SEC Company Response from CITIGROUP INC (C, C-PN) (CIK 0000831001) (C) — Sep 21, 2012
CITIGROUP INC (C, C-PN) (CIK 0000831001)
Date: Sept. 21, 2012 · CIK: 0000831001 · Accession: 0001104659-12-064825
AI Filing Summary & Sentiment
File numbers found in text: 001-09924
Referenced dates: April 9, 2012, August 22, 2012, June 29, 2011
Letter
VIA EDGAR CORRESPONDENCE Securities and Exchange Commission Form 10-Q for the Quarterly Period Ended June 30, 2012 Filed August 3, 2012 Response filed April 27, 2012 File No. 001-09924
Dear Ms. Ciboroski:
Enhancement of Citigroup’s disclosures 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 of our filings. This letter sets forth the responses of Citigroup to the comments of the Staff contained in the Staff’s letter dated August 22, 2012.
For your convenience, the text of the Staff’s comments is set forth in bold below, followed in each case by our response.
Form 10-Q for the Quarterly Period Ended June 30, 2012
Capital and Loan Loss Reserve Positions, page 6
1. We note your disclosure of estimated Tier 1 Common ratio under Basel III at the end of the second quarter of 2012 here as well as on page 40. Additionally, we note your disclosure on page 43 of your estimated Tier 1 Common ratio as of June 30, 2012, assuming application of the final Basel II.5 rules. These measures appear to represent non-GAAP measures as they are not yet a required disclosure by a government, governmental authority or self-regulatory agency. Therefore, please expand your disclosures in future filings to show the calculation of the metrics, similar to the disclosures on page 40 where you show the calculation of the metrics under current regulatory requirements.
To the extent we include these metrics in our future filings, we will expand our disclosure to indicate that (i) Citi’s estimated Basel III Tier 1 Common ratio and Citi’s estimated Basel I Tier 1 Common ratio, assuming
CITI B-1
application of the final Basel II.5 market risk rules, are non-GAAP financial measures, (ii) why management believes the measures provide useful information to investors and (iii) the calculation of each such metric, similar to our current “Components of Capital Under Current Regulatory Guidelines” table on p. 40 of our Second Quarter 2012 Form 10-Q (“2Q 2012 Form 10-Q”) or a similar method of disclosure to show the calculation of these metrics. We supplementally advise the Staff that while Citi’s Basel III Tier 1 Common ratio may not technically be “required disclosure” by a government, governmental authority or self-regulatory agency, we believe our investors and other stakeholders are very interested in this information. We further advise the Staff that the final Basel II.5 market risk rules are to become effective on January 1, 2013 and, as such, will be fully reflected in Citi’s risk-based capital ratios that will be reported commencing with the first quarter of 2013. However, the U.S. Basel III risk-weighted assets and capital rules are not yet final and therefore we will continue to disclose the estimated Basel III Tier 1 Common ratios as a non-GAAP measure.
Segment and Business — Income (Loss) and Revenues, page 11
Citi Holdings — Brokerage and Asset Management, page 29
MSSB JV, page 29
2. We note your response to prior comment 7 from our letter dated April 9, 2012, as well as your updated disclosure regarding new developments in the second quarter related to the MSSB JV Agreement deal with Morgan Stanley. Due to the fact that you could potentially record a significant non-cash charge in the third quarter of 2012 related to this disposition, which would be based in part on your internal valuation of the fair value of that portion of your investment, please provide us with a copy of your valuation report used in determining the fair value of your interest in the MSSB JV for purposes of this transaction.
As disclosed pursuant to a Form 8-K filed with the SEC on September 11, 2012, Citi anticipates recording a non-cash charge to net income of approximately $2.9 billion after-tax ($4.7 billion pretax) in the third quarter of 2012 relating to its equity method investment in the Morgan Stanley Smith Barney joint venture. We have provided to the Staff the information it has requested under separate cover as supplemental information pursuant to Rule 12b-4 under the Securities Exchange Act of 1934.
Corporate/Other, page 34
3. We note your disclosure on page 34 that your net loss in the Corporate/Other segment for 2Q11 and 2Q12 was $63 million and $437 million, respectively. However, we also note your statement that the net loss of $437 million “declined by $374 million year-over-year” implying that the net loss decreased when in fact it grew to a larger deficit. Similar disclosure is included in the year to date comparison on the same page. In the future, please ensure that your disclosure accurately depicts the changes between each period discussed.
