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SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2019

Securitizations and Variable Interest Entities [Abstract]

SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

For additional information regarding Citi’s use of special purpose entities (SPEs) and variable interest entities (VIEs), see Note 21 to the Consolidated Financial Statements in Citi’s 2018 Annual Report on Form 10-K.

Citigroup’s involvement with consolidated and unconsolidated VIEs with which the Company holds significant variable interests or has continuing involvement through servicing a majority of the assets in a VIE is presented below:



	As of March 31, 2019
							Maximum exposure to loss in significant unconsolidated VIEs⁽¹⁾
							Funded exposures⁽²⁾				Unfunded exposures
In millions of dollars	Total involvement with SPE assets		Consolidated VIE/SPE assets		Significant unconsolidated VIE assets⁽³⁾		Debt investments		Equity investments		Funding commitments		Guarantees and derivatives		Total
Credit card securitizations	$	42,790	$	42,790	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage securitizations⁽⁴⁾
U.S. agency-sponsored	116,062		—		116,062		3,251		—		—		61		3,312
Non-agency-sponsored	32,769		1,424		31,345		500		—		—		1		501
Citi-administered asset-backed commercial paper conduits	17,494		17,494		—		—		—		—		—		—
Collateralized loan obligations (CLOs)	21,612		—		21,612		5,408		—		—		9		5,417
Asset-based financing	105,765		612		105,153		22,940		834		10,394		—		34,168
Municipal securities tender option bond trusts (TOBs)	8,165		1,787		6,378		21		—		4,278		—		4,299
Municipal investments	18,518		1		18,517		2,768		3,932		2,641		—		9,341
Client intermediation	1,649		1,403		246		171		—		—		8		179
Investment funds	1,037		265		772		14		—		20		—		34
Other	62		2		60		49		—		11		—		60
Total	$	365,923	$	65,778	$	300,145	$	35,122	$	4,766	$	17,344	$	79	$	57,311



	As of December 31, 2018
							Maximum exposure to loss in significant unconsolidated VIEs⁽¹⁾
							Funded exposures⁽²⁾				Unfunded exposures
In millions of dollars	Total involvement with SPE assets		Consolidated VIE/SPE assets		Significant unconsolidated VIE assets⁽³⁾		Debt investments		Equity investments		Funding commitments		Guarantees and derivatives		Total
Credit card securitizations	$	46,232	$	46,232	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage securitizations⁽⁴⁾
U.S. agency-sponsored	116,563		—		116,563		3,038		—		—		60		3,098
Non-agency-sponsored	30,886		1,498		29,388		431		—		—		1		432
Citi-administered asset-backed commercial paper conduits	18,750		18,750		—		—		—		—		—		—
Collateralized loan obligations (CLOs)	21,837		—		21,837		5,891		—		—		9		5,900
Asset-based financing	99,433		628		98,805		21,640		715		9,757		—		32,112
Municipal securities tender option bond trusts (TOBs)	7,998		1,776		6,222		9		—		4,262		—		4,271
Municipal investments	18,044		3		18,041		2,813		3,922		2,738		—		9,473
Client intermediation	858		614		244		172		—		—		2		174
Investment funds	1,272		440		832		12		—		1		1		14
Other	63		3		60		37		—		23		—		60
Total	$	361,936	$	69,944	$	291,992	$	34,043	$	4,637	$	16,781	$	73	$	55,534

(1) The definition of maximum exposure to loss is included in the text that follows this table.


(2)	Included on Citigroup’s March 31, 2019 and December 31, 2018 Consolidated Balance Sheet.


(3)	A significant unconsolidated VIE is an entity in which the Company has any variable interest or continuing involvement considered to be significant, regardless of the likelihood of loss.


(4)	Citigroup mortgage securitizations also include agency and non-agency (private label) re-securitization activities. These SPEs are not consolidated. See “Re-securitizations” below for further discussion.

