Citibank 2011 Annual Report Download - page 230

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The following table shows reporting units with goodwill balances as of
December 31, 2011 and the excess of fair value as a percentage over allocated
book value as of the annual impairment test.
In millions of dollars
Reporting unit (1)
Fair value as a % of
allocated book value Goodwill
North America Regional Consumer Banking 279% $ 2,542
EMEA Regional Consumer Banking 205 349
Asia Regional Consumer Banking 285 5,623
Latin America Regional Consumer Banking 277 1,722
Securities and Banking 136 9,173
Transaction Services 1,761 1,564
Brokerage and Asset Management 162 71
Local Consumer Lending—Cards 175 4,369
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Citigroup engaged the services of an independent valuation specialist
to assist in the valuation of the reporting units at July 1, 2011, using a
combination of the market approach and/or income approach consistent
with the valuation model used in the past.
Under the market approach for valuing each reporting unit, the key
assumption is the selected price multiples. The selection of the multiples
considers the operating performance and financial condition of the reporting
unit operations as compared with those of a group of selected publicly traded
guideline companies and a group of selected acquired companies. Among
other factors, the level and expected growth in return on tangible equity
relative to those of the guideline companies and guideline transactions
is considered. Since the guideline company prices used are on a minority
interest basis, the selection of the multiple considers the recent acquisition
prices, which reflect control rights and privileges, in arriving at a multiple
that reflects an appropriate control premium.
For the valuation under the income approach, the assumptions used
as the basis for the model include cash flows for the forecasted period, the
assumptions embedded in arriving at an estimation of the terminal value
and the discount rate. The cash flows for the forecasted period are estimated
based on management’s most recent projections available as of the testing
date, giving consideration to targeted equity capital requirements based on
selected public guideline companies for the reporting unit. In arriving at the
terminal value for each reporting unit, using 2014 as the terminal year, the
assumptions used include a long-term growth rate and a price-to-tangible
book multiple based on selected public guideline companies for the reporting
unit. The discount rate is based on the reporting unit’s estimated cost of
equity capital computed under the capital asset pricing model.
Embedded in the key assumptions underlying the valuation model,
described above, is the inherent uncertainty regarding the possibility that
economic conditions that affect credit risk and behavior may vary or other
events will occur that will impact the business model. Deterioration in
the assumptions used in the valuations, in particular the discount-rate
and growth-rate assumptions used in the net income projections, could
affect Citigroup’s impairment evaluation and, hence, the Company’s net
income. While there is inherent uncertainty embedded in the assumptions
used in developing management’s forecasts, the assumptions used reflect
management’s best estimates as of the testing date.
If the future were to differ adversely from management’s best estimate of
key economic assumptions and associated cash flows were to significantly
decrease, Citi could potentially experience future impairment charges with
respect to goodwill. Any such charges, by themselves, would not negatively
affect Citi’s Tier 1 and Total Capital regulatory ratios, Tier 1 Common ratio,
its Tangible Common Equity or Citi’s liquidity position.