DERIVATIVES ACTIVITIES |
DERIVATIVES ACTIVITIES As of January 1, 2018, Citigroup early adopted ASU 2017-12, Targeted Improvements to Accounting for Hedge Activities. This standard primarily impacts Citi’s accounting for derivatives designated as cash flow hedges and fair value hedges. Refer to the respective sections below for details. In the ordinary course of business, Citigroup enters into various types of derivative transactions. All derivatives are recorded in Trading account assets/Trading account liabilities on the Consolidated Balance Sheet. For additional information regarding Citi’s use of and accounting for derivatives, see Note 22 to the Consolidated Financial Statements in Citi’s 2017 Annual Report on Form 10-K. Information pertaining to Citigroup’s derivative activities, based on notional amounts, is presented in the table below. Derivative notional amounts are reference amounts from which contractual payments are derived and do not represent a complete measure of Citi’s exposure to derivative transactions. Rather, Citi’s derivative exposure arises primarily from market fluctuations (i.e., market risk), counterparty failure (i.e., credit risk) and/or periods of high volatility or financial stress (i.e., liquidity risk), as well as any market valuation adjustments that may be required on the transactions. Moreover, notional amounts do not reflect the netting of offsetting trades. For example, if Citi enters into a receive-fixed interest rate swap with $100 million notional, and offsets this risk with an identical but opposite pay-fixed position with a different counterparty, $200 million in derivative notionals is reported, although these offsetting positions may result in de minimis overall market risk. In addition, aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on Citi’s market share, levels of client activity and other factors.
Derivative Notionals | | | | | | | | | | | | | | | Hedging instruments under ASC 815 | Trading derivative instruments | In millions of dollars | September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | Interest rate contracts | | | | | Swaps | $ | 246,079 |
| $ | 189,779 |
| $ | 19,759,439 |
| $ | 18,754,219 |
| Futures and forwards | — |
| — |
| 8,297,965 |
| 6,460,539 |
| Written options | — |
| — |
| 3,857,773 |
| 3,516,131 |
| Purchased options | — |
| — |
| 3,236,924 |
| 3,234,025 |
| Total interest rate contract notionals | $ | 246,079 |
| $ | 189,779 |
| $ | 35,152,101 |
| $ | 31,964,914 |
| Foreign exchange contracts | | | | | Swaps | $ | 54,502 |
| $ | 37,162 |
| $ | 7,004,521 |
| $ | 5,576,357 |
| Futures, forwards and spot | 37,769 |
| 33,103 |
| 5,711,577 |
| 3,097,700 |
| Written options | 2,497 |
| 3,951 |
| 1,727,916 |
| 1,127,728 |
| Purchased options | 2,934 |
| 6,427 |
| 1,695,392 |
| 1,148,686 |
| Total foreign exchange contract notionals | $ | 97,702 |
| $ | 80,643 |
| $ | 16,139,406 |
| $ | 10,950,471 |
| Equity contracts | | | | | Swaps | $ | — |
| $ | — |
| $ | 245,167 |
| $ | 215,834 |
| Futures and forwards | — |
| — |
| 70,526 |
| 72,616 |
| Written options | — |
| — |
| 436,032 |
| 389,961 |
| Purchased options | — |
| — |
| 333,448 |
| 328,154 |
| Total equity contract notionals | $ | — |
| $ | — |
| $ | 1,085,173 |
| $ | 1,006,565 |
| Commodity and other contracts | | | | | Swaps | $ | — |
| $ | — |
| $ | 118,699 |
| $ | 82,039 |
| Futures and forwards | 397 |
| 23 |
| 164,427 |
| 153,248 |
| Written options | — |
| — |
| 72,021 |
| 62,045 |
| Purchased options | — |
| — |
| 69,862 |
| 60,526 |
| Total commodity and other contract notionals | $ | 397 |
| $ | 23 |
| $ | 425,009 |
| $ | 357,858 |
| Credit derivatives(1) | | | | | Protection sold | $ | — |
| $ | — |
| $ | 723,060 |
| $ | 735,142 |
| Protection purchased | — |
| — |
| 793,792 |
| 777,713 |
| Total credit derivatives | $ | — |
| $ | — |
| $ | 1,516,852 |
| $ | 1,512,855 |
