assets from the open market and monitor the credit
risk associated with those assets. Over the term of a CLO, the
asset manager directs purchases and sales of assets in a
manner consistent with the CLO’s asset management
agreement and indenture. In general, the CLO asset manager
will have the power to direct the activities of the entity that
most significantly impact the economic performance of the
CLO. Investors in a CLO, through their ownership of debt
and/or equity in it, can also direct certain activities of the
CLO, including removing its asset manager under limited
circumstances, optionally redeeming the notes, voting on
amendments to the CLO’s operating documents and other
activities. A CLO has a finite life, typically 12 years.
Citi serves as a structuring and placement agent with
respect to the CLOs. Typically, the debt and equity of the
CLOs are sold to third-party investors. On occasion, certain
Citi entities may purchase some portion of a CLO’s liabilities
for investment purposes. In addition, Citi may purchase,
typically in the secondary market, certain securities issued by
the CLOs to support its market making activities.
The Company does not generally have the power to direct
the activities that most significantly impact the economic
performance of the CLOs, as this power is generally held by a
third-party asset manager of the CLO. As such, those CLOs
are not consolidated.
with the objective of approximating a credit rating of A or
above, based on Citi’s internal risk ratings. At December 31,
2017 and 2016, the conduits had approximately $19.3 billion
and $19.7 billion of purchased assets outstanding,
respectively, and had incremental funding commitments with
clients of approximately $14.5 billion and $12.8 billion,
respectively.
Substantially all of the funding of the conduits is in the
form of short-term commercial paper. At December 31, 2017
and 2016, the weighted average remaining lives of the
commercial paper issued by the conduits were approximately
51 and 55 days, respectively.
The primary credit enhancement provided to the conduit
investors is in the form of transaction-specific credit
enhancements described above. 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% to 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 $1.7 billion and $1.8 billion as of
December 31, 2017 and 2016, respectively. The net result
across multi-seller conduits administered by the Company is
that, in the event defaulted assets exceed the transaction-
specific credit enhancements described above, any losses in
each conduit are allocated first to the Company and then to the
commercial paper investors.
Citigroup 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 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, Citi 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. Separately, in the
normal course of business, Citi purchases commercial paper,
including commercial paper issued by Citigroup's conduits. At
December 31, 2017 and 2016, the Company owned $9.3
billion and $9.7 billion, respectively, of the commercial paper
issued by its administered conduits. The Company's purchases
231
The following table summarizes selected cash flow
information related to Citigroup CLOs:
In billions of dollars
Proceeds from new
securitizations
Cash flows received on
retained interests and other
net cash flows
2017
2016
2015
$
3.5 $
5.0 $
5.9
0.1
—
—
The key assumptions used to value retained interests in CLOs,
and the sensitivity of the fair value to adverse changes of 10%
and 20%, are set forth in the tables below:
Discount rate
Dec. 31, 2017
1.1% to 1.6%
Dec. 31, 2016
1.3% to 1.7%
In millions of dollars
Carrying value of retained interests $
Discount rates
Adverse change of 10%
Adverse change of 20%
$
Dec. 31,
2017
Dec. 31,
2016
3,607 $
4,261
(24) $
(47)
(30)
(62)
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; thus, it does not consolidate them.
The primary types of Citi’s asset-based financings, total
assets of the unconsolidated VIEs with significant
involvement and Citi’s maximum exposure to loss are shown
below. For Citi to realize the maximum loss, the VIE
(borrower) would have to default with no recovery from the
assets held by the VIE.
Municipal Securities Tender Option Bond (TOB) Trusts
Municipal TOB trusts may hold fixed- or floating-rate, taxable
or tax-exempt securities issued by state and local governments
and municipalities. TOB trusts are typically structured as
single-issuer entities whose assets are purchased from either
the Company or from other investors in the municipal
securities market. TOB trusts finance the purchase of their
municipal assets by issuing two classes of certificates: long-
dated, floating rate certificates (“Floaters”) that are putable
pursuant to a liquidity facility and residual interest certificates
(“Residuals”). The Floaters are purchased by third-party
investors, typically tax-exempt money market funds. The
Residuals are purchased by the original owner of the
municipal securities that are being financed.
From the Citigroup’s perspective, there are two types of
TOB trusts: customer and non-customer. Customer TOB trusts
are those trusts utilized by customers of the Company to
finance their municipal securities investments. The Residuals
issued by these trusts are purchased by the customer being
financed. Non-customer TOB trusts are used by the Company
to finance its own municipal securities investments; the
Residuals issued by non-customer TOB trusts are purchased
by the Company.
With respect to both customer and non-customer TOB
trusts, Citi may provide remarketing agent services. If Floaters
are optionally tendered and the Company, in its role as
remarketing agent, is unable to find a new investor to purchase
the optionally tendered Floaters within a specified period of
time, Citigroup may, but is not obligated to, purchase the
tendered Floaters into its own inventory. The level of the
Company’s inventory of such Floaters fluctuates.
For certain customer TOB trusts, Citi may also serve as a
voluntary advance provider. In this capacity, the Company
may, but is not obligated to, make loan advances to customer
TOB trusts to purchase optionally tendered Floaters that have
not otherwise been successfully remarketed to new investors.
Such loans are secured by pledged Floaters. As of
December 31, 2017, Citi had no outstanding voluntary
advances to customer TOB trusts.
December 31, 2017
For certain non-customer trusts, the Company also
In millions of dollars
Type
Commercial and other real estate $
Corporate loans
Hedge funds and equities
Airplanes, ships and other assets
Total
$
In millions of dollars
Type
Commercial and other real estate $
Corporate loans
Hedge funds and equities
Airplanes, ships and other assets
Total
$
Total
unconsolidated
VIE assets
Maximum
exposure to
unconsolidated
VIEs
15,370 $
4,725
542
39,202
59,839 $
5,445
3,587
58
16,849
25,939
December 31, 2016
Total
unconsolidated
VIE assets
Maximum
exposure to
unconsolidated
VIEs
8,784 $
4,051
370
39,230
52,435 $
2,368
2,684
54
16,837
21,943
232
provides credit enhancement. At December 31, 2017 and
2016, approximately $62 million and $82 million,
respectively, of the municipal bonds owned by non-customer
TOB trusts were subject to a credit guarantee provided by the
Company.
Citigroup also provides liquidity services to many
customer and non-customer trusts. If a trust is unwound early
due to an event other than a credit event on the underlying
municipal bonds, the underlying municipal bonds are sold out
of the trust and bond sale proceeds are used to redeem the
outstanding trust certificates. If this results in a shortfall
between the bond sale proceeds and the redemption price of
the tendered Floaters, the Company, pursuant to the liquidity
agreement, would be obligated to make a payment to the trust
to satisfy that shortfall. For certain customer TOB trusts,
Citigroup has also executed a reimbursement agreement with
the holder of the Residual, pursuant to which the Residual
holder is obligated to reimburse the Company for any payment
the Company makes under the liquidity arrangement. These
reimbursement agreements may be subject to daily margining
based on changes in the market value of the underlying
municipal bonds. In cases where a third party provides
liquidity to a non-customer TOB trust, a similar
reimbursement arrangement may be executed, whereby the
Company (or a consolidated subsidiary of the Company), as
Residual holder, would absorb any losses incurred by the
liquidity provider.
For certain other non-customer TOB trusts, Citi serves as
tender option provider. The tender option provider
arrangement allows Floater holders to put their interests
directly to the Company at any time, subject to the requisite
notice period requirements, at a price of par.
At December 31, 2017 and 2016, liquidity agreements
provided with respect to customer TOB trusts totaled $3.2
billion and $2.9 billion, respectively, of which $2.0 billion and
$2.1 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.
Citi considers both customer and non-customer TOB
trusts to be VIEs. Customer TOB trusts are not consolidated
by the Company, as the power to direct the activities that most
significantly impact the trust’s economic performance rests
with the customer Residual holder, which may unilaterally
cause the sale of the trust’s bonds.
Non-customer TOB trusts generally are consolidated
because the Company holds the Residual interest and thus has
the unilateral power to cause the sale of the trust’s bonds.
The Company also provides other liquidity agreements or
letters of credit to customer-sponsored municipal investment
funds, which are not variable interest entities, and
municipality-related issuers that totaled $6.1 billion and $7.4
billion as of December 31, 2017 and 2016, respectively. These
liquidity agreements and letters of credit are offset by
reimbursement agreements with various term-out provisions.
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. Citi
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 for the development or operation 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 Citigroup.
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.
Citi 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.
Citi’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 Citi
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.
The proceeds from new securitizations related to Citi’s
client intermediation transactions for the years ended
December 31, 2017 and 2016 totaled approximately $1.1
billion and $2.3 billion, respectively.
Investment Funds
The Company is the investment manager for certain
investment funds and retirement funds that invest in various
asset classes including private equity, hedge funds, real estate,
fixed income and infrastructure. Citigroup 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. Citi 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 for these funds and may provide
employees with financing on both recourse and non-recourse
bases for a portion of the employees’ investment
commitments.
233
22. DERIVATIVES ACTIVITIES
In the ordinary course of business, Citigroup enters into
various types of derivative transactions, which include:
• Futures and forward contracts, which are commitments to
•
•
buy or sell at a future date a financial instrument,
commodity or currency at a contracted price and may be
settled in cash or through delivery of an item readily
convertible to cash.
Swap contracts, which are commitments to settle in cash
at a future date or dates that may range from a few days to
a number of years, based on differentials between
specified indices or financial instruments, as applied to a
notional principal amount.
Option contracts, which give the purchaser, for a
premium, the right, but not the obligation, to buy or sell
within a specified time a financial instrument, commodity
or currency at a contracted price that may also be settled
in cash, based on differentials between specified indices
or prices.
Swaps, forwards and some option contracts are over-the-
counter (OTC) derivatives that are bilaterally negotiated with
counterparties and settled with those counterparties, except for
swap contracts that are novated and "cleared" through central
counterparties (CCPs). Futures contracts and other option
contracts are standardized contracts that are traded on an
exchange with a CCP as the counterparty from the inception of
the transaction. Citigroup enters into derivative contracts
relating to interest rate, foreign currency, commodity and other
market/credit risks for the following reasons:
•
•
Trading Purposes: Citigroup trades derivatives as an
active market maker. Citigroup offers its customers
derivatives in connection with their risk management
actions to transfer, modify or reduce their interest rate,
foreign exchange and other market/credit risks or for their
own trading purposes. Citigroup also manages its
derivative risk positions through offsetting trade activities,
controls focused on price verification and daily reporting
of positions to senior managers.
Hedging: Citigroup uses derivatives in connection with
its own risk management activities to hedge certain risks
or reposition the risk profile of the Company. Hedging
may be accomplished by applying hedge accounting in
accordance with ASC 815, Derivatives and Hedging, or
by an economic hedge. For example, Citigroup issues
fixed-rate long-term debt and then enters into a receive-
fixed, pay-variable-rate interest rate swap with the same
tenor and notional amount to synthetically convert the
interest payments to a net variable-rate basis. This
strategy is the most common form of an interest rate
hedge, as it minimizes net interest cost in certain yield
curve environments. Derivatives are also used to manage
market risks inherent in specific groups of on-balance
sheet assets and liabilities, including AFS securities,
commodities and borrowings, as well as other interest-
sensitive assets and liabilities. In addition, foreign
exchange contracts are used to hedge non-U.S.-dollar-
234
denominated debt, foreign currency-denominated AFS
securities and net investment exposures.
Derivatives may expose Citigroup to market, credit or
liquidity risks in excess of the amounts recorded on the
Consolidated Balance Sheet. Market risk on a derivative
product is the exposure created by potential fluctuations in
interest rates, market prices, 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 satisfy a
derivative liability where the value of any collateral held by
Citi is not adequate to cover such losses. The recognition in
earnings of unrealized gains on derivative transactions is
subject to management’s assessment of the probability of
counterparty default. Liquidity risk is the potential exposure
that arises when the size of a derivative position may affect the
ability to monetize the position in a reasonable period of time
and at a reasonable cost in periods of high volatility and
financial stress.
Derivative transactions are customarily documented under
industry standard master netting agreements, which provide
that following an event of default, the non-defaulting party
may promptly terminate all transactions between the parties
and determine the net amount due to be paid to, or by, the
defaulting party. Events of default include (i) failure to make a
payment on a derivatives transaction that remains uncured
following applicable notice and grace periods, (ii) breach of
agreement that remains uncured after applicable notice and
grace periods, (iii) breach of a representation, (iv) cross
default, either to third-party debt or to other derivative
transactions entered into between the parties, or, in some
cases, their affiliates, (v) the occurrence of a merger or
consolidation which results in a party’s becoming a materially
weaker credit and (vi) the cessation or repudiation of any
applicable guarantee or other credit support document.
Obligations under master netting agreements are often secured
by collateral posted under an industry standard credit support
annex to the master netting agreement. An event of default
may also occur under a credit support annex if a party fails to
make a collateral delivery that remains uncured following
applicable notice and grace periods.
The netting and collateral rights incorporated in the
master netting agreements are considered to be legally
enforceable if a supportive legal opinion has been obtained
from counsel of recognized standing that provides (i) the
requisite level of certainty regarding enforceability, and (ii)
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 be sought for certain jurisdictions
where local law is silent or unclear as to the enforceability of
such 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 may not provide the requisite level of certainty. 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 affected by
market volatility, which may impair the ability of
counterparties 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 agreements and credit
support annexes to be an important factor in its risk
management process. Specifically, 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, because such
derivatives consume greater amounts of single counterparty
credit limits than those executed under enforceable master
netting agreements.
Cash collateral and security collateral in the form of G10
government debt securities are often posted by a party to a
master netting agreement to secure the net open exposure of
the other party; the receiving party is free to commingle/
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/or
securities, may from time to time be segregated in an account
at a third-party custodian pursuant to a tri-party account
control agreement.
235
Information pertaining to Citigroup’s derivative activities,
based on notional amounts, is presented in the table below.
Derivative notional amounts are reference amounts from
which contractual payments are derived and do not represent a
complete and accurate measure of Citi’s exposure to derivative
transactions. Rather, Citi’s derivative exposure arises primarily
from market fluctuations (i.e., market risk), counterparty
failure (i.e., credit risk) and/or periods of high volatility or
financial stress (i.e., liquidity risk), as well as any market
valuation adjustments that may be required on the
transactions. Moreover, notional amounts do not reflect the
netting of offsetting trades. For example, if Citi enters into a
receive-fixed interest rate swap with $100 million notional,
and offsets this risk with an identical but opposite pay-fixed
position with a different counterparty, $200 million in
derivative notionals is reported, although these offsetting
positions may result in de minimis overall market risk.
Aggregate derivative notional amounts can fluctuate from
period to period in the normal course of business based on
Citi’s market share, levels of client activity and other factors.
Derivative Notionals
In millions of dollars
Interest rate contracts
Swaps
Futures and forwards
Written options
Purchased options
Hedging instruments under
ASC 815(1)(2)
Other derivative instruments
Trading derivatives
Management hedges(3)
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
$
189,779 $
151,331 $
18,718,224 $ 19,145,250 $
35,995 $
—
—
—
97
—
—
6,447,886
3,513,759
3,230,915
6,864,276
2,921,070
2,768,528
12,653
2,372
3,110
47,324
30,834
4,759
7,320
Total interest rate contract notionals
Foreign exchange contracts
Swaps
Futures, forwards and spot
Written options
Purchased options
Total foreign exchange contract notionals
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
Total equity contract notionals
Commodity and other contracts
Swaps
Futures and forwards
Written options
Purchased options
$
$
$
$
$
$
Total commodity and other contract notionals $
Credit derivatives(4)
Protection sold
$
Protection purchased
Total credit derivatives
Total derivative notionals
$
$
189,779 $
151,428 $
31,910,784 $ 31,699,124 $
54,130 $
90,237
37,162 $
19,042 $
5,538,231 $
5,492,145 $
38,126 $
33,103
3,951
6,427
56,964
—
—
3,080,361
1,127,728
1,148,686
3,251,132
1,194,325
1,215,961
17,339
—
—
22,676
3,419
—
—
80,643 $
76,006 $
10,895,006 $ 11,153,563 $
55,465 $
26,095
— $
— $
215,834 $
192,366 $
— $
—
—
—
—
—
—
72,616
389,961
328,154
37,557
304,579
266,070
— $
— $
1,006,565 $
800,572 $
— $
— $
82,039 $
70,774 $
23
—
—
182
—
—
153,248
62,045
60,526
142,530
74,627
69,629
23 $
182 $
357,858 $
357,560 $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
—
— $
—
— $
— $
735,142 $
859,420 $
—
766,565
883,003
11,148
— $
1,501,707 $
1,742,423 $
11,148 $
19,470
19,470
270,445 $
227,616 $
45,671,920 $ 45,753,242 $
120,743 $
135,802
(1) The notional amounts presented in this table do not include hedge accounting relationships under ASC 815 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 $63 million and $1,825
million at December 31, 2017 and December 31, 2016, respectively.
(2) Derivatives in hedge accounting relationships accounted for under ASC Topic 815 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 to mitigate certain economic risks, 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
236
Company enters 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 amounts as of December 31, 2017 and
December 31, 2016. 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 a credit support annex are included in the
offsetting amount if a legal opinion supporting the
enforceability of netting and collateral rights has been
obtained. GAAP does not permit similar offsetting for security
collateral.
In addition, the table for December 31, 2017 reflects rule
changes adopted by clearing organizations that require or
allow entities to elect to treat derivative assets, liabilities and
the related variation margin as settlement of the related
derivative fair values for legal and accounting purposes, as
opposed to presenting gross derivative assets and liabilities
that are subject to collateral, whereby the counterparties would
record a related collateral payable or receivable. As a result,
the table for December 31, 2017 reflects a reduction of
approximately $100 billion of derivative assets and derivative
liabilities that previously would have been reported on a gross
basis, but are now settled and not subject to collateral. The
table for December 31, 2016 presents derivative assets and
liabilities as gross amounts subject to variation margin
collateral that were netted under enforceable master netting
agreements. Therefore, the net presentation of the affected
items on the consolidated balance sheet is consistent for all
periods. The tables also present amounts that are not permitted
to be offset, such as security collateral or cash collateral
posted at third-party custodians, but which would be eligible
for offsetting to the extent an event of default occurred and a
legal opinion supporting enforceability of the netting and
collateral rights has been obtained.
237
Derivative Mark-to-Market (MTM) Receivables/Payables
In millions of dollars at December 31, 2017
Derivatives instruments designated as ASC 815 hedges
Over-the-counter
Cleared
Interest rate contracts
Over-the-counter
Foreign exchange contracts
Total derivative instruments designated as ASC 815 hedges
Derivatives instruments not designated as ASC 815 hedges
Over-the-counter
Cleared
Exchange traded
Interest rate contracts
Over-the-counter
Cleared
Exchange traded
Foreign exchange contracts
Over-the-counter
Cleared
Exchange traded
Equity contracts
Over-the-counter
Exchange traded
Commodity and other contracts
Over-the-counter
Cleared
Credit derivatives
Total derivatives instruments not designated as ASC 815 hedges
Total derivatives
Cash collateral paid/received(4)(5)
Less: Netting agreements(6)
Less: Netting cash collateral received/paid(7)
Net receivables/payables included on the Consolidated Balance Sheet(8)
Additional amounts subject to an enforceable master netting agreement, but not
offset on the Consolidated Balance Sheet
Less: Cash collateral received/paid
Less: Non-cash collateral received/paid
Total net receivables/payables(8)
Derivatives classified
in Trading account
assets/liabilities(1)(2)(3)
Assets
Liabilities
Derivatives classified
in Other
assets/liabilities(2)(3)
Assets
Liabilities
644 $
71
715 $
885 $
885 $
1,600 $
121 $
1,325 $
24
145 $
1,064 $
1,064 $
1,209 $
39
1,364 $
258 $
258 $
1,622 $
195,648 $
173,921 $
29 $
7,051
102
10,268
95
202,801 $
184,284 $
118,611 $
116,962 $
1,690
34
2,028
121
120,335 $
119,111 $
17,221 $
21,201 $
21
9,736
26,978 $
13,499 $
604
14,103 $
12,954 $
7,530
25
10,147
31,373 $
16,362 $
665
17,027 $
12,895 $
8,327
20,484 $
21,222 $
384,701 $
373,017 $
78
—
107 $
481 $
—
—
481 $
— $
—
—
— $
— $
—
— $
18 $
32
50 $
638 $
13
68
81
86
86
167
16
113
—
129
511
—
—
511
—
—
—
—
—
—
—
63
248
311
951
386,301 $
374,226 $
2,260 $
1,118
7,541 $
14,296 $
(306,401)
(306,401)
— $
—
(37,506)
(35,659)
(1,026)
12
—
(7)
49,935 $
46,462 $
1,234 $
1,123
(872) $
(121) $
(12,453)
(6,929)
— $
(286)
—
—
36,610 $
39,412 $
948 $
1,123
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) The trading derivatives fair values are presented in Note 24 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 are 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) For the trading account assets/liabilities, reflects the net amount of the $43,200 million and $51,801 million of gross cash collateral paid and received,
respectively. Of the gross cash collateral paid, $35,659 million was used to offset trading derivative liabilities and, of the gross cash collateral received, $37,506
million was used to offset trading derivative assets.
(5) For cash collateral paid with respect to non-trading derivative assets, reflects the net amount of $7 million of gross cash collateral paid, of which $7 million is
netted against non-trading derivative positions within Other liabilities. For cash collateral received with respect to non-trading derivative liabilities, reflects the net
amount of $1,038 million of gross cash collateral received, of which $1,026 million is netted against OTC non-trading derivative positions within Other assets.
238
(6) Represents the netting of derivative receivable and payable balances with the same counterparty under enforceable netting agreements. Approximately $283
billion, $14 billion and $9 billion of the netting against trading account asset/liability balances is attributable to each of the OTC, cleared and exchange traded
derivatives, respectively.
(7) Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. Substantially all cash collateral received
and paid is netted against OTC derivative assets and liabilities, respectively.
(8) The net receivables/payables include approximately $6 billion of derivative asset and $8 billion of derivative liability fair values not subject to enforceable master
netting agreements, respectively.
In millions of dollars at December 31, 2016
Derivatives instruments designated as ASC 815 hedges
Derivatives classified in Trading
account assets/liabilities(1)(2)(3)
Liabilities
Assets
Derivatives classified in
Other assets/liabilities(2)(3)
Liabilities
Assets
Over-the-counter
Cleared
Interest rate contracts
Over-the-counter
Foreign exchange contracts
Total derivative instruments designated as ASC 815 hedges
Derivatives instruments not designated as ASC 815 hedges
Over-the-counter
Cleared
Exchange traded
Interest rate contracts
Over-the-counter
Cleared
Exchange traded
Foreign exchange contracts
Over-the-counter
Cleared
Exchange traded
Equity contracts
Over-the-counter
Exchange traded
Commodity and other contracts
Over-the-counter
Cleared
Credit derivatives
Total derivatives instruments not designated as ASC 815 hedges
Total derivatives
Cash collateral paid/received(4)(5)
Less: Netting agreements(6)
Less: Netting cash collateral received/paid(7)
Net receivables/payables included on the Consolidated Balance Sheet(8)
Additional amounts subject to an enforceable master netting agreement,
but not offset on the Consolidated Balance Sheet
Less: Cash collateral received/paid
Less: Non-cash collateral received/paid
Total net receivables/payables(8)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
22
82
104
645
645
749
5
349
—
354
60
—
—
60
—
—
—
—
—
—
—
78
310
388
802
716 $
3,530
4,246 $
2,494 $
2,494 $
6,740 $
171 $
1,927 $
2,154
47
2,325 $
1,974 $
393 $
393 $
747 $
747 $
2,718 $
2,721 $
244,072 $
221,534 $
225 $
240
—
465 $
— $
—
—
— $
— $
—
—
— $
— $
—
— $
159 $
47
206 $
671 $
120,920
87
365,079 $
182,659 $
482
27
130,855
47
352,436 $
186,867 $
470
31
183,168 $
15,625 $
187,368 $
19,119 $
1
8,484
24,110 $
13,046 $
719
13,765 $
19,033 $
5,582
24,615 $
610,737 $
617,477 $
11,188 $
21
7,376
26,516 $
14,234 $
798
15,032 $
19,563 $
5,874
25,437 $
606,789 $
609,507 $
15,731 $
(519,000)
(45,912)
(519,000)
(49,811)
3,392 $
1,551
8 $
—
(1,345)
1
—
(53)
63,753 $
56,427 $
2,055 $
1,499
(819) $
(11,767)
(19) $
(5,883)
— $
(530)
—
—
51,167 $
50,525 $
1,525 $
1,499
(1) The trading derivatives fair values are presented in Note 24 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.
239
(4) For the trading account assets/liabilities, reflects the net amount of the $60,999 million and $61,643 million of gross cash collateral paid and received,
respectively. Of the gross cash collateral paid, $49,811 million was used to offset derivative liabilities and, of the gross cash collateral received, $45,912 million
was used to offset derivative assets.
(5) For cash collateral paid with respect to non-trading derivative assets, reflects the net amount of $61 million of the gross cash collateral paid, of which $53 million
is netted against non-trading derivative positions within Other liabilities. For cash collateral received with respect to non-trading derivative liabilities, reflects the
net amount of $1,346 million of gross cash collateral received of which $1,345 million is netted against non-trading derivative positions within Other assets.
(6) Represents the netting of derivative receivable and payable balances with the same counterparty under enforceable netting agreements. Approximately $383
billion, $128 billion and $8 billion of the netting against trading account asset/liability balances is attributable to each of the OTC, cleared and exchange traded
derivatives, respectively.
(7) Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. Substantially all cash collateral received
and paid is netted against OTC derivative assets and liabilities, respectively.
(8) The net receivables/payables include approximately $7 billion of derivative asset and $9 billion of liability fair values not subject to enforceable master netting
agreements, respectively.
For the years ended December 31, 2017, 2016 and 2015,
the amounts recognized in Principal transactions in the
Consolidated Statement of Income 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 related to derivatives not
designated in a qualifying hedging relationship are shown
below. The table below does not include any offsetting gains/
losses on the economically hedged items to the extent such
amounts are also recorded in Other revenue.
Gains (losses) included in
Other revenue
In millions of dollars
2017
2016
2015
Interest rate contracts $
(54) $
Foreign exchange
Credit derivatives
244
(494)
(81) $
12
(1,009)
Total
$
(304) $
(1,078) $
117
(39)
476
554
Accounting for Derivative Hedging
Citigroup accounts for its hedging activities in accordance
with ASC 815, Derivatives and Hedging. 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
changes in fair value are referred to as fair value hedges, while
contracts hedging the variability of expected future cash flows
are 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 net investment hedges.
