Citibank 2012 Annual Report Download - page 137

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GIIPS
Sovereign, Financial Institution and Corporate Exposures
As noted in the table above, Citi’s gross funded credit exposure to sovereign
entities, financial institutions and multinational and local corporations
designated in the GIIPS under Citi’s risk management systems was
$21.6 billion at December 31, 2012, compared to $21.3 billion at
September 30, 2012. This $21.6 billion of gross funded credit exposure at
December 31, 2012 was made up of $8.0 billion in gross funded loans, before
reserves (compared to $8.4 billion at September 30, 2012), and $13.6 billion
in derivative counterparty mark-to-market exposure, inclusive of CVA
(compared to $13.0 billion at September 30, 2012). The increase in derivative
counterparty mark-to-market exposure quarter-over-quarter was primarily
due to an increase in exposure in Italy due to market movements.
Further, as of December 31, 2012, Citi’s net current funded exposure
to sovereigns, financial institutions and corporations designated in the
GIIPS under Citi’s risk management systems was $8.9 billion, compared
to $9.5 billion at September 30, 2012, reflecting a decrease in net current
funded credit exposure partially offset by an increase in net trading and AFS
exposure, each as discussed below.
Net Trading and AFS Exposure—$2.9 billion
Included in the net current funded exposure at December 31, 2012 was a net
position of $2.9 billion in securities and derivatives with GIIPS sovereigns,
financial institutions and corporations as the issuer or reference entity.
This compared to $2.0 billion of net trading and AFS exposures as of
September 30, 2012. These securities and derivatives are marked to market
daily. Citi’s trading exposure levels vary as it maintains inventory consistent
with customer needs.
Included within the net position of $2.9 billion as of December 31, 2012
was a net position of $(0.1) billion of indexed and tranched credit derivatives
(compared to a net position of $(0.05) billion at September 30, 2012).
Net Current Funded Credit Exposure—$6.0 billion
As of December 31, 2012, Citi’s net current funded credit exposure to
GIIPS sovereigns, financial institutions and corporations was $6.0 billion,
the majority of which was to corporations designated in the GIIPS. This
compared to $7.4 billion as of September 30, 2012. The decrease in Citi’s net
current funded credit exposure quarter-over-quarter was due to an increase
in margin and collateral netted against Citi’s gross funded credit exposure in
the GIIPS, as discussed below.
Consistent with its internal risk management measures and as set forth
in the table above, Citi’s gross funded credit exposure as of December 31,
2012 has been reduced by $5.5 billion of margin and collateral posted
under legally enforceable margin agreements, compared to $3.8 billion as
of September 30, 2012. The quarter-over-quarter increase in margin and
collateral netted against Citi’s gross funded credit exposure to the GIIPS
was largely due to a reallocation of approximately $1.4 billion of non-
GIIPS government bonds from “Additional collateral received, not reducing
amounts above” to margin and collateral netted against Citi’s gross funded
credit exposures as of December 31, 2012. The reallocation resulted from
additional analysis of Citi’s collateral rights and the legal enforceability of
those rights. As of December 31, 2012, the majority of Citi’s margin and
collateral netted against its gross funded credit exposure to the GIIPS was in
the form of cash, with the remainder in predominantly non-GIIPS securities,
which are included at fair value.
Gross funded credit exposure as of December 31, 2012 has also been
reduced by $10.1 billion in purchased credit protection (flat to the
September 30, 2012 amount), predominantly from financial institutions
outside the GIIPS (see “Credit Default Swaps” below). Included within
the $10.1 billion of purchased credit protection as of December 31, 2012
was $0.5 billion of indexed and tranched credit derivatives (compared
to $0.9 billion at September 30, 2012) executed to hedge Citi’s exposure
on funded loans and CVA on derivatives, a significant portion of which is
reflected in Italy and Spain.
Purchased credit protection generally pays out only upon the occurrence
of certain credit events with respect to the country or borrower covered by
the protection, as determined by a committee composed of dealers and other
market participants. In addition to general counterparty credit risks, the
credit protection may not fully cover all situations that may adversely affect
the value of Citi’s exposure and, accordingly, Citi could still experience losses
despite the existence of the credit protection.
As of December 31, 2012, Citi also held $2.1 billion of collateral that
has not been netted against its gross funded credit exposure to the GIIPS, a
decrease from $3.6 billion at September 30, 2012. The quarter-over-quarter
decrease was due to the reallocation of the non-GIIPS government bonds
referenced above. Collateral received but not netted against Citi’s gross
funded credit exposure in the GIIPS may take a variety of forms, including
securities, receivables and physical assets, and is held under a variety of
collateral arrangements.
Unfunded Commitments—$7.3 billion
As of December 31, 2012, Citi had $7.3 billion of unfunded commitments to
GIIPS sovereigns, financial institutions and corporations, with $6.9 billion
of this amount to corporations. This compared to $6.6 billion of unfunded
commitments as of September 30, 2012, with $6.3 billion of such amount to
corporations. As of December 31, 2012, net unfunded commitments in the
GIIPS included approximately $5.2 billion of unfunded loan commitments
that generally have standard conditions that must be met before they can
be drawn, and $2.0 billion of letters of credit (compared to $4.4 billion and
$2.2 billion, respectively, at September 30, 2012).
Other Activities
In addition to the exposures described above, like other banks, Citi also
provides settlement and clearing facilities for a variety of clients in these
countries and actively monitors and manages these intra-day exposures.