| Total derivative notionals | $ | 344,178 |
| $ | 270,445 |
| $ | 54,318,541 |
| $ | 45,792,663 |
|
| | (1) | Credit derivatives are arrangements designed to allow one party (protection buyer) to transfer the credit risk of a “reference asset” to another party (protection seller). These arrangements allow a protection seller to assume the credit risk associated with the reference asset without directly purchasing that asset. The Company enters into credit derivative positions for purposes such as risk management, yield enhancement, reduction of credit concentrations and diversification of overall risk. |
The following tables present the gross and net fair values of the Company’s derivative transactions and the related offsetting amounts as of September 30, 2018 and December 31, 2017. Gross positive fair values are offset against gross negative fair values by counterparty, pursuant to enforceable master netting agreements. Under ASC 815-10-45, payables and receivables in respect of cash collateral received from or paid to a given counterparty pursuant to a credit support annex are included in the offsetting amount, if a legal opinion supporting the enforceability of netting and collateral rights has been obtained. GAAP does not permit similar offsetting for security collateral. In addition, the following tables reflect rule changes adopted by clearing organizations that require or allow entities to treat certain derivative assets, liabilities and the related variation margin as settlement of the related derivative fair values for legal and accounting purposes, as opposed to presenting gross derivative assets and liabilities that are subject to collateral, whereby the counterparties would record a related collateral payable or receivable. As a result, the tables reflect a reduction of approximately $110 billion and $100 billion as of September 30, 2018 and December 31, 2017, respectively, of derivative assets and derivative liabilities that previously would have been reported on a gross basis, but are now settled and not subject to collateral. The tables also present amounts that are not permitted to be offset, such as security collateral or cash collateral posted at third-party custodians, but which would be eligible for offsetting to the extent that an event of default occurred and a legal opinion supporting enforceability of the netting and collateral rights has been obtained. Derivative Mark-to-Market (MTM) Receivables/Payables | | | | | | | | In millions of dollars at September 30, 2018 | Derivatives classified in Trading account assets/liabilities(1)(2) | Derivatives instruments designated as ASC 815 hedges | Assets | Liabilities | Over-the-counter | $ | 1,411 |
| $ | 81 |
| Cleared | 137 |
| 575 |
| Interest rate contracts | $ | 1,548 |
| $ | 656 |
| Over-the-counter | $ | 1,568 |
| $ | 718 |
| Foreign exchange contracts | $ | 1,568 |
| $ | 718 |
| Total derivatives instruments designated as ASC 815 hedges | $ | 3,116 |
| $ | 1,374 |
| Derivatives instruments not designated as ASC 815 hedges | | | Over-the-counter | $ | 155,901 |
| $ | 136,989 |
| Cleared | 8,262 |
| 10,062 |
| Exchange traded | 130 |
| 136 |
| Interest rate contracts | $ | 164,293 |
| $ | 147,187 |
| Over-the-counter | $ | 169,989 |
| $ | 164,571 |
| Cleared | 3,326 |
| 3,360 |
| Exchange traded | 88 |
| 236 |
| Foreign exchange contracts | $ | 173,403 |
| $ | 168,167 |
| Over-the-counter | $ | 19,891 |
| $ | 24,766 |
| Cleared | 10 |
| 9 |
| Exchange traded | 10,143 |
| 10,354 |
| Equity contracts | $ | 30,044 |
| $ | 35,129 |
| Over-the-counter | $ | 22,449 |
| $ | 25,024 |
| Exchange traded | 826 |
| 756 |
| Commodity and other contracts | $ | 23,275 |
| $ | 25,780 |
| Over-the-counter | $ | 4,240 |
| $ | 5,912 |
| Cleared | 7,326 |
| 5,781 |
| Credit derivatives | $ | 11,566 |
| $ | 11,693 |
