14. INVESTMENTS

Overview

In millions of dollars	2013		2012
Securities available-for-sale (AFS)	$	286,511	$	288,695
Debt securities held-to-maturity (HTM)(1)	10,599		10,130
Non-marketable equity securities carried at fair value(2)	4,705		5,768
Non-marketable equity securities carried at cost(3)	7,165		7,733
Total investments	$	308,980	$	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.

The following table presents interest and dividends on investments for the years ended December 31, 2013, 2012 and 2011:

In millions of dollars	2013		2012		2011
Taxable interest	$	5,750	$	6,509	$	7,257
Interest exempt from U.S. federal income tax	732		683		746
Dividends	437		333		317
Total interest and dividends	$	6,919	$	7,525	$	8,320

The following table presents realized gains and losses on all investments for the years ended December 31, 2013, 2012 and 2011. The gross realized investment losses exclude losses from OTTI:

In millions of dollars	2013			2012			2011
Gross realized investment gains	$	1,606		$	3,663		$	2,498
Gross realized investment losses	(858		)	(412		)	(501		)
Net realized gains	$	748		$	3,251		$	1,997

The Company has sold various debt securities that were classified as HTM. 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 and, because the Company intends to sell the securities, recorded OTTI on the securities. The following table sets forth, for the periods indicated, gain (loss) on HTM securities sold, securities reclassified to AFS and OTTI recorded on AFS securities reclassified.

In millions of dollars	2013			2012			2011
Carrying value of HTM securities sold	$	935		$	2,110		$	1,612
Net realized gain (loss) on sale of HTM securities	(128		)	(187		)	(299		)
Carrying value of securities reclassified to AFS	989			244			—
OTTI losses on securities reclassified to AFS	(156		)	(59		)	—

Securities Available-for-Sale

The amortized cost and fair value of AFS securities at December 31, 2013 and 2012 were as follows:

	2013								2012
In millions of dollars	Amortized cost		Gross unrealized gains(1)		Gross unrealized losses(1)		Fair value		Amortized cost		Gross unrealized gains(1)		Gross unrealized losses(1)		Fair value
Debt securities AFS
Mortgage-backed securities(2)
U.S. government-sponsored agency guaranteed	$	42,494	$	391	$	888	$	41,997	$	46,001	$	1,507	$	163	$	47,345
Prime	33		2		3		32		85		1		—		86
Alt-A	84		10		—		94		1		—		—		1
Subprime	12		—		—		12		—		—		—		—
Non-U.S. residential	9,976		95		4		10,067		7,442		148		—		7,590
Commercial	455		6		8		453		436		16		3		449
Total mortgage-backed securities	$	53,054	$	504	$	903	$	52,655	$	53,965	$	1,672	$	166	$	55,471
U.S. Treasury and federal agency securities
U.S. Treasury	$	68,891	$	476	$	147	$	69,220	$	64,667	$	943	$	16	$	65,594
Agency obligations	18,320		123		67		18,376		26,014		237		4		26,247
Total U.S. Treasury and federal agency securities	$	87,211	$	599	$	214	$	87,596	$	90,681	$	1,180	$	20	$	91,841
State and municipal(3)	$	20,761	$	184	$	2,005	$	18,940	$	20,020	$	132	$	1,820	$	18,332
Foreign government	96,745		403		677		96,471		93,298		903		154		94,047
Corporate	11,039		210		119		11,130		9,302		398		26		9,674
Asset-backed securities(2)	15,352		42		120		15,274		14,188		85		143		14,130
Other debt securities	710		1		—		711		256		2		—		258
Total debt securities AFS	$	284,872	$	1,943	$	4,038	$	282,777	$	281,710	$	4,372	$	2,329	$	283,753
Marketable equity securities AFS	$	3,832	$	85	$	183	$	3,734	$	4,643	$	444	$	145	$	4,942
Total securities AFS	$	288,704	$	2,028	$	4,221	$	286,511	$	286,353	$	4,816	$	2,474	$	288,695

(1) Gross unrealized gains and losses, as presented, do not include the impact of minority investments and the related allocations and pick-up of unrealized gains and losses of AFS securities. These amounts totaled $36 million and $32 million of unrealized gains as of December 31, 2013 and 2012, respectively.

(2) 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 22 to the Consolidated Financial Statements.

(3) The unrealized losses on state and municipal debt securities are primarily attributable to the effects of fair value hedge accounting. Specifically, Citi hedges the LIBOR-benchmark interest rate component of certain fixed-rate tax-exempt state and municipal debt securities utilizing LIBOR-based interest rate swaps. During the hedge period, losses incurred on the LIBOR-hedging swaps recorded in earnings were substantially offset by gains on the state and municipal debt securities attributable to changes in the LIBOR Swap Rate being hedged. However, because the LIBOR Swap Rate decreased significantly during the hedge period while the overall fair value of the municipal debt securities was relatively unchanged, the effect of reclassifying fair value gains on these securities from Accumulated other comprehensive income (AOCI) to earnings, attributable solely to changes in the LIBOR Swap Rate, resulted in net unrealized losses remaining in AOCI that relate to the unhedged components of these securities.