To qualify as an accounting hedge under the hedge
accounting rules (versus an economic hedge where hedge
accounting is not applied), a hedging relationship must be
highly effective in offsetting the risk designated as being
240
hedged. The hedge relationship must be formally documented
at inception, detailing the particular risk management
objective and strategy for the hedge. This includes the item
and risk(s) being hedged, the hedging instrument being used
and how effectiveness will be assessed. The effectiveness of
these hedging relationships is evaluated at hedge inception and
on an ongoing basis both on a retrospective and prospective
basis, typically using quantitative measures of correlation,
with hedge ineffectiveness measured and recorded in current
earnings. Hedge effectiveness assessment methodologies are
performed in a similar manner for similar hedges, and are used
consistently throughout the hedging relationships. The
assessment of effectiveness may exclude changes in the value
of the hedged item that are unrelated to the risks being hedged
and the changes in fair value of the derivative associated with
time value. These excluded items are recognized in current
earnings for the hedging derivative, while changes in the value
of a hedged item that are not related to the hedged risk are not
recorded.
Discontinued Hedge Accounting
A hedging instrument 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. Management may voluntarily de-designate an
accounting hedge at any time, but if a hedge relationship is not
highly effective, it no longer qualifies for hedge accounting
and must be de-designated. Subsequent changes in the fair
value of the derivative are recognized in Other revenue or
Principal transactions, similar to trading derivatives, with no
offset recorded related to the hedged item.
For fair value hedges, any changes in the fair value of the
hedged item remain as part of the basis of the asset or liability
and are ultimately realized as an element of the yield on the
item. For cash flow hedges, changes in fair value of the end-
user derivative remain in Accumulated other comprehensive
income (loss) (AOCI) and are included in the earnings of
future periods when the forecasted hedged cash flows impact
earnings. However, if it becomes probable that some or all of
the hedged forecasted transactions will not occur, any amounts
that remain in AOCI related to these transactions must be
immediately reflected in Other revenue.
The foregoing criteria are applied on a decentralized
basis, consistent with the level at which market risk is
managed, but are subject to various limits and controls. The
underlying asset, liability or forecasted transaction may be an
individual item or a portfolio of similar items.
Fair Value Hedges
Hedging of Benchmark Interest Rate Risk
Citigroup’s fair value hedges are primarily hedges of fixed-
rate long-term debt or assets, such as available-for-sale
securities.
Citigroup hedges exposure to changes in the fair value of
outstanding fixed-rate issued debt. These hedges are
designated as fair value hedges of the benchmark interest rate
risk associated with the currency of the hedged liability. The
fixed cash flows of the hedged items are typically converted to
benchmark variable-rate cash flows by entering into receive-
fixed, pay-variable interest rate swaps. By designating an
interest rate swap contract as a hedging instrument and
electing to apply ASC 815 fair value hedge accounting, the
carrying value of the debt is adjusted to reflect the impact of
changes in the benchmark interest rate, with such changes in
value recorded in Other revenue. The related interest rate swap
is recorded on the balance sheet at fair value, with changes in
fair value also reflected in Other revenue. These amounts are
expected to, and generally do, offset. Any net amount,
representing hedge ineffectiveness, is automatically reflected
in current earnings. These fair value hedge relationships use
either regression or dollar-offset ratio analysis to assess
whether the hedging relationships are highly effective at
inception and on an ongoing basis.
Citigroup also hedges its exposure to changes in the fair
value of fixed-rate available for sale debt securities due to
changes in benchmark interest rates. The hedging instruments
are typically receive-variable, pay-fixed interest rate swaps.
These fair value hedging relationships use either regression or
dollar-offset ratio analysis to assess 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
may be a cross currency swap or a forward foreign exchange
contract. When a forward foreign exchange contract is used as
the hedging instrument, the portion of the change in the fair
value of the hedged available-for-sale security attributable to
foreign exchange risk (i.e., spot rates) is reported in earnings,
and not AOCI, which offsets the change in the fair value of the
forward contract that is also reflected in earnings. Citigroup
considers the premium associated with forward contracts (i.e.,
the differential between spot and contractual forward rates) as
the cost of hedging; this amount is excluded from the
assessment of hedge effectiveness and reflected directly in
earnings over the life of the hedge.
Hedging of Commodity Price Risk
Citigroup hedges the change in fair value attributable to spot
price movements in physical commodities inventory. The
hedging instrument is a futures contract to sell the underlying
commodity. In this hedge, the change in the value of the
hedged inventory is reflected in earnings, which offsets the
change in the fair value of the futures contract that is also
reflected in earnings. Although the change in the fair value of
the hedging instrument recorded in earnings includes changes
in forward rates, Citigroup excludes the differential between
the spot and the contractual forward rates under the futures
contract from the assessment of hedge effectiveness. Since the
assessment is based on changes in fair value attributable to
change in spot prices on both the physical commodity and the
futures contract, the amount of hedge ineffectiveness is not
significant.
241
The following table summarizes the gains (losses) on the Company’s fair value hedges:
In millions of dollars
Gain (loss) on the derivatives in designated and qualifying fair value hedges
Interest rate contracts
Foreign exchange contracts
Commodity contracts
Total gain (loss) on the derivatives in designated and qualifying fair value hedges
Gain (loss) on the hedged item in designated and qualifying fair value hedges
Interest rate hedges
Foreign exchange hedges
Commodity hedges
Total gain (loss) on the hedged item in designated and qualifying fair value hedges
Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges
Interest rate hedges
Foreign exchange hedges
Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges
Net gain (loss) excluded from assessment of the effectiveness of fair value hedges
Interest rate contracts
Foreign exchange contracts(2)
Commodity hedges(2)
Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges
Gains (losses) on fair value hedges(1)
Year ended December 31,
2017
2016
2015
$
$
$
$
$
$
$
$
(891) $
(753) $
(847)
(824)
(17)
(1,415)
1,315
182
41
509
(1,732) $
(1,986) $
853 $
668 $
792
969
18
1,573
(210)
1,840 $
2,031 $
(1,258)
(35)
(501)
(31) $
49
18 $
(84) $
4
(80) $
(7) $
(1) $
96
1
154
(28)
90 $
125 $
(47)
(23)
(70)
(8)
80
6
78
(1) Amounts are included in Other revenue or Principal Transactions in 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.
(2) Amounts relate to the premium associated with forward contracts (differential between spot and contractual forward rates). These amounts are excluded from the
assessment of hedge effectiveness and are reflected directly in earnings.
242
Cash Flow Hedges
Hedging of Benchmark Interest Rate Risk
Citigroup hedges the variability of forecasted cash flows
associated with floating-rate assets/liabilities and other
forecasted transactions. Variable cash flows from those
liabilities are synthetically 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. Variable cash flows associated with certain assets are
synthetically 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 the variable interest rates associated with
hedged items do not qualify as benchmark interest rates,
Citigroup designates the risk being hedged as the risk of
overall variability in the hedged cash flows. Because 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.
For cash flow hedges in which derivatives hedge the
variability of forecasted cash flows related to recognized
assets, liabilities or forecasted transactions, the accounting
treatment depends on the effectiveness of the hedge. To the
extent that these derivatives are effective in offsetting the
variability of the forecasted hedged cash flows, the effective
portion of the changes in the derivatives’ fair values will not
be included in current earnings, but will be reported in AOCI.
These changes in fair value will be included in the earnings of
future periods when the hedged cash flows impact earnings.
To the extent that these derivatives are not fully effective,
changes in their fair values are immediately included in Other
revenue. Citigroup’s cash flow hedges primarily include
hedges of floating-rate assets or liabilities which may include
loans as well as forecasted transactions.
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 currencies other than the functional currency
of the issuing entity. Depending on risk management
objectives, these types of hedges are designated either as cash
flow hedges of foreign exchange risk only or cash flow hedges
of both foreign exchange risk and interest rate risk, and the
hedging instruments 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.
The amount of hedge ineffectiveness on the cash flow
hedges recognized in earnings for the years ended
December 31, 2017, 2016 and 2015 is not significant. The
pretax change in AOCI from cash flow hedges is presented in
the table below:
In millions of dollars
Effective portion of cash flow hedges included in AOCI
Interest rate contracts
Foreign exchange contracts
Total effective portion of cash flow hedges included in AOCI
Effective portion of cash flow hedges reclassified from AOCI to earnings
Interest rate contracts
Foreign exchange contracts
Total effective portion of cash flow hedges reclassified from AOCI to earnings(1)
(1)
Included primarily in Other revenue and Net interest revenue in the Consolidated Statement of Income.
Year ended December 31,
2017
2016
2015
$
$
$
$
(165) $
(8)
(173) $
(126) $
(10)
(136) $
(219) $
69
(150) $
(140) $
(93)
(233) $
357
(220)
137
(186)
(146)
(332)
For cash flow hedges, the changes in the fair value of the
hedging derivative remain in AOCI on the Consolidated
Balance Sheet and will be included in the earnings of future
periods to offset the variability of the hedged cash flows when
such cash flows affect earnings. The net gain associated with
cash flow hedges expected to be reclassified from AOCI
within 12 months of December 31, 2017 is approximately $0.4
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 19 to the Consolidated Financial Statements.
243
Net Investment Hedges
Consistent with ASC 830-20, Foreign Currency Matters—
Foreign Currency Transactions, ASC 815 allows the hedging
of the foreign currency risk of a net investment in a foreign
operation. Citigroup uses foreign currency forwards, cross-
currency swaps, 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 AOCI. Simultaneously, the effective portion of
the hedge of this exposure is also recorded in the Foreign
currency translation adjustment account and any ineffective
portion is immediately recorded in earnings.
For derivatives designated as net investment hedges,
Citigroup follows the forward-rate method outlined in ASC
815-35-35. 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 AOCI.
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 AOCI, related to the
effective portion of the net investment hedges, is $2,528
million, $(220) million and $2,475 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Economic Hedges
Citigroup often uses economic hedges when hedge accounting
would be too complex or operationally burdensome. End-user
derivatives that are economic hedges are carried at fair value,
with changes in value included in either Principal transactions
or Other revenue.
For asset/liability management hedging, fixed-rate long-
term debt is recorded at amortized cost under GAAP.
For other hedges that either do not meet the ASC 815
hedging criteria or for which management decides not to apply
ASC 815 hedge accounting, the derivative is recorded at fair
value on the balance sheet with the associated changes in fair
value recorded in earnings, while the debt continues to be
carried at amortized cost. Therefore, current earnings are
affected by the interest rate shifts and other factors that cause a
change in the swap’s value, but for which no offsetting change
in value is recorded on the debt.
244
Citigroup may alternatively elect to account for 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 is reported in earnings. The changes in
fair value of the related interest rate swap are also reflected in
earnings, which provides a natural offset to the debt’s fair
value change. To the extent the two amounts differ because the
full change in the fair value of the debt includes risks not
offset by the interest rate swap, the difference is automatically
captured in current earnings.
Additional economic hedges include hedges of the credit
risk component of commercial loans and loan commitments.
Citigroup periodically evaluates its hedging strategies in other
areas and may designate either an accounting hedge or an
economic hedge after considering the relative costs and
benefits. Economic hedges are also employed when the
hedged item itself is marked to market through current
earnings, such as hedges of commitments to originate one- to
four-family mortgage loans to be held for sale and MSRs.
Credit Derivatives
Citi is a market maker and trades a range of credit derivatives.
Through these contracts, Citi either purchases or writes
protection on either a single name or a portfolio of reference
credits. Citi 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.
Citi monitors its counterparty credit risk in credit
derivative contracts. As of both December 31, 2017 and
December 31, 2016, approximately 98% 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 range of credit derivatives entered into 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 predefined credit event on a
reference entity. These credit events are defined by the terms
of the derivative contract 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 that reference emerging market entities
also typically include additional credit events 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 entities or asset-backed
securities. If there is no credit event, 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. Under certain contracts, the seller of
protection may not be required to make a 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.
A total return swap typically 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 plus any depreciation of the
reference asset exceeds the cash flows associated with the
underlying asset. A total return swap may terminate upon a
default of the reference asset or a credit event with respect to
the reference entity 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 a reference
entity. For example, in a credit spread option, the option writer
assumes the obligation to purchase or sell credit protection on
the reference entity at a specified “strike” spread level. The
option purchaser buys the right to sell credit default protection
on the reference entity 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 or other reference
entity. The options usually terminate if a credit event occurs
with respect to the underlying reference entity.
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 effectively provides credit
protection to the issuer by agreeing to receive a return that
could be negatively affected by credit events on the underlying
reference credit. If the reference entity defaults, the note may
be cash settled or physically settled by delivery of a debt
security of the reference entity. Thus, the maximum amount of
the note purchaser’s exposure is the amount paid for the
credit-linked note.
245
The following tables summarize the key characteristics of Citi’s credit derivatives portfolio by counterparty and derivative form:
In millions of dollars at December 31, 2017
Receivable(1)
Payable(2)
Protection
purchased
Protection
sold
Fair values
Notionals
By industry/counterparty
Banks
Broker-dealers
Non-financial
Insurance and other financial
institutions
Total by industry/counterparty
By instrument
Credit default swaps and options
Total return swaps and other
Total by instrument
By rating
Investment grade
Non-investment grade
Total by rating
By maturity
Within 1 year
From 1 to 5 years
After 5 years
Total by maturity
$
$
$
$
$
$
$
$
7,471 $
2,325
70
10,668
20,534 $
20,251 $
283
20,534 $
10,473 $
10,061
20,534 $
2,477 $
16,098
1,959
20,534 $
6,669 $
2,285
91
12,488
21,533 $
20,554 $
979
21,533 $
10,616 $
10,917
21,533 $
2,914 $
16,435
2,184
21,533 $
264,414 $
73,273
1,288
438,738
777,713 $
754,114 $
23,599
777,713 $
588,324 $
189,389
777,713 $
231,878 $
498,606
47,229
777,713 $
273,711
83,229
1,140
377,062
735,142
724,228
10,914
735,142
557,987
177,155
735,142
218,097
476,345
40,700
735,142
(1) The fair value amount receivable is composed of $3,195 million under protection purchased and $17,339 million under protection sold.
(2) The fair value amount payable is composed of $3,147 million under protection purchased and $18,386 million under protection sold.
In millions of dollars at December 31, 2016
Receivable(1)
Payable(2)
Protection
purchased
Protection
sold
Fair values
Notionals
By industry/counterparty
Banks
Broker-dealers
Non-financial
Insurance and other financial
institutions
Total by industry/counterparty
By instrument
Credit default swaps and options
Total return swaps and other
Total by instrument
By rating
Investment grade
Non-investment grade
Total by rating
By maturity
Within 1 year
From 1 to 5 years
After 5 years
Total by maturity
$
$
$
$
$
$
$
$
11,895 $
3,536
82
9,308
24,821 $
24,502 $
319
24,821 $
9,605 $
15,216
24,821 $
4,113 $
17,735
2,973
24,821 $
10,930 $
3,952
99
10,844
25,825 $
24,631 $
1,194
25,825 $
9,995 $
15,830
25,825 $
4,841 $
17,986
2,998
25,825 $
407,992 $
115,013
4,014
375,454
902,473 $
883,719 $
18,754
902,473 $
675,138 $
227,335
902,473 $
293,059 $
551,155
58,259
902,473 $
414,720
119,810
2,061
322,829
859,420
852,900
6,520
859,420
648,247
211,173
859,420
287,262
523,371
48,787
859,420
(1) The fair value amount receivable is composed of $9,077 million under protection purchased and $15,744 million under protection sold.
(2) The fair value amount payable is composed of $17,110 million under protection purchased and $8,715 million under protection sold.
246
Fair values included in the above tables are prior to
application of any netting agreements and cash collateral. For
notional amounts, 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. The ratings of the credit
derivatives portfolio presented in the tables and used to
evaluate payment/performance risk are based on the assigned
internal or external ratings of the reference 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.
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 reference
credit. 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 also includes credit derivatives where the
underlying reference 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 notional amount for credit protection sold is
not representative of the actual loss exposure based on
historical experience. This amount has not been reduced by the
value of the reference assets and the related cash flows. In
accordance with most credit derivative contracts, should a
credit event occur, the Company usually is liable for the
difference between the protection sold and the value of the
reference assets. Furthermore, the notional amount 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 event related to the credit risk of the
Company. 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 were in a net liability position
at both December 31, 2017 and December 31, 2016 was $29
billion and $26 billion, respectively. The Company posted $28
billion and $26 billion as collateral for this exposure in the
normal course of business as of December 31, 2017 and
December 31, 2016, respectively.
A downgrade could trigger additional collateral or cash
settlement requirements for the Company and certain
affiliates. In the event that Citigroup and Citibank were
downgraded a single notch by all three major rating agencies
as of December 31, 2017, the Company could be required to
post an additional $0.9 billion as either collateral or settlement
of the derivative transactions. Additionally, the Company
could be required to segregate with third-party custodians
collateral previously received from existing derivative
counterparties in the amount of $0.3 billion upon the single
notch downgrade, resulting in aggregate cash obligations and
collateral requirements of approximately $1.2 billion.
Derivatives Accompanied by Financial Asset Transfers
The Company executes total return swaps that provide it with
synthetic exposure to substantially all of the economic return
of the securities or other financial assets referenced in the
contract. In certain cases, the derivative transaction is
accompanied by the Company’s transfer of the referenced
financial asset to the derivative counterparty, most typically in
response to the derivative counterparty’s desire to hedge, in
whole or in part, its synthetic exposure under the derivative
contract by holding the referenced asset in funded form. In
certain jurisdictions these transactions qualify as sales,
resulting in derecognition of the securities transferred (see
Note 1 to the Consolidated Financial Statements for further
discussion of the related sale conditions for transfers of
financial assets). For a significant portion of the transactions,
the Company has also executed another total return swap
where the Company passes on substantially all of the
economic return of the referenced securities to a different third
party seeking the exposure. In those cases, the Company is not
exposed, on a net basis, to changes in the economic return of
the referenced securities.
These transactions generally involve the transfer of the
Company’s liquid government bonds, convertible bonds or
publicly traded corporate equity securities from the trading
portfolio and are executed with third-party financial
institutions. The accompanying derivatives are typically total
return swaps. The derivatives are cash settled and subject to
ongoing margin requirements.
When the conditions for sale accounting are met, the
Company reports the transfer of the referenced financial asset
as a sale and separately reports the accompanying derivative
247
transaction. These transactions generally do not result in a gain
or loss on the sale of the security, because the transferred
security was held at fair value in the Company’s trading
portfolio. For transfers of financial assets accounted for by the
Company as a sale, where the Company has retained
substantially all of the economic exposure to the transferred
asset through a total return swap executed in contemplation of
the initial sale, with the same counterparty and still
outstanding as of December 31, 2017 and December 31, 2016,
both the asset carrying amounts derecognized and gross cash
proceeds received as of the date of derecognition were $3.0
billion and $1.0 billion, respectively. At December 31, 2017,
the fair value of these previously derecognized assets was $3.1
billion and the fair value of the total return swaps was $89
million, recorded as gross derivative assets, and $15 million
recorded as gross derivative liabilities. At December 31, 2016,
the fair value of these previously derecognized assets was $1.0
billion and the fair value of the total return swaps was $32
million, recorded as gross derivative assets, and $23 million,
recorded as gross derivative liabilities. The balances for the
total return swaps are on a gross basis, before the application
of counterparty and cash collateral netting, and are included
primarily as equity derivatives in the tabular disclosures in this
Note.
248
23. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to Citigroup’s total credit exposure. Although
Citigroup’s portfolio of financial instruments is broadly
diversified along industry, product and geographic lines,
material transactions are completed with other financial
institutions, particularly in the securities trading, derivatives
and foreign exchange businesses.
In connection with the Company’s efforts to maintain a
diversified portfolio, the Company limits its exposure to any
one geographic region, country or individual creditor and
monitors this exposure on a continuous basis. At
December 31, 2017, Citigroup’s most significant
concentration of credit risk was with the U.S. government and
its agencies. The Company’s exposure, which primarily results
from trading assets and investments issued by the U.S.
government and its agencies, amounted to $227.8 billion and
$228.5 billion at December 31, 2017 and 2016, respectively.
The German and Japanese governments and their agencies,
which are rated investment grade by both Moody’s and S&P,
were the next largest exposures. The Company’s exposure to
Germany amounted to $38.3 billion and $26.7 billion at
December 31, 2017 and 2016, respectively, and was composed
of investment securities, loans and trading assets. The
Company’s exposure to Japan amounted to $25.8 billion and
$27.3 billion at December 31, 2017 and 2016, respectively,
and was composed of investment securities, loans and trading
assets.
The Company’s exposure to states and municipalities
amounted to $30.6 billion and $30.7 billion at December 31,
2017 and 2016, respectively, and was composed of trading
assets, investment securities, derivatives and lending activities.
249
24. FAIR VALUE MEASUREMENT
ASC 820-10, 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 and
other positions as well as 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 are developed using market data and
reflect market participant assumptions, while unobservable
inputs reflect the Company’s market assumptions. These two
types of inputs have created the following fair value
hierarchy:
• Level 1: Quoted prices for identical instruments in
active markets.
• Level 2: Quoted prices for similar instruments in active
markets; quoted prices for identical or similar
instruments in markets that are not active; and model-
derived valuations in which all significant inputs and
significant value drivers are observable in active
markets.
• Level 3: Valuations derived from valuation techniques
in which one or more significant inputs or significant
value drivers are unobservable.
As required under the fair value hierarchy, the Company
considers relevant and observable market inputs 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 fair value using the procedures set out below,
irrespective of whether the assets and liabilities are measured
at fair value as a result of an election or whether they are
required to be measured at fair value.
When available, the Company 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.
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
observability of 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.
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 and option volatilities. 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.
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
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.
250
Liquidity adjustments are applied to items in Level 2 or
Level 3 of the fair value hierarchy in an effort to ensure that
the fair value reflects the price at which the net open risk
position could be liquidated. The liquidity adjustment is
based on the bid/offer spread for an instrument. When Citi
has elected to measure certain portfolios of financial
investments, such as derivatives, on the basis of the net open
risk position, the liquidity adjustment may be adjusted to
take into account the size of the position.
Credit valuation adjustments (CVA) and funding
valuation adjustments (FVA) are applied to over-the-counter
(OTC) derivative instruments in which the base valuation
generally discounts expected cash flows using the relevant
base interest rate curve for the currency of the derivative
(e.g., LIBOR for uncollateralized U.S.-dollar derivatives).
As not all counterparties have the same credit risk as that
implied by the relevant base curve, a CVA is necessary to
incorporate the market view of both counterparty credit risk
and Citi’s own credit risk in the valuation. FVA reflects a
market funding risk premium inherent in the uncollateralized
portion of derivative portfolios and in collateralized
derivatives where the terms of the agreement do not permit
the reuse of the collateral received.
Citi’s CVA and FVA methodology consists 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 and sources of funding, 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 as a netting set 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 and unsecured
funding, rather than using the current recognized net
asset or liability as a basis to measure the CVA and
FVA.
Second, for CVA, 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 CDSs), counterparty-
specific CDS spreads are used. For FVA, a term
structure of future liquidity spreads is applied to the
expected future funding requirement.
The CVA and FVA are designed to incorporate a market
view of the credit and funding risk, respectively, inherent in
•
the derivative portfolio. However, most unsecured 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. Thus, the CVA and
FVA may not be realized upon a settlement or termination in
the normal course of business. In addition, all or a portion of
these adjustments may be reversed or otherwise adjusted in
future periods in the event of changes in the credit or
funding risk associated with the derivative instruments.
The table below summarizes the CVA and FVA applied
to the fair value of derivative instruments at December 31,
2017 and 2016:
Credit and funding valuation
adjustments
contra-liability (contra-asset)
December 31,
December 31,
2016
2017
$
$
(970) $
(447)
287
47
(1,488)
(536)
459
62
(1,083) $
(1,503)
In millions of dollars
Counterparty CVA
Asset FVA
Citigroup (own-credit) CVA
Liability FVA
Total CVA—derivative
instruments(1)
(1) FVA is included with CVA for presentation purposes.
The table below summarizes pretax gains (losses)
related to changes in CVA on derivative instruments, net of
hedges, FVA on derivatives and debt valuation adjustments
(DVA) on Citi’s own fair value option (FVO) liabilities for
the years indicated:
In millions of dollars
Counterparty CVA
Asset FVA
Own-credit CVA
Liability FVA
Credit/funding/debt valuation
adjustments gain (loss)
2017
2016
2015
$
276 $
157 $
(115)
90
(153)
(15)
47
17
(44)
(66)
(28)
97
Total CVA—derivative
instruments
DVA related to own FVO
liabilities(1)
Total CVA and DVA(2)
$
$
$
198 $
177 $
(112)
(680) $
(482) $
(538) $
(361) $
367
255
(1) Effective January 1, 2016, Citigroup early adopted on a prospective
basis only the provisions of ASU No. 2016-01, Financial Instruments
—Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities, related to the presentation
of DVA on fair value option liabilities. Accordingly, beginning in the
first quarter of 2016, the portion of the change in fair value of these
liabilities related to changes in Citigroup’s own credit spreads (DVA)
is reflected as a component of AOCI; previously these amounts were
recognized in Citigroup’s revenues and net income. DVA amounts in
AOCI will be recognized in revenue and net income if realized upon
the settlement of the related liability.
(2) FVA is included with CVA for presentation purposes.
251
Valuation Process for 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.
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 to 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, price verification procedures are performed that
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 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 an 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. 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 these 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. These 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 recorded 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 in
active markets to determine the fair value of trading
securities; such items are classified as Level 1 of the fair
value hierarchy. Examples include 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 sources,
including third-party 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.
When the Company’s principal market for a portfolio of
loans is the securitization market, the Company uses the
securitization price to determine the fair value of the
portfolio. The securitization price is determined from the
assumed proceeds of a hypothetical securitization in the
current market, adjusted for transformation costs (i.e., direct
costs other than transaction costs) and securitization
uncertainties such as market conditions and liquidity. As a
result of the severe reduction in the level of activity in
certain securitization markets since the second half of 2007,
observable securitization prices for certain directly
252
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.
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. The valuation of certain asset-backed
security (ABS) CDO positions utilizes prices based on the
underlying assets of the ABS CDO.
Trading Account Assets and Liabilities—Derivatives
Exchange-traded derivatives, measured at fair value using
quoted (i.e., exchange) prices in active markets, where
available, are classified as Level 1 of the fair value
hierarchy.
Derivatives without a quoted price in an active market
and derivatives executed over the counter are valued using
internal valuation techniques. These derivative instruments
are classified as either Level 2 or Level 3 depending upon
the observability of the significant inputs to the model.
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 key inputs depend upon the type of derivative and
the nature of the underlying instrument and include interest
rate yield curves, foreign exchange rates, volatilities and
correlation. The Company uses overnight indexed swap
(OIS) curves as fair value measurement inputs for the
valuation of certain collateralized derivatives. Citi uses the
relevant benchmark curve for the currency of the derivative
(e.g., the London Interbank Offered Rate for U.S.-dollar
derivatives) as the discount rate for uncollateralized
derivatives.