The previous tables do not include:


•	certain venture capital investments made by some of the Company’s private equity subsidiaries, as the Company accounts for these investments in accordance with the Investment Company Audit Guide (codified in ASC 946);


•	certain investment funds for which the Company provides investment management services and personal estate trusts for which the Company provides administrative, trustee and/or investment management services;


•	certain VIEs structured by third parties in which the Company holds securities in inventory, as these investments are made on arm’s-length terms;


•	certain positions in mortgage- and asset-backed securities held by the Company, which are classified as Trading account assets or Investments, in which the Company has no other involvement with the related securitization entity deemed to be significant (for more information on these positions, see Notes 12 and 20 to the Consolidated Financial Statements);

•

certain representations and warranties exposures in legacy ICG-sponsored mortgage- and asset-backed securitizations in which the Company has no variable interest or continuing involvement as servicer. The outstanding balance of mortgage loans securitized during 2005 to 2008 in which the Company has no variable interest or continuing involvement as servicer was approximately $7 billion at March 31, 2019 and December 31, 2018;


•	certain representations and warranties exposures in Citigroup residential mortgage securitizations, in which the original mortgage loan balances are no longer outstanding; and


•	VIEs such as trust preferred securities trusts used in connection with the Company’s funding activities. The Company does not have a variable interest in these trusts.

The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e.g., loan or security) and the Company’s standard accounting policies for the asset type and line of business.

The asset balances for unconsolidated VIEs in which the Company has significant involvement represent the most current information available to the Company. In most cases, the asset balances represent an amortized cost basis without regard to impairments, unless fair value information is readily available to the Company.

The maximum funded exposure represents the balance sheet carrying amount of the Company’s investment in the VIE. It reflects the initial amount of cash invested in the VIE, adjusted for any accrued interest and cash principal payments received. The carrying amount may also be adjusted for increases or declines in fair value or any impairment in value recognized in earnings. The maximum exposure of unfunded positions represents the remaining undrawn committed amount, including liquidity and credit facilities provided by the Company or the notional amount of a derivative instrument considered to be a variable interest. In certain transactions, the Company has entered into derivative instruments or other arrangements that are not considered variable interests in the VIE (e.g., interest rate swaps, cross-currency swaps or where the Company is the purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE). Receivables under such arrangements are not included in the maximum exposure amounts.

Funding Commitments for Significant Unconsolidated VIEs—Liquidity Facilities and Loan Commitments

The following table presents the notional amount of liquidity facilities and loan commitments that are classified as funding commitments in the VIE tables above:



	March 31, 2019				December 31, 2018
In millions of dollars	Liquidity facilities		Loan/equity commitments		Liquidity facilities		Loan/equity commitments
Asset-based financing	$	—	$	10,394	$	—	$	9,757
Municipal securities tender option bond trusts (TOBs)	4,278		—		4,262		—
Municipal investments	—		2,641		—		2,738
Investment funds	—		20		—		1
Other	—		11		—		23
Total funding commitments	$	4,278	$	13,066	$	4,262	$	12,519

Significant Interests in Unconsolidated VIEs—Balance Sheet Classification

The following table presents the carrying amounts and classification of significant variable interests in unconsolidated VIEs:



In billions of dollars	March 31, 2019		December 31, 2018
Cash	$	—	$	—
Trading account assets	3.4		3.0
Investments	10.3		10.7
Total loans, net of allowance	25.7		24.5
Other	0.5		0.5
Total assets	$	39.9	$	38.7

Credit Card Securitizations

Substantially all of the Company’s credit card securitization activity is through two trusts—Citibank Credit Card Master Trust (Master Trust) and Citibank Omni Master Trust (Omni

Trust), with the substantial majority through the Master Trust. These trusts are consolidated entities.

The following table reflects amounts related to the Company’s securitized credit card receivables:



In billions of dollars	March 31, 2019		December 31, 2018
Ownership interests in principal amount of trust credit card receivables
Sold to investors via trust-issued securities	$	24.8	$	27.3
Retained by Citigroup as trust-issued securities	7.6		7.6
Retained by Citigroup via non-certificated interests	10.5		11.3
Total	$	42.9	$	46.2

The following table summarizes selected cash flow information related to Citigroup’s credit card securitizations:



	Three Months Ended March 31,
In billions of dollars	2019			2018
Proceeds from new securitizations	$	—		$	2.8
Pay down of maturing notes	(2.5		)	(2.8		)

Master Trust Liabilities (at Par Value)

The weighted average maturity of the third-party term notes issued by the Master Trust was 3.1 years as of March 31, 2019 and 3.0 years as of December 31, 2018.



