INVESTMENTS

3 Months Ended

Mar. 31, 2012

INVESTMENTS

INVESTMENTS

11.    INVESTMENTS

Overview

In millions of dollars	March 31, 2012		December 31, 2011
Securities available-for-sale	$	270,582	$	265,204
Debt securities held-to-maturity(1)		10,126		11,483
Non-marketable equity securities carried at fair value(2)		8,842		8,836
Non-marketable equity securities carried at cost(3)		7,773		7,890
Total investments	$	297,323	$	293,413

(1)

Recorded at amortized cost less impairment for securities that have credit-related impairment.

(2)

Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings.

(3)

Non-marketable equity securities carried at cost primarily consist of shares issued by the Federal Reserve Bank, Federal Home Loan Banks, foreign central banks and various clearing houses of which Citigroup is a member.

Securities Available-for-Sale

        The amortized cost and fair value of securities available-for-sale (AFS) at March 31, 2012 and December 31, 2011 were as follows:

	March 31, 2012								December 31,2011
In millions of dollars	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Debt securities AFS
Mortgage-backed securities(1)
U.S. government-sponsored agency guaranteed	$	43,934	$	1,246	$	78	$	45,102	$	44,394	$	1,438	$	51	$	45,781
Prime		119		1		3		117		118		1		6		113
Alt-A		1		—		—		1		1		—		—		1
Subprime		—		—		—		—		—		—		—		—
Non-U.S. residential		6,404		27		5		6,426		4,671		9		22		4,658
Commercial		477		18		7		488		465		16		9		472
Total mortgage-backed securities	$	50,935	$	1,292	$	93	$	52,134	$	49,649	$	1,464	$	88	$	51,025
U.S. Treasury and federal agency securities
U.S. Treasury	$	53,764	$	1,198	$	47	$	54,915	$	48,790	$	1,439	$	—	$	50,229
Agency obligations		33,759		505		5		34,259		34,310		601		2		34,909
Total U.S. Treasury and federal agency securities	$	87,523	$	1,703	$	52	$	89,174	$	83,100	$	2,040	$	2	$	85,138
State and municipal(2)	$	16,018	$	123	$	1,997	$	14,144	$	16,819	$	134	$	2,554	$	14,399
Foreign government		88,981		595		299		89,277		84,360		558		404		84,514
Corporate		11,688		318		32		11,974		10,005		305		53		10,257
Asset-backed securities(1)		10,871		39		64		10,846		11,053		31		81		11,003
Other debt securities		595		15		—		610		670		13		—		683
Total debt securities AFS	$	266,611	$	4,085	$	2,537	$	268,159	$	255,656	$	4,545	$	3,182	$	257,019
Marketable equity securities AFS	$	2,542	$	48	$	167	$	2,423	$	6,722	$	1,658	$	195	$	8,185
Total securities AFS	$	269,153	$	4,133	$	2,704	$	270,582	$	262,378	$	6,203	$	3,377	$	265,204

(1)

The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company's maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 17 to the Consolidated Financial Statements.

(2)

The unrealized losses on state and municipal debt securities are primarily attributable to the result of yields on taxable fixed income instruments decreasing relatively faster than the general tax-exempt municipal yields and the effects of fair value hedge accounting.

        As discussed in more detail below, the Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary. Any credit-related impairment related to debt securities the Company does not plan to sell and is not likely to be required to sell is recognized in the Consolidated Statement of Income, with the non-credit-related impairment recognized in AOCI. For other impaired debt securities, the entire impairment is recognized in the Consolidated Statement of Income.

