INVESTMENTS

3 Months Ended

Mar. 31, 2013

INVESTMENTS.

INVESTMENTS

12.   INVESTMENTS

Overview

In millions of dollars	March 31, 2013		December 31, 2012
Securities available-for-sale	$	281,749	$	288,695
Debt securities held-to-maturity(1)		10,056		10,130
Non-marketable equity securities carried at fair value(2)		5,590		5,768
Non-marketable equity securities carried at cost(3)		7,464		7,733
Total investments	$	304,859	$	312,326

(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, 2013 and December 31, 2012 were as follows:

	March 31, 2013								December 31, 2012
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	$	47,590	$	1,254	$	199	$	48,645	$	46,001	$	1,507	$	163	$	47,345
Prime		156		6		—		162		85		1		—		86
Alt-A		517		52		—		569		1		—		—		1
Subprime		62		—		—		62		—		—		—		—
Non-U.S. residential		8,132		150		3		8,279		7,442		148		—		7,590
Commercial		423		14		2		435		436		16		3		449
Total mortgage-backed securities	$	56,880	$	1,476	$	204	$	58,152	$	53,965	$	1,672	$	166	$	55,471
U.S. Treasury and federal agency securities
U.S. Treasury	$	64,931	$	1,009	$	112	$	65,828	$	64,456	$	1,172	$	34	$	65,594
Agency obligations		21,745		344		1		22,088		25,844		404		1		26,247
Total U.S. Treasury and federal agency securities	$	86,676	$	1,353	$	113	$	87,916	$	90,300	$	1,576	$	35	$	91,841
State and municipal(2)	$	20,148	$	438	$	1,940	$	18,646	$	20,020	$	132	$	1,820	$	18,332
Foreign government		86,463		808		149		87,122		93,259		918		130		94,047
Corporate		9,699		365		14		10,050		9,302		398		26		9,674
Asset-backed securities(1)		14,722		105		110		14,717		14,188		85		143		14,130
Other debt securities		256		1		—		257		256		2		—		258
Total debt securities AFS	$	274,844	$	4,546	$	2,530	$	276,860	$	281,290	$	4,783	$	2,320	$	283,753
Marketable equity securities AFS	$	4,447	$	585	$	143	$	4,889	$	4,643	$	444	$	145	$	4,942
Total securities AFS	$	279,291	$	5,131	$	2,673	$	281,749	$	285,933	$	5,227	$	2,465	$	288,695

(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 18 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 that 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 accumulated other comprehensive income (AOCI). For other debt securities with other-than-temporary impairment (OTTI), 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, 2013 and December 31, 2012:

	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, 2013
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	13,862	$	171	$	424	$	28	$	14,286	$	199
Prime		17		—		4		—		21		—
Alt-A		64		—		—		—		64		—
Non-U.S. residential		239		3		11		—		250		3
Commercial		73		1		9		1		82		2
Total mortgage-backed securities	$	14,255	$	175	$	448	$	29	$	14,703	$	204
U.S. Treasury and federal agency securities
U.S. Treasury	$	6,785	$	112	$	—	$	—	$	6,785	$	112
Agency obligations		1,727		1		—		—		1,727		1
Total U.S. Treasury and federal agency securities	$	8,512	$	113	$	—	$	—	$	8,512	$	113
State and municipal	$	20	$	—	$	11,334	$	1,940	$	11,354	$	1,940
Foreign government		19,390		100		3,511		49		22,901		149
Corporate		1,888		12		60		2		1,948		14
Asset-backed securities		2,527		78		843		32		3,370		110
Marketable equity securities AFS		21		2		758		141		779		143
Total securities AFS	$	46,613	$	480	$	16,954	$	2,193	$	63,567	$	2,673
December 31, 2012
Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	8,759	$	138	$	464	$	25	$	9,223	$	163
Prime		15		—		5		—		20		—
Non-U.S. residential		5		—		7		—		12		—
Commercial		29		—		24		3		53		3
Total mortgage-backed securities	$	8,808	$	138	$	500	$	28	$	9,308	$	166
U.S. Treasury and federal agency securities
U.S. Treasury	$	10,558	$	34	$	—	$	—	$	10,558	$	34
Agency obligations		496		1		—		—		496		1
Total U.S. Treasury and federal agency securities	$	11,054	$	35	$	—	$	—	$	11,054	$	35
State and municipal	$	10	$	—	$	11,095	$	1,820	$	11,105	$	1,820
Foreign government		22,806		54		3,910		76		26,716		130
Corporate		1,420		8		225		18		1,645		26
Asset-backed securities		1,942		4		2,888		139		4,830		143
Marketable equity securities AFS		15		1		764		144		779		145
Total securities AFS	$	46,055	$	240	$	19,382	$	2,225	$	65,437	$	2,465

