Citibank 2013 Annual Report Download - page 149

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Venezuela
Since฀2003,฀the฀Venezuelan฀government฀has฀enacted฀foreign฀exchange฀
controls. Under these controls, the Venezuelan government’s Foreign
Currency Administration Commission (CADIVI) purchases and sells foreign
currency at an official foreign exchange rate fixed by the government (as of
December 31, 2013, the official exchange rate was fixed at 6.3 bolivars to one
U.S.฀dollar).฀The exchange controls฀have฀limited฀Citi’s฀ability฀to฀obtain฀U.S.฀
dollars in Venezuela at the official foreign currency rate. Citi has not been
able฀to฀acquire฀U.S.฀dollars฀from฀CADIVI฀since฀2008.
In฀2013,฀the฀Venezuelan฀government฀created฀the฀Complimentary฀System฀
of฀Foreign฀Currency฀Acquirement฀(SICAD),฀an฀alternate฀foreign฀exchange฀
mechanism in Venezuela established to settle certain import transactions.
Since฀the฀SICAD฀commenced฀operations,฀it฀has฀conducted฀15฀auctions฀for฀
approximately $1.7 billion. As of December 31, 2013, the rate published by
SICAD฀for฀its฀recent฀auctions฀was฀11.3฀bolivars฀per฀U.S.฀dollar.
As of December 31, 2013, Citi used the official CADIVI exchange rate of
6.3฀bolivars฀per฀U.S.฀dollar฀to฀re-measure฀foreign฀currency฀transactions฀in฀
the฀financial฀statements฀of฀its฀Venezuelan฀operations฀(which฀use฀the฀U.S.฀
dollar฀as฀the฀functional฀currency)฀into฀U.S.฀dollars,฀as฀the฀official฀exchange฀
rate was the only rate legally available to Citi at December 31, 2013 in the
country,฀despite฀the฀limited฀availability฀of฀U.S.฀dollars฀from฀CADIVI฀and฀
although the official rate may not necessarily be reflective of economic
reality. Re-measurement of Citi’s bolivar-denominated assets and liabilities
due to changes in the exchange rate is recorded in earnings.
At December 31, 2013, Citi’s net investment in its Venezuelan operations
was approximately $240 million (compared to $340 million at December 31,
2012฀and฀$230฀million฀at฀September฀30,฀2013),฀which฀included฀net฀monetary฀
assets denominated in Venezuelan bolivars of approximately $220 million
(compared to $290 million at December 31, 2012 and $220 million
at฀September฀30,฀2013).฀Total฀third-party฀assets฀of฀Citi฀Venezuela฀were฀
approximately $1.2 billion at December 31, 2013, composed primarily of
cash, loans and debt securities.
In January 2014, the Venezuelan government announced that the
exchange rate to be applied to foreign currency transactions related to
foreign฀investment฀and฀various฀other฀operations฀will฀be฀the฀SICAD฀rate฀
going forward. Accordingly, beginning in the first quarter of 2014, Citi
will฀begin฀using฀the฀SICAD฀rate฀to฀remeasure฀its฀net฀bolivar-denominated฀
monetary฀assets฀as฀this฀is฀the฀rate฀at฀which฀Citi฀will฀be฀able฀to฀acquire฀U.S.฀
dollars.฀However,฀although฀the฀SICAD฀rate฀will฀be฀applicable฀to฀U.S.฀dollar฀
purchases,฀Citi฀does฀not฀expect฀to฀be฀able฀to฀buy฀U.S.฀dollars฀in฀Venezuela฀in฀
the฀foreseeable฀future.฀Based฀on฀the฀February฀21,฀2014฀SICAD฀auction฀rate฀of฀
11.8฀bolivars฀per฀U.S.฀dollar,฀Citi฀estimates฀that฀it฀will฀incur฀an฀approximate฀
$110 million foreign currency loss in the first quarter of 2014, which could
increase฀if฀the฀bolivar฀continues฀to฀devalue฀in฀the฀SICAD฀market.฀Additionally,฀
beginning in the first quarter of 2014, Citi’s revenues and expenses will be
translated฀at฀the฀SICAD฀rate,฀and฀any฀further฀devaluations฀of฀the฀bolivar฀in฀
the฀SICAD฀market฀will฀result฀in฀foreign฀exchange฀losses฀in฀the฀future.
More recently, the Venezuelan government has also announced the
creation฀of฀a฀new฀foreign฀exchange฀market฀(SICAD฀II).฀Once฀the฀details฀of฀
this new foreign exchange market have been announced, Citi will determine
whether further changes to the foreign exchange rate used to translate Citi’s
results in Venezuela are necessary. Any further changes could negatively
affect Citi’s financial results in the future.
Egypt
There has been ongoing political transition and sporadic civil unrest in
Egypt, contributing to significant economic uncertainty and volatility. Citi
operates in Egypt through a branch of Citibank N.A., and uses the Egyptian
pound as the functional currency to translate its financial statements into
U.S.฀dollars฀using฀quoted฀exchange฀rates.฀As฀of฀December฀31,฀2013,฀Citi’s฀
net investment in Egypt was approximately $250 million, unchanged
from฀September฀30,฀2013,฀and฀Citi฀had฀cumulative฀translation฀losses฀
related to its investment in Egypt, net of qualifying net investment hedges,
of approximately $123 million (pretax), compared to approximately
$116฀million฀(pretax)฀as฀of฀September฀30,฀2013.฀Substantially฀all฀of฀the฀
net investment is hedged with forward foreign-exchange derivatives. Total
third-party assets of the Egypt Citibank, N.A. branch were approximately
$1.6฀billion฀(largely฀unchanged฀from฀September฀30,฀2013),฀composed฀
primarily of cash on deposit with the Central Bank of Egypt, loans and short-
term local government debt securities. A significant majority of these third-
party assets were funded with local deposit liabilities. Citi continues to closely
monitor the political and economic situation in Egypt, and will continue to
take actions to mitigate its exposures to potential risk events.
Ukraine
There have been political changes, civil unrest and military action in
Ukraine, contributing to significant economic uncertainty and volatility.
Citi operates in Ukraine through a subsidiary of Citibank, N.A., and uses
the฀U.S.฀dollar฀as฀the฀functional฀currency.฀As฀of฀December฀31,฀2013,฀Citi’s฀
net฀investment฀in฀Ukraine฀was฀approximately฀$130฀million.฀Substantially฀
all of the net investment is hedged with a Ukraine sovereign bond indexed
to foreign exchange rates which is subject to sovereign political risk. Total
third-party assets of the Ukraine Citibank subsidiary were approximately
$0.6 billion, as of December 31, 2013, composed primarily of cash on
deposit with the Central Bank of Ukraine, short-term local government debt
securities and corporate loans. A significant majority of these third-party
assets were funded with local deposit liabilities. Citi continues to closely
monitor the political, economic and military situation in Ukraine, and will
continue to take actions to mitigate its exposures to potential risk events.