SEC Company Response from CITIGROUP INC (C, C-PN) (CIK 0000831001) (C) — Aug 9, 2010
CITIGROUP INC (C, C-PN) (CIK 0000831001)
Date: Aug. 9, 2010 · CIK: 0000831001 · Accession: 0001047469-10-007262
AI Filing Summary & Sentiment
File numbers found in text: 001-09924
Referenced dates: April 30, 2010, July 16, 2010, May 18, 2010
Letter
VIA EDGAR CORRESPONDENCE Securities and Exchange Commission Filed February 26, 2010 Form 10-Q for the Period Ended March 31, 2010 Filed May 7, 2010 File No. 001-09924
Dear Mr. Vaughn:
Enhancement of the overall disclosures in filings by Citigroup Inc. ("Citigroup," the "Company," or "we") is an objective that we share with the staff (the "Staff") of the Securities and Exchange Commission (the "SEC") and one that we consider in all our filings. This letter sets forth the responses of Citigroup to the comments of the Staff contained in the Staff's letters dated July 16, 2010 and July 20, 2010.
For your convenience, the text of the Staff's comments is set forth in bold below, followed in each case by our response. Please note that all references in this letter to our prior responses or our responses to the Staff's prior comments refer to Citigroup's responses to the SEC Staff's
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comment letter dated April 30, 2010, which were provided in our response letter dated May 18, 2010 ("Prior Response Letter").
In addition, we refer the Staff to our response to the Staff's prior comment 7 in our Prior Response Letter. We intend to augment the disclosure in our future filings to include success metrics for our U.S. modification programs and to describe how those metrics are considered in the determination of our allowance for loan losses. However, we intend to include this information as it is available, and we supplementally advise the Staff that such data was not available in time for inclusion in our Form 10-Q for the period ended June 30, 2010 ("Second Quarter Form 10-Q"). We currently anticipate we will include this additional disclosure in our Form 10-Q for the period ended September 30, 2010 ("Third Quarter Form 10-Q"). As we have previously done, we included qualitative information regarding the impact of our U.S. mortgage and cards modification programs on the related portfolios on pages 62 and 67, respectively, of the Second Quarter Form 10-Q.
Staff's letter dated July 16, 2010
Form 10-K for the year ended December 31, 2009
Managing Global Risk
Credit Risk, page 63
1. Please refer to prior comment 2 in our letter dated April 30, 2010. In your response, you address certain populations of commercial and commercial real estate ("CRE") loans. Please revise your proposed disclosures to address all categories of commercial or CRE loans for which you make modifications, including those populations excluded from your response. To the extent you make modifications that you do not account for as a troubled debt restructuring ("TDR"), please describe the type of modifications made, quantify the amount of loans subject to these modifications by category, and disclose your basis for not accounting for the modification as a TDR.
Our response to the SEC Staff's comments 2 and 5 in the Prior Response Letter included the following populations of commercial and commercial real estate ("CRE") loans: (1) commercial and CRE loans that were renegotiated or modified pursuant to a troubled debt restructuring ("TDR") and now have accrual status, and (2) commercial and CRE loans that were renegotiated or modified pursuant to a TDR and now are non-accrual. We believe our disclosure of TDRs is consistent with peer financial institutions and the SEC's Guide 3 requirements on risk elements
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involving nonaccrual, past due and restructured loans, and we intend to continue to provide this information in our future filings.
With a view toward fully responding to the Staff's prior comment 2 and its request for information and disclosure on commercial or CRE "workout" transactions, we provided additional information regarding the scope of our commercial and CRE loan modifications in our Prior Response Letter, beyond the SEC's Guide 3 requirements for TDRs. This additional information in our Prior Response Letter was intended to acknowledge that modifications of loans involving a troubled borrower may not always meet the definition of a "troubled debt restructuring," as they may not involve granting a concession (a required element of a TDR). Accordingly, we included in our Prior Response Letter information on commercial and CRE loans that were rated "substandard non-performing" or worse that were renegotiated or modified and now have an upgraded risk rating and accrual status because the borrower has performed for a period of time, generally six months, in accordance with the revised terms of the modified loan.