As referenced above, during the third quarter of 2016,
Citi incorporated FVA into the fair value measurements due
to what it believes to be an industry migration toward
incorporating the market’s view of funding risk premium in
OTC derivatives. The charge incurred in connection with the
implementation of FVA was reflected in Principal
transactions as a change in accounting estimate. Citi’s FVA
methodology leverages the existing CVA methodology to
estimate a funding exposure profile. The calculation of this
exposure profile considers collateral agreements where the
terms do not permit the Company to reuse the collateral
received, including where counterparties post collateral to
third-party custodians.
Investments
The investments category includes available-for-sale debt
and marketable equity securities whose fair values are
generally determined by utilizing similar procedures
described for trading securities above or, in some cases,
using vendor pricing as the primary source.
Also included in investments are nonpublic investments
in private equity and real estate entities. Determining the fair
value of nonpublic securities involves a significant degree of
management judgment, as no quoted prices exist and such
securities are generally 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.
Private equity securities are generally classified as
Level 3 of the fair value hierarchy.
In addition, the Company holds investments in certain
alternative investment funds that calculate NAV per share,
including hedge funds, private equity funds and real estate
funds. 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 investment will be realized
at a price other than the NAV. Consistent with the provisions
of ASU 2015-07 these investments have not been
categorized within the fair value hierarchy and are not
included in the tables below. See Note 13 to the
Consolidated Financial Statements for additional
information.
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 when all
significant inputs are readily observable.
The Company determines the fair value of hybrid
financial instruments, including structured liabilities, 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.
253
Items Measured at Fair Value on a Recurring Basis
The following tables present for each of the fair value
hierarchy levels the Company’s assets and liabilities that are
measured at fair value on a recurring basis at December 31,
2017 and December 31, 2016. The Company may hedge
positions that have been classified in the Level 3 category with
Fair Value Levels
In millions of dollars at December 31, 2017
Assets
Federal funds sold and securities borrowed or purchased under
agreements to resell
Trading non-derivative assets
other financial instruments (hedging instruments) that may be
classified as Level 3, but also with financial instruments
classified as Level 1 or Level 2 of the fair value hierarchy. The
effects of these hedges are presented gross in the following
tables:
Level 1(1)
Level 2(1)
Level 3
Gross
inventory Netting(2)
Net
balance
$
— $
188,571 $
16 $
188,587 $ (55,638) $ 132,949
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total trading mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other trading assets(3)
Total trading non-derivative assets
Trading derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives
Cash collateral paid(4)
Netting agreements
Netting of cash collateral received
Total trading derivatives
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total investment mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity securities(5)
$
$
$
$
$
$
$
$
$
22,964
—
813
—
—
1,366
— $ 25,143
— $ 21,137
—
4,700
60,206
—
15,705
—
60,219
—
—
2,788
—
11,723
— $ 201,621
—
—
—
— $
17,524 $
—
39,347
301
53,305
—
3
110,480 $
22,801
649
1,309
24,759 $
3,613 $
4,426
20,843
15,129
6,794
1,198
11,105
87,867 $
145 $
19
2,364
282
—
2,810 $
201,663 $
120,624
24,170
13,252
19,574
379,283 $
163
164
57
384 $
— $
274
16
275
120
1,590
615
3,274 $
1,708 $
577
444
569
910
4,208 $
$
22,964
813
1,366
25,143 $
21,137 $
4,700
60,206
15,705
60,219
2,788
11,723
201,621 $
203,516
121,220
26,978
14,103
20,484
386,301
7,541
2,810 $
379,283 $
4,208 $
$ (306,401)
(37,506)
393,842 $ (343,907) $ 49,935
— $
—
—
— $
106,964 $
—
56,456
1,911
176
—
—
—
41,717 $
2,884
329
44,930 $
11,182 $
8,028
43,985
12,127
11
3,091
297
121
123,772 $
24 $
—
3
27 $
— $
737
92
71
2
827
—
681
2,437 $
41,741 $
2,884
332
44,957 $
118,146 $
8,765
100,533
14,109
189
3,918
297
802
291,716 $
— $ 41,741
2,884
—
332
—
— $ 44,957
— $ 118,146
—
8,765
— 100,533
14,109
—
189
—
3,918
—
297
—
—
802
— $ 291,716
Total investments
$
165,507 $
Table continues on the next page, including footnotes.
254
In millions of dollars at December 31, 2017
Loans
Mortgage servicing rights
Non-trading derivatives and other financial assets measured on
a recurring basis, gross
Cash collateral paid(6)
Netting of cash collateral received
Non-trading derivatives and other financial assets measured on
a recurring basis
Total assets
Total as a percentage of gross assets(7)
Liabilities
Interest-bearing deposits
Level 1(1)
$
— $
Level 2(1)
3,824
—
—
Level 3
$
550
558
Gross
inventory Netting(2)
Net
balance
$
4,374
$
— $
4,374
558
—
558
$ 13,903
$
6,900
$
16
$
20,819
—
$ 13,903
$
6,900
$
16
$
20,819
$
$
(1,026)
(1,026) $ 19,793
$ 292,700
$ 790,217
$ 11,059
$1,101,517
$ (400,571) $ 700,946
26.8%
72.2%
1.0%
$
— $
1,179
$
286
$
1,465
$
— $
1,465
Federal funds purchased and securities loaned or sold under
agreements to repurchase
—
95,550
726
96,276
(55,638)
40,638
Trading account liabilities
Securities sold, not yet purchased
Other trading liabilities
Total trading liabilities
Trading derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives
Cash collateral received(8)
Netting agreements
Netting of cash collateral paid
Total trading derivatives
Short-term borrowings
Long-term debt
65,843
—
10,306
1,409
$ 65,843
$
11,715
$
22
5
27
76,171
1,414
—
—
76,171
1,414
$
77,585
$
— $ 77,585
$
137
$ 182,162
$ 2,130
$ 184,429
9
119,719
2,430
115
—
26,472
14,482
19,513
447
2,471
2,430
1,709
120,175
31,373
17,027
21,222
$
2,691
$ 362,348
$ 9,187
$ 374,226
$
14,296
$ (306,401)
(35,659)
$
$
2,691
$ 362,348
$ 9,187
$ 388,522
$ (342,060) $ 46,462
— $
4,609
$
18
$
4,627
$
— $
4,627
—
18,310
13,082
31,392
—
31,392
Non-trading derivatives and other financial liabilities measured
on a recurring basis, gross
Cash collateral received(9)
Netting of cash collateral paid
Total non-trading derivatives and other financial liabilities
measured on a recurring basis
$ 13,903
$
1,168
$
8
$
15,079
12
$ 13,903
$
1,168
$
8
$
15,091
$
$
(7)
(7) $ 15,084
Total liabilities
Total as a percentage of gross liabilities(7)
$ 82,437
$ 494,879
$ 23,334
$ 614,958
$ (397,705) $ 217,253
13.7%
82.4%
3.9%
(1)
In 2017, the Company transferred assets of approximately $4.8 billion from Level 1 to Level 2, primarily related to foreign government securities and equity
securities not traded in active markets. In 2017, the Company transferred assets of approximately $4.0 billion from Level 2 to Level 1, primarily related to foreign
government bonds and equity securities traded with sufficient frequency to constitute a liquid market. In 2017, the Company transferred liabilities of
approximately $0.4 billion from Level 1 to Level 2. In 2017, the Company transferred liabilities of approximately $0.3 billion 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
(3)
repurchase and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.
Includes positions related to investments in unallocated precious metals, as discussed in Note 25 to the Consolidated Financial Statements. Also includes physical
commodities accounted for at the lower of cost or fair value and unfunded credit products.
(4) Reflects the net amount of $43,200 million of gross cash collateral paid, of which $35,659 million was used to offset trading derivative liabilities.
(5) Amounts exclude $0.4 billion of investments measured at Net Asset Value (NAV) in accordance with ASU No. 2015-07, Fair Value Measurement (Topic 820):
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
(6) Reflects the net amount of $7 million of gross cash collateral paid, all of which was used to offset non-trading derivative liabilities.
(7) Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total
assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.
(8) Reflects the net amount of $51,802 million of gross cash collateral received, of which $37,506 million was used to offset trading derivative assets.
(9) Reflects the net amount of $1,038 million of gross cash collateral received, of which $1,026 million was used to offset non-trading derivatives.
255
Fair Value Levels
In millions of dollars at December 31, 2016
Assets
Level 1(1)
Level 2(1)
Level 3
Gross
inventory
Netting(2)
Net
balance
Federal funds sold and securities borrowed or purchased under
agreements to resell
$
— $
172,394 $
1,496 $
173,890 $
(40,686) $133,204
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total trading mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other trading assets(3)
Total trading non-derivative assets
Trading derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives
Cash collateral paid(4)
Netting agreements
Netting of cash collateral received
Total trading derivatives
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed
Residential
Commercial
Total investment mortgage-backed securities
U.S. Treasury and federal agency securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity securities(5)
Total investments
— 22,894
—
—
690
1,206
— $ 24,790
— $ 21,180
—
4,076
— 49,696
— 14,947
— 50,443
—
2,760
— 12,280
— $180,172
$
$
$
$
—
—
—
22,718
291
1,000
176
399
206
22,894
690
1,206
— $
24,009 $
781 $
24,790 $
16,368 $
4,811 $
1 $
21,180 $
—
32,164
424
45,056
—
—
3,780
17,492
14,199
5,260
892
9,466
296
40
324
127
1,868
2,814
4,076
49,696
14,947
50,443
2,760
12,280
94,012 $
79,909 $
6,251 $
180,172 $
105 $
366,995 $
2,225 $
369,325
53
184,776
2,306
261
—
21,209
12,999
23,021
833
595
505
1,594
185,662
24,110
13,765
24,615
$
2,725 $
609,000 $
5,752 $
617,477
$
$
$
$
$
11,188
$ (519,000)
(45,912)
2,725 $
609,000 $
5,752 $
628,665 $ (564,912) $ 63,753
— $
38,304 $
101 $
38,405 $
— $ 38,405
—
—
3,860
358
50
—
3,910
358
— $
42,522 $
151 $
42,673 $
112,916 $
10,753 $
2 $
123,671 $
—
54,028
3,215
336
—
—
—
8,909
43,934
13,598
46
6,134
503
35
1,211
186
311
9
660
—
1,331
10,120
98,148
17,124
391
6,794
503
1,366
—
—
3,910
358
— $ 42,673
— $123,671
— 10,120
— 98,148
— 17,124
—
—
—
—
391
6,794
503
1,366
$
170,495 $
126,434 $
3,861 $
300,790 $
— $300,790
256
In millions of dollars at December 31, 2016
Loans
Mortgage servicing rights
Non-trading derivatives and other financial assets measured on a
recurring basis, gross
Cash collateral paid(6)
Netting of cash collateral received
Non-trading derivatives and other financial assets measured on a
recurring basis
Level 1(1)
$
— $
Level 2(1)
2,918
Level 3
$
568
$
—
—
1,564
Gross
inventory
3,486
1,564
$
9,300
$
7,732
$
34
$
17,066
8
$
9,300
$
7,732
$
34
$
17,074
Net
balance
Netting(2)
$
— $ 3,486
—
1,564
$
$
(1,345)
(1,345) $ 15,729
Total assets
Total as a percentage of gross assets(7)
Liabilities
Interest-bearing deposits
$ 276,532
$ 998,387
$ 19,526
$1,305,641
$ (606,943) $698,698
21.4%
77.1%
1.5%
$
— $
919
$
293
$
1,212
$
— $ 1,212
Federal funds purchased and securities loaned or sold under
agreements to repurchase
—
73,500
849
74,349
(40,686)
33,663
Trading account liabilities
Securities sold, not yet purchased
Other trading liabilities
Total trading liabilities
Trading account derivatives
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives
Cash collateral received(8)
Netting agreements
Netting of cash collateral paid
Total trading derivatives
Short-term borrowings
Long-term debt
Non-trading derivatives and other financial liabilities measured
on a recurring basis, gross
Cash collateral received(9)
Netting of cash collateral paid
Non-trading derivatives and other financial liabilities measured
on a recurring basis
Total liabilities
Total as a percentage of gross liabilities(6)
$
$
$
$
$
$
$
$
67,429
—
12,184
1,827
1,177
1
80,790
1,828
— 80,790
—
1,828
67,429
$
14,011
$ 1,178
$
82,618
$
— $ 82,618
107
13
2,245
196
—
2,561
$ 351,766
187,328
22,119
12,386
22,842
$ 596,441
$ 2,888
420
2,152
2,450
2,595
$ 10,505
$ 354,761
187,761
26,516
15,032
25,437
$ 609,507
15,731
$
2,561
$ 596,441
2,658
16,510
— $
—
$ (519,000)
(49,811)
$ 10,505
42
$
9,744
$ 625,238
2,700
$
26,254
$ (568,811) $ 56,427
— $ 2,700
$
— 26,254
9,300
$
1,540
$
8
$
10,848
1
9,300
$
1,540
$
8
$
10,849
$
$
(53)
(53) $ 10,796
79,290
$ 705,579
$ 22,619
$ 823,220
$ (609,550) $213,670
9.8%
87.4%
2.8%
(1)
In 2016, the Company transferred assets of approximately $2.6 billion from Level 1 to Level 2, respectively, primarily related to foreign government securities and
equity securities not traded in active markets. In 2016, the Company transferred assets of approximately $4.0 billion from Level 2 to Level 1, respectively,
primarily related to foreign government bonds and equity securities traded with sufficient frequency to constitute a liquid market. In 2016, the Company
transferred liabilities of approximately $0.4 billion from Level 2 to Level 1. In 2016, the Company transferred liabilities of approximately $0.3 billion from Level
1 to Level 2.
(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
(3)
repurchase; and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.
Includes positions related to investments in unallocated precious metals, as discussed in Note 25 to the Consolidated Financial Statements. Also includes physical
commodities accounted for at the lower of cost or fair value and unfunded credit products.
(4) Reflects the net amount of $60,999 million of gross cash collateral paid, of which $49,811 million was used to offset trading derivative liabilities.
(5) Amounts exclude $0.4 billion investments measured at Net Asset Value (NAV) in accordance with ASU 2015-07.
(6) Reflects the net amount of $61 million of gross cash collateral paid, of which $53 million was used to offset non-trading derivative liabilities.
(7) Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total
assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.
(8) Reflects the net amount of $61,643 million of gross cash collateral received, of which $45,912 million was used to offset trading derivative assets.
(9) Reflects the net amount of $1,346 million of gross cash collateral received, of which $1,345 million was used to offset non-trading derivative assets.
257
Changes in Level 3 Fair Value Category
The following tables present the changes in the Level 3 fair
value category for the years ended December 31, 2017 and
2016. 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
Level 3 Fair Value Rollforward
category presented in the tables below do not reflect the effect
of offsetting losses and gains on hedging instruments that may
be classified 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 hedged items and related hedges are presented
gross in the following tables:
Net realized/unrealized
gains (losses) included in
Transfers
Dec. 31,
2016
Principal
transactions Other(1)(2)
into
Level 3
out of
Level 3 Purchases
Issuances
Sales
Settlements
Unrealized
gains/
(losses)
still held(3)
Dec. 31,
2017
$
1,496 $
(281) $
— $
— $ (1,198) $
— $
— $
— $
(1) $
16 $
1
In millions of dollars
Assets
Federal funds sold and
securities borrowed or
purchased under
agreements to resell
Trading non-derivative
assets
Trading mortgage-
backed securities
U.S. government-
sponsored agency
guaranteed
Residential
Commercial
Total trading mortgage-
backed securities
U.S. Treasury and
federal agency securities $
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other trading assets
Total trading non-
derivative assets
Trading derivatives, net(4)
176
399
206
23
86
15
—
—
—
176
95
69
(174)
(118)
(57)
463
126
450
—
—
—
(504)
(424)
(626)
3
—
—
163
164
57
$
781 $
124 $
— $
340 $
(349) $
1,039 $
— $ (1,554) $
3 $
384 $
1 $
— $
— $
— $
— $
— $
— $
(1) $
— $
— $
296
40
324
127
1,868
2,814
28
1
344
54
284
117
—
—
—
—
—
—
24
89
140
210
44
474
(48)
(228)
(185)
(58)
(178)
(2,691)
161
291
482
51
1,457
2,195
(23)
—
(8)
(3)
(164)
(177)
(828)
(261)
— (1,885)
11
(2,285)
—
—
6
—
—
(20)
274
16
275
120
1,590
615
2
14
(5)
11
—
8
—
81
—
36
60
$
6,251 $
952 $
— $ 1,321 $ (3,737) $
5,676 $
(23) $ (7,155) $
(11) $
3,274 $
196
Interest rate contracts
$
(663) $
(44) $
— $
(28) $
610 $
154 $
(13) $
(322) $
(116) $
(422) $
77
Foreign exchange
contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives,
net(4)
413
(1,557)
(1,945)
(1,001)
(438)
129
(384)
(484)
—
—
—
—
54
(159)
77
(28)
(60)
28
35
18
33
184
—
6
14
(216)
23
16
(21)
(333)
(3)
(6)
135
130
(103)
(2,027)
336
680
(1,861)
(799)
(139)
(214)
149
(169)
$ (4,753) $
(1,221) $
— $
(84) $
631 $
377 $
(176) $
(685) $
932 $ (4,979) $
(296)
Table continues on the next page, including footnotes.
258
Net realized/unrealized
gains (losses) included in
Transfers
Dec. 31,
2016
Principal
transactions Other(1)(2)
into
Level 3
out of
Level 3 Purchases
Issuances
Sales
Settlements
Unrealized
gains/
(losses)
still held(3)
Dec. 31,
2017
In millions of dollars
Investments
Mortgage-backed
securities
U.S. government-
sponsored agency
guaranteed
Residential
Commercial
$
101 $
— $
16 $
1 $
(94) $
— $
— $ — $
— $
24 $
50
—
—
—
2
—
—
3
(47)
—
—
12
—
—
(5)
(12)
—
—
—
3
Total investment
mortgage-backed
securities
U.S. Treasury and
federal agency securities
$
$
151 $
— $
18 $
4 $
(141) $
12 $
— $
(17) $
— $
27 $
2 $
— $
— $
— $
— $
— $
— $
(2) $
— $
— $
State and municipal
1,211
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity
securities
Total investments
Loans
186
311
9
660
—
1,331
$
$
3,861 $
568 $
Mortgage servicing rights
1,564
—
—
—
—
—
—
—
— $
— $
—
58
—
9
(1)
(89)
—
(170)
70
2
77
—
31
—
2
(517)
(284)
(47)
—
(32)
—
—
127
523
227
—
883
21
19
— (212)
— (335)
— (506)
—
(6)
— (626)
—
(21)
—
—
—
—
—
—
— (233)
(268)
737
92
71
2
827
—
681
(175) $
186 $ (1,021) $
1,812 $
— $(1,958) $
(268) $
2,437 $
75 $
80 $
(16) $
188 $
— $ (337) $
(8) $
550 $
65
96
(1,057)
(110)
558
Other financial assets
measured on a recurring
basis
Liabilities
34
—
(128)
—
10
—
(8)
—
1
318
(14)
(197)
16
(152)
Interest-bearing deposits
$
293 $
— $
25 $
40 $
— $
— $
2 $ — $
(24) $
286 $
22
Federal funds purchased
and securities loaned or
sold under agreements to
repurchase
Trading account liabilities
Securities sold, not yet
purchased
Other trading liabilities
Short-term borrowings
849
1,177
1
42
14
385
—
32
Long-term debt
9,744
(1,083)
Other financial liabilities
measured on a recurring
basis
8
—
—
—
—
—
—
—
—
—
22
4
4
(796)
—
(7)
1,251
(1,836)
5
—
—
—
—
—
44
—
36
—
(145)
726
17
—
31
2,712
277
—
—
—
(290)
—
(20)
84
22
5
18
13,082
(1,554)
5
(1)
(9)
8
(1)
(2)
—
—
(2)
—
44
1
—
—
12
—
44
99
211
74
10
8
—
(3)
(1) Changes in fair value for available-for-sale investments are recorded in AOCI, unless related to other-than-temporary impairment, 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 AOCI for changes in fair value of available-for-sale investments),
attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2017.
(4) Total Level 3 trading derivative assets and liabilities have been netted in these tables for presentation purposes only.
259
Net realized/unrealized
gains (losses) included in
Transfers
Dec. 31,
2015
Principal
transactions Other(1)(2)
into
Level 3
out of
Level 3
Purchases
Issuances
Sales
Settlements
Unrealized
gains/
(losses)
still held(3)
Dec. 31,
2016
$
1,337 $
(20) $
— $
— $
(28) $
758 $
— $
— $
(551) $
1,496 $
(16)
U.S. Treasury and
federal agency securities $
In millions of dollars
Assets
Federal funds sold and
securities borrowed or
purchased under
agreements to resell
Trading non-derivative
assets
Trading mortgage-
backed securities
U.S. government-
sponsored agency
guaranteed
Residential
Commercial
Total trading mortgage-
backed securities
State and municipal
Foreign government
Corporate
Equity securities
Asset-backed securities
Other trading assets
Total trading non-
derivative assets
Trading derivatives, net(4)
Foreign exchange
contracts
Equity contracts
Commodity contracts
Credit derivatives
Total trading derivatives,
net(4)
Investments
Mortgage-backed
securities
U.S. government-
sponsored agency
guaranteed
Residential
Commercial
Total investment
mortgage-backed
securities
744
1,326
517
6
104
(1)
—
—
—
510
189
193
(1,087)
(162)
(234)
941
324
759
—
(961)
— (1,376)
— (1,028)
23
(6)
—
176
399
206
$
2,587 $
109 $
— $
892 $ (1,483) $
2,024 $
— $ (3,365) $
17 $
781 $
1 $
— $
— $
2 $
— $
— $
— $
(2) $
— $
1 $
351
197
376
3,684
2,739
2,483
23
(9)
330
(527)
53
(58)
—
—
—
—
—
—
195
21
171
279
205
(256)
(49)
(132)
(4,057)
(360)
2,070
(2,708)
322
115
867
955
2,199
2,894
—
—
(339)
(235)
— (1,295)
(11)
(196)
— (2,965)
19
(1,838)
—
—
7
—
(3)
(48)
296
40
324
127
1,868
2,814
$ 12,418 $
(79) $
— $ 3,835 $ (9,045) $
9,376 $
8 $(10,235) $
(27) $
6,251 $
(647)
Interest rate contracts
$
(495) $
(146) $
— $
301 $
(239) $
163 $
(18) $
(142) $
(87) $
(663) $
620
(800)
(1,861)
307
(276)
(89)
(352)
(1,970)
—
—
—
—
75
63
(425)
8
(106)
(772)
(39)
(29)
200
92
357
37
—
38
—
—
(181)
(128)
(347)
(34)
81
39
722
680
413
(1,557)
(1,945)
(1,001)
$ (2,229) $
(2,833) $
— $
22 $ (1,185) $
849 $
20 $
(832) $
1,435 $ (4,753) $
(2,002)
$
139 $
— $
(26) $
25 $
(72) $
45 $
— $
(9) $
(1) $
101 $
4
2
—
—
3
(1)
49
6
—
(7)
26
—
—
—
(32)
—
—
—
50
—
$
145 $
— $
(24) $
80 $
(79) $
71 $
— $
(41) $
(1) $
151 $
U.S. Treasury and
federal agency securities $
4 $
— $
— $
— $
— $
— $
— $
(2) $
— $
2 $
State and municipal
2,192
Foreign government
Corporate
Equity securities
Asset-backed securities
Other debt securities
Non-marketable equity
securities
260
603
124
596
—
1,135
—
—
—
—
—
—
—
39
10
77
10
(92)
—
79
467
(1,598)
38
11
5
7
10
336
(39)
(240)
(5)
(61)
—
(32)
351
259
693
1
435
6
26
—
—
—
—
—
—
—
(240)
(339)
(468)
(131)
(306)
(16)
—
(3)
(365)
5
81
—
1,211
186
311
9
660
—
(14)
(199)
1,331
Total investments
$
5,059 $
— $
99 $
954 $ (2,054) $
1,842 $
— $ (1,557) $
(482) $
3,861 $
(109)
Table continues on the next page, including footnotes.
260
(7)
26
(27)
(8)
—
(88)
(16)
69
(457)
(46)
(101)
26
23
(33)
(164)
(1,854)
54
2
—
56
—
23
(104)
—
—
(102)
—
18
26
(21)
39
46
In millions of dollars
Dec. 31,
2015
Principal
transactions
Other(1)(2)
into
Level 3
out of
Level 3
Purchases
Issuances
Sales
Settlements
Net realized/unrealized
gains (losses) included in
Transfers
Unrealized
gains
(losses)
still held(3)
Dec. 31,
2016
Loans
$
2,166 $
Mortgage servicing rights
1,781
— $
—
(36)
Other financial assets
measured on a recurring
basis
Liabilities
180
—
80
(61) $
89 $ (1,074) $
708 $
219 $ (813) $
(666) $
568 $
—
55
—
(47)
—
1
152
(20)
(313)
1,564
236
(133)
(338)
34
Interest-bearing deposits
$
434 $
— $
43 $
322 $
(309) $
— $
5 $ — $
(116) $
293 $
Federal funds purchased
and securities loaned or
sold under agreements to
repurchase
Trading account liabilities
Securities sold, not yet
purchased
Other trading liabilities
Short-term borrowings
Long-term debt
Other financial liabilities
measured on a recurring
basis
1,247
(6)
199
—
9
7,543
17
—
(16)
(282)
—
—
—
—
—
—
(150)
—
—
27
(281)
849
(12)
1,185
(109)
(70)
(41)
367
(337)
1,177
1
19
—
(37)
3,792
(4,350)
—
—
—
—
87
4,845
—
—
(3)
—
(52)
1
42
(2,365)
9,744
(43)
—
—
(419)
14
—
(11)
2
(12)
(8)
12
—
(11)
8
(13)
(1) Changes in fair value of available-for-sale investments are recorded in AOCI, unless related to other-than-temporary impairment, 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 AOCI for changes in fair value of available-for-sale investments),
attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2016.
(4) Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.
Level 3 Fair Value Rollforward
The following were the significant Level 3 transfers for the
period December 31, 2016 to December 31, 2017:
• Transfers of Federal funds sold and securities borrowed
or purchased under agreements to resell of $1.2 billion
from Level 3 to Level 2 related to the significance of
unobservable inputs as well as certain underlying market
inputs becoming more observable and shortening of the
remaining tenor of certain reverse repos. There is more
transparency and observability for repo curves used in the
valuation of structured reverse repos with tenors up to
five years.