At December 31, 2013, the amortized cost of approximately 6,300 investments in equity and fixed income securities exceeded their fair value by $4,221 million. Of the $4,221 million, the gross unrealized loss on equity securities was $183 million. Of the remainder, $1,553 million represented unrealized loss on fixed-income investments that have been in a gross-unrealized-loss position for less than a year and, of these, 98% were rated investment grade; $2,485 million represents unrealized loss on fixed-income investments that have been in a gross-unrealized-loss position for a year or more and, of these, 96% were rated investment grade.

At December 31, 2013, the AFS mortgage-backed securities portfolio fair value balance of $52,655 million consisted of $41,997 million of government-sponsored agency securities, and $10,658 million of privately sponsored securities, substantially all of which were backed by non-U.S. residential mortgages.

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 AOCI. For other debt securities with 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 December 31, 2013 and 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
December 31, 2013

Securities AFS
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	19,377	$	533	$	5,643	$	355	$	25,020	$	888
Prime	85		3		3		—		88		3
Non-U.S. residential	2,103		4		5		—		2,108		4
Commercial	206		6		28		2		234		8
Total mortgage-backed securities	$	21,771	$	546	$	5,679	$	357	$	27,450	$	903
U.S. Treasury and federal agency securities
U.S. Treasury	$	34,780	$	133	$	268	$	14	$	35,048	$	147
Agency obligations	6,692		66		101		1		6,793		67
Total U.S. Treasury and federal agency securities	$	41,472	$	199	$	369	$	15	$	41,841	$	214
State and municipal	$	595	$	29	$	11,447	$	1,976	$	12,042	$	2,005
Foreign government	35,783		614		5,778		63		41,561		677
Corporate	4,565		108		387		11		4,952		119
Asset-backed securities	11,207		57		1,931		63		13,138		120
Marketable equity securities AFS	1,271		92		806		91		2,077		183
Total securities AFS	$	116,664	$	1,645	$	26,397	$	2,576	$	143,061	$	4,221
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	$	9,374	$	11	$	105	$	5	$	9,479	$	16
Agency obligations	1,001		4		—		—		1,001		4
Total U.S. Treasury and federal agency securities	$	10,375	$	15	$	105	$	5	$	10,480	$	20
State and municipal	$	10	$	—	$	11,095	$	1,820	$	11,105	$	1,820
Foreign government	24,235		78		3,910		76		28,145		154
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	$	46,805	$	244	$	19,487	$	2,230	$	66,292	$	2,474

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

	2013				2012
In millions of dollars	Amortized cost		Fair value		Amortized cost		Fair value
Mortgage-backed securities(1)
Due within 1 year	$	87	$	87	$	10	$	10
After 1 but within 5 years	346		354		365		374
After 5 but within 10 years	2,898		2,932		1,992		2,124
After 10 years(2)	49,723		49,282		51,598		52,963
Total	$	53,054	$	52,655	$	53,965	$	55,471
U.S. Treasury and federal agency securities
Due within 1 year	$	15,789	$	15,853	$	9,387	$	9,499
After 1 but within 5 years	66,232		66,457		76,454		77,267
After 5 but within 10 years	2,129		2,185		2,171		2,408
After 10 years(2)	3,061		3,101		2,669		2,667
Total	$	87,211	$	87,596	$	90,681	$	91,841
State and municipal
Due within 1 year	$	576	$	581	$	208	$	208
After 1 but within 5 years	3,731		3,735		3,221		3,223
After 5 but within 10 years	439		482		155		165
After 10 years(2)	16,015		14,142		16,436		14,736
Total	$	20,761	$	18,940	$	20,020	$	18,332
Foreign government
Due within 1 year	$	37,022	$	36,959	$	34,873	$	34,869
After 1 but within 5 years	51,446		51,304		49,587		49,933
After 5 but within 10 years	7,332		7,216		7,239		7,380
After 10 years(2)	945		992		1,599		1,865
Total	$	96,745	$	96,471	$	93,298	$	94,047
All other(3)
Due within 1 year	$	2,786	$	2,733	$	1,001	$	1,009
After 1 but within 5 years	10,934		11,020		11,285		11,351
After 5 but within 10 years	5,632		5,641		4,330		4,505
After 10 years(2)	7,749		7,721		7,130		7,197
Total	$	27,101	$	27,115	$	23,746	$	24,062
Total debt securities AFS	$	284,872	$	282,777	$	281,710	$	283,753

(1) Includes mortgage-backed securities of U.S. government-sponsored agencies.

