Citibank 2008 Annual Report Download - page 95

Loans Reclassified to Held for Investment
FASB Statement No. 65, Accounting for Certain Mortgage Banking
Activities (SFAS 65), and AICPA Statement of Position 01-6, “Accounting by
Certain Entities (Including Entities with Trade Receivables) That Lend to or
Finance the Activities of Others” (SOP 01-6), require that the accounting for
a loan be based upon the Company’s intent and ability to hold the loan for
the foreseeable future or until maturity. Loans that the Company has the
intent and ability to hold for the foreseeable future, or until maturity or
payoff, should be classified as held for investment (HFI) and reported in the
balance sheet at the amortized cost of the loan, adjusted by the allowance for
loan losses. Loans that the Company intends to sell should be classified as
held for sale (HFS) and reported at the lower of cost or fair value.
During the fourth quarter of 2008, Citigroup made a number of transfers
from the HFS category to the HFI category to better reflect prevailing
intentions of the Company. Reclassifications of loans were made at fair value
on the date of transfer. The impact of the transfers executed during the
fourth quarter of 2008 is detailed in the following table, summarized by type
of loan:
Fair value
at date
of transfer
Carrying value at
December 31, 2008
Fair value at
December 31, 2008
Loans reclassified to held for investment
Highly leveraged loans $ 3,318 $ 3,350 $ 1,650
Commercial real estate loans 7,150 7,049 7,110
Other loans 5,241 5,492 5,523
Total loans $15,709 $15,891 $14,283
Loan balances reclassified relate to funded positions that were originated
as part of a strategy to distribute. Prior to the recent dislocation in the credit
markets, Citigroup managed the risk associated with these loans by seeking
to sell a majority of its exposure to the market prior to, or shortly after,
funding. For the reasons discussed under “Debt Securities Reclassified to
Available-for-Sale and Held-to-Maturity” on page 87, the Company believes
that the best value can now be obtained through a hold strategy. It is now the
Company’s intention to hold these positions for the foreseeable future, which
is considered to be such time as the loan period expires, or sufficient liquidity
returns to the market place, such that the loans can be sold for a value which
the Company believes is representative of the implicit credit risk of the
position. Due to the severity and duration of current unfavorable market
conditions, the Company does not anticipate such liquidity returning in the
foreseeable future, which for these loans the Company generally defines to be
within the next year. The loans reclassified to HFI are assessed for intention
to hold on an individual loan basis. After transfer, HFI loans are now subject
to the Company’s allowance for loan loss review process.
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