CITIGROUP GLOBAL MARKETS LIMITED - RNS Submit · CITIGROUP GLOBAL MARKETS LIMITED These condensed...

CITIGROUP GLOBAL MARKETS LIMITED

(Registered Number: 01763297)

UNAUDITED INTERIM REPORT AND FINANCIAL STATEMENTS

for the six months ended 30 June 2017

CITIGROUP GLOBAL MARKETS LIMITED These condensed interim financial statements are unaudited

INTERIM MANAGEMENT REPORT for the six months ended 30 June 2017

2

The Directors present their Report and the unaudited financial statements of Citigroup Global Markets Limited

(the Company) for the six months ended 30 June 2017.

Business environment

CGML is a wholly-owned indirect subsidiary of Citigroup Inc. (Citi). It was incorporated in 1983 and has a major

international presence as a dealer, market maker and underwriter in equity, fixed income and commodity markets,

as well as providing advisory services to a wide range of corporate, institutional and government clients. It is

headquartered in London, and operates globally, generating the majority of its business from the Europe, Middle

East and Africa (EMEA) region, with the remainder coming from Asia and the Americas. It is authorised by the

Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. As

at 30 June 2017, it had eight branch offices and five subsidiaries across EMEA, listed below:

EU Branches Subsidiaries

Czech Republic Citigroup Global Markets Luxembourg S.a.R.L. (Luxembourg) France Citigroup Global Markets Funding Luxembourg SCA (Luxembourg)

Ireland Citigroup Global Markets Funding Luxembourg GP S.a.R.L. (Luxembourg)

Italy Citi Global Wealth Management S.A.M. (Monaco) Spain Citigroup South Africa Credit Products (Proprietary) Limited (South Africa) (scheduled for

liquidation)

Non-EU Branches

Israel Switzerland

UAE

CGML’s key activities encompass cash, exchange traded and over-the-counter (OTC) derivative products in the

following markets:

G10 Rates

Foreign Exchange

Equities

Credit Markets

Securitised Markets

Prime, Futures and Securities Services (comprising Prime Finance, Delta-One and Futures & OTC

Clearing)

Commodities

Capital Markets Origination (CMO)

Corporate and Investment Banking

The above business areas variously include market making, facilitating client flow trading and providing tailored

solutions to client financing, risk or investment needs. Further details of these areas can be found in the Strategic

Report of the Company’s financial statements for the year ended 31 December 2016.

A number of CGML’s functional operations are carried out in locations outside London, including at Citi Service

Centres (CSCs) in a variety of locations. CGML operates an established governance framework over the activities

carried out in these CSC locations. In addition, CGML makes use of a number of third party outsourcing

arrangements which are subject to similar governance arrangements.

Mission and Strategy

CGML’s strategic objectives are founded on Citi’s mission and value proposition.

Citi’s mission is to serve as a trusted partner to its clients by responsibly providing financial services that enable

growth and economic progress. Its core activities are safeguarding assets, lending money, making payments and

accessing the capital markets on behalf of its clients.



3

Mission and Strategy (continued)

The mission forms the framework for CGML’s entity level strategic goals. The strategy and its execution will seek

to create sustainable, growing earnings and contribute to Citi’s overall client franchise, allowing CGML to deliver

returns consistent with the group’s overall business strategy. CGML’s 2017 objectives comprise the following:

Continued focus on providing solutions for our target market client base;

Market survey data indicated that the CIB and Commodities businesses were meeting their strategic

objectives whilst other businesses continued to make progress towards targeted benchmark rankings.

Maintaining and reinforcing the Ethics and Execution framework across all levels of the organisation;

The effectiveness of Citi’s leadership, behavioural and ethical expectations is tracked via the Voice of the

Employee Pulse survey which allows employees to share feedback three times a year and which indicates

high levels of ethical engagement. Citi also participates in the Banking Standards Board’s external

assessment which similarly confirms a strong focus on ethics.

Attraction, development and retention of talent;

Citi and CGML’s institutional business demonstrated significant progress with a number of high calibre

senior hires across a range of business areas. Strong momentum in the recruitment of high-profile senior

talent is expected to continue into 2018. All employees have access to best-in-class learning throughout

the year, with a number of initiatives focussed on development and innovation.

Achievement of diversity targets and promotion of equal employment opportunities;

Diversity continues to be a strong focus of senior management with diverse slates achieved for senior

recruitment.

Continued simplification of the organisation and infrastructure;

The current phase of the simplification initiative is focused on standardising organisational structures and

streamlining processes and activities across business and support functions, prior to integration into

ongoing operations.

Maintenance of a robust internal control infrastructure, focusing upon risk identification and

documentation of processes, policies and procedures;

Progress is being made on management led initiatives to improve monitoring of the control environment.

Continued improvement in its operational metrics;

During the period CGML’s operating efficiency and return on assets and tangible common equity

continued to meet or exceed targets.