(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.

Debt Securities Held-to-Maturity

The carrying value and fair value of debt securities HTM at December 31, 2013 and 2012 were as follows:

In millions of dollars	Amortized cost(1)		Net unrealized losses recognized in AOCI		Carrying value(2)		Gross unrealized gains		Gross unrealized losses		Fair value
December 31, 2013
Debt securities held-to-maturity
Mortgage-backed securities(3)
Prime	$	72	$	16	$	56	$	5	$	2	$	59
Alt-A	1,379		287		1,092		449		263		1,278
Subprime	2		—		2		1		—		3
Non-U.S. residential	1,372		206		1,166		60		20		1,206
Commercial	10		—		10		1		—		11
Total mortgage-backed securities	$	2,835	$	509	$	2,326	$	516	$	285	$	2,557
State and municipal	$	1,394	$	62	$	1,332	$	50	$	70	$	1,312
Foreign government	5,628		—		5,628		70		10		5,688
Corporate	818		78		740		111		—		851
Asset-backed securities(3)	599		26		573		22		10		585
Total debt securities held-to-maturity	$	11,274	$	675	$	10,599	$	769	$	375	$	10,993
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 22 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 previously reclassified from AFS investments to HTM investments. 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 as of December 31, 2013 and 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
December 31, 2013
Debt securities held-to-maturity
Mortgage-backed securities	$	—	$	—	$	358	$	285	$	358	$	285
State and municipal	235		20		302		50		537		70
Foreign government	920		10		—		—		920		10
Asset-backed securities	98		6		198		4		296		10
Total debt securities held-to-maturity	$	1,253	$	36	$	858	$	339	$	2,111	$	375
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		—
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 $675 million and $1,532 million of gross unrealized losses recorded in AOCI as of December 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 December 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 December 31, 2013 and 2012:

	2013				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	—		—		69		67
After 5 but within 10 years	10		11		54		54
After 10 years(1)	2,316		2,546		4,586		4,977
Total	$	2,326	$	2,557	$	4,709	$	5,098
State and municipal
Due within 1 year	$	8	$	9	$	14	$	15
After 1 but within 5 years	17		17		36		37
After 5 but within 10 years	69		72		58		62
After 10 years(1)	1,238		1,214		1,097		1,143
Total	$	1,332	$	1,312	$	1,205	$	1,257
Foreign government
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years	5,628		5,688		2,987		2,987
After 5 but within 10 years	—		—		—		—
After 10 years(1)	—		—		—		—
Total	$	5,628	$	5,688	$	2,987	$	2,987
All other(2)
Due within 1 year	$	—	$	—	$	—	$	—
After 1 but within 5 years	740		851		728		802
After 5 but within 10 years	—		—		—		—
After 10 years(1)	573		585		501		500
Total	$	1,313	$	1,436	$	1,229	$	1,302
Total debt securities held-to-maturity	$	10,599	$	10,993	$	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 generally are not recorded, as these investments are carried at amortized cost. However, for HTM securities with credit-related losses, only the credit loss component of the impairment is recognized in earnings, while the remainder of the impairment is recognized in AOCI. 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.

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 and the timing 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.

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 25 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 December 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 OTTI 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 December 31, 2013, the remaining 9.9% stake in Akbank is recorded within marketable equity securities available-for-sale. The revaluation of the Turkish Lira was hedged, so the change in the value of the currency related to Akbank investment did not have a significant impact on earnings during the year.

MSSB

On September 17, 2012, Citi sold to Morgan Stanley a 14% interest (the 14% Interest) in the MSSB joint venture, pursuant to the exercise of the purchase option by Morgan Stanley on June 1, 2012. Morgan Stanley paid 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 the MSSB joint venture of $13.5 billion, as agreed between Morgan Stanley and Citi pursuant to an agreement dated September 11, 2012. The related approximately $4.5 billion in deposits were transferred to Morgan Stanley at no premium, as agreed between the parties.

Prior to the September 2012 sale, Citi’s carrying value of its 49% interest in the MSSB joint venture 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 OTTI of the carrying value of its then-remaining 35% interest in the MSSB joint venture of approximately $2.1 billion after-tax ($3.4 billion pretax).

On June 21, 2013, Morgan Stanley notified Citi of its intent to exercise its call option with respect to Citi’s remaining 35% investment in the MSSB joint venture, composed of an approximate $4.725 billion equity investment and $3 billion of other MSSB financing (consisting of approximately $2.028 billion of preferred stock and a $0.880 billion loan). At the closing of the transaction on June 28, 2013, the loan to MSSB was repaid and the MSSB interests and preferred stock were settled, with no significant gains or losses recorded at the time of settlement. In addition, MSSB made a dividend payment to Citi on June 28, 2013 in the amount of $37.5 million.