In billions of dollars	Mar. 31, 2019		Dec. 31, 2018
Term notes issued to third parties	$	23.3	$	25.8
Term notes retained by Citigroup affiliates	5.7		5.7
Total Master Trust liabilities	$	29.0	$	31.5

Omni Trust Liabilities (at Par Value)

The weighted average maturity of the third-party term notes issued by the Omni Trust was 1.2 years as of March 31, 2019 and 1.4 years as of December 31, 2018.



In billions of dollars	Mar. 31, 2019		Dec. 31, 2018
Term notes issued to third parties	$	1.5	$	1.5
Term notes retained by Citigroup affiliates	1.9		1.9
Total Omni Trust liabilities	$	3.4	$	3.4

Mortgage Securitizations

The following tables summarize selected cash flow information and retained interests related to Citigroup mortgage securitizations:



	Three Months Ended March 31,
	2019				2018
In billions of dollars	U.S. agency- sponsored mortgages		Non-agency- sponsored mortgages		U.S. agency- sponsored mortgages		Non-agency- sponsored mortgages
Principal securitized	$	1.0	$	2.7	$	1.2	$	—
Proceeds from new securitizations	1.0		2.7		1.2		1.6
Purchases of previously transferred financial assets	—		—		0.1		—

Note: Excludes re-securitization transactions.

During the first quarter of 2019, there were no gains recognized on the securitization of U.S. agency-sponsored mortgages. Gains recognized on the securitization of non-agency sponsored mortgages during the first quarter of 2019 were $17 million.

Agency and non-agency securitization gains for the quarter ended March 31, 2018 were $5 million and $12 million, respectively.



	March 31, 2019						December 31, 2018
			Non-agency-sponsored mortgages⁽¹⁾						Non-agency-sponsored mortgages⁽¹⁾
In millions of dollars	U.S. agency- sponsored mortgages		Senior interests		Subordinated interests		U.S. agency- sponsored mortgages		Senior interests		Subordinated interests
Carrying value of retained interests⁽²⁾	$	531	$	366	$	55	$	564	$	300	$	51


(1)	Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the securitization.


(2)	Retained interests consist of Level 2 or Level 3 assets depending on the observability of significant inputs. See Note 20 to the Consolidated Financial Statements for more information about fair value measurements.

Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables were as follows:



	March 31, 2019
			Non-agency-sponsored mortgages⁽¹⁾
	U.S. agency- sponsored mortgages		Senior interests		Subordinated interests
Weighted average discount rate	6.6	%	3.6	%	7.1	%
Weighted average constant prepayment rate	14.1	%	6.0	%	6.0	%
Weighted average anticipated net credit losses⁽²⁾	NM		5.0	%	3.5	%
Weighted average life	6.1 years		7.6 years		19.4 years



	March 31, 2018
			Non-agency-sponsored mortgages⁽¹⁾
	U.S. agency- sponsored mortgages		Senior interests		Subordinated interests
Weighted average discount rate	10.4	%	3.4	%	3.0	%
Weighted average constant prepayment rate	4.5	%	12.0	%	12.0	%
Weighted average anticipated net credit losses⁽²⁾	NM		5.0	%	2.0	%
Weighted average life	7.7 years		6.9 years		2.5 years


(1)	Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the securitization.


(2)	Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above. Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests in mortgage securitizations.


NM	Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

The interests retained by the Company range from highly rated and/or senior in the capital structure to unrated and/or residual interests.

The key assumptions used to value retained interests, and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions, are presented in the tables below.

The negative effect of each change is calculated independently, holding all other assumptions constant. Because the key assumptions may not be independent, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.



	March 31, 2019
			Non-agency-sponsored mortgages⁽¹⁾
	U.S. agency- sponsored mortgages		Senior interests		Subordinated interests
Weighted average discount rate	7.2	%	5.9	%	18.4	%
Weighted average constant prepayment rate	11.1	%	1.9	%	1.3	%
Weighted average anticipated net credit losses⁽²⁾	NM		47.0	%	—
Weighted average life	6.0 years		3.1 years		22.0 years



	December 31, 2018
			Non-agency-sponsored mortgages⁽¹⁾
	U.S. agency- sponsored mortgages		Senior interests		Subordinated interests
Weighted average discount rate	7.8	%	9.3	%	—
Weighted average constant prepayment rate	9.1	%	8.0	%	—
Weighted average anticipated net credit losses⁽²⁾	NM		40.0	%	—
Weighted average life	6.4 years		6.6 years		—


(1)	Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the securitization.