In response to the SEC staff's current comment 1, we focus our discussion on loan modifications more broadly. We modify commercial and CRE loans not only in cases of a troubled borrower, but also in cases where a borrower is not troubled. We modify non-troubled loans in the ordinary course of business. These may take a variety of forms and serve a variety of purposes. For example, modifications could affect substantive business terms, such as renegotiating covenants, adjusting interest rates, modifying maturity or commitment levels as well as affecting the reporting or administrative obligations of the obligor. These modifications are made for typical commercial reasons, are subject to our normal underwriting standards for new loans and are not made in response to a borrower's troubled status. Modifications are made to ensure that the underlying financing is optimal for the borrower's purposes in the context of cost, structure, and flexibility, and that the modified loan continues to meet Citigroup's normal underwriting standards.
The troubled status of a borrower is best indicated by the loan's classification or risk rating. Citigroup maintains a process of categorizing facilities, consistent with the applicable bank regulations, that is based on credit quality and the ability or willingness of the obligor to honor its commitments. Moreover, we evaluate these risks based on an obligor's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the agreed upon terms. These classifications are regularly audited by the banking regulators. The regulatory credit classifications are: Special Mention, Substandard (Performing and Non-Performing), Doubtful and Loss. Facilities that are not covered by these definitions are Pass facilities for which no formal regulatory credit classification exists. Our credit classifications are as follows:
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Pass: A Pass facility is typically associated with a marginal risk or low-loss-severity-rated facility, extended to an obligor with competitive financing alternatives, which is adequately protected by the borrower's current sound worth, sustainable cash flow and exhibits no evident credit weakness.
Special Mention: A Special Mention classified asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the facility or in the institution's credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard (Performing): A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Facilities so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
Substandard Non-Performing: A Substandard Non-Performing facility has all the weaknesses of a Substandard facility with the added uncertainty of full collectability of principal and interest.
Doubtful: A Doubtful asset is one for which collection or liquidation in full is highly questionable.
Loss: A Loss-classified asset is considered uncollectible or of such little value that its continuance as bankable asset is not warranted.
Key attributes considered in assigning credit classifications below Pass include, but are not limited to, the following: declining revenues or margins, adverse economic or competitive conditions, inadequate debt service coverage, management weakness, pending litigation, financial reporting problems, evidence that worth or paying capacity is jeopardized, loss of collateral value, or other indication that collection or liquidation is highly questionable.
At December 31, 2009, we had approximately [***] of commercial and CRE loans which were classified as Pass or Special Mention. Consistent with their risk classifications, loans that are rated Pass or Special Mention do not involve a troubled borrower. Because the modifications of these loans do not involve a troubled borrower and typically do not involve any concession, we have not accounted for them as TDRs and did not include them in our Prior Response Letter
[***]The following information has been redacted in accordance with Citigroup's request for confidential treatment. CITI B-4
FOIA Confidential Treatment Requested by Citigroup Inc.
or our expanded future disclosures. Modifications of these loans do not impact our non-performing loan metrics, as the loans have accrual status and are not considered impaired. Accordingly, we do not believe that disclosing modification information on Pass and Special Mention loans is meaningful to the users of our financial statements who are analyzing the credit risk of our commercial and CRE loan portfolios.
Loans that are classified Substandard (Performing) have an identified weakness, but Citigroup expects to be fully repaid according to the terms of the loan and thus generally do not involve a troubled borrower. At December 31, 2009, we had approximately [***] of commercial and CRE loans that were classified as Substandard (Performing). Modifications of these loans do not impact our non-performing loan metrics, as the loans have accrual status and are not considered impaired. Accordingly, similar to Pass and Special Mention, we do not believe that disclosing modification information on Substandard (Performing) loans is meaningful to the financial statement user who is analyzing the credit risk of our commercial and CRE portfolios.
