Send us Feedback

Citigroup (C)
Analysis
SUMMARY
BULLS
BEARS
TOPICS
Data
DATA CENTRAL
STOCK CHART
Financials
SEC FILINGS
BALANCE
INCOME
CASH FLOW

C » Topics » ALLOWANCE FOR CREDIT LOSSES

These excerpts taken from the C 10-K filed Feb 27, 2009.

ALLOWANCE FOR CREDIT LOSSES

Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for loan losses. In addition, management has established and maintains reserves for the potential credit losses related to the Company’s off-balance- sheet exposures of unfunded lending commitments, including standby letters of credit and guarantees. These reserves are established in accordance with Citigroup’s Loan Loss Reserve Policies, as approved by the Audit and Risk Management Committee of the Company’s Board of Directors. The Company’s Chief Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from the Risk and Finance staffs for each applicable business area.

During these reviews, the above-mentioned representatives covering the business area having classifiably managed portfolios (that is, portfolios

where internal credit-risk ratings are assigned, which are primarily ICG, the commercial lending businesses of Consumer Banking and Global Wealth Management) and modified consumer loans where a concession was granted due to the borrowers’ financial difficulties, and present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. The quantitative data include:

 

•  

Estimated probable losses for non-performing, non-homogeneous exposures within a business line’s classifiably managed portfolio and impaired smaller-balance homogenous loans whose terms have been modified due to the borrowers’ financial difficulties, and it was determined that a concession was granted to the borrower. Consideration is given to all available evidence when determining this estimate including, as appropriate: (i) the present value of expected future cash flows discounted at the loan’s contractual effective rate; (ii) the borrower’s overall financial condition, resources and payment record; and (iii) the prospects for support from financially responsible guarantors or the realizable value of any collateral.

•  

Statistically calculated losses inherent in the classifiably managed portfolio for performing and de minimis non-performing exposures. The calculation is based upon: (i) Citigroup’s internal system of credit-risk ratings, which are analogous to the risk ratings of the major rating agencies; (ii) the Corporate portfolio database; and (iii) historical default and loss data, including rating-agency information regarding default rates from 1983 to 2007, and internal data dating to the early 1970s on severity of losses in the event of default.

•  

Additional adjustments include: (i) statistically calculated estimates to cover the historical fluctuation of the default rates over the credit cycle, the historical variability of loss severity among defaulted loans, and the degree to which there are large obligor concentrations in the global portfolio; and (ii) adjustments made for specifically known items, such as current environmental factors and credit trends.

In addition, representatives from both the Risk Management and Finance staffs that cover business areas that have delinquency-managed portfolios containing smaller homogeneous loans (primarily the non-commercial lending areas of Consumer Banking) present their recommended reserve balances based upon leading credit indicators including delinquencies on first and second mortgages and deterioration in the housing market, a downturn in other economic trends including unemployment and GDP, changes in the portfolio size, and a change in the estimated loan losses inherent in the portfolio but not yet visible in the delinquencies (change in estimate of loan losses). This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist.

This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates, the size and diversity of individual large credits, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing, among other things, are all taken into account during this review. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance. Changes to the reserve flow through the Consolidated Statement of Income on the lines Provision for loan losses and Provision for unfunded lending


 

19

Table of Contents

 

commitments. For a further description of the loan loss reserve and related accounts, see “Managing Global Risk” and Notes 1 and 18 to the Consolidated Financial Statements on pages 51, 122 and 165, respectively.

ALLOWANCE FOR CREDIT LOSSES

Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for loan losses. In addition, management has established and maintains reserves for the potential credit losses related to the Company’s off-balance- sheet exposures of unfunded lending commitments, including standby letters of credit and guarantees. These reserves are established in accordance with Citigroup’s Loan Loss Reserve Policies, as approved by the Audit and Risk Management Committee of the Company’s Board of Directors. The Company’s Chief Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from the Risk and Finance staffs for each applicable business area.

During these reviews, the above-mentioned representatives covering the business area having classifiably managed portfolios (that is, portfolios

where internal credit-risk ratings are assigned, which are primarily ICG, the commercial lending businesses of Consumer Banking and Global Wealth Management) and modified consumer loans where a concession was granted due to the borrowers’ financial difficulties, and present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. The quantitative data include:

 

•  

Estimated probable losses for non-performing, non-homogeneous exposures within a business line’s classifiably managed portfolio and impaired smaller-balance homogenous loans whose terms have been modified due to the borrowers’ financial difficulties, and it was determined that a concession was granted to the borrower. Consideration is given to all available evidence when determining this estimate including, as appropriate: (i) the present value of expected future cash flows discounted at the loan’s contractual effective rate; (ii) the borrower’s overall financial condition, resources and payment record; and (iii) the prospects for support from financially responsible guarantors or the realizable value of any collateral.

