Federal Deposit
Insurance Corporation

2009 Annual Report

IV. Financial Statements and Notes

Deposit Insurance Fund (DIF) - Cont.

5. Trust Preferred Securities

On January 15, 2009, subject to a systemic risk determination, the Treasury, the FDIC and the Federal Reserve Bank of New York executed terms of a guarantee agreement with Citigroup to provide protection against the possibility of unusually large losses on an asset pool of approximately $301.0 billion of loans and securities backed by residential and commercial real estate and other such assets that would remain on the balance sheet of Citigroup. The term of the loss-share guarantee was 10 years for residential assets and 5 years for non-residential assets. The FDIC exposure from this guarantee was capped at $10 billion.

In consideration for its portion of the loss-share guarantee at inception, the FDIC received 3,025 shares of Citigroup's designated cumulative perpetual preferred stock (Series G) with a liquidation preference at the time of $1,000,000 per share for a total of $3.025 billion paying dividends at a rate of 8 percent annually. On July 30, 2009, all shares of preferred stock initially received were exchanged for 3,025,000 of Citigroup Capital XXXIII trust preferred securities (TruPs) with a liquidation amount of $1,000 per security. The principal amount is due in 2039. The equivalent exchange of $3.025 billion pays a quarterly distribution at a rate of 8 percent annually. The Treasury initially received $4.034 billion in preferred stock for its loss-share protection and received an equivalent, aggregate amount of $4.034 billion in trust preferred securities at the time of the exchange for TruPs.

On December 23, 2009, Citigroup terminated the loss-sharing agreement citing improvements in its financial condition and in financial market stability. The FDIC incurred no loss from the guarantee prior to termination of the agreement. In connection with the early termination of the guarantee program, the Treasury and the FDIC agreed that Citigroup would reduce the combined $7.1 billion liquidation amount of the TruPs by $1.8 billion. Pursuant to an agreement between the Treasury and the FDIC, TruPs held by the Treasury were reduced by $1.8 billion and the FDIC initially retained all TruPs holdings of $3.025 billion. The FDIC will transfer an aggregate liquidation amount of $800 million in TruPs to the Treasury, plus any related interest, less any payments made or required to be made by the FDIC for guaranteed debt instruments issued by Citigroup or any of its affiliates under the Temporary Liquidity Guarantee Program (TLGP; see Note 16). This transfer will occur within 5 days of the date on which no Citigroup debt remains outstanding under the TLGP. The fair value of the TruPs and related interest are recorded as systemic risk assets described in Note 16.

The remaining $2.225 billion (par value) of TruPs held by the FDIC are classified as available-for-sale debt securities in accordance with FASB ASC Topic 320, Investments—Debt and Equity Securities. Upon termination of the guarantee agreement, the DIF recognized revenue of $1.962 billion for the fair value of the TruPs. (See Note 10, Other Revenue and Note 15, Disclosures About the Fair Value of Financial Instruments).

6. Property and Equipment, Net

The depreciation expense was $70 million and $55 million for 2009 and 2008, respectively.

7. Liabilities Due to Resolutions

As of December 31, 2009, the DIF recorded liabilities totaling $34.7 billion to resolution entities representing the agreed-upon value of assets transferred from the receiverships, at the time of failure, to the acquirers/bridge institutions for use in funding the deposits assumed by the acquirers/bridge institutions. Ninety-seven percent of these liabilities are due to failures resolved under a whole bank purchase and assumption transaction, most with an accompanying loss-share agreement. The DIF satisfies these liabilities either by directly sending cash to the receiverships to fund loss-share and other expenses or by offsetting receivables from resolutions when a receivership declares a dividend. Inherent in these liabilities are $470 million in unreimbursed deposit claims subrogated by the DIF on behalf of the Temporary Liquidity Guarantee Program (see Note 16).

In addition, there were $150 million in unpaid brokered deposit claims related to multiple receiverships. The DIF pays these liabilities when the claims are approved.