| Total derivatives instruments not designated as ASC 815 hedges | $ | 402,581 |
| $ | 387,956 |
| Total derivatives | $ | 405,697 |
| $ | 389,330 |
| Cash collateral paid/received(3) | $ | 10,759 |
| $ | 13,676 |
| Less: Netting agreements(4) | (322,565 | ) | (322,565 | ) | Less: Netting cash collateral received/paid(5) | (37,678 | ) | (30,701 | ) | Net receivables/payables included on the Consolidated Balance Sheet(6) | $ | 56,213 |
| $ | 49,740 |
| Additional amounts subject to an enforceable master netting agreement, but not offset on the Consolidated Balance Sheet | | | Less: Cash collateral received/paid | $ | (739 | ) | $ | (83 | ) | Less: Non-cash collateral received/paid | (12,389 | ) | (11,376 | ) | Total net receivables/payables(6) | $ | 43,085 |
| $ | 38,281 |
|
| | (1) | The derivatives fair values are also presented in Note 20 to the Consolidated Financial Statements. |
| | (2) | Over-the-counter (OTC) derivatives are derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. Cleared derivatives include derivatives executed bilaterally with a counterparty in the OTC market, but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. Exchange-traded derivatives include derivatives executed directly on an organized exchange that provides pre-trade price transparency. |
| | (3) | Reflects the net amount of the $41,460 million and $51,354 million of gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $30,701 million was used to offset trading derivative liabilities and, of the gross cash collateral received, $37,678 million was used to offset trading derivative assets. |
| | (4) | Represents the netting of derivative receivable and payable balances with the same counterparty under enforceable netting agreements. Approximately $304 billion, $9 billion and $10 billion of the netting against trading account asset/liability balances is attributable to each of the OTC, cleared and exchange-traded derivatives, respectively. |
| | (5) | Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. Substantially all cash collateral received and paid is netted against OTC derivative assets and liabilities, respectively. |
| | (6) | The net receivables/payables include approximately $6 billion of derivative asset and $7 billion of derivative liability fair values not subject to enforceable master netting agreements, respectively. |
| | | | | | | | In millions of dollars at December 31, 2017 | Derivatives classified in Trading account assets/liabilities(1)(2) | Derivatives instruments designated as ASC 815 hedges | Assets | Liabilities | Over-the-counter | $ | 1,969 |
| $ | 134 |
| Cleared | 110 |
| 92 |
| Interest rate contracts | $ | 2,079 |
| $ | 226 |
| Over-the-counter | $ | 1,143 |
| $ | 1,150 |
| Foreign exchange contracts | $ | 1,143 |
| $ | 1,150 |
| Total derivatives instruments designated as ASC 815 hedges | $ | 3,222 |
| $ | 1,376 |
| Derivatives instruments not designated as ASC 815 hedges | | | Over-the-counter | $ | 195,677 |
| $ | 173,937 |
| Cleared | 7,129 |
| 10,381 |
| Exchange traded | 102 |
| 95 |
| Interest rate contracts | $ | 202,908 |
| $ | 184,413 |
| Over-the-counter | $ | 119,092 |
| $ | 117,473 |
| Cleared | 1,690 |
| 2,028 |
| Exchange traded | 34 |
| 121 |
| Foreign exchange contracts | $ | 120,816 |
| $ | 119,622 |
| Over-the-counter | $ | 17,221 |
| $ | 21,201 |
| Cleared | 21 |
| 25 |
| Exchange traded | 9,736 |
| 10,147 |
| Equity contracts | $ | 26,978 |
| $ | 31,373 |
| Over-the-counter | $ | 13,499 |
| $ | 16,362 |
| Exchange traded | 604 |
| 665 |
| Commodity and other contracts | $ | 14,103 |
| $ | 17,027 |
| Over-the-counter | $ | 12,972 |
| $ | 12,958 |
| Cleared | 7,562 |
| 8,575 |
| Credit derivatives | $ | 20,534 |
| $ | 21,533 |
| Total derivatives instruments not designated as ASC 815 hedges | $ | 385,339 |
| $ | 373,968 |
| Total derivatives | $ | 388,561 |
| $ | 375,344 |
| Cash collateral paid/received(3) | $ | 7,541 |