In future filings, as applicable, we will clarify our disclosures as requested by the Staff.
Liquidity Management and Measures, page 49
Liquidity Measures, page 49
4. We note your disclosure that you believe you are in compliance with the proposed Basel III Liquidity Coverage Ratio (LCR) with an estimated LCR of approximately 117% as of June 30, 2012, compared with approximately 126% at March 31, 2012. Given that this metric is not yet required by a government, governmental authority or self-regulatory organization, it would appear to be a non-GAAP financial measure for purposes of Item 10 of Regulation S-K. Thus, please revise
CITI B-2
future filings to label the measure as non-GAAP and provide further clarifying disclosures regarding the use of the metric, including more discussion on how it is calculated.
To the extent we include this metric in our future filings, we will expand our disclosure to indicate that (i) Citi’s estimated LCR is a non-GAAP financial measure, (ii) why management believes the measure provides useful information to investors and (iii) the calculation of such metric. We supplementally advise the Staff that while Citi’s LCR may not technically be “required disclosure” by a government, governmental authority or self-regulatory agency, given that this metric has been proposed by the Basel Committee and U.S. banking regulators and is part of the significant proposed changes to capital and liquidity standards applicable to financial institutions, we believe our investors and other stakeholders are very interested in this information.
Managing Global Risk, page 52
Credit Risk — North America Consumer Mortgage Lending, page 59
North America Residential First Mortgages — State Delinquency Trends, page 61
5. We note your table showing significantly improved loan-to-value (LTV) percentages between March 31, 2012 and June 30, 2012 for certain states and state groupings, including California, Florida, Arizona/Nevada and Other. Please tell us and expand your disclosure as appropriate to discuss the primary drivers of the significant improvements in LTVs over such a short period (for example, 20% fewer loans with LTVs greater than 100% in California from one quarter to the next). To the extent that loans are concentrated in certain geographic regions within the state(s), please state that fact. To the extent that modifications that include principal forgiveness are a key driver, please state that fact and reconcile the information with the disclosures on page 143.
The improvement in LTV percentages from March 31, 2012 to June 30, 2012 in total and in California, Florida, Arizona/Nevada and Other states was primarily the result of improvements in the home pricing index (HPI) across substantially all metropolitan statistical areas, thereby increasing the house value (denominator) which reduced the LTV to below 100% on a portion of loans that had LTVs greater than 100% as of March 31, 2012. While principal forgiveness during the second quarter had an impact on the improved LTV, it was not a key driver of the improvement. In future filings, we will expand our disclosures to discuss the primary drivers of any significant changes in these percentages, including any significant geographic concentrations within the state and/or regions that are contributing to the changes, to the extent material.
North America Consumer Mortgage Quarterly Credit Trends — Delinquencies and Net Credit Losses — Home Equity Loans, page 62
6. We note your disclosure that approximately $23.5 billion of home equity lines of credit are still within their revolving period and have not commenced amortization, and that this amount has decreased from $27.0 billion as of December 31, 2010. We also note your response to our prior comment 7 in your letter dated June 29, 2011 that a comparison of default and delinquency trends for amortizing versus non-amortizing home equity lines of credit was not meaningful at that time given the levels of loans that had converted to amortizing as of March 31, 2011. However, given the time that has passed, and the fact that more loans have now converted to amortizing, please tell us and expand your disclosures as appropriate to tell us whether there are different trends for the loans that have converted to amortizing versus those that are still in the revolving stage.
As noted in the Staff’s comment, the amount of home equity lines of credit in their revolving period (which have not commenced amortizing) has declined approximately $3.5 billion since December 31, 2010. The decline during this period was primarily a result of the home equity lines of credit paying off or charging off and not a result of the conversion of these lines from revolving to amortizing. The outstanding balance of home equity lines of credit that have converted from revolving to amortizing remains at a low level consistent
CITI B-3
with the contractual conversion schedule provided in our response letter dated June 29, 2011 and as we have disclosed in our quarterly and annual filings. Accordingly, we continue to believe that disclosure of the comparison of default and delinquency trends between amortizing and revolving home equity loans is not material at this time; however, management does and will continue to monitor these default and delinquency trends and, to the extent material, we will expand our disclosures in future filings to separately present default and delinquency statistics for amortizing and non-amortizing home equity lines of credit.