On the other hand, loans that are rated Substandard Non-Performing or worse involve a troubled borrower. At December 31, 2009, we had approximately [***] of commercial and CRE loans that were classified as Substandard Non-Performing or worse, based on the bank regulatory definitions discussed above. Consistent with the SEC Staff's request for disclosure of "workout" situations, we will further expand our proposed disclosure beyond the SEC's Guide 3 requirements and intend to disclose modifications of loans that are rated Substandard Non-Performing or worse in our future filings, including whether the modification was reflected as a TDR. Thus, we will not limit the disclosure of modified commercial and CRE loans to cover only TDRs (see footnotes 2 and 3 to the table below). Beginning with the Third Quarter Form 10-Q, we currently intend to include disclosure similar to the following:
In certain circumstances, Citigroup modifies its corporate loans. In many cases, these modifications involve a non-troubled borrower, are subject to Citi's normal underwriting standards for new loans, and are made for typical commercial reasons. In other cases, the loan modifications involve a troubled borrower and Citi may grant a concession to the borrower in the modification. Modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt, or reduction of past accrued interest. In cases where Citi grants a concession to a troubled borrower, Citi accounts for the modification as a troubled debt restructuring (TDR) under ASC 310-40.
The following table presents corporate loans, whose terms were modified in a TDR:
[***]The following information has been redacted in accordance with Citigroup's request for confidential treatment. CITI B-5
FOIA Confidential Treatment Requested by Citigroup Inc.
In millions of dollars
September 30,
December 31,
Corporate renegotiated loans(1)
In U.S. offices
Commercial and industrial(2)
Mortgage and real estate(3)
Loans to financial institutions
Other
In offices outside the U.S.
Commercial and industrial(2)
Mortgage and real estate(3)
Loans to financial institutions
Other
Total corporate renegotiated loans
(1)Includes $XX million of non-accrual loans included in the non-accrual assets table above.
(2)In addition to modifications reflected as TDRs, Citi also modified $XX million of commercial loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators). These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).
(3)In addition to the modifications reflected as TDRs, Citi also modified $XX million of commercial real estate loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators). These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).
We will also disclose commercial and CRE TDRs included in Consumer renegotiated loans.
Non-Accrual Assets, page 66
2. Please refer to prior comment 3 in our letter dated April 30, 2010. Please tell us the following information related to the $5 billion in unsold leveraged loans transferred from the held-for-sale portfolio to the held-for-investment portfolio:
a.It appears from your disclosure on page 88 of the 2009 Form 10-K that you originated these loans with the intent to sell. Please specifically confirm these loans were originated with the intent to sell and were classified as such upon origination. If not, please clarify when these loans were transferred to the held-for-sale portfolio.
We confirm that the unsold leveraged loans transferred in the fourth quarter of 2008 from the held-for-sale portfolio to the held-for-investment portfolio were originated as part of a strategy to distribute with the intent to sell and were classified as such upon origination.
b.We note from your disclosure on page 88 of the 2009 Form 10-K that you originate a portion of your highly leveraged financings as held-for-sale. Please clarify whether you continue to do so, and if so, explain the difference in intent between the loans transferred to the held-for-investment portfolio and the newly originated loans. CITI B-6
FOIA Confidential Treatment Requested by Citigroup Inc.
Beginning in mid-2009, as the leveraged financing market started to recover, we resumed originating these leveraged financing transactions and the loan portion that Citigroup seeks to sell is recorded as loans held-for-sale. In contrast to the older vintage highly leveraged loans transferred to held-for-investment in the fourth quarter of 2008, newly originat
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FOIA Confidential Treatment Requested by Citigroup Inc.
John C. Gerspach
Chief Financial Officer
Citigroup Inc.
399 Park Avenue
New York, NY 10022
August 9,
2010
VIA
EDGAR CORRESPONDENCE
Kevin
W. Vaughn
Securities and Exchange Commission
100 F Street, NE
Mail Stop 4561
Washington, DC 20549-7553
Re:Re: Citigroup Inc.
