Citibank 2008 Annual Report Download - page 72

Credit Risk Mitigation
As part of its overall risk management activities, the Company uses credit
derivatives and other risk mitigants to hedge portions of the credit risk in its
portfolio, in addition to outright asset sales. The purpose of these
transactions is to transfer credit risk to third parties. The results of the
mark-to-market and any realized gains or losses on credit derivatives are
reflected in the Principal transactions line on the Consolidated Statement of
Income. At December 31, 2008 and 2007, $95.5 billion and $123.7 billion,
respectively, of credit risk exposure were economically hedged. Citigroup’s
expected loss model used in the calculation of its loan loss reserve does not
include the favorable impact of credit derivatives and other risk mitigants.
The reported amounts of direct outstandings and unfunded commitments in
this report do not reflect the impact of these hedging transactions. At
December 31, 2008 and 2007, the credit protection was economically
hedging underlying credit exposure with the following risk rating
distribution:
Rating of Hedged Exposure
2008 2007
AAA/AA/A 54% 53%
BBB 32 34
BB/B 911
CCC or below 52
Total 100% 100%
At December 31, 2008 and 2007, the credit protection was economically
hedging underlying credit exposure with the following industry distribution:
Industry of Hedged Exposure
2008 2007
Utilities 10% 9%
Telephone and cable 911
Agriculture and food preparation 76
Petroleum 77
Industrial machinery and equipment 65
Insurance 55
Chemicals 54
Retail 55
Other financial institutions 45
Autos 45
Pharmaceuticals 44
Natural gas distribution 43
Global information technology 43
Metals 33
Investment banks 23
Other industries (1) 21 22
Total 100% 100%
(1) Includes all other industries, none of which is greater than 2% of the total hedged amount.
For further discussion regarding credit derivatives see Note 29 on page
208.
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