        The table below shows the fair value of AFS securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of March 31, 2012 and December 31, 2011:

	Less than 12 months				12 months or longer				Total
In millions of dollars	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
March 31, 2012
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	7,701	$	60	$	301	$	18	$	8,002	$	78
Prime		23		—		34		3		57		3
Alt-A		—		—		—		—		—		—
Subprime		—		—		—		—		—		—
Non-U.S. residential		1,737		5		49		—		1,786		5
Commercial		31		—		29		7		60		7
Total mortgage-backed securities	$	9,492	$	65	$	413	$	28	$	9,905	$	93
U.S. Treasury and federal agency securities
U.S. Treasury	$	14,795	$	46	$	49	$	1	$	14,844	$	47
Agency obligations		3,753		5		—		—		3,753		5
Total U.S. Treasury and federal agency securities	$	18,548	$	51	$	49	$	1	$	18,597	$	52
State and municipal	$	3	$	29	$	11,110	$	1,968	$	11,113	$	1,997
Foreign government		32,177		132		8,783		167		40,960		299
Corporate		1,893		11		203		21		2,096		32
Asset-backed securities		3,261		51		504		13		3,765		64
Other debt securities		—		—		—		—		—		—
Marketable equity securities AFS		17		2		1,331		165		1,348		167
Total securities AFS	$	65,391	$	341	$	22,393	$	2,363	$	87,784	$	2,704
December 31, 2011
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	5,398	$	32	$	51	$	19	$	5,449	$	51
Prime		27		1		40		5		67		6
Alt-A		—		—		—		—		—		—
Subprime		—		—		—		—		—		—
Non-U.S. residential		3,418		22		57		—		3,475		22
Commercial		35		1		31		8		66		9
Total mortgage-backed securities	$	8,878	$	56	$	179	$	32	$	9,057	$	88
U.S. Treasury and federal agency securities
U.S. Treasury	$	553	$	—	$	—	$	—	$	553	$	—
Agency obligations		2,970		2		—		—		2,970		2
Total U.S. Treasury and federal agency securities	$	3,523	$	2	$	—	$	—	$	3,523	$	2
State and municipal	$	59	$	2	$	11,591	$	2,552	$	11,650	$	2,554
Foreign government		33,109		211		11,205		193		44,314		404
Corporate		2,104		24		203		29		2,307		53
Asset-backed securities		4,625		68		466		13		5,091		81
Other debt securities		164		—		—		—		164		—
Marketable equity securities AFS		47		5		1,457		190		1,504		195
Total securities AFS	$	52,509	$	368	$	25,101	$	3,009	$	77,610	$	3,377

        The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of March 31, 2012 and December 31, 2011:

	March 31, 2012				December 31, 2011
In millions of dollars	Amortized cost		Fair value		Amortized cost		Fair value
Mortgage-backed securities(1)
Due within 1 year	$	16	$	16	$	—	$	—
After 1 but within 5 years		429		431		422		423
After 5 but within 10 years		2,031		2,104		2,757		2,834
After 10 years(2)		48,459		49,583		46,470		47,768
Total	$	50,935	$	52,134	$	49,649	$	51,025
U.S. Treasury and federal agency securities
Due within 1 year	$	17,667	$	17,687	$	14,615	$	14,637
After 1 but within 5 years		65,596		66,914		62,241		63,823
After 5 but within 10 years		4,201		4,515		5,862		6,239
After 10 years(2)		59		58		382		439
Total	$	87,523	$	89,174	$	83,100	$	85,138
State and municipal
Due within 1 year	$	138	$	139	$	142	$	142
After 1 but within 5 years		498		500		455		457
After 5 but within 10 years		194		204		182		188
After 10 years(2)		15,188		13,301		16,040		13,612
Total	$	16,018	$	14,144	$	16,819	$	14,399
Foreign government
Due within 1 year	$	31,140	$	31,112	$	34,924	$	34,864
After 1 but within 5 years		49,469		49,215		41,612		41,675
After 5 but within 10 years		7,121		7,554		6,993		6,998
After 10 years(2)		1,251		1,396		831		977
Total	$	88,981	$	89,277	$	84,360	$	84,514
All other(3)
Due within 1 year	$	3,814	$	3,827	$	4,055	$	4,072
After 1 but within 5 years		10,863		10,980		9,843		9,928
After 5 but within 10 years		3,873		4,026		3,009		3,160
After 10 years(2)		4,604		4,597		4,821		4,783
Total	$	23,154	$	23,430	$	21,728	$	21,943
Total debt securities AFS	$	266,611	$	268,159	$	255,656	$	257,019

(1)

Includes mortgage-backed securities of U.S. government-sponsored entities.