Completing the rollout of the investment in the Equities franchise;

Considerable investment in the Equities franchise has taken place in 2017 in order to further develop the

business’s capabilities and increase its EMEA wallet share, with a particular focus on the sales effort.

Revenues, transaction volumes and wallet share have all increased year on year. The ongoing investment

programme is expected to generate further improvements to Equities revenues in future reporting periods.

Maintenance of strong capital and liquidity levels

Capital and liquidity levels were maintained at an appropriate level throughout the period to support

business and regulatory requirements including resolvability. Regulatory capital quality was enhanced,

with new Additional Tier 1 (AT1) Notes replacing a tranche of the Company’s Tier 2 capital.



4

Income statement summary

2014 2015 2016 2017

$ Million $ Million $ Million $ Million

Commission income and fees 1,157 1,093 593 583

Net dealing income 768 747 942 1,391

Interest receivable 410 335 308 334

Interest payable (359) (321) (420) (533)

Gross profit 1,976 1,854 1,423 1,775

Operating expenses (1,641) (1,478) (1,148) (1,309)

Other income and expenses 7 12 2 8

Operating profit on ordinary activities before taxation 342 388 277 474

Gross Profit

Gross profit was $1,775 million (2016: $1,423 million) which represented an increase of $352 million or 25%.

Contributing to the increase were higher revenues across a number of businesses, most notably G10 Rates,

Commodities and Equities. Increased revenues were driven by tightening credit spreads, an improved trading

environment and client and market activity related to elections in a number of European countries in 2017, as well

as investment in resource and technology in Equities. The 2016 results included revenues from a section of the

Securitisation business which were no longer included in 2017. This was due to the transfer from CGML to another

Citi entity of certain Securitisation personnel and the associated revenue streams.

Operating Expenses

Operating expenses were $1,309 million (2016: $1,148 million) which represented an increase of $161 million or

14%. This reflected higher technology investment, reduced impact from share price movements on deferred awards

and higher current year incentive compensation. This was partly offset by beneficial exchange rate movements.

Profit for the Period

Net profit for the first six months was $329 million (2016: $326 million), a 1% increase. This included a tax charge

of $145 million for the period, compared to prior periods where earlier losses in CGML and other Citi entities were

available to offset against taxable income. In 2016 the positive tax movement of $49 million arose from the

deferred tax asset associated with CGML’s pension asset, and was offset by an equivalent movement on the related

deferred tax liability reflected within the 2016 Statement of Comprehensive Income.

Balance Sheet

2014 2015 2016 2017


Total assets 383,350 323,339 345,608 372,404

Total liabilities 370,215 309,892 331,728 356,447

Shareholders' funds 13,135 13,447 13,880 15,957

Total assets of $372 billion (31 December 2016: $346 billion) grew mainly due to increases in trading inventory,

particularly government bonds and equity securities, and collateralised financing transactions, partly offset by a

decrease in derivative assets as Sterling and Euro yields rose.

Total liabilities, excluding shareholders’ funds, of $356 billion (31 December 2016: $332 billion) principally

reflected increases in collateralised financing transactions to facilitate client activity and enhance liquidity. These

were partly offset by a reduction in derivative liabilities, mirroring the impact of the yield upturn described above.

Shareholders’ funds were $15,957 million (31 December 2016: $13,880 million) which represented an increase of

$2,077 million. In addition to the profit for the period, this included an injection of $1,800 million of AT1 capital

in the form of loan notes purchased by another Citi entity, Pipestone LLC, which took place on 20 June 2017.

These replaced an equivalent amount of subordinated loans which were repaid, as part of an initiative to enhance

the quality of CGML’s regulatory capital. Further details are included in Note 9.



5

Future outlook

Themes which the Company believes may impact its performance include the following:

Brexit and its associated economic, political, legal and regulatory ramifications. Detailed contingency

plans have been developed in order to ensure that Citi, CGML and other affiliates are able to continue

serving their clients following the expected exit by the United Kingdom from the European Union in the

first half of 2019. CGML continues to assess the potential impact of Brexit on market and economic

conditions.

Quantitative easing by the European Central Bank which has been extended out to the end of 2017.

Protectionist policies such as the withdrawal by the United States from the Trans-Pacific Partnership

(TPP)) which has raised the possibility of international trade disputes, impacting liquidity and capital

flows.

Uncertainties over the future path of interest rates with the capacity to inhibit capital markets and

reduce client volumes.

Markets in Financial Instruments Directive and Regulation (MiFID II / MiFIR), effective 3 January

2018, which regulate firms that provide services linked to financial instruments. The new regulations

broaden existing requirements to other asset classes, and introduce new requirements related to market

structure, authorization and supervision, pre- and post-trade transparency, trade execution, commodity

position limits, post-trade processes and investor protection.

Citi and CGML will continue to monitor and assess developments in relation to the above themes, in order to

mitigate any potential impact on future activities.

Key performance indicators

In addition to the financial results of the Company, senior management considers the monitoring of the following

key financial and non-financial items critical to the Company’s future: adequacy of regulatory capital and liquidity,

external ratings and future regulatory developments. Please refer to the Strategic Report of the Company’s

financial statements for the year ended 31 December 2016 for further information.