• Transfers of Other trading assets of $2.7 billion from
Level 3 to Level 2, related to trading loans, reflecting
changes in the volume of market quotations, changes in
the significance of unobservable inputs for certain
portfolios of trading loans economically hedging
derivatives, and certain underlying market inputs
becoming more observable as a result of secondary
market transactions for portfolios of residential mortgage
loans with similar characteristics.
• Transfers of Long-term debt of $1.3 billion from Level 2
to Level 3, and of $1.8 billion from Level 3 to Level 2,
mainly related to structured debt, reflecting changes in the
significance of unobservable inputs as well as certain
underlying market inputs becoming less or more
observable.
The following were the significant Level 3 transfers for the
period December 31, 2015 to December 31, 2016:
• Transfers of U.S. government-sponsored agency
guaranteed MBS in Trading account assets of $0.5 billion
from Level 2 to Level 3, and of $1.1 billion from Level 3
to Level 2, primarily related to Agency Guaranteed MBS
securities for which there were changes in volume of
market quotations.
• Transfer of Equity securities of $4.0 billion from Level 3
to Level 2, included $3.2 billion of non-marketable equity
securities and $0.5 billion of related partial economic
hedging derivatives for which the portfolio valuation
measurement exception under ASC 820-35-18D has been
applied. After application of the portfolio exception, the
Company considers these items to be one valuation unit
and measures the fair value of the net open risk position
primarily based on recent market transactions where these
instruments are traded concurrently. Because the
derivatives offset the significant unobservable exposure
within the non-marketable equity securities, there were no
remaining unobservable inputs deemed to be significant.
• Transfers of Other trading assets of $2.1 billion from
Level 2 to Level 3, and of $2.7 billion from Level 3 to
Level 2, primarily related to trading loans for which there
were changes in volume of market quotations.
• Transfers of State and Municipal securities in AFS
Investments of $0.5 billion from Level 2 to Level 3, and
of $1.6 billion from Level 3 to Level 2, primarily
reflecting changes in the volume of market quotations.
• Transfers of Loans of $1.1 billion from Level 3 to Level 2
reflecting changes in the volume of market quotations.
• Transfers of Securities Sold Not Yet Purchased of $1.2
billion from Level 2 to Level 3 related to the significance
261
of unobservable inputs as well as certain underlying
market inputs becoming less observable.
• Transfers of Long-term debt of $3.8 billion from Level 2
to Level 3, and of $4.4 billion from Level 3 to Level 2,
mainly related to structured debt, reflecting changes in the
significance of unobservable inputs as well as certain
underlying market inputs becoming less or more
observable.
262
Valuation Techniques and Inputs for Level 3 Fair Value
Measurements
The Company’s Level 3 inventory consists of both cash
instruments and derivatives of varying complexity. The
valuation methodologies used to measure the fair value of
these positions include discounted cash flow analysis, 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. 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.
Valuation Techniques and Inputs for Level 3 Fair Value Measurements
Fair value(1)
(in millions)
Methodology
Input
Low(2)(3)
High(2)(3)
Weighted
average(4)
As of December 31, 2017
Assets
Federal funds sold and
securities borrowed or
purchased under agreements
to resell
Mortgage-backed securities
State and municipal, foreign
government, corporate and
other debt securities
Equity securities(5)
Asset-backed securities
Non-marketable equity
Derivatives—gross(6)
Interest rate contracts (gross)
Foreign exchange contracts
(gross)
Equity contracts (gross)(7)
Commodity contracts (gross)
Credit derivatives (gross)
$
$
$
$
$
$
$
$
$
$
$
16 Model-based
Interest rate
1.43 %
2.16%
2.09%
$
2.96
2.52 %
$
101.00
14.06%
56.52
5.97
214 Price-based
184 Yield analysis
Price
Yield
949 Model-based
914 Price-based
65 Price-based
55 Model-based
2,287 Price-based
Price
Credit spread
Yield
Price
WAL
Price
423 Comparables analysis EBITDA multiples
223 Price-based
Discount to price
Price-to-book ratio
3,818 Model-based
IR normal volatility
940 Model-based
2,897 Model-based
2,937 Model-based
1,797 Model-based
823 Price-based
Mean reversion
Foreign exchange (FX)
volatility
Interest rate
IR-IR correlation
IR-FX correlation
Credit spread
Equity volatility
Forward price
Forward price
Commodity volatility
Commodity correlation
Credit correlation
Upfront points
Credit spread
Price
$
263
$
$
$
2.50 years
4.25
$
— $
35 bps
2.36 %
184.04
500 bps
14.25%
— $ 25,450.00
2.50 years
100.60
$
12.80x
100.00%
1.00x
77.40%
20.00%
15.02%
0.28%
40.00%
60.00%
717 bps
68.93%
154.19%
290.59%
66.73%
91.71%
90.00%
97.26%
1,636 bps
100.24
$
$
6.90x
— %
0.05x
9.40 %
1.00 %
4.58 %
(0.55)%
(51.00)%
(7.34)%
11 bps
3.00 %
69.74 %
3.66 %
8.60 %
(37.64)%
25.00 %
6.03 %
3 bps
1.00
$
$
$
91.74
249 bps
6.03%
2,526.62
2.50 years
74.57
8.66x
11.83%
0.32x
58.86%
10.50%
8.16%
0.04%
36.56%
49.04%
173 bps
24.66%
92.80%
114.16%
25.04%
15.21%
44.64%
62.88%
173 bps
57.63
As of December 31, 2017
Nontrading derivatives and other
financial assets and liabilities
measured on a recurring basis
(gross)(6)
Loans and leases
Mortgage servicing rights
Liabilities
Interest-bearing deposits
Federal funds purchased and
securities loaned or sold
under agreements to
repurchase
Trading account liabilities
Securities sold, not yet
purchased
Short-term borrowings and
long-term debt
As of December 31, 2016
Assets
Federal funds sold and
securities borrowed or
purchased under agreements
to resell
Mortgage-backed securities
State and municipal, foreign
government, corporate and
other debt securities
Equity securities(5)
Asset-backed securities
Non-marketable equity
Derivatives—gross(6)
Interest rate contracts (gross)
Fair value(1)
(in millions)
Methodology
Input
Low(2)(3)
High(2)(3)
Weighted
average(4)
$
$
$
$
$
$
$
24 Model-based
Recovery rate
391 Model-based
148 Price-based
471 Cash flow
87 Model-based
286 Model-based
Redemption rate
Credit spread
Upfront points
Equity volatility
Credit spread
Yield
Yield
WAL
Mean reversion
Forward price
25.00 %
10.72 %
38 bps
61.00 %
3.00 %
134 bps
3.09 %
8.00 %
3.83
years
1.00 %
99.56 %
40.00%
99.50%
275 bps
61.00%
68.93%
500 bps
4.40%
16.38%
6.89 years
31.56%
74.24%
127 bps
61.00%
22.52%
173 bps
3.13%
11.47%
5.93 years
20.00%
99.95%
10.50%
99.72%
726 Model-based
Interest rate
1.43 %
2.16%
2.09%
21 Price-based
Price
$
1.00
$
287.64
$
88.19
13,100 Model-based
Forward price
69.74 %
161.11%
100.70%
Fair value(1)
(in millions)
Methodology
Input
Low(2)(3)
High(2)(3)
Weighted
average(4)
$
$
$
$
12.86 %
(0.51 )%
5.50
1.90 %
75.50 %
5.76 %
$
113.48
$
14.54 %
$
$
$
$
15.00
35 bps
0.48
4.00
$
$
$
103.60
600 bps
104.00
100.00
— %
90.00 %
6.80x
0.32x
$
— $
10.10x
1.03x
113.23
1.00 %
1.00 %
93.97 %
20.00 %
61.73 %
2.80 %
61.74
4.34 %
89.93
230 bps
22.19
71.51
13.36 %
8.62x
0.87x
54.40
62.72 %
10.50 %
$
$
$
$
$
$
1,496 Model-based
509 Price-based
IR log-normal volatility
Interest rate
Price
368 Yield analysis
Yield
3,308 Price-based
1,513 Cash flow
69 Model-based
58 Price-based
2,454 Price-based
726 Price-based
565 Comparables
analysis
Price
Credit spread
Price
Price
Discount to price
EBITDA multiples
Price-to-book ratio
Price
$
4,897 Model-based
IR log-normal volatility
Mean reversion
264
As of December 31, 2016
Foreign exchange contracts
(gross)
Fair value(1)
(in millions)
Methodology
$
1,110 Model-based
134 Cash flow
Equity contracts (gross)(7)
$
2,701 Model-based
2,955 Model-based
2,786 Model-based
1,403 Price-based
Low(2)(3)
High(2)(3)
Weighted
average(4)
Input
Foreign exchange (FX)
volatility
Interest rate
Credit spread
IR-IR correlation
IR-FX correlation
Equity volatility
Forward price
Equity-FX correlation
Equity-IR correlation
Yield volatility
Equity-equity
correlation
Forward price
Commodity volatility
Commodity correlation
Recovery rate
Credit correlation
Upfront points
Price
$
1.39 %
(0.85 )%
4 bps
40.00 %
16.41 %
3.00 %
69.05 %
(60.70 )%
(35.00 )%
3.55 %
(87.70 )%
35.74 %
2.00 %
(41.61 )%
20.00 %
5.00 %
6.00 %
1.00
$
26.85 %
(0.49)%
657 bps
50.00 %
60.00 %
97.78 %
144.61 %
28.20 %
41.00 %
14.77 %
96.50 %
235.35 %
32.19 %
90.42 %
75.00 %
90.00 %
99.90 %
167.00
$
Credit spread
3 bps
1,515 bps
15.18 %
(0.84)%
266 bps
41.27 %
49.52 %
29.52 %
94.28 %
(26.28)%
(15.65)%
9.29 %
67.45 %
119.99 %
17.07 %
52.85 %
39.75 %
34.27 %
72.89 %
77.35
256 bps
40.00 %
74.69 %
18.78 %
56.46
11.09 %
42 Model-based
Recovery rate
Redemption rate
Upfront points
258 Price-based
221 Yield analysis
79 Model-based
1,473 Cash flow
Price
Yield
Yield
WAL
40.00 %
3.92 %
16.00 %
40.00 %
99.58 %
20.50 %
$
$
31.55
2.75 %
$
105.74
20.00 %
4.20 %
3.53 years
20.56 %
7.24 years
9.32 %
5.83 years
293 Model-based
Mean reversion
Forward price
1.00 %
98.79 %
20.00 %
104.07 %
10.50 %
100.19 %
849 Model-based
Interest rate
0.62 %
2.19 %
1.99 %
1,056 Model-based
IR Normal volatility
12.86 %
75.50 %
61.73 %
9,774 Model-based
Mean reversion
1.00 %
Commodity correlation
(41.61 )%
20.00 %
90.42 %
10.50 %
52.85 %
Commodity volatility
2.00 %
32.19 %
17.07 %
Forward price
69.05 %
235.35 %
103.28 %
Commodity contracts (gross)
Credit derivatives (gross)
Nontrading derivatives and other
financial assets and liabilities
measured on a recurring basis
(gross)(6)
Loans
Mortgage servicing rights
Liabilities
Interest-bearing deposits
Federal funds purchased and
securities loaned or sold
under agreements to
repurchase
Trading account liabilities
Securities sold, not yet
purchased
Short-term borrowings and
long-term debt
$
$
$
$
$
$
$
$
$
(1) The fair value amounts presented in these tables 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 only one
large position.
(4) Weighted averages are calculated based on the fair values of the instruments.
(5) For equity securities, the price and fund NAV inputs are 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.
265
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 extent to which two or more
variables change in relation to each other. 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 calculated using
historical information. Estimating correlation can be especially
difficult where it may vary over time. Calculating 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
266
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
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.
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.
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
amplifies 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,
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.
Mean Reversion
A number of financial instruments require an estimate of the
rate at which the interest rate reverts to its long-term average.
Changes in this estimate can significantly affect the fair value
of these instruments. However, sometimes there is insufficient
external market data to calibrate this parameter, especially
when pricing more complex instruments. The level of mean
reversion affects the correlation between short- and long-term
interest rates. The fair values of more complex instruments,
such as Bermudan swaptions (options with multiple exercise
dates) and constant maturity spread options or structured debts
with these embedded features, are more sensitive to the
changes in this correlation as compared to less complex
instruments, such as caps and floors.
therefore capturing the impact of other variables on the fair
value. Changes in credit spread affect the fair value of
securities differently depending on the characteristics and
maturity profile of the security. For example, credit spread is a
more significant driver of the fair value measurement of a high
yield bond as compared to an investment grade bond.
Generally, the credit spread for an investment grade bond is
also more observable and less volatile than its high yield
counterpart.
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 in 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,
267
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 for which a nonrecurring fair value
measurement was recorded:
In millions of dollars
Fair value
Level 2
Level 3
$
December 31, 2017
Loans held-for-sale(1)
Other real estate owned
Loans(2)
Total assets at fair value
on a nonrecurring basis $
5,675 $
2,066 $
3,609
54
630
10
216
44
414
6,359 $
2,292 $
4,067
In millions of dollars
Fair value
Level 2
Level 3
December 31, 2016
Loans held-for-sale(1)
Other real estate owned
Loans(2)
Total assets at fair value
on a nonrecurring basis
$
5,802 $
3,389 $
2,413
75
1,376
15
586
60
790
$
7,253 $
3,990 $
3,263
(1) Net of fair value amounts on the unfunded portion of loans held-for-sale,
recognized within Other liabilities on the Consolidated Balance Sheet.
(2) Represents impaired loans held for investment whose carrying amount is
based on the fair value of the underlying collateral, primarily real estate
secured loans.
The fair value of loans held-for-sale is determined where
possible using quoted secondary-market prices. If no such
quoted price exists, the fair value of a loan is determined using
quoted prices for a similar asset or assets, adjusted for the
specific attributes of that loan. Fair value for the other real
estate owned is based on appraisals. For loans whose carrying
amount is based on the fair value of the underlying collateral,
the fair values depend on the type of collateral. Fair value of
the collateral is typically estimated based on quoted market
prices if available, appraisals or other internal valuation
techniques.
Where the fair value of the related collateral is based on
an unadjusted appraised value, the loan is generally classified
as Level 2. Where significant adjustments are made to the
appraised value, the loan is classified as Level 3. Additionally,
for corporate loans, appraisals of the collateral are often based
on sales of similar assets; however, because the prices of
similar assets require significant adjustments to reflect the
unique features of the underlying collateral, these fair value
measurements are generally classified as Level 3.
268
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 December 31, 2017
Loans held-for-sale
Other real estate owned
Loans (5)
As of December 31, 2016
Loans held-for-sale
Other real estate owned
Loans(4)
Fair value(1)
(in millions)
Methodology
Input
$
$
$
3,186 Price-based
42 Price-based
133 Price-based
129 Cash flow
Price
Appraised value(4)
Discount to price
Price
Price
Recovery rate
127 Recovery analysis
Appraised value
Fair value(1)
(in millions)
Methodology
Input
$
$
$
2,413 Price-based
59 Price-based
Price
Discount to price(6)
Price
431 Cash flow
Price
197 Recovery analysis
135 Price-based
Forward price
Discount to price(6)
Appraised value(4)
Low(2)
77.93
20,278
34.00%
30.00
2.80
$
$
$
$
High
100.00
8,091,760
34.00%
50.36
100.00
50.00%
100.00%
— $
45,500,000
Low(2)
High
— $
100.00
0.34%
13.00%
64.65
3.25
2.90
0.25%
25.80
$
$
$
$
74.39
105
210.00
13.00%
26,400,000
Weighted
average(3)
99.26
4,016,665
34.00%
49.09
62.46
63.59%
38,785,667
Weighted
average(3)
93.08
3.10%
66.21
59.61
156.78
8.34%
6,462,735
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(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) Weighted averages are calculated based on the fair values of the instruments.
(4) Appraised values are disclosed in whole dollars.
(5)
(6) Represents impaired loans held for investment whose carrying amounts are based on the fair value of the underlying collateral, primarily real estate secured loans.
Includes estimated costs to sell.
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 were still
held:
In millions of dollars
Loans held-for-sale
Other real estate owned
Loans(1)
Total nonrecurring fair value gains (losses)
In millions of dollars
Loans held-for-sale
Other real estate owned
Loans(1)
Total nonrecurring fair value gains (losses)
Year ended
December 31,
2017
(26)
(4)
(87)
(117)
Year ended
December 31,
2016
(2)
(5)
(105)
(112)
$
$
$
$
(1) Represents loans held for investment whose carrying amount is based on
the fair value of the underlying collateral, primarily real estate loans.
269
Estimated Fair Value of Financial Instruments not Carried
at Fair Value
The following table presents the carrying value and fair value
of Citigroup’s financial instruments that 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, certain insurance contracts
and tax-related items. 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.
In billions of dollars
Assets
Investments
Federal funds sold and securities borrowed or purchased under agreements to
resell
Loans(1)(2)
Other financial assets(2)(3)
Liabilities
December 31, 2017
Estimated fair value
Carrying
value
Estimated
fair value
Level 1
Level 2
Level 3
$
60.2 $
60.6 $
0.5 $
57.5 $
99.5
648.6
242.6
99.5
644.9
243.0
—
—
166.4
94.4
6.0
14.1
2.6
5.1
638.9
62.5
Deposits
$
958.4 $
955.6 $
— $
816.1 $
139.5
Federal funds purchased and securities loaned or sold under agreements to
repurchase
Long-term debt(4)
Other financial liabilities(5)
115.6
205.3
129.9
115.6
214.0
129.9
—
—
—
115.6
187.2
15.5
—
26.8
114.4
In billions of dollars
Assets
Investments
Federal funds sold and securities borrowed or purchased under agreements to
resell
Loans(1)(2)
Other financial assets(2)(3)
Liabilities
December 31, 2016
Estimated fair value
Carrying
value
Estimated
fair value
Level 1
Level 2
Level 3
$
52.1 $
52.0 $
0.8 $
48.6 $
103.6
607.0
215.2
103.6
607.3
215.9
—
—
145.6
98.5
7.0
16.2
2.6
5.1
600.3
54.1
Deposits
$
928.2 $
927.6 $
— $
789.7 $
137.9
Federal funds purchased and securities loaned or sold under agreements to
repurchase
Long-term debt(4)
Other financial liabilities(5)
108.2
179.9
115.3
108.2
185.5
115.3
—
—
—
107.8
156.5
16.2
0.4
29.0
99.1
(1) The carrying value of loans is net of the Allowance for loan losses of $12.4 billion for December 31, 2017 and $12.1 billion for December 31, 2016. In addition,
the carrying values exclude $1.7 billion and $1.9 billion of lease finance receivables at December 31, 2017 and December 31, 2016, respectively.
270
(2)
(3)
Includes items measured at fair value on a nonrecurring basis.
Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverable and other financial instruments included in Other assets on
the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.
(4) The carrying value includes long-term debt balances under qualifying fair value hedges.
(5)
Includes brokerage payables, 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 estimated fair values of the Company’s corporate
unfunded lending commitments at December 31, 2017 and
December 31, 2016 were liabilities of $3.2 billion and $5.2
billion, respectively, substantially all of which are 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.
271
25. 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, other than DVA (see below). The election is made
upon the initial recognition 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, other than DVA,
which from January 1, 2016 is reported in AOCI. Additional
discussion regarding the applicable areas in which fair value
elections were made is presented in Note 24 to the
Consolidated Financial Statements.
The Company has elected fair value accounting for its
mortgage servicing rights. See Note 21 to the Consolidated
Financial Statements for further discussions regarding the
accounting and reporting of MSRs.
The following table presents the changes in fair value of those items for which the fair value option has been elected:
Changes in fair value gains (losses) for
the years ended December 31,
2017
2016
In millions of dollars
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell
selected portfolios of securities purchased under agreements
to resell and securities borrowed
Trading account assets
Investments
Loans
Certain corporate loans
Certain consumer loans
Total loans
Other assets
MSRs
Certain mortgage loans held for sale(1)
Other assets
Total other assets
Total assets
Liabilities
Interest-bearing deposits
$
$
$
$
$
$
Federal funds purchased and securities loaned or sold under agreements to repurchase
selected portfolios of securities sold under agreements to
repurchase and securities loaned
Trading account liabilities
Short-term borrowings
Long-term debt
Total liabilities
$
(133) $
1,622
(3)
(537)
3
(534) $
65 $
142
—
207 $
1,159 $
(69) $
223
70
(116)
(1,491)
(1,383) $
(89)
404
(25)
40
—
40
(36)
284
376
624
954
(50)
45
105
(61)
(935)
(896)
(1)
Includes gains (losses) associated with interest rate lock-commitments for those loans that have been originated and elected under the fair value option.
272
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 also elected the fair value option for certain
other 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.
Own Debt Valuation Adjustments (DVA)
Own debt valuation adjustments are recognized on Citi’s
liabilities for which the fair value option has been elected
using Citi’s credit spreads observed in the bond market.
Effective January 1, 2016, changes in fair value of fair value
option liabilities related to changes in Citigroup’s own credit
spreads (DVA) are reflected as a component of AOCI;
previously these amounts were recognized in Citigroup’s
Revenues and Net income along with all other changes in fair
value. See Note 1 to the Consolidated Financial Statements for
additional information.
Among other variables, the fair value of 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 the Company’s credit spreads.
The estimated change in the fair value of these liabilities
due to such changes in the Company’s own credit spread (or
instrument-specific credit risk) were losses of $680 million
and $538 million for the years ended December 31, 2017 and
2016, 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
held primarily by 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 offsetting derivative
instruments that are accounted for at fair value through
earnings.
The following table provides information about certain credit products carried at fair value:
December 31, 2017
December 31, 2016
In millions of dollars
Trading assets
Loans
Trading assets
Loans
Carrying amount reported on the Consolidated Balance Sheet
$
8,851 $
4,374 $
9,824 $
3,486
Aggregate unpaid principal balance in excess of fair value
Balance of non-accrual loans or loans more than 90 days past due
Aggregate unpaid principal balance in excess of fair value for non-accrual loans or
loans more than 90 days past due
623
—
—
682
1
1
758
—
—
18
1
1
In addition to the amounts reported above, $508 million
Changes in the fair value of funded and unfunded credit
and $1,828 million of unfunded commitments related to
certain credit products selected for fair value accounting were
outstanding as of December 31, 2017 and 2016, respectively.
products are classified in Principal transactions in Citi’s
Consolidated Statement of Income. Related interest revenue is
measured based on the contractual interest rates and reported
273
as Interest revenue on Trading account assets or loan interest
depending on the balance sheet classifications of the credit
products. The changes in fair value for the years ended
December 31, 2017 and 2016 due to instrument-specific credit
risk totaled to gains of $10 million and $76 million,
respectively.
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 was approximately $0.9 billion and
$0.6 billion at December 31, 2017 and 2016, respectively. The
amounts are expected to fluctuate based on trading activity in
future periods.
As part of its commodity and foreign currency trading
activities, Citi trades unallocated precious metals investments
and executes forward purchase and forward 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 or sale contract with the trading counterparty
indexed to unallocated precious metals is accounted for as a
derivative, at fair value through earnings. As of December 31,
2017, there were approximately $10.3 billion and $9.3 billion
notional amounts of such forward purchase and forward sale
derivative contracts outstanding, respectively.
Certain Investments in Private Equity and Real Estate
Ventures and Certain Equity Method and Other 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.
Changes in the fair values of these investments are
classified in Other revenue in the Company’s Consolidated
Statement of Income.
Citigroup also elects the fair value option for certain non-
marketable equity securities whose risk is managed with
derivative instruments that are accounted for at fair value
through earnings. These securities are classified as Trading
account assets on Citigroup’s Consolidated Balance Sheet.
Changes in the fair value of these securities and the related
derivative instruments are recorded in Principal transactions.
Certain Mortgage Loans Held-for-Sale (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:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate fair value in excess of (less than) unpaid principal balance
Balance of non-accrual loans or loans more than 90 days past due
Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days
past due
December 31,
2017
December 31,
2016
$
426 $
14
—
—
915
8
—
—
The changes in the 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 years ended December 31, 2017 and 2016 due to
instrument-specific credit risk. Related interest income
continues to be measured based on the contractual interest
rates and reported as Interest revenue in the Consolidated
Statement of Income.
274
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. 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:
In billions of dollars
Interest rate linked
Foreign exchange linked
Equity linked
Commodity linked
Credit linked
Total
December 31, 2017 December 31, 2016
$
$
13.9 $
0.3
13.0
0.2
1.9
29.3 $
10.6
0.2
12.3
0.3
0.9
24.3
Prior to 2016, the total change in the fair value of these
structured liabilities was reported in Principal transactions in
the Company’s Consolidated Statement of Income. Beginning
in the first quarter of 2016, the portion of the changes in fair
value attributable to changes in Citigroup’s own credit spreads
(DVA) are reflected as a component of AOCI while all other
changes in fair value will continue to be reported in Principal
transactions. Changes in the fair value of these structured
liabilities include accrued interest, which is also included in
the change in fair value reported in Principal transactions.
Certain Non-Structured Liabilities
The Company has elected the fair value option for certain non-
structured liabilities with fixed and floating interest rates. The
Company has elected the fair value option where the interest-
rate risk of such liabilities may be 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 elections have 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. Prior to 2016, the total change in
the fair value of these non-structured liabilities was reported in
Principal transactions in the Company’s Consolidated
Statement of Income. Beginning in the first quarter of 2016,
the portion of the changes in fair value attributable to changes
in Citigroup’s own credit spreads (DVA) is reflected as a
component of AOCI while all other changes in fair value will
continue to be reported in Principal transactions.
Interest expense on non-structured liabilities is measured
based on the contractual interest rates and reported as Interest
expense in the Consolidated Statement of Income.
The following table provides information about long-term debt carried at fair value:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of (less than) fair value
December 31, 2017 December 31, 2016
$
31,392 $
(579)
26,254
(128)
The following table provides information about short-term borrowings carried at fair value:
In millions of dollars
Carrying amount reported on the Consolidated Balance Sheet
Aggregate unpaid principal balance in excess of (less than) fair value
December 31, 2017 December 31, 2016
$
4,627 $
74
2,700
(61)
275
26. PLEDGED ASSETS, COLLATERAL,
GUARANTEES AND COMMITMENTS
collateral that may not be sold or repledged by the secured
parties.
Pledged Assets
In connection with Citi’s financing and trading activities,
Citi has pledged assets to collateralize its obligations under
repurchase agreements, secured financing agreements,
secured liabilities of consolidated VIEs and other
borrowings. The approximate carrying values of the
significant components of pledged assets recognized on
Citi’s Consolidated Balance Sheet included:
In millions of dollars
Investment securities
Loans
Trading account assets
Total
2017
2016
$
138,807 $
161,914
229,552
102,892
231,833
84,371
$
471,251 $
478,118
In addition, included in Cash and due from banks and
Deposits with banks at December 31, 2017 and 2016 were
$7.4 billion and $6.8 billion, respectively, of cash segregated
under federal and other brokerage regulations or deposited
with clearing organizations.
