Citibank 2008 Annual Report Download - page 213

28. FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS
107)
Estimated Fair Value of Financial Instruments
The table below presents the carrying value and fair value of Citigroup’s
financial instruments. The disclosure excludes leases, affiliate investments,
pension and benefit obligations and insurance policy claim reserves. In
addition, contractholder fund amounts exclude certain insurance contracts.
Also as required, the disclosure excludes the effect of taxes, any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular instrument, excess fair value associated with deposits
with no fixed maturity and other expenses that would be incurred in a
market transaction. In addition, the table excludes the values of
non-financial assets and liabilities, as well as a wide range of franchise,
relationship and intangible values (but includes mortgage servicing rights),
which are integral to a full assessment of Citigroup’s financial position and
the value of its net assets.
The fair value represents management’s best estimates based on a range
of methodologies and assumptions. The carrying value of short-term
financial instruments not accounted for at fair value under SFAS 155 or
SFAS 159, as well as receivables and payables arising in the ordinary course
of business, approximates fair value because of the relatively short period of
time between their origination and expected realization. Quoted market
prices are used when available for investments and for both trading and
end-user derivatives, as well as for liabilities, such as long-term debt, with
quoted prices. For performing loans not accounted for at fair value under
SFAS 155 or SFAS 159, contractual cash flows are discounted at quoted
secondary market rates or estimated market rates if available. Otherwise,
sales of comparable loan portfolios or current market origination rates for
loans with similar terms and risk characteristics are used. For loans with
doubt as to collectibility, expected cash flows are discounted using an
appropriate rate considering the time of collection and the premium for the
uncertainty of the flows. The value of collateral is also considered. For
liabilities such as long-term debt not accounted for at fair value under SFAS
155 or SFAS 159 and without quoted market prices, market borrowing rates
of interest are used to discount contractual cash flows.
For additional information regarding the Company’s determination of
fair value, including items accounted for at fair value under SFAS 155, SFAS
156, and SFAS 159, see Note 27 on page 202.
2008 2007
In billions of dollars at year end
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Assets
Investments $256.0 $251.9 $215.0 $215.0
Federal funds sold and securities
borrowed or purchased under
agreements to resell 184.1 184.1 274.1 274.1
Trading account assets 377.6 377.6 539.0 539.0
Loans (1) 660.9 642.7 753.7 769.4
Other financial assets (2) 316.6 316.6 268.8 269.0
2008 2007
In billions of dollars at year end
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Liabilities
Deposits $774.2 $772.9 $826.2 $826.2
Federal funds purchased and
securities loaned or sold
under agreements to
repurchase 205.3 205.3 304.2 304.2
Trading account liabilities 167.5 167.5 182.1 182.1
Long-term debt 359.6 317.1 427.1 422.6
Other financial liabilities (3) 253.9 253.9 280.4 280.4
(1) The carrying value of loans is net of the Allowance for loan losses of $29.6 billion for 2008 and $16.1
billion for 2007. In addition, the carrying values exclude $3.7 billion and $8.2 billion of lease finance
receivables in 2008 and 2007, respectively.
(2) Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance
recoverable, mortgage servicing rights, separate and variable accounts and other financial instruments
included in Other assets on the Consolidated Balance Sheet, all of which the carrying value is a
reasonable estimate of fair value.
(3) Includes brokerage payables, separate and variable accounts, short-term borrowings and other
financial instruments included in Other Liabilities on the Consolidated Balance Sheet, all of which the
carrying value is a reasonable estimate of fair value.
Fair values vary from period to period based on changes in a wide range
of factors, including interest rates, credit quality, and market perceptions of
value and as existing assets and liabilities run off and new transactions are
entered into.
The estimated fair values of loans reflect changes in credit status since the
loans were made, changes in interest rates in the case of fixed-rate loans,
and premium values at origination of certain loans. The carrying values
(reduced by the Allowance for loan losses) exceeded the estimated fair
values of Citigroup’s loans, in aggregate, by $18.2 billion in 2008 while the
estimated fair values of Citigroup loans, in aggregate, exceeded the carrying
values (reduced by the allowance for loan losses) by $15.7 billion in 2007.
Within these totals, carrying values net of allowance exceeded estimated fair
value for consumer loans by $15.9 billion, a decrease of $28.6 billion from
2007. The carrying values net of allowance exceeded the estimated fair
values by $2.3 billion for corporate loans, a decrease of $5.3 billion from
2007.
207