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FAIR VALUE ELECTIONS
 6 Months Ended
Jun. 30, 2015
Fair Value, Option, Aggregate Differences [Abstract]  
FAIR VALUE ELECTIONS
FAIR VALUE ELECTIONS
The Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. The election is made upon the initial recognition of an eligible financial asset, financial liability or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made. The changes in fair value are recorded in current earnings. Additional discussion regarding the applicable areas in which fair value elections were made is presented in Note 22 to the Consolidated Financial Statements.
All servicing rights are recognized initially at fair value. The Company has elected fair value accounting for its mortgage servicing rights. See Note 20 to the Consolidated Financial Statements for further discussions regarding the accounting and reporting of MSRs.

The following table presents the changes in fair value gains and losses for the three and six months ended June 30, 2015 and 2014 associated with those items for which the fair value option was elected:
 
Changes in fair value gains (losses) for the
 
Three Months Ended June 30,
Six Months Ended June 30,
In millions of dollars
2015
2014
2015
2014
Assets
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell
     Selected portfolios of securities purchased under agreements
     to resell and securities borrowed
$
(116
)
$
(53
)
$
(120
)
$
69

Trading account assets
136

(428
)
227

(238
)
Investments
4

21

49

50

Loans
 
 


Certain corporate loans(1)
40

(1
)
(9
)
13

Certain consumer loans(1)
—

(22
)
2

(46
)
Total loans
$
40

$
(23
)
$
(7
)
$
(33
)
Other assets
 
 


MSRs
262

(91
)
$
191

$
(175
)
Certain mortgage loans held for sale(2)
70

138

172

258

Total other assets
$
332

$
47

$
363

$
83

Total assets
$
396

$
(436
)
$
512

$
(69
)
Liabilities
 
 
 
 
Interest-bearing deposits
$
23

$
(32
)
$
33

$
(56
)
Federal funds purchased and securities loaned or sold under agreements to repurchase
     Selected portfolios of securities sold under agreements to repurchase and securities loaned
—

—

2

(6
)
Trading account liabilities
(44
)
(16
)
(15
)
(13
)
Short-term borrowings
(67
)
(93
)
(68
)
(74
)
Long-term debt
500

(717
)
455

(989
)
Total liabilities
$
412

$
(858
)
$
407

$
(1,138
)
(1)
Includes mortgage loans held by mortgage loan securitization VIEs consolidated upon the adoption of ASC 810, Consolidation (SFAS 167), on January 1, 2010.
(2)
Includes gains (losses) associated with interest rate lock-commitments for those loans that have been originated and elected under the fair value option.
Own Debt Valuation Adjustments
Own debt valuation adjustments are recognized on Citi’s liabilities for which the fair value option has been elected using Citi’s credit spreads observed in the bond market. The fair value of liabilities for which the fair value option is elected (other than non-recourse and similar liabilities) is impacted by the narrowing or widening of the Company’s credit spreads. The estimated change in the fair value of these liabilities due to such changes in the Company’s own credit risk (or instrument-specific credit risk) was a gain of $231 million and a loss of $44 million for the three months ended June 30, 2015 and 2014, respectively and a gain of $318 million and a loss of $10 million for the six months ended June 30, 2015 and 2014, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company’s current credit spreads observable in the bond market into the relevant valuation technique used to value each liability as described above.

The Fair Value Option for Financial Assets and Financial Liabilities

Selected portfolios of securities purchased under agreements to resell, securities borrowed, securities sold under agreements to repurchase, securities loaned and certain non-collateralized short-term borrowings
The Company elected the fair value option for certain portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase, securities borrowed, securities loaned, and certain non-collateralized short-term borrowings held primarily by broker-dealer entities in the United States, United Kingdom and Japan. In each case, the election was made because the related interest-rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings.
Changes in fair value for transactions in these portfolios are recorded in Principal transactions. The related interest revenue and interest expense are measured based on the contractual rates specified in the transactions and are reported as interest revenue and expense in the Consolidated Statement of Income.

Certain loans and other credit products
Citigroup has elected the fair value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup’s lending and trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that are expected to be either sold or securitized in the near term, or transactions where the economic risks are hedged with derivative instruments, such as purchased credit default swaps or total return swaps where the Company pays the total return on the underlying loans to a third party. Citigroup has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company.
The following table provides information about certain credit products carried at fair value at June 30, 2015 and December 31, 2014:
 
June 30, 2015
December 31, 2014
In millions of dollars
Trading assets
Loans
Trading assets
Loans
Carrying amount reported on the Consolidated Balance Sheet
$
10,793

$
6,538

$
10,290

$
5,901

Aggregate unpaid principal balance in excess of (less than) fair value
224

50

234

125

Balance of non-accrual loans or loans more than 90 days past due
7

2

13

3

Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due
11

1

28

1


In addition to the amounts reported above, $1,935 million and $2,335 million of unfunded commitments related to certain credit products selected for fair value accounting were outstanding as of June 30, 2015 and December 31, 2014, respectively.
Changes in fair value of funded and unfunded credit products are classified in Principal transactions in the Company’s Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported as Interest revenue on Trading account assets or loan interest depending on the balance sheet classifications of the credit products. The changes in fair value for the six months ended June 30, 2015 and 2014 due to instrument-specific credit risk totaled to a loss of $27 million and $29 million, respectively.