(2)

Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.

(3)

Includes corporate, asset-backed and other debt securities.

        The following table presents interest and dividends on investments for the three months ended March 31, 2012 and 2011:

	Three months ended
In millions of dollars	March 31, 2012		March 31, 2011
Taxable interest	$	1,660	$	2,121
Interest exempt from U.S. federal income tax		174		221
Dividends		76		69
Total interest and dividends	$	1,910	$	2,411

        The following table presents realized gains and losses on all investments for the three months ended March 31, 2012 and 2011. The gross realized investment losses exclude losses from other-than-temporary impairment:

	Three months ended
In millions of dollars	March 31, 2012			March 31, 2011
Gross realized investment gains	$	2,166		$	680
Gross realized investment losses(1)		(241	)		(100	)
Net realized gains	$	1,925		$	580

(1)

During the first quarter of 2012, the Company sold various debt securities that were classified as held-to-maturity. These sales were in response to a significant deterioration in the creditworthiness of the issuers or securities. The securities sold had a carrying value of $967 million, and the Company recorded a realized loss of $144 million. In addition, a security with a carrying value of $39 million was reclassified to AFS securities in response to significant credit deterioration. The Company intends to sell the security and recorded an other-than-temporary-impairment loss of $13 million, reflected in the following table.

Debt Securities Held-to-Maturity

        The carrying value and fair value of debt securities held-to-maturity (HTM) at March 31, 2012 and December 31, 2011 were as follows:

In millions of dollars	Amortized cost(1)		Net unrealized loss recognized in AOCI		Carrying value(2)		Gross unrealized gains		Gross unrealized losses		Fair value
March 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities(3)
Prime	$	341	$	61	$	280	$	22	$	7	$	295
Alt-A		4,117		1,241		2,876		2		237		2,641
Subprime		274		44		230		1		37		194
Non-U.S. residential		3,446		499		2,947		72		224		2,795
Commercial		492		2		490		6		30		466
Total mortgage-backed securities	$	8,670	$	1,847	$	6,823	$	103	$	535	$	6,391
State and municipal	$	1,377	$	91	$	1,286	$	90	$	70	$	1,306
Corporate		1,201		127		1,074		8		1		1,081
Asset-backed securities(3)		976		33		943		9		74		878
Total debt securities held-to-maturity	$	12,224	$	2,098	$	10,126	$	210	$	680	$	9,656
December 31, 2011
Debt securities held-to-maturity
Mortgage-backed securities(3)
Prime	$	360	$	73	$	287	$	21	$	20	$	288
Alt-A		4,732		1,404		3,328		20		319		3,029
Subprime		383		47		336		1		71		266
Non-U.S. residential		3,487		520		2,967		59		290		2,736
Commercial		513		1		512		4		52		464
Total mortgage-backed securities	$	9,475	$	2,045	$	7,430	$	105	$	752	$	6,783
State and municipal	$	1,422	$	95	$	1,327	$	68	$	72	$	1,323
Corporate		1,862		113		1,749		—		254		1,495
Asset-backed securities(3)		1,000		23		977		9		87		899
Total debt securities held-to-maturity	$	13,759	$	2,276	$	11,483	$	182	$	1,165	$	10,500

(1)

For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer plus any accretion income and less any impairments recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.

(2)

HTM securities are carried on the Consolidated Balance Sheet at amortized cost less any unrealized gains and losses recognized in AOCI. The changes in the values of these securities are not reported in the financial statements, except for other-than-temporary impairments. For HTM securities, only the credit loss component of the impairment is recognized in earnings, while the remainder of the impairment is recognized in AOCI.

(3)

The Company invests in mortgage-backed and asset-backed securities. These securitizations are generally considered VIEs. The Company's maximum exposure to loss from these VIEs is equal to the carrying amount of the securities, which is reflected in the table above. For mortgage-backed and asset-backed securitizations in which the Company has other involvement, see Note 17 to the Consolidated Financial Statements.