| $ | 14,308 |
| Less: Netting agreements(4) | (306,401 | ) | (306,401 | ) | Less: Netting cash collateral received/paid(5) | (38,532 | ) | (35,666 | ) | Net receivables/payables included on the Consolidated Balance Sheet(6) | $ | 51,169 |
| $ | 47,585 |
| Additional amounts subject to an enforceable master netting agreement, but not offset on the Consolidated Balance Sheet | | | Less: Cash collateral received/paid | $ | (872 | ) | $ | (121 | ) | Less: Non-cash collateral received/paid | (12,739 | ) | (6,929 | ) | Total net receivables/payables(6) | $ | 37,558 |
| $ | 40,535 |
|
| | (1) | The derivatives fair values are presented in Note 20 to the Consolidated Financial Statements. Derivative mark-to-market receivables/payables previously reported within Other assets/Other liabilities have been reclassified to Trading account assets/Trading account liabilities to conform with the current-period presentation. |
| | (2) | Over-the-counter (OTC) derivatives are derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. Cleared derivatives include derivatives executed bilaterally with a counterparty in the OTC market, but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. Exchange-traded derivatives include derivatives executed directly on an organized exchange that provides pre-trade price transparency. |
| | (3) | Reflects the net amount of the $43,207 million and $52,840 million of gross cash collateral paid and received, respectively. Of the gross cash collateral paid, $35,666 million was used to offset trading derivative liabilities and, of the gross cash collateral received, $38,532 million was used to offset trading derivative assets. |
| | (4) | Represents the netting of derivative receivable and payable balances with the same counterparty under enforceable netting agreements. Approximately $283 billion, $14 billion and $9 billion of the netting against trading account asset/liability balances is attributable to each of the OTC, cleared and exchange-traded derivatives, respectively. |
| | (5) | Represents the netting of cash collateral paid and received by counterparty under enforceable credit support agreements. Substantially all cash collateral received and paid is netted against OTC derivative assets and liabilities, respectively. |
| | (6) | The net receivables/payables include approximately $6 billion of derivative asset and $8 billion of derivative liability fair values not subject to enforceable master netting agreements, respectively. |
For the three and nine months ended September 30, 2018 and 2017, 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 how 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 |
| Three Months Ended September 30, | Nine Months Ended September 30, | In millions of dollars | 2018 | 2017 | 2018 | 2017 | Interest rate contracts | $ | (22 | ) | $ | (5 | ) | $ | (65 | ) | $ | (72 | ) | Foreign exchange | 7 |
| 596 |
| (6 | ) | 1,897 |
| Credit derivatives | (200 | ) | (125 | ) | (271 | ) | (501 | ) | Total | $ | (215 | ) | $ | 466 |
| $ | (342 | ) | $ | 1,324 |
|
Fair Value Hedges
Hedging of Benchmark Interest Rate Risk Citigroup’s fair value hedges are primarily hedges of fixed-rate long-term debt or assets, such as available-for-sale debt securities or loans. For qualifying fair value hedges of interest rate risk, the changes in the fair value of the derivative and the change in the fair value of the hedged item attributable to the hedged risk, either total cash flows or benchmark only cash flows are presented within Interest revenue or Interest expense based on whether the hedged item is an asset or a liability. Prior to the adoption of ASU 2017-12, the fair value of the derivative was presented in Other revenue or Principal transactions and the difference between the changes in the hedged item and the derivative was defined as ineffectiveness.
