Citibank 2011 Annual Report Download - page 259

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The following table summarizes the gains (losses) on the Company’s fair value hedges for the years ended December 31, 2011, 2010 and 2009:
Gains (losses) on fair value hedges
Year ended December 31,
(1)
In millions of dollars 2011  
Gain (loss) on derivatives in designated and qualifying fair value hedges
)NTERESTæRATEæCONTRACTS $ 4,423   
&OREIGNæEXCHANGEæCONTRACTS (117)  
Total gain (loss) on derivatives in designated and qualifying fair value hedges $ 4,306   
Gain (loss) on the hedged item in designated and qualifying fair value hedges
)NTERESTæRATEæHEDGES $(4,296)    
&OREIGNæEXCHANGEæHEDGES 26  
Total gain (loss) on the hedged item in designated and qualifying fair value hedges $(4,270)   
Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges
)NTERESTæRATEæHEDGES $ 118    
&OREIGNæEXCHANGEæHEDGES 1 
Total hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges $ 119    
Net gain (loss) excluded from assessment of the effectiveness of fair value hedges
)NTERESTæRATEæCONTRACTS $9
&OREIGNæEXCHANGEæCONTRACTS (92)  
Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges $ (83)    
æ !MOUNTSæAREæINCLUDEDæINæOther revenueæONæTHEæ#ONSOLIDATEDæ3TATEMENTæOFæ)NCOMEæ4HEæACCRUEDæINTERESTæINCOMEæONæFAIRæVALUEæHEDGESæISæRECORDEDæINæNet interest revenueæANDæISæEXCLUDEDæFROMæTHISæTABLE
Cash Flow Hedges
Hedging of benchmark interest rate risk
Citigroup hedges variable cash flows resulting from floating-rate liabilities
and rollover (re-issuance) of short-term liabilities. Variable cash flows
from those liabilities are converted to fixed-rate cash flows by entering into
receive-variable, pay-fixed interest rate swaps and receive-variable, pay-fixed
forward-starting interest rate swaps. These cash-flow hedging relationships
use either regression analysis or dollar-offset ratio analysis to assess whether
the hedging relationships are highly effective at inception and on an ongoing
basis. When certain interest rates do not qualify as a benchmark interest
rate, Citigroup designates the risk being hedged as the risk of overall changes
in the hedged cash flows. Since efforts are made to match the terms of the
derivatives to those of the hedged forecasted cash flows as closely as possible,
the amount of hedge ineffectiveness is not significant.
Hedging of foreign exchange risk
Citigroup locks in the functional currency equivalent cash flows of long-
term debt and short-term borrowings that are denominated in a currency
other than the functional currency of the issuing entity. Depending on the
risk management objectives, these types of hedges are designated as either
cash flow hedges of only foreign exchange risk or cash flow hedges of both
foreign exchange and interest rate risk, and the hedging instruments used
are foreign exchange cross-currency swaps and forward contracts. These
cash flow hedge relationships use dollar-offset ratio analysis to determine
whether the hedging relationships are highly effective at inception and on an
ongoing basis.
Hedging total return
Citigroup generally manages the risk associated with highly leveraged
financing it has entered into by seeking to sell a majority of its exposures
to the market prior to or shortly after funding. The portion of the highly
leveraged financing that is retained by Citigroup is generally hedged with a
total return swap.
The amount of hedge ineffectiveness on the cash flow hedges recognized
in earnings for the years ended December 31, 2011, 2010 and 2009 is
not significant.