Risk Management

The financial risk management objectives and policy and the exposure to market, liquidity, credit, country and

operational risk have been disclosed in the risk management policies in the Strategic Report of the Company’s

financial statements for the year ended 31 December 2016 and have not materially changed in the reporting period.

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Strategic Report and the Directors' Report and the financial

statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they

have elected to prepare the financial statements in accordance with United Kingdom Accounting Standards and

applicable law (United Kingdom Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure

Framework.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give

a true and fair view of the state of affairs of CGML and of the profit or loss of CGML for the relevant period.

In preparing these financial statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;

make judgments and estimates that are reasonable and prudent;

state whether applicable United Kingdom Accounting Standards have been followed, subject to any

material departures disclosed and explained in the financial statements; and

prepare the financial statements on a going concern basis unless it is inappropriate to assume that CGML

will continue in business.



6

Statement of Directors’ responsibilities (continued)

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain

CGML’s transactions, disclose with reasonable accuracy at any time the financial position of CGML, and enable

them to ensure that the financial statements comply with the Companies Act 2006. They have general

responsibility for taking such steps as are reasonably open to them to safeguard the assets of CGML and to prevent

and detect fraud and other irregularities. Legislation in the United Kingdom governing the preparation and

dissemination of financial statements may differ from legislation in other jurisdictions.

Directors

The Directors who held office during the period ended 30 June 2017 were:

Non-Executive

J P Asquith (Chairman)

S H Dean

R Goulding

D L Taylor

Executive

L Arduini

J Bardrick

J C Cowles

P McCarthy

Cyrus Ardalan was appointed Non-Executive Director on 2 August 2017 and appointed Chairman on 30 August

2017.

J P Asquith resigned as Non-Executive Director and Chairman on 30 August 2017.

Directors’ indemnity

Throughout the period and at the date of this report the Company is party to a group-wide indemnity policy which

benefits all of its current directors and is a qualifying third party indemnity provision for the purpose of section 236

of the Companies Act 2006.

Political contributions

No political contributions were made during the period. During 2016, the Company made a donation of $353,350

(£250,000) to the Britain Stronger in Europe campaign, in advance of the UK Referendum on EU membership.

Auditors

The Company has elected not to have an audit of these interim financial statements. A full audit will be performed

at 31 December 2017.

By order of the Board.

J Bardrick

Director

6 October 2017

Incorporated in England and Wales

Registered office: Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB

Registered Number: 01763297


INTERIM INCOME STATEMENT for the six months ended 30 June 2017

7

30 June 2017 30 June 2016

Notes $ Million $ Million

Commission income and fees 5 583 593

Net dealing income 1,391 942

Interest receivable 334 308

Interest payable (533) (420)

Gross profit 11 1,775 1,423

Operating expenses (1,309) (1,148)

Other finance income / (expense) 6 -

Other income 2 2

Operating profit on ordinary activities before taxation 474 277

Tax on profits on ordinary activities 6 (145) 49

Profit for the period 329 326

The accompanying notes on pages 10 to 19 form an integral part of these financial statements.


INTERIM STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June 2017

8

30 June 2017 30 June 2016

$ Million $ Million

Profit for the period 329 326

Other Comprehensive Income (Expense)

Items that will not be reclassified subsequently to profit or loss:

Gains/(losses) on remeasurement of defined benefit pension asset (55) 174

Tax charge associated with remeasurement of pension asset 14 (45)

Total comprehensive gain for the period 288 455

The net movement in the Statement of Comprehensive Income in respect of the pension scheme reflects changes in

the actual and expected returns on scheme assets and liabilities and the related tax impact associated with the

balance sheet valuation of the defined pension asset.

INTERIM STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2017

Share

Capital

Other

equity

instruments

Capital

reserve

Retained

Earnings and

other reserves

Total

Notes $ Million $ Million $ Million $ Million $ Million

At 1 January 2016 1,500 - 9,989 1,958 13,447

Profit after taxation for the period - - - 326 326

Net movement in Statement of Comprehensive

Income in respect of the pension scheme- - - 129 129

Share based payment transactions 34 34

Capital contribution - - 10 - 10

At 30 June 2016 1,500 - 9,999 2,447 13,946

At 1 January 2017 1,500 - 9,999 2,381 13,880

Profit after taxation for the period - - - 329 329

Net movement in Statement of Comprehensive

Income in respect of the pension scheme- - - (41) (41)

Share based payment transactions - - - (11) (11)

Other equity instruments issued - 1,800 - - 1,800

At 30 June 2017 1,500 1,800 9,999 2,658 15,957

The other equity instruments relate to Additional Tier 1 notes. Further information is included in Note 9.

The capital reserve includes capital contributions from the parent company, which are distributable.

The retained earnings and other reserves include the equity reserve, which is the fair value movement of the share

based incentives issued.