Collateral
At December 31, 2017 and 2016, the approximate fair value
of collateral received by Citi that may be resold or
repledged, excluding the impact of allowable netting, was
$457.5 billion and $378.1 billion, respectively. This
collateral was received in connection with resale agreements,
securities borrowings and loans, derivative transactions and
margined broker loans.
At December 31, 2017 and 2016, a substantial portion
of the collateral received by Citi had been sold or repledged
in connection with repurchase agreements, securities sold,
not yet purchased, securities borrowings and loans, pledges
to clearing organizations, segregation requirements under
securities laws and regulations, derivative transactions and
bank loans.
In addition, at December 31, 2017 and 2016, Citi had
pledged $362 billion and $388 billion, respectively, of
Lease Commitments
Rental expense (principally for offices, branches and
computer equipment) was $1.1 billion, $1.1 billion and $1.3
billion for the years ended December 31, 2017, 2016 and
2015, respectively.
Future minimum annual rentals under non-cancelable
leases, net of sublease income, are as follows:
In millions of dollars
2018
2019
2020
2021
2022
Thereafter
Total
$
$
968
837
676
568
469
2,593
6,111
Guarantees
Citi provides a variety of guarantees and indemnifications to
its 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, Citi believes such amounts bear no
relationship to the anticipated losses, if any, on these
guarantees.
The following tables present information about Citi’s
guarantees:
In billions of dollars at December 31, 2017 except carrying value in
millions
Expire within
1 year
Expire after
1 year
Total amount
outstanding
Carrying value
(in millions of dollars)
Maximum potential amount of future
payments
Financial standby letters of credit
Performance guarantees
Derivative instruments considered to be guarantees
Loans sold with recourse
Securities lending indemnifications(1)
Credit card merchant processing(1)(2)
Credit card arrangements with partners
Custody indemnifications and other
Total
$
27.9 $
65.9 $
93.8 $
7.2
11.0
—
103.7
85.5
0.3
—
4.1
84.9
0.2
—
—
1.1
36.0
11.3
95.9
0.2
103.7
85.5
1.4
36.0
$
235.6 $
192.2 $
427.8 $
276
93
20
423
9
—
—
205
59
809
In billions of dollars at December 31, 2016 except carrying value in
millions
Expire within
1 year
Expire after
1 year
Total amount
outstanding
Carrying value
(in millions of dollars)
Maximum potential amount of future payments
Financial standby letters of credit
Performance guarantees
Derivative instruments considered to be guarantees
Loans sold with recourse
Securities lending indemnifications(1)
Credit card merchant processing(1)(2)
Credit card arrangements with partners
Custody indemnifications and other
Total
$
26.0 $
67.1 $
93.1 $
7.5
7.2
—
80.3
86.4
—
—
3.6
80.0
0.2
—
—
1.5
45.4
11.1
87.2
0.2
80.3
86.4
1.5
45.4
141
19
747
12
—
—
206
58
$
207.4 $
197.8 $
405.2 $
1,183
(1) The carrying values of securities lending indemnifications and credit card merchant processing were not material for either period presented, as the probability
of potential liabilities arising from these guarantees is minimal.
(2) At December 31, 2017 and 2016, this maximum potential exposure was estimated to be $86 billion and $86 billion, respectively. However, Citi believes that
the maximum exposure is not representative of the actual potential loss exposure based on its 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.
Financial Standby Letters of Credit
Citi 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 Citi. Standby letters
of credit protect a third party from defaults on contractual
obligations. Financial standby letters of credit include
(i) guarantees of payment of insurance premiums and
reinsurance risks that support industrial revenue bond
underwriting, (ii) settlement of payment obligations to
clearing houses, including futures and over-the-counter
derivatives clearing (see further discussion below),
(iii) support options and purchases of securities in lieu of
escrow deposit accounts and (iv) letters of credit that
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,
reference credit or index, where there is little or no initial
investment, and whose terms require or permit net
settlement. For a discussion of Citi’s derivatives activities,
see Note 22 to the Consolidated Financial Statements.
Derivative instruments considered to be guarantees
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). Credit derivatives sold by Citi are
excluded from the tables above as they are disclosed
separately in Note 22 to the Consolidated Financial
Statements. In instances where Citi’s maximum potential
future payment is unlimited, the notional amount of the
contract is disclosed.
Loans Sold with Recourse
Loans sold with recourse represent Citi’s obligations to
reimburse the buyers for loan losses under certain
circumstances. Recourse refers to the clause in a sales
agreement under which a seller/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 related to its
whole loan sales to the U.S. government-sponsored
enterprises (GSEs) and, to a lesser extent, private investors.
The repurchase reserve was approximately $66 million and
$107 million at December 31, 2017 and 2016, respectively,
and these amounts are included in Other liabilities on the
Consolidated Balance Sheet.
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
277
whole in the event that the security borrower does not return
the security subject to the lending agreement and collateral
held is insufficient to cover the market value of the security.
Credit Card Merchant Processing
Credit card merchant processing guarantees represent the
Company’s indirect obligations in connection with
(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, Citi has the primary contingent
liability with respect to its portfolio of private-label
merchants. The risk of loss is mitigated as the cash flows
between Citi and the merchant are settled on a net basis, and
Citi has the right to offset any payments with cash flows
otherwise due to the merchant. To further mitigate this risk,
Citi may delay settlement, require a merchant to make an
escrow deposit, include event triggers to provide Citi 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, Citi is contingently liable to
credit or refund cardholders.
With regard to (ii) above, Citi 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.
Citi’s maximum potential contingent liability related to
both bank card and private-label merchant processing
services is estimated to be the total volume of credit card
transactions that meet the requirements to be valid charge-
back transactions at any given time. At December 31, 2017
and 2016, this maximum potential exposure was estimated to
be $86 billion and $86 billion, respectively.
However, Citi believes that the maximum exposure is
not representative of the actual potential loss exposure based
on its 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. Citi assesses the probability and
amount of its contingent liability related to merchant
processing based on the financial strength of the primary
guarantor, the extent and nature of unresolved charge-backs
and its historical loss experience. At December 31, 2017 and
2016, the losses incurred and the carrying amounts of Citi’s
contingent obligations related to merchant processing
activities were immaterial.
Credit Card Arrangements with Partners
Citi, in certain of its credit card partner arrangements,
provides guarantees to the partner regarding the volume of
certain customer originations during the term of the
agreement. To the extent that such origination targets are not
met, the guarantees serve to compensate the partner for
certain payments that otherwise would have been generated
in connection with such originations.
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
Citi, 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 Citi’s maximum
exposure to loss cannot be quantified. The protection is
limited to certain types of purchases and losses, and it is not
possible to quantify the purchases that would qualify for
these benefits at any given time. Citi assesses the probability
and amount of its potential liability related to these programs
based on the extent and nature of its historical loss
experience. At December 31, 2017 and 2016, the actual and
estimated losses incurred and the carrying value
of Citi’s obligations related to these programs were
immaterial.
Other Representation and Warranty Indemnifications
In the normal course of business, Citi 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 Citi 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 Citi’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
278
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.
Value-Transfer Networks
Citi 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. Citi’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,
Citi’s participation in VTNs is not reported in the guarantees
tables above, and there are no amounts reflected on the
Consolidated Balance Sheet as of December 31, 2017 or
2016 for potential obligations that could arise from Citi’s
involvement with VTN associations.
Long-Term Care Insurance Indemnification
In 2000, Travelers Life & Annuity (Travelers), then a
subsidiary of Citi, entered into a reinsurance agreement to
transfer the risks and rewards of its long-term care (LTC)
business to GE Life (now Genworth Financial Inc., or
Genworth), then a subsidiary of the General Electric
Company (GE). As part of this transaction, the reinsurance
obligations were provided by two regulated insurance
subsidiaries of GE Life, which funded two collateral trusts
with securities. Presently, as discussed below, the trusts are
referred to as the Genworth Trusts.
As part of GE’s spin-off of Genworth in 2004, GE
retained the risks and rewards associated with the 2000
Travelers reinsurance agreement by providing a reinsurance
contract to Genworth through its Union Fidelity Life
Insurance Company (UFLIC) subsidiary that covers the
Travelers LTC policies. In addition, GE provided a capital
maintenance agreement in favor of UFLIC which is designed
to assure that UFLIC will have the funds to pay its
reinsurance obligations. As a result of these reinsurance
agreements and the spin-off of Genworth, Genworth has
reinsurance protection from UFLIC (supported by GE) and
has reinsurance obligations in connection with the Travelers
LTC policies. As noted below, the Genworth reinsurance
obligations now benefit Brighthouse Financial, Inc.
(Brighthouse). While neither Brighthouse nor Citi are direct
beneficiaries of the capital maintenance agreement between
GE and UFLIC, Brighthouse and Citi benefit indirectly from
the existence of the capital maintenance agreement, which
helps assure that UFLIC will continue to have funds
necessary to pay its reinsurance obligations to Genworth.
In connection with Citi’s 2005 sale of Travelers to
MetLife Inc. (MetLife), Citi provided an indemnification to
MetLife for losses (including policyholder claims) relating to
the LTC business for the entire term of the Travelers LTC
policies, which, as noted above, are reinsured by subsidiaries
of Genworth. In 2017, MetLife spun off its retail insurance
business to Brighthouse. As a result, the Travelers LTC
policies now reside with Brighthouse. The original
reinsurance agreement between Travelers (now Brighthouse)
and Genworth remains in place and Brighthouse is the sole
beneficiary of the Genworth Trusts. The fair value of the
Genworth Trusts is approximately $7.5 billion as of
December 31, 2017, compared to $7.0 billion at December
31, 2016. The Genworth Trusts are designed to provide
collateral to Brighthouse in an amount equal to the statutory
liabilities of Brighthouse in respect of the Travelers LTC
policies. The assets in the Genworth Trusts are evaluated and
adjusted periodically to ensure that the fair value of the
assets continues to provide collateral in an amount equal to
these estimated statutory liabilities, as the liabilities change
over time.
If both (i) Genworth fails to perform under the original
Travelers/GE Life reinsurance agreement for any reason,
including insolvency or the failure of UFLIC to perform in a
timely manner, and (ii) the assets of the two Genworth Trusts
are insufficient or unavailable, then Citi, through its LTC
reinsurance indemnification, must reimburse Brighthouse for
any losses incurred in connection with the LTC policies.
Since both events would have to occur before Citi would
become responsible for any payment to Brighthouse
pursuant to its indemnification obligation, and the likelihood
of such events occurring is currently not probable, there is no
liability reflected on the Consolidated Balance Sheet as of
December 31, 2017 and 2016 related to this indemnification.
Citi continues to closely monitor its potential exposure under
this indemnification obligation.
Separately, Genworth announced that it had agreed to
be purchased by China Oceanwide Holdings Co., Ltd,
subject to a series of conditions and regulatory approvals.
Citi is monitoring these developments.
Futures and Over-the-Counter Derivatives Clearing
Citi provides clearing services on central clearing parties
(CCPs) for clients that need to clear exchange traded and
over-the-counter (OTC) derivatives contracts. Based on all
relevant facts and circumstances, Citi has concluded that it
acts as an agent for accounting purposes in its role as
clearing member for these client transactions. As such, Citi
does not reflect the underlying exchange traded or OTC
derivatives contracts in its Consolidated Financial
Statements. See Note 22 for a discussion of Citi’s derivatives
activities that are reflected in its Consolidated Financial
Statements.
As a clearing member, Citi collects and remits cash and
securities collateral (margin) between its clients and the
respective CCP. In certain circumstances, Citi collects a
higher amount of cash (or securities) from its clients than it
needs to remit to the CCPs. This excess cash is then held at
depository institutions such as banks or carry brokers.
There are two types of margin: initial and variation.
Where Citi obtains benefits from or controls cash initial
margin (e.g., retains an interest spread), cash initial margin
279
collected from clients and remitted to the CCP or depository
institutions is reflected within Brokerage payables (payables
to customers) and Brokerage receivables (receivables from
brokers, dealers and clearing organizations) or Cash and due
from banks, respectively.
However, for exchange traded and OTC-cleared
derivatives contracts where Citi does not obtain benefits
from or control the client cash balances, the client cash
initial margin collected from clients and remitted to the CCP
or depository institutions is not reflected on Citi’s
Consolidated Balance Sheet. These conditions are met when
Citi has contractually agreed with the client that (i) Citi will
pass through to the client all interest paid by the CCP or
depository institutions on the cash initial margin, (ii) Citi
will not utilize its right as a clearing member to transform
cash margin into other assets, (iii) Citi does not guarantee
and is not liable to the client for the performance of the CCP
or the depository institution and (iv) the client cash balances
are legally isolated from Citi’s bankruptcy estate. The total
amount of cash initial margin collected and remitted in this
manner was approximately $10.7 billion and $9.4 billion as
of December 31, 2017 and 2016, respectively.
Variation margin due from clients to the respective CCP,
or from the CCP to clients, reflects changes in the value of
the client’s derivative contracts for each trading day. As a
clearing member, Citi is exposed to the risk of non-
performance by clients (e.g., failure of a client to post
variation margin to the CCP for negative changes in the
value of the client’s derivative contracts). In the event of
non-performance by a client, Citi would move to close out
the client’s positions. The CCP would typically utilize initial
margin posted by the client and held by the CCP, with any
remaining shortfalls required to be paid by Citi as clearing
member. Citi generally holds incremental cash or securities
margin posted by the client, which would typically be
expected to be sufficient to mitigate Citi’s credit risk in the
event that the client fails to perform.
As required by ASC 860-30-25-5, securities collateral
posted by clients is not recognized on Citi’s Consolidated
Balance Sheet.
Carrying Value—Guarantees and Indemnifications
At December 31, 2017 and 2016, the total carrying amounts
of the liabilities related to the guarantees and
indemnifications included in the tables above amounted to
approximately $0.8 billion and $1.2 billion, respectively. 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.
Collateral
Cash collateral available to Citi to reimburse losses realized
under these guarantees and indemnifications amounted to
$46 billion and $48 billion at December 31, 2017 and 2016,
respectively. Securities and other marketable assets held as
collateral amounted to $70 billion and $41 billion at
December 31, 2017 and 2016, respectively. The majority of
collateral is held to reimburse losses realized under securities
lending indemnifications. Additionally, letters of credit in
favor of Citi held as collateral amounted to $3.7 billion and
$5.4 billion at December 31, 2017 and 2016, respectively.
Other property may also be available to Citi to cover losses
under certain guarantees and indemnifications; however, the
value of such property has not been determined.
Performance Risk
Citi evaluates the performance risk of its guarantees based
on the assigned referenced counterparty internal or external
ratings. Where external ratings are used, investment-grade
ratings are considered to be Baa/BBB and above, while
anything below is considered non-investment grade. Citi’s
internal ratings are in line with the related external rating
system. On certain underlying referenced assets or entities,
ratings are not available. Such referenced assets are included
in the “not rated” category. The maximum potential amount
of the future payments related to the outstanding guarantees
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 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, Citi
believes such amounts bear no relationship to the anticipated
losses, if any, on these guarantees.
280
In billions of dollars at December 31, 2017
Financial standby letters of credit
Performance guarantees
Derivative instruments deemed to be guarantees
Loans sold with recourse
Securities lending indemnifications
Credit card merchant processing
Credit card arrangements with partners
Custody indemnifications and other
Total
In billions of dollars at December 31, 2016
Financial standby letters of credit
Performance guarantees
Derivative instruments deemed to be guarantees
Loans sold with recourse
Securities lending indemnifications
Credit card merchant processing
Credit card arrangements with partners
Custody indemnifications and other
Total
Maximum potential amount of future payments
Investment
grade
Non-
investment
grade
Not
rated
Total
$
68.1 $
10.9 $
14.8 $
7.9
—
—
—
—
—
2.4
—
—
—
—
—
23.7
99.7 $
12.3
25.6 $
1.0
95.9
0.2
103.7
85.5
1.4
—
302.5 $
Maximum potential amount of future payments
Investment
grade
Non-
investment
grade
Not
rated
Total
66.8 $
13.4 $
12.9 $
6.3
—
—
—
—
—
4.0
—
—
—
—
—
33.3
106.4 $
12.1
29.5 $
0.8
87.2
0.2
80.3
86.4
1.5
—
269.3 $
405.2
93.8
11.3
95.9
0.2
103.7
85.5
1.4
36.0
427.8
93.1
11.1
87.2
0.2
80.3
86.4
1.5
45.4
$
$
$
281
Credit Commitments and Lines of Credit
The table below summarizes Citigroup’s credit commitments:
In millions of dollars
Commercial and similar letters of credit
One- to four-family residential mortgages
Revolving open-end loans secured by one- to four-family residential
properties
Commercial real estate, construction and land development
Credit card lines
Commercial and other consumer loan commitments
Other commitments and contingencies
Total
The majority of unused commitments are contingent upon
customers maintaining specific credit standards.
Commercial commitments generally have floating interest
rates and fixed expiration dates and may require payment of
fees. Such fees (net of certain direct costs) are deferred and,
upon exercise of the commitment, amortized over the life of
the loan or, if exercise is deemed remote, amortized over the
commitment period.
Commercial and Similar Letters of Credit
A commercial letter of credit is an instrument by which
Citigroup substitutes its credit for that of a customer to
enable the customer to finance the purchase of goods or to
incur other commitments. Citigroup issues a letter on behalf
of its client to a supplier and agrees to pay the supplier upon
presentation of documentary evidence that the supplier has
performed in accordance with the terms of the letter of
credit. When a letter of credit is drawn, the customer is then
required to reimburse Citigroup.
One- to Four-Family Residential Mortgages
A one- to four-family residential mortgage commitment is a
written confirmation from Citigroup to a seller of a property
that the bank will advance the specified sums enabling the
buyer to complete the purchase.
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
U.S.
Outside of
U.S.
December 31,
2017
December 31,
2016
904 $
988
4,096 $
1,686
5,000 $
2,674
10,825
9,594
578,634
171,383
2,182
774,510 $
1,498
1,557
99,666
101,272
889
210,664 $
12,323
11,151
678,300
272,655
3,071
985,174 $
5,736
2,838
13,405
10,781
664,335
259,934
3,202
960,231
$
$
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 cancelable by providing
notice to the cardholder or without such notice as permitted
by local law.
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, purchase third-
party receivables, provide note issuance or revolving
underwriting facilities and invest in the form of equity.
Other Commitments and Contingencies
Other commitments and contingencies include committed or
unsettled regular-way reverse repurchase agreements and all
other transactions related to commitments and contingencies
not reported on the lines above.
Unsettled Reverse Repurchase and Securities Lending
Agreements and Unsettled Repurchase and Securities
Borrowing Agreements
In addition, in the normal course of business, Citigroup
enters into reverse repurchase and securities borrowing
agreements, as well as repurchase and securities lending
agreements, which settle at a future date. At December 31,
2017, and December 31, 2016, Citigroup had $35.0 billion
and $43.1 billion unsettled reverse repurchase and securities
borrowing agreements, and $19.1 billion and $14.9 billion
unsettled repurchase and securities lending agreements. For
a further discussion of securities purchased under
agreements to resell and securities borrowed, and securities
sold under agreements to repurchase and securities loaned,
including the Company’s policy for offsetting repurchase
and reverse repurchase agreements, see Note 11 to the
Consolidated Financial Statements.
282
27. CONTINGENCIES
Accounting and Disclosure Framework
ASC 450 governs the disclosure and recognition of loss
contingencies, including potential losses from litigation and
regulatory matters. ASC 450 defines a “loss contingency” as
“an existing condition, situation, or set of circumstances
involving uncertainty as to possible loss to an entity that will
ultimately be resolved when one or more future events occur
or fail to occur.” It imposes different requirements for the
recognition and disclosure of loss contingencies based on the
likelihood of occurrence of the contingent future event or
events. It distinguishes among degrees of likelihood using the
following three terms: “probable,” meaning that “the future
event or events are likely to occur”; “remote,” meaning that
“the chance of the future event or events occurring is slight”;
and “reasonably possible,” meaning that “the chance of the
future event or events occurring is more than remote but less
than likely.” These three terms are used below as defined in
ASC 450.
Accruals. ASC 450 requires accrual for a loss contingency
when it is “probable that one or more future events will occur
confirming the fact of loss” and “the amount of the loss can be
reasonably estimated.” In accordance with ASC 450, Citigroup
establishes accruals for contingencies, including the litigation
and regulatory matters disclosed herein, when Citigroup
believes it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. When the
reasonable estimate of the loss is within a range of amounts,
the minimum amount of the range is accrued, unless some
higher amount within the range is a better estimate than any
other amount within the range. Once established, accruals are
adjusted from time to time, as appropriate, in light of
additional information. The amount of loss ultimately incurred
in relation to those matters may be substantially higher or
lower than the amounts accrued for those matters.
Disclosure. ASC 450 requires disclosure of a loss
contingency if “there is at least a reasonable possibility that a
loss or an additional loss may have been incurred” and there is
no accrual for the loss because the conditions described above
are not met or an exposure to loss exists in excess of the
amount accrued. In accordance with ASC 450, if Citigroup has
not accrued for a matter because Citigroup believes that a loss
is reasonably possible but not probable, or that a loss is
probable but not reasonably estimable, and the reasonably
possible loss is material, it discloses the loss contingency. In
addition, Citigroup discloses matters for which it has accrued
if it believes a reasonably possible exposure to material loss
exists in excess of the amount accrued. In accordance with
ASC 450, Citigroup’s disclosure includes an estimate of the
reasonably possible loss or range of loss for those matters as to
which an estimate can be made. ASC 450 does not require
disclosure of an estimate of the reasonably possible loss or
range of loss where an estimate cannot be made. Neither
accrual nor disclosure is required for losses that are deemed
remote.
Litigation and Regulatory Contingencies
Overview. In addition to the matters described below, in the
ordinary course of business, Citigroup, its affiliates and
subsidiaries, and current and former officers, directors and
employees (for purposes of this section, sometimes
collectively referred to as Citigroup and Related Parties)
routinely are named as defendants in, or as parties to, various
legal actions and proceedings. Certain of these actions and
proceedings assert claims or seek relief in connection with
alleged violations of consumer protection, fair lending,
securities, banking, antifraud, antitrust, anti-money
laundering, employment and other statutory and common
laws. Certain of these actual or threatened legal actions and
proceedings include claims for substantial or indeterminate
compensatory or punitive damages, or for injunctive relief,
and in some instances seek recovery on a class-wide basis.
In the ordinary course of business, Citigroup and Related
Parties also are subject to governmental and regulatory
examinations, information-gathering requests, investigations
and proceedings (both formal and informal), certain of which
may result in adverse judgments, settlements, fines, penalties,
restitution, disgorgement, injunctions or other relief. In
addition, certain affiliates and subsidiaries of Citigroup are
banks, registered broker-dealers, futures commission
merchants, investment advisers or other regulated entities and,
in those capacities, are subject to regulation by various U.S.,
state and foreign securities, banking, commodity futures,
consumer protection and other regulators. In connection with
formal and informal inquiries by these regulators, Citigroup
and such affiliates and subsidiaries receive numerous requests,
subpoenas and orders seeking documents, testimony and other
information in connection with various aspects of their
regulated activities. From time to time Citigroup and Related
Parties also receive grand jury subpoenas and other requests
for information or assistance, formal or informal, from federal
or state law enforcement agencies including, among others,
various United States Attorneys’ Offices, the Asset Forfeiture
and Money Laundering Section and other divisions of the
Department of Justice, the Financial Crimes Enforcement
Network of the United States Department of the Treasury, and
the Federal Bureau of Investigation relating to Citigroup and
its customers.
Because of the global scope of Citigroup’s operations, and
its presence in countries around the world, Citigroup and
Related Parties are subject to litigation and governmental and
regulatory examinations, information-gathering requests,
investigations and proceedings (both formal and informal) in
multiple jurisdictions with legal and regulatory regimes that
may differ substantially, and present substantially different
risks, from those Citigroup and Related Parties are subject to
in the United States. In some instances, Citigroup and Related
Parties may be involved in proceedings involving the same
subject matter in multiple jurisdictions, which may result in
overlapping, cumulative or inconsistent outcomes.
Citigroup seeks to resolve all litigation and regulatory
matters in the manner management believes is in the best
interests of Citigroup and its shareholders, and contests
liability, allegations of wrongdoing and, where applicable, the
283
amount of damages or scope of any penalties or other relief
sought as appropriate in each pending matter.
Inherent Uncertainty of the Matters Disclosed. Certain of
the matters disclosed below involve claims for substantial or
indeterminate damages. The claims asserted in these matters
typically are broad, often spanning a multi-year period and
sometimes a wide range of business activities, and the
plaintiffs’ or claimants’ alleged damages frequently are not
quantified or factually supported in the complaint or statement
of claim. Other matters relate to regulatory investigations or
proceedings, as to which there may be no objective basis for
quantifying the range of potential fine, penalty or other
remedy. As a result, Citigroup is often unable to estimate the
loss in such matters, even if it believes that a loss is probable
or reasonably possible, until developments in the case or
investigation have yielded additional information sufficient to
support a quantitative assessment of the range of reasonably
possible loss. Such developments may include, among other
things, discovery from adverse parties or third parties, rulings
by the court on key issues, analysis by retained experts and
engagement in settlement negotiations. Depending on a range
of factors, such as the complexity of the facts, the novelty of
the legal theories, the pace of discovery, the court’s scheduling
order, the timing of court decisions and the adverse party’s
willingness to negotiate in good faith toward a resolution, it
may be months or years after the filing of a case or
commencement of an investigation before an estimate of the
range of reasonably possible loss can be made.
Matters as to Which an Estimate Can Be Made. For some
of the matters disclosed below, Citigroup is currently able to
estimate a reasonably possible loss or range of loss in excess
of amounts accrued (if any). For some of the matters included
within this estimation, an accrual has been made because a
loss is believed to be both probable and reasonably estimable,
but an exposure to loss exists in excess of the amount accrued.
In these cases, the estimate reflects the reasonably possible
range of loss in excess of the accrued amount. For other
matters included within this estimation, no accrual has been
made because a loss, although estimable, is believed to be
reasonably possible, but not probable; in these cases, the
estimate reflects the reasonably possible loss or range of loss.
As of December 31, 2017, Citigroup estimates that the
reasonably possible unaccrued loss for these matters ranges up
to approximately $1.0 billion in the aggregate.
These estimates are based on currently available
information. As available information changes, the matters for
which Citigroup is able to estimate will change, and the
estimates themselves will change. In addition, while many
estimates presented in financial statements and other financial
disclosures 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, (i) Citigroup may
have only preliminary, incomplete, or inaccurate information
about the facts underlying the claim, (ii) 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 (iii) the outcomes it is
284
attempting to predict are often not amenable to the use of
statistical or other quantitative analytical tools. In addition,
from time to time an outcome may occur that Citigroup had
not accounted for in its estimate because it had deemed such
an outcome to be remote. For all of these reasons, the amount
of loss in excess of accruals ultimately incurred for the matters
as to which an estimate has been made could be substantially
higher or lower than the range of loss included in the estimate.
