Citibank 2009 Annual Report Download - page 152

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The preceding table reflects: (i) the estimated portion of the assets of
former QSPEs to which Citigroup, acting as principal, had transferred
assets and received sales treatment as of December 31, 2009 (totaling
approximately $712.0 billion), and (ii) the estimated assets of significant
unconsolidated VIEs as of December 31, 2009 with which Citigroup is
involved (totaling approximately $219.2 billion) that are required to be
consolidated under the new accounting standards. Due to the variety of
transaction structures and the level of Citigroup involvement in individual
former QSPEs and VIEs, only a portion of the former QSPEs and VIEs with
which the Company is involved are to be consolidated.
In addition, the cumulative effect of adopting these new accounting
standards as of January 1, 2010, based on financial information as of
December 31, 2009, would result in an estimated aggregate after-tax charge
to Retained earnings of approximately $8.3 billion, reflecting the net effect
of an overall pretax charge to Retained earnings (primarily relating to the
establishment of loan loss reserves and the reversal of residual interests held)
of approximately $13.4 billion and the recognition of related deferred tax
assets amounting to approximately $5.1 billion.
The pro forma impact on certain of Citigroup’s regulatory capital ratios of
adopting these new accounting standards (based on financial information as
of December 31, 2009), reflecting immediate implementation of the recently
issued final risk-based capital rules regarding SFAS 166 and SFAS 167, would
be as follows:
As of December 31, 2009
As reported Pro forma Impact
Tier 1 Capital 11.67% 10.26% (141) bps
Total Capital 15.25% 13.82% (143) bps
The actual impact of adopting the new accounting standards on
January 1, 2010 could differ, as financial information changes from the
December 31, 2009 estimates and as several uncertainties in the application
of these new standards are resolved.
Among these uncertainties, the FASB has proposed an indefinite deferral
of the requirements of SFAS 167 for certain investment companies. Without
the proposed deferral, the Company had most recently estimated that
approximately $3.3 billion of assets held by investment funds managed
by Citigroup would be newly consolidated upon the adoption of SFAS 167.
If the proposed deferral were to be finalized as currently contemplated,
the Company expects that many, if not all, of the investment vehicles
managed by Citigroup would not be subject to the requirements of SFAS
167. Nevertheless, Citigroup is continuing to evaluate the potential impacts
of the proposed requirements and, depending upon the eventual resolution
of specific implementation matters, may be required to consolidate certain
investment vehicles, the aggregate assets of which could range up to a total
of approximately $1.2 billion. The effect on the Company’s regulatory capital
ratios, should consolidation of any or all such noted investment vehicles be
required, is not expected to be significant. The preceding tables reflect the
Company’s view that none of the investment vehicles managed by Citigroup
will be required to be consolidated under SFAS 167.
Loss-Contingency Disclosures
In June 2008, the FASB issued an exposure draft proposing expanded
disclosures regarding loss contingencies. This proposal increases the
number of loss contingencies subject to disclosure and requires substantial
quantitative and qualitative information to be provided about those
loss contingencies. The proposal will have no impact on the Company’s
accounting for loss contingencies.
Investment Company Audit Guide (SOP 07-1)
In July 2007, the AICPA issued Statement of Position 07-1, “Clarification
of the Scope of the Audit and Accounting Guide for Investment Companies
and Accounting by Parent Companies and Equity Method Investors for
Investments in Investment Companies” (SOP 07-1) (now incorporated
into ASC 946-10, Financial Services-Investment Companies), which
was expected to be effective for fiscal years beginning on or after
December 15, 2007. However, in February 2008, the FASB delayed the
effective date indefinitely by issuing an FSP SOP 07-1-1, “Effective Date of
AICPA Statement of Position 07-1.” This statement sets forth more stringent
criteria for qualifying as an investment company than does the predecessor
Audit Guide. In addition, ASC 946-10 (SOP 07-1) establishes new criteria for
a parent company or equity method investor to retain investment company
accounting in their consolidated financial statements. Investment companies
record all their investments at fair value with changes in value reflected
in earnings. The Company is currently evaluating the potential impact of
adopting the SOP.