        The Company has the positive intent and ability to hold these securities to maturity absent any unforeseen further significant changes in circumstances, including deterioration in credit or with regard to regulatory capital requirements.

        The net unrealized losses classified in AOCI relate to debt securities reclassified from AFS investments to HTM investments in a prior year. Additionally, for HTM securities that have suffered credit impairment, declines in fair value for reasons other than credit losses are recorded in AOCI. The AOCI balance was $2.1 billion as of March 31, 2012, compared to $2.3 billion as of December 31, 2011. The AOCI balance for HTM securities is amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same debt securities. This will have no impact on the Company's net income because the amortization of the unrealized holding loss reported in equity will offset the effect on interest income of the accretion of the discount on these securities.

        For any credit-related impairment on HTM securities, the credit loss component is recognized in earnings.

        During the first quarter of 2011, the Company determined that it no longer had the intent to hold $12.7 billion of HTM securities to maturity. As a result, the Company reclassified $10.0 billion carrying value of mortgage-backed, other asset-backed, state and municipal, and corporate debt securities from Investments held-to-maturity to Trading account assets. The Company also sold an additional $2.7 billion of such HTM securities, recognizing a corresponding receivable from the unsettled sales as of March 31, 2011. As a result of these actions, a net pretax loss of $709 million ($427 million after tax) was recognized in the Consolidated Statement of Income for the three months ended March 31, 2011, composed of gross unrealized gains of $311 million included in Other revenue, gross unrealized losses of $1,387 million included in Other-than-temporary-impairment losses on investments, and net realized gains of $367 million included in Realized gains (losses) on sales of investments. Prior to the reclassification, unrealized losses totalling $1,656 million pretax ($1,012 million after tax) had been reflected in AOCI (see table below) and have now been reflected in the Consolidated Statement of Income, as detailed above.

        Citigroup reclassified and sold the securities as part of its overall efforts to mitigate its risk-weighted assets (RWA) in order to comply with significant new regulatory capital requirements which, although not yet implemented or formally adopted, are nonetheless currently being used to assess the forecasted capital adequacy of the Company and other large U.S. banking organizations. These regulatory capital changes, which were largely unforeseen when the Company initially reclassified the debt securities from Trading account assets and Investments available-for-sale to Investments held-to-maturity in the fourth quarter of 2008 (see note 1 to the table below), include: (i) the U.S. Basel II credit and operational risk capital standards; (ii) the Basel Committee's agreed-upon, and the U.S.-proposed, revisions to the market risk capital rules, which significantly increased the risk weightings for certain trading book positions; (iii) the Basel Committee's substantial issuance of Basel III, which raised the quantity and quality of required regulatory capital and materially increased RWA for securitization exposures; and (iv) certain regulatory capital-related provisions in The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

        Through March 31, 2012, the Company has sold substantially all of the $12.7 billion of HTM securities that were reclassified to Trading account assets in the first quarter of 2011. The carrying value and fair value of debt securities at the date of reclassification or sale were as follows:

In millions of dollars	Amortized cost(2)		Net unrealized loss recognized in AOCI		Carrying value(3)		Gross gains		Gross losses		Fair value
Held-to-maturity debt securities transferred to Trading account assets or sold(1)
Mortgage-backed securities
Prime	$	3,410	$	528	$	2,882	$	131	$	131	$	2,882
Alt-A		5,357		896		4,461		605		188		4,878
Subprime		240		7		233		5		36		202
Non-U.S. residential		317		75		242		76		2		316
Commercial		117		18		99		22		—		121
Total mortgage-backed securities	$	9,441	$	1,524	$	7,917	$	839	$	357	$	8,399
State and municipal	$	900	$	8	$	892	$	68	$	7	$	953
Corporate		3,569		115		3,454		396		41		3,809
Asset-backed securities		456		9		447		50		2		495
Total held-to-maturity debt securities transferred to Trading account assets or sold(1)	$	14,366	$	1,656	$	12,710	$	1,353	$	407	$	13,656

(1)

During the fourth quarter of 2008, $6.647 billion and $6.063 billion carrying value of these debt securities were transferred from Trading account assets and Investments available-for-sale to Investments held-to-maturity, respectively. The transfer of these debt securities from Trading account assets was in response to the significant deterioration in market conditions, which was especially acute during the fourth quarter of 2008.