•  

Statistically calculated losses inherent in the classifiably managed portfolio for performing and de minimis non-performing exposures. The calculation is based upon: (i) Citigroup’s internal system of credit-risk ratings, which are analogous to the risk ratings of the major rating agencies; (ii) the Corporate portfolio database; and (iii) historical default and loss data, including rating-agency information regarding default rates from 1983 to 2007, and internal data dating to the early 1970s on severity of losses in the event of default.

•  

Additional adjustments include: (i) statistically calculated estimates to cover the historical fluctuation of the default rates over the credit cycle, the historical variability of loss severity among defaulted loans, and the degree to which there are large obligor concentrations in the global portfolio; and (ii) adjustments made for specifically known items, such as current environmental factors and credit trends.

In addition, representatives from both the Risk Management and Finance staffs that cover business areas that have delinquency-managed portfolios containing smaller homogeneous loans (primarily the non-commercial lending areas of Consumer Banking) present their recommended reserve balances based upon leading credit indicators including delinquencies on first and second mortgages and deterioration in the housing market, a downturn in other economic trends including unemployment and GDP, changes in the portfolio size, and a change in the estimated loan losses inherent in the portfolio but not yet visible in the delinquencies (change in estimate of loan losses). This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist.

This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates, the size and diversity of individual large credits, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing, among other things, are all taken into account during this review. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance. Changes to the reserve flow through the Consolidated Statement of Income on the lines Provision for loan losses and Provision for unfunded lending


 

19

Table of Contents

 

commitments. For a further description of the loan loss reserve and related accounts, see “Managing Global Risk” and Notes 1 and 18 to the Consolidated Financial Statements on pages 51, 122 and 165, respectively.

18. ALLOWANCE FOR CREDIT LOSSES

 

In millions of dollars   2008     2007      2006  

Allowance for loan losses at beginning of year

   $ 16,117     $ 8,940      $ 9,782  

Additions

       

Consumer provision for credit losses (1)

     28,282       15,599        6,224  

Corporate provision for credit losses

     5,392       1,233        96  

Total provision for credit losses

   $ 33,674     $ 16,832      $ 6,320  

Deductions (2)

       

Consumer credit losses

   $ 18,848     $ 10,916      $ 8,328  

Consumer credit recoveries

     (1,600 )     (1,661 )      (1,547 )

Net consumer loan losses

   $ 17,248     $ 9,255      $ 6,781  

Corporate credit losses

   $ 1,922     $ 948      $ 312  

Corporate credit recoveries

     (149 )     (277 )      (232 )

Net corporate credit losses (recoveries)

   $ 1,773     $ 671      $ 80  

Other, net (3)

   $ (1,154 )   $ 271      $ (301 )

Allowance for loan losses at end of year

   $ 29,616     $ 16,117      $ 8,940  

Allowance for credit losses on unfunded lending commitments at beginning of year (4)

   $ 1,250     $ 1,100      $ 850  

Provision for unfunded lending commitments

     (363 )     150        250  

Allowance for credit losses on unfunded lending commitments at end of year (4)

   $ 887     $ 1,250      $ 1,100  

Total allowance for credit losses

   $ 30,503     $ 17,367      $ 10,040  

 

(1) During 2007, the Company changed its estimate of loan losses inherent in the Global Cards and Consumer Banking portfolios that were not yet visible in delinquency statistics. The changes in estimate were accounted for prospectively. For the quarter ended March 31, 2007, the change in estimate decreased the Company’s pretax net income by $170 million, or $0.02 per diluted share. For the quarter ended June 30, 2007, the change in estimate decreased the Company’s pretax net income by $240 million, or $0.03 per diluted share. For the quarter ended September 30, 2007, the change in estimate decreased the Company’s pretax net income by $900 million, or $0.11 per diluted share.
(2) Consumer credit losses primarily relate to U.S. mortgages, revolving credit and installment loans. Recoveries primarily relate to revolving credit and installment loans.
(3) 2008 primarily includes reductions to the loan loss reserve of approximately $800 million related to foreign currency translation, $102 million related to securitizations, $244 million for the sale of the German retail banking operations, and $156 million for the sale of CitiCapital partially offset by additions of $106 million related to the Cuscatlán and Bank of the Overseas Chinese acquisitions. 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfers to loans held-for-sale, reductions of $83 million related to the transfer of the U.K. CitiFinancial portfolio to held-for-sale, and additions of $610 million related to the acquisition of Egg, Nikko Cordial, Grupo Cuscatlán and Grupo Financiero Uno. 2006 primarily includes reductions to the loan loss reserve of $429 million related to securitizations and portfolio sales and the addition of $84 million related to the acquisition of the CrediCard portfolio.
(4) Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other liabilities on the Consolidated Balance Sheet.