Form 10-K for Fiscal Year Ended December 31, 2009
Filed February 26, 2010
Form 10-Q for the Period Ended March 31, 2010
Filed May 7, 2010
File No. 001-09924
Dear
Mr. Vaughn:
Enhancement
of the overall disclosures in filings by Citigroup Inc. ("Citigroup," the "Company," or "we") is an objective that we share with the staff (the "Staff") of the
Securities and Exchange Commission (the "SEC") and one that we consider in all our filings. This letter sets forth the responses of Citigroup to the comments of the Staff contained in the Staff's
letters dated July 16, 2010 and July 20, 2010.
For
your convenience, the text of the Staff's comments is set forth in bold below, followed in each case by our response. Please note that all references in this letter to our prior
responses or our responses to the Staff's prior comments refer to Citigroup's responses to the SEC Staff's
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comment
letter dated April 30, 2010, which were provided in our response letter dated May 18, 2010 ("Prior Response Letter").
In
addition, we refer the Staff to our response to the Staff's prior comment 7 in our Prior Response Letter. We intend to augment the disclosure in our future filings to include success
metrics for our U.S. modification programs and to describe how those metrics are considered in the determination of our allowance for loan losses. However, we intend to include this information as it
is available, and we supplementally advise the Staff that such data was not available in time for inclusion in our Form 10-Q for the period ended June 30, 2010 ("Second
Quarter Form 10-Q"). We currently anticipate we will include this additional disclosure in our Form 10-Q for the period ended September 30, 2010 ("Third
Quarter Form 10-Q"). As we have previously done, we included qualitative information regarding
the impact of our U.S. mortgage and cards modification programs on the related portfolios on pages 62 and 67, respectively, of the Second Quarter Form 10-Q.
Staff's letter dated July 16, 2010
Form 10-K for the year ended December 31, 2009
Managing Global Risk
Credit Risk, page 63
1. Please refer to prior comment 2 in our letter dated April 30, 2010. In your response, you address certain populations of commercial and
commercial real estate ("CRE") loans. Please revise your proposed disclosures to address all categories of commercial or CRE loans for which you make modifications,
including those populations excluded from your response. To the extent you make modifications that you do not account for as a troubled debt restructuring ("TDR"), please describe the type of
modifications made, quantify the amount of loans subject to these modifications by category, and disclose your basis for not accounting for the modification as a TDR.
Our
response to the SEC Staff's comments 2 and 5 in the Prior Response Letter included the following populations of commercial and commercial real estate ("CRE") loans:
(1) commercial and CRE loans that were renegotiated or modified pursuant to a troubled debt restructuring ("TDR") and now have
accrual status, and (2) commercial and CRE loans that were renegotiated or modified pursuant to a TDR and now are non-accrual. We believe our disclosure of TDRs is consistent with
peer financial institutions and the SEC's Guide 3 requirements on risk elements
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FOIA Confidential Treatment Requested by Citigroup Inc.
involving
nonaccrual, past due and restructured loans, and we intend to continue to provide this information in our future filings.
With
a view toward fully responding to the Staff's prior comment 2 and its request for information and disclosure on commercial or CRE "workout" transactions, we provided additional
information regarding the scope of our commercial and CRE loan modifications in our Prior Response Letter, beyond the SEC's Guide 3 requirements for TDRs. This additional information in our Prior
Response Letter was intended to acknowledge that modifications of loans involving a troubled borrower may not always meet the definition of a "troubled debt restructuring," as they may not involve
granting a concession (a required element of a TDR). Accordingly, we included in our Prior Response Letter information on commercial and CRE loans that were rated "substandard
non-performing" or worse that were renegotiated or modified and now have an upgraded risk rating and accrual status because the borrower has performed for a period of time, generally six
months, in accordance with the revised terms of the modified loan.