Representation and Warranty Claims — by Claimant, page 70
7. We note your disclosure on page 69 that you refined certain of your assumptions in estimating the repurchase reserve. Specifically, you now use the historical correlation between underlying loan characteristics (e.g. delinquencies, LTV, loan channel, etc.) and the likelihood of receiving a claim based on those characteristics in developing your claim estimate. Prior to this change, you used loan documentation requests and repurchase claims as a percentage of loan documentation requests in order to estimate future claims. Your disclosure also states that the refinement did not have a material impact on the repurchase reserve balance at June 30, 2012. Please tell us how you believe this new approach captures the changes in GSE behavior regarding the levels of mortgage repurchase requests, as noted by many other financial institutions, and as evidenced by the higher levels of GSE mortgage repurchase claims you experienced during the first and second quarters of 2012. In this regard, it appears you are now experiencing some of the highest levels of GSE repurchase requests you have ever experienced, despite the fact that you disclose on page 68 that the repurchase requests are primarily related to loans originated from 2006 to 2008. We also note that in June 2012, the FHFA indicated they would provide a framework to assist banks in developing a higher degree of certainty and clarity around repurchase exposure and liability, as well as consistency around repurchase timelines, incentives and remedies. Please tell us how this was taken into consideration in making the policy change and tell us whether you have received any guidance at this point. Finally, in light of your change in methodology where you use historical correlation based on underlying loan characteristics, tell us why you still believe that the activity in, and change in, estimate for the repurchase reserve will remain volatile, and that you cannot estimate a range of reasonably possible loss related to this exposure.
As we disclose, Citi’s repurchase reserve primarily relates to whole loan sales to the GSEs and continues to be calculated primarily based on Citi’s historical repurchase activity with the GSEs. We believe our refined approach to determining future claims for purposes of the whole loan repurchase reserve continues to capture any changes in GSE behavior regarding documentation package requests since it is based on loan level characteristics, which we believe ultimately drive the potential for future claims, and is no longer influenced by factors such as the timing of documentation package requests. The refined approach also envisions periodically updating the historical correlation between underlying loan level characteristics and claims, therefore ensuring that it continues to consider GSE behavior regarding whole loan mortgage repurchase requests. We advise the Staff that the largest portion of GSE claims continues to come from loans originated from 2006 to 2008, consistent with our disclosure.
Regarding the framework from the FHFA, we did not receive any direct communication from the FHFA until September 11, 2012. Accordingly, no assumptions had been changed as of June 30, 2012 to account for any anticipated guidance. While the FHFA, Fannie Mae, and Freddie Mac announced a new representation and warranty framework on September 11, 2012, it will apply prospectively to loans sold to Fannie Mae or Freddie Mac on or after January 1, 2013. Therefore, any impact of this guidance will be reflected in our whole loan repurchase reserve for loans sold to the GSEs beginning with the first quarter of 2013.
Because the estimation process for this reserve includes multiple assumptions that are not driven by observable factors (for example, the reserve is highly dependent upon the environment and focus by the GSEs), we continue to believe that the activity in, and change in estimate relating to, Citi’s whole loan repurchase reserve will remain volatile in the near term, as we disclose. However, in future filings, so long as
CITI B-4
material, we will disclose an estimate of the possible loss or range of loss related to whole loan sales within our repurchase reserve.
Market Risk, page 78
Value at Risk for Trading Portfolios, page 79
8. We note your discussion of your value at risk (VAR) methodology which is estimated using a Monte Carlo simulation. Please respond to the following and expand your disclosure in future filings as appropriate:
· Tell us the number of different VAR models that are used to determine your total trading VAR, and discuss the drivers regarding the need to use multiple different models.
· Tell us how all of the different VAR models used are aggregated to arrive at your total trading VAR as well as the individual market risk categories disclosed. For example, clarify whether you simply aggregate the outputs from the different models or whether adjustments are made, and if so, how the adjustments are determined.