Matters as to Which an Estimate Cannot Be Made. For
other matters disclosed below, Citigroup is not currently able
to estimate the reasonably possible loss or range of loss. Many
of these matters remain in very preliminary stages (even in
some cases where a substantial period of time has passed since
the commencement of the matter), with few or no substantive
legal decisions by the court or tribunal defining the scope of
the claims, the class (if any) or the potentially available
damages, and fact discovery is still in progress or has not yet
begun. In many of these matters, Citigroup has not yet
answered the complaint or statement of claim or asserted its
defenses, nor has it engaged in any negotiations with the
adverse party (whether a regulator or a private party). For all
these reasons, Citigroup cannot at this time estimate the
reasonably possible loss or range of loss, if any, for these
matters.
Opinion of Management as to Eventual Outcome. Subject
to the foregoing, it is the opinion of Citigroup’s management,
based on current knowledge and after taking into account its
current legal accruals, that the eventual outcome of all matters
described in this Note would not be likely to have a material
adverse effect on the consolidated financial condition of
Citigroup. Nonetheless, given the substantial or indeterminate
amounts sought in certain of these matters, and the inherent
unpredictability of such matters, an adverse outcome in certain
of these matters could, from time to time, have a material
adverse effect on Citigroup’s consolidated results of
operations or cash flows in particular quarterly or annual
periods.
CARD Act Matter
Citi identified certain methodological issues in connection
with determining annual percentage rates (APRs) for certain
cardholders under the rate re-evaluation provisions of the
Credit Card Accountability Responsibility and Disclosure Act
(CARD Act) and Regulation Z. Citi self-reported the issues to
its regulators and will be providing remediation to affected
customers. Citi is cooperating fully with the regulatory
reviews.
Credit Crisis-Related Litigation and Other Matters
Citigroup and Related Parties were named as defendants in
numerous legal actions and other proceedings asserting claims
for damages and related relief for losses arising from the
global financial credit crisis that began in 2007. Citigroup also
received subpoenas and requests for information from various
regulatory agencies and other government authorities
concerning certain businesses impacted by the credit crisis.
The vast majority of these matters have been resolved as of
December 31, 2017.
Mortgage-Related Litigation and Other Matters
Mortgage-Backed Securities and CDO Investor Actions:
Beginning in July 2010, Citigroup and Related Parties were
named as defendants in complaints filed by purchasers of
MBS and CDOs sold or underwritten by Citigroup. The
complaints generally assert that defendants made material
misrepresentations and omissions about the credit quality of
the assets underlying the securities or the manner in which
those assets were selected, and typically assert claims under
Section 11 of the Securities Act of 1933, state blue sky laws,
and/or common-law misrepresentation-based causes of action.
All but one of these matters have been resolved through
settlement or otherwise. As of December 31, 2017, the
aggregate original purchase amount of the purchases covered
by the remaining tolling (extension) agreement with an
investor threatening litigation is approximately $500 million.
Mortgage-Backed Securities Repurchase Claims: Various
parties to MBS securitizations and other interested parties
have asserted that certain Citigroup affiliates breached
representations and warranties made in connection with
mortgage loans sold into securitization trusts (private-label
securitizations). Typically, these claims are based on
allegations that securitized mortgages were not underwritten in
accordance with the applicable underwriting standards.
Citigroup also has received inquiries, demands for loan files,
and requests to toll the applicable statutes of limitation for
representation and warranty claims, relating to its private-label
securitizations. These inquiries, demands and requests have
been made by trustees of securitization trusts and others.
To date, trustees have filed six actions against Citigroup
seeking to enforce certain of these contractual repurchase
claims that were excluded from the April 7, 2014 settlement in
connection with four private-label securitizations. Citigroup
has reached an agreement with the trustees to resolve all six of
these actions. Additional information concerning these actions
is publicly available in court filings under the docket numbers
13 Civ. 2843 (S.D.N.Y.) (Daniels, J.), 13 Civ. 6989 (S.D.N.Y.)
(Daniels, J.), 653816/2013 (N.Y. Sup. Ct.) (Kornreich, J.),
653919/2014 (N.Y. Sup. Ct.), 653929/2014 (N.Y. Sup. Ct.),
and 653930/2014 (N.Y. Sup. Ct.).
Mortgage-Backed Securities Trustee Actions: On
November 24, 2014, a group of investors in 27 RMBS trusts
for which Citibank served or currently serves as trustee filed
an action in the United States District Court for the Southern
District of New York, captioned FIXED INCOME SHARES:
SERIES M ET AL. v. CITIBANK N.A., alleging claims that
Citibank failed to pursue contractual remedies against
securitization sponsors and servicers. On September 8, 2015,
the United States District Court for the Southern District of
New York dismissed all claims as to 24 of the 27 trusts and
allowed certain of the claims to proceed as to the other three
trusts. On September 7, 2016, plaintiffs filed a stipulation of
voluntary dismissal of their claims with respect to two of the
three remaining trusts, leaving one trust at issue. On
September 30, 2016, plaintiffs moved to certify a class action,
and on April 7, 2017, Citibank moved for summary judgment
on all remaining claims. Both motions are pending. Additional
information concerning this action is publicly available in
court filings under the docket number 14-cv-9373 (S.D.N.Y.)
(Furman, J.).
On November 24, 2015, largely the same group of
investors filed an action in the New York State Supreme
Court, captioned FIXED INCOME SHARES: SERIES M, ET
AL. v. CITIBANK N.A., related to the 24 trusts dismissed
from the federal court action and one additional trust, asserting
claims similar to the action filed in federal court. On June 22,
2016, the court dismissed plaintiffs’ complaint. Plaintiffs filed
an amended complaint on August 5, 2016. On June 27, 2017,
the court granted in part and denied in part Citibank’s motion
to dismiss the amended complaint. Citibank appealed as to the
sustained claims, and on January 16, 2018, the New York
Appellate Division, First Department, dismissed all of the
remaining claims except the claim for breach of contract
related to purported discovery of alleged underwriter breaches
of representations and warranties. Additional information
concerning this action is publicly available in court filings
under the docket number 653891/2015 (N.Y. Sup. Ct.)
(Ramos, J.).
On August 19, 2015, the Federal Deposit Insurance
Corporation (FDIC), as receiver for a financial institution,
filed a civil action against Citibank in the United States
District Court for the Southern District of New York,
captioned FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER FOR GUARANTY BANK
v. CITIBANK N.A. The complaint concerns one RMBS trust
for which Citibank formerly served as trustee, and alleges that
Citibank failed to pursue contractual remedies against the
sponsor and servicers of that trust. On September 30, 2016, the
court granted Citibank’s motion to dismiss on the grounds that
the FDIC lacked standing to pursue its claims. On October 14,
2016, the FDIC filed a motion for reconsideration or relief
from judgment from the court’s dismissal order. On July 10,
2017, the court denied the motion for reconsideration but
granted the FDIC leave to file an amended complaint. The
FDIC filed an amended complaint on December 8, 2017.
Additional information concerning this action is publicly
available in court filings under the docket number 15-cv-6574
(S.D.N.Y.) (Carter, J.).
Lehman Brothers Bankruptcy Proceedings
On February 8, 2012, Citibank and certain Citigroup affiliates
were named as defendants in an adversary proceeding
asserting objections to certain proofs of claim totaling
approximately $2.6 billion filed by Citibank and those
affiliates, and claims under federal bankruptcy and state law to
recover $2 billion deposited by Lehman Brothers Holdings
Inc. (LBHI) with Citibank against which Citibank asserted a
right of setoff. A global settlement between the parties was
approved by the bankruptcy court on October 13, 2017. As
part of the global settlement, Citibank retained $350 million
from LBHI’s deposit at Citibank and returned to LBHI and its
affiliates the remaining deposited funds, and LBHI withdrew
its remaining objections to the bankruptcy claims filed by
Citibank and its affiliates. This action was dismissed by
stipulation on November 3, 2017. Additional information
concerning this action is publicly available in court filings
285
under the docket numbers 12-01044 and 08-13555 (Bankr.
S.D.N.Y.) (Chapman, J.).
publicly available in court filings under the docket number 17-
cv-04302 (S.D.N.Y.) (Sullivan, J.).
Tribune Company Bankruptcy
Certain Citigroup affiliates have been named as defendants in
adversary proceedings related to the Chapter 11 cases of
Tribune Company (Tribune) filed in the United States
Bankruptcy Court for the District of Delaware, asserting
claims arising out of the approximately $11 billion leveraged
buyout of Tribune in 2007. On August 2, 2013, the Litigation
Trustee, as successor plaintiff to the Official Committee of
Unsecured Creditors, filed a fifth amended complaint in the
adversary proceeding KIRSCHNER v. FITZSIMONS, ET AL.
The complaint seeks to avoid and recover as actual fraudulent
transfers the transfers of Tribune stock that occurred as a part
of the leveraged buyout. Several Citigroup affiliates are named
as “Shareholder Defendants” and are alleged to have tendered
Tribune stock to Tribune as a part of the buyout.
Several Citigroup affiliates are named as defendants in
certain actions brought by Tribune noteholders, which seek to
recover the transfers of Tribune stock that occurred as a part of
the leveraged buyout, as state-law constructive fraudulent
conveyances. The noteholders’ claims were previously
dismissed and the United States Court of Appeals for the
Second Circuit affirmed the dismissal on appeal. The
noteholders’ petition to the United States Supreme Court for a
writ of certiorari is pending.
In the FITZSIMONS action, on February 1, 2017, the
Litigation Trustee requested leave to file an interlocutory
appeal of Judge Sullivan’s order dismissing the actual
fraudulent transfer claim against the shareholder defendants,
including several Citigroup affiliates. On February 23, 2017,
Judge Sullivan entered an order stating that an interlocutory
appeal will be certified after the remaining motions to dismiss
are resolved. Those motions remain pending. Additional
information concerning these actions is publicly available in
court filings under the docket numbers 08-13141 (Bankr. D.
Del.) (Carey, J.), 11 MD 02296 (S.D.N.Y.) (Sullivan, J.), 12
MC 2296 (S.D.N.Y.) (Sullivan, J.), 13-3992, 13-3875,
13-4196 (2d Cir.) and 16-317 (U.S.).
Credit Default Swaps Matters
Antitrust and Other Litigation: On June 8, 2017, a complaint
was filed in the United States District Court for the Southern
District of New York against numerous credit default swap
(CDS) market participants, including Citigroup, Citibank,
Citigroup Global Markets Inc. (CGMI), and Citigroup Global
Markets Ltd. (CGML), under the caption TERA GROUP,
INC., ET AL. v. CITIGROUP INC., ET AL. The complaint
alleges that defendants colluded to prevent plaintiffs’
electronic CDS trading platform, TeraExchange, from entering
the market, resulting in lost profits to plaintiffs. The
complaint asserts federal and state antitrust claims, and claims
for unjust enrichment and tortious interference with business
relations. Plaintiffs seek a finding of joint and several liability,
treble damages, attorneys’ fees, interest, and injunctive relief.
On September 11, 2017, defendants, including Citigroup,
Citibank, CGMI, and CGML, filed motions to dismiss all
claims. Additional information concerning this action is
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Depositary Receipts Conversion Litigation
Citibank was sued by a purported class of persons or entities
who, from January 2000 to the present, are or were holders of
depositary receipts for which Citibank served as the depositary
bank and converted, or caused to be converted, foreign-
currency dividends or other distributions into U.S. dollars. On
August 15, 2016, the court dismissed certain claims against
Citibank as well as all claims against two of its affiliates,
leaving one claim against Citibank. Plaintiffs assert that
Citibank breached its deposit agreements by charging a spread
for the conversions of dividends and other distributions. On
June 30, 2017, plaintiffs moved for certification of a damages
class consisting of persons or entities who, from January 1,
2006 to the present, were holders of 35 depositary receipts for
which Citibank served as the depositary bank and converted,
or caused to be converted, foreign currency dividends or other
distributions into U.S. dollars. Plaintiffs also moved to certify
an injunctive class of persons or entities who currently hold
the same 35 depositary receipts. Citibank has opposed
certification. Additional information concerning this action is
publicly available in court filings under the docket number 15
Civ. 9185 (S.D.N.Y.) (McMahon, C.).
Foreign Exchange Matters
Regulatory Actions: Government and regulatory agencies in
the U.S. and in other jurisdictions are conducting
investigations or making inquiries regarding Citigroup’s
foreign exchange business. Citigroup is fully cooperating with
these and related investigations and inquiries.
Antitrust and Other Litigation: Numerous foreign
exchange dealers, including Citigroup, Citicorp, CGMI, and
Citibank, are named as defendants in putative class actions
that are proceeding on a consolidated basis in the United
States District Court for the Southern District of New York
under the caption IN RE FOREIGN EXCHANGE
BENCHMARK RATES ANTITRUST LITIGATION.
Plaintiffs allege that they suffered losses as a result of
defendants’ alleged manipulation of, and collusion with
respect to, the foreign exchange market. Plaintiffs allege
violations of the Commodity Exchange Act, the Sherman Act,
and/or the Clayton Act, and seek compensatory damages,
treble damages, and declaratory and injunctive relief.
On December 15, 2015, the court entered an order
preliminarily approving a proposed settlement between the
Citi defendants and classes of plaintiffs who traded foreign
exchange instruments in the spot market and on exchanges.
The proposed settlement provides for the Citi defendants to
receive a release in exchange for a payment of approximately
$400 million. On January 12, 2018, plaintiffs moved for final
approval of the settlements with the Citi defendants and
several other defendants in that case. Additional information
concerning this action is available in court filings under the
consolidated lead docket number 13 Civ. 7789 (S.D.N.Y.)
(Schofield, J.).
On May 21, 2015, an action captioned NYPL v.
JPMORGAN CHASE & CO., ET AL. was brought in the
United States District Court for the Northern District of
California against Citigroup, as well as numerous other
foreign exchange dealers for possible consolidation with IN
RE FOREIGN EXCHANGE BENCHMARK RATES
ANTITRUST LITIGATION. On August 10, 2017, plaintiffs
filed a third amended class action complaint in the United
States District Court for the Southern District of New York
naming Citibank, Citigroup, and Citicorp as defendants.
Plaintiffs seek to represent a putative class of “consumers and
businesses in the United States who directly purchased
supracompetitive foreign currency at Benchmark exchange
rates” from defendants. Plaintiffs allege claims under federal
and California antitrust and consumer protection laws, and are
seeking compensatory damages, treble damages, and
declaratory and injunctive relief. On October 16, 2017,
defendants completed briefing on their renewed motion to
dismiss or to certify the court’s ruling for interlocutory appeal.
Additional information concerning this action is publicly
available in court filings under the docket numbers 15 Civ.
2290 (N.D. Cal.) (Chhabria, J.) and 15 Civ. 9300 (S.D.N.Y.)
(Schofield, J.).
On June 3, 2015, an action captioned ALLEN v. BANK
OF AMERICA CORPORATION, ET AL. was brought in the
United States District Court for the Southern District of New
York against Citigroup and Citibank, as well as numerous
other foreign exchange dealers. Plaintiffs seek to represent a
putative class of participants, beneficiaries, and named
fiduciaries of qualified Employee Retirement Income Security
Act (ERISA) plans for whom a defendant provided foreign
exchange transactional services or authorized or permitted
foreign exchange transactional services involving a plan’s
assets in connection with its exercise of authority or control
regarding an ERISA plan. Plaintiffs allege violations of
ERISA, and seek compensatory damages, restitution,
disgorgement, and declaratory and injunctive relief. On
September 20, 2016, plaintiffs and settling defendants in IN
RE FOREIGN EXCHANGE BENCHMARK RATES
ANTITRUST LITIGATION filed a joint stipulation
dismissing plaintiffs’ claims with prejudice. The case is
currently on appeal to the United States Court of Appeals for
the Second Circuit, where briefing and argument are complete.
Additional information concerning this action is publicly
available in court filings under the docket numbers 13 Civ.
7789 (S.D.N.Y.) (Schofield, J.), 15 Civ. 4285 (S.D.N.Y.)
(Schofield, J.), 16-3327 (2d Cir.), and 16-3571 (2d Cir.).
On June 30, 2017, plaintiffs filed a consolidated amended
complaint on behalf of purported classes of indirect purchasers
of foreign exchange instruments sold by the defendants,
naming various financial institutions, including Citigroup,
Citibank, Citicorp and CGMI as defendants, captioned
CONTANT ET AL. v. BANK OF AMERICA
CORPORATION ET AL. Plaintiffs allege that defendants
engaged in a conspiracy to fix currency prices in violation of
the Sherman Act and various state antitrust laws, and seek
unspecified money damages (including treble damages), as
well as equitable and injunctive relief. Additional information
concerning these actions is publicly available in court filings
under the docket numbers 16 Civ. 7512 (S.D.N.Y.) (Schofield,
287
J.), 17 Civ. 4392 (S.D.N.Y.) (Schofield, J.), and 17 Civ. 3139
(S.D.N.Y.) (Schofield, J.).
Interbank Offered Rates-Related Litigation and Other
Matters
Regulatory Actions: A consortium of state attorneys general is
conducting an investigation regarding submissions made by
panel banks to bodies that publish various interbank offered
rates and other benchmark rates. As a member of a number of
such panels, Citigroup has received requests for information
and documents. Citigroup is cooperating with the investigation
and is responding to the requests.
Antitrust and Other Litigation: Citigroup and Citibank,
along with other U.S. Dollar (USD) LIBOR panel banks, are
defendants in a multi-district litigation (MDL) proceeding
before the United States District Court for the Southern
District of New York captioned IN RE LIBOR-BASED
FINANCIAL INSTRUMENTS ANTITRUST LITIGATION
(the LIBOR MDL). On July 27, 2017, Citigroup and Citibank
executed a settlement with one class (investors who transacted
in Eurodollar futures or options on exchanges), pursuant to
which the Citi defendants agreed to pay $33.4 million. On
October 6, 2017, Citigroup and Citibank agreed to pay $130
million pursuant to its settlement with the largest plaintiffs’
class (investors who purchased over-the-counter (OTC)
derivatives from USD LIBOR panel banks) in IN RE LIBOR-
BASED FINANCIAL INSTRUMENTS ANTITRUST
LITIGATION.
On January 10, 2018, Citigroup and Citibank executed a
settlement agreement with another class (lending institutions
with interests in loans tied to USD LIBOR) pursuant to which
the Citi defendants will pay $23 million. Additional
information concerning these actions and related actions and
appeals is publicly available in court filings under the docket
numbers 11 MD 2262 (S.D.N.Y.) (Buchwald, J.) and 17-1569
(2d Cir.).
On August 13, 2015, plaintiffs in the class action
SULLIVAN v. BARCLAYS PLC, ET AL., pending in the
United States District Court for the Southern District of New
York, filed a fourth amended complaint naming Citigroup and
Citibank as defendants. Plaintiffs claim to have suffered losses
as a result of purported EURIBOR manipulation and assert
claims under the Commodity Exchange Act, the Sherman Act
and the federal civil Racketeer Influenced and Corrupt
Organizations (RICO) Act and for unjust enrichment. On
February 21, 2017, the court granted in part and denied in part
defendants’ motion to dismiss. Additional information
concerning this action is publicly available in court filings
under the docket number 13 Civ. 2811 (S.D.N.Y.) (Castel, J.).
On July 1, 2016, a putative class action captioned
FRONTPOINT ASIAN EVENT DRIVEN FUND, LTD. ET
AL v. CITIBANK, N.A. ET AL. was filed in the United States
District Court for the Southern District of New York against
Citibank, Citigroup and various other banks. Plaintiffs assert
claims for violation of the Sherman Act, Clayton Act and
RICO Act, as well as state law claims for alleged manipulation
of the Singapore Interbank Offered Rate and Singapore Swap
Offer Rate. On August 18, 2017, the court granted in part the
defendants’ motion to dismiss, dismissing all claims against
foreign bank defendants, antitrust claims asserted by one of
the two named plaintiffs, and all RICO, implied covenant, and
unjust enrichment claims. The court allowed one antitrust
claim to proceed against the U.S. bank defendants, including
Citigroup and Citibank. Plaintiffs filed an amended complaint
on September 18, 2017. On October 18, 2017, defendants filed
a motion to dismiss the amended complaint. Additional
information concerning this action is publicly available in
court filings under the docket number 16 Civ. 5263 (S.D.N.Y.)
(Hellerstein, J.).
On December 26, 2016, Banque Delubac filed a summons
against Citigroup, CGML, and Citigroup Europe Plc before
the Commercial Court of Aubenas, France alleging that
defendants suppressed its LIBOR submissions between 2005
and 2012, and that Banque Delubac’s EURIBOR-linked
lending activity was negatively impacted as a result. Plaintiff
is seeking compensatory damages for losses on LIBOR-linked
loans to customers and for alleged consequential losses to its
business. Additional information concerning this action is
publicly available in court filings under the case reference
SCS BANQUE DELUBAC & CIE v. CITIGROUP INC. ET
AL., Commercial Court of Aubenas, RG no. 2017J00043.
Interchange Fee Litigation
Beginning in 2005, several putative class actions were filed
against Citigroup and Related Parties, together with Visa,
MasterCard and other banks and their affiliates, in various
federal district courts and consolidated with other related
individual cases in a multi-district litigation proceeding in the
United States District Court for the Eastern District of New
York (Interchange MDL). This proceeding is captioned IN RE
PAYMENT CARD INTERCHANGE FEE AND
MERCHANT DISCOUNT ANTITRUST LITIGATION.
The plaintiffs, merchants that accept Visa and MasterCard
branded payment cards as well as membership associations
that claim to represent certain groups of merchants, allege,
among other things, that defendants have engaged in
conspiracies to set the price of interchange and merchant
discount fees on credit and debit card transactions and to
restrain trade through various Visa and MasterCard rules
governing merchant conduct, all in violation of Section 1 of
the Sherman Act and certain California statutes. Supplemental
complaints also have been filed against defendants in the
putative class actions alleging that Visa’s and MasterCard’s
respective initial public offerings were anticompetitive and
violated Section 7 of the Clayton Act, and that MasterCard’s
initial public offering constituted a fraudulent conveyance.
On January 14, 2014, the district court entered a final
judgment approving the terms of a class settlement providing
for, among other things, a total payment to the class of $6.05
billion; a rebate to merchants participating in the damages
class settlement of 10 bps on interchange collected for a
period of eight months by the Visa and MasterCard networks;
and changes to certain network rules. Various objectors
appealed from the final class settlement approval order to the
United States Court of Appeals for the Second Circuit.
On June 30, 2016, the Court of Appeals reversed the
district court’s approval of the class settlement and remanded
for further proceedings. Additional information concerning
288
these consolidated actions and the appeal is publicly available
in court filings under the docket numbers MDL 05-1720
(E.D.N.Y.) (Brodie, J.), 12-4671 (2d Cir.) and 16-710 (U.S.
Supreme Court).
In addition, following the district court’s approval of the
class settlement, and during the pendency of appeals from that
approval, numerous merchants, including large national
merchants, requested exclusion from the portion of the now
vacated settlement involving a settlement class certified with
respect to damages claims for past conduct, and some of those
opting out 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., brought on
behalf of numerous individual merchants, names Citigroup as
a defendant. Additional information concerning these actions
is publicly available in court filings under the docket number
MDL 05-1720 (E.D.N.Y.) (Brodie, J.).
Interest Rate Swaps Matters
Regulatory Actions: The Commodity Futures Trading
Commission is conducting an investigation into the trading
and clearing of interest rate swaps by investment banks.
Citigroup is cooperating with the investigation.
Antitrust and Other Litigation: Beginning in November
2015, numerous interest rate swap (IRS) market participants,
including Citigroup, Citibank, CGMI and CGML, were named
as defendants in a number of industry-wide putative class
actions. These actions have been consolidated in the United
States District Court for the Southern District of New York
under the caption IN RE INTEREST RATE SWAPS
ANTITRUST LITIGATION. Plaintiffs in these actions allege
that defendants colluded to prevent the development of
exchange-like trading for IRS, thereby causing the putative
classes to suffer losses in connection with their IRS
transactions. Plaintiffs assert federal antitrust claims and
claims for unjust enrichment. Also consolidated under the
same caption are two individual actions filed by swap
execution facilities, asserting federal and state antitrust claims
as well as claims for unjust enrichment and tortious
interference with business relations. Plaintiffs in all of these
actions seek treble damages, fees, costs and injunctive relief.
On July 28, 2017, the district court granted in part and
denied in part defendants’ motions to dismiss. Additional
information concerning these actions is publicly available in
court filings under the docket number 16-MD-2704 (S.D.N.Y.)
(Engelmayer, J.).
Money Laundering Inquiries
Regulatory Actions: Citibank has received subpoenas from the
United States Attorney for the Eastern District of New York in
connection with its investigation of alleged bribery, corruption
and money laundering associated with the Fédération
Internationale de Football Association (FIFA), and the
potential involvement of financial institutions in that activity.
The subpoenas request information relating to, among other
things, banking relationships and transactions at Citibank and
its affiliates associated with certain individuals and entities
identified as having had involvement with the alleged corrupt
conduct. Citi is cooperating with the authorities in this matter.
Oceanografía Fraud and Related Matters
Regulatory Actions: As a result of Citigroup’s announcement
in the first quarter of 2014 of a fraud discovered in a Petróleos
Mexicanos (Pemex) supplier program involving Oceanografía
S.A. de C.V. (OSA), a Mexican oil services company and a
key supplier to Pemex, the SEC commenced a formal
investigation and the U.S. Department of Justice requested
information regarding Banamex’s dealings with OSA. The
SEC inquiry has included requests for documents and witness
testimony. Citi continues to cooperate fully with these
inquiries.
Other Litigation: On February 26, 2016, a complaint was
filed against Citigroup in the United States District Court for
the Southern District of Florida alleging that it conspired with
Oceanografía, S.A. de C.V. (OSA) and others with respect to
receivable financings and other financing arrangements related
to OSA in a manner that injured bondholders and other
creditors of OSA. The complaint asserts claims on behalf of
39 plaintiffs that are characterized in the complaint variously
as trade creditors of, investors in, or lenders to OSA. Plaintiffs
collectively claim to have lost $1.1 billion as a result of OSA’s
bankruptcy. The complaint asserts claims under the federal
civil RICO law and seeks treble damages and other relief
pursuant to that statute. The complaint also asserts claims for
fraud and breach of fiduciary duty.
On August 23, 2016, plaintiffs filed an amended
complaint adding common law claims for fraud, aiding and
abetting fraud, and conspiracy on behalf of all plaintiffs.
