Citibank 2014 Annual Report Download - page 121

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Changes in Foreign Exchange Rates—Impacts on OCI and Capital
As of December 31, 2014, Citi estimates that a simultaneous 5% appreciation
of the U.S. dollar against all of Citi’s other currencies could reduce Citi’s
tangible common equity (TCE) by approximately $1.5 billion, or 0.8% of
TCE, as a result of changes to Citi’s foreign currency translation adjustment
in AOCI, net of hedges. This impact would be primarily due to changes in the
value of the Mexican peso, the British pound sterling, the euro, the Chinese
yuan and the Korean won.
Despite this decrease in TCE, Citi believes its business model and
management of foreign currency translation exposure work to minimize
the effect of changes in foreign exchange rates on its Common Equity Tier 1
Capital ratio. Specifically, as currency movements change the value of Citi’s
net investments in foreign-currency-denominated capital, these movements
also change the value of Citi’s risk-weighted assets denominated in those
currencies. This, coupled with Citi’s foreign currency hedging strategies, such
as foreign currency borrowings, foreign currency forwards and other currency
hedging instruments, lessens the impact of foreign currency movements on
Citi’s Common Equity Tier 1 Capital ratio.
The effect of Citi’s business model and management strategies on changes
in foreign exchange rates are shown in the table below. For additional
information in the changes in AOCI, see Note 20 to the Consolidated
Financial Statements.
For the quarter ended
In millions of dollars (unless otherwise noted)
Dec. 31,
2014
Sept. 30,
2014
Dec. 31,
2013
Change in FX spot rate (1) (4.9)% (4.4)% (0.4)%
Change in TCE due to foreign currency
translation, net of hedges $(1,932) $(1,182) $(241)
As a % of Tangible Common Equity (1.1)% (0.7)% (0.1)%
Estimated impact to Common Equity Tier 1
Capital ratio (on a fully implemented
basis) due to changes in foreign currency
translation, net of hedges (bps) (1) 3 (2)
(1) FX spot rate change is a weighted average based upon Citi’s quarterly average GAAP capital exposure
to foreign countries.