Citibank 2010 Annual Report Download - page 242

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In addition, Citibank (South Dakota), N.A. had provided liquidity to a
third-party, non-consolidated multi-seller commercial paper conduit, which
is not a VIE. The commercial paper conduit had acquired notes issued by
the Omni Trust. The liquidity commitment to the third-party conduit was
$2.5 billion at December 31, 2009, of which none was drawn.
During 2009, all three of Citigroup’s primary credit card securitization
trusts—Master Trust, Omni Trust, and Broadway Trust—had bonds placed
on ratings watch with negative implications by rating agencies. As a result
of the ratings watch status, certain actions were taken by Citi with respect
to each of the trusts. In general, the actions subordinated certain senior
interests in the trust assets that were retained by Citi, which effectively placed
these interests below investor interests in terms of priority of payment.
As a result of these actions, based on the applicable regulatory capital
rules, Citigroup began including the sold assets for all three of the credit card
securitization trusts in its risk-weighted assets for purposes of calculating its
risk-based capital ratios during 2009. The increase in risk-weighted assets
occurred in the quarter during 2009 in which the respective actions took
place. The effect of these changes increased Citigroup’s risk-weighted assets
by approximately $82 billion, and decreased Citigroup’s Tier 1 Capital ratio
by approximately 100 basis points as of March 31, 2009, with respect to
each of the master and Omni Trusts. The inclusion of the Broadway Trust
increased Citigroup’s risk-weighted assets by an additional approximate
$900 million at June 30, 2009. With the consolidation of the trusts, beginning
in 2010 the credit card receivables that had previously been considered sold
under SFAS 140 are now included in the Consolidated Balance Sheet and
accordingly these assets continue to be included in Citigroup’s risk-weighted
assets. All bond ratings for each of the trusts have been affirmed by the rating
agencies and no downgrades have occurred since December 31, 2010.
Mortgage Securitizations
The Company provides a wide range of mortgage loan products to a diverse
customer base.
Once originated, the Company often securitizes these loans through the
use of SPEs, which prior to 2010 were QSPEs. These SPEs are funded through
the issuance of trust certificates backed solely by the transferred assets. These
certificates have the same average life as the transferred assets. In addition to
providing a source of liquidity and less expensive funding, securitizing these
assets also reduces the Company’s credit exposure to the borrowers. These
mortgage loan securitizations are primarily non-recourse, thereby effectively
transferring the risk of future credit losses to the purchasers of the securities
issued by the trust. However, the Company’s Consumer business generally
retains the servicing rights and in certain instances retains investment
securities, interest-only strips and residual interests in future cash flows from
the trusts and also provides servicing for a limited number of Securities and
Banking securitizations. Securities and Banking and Special Asset Pool
do not retain servicing for their mortgage securitizations.
The Company securitizes mortgage loans generally through either a
government-sponsored agency, such as Ginnie Mae, FNMA or Freddie Mac
(U.S. agency-sponsored mortgages), or private label (non-agency-sponsored
mortgages) securitization. The Company is not the primary beneficiary of
its U.S. agency-sponsored mortgage securitizations, because Citigroup does
not have the power to direct the activities of the SPE that most significantly
impact the entity’s economic performance. Therefore, Citi does not
consolidate these U.S. agency-sponsored mortgage securitizations. In certain
instances, the Company has (1) the power to direct the activities and (2) the
obligation to either absorb losses or right to receive benefits that could be
potentially significant to its non-agency-sponsored mortgage securitizations
and, therefore, is the primary beneficiary and consolidates the SPE.
Mortgage Securitizations—Citicorp
The following tables summarize selected cash flow information related to mortgage securitizations for the years ended December 31, 2010, 2009 and 2008:
2010 2009 2008
In billions of dollars
U.S. agency-
sponsored
mortgages
Non-agency-
sponsored
mortgages
Agency- and
non-agency-
sponsored
mortgages
Agency- and
non-agency-
sponsored
mortgages
Proceeds from new securitizations $63.0 $2.1 $15.7 $6.3
Contractual servicing fees received 0.5 — — —
Cash flows received on retained interests and other net cash flows 0.1 — 0.1 0.2
Gains (losses) recognized on the securitization of U.S. agency-sponsored
mortgages during 2010 were $(2) million. For the year ended December 31,
2010, gains (losses) recognized on the securitization of non-agency-
sponsored mortgages were $(3) million.
Agency and non-agency mortgage securitization gains (losses) for
the years ended December 31, 2009 and 2008 were $18 million and
$(15) million, respectively.