Citibank 2015 Annual Report Download - page 117

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Changes in Foreign Exchange Rates—Impacts on AOCI
and Capital
As of December 31, 2015, Citi estimates that an unanticipated parallel
instantaneous 5% appreciation of the U.S. dollar against all of the other
currencies in which Citi has invested capital 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 Euro, the British pound sterling and the Chinese yuan.
This impact is also before any mitigating actions Citi may take,
including ongoing management of its foreign currency translation
exposure. 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. Changes in these hedging
strategies, as well as hedging costs, divestitures and tax impacts, can further
impact the actual impact of changes in foreign exchange rates on Citi’s
capital as compared to an unanticipated parallel shock, as described above.
The effect of Citi’s ongoing management strategies with respect to
changes in foreign exchange rates and the impact of these changes on
Citi’s TCE and Common Equity Tier 1 Capital ratio 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,
2015
Sept. 30,
2015
Dec. 31,
2014
Change in FX spot rate (1) (1.1)% (6.0)% (4.9)%
Change in TCE due to FX translation, net of hedges $(696) $(2,010) $(1,932)
As a percentage of TCE (0.4)% (1.1)% (1.1)%
Estimated impact to Common Equity Tier 1 Capital ratio (on a fully implemented basis) due to changes in FX translation,
net of hedges (bps) —(5) (1)
(1) FX spot rate change is a weighted average based upon Citi’s quarterly average GAAP capital exposure to foreign countries.