What’s this? An own credit oversight up at Citi?
From the bank’s fourth-quarter 2009 earnings statement:
[Securities & Banking] revenues declined to $3.5 billion from $4.9 billion in the prior quarter. Fourth quarter S&B revenues included a negative CVA of $1.9 billion, of which $840 million pre-tax ($518 million after-tax) represented the cumulative impact of a correction of an error in calculating the CVA on the company’s fair value option debt in prior periods. Excluding the impact of CVA, revenues were $5.4 billion compared to $6.6 billion in the prior quarter. The $1.2 billion sequential decline in revenues excluding CVA was primarily driven by lower revenues in fixed income and equity markets reflecting lower market volatility and a decline in market volumes.
CVAs, for those who can remember, are credit value adjustments — essentially writedowns or writeups that banks and companies take on the fair value of their own debt. And they’re impressively counter-cyclical; when the value of banks’ debt goes up, the CVA results in a writedown, and vice versa.
And it looks like Citi’s made a bit of a mess of it.
(H/T reader Sredni Vastar)
Related links:
Profiting from your own crummy creditworthiness, redux – FT Alphaville
CVAs or `the magic of your own credit on profits’ – Holding to Account
A Citi-fied catch-22 – FT Alphaville
Own credit conundrum at the IASB – FT Alphaville