INTERIM BALANCE SHEET as at 30 June 2017

9

30 June

2017

31 December

2016

Notes $ Million $ Million

Assets

Financial assets at amortised cost

- cash at bank and in hand 4,763 3,738

- collateralised financing transactions 65,559 56,222

Financial assets classed as held for trading

- derivatives 7 158,811 167,634

- inventory 7 49,132 36,613

- financial assets designated at fair value through profit or loss 7 61,003 51,451

Financial assets classed as available for sale 33 31

Pension asset 410 437

Other assets 32,693 29,482

Total Assets 372,404 345,608

Liabilities and Equity

Financial liabilities at amortised cost

- bank loans and overdrafts 14,653 10,454

- collateralised financing transactions 44,956 33,509

Financial liabilities classed as held for trading

- derivatives 7 163,983 170,258

- securities sold but not yet purchased 7 42,814 44,654

- financial liabilities designated at fair value through profit or loss 7 52,278 35,783

Other liabilities 34,845 32,485

Subordinated loans 8 2,918 4,585

Total Liabilities 356,447 331,728

Capital and reserves

Called up share capital 1,500 1,500

Other equity instruments 9 1,800 -

Capital reserve 9,999 9,989

Profit and loss account 2,658 2,381

Shareholders' funds 15,957 13,880

Total Liabilities and Shareholders' Funds 372,404 345,608


The financial statements on pages 7 to 19 were approved by the Directors on 6 October 2017 and were signed on their

behalf by:

J Bardrick

Director

Registered Number: 01763297


NOTES TO THE FINANCIAL STATEMENTS

10

1. Reporting Entity

This report comprises the unaudited condensed interim financial statements of CGML as at and for the six months

ended 30 June 2017.

The financial statements of the Company at the year ended 31 December 2016 are available upon request from the

Company’s registered office at Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB.

2. Statement of compliance

These condensed interim financial statements have been prepared and approved by the Directors in accordance with

the EU Transparency Directive as implemented in the UK via the Disclosure and Transparency Rules issued by the

FCA. They have been drawn up in compliance with IAS 34 ‘Interim Financial Reporting’. The condensed

financial statements do not include all the information required for the full annual financial statements, and should

be read in conjunction with the financial statements of the Company for the year ended 31 December 2016.

3. Principal accounting policies

The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101,

‘Reduced Disclosure Framework’ (FRS 101). In preparing these financial statements, the Company applies the

recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by

the EU, but makes amendments where necessary in order to comply with Companies Act 2006 and has set out

below where advantage of the FRS 101 disclosure exemptions has been taken.

The Company has taken exemption available under FRS 101 not to disclose all transactions with other group

companies and investees of the group qualifying as related parties. It has also taken the exemption available under

FRS 101 not to prepare a cash flow statement.

The financial statements have been prepared in US Dollars, which is the functional currency of the Company, and

any reference to $ in these financial statements refers to US Dollars.

As permitted under section 401 of the Companies Act 2006, consolidated financial statements have not been

prepared because the Company is a wholly owned subsidiary of the ultimate parent Citigroup Inc. which prepares

consolidated financial statements under US GAAP. Citigroup Inc. makes its financial statements available to the

public on a quarterly basis.

4. Use of assumptions, estimates and judgements

The results of the Company are sensitive to the accounting policies, assumptions and estimates that underlie the

preparation of its financial statements. The assumptions and estimates used in the preparation of the financial

statements are described in detail in the Company’s financial statements for the year ended 31 December 2016.

5. Turnover and results

As permitted by paragraph 4 of Schedule 1 to the Companies Act 2006 The Large and Medium-sized Companies

and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No 410), the format of the profit and loss account

has been adapted to the circumstances of the Company. Instead of turnover, the Directors have reported

commission income and fees, net dealing income and interest income less interest expense in determining the gross

profit of the Company.



11

6. Tax on profit on ordinary activities

30 June

2017

30 June

2016

$ Million $ Million

Current tax:

UK corporation tax 115 -

Adjustment in respect of prior periods (2) -

113 -

Overseas current tax 12 1

Adjustment in respect of prior periods 3 -

15 1

Total current tax 128 1

Deferred tax:

Origination and reversal of temporary differences 14 (45)

Overseas deferred tax in respect of foreign branch operations 3 (5)

Total deferred tax 17 (50)

Tax charge (credit) on ordinary activities per Income Statement 145 (49)

Tax on profit per Statement of Comprehensive Income (14) 45

131 (4)

The company's Income Statement effective tax rate for the six months ended 30 June 2017 was 30.46% (30 June

2016: -17.93%).

The main rate of corporation tax in the UK was reduced from 20% to 19% on 1 April 2017 which resulted in a

weighted average tax rate of 19.25% for 2017 (2016: 20%). The corporation tax rate will reduce to 17% from 1

April 2020. CGML is also subject to the bank surcharge of 8% from 1 January 2016 giving an overall standard rate

of 27.25% in 2017 (2016: 28%).