(2)	Anticipated net credit losses represent estimated loss severity associated with defaulted mortgage loans underlying the mortgage securitizations disclosed above. Anticipated net credit losses, in this instance, do not represent total credit losses incurred to date, nor do they represent credit losses expected on retained interests in mortgage securitizations.


NM	Anticipated net credit losses are not meaningful due to U.S. agency guarantees.



	March 31, 2019
				Non-agency-sponsored mortgages
In millions of dollars	U.S. agency- sponsored mortgages			Senior interests		Subordinated interests
Discount rate
Adverse change of 10%	$	(14	)	$	—	$	—
Adverse change of 20%	(27		)	—		—
Constant prepayment rate
Adverse change of 10%	(22		)	—		—
Adverse change of 20%	(43		)	—		—
Anticipated net credit losses
Adverse change of 10%	NM			—		—
Adverse change of 20%	NM			—		—



	December 31, 2018
				Non-agency-sponsored mortgages
In millions of dollars	U.S. agency- sponsored mortgages			Senior interests		Subordinated interests
Discount rate
Adverse change of 10%	$	(16	)	$	—	$	—
Adverse change of 20%	(32		)	—		—
Constant prepayment rate
Adverse change of 10%	(21		)	—		—
Adverse change of 20%	(41		)	—		—
Anticipated net credit losses
Adverse change of 10%	NM			—		—
Adverse change of 20%	NM			—		—


NM	Anticipated net credit losses are not meaningful due to U.S. agency guarantees.

The following table includes information about loan delinquencies and liquidation losses for assets held in non-consolidated, non-agency-sponsored securitization entities:



									Three Months Ended March 31,
	Securitized assets				90 days past due				Liquidation losses
In billions of dollars	Mar. 31, 2019		Dec. 31, 2018		Mar. 31, 2019		Dec. 31, 2018		2019		2018
Securitized assets
Residential mortgage	$	5.4	$	5.2	$	0.4	$	0.4	$	—	$	—
Commercial and other	14.5		13.1		—		—		—		—
Total	$	19.9	$	18.3	$	0.4	$	0.4	$	—	$	—

Mortgage Servicing Rights (MSRs)

The fair value of Citi’s capitalized MSRs was $551 million and $587 million at March 31, 2019 and 2018, respectively. The MSRs correspond to principal loan balances of $61 billion and $64 billion as of March 31, 2019 and 2018, respectively. The following table summarizes the changes in capitalized MSRs:



In millions of dollars	2019			2018
Balance, beginning of year	$	584		$	558
Originations	12			17
Changes in fair value of MSRs due to changes in inputs and assumptions	(27		)	46
Other changes⁽¹⁾	(18		)	(17		)
Sale of MSRs	—			(17		)
Balance, as of March 31	$	551		$	587


(1)	Represents changes due to customer payments and passage of time.

The fair value of the MSRs is primarily affected by changes in prepayments of mortgages that result from shifts in mortgage interest rates. Specifically, higher interest rates tend to lead to declining prepayments, which causes the fair value of the MSRs to increase. In managing this risk, Citigroup economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase and sale commitments of mortgage-backed securities and purchased securities, all classified as Trading account assets.

The Company receives fees during the course of servicing previously securitized mortgages. The amounts of these fees were as follows:



In millions of dollars	2019		2018
Servicing fees	$	41	$	46
Late fees	2		1
Ancillary fees	1		3
Total MSR fees	$	44	$	50

In the Consolidated Statement of Income these fees are primarily classified as Commissions and fees, and changes in MSR fair values are classified as Other revenue.

Re-securitizations

The Company engages in re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. Citi did not transfer non-agency (private label) securities to re-securitization entities during the quarters ended March 31, 2019 and 2018. These securities are backed by either residential or commercial mortgages and are often structured on behalf of clients.

As of March 31, 2019, Citi held no retained interests in private label re-securitization transactions structured by Citi. As of December 31, 2018, the fair value of Citi-retained interests in private label re-securitization transactions structured by Citi totaled approximately $16 million (all related to re-securitization transactions executed prior to 2016). Of this amount, substantially all was related to subordinated beneficial interests. The original par value of

private label re-securitization transactions in which Citi held a retained interest as of December 31, 2018 was approximately $271 million.

The Company also re-securitizes U.S. government-agency guaranteed mortgage-backed (agency) securities. During the quarters ended March 31, 2019 and 2018, Citi transferred agency securities with a fair value of approximately $7.6 billion and $7.0 billion, respectively, to re-securitization entities.

