Citibank 2015 Annual Report Download - page 291

273
Own Debt Valuation Adjustments
Own debt valuation adjustments are recognized on Citi’s liabilities for
which the fair value option has been elected using Citi’s credit spreads
observed in the bond market. The fair value of liabilities for which the fair
value option is elected (other than non-recourse and similar liabilities) is
impacted by the narrowing or widening of the Company’s credit spreads. The
estimated change in the fair value of these liabilities due to such changes
in the Company’s own credit risk (or instrument-specific credit risk) was
a gain of $367 million and $218 million for the years ended December 31,
2015 and 2014, respectively. Changes in fair value resulting from changes
in instrument-specific credit risk were estimated by incorporating the
Company’s current credit spreads observable in the bond market into the
relevant valuation technique used to value each liability as described above.
The Fair Value Option for Financial Assets and Financial
Liabilities
Selected Portfolios of Securities Purchased Under
Agreements to Resell, Securities Borrowed, Securities Sold
Under Agreements to Repurchase, Securities Loaned and
Certain Non-Collateralized Short-Term Borrowings
The Company elected the fair value option for certain portfolios of fixed-
income securities purchased under agreements to resell and fixed-income
securities sold under agreements to repurchase, securities borrowed, securities
loaned, and certain non-collateralized short-term borrowings held primarily
by broker-dealer entities in the United States, United Kingdom and Japan.
In each case, the election was made because the related interest-rate risk is
managed on a portfolio basis, primarily with derivative instruments that are
accounted for at fair value through earnings.
Changes in fair value for transactions in these portfolios are recorded in
Principal transactions. The related interest revenue and interest expense are
measured based on the contractual rates specified in the transactions and
are reported as interest revenue and expense in the Consolidated Statement
of Income.
Certain Loans and Other Credit Products
Citigroup has elected the fair value option for certain originated and
purchased loans, including certain unfunded loan products, such as
guarantees and letters of credit, executed by Citigroup’s lending and trading
businesses. None of these credit products are highly leveraged financing
commitments. Significant groups of transactions include loans and
unfunded loan products that are expected to be either sold or securitized in
the near term, or transactions where the economic risks are hedged with
derivative instruments, such as purchased credit default swaps or total return
swaps where the Company pays the total return on the underlying loans to a
third party. Citigroup has elected the fair value option to mitigate accounting
mismatches in cases where hedge accounting is complex and to achieve
operational simplifications. Fair value was not elected for most lending
transactions across the Company.
The following table provides information about certain credit products carried at fair value:
December 31, 2015 December 31, 2014
In millions of dollars Trading assets Loans Trading assets Loans
Carrying amount reported on the Consolidated Balance Sheet $ 9,314 $5,005 $10,290 $5,901
Aggregate unpaid principal balance in excess of (less than) fair value 980 280 234 125
Balance of non-accrual loans or loans more than 90 days past due 5 2 13 3
Aggregate unpaid principal balance in excess of fair value for non-accrual
loans or loans more than 90 days past due 13 1 28 1
In addition to the amounts reported above, $2,113 million and
$2,335 million of unfunded commitments related to certain credit products
selected for fair value accounting were outstanding as of December 31, 2015
and 2014, respectively.
Changes in the fair value of funded and unfunded credit products
are classified in Principal transactions in the Company’s Consolidated
Statement of Income. Related interest revenue is measured based on the
contractual interest rates and reported as Interest revenue on Trading
account assets or loan interest depending on the balance sheet classifications
of the credit products. The changes in fair value for the years ended
December 31, 2015 and 2014 due to instrument-specific credit risk totaled to
a loss of $221 million and $155 million, respectively.