(2)

For securities transferred to held-to-maturity from Trading account assets, amortized cost is defined as the fair value amount of the securities at the date of transfer plus any accretion income and less any impairments recognized in earnings subsequent to transfer. For securities transferred to held-to-maturity from available-for-sale, amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.

(3)

Held-to-maturity securities are carried on the Consolidated Balance Sheet at amortized cost and the changes in the value of these securities other than impairment charges are not reported in the financial statements.

        The table below shows the fair value of debt securities in HTM that have been in an unrecognized loss position for less than 12 months or for 12 months or longer as of March 31, 2012 and December 31, 2011:

	Less than 12 months				12 months or longer				Total
In millions of dollars	Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
March 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities	$	981	$	69	$	4,195	$	466	$	5,176	$	535
State and municipal		—		—		634		70		634		70
Corporate		—		—		606		1		606		1
Asset-backed securities		177		23		604		51		781		74
Total debt securities held-to-maturity	$	1,158	$	92	$	6,039	$	588	$	7,197	$	680
December 31, 2011
Debt securities held-to-maturity
Mortgage-backed securities	$	735	$	63	$	4,827	$	689	$	5,562	$	752
State and municipal		—		—		682		72		682		72
Corporate		—		—		1,427		254		1,427		254
Asset-backed securities		480		71		306		16		786		87
Total debt securities held-to-maturity	$	1,215	$	134	$	7,242	$	1,031	$	8,457	$	1,165

        Excluded from the gross unrecognized losses presented in the above table are the $2.1 billion and $2.3 billion of gross unrealized losses recorded in AOCI as of March 31, 2012 and December 31, 2011, respectively, mainly related to the HTM securities that were reclassified from AFS investments.

        Virtually all of these unrecognized losses relate to securities that have been in a loss position for 12 months or longer at both March 31, 2012 and December 31, 2011.

        The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of March 31, 2012 and December 31, 2011:

	March 31, 2012				December 31, 2011
In millions of dollars	Carrying value		Fair value		Carrying value		Fair value
Mortgage-backed securities
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years		307		281		275		239
After 5 but within 10 years		184		186		238		224
After 10 years(1)		6,332		5,924		6,917		6,320
Total	$	6,823	$	6,391	$	7,430	$	6,783
State and municipal
Due within 1 year	$	4	$	4	$	4	$	4
After 1 but within 5 years		43		49		43		46
After 5 but within 10 years		64		73		31		30
After 10 years(1)		1,175		1,180		1,249		1,243
Total	$	1,286	$	1,306	$	1,327	$	1,323
All other(2)
Due within 1 year	$	11	$	11	$	21	$	21
After 1 but within 5 years		644		657		470		438
After 5 but within 10 years		554		550		1,404		1,182
After 10 years(1)		808		741		831		753
Total	$	2,017	$	1,959	$	2,726	$	2,394
Total debt securities held-to-maturity	$	10,126	$	9,656	$	11,483	$	10,500

(1)

Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment rights.

(2)

Includes corporate and asset-backed securities.

Evaluating Investments for Other-Than-Temporary Impairments

        The Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary.

        Under the guidance for debt securities, other-than-temporary impairment (OTTI) is recognized in earnings for debt securities that the Company has an intent to sell or that the Company believes it is more-likely-than-not that it will be required to sell prior to recovery of the amortized cost basis. For those securities that the Company does not intend to sell or expect to be required to sell, credit-related impairment is recognized in earnings, with the non-credit-related impairment recorded in AOCI.

        An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI for AFS securities, while such losses related to HTM securities are not recorded, as these investments are carried at their amortized cost. For securities transferred to HTM from Trading account assets, amortized cost is defined as the fair value of the securities at the date of transfer, plus any accretion income and less any impairment recognized in earnings subsequent to transfer. For securities transferred to HTM from AFS, amortized cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase discount or premium, less any impairment recognized in earnings.