The difference between the effective tax rate for the six months ended 30 June 2017 and the standard rate arose

from various factors. These included the accounting treatment for tax on the changes in valuation of the pension

asset and the non recognition of deferred tax.

When comparing the effective tax rate in 2017 to the prior year, there were two main factors contributing to the

difference. Firstly, the valuation movement on the pension asset taken to reserves in the first half of 2016 was a

gain, compared to the loss reflected in 2017. Secondly, in the first half of 2016 the use of significant temporary

differences on which deferred tax had not been recognised resulted in a decrease to the 2016 effective tax rate. The

impact of the use of temporary differences in 2017 was significantly lower.

Both foreign tax incurred and deferred tax recorded in the foreign branches have been recognised at the relevant

country rates.

The UK deferred tax liability on the pension asset has been reflected on the balance sheet at 25% based on the tax

rate substantively enacted at the respective balance sheet date. A deferred tax asset has been recognised up to the

level of this deferred tax liability. No further deferred tax asset has been recognised due to uncertainty around the

timing of its reversal. The unrecognised deferred tax asset at 30 June 2017 was $126 million, at 25% ($110 million

at 30 June 2016 at a rate of 26%).

The impact of the banking surcharge, introduced in full from 1 January 2016, has been included in the current tax

charge at 8%. The bank levy, which reduces year on year from 18% in 2016 to 10% in 2021, has been included in

Operating Expenses for 2017 at 17%.



12

7. Financial assets and liabilities accounting classifications and fair values

The table below sets out the Company’s classification of each class of financial assets and liabilities, and their fair

values.

Held for

Trading

Designated at

fair value

Amortised

cost

Available for

Sale

Total

carrying

amount Fair value

30 June 2017 $ Million $ Million $ Million $ Million $ Million $ Million

Cash - - 4,763 - 4,763 4,763

Derivatives 158,811 - - - 158,811 158,811

Inventory 49,132 - - 49,132 49,132

Collateralised financing transactions - 61,003 65,559 - 126,562 126,562

Cash collateral pledged - - 21,966 - 21,966 21,966

Trade debtors - - 10,135 - 10,135 10,135

Other debtors - - 258 - 258 258

Financial assets classed as available for

sale

- - - 33 33 33

207,943 61,003 102,681 33 371,660 371,660

Bank loans and overdrafts - - 14,653 14,653 14,653

Derivatives 163,983 - - - 163,983 163,983

Securities sold but not yet purchased 42,814 - - - 42,814 42,814


Cash collateral held - - 23,530 - 23,530 23,530

Trade creditors - - 9,553 - 9,553 9,553

Other creditors and accruals - - 1,435 - 1,435 1,435

Subordinated loans - - 2,918 - 2,918 3,061

206,797 52,278 97,045 - 356,120 356,263

Held for

Trading

Designated at

fair value

Amortised

cost

Available for

Sale

Total

carrying

amount Fair value

31 December 2016 $ Million $ Million $ Million $ Million $ Million $ Million

Cash - - 3,738 - 3,738 3,738

Derivatives 167,634 - - - 167,634 167,634

Inventory 36,613 - - 36,613 36,613


Cash collateral pledged - - 21,992 - 21,992 21,992

Trade debtors - - 7,146 - 7,146 7,146

Other debtors - - 9 - 9 9

Financial assets classed as available for

sale

- - - 31 31 31

204,247 51,451 89,107 31 344,836 344,836

Bank loans and overdrafts - - 10,454 10,454 10,454

Derivatives 170,258 - - - 170,258 170,258

Securities sold but not yet purchased 44,654 - - - 44,654 44,654

Collateralised financing transactions 35,783 33,509 - 69,292 69,292

Cash collateral held - - 22,595 - 22,595 22,595

Trade creditors - - 8,680 - 8,680 8,680

Other creditors and accruals - - 988 - 988 988

Subordinated loans - - 4,585 - 4,585 4,846

214,912 35,783 80,811 - 331,506 331,767



13

7. Financial assets and liabilities accounting classifications and fair values (continued)

The following table shows an analysis of financial assets and liabilities classified as held for trading or designated at

fair value by level in the hierarchy:

Level 1 Level 2 Level 3 Total


Financial assets held for trading

Derivatives 65 156,843 1,903 158,811

Government bonds 21,395 1,587 33 23,015

Eurobonds and other corporate bonds 298 6,839 253 7,390

Equities 16,757 1,895 40 18,692

Physical Commodities - 35 - 35

38,515 167,199 2,229 207,943

Financial assets designated at fair value

Collateralised financing transactions 66 60,937 - 61,003

38,581 228,136 2,229 268,946

Financial liabilities held for trading

Derivatives 89 160,633 3,261 163,983

Securities sold but not yet purchased 39,368 3,241 205 42,814

39,457 163,874 3,466 206,797

Financial liabilities designated at fair value

Collateralised financing transactions - 52,278 - 52,278

39,457 216,152 3,466 259,075




Derivatives 39 165,335 2,260 167,634

Government bonds 11,292 3,827 2 15,121

Eurobonds and other corporate bonds 8 6,335 183 6,526

Equities 13,581 1,235 15 14,831

Physical Commodities - 117 18 135

24,920 176,849 2,478 204,247


Collateralised financing transactions - 51,451 0 51,451

Financial assets available for sale

Investment securities - 31 - 31

24,920 228,331 2,478 255,729

Financial liabilities held for trading

Derivatives 57 166,675 3,526 170,258

Securities sold but not yet purchased 39,598 4,946 110 44,654

39,655 171,621 3,636 214,912

Financial liabilities designated at fair value


39,655 207,404 3,636 250,695

30 June 2017

31 December 2016

For the period ended 30 June 2017, there were no significant transfers between Level 2 and Level 1.



14


The following table shows an analysis of financial assets and liabilities classified as held at amortised cost by level

in the hierarchy:




Cash 4,763 - - 4,763


Cash collateral pledged - 21,966 - 21,966

Trade debtors - 10,135 - 10,135

Other debtors - 258 - 258

4,763 97,918 - 102,681


Bank loans and overdrafts - 14,653 - 14,653


Cash collateral held - 23,530 - 23,530

Trade creditors - 9,553 - 9,553

Other creditors - 1,435 - 1,435

Subordinated loans - 2,918 - 2,918

- 97,045 - 97,045




Cash 3,738 - - 3,738


Cash collateral pledged - 21,992 - 21,992

Trade debtors - 7,146 - 7,146

Other debtors - 9 - 9

3,738 85,369 - 89,107


Bank loans and overdrafts - 10,454 - 10,454


Cash collateral held - 22,595 - 22,595

Trade creditors - 8,680 - 8,680

Other creditors - 988 - 988

Subordinated loans - 4,585 - 4,585

- 80,811 - 80,811

30 June 2017

31 December 2016



15


Given the short term nature and characteristics of trade debtors, other debtors, trade creditors, other creditors and

accruals the fair value has been assumed to approximate the carrying value. The fair value of subordinated loans

has been calculated using the present value of future estimated cash flows, discounted using a discount rate of USD

3 month Overnight Indexed Swap (OIS) or 3 month Euro Overnight Index Average (EONIA) plus the Company’s

credit spread as at 30 June 2017.

Financial instruments may move between levels in the fair value hierarchy when factors such as liquidity or the

observability of input parameters change. As conditions around these factors improve, financial instruments may

transfer higher up the fair value hierarchy. Further information about the Company’s measurement of fair value and

classification of financial assets and liabilities under the fair value hierarchy can be found in Note 15 of the

Company’s financial statements for the year ended 31 December 2016.

Level 3 movement

The movement on Level 3 items for the period was:

2017

At 1

January Realised Unrealised Purchases Sales Issuances Settlements

Transfers

into Level 3

Transfers out

of Level 3

At 30

June

$ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million


Derivatives 2,260 (21) (59) 3 (1) - 91 197 (567) 1,903

Government bonds 2 1 1 31 (8) - - 8 (2) 33

Eurobonds and other corporate bonds 183 (8) 63 151 (152) - - 111 (95) 253

Equities 15 (5) 18 6 (10) - - 21 (5) 40

Physical Commodities 18 - (36) 18 - - - - - --

2,478 (33) (13) 209 (171) - 91 337 (669) 2,229

At 1


Transfers

into Level 3

Transfers out

of Level 3

At 30

June

Financial liabilities held for trading $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million

Derivatives 3,526 (43) (93) (1) 1 - 327 241 (697) 3,261

Securities sold but not yet purchased 110 1 92 - 4 - (10) 10 (2) 205

3,636 (42) (1) (1) 5 - 317 251 (699) 3,466

2016

At 1


Transfers

into Level 3

Transfers out

of Level 3

At 31

December

$ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million


Derivatives 3,031 (38) (110) 9 (2) - (416) 1,000 (1,214) 2,260

Government bonds 3 - - - - - - - (1) 2

Eurobonds and other corporate bonds 223 (66) 23 423 (497) - - 161 (84) 183

Equities 31 (114) 11 93 (8) - - 9 (7) 15

Physical Commodities - - - - - - - 18 - 18


Collateralised financing transactions 218 99 - 82 (102) - (297) - - -

3,506 (119) (76) 607 (609) - (713) 1,188 (1,306) 2,478

At 1


Transfers

into Level 3

Transfers out

of Level 3

At 31

December

Financial liabilities held for trading $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million

Derivatives 3,634 (7) (276) (5) 5 - 520 1,113 (1,458) 3,526

Securities sold but not yet purchased 3 (27) 69 (9) 4 11 16 111 (68) 110

3,637 (34) (207) (14) 9 11 536 1,224 (1,526) 3,636

Gain/(loss) recorded in the

profit and loss statement

(Gain)/loss recorded in the


Gain/(loss) recorded in the


(Gain)/loss recorded in the




16


During the first half of 2017, the Level 3 financial instruments inventory decreased due to maturing trades and some

moves to Level 2. Such trades were mainly in the Rates (Finance Desk) and Credit Markets business.