Citigroup has moved to dismiss the amended complaint. On
January 30, 2018, the court granted Citigroup’s motion to
dismiss. Additional information concerning this action is
publicly available in court filings under the docket number
16-20725 (S.D. Fla.) (Gayles, J.).
On February 27, 2017, a complaint was filed against
Citigroup in the United States District Court for the Southern
District of New York by Oceanografía S.A. de C.V. (OSA) and
its controlling shareholder, Amado Yáñez Osuna. The
complaint alleges that plaintiffs were injured when Citigroup
made certain public statements about receivable financings
and other financing arrangements related to OSA. The
complaint asserts claims for malicious prosecution and
tortious interference with existing and prospective business
relationships. On December 4, 2017, plaintiffs filed an
amended complaint adding CGMI, Citibank and Banco
Nacional de México, or Banamex, as defendants and adding
causes of action for fraud and breach of contract. Citigroup
has moved to dismiss the amended complaint. Additional
information concerning this action is publicly available in
court filings under the docket number 1:17-cv-01434
(S.D.N.Y.) (Sullivan, J.).
Parmalat Litigation
On July 29, 2004, Dr. Enrico Bondi, the Extraordinary
Commissioner appointed under Italian law to oversee the
administration of various Parmalat companies, filed a
complaint in New Jersey state court against Citigroup and
Related Parties alleging, among other things, that the
defendants “facilitated” a number of frauds by Parmalat
insiders. On October 20, 2008, following trial, a jury rendered
289
a verdict in Citigroup’s favor on Parmalat’s claims and in
favor of Citibank on three counterclaims, awarding Citi $431
million. Parmalat has exhausted all appeals, and the judgment
is now final. Additional information concerning this action is
publicly available in court filings under the docket number
A-2654-08T2 (N.J. Sup. Ct.). Citigroup has taken steps to
enforce that judgment in the Italian courts. On August 29,
2014, the Court of Appeal of Bologna affirmed the decision in
the full amount of $431 million, to be paid in Parmalat shares.
Parmalat appealed the judgment to the Italian Supreme Court.
On June 16, 2015, Parmalat filed a claim in an Italian
civil court in Milan claiming damages of €1.8 billion against
Citigroup and Related Parties. On January 25, 2018, the Milan
court dismissed Parmalat’s claim on grounds that it was
duplicative of Parmalat’s previously unsuccessful New Jersey
claims.
Referral Hiring Practices Investigations
Government and regulatory agencies in the U.S., including the
SEC, are conducting investigations or making inquiries
concerning compliance with the Foreign Corrupt Practices Act
and other laws with respect to the hiring of candidates referred
by or related to foreign government officials. Citigroup is
cooperating with the investigations and inquiries.
Shareholder Derivative Litigation
On March 30, 2016, a derivative action captioned
OKLAHOMA FIREFIGHTERS PENSION & RETIREMENT
SYSTEM, ET AL. v. CORBAT, ET AL. was filed in the
Delaware Chancery Court on behalf of Citigroup (as nominal
defendant) against certain of Citigroup’s present and former
directors and officers. Plaintiffs assert claims for breach of
fiduciary duty and waste of corporate assets in connection
with defendants’ alleged failure to exercise appropriate
oversight and management of Bank Secrecy Act and anti-
money laundering laws and regulations and related consent
decrees concerning Citigroup subsidiaries, Banamex and
Banamex USA (BUSA) as well as defendants’ alleged failures
to implement adequate internal controls and exercise adequate
oversight with respect to Citigroup subsidiaries’ participation
in foreign exchange markets and credit card practices. On
December 18, 2017, the court granted the defendants’ motion
to dismiss plaintiffs’ amended supplemental complaint. On
January 17, 2018, plaintiffs filed a motion to reopen the
judgment and for leave to file a second amended complaint in
the Delaware Chancery Court, as well as an appeal with the
Delaware Supreme Court. Additional information concerning
this action is publicly available in court filings under the
docket numbers C.A. No. 12151-VCG (Del. Ch.) (Glasscock,
Ch.) and 32,2018 (Del.).
Sovereign Securities Matters
Regulatory Actions: Government and regulatory agencies in
the U.S. and in other jurisdictions are conducting
investigations or making inquiries regarding Citigroup’s sales
and trading activities in connection with sovereign securities.
Citigroup is fully cooperating with these investigations and
inquiries.
Antitrust and Other Litigation: Beginning in July 2015,
CGMI and numerous other U.S. Treasury primary dealer
banks were named as defendants in a number of substantially
similar putative class actions involving allegations that they
colluded to manipulate U.S. Treasury securities markets. In
December 2015, the cases were consolidated in the United
States District Court for the Southern District of New York by
the Judicial Panel on Multidistrict Litigation. On August 23,
2017, the court appointed interim co-lead counsel.
Plaintiffs filed a consolidated complaint on November 16,
2017, which alleges that CGMI and other primary dealer
defendants colluded to fix Treasury auction bids by sharing
competitively sensitive information ahead of the auctions, in
violation of the antitrust laws. The consolidated complaint also
alleges that CGMI and other primary dealer defendants
colluded to boycott and prevent the emergence of an
anonymous, all-to-all electronic trading platform in the
Treasuries secondary market, and seeks damages, including
treble damages where authorized by statute, and injunctive
relief. Additional information relating to this action is publicly
available in court filings under the docket number 15-
MD-2673 (S.D.N.Y.) (Gardephe, J.).
Beginning in May 2016, a number of substantially similar
putative class action complaints were filed against a number of
financial institutions and traders related to the supranational,
sub-sovereign, and agency (SSA) bond market. The actions
are based upon defendants’ roles as market makers and traders
of SSA bonds and assert claims of alleged collusion under the
antitrust laws and unjust enrichment and seek damages,
including treble damages where authorized by statute, and
disgorgement. In August 2016, these actions were
consolidated in the United States District Court for the
Southern District of New York, and interim co-lead counsel
was appointed in December 2016.
Plaintiffs filed a consolidated complaint on April 7, 2017
that names Citigroup, Citibank, CGMI and CGML among the
defendants. Plaintiffs filed an amended consolidated complaint
on October 6, 2017, and defendants filed motions to dismiss
on December 12, 2017. Additional information relating to this
action is publicly available in court filings under the docket
number 16-cv-03711 (S.D.N.Y.) (Ramos, J.).
On November 7, 2017, a class action related to the SSA
bond market was filed in the Ontario Court of Justice against
Citigroup, Citibank, CGMI, CGML, Citibank Canada and
Citigroup Global Markets Canada, Inc., among other
defendants, asserting claims for breach of contract, breach of
the competition act, breach of foreign law, unjust enrichment,
and civil conspiracy. Plaintiffs seek compensatory and
punitive damages, as well as declaratory relief. Additional
information relating to this action is publicly available in court
filings under the docket number CV-17-586082-00CP (Ont.
S.C.J.).
Settlement Payments
Payments required in settlement agreements described above
have been made or are covered by existing litigation accruals.
290
28. CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS
Citigroup amended its Registration Statement on Form S-3 on
file with the SEC (File No. 33-192302) to add its wholly
owned subsidiary, Citigroup Global Markets Holdings Inc.
(CGMHI), as a co-registrant. Any securities issued by CGMHI
under the Form S-3 will be fully and unconditionally
guaranteed by Citigroup.
The following are the Condensed Consolidating
Statements of Income and Comprehensive Income for the
years ended December 31, 2017, 2016 and 2015, Condensed
Consolidating Balance Sheet as of December 31, 2017 and
2016 and Condensed Consolidating Statement of Cash Flows
for the years ended December 31, 2017, 2016 and 2015 for
Citigroup Inc., the parent holding company (Citigroup parent
company), CGMHI, other Citigroup subsidiaries and
eliminations and total consolidating adjustments. “Other
Citigroup subsidiaries and eliminations” includes all other
subsidiaries of Citigroup, intercompany eliminations and
income (loss) from discontinued operations. “Consolidating
adjustments” includes Citigroup parent company elimination
of distributed and undistributed income of subsidiaries and
investment in subsidiaries.
These Condensed Consolidating Financial Statements
have been prepared and presented in accordance with SEC
Regulation S-X Rule 3-10, “Financial Statements of
Guarantors and Issuers of Guaranteed Securities Registered or
Being Registered.”
These Condensed Consolidating Financial Statements
schedules are presented for purposes of additional analysis,
but should be considered in relation to the Consolidated
Financial Statements of Citigroup taken as a whole.
291
Condensed Consolidating Statements of Income and Comprehensive Income
In millions of dollars
Revenues
Dividends from subsidiaries
Interest revenue
Interest revenue—intercompany
Interest expense
Interest expense—intercompany
Net interest revenue
Commissions and fees
Commissions and fees—intercompany
Principal transactions
Principal transactions—intercompany
Other income
Other income—intercompany
Total non-interest revenues
Total revenues, net of interest expense
Provisions for credit losses and for benefits and claims
Operating expenses
Compensation and benefits
Compensation and benefits—intercompany
Other operating
Other operating—intercompany
Total operating expenses
Equity in undistributed income of subsidiaries
Income (loss) from continuing operations before income
taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss) before attribution of noncontrolling
interests
Noncontrolling interests
Net income (loss)
Comprehensive income
Add: Other comprehensive income (loss)
Total Citigroup comprehensive income (loss)
Add: Other comprehensive income (loss) attributable to
noncontrolling interests
Add: Net income attributable to noncontrolling interests
Total comprehensive income (loss)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year ended December 31, 2017
Citigroup
parent
company
Other Citigroup
subsidiaries and
eliminations
CGMHI
Consolidating
adjustments
Citigroup
consolidated
— $
— $
$
$
$
5,274
1,178
2,340
2,297
1,815
5,139
182
1,019
1,200
855
158
8,553
10,368
$
$
— $
4,403
—
1,776
2,219
8,398
$
— $
55,929
(5,150)
9,411
(3,126)
44,494
7,800
(180)
6,495
(2,134)
6,381
(163)
18,199
62,693
7,451
16,885
(120)
18,598
(2,184)
33,179
$
$
$
$
$
$
$
— $
1,970
873
1,097
—
1,097
(1)
1,098
$
$
$
$
$
(117) $
$
981
— $
(1)
980
$
22,063
19,337
2,726
(111)
2,615
61
2,554
$
$
$
$
$
(5,969) $
(3,415) $
$
114
61
(3,240) $
(22,499) $
—
—
—
—
— $
— $
—
—
—
—
—
— $
(22,499) $
— $
— $
—
—
—
— $
$
18,847
(3,652) $
— $
(3,652) $
—
(3,652) $
—
(3,652) $
6,086
2,434
$
$
— $
—
2,434
$
—
61,204
—
16,517
—
44,687
12,939
—
9,168
—
4,655
—
26,762
71,449
7,451
21,181
—
20,056
—
41,237
—
22,761
29,388
(6,627)
(111)
(6,738)
60
(6,798)
(2,791)
(9,589)
114
60
(9,415)
$
22,499
1
3,972
4,766
829
(1,622) $
— $
(2)
1,654
934
(2,581)
5
10
20,887
$
$
— $
(107) $
120
(318)
(35)
(340) $
(18,847) $
2,380
$
$
9,178
(6,798) $
—
(6,798) $
—
(6,798) $
(2,791) $
(9,589) $
— $
—
(9,589) $
292
Condensed Consolidating Statements of Income and Comprehensive Income
Year ended December 31, 2016
Citigroup
parent
company
Other Citigroup
subsidiaries and
eliminations
CGMHI
Consolidating
adjustments
Citigroup
consolidated
— $
— $
In millions of dollars
Revenues
Dividends from subsidiaries
Interest revenue
Interest revenue—intercompany
Interest expense
Interest expense—intercompany
Net interest revenue
Commissions and fees
Commissions and fees—intercompany
Principal transactions
Principal transactions—intercompany
Other income
Other income—intercompany
Total non-interest revenues
Total revenues, net of interest expense
Provisions for credit losses and for benefits and claims
Operating expenses
Compensation and benefits
Compensation and benefits—intercompany
Other operating
Other operating—intercompany
Total operating expenses
Equity in undistributed income of subsidiaries
Income (loss) from continuing operations before income
taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss) before attribution of noncontrolling
interests
Noncontrolling interests
Net income (loss)
Comprehensive income
Add: Other comprehensive income (loss)
Total Citigroup comprehensive income (loss)
Add: Other comprehensive income (loss) attributable to
noncontrolling interests
Add: Net income attributable to noncontrolling interests
Total comprehensive income (loss)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
53,022
(3,553)
6,674
(1,868)
44,663
7,598
(226)
3,034
2,818
2,466
1,790
17,480
62,143
6,982
16,229
(36)
18,330
(1,550)
32,973
$
$
$
$
$
$
$
— $
22,188
7,056
15,132
(58)
15,074
76
14,998
2,364
17,362
(56)
76
17,382
$
$
$
$
$
$
$
$
$
(15,570) $
—
—
—
—
— $
— $
—
—
—
—
—
— $
(15,570) $
— $
— $
—
—
—
— $
(871) $
(16,441) $
— $
(16,441) $
—
(16,441) $
—
(16,441) $
—
57,615
—
12,511
—
45,104
11,938
—
7,585
—
5,248
—
24,771
69,875
6,982
20,970
—
20,446
—
41,416
—
21,477
6,444
15,033
(58)
14,975
63
14,912
(2,338) $
(18,779) $
(3,022)
11,890
— $
—
(18,779) $
(56)
63
11,897
$
15,570
7
3,008
4,419
209
(1,613) $
— $
(20)
(1,025)
24
2,599
(2,095)
13,440
(517) $
$
— $
22
36
482
217
757
871
$
$
$
$
13,554
(1,358) $
14,912
$
—
14,912
—
14,912
$
$
$
$
$
4,586
545
1,418
1,659
2,054
4,340
246
5,576
(2,842)
183
305
7,808
9,862
$
$
— $
4,719
—
1,634
1,333
7,686
$
— $
2,176
746
1,430
—
1,430
(13)
1,443
$
$
$
$
$
(3,022) $
$
11,890
(26) $
$
1,417
— $
—
11,890
$
— $
(13)
1,404
$
293
Condensed Consolidating Statements of Income and Comprehensive Income
In millions of dollars
Revenues
Dividends from subsidiaries
Interest revenue
Interest revenue—intercompany
Interest expense
Interest expense—intercompany
Net interest revenue
Commissions and fees
Commissions and fees—intercompany
Principal transactions
Principal transactions—intercompany
Other income
Other income—intercompany
Total non-interest revenues
Total revenues, net of interest expense
Provisions for credit losses and for benefits and claims
Operating expenses
Compensation and benefits
Compensation and benefits—intercompany
Other operating
Other operating—intercompany
Total operating expenses
Equity in undistributed income of subsidiaries
Income (loss) from continuing operations before income
taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss) before attribution of noncontrolling
interests
Noncontrolling interests
Net income (loss)
Comprehensive income
Add: Other comprehensive income (loss)
Total Citigroup comprehensive income (loss)
Add: Other comprehensive income (loss) attributable to
noncontrolling interests
Add: Net income attributable to noncontrolling interests
Total comprehensive income (loss)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year ended December 31, 2015
Citigroup
parent
company
Other Citigroup
subsidiaries and
eliminations
CGMHI
Consolidating
adjustments
Citigroup
consolidated
— $
— $
$
$
$
4,389
272
988
1,304
2,369
4,872
210
5,532
(3,875)
403
1,088
8,230
10,599
$
$
— $
5,003
—
1,940
1,173
8,116
$
— $
54,153
(3,152)
6,370
(829)
45,460
9,613
(210)
(536)
5,608
5,534
1,966
21,975
67,435
7,913
16,824
(59)
19,635
(1,420)
34,980
$
$
$
$
$
$
$
— $
2,483
537
1,946
—
1,946
9
1,937
$
$
$
$
$
(125) $
$
1,812
— $
9
1,821
$
24,542
8,243
16,299
(54)
16,245
81
16,164
1,017
17,181
$
$
$
$
$
$
$
(83) $
81
17,179
$
(13,500) $
—
—
—
—
— $
— $
—
—
—
—
—
— $
(13,500) $
— $
— $
—
—
—
— $
(4,601) $
(18,101) $
— $
(18,101) $
—
(18,101) $
—
(18,101) $
(892) $
(18,993) $
— $
—
(18,993) $
—
58,551
—
11,921
—
46,630
14,485
—
6,008
—
9,231
—
29,724
76,354
7,913
21,769
—
21,846
—
43,615
—
24,826
7,440
17,386
(54)
17,332
90
17,242
(6,128)
11,114
(83)
90
11,121
$
13,500
9
2,880
4,563
(475)
(1,199) $
— $
—
1,012
(1,733)
3,294
(3,054)
11,820
(481) $
$
— $
(58) $
59
271
247
519
4,601
$
$
$
15,902
(1,340) $
17,242
$
—
17,242
—
17,242
$
$
(6,128) $
$
11,114
— $
—
11,114
$
294
Condensed Consolidating Balance Sheet
In millions of dollars
Assets
Cash and due from banks
Cash and due from banks—intercompany
Federal funds sold and resale agreements
Federal funds sold and resale agreements—intercompany
Trading account assets
Trading account assets—intercompany
Investments
Loans, net of unearned income
Loans, net of unearned income—intercompany
Allowance for loan losses
Total loans, net
Advances to subsidiaries
Investments in subsidiaries
Other assets (1)
Other assets—intercompany
Total assets
Liabilities and equity
Deposits
Deposits—intercompany
Federal funds purchased and securities loaned or sold
Federal funds purchased and securities loaned or sold—
intercompany
Trading account liabilities
Trading account liabilities—intercompany
Short-term borrowings
Short-term borrowings—intercompany
Long-term debt
Long-term debt—intercompany
Advances from subsidiaries
Other liabilities
Other liabilities—intercompany
Stockholders’ equity
Total liabilities and equity
$
$
$
$
$
$
December 31, 2017
Citigroup
parent
company
CGMHI
Other
Citigroup
subsidiaries
and
eliminations
Consolidating
adjustments
Citigroup
consolidated
— $
13
—
—
—
38
27
—
—
—
— $
$
139,722
210,537
10,844
14,428
375,609
$
$
$
378
3,750
182,685
16,091
139,462
2,711
181
900
—
—
$
900
— $
—
61,647
48,832
456,637
23,397
(3,763)
49,793
(16,091)
112,094
(2,749)
352,082
666,134
—
(12,355)
$
653,779
(139,722) $
—
255,196
(63,260)
$ 1,220,756
$
— $
—
—
— $
—
134,888
$
959,822
—
21,389
—
—
15
251
—
152,163
—
19,136
2,673
631
200,740
375,609
18,597
80,801
2,182
3,568
32,871
18,048
60,765
—
62,113
9,753
33,051
456,637
(18,597)
43,246
(2,197)
40,633
(32,871)
66,498
(60,765)
(19,136)
54,700
(10,384)
178,418
$ 1,220,756
$
$
— $
—
—
—
—
—
—
—
—
—
— $
— $
(210,537)
—
—
(210,537) $
— $
—
—
—
—
—
—
—
—
—
—
—
—
(210,537)
(210,537) $
23,775
—
232,478
—
251,556
—
352,290
667,034
—
(12,355)
654,679
—
—
327,687
—
1,842,465
959,822
—
156,277
—
124,047
—
44,452
—
236,709
—
—
119,486
—
201,672
1,842,465
(1) Other assets for Citigroup parent company at December 31, 2017 included $29.7 billion of placements to Citibank and its branches, of which $18.9 billion had a
remaining term of less than 30 days.
295
Condensed Consolidating Balance Sheet
In millions of dollars
Assets
Cash and due from banks
Cash and due from banks—intercompany
Federal funds sold and resale agreements
Federal funds sold and resale agreements—intercompany
Trading account assets
Trading account assets—intercompany
Investments
Loans, net of unearned income
Loans, net of unearned income—intercompany
Allowance for loan losses
Total loans, net
Advances to subsidiaries
Investments in subsidiaries
Other assets(1)
Other assets—intercompany
Total assets
Liabilities and equity
Deposits
Deposits—intercompany
Federal funds purchased and securities loaned or sold
Federal funds purchased and securities loaned or sold—
intercompany
Trading account liabilities
Trading account liabilities—intercompany
Short-term borrowings
Short-term borrowings—intercompany
Long-term debt
Long-term debt—intercompany
Advances from subsidiaries
Other liabilities
Other liabilities—intercompany
Stockholders’ equity
Total liabilities and equity
$
$
$
$
$
$
December 31, 2016
Citigroup
parent
company
CGMHI
Other
Citigroup
subsidiaries
and
eliminations
Consolidating
adjustments
Citigroup
consolidated
— $
142
—
—
6
1,173
173
—
—
—
— $
$
143,154
226,279
23,734
27,845
422,506
$
$
870
3,820
196,236
12,270
121,484
907
335
575
—
—
575
$
— $
—
46,095
38,207
420,799
$
$
22,173
(3,962)
40,577
(12,270)
122,435
(2,080)
352,796
623,794
—
(12,060)
611,734
$
(143,154) $
—
252,854
(66,052)
1,175,051
$
— $
—
—
—
—
—
—
—
—
—
— $
— $
23,043
—
236,813
—
243,925
—
353,304
624,369
—
(12,060)
612,309
—
—
322,683
—
(226,279) $ 1,792,077
(226,279)
—
—
— $
—
—
— $
—
122,320
$
929,406
—
19,501
— $
—
—
929,406
—
141,821
—
—
1,006
—
—
147,333
—
41,258
3,466
4,323
225,120
422,506
25,417
87,714
868
1,356
35,596
8,128
41,287
—
57,430
7,894
32,789
420,799
$
(25,417)
51,331
(1,874)
29,345
(35,596)
50,717
(41,287)
(41,258)
57,887
(12,217)
194,513
1,175,051
$
$
—
—
139,045
—
—
—
30,701
—
—
—
206,178
—
—
—
—
—
118,783
—
—
—
(226,279)
226,143
(226,279) $ 1,792,077
(1) Other assets for Citigroup parent company at December 31, 2016 included $20.7 billion of placements to Citibank and its branches, of which $6.8 billion had a
remaining term of less than 30 days.