        The following table presents the amortized cost and fair value of AFS debt securities by contractual maturity dates as of March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
In millions of dollars	Amortized cost		Fair value		Amortized cost		Fair value
Mortgage-backed securities(1)
Due within 1 year	$	2	$	2	$	10	$	10
After 1 but within 5 years		371		380		365		374
After 5 but within 10 years		2,044		2,159		1,992		2,124
After 10 years(2)		54,463		55,611		51,598		52,963
Total	$	56,880	$	58,152	$	53,965	$	55,471
U.S. Treasury and federal agency securities
Due within 1 year	$	7,776	$	7,797	$	9,492	$	9,499
After 1 but within 5 years		74,132		75,248		75,967		77,267
After 5 but within 10 years		1,914		2,123		2,171		2,408
After 10 years(2)		2,854		2,748		2,670		2,667
Total	$	86,676	$	87,916	$	90,300	$	91,841
State and municipal
Due within 1 year	$	298	$	298	$	208	$	208
After 1 but within 5 years		3,212		3,214		3,221		3,223
After 5 but within 10 years		161		172		155		165
After 10 years(2)		16,477		14,962		16,436		14,736
Total	$	20,148	$	18,646	$	20,020	$	18,332
Foreign government
Due within 1 year	$	29,868	$	29,852	$	34,873	$	34,869
After 1 but within 5 years		46,588		46,918		49,548		49,933
After 5 but within 10 years		8,585		8,725		7,239		7,380
After 10 years(2)		1,422		1,627		1,599		1,865
Total	$	86,463	$	87,122	$	93,259	$	94,047
All other(3)
Due within 1 year	$	998	$	1,001	$	1,001	$	1,009
After 1 but within 5 years		11,808		11,906		11,285		11,351
After 5 but within 10 years		4,278		4,443		4,330		4,505
After 10 years(2)		7,593		7,674		7,130		7,197
Total	$	24,677	$	25,024	$	23,746	$	24,062
Total debt securities AFS	$	274,844	$	276,860	$	281,290	$	283,753

(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, 2013 and 2012:

	Three months ended
In millions of dollars	March 31, 2013		March 31, 2012
Taxable interest	$	1,510	$	1,660
Interest exempt from U.S. federal income tax		172		174
Dividends		120		76
Total interest and dividends	$	1,802	$	1,910

        The following table presents realized gains and losses on all investments for the three months ended March 31, 2013 and 2012. The gross realized investment losses exclude losses from other-than-temporary impairment:

	Three months ended
In millions of dollars	March 31, 2013			March 31, 2012
Gross realized investment gains	$	494		$	2,166
Gross realized investment losses(1)		(44	)		(241	)
Net realized gains	$	450		$	1,925

(1)

During the periods presented, 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. In addition, certain securities were reclassified to AFS investments in response to significant credit deterioration. The Company intends to sell the securities and recorded other-than-temporary-impairment reflected in the table under "Recognition and Measurement of OTTI" below. For the three months ended March 31, 2013 and 2012, the securities sold had a carrying value of $167 million and $967 million, respectively, and the Company recorded a realized loss of $10 million and $144 million, respectively. Securities reclassified to AFS totaled $602 million and $39 million, respectively, and the Company recorded other-than-temporary impairment of $94 million and $13 million, respectively.

Debt Securities Held-to-Maturity

        The carrying value and fair value of debt securities held-to-maturity (HTM) at March 31, 2013 and December 31, 2012 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, 2013
Debt securities held-to-maturity
Mortgage-backed securities(3)
Prime	$	135	$	26	$	109	$	19	$	2	$	126
Alt-A		2,135		617		1,518		570		224		1,864
Subprime		83		9		74		5		8		71
Non-U.S. residential		2,334		374		1,960		48		55		1,953
Commercial		90		—		90		1		1		90
Total mortgage-backed securities	$	4,777	$	1,026	$	3,751	$	643	$	290	$	4,104
State and municipal	$	1,343	$	72	$	1,271	$	80	$	38	$	1,313
Foreign government		3,816		—		3,816		50		—		3,866
Corporate		821		97		724		104		—		828
Asset-backed securities(3)		519		25		494		15		3		506
Total debt securities held-to-maturity	$	11,276	$	1,220	$	10,056	$	892	$	331	$	10,617
December 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities(3)
Prime	$	258	$	49	$	209	$	30	$	4	$	235
Alt-A		2,969		837		2,132		653		250		2,535
Subprime		201		43		158		13		21		150
Non-U.S. residential		2,488		401		2,087		50		81		2,056
Commercial		123		—		123		1		2		122
Total mortgage-backed securities	$	6,039	$	1,330	$	4,709	$	747	$	358	$	5,098
State and municipal	$	1,278	$	73	$	1,205	$	89	$	37	$	1,257
Foreign government		2,987		—		2,987		—		—		2,987
Corporate		829		103		726		73		—		799
Asset-backed securities(3)		529		26		503		8		8		503
Total debt securities held-to-maturity	$	11,662	$	1,532	$	10,130	$	917	$	403	$	10,644

(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, plus or minus any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS to HTM. 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 18 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, while credit-related impairment is recognized in earnings. 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.

