Citigroup Inc.

Key Assumptions and Retained Interests—Citi HoldingsThe key assumptions, used for the securitization of CDOs and CLOs duringthe year ended December 31, 2010, in measuring the fair value of retainedinterests at the date of sale or securitization are as follows:CDOsCLOsDiscount rate 14.7% to 40.6% 3.6% to 5.4%The effect of two negative changes in discount rates used to determine thefair value of retained interests is disclosed below.In millions of dollars CDOs CLOsCarrying value of retained interests $51 $618Discount ratesAdverse change of 10% $ (3) $ (6)Adverse change of 20% (6) (13)Asset-Based FinancingThe Company provides loans and other forms of financing to VIEs thathold assets. Those loans are subject to the same credit approvals as allother loans originated or purchased by the Company. Financings in theform of debt securities or derivatives are, in most circumstances, reported inTrading account assets and accounted for at fair value through earnings.The Company does not have the power to direct the activities that mostsignificantly impact these VIEs’ economic performance and thus it does notconsolidate them.Asset-Based Financing—CiticorpThe primary types of Citicorp’s asset-based financings, total assets of theunconsolidated VIEs with significant involvement and the Company’smaximum exposure to loss at December 31, 2010 are shown below. For theCompany to realize that maximum loss, the VIE (borrower) would have todefault with no recovery from the assets held by the VIE.In billions of dollarsTotalassetsMaximumexposureTypeCommercial and other real estate $ 0.9 $ 0.3Hedge funds and equities 7.6 3.0Airplanes, ships and other assets 7.6 7.9Total $16.1 $11.2Asset-Based Financing—Citi HoldingsThe primary types of Citi Holdings’ asset-based financings, total assets ofthe unconsolidated VIEs with significant involvement and the Company’smaximum exposure to loss at December 31, 2010 are shown below. For theCompany to realize that maximum loss, the VIE (borrower) would have todefault with no recovery from the assets held by the VIE.In billions of dollarsTotalassetsMaximumexposureTypeCommercial and other real estate $12.2 $1.7Corporate loans 6.0 5.0Airplanes, ships and other assets 4.4 2.2Total $22.6 $8.9The following table summarizes selected cash flow information related toasset-based financings for the years ended December 31, 2010, 2009 and 2008:In billions of dollars 2010 2009 2008Cash flows received on retained interestsand other net cash flows $2.8 $2.7 $1.7The effect of two negative changes in discount rates used to determine thefair value of retained interests is disclosed below.In millions of dollarsAsset-basedfinancingCarrying value of retained interests $5,006Value of underlying portfolioAdverse change of 10% —Adverse change of 20% (57)Municipal Securities Tender Option Bond (TOB) TrustsThe Company sponsors TOB trusts that hold fixed- and floating-rate,tax-exempt securities issued by state or local municipalities. The trusts aretypically single-issuer trusts whose assets are purchased from the Companyand from the market. The trusts are referred to as Tender Option Bond trustsbecause the senior interest holders have the ability to tender their interestsperiodically back to the issuing trust, as described further below.The TOB trusts fund the purchase of their assets by issuing long-termsenior floating rate notes (floaters) and junior residual securities (residuals).Floaters and residuals have a tenor equal to the maturity of the trust, whichis equal to or shorter than the tenor of the underlying municipal bond.Residuals are frequently less than 1% of a trust’s total funding and entitletheir holder to residual cash flows from the issuing trust. Residuals aregenerally rated based on the long-term rating of the underlying municipalbond. Floaters bear interest rates that are typically reset weekly to a newmarket rate (based on the SIFMA index: a seven-day high-grade marketindex of tax-exempt, variable-rate municipal bonds). Floater holders have anoption to tender their floaters back to the trust periodically. Floaters have along-term rating based on the long-term rating of the underlying municipalbond, including any credit enhancement provided by monoline insurancecompanies, and a short-term rating based on that of the liquidity provider tothe trust.247