        Regardless of the classification of the securities as AFS or HTM, the Company has assessed each position with an unrealized loss for OTTI. Factors considered in determining whether a loss is temporary include:

• •

  the length of time and the extent to which fair value has been below cost;

  •

  the severity of the impairment;

  •

  the cause of the impairment and the financial condition and near-term prospects of the issuer;

  •

  activity in the market of the issuer that may indicate adverse credit conditions; and

  •

  the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

        The Company's review for impairment generally entails:

• •

  identification and evaluation of investments that have indications of possible impairment;

  •

  analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period;

  •

  discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment; and

  •

  documentation of the results of these analyses, as required under business policies.

        For equity securities, management considers the various factors described above, including its intent and ability to hold the equity security for a period of time sufficient for recovery to cost or whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery of its cost basis. Where management lacks that intent or ability, the security's decline in fair value is deemed to be other-than-temporary and is recorded in earnings. AFS equity securities deemed other-than-temporarily impaired are written down to fair value, with the full difference between fair value and cost recognized in earnings.

        Management assesses equity method investments with fair value less than carrying value for OTTI. Fair value is measured as price multiplied by quantity if the investee has publicly listed securities. If the investee is not publicly listed, other methods are used (see Note 19 to the Consolidated Financial Statements).

        For impaired equity method investments that Citi plans to sell prior to recovery of value, or would likely be required to sell and there is no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in the Consolidated Statement of Income as OTTI regardless of severity and duration. The measurement of the OTTI does not include partial projected recoveries subsequent to the balance sheet date.

        For impaired equity method investments that management does not plan to sell prior to recovery of value and is not likely to be required to sell, the evaluation of whether an impairment is other than temporary is based on (i) whether and when an equity method investment will recover in value and (ii) whether the investor has the intent and ability to hold that investment for a period of time sufficient to recover the value. The determination of whether the impairment is considered other than temporary is based on all of the following indicators, regardless of the time and extent of impairment:

• •

  Cause of the impairment and the financial condition and near-term prospects of the issuer, including any specific events that may influence the operations of the issuer;

  •

  Intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value; and

  •

  Length of time and extent to which fair value has been less than the carrying value.

        As previously announced on March 23, 2012, Citi plans to reduce its ownership interest in Akbank to below 10%, subject to appropriate market conditions and required approvals. As of March 31, 2012, Citi held a 20% equity interest in Akbank, which it purchased in January 2007, accounted for as an equity method investment. As a result of its decision to sell its share holdings in Akbank, in the first quarter of 2012 Citi recorded an impairment charge related to its total investment in Akbank amounting to approximately $1.2 billion pretax ($763 million after-tax). This impairment charge was primarily driven by the recognition of all respective net investment foreign currency hedging and translation losses previously reflected in AOCI as well as a reduction in carrying value of the investment to reflect the market price of Akbank's shares. The impairment charge was recorded in Other-than-temporary impairment losses on investments in the Consolidated Statement of Income.

        As of March 31, 2012, Citi's carrying value of its equity method investment in the MSSB JV was approximately $10 billion. The midpoint of Citi's current range of estimated fair values for this investment was above its carrying value as of March 31, 2012, and thus there was no impairment as of March 31, 2012. See also Note 19 to the Consolidated Financial Statements. The fair market value of the MSSB JV for purposes of any transaction(s) between Citigroup and Morgan Stanley will be determined pursuant to an appraisal process, as previously disclosed.

        For debt securities that are not deemed to be credit impaired, management assesses whether it intends to sell or whether it is more-likely-than-not that it would be required to sell the investment before the expected recovery of the amortized cost basis. In most cases, management has asserted that it has no intent to sell and that it believes it is not likely to be required to sell the investment before recovery of its amortized cost basis. Where such an assertion cannot be made, the security's decline in fair value is deemed to be other than temporary and is recorded in earnings.