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, recovery rates (on foreclosed properties) and loss severity rates (on non-agency mortgage-backed securities).

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 (iv) 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 actions and current market prices.

Cash flow projections are developed using different stress test scenarios. Management evaluates 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

The process for identifying credit impairments in Citigroup’s AFS state and municipal bonds is primarily based on a credit analysis that incorporates third-party credit ratings. Citigroup monitors the bond issuers and any insurers providing default protection in the form of financial guarantee insurance. The average external credit rating, ignoring any insurance, is Aa3/AA-. In the event of an external rating downgrade or other indicator of credit impairment (i.e., based on instrument-specific estimates of cash flows or probability of issuer default), the subject bond is specifically reviewed for adverse changes in the amount or timing of expected contractual principal and interest.

For AFS state and municipal bonds with unrealized losses that Citigroup plans to sell, would likely be required to sell or will be subject to an issuer call deemed probable of exercise prior to the expected recovery of its amortized cost basis, the full impairment is recognized in earnings.

Recognition and Measurement of OTTI

The following table presents the total OTTI recognized in earnings for the year ended December 31, 2013:

OTTI on Investments and Other Assets	Year ended December 31, 2013
In millions of dollars	AFS(1)		HTM		Other Assets (2)		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 year ended December 31, 2013	$	9	$	154	$	—	$	163
Less: portion of impairment loss recognized in AOCI (before taxes)	—		98		—		98
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	9	$	56	$	—	$	65
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)	269		—		201		470
Total impairment losses recognized in earnings	$	278	$	56	$	201	$	535

(1) Includes OTTI on non-marketable equity securities.

(2) The year ended December 31, 2013 included $192 million of impairment charges related to the carrying value of Citi’s then-remaining 35% interest in the MSSB joint venture, which was offset by the equity pickup from the joint venture in the respective quarter, which was recorded in Other revenue. See “MSSB” above for further discussion.

OTTI on Investments and Other Assets	Year ended December 31, 2012
In millions of dollars	AFS(1)		HTM		Other Assets (2)		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 year ended December 31, 2012	$	17	$	365	$	—	$	382
Less: portion of impairment loss recognized in AOCI (before taxes)	1		65		—		66
Net impairment losses recognized in earnings for securities that the Company does not intend to sell nor will likely be required to sell	$	16	$	300	$	—	$	316
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)	139		—		4,516		4,655
Total impairment losses recognized in earnings	$	155	$	300	$	4,516	$	4,971

(1) Includes OTTI on non-marketable equity securities.

(2) The year ended December 31, 2012 included the recognition of a $3.4 billion ($2.1 billion after-tax) impairment charge related to the carrying value of Citi’s then-remaining 35% interest in MSSB, and $1.2 billion pretax ($763 million after-tax) impairment charge relating to its total investment in Akbank. See “MSSB” and “Akbank” above for further discussion.

The following is a 12-month roll-forward of the credit-related impairments recognized in earnings for AFS and HTM debt securities held as of December 31, 2013 that the Company does not intend to sell nor likely will 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			Dec. 31, 2013 balance
AFS debt securities
Mortgage-backed securities	$	295	$	—	$	—	$	—		$	295
Foreign government securities	169		—		2		—			171
Corporate	116		—		—		(3		)	113
All other debt securities	137		7		—		—			144
Total OTTI credit losses recognized for AFS debt securities	$	717	$	7	$	2	$	(3	)	$	723
HTM debt securities
Mortgage-backed securities(1)	$	869	$	47	$	7	$	(245	)	$	678
Corporate	56		—		—		—			56
All other debt securities	135		2		—		(4		)	133
Total OTTI credit losses recognized for HTM debt securities	$	1,060	$	49	$	7	$	(249	)	$	867

(1) Primarily consists of Alt-A securities.

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)	Redemption notice
In millions of dollars	2013		2012		2013		2012		monthly, quarterly, annually	period
Hedge funds	$	751	$	1,316	$	—	$	—	Generally quarterly	10-95 days
Private equity funds(1)(2)	794		837		170		342		—	—
Real estate funds (2)(3)	294		228		36		57		—	—
Total(4)	$	1,839	$	2,381	$	206	$	399	—	—

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

(2) 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.

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

(4) Included in the total fair value of investments above are $1.6 billion and $0.4 billion of fund assets that are valued using NAVs provided by third-party asset managers as of December 31, 2013 and December 31, 2012, respectively. The increase in the investments valued using NAVs provided by third party asset managers was primarily driven by the sale of certain of the Citi Capital Advisors business as discussed in Note 2 to the Consolidated Financial Statements. Amounts presented exclude investments in funds that are consolidated by Citi.