The increase in settlements was mainly focussed on Foreign Exchange Derivatives.

Transfers into Level 3 arose predominantly from the Equity Derivatives & Delta One trading desks within the

Equities business. These were primarily on positions where consensus data was no longer available and on trades

where the valuation uncertainty had increased to a material level. Transfers out of Level 3 were driven by greater

observability within Rates (Finance Desk), where due to market activity the valuation uncertainty had reduced to

immaterial levels, and within the Equities business, which saw an increase in observable pricing data.

Valuation process for Level 3 Fair Value Measurements

Price verification procedures and related internal control procedures are governed by the Citi Pricing and Price

Verification Policy and Standards, which are jointly owned by Finance and Risk Management. Finance has

implemented the Pricing and Price Verification Standards and Procedures to facilitate compliance with this policy.

Further information about the Company’s valuation process for Level 3 fair value measurements is contained within

Note 15 of the Company’s financial statements for the year ended 31 December 2016.

Unobservable inputs

During the period, total changes in fair value, representing a loss of $3 million (2016: $46 million gain) were

recognised in the profit and loss account relating to items where fair value was estimated using a valuation

technique that incorporates one or more significant inputs based on unobservable market data. As these valuation

techniques are based upon assumptions, changing the assumptions will change the estimate of fair value. The

potential impact of using reasonably possible alternative assumptions for the valuation techniques for both

observable and unobservable market data has been quantified as approximately $182 million downside and $181

million upside (2016: $263 million downside and $190 million upside). The main contributors to this impact are

Equity Markets, Credit Trading, Interest Rate Derivatives and other cross-asset businesses.

Further information regarding valuation uncertainty and the methodology used to derive the impact across each

product is contained in Note 15 of the Company’s financial statements for the year ended 31 December 2016.

The following tables present the valuation techniques covering the majority of Level 3 inventory and the most

significant unobservable inputs used in Level 3 fair value measurements as of 30 June 2016 and 31 December 2016.

Note that this tab le represents key drivers by disclosures line and may not agree back to the Changes in Level 3

Fair Value Category table.

2017

Fair Value

$ million Methodology Input Low High Unit

Assets

Equities 22 Price-based Price 0.0 232.0 $

Commodity derivatives (124) Model-based Forward Price 0.3 303.8 %

Credit derivatives 41 Model-based Credit Spread 0.0 688.5 bps

Credit derivatives 98 Price-based Price 0.0 239.4 $

Credit derivatives 157 Price-based Upfront Points 0.2 141.4 %

Equity derivatives 1,475 Model-based Equity Volatility 3.0 86.2 %

Equity derivatives 967 Model-based Forward Price 4.3 134.5 %

Equity derivatives 47 Model-based Price 0.0 3,925.1 $

Equity derivatives 17 Price-based Price 0.0 595.5 $

Interest rate derivatives 109 Model-based Credit Spread 158.9 3,914.6 bps

Interest rate derivatives 333 Model-based IR Normal Volatility 0.1 80.1 %

Eurobonds 50 Price-based Price 0.0 595.5 $

Liabilities

Commodity derivatives 148 Model-based Forward Price 28.6 303.8 %


Credit derivatives 72 Price-based Price 0.0 239.4 $

Credit derivatives 157 Price-based Upfront Points 0.2 141.4 %

Equity derivatives 1,880 Model-based Equity Volatility 3.0 86.2 %

Equity derivatives 1,802 Model-based Forward Price 4.3 134.5 %

Equity derivatives 46 Model-based Price 0.0 3,925.1 $

Interest rate derivatives 109 Model-based Credit Spread 158.9 3,914.6 bps

Interest rate derivatives 311 Model-based IR Normal Volatility 0.1 80.1 %



17


2016

Fair Value

$ million Methodology Input Low High Unit

Assets

Credit derivatives 363 Model-based Credit Correlation 5.0 95.0 %


Credit derivatives 375 Model-based Recovery Rate 7.0 40.0 %

Equity contracts 864 Model-based Equity Volatility - 97.8 %

Equity contracts 751 Model-based Forward Price 35.7 235.4 %

Equity contracts 359 Model-based Price 0.0 1,495.9 $

Interest rate contracts 102 Model-based Credit Spread 308.3 3,790.7 bps

Interest rate contracts 347 Model-based IR Normal Volatility 0.2 94.0 %

Equity securities 7 Model-based Price - 5,500.0 $

Liabilities

Commodity and other contracts 363 Model-based Credit Correlation 5.0 95.0 %


Credit derivatives 375 Model-based Recovery Rate 7.0 40.0 %

Equity contracts 1,712 Model-based Equity Volatility - 243.5 %

Equity contracts 1,932 Model-based Forward Price 35.7 235.4 %

Equity contracts 145 Model-based Equity-IR Correlation (35.0) 41.0 %

Foreign exchange contracts 102 Model-based Credit Spread 75.1 3,790.7 bps

Interest rate contracts 305 Model-based IR Normal Volatility 0.2 94.0 %

Sensitivity to unobservable inputs and interrelationships between unobservable inputs

The impact of key unobservable inputs on the Level 3 fair value measurements may not be independent of one

another. In addition, the amount and direction of the impact on a fair value measurement for a given change in an

unobservable input depends on the nature of the instrument as well as whether the Company holds the instrument as

an asset or a liability. For certain instruments, the pricing hedging and risk management are sensitive to the

correlation between various inputs rather than on the analysis and aggregation of the individual inputs.