In
response to the SEC staff's current comment 1, we focus our discussion on loan modifications more broadly. We modify commercial and CRE loans not only in cases of a troubled borrower,
but also in cases where a borrower is not troubled. We modify non-troubled loans in the ordinary course of business. These may take a variety of forms and serve a variety of purposes. For
example, modifications could affect substantive business terms, such as renegotiating covenants, adjusting interest rates, modifying maturity or commitment levels as well as affecting the reporting or
administrative obligations of the obligor. These modifications are made for typical commercial reasons, are subject to our normal underwriting standards for new loans and are not made in response to a
borrower's troubled status. Modifications are made to ensure that the underlying financing is optimal for the borrower's purposes in the context of cost, structure, and flexibility, and that the
modified loan continues to meet Citigroup's normal underwriting standards.
The
troubled status of a borrower is best indicated by the loan's classification or risk rating. Citigroup maintains a process of categorizing facilities, consistent with the applicable
bank regulations, that is based on credit quality and the ability or willingness of the obligor to honor its commitments. Moreover, we evaluate these risks based on an obligor's expected performance,
i.e., the likelihood that the borrower will be able to service its obligations in accordance with the agreed upon terms. These classifications are regularly audited by the banking regulators.
The regulatory credit classifications are: Special Mention, Substandard (Performing and Non-Performing), Doubtful and Loss.
Facilities that are not covered by these definitions are Pass facilities for which no formal regulatory credit classification exists. Our credit classifications are as follows:
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Pass: A Pass facility is typically associated with a marginal risk or low-loss-severity-rated facility, extended to an
obligor with competitive financing alternatives, which is adequately protected by the borrower's current sound worth, sustainable cash flow and exhibits no evident credit weakness.
Special Mention: A Special Mention classified asset has potential weaknesses that deserve management's close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the facility or in the institution's credit position at some future date. Special Mention assets are not adversely classified
and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard (Performing): A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor
or of the
collateral pledged, if any. Facilities so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility
that the bank will sustain some loss if the deficiencies are not corrected.
Substandard Non-Performing: A Substandard Non-Performing facility has all the weaknesses of a Substandard
facility with the added uncertainty of full collectability of principal and interest.
Doubtful: A Doubtful asset is one for which collection or liquidation in full is highly questionable.
Loss: A Loss-classified asset is considered uncollectible or of such little value that its continuance as bankable asset is not
warranted.
Key
attributes considered in assigning credit classifications below Pass include, but are not limited to, the following: declining revenues or margins, adverse economic or competitive
conditions, inadequate debt service coverage, management weakness, pending litigation, financial reporting problems, evidence that worth or paying capacity is jeopardized, loss of collateral value, or
other indication that collection or liquidation is highly questionable.
At
December 31, 2009, we had approximately [***] of commercial and CRE loans which were classified as Pass or Special Mention. Consistent with their risk
classifications, loans that are rated Pass or Special Mention do not involve a troubled borrower. Because the modifications of these loans do not involve a troubled borrower and typically do not
involve any concession, we have not accounted for them as TDRs and did not include them in our Prior Response Letter
[***]The following information has been redacted in accordance with Citigroup's request for confidential
treatment.
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or
our expanded future disclosures. Modifications of these loans do not impact our non-performing loan metrics, as the loans have accrual status and are not considered impaired.
Accordingly, we do not believe that disclosing modification information on Pass and Special Mention loans is meaningful to the users of our financial statements who are analyzing the credit risk of
our commercial and CRE loan portfolios.
Loans
that are classified Substandard (Performing) have an identified weakness, but Citigroup expects to be fully repaid according to the terms of the loan and thus generally do not
involve a troubled borrower. At December 31, 2009, we had approximately [***] of commercial and CRE loans that were classified as Substandard (Performing). Modifications
of these loans do not impact our non-performing loan metrics, as the loans have accrual status and are not considered impaired. Accordingly, similar to Pass and Special Mention, we do not
believe that disclosing modification information on Substandard (Performing) loans is meaningful to the financial statement user who is analyzing the credit risk of our commercial and CRE portfolios.