We advise the Staff that Citi uses a single, coherent VAR model for all positions and asset classes/risk types, including individual market risk cat
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CORRESP 1 filename1.htm FOIA Confidential Treatment Requested by Citigroup Inc. John C. Gerspach Chief Financial Officer Citigroup Inc. 399 Park Avenue New York, NY 10022 September 21, 2012 VIA EDGAR CORRESPONDENCE Stephanie J. Ciboroski Securities and Exchange Commission 100 F Street, NE Mail Stop 4561 Washington, DC 20549-7553 Re: Citigroup Inc. Form 10-K for Fiscal Year Ended December 31, 2011 Filed February 24, 2012 Form 10-Q for the Quarterly Period Ended June 30, 2012 Filed August 3, 2012 Response filed April 27, 2012 File No. 001-09924 Dear Ms. Ciboroski: Enhancement of Citigroup’s disclosures 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 of our filings. This letter sets forth the responses of Citigroup to the comments of the Staff contained in the Staff’s letter dated August 22, 2012. For your convenience, the text of the Staff’s comments is set forth in bold below, followed in each case by our response. Form 10-Q for the Quarterly Period Ended June 30, 2012 Capital and Loan Loss Reserve Positions, page 6 1. We note your disclosure of estimated Tier 1 Common ratio under Basel III at the end of the second quarter of 2012 here as well as on page 40. Additionally, we note your disclosure on page 43 of your estimated Tier 1 Common ratio as of June 30, 2012, assuming application of the final Basel II.5 rules. These measures appear to represent non-GAAP measures as they are not yet a required disclosure by a government, governmental authority or self-regulatory agency. Therefore, please expand your disclosures in future filings to show the calculation of the metrics, similar to the disclosures on page 40 where you show the calculation of the metrics under current regulatory requirements. To the extent we include these metrics in our future filings, we will expand our disclosure to indicate that (i) Citi’s estimated Basel III Tier 1 Common ratio and Citi’s estimated Basel I Tier 1 Common ratio, assuming CITI B-1 application of the final Basel II.5 market risk rules, are non-GAAP financial measures, (ii) why management believes the measures provide useful information to investors and (iii) the calculation of each such metric, similar to our current “Components of Capital Under Current Regulatory Guidelines” table on p. 40 of our Second Quarter 2012 Form 10-Q (“2Q 2012 Form 10-Q”) or a similar method of disclosure to show the calculation of these metrics. We supplementally advise the Staff that while Citi’s Basel III Tier 1 Common ratio may not technically be “required disclosure” by a government, governmental authority or self-regulatory agency, we believe our investors and other stakeholders are very interested in this information. We further advise the Staff that the final Basel II.5 market risk rules are to become effective on January 1, 2013 and, as such, will be fully reflected in Citi’s risk-based capital ratios that will be reported commencing with the first quarter of 2013. However, the U.S. Basel III risk-weighted assets and capital rules are not yet final and therefore we will continue to disclose the estimated Basel III Tier 1 Common ratios as a non-GAAP measure. Segment and Business — Income (Loss) and Revenues, page 11 Citi Holdings — Brokerage and Asset Management, page 29 MSSB JV, page 29 2. We note your response to prior comment 7 from our letter dated April 9, 2012, as well as your updated disclosure regarding new developments in the second quarter related to the MSSB JV Agreement deal with Morgan Stanley. Due to the fact that you could potentially record a significant non-cash charge in the third quarter of 2012 related to this disposition, which would be based in part on your internal valuation of the fair value of that portion of your investment, please provide us with a copy of your valuation report used in determining the fair value of your interest in the MSSB JV for purposes of this transaction. As disclosed pursuant to a Form 8-K filed with the SEC on September 11, 2012, Citi anticipates recording a non-cash charge to net income of approximately $2.9 billion after-tax ($4.7 billion pretax) in the third quarter of 2012 relating to its equity method investment in the Morgan Stanley Smith Barney joint venture. We have provided to the Staff the information it has requested under separate cover as supplemental information pursuant to Rule 12b-4 under the Securities Exchange Act of 1934. Corporate/Other, page 34 3. We note your disclosure on page 34 that your net loss in the Corporate/Other segment for 2Q11 and 2Q12 was $63 million and $437 million, respectively. However, we also note your statement that the net loss of $437 million “declined by $374 million year-over-year” implying that the net loss decreased when in fact it grew to a larger deficit. Similar disclosure is included in the year to date comparison on the same page. In the future, please ensure that your disclosure accurately depicts the changes between each period discussed. In future filings, as applicable, we will clarify our disclosures as requested by the Staff. Liquidity Management and Measures, page 