296
Condensed Consolidating Statement of Cash Flows
In millions of dollars
Net cash provided by (used in) operating activities of
continuing operations
Cash flows from investing activities of continuing operations
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Change in deposits with banks
Change in loans
Proceeds from sales and securitizations of loans
Proceeds from significant disposals
Change in federal funds sold and resales
Changes in investments and advances—intercompany
Other investing activities
Net cash provided by (used in) investing activities of
continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Treasury stock acquired
Proceeds (repayments) from issuance of long-term debt, net
Proceeds (repayments) from issuance of long-term debt—
intercompany, net
Change in deposits
Change in federal funds purchased and repos
Change in short-term borrowings
Net change in short-term borrowings and other advances—
intercompany
Capital contributions from parent
Other financing activities
Net cash provided by (used in) financing activities of
continuing operations
Effect of exchange rate changes on cash and due from banks
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information for
continuing operations
Cash paid during the year for income taxes
Cash paid during the year for interest
Non-cash investing activities
Transfers to loans HFS from loans
Transfers to OREO and other repossessed assets
$
$
$
$
$
$
$
$
$
$
Year ended December 31, 2017
Citigroup
parent
company
CGMHI
Other
Citigroup
subsidiaries
and
eliminations
Consolidating
adjustments
Citigroup
consolidated
34,940
$
(33,359) $
(10,168) $
— $
(8,587)
— $
132
—
—
—
—
—
—
(899)
—
(1) $
—
—
11,861
—
—
—
9,730
(2,790)
(24)
(185,739) $
107,236
84,369
(31,151)
(58,062)
8,365
3,411
(5,395)
3,689
(2,960)
— $
—
—
—
—
—
—
—
—
—
(185,740)
107,368
84,369
(19,290)
(58,062)
8,365
3,411
4,335
—
(2,984)
(767) $
18,776
$
(76,237) $
— $
(58,228)
(3,797)
(14,541)
26,974
—
30,416
14,456
13,751
—
—
(405)
66,854
693
732
23,043
23,775
2,083
15,675
5,900
113
(3,797) $
(14,541)
6,544
— $
—
4,909
— $
—
15,521
— $
—
—
2,031
30,416
8,708
11,490
18,221
748
—
87,135
693
1,423
18,211
19,634
5,135
7,011
5,900
113
$
$
$
$
$
$
—
—
—
—
—
—
—
— $
— $
— $
—
— $
— $
—
— $
—
—
—
—
49
(22,152)
—
(405)
(34,302) $
— $
(129) $
142
13
$
(2,031)
—
5,748
2,212
3,931
(748)
—
14,021
$
— $
(562) $
4,690
4,128
$
(3,730) $
4,151
$
678
4,513
— $
—
— $
—
297
Condensed Consolidating Statement of Cash Flows
In millions of dollars
Net cash provided by operating activities of continuing
operations
Cash flows from investing activities of continuing operations
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Change in deposits with banks
Change in loans
Proceeds from sales and securitizations of loans
Proceeds from significant disposals
Change in federal funds sold and resales
Changes in investments and advances—intercompany
Other investing activities
Net cash used in investing activities of continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Issuance of preferred stock
Treasury stock acquired
Proceeds (repayments) from issuance of long-term debt, net
Proceeds (repayments) from issuance of long-term debt—
intercompany, net
Change in deposits
Change in federal funds purchased and repos
Change in short-term borrowings
Net change in short-term borrowings and other advances—
intercompany
Capital contributions from parent
Other financing activities
Net cash provided by financing activities of continuing
operations
Effect of exchange rate changes on cash and due from banks
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information for
continuing operations
Cash paid during the year for income taxes
Cash paid during the year for interest
Non-cash investing activities
Transfers to loans held-for-sale from loans
Transfers to OREO and other repossessed assets
$
$
$
$
$
$
$
$
$
$
Year ended December 31, 2016
Citigroup
parent
company
CGMHI
Other
Citigroup
subsidiaries
and
eliminations
Consolidating
adjustments
Citigroup
consolidated
12,777
$
20,662
$
20,493
$
— $
53,932
— $
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
—
— $
— $
—
— $
—
(211,402)
132,183
65,525
(25,311)
(39,761)
18,140
265
(17,138)
—
(2,089)
(79,588)
(2,287)
2,498
(9,290)
8,346
—
24,394
(4,675)
9,622
—
—
(316)
28,292
(493)
2,143
20,900
23,043
4,359
12,067
13,900
165
— $
3,024
234
—
—
—
—
—
(18,083)
—
(4) $
—
—
(3,643)
—
—
—
(15,293)
(5,574)
—
(211,398) $
129,159
65,291
(21,668)
(39,761)
18,140
265
(1,845)
23,657
(2,089)
(14,825) $
(24,514) $
(40,249) $
(2,287) $
2,498
(9,290)
7,005
— $
—
—
5,916
— $
—
—
(4,575)
—
—
—
(164)
4,620
—
(316)
(9,453)
—
3,236
1,168
680
5,000
—
2,066
$
— $
18
$
124
142
$
6,547
$
— $
$
2,695
1,995
4,690
$
351
4,397
92
3,115
9,453
24,394
(7,911)
8,618
(5,300)
(5,000)
—
19,679
$
(493) $
(570) $
$
$
18,781
18,211
3,916
4,555
$
$
$
— $
—
— $
—
13,900
165
298
Condensed Consolidating Statements of Cash Flows
In millions of dollars
Net cash provided by (used in) operating activities of
continuing operations
Cash flows from investing activities of continuing operations
Purchases of investments
Proceeds from sales of investments
Proceeds from maturities of investments
Change in deposits with banks
Change in loans
Proceeds from sales and securitizations of loans
Change in federal funds sold and resales
Proceeds from significant disposals
Payments due to transfers of net liabilities associated with
significant disposals
Changes in investments and advances—intercompany
Other investing activities
Net cash provided by (used in) investing activities of
continuing operations
Cash flows from financing activities of continuing operations
Dividends paid
Issuance of preferred stock
Treasury stock acquired
Proceeds (repayments) from issuance of long-term debt, net
Proceeds (repayments) from issuance of long-term debt—
intercompany, net
Change in deposits
Change in federal funds purchased and repos
Change in short-term borrowings
Net change in short-term borrowings and other advances—
intercompany
Other financing activities
Net cash provided by (used in) financing activities of
continuing operations
Effect of exchange rate changes on cash and due from banks
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure of cash flow information for
continuing operations
Cash paid during the year for income taxes
Cash paid during the year for interest
$
$
$
$
$
$
$
$
$
Year ended December 31, 2015
Citigroup
parent
company
CGMHI
Other
Citigroup
subsidiaries
and
eliminations
Consolidating
adjustments
Citigroup
consolidated
27,825
$
12,336
$
(424) $
— $
39,737
— $
—
237
—
—
—
—
—
(4) $
53
—
(8,414)
—
—
8,037
(242,358) $
141,417
81,810
23,902
1,353
9,610
14,858
—
5,932
—
(35,548)
3
—
1,044
(101)
(18,929)
34,504
(2,523)
— $
—
—
—
—
—
—
—
—
—
—
(242,362)
141,470
82,047
15,488
1,353
9,610
22,895
5,932
(18,929)
—
(2,621)
(35,308) $
615
$
49,576
$
— $
14,883
(1,253) $
6,227
(5,452)
127
— $
—
—
(139)
— $
—
—
(8,212)
12,557
—
(27,442)
(1,737)
4,054
—
(12,557)
8,555
500
(34,674)
(13,160)
—
(12,707) $
— $
244
$
1,751
1,995
$
(59,548) $
(1,055) $
(11,451) $
30,232
18,781
$
— $
—
—
—
—
—
—
—
—
—
— $
— $
— $
—
— $
(1,253)
6,227
(5,452)
(8,224)
—
8,555
(26,942)
(37,256)
—
(428)
(64,773)
(1,055)
(11,208)
32,108
20,900
$
175
2,346
$
4,692
4,769
— $
—
4,978
12,031
—
—
—
(845)
9,106
(428)
7,482
$
— $
(1) $
125
124
111
4,916
$
$
299
Non-cash investing activities
Decrease in net loans associated with significant disposals
reclassified to HFS
Decrease in investments associated with significant disposals
reclassified to HFS
Decrease in goodwill and intangible assets associated with
significant disposals reclassified to HFS
Decrease in deposits with banks with significant disposals
reclassified to HFS
Transfers to loans held-for-sale from loans
Transfers to OREO and other repossessed assets
Non-cash financing activities
Decrease in long-term debt associated with significant disposals
reclassified to HFS
$
— $
— $
(9,063) $
— $
(9,063)
—
—
—
—
—
—
—
—
—
—
(1,402)
(223)
(404)
28,600
276
—
—
—
—
—
(1,402)
(223)
(404)
28,600
276
$
— $
— $
(4,673) $
— $
(4,673)
300
29. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2017
2016
In millions of dollars, except per share amounts
Revenues, net of interest expense
Fourth(1)
$ 17,255 $ 18,173 $ 17,901 $ 18,120 $ 17,012 $ 17,760 $ 17,548 $ 17,555
Second
Second
Fourth
Third
Third
First
First
Operating expenses
10,083
10,171
10,506
10,477
10,120
10,404
10,369
Provisions for credit losses and for benefits and claims
2,073
1,999
1,717
1,662
1,792
1,736
1,409
Income from continuing operations before income
taxes
$
5,099 $
6,003 $
5,678 $
5,981 $
5,100 $
5,620 $
5,770 $
Income taxes
23,864
1,866
1,795
1,863
1,509
1,733
1,723
Income (loss) from continuing operations
$ (18,765) $
4,137 $
3,883 $
4,118 $
3,591 $
3,887 $
4,047 $
10,523
2,045
4,987
1,479
3,508
Income (loss) from discontinued operations, net of
taxes
Net income before attribution of noncontrolling
interests
Noncontrolling interests
Citigroup’s net income (loss)
Earnings per share(2)
Basic
(109)
(5)
21
(18)
(3)
(30)
(23)
(2)
$ (18,874) $
4,132 $
3,904 $
4,100 $
3,588 $
3,857 $
4,024 $
3,506
19
(1)
32
10
15
17
26
5
$ (18,893) $
4,133 $
3,872 $
4,090 $
3,573 $
3,840 $
3,998 $
3,501
Income (loss) from continuing operations
$
(7.33) $
1.42 $
1.27 $
1.36 $
1.14 $
1.25 $
1.25 $
Net income (loss)
Diluted
Income (loss) from continuing operations
Net income (loss)
Common stock price per share
High close during the quarter
Low close during the quarter
Quarter end
Dividends per share of common stock
(7.38)
1.42
1.28
1.35
1.14
1.24
1.24
(7.33)
(7.38)
77.10
71.33
74.41
0.32
1.42
1.42
72.74
65.95
72.74
0.32
1.27
1.28
66.98
57.72
66.88
0.16
1.36
1.35
61.54
55.68
59.82
0.16
1.14
1.14
61.09
47.03
59.43
0.16
1.25
1.24
47.90
40.78
47.23
0.16
1.25
1.24
47.33
38.48
42.39
0.05
1.11
1.10
1.11
1.10
51.13
34.98
41.75
0.05
This Note to the Consolidated Financial Statements is unaudited due to the Company’s individual quarterly results not being subject to an audit.
(1) The fourth quarter of 2017 includes the impact of Tax Reform. See Notes 1 and 9 to the Consolidated Financial Statements.
(2) Due to averaging of shares, quarterly earnings per share may not sum to the totals reported for the full year.
[End of Consolidated Financial Statements and Notes to Consolidated Financial Statements]
301
FINANCIAL DATA SUPPLEMENT
RATIOS
Citigroup’s net income to average
assets(1)
0.84% 0.82%
0.95%
2017
2016
2015
Return on average common
stockholders’ equity(1)(2)
Return on average total
stockholders’ equity(1)(3)
Total average equity to average
assets(4)
Dividend payout ratio(1)(5)
7.0
7.0
12.1
18.0
6.6
6.5
12.6
8.9
8.1
7.9
11.9
3.0
(1) 2017 excludes the impact of Tax Reform. See “Impact of Tax Reform”
above.
(2) Based on Citigroup’s net income less preferred stock dividends as a
percentage of average common stockholders’ equity.
(3) Based on Citigroup’s net income as a percentage of average total
Citigroup stockholders’ equity.
(4) Based on average Citigroup stockholders’ equity as a percentage of
average assets.
(5) Dividends declared per common share as a percentage of net income per
diluted share.
AVERAGE DEPOSIT LIABILITIES IN OFFICES OUTSIDE THE U.S.(1)
In millions of dollars at year end except ratios
Banks
Other demand deposits
Other time and savings deposits(2)
Total
Average
interest rate
2017
Average
balance
Average
interest rate
2016
Average
balance
Average
interest rate
2015
Average
balance
0.49% $
0.52
1.23
0.78% $
36,063
293,389
191,363
520,815
0.34% $
0.49
1.16
0.73% $
36,983
278,745
189,049
504,777
0.44% $
0.44
1.24
0.76% $
46,664
249,498
198,733
494,895
Interest rates and amounts include the effects of risk management activities and also reflect the impact of the local interest rates prevailing in certain countries.
(1)
(2) Primarily consists of certificates of deposit and other time deposits in denominations of $100,000 or more.
MATURITY PROFILE OF TIME DEPOSITS IN U.S. OFFICES
In millions of dollars at December 31, 2017
Under 3
months
Over 3 to 6
months
Over 6 to 12
months
Over 12
months
Over $100,000
Certificates of deposit
Other time deposits
Over $250,000
Certificates of deposit
Other time deposits
$
$
13,087 $
2,956 $
4,221
603
12,692 $
2,633 $
4,219
603
795 $
15
412 $
15
1,471
280
951
9
302
SUPERVISION, REGULATION AND OTHER
SUPERVISION AND REGULATION
Citi is subject to regulation under U.S. federal and state laws,
as well as applicable laws in the other jurisdictions in which it
does business.
General
Citigroup is a registered bank holding company and financial
holding company and is regulated and supervised by the
Federal Reserve Board. Citigroup’s nationally chartered
subsidiary banks, including Citibank, are regulated and
supervised by the Office of the Comptroller of the Currency
(OCC) and its state-chartered depository institution by the
relevant state’s banking department and the Federal Deposit
Insurance Corporation (FDIC). The FDIC also has
examination authority for banking subsidiaries whose deposits
it insures. Overseas branches of Citibank are regulated and
supervised by the Federal Reserve Board and OCC and
overseas subsidiary banks by the Federal Reserve Board.
These overseas branches and subsidiary banks are also
regulated and supervised by regulatory authorities in the host
countries. In addition, the Consumer Financial Protection
Bureau (CFPB) regulates consumer financial products and
services. Citi is also subject to laws and regulations
concerning the collection, use, sharing and disposition of
certain customer, employee and other personal and
confidential information, including those imposed by the
Gramm-Leach-Bliley Act, the Fair Credit Reporting Act and
the EU Data Protection Directive. For more information on
U.S. and foreign regulation affecting or potentially affecting
Citi and its subsidiaries, see “Risk Factors” above.
Other Bank and Bank Holding Company Regulation
Citi, including its banking subsidiaries, is subject to regulatory
limitations, including requirements for banks to maintain
reserves against deposits, requirements as to risk-based capital
and leverage (see “Capital Resources” above and Note 18 to
the Consolidated Financial Statements), restrictions on the
types and amounts of loans that may be made and the interest
that may be charged and limitations on investments that can be
made and services that can be offered. The Federal Reserve
Board may also expect Citi to commit resources to its
subsidiary banks in certain circumstances. Citi is also subject
to anti-money laundering and financial transparency laws,
including standards for verifying client identification at
account opening and obligations to monitor client transactions
and report suspicious activities.
Securities and Commodities Regulation
Citi conducts securities underwriting, brokerage and dealing
activities in the U.S. through Citigroup Global Markets Inc.
(CGMI), its primary broker-dealer, and other broker-dealer
subsidiaries, which are subject to regulations of the U.S.
Securities and Exchange Commission (SEC), the Financial
Industry Regulatory Authority and certain exchanges. Citi
conducts similar securities activities outside the U.S., subject
to local requirements, through various subsidiaries and
affiliates, principally Citigroup Global Markets Limited in
303
London (CGML), which is regulated principally by the U.K.
Financial Conduct Authority, and Citigroup Global Markets
Japan Inc. in Tokyo, which is regulated principally by the
Financial Services Agency of Japan.
Citi also has subsidiaries that are members of futures
exchanges. In the U.S., CGMI is a member of the principal
U.S. futures exchanges, and Citi has subsidiaries that are
registered as futures commission merchants and commodity
pool operators with the Commodity Futures Trading
Commission (CFTC). Citibank, CGMI, Citigroup Energy Inc.
and CGML, also are registered as swap dealers with the
CFTC. CGMI is also subject to SEC and CFTC rules that
specify uniform minimum net capital requirements.
Compliance with these rules could limit those operations of
CGMI that require the intensive use of capital and also limits
the ability of broker-dealers to transfer large amounts of
capital to parent companies and other affiliates. See also
“Capital Resources” and Note 18 to the Consolidated
Financial Statements for a further discussion of capital
considerations of Citi’s non-banking subsidiaries.
Transactions with Affiliates
Transactions between Citi’s U.S. subsidiary depository
institutions and their non-bank affiliates are regulated by the
Federal Reserve Board, and are generally required to be on
arm’s-length terms. See also “Managing Global Risk—
Liquidity Risk” above.
COMPETITION
The financial services industry is highly competitive. Citi’s
competitors include a variety of financial services and
advisory companies. Citi competes for clients and capital
(including deposits and funding in the short- and long-term
debt markets) with some of these competitors globally and
with others on a regional or product basis. Citi’s competitive
position depends on many factors, including, among others,
the value of Citi’s brand name, reputation, the types of clients
and geographies served; the quality, range, performance,
innovation and pricing of products and services; the
effectiveness of and access to distribution channels,
technology advances, customer service and convenience; the
effectiveness of transaction execution, interest rates and
lending limits; and regulatory constraints. Citi’s ability to
compete effectively also depends upon its ability to attract
new employees and retain and motivate existing employees,
while managing compensation and other costs. For additional
information on competitive factors and uncertainties
impacting Citi’s businesses, see “Risk Factors—Operational
Risks” above.
PROPERTIES
Citi’s principal executive offices are currently in New York
City at 388 Greenwich Street and are owned and fully
occupied by Citi.
Citigroup Global Markets Holdings Inc.’s principal
executive offices are in New York City at 388 Greenwich
Street and 390 Greenwich Street. Both locations are owned
and fully occupied by Citi.
Citigroup’s principal executive offices in EMEA are at 25
and 33 Canada Square in London’s Canary Wharf, with both
buildings subject to long-term leases.
In Asia, Citi’s principal executive offices are in leased
premises at Champion Tower in Hong Kong. Citi has other
significant leased premises, including in Singapore, Kuala
Lumpur, Manila and Japan. Citi has major or full ownership
interests in country headquarter locations in Shanghai, Seoul
and Mumbai.
Citi’s principal executive offices in Mexico, which also
serve as the headquarters of Citibanamex, are in Mexico City.
Citi’s principal executive offices for Latin America (other than
Mexico) are in leased premises in Miami.
Citi also owns or leases over 55 million square feet of real
estate in 95 countries, consisting of over 7,700 properties.
Citi continues to evaluate its global real estate footprint
and space requirements and may determine from time to time
that certain of its premises are no longer necessary. There is no
assurance that Citi will be able to dispose of any excess
premises or that it will not incur charges in connection with
such dispositions, which could be material to Citi’s operating
results in a given period.
Citi has developed programs for its properties to achieve
long-term energy efficiency objectives and reduce its
greenhouse gas emissions to lessen its impact on climate
change. These activities could help to mitigate, but will not
eliminate, Citi’s potential risk from future climate change
regulatory requirements.
For further information concerning leases, see Note 26 to
the Consolidated Financial Statements.
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 (Section 219), 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, in its
related quarterly report on Form 10-Q, previously disclosed
reportable activities pursuant to Section 219 for the first,
second and third quarters of 2017.
During the fourth quarter of 2017, Bank Handlowy w
Warszawie S.A., a Citibank subsidiary located in Poland,
processed two funds transfers involving the Iranian Embassy
in Poland. The value of both funds transfers was EUR 60 each
for a total of EUR 120 (approximately $70.48 per transfer for
a total of $140.96). These payments were for visa-related
fees, which are permissible under the travel exemption in the
Iranian Transactions and Sanctions Regulations. Bank
Handlowy w Warszawie realized EUR 2.36 (approximately
$2.93) in fees for processing a foreign currency payment.
304
UNREGISTERED SALES OF EQUITY, PURCHASES OF EQUITY SECURITIES, DIVIDENDS
Unregistered Sales of Equity Securities
None.
Equity Security Repurchases
The following table summarizes Citi’s equity security repurchases, which consisted entirely of common stock repurchases, during the
three months ended December 31, 2017:
In millions, except per share amounts
October 2017
Open market repurchases(1)
Employee transactions(2)
November 2017
Open market repurchases(1)
Employee transactions(2)
December 2017
Open market repurchases(1)
Employee transactions(2)
Total shares
purchased
Average
price paid
per share
Approximate dollar
value of shares that
may yet be purchased
under the plan or
programs
24.0 $
73.69 $
—
—
25.3
—
24.9
—
72.63
—
75.50
—
8,342
N/A
6,504
N/A
4,625
N/A
4,625
Total for 4Q17 and remaining program balance as of December 31, 2017
74.2 $
73.94 $
(1) Represents repurchases under the $15.6 billion 2017 common stock repurchase program (2017 Repurchase Program) that was approved by Citigroup’s Board of
Directors and announced on June 28, 2017. The 2017 Repurchase Program was part of the planned capital actions included by Citi in its 2017 Comprehensive
Capital Analysis and Review (CCAR). Shares repurchased under the 2017 Repurchase Program were added to treasury stock.
(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 or deferred stock programs where shares are withheld to satisfy tax requirements.
N/A Not applicable
Dividends
In addition to Board of Directors’ approval, Citi’s ability to
pay common stock dividends substantially depends on
regulatory approval, including an annual regulatory review of
the results of the CCAR process required by the Federal
Reserve Board and the supervisory stress tests required under
the Dodd-Frank Act. For additional information regarding
Citi’s capital planning and stress testing, see “Capital
Resources—Current Regulatory Capital Standards—Stress
Testing Component of Capital Planning” and “Risk Factors—
Strategic Risks” above. Any dividend on Citi’s outstanding
common stock would also need to be made in compliance with
Citi’s obligations to its outstanding preferred stock.
For information on the ability of Citigroup’s subsidiary
depository institutions to pay dividends, see Note 18 to the
Consolidated Financial Statements.
305
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return
The following graph and table compare the cumulative total
return on Citi’s common stock, which is listed on the NYSE
under the ticker symbol “C” and held by 65,691 common
stockholders of record as of January 31, 2018, with the
cumulative total return of the S&P 500 Index and the S&P
Financial Index over the five-year period through December
31, 2017. The graph and table assume that $100 was invested
on December 31, 2012 in Citi’s common stock, the S&P 500
Index and the S&P Financial Index, and that all dividends
were reinvested.
Comparison of Five-Year Cumulative Total Return
For the years ended
DATE
31-Dec-2012
31-Dec-2013
31-Dec-2014
31-Dec-2015
31-Dec-2016
31-Dec-2017
CITI
S&P 500
100.0
131.8
137.0
131.4
152.3
193.5
100.0
132.4
150.5
152.6
170.8
208.1
S&P
FINANCIALS
100.0
135.6
156.2
153.9
188.9
230.9
306
Code of Conduct, Code of Ethics
Citi has a Code of Conduct that maintains its commitment to
the highest standards of conduct. The Code of Conduct is
supplemented by a Code of Ethics for Financial Professionals
(including accounting, controllers, financial reporting
operations, financial planning and analysis, treasury, tax,
strategy and M&A, investor relations and regional/product
finance professionals and administrative staff) that applies
worldwide. The Code of Ethics for Financial Professionals
applies to Citi’s principal executive officer, principal financial
officer and principal accounting officer. Amendments and
waivers, if any, to the Code of Ethics for Financial
Professionals will be disclosed on Citi’s website,
www.citigroup.com.
Both the Code of Conduct and the Code of Ethics for
Financial Professionals can be found on the Citi website by
clicking on “About Us,” and then “Corporate Governance.”
Citi’s Corporate Governance Guidelines can also be found
there, as well as the charters for the Audit Committee, the
Ethics and Culture Committee, the Nomination, Governance
and Public Affairs Committee, the Operations and Technology
Committee, the Personnel and Compensation Committee and
the Risk Management Committee of the Board. These
materials are also available by writing to Citigroup Inc.,
Corporate Governance, 601 Lexington Avenue, 19th Floor,
New York, New York 10022.
CORPORATE INFORMATION
CITIGROUP EXECUTIVE OFFICERS
Citigroup’s executive officers as of February 23, 2018 are:
Name
Raja J. Akram
Age
Position and office held
45 Controller and Chief Accounting
Francisco
Aristeguieta
Stephen Bird
Don Callahan
Michael L. Corbat
James C. Cowles
Barbara Desoer
James A. Forese
Officer
52 CEO, Asia Pacific
51 CEO, Global Consumer Banking
61 Head of Operations and Technology
57 Chief Executive Officer
62 CEO, Europe, Middle East and Africa
65 CEO, Citibank, N.A.
55
President;
CEO, Institutional Clients Group
Jane Fraser
John C. Gerspach
Bradford Hu
William J. Mills
J. Michael Murray
Rohan Weerasinghe 67 General Counsel and Corporate
50 CEO, Latin America
64 Chief Financial Officer
54 Chief Risk Officer
62 CEO, North America
53 Head of Human Resources
Secretary
Each executive officer has held executive or management
positions with Citigroup for at least five years, except that:
• Mr. Akram joined Citi in 2006 and assumed his current
position in November 2017. Previously, he had served as
Deputy Controller since April 2017. He held a number of
other roles in Citi Finance, including Lead Finance
Officer for Treasury and Trade Solutions, Brazil Country
Controller, Brazil Country Finance Officer and head of
the Corporate Accounting Policy team supporting M&A
activities.
• Ms. Desoer joined Citibank, N.A. as Chief Operating
Officer in October 2013 and assumed her current position
in April 2014. Prior to joining Citi, Ms. Desoer had a 35-
year career at Bank of America, where she was President,
Bank of America Home Loans, a Global Technology &
Operations Executive, and President, Consumer Products,
among other roles.
307
CITIGROUP BOARD OF DIRECTORS
Michael L. Corbat
Chief Executive Officer
Citigroup Inc.
Ellen M. Costello
Former President, CEO,
BMO Financial Corporation, and
Former U.S. Country Head
BMO Financial Group
John C. Dugan
Former Chairman
Financial Institutions Group
Covington & Burling LLP
Duncan P. Hennes
Co-Founder and Partner of
Atrevida Partners, LLC
Peter Blair Henry
Dean Emeritus and W. R.
Berkley Professor of Economics
and Finance
New York University
Leonard N. Stern School of
Business
Franz B. Humer
Former Chairman
Roche Holding Ltd.
S. Leslie Ireland
Former Assistant Secretary for
Intelligence and Analysis
U.S. Department of the Treasury
Renée J. James
Chairman and CEO
Ampere Computing and
Operating Executive
The Carlyle Group
Eugene M. McQuade
Former Vice Chairman
Citigroup Inc. and
Former Chief Executive Officer
Citibank, N.A.
Michael E. O’Neill
Chairman
Citigroup Inc.
Gary M. Reiner
Operating Partner
General Atlantic LLC
Anthony M. Santomero
Former President
Federal Reserve Bank of
Philadelphia
Diana L. Taylor
Vice Chair
Solera Capital, LLC
James S. Turley
Former Chairman and CEO
Ernst & Young
Deborah C. Wright
Former Chairman
Carver Bancorp, Inc.
Ernesto Zedillo Ponce de Leon
Director, Center for the
Study of Globalization and
Professor in the Field
of International
Economics and Politics,
Yale University
308
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 23rd day of
February, 2018.
Citigroup Inc.
(Registrant)
/s/ John C. Gerspach
John C. Gerspach
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated on the 23rd day of February, 2018.
Citigroup’s Principal Executive Officer and a Director:
The Directors of Citigroup listed below executed a power of
attorney appointing John C. Gerspach their attorney-in-fact,
empowering him to sign this report on their behalf.
Michael E. O’Neill
Anthony M. Santomero
Diana L. Taylor
James S. Turley
Deborah C. Wright
Ernesto Zedillo Ponce de Leon
Ellen M. Costello
John C. Dugan
Duncan P. Hennes
Peter Blair Henry
Franz B. Humer
S. Leslie Ireland
Eugene M. McQuade
/s/ John C. Gerspach
John C. Gerspach
/s/ Michael L. Corbat
Michael L. Corbat
Citigroup’s Principal Financial Officer:
/s/ John C. Gerspach
John C. Gerspach
Citigroup’s Principal Accounting Officer:
/s/ Raja J. Akram
Raja J. Akram
309
Stockholder Information
Citigroup common stock is listed on the NYSE under the
ticker symbol “C” and on the Mexico Stock Exchange.
Citigroup preferred stock Series C, J, K, L and S are also
listed on the NYSE.
Exchange Agent
Holders of Golden State Bancorp, Associates First Capital
Corporation or Citicorp common stock should arrange to
exchange their certificates by contacting:
Because Citigroup’s common stock is listed on the NYSE,
the Chief Executive Officer is required to make an annual
certification to the NYSE stating that he was not aware of
any violation by Citigroup of the corporate governance listing
standards of the NYSE. The annual certification to that effect
was made to the NYSE on May 22, 2017.
As of January 31, 2018, Citigroup had approximately 65,691
common stockholders of record. This figure does not
represent the actual number of beneficial owners of common
stock because shares are frequently held in “street name”
by securities dealers and others for the benefit of individual
owners who may vote the shares.
Transfer Agent
Stockholder address changes and inquiries regarding stock
transfers, dividend replacement, 1099-DIV reporting and
lost securities for common and preferred stock should be
directed to:
Computershare
P.O. Box 43078
Providence, RI 02940-3078
Telephone No. 781 575 4555
Toll-free No. 888 250 3985
E-mail address: shareholder@computershare.com
Web address: www.computershare.com/investor
Computershare
P.O. Box 43078
Providence, RI 02940-3078
Telephone No. 781 575 4555
Toll-free No. 888 250 3985
E-mail address: shareholder@computershare.com
Web address: www.computershare.com/investor
On May 9, 2011, Citi effected a 1-for-10 reverse stock split.
All Citi common stock certificates issued prior to that date
must be exchanged for new certificates by contacting
Computershare at the address noted above.
Citi’s 2017 Form 10-K filed with the SEC, as well as other
annual and quarterly reports, are available from Citi
Document Services toll free at 877 936 2737 (outside the
United States at 716 730 8055), by e-mailing a request to
docserve@citi.com or by writing to:
Citi Document Services
540 Crosspoint Parkway
Getzville, NY 14068
Stockholder Inquiries
Information about Citi, including quarterly earnings
releases and filings with the U.S. Securities and Exchange
Commission, can be accessed via Citi’s website at
www.citigroup.com. Stockholder inquiries can also be
directed by e-mail to shareholderrelations@citi.com.
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The cover and editorial section of this annual report are printed on McCoy, manufactured by Sappi North America with 10% PCW and FSC®
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www.citigroup.com
© 2018 Citigroup Inc.
1620415 CIT24026 03/18
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