Citibank 2009 Annual Report Download - page 249

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28. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
The table below presents the carrying value and fair value of Citigroup’s
financial instruments. The disclosure excludes leases, affiliate investments,
pension and benefit obligations and insurance policy claim reserves.
In addition, contract-holder fund amounts exclude certain insurance
contracts. Also as required, the disclosure excludes the effect of taxes, any
premium or discount that could result from offering for sale at one time
the entire holdings of a particular instrument, excess fair value associated
with deposits with no fixed maturity and other expenses that would be
incurred in a market transaction. In addition, the table excludes the values
of non-financial assets and liabilities, as well as a wide range of franchise,
relationship and intangible values (but includes mortgage servicing rights),
which are integral to a full assessment of Citigroup’s financial position and
the value of its net assets.
The fair value represents management’s best estimates based on a
range of methodologies and assumptions. The carrying value of short-term
financial instruments not accounted for at fair value, as well as receivables
and payables arising in the ordinary course of business, approximates fair
value because of the relatively short period of time between their origination
and expected realization. Quoted market prices are used when available
for investments and for both trading and end-user derivatives, as well as
for liabilities, such as long-term debt, with quoted prices. For performing
loans not accounted for at fair value, contractual cash flows are discounted
at quoted secondary market rates or estimated market rates if available.
Otherwise, sales of comparable loan portfolios or current market origination
rates for loans with similar terms and risk characteristics are used. For loans
with doubt as to collectability, expected cash flows are discounted using an
appropriate rate considering the time of collection and the premium for the
uncertainty of the cash flows. This method of estimating fair value does not
incorporate the exit-price concept of fair value prescribed by ASC 820-10
(SFAS No. 157). The value of collateral is also considered. For liabilities such
as long-term debt not accounted for at fair value and without quoted market
prices, market borrowing rates of interest are used to discount contractual
cash flows.
2009 2008
In billions of dollars at year end
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Assets
Investments $306.1 $307.6 $256.0 $251.9
Federal funds sold and securities
borrowed or purchased under
agreements to resell 222.0 222.0 184.1 184.1
Trading account assets 342.8 342.8 377.6 377.6
Loans (1) 552.5 542.8 660.9 642.7
Other financial assets (2) 290.9 290.9 316.6 316.6
2009 2008
In billions of dollars at year end
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
Liabilities
Deposits $835.9 $834.5 $774.2 $772.9
Federal funds purchased and
securities loaned or sold
under agreements to
repurchase 154.3 154.3 205.3 205.3
Trading account liabilities 137.5 137.5 165.8 165.8
Long-term debt 364.0 354.8 359.6 317.1
Other financial liabilities (3) 175.8 175.8 255.6 255.6
(1) The carrying value of loans is net of the Allowance for loan losses of $36.0 billion for 2009 and $29.6
billion for 2008. In addition, the carrying values exclude $2.9 billion and $3.7 billion of lease finance
receivables in 2009 and 2008, respectively.
(2) Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance
recoverable, mortgage servicing rights, separate and variable accounts and other financial instruments
included in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is a
reasonable estimate of fair value.
(3) Includes brokerage payables, separate and variable accounts, short-term borrowings and other
financial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of which
the carrying value is a reasonable estimate of fair value.
Fair values vary from period to period based on changes in a wide range
of factors, including interest rates, credit quality, and market perceptions of
value and as existing assets and liabilities run off and new transactions are
entered into.
The estimated fair values of loans reflect changes in credit status since the
loans were made, changes in interest rates in the case of fixed-rate loans, and
premium values at origination of certain loans. The carrying values (reduced
by the Allowance for loan losses) exceeded the estimated fair values of
Citigroup’s loans, in aggregate, by $9.7 billion and by $18.2 billion in 2009
and 2008, respectively. At December 31, 2009, the carrying values, net of
allowances, exceeded the estimated values by $8.2 billion and $1.5 billion for
consumer loans and corporate loans, respectively.
The estimated fair values of the Company’s corporate unfunded lending
commitments at December 31, 2009 and 2008 were liabilities of $3.3 billion
and $7.1 billion, respectively. The Company does not estimate the fair
values of consumer unfunded lending commitments, which are generally
cancellable by providing notice to the borrower.