49 Liquidity Measures, page 49 4. We note your disclosure that you believe you are in compliance with the proposed Basel III Liquidity Coverage Ratio (LCR) with an estimated LCR of approximately 117% as of June 30, 2012, compared with approximately 126% at March 31, 2012. Given that this metric is not yet required by a government, governmental authority or self-regulatory organization, it would appear to be a non-GAAP financial measure for purposes of Item 10 of Regulation S-K. Thus, please revise CITI B-2 future filings to label the measure as non-GAAP and provide further clarifying disclosures regarding the use of the metric, including more discussion on how it is calculated. To the extent we include this metric in our future filings, we will expand our disclosure to indicate that (i) Citi’s estimated LCR is a non-GAAP financial measure, (ii) why management believes the measure provides useful information to investors and (iii) the calculation of such metric. We supplementally advise the Staff that while Citi’s LCR may not technically be “required disclosure” by a government, governmental authority or self-regulatory agency, given that this metric has been proposed by the Basel Committee and U.S. banking regulators and is part of the significant proposed changes to capital and liquidity standards applicable to financial institutions, we believe our investors and other stakeholders are very interested in this information. Managing Global Risk, page 52 Credit Risk — North America Consumer Mortgage Lending, page 59 North America Residential First Mortgages — State Delinquency Trends, page 61 5. We note your table showing significantly improved loan-to-value (LTV) percentages between March 31, 2012 and June 30, 2012 for certain states and state groupings, including California, Florida, Arizona/Nevada and Other. Please tell us and expand your disclosure as appropriate to discuss the primary drivers of the significant improvements in LTVs over such a short period (for example, 20% fewer loans with LTVs greater than 100% in California from one quarter to the next). To the extent that loans are concentrated in certain geographic regions within the state(s), please state that fact. To the extent that modifications that include principal forgiveness are a key driver, please state that fact and reconcile the information with the disclosures on page 143. The improvement in LTV percentages from March 31, 2012 to June 30, 2012 in total and in California, Florida, Arizona/Nevada and Other states was primarily the result of improvements in the home pricing index (HPI) across substantially all metropolitan statistical areas, thereby increasing the house value (denominator) which reduced the LTV to below 100% on a portion of loans that had LTVs greater than 100% as of March 31, 2012. While principal forgiveness during the second quarter had an impact on the improved LTV, it was not a key driver of the improvement. In future filings, we will expand our disclosures to discuss the primary drivers of any significant changes in these percentages, including any significant geographic concentrations within the state and/or regions that are contributing to the changes, to the extent material. North America Consumer Mortgage Quarterly Credit Trends — Delinquencies and Net Credit Losses — Home Equity Loans, page 62 6. We note your disclosure that approximately $23.5 billion of home equity lines of credit are still within their revolving period and have not commenced amortization, and that this amount has decreased from $27.0 billion as of December 31, 2010. We also note your response to our prior comment 7 in your letter dated June 29, 2011 that a comparison of default and delinquency trends for amortizing versus non-amortizing home equity lines of credit was not meaningful at that time given the levels of loans that had converted to amortizing as of March 31, 2011. However, given the time that has passed, and the fact that more loans have now converted to amortizing, please tell us and expand your disclosures as appropriate to tell us whether there are different trends for the loans that have converted to amortizing versus those that are still in the revolving stage. As noted in the Staff’s comment, the amount of home equity lines of credit in their revolving period (which have not commenced amortizing) has declined approximately $3.5 billion since December 31, 2010. The decline during this period was primarily a result of the home equity lines of credit paying off or charging off and not a result of the conversion of these lines from revolving to amortizing. The outstanding balance of home equity lines of credit that have converted from revolving to amortizing remains at a low level consistent CITI B-3 with the contractual conversion schedule provided in our response letter dated June 29, 2011 and as we have disclosed in our quarterly and annual filings. Accordingly, we continue to believe that disclosure of the comparison of default and delinquency trends between amortizing and revolving home equity loans is not material at this time; however, management does and will continue to monitor these default and delinquency trends and, to the extent material, we will expand our disclosures in future filings to separately