        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, 2013 and December 31, 2012:

	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, 2013
Debt securities held-to-maturity
Mortgage-backed securities	$	54	$	2	$	1,160	$	288	$	1,214	$	290
State and municipal		—		—		418		38		418		38
Foreign government		—		—		294		—		294		—
Corporate		—		—		—		—		—		—
Asset-backed securities		—		—		256		3		256		3
Total debt securities held-to-maturity	$	54	$	2	$	2,128	$	329	$	2,182	$	331
December 31, 2012
Debt securities held-to-maturity
Mortgage-backed securities	$	88	$	7	$	1,522	$	351	$	1,610	$	358
State and municipal		—		—		383		37		383		37
Foreign government		294		—		—		—		294		—
Corporate		—		—		—		—		—		—
Asset-backed securities		—		—		406		8		406		8
Total debt securities held-to-maturity	$	382	$	7	$	2,311	$	396	$	2,693	$	403

        Excluded from the gross unrecognized losses presented in the above table are the $1.2 billion and $1.5 billion of gross unrealized losses recorded in AOCI as of March 31, 2013 and December 31, 2012, 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 March 31, 2013 and December 31, 2012.

        The following table presents the carrying value and fair value of HTM debt securities by contractual maturity dates as of March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
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		45		44		69		67
After 5 but within 10 years		44		45		54		54
After 10 years(1)		3,662		4,015		4,586		4,977
Total	$	3,751	$	4,104	$	4,709	$	5,098
State and municipal
Due within 1 year	$	12	$	13	$	14	$	15
After 1 but within 5 years		32		33		36		37
After 5 but within 10 years		55		60		58		62
After 10 years(1)		1,172		1,207		1,097		1,143
Total	$	1,271	$	1,313	$	1,205	$	1,257
Foreign government
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years		3,816		3,866		2,987		2,987
After 5 but within 10 years		—		—		—		—
After 10 years(1)		—		—		—		—
Total	$	3,816	$	3,866	$	2,987	$	2,987
All other(2)
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years		724		828		728		802
After 5 but within 10 years		—		—		—		—
After 10 years(1)		494		506		501		500
Total	$	1,218	$	1,334	$	1,229	$	1,302
Total debt securities held-to-maturity	$	10,056	$	10,617	$	10,130	$	10,644

(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 Impairment

Overview

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

        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. Losses related to HTM securities are not recorded, as these investments are carried at 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 other-than-temporary impairment (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.

Debt

        Under the guidance for debt securities, 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.

        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.

Equity

        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 20 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, with no expectation that the fair value will recover prior to the expected sale date, the full impairment is recognized in earnings 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.

        The sections below describe current circumstances related to certain of the Company's significant equity method investments, specific impairments and the Company's process for identifying credit-related impairments in its security types with the most significant unrealized losses as of March 31, 2013.

Akbank

        In March 2012, Citi decided to reduce its ownership interest in Akbank T.A.S., an equity investment in Turkey (Akbank), to below 10%. 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 net investment foreign currency hedging and translation losses previously reflected in AOCI as well as a reduction in the 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. During the second quarter of 2012, Citi sold a 10.1% stake in Akbank, resulting in a loss on sale of $424 million ($274 million after-tax), recorded in Other revenue. As of March 31, 2013, the remaining 9.9% stake in Akbank is recorded within marketable equity securities available-for-sale.

MSSB

        On September 17, 2012, Citi sold to Morgan Stanley a 14% interest (the "14% Interest") in MSSB, to which Morgan Stanley exercised its purchase option on June 1, 2012. Morgan Stanley paid to Citi $1.89 billion in cash as the purchase price of the 14% Interest. The purchase price was based on an implied 100% valuation of MSSB of $13.5 billion, as agreed between Morgan Stanley and Citi pursuant to an agreement dated September 11, 2012. The related approximate $4.5 billion in deposits were transferred to Morgan Stanley at no premium, as agreed between the parties.