On
the other hand, loans that are rated Substandard Non-Performing or worse involve a troubled borrower. At December 31, 2009, we had approximately
[***] of commercial and CRE loans that were classified as Substandard Non-Performing or worse, based on the bank regulatory definitions discussed above. Consistent
with the SEC Staff's request for disclosure of "workout" situations, we will further expand our proposed disclosure beyond the SEC's Guide 3 requirements and intend to disclose modifications of loans
that are rated Substandard Non-Performing or worse in our future filings, including whether the modification was reflected as a TDR. Thus, we will not limit the disclosure of modified
commercial and CRE loans to cover only TDRs (see footnotes 2 and 3 to the table below). Beginning with the Third Quarter Form 10-Q, we currently intend to include disclosure similar
to the following:
In
certain circumstances, Citigroup modifies its corporate loans. In many cases, these modifications involve a non-troubled borrower, are subject to Citi's normal
underwriting standards for new loans, and are made for typical commercial reasons. In other cases, the loan modifications involve a troubled borrower and Citi may grant a concession to the borrower in
the modification. Modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face
amount of the debt, or reduction of past accrued interest. In cases where Citi grants a concession to a troubled borrower, Citi accounts for the modification as a troubled debt restructuring (TDR)
under ASC 310-40.
The
following table presents corporate loans, whose terms were modified in a TDR:
[***]The following information has been redacted in accordance with Citigroup's request for confidential
treatment.
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FOIA Confidential Treatment Requested by Citigroup Inc.
In millions of dollars
September 30,
2010
December 31,
2009
Corporate renegotiated loans(1)
In U.S. offices
Commercial and industrial(2)
Mortgage and real estate(3)
Loans to financial institutions
Other
In offices outside the U.S.
Commercial and industrial(2)
Mortgage and real estate(3)
Loans to financial institutions
Other
Total corporate renegotiated loans
(1)Includes
$XX million of non-accrual loans included in the non-accrual assets table above.
(2)In
addition to modifications reflected as TDRs, Citi also modified $XX million of commercial loans risk rated "Substandard Non-Performing" or
worse (asset category defined by banking regulators). These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting
purposes).
(3)In
addition to the modifications reflected as TDRs, Citi also modified $XX million of commercial real estate loans risk rated "Substandard
Non-Performing" or worse (asset category defined by banking regulators). These modifications were not considered TDRs because the modifications did not involve a concession (a required
element of a TDR for accounting purposes).
We
will also disclose commercial and CRE TDRs included in Consumer renegotiated loans.
Non-Accrual Assets, page 66
2. Please refer to prior comment 3 in our letter dated April 30, 2010. Please tell us the following information related to the
$5 billion in unsold leveraged loans transferred from the held-for-sale portfolio to the held-for-investment
portfolio:
a.It appears from your disclosure on page 88 of the 2009 Form 10-K that you originated these loans with the
intent to sell. Please specifically confirm these loans were originated with the intent to sell and were classified as such upon origination. If not, please clarify when these loans were transferred
to the held-for-sale portfolio.
We
confirm that the unsold leveraged loans transferred in the fourth quarter of 2008 from the held-for-sale portfolio to the
held-for-investment portfolio were originated as part of a strategy to distribute with the intent to sell and were classified as such upon origination.
b.We note from your disclosure on page 88 of the 2009 Form 10-K that you originate a portion of your highly
leveraged financings as held-for-sale. Please clarify whether you continue to do so, and if so, explain the difference in intent between the loans transferred to the
held-for-investment portfolio and the newly originated loans.
CITI B-6
FOIA Confidential Treatment Requested by Citigroup Inc.
Beginning
in mid-2009, as the leveraged financing market started to recover, we resumed originating these leveraged financing transactions and the loan portion that Citigroup
seeks to sell is recorded as loans held-for-sale. In contrast to the older vintage highly leveraged loans transferred to held-for-investment in the
fourth quarter of 2008, newly originat