Hedging of Foreign Exchange Risk Citigroup hedges the change in fair value attributable to foreign exchange rate movements in available-for-sale debt securities and long-term debt that are denominated in currencies other than the functional currency of the entity holding the securities or issuing the debt, which may be within or outside the U.S. The hedging instrument may be a forward foreign exchange contract or a cross-currency swap contract. Citigroup considers the premium associated with forward contracts (i.e., the differential between the spot and contractual forward rates) as the cost of hedging; this amount is excluded from the assessment of hedge effectiveness and reflected directly in earnings over the life of the hedge. Beginning January 1, 2018, Citi excludes changes in cross-currency basis associated with cross-currency swaps from the assessment of hedge effectiveness and records it in Other comprehensive income. Hedging of Commodity Price Risk Citigroup hedges the change in fair value attributable to spot price movements in physical commodities inventory. The hedging instrument is a futures contract to sell the underlying commodity. In this hedge, the change in the value of the hedged inventory is reflected in earnings, which offsets the change in the fair value of the futures contract that is also reflected in earnings. Although the change in the fair value of the hedging instrument recorded in earnings includes changes in forward rates, Citigroup excludes the differential between the spot and the contractual forward rates under the futures contract from the assessment of hedge effectiveness and amortizes it directly into earnings over the life of the hedge.
The following table summarizes the gains (losses) on the Company’s fair value hedges: | | | | | | | | | | | | | | | | | | | | | Gains (losses) on fair value hedges(1) | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2018 | 2017(3) | 2018 | 2017(3) | In millions of dollars | Other revenue | Net interest revenue | Other revenue | Other revenue | Net interest revenue | Other revenue | Gain (loss) on the derivatives in designated and qualifying fair value hedges | | | | | | | Interest rate hedges | $ | — |
| $ | (857 | ) | $ | (194 | ) | $ | — |
| $ | (497 | ) | $ | (570 | ) | Foreign exchange hedges | (158 | ) | — |
| (166 | ) | 341 |
| — |
| (803 | ) | Commodity hedges | (14 | ) | — |
| (11 | ) | (14 | ) | — |
| (20 | ) | Total gain (loss) on the derivatives in designated and qualifying fair value hedges | $ | (172 | ) | $ | (857 | ) | $ | (371 | ) | $ | 327 |
| $ | (497 | ) | $ | (1,393 | ) | Gain (loss) on the hedged item in designated and qualifying fair value hedges | | | | | | | Interest rate hedges | $ | — |
| $ | 871 |
| $ | 189 |
| $ | — |
| $ | 525 |
| $ | 532 |
| Foreign exchange hedges | 132 |
| — |
| 144 |
| (464 | ) | — |
| 910 |
| Commodity hedges | 8 |
| — |
| 12 |
| 9 |
| — |
| 22 |
| Total gain (loss) on the hedged item in designated and qualifying fair value hedges | $ | 140 |
| $ | 871 |
| $ | 345 |
| $ | (455 | ) | $ | 525 |
| $ | 1,464 |
| Net gain (loss) excluded from assessment of the effectiveness of fair value hedges | | | | | | | Interest rate hedges | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (5 | ) | $ | (7 | ) | Foreign exchange hedges(2) | 7 |
| — |
| (5 | ) | 63 |
| — |
| 75 |
| Commodity hedges | (7 | ) | — |
| 1 |
| (5 | ) | — |
| 2 |
| Total net gain (loss) excluded from assessment of the effectiveness of fair value hedges | $ | — |
| $ | — |
| $ | (4 | ) | $ | 58 |
| $ | (5 | ) | $ | 70 |
|
| | (1) | Beginning January 1, 2018, gain (loss) amounts for interest rate risk hedges are included in Interest income/Interest expense, while the remaining amounts including the amounts for interest rate hedges prior to January 1, 2018 are included in Other revenue or Principal transactions on the Consolidated Statement of Income. The accrued interest income on fair value hedges both prior to and after January 1, 2018 is recorded in Net interest revenue and is excluded from this table. |
