Citibank 2009 Annual Report Download - page 137

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Fixed income securities and marketable equity securities classified •฀
as “available-for-sale” are carried at fair value with changes in fair
value reported in a separate component of Stockholders’ equity, net
of applicable income taxes. As set out in Note 16 to the Consolidated
Financial Statements, declines in fair value that are determined to be
other than temporary are recorded in earnings immediately. Realized
gains and losses on sales are included in income primarily on a specific
identification cost basis, and interest and dividend income on such
securities is included in Interest revenue.
Venture capital investments held by Citigroup’s private equity subsidiaries •฀
that are considered investment companies are carried at fair value with
changes in fair value reported in Other revenue. These subsidiaries
include entities registered as Small Business Investment Companies and
engage exclusively in venture capital activities.
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 and •฀
periodically assessed for other-than-temporary impairment, as set out in
Note 16 to the Consolidated Financial Statements.
For investments in fixed-income securities classified as held-to-maturity
or available-for-sale, accrual of interest income is suspended for investments
that are in default or on which it is likely that future interest payments will
not be made as scheduled.
The Company uses a number of valuation techniques for investments
carried at fair value, which are described in Note 26 to the Consolidated
Financial Statements.
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 set out in Note 27 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 set out in
Note 27 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
(LOCOM) with related gains or losses reported in Principal transactions.
Realized gains and losses on sales of commodities inventory are included in
Principal transactions on a “first in, first out” basis.
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 210-20, Balance Sheet—Offsetting (formerly FASB Interpretation
No. 39, “Offsetting of Amounts Related to Certain Contracts”) are met.
The Company uses a number of techniques to determine the fair value
of trading assets and liabilities, all of which are described in Note 26 to the
Consolidated Financial Statements.
Securities Borrowed and Securities Loaned
Securities borrowing and lending transactions generally do not constitute a
sale of the underlying securities for accounting purposes, and so are treated
as collateralized financing transactions when the transaction involves the
exchange of cash. Such transactions are recorded at the amount of cash
advanced or received plus accrued interest. As set out in Note 27 to the
Consolidated Financial Statements, the Company has elected to apply fair value
accounting to a number of securities borrowing and lending transactions.
Irrespective of whether the Company has elected fair value accounting, fees paid
or received for all securities lending and borrowing transactions are recorded in
Interest expense or Interest revenue at the contractually specified rate.
Where the conditions of ASC 210-20 are met, amounts recognized in
respect of securities borrowed and securities loaned are presented net on the
Consolidated Balance Sheet.
With respect to securities borrowed or loaned, the Company pays or
receives cash collateral in an amount in excess of the market value of
securities borrowed or loaned. The Company monitors the market value of
securities borrowed and loaned on a daily basis with additional collateral
received or paid as necessary.
As described in Note 26 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) generally do not constitute
a sale for accounting purposes of the underlying securities, and so are treated as
collateralized financing transactions. As set out in Note 27 to the Consolidated
Financial Statements, the Company has elected to apply fair value accounting
to a 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.