Citibank 2012 Annual Report Download - page 139

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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 France
and actively monitors and manages these intra-day exposures.
Credit Default Swaps—GIIPS and France
Citi buys and sells credit protection, through credit default swaps (CDS), on
underlying GIIPS and French entities as part of its market-making activities
for clients in its trading portfolios. Citi also purchases credit protection,
through CDS, to hedge its own credit exposure to these underlying entities
that arises from loans to these entities or derivative transactions with
these entities.
Citi buys and sells CDS as part of its market-making activity, and
purchases CDS for credit protection, primarily with investment grade, global
financial institutions predominantly outside the GIIPS and France. The
counterparty credit exposure that can arise from the purchase or sale of CDS,
including any GIIPS or French counterparties, is managed and mitigated
through legally enforceable netting and margining agreements with a given
counterparty. Thus, the credit exposure to that counterparty is measured
and managed in aggregate across all products covered by a given netting or
margining agreement.
The notional amount of credit protection purchased or sold on GIIPS and
French underlying single reference entities as of December 31, 2012 is set
forth in the table below. The net notional contract amounts, less mark-to-
market adjustments, are included in “Net current funded exposure” in the
table under “Sovereign, Financial Institution and Corporate Exposures”
above, and appear in either “Net trading exposure” when part of a trading
strategy or in “Purchased credit protection” when purchased as a hedge
against a credit exposure.
CDS purchased or sold on underlying single reference entities in these countries
In billions of U.S. dollars as of December 31, 2012 GIIPS Greece Ireland Italy Portugal Spain France
Notional CDS contracts on underlying reference entities
Net purchased (1) $(15.9) $(0.5) $(0.7) $(10.6) $(2.2) $(5.9) $(9.0)
Net sold (1) 6.1 0.4 0.7 3.0 2.1 3.9 6.0
Sovereign underlying reference entity
Net purchased (1) (11.9) — (0.6) (8.7) (1.7) (3.8) (3.8)
Net sold (1) 4.7 — 0.6 2.0 1.6 3.3 4.0
Financial institution underlying reference entity
Net purchased (1) (2.6) (0.0) (0.0) (1.5) (0.3) (1.2) (1.7)
Net sold (1) 2.2 0.0 0.0 1.4 0.3 1.0 1.4
Corporate underlying reference entity
Net purchased (1) (3.9) (0.5) (0.2) (2.0) (0.7) (1.9) (5.4)
Net sold (1) 1.7 0.4 0.1 1.2 0.6 0.7 2.5
(1) The summation of notional amounts for each GIIPS country does not equal the notional amount presented in the GIIPS total column in the table above, as additional netting is achieved at the agreement level with a
specific counterparty across various GIIPS countries.
When Citi purchases CDS as a hedge against a credit exposure, it generally
seeks to purchase products from counterparties that would not be correlated
with the underlying credit exposure it is hedging. In addition, Citi generally
seeks to purchase products with a maturity date similar to the exposure
against which the protection is purchased. While certain exposures may have
longer maturities that extend beyond the CDS tenors readily available in the
market, Citi generally will purchase credit protection with a maximum tenor
that is readily available in the market.
The above table contains all net CDS purchased or sold on GIIPS and
French underlying single reference entities, whether part of a trading
strategy or as purchased credit protection. With respect to the $15.9 billion
net purchased CDS contracts on underlying GIIPS reference entities,
approximately 91% was purchased from non-GIIPS counterparties and 83%
was purchased from investment grade counterparties as of December 31,
2012. With respect to the $9.0 billion net purchased CDS contracts on
underlying French reference entities, approximately 97% was purchased from
non-French counterparties and 93% was purchased from investment grade
counterparties as of December 31, 2012.