 

165

Table of Contents

 

18. ALLOWANCE FOR CREDIT LOSSES

 

In millions of dollars   2008     2007      2006  

Allowance for loan losses at beginning of year

   $ 16,117     $ 8,940      $ 9,782  

Additions

       

Consumer provision for credit losses (1)

     28,282       15,599        6,224  

Corporate provision for credit losses

     5,392       1,233        96  

Total provision for credit losses

   $ 33,674     $ 16,832      $ 6,320  

Deductions (2)

       

Consumer credit losses

   $ 18,848     $ 10,916      $ 8,328  

Consumer credit recoveries

     (1,600 )     (1,661 )      (1,547 )

Net consumer loan losses

   $ 17,248     $ 9,255      $ 6,781  

Corporate credit losses

   $ 1,922     $ 948      $ 312  

Corporate credit recoveries

     (149 )     (277 )      (232 )

Net corporate credit losses (recoveries)

   $ 1,773     $ 671      $ 80  

Other, net (3)

   $ (1,154 )   $ 271      $ (301 )

Allowance for loan losses at end of year

   $ 29,616     $ 16,117      $ 8,940  

Allowance for credit losses on unfunded lending commitments at beginning of year (4)

   $ 1,250     $ 1,100      $ 850  

Provision for unfunded lending commitments

     (363 )     150        250  

Allowance for credit losses on unfunded lending commitments at end of year (4)

   $ 887     $ 1,250      $ 1,100  

Total allowance for credit losses

   $ 30,503     $ 17,367      $ 10,040  

 

(1) During 2007, the Company changed its estimate of loan losses inherent in the Global Cards and Consumer Banking portfolios that were not yet visible in delinquency statistics. The changes in estimate were accounted for prospectively. For the quarter ended March 31, 2007, the change in estimate decreased the Company’s pretax net income by $170 million, or $0.02 per diluted share. For the quarter ended June 30, 2007, the change in estimate decreased the Company’s pretax net income by $240 million, or $0.03 per diluted share. For the quarter ended September 30, 2007, the change in estimate decreased the Company’s pretax net income by $900 million, or $0.11 per diluted share.
(2) Consumer credit losses primarily relate to U.S. mortgages, revolving credit and installment loans. Recoveries primarily relate to revolving credit and installment loans.
(3) 2008 primarily includes reductions to the loan loss reserve of approximately $800 million related to foreign currency translation, $102 million related to securitizations, $244 million for the sale of the German retail banking operations, and $156 million for the sale of CitiCapital partially offset by additions of $106 million related to the Cuscatlán and Bank of the Overseas Chinese acquisitions. 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfers to loans held-for-sale, reductions of $83 million related to the transfer of the U.K. CitiFinancial portfolio to held-for-sale, and additions of $610 million related to the acquisition of Egg, Nikko Cordial, Grupo Cuscatlán and Grupo Financiero Uno. 2006 primarily includes reductions to the loan loss reserve of $429 million related to securitizations and portfolio sales and the addition of $84 million related to the acquisition of the CrediCard portfolio.
(4) Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other liabilities on the Consolidated Balance Sheet.

 

165

Table of Contents

 

These excerpts taken from the C 10-K filed Feb 22, 2008.

Allowance for Credit Losses

Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for loan losses. In addition, management has established and maintains reserves for the potential credit losses related to the Company’s off-balance- sheet exposures of unfunded lending commitments, including standby letters of credit and guarantees. These reserves are established in accordance with Citigroup’s Loan Loss Reserve Policies, as approved by the Audit and Risk Management Committee of the Company’s Board of Directors. The


 

16

Table of Contents

 

Company’s Chief Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from the Risk and Finance staffs for each applicable business area.

During these reviews, the above-mentioned representatives covering the business area having classifiably managed portfolios (that is, portfolios where internal credit-risk ratings are assigned, which are primarily Markets & Banking, Global Consumer’s commercial lending businesses, and Global Wealth Management) present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. The quantitative data include:

 

•  

Estimated probable losses for non-performing, non-homogeneous exposures within a business line’s classifiably managed portfolio. Consideration is given to all available evidence when determining this estimate including, as appropriate: (i) the present value of expected future cash flows discounted at the loan’s contractual effective rate; (ii) the borrower’s overall financial condition, resources and payment record; and (iii) the prospects for support from financially responsible guarantors or the realizable value of any collateral.

•  

Statistically calculated losses inherent in the classifiably managed portfolio for performing and de minimis non-performing exposures. The calculation is based upon: (i) Citigroup’s internal system of credit-risk ratings, which are analogous to the risk ratings of the major rating agencies; (ii) the Corporate portfolio database; and (iii) historical default and loss data, including rating agency information regarding default rates from 1983 to 2006, and internal data, dating to the early 1970s, on severity of losses in the event of default.

