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Citigroup Inc.: accounting for loan loss reserve

Author: Cohen, Jack ; Hawkins, DavidINSEAD Area: Accounting and ControlPublisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 18 p.Type of document: INSEAD CaseNote: Latest version available via https://publishing.insead.eduAbstract: The case was written as a result of a BusinessWeek article, "How banks pretty up their profits picture". It address Citigroup and the earnings per share it reported to The Street in 2004 which were exceeded expectations by a penny. This was after reversing 15 cents of the loan loss reserve accrual. The case discuss whether the reversal/release of accrual is capturing economic reality or is a result of management incentive to bias the financials reported. The case also provides information about market conditions on histrorical defaults in the consumer and corporate sectors.Pedagogical Objectives: Highlight the financials statements of Citigroup, the largest financial institution. Teach students the accounting of loan loss reserves from the setting up of the reserve, to writing it down, as well as its release/reversal. The case leads to discussions on whether the financials of the company are capturing the economic reality of the risk in the loan portfolio on Citigroup's balance sheet or whether the company was reversing the reserve for reasons of biasing the financials to meet Wall Street earnings expectations.
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Latest version available via <a href=https://publishing.insead.edu>https://publishing.insead.edu</a>

Highlight the financials statements of Citigroup, the largest financial institution. Teach students the accounting of loan loss reserves from the setting up of the reserve, to writing it down, as well as its release/reversal. The case leads to discussions on whether the financials of the company are capturing the economic reality of the risk in the loan portfolio on Citigroup's balance sheet or whether the company was reversing the reserve for reasons of biasing the financials to meet Wall Street earnings expectations.

The case was written as a result of a BusinessWeek article, "How banks pretty up their profits picture". It address Citigroup and the earnings per share it reported to The Street in 2004 which were exceeded expectations by a penny. This was after reversing 15 cents of the loan loss reserve accrual. The case discuss whether the reversal/release of accrual is capturing economic reality or is a result of management incentive to bias the financials reported. The case also provides information about market conditions on histrorical defaults in the consumer and corporate sectors.

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