        In addition, Morgan Stanley has agreed, subject to obtaining regulatory approval, to purchase Citi's remaining 35% interest in MSSB no later than June 1, 2015 at a purchase price of $4.725 billion, which is based on the same implied 100% valuation of MSSB of $13.5 billion.

        Prior to the September 2012 sale, Citi's carrying value of its 49% interest in MSSB was approximately $11.3 billion. As a result of the agreement entered into with Morgan Stanley on September 11, 2012, Citi recorded a charge to net income in the third quarter of 2012 of approximately $2.9 billion after-tax ($4.7 billion pretax), consisting of (i) a charge recorded in Other revenue of approximately $800 million after-tax ($1.3 billion pretax), representing a loss on sale of the 14% Interest, and (ii) an other-than-temporary impairment of the carrying value of its remaining 35% interest in MSSB of approximately $2.1 billion after-tax ($3.4 billion pretax).

        As of March 31, 2013, Citi continues to account for its remaining 35% interest in MSSB under the equity method, with the carrying value capped at the agreed selling price of $4.725 billion.

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 (i) 10% of current loans, (ii) 25% of 30-59 day delinquent loans, (iii) 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 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, 2013 are in the table below:

	March 31, 2013
Prepayment rate(1)	1%-8% CRR
Loss severity(2)	45%-90%

(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%-90% for Alt-A bonds and 65%-90% for subprime bonds.

        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 that are financed through Tender Option Bonds 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 rating downgrade, 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 with 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 for the three months ended March 31, 2013:

	Three Months Ended March 31, 2013
OTTI on Investments and Other Assets In millions of dollars	AFS(1)		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, 2013	$	2	$	11	$	—	$	13
Less: portion of impairment loss recognized in AOCI (before taxes)		—		—		—		—
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	2	$	11	$	—	$	13
Impairment losses recognized in earnings for securities that the Company intends to sell or more-likely-than-not will be required to sell before recovery(2)		143		—		105		248
Total impairment losses recognized in earnings	$	145	$	11	$	105	$	261

(1)

Includes OTTI on non-marketable equity securities.

(2)

The first quarter of 2013 included the recognition of a $105 million impairment charge related to the carrying value of Citi's remaining 35% interest in MSSB which was offset by the equity pickup from MSSB in the quarter which was recorded in Other revenue.

        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, 2013 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	Dec. 31, 2012 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			Mar. 31, 2013 balance
AFS debt securities
Mortgage-backed securities
Prime	$	291	$	—	$	—	$	—		$	291
Alt-A		2		—		—		—			2
Commercial real estate		2		—		—		—			2
Total mortgage-backed securities	$	295	$	—	$	—	$	—		$	295
State and municipal securities		7		—		—		—			7
U.S. Treasury securities		67		—		—		—			67
Foreign government securities		169		—		—		—			169
Corporate		116		—		—		—			116
Asset-backed securities		10		—		—		—			10
Other debt securities		53		2		—		—			55
Total OTTI credit losses recognized for AFS debt securities	$	717	$	2	$	—	$	—		$	719
HTM debt securities
Mortgage-backed securities
Prime	$	104	$	—	$	—	$	—		$	104
Alt-A		2,413		10		—		(33	)		2,390
Subprime		252		—		1		(1	)		252
Non-U.S. residential		80		—		—		—			80
Commercial real estate		10		—		—		—			10
Total mortgage-backed securities	$	2,859	$	10	$	1	$	(34	)	$	2,836
State and municipal securities		11		—		—		—			11
Foreign government		—		—		—		—			—
Corporate		397		—		—		—			397
Asset-backed securities		113		—		—		—			113
Other debt securities		11		—		—		—			11
Total OTTI credit losses recognized for HTM debt securities	$	3,391	$	10	$	1	$	(34	)	$	3,368

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 the NAV.

	Fair value				Unfunded commitments
									Redemption frequency (if currently eligible) monthly, quarterly, annually
In millions of dollars	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012			Redemption notice period
Hedge funds	$	1,195	$	1,316	$	—	$	—	Generally quarterly	10-95 days
Private equity funds(1)(2)(3)		814		837		304		342	—	—
Real estate funds(3)(4)		230		228		53		57	—	—
Total(5)	$	2,239	$	2,381	$	357	$	399	—	—

(1)

Includes investments in private equity funds carried at cost with a carrying value of $4 million and $6 million at March 31, 2013 and December 31, 2012, respectively.

(2)

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

(3)

With respect to the Company's investments 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. 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.

(4)

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

(5)

Included in the total fair value of investments above are $1.3 billion and $0.4 billion of fund assets that are valued using NAVs provided by third-party asset managers as of March 31, 2013 and December 31, 2012, respectively. Amounts exclude investments in funds that are consolidated by Citi.