Citibank 2008 Annual Report Download - page 99

The following tables summarize the key characteristics of the Company’s credit derivative portfolio by activity, counterparty and derivative form as of
December 31, 2008 and December 31, 2007:
2008: Fair values Notionals
In millions of dollars Receivable Payable Beneficiary Guarantor
By Activity:
Credit portfolio $ 3,257 $ 15 $ 71,131 $ —
Dealer/client 225,094 203,694 1,519,081 1,443,280
Total by Activity $228,351 $203,709 $1,590,212 $1,443,280
By Industry/Counterparty:
Bank $128,042 $121,811 $ 996,248 $ 943,949
Broker-dealer 59,321 56,858 403,501 365,664
Monoline 6,886 91 9,973 139
Non-financial 4,874 2,561 5,608 7,540
Insurance and other financial institutions 29,228 22,388 174,882 125,988
Total by Industry/Counterparty $228,351 $203,709 $1,590,212 $1,443,280
By Instrument:
Credit default swaps and options $221,159 $203,220 $1,560,223 $1,441,375
Total return swaps and other 7,192 489 29,989 1,905
Total by Instrument $228,351 $203,709 $1,590,212 $1,443,280
2007: Fair values Notionals
In millions of dollars Receivable Payable Beneficiary Guarantor
By Activity:
Credit portfolio $ 626 $ 129 $ 91,228 $ —
Dealer/client 82,767 84,165 1,815,728 1,767,837
Total by Activity $ 83,393 $ 84,294 $1,906,956 $1,767,837
By Industry/Counterparty:
Bank $ 28,571 $ 34,425 $1,035,217 $ 970,831
Broker-dealer 28,183 31,519 633,745 585,549
Monoline 5,044 88 15,064 1,243
Non-financial 220 331 3,682 4,253
Insurance and other financial institutions 21,375 17,931 219,248 205,961
Total by Industry/Counterparty $ 83,393 $ 84,294 $1,906,956 $1,767,837
By Instrument:
Credit default swaps and options $ 82,752 $ 83,015 $1,891,061 $1,755,716
Total return swaps and other 641 1,279 15,895 12,121
Total by Instrument $ 83,393 $ 84,294 $1,906,956 $1,767,837
The fair values shown are prior to the application of any netting
agreements, cash collateral, and market or credit value adjustments.
The Company actively participates in trading a variety of credit derivatives
products as both an active two-way market-maker for clients and to manage
credit risk. During 2008, Citigroup decreased its trading volumes. The
volatility and liquidity challenges in the credit markets during 2008 drove
derivatives trading values higher, especially for the credit derivatives. The
majority of this activity was transacted with other financial intermediaries,
including both banks and broker-dealers. The total notional amount of
protection purchased and sold as of December 31, 2008 compared to
December 31, 2007 decreased $317 billion and $325 billion, respectively, and
to various market participants. However, the total fair value as of
December 31, 2008 compared to December 31, 2007 increased by $145
billion for protection purchased and $119 billion for protection sold. These
fair value increases were due to general credit spreads widening in the credit
derivative market.
The Company 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 Company actively monitors its counterparty credit risk in credit
derivative contracts. Approximately 88% of the gross receivables as of
December 31, 2008 are from counterparties with which the Company
maintains collateral agreements. A majority of the Company’s top 15
counterparties (by receivable balance owed to the Company) are banks,
financial institutions or other dealers. Contracts with these counterparties do
not include ratings-based termination events. However, counterparty rating
downgrades may have an incremental effect by lowering the threshold at
which the Company may call for additional collateral. A number of the
remaining significant counterparties are monolines.
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