Latin America also includes the Latin America Retirement Services operations formerly reported in Asset Management. In addition to North America, Commercial Business consists of the suite of products and services offered to small- and middle-market businesses in the international regions.

        During the 2005 third quarter, Citigroup announced a senior management realignment in its Global Consumer Group. This realignment will be organized along customer lines that will recognize the different opportunities in the North American and International retail consumer marketplaces. Ajay Banga, currently President of Retail Banking North America, and Steven J. Freiberg, currently Chairman and Chief Executive Officer of Citi Cards, will become co-heads of the Global Consumer Group, with Mr. Banga leading the International operations and Mr. Freiberg leading the North American business (U.S. and Canada). This reorganization was done with the view that it will enable the Company to better focus on customers' needs in an integrated fashion across all product lines and more effectively respond to the specific opportunities in markets at different stages of development. The presentation of the Company's 2005 fourth quarter disclosures will reflect this organizational and product structure.

CORPORATE AND INVESTMENT BANKING

Corporate and Investment Banking (CIB) provides corporations, governments, institutions and investors in approximately 100 countries with a broad range of financial products and services. CIB includesCapital Markets and Banking,Transaction Services and Other Corporate.

Capital Markets and Banking offers a wide array of investment banking and commercial banking services and products, including the underwriting and distribution of fixed income and equity securities for U.S. and multinational corporations and for state, local and other governmental and government-sponsored authorities. In addition,Capital Markets and Banking also provides capital raising, advisory, research and other brokerage services to its customers, acts as a market-maker and executes securities and commodities futures brokerage transactions on all major U.S. and international exchanges on behalf of customers and for its own account.Capital Markets and Banking is a major participant in foreign exchange markets and in the over-the-counter (OTC) market for derivative instruments involving a wide range of products, including interest rate, equity and currency swaps, caps and floors, options, warrants and other derivative products. It creates and sells various types of structured securities, as well as provides traditional bank lending products to its clientele.

Transaction Services is comprised of Cash Management, Trade Services and Global Securities Services (GSS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. GSS provides custody and fund services to investors such as insurance companies and pension funds, clearing services to intermediaries such as broker/dealers and depository and agency/trust services to multinational corporations and governments globally.

GLOBAL WEALTH MANAGEMENT

Global Wealth Management is comprised ofSmith Barney Private Client, Citigroup Investment Research, and the CitigroupPrivate Bank. Through itsSmith Barney network of Financial Consultants and Private Bank offices, Global Wealth Management is one of the leading providers of wealth management services to high-net-worth and affluent clients in the world.

Smith Barney provides investment advice, financial planning and brokerage services to affluent individuals, small and mid-size companies, non-profits and large corporations through a network of more than 12,000 Financial Consultants in more than 500 offices primarily in the U.S. In addition,Smith Barney provides independent client-focused research to individuals and institutions around the world.

        A significant portion ofSmith Barney's revenue is generated from fees earned by managing client assets, as well as commissions earned as a broker for its clients in the purchase and sale of securities. Additionally,Smith Barney generates net interest revenue by financing customers' securities transactions and other borrowing needs through security-based lending.Smith Barney also receives commissions and other sales and service revenues through the sale of third-party mutual funds. As part ofSmith Barney, Citigroup Investment Research produces equity research to serve both institutional and individual investor clients. The majority of expenses for Citigroup Investment Research are allocated to the Global Equities business within CIB andSmith Barney businesses.

Private Bank provides personalized wealth management services for high-net-worth clients through offices in 31 countries and territories. With a global network of Private Bankers and Product Specialists,Private Bank leverages its experience with clients' needs and its access to Citigroup to provide clients with comprehensive investment management, investment finance and banking services. Investment management services include investment funds management and capital markets solutions, as well as trust, fiduciary and custody services. Investment finance provides standard and tailored credit services including real estate financing, commitments and letters of credit, while Banking includes services for deposit, checking and savings accounts, as well as cash management and other traditional banking services.

ALTERNATIVE INVESTMENTS

Alternative Investments' products and services are provided through Citigroup Alternative Investments (CAI). CAI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures. CAI manages capital on behalf of Citigroup, as well as third-party institutional and high-net-worth investors. CAI's business model is to enable its 12 investment centers to retain entrepreneurial qualities required to capitalize on evolving opportunities, while benefiting from the intellectual, operational and financial resources of Citigroup. Citigroup's proprietary portfolio also includes shares in public companies (the St. Paul Travelers Companies Inc. (St. Paul) and MetLife, Inc.) acquired as part of the disposition of certain Citigroup businesses.

CORPORATE/OTHER

Corporate/Other includes net treasury results not reported in the other segments' results, corporate expenses, certain intersegment eliminations, the results of certain discontinued operations, and taxes not allocated to the individual businesses.

CITIGROUP INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSISSUMMARY OF SELECTED FINANCIAL CONDITION
AND RESULTS OF OPERATIONSDATA

Financial Summary

(1)

Revenues, net of interest expense, and benefits, claims, and credit losses in the table above are disclosed on an owned basis (under Generally Accepted Accounting Principles (GAAP)). Citigroup discloses certain revenues, net of interest expense, credit losses and receivables for its Cards business on a managed basis. These managed basis disclosures gross-up revenues and credit losses by the same amount to reflect credit losses that would be recorded if the receivables were not securitized. This managed basis reporting does not reverse out the gain that the Company recognizes on the securitization transaction and does not reinstate the net interest revenue that would have been accrued had the loans not been securitized. Under this managed basis reporting, revenues, net of interest expense, and benefits, claims, and credit losses would each have been increased by $1.267 billion and $1.250 billion in the 2005 and 2004 third quarters, respectively, and by $3.749 billion and $3.865 billionDiscontinued operations for the respective nine-month periods. Although a managed basis presentation is not in conformity with GAAP, management believes it provides a representation of performancethree months ended March 31, 2006 and key indicators of the credit card business that is consistent with the way management reviews operating performance and allocates resources. Furthermore, investors utilize information about the credit quality of the entire managed portfolio as the results of both the held and securitized portfolios impact the overall performance of theCards business. See the discussion of theCards business on page 22.

(2)

Discontinued Operations includes the operations described in the Company's January 31, 2005 announced agreement for the sale of Citigroup's Travelers Life & Annuity, substantially all of Citigroup's international insurance business and Citigroup's Argentine pension business to MetLife, Inc. The transaction closed during the 2005 third quarter and resulted in a $3.4 billion ($2.1 billion after-tax) gain. See Note 4 to the Consolidated Financial Statements.

(3)

Discontinued Operations includes the operations described in the Company's June 24, 2005 announced agreement for the sale of substantially all of Citigroup'sits Asset Management Businessbusiness to Legg Mason,Mason. The majority of the transaction closed on December 1, 2005. Discontinued operations also includes the operations described in the Company's January 31, 2005 announced agreement for the sale of its Travelers Life & Annuity business, substantially all of its international insurance business, and its Argentine pension business to MetLife, Inc. TheThis transaction is subject to certain domestic and international regulatory approvals, as well as other customary conditions to closing, and is expected to close during the 2005 fourth quarter.closed on July 1, 2005. See further discussion regarding discontinued operations in Note 43 to the Consolidated Financial Statements.Statements on page 83.

(4)(2)

The return on average common stockholders' equity isand return on average total stockholders' equity are calculated using annualized net income after deducting preferred stock dividends.

(5)(3)

Risk capital is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period. Return on risk capital is calculated as annualized net income from continuing operations divided by average risk capital. The segment and product returns are based on net income. Invested capital is defined as risk capital plus Goodwillgoodwill and Intangibleintangible assets excluding Mortgage Servicing Rights,mortgage servicing rights, which are a component of risk capital. Return on invested capital is calculated using annualized income adjusted to exclude a net internal charge Citigroup levies on the goodwill and intangible assets of each business offset by each business'sbusiness' share of the rebate of the goodwill and intangible asset charge. Return on risk capital and return on invested capital are non-GAAP performance measures. Management uses return on risk capital to assess businesses' operatingoperational performance and to allocate Citigroup's balance sheet and risk taking capacity.determine allocation of capital. Return on invested capital is used to assess returns on potential acquisitions and divestitures and to compare long-term performance of businesses with differing proportions of organic and acquired growth. For a further discussion on risk capital, see page 42.45.

NM(4)

Not meaningfulTier 1 capital divided by adjusted average assets.

(5)

Dividends declared per common share as a percentage of net income per diluted share.

Business FocusMANAGEMENT'S DISCUSSION
AND ANALYSIS

        The following tables show the net income (loss) for Citigroup's businesses both on a product view and on a regional view:

Citigroup Net Income—Product View

(1)

Reclassified to conform to the current period's presentation.

(2)

The 2004 second quarter includes a $756 million after-tax gain ($378 million in Consumer Other and $378 million in CIB Other) related to the sale of Samba.

(3)

The 2004 second quarter includes a $4.95 billion after-tax charge related to the WorldCom and Litigation Reserve Charge.

(4)

See Footnotes (2) and (3) to the table on page 6.

NM

Not meaningful

Citigroup Net Income—Regional View

(1)

Reclassified to conform to the current period's presentation.

(2)

Excludes Alternative Investments and Corporate/Other which are predominately related to North America.

(3)

The 2004 second quarter includes a $4.95 billion after-tax charge related to the WorldCom and Litigation Reserve Charge.

(4)

The 2004 second quarter includes a $756 million after-tax gain ($378 million in Consumer Other and $378 million in CIB Other) related to the sale of Samba.

(5)

See Footnotes (2) and (3) to the table on page 6.

NM

Not meaningful

Management SummaryMANAGEMENT SUMMARY

        Net income for the 2005 third quarter was $7.143 billion or $1.38 per diluted share, both of which were up 35% from 2004, and included the gain ($2.120 billion after-tax) on the sale of the Life Insurance and Annuities Business, which was completed during the quarter.        Income from continuing operations was $4.988of $5.555 billion or $0.97 per diluted share in the 2005 third quarter.

        During2006 first quarter was a record, up 9% from the 2005 third quarter, Citigroup continued to demonstratefirst quarter. The strength of the benefits of our diverse business platform, as strengthCompany's international operations (47% increase in our corporate and capital markets businessesearnings) more than offset certain weaknessesweaker results in our U.S. consumerConsumer businesses. The Company

        Results in the 2006 first quarter included $846 million of compensation expense ($520 million after-tax) related to stock grants to retirement-eligible employees required under SFAS 123(R), and a $657 million tax benefit from the resolution of a U.S. Federal tax audit for the years 1999 through 2002.

        During the 2006 first quarter, we continued executing on our strategic initiatives, adding a record 238 new branches globally and significantly growing our international franchise. Average loans increased 9%, average deposits grew by 10% and average interest-earning assets were up 11% from year-ago levels.

        Income was well diversified by segment and region, as shown in the charts below.

        Net interest revenue was down 4%, while other revenue increased 12%, continuing to benefit from volume increases across the prior year,businesses. Net interest margin in the 2006 first quarter was 2.86%, down 44 basis points from the 2005 first quarter andTransaction Services revenues down 6 basis points from the 2005 fourth quarter. (See discussion of net interest margin on page 61.)

        Operating expenses increased 19%17% from the 2005 first quarter; this was comprised of 7% from SFAS 123(R) charges, 9% from organic business growth and acquisitions, and 1% due to record levels.investment spending.

Smith Barney had 13% revenue growth year-over-year.

        The 2005 third quarter results includedglobal credit environment remained favorable; this, as well as significantly lower bankruptcy filings and an asset mix shift, drove a number of unusual charges and benefits. We had a year-over-year increase$367 million decrease in credit costs of more than $1.6 billion. The negative impact of Hurricane Katrina, the accelerated pace of bankruptcies priorcompared to the effective date of the change in the U.S. bankruptcy law, the compression of interest rate spreads and the higher payment rates in our North American Cards business all negatively impacted the quarter's results.

        Despite the increase in credit costs, the underlying credit environment was relatively stable in the quarter.a year ago. Global Consumer loss rates improved to 1.46%, a 36 basis point decline from the 2005 fourth quarter, in the quarter increased to 3.44% on a managed basis, excluding commercial business, primarilypart reflecting the standardization of the EMEA loan write-off policy.significantly lower bankruptcy filings. Corporate cash-basis loans declined 24%18% from June 30,December 31, 2005 to $1.2 billion.$821 million.

        The effective tax rate on continuing operations decreased to 21.5%, primarily reflecting the impact of the resolution of the U.S. Federal tax audit. The effective tax rate for the 2006 first quarter would have been 29.9% without the tax reserve release of $598 million.

        Our franchises continuedequity capital base and trust preferred securities grew to expand. We made progress in extending our global distribution network and strengthening our product capabilities. In the 2005 third quarter, we added 108 retail banking and consumer finance branches globally and 66 automated loan machines (ALMs) in Japan. Over the last 12 months, we have added 549 branches globally and 235 ALMs in Japan. We are continuing to work at expanding our distribution, especially in the fast-growing International Consumer market, where we see very attractive long-term growth rates.

        The Company's equity was $112$120.6 billion at September 30, 2005. DuringMarch 31, 2006. Stockholders' equity increased by $1.9 billion during the quarter we paid out $2.3to $114.4 billion, even with the distribution of $2.5 billion in dividends to our common shareholders (an increaseand the repurchase of 10% from the year-ago quarter), repurchased $5.5$2.0 billion of common stock (124 million shares), andduring the quarter. Return on common equity was 20.3% for the quarter.

        Citigroup maintained aits "well-capitalized" position with a Tier 1 Capital Ratio of 9.12%8.60% at March 31, 2006. On April 13, 2006, the endBoard authorized the repurchase of up to an additional $10 billion of our common stock, bringing the quarter. The Company reported a return on common equity of 25.4% and a return on risk capital of 37%. We believe that repurchasing our stock is a good use of capital and anticipate continuingtotal authorization to repurchase our stock in the near-term while maintaining our strong capital position.$12.4 billion.

        The CompanyOn April 3, 2006, we received a letter from the Federal Reserve Bank of New York noting that "Citigroup has made significant progress in implementing its new compliance risk management program. Consequently, the understanding that you would refrain from significant expansion is no longer in operation." We remain focused on organic growth. Any expansion proposals will be reviewed with the implementationFederal Reserve in accordance with all applicable statutory requirements.

        On March 21, 2006, the Citigroup Board of its Five Point Plan. The Five Point Plan strengthens a foundationDirectors unanimously elected Chief Executive Officer Charles Prince to the additional post of values, priorities and internal controls that are essential for sustained long-term growth.

        During the 2005 third quarter, we announced a senior management realignment in our Global Consumer Group. This realignment will be organized along customer lines with a goal to recognizing the different opportunities in the North American and International retail consumer marketplaces. The presentation of the Company's 2005 fourth quarter disclosures will reflect this organizational and product structure.

        Certain of the above statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 68.Chairman.

EVENTS IN 20052006 and 20042005

Adoption of the Accounting for Share-Based Payments

        CertainOn January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which replaces the existing SFAS 123 and supersedes APB 25. SFAS 123(R) requires companies to measure and record compensation expense for stock options and other share-based payments based on the instruments' fair value, reduced by expected forfeitures.

        In adopting this standard, the Company conformed to recent accounting guidance that restricted stock awards issued to retirement-eligible employees who meet certain age and service requirements must be either expensed on the grant date or accrued over a service period prior to the grant date. The impact to the 2006 first quarter results was a charge of $846 million ($520 million after-tax). This charge consisted of $648 million ($398 million after-tax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006, and $198 million ($122 million after-tax) for the quarterly accrual of the statements below are forward-looking statements withinestimated awards that will be granted through January 2007. Additional information can be found in Notes 1 and 14 to the meaningConsolidated Financial Statements on pages 81 and 96, respectively. The Company will continue to accrue for the estimated awards that will be granted through January 2007 in each quarter of 2006.

Settlement of IRS Tax Audit

        In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002. For the first quarter of 2006, the Company released a total of $657 million from its tax contingency reserves related to the 1999 through 2002 Federal tax audit (referred to hereinafter as the "resolution of the Private Securities Litigation Reform Act. See "Forward-Looking Statements"Federal Tax Audit.")

Summary by Business of SFAS 123(R) and Resolution of the Federal Tax Audit

        The following table summarizes the SFAS 123(R) impact on page 68.2006 first quarter pretax compensation expense and the tax benefit from the resolution of the Federal Tax Audit:

(1)

Represents the 2006 first quarter accrual for estimated awards to be granted through January 2007.

Sale of Asset Management Business

        On June 24,December 1, 2005, the Company announced that it had signed a definitive agreement under which Citigroup will sellcompleted the sale of substantially all of its Asset Management Business in exchange for the broker-dealer business ofto Legg Mason, Inc. (Legg Mason), approximately $1.5 in exchange for Legg Mason's broker-dealer business, $2.298 billion of Legg Mason's common and preferred shares (valued as of the announcementclosing date), and approximately $550$500 million in the form ofcash. This cash was obtained via a five-year loanlending facility provided by Citigroup Corporate and Investment Banking.CIB. The transaction doesdid not include Citigroup's asset management business inMexico, its retirement services business inLatin America (both of which are now included inInternational Retail Banking) or

its interest in the CitiStreet joint venture (which is now included inSmith Barney). The total value of thisthe transaction at the time of the announcementclosing was approximately $3.7$4.369 billion, resulting in an after-tax gain to Citigroup upon closing of approximately $1.6 billion. The actual$2.082 billion ($3.404 billion pretax). This gain is contingent upon Legg Mason's stock price as of theremains subject to final closing date, as well as other closing adjustments. Using the high and the low stock prices since the announcement date, the approximate after-tax gain has fluctuated from $1.6 billion to $2.3 billion, ending at $2.1 billion as of September 30, 2005.

        As part of this transaction,Concurrently, Citigroup also announced in the 2005 third quarter the concurrent sale ofsold Legg Mason's Capital Markets business to Stifel Financial Corp. The business being sold consists of areas in which Citigroup already has full capabilities, including investment banking, institutional equity sales and trading, taxable fixed income sales and trading, and research. No gain or loss will be recognized from this transaction. (The transactions described in these two paragraphs are referred to herein as the Sale"Sale of the Asset Management Business.")

        Citigroup and Legg Mason have entered into a three year agreement under which Citigroup will continue to offer its clients Asset Management's products, will become the primary retail distributor of the Legg Mason funds managed by Legg Mason Capital Management Inc., and may also distribute other Legg Mason products. These products will be offered primarily through Citigroup's Global Wealth Management businesses,Smith Barney andPrivate Bank, as well as through Primerica and Citibank. The distribution of these products will be subject to applicable requirements of law.

        Upon completion of the Sale of the Asset Management Business, Citigroup expects to add more than 1,300added 1,226 financial advisors in more than 100124 branch offices from Legg Mason's broker-dealer businessMason to its Global Wealth Management business.

        The SaleDuring March 2006, Citigroup sold 10.3 million shares of the Asset Management Business is expected to close during the 2005 fourth quarter and is subject to certain regulatory approvals and customary closing conditions. In connection with the transaction, Citigroup is seeking approval of Asset Management's mutual fund boards and shareholders.

        Also included in the sales agreement between Citigroup and Legg Mason are provisions related to transitional services that will be provided forstock through an underwritten public offering. The net sale proceeds of $1.258 billion resulted in a periodpretax gain of 24 to 30 months. These transitional service provisions may be terminated or extended. The costs associated with these provisions are not considered to be significant.$24 million.

        The Asset Management Businesses being sold were the primary vehicles through which Citigroup engagedAdditional information can be found in the asset management business. The businesses generated total revenues of $324 million and $342 million and net income of $66 million and $37 million for the three months ended September 30, 2005 and 2004, respectively. For the nine months ended September 30, 2005 and 2004, Asset Management generated total revenues of $984 million and $1,032 million and net income of $181 million and $161 million, respectively. The businesses had total assets of $1.2 billion at September 30, 2005.

        Results for all of the businesses included in the Sale of the Asset Management Business are reported as Discontinued Operations for all periods presented. The assets and liabilities of the businesses being sold are included in Assets of Discontinued Operations Held for Sale and Liabilities of Discontinued Operations Held for Sale onNote 3 to the Consolidated Balance Sheet.Financial Statements on page 83.

Sale of Travelers Life & Annuity and Substantially All International Insurance Businesses

        On July 1, 2005, the Company completed the sale of Citigroup's Travelers Life & Annuity and substantially all of Citigroup's international insurance businesses to MetLife, Inc. (MetLife). The businesses sold were the primary vehicles through which Citigroup engaged in the Life Insurance and Annuities business.

        Citigroup received $1.0 billion in MetLife equity securities and $10.830 billion in cash, which resulted in an after-tax gain of approximately $2.120 billion.billion ($3.386 billion pretax). This gain remains subject to final closing adjustments.

        The transaction encompassed Travelers Life & Annuity's U.S. businesses and its international operations, other than Citigroup's life insurance business inMexico (which is now included withinInternational Retail Banking). International operations included wholly owned insurance companies in the United Kingdom, Belgium, Australia, Brazil, Argentina, and Poland; joint ventures in Japan and Hong

Kong; and offices in China. The transaction also included Citigroup's Argentine pension business. (The transaction described in the preceding three paragraphs is referred to herein as the Sale"Sale of the Life Insurance and Annuities Business).

        In connection with the Sale of the Life Insurance and Annuities Business, Citigroup and MetLife have entered into ten-year agreements under which Travelers Life & Annuity products will be made available through certain Citigroup distribution channels, subject to appropriate suitability and other standards. In addition, MetLife products will be added to these distribution channels.

        Also included in the sales agreement between Citigroup and MetLife are provisions related to transitional services that will be provided for a period of 24 to 30 months. These transitional service provisions may be terminated or extended. The costs associated with these provisions are not considered to be significant.

        Results for all of the businesses included in the Sale of the Life Insurance and Annuities Business, including the gain that was recorded this quarter, are reported as Discontinued Operations for all periods presented. The unrealized gain on the MetLife securities from July 1, 2005 to September 30, 2005, are included in the Consolidated Statement of Changes in Stockholders' Equity within "Accumulated other changes in equity from nonowner sources" (net change in unrealized gains and losses on investment securities, net of tax).

Change in EMEA Consumer Write-off PolicyBusiness.")

        In the past, certain Western European consumer portfolios were granted an exception to Citigroup's global write-off policy. The exception extended the write-off period from the standard 120-day policy for personal installment loans, and was granted because of the higher recovery rates experiencedAdditional information can be found in these portfolios. Citigroup recently observed lower actual recovery rates, stemming primarily from a change in bankruptcy and wage garnishment laws in Germany, and as a result, conformed the regional charge-off policy to its global standard. The net charge was $490 million resulting from the recording of $1.153 billion of write-offs and a corresponding utilization of $663 million of reserves, in the 2005 third quarter. These write-offs, along with the underlying portfolio performance, caused the 90-day delinquency rate for the Consumer EMEA portfolio to decline to 1.43% at September 30, 2005, compared to 4.43% at June 30, 2005.

        These write-offs did not relate to a change in the portfolio credit quality but rather to a change in environmental factors due to law changes and consumer behavior that led Citigroup to re-evaluate its estimates of future long-term recoveries and their appropriateness to the write-off exception.

        A slight upward movement in net charge-offs may occur in EMEA in the near-term due to the timing of the write-offs, now at 120 days, versus the longer period of time over which recoveries will be realized. The Company is in the process of adjusting its collection strategies in EMEA to reflect the revised write-off time frame.

Impact from Hurricane Katrina

        The Company recorded a $222 million ($357 million pretax) charge for the impact from Hurricane Katrina. This charge includes the Company's initial estimate of probable losses that have been incurred as of September 30, 2005. It consists primarily of additional credit reserve charges inCards,Consumer Finance andRetail Banking businesses, based on total credit exposures of approximately $3.6 billion in the Federal Emergency Management Agency (FEMA) Individual Assistance designated areas. Given the limited access to customers and to properties in the affected areas, estimates have, in many cases, been based upon assumptions which include the identification of customers and properties impacted, type of damage inflicted upon collateral (i.e., flood or wind or both), existence of underlying insurance, and extent of damage. As the Company is able to gain better access to the affected areas and to customers in those areas, the loss estimates will be refined.

        This charge does not include $25 million (pretax) of waived fees and interest from customers during the quarter, which are likely to continue in the 2005 fourth quarter.

United States Bankruptcy Legislation

        Recent changes to the U.S. bankruptcy laws make it more difficult for certain individuals to have their debt canceled. The changes became effective on October 17, 2005. Prior to the law's changing, there was a significant acceleration in customers' bankruptcy filings. For the 2005 third quarter, Citigroup estimates that the incremental bankruptcy filings resulted in approximately $200 million of additional pretax losses, while the 2005 nine-month period includes approximately $400 million in additional pretax losses. Leading up to the October 17, 2005 effective date, the bankruptcy filing rates continued to increase at a significant pace. The adverse effects from these bankruptcy filings after September 30, 2005 until the October 17, 2005 effective date will be reflected in the Company's 2005 fourth quarter financial statements.

Homeland Investment Act Benefit

        The Company's results from continuing operations include a $185 million tax benefit from the Homeland Investment Act provision of the American Jobs Creation Act of 2004, net of the impact of remitting income earned in 2005 and prior years that would otherwise have been indefinitely invested overseas. The amount of dividends that will be repatriated relating to this benefit is approximately $2.8 billion.

Copelco Litigation Settlement

        In 2000, Citigroup purchased Copelco Capital, Inc., a leasing business, from Itochu International Inc. and III Holding Inc. (formerly known as Copelco Financial Services Group, Inc.) (collectively referred to herein as "Itochu") for $666 million. During 2001, Citigroup filed a lawsuit asserting breach of representations and warranties, among other causes of action, under the Stock Purchase Agreement entered into between Citigroup and Itochu in March of 2000. During the 2005 third quarter, Citigroup and Itochu signed a settlement agreement that mutually released all claims, and under which Itochu agreed to pay Citigroup $185 million. The settlement proceeds were received in August.

Mexico Value Added Tax (VAT) Refund

        During the 2005 third quarter, Citigroup Mexico received a $182 million refund of VAT taxes from the Mexican Government related to the 2003 and 2004 tax years as a result of a Mexico Supreme Court ruling. The refund was recorded as a reduction of $140 million (pretax) in other operating expense and $42 million (pretax) in other revenue.

Legal Settlements and Charges for Enron and WorldCom Class Action
Litigations and for Other Regulatory and Legal Matters

        On June 10, 2005, Citigroup announced that it had agreed to a settlement in the Enron class action litigation Newby, et al. v. Enron Corp., et al., currently pending in the United States District Court for the Southern District of Texas, Houston Division. Under the terms of the settlement, Citigroup will make a pretax payment of $2.01 billion to the settlement class, which consists of all purchasers of all publicly traded equity and debt securities issued by Enron and Enron-related entities between September 9, 1997 and December 2, 2001. As noted below, this settlement, which is subject to court approval, is fully covered by Citigroup's existing litigation reserves.

        The Company is a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with:

(i)

underwritings for, and research coverage of, WorldCom;



(ii)

underwritings for Enron and other transactions and activities related to Enron and Dynegy;



(iii)

transactions and activities related to research coverage of companies other than WorldCom; and



(iv)

transactions and activities related to the IPO Securities Litigation.

        During the 2004 second quarter, in connection with the settlement of the WorldCom class action, the Company reevaluated and increased its reserves for these matters. The Company recorded a charge of $7.915 billion ($4.95 billion after-tax) relating to (i) the settlement of class action litigation brought on behalf of purchasers of WorldCom securities, and (ii) an increase in litigation reserves for the other matters described above (WorldCom and Litigation Reserve Charge). Subject to the terms of the WorldCom class action settlement, and its eventual approval by the courts, the Company will make a payment of $2.575 billion, or $1.59 billion after-tax, to the WorldCom settlement class. Subject to the terms of the Enron class action settlement, and its eventual approval by the courts, the Company will make a payment of $2.01 billion (pretax) to the Enron settlement class. As of September 30, 2005, the Company's litigation reserve for these matters, net of the amounts to be paid upon final approval of the WorldCom and Enron class action settlements and other settlements arising out of the matters above not yet paid, was approximately $3.9 billion on a pretax basis.

        The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters. However, in view of the large number of these matters, the uncertainties of the timing and outcome of this type of litigation, the novel issues presented, and the significant amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the reserve. The Company will continue to defend itself vigorously in these cases, and seek to resolve them in the manner management believes is in the best interests of the Company.

        The Company continues to evaluate its reserves on an ongoing basis.

Acquisition of Federated Credit Card Portfolio and Credit Card Agreement With Federated Department Stores

        On June 2, 2005, Citigroup announced that it had agreed to enter into a long-term agreement with Federated Department Stores, Inc. under which the companies will partner to manage Federated's credit card business, including existing and new accounts.

        Under the agreement, Citigroup will acquire Federated's approximately $4.5 billion credit card receivables portfolio in two phases. For the first phase, which closed on October 24, 2005, Citigroup initially acquired Federated's receivables under management, totaling approximately $3.3 billion. For the second phase, additional Federated receivables, which total approximately $1.2 billion, are expected to be transferred to Citigroup in the 2006 second quarter from the current provider. In addition, Citigroup is expected to acquire, in the 2006 third quarter, the approximately $1.8 billion credit card receivables portfolio of The May Department Stores Company which recently merged with Federated.

        Citigroup is paying a premium of approximately 11.5% to acquire each of the portfolios. The multi-year agreement also provides Federated the ability to participate in the portfolio based on credit sales and certain other performance metrics of the portfolio after the receivable sale is completed.

        The Federated and May credit card portfolios comprise a total of approximately 17 million active accounts. The transaction is expected to be accretive to Citigroup earnings in the first year.

Settlement of the Securities and Exchange Commission's Transfer Agent Investigation

        On May 31, 2005, the Company completed the settlement with the Securities and Exchange Commission, disclosed by Citigroup in January 2005, resolving an investigation by the SEC into matters relating to arrangements between certainSmith Barney mutual funds (the Funds), an affiliated transfer agent, and an unaffiliated sub-transfer agent.

        Under the terms of the settlement, Citigroup paid a total of $208.1 million (pretax), consisting of $128 million in disgorgement and $80 million in penalties. These funds, less $24 million already credited to the Funds, have been paid to the U.S. Treasury and will be distributed pursuant to a distribution plan to be prepared by Citigroup and approved by the SEC. The terms of the settlement had been fully reserved by Citigroup in prior periods.

Resolution of the 2004 Eurozone Bond Trade

        As announced on June 28, 2005, Citigroup paid $7.29 million to the U.K. Financial Services Authority (FSA) during the 2005 third quarter relating to trading activity in the European government bond and bond derivative markets on August 2, 2004. As further agreed, the Company also relinquished to the FSA approximately $18.2 million in profits generated by the trade. In Italy, Citigroup was suspended from trading on the MTS domestic electronic bond trading platform for one month beginning November 1, 2005.

Merger of Bank Holding Companies

        On August 1, 2005, Citigroup merged its two intermediate bank holding companies, Citigroup Holdings Company and Citicorp, into Citigroup Inc. Coinciding with this merger, Citigroup assumed all existing indebtedness and outstanding guarantees of Citicorp.

        During the 2005 second quarter, Citigroup also consolidated its capital markets funding activities into two legal entities: (i) Citigroup Inc., which issues long-term debt, trust preferred securities, and preferred and common stock, and (ii) Citigroup Funding Inc. (CFI), a newly formed, fully guaranteed, first-tier subsidiary of Citigroup, which issues commercial paper and medium-term notes.

        As part of the funding consolidation, Citigroup unconditionally guaranteed Citigroup Global Markets Holdings Inc.'s (CGMHI) outstanding SEC-registered indebtedness. CGMHI no longer files periodic reports with the SEC and continues to be rated on the basis of a guarantee of its financial obligations from Citigroup.

        This legal vehicle simplification is expected to result in more efficient management of capital and liquidity, unified access to the capital markets and a reduction in the number of the Company's credit-rated entities.

        See "Capital Resources and Liquidity" section beginning on page 56 and Note 173 to the Consolidated Financial Statements for further discussion.on page 83.

Credit Reserves

        During the 2005 thirdfirst quarter of 2006, the Company recorded a net release/utilization toof its credit reserves of $178$154 million, consisting of a net release/utilization of $342$187 million in Global Consumer and Global Wealth Management, and a net build of $164$33 million in CIB.

        The net release/utilization in Global Consumer includedwas primarily due to the overall improvement in the consumer portfolio. Partially offsetting the releases was a utilizationbuild of $100 million in EMEA of $663 million,Asia related to write-offs of $1.153 billionrecent credit trends in loans, and an unallocated reserveTaiwan credit cards.

        The net build of $260$33 million for credit concerns regarding Hurricane Katrina. The EMEA utilization and corresponding write-offs were the results of the standardization of the loan write-off policy in certain Western European consumer portfolios. The net build in CIB was primarily comprisedcomposed of an unallocated build of $143$29 million inCapital Markets and Banking, which included a $100$46 million reserve increase for unfunded lending commitments and letters of credit, and an unallocated build of $7 million inTransaction Services.credit.

        During the 2004 third2005 first quarter, the Company recorded a net release/utilization of $885$89 million to its credit reserves, consisting of a net release/utilization of $504$56 million in Global Consumer and a net release/utilization of $381$33 million in CIB.