Citibank 2015 Annual Report Download - page 258

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For the years ended December 31, 2015, 2014 and 2013, the amounts
recognized in Principal transactions in the Consolidated Statement
of Income related to derivatives not designated in a qualifying hedging
relationship, as well as the underlying non-derivative instruments, are
presented in Note 6 to the Consolidated Financial Statements. Citigroup
presents this disclosure by business classification, showing derivative gains
and losses related to its trading activities together with gains and losses
related to non-derivative instruments within the same trading portfolios, as
this represents the way these portfolios are risk managed.
The amounts recognized in Other revenue in the Consolidated Statement
of Income related to derivatives not designated in a qualifying hedging
relationship are shown below. The table below does not include any offsetting
gains/losses on the economically hedged items to the extent such amounts
are also recorded in Other revenue.
Gains (losses) included in Other revenue
In millions of dollars 2015 2014 2013
Interest rate contracts $117 $(227)$ 208
Foreign exchange (39) 14 (41)
Credit derivatives 476 (150)(594)
Total Citigroup $554 $(363)$(427)
Accounting for Derivative Hedging
Citigroup accounts for its hedging activities in accordance with ASC 815,
Derivatives and Hedging. As a general rule, hedge accounting is permitted
where the Company is exposed to a particular risk, such as interest-rate or
foreign-exchange risk, that causes changes in the fair value of an asset or
liability or variability in the expected future cash flows of an existing asset,
liability or a forecasted transaction that may affect earnings.
Derivative contracts hedging the risks associated with changes in fair
value are referred to as fair value hedges, while contracts hedging the
variability of expected future cash flows are cash flow hedges. Hedges that
utilize derivatives or debt instruments to manage the foreign exchange
risk associated with equity investments in non-U.S.-dollar-functional-
currency foreign subsidiaries (net investment in a foreign operation) are net
investment hedges.
If certain hedging criteria specified in ASC 815 are met, including
testing for hedge effectiveness, hedge accounting may be applied. The hedge
effectiveness assessment methodologies for similar hedges are performed
in a similar manner and are used consistently throughout the hedging
relationships. For fair value hedges, changes in the value of the hedging
derivative, as well as changes in the value of the related hedged item due to
the risk being hedged, are reflected in current earnings. For cash flow hedges
and net investment hedges, changes in the value of the hedging derivative are
reflected in Accumulated other comprehensive income (loss) in Citigroup’s
stockholders’ equity to the extent the hedge is highly effective. Hedge
ineffectiveness, in either case, is reflected in current earnings.