As of March 31, 2019, the fair value of Citi-retained interests in agency re-securitization transactions structured by Citi totaled approximately $2.8 billion (including $1.1 billion related to re-securitization transactions executed in 2019) compared to $2.5 billion as of December 31, 2018 (including $1.4 billion related to re-securitization transactions executed in 2018), which is recorded in Trading account assets. The original fair value of agency re-securitization transactions in which Citi holds a retained interest as of March 31, 2019 and December 31, 2018 was approximately $70.7 billion and $70.9 billion, respectively.

As of March 31, 2019 and December 31, 2018, the Company did not consolidate any private label or agency re-securitization entities.

Citi-Administered Asset-Backed Commercial Paper Conduits

At March 31, 2019 and December 31, 2018, the commercial paper conduits administered by Citi had approximately $17.5 billion and $18.8 billion of purchased assets outstanding, respectively, and had incremental funding commitments with clients of approximately $14.9 billion and $14.0 billion, respectively.

Substantially all of the funding of the conduits is in the form of short-term commercial paper. At March 31, 2019 and December 31, 2018, the weighted average remaining lives of the commercial paper issued by the conduits were approximately 52 and 53 days, respectively.

The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancements described above. In addition to the transaction-specific credit enhancements, the conduits, other than the government guaranteed loan conduit, have obtained a letter of credit from the Company, which is equal to at least 8% to 10% of the conduit’s assets with a minimum of $200 million. The letters of credit provided by the Company to the conduits total approximately $1.6 billion and $1.7 billion as of March 31, 2019 and December 31, 2018, respectively. The net result across multi-seller conduits administered by the Company is that, in the event that defaulted assets exceed the transaction-specific credit enhancements described above, any losses in each conduit are allocated first to the Company and then to the commercial paper investors.

At March 31, 2019 and December 31, 2018, the Company owned $4.4 billion and $5.5 billion, respectively, of the commercial paper issued by its administered conduits. The Company's investments were not driven by market illiquidity and the Company is not obligated under any agreement to purchase the commercial paper issued by the conduits.

Collateralized Loan Obligations (CLOs)

There were no new securitizations during the quarters ended March 31, 2019 and 2018. The following table summarizes selected retained interests related to Citigroup CLOs:

All of Citi’s retained interests were held-to-maturity securities as of March 31, 2019 and December 31, 2018.

Asset-Based Financing

The primary types of Citi’s asset-based financings, total assets of the unconsolidated VIEs with significant involvement and Citi’s maximum exposure to loss are shown below. For Citi to realize the maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.



	March 31, 2019
In millions of dollars	Total unconsolidated VIE assets		Maximum exposure to unconsolidated VIEs
Type
Commercial and other real estate	$	25,189	$	6,530
Corporate loans	7,438		7,277
Hedge funds and equities	444		53
Airplanes, ships and other assets	72,082		20,308
Total	$	105,153	$	34,168



	December 31, 2018
In millions of dollars	Total unconsolidated VIE assets		Maximum exposure to unconsolidated VIEs
Type
Commercial and other real estate	$	23,918	$	6,928
Corporate loans	6,973		5,744
Hedge funds and equities	388		53
Airplanes, ships and other assets	67,526		19,387
Total	$	98,805	$	32,112

Municipal Securities Tender Option Bond (TOB) Trusts

At March 31, 2019 and December 31, 2018, none of the municipal bonds owned by non-customer TOB trusts were subject to a credit guarantee provided by the Company.

At March 31, 2019 and December 31, 2018, liquidity agreements provided with respect to customer TOB trusts totaled $4.3 billion of which $2.2 billion and $2.3 billion, respectively, were offset by reimbursement agreements. For the remaining exposure related to TOB transactions, where the residual owned by the customer was at least 25% of the bond value at the inception of the transaction, no reimbursement agreement was executed.

The Company also provides other liquidity agreements or letters of credit to customer-sponsored municipal investment funds, which are not variable interest entities, and municipality-related issuers that totaled $6.1 billion as of March 31, 2019 and December 31, 2018. These liquidity agreements and letters of credit are offset by reimbursement agreements with various term-out provisions.

In millions of dollars

Mar. 31, 2019

Dec. 31, 2018

Carrying value of retained interests