| | (2) | Amounts relate to the premium associated with forward contracts (differential between spot and contractual forward rates). These amounts are excluded from the assessment of hedge effectiveness and are reflected directly in earnings. After January 1, 2018, amounts include cross-currency basis, which is recognized in accumulated other comprehensive income. The amount of cross-currency basis that was included in accumulated other comprehensive income was $15 million and $57 million for the three and nine months ended September 30, 2018, respectively, none of which was recognized in earnings. |
| | (3) | Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges for the three months ended September 30, 2017 was $(5) million for interest rate hedges and $(17) million for foreign exchange hedges, for a total of $(22) million. Hedge ineffectiveness recognized in earnings on designated and qualifying fair value hedges for the nine months ended September 30, 2017 was $(31) million for interest rate hedges and $32 million for foreign exchange hedges, for a total of $1 million. |
Cumulative Basis Adjustment Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged item is adjusted to reflect the cumulative impact of changes in the hedged risk. The hedge basis adjustment, whether arising from an active or de-designated hedge relationship, remains with the hedged item until the hedged item is derecognized from the balance sheet. The table below presents the carrying amount of Citi’s hedged assets and liabilities under qualifying fair value hedges at September 30, 2018, along with the cumulative hedge basis adjustments included in the carrying value of those hedged assets and liabilities. | | | | | | | | | | | In millions of dollars as of September 30, 2018 | Balance sheet line item in which hedged item is recorded | Carrying amount of hedged asset/ liability | Cumulative fair value hedging adjustment increasing (decreasing) the carrying amount | Active | De-designated | Debt securities AFS
| $ | 80,244 |
| $ | (326 | ) | $ | 421 |
| Long-term debt | 154,540 |
| (775 | ) | 1,218 |
|
Cash Flow Hedges Citigroup hedges the variability of forecasted cash flows associated with floating-rate assets/liabilities and other forecasted transactions. Variable cash flows from those liabilities are synthetically converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps and receive-variable, pay-fixed forward-starting interest rate swaps. Variable cash flows associated with certain assets are synthetically converted to fixed-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. These cash flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Prior to the adoption of ASU 2017-12, Citigroup designated the risk being hedged as the risk of overall variability in the hedged cash flows for certain items. With the adoption of ASU 2017-12, Citigroup hedges the variability from changes in a contractually specified rate and recognizes the entire change in fair value of the cash flow hedging instruments in AOCI. Prior to the adoption of ASU 2017-12, to the extent that these derivatives were not fully effective, changes in their fair values in excess of changes in the value of the hedged transactions were immediately included in Other revenue. With the adoption of ASU 2017-12, such amounts are no longer required to be immediately recognized in income, but instead the full change in the value of the hedging instrument is required to be recognized in AOCI, and then recognized in earnings in the same period that the cash flows impact earnings. The pretax change in AOCI from cash flow hedges is presented below:
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | In millions of dollars | 2018 | 2017 | 2018 | 2017 | Amount of gain (loss) recognized in AOCI on derivative | | | | | Interest rate contracts(1) | $ | (146 | ) | $ | (36 | ) | $ | (665 | ) | $ | 103 |
| Foreign exchange contracts | (3 | ) | (7 | ) | (4 | ) | (7 | ) | Total gain (loss) recognized in AOCI | $ | (149 | ) | $ | (43 | ) | $ | (669 | ) | $ | 96 |
| Amount of gain (loss) reclassified from AOCI to earnings | Other revenue | Net interest revenue | Other revenue | Other revenue | Net interest revenue | Other revenue | Interest rate contracts(1) | $ | — |
| $ | (54 | ) | $ | (48 | ) | $ | — |
| $ | (142 | ) | $ | (94 | ) | Foreign exchange contracts | 2 |
| — |
| (7 | ) | (8 | ) | — |
| (8 | ) | Total gain (loss) reclassified from AOCI into earnings | $ | 2 |
| $ | (54 | ) | $ | (55 | ) | $ | (8 | ) | $ | (142 | ) | $ | (102 | ) |
| | (1) | After January 1, 2018, all amounts reclassified into earnings for interest rate contracts are included in Interest income/Interest expense (Net interest revenue). For all other hedges, including interest rate hedges prior to January 1, 2018, the amounts reclassified to earnings are included primarily in Other revenue and Net interest revenue on the Consolidated Income Statement. |
For cash flow hedges, the changes in the fair value of the hedging derivative remain in AOCI on the Consolidated Balance Sheet and will be included in the earnings of future periods to offset the variability of the hedged cash flows when such cash flows affect earnings. The net gain (loss) associated with cash flow hedges expected to be reclassified from AOCI within 12 months of September 30, 2018 is approximately $475 million. The maximum length of time over which forecasted cash flows are hedged is 10 years. The after-tax impact of cash flow hedges on AOCI is shown in Note 17 to the Consolidated Financial Statements. Net Investment Hedges The pretax gain (loss) recorded in the Foreign currency translation adjustment account within AOCI, related to net investment hedges, is $(46) million and $1,587 million for the three and nine months ended September 30, 2018, and $(245) million and $(1,993) million for the three and nine months ended September 30, 2017, respectively.
Credit Derivatives The following tables summarize the key characteristics of Citi’s credit derivatives portfolio by counterparty and derivative form: | | | | | | | | | | | | | | | Fair values | Notionals | In millions of dollars at September 30, 2018 | Receivable(1) | Payable(2) | Protection purchased | Protection sold | By industry/counterparty | | | | | Banks | $ | 5,366 |
| $ | 5,097 |
| $ | 222,802 |
| $ | 234,338 |
| Broker-dealers | 1,826 |
| 1,661 |
| 66,676 |
| 67,833 |
| Non-financial | 65 |
| 90 |
| 2,823 |
| 4,247 |
| Insurance and other financial institutions | 4,309 |
| 4,845 |
| 501,491 |
| 416,642 |
| Total by industry/counterparty | $ | 11,566 |
| $ | 11,693 |
| $ | 793,792 |
| $ | 723,060 |
| By instrument | | | | | Credit default swaps and options | $ | 10,997 |
| $ | 11,168 |
| $ | 771,239 |
| $ | 712,451 |
| Total return swaps and other | 569 |
| 525 |
| 22,553 |
| 10,609 |
| Total by instrument | $ | 11,566 |
| $ | 11,693 |
| $ | 793,792 |
| $ | 723,060 |
| By rating | | | | | Investment grade | $ | 5,180 |
| $ | 5,014 |
| $ | 616,595 |
| $ | 552,452 |
| Non-investment grade | 6,386 |
| 6,679 |
| 177,197 |
| 170,608 |
| Total by rating | $ | 11,566 |
| $ | 11,693 |
| $ | 793,792 |
| $ | 723,060 |
| By maturity | | | | | Within 1 year | $ | 1,442 |
| $ | 1,680 |
| $ | 232,670 |
| $ | 204,358 |
| From 1 to 5 years | 8,083 |
| 7,855 |
| 472,276 |
| 439,089 |
| After 5 years | 2,041 |
| 2,158 |
| 88,846 |
| 79,613 |
| Total by maturity | $ | 11,566 |
| $ | 11,693 |
| $ | 793,792 |
| $ | 723,060 |
|
| | (1) | The fair value amount receivable is composed of $3,657 million under protection purchased and $7,909 million under protection sold. |
| | (2) | The fair value amount payable is composed of $8,476 million under protection purchased and $3,217 million under protection sold. |
| | | | | | | | | | | | | | | Fair values | Notionals | In millions of dollars at December 31, 2017 | Receivable(1) | Payable(2) | Protection purchased | Protection sold | By industry/counterparty | | | | | Banks | $ | 7,471 |
| $ | 6,669 |
| $ | 264,414 |
| $ | 273,711 |
| Broker-dealers | 2,325 |
| 2,285 |
| 73,273 |
| 83,229 |
| Non-financial | 70 |
| 91 |
| 1,288 |
| 1,140 |
| Insurance and other financial institutions | 10,668 |
| 12,488 |
| 438,738 |
| 377,062 |
| Total by industry/counterparty | $ | 20,534 |
| $ | 21,533 |
| $ | 777,713 |
| $ | 735,142 |
| By instrument | | | | | Credit default swaps and options | $ | 20,251 |
| $ | 20,554 |
| $ | 754,114 |
| $ | 724,228 |
| Total return swaps and other | 283 |
| 979 |
| 23,599 |
| 10,914 |
| Total by instrument | $ | 20,534 |
| $ | 21,533 |
| $ | 777,713 |
| $ | 735,142 |
| By rating | | | | | Investment grade | $ | 10,473 |
| $ | 10,616 |
| $ | 588,324 |
| $ | 557,987 |
| Non-investment grade | 10,061 |
| 10,917 |
| 189,389 |
| 177,155 |
| Total by rating | $ | 20,534 |
| $ | 21,533 |
| $ | 777,713 |
| $ | 735,142 |
| By maturity | | | | | Within 1 year | $ | 2,477 |
| $ | 2,914 |
| $ | 231,878 |
| $ | 218,097 |
| From 1 to 5 years | 16,098 |
| 16,435 |
| 498,606 |
| 476,345 |
| After 5 years | 1,959 |
| 2,184 |
| 47,229 |
| 40,700 |
| Total by maturity | $ | 20,534 |
| $ | 21,533 |
| $ | 777,713 |
| $ | 735,142 |
|
| | (1) | The fair value amount receivable is composed of $3,195 million under protection purchased and $17,339 under protection sold. |
| | (2) | The fair value amount payable is composed of $3,147 million under protection purchased and $18,386 million under protection sold. |
Credit Risk-Related Contingent Features in Derivatives Certain derivative instruments contain provisions that require the Company to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified event related to the credit risk of the Company. These events, which are defined by the existing derivative contracts, are primarily downgrades in the credit ratings of the Company and its affiliates. The fair value (excluding CVA) of all derivative instruments with credit risk-related contingent features that were in a net liability position at both September 30, 2018 and December 31, 2017 was $37 billion and $29 billion, respectively. The Company posted $36 billion and $28 billion as collateral for this exposure in the normal course of business as of September 30, 2018 and December 31, 2017, respectively. A downgrade could trigger additional collateral or cash settlement requirements for the Company and certain affiliates. In the event that Citigroup and Citibank were downgraded a single notch by all three major rating agencies as of September 30, 2018, the Company could be required to post an additional $1.4 billion as either collateral or settlement of the derivative transactions. Additionally, the Company could be required to segregate with third-party custodians collateral previously received from existing derivative counterparties in the amount of $0.2 billion upon the single notch downgrade, resulting in aggregate cash obligations and collateral requirements of approximately $1.6 billion.
Derivatives Accompanied by Financial Asset Transfers For transfers of financial assets accounted for as a sale by the Company and for which the Company has retained substantially all of the economic exposure to the transferred asset through a total return swap executed with the same counterparty in contemplation of the initial sale (and still outstanding), both the asset amounts derecognized and the gross cash proceeds received as of the date of derecognition were $3.3 billion and $3.0 billion as of September 30, 2018 and December 31, 2017, respectively. At September 30, 2018, the fair value of these previously derecognized assets was $3.2 billion. The fair value of the total return swaps as of September 30, 2018 was $24 million recorded as gross derivative assets and $31 million recorded as gross derivative liabilities. At December 31, 2017, the fair value of these previously derecognized assets was $3.1 billion, and the fair value of the total return swaps was $89 million recorded as gross derivative assets and $15 million recorded as gross derivative liabilities. The balances for the total return swaps are on a gross basis, before the application of counterparty and cash collateral netting, and are included primarily as equity derivatives in the tabular disclosures in this Note.
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