Citibank 2010 Annual Report Download - page 175

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Measuring Liabilities at Fair Value
As of September 30, 2009, the Company adopted ASU No. 2009-05,
Measuring Liabilities at Fair Value. This ASU provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques:
a valuation technique that uses quoted prices for similar liabilities (or an •฀
identical liability) when traded as assets; or
another valuation technique that is consistent with the principles of •฀
ASC 820.
This ASU also clarifies that both a quoted price in an active market for
the identical liability at the measurement date and the quoted price for
the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair
value measurements.
This ASU did not have a material impact on the Company’s fair
value measurements.
Other-Than-Temporary Impairments on
Investment Securities
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition
and Presentation of Other-Than-Temporary Impairments (FSP FAS
115-2) (now ASC 320-10-35-34, Investments—Debt and Equity Securities:
Recognition of an Other-Than-Temporary Impairment), which amends
the recognition guidance for other-than-temporary impairments (OTTI)
of debt securities and expands the financial statement disclosures for OTTI
on debt and equity securities. Citigroup adopted the FSP in the first quarter
of 2009.
As a result of the FSP, the Company’s Consolidated Statement of Income
reflects the full impairment (that is, the difference between the security’s
amortized cost basis and fair value) on debt securities that the Company
intends to sell or would more-likely-than-not be required to sell before the
expected recovery of the amortized cost basis. For available-for-sale (AFS) and
held-to-maturity (HTM) debt securities that management has no intent to
sell and believes that it more-likely-than-not will not be required to sell prior
to recovery, only the credit loss component of the impairment is recognized
in earnings, while the rest of the fair value loss is recognized in Accumulated
other comprehensive income (AOCI). The credit loss component recognized
in earnings is identified as the amount of principal cash flows not expected
to be received over the remaining term of the security as projected using the
Company’s cash flow projections and its base assumptions. As a result of
the adoption of the FSP, Citigroup’s income in the first quarter of 2009 was
higher by $631 million on a pretax basis ($391 million on an after-tax basis)
and AOCI was decreased by a corresponding amount.
The cumulative effect of the change included an increase in the opening
balance of Retained earnings at January 1, 2009 of $665 million on a
pretax basis ($413 million after-tax). See Note 15 to the Consolidated
Financial Statements for disclosures related to the Company’s investment
securities and OTTI.
Business Combinations
In December 2007, the FASB issued Statement No. 141 (revised), Business
Combinations (now ASC 805-10, Business Combinations), which is
designed to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in
its financial reports about a business combination and its effects. The
statement retains the fundamental principle that the acquisition method
of accounting (which was called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. The statement also retains the guidance for identifying
and recognizing intangible assets separately from goodwill. The most
significant changes are: (1) acquisition costs and restructuring costs will
now be expensed; (2) stock consideration will be measured based on the
quoted market price as of the acquisition date instead of the date the deal is
announced; (3) contingent consideration arrangements will be measured
at fair value with changes in fair value reported in earnings each period for
non-equity classified contingent consideration; and (4) the acquirer will
record a 100% step-up to fair value for all assets and liabilities, including the
minority interest portion, and goodwill is recorded as if a 100% interest was
acquired.
Citigroup adopted the standard on January 1, 2009, and it is applied
prospectively.
Noncontrolling Interests in Subsidiaries
In December 2007, the FASB issued Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements (now ASC 810-10-45-15,
Consolidation—Noncontrolling Interests in a Subsidiary), which
establishes standards for the accounting and reporting of noncontrolling
interests in subsidiaries (previously called minority interests) in consolidated
financial statements and for the loss of control of subsidiaries. The Standard
requires that the equity interest of noncontrolling shareholders, partners,
or other equity holders in subsidiaries be presented as a separate item in
Citigroup’s stockholders’ equity, rather than as a liability. After the initial
adoption, when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary must be measured at fair value at
the date of deconsolidation.