Certain investments in unallocated precious metals
Citigroup invests in unallocated precious metals accounts (gold, silver, platinum and palladium) as part of its commodity and foreign currency trading activities or to economically hedge certain exposures from issuing structured liabilities. Under ASC 815, the investment is bifurcated into a debt host contract and a commodity forward derivative instrument. Citigroup elects the fair value option for the debt host contract, and reports the debt host contract within Trading account assets on the Company’s Consolidated Balance Sheet. The total carrying amount of debt host contracts across unallocated precious metals accounts was approximately $2.4 billion and $1.2 billion at June 30, 2015 and December 31, 2014, respectively. The amounts are expected to fluctuate based on trading activity in future periods.
As part of its commodity and foreign currency trading activities, Citi sells (buys) unallocated precious metals investments and executes forward purchase (sale) derivative contracts with trading counterparties. When Citi sells an unallocated precious metals investment, Citi’s receivable from its depository bank is repaid and Citi derecognizes its investment in the unallocated precious metal. The forward purchase (sale) contract with the trading counterparty indexed to unallocated precious metals is accounted for as a derivative, at fair value through earnings. As of June 30, 2015, there were approximately $11.2 billion and $8.8 billion notional amounts of such forward purchase and forward sale derivative contracts outstanding, respectively.

Certain investments in private equity and real estate ventures and certain equity method and other investments
Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. The Company has elected the fair value option for certain of these ventures, because such investments are considered similar to many private equity or hedge fund activities in Citi’s investment companies, which are reported at fair value. The fair value option brings consistency in the accounting and evaluation of these investments. All investments (debt and equity) in such private equity and real estate entities are accounted for at fair value. These investments are classified as Investments on Citigroup’s Consolidated Balance Sheet.
Changes in the fair values of these investments are classified in Other revenue in the Company’s Consolidated Statement of Income.
Citigroup also elects the fair value option for certain non-marketable equity securities whose risk is managed with derivative instruments that are accounted for at fair value through earnings. These securities are classified as Trading account assets on Citigroup’s Consolidated Balance Sheet. Changes in the fair value of these securities and the related derivative instruments are recorded in Principal transactions.

Certain mortgage loans HFS
Citigroup has elected the fair value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans HFS. These loans are intended for sale or securitization and are hedged with derivative instruments. The Company has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications.

The following table provides information about certain mortgage loans HFS carried at fair value at June 30, 2015 and December 31, 2014:
In millions of dollars
June 30,
2015
December 31, 2014
Carrying amount reported on the Consolidated Balance Sheet
$
1,273

$
1,447

Aggregate fair value in excess of unpaid principal balance
32

67

Balance of non-accrual loans or loans more than 90 days past due
—

—

Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due
—

—



The changes in fair values of these mortgage loans are reported in Other revenue in the Company’s Consolidated Statement of Income. There was no net change in fair value during the six months ended June 30, 2015 and 2014 due
to instrument-specific credit risk. Related interest income continues to be measured based on the contractual interest rates and reported as Interest revenue in the Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair value option for certain structured liabilities whose performance is linked to structured interest rates, inflation, currency, equity, referenced credit or commodity risks. The Company elected the fair value option, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. These positions will continue to be classified as debt, deposits or derivatives (Trading account liabilities) on the Company’s Consolidated Balance Sheet according to their legal form.
The following table provides information about the carrying value of structured notes, disaggregated by type of embedded derivative instrument at June 30, 2015 and December 31, 2014:
In billions of dollars
June 30, 2015
December 31, 2014
Interest rate linked
$
10.3

$
10.9

Foreign exchange linked
0.4

0.3

Equity linked
10.1

8.0

Commodity linked
1.5

1.4

Credit linked
2.2

2.5

Total
$
24.5

$
23.1


The change in fair value of these structured liabilities is reported in Principal transactions in the Company’s Consolidated Statement of Income. Changes in fair value of these structured liabilities include an economic component for accrued interest, which is included in the change in fair value reported in Principal transactions.

Certain non-structured liabilities
The Company has elected the fair value option for certain non-structured liabilities with fixed and floating interest rates. The Company has elected the fair value option where the interest-rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be accounted for at fair value through earnings. The election has been made to mitigate accounting mismatches and to achieve operational simplifications. These positions are reported in Short-term borrowings and Long-term debt on the Company’s Consolidated Balance Sheet. The change in fair value of these non-structured liabilities is reported in Principal transactions in the Company’s Consolidated Statement of Income. Related interest expense on non-structured liabilities is measured based on the contractual interest rates and reported as Interest expense in the Consolidated Statement of Income.

The following table provides information about long-term debt carried at fair value at June 30, 2015 and December 31, 2014:
In millions of dollars
June 30, 2015
December 31, 2014
Carrying amount reported on the Consolidated Balance Sheet
$
27,214

$
26,180

Aggregate unpaid principal balance in excess of (less than) fair value
582

(151
)

The following table provides information about short-term borrowings carried at fair value at June 30, 2015 and December 31, 2014:
In millions of dollars
June 30, 2015
December 31, 2014
Carrying amount reported on the Consolidated Balance Sheet
$
870

$
1,496

Aggregate unpaid principal balance in excess of (less than) fair value
14

31