Citibank 2010 Annual Report Download - page 135

133
The fair values shown are prior to the application of any netting
agreements, cash collateral, and market or credit valuation adjustments.
Citigroup 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. The majority of this activity was transacted with other financial
intermediaries, including both banks and broker-dealers. Citigroup 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.
Citi actively monitors its counterparty credit risk in credit derivative
contracts. Approximately 89% and 85% of the gross receivables are from
counterparties with which Citi maintains collateral agreements as of
December 31, 2010 and 2009, respectively. A majority of Citi’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 ratings
downgrades may have an incremental effect by lowering the threshold
at which Citigroup may call for additional collateral. A number of the
remaining significant counterparties are monolines (which have CVA as
shown above).