present default and delinquency statistics for amortizing and non-amortizing home equity lines of credit. Representation and Warranty Claims — by Claimant, page 70 7. We note your disclosure on page 69 that you refined certain of your assumptions in estimating the repurchase reserve. Specifically, you now use the historical correlation between underlying loan characteristics (e.g. delinquencies, LTV, loan channel, etc.) and the likelihood of receiving a claim based on those characteristics in developing your claim estimate. Prior to this change, you used loan documentation requests and repurchase claims as a percentage of loan documentation requests in order to estimate future claims. Your disclosure also states that the refinement did not have a material impact on the repurchase reserve balance at June 30, 2012. Please tell us how you believe this new approach captures the changes in GSE behavior regarding the levels of mortgage repurchase requests, as noted by many other financial institutions, and as evidenced by the higher levels of GSE mortgage repurchase claims you experienced during the first and second quarters of 2012. In this regard, it appears you are now experiencing some of the highest levels of GSE repurchase requests you have ever experienced, despite the fact that you disclose on page 68 that the repurchase requests are primarily related to loans originated from 2006 to 2008. We also note that in June 2012, the FHFA indicated they would provide a framework to assist banks in developing a higher degree of certainty and clarity around repurchase exposure and liability, as well as consistency around repurchase timelines, incentives and remedies. Please tell us how this was taken into consideration in making the policy change and tell us whether you have received any guidance at this point. Finally, in light of your change in methodology where you use historical correlation based on underlying loan characteristics, tell us why you still believe that the activity in, and change in, estimate for the repurchase reserve will remain volatile, and that you cannot estimate a range of reasonably possible loss related to this exposure. As we disclose, Citi’s repurchase reserve primarily relates to whole loan sales to the GSEs and continues to be calculated primarily based on Citi’s historical repurchase activity with the GSEs. We believe our refined approach to determining future claims for purposes of the whole loan repurchase reserve continues to capture any changes in GSE behavior regarding documentation package requests since it is based on loan level characteristics, which we believe ultimately drive the potential for future claims, and is no longer influenced by factors such as the timing of documentation package requests. The refined approach also envisions periodically updating the historical correlation between underlying loan level characteristics and claims, therefore ensuring that it continues to consider GSE behavior regarding whole loan mortgage repurchase requests. We advise the Staff that the largest portion of GSE claims continues to come from loans originated from 2006 to 2008, consistent with our disclosure. Regarding the framework from the FHFA, we did not receive any direct communication from the FHFA until September 11, 2012. Accordingly, no assumptions had been changed as of June 30, 2012 to account for any anticipated guidance. While the FHFA, Fannie Mae, and Freddie Mac announced a new representation and warranty framework on September 11, 2012, it will apply prospectively to loans sold to Fannie Mae or Freddie Mac on or after January 1, 2013. Therefore, any impact of this guidance will be reflected in our whole loan repurchase reserve for loans sold to the GSEs beginning with the first quarter of 2013. Because the estimation process for this reserve includes multiple assumptions that are not driven by observable factors (for example, the reserve is highly dependent upon the environment and focus by the GSEs), we continue to believe that the activity in, and change in estimate relating to, Citi’s whole loan repurchase reserve will remain volatile in the near term, as we disclose. However, in future filings, so long as CITI B-4 material, we will disclose an estimate of the possible loss or range of loss related to whole loan sales within our repurchase reserve. Market Risk, page 78 Value at Risk for Trading Portfolios, page 79 8. We note your discussion of your value at risk (VAR) methodology which is estimated using a Monte Carlo simulation. Please respond to the following and expand your disclosure in future filings as appropriate: · Tell us the number of different VAR models that are used to determine your total trading VAR, and discuss the drivers regarding the need to use multiple different models. · Tell us how all of the different VAR models used are aggregated to arrive at your total trading VAR as well as the individual market risk categories disclosed. For example, clarify whether you simply aggregate the outputs from the different models or whether adjustments are made, and if so, how the adjustments are determined. We advise the Staff that Citi uses a single, coherent VAR model for all positions and asset classes/risk types, including individual market risk cat