        For debt securities, a critical component of the evaluation for OTTI is the identification of credit impaired securities, where management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. For securities purchased and classified as AFS with the expectation of receiving full principal and interest cash flows as of the date of purchase, this analysis considers the likelihood of receiving all contractual principal and interest. For securities reclassified out of the trading category in the fourth quarter of 2008, the analysis considers the likelihood of receiving the expected principal and interest cash flows anticipated as of the date of reclassification in the fourth quarter of 2008. The extent of the Company's analysis regarding credit quality and the stress on assumptions used in the analysis have been refined for securities where the current fair value or other characteristics of the security warrant. The paragraphs below describe the Company's process for identifying credit-related impairments in security types with the most significant unrealized losses as of March 31, 2012.

Mortgage-backed securities

        For U.S. mortgage-backed securities (and in particular for Alt-A and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates and recovery rates (on foreclosed properties).

        Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. Default rates are projected by considering current underlying mortgage loan performance, generally assuming the default of (1) 10% of current loans, (2) 25% of 30-59 day delinquent loans, (3) 70% of 60-90 day delinquent loans and (4) 100% of 91+ day delinquent loans. These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating actions and current market prices.

        The key assumptions for mortgage-backed securities as of March 31, 2012 are in the table below:

	March 31, 2012
Prepayment rate(1)	1%-8% CRR
Loss severity(2)	45%-95%

(1)

Conditional Repayment Rate (CRR) represents the annualized expected rate of voluntary prepayment of principal for mortgage-backed securities over a certain period of time.

(2)

Loss severity rates are estimated considering collateral characteristics and generally range from 45%-60% for prime bonds, 50%-95% for Alt-A bonds and 65%-90% for subprime bonds.

        The valuation as of March 31, 2012 assumes that U.S. housing prices will decrease 4% in 2012, decrease 1% in 2013, remain flat in 2014 and increase 3% per year from 2015 onwards, while unemployment is 7.9% by the end of the fourth quarter of 2012.

        In addition, cash flow projections are developed using more stressful parameters. Management assesses the results of those stress tests (including the severity of any cash shortfall indicated and the likelihood of the stress scenarios actually occurring based on the underlying pool's characteristics and performance) to assess whether management expects to recover the amortized cost basis of the security. If cash flow projections indicate that the Company does not expect to recover its amortized cost basis, the Company recognizes the estimated credit loss in earnings.

State and municipal securities

        Citigroup's AFS state and municipal bonds consist mainly of bonds that are financed through Tender Option Bond programs or were previously financed in this program. The process for identifying credit impairments for these bonds is largely based on third-party credit ratings. Individual bond positions are required to meet minimum ratings requirements, which vary based on the sector of the bond issuer.

        Citigroup monitors the bond issuer and insurer ratings on a daily basis. The average portfolio rating, ignoring any insurance, is Aa3/AA-. In the event of a downgrade of the bond below Aa3/AA-, the subject bond is specifically reviewed for potential shortfall in contractual principal and interest. The remainder of Citigroup's AFS and HTM state and municipal bonds are specifically reviewed for credit impairment based on instrument-specific estimates of cash flows, probability of default and loss given default.

        For impaired AFS state and municipal bonds that Citi plans to sell, or would likely be required to sell and there is no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in earnings.

Recognition and Measurement of OTTI

        The following table presents the total OTTI recognized in earnings during the three months ended March 31, 2012:

	Three months ended March 31, 2012
OTTI on Investments and Other Assets In millions of dollars
	AFS		HTM		Other Assets		Total
Impairment losses related to securities that the Company does not intend to sell nor will likely be required to sell:
Total OTTI losses recognized during the period ended March 31, 2012	$	3	$	117	$	—	$	120
Less: portion of OTTI loss recognized in AOCI (before taxes)		1		21		—		22
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	2	$	96	$	—	$	98
OTTI losses recognized in earnings for securities that the Company intends to sell or more-likely-than-not will be required to sell before recovery(1)		26		—		1,181		1,207
Total impairment losses recognized in earnings	$	28	$	96	$	1,181	$	1,305

(1)

In the first quarter of 2012, the Company recorded an impairment charge relating to its total investment in Akbank amounting to $1.2 billion pretax ($763 million after-tax). See "Evaluating Investments for Other-Than-Temporary Impairments" above.

