Citibank 2013 Annual Report Download - page 126

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The following table sets forth the estimated impact to Citi’s net interest revenue, OCI and estimated Basel III Tier 1 Common ratio, each assuming an
unanticipated parallel instantaneous 100 basis point increase in interest rates.
In millions of dollars (unless otherwise noted) 2013 2012 2011
Estimated annualized impact to net interest revenue (1)
U.S. dollar (2) $ 1,229 $ 842 $ 97
All other currencies 609 628 769
Total $ 1,838 $ 1,470 $ 866
As a % of average interest-earning assets 0.11% 0.09% 0.05%
Estimated impact to OCI (after-tax) (3) $(3,070) $(2,384) NA
Estimated impact on Basel III Tier 1 Common Ratio (bps) (4) (37) (36) NA
(1) Citi estimates the impact to net interest revenue for the first year following an interest rate change assuming no change to Citi Treasury’s interest rate positioning as a result of the interest rate changes.
(2) Certain trading-oriented businesses within Citi have accrual-accounted positions that are excluded from the estimated impact to net interest revenue in the table since these exposures are economically managed
in combination with marked-to-market positions. The U.S. dollar interest rate exposure associated with these businesses was $(256) million for a 100 basis point instantaneous increase in interest rates as of
December 31, 2013.
(3) Includes the effect of changes in interest rates on OCI related to investment securities, cash flow hedges and pension liability adjustments.
(4) The estimated impact to Basel III Tier 1 Common ratio considers the effect of Citi’s deferred tax asset position and is based on only the estimated OCI impact above.
The increase in the estimated impact to net interest revenue in 2013 from
the prior year primarily reflected changes in Citi’s balance sheet composition,
including the continued growth and seasoning of Citi’s deposit balances and
increases in Citi’s capital base, net of Citi Treasury positioning. The change
in the estimated impact to OCI and estimated Basel III Tier 1 Common ratio
from the prior year primarily reflected changes in the composition of Citi
Treasury’s investment and derivatives portfolio.
In the event of an unanticipated parallel instantaneous 100 basis point
increase in interest rates, Citi expects the negative impact to OCI would
be offset through the combination of expected incremental net interest
revenue and the expected recovery of the impact on OCI through accretion
of Citi’s investment portfolio over a period of time. As of December 31, 2013,
Citi expects that the $(3.1) billion impact to OCI in such a scenario could
potentially be offset over approximately 18 months.
Citi routinely evaluates multiple interest rate scenarios, including interest
rate increases and decreases and steepening and flattening of the yield
curve, to anticipate how net interest revenue and OCI might be impacted
in different interest rate environments. The following table sets forth the
estimated impact to Citi’s net interest revenue, OCI and estimated Basel III
Tier 1 Common ratio under four different changes in interest rates for the
U.S. dollar and Citi’s other currencies. While Citi also monitors the impact of
a parallel decrease in interest rates, a 100 basis point decrease in short-term
interest rates is not meaningful, as it would imply negative interest rates in
many of Citi’s markets.
In millions of dollars (unless otherwise noted) Scenario 1 Scenario 2 Scenario 3 Scenario 4
Overnight rate change (bps) 100 100 — —
10-year rate change (bps) 100 — 100 (100)
Estimated annualized impact to net interest revenue (in millions of dollars)
U.S. dollar $ 1,229 $ 1,193 $ 83 $ (125)
All other currencies 609 567 35 (35)
Total $ 1,838 $ 1,760 $ 118 $ (160)
Estimated impact to OCI (after-tax) (1) $(3,070) $(1,925) $(1,301) $1,070
Estimated impact to Basel III Tier 1 Common ratio (bps) (2) (37) (22) (16) 13
Note: Each scenario in the table above assumes that the rate change will occur instantaneously and that there are no changes to Citi Treasury’s portfolio positioning as a result of the interest rate changes. Changes in
interest rates for maturities between the overnight rate and the 10-year are interpolated.
(1) Includes the effect of changes in interest rates on OCI related to investment securities, cash flow hedges and pension liability adjustments.
(2) The estimated impact to Basel III Tier 1 Common ratio considers the effect of Citi’s deferred tax asset position and is based on only the estimated OCI impact above.
As shown in the table above, the magnitude of the impact to Citi’s net interest
revenue and OCI is greater under scenario 2 as compared to scenario 3.
This is due to the fact that the combination of changes to Citi’s investment
portfolio, partially offset by changes related to Citi’s pension liabilities, results
in a net position that is more sensitive to rates at shorter and intermediate
term maturities.