Citibank 2011 Annual Report Download - page 63

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CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES
Overview
Citi generates capital through earnings from its operating businesses. Citi
may augment its capital through issuances of common stock, perpetual
preferred stock and equity issued through awards under employee benefit
plans, among other issuances. Citi has also augmented its regulatory
capital through the issuance of subordinated debt underlying trust preferred
securities, although the treatment of such instruments as regulatory capital
will be phased out under Basel III and The Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (see “Regulatory Capital Standards”
and “Risk Factors—Regulatory Risks” below). Further, the impact of future
events on Citi’s business results, such as corporate and asset dispositions,
as well as changes in regulatory and accounting standards, may also affect
Citi’s capital levels.
Capital is used primarily to support assets in Citi’s businesses and to
absorb market, credit or operational losses. Capital may be used for other
purposes, such as to pay dividends or repurchase common stock. However,
Citi’s ability to pay regular quarterly cash dividends of more than $0.01
per share, or to redeem or repurchase equity securities or trust preferred
securities, is currently restricted (which restriction may be waived) due to
Citi’s agreements with certain U.S. government entities, generally for so long
as the U.S. government continues to hold any Citi trust preferred securities
acquired in connection with the exchange offers consummated in 2009. (See
“Risk Factors—Business Risks” below.)
Citigroup’s capital management framework is designed to ensure that
Citigroup and its principal subsidiaries maintain sufficient capital consistent
with Citi’s risk profile and all applicable regulatory standards and guidelines,
as well as external rating agency considerations. Senior management
is responsible for the capital and liquidity management process mainly
through Citigroup’s Finance and Asset and Liability Committee (FinALCO),
with oversight from the Risk Management and Finance Committee of
Citigroup’s Board of Directors. Among other things, FinALCO’s responsibilities
include: determining the financial structure of Citigroup and its principal
subsidiaries; ensuring that Citigroup and its regulated entities are adequately
capitalized in consultation with its regulators; determining appropriate
asset levels and return hurdles for Citigroup and individual businesses;
reviewing the funding and capital markets plan for Citigroup; and setting
and monitoring corporate and bank liquidity levels and the impact of
currency translation on non-U.S. capital. Asset and liability committees are
also established globally and for each region, country and/or major line
of business.
Capital Ratios
Citigroup is subject to the risk-based capital guidelines issued by the Federal
Reserve Board. Historically, capital adequacy has been measured, in part,
based on two risk-based capital ratios, the Tier 1 Capital and Total Capital
(Tier 1 Capital + Tier 2 Capital) ratios. Tier 1 Capital consists of the sum of
“core capital elements,” such as qualifying common stockholders’ equity, as
adjusted, qualifying noncontrolling interests, and qualifying trust preferred
securities, principally reduced by goodwill, other disallowed intangible
assets, and disallowed deferred tax assets. Total Capital also includes
“supplementary” Tier 2 Capital elements, such as qualifying subordinated
debt and a limited portion of the allowance for credit losses. Both measures of
capital adequacy are stated as a percentage of risk-weighted assets.
In 2009, the U.S. banking regulators developed a new measure of capital
termed “Tier 1 Common,” which is defined as Tier 1 Capital less non-
common elements, including qualifying perpetual preferred stock, qualifying
noncontrolling interests, and qualifying trust preferred securities. For more
detail on all of these capital metrics, see “Components of Capital Under
Regulatory Guidelines” below.
Citigroup’s risk-weighted assets are principally derived from application
of the risk-based capital guidelines related to the measurement of credit
risk. Pursuant to these guidelines, on-balance-sheet assets and the credit
equivalent amount of certain off-balance-sheet exposures (such as financial
guarantees, unfunded lending commitments, letters of credit and derivatives)
are assigned to one of several prescribed risk-weight categories based upon
the perceived credit risk associated with the obligor or, if relevant, the
guarantor, the nature of the collateral, or external credit ratings. Risk-
weighted assets also incorporate a measure for market risk on covered
trading account positions and all foreign exchange and commodity positions
whether or not carried in the trading account. Excluded from risk-weighted
assets are any assets, such as goodwill and deferred tax assets, to the extent
required to be deducted from regulatory capital. See “Components of Capital
Under Regulatory Guidelines” below.
Citigroup is also subject to a Leverage ratio requirement, a non-risk-
based measure of capital adequacy, which is defined as Tier 1 Capital as a
percentage of quarterly adjusted average total assets.
To be “well capitalized” under current federal bank regulatory agency
definitions, a bank holding company must have a Tier 1 Capital ratio of at
least 6%, a Total Capital ratio of at least 10%, and not be subject to a Federal
Reserve Board directive to maintain higher capital levels. In addition, the
Federal Reserve Board expects bank holding companies to maintain a
minimum Leverage ratio of 3% or 4%, depending on factors specified in its
regulations. The following table sets forth Citigroup’s regulatory capital ratios
as of December 31, 2011 and December 31, 2010:
Citigroup Regulatory Capital Ratios
At year end 2011 
4IERææ#OMMON 11.80% 
4IERææ#APITAL 13.55 
4OTALæ#APITALæ4IERææ#APITALææ4IERææ#APITAL 16.99 
,EVERAGE 7.19 
As indicated in the table above, Citigroup was “well capitalized” under the
current federal bank regulatory agency definitions as of December 31, 2011
and December 31, 2010.