        The following is a three month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of March 31, 2012 that the Company does not intend to sell nor will likely be required to sell:

	Cumulative OTTI credit losses recognized in earnings
In millions of dollars	December 31, 2011 balance		Credit impairments recognized in earnings on securities not previously impaired		Credit impairments recognized in earnings on securities that have been previously impaired		Reductions due to credit-impaired securities sold, transferred or matured			March 31, 2012 balance
AFS debt securities
Mortgage-backed securities
Prime	$	292	$	—	$	—	$	—		$	292
Alt-A		2		—		—		—			2
Commercial real estate		2		—		—		—			2
Total mortgage-backed securities	$	296	$	—	$	—	$	—		$	296
State and municipal securities		3		—		—		—			3
U.S. Treasury securities		67		—		—		—			67
Foreign government securities		168		—		—		—			168
Corporate		151		1		1		(3	)		150
Asset-backed securities		10		—		—		—			10
Other debt securities		52		—		—		—			52
Total OTTI credit losses recognized for AFS debt securities	$	747	$	1	$	1	$	(3	)	$	746
HTM debt securities
Mortgage-backed securities
Prime	$	84	$	5	$	7	$	—		$	96
Alt-A		2,218		3		74		—			2,295
Subprime		252		—		1		—			253
Non-U.S. residential		96		—		—		(16	)		80
Commercial real estate		10		—		—		—			10
Total mortgage-backed securities	$	2,660	$	8	$	82	$	(16	)	$	2,734
State and municipal securities		9		—		—		—			9
Corporate		391		3		1		—			395
Asset-backed securities		113		—		—		—			113
Other debt securities		9		2		—		—			11
Total OTTI credit losses recognized for HTM debt securities	$	3,182	$	13	$	83	$	(16	)	$	3,262

Investments in Alternative Investment Funds that Calculate Net Asset Value per Share

        The Company holds investments in certain alternative investment funds that calculate net asset value (NAV) per share, including hedge funds, private equity funds, funds of funds and real estate funds. The Company's investments include co-investments in funds that are managed by the Company and investments in funds that are managed by third parties. Investments in funds are generally classified as non-marketable equity securities carried at fair value.

        The fair values of these investments are estimated using the NAV per share of the Company's ownership interest in the funds, where it is not probable that the Company will sell an investment at a price other than NAV.

In millions of dollars at March 31, 2012	Fair value			Unfunded commitments		Redemption frequency (if currently eligible) monthly, quarterly, annually		Redemption notice period
Hedge funds	$	1,244		$	—		Generally quarterly		10-95 days
Private equity funds(1)(2)(3)		957			431		—		—
Real estate funds(3)(4)		216			158		—		—
Total	$	2,417	(5)	$	589		—		—

(1)

Includes investments in private equity funds carried at cost with a carrying value of $7 million.

(2)

Private equity funds include funds that invest in infrastructure, leveraged buyout transactions, emerging markets and venture capital.

(3)

This category includes several real estate funds that invest primarily in commercial real estate in the U.S., Europe and Asia.

(4)

With respect to the Company's investments that it holds in private equity funds and real estate funds, distributions from each fund will be received as the underlying assets held by these funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over a period of several years as market conditions allow. While certain investments within the portfolio may be sold, no specific assets have been identified for sale. Because it is not probable that any individual investment will be sold, the fair value of each individual investment has been estimated using the NAV of the Company's ownership interest in the partners' capital. Private equity and real estate funds do not allow redemption of investments by their investors. Investors are permitted to sell or transfer their investments, subject to the approval of the general partner or investment manager of these funds, which generally may not be unreasonably withheld.

(5)

Included in the total fair value of investments above is $0.5 billion of fund assets that are valued using NAVs provided by third-party asset managers. Amounts exclude investments in funds that are consolidated by Citi.

        Under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Company will be required to limit its investments in and arrangements with "private equity funds" and "hedge funds" as defined under the statute and impending regulations. Citi does not believe the implementation of the fund provisions of the Dodd-Frank Act will have a material negative impact on its overall results of operations.