Citibank 2010 Annual Report Download - page 286

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matters included within this estimation, an accrual has been made because
a loss is believed to be both probable and reasonably estimable, but an
exposure to loss exists in excess of the amount accrued; in these cases,
the estimate reflects the reasonably possible range of loss in excess of the
accrued amount. For other matters included within this estimation, no
accrual has been made because a loss, although estimable, is believed to be
reasonably possible, but not probable; in these cases the estimate reflects the
reasonably possible loss or range of loss. As of December 31, 2010, Citigroup
estimates that the reasonably possible loss in excess of amounts accrued
for these matters in the aggregate ranges up to approximately $4 billion in
future periods.
These estimates are based on currently available information. As available
information changes, the matters for which Citigroup is able to estimate will
change, and the estimates themselves will change. In addition, while many
estimates presented in financial statements and other financial disclosure
involve significant judgment and may be subject to significant uncertainty,
estimates of the range of reasonably possible loss arising from litigation and
regulatory proceedings are subject to particular uncertainties. For example,
at the time of making an estimate, Citigroup may have only preliminary,
incomplete, or inaccurate information about the facts underlying the claim;
its assumptions about the future rulings of the court or other tribunal
on significant issues, or the behavior and incentives of adverse parties or
regulators, may prove to be wrong; and the outcomes it is attempting to
predict are often not amenable to the use of statistical or other quantitative
analytical tools. In addition, from time to time an outcome may occur that
Citigroup had not accounted for in its estimate because it had deemed such
an outcome to be remote. For all these reasons, the amount of loss in excess
of accruals ultimately incurred for the matters as to which an estimate has
been made could be substantially higher or lower than the range of loss
included in the estimate.
Matters as to Which an Estimate Cannot Be Made. For other matters
disclosed below, Citigroup is not currently able to estimate the reasonably
possible loss or range of loss. Many of these matters remain in very
preliminary stages (even in some cases where a substantial period of time has
passed since the commencement of the matter), with few or no substantive
legal decisions by the court or tribunal defining the scope of the claims, the
class (if any), or the potentially available damages, and fact discovery is still
in progress or has not yet begun. In many of these matters, Citigroup has
not yet answered the complaint or statement of claim or asserted its defenses,
nor has it engaged in any negotiations with the adverse party (whether
a regulator or a private party). For all these reasons, Citigroup cannot at
this time estimate the reasonably possible loss or range of loss, if any, for
these matters.
Opinion of Management as to Eventual Outcome. Subject to the
foregoing, it is the opinion of Citigroup’s management, based on current
knowledge and after taking into account its current legal accruals, that the
eventual outcome of all matters described in this Note would not be likely
to have a material adverse effect on the consolidated financial condition
of Citigroup. Nonetheless, given the substantial or indeterminate amounts
sought in certain of these matters, and the inherent unpredictability of such
matters, an adverse outcome in certain of these matters could, from time
to time, have a material adverse effect on Citigroup’s consolidated results of
operations or cash flows in particular quarterly or annual periods.
Credit-Crisis-Related Litigation and Other Matters
Citigroup and Related Parties have been named as defendants in numerous
legal actions and other proceedings asserting claims for damages and related
relief for losses arising from the global financial credit and subprime-
mortgage crisis that began in 2007. Such matters include, among other
types of proceedings, claims asserted by: (i) individual investors and
purported classes of investors in Citigroup’s common and preferred stock
and debt, alleging violations of the federal securities laws; (ii) participants
and purported classes of participants in Citigroup’s retirement plans,
alleging violations of the Employee Retirement Income Security Act
(ERISA); (iii) counterparties to significant transactions adversely affected by
developments in the credit and subprime markets; (iv) individual investors
and purported classes of investors in securities and other investments
underwritten, issued or marketed by Citigroup, including collateralized
debt obligations (CDOs), mortgage-backed securities (MBS), auction-
rate securities (ARS), investment funds, and other structured or leveraged
instruments, that have suffered losses as a result of the credit crisis; and
(v) individual borrowers asserting claims related to their loans. These
matters have been filed in state and federal courts across the country, as well
as in arbitrations before the Financial Industry Regulatory Authority (FINRA)
and other arbitration associations.
In addition to these litigations and arbitrations, Citigroup continues
to cooperate fully in response to subpoenas and requests for information
from the Securities and Exchange Commission (SEC), FINRA, the Federal
Housing Finance Agency, state attorneys general, the Department of Justice
and subdivisions thereof, bank regulators, and other government agencies
and authorities, in connection with various formal and informal inquiries
concerning Citigroup’s subprime and other mortgage-related conduct and
business activities, as well as other business activities affected by the credit
crisis. These business activities include, but are not limited to, Citigroup’s
sponsorship, packaging, issuance, marketing, servicing and underwriting
of MBS and CDOs and its origination, sale or other transfer, servicing, and
foreclosure of residential mortgages.
Subprime Mortgage-Related Litigation and Other Matters
Beginning in November 2007, Citigroup and Related Parties have been
named as defendants in numerous legal actions and other proceedings
brought by Citigroup shareholders, investors, counterparties and others
concerning Citigroup’s activities relating to subprime mortgages, including
Citigroup’s involvement with CDOs, MBS and structured investment vehicles,
Citigroup’s underwriting activity for subprime mortgage lenders, and
Citigroup’s more general subprime- and credit-related activities.
Regulatory Actions: The SEC, among other regulators, is investigating
Citigroup’s subprime and other mortgage-related conduct and business
activities, as well as other business activities affected by the credit crisis,
including an ongoing inquiry into Citigroup’s structuring and sale of CDOs.
Citigroup is cooperating fully with the SEC’s inquiries.
On July 29, 2010, the SEC announced the settlement of an investigation
into certain of Citigroup’s 2007 disclosures concerning its subprime-related
business activities. On October 19, 2010, the United States District Court for
the District of Columbia entered a Final Judgment approving the settlement,