Further information about the sensitivities and interrelationships of the most significant unobservable inputs used by

the Company in Level 3 fair value measurements can be found in Note 15 of the Company’s financial statements

for the year ended 31 December 2016.

8. Subordinated Loans

The subordinated loans form part of the Company’s regulatory capital resources held to meet the capital adequacy

requirements of the PRA and can only be repaid with their consent. The loans, on which interest is payable at

market rates, are due to other group undertakings. The following amounts were included within subordinated loans:

30 June 2017 Currency $ Million Interest rate Maturity Date

Amounts falling due after five years EUR 628 0.796% 22 May 2024

1,140 0.696% 22 May 2024

USD 1,150 3.125% 22 May 2024

2,918

31 December 2016 Currency $ Million Interest rate Maturity Date

Amounts falling due after five years EUR 580 0.812% 22 May 2024

1,055 0.694% 22 May 2024

USD 2,950 2.325% 22 May 2024

4,585



18

8. Subordinated Loans (continued)

On 20 June 2017 CGML repaid $2,950 million of subordinated loan borrowings from Citigroup Financial Products

Inc. On 20 June 2017 the Company drew down $1,150 million of subordinated loan borrowings from Citigroup

Financial Products Inc.

There are no circumstances under which early repayment may be demanded by the lender. There are no provisions

whereby the loans may be converted into capital or any other form of liability.

The terms of subordination of the loans state that payment of any principal or interest amount is conditional upon:

- the Company being in compliance with not less than 120% of its Financial Resources Requirement

immediately after payment; and

- the Company being solvent immediately after payment, defined as being able to pay its other liabilities in

full.

9. Other equity instruments

On 20 June 2017 CGML issued $1,800 million of Additional Tier 1 Notes to Pipestone LLC, another Citi entity.

The notes are perpetual with no fixed redemption date, and are redeemable at the issuer’s option subject to approval

from the PRA. Interest is fixed every 5 years, interest payments are not cumulative and the issuer may cancel any

interest payment at its sole discretion. In the event that CGML’s common equity tier 1 (CET1) ratio falls below

7.0%, the notes will be written down to zero and CGML will issue a fixed number of ordinary shares to the holder

of the notes.

10. Financial instruments and risk management

All aspects of the Company’s financial risk management objectives and policies are consistent with those disclosed

in the financial statements as at and for the year ended 31 December 2016.

11. Group structure

The Company’s immediate parent undertaking is Citigroup Global Markets Holdings Bahamas Limited

(CGMHBL), a company registered at Ocean Centre, Montagu Foreshore, East Bay Street, and P.O. Box N3247,

Nassau Bahamas. It was transferred from its previous parent, CGMEL, on a going concern basis during 2015. The

Company’s ultimate parent company and ultimate controlling party is Citigroup Inc., registered at 1209 Orange

Street, Wilmington, DE 19801United States of America.

The audited consolidated financial statements of Citigroup Inc. are made available to the public annually in

accordance with Securities and Exchange Commission regulations and may be obtained from

http://www.citigroup.com/citi/investor/overview.html

12. Post Balance Sheet Event

In July 2017 the Board of Directors declared a dividend of $376 million. Approval has been sought from the PRA.

http://www.citigroup.com/citi/investor/overview.html



19

13. Segmental reporting

The Company is Citi’s international broker dealer and management reviews its performance by geography, in the

same way as Citigroup Inc. reports its performance.

Citi is organised into four regions, Asia, EMEA, Latin America and North America.

Revenue by Region $ Million $ Million $ Million $ Million $ Million $ Million $ Million

30 June 2017 149 1,325 20 16 1,510 265 1,775

30 June 2016 128 884 32 31 1,075 348 1,423

Increase (decrease)

compared to prior period21 441 (12) (15) 435 (83) 352

Total

Regional

Other /

Corp *TotalAsia EMEA

Latin

America

North

America

* Other / Corporate items relate to certain transfer pricing revenues and expenses. These form part of intercompany

pricing arrangements between affiliated Citi entities, to ensure that entities are appropriately compensated for the

use of their resources.

CITIGROUP GLOBAL MARKETS LIMITED - RNS Submit · CITIGROUP GLOBAL MARKETS LIMITED These condensed...

Documents

Transcript of CITIGROUP GLOBAL MARKETS LIMITED - RNS Submit · CITIGROUP GLOBAL MARKETS LIMITED These condensed...