•  

Additional adjustments include: (i) statistically calculated estimates to cover the historical fluctuation of the default rates over the credit cycle, the historical variability of loss severity among defaulted loans, and the degree to which there are large obligor concentrations in the global portfolio; and (ii) adjustments made for specifically known items, such as current environmental factors and credit trends.

In addition, representatives from both the Risk Management and Finance staffs that cover business areas which have delinquency-managed portfolios containing smaller homogeneous loans (primarily Global Consumer’s non-commercial lending areas) present their recommended reserve balances based upon leading credit indicators including delinquencies on first and second mortgages and deterioration in the housing market, a downturn in other economic trends including unemployment and GDP, changes in the portfolio size, and a change in the estimated loan losses inherent in the portfolio but not yet visible in the delinquencies (change in estimate of loan losses). This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist.

This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates, the size and diversity of individual large credits, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing, among other things, are all taken into account during this review. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance. Changes to the reserve flow through the income statement on the lines “provision for loan losses” and “provision for unfunded lending commitments.” For a further description of the loan loss reserve and related accounts, see Notes 1 and 18 to the Consolidated Financial Statements on pages 111 and 147, respectively.

 

18. ALLOWANCE FOR CREDIT LOSSES

 

In millions of dollars   2007     2006      2005  

Allowance for loan losses at beginning of year

   $ 8,940     $ 9,782      $ 11,269  

Additions

       

Consumer provision for credit losses(4)

     16,191       6,636        8,224  

Corporate provision for credit losses

     1,233       102        (295 )

Total provision for credit losses

   $ 17,424     $ 6,738      $ 7,929  

Deductions(1)

       

Consumer credit losses

  $ 11,755     $ 9,227      $ 10,586  

Consumer credit recoveries

     (1,972 )     (1,965 )      (1,903 )

Net consumer loan losses

   $ 9,783     $ 7,262      $ 8,683  

Corporate credit losses

   $ 945     $ 314      $ 375  

Corporate credit recoveries

     (277 )     (232 )      (652 )

Net corporate credit losses (recoveries)

   $ 668     $ 82      $ (277 )

Other, net (2)

     204       (236 )      (1,010 )

Allowance for loan losses at end of year

   $ 16,117     $ 8,940      $ 9,782  

Allowance for credit losses on unfunded lending commitments at beginning of year (3)

   $ 1,100     $ 850      $ 600  

Provision for unfunded lending commitments

     150       250        250  

Allowance for credit losses on unfunded lending commitments at end of year (3)

   $ 1,250     $ 1,100      $ 850  

Total allowance for credit losses

   $ 17,367     $ 10,040      $ 10,632  

 

(1) Consumer credit losses primarily relate to U.S. mortgages, revolving credit and installment loans. Recoveries primarily relate to revolving credit and installment loans.
(2) 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfers to loans held-for-sale, reductions of $83 million related to the transfer of the U.K. CitiFinancial portfolio to held-for-sale, and additions of $610 million related to the acquisition of Egg, Nikko Cordial, Grupo Cuscatlan and Grupo Financiero Uno. 2006 primarily includes reductions to the loan loss reserve of $429 million related to securitizations and portfolio sales and the addition of $84 million related to the acquisition of the CrediCard portfolio. 2005 primarily includes reductions to the loan loss reserve of $584 million related to securitizations and portfolio sales, a reduction of $110 million related to purchase accounting adjustments from the KorAm acquisition, and a reduction of $90 million from the sale of CitiCapital’s transportation portfolio.
(3) Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded with Other Liabilities on the Consolidated Balance Sheet.
(4) During 2007, the Company changed its estimate of loan losses inherent in the Global Consumer portfolio that were not yet visible in delinquency statistics. The changes in estimate were accounted for prospectively. For the quarter ended March 31, 2007, the change in estimate decreased the Company’s pretax net income by $170 million, or $0.02 per diluted share. For the quarter ended June 30, 2007, the change in estimate decreased the Company’s pretax net income by $240 million, or $0.03 per diluted share. For the quarter ended September 30, 2007, the change in estimate decreased the Company’s pretax net income by $900 million, or $0.11 per diluted share.

EXCERPTS ON THIS PAGE:

10-K (4 sections)
Feb 27, 2009
10-K (2 sections)
Feb 22, 2008

RELATED TOPICS for C:

"ALLOWANCE FOR CREDIT LOSSES" elsewhere:

FOREIGN TRADE BANK OF LATIN AMERICA, INC. (BLX)
Royal Bank Of Canada (RY)
Toronto-Dominion Bank (TD)
Whitney Holding (WTNY)
Bank of America (BAC)
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki