SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 52-1568099 (I.R.S. Employer Identification No.) | |
399 Park Avenue, New York, New York (Address of principal executive offices) | 10043 (Zip Code) | |
(212) 559-1000 (Registrant's telephone number, including area code) |
399 Park Avenue, New York, New York 10043(Address of principal executive offices) (Zip Code)
(212) 559-1000(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of September 30, 2006: 4,913,666,8262007: 4,981,134,274
Available on the Web at www.citigroup.com
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Item 1. | Financial Statements: | |||
Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended September 30, | ||||
Consolidated Balance Sheet—September 30, | ||||
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—Nine Months Ended September 30, | ||||
Consolidated Statement of Cash Flows (Unaudited)—Nine Months Ended September 30, | ||||
Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries September 30, | ||||
Notes to Consolidated Financial Statements (Unaudited) | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Summary of Selected Financial Data | 4 | |||
Third Quarter of 2007 Management Summary | 5 | |||
Events in 2007 and 2006 | 6 | |||
Segment, Product and Regional Net Income and Net Revenues | 10 - 13 | |||
Risk Management | 31 | |||
Interest Revenue/Expense and Yields | 33 | |||
Capital Resources and Liquidity | 41 | |||
Off-Balance Sheet Arrangements | 45 | |||
Forward-Looking Statements | 48 | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
75 - 77 | ||||
Item 4. | Controls and Procedures | |||
Part II—Other Information | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 6. | Exhibits | |||
Signatures | ||||
Exhibit Index |
Citigroup Inc. (Citigroup orand, together with its subsidiaries, the Company) is a diversified global financial services holding company whosecompany. Our businesses provide a broad range of financial services to consumer and corporate clients.customers. Citigroup has somemore than 200 million clientcustomer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.
The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal, state and stateforeign authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 20052006 Annual Report on Form 10-K.10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2007 and June 30, 2007. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 15, 2007.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043,10043. The telephone number 212-559-1000.is 212 559 1000. Additional information about Citigroup is available on the Company's Web site atwww.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports are available free of charge through the Company's Webweb site by clicking on the "Investor Relations" page and selecting "SEC Filings." The Securities and Exchange Commission (SEC) WebSEC's web site contains reports, proxy and information statements, and other information regarding the Company atwww.sec.gov.
Citigroup iswas managed along the following segment and product lines:lines through the third quarter of 2007:
The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.
CITIGROUP INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % Change | % Change | |||||||||||||||
In millions of dollars, except per share amounts | 2006 | 2005(1) | 2006(1) | 2005(1) | |||||||||||||
Net interest revenue | $ | 9,828 | $ | 9,695 | 1 | % | $ | 29,449 | $ | 29,572 | — | ||||||
Non-interest revenue | 11,594 | 11,803 | (2 | ) | 36,338 | 33,291 | 9 | % | |||||||||
Revenues, net of interest expense | $ | 21,422 | $ | 21,498 | — | $ | 65,787 | $ | 62,863 | 5 | % | ||||||
Operating expenses | 11,936 | 11,413 | 5 | % | 38,063 | 33,789 | 13 | ||||||||||
Provisions for credit losses and for benefits and claims | 2,117 | 2,840 | (25 | ) | 5,607 | 6,902 | (19 | ) | |||||||||
Income from continuing operations before taxes and minority interest | $ | 7,369 | $ | 7,245 | 2 | % | $ | 22,117 | $ | 22,172 | — | ||||||
Income taxes | 2,020 | 2,164 | (7 | ) | 5,860 | 6,827 | (14 | )% | |||||||||
Minority interest, net of taxes | 46 | 93 | (51 | ) | 137 | 511 | (73 | ) | |||||||||
Income from continuing operations | $ | 5,303 | $ | 4,988 | 6 | % | $ | 16,120 | $ | 14,834 | 9 | % | |||||
Income from discontinued operations, net of taxes(2) | 202 | 2,155 | (91 | ) | 289 | 2,823 | (90 | ) | |||||||||
Net Income | $ | 5,505 | $ | 7,143 | (23 | )% | $ | 16,409 | $ | 17,657 | (7 | )% | |||||
Earnings per share | |||||||||||||||||
Basic earnings per share: | |||||||||||||||||
Income from continuing operations | $ | 1.08 | $ | 0.98 | 10 | % | $ | 3.28 | $ | 2.90 | 13 | % | |||||
Net income | 1.13 | 1.41 | (20 | ) | 3.34 | 3.45 | (3 | ) | |||||||||
Diluted earnings per share: | |||||||||||||||||
Income from continuing operations | 1.06 | 0.97 | 9 | 3.22 | 2.85 | 13 | |||||||||||
Net income | 1.10 | 1.38 | (20 | ) | 3.28 | 3.39 | (3 | ) | |||||||||
Dividends declared per common share | $ | 0.49 | $ | 0.44 | 11 | $ | 1.47 | $ | 1.32 | 11 | |||||||
At September 30, | |||||||||||||||||
Total assets | $ | 1,746,248 | $ | 1,472,793 | 19 | % | |||||||||||
Total deposits | 669,278 | 580,436 | 15 | ||||||||||||||
Long-term debt | 260,089 | 213,894 | 22 | ||||||||||||||
Common stockholders' equity | 116,865 | 110,712 | 6 | ||||||||||||||
Total stockholders' equity | 117,865 | 111,837 | 5 | ||||||||||||||
Ratios: | |||||||||||||||||
Return on common stockholders' equity(3) | 18.9 | % | 25.4 | % | 19.3 | % | 21.4 | % | |||||||||
Return on risk capital(4) | 37 | % | 37 | % | 39 | % | 38 | % | |||||||||
Return on invested capital(4) | 19 | % | 25 | % | 19 | % | 21 | % | |||||||||
Tier 1 capital | 8.64 | % | 9.12 | % | 8.64 | % | 9.12 | % | |||||||||
Total capital | 11.88 | % | 12.37 | % | 11.88 | % | 12.37 | % | |||||||||
Leverage(5) | 5.24 | % | 5.53 | % | 5.24 | % | 5.53 | % | |||||||||
Common stockholders' equity to assets | 6.69 | % | 7.52 | % | |||||||||||||
Total stockholders' equity to assets | 6.75 | % | 7.59 | % | |||||||||||||
Dividends declared ratio(6) | 44.5 | % | 31.9 | % | 44.8 | % | 38.9 | % | |||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 1.49x | 1.74x | 1.54x | 1.84x | |||||||||||||
The Company has revised its financial results for the third quarter of 2007 from the results released in the Company's October 15, 2007 Earnings Release and Current Report on Form 8-K filing. The revision relates to the correction of the valuation on the Company's $43 billion in Asset-Backed Securities Collateralized Debt Obligations (ABS CDOs) super senior exposures (see page 6 and 9 for further detail). The impact of this correction is a $270 million reduction in Principal Transactions Revenue, a $166 million reduction in Net Income and a $0.03 reduction in Diluted Earnings per Share.
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | % Change | % Change | |||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||
Net interest revenue | $ | 12,157 | $ | 9,828 | 24 | % | $ | 34,153 | $ | 29,449 | 16 | % | |||||
Non-interest revenue | 10,236 | 11,594 | (12 | ) | 40,329 | 36,338 | 11 | ||||||||||
Revenues, net of interest expense | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||
Restructuring expense | 35 | — | — | 1,475 | — | — | |||||||||||
Other operating expenses | 14,526 | 11,936 | 22 | 43,512 | 38,063 | 14 | |||||||||||
Provisions for credit losses and for benefits and claims | 5,062 | 2,117 | NM | 10,746 | 5,607 | 92 | |||||||||||
Income from continuing operations before taxes and minority interest | $ | 2,770 | $ | 7,369 | (62 | )% | $ | 18,749 | $ | 22,117 | (15 | )% | |||||
Income taxes | 538 | 2,020 | (73 | ) | 5,109 | 5,860 | (13 | ) | |||||||||
Minority interest, net of taxes | 20 | 46 | (57 | ) | 190 | 137 | 39 | ||||||||||
Income from continuing operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | |||||
Income from discontinued operations, net of taxes(1) | — | 202 | (100 | ) | — | 289 | (100 | ) | |||||||||
Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | |||||
Earnings per share | |||||||||||||||||
Basic: | |||||||||||||||||
Income from continuing operations | $ | 0.45 | $ | 1.08 | (58 | )% | $ | 2.74 | $ | 3.28 | (16 | )% | |||||
Net income | 0.45 | 1.13 | (60 | ) | 2.74 | 3.34 | (18 | ) | |||||||||
Diluted: | |||||||||||||||||
Income from continuing operations | 0.44 | 1.06 | (58 | ) | 2.69 | 3.22 | (16 | ) | |||||||||
Net income | 0.44 | 1.10 | (60 | ) | 2.69 | 3.28 | (18 | ) | |||||||||
Dividends declared per common share | $ | 0.54 | $ | 0.49 | 10 | $ | 1.62 | $ | 1.47 | 10 | |||||||
At September 30: | |||||||||||||||||
Total assets | $ | 2,358,266 | $ | 1,746,248 | 35 | % | |||||||||||
Total deposits | 812,850 | 669,278 | 21 | ||||||||||||||
Long-term debt | 364,526 | 260,089 | 40 | ||||||||||||||
Mandatorily redeemable securities of subsidiary trusts | 11,542 | 7,992 | 44 | ||||||||||||||
Common stockholders' equity | 126,913 | 116,865 | 9 | ||||||||||||||
Total stockholders' equity | 127,113 | 117,865 | 8 | ||||||||||||||
Ratios: | |||||||||||||||||
Return on common stockholders' equity(2) | 6.9 | % | 18.9 | % | 14.6 | % | 19.3 | % | |||||||||
Return on risk capital(3) | 12 | % | 37 | % | 25 | % | 39 | % | |||||||||
Return on invested capital(3) | 7 | % | 19 | % | 15 | % | 19 | % | |||||||||
Tier 1 Capital | 7.32 | % | 8.64 | % | |||||||||||||
Total Capital | 10.61 | % | 11.88 | % | |||||||||||||
Leverage(4) | 4.13 | % | 5.24 | % | |||||||||||||
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER 2007 MANAGEMENT SUMMARY
Income from continuing operations of $5.303declined 58% to $2,212 billion in the 2006 third quarter was up 6% from the 2005 third quarter. Dilutedand diluted EPS from continuing operations was down 58%. The write-downs of highly-leveraged loans, losses in our Fixed Income structured credit and credit trading business and higher credit costs in our Global Consumer business drove the earnings decline. Results include a $729 million pretax gain on the sale of Redecard shares.
Revenues were $22.4 billion, up 9%,5% from a year ago, primarily due to 29% growth in international revenues and partially offset by weakness in ourSecurities and Bankingbusiness, where revenues were down 50%. International Consumer revenues were up 35% and International Global Wealth Management revenues more than doubled reflecting double-digit organic growth and results from Nikko Cordial. U.S. Consumer revenues were flat to a year-ago while Alternative Investments revenues declined 63%.Transaction Serviceshad another record quarter, with the increment in the growth rate reflecting the benefit from our share repurchase program. Net income, which includes discontinued operations, was $5.505 billion in the quarter, down 23% from the 2005 third quarter.revenues up 38%.
During the 2006 third quarter, we continued to execute on our key strategic initiatives, including the opening of a record 277 new Citibank and CitiFinancial branches (176 in International and 101 in the U.S.).
Customer volume growth was strong, with average loans up 15%18%, average deposits up 18%20%, and average interest-earning assets up 16% from year-ago levels. U.S.36%.International Cards accounts were up 27% and purchase sales were up 9%37%, whileU.S. Cardssales were up 6%. Citibank Direct, our Internet bank, has raised almost $8 billion in deposits.
* Excludes Japan Automated Loan Machines (ALMs).
Revenues were approximately even with the 2005 third quarter, at $21.4 billion. Our international operations recorded revenue growth of 11% in the quarter, with International Consumer up 9%, International CIB up 12% and InternationalIn Global Wealth Management, client assets under fee-based management were up 33%38%. Branch activity included the opening or acquisition of 96 new branches during the quarter (47 internationally and 49 in the U.S. Consumer revenues grew 1%).
Since October of 2006, ten international acquisitions have been announced, consistent with our goal of expanding our international franchise through targeted acquisitions. On October 2, 2007, we announced an agreement to acquire the remaining 32% public stake in Nikko Cordial in a share-for-share exchange using Citigroup stock.
International businesses contributed 54% of the Company's revenue in the third quarter of 2007 and 79% of income, up from 44% and 43%, while CIB and Alternative Investments revenues declined 6% and 54%, respectively.respectively, a year ago.
Net interest revenue increased 1%24% from last year as higher deposit and loan balances were offset by pressure on net interest margins.reflecting volume increases across all products. Net interest margin in the 2006 third quarter of 2007 was 2.62%2.36%, down 3626 basis points from the 2005 third quarter of 2006, as lower funding costs were offset by growth in lower-yielding assets in our trading businesses, and down 11 basis points from the 2006 second quarter. The largest driver of the decline from the 2006 second quarter was trading activitiesincreased ownership in Nikko Cordial (see discussion of net interest margin on page 67)33).
Operating expenses increased 5%22% from the 2005 third quarter; thisquarter of 2006 driven by increased business volumes and acquisitions (which contributed 8%). The increase is due in large part to an unusually low level of expenses in the third quarter of 2006, which were the lowest in the last seven quarters, primarily reflecting reductions in advertising and marketing in U.S. Consumer, and lower expenses in Markets & Banking. Our business as usual expense growth of 14% was compriseddriven by higher business volumes throughout the franchise and the opening of 3 percentage pointsmore than 800 branches in the last 12 months. We are ahead of commitments on our Strategic Expense Initiatives. Expenses were down from the second quarter of 2007, primarily on lower compensation costs inSecurities and Banking.
Credit costs increased $2.98 billion from year-ago levels, primarily driven by an increase in investment spendingnet credit losses of $780 million and 2 percentage points duea net charge of $2.24 billion to SFAS 123(R) accruals. Excluding investment spendingincrease loan loss reserves. In U.S. Consumer, higher credit costs reflected an increase in net credit losses of $278 million and SFAS 123(R) accruals, expenses were flat with the prior year. Expenses were down $833a net charge of $1.30 billion to increase loan loss reserves. The $1.30 billion net charge compares to a net reserve release of $197 million from the 2006 second quarter.
Income was diversified by segment and region, as shown in the charts below.
prior-year period. The U.S.increase in credit environment remained stable; this,costs primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as significantly lower consumer bankruptcy filings,trends in the absenceU.S. macro-economic environment, portfolio growth, and a change in estimate of loan losses inherent in the 2005 third quarter $490portfolio but not yet visible in delinquencies (referred to hereinafter as the change in estimate of loan losses). In International Consumer, higher credit costs reflected an increase in net credit losses of $460 million pretaxand a net charge relatedof $717 million to increase loan loss reserves. The $717 million net charge compares to a net charge of $101 million in the EMEA consumer write-off policy change, and an asset mix shift, drove a $782 million decreaseprior-year period. The increase in credit costs comparedprimarily reflected the impact of recent acquisitions, portfolio growth, and a change in estimate of loan losses. Markets & Banking credit costs increased $98 million, primarily reflecting higher net credit losses and a $123 million net charge to year-ago levels.increase loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality. The Global Consumer loss rate was 1.49%1.81%, a 119 basis point decline32 basis-point increase from the 2006 third quarter reflecting the absence of the 2005 third quarter $1.153 billion write-off related to the policy change in EMEA and significantly lower bankruptcy filings.2006. Corporate cash-basis loans declined 13%increased 76% from June 30, 2006year-ago levels to $692 million.$1.218 billion.
The Company's effective income tax rate of 19.4% in the third quarter of 2007 reflects the tax benefits of permanent differences applied to the lower level of consolidated pretax earnings. These permanent differences primarily include the tax benefit for not providing U.S. income taxes on continuing operations declined tothe earnings of certain foreign subsidiaries that are indefinitely invested. The third quarter of 2006 effective tax rate of 27.4%, primarily reflecting included a $237 million tax reserve release relatedin continuing operations relating to the resolution of the 2006 New York Tax Audits. The effective tax rate for the 2006 third quarter would have been 30.6% without the tax reserve release.
Our stockholders' equity capital base and trust preferred securities grew to $125.9were $138.7 billion at September 30, 2006. Stockholders' equity increased by $2.4 billion during the quarter to $117.9 billion.2007. We distributed $2.5$2.7 billion in dividends to shareholders and repurchased $2.0 billion of common stock during the quarter.
Return on common equity was 18.9%6.9% for the quarter. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.64%7.32% at September 30, 2006. On September 26, 2006, Moody's upgraded Citibank, N.A.'s Credit Rating2007.
In our U.S. Consumer business, revenue generated was affected by the market dislocation that also affected our fixed income business; however, the underlying business momentum that we have seen over the last few quarters continues to "Aaa" from "Aa1."
As we move intobe very good. The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
On October 12, 2007, we announced the formation of our priorities remain clear:Institutional Clients Group which combines our Markets & Banking and Alternative Investments businesses which will
enhance our ability to execute our strategic initiativesserve institutional clients across the entire capital market spectrum. Vikram Pandit will lead this newly formed Group.
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking business. Citigroup estimates that, at the present time, the reduction in revenues attributable to drive organic revenue andthese declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income growth,on an after-tax basis). See page 9 for a further discussion.
On November 4, 2007, the Company's Board of Directors announced that Charles Prince, Chairman and Chief Executive Officer, has elected to make targeted acquisitions,retire from Citigroup. Robert E. Rubin, Chairman of the Executive Committee of Citigroup and a member of the Board of Directors, will serve as Chairman of the Board. In addition, Sir Win Bischoff, Chairman of Citi Europe and a member of Citigroup's Business Heads, Operating and Management Committees, will serve as acting Chief Executive Officer (CEO). The Board also announced that The Board has designated a special committee consisting of Mr. Rubin, Alain J.P. Belda, Richard D. Parsons, and Franklin A. Thomas to maintain expense discipline and to generate superior returnsconduct the search for our owners.
EVENTS IN 2006 and 2005a new CEO.
Certain of the statements belowabove are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 84.48.
AcquisitionEVENTS IN 2007 AND 2006
Certain of Grupo Financiero Unothe following statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48. Additional information regarding "Events in 2007 and 2006" is available in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007, and in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
3Q07 Items Impacting the Securities and Banking Business
CDO- and CLO-Related Losses
During the third quarter of 2007, unrealized losses of approximately $1.8 billion pre-tax, net of hedges, were recorded in theSecurities and Bankingbusiness due to a decline in value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (CDO) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (CLO) securitizations.
The $1.8 billion pretax of net write-downs consisted of $1.0 billion on asset-backed CDOs (primarily taken on the Company's CDO inventory which totaled $2.7 billion at September 30, 2007 inclusive of the write-down), $0.5 billion on super senior tranches of CDOs (senior-most positions of the capital structure where the predominant collateral is sub-prime U.S. residential mortgage-backed securities) and $0.3 billion on CLOs.
Certain types of credit instruments, such as investments in CDOs, high-yield bonds, debt issued in leveraged buyout transactions, mortgage- and asset-backed securities, and short-term asset- backed commercial paper, became very illiquid in the third quarter of 2007 and this contributed to the declines in value of those securities.
Write-downs on Highly-Leveraged Loans and Commitments
During the third quarter of 2007, Citigroup recorded write downs of approximately $1.352 billion pre-tax, net of underwriting fees, on funded and unfunded highly-leveraged finance commitments in theSecurities and Bankingbusiness. Of this amount, approximately $901 million related to debt underwriting activities and $451 million related to lending activities. Write-downs were recorded on all highly-leveraged finance commitments where there was value impairment, regardless of the expected funding date.
Fixed Income Credit Trading Losses
During the third quarter of 2007, Citigroup recognized approximately $636 million in credit trading losses due to significant market volatility and the disruption of historical pricing relationships. This was primarily a result of the sharp decrease in the sub-prime markets in both North America and Europe. The resulting trading losses are reflected in theSecurities and Bankingbusiness.
Market Value Gains Due to the Change in Citigroup Credit Spreads
SFAS 159 provides companies the ability to elect fair value accounting for many financial assets and liabilities. As part of Citigroup's adoption of this standard in the first quarter of 2007, the Company elected the fair value option on debt instruments that are provided to customers so that this debt and the associated assets the Company purchased to meet this liability are on the same fair value basis in earnings. At the end of the third quarter, $28.6 billion of debt related to customer products was classified as either short- or long-term debt on the Consolidated Balance Sheet.
Under fair value accounting, we are required to use Citigroup credit spreads in determining the market value of any Citigroup liabilities for which the fair value option was elected, as well as for Citigroup trading liabilities such as derivatives. The inclusion of Citigroup credit spreads in valuing Citigroup's liabilities gave rise to a pre-tax gain of $466 million in the third quarter of 2007 and is reflected in theSecurities and Bankingbusiness.
Credit Reserves
During the third quarter of 2007, the Company recorded a net build of $2.24 billion to its credit reserves, including an increase in the allowance for unfunded lending commitments, consisting of a net build of $2.07 billion in Global Consumer and Global Wealth Management and $171 million in Markets & Banking.
The build of $2.07 billion in Global Consumer and Global Wealth Management primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses.
The build of $171 million in Markets & Banking primarily reflected loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality.
The net build to the Company's credit reserves in the third quarter of 2007 compares to the third quarter of 2006 net build of $37 million, which consisted of a net release/ utilization of $79 million in Global Consumer and Global Wealth Management, and a net build of $116 million in Markets & Banking.
Redecard IPO
During July and August 2007, Citigroup (a 31.9% shareholder in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup's third quarter of 2007 financial results in theInternational Cardsbusiness.
CAI's Structured Investment Vehicles (SIVs)
CAI's Global Credit Structures investment center is the investment manager for seven Structured Investment Vehicles (SIVs). SIVs are special purpose investment companies that seek to generate attractive risk-adjusted floating-rate returns through the use of financial leverage and credit management skills, while hedging interest rate and currency risks and managing credit, liquidity and operational risks. The basic investment strategy is to earn a spread between relatively inexpensive short-term funding (commercial paper and medium-term notes) and high quality asset portfolios with a medium-term duration, with the leverage effect providing attractive returns to junior note holders, who are third-party investors and who provide the capital to the SIVs.
Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs and does not own any equity positions in the SIVs. The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $70 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements. Approximately 98% of the SIVs' assets are fully funded through the end of 2007. Beginning in July 2007, the SIVs which Citigroup advises sold more than $19 billion of SIV assets, bringing the combined assets of the Citigroup-advised SIVs to approximately $83 billion at September 30, 2007. See additional discussion on page 46.
The current lack of liquidity in the Asset-Backed Commercial Paper (ABCP) market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing CP.
While Citigroup does not consolidate the assets of the SIVs, the Company has provided liquidity to the SIVs at arm's-length commercial terms totaling $10 billion of committed liquidity, $7.6 billion of which has been drawn as of October 31, 2007. Citigroup will not take actions that will require the Company to consolidate the SIVs.
Master Liquidity Enhancing Conduit (M-LEC)
In October 2007, Citigroup, J.P. Morgan Chase and Bank of America initiated a plan to back a new fund, called the Master Liquidity Enhancing Conduit (M-LEC) that intends to buy assets from SIVs advised by Citigroup and other third-party institutions. This is being done as part of an effort to avert the situation where the SIVs will be forced to liquidate significant amounts of mortgage-backed securities, resulting in a broad-based repricing of these assets in the market at steep discounts.
SIVs, including those advised by Citigroup, have experienced difficulties in refinancing maturing commercial paper and medium-term notes, due to reduced liquidity in the market for commercial paper.
Nikko Cordial
Citigroup began consolidating Nikko Cordial's financial results and the appropriate minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later increased its ownership stake in Nikko Cordial to 68%. Nikko Cordial results are included within Citigroup'sSecurities and Banking, Global Wealth ManagementandGlobal Consumer Groupbusinesses.
On October 27, 2006,31, 2007, Citigroup announced a definitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that it had reachedCitigroup does not already own in exchange for shares of Citigroup. The agreement provides for the exchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of the date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $4.6 billion.
On October 29, 2007, Citigroup received approval from the Tokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.
Acquisition of Bisys
On August 1, 2007, the Company completed its acquisition of Bisys Group, Inc. (Bisys) for $1.47 billion in cash. In addition, Bisys' shareholders received $18.2 million in the form of a special dividend paid by Bisys. Citigroup completed the sale of the Retirement and Insurance Services Divisions of Bisys to affiliates of J.C. Flowers & Co. LLC, making the net cost of the transaction to Citigroup approximately $800 million. Citigroup retained the Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup'sTransaction Servicesbusiness from August 1, 2007 forward.
Agreement to Establish Partnership with Quiñenco—Banco de Chile
On July 19, 2007, Citigroup and Quiñenco entered into a definitive agreement to acquire Grupo Financiero Uno (GFU), the largest credit card issuerestablish a strategic partnership that combines Citi operations in Central America,Chile with Banco de Chile's local banking franchise to create a banking and its affiliates. The acquisition of GFU,financial services institution with $2.1 billion in assets, will expand the presence of Citigroup's Latin America consumer franchise, enhancing its credit card business in the region and establishing a platform for regional growth in consumer finance and retail banking.
GFU is privately held and has more than one million retail clients, representing 1.1 million credit card accounts, $1.2 billion in credit card receivables and $1.3 billion in deposits in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama as of September 30, 2006. GFU operates a distribution network of 75 branches and more than 100 mini- branches and points of sale.
The transaction, which is subject to regulatory approvals in the United States and eachabout 20% market share of the six countries, is anticipatedChilean banking industry. The agreement gives Citigroup the option to closeacquire up to 50% of LQIF, the holding company through which Quiñenco controls Banco de Chile.
Under the agreement, Citigroup will initially acquire 18.77% interest in Banco de Chile through its approximate 32.85% stake in LQIF. In the 2007 first quarter.initial phase, Citigroup will contribute Citigroup Chile and other assets (in cash or other businesses). As part of the overall transaction, Citigroup will also acquire the U.S. businesses of Banco de Chile. Citigroup has the option to acquire an additional 17.04% stake in LQIF within three years. The new partnership calls for active
participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.
Sale of Avantel
On October 26, 2006, the Company agreed to sell Avantel, a leading telecom service provider in Mexico, to Axtel. The transaction is expected to result in an approximately $140 million after-tax gain ($310 million pretax). The transaction is expected to close in the 2006 fourthfirst quarter of 2008, and is subject to Mexicancustomary regulatory and Axtel shareholder approvals. Avantel was acquired byreviews. Citigroup as partwill account for the investment in LQIF under the equity method of its acquisitionaccounting.
Acquisition of Banamex in 2001.
Purchase of 20% Equity Interest in AkbankAutomated Trading Desk
On October 17, 2006, the Company announced that it had signed3, 2007, Citigroup completed its acquisition of Automated Trading Desk (ATD), a definitive agreement for the purchase of a 20% equity interestleader in Akbankelectronic market making and proprietary trading, for approximately $3.1 billion. Akbank, the second-largest privately-owned bank by assets$680 million ($102.6 million in Turkey, iscash and approximately 11.17 million shares of Citigroup stock). ATD will operate as a premier, full-service retail, commercial, corporate and private bank.
Sabanci Holding, a 34% owner of Akbank shares, and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Subject to certain exceptions, Citigroup has agreed not to acquire additional shares in Akbank.
The transaction, which is subject to shareholder and regulatory approvals, is expected to close during the 2006 fourth quarter or 2007 first quarter and will be accounted for under the equity method.
Final Payment from the Sale of the Asset Management Business
In September 2006, the Company received the final closing adjustment payment related to the sale of its Asset Management business to Legg Mason, Inc. (Legg Mason). This payment resulted in an additional after-tax gain of $51 million ($83 million pretax), recorded in Discontinued Operations.
Final Settlement of the Travelers Life & Annuity Sale
In July 2006, the Company received the final closing adjustment payment related to the saleunit of Citigroup's Travelers Life & AnnuityGlobal Equities business, adding a network of broker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and substantially allretail customers.
Resolution of its international insurance businesses to MetLife, Inc. (MetLife). This payment resulted in an after-tax gain of $75 million ($115 million pretax), recorded in Discontinued Operations.2006 Tax Audits
Settlement of New York State and New York City Tax Audits
In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 1998 - 1998–2005 (referred to above and hereinafter as the "resolution of the 2006 New York Tax Audits").
For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations.operations, which are reflected in the year-to-date 2006 totals.
Federal
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 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.
The following table summarizes the 2006 third quarter tax benefit,benefits, by business, from the resolution of the New York Tax Audits:
In millions of dollars | 2006 Third Quarter | ||
---|---|---|---|
U.S. Cards | $ | 39 | |
U.S. Retail Distribution | 4 | ||
U.S. Consumer Lending | 10 | ||
U.S. Commercial Business | 1 | ||
Total U.S. Consumer | $ | 54 | |
International Cards | 5 | ||
International Consumer Finance | 1 | ||
International Retail Banking | 18 | ||
Total International Consumer | $ | 24 | |
Consumer Other | 1 | ||
Global Consumer | $ | 79 | |
Capital Markets and Banking | 97 | ||
Transaction Services | 19 | ||
Corporate & Investment Banking | $ | 116 | |
Smith Barney | 31 | ||
Private Bank | 3 | ||
Global Wealth Management | $ | 34 | |
Alternative Investments | — | ||
Corporate/Other | 8 | ||
Continuing Operations | $ | 237 | |
Discontinued Operations | 17 | ||
Total | $ | 254 | |
MasterCard Initial Public Offering
In June 2006, MasterCard conducted a series of transactions consisting of: (i) an IPO of new Class A stock, (ii) an exchange of its old Class A stock held by its member banks for shares of its new Class BAudits and Class M stocks, and (iii) a partial redemption of the new Class B stock held by the member banks. Citigroup, as one of MasterCard's member banks, received 4,946,587 shares of Class B stock, 48 shares of Class M stock, and $123 million in cash as a result of these transactions. An after-tax gain of $78 million ($123 million pretax) was recognized inFederal Tax Audit (collectively, the 2006 second quarter related to the cash redemption of shares.Tax Audits):
Sale of Upstate New York Branches
On June 30, 2006, Citigroup sold the Upstate New York Financial Center Network consisting of 21 branches in Rochester, N.Y. and Buffalo, N.Y. to M&T Bank (referred to hereinafter as the "Sale of New York Branches"). Citigroup received a premium on deposit balances of approximately $1 billion. An after-tax gain of $92 million ($163 million pretax) was recognized in the 2006 second quarter.
Consolidation of Brazil's Credicard
In April 2006, Citigroup and Banco Itau dissolved their joint venture in Credicard, a Brazil consumer credit card business. In accordance with the dissolution agreement, Banco Itau received half of Credicard's assets and customer accounts in exchange for its 50% ownership, leaving Citigroup as the sole owner of Credicard.
Beginning April 30, 2006, Credicard's financial statements were consolidated with Citigroup. Previously, Citigroup reported its interest in Credicard using the equity method of consolidation. Accordingly, our net investment was included in Other assets.
Acquisition of Federated Credit Card Portfolio and Credit Card Agreement With Federated Department Stores
In June 2005, Citigroup announced a long-term agreement with Federated Department Stores, Inc. (Federated) under which the companies partner to manage approximately $6.2 billion of Federated's credit card receivables, including existing and new accounts, executed in three phases.
For the first phase, which closed in October 2005, Citigroup acquired Federated's receivables under management, totaling approximately $3.3 billion. For the second phase, which closed in May 2006, additional Federated receivables totaling approximately $1.9 billion were transferred to Citigroup from the previous provider. For the final phase, in the 2006 third quarter, Citigroup acquired approximately $1.0 billion credit card receivable portfolio of The May Department Stores Company (May), which merged with Federated.
Citigroup paid a premium of approximately 11.5% to acquire these portfolios. The multi-year agreement also provides Federated the ability to participate in the portfolio performance, based on credit sales and certain other performance metrics.
The Federated and May credit card portfolios comprise a total of approximately 17 million active accounts.
In millions of dollars | New York City and New York State Audits (2006 Third Quarter) | Federal Audit (2006 First Quarter) | Total | ||||||
---|---|---|---|---|---|---|---|---|---|
Global Consumer | $ | 79 | $ | 290 | $ | 369 | |||
Markets & Banking | 116 | 176 | 292 | ||||||
Global Wealth Management | 34 | 13 | 47 | ||||||
Alternative Investments | — | 58 | 58 | ||||||
Corporate/Other | 8 | 61 | 69 | ||||||
Continuing Operations | $ | 237 | $ | 598 | $ | 835 | |||
Discontinued Operations | 17 | 59 | 76 | ||||||
Total | $ | 254 | $ | 657 | $ | 911 | |||
Adoption of the Accounting for Share-Based PaymentsCredit Reserves
On January 1, 2006,During the third quarter of 2007, the Company adopted Statementrecorded a net build of Financial Accounting Standards (SFAS) 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which replaces$2.24 billion to its credit reserves, including an increase in the existing SFAS 123allowance for unfunded lending commitments, consisting of a net build of $2.07 billion in Global Consumer and supersedes Accounting Principles Board (APB) 25. SFAS 123(R) requires companies to measureGlobal Wealth Management 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. This charge consisted of $398$171 million after-tax ($648 million pretax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006.Markets & Banking.
The following table summarizesbuild of $2.07 billion in Global Consumer and Global Wealth Management primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the SFAS 123(R) impact, by segment, onU.S. macro-economic environment, portfolio growth, recent acquisitions, and the 2006 first quarter pretax compensation expense for stock awards granted to retirement-eligible employeeschange in January 2006:estimate of loan losses.
In millions of dollars | 2006 First Quarter | ||
---|---|---|---|
Global Consumer | $ | 121 | |
Corporate and Investment Banking | 354 | ||
Global Wealth Management | 145 | ||
Alternative Investments | 7 | ||
Corporate/Other | 21 | ||
Total | $ | 648 | |
The following table summarizes the quarterly SFAS 123(R) impact on 2006 pretax compensation expense (and after-tax impact)build of $171 million in Markets & Banking primarily reflected loan loss reserves for the quarterly accrual of the estimated awards that will be grantedspecific counterparties. Credit costs reflected a slight weakening in January 2007:
In millions of dollars | Pretax | After-tax | ||||
---|---|---|---|---|---|---|
First quarter 2006 | $ | 198 | $ | 122 | ||
Second quarter 2006 | 168 | 104 | ||||
Third quarter 2006 | 195 | 127 | ||||
Year-to-date 2006 | $ | 561 | $ | 353 | ||
The Company changed the plan's retirement eligibility for the January 2007 management awards, which affected the amount of the accrual in the 2006 second and third quarters.
Additional information can be found in Notes 1 and 8 to the Consolidated Financial Statements on pages 91 and 100, respectively. The Company will continue to accrue for the estimated awards that will be granted in January 2007 in the 2006 fourth quarter.portfolio credit quality.
Settlement The net build to the Company's credit reserves in the third quarter of IRS2007 compares to the third quarter of 2006 net build of $37 million, which consisted of a net release/ utilization of $79 million in Global Consumer and Global Wealth Management, and a net build of $116 million in Markets & Banking.
Redecard IPO
During July and August 2007, Citigroup (a 31.9% shareholder in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup's third quarter of 2007 financial results in theInternational Cardsbusiness.
CAI's Structured Investment Vehicles (SIVs)
CAI's Global Credit Structures investment center is the investment manager for seven Structured Investment Vehicles (SIVs). SIVs are special purpose investment companies that seek to generate attractive risk-adjusted floating-rate returns through the use of financial leverage and credit management skills, while hedging interest rate and currency risks and managing credit, liquidity and operational risks. The basic investment strategy is to earn a spread between relatively inexpensive short-term funding (commercial paper and medium-term notes) and high quality asset portfolios with a medium-term duration, with the leverage effect providing attractive returns to junior note holders, who are third-party investors and who provide the capital to the SIVs.
Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs and does not own any equity positions in the SIVs. The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $70 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements. Approximately 98% of the SIVs' assets are fully funded through the end of 2007. Beginning in July 2007, the SIVs which Citigroup advises sold more than $19 billion of SIV assets, bringing the combined assets of the Citigroup-advised SIVs to approximately $83 billion at September 30, 2007. See additional discussion on page 46.
The current lack of liquidity in the Asset-Backed Commercial Paper (ABCP) market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing CP.
While Citigroup does not consolidate the assets of the SIVs, the Company has provided liquidity to the SIVs at arm's-length commercial terms totaling $10 billion of committed liquidity, $7.6 billion of which has been drawn as of October 31, 2007. Citigroup will not take actions that will require the Company to consolidate the SIVs.
Master Liquidity Enhancing Conduit (M-LEC)
In October 2007, Citigroup, J.P. Morgan Chase and Bank of America initiated a plan to back a new fund, called the Master Liquidity Enhancing Conduit (M-LEC) that intends to buy assets from SIVs advised by Citigroup and other third-party institutions. This is being done as part of an effort to avert the situation where the SIVs will be forced to liquidate significant amounts of mortgage-backed securities, resulting in a broad-based repricing of these assets in the market at steep discounts.
SIVs, including those advised by Citigroup, have experienced difficulties in refinancing maturing commercial paper and medium-term notes, due to reduced liquidity in the market for commercial paper.
Nikko Cordial
Citigroup began consolidating Nikko Cordial's financial results and the appropriate minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later increased its ownership stake in Nikko Cordial to 68%. Nikko Cordial results are included within Citigroup'sSecurities and Banking, Global Wealth ManagementandGlobal Consumer Groupbusinesses.
On October 31, 2007, Citigroup announced a definitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that Citigroup does not already own in exchange for shares of Citigroup. The agreement provides for the exchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of the date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $4.6 billion.
On October 29, 2007, Citigroup received approval from the Tokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.
Acquisition of Bisys
On August 1, 2007, the Company completed its acquisition of Bisys Group, Inc. (Bisys) for $1.47 billion in cash. In addition, Bisys' shareholders received $18.2 million in the form of a special dividend paid by Bisys. Citigroup completed the sale of the Retirement and Insurance Services Divisions of Bisys to affiliates of J.C. Flowers & Co. LLC, making the net cost of the transaction to Citigroup approximately $800 million. Citigroup retained the Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup'sTransaction Servicesbusiness from August 1, 2007 forward.
Agreement to Establish Partnership with Quiñenco—Banco de Chile
On July 19, 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citi operations in Chile with Banco de Chile's local banking franchise to create a banking and financial services institution with about 20% market share of the Chilean banking industry. The agreement gives Citigroup the option to acquire up to 50% of LQIF, the holding company through which Quiñenco controls Banco de Chile.
Under the agreement, Citigroup will initially acquire 18.77% interest in Banco de Chile through its approximate 32.85% stake in LQIF. In the initial phase, Citigroup will contribute Citigroup Chile and other assets (in cash or other businesses). As part of the overall transaction, Citigroup will also acquire the U.S. businesses of Banco de Chile. Citigroup has the option to acquire an additional 17.04% stake in LQIF within three years. The new partnership calls for active
participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.
The transaction is expected to close in the first quarter of 2008, and is subject to customary regulatory reviews. Citigroup will account for the investment in LQIF under the equity method of accounting.
Acquisition of Automated Trading Desk
On October 3, 2007, Citigroup completed its acquisition of Automated Trading Desk (ATD), a leader in electronic market making and proprietary trading, for approximately $680 million ($102.6 million in cash and approximately 11.17 million shares of Citigroup stock). ATD will operate as a unit of Citigroup's Global Equities business, adding a network of broker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and retail customers.
Resolution of 2006 Tax AuditAudits
New York State and New York City
In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 1998–2005 (referred to hereinafter as the "resolution of the 2006 New York Tax Audits").
For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations, which are reflected in the year-to-date 2006 totals.
Federal
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 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit.Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.
The following table summarizes the 2006 first quarter tax benefitbenefits, by segment ofbusiness, from the resolution of the New York Tax Audits and Federal Tax Audit:
In millions of dollars | 2006 First Quarter | ||
---|---|---|---|
Global Consumer | $ | 290 | |
Corporate and Investment Banking | 176 | ||
Global Wealth Management | 13 | ||
Alternative Investments | 58 | ||
Corporate/Other | 61 | ||
Continuing Operations | $ | 598 | |
Discontinued Operations | 59 | ||
Total | $ | 657 | |
Sale of Asset Management Business
On December 1, 2005,Audit (collectively, the Company completed the sale of substantially all of its Asset Management Business to Legg Mason in exchange for Legg Mason's broker-dealer business, $2.298 billion of Legg Mason's common and preferred shares (valued as of the closing date), and $500 million in cash. This cash was obtained via a lending facility provided by Citigroup CIB. The transaction did not include Citigroup's asset management business in Mexico, 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 the transaction at the time of closing was approximately $4.369 billion, resulting in an after-tax gain to Citigroup of approximately $2.082 billion ($3.404 billion pretax).
Concurrently, Citigroup sold Legg Mason's Capital Markets business to Stifel Financial Corp. (The transactions described in these two paragraphs are referred to as the "Sale of the Asset Management Business.")
Upon completion of the Sale of the Asset Management Business, Citigroup added 1,226 financial advisors in 124 branch offices from Legg Mason to its Global Wealth Management business.
During March 2006 Citigroup sold 10.3 million shares of Legg Mason stock through an underwritten public offering. The net sale proceeds of $1.258 billion resulted in a pretax gain of $24 million.Tax Audits):
Additional information can be found in Note 3 to the Consolidated Financial Statements on page 94.
Sale of Travelers Life & Annuity
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. 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 ($3.386 billion pretax), which is included in discontinued operations.
In July 2006, Citigroup recognized an $85 million after-tax gain from the sale of MetLife shares. This gain was reported within Income from continuing operations in the Alternative Investments business.
The transaction encompassed Travelers Life & Annuity's U.S. businesses and its international operations, other than Citigroup's life insurance business in Mexico (which is now included withinInternational Retail Banking). (The transaction described in the preceding three paragraphs is referred to as the "Sale of the Life Insurance and Annuities Business").
Additional information can be found in Note 3 to the Consolidated Financial Statements on page 94.
In millions of dollars | New York City and New York State Audits (2006 Third Quarter) | Federal Audit (2006 First Quarter) | Total | ||||||
---|---|---|---|---|---|---|---|---|---|
Global Consumer | $ | 79 | $ | 290 | $ | 369 | |||
Markets & Banking | 116 | 176 | 292 | ||||||
Global Wealth Management | 34 | 13 | 47 | ||||||
Alternative Investments | — | 58 | 58 | ||||||
Corporate/Other | 8 | 61 | 69 | ||||||
Continuing Operations | $ | 237 | $ | 598 | $ | 835 | |||
Discontinued Operations | 17 | 59 | 76 | ||||||
Total | $ | 254 | $ | 657 | $ | 911 | |||
Credit Reserves
During the three months ended September 30, 2006,third quarter of 2007, the Company recorded a net build of $2.24 billion to its credit reserves, of $37 million,including an increase in the allowance for unfunded lending commitments, consisting of a net build of $2.07 billion in Global Consumer and Global Wealth Management and $171 million in Markets & Banking.
The build of $2.07 billion in Global Consumer and Global Wealth Management primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses.
The build of $171 million in Markets & Banking primarily reflected loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality.
The net build to the Company's credit reserves in the third quarter of 2007 compares to the third quarter of 2006 net build of $37 million, which consisted of a net release/utilization of $79 million in Global Consumer and Global Wealth Management, and a net build of $116 million in CIB.Markets & Banking.
Redecard IPO
The net release/utilizationDuring July and August 2007, Citigroup (a 31.9% shareholder in Global ConsumerRedecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was primarily due to lower bankruptcy filings and a continued overall improvementrecorded in Citigroup's third quarter of 2007 financial results in the U.S. consumer portfolio. Partially offsettingInternational Cardsbusiness.
CAI's Structured Investment Vehicles (SIVs)
CAI's Global Credit Structures investment center is the net releases wasinvestment manager for seven Structured Investment Vehicles (SIVs). SIVs are special purpose investment companies that seek to generate attractive risk-adjusted floating-rate returns through the use of financial leverage and credit management skills, while hedging interest rate and currency risks and managing credit, liquidity and operational risks. The basic investment strategy is to earn a build of $112 million inJapan relatingspread between relatively inexpensive short-term funding (commercial paper and medium-term notes) and high quality asset portfolios with a medium-term duration, with the leverage effect providing attractive returns to junior note holders, who are third-party investors and who provide the capital to the consumer lending industry (seeSIVs.
Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs and does not own any equity positions in the SIVs. The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $70 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements. Approximately 98% of the SIVs' assets are fully funded through the end of 2007. Beginning in July 2007, the SIVs which Citigroup advises sold more than $19 billion of SIV assets, bringing the combined assets of the Citigroup-advised SIVs to approximately $83 billion at September 30, 2007. See additional discussion on page 33).46.
The current lack of liquidity in the Asset-Backed Commercial Paper (ABCP) market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing CP.
While Citigroup does not consolidate the assets of the SIVs, the Company has provided liquidity to the SIVs at arm's-length commercial terms totaling $10 billion of committed liquidity, $7.6 billion of which has been drawn as of October 31, 2007. Citigroup will not take actions that will require the Company to consolidate the SIVs.
Master Liquidity Enhancing Conduit (M-LEC)
In October 2007, Citigroup, J.P. Morgan Chase and Bank of America initiated a plan to back a new fund, called the Master Liquidity Enhancing Conduit (M-LEC) that intends to buy assets from SIVs advised by Citigroup and other third-party institutions. This is being done as part of an effort to avert the situation where the SIVs will be forced to liquidate significant amounts of mortgage-backed securities, resulting in a broad-based repricing of these assets in the market at steep discounts.
SIVs, including those advised by Citigroup, have experienced difficulties in refinancing maturing commercial paper and medium-term notes, due to reduced liquidity in the market for commercial paper.
Nikko Cordial
The net build of $116 millionCitigroup began consolidating Nikko Cordial's financial results and the appropriate minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later increased its ownership stake in CIB was primarily comprised of $109 million inNikko Cordial to 68%. Nikko Cordial results are included within Citigroup'sCapital MarketsSecurities and Banking, Global Wealth Managementwhich included a $48 million reserve increase for unfunded lending commitments. The net build reflected growth in loans and unfunded commitments and a change in credit rating of certain counterparties.Global Consumer Groupbusinesses.
For the nine months ended September 30, 2006, the Company recordedOn October 31, 2007, Citigroup announced a net release/utilizationdefinitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that Citigroup does not already own in exchange for shares of $327 million, consisting of a net release/utilization of $594 million in Global Consumer and a net build of $267 million in CIB.
Credit Reserve Builds (Releases/Utilization)(1)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||
By Product: | |||||||||||||
U.S. Cards | $ | (122 | ) | $ | 30 | $ | (354 | ) | $ | 30 | |||
U.S. Retail Distribution | (29 | ) | 275 | (115 | ) | 258 | |||||||
U.S. Consumer Lending | (8 | ) | (56 | ) | (114 | ) | (56 | ) | |||||
U.S. Commercial Business | (38 | ) | 13 | (84 | ) | (5 | ) | ||||||
International Cards | 59 | 24 | 179 | 37 | |||||||||
International Consumer Finance | 135 | (10 | ) | 136 | (9 | ) | |||||||
International Retail Banking | (93 | ) | (649 | ) | (275 | ) | (639 | ) | |||||
Smith Barney | (1 | ) | 7 | (1 | ) | 11 | |||||||
Private Bank | 17 | 24 | 34 | 14 | |||||||||
Consumer Other | 1 | — | — | (1 | ) | ||||||||
Total Consumer | $ | (79 | ) | $ | (342 | ) | $ | (594 | ) | $ | (360 | ) | |
Capital Markets and Banking | 109 | 158 | 258 | 125 | |||||||||
Transaction Services | 7 | 9 | 9 | 13 | |||||||||
Other CIB | — | (3 | ) | — | (3 | ) | |||||||
Total CIB | $ | 116 | $ | 164 | $ | 267 | $ | 135 | |||||
Total Citigroup | $ | 37 | $ | (178 | ) | $ | (327 | ) | $ | (225 | ) | ||
By Region: | |||||||||||||
U.S. | $ | (134 | ) | $ | 407 | $ | (447 | ) | $ | 443 | |||
Mexico | 6 | 26 | 51 | (69 | ) | ||||||||
EMEA | 83 | (620 | ) | 41 | (493 | ) | |||||||
Japan | 115 | 22 | 91 | 22 | |||||||||
Asia | (70 | ) | 3 | (120 | ) | (43 | ) | ||||||
Latin America | 37 | (16 | ) | 57 | (85 | ) | |||||||
Total Citigroup | $ | 37 | $ | (178 | ) | $ | (327 | ) | $ | (225 | ) | ||
Allowance for Credit Losses
In millions of dollars | Sept. 30, 2006 | Dec. 31, 2005 | Sept. 30, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses | $ | 8,979 | $ | 9,782 | $ | 10,015 | |||
Allowance for unfunded lending commitments | 1,100 | 850 | 800 | ||||||
Total allowance for loan losses and unfunded lending commitments | $ | 10,079 | $ | 10,632 | $ | 10,815 | |||
Hurricane Katrina
In the 2005 third quarter, the Company recorded a $222 million after-tax charge $(357 million pretax)Citigroup. The agreement provides for the estimated probable losses incurred from Hurricane Katrina. This charge consisted primarilyexchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of additional credit costs inU.S. Cards,U.S. Commercial Business, U.S. Consumer Lending andU.S. Retail Distribution businesses, based on total credit exposuresthe date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $3.6 billion in the Federal Emergency Management Agency (FEMA) Individual Assistance designated areas. This charge did not include an after-tax estimate of $75 million $(109 million pretax) for fees and interest due from related customers that were waived during 2005.
Change in EMEA Consumer Write-off Policy$4.6 billion.
Prior to the third quarter of 2005, certain Western European consumer portfolios were granted an exception to Citigroup's global write-off policy. The exception extended the write-off periodOn October 29, 2007, Citigroup received approval from the standard 120-day policy for personal installment loans, and was granted becauseTokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.
Acquisition of the higher recovery rates experienced in these portfolios. During 2005, Citigroup observed lower actual recovery rates, stemming primarily from a change in bankruptcy and wage garnishment laws in Germany and, as a result, rescinded the exception to the global standard. The net charge was $332 million $(490 million pretax) 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 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.
United States Bankruptcy LegislationBisys
On October 17, 2005,August 1, 2007, the Bankruptcy Reform Act (or the Act) became effective. The Act imposes a means test to determine if people who fileCompany completed its acquisition of Bisys Group, Inc. (Bisys) for Chapter 7 bankruptcy earn more than the median income$1.47 billion in their state and could repay at least $6,000 of unsecured debt over five years. Bankruptcy filers who meet this test are required to enter into a repayment plan under Chapter 13, instead of canceling their debt entirely under Chapter 7. As a result of these more stringent guidelines, bankruptcy claims accelerated prior to the effective date. The incremental bankruptcy losses over the Company's estimated baseline in 2005 that was attributable to the Act inU.S. Cards business was approximately $970 million on a managed basis $(550cash. In addition, Bisys' shareholders received $18.2 million in the Company's on-balance portfolio and $420 million in the securitized portfolio). In addition, theU.S. Retail Distribution business incurred incremental bankruptcy losses of approximately $90 million during 2005.
Homeland Investment Act Benefit
The Company's 2005 third quarter results from continuing operations include a $185 million $(198 million for the 2005 full year) 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 were repatriated relating to this benefit is approximately $3.2 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 paid Citigroup $185 million.
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 resultform 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.
Divestiture of the Manufactured Housing Loan Portfolio
On May 1, 2005,special dividend paid by Bisys. Citigroup completed the sale of its manufactured housing loan portfolio, consistingthe Retirement and Insurance Services Divisions of $1.4 billion in loans,Bisys to 21st Mortgage Corp. The Company recognized a $109 million after-tax loss $(157 million pretax) inaffiliates of J.C. Flowers & Co. LLC, making the 2005 first quarter relatednet cost of the transaction to Citigroup approximately $800 million. Citigroup retained the divestiture.Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup'sTransaction Servicesbusiness from August 1, 2007 forward.
Repositioning ChargesAgreement to Establish Partnership with Quiñenco—Banco de Chile
On July 19, 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citi operations in Chile with Banco de Chile's local banking franchise to create a banking and financial services institution with about 20% market share of the Chilean banking industry. The Company recorded a $272 million after-tax $(435 million pretax) charge duringagreement gives Citigroup the 2005 first quarteroption to acquire up to 50% of LQIF, the holding company through which Quiñenco controls Banco de Chile.
Under the agreement, Citigroup will initially acquire 18.77% interest in Banco de Chile through its approximate 32.85% stake in LQIF. In the initial phase, Citigroup will contribute Citigroup Chile and other assets (in cash or other businesses). As part of the overall transaction, Citigroup will also acquire the U.S. businesses of Banco de Chile. Citigroup has the option to acquire an additional 17.04% stake in LQIF within three years. The new partnership calls for repositioning costs. The repositioning charges were predominantly severance-related costs recorded in CIB $(151 million after-tax) and in Global Consumer $(95 million after-tax). These repositioning actions were consistent with the Company's objectives of controlling expenses while continuing to invest in growth opportunities.
Resolution of Glendale Litigation
During the 2005 first quarter, the Company recorded a $72 million after-tax gain $(114 million pretax) following the resolution ofGlendale Federal Bank v. United States,an action brought by Glendale Federal Bank, a predecessor to Citibank (West), FSB, against the United States government.active
participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.
The transaction is expected to close in the first quarter of 2008, and is subject to customary regulatory reviews. Citigroup will account for the investment in LQIF under the equity method of accounting.
Acquisition of First American BankAutomated Trading Desk
On March 31, 2005,October 3, 2007, Citigroup completed its acquisition of First American BankAutomated Trading Desk (ATD), a leader in Texas (FAB)electronic market making and proprietary trading, for approximately $680 million ($102.6 million in cash and approximately 11.17 million shares of Citigroup stock). ATD will operate as a unit of Citigroup's Global Equities business, adding a network of broker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and retail customers.
Resolution of 2006 Tax Audits
New York State and New York City
In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 1998–2005 (referred to hereinafter as the "resolution of the 2006 New York Tax Audits").
For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations, which are reflected in the year-to-date 2006 totals.
Federal
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 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.
The transaction established Citigroup's retail branch presencefollowing table summarizes the 2006 tax benefits, by business, from the resolution of the New York Tax Audits and Federal Tax Audit (collectively, the 2006 Tax Audits):
In millions of dollars | New York City and New York State Audits (2006 Third Quarter) | Federal Audit (2006 First Quarter) | Total | ||||||
---|---|---|---|---|---|---|---|---|---|
Global Consumer | $ | 79 | $ | 290 | $ | 369 | |||
Markets & Banking | 116 | 176 | 292 | ||||||
Global Wealth Management | 34 | 13 | 47 | ||||||
Alternative Investments | — | 58 | 58 | ||||||
Corporate/Other | 8 | 61 | 69 | ||||||
Continuing Operations | $ | 237 | $ | 598 | $ | 835 | |||
Discontinued Operations | 17 | 59 | 76 | ||||||
Total | $ | 254 | $ | 657 | $ | 911 | |||
Adoption of the Accounting for Share-Based Payments
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),"Share-Based Payment"(SFAS 123(R)), which replaced the existing SFAS 123 and superseded Accounting Principles Board (APB) Opinion No. 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 or deferred 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. This charge consisted of $398 million after-tax ($648 million pretax) for the immediate expensing of awards granted to retirement-eligible employees in Texas, giving Citigroup 106 branches,January 2006.
The following table summarizes the SFAS 123(R) impact, by segment, on the first quarter of 2006 and year-to-date 2006 pretax compensation expense for stock awards granted to retirement-eligible employees in January 2006 ("the 2006 initial adoption of SFAS 123(R)"):
In millions of dollars | 2006 First Quarter | ||
---|---|---|---|
Global Consumer | $ | 121 | |
Markets & Banking | 354 | ||
Global Wealth Management | 145 | ||
Alternative Investments | 7 | ||
Corporate/Other | 21 | ||
Total | $ | 648 | |
The Company recorded the quarterly accrual for the stock awards that were granted in January 2007 during each of the quarters in 2006. During the first, second and third quarters of 2007, the Company recorded the quarterly accrual for the estimated stock awards that will be granted in January 2008.
Fourth Quarter of 2007 Subsequent Event
Sub-prime Related Exposure inSecurities and Banking
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).
These declines in the fair value of Citi's sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime U.S. mortgage related assets and other market developments, which occurred after the end of the third quarter. The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.
Citi also announced that, while significant uncertainty continues to prevail in financial markets, it expects, taking into account maintaining its current dividend level, that its capital ratios will return within the range of targeted levels by the end of the second quarter of 2008. Accordingly, Citi has no plans to reduce its current dividend level.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
Citi's approximately $11.7 billion of sub-prime related exposures in the lending and structuring business as of September 30, 2007 compares to approximately $13 billion of sub-prime related exposures in the lending and structuring business at the end of the second quarter and approximately $24 billion at the beginning of the year. (See Note 1 below.) The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in assetsthe last six months, and approximately 120,000 new$4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 2 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments referred to above, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the statefair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions. Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
Other Information
The fair value of S&B sub-prime related exposures depends on market conditions and assumptions that are subject to change over time. In addition, if sales of super senior tranches of ABS CDOs occur in the future, these sales might represent observable market transactions that could then be used to determine fair value of the S&B super senior exposures described above. As a result, the fair value of these exposures at the timeend of the transaction's closing. The resultsfourth quarter will depend on future market developments.
Citi has provided specific targets for its two primary capital ratios: the Tier 1 capital ratio and the ratio of FABtangible common equity to risk-weighted managed assets (TCE/RWMA ratio). Those targets are 7.5% for Tier 1 and 6.5% for TCE/RWMA. At September 30, 2007, Citi had a Tier 1 ratio of 7.3% and a TCE/RWMA ratio of 5.9%.
Citi expects that market conditions will continue to evolve, and that the fair value of Citi's positions will frequently change.
Divestitureeffectiveness of CitiCapital's Transportation Finance Business
On January 31, 2005, the Company completedhedging products used may vary with material changes in market conditions. Since the saleend of CitiCapital's Transportation Finance Business based in Dallas and Toronto to GE Commercial Finance for total cash consideration of approximately $4.6 billion. The sale resulted in an after-tax gain of $111 million $(161 million pretax).
SEGMENT, PRODUCT AND REGIONAL REGIONAL—NET INCOME AND REVENUE
The following tables show the net income (loss) and revenue for Citigroup's businesses on a segment and product view and on a regional view:
Citigroup Net Income—Segment and Product View
| | Three Months Ended September 30, | % | Nine Months Ended September 30, | % | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | |||||||||||||||||||||||||||||||||||
In millions of dollars | 2006 | 2005(1) | Change | 2006 | 2005(1) | Change | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||||
Global Consumer | Global Consumer | Global Consumer | ||||||||||||||||||||||||||||||||||||
U.S. Cards | $ | 1,085 | $ | 797 | 36 | % | $ | 2,889 | $ | 2,310 | 25 | % | U.S. Cards | $ | 852 | $ | 1,085 | (21 | )% | $ | 2,475 | $ | 2,889 | (14 | )% | |||||||||||||
U.S. Retail Distribution | 481 | 319 | 51 | 1,564 | 1,361 | 15 | U.S. Retail Distribution | 257 | 481 | (47 | ) | 1,098 | 1,564 | (30 | ) | |||||||||||||||||||||||
U.S. Consumer Lending | 521 | 487 | 7 | 1,428 | 1,480 | (4 | ) | U.S. Consumer Lending | (227 | ) | 521 | NM | 573 | 1,428 | (60 | ) | ||||||||||||||||||||||
U.S. Commercial Business | 151 | 222 | (32 | ) | 415 | 608 | (32 | ) | U.S. Commercial Business | 122 | 151 | (19 | ) | 394 | 415 | (5 | ) | |||||||||||||||||||||
Total U.S. Consumer(2) | $ | 2,238 | $ | 1,825 | 23 | % | $ | 6,296 | $ | 5,759 | 9 | % | Total U.S. Consumer(1) | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | |||||||||||||
International Cards | $ | 287 | $ | 383 | (25 | )% | $ | 906 | $ | 1,016 | (11 | )% | International Cards | $ | 647 | $ | 287 | NM | $ | 1,386 | $ | 906 | 53 | % | ||||||||||||||
International Consumer Finance | 50 | 152 | (67 | ) | 391 | 468 | (16 | ) | International Consumer Finance | (320 | ) | 50 | NM | (301 | ) | 391 | NM | |||||||||||||||||||||
International Retail Banking | 701 | 427 | 64 | 2,092 | 1,518 | 38 | International Retail Banking | 552 | 701 | (21 | ) | 1,763 | 2,092 | (16 | ) | |||||||||||||||||||||||
Total International Consumer | $ | 1,038 | $ | 962 | 8 | % | $ | 3,389 | $ | 3,002 | 13 | % | Total International Consumer | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | |||||||||||||
Other | Other | $ | (100 | ) | $ | (81 | ) | (23 | )% | $ | (276 | ) | $ | (240 | ) | (15 | )% | |||||||||||||||||||||
Other | $ | (81 | ) | $ | (64 | ) | (27 | )% | $ | (240 | ) | $ | (298 | ) | 19 | % | ||||||||||||||||||||||
Total Global Consumer | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | ||||||||||||||||||||||||||
Total Global Consumer | $ | 3,195 | $ | 2,723 | 17 | % | $ | 9,445 | $ | 8,463 | 12 | % | ||||||||||||||||||||||||||
Corporate and Investment Banking | ||||||||||||||||||||||||||||||||||||||
Markets & Banking | Markets & Banking | |||||||||||||||||||||||||||||||||||||
Capital Markets and Banking | $ | 1,344 | $ | 1,424 | (6 | )% | $ | 4,374 | $ | 3,906 | 12 | % | Securities and Banking | $ | (290 | ) | $ | 1,344 | NM | $ | 4,028 | $ | 4,374 | (8 | )% | |||||||||||||
Transaction Services | 385 | 327 | 18 | 1,048 | 860 | 22 | Transaction Services | 590 | 385 | 53 | % | 1,551 | 1,048 | 48 | ||||||||||||||||||||||||
Other | (8 | ) | 46 | NM | (49 | ) | 82 | NM | Other | (20 | ) | (8 | ) | NM | 154 | (49 | ) | NM | ||||||||||||||||||||
Total Corporate and Investment Banking | $ | 1,721 | $ | 1,797 | (4 | )% | $ | 5,373 | $ | 4,848 | 11 | % | Total Markets & Banking | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | |||||||||||||
Global Wealth Management | Global Wealth Management | Global Wealth Management | ||||||||||||||||||||||||||||||||||||
Smith Barney | $ | 294 | $ | 227 | 30 | % | $ | 700 | $ | 663 | 6 | % | Smith Barney | $ | 379 | $ | 294 | 29 | % | $ | 1,024 | $ | 700 | 46 | % | |||||||||||||
Private Bank | 105 | 79 | 33 | 333 | 284 | 17 | Private Bank | 110 | 105 | 5 | 427 | 333 | 28 | |||||||||||||||||||||||||
Total Global Wealth Management | $ | 399 | $ | 306 | 30 | % | $ | 1,033 | $ | 947 | 9 | % | Total Global Wealth Management | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | |||||||||||||
Alternative Investments | Alternative Investments | $ | 117 | $ | 339 | (65 | )% | $ | 727 | $ | 1,086 | (33 | )% | Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||||||
Corporate/Other | Corporate/Other | (129 | ) | (177 | ) | 27 | (458 | ) | (510 | ) | 10 | Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | ||||||||||||||||
Income from Continuing Operations | Income from Continuing Operations | $ | 5,303 | $ | 4,988 | 6 | % | $ | 16,120 | $ | 14,834 | 9 | % | Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | ||||||||||||
Income from Discontinued Operations(3) | 202 | 2,155 | (91 | ) | 289 | 2,823 | (90 | ) | ||||||||||||||||||||||||||||||
Income from Discontinued Operations(2) | Income from Discontinued Operations(2) | — | 202 | (100 | ) | — | 289 | (100 | ) | |||||||||||||||||||||||||||||
Total Net Income | Total Net Income | $ | 5,505 | $ | 7,143 | (23 | )% | $ | 16,409 | $ | 17,657 | (7 | )% | Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | ||||||||||||
Citigroup Net Income—Regional View
| | Three Months Ended September 30, | % | Nine Months Ended September 30, | % | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % of Total(1) | % Change | % Change | ||||||||||||||||||||||||||||||||||||
In millions of dollars | 2006 | 2005(1) | Change | 2006 | 2005(1) | Change | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||||||
U.S.(2) | U.S.(2) | U.S.(2) | ||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 2,157 | $ | 1,761 | 22 | % | $ | 6,056 | $ | 5,461 | 11 | % | Global Consumer | $ | 904 | $ | 2,157 | (58 | )% | $ | 4,264 | $ | 6,056 | (30 | )% | |||||||||||||||
Corporate and Investment Banking | 540 | 637 | (15 | ) | 1,802 | 1,992 | (10 | ) | Markets & Banking | (692 | ) | 540 | NM | 1,291 | 1,802 | (28 | ) | |||||||||||||||||||||||
Global Wealth Management | 342 | 288 | 19 | 860 | 876 | (2 | ) | Global Wealth Management | 333 | 342 | (3 | ) | 1,029 | 860 | 20 | |||||||||||||||||||||||||
TotalU.S. | $ | 3,039 | $ | 2,686 | 13 | % | $ | 8,718 | $ | 8,329 | 5 | % | TotalU.S. | 21 | % | $ | 545 | $ | 3,039 | (82 | )% | $ | 6,584 | $ | 8,718 | (24 | )% | |||||||||||||
Mexico | Mexico | Mexico | ||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 395 | $ | 511 | (23 | )% | $ | 1,128 | $ | 1,156 | (2 | )% | ||||||||||||||||||||||||||||
Corporate and Investment Banking | 95 | 177 | (46 | ) | 261 | 336 | (22 | ) | ||||||||||||||||||||||||||||||||
Global Wealth Management | 9 | 12 | (25 | ) | 27 | 35 | (23 | ) | ||||||||||||||||||||||||||||||||
TotalMexico | $ | 499 | $ | 700 | (29 | )% | $ | 1,416 | $ | 1,527 | (7 | )% | ||||||||||||||||||||||||||||
Latin America | ||||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 23 | $ | 61 | (62 | )% | $ | 169 | $ | 195 | (13 | )% | Global Consumer | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | |||||||||||||||
Corporate and Investment Banking | 168 | 185 | (9 | ) | 508 | 525 | (3 | ) | Markets & Banking | 125 | 95 | 32 | 334 | 261 | 28 | |||||||||||||||||||||||||
Global Wealth Management | 3 | 1 | NM | 8 | 16 | (50 | ) | Global Wealth Management | 10 | 9 | 11 | 37 | 27 | 37 | ||||||||||||||||||||||||||
TotalLatin America | $ | 194 | $ | 247 | (21 | )% | $ | 685 | $ | 736 | (7 | )% | TotalMexico | 15 | % | $ | 379 | $ | 499 | (24 | )% | $ | 1,347 | $ | 1,416 | (5 | )% | |||||||||||||
EMEA | EMEA | EMEA | ||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 213 | $ | (154 | ) | NM | $ | 613 | $ | 92 | NM | Global Consumer | $ | 58 | $ | 213 | (73 | )% | $ | 289 | $ | 613 | (53 | )% | ||||||||||||||||
Corporate and Investment Banking | 489 | 358 | 37 | % | 1,466 | 882 | 66 | % | Markets & Banking | (25 | ) | 489 | NM | 1,472 | 1,466 | — | ||||||||||||||||||||||||
Global Wealth Management | 7 | 8 | (13 | ) | 15 | 10 | 50 | Global Wealth Management | 4 | 7 | (43 | ) | 57 | 15 | NM | |||||||||||||||||||||||||
TotalEMEA | $ | 709 | $ | 212 | NM | $ | 2,094 | $ | 984 | NM | TotalEMEA | 1 | % | $ | 37 | $ | 709 | (95 | )% | $ | 1,818 | $ | 2,094 | (13 | )% | |||||||||||||||
Japan | Japan | Japan | ||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 79 | $ | 169 | (53 | )% | $ | 445 | $ | 532 | (16 | )% | Global Consumer | $ | (224 | ) | $ | 79 | NM | $ | (147 | ) | $ | 445 | NM | |||||||||||||||
Corporate and Investment Banking | 38 | 58 | (34 | ) | 195 | 160 | 22 | Markets & Banking | (96 | ) | 38 | NM | 63 | 195 | (68 | )% | ||||||||||||||||||||||||
Global Wealth Management | — | (29 | ) | 100 | — | (82 | ) | 100 | Global Wealth Management | 60 | — | — | 90 | — | — | |||||||||||||||||||||||||
TotalJapan | $ | 117 | $ | 198 | (41 | )% | $ | 640 | $ | 610 | 5 | % | TotalJapan | (10 | )% | $ | (260 | ) | $ | 117 | NM | $ | 6 | $ | 640 | (99 | )% | |||||||||||||
Asia | Asia | Asia | ||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 328 | $ | 375 | (13 | )% | $ | 1,034 | $ | 1,027 | 1 | % | Global Consumer | $ | 334 | $ | 328 | 2 | % | $ | 1,143 | $ | 1,034 | 11 | % | |||||||||||||||
Corporate and Investment Banking | 391 | 382 | 2 | 1,141 | 953 | 20 | Markets & Banking | 727 | 391 | 86 | 1,855 | 1,141 | 63 | |||||||||||||||||||||||||||
Global Wealth Management | 38 | 26 | 46 | 123 | 92 | 34 | Global Wealth Management | 79 | 38 | NM | 218 | 123 | 77 | |||||||||||||||||||||||||||
TotalAsia | $ | 757 | $ | 783 | (3 | )% | $ | 2,298 | $ | 2,072 | 11 | % | TotalAsia | 45 | % | $ | 1,140 | $ | 757 | 51 | % | $ | 3,216 | $ | 2,298 | 40 | % | |||||||||||||
Latin America | Latin America | |||||||||||||||||||||||||||||||||||||||
Global Consumer | $ | 467 | $ | 23 | NM | $ | 587 | $ | 169 | NM | ||||||||||||||||||||||||||||||
Markets & Banking | 241 | 168 | 43 | % | 718 | 508 | 41 | % | ||||||||||||||||||||||||||||||||
Global Wealth Management | 3 | 3 | — | 20 | 8 | NM | ||||||||||||||||||||||||||||||||||
TotalLatin America | 28 | % | $ | 711 | $ | 194 | NM | $ | 1,325 | $ | 685 | 93 | % | |||||||||||||||||||||||||||
Alternative Investments | Alternative Investments | $ | 117 | $ | 339 | (65 | )% | $ | 727 | $ | 1,086 | (33 | )% | Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||||||||
Corporate/Other | Corporate/Other | (129 | ) | (177 | ) | 27 | (458 | ) | (510 | ) | 10 | Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | ||||||||||||||||||
Income from Continuing Operations | Income from Continuing Operations | $ | 5,303 | $ | 4,988 | 6 | % | $ | 16,120 | $ | 14,834 | 9 | % | Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | ||||||||||||||
Income from Discontinued Operations(3) | Income from Discontinued Operations(3) | 202 | 2,155 | (91 | ) | 289 | 2,823 | (90 | ) | Income from Discontinued Operations(3) | — | 202 | (100 | ) | — | 289 | (100 | ) | ||||||||||||||||||||||
Total Net Income | Total Net Income | $ | 5,505 | $ | 7,143 | (23 | )% | $ | 16,409 | $ | 17,657 | (7 | )% | Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | ||||||||||||||
Total International | Total International | $ | 2,276 | $ | 2,140 | 6 | % | $ | 7,133 | $ | 5,929 | 20 | % | Total International | 79 | % | $ | 2,007 | $ | 2,276 | (12 | )% | $ | 7,712 | $ | 7,133 | 8 | % | ||||||||||||
Citigroup Revenues—Segment and Product View
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | |||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Global Consumer | |||||||||||||||||||
U.S. Cards | $ | 3,386 | $ | 3,452 | (2 | )% | $ | 9,861 | $ | 9,937 | (1 | )% | |||||||
U.S. Retail Distribution | 2,539 | 2,382 | 7 | 7,510 | 7,177 | 5 | |||||||||||||
U.S. Consumer Lending | 1,548 | 1,481 | 5 | 4,705 | 4,048 | 16 | |||||||||||||
U.S. Commercial Business | 359 | 489 | (27 | ) | 1,248 | 1,475 | (15 | ) | |||||||||||
Total U.S. Consumer(1) | $ | 7,832 | $ | 7,804 | — | $ | 23,324 | $ | 22,637 | 3 | % | ||||||||
International Cards | $ | 2,852 | $ | 1,519 | 88 | % | $ | 6,604 | $ | 4,309 | 53 | % | |||||||
International Consumer Finance | 782 | 998 | (22 | ) | 2,515 | 2,969 | (15 | ) | |||||||||||
International Retail Banking | 3,225 | 2,550 | 26 | 9,014 | 7,572 | 19 | |||||||||||||
Total International Consumer | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | |||||||
Other | $ | (8 | ) | $ | (37 | ) | 78 | % | $ | (6 | ) | $ | (70 | ) | 91 | % | |||
Total Global Consumer | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | |||||||
Markets & Banking | |||||||||||||||||||
Securities and Banking | $ | 2,270 | $ | 4,567 | (50 | )% | $ | 16,704 | $ | 15,732 | 6 | % | |||||||
Transaction Services | 2,063 | 1,500 | 38 | 5,548 | 4,377 | 27 | |||||||||||||
Other | — | — | — | (1 | ) | (2 | ) | 50 | |||||||||||
Total Markets & Banking | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | |||||||
Global Wealth Management | |||||||||||||||||||
Smith Barney | $ | 2,892 | $ | 1,994 | 45 | % | $ | 7,749 | $ | 5,971 | 30 | % | |||||||
Private Bank | 617 | 492 | 25 | 1,775 | 1,490 | 19 | |||||||||||||
Total Global Wealth Management | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | |||||||
Alternative Investments | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | |||||||
Corporate/Other | (257 | ) | (299 | ) | 14 | (463 | ) | (791 | ) | 41 | |||||||||
Total Net Revenues | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||||
SELECTED REVENUE AND EXPENSE ITEMSCitigroup Revenues—Regional View
Selected Revenue Items
Net interest revenue of $9.8 billion for the 2006 third quarter increased $133 million, or 1%, from the 2005 third quarter, as higher customer deposit and loan balances were offset by spread compression.
Total commissions and fees and administration and other fiduciary fees for the third Three Months Ended
September 30, Nine Months Ended
September In millions of dollars % of
Total(1) %
Change %
Change 2007 2006 2007 2006 U.S.(2) Global Consumer $ 7,824 $ 7,767 1 % $ 23,318 $ 22,567 3 % Markets & Banking 37 2,007 (98 ) 6,792 7,733 (12 ) Global Wealth Management 2,454 2,153 14 7,278 6,456 13 TotalU.S. 46 % $ 10,315 $ 11,927 (12 )% $ 37,388 $ 36,756 2 % Mexico Global Consumer $ 1,404 $ 1,238 13 % $ 4,135 $ 3,579 16 % Markets & Banking 247 197 25 657 582 13 Global Wealth Management 38 32 19 115 96 20 TotalMexico 7 % $ 1,689 1,467 15 % $ 4,907 $ 4,257 15 % EMEA Global Consumer $ 1,738 $ 1,353 28 % $ 4,802 $ 3,983 21 % Markets & Banking 1,398 2,166 (33 ) 7,218 6,505 11 Global Wealth Management 139 83 67 384 241 59 TotalEMEA 15 % 3,275 $ 3,602 (8 )% $ 12,404 $ 10,729 16 % Japan Global Consumer $ 649 $ 782 (17 )% $ 1,944 $ 2,364 (18 )% Markets & Banking 133 177 (25 ) 798 742 8 Global Wealth Management 547 — — 833 — — TotalJapan 6 % $ 1,329 $ 959 39 % $ 3,575 $ 3,106 15 % Asia Global Consumer $ 1,520 $ 1,209 26 % $ 4,343 $ 3,642 19 % Markets & Banking 1,822 1,080 69 4,861 3,274 48 Global Wealth Management 277 171 62 753 532 42 TotalAsia 16 % $ 3,619 $ 2,460 47 % $ 9,957 $ 7,448 34 % Latin America Global Consumer $ 1,548 $ 485 NM $ 2,909 $ 1,282 NM Markets & Banking 696 440 58 % 1,925 1,271 51 % Global Wealth Management 54 47 15 161 136 18 TotalLatin America 10 % $ 2,298 $ 972 NM $ 4,995 $ 2,689 86 % Alternative Investments $ 125 $ 334 (63 )% $ 1,719 $ 1,593 8 % Corporate/Other (257 ) (299 ) 14 (463 ) (791 ) 41 Total Net Revenues $ 22,393 $ 21,422 5 % $ 74,482 $ 65,787 13 % Total International 54 % $ 12,210 $ 9,460 29 % $ 35,838 $ 28,229 27 %
Principal transactions revenue of $1.9 billion decreased $23 million, or 1%, from the third quarter of 2005. Realized gains from sales of investments were up $20 million, or 7%, to $304 million in the 2006 third quarter. During the 2006 third quarter, Consumer Lending sold $11 billion of mortgage-backed securities resulting in a $133 million realized gain. This was offset by the absence of a $134 million realized gain ininterest expense, excluding Alternative Investments on the sale of the St. Paul Travelers shares in the third quarter of 2005.
Other revenue of $2.9 billion increased $388 million, or 16%, from the 2005 third quarter. The increase was primarily driven by higher net replenishment gains on previously securitized receivables in U.S. Cards and gains on derivative contracts on Consumer Lending's mortgage servicing assets, offset by the absence of the Copelco Litigation Settlement of $185 million in the 2005 third quarter and a decrease inCorporate/Other.
Operating Expenses
Total operating expenses were $11.9 billion for the 2006 third quarter, up $523 million, or 5%, from the comparable 2005 period. The increase was primarily due to investment spending, SFAS 123(R) accruals, and acquisitions.
Global Consumer reported a 12% increase in total expenses from the 2005 third quarter.U.S. Consumer increased $136 million, or 4%, on increased business volumes and investments in new branches.International Consumer expenses increased $489 million, or 21%, versus the third quarter of 2005, primarily due to investment in branch expansion, the integration of Credicard, and the absence of a value added tax refund inMexico in the prior-year period.
CIB expenses decreased 6% from the 2005 third quarter, primarily due to a decline in incentive compensation accruals.
Global Wealth Management expenses increased 13% compared to the prior-year quarter, primarily related to costs associated with the integration of the financial consultants from Legg Mason and SFAS 123(R) costs. Alternative Investments expenses declined 18% from the 2005 third quarter.
Provisions for Credit Losses and for Benefits and Claims
The provision for credit losses declined $782 million, or 30%, from the 2005 third quarter to $1.8 billion. Policyholder benefits and claims in the 2006 third quarter increased $59 million, or 27%, from the 2005 third quarter.
Global Consumer provisions for loan losses and for benefits and claims of $2.0 billion in the 2006 third quarter were down $776 million, or 28%, from the 2005 third quarter. The declines were mainly due to lower bankruptcy filings, a continued favorable credit environment that drove lower net credit loss ratios and the absence of a $490 million charge to standardize the EMEA consumer loan write-off policies with the global write-off policy in the prior-year period. Total net credit losses were $1.815 billion, and the related loss ratio was 1.49%, in the 2006 third quarter, as compared to $2.926 billion and 2.68% in the 2005 third quarter. The consumer loan delinquency ratio (90 days or more past due) declined to 1.29% at September 30, 2006 from 1.45% at September 30, 2005. See page 57 for a reconciliation of total consumer credit information.
The CIB provision for credit losses in the 2006 third quarter was up $64 million from the 2005 third quarter. CIB's reserve for credit losses was increased by $50 million for unfunded lending commitments in the 2006 third quarter due to higher exposures.
Corporate cash-basis loans at September 30, 2006 and 2005 were $692 million and $1.2 billion, respectively, while the corporate Corporate/Other, Real Estate Owned (OREO) portfolio totaled $193 million and $153 million, respectively. The decline in corporate cash-basis loans from September 30, 2005, was related to improvements in the overall credit environment.
Income Taxes
The Company's effective income tax rate on continuing operations was 27.4% in the 2006 third quarter, compared to 29.9% in the 2005 third quarter. The 2006 third quarter included a $237 million tax benefitwhich are predominantly related to the resolution of
Regulatory Capital
Total capital (Tier 1 and Tier 2) was $117.8 billion and $106.4 billion, or 11.88% and 12.02% of net risk-adjusted assets at September 30, 2006 and December 31, 2005, respectively. Tier 1 capital was $85.7 billion, or 8.64% of net risk-adjusted assets, at September 30, 2006, compared to $77.8 billion, or 8.79%, at December 31, 2005.
ACCOUNTING CHANGES AND FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 to the Consolidated Financial Statements on page 91 for a discussion of Accounting Changes and the Future Application of Accounting Standards.
SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 2005 Annual Report on Form 10-K.
The net income line in the following business segment and operating unit discussions excludes discontinued operations. Income from discontinued operations is included within the Corporate/U.S. includes Other business segment. See Notes 3 and 4 to the Consolidated Financial Statements on pages 94 and 97, respectively.Consumer.
Certain prior period amounts have been reclassified to conform to the current period's presentation.
Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 7,9338,294 branches, approximately 18,00019,500 ATMs, approximately 800706 Automated LendingLoan Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services salesforce. Global Consumer serves more than 250200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | ||||||||||||||||||||||||||||||||
2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
Net interest revenue | $ | 7,523 | $ | 7,369 | 2 | % | $ | 22,228 | $ | 22,212 | — | $ | 8,285 | $ | 7,523 | 10 | % | $ | 24,118 | $ | 22,228 | 9 | % | |||||||||||
Non-interest revenue | 5,311 | 4,952 | 7 | 15,189 | 14,234 | 7 | % | 6,398 | 5,311 | 20 | 17,333 | 15,189 | 14 | |||||||||||||||||||||
Revenues, net of interest expense | $ | 12,834 | $ | 12,321 | 4 | % | $ | 37,417 | $ | 36,446 | 3 | % | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | ||||||||||
Operating expenses | 6,316 | 5,657 | 12 | 19,052 | 17,256 | 10 | 7,506 | 6,316 | 19 | 21,329 | 19,052 | 12 | ||||||||||||||||||||||
Provisions for loan losses and for benefits and claims | 1,994 | 2,770 | (28 | ) | 5,311 | 6,919 | (23 | ) | 4,801 | 1,994 | NM | 10,256 | 5,311 | 93 | ||||||||||||||||||||
Income before taxes and minority interest | $ | 4,524 | $ | 3,894 | 16 | % | $ | 13,054 | $ | 12,271 | 6 | % | $ | 2,376 | $ | 4,524 | (47 | )% | $ | 9,866 | $ | 13,054 | (24 | )% | ||||||||||
Income taxes | 1,312 | 1,153 | 14 | 3,559 | 3,762 | (5 | ) | 568 | 1,312 | (57 | ) | 2,689 | 3,559 | (24 | ) | |||||||||||||||||||
Minority interest, net of taxes | 17 | 18 | (6 | ) | 50 | 46 | 9 | 25 | 17 | 47 | 65 | 50 | 30 | |||||||||||||||||||||
Net income | $ | 3,195 | $ | 2,723 | 17 | % | $ | 9,445 | $ | 8,463 | 12 | % | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | ||||||||||
Average assets(in billions of dollars) | $ | 620 | $ | 534 | 16 | % | $ | 586 | $ | 529 | 11 | % | $ | 741 | $ | 620 | 20 | % | $ | 731 | $ | 586 | 25 | % | ||||||||||
Return on assets | 2.04 | % | 2.02 | % | 2.15 | % | 2.14 | % | 0.95 | % | 2.04 | % | 1.30 | % | 2.15 | % | ||||||||||||||||||
Average risk capital(1) | $ | 27,938 | $ | 27,343 | 2 | % | $ | 27,724 | $ | 27,012 | 3 | % | $ | 32,852 | $ | 27,938 | 18 | % | $ | 32,701 | $ | 27,725 | 18 | % | ||||||||||
Return on risk capital(1) | 45 | % | 40 | % | 46 | % | 42 | % | 22 | % | 45 | % | 29 | % | 46 | % | ||||||||||||||||||
Return on invested capital(1) | 21 | % | 18 | % | 21 | % | 19 | % | 11 | % | 21 | % | 15 | % | 21 | % | ||||||||||||||||||
Key Indicators—(in billions of dollars) | ||||||||||||||||||||||||||||||||||
Average loans | $ | 502.6 | $ | 440.1 | 14 | % | ||||||||||||||||||||||||||||
Average deposits | $ | 298.6 | $ | 253.9 | 18 | |||||||||||||||||||||||||||||
Total branches | 8,294 | 7,933 | 5 | % | ||||||||||||||||||||||||||||||
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U.S. Consumer is comprisedcomposed of four businesses:Cards, Retail Distribution, Consumer Lending andCommercial Business.which operate in the U.S., Canada and Puerto Rico.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | ||||||||||||||||||||||||||||||||
2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
Net interest revenue | $ | 4,141 | $ | 4,422 | (6 | )% | $ | 12,468 | $ | 13,209 | (6 | )% | $ | 4,252 | $ | 4,141 | 3 | % | $ | 12,722 | $ | 12,468 | 2 | % | ||||||||||
Non-interest revenue | 3,663 | 3,279 | 12 | 10,169 | 9,945 | 2 | 3,580 | 3,663 | (2 | ) | 10,602 | 10,169 | 4 | |||||||||||||||||||||
Revenues, net of interest expense | $ | 7,804 | $ | 7,701 | 1 | % | $ | 22,637 | $ | 23,154 | (2 | )% | $ | 7,832 | $ | 7,804 | — | $ | 23,324 | $ | 22,637 | 3 | % | |||||||||||
Operating expenses | 3,426 | 3,290 | 4 | 10,546 | 9,985 | 6 | 3,710 | 3,426 | 8 | % | 10,983 | 10,546 | 4 | |||||||||||||||||||||
Provisions for loan losses and for benefits and claims | 962 | 1,573 | (39 | ) | 2,690 | 4,319 | (38 | ) | 2,700 | 962 | NM | 5,674 | 2,690 | NM | ||||||||||||||||||||
Income before taxes and minority interest | $ | 3,416 | $ | 2,838 | 20 | % | $ | 9,401 | $ | 8,850 | 6 | % | $ | 1,422 | $ | 3,416 | (58 | )% | $ | 6,667 | $ | 9,401 | (29 | )% | ||||||||||
Income taxes | 1,162 | 996 | 17 | 3,060 | 3,045 | — | 413 | 1,162 | (64 | ) | 2,100 | 3,060 | (31 | ) | ||||||||||||||||||||
Minority interest, net of taxes | 16 | 17 | (6 | ) | 45 | 46 | (2 | ) | 5 | 16 | (69 | ) | 27 | 45 | (40 | ) | ||||||||||||||||||
Net income | $ | 2,238 | $ | 1,825 | 23 | % | $ | 6,296 | $ | 5,759 | 9 | % | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | ||||||||||
Average assets(in billions of dollars) | $ | 422 | $ | 359 | 18 | % | $ | 398 | $ | 353 | 13 | % | $ | 493 | $ | 422 | 17 | % | $ | 501 | $ | 398 | 26 | % | ||||||||||
Return on assets | 2.10 | % | 2.02 | % | 2.12 | % | 2.18 | % | 0.81 | % | 2.10 | % | 1.21 | % | 2.12 | % | ||||||||||||||||||
Average risk capital(1) | $ | 15,312 | $ | 13,767 | 11 | $ | 15,059 | $ | 13,869 | 9 | % | $ | 17,220 | $ | 15,312 | 12 | % | $ | 17,748 | $ | 15,059 | 18 | % | |||||||||||
Return on risk capital(1) | 58 | % | 53 | % | 56 | % | 56 | % | 23 | % | 58 | % | 34 | % | 56 | % | ||||||||||||||||||
Return on invested capital(1) | 26 | % | 22 | % | 25 | % | 23 | % | 11 | % | 26 | % | 17 | % | 25 | % | ||||||||||||||||||
Key Indicators—(in billions of dollars) | ||||||||||||||||||||||||||||||||||
Average loans | $ | 353.4 | $ | 324.0 | 9 | % | ||||||||||||||||||||||||||||
Average deposits | $ | 122.9 | $ | 105.5 | 16 | % | ||||||||||||||||||||||||||||
Total branches | 3,482 | 3,353 | 4 | % | ||||||||||||||||||||||||||||||
U.S. Cards
U.S. Cards is one of the largest providers of credit cards in North America, with more than 150 million customer accounts in the United States, Canada and Puerto Rico. In addition to MasterCard (including Diners), Visa, and American Express,U.S. Cards is the largest provider of credit card services to the oil and gas industry and the leading provider of consumer private-label credit cards and commercial accounts on behalf of merchants such as The Home Depot, Federated, Sears, Dell Computer, Radio Shack, Staples and Zales Corporation.
Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales and other delinquency and servicing fees.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | |||||||||||
Net interest revenue | $ | 1,140 | $ | 1,353 | (16 | )% | $ | 3,500 | $ | 4,004 | (13 | )% | |||||
Non-interest revenue | 2,312 | 2,028 | 14 | 6,437 | 6,095 | 6 | |||||||||||
Revenues, net of interest expense | $ | 3,452 | $ | 3,381 | 2 | % | $ | 9,937 | $ | 10,099 | (2 | )% | |||||
Operating expenses | 1,447 | 1,458 | (1 | ) | 4,533 | 4,461 | 2 | ||||||||||
Provision for loan losses and for benefits and claims | 360 | 679 | (47 | ) | 1,067 | 2,075 | (49 | ) | |||||||||
Income before taxes | $ | 1,645 | $ | 1,244 | 32 | % | $ | 4,337 | $ | 3,563 | 22 | % | |||||
Income taxes | 560 | 447 | 25 | 1,448 | 1,253 | 16 | % | ||||||||||
Net income | $ | 1,085 | $ | 797 | 36 | % | $ | 2,889 | $ | 2,310 | 25 | % | |||||
Average assets(in billions of dollars) | $ | 64 | $ | 63 | 2 | % | $ | 63 | $ | 66 | (5 | )% | |||||
Return on assets | 6.73 | % | 5.02 | % | 6.13 | % | 4.68 | % | |||||||||
Average risk capital(1) | $ | 5,628 | $ | 5,848 | (4 | )% | $ | 5,594 | $ | 5,780 | (3 | )% | |||||
Return on risk capital(1) | 76 | % | 54 | % | 69 | % | 53 | % | |||||||||
Return on invested capital(1) | 32 | % | 22 | % | 29 | % | 22 | % | |||||||||
Key indicators—on a managed basis: (in billions of dollars) | |||||||||||||||||
Return on managed assets | 2.91 | % | 2.20 | % | |||||||||||||
Purchase sales | $ | 77.0 | $ | 70.9 | 9 | % | |||||||||||
Managed average yield(2) | 14.00 | % | 13.98 | % | |||||||||||||
Managed net interest margin(2) | 10.28 | % | 11.03 | % | |||||||||||||
U.S. Cards (Continued)
3Q06 vs. 3Q05
Net Interest Revenue decreased, reflecting a combination of increased payment rates, higher cost of funds, and the mix of receivable balances.Non-Interest Revenue increased, as the positive impact of 9% growth in purchase sales, increased revenues from previously securitized receivables, which includes excess servicing, and the addition of the Federated portfolio in the 2005 fourth quarter more than offset higher rewards program costs and lower asset sales of $37 million. Included in revenues in the 2005 third quarter were the negative impact of Hurricane Katrina and the effect of the new bankruptcy legislation.
Operating expenses improved, primarily due to a decline in advertising and marketing expenses, largely reflecting the timing of advertising campaigns, partially offset by the addition of the Federated portfolio.
Provision for loan losses and for benefits and claims declined, primarily reflecting a decline in net credit losses and a loan loss reserve release of $122 million, due to lower bankruptcies and the favorable credit environment.
Net income also reflected a $39 million tax benefit in the 2006 third quarter resulting from the resolution of the New York Tax Audits.
2006 YTD vs. 2005 YTD
Net Interest Revenue decreased, reflecting a combination of increased payment rates, higher cost of funds, and the mix of receivable balances.Non-Interest Revenue increased as the positive impact of growth in purchase sales, increased revenues from previously securitized receivables, and the addition of the Federated portfolio more than offset higher rewards program costs. Included in revenues in the 2006 period were asset sales of $105 million, including the 2006 second quarter gain from the MasterCard initial public offering of $59 million. In the 2005 period, revenues included gains from asset sales of $185 million.
Operating expenses increased, primarily reflecting the addition of the Federated portfolio and the adoption of SFAS 123(R) in the 2006 first quarter; this was partially offset by a decline in advertising and marketing expenses, largely reflecting the timing of advertising campaigns.
Provision for loan losses and for benefits and claims declined, primarily reflecting a decline in net credit losses and a loan loss reserve release of $354 million, due to lower bankruptcies and the favorable credit environment.
Net Income also reflected an $89 million tax benefit resulting from the resolution of the Federal Tax Audit in the 2006 first quarter, along with a $39 million tax benefit resulting from the resolution of the New York Tax Audits in the 2006 third quarter.
U.S. Retail Distribution
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 1,521 | $ | 1,488 | 2 | % | $ | 4,469 | $ | 4,473 | — | |||||||
Non-interest revenue | 861 | 851 | 1 | 2,708 | 2,683 | 1 | % | |||||||||||
Revenues, net of interest expense | $ | 2,382 | $ | 2,339 | 2 | % | $ | 7,177 | $ | 7,156 | — | |||||||
Operating expenses | 1,201 | 1,099 | 9 | 3,622 | 3,291 | 10 | % | |||||||||||
Provisions for loan losses and for benefits and claims | 446 | 759 | (41 | ) | 1,258 | 1,773 | (29 | ) | ||||||||||
Income before taxes | $ | 735 | $ | 481 | 53 | % | $ | 2,297 | $ | 2,092 | 10 | % | ||||||
Income taxes | 254 | 162 | 57 | 733 | 731 | — | ||||||||||||
Net income | $ | 481 | $ | 319 | 51 | % | $ | 1,564 | $ | 1,361 | 15 | % | ||||||
Revenues, net of interest expense, by business: | ||||||||||||||||||
Citibank branches | $ | 765 | $ | 754 | 1 | % | $ | 2,406 | $ | 2,373 | 1 | % | ||||||
CitiFinancial branches | 1,052 | 1,035 | 2 | 3,097 | 3,142 | (1 | ) | |||||||||||
Primerica Financial Services | 565 | 550 | 3 | 1,674 | 1,641 | 2 | ||||||||||||
Total revenues | $ | 2,382 | $ | 2,339 | 2 | % | $ | 7,177 | $ | 7,156 | — | |||||||
Net income by business: | ||||||||||||||||||
Citibank branches | $ | 79 | $ | 111 | (29 | )% | $ | 344 | $ | 410 | (16 | )% | ||||||
CitiFinancial branches | 270 | 72 | NM | 799 | 545 | 47 | ||||||||||||
Primerica Financial Services | 132 | 136 | (3 | ) | 421 | 406 | 4 | |||||||||||
Total net income | $ | 481 | $ | 319 | 51 | % | $ | 1,564 | $ | 1,361 | 15 | % | ||||||
Average assets(in billions of dollars) | $ | 70 | $ | 65 | 8 | % | $ | 68 | $ | 64 | 6 | % | ||||||
Return on assets | 2.73 | % | 1.95 | % | 3.08 | % | 2.84 | % | ||||||||||
Average risk capital(1) | $ | 3,591 | $ | 3,003 | 20 | % | $ | 3,523 | $ | 2,975 | 18 | % | ||||||
Return on risk capital(1) | 53 | % | 42 | % | 59 | % | 61 | % | ||||||||||
Return on invested capital(1) | 21 | % | 13 | % | 23 | % | 17 | % | ||||||||||
Key indicators: (in billions of dollars) | ||||||||||||||||||
Average loans | $ | 45.2 | $ | 40.7 | 11 | % | ||||||||||||
Average deposits | 134.7 | 119.6 | 13 | |||||||||||||||
EOP Investment Assets under Management (AUMs) | 76.1 | 70.9 | 7 | |||||||||||||||
U.S. Retail Distribution (Continued)
U.S. Retail Distribution provides banking, lending, investment and insurance products and services to customers through 931 Citibank branches, 2,422 CitiFinancial branches, the Primerica Financial Services (PFS) salesforce, the Internet, direct mail and telesales. Revenues are primarily derived from net interest revenue on loans and deposits and from fees on banking, insurance and investment products.
3Q063Q07 vs. 3Q05
Net Interest Revenue increased 2%, as growth in deposits of 13% and growth in loans of 11% were largely offset by net interest margin compression. This was mainly due to a shift in customer liabilities from savings and other demand deposits to certificates of deposit and e-Savings accounts.Non-Interest Revenue increased slightly for the quarter due to increased investment product sales in Citibank branches and strong securities sales in Primerica Financial Services.
Operating expense growth was primarily due to higher volume-related expenses, increased investment spending, driven by 101 new branch openings in the quarter (and 195 additional net branches since the 2005 third quarter), and advertising costs associated with the launch of e-Savings.
Provisions for loan losses and for benefits and claims declined 41% primarily due to the absence of a $165 million pretax loan loss reserve build in the prior year related to the reorganization of the former Consumer Finance business, a prior-year reserve build related to Hurricane Katrina of $110 million pretax in CitiFinancial branches, and lower overall bankruptcy filings in the current period. The net credit loss ratio declined 58 basis points to 2.48% reflecting the continuing favorable credit environment.
Deposit growth reflected balance increases in certificates of deposit; e-Savings accounts, which generated $6.2 billion in average deposits; and premium checking and rate-sensitive money market products, as well as the impact of the transfer of approximately $1.8 billion in deposits for certain customer segments, from the U.S. Commercial Business Group, to better serve those customers. Excluding the transfer of $1.8 billion from the U.S. Commercial Business Group, deposits grew 11% from the prior-year quarter.Loan growth reflected improvements in all channels and products.Investment product sales in Citibank branches increased 16%, driven by increased volumes.
2006 YTD vs. 2005 YTD3Q06
Net Interest Revenue was flat to3% higher than the prior-year periodprior year, as growth in average deposits and loans upof 16% and 9% and 10%, respectively, were more thanwas partially offset by a decrease in net interest margins (interest revenue less interest expense divided by average interest-earning assets). Net interest margin compression. This was primarilydeclined due to a shift in customer liabilities from savings and other demand deposits to certificateshigher cost direct bank and time deposit balances, a mix toward lower-yielding mortgage assets, and the securitization of deposit and e-Savings accounts.higher margin credit card receivables, partially offset by lower promotional credit card receivable balances.
Non InterestNon-Interest Revenue increased slightly due to the $132 million pretax gain on the Sale of New York Branches, partially offset by the absence of a $110 million gain related to the resolution of the Glendale litigation in the 2005 first quarter and other revenue declines.
Operating expense growth was primarily due to higher volume-related expenses, increased investment spending primarily driven by new branch openings, the impact of SFAS 123(R), and advertising costs associated with the launch of e-Savings. The impact of the FAB acquisition also contributed to higher expenses.
Provisions for loan losses and for benefits and claims declined 29%decreased 2% primarily due to the absence of pilot-year gain on sale of Mortgage-Backed Securities (MBS) inConsumer Lending, and lower securitization gains and a $165 million pretax loan loss reserve builddecline in the prior year related to the reorganization of the former Consumer Finance business, a prior-year reserve build related to Hurricane Katrina of $110 million and lower overall bankruptcy filingsresidual interest in the current year. The credit environment was favorable during the first three quarters of 2006.
DepositCards growth reflected balance increases in certificates of deposit; e-Savings accounts, which generated $7.8 billion in end-of-period deposits; premium checking; and partly rate-sensitive money market products..Loan growth reflected improvements in all channels and products.Investment product sales increased 26%, driven by increased volumes.
Net income in 2006 also reflected a $51 million tax reserve release resulting from the resolution of the Federal Tax Audit.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 1,185 | $ | 1,209 | (2 | )% | $ | 3,606 | $ | 3,709 | (3 | )% | ||||||
Non-interest revenue | 296 | 123 | NM | 442 | 372 | 19 | ||||||||||||
Revenues, net of interest expense | $ | 1,481 | $ | 1,332 | 11 | % | $ | 4,048 | $ | 4,081 | (1 | )% | ||||||
Operating expenses | 450 | 425 | 6 | 1,347 | 1,249 | 8 | ||||||||||||
Provisions for loan losses and for benefits and claims | 186 | 114 | 63 | 415 | 444 | (7 | ) | |||||||||||
Income before taxes and minority interest | $ | 845 | $ | 793 | 7 | % | $ | 2,286 | $ | 2,388 | (4 | )% | ||||||
Income taxes | 308 | 289 | 7 | 813 | 862 | (6 | ) | |||||||||||
Minority interest, net of taxes | 16 | 17 | (6 | ) | 45 | 46 | (2 | ) | ||||||||||
Net income | $ | 521 | $ | 487 | 7 | % | $ | 1,428 | $ | 1,480 | (4 | )% | ||||||
Revenues, net of interest expense, by business: | ||||||||||||||||||
Real Estate Lending | $ | 1,000 | $ | 836 | 20 | % | $ | 2,636 | $ | 2,648 | — | |||||||
Student Loans | 163 | 173 | (6 | ) | 482 | 481 | — | |||||||||||
Auto | 318 | 323 | (2 | ) | 930 | 952 | (2 | )% | ||||||||||
Total revenues | $ | 1,481 | $ | 1,332 | 11 | % | $ | 4,048 | $ | 4,081 | (1 | )% | ||||||
Net income by business: | ||||||||||||||||||
Real Estate Lending | $ | 389 | $ | 318 | 22 | % | $ | 1,014 | $ | 1,037 | (2 | )% | ||||||
Student Loans | 58 | 62 | (6 | ) | 171 | 176 | (3 | ) | ||||||||||
Auto | 74 | 107 | (31 | ) | 243 | 267 | (9 | ) | ||||||||||
Total net income | $ | 521 | $ | 487 | 7 | % | $ | 1,428 | $ | 1,480 | (4 | )% | ||||||
Average assets(in billions of dollars) | $ | 244 | $ | 192 | 27 | % | $ | 225 | $ | 185 | 22 | % | ||||||
Return on assets | 0.85 | % | 1.01 | % | 0.85 | % | 1.07 | % | ||||||||||
Average risk capital(1) | $ | 3,770 | $ | 3,218 | 17 | % | $ | 3,651 | $ | 3,283 | 11 | % | ||||||
Return on risk capital(1) | 55 | % | 60 | % | 52 | % | 60 | % | ||||||||||
Return on invested capital(1) | 31 | % | 31 | % | 28 | % | 34 | % | ||||||||||
U.S. Consumer Lending (Continued)
| Three Months Ended September 30, | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | |||||||
Key indicators: (in billions of dollars) | ||||||||||
Net interest margin:(2) | ||||||||||
Real Estate Lending | 1.91 | % | 2.32 | % | ||||||
Student Loans | 1.50 | 1.90 | ||||||||
Auto | 8.57 | 10.47 | ||||||||
Originations: | ||||||||||
Real Estate Lending | $ | 35.8 | $ | 37.0 | (3 | )% | ||||
Student Loans | 4.1 | 3.8 | 8 | % | ||||||
Auto | 2.4 | 1.9 | 26 | % | ||||||
U.S. Consumer Lending provides home mortgages and home equity loans to prime and non-prime customers, auto financing to non-prime consumers and educational loans to students. Loans are originated throughout the United States and Canada through the Citibank, CitiFinancial andSmith Barney branch networks, Primerica Financial Services agents, third-party brokers, direct mail, the Internet and telesales. Loans are also purchased in the wholesale markets.U.S. Consumer Lendingalso provides mortgage servicing to a portfolio of mortgage loans owned by third parties. Revenues are comprised of loan fees, net interest revenue and mortgage servicing fees.
3Q06 vs. 3Q05
Net Interest Revenue decreased 2%, reflecting net interest margin compression that was partially offset by a 19% increase in average loan balances.Non-Interest Revenue increased due to higher gains on sales of real estate, student loans and mortgage-backed securities, and higher net mortgage servicing revenues. Average loan growth reflected a strong increase in originations over the past year, with 26% growth in Auto originations and 8% growth in Student Loans originations in the 2006 third quarter.
During the 2006 third quarter, the U.S. Consumer Lending business initiated a Mortgage-Backed Securities Program.
Operating expenses increased primarily due to higher loan origination volumesacquisitions and increased investment spending.spending, including 49 new branch openings during the quarter (35 in CitiFinancial and 14 in Citibank) and lower marketing spending in the prior year.
Provisions for loan losses and for benefits and claims increased substantially primarily due to lowerreflecting weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment and the change in estimate of loan losses. The increase in provision for loan losses also reflected the absence of loan loss reserve releases of $48 million and higher credit lossesrecorded in the Real Estate Lending business.prior year. The lower loannet credit loss reserve releasesratio increased 22 basis points to 1.37%.
TheNet Income decline also reflected the absence of a prior-year loan loss reserve releasethe 2006 third quarter $54 million tax benefit resulting from the resolution of $165 million related to the reorganization of theU.S. Consumer Finance businesses and a prior-year loan loss reserve build of $110 million related to the estimated impact of Hurricane Katrina. The 90 days-past-due ratio declined in Real Estate Lending business.2006 New York Tax Audits.
20062007 YTD vs. 20052006 YTD
Net Interest Revenue declined 3%was 2% better than the prior year, as growth in average deposits and loans of 19% and 9%, reflecting net interest margin compression somewhatrespectively, and higher risk-based fees in Cards, was partially offset by a 19% increasedecrease in average loan balances.net interest margin. Net interest margin declined due to a shift in customer deposits to higher cost direct bank and time deposit balances and the securitization of higher margin credit card receivables.
Non-Interest Revenue increased 4% primarily due to higher gains on securitization of real estateloan and student loans,deposit volumes and gains6% growth in Card purchase sales. The increase also reflected a pretax gain on the sale of securities, somewhat offset by lowerMasterCard shares of $246 million, the impact of the acquisition of ABN AMRO Mortgage Group in the first quarter of 2007, and growth in net servicing revenues. Average loan growth reflected a strong increase in originations across all businesses, driven by an 11% increase in real estate lending.Second quarter of 2006 results also included $132 million pretax gain from the sale of upstate New York branches.
Operating expenses increased primarily due to higher loan origination volumes,acquisitions, increased investment spending related to the 124 new branch openings during the nine months of 2007 (80 in CitiFinancial and 44 in Citibank) and costs associated with Citibank Direct. The increase in 2007 was also favorably affected by the impactabsence of the charge related to the initial adoption of SFAS 123(R). in the first quarter of 2006. Higher volume-related expenses primarily reflected 14% growth in loan originations in Consumer Lending businesses.
Provisions for loan losses and for benefits and claims declined due to a favorableincreased primarily reflecting portfolio growth and weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment which led to anand the change in estimate of loan losses. The increase in provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year, as well as an increase in bankruptcy filings in 2007 versus unusually low filing levels experienced in the first three quarters of $582006. The net credit loss ratio increased 14 basis points to 1.31%.
TheNet income decline in 2007 also reflects the absence of $229 million driven bytax benefit resulting from the Real Estate Lending business.resolution of the 2006 Tax Audits.
U.S. Commercial BusinessINTERNATIONAL CONSUMER
International Consumer is composed of three businesses:
U.S. Commercial BusinessCards,Consumer Finance provides equipment leasing, financing, and banking services to small- and middle-market businesses ($5 million to $500 millionRetail Banking. International Consumer operates in annual revenues)five regions:Mexico,Latin America,EMEA,Japan, and financing for investor-owned multifamily and commercial properties. Revenues are comprised of net interest revenue and fees on loans and leases.Asia.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | ||||||||||||||||||||||||||||||||
2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
Net interest revenue | $ | 295 | $ | 372 | (21 | )% | $ | 893 | $ | 1,023 | (13 | )% | Net interest revenue | $ | 4,072 | $ | 3,445 | 18 | % | $ | 11,499 | $ | 9,921 | 16 | % | ||||||||||
Non-interest revenue | 194 | 277 | (30 | ) | 582 | 795 | (27 | ) | Non-interest revenue | 2,787 | 1,622 | 72 | 6,634 | 4,929 | 35 | ||||||||||||||||||||
Revenues, net of interest expense | $ | 489 | $ | 649 | (25 | )% | $ | 1,475 | $ | 1,818 | (19 | )% | Revenues, net of interest expense | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||||||
Operating expenses | 328 | 308 | 6 | 1,044 | 984 | 6 | Operating expenses | 3,627 | 2,769 | 31 | 9,867 | 8,091 | 22 | �� | |||||||||||||||||||||
Provision for loan losses | (30 | ) | 21 | NM | (50 | ) | 27 | NM | |||||||||||||||||||||||||||
Provisions for loan losses and for benefits and claims | Provisions for loan losses and for benefits and claims | 2,101 | 1,032 | NM | 4,582 | 2,621 | 75 | ||||||||||||||||||||||||||||
Income before taxes | $ | 191 | $ | 320 | (40 | )% | $ | 481 | $ | 807 | (40 | )% | |||||||||||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 1,131 | $ | 1,266 | (11 | )% | $ | 3,684 | $ | 4,138 | (11 | )% | ||||||||||||||||||||||
Income taxes | 40 | 98 | (59 | ) | 66 | 199 | (67 | ) | Income taxes | 232 | 227 | 2 | 798 | 744 | 7 | ||||||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 20 | 1 | NM | 38 | 5 | NM | ||||||||||||||||||||||||||||
Net income | $ | 151 | $ | 222 | (32 | )% | $ | 415 | $ | 608 | (32 | )% | Net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | ||||||||||||||||||||||||||||||||||
Mexico | $ | 1,404 | $ | 1,238 | 13 | % | $ | 4,135 | $ | 3,579 | 16 | % | |||||||||||||||||||||||
EMEA | 1,738 | 1,353 | 28 | 4,802 | 3,983 | 21 | |||||||||||||||||||||||||||||
Japan—Cards and Retail Banking | 368 | 195 | 89 | 871 | 571 | 53 | |||||||||||||||||||||||||||||
Asia | 1,520 | 1,209 | 26 | 4,343 | 3,642 | 19 | |||||||||||||||||||||||||||||
Latin America | 1,548 | 485 | NM | 2,909 | 1,282 | NM | |||||||||||||||||||||||||||||
Subtotal | Subtotal | $ | 6,578 | $ | 4,480 | 47 | % | $ | 17,060 | $ | 13,057 | 31 | % | ||||||||||||||||||||||
Japan Consumer Finance | $ | 281 | $ | 587 | (52 | ) | $ | 1,073 | $ | 1,793 | (40 | ) | |||||||||||||||||||||||
Total revenues | Total revenues | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||||||||||||||||||
Net income by region | Net income by region | ||||||||||||||||||||||||||||||||||
Mexico | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | |||||||||||||||||||||||
EMEA | 58 | 213 | (73 | ) | 289 | 613 | (53 | ) | |||||||||||||||||||||||||||
Japan—Cards and Retail Banking | 64 | 42 | 52 | 165 | 139 | 19 | |||||||||||||||||||||||||||||
Asia | 334 | 328 | 2 | 1,143 | 1,034 | 11 | |||||||||||||||||||||||||||||
Latin America | 467 | 23 | NM | 587 | 169 | NM | |||||||||||||||||||||||||||||
Subtotal | Subtotal | $ | 1,167 | $ | 1,001 | 17 | % | $ | 3,160 | $ | 3,083 | 2 | % | ||||||||||||||||||||||
Japan Consumer Finance | $ | (288 | ) | $ | 37 | NM | $ | (312 | ) | $ | 306 | NM | |||||||||||||||||||||||
Total net income | Total net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||||||||||||||||||
Average assets(in billions of dollars) | $ | 44 | $ | 39 | 13 | % | $ | 42 | $ | 38 | 11 | % | Average assets(in billions of dollars) | $ | 236 | $ | 187 | 26 | % | $ | 219 | $ | 179 | 22 | % | ||||||||||
Return on assets | 1.36 | % | 2.26 | % | 1.32 | % | 2.14 | % | Return on assets | 1.48 | % | 2.20 | % | 1.74 | % | 2.53 | % | ||||||||||||||||||
Average risk capital(1) | $ | 2,323 | $ | 1,698 | 37 | % | $ | 2,291 | $ | 1,831 | 25 | % | Average risk capital(1) | $ | 15,632 | $ | 12,626 | 24 | % | $ | 14,953 | $ | 12,665 | 18 | % | ||||||||||
Return on risk capital(1) | 26 | % | 52 | % | 24 | % | 44 | % | Return on risk capital(1) | 22 | % | 33 | % | 25 | % | 36 | % | ||||||||||||||||||
Return on invested capital(1) | 13 | % | 31 | % | 12 | % | 29 | % | Return on invested capital(1) | 11 | % | 16 | % | 13 | % | 17 | % | ||||||||||||||||||
Key indicators:(in billions of dollars): | |||||||||||||||||||||||||||||||||||
Average earning assets | $ | 36.8 | $ | 33.1 | 11 | % | $ | 36.3 | $ | 32.5 | 12 | % | |||||||||||||||||||||||
Key indicators—(in billions of dollars) | Key indicators—(in billions of dollars) | ||||||||||||||||||||||||||||||||||
Average loans | Average loans | $ | 149.2 | $ | 116.1 | 29 | % | ||||||||||||||||||||||||||||
Average deposits | Average deposits | $ | 175.7 | $ | 148.4 | 18 | % | ||||||||||||||||||||||||||||
EOP AUMs | EOP AUMs | $ | 158.9 | $ | 123.1 | 29 | % | ||||||||||||||||||||||||||||
Total branches | Total branches | 4,812 | 4,580 | 5 | % | ||||||||||||||||||||||||||||||
U.S. Commercial Business (Continued)
3Q063Q07 vs. 3Q05
Net Interest Revenue declined on continued net interest margin compression, partially offset by the benefit of higher volumes. Average loans (excluding the liquidating portfolio) increased 13%, and average deposits, while down 2%, were affected by the transfer of $1.8 billion in deposits for certain customer segments to the U.S. Retail Distribution business to better service those customers. Excluding this transfer, deposits were up 8%.Non-Interest Revenue declined primarily due to the absence of the prior-year $162 million legal settlement benefit related to the purchase of Copelco.
Operating expense growth was mainly due to the absence of a $23 million expense benefit due to the Copelco settlement recorded in the prior year.
Provision for loan losses declined primarily due to higher loan loss reserve releases resulting from the favorable credit environment and the continued liquidation of non-core portfolios.
Core loan growth reflected strong transaction volumes and growth in loan balances across all business units.
2006 YTD vs. 2005 YTD
Net Interest Revenue declined primarily due to the continuing impact of net interest margin compression, partially offset by strong growth in core loan and deposit balances, up 16% and 10%, respectively, over the prior year.Non-Interest Revenue declined primarily due to the absence of the $162 million legal settlement benefit in the 2005 third quarter related to the purchase of Copelco and the $161 million gain on the sale of the CitiCapital Transportation Finance business in the 2005 first quarter, partly offset by the $31 million pretax gain on the Sale of New York Branches in the 2006 second quarter.
Operating expense growth was primarily due to higher volume-related expenses, the absence of a $23 million expense benefit due to the Copelco settlement recorded in the prior-year period, and the impact of the FAB acquisition and SFAS 123(R), partially offset by lower expenses from the absence of the transportation finance business and severance costs in the prior year.
Provision for loan losses declined primarily due to loan loss reserve releases of $84 million due to a favorable credit environment, and the continued liquidation of non-core portfolios.
Deposit and core loan growth reflected strong transaction volumes and balances across all business units and the impact of the FAB acquisition, partially offset by declines in the liquidating portfolio.
(This page has been left blank intentionally.)
International Consumer is comprised of three businesses:Cards, Consumer Finance andRetail Banking.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 3,445 | $ | 2,995 | 15 | % | $ | 9,921 | $ | 9,116 | 9 | % | ||||||
Non-interest revenue | 1,622 | 1,638 | (1 | ) | 4,929 | 4,410 | 12 | |||||||||||
Revenues, net of interest expense | $ | 5,067 | $ | 4,633 | 9 | % | $ | 14,850 | $ | 13,526 | 10 | % | ||||||
Operating expenses | 2,769 | 2,280 | 21 | 8,091 | 7,022 | 15 | ||||||||||||
Provisions for loan losses and for benefits and claims | 1,032 | 1,197 | (14 | ) | 2,621 | 2,600 | 1 | |||||||||||
Income before taxes and minority interest | $ | 1,266 | $ | 1,156 | 10 | $ | 4,138 | $ | 3,904 | 6 | % | |||||||
Income taxes | 227 | 193 | 18 | 744 | 902 | (18 | ) | |||||||||||
Minority interest, net of taxes | 1 | 1 | — | 5 | — | NM | ||||||||||||
Net income | $ | 1,038 | $ | 962 | 8 | % | $ | 3,389 | $ | 3,002 | 13 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
Mexico | $ | 1,238 | $ | 1,139 | 9 | % | $ | 3,579 | $ | 3,154 | 13 | % | ||||||
Latin America | 485 | 279 | 74 | 1,282 | 817 | 57 | ||||||||||||
EMEA | 1,353 | 1,271 | 6 | 3,983 | 3,775 | 6 | ||||||||||||
Japan | 782 | 803 | (3 | ) | 2,364 | 2,451 | (4 | ) | ||||||||||
Asia | 1,209 | 1,141 | 6 | 3,642 | 3,329 | 9 | ||||||||||||
Total revenues | $ | 5,067 | $ | 4,633 | 9 | % | $ | 14,850 | $ | 13,526 | 10 | % | ||||||
Net income by region | ||||||||||||||||||
Mexico | $ | 395 | $ | 511 | (23 | )% | $ | 1,128 | $ | 1,156 | (2 | )% | ||||||
Latin America | 23 | 61 | (62 | ) | 169 | 195 | (13 | ) | ||||||||||
EMEA | 213 | (154 | ) | NM | 613 | 92 | NM | |||||||||||
Japan | 79 | 169 | (53 | ) | 445 | 532 | (16 | ) | ||||||||||
Asia | 328 | 375 | (13 | ) | 1,034 | 1,027 | 1 | |||||||||||
Total net income | $ | 1,038 | $ | 962 | 8 | % | $ | 3,389 | $ | 3,002 | 13 | % | ||||||
Average assets(in billions of dollars) | $ | 187 | $ | 166 | 13 | % | $ | 179 | $ | 166 | 8 | % | ||||||
Return on assets | 2.20 | % | 2.30 | % | 2.53 | % | 2.42 | % | ||||||||||
Average risk capital(1) | $ | 12,626 | $ | 13,576 | (7 | )% | $ | 12,665 | $ | 13,143 | (4 | )% | ||||||
Return on risk capital(1) | 33 | % | 28 | % | 36 | % | 31 | % | ||||||||||
Return on invested capital(1) | 16 | % | 14 | % | 17 | % | 15 | % | ||||||||||
NM Not meaningful
International Cards
International Consumer is comprised of three businesses:Cards, Consumer Finance andRetail Banking.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 964 | $ | 710 | 36 | % | $ | 2,649 | $ | 2,030 | 30 | % | ||||||
Non-interest revenue | 555 | 499 | 11 | 1,660 | 1,460 | 14 | ||||||||||||
Revenues, net of interest expense | $ | 1,519 | $ | 1,209 | 26 | % | $ | 4,309 | $ | 3,490 | 23 | % | ||||||
Operating expenses | 740 | 561 | 32 | 2,071 | 1,706 | 21 | ||||||||||||
Provision for loan losses | 406 | 192 | NM | 1,077 | 522 | NM | ||||||||||||
Income before taxes and minority interest | $ | 373 | $ | 456 | (18 | )% | $ | 1,161 | $ | 1,262 | (8 | )% | ||||||
Income taxes | 85 | 72 | 18 | 253 | 243 | 4 | ||||||||||||
Minority interest, net of taxes | 1 | 1 | — | 2 | 3 | (33 | ) | |||||||||||
Net income | $ | 287 | $ | 383 | (25 | )% | $ | 906 | $ | 1,016 | (11 | )% | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
Mexico | $ | 465 | $ | 353 | 32 | % | $ | 1,313 | $ | 929 | 41 | % | ||||||
Latin America | 252 | 64 | NM | 586 | 217 | NM | ||||||||||||
EMEA | 328 | 302 | 9 | 949 | 881 | 8 | ||||||||||||
Japan | 72 | 76 | (5 | ) | 216 | 225 | (4 | ) | ||||||||||
Asia | 402 | 414 | (3 | ) | 1,245 | 1,238 | 1 | |||||||||||
Total revenues | $ | 1,519 | $ | 1,209 | 26 | % | $ | 4,309 | $ | 3,490 | 23 | % | ||||||
Net income by region: | ||||||||||||||||||
Mexico | $ | 133 | $ | 204 | (35 | )% | $ | 429 | $ | 456 | (6 | )% | ||||||
Latin America | 13 | 21 | (38 | ) | 117 | 84 | 39 | |||||||||||
EMEA | 55 | 34 | 62 | 130 | 100 | 30 | ||||||||||||
Japan | 13 | 17 | (24 | ) | 47 | 51 | (8 | ) | ||||||||||
Asia | 73 | 107 | (32 | ) | 183 | 325 | (44 | ) | ||||||||||
Total net income | $ | 287 | $ | 383 | (25 | )% | $ | 906 | $ | 1,016 | (11 | )% | ||||||
Average assets(in billions of dollars) | $ | 32 | $ | 26 | 23 | % | $ | 30 | $ | 26 | 15 | % | ||||||
Return on assets | 3.56 | % | 5.84 | % | 4.04 | % | 5.22 | % | ||||||||||
Average risk capital(1) | $ | 2,185 | $ | 1,855 | 18 | % | $ | 2,153 | $ | 1,736 | 24 | % | ||||||
Return on risk capital(1) | 52 | % | 82 | % | 56 | % | 78 | % | ||||||||||
Return on invested capital(1) | 24 | % | 37 | % | 27 | % | 34 | % | ||||||||||
Key indicators:(in billions of dollars): | ||||||||||||||||||
Purchase sales | $ | 20.5 | $ | 17.3 | 18 | % | ||||||||||||
Average yield(2) | 19.20 | % | 18.08 | % | ||||||||||||||
Net interest margin(2) | 13.91 | % | 12.41 | % | ||||||||||||||
NM Not meaningful
International Cards (Continued)
International Cards provides MasterCard, Visa and Diners branded credit and charge cards, as well as private label cards and co-branded cards, to more than 30 million customer accounts in 43 countries outside of the U.S. and Canada. Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales and other delinquency or service fees.
3Q06 vs. 3Q05
Net Interest Revenue increased 18%. Growth was driven by 21% growth inhigher average receivables acrossdeposits and loans of 18% and 29%, respectively, as well as the region and the integrationimpact of the Credicard portfolio inacquisitions of Grupo Financiero Uno (GFU), Egg and Grupo Cuscatlan.Latin America.
Non-Interest Revenue also increased reflecting an 18%72%, primarily due to the gain on the sale of Redecard shares $(729 million pretax), a 37% increase in Card purchase sales and the integrationincreased investment product sales. The positive impact of the Credicard portfolio.foreign currency translation also contributed to increases in revenues.
Operating expenses increased 31%, reflecting the integrationacquisitions of the Credicard portfolio, the absence of the prior-year refund of Value Added Taxes inMexico, continued investments in organic growth,GFU, Grupo Cuscatlan and volume growth across the regions.
Provision for loan losses increased, driven by portfolio growth and target market expansion inMexico, credit losses relating to the Credicard portfolio inLatin America, the industry-wide credit deterioration in Taiwan, and volume growth in all regions.
Net Income was also impacted by the absence of prior-year tax credits from the Homeland Investment Act of $37 million.
Regional Net Income
Mexico income declined, primarily reflecting the absence of a $41 million prior-year tax benefit associated with the Homeland Investment Act and the prior-year refund of Value Added Taxes.Latin America income declined, primarily due to higher credit costs associated with the Credicard portfolio.EMEA income increased on higher purchase sales, volume growth, and higher tax credits, partially offset by higher expenses and higher credit costs.Asia income declined on lower revenuesEgg, and an increase in credit costs from the continued impact of industry-wide credit conditionsownership in Taiwan.
2006 YTD vs. 2005 YTD
Net Interest Revenue increased, driven by 17%Nikko Cordial. Expense growth in average receivables across all regions and the integration of the Credicard portfolio inLatin America.Non-Interest Revenuealso increased, reflecting an increase in purchase sales, the integration of the Credicard portfolio, and a gain on the MasterCard IPO of $35 million in the 2006 second quarter.
Operating expenses increased, reflecting the integration of the Credicard portfolio, continued investment in organic growth,reflects volume growth across the regions and the adoption of SFAS 123(R). This was partially offset by the absence of 2005 first quarter repositioning expenses of $13 million.
Provision for loan losses increased, driven by portfolio growth and target market expansion inMexico, the industry-wide credit deterioration in Taiwan, credit losses relating to the Credicard portfolio in Latin America, and volume growth in all regions.
Regional Net Income
Mexico income declined primarily due to lower levels of tax benefits and higher expenses, partially offset by higher sales volumes and average loans, and a gain from the MasterCard IPO of $9 million in the 2006 second quarter.Latin America income increased, primarily due to volume and purchase sales growth.EMEA income increased on higher purchase sales, volume growth, and higher tax benefits, partially offset by higher net credit losses.Asia income declined due to an increase in credit costs related to credit conditions in Taiwan and costs associated with a Korea labor settlement, partially offset by higher purchase sales and loan growth and a gain from the MasterCard IPO of $7 million in the 2006 second quarter.
International(excluding Japan Consumer Finance
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 962 | $ | 910 | 6 | % | $ | 2,854 | $ | 2,760 | 3 | % | ||||||
Non-interest revenue | 36 | 40 | (10 | ) | 115 | 101 | 14 | |||||||||||
Revenues, net of interest expense | $ | 998 | $ | 950 | 5 | % | $ | 2,969 | $ | 2,861 | 4 | % | ||||||
Operating expenses | 406 | 397 | 2 | 1,252 | 1,214 | 3 | ||||||||||||
Provision for loan losses | 523 | 324 | 61 | 1,167 | 961 | 21 | ||||||||||||
Income before taxes and minority interest | $ | 69 | $ | 229 | (70 | )% | $ | 550 | $ | 686 | (20 | )% | ||||||
Income taxes | 19 | 77 | (75 | ) | 159 | 218 | (27 | ) | ||||||||||
Net income | $ | 50 | $ | 152 | (67 | )% | $ | 391 | $ | 468 | (16 | )% | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
Mexico | $ | 62 | $ | 47 | 32 | % | $ | 170 | $ | 134 | 27 | % | ||||||
Latin America | 38 | 31 | 23 | 112 | 89 | 26 | ||||||||||||
EMEA | 191 | 185 | 3 | 568 | 559 | 2 | ||||||||||||
Japan | 587 | 609 | (4 | ) | 1,793 | 1,871 | (4 | ) | ||||||||||
Asia | 120 | 78 | 54 | 326 | 208 | 57 | ||||||||||||
Total revenues | $ | 998 | $ | 950 | 5 | % | $ | 2,969 | $ | 2,861 | 4 | % | ||||||
Net income by region: | ||||||||||||||||||
Mexico | $ | 12 | $ | 9 | 33 | % | $ | 33 | $ | 26 | 27 | % | ||||||
Latin America | (1 | ) | 2 | NM | — | 8 | (100 | ) | ||||||||||
EMEA | (13 | ) | 3 | NM | 9 | 15 | (40 | ) | ||||||||||
Japan | 37 | 122 | (70 | ) | 306 | 381 | (20 | ) | ||||||||||
Asia | 15 | 16 | (6 | ) | 43 | 38 | 13 | |||||||||||
Total net income | $ | 50 | $ | 152 | (67 | )% | $ | 391 | $ | 468 | (16 | )% | ||||||
Average assets(in billions of dollars) | $ | 28 | $ | 25 | 12 | % | $ | 27 | $ | 26 | 4 | % | ||||||
Return on assets | 0.71 | % | 2.41 | % | 1.94 | % | 2.41 | % | ||||||||||
Average risk capital(1) | $ | 1,093 | $ | 919 | 19 | % | $ | 1,100 | $ | 924 | 19 | % | ||||||
Return on risk capital(1) | 18 | % | 66 | % | 48 | % | 68 | % | ||||||||||
Return on invested capital(1) | 6 | % | 18 | % | 15 | % | 18 | % | ||||||||||
Key indicators: | ||||||||||||||||||
Average yield(2) | 18.49 | % | 18.87 | % | ||||||||||||||
Net interest margin(2) | 15.77 | % | 16.49 | % | ||||||||||||||
Number of sales points: | ||||||||||||||||||
Other branches | 1,483 | 968 | ||||||||||||||||
Japan branches | 324 | 392 | ||||||||||||||||
Japan Automated Loan Machines | 809 | 654 | ||||||||||||||||
Total | 2,616 | 2,014 | ||||||||||||||||
International Consumer Finance (Continued)
International Consumer Finance provides community-based lending services through its branch network, regional sales offices and cross-selling initiatives withInternational Cards andInternational Retail Banking. As of September 30, 2006,International Consumer Finance maintained 2,616 sales points comprising 1,807 branches in more than 25 countries and 809 ALMs inJapan.International Consumer Finance offers real-estate-secured loans, unsecured or partially secured personal loans, auto loans, and loans to finance consumer-goods purchases. Revenues are primarily derived from net interest revenue and fees on loan products.
3Q06 vs. 3Q05
Net Interest Revenue increased, driven mainly by higher personal and real estate secured loan volumes. This was partly offset by lower average yields and a decline inJapan, primarily due toFinance), the impact of foreign currency translation, write-downs of $152 million on customer intangibles and lower average loans.fixed assets and continued investment spending, including the opening of 47 branches.
Non-Interest RevenueProvisions for loan losses and for benefits and claims declined slightly for the quarter.
Operating expense growth wasincreased substantially, primarily due to higher volume-related expenses and increased investment spending. There were 110 new branch openingsthe change in the quarter (and 447 net new branches over the last 12 months). These increases were partially offset by lower expenses inJapan.
Provision forestimate of loan losses, increased, primarily due to approximately $160 million in credit costs associated with ongoing legislative portfolio growth, and other actions affecting the consumer finance industry inJapan, a loan loss reserve build inEMEA, and higher net credit losses inAsia. The net credit loss ratio increased 35 basis points to 6.38%.
The increase inaverage loans outside ofJapan was mainly driven by growth in the personal-loan and real-estate-secured portfolios. InJapan, average loans declined by 3% due to the impact of foreign currency translation, and were essentially flat excluding the impact of FX.
The current legislative proposals to reform consumer lending laws inJapan, if enacted, will change various aspects of the consumer finance industry. At this point, there is uncertainty with respect to the final outcome of these proposals, including, but not limited to, the level of interest rate caps and the timing for implementation of the new rules and the rules during the transition period.
The uncertainty surrounding the ongoing legislative proposals and certain other actions affecting the consumer finance industry inJapan are negatively affecting the financial performance of the business. The Company continues to evaluate the potential impact of these developments, which may further negatively impact the revenues, expenses and credit costs in the consumer finance lending business.*
2006 YTD vs. 2005 YTDrecent acquisitions.
Net Interest Revenue increased, driven primarily by higher average loan volumes, partially offset by slightly lower net interest margins. A revenue decline inJapanincome was primarily due to the impact of foreign currency translation and lower average loans.Non-Interest Revenue increased 14% during the period.
Operating expense growth was primarily due to higher volume-related expenses and increased investment spending, driven by 351 new branch openings and the addition of 146 ALMsaffected, inJapan in the first nine months of 2006. The growth was partially offset part, by the absence of the 2005 first2006 third quarter repositioning charge inEMEA of $38$24 million the absence of the impacttax benefit resulting from the standardizationresolution of write-off policy in Spain and Italy, and declines inJapan due to the closing of branches.2006 New York Tax Audits.
Provision for loan lossesNet income wasin Japan Consumer Finance declined significantly due to charges to increase reserves for customer refunds and credit losses, higher than the prior-year periodexpenses due to write-downs on customer intangibles and fixed assets, and a decline in revenues primarily due to the ongoing legislative and other actions affecting the consumer finance industry inJapanand higher net credit losses inAsia andEMEA.
The increase inaverage loans outside ofJapan was mainly driven by growthlower receivable balances. Financial results reflect recent adverse changes in the personal-loanoperating environment and real-estate-secured portfolios. InJapan, loans declined by 7% due to the impact of foreign currency translation and reduced loan demand.consumer lending laws passed in the fourth quarter 2006.
Given the Company's recent experience with the level of Grey Zone related issues, the Company anticipates that the business will have net losses in 2007. The Company continues to analyze the prospects for this business thereafter in light of the difficult operating conditions.
Certain of the statements above are forward-looking statementstatements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 84.
International Retail Banking48.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 1,519 | $ | 1,375 | 10 | % | $ | 4,418 | $ | 4,326 | 2 | % | ||||||
Non-interest revenue | 1,031 | 1,099 | (6 | ) | 3,154 | 2,849 | 11 | |||||||||||
Revenues, net of interest expense | $ | 2,550 | $ | 2,474 | 3 | % | $ | 7,572 | $ | 7,175 | 6 | % | ||||||
Operating expenses | 1,623 | 1,322 | 23 | 4,768 | 4,102 | 16 | ||||||||||||
Provisions for loan losses and for benefits and claims | 103 | 681 | (85 | ) | 377 | 1,117 | (66 | ) | ||||||||||
Income before taxes and minority interest | $ | 824 | $ | 471 | 75 | % | $ | 2,427 | $ | 1,956 | 24 | % | ||||||
Income taxes | 123 | 44 | NM | 332 | 441 | (25 | ) | |||||||||||
Minority interest, net of taxes | — | — | — | 3 | (3 | ) | NM | |||||||||||
Net income | $ | 701 | $ | 427 | 64 | % | $ | 2,092 | $ | 1,518 | 38 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
Mexico | $ | 711 | 739 | (4 | )% | $ | 2,096 | $ | 2,091 | — | ||||||||
Latin America | 195 | 184 | 6 | 584 | 511 | 14 | % | |||||||||||
EMEA | 834 | 784 | 6 | 2,466 | 2,335 | 6 | ||||||||||||
Japan | 123 | 118 | 4 | 355 | 355 | — | ||||||||||||
Asia | 687 | 649 | 6 | 2,071 | 1,883 | 10 | ||||||||||||
Total revenues | $ | 2,550 | $ | 2,474 | 3 | % | $ | 7,572 | $ | 7,175 | 6 | % | ||||||
Net income by region: | ||||||||||||||||||
Mexico | $ | 250 | $ | 298 | (16 | )% | $ | 666 | $ | 674 | (1 | )% | ||||||
Latin America | 11 | 38 | (71 | ) | 52 | 103 | (50 | ) | ||||||||||
EMEA | 171 | (191 | ) | NM | 474 | (23 | ) | NM | ||||||||||
Japan | 29 | 30 | (3 | ) | 92 | 100 | (8 | ) | ||||||||||
Asia | 240 | 252 | (5 | ) | 808 | 664 | 22 | |||||||||||
Total net income | $ | 701 | $ | 427 | 64 | % | $ | 2,092 | $ | 1,518 | 38 | % | ||||||
Average assets(in billions of dollars) | $ | 127 | $ | 115 | 10 | % | $ | 122 | $ | 114 | 7 | % | ||||||
Return on assets | 2.19 | % | 1.47 | % | 2.29 | % | 1.78 | % | ||||||||||
Average risk capital(1) | $ | 9,348 | $ | 10,802 | (13 | )% | $ | 9,412 | $ | 10,483 | (10 | )% | ||||||
Average return on risk capital(1) | 30 | % | 16 | % | 30 | % | 19 | % | ||||||||||
Return on invested capital(1) | 15 | % | 9 | % | 15 | % | 10 | % | ||||||||||
Key indicators:(in billions of dollars): | ||||||||||||||||||
Average deposits | $ | 148.4 | $ | 136.1 | 9 | % | ||||||||||||
Assets under Management (AUMs) (EOP) | 133.8 | 116.3 | 15 | % | ||||||||||||||
Average loans | 64.4 | 62.3 | 3 | % | ||||||||||||||
International Retail Banking (Continued)
International Retail Banking delivers a wide array of banking, lending, insurance and investment services through a network of local branches and electronic delivery systems, including ATMs, call centers and the Internet.International Retail Bankingserves 49 million customer accounts for individuals and small businesses. Revenues are primarily derived from net interest revenue on deposits and loans, and fees on mortgage, banking, and investment products.
3Q062007 YTD vs. 3Q052006 YTD
Net Interest Revenue increased 16% overall, 28% after excluding the impact of Japan Consumer Finance. Growth was driven by higher average receivables, as well as the impact of the acquisitions of GFU, Egg, Grupo Cuscatlan and CrediCard, and increased ownership in all regions exceptNikko Cordial.EMEA. Loan balances increased 3% over the 2005 third quarter, as a decline inJapan was more than offset by gains across other regions. Deposits grew 9% reflecting an increase in all regions exceptJapan.
Non-Interest Revenue declinedincreased 35%, primarily due to the gain on sale of Redecard, a decrease31% increase inMexico that was affected by the absence of the 2005 third quarter value added tax refund. Investment purchase sales, a 19% increase in investment product sales increased 18% while assets under management increased 15%, led byand growth across all regions. The positive impact of foreign currency translation and a pretax MasterCard gain of $53 million also contributed to the increase inAsia andEMEA. revenues.
Operating expenses increased, on higherreflecting the integration of the CrediCard portfolio and the acquisitions of GFU, Grupo Cuscatlan and Egg, and increased ownership in Nikko Cordial along with volume growth across the products and regions, the impact of foreign currency translation and continued investment spending (including 66 new branch openings during the quarter),driven by 316 branches opened or acquired. The increase in 2007 expenses was favorably affected by the absence of a 2005 thirdthe charge related to the initial adoption of FAS 123(R) in the first quarter $93 million value added tax refund inMexico, increases in business volumes, and higher advertising and marketing expenses.of 2006.
Provisions for loan losses and for benefits and claims declinedincreased substantially, primarily due to the absence of the 2005 third quarter $476 million pretax charge to standardize the loan write-off policyportfolio growth, higher past due accounts in Germany and Belgium with global policies. Additionally,Mexico cards, the decline was due to the 2006 third quarter impact of a $68 million pretax gain fromrecent acquisitions, and the salechange in estimate of charged-off assets in Germany, a $46 million pretax loan loss reserve release related to improvements in the credit environment inMexico, and loan loss reserve releases in Australia and Korea.losses.
Net incomeIncome was also reflected increased APB 23 tax benefits inMexico andEMEA and tax benefits of $18 million related to the resolution of the New York Tax Audits, partially offset by the absence of a 2005 third quarter Homeland Investment Act tax benefit of $61 million.
Regional Net Income
Mexico income declined primarily due to the absence of a 2005 third quarter $79 million value added tax refund, the absence of a 2005 third quarter Homeland Investment Act tax benefit of $66 million, and increased investment spending associated with 19 branch openings in the 2006 third quarter and 117 net new branches opened since the 2005 third quarter. Partly offsetting these declines were higher deposit volumes, a $30 million loan loss reserve release related to improvements in the credit environment inMexico, and APB 23 tax benefits of $70 million.Latin America income declined primarily due to increased expenses associated with 19 new branches opened in Brazil in the 2006 third quarter and higher credit costs, partially offset by growth in lending and deposit revenues.EMEA income increased, driven by the absence of the 2005 third quarter $476 million pretax ($323 million after-tax) policy change related to standardizing the loan write-off policies in Germany and Belgium with global policies, a 22% increase in deposits, a 34% increase in investment product sales, and higher loan balances.Japan income declined on higher expenses, mainly due to the consolidation and compliance activities resulting from the shutdown of the Japan Private Bank.Asia income declined, primarily due to increased investment spending, partly offset by loan loss reserve releases in Australia and Korea, a 7% increase in deposits, higher loan balances, and higher investment product sales.
2006 YTD vs. 2005 YTD
Net Interest Revenue increased 2%, reflecting increases in all regions exceptEMEA. Loan balances were flat over the prior-year period on declines inEMEA from write-offs in Germany in the third quarter of 2005. Deposits grew 9% reflecting an increase in all regions exceptJapan.Non-Interest Revenue increased 11%, primarily due to improvements inEMEA,Latin America, andAsia, partially offset by a decrease inMexico which was affected by the absence of the 2005 third quarter value addedprior-year tax refund. Investment product sales increased 18% while assets under management increased 19%, led by growth inMexico andAsia.
Operating expenses increased due to the impactbenefit of the 2005 third quarter value added tax refund effect on expenses inMexico, SFAS 123(R) charges and an increase in compensation costs inMexico. Additionally, the increase was due to higher marketing and advertising spending, higher business volumes, costs associated with a labor settlement in Korea, and continued investments, which included 223 new branch additions in the 2006 nine-month period.
Provisions for loan losses and for benefits and claims declined due to the absence of the 2005 third quarter $476$214 million pretax credit policy change to standardize the loan write-off policy in Germany and Belgium and the 2005 second quarter increase in the Germany credit reserve to reflect increased experience with the effects of bankruptcy law liberalization of $127 million pretax. Additionally, the decrease was due to a $68 million gainprimarily from the sale of charged-off assets in Germany, a $53 million pretax loan loss reserve release related to improvements in the credit environment inMexico, and loan loss reserve releases in Korea and AustraliaAPB 23, as a result of an improving credit environment. Partially offsetting the decline waswell as the absence of a 2005 second quarterMexico reserve release of $80prior-year $99 million which was offset in revenues.
Net income also reflected higher tax benefits inMexico andAsia related to increased APB 23 benefits, a 2006 first quarter $55 million benefit resulting from the resolution of the Federal2006 Tax Audit, and an $18 million benefit related to the resolution of the New York Tax Audits.
International Retail Banking (Continued)
Regional Net Income
Mexico income declined slightly, primarily due to the absence of a $79 million 2005 third quarter value added tax refund, higher expenses from increased investment spending associated with new branch openings, and the absence of a $50 million 2005 second quarter gain from the favorable impact relating to a restructuring of Mexican government notes. Latin America income declined primarily due to increased expenses associated with new branches in Brazil, partly offset by growth in loan, deposit and investment revenues.EMEA income increased, driven primarily by the absence of the 2005 third quarter policy change of standardizing the loan write-off policy, the absence of an $81 million loan loss reserve build from the 2005 second quarter, stronger investment product sales, and higher Germany asset sales; these were partly offset by higher expenses from branch expansion.Japan income declined due to lower deposits, higher expenses (mainly due to the consolidation and compliance activities related to the shutdown of the Japan Private Bank) and the impact of foreign currency translation.Asia income increased, benefiting from higher deposit revenues and investment product sales and loan loss reserve releases in Korea and Australia, partially offset by increased investment spending tied to retail bank branch expansion and costs associated with the labor settlement.
Other Consumer
Other Consumer includes certain treasury and other unallocated staff functions and global marketing.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||
Revenues, net of interest expense | $ | (37 | ) | $ | (13 | ) | $ | (70 | ) | $ | (234 | ) | |
Operating expenses | 121 | 87 | 415 | 249 | |||||||||
Income (loss) before tax benefits | $ | (158 | ) | $ | (100 | ) | (485 | ) | (483 | ) | |||
Income taxes (benefits) | (77 | ) | (36 | ) | (245 | ) | (185 | ) | |||||
Net income (loss) | $ | (81 | ) | $ | (64 | ) | $ | (240 | ) | $ | (298 | ) | |
3Q06 vs. 3Q05
Revenues and expenses reflect certain unallocated items that are not reported in the Global Consumer operating segments.
Thenet loss increase was primarily due to higher staff payments, higher legal costs, and lower revenues, partially offset by lower advertising and marketing expenses.
2006 YTD vs. 2005 YTD
Thenet loss decrease was primarily due to the absence of the 2005 first quarter loss on the sale of a Manufactured Housing loan portfolio of $109 million after-tax and the 2006 first quarter tax benefit of $40 million, reflecting the resolution of the Federal Tax Audit, partially offset by SFAS 123(R) charges of $22 million after-tax and higher staff payments and legal costs.
CORPORATE AND INVESTMENTMARKETS & BANKING
CorporateMarkets & Banking provides a broad range of trading, investment banking, and Investment Banking (CIB) provides corporations,commercial lending products and services to companies, governments, institutions and investors in approximately 100 countries with a broad range of financial products and services. CIBcountries. Markets & Banking includesCapital MarketsSecurities and Banking,Transaction Services andOther CIB.Markets & Banking.
| | Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | |||||||||||||||||||||||||||||||||
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 1,913 | $ | 1,916 | — | $ | 6,294 | $ | 6,087 | 3 | % | Net interest revenue | $ | 3,359 | $ | 1,913 | 76 | % | $ | 8,642 | $ | 6,294 | 37 | % | |||||||||||
Non-interest revenue | Non-interest revenue | 4,154 | 4,518 | (8 | )% | 13,813 | 11,540 | 20 | Non-interest revenue | 974 | 4,154 | (77 | ) | 13,609 | 13,813 | (1 | ) | |||||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 6,067 | $ | 6,434 | (6 | )% | $ | 20,107 | $ | 17,627 | 14 | % | Revenues, net of interest expense | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||||||
Operating expenses | Operating expenses | 3,622 | 3,856 | (6 | ) | 12,537 | 10,892 | 15 | Operating expenses | 4,011 | 3,622 | 11 | 14,070 | 12,537 | 12 | |||||||||||||||||||||
Provision for credit losses | Provision for credit losses | 107 | 43 | NM | 280 | (27 | ) | NM | Provision for credit losses | 205 | 107 | 92 | 406 | 280 | 45 | |||||||||||||||||||||
Income before taxes and minority interest | $ | 2,338 | $ | 2,535 | (8 | )% | $ | 7,290 | $ | 6,762 | 8 | % | ||||||||||||||||||||||||
Income before taxes And minority interest | Income before taxes And minority interest | $ | 117 | $ | 2,338 | (95 | )% | $ | 7,775 | $ | 7,290 | 7 | % | |||||||||||||||||||||||
Income taxes | Income taxes | 598 | 704 | (15 | ) | 1,874 | 1,859 | 1 | Income taxes | (142 | ) | 598 | NM | 2,041 | 1,874 | 9 | ||||||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 19 | 34 | (44 | ) | 43 | 55 | (22 | ) | Minority interest, net of taxes | (21 | ) | 19 | NM | 1 | 43 | (98 | ) | ||||||||||||||||||
Net income | Net income | $ | 1,721 | $ | 1,797 | (4 | )% | $ | 5,373 | $ | 4,848 | 11 | % | Net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | ||||||||||||||||||||||||||||||||||
U.S. | $ | 2,007 | $ | 2,810 | (29 | )% | $ | 7,733 | $ | 7,537 | 3 | % | U.S. | $ | 37 | $ | 2,007 | (98 | )% | $ | 6,792 | $ | 7,733 | (12 | )% | |||||||||||
Mexico | 197 | 236 | (17 | ) | 582 | 565 | 3 | Mexico | 247 | 197 | 25 | 657 | 582 | 13 | ||||||||||||||||||||||
Latin America | 440 | 372 | 18 | 1,271 | 1,064 | 19 | EMEA | 1,398 | 2,166 | (35 | ) | 7,218 | 6,505 | 11 | ||||||||||||||||||||||
EMEA | 2,166 | 1,801 | 20 | 6,505 | 5,203 | 25 | Japan | 133 | 177 | (25 | ) | 798 | 742 | 8 | ||||||||||||||||||||||
Japan | 177 | 211 | (16 | ) | 742 | 578 | 28 | Asia | 1,822 | 1,080 | 69 | 4,861 | 3,274 | 48 | ||||||||||||||||||||||
Asia | 1,080 | 1,004 | 8 | 3,274 | 2,680 | 22 | Latin America | 696 | 440 | 58 | 1,925 | 1,271 | 51 | % | ||||||||||||||||||||||
Total revenues | Total revenues | $ | 6,067 | $ | 6,434 | (6 | )% | $ | 20,107 | $ | 17,627 | 14 | % | Total revenues | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||||||
Net income by region: | Net income by region: | Net income by region: | ||||||||||||||||||||||||||||||||||
U.S. | $ | 540 | $ | 637 | (15 | )% | $ | 1,802 | $ | 1,992 | (10 | )% | U.S. | $ | (692 | ) | $ | 540 | NM | $ | 1,291 | $ | 1,802 | (28 | )% | |||||||||||
Mexico | 95 | 177 | (46 | ) | 261 | 336 | (22 | ) | Mexico | 125 | 95 | 32 | % | 334 | 261 | 28 | ||||||||||||||||||||
Latin America | 168 | 185 | (9 | ) | 508 | 525 | (3 | ) | EMEA | (25 | ) | 489 | NM | 1,472 | 1,466 | — | ||||||||||||||||||||
EMEA | 489 | 358 | 37 | 1,466 | 882 | 66 | Japan | (96 | ) | 38 | NM | 63 | 195 | (68 | ) | |||||||||||||||||||||
Japan | 38 | 58 | (34 | ) | 195 | 160 | 22 | Asia | 727 | 391 | 86 | 1,855 | 1,141 | 63 | ||||||||||||||||||||||
Asia | 391 | 382 | 2 | 1,141 | 953 | 20 | Latin America | 241 | 168 | 43 | 718 | 508 | 41 | |||||||||||||||||||||||
Total net income | Total net income | $ | 1,721 | $ | 1,797 | (4 | )% | $ | 5,373 | $ | 4,848 | 11 | % | Total net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||||||
Average risk capital(1) | Average risk capital(1) | $ | 21,967 | $ | 21,383 | 3 | % | $ | 21,438 | $ | 21,086 | 2 | % | Average risk capital(1) | $ | 31,812 | $ | 21,967 | 45 | % | $ | 27,837 | $ | 21,438 | 30 | % | ||||||||||
Return on risk capital(1) | Return on risk capital(1) | 31 | % | 33 | % | 34 | % | 31 | % | Return on risk capital(1) | 3 | % | 31 | % | 27 | % | 34 | % | ||||||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 23 | % | 25 | % | 25 | % | 23 | % | Return on invested capital(1) | 2 | % | 23 | % | 21 | % | 25 | % | ||||||||||||||||||
Capital Markets and Banking
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 1,139 | $ | 1,317 | (14 | )% | $ | 4,118 | $ | 4,435 | (7 | )% | ||||||
Non-interest revenue | 3,428 | 3,870 | (11 | ) | 11,614 | 9,616 | 21 | |||||||||||
Revenues, net of interest expense | $ | 4,567 | $ | 5,187 | (12 | )% | $ | 15,732 | $ | 14,051 | 12 | % | ||||||
Operating expenses | 2,655 | 3,134 | (15 | ) | 9,612 | 8,578 | 12 | |||||||||||
Provision for credit losses | 98 | 40 | NM | 250 | (26 | ) | NM | |||||||||||
Income before taxes and minority interest | $ | 1,814 | $ | 2,013 | (10 | )% | $ | 5,870 | $ | 5,499 | 7 | % | ||||||
Income taxes | 452 | 555 | (19 | ) | 1,454 | 1,539 | (6 | ) | ||||||||||
Minority interest, net of taxes | 18 | 34 | (47 | ) | 42 | 54 | (22 | ) | ||||||||||
Net income | $ | 1,344 | $ | 1,424 | (6 | )% | $ | 4,374 | $ | 3,906 | 12 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
U.S. | $ | 1,689 | $ | 2,550 | (34 | )% | $ | 6,776 | $ | 6,807 | — | |||||||
Mexico | 143 | 188 | (24 | ) | 432 | 420 | 3 | % | ||||||||||
Latin America | 284 | 236 | 20 | 808 | 682 | 18 | ||||||||||||
EMEA | 1,630 | 1,363 | 20 | 4,945 | 3,897 | 27 | ||||||||||||
Japan | 150 | 190 | (21 | ) | 662 | 518 | 28 | |||||||||||
Asia | 671 | 660 | 2 | 2,109 | 1,727 | 22 | ||||||||||||
Total revenues | $ | 4,567 | $ | 5,187 | (12 | )% | $ | 15,732 | $ | 14,051 | 12 | % | ||||||
Net income by region: | ||||||||||||||||||
U.S. | $ | 508 | $ | 571 | (11 | )% | $ | 1,774 | $ | 1,846 | (4 | )% | ||||||
Mexico | 75 | 151 | (50 | ) | 213 | 275 | (23 | ) | ||||||||||
Latin America | 120 | 142 | (15 | ) | 356 | 403 | (12 | ) | ||||||||||
EMEA | 375 | 262 | 43 | 1,141 | 634 | 80 | ||||||||||||
Japan | 33 | 56 | (41 | ) | 179 | 152 | 18 | |||||||||||
Asia | 233 | 242 | (4 | ) | 711 | 596 | 19 | |||||||||||
Total net income | $ | 1,344 | $ | 1,424 | (6 | )% | $ | 4,374 | $ | 3,906 | 12 | % | ||||||
Average risk capital(1) | $ | 20,450 | $ | 20,143 | 2 | % | $ | 19,915 | $ | 19,727 | 1 | % | ||||||
Return on risk capital(1) | 26 | % | 28 | % | 29 | % | 26 | % | ||||||||||
Return on invested capital(1) | 19 | % | 21 | % | 22 | % | 20 | % | ||||||||||
Capital Markets and Banking (Continued)
Capital Markets and Banking offers a wide array of investment and commercial banking services and products, including investment banking and advisory services, debt and equity trading, institutional brokerage, foreign exchange, structured products, derivatives, and lending.Capital Markets and Banking revenue is generated primarily from fees for investment banking and advisory services, fees and spread on structured products, foreign exchange and derivatives, fees and interest on loans, and income earned on principal transactions.
3Q063Q07 vs. 3Q053Q06
Revenues,net of interest expense, decreased due to a significant decline inSecurities and Banking, which was partially offset by strong growth inTransaction Services revenues.Securities and Banking revenues declined due to write-downs on weakerhighly-leveraged loans and commitments, CDO and CLO losses, and credit trading losses, related to dislocations in the mortgage-backed securities and credit markets. Decreased revenues in Fixed Income Markets, Debt Underwriting and Lending were partially offset by increased revenues primarilyin Equity Markets, Equity Underwriting and Advisory and other fees. Transaction Services revenues increased to a record level, driven by lower resultshigher customer volumes, stable net interest margins and the acquisition of The Bisys Group, which closed in commodities, interest rate products and foreign exchange. Equity Markets revenues were approximately even withAugust 2007.
Operating expenses increased due to the prior-year period, as improved performance in derivatives and equity finance was offset by lower results in convertibles and cash trading. Investment Banking revenues were approximately even with the prior-year period, as growth in debt underwriting revenuesacquisition of Grupo Cuscatlan, Ameriquest, Bisys, and increased advisory fees wereownership in Nikko Cordial, increased headcount, annual salary growth, increased legal expenses and higher business development costs offset by a decline in equity underwriting.incentive compensation costs inSecurities and Banking.
Operating Expenses were down, reflecting lower production-based incentive compensation accruals, as well as a reversal of payroll tax accruals previously recorded.
Theprovision for credit losses increased driven by a $118 million pretax charge tohigher net credit losses and an increase in loan loss reserves reflecting portfolio growth and a change in credit rating of certainfor specific counterparties.
Regional Net Income
Net income in theU.S. declined, primarily due to lower Fixed Income Markets and Equity Markets revenues, as well as lower Lending Revenues, partially offset by a decrease in compensation expenses (lower production-driven incentive compensation).
Mexico net income was down due to lower Equity Underwriting and Lending revenues. Lower net income also reflected the absence of a $39 million tax benefit from provisions of the Homeland Investment Act as well as a $9 million VAT refund recorded in the prior-year period.
Latin America net income declined on higher investment spending and increased credit costs from lower net recoveries and a loan loss reserve release recorded in the prior-year period. The increased expenses were partially offset by revenue growth in Fixed Income and Equity Markets and Investment Banking.
EMEA net income increased, driven by double-digit revenue growth across several products, including Fixed Income and Equity Markets and Investment Banking.
Net income inJapan declined on lower results in Fixed Income and Equity Markets.
Net income inAsia decreased due to lower results in Equity Markets.
20062007 YTD vs. 20052006 YTD
Revenues,net of interest expense, increased, driven by broad-based performance across products and regions. Fixed Income Markets revenue increases reflected growthincreased revenues in emerging markets trading, municipals, foreign exchange and credit products. Equity Markets, revenues increased, driven by strong growth globally, including cash trading, derivatives products, equity finance, convertibles and convertibles. Investment Banking revenue growth was driven by higher debt underwriting revenuesprime brokerage, in Equity Underwriting, and increased advisory fees. Lending revenue declined, as improved credit conditions led to lower hedging results.
Operating expenses were impacted by $589in Advisory and other fees, and the $402 million benefit from the adoption of SFAS 123(R) charges and higher production-related incentive compensation, as well as a growth in headcount.
Theprovision for credit losses increased, driven by a $372 million pretax charge to increase loan loss reserves, reflecting growth in loans and unfunded loan commitments and an update to historical data used for certain loss estimates.
Regional Net Income
Net income in theU.S. declined, primarily due to higher compensation expenses (the impact from SFAS 123(R) charges), as well as lower revenues in Commodities and Lending, partially offset by higher Fixed Income and Equity Markets revenues and tax benefits from the resolution of the Federal Tax Audit.
Mexico net income was down, as growth157. Revenues decreased in Fixed Income Markets revenues was partially offset by lower equity underwriting and lending revenues. Lower net income also reflectedDebt Underwriting due to the absence of a $39 million tax benefit from provisions of the Homeland Investment Act, as well as a $9 million VAT refund, higher compensation expense and the absence of loan loss recoveries recordeddislocations in the prior-year period.
Latin America net income declined on higher investment spending, an increase inmortgage-backed securities and credit costs (in comparison to the loan loss recoveries recorded in the prior-year period) and the impact of SFAS 123(R) charges. These decreases were partially offset by strong revenue growth in Equity and Fixed Income Markets in Brazil Investment Banking and by the tax benefits from the resolution of the Federal Tax Audit.
EMEA net income increased on double-digit growth across all major product lines and geographies from higher volumes and growth in customer activity and tax benefits from the resolution of the Federal Tax Audit. The increase in net income was partially offset by higher compensation expense due to staff additions and the impact from SFAS 123(R) charges, and higher credit costs on growth in loans and unfunded loan commitments.
Net income inJapan increased due to strong growth in Fixed Income, partially offset by a decrease in equities, and higher expenses.
Net income inAsia increased, driven by broad-based double-digit growth across several products, including Fixed Income and Equity Markets and Advisory. The tax benefits from the resolution of the Federal Tax Audit were partially offset by the impact from SFAS 123(R) charges.
Transaction Services
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 774 | $ | 599 | 29 | % | $ | 2,176 | $ | 1,652 | 32 | % | ||||||
Non-interest revenue | 726 | 647 | 12 | 2,201 | 1,922 | 15 | ||||||||||||
Revenues, net of interest expense | $ | 1,500 | $ | 1,246 | 20 | % | $ | 4,377 | $ | 3,574 | 22 | % | ||||||
Operating expenses | 954 | 809 | 18 | 2,892 | 2,392 | 21 | ||||||||||||
Provision for credit losses | 9 | 6 | 50 | 30 | (1 | ) | NM | |||||||||||
Income before taxes and minority interest | $ | 537 | $ | 431 | 25 | % | $ | 1,455 | $ | 1,183 | 23 | % | ||||||
Income taxes | 151 | 104 | 45 | 406 | 322 | 26 | ||||||||||||
Minority interest, net of taxes | 1 | — | — | 1 | 1 | — | ||||||||||||
Net income | $ | 385 | $ | 327 | 18 | % | $ | 1,048 | $ | 860 | 22 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
U.S. | $ | 317 | $ | 258 | 23 | % | $ | 954 | $ | 729 | 31 | % | ||||||
Mexico | 54 | 48 | 13 | 150 | 145 | 3 | ||||||||||||
Latin America | 156 | 137 | 14 | 463 | 381 | 22 | ||||||||||||
EMEA | 537 | 438 | 23 | 1,560 | 1,306 | 19 | ||||||||||||
Japan | 27 | 21 | 29 | 80 | 60 | 33 | ||||||||||||
Asia | 409 | 344 | 19 | 1,170 | 953 | 23 | ||||||||||||
Total revenues | $ | 1,500 | $ | 1,246 | 20 | % | $ | 4,377 | $ | 3,574 | 22 | % | ||||||
Net income by region: | ||||||||||||||||||
U.S. | $ | 38 | $ | 22 | 73 | % | $ | 71 | $ | 63 | 13 | % | ||||||
Mexico | 20 | 26 | (23 | ) | 52 | 60 | (13 | ) | ||||||||||
Latin America | 48 | 39 | 23 | 148 | 121 | 22 | ||||||||||||
EMEA | 115 | 97 | 19 | 327 | 250 | 31 | ||||||||||||
Japan | 6 | 3 | 100 | 17 | 9 | 89 | ||||||||||||
Asia | 158 | 140 | 13 | 433 | 357 | 21 | ||||||||||||
Total net income | $ | 385 | $ | 327 | 18 | % | $ | 1,048 | $ | 860 | 22 | % | ||||||
Average risk capital(1) | $ | 1,517 | $ | 1,240 | 22 | % | $ | 1,523 | $ | 1,359 | 12 | % | ||||||
Return on risk capital(1) | 101 | % | 105 | % | 92 | % | 85 | % | ||||||||||
Return on invested capital(1) | 57 | % | 56 | % | 52 | % | 47 | % | ||||||||||
Key indicators: | ||||||||||||||||||
Liability balances(average in billions of dollars) | $ | 180 | $ | 147 | 22 | % | ||||||||||||
Assets under custody at period end(in trillions of dollars) | 9.6 | 8.4 | 14 | % | ||||||||||||||
Transaction Services (Continued)
Transaction Services comprises Cash Management, Trade Services & Finance (Trade) and Securities & Funds Services (SFS). Cash Management and Trade provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. SFS 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. Revenue is generated from fees for transaction processing, net interest revenue on Trade, loans and deposits in Cash Management and SFS, and fees on assets under custody in SFS.
3Q06 vs. 3Q05
Revenues, net of interest expense, increased, reflecting growth in liability balances, growth in assets under custody, and higher volumes and interest rates. Average liability balances grew 22% to $180 billionmarkets in the third quarter primarilyof 2007, which resulted in write-downs on increases inhighly-leveraged loans, CDO and CLO losses, and credit trading losses.EMEATransaction Services andAsia, reflecting higher volumes from new and existing customers.
Cash Management revenue increased, reflecting growth across all regions exceptMexico. The growth was attributable to higher liability balances, increased volumes, rising interest rates, and new sales.
Securities & Funds Services revenue increased, reflecting growth across all regions exceptMexico. The increase was driven by higher assets under custody, increased volumes, higher interest rates, new sales, and the impact of acquisitions. Assets under custody reached $9.6 trillion, an increase of $1.2 trillion, or 14%, on strong momentum from new sales, equity markets, and the inclusion of UNISEN assets under custody.
Trade revenues increased reflecting growth inEMEA. This was partially offset by a decline inLatin America.
The change in theprovision for credit losses was $3 million.
Operating expenses increased due to increased volumes, organic business growth, investment spending, and acquisitions.
Cash-basis loans, which are primarily trade finance receivables, were $34 million and $65 million at Sep 30, 2006 and 2005, respectively. The decrease of $31 million was primarily due to declines inMexico.
Regional Net Income
Net income in theU.S. increased, primarily due to revenue growth, partially offset by higher expenses from continued investment spending and acquisitions.
Mexico net income declined, primarily due to the impact of taxes, partially offset by rising interest rates and growth in liability balances and assets under custody.
Latin America net income increased primarily due to growth in liability balances and assets under custody, risinghigher net interest rates,margins in Cash Management and Securities and Funds Services.
Operating expenses growth was primarily driven by higher business volumes and compensation costs related to acquisitions and increased revenue from new sales.business volumes. Expense growth in 2007 was favorably affected by the absence of a $354 million charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006 and a $300 million pretax release of litigation reserves in the second quarter of 2007.
EMEA net income increased primarily from increases in liability balances and assets under custody, higher interest rates, increased revenue from new sales, and strong volumes, which drove growth in Cash Management, SFS, and Trade.
Asia net income increased primarily due to growth in liability balances and assets under custody, rising interest rates, higher customer volumes, and increased revenue from new sales.
Japan net income increased on growth in liability balances and assets under custody, increased revenue from new sales, and rising interest rates.
2006 YTD vs. 2005 YTD
Revenues, net of interest expense, increased, reflecting continued growth in customer liabilities and assets under custody. In addition, higher interest rates, increased volumes, and higher sales contributed to the growth.
Cash Management's revenue reflected growth across all regions exceptMexico. The growth was a result of higher liability balances, volumes and new sales. Higher interest rates also contributed to the revenue increase.
Securities & Funds Services experienced growth in revenues across all regions exceptMexico. This was attributable to higher assets under custody, higher volumes, higher interest rates, and the impact of acquisitions. Assets under custody reached $9.6 trillion, an increase of $1.2 trillion, or 14%, on strong momentum from record sales, equity markets, and the inclusion of ABN Amro and UNISEN assets under custody.
Trade revenues increased, principally driven by growth inEMEA and theU.S. This was partially offset by theLatin America region.
The change in theprovision for credit losses increased due to net charges of $31$431 million was primarily attributableto increase loan loss reserves due to portfolio growth, including higher commitments to leveraged transactions and an increase in average loan tenor, as well as an increase in reserve requirements for specific counterparties. These changes compare to a reserve build of $28$267 million in 2006.
Operating expenses increased on organic business growth, acquisitions and investment spending.
Regional Net Income
Net income in theU.S. increased, primarily duenet increase to revenue growth, growth in liability balances, rising interest rates, resolution of the Federal Tax Audit and the absence of a severance chargeloan loss reserves recorded in the prior year, partially offset by continued investment spending.prior-year period.
Mexico net income declined primarily on higher taxes and expenses, partially offset by growth in liability balances and rising interest rates.
Latin America net income increased primarily on increased revenues from new sales, growth in liability balances, rising interest rates and the resolution of the Federal Tax Audit.
EMEA net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, rising interest rates and strong volumes, which drove growth in Cash Management, SFS, and Trade. The resolution of the Federal Tax Audit also contributed positively to the region's results.
Asia net income increased primarily on higher revenue from new sales, higher customer volumes, growth in liability balances and assets under custody, rising interest rates, and the resolution of the Federal Tax Audit.
Japan net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, and rising interest rates.
Other CIB
Other CIB includes offsets to certain line items reported in other CIB segments, certain non-recurring items and tax amounts not allocated to CIB products.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||
Revenues, net of interest expense | $ | — | $ | 1 | $ | (2 | ) | $ | 2 | ||||
Operating expenses | 13 | (87 | ) | 33 | (78 | ) | |||||||
Provision for credit losses | — | (3 | ) | — | — | ||||||||
Income (loss) before income taxes (benefits) | $ | (13 | ) | $ | 91 | $ | (35 | ) | $ | 80 | |||
Income taxes (benefits) | (5 | ) | 45 | 14 | (2 | ) | |||||||
Net income (loss) | $ | (8 | ) | $ | 46 | $ | (49 | ) | $ | 82 | |||
3Q06 vs. 3Q05
Net income decreased, primarily reflecting the absence of a $54 million after-tax insurance recovery related to Global Crossing and other litigation matters in 2005.
Global Wealth Management is comprised of theSmith Barney Private Client businesses (branded(including Citigroup Wealth Advisors, outsideNikko Cordial, Quilter and the U.S.)legacy Citicorp Investment Services business), CitigroupCitiPrivate Bank, Citi Investment Research and Citigroup Investment Research.Citi Quilter.
| | Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | |||||||||||||||||||||||||||||||||
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 480 | $ | 417 | 15 | % | $ | 1,384 | $ | 1,269 | 9 | % | Net interest revenue | $ | 539 | $ | 480 | 12 | % | $ | 1,594 | $ | 1,384 | 15 | % | ||||||||||
Non-interest revenue | Non-interest revenue | 2,006 | 1,757 | 14 | 6,077 | 5,178 | 17 | Non-interest revenue | 2,970 | 2,006 | 48 | 7,930 | 6,077 | 30 | ||||||||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 2,486 | $ | 2,174 | 14 | % | $ | 7,461 | $ | 6,447 | 16 | % | Revenues, net of interest expense | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||||||
Operating expenses | Operating expenses | 1,894 | 1,673 | 13 | 5,910 | 4,949 | 19 | Operating expenses | 2,614 | 1,894 | 38 | 7,171 | 5,910 | 21 | ||||||||||||||||||||||
Provision for loan losses | Provision for loan losses | 16 | 30 | (47 | ) | 29 | 14 | NM | Provision for loan losses | 56 | 16 | NM | 85 | 29 | NM | |||||||||||||||||||||
Income before taxes | $ | 576 | $ | 471 | 22 | % | $ | 1,522 | $ | 1,484 | 3 | % | ||||||||||||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 839 | $ | 576 | 46 | % | $ | 2,268 | $ | 1,522 | 49 | % | |||||||||||||||||||||||
Income taxes | Income taxes | 177 | 165 | 7 | 489 | 537 | (9 | ) | Income taxes | 312 | 177 | 76 | 762 | 489 | 56 | |||||||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 38 | — | — | 55 | — | — | |||||||||||||||||||||||||||||
Net income | Net income | $ | 399 | $ | 306 | 30 | % | $ | 1,033 | $ | 947 | 9 | % | Net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||||||
Revenues, net of interest expense by region: | ||||||||||||||||||||||||||||||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | |||||||||||||||||||||||||||||||||||
U.S. | $ | 2,153 | $ | 1,923 | 12 | % | $ | 6,456 | $ | 5,647 | 14 | % | U.S. | $ | 2,454 | $ | 2,153 | 14 | % | $ | 7,278 | $ | 6,456 | 13 | % | |||||||||||
Mexico | 32 | 30 | 7 | 96 | 92 | 4 | Mexico | 38 | 32 | 19 | 115 | 96 | 20 | |||||||||||||||||||||||
Latin America | 47 | 48 | (2 | ) | 136 | 156 | (13 | ) | EMEA | 139 | 83 | 67 | 384 | 241 | 59 | |||||||||||||||||||||
EMEA | 83 | 79 | 5 | 241 | 221 | 9 | Japan | 547 | — | — | 833 | — | — | |||||||||||||||||||||||
Japan | — | (13 | ) | 100 | — | (6 | ) | 100 | Asia | 277 | 171 | 62 | 753 | 532 | 42 | |||||||||||||||||||||
Asia | 171 | 107 | 60 | 532 | 337 | 58 | Latin America | 54 | 47 | 15 | 161 | 136 | 18 | |||||||||||||||||||||||
Total revenues | Total revenues | $ | 2,486 | $ | 2,174 | 14 | % | $ | 7,461 | $ | 6,447 | 16 | % | Total revenues | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||||||
Net income (loss) by region: | ||||||||||||||||||||||||||||||||||||
Net income by region: | Net income by region: | |||||||||||||||||||||||||||||||||||
U.S. | $ | 342 | $ | 288 | 19 | % | $ | 860 | $ | 876 | (2 | )% | U.S. | $ | 333 | $ | 342 | (3 | )% | $ | 1,029 | $ | 860 | 20 | % | |||||||||||
Mexico | 9 | 12 | (25 | ) | 27 | 35 | (23 | ) | Mexico | 10 | 9 | 11 | 37 | 27 | 37 | |||||||||||||||||||||
Latin America | 3 | 1 | NM | 8 | 16 | (50 | ) | EMEA | 4 | 7 | (43 | ) | 57 | 15 | NM | |||||||||||||||||||||
EMEA | 7 | 8 | (13 | ) | 15 | 10 | 50 | Japan | 60 | — | — | 90 | — | — | ||||||||||||||||||||||
Japan | — | (29 | ) | 100 | — | (82 | ) | 100 | Asia | 79 | 38 | NM | 218 | 123 | 77 | |||||||||||||||||||||
Asia | 38 | 26 | 46 | 123 | 92 | 34 | Latin America | 3 | 3 | — | 20 | 8 | NM | |||||||||||||||||||||||
Total net income | Total net income | $ | 399 | $ | 306 | 30 | % | $ | 1,033 | $ | 947 | 9 | % | Total net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||||||
Average risk capital(1) | Average risk capital(1) | $ | 2,364 | $ | 2,153 | 10 | % | $ | 2,423 | $ | 2,079 | 17 | % | Average risk capital(1) | $ | 3,180 | $ | 2,364 | 35 | % | $ | 2,979 | $ | 2,423 | 23 | % | ||||||||||
Return on risk capital(1) | Return on risk capital(1) | 67 | % | 56 | % | 57 | % | 61 | % | Return on risk capital(1) | 61 | % | 67 | % | 65 | % | 57 | % | ||||||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 41 | % | 46 | % | 35 | % | 50 | % | Return on invested capital(1) | 22 | % | 41 | % | 29 | % | 35 | % | ||||||||||||||||||
Key indicators:(in billions of dollars) | Key indicators:(in billions of dollars) | |||||||||||||||||||||||||||||||||||
Total assets under fee-based management | Total assets under fee-based management | $ | 515 | $ | 374 | 38 | % | |||||||||||||||||||||||||||||
Total client assets(2) | Total client assets(2) | $ | 1,820 | $ | 1,362 | 34 | % | |||||||||||||||||||||||||||||
Net client asset flows | Net client asset flows | $ | 8 | $ | 3 | NM | ||||||||||||||||||||||||||||||
Financial advisors (FA) / bankers(2) | Financial advisors (FA) / bankers(2) | 15,458 | 13,601 | 14 | % | |||||||||||||||||||||||||||||||
Annualized revenue per FA / banker(in thousands of dollars) | Annualized revenue per FA / banker(in thousands of dollars) | $ | 897 | $ | 729 | 23 | % | |||||||||||||||||||||||||||||
Average deposits and other customer liability balances | Average deposits and other customer liability balances | $ | 119 | $ | 106 | 12 | % | |||||||||||||||||||||||||||||
Average loans | Average loans | $ | 57 | $ | 43 | 33 | % | |||||||||||||||||||||||||||||
Smith BarneyDuring the second quarter of 2007, U.S. Consumer's
Smith BarneyRetail Distribution provides investment advice, financial planning and brokerage services to affluent individuals, companies and non-profits through a networktransferred approximately $47 billion of more than 13,000Client Assets, 686 Financial Advisors in more than 600 offices primarily in the U.S.and 79 branches toSmith Barney generates revenue from managing client assets, acting as a broker for clients in the purchase and sale of securities, financing customers' securities transactions and other borrowing needs through lending and through the sale of mutual funds.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | |||||||||||
Net interest revenue | $ | 247 | $ | 158 | 56 | % | $ | 659 | $ | 456 | 45 | % | |||||
Non-interest revenue | 1,747 | 1,570 | 11 | 5,312 | 4,588 | 16 | |||||||||||
Revenues, net of interest expense | $ | 1,994 | $ | 1,728 | 15 | % | $ | 5,971 | $ | 5,044 | 18 | % | |||||
Operating expenses | 1,565 | 1,366 | 15 | 4,909 | 3,969 | 24 | |||||||||||
Provision for loan losses | (1 | ) | 7 | NM | (1 | ) | 11 | NM | |||||||||
Income before taxes | $ | 430 | $ | 355 | 21 | % | $ | 1,063 | $ | 1,064 | — | ||||||
Income taxes | 136 | 128 | 6 | 363 | 401 | (9 | )% | ||||||||||
Net income | $ | 294 | $ | 227 | 30 | % | $ | 700 | $ | 663 | 6 | % | |||||
Average risk capital(1) | $ | 1,436 | $ | 958 | 50 | % | $ | 1,438 | $ | 920 | 56 | % | |||||
Return on risk capital(1) | 81 | % | 94 | % | 65 | % | 96 | % | |||||||||
Return on invested capital(1) | 41 | % | 67 | % | 33 | % | 68 | % | |||||||||
Key indicators: (in billions of dollars) | |||||||||||||||||
Total assets under fee-based management | $ | 322 | $ | 258 | 25 | % | |||||||||||
Total Smith Barney client assets | $ | 1,173 | $ | 1,015 | 16 | % | |||||||||||
Financial advisors (#) | 13,076 | 12,111 | 8 | % | |||||||||||||
Annualized revenue per financial advisor(in thousands of dollars) | $ | 606 | $ | 565 | 7 | % | |||||||||||
Smith Barney (Continued)
3Q063Q07 vs. 3Q053Q06
Revenues, net of interest expense, increased 41%, primarily due to a 32%reflecting increased ownership of Nikko Cordial; an increase in fee-based and recurring net interest revenues and a 7% decrease in transactional revenues,revenue, reflecting increased customer volumes and the acquisition of the Legg Mason retail brokerage business. The recurring revenue increase can be attributed to the BDP Tiering program, which was launched in September. It was also due tocontinued advisory-based strategy; an increase in business volumeinternational revenues, driven by strong Capital Markets activity in Managed Accounts, Mutual Fund and Annuity.
Operating expensesAsia; were up mainly due to higher compensation expense, including $59 million of SFAS 123(R) accruals, integration costs of the Legg Mason retail brokerage business and higher legal costs.
strong domestic branch transactional revenue and syndicate sales. Total assets under fee-based management were $515 billion at September 30, 2007, up 38% from the prior-year period. Assets that increased were both in the Consulting Group and Advisory Accounts and Financial Advisor Managed Accounts aligned with Smith Barney's strategic direction towards advisory business.
Total client assets, including assets under fee-based management, increased 34%, reflecting organic growth and increased ownership of Nikko Cordial and Quilter client assets, as well as the transfer of CIS assets from U.S. Consumer in the second quarter of 2007. Global Wealth Management had 15,458 financial advisors/bankers as of September 30, 2007, compared towith 13,601 as of September
30, 2006, driven by the Nikko Cordial and Quilter acquisitions, the CIS transfer, and hiring in thePrivate Bank. Annualized revenue per FA/banker of $897,000 increased 23% from the prior-year quarter. This reflected organic
Operating expenses increased 38% in the third quarter of 2007, versus the prior-year quarter. The expense increase in 2007 was mainly driven by the Nikko Cordial and Quilter acquisitions, as well as higher variable compensation associated with increased business volumes.
Theprovision for loan losses increased $40 million, driven by portfolio growth and a reserve increase for specific non-performing loan in the addition of Legg Mason client assets. Net flows were down compared to the prior-year quarter due to the attrition of financial advisors and market action.Private Bank.
20062007 YTD vs. 20052006 YTD
Revenues, net of interest expense, increased 28%, primarily due to a 31%strong increase in fee-basedinternational revenues, driven by the Nikko Cordial and a 2% increaseQuilter acquisitions; strong Capital Markets activity in transactional revenues, reflecting increased customer volumesAsia, Latin America andEMEA; and higher domestic syndicate sales. Net flows were $14 billion compared to $2 billion in the acquisition of the Legg Mason retail brokerage business. The launch of the BDP Tiering program in September caused a large portion of the revenue increase, along with increased in business volume in products such as Managed Accounts, Mutual Fund and Annuity.prior-year period.
Operating expenses increased mainly due21%, driven by the Nikko Cordial and Quilter acquisitions and higher variable compensation associated with increased business volumes, as well as the absence of a $145 million charge related to higher compensation expense, including $286 millionthe initial adoption of SFAS 123(R) charges, integration costsin the first quarter of the Legg Mason retail brokerage business, and higher legal costs.
Net flows were down compared to the prior nine months due to attrition and market action.
Private Bank2006.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Net interest revenue | $ | 233 | $ | 259 | (10 | )% | $ | 725 | $ | 813 | (11 | )% | ||||||
Non-interest revenue | 259 | 187 | 39 | 765 | 590 | 30 | ||||||||||||
Revenues, net of interest expense | $ | 492 | $ | 446 | 10 | % | $ | 1,490 | $ | 1,403 | 6 | % | ||||||
Operating expenses | 329 | 307 | 7 | 1,001 | 980 | 2 | ||||||||||||
Provision for loan losses | 17 | 23 | (26 | ) | 30 | 3 | NM | |||||||||||
Income before taxes | $ | 146 | $ | 116 | 26 | % | $ | 459 | $ | 420 | 9 | % | ||||||
Income taxes | 41 | 37 | 11 | 126 | 136 | (7 | ) | |||||||||||
Net income | $ | 105 | $ | 79 | 33 | % | $ | 333 | $ | 284 | 17 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
U.S. | $ | 204 | $ | 195 | 5 | % | $ | 624 | $ | 603 | 3 | % | ||||||
Mexico | 32 | 30 | 7 | 97 | 92 | 5 | ||||||||||||
Latin America | 47 | 48 | (2 | ) | 137 | 156 | (12 | ) | ||||||||||
EMEA | 76 | 79 | (4 | ) | 220 | 221 | — | |||||||||||
Japan | — | (13 | ) | 100 | — | (6 | ) | 100 | ||||||||||
Asia | 133 | 107 | 24 | 412 | 337 | 22 | ||||||||||||
Total Revenues | $ | 492 | $ | 446 | 10 | % | $ | 1,490 | $ | 1,403 | 6 | % | ||||||
Net income (loss) by region: | ||||||||||||||||||
U.S. | $ | 54 | $ | 61 | (11 | )% | $ | 180 | $ | 213 | (15 | )% | ||||||
Mexico | 9 | 12 | (25 | ) | 27 | 35 | (23 | ) | ||||||||||
Latin America | 3 | 1 | NM | 8 | 16 | (50 | ) | |||||||||||
EMEA | 5 | 8 | (38 | ) | 10 | 10 | — | |||||||||||
Japan | — | (29 | ) | 100 | — | (82 | ) | 100 | ||||||||||
Asia | 34 | 26 | 31 | 108 | 92 | 17 | ||||||||||||
Total net income | $ | 105 | $ | 79 | 33 | % | $ | 333 | $ | 284 | 17 | % | ||||||
Average risk capital(1) | $ | 928 | $ | 1,195 | (22 | )% | $ | 985 | $ | 1,159 | (15 | )% | ||||||
Return on risk capital(1) | 45 | % | 26 | % | 45 | % | 33 | % | ||||||||||
Return on invested capital(1) | 41 | % | 24 | % | 42 | % | 31 | % | ||||||||||
Key indicators:(in billions of dollars) | ||||||||||||||||||
Client assets under fee-based mgt | $ | 52 | $ | 49 | 6 | % | ||||||||||||
Other client activity | 181 | 166 | 9 | % | ||||||||||||||
Total client business volumes | $ | 233 | $ | 215 | 8 | % | ||||||||||||
Private Bank (Continued)
Private Bank provides personalized wealth management services for high-net-worth clients in 33 countries and territories. These services include comprehensive investment management (investment funds management, capital markets solutions, trust, fiduciary and custody services), investment finance (credit services including real estate financing, commitments and letters of credit) and banking services (deposit, checking and savings accounts, as well as cash management and other traditional banking services).
3Q06 vs. 3Q05
Revenues, net of interest expense, increased on strong growth in TheAsia and the absence of prior-year losses related to the closing of the Japan Private Bank.
U.S. revenue increased, primarily driven by an increase in banking spreads and lending volumes, partially offset by lending spread compression.
Mexico revenue increased, mainly due to an increase in banking and investment revenue, partially offset by lower lending and trust revenue.
Latin America revenue decreased, primarily driven by lower revenue in banking and lending products, partially offset by an increase in investment revenue.
EMEA revenue decreased, driven by higher investments revenue, partially offset by the transfer of the Citigroup Wealth Advisors (CWA) business to Smith Barney.
Asia revenue increased, reflecting strong capital markets activity.
Operating expenses increased on higher professional staffing, investment spending to expand in on-shore markets and SFAS 123(R) charges of $3 million, partially offset by the absence ofJapan expenses in the 2006 third quarter.
Provisionprovision for loan losses includes $14increased $56 million, fromprimarily driven by portfolio growth and $3 million on the establishment of a SFAS 114 reserve. The 2005 third quarter includes a $24 millionreserve increase to the reserve reflecting increases inJapan, changes in the application of environmental factors and a SFAS 114for specific non-performing loan loss reserve increase.
Client business volumes increased $18 billion, or 8%. Growth was led by $8 billion in banking and fiduciary assets growth, primarily driven byEMEA andAsia. Investment Finance volumes increased $4 billion mainly driven by growth in theU.S. region. Custody assets grew by $3 billion primarily driven byU.S., Asia andEMEA. Managed assets increased by $3 billion due to increases inLatin America and theU.S.
2006 YTD vs. 2005 YTD
Revenues, net of interest expense, increased on strong growth inAsiaPrivate Bank.
U.S.Net income revenue increased, primarily driven by an increasegrowth also reflected a $65 million APB 23 benefit in banking spreads and lending volumes, partially offset by lending spread compression.the
MexicoPrivate Bank revenue increased, mainly due to an increase in banking2007 and investment revenue, partially offset by lower lending and trust revenue.
Latin America revenue decreased, primarily driven by lower spreads in discretionary and lending portfolios, lower lending volumes and lower banking revenue.
EMEA revenue decreased slightly, driven by higher capital markets revenue, offset by the transfer of the CWA business to Smith Barney.
Asia revenue increased, reflecting strong capital markets activity.
Operating expenses increased by $21 million as the absence ofJapan expenses was offset by SFAS 123(R) charges, higher expenses due to increased professional staffing and investment spending to expand in on-shore markets in a $47 million tax benefit resulting from the first nine months of 2006. The first nine months of 2006 include SFAS 123(R) charges of $25 million.
Provision for loan losses was $30 million in the first nine months of 2006 compared to $3 million in the first nine months of 2005. The provision in 2006 is primarily due to reserve builds of $34 million, partially offset by a $4 million recovery inAsia. 2005 includes net credit reserve releases and recoveries of $11 million inAsia, EMEA and theU.S offset by a build of $24 million for increased exposure inJapan.Tax Audits.
Alternative Investments (AI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AI 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. AI's business model is to enable its 14 investment centers to retain the entrepreneurial qualities required to capitalize on evolving opportunities, while benefiting from the intellectual, operational and financial resources of Citigroup.
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | ||||||||||||||||||||||||||||||||
2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
Net interest revenue | $ | 5 | $ | 83 | (94 | )% | $ | 1 | $ | 217 | (100 | )% | Net interest revenue | $ | 25 | $ | 5 | NM | $ | 2 | $ | 1 | 100 | % | |||||||||||
Non-interest revenue | 329 | 637 | (48 | ) | 1,592 | 2,481 | (36 | ) | Non-interest revenue | 100 | 329 | (70 | )% | 1,717 | 1,592 | 8 | |||||||||||||||||||
Total revenues, net of interest expense | $ | 334 | $ | 720 | (54 | )% | $ | 1,593 | $ | 2,698 | (41 | )% | Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||||
Net realized and net change in unrealized gains | $ | 200 | $ | 442 | (55 | )% | $ | 1,238 | $ | 2,091 | (41 | )% | Net realized and net change in unrealized gains | $ | (121 | ) | $ | 200 | NM | $ | 1,233 | $ | 1,238 | — | |||||||||||
Fees, dividends and interest | 58 | 194 | (70 | ) | 156 | 361 | (57 | ) | Fees, dividends and interest | 144 | 58 | NM | 221 | 156 | 42 | % | |||||||||||||||||||
Other | (21 | ) | 3 | NM | (86 | ) | 20 | NM | Other | (68 | ) | (21 | ) | NM | (153 | ) | (86 | ) | (78 | )% | |||||||||||||||
Total proprietary investment activities revenues | $ | 237 | $ | 639 | (63 | )% | $ | 1,308 | $ | 2,472 | (47 | )% | Total proprietary investment activities revenues | (45 | ) | 237 | NM | 1,301 | 1,308 | (1 | )% | ||||||||||||||
Client revenues(1) | 97 | 81 | 20 | 285 | 226 | 26 | Client revenues(1) | 170 | 97 | 75 | % | 418 | 285 | 47 | |||||||||||||||||||||
Total revenues, net of interest expense | $ | 334 | $ | 720 | (54 | )% | $ | 1,593 | $ | 2,698 | (41 | )% | Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||||
Operating expenses | 137 | 167 | (18 | ) | 517 | 431 | 20 | Operating expenses | 238 | 137 | 74 | 633 | 517 | 22 | |||||||||||||||||||||
Provision for loan losses | — | (2 | ) | 100 | (13 | ) | (2 | ) | NM | Provision for loan losses | (1 | ) | — | — | — | (13 | ) | 100 | |||||||||||||||||
Income before taxes and minority interest | $ | 197 | $ | 555 | (65 | )% | $ | 1,089 | $ | 2,269 | (52 | )% | Income before taxes and minority interest | $ | (112 | ) | $ | 197 | NM | $ | 1,086 | $ | 1,089 | — | |||||||||||
Income taxes | $ | 70 | $ | 181 | (61 | )% | $ | 319 | $ | 782 | (59 | )% | Income taxes | $ | (44 | ) | $ | 70 | NM | $ | 391 | $ | 319 | 23 | % | ||||||||||
Minority interest, net of taxes | 10 | 35 | (71 | ) | 43 | 401 | (89 | ) | Minority interest, net of taxes | (1 | ) | 10 | NM | 84 | 43 | 95 | |||||||||||||||||||
Net income | $ | 117 | $ | 339 | (65 | )% | $ | 727 | $ | 1,086 | (33 | )% | Net income | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||||
Average risk capital(2) (in billions of dollars) | Average risk capital(2) (in billions of dollars) | $ | 4.3 | $ | 4.0 | 8 | % | $ | 4.1 | $ | 4.2 | (2 | )% | ||||||||||||||||||||||
Return on risk capital(2) | Return on risk capital(2) | (6 | )% | 12 | % | 20 | % | 23 | % | ||||||||||||||||||||||||||
Return on invested capital(2) | Return on invested capital(2) | (8 | )% | 8 | % | 17 | % | 20 | % | ||||||||||||||||||||||||||
Revenue by product: | Revenue by product: | ||||||||||||||||||||||||||||||||||
Client(1) | Client(1) | $ | 170 | $ | 97 | 75 | % | $ | 418 | $ | 285 | 47 | % | ||||||||||||||||||||||
Private Equity | $ | 233 | $ | 56 | NM | $ | 1,305 | $ | 785 | 66 | % | ||||||||||||||||||||||||
Hedge Funds | (208 | ) | 1 | NM | (42 | ) | 65 | NM | |||||||||||||||||||||||||||
Other | (70 | ) | 180 | NM | 38 | 458 | (92 | )% | |||||||||||||||||||||||||||
Proprietary | Proprietary | $ | (45 | ) | $ | 237 | NM | $ | 1,301 | $ | 1,308 | (1 | )% | ||||||||||||||||||||||
Total | Total | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||||||||||||||||
Key indicators:(in billions of dollars) | Key indicators:(in billions of dollars) | ||||||||||||||||||||||||||||||||||
Capital under management: | Capital under management: | ||||||||||||||||||||||||||||||||||
Client | $ | 50.4 | $ | 33.5 | 50 | % | |||||||||||||||||||||||||||||
Proprietary | 11.6 | 10.2 | 14 | % | |||||||||||||||||||||||||||||||
Total | Total | $ | 62.0 | $ | 43.7 | 42 | % | ||||||||||||||||||||||||||||
ALTERNATIVE INVESTMENTS (Continued)
| Three Months Ended September 30, | % Change | Nine Months Ended September 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 3Q06 vs. 3Q05 | 2006 | 2005 | YTD06 vs. YTD05 | ||||||||||||
Revenue by product: | ||||||||||||||||||
Client(1) | $ | 97 | $ | 81 | 20 | % | $ | 285 | $ | 226 | 26 | % | ||||||
Private equity | 56 | 449 | (88 | ) | 785 | 2,183 | (64 | ) | ||||||||||
Hedge funds | 1 | 91 | (99 | ) | 65 | 74 | (12 | ) | ||||||||||
Other | 180 | 99 | 82 | 458 | 215 | NM | ||||||||||||
Proprietary | 237 | 639 | (63 | ) | 1,308 | 2,472 | (47 | ) | ||||||||||
Total | $ | 334 | $ | 720 | (54 | ) | $ | 1,593 | $ | 2,698 | (41 | ) | ||||||
Average risk capital(1) | $ | 4.0 | $ | 4.3 | (7 | )% | $ | 4.2 | $ | 4.2 | — | |||||||
Return on risk capital(1) | 12 | % | 31 | % | 23 | % | 35 | % | ||||||||||
Return on invested capital(1) | 8 | % | 29 | % | 20 | % | 32 | % | ||||||||||
Key indicators:(in billions of dollars) | ||||||||||||||||||
Capital under management: | ||||||||||||||||||
Client | $ | 33.5 | $ | 24.8 | 35 | % | ||||||||||||
Proprietary | 10.2 | 10.7 | (5 | )% | ||||||||||||||
Total | $ | 43.7 | $ | 35.5 | 23 | % | ||||||||||||
NM
3Q063Q07 vs. 3Q053Q06
Revenues, net of interest expense, decreased $209 million or 63%.
Total proprietary revenues, net of interest expense, for the third quarter of 20062007 of ($45) million were made upcomposed of revenues from private equity of $233 million, other investment activity of $180 million, private equity of $56($70) million and hedge funds of $1($208) million. Private equity revenue declined $393increased $177 million from the 20052006 third quarter, primarily driven by higher realized and unrealized gains. Hedge fund revenue declined by $209 million, largely due to a lower investment performance. Other investment activities revenue decreased $250 million from the 2006 third quarter, largely due to a lower market value on Legg Mason shares and the absence of prior-year gains from the sale of portfolio assets. OtherCitigroup's investment activities revenue increased $81 million from the 2005 third quarter, largely due to realized gains from sales ofin MetLife shares. Hedge fund revenue declined by $90 million on lower investment performance.Client revenues increased $73 million, reflecting increased management fees fromthe acquisition of Old Lane and a 35%46% growth in average client capital under management.management excluding Old Lane.
Operating expenses in the third quarter of 2007 of $238 million increased $101 million from the third quarter of 2006, declined, primarily due to decreasedthe inclusion of Old Lane, increased performance-driven compensation in private equity portfolios.and higher employee-related expenses.
Minority interest, net of taxtaxes, declined,in the third quarter of 2007 of ($1) million decreased $11 million from the third quarter of 2006, primarily ondue to lower private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized and net change in unrealized gains.gains (losses) consistent with proceeds received by minority interests.
Proprietary capital under management decreasedof $11.6 billion increased $1.4 billion from the third quarter of 2005, primarily driven by the sale of MetLife and St. Paul Travelers (STA) shares. This decline was partially offset by the funding of proprietary2006 due to new investments in private equity and hedge funds and real estate.funds.
Client capital under management of $50.4 billion in the 2007 third quarter increased on$16.9 billion from the 2006 third quarter, due to the inclusion of Old Lane and inflows from institutional and high-net-worth clients.
Investments held by investment company subsidiaries (including CVC Brazil) are carried at fair value, On July 2, 2007, the Company completed the acquisition of Old Lane Partners, L.P. and Old Lane Partners, GP, LLC (Old Lane). Old Lane is the manager of a global, multi-strategy hedge fund and a private equity fund with the net change in unrealized gainstotal assets under management and losses recorded in income. The Company's investment in CVC Brazil is subject to a varietyprivate equity commitments of unresolved matters, including pending litigation involving someapproximately $4.5 billion. Old Lane will operate as part of its portfolio companies, which could affect future valuations of these companies.Alternative Investments.
*2007 YTD vs. 2006 YTD
The saleRevenues, net of Citigroup's Life Insurance and Annuities business to MetLife, Inc. on July 1, 2005, included $1.0 billion, or 22.4 million shares, in MetLife equity securities in the sale proceeds. On July 3, 2006, the company completed the saleinterest expense, of all 22.4 million shares related to a forward sale agreement previously executed. The Company recorded a gain of $133 million pretax in the third quarter of 2006. The investment in Legg Mason resulted from the sale of Citigroup's Asset Management business to Legg Mason, Inc. on December 1, 2005, which included a combination of Legg Mason common and convertible preferred equity securities valued at $2.298$1.719 billion in the sale proceeds. Total equivalent numberfirst nine months of common shares was 18.72007 increased $126 million, of which 10.3 million were sold in March 2006. The Legg Mason equity securities are classified on Citigroup's Consolidated Balance Sheet as Investments (available-for-sale)or 8%.
Alternative Investments (Continued)
2006 YTD vs. 2005 YTD
Total proprietary revenues, net of interest expense, for the first nine months of 20062007 of $1,308 million,$1.301 billion, were comprisedcomposed of revenues from private equity of $785 million,$1.305 billion, other investment activity of $458$38 million and hedge funds of $65($42) million. Private equity revenue declined $1,398increased $520 million from the first nine months of 2005,2006, primarily driven by the absence of prior-year gains from the sale of portfolio assets.higher realized and unrealized gains. Hedge fund revenue decreased $107 million, largely due to lower investment performance. Other investment activities revenue increased $243decreased $420 million from the first nine months of 2005,2006, largely due to realizedthe absence of gains from the liquidation during 2006 of Citigroup's investment in St. Paul shares and MetLife shares. Hedge fund revenue decreased $9 million asshares and a lower investment performance was partially offset by an increase in average capital invested.market value on Legg Mason shares. Client revenues increased $59$133 million, reflecting increased management and performance fees from a 35%49% growth in average client capital under management.management excluding Old Lane.
Operating expenses in the first nine months of 20062007 of $633 million increased $116 million from the first nine months of 2005,2006, primarily due to increased performance-driven compensation, higher employee-related expenses and the impactinclusion of SFAS 123(R) charges.Old Lane.
Minority interest, net of taxtaxes, declined on absencein the first nine months of prior-year2007 of $84 million increased $41 million from the first nine months of 2006, primarily due to higher private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized gains/gains (losses) consistent with proceeds received by minority interests.
Net Income in the first nine months of 2006 reflects higher tax benefits includingfor $58 million resulting from the resolution of the 2006 Federal Tax Audit in the first quarter of 2006.Audit.
Legg Mason Equity Securities
Company | Type of Ownership | Shares owned on September 30, 2006 | Sale Restriction | Market Value as of September 30, 2006 | Pretax Unrealized Gains (Losses) as of September 30, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | ($ millions) | ($ millions) | ||||||||
Legg Mason, Inc. | Non-voting convertible preferred stock representing approximately 5.9% ownership | 8.4 shares (convertible into 8.4 million shares of common stock upon sale to non-affiliate) | 2.2 million shares may be sold publicly at any time and the remaining 6.2 million shares may be sold after December 1, 2006 | $ | 846 | $ | (183 | )(1) | |||||
Total | $ | 846 | $ | (183 | ) | ||||||||
CORPORATE/OTHER
Corporate/Other includes treasury results, the 2007 restructuring charges, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations), the results of discontinued operations and unallocated taxes.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||
Net interest revenue | $ | (93 | ) | $ | (90 | ) | $ | (458 | ) | $ | (213 | ) | |
Non-interest revenue | (206 | ) | (61 | ) | (333 | ) | (142 | ) | |||||
Revenues, net of interest expense | $ | (299 | ) | $ | (151 | ) | $ | (791 | ) | $ | (355 | ) | |
Operating expenses | (33 | ) | 60 | 47 | 261 | ||||||||
Provisions for benefits, claims and credit losses | — | (1 | ) | — | (2 | ) | |||||||
Income (loss) from continuing operations before taxes and minority interest | $ | (266 | ) | $ | (210 | ) | $ | (838 | ) | $ | (614 | ) | |
Income tax benefits | (137 | ) | (39 | ) | (381 | ) | (113 | ) | |||||
Minority interest, net of taxes | — | 6 | 1 | 9 | |||||||||
Income (loss) from continuing operations | $ | (129 | ) | $ | (177 | ) | $ | (458 | ) | $ | (510 | ) | |
Income from discontinued operations | 202 | 2,155 | 289 | 2,823 | |||||||||
Net income (loss) | $ | 73 | $ | 1,978 | $ | (169 | ) | $ | 2,313 | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Revenues, net of interest expense | $ | (257 | ) | $ | (299 | ) | $ | (463 | ) | $ | (791 | ) | |
Restructuring expense | 35 | — | 1,475 | — | |||||||||
Other operating expense | 157 | (33 | ) | 309 | 47 | ||||||||
Provision for loan losses | — | — | (1 | ) | — | ||||||||
Loss from continuing operations before taxes and minority interest | $ | (449 | ) | $ | (266 | ) | $ | (2,246 | ) | $ | (838 | ) | |
Income tax benefits | (156 | ) | (137 | ) | (774 | ) | (381 | ) | |||||
Minority interest, net of taxes | (21 | ) | — | (15 | ) | 1 | |||||||
Loss from continuing operations | $ | (273 | ) | $ | (129 | ) | $ | (1,457 | ) | $ | (458 | ) | |
Income from discontinued operations | — | 202 | — | 289 | |||||||||
Net income/(loss) | $ | (273 | ) | $ | 73 | $ | (1,457 | ) | $ | (169 | ) | ||
3Q063Q07 vs. 3Q053Q06
Revenues, net of interest expense, declined,increased, primarily on lowerdue to improved treasury results, partially offset by Nikko Cordial losses and lowerhigher intersegment eliminations. Lower treasury results were primarily driven by higher funding costs and lower results from risk management activities.
Restructuring expense. See Note 7 on page 62 for details on the 2007 restructuring charge.
OperatingOther operating expenses declined,increased, primarily due to lower intersegment eliminationsincreased staffing, technology and an amendment to the Company's retirement benefit plans. These declines wereother unallocated expenses, partially offset by increased staffing and technology costs.higher intersegment eliminations.
Income tax benefits increased on lowerdue to the higher pretax income, lower taxes held at the corporate level and a tax release of $8 millionloss in the 2006 third quarter relating to the resolution of the New York Tax Audits.current year.
20062007 YTD vs. 20052006 YTD
Revenues, net of interest expense, declinedincreased, primarily due to improved treasury results and a gain on lower intersegment eliminations and lower treasury results. Higher interest rates and an extensionthe sale of the debt maturity profile,certain corporate-owned assets, partially offset by lower funding balances, drove a decline in treasury results.higher intersegment eliminations.
Restructuring expense. See Note 7 on page 62 for details on the 2007 restructuring charge.
OperatingOther operating expenses declinedincreased, primarily due to lower intersegment eliminations,increased staffing, technology and an amendment to the Company's retirement benefit plans,other unallocated expenses, partially offset by increased staffing and technology costs.higher intersegment eliminations.
Income tax benefits increased due to athe higher pretax loss in the current year, offset by a prior-year tax reserve release of $61$69 million relating to the resolution of the Federal2006 Tax Audit and a release of $8 million relating to the resolution of the New York Tax Audits.
Discontinued Operations
Discontinued operations represent the operations in the Company's Sale of the Asset Management Business to Legg Mason Inc., and the Sale of the Life Insurance and Annuities Business. For 2006, income from discontinued operations included gains and tax benefits relating to the final settlement of the Life Insurance and Annuities and Asset Management Sale Transactions and a gain from the Sale of the Asset Management businessBusiness in Poland. Tax benefits includedPoland, as well as a tax reserve release of $59$76 million relating to the resolution of the Federal Tax Audit and a tax benefit of $17 million related to the resolution of the New York2006 Tax Audits. See Note 3 to the Consolidated Financial Statements2 on page 94.57.
MANAGING GLOBAL RISK
Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 20052006 Annual Report on Form 10-K.
The Citigroup Senior Risk Officer is responsible for:
The independent risk managers at the business level are responsible for establishing and implementing risk management policies and practices within their business, for overseeing the risk in their business, and for responding to the needs and issues of their business.
RISK CAPITAL
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.
Risk Capital is used in the calculation of return on risk capital (RORC) and return on invested capital (ROIC).
RORC, calculated as annualized income from continuing operations divided by average risk capital, compares business income with the capital required to absorb the risks. This is analogous to a return on tangible equity calculation. It is used to assess businesses' operating performance and to determine incremental allocation of capital for organic growth.
ROIC is calculated using income adjusted to exclude a net internal funding cost Citigroup levies on the goodwill and intangible assets of each business. This adjusted annualized income is divided by the sum of each business' average risk capital, goodwill and intangible assets (excluding mortgage servicing rights, which are captured in risk capital). ROIC thus compares business income with the total invested capital—risk capital, goodwill and intangible assets—used to generate that income. ROIC 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.
The drivers of "economic losses" are risks, which can be broadly categorized as credit risk (including cross-border risk), market risk, operational risk, and insurance risk:
These risks are measured and aggregated within businesses and across Citigroup to facilitate the understanding of the Company's exposure to extreme downside events.
At September 30, 2006,2007, June 30, 2006,2007, and September 30, 2005,2006, risk capital for Citigroup was comprisedcomposed of the following risk types:
In billions of dollars | Sept. 30, 2006 | June 30, 2006 | Sept. 30, 2005 | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit risk | $ | 36.1 | $ | 35.7 | $ | 35.9 | $ | 45.5 | $ | 42.8 | $ | 36.1 | ||||||||
Market risk | 18.8 | 17.6 | 13.5 | 30.6 | 28.9 | 18.8 | ||||||||||||||
Operational risk | 8.3 | 8.1 | 8.3 | 7.7 | 7.9 | 8.3 | ||||||||||||||
Insurance risk | 0.2 | 0.2 | 0.2 | |||||||||||||||||
Intersector diversification(1) | (6.3 | ) | (5.9 | ) | (4.8 | ) | (5.4 | ) | (5.4 | ) | (6.1 | ) | ||||||||
Total Citigroup | $ | 57.1 | $ | 55.7 | $ | 53.1 | $ | 78.4 | $ | 74.2 | $ | 57.1 | ||||||||
Return on risk capital (quarter) | 37 | % | 38 | % | 37 | % | ||||||||||||||
Return on invested capital (quarter) | 19 | % | 19 | % | 25 | % | ||||||||||||||
Return on risk capital (third quarter) | 12 | % | 37 | % | ||||||||||||||||
Return on invested capital (third quarter) | 7 | % | 19 | % | ||||||||||||||||
Return on risk capital (nine months) | 39 | % | 38 | % | 25 | % | 39 | % | ||||||||||||
Return on invested capital (nine months) | 19 | % | 21 | % | 15 | % | 19 | % | ||||||||||||
The increase in Citigroup's risk capital versus September 30, 2005 was primarily related to the year-end methodology update for market risk for non-trading positions, offset by an increase in the diversification benefit.
It is expected, due to the evolving nature of risk capital, that these methodologies will continue to be refined.
The increase in Citigroup's risk capital versus June 30, 2006 was primarily related to increases in interest rate exposure in consumer businesses and in credit risk due to higher exposures, offset by an increase in the diversification benefit. It is expected, due to the evolving nature of risk capital, that these methodologies will continue to be refined.
Pages 18 to 49 of this Management's Discussion and Analysis provide disclosures, for each segment and product, of averageAverage risk capital, return on risk capital and return on invested capital.
Average year-over-year risk capital increased $2.8 billion, from $53.6 billion to $56.4 billion. Average risk capital of $15.3 billion in U.S. Consumer increased $1.5 billion or 11%, driven mostly by the year-end methodology updateare provided for market risk for non-trading positions. Average risk capital of $12.6 billion in International Consumer decreased $950 million or 7%, driven mostly by lower exposure. Average risk capital of $22 billion in Corporateeach segment and Investment Banking increased $584 million or 3%, primarily driven by portfolio growth. Average risk capital of $2.4 billion in Global Wealth Management increased $211 million or 10%, primarily driven by the new operational risk methodology. Corporate/Other average risk capital increased $1.8 billion, from ($1.6) billion to $143 million, due to the methodological change in market risk, partially offset by intersector diversification.
CREDIT RISK MANAGEMENT PROCESS
Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. Credit risk arises in many of the Company's business activities, including:
pages 14–24.
DETAILS OF CREDIT LOSS EXPERIENCE
In millions of dollars | In millions of dollars | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 1st Qtr. 2006 | 4th Qtr. 2005 | 3rd Qtr. 2005 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 1st Qtr. 2007 | 4th Qtr. 2006 | 3rd Qtr. 2006 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | Allowance for loan losses at beginning of period | $ | 9,144 | $ | 9,505 | $ | 9,782 | $ | 10,015 | $ | 10,418 | Allowance for loan losses at beginning of period | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | $ | 9,144 | ||||||||||||
Provision for loan losses | Provision for loan losses | Provision for loan losses | ||||||||||||||||||||||||||||||||
Consumer | $ | 1,736 | $ | 1,426 | $ | 1,446 | $ | 1,936 | $ | 2,584 | Consumer | $ | 4,623 | $ | 2,583 | $ | 2,443 | $ | 2,028 | $ | 1,736 | |||||||||||||
Corporate | 57 | 10 | (50 | ) | (65 | ) | (59 | ) | Corporate | 153 | (63 | ) | 263 | 85 | 57 | |||||||||||||||||||
$ | 1,793 | $ | 1,436 | $ | 1,396 | $ | 1,871 | $ | 2,525 | $ | 4,776 | $ | 2,520 | $ | 2,706 | $ | 2,113 | $ | 1,793 | |||||||||||||||
Gross credit losses | Gross credit losses | Gross credit losses | ||||||||||||||||||||||||||||||||
Consumer | Consumer | Consumer | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 1,091 | $ | 1,090 | $ | 1,105 | $ | 1,531 | $ | 1,380 | In U.S. offices | $ | 1,382 | $ | 1,264 | $ | 1,291 | $ | 1,223 | $ | 1,091 | |||||||||||||
In offices outside the U.S. | 1,227 | 1,145 | 1,037 | 955 | 2,000 | In offices outside the U.S. | 1,617 | 1,346 | 1,341 | 1,309 | 1,227 | |||||||||||||||||||||||
Corporate | Corporate | Corporate | ||||||||||||||||||||||||||||||||
In U.S. offices | 6 | 44 | 15 | 68 | $ | 4 | In U.S. offices | 18 | 22 | 6 | 13 | 6 | ||||||||||||||||||||||
In offices outside the U.S. | 38 | 75 | 26 | 60 | 60 | In offices outside the U.S. | 74 | 30 | 29 | 97 | 38 | |||||||||||||||||||||||
$ | 2,362 | $ | 2,354 | $ | 2,183 | $ | 2,614 | $ | 3,444 | $ | 3,091 | $ | 2,662 | $ | 2,667 | $ | 2,642 | $ | 2,362 | |||||||||||||||
Credit recoveries | Credit recoveries | Credit recoveries | ||||||||||||||||||||||||||||||||
Consumer | Consumer | Consumer | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 153 | $ | 183 | $ | 190 | $ | 224 | $ | 242 | In U.S. offices | $ | 166 | $ | 175 | $ | 214 | $ | 165 | $ | 153 | |||||||||||||
In offices outside the U.S. | 350 | 298 | 319 | 227 | 212 | In offices outside the U.S. | 279 | 343 | 286 | 307 | 350 | |||||||||||||||||||||||
Corporate | Corporate | Corporate | ||||||||||||||||||||||||||||||||
In U.S. offices | 5 | 12 | 2 | 94 | 39 | In U.S. offices | 1 | 9 | 18 | 2 | 5 | |||||||||||||||||||||||
In offices outside the U.S. | 48 | 65 | 72 | 146 | 148 | In offices outside the U.S. | 59 | 80 | 40 | 26 | 48 | |||||||||||||||||||||||
$ | 556 | $ | 558 | $ | 583 | $ | 691 | $ | 641 | $ | 505 | $ | 607 | $ | 558 | $ | 500 | $ | 556 | |||||||||||||||
Net credit losses | Net credit losses | Net credit losses | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 939 | $ | 939 | $ | 928 | $ | 1,281 | $ | 1,103 | In U.S. offices | $ | 1,233 | $ | 1,102 | $ | 1,065 | $ | 1,069 | $ | 939 | |||||||||||||
In offices outside the U.S. | 867 | 857 | 672 | 642 | 1,700 | In offices outside the U.S. | 1,353 | 953 | 1,044 | 1,073 | 867 | |||||||||||||||||||||||
Total | Total | $ | 1,806 | $ | 1,796 | $ | 1,600 | $ | 1,923 | $ | 2,803 | Total | $ | 2,586 | $ | 2,055 | $ | 2,109 | $ | 2,142 | $ | 1,806 | ||||||||||||
Other—net(1)(2)(3)(4)(5) | Other—net(1)(2)(3)(4)(5) | $ | (152 | ) | $ | (1 | ) | $ | (73 | ) | $ | (181 | ) | $ | (125 | ) | Other—net(1)(2)(3)(4)(5) | $ | 157 | $ | 406 | $ | (27 | ) | $ | (10 | ) | $ | (152 | ) | ||||
Allowance for loan losses at end of period | Allowance for loan losses at end of period | $ | 8,979 | $ | 9,144 | $ | 9,505 | $ | 9,782 | $ | 10,015 | Allowance for loan losses at end of period | $ | 12,728 | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | ||||||||||||
Allowance for unfunded lending commitments(6) | Allowance for unfunded lending commitments(6) | $ | 1,100 | $ | 1,050 | $ | 900 | $ | 850 | $ | 800 | Allowance for unfunded lending commitments(6) | $ | 1,150 | $ | 1,100 | $ | 1,100 | $ | 1,100 | $ | 1,100 | ||||||||||||
Total allowance for loans and unfunded lending commitments | $ | 10,079 | $ | 10,194 | $ | 10,405 | $ | 10,632 | $ | 10,815 | ||||||||||||||||||||||||
Total allowance for loan losses and unfunded lending commitments | Total allowance for loan losses and unfunded lending commitments | $ | 13,878 | $ | 11,481 | $ | 10,610 | $ | 10,040 | $ | 10,079 | |||||||||||||||||||||||
Net consumer credit losses | Net consumer credit losses | $ | 1,815 | $ | 1,754 | $ | 1,633 | $ | 2,035 | $ | 2,926 | Net consumer credit losses | $ | 2,554 | $ | 2,092 | $ | 2,132 | $ | 2,060 | $ | 1,815 | ||||||||||||
As a percentage of average consumer loans | As a percentage of average consumer loans | 1.49 | % | 1.48 | % | 1.46 | % | 1.82 | % | 2.68 | % | As a percentage of average consumer loans | 1.81 | % | 1.56 | % | 1.69 | % | 1.64 | % | 1.49 | % | ||||||||||||
Net corporate credit losses/(recoveries) | Net corporate credit losses/(recoveries) | $ | (9 | ) | $ | 42 | $ | (33 | ) | $ | (112 | ) | $ | (123 | ) | Net corporate credit losses/(recoveries) | $ | 32 | $ | (37 | ) | $ | (23 | ) | $ | 82 | $ | (9 | ) | |||||
As a percentage of average corporate loans | As a percentage of average corporate loans | NM | — | NM | NM | NM | As a percentage of average corporate loans | 0.02 | % | NM | NM | 0.05 | % | NM | ||||||||||||||||||||
NM
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
In millions of dollars | September 30, 2006 | June 30, 2006 | March 31, 2006 | December 31, 2005 | September 30, 2005 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate cash-basis loans(1) | |||||||||||||||
Collateral dependent (at lower of cost or collateral value)(2) | $ | 15 | $ | — | $ | — | $ | 6 | $ | 6 | |||||
Other | 677 | 799 | 821 | 998 | 1,204 | ||||||||||
Total | $ | 692 | $ | 799 | $ | 821 | $ | 1,004 | $ | 1,210 | |||||
Corporate cash-basis loans(1) | |||||||||||||||
In U.S. offices | $ | 23 | $ | 24 | $ | 65 | $ | 81 | $ | 74 | |||||
In offices outside the U.S. | 669 | 775 | 756 | 923 | 1,136 | ||||||||||
Total | $ | 692 | $ | 799 | $ | 821 | $ | 1,004 | $ | 1,210 | |||||
Renegotiated loans (includes Corporate and Commercial Business Loans) | $ | 23 | $ | 23 | $ | 30 | $ | 32 | $ | 29 | |||||
Consumer loans on which accrual of interest had been suspended | |||||||||||||||
In U.S. offices | $ | 2,231 | $ | 1,985 | $ | 2,088 | $ | 2,307 | $ | 2,224 | |||||
In offices outside the U.S. | 1,958 | 1,872 | 1,664 | 1,713 | 1,597 | ||||||||||
Total | $ | 4,189 | $ | 3,857 | $ | 3,752 | $ | 4,020 | $ | 3,821 | |||||
Accruing loans 90 or more days delinquent(3) | |||||||||||||||
In U.S. offices | $ | 2,576 | $ | 2,403 | $ | 2,531 | $ | 2,886 | $ | 2,823 | |||||
In offices outside the U.S. | 448 | 431 | 410 | 391 | 457 | ||||||||||
Total | $ | 3,024 | $ | 2,834 | $ | 2,941 | $ | 3,277 | $ | 3,280 | |||||
Other Real Estate Owned and Other Repossessed Assets
In millions of dollars | September 30, 2006 | June 30, 2006 | March 31, 2006 | December 31, 2005 | September 30, 2005 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other real estate owned(1) | |||||||||||||||
Consumer | $ | 356 | $ | 324 | $ | 322 | $ | 279 | $ | 283 | |||||
Corporate | 193 | 171 | 144 | 150 | 153 | ||||||||||
Total other real estate owned | $ | 549 | $ | 495 | $ | 466 | $ | 429 | $ | 436 | |||||
Other repossessed assets | $ | 62 | $ | 53 | $ | 52 | $ | 62 | $ | 57 | |||||
CONSUMER PORTFOLIO REVIEW
In the Consumer portfolio, credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy.
Commercial Business includes loans and leases made principally to small- and middle-market businesses. These are placed on a non-accrual basis when it is determined that the payment of interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection.
The following table summarizes delinquency and net credit loss experience in both the managed and on-balance sheet consumer loan portfolios. The managed loan portfolio includes held-for-sale and securitized credit card receivables. OnlyU.S. Cards from a product view and U.S. from a regional view are impacted. Although a managed basis presentation is not in conformity with GAAP, the Company believes managed credit statistics provide a representation of performance and key indicators of the credit card business that is consistent with the way management reviews operating performance and allocates resources. For example, theU.S. Cards business considers both on-balance sheet and securitized balances (together, its managed portfolio) when determining capital allocation and general management decisions and compensation. Furthermore, investors use information about the credit quality of the entire managed portfolio, as the results of both the on-balance sheet and securitized portfolios impact the overall performance of theU.S. Cards business. For a further discussion of managed-basis reporting, see Note 14 to the Consolidated Financial Statements on page 109.
Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
| Total Loans | 90 Days or More Past Due(1) | Average Loans | Net Credit Losses(1) | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Product View: | Sept. 30, 2006 | Sept. 30, 2006 | June 30, 2006 | Sept. 30, 2005 | 3rd Qtr. 2006 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | |||||||||||||||||||
| In millions of dollars, except total and average loan amounts in billions | ||||||||||||||||||||||||||
U.S.: | |||||||||||||||||||||||||||
U.S. Cards | $ | 41.0 | $ | 736 | $ | 814 | $ | 981 | $ | 42.8 | $ | 456 | $ | 447 | $ | 649 | |||||||||||
Ratio | 1.80 | % | 1.87 | % | 2.33 | % | 4.22 | % | 4.11 | % | 5.76 | % | |||||||||||||||
U.S. Retail Distribution | 46.2 | 780 | 717 | 787 | 45.2 | 282 | 288 | 314 | |||||||||||||||||||
Ratio | 1.69 | % | 1.62 | % | 1.91 | % | 2.48 | % | 2.65 | % | 3.06 | % | |||||||||||||||
U.S. Consumer Lending | 203.3 | 2,556 | 2,356 | 2,608 | 201.0 | 193 | 160 | 168 | |||||||||||||||||||
Ratio | 1.26 | % | 1.19 | % | 1.49 | % | 0.38 | % | 0.33 | % | 0.39 | % | |||||||||||||||
U.S. Commercial Business | 35.2 | 191 | 116 | 175 | 35.0 | 8 | 12 | 8 | |||||||||||||||||||
Ratio | 0.54 | % | 0.33 | % | 0.54 | % | 0.09 | % | 0.14 | % | 0.10 | % | |||||||||||||||
International: | |||||||||||||||||||||||||||
International Cards | 28.1 | 723 | 643 | 411 | 27.5 | 347 | 333 | 168 | |||||||||||||||||||
Ratio | 2.57 | % | 2.40 | % | 1.78 | % | 5.01 | % | 5.12 | % | 2.94 | % | |||||||||||||||
International Consumer Finance | 24.2 | 575 | 519 | 467 | 24.2 | 389 | 323 | 334 | |||||||||||||||||||
Ratio | 2.37 | % | 2.16 | % | 2.13 | % | 6.38 | % | 5.44 | % | 6.03 | % | |||||||||||||||
International Retail Banking | 65.1 | 679 | 680 | 770 | 64.4 | 141 | 191 | 1,288 | |||||||||||||||||||
Ratio | 1.04 | % | 1.08 | % | 1.26 | % | 0.87 | % | 1.22 | % | 8.20 | % | |||||||||||||||
Private Bank(2) | 40.7 | 10 | 6 | 58 | 40.7 | — | — | (1 | ) | ||||||||||||||||||
Ratio | 0.02 | % | 0.02 | % | 0.15 | % | 0.00 | % | 0.00 | % | (0.01 | )% | |||||||||||||||
Other Consumer Loans | 2.4 | — | — | 51 | 2.3 | (1 | ) | — | (2 | ) | |||||||||||||||||
On-Balance Sheet Loans(3) | $ | 486.2 | $ | 6,250 | $ | 5,851 | $ | 6,308 | $ | 483.1 | $ | 1,815 | $ | 1,754 | $ | 2,926 | |||||||||||
Ratio | 1.29 | % | 1.22 | % | 1.45 | % | 1.49 | % | 1.48 | % | 2.68 | % | |||||||||||||||
Securitized receivables (all in U.S. Cards) | $ | 99.2 | $ | 1,519 | $ | 1,421 | $ | 1,299 | $ | 97.3 | $ | 1,051 | $ | 969 | $ | 1,267 | |||||||||||
Credit card receivables held-for-sale | 0.6 | — | — | — | 0.5 | 1 | — | — | |||||||||||||||||||
Managed Loans(4) | $ | 586.0 | $ | 7,769 | $ | 7,272 | $ | 7,607 | $ | 580.9 | $ | 2,867 | $ | 2,723 | $ | 4,193 | |||||||||||
Ratio | 1.33 | % | 1.26 | % | 1.44 | % | 1.96 | % | 1.92 | % | 3.18 | % | |||||||||||||||
Regional View: | |||||||||||||||||||||||||||
U.S. | $ | 355.0 | $ | 4,273 | $ | 4,010 | $ | 4,632 | $ | 352.9 | $ | 937 | $ | 908 | $ | 1,137 | |||||||||||
Ratio | 1.20 | % | 1.14 | % | 1.46 | % | 1.05 | % | 1.05 | % | 1.45 | % | |||||||||||||||
Mexico | 15.4 | 600 | 548 | 576 | 15.2 | 128 | 115 | 68 | |||||||||||||||||||
Ratio | 3.90 | % | 3.76 | % | 4.15 | % | 3.33 | % | 3.16 | % | 1.95 | % | |||||||||||||||
EMEA | 40.1 | 573 | 508 | 518 | 40.3 | 221 | 292 | 1,391 | |||||||||||||||||||
Ratio | 1.43 | % | 1.29 | % | 1.42 | % | 2.18 | % | 2.97 | % | 14.60 | % | |||||||||||||||
Japan | 11.6 | 231 | 194 | 195 | 11.7 | 286 | 251 | 254 | |||||||||||||||||||
Ratio | 1.99 | % | 1.63 | % | 1.64 | % | 9.65 | % | 8.33 | % | 7.65 | % | |||||||||||||||
Asia | 58.3 | 453 | 491 | 356 | 57.3 | 174 | 147 | 84 | |||||||||||||||||||
Ratio | 0.78 | % | 0.87 | % | 0.66 | % | 1.21 | % | 1.06 | % | 0.62 | % | |||||||||||||||
Latin America | 5.8 | 120 | 100 | 31 | 5.7 | 69 | 41 | (8 | ) | ||||||||||||||||||
Ratio | 2.07 | % | 1.85 | % | 0.84 | % | 4.85 | % | 3.34 | % | (0.90 | )% | |||||||||||||||
On-Balance Sheet Loans(3) | $ | 486.2 | $ | 6,250 | $ | 5,851 | $ | 6,308 | $ | 483.1 | $ | 1,815 | $ | 1,754 | $ | 2,926 | |||||||||||
Ratio | 1.29 | % | 1.22 | % | 1.45 | % | 1.49 | % | 1.48 | % | 2.68 | % | |||||||||||||||
Securitized receivables (all in U.S. Cards) | $ | 99.2 | $ | 1,519 | $ | 1,421 | $ | 1,299 | $ | 97.3 | $ | 1,051 | $ | 969 | $ | 1,267 | |||||||||||
Credit card receivables held-for-sale | 0.6 | — | — | — | 0.5 | 1 | — | — | |||||||||||||||||||
Managed Loans(4) | $ | 586.0 | $ | 7,769 | $ | 7,272 | $ | 7,607 | $ | 580.9 | $ | 2,867 | $ | 2,723 | $ | 4,193 | |||||||||||
Ratio | 1.33 | % | 1.26 | % | 1.44 | % | 1.96 | % | 1.92 | % | 3.18 | % | |||||||||||||||
Consumer Loan Balances, Net of Unearned Income
| End of Period | Average | End of Period | Average | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Sept. 30, 2006 | June 30, 2006 | Sept. 30, 2005 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||
On-balance sheet(1) | $ | 486.2 | $ | 478.3 | $ | 436.2 | $ | 483.1 | $ | 474.0 | $ | 433.4 | ||||||||||||||||||||||||
On-balance sheet(1) | $ | 568.9 | $ | 548.6 | $ | 486.2 | $ | 558.7 | $ | 539.3 | $ | 483.1 | ||||||||||||||||||||||||
Securitized receivables (all inU.S. Cards) | 99.2 | 97.3 | 92.6 | 97.3 | 94.5 | 89.8 | 104.0 | 101.1 | 99.2 | 101.0 | 97.5 | 97.3 | ||||||||||||||||||||||||
Credit card receivables held-for-sale | 0.6 | — | — | 0.5 | — | — | 3.0 | 2.9 | 0.6 | 3.0 | 3.3 | 0.5 | ||||||||||||||||||||||||
Total managed | $ | 586.0 | $ | 575.6 | $ | 528.8 | $ | 580.9 | $ | 568.5 | $ | 523.2 | $ | 675.9 | $ | 652.6 | $ | 586.0 | $ | 662.7 | $ | 640.1 | $ | 580.9 | ||||||||||||
Citigroup's total allowance for loans, leases and unfunded lending commitments of $10.079$13.878 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Consumer portfolio was $9.200 billion at September 30, 2007, $7.206 billion at June 30, 2007 and $6.087 billion at September 30, 2006, $6.311 billion at June 30, 2006 and $7.226 billion at September 30, 2005.2006. The decreaseincrease in the allowance for credit losses from September 30, 20052006 of $1.139$3.113 billion included:included net builds of $2.839 billion.
The build primarily related toreflected a weakening of leading credit indicators, including increased delinquencies on mortgages and unsecured personal loans, as well as trends in the impact ofU.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in bankruptcy legislation on
Offsetting these reductions in the allowance for credit losses was the impact of reserve builds of $654 million, primarily related to increased reserves inMexico; increased reserves inAsia, primarily related to industry-wide credit conditions in the Taiwan cards market; increased reserves in Japan, primarily related to legislative proposals which, if enacted, will change various aspects of the Consumer Finance industry; and the impact of the change in bankruptcy legislation onU.S. Retail Distribution. The acquisition of the Credicard portfolio increased the allowance for credit losses by $84 million inLatin America.loan losses.
On-balance sheet consumer loans of $486.2$568.9 billion increased $50.0$82.7 billion, or 11%17%, from September 30, 2005,2006, primarily driven by growth in mortgage and other real-estate-secured loans in theU.S. Consumer Lending,,U.S. Commercial Business, andPrivate Bank businesses and growth inU.S. Retail Distribution, International Cards, International Retail Banking. Credit card receivables declined on higher payment rates by customers.
and Global Wealth Management. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macro-economic and regulatory policies.
The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
EXPOSURE TO U.S. RESIDENTIAL REAL ESTATE
Sub-prime Related Exposure inSecurities and Banking
The Company has approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 1 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments discussed on page 9, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions.
Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
U.S. Consumer Mortgage Lending
The Company's U.S. Consumer Mortgage portfolio consists of both first and second mortgages. As of September 30, 2007, the first mortgage portfolio totaled approximately $155 billion, of which 84% ($131 billion) had a FICO (Fair Isaac Corporation) credit score of at least 620 at origination; the other 16% ($24 billion) were originated in the FICO<620 category, which is one working definition for "sub-prime" mortgages in the industry. The Company observed higher delinquencies in the under 620 FICO category (at origination), as well as across some higher FICO bands during the third quarter of 2007.
In the Company's $62 billion second mortgage portfolio, the vast majority of loans are in the higher FICO categories. However, the Company has approximately 34% ($21 billion) of its portfolio in the category where LTV>=90% at origination, where higher levels of delinquencies were observed during the third quarter of 2007.
In light of increased delinquencies in both its first and second mortgage portfolios during the first nine months of 2007, the Company has increased reserves for loans in these portfolios during this period of 2007. There were minimal changes in the (origination FICO/LTV) composition of the U.S. Consumer Mortgage portfolio from June 30, 2007 to September 30, 2007. The disclosures above exclude approximately $21 billion of consumer mortgage loans in Global Wealth Management (GWM). The GWM loans are largely in the U.S. and do not have any sub-prime classifications.
CORPORATE CREDIT PORTFOLIORISK
Credit Exposure Arising from Derivatives and Foreign Exchange
Citigroup uses derivatives as both an end-user for asset/liability management and in its client businesses. In CIB, Citigroup enters into derivatives for trading purposes or to enable customers to transfer, modify or reduce their interest rate, foreign exchange and other market risks. In addition, Citigroup uses derivatives and other instruments, primarily interest rate and foreign exchange products, as an end-user to manage interest rate risk relating to specific groups of interest-sensitive assets and liabilities. Also, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, net capital exposures and foreign exchange transactions.
The Company's credit exposure on derivatives and foreign exchange contracts is primarily to professional counterparties in the financial sector, arising from transactions with banks, investments banks, governments and central banks, and other financial institutions.
For purposes of managing credit exposure on derivative and foreign exchange contracts, particularly when looking at exposure to a single counterparty, the Company measures and monitors credit exposure taking into account the current mark-to-market value of each contract plus a prudent estimate of its potential change in value over its life. This measurement of the potential future exposure for each credit facility is based on a stressed simulation of market rates and generally takes into account legally enforceable risk-mitigating agreements for each obligor such as netting and margining.
For asset/liability management hedges, a derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness present in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes the changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value, which, if excluded, is recognized in current earnings.
The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of September 30, 20062007 and December 31, 2005. See2006. A portion of the asset/liability management hedges are accounted for under SFAS 133, as described in Note 16 to the Consolidated Financial Statements15 on page 115 for a discussion regarding the accounting for derivatives.75.
Notionals(1)
| | Trading Derivatives(2) | Asset/Liability Management Hedges(3) | | Trading Derivatives(2) | Asset/Liability Management Hedges(3) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | September 30, 2006 | December 31, 2005 | September 30, 2006 | December 31, 2005 | In millions of dollars | September 30, 2007 | December 31, 2006 | September 30, 2007 | December 31, 2006 | ||||||||||||||||
Interest rate contracts | Interest rate contracts | Interest rate contracts | ||||||||||||||||||||||||
Swaps | $ | 13,834,583 | $ | 12,677,814 | $ | 600,387 | $ | 403,576 | Swaps | $ | 17,668,498 | $ | 14,196,404 | $ | 702,664 | $ | 561,376 | |||||||||
Futures and forwards | 1,852,869 | 2,090,844 | 69,124 | 18,425 | Futures and forwards | 2,104,898 | 1,824,205 | 113,710 | 75,374 | |||||||||||||||||
Written options | 2,094,351 | 1,949,501 | 12,043 | 5,166 | Written options | 4,094,788 | 3,054,990 | 16,831 | 12,764 | |||||||||||||||||
Purchased options | 2,160,312 | 1,633,983 | 58,460 | 53,920 | Purchased options | 4,254,835 | 2,953,122 | 132,006 | 35,420 | |||||||||||||||||
Total interest rate contract notionals | Total interest rate contract notionals | $ | 19,942,115 | $ | 18,352,142 | $ | 740,014 | $ | 481,087 | Total interest rate contract notionals | $ | 28,123,019 | $ | 22,028,721 | $ | 965,211 | $ | 684,934 | ||||||||
Foreign exchange contracts | Foreign exchange contracts | Foreign exchange contracts | ||||||||||||||||||||||||
Swaps | $ | 656,055 | $ | 563,888 | $ | 51,638 | $ | 37,418 | Swaps | $ | 1,009,341 | $ | 722,063 | $ | 74,495 | $ | 53,216 | |||||||||
Futures and forwards | 1,921,368 | 1,508,754 | 43,152 | 53,757 | Futures and forwards | 2,495,058 | 2,068,310 | 42,869 | 42,675 | |||||||||||||||||
Written options | 355,578 | 249,725 | 131 | — | Written options | 635,168 | 416,951 | 327 | 1,228 | |||||||||||||||||
Purchased options | 350,045 | 253,089 | 1,207 | 808 | Purchased options | 611,682 | 404,859 | 621 | 1,246 | |||||||||||||||||
Total foreign exchange contract notionals | Total foreign exchange contract notionals | $ | 3,283,046 | $ | 2,575,456 | $ | 96,128 | $ | 91,983 | Total foreign exchange contract notionals | $ | 4,751,249 | $ | 3,612,183 | $ | 118,312 | $ | 98,365 | ||||||||
Equity contracts | Equity contracts | Equity contracts | ||||||||||||||||||||||||
Swaps | $ | 83,853 | $ | 70,188 | $ | — | $ | — | Swaps | $ | 159,733 | $ | 104,320 | $ | — | $ | — | |||||||||
Futures and forwards | 24,514 | 14,487 | — | — | Futures and forwards | 37,481 | 36,362 | — | — | |||||||||||||||||
Written options | 262,241 | 213,383 | — | — | Written options | 641,920 | 387,781 | — | — | |||||||||||||||||
Purchased options | 239,111 | 193,248 | — | — | Purchased options | 588,452 | 355,891 | — | — | |||||||||||||||||
Total equity contract notionals | Total equity contract notionals | $ | 609,719 | $ | 491,306 | $ | — | $ | — | Total equity contract notionals | $ | 1,427,586 | $ | 884,354 | $ | — | $ | — | ||||||||
Commodity and other contracts | Commodity and other contracts | Commodity and other contracts | ||||||||||||||||||||||||
Swaps | $ | 33,617 | $ | 20,486 | $ | — | $ | — | Swaps | $ | 40,624 | $ | 35,611 | $ | — | $ | — | |||||||||
Futures and forwards | 12,249 | 10,876 | — | — | Futures and forwards | 56,114 | 17,433 | — | — | |||||||||||||||||
Written options | 15,253 | 9,761 | — | — | Written options | 21,895 | 11,991 | — | — | |||||||||||||||||
Purchased options | 18,780 | 12,240 | — | — | Purchased options | 28,761 | 16,904 | — | — | |||||||||||||||||
Total commodity and other contract notionals | Total commodity and other contract notionals | $ | 79,899 | $ | 53,363 | $ | — | $ | — | Total commodity and other contract notionals | $ | 147,394 | $ | 81,939 | $ | — | $ | — | ||||||||
Credit derivatives | Credit derivatives | $ | 1,591,540 | $ | 1,030,745 | $ | — | $ | — | Credit derivatives | $ | 3,534,927 | $ | 1,944,980 | $ | — | $ | — | ||||||||
Total derivative notionals | Total derivative notionals | $ | 25,506,319 | $ | 22,503,012 | $ | 836,142 | $ | 573,070 | Total derivative notionals | $ | 37,984,175 | $ | 28,552,177 | $ | 1,083,523 | $ | 783,299 | ||||||||
Mark-to-Market (MTM) Receivables/Payables
| | Derivatives Receivables—MTM | Derivatives Payable—MTM | | Derivatives Receivables—MTM | Derivatives Payables—MTM | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | September 30, 2006 | December 31, 2005 | September 30, 2006 | December 31, 2005 | In millions of dollars | September 30, 2007 | December 31, 2006(4) | September 30, 2007 | December 31, 2006(4) | ||||||||||||||||||||
Trading Derivatives(2) | Trading Derivatives(2) | Trading Derivatives(2) | ||||||||||||||||||||||||||||
Interest rate contracts | $ | 172,204 | $ | 192,761 | $ | 168,238 | $ | 188,182 | Interest rate contracts | $ | 211,400 | $ | 168,872 | $ | 207,856 | $ | 168,793 | |||||||||||||
Foreign exchange contracts | 41,352 | 42,749 | 37,347 | 41,474 | Foreign exchange contracts | 79,519 | 52,297 | 72,033 | 47,469 | |||||||||||||||||||||
Equity contracts | 24,342 | 18,633 | 44,467 | 32,313 | Equity contracts | 35,958 | 26,883 | 76,138 | 52,980 | |||||||||||||||||||||
Commodity and other contracts | 6,358 | 7,332 | 7,159 | 6,986 | Commodity and other contracts | 7,078 | 5,387 | 7,019 | 5,776 | |||||||||||||||||||||
Credit derivative | 10,201 | 8,106 | 11,115 | 9,279 | Credit derivative | 52,389 | 14,069 | 49,334 | 15,081 | |||||||||||||||||||||
Total | $ | 254,457 | $ | 269,581 | $ | 268,326 | $ | 278,234 | Total | $ | 386,344 | $ | 267,508 | $ | 412,380 | $ | 290,099 | |||||||||||||
Less: Netting agreements, cash collateral and market value adjustments | (206,037 | ) | (222,167 | ) | (201,420 | ) | (216,906 | ) | Less: Netting agreements, cash collateral and market value adjustments | (301,186 | ) | (217,967 | ) | (298,465 | ) | (215,295 | ) | |||||||||||||
Net Receivables/Payables | $ | 48,420 | $ | 47,414 | $ | 66,906 | $ | 61,328 | Net Receivables/Payables | $ | 85,158 | $ | 49,541 | $ | 113,915 | $ | 74,804 | |||||||||||||
Asset/Liability Management Hedges(3) | Asset/Liability Management Hedges(3) | Asset/Liability Management Hedges(3) | ||||||||||||||||||||||||||||
Interest rate contracts | $ | 1,798 | $ | 3,775 | $ | 3,042 | $ | 1,615 | Interest rate contracts | $ | 1,614 | $ | 1,801 | $ | 4,951 | $ | 3,327 | |||||||||||||
Foreign exchange contracts | 2,722 | 1,385 | 1,042 | 1,137 | Foreign exchange contracts | 6,350 | 3,660 | 1,328 | 947 | |||||||||||||||||||||
Total | $ | 4,520 | $ | 5,160 | $ | 4,084 | $ | 2,752 | Total | $ | 7,964 | $ | 5,461 | $ | 6,279 | $ | 4,274 | |||||||||||||
GLOBAL CORPORATE PORTFOLIO
Corporate loans are identified as impaired and placed on a non-accrual basis (cash-basis) when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more; the exception is when the loan is well secured and in the process of collection. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value, less disposal costs.
The following table summarizes corporate cash-basis loans and net credit losses:
In millions of dollars | Sept. 30, 2006 | Dec. 31, 2005 | Sept. 30, 2005 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Corporate cash-basis loans | ||||||||||
Capital Markets and Banking | $ | 658 | $ | 923 | $ | 1,145 | ||||
Transaction Services | 34 | 81 | 65 | |||||||
Total corporate cash-basis loans(1) | $ | 692 | $ | 1,004 | $ | 1,210 | ||||
Net credit write-offs/losses (recoveries) | ||||||||||
Capital Markets and Banking | $ | (11 | ) | $ | (117 | ) | $ | (118 | ) | |
Transaction Services | 2 | 5 | (3 | ) | ||||||
CIB Other | — | — | — | |||||||
Alternative Investments | — | — | (2 | ) | ||||||
Total net credit write-offs/ losses (recoveries) | $ | (9 | ) | $ | (112 | ) | $ | (123 | ) | |
Corporate allowance for loan losses | $ | 2,892 | $ | 2,860 | $ | 2,789 | ||||
Corporate allowance for credit losses on unfunded lending commitments(2) | 1,100 | 850 | 800 | |||||||
Total corporate allowance for loans and unfunded lending commitments | $ | 3,992 | $ | 3,710 | $ | 3,589 | ||||
As a percentage of total corporate loans(3) | 1.73 | % | 2.22 | % | 2.22 | % | ||||
Corporate cash-basis loans on September 30, 2006 decreased $518 million compared to September 30, 2005; $487 million of the decrease was inCapital Markets and Banking and $31 million was inTransaction Services.Capital Markets and Banking decreased primarily due to higher charge-offs in Korea, Russia, Mexico and Australia. The decrease inTransaction Services was primarily related to charge-offs inMexico.
Cash-basis loans decreased $312 million compared to December 31, 2005 due to decreases of $265 million inCapital Markets and Banking and $47 million inTransaction Services.Capital Markets and Banking primarily reflected increased charge-offs in Russia, Australia, Korea and India.Transaction Services decreased primarily due to charge-offs inMexico.
Total corporate Other Real Estate Owned (OREO) was $193 million, $150 million and $153 million at September 30, 2006, December 31, 2005, and September 30, 2005, respectively. The $43 million increase from December 31, 2005 reflects net foreclosures in the U.S. real estate portfolio.
Total corporate loans outstanding at September 30, 2006 were $167 billion as compared to $129 billion and $126 billion at December 31, 2005 and September 30, 2005, respectively.
Total corporate net credit recoveries of $9 million on September 30, 2006 decreased $114 million compared to September 30, 2005, primarily attributable to reduced recoveries in the third quarter of 2006. Total corporate net credit losses increased $103 million compared to the 2005 fourth quarter, primarily due to reduced recoveries in the third quarter of 2006.
Citigroup's total allowance for credit losses for loans, leases and unfunded lending commitments of $10.079 billion at September 30, 2006 is available to absorb probable credit losses inherent in the entire Company's portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the corporate portfolio was $3.992 billion at September 30, 2006, $3.589 billion at September 30, 2005, and $3.710 billion at December 31, 2005, respectively. The $403 million increase in the corporate allowance at September 30, 2006 from September 30, 2005 primarily reflects reserve builds related to unfunded lending commitments due to increases in expected losses during the year and the deterioration of the credit quality of the underlying portfolios. The $282 million increase in the corporate allowance at September 30, 2006 from December 31, 2005 primarily reflects an increase in the allowance for unfunded lending commitments based on portfolio growth and the deterioration of the underlying portfolio. Losses on corporate lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type.
MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity risk is discussed in the "Capital Resources and Liquidity" on page 74.41. Price risk is the earnings risk from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in non-trading portfolios, as well as in trading portfolios.
Market risks are measured in accordance with established standards to ensure consistency across businesses and the ability to aggregate like risk at the Citigroup level. Each business is required to establish, with approval from independent market risk management, a market risk limit framework, including risk measures, limits and controls, that clearly defines approved risk profiles and is within the parameters of Citigroup's overall risk appetite.
In all cases, the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits.
Non-Trading Portfolios
Citigroup's non-trading portfolios are managed using a common set of standards that define, measure, limit and report market risk. The risks are managed within limits approved by independent market risk management. In addition, there are Citigroup-wide reporting metrics that are common to all business units, which enable Citigroup to aggregate and compare non-trading risks across businesses. The metrics measure the change in either income or value of the Company's positions under various rate scenarios.
Citigroup's primary focus is providing financial products for its customers. Loans and deposits are tailored to the customer's requirements in terms of maturity and whether the rate is fixed or floating and, if it is floating, how often the rate resets and according to which market index. These customer transactions result in a risk exposure for Citigroup. This exposure may be related to differencesexposures in the timing of maturities, and/or rate resetting for assets and liabilities, or it may be due to different positions resetting based on different indices. In some instances it may also be indirectly related to interest rate changes. For example, mortgage prepayment rates vary not only as a result of interest rate changes, but also with the absolute level of rates relative to the rate on the mortgage itself.
One function of Treasury at Citigroup is to understand the risks that arise from customer transactions and to manage them so that unexpected changes in the markets do not adversely impact Citigroup's Net Interest Revenue (NIR). Various market factors are considered, including the market's expectation of future interest rates and any different expectations for rate indices (LIBOR, treasuries, etc.). In order to manage these risks effectively, Citigroup may modify customer pricing, enter into transactions with other institutions that may have opposite risk positions and enter into off-balance sheet transactions, including derivatives.
NIR is a function of the size of the balance and the rate that is earned or paid on that balance. NIR in any period is the result of customer transactions and the related contractual rates from prior periods, as well as new transactions in the current period; it may be impacted by changes in rates on floating rate assets and liabilities. Due to the long-term nature of the portfolio, NIR will vary from quarter to quarter even in the absence of changes in interest rates.
Citigroup's principal measure of earnings risk from non-trading portfolios due to interest rates changes is Interest Rate Exposure (IRE). IRE measures the change in expected NIR in each currency that results solely from unanticipated changes in market rates of interest; scenarios are run assuming unanticipated instantaneous parallel rate changes, as well as more gradual rate changes. Other factors such as changes in volumes, spreads, margins, and the impact of prior-period pricing decisions can also change current period interest income, but are not captured by IRE. While IRE assumes that businesses make no additional changes in pricing or balances in response to the unanticipated rate changes, in practice businesses may alter their portfolio mix, customer pricing and hedge positions, which could significantly impact reported NIR.
Citigroup employs additional measurements, including stress testing the impact of non-linear interest rate movements on the value of the balance sheet; analysis of portfolio duration and volatility, particularly as they relate to mortgages and mortgage-backed securities; and the potential impact of the change in the spread between different market indices.
Citigroup Interest Rate Exposure (Impact on Pretax Earnings)
The amounts in thefollowing table below represent the approximate impactannualized risk to Net Interest Revenue on our principal currency exposures over the next 12 months. This impact is based on current balances and pricing that would result fromassuming an unanticipated parallel instantaneous rate100bp change, ofas well as a 100bp and amore gradual 100bp (25bp per quarter) parallel change in rates as compared with the market forward interest rates.rates in selected currencies.
| September 30, 2006 | June 30, 2006 | September 30, 2005 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (375 | ) | $ | 258 | $ | (344 | ) | $ | 436 | $ | (262 | ) | $ | 305 | ||||
Gradual change | $ | (234 | ) | $ | 231 | $ | (247 | ) | $ | 212 | $ | (138 | ) | $ | 115 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 46 | $ | (46 | ) | $ | 44 | $ | (44 | ) | $ | 74 | $ | (75 | ) | ||||
Gradual change | $ | 35 | $ | (35 | ) | $ | 32 | $ | (32 | ) | $ | 45 | $ | (45 | ) | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (80 | ) | $ | 80 | $ | (70 | ) | $ | 70 | $ | (27 | ) | $ | 27 | ||||
Gradual change | $ | (39 | ) | $ | 39 | $ | (33 | ) | $ | 33 | $ | (9 | ) | $ | 9 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | (14 | ) | NM | $ | (21 | ) | NM | $ | 29 | NM | ||||||||
Gradual change | $ | (8 | ) | NM | $ | (10 | ) | NM | $ | 16 | NM | ||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (27 | ) | $ | 27 | $ | (32 | ) | $ | 31 | $ | 25 | $ | (26 | ) | ||||
Gradual change | $ | (18 | ) | $ | 18 | $ | (18 | ) | $ | 18 | $ | 19 | $ | (19 | ) | ||||
The exposures in the following tables do not include interest rate exposures (IRE) for Nikko Cordial due to the unavailability of information. Nikko Cordial's IRE exposure is primarily denominated in Japanese yen.
| September 30, 2007 | June 30, 2007 | September 30, 2006 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||||||||
Increase | Decrease | Increase | Decrease | Increase | Decrease | ||||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (684 | ) | $ | 738 | $ | (572 | ) | $ | 553 | $ | (375 | ) | $ | 258 | ||||
Gradual change | $ | (337 | ) | $ | 372 | $ | (309 | ) | $ | 329 | $ | (234 | ) | $ | 231 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 5 | $ | (5 | ) | $ | (29 | ) | $ | 29 | $ | 46 | $ | (46 | ) | ||||
Gradual change | $ | (1 | ) | $ | 1 | $ | (14 | ) | $ | 14 | $ | 35 | $ | (35 | ) | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (92 | ) | $ | 92 | $ | (97 | ) | $ | 97 | $ | (80 | ) | $ | 80 | ||||
Gradual change | $ | (38 | ) | $ | 38 | $ | (43 | ) | $ | 43 | $ | (39 | ) | $ | 39 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | 58 | NM | $ | (9 | ) | NM | $ | (14 | ) | NM | ||||||||
Gradual change | $ | 43 | NM | $ | (5 | ) | NM | $ | (8 | ) | NM | ||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (5 | ) | $ | 5 | $ | (19 | ) | $ | 19 | $ | (27 | ) | $ | 27 | ||||
Gradual change | $ | 8 | $ | (8 | ) | $ | 3 | $ | (3 | ) | $ | (18 | ) | $ | 18 | ||||
NM
The changechanges in the U.S. Dollar Interest Rate Exposuredollar interest rate exposures from June 30, 2006 reflects increases2007 primarily reflect movements in certaincustomer-related asset balances, the impactand liability mix, as well as Citigroup's view of decliningprevailing interest rates and changes in customer pricing and mix.
Trading Portfoliosrates.
Price risk in trading portfolios is monitored using a series of measures, including:
Factor sensitivities are expressed as the change in the value of a position for a defined change in a market risk factor, an example of which is the change in the value of a Treasury bill for a one basis point change in interest rates. Citigroup's independent market risk management ensures that factor sensitivities are calculated, monitored and, in most cases, limited, for all relevant risks taken in a trading portfolio.
Value-at-Risk (VAR) estimates the potential decline in the value of a position or a portfolio under normal market conditions. The VAR method incorporates the factor sensitivities of the trading portfolio with the volatilities and correlations of those factors and is expressed asfollowing table shows the risk to NIR from six different changes in the Company over a one-day holding period, at a 99% confidence level. Citigroup's VAR is based onimplied forward rates. Each scenario assumes that the volatilities of and correlations between a multitude of market risk factors as well as factors that track the specific issuer risk in debt and equity securities.
Stress testing is performed on trading portfoliosrate change will occur on a regulargradual basis to estimateevery three months over the impactcourse of extreme market movements. It is performed on both individual trading portfolios, as well as on aggregations of portfolios and businesses. Independent market risk management, in conjunction with the businesses, develops stress scenarios, reviews the output of periodic stress testing exercises, and uses the information to make judgments as to the ongoing appropriateness of exposure levels and limits.one year.
Each trading portfolio has its own market risk limit framework, encompassing these measures and other controls, including permitted product lists and a new product approval process for complex products.
Total revenues of the trading business consist of:
All trading positions are marked-to-market, with the result reflected in earnings.
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||
Impact to net interest revenue (in millions of dollars) | $ | 74 | $ | (377 | ) | $ | (779 | ) | $ | 836 | $ | 409 | $ | (60 | ) | ||||
Citigroup periodically performs extensive back-testing of many hypothetical test portfolios as one check of the accuracy of its VAR. Back-testing is the process by which the daily VAR of a portfolio is compared to the actual daily change in the market value of its transactions. Back-testing is conducted to confirm that the daily market value losses in excess of 99% confidence level occur, on average, only 1% of the time. The VAR calculation for the hypothetical test portfolios, with different degrees of risk concentration, meets this statistical criteria. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.$90$135 million, $97$153 million, and $93$90 million at September 30, 2006,2007, June 30, 2006,2007, and September 30, 2005,2006, respectively. Daily exposures averaged $86$141 million during the 2006 third quarter of 2007 and ranged from $74$126 million to $107$165 million.
The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2006,2007, June 30, 2006,2007, and September 30, 2005,2006, including the Total VAR, the specific risk only component of VAR, and Total—General market factors only, along with the quarterly averages:
In million of dollars | September 30, 2006 | Third Quarter 2006 Average | June 30, 2006 | Second Quarter 2006 Average | September 30, 2005 | Third Quarter 2005 Average | September 30, 2007 | Third Quarter 2007 Average | June 30, 2007 | Second Quarter 2007 Average | September 30, 2006 | Third Quarter 2006 Average | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 89 | $ | 81 | $ | 96 | $ | 103 | $ | 69 | $ | 78 | $ | 96 | $ | 101 | $ | 117 | $ | 102 | $ | 89 | $ | 81 | ||||||||||||||
Foreign exchange | 28 | 26 | 27 | 29 | 13 | 14 | 28 | 29 | 32 | 31 | 28 | 26 | ||||||||||||||||||||||||||
Equity | 44 | 42 | 41 | 51 | 54 | 44 | 104 | 98 | 100 | 87 | 44 | 42 | ||||||||||||||||||||||||||
Commodity | 11 | 13 | 13 | 19 | 13 | 15 | 33 | 31 | 31 | 35 | 11 | 13 | ||||||||||||||||||||||||||
Covariance adjustment | (82 | ) | (76 | ) | (80 | ) | (87 | ) | (56 | ) | (59 | ) | (126 | ) | (118 | ) | (127 | ) | (117 | ) | (82 | ) | (76 | ) | ||||||||||||||
Total—All market risk factors, including general and specific risk | $ | 90 | $ | 86 | $ | 97 | $ | 115 | $ | 93 | $ | 92 | $ | 135 | $ | 141 | $ | 153 | $ | 138 | $ | 90 | $ | 86 | ||||||||||||||
Specific risk only component | $ | 9 | $ | 10 | $ | 5 | $ | 10 | $ | 8 | $ | 6 | $ | 24 | $ | 26 | $ | 8 | $ | 11 | $ | 9 | $ | 10 | ||||||||||||||
Total—General market factors only | $ | 81 | $ | 76 | $ | 92 | $ | 105 | $ | 85 | $ | 86 | $ | 111 | $ | 115 | $ | 145 | $ | 127 | $ | 81 | $ | 76 | ||||||||||||||
The specific risk-onlyrisk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup's specific risk model conforms to the 4x-multiplier treatment approved by the Federal Reserve and is subject to extensive annual hypothetical back-testing.
The table below provides the range of VAR in each type of trading portfolio that was experienced during the quarters ended:
| September 30, 2006 | June 30, 2006 | September 30, 2005 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Low | High | Low | High | Low | High | ||||||||||||
Interest rate | $ | 68 | $ | 106 | $ | 86 | $ | 125 | $ | 62 | $ | 112 | ||||||
Foreign exchange | 17 | 39 | 21 | 40 | 9 | 20 | ||||||||||||
Equity | 35 | 49 | 41 | 68 | 32 | 60 | ||||||||||||
Commodity | 9 | 18 | 12 | 25 | 13 | 17 | ||||||||||||
| September 30, 2007 | | | September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2007 | |||||||||||||||||
In millions of dollars | ||||||||||||||||||
Low | High | Low | High | Low | High | |||||||||||||
Interest rate | $ | 87 | $ | 119 | $ | 88 | $ | 128 | $ | 68 | $ | 106 | ||||||
Foreign exchange | 23 | 35 | 27 | 35 | 17 | 39 | ||||||||||||
Equity | 82 | 120 | 64 | 112 | 35 | 49 | ||||||||||||
Commodity | 24 | 41 | 24 | 49 | 9 | 18 | ||||||||||||
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or external events. It includes the reputation and franchise risk associated with business practices or market conduct that the Company undertakes. Operational risk is inherent in Citigroup's global business activities and, as with other risk types, is managed through an overall framework with checks and balances that include:
Framework
Citigroup's approach to operational risk is defined in the Citigroup Risk and Control Self-Assessment (RCSA)/ Operational Risk Policy.
The Operational Risk portion codifies the core governing principles and provides a consistent framework for managing operational risks across the Company. Each major business segment must establish its own operational risk procedures, consistent with the corporate policy, and an approved governance structure. The policy requires each business to identify its key operational risks as well as the controls established to mitigate those risks and to ensure compliance with laws, regulations, regulatory administrative actions, and Citigroup policies. It also requires that all businesses collect and report their operational risk loss data.
The Operational Risk standards facilitate the effective communication of operational risk both within and across businesses. Information about the businesses' operational risk, historical losses, and the control environment is reported by each major business segment and functional area, and summarized for Senior Management and the Citigroup Board of Directors.
The RCSA portion establishes a formal governance structure to provide direction, oversight, and monitoring of Citigroup's RCSA programs. The RCSA standards for risk and control assessment are applicable to all businesses and staff functions. It also establishes RCSA as the process whereby risks inherent in a business' activities are identified and the effectiveness of the key controls over those risks are evaluated and monitored. RCSA processes facilitate Citigroup's adherence to regulatory requirements, including Sarbanes-Oxley, FDICIA, the International Convergence of Capital Measurement and Capital Standards (Basel II), and other corporate initiatives, including Operational Risk Management and alignment of capital assessments with risk management objectives. The entire process is subject to audit by Citigroup's ARR, and the results of RCSA are included in periodic management reporting, including reporting to Senior Management and the Audit and Risk Management Committee.
Measurement and Basel II
To support advanced capital modeling and management, the businesses are required to capture relevant operational Risk Capital (RC) information. An enhanced version of the RC model for operational risk has been developed and is being implemented across the major business segments as a step toward readiness for Basel II capital calculations. The RC calculation is designed to qualify as an "Advanced Measurement Approach" (AMA) under Basel II. It uses a combination of internal and external loss data to support statistical modeling of capital requirement estimates, which are then adjusted to reflect qualitative data regarding the operational risk and control environment.
Information Security and Continuity of Business
During 2005 and continuing in 2006, Citigroup continues to enhance a strategic framework for Information Security technology initiatives, and the Company began implementing enhancements to various Information Security programs across its businesses covering Information Security Risk Management, Security Incident Response and Electronic Transportable Media. The Company also implemented tools to increase the effectiveness of its data protection and entitlement management programs. Additional monthly Information Security metrics were established to better assist the Information Technology Risk Officer in managing enterprise-wide risk. The Information Security Program complies with the Gramm-Leach- Bliley Act and other regulatory guidance.
During 2005, Citigroup began implementing a new business continuity program that improves risk analysis and provides robust support in case of business interruption. The Corporate Office of Business Continuity, with the support of senior management, continues to coordinate global preparedness and mitigate business continuity risks by reviewing and testing recovery procedures.
COUNTRY AND CROSS-BORDER RISKMANAGEMENT PROCESS
Country Risk
Country risk is the risk that an event in a foreign country will impair the value of Citigroup assets or will adversely affect the ability of obligors within that country to honor their obligations to Citigroup. Country risk events may include sovereign defaults, banking or currency crises, social instability, and changes in governmental policies (for example, expropriation, nationalization, confiscation of assets and other changes in legislation relating to international ownership). Country risk includes local franchise risk, credit risk, market risk, operational risk, and cross-border risk.
The Country risk management framework at Citigroup includes a number of tools and management processes designed to facilitate the ongoing analysis of individual countries and their risks. These include country risk rating models, scenario planning and stress testing, internal watch lists, and the Country Risk Committee process.
The Citigroup Country Risk Committee is the senior forum to evaluate the Company's total business footprint within a specific country franchise with emphasis on responses to current potential country risk events. The Committee is chaired by the Head of Global Country Risk Management and includes as its members senior risk management officers, senior regional business heads, and senior product heads. The Committee regularly reviews all risk exposures within a country, makes recommendations as to actions, and follows up to ensure appropriate accountability.
Cross-Border Risk
Cross-border risk is the risk that actions taken by a non-U.S. government may prevent the conversion of local currency into non-local currency and/or the transfer of funds outside of the country, thereby impacting the ability of the Company and its customers to transact business across borders. Examples of cross-border risk include actions taken by foreign governments such as exchange controls, debt moratoria, or restrictions on the remittance of funds. These actions might restrict the transfer of funds or the inability of the Company to obtain payment from customers on their contractual obligations.
Management oversight of cross-border risk is performed through a formal review process that includes annual setting of cross-border limits and/or exposures, monitoring of economic conditions globally, and the establishment of internal cross-border risk management policies.
Under Federal Financial Institutions Examination Council (FFIEC) regulatory guidelines, total reported cross-border outstandings include cross-border claims on third parties, as well as investments in and funding of local franchises. Cross-border claims on third parties (trade, short-term, and medium- and long-term claims) include cross-border loans, securities, deposits with banks, investments in affiliates, and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products.
Cross-border outstandings are reported based on the country of the obligor or guarantor. Outstandings backed by cash collateral are assigned to the country in which the collateral is held. For securities received as collateral, cross-border outstandings are reported in the domicile of the issuer of the securities. Cross-border resale agreements are presented based on the domicile of the counterparty in accordance with FFIEC guidelines.
Investments in and funding of local franchises represent the excess of local country assets over local country liabilities. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citigroup domiciled in the country, adjusted for externally guaranteed claims and certain collateral. Local country liabilities are obligations of non-U.S. branches and majority-owned subsidiaries of Citigroup for which no cross-border guarantee has been issued by another Citigroup office.
The table below shows all countries where total FFIEC cross-border outstandings exceed 0.75% of total Citigroup assets:
| | | | | | September 30, 2006 | December 31, 2005 | September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cross-Border Claims on Third Parties | Investments in and Funding of Local Franchises | | | | | Cross-Border Claims on Third Parties | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Cross- Border Outstandings | | Total Cross- Border Outstandings | | Investments in and Funding of Local Franchises | | | Total Cross- Border Out- standings | | |||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in Billions of U.S.$) | Banks | Public | Private | Total | Trading and Short- Term Claims(1) | Total Cross- Border Out- standings | Commit- ments(2) | Commit- ments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
India | $ | 2.0 | $ | 0.9 | $ | 12.8 | $ | 15.7 | $ | 12.1 | $ | 20.0 | $ | 35.7 | $ | 1.4 | $ | 24.8 | $ | 0.7 | ||||||||||||||||||||||||||||||||||||||||
Germany | 18.9 | 5.6 | 10.4 | 34.9 | 32.0 | 0.7 | 35.6 | 52.2 | 38.6 | 43.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 6.3 | 0.1 | 24.0 | 30.4 | 28.7 | — | 30.4 | 329.3 | 18.4 | 192.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
France | 9.7 | 5.1 | 12.1 | 26.9 | 24.9 | — | 26.9 | 116.1 | 19.8 | 60.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | 6.9 | 1.9 | 17.5 | 26.3 | 20.6 | — | 26.3 | 25.4 | 20.1 | 10.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
South Korea | 0.9 | 0.1 | 4.2 | 5.2 | 5.1 | 16.1 | 21.3 | 9.0 | 19.7 | 11.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | 3.1 | 5.3 | 8.9 | 17.3 | 16.1 | 3.6 | 20.9 | 7.3 | 19.7 | 6.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 1.8 | 8.8 | 4.3 | 14.9 | 14.4 | 0.5 | 15.4 | 6.0 | 18.6 | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Banks | Public | Private | Total | Trading and Short-Term Claims(1) | Investments in and Funding of Local Franchises | Total Cross- Border Outstandings | Commitments(2) | Total Cross- Border Outstandings | Commitments(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | $ | 20.4 | $ | 5.7 | $ | 8.4 | $ | 34.5 | $ | 32.0 | $ | 41.9 | $ | 25.0 | ||||||||||||||||||||||||||||||||||||||||||||||
India | 0.6 | 0.1 | 7.2 | 7.9 | 6.8 | 21.7 | 0.6 | 6.5 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||
South Korea | 0.7 | 1.0 | 2.8 | 4.5 | 4.4 | 16.2 | 20.7 | 11.9 | 14.8 | 5.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | 5.5 | 3.1 | 11.3 | 19.9 | 17.4 | — | 19.9 | 9.7 | 15.8 | 9.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
France | 6.9 | 2.0 | 9.2 | 18.1 | 16.2 | — | 18.1 | 47.6 | 14.9 | 33.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | 1.8 | 4.8 | 5.4 | 12.0 | 11.1 | 3.4 | 15.4 | 3.4 | 7.4 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 5.3 | 0.1 | 8.4 | 13.8 | 10.0 | — | 13.8 | 174.1 | 20.8 | 103.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 1.0 | 6.5 | 4.9 | 12.4 | 11.6 | — | 12.4 | 3.5 | 10.9 | 3.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 1.5 | 0.1 | 2.9 | 4.5 | 4.0 | 7.2 | 11.7 | 8.5 | 9.1 | 2.9 |
INTEREST REVENUE/EXPENSE AND YIELDS
Average Rates–Interest Revenue, Interest Expense, and Net Interest Margin
In millions of dollars | In millions of dollars | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | % Change 3Q06 vs. 3Q05 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | % Change 3Q07 vs. 3Q06 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue(1) | Interest Revenue(1) | $ | 24,729 | $ | 23,572 | $ | 19,344 | 28 | % | Interest Revenue(1) | $ | 32,961 | $ | 30,598 | $ | 24,729 | 33% | ||||||||
Interest Expense | Interest Expense | 14,901 | 13,717 | 9,649 | 54 | Interest Expense | 20,804 | 19,172 | 14,901 | 40 | |||||||||||||||
Net Interest Revenue(1) | Net Interest Revenue(1) | $ | 9,828 | $ | 9,855 | $ | 9,695 | 1 | % | Net Interest Revenue(1) | $ | 12,157 | $ | 11,426 | $ | 9,828 | 24% | ||||||||
Interest Revenue—Average Rate | Interest Revenue—Average Rate | 6.59 | % | 6.52 | % | 5.95 | % | 64 bps | Interest Revenue—Average Rate | 6.41% | 6.43% | 6.59% | (18)bps | ||||||||||||
Interest Expense—Average Rate | Interest Expense—Average Rate | 4.38 | % | 4.20 | % | 3.33 | % | 105 bps | Interest Expense—Average Rate | 4.43% | 4.43% | 4.44% | (1)bps | ||||||||||||
Net Interest Margin | 2.62 | % | 2.73 | % | 2.98 | % | (36) bps | ||||||||||||||||||
Net Interest Margin (NIM) | Net Interest Margin (NIM) | 2.36% | 2.40% | 2.62% | (26)bps | ||||||||||||||||||||
Interest Rate Benchmarks: | Interest Rate Benchmarks: | Interest Rate Benchmarks: | |||||||||||||||||||||||
Federal Funds Rate—End of Period | Federal Funds Rate—End of Period | 5.25 | % | 5.25 | % | 3.75 | % | 150 bps | Federal Funds Rate—End of Period | 4.75% | 5.25% | 5.25% | (50)bps | ||||||||||||
2 Year U.S. Treasury Note—Average Rate | 2 Year U.S. Treasury Note—Average Rate | 4.93 | % | 4.99 | % | 3.94 | % | 99 bps | 2 Year U.S. Treasury Note—Average Rate | 4.39% | 4.80% | 4.93% | (54)bps | ||||||||||||
10 Year U.S. Treasury Note—Average Rate | 10 Year U.S. Treasury Note—Average Rate | 4.89 | % | 5.07 | % | 4.20 | % | 69 bps | 10 Year U.S. Treasury Note—Average Rate | 4.74% | 4.85% | 4.89% | (15)bps | ||||||||||||
10 Year vs. 2 Year Spread | (4) bps | 8 bps | 26 bps | 10 Year vs. 2 Year Spread | 35 bps | 5 bps | (4)bps | ||||||||||||||||||
A significant portion of the Company's business activities isare based upon gathering deposits and borrowing money and then lending or investing those funds, including in market-making activities in tradable securities. Net interest margin is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.
In the 2006 third quarter,During 2007, pressure on net interest margin continued, though drivencontinued. Net Interest Margin was mainly affected by several factors. Interest expense increased due to both a rise in short-term interest rates and funding actions the Company has taken to lengthen its debt maturity profile.
results of Nikko Cordial, which was consolidated from May 9, 2007 forward. The average rate on the Company's assets increased during the period, but by less than the increase in average rates on borrowed funds or deposits. The average rate on loans or investments reflected a highly competitive loan pricing environment, as well as a shift in the Company's loan portfolio from higher-yielding credit card receivables to assets that carry lower yields, such as mortgages and home equity loans. The shift partially reflects continued high payment rates on credit card receivables. The majority
See pages 34–40 for a detailed analysis of the sequential decline in net interest margin was due to trading activities inCapital MarketsAverage Rates and Banking.Volumes.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | Average Volume | Interest Revenue | % Average Rate(10) | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits at interest with banks(5) | $ | 37,508 | $ | 38,951 | $ | 35,118 | $ | 713 | $ | 630 | $ | 438 | 7.54 | % | 6.49 | % | 4.95 | % | ||||||||||||||||||||||||||||||||||
Deposits with banks(5) | Deposits with banks(5) | $ | 62,833 | $ | 55,580 | $ | 37,508 | $ | 874 | $ | 792 | $ | 590 | 5.52 | % | 5.72 | % | 6.24 | % | |||||||||||||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 166,526 | $ | 163,276 | $ | 160,453 | $ | 2,718 | $ | 2,450 | $ | 1,909 | 6.48 | % | 6.02 | % | 4.72 | % | In U.S. offices | $ | 213,438 | $ | 185,143 | $ | 166,526 | $ | 3,217 | $ | 3,002 | $ | 2,718 | 5.98 | % | 6.50 | % | 6.48 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 81,145 | 87,806 | 76,474 | 995 | 947 | 732 | 4.86 | 4.33 | 3.80 | In offices outside the U.S.(5) | 156,123 | 135,668 | 81,145 | 1,873 | 1,660 | 995 | 4.76 | 4.91 | 4.86 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 247,671 | $ | 251,082 | $ | 236,927 | $ | 3,713 | $ | 3,397 | $ | 2,641 | 5.95 | % | 5.43 | % | 4.42 | % | Total | $ | 369,561 | $ | 320,811 | $ | 247,671 | $ | 5,090 | $ | 4,662 | $ | 3,713 | 5.46 | % | 5.83 | % | 5.95 | % | ||||||||||||||
Trading account assets(7)(8) | Trading account assets(7)(8) | Trading account assets(7)(8) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 184,099 | $ | 181,415 | $ | 153,342 | $ | 1,801 | $ | 2,036 | $ | 1,302 | 3.88 | % | 4.50 | % | 3.37 | % | In U.S. offices | $ | 281,590 | $ | 264,112 | $ | 184,099 | $ | 3,662 | $ | 3,111 | $ | 1,960 | 5.16 | % | 4.72 | % | 4.22 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 100,196 | 99,644 | 77,063 | 757 | 852 | 545 | 3.00 | 3.43 | 2.81 | In offices outside the U.S.(5) | 206,098 | 180,361 | 100,196 | 1,494 | 1,274 | 789 | 2.88 | 2.83 | 3.12 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 284,295 | $ | 281,059 | $ | 230,405 | $ | 2,558 | $ | 2,888 | $ | 1,847 | 3.57 | % | 4.12 | % | 3.18 | % | Total | $ | 487,688 | $ | 444,473 | $ | 284,295 | $ | 5,156 | $ | 4,385 | $ | 2,749 | 4.19 | % | 3.96 | % | 3.84 | % | ||||||||||||||
Investments(1) | Investments(1) | Investments(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | In U.S. offices | ||||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 105,713 | $ | 85,292 | $ | 80,670 | $ | 1,177 | $ | 873 | $ | 703 | 4.42 | % | 4.11 | % | 3.46 | % | Taxable | $ | 127,706 | $ | 149,303 | $ | 105,713 | $ | 1,637 | $ | 1,860 | $ | 1,177 | 5.09 | % | 5.00 | % | 4.42 | % | |||||||||||||||
Exempt from U.S. income tax | 12,285 | 15,470 | 11,562 | 153 | 182 | 122 | 4.94 | 4.72 | 4.19 | Exempt from U.S. income tax | 19,207 | 18,971 | 12,285 | 242 | 273 | 153 | 5.00 | 5.77 | 4.94 | |||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 100,999 | 97,138 | 79,540 | 1,276 | 1,200 | 989 | 5.01 | 4.95 | 4.93 | In offices outside the U.S.(5) | 112,901 | 113,068 | 100,999 | 1,478 | 1,444 | 1,276 | 5.19 | 5.12 | 5.01 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 218,997 | $ | 197,900 | $ | 171,772 | $ | 2,606 | $ | 2,255 | $ | 1,814 | 4.72 | % | 4.57 | % | 4.19 | % | Total | $ | 259,814 | $ | 281,342 | $ | 218,997 | $ | 3,357 | $ | 3,577 | $ | 2,606 | 5.13 | % | 5.10 | % | 4.72 | % | ||||||||||||||
Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | Consumer loans | Consumer loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 345,064 | $ | 339,997 | $ | 307,180 | $ | 7,264 | $ | 7,071 | $ | 6,368 | 8.35 | % | 8.34 | % | 8.22 | % | In U.S. offices | $ | 377,380 | $ | 370,762 | $ | 345,064 | $ | 7,835 | $ | 7,663 | $ | 7,264 | 8.24 | % | 8.29 | % | 8.35 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 140,594 | 136,648 | 130,420 | 3,870 | 3,834 | 3,628 | 10.92 | 11.25 | 11.04 | In offices outside the U.S.(5) | 183,659 | 170,855 | 140,594 | 4,912 | 4,621 | 3,870 | 10.61 | 10.85 | 10.92 | ||||||||||||||||||||||||||||||||
Total consumer loans | Total consumer loans | $ | 485,658 | $ | 476,645 | $ | 437,600 | $ | 11,134 | $ | 10,905 | $ | 9,996 | 9.10 | % | 9.18 | % | 9.06 | % | Total consumer loans | $ | 561,039 | $ | 541,617 | $ | 485,658 | $ | 12,747 | $ | 12,284 | $ | 11,134 | 9.01 | % | 9.10 | % | 9.10 | % | ||||||||||||||
Corporate loans | Corporate loans | Corporate loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 28,604 | $ | 25,740 | $ | 20,009 | $ | 528 | $ | 440 | $ | 285 | 7.32 | % | 6.86 | % | 5.65 | % | In U.S. offices | $ | 39,346 | $ | 31,075 | $ | 28,604 | $ | 818 | $ | 608 | $ | 528 | 8.25 | % | 7.85 | % | 7.32 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 130,212 | 122,944 | 101,204 | 2,728 | 2,298 | 1,754 | 8.31 | 7.50 | 6.88 | In offices outside the U.S.(5) | 163,003 | 152,545 | 130,212 | 3,832 | 3,361 | 2,728 | 9.33 | 8.84 | 8.31 | ||||||||||||||||||||||||||||||||
Total corporate loans | Total corporate loans | $ | 158,816 | $ | 148,684 | $ | 121,213 | $ | 3,256 | $ | 2,738 | $ | 2,039 | 8.13 | % | 7.39 | % | 6.67 | % | Total corporate loans | $ | 202,349 | $ | 183,620 | $ | 158,816 | $ | 4,650 | $ | 3,969 | $ | 3,256 | 9.12 | % | 8.67 | % | 8.13 | % | ||||||||||||||
Total loans | Total loans | $ | 644,474 | $ | 625,329 | $ | 558,813 | $ | 14,390 | $ | 13,643 | $ | 12,035 | 8.86 | % | 8.75 | % | 8.54 | % | Total loans | $ | 763,388 | $ | 725,237 | $ | 644,474 | $ | 17,397 | $ | 16,253 | $ | 14,390 | 9.04 | % | 8.99 | % | 8.86 | % | ||||||||||||||
Other interest-earning assets | Other interest-earning assets | $ | 56,717 | $ | 55,081 | $ | 56,060 | $ | 749 | $ | 759 | $ | 569 | 5.24 | % | 5.53 | % | 4.03 | % | Other interest-earning assets | $ | 97,506 | $ | 82,459 | $ | 56,717 | $ | 1,087 | $ | 929 | $ | 681 | 4.42 | % | 4.52 | % | 4.76 | % | ||||||||||||||
Total interest-earning assets | Total interest-earning assets | $ | 1,489,662 | $ | 1,449,402 | $ | 1,289,095 | $ | 24,729 | $ | 23,572 | $ | 19,344 | 6.59 | % | 6.52 | % | 5.95 | % | Total interest-earning assets | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 32,961 | $ | 30,598 | $ | 24,729 | 6.41 | % | 6.43 | % | 6.59 | % | ||||||||||||||
Non-interest-earning assets(7) | Non-interest-earning assets(7) | 194,550 | 195,670 | 165,833 | Non-interest-earning assets(7) | 255,962 | 249,358 | 194,550 | ||||||||||||||||||||||||||||||||||||||||||||
Total assets from discontinued operations | — | — | 1,527 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | Total assets | $ | 1,684,212 | $ | 1,645,072 | $ | 1,456,455 | Total assets | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||||||||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
| | Average Volume | Interest Expense | % Average Rate(12) | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 3rd Qtr. 2005 | 3rd Qtr. 2006 | 2nd Qtr 2006 | 3rd Qtr. 2005 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits | Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U. S. offices Savings deposits(5) | In U. S. offices Savings deposits(5) | $ | 134,486 | $ | 133,958 | $ | 128,046 | $ | 1,092 | $ | 1,002 | $ | 655 | 3.22 | % | 3.00 | % | 2.03 | % | In U. S. offices Savings deposits(5) | $ | 148,736 | $ | 147,517 | $ | 134,486 | $ | 1,221 | $ | 1,178 | $ | 1,092 | 3.26 | % | 3.20 | % | 3.22 | % | ||||||||||||||
Other time deposits | 51,158 | 45,292 | 36,735 | 678 | 579 | 380 | 5.26 | 5.13 | 4.10 | Other time deposits | 56,473 | 53,597 | 51,158 | 766 | 773 | 678 | 5.38 | 5.78 | 5.26 | |||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 416,084 | 394,805 | 344,158 | 4,001 | 3,623 | 2,581 | 3.81 | 3.68 | 2.98 | In offices outside the U.S.(6) | 515,766 | 485,871 | 416,084 | 5,552 | 4,988 | 4,001 | 4.27 | 4.12 | 3.81 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 601,728 | $ | 574,055 | $ | 508,939 | $ | 5,771 | $ | 5,204 | $ | 3,616 | 3.81 | % | 3.64 | % | 2.82 | % | Total | $ | 720,975 | $ | 686,985 | $ | 601,728 | $ | 7,539 | $ | 6,939 | $ | 5,771 | 4.15 | % | 4.05 | % | 3.81 | % | ||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 188,052 | $ | 187,346 | $ | 174,735 | $ | 2,992 | $ | 2,955 | $ | 2,067 | 6.31 | % | 6.33 | % | 4.69 | % | In U.S. offices | $ | 272,927 | $ | 233,021 | $ | 188,052 | $ | 4,052 | $ | 3,600 | $ | 2,992 | 5.89 | % | 6.20 | % | 6.31 | % | ||||||||||||||
In offices outside the U.S. (6) | 93,032 | 97,408 | 70,372 | 1,404 | 1,364 | 1,060 | 5.99 | 5.62 | 5.98 | |||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 155,354 | 152,984 | 93,032 | 2,379 | 2,312 | 1,404 | 6.08 | 6.06 | 5.99 | ||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 281,084 | $ | 284,754 | $ | 245,107 | $ | 4,396 | $ | 4,319 | $ | 3,127 | 6.20 | % | 6.08 | % | 5.06 | % | Total | $ | 428,281 | $ | 386,005 | $ | 281,084 | $ | 6,431 | $ | 5,912 | $ | 4,396 | 5.96 | % | 6.14 | % | 6.20 | % | ||||||||||||||
Trading account liabilities(8)(9) | Trading account liabilities(8)(9) | Trading account liabilities(8)(9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 37,601 | $ | 35,503 | $ | 34,462 | $ | 39 | $ | 48 | $ | 20 | 0.41 | % | 0.54 | % | 0.23 | % | In U.S. offices | $ | 48,063 | $ | 58,139 | $ | 37,601 | $ | 302 | $ | 312 | $ | 243 | 2.49 | % | 2.15 | % | 2.56 | % | ||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 35,644 | 39,364 | 40,048 | 17 | 14 | 12 | 0.19 | 0.14 | 0.12 | In offices outside the U.S. (6) | 69,791 | 62,949 | 35,644 | 69 | 68 | 58 | 0.39 | 0.43 | 0.65 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 73,245 | $ | 74,867 | $ | 74,510 | $ | 56 | $ | 62 | $ | 32 | 0.30 | % | 0.33 | % | 0.17 | % | Total | $ | 117,854 | $ | 121,088 | $ | 73,245 | $ | 371 | $ | 380 | $ | 301 | 1.25 | % | 1.26 | % | 1.63 | % | ||||||||||||||
Short-term borrowings | Short-term borrowings | Short-term borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 121,503 | $ | 118,686 | $ | 89,960 | $ | 1,379 | $ | 1,151 | $ | 641 | 4.50 | % | 3.89 | % | 2.83 | % | In U.S. offices | $ | 187,286 | $ | 170,962 | $ | 121,503 | $ | 1,755 | $ | 1,612 | $ | 1,175 | 3.72 | % | 3.78 | % | 3.84 | % | ||||||||||||||
In offices outside the U.S. (6) | 23,446 | 25,501 | 17,409 | 139 | 197 | 204 | 2.35 | 3.10 | 4.65 | |||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 79,450 | 66,077 | 23,446 | 294 | 325 | 98 | 1.47 | 1.97 | 1.66 | ||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 144,949 | $ | 144,187 | $ | 107,369 | $ | 1,518 | $ | 1,348 | $ | 845 | 4.15 | % | 3.75 | % | 3.12 | % | Total | $ | 266,736 | $ | 237,039 | $ | 144,949 | $ | 2,049 | $ | 1,937 | $ | 1,273 | 3.05 | % | 3.28 | % | 3.48 | % | ||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt(10) | Long-term debt(10) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 218,766 | $ | 201,917 | $ | 182,772 | $ | 2,802 | $ | 2,476 | $ | 1,736 | 5.08 | % | 4.92 | % | 3.77 | % | In U.S. offices | $ | 285,370 | $ | 267,496 | $ | 206,854 | $ | 3,837 | $ | 3,562 | $ | 2,802 | 5.33 | % | 5.34 | % | 5.37 | % | ||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 29,620 | 29,933 | 30,345 | 358 | 308 | 293 | 4.80 | 4.13 | 3.83 | In offices outside the U.S. (6) | 43,627 | 37,391 | 24,416 | 577 | 442 | 358 | 5.25 | 4.74 | 5.82 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 248,386 | $ | 231,850 | $ | 213,117 | $ | 3,160 | $ | 2,784 | $ | 2,029 | 5.05 | % | 4.82 | % | 3.78 | % | Total | $ | 328,997 | $ | 304,887 | $ | 231,270 | $ | 4,414 | $ | 4,004 | $ | 3,160 | 5.32 | % | 5.27 | % | 5.42 | % | ||||||||||||||
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,349,392 | $ | 1,309,713 | $ | 1,149,042 | $ | 14,901 | $ | 13,717 | $ | 9,649 | 4.38 | % | 4.20 | % | 3.33 | % | Total interest-bearing liabilities | $ | 1,862,843 | $ | 1,736,004 | $ | 1,332,276 | $ | 20,804 | $ | 19,172 | $ | 14,901 | 4.43 | % | 4.43 | % | 4.44 | % | ||||||||||||||
Demand deposits in U.S. offices | Demand deposits in U.S. offices | 11,127 | 11,827 | 10,060 | Demand deposits in U.S. offices | 13,683 | 11,234 | 11,127 | ||||||||||||||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities(8) | 207,623 | 209,100 | 184,028 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations | — | — | 720 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities(8) | Other non-interest-bearing liabilities(8) | 293,310 | 287,371 | 224,739 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | Total liabilities | $ | 1,568,142 | $ | 1,530,640 | $ | 1,343,850 | Total liabilities | $ | 2,169,836 | $ | 2,034,609 | $ | 1,568,142 | ||||||||||||||||||||||||||||||||||||||
Total stockholders' equity(10) | $ | 116,070 | $ | 114,432 | $ | 112,605 | ||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity(11) | Total stockholders' equity(11) | $ | 126,916 | $ | 124,651 | $ | 116,070 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,684,212 | $ | 1,645,072 | $ | 1,456,455 | Total liabilities and stockholders' equity | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(11) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | Net interest revenue as a percentage of average interest-earning assets(12) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 892,120 | $ | 859,063 | $ | 779,869 | $ | 4,559 | $ | 4,673 | $ | 5,436 | 2.03 | % | 2.18 | % | 2.77 | % | In U.S. offices | $ | 1,129,443 | $ | 1,087,398 | $ | 892,120 | $ | 5,712 | $ | 5,212 | $ | 4,559 | 2.01 | % | 1.92 | % | 2.03 | % | ||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 597,542 | 590,339 | 509,226 | 5,269 | 5,182 | 4,259 | 3.50 | 3.52 | 3.32 | In offices outside the U.S.(6) | 911,347 | 822,504 | 597,542 | 6,445 | 6,214 | 5,269 | 2.81 | % | 3.03 | % | 3.50 | % | |||||||||||||||||||||||||||||
Total | Total | $ | 1,489,662 | $ | 1,449,402 | $ | 1,289,095 | $ | 9,828 | $ | 9,855 | $ | 9,695 | 2.62 | % | 2.73 | % | 2.98 | % | Total | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 12,157 | $ | 11,426 | $ | 9,828 | 2.36 | % | 2.40 | % | 2.62 | % | ||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | Average Volume | Interest Revenue | % Average Rate(10) | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | Nine Months 2006 | Nine Months 2005 | Nine Months 2006 | Nine Months 2005 | Nine Months 2006 | Nine Months 2005 | In millions of dollars | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | ||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||
Deposits at interest with banks(5) | $ | 37,103 | $ | 33,558 | $ | 1,928 | $ | 1,200 | 6.95 | % | 4.78 | % | ||||||||||||||||||||||||
Deposits with banks(5) | Deposits with banks(5) | $ | 54,573 | $ | 37,103 | $ | 2,375 | $ | 1,596 | 5.82 | % | 5.75 | % | |||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 163,043 | $ | 151,797 | $ | 7,523 | $ | 4,764 | 6.17 | % | 4.20 | % | In U.S. offices | $ | 194,217 | $ | 163,043 | $ | 9,098 | $ | 7,523 | 6.26 | % | 6.17 | % | ||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 83,553 | 73,638 | 2,792 | 1,937 | 4.47 | 3.52 | In offices outside the U.S.(5) | 133,672 | 83,553 | 4,943 | 2,792 | 4.94 | 4.47 | ||||||||||||||||||||||
Total | Total | $ | 246,596 | $ | 225,435 | $ | 10,315 | $ | 6,701 | 5.59 | % | 3.97 | % | Total | $ | 327,889 | $ | 246,596 | $ | 14,041 | $ | 10,315 | 5.73 | % | 5.59 | % | ||||||||||
Trading account assets(7)(8) | Trading account assets(7)(8) | Trading account assets(7)(8) | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 180,765 | $ | 149,976 | $ | 5,603 | $ | 3,776 | 4.14 | % | 3.37 | % | In U.S. offices | $ | 260,893 | $ | 180,765 | $ | 9,595 | $ | 6,019 | 4.92 | % | 4.45 | % | ||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 96,269 | 82,620 | 2,402 | 1,854 | 3.34 | 3.00 | In offices outside the U.S.(5) | 173,244 | 96,269 | 3,876 | 2,478 | 2.99 | 3.44 | ||||||||||||||||||||||
Total | Total | $ | 277,034 | $ | 232,596 | $ | 8,005 | $ | 5,630 | 3.86 | % | 3.24 | % | Total | $ | 434,137 | $ | 277,034 | $ | 13,471 | $ | 8,497 | 4.15 | % | 4.10 | % | ||||||||||
Investments(1) | Investments(1) | Investments(1) | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | In U.S. offices | ||||||||||||||||||||||||||||||||||
Taxable | $ | 91,981 | $ | 75,754 | $ | 2,834 | $ | 1,902 | 4.12 | % | 3.36 | % | Taxable | $ | 145,794 | $ | 91,981 | $ | 5,497 | $ | 2,834 | 5.04 | % | 4.12 | % | |||||||||||
Exempt from U.S. income tax | 13,954 | 10,443 | 488 | 347 | 4.68 | 4.44 | Exempt from U.S. income tax | 18,329 | 13,954 | 705 | 488 | 5.14 | 4.68 | |||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 96,856 | 81,378 | 3,595 | 3,239 | 4.96 | % | 5.32 | In offices outside the U.S.(5) | 111,016 | 96,856 | 4,272 | 3,595 | 5.14 | 4.96 | |||||||||||||||||||||
Total | Total | $ | 202,791 | $ | 167,575 | $ | 6,917 | $ | 5,488 | 4.56 | % | 4.38 | % | Total | $ | 275,139 | $ | 202,791 | $ | 10,474 | $ | 6,917 | 5.09 | % | 4.56 | % | ||||||||||
Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | ||||||||||||||||||||||||||||||||||
Consumer loans | Consumer loans | Consumer loans | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 337,362 | $ | 302,719 | $ | 20,997 | $ | 18,357 | 8.32 | % | 8.11 | % | In U.S. offices | $ | 370,334 | $ | 337,362 | $ | 22,956 | $ | 20,997 | 8.29 | % | 8.32 | % | ||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 136,203 | 130,976 | 11,394 | 10,641 | 11.18 | 10.86 | In offices outside the U.S.(5) | 168,679 | 136,203 | 13,566 | 11,394 | 10.75 | 11.18 | ||||||||||||||||||||||
Total consumer loans | Total consumer loans | $ | 473,565 | $ | 433,695 | $ | 32,391 | $ | 28,998 | 9.14 | % | 8.94 | % | Total consumer loans | $ | 539,013 | $ | 473,565 | $ | 36,522 | $ | 32,391 | 9.06 | % | 9.14 | % | ||||||||||
Corporate loans | Corporate loans | Corporate loans | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 27,175 | $ | 18,237 | $ | 1,399 | $ | 732 | 6.88 | % | 5.37 | % | In U.S. offices | $ | 33,035 | $ | 27,175 | $ | 1,964 | $ | 1,399 | 7.95 | % | 6.88 | % | ||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 121,706 | 100,077 | 7,061 | 5,031 | 7.76 | 6.72 | In offices outside the U.S.(5) | 150,551 | 121,706 | 10,099 | 7,061 | 8.97 | 7.76 | ||||||||||||||||||||||
Total corporate loans | Total corporate loans | $ | 149,881 | $ | 118,314 | $ | 8,460 | $ | 5,763 | 7.60 | % | 6.51 | % | Total corporate loans | $ | 183,586 | $ | 148,881 | $ | 12,063 | $ | 8,460 | 8.79 | % | 7.60 | % | ||||||||||
Total loans | Total loans | $ | 623,446 | $ | 552,009 | $ | 40,851 | $ | 34,761 | 8.77 | % | 8.42 | % | Total loans | $ | 722,599 | $ | 622,446 | $ | 48,585 | $ | 40,851 | 8.99 | % | 8.77 | % | ||||||||||
Other interest-earning assets | Other interest-earning assets | $ | 57,003 | $ | 55,309 | $ | 2,158 | $ | 1,533 | 5.06 | % | 3.71 | % | Other interest-earning assets | $ | 82,781 | $ | 57,003 | $ | 2,745 | $ | 1,998 | 4.43 | % | 4.69 | % | ||||||||||
Total interest-earning assets | Total interest-earning assets | $ | 1,442,973 | $ | 1,266,482 | $ | 70,174 | $ | 55,313 | 6.50 | % | 5.84 | % | Total interest-earning assets | $ | 1,897,118 | $ | 1,442,973 | $ | 91,691 | $ | 70,174 | 6.46 | % | 6.50 | % | ||||||||||
Non-interest-earning assets(7) | Non-interest-earning assets(7) | 190,833 | 165,369 | Non-interest-earning assets(7) | 236,525 | 190,833 | ||||||||||||||||||||||||||||||
Total assets from discontinued operations | — | 68,027 | ||||||||||||||||||||||||||||||||||
Total assets | Total assets | $ | 1,633,806 | $ | 1,499,878 | Total assets | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||||||||||||||
Reclassified to conform to the current period's presentationpresentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
| | Average Volume | Interest Expense | % Average Rate(12) | | Average Volume | Interest Expense | % Average Rate | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | Nine Months 2006 | Nine Months 2005 | Nine Months 2006 | Nine Months 2005 | Nine Months 2006 | Nine Months 2005 | In millions of dollars | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | ||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||
Deposits | Deposits | Deposits | ||||||||||||||||||||||||||||||||||
In U. S. offices | In U. S. offices | In U. S. offices | ||||||||||||||||||||||||||||||||||
Savings deposits(5) | $ | 133,571 | $ | 127,060 | $ | 2,962 | $ | 1,647 | 2.96 | % | 1.73 | % | Savings deposits(5) | $ | 147,171 | $ | 133,571 | $ | 3,569 | $ | 2,962 | 3.24 | % | 2.96 | % | |||||||||||
Other time deposits | 46,286 | 34,598 | 1,756 | 877 | 5.07 | 3.39 | Other time deposits | 55,005 | 46,286 | 2,346 | 1,756 | 5.70 | 5.07 | |||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 393,770 | 339,974 | 10,762 | 7,004 | 3.65 | 2.75 | In offices outside the U.S.(6) | 483,237 | 393,770 | 15,121 | 10,762 | 4.18 | 3.65 | ||||||||||||||||||||||
Total | Total | $ | 573,627 | $ | 501,632 | $ | 15,480 | $ | 9,528 | 3.61 | % | 2.54 | % | Total | $ | 685,413 | $ | 573,627 | $ | 21,036 | $ | 15,480 | 4.10 | % | 3.61 | % | ||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 186,848 | $ | 169,727 | $ | 8,623 | $ | 5,157 | 6.17 | % | 4.06 | % | In U.S. offices | $ | 247,893 | $ | 186,848 | $ | 11,193 | $ | 8,623 | 6.04 | % | 6.17 | % | ||||||||||
In offices outside the U.S.(6) | 92,842 | 70,184 | 3,991 | 2,996 | 5.75 | 5.71 | ||||||||||||||||||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 145,660 | 92,842 | 6,633 | 3,991 | 6.09 | 5.75 | |||||||||||||||||||||||||||||
Total | Total | $ | 279,690 | $ | 239,911 | $ | 12,614 | $ | 8,153 | 6.03 | % | 4.54 | % | Total | $ | 393,553 | $ | 279,690 | $ | 17,826 | $ | 12,614 | 6.06 | % | 6.03 | % | ||||||||||
Trading account liabilities(8)(9) | ||||||||||||||||||||||||||||||||||||
Trading account liabilities(8) (9) | Trading account liabilities(8) (9) | |||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 36,125 | $ | 35,823 | $ | 126 | $ | 60 | 0.47 | % | 0.22 | % | In U.S. offices | $ | 49,507 | $ | 36,125 | $ | 849 | $ | 662 | 2.29 | % | 2.45 | % | ||||||||||
In offices outside the U.S.(6) | 37,164 | 39,644 | 45 | 26 | 0.16 | 0.09 | ||||||||||||||||||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 59,360 | 37,164 | 209 | 163 | 0.47 | 0.59 | |||||||||||||||||||||||||||||
Total | Total | $ | 73,289 | $ | 75,467 | $ | 171 | $ | 86 | 0.31 | % | 0.15 | % | Total | $ | 108,867 | $ | 73,289 | $ | 1,058 | $ | 825 | 1.30 | % | 1.51 | % | ||||||||||
Short-term borrowings | Short-term borrowings | Short-term borrowings | ||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 117,847 | $ | 92,690 | $ | 3,448 | $ | 1,807 | 3.91 | % | 2.61 | % | In U.S. offices | $ | 167,264 | $ | 117,847 | $ | 4,629 | $ | 2,912 | 3.70 | % | 3.30 | % | ||||||||||
In offices outside the U.S.(6) | 22,375 | 18,125 | 573 | 541 | 3.42 | 3.99 | ||||||||||||||||||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 62,121 | 22,375 | 821 | 455 | 1.77 | 2.72 | |||||||||||||||||||||||||||||
Total | Total | $ | 140,222 | $ | 110,815 | $ | 4,021 | $ | 2,348 | 3.83 | % | 2.83 | % | Total | $ | 229,385 | $ | 140,222 | $ | 5,450 | $ | 3,367 | 3.18 | % | 3.21 | % | ||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
Long-term debt(10) | Long-term debt(10) | |||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 205,441 | $ | 178,150 | $ | 7,467 | $ | 4,768 | 4.86 | % | 3.58 | % | In U.S. offices | $ | 268,566 | $ | 197,575 | $ | 10,784 | $ | 7,467 | 5.37 | % | 5.05 | % | ||||||||||
In offices outside the U.S.(6) | 29,700 | 33,113 | 972 | 858 | 4.38 | 3.46 | ||||||||||||||||||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 36,034 | 24,225 | 1,384 | 972 | 5.14 | 5.36 | |||||||||||||||||||||||||||||
Total | Total | $ | 235,141 | $ | 211,263 | $ | 8,439 | $ | 5,626 | 4.80 | % | 3.56 | % | Total | $ | 304,600 | $ | 221,800 | $ | 12,168 | $ | 8,439 | 5.34 | % | 5.09 | % | ||||||||||
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,301,969 | $ | 1,139,088 | $ | 40,725 | $ | 25,741 | 4.18 | % | 3.02 | % | Total interest-bearing liabilities | $ | 1,721,818 | $ | 1,288,628 | $ | 57,538 | $ | 40,725 | 4.47 | % | 4.23 | % | ||||||||||
Demand deposits in U.S. offices | Demand deposits in U.S. offices | 10,999 | 10,069 | Demand deposits in U.S. offices | 12,025 | 10,999 | ||||||||||||||||||||||||||||||
Other non-interest bearing liabilities(8) | 206,296 | 178,370 | ||||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations | — | 61,222 | ||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities(8) | Other non-interest-bearing liabilities(8) | 276,028 | 219,637 | |||||||||||||||||||||||||||||||||
Total liabilities | Total liabilities | $ | 1,519,264 | $ | 1,388,749 | Total liabilities | $ | 2,009,870 | $ | 1,519,264 | ||||||||||||||||||||||||||
Total stockholders' equity(10) | $ | 114,542 | $ | 111,129 | ||||||||||||||||||||||||||||||||
Total stockholders' equity(11) | Total stockholders' equity(11) | $ | 123,773 | $ | 114,542 | |||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,633,806 | $ | 1,499,878 | Total liabilities and stockholders' equity | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(11) | ||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | Net interest revenue as a percentage of average interest-earning assets(12) | |||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 862,756 | $ | 755,384 | $ | 14,172 | $ | 16,197 | 2.20 | % | 2.87 | % | In U.S. offices | $ | 1,088,805 | $ | 862,756 | $ | 15,900 | $ | 14,172 | 1.95 | % | 2.20 | % | ||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 580,217 | 511,098 | 15,277 | 13,375 | 3.52 | 3.50 | In offices outside the U.S.(6) | 808,313 | 580,217 | 18,253 | 15,277 | 3.02 | 3.52 | ||||||||||||||||||||||
Total | Total | $ | 1,442,973 | $ | 1,266,482 | $ | 29,449 | $ | 29,572 | 2.73 | % | 3.12 | % | Total | $ | 1,897,118 | $ | 1,442,973 | $ | 34,153 | $ | 29,449 | 2.41 | % | 2.73 | % | ||||||||||
Reclassified to conform to the current period's presentation.
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)
| 3rd Qtr. 2006 vs. 2nd Qtr. 2006 | 3rd Qtr. 2006 vs. 3rd Qtr. 2005 | 3rd Qtr. 2007 vs. 2nd Qtr. 2007 | 3rd Qtr. 2007 vs. 3rd Qtr. 2006 | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | Increase (Decrease) Due to Change in: | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | |||||||||||||||||||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | |||||||||||||||||||||||||
Deposits at interest with banks(4) | $ | (24 | ) | $ | 107 | $ | 83 | $ | 32 | $ | 243 | $ | 275 | ||||||||||||||||||||||||
Deposits with banks(4) | $ | 101 | $ | (19 | ) | $ | 82 | $ | 359 | $ | (75 | ) | $ | 284 | |||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 50 | $ | 218 | $ | 268 | $ | 75 | $ | 734 | $ | 809 | $ | 437 | $ | (222 | ) | $ | 215 | $ | 720 | $ | (221 | ) | $ | 499 | |||||||||||
In offices outside the U.S.(4) | (75 | ) | 123 | 48 | 47 | 216 | 263 | 246 | (33 | ) | 213 | 900 | (22 | ) | 878 | ||||||||||||||||||||||
Total | $ | (25 | ) | $ | 341 | $ | 316 | $ | 122 | $ | 950 | $ | 1,072 | $ | 683 | $ | (255 | ) | $ | 428 | $ | 1,620 | $ | (243 | ) | $ | 1,377 | ||||||||||
Trading account assets(5) | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 30 | $ | (265 | ) | $ | (235 | ) | $ | 284 | $ | 215 | $ | 499 | $ | 214 | $ | 337 | $ | 551 | $ | 1,200 | $ | 502 | $ | 1,702 | |||||||||||
In offices outside the U.S.(4) | 5 | (100 | ) | (95 | ) | 173 | 39 | 212 | 186 | 34 | 220 | 772 | (67 | ) | 705 | ||||||||||||||||||||||
Total | $ | 35 | $ | (365 | ) | $ | (330 | ) | $ | 457 | $ | 254 | $ | 711 | $ | 400 | $ | 371 | $ | 771 | $ | 1,972 | $ | 435 | $ | 2,407 | |||||||||||
Investments(1) | |||||||||||||||||||||||||||||||||||||
In U.S. Offices | $ | 190 | $ | 85 | $ | 275 | $ | 262 | $ | 243 | $ | 505 | |||||||||||||||||||||||||
In U.S. offices | $ | (273 | ) | $ | 19 | $ | (254 | ) | $ | 354 | $ | 195 | $ | 549 | |||||||||||||||||||||||
In offices outside the U.S.(4) | 48 | 28 | 76 | 271 | 16 | 287 | (2 | ) | 36 | 34 | 155 | 47 | $ | 202 | |||||||||||||||||||||||
Total | $ | 238 | $ | 113 | $ | 351 | $ | 533 | $ | 259 | $ | 792 | $ | (275 | ) | $ | 55 | $ | (220 | ) | $ | 509 | $ | 242 | $ | 751 | |||||||||||
Loans—consumer | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 106 | $ | 87 | $ | 193 | $ | 796 | $ | 100 | $ | 896 | $ | 137 | $ | 35 | $ | 172 | $ | 672 | $ | (101 | ) | $ | 571 | ||||||||||||
In offices outside the U.S.(4) | 109 | (73 | ) | 36 | 280 | (38 | ) | 242 | 343 | (52 | ) | 291 | 1,155 | (113 | ) | 1,042 | |||||||||||||||||||||
Total | $ | 215 | $ | 14 | $ | 229 | $ | 1,076 | $ | 62 | $ | 1,138 | $ | 480 | $ | (17 | ) | $ | 463 | $ | 1,827 | $ | (214 | ) | $ | 1,613 | |||||||||||
Loans—corporate | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 51 | $ | 37 | $ | 88 | $ | 144 | $ | 99 | $ | 243 | $ | 170 | $ | 40 | $ | 210 | $ | 217 | $ | 73 | $ | 290 | |||||||||||||
In offices outside the U.S.(4) | 141 | 289 | 430 | 563 | 411 | 974 | 238 | 233 | 471 | 743 | 361 | 1,104 | |||||||||||||||||||||||||
Total | $ | 192 | $ | 326 | $ | 518 | $ | 707 | $ | 510 | $ | 1,217 | $ | 408 | $ | 273 | $ | 681 | $ | 960 | $ | 434 | $ | 1,394 | |||||||||||||
Total loans | $ | 407 | $ | 340 | $ | 747 | $ | 1,783 | $ | 572 | $ | 2,355 | $ | 888 | $ | 256 | $ | 1,144 | $ | 2,787 | $ | 220 | $ | 3,007 | |||||||||||||
Other interest-earning assets | $ | 22 | $ | (32 | ) | $ | (10 | ) | $ | 7 | $ | 173 | $ | 180 | $ | 168 | $ | (10 | ) | $ | 158 | $ | 458 | $ | (52 | ) | $ | 406 | |||||||||
Total interest revenue | $ | 653 | $ | 504 | $ | 1,157 | $ | 2,934 | $ | 2,451 | $ | 5,385 | $ | 1,965 | $ | 398 | $ | 2,363 | $ | 7,705 | $ | 527 | $ | 8,232 | |||||||||||||
Deposits | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 58 | $ | 131 | $ | 189 | $ | 144 | $ | 591 | $ | 735 | |||||||||||||||||||||||||
In offices outside the U.S.(4) | 200 | 178 | 378 | 604 | 816 | 1,420 | |||||||||||||||||||||||||||||||
Total | $ | 258 | $ | 309 | $ | 567 | $ | 748 | $ | 1,407 | $ | 2,155 | |||||||||||||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 11 | $ | 26 | $ | 37 | $ | 167 | $ | 758 | $ | 925 | |||||||||||||||||||||||||
In offices outside the U.S.(4) | (63 | ) | $ | 103 | 40 | 342 | 2 | 344 | |||||||||||||||||||||||||||||
Total | $ | (52 | ) | $ | 129 | $ | 77 | $ | 509 | $ | 760 | $ | 1,269 | ||||||||||||||||||||||||
Trading account liabilities(5) | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 3 | $ | (12 | ) | $ | (9 | ) | $ | 2 | $ | 17 | $ | 19 | |||||||||||||||||||||||
In offices outside the U.S.(4) | (1 | ) | 4 | 3 | (1 | ) | 6 | 5 | |||||||||||||||||||||||||||||
Total | $ | 2 | $ | (8 | ) | $ | (6 | ) | $ | 1 | $ | 23 | $ | 24 | |||||||||||||||||||||||
Short-term borrowings | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 28 | $ | 200 | $ | 228 | $ | 274 | $ | 464 | $ | 738 | |||||||||||||||||||||||||
In offices outside the U.S.(4) | (15 | ) | (43 | ) | (58 | ) | 56 | (121 | ) | (65 | ) | ||||||||||||||||||||||||||
Total | $ | 13 | $ | 157 | $ | 170 | $ | 330 | $ | 343 | $ | 673 | |||||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 213 | $ | 113 | $ | 326 | $ | 385 | $ | 681 | $ | 1,066 | |||||||||||||||||||||||||
In offices outside the U.S.(4) | (3 | ) | 53 | 50 | (7 | ) | 72 | 65 | |||||||||||||||||||||||||||||
Total | $ | 210 | $ | 166 | $ | 376 | $ | 378 | $ | 753 | $ | 1,131 | |||||||||||||||||||||||||
Total interest expense | $ | 431 | $ | 753 | $ | 1,184 | $ | 1,966 | $ | 3,286 | $ | 5,252 | |||||||||||||||||||||||||
Net interest revenue | $ | 222 | $ | (249 | ) | $ | (27 | ) | $ | 968 | $ | (835 | ) | $ | 133 | ||||||||||||||||||||||
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)
| Nine Months 2006 vs. Nine Months 2005 | 3rd Qtr. 2007 vs. 2nd Qtr. 2007 | 3rd Qtr. 2007 vs. 3rd Qtr. 2006 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | ||||||||||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | |||||||||||||||||||
Deposits at interest with banks(4) | $ | 138 | $ | 590 | $ | 728 | ||||||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||||||||||||
In U.S. offices | $ | 376 | $ | 2,383 | $ | 2,759 | ||||||||||||||||||||||
In offices outside the U.S.(4) | 284 | 571 | 855 | |||||||||||||||||||||||||
Total | $ | 660 | $ | 2,954 | $ | 3,614 | ||||||||||||||||||||||
Trading account assets(5) | ||||||||||||||||||||||||||||
In U.S. offices | $ | 859 | $ | 968 | $ | 1,827 | ||||||||||||||||||||||
In offices outside the U.S.(4) | 327 | 221 | 548 | |||||||||||||||||||||||||
Total | $ | 1,186 | $ | 1,189 | $ | 2,375 | ||||||||||||||||||||||
Investments(1) | ||||||||||||||||||||||||||||
In U.S. offices | $ | 570 | $ | 503 | $ | 1,073 | ||||||||||||||||||||||
In offices outside the U.S.(4) | 585 | (229 | ) | 356 | ||||||||||||||||||||||||
Total | $ | 1,155 | $ | 274 | $ | 1,429 | ||||||||||||||||||||||
Loans—consumer | ||||||||||||||||||||||||||||
In U.S. offices | $ | 2,146 | $ | 494 | $ | 2,640 | ||||||||||||||||||||||
In offices outside the U.S.(4) | 432 | 321 | 753 | |||||||||||||||||||||||||
Total | $ | 2,578 | $ | 815 | $ | 3,393 | ||||||||||||||||||||||
Loans—corporate | ||||||||||||||||||||||||||||
In U.S. offices | $ | 423 | $ | 244 | $ | 677 | ||||||||||||||||||||||
In offices outside the U.S.(4) | 1,185 | 845 | 2,030 | |||||||||||||||||||||||||
Total | $ | 1,608 | $ | 1,089 | $ | 2,697 | ||||||||||||||||||||||
Total loans | $ | 4,186 | $ | 1,904 | $ | 6,090 | ||||||||||||||||||||||
Other interest-earning assets | $ | 48 | $ | 577 | $ | 625 | ||||||||||||||||||||||
Total interest revenue | $ | 7,373 | $ | 7,488 | $ | 14,861 | ||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||
In U.S. offices | $ | 312 | $ | 1,882 | $ | 2,194 | $ | 40 | $ | (4 | ) | $ | 36 | $ | 189 | $ | 28 | $ | 217 | |||||||||
In offices outside the U.S.(4) | 1,226 | 2,532 | 3,758 | 315 | 249 | 564 | 1,035 | 516 | 1,551 | |||||||||||||||||||
Total | $ | 1,538 | $ | 4,414 | $ | 5,952 | $ | 355 | $ | 245 | $ | 600 | $ | 1,224 | $ | 544 | $ | 1,768 | ||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | �� | |||||||||||||||||||||||||||
In U.S. offices | $ | 564 | $ | 2,902 | $ | 3,466 | $ | 597 | $ | (145 | ) | $ | 452 | $ | 1,272 | $ | (212 | ) | $ | 1,060 | ||||||||
In offices outside the U.S.(4) | 974 | 21 | 995 | 36 | 31 | 67 | 954 | 21 | 975 | |||||||||||||||||||
Total | $ | 1,538 | $ | 2,923 | $ | 4,461 | $ | 633 | $ | (114 | ) | $ | 519 | $ | 2,226 | $ | (191 | ) | $ | 2,035 | ||||||||
Trading account liabilities(5) | ||||||||||||||||||||||||||||
In U.S. offices | $ | 1 | $ | 65 | $ | 66 | $ | (59 | ) | $ | 49 | $ | (10 | ) | $ | 66 | $ | (7 | ) | $ | 59 | |||||||
In offices outside the U.S.(4) | (2 | ) | 21 | 19 | 7 | (6 | ) | 1 | 40 | (29 | ) | 11 | ||||||||||||||||
Total | $ | (1 | ) | $ | 86 | $ | 85 | $ | (52 | ) | $ | 43 | $ | (9 | ) | $ | 106 | $ | (36 | ) | $ | 70 | ||||||
Short-term borrowings | ||||||||||||||||||||||||||||
In U.S. offices | $ | 577 | $ | 1,064 | $ | 1,641 | $ | 153 | $ | (10 | ) | $ | 143 | $ | 618 | $ | (38 | ) | $ | 580 | ||||||||
In offices outside the U.S.(4) | 115 | (83 | ) | 32 | 58 | (89 | ) | (31 | ) | 208 | (12 | ) | 196 | |||||||||||||||
Total | $ | 692 | $ | 981 | $ | 1,673 | $ | 211 | $ | (99 | ) | $ | 112 | $ | 826 | $ | (50 | ) | $ | 776 | ||||||||
Long-term debt | ||||||||||||||||||||||||||||
In U.S. offices | $ | 809 | $ | 1,890 | $ | 2,699 | $ | 240 | $ | 35 | $ | 275 | $ | 1,056 | $ | (21 | ) | $ | 1,035 | |||||||||
In offices outside the U.S.(4) | (95 | ) | 209 | 114 | 79 | 56 | 135 | 257 | (38 | ) | 219 | |||||||||||||||||
Total | $ | 714 | $ | 2,099 | $ | 2,813 | $ | 319 | $ | 91 | $ | 410 | $ | 1,313 | $ | (59 | ) | $ | 1,254 | |||||||||
Total interest expense | $ | 4,481 | $ | 10,503 | $ | 14,984 | $ | 1,466 | $ | 166 | $ | 1,632 | $ | 5,695 | $ | 208 | $ | 5,903 | ||||||||||
Net interest revenue | $ | 2,892 | $ | (3,015 | ) | $ | (123 | ) | $ | 499 | $ | 232 | $ | 731 | $ | 2,010 | $ | 319 | $ | 2,329 | ||||||||
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)
| Nine Months 2007 vs. Nine Months 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | |||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | ||||||
Deposits with banks(4) | $ | 760 | $ | 19 | $ | 779 | |||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||
In U.S. offices | $ | 1,459 | $ | 116 | $ | 1,575 | |||
In offices outside the U.S.(4) | 1,826 | 325 | 2,151 | ||||||
Total | $ | 3,285 | $ | 441 | $ | 3,726 | |||
Trading account assets(5) | |||||||||
In U.S. offices | $ | 2,894 | $ | 682 | $ | 3,576 | |||
In offices outside the U.S.(4) | 1,759 | (361 | ) | 1,398 | |||||
Total | $ | 4,653 | $ | 321 | $ | 4,974 | |||
Investments(1) | |||||||||
In U.S. offices | $ | 2,097 | $ | 783 | $ | 2,880 | |||
In offices outside the U.S.(4) | 541 | 136 | 677 | ||||||
Total | $ | 2,638 | $ | 919 | $ | 3,557 | |||
Loans—consumer | |||||||||
In U.S. offices | $ | 2,044 | $ | (85 | ) | $ | 1,959 | ||
In offices outside the U.S.(4) | 2,626 | (454 | ) | 2,172 | |||||
Total | $ | 4,670 | $ | (539 | ) | $ | 4,131 | ||
Loans—corporate | |||||||||
In U.S. offices | $ | 329 | $ | 236 | $ | 565 | |||
In offices outside the U.S.(4) | 1,831 | 1,207 | 3,038 | ||||||
Total | $ | 2,160 | $ | 1,443 | $ | 3,603 | |||
Total loans | $ | 6,830 | $ | 904 | $ | 7,734 | |||
Other interest-earning assets | $ | 860 | $ | (113 | ) | $ | 747 | ||
Total interest revenue | $ | 19,026 | $ | 2,491 | $ | 21,517 | |||
Deposits | |||||||||
In U.S. offices | $ | 620 | $ | 577 | $ | 1,197 | |||
In offices outside the U.S.(4) | 2,662 | 1,697 | 4,359 | ||||||
Total | $ | 3,282 | $ | 2,274 | $ | 5,556 | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||
In U.S. offices | $ | 2,760 | $ | (190 | ) | $ | 2,570 | ||
In offices outside the U.S.(4) | 2,392 | 250 | 2,642 | ||||||
Total | $ | 5,152 | $ | 60 | $ | 5,212 | |||
Trading account liabilities(5) | |||||||||
In U.S. offices | $ | 232 | $ | (45 | ) | $ | 187 | ||
In offices outside the U.S.(4) | 83 | (37 | ) | 46 | |||||
Total | $ | 315 | $ | (82 | ) | $ | 233 | ||
Short-term borrowings | |||||||||
In U.S. offices | $ | 1,335 | $ | 382 | $ | 1,717 | |||
In offices outside the U.S.(4) | 572 | (206 | ) | 366 | |||||
Total | $ | 1,907 | $ | 176 | $ | 2,083 | |||
Long-term debt | |||||||||
In U.S. offices | $ | 2,826 | $ | 491 | $ | 3,317 | |||
In offices outside the U.S.(4) | 455 | (43 | ) | 412 | |||||
Total | $ | 3,281 | $ | 448 | $ | 3,729 | |||
Total interest expense | $ | 13,937 | $ | 2,876 | $ | 16,813 | |||
Net interest revenue | $ | 5,089 | $ | (385 | ) | $ | 4,704 | ||
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES
Overview
Capital is principally generated via earnings, issuance of common and preferred stock and subordinated debt, and equity issued as a result of employee benefit plans. It is used primarily to support growth in the Company's businesses and to fund acquisition activity. Excess capital is used to pay dividends to shareholders, repurchase stock, and fund acquisitions.
Citigroup's capital management framework is designed to ensure that Citigroup and its subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is frequently reviewed at the entity and country level.
Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Global Finance and Asset and Liability Committee (FinALCO). This Committee includes Citigroup's Chairman and Chief Executive Officer, Chief Financial Officer, Head of Corporate Finance and Treasury, Senior Risk Officer, the business segment CEOs, and other senior business managers. The Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; reviewing the funding and capital markets plan for Citigroup; monitoring interest rate risk, corporate and bank liquidity, the impact of currency translation on non-U.S. earnings and capital; and reviewing and recommending share repurchase levels and dividends on common and preferred stock. The FinALCO establishes capital targets for Citigroup and for significant subsidiaries. These targets exceed the regulatory standards.
Capital Ratios
Citigroup is subject to risk-based capital ratio guidelines issued by the FRB. Capital adequacy is measured via two risk-based ratios, Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). Tier 1 Capital is considered core capital while Total Capital also includes other items such as subordinated debt and loan loss reserves. Both measures of capital are stated as a percent of risk-adjusted assets. Risk-adjusted assets are measured primarily on their perceived credit risk and include certain off-balance sheet exposures, such as unfunded loan commitments and letters of credit and the notional amounts of derivative and foreign exchange contracts. Citigroup is also subject to the Leverage Ratio requirement, a non-risk-based asset ratio, which is defined as Tier 1 Capital as a percentage of adjusted average assets.
To be "well capitalized" under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Leverage Ratio of at least 3%, and not be subject to an FRB directive to maintain higher capital levels.
Historically, Citigroup has maintained a Leverage Ratio above 5%. As Citigroup adds low risk-weighted, secured financing assets in the CIB business, the Leverage Ratio at the holding company level is expected to decline below 5%, but remain above 4%. The Leverage Ratio at each of the regulated U.S. banks is not expected to decline below 5%. The addition of these assets is not expected to materially affect any of Citigroup's risk-based capital ratios. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 84.
As noted in the following table, Citigroup maintained a "well capitalized" position during the first nine months of 20062007 and the full year of 2005.2006:
Citigroup Regulatory Capital RatiosRatios(1)
| Sept. 30, 2006 | June 30, 2006 | Dec. 31, 2005 | Sept. 30, 2007(3) | June 30, 2007(3) | Dec. 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | 8.64 | % | 8.51 | % | 8.79 | % | 7.32 | % | 7.91 | % | 8.59 | % | ||
Total Capital (Tier 1 and Tier 2) | 11.88 | 11.68 | 12.02 | 10.61 | % | 11.23 | 11.65 | |||||||
Leverage(2) | 5.24 | 5.19 | 5.35 | 4.13 | % | 4.37 | 5.16 | |||||||
Common stockholders' Equity | 6.69 | 7.04 | 7.46 | |||||||||||
Components of Capital Under Regulatory Guidelines
In millions of dollars | In millions of dollars | Sept. 30, 2006 | June 30, 2006 | Dec. 31, 2005 | Sept. 30, 2007 | June 30, 2007 | Dec. 31, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | Tier 1 Capital | ||||||||||||||||||||
Common stockholders' equity | Common stockholders' equity | $ | 116,865 | $ | 114,428 | $ | 111,412 | $ | 126,913 | $ | 127,154 | $ | 118,783 | ||||||||
Qualifying perpetual preferred stock | Qualifying perpetual preferred stock | 1,000 | 1,000 | 1,125 | — | 400 | 1,000 | ||||||||||||||
Qualifying mandatorily redeemable securities of subsidiary trusts | Qualifying mandatorily redeemable securities of subsidiary trusts | 7,992 | 6,572 | 6,264 | 11,542 | 10,095 | 9,579 | ||||||||||||||
Minority interest | Minority interest | 583 | 571 | 512 | 3,899 | 3,889 | 1,107 | ||||||||||||||
Less: Net unrealized (gains) and losses on securities available-for-sale(1) | (1,001 | ) | 246 | (1,084 | ) | ||||||||||||||||
Less: Net unrealized (gains) on securities available-for-sale(1) | (682 | ) | (248 | ) | (943 | ) | |||||||||||||||
Less: Accumulated net (gains) losses on cash flow hedges, net of tax | Less: Accumulated net (gains) losses on cash flow hedges, net of tax | 68 | (1,123 | ) | (612 | ) | 1,457 | (546 | ) | 61 | |||||||||||
Less: Pension liability adjustment, net of tax(2) | 1,403 | 1,526 | 1,647 | ||||||||||||||||||
Less: Cumulative effect included in fair value of financial liabilities attributable to credit- worthiness, net of tax(3) | (664 | ) | (138 | ) | — | ||||||||||||||||
Less: Intangible assets: | Less: Intangible assets: | ||||||||||||||||||||
Goodwill | (33,169 | ) | (32,910 | ) | (33,130 | ) | |||||||||||||||
Other disallowed intangible assets | (6,072 | ) | (6,143 | ) | (6,163 | ) | |||||||||||||||
Goodwill | (39,949 | ) | (39,231 | ) | (33,415 | ) | |||||||||||||||
Other disallowed intangible assets | (9,892 | ) | (8,981 | ) | (6,127 | ) | |||||||||||||||
Other | Other | (606 | ) | (593 | ) | (500 | ) | (1,657 | ) | (1,485 | ) | (793 | ) | ||||||||
Total Tier 1 Capital | Total Tier 1 Capital | $ | 85,660 | $ | 82,048 | $ | 77,824 | $ | 92,370 | $ | 92,435 | $ | 90,899 | ||||||||
Tier 2 Capital | Tier 2 Capital | ||||||||||||||||||||
Allowance for credit losses(2) | 10,050 | 10,165 | 10,602 | ||||||||||||||||||
Qualifying debt(3) | 21,613 | 20,026 | 17,368 | ||||||||||||||||||
Allowance for credit losses(4) | $ | 13,872 | $ | 11,475 | $ | 10,034 | |||||||||||||||
Qualifying debt(5) | 26,657 | 26,593 | 21,891 | ||||||||||||||||||
Unrealized marketable equity securities gains(1) | Unrealized marketable equity securities gains(1) | 469 | 369 | 608 | 924 | 747 | 436 | ||||||||||||||
Total Tier 2 Capital | Total Tier 2 Capital | $ | 32,132 | $ | 30,560 | $ | 28,578 | $ | 41,453 | $ | 38,815 | $ | 32,361 | ||||||||
Total Capital (Tier 1 and Tier 2) | Total Capital (Tier 1 and Tier 2) | $ | 117,792 | $ | 112,608 | $ | 106,402 | $ | 133,823 | $ | 131,250 | $ | 123,260 | ||||||||
Risk-Adjusted Assets(4) | $ | 991,483 | $ | 963,750 | $ | 885,472 | |||||||||||||||
Risk-Adjusted Assets(6) | $ | 1,261,790 | $ | 1,168,380 | $ | 1,057,872 | |||||||||||||||
Common stockholders' equity increased approximately $8.1 billion to $126.9 billion, representing 5.4% of total assets as of September 30, 2007 from $118.8 billion and 6.3% at December 31, 2006.
Common Equity
Common stockholders' equity increased approximately $5.5 billion during the first nine months of 2006 to $116.9 billion at September 30, 2006, representing 6.7% of assets (common stockholders' equity ratio). This compares to $111.4 billion and 7.5% at year-end 2005.
The table below summarizes the change in common stockholders' equity duringequity:
In billions of dollars | | |||
---|---|---|---|---|
Common Equity, December 31, 2006 | $ | 118.8 | ||
Adjustment to opening Retained earnings balance, net of tax(1) | (0.2 | ) | ||
Adjustment to opening Accumulated other comprehensive income (loss) balance, net of tax(2) | 0.1 | |||
Net income | 13.5 | |||
Employee benefit plans and other activities | 2.7 | |||
Dividends | (8.1 | ) | ||
Issuance of shares for Grupo Cuscatlan acquisition | 0.8 | |||
Treasury stock acquired | (0.7 | ) | ||
Net change in Accumulated other comprehensive income (loss), net of tax | — | |||
Common Equity, September 30, 2007 | $ | 126.9 | ||
See Notes 1 and 16 on pages 55 and 77, respectively.
In billions of dollars | | |||
---|---|---|---|---|
Common Equity, December 31, 2005 | $ | 111.4 | ||
Net income | 16.4 | |||
Employee benefit plans and other activities | 2.8 | |||
Dividends | (7.4 | ) | ||
Treasury stock acquired | (6.0 | ) | ||
After-tax net change in equity from nonowner sources | (0.3 | ) | ||
Common Equity, September 30, 2006 | $ | 116.9 | ||
The decrease in the common stockholders' equity ratio during the first nine months of 2006ended September 30, 2007 reflected the above items and a 16.9%25.2% increase in total assets.
Additionally, on February 15, 2006, Citigroup redeemed for cash all the outstanding shares of its Fixed/Adjustable Rate Cumulative Preferred Stock, Series V. The redemption price was $50.00 per depositary share, plus accrued dividends to the date of redemption. At the date of redemption, the value of the Series V Preferred Stock was $125 million.
On April 13,17, 2006, the Board of Directors authorized up to an additional $10 billion in share repurchases. As of September 30, 2007, $6.7 billion remained under authorized repurchase programs after the repurchase of $663 million and $7.0 billion in shares during the nine months ended September 30, 2007 and full year 2006, respectively. As a result of the Company's recent acquisitions, the pending Nikko Cordial transaction, and other growth opportunities, it is anticipated that the Company will not resume its share repurchase program until capital ratios improve. This is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48. For further details, see "Unregistered Sales of Equity Securities and Use of Proceeds" on page 104.
On June 18, 2007, Citigroup redeemed for cash shares of its 6.365% Cumulative Preferred Stock, Series F, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to June 30, 2007 quarter-end, they did not qualify as Tier 1 Capital at June 30, 2007.
On July 11, 2007, Citigroup redeemed for cash shares of its 6.213% Cumulative Preferred Stock, Series G, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to June 30, 2007 quarter-end, they did not qualify as Tier 1 Capital at June 30, 2007.
On September 10, 2007, Citigroup redeemed for cash shares of its 6.231% Cumulative Preferred Stock, Series H, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption.
On October 9, 2007, Citigroup redeemed for cash shares of its 5.864% Cumulative Preferred Stock, Series M, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to quarter-end, they did not qualify as Tier 1 Capital at September 30, 2007.
The table below summarizes the Company's repurchase activity:
In millions, except per share amounts | Total Common Shares Repurchased | Dollar Value of Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
First quarter 2005 | 19.0 | $ | 906 | $ | 47.65 | $ | 1,300 | |||||
Second quarter 2005 | 41.8 | 1,965 | 47.06 | 14,335 | ||||||||
Third quarter 2005 | 124.2 | 5,500 | 44.27 | 8,835 | ||||||||
Fourth quarter 2005 | 92.9 | 4,423 | 47.60 | 4,412 | ||||||||
Total 2005 | 277.9 | $ | 12,794 | $ | 46.03 | $ | 4,412 | |||||
First quarter 2006 | 42.9 | $ | 2,000 | $ | 46.58 | $ | 2,412 | |||||
Second quarter 2006 | 40.8 | 2,000 | 48.98 | 10,412 | (1) | |||||||
Third quarter 2006 | 40.9 | 2,000 | 48.90 | 8,412 | ||||||||
Total year-to-date 2006 | 124.6 | $ | 6,000 | $ | 48.12 | $ | 8,412 | |||||
In millions, except per share amounts | Total Common Shares Repurchased | Dollar Value of Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
First quarter 2006 | 42.9 | $ | 2,000 | $ | 46.58 | $ | 2,412 | |||||
Second quarter 2006 | 40.8 | 2,000 | 48.98 | 10,412 | (1) | |||||||
Third quarter 2006 | 40.9 | 2,000 | 48.90 | 8,412 | ||||||||
Fourth quarter 2006 | 19.4 | 1,000 | 51.66 | 7,412 | ||||||||
Total 2006 | 144.0 | $ | 7,000 | $ | 48.60 | $ | 7,412 | |||||
First quarter 2007 | 12.1 | $ | 645 | $ | 53.37 | $ | 6,767 | |||||
Second quarter 2007(2) | 0.1 | 8 | 51.42 | 6,759 | ||||||||
Third quarter 2007(2)(3) | 0.2 | 10 | 46.95 | 6,749 | ||||||||
Total year-to-date 2007 | 12.4 | $ | 663 | $ | 53.24 | $ | 6,749 | |||||
Mandatorily Redeemable Securities of Subsidiary Trusts
Total mandatorily redeemable securities of subsidiary trusts (trust preferred securities), which qualify as Tier 1 Capital, were $7.992 billion at September 30, 2006, as compared to $6.264 billion at December 31, 2005. In September 2006, Citigroup issued $1.185 billion of Enhanced Trust Preferred Securities (Citigroup Capital XV). In June 2006, Citigroup issued $500 million of Enhanced Trust Preferred Securities (Citigroup Capital XIV). An additional $65 million was issued,
The FRB issued the final rule, with an effective date of April 11, 2005, which retains trust preferred securities in Tier 1 Capital of Bank Holding Companies (BHCs), but with stricter quantitative limits and clearer qualitative standards. Under the rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements included in Tier 1 Capital would be limited to 25% of Tier 1 Capital elements, net of goodwill less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 Capital, subject to restrictions. Under this rule, Citigroup currently would have less than 11% against the limit.
The FRB and the FFIEC may propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. These may affect reported capital ratios and net risk-adjusted assets.*
Citibank, N.A. RatiosRegulatory Capital Ratios(1)
Citigroup's subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the FRB's guidelines. To be "well capitalized" under federal bank regulatory agency definitions, Citigroup's depository institutions must have a Tier 1 Capital Ratio of at least 6%, a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%, and not be subject to a regulatory directive to meet and maintain higher capital levels. At September 30, 2006,2007, all of Citigroup's subsidiary depository institutions were "well capitalized" under the federal regulatory agencies' definitions, including Citigroup's primary depository institution, Citibank, N.A., as noted in the following table:
Citibank, N.A. Regulatory Capital Ratios
| Sept. 30, 2006 | June 30, 2006 | Dec. 31, 2005 | Sept. 30, 2007(2) | June 30, 2007(2) | Dec. 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | 8.35 | % | 8.25 | % | 8.41 | % | 8.22 | % | 8.21 | % | 8.32 | % | ||
Total Capital (Tier 1 and Tier 2) | 12.50 | 12.44 | 12.55 | 12.30 | 12.24 | 12.39 | ||||||||
Leverage | 6.29 | 6.43 | 6.45 | 6.31 | 5.83 | 6.09 | ||||||||
Common stockholder's equity | 7.64 | 7.76 | 7.96 | |||||||||||
Citibank, N.A. Components of Capital Under Regulatory GuidelinesGuidelines(1)
In billions of dollars | Sept. 30, 2006 | June 30, 2006 | Dec. 31, 2005 | Sept. 30, 2007(2) | June 30, 2007(2) | Dec. 31, 2006 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | $ | 50.6 | $ | 48.7 | $ | 44.7 | $ | 73.3 | $ | 67.0 | $ | 59.9 | ||||||
Total Capital (Tier 1 and Tier 2) | 75.7 | 73.5 | 66.8 | 109.6 | 99.9 | 89.1 | ||||||||||||
Citibank, N.A. had net income for the third quarter of 20062007 and for the nine months ended September 30, 20062007 of $2.3$1.6 billion and $7.6$6.8 billion, respectively. During the third quarter of 20062007 and for the nine months ended September 30, 2006,2007, Citibank paid dividendsreceived contributions from parent company of $0.6$6.1 billion and $2.6$11.8 billion, respectively.
During the first nine months of 20062007 and full year 2005,2006, Citibank issued an additional $2.9$4.2 billion and $1.4$7.8 billion, respectively, of subordinated notes to CitigroupCiticorp Holdings Inc. that qualify for inclusion in Citibank'sCitibank, N.A.'s Tier 2 Capital. Total subordinated notes issued to CitigroupCiticorp Holdings Inc. that were outstanding at September 30, 20062007 and December 31, 20052006 and included in Citibank'sCitibank, N.A.'s Tier 2 capitalCapital amounted to $18.1$27.2 billion and $15.3$23.0 billion, respectively. Following the merger of Citicorp into Citigroup on August 1, 2005, all of Citibank's subordinated debt was assigned to Citigroup. See "Funding" on page 79 for further details of the merger.
Broker/DealerBroker-Dealer Subsidiaries
The Company's broker/dealer subsidiaries—includingAt September 30, 2007, Citigroup Global Markets Inc. (CGMI), an indirect wholly owned subsidiary of Citigroup Global Markets Holdings, Inc. (CGMHI)—are subject to various securities and commodities regulations and capital adequacy requirements of the regulatory and exchange authorities of the countries in which they operate. The Company's U.S. registered broker/dealer subsidiaries are subject to the Securities and Exchange Commission's Net Capital Rule, Rule 15c3-1 (the Net Capital Rule) under the Exchange Act. In August 2006, CGMI was approved by the SEC to use the alternative method of computing, had net capital, containedcomputed in Appendix E of Rule 15c3-1. This methodology allows CGMI to compute market risk capital charges using internal value-at-risk models. The Net Capital Rule requires the maintenance of a defined amount of minimum net capital. The Net Capital Rule also limits the ability of broker/dealers to transfer large amounts of capital to parent companies and other affiliates. Complianceaccordance with the Net Capital Rule, could limit operations of $6.2 billion, which exceeded the Company that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances. It could also restrict CGMHI's ability to withdraw capital from its broker/dealer subsidiaries, which could limit CGMHI's ability to pay dividends and make payments on its debt. CGMHI monitors its leverage and capital ratios on a daily basis.minimum requirement by $5.3 billion.
In addition, certain of the Company's broker/dealerbroker-dealer subsidiaries are subject to regulation in the other countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. The Company's broker/dealerbroker-dealer subsidiaries were in compliance with their capital requirements at September 30, 2006.2007.
Regulatory Capital and Accounting Standards Developments
Citigroup generally supports the move to a new set of risk-based regulatory capital standards, published on June 26, 2004 (and subsequently amended in November 2005) by the Basel Committee on Banking Supervision (the Basel Committee), consisting of central banks and bank supervisors from 13 countries. The international version of the Basel II framework will allow Citigroup to leverage internal risk models used to measure credit, operational, and market risk exposures to drive regulatory capital calculations.
On September 30, 2005,July 20, 2007, the U.S. banking regulators delayedannounced that the U.S. implementation of Basel II by one year.in the U.S. should be technically consistent in most aspects with the international version. This should lead to the finalization of a rule for implementing the advanced approaches for computing Citigroup's risk-based capital requirements under Basel II. The current U.S. implementation timetable consistsis expected to consist of parallel calculations under the current regulatory capital regime (Basel I) and Basel II, starting January 1, 2008, and an implementation transition period, starting January 1, 2009 through year-end 2011 or possibly later. The U.S. regulators have also reserved the right to change how Basel II is applied in the U.S., following a review at the end of the second year of the transitional period, and to retain the existing Prompt Corrective Action and leverage capital requirements applicable to U.S. banking organizations. The new timetable, clarifications, and other proposals are set forth in a notice of proposed rulemaking (NPR) issued on September 25, 2006 which contains a number of material differences from the international version of Basel II.
Citigroup continues to monitor, analyze and comment on the developing capital standards in the U.S. and in countries where Citigroup has a significant presence, in order to assess their collective impact and allocate project management and funding resources accordingly.
Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48.
Overview
At September 30, 2007, at the Holding Company level for Citigroup, for CGMHI, and for the Combined Holding Company and CGMHI, Citigroup maintainsmaintained sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.
Management of Liquidity
Management of liquidity at Citigroup is the responsibility of the Head of Corporate Finance and Treasury. A uniform liquidity risk management policy exists for Citigroup and its major operating subsidiaries. Under this policy, there is a single set of standards for the measurement of liquidity risk in order to ensure consistency across businesses, stability in methodologies and transparency of risk. Management of liquidity at each operating subsidiary and/or country is performed on a daily basis and is monitored by Corporate Treasury and independent risk management.
The basis of Citigroup's liquidity management is strong decentralized liquidity management at each of its principal operating subsidiaries and in each of its countries, combined with an active corporate oversight function. As discussed in "Capital Resources" on page 74, Citigroup's FinALCO undertakes this oversight responsibility, along with the Head of Corporate Finance and Treasury. One of the objectives of the FinALCO is to monitor and review the overall liquidity and balance sheet positions of Citigroup and its principal subsidiaries. Similarly, Asset and Liability Committees are also established for each country and/or major line of business.
Monitoring Liquidity
Each principal operating subsidiary and/or country must prepare an annual funding and liquidity plan for review by the Head of Corporate Finance and Treasury and approval by independent risk management. The funding and liquidity plan includes analysis of the balance sheet, as well as the economic and business conditions impacting the liquidity of the major operating subsidiary and/or country. As part of the funding and liquidity plan, liquidity limits, liquidity ratios, market triggers, and assumptions for periodic stress tests are established and approved.
Liquidity Limits
Liquidity limits establish boundaries for market access in business-as-usual conditions and are monitored against the liquidity position on a daily basis. These limits are established based on the size of the balance sheet, depth of the market, experience level of local management, stability of the liabilities, and liquidity of the assets. Finally, the limits are subject to the evaluation of the entities' stress test results. Generally, limits are established such that in stress scenarios, entities are self-funded or net providers of liquidity.
Liquidity Ratios
A series of standard corporate-wide liquidity ratios have been established to monitor the structural elements of Citigroup's liquidity. For bank entities, these include cash capital (defined as core deposits, long-term debt, and capital compared with illiquid assets), liquid assets against liquidity gaps, core deposits to loans, long-term assets to long-term liabilities and deposits to loans. Several measures exist to review potential concentrations of funding by individual name, product, industry, or geography. At the Holding Company level for Citigroup, for CGMHI and for the Combined Holding Company and CGMHI, ratios are established for liquid assets against short-term obligations. Triggers for management discussion, which may result in other actions, have been established against these ratios. In addition, each individual major operating subsidiary or country establishes targets against these ratios and may monitor other ratios as approved in its funding and liquidity plan.
Market Triggers
Market triggers are internal or external market or economic factors that may imply a change to market liquidity or Citigroup's access to the markets. Citigroup market triggers are monitored by the Head of Corporate Finance and Treasury and the Head of Risk Architecture and are discussed in the FinALCO. Appropriate market triggers are also established and monitored for each major operating subsidiary and/or country as part of the funding and liquidity plans. Local triggers are reviewed with the local country or business ALCO and independent risk management.
Stress Testing
Simulated liquidity stress testing is periodically performed for each major operating subsidiary and/or country. The scenarios include assumptions about significant changes in key funding sources, credit ratings, contingent uses of funding, and political and economic conditions in certain countries. The results of stress tests of individual countries and operating subsidiaries are reviewed to ensure that each individual major operating subsidiary or country is either self-funded or a net provider of liquidity. In addition, a Contingency Funding Plan is prepared on a periodic basis for Citigroup. The plan includes detailed policies, procedures, roles and responsibilities, and the results of corporate stress tests. The product of these stress tests is a series of alternatives that can be used by the Head of Corporate Finance and Treasury in a liquidity event.
CGMHI monitors liquidity by tracking asset levels, collateral and funding availability to maintain flexibility to meet its financial commitments. As a policy, CGMHI attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis in the event that its access to uncollateralized financing is temporarily impaired. This is documented in CGMHI's contingency funding plan. This plan is reviewed periodically to keep the funding options current and in line with market conditions. The management of this plan includes an analysis used to determine CGMHI's ability to withstand varying levels of stress, including rating downgrades, which could impact its liquidation horizons and required margins. CGMHI maintains liquidity reserves of cash and loan value of unencumbered securities in excess of its outstanding short-term uncollateralized liabilities. This is monitored on a daily basis. CGMHI also ensures that long-term illiquid assets are funded with long-term liabilities.
FUNDING
Overview
As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.
At September 30, 2007, long-term debt and commercial paper outstanding for Citigroup parent company, CGMHI, Citigroup Funding Inc. and Citigroup's other subsidiaries were as follows:
In billions of dollars | Citigroup Parent Company | CGMHI | Citigroup Funding Inc. | Other Citigroup Subsidiaries | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 154.0 | $ | 28.9 | $ | 33.6 | $ | 148.0 | (1) | ||||
Commercial paper | $ | — | $ | — | $ | 46.3 | $ | 2.2 | |||||
See Note 12 on page 66 for further detail on long-term debt and commercial paper outstanding.
Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The accompanying chart shows the ratings for Citigroup at September 30, 2007. The outlook for all of Citigroup's ratings is "stable."
Banking Subsidiaries
There are various legal limitations on the ability of Citigroup's subsidiary depository institutions to extend credit, pay dividends or otherwise supply funds to Citigroup and its nonbank subsidiaries. The approval of the Office of the Comptroller of the Currency, in the case of national banks, or the Office of Thrift Supervision, in the case of federal savings banks, is required if total dividends declared in any calendar year exceed amounts specified by the applicable agency's regulations. State-chartered depository institutions are subject to dividend limitations imposed by applicable state law.
As of September 30, 2006,2007, Citigroup's subsidiary depository institutions can declare dividends to their parent companies, without regulatory approval, of approximately $19.9$17.9 billion. In determining the dividends, each depository institution must also consider its effect on applicable risk-based capital and Leverage Ratio requirements, as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citigroup estimates that, as of September 30, 2006,2007, its subsidiary depository institutions can distribute dividends to Citigroup of approximately $13.5$15.2 billion of the available $19.9$17.9 billion.
Non-Banking Subsidiaries
Citigroup also receives dividends from its nonbank subsidiaries. These nonbank subsidiaries are generally not subject to regulatory restrictions on dividends.
As discussed in "Capital Resources" on page 74, the ability of CGMHI to declare dividends can be restricted by capital considerations of its broker/dealer subsidiaries.
During 2006, it is not anticipated that any restrictions on the subsidiaries' dividending capability will restrict Citigroup's ability to meet its obligations as and when they become due. *
Sources of Liquidity
Primary sources of liquidity for Citigroup and its principal subsidiaries include:
Citigroup and its principal subsidiaries also generate funds through securitizing financial assets, including credit card receivables and single-family or multi-family residences. See Note 14 to the Consolidated Financial Statements on page 109 for additional information about securitization activities. Finally, Citigroup's net earnings provide a significant source of funding to the corporation.
Citigroup's funding sources are well diversified across funding types and geography, a benefit of the strength of the global franchise. Funding for the parent and its major operating subsidiaries includes a large geographically diverse retail and corporate deposit base of $669.3 billion. A significant portion of these deposits has been, and is expected to be, long-term and stable and is considered core.
Citigroup and its subsidiaries have a significant presence in the global capital markets. During the 2005 second quarter, Citigroup consolidated its capital markets funding activities into two legal entities: (i) Citigroup Inc., which issues long-term debt, medium-term notes, trust preferred securities, and preferred and common stock; and (ii) Citigroup Funding Inc. (CFI), a first-tier subsidiary of Citigroup, which issues commercial paper, medium-term notes and structured equity-linked and credit-linked notes, all of which are guaranteed by Citigroup. As part of the funding consolidation, Citigroup also guaranteed and continues to guarantee various debt obligations of CGMHI as well as all of the outstanding debt obligations under CGMHI's publicly-issued securities.
In August 2005, Citigroup merged its two intermediate bank holding companies, Citigroup Holdings Company and Citicorp, into Citigroup Inc. Coincident with this merger, Citigroup assumed all existing indebtedness and outstanding guarantees of Citicorp. As a result, Citigroup also guaranteed various debt obligations of Associates and of CitiFinancial Credit Company, each an indirect subsidiary of Citigroup. In addition, Citigroup guaranteed various debt obligations of Citigroup Finance Canada, Inc. (CFCI), a wholly owned subsidiary of Associates. CFCI continues to issue debt in the Canadian market supported by a Citigroup guarantee. See Note 20 to the Consolidated Financial Statements on page 122 for further discussions. Other significant elements of long-term debt in the Consolidated Balance Sheet include advances from the Federal Home Loan Bank system, asset-backed outstandings related to the purchase of Sears, and certain borrowings of foreign subsidiaries.
CGMHI's consolidated balance sheet is highly liquid, with the vast majority of its assets consisting of marketable securities and collateralized short-term financing agreements arising from securities transactions. The highly liquid nature of these assets provides CGMHI with flexibility in financing and managing its business. CGMHI monitors and evaluates the adequacy of its capital and borrowing base on a daily basis to maintain liquidity, and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries.
Citigroup's borrowings are diversified by geography, investor, instrument and currency. Decisions regarding the ultimate currency and interest rate profile of liquidity generated through these borrowings can be separated from the actual issuance through the use of derivative financial products.
At September 30, 2006, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. and Citigroup's Subsidiaries were as follows:
In billions of dollars | Citigroup Parent Company | CGMHI | Citigroup Funding Inc. | Other Citigroup Subsidiaries | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 114.3 | $ | 31.0 | $ | 15.3 | $ | 99.5 | (1) | ||||
Commercial paper | $ | — | $ | — | $ | 33.7 | $ | 0.8 | |||||
See Note 13 to the Consolidated Financial Statements on page 106 for further detail on long-term debt and commercial paper outstanding.
Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The accompanying chart indicates the current ratings for Citigroup.
Citigroup's Debt Ratings as of September 30, 20062007
| Citigroup Inc. | Citigroup Funding Inc. | Citibank, N.A. | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Senior Debt | Subordinated Debt | Commercial Paper | Senior Debt | Subordinated Debt | Commercial Paper | Long-Term | Short- Term | ||||||||||||||
Fitch Ratings | AA+ | AA | F1+ | AA+ | AA | F1+ | AA+ | F1+ | ||||||||||||||
Moody's Investors Service | Aa2 | Aa1 | Aa2 | Aaa | ||||||||||||||||||
Standard & Poor's | AA | A-1+ | AA+ | A-1+ |
On September 26, 2006, Moody's Investors Service upgraded Citibank, N.A.'s long-term rating to "Aaa" from "Aa1." Standard & Poor's placed its ratings on Citigroup and its rated subsidiaries on credit watch with "positive implications" on November 1, 2006.
Some of Citigroup's nonbank subsidiaries, including CGMHI, have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or obtain credit from Citigroup's subsidiary depository institutions or engage in certain other transactions with them. In general, these restrictions require that transactions be on arm's-length terms and be secured by designated amounts of specified collateral. See Note 13 to the Consolidated Financial Statements on page 106.
Citigroup uses its liquidity to service debt obligations, to pay dividends to its stockholders, to support organic growth, to fund acquisitions and to repurchase its shares, pursuant to Board of Directors approved plans.
Each of Citigroup's major operating subsidiaries finances its operations on a basis consistent with its capitalization, regulatory structure and the environment in which it operates. Particular attention is paid to those businesses that for tax, sovereign risk, or regulatory reasons cannot be freely and readily funded in the international markets.
OFF-BALANCE SHEET ARRANGEMENTS
Overview
Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs), lines and letters of credit, and loan commitments.
The securitization process enhances the liquidity of the financial markets, may spread credit and interest rate risk among several market participants, and makes new funds available to extend credit to consumers and commercial entities.
Uses of SPEs
In order to execute securitizations, the Company uses SPEs. An SPE is an entity in the form of a trust or other legal vehicle designed to fulfill a specific limited need of the company that organized it.
The principal uses of SPEs are to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup's financial assets, to assist clients in securitizing their financial assets, and to create investment products for clients. SPEs may be organized as trusts, partnerships, or corporations. In a securitization, the company transferring assets to an SPE converts those assets into cash before they would have been realized in the normal course of business, through the SPE's issuing debt and equity instruments, certificates, commercial paper, and other notes of indebtedness. Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or overcollateralization in the form of excess assets in the SPE, or from a liquidity facility, such as a line of credit or asset purchase agreement. Accordingly, the SPE can typically obtain a more favorable credit rating from rating agencies than the transferor could obtain for its own debt issuances, resulting in less expensive financing costs. The SPE may also enter into derivative contracts in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors or to limit or change the credit risk of the SPE. Citigroup may be the counterparty to these derivatives.
SPEs may be Qualifying SPEs (QSPEs) or variable interest entities (VIEs) or neither. A VIE is a type of SPE that does not have sufficient equity to finance its activities without additional subordinated financial support from third parties; its investors may not have the power to make significant decisions about the entity's operations; or investors may not share pro rata in the entity's expected returns or losses. The Company's credit card receivable and mortgage loan securitizations are organized as QSPEs and are, therefore, not VIEs subject to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003)," (FIN 46-R). When an entity is deemed a VIE under FIN 46-R, the entity in question must be consolidated by the primary beneficiary; however, the Company is not the primary beneficiary of most of these entities and as such does not consolidate most of them.
Securitization of Citigroup's Assets
In some of these off-balance sheet arrangements, including credit card receivable and mortgage loan securitizations, Citigroup is securitizing assets that were previously recorded on its Consolidated Balance Sheet. A summary of certain cash flows received from and paid to securitization trusts is included in Note 1413 to the Consolidated Financial Statements on page 109.68.
Credit Card Receivables
Credit card receivables are securitized through trusts, which are established to purchase the receivables. Citigroup sells receivables into the trusts on a non-recourse basis. Credit card securitizations are revolving securitizations; that is, as customers pay their credit card balances, the cash proceeds are used to purchase new receivables and replenish the receivables in the trust. CGMI is one of several underwriters that distribute securities issued by the trusts to investors. The Company relies on securitizations to fund a significant portion of itsU.S. Cards business.
The following table reflects amounts related to the Company's securitized credit card receivables at September 30, 20062007 and December 31, 2005:2006:
In billions of dollars | Sept. 30, 2006 | Dec. 31, 2005 | ||||
---|---|---|---|---|---|---|
Total assets in trusts | $ | 108.4 | $ | 107.7 | ||
Amounts sold to investors via trust-issued securities | 93.3 | 92.1 | ||||
Remaining seller's interest: | ||||||
Recorded as consumer loans | 10.3 | 11.6 | ||||
Recorded as available-for- sale securities (AFS) | 4.9 | 4.0 | ||||
Amounts receivable from trusts | 4.5 | 1.0 | ||||
Amounts payable to trusts | 1.6 | 1.6 | ||||
Interest-only strip | 2.3 | 2.1 | ||||
In billions of dollars | Sept. 30, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Principal amount of credit card receivables in trusts | $ | 116.0 | $ | 112.4 | ||
Ownership interests in principal amount of trust credit card receivables: | ||||||
Sold to investors via trust-issued securities | 99.2 | 93.1 | ||||
Retained by Citigroup as trust-issued securities | 3.6 | 5.1 | ||||
Retained by Citigroup via non-certificated interest recorded as consumer loans | 13.2 | 14.2 | ||||
Total ownership interests in principal amount of trust credit card receivables | $ | 116.0 | $ | 112.4 | ||
Other amounts recorded on the balance sheet related to interests retained in the trusts: | ||||||
Amounts receivable from trusts | $ | 4.4 | $ | 4.5 | ||
Amounts payable to trusts | 1.6 | 1.7 | ||||
Residual interest retained in trust cash flows | 2.7 | 2.5 | ||||
TheIn the third quarters of 2007 and 2006, the Company recorded net gains from securitization of credit card receivables of $0.1 billion$74 million and $0.3 billion during the third quarters of 2006 and 2005,$264 million, respectively, and recorded net gains of $0.6 billion$470 million and $0.8 billion during$719 million in the first nine months of 20062007 and 2005,2006, respectively. Net gains reflect the following:
See Note 14 to the Consolidated Financial Statements13 on page 10968 for additional information regarding the Company's securitization activities.
Mortgages and Other Assets
The Company provides a wide range of mortgage and other loan products to its customers. In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers. The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. In addition to servicing rights, the Company also retains a residual interest in its auto loan, student loan and other asset securitizations, consisting of securities and interest-only strips that arise from the calculation of gain or loss at the time assets are sold to the SPE. The Company recognized gains related to the securitization of mortgages and other assets of $110$60 million and $71$110 million in the three months ended September 30,third quarters of 2007 and 2006, respectively, and 2005, respectively,$249 million and $263 million and $214 million duringin the first nine months of 2007 and 2006, and 2005, respectively.
Securitization of Client Assets
The Company acts as an intermediary for its corporate clients, assisting them in obtaining liquidity by selling their trade receivables or other financial assets to an SPE.
In addition, Citigroup administers several third-party-owned, special purpose, multi-seller finance companiesasset-backed commercial paper conduits that purchase pools of trade receivables, credit cards,card receivables, and other financial assets from its clients. As administrator of these multi-seller finance companies, the Company provides accounting, funding, and operations services to these conduits butconduits. The Company has no ownership interest. Generally,interest in the clients continue to serviceconduits. In the transferred assets. The conduits' asset purchases are funded by issuingevent of liquidity problems in the commercial paper and medium-term notes. Clients absorbmarket, the first losses ofCompany's asset purchase agreements require the Company to purchase only high quality performing assets from the conduits by providing collateral in the form of excess assets or holding a residual interest. The Company, along with other financial institutions, provides liquidity facilities, such as commercial paper backstop lines of credit to the conduits. The Company also provides loss enhancement in the form of letters of credit and other guarantees. All fees are charged on a market basis. During 2003 many of the conduits issued "first loss" subordinated notes to third-party investors so that such investors in each conduit would be deemed the primary beneficiary under FIN 46-R, and would consolidate that conduit.at their fair values.
At September 30, 20062007 and December 31, 2005,2006, total assets and liabilities in the unconsolidated asset-backed commercial paper conduits were $69.5$73.3 billion and $55$66.3 billion, respectively.
Creation of Other Investment and Financing Products
The Company has established SIVs, which issue junior notes, medium-term notes and short-term commercial paper to fund the purchase of high quality assets. The SIVs provide a return to their investors based on the net spread between the cost to issue the short-term debt and the return realized by the medium-term assets. The Company acts as investment manager for the SIVs, but is not contractually obligated to provide liquidity facilities or guarantees to the SIVs.
The following tables summarize the seven Citigroup-advised SIVs as of September 30, 2007 and the aggregate asset mix and credit quality of the SIV assets. See page 7 for a further discussion.
In billions of dollars | |||||||||
---|---|---|---|---|---|---|---|---|---|
SIV | Assets | CP Funding | Medium Term Notes | ||||||
Beta | $ | 19.3 | $ | 2.6 | $ | 15.7 | |||
Centauri | 20.1 | 2.9 | 16.1 | ||||||
Dorada | 11.0 | 2.2 | 8.1 | ||||||
Five | 13.2 | 5.5 | 7.1 | ||||||
Sedna | 13.4 | 5.6 | 7.0 | ||||||
Zela | 4.1 | 2.7 | 1.2 | ||||||
Vetra | 2.0 | 1.4 | 0.5 | ||||||
Total | $ | 83.1 | $ | 22.9 | $ | 55.7 | |||
| | Average Credit Quality(1)(2) | |||||||
---|---|---|---|---|---|---|---|---|---|
| Average Asset Mix | ||||||||
| Aaa | Aa | A | ||||||
Financial Institutions Debt | 58 | % | 12 | % | 44 | % | 2 | % | |
Structured Finance | |||||||||
MBS—Non-U.S. residential | 11 | % | 11 | % | — | — | |||
CBOs, CLOs, CDOs | 8 | % | 8 | % | — | — | |||
MBS—U.S. residential | 7 | % | 7 | % | — | — | |||
CMBS | 6 | % | 6 | % | — | — | |||
Student loans | 5 | % | 5 | % | — | — | |||
Credit cards | 4 | % | 4 | % | — | — | |||
Other | 1 | % | 1 | % | — | — | |||
Total Structured Finance | 42 | % | 42 | % | — | — | |||
Total | 100 | % | 54 | % | 44 | % | 2 | % | |
The Company packages and securitizes assets purchased in the financial markets in order to create new securitysecurities offerings, including arbitrage collateralized debt obligations (CDOs)CDOs and synthetic CDOs for institutional clients and retail customers, which match the clients' investment needs and preferences. An arbitrage CDO is an investment vehicle designed to take advantage of the difference between the yield on a portfolio of selected assets and the cost of funding the CDO through the sale of notes to investors. Arbitrage CDOs are classified as either "cash flow" CDOs, in which the vehicle passes on cash flows from a relatively static pool of assets, or "market value" CDOs, where the pool of assets is actively managed by a third party. In a synthetic CDO, the entity enters into derivative transactions which provide a return similar to a cash instrument to the entity, rather than the entity's actually purchasing the cash instrument. Typically these instruments diversify investors' risk to a pool of assets as compared with investments in individual assets. The VIEs, which are issuers of
At September 30, 2007 and December 31, 2006, unconsolidated CDO securities, are generally organized as limited liability corporations. The Company typically receives fees for structuring and/or distributing the securities sold to investors. In some cases,assets where the Company may repackage the investment with higher-rated debt CDO securities or U.S. Treasury securities to provide a greater or a very high degree of certainty of the return of invested principal. A third-party manager is typically retained by the VIE to select collateral for inclusion in the poolhas significant involvement totaled $84.2 billion and then actively manage it or, in other cases, only to manage work-out credits. The Company may also provide other financial services and/or products to the VIEs for market-rate fees. These may include: the provision of liquidity or contingent liquidity facilities, interest rate or foreign exchange hedges and credit derivative instruments, as well as the purchasing and warehousing of securities until they are sold to the SPE. The Company is not the primary beneficiary of these VIEs under FIN 46-R due to its limited continuing involvement and, as a result, we do not consolidate their assets and liabilities in our financial statements.$52.1 billion, respectively.
See Note 14 to the Consolidated Financial Statements13 on page 10968 for additional information about off-balance sheet arrangements.
Credit Commitments and Lines of Credit
The table below summarizes Citigroup's credit commitments as of September 30, 20062007 and December 31, 2005.2006.
In millions of dollars | September 30, 2006 | December. 31, 2005 | Sept. 30, 2007 | Dec. 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial standby letters of credit and foreign office guarantees | $ | 70,432 | $ | 52,384 | $ | 87,387 | $ | 72,548 | ||||
Performance standby letters of credit and foreign office guarantees | 15,540 | 13,946 | 16,479 | 15,802 | ||||||||
Commercial and similar letters of credit | 7,669 | 5,790 | 9,177 | 7,861 | ||||||||
One- to four-family residential mortgages | 3,958 | 3,343 | 7,424 | 3,457 | ||||||||
Revolving open-end loans secured by one- to four-family residential properties | 30,973 | 25,089 | 35,967 | 32,449 | ||||||||
Commercial real estate, construction and land development | 3,949 | 2,283 | 5,387 | 4,007 | ||||||||
Credit card lines(1) | 960,930 | 859,504 | 1,030,123 | 987,409 | ||||||||
Commercial and other Consumer loan commitments(2) | 418,576 | 346,444 | ||||||||||
Commercial and other consumer loan commitments(2) | 513,668 | 439,931 | ||||||||||
Total | $ | 1,512,027 | $ | 1,308,783 | $ | 1,705,612 | $ | 1,563,464 | ||||
Highly-Leveraged Financing Commitments
Included in the line item "Commercial and other consumer loan commitments" in the table above are highly-leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. Highly-leveraged financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.
As a result, debt service (that is, principal and interest payments) absorbs a significant portion of the cash flows generated by the borrower's business. Consequently, the risk that the borrower may not be able to service its debt obligations is greater. However, to compensate for this risk, the interest rate and fees charged for this type of financing is generally higher.
Citigroup manages the risk associated with highly-leveraged financings it has entered into by selling a majority of its exposures to the market prior to or shortly after funding. In certain cases, all or a portion of a highly-leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. Thus, when a highly-leveraged financing is funded, Citigroup records the resulting loan as follows:
Prior to funding, highly-leveraged financing commitments are assessed for impairment in accordance with SFAS 5 and losses are recorded when they are probable and reasonably estimable. For the portion of loan commitments that relate to loans that will be held-for-investment, loss estimates are made based on the borrower's ability to repay the facility according to its contractual terms. For the portion of loan commitments that relate to loans that will be held-for-sale, loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). Loan origination, commitment, underwriting, other fees have been netted against the impairment losses.
Due to the dislocation of the credit markets during the quarter, liquidity in the market for highly-leveraged financings has declined significantly. Consequently, Citigroup has been unable to sell a number of highly-leveraged financings that it entered into during the quarter, resulting in total exposure of $57 billion as of September 30, 2007 ($19 billion for funded and $38 billion for unfunded commitments). The reduction in liquidity has resulted in Citigroup's recognizing total losses on such products during the quarter of $1.4 billion pre-tax of which $552 million is on funded highly-leveraged loans and $800 million on unfunded highly-leveraged financing commitments.
CORPORATE GOVERNANCE AND CONTROLS AND PROCEDURES
Corporate governance
Citigroup has a Code of Conduct that reflects the Company's commitment to the highest standards of conduct. The Company has established an ethics hotline for employees. The Code of Conduct is supplemented by a Code of Ethics for Financial Professionals (including finance, accounting, treasury, tax and investor relations professionals) that applies worldwide.
Both the Code of Conduct and the Code of Ethics for Financial Professionals can be found on the Citigroup Web site, www.citigroup.com, by clicking on the "Corporate Governance" page. The Company's Corporate Governance Guidelines and the charters for the Audit and Risk Management Committee, the Nomination and Governance Committee, the Personnel and Compensation Committee, and the Public Affairs Committee of the Board are also available under the "Corporate Governance" page, or by writing to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd floor, New York, New York 10043.
Controls and procedures
Disclosure
The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed under the Exchange Act securities laws is accumulated and communicated to the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The Company's Disclosure Committee is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Company's external disclosures.
The Company's management, with the participation of the Company's CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 20062007 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company's disclosure controls and procedures were effective.
Financial reportingReporting
The Company'sinternal control over financial reporting is a process under the supervision of the CEO and CFO, and effected by Citigroup's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. These controls include policies and procedures that
Citigroup has had a longstanding process whereby business and financial officers throughout the Company attest to the accuracy of financial information reported in corporate systems, as well as the effectiveness of internal controls over financial reporting and disclosure processes.
Company management is responsible for establishing and maintaining adequate internal control over financial reporting. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management's authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to see that information and communication flows are effective and to monitor performance, including performance of internal control procedures.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
There were no changes in the Company's internal control over financial reporting during the fiscal quarter ended September 30, 20062007 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, the Company uses certain forward-looking statements when describing future business conditions. The Company's actual results may differ materially from those included in the forward-looking statements and are indicated by words such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could."
These forward-looking statements involve external risks and uncertainties including, but not limited, to those described in the Company's 20052006 Annual Report on Form 10-K section entitled "Risk Factors": economic conditions,conditions; credit, market and liquidity risk, competition,risk; competition; country risk,risk; operational risk,risk; U.S. fiscal policies, reputationpolicies; reputational and legal riskrisk; and certain regulatory considerations. Risks and uncertainties disclosed in this 10-Q include, but are not limited to:
Page No. | |||
---|---|---|---|
Financial Statements: | |||
Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended September 30, | 50 | ||
Consolidated Balance Sheet—September 30, | 51 | ||
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—Nine Months Ended September 30, | 52 | ||
Consolidated Statement of Cash Flows (Unaudited)—Nine Months Ended | 53 | ||
Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries September 30, and December 31, | 54 | ||
Notes to Consolidated Financial Statements (Unaudited): | |||
Note 1—Basis of Presentation | 55 | ||
Note 2—Discontinued Operations | 57 | ||
Note | 59 | ||
Note 4— | |||
59 | |||
Note | 60 | ||
Note 6—Retirement Benefits | 60 | ||
Note 7— | 62 | ||
Note 8— | |||
63 | |||
Note | 63 | ||
Note | 64 | ||
Note 11—Investments | 65 | ||
Note 12— | 66 | ||
Note 13— | |||
68 | |||
Note 14—Changes in Accumulated Other Comprehensive Income (Loss) ("AOCI") | 74 | ||
Note 15— | 75 | ||
Note 16—Fair Value | 77 | ||
Note | 88 | ||
Note 18—Contingencies | 91 | ||
Note 19—Citibank, N.A. and Subsidiaries Statement of Changes in Stockholder's Equity (Unaudited) | 92 | ||
Note 20—Condensed Consolidating Financial Statement Schedules | 93 | ||
Note 21—Fourth Quarter of 2007 Subsequent Event | 102 |
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | |||||||||||||||||||||||||
2006 | 2005(1) | 2006(1) | 2005(1) | 2007 | 2006(1) | 2007 | 2006(1) | ||||||||||||||||||
Revenues | |||||||||||||||||||||||||
Interest revenue | $ | 24,729 | $ | 19,344 | $ | 70,174 | $ | 55,313 | $ | 32,961 | $ | 24,729 | $ | 91,691 | $ | 70,174 | |||||||||
Interest expense | 14,901 | 9,649 | 40,725 | 25,741 | 20,804 | 14,901 | 57,538 | 40,725 | |||||||||||||||||
Net interest revenue | $ | 9,828 | $ | 9,695 | $ | 29,449 | $ | 29,572 | $ | 12,157 | $ | 9,828 | $ | 34,153 | $ | 29,449 | |||||||||
Insurance premiums | $ | 819 | $ | 743 | $ | 2,389 | $ | 2,271 | |||||||||||||||||
Commissions and fees | 4,007 | 4,825 | 14,526 | 13,012 | $ | 4,053 | $ | 3,920 | $ | 16,287 | $ | 14,321 | |||||||||||||
Principal transactions | 1,927 | 1,950 | 5,747 | 5,009 | (244 | ) | 2,014 | 5,553 | 5,952 | ||||||||||||||||
Administration and other fiduciary fees | 1,670 | 1,522 | 5,082 | 4,518 | 2,468 | 1,670 | 6,658 | 5,082 | |||||||||||||||||
Realized gains (losses) from sales of investments | 304 | 284 | 985 | 982 | 263 | 304 | 855 | 985 | |||||||||||||||||
Insurance premiums | 893 | 819 | 2,577 | 2,389 | |||||||||||||||||||||
Other revenue | 2,867 | 2,479 | 7,609 | 7,499 | 2,803 | 2,867 | 8,399 | 7,609 | |||||||||||||||||
Total non-interest revenues | $ | 11,594 | $ | 11,803 | $ | 36,338 | $ | 33,291 | $ | 10,236 | $ | 11,594 | $ | 40,329 | $ | 36,338 | |||||||||
Total revenues, net of interest expense | $ | 21,422 | $ | 21,498 | $ | 65,787 | $ | 62,863 | $ | 22,393 | $ | 21,422 | $ | 74,482 | $ | 65,787 | |||||||||
Provision for credit losses and for benefits and claims | |||||||||||||||||||||||||
Provision for loan losses | $ | 1,793 | $ | 2,525 | $ | 4,625 | $ | 6,058 | $ | 4,776 | $ | 1,793 | $ | 10,002 | $ | 4,625 | |||||||||
Policyholder benefits and claims | 274 | 215 | 732 | 644 | 236 | 274 | 694 | 732 | |||||||||||||||||
Provision for unfunded lending commitments | 50 | 100 | 250 | 200 | 50 | 50 | 50 | 250 | |||||||||||||||||
Total provision for credit losses and for benefits and claims | $ | 2,117 | $ | 2,840 | $ | 5,607 | $ | 6,902 | $ | 5,062 | $ | 2,117 | $ | 10,746 | $ | 5,607 | |||||||||
Operating expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | 6,718 | $ | 6,792 | $ | 22,355 | $ | 19,311 | $ | 7,730 | $ | 6,718 | $ | 25,351 | $ | 22,355 | |||||||||
Net occupancy expense | 1,435 | 1,270 | 4,228 | 3,782 | 1,748 | 1,435 | 4,880 | 4,228 | |||||||||||||||||
Technology/communication expense | 948 | 892 | 2,768 | 2,642 | 1,166 | 948 | 3,288 | 2,768 | |||||||||||||||||
Advertising and marketing expense | 574 | 587 | 1,829 | 1,848 | 800 | 574 | 2,184 | 1,829 | |||||||||||||||||
Restructuring expense | 35 | — | 1,475 | — | |||||||||||||||||||||
Other operating expenses | 2,261 | 1,872 | 6,883 | 6,206 | 3,082 | 2,261 | 7,809 | 6,883 | |||||||||||||||||
Total operating expenses | $ | 11,936 | $ | 11,413 | $ | 38,063 | $ | 33,789 | $ | 14,561 | $ | 11,936 | $ | 44,987 | $ | 38,063 | |||||||||
Income from continuing operations before income taxes and minority interest | $ | 7,369 | $ | 7,245 | $ | 22,117 | $ | 22,172 | $ | 2,770 | $ | 7,369 | $ | 18,749 | $ | 22,117 | |||||||||
Provision for income taxes | 2,020 | 2,164 | 5,860 | 6,827 | 538 | 2,020 | 5,109 | 5,860 | |||||||||||||||||
Minority interest, net of taxes | 46 | 93 | 137 | 511 | 20 | 46 | 190 | 137 | |||||||||||||||||
Income from continuing operations | $ | 5,303 | $ | 4,988 | $ | 16,120 | $ | 14,834 | $ | 2,212 | $ | 5,303 | $ | 13,450 | $ | 16,120 | |||||||||
Discontinued operations | |||||||||||||||||||||||||
Income from discontinued operations | $ | 26 | $ | 49 | $ | 27 | $ | 1,025 | $ | — | $ | 26 | $ | — | $ | 27 | |||||||||
Gain on sale | 198 | 3,386 | 219 | 3,386 | — | 198 | — | 219 | |||||||||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes | 22 | 1,280 | (43 | ) | 1,588 | — | 22 | — | (43 | ) | |||||||||||||||
Income from discontinued operations, net of taxes | $ | 202 | $ | 2,155 | $ | 289 | $ | 2,823 | $ | — | $ | 202 | $ | — | $ | 289 | |||||||||
Net income | $ | 5,505 | $ | 7,143 | $ | 16,409 | $ | 17,657 | $ | 2,212 | $ | 5,505 | $ | 13,450 | $ | 16,409 | |||||||||
Basic earnings per share(2) | |||||||||||||||||||||||||
Income from continuing operations | $ | 1.08 | $ | 0.98 | $ | 3.28 | $ | 2.90 | $ | 0.45 | $ | 1.08 | $ | 2.74 | $ | 3.28 | |||||||||
Income from discontinued operations, net of taxes | 0.04 | 0.43 | 0.06 | 0.55 | — | 0.04 | — | 0.06 | |||||||||||||||||
Net Income | $ | 1.13 | $ | 1.41 | $ | 3.34 | $ | 3.45 | |||||||||||||||||
Net income | $ | 0.45 | $ | 1.13 | $ | 2.74 | $ | 3.34 | |||||||||||||||||
Weighted average common shares outstanding | 4,875.5 | 5,058.3 | 4,898.4 | 5,103.6 | 4,916.1 | 4,875.5 | 4,897.1 | 4,898.4 | |||||||||||||||||
Diluted earnings per share | |||||||||||||||||||||||||
Diluted earnings per share(2) | |||||||||||||||||||||||||
Income from continuing operations | $ | 1.06 | $ | 0.97 | $ | 3.22 | $ | 2.85 | $ | 0.44 | $ | 1.06 | $ | 2.69 | $ | 3.22 | |||||||||
Income from discontinued operations, net of taxes | 0.04 | 0.41 | 0.06 | 0.54 | — | 0.04 | — | 0.06 | |||||||||||||||||
Net income | $ | 1.10 | $ | 1.38 | $ | 3.28 | $ | 3.39 | $ | 0.44 | $ | 1.10 | $ | 2.69 | $ | 3.28 | |||||||||
Adjusted weighted average common shares outstanding | 4,978.6 | 5,146.0 | 4,992.2 | 5,193.4 | 5,010.9 | 4,978.6 | 4,990.6 | 4,992.2 | |||||||||||||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In millions of dollars, except shares | September 30, 2007 | December 31, 2006 | ||||||
---|---|---|---|---|---|---|---|---|
| (Unaudited) | | ||||||
Assets | ||||||||
Cash and due from banks (including segregated cash and other deposits) | $ | 38,226 | $ | 26,514 | ||||
Deposits at interest with banks | 58,713 | 42,522 | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $125,329 at fair value as of September 30, 2007) | 383,217 | 282,817 | ||||||
Brokerage receivables | 69,062 | 44,445 | ||||||
Trading account assets (including $150,068 and $125,231 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 581,220 | 393,925 | ||||||
Investments (including $16,899 and $16,355 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 240,828 | 273,591 | ||||||
Loans, net of unearned income | ||||||||
Consumer | 570,891 | 512,921 | ||||||
Corporate (including $2,771 and $384 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 203,078 | 166,271 | ||||||
Loans, net of unearned income | $ | 773,969 | $ | 679,192 | ||||
Allowance for loan losses | (12,728 | ) | (8,940 | ) | ||||
Total loans, net | $ | 761,241 | $ | 670,252 | ||||
Goodwill | 39,949 | 33,415 | ||||||
Intangible assets | 23,651 | 15,901 | ||||||
Other assets (including $22,788 at fair value as of September 30, 2007) | 162,159 | 100,936 | ||||||
Total assets | $ | 2,358,266 | $ | 1,884,318 | ||||
Liabilities | ||||||||
Non-interest-bearing deposits in U.S. offices | $ | 38,842 | $ | 38,615 | ||||
Interest-bearing deposits in U.S. offices (including $1,160 and $366 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 211,147 | 195,002 | ||||||
Non-interest-bearing deposits in offices outside the U.S. | 43,052 | 35,149 | ||||||
Interest-bearing deposits in offices outside the U.S. (including $2,301 and $472 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 519,809 | 443,275 | ||||||
Total deposits | $ | 812,850 | $ | 712,041 | ||||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $313,353 at fair value as of September 30, 2007) | 440,369 | 349,235 | ||||||
Brokerage payables | 94,830 | 85,119 | ||||||
Trading account liabilities | 215,623 | 145,887 | ||||||
Short-term borrowings (including $9,261 and $2,012 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 194,304 | 100,833 | ||||||
Long-term debt (including $31,805 and $9,439 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 364,526 | 288,494 | ||||||
Other liabilities (including $947 at fair value as of September 30, 2007) | 108,651 | 82,926 | ||||||
Total liabilities | $ | 2,231,153 | $ | 1,764,535 | ||||
Stockholders' equity | ||||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 200 | $ | 1,000 | ||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares—5,477,416,086 shares at September 30, 2007 and at December 31, 2006 | 55 | 55 | ||||||
Additional paid-in capital | 18,297 | 18,253 | ||||||
Retained earnings | 134,445 | 129,267 | ||||||
Treasury stock, at cost:September 30, 2007—496,281,812 shares and December 31, 2006—565,422,301 shares | (22,329 | ) | (25,092 | ) | ||||
Accumulated other comprehensive income (loss) | (3,555 | ) | (3,700 | ) | ||||
Total stockholders' equity | $ | 127,113 | $ | 119,783 | ||||
Total liabilities and stockholders' equity | $ | 2,358,266 | $ | 1,884,318 | ||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
In millions of dollars, except shares | September 30, 2006 (Unaudited) | December 31, 2005(1) | ||||||
---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Cash and due from banks (including segregated cash and other deposits) | $ | 22,543 | $ | 23,632 | ||||
Deposits at interest with banks | 33,939 | 31,645 | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | 262,627 | 217,464 | ||||||
Brokerage receivables | 40,970 | 42,823 | ||||||
Trading account assets (including $104,375 and $92,495 pledged to creditors at September 30, 2006 and December 31, 2005, respectively) | 351,149 | 295,820 | ||||||
Investments (including $18,221 and $15,819 pledged to creditors at September 30, 2006 and December 31, 2005, respectively) | 251,748 | 180,597 | ||||||
Loans, net of unearned income | ||||||||
Consumer | 488,673 | 454,620 | ||||||
Corporate (including $491 at September 30, 2006 at fair value) | 166,709 | 128,883 | ||||||
Loans, net of unearned income | $ | 655,382 | $ | 583,503 | ||||
Allowance for loan losses | (8,979 | ) | (9,782 | ) | ||||
Total loans, net | $ | 646,403 | $ | 573,721 | ||||
Goodwill | 33,169 | 33,130 | ||||||
Intangible assets | 15,725 | 14,749 | ||||||
Other assets | 87,975 | 80,456 | ||||||
Total assets | $ | 1,746,248 | $ | 1,494,037 | ||||
Liabilities | ||||||||
Non-interest-bearing deposits in U.S. offices | $ | 36,358 | $ | 36,638 | ||||
Interest-bearing deposits in U.S. offices (including $238 at September 30, 2006 at fair value) | 183,467 | 169,277 | ||||||
Non-interest-bearing deposits in offices outside the U.S. | 32,721 | 32,614 | ||||||
Interest-bearing deposits in offices outside the U.S. (including $296 at September 30, 2006 at fair value) | 416,732 | 353,299 | ||||||
Total deposits | $ | 669,278 | $ | 591,828 | ||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | 320,095 | 242,392 | ||||||
Brokerage payables | 97,229 | 70,994 | ||||||
Trading account liabilities | 138,876 | 121,108 | ||||||
Short-term borrowings (including $2,558 at September 30, 2006 at fair value) | 70,501 | 66,930 | ||||||
Long-term debt (including $12,048 at September 30, 2006 at fair value) | 260,089 | 217,499 | ||||||
Other liabilities | 72,315 | 70,749 | ||||||
Total liabilities | $ | 1,628,383 | $ | 1,381,500 | ||||
Stockholders' equity | ||||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 1,000 | $ | 1,125 | ||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares-5,477,416,086 shares at September 30, 2006 and at December 31, 2005 | 55 | 55 | ||||||
Additional paid-in capital | 17,825 | 17,483 | ||||||
Retained earnings | 126,544 | 117,555 | ||||||
Treasury stock, at cost:September 30, 2006—563,749,260 shares and December 31, 2005—497,192,288 shares | (24,737 | ) | (21,149 | ) | ||||
Accumulated other changes in equity from nonowner sources | (2,822 | ) | (2,532 | ) | ||||
Total stockholders' equity | $ | 117,865 | $ | 112,537 | ||||
Total liabilities and stockholders' equity | $ | 1,746,248 | $ | 1,494,037 | ||||
| Nine Months Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars, except shares in thousands | |||||||
2007 | 2006 | ||||||
Preferred stock at aggregate liquidation value | |||||||
Balance, beginning of period | $ | 1,000 | $ | 1,125 | |||
Redemption or retirement of preferred stock | (800 | ) | (125 | ) | |||
Balance, end of period | $ | 200 | $ | 1,000 | |||
Common stock and additional paid-in capital | |||||||
Balance, beginning of period | $ | 18,308 | $ | 17,538 | |||
Employee benefit plans | (74 | ) | 341 | ||||
Issuance of shares for Grupo Cuscatlan acquisition | 118 | — | |||||
Other | — | 1 | |||||
Balance, end of period | $ | 18,352 | $ | 17,880 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 129,267 | $ | 117,555 | |||
Adjustment to opening balance, net of tax(1) | (186 | ) | — | ||||
Adjusted balance, beginning of period | $ | 129,081 | $ | 117,555 | |||
Net income | 13,450 | 16,409 | |||||
Common dividends(2) | (8,043 | ) | (7,371 | ) | |||
Preferred dividends | (43 | ) | (49 | ) | |||
Balance, end of period | $ | 134,445 | $ | 126,544 | |||
Treasury stock, at cost | |||||||
Balance, beginning of period | $ | (25,092 | ) | $ | (21,149 | ) | |
Issuance of shares pursuant to employee benefit plans | 2,763 | 2,406 | |||||
Treasury stock acquired(3) | (663 | ) | (6,000 | ) | |||
Issuance of shares for Grupo Cuscatlan acquisition | 637 | — | |||||
Other | 26 | 6 | |||||
Balance, end of period | $ | (22,329 | ) | $ | (24,737 | ) | |
Accumulated other comprehensive income (loss) | |||||||
Balance, beginning of period | $ | (3,700 | ) | $ | (2,532 | ) | |
Adjustment to opening balance, net of tax(4) | 149 | — | |||||
Adjusted balance, beginning of period | $ | (3,551 | ) | $ | (2,532 | ) | |
Net change in unrealized gains and losses on investment securities, net of tax | (410 | ) | (83 | ) | |||
Net change in cash flow hedges, net of tax | (1,396 | ) | (680 | ) | |||
Net change in foreign currency translation adjustment, net of tax | 1,558 | 474 | |||||
Pension liability adjustment, net of tax | 244 | (1 | ) | ||||
Net change in Accumulated other comprehensive income (loss) | $ | (4 | ) | $ | (290 | ) | |
Balance, end of period | $ | (3,555 | ) | $ | (2,822 | ) | |
Total common stockholders' equity (shares outstanding: 4,981,134 at September 30, 2007 and 4,971,241 at December 31, 2006) | $ | 126,913 | $ | 116,865 | |||
Total stockholders' equity | $ | 127,113 | $ | 117,865 | |||
Comprehensive income | |||||||
Net income | $ | 13,450 | $ | 16,409 | |||
Net change in Accumulated other comprehensive income (loss) | (4 | ) | (290 | ) | |||
Total comprehensive income | $ | 13,446 | $ | 16,119 | |||
See Notes 1 and 16 on pages 55 and 77, respectively.
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||
2007 | 2006(1) | |||||||
Cash flows from operating activities of continuing operations | ||||||||
Net income | $ | 13,450 | $ | 16,409 | ||||
Income from discontinued operations, net of taxes and minority interest | — | 289 | ||||||
Income from continuing operations | $ | 13,450 | $ | 16,120 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 281 | 212 | ||||||
Additions to deferred policy acquisition costs | (358 | ) | (279 | ) | ||||
Depreciation and amortization | 1,808 | 1,833 | ||||||
Provision for credit losses | 10,052 | 4,875 | ||||||
Change in trading account assets | (150,371 | ) | (55,329 | ) | ||||
Change in trading account liabilities | 54,434 | 17,768 | ||||||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | (71,008 | ) | (45,163 | ) | ||||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | 79,143 | 77,703 | ||||||
Change in brokerage receivables net of brokerage payables | (16,633 | ) | 28,088 | |||||
Net gains from sales of investments | (855 | ) | (985 | ) | ||||
Change in loans held-for-sale | (28,908 | ) | (1,674 | ) | ||||
Other, net | (1,842 | ) | (5,528 | ) | ||||
Total adjustments | $ | (124,257 | ) | $ | 21,521 | |||
Net cash (used in) provided by operating activities of continuing operations | $ | (110,807 | ) | $ | 37,641 | |||
Cash flows from investing activities of continuing operations | ||||||||
Change in deposits at interest with banks | $ | (6,563 | ) | $ | (2,294 | ) | ||
Change in loans | (275,915 | ) | (257,099 | ) | ||||
Proceeds from sales and securitizations of loans | 196,938 | 180,427 | ||||||
Purchases of investments | (202,646 | ) | (212,486 | ) | ||||
Proceeds from sales of investments | 147,573 | 53,740 | ||||||
Proceeds from maturities of investments | 100,577 | 90,163 | ||||||
Capital expenditures on premises and equipment | (2,804 | ) | (2,713 | ) | ||||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,949 | 1,126 | ||||||
Business acquisitions | (15,186 | ) | — | |||||
Net cash used in investing activities of continuing operations | $ | (56,077 | ) | $ | (149,136 | ) | ||
Cash flows from financing activities of continuing operations | ||||||||
Dividends paid | $ | (8,086 | ) | $ | (7,420 | ) | ||
Issuance of common stock | 1,007 | 1,210 | ||||||
Redemption or retirement of preferred stock | (800 | ) | (125 | ) | ||||
Treasury stock acquired | (663 | ) | (6,000 | ) | ||||
Stock tendered for payment of withholding taxes | (926 | ) | (659 | ) | ||||
Issuance of long-term debt | 89,657 | 74,719 | ||||||
Payments and redemptions of long-term debt | (49,989 | ) | (33,705 | ) | ||||
Change in deposits | 84,523 | 78,440 | ||||||
Change in short-term borrowings | 63,063 | 3,571 | ||||||
Net cash provided by financing activities of continuing operations | $ | 177,786 | $ | 110,031 | ||||
Effect of exchange rate changes on cash and cash equivalents | $ | 810 | $ | 375 | ||||
Change in cash and due from banks | $ | 11,712 | $ | (1,089 | ) | |||
Cash and due from banks at beginning of period | $ | 26,514 | $ | 23,632 | ||||
Cash and due from banks at end of period | $ | 38,226 | $ | 22,543 | ||||
Supplemental disclosure of cash flow information for continuing operations | ||||||||
Cash paid during the period for income taxes | $ | 4,623 | $ | 5,387 | ||||
Cash paid during the period for interest | $ | 53,158 | $ | 37,235 | ||||
Non-cash investing activities | ||||||||
Transfers to repossessed assets | $ | 1,539 | $ | 1,017 | ||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
| Nine Months Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars, except shares in thousands | 2006 | 2005(1) | |||||
Preferred stock at aggregate liquidation value | |||||||
Balance, beginning of period | $ | 1,125 | $ | 1,125 | |||
Redemption or retirement of preferred stock | (125 | ) | — | ||||
Balance, end of period | $ | 1,000 | $ | 1,125 | |||
Common stock and additional paid-in capital | |||||||
Balance, beginning of period | $ | 17,538 | $ | 16,960 | |||
Employee benefit plans | 341 | 679 | |||||
Other | 1 | 52 | |||||
Balance, end of period | $ | 17,880 | $ | 17,691 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 117,555 | $ | 102,154 | |||
Net income | 16,409 | 17,657 | |||||
Common dividends(2) | (7,371 | ) | (6,892 | ) | |||
Preferred dividends | (49 | ) | (51 | ) | |||
Balance, end of period | $ | 126,544 | $ | 112,868 | |||
Treasury stock, at cost | |||||||
Balance, beginning of period | $ | (21,149 | ) | $ | (10,644 | ) | |
Issuance of shares pursuant to employee benefit plans | 2,406 | 1,639 | |||||
Treasury stock acquired(3) | (6,000 | ) | (8,371 | ) | |||
Other | 6 | 86 | |||||
Balance, end of period | $ | (24,737 | ) | $ | (17,290 | ) | |
Accumulated other changes in equity from nonowner sources | |||||||
Balance, beginning of period | $ | (2,532 | ) | $ | (304 | ) | |
Net change in unrealized gains and losses on investment securities, net of tax | (83 | ) | (1,603 | ) | |||
Net change in cash flow hedges, net of tax | (680 | ) | 297 | ||||
Net change in foreign currency translation adjustment, net of tax | 474 | (842 | ) | ||||
Minimum pension liability adjustment, net of tax | (1 | ) | (105 | ) | |||
Balance, end of period | $ | (2,822 | ) | $ | (2,557 | ) | |
Total common stockholders' equity (shares outstanding: 4,913,667 in 2006 and 5,058,979 in 2005) | $ | 116,865 | $ | 110,712 | |||
Total stockholders' equity | $ | 117,865 | $ | 111,837 | |||
Summary of changes in equity from nonowner sources | |||||||
Net income | $ | 16,409 | $ | 17,657 | |||
Other changes in equity from nonowner sources, net of tax | (290 | ) | (2,253 | ) | |||
Total changes in equity from nonowner sources | $ | 16,119 | $ | 15,404 | |||
See Notes to the Unaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005(1) | ||||||
Cash flows from operating activities of continuing operations | ||||||||
Net income | $ | 16,409 | $ | 17,657 | ||||
Income from discontinued operations, net of tax and minority interest | 150 | 703 | ||||||
Gain on sale, net of tax and minority interest | 139 | 2,120 | ||||||
Income from continuing operations | $ | 16,120 | $ | 14,834 | ||||
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations | ||||||||
Depreciation and amortization | $ | 1,833 | $ | 1,718 | ||||
Provision for credit losses | 4,875 | 6,258 | ||||||
Provision for policyholders benefits and claims | 732 | 644 | ||||||
Amortization of deferred policy acquisition costs and present value of future profits | 212 | 204 | ||||||
Additions to deferred policy acquisition costs | (279 | ) | (284 | ) | ||||
Change in trading account assets | (55,329 | ) | (13,995 | ) | ||||
Change in trading account liabilities | 17,768 | 5,321 | ||||||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | (45,163 | ) | (35,366 | ) | ||||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | 77,703 | 35,235 | ||||||
Change in brokerage receivables net of brokerage payables | 28,088 | 4,389 | ||||||
Realized gains from sales of investments | (985 | ) | (982 | ) | ||||
Change in loans held for sale | (1,674 | ) | 1,826 | |||||
Proceeds from collections reinvested in new receivables | 161,800 | 143,500 | ||||||
Venture capital activity | (344 | ) | 451 | |||||
Other, net | (5,887 | ) | (3,640 | ) | ||||
Total adjustments | $ | 183,350 | $ | 145,279 | ||||
Net cash provided by operating activities of continuing operations | $ | 199,470 | $ | 160,113 | ||||
Cash flows from investing activities of continuing operations | ||||||||
Change in deposits at interest with banks | $ | (2,294 | ) | $ | (7,813 | ) | ||
Change in loans | (257,099 | ) | (190,487 | ) | ||||
Proceeds from sales and securitizations of loans | 18,627 | 23,440 | ||||||
Purchases of investments | (212,486 | ) | (152,062 | ) | ||||
Proceeds from sales of investments | 53,740 | 69,321 | ||||||
Proceeds from maturities of investments | 90,163 | 73,723 | ||||||
Other investments, primarily short-term, net | — | (303 | ) | |||||
Capital expenditures on premises and equipment | (2,713 | ) | (2,757 | ) | ||||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,126 | 17,062 | ||||||
Business acquisitions | — | (602 | ) | |||||
Net cash used in investing activities of continuing operations | $ | (310,936 | ) | $ | (170,478 | ) | ||
Cash flows from financing activities of continuing operations | ||||||||
Dividends paid | $ | (7,420 | ) | $ | (6,943 | ) | ||
Issuance of common stock | 1,210 | 895 | ||||||
Redemption or retirement of preferred stock | (125 | ) | — | |||||
Treasury stock acquired | (6,000 | ) | (8,371 | ) | ||||
Stock tendered for payment of withholding taxes | (659 | ) | (627 | ) | ||||
Issuance of long-term debt | 74,719 | 48,028 | ||||||
Payments and redemptions of long-term debt | (33,705 | ) | (35,991 | ) | ||||
Change in deposits | 78,440 | 16,321 | ||||||
Change in short-term borrowings | 3,571 | 1,457 | ||||||
Contractholder fund deposits | 248 | 252 | ||||||
Contractholder fund withdrawals | (277 | ) | (255 | ) | ||||
Net cash provided by financing activities of continuing operations | $ | 110,002 | $ | 14,766 | ||||
Effect of exchange rate changes on cash and cash equivalents | $ | 375 | $ | (346 | ) | |||
Change in cash and due from banks | $ | (1,089 | ) | $ | 4,055 | |||
Cash and due from banks at beginning of period | 23,632 | 20,613 | ||||||
Cash and due from banks at end of period | $ | 22,543 | $ | 24,668 | ||||
Supplemental disclosure of cash flow information for continuing operations | ||||||||
Cash paid during the period for income taxes | $ | 5,387 | $ | 6,252 | ||||
Cash paid during the period for interest | 37,235 | 23,057 | ||||||
Non-cash investing activities | ||||||||
Transfers to repossessed assets | $ | 1,017 | $ | 936 | ||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In millions of dollars, except shares | In millions of dollars, except shares | September 30, 2006 | December 31, 2005(1) | In millions of dollars, except shares | September 30, 2007 | December 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | | (Unaudited) | | ||||||||||
Assets | Assets | Assets | ||||||||||||||
Cash and due from banks | Cash and due from banks | $ | 16,265 | $ | 15,706 | Cash and due from banks | $ | 28,601 | $ | 18,917 | ||||||
Deposits at interest with banks | 26,129 | 22,704 | ||||||||||||||
Deposits with banks | Deposits with banks | 46,826 | 38,377 | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | Federal funds sold and securities purchased under agreements to resell | 27,288 | 15,187 | Federal funds sold and securities purchased under agreements to resell | 18,815 | 9,219 | ||||||||||
Trading account assets (including $425 and $600 pledged to creditors at September 30, 2006 and December 31, 2005, respectively) | 99,234 | 86,966 | ||||||||||||||
Investments (including $2,155 and $2,122 pledged to creditors at September 30, 2006 and December 31, 2005, respectively) | 156,398 | 124,147 | ||||||||||||||
Loans, net of unearned income (including $491 at September 30, 2006 at fair value) | 426,970 | 386,565 | ||||||||||||||
Allowance for loan losses | (5,888 | ) | (6,307 | ) | ||||||||||||
Trading account assets (including $347 and $117 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Trading account assets (including $347 and $117 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 182,992 | 103,945 | |||||||||||||
Investments (including $1,969 and $1,953 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Investments (including $1,969 and $1,953 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 178,325 | 215,222 | |||||||||||||
Loans, net of unearned income | Loans, net of unearned income | 645,927 | 558,952 | |||||||||||||
Allowance for loan losses | Allowance for loan losses | (8,262 | ) | (5,152 | ) | |||||||||||
Total loans, net | Total loans, net | $ | 421,082 | $ | 380,258 | Total loans, net | $ | 637,665 | $ | 553,800 | ||||||
Goodwill | Goodwill | 9,493 | 9,093 | Goodwill | 18,805 | 13,799 | ||||||||||
Intangible assets | Intangible assets | 11,897 | 10,644 | Intangible assets | 12,052 | 6,984 | ||||||||||
Premises and equipment, net | Premises and equipment, net | 6,083 | 5,873 | Premises and equipment, net | 7,593 | 7,090 | ||||||||||
Interest and fees receivable | Interest and fees receivable | 5,913 | 5,722 | Interest and fees receivable | 8,773 | 7,354 | ||||||||||
Other assets | Other assets | 36,580 | 30,197 | Other assets | 92,878 | 44,790 | ||||||||||
Total assets | Total assets | $ | 816,362 | $ | 706,497 | Total assets | $ | 1,233,325 | $ | 1,019,497 | ||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||
Non-interest-bearing deposits in U.S. offices | $ | 22,162 | $ | 22,820 | Non-interest-bearing deposits in U.S. offices | $ | 38,524 | $ | 38,663 | |||||||
Interest-bearing deposits in U.S. offices | 116,735 | 112,264 | Interest-bearing deposits in U.S. offices | 176,184 | 167,015 | |||||||||||
Non-interest-bearing deposits in offices outside the U.S. (including $238 at September 30, 2006 at fair value) | 29,376 | 28,738 | Non-interest-bearing deposits in offices outside the U.S. | 39,424 | 31,169 | |||||||||||
Interest-bearing deposits in offices outside the U.S. (including $296 at September 30, 2006 at fair value) | 393,048 | 321,524 | Interest-bearing deposits in offices outside the U.S. | 519,329 | 428,896 | |||||||||||
Total deposits | Total deposits | $ | 561,321 | $ | 485,346 | Total deposits | $ | 773,461 | $ | 665,743 | ||||||
Trading account liabilities | Trading account liabilities | 45,401 | 46,812 | Trading account liabilities | 64,653 | 43,136 | ||||||||||
Purchased funds and other borrowings (including $548 at September 30, 2006 at fair value) | 64,978 | 48,653 | ||||||||||||||
Brokerage payable | 7,200 | — | ||||||||||||||
Purchased funds and other borrowings | Purchased funds and other borrowings | 108,190 | 73,081 | |||||||||||||
Accrued taxes and other expense | Accrued taxes and other expense | 10,158 | 9,047 | Accrued taxes and other expense | 13,541 | 10,777 | ||||||||||
Long-term debt and subordinated notes (including $4,163 at September 30, 2006 at fair value) | 37,194 | 34,404 | ||||||||||||||
Long-term debt and subordinated notes | Long-term debt and subordinated notes | 142,923 | 115,833 | |||||||||||||
Other liabilities | Other liabilities | 27,713 | 25,971 | Other liabilities | 39,345 | 37,774 | ||||||||||
Total liabilities | Total liabilities | $ | 753,965 | $ | 650,233 | Total liabilities | $ | 1,142,113 | $ | 946,344 | ||||||
Stockholder's equity | Stockholder's equity | Stockholder's equity | ||||||||||||||
Capital stock ($20 par value) standing shares: 37,534,553 in each period | $ | 751 | $ | 751 | ||||||||||||
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | $ | 751 | $ | 751 | |||||||||||
Surplus | Surplus | 27,367 | 27,244 | Surplus | 55,607 | 43,753 | ||||||||||
Retained earnings | Retained earnings | 35,602 | 30,651 | Retained earnings | 36,501 | 30,358 | ||||||||||
Accumulated other changes in equity from nonowner sources(2) | (1,323 | ) | (2,382 | ) | ||||||||||||
Accumulated other comprehensive income (loss)(1) | Accumulated other comprehensive income (loss)(1) | (1,647 | ) | (1,709 | ) | |||||||||||
Total stockholder's equity | Total stockholder's equity | $ | 62,397 | $ | 56,264 | Total stockholder's equity | $ | 91,212 | $ | 73,153 | ||||||
Total liabilities and stockholder's equity | Total liabilities and stockholder's equity | $ | 816,362 | $ | 706,497 | Total liabilities and stockholder's equity | $ | 1,233,325 | $ | 1,019,497 | ||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements as of September 30, 20062007 and for the three-andthree- and nine-month periods ended September 30, 20062007 include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries (collectively, the Company). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation, have been reflected. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Citigroup's 20052006 Annual Report on Form 10-K.
Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted.
Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures. While management makes its best judgment, actual results could differ from those estimates.
Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.
Significant Accounting Policies
The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 2006 Annual Report on Form 10-K.
Accounting Changes
Fair Value Measurements (SFAS 157)
The Company elected to early-adopt SFAS 157, "Fair Value Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157 requires, among other things, Citigroup's valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, SFAS 157 precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of publicly-traded equity securities, and requires the recognition of trade-date gains related to certain derivative trades that use unobservable inputs in determining the fair value. This guidance supersedes the guidance in EITF Issue No. 02-3, which prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. The cumulative effect of these two changes resulted in an increase to January 1, 2007 retained earnings of $75 million.
In moving to maximize the use of observable inputs as required by SFAS 157, Citigroup began to reflect external credit ratings as well as other observable inputs when measuring the fair value of our derivative positions. The cumulative effect of making this derivative valuation adjustment was a gain of $250 million after-tax ($402 million pretax, which was recorded in the Markets & Banking business), or $0.05 per diluted share, included in 2007 first quarter earnings. The primary drivers of this change were the requirement that Citigroup include its own credit rating in pricing derivatives and the elimination of a valuation adjustment, which is no longer necessary under SFAS 157.
See Note 16 on page 77 for additional information.
Fair Value Option (SFAS 159)
In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option for most financial assets and liabilities to be reported at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. Under the SFAS 159 transition provisions, the Company has elected to report certain financial instruments and other items at fair value on a contract-by-contract basis, with future changes in value reported in earnings. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that was caused by measuring hedged assets and liabilities that were previously required to use an accounting method other than fair value, while the related economic hedges were reported at fair value.
The adoption of SFAS 159 resulted in a decrease to January 1, 2007 retained earnings of $99 million.
See Note 16 on page 77 for additional information.
Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), which sets out a framework for preparers to use to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured to be the highest tax benefit that is greater than 50 percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity's tax reserves.
Citigroup adopted FIN 48 as of January 1, 2007, resulting in a decrease to January 1, 2007 retained earnings of $14 million.
The total unrecognized tax benefits as of January 1, 2007 were $3.1 billion. There was no material change to this balance during the first, second or third quarters of 2007. The total amount of unrecognized tax benefits as of January 1, 2007 that would affect the effective tax rate was $1.0 billion. The remaining $2.1 billion represents temporary differences or amounts for which offsetting deductions or credits are available in a different taxing jurisdiction. The total amount of interest and penalties recognized in the Consolidated Balance Sheet at January 1, 2007 was approximately $510 million ($320 million net of tax). There was no material change to this balance during the first, second or third quarters of 2007. The Company classifies interest and penalties as income tax expense. The Company is currently under audit by the IRS and other major taxing jurisdictions around the world. It is thus reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next 12 months (an estimate of the range of such gross changes cannot be made), but the Company does not expect such audits to result in amounts that would cause a significant change to its effective tax rate.
The following are the major tax jurisdictions in which the Company and its affiliates operate and the earliest tax year subject to examination:
Jurisdiction | Tax year | ||
---|---|---|---|
United States | 2003 | ||
Mexico | 2004 | ||
New York State and City | 2005 | (1) | |
United Kingdom | 1998 | ||
Germany | 2000 | ||
Korea | 2001 |
Leveraged Leases
On January 1, 2007, the Company adopted FASB Staff Position FAS No. 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction" (FSP 13-2), which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.
Leveraged leases can provide significant tax benefits to the lessor, primarily as a result of the timing of tax payments. Since changes in the timing and/or amount of these tax benefits may have a significant effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. Previously, Citigroup did not recalculate the tax benefits if only the timing of cash flows had changed.
The adoption of FSP 13-2 resulted in a decrease to January 1, 2007 retained earnings of $148 million. This decrease to retained earnings will be recognized in earnings over the remaining lives of the leases as tax benefits are realized.
Stock-Based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS)SFAS No. 123 (revised 2004), "Share-Based Payment""Share-Based Payment" (SFAS 123(R)), which replacesreplaced the existing SFAS 123 and APB 25, "Accounting"Accounting for Stock Issued to Employees.Employees." SFAS 123(R) requires companies to measure compensation expense for stock options and other share-based payments based on the instruments' grant date fair value, and to record expense based on that fair value reduced by expected forfeitures.
The Company adopted this standard by using the modified prospective approach. Beginning January 1, 2006, Citigroup recorded incremental expense for stock options granted prior to January 1, 2003 (the date the Company adopted SFAS 123). That expense will equal the remaining unvested portion of the grant-date fair value of those stock options, reduced by estimated forfeitures. The Company recorded incremental compensation expense of $19 million in the 2006 first quarter, $12 million in the 2006 second quarter, and $6 million in the 2006 third quarter. Based on current estimates, the incremental charges for the remaining quarter of 2006 and all of 2007 are pretax $6 million and $11 million, respectively.
The Company maintains a number of incentive programs in which equity awards are granted to eligible employees. The most significant of the programs offered is the Capital Accumulation Program (CAP). Under the CAP program, the Company grants deferred and restricted shares to eligible employees. The program provides that employees who meet certain age plus years-of-service requirements (retirement-eligible employees) may terminate active employment and continue vesting in their awards provided they comply with specified non-compete provisions. For awards granted to retirement-eligible employees prior to the adoption of SFAS 123(R), the Company has been and will continue to amortize the compensation cost of these awards over the full vesting periods. Awards granted to retirement-eligible employees after the adoption of SFAS 123(R) must be either expensed on the grant date or accrued in the year 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$824 million ($122526 million after-tax) for the quarterly accrual of the estimated awards that will bewere granted in January 2007. In the 2006 second quarter, the accrual for estimated January 2007 awards was $168 million ($104 million after-tax). In the 2006 third quarter, the accrual for estimated January 2007 awards was $195 million ($127 million after-tax). The Company has changed the plan's retirement eligibility for the January 2007 management awards, which impacted the amount of the accrual in the 2006 second and third quarters. The Company will continue to accrue for the estimated awards that will be granted through January 2007 in the fourth quarter of 2006.
In adopting SFAS 123(R), the Company began to recognize compensation expense for restricted or deferred stock awards net of estimated forfeitures. Previously, the effects of forfeitures were recorded as they occurred.
Accounting for Certain Hybrid Financial Instruments
On January 1, 2006, the Company elected to early-adopt, primarily on a prospective basis, SFAS No. 155, "Accounting"Accounting for Certain Hybrid Financial Instruments.Instruments" (SFAS 155). In accordance with this standard, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments—may be accounted for at fair value withif the changeCompany makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. The impact of adopting this standard was not material.
Accounting for Servicing of Financial Assets
On January 1, 2006, Thethe Company elected to early-adopt SFAS No. 156, "Accounting"Accounting for Servicing of Financial Assets.Assets" (SFAS 156). This pronouncement requires all servicing rights to be initially recognized at fair value. Subsequent to initial recognition, it permits ana one-time irrevocable election to remeasure each class of servicing rights at fair value, with the changes in the fair value being recorded in current earnings. The companyclasses of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. The Company has elected to adopt this standardfair value accounting for its U.S. prime mortgage and student loan classes of servicing rights. The impact of adopting this standard was not material.
Accounting for Conditional Asset Retirement Obligations
On December 31, 2005, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" (FIN 47). The Interpretation requires entities to estimate and recognize a liability for costs associated with the retirement or removal of an asset from service, regardless of the uncertainty of timing or whether performance will be required. For Citigroup, this applies to certain real estate restoration activities in the Company's branches and office space, most of which is rented under operating lease agreements.
Local market practices and requirements with regard to restoration activity under a real estate lease agreement differ by region. Based on a review of active lease terms and conditions, historical costs of past restorations activities, and local market practices, an estimate of the expected real estate restoration costs for some of the Company's branches and office space was determined. Each region applied local inflation and discount rates to determine the present value of the liability and capitalized asset amounts.
The impact of adopting this interpretation was an increase to total liabilities and total assets of $150 million and $122 million, respectively. The increase in total assets is net of an increase in accumulated depreciation of $52 million. In addition, a $49 million after-tax ($80 million pretax) charge to earnings, which was reported on the Consolidated Statement of Income as the cumulative effect of an accounting change, was recorded in the 2005 fourth quarter.
Accounting for Certain Loans or Debt Securities Acquired in a Transfer
On January 1, 2005, Statement of Position (SOP) No. 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer" (SOP 03-3), was adopted for loan acquisitions. SOP 03-3 requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3.
SOP 03-3 limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor's initial investment in the loan. The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loan's yield over its remaining life. Decreases in expected cash flows are recognized as impairments.
Determining the Variability in a Potential VIE
The FASB issued FASB Staff Position FIN 46(R)-6, "Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)" (FSP FIN 46(R)-6), in April 2006. FSP FIN 46(R)-6 addresses the application of FIN 46(R), "Consolidation of Variable Interest Entities," in determining whether certain contracts or arrangements with a variable interest entity (VIE) are variable interests by requiring companies to base such evaluations on an analysis of the VIE's purpose and design, rather than its legal form or accounting classification.
FSP FIN 46(R)-6 is required to be applied for all reporting periods beginning after June 15, 2006. The adoption of the FSP did not result in material differences from Citigroup's existing accounting policies regarding the consolidation of VIEs.
Future Application of Accounting Standards
Accounting for Uncertainty in Income TaxesInvestment Company Audit Guide (SOP 07-1)
In July 2006,2007, the AICPA issued Statement of Position 07-1,Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP 07-1), which was expected to be effective for fiscal years beginning on or after December 15, 2007. However, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes," which attemptshas recently proposed to set out a consistent framework for preparersdelay the effective date indefinitely. The proposal to use to determinedelay the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefiteffectiveness is recognized if a position is more-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than fifty percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity's tax reserves. Citigroup will be required to adopt this Interpretation as of January 1, 2007. The Company is still evaluating the impact of the adoption of FIN 48.
Leveraged Leases
On July 13, 2006, the FASB issued a Staff Position, "Accountingexposed for a Change30-day comment period. SOP 07-1 sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. In addition, SOP 07-1 establishes new criteria for a parent company or Projected Changeequity method investor to retain investment company accounting in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction" (FSP 13-2), which provides guidance regarding changes or projectedtheir consolidated financial statements. Investment companies record all their investments at fair value with changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.
Leveraged leases can provide significant tax benefits to the lessor. Since changesvalue reflected in the timing and/or amount of these tax benefits may have a material effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. Currently, Citigroup does not recalculate the tax benefits if only the timing of cash receipts has changed.
The effective date of FSP 13-2 for Citigroup is January 1, 2007. Citigroup expects the cumulative effect of adopting FSP 13-2 to be a decrease to retained earnings of $152 million after-tax ($255 million pretax).
Fair Value Measurements (SFAS 157)
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157). This Standard defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. In addition, SFAS No. 157 disallows the use of block discounts and supercedes the guidance in EITF 02-3, which prohibited the recognition of day-1 gains on certain derivative trades when determining the fair value of instruments traded in an active market. With the adoption of this Standard, these changes will be reflected as a cumulative effect adjustment to the opening balance of retained earnings. The Standard also requires Citigroup to reflect its own credit standing when measuring the fair value of debt it has issued, including derivatives, prospectively from the date of adoption.
SFAS No. 157 is effective for Citigroup's fiscal year beginning January 1, 2008, with earlier adoption permitted for the Company's fiscal year beginning January 1, 2007. The Company is currently evaluating the potential impact of adopting this Standard.
Accounting for Defined Benefit Pensions and Other Postretirement BenefitsSOP 07-1.
In September 2006, the FASB issued SFAS No. 158, "Employer's Accounting for Defined Benefit Pensions and Other Postretirement Benefits" (SFAS No. 158). In accordance with SFAS No. 158, effective December 31, 2006, Citigroup must record the funded status of each of its defined benefit pension and postretirement plans on its balance sheet with the corresponding offset, net of taxes, recorded in Accumulated Other Changes in Equity From Nonowner Sources within Stockholders' Equity. It is estimated that the impact of adopting this standard will be a reduction of approximately $2.2 billion in Citigroup's year-end Stockholders' Equity.
EITF Issues Relating To Insurance Assets and Liabilities
The EITF has recently issued EITF 06-5, "Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,Accounting for Purchases of Life Insurance." Although the Company is currently evaluating the impact of adopting this Standard, it is not expected to be significant.
Potential Amendments to Various Current Accounting Standards
The FASB is currently working on amendments to the existing accounting standards governing asset transfers and fair value measurements in business combinations and impairment tests. Upon completion of these standards, the Company will need to reevaluate its accounting and disclosures. Due to the ongoing deliberations of the standard setters, the Company is unable to accurately determine the effect of future amendments or proposals at this time.
2. Business Developments
Acquisition of Grupo Financiero Uno
On October 27, 2006, Citigroup announced that it had reached a definitive agreement to acquire Grupo Financiero Uno (GFU), the largest credit card issuer in Central America, and its affiliates. The acquisition of GFU, with $2.1 billion in assets, will expand the presence of Citigroup's Latin America consumer franchise, enhancing its credit card business in the region and establishing a platform for regional growth in consumer finance and retail banking.
GFU is privately held and has more than one million retail clients, representing 1.1 million credit card accounts, $1.2 billion in credit card receivables and $1.3 billion in deposits in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama as of September 30, 2006. GFU operates a distribution network of 75 branches and more than 100 mini-branches and points of sale.
The transaction, which is subject to regulatory approvals in the United States and each of the five countries, is anticipated to close in the 2007 first quarter.
Purchase of 20% Equity Interest in Akbank
On October 17, 2006, the Company announced that it had signed a definitive agreement for the purchase of a 20% equity interest in Akbank for approximately $3.1 billion. Akbank, the second-largest privately-owned bank by assets in Turkey, is a premier, full-service retail, commercial, corporate and private bank.
Sabanci Holding, a 34% owner of Akbank shares, and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Subject to certain exceptions, Citigroup has agreed not to acquire additional shares in Akbank.
The transaction, which is subject to shareholder and regulatory approvals, is expected to close during the 2006 fourth quarter or 2007 first quarter and will be accounted for under the equity method.
Consolidation of Brazil's Credicard
In April 2006, Citigroup and Banco Itau dissolved their joint venture in Credicard, a Brazil consumer credit card business. In accordance with the dissolution agreement, Banco Itau received half of Credicard's assets and customer accounts in exchange for its 50% ownership, leaving Citigroup as the sole owner of Credicard.
Beginning April 30, 2006, Credicard's financial statements were consolidated with Citigroup. Previously, Citigroup reported its interest in Credicard using the equity method of consolidation. Accordingly, our net investment was included in Other assets.
Acquisition of Federated Credit Card Portfolio and Credit Card Agreement With Federated Department Stores
In June 2005, Citigroup announced a long-term agreement with Federated Department Stores, Inc. (Federated) under which the companies partner to manage approximately $6.2 billion of Federated's credit card receivables, including existing and new accounts, executed in three phases.
For the first phase, which closed in October 2005, Citigroup acquired Federated's receivables under management, totaling approximately $3.3 billion. For the second phase, which closed in May 2006, additional Federated receivables totaling approximately $1.9 billion were transferred to Citigroup from the previous provider. For the final phase, in the 2006 third quarter, Citigroup acquired approximately $1.0 billion credit card receivable portfolio of The May Department Stores Company (May), which merged with Federated.
Citigroup paid a premium of approximately 11.5% to acquire these portfolios. The multi-year agreement also provides Federated the ability to participate in the portfolio performance, based on credit sales and certain other performance metrics.
The Federated and May credit card portfolios comprise a total of approximately 17 million active accounts.
3. Discontinued Operations
Sale of the Asset Management Business
On December 1, 2005, the Company completed the sale of substantially all of its Asset Management Business, which had total assets of approximately $1.4 billion and liabilities of approximately $0.6 billion at the closing date, to Legg Mason, Inc. (Legg Mason) in exchange for Legg Mason's broker-dealer business,and capital markets businesses, $2.298 billion of Legg Mason's common and preferred shares (valued as of the closing date), and $500 million in cash. This cash was obtained via a lending facility provided by Citigroup Corporate and Investment Banking. The transaction did 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 the transaction at the time of closing was approximately $4.369 billion, resulting in an after-tax gain to Citigroup of approximately $2.082 billion ($3.404 billion pretax).
Concurrently, Citigroup sold Legg Mason's Capital Markets business to Stifel Financial Corp. The business consisted of areaspretax, which was reported in which Citigroup already had full capabilities, including investment banking, institutional equity sales and trading, taxable fixed income sales and trading, and research. No gain or loss was recognized from this transaction.discontinued operations). (The transactions described in these two paragraphsabove are referred to as the "Sale of the Asset Management Business.")
In connection with this sale, Citigroup and Legg Mason 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 and Citigroup's suitability standards and product requirements.
Upon completion of the Sale of the Asset Management Business, Citigroup added 1,226 financial advisors in 124 branch offices from Legg Mason to its Global Wealth Management Business.
Results for all of the businesses included in the Sale of the Asset Management Business, including the gain, are reported as Discontinued Operations for all periods presented. Changes in the market value of the Legg Mason common and preferred shares since the closing of the transaction 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). Any effects on the Company's current earnings related to these securities, such as dividend revenue, are included in the results of Alternative Investments.
The following is summarized financial information for discontinued operations, including cash flows, related to the Sale of the Asset Management Business:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | ||||||||
Total revenues, net of interest expense | $ | 83 | $ | 324 | $ | 104 | $ | 984 | ||||
Income (loss) from discontinued operations | $ | — | $ | 100 | $ | (1 | ) | $ | 285 | |||
Gain on sale | 83 | — | 104 | — | ||||||||
Provision for income taxes and minority interest, net of taxes | 17 | 34 | 24 | 104 | ||||||||
Income from discontinued operations, net of taxes | $ | 66 | $ | 66 | $ | 79 | $ | 181 | ||||
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | ||||||
Cash flows from: | ||||||||
Operating activities | $ | — | $ | (243 | ) | |||
Investing activities | — | 192 | ||||||
Financing activities | — | — | ||||||
Net cash used in discontinued operations | $ | — | $ | (51 | ) | |||
The following is a summary of the assets and liabilities of discontinued operations related to the Sale of the Asset Management Business as of December 1, 2005:
In millions of dollars | December 1, 2005 | ||
---|---|---|---|
Assets | |||
Cash and due from banks | $ | 96 | |
Investments | 3 | ||
Intangible assets | 776 | ||
Other assets | 563 | ||
Total assets | $ | 1,438 | |
Liabilities | |||
Other liabilities | $ | 575 | |
Total liabilities | $ | 575 | |
On January 31, 2006, the Company completed the sale of its Asset Management Business within Bank Handlowy (an indirect banking subsidiary of Citigroup located in Poland) to Legg Mason, Inc.Mason. This transaction, which was originally part of the overall Asset Management Business sold to Legg Mason Inc. on December 1, 2005, was postponed due to delays in obtaining local regulatory approval. A gain from this sale of $18 million after-tax and minority interest ($3031 million pretax and minority interest) was recognized in the 2006 first quarter of 2006 within Discontinued Operations.discontinued operations.
During March 2006, Citigroupthe Company sold 10.3 million shares of Legg Mason stock through an underwritten public offering. The net sale proceeds of $1.258 billion resulted in a pretax gain of $24 million.
In September 2006, the Company received from Legg Mason the final closing adjustment payment related to this sale. This payment resulted in an additional after-tax gain of $51 million ($83 million pretax), recorded in Discontinued Operations.discontinued operations.
The following is summarized financial information for discontinued operations related to the Sale of the Asset Management Business:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Total revenues, net of interest expense | $ | — | $ | 83 | $ | — | $ | 104 | |||||
Income (loss) from discontinued operations | $ | — | $ | — | $ | — | ($ | 1 | ) | ||||
Gain on sale | — | 83 | — | 104 | |||||||||
Provision for income taxes and minority interest, net of taxes | — | 17 | — | 24 | |||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 66 | $ | — | $ | 79 | |||||
Sale of the Life Insurance & Annuities Business
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 & Annuities Business, which had total assets of approximately $93.2 billion and Annuities business.liabilities of approximately $83.8 billion.
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 ($3.386 billion pretax)., which was reported in discontinued operations.
(The transaction described in the preceding two paragraphs is referred to as the "Sale of the Life Insurance & Annuities Business.")
During the first quarter of 2006, $15 million of the total $657 million federal tax contingency reserve release was reported within discontinued operations as it related to the Life Insurance & Annuities Business sold to MetLife.
In July 2006, Citigroup recognized an $85 million after-tax gain from the sale of MetLife shares. This gain was reported within Incomein income from Continuing Operations withincontinuing operations in the Alternative Investments.Investments business.
In July 2006, the Company received the final closing adjustment payment related to this sale. This payment resultedsale, resulting in an after-tax gain of $75 million ($115 million pretax), which was recorded in Discontinued Operations.discontinued operations.
This transaction encompassed Travelers Life & Annuity's U.S. businesses and its international In addition, during the 2006 third quarter, a release of $42 million of deferred tax liabilities was reported in discontinued operations other than Citigroup's life insurance business in Mexico (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. This transaction also included Citigroup's Argentine pension business. (The transaction described in the preceding three paragraphs is referredas it related to as the "Sale of the Life Insurance and Annuities Business.")
In connection with the Sale of the Life Insurance and& Annuities Business Citigroup and MetLife entered into ten-year agreements under which Travelers Life & Annuity and MetLife products will be made available through certain Citigroup distribution channels.sold to MetLife.
Results for all of the businesses included in the Sale of the Life Insurance and& Annuities Business are reported as Discontinued Operationsdiscontinued operations for all periods presented.
During the 2006 first quarter, $15 million of the total $657 million tax contingency reserve release was reported within Discontinued Operations as it related to the Life & Annuities Business sold to MetLife.
In addition, during 2006 third quarter, a release of $42 million of deferred tax liabilities was reported within Discontinued Operations as it related to the Life & Annuities Business sold to MetLife.
Summarized financial information for discontinued operations, including cash flows, related to the Sale of the Life Insurance and Annuities Business is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | ||||||||
Total revenues, net of interest expense | $ | 115 | $ | 3,386 | $ | 115 | $ | 6,128 | ||||
Income (loss) from discontinued operations | $ | 26 | $ | (51 | ) | $ | 28 | $ | 740 | |||
Gain on sale | 115 | 3,386 | 115 | 3,386 | ||||||||
Provision (benefit) for income taxes | 5 | 1,246 | (23 | ) | 1,484 | |||||||
Income from discontinued operations, net of taxes | $ | 136 | $ | 2,089 | $ | 166 | $ | 2,642 | ||||
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | ||||||
Cash flows from: | ||||||||
Operating activities | $ | — | $ | (2,989 | ) | |||
Investing activities | — | 2,248 | ||||||
Financing activities | — | 763 | ||||||
Net cash provided by discontinued operations | $ | — | $ | 22 | ||||
The following is a summary of the assets and liabilities of discontinued operations related to the Sale of the Life Insurance and& Annuities Business is as of July 1, 2005, the date of the distribution:follows:
In millions of dollars | July 1, 2005 | ||
---|---|---|---|
Assets | |||
Cash and due from banks | $ | 158 | |
Investments | 48,860 | ||
Intangible assets | 86 | ||
Other assets(1) | 44,123 | ||
Total assets | $ | 93,227 | |
Liabilities | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | $ | 971 | |
Other liabilities(2) | 82,842 | ||
Total liabilities | $ | 83,813 | |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Total revenues, net of interest expense | $ | — | $ | 115 | $ | — | $ | 115 | |||||
Income from discontinued operations | $ | — | $ | 26 | $ | — | 28 | ||||||
Gain on sale | — | 115 | — | 115 | |||||||||
Provision (benefit) for income taxes | — | 5 | — | (23 | ) | ||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 136 | $ | — | $ | 166 | |||||
The Spin-offSpin-Off of Travelers Property Casualty Corp. (TPC)
During the 2006 first quarter of 2006, releases from various tax contingency reserves were recorded as the IRS concluded their tax audits for the years 1999 through 2002. Included in these releases was $44 million related to Travelers Property Casualty Corp., which the Company spun off during 2002. This release has been included in the provision for income taxes withinin the results for discontinued operations.
Combined Results for Discontinued Operations
Summarized financial information for the Life Insurance and Annuities Business, the Asset Management Business, and TPC:Travelers Property Casualty Corp. is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
$ | 198 | $ | 3,710 | $ | 219 | $ | 7,112 | $ | — | $ | 198 | $ | — | $ | 219 | ||||||||||
Income from discontinued operations | $ | 26 | $ | 49 | $ | 27 | $ | 1,025 | $ | — | $ | 26 | $ | — | $ | 27 | |||||||||
Gain on sale | 198 | 3,386 | 219 | 3,386 | — | 198 | — | 219 | |||||||||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes | 22 | 1,280 | (43 | ) | 1,588 | — | 22 | — | (43 | ) | |||||||||||||||
Income from discontinued operations, net of taxes | $ | 202 | $ | 2,155 | $ | 289 | $ | 2,823 | $ | — | $ | 202 | $ | — | $ | 289 | |||||||||
The following table presents certain information regarding the Company's continuing operations by segment:
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes(1) | Income (Loss) from Continuing Operations(2) | Identifiable Assets | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, | | | |||||||||||||||||||||
| Sept. 30, 2006 | Dec. 31, 2005 | ||||||||||||||||||||||
In millions of dollars, except identifiable assets in billions | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Global Consumer | $ | 12,834 | $ | 12,321 | $ | 1,312 | $ | 1,153 | $ | 3,195 | $ | 2,723 | $ | 659 | $ | 559 | ||||||||
Corporate and Investment Banking | 6,067 | 6,434 | 598 | 704 | 1,721 | 1,797 | 994 | 839 | ||||||||||||||||
Global Wealth Management | 2,486 | 2,174 | 177 | 165 | 399 | 306 | 62 | 63 | ||||||||||||||||
Alternative Investments | 334 | 720 | 70 | 181 | 117 | 339 | 11 | 13 | ||||||||||||||||
Corporate/Other | (299 | ) | (151 | ) | (137 | ) | (39 | ) | (129 | ) | (177 | ) | 20 | 20 | ||||||||||
Total | $ | 21,422 | $ | 21,498 | $ | 2,020 | $ | 2,164 | $ | 5,303 | $ | 4,988 | $ | 1,746 | $ | 1,494 | ||||||||
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes(1) | Income (Loss) from Continuing Operations(2) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, | ||||||||||||||||||
In millions of dollars | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||
Global Consumer | $ | 37,417 | $ | 36,446 | $ | 3,559 | $ | 3,762 | $ | 9,445 | $ | 8,463 | |||||||
Corporate and Investment Banking | 20,107 | 17,627 | 1,874 | 1,859 | 5,373 | 4,848 | |||||||||||||
Global Wealth Management | 7,461 | 6,447 | 489 | 537 | 1,033 | 947 | |||||||||||||
Alternative Investments | 1,593 | 2,698 | 319 | 782 | 727 | 1,086 | |||||||||||||
Corporate/Other | (791 | ) | (355 | ) | (381 | ) | (113 | ) | (458 | ) | (510 | ) | |||||||
Total | $ | 65,787 | $ | 62,863 | $ | 5,860 | $ | 6,827 | $ | 16,120 | $ | 14,834 | |||||||
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes | Income (Loss) from Continuing Operations(1) | Identifiable Assets | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, | | | |||||||||||||||||||||
In millions of dollars, except identifiable assets in billions | Sept. 30, 2007 | Dec. 31, 2006 | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006(2) | 2007 | 2006(2) | |||||||||||||||||||
Global Consumer | $ | 14,683 | $ | 12,834 | $ | 568 | $ | 1,312 | $ | 1,783 | $ | 3,195 | $ | 745 | $ | 702 | ||||||||
Markets & Banking | 4,333 | 6,067 | (142 | ) | 598 | 280 | 1,721 | 1,229 | 1,078 | |||||||||||||||
Global Wealth Management | 3,509 | 2,486 | 312 | 177 | 489 | 399 | 103 | 66 | ||||||||||||||||
Alternative Investments | 125 | 334 | (44 | ) | 70 | (67 | ) | 117 | 21 | 12 | ||||||||||||||
Corporate/Other(3) | (257 | ) | (299 | ) | (156 | ) | (137 | ) | (273 | ) | (129 | ) | 37 | 26 | ||||||||||
Total | $ | 22,393 | $ | 21,422 | $ | 538 | $ | 2,020 | $ | 2,212 | $ | 5,303 | $ | 2,135 | $ | 1,884 | ||||||||
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes | Income (Loss) from Continuing Operations(1) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, | ||||||||||||||||||
In millions of dollars | |||||||||||||||||||
2007 | 2006 | 2007 | 2006(2) | 2007 | 2006(2) | ||||||||||||||
Global Consumer | $ | 41,451 | $ | 37,417 | $ | 2,689 | $ | 3,559 | $ | 7,112 | $ | 9,445 | |||||||
Markets & Banking | 22,251 | 20,107 | 2,041 | 1,874 | 5,733 | 5,373 | |||||||||||||
Global Wealth Management | 9,524 | 7,461 | 762 | 489 | 1,451 | 1,033 | |||||||||||||
Alternative Investments | 1,719 | 1,593 | 391 | 319 | 611 | 727 | |||||||||||||
Corporate/Other(3) | (463 | ) | (791 | ) | (774 | ) | (381 | ) | (1,457 | ) | (458 | ) | |||||||
Total | $ | 74,482 | $ | 65,787 | $ | 5,109 | $ | 5,860 | $ | 13,450 | $ | 16,120 | |||||||
5.4. Interest Revenue and Expense
For the three-monththree- and nine-month periods endingended September 30, 20062007 and 2005,2006, interest revenue and expense consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||||||||
2006 | 2005(1) | 2006(1) | 2005(1) | 2007 | 2006(1) | 2007 | 2006(1) | |||||||||||||||||
Interest revenue | ||||||||||||||||||||||||
Loan interest, including fees | $ | 14,390 | $ | 12,035 | $ | 40,851 | $ | 34,761 | $ | 17,397 | $ | 14,390 | $ | 48,585 | $ | 40,851 | ||||||||
Deposits with banks | 713 | 438 | 1,928 | 1,200 | 874 | 590 | 2,375 | 1,596 | ||||||||||||||||
Federal funds sold and securities purchased under agreements to resell | 3,713 | 2,641 | 10,315 | 6,701 | 5,090 | 3,713 | 14,041 | 10,315 | ||||||||||||||||
Investments, including dividends | 2,606 | 1,814 | 6,917 | 5,488 | 3,357 | 2,606 | 10,474 | 6,917 | ||||||||||||||||
Trading account assets(2) | 2,558 | 1,847 | 8,005 | 5,630 | 5,156 | 2,749 | 13,471 | 8,497 | ||||||||||||||||
Other interest | 749 | 569 | 2,158 | 1,533 | 1,087 | 681 | 2,745 | 1,998 | ||||||||||||||||
Total interest revenue | $ | 24,729 | $ | 19,344 | $ | 70,174 | $ | 55,313 | $ | 32,961 | $ | 24,729 | $ | 91,691 | $ | 70,174 | ||||||||
Interest expense | ||||||||||||||||||||||||
Deposits | $ | 5,771 | $ | 3,616 | $ | 15,480 | $ | 9,528 | $ | 7,539 | $ | 5,771 | $ | 21,036 | $ | 15,480 | ||||||||
Trading account liabilities(2) | 56 | 32 | 171 | 86 | 371 | 301 | 1,058 | 825 | ||||||||||||||||
Short-term debt and other liabilities | 5,914 | 3,972 | 16,635 | 10,501 | 8,480 | 5,669 | 23,276 | 15,981 | ||||||||||||||||
Long-term debt | 3,160 | 2,029 | 8,439 | 5,626 | 4,414 | 3,160 | 12,168 | 8,439 | ||||||||||||||||
Total interest expense | $ | 14,901 | $ | 9,649 | $ | 40,725 | $ | 25,741 | $ | 20,804 | $ | 14,901 | $ | 57,538 | $ | 40,725 | ||||||||
Net interest revenue | $ | 9,828 | $ | 9,695 | $ | 29,449 | $ | 29,572 | $ | 12,157 | $ | 9,828 | $ | 34,153 | $ | 29,449 | ||||||||
Provision for loan losses | 1,793 | 2,525 | 4,625 | 6,058 | 4,776 | 1,793 | 10,002 | 4,625 | ||||||||||||||||
Net interest revenue after provision for loan losses | $ | 8,035 | $ | 7,170 | $ | 24,824 | $ | 23,514 | $ | 7,381 | $ | 8,035 | $ | 24,151 | $ | 24,824 | ||||||||
6.5. Commissions and Fees
Commissions and fees revenuesrevenue includes charges to customers for credit and bank cards, including transaction-processing fees and annual fees; advisory, and equity and debt underwriting services; lending and deposit-related transactions, such as loan commitments, standby letters of credit, and other deposit and loan servicing activities; investment management-related fees including brokerage services, and custody and trust services; insurance fees and commissions.
The following table presents commissions and fees revenue for the three-monththree- and nine-month periods ended September 30, 20062007 and 2005.2006.
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006(1) | 2007 | 2006(1) | |||||||||||||||||
Credit cards and bank cards | $ | 1,328 | $ | 1,225 | $ | 3,897 | $ | 3,749 | $ | 1,325 | $ | 1,328 | $ | 3,837 | $ | 3,897 | ||||||||
Investment banking | 1,011 | 956 | 3,119 | 2,689 | 1,161 | 924 | 3,976 | 2,914 | ||||||||||||||||
Smith Barney | 702 | 588 | 2,184 | 1,717 | 817 | 702 | 2,394 | 2,184 | ||||||||||||||||
CIB trading-related | 527 | 579 | 1,887 | 1,693 | ||||||||||||||||||||
Markets & Banking trading-related | 717 | 527 | 2,001 | 1,887 | ||||||||||||||||||||
Nikko Cordial-related(2) | 269 | — | 532 | — | ||||||||||||||||||||
Checking-related | 257 | 254 | 756 | 748 | 331 | 257 | 923 | 756 | ||||||||||||||||
Transaction services | 218 | 185 | 636 | 550 | 318 | 218 | 800 | 636 | ||||||||||||||||
Corporate finance | 139 | 122 | 511 | 328 | ||||||||||||||||||||
Loan servicing(1) | (431 | ) | 424 | 573 | 326 | |||||||||||||||||||
Corporate finance(3) | (1,076 | ) | 139 | (595 | ) | 511 | ||||||||||||||||||
Loan servicing(4) | (268 | ) | (431 | ) | 1,219 | 573 | ||||||||||||||||||
Primerica | 96 | 100 | 298 | 271 | 112 | 96 | 341 | 298 | ||||||||||||||||
Other Consumer | 103 | 180 | 439 | 585 | 181 | 100 | 519 | 429 | ||||||||||||||||
Other CIB | 57 | 99 | 183 | 261 | ||||||||||||||||||||
Other Markets & Banking | 108 | 42 | 249 | 147 | ||||||||||||||||||||
Other | — | 113 | 43 | 95 | 58 | 18 | 91 | 89 | ||||||||||||||||
Total commissions and fees | $ | 4,007 | $ | 4,825 | $ | 14,526 | $ | 13,012 | $ | 4,053 | $ | 3,920 | $ | 16,287 | $ | 14,321 | ||||||||
7.6. Retirement Benefits
The Company has several non-contributory defined benefit pension plans covering substantially all U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The U.S. defined benefit plan usesprovides benefits under a cash balance formula. Employees satisfying certain age and service requirements remain covered by a prior final pay formula. The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States. For information on the Company's Retirement Benefit Plans and Pension Assumptions, see Citigroup's 20052006 Annual Report on Form 10-K.
The table below summarizesfollowing tables summarize the components of the net expense (benefit) recognized in the Consolidated Statement of Income for the three and nine months ended September 30, 20062007 and 2005.2006.
Net Expense (Benefit)
| Three Months Ended September 30, | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Plans | Postretirement Benefit Plans(2) | ||||||||||||||||||
| U.S. Plans(1) | Plans Outside U.S. | U.S. Plans | |||||||||||||||||
In millions of dollars | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||
Benefits earned during the period | $ | 60 | $ | 58 | $ | 33 | $ | 43 | $ | — | $ | 1 | ||||||||
Interest cost on benefit obligation | 158 | 149 | 67 | 73 | 16 | 16 | ||||||||||||||
Expected return on plan assets | (210 | ) | (201 | ) | (118 | ) | (93 | ) | (4 | ) | (4 | ) | ||||||||
Curtailment gain associated with plan amendments | (80 | ) | — | — | — | — | — | |||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||
Net transition obligation | — | — | 1 | 1 | — | — | ||||||||||||||
Prior service cost | (2 | ) | (6 | ) | — | 1 | (1 | ) | (1 | ) | ||||||||||
Net actuarial loss | 52 | 50 | 10 | 27 | — | 4 | ||||||||||||||
Net expense (benefit) | $ | (22 | ) | $ | 50 | $ | (7 | ) | $ | 52 | $ | 11 | $ | 16 | ||||||
| Nine Months Ended September 30, | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Plans | Postretirement Benefit Plans(2) | ||||||||||||||||||
| U.S. Plans(1) | Plans Outside U.S. | U.S. Plans | |||||||||||||||||
In millions of dollars | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||
Benefits earned during the period | $ | 195 | $ | 193 | $ | 121 | $ | 126 | $ | 1 | $ | 2 | ||||||||
Interest cost on benefit obligation | 473 | 449 | 203 | 193 | 46 | 47 | ||||||||||||||
Expected return on plan assets | (634 | ) | (605 | ) | (286 | ) | (232 | ) | (10 | ) | (11 | ) | ||||||||
Curtailment gain associated with plan amendments | (80 | ) | — | — | — | — | — | |||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||
Net transition obligation | — | — | 1 | 2 | — | — | ||||||||||||||
Prior service cost | (14 | ) | (18 | ) | 1 | 1 | (3 | ) | (3 | ) | ||||||||||
Net actuarial loss | 139 | 121 | 38 | 54 | 6 | 10 | ||||||||||||||
Net expense | $ | 79 | $ | 140 | $ | 78 | $ | 144 | $ | 40 | $ | 45 | ||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Plans | Postretirement Benefit Plans | ||||||||||||||||||||||||
| U.S. Plans(1)(2) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | ||||||||||||||||||||||
In millions of dollars | ||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
Benefits earned during the period | $ | 92 | $ | 60 | $ | 49 | $ | 33 | $ | — | $ | — | $ | 9 | $ | 8 | ||||||||||
Interest cost on benefit obligation | 155 | 158 | 80 | 67 | 14 | 16 | 21 | 20 | ||||||||||||||||||
Expected return on plan assets | (222 | ) | (210 | ) | (133 | ) | (118 | ) | (2 | ) | (4 | ) | (30 | ) | (31 | ) | ||||||||||
Curtailment gain associated with plan amendments | — | (80 | ) | — | — | — | — | — | — | |||||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||||
Net transition obligation | — | — | 1 | 1 | — | — | — | — | ||||||||||||||||||
Prior service cost (benefit) | (1 | ) | (2 | ) | 1 | — | — | (1 | ) | — | — | |||||||||||||||
Net actuarial loss | 9 | 52 | 3 | 10 | — | — | 6 | 3 | ||||||||||||||||||
Net expense/(Benefit) | $ | 33 | $ | (22 | ) | $ | 1 | $ | (7 | ) | $ | 12 | $ | 11 | $ | 6 | $ | — | ||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Plans | Postretirement Benefit Plans | ||||||||||||||||||||||||
| U.S. Plans(1)(2) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | ||||||||||||||||||||||
In millions of dollars | ||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
Benefits earned during the period | $ | 226 | $ | 195 | $ | 139 | $ | 121 | $ | 1 | $ | 1 | $ | 20 | $ | 16 | ||||||||||
Interest cost on benefit obligation | 481 | 473 | 229 | 203 | 44 | 46 | 56 | 48 | ||||||||||||||||||
Expected return on plan assets | (667 | ) | (634 | ) | (349 | ) | (286 | ) | (8 | ) | (10 | ) | (77 | ) | (58 | ) | ||||||||||
Curtailment gain associated with plan amendments | — | (80 | ) | — | — | — | — | — | — | |||||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||||
Net transition obligation | — | — | 2 | 1 | — | — | — | — | ||||||||||||||||||
Prior service cost | (2 | ) | (14 | ) | 2 | 1 | (2 | ) | (3 | ) | — | — | ||||||||||||||
Net actuarial loss | 63 | 139 | 28 | 38 | 2 | 6 | 10 | 6 | ||||||||||||||||||
Net expense | $ | 101 | $ | 79 | $ | 51 | $ | 78 | $ | 37 | $ | 40 | $ | 9 | $ | 12 | ||||||||||
Employer Contributions
Citigroup's pension funding policy for U.S. plans and non-U.S. pension plans is generally to fund to applicable minimum funding requirements, rather than to the amounts of accumulated benefit obligations. For the U.S. plans, the Company may increase its contributions above the minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), if appropriate to its tax and cash position and the plan's funded position. At September 30, 20062007 and December 31, 2005,2006, there were no minimum required contributions and no discretionary cash or non-cash contributions are currently planned for the U.S. plans. However, in 2005, the Company contributed $160 million to the U.S. pension plan to avoid an additional minimum liability at December 31, 2005. For the non-U.S. plans, the Company contributed $268$85 million for the nine months endedas of September 30, 2006.2007. Citigroup presently anticipates contributing an additional $88$29 million to fund its non-U.S. plans in 20062007 for a total of $356$114 million.
7. Restructuring
During the first quarter of 2007, the Company completed a review of its structural expense base in a Company-wide effort to create a more streamlined organization, reduce expense growth and provide investment funds for future growth initiatives.
The primary goals of the 2007 Structural Expense Review are as follows:
For the three and nine months ended September 30, 2007, Citigroup recorded a pretax restructuring charge of $35 million and $1.475 billion, respectively.
The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges began in the second quarter of 2007 in addition to normal scheduled depreciation.
Additional charges totaling approximately $32 million pretax are anticipated to be recorded by the end of 2007. Of this charge, $16 million is attributable to Global Consumer, $11 million to Global Wealth Management and $5 million to Corporate/Other.
The following table details the Company's restructuring reserves.
| Severance | | | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | SFAS 112(1) | SFAS 146(2) | Contract Termination Costs | Asset Write Downs(3) | Employee Termination Cost | Total Citigroup | ||||||||||||||
Total Citigroup (pretax) | ||||||||||||||||||||
Original restructuring charge, First quarter of 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 352 | $ | 39 | $ | 1,377 | ||||||||
Utilization | — | — | — | (268 | ) | — | (268 | ) | ||||||||||||
Balance at March 31, 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 84 | $ | 39 | $ | 1,109 | ||||||||
Second quarter of 2007: | ||||||||||||||||||||
Additional Charge | $ | 8 | $ | 12 | $ | 23 | $ | 19 | $ | 1 | $ | 63 | ||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | ||||||||||||||
Utilization | (197 | ) | (18 | ) | (12 | ) | (72 | ) | (4 | ) | (303 | ) | ||||||||
Balance at June 30, 2007 | $ | 769 | $ | 5 | $ | 37 | $ | 31 | $ | 36 | $ | 878 | ||||||||
Third quarter of 2007: | ||||||||||||||||||||
Additional Charge | $ | 11 | $ | 14 | $ | — | $ | — | $ | 10 | $ | 35 | ||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | ||||||||||||||
Utilization | (195 | ) | (13 | ) | (9 | ) | (10 | ) | (23 | ) | (250 | ) | ||||||||
Balance at September 30, 2007 | $ | 593 | $ | 6 | $ | 29 | $ | 21 | $ | 23 | $ | 672 | ||||||||
The severance costs noted above reflect the accrual to eliminate approximately 17,300 positions, after considering attrition and redeployment within the Company.
The total restructuring reserve balance as of September 30, 2007 and the restructuring charges for the three- and nine-month periods then ended are presented below by business segment. These charges were included in the Corporate/Other segment because this company-wide restructuring was a corporate initiative.
| | Restructuring Charges | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Ending Balance September 30, 2007 | Three Months Ended September 30, 2007 | Nine Months Ended September 30, 2007 | ||||||
Global Consumer | $ | 433 | $ | 18 | $ | 977 | |||
Markets & Banking | 112 | 6 | 288 | ||||||
Global Wealth Management | 46 | 10 | 89 | ||||||
Alternative Investments | 5 | — | 7 | ||||||
Corporate/Other | 76 | 1 | 114 | ||||||
Total Citigroup (pretax) | $ | 672 | $ | 35 | $ | 1,475 | |||
The Company has adopted a number of equity compensation plans under which it administers stock options, restricted or deferred stock and stock purchase programs. The award programs are used to attract, retain and motivate officers and employees, to compensate them for their contributions to the Company, and to encourage employee stock ownership. The plans are administered by the Personnel and Compensation Committee of the Citigroup Board of Directors, which is comprised entirely of independent non-employee directors. At September 30, 2006, approximately 316 million shares were authorized and available for grant under Citigroup's stock incentive and stock purchase plans. These shares would be issued out of Treasury stock.
The following compensation expense relates to the Company's stock-based compensation programs as recorded during the 2006 and 2005 third quarters and year-to-date 2006 and 2005:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | ||||||||
SFAS 123(R) charges for January 2006 awards issued to retirement-eligible employees | $ | — | $ | — | $ | 648 | $ | — | ||||
SFAS 123(R) quarterly accrual for estimated awards to be granted through January 2007 to retirement-eligible employees | 195 | — | 561 | — | ||||||||
Quarterly Option Expense | 25 | 30 | 95 | 128 | ||||||||
Quarterly amortization of Restricted and Deferred Stock awards(1) | 565 | 435 | 1,446 | 1,322 | ||||||||
Total | $ | 785 | $ | 465 | $ | 2,750 | $ | 1,450 | ||||
For Statement of Cash Flows purposes, these amounts are included within Other, net.
Stock Award Programs
The Company, primarily through its Capital Accumulation Program (CAP), issues shares of Citigroup common stock in the form of restricted or deferred stock to participating officers and employees. For all stock award programs, during the applicable vesting period, the shares awarded cannot be sold or transferred by the participant, and the award is subject to cancellation if the participant's employment is terminated. After the award vests, the shares become freely transferable (subject to the stock ownership commitment of senior executives). From the date of award, the recipient of a restricted stock award can direct the vote of the shares and receive regular dividends. Recipients of deferred stock awards receive dividend equivalents and cannot vote.
Stock awards granted in January 2006 and 2005 generally vest 25% per year over four years, except for certain employees atSmith Barney whose awards vest after two years. Stock awards granted in 2003 and 2004 generally vest after a two- or three-year vesting period. CAP participants may elect to receive all or part of their award in stock options. The figures presented in the stock option program tables include options granted under CAP. Unearned compensation expense associated with the stock awards represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the full vesting period, except for those awards granted to retirement-eligible employees. The charge to income for awards made to retirement-eligible employees is accelerated based on the dates the retirement rules are met.
CAP and certain other awards provide that participants who meet certain age and years of service conditions, and agree not to compete with Citigroup, may continue to vest in all or a portion of the award without remaining employed by the Company during the entire vesting period. Beginning in 2006, awards for these retirement-eligible employees are recognized in the year prior to the grant in the same manner as cash incentive compensation is accrued. However, the award granted in 2006 was required to be expensed in its entirety at the date of grant. Prior to 2006, such awards were recognized ratably over the stated vesting period. See Note 1 to the Consolidated Financial Statements on page 91 for the impact of adopting SFAS 123(R).
In 2003, special equity awards were issued to certain employees in the Corporate and Investment Banking, Global Wealth Management and Citigroup International businesses. The awards vest over a three-year term beginning on July 12, 2003, with one-sixth of the award vesting every six months. During the vesting period, the stock cannot be sold or transferred by the participant, and is subject to total or partial cancellation if the participant's employment is terminated. These awards were fully vested in January 2006.
From 2003 to 2006, Citigroup granted restricted or deferred shares under the Citigroup Ownership Program (COP) to eligible employees. This program replaces the WealthBuilder, CitiBuilder, and Citigroup Ownership stock option programs. Employees are issued either restricted or deferred shares of Citigroup common stock that vest after three years. Unearned compensation expense associated with the stock grants represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the vesting period, except for those awards granted to retirement-eligible employees. The
charge to income for awards made to retirement-eligible employees is accelerated based on the dates the retirement rules are met.
A summary of the status of Citigroup's unvested stock awards as of September 30, 2006, and changes during the nine months ended September 30, 2006, is presented below:
Unvested Stock Awards | Shares | Weighted Average Grant Date Fair Value | |||
---|---|---|---|---|---|
Unvested at January 1, 2006 | 117,623,501 | $ | 44.12 | ||
Awards | 63,894,657 | $ | 48.52 | ||
Cancels | (6,394,127 | ) | $ | 46.99 | |
Deletes | (260,707 | ) | $ | 46.70 | |
Vestings | (47,533,427 | ) | $ | 39.50 | |
Unvested at September 30, 2006 | 127,329,897 | $ | 47.90 | ||
The market value of the vestings during the 2006 first nine months was approximately $47.25 per share.
As of September 30, 2006, there was $3.3 billion of total unrecognized compensation cost related to unvested stock awards. That cost is expected to be recognized over a weighted-average period of 2.7 years.
Stock Option Programs
The Company has a number of stock option programs for its directors, officers and employees. Generally, since January 2005, stock options have been granted only to CAP participants who elect to receive stock options in lieu of restricted or deferred stock awards, and to non-employee directors who elect to receive their compensation in the form of a stock option grant. All stock options are granted on Citigroup common stock with exercise prices equal to the fair market value at the time of grant. Options granted since 2003 have six-year terms; directors' options vest after two years and all other options granted since January 2005 typically vest 25% each year over four years. Options granted in 2004 and 2003 typically vest in thirds each year over three years, with the first vesting date occurring 17 months after the grant date. The sale of underlying shares acquired through the exercise of employee stock options granted since January 2003 is restricted for a two-year period (and the shares are subject to the stock ownership commitment of senior executives thereafter). Prior to 2003, Citigroup options, including options granted since the date of the merger of Citicorp and Travelers Group, Inc., generally vested at a rate of 20% per year over five years, with the first vesting date occurring 12 to 18 months following the grant date. Certain options, mostly granted prior to January 1, 2003, permit an employee exercising an option under certain conditions to be granted new options (reload options) in an amount equal to the number of common shares used to satisfy the exercise price and the withholding taxes due upon exercise. The reload options are granted for the remaining term of the related original option and vest after six months. An option may not be exercised using the reload method unless the market price on the date of exercise is at least 20% greater than the option exercise price.
To further encourage employee stock ownership, the Company's eligible employees participate in WealthBuilder, CitiBuilder, or the Citigroup Ownership Program. Options granted under the WealthBuilder and the Citigroup Ownership programs vest over a five-year period, whereas options granted under the CitiBuilder program vest after five years. These options do not have a reload feature. Options have not been granted under these programs since 2002.
Information with respect to stock option activity under Citigroup stock option plans for the nine months ended September 30, 2006, and year ended December 31, 2005 is as follows:
| 2006 | 2005 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Options | Weighted Average Exercise Price | Intrinsic Value Per Share | Options | Weighted Average Exercise Price | Intrinsic Value Per Share | ||||||||||
Outstanding, beginning of period | 277,255,935 | $ | 40.27 | $ | 8.26 | 330,910,779 | $ | 39.28 | $ | 8.90 | ||||||
Granted—original | 3,259,638 | $ | 48.87 | — | 5,279,863 | 47.45 | — | |||||||||
Granted—reload | 2,650,505 | $ | 49.66 | — | 3,013,384 | 48.85 | — | |||||||||
Forfeited or exchanged | (12,627,126 | ) | $ | 45.87 | 2.26 | (17,726,910 | ) | 44.29 | 2.33 | |||||||
Expired | (2,009,369 | ) | $ | 44.96 | 3.17 | (2,572,189 | ) | 47.70 | — | |||||||
Exercised | (33,991,965 | ) | $ | 33.10 | 15.03 | (41,648,992 | ) | 31.72 | 14.90 | |||||||
Outstanding, end of period | 234,537,618 | $ | 41.16 | $ | 8.51 | 277,255,935 | $ | 40.27 | $ | 8.26 | ||||||
Exercisable at end of period | 208,790,019 | 221,497,294 | ||||||||||||||
The following table summarizes the information about stock options outstanding under Citigroup stock option plans at September 30, 2006:
| Options Outstanding | Options Exercisable | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices | Number Outstanding | Weighted Average Contractual Life Remaining | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||
$7.77–$9.99 | 6,972 | 4.9 years | $ | 7.77 | 6,972 | $ | 7.77 | |||||
$10.00–$19.99 | 2,452,568 | 1.1 years | $ | 18.94 | 2,450,201 | $ | 18.94 | |||||
$20.00–$29.99 | 27,664,730 | 1.7 years | $ | 22.84 | 27,583,637 | $ | 22.83 | |||||
$30.00–$39.99 | 38,370,384 | 3.2 years | $ | 33.06 | 36,199,395 | $ | 32.96 | |||||
$40.00–$49.99 | 154,978,814 | 4.0 years | $ | 46.03 | 131,907,543 | $ | 45.94 | |||||
$50.00–$56.83 | 11,064,150 | 2.7 years | $ | 51.88 | 10,642,271 | $ | 51.94 | |||||
234,537,618 | 3.5 years | $ | 41.16 | 208,790,019 | $ | 40.62 | ||||||
As of September 30, 2006, there was $55.6 million of total unrecognized compensation cost related to stock options; this cost is expected to be recognized over a weighted average period of 1.12 years.
Fair Value Assumptions
SFAS 123(R) requires that reload options be treated as separate grants from the related original grants. Pursuant to the terms of currently outstanding reloadable options, upon exercise of an option, if employees use previously owned shares to pay the exercise price and surrender shares otherwise to be received for related tax withholding, they will receive a reload option covering the same number of shares used for such purposes, but only if the market price on the date of exercise is at least 20% greater than the option exercise price. Reload options vest at the end of a six-month period and carry the same expiration date as the option that gave rise to the reload grant. The exercise price of a reload grant is the market price on the date the underlying option was exercised. Reload options are intended to encourage employees to exercise options at an earlier date and to retain the shares acquired. The result of this program is that employees generally will exercise options as soon as they are able and, therefore, these options have shorter expected lives. Shorter option lives result in lower valuations. However, such values are expensed more quickly due to the shorter vesting period of reload options. In addition, since reload options are treated as separate grants, the existence of the reload feature results in a greater number of options being valued. Shares received through option exercises under the reload program, as well as certain other options granted, are subject to restrictions on sale.
Additional valuation and related assumption information for Citigroup option plans is presented below. Since 2004, Citigroup has used a binomial model to value stock options.
For Options Granted During | 2006 | 2005 | ||||||
---|---|---|---|---|---|---|---|---|
Weighted average per share fair value | $ | 6.91 | $ | 7.23 | ||||
Weighted averaged expected life | ||||||||
Original grants | 4.57 yrs. | 5.26 yrs. | ||||||
Reload grants | 2.30 yrs. | 3.29 yrs. | ||||||
Valuation assumptions | ||||||||
Expected volatility | 20.48 | % | 25.06 | % | ||||
Risk-free interest rate | 4.54 | % | 3.66 | % | ||||
Expected dividend yield | 3.88 | % | 3.35 | % | ||||
Expected annual forfeitures | ||||||||
Original and reload grants | 7 | % | 7 | % | ||||
The following reflectsis a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and nine months ended September 30, 20062007 and 2005:2006:
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions, except per share amounts | ||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
Income from continuing operations | $ | 5,303 | $ | 4,988 | $ | 16,120 | $ | 14,834 | $ | 2,212 | $ | 5,303 | $ | 13,450 | $ | 16,120 | ||||||||||
Discontinued operations | 202 | 2,155 | 289 | 2,823 | — | 202 | — | 289 | ||||||||||||||||||
Preferred dividends | (16 | ) | (17 | ) | (48 | ) | (51 | ) | (6 | ) | (16 | ) | (36 | ) | (48 | ) | ||||||||||
Income available to common stockholders for basic EPS | 5,489 | 7,126 | 16,361 | 17,606 | 2,206 | 5,489 | 13,414 | 16,361 | ||||||||||||||||||
Effect of dilutive securities | — | — | — | — | — | — | — | — | ||||||||||||||||||
Income available to common stockholders for diluted EPS | $ | 5,489 | $ | 7,126 | $ | 16,361 | $ | 17,606 | $ | 2,206 | $ | 5,489 | $ | 13,414 | $ | 16,361 | ||||||||||
Weighted average common shares outstanding applicable to basic EPS | 4,875.5 | 5,058.3 | 4,898.4 | 5,103.6 | 4,916.1 | 4,875.5 | 4,897.1 | 4,898.4 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||
Options | 25.7 | 28.3 | 27.0 | 34.3 | 15.2 | 25.7 | 22.4 | 27.0 | ||||||||||||||||||
Restricted and deferred stock | 77.4 | 59.4 | 66.8 | 55.5 | 79.6 | 77.4 | 71.1 | 66.8 | ||||||||||||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS | 4,978.6 | 5,146.0 | 4,992.2 | 5,193.4 | 5,010.9 | 4,978.6 | 4,990.6 | 4,992.2 | ||||||||||||||||||
Basic earnings per share(1) | ||||||||||||||||||||||||||
Income from continuing operations | $ | 1.08 | $ | 0.98 | $ | 3.28 | $ | 2.90 | $ | 0.45 | $ | 1.08 | $ | 2.74 | $ | 3.28 | ||||||||||
Discontinued operations, net | 0.04 | 0.43 | 0.06 | 0.55 | ||||||||||||||||||||||
Discontinued operations | — | 0.04 | — | 0.06 | ||||||||||||||||||||||
Net income | $ | 1.13 | $ | 1.41 | $ | 3.34 | $ | 3.45 | $ | 0.45 | $ | 1.13 | $ | 2.74 | $ | 3.34 | ||||||||||
Diluted earnings per share | ||||||||||||||||||||||||||
Diluted earnings per share(1) | ||||||||||||||||||||||||||
Income from continuing operations | $ | 1.06 | $ | 0.97 | $ | 3.22 | $ | 2.85 | $ | 0.44 | $ | 1.06 | $ | 2.69 | $ | 3.22 | ||||||||||
Discontinued operations, net | 0.04 | 0.41 | 0.06 | 0.54 | ||||||||||||||||||||||
Discontinued operations | — | 0.04 | — | 0.06 | ||||||||||||||||||||||
Net income | $ | 1.10 | $ | 1.38 | $ | 3.28 | $ | 3.39 | $ | 0.44 | $ | 1.10 | $ | 2.69 | $ | 3.28 | ||||||||||
10.9. Trading Account Assets and Liabilities
Trading account assets and liabilities, at marketfair value, consisted of the following:
In millions of dollars | Sept. 30, 2006 | Dec. 31, 2005 | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Trading account assets | ||||||||||||
U.S. Treasury and Federal agency securities | $ | 38,938 | $ | 38,771 | ||||||||
U.S. Treasury and federal agency securities | $ | 49,376 | $ | 44,661 | ||||||||
State and municipal securities | 12,560 | 17,856 | 18,072 | 17,358 | ||||||||
Foreign government securities | 34,436 | 21,266 | 63,757 | 33,057 | ||||||||
Corporate and other debt securities | 78,873 | 60,137 | 157,858 | 93,891 | ||||||||
Derivatives(1) | 48,420 | 47,414 | 85,158 | 49,541 | ||||||||
Equity securities | 82,360 | 64,553 | 124,496 | 92,518 | ||||||||
Mortgage loans and collateralized mortgage securities | 32,060 | 27,852 | 43,356 | 37,104 | ||||||||
Other | 23,502 | 17,971 | 39,147 | 25,795 | ||||||||
Total trading account assets | $ | 351,149 | $ | 295,820 | $ | 581,220 | $ | 393,925 | ||||
Trading account liabilities | ||||||||||||
Securities sold, not yet purchased | $ | 71,970 | $ | 59,780 | $ | 101,708 | $ | 71,083 | ||||
Derivatives(1) | 66,906 | 61,328 | 113,915 | 74,804 | ||||||||
Total trading account liabilities | $ | 138,876 | $ | 121,108 | $ | 215,623 | $ | 145,887 | ||||
11.10. Goodwill and Intangible Assets
The changes in goodwill during the first nine months of 20062007 were as follows:
In millions of dollars | Goodwill | |||
---|---|---|---|---|
Balance at December 31, 2005 | $ | 33,130 | ||
Purchase accounting adjustment—Legg Mason acquisition | 24 | |||
Purchase accounting adjustment—FAB acquisition | 19 | |||
Foreign exchange translation and other | (240 | ) | ||
Balance at March 31, 2006 | $ | 32,933 | ||
Consolidation of Credicard business | 270 | |||
Partial disposition of ownership interest in Bank Handlowy | (33 | ) | ||
Sale of New York Branches | (23 | ) | ||
Foreign exchange translation and other | (237 | ) | ||
Balance at June 30, 2006 | $ | 32,910 | ||
Adjustment to consolidation of Credicard business | (7 | ) | ||
Partial disposition of ownership interest in Bank Handlowy | (6 | ) | ||
Purchase accounting adjustment—Unisen acquisition | (8 | ) | ||
Foreign exchange translation and other | 280 | |||
Balance at September 30, 2006 | $ | 33,169 | ||
In millions of dollars | Goodwill | |||
---|---|---|---|---|
Balance at December 31, 2006 | $ | 33,415 | ||
Acquisition of GFU | 865 | |||
Acquisition of Quilter | 268 | |||
Foreign exchange translation and other | (168 | ) | ||
Balance at March 31, 2007 | $ | 34,380 | ||
Acquisition of Nikko Cordial | 2,162 | |||
Acquisition of Grupo Cuscatlan | 610 | |||
Acquisition of Egg | 1,542 | |||
Foreign exchange translation and other | 537 | |||
Balance at June 30, 2007 | $ | 39,231 | ||
Purchase accounting adjustments—Nikko Cordial(1) | (1,545 | ) | ||
Purchase accounting adjustments—Grupo Cuscatlan | 311 | |||
Purchase accounting adjustments—Egg | 114 | |||
Acquisition of Old Lane | 506 | |||
Acquisition of Bisys | 872 | |||
Foreign exchange translation and other | 460 | |||
Balance at September 30, 2007 | $ | 39,949 | ||
During the first three quarters of 2006,2007, no goodwill was written off due to impairment.
The changes in intangible assets during the first nine months of 20062007 were as follows:
In millions of dollars | Intangible Assets (Net Carrying Amount) | |||
---|---|---|---|---|
Balance at December 31, 2005 | $ | 14,749 | ||
Changes in capitalized MSRs(1) | 613 | |||
Foreign exchange translation and other | (2 | ) | ||
Amortization expense | (268 | ) | ||
Balance at March 31, 2006 | $ | 15,092 | ||
Changes in capitalized MSRs(1) | $ | 611 | ||
Federated receivables acquisition—purchased credit card relationships | 320 | |||
Consolidation of Credicard business—purchased credit card relationships | 75 | |||
Servicing rights on Student Loan securitizations | 30 | |||
Foreign exchange translation and other | (7 | ) | ||
Amortization expense | (271 | ) | ||
Balance at June 30, 2006 | $ | 15,850 | ||
Changes in capitalized MSRs(1) | $ | (109 | ) | |
Federated receivables acquisition—purchased credit card relationships | 150 | |||
Adjustment to consolidation of Credicard business—purchased credit card relationships | 7 | |||
Acquisition of U.K. Shell Credit Card portfolio—purchased credit card relationships | 22 | |||
Servicing rights on Student Loan securitizations | 35 | |||
Foreign exchange translation and other | 16 | |||
Amortization expense | (246 | ) | ||
Balance at September 30, 2006 | $ | 15,725 | ||
In millions of dollars | Net Carrying Amount at December 31, 2006 | Acquisitions | Amortization | FX & Other(1) | Impairments(2) | Net Carrying Amount at September 30, 2007 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 4,879 | $ | 200 | $ | (445 | ) | $ | 45 | $ | (35 | ) | $ | 4,644 | ||||
Core deposit intangibles | 734 | 203 | (76 | ) | 19 | — | 880 | |||||||||||
Other customer relationships | 389 | 1,748 | (95 | ) | 405 | (180 | ) | 2,267 | ||||||||||
Present value of future profits | 181 | — | (7 | ) | — | — | 174 | |||||||||||
Indefinite-lived intangible assets | 639 | 557 | — | 432 | (73 | ) | 1,555 | |||||||||||
Other | 3,640 | 648 | (206 | ) | 92 | — | 4,174 | |||||||||||
Mortgage servicing rights | 5,439 | 3,404 | — | 1,114 | — | 9,957 | ||||||||||||
Total intangible assets | $ | 15,901 | $ | 6,760 | $ | (829 | ) | $ | 2,107 | $ | (288 | ) | $ | 23,651 | ||||
The components of intangible assets were as follows:
| September 30, 2006 | December 31, 2005 | | September 30, 2007 | | December 31, 2006 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Gross Carrying Amount | Accumulated Amortization(1) | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization(1) | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||
Purchased credit card relationships | $ | 8,132 | $ | 3,389 | $ | 4,743 | $ | 7,541 | $ | 2,929 | $ | 4,612 | $ | 8,559 | $ | 3,915 | $ | 4,644 | $ | 8,391 | $ | 3,512 | $ | 4,879 | ||||||||||||
Mortgage servicing rights(1) | 5,456 | — | 5,456 | 8,808 | 4,469 | 4,339 | ||||||||||||||||||||||||||||||
Core deposit intangibles | 1,207 | 458 | 749 | 1,248 | 424 | 824 | 1,466 | 586 | 880 | 1,223 | 489 | 734 | ||||||||||||||||||||||||
Other customer relationships | 1,038 | 636 | 402 | 1,065 | 596 | 469 | 2,466 | 199 | 2,267 | 1,044 | 655 | 389 | ||||||||||||||||||||||||
Present value of future profits | 427 | 242 | 185 | 429 | 229 | 200 | 427 | 253 | 174 | 428 | 247 | 181 | ||||||||||||||||||||||||
Other(2) | 4,440 | 703 | 3,737 | 4,455 | 647 | 3,808 | ||||||||||||||||||||||||||||||
Other(1) | 5,292 | 1,118 | 4,174 | 4,445 | 805 | 3,640 | ||||||||||||||||||||||||||||||
Total amortizing intangible assets | $ | 20,700 | $ | 5,428 | $ | 15,272 | $ | 23,546 | $ | 9,294 | $ | 14,252 | $ | 18,210 | $ | 6,071 | $ | 12,139 | $ | 15,531 | $ | 5,708 | $ | 9,823 | ||||||||||||
Indefinite-lived intangible assets | 453 | 497 | 1,555 | N/A | 1,555 | 639 | N/A | 639 | ||||||||||||||||||||||||||||
Mortgage servicing rights | $ | 9,957 | N/A | $ | 9,957 | $ | 5,439 | N/A | 5,439 | |||||||||||||||||||||||||||
Total intangible assets | $ | 15,725 | $ | 14,749 | $ | 29,722 | $ | 6,071 | $ | 23,651 | $ | 21,609 | $ | 5,708 | $ | 15,901 | ||||||||||||||||||||
N/A Not applicable
12.11. Investments
In millions of dollars | September 30, 2006 | December 31, 2005 | ||||
---|---|---|---|---|---|---|
Fixed income securities, substantially all available-for-sale at fair value | $ | 234,189 | $ | 163,177 | ||
Equity securities | 14,163 | 14,368 | ||||
Venture capital, at fair value | 3,188 | 2,844 | ||||
Short-term and other | 208 | 208 | ||||
Total | $ | 251,748 | $ | 180,597 | ||
In millions of dollars | September 30, 2007 | December 31, 2006(1) | ||||
---|---|---|---|---|---|---|
Securities available-for-sale | $ | 217,350 | $ | 258,087 | ||
Non-marketable equity securities carried at fair value(2) | 15,770 | 10,662 | ||||
Non-marketable equity securities carried at cost(3) | 7,620 | 4,804 | ||||
Debt securities held to maturity(4) | 1 | 1 | ||||
Other | 87 | 37 | ||||
Total Investments | $ | 240,828 | $ | 273,591 | ||
The amortized cost and fair value of investments in fixed incomedebt and equity securities at September 30, 20062007 and December 31, 20052006 were as follows:
| September 30, 2006 | December 31, 2005(1) | September 30, 2007 | December 31, 2006(1)(5) | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||
Fixed income securities held to maturity(2) | $ | 1 | $ | — | $ | — | $ | 1 | $ | 2 | $ | 2 | ||||||||||||||||||||||||
Fixed income securities available-for-sale | ||||||||||||||||||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||||||
Mortgage-backed securities, principally obligations of U.S. Federal agencies | 66,605 | 294 | 246 | 66,653 | 13,157 | 12,937 | $ | 57,080 | $ | 69 | $ | 927 | $ | 56,222 | $ | 82,443 | $ | 82,413 | ||||||||||||||||||
U.S. Treasury and Federal agencies | 27,956 | 31 | 309 | 27,678 | 28,448 | 28,034 | 18,293 | 51 | 165 | 18,179 | 24,872 | 24,531 | ||||||||||||||||||||||||
State and municipal | 12,219 | 474 | 4 | 12,689 | 13,090 | 13,581 | 18,430 | 269 | 220 | 18,479 | 15,152 | 15,654 | ||||||||||||||||||||||||
Foreign government | 72,056 | 409 | 489 | 71,976 | 67,823 | 67,874 | 74,775 | 407 | 518 | 74,664 | 73,943 | 73,783 | ||||||||||||||||||||||||
U.S. corporate | 32,567 | 414 | 247 | 32,734 | 25,050 | 25,055 | 33,200 | 142 | 303 | 33,039 | 32,311 | 32,455 | ||||||||||||||||||||||||
Other debt securities | 22,451 | 68 | 61 | 22,458 | 15,665 | 15,694 | ||||||||||||||||||||||||||||||
Other debt securities(6) | 13,090 | 77 | 99 | 13,068 | 25,071 | 25,270 | ||||||||||||||||||||||||||||||
Marketable equity securities available-for-sale(7) | 1,646 | 2,062 | 9 | 3,699 | 3,011 | 3,981 | ||||||||||||||||||||||||||||||
Total fixed income securities available-for-sale(3) | $ | 233,855 | $ | 1,690 | $ | 1,356 | $ | 234,189 | $ | 163,235 | $ | 163,177 | ||||||||||||||||||||||||
Total securities available-for-sale | $ | 216,514 | $ | 3,077 | $ | 2,241 | $ | 217,350 | $ | 256,803 | $ | 258,087 | ||||||||||||||||||||||||
Equity securities(4) | $ | 13,121 | $ | 1,274 | $ | 232 | $ | 14,163 | $ | 13,017 | $ | 14,368 | ||||||||||||||||||||||||
Citigroup invests in Realized and unrealized gains and losses2007 of commercial paper related to the venture capital investmentsfunding of Citigroup-advised SIVs.classifiednow included in other revenue as the mark-to-market of these investments is recognizedTrading account assets in earnings. The net gains reflectedaccordance with SFAS 159. See Notes 14 and 16 on pages 74 and 77, respectively, for further discussions.earnings from these venture capital investments were $39 million and $430 million for the three months and nine months ended September 30, 2006, and $131 million and $1,462 million for the three and nine months ended September 30, 2005, respectively. The total carrying value and cost for the venture capital investments on September 30, 2006 were as follows:
In millions of dollars | 2006 | 2005 | ||||
---|---|---|---|---|---|---|
Carrying value | $ | 3,187 | $ | 3,355 | ||
Cost | 1,838 | 2,571 | ||||
The Company invests incertain complex investment company structures known as master-feederMaster-Feeder funds by making direct investments in the Feeder funds. Each feederFeeder fund records its net investment in the masterMaster fund, which is the sole or principal investment of the feeder fund. The CompanyFeeder fund, and does not consolidate the Master Fund. Citigroup consolidates feederFeeder funds where it has a controlling interest. At September 30, 2006,2007, the total assets of Citigroup's consolidated feederFeeder funds amounted to approximately $1.9$1.8 billion. The CompanyCitigroup has not consolidated the assets and liabilities of the master funds. As such, Citigroup's balance sheet excludes approximately $8.1$5.9 billion of additional assets and liabilities recorded in the related master funds'Master Funds' financial statements.
Short-term borrowings consist of commercial paper and other short-term borrowings as follows:
In millions of dollars | In millions of dollars | September 30, 2006 | December 31, 2005 | In millions of dollars | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial paper | Commercial paper | Commercial paper | ||||||||||||
Citigroup Funding Inc. | $ | 33,732 | $ | 32,581 | Citigroup Funding Inc. | $ | 46,341 | $ | 41,767 | |||||
Other Citigroup Subsidiaries | 739 | 1,578 | Other Citigroup subsidiaries | 2,179 | 1,928 | |||||||||
$ | 34,471 | $ | 34,159 | $ | 48,520 | $ | 43,695 | |||||||
Other short-term borrowings | Other short-term borrowings | 36,030 | 32,771 | Other short-term borrowings | 145,784 | 57,138 | ||||||||
Total short-term borrowings | Total short-term borrowings | $ | 70,501 | $ | 66,930 | Total short-term borrowings | $ | 194,304 | $ | 100,833 | ||||
Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate, or bids submitted by the banks. Citigroup issues commercial paper directly to investors. Citigroup maintains liquidity reservespays commitment fees for its lines of cash and securities as part of a broad liquidity management framework in support of commercial paper issuance.credit.
Some of Citigroup's nonbank subsidiaries have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be securedcollateralized in accordance with Section 23A of the Federal Reserve Act.
CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion maturing in 2011. CGMHI also has three-and five-year bilateral facilities totaling $575 million with unaffiliated banks with borrowings maturing on various dates in 2007, 2009, and 2011. These facilities are guaranteed by Citigroup. CGMHI may borrow under these revolving credit facilities at various interest rate options (LIBOR, Fed Funds or base rate) and compensate the banks for these facilities through facilities fees. At September 30, 2006, there were no outstanding borrowings under these facilities.
CGMHI also has committed long-term financing facilities with unaffiliated banks. At September 30, 2006, CGMHI had drawn down the full $1.78 billion available under these facilities, of which $1.08 billion is guaranteed by Citigroup. A bank can terminate these facilities by giving CGMHI prior notice (generally one year). Under all of these facilities, CGMHI is required to maintain a certain level of consolidated adjusted net worth (as defined in the agreements). At September 30, 2006, this requirement was exceeded by approximately $9.1 billion. CGMHI also has substantial borrowing arrangements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.
Long-term debt, including its current portion, consisted of the following:
In millions of dollars | September 30, 2006 | December 31, 2005 | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Citigroup Parent Company | $ | 114,299 | $ | 100,600 | $ | 153,986 | $ | 125,350 | ||||
Other Citigroup Subsidiaries(1) | 99,050 | 71,139 | 148,029 | 115,578 | ||||||||
Citigroup Global Markets Holdings Inc.(2) | 31,019 | 39,214 | 28,904 | 28,719 | ||||||||
Citigroup Funding Inc. | 15,265 | 5,963 | 33,607 | 18,847 | ||||||||
Other | 456 | 583 | ||||||||||
Total long-term debt | $ | 260,089 | $ | 217,499 | $ | 364,526 | $ | 288,494 | ||||
CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion, which matures in 2011. CGMHI also has three-year and one-year bilateral facilities totaling $1.375 billion with unaffiliated banks with borrowings maturing on various dates in 2008 and 2009. At September 30, 2007, the full $3.0 billion of the syndicated five-year facility was drawn as well as $1.3 billion of the bilateral facilities.
CGMHI also has committed long-term financing facilities with unaffiliated banks. At September 30, 2007, CGMHI had drawn down the full $2.075 billion available under these facilities, of which $1.08 billion is guaranteed by Citigroup. A bank can terminate these facilities by giving CGMHI prior notice (generally one year). CGMHI also has substantial borrowing arrangements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.
The Company issues both fixed and variable rate debt in a range of currencies. It uses derivative contracts, primarily interest rate swaps, to effectively convert a portion of its fixed rate debt to variable rate debt and variable rate debt to fixed rate debt. The maturity structure of the derivatives generally corresponds to the maturity structure of the debt being hedged. In addition, the Company uses other derivative contracts to manage the foreign exchange impact of certain debt issuances.
Long-term debt at September 30, 20062007 and December 31, 20052006 includes $8,189$11,702 million and $6,459$9,775 million, respectively, of junior subordinated debt. The Company formed statutory business trusts under the laws of the state of Delaware, which exist for the exclusive purposes of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and
(iii) engaging in only those activities necessary or incidental thereto. Upon approval from the Federal Reserve, Citigroup has the right to redeem these securities.
Citigroup has contractually agreed not to redeem or repurchasepurchase (i) the 6.50% Enhanced Trust Preferred Securities of Citigroup Capital XV before September 15, 2056, (ii) the 6.45% Enhanced Trust Preferred Securities of Citigroup Capital XVI before December 31, 2046, (iii) the 6.35% Enhanced Trust Preferred Securities of Citigroup Capital XVII before March 15, 2057, (iv) the 6.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28, 2047 and (v) the 7.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15, 2047 unless certain conditions, described in Exhibit 4.03 to Citigroup's Current Report on Form 8-K filed on September 18, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on November 28, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on March 8, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on July 2, 2007, and in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on August 17, 2007, respectively, are met. This agreement isThese agreements are for the benefit of the holders of Citigroup's 6.00% Junior Subordinated Deferrable Interest Debentures due 2034.
For Regulatory Capital purposes, these Trust Securities remain a component of Tier 1 Capital. See "Capital Resources and Liquidity" on page 74.41.
Citigroup owns all of the voting securities of thethese subsidiary trusts. TheThese subsidiary trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the subsidiary trusts and the subsidiary trusts' common and preferred securities. TheThese subsidiary trusts' obligations are fully and unconditionally guaranteed by Citigroup.
The following table summarizes the financial structure of each of the Company's subsidiary trusts at September 30, 2006:2007:
Trust Securities with distributions Guaranteed by Citigroup: | | | | | | Junior Subordinated Debentures Owned by Trust | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Common Shares Issued to Parent | ||||||||||||||
Issuance Date | Securities Issued | Liquidation Value | Coupon Rate | Amount(1) | Maturity | Redeemable by Issuer Beginning | ||||||||||||
In millions of dollars, except share amounts | ||||||||||||||||||
Citicorp Capital I(2) | Dec. 1996 | 300,000 | $ | 300 | 7.933 | % | 9,000 | $ | 309 | Feb. 15, 2027 | Feb. 15, 2007 | |||||||
Citicorp Capital II(2) | Jan. 1997 | 450,000 | 450 | 8.015 | % | 13,500 | 464 | Feb. 15, 2027 | Feb. 15, 2007 | |||||||||
Citigroup Capital II | Dec. 1996 | 400,000 | 400 | 7.750 | % | 12,372 | 412 | Dec. 1, 2036 | Dec. 1, 2006 | |||||||||
Citigroup Capital III | Dec. 1996 | 200,000 | 200 | 7.625 | % | 6,186 | 206 | Dec. 1, 2036 | Not redeemable | |||||||||
Citigroup Capital VII | July 2001 | 46,000,000 | 1,150 | 7.125 | % | 1,422,681 | 1,186 | July 31, 2031 | July 31, 2006 | |||||||||
Citigroup Capital VIII | Sept. 2001 | 56,000,000 | 1,400 | 6.950 | % | 1,731,959 | 1,443 | Sept. 15, 2031 | Sept. 17, 2006 | |||||||||
Citigroup Capital IX | Feb. 2003 | 44,000,000 | 1,100 | 6.000 | % | 1,360,825 | 1,134 | Feb. 14, 2033 | Feb. 13, 2008 | |||||||||
Citigroup Capital X | Sept. 2003 | 20,000,000 | 500 | 6.100 | % | 618,557 | 515 | Sept. 30, 2033 | Sept. 30, 2008 | |||||||||
Citigroup Capital XI | Sept. 2004 | 24,000,000 | 600 | 6.000 | % | 742,269 | 619 | Sept. 27, 2034 | Sept. 27, 2009 | |||||||||
Citigroup Capital XIV | June 2006 | 22,600,000 | 565 | 6.875 | % | 40,000 | 566 | June 30, 2066 | June 30, 2011 | |||||||||
Citigroup Capital XV | Sept. 2006 | 47,400,000 | 1,185 | 6.500 | % | 40,000 | 1,186 | Sept. 15, 2066 | Sept. 15, 2011 | |||||||||
Adam Capital Trust I(3) | Nov. 2001 | 25,000 | 25 | 6 mo. LIB +375 bp. | 774 | 26 | Dec. 08, 2031 | Dec. 08, 2006 | ||||||||||
Adam Statutory Trust I(3) | Dec. 2001 | 23,000 | 23 | 3 mo. LIB +360 bp. | 712 | 24 | Dec. 18, 2031 | Dec. 18, 2006 | ||||||||||
Adam Capital Trust II(3) | Apr. 2002 | 22,000 | 22 | 6 mo. LIB +370 bp. | 681 | 23 | Apr. 22, 2032 | Apr. 22, 2007 | ||||||||||
Adam Statutory Trust II(3) | Mar. 2002 | 25,000 | 25 | 3 mo. LIB +360 bp. | 774 | 26 | Mar. 26, 2032 | Mar. 26, 2007 | ||||||||||
Adam Capital Trust III(3) | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | ||||||||||
Adam Statutory Trust III(3) | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | ||||||||||
Adam Statutory Trust IV(3) | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | ||||||||||
Adam Statutory Trust V(3) | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | ||||||||||
Total obligated | $ | 8,063 | $ | 8,260 | ||||||||||||||
| | | | | | Junior Subordinated Debentures Owned by Trust | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trust Securities with Distributions Guaranteed by Citigroup: | | | | | | |||||||||||||
| | | | Common Shares Issued to Parent | ||||||||||||||
Issuance Date | Securities Issued | Liquidation Value | Coupon Rate | Amount(1) | Maturity | Redeemable by Issuer Beginning | ||||||||||||
In millions of dollars, except share amounts | ||||||||||||||||||
Citigroup Capital III | Dec. 1996 | 200,000 | $ | 200 | 7.625 | % | 6,186 | $ | 206 | Dec. 1, 2036 | Not redeemable | |||||||
Citigroup Capital VII | July 2001 | 46,000,000 | 1,150 | 7.125 | % | 1,422,681 | 1,186 | July 31, 2031 | July 31, 2006 | |||||||||
Citigroup Capital VIII | Sept. 2001 | 56,000,000 | 1,400 | 6.950 | % | 1,731,959 | 1,443 | Sept. 15, 2031 | Sept. 17, 2006 | |||||||||
Citigroup Capital IX | Feb. 2003 | 44,000,000 | 1,100 | 6.000 | % | 1,360,825 | 1,134 | Feb. 14, 2033 | Feb. 13, 2008 | |||||||||
Citigroup Capital X | Sept. 2003 | 20,000,000 | 500 | 6.100 | % | 618,557 | 515 | Sept. 30, 2033 | Sept. 30, 2008 | |||||||||
Citigroup Capital XI | Sept. 2004 | 24,000,000 | 600 | 6.000 | % | 742,269 | 619 | Sept. 27, 2034 | Sept. 27, 2009 | |||||||||
Citigroup Capital XIV | June 2006 | 22,600,000 | 565 | 6.875 | % | 40,000 | 566 | June 30, 2066 | June 30, 2011 | |||||||||
Citigroup Capital XV | Sept. 2006 | 47,400,000 | 1,185 | 6.500 | % | 40,000 | 1,186 | Sept. 15, 2066 | Sept. 15, 2011 | |||||||||
Citigroup Capital XVI | Nov. 2006 | 64,000,000 | 1,600 | 6.450 | % | 20,000 | 1,601 | Dec. 31, 2066 | Dec. 31, 2011 | |||||||||
Citigroup Capital XVII | Mar. 2007 | 44,000,000 | 1,100 | 6.350 | % | 20,000 | 1,101 | Mar. 15, 2067 | Mar. 15, 2012 | |||||||||
Citigroup Capital XVIII | June 2007 | 500,000 | 1,019 | 6.829 | % | 50 | 1,019 | June 28, 2067 | June 28, 2017 | |||||||||
Citigroup Capital XIX | August 2007 | 49,000,000 | 1,225 | 7.250 | % | 20 | 1,226 | Aug. 15, 2067 | Aug. 15, 2012 | |||||||||
Adam Capital Trust III(2) | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | ||||||||||
Adam Statutory Trust III(2) | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | ||||||||||
Adam Statutory Trust IV(2) | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | ||||||||||
Adam Statutory Trust V(2) | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | ||||||||||
Total obligated | $ | 11,762 | $ | 11,923 | ||||||||||||||
In each case, the coupon rate on the debentures is the same as that on the Trust Securities.trust securities. Distributions on the Trust Securitiestrust securities and interest on the debentures are payable quarterly, except for Citigroup Capital IIIII and III, CiticorpCitigroup Capital I and II, and Adam Capital Trust I and II,XVIII, on which distributions are payable semiannually.
On March 18, 2007 and March 26, 2007, Citigroup redeemed for cash all of the $23 million and $25 million Trust Preferred Securities of Adam Statutory Trust I and Adam Statutory Trust II, respectively, at the redemption price of $1,000 per preferred security plus any accrued distributions up to but excluding the date of redemption.
On March 6, 2007, Citigroup issued $1.000 billion of Enhanced Trust Preferred Securities (Citigroup Capital XVII). An additional $100 million was issued, related to this Trust, on March 14, 2007.
On February 15, 2007, Citigroup redeemed for cash all of the $300 million Trust Preferred Securities of Citicorp Capital I, $450 million of Citicorp Capital II, and $400 million of Citigroup Capital II, at the redemption price of $1,000 per preferred security plus any accrued distributions up to but excluding the date of redemption.
On April 23, 2007, Citigroup redeemed for cash all of the $22 million Trust Preferred Securities of Adam Capital Trust II at the redemption price of $1,000 per preferred security plus any accrued distributions up to but excluding the date of redemption.
14.13. Securitizations and Variable Interest Entities
The Company primarily securitizes credit card receivables and mortgages. Other types of assets securitized include corporate debt securities, auto loans, and student loans.
After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. The Company also arranges for third parties to provide credit enhancement to the trusts, including cash collateral accounts, subordinated securities and letters of credit. As specifiedThe Company also retains an interest in somethe residual cash flows of the sale agreements,securitized credit card receivables. The residual cash flows are the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available overfinance charge collections on the remaining termsecuritized receivables reduced by payment of that transaction to make payments of yield,investor coupon on trust securities, servicing fees, and transaction costs in the event that net credit losses. The residual cash flows from the receivables are not sufficient. Once the predetermined amount is reached, net revenue is recognized byperiodically remitted to the Citigroup subsidiary that sold the receivables.receivables, assuming certain trust performance measures that protect the investors of the trust are met. A residual interest asset, which is an estimate of the amount and timing of these future residual cash collections, and gain on sale are recognized at the time receivables are sold.
The Company provides a wide range of mortgage and other loan products to a diverse customer base. In connection with the securitization of these loans, the servicing rights entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees. In non-recourse servicing, the principal credit risk to the Company is the cost of temporary advances of funds. In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a private investor, insurer, or guarantor. Losses on recourse servicing occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage are less than the outstanding principal balance and accrued interest of the loan and the cost of holding and disposing of the underlying property. The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchaser of the securities issued by the trust.
| Three Months Ended September 30, 2007 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 7.1 | $ | 26.4 | $ | 7.5 | $ | 12.4 | $ | — | |||||
Proceeds from collections reinvested in new receivables | 58.1 | — | — | — | 0.3 | ||||||||||
Contractual servicing fees received | 0.6 | 0.5 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | 0.1 | — | — | — | ||||||||||
| Three Months Ended September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 2.5 | $ | 18.7 | $ | 6.0 | $ | 9.2 | $ | 2.6 | |||||
Proceeds from collections reinvested in new receivables | 54.8 | — | — | — | 0.5 | ||||||||||
Contractual servicing fees received | 0.5 | 0.3 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | — | — | — | — | ||||||||||
The Company also originates and sells first mortgage loans in the ordinary course of its mortgage banking activities. The Company sells some of these loans to the Government National Mortgage Association (GNMA) with the servicing rights retained. GNMA has the primary recourse obligation on the individual loans; however, GNMA's recourse obligation is capped at a fixed amount per loan. Any losses above that fixed amount are borne by Citigroup as the seller/servicer.
The following table summarizes certain cash flows received from and paid to securitization trusts during the three and nine months ended September 30, 2006 and 2005:
| Three Months Ended September 30, 2006 | Three Months Ended September 30, 2005 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | Mortgages | Other(1) | Credit Cards | Mortgages | Other(1) | ||||||||||||
Proceeds from new securitizations | $ | 2.5 | $ | 24.7 | $ | 11.8 | $ | 5.1 | $ | 25.0 | $ | 7.1 | ||||||
Proceeds from collections reinvested in new receivables | 54.8 | 0.5 | — | 51.7 | 0.5 | — | ||||||||||||
Contractual servicing fees received | 0.5 | 0.3 | — | 0.5 | 0.2 | — | ||||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | — | — | 1.8 | — | — | ||||||||||||
| Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2005 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | Mortgages | Other(1) | Credit Cards | Mortgages | Other(1) | ||||||||||||
Proceeds from new securitizations | $ | 16.9 | $ | 69.0 | $ | 28.7 | $ | 14.4 | $ | 62.3 | $ | 24.9 | ||||||
Proceeds from collections reinvested in new receivables | 161.8 | 0.9 | — | 143.5 | 0.8 | — | ||||||||||||
Contractual servicing fees received | 1.6 | 0.7 | — | 1.4 | 0.7 | — | ||||||||||||
Cash flows received on retained interests and other net cash flows | 6.5 | 0.1 | — | 5.0 | 0.1 | 0.1 | ||||||||||||
| Nine Months Ended September 30, 2007 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 19.7 | $ | 83.0 | $ | 37.1 | $ | 35.7 | $ | 1.5 | |||||
Proceeds from collections reinvested in new receivables | 165.8 | — | — | — | 1.6 | ||||||||||
Contractual servicing fees received | 1.7 | 1.3 | — | — | 0.1 | ||||||||||
Cash flows received on retained interests and other net cash flows | 6.3 | 0.2 | — | — | 0.1 | ||||||||||
| Nine Months Ended September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 16.9 | $ | 50.0 | $ | 19.0 | $ | 25.8 | $ | 2.8 | |||||
Proceeds from collections reinvested in new receivables | 161.8 | — | — | — | 0.9 | ||||||||||
Contractual servicing fees received | 1.6 | 0.7 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 6.5 | — | — | — | — | ||||||||||
The Company recognized gains on securitizations of U.S. Consumer mortgages of $37$46 million and $21 million for the three-month periods ended September 30, 20062007 and 2005,2006, respectively, and $98$129 million and $134$55 million during the first nine months of 20062007 and 2005,2006, respectively. In the third quarter of 20062007 and 2005,2006, the Company recorded net gains of $0.1 billion$74 million and $0.3 billion, respectively,$264 million related to the securitization of credit card receivables, and $0.6 billion$470 million and $0.8 billion$719 million for the nine months ended September 30, 20062007 and 2005,2006, respectively. Gains recognized on the securitization of Markets & Banking and other assets during the third quarter of 2007 and 2006 and 2005 were $74$15 million and $50$89 million, respectively, and were $165$120 million and $80$203 million duringfor the first nine months ofended 2007 and 2006, and 2005, respectively.
Key assumptions used for securitizations of credit cards, mortgages, and other assetsasset securitizations during the three months ended September 30, 20062007 and 20052006 in measuring the fair value of retained interests at the date of sale or securitization follow:
| Three Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Credit Cards | U.S. Consumer Mortgages | Banking Mortgages | Other | Other(1) | |||||||||
Discount rate | 12.8% to | N/A | ||||||||||||
Constant prepayment rate | N/A | |||||||||||||
Anticipated net credit losses | N/A |
Three Months Ended September 30, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||
Discount rate | 12.0% to 16.2% | 8.9% to 10.1% | 5.0% to 26.0% | 0.4% to 21.0% | 10.0% | |||||
Constant prepayment rate | 6.7% to 21.7% | 7.0% to 15.7% | 9.0% to 43.0% | 14.0% to 33.0% | 5.0% | |||||
Anticipated net credit losses | 3.8% to 5.9% | N/A | 0.0% to 40.0% | N/A | 0.1% |
As required by SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140), the effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests must be disclosed. The negative effect of each change must be calculated independently, holding all other assumptions constant. Because the key assumptions may not in fact be independent, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.
At September 30, 2006,2007, the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows:
Key assumptions at September 30, 20062007
| September 30, 2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Markets & Banking Other | Other(2) | |||||||||
27.9% | 5.6% to 27.9% | 10.7% to 12.7% | ||||||||
Constant prepayment rate | ||||||||||
26.0% | 3.4% to 11.2% | |||||||||
Anticipated net credit losses | 3.8% to 5.9% | N/A | 24.0% to 100.0% | N/A | 0.3% to 1.1% | |||||
Weighted average life | 10.7 to 11.0 months | 6.9 years | 6.5 to 21.2 years | 6.5 to 9.8 years | 4 to 8 years |
| | September 30, 2006 | | September 30, 2007 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | Credit Cards | Mortgages and Other | In millions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||||||||
Carrying value of retained interests | Carrying value of retained interests | $ | 8,510 | $ | 13,172 | Carrying value of retained interests | $ | 11,105 | $ | 11,230 | $ | 3,849 | $ | 37,835 | $ | 1,395 | |||||||||
Discount rate | |||||||||||||||||||||||||
Discount Rates | Discount Rates | ||||||||||||||||||||||||
10% | $ | (62 | ) | $ | (199 | ) | 10% | $ | (62 | ) | $ | (317 | ) | $ | (37 | ) | $ | (19 | ) | $ | (26 | ) | |||
20% | (122 | ) | (388 | ) | 20% | (122 | ) | (620 | ) | (72 | ) | (37 | ) | (51 | ) | ||||||||||
Constant prepayment rate | Constant prepayment rate | Constant prepayment rate | |||||||||||||||||||||||
10% | $ | (145 | ) | $ | (321 | ) | 10% | $ | (234 | ) | $ | (491 | ) | $ | (21 | ) | $ | (1 | ) | $ | (13 | ) | |||
20% | (274 | ) | (608 | ) | 20% | (440 | ) | (938 | ) | (46 | ) | (1 | ) | (27 | ) | ||||||||||
Anticipated net credit losses | Anticipated net credit losses | Anticipated net credit losses | |||||||||||||||||||||||
10% | $ | (397 | ) | $ | (11 | ) | 10% | $ | (404 | ) | $ | (8 | ) | $ | (53 | ) | $ | — | $ | (6 | ) | ||||
20% | (791 | ) | (90 | ) | 20% | (805 | ) | (16 | ) | (101 | ) | — | (13 | ) | |||||||||||
Managed Loans
After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. As a result, the Company considers the securitized credit card receivables to be part of the business it manages.
The following tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) at September 30, 20062007 and December 31, 2005,2006, and credit losses, net of recoveries for the three-three-month and nine-month periods ended September 30, 20062007 and 2005.2006.
In millions of dollars, except principal amounts in billions | Sept. 30, 2006 | Dec. 31, 2005 | ||||
---|---|---|---|---|---|---|
Principal amounts, at period end | ||||||
On-balance sheet | $ | 69.1 | $ | 69.5 | ||
Securitized amounts | 99.2 | 96.2 | ||||
Loans held-for-sale | 0.6 | — | ||||
Total managed | $ | 168.9 | $ | 165.7 | ||
Delinquencies, at period end | ||||||
On balance sheet | $ | 1,459 | $ | 1,630 | ||
Securitized amounts | 1,519 | 1,314 | ||||
Loans held-for-sale | — | — | ||||
Total managed | $ | 2,978 | $ | 2,944 | ||
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit losses, net of recoveries(In millions of dollars) | |||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
On-balance sheet | $ | 803 | $ | 817 | $ | 2,247 | $ | 2,530 | |||||
Securitized amounts | 1,051 | 1,267 | 2,891 | 3,736 | |||||||||
Loans held-for-sale | 1 | — | 5 | 13 | |||||||||
Total managed | $ | 1,855 | $ | 2,084 | $ | 5,143 | $ | 6,279 | |||||
In billions of dollars | Sept. 30, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Principal amounts, at period end | ||||||
On-balance sheet loans | $ | 78.3 | $ | 75.5 | ||
Securitized amounts | 104.0 | 99.5 | ||||
Loans held-for-sale | 3.0 | — | ||||
Total managed | $ | 185.3 | $ | 175.0 | ||
In millions of dollars | ||||||
Delinquencies, at period end | ||||||
On balance sheet loans | $ | 1,589 | $ | 1,427 | ||
Securitized amounts | 1,595 | 1,616 | ||||
Loans held-for-sale | 40 | — | ||||
Total managed | $ | 3,224 | $ | 3,043 | ||
| Three Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||
Credit losses, net of recoveries | |||||||
On-balance sheet loans | $ | 993 | $ | 803 | |||
Securitized amounts | 1,174 | 1,051 | |||||
Loans held-for-sale | — | 1 | |||||
Total managed | $ | 2,167 | $ | 1,855 | |||
| Nine Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||
Credit losses, net of recoveries | |||||||
On-balance sheet loans | $ | 2,621 | $ | 2,247 | |||
Securitized amounts | 3,481 | 2,891 | |||||
Loans held-for-sale | — | 5 | |||||
Total managed | $ | 6,102 | $ | 5,143 | |||
The carryingfair value of capitalized mortgage loan servicing rights (MSRs) was $5.5$10.0 billion, $4.3$10.1 billion and $4.2$5.5 billion at September 30, 2006, December 31, 20052007, June 30, 2007 and September 30, 2005,2006, respectively. With
The following table summarizes the changes in capitalized MSRs:
| Three Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2007 | 2006 | ||||||
Balance, beginning of period | $ | 10,072 | $ | 5,565 | |||
Originations | 477 | 294 | |||||
Purchases | 271 | 345 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (555 | ) | — | ||||
Other changes(1) | (308 | ) | (748 | ) | |||
Balance, end of period | $ | 9,957 | $ | 5,456 | |||
| Nine Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2007 | 2006 | ||||||
Balance, beginning of period | $ | 5,439 | $ | 4,339 | |||
Originations | 1,438 | 778 | |||||
Purchases | 3,404 | 673 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | 611 | — | |||||
Other changes(1) | (935 | ) | (334 | ) | |||
Balance, end of period | $ | 9,957 | $ | 5,456 | |||
The market for MSRs is not sufficiently liquid to provide participants with quoted market prices. Therefore, the Company electinguses an option-adjusted spread valuation approach to early-adopt SFAS 156, "Accounting for Servicing of Financial Assets", as of January 1, 2006, MSRs are accounted for at fair value, with changes in value recorded as fee revenue in current earnings. Previously, only the portion of the MSR portfolio that was hedged with instruments qualifying for hedge accounting under SFAS 133 was recorded at fair value. The remaining portion, which was hedged with instruments that did not qualify for hedge accounting under SFAS 133, was accounted for at the lower-of-cost-or-market and included within other revenue. The impact of this change to Citigroup's financial statements was not material.
The Company determinesdetermine the fair value of MSRs by discounting projected netMSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios, and discounting these cash flows using risk-adjusted discount rates. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The model assumptions and the remaining servicing portfolioMSRs' fair value estimates are compared to observable trades of similar MSR portfolios and considering market loaninterest-only security portfolios, as well as to MSR broker valuations and industry surveys. The cash flow model and underlying prepayment predictions and other economic factors.interest rate models used to value these MSRs are subject to validation in accordance with the Company's model validation policies. Refer to key assumptions at September 30, 2007 on page 70 for the key assumptions used in the MSR valuation process.
The fair value of the MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase commitments of mortgage-backed securities, and purchased securities classified as available-for-sale or trading (primarily fixed income debt, such as U.S. governmenttrading. The amount of contractually specified servicing fees, late fees and agencies obligations,ancillary fees earned were $481 million, $24 million and mortgage-backed securities including principal-only strips).
The following table summarizes$16 million, respectively, for the changes in capitalized MSRs:
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2006 | 2005 | 2006 | 2005 | |||||||||
Balance, beginning of period | $ | 5,565 | $ | 3,410 | $ | 4,339 | $ | 4,149 | |||||
Originations | 294 | 213 | 778 | 595 | |||||||||
Purchases | 345 | 105 | 673 | 107 | |||||||||
Gain (loss) on change in value of MSRs | (748 | ) | 308 | (334 | ) | (153 | ) | ||||||
Amortization(1) | — | (212 | ) | — | (613 | ) | |||||||
Provision for impairments(1) | — | 356 | — | 95 | |||||||||
Balance, end of period | $ | 5,456 | $ | 4,180 | $ | 5,456 | $ | 4,180 | |||||
Variable Interest Entities
FASB Interpretation No. 46-R, "Consolidation of Variable Interest Entities" (FIN 46-R) applies to those entities which have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights, rights to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Those investors who provide the additional support necessary to finance the VIE are variable interest holders in the entity. The variable interest holder, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE.
The following table represents the carrying amounts and classification of consolidated assets that are collateral for VIE obligations, including VIEs that were consolidated prior to the implementation of FIN 46-R under existing guidance and VIEs that the Company became involved with after July 1, 2003:
In billions of dollars | September 30, 2006 | December 31, 2005 | ||||
---|---|---|---|---|---|---|
Cash | $ | 0.3 | $ | 0.4 | ||
Trading account assets | 28.1 | 29.7 | ||||
Investments | 4.9 | 3.2 | ||||
Loans | 8.0 | 9.5 | ||||
Other assets | 5.3 | 4.7 | ||||
Total assets of consolidated VIEs | $ | 46.6 | $ | 47.5 | ||
The consolidated VIEs included in the table above represent hundreds of separate entities with which the Company is involved and include VIEs consolidated as a result of adopting FIN 46-R and FIN 46. Of the $46.6 billion and $47.5 billion of total assets of VIEs consolidated by the Company at September 30, 2006 and December 31, 2005, respectively, $36.0 billion and $37.2 billion represent structured transactions where the Company packages and securitizes assets purchased in the financial markets or from clients in orderIn billions of dollars Sept. 30,
2007 December 31,
2006(1)Cash $ 1.7 $ 0.5 Trading account assets 24.5 16.7 Investments 27.0 25.0 Loans 9.5 6.8 Other assets 4.2 5.7 Total assets of consolidated VIEs $ 66.9 $ 54.7
The Company may provide various products and services to the VIEs. It may provide liquidity facilities, may be a party to derivative contracts with VIEs, may provide loss enhancement in the form of letters of credit and other guarantees to the VIEs, may be the investment manager, and may also have an ownership interest or other investment in certain VIEs. All of these facts and circumstances are taken into consideration when determining whether the Company has significant variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE. In general, the investors in the obligations of consolidated VIEs have recourse only to the assets of the VIEs and do not have recourse to the Company, except where the Company has provided a guarantee to the investors or is the counterparty to a derivative transaction involving the VIE.
The consolidated VIEs included in the table above represent hundreds of separate entities with which the Company is involved and include VIEs consolidated as a result of adopting FIN 46-R and FIN 46. Of the $66.9 billion and $54.7 billion of total assets of VIEs consolidated by the Company at September 30, 2007 and December 31, 2006, respectively, $17.7 billion and $39.2 billion represent structured transactions where the Company packages and securitizes assets purchased in the financial markets or from clients in order to create new security offerings and financing opportunities for clients; $46.9 billion and $13.1 billion represent investment vehicles that were established to provide a return to the investors in the vehicles; and $2.2 billion and
$2.4 billion represent vehicles that hold lease receivables and equipment as collateral to issue debt securities, thus obtaining secured financing at favorable interest rates.
In addition to the VIEs that are consolidated in accordance with FIN 46-R, the Company has significant variable interests in certain other VIEs that are not consolidated because the Company is not the primary beneficiary. These include multi-seller finance companies,asset-backed commercial paper conduits, structured investment vehicles (SIVs), collateralized debt obligations (CDOs), structured finance transactions, and numerous investment funds. In addition to these VIEs, the Company issues preferred securities to third- party investors through trust vehicles as a source of funding and regulatory capital, which were deconsolidated duringcapital.
The following table represents the first quartertotal assets of 2004. The Company's liabilities tounconsolidated VIEs where the deconsolidated trust are included in long-term debt.Company has significant involvement:
In billions of dollars | Sept. 30, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Asset-backed commercial paper (ABCP) conduits | $ | 73.3 | $ | 66.3 | ||
Structured investment vehicles (SIVs) | 83.1 | 79.5 | ||||
Other investment vehicles | 27.0 | 42.6 | ||||
Collateralized debt obligations (CDOs) | 84.2 | 52.1 | ||||
Mortgage-related transactions | 11.9 | 2.7 | ||||
Trust preferred securities | 11.7 | 9.8 | ||||
Structured finance and other | 52.2 | 41.1 | ||||
Total assets of significant unconsolidated VIEs | $ | 343.4 | $ | 294.1 | ||
Asset-Backed Commercial Paper Conduits
The Company administers several third-party-owned, special purpose, multi-seller finance companiesasset-backed commercial paper conduits that purchase pools of trade receivables, credit cards,card receivables, and other financial assets from multiple third-party clients of the Company. As administrator of these multi-seller finance companies, the Company provides accounting, funding, and operations services to these conduits. Generally, the Company has no ownership interest in the conduits. The sellers continue to service the transferred assets.assets they transferred. The conduits' asset purchases are funded by issuing commercial paper and medium-term notes. The sellers absorb the first losses of the conduits by providing collateral in the form of excess assets. Typically, the issuance of commercial paper is done on a revolving basis, in which the maturing paper is retired with the funds received from issuing new commercial paper at current market terms. The Company, along with other financial institutions, provides liquidity facilities, such as liquidity asset purchase agreements and commercial paper backstop lines of credit to the conduits.conduits, which offer an alternative source of funding should the conduit be unable to replace fully the maturing commercial paper in the commercial paper market. In the event of liquidity problems in the commercial paper market, the Company's asset purchase agreements require the Company to purchase only high quality performing assets from the conduits at their fair values. The Company also provides loss enhancement in the form of letters of credit and other guarantees. All fees are charged on a market basis.
During 2003, toTo comply with FIN 46-R, many of the conduits issued "first loss" subordinated notes such that one third-party investor in each conduit would be deemed the primary beneficiary and would consolidate the conduit. At September 30, 2006
A SIV is a special purpose investment company, which holds high quality asset portfolios that are funded through the issuance of junior notes, medium-term notes and December 31, 2005, totalshort-term commercial paper. The junior notes are subject to the "first loss" risk of the vehicle. The spread between the short-term funding (commercial paper and medium-term notes) and high quality asset portfolios provides a leveraged return to the junior note holders. SIVs are subject to liquidity and refinancing risk and must repay a significant portion of maturing commercial paper and medium-term notes through the issuance of new debt. Should a SIV not be able to meet its funding needs due to a lack of liquidity in the market, it may be forced to sell assets at a time when prices are depressed.
CAI's Global Credit Structures investment center is the investment manager for seven SIVs. Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs. Citigroup is not the primary beneficiary of any of the Citi-advised SIVs and therefore does not include the SIVs in unconsolidated conduits were $69.5 billion and $55.3 billion, respectively.its consolidated financial statements.
Collateralized Debt Obligations
The Company also packages and securitizes assets purchased in the financial markets in order to create new security offerings, including arbitrage CDOs and synthetic CDOs for institutional clients and retail customers, thatwhich match the clients' investment needs and preferences. An arbitrage CDO is an investment vehicle designed to take advantage of the difference between the yield on a portfolio of selected assets and the cost of funding the CDO through the sale of notes to investors. Arbitrage CDOs are classified as either "cash flow" CDOs, in which the vehicle passes on cash flows from a relatively static pool of assets, or "market value" CDOs, where the pool of assets is actively managed by a third party. In a synthetic CDO, the entity enters into derivative transactions which provide a return similar to a cash instrument to the entity, rather than the entity's actually purchasing the cash instrument. Typically, these instruments diversify investors' risk to a pool of assets as compared with investments in an individual asset. The
VIEs, which are issuers of CDO securities, are generally organized as limited liability corporations. The Company typically receives fees for structuring and/or distributing the securities sold to investors. In some cases, the Company may repackage the investment with higher rated debt CDO securities or U.S. Treasury securities to provide a greater or a very high degree of certainty of the return of invested principal. A third-party manager is typically retained by the VIE to select collateral for inclusion in the pool and then actively manage it, or, in other cases, only to manage work-out credits. The Company may also provide other financial services and/or products to the
VIEs for market-rate fees. These may include: the provision of liquidity or contingent liquidity facilities; interest rate or foreign exchange hedges and credit derivative instruments; and the purchasing and warehousing of securities until they are sold to the SPE. The Company is not the primary beneficiary of these VIEs under FIN 46-R due to its limited continuing involvement and, as a result, does not consolidate their assets and liabilities in its financial statements.
In additionTrust Preferred Securities
Trust preferred securities are issued by entities which were formed by the Company and 100% of whose common stock belongs to the conduits discussedCompany. The proceeds obtained by the trust from the issuance of these securities are used to purchase long-term notes (generally 30 or 60 years) issued or guaranteed by the Company. These trusts are considered to be VIEs, as defined above, the following table represents the assets of unconsolidated VIEs whereand are not consolidated by the Company has significant involvement:under FIN 46-R. The Company is not deemed to be the primary beneficiary due to its limited exposure to the risks of the entity. For further discussion regarding these securities, see Note 12 on page 66.
In billions of dollars | September 30, 2006 | December 31, 2005 | ||||
---|---|---|---|---|---|---|
CDO-type transactions | $ | 41.7 | $ | 40.7 | ||
Investment-related transactions | 78.2 | 61.1 | ||||
Trust preferred securities | 8.2 | 6.5 | ||||
Mortgage-related transactions | 1.2 | 3.1 | ||||
Structured finance and other | 38.1 | 60.5 | ||||
Total assets of significant unconsolidated VIEs | $ | 167.4 | $ | 171.9 | ||
Other VIEs
The Company has also established a number of investment funds as opportunities for qualified employees to invest in venture capital investments. The Company acts as investment manager to these funds and may provide employees with financing on both a recourse and non-recourse basis for a portion of the employees' investment commitments.
In addition, the Company administers numerous personal estate trusts. The Company may act as trustee and may also be the investment manager for the trust assets.
As mentioned above, the Company may, along with other financial institutions, provide liquidity facilities, such as commercial paper backstop lines of credit to the VIEs. The Company may be a party to derivative contracts with VIEs, may provide loss enhancement in the form of letters of credit and other guarantees to the VIEs, may be the investment manager, and may also have an ownership interest in certain VIEs. Although actual losses are not expected to be material, theThe Company's maximum exposure to loss as a result of its involvement with VIEs that are not consolidated was $93$141 billion and $91$109 billion at September 30, 20062007 and December 31, 2005,2006, respectively. For this purpose, maximum exposure is considered to be the notional amounts of credit lines, guarantees, other credit support, and liquidity facilities, the notional amounts of credit default swaps and certain total return swaps, and the amount invested where Citigroup has an ownership interest in the VIEs. In addition, the Company may be party to other derivative contracts with VIEs. Exposures that are considered to be guarantees are also included in Note 17This maximum amount of exposure bears no relationship to the Consolidated Financial Statementsanticipated losses on page 118.these exposures.
| Maximum Exposure | ||||||
---|---|---|---|---|---|---|---|
In billions of dollars | September 30, 2007 | December 31, 2006 | |||||
Asset-backed commercial paper | |||||||
Conduits | $ | 69 | $ | 56 | |||
Structured Investment | |||||||
Vehicles (SIVs)(1) | 3 | — | |||||
Collateralized debt obligations | 43 | 34 | |||||
Other structured financing arrangements | 26 | 19 | |||||
Total | $ | 141 | $ | 109 | |||
15.14. Changes in Equity from Nonowner SourcesAccumulated Other Comprehensive Income (Loss) ("AOCI")
Changes in each component of Accumulated Other Changes in Equity from Nonowner SourcesAOCI for the three-first, second and nine-month periods ended September 30, 2006 arethird quarters of 2007 were as follows:
In millions of dollars | Net Unrealized Gains (Losses) on Investment Securities | Foreign Currency Translation Adjustment | Cash Flow Hedges | Minimum Pension Liability Adjustment | Accumulated Other Changes in Equity from Nonowner Sources | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2005 | $ | 1,084 | $ | (4,090 | ) | $ | 612 | $ | (138 | ) | $ | (2,532 | ) | |||
Decrease in net unrealized gains on investment securities, net of tax | (110 | ) | — | — | — | (110 | ) | |||||||||
Less: Reclassification adjustment for gains included in net income, net of tax(1) | (246 | ) | — | — | — | (246 | ) | |||||||||
Foreign currency translation adjustment, net of tax(2) | — | (28 | ) | — | — | (28 | ) | |||||||||
Cash flow hedges, net of tax | — | — | 206 | — | 206 | |||||||||||
Minimum pension liability adjustment, net of tax(3) | — | — | — | 4 | 4 | |||||||||||
Change | $ | (356 | ) | $ | (28 | ) | $ | 206 | $ | 4 | $ | (174 | ) | |||
Balance, March 31, 2006 | $ | 728 | $ | (4,118 | ) | $ | 818 | $ | (134 | ) | $ | (2,706 | ) | |||
Increase in net unrealized losses on investment securities, net of tax | (778 | ) | — | — | — | (778 | ) | |||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (196 | ) | — | — | — | (196 | ) | |||||||||
Foreign currency translation adjustment, net of tax(2) | — | 27 | — | — | 27 | |||||||||||
Cash flow hedges, net of tax | — | — | 305 | — | 305 | |||||||||||
Minimum pension liability adjustment, net of tax(3) | — | — | — | (3 | ) | (3 | ) | |||||||||
Change | $ | (974 | ) | $ | 27 | $ | 305 | $ | (3 | ) | $ | (645 | ) | |||
Balance, June 30, 2006 | $ | (246 | ) | $ | (4,091 | ) | $ | 1,123 | $ | (137 | ) | $ | (3,351 | ) | ||
Increase in net unrealized gains on investment securities, net of tax(4) | 1,445 | — | — | — | 1,445 | |||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (198 | ) | — | — | — | (198 | ) | |||||||||
Foreign currency translation adjustment, net of tax(5) | — | 475 | — | — | 475 | |||||||||||
Cash flow hedges, net of tax(6) | — | — | (1,191 | ) | — | (1,191 | ) | |||||||||
Minimum pension liability adjustment, net of tax(3) | — | — | — | (2 | ) | (2 | ) | |||||||||
Current period change | $ | 1,247 | $ | 475 | $ | (1,191 | ) | $ | (2 | ) | $ | 529 | ||||
Balance, September 30, 2006 | $ | 1,001 | $ | (3,616 | ) | $ | (68 | ) | $ | (139 | ) | $ | (2,822 | ) | ||
In millions of dollars | Net Unrealized Gains on Investment Securities | Foreign Currency Translation Adjustment | Cash Flow Hedges | Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2006 | $ | 943 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,700 | ) | ||
Adjustment to opening balance, net of tax(1) | 149 | — | — | — | 149 | |||||||||||
Adjusted balance, beginning of year | $ | 1,092 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,551 | ) | ||
Increase in net unrealized gains on investment securities, net of tax | 466 | — | — | — | 466 | |||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (307 | ) | — | — | — | (307 | ) | |||||||||
Foreign currency translation adjustment, net of tax | — | (121 | ) | — | — | (121 | ) | |||||||||
Cash flow hedges, net of tax(2) | — | — | (439 | ) | — | (439 | ) | |||||||||
Pension liability adjustment, net of tax | — | — | — | 77 | 77 | |||||||||||
Change | $ | 159 | $ | (121 | ) | $ | (439 | ) | $ | 77 | $ | (324 | ) | |||
Balance, March 31, 2007 | $ | 1,251 | $ | (2,917 | ) | $ | (500 | ) | $ | (1,709 | ) | $ | (3,875 | ) | ||
Decrease in net unrealized gains on investment securities, net of tax(3) | (926 | ) | — | — | — | (926 | ) | |||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (77 | ) | — | — | — | (77 | ) | |||||||||
Foreign currency translation adjustment, net of tax(4) | — | 818 | — | — | 818 | |||||||||||
Cash flow hedges, net of tax(5) | — | — | 1,046 | — | 1,046 | |||||||||||
Pension liability adjustment, net of tax | — | — | — | 44 | 44 | |||||||||||
Change | $ | (1,003 | ) | $ | 818 | $ | 1,046 | $ | 44 | $ | 905 | |||||
Balance, June 30, 2007 | $ | 248 | $ | (2,099 | ) | $ | 546 | $ | (1,665 | ) | $ | (2,970 | ) | |||
Increase in net unrealized gains on investment securities, net of tax | 605 | — | — | — | 605 | |||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (171 | ) | — | — | — | (171 | ) | |||||||||
Foreign currency translation adjustment, net of tax(6) | — | 861 | — | — | 861 | |||||||||||
Cash flow hedges, net of tax(7) | — | — | (2,003 | ) | — | (2,003 | ) | |||||||||
Pension liability adjustment, net of tax | — | — | — | 123 | 123 | |||||||||||
Current period change | $ | 434 | $ | 861 | $ | (2,003 | ) | $ | 123 | $ | (585 | ) | ||||
Balance, September 30, 2007 | $ | 682 | $ | (1,238 | ) | $ | (1,457 | ) | $ | (1,542 | ) | $ | (3,555 | ) | ||
16.15. Derivatives and Other Activities
In the ordinary course of business, Citigroup enters into various types of derivative transactions. These derivative transactions include:
Citigroup enters into these derivative contracts for the following reasons:
Citigroup accounts for its hedging activity in accordance with SFAS 133. As a general rule, SFAS 133 hedge accounting is permitted for those situations where the Company is exposed to a particular risk, such as interest rate or foreign exchange risk, that causes changes in the fair value of an asset or liability, or variability in the expected future cash flows of an existing asset, liability, or a forecasted transaction.transaction that may affect earnings.
Derivative contracts hedging the risks associated with the changes in fair value are referred to asfair value hedges, while contracts hedging the risks affecting the expected future cash flows are calledcash flow hedges. Hedges that utilize derivatives to manage the foreign exchange risk associated with equity investments in non-USnon-U.S. dollar functional currency foreign subsidiaries are callednet investment hedges.hedges.
All derivatives are reported on the balance sheet at fair value. If certain hedging criteria specified in SFAS 133 are met, including testing for hedginghedge effectiveness, special hedge accounting may be applied. The hedge effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair value hedges, the changes in value of the hedging derivative, as well as the changes in value of the related hedged item, due to the risk being hedged, are reflected in current earnings. For cash flow hedges and net investment hedges, the changes in value of the hedging derivative are reflected in Accumulated other changes in equity from nonowner sourcescomprehensive income (loss) in stockholders' equity, to the extent the hedge was effective. Hedge ineffectiveness, in either case, is reflected in current earnings.
Continuing with the example referred to above, the fixed rate long-term note is recorded at amortized cost under current U.S. GAAP. However, by electing to use SFAS 133 hedge accounting, the carrying value of this note is adjusted for changes in the benchmark floatinginterest rate, with any changes in fair value recorded in current earnings. The related interest rate swap is also recorded on the balance sheet at fair value, with any changes in fair value attributable to changes in interest rates reflected in earnings. Thus, any ineffectiveness resulting from the hedging relationship is recorded in current earnings. Alternatively, an economic-basiseconomic hedge, which does not meet the SFAS 133 hedging criteria, would involve only recording the derivative at fair value on the balance sheet, with its associated changes in value recorded in earnings. The note would continue to be carried at amortized cost and, therefore, current earnings would be impacted only by the interest rate shifts that cause the change in the swap's value. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved in an efficient and cost-effective manner.achieved.
Fair value hedges
Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale securities reverse repurchase agreements and inter-bank placements. The hedging instruments mainly used are receive-variable, pay-fixed interest rate swaps for the remaining hedged asset categories. Most of these fair value hedging relationships use dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis, while others use regression analysis.
For a limited number of fair value hedges of benchmark interest rate risk, Citigroup uses the "shortcut" method as
SFAS 133 allows the Company to assume no ineffectiveness if the hedging relationship involves an interest-bearing financial asset or liability and an interest rate swap. In order to assume no ineffectiveness, Citigroup ensures that all the shortcut method requirements of SFAS 133 for these types of hedging relationships are met.
Cash flow hedges
Citigroup also hedges variable cash flows resulting from investments in floating-rate available-for-sale securities, loans and receivables.securities. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. These cash flow hedging relationships use regression or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Efforts are made initially to align the terms of the derivatives to those hedged forecasted cash flows. As a result, the amount of hedge ineffectiveness is not significant.
Citigroup also hedges the forecasted purchase of mortgage-backed securities and designates the overall change in the purchase price as a hedged risk. The assessment of effectiveness is based on ensuring that the critical terms of the hedging instrument and the hedged item match exactly.
Net investment hedges
Consistent with SFAS No. 52, "Foreign Currency TranslationTranslation" (SFAS 52), SFAS 133 allows hedging of the foreign currency risk of a net investment in a foreign operation. Citigroup primarily uses foreign currency forward contracts, short-term borrowings, and to a lesser extent foreign currency future contractsforwards, swaps and foreign-currency-denominated debt instruments to manage the foreign exchange risk associated with Citigroup's equity investments in several non-USnon-U.S. dollar functional currency foreign subsidiaries. In accordance with SFAS 52, Citigroup records the change in the carrying amount of these investments in the cumulative translation adjustment account within Accumulated other changes in equity from nonowner sources.comprehensive income (loss). Simultaneously, the effective portion of the hedge of this exposure is also recorded in the cumulative translation adjustment account, and any ineffective portion of net investment hedges is immediately recorded in earnings.
For derivatives used in net investment hedges, Citigroup follows the forward rate method from FASB Derivative Implementation Group Issue H8. According to that method, all changes in fair value, including changes related to the forward
rate component of the foreign currency forward contracts, are recorded in the cumulative translation adjustment account. For foreign currency-denominated debt instruments that are designated as hedges of net investments, the translation gain or loss that is recorded in the cumulative translation adjustment account is based on the spot exchange rate between the functional currency of the respective subsidiary and the U.S. dollar, which is the functional currency of Citigroup.
Achieving hedge accounting in compliance with SFAS 133 guidelines is extremely complex, and therefore Citigroup implemented SFAS 133 hedge accounting policies wherein associated hedges are subject to a periodic review process by qualified staff.complex. Key aspects of achieving SFAS 133 hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that, if excluded, are recognized in current earnings.
The following table summarizes certain information related to the Company's hedging activities for the three-three and nine-month periodsnine months ended September 30, 20062007 and 2005:2006:
| | Three Months Ended September 30, | Nine Months Ended September 30, | | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | |||||||||||||||||||||||||||
In millions of dollars | 2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||
Fair value hedges | Fair value hedges | Fair value hedges | ||||||||||||||||||||||||||
Hedge ineffectiveness recognized in earnings | $ | (2 | ) | $ | 176 | $ | 287 | $ | 149 | Hedge ineffectiveness recognized in earnings | $ | 85 | $ | (2 | ) | $ | 93 | $ | 287 | |||||||||
Net gain (loss) excluded from assessment of effectiveness | 69 | 231 | 194 | (45 | ) | Net gain excluded from assessment of effectiveness | 120 | 69 | 375 | 199 | ||||||||||||||||||
Cash flow hedges | Cash flow hedges | Cash flow hedges | ||||||||||||||||||||||||||
Hedge ineffectiveness recognized in earnings | — | (2 | ) | (18 | ) | (13 | ) | Hedge ineffectiveness recognized in earnings | — | — | — | (18 | ) | |||||||||||||||
Net gain excluded from assessment of effectiveness | — | — | — | 1 | Net gain excluded from assessment of effectiveness | — | — | — | — | |||||||||||||||||||
Net investment hedges | Net investment hedges | Net investment hedges | ||||||||||||||||||||||||||
Net gain (loss) included in foreign currency translation adjustment within Accumulated other changes in equity from nonowner sources | $ | (178 | ) | $ | 35 | $ | (320 | ) | $ | 394 | Net loss included in foreign currency translation adjustment within Accumulated other comprehensive income (loss) | $ | (572 | ) | $ | (178 | ) | $ | (716 | ) | $ | (320 | ) | |||||
The change in Accumulated other changes in equity from nonowner sourcescomprehensive income (loss) from cash flow hedges for the three-three and nine-month periodsnine months ended September 30, 20062007 and 20052006 can be summarized as follows (after-tax):
In millions of dollars | 2006 | 2005 | 2007 | 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, | $ | 612 | $ | 173 | $ | (61 | ) | $ | 612 | |||||
Net gain (loss) from cash flow hedges | 317 | 187 | (347 | ) | 321 | |||||||||
Net amounts reclassified to earnings | (111 | ) | (23 | ) | (92 | ) | (115 | ) | ||||||
Balance at March 31, | $ | 818 | $ | 337 | $ | (500 | ) | $ | 818 | |||||
Net gain (loss) from cash flow hedges | 456 | (120 | ) | |||||||||||
Net gain from cash flow hedges | 1,127 | 462 | ||||||||||||
Net amounts reclassified to earnings | (151 | ) | (37 | ) | (81 | ) | (157 | ) | ||||||
Balance at June 30, | $ | 1,123 | $ | 180 | $ | 546 | $ | 1,123 | ||||||
Net gain (loss) from cash flow hedges | (1,088 | ) | 388 | |||||||||||
Net loss from cash flow hedges | (1,949 | ) | (1,005 | ) | ||||||||||
Net amounts reclassified to earnings | (103 | ) | (98 | ) | (54 | ) | (186 | ) | ||||||
Balance at September 30, | $ | (68 | ) | $ | 470 | $ | (1,457 | ) | $ | (68 | ) | |||
Derivatives may expose Citigroup to market, credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates, foreign exchange rates and other values, and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement, and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in periods of high volatility and financial stress at a reasonable cost.
See "Corporate Credit Portfolio"16. Fair Value
Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair value accounting.
SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, SFAS 157 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities. It also requires recognition of trade-date gains related to certain derivative transactions whose fair value has been determined using unobservable market inputs. This guidance supersedes the guidance in Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF Issue 02-3), which prohibited the recognition of trade-date gains for such derivative transactions when determining the fair value of instruments not traded in an active market.
In moving to maximize the use of observable inputs as required by SFAS 157, the Company has made some amendments to the techniques used in measuring the fair value of derivative positions. These amendments change the way that the probability of default of a counterparty is factored into the valuation of derivative positions, include for the first time the impact of Citigroup's own credit standing on page 59liabilities measured at fair value, and also eliminate the portfolio servicing adjustment that is no longer necessary under SFAS 157.
Under SFAS 159, the Company may elect to 60report most financial instruments and certain other items at fair value on
an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.
Additionally, the transition provisions of SFAS 159 permit a one-time election for furtherexisting positions at the adoption date with a cumulative-effect adjustment included in opening retained earnings and future changes in fair value reported in earnings.
On January 1, 2006, the Company also elected to early-adopt the fair value accounting provisions permitted under SFAS 155 and SFAS 156. In accordance with SFAS 155, which was primarily adopted on a prospective basis, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments—may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. Additional discussion regarding the risks associatedapplicable areas in which SFAS 155 was adopted is presented below.
SFAS 156 requires all servicing rights to be initially recognized at fair value. At its initial adoption, the standard permits a one-time irrevocable election to re-measure each class of servicing rights at fair value, with the changes in fair value recorded in current earnings. The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. The Company has elected fair value accounting for its mortgage and student loan classes of servicing rights. The impact of adopting this standard was not material. See Note 13 on page 68 for further discussions regarding the accounting and reporting of mortgage servicing rights.
Fair Value Hierarchy
Statement 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:
This hierarchy requires the use of observable market data when available.
Determination of Fair Value
The Company measures fair value using the procedures set out below for all assets and liabilities measured at fair value, irrespective of whether they are carried at fair value as a result of an election under SFAS 159, SFAS 156, or SFAS 155 or whether they were previously carried at fair value pursuant to other accounting guidelines.
When available, the Company generally uses quoted market prices to determine fair value, and classifies such items within Level 1. In some cases where a market price is available the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified within Level 2.
If observable transactions and other market data are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates, currency rates, option volatilities etc. Items valued using internally generated models are classified according to the lowest level input or value driver that is most significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable.
If observable transactions and other market data are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves, time value and volatility factors, underlying options, warrants and derivatives and price activity for equivalent synthetic instruments. For fixed income securities and derivatives, as well as mortgage servicing rights and residual interests in securitizations, the Company generally uses a discounted cash flow analysis using discount rates commensurate with the credit quality and duration of the investment. For loans, valuations are generally based upon observable market prices for similar instruments, including bonds, credit derivatives and loans with similar credit characteristics. For loans that are expected to be securitized, fair value is estimated based upon observable pricing of asset-backed securities with similar collateral. In determining the value of the Company's obligations, various factors are considered depending on the nature of the liability. These factors may include closing exchange or over-the-counter market price quotations, time value and volatility factors underlying options, warrants, and derivatives, and price activity for equivalent or synthetic instruments.
In order to ensure that the fair value of financial instruments is calculated appropriately the Company adjusts the 'base valuations' calculated using the methodologies described above for a number of parameters that market participants would consider in determining fair value. The adjustments are applied consistently over time and are summarized below:
The Company's processes include a number of key controls that are designed to ensure that fair value is calculated appropriately. Such controls include a model validation policy requiring that models that provide values used in financial statements be validated by qualified personnel independent from those who created the models and escalation procedures to ensure that valuations using unverifiable inputs are identified and monitored on a regular basis by senior management.
The following table presentingpresents, as of September 30, 2007, those positions selected for fair value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the notionalschanges in fair value for the three-and nine-month periods then ended.
| | Changes in Fair Value Gains/(Losses) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Quarter-to-Date | Year-to-Date | |||||||||||||||
In millions of dollars | September 30, 2007 | Principal Transactions | Other | Principal Transactions | Other | |||||||||||||
Assets | ||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||
Selected portfolios of securities purchased under agreements to resell, securities borrowed(1) | $ | 125,329 | $ | 713 | $ | — | $ | 675 | $ | — | ||||||||
Trading account assets: | ||||||||||||||||||
Legg Mason convertible preferred equity securities originally classified as available-for-sale | 707 | (118 | ) | — | (90 | ) | — | |||||||||||
Selected letters of credit hedged by credit default swaps or participation notes | 3 | (10 | ) | — | (8 | ) | — | |||||||||||
Certain credit products | 25,128 | (772 | ) | — | (592 | ) | — | |||||||||||
Residual interest retained from asset securitizations | 2,351 | 14 | — | 215 | — | |||||||||||||
Total trading account assets | 28,189 | (886 | ) | — | (475 | ) | — | |||||||||||
Investments: | ||||||||||||||||||
Certain investments in private equity and real estate ventures | 479 | — | 22 | — | 44 | |||||||||||||
Certain equity method investments | 2,011 | — | (19 | ) | — | 69 | ||||||||||||
Other | 99 | — | 1 | — | 7 | |||||||||||||
Total investments | 2,589 | — | 4 | — | 120 | |||||||||||||
Loans: | ||||||||||||||||||
Certain credit products | 2,085 | 4 | — | 37 | — | |||||||||||||
Certain hybrid financial instruments | 686 | (3 | ) | — | (69 | ) | — | |||||||||||
Total loans | 2,771 | 1 | — | (32 | ) | — | ||||||||||||
Other assets: | ||||||||||||||||||
Certain mortgage loans held-for-sale | 5,184 | — | 42 | — | 42 | |||||||||||||
Mortgage servicing rights | 9,957 | — | (863 | ) | — | (324 | ) | |||||||||||
Total other assets | 15,141 | — | (821 | ) | — | (282 | ) | |||||||||||
Total | $ | 174,019 | ($ | 172 | ) | ($ | 817 | ) | $ | 168 | ($ | 162 | ) | |||||
Liabilities | ||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||
Certain structured liabilities | $ | 233 | $ | — | $ | — | $ | 3 | $ | — | ||||||||
Certain hybrid financial instruments | 3,228 | 38 | — | 84 | — | |||||||||||||
Total interest-bearing deposits | 3,461 | 38 | — | 87 | — | |||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||||||
Selected portfolios of securities sold under agreements to repurchase, securities loaned(1) | 313,353 | (170 | ) | — | (128 | ) | — | |||||||||||
Trading account liabilities: | ||||||||||||||||||
Certain hybrid financial instruments | 7,235 | (84 | ) | — | (317 | ) | — | |||||||||||
Short-term borrowings: | ||||||||||||||||||
Certain non-collateralized short-term borrowings | 5,271 | (18 | ) | — | (3 | ) | — | |||||||||||
Certain hybrid financial instruments | 3,990 | 13 | — | 31 | — | |||||||||||||
Total short-term borrowings | 9,261 | (5 | ) | — | 28 | — | ||||||||||||
Long-term debt: | ||||||||||||||||||
Certain structured liabilities | 2,613 | (33 | ) | — | 47 | — | ||||||||||||
Certain non-structured liabilities | 3,126 | (33 | ) | — | 8 | — | ||||||||||||
Certain hybrid financial instruments | 26,066 | 96 | — | 683 | — | |||||||||||||
Total long-term debt | 31,805 | 30 | — | 738 | — | |||||||||||||
Total | $ | 365,115 | $ | (191 | ) | $ | — | $ | 408 | $ | — | |||||||
The fair value of liabilities for deriviative contracts heldwhich the fair value option was elected was impacted by the widening of the Company's credit spread. The estimated change in the fair value of these liabilities due to such changes in the Company's own credit risk (or instrument-specific credit risk) was a gain of $112 million and $241 million for tradingthe quarter and asset/liability management hedging purposes.nine months ended September 30,
2007, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current observable credit spreads into the discounted cash flow analysis used to value the relevant liability.
Impact on retained earnings of certain fair value elections in accordance with SFAS 159
Detailed below are the December 31, 2006 carrying values prior to adoption of SFAS 159, the transition adjustments booked to opening retained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption) for those items that were selected for fair value option accounting and that had an impact on retained earnings:
In millions of dollars | December 31, 2006 (Carrying value prior to adoption) | Cumulative- effect Adjustment to January 1, 2007 Retained earnings- gain (loss) | January 1, 2007 Fair Value (Carrying value after adoption) | ||||||
---|---|---|---|---|---|---|---|---|---|
Legg Mason convertible preferred equity securities originally classified as available-for-sale(1) | $ | 797 | $ | (232 | ) | $ | 797 | ||
Selected portfolios of securities purchased under agreements to resell(2) | 167,525 | 25 | 167,550 | ||||||
Selected portfolios of securities sold under agreements to repurchase(2) | 237,788 | 40 | 237,748 | ||||||
Selected non-collateralized short-term borrowings | 3,284 | (7 | ) | 3,291 | |||||
Selected letters of credit hedged by credit default swaps or participation notes | — | 14 | 14 | ||||||
Various miscellaneous eligible items(1) | 96 | 3 | 96 | ||||||
Pretax cumulative effect of adopting fair value option accounting | $ | (157 | ) | ||||||
After-tax cumulative effect of adopting fair value option accounting | $ | (99 | ) | ||||||
Additional information regarding each of these items follows.
Legg Mason convertible preferred equity securities
The Legg Mason convertible preferred equity securities (Legg shares) were acquired in connection with the sale of Citigroup's Asset Management business in December 2005. We hold these shares as a non-strategic investment for long-term appreciation and, therefore, selected fair value option accounting in anticipation of the January 2008 implementation of the Investment Company Audit Guide Statement of Position 07-1, "Clarification of the Scope of Audit and Accounting GuideAudits of Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investment Companies" (SOP). In October 2007, the FASB proposed to delay the implementation of the SOP indefinitely.
Under the current investment company accounting model, investments held in investment company vehicles are recorded at full fair value (where changes in fair value are recorded in earnings) and are not subject to consolidation guidelines. Under the SOP, non-strategic investments not held in investment companies, which are deemed similar to non-strategic investments held in Citigroup's investment companies, must be accounted for at full fair value in order for Citigroup to retain investment company accounting in the Company's Consolidated Financial Statements. If investment company accounting requirements cannot be met (for example, if we failed to account for similar non-strategic investments at fair value with changes in value recorded in earnings), Citigroup would be required to account for each investment in the investment company under other relevant accounting standards, including consolidation of majority-owned or controlled investees. We believe that Citigroup's consolidation of non-strategic investments would not provide meaningful information and would confuse readers of our financial statements. Therefore, we have utilized the fair value option to migrate the Legg shares from available-for-sale (where changes in fair value are recorded in Accumulated other comprehensive income (loss)) to a full fair value model (where changes in value are recorded in earnings). On a prospective basis, as we acquire non-strategic public or private equity investments, we will consider electing fair value accounting for investments that are similar to those held in our investment companies.
Prior to the election of fair value option accounting, the shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31, 2006 included in Accumulated other comprehensive income (loss). In connection with the Company's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007 retained earnings as part of the cumulative-effect adjustment. We have no intention of selling the Legg shares prior to our previously estimated recovery period. The Legg shares, which have a fair value of $707 million as of September 30, 2007, are now included in Trading account assets on Citigroup's Consolidated Balance Sheet. Dividends are included in Interest revenue.
Selected portfolios of securities purchased under agreements to resell, securities borrowed, securities sold under agreements to repurchase, securities loaned, and certain non-collateralized short-term borrowings
The Company elected the fair value option retrospectively for our United States and United Kingdom portfolios of fixed income securities purchased under agreements to resell and
fixed income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings). The fair value option was also elected prospectively from April 2007 for certain portfolios of fixed income securities lending and borrowing transactions based in Japan. In each case, the election was made because these positions are managed on a fair value basis. Specifically, related interest rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings. Previously, these positions were accounted for on an accrual basis.
The cumulative effect of $58 million pretax ($37 million after-tax) from adopting the fair value option for the U.S. and U.K. portfolios was recorded as an increase in the January 1, 2007 retained earnings balance. The September 30, 2007 net balance of $125.3 billion for securities purchased under agreements to resell and securities borrowed and $313.4 billion for securities sold under agreements to repurchase and securities loaned are included in their respective accounts in the Consolidated Balance Sheet. The uncollateralized short-term borrowings of $5.3 billion are recorded in that account in the Consolidated Balance Sheet.
Changes in fair value for transactions in these portfolios are recorded in Principal transactions. The related interest revenue and interest expense are measured based on the contractual rates specified in the transactions and are reported as interest revenue and expense in the Consolidated Statement of Income.
Selected letters of credit and revolving loans hedged by credit default swaps or participation notes
The Company has elected fair value option accounting for certain letters of credit that are hedged with derivative instruments or participation notes. Upon electing the fair value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair value option for these transactions because the risk is managed on a fair value basis, and to mitigate accounting mismatches.
The cumulative effect of $14 million pretax ($9 million after-tax) from adopting fair value option accounting was recorded as an increase in the January 1, 2007 retained earnings balance. The change in fair value as well as the receipt of related fees was reported as Principal transactions in the Company's Consolidated Statement of Income.
The notional amount of these unfunded letters of credit was $1.4 billion as of September 30, 2007. The amount funded was insignificant with no amounts 90 days or more past due, or on a non-accrual status at September 30, 2007.
These items have been classified appropriately in Trading account assets or Trading account liabilities on the Consolidated Balance Sheet.
Various miscellaneous eligible items
Several miscellaneous eligible items previously classified as available-for-sale securities were selected for fair value option accounting. These items were selected in preparation for the adoption of the Investment Company Audit Guide SOP, as previously discussed.
Other items for which the fair value option was selected in accordance with SFAS 159
The Company has elected fair value option for the following eligible items, which did not affect opening retained earnings:
Certain credit products
Citigroup has elected the fair value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup's trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that will either be sold or securitized in the near term, or where the economic risks are hedged with derivative instruments. Citigroup has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex; and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company, including where those management objectives would not be met.
The balances for these loan products, which are classified with Trading account assets or Loans, were $25.1 billion and $2.1 billion as of September 30, 2007, respectively. The aggregate unpaid principal balances exceeded the aggregate fair values by $1.1 billion as of September 30, 2007. $81 million of these loans were on a non-accrual basis. For those loans that are on a non-accrual basis, the aggregate unpaid principal balances exceeded the aggregate fair values by $34 million as of September 30, 2007.
In addition, $141 million of unfunded loan commitments related to certain credit products selected for fair value accounting were outstanding as of September 30, 2007.
Changes in fair value of funded and unfunded credit products are classified in Principal transactions in the Company's Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported as interest revenue on trading account assets or loans depending on their balance sheet classifications. The changes in fair value during the third quarter 2007 due to instrument-specific credit risk totaled to a loss of $136 million.
Certain investments in private equity and real estate ventures
Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. The Company has elected the fair value option for certain of these ventures in anticipation of the January 2009 implementation of the Investment Company Audit Guide SOP, because such investments are considered similar to many private equity or hedge fund activities in our investment companies, which are reported at fair value. See previous discussion regarding the SOP. The fair value option brings consistency in the accounting and evaluation of certain of
these investments. As required by SFAS 159, all investments (debt and equity) in such real estate entities are accounted for at fair value.
These investments, which totaled $479 million as of September 30, 2007, are classified as Investments on Citigroup's Consolidated Balance Sheet. Changes in the fair values of these investments are classified in Other revenue in the Company's Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency risks ("structured liabilities"), but do not qualify for the fair value election under SFAS 155.
The Company has elected the fair value option for structured liabilities, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. These positions will continue to be classified as debt, deposits or derivatives according to their legal form on the Company's Consolidated Balance Sheet. The balances for these structured liabilities, which are classified as Interest-bearing deposits and Long-term debt on the Consolidated Balance Sheet, are $233 million and $2.6 billion as of September 30, 2007, respectively.
For these structured liabilities classified as Long-term debt for which the fair value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $48 million as of September 30, 2007.
The change in fair value for these structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.
Related interest expense is measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
Certain non-structured liabilities
The Company has elected the fair value option for certain non-structured liabilities with fixed and non-structured floating interest rates ("non-structured liabilities"). The Company has elected the fair value option where the interest rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be fair valued. The election has been made to mitigate accounting mismatches and to achieve operational simplifications. These positions are reported in Long-term debt on the Company's Consolidated Balance Sheet. The balances of these non-structured liabilities as of September 30, 2007 is $3.1 billion.
For these non-structured liabilities classified as Long-term debt for which the fair value option has been elected, the aggregate fair value exceeds the aggregate unpaid principal balance of such instruments by $26 million as of September 30, 2007.
The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.
Related interest expense continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
Certain equity method investments
Citigroup adopted fair value accounting for various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. Management elected fair value accounting to reduce operational and accounting complexity, in particular related to the future implementation of the Investment Company Audit Guide SOP. Since the funds account for all of their underlying assets at full fair value, the impact of applying the equity method to Citigroup's investment in these funds was equivalent to fair value accounting. Thus, this fair value election had no impact on opening retained earnings.
These fund investments, which totaled $2.0 billion as of September 30, 2007, are classified as Investments on the Consolidated Balance Sheet. Changes in the fair values of
these investments are classified in Other revenue in the Consolidated Statement of Income.
Certain mortgage loans held-for-sale
Citigroup has elected the fair value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-for-sale. These loans are intended for sale or securitization and are hedged with derivative instruments. The Company has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. The fair value option was not elected for loans held for investment, as those loans are not hedged with derivative instruments. This election was effective for applicable instruments originated or purchased since September 1, 2007.
The balance for these mortgage loans held-for-sale, classified as Other assets, was $5.2 billion as of September 30, 2007. The aggregate fair value exceeded the unpaid principal balances by $36 million as of September 30, 2007. None of these loans were 90 days or more past due, nor were any on a non-accrual basis.
The changes in fair values of these mortgage loans held-for-sale is reported in Other revenue in the Company's Consolidated Statement of Income. The changes in fair value during the third quarter 2007 due to instrument-specific credit risk were immaterial. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
Items selected for fair value accounting in accordance with SFAS 155 and SFAS 156
Certain hybrid financial instruments
The Company has elected to apply fair value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate, foreign exchange or inflation (e.g., equity, credit or commodity risks). In addition, the Company has elected fair value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets. These elections are applicable only to those transactions originated after January 1, 2006.
The Company has elected fair value accounting for these instruments, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. In addition, the accounting for these instruments is simplified under a fair value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. The hybrid financial instruments are classified as loans, deposits, trading liabilities (for pre-paid derivatives) or debt on the Company's Consolidated Balance Sheet according to their legal form, while residual interests in certain securitizations are classified as trading account assets.
The outstanding balances for these hybrid financial instruments classified in Loans is $686 million, while $3.2 billion is in Interest-bearing deposits, $7.2 billion in Trading account liabilities, $4.0 billion in Short-term borrowings and $26.1 billion in Long-term debt on the Consolidated Balance Sheet as of September 30, 2007. In addition, $2.4 billion was reported in Trading account assets for the residual interests in securitizations.
For hybrid financial instruments for which fair value accounting has been elected under SFAS 155 and that are classified as Long-term debt, the aggregate fair value exceeds the aggregate unpaid principal balance by $852 million as of September 30, 2007, while the difference for those instruments classified as Loans is immaterial.
Changes in fair value for hybrid financial instruments, which in most cases includes a component for accrued interest, are recorded in Principal transactions in the Company's Consolidated Statement of Income. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value as interest revenue in the Company's Consolidated Statement of Income.
Mortgage servicing rights
On January 1, 2006, the Company elected to early-adopt fair value accounting under SFAS 156 for mortgage servicing rights (MSRs). The fair value for these MSRs is determined using an option-adjusted spread valuation approach. This approach consists of projecting servicing cash flows under multiple interest rate scenarios, and discounting these cash flows using risk-adjusted discount rates. The model assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The fair value of MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the values of its MSRs through the use of interest rate derivative contracts, forward purchase commitments of mortgage-backed securities, and purchased securities classified as trading. See Note 13 on page 68 for further discussions regarding the accounting and reporting of MSRs.
These MSRs, which totaled $10.0 billion as of September 30, 2007, are classified as Intangible assets on Citigroup's Consolidated Balance Sheet. Changes in fair value for MSRs are recorded in Commissions and fees in the Company's Consolidated Statement of Income.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each of the fair value hierarchy levels, the Company's assets and liabilities that are measured at fair value on a recurring basis at September 30, 2007. The Company often hedges positions that have been classified in the Level 3 category with financial instruments that have been classified as Level 1 or Level 2. The Company also hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.
In millions of dollars | Level 1 | Level 2 | Level 3 | Gross Inventory | Netting(1) | Net balance | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 183,383 | $ | 16 | $ | 183,399 | $ | (58,070 | ) | $ | 125,329 | ||||||
Trading account assets | |||||||||||||||||||
Trading securities | 176,316 | 239,074 | 80,672 | 496,062 | — | 496,062 | |||||||||||||
Derivatives | 7,943 | 355,681 | 22,720 | 386,344 | (301,186 | ) | 85,158 | ||||||||||||
Investments | 66,435 | 146,128 | 20,644 | 233,207 | — | 233,207 | |||||||||||||
Loans(2) | — | 2,769 | 2 | 2,771 | — | 2,771 | |||||||||||||
Mortgage servicing rights | — | — | 9,957 | 9,957 | — | 9,957 | |||||||||||||
Other financial assets measured on a recurring basis | $ | 8 | $ | 11,999 | $ | 824 | $ | 12,831 | $ | — | $ | 12,831 | |||||||
Total Assets | $ | 250,702 | $ | 939,034 | $ | 134,835 | $ | 1,324,571 | $ | (359,256 | ) | $ | 965,315 | ||||||
Liabilities | |||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,372 | $ | 89 | $ | 3,461 | $ | — | $ | 3,461 | |||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 364,936 | 6,487 | 371,423 | (58,070 | ) | 313,353 | ||||||||||||
Trading account liabilities | |||||||||||||||||||
Securities sold not yet purchased | 89,043 | 11,771 | 894 | 101,708 | — | 101,708 | |||||||||||||
Derivatives | 8,307 | 382,912 | 21,161 | 412,380 | (298,465 | ) | 113,915 | ||||||||||||
Short-term borrowings | — | 3,225 | 6,036 | 9,261 | — | 9,261 | |||||||||||||
Long-term debt | — | 26,118 | 5,687 | 31,805 | — | 31,805 | |||||||||||||
Other financial liabilities measured on a recurring basis | — | 946 | 1 | 947 | — | 947 | |||||||||||||
Total Liabilities | $ | 97,350 | $ | 793,280 | $ | 40,355 | $ | 930,985 | $ | (356,535 | ) | $ | 574,450 | ||||||
The following tables present the changes in the Level 3 fair value category for the three and nine months ended September 30, 2007. The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.
The Company often hedges positions with offsetting positions that are classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been classified by the Company in the Level 1 and Level 2 categories. The Company also hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.
| | Net realized/unrealized gains(losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | |||||||||||||||||||
In millions of dollars | June 30, 2007 | Principal transactions | Other(1) (2) | September 30, 2007 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities | 42,945 | (1,609 | ) | — | 8,938 | 30,398 | 80,672 | (1,813 | ) | ||||||||||||||
Derivatives, net(4) | (1,184 | ) | 1,325 | — | 2,248 | (830 | ) | 1,559 | 1,464 | ||||||||||||||
Investments | 20,201 | — | 372 | 495 | (424 | ) | 20,644 | 106 | |||||||||||||||
Loans | 1,195 | — | — | (1,252 | ) | 59 | 2 | — | |||||||||||||||
Mortgage servicing rights | 10,072 | — | (267 | ) | — | 152 | 9,957 | (325 | ) | ||||||||||||||
Other financial assets measured on a recurring basis | 1,106 | — | 15 | — | 29 | 1,150 | 10 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 90 | $ | — | $ | — | $ | — | $ | (1 | ) | $ | 89 | $ | (3 | ) | |||||||
Securities sold under agreements to repurchase | 6,241 | (86 | ) | — | — | 160 | 6,487 | (81 | ) | ||||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold not yet purchased | 653 | (58 | ) | — | 46 | 137 | 894 | (41 | ) | ||||||||||||||
Short-term borrowings | 2,652 | — | (21 | ) | 1,831 | 1,532 | 6,036 | 14 | |||||||||||||||
Long-term debt | 1,804 | (92 | ) | 3,637 | 154 | 5,687 | (85 | ) | |||||||||||||||
Other financial liabilities measured on a recurring basis | 31 | — | 1 | — | (29 | ) | 1 | — |
| | Net realized/unrealized gains(losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | |||||||||||||||||||
In millions of dollars | January 1, 2007 | Principal transactions | Other(1) (2) | September 30, 2007 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities | 22,415 | (1,485 | ) | — | 14,020 | 45,722 | 80,672 | (2,136 | ) | ||||||||||||||
Derivatives, net(4) | 1,875 | 2,010 | — | 1,142 | (3,468 | ) | 1,559 | (53 | ) | ||||||||||||||
Investments | 11,468 | — | 1,221 | 1,508 | 6,447 | 20,644 | 314 | ||||||||||||||||
Loans | — | (8 | ) | — | (793 | ) | 803 | 2 | — | ||||||||||||||
Mortgage servicing rights | 5,439 | — | 1,257 | — | 3,261 | 9,957 | 1,257 | ||||||||||||||||
Other financial assets measured on a recurring basis | 948 | — | 24 | — | 178 | 1,150 | 3 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 60 | $ | 12 | $ | — | $ | (33 | ) | $ | 74 | $ | 89 | $ | (4 | ) | |||||||
Securities sold under agreements to repurchase | 6,778 | (97 | ) | — | 84 | (472 | ) | 6,487 | (50 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold not yet purchased | 467 | (22 | ) | — | (167 | ) | 572 | 894 | (138 | ) | |||||||||||||
Short-term borrowings | 2,214 | 9 | (21 | ) | 1,483 | 2,327 | 6,036 | — | |||||||||||||||
Long-term debt | 1,693 | (11 | ) | (92 | ) | 3,729 | 162 | 5,687 | (70 | ) | |||||||||||||
Other financial liabilities measured on a recurring basis | — | — | (23 | ) | (1 | ) | (21 | ) | 1 | — |
Components of Level 3
The following are the major components of the Level 3 fair value hierarchy:
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a non-recurring basis and therefore are not included in the tables above. These include assets such as loans held-for-sale that are measured at the lower of cost or market (LOCOM) that were recognized at fair value below cost at the end of the period. Assets measured at cost that have been written down to fair value during the period as a result of an impairment are also included.
As of September 30, 2007, loans held-for-sale carried at LOCOM with an aggregate cost of $20.9 billion were written down to fair value totaling $19.8 billion, of which $4.7 billion and $15.1 billion were determined based on Level 2 and Level 3 inputs, respectively. For both the three and nine months ended September 30, 2007, the resulting charges taken on loans held-for-sale carried at fair value below cost were $1.1 billion. For loans that are expected to be securitized that are carried at LOCOM, the inputs used to measure fair value include observable prices of asset-backed securities with similar collateral. These prices are adjusted to account for securitization uncertainties including portfolio composition, market conditions and liquidity.
Customer relationship intangibles and fixed assets in the Japan Consumer Finance business were written down to their fair value of zero, resulting in an impairment charge of $152 million pre-tax ($98 million after-tax). For those assets that were written down due to impairment, fair value measurements were determined based upon discounted expected cash flows or a comparison to liquidation prices of comparable assets.
17. Guarantees and Credit Commitments
Guarantees
The Company provides a variety of guarantees and indemnifications to Citigroup customers to enhance their credit standing and enable them to complete a wide variety of business transactions. The following table summarizes at September 30, 20062007 and December 31, 20052006 all of the Company's guarantees and indemnifications, where management believes the guarantees and indemnifications are related to an asset, liability, or equity security of the guaranteed parties at the inception of the contract. The maximum potential amount of future payments represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts bear no relationship to the anticipated losses on these guarantees and indemnifications and greatly exceed anticipated losses.
The following tables present information about the Company's guarantees at September 30, 20062007 and December 31, 2005:2006:
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at September 30, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value (in millions) | ||||||||
2006 | ||||||||||||
Financial standby letters of credit | $ | 47.0 | $ | 23.4 | $ | 70.4 | $ | 180.2 | ||||
Performance guarantees | 11.3 | 4.2 | 15.5 | 21.2 | ||||||||
Derivative instruments | 46.7 | 749.1 | 795.8 | 15,261.1 | ||||||||
Guarantees of collection of contractual cash flows(1) | — | — | — | — | ||||||||
Loans sold with recourse | — | 1.4 | 1.4 | 56.2 | ||||||||
Securities lending indemnifications(1) | 101.5 | — | 101.5 | — | ||||||||
Credit card merchant processing(1) | 31.2 | — | 31.2 | — | ||||||||
Custody indemnifications(1) | — | 49.0 | 49.0 | — | ||||||||
Total | $ | 237.7 | $ | 827.1 | $ | 1,064.8 | $ | 15,518.7 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at December 31, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value (in millions) | ||||||||
2005 | ||||||||||||
Financial standby letters of credit | $ | 30.6 | $ | 21.8 | $ | 52.4 | $ | 175.2 | ||||
Performance guarantees | 10.0 | 3.9 | 13.9 | 18.2 | ||||||||
Derivative instruments | 40.5 | 477.7 | 518.2 | 14,425.2 | ||||||||
Guarantees of collection of contractual cash flows(1) | — | 0.1 | 0.1 | — | ||||||||
Loans sold with recourse | — | 1.3 | 1.3 | 58.4 | ||||||||
Securities lending indemnifications(1) | 68.4 | — | 68.4 | — | ||||||||
Credit card merchant processing(1) | 28.1 | — | 28.1 | — | ||||||||
Custody indemnifications(1) | — | 27.0 | 27.0 | — | ||||||||
Total | $ | 177.6 | $ | 531.8 | $ | 709.4 | $ | 14,677.0 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at September 30, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value | ||||||||
| | | | (in millions) | ||||||||
2007 | ||||||||||||
Financial standby letters of credit | $ | 57.8 | $ | 29.6 | $ | 87.4 | $ | 191.7 | ||||
Performance guarantees | 10.2 | 6.3 | 16.5 | 51.2 | ||||||||
Derivative instruments | 50.7 | 1,332.0 | 1,382.7 | 53,624.8 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 48.9 | ||||||||
Securities lending indemnifications(1) | 153.0 | — | 153.0 | — | ||||||||
Credit card merchant processing(1) | 60.5 | — | 60.5 | — | ||||||||
Custody indemnifications(1) | — | 56.4 | 56.4 | — | ||||||||
Total | $ | 332.2 | $ | 1,425.9 | $ | 1,758.1 | $ | 53,916.6 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at December 31, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value | ||||||||
| | | | (in millions) | ||||||||
2006 | ||||||||||||
Financial standby letters of credit(2) | $ | 46.7 | $ | 25.8 | $ | 72.5 | $ | 179.3 | ||||
Performance guarantees(2) | 11.2 | 4.6 | 15.8 | 47.2 | ||||||||
Derivative instruments | 42.0 | 916.6 | 958.6 | 16,836.0 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 51.9 | ||||||||
Securities lending indemnifications(1) | 110.7 | — | 110.7 | — | ||||||||
Credit card merchant processing(1) | 52.3 | — | 52.3 | — | ||||||||
Custody indemnifications(1) | — | 54.4 | 54.4 | — | ||||||||
Total | $ | 262.9 | $ | 1,003.0 | $ | 1,265.9 | $ | 17,114.4 | ||||
Financial Standby Letters of Credit
Citigroup issues standby letters of credit which substitute its own credit for that of the borrower. If a letter of credit is drawn down, the borrower is obligated to repay Citigroup. Standby letters of credit protect a third party from defaults on contractual obligations. Financial standby letters of credit include guarantees of payment of insurance premiums and reinsurance risks that support industrial revenue bond underwriting and settlement of payment obligations to clearing houses, and thatalso support options and purchases of securities or in lieu of escrow deposit accounts. Financial standbys also backstop loans, credit facilities, promissory notes and trade acceptances.
Performance Guarantees
Performance guarantees and letters of credit are issued to guarantee a customer's tender bid on a construction or systems installation project or to guarantee completion of such projects in accordance with contract terms. They are also issued to support a customer's obligation to supply specified products, commodities, or maintenance or warranty services to a third party.
Derivative Instruments
Derivatives are financial instruments whose cash flows are based on a notional amount or an underlying instrument, where there is little or no initial investment, and whose terms require or permit net settlement. The main use of derivatives is to reduce risk for one party while offering the potential for high return (at increased risk) to another. Financial institutions often act as intermediaries for their clients, helping clients reduce their risks. However, derivatives may also be used to take a risk position. Derivative instruments include credit default swaps, total return swaps, written foreign exchange options, written put options, and written equity warrants. Guarantees of collection of contractual cash flows protect investors in credit card receivables securitization trusts from loss of interest relating to insufficient collections on the underlying receivables in the trusts.
Loans Sold with Recourse
Loans sold with recourse represent the Company's obligations to reimburse the buyers for loan losses under certain circumstances. Recourse refers to the clause in a sales agreement under which a lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. This may be accomplished by the seller's taking back any loans that become delinquent.
Securities Lending Indemnifications
Owners of securities frequently lend those securities for a fee to other parties who may sell them short or deliver them to another party to satisfy some other obligation. Banks may administer such securities lending programs for their clients. Securities lending indemnifications are issued by the bank to guarantee that a securities lending customer will be made whole in the event that the security borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security.
Credit Card Merchant Processing
Credit card merchant processing guarantees represent the Company's indirect obligations in connection with the processing of private label and bankcard transactions on behalf of merchants.
Custody Indemnifications
Custody indemnifications are issued to guarantee that custody clients will be made whole in the event that a third-party subcustodian fails to safeguard clients' assets. Beginning with the 2006 third quarter, the scope of the custody indemnifications was broadened to cover all clients' assets held by third-party subcustodians.
At September 30, 2006Other Guarantees and December 31, 2005, the Company's maximum potential amount of future payments under these guarantees was approximately $1.1 trillion and $709 billion, respectively. For this purpose, the maximum potential amount of future payments is considered to be the notional amounts of letters of credit, guarantees, written credit default swaps, written total return swaps, indemnifications, and recourse provisions of loans sold with recourse, and the fair values of foreign exchange options and other written put options, warrants, caps and floors.Indemnifications
Citigroup's primary credit card business is the issuance of credit cards to individuals. In addition, the Company provides transaction processing services to various merchants with respect to bankcard and private label cards. In the third quarter of 2005, the Company entered into a partnership under which a third party processes bankcard transactions. As a result, in the event of a billing dispute with respect to a bankcard transaction between a merchant and a cardholder, that is ultimately resolved in the cardholder's favor, the third party holds the primary contingent liability to credit or refund the amount to the cardholder and charge back the transaction to the merchant. If the third party is unable to collect this amount from the merchant, it bears the loss for the amount of the credit or refund paid to the cardholder.
The Company continues to have the primary contingent liability with respect to its portfolio of private label merchants. The risk of loss is mitigated as the cash flows between the third party or the Company and the merchant are settled on a net basis and the third party or the Company has the right to offset any payments with cash flows otherwise due to the merchant. To further mitigate this risk, the third party or the Company may require a merchant to make an escrow deposit, delay settlement, or include event triggers to provide the third party or the Company with more financial and operational control in the event of the financial deterioration of the merchant, or require various credit enhancements (including letters of credit and bank guarantees). In the unlikely event that a private label merchant is unable to deliver products, services or a refund to its private label cardholders, Citigroup is contingently liable to credit or refund cardholders. In addition, although a third party holds the primary contingent liability with respect to the processing of bankcard transactions, in the event that the third party does not have sufficient collateral from the merchant or sufficient financial resources of its own to provide the credit or refunds to the cardholders, Citigroup would be liable to credit or refund the cardholders.
The Company's maximum potential contingent liability related to both bankcard and private label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid chargeback transactions at any given time. At September 30, 20062007 and December 31, 2005,2006, this maximum potential exposure was estimated to be $31$61 billion and $28$52 billion, respectively.
However, the Company believes that the maximum exposure is not representative of the actual potential loss exposure, based on the Company's historical experience and its position as a secondary guarantor (in the case of bankcards). In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. The Company assesses the probability and amount of its contingent liability related to merchant processing based on the financial strength of the primary guarantor (in the case of bankcards) and the extent and nature of unresolved chargebacks and its historical loss experience. At September 30, 200631, 2007 and December 31, 2005,2006, the estimated losses incurred and the carrying amounts of the Company's contingent obligations related to merchant processing activities were immaterial.
In addition, the Company, through its credit card business, provides various cardholder protection programs on several of its card products, including programs that provide insurance coverage for rental cars, coverage for certain losses associated with purchased products, price protection for certain purchases and protection for lost luggage. These guarantees are not included in the table, above, since the total outstanding amount of the guarantees and the Company's maximum exposure to loss cannot be quantified. The protection is limited to certain types of purchases and certain types of losses and it is not possible to quantify the purchases that would qualify for these benefits at any given time. Actual losses related to these programs were not material during the third quarter of 2006 and 2005. The Company assesses the probability and amount of its potential liability related to these programs based on the extent and nature of its historical loss experience. At September 30, 2006,2007, the actual and estimated losses incurred and the carrying value of the Company's obligations related to these programs were immaterial.
In the normal course of business, the Company provides standard representations and warranties to counterparties in contracts in connection with numerous transactions and also provides indemnifications that protect the counterparties to the contracts in the event that additional taxes are owed due either to a change in the tax law or an adverse interpretation of the tax law. Counterparties to these transactions provide the Company with comparable indemnifications. While such representations, warranties and tax indemnifications are essential components of many contractual relationships, they do not represent the underlying business purpose for the transactions. The indemnification clauses are often standard contractual terms related to the Company's own performance
under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. Often these clauses are intended to ensure that terms of a contract are met at inception (for example, that loans transferred to a counterparty in a sales transaction did in fact meet the conditions specified in the contract at the transfer date). No compensation is received for these standard representations and warranties, and it is not possible to determine their fair value because they rarely, if ever, result in a payment. In many cases, there are no stated or notional amounts included in the indemnification clauses and the contingencies potentially triggering the obligation to indemnify have not occurred and are not expected to occur. There are no amounts reflected on the Consolidated Balance Sheet as of September 30, 20062007 and December 31, 2005,2006, related to these indemnifications and they are not included in the table above.table.
In addition, the Company is a member of or shareholder in hundreds of value transfer networks (VTNs) (payment clearing and settlement systems as well as securities exchanges) around the world. As a condition of membership, many of these VTNs require that members stand ready to
backstop the net effect on the VTNs of a member's default on its obligations. The Company's potential obligations as a shareholder or member of VTN associations are excluded from the scope of FIN 45, since the shareholders and members represent subordinated classes of investors in the VTNs. Accordingly, the Company's participation in VTNs is not reported in the table above and there are no amounts reflected on the Consolidated Balance Sheet as of September 30, 20062007 or December 31, 20052006 for potential obligations that could arise from the Company's involvement with VTN associations.
At September 30, 20062007 and December 31, 2005,2006, the carrying amounts of the liabilities related to the guarantees and indemnifications included in the table above amounted to approximately $16$54 billion and $15$17 billion, respectively. The carrying value of derivative instruments is included in either tradingTrading liabilities or otherOther liabilities, depending upon whether the derivative was entered into for trading or non-trading purposes. The carrying value of financial and performance guarantees is included in otherOther liabilities. For loans sold with recourse, the carrying value of the liability is included in otherOther liabilities. In addition, at September 30, 20062007 and December 31, 2005, other2006, Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $1.1$1.15 billion and $850 million,$1.1 billion, respectively, relating to letters of credit and unfunded lending commitments.
In addition to the collateral available in respect of the credit card merchant processing contingent liability discussed above, the Company has collateral available to reimburse potential losses on its other guarantees. Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $79$110 billion and $55$92 billion at September 30, 20062007 and December 31, 2005,2006, respectively. Securities and other marketable assets held as collateral amounted to $39$53 billion and $24$42 billion and letters of credit in favor of the Company held as collateral amounted to $42$233 million and $681$142 million at September 30, 20062007 and December 31, 2005,2006, respectively. Other property may also be available to the Company to cover losses under certain guarantees and indemnifications; however, the value of such property has not been determined.
Credit Commitments
The table below summarizes Citigroup's other commitments as of September 30, 2007 and December 31, 2006.
In millions of dollars | September 30, 2007 | December 31, 2006 | ||||
---|---|---|---|---|---|---|
Commercial and similar letters of credit | $ | 9,177 | $ | 7,861 | ||
One- to four-family residential mortgages | 7,424 | 3,457 | ||||
Revolving open-end loans secured by one- to four-family residential properties | 35,967 | 32,449 | ||||
Commercial real estate, construction and land development | 5,387 | 4,007 | ||||
Credit card lines | 1,030,123 | 987,409 | ||||
Commercial and other consumer loan commitments | 513,668 | 439,931 | ||||
Total | $ | 1,601,746 | $ | 1,475,114 | ||
Commercial and similar letter of credit
A commercial letter of credit is an instrument by which Citigroup substitutes its credit for that of a customer to enable the customers to finance the purchase of goods or to incur other commitments. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay them upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit. When drawn, the customer then is required to reimburse Citigroup.
One- to four-family residential mortgages
A one-to-four family residential mortgage commitment is a written confirmation from Citigroup to a seller of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.
Revolving open-end loans secured by one- to four-family residential properties
Revolving open-end loans secured by one- to four-family residential properties are essentially home equity lines of credit. A home equity line of credit is a loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt outstanding for the first mortgage.
Credit card lines
Citigroup provides credit to customers by issuing credit cards. The credit card lines are unconditionally cancellable by the issuer.
Commercial and other consumer loan commitments
Commercial and other consumer loan commitments include commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities. Amounts include $282 billion and $251 billion with original maturity of less than one year at September 30, 2007 and December 31, 2006, respectively.
In addition, included in this line item are highly-leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. This type of financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.
18. Contingencies
As described in the "Legal Proceedings" discussion on page 131,103, the Company ishas been a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with:
As of September 30, 2006,2007, the Company's litigation reserve for these matters, net of amounts previously paid or not yet paid but committed to be paid in connection with the Enron class action settlement and other settlements arising out of these matters, was approximately $3.2$2.8 billion.
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.
In addition, in the ordinary course of business, Citigroup and its subsidiaries are defendants or co-defendants or parties in various litigation and regulatory matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the consolidated financial condition of the Company but, if involving monetary liability, may be material to the Company's operating results for any particular period.
19. Citibank, N.A. and Subsidiaries
Statement of Changes in Stockholder's Equity (Unaudited)
| Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except shares | 2006 | 2005 | ||||||||||||
Preferred stock ($100 par value) | ||||||||||||||
Balance, beginning of period | $ | — | $ | 1,950 | ||||||||||
Redemption or retirement of preferred stock | — | — | ||||||||||||
In millions of dollars, except shares | 2007 | 2006 | ||||||||||||
Balance, beginning of period—Shares: 37,534,553 in 2007 and 2006 | $ | 751 | $ | 751 | ||||||||||
Balance, end of period | $ | — | $ | 1,950 | ||||||||||
Common stock ($20 par value) | ||||||||||||||
Balance, beginning of period—Shares: 37,534,553 in 2006 and 2005 | $ | 751 | $ | 751 | ||||||||||
Balance, end of period—Shares: 37,534,553 in 2006 and 2005 | $ | 751 | $ | 751 | ||||||||||
Balance, end of period—Shares: 37,534,553 in 2007 and 2006 | $ | 751 | $ | 751 | ||||||||||
Surplus | ||||||||||||||
Balance, beginning of period | $ | 27,244 | $ | 25,972 | $ | 43,753 | $ | 37,978 | ||||||
Capital contribution from parent company | 3 | — | 11,794 | 1,546 | ||||||||||
Employee benefit plans | 114 | 127 | 30 | 115 | ||||||||||
Other | 6 | 63 | 30 | 10 | ||||||||||
Balance, end of period | $ | 27,367 | $ | 26,162 | $ | 55,607 | $ | 39,649 | ||||||
Retained earnings | ||||||||||||||
Balance, beginning of period | $ | 30,651 | $ | 25,935 | $ | 30,358 | $ | 24,062 | ||||||
Adjustment to opening balance, net of tax(1) | (96 | ) | — | |||||||||||
Adjusted balance, beginning of period | $ | 30,262 | $ | 24,062 | ||||||||||
Net income | 7,579 | 6,795 | 6,821 | 7,457 | ||||||||||
Dividends paid | (2,628 | ) | (4,028 | ) | (582 | ) | (2,928 | ) | ||||||
Balance, end of period | $ | 35,602 | $ | 28,702 | $ | 36,501 | $ | 28,591 | ||||||
Accumulated other changes in equity from nonowner sources | ||||||||||||||
Accumulated other comprehensive income (loss) | ||||||||||||||
Balance, beginning of period | $ | (2,382 | ) | $ | (467 | ) | $ | (1,709 | ) | $ | (2,550 | ) | ||
Adjustment to opening balance, net of tax(2) | (1 | ) | — | |||||||||||
Adjusted balance, beginning of period | $ | (1,710 | ) | $ | (2,550 | ) | ||||||||
Net change in unrealized gains (losses) on investment securities, available-for-sale, net of tax | 137 | (401 | ) | (741 | ) | 225 | ||||||||
Net change in foreign currency translation adjustment, net of tax | 1,158 | (1,243 | ) | 1,688 | 1,158 | |||||||||
Net change for cash flow hedges, net of tax | (234 | ) | 145 | (972 | ) | (418 | ) | |||||||
Minimum pension liability adjustment, net of tax | (2 | ) | (64 | ) | ||||||||||
Pension liability adjustment, net of tax | 88 | (2 | ) | |||||||||||
Net change in Accumulated other comprehensive income | $ | 63 | $ | 963 | ||||||||||
Balance, end of period | $ | (1,323 | ) | $ | (2,030 | ) | $ | (1,647 | ) | $ | (1,587 | ) | ||
Total stockholder's equity | ||||||||||||||
Balance, beginning of period | $ | 56,264 | $ | 54,141 | $ | 73,153 | $ | 60,241 | ||||||
Changes during the year, net | 6,133 | 1,394 | ||||||||||||
Adjustment to opening balance, net of tax(1)(2) | (97 | ) | — | |||||||||||
Adjusted balance, beginning of period | $ | 73,056 | $ | 60,241 | ||||||||||
Changes during the period, net | 18,156 | 7,163 | ||||||||||||
Balance, end of period | $ | 62,397 | $ | 55,535 | $ | 91,212 | $ | 67,404 | ||||||
Summary of changes in equity from nonowner sources | ||||||||||||||
Comprehensive income | ||||||||||||||
Net income | $ | 7,579 | $ | 6,795 | $ | 6,821 | $ | 7,457 | ||||||
Other changes in equity from nonowner sources, net of tax | 1,059 | (1,563 | ) | |||||||||||
Net change in Accumulated other comprehensive income | 63 | 963 | ||||||||||||
Total changes in equity from nonowner sources | $ | 8,638 | $ | 5,232 | ||||||||||
Total comprehensive income | $ | 6,884 | $ | 8,420 | ||||||||||
See Notes 1 and 16 on pages 55 and 77, respectively.
Reclassified to conform to the current period's presentation.
20. Condensed Consolidating Financial Statement Schedules
These condensed consolidating financial statement schedules are presented for purposes of additional analysis but should be considered in relation to the consolidated financial statements of Citigroup taken as a whole.
Bank Consolidation Project
In July 2006, CitiFinancial Credit Company (CCC), an indirect wholly owned subsidiary of Citigroup, transferred its ownership of Citicorp Trust Bank, Federal Savings Bank to Citigroup. This transfer was part of the Company's overall plan to consolidate its twelve U.S.-insured depository institutions into four, as well as to reorganize its U.S. mortgage business. In October 2006, Citigroup reduced the number of U.S.-insured depository institutions to five. The consolidation project is expected to be completed in 2007.
Merger of Bank Holding Companies
In August 2005, Citigroup merged its two intermediate bank holding companies, Citigroup Holdings Company and Citicorp, into Citigroup Inc. Coincident with this merger, Citigroup assumed all existing indebtedness and outstanding guarantees of Citicorp.
During the 2005 second quarter, Citigroup consolidated its capital markets funding activities into two legal entities:
As part of the funding consolidation, Citigroup also guaranteed and continues to guarantee various debt obligations of Citigroup Global Markets Holdings Inc. (CGMHI) as well as all of the outstanding debt obligations under CGMHI's publicly-issued securities. CGMHI no longer files periodic reports with the SEC and continues to be rated on the basis of a guarantee of its financial obligations by Citigroup.
The condensed financial statements on pages 123 -130, which were restated, where applicable, to reflect the above reorganizations, include the financial results of the following Citigroup entities:
Citigroup Parent Company
The holding company, Citigroup Inc.
Citigroup Global Markets Holdings Inc. (CGMHI)
Citigroup guarantees various debt obligations of CGMHI as well as all of the outstanding debt obligations under CGMHI's publicly-issued debt.
Citigroup Funding Inc. (CFI)
CFI is a first-tier subsidiary of Citigroup, which issues commercial paper, medium-term notes and structured equity-linked and credit-linked notes, all of which are guaranteed by Citigroup.
CitiFinancial Credit Company (CCC)
An indirect wholly owned subsidiary of Citigroup. CCC is a wholly owned subsidiary of Associates. Citigroup has issued a full and unconditional guarantee of the outstanding indebtedness of CCC.
Associates First Capital Corporation (Associates)
A wholly owned subsidiary of Citigroup. Citigroup has issued a full and unconditional guarantee of the outstanding long-term debt securities and commercial paper of Associates. In addition, Citigroup guaranteed various debt obligations of Citigroup Finance Canada Inc. (CFCI), a wholly owned subsidiary of Associates. CFCI continues to issue debt in the Canadian market supported by a Citigroup guarantee. Associates is the immediate parent company of CCC.
Other Citigroup Subsidiaries
Includes all other subsidiaries of Citigroup, intercompany eliminations, and income/loss from discontinued operations.
Consolidating Adjustments
Includes Citigroup parent company elimination of distributed and undistributed income of subsidiaries, investment in subsidiaries and the elimination of CCC, which is included in the Associates column.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended September 30, 2006 | Three Months Ended September 30, 2007 | |||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 5,202 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (5,202 | ) | $ | — | $ | 910 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (910 | ) | $ | — | |||||||||||||||
Interest revenue | $ | 132 | $ | 5,847 | $ | — | $ | 1,518 | $ | 1,800 | $ | 16,950 | $ | (1,518 | ) | $ | 24,729 | 103 | 8,716 | 4 | 1,743 | 2,010 | 22,128 | (1,743 | ) | 32,961 | |||||||||||||||||||||||
Interest revenue—intercompany | 1,096 | 136 | 892 | 54 | 121 | (2,245 | ) | (54 | ) | — | 1,423 | 390 | 1,739 | 32 | 197 | (3,749 | ) | (32 | ) | — | |||||||||||||||||||||||||||||
Interest expense | 1,537 | 4,827 | 593 | 45 | 182 | 7,762 | (45 | ) | 14,901 | 2,043 | 6,798 | 1,322 | 44 | 189 | 10,452 | (44 | ) | 20,804 | |||||||||||||||||||||||||||||||
Interest expense—intercompany | 2 | 767 | 210 | 480 | 673 | (1,652 | ) | (480 | ) | — | (26 | ) | 1,581 | 125 | 616 | 779 | (2,459 | ) | (616 | ) | — | ||||||||||||||||||||||||||||
Net interest revenue | $ | (311 | ) | $ | 389 | $ | 89 | $ | 1,047 | $ | 1,066 | $ | 8,595 | $ | (1,047 | ) | $ | 9,828 | $ | (491 | ) | $ | 727 | $ | 296 | $ | 1,115 | $ | 1,239 | $ | 10,386 | $ | (1,115 | ) | $ | 12,157 | |||||||||||||
Commissions and fees | $ | — | $ | 2,239 | $ | — | $ | 17 | $ | 39 | $ | 1,729 | $ | (17 | ) | $ | 4,007 | $ | — | $ | 2,449 | $ | — | $ | 31 | $ | 53 | $ | 1,551 | $ | (31 | ) | $ | 4,053 | |||||||||||||||
Commissions and fees—intercompany | — | 89 | — | 13 | 12 | (101 | ) | (13 | ) | — | — | 56 | — | 4 | 6 | (62 | ) | (4 | ) | — | |||||||||||||||||||||||||||||
Principal transactions | (8 | ) | 2,127 | (106 | ) | — | 1 | (87 | ) | — | 1,927 | 292 | (3,213 | ) | 60 | — | 1 | 2,616 | — | (244 | ) | ||||||||||||||||||||||||||||
Principal transactions—intercompany | (30 | ) | (1,166 | ) | 69 | — | — | 1,127 | — | — | 83 | 1,098 | (313 | ) | — | 7 | (875 | ) | — | — | |||||||||||||||||||||||||||||
Other income | (29 | ) | 584 | (63 | ) | 108 | 159 | 5,009 | (108 | ) | 5,660 | (1,097 | ) | 1,096 | (17 | ) | 121 | 159 | 6,286 | (121 | ) | 6,427 | |||||||||||||||||||||||||||
Other income—intercompany | 17 | 546 | 84 | 6 | 6 | (653 | ) | (6 | ) | — | 821 | 451 | 26 | 7 | 4 | (1,302 | ) | (7 | ) | — | |||||||||||||||||||||||||||||
Total non-interest revenues | $ | (50 | ) | $ | 4,419 | $ | (16 | ) | $ | 144 | $ | 217 | $ | 7,024 | $ | (144 | ) | $ | 11,594 | $ | 99 | $ | 1,937 | $ | (244 | ) | $ | 163 | $ | 230 | $ | 8,214 | $ | (163 | ) | $ | 10,236 | ||||||||||||
Total revenues, net of interest expense | $ | 4,841 | $ | 4,808 | $ | 73 | $ | 1,191 | $ | 1,283 | $ | 15,619 | $ | (6,393 | ) | $ | 21,422 | $ | 518 | $ | 2,664 | $ | 52 | $ | 1,278 | $ | 1,469 | $ | 18,600 | $ | (2,188 | ) | $ | 22,393 | |||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 6 | $ | — | $ | 294 | $ | 350 | $ | 1,761 | $ | (294 | ) | $ | 2,117 | $ | — | $ | 5 | $ | — | $ | 759 | $ | 839 | $ | 4,218 | $ | (759 | ) | $ | 5,062 | |||||||||||||||
Expenses | |||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 29 | $ | 2,232 | $ | — | $ | 195 | $ | 247 | $ | 4,210 | $ | (195 | ) | $ | 6,718 | $ | 47 | $ | 1,812 | $ | — | $ | 176 | $ | 226 | $ | 5,645 | $ | (176 | ) | $ | 7,730 | |||||||||||||||
Compensation and benefits—intercompany | 2 | 1 | — | 32 | 33 | (36 | ) | (32 | ) | — | 2 | 1 | — | 39 | 40 | (43 | ) | (39 | ) | — | |||||||||||||||||||||||||||||
Other expense | 38 | 829 | — | 126 | 175 | 4,176 | (126 | ) | 5,218 | 84 | 1,011 | 1 | 123 | 167 | 5,568 | (123 | ) | 6,831 | |||||||||||||||||||||||||||||||
Other expense—intercompany | 44 | 396 | 18 | 44 | 61 | (519 | ) | (44 | ) | — | 62 | 512 | 14 | 73 | 114 | (702 | ) | (73 | ) | — | |||||||||||||||||||||||||||||
Total operating expenses | $ | 113 | $ | 3,458 | $ | 18 | $ | 397 | $ | 516 | $ | 7,831 | $ | (397 | ) | $ | 11,936 | $ | 195 | $ | 3,336 | $ | 15 | $ | 411 | $ | 547 | $ | 10,468 | $ | (411 | ) | $ | 14,561 | |||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 4,728 | $ | 1,344 | $ | 55 | $ | 500 | $ | 417 | $ | 6,027 | $ | (5,702 | ) | $ | 7,369 | $ | 323 | $ | (677 | ) | $ | 37 | $ | 108 | $ | 83 | $ | 3,914 | $ | (1,018 | ) | $ | 2,770 | ||||||||||||||
Income taxes (benefits) | (189 | ) | 415 | 20 | 185 | 149 | 1,625 | (185 | ) | 2,020 | (296 | ) | (253 | ) | 10 | 42 | 19 | 1,058 | (42 | ) | 538 | ||||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 46 | — | 46 | — | — | — | — | — | 20 | — | 20 | |||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 588 | — | — | — | — | — | (588 | ) | — | 1,593 | — | — | — | — | — | (1,593 | ) | — | |||||||||||||||||||||||||||||||
Income from continuing operations | $ | 5,505 | $ | 929 | $ | 35 | $ | 315 | $ | 268 | $ | 4,356 | $ | (6,105 | ) | $ | 5,303 | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | ||||||||||||||
Income from discontinued operations, net of taxes | — | 69 | — | — | — | 133 | — | 202 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Net income | $ | 5,505 | $ | 998 | $ | 35 | $ | 315 | $ | 268 | $ | 4,489 | $ | (6,105 | ) | $ | 5,505 | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | ||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended September 30, 2005 | Three Months Ended September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 10,989 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (10,989 | ) | $ | — | $ | 5,202 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (5,202 | ) | $ | — | ||||||||||||||
Interest revenue | $ | 84 | $ | 4,242 | $ | — | $ | 1,402 | $ | 1,671 | $ | 13,347 | $ | (1,402 | ) | $ | 19,344 | 132 | 5,847 | — | 1,518 | 1,800 | 16,950 | (1,518 | ) | 24,729 | ||||||||||||||||||||||
Interest revenue—intercompany | 764 | 113 | 257 | (25 | ) | 60 | (1,194 | ) | 25 | — | 1,095 | 136 | 892 | 54 | 121 | (2,244 | ) | (54 | ) | — | ||||||||||||||||||||||||||||
Interest expense | 1,032 | 3,374 | 166 | 49 | 157 | 4,920 | (49 | ) | 9,649 | 1,579 | 4,827 | 593 | 45 | 182 | 7,720 | (45 | ) | 14,901 | ||||||||||||||||||||||||||||||
Interest expense—intercompany | — | 243 | 91 | 333 | 449 | (783 | ) | (333 | ) | — | 3 | 767 | 210 | 480 | 673 | (1,653 | ) | (480 | ) | — | ||||||||||||||||||||||||||||
Net interest revenue | $ | (184 | ) | $ | 738 | $ | — | $ | 995 | $ | 1,125 | $ | 8,016 | $ | (995 | ) | $ | 9,695 | $ | (355 | ) | $ | 389 | $ | 89 | $ | 1,047 | $ | 1,066 | $ | 8,639 | $ | (1,047 | ) | $ | 9,828 | ||||||||||||
Commissions and fees | $ | — | $ | 2,123 | $ | — | $ | — | $ | 12 | $ | 2,690 | $ | — | $ | 4,825 | $ | — | $ | 2,152 | $ | — | $ | 17 | $ | 39 | $ | 1,729 | $ | (17 | ) | $ | 3,920 | |||||||||||||||
Commissions and fees—intercompany | — | 72 | — | 7 | 7 | (79 | ) | (7 | ) | — | — | 89 | — | 13 | 12 | (101 | ) | (13 | ) | — | ||||||||||||||||||||||||||||
Principal transactions | (12 | ) | 380 | (46 | ) | — | — | 1,628 | — | 1,950 | (8 | ) | 2,214 | (106 | ) | — | 1 | (87 | ) | — | 2,014 | |||||||||||||||||||||||||||
Principal transactions—intercompany | 23 | 522 | 43 | — | — | (588 | ) | — | — | (31 | ) | (1,166 | ) | 69 | — | — | 1,128 | — | — | |||||||||||||||||||||||||||||
Other income | 26 | 825 | 20 | 118 | 138 | 4,019 | (118 | ) | 5,028 | (563 | ) | 584 | (63 | ) | 108 | 159 | 5,543 | (108 | ) | 5,660 | ||||||||||||||||||||||||||||
Other income—intercompany | 16 | 42 | (21 | ) | 4 | 6 | (43 | ) | (4 | ) | — | 551 | 546 | 84 | 6 | 6 | (1,187 | ) | (6 | ) | — | |||||||||||||||||||||||||||
Total non-interest revenues | $ | 53 | $ | 3,964 | $ | (4 | ) | $ | 129 | $ | 163 | $ | 7,627 | $ | (129 | ) | $ | 11,803 | $ | (51 | ) | $ | 4,419 | $ | (16 | ) | $ | 144 | $ | 217 | $ | 7,025 | $ | (144 | ) | $ | 11,594 | |||||||||||
Total revenues, net of interest expense | $ | 10,858 | $ | 4,702 | $ | (4 | ) | $ | 1,124 | $ | 1,288 | $ | 15,643 | $ | (12,113 | ) | $ | 21,498 | $ | 4,796 | $ | 4,808 | $ | 73 | $ | 1,191 | $ | 1,283 | $ | 15,664 | $ | (6,393 | ) | $ | 21,422 | |||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 16 | $ | — | $ | 512 | $ | 569 | $ | 2,255 | $ | (512 | ) | $ | 2,840 | $ | — | $ | 6 | $ | — | $ | 294 | $ | 350 | $ | 1,761 | $ | (294 | ) | $ | 2,117 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 25 | $ | 2,660 | $ | — | $ | 182 | $ | 216 | $ | 3,891 | $ | (182 | ) | $ | 6,792 | $ | 31 | $ | 2,232 | $ | — | $ | 195 | $ | 247 | $ | 4,208 | $ | (195 | ) | $ | 6,718 | ||||||||||||||
Compensation and benefits—intercompany | 2 | 3 | — | 32 | 34 | (39 | ) | (32 | ) | — | 2 | 1 | — | 32 | 33 | (36 | ) | (32 | ) | — | ||||||||||||||||||||||||||||
Other expense | 50 | 661 | 1 | 123 | 155 | 3,754 | (123 | ) | 4,621 | 36 | 829 | — | 126 | 175 | 4,178 | (126 | ) | 5,218 | ||||||||||||||||||||||||||||||
Other expense—intercompany | 27 | 323 | 3 | 46 | 67 | (420 | ) | (46 | ) | — | 43 | 396 | 18 | 44 | 61 | (518 | ) | (44 | ) | — | ||||||||||||||||||||||||||||
Total operating expenses | $ | 104 | $ | 3,647 | $ | 4 | $ | 383 | $ | 472 | $ | 7,186 | $ | (383 | ) | $ | 11,413 | $ | 112 | $ | 3,458 | $ | 18 | $ | 397 | $ | 516 | $ | 7,832 | $ | (397 | ) | $ | 11,936 | ||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 10,754 | $ | 1,039 | $ | (8 | ) | $ | 229 | $ | 247 | $ | 6,202 | $ | (11,218 | ) | $ | 7,245 | $ | 4,684 | $ | 1,344 | $ | 55 | $ | 500 | $ | 417 | $ | 6,071 | $ | (5,702 | ) | $ | 7,369 | |||||||||||||
Income taxes (benefits) | (92 | ) | 372 | (3 | ) | 75 | 80 | 1,807 | (75 | ) | 2,164 | (204 | ) | 415 | 20 | 185 | 149 | 1,640 | (185 | ) | 2,020 | |||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 93 | 93 | — | — | — | — | — | 46 | — | 46 | |||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | (3,703 | ) | — | — | — | — | — | 3,703 | — | 617 | — | — | — | — | — | (617 | ) | — | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 7,143 | $ | 667 | $ | (5 | ) | $ | 154 | $ | 167 | $ | 4,302 | $ | (7,440 | ) | $ | 4,988 | $ | 5,505 | $ | 929 | $ | 35 | $ | 315 | $ | 268 | $ | 4,385 | $ | (6,134 | ) | $ | 5,303 | |||||||||||||
Income from discontinued operations, net of taxes | — | 87 | — | — | — | 2,068 | — | 2,155 | — | 69 | — | — | — | 133 | — | 202 | ||||||||||||||||||||||||||||||||
Net income | $ | 7,143 | $ | 754 | $ | (5 | ) | $ | 154 | $ | 167 | $ | 6,370 | $ | (7,440 | ) | $ | 7,143 | $ | 5,505 | $ | 998 | $ | 35 | $ | 315 | $ | 268 | $ | 4,518 | $ | (6,134 | ) | $ | 5,505 | |||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 9,165 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (9,165 | ) | $ | — | $ | 7,746 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,746 | ) | $ | — | ||||||||||||||
Interest revenue | $ | 325 | $ | 17,187 | $ | — | $ | 4,384 | $ | 5,199 | $ | 47,463 | $ | (4,384 | ) | $ | 70,174 | 299 | 23,938 | 4 | 4,949 | 5,771 | 61,679 | (4,949 | ) | 91,691 | ||||||||||||||||||||||
Interest revenue—intercompany | 3,028 | 357 | 2,219 | 44 | 287 | (5,891 | ) | (44 | ) | — | 4,065 | 1,086 | 4,435 | 105 | 460 | (10,046 | ) | (105 | ) | — | ||||||||||||||||||||||||||||
Interest expense | 4,219 | 13,597 | 1,524 | 145 | 546 | 20,839 | (145 | ) | 40,725 | 5,753 | 18,797 | 3,260 | 137 | 560 | 29,168 | (137 | ) | 57,538 | ||||||||||||||||||||||||||||||
Interest expense—intercompany | 2 | 1,964 | 550 | 1,227 | 1,784 | (4,300 | ) | (1,227 | ) | — | (69 | ) | 4,107 | 521 | 1,650 | 2,147 | (6,706 | ) | (1,650 | ) | — | |||||||||||||||||||||||||||
Net interest revenue | $ | (868 | ) | $ | 1,983 | $ | 145 | $ | 3,056 | $ | 3,156 | $ | 25,033 | $ | (3,056 | ) | $ | 29,449 | $ | (1,320 | ) | $ | 2,120 | $ | 658 | $ | 3,267 | $ | 3,524 | $ | 29,171 | $ | (3,267 | ) | $ | 34,153 | ||||||||||||
Commissions and fees | $ | — | $ | 7,186 | $ | — | $ | 48 | $ | 119 | $ | 7,221 | $ | (48 | ) | $ | 14,526 | $ | — | $ | 8,122 | $ | — | $ | 75 | $ | 140 | $ | 8,025 | $ | (75 | ) | $ | 16,287 | ||||||||||||||
Commissions and fees—intercompany | — | 233 | — | 35 | 34 | (267 | ) | (35 | ) | — | — | 95 | — | 14 | 16 | (111 | ) | (14 | ) | — | ||||||||||||||||||||||||||||
Principal transactions | 28 | 3,456 | (96 | ) | — | 5 | 2,354 | — | 5,747 | 91 | (887 | ) | (412 | ) | — | 4 | 6,757 | — | 5,553 | |||||||||||||||||||||||||||||
Principal transactions—intercompany | — | (853 | ) | 62 | — | — | 791 | — | — | 66 | 1,111 | (162 | ) | — | (31 | ) | (984 | ) | — | — | ||||||||||||||||||||||||||||
Other income | (61 | ) | 2,586 | 88 | 331 | 446 | 13,006 | (331 | ) | 16,065 | (131 | ) | 3,446 | 119 | 341 | 504 | 14,551 | (341 | ) | 18,489 | ||||||||||||||||||||||||||||
Other income—intercompany | 65 | 921 | (57 | ) | 16 | 13 | (942 | ) | (16 | ) | — | (5 | ) | 1,079 | (89 | ) | 20 | (39 | ) | (946 | ) | (20 | ) | — | ||||||||||||||||||||||||
Total non-interest revenues | $ | 32 | $ | 13,529 | $ | (3 | ) | $ | 430 | $ | 617 | $ | 22,163 | $ | (430 | ) | $ | 36,338 | $ | 21 | $ | 12,966 | $ | (544 | ) | $ | 450 | $ | 594 | $ | 27,292 | $ | (450 | ) | $ | 40,329 | ||||||||||||
Total revenues, net of interest expense | $ | 8,329 | $ | 15,512 | $ | 142 | $ | 3,486 | $ | 3,773 | $ | 47,196 | $ | (12,651 | ) | $ | 65,787 | $ | 6,447 | $ | 15,086 | $ | 114 | $ | 3,717 | $ | 4,118 | $ | 56,463 | $ | (11,463 | ) | $ | 74,482 | ||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 33 | $ | — | $ | 879 | $ | 1,016 | $ | 4,558 | $ | (879 | ) | $ | 5,607 | $ | — | $ | 29 | $ | — | $ | 1,587 | $ | 1,767 | $ | 8,950 | $ | (1,587 | ) | $ | 10,746 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 90 | $ | 8,445 | $ | — | $ | 575 | $ | 730 | $ | 13,090 | $ | (575 | ) | $ | 22,355 | $ | 99 | $ | 8,816 | $ | — | $ | 507 | $ | 667 | $ | 15,769 | $ | (507 | ) | $ | 25,351 | ||||||||||||||
Compensation and benefits—intercompany | 6 | 1 | — | 104 | 105 | (112 | ) | (104 | ) | — | 8 | 1 | — | 120 | 121 | (130 | ) | (120 | ) | — | ||||||||||||||||||||||||||||
Other expense | 62 | 2,670 | 1 | 387 | 509 | 12,466 | (387 | ) | 15,708 | 324 | 2,617 | 2 | 399 | 541 | 16,152 | (399 | ) | 19,636 | ||||||||||||||||||||||||||||||
Other expense—intercompany | 117 | 1,198 | 32 | 137 | 188 | (1,535 | ) | (137 | ) | — | 175 | 1,388 | 43 | 224 | 302 | (1,908 | ) | (224 | ) | — | ||||||||||||||||||||||||||||
Total operating expenses | $ | 275 | $ | 12,314 | $ | 33 | $ | 1,203 | $ | 1,532 | $ | 23,909 | $ | (1,203 | ) | $ | 38,063 | $ | 606 | $ | 12,822 | $ | 45 | $ | 1,250 | $ | 1,631 | $ | 29,883 | $ | (1,250 | ) | $ | 44,987 | ||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 8,054 | $ | 3,165 | $ | 109 | $ | 1,404 | $ | 1,225 | $ | 18,729 | $ | (10,569 | ) | $ | 22,117 | $ | 5,841 | $ | 2,235 | $ | 69 | $ | 880 | $ | 720 | $ | 17,630 | $ | (8,626 | ) | $ | 18,749 | ||||||||||||||
Income taxes (benefits) | (706 | ) | 965 | 43 | 499 | 377 | 5,181 | (499 | ) | 5,860 | (857 | ) | 721 | 23 | 320 | 252 | 4,970 | (320 | ) | 5,109 | ||||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 137 | — | 137 | — | — | — | — | — | 190 | — | 190 | ||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 7,649 | — | — | — | — | — | (7,649 | ) | — | 6,752 | — | — | — | — | — | (6,752 | ) | — | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 16,409 | $ | 2,200 | $ | 66 | $ | 905 | $ | 848 | $ | 13,411 | $ | (17,719 | ) | $ | 16,120 | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | ||||||||||||||
Income from discontinued operations, net of taxes | — | 84 | — | — | — | 205 | — | 289 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Net income | $ | 16,409 | $ | 2,284 | $ | 66 | $ | 905 | $ | 848 | $ | 13,616 | $ | (17,719 | ) | $ | 16,409 | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | ||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Nine Months Ended September 30, 2005 | Nine Months Ended September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 15,258 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (15,258 | ) | $ | — | $ | 9,165 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (9,165 | ) | $ | — | ||||||||||||||
Interest revenue | $ | 249 | $ | 11,507 | $ | — | $ | 4,153 | $ | 4,973 | $ | 38,584 | $ | (4,153 | ) | $ | 55,313 | 325 | 17,187 | — | 4,384 | 5,199 | 47,463 | (4,384 | ) | 70,174 | ||||||||||||||||||||||
Interest revenue— intercompany | 2,163 | 284 | 282 | (53 | ) | 149 | (2,878 | ) | 53 | — | ||||||||||||||||||||||||||||||||||||||
Interest revenue—intercompany | 3,027 | 357 | 2,219 | 44 | 287 | (5,890 | ) | (44 | ) | — | ||||||||||||||||||||||||||||||||||||||
Interest expense | 2,753 | 8,710 | 184 | 167 | 524 | 13,570 | (167 | ) | 25,741 | 4,354 | 13,597 | 1,524 | 145 | 546 | 20,704 | (145 | ) | 40,725 | ||||||||||||||||||||||||||||||
Interest expense— intercompany | — | 559 | 98 | 972 | 1,155 | (1,812 | ) | (972 | ) | — | ||||||||||||||||||||||||||||||||||||||
Interest expense—intercompany | (37 | ) | 1,964 | 550 | 1,227 | 1,784 | (4,261 | ) | (1,227 | ) | — | |||||||||||||||||||||||||||||||||||||
Net interest revenue | $ | (341 | ) | $ | 2,522 | $ | — | $ | 2,961 | $ | 3,443 | $ | 23,948 | $ | (2,961 | ) | $ | 29,572 | $ | (965 | ) | $ | 1,983 | $ | 145 | $ | 3,056 | $ | 3,156 | $ | 25,130 | $ | (3,056 | ) | $ | 29,449 | ||||||||||||
Commissions and fees | $ | — | $ | 6,095 | $ | — | $ | 8 | $ | 46 | $ | 6,871 | $ | (8 | ) | $ | 13,012 | — | $ | 6,981 | — | $ | 48 | $ | 119 | $ | 7,221 | $ | (48 | ) | $ | 14,321 | ||||||||||||||||
Commissions and fees— intercompany | — | 163 | — | 9 | 9 | (172 | ) | (9 | ) | — | ||||||||||||||||||||||||||||||||||||||
Commissions and fees—intercompany | — | 233 | — | 35 | 34 | (267 | ) | (35 | ) | — | ||||||||||||||||||||||||||||||||||||||
Principal transactions | 290 | 4,037 | (39 | ) | — | (8 | ) | 729 | — | 5,009 | 28 | 3,661 | (96 | ) | — | 5 | 2,354 | — | 5,952 | |||||||||||||||||||||||||||||
Principal transactions—intercompany | 14 | (2,263 | ) | 36 | 1 | 1 | 2,212 | (1 | ) | — | (1 | ) | (853 | ) | 62 | — | — | 792 | — | — | ||||||||||||||||||||||||||||
Other income | (15 | ) | 2,484 | 20 | 415 | 287 | 12,494 | (415 | ) | 15,270 | 187 | 2,586 | 88 | 331 | 446 | 12,758 | (331 | ) | 16,065 | |||||||||||||||||||||||||||||
Other income—intercompany | 52 | 263 | (21 | ) | 12 | 18 | (312 | ) | (12 | ) | — | (182 | ) | 921 | (57 | ) | 16 | 13 | (695 | ) | (16 | ) | — | |||||||||||||||||||||||||
Total non-interest revenues | $ | 341 | $ | 10,779 | $ | (4 | ) | $ | 445 | $ | 353 | $ | 21,822 | $ | (445 | ) | $ | 33,291 | $ | 32 | $ | 13,529 | $ | (3 | ) | $ | 430 | $ | 617 | $ | 22,163 | $ | (430 | ) | $ | 36,338 | ||||||||||||
Total revenue, net of interest expense | $ | 15,258 | $ | 13,301 | $ | (4 | ) | $ | 3,406 | $ | 3,796 | $ | 45,770 | $ | (18,664 | ) | $ | 62,863 | ||||||||||||||||||||||||||||||
Total revenues, net of interest expense | $ | 8,232 | $ | 15,512 | $ | 142 | $ | 3,486 | $ | 3,773 | $ | 47,293 | $ | (12,651 | ) | $ | 65,787 | |||||||||||||||||||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 16 | $ | — | $ | 1,330 | $ | 1,472 | $ | 5,414 | $ | (1,330 | ) | $ | 6,902 | $ | — | $ | 33 | $ | — | $ | 879 | $ | 1,016 | $ | 4,558 | $ | (879 | ) | $ | 5,607 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 70 | $ | 7,160 | $ | — | $ | 539 | $ | 640 | $ | 11,441 | $ | (539 | ) | $ | 19,311 | $ | 52 | $ | 8,445 | $ | — | $ | 575 | $ | 730 | $ | 13,128 | $ | (575 | ) | $ | 22,355 | ||||||||||||||
Compensation and benefits— intercompany | 4 | 4 | — | 96 | 98 | (106 | ) | (96 | ) | — | ||||||||||||||||||||||||||||||||||||||
Compensation and benefits—intercompany | 6 | 1 | — | 104 | 105 | (112 | ) | (104 | ) | — | ||||||||||||||||||||||||||||||||||||||
Other expense | 181 | 2,070 | 1 | 366 | 462 | 11,764 | (366 | ) | 14,478 | 101 | 2,670 | 1 | 387 | 509 | 12,427 | (387 | ) | 15,708 | ||||||||||||||||||||||||||||||
Other expense— intercompany | 74 | 1,011 | 3 | 122 | 160 | (1,248 | ) | (122 | ) | — | ||||||||||||||||||||||||||||||||||||||
Other expense—intercompany | 116 | 1,198 | 32 | 137 | 188 | (1,534 | ) | (137 | ) | — | ||||||||||||||||||||||||||||||||||||||
Total operating expenses | $ | 329 | $ | 10,245 | $ | 4 | $ | 1,123 | $ | 1,360 | $ | 21,851 | $ | (1,123 | ) | $ | 33,789 | $ | 275 | $ | 12,314 | $ | 33 | $ | 1,203 | $ | 1,532 | $ | 23,909 | $ | (1,203 | ) | $ | 38,063 | ||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 14,929 | $ | 3,040 | $ | (8 | ) | $ | 953 | $ | 964 | $ | 18,505 | $ | (16,211 | ) | $ | 22,172 | $ | 7,957 | $ | 3,165 | $ | 109 | $ | 1,404 | $ | 1,225 | $ | 18,826 | $ | (10,569 | ) | $ | 22,117 | |||||||||||||
Income taxes (benefits) | (98 | ) | 988 | (3 | ) | 340 | 342 | 5,598 | (340 | ) | 6,827 | (740 | ) | 965 | 43 | 499 | 377 | 5,215 | (499 | ) | 5,860 | |||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 511 | — | 511 | — | — | — | — | — | 137 | — | 137 | ||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 2,630 | — | — | — | — | — | (2,630 | ) | — | 7,712 | — | — | — | — | — | (7,712 | ) | — | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 17,657 | $ | 2,052 | $ | (5 | ) | $ | 613 | $ | 622 | $ | 12,396 | $ | (18,501 | ) | $ | 14,834 | $ | 16,409 | $ | 2,200 | $ | 66 | $ | 905 | $ | 848 | $ | 13,474 | $ | (17,782 | ) | $ | 16,120 | |||||||||||||
Income from discontinued operations, net of taxes | — | 230 | — | — | — | 2,593 | — | 2,823 | — | 84 | — | — | — | 205 | — | 289 | ||||||||||||||||||||||||||||||||
Net income | $ | 17,657 | $ | 2,282 | $ | (5 | ) | $ | 613 | $ | 622 | $ | 14,989 | $ | (18,501 | ) | $ | 17,657 | $ | 16,409 | $ | 2,284 | $ | 66 | $ | 905 | $ | 848 | $ | 13,679 | $ | (17,782 | ) | $ | 16,409 | |||||||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| September 30, 2006 | September 30, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 3,485 | $ | — | $ | 166 | $ | 253 | $ | 18,805 | $ | (166 | ) | $ | 22,543 | $ | — | $ | 5,196 | $ | 52 | $ | 239 | $ | 339 | $ | 32,639 | $ | (239 | ) | $ | 38,226 | ||||||||||||||||
Cash and due from banks—intercompany | 139 | 883 | 1 | 178 | 191 | (1,214 | ) | (178 | ) | — | 35 | 864 | — | 140 | 159 | (1,058 | ) | (140 | ) | — | ||||||||||||||||||||||||||||||
Federal funds sold and resale agreements | — | 250,371 | — | — | — | 12,256 | — | 262,627 | — | 338,085 | — | — | — | 45,132 | — | 383,217 | ||||||||||||||||||||||||||||||||||
Federal funds sold and resale agreements— intercompany | — | 4,204 | — | — | — | (4,204 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 14,146 | — | — | — | (14,146 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Trading account assets | — | 246,063 | 14 | — | 34 | 105,038 | — | 351,149 | 21 | 348,280 | 120 | 10 | 41 | 232,758 | (10 | ) | 581,220 | |||||||||||||||||||||||||||||||||
Trading account assets —intercompany | — | 2,483 | 231 | — | 8 | (2,722 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Trading account assets—intercompany | 723 | 8,065 | 1,588 | — | 13 | (10,389 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Investments | 10,125 | — | — | 2,593 | 3,343 | 238,280 | (2,593 | ) | 251,748 | 7,082 | 425 | — | 2,488 | 3,110 | 230,211 | (2,488 | ) | 240,828 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income | — | 1,089 | — | 42,335 | 51,315 | 602,978 | (42,335 | ) | 655,382 | — | 826 | — | 48,113 | 57,178 | 715,965 | (48,113 | ) | 773,969 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 68,304 | 8,672 | 9,589 | (77,893 | ) | (8,672 | ) | — | — | — | 122,460 | 8,219 | 14,171 | (136,631 | ) | (8,219 | ) | — | ||||||||||||||||||||||||||||||
Allowance for loan losses | — | (48 | ) | — | (1,060 | ) | (1,214 | ) | (7,717 | ) | 1,060 | (8,979 | ) | — | (74 | ) | — | (1,268 | ) | (1,428 | ) | (11,226 | ) | 1,268 | (12,728 | ) | ||||||||||||||||||||||||
Total loans, net | $ | — | $ | 1,041 | $ | 68,304 | $ | 49,947 | $ | 59,690 | $ | 517,368 | (49,947 | ) | $ | 646,403 | $ | — | $ | 752 | $ | 122,460 | $ | 55,064 | $ | 69,921 | $ | 568,108 | $ | (55,064 | ) | $ | 761,241 | |||||||||||||||||
Advances to subsidiaries | 82,738 | — | — | — | — | (82,738 | ) | — | — | 107,369 | — | — | — | — | (107,369 | ) | — | — | ||||||||||||||||||||||||||||||||
Investments in subsidiaries | 140,958 | — | — | — | — | — | (140,958 | ) | — | 166,908 | — | — | — | — | — | (166,908 | ) | — | ||||||||||||||||||||||||||||||||
Other assets | 9,380 | 61,407 | 37 | 4,806 | 6,398 | 134,556 | (4,806 | ) | 211,778 | 10,570 | 89,231 | 76 | 5,327 | 6,998 | 246,659 | (5,327 | ) | 353,534 | ||||||||||||||||||||||||||||||||
Other assets— intercompany | — | 12,940 | 3,818 | 264 | 413 | (17,171 | ) | (264 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Other assets—intercompany | 5,246 | 32,804 | 4,206 | 316 | 893 | (43,149 | ) | (316 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 243,340 | $ | 582,877 | $ | 72,405 | $ | 57,954 | $ | 70,330 | $ | 918,254 | $ | (198,912 | ) | $ | 1,746,248 | $ | 297,954 | $ | 837,848 | $ | 128,502 | $ | 63,584 | $ | 81,474 | $ | 1,179,396 | $ | (230,492 | ) | $ | 2,358,266 | ||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 669,278 | $ | — | $ | 669,278 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 812,850 | $ | — | $ | 812,850 | ||||||||||||||||||
Federal funds purchased and securities loaned or sold | — | 265,265 | — | — | — | 54,830 | — | 320,095 | — | 383,976 | — | — | — | 56,393 | — | 440,369 | ||||||||||||||||||||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | — | 1,967 | — | — | — | (1,967 | ) | — | — | — | 2,752 | — | — | — | (2,752 | ) | — | — | ||||||||||||||||||||||||||||||||
Trading account liabilities | — | 97,486 | 151 | — | — | 41,239 | — | 138,876 | 5 | 142,073 | 103 | — | — | 73,442 | — | 215,623 | ||||||||||||||||||||||||||||||||||
Trading account liabilities— intercompany | — | 1,867 | 246 | — | — | (2,113 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Trading account liabilities—intercompany | 49 | 5,896 | 263 | — | 26 | (6,234 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Short-term borrowings | — | 9,329 | 35,515 | — | 745 | 24,912 | — | 70,501 | 5,444 | 26,808 | 52,611 | — | 1,574 | 107,867 | — | 194,304 | ||||||||||||||||||||||||||||||||||
Short-term borrowings —intercompany | — | 38,369 | 20,176 | 7,496 | 20,037 | (78,582 | ) | (7,496 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Short-term borrowings—intercompany | — | 77,740 | 38,619 | 10,486 | 40,630 | (156,989 | ) | (10,486 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Long-term debt | 114,299 | 31,019 | 15,265 | 2,695 | 13,374 | 86,132 | (2,695 | ) | 260,089 | 153,986 | 28,904 | 33,607 | 3,338 | 14,286 | 133,743 | (3,338 | ) | 364,526 | ||||||||||||||||||||||||||||||||
Long-term debt— intercompany | — | 22,625 | — | 35,321 | 27,432 | (50,057 | ) | (35,321 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Long-term debt—intercompany | — | 30,756 | 1,017 | 40,751 | 16,248 | (48,021 | ) | (40,751 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Advances from subsidiaries | 1,174 | — | — | — | — | (1,174 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Other liabilities | 5,338 | 89,061 | 98 | 1,545 | 1,420 | 73,627 | (1,545 | ) | 169,544 | 8,295 | 107,594 | 291 | 2,032 | 2,069 | 85,232 | (2,032 | ) | 203,481 | ||||||||||||||||||||||||||||||||
Other liabilities — intercompany | 5,838 | 5,722 | 66 | 459 | 220 | (11,846 | ) | (459 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Other liabilities—intercompany | 1,888 | 11,449 | 260 | 587 | 248 | (13,845 | ) | (587 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Stockholders' equity | 117,865 | 20,167 | 888 | 10,438 | 7,102 | 112,801 | (151,396 | ) | 117,865 | 127,113 | 19,900 | 1,731 | 6,390 | 6,393 | 138,884 | (173,298 | ) | 127,113 | ||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 243,340 | $ | 582,877 | $ | 72,405 | $ | 57,954 | $ | 70,330 | $ | 918,254 | $ | (198,912 | ) | $ | 1,746,248 | $ | 297,954 | $ | 837,848 | $ | 128,502 | $ | 63,584 | $ | 81,474 | $ | 1,179,396 | $ | (230,492 | ) | $ | 2,358,266 | ||||||||||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| December 31, 2005(1) | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 3,525 | $ | — | $ | 206 | $ | 331 | $ | 19,776 | $ | (206 | ) | $ | 23,632 | ||||||||
Cash and due from banks—intercompany | 300 | 388 | 1 | 481 | 545 | (1,234 | ) | (481 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 204,371 | — | — | — | 13,093 | — | 217,464 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 5,870 | — | — | — | (5,870 | ) | — | — | ||||||||||||||||
Trading account assets | — | 207,682 | — | — | 40 | 88,098 | — | 295,820 | |||||||||||||||||
Trading account assets—intercompany | — | 2,350 | — | — | 17 | (2,367 | ) | — | — | ||||||||||||||||
Investments | 8,215 | — | — | 2,469 | 3,216 | 169,166 | (2,469 | ) | 180,597 | ||||||||||||||||
Loans, net of unearned income | — | 1,120 | — | 39,934 | 48,751 | 533,632 | (39,934 | ) | 583,503 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 18,057 | 6,058 | 8,581 | (26,638 | ) | (6,058 | ) | — | |||||||||||||||
Allowance for loan losses | — | (66 | ) | — | (1,274 | ) | (1,429 | ) | (8,287 | ) | 1,274 | (9,782 | ) | ||||||||||||
Total loans, net | $ | — | $ | 1,054 | $ | 18,057 | $ | 44,718 | $ | 55,903 | $ | 498,707 | (44,718 | ) | $ | 573,721 | |||||||||
Advances to subsidiaries | 71,784 | — | — | — | — | (71,784 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 132,214 | — | — | — | — | — | (132,214 | ) | — | ||||||||||||||||
Other assets | 8,751 | 65,451 | 8 | 6,427 | 8,049 | 120,544 | (6,427 | ) | 202,803 | ||||||||||||||||
Other assets—intercompany | — | 9,075 | 32,872 | 239 | 367 | (42,314 | ) | (239 | ) | — | |||||||||||||||
Total assets | $ | 221,264 | $ | 499,766 | $ | 50,938 | $ | 54,540 | $ | 68,468 | $ | 785,815 | $ | (186,754 | ) | $ | 1,494,037 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | 1 | $ | 1 | $ | 591,827 | $ | (1 | ) | $ | 591,828 | ||||||||
Federal funds purchased and securities loaned or sold | — | 202,490 | — | — | — | 39,902 | — | 242,392 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | — | 1,734 | — | — | — | (1,734 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 79,020 | 97 | — | — | 41,991 | — | 121,108 | |||||||||||||||||
Trading account liabilities—intercompany | — | 2,572 | 85 | — | — | (2,657 | ) | — | — | ||||||||||||||||
Short-term borrowings | — | 10,391 | 33,440 | 1,520 | 3,103 | 19,996 | (1,520 | ) | 66,930 | ||||||||||||||||
Short-term borrowings—intercompany | — | 29,579 | 11,209 | 5,989 | 8,815 | (49,603 | ) | (5,989 | ) | — | |||||||||||||||
Long-term debt | 100,600 | 39,214 | 5,963 | 3,785 | 14,032 | 57,690 | (3,785 | ) | 217,499 | ||||||||||||||||
Long-term debt—intercompany | — | 17,671 | — | 32,089 | 35,211 | (52,882 | ) | (32,089 | ) | — | |||||||||||||||
Other liabilities | 4,436 | 89,774 | 31 | 1,233 | 1,089 | 46,413 | (1,233 | ) | 141,743 | ||||||||||||||||
Other liabilities—intercompany | 3,691 | 5,778 | 42 | 617 | 202 | (9,713 | ) | (617 | ) | — | |||||||||||||||
Stockholders' equity | 112,537 | 21,543 | 71 | 9,306 | 6,015 | 104,585 | (141,520 | ) | 112,537 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 221,264 | $ | 499,766 | $ | 50,938 | $ | 54,540 | $ | 68,468 | $ | 785,815 | $ | (186,754 | ) | $ | 1,494,037 | ||||||||
| December 31, 2006 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 3,752 | $ | — | $ | 216 | $ | 313 | $ | 22,449 | $ | (216 | ) | $ | 26,514 | ||||||||
Cash and due from banks—intercompany | 21 | 669 | — | 172 | 190 | (880 | ) | (172 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 269,949 | — | — | — | 12,868 | — | 282,817 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 5,720 | — | — | — | (5,720 | ) | — | — | ||||||||||||||||
Trading account assets | 38 | 281,290 | — | — | 36 | 112,561 | — | 393,925 | |||||||||||||||||
Trading account assets—intercompany | 224 | 6,257 | 1 | — | 9 | (6,491 | ) | — | — | ||||||||||||||||
Investments | 9,088 | — | — | 2,290 | 2,808 | 261,695 | (2,290 | ) | 273,591 | ||||||||||||||||
Loans, net of unearned income | — | 932 | — | 44,809 | 53,614 | 624,646 | (44,809 | ) | 679,192 | ||||||||||||||||
Loans, net of unearned income—Intercompany | — | — | 83,308 | 8,116 | 11,234 | (94,542 | ) | (8,116 | ) | — | |||||||||||||||
Allowance for loan losses | — | (60 | ) | — | (954 | ) | (1,099 | ) | (7,781 | ) | 954 | (8,940 | ) | ||||||||||||
Total loans, net | $ | — | $ | 872 | $ | 83,308 | $ | 51,971 | $ | 63,749 | $ | 522,323 | $ | (51,971 | ) | $ | 670,252 | ||||||||
Advances to subsidiaries | 90,112 | — | — | — | — | (90,112 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 146,904 | — | — | — | — | — | (146,904 | ) | — | ||||||||||||||||
Other assets | 8,234 | 66,761 | 552 | 4,708 | 6,208 | 155,464 | (4,708 | ) | 237,219 | ||||||||||||||||
Other assets—intercompany | 2,969 | 16,153 | 4,241 | 260 | 388 | (23,751 | ) | (260 | ) | — | |||||||||||||||
Total assets | $ | 257,590 | $ | 651,423 | $ | 88,102 | $ | 59,617 | $ | 73,701 | $ | 960,406 | $ | (206,521 | ) | $ | 1,884,318 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 712,041 | $ | — | $ | 712,041 | |||||||||
Federal funds purchased and securities loaned or sold | — | 304,470 | — | — | — | 44,765 | — | 349,235 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—Intercompany | 1,910 | 2,283 | — | — | — | (4,193 | ) | — | — | ||||||||||||||||
Trading account liabilities | 5 | 106,174 | 51 | — | — | 39,657 | — | 145,887 | |||||||||||||||||
Trading account liabilities—intercompany | 128 | 2,829 | 93 | — | — | (3,050 | ) | — | — | ||||||||||||||||
Short-term borrowings | 32 | 14,102 | 43,345 | 1,201 | 3,137 | 40,217 | (1,201 | ) | 100,833 | ||||||||||||||||
Short-term borrowings—intercompany | — | 47,178 | 22,494 | 9,739 | 24,130 | (93,802 | ) | (9,739 | ) | — | |||||||||||||||
Long-term debt | 125,350 | 28,719 | 18,847 | 2,904 | 13,222 | 102,356 | (2,904 | ) | 288,494 | ||||||||||||||||
Long-term debt—intercompany | 399 | 24,038 | 1,644 | 33,050 | 24,349 | (50,430 | ) | (33,050 | ) | — | |||||||||||||||
Advances from subsidiaries | 2,565 | — | — | — | — | (2,565 | ) | — | — | ||||||||||||||||
Other liabilities | 6,246 | 95,113 | 139 | 1,362 | 1,194 | 65,353 | (1,362 | ) | 168,045 | ||||||||||||||||
Other liabilities—intercompany | 1,172 | 6,498 | 179 | 628 | 334 | (8,183 | ) | (628 | ) | — | |||||||||||||||
Stockholders' equity | 119,783 | 20,019 | 1,310 | 10,733 | 7,335 | 118,240 | (157,637 | ) | 119,783 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 257,590 | $ | 651,423 | $ | 88,102 | $ | 59,617 | $ | 73,701 | $ | 960,406 | $ | (206,521 | ) | $ | 1,884,318 | ||||||||
Reclassified to conform to the current period's presentation.
Condensed Consolidating Statements of Cash Flows
| Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities of continuing operations | $ | 8,427 | $ | (66 | ) | $ | (153 | ) | $ | 4,128 | $ | 4,524 | $ | 186,738 | $ | (4,128 | ) | $ | 199,470 | $ | 927 | $ | (39,555 | ) | $ | (62 | ) | $ | 2,791 | $ | 2,063 | $ | (74,180 | ) | $ | (2,791 | ) | $ | (110,807 | ) | ||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in loans | $ | — | $ | 31 | $ | — | $ | (4,122 | ) | $ | (4,443 | ) | $ | (252,687 | ) | $ | 4,122 | $ | (257,099 | ) | $ | — | $ | 106 | $ | (41,717 | ) | $ | (5,278 | ) | $ | (5,714 | ) | $ | (228,590 | ) | $ | 5,278 | $ | (275,915 | ) | |||||||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 18,627 | — | 18,627 | — | — | — | — | — | 196,938 | — | 196,938 | ||||||||||||||||||||||||||||||||||
Purchases of investments | (13,499 | ) | — | — | (4,147 | ) | (5,523 | ) | (193,464 | ) | 4,147 | (212,486 | ) | (8,277 | ) | (425 | ) | — | (546 | ) | (1,279 | ) | (192,665 | ) | 546 | (202,646 | ) | |||||||||||||||||||||||
Proceeds from sales of investments | 3,543 | — | — | 636 | 1,076 | 49,121 | (636 | ) | 53,740 | 3,958 | — | — | 109 | 428 | 143,187 | (109 | ) | 147,573 | ||||||||||||||||||||||||||||||||
Proceeds from maturities of investments | 8,173 | — | — | 3,378 | 4,331 | 77,659 | (3,378 | ) | 90,163 | 6,171 | — | — | 237 | 612 | 93,794 | (237 | ) | 100,577 | ||||||||||||||||||||||||||||||||
Changes in investments and advances—intercompany | (9,849 | ) | — | (20,942 | ) | (2,614 | ) | (1,008 | ) | 31,799 | 2,614 | — | (20,593 | ) | — | — | (103 | ) | (2,937 | ) | 23,530 | 103 | — | |||||||||||||||||||||||||||
Business acquisitions | — | (9 | ) | — | — | — | 9 | — | — | — | — | — | — | — | (15,186 | ) | — | (15,186 | ) | |||||||||||||||||||||||||||||||
Other investing activities | — | (45 | ) | — | — | — | (3,836 | ) | — | (3,881 | ) | — | (5,120 | ) | — | — | — | (2,298 | ) | — | (7,418 | ) | ||||||||||||||||||||||||||||
Net cash used in investing activities | $ | (11,632 | ) | $ | (23 | ) | $ | (20,942 | ) | $ | (6,869 | ) | $ | (5,567 | ) | $ | (272,772 | ) | $ | 6,869 | $ | (310,936 | ) | |||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | $ | (18,741 | ) | $ | (5,439 | ) | $ | (41,717 | ) | $ | (5,581 | ) | $ | (8,890 | ) | $ | 18,710 | $ | 5,581 | $ | (56,077 | ) | ||||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | $ | (7,420 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,420 | ) | $ | (8,086 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (8,086 | ) | ||||||||||||||
Dividends paid-intercompany | — | (3,666 | ) | — | — | (160 | ) | 3,826 | — | — | — | (1,868 | ) | — | (4,900 | ) | (1,500 | ) | 3,368 | 4,900 | — | |||||||||||||||||||||||||||||
Issuance of common stock | 1,210 | — | — | — | — | — | — | 1,210 | 1,007 | — | — | — | — | — | — | 1,007 | ||||||||||||||||||||||||||||||||||
Redemption or retirement of preferred stock | (125 | ) | — | — | — | — | — | — | (125 | ) | (800 | ) | — | — | — | — | — | — | (800 | ) | ||||||||||||||||||||||||||||||
Treasury stock acquired | (6,000 | ) | — | — | — | — | — | — | (6,000 | ) | (663 | ) | — | — | — | — | — | — | (663 | ) | ||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 12,161 | (8,485 | ) | 10,708 | (1,090 | ) | (658 | ) | 27,288 | 1,090 | 41,014 | 23,674 | (1,127 | ) | 15,580 | 434 | 1,064 | 477 | (434 | ) | 39,668 | |||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net | — | 4,968 | — | 3,232 | (7,779 | ) | 2,811 | (3,232 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | (399 | ) | 6,360 | 1,319 | 7,701 | (8,101 | ) | 821 | (7,701 | ) | — | |||||||||||||||||||||||||||||||||||||||
Change in deposits | — | — | — | (1 | ) | — | 78,440 | 1 | 78,440 | — | — | — | — | — | 84,523 | — | 84,523 | |||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | — | (1,062 | ) | 670 | (1,520 | ) | (2,368 | ) | 6,331 | 1,520 | 3,571 | 5,412 | 12,706 | 9,187 | (1,200 | ) | (807 | ) | 36,565 | 1,200 | 63,063 | |||||||||||||||||||||||||||||
Net change in short-term borrowings and other advances—intercompany | 3,877 | 8,789 | 8,967 | 1,507 | 11,273 | (32,906 | ) | (1,507 | ) | — | (1,391 | ) | 30,562 | 15,370 | 747 | 16,166 | (60,707 | ) | (747 | ) | — | |||||||||||||||||||||||||||||
Capital contributions from parent | — | — | 750 | — | 301 | (1,051 | ) | — | — | — | — | 375 | — | — | (375 | ) | — | — | ||||||||||||||||||||||||||||||||
Other financing activities | (659 | ) | — | — | 270 | 2 | (31 | ) | (270 | ) | (688 | ) | (926 | ) | — | — | (1 | ) | — | — | 1 | (926 | ) | |||||||||||||||||||||||||||
Net cash provided by financing activities | $ | 3,044 | $ | 544 | $ | 21,095 | $ | 2,398 | $ | 611 | $ | 84,708 | $ | (2,398 | ) | $ | 110,002 | $ | 17,828 | $ | 46,633 | $ | 41,831 | $ | 2,781 | $ | 6,822 | $ | 64,672 | $ | (2,781 | ) | $ | 177,786 | ||||||||||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 375 | $ | — | $ | 375 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 810 | $ | — | $ | 810 | ||||||||||||||||||
Net (decrease)/increase in cash and due from banks | $ | (161 | ) | $ | 455 | $ | — | $ | (343 | ) | $ | (432 | ) | $ | (951 | ) | $ | 343 | $ | (1,089 | ) | |||||||||||||||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 14 | $ | 1,639 | $ | 52 | $ | (9 | ) | $ | (5 | ) | $ | 10,012 | $ | 9 | $ | 11,712 | ||||||||||||||||||||||||||||||||
Cash and due from banks at beginning of period | 300 | 3,913 | 1 | 687 | 876 | 18,542 | (687 | ) | 23,632 | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | ||||||||||||||||||||||||||||||||
Cash and due from banks at end of period from continuing operations | $ | 139 | $ | 4,368 | $ | 1 | $ | 344 | $ | 444 | $ | 17,591 | $ | (344 | ) | $ | 22,543 | $ | 35 | $ | 6,060 | $ | 52 | $ | 379 | $ | 498 | $ | 31,581 | $ | (379 | ) | $ | 38,226 | ||||||||||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash paid during the year for: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | $ | (690 | ) | $ | 1,489 | $ | 29 | $ | 483 | $ | 64 | $ | 4,495 | $ | (483 | ) | $ | 5,387 | $ | (1,733 | ) | $ | 366 | $ | (10 | ) | $ | 558 | $ | 45 | $ | 5,955 | $ | (558 | ) | $ | 4,623 | |||||||||||||
Interest | $ | 4,009 | $ | 15,069 | $ | 2,027 | $ | 138 | $ | 369 | $ | 15,761 | $ | (138 | ) | 37,235 | $ | 5,058 | $ | 22,397 | $ | 4,848 | $ | 1,876 | $ | 324 | $ | 20,531 | $ | (1,876 | ) | $ | 53,158 | |||||||||||||||||
Non-cash investing activities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 779 | $ | 799 | $ | 218 | $ | (779 | ) | $ | 1,017 | $ | — | $ | — | $ | — | $ | 857 | $ | 880 | $ | 659 | $ | (857 | ) | $ | 1,539 | ||||||||||||||||
Reclassified to conform to the current period's presentation.
Condensed Consolidating Statements of Cash Flows
| Nine Months Ended September 30, 2005 | Nine Months Ended September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities of continuing operations | $ | 12,381 | $ | (12,999 | ) | $ | 161 | $ | 2,448 | $ | 3,718 | $ | 156,852 | $ | (2,448 | ) | $ | 160,113 | $ | 9,449 | $ | (66 | ) | $ | (153 | ) | $ | 4,128 | $ | 4,524 | $ | 23,887 | $ | (4,128 | ) | $ | 37,641 | |||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in loans | $ | — | $ | 31 | — | $ | (2,153 | ) | $ | (1,678 | ) | $ | (188,840 | ) | $ | 2,153 | $ | (190,487 | ) | $ | — | $ | 31 | $ | — | $ | (4,122 | ) | $ | (4,443 | ) | $ | (252,687 | ) | $ | 4,122 | $ | (257,099 | ) | |||||||||||
Proceeds from sales and securitizations of loans | — | — | — | — | 493 | 22,947 | — | 23,440 | — | — | — | — | — | 180,427 | — | 180,427 | ||||||||||||||||||||||||||||||||||
Purchases of investments | (8,802 | ) | — | — | (6,390 | ) | (7,658 | ) | (135,602 | ) | 6,390 | (152,062 | ) | (13,499 | ) | — | — | (4,147 | ) | (5,523 | ) | (193,464 | ) | 4,147 | (212,486 | ) | ||||||||||||||||||||||||
Proceeds from sales of investments | 6,716 | — | — | 4,994 | 5,343 | 57,262 | (4,994 | ) | 69,321 | 3,543 | — | — | 636 | 1,076 | 49,121 | (636 | ) | 53,740 | ||||||||||||||||||||||||||||||||
Proceeds from maturities of investments | 2,900 | — | — | 1,349 | 2,234 | 68,589 | (1,349 | ) | 73,723 | 8,173 | — | — | 3,378 | 4,331 | 77,659 | (3,378 | ) | 90,163 | ||||||||||||||||||||||||||||||||
Changes in investments and advances—intercompany | (6,320 | ) | — | (41,656 | ) | 86 | (1,744 | ) | 49,720 | (86 | ) | — | (11,008 | ) | — | (20,942 | ) | (2,614 | ) | (1,008 | ) | 32,958 | 2,614 | — | ||||||||||||||||||||||||||
Business acquisitions | — | — | — | — | — | (602 | ) | — | (602 | ) | — | (9 | ) | — | — | — | 9 | — | — | |||||||||||||||||||||||||||||||
Other investing activities | — | (3,876 | ) | — | — | — | 10,065 | — | 6,189 | — | (45 | ) | — | — | — | (3,836 | ) | �� | — | (3,881 | ) | |||||||||||||||||||||||||||||
Net cash used in investing activities | $ | (5,506 | ) | $ | (3,845 | ) | $ | (41,656 | ) | $ | (2,114 | ) | $ | (3,010 | ) | $ | (116,461 | ) | $ | 2,114 | $ | (170,478 | ) | $ | (12,791 | ) | $ | (23 | ) | $ | (20,942 | ) | $ | (6,869 | ) | $ | (5,567 | ) | $ | (109,813 | ) | $ | 6,869 | $ | (149,136 | ) | ||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | $ | (6,943 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (6,943 | ) | $ | (7,420 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,420 | ) | ||||||||||||||
Dividends paid-intercompany | — | (1,197 | ) | — | — | — | 1,197 | — | — | — | (3,666 | ) | — | — | (160 | ) | 3,826 | — | — | |||||||||||||||||||||||||||||||
Issuance of common stock | 895 | — | — | — | — | — | — | 895 | 1,210 | — | — | — | — | — | — | 1,210 | ||||||||||||||||||||||||||||||||||
Redemption or retirement of preferred stock | (125 | ) | — | — | — | — | — | — | (125 | ) | ||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | (8,371 | ) | — | — | — | — | — | — | (8,371 | ) | (6,000 | ) | — | — | — | — | — | — | (6,000 | ) | ||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-third party, net | 7,913 | (2,341 | ) | 4,116 | (733 | ) | (3,180 | ) | 5,529 | 733 | 12,037 | |||||||||||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt debt-intercompany, net | — | 930 | — | 3,724 | (411 | ) | (519 | ) | (3,724 | ) | — | |||||||||||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 12,884 | (8,485 | ) | 10,708 | (1,090 | ) | (658 | ) | 26,565 | 1,090 | 41,014 | |||||||||||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net | 1,104 | 4,968 | — | 3,232 | (7,779 | ) | 1,707 | (3,232 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Change in deposits | — | — | — | — | — | 16,321 | — | 16,321 | — | — | — | (1 | ) | — | 78,440 | 1 | 78,440 | |||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third party | (1,057 | ) | (11,971 | ) | 24,691 | (20 | ) | 76 | (10,282 | ) | 20 | 1,457 | ||||||||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (2 | ) | (1,062 | ) | 670 | (1,520 | ) | (2,368 | ) | 6,333 | 1,520 | 3,571 | ||||||||||||||||||||||||||||||||||||||
Net change in short-term borrowings and other advances—intercompany | 1,533 | 30,872 | 12,614 | (3,205 | ) | 2,899 | (47,918 | ) | 3,205 | — | 2,139 | 8,789 | 8,967 | 1,507 | 11,273 | (31,168 | ) | (1,507 | ) | — | ||||||||||||||||||||||||||||||
Capital contributions from parent | - | 1,000 | 75 | — | 175 | (1,250 | ) | — | — | — | — | 750 | — | 301 | (1,051 | ) | — | — | ||||||||||||||||||||||||||||||||
Other financing activities | (627 | ) | — | — | 185 | 4 | (7 | ) | (185 | ) | (630 | ) | (659 | ) | — | — | 270 | 2 | (2 | ) | (270 | ) | (659 | ) | ||||||||||||||||||||||||||
Net cash (used in) provided by financing activities | $ | (6,657 | ) | $ | 17,293 | $ | 41,496 | $ | (49 | ) | $ | (437 | ) | $ | (36,929 | ) | $ | 49 | $ | 14,766 | ||||||||||||||||||||||||||||||
Net cash provided by financing activities | $ | 3,131 | $ | 544 | $ | 21,095 | $ | 2,398 | $ | 611 | $ | 84,650 | $ | (2,398 | ) | $ | 110,031 | |||||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (346 | ) | $ | — | $ | (346 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 375 | — | $ | 375 | |||||||||||||||||
Net increase in cash and due from banks | $ | 218 | $ | 449 | $ | 1 | $ | 285 | $ | 271 | $ | 3,116 | $ | (285 | ) | $ | 4,055 | |||||||||||||||||||||||||||||||||
Net (decrease)/increase in cash and due from banks | $ | (211 | ) | $ | 455 | $ | — | $ | (343 | ) | $ | (432 | ) | $ | (901 | ) | $ | 343 | $ | (1,089 | ) | |||||||||||||||||||||||||||||
Cash and due from banks at beginning of period | 28 | 3,233 | — | 401 | 584 | 16,768 | (401 | ) | 20,613 | 247 | 3,913 | 1 | 687 | 876 | 18,595 | $ | (687 | ) | 23,632 | |||||||||||||||||||||||||||||||
Cash and due from banks at end of period from continuing operations | $ | 246 | $ | 3,682 | $ | 1 | $ | 686 | $ | 855 | $ | 19,884 | $ | (686 | ) | $ | 24,668 | $ | 36 | $ | 4,368 | $ | 1 | $ | 344 | $ | 444 | $ | 17,694 | $ | (344 | ) | $ | 22,543 | ||||||||||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash paid during the year for: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | $ | (160 | ) | $ | 426 | $ | — | $ | 546 | $ | 87 | $ | 5,899 | $ | (546 | ) | $ | 6,252 | $ | (690 | ) | $ | 1,489 | $ | 29 | $ | 483 | $ | 64 | $ | 4,495 | $ | (483 | ) | $ | 5,387 | ||||||||||||||
Interest | $ | 2,850 | $ | 8,981 | $ | 199 | $ | 160 | $ | 329 | $ | 10,698 | $ | (160 | ) | $ | 23,057 | $ | 4,009 | $ | 15,069 | $ | 2,027 | $ | 138 | $ | 369 | $ | 15,761 | $ | (138 | ) | 37,235 | |||||||||||||||||
Non-cash investing activities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 741 | $ | 764 | $ | 172 | $ | (741 | ) | $ | 936 | $ | — | $ | — | $ | — | $ | 779 | $ | 799 | $ | 218 | $ | (779 | ) | $ | 1,017 | ||||||||||||||||
21. Fourth Quarter 2007 Subsequent Event
Sub-prime Related Exposure inSecurities and Banking
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).
These declines in the fair value of Citi's sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime U.S. mortgage related assets and other market developments, which occurred after the end of the third quarter. The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
Citi's approximately $11.7 billion of sub-prime related exposures in the lending and structuring business as of September��30, 2007 compares to approximately $13 billion of sub-prime related exposures in the lending and structuring business at the end of the second quarter and approximately $24 billion at the beginning of the year. The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments referred to above, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions.
Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005,2006, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20062007 and June 30, 2006.2007.
Enron Corp.
In light of On August 27, 2007, the settlement of the securities class action (NEWBY, ET AL. V. ENRON CORP., ET AL.), the plaintiffs have agreed to dismiss the following lawsuits against Citigroup: CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM V. BANC OF AMERICA SECURITIES LLC, ET AL.; HEADWATERS CAPITAL LLC V. LAY ET AL.; and VARIABLE ANNUITY LIFE INS. CO. V. CREDIT SUISSE FIRST BOSTON CORP., ET AL. Plaintiffs in two other cases, which are not part of the NEWBY class, have also voluntarily dismissed their claims against Citigroup: STEINER V. ENRON CORP., ET AL. and TOWN OF NEW HARTFORD V. LAY, ET AL.
WorldCom, Inc.
On September 11, 2006, Citigroup settled HOLTSBERG V. CITIGROUP, ET AL. and 25 related cases pending in Palm Beach Circuit Court brought by individuals who opted out of the WorldCom securities class action settlement. The settlement was covered by existing reserves.
On October 13, 2006, the United States District Court for the Southern District of New York dismissed with prejudicein IN RE ENRON CORP. reversed the claims in HOLMES, ET AL. V. GRUBMAN, ET AL., an action brought by an individual and entities who opted outrulings of the WorldCom securities class action settlement.federal bankruptcy court that certain bankruptcy claims held by Citigroup transferees could be equitably subordinated or disallowed solely because of the alleged misconduct of Citigroup, and remanded for further proceedings.
ResearchParmalat
On August 17, 2006,8, 2007, the United States District Court forParma prosecutors completed their preliminary investigation and accused 13 Citigroup employees of criminal bankruptcy offenses under Italian law, arising out of the Southern Districtcollapse of New York approved Citigroup's class action settlement of IN RE SALOMON ANALYST AT&T LITIGATION, and on September 29, 2006 that same court approved Citigroup's class action settlements in IN RE SALOMON ANALYST LEVEL 3 LITIGATION, IN RE SALOMON ANALYST XO LITIGATION, and IN RE SALOMON ANALYST WILLIAMS LITIGATION.Parmalat.
On September 14, 2006, Citigroup settled all claims asserted against the company by claimants in STURM, ET AL. v. CITIGROUP, ET AL. The settlement was covered by existing reserves.
On October 6, 2006,2, 2007, the United States Court of Appeals granted interlocutory review of the district court's decision certifying a plaintiff classNew Jersey trial court in IN RE SALOMON ANALYST METROMEDIA LITIGATION.
Parmalat
In BONDI v. CITIGROUP on September 19, 2006, the New Jersey Supreme Court denied defendants' motion for leave to appeal from the Appellate Division's affirmance of the trial court's denial of defendants'Citigroup's renewed motion to dismiss.dismiss the complaint forforum non conveniens and set a trial date of May 5, 2008.
Adelphia Communications CorporationIPO Securities Litigation
Defendant banksOn August 14, 2007, plaintiffs filed amended complaints in IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION, including the Citigroup Parties, have entered into settlement agreements withsix focus cases as well as amended master allegations for all cases in the Los Angeles County Employees Retirement Association and with The Division of Investment ofcoordinated proceedings. On September 27, 2007, plaintiffs filed a motion to certify new classes in the New Jersey Department of Treasury. The Citigroup Parties' share of the settlement was covered by existing reserves.
Other
In CARROLL v. WEILL, ET AL., in September 2006, the New York Supreme Court scheduled a fairness hearing on the proposed settlement for December 14, 2006.six focus cases.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
September 20, 2006,August 2, 2007, the Company issued to GSB Investments Corp., a Delaware corporation (GSB Investments), and Hunter's Glen/Ford, Ltd., a limited partnership organized under the laws of the State of Texas (HG/F), respectively, 23,352446,734 and 5,838111,683 shares of Company common stock. These shares were issued in satisfaction of the rights of GSB Investments and HG/F to receive shares of Company common stock in respect of $1,433,903$28,971,804 of federal income tax benefits realized by the Company.
In addition, on August 23, 2007, the Company issued to GSB Investments and HG/F, respectively, 9,974 and 2,493 shares of Company common stock. These shares were issued in satisfaction of the rights of GSB Investments and HG/F to receive shares of Company common stock in respect of $587,342 of federal income tax benefits realized by the Company.
The September 20, 2006 issuance wasBoth the August 2, 2007 and the August 23, 2007 issuances were made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(2) thereof. GSB Investments and HG/F made certain representations to the Company as to investment intent and that they possessed a sufficient level of financial sophistication. The unregistered shares are subject to restrictions on transfer absent registration under or in compliance with the Securities Act of 1933.
Under its long-standing repurchase program, (which was expanded by $10 billion in the 2006 second quarter as noted below), the Company buys back common shares in the market or otherwise from time to time. The share repurchases areprogram is used for many purposes, including to offset dilution from stock-based compensation programs.
The following table summarizes the Company's share repurchases during the first nine months of 2006:2007:
In millions, except per share amounts | Total Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||
---|---|---|---|---|---|---|---|---|---|
First quarter 2006 | |||||||||
Open market repurchases(1) | 42.9 | $ | 46.58 | $ | 2,412 | ||||
Employee transactions(2) | 8.7 | $ | 46.40 | N/A | |||||
Total first quarter 2006 | 51.6 | $ | 46.55 | $ | 2,412 | ||||
Second quarter 2006 | |||||||||
Open market repurchases(1) | 40.8 | $ | 48.98 | $ | 10,412 | ||||
Employee transactions | 2.8 | $ | 49.71 | N/A | |||||
Total second quarter 2006 | 43.6 | $ | 49.02 | $ | 10,412 | ||||
July 2006 | |||||||||
Open market repurchases | 4.8 | $ | 47.44 | $ | 10,184 | ||||
Employee transactions | 0.9 | $ | 48.48 | N/A | |||||
August 2006 | |||||||||
Open market repurchases | 15.8 | $ | 48.66 | $ | 9,415 | ||||
Employee transactions | 0.3 | $ | 48.51 | N/A | |||||
September 2006 | |||||||||
Open market repurchases | 20.3 | $ | 49.43 | $ | 8,412 | ||||
Employee transactions | 0.3 | $ | 49.68 | N/A | |||||
Third quarter 2006 | |||||||||
Open market repurchases | 40.9 | $ | 48.90 | $ | 8,412 | ||||
Employee transactions | 1.5 | $ | 48.75 | N/A | |||||
Total third quarter 2006 | 42.4 | $ | 48.89 | $ | 8,412 | ||||
Year-to-date 2006 | |||||||||
Open market repurchases | 124.6 | $ | 48.12 | $ | 8,412 | ||||
Employee transactions | 13.0 | $ | 47.39 | N/A | |||||
Total year-to-date 2006 | 137.6 | $ | 48.06 | $ | 8,412 | ||||
In millions, except per share amounts | Total Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||
---|---|---|---|---|---|---|---|---|---|
First Quarter 2007 | |||||||||
Open market repurchases(1) | 12.1 | $ | 53.37 | $ | 6,767 | ||||
Employee transactions(2) | 8.1 | $ | 54.55 | N/A | |||||
Total First Quarter 2007 | 20.2 | $ | 53.85 | $ | 6,767 | ||||
Second Quarter 2007 | |||||||||
Open market repurchases(3) | 0.1 | $ | 51.42 | $ | 6,759 | ||||
Employee transactions | 1.3 | $ | 53.43 | N/A | |||||
Total Second Quarter 2007 | 1.4 | $ | 53.20 | $ | 6,759 | ||||
July 2007 | |||||||||
Open market repurchases(3) | — | — | $ | 6,759 | |||||
Employee transactions | 2.2 | $ | 52.04 | N/A | |||||
August 2007 | |||||||||
Open market repurchases(3) | 0.2 | $ | 46.83 | $ | 6,749 | ||||
Employee transactions | 0.3 | $ | 49.97 | N/A | |||||
September 2007 | |||||||||
Open market repurchases(3) | — | — | $ | 6,749 | |||||
Employee transactions | 0.1 | $ | 48.84 | N/A | |||||
Third Quarter 2007 | |||||||||
Open market repurchases(3) | 0.2 | $ | 46.95 | $ | 6,749 | ||||
Employee transactions | 2.6 | $ | 51.69 | N/A | |||||
Total Third Quarter 2007 | 2.8 | $ | 51.34 | $ | 6,749 | ||||
Year-to-date 2007 | |||||||||
Open market repurchases | 12.4 | $ | 53.24 | $ | 6,749 | ||||
Employee transactions | 12.0 | $ | 53.82 | N/A | |||||
Total year-to-date 2007 | 24.4 | $ | 53.52 | $ | 6,749 | ||||
N/A Not applicable
Item 6. Exhibits
See Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 3rd5th day of November, 2006.2007.
CITIGROUP INC. (Registrant) | ||||
By | /s/ Chief Financial Officer (Principal Financial Officer) | |||
By | /s/ JOHN C. GERSPACH John C. Gerspach Controller and Chief Accounting Officer (Principal Accounting Officer) |
Exhibit Number | Description of Exhibit | |
---|---|---|
3.01.1 | Restated Certificate of Incorporation of Citigroup Inc. (the Company), incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-3 filed December 15, 1998 (No. 333-68949). | |
3.01.2 | Certificate of Designation of 5.321% Cumulative Preferred Stock, Series YY, of the Company, incorporated by reference to Exhibit 4.45 to Amendment No. 1 to the Company's Registration Statement on Form S-3 filed January 22, 1999 (No. 333-68949). | |
3.01.3 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2000, incorporated by reference to Exhibit 3.01.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. | |
3.01.4 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 17, 2001, incorporated by reference to Exhibit 3.01.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (File No. | |
3.01.5 | Certificate of Designation of 6.767% Cumulative Preferred Stock, Series YYY, of the Company, incorporated by reference to Exhibit 3.01.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File | |
3.01.6 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2006, incorporated by reference to Exhibit 3.01.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006 (File No. 1-9924). | |
3.02 | By-Laws of the Company, as amended, effective | |
10.01 | + | |
10.02 | + | Form of Citigroup |
10.03 | + | Form of Citigroup Reload Stock Option Grant Notification (effective November 1, |
10.04 | Share Exchange Agreement, dated as of October 31, 2007, between Citigroup Japan Holdings Ltd. and Nikko Cordial Corporation, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form | |
12.01 | + | Calculation of Ratio of Income to Fixed Charges. |
12.02 | + | Calculation of Ratio of Income to Fixed Charges (including preferred stock dividends). |
31.01 | + | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.02 | + | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.01 | + | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
99.01 | + | Residual Value Obligation Certificate. |
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.