Citibank 2014 Annual Report Download - page 118

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Citigroup Inc. and Citibank, N.A.—Potential Derivative Triggers
As of December 31, 2014, Citi estimates that a hypothetical one-notch
downgrade of the senior debt/long-term rating of Citigroup Inc. across all
three major rating agencies could impact Citigroup’s funding and liquidity
due to derivative triggers by approximately $0.8 billion, unchanged from
September 30, 2014. Other funding sources, such as secured financing
transactions and other margin requirements, for which there are no explicit
triggers, could also be adversely affected.
As of December 31, 2014, Citi estimates that a hypothetical one-notch
downgrade of the senior debt/long-term rating of Citibank, N.A. across all
three major rating agencies could impact Citibank, N.A.’s funding and
liquidity by approximately $1.3 billion, compared to $1.7 billion as of
September 30, 2014, due to derivative triggers.
In total, Citi estimates that a one-notch downgrade of Citigroup and
Citibank, N.A., across all three major rating agencies, could result in
aggregate cash obligations and collateral requirements of approximately
$2.1 billion, compared to $2.5 billion as of September 30, 2014 (see also
Note 23 to the Consolidated Financial Statements). As set forth under
“High Quality Liquid Assets” above, the liquidity resources of Citi’s parent
entities were approximately $73 billion, and the liquidity resources of Citi’s
significant Citibank entities and other Citibank and Banamex entities were
approximately $340 billion, for a total of approximately $413 billion as
of December 31, 2014. These liquidity resources are available in part as a
contingency for the potential events described above.
In addition, a broad range of mitigating actions are currently included
in Citigroup’s and Citibank, N.A.’s contingency funding plans. For Citigroup,
these mitigating factors include, but are not limited to, accessing surplus
funding capacity from existing clients, tailoring levels of secured lending,
and adjusting the size of select trading books and collateralized borrowings
from Citi’s significant bank subsidiaries. Mitigating actions available to
Citibank, N.A. include, but are not limited to, selling or financing highly
liquid government securities, tailoring levels of secured lending, adjusting
the size of select trading books, reducing loan originations and renewals,
raising additional deposits, or borrowing from the FHLB or central banks. Citi
believes these mitigating actions could substantially reduce the funding and
liquidity risk, if any, of the potential downgrades described above.
Citibank, N.A.—Additional Potential Impacts
In addition to the above derivative triggers, Citi believes that a potential
one-notch downgrade of Citibank, N.A.’s senior debt/long-term rating by
S&P and Fitch could also have an adverse impact on the commercial paper/
short-term rating of Citibank, N.A. As of December 31, 2014, Citibank, N.A.
had liquidity commitments of approximately $16.1 billion to consolidated
asset-backed commercial paper conduits, compared to $17.6 billion
as of September 30, 2014 (as referenced in Note 22 to the Consolidated
Financial Statements).
In addition to the above-referenced liquidity resources of Citi’s significant
Citibank entities and other Citibank and Banamex entities, Citibank,
N.A. could reduce the funding and liquidity risk, if any, of the potential
downgrades described above through mitigating actions, including repricing
or reducing certain commitments to commercial paper conduits. In the
event of the potential downgrades described above, Citi believes that certain
corporate customers could re-evaluate their deposit relationships with
Citibank, N.A. This re-evaluation could result in clients adjusting their
discretionary deposit levels or changing their depository institution, which
could potentially reduce certain deposit levels at Citibank, N.A. However,
Citi could choose to adjust pricing, offer alternative deposit products to its
existing customers or seek to attract deposits from new customers, in addition
to the mitigating actions referenced above.