Citibank 2011 Annual Report Download - page 166

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and trade names, are not amortized and are subject to annual impairment
tests. An impairment exists if the carrying value of the indefinite-lived
intangible asset exceeds its fair value. For other Intangible assets subject to
amortization, an impairment is recognized if the carrying amount is not
recoverable and exceeds the fair value of the Intangible asset.
Other Assets and Other Liabilities
Other assets include, among other items, loans held-for-sale, deferred tax
assets, equity-method investments, interest and fees receivable, premises
and equipment, repossessed assets, and other receivables. Other liabilities
include, among other items, accrued expenses and other payables, deferred
tax liabilities, and reserves for legal claims, taxes, unfunded lending
commitments, repositioning reserves, and other matters.
Other Real Estate Owned and Repossessed Assets
Real estate or other assets received through foreclosure or repossession are
generally reported in Other assets, net of a valuation allowance for selling
costs and net of subsequent declines in fair value.
Securitizations
The Company primarily securitizes credit card receivables and mortgages.
Other types of securitized assets include corporate debt instruments (in cash
and synthetic form) and student loans.
There are two key accounting determinations that must be made
relating to securitizations. Citi first makes a determination as to whether the
securitization entity would be consolidated. Second, it determines whether
the transfer of financial assets to the entity is considered a sale under GAAP. If
the securitization entity is a VIE, the Company consolidates the VIE if it is the
primary beneficiary.
The Company consolidates VIEs when it has both: (1) power to direct
activities of the VIE that most significantly impact the entity’s economic
performance and (2) an obligation to absorb losses or right to receive
benefits from the entity that could potentially be significant to the VIE.
For all other securitization entities determined not to be VIEs in which
Citigroup participates, a consolidation decision is based on who has voting
control of the entity, giving consideration to removal and liquidation rights
in certain partnership structures. Only securitization entities controlled by
Citigroup are consolidated.
Interests in the securitized and sold assets may be retained in the form
of subordinated or senior interest-only strips, subordinated tranches, spread
accounts, and servicing rights. In credit card securitizations, the Company
retains a seller’s interest in the credit card receivables transferred to the trusts,
which is not in securitized form. In the case of consolidated securitization
entities, including the credit card trusts, these retained interests are not
reported on Citi’s Consolidated Balance Sheet; rather, the securitized loans
remain on the balance sheet. Substantially all of the Consumer loans sold
or securitized through non-consolidated trusts by Citigroup are U.S. prime
residential mortgage loans. Retained interests in non-consolidated mortgage
securitization trusts are classified as Trading Account Assets, except for
MSRs which are included in Mortgage Servicing Rights on Citigroup’s
Consolidated Balance Sheet.
Debt
Short-term borrowings and long-term debt are accounted for at amortized
cost, except where the Company has elected to report the debt instruments,
including certain structured notes, at fair value or the debt is in a fair value
hedging relationship.
Transfers of Financial Assets
For a transfer of financial assets to be considered a sale: the assets must have
been isolated from the Company, even in bankruptcy or other receivership;
the purchaser must have the right to pledge or sell the assets transferred or,
if the purchaser is an entity whose sole purpose is to engage in securitization
and asset-backed financing activities and that entity is constrained from
pledging the assets it receives, each beneficial interest holder must have
the right to sell the beneficial interests; and the Company may not have
an option or obligation to reacquire the assets. If these sale requirements
are met, the assets are removed from the Company’s Consolidated Balance
Sheet. If the conditions for sale are not met, the transfer is considered to be
a secured borrowing, the assets remain on the Consolidated Balance Sheet,
and the sale proceeds are recognized as the Company’s liability. A legal
opinion on a sale is generally obtained for complex transactions or where
the Company has continuing involvement with assets transferred or with the
securitization entity. For a transfer to be eligible for sale accounting, those
opinions must state that the asset transfer is considered a sale and that the
assets transferred would not be consolidated with the Company’s other assets
in the event of the Company’s insolvency.
For a transfer of a portion of a financial asset to be considered a sale,
the portion transferred must meet the definition of a participating interest.
A participating interest must represent a pro rata ownership in an entire
financial asset; all cash flows must be divided proportionally, with the same
priority of payment; no participating interest in the transferred asset may
be subordinated to the interest of another participating interest holder; and
no party may have the right to pledge or exchange the entire financial asset
unless all participating interest holders agree. Otherwise, the transfer is
accounted for as a secured borrowing.
See Note 22 to the Consolidated Financial Statements for further
discussion.
Risk Management Activities—Derivatives Used for
Hedging Purposes
The Company manages its exposures to market rate movements outside its
trading activities by modifying the asset and liability mix, either directly
or through the use of derivative financial products, including interest-rate
swaps, futures, forwards, and purchased options, as well as foreign-exchange
contracts. These end-user derivatives are carried at fair value in Other assets,
Other liabilities, Trading account assets and Trading account liabilities.
To qualify as an accounting hedge under the hedge accounting rules
(versus a management hedge where hedge accounting is not sought), a
derivative must be highly effective in offsetting the risk designated as being
hedged. The hedge relationship must be formally documented at inception,
detailing the particular risk management objective and strategy